Eton Pharmaceuticals, Inc. (NASDAQ:ETON) Q3 2022 Earnings Conference Call November 10, 2022 4:30 PM ET
Company Participants
David Krempa – Senior Vice President, Business Development & Investor Relations
Sean Brynjelsen – Chief Executive Officer
James Gruber – Chief Financial Officer
Conference Call Participants
Operator
Good afternoon and welcome to the Eton Pharmaceuticals’ Third Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen only mode. Following the formal remarks, we will open the call out for your question. 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.
David Krempa
Thank you, operator. Good afternoon, everyone and welcome to Eton’s third 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; 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 investorrelations@etonpharma.com.
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 Chief Executive Officer, Sean Brynjelsen.
Sean Brynjelsen
Thanks, David. Good afternoon, everyone, and thank you for joining us to discuss Eton’s third quarter results. It was another strong quarter for the company, with total revenue up 315% compared to the prior year period.
Revenue from product sales and royalties continued to increase sequentially with a 37% jump from Q2, representing the seventh straight quarter of growth, driven primarily by ALKINDI SPRINKLE and carglumic acid.
Feedback from parents and physicians continues to be overwhelmingly positive about ALKINDI SPRINKLE, the first and only hydrocortisone treatment designed specifically to provide accurate dosing for newborns and children with adrenal insufficiency. The product addresses a huge unmet need for a low-dose option.
Third quarter sales of ALKINDI were up 19% over the second quarter, and we continue to see steady growth in prescriptions each month, coming from both new prescribers as well as existing prescribers who have added new patients after seeing positive results from their initial patients. We’re excited about the $100 million market opportunity and believe the product has a long runway to grow for many years to come.
The second product driving our Q3 revenue growth was carglumic acid. We continue to see a strong reception for the product with revenue increasing 40% over the prior quarter. Carglumic acid is a lower cost alternative to CARBAGLU and with the cost of CARBAGLU exceeding $1 million annually for some patients, prescribers have been very excited that we brought a lower cost alternative to market, while still offering the patient support services that they have grown accustomed to for rare disease products.
The prescribers and patients also appreciate the fact that our tablets do not require refrigeration, which provides an additional convenience benefit to patients. Carglumic acid tablets have now been commercially available for three full quarters, and we believe we remain on track to capture approximately 25% to 35% market share of the estimated $50 million plus market.
We were thrilled to add a third commercial product to our rare disease portfolio during the quarter with the recently announced acquisition of Betaine Anhydrous for oral solution for the treatment of homocystinuria. Betaine is a powerful tuck-in acquisition for us. It is an FDA-approved rare disease product, an ideal strategic fit for our existing commercial infrastructure and is expected to be accretive to our 2023 earnings. The product has the same metabolic genetic prescriber base that we already have relationships with. So we believe we have are uniquely positioned to commercialize this product. The addition of betaine to our portfolio will help strengthen our relationship with these doctors and allow us to increase our frequency of communication with them, which may also benefit our carglumic acid sales.
We expect the product to contribute multiple millions of dollars of revenue annually with very little incremental cost to us. We’ve already heard from a number of prescribers that are eager to begin prescribing our product and we are working with our supply chain partners to make the product available as soon as possible.
Also during the quarter, we were pleased to see the FDA approval for Zonisade, the first and only FDA-approved oral liquid formulation of zonisamide an anticonvulsant used to treat patients with epilepsy. This