Eton Pharmaceuticals, Inc. (NASDAQ:ETON) Q2 2023 Earnings Call Transcript August 10, 2023
Eton Pharmaceuticals, Inc. beats earnings expectations. Reported EPS is $0.15, expectations were $-0.09.
Operator: Good afternoon, and welcome to Eton Pharmaceuticals Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] 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 go ahead.
David Krempa: Thank you, operator. Good afternoon, everyone, and welcome to Eaton's second quarter 2023 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. You can send your questions to investorrelations@etonpharma.com. Before we begin, I would like to remind everyone that remarks made during today's 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: Thank you, David. Good afternoon, everyone, and thank you for joining us today. The second quarter was another exceptional quarter for Eton. We delivered record product sales of ALKINDI SPRINKLE and Carglumic Acid. We launched our third commercial product, Betaine Anhydrous, and we also recorded positive cash flow and net income. It was our 10th straight quarter of sequential product growth. As a result of this outperformance through the first half of this year, we are now increasing our revenue expectation for 2023. We expect total 2023 revenue of approximately $30 million. During the second quarter, total revenue was $12 million and net income was $4.6 million. Product sales and royalty revenue were $6.5 million for the quarter, up 176% from the second quarter of 2022 and up 22% sequentially from the first quarter of 2023.
With ALKINDI, our expanded sales force and our direct-to-consumer marketing campaign have continued to help increase engagement with the adrenal insufficiency community. We continue to have patients each week, and our goal is to reach 400 active patients by the end of the year. Even with this fast rate of growth and significant patient base, we are still in the very early stages of the ALKINDI growth story. With an estimated total pediatric adrenal insufficiency patient population of 10,000 patients, a very large percentage of the market has yet to convert. We believe ALKINDI SPRINKLE on its own should continue to convert a significant portion of this market in the coming months and years. However, our ET-400 product is expected to turbocharge this effort when it is launched.
ET-400 will be sold alongside ALKINDI SPRINKLE as a new liquid dosage form of hydrocortisone. Patients will choose to take either ALKINDI SPRINKLE or ET-400. ET-400's proprietary patent-pending formulation will address the texture issue that some young patients have reported with SPRINKLE. And in addition, it will help us convert the large portion of the patient population that is currently using unapproved compounded suspensions. We expect the combined peak sales of ET-400 and ALKINDI SPRINKLE to exceed $50 million annually. We plan to submit the NDA for ET-400 at the end of this year, which would allow for an approval and commercial launch in late 2024. Moving now to Carglumic Acid. Carglumic Acid has also had a very strong quarter, and the product revenue continues to benefit from our expanded sales force.
The product has continuously outperformed our own expectations, and we remain optimistic that the product will continue to grow nicely for the foreseeable future. We also launched Betaine Anhydrous in May, which shares the same prescriber base as Carglumic. The Betaine launch has increased our interactions with metabolic geneticists and help us gain access to some hard-to-reach Carglumic prescribers. The Betaine launch is progressing well. We are now three months into the launch and have seen significant adoption. We've heard positive feedback both for patients and prescribers that are very appreciative to be able to enroll in our Eton Cares patient support services. While Betaine is the smallest of our three current products, once ramped up, we expect it to contribute multiple millions of revenue annually with minimal incremental cost for resource usage.
Before we move on, let me address the recent CRL we received for dehydrated alcohol. The CRL is primarily related to chemistry manufacturing control items as well as some minor labeling comments. The good news is we do not see a need to conduct additional laboratory activities to address these comments. We intend to file a response over the coming months, and we think the FDA's issues are addressable. We are disappointed to not have the revenue from this product this year. However, the outperformance in our other products has more than made up for most of the alcohol revenue we were anticipating in 2023. We expect our existing product sales to allow us to reach the cash flow breakeven around the end of this year. During the quarter, we saw progress with the development of ET-600, which is another innovative product candidate that shares ALKINDI's user base.
Physicians have repeatedly expressed the need for this product, which will treat a rare pediatric endocrinology condition called diabetes insipidus. Registration batches have been successfully manufactured, so we expect to file the NDA in the middle of 2024. While our existing commercial products and pipeline are expected to provide us with a long runway of organic growth for many years to come, we continually and aggressively pursue acquisition opportunities to expand our rare disease portfolio even further. We are excited about the prospects for transactions in the coming quarters for three important reasons. First, our financial position has never been better. We finished the quarter with more than $21 million of cash, one of our highest levels ever.
