Earnings Call Transcript - ETON Q1 2024

Operator, Operator

Good afternoon, and welcome to the Eton Pharmaceuticals First Quarter 2024 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, Chief Business Officer at Eton Pharmaceuticals. Please proceed.

David Krempa, Chief Business Officer

Thank you, operator. Good afternoon, everyone, and welcome to Eton's First 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 emailed to us. Investors can send their questions to investorrelations@etonpharma.com. 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.

Sean Brynjelsen, CEO

Thank you, David. Good afternoon, everyone, and thank you for joining us today. After a strong finish to 2023, I am pleased to say we carry this momentum into 2024, delivering our 13th straight quarter of sequential product revenue growth. It has been a very productive start to 2024 for the company, and we have a number of exciting items to discuss today. In addition to posting record revenue sales in Q1, we also acquired a new commercial growth asset in PKU GOLIKE. We launched Nitisinone capsules and more importantly, Eton submitted our new drug application for ET-400. We were pleased to deliver another quarter of strong revenue growth and to do so while maintaining our disciplined cost structure. Revenues from product sales grew by more than 50% year-over-year to $8.0 million, while our SG&A spending actually declined by 4% year-over-year. As you can see, now that we have our infrastructure in place, there is significant operating leverage in our business. We believe we could support a revenue level many multiples over our current run rate, with only a modest increase in our SG&A spending. This should allow us to deliver substantial earnings as we scale our revenue towards our goal of being a $100 million plus revenue company in the coming years. Our record product sales in the quarter were driven primarily by strong growth in both Carglumic Acid and ALKINDI SPRINKLE. I remain very encouraged by the trajectory of our Carglumic Acid product as it continues to exceed our expectations. We believe we have now captured more than 50% of the patient population, but the product continues to grow, and we have added additional patients in Q1 and also additional ones in Q2. Carglumic is a part of our metabolic portfolio that expanded from 2 products to 4 products in the first quarter as we launched Nitisinone capsules and acquired PKU GOLIKE. As you may know, Nitisinone capsules launched in February, and we were able to add a number of patients before the end of the quarter. The market for Nitisinone is estimated to be around $50 million annually, but there are already a number of competitors in the market. So we have modest expectations for this product. We view the opportunity similarly to the way we view betaine; neither one offers a large revenue opportunity on its own but they require very little incremental expense to commercialize since we already have the metabolic infrastructure in place. Perhaps more importantly, the expanded portfolio helps us strengthen our relationship and increase the frequency of interactions with high-value Carglumic Acid prescribers. And now with our recent GOLIKE acquisition, Nitisinone and Betaine can help drive additional opportunities to cross-sell GOLIKE, which I will spend a few minutes talking about. I was very excited to close this acquisition in March, and I believe it adds a compelling growth asset to our metabolic portfolio. GOLIKE is a medical formula for patients with phenylketonuria, also known as PKU. PKU patients lack the enzyme needed to break down phenylalanine, an amino acid found in protein. For these patients, consuming protein results in the buildup of phenylalanine, which could cause neurological problems, including seizures and brain damage. As a result, many of these PKU patients must take specialized no or low-protein medical formulas, such as PKU GOLIKE. Just like our other metabolic products, GOLIKE is distributed by a specialty distributor that handles dispensing and patient support. The product is typically covered by insurance, and it is prescribed by healthcare professionals. I believe GOLIKE is a compelling opportunity, and I'm excited about it for a number of reasons. First, GOLIKE is a very strategic fit with our corporate strategy and commercial infrastructure. The product serves an ultra-orphan population of an estimated 8,000 PKU patients in the United States. These patients rely on medical formulas and the condition is managed by metabolic geneticists and their support staff, the same healthcare professionals that we are actively engaged with on our other metabolic products. Secondly, GOLIKE is an attractive product that we believe has significant advantages over the competition. Historically, PKU patients have relied on medical providers or medical powders that must be mixed and consumed multiple times each day as meal replacements. GOLIKE has a number of benefits. It comes in a convenient and ready-to-eat bar format. We believe it tastes significantly better and smells better than competitor products, and it utilizes patented delayed-release amino acid technology designed to keep patients full for longer periods of time. And finally, GOLIKE offered a