Eton Pharmaceuticals, Inc. Q4 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to the Eton Pharmaceuticals, Inc. Investor Day and Fourth Quarter 2024 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, David Krempa, Chief Business Officer.

Hello, everyone, and welcome to Eton Pharmaceuticals, Inc.'s fourth quarter 2024 results and 2025 investor day conference call. Before we begin the presentation, please take a look at our Safe Harbor statement. Our comments today may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those presented. Please see the forward-looking statements disclaimer in our earnings release and the risk factors in the company's filings with the SEC. With that, I will now turn the call over to Sean Brynjelsen, our CEO, to begin the presentation.

Thank you, David, and thank you everyone for joining us today. It's an exciting time for us to be hosting this call and we have a lot of important items to discuss. We'll begin by reviewing our transformational last six months, our corporate vision, and our three-pillar strategy for long-term growth. And James will discuss our fourth quarter and full year 2024 financial results. After that, we will provide a deep dive into the significant potential we see with the recently closed Acrolex acquisition. Next, we will cover the outlook for our adrenal insufficiency franchise, I'll tell you about our latest acquisition, Galzum, and the untapped opportunity we see within Wilson Disease. Then discuss our recently announced AT600 clinical results and upcoming planned NDA submission, as well as the update on the rest of the pipeline including two new products that we are exposing for the very first time. We'll wrap up with James discussing our financial outlook for 2025 and beyond, and then we will open up for Q&A. Today, you will not only hear from me, but also the rest of our executive team. James Gruber, our Chief Financial Officer, David Krempa, our Chief Business Officer, and also Ipek Erwan, our Chief Commercial Officer. Okay. Let's get started. Our vision is clear. We want to build a large leading ultra-rare disease company that brings as many new treatments to patients as possible. We intend to do that by putting patients first. Eton Pharmaceuticals, Inc. operates on the philosophy that every patient that wants and needs their products will get it regardless of insurance status or access barriers. I believe we have one of the most generous, high-touch patient assistance programs in the industry. This goes beyond just zero-dollar copays. It includes free drug programs for under or uninsured patients and pre-bridge shipments while reimbursement paperwork is being processed. Our laser-sharp focus is on the rarest of conditions which is an area where we think we can have the greatest impact on patients. All conditions our products target currently have fewer than ten thousand patients in the United States and some have even fewer than one thousand. Many of these patient populations have been overlooked by big pharma for years because of the smaller size of these opportunities. We are determined to fill these gaps. I take pride in being able to fulfill an unmet need and deliver new treatment options to these patients that have been overlooked for far too long. And we want to solidify that commitment as many times as possible. Eton Pharmaceuticals, Inc. is not a single product company. We now have seven treatments on the market, and we intend to continue growing that number bringing in as many new therapies to market as possible which allows us to make the greatest impact for patients...

Thank you, Sean. I am pleased to share that the fourth quarter was another record quarter for Eton Pharmaceuticals, Inc. representing our sixteenth straight quarter of sequential product sales growth. Revenue was $11.6 million all from product sales, representing a year-over-year increase of 59%. These strong results were driven primarily by the continued robust growth of both cargumic acid and alkene sprinkle. The Increlex acquisition closed on December 19th and contributed less than $200,000 of revenue to the quarter. And the Galzum acquisition closed on December 31st, so our new products did not have a material impact on Q4 revenue. Gross profit increased by 78% year over year including the negative impact of stepped-up inventory values and increased IP amortization reported in the cost of goods sold. SG&A expense increased to $6.7 million in the quarter which included some one-time transaction costs related to the Increlex product acquisition. In addition, investments in additional headcount and commercial infrastructure were made in the fourth quarter to support our three expected product launches in 2025. R&D expense for the quarter was a negative $900,000 as we were granted an orphan drug designation for ET400, which resulted in a refund of the NDA submission fee which we had paid and expensed in the second quarter of 2024. Operating income was a positive $600,000 in the quarter. Our full fourth-quarter results are available in our earnings press release that was issued this morning and for detailed full-year 2024 results and disclosures, please see the company's Form 10-K which was filed with the SEC earlier today. I'll now hand it over to our Chief Commercial Officer, Ipek Erwan, to discuss our recent acquisition of Increlex.

Thank you, James. When I joined Eton Pharmaceuticals, Inc. nearly four months ago, one of my key imperatives was the integration and relaunch of Increlex, which we closed in late December. We found Increlex to be a uniquely compelling opportunity for Eton Pharmaceuticals, Inc. One, we are incredibly excited to add to our portfolio for three key reasons. One, its attractive therapy characteristics. Increlex is used to treat pediatric patients two years of age and older who suffer from severe primary insulin-like growth factor one deficiency. Or SPIGFD. It is estimated that approximately two hundred children in the United States suffer from SPIGFD. We recently met with the mother of a former Increlex patient, now a college-age young lady. This mom still remembers to this date how Increlex made a difference for her daughter over several years of therapy. She shared how on her last day of injection, her daughter was in bittersweet tears because Increlex became such a big part of who she was. Her identity and her daily routine. And now her journey was over, with her reaching her goals. This therapy truly serves a critical unmet need that is recognized both by healthcare professionals, patients, and caregivers. There are no other treatment alternatives for these patients. Increlex is also a complex biologic product, which makes it a highly durable asset. Given the relatively small size of the patient population, we believe it will be extremely unlikely to ever see a biosimilar competitor. The second reason that made such a compelling opportunity for us was its strategic and close fit with our commercial infrastructure and go-to-market competencies. As Sean mentioned, we have spent the last four years building up strong relationships with the pediatric endocrinology community through our efforts in commercializing Alcindi Sprinkles. We built a high-performing rare disease sales organization that was already calling on ninety-four percent of the Increlex prescriber targets. This team is now one hundred percent dedicated to pediatric endocrinology. We have developed deep partnerships with key professional societies and patient advocacy groups. We have strong omnichannel marketing capabilities in place to complement our field sales team. Increlex offered such an attractive opportunity to leverage all of these commercial competencies. Finally, in all our acquisitions, we want to be greatly confident that we can add significant value to the product and unlock growth. Beyond just incremental. With Increlex, we believe we have multiple avenues to do that...

Thank you, Ipek. As Ipek mentioned, we see a tremendous opportunity in harmonizing the US and European labels. While Increlex is approved for severe primary IGF one deficiency in both regions, the definition of what constitutes severe primary IGF one deficiency is different between the two regions. In both regions, there are two criteria that must be met. The first of which is based on height. In both regions, patients need a standard deviation score of less than or equal to negative three. The second criteria is based on a measurement of each patient's IGF levels. In the US, a patient must be at least three standard deviations below the median IGF level. In the EU, patients must be in the bottom two and a half percentile for their age and gender. You convert the two and a half percentile to a standard deviation score, it's approximately negative two. As you can imagine, a requirement of only negative two standard deviations rather than negative three results in a significantly greater patient population. Based on the current definitions, it's estimated that there are only two hundred patients in the US but more than a thousand in the EU. If the FDA were to adopt a broader definition, we estimate that the potential patient population in the US would expand from two hundred to approximately one thousand. We feel optimistic about the prospects for this realignment because we have compelling real-world data to show the safety and efficacy of Increlex within this slightly broader patient population. As part of a post-approval commitment tied to its 2007 approval, European regulators required Increlex's owner to maintain a patient registry tracking long-term safety and efficacy of patients taking the drug. The registry has now collected more than fifteen years of data from over three hundred fifty patients. We believe this data will allow us to provide compelling real-world evidence to convince the US FDA that Increlex is a critical effective and safe treatment for patients that meet the height index criteria and have IGF levels that fall between negative two and negative three on the standard deviation score. We are currently aggregating the patient registry data to support a meeting with the FDA to discuss this topic in the middle of 2025. Assuming we reach alignment with the FDA, we would aim to submit a supplemental filing in the second half of this year. We expect the supplement to receive a six-month review which could allow for an updated label in the first half of 2026. While we are optimistic about the prospects for this label harmonization, it's only one of our many growth levers for Increlex. And we expect that the product will deliver significant long-term growth with or without the label change. When we acquired the product, it was at about a ten or eleven million dollar run rate in the US. Based on our optimized price, and the new patients we've already added this year, we think starting in the second quarter of this year, the product will be operating at around a twenty million dollar revenue run rate in the US. Proud of this quick progress but as you've heard, think we've only captured about forty percent of the patient population in the US...

Thank you, David. Let's begin by taking a look at our non-GAAP gross margin percentage, which we expect to improve over time. Starting with the first quarter of 2025, Eton Pharmaceuticals, Inc. will begin reporting adjusted non-GAAP earnings results. This is intended to provide investors with a clear picture of the earning power of our business without certain non-cash or one-time expenses. Our gross profit adjustments will include items such as the reversal of acquired inventory stepped-up values which represent a significant non-cash expense and the amortization of intangible assets related to product acquisitions. Eton Pharmaceuticals, Inc.'s adjusted gross margin declined slightly from 2023 to 2024, as cargumic acid grew more than Alcindi Sprinkle and made up a larger portion of the company's revenue in 2024 compared to 2023. However, in 2025, we expect to see a significant improvement in adjusted gross margins. The expected addition of revenue from higher-margin products such as Increlex, Galzum, and soon to be ET400. Combined with the fact that lower-margin cargumic acid make up a smaller percentage of the company's overall revenue. Will result in a significant increase in the company's adjusted gross margin. We expect 2025 adjusted gross margins to increase throughout the year with the full-year number at approximately seventy percent...

Thank you, James. The past six months have been truly transformational, laying a strong foundation for accelerated growth. The fourth quarter marked a record high in product sales, and our sixteenth consecutive quarter of sequential growth. We see a clear path to reaching a hundred million in annual sales in the near term. In addition, we've added several exciting new products, including Increlex, which offers strategic alignment multiple growth levers to accelerate expansion, and it's already performing well during the first ninety days of launch. Not be happier on that particular launch. We're also excited about the huge leap for our adrenal insufficiency franchise. And with the relaunch of Galzum, this gives us the opportunity to unlock a vast opportunity beyond current usage within the Wilson disease space. Our pipeline is strong with the upcoming NDA submission for ET600 and the addition of Anglidia, as well as two other hydrocortisone pipeline candidates that potentially unlock a hundred and fifty million across hospital and retail markets. I'm proud that we've built such a strong portfolio of high-margin ultra-rare products while posting consistent revenue growth and keeping a focus on bottom-line profitability. But as much as we've accomplished, we're really only getting started in the process have never been brighter for Eton Pharmaceuticals, Inc. As we conclude today's presentation, I want to express my gratitude for your continued support and engagement. Your insights and questions are invaluable as we navigate our growth journey. Now let's open up the floor to some questions.

Thank you. Our first question comes from Chase Knickerbocker with Craig Hallum. You may proceed.

Good morning. Thanks for the comprehensive presentation here. A lot to kind of get through. I've got a lot of questions here. Maybe just to start, on Increlex, you know, if you look at that kind of chart that you guys gave as far as the patient numbers that were on, you know, in the early years of Ipsen's launch, it looks like they were adding, you know, forty, sixty patients a year, you know, in the first couple of years there. You've already added fourteen so far in the two or three months that you've had the product. I mean, Sean, how quickly do you think you can get back to a hundred and eighty-five? I mean, you've made a lot of progress already so far. Maybe just help us think about kind of the pace to get there.

I've been getting over a hundred patients this year. So very achievable. Help how much further we go over a hundred patients, that will be determined, but I'm optimistic that it won't take as long as we initially thought. The product launch has gone very well as we had indicated. Many physicians weren't aware that the product was on the market. They're actually very excited and there are a number of patients that could be using this product that haven't had it in the past they've been given growth hormone, for example, but that's not really what they needed. And I think doctors needed to hear from us, you know, when it's appropriate. You know, constant education, constant reminder of what, you know, the product can do and how it can benefit. So we are we feel very good about the transaction. And we feel really good about the uptake. Right now, it's no sign of slowing.

And so maybe just to understand that uptake, a little bit better, I mean, how often are these patients seeing their physicians? Is this something where when you reengage with physicians, they quickly, you know, identified the patients that, you know, may have been misdiagnosed? Or I guess, how are you able to add kind of twenty percent to the patient so quickly?

Hi, Chase. So I think in terms of the first part of your question, there is what we know from pediatric endocrinologists that we've been meeting with is they are seeing these patients every three to six months. So there's definitely now, it's been three months, so they are definitely going to be seen by their doctors, by their specialists. Because they are growing, if you look at the average age, these kids are definitely in a rapid growth stage of their lives. So we face the adjustments need to happen. So every this it's it's quite frequent visits that's, I have any.

Got it. Thanks. And Sean's phone. Good.

Yeah. So, Chase, I'm gonna turn this one over to David. He's done a lot of the analysis on it. I think he'd be the best person to answer that.

Mitch, Chase, there are significantly more patients on the product in Europe. Many multiples are coming in in the US. But it is still, you know, relatively low penetrated, and we think that's primarily due to the same general themes of the condition being underdiagnosed, undertreated. It's also not promoted in Europe. So they're facing the same issues. They have, I would say, a relatively similar penetration rate, just with about, you know, four or five times the number of patients.

Got it. And then on ET600, good to see a lot of detail there. You know, a similar opportunity to ET400 as far as the value proposition. I mean, what's the right way for us to think about penetration into those three thousand or so patients? You know, how many are on a compounded oral suspension today? Assume in that range that you mentioned from a twenty to fifty million in peak sales opportunity? And then can you give us a thought on pricing as far as kind of what you?

Sure. So the product would be the pricing, which will be higher than what we currently charge for Alcindi because the number of patients is lower. So what we try to do is benchmark against other rare disease and orphan drug products and make sure that the pricing reflects the number of patients. So the general theory that, you know, if you have fewer patients, like eighty patients, for example, pricing per product is gonna be much higher. But as an overall, we like to be at the lower end of working towards pricing. So with this product, I would imagine it would be a little bit higher than what we currently charge for Alcindi, which has five to ten thousand patients. This product has three thousand patients, and you know, we try to be fair and transparent across the board. Ultimately, our goal is to make sure all patients receive the product regardless. So patient accessibility is number one if you find anything. That's what we're about.

Any thoughts on penetration there, Sean? Or what you think is reasonable? How many patients are on the floor? It's.

Penetration is going to be significant. A lot of these patients are already taking various forms of crushed or dissolved suspension-type products. So I think the update is gonna be very quick. I think that RS were being, let's just say, conservative. But from what we've told, there's a lot of pent-up demand for the product. So if you're asking me about ramp rate, I won't give you that because it's, you know, Alcindi took a little time to ramp. We obviously think the oral solution's gonna ramp much faster than Alcindi ramp. But sometimes, but we have spent time with key opinion leaders in this area. And there aren't that many that treat diabetes and insipidus. So they all know of the product. They know it's coming. I would imagine that you're gonna see a very nice launch in short order. Hopefully, in the first quarter of next year.

Yeah. There will definitely be a bigger step up from 2024 to 2025 than when we look beyond 2025. You know, we started in Q4 of last year pretty heavy investment into selling marketing activity ahead of the three launches or relaunches in 2025. We split the sales force. We added those new five metabolic reps. So directionally, we're looking at probably the thirty to forty percent range in 2025. And then, you know, low double digits, even high single digits beyond 2025.

Hey, guys. Thanks for taking our question and thanks for the detailed update today. First on, Increlex, kind of wondering what are the gating factors to this Increlex US EU label unification.

Maybe that would be helpful. And you mentioned Ipsen had recorded fifteen years of post-marketing data. Could you kind of typical minimum FDA requirement to lay out what is to be awarded one of these notifications and then a follow-up. Thanks. Absent. Thanks for the question. In terms of gating factors, one piece for us is just aggregating the data. From fifteen years to registry, so we're in the process of doing that. And then we're gonna have an FDA meeting in the middle of this year to discuss it and share our findings with the FDA and have a discussion about what we wanna do and why we think we have very strong justification for it. I would say on the second part of your question, there's no clear framework of exactly what you need to get a legal authorization that's unique for every product. Especially in the ultra-rare disease products when you're talking patient populations. In the hundreds or up to a thousand, every case really is unique. So we're gonna have a discussion with the FDA, we're cautiously optimistic that they'll be receptive since we do have strong data to support it, and it's been used that way in Europe for twenty years now.

Understood. Thank you, Sean. And then secondly, wanted to ask about the ET400 round similar to the prior discussion. Just kind of asked in a different way. Maybe it's an expectation during those first three months post-approval it's a bit slower. And then in this kind of second three months, as patients go back to their routine visits, do we start to see almost a bolus type ramp or would it be more of a kind of steady state growth quarter to quarter? Thanks.

Hey, Tim. Why don't you comment on that?

Madison, that took the first three months, you're absolutely correct. Yeah, so I think there is definitely going to be a slow second half of slower ramp up in the second half of this year once we get the approval just because those patients are coming back and learning about the product, and then we are also educating the PH kind of knowledge. But after that, we definitely think that there is a pent-up demand here, so it's already fifty percent of the current parents today are using some sort of a liquid hydrocortisone. So there is definitely going to be edge more accelerated ramp up that we are expecting in the first half of 2026.

This concludes the conference. Thank you for your participation. You may now disconnect.