And more importantly, perhaps, we expect to reach cash flow breakeven within the coming months. This means that nearly all of our cash balance is excess cash that can be put towards acquiring rare disease products. Secondly, we are seeing an increasing number of distressed sellers. Due to the challenging capital market environment, many of our peers are struggling to raise capital. As a result, many companies are no longer able to raise some money needed to commercialize assets. Many others are seeking to sell off products to raise capital or even filing for bankruptcy. We've already seen a number of attractive assets up for sale from distressed sellers, and we expect to see even more in the coming quarters. With the strong financial position, we believe we are very well positioned to take advantage of these types of opportunities.
And thirdly, with our expanded sales force, we now have an established commercial infrastructure and track record of successfully, commercially niche rare disease products, which makes us an attractive commercial partner. Industry peers have taken notice of our recent results, especially with Carglumic Acid's success, and we have seen an uptick in inbound interest from companies looking for Eton to commercialize their rare disease products. During the second quarter, we were the stalking horse bidder in a bankruptcy auction for two commercial rare disease products. They were on-market products generating a significant amount of annual revenue. We were ultimately outbid in this. However, even though we did not acquire the assets, we had lined up $50 million in fully committed capital to support our bid.
Given the extremely challenging environment for raising capital, I was proud of our ability to very quickly line up $50 million on attractive terms. Normally, this takes months, it took us a couple of weeks. I believe lenders were excited by our attractive near- and long-term financial outlook in our diversified portfolio. We believe we have a similar financial resources at our disposal today to pursue other large transactions involving commercial products. Since we were the stalking horse bidder in that process, we did receive an $800,000 breakup fee. While we would have been much happier if we won the auction, the breakup fee further strengthens our financial position will help us fund future acquisitions for us. Also this quarter, we monetized our remaining royalty interest in neurology oral liquid products we've previously out-licensed to Azurity.
In exchange for selling off our go-forward royalty interest, we received a $5.5 million payment in June. We believe we will be able to reinvest these proceeds into rare disease product opportunities that will yield much higher returns for the company. This transaction fully closes out all of Eaton's future income or liabilities related to those products. In total, during the life of those three products, we received more than $27.5 million in payments after investing approximately only $8 million into the portfolio. With another record quarter of product sales, a strong cash position of more than $21 million and an attractive pipeline, we believe we are well positioned to deliver sustainable long-term growth. I believe we are now able to reach our goal of achieving 10 rare disease products on market by the end of 2025.
I'm incredibly proud of our team for working so diligently to get us to where we are today and positioning us for a bright future going forward. It's an exciting time at Eton, and I can't wait to update you on our progress throughout the rest of the year. With that, I'll turn it over to James, our Chief Financial Officer, to discuss the financials. James?
James Gruber: Thank you, Sean. Our second quarter revenue was $12.0 million compared to $7.4 million in the second quarter of 2022 or a 63% increase, driven entirely by growth in product sales and royalties, specifically increased sales volume for ALKINDI SPRINKLE and Carglumic Acid. Licensing revenue was $5.5 million in the second quarter of 2023 compared to $5.0 million in the prior year period. Total revenue grew $6.7 million or 126% compared to the first quarter of 2023, and product sales and royalty revenue grew by $1.2 million. 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 $1.1 million compared with $0.7 million in the prior year period due primarily to a $0.5 million fee paid upon the successful manufacturing of registration batches of ET-600, the innovative product candidate we acquired last quarter.
We expect to see a slight increase in R&D spend in future quarters due to development activities related to both ET-400 and ET-600. General and administrative expenses for the quarter were $4.7 million compared with $5.3 million in the prior year period, due primarily to decreased FDA and legal fees associated with products sold to Dr. Reddy's in June of 2022. We expect expenses to continue to remain consistent throughout the rest of the year, and we still anticipate our full year G&A expense to be approximately $20 million. Total company net income was $4.6 million for the quarter compared to a net loss of $1.6 million in the prior year period. Net income per basic and diluted share during the quarter was $0.18 compared to a net loss per basic and diluted share of $0.06 in the prior year period.
Eton finished the second quarter with $21.6 million of cash on hand and generated $7.1 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 back over to the operator for Q&A.