compelling financial opportunity, we paid less than 2 times annual revenue for the product and expect to see significant revenue growth for years to come. GOLIKE granules were launched at the end of 2022 and GOLIKE Bars were launched in mid-2023. So the product is still in its infancy stages of launch. We believe our larger commercial footprint and existing relationships with the metabolic community can help accelerate the product's adoption. The U.S. market for PKU GOLIKE medical formula is estimated to be approximately $100 million annually. With GOLIKE's attractive product benefits and our commercial infrastructure, our goal is to capture at least 10% market share or $10 million annually in the coming years. Our sales team launched the product under Eton's ownership at the metabolic dieticians International conference in mid-April, and we received very strong interest and positive feedback from the dietitian community at the conference. This further reinforced our belief that GOLIKE provides an improved patient experience and should see significant growth in the years to come as we raise awareness and education in the community. Switching now to the endocrinology side of our business. ALKINDI SPRINKLE also posted record sales and significant growth in the quarter. As we discussed in our previous call, we recently introduced a sampling program and our commercial team has been very active at medical conferences so far this year, including exhibiting at the Pediatric Endocrine Society meeting last week. We have seen growth in new patient prescriptions so far, and most patients who try ALKINDI have a positive experience and remain on therapy. Eton does, however, continue to see patients that choose to discontinue treatment due to the texture of the granules. As ALKINDI continues to grow, we have a number of initiatives underway to lessen this discontinuation rate, including revamping our educational and administrative materials, but we also believe ET-400 will most adequately address this issue. In addition to reducing discontinuation, ET-400 will provide an important treatment alternative to the large contingent of patients that use a liquid product today. Whether it is a suspension formulation from a compounder that is not FDA approved or their own version that they make at home by crushing tablets and mixing them with water, or those who have been resistant to ALKINDI SPRINKLE because they want to stay with a liquid dosage form. We believe that this portion of the population, which could include several thousand patients, will be pleased with the accurate dosing in a liquid form that ET-400 will provide once it is approved. On our last call, I mentioned that we had passed our clinical study, which was the final hurdle in the submission of the ET-400 NDA. I am now thrilled to say that we submitted the NDA last week. We anticipate that the FDA will assign the application a 10-month review, allowing for potential approval during the first quarter of 2025. Our team has begun preparing launch activities to be in a position to efficiently and effectively commercialize the product shortly after approval. I remain confident that once approved, the commercialization of ET-400 will significantly accelerate the company's growth trajectory, and we believe that ET-400 and ALKINDI SPRINKLE will achieve combined peak sales of over $50 million annually. We also continue to make progress with ET-600, a product candidate under development for the treatment of diabetes insipidus. ET-600 is another new pediatric endocrinology product that we hope to launch soon after ET-400. The product passed the pilot bioequivalence study, and we are on track to run a pivotal study in the second half of this year. Our team expects to submit the NDA in early 2025 for potential approval near the end of 2025. I think it is clear that our 5 commercial products plus our attractive late-stage pipeline position us well for sustained long-term growth. That being said, we continue to look for business development opportunities that can propel us even further. Our business development team is currently focused on commercial, revenue-generating products. Our available capital positions us for a large value-creating acquisition. And given our current valuation and expected growth, we would intend to use primarily debt for any such acquisition. As an example of our capability in April, we were the second highest bidder in the bankruptcy auction for Eiger BioPharmaceuticals' Zokinvy product. Although we did not win, we swiftly arranged for committed capital in just a few days to support a $46 million bid. While our offer was competitive, we are not willing to overpay for any asset. Given our strong financial position, our potential for organic growth, and the expected benefits from ET-400 next year, we have the flexibility to remain very disciplined in our mergers and acquisitions strategy. While we would like to add a larger asset to our product portfolio, I am cautiously optimistic that we can accomplish this, but we certainly do not need to. Our existing portfolio and pipeline will enable us to achieve our profitability goals in the upcoming years. Now, I will hand it over to James, our Chief Financial Officer, to discuss the financials. James?

James Gruber, Chief Financial Officer

Thank you, Sean. Our first quarter revenue was $8.0 million compared to $5.3 million in the first quarter of 2023, an increase of 50%. In both periods, revenue was comprised entirely of product sales and royalties and the increase was primarily due to increased sales volume of our ALKINDI SPRINKLE and Carglumic Acid products. We expect product sales to continue to grow quarter-over-quarter throughout the rest of this year and beyond. Gross profit for the quarter was $5.0 million compared with $3.3 million in the prior year period. R&D expenses for the quarter were $0.7 million compared with $0.5 million in the prior year period, and the increase was primarily due to development activities related to ET-400. While we expect an increase in second quarter R&D expenses with a $2 million filing fee for ET-400, we expect total R&D spend for 2024 to remain at approximately $4 million, excluding the one-time filing fees. General and Administrative expenses for the quarter were $5.2 million compared with $5.3 million in the prior year period, with the decrease due to a slight reduction in employee-related expenses and logistics costs. We expect General and Administrative expenses to remain relatively constant throughout the remainder of 2024, even with the recent PKU GOLIKE acquisition and Nitisinone launch. Total company net loss was $0.8 million for the quarter compared to a net loss of $2.7 million in the prior year period. Net loss per basic and diluted share was $0.03 during the quarter compared to a net loss per basic and diluted share of $0.10 in the prior year period. Given our current expectations surrounding the timing of R&D activities, we expect to report positive quarterly net income by the end of this year. Eton finished the first quarter with $16.7 million of cash on hand and our operating cash burn during the quarter was $2.5 million. While we achieved positive operating cash flow in the second half of 2023, the first quarter of 2024 was impacted by a one-time milestone payment of $1.0 million related to 2023 ALKINDI SPRINKLE sales achievement, a payment of $0.5 million for inventory associated with the PKU GOLIKE product acquisition, and by the calendarization of marketing and promotion spend that is heavily weighted in the first half of the year. We remain confident that our continued sales growth and disciplined cost structure will result in positive operating cash flow throughout the remainder of 2024 and allow us to actively pursue new product opportunities. This concludes our remarks on first quarter results. And with that, I'll turn it over to the operator for Q&A.

Operator, Operator

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

Chase Knickerbocker, Analyst

I'm just going to kind of go product line by product line here. Maybe just to start on Carglumic, Sean. Where are we at in that product's life cycle? Do you think we can add a couple of handfuls of patients this year still? Or should we think about it as you kind of maintaining the patient volumes that you have, say, in Q1 kind of through this year?

Sean Brynjelsen, CEO

Well, Chase. There's still some runway apparently. We continue to add patients. We just added 3 more patients in the past week. Our estimate is there's up to 100 patients. We have a little more than half of that, and it continues to grow. We get a lot of new patients on, which actually tend to use that same product over an extended period of time. In terms of the product life, it's been a robust product for us, primarily due to the detailing the patient services, and we think all the wraparound services that we provide for patients.

Chase Knickerbocker, Analyst

Got it. And then maybe on the new one on GOLIKE, you're expecting quite a bit of growth there. You already know all of those physicians. How quickly do you think you can kind of get to that 10% penetration level from here? Is it 3 years? Is it 1 or 2 years? I mean, just kind of help us benchmark kind of how quickly you would expect that growth, considering you already know the 100 or so odd physicians.

Sean Brynjelsen, CEO

Yes. It's a bit challenging to predict, but we have around 50% of that. Let's say we aim for $10 million in peak sales, which would represent about 10% of the current market. We might actually surpass that depending on the speed of the growth. There are very few companies as well-positioned as we are to promote a PKU product. With that in mind, achieving $5 million in GOLIKE sales next year seems very feasible. It could be significantly higher, but I think that's a realistic expectation.

Chase Knickerbocker, Analyst

Got it. That's helpful. If we consider the ALKINDI and hydrocortisone portfolio before the ET-400 launch, you're seeing nice growth there still. Do you think there's potential to add another 100 patients from here before the ET-400 launch? Or could you help benchmark us on the growth in ALKINDI as we wait for ET-400?

Sean Brynjelsen, CEO

The issue with ALKINDI isn't about acquiring new prescriptions, as we receive a significant number of them. The problem arises when some patients discontinue the product due to the texture issue we've previously discussed. As a result, we experience a higher discontinuation rate compared to other pharmaceutical products. This can be addressed through education and collaboration with doctors and caregivers, which we are actively pursuing. Additionally, we are developing more educational materials to send to physicians' offices. This will help patients understand that there may be a texture challenge for children at first. I believe that achieving growth for the product on a quarter-over-quarter basis is attainable. Can we add another 100 patients? It's certainly an achievable goal, but it will largely depend on reducing the discontinuation rate, which is the main reason we developed ET-400 in the first place. We analyze why ALKINDI patients stop using the drug, and ET-400 addresses most of those issues right from the start. That's why we are really excited about the product. Now that it's been filed, we're already looking to produce and have product available even before the 10-month PDUFA date. ALKINDI numbers will continue to grow week after week. If we can reduce the discontinuations, we can add another 100 patients; if discontinuations remain at the same level, it will be a bit more challenging. However, it's a strong product, and we will continue to move forward.

Chase Knickerbocker, Analyst

Got it. Maybe shifting gears to ET-400, I have a couple more questions. Can you share your confidence regarding the CMC side of the submission since you've established the PK bridge? Are you working with a manufacturer that has recently passed some FDA audits related to recent approvals? Please discuss your confidence in your manufacturing partner.

Sean Brynjelsen, CEO

Sure. So the files are very similar to what we did with topiramate and zonisamide oral solutions. One of the manufacturers is the same as one of the products; I won't say which one. And so we're confident in their FDA readiness; they have already gone through that process and passed our quality inspections. So I don't feel the facility has really any risk around it. We feel good about the way the NDA submission has been put together. It's actually been put together at a higher level than what we did for topiramate and zonisamide, both of which are approved in commercial products today. So the process and the deliverables that we had in those files are exactly the same as what we have with ET-400. So I really don't see significant barriers to launching the product on time. And we'll obviously be very timely in any inquiries we'll get from the FDA and make sure that that process is going as smoothly as possible.

Chase Knickerbocker, Analyst

And then just last from me, Sean. This is really kind of a line extension with ET-400. You know all these physicians already. You'll obviously be targeting some of those discontinued patients that ET-400 is a great fit with; how quickly should investors be thinking that you can kind of drive scripts with ET-400 post-launch? Just kind of speak to your confidence on how quick that launch can be?

Sean Brynjelsen, CEO

Yes, absolutely. Our pleasure. So in terms of the ramp-up to what we stated, I think, in our press release and in our comments earlier today, our goal is to get $50 million plus in revenue between these two products. I feel that within a 12-month timeframe, we'll be well on our way. And I think that getting to that $50 million with the 24-months of launch is achievable. So that gives you some idea of how we're thinking on things. Of course, once you get out there, we just did, for example, a panel of doctors consisting of 8 to 10 doctors who specialize in treating adrenocortical insufficiency, and they could not be more excited about this product. They are some of the top prescribers in the nation. And so for us to have conversations and just sort of conduct marketing studies in advance to understand their needs is really important. We want to serve the patients, and we believe we've designed a product that will meet patient needs and be well received and prescribed by doctors.

Operator, Operator

All right. I'm showing no further questions at this time. This does conclude the question-and-answer session and the program. Thank you for your participation in today's conference. You may now disconnect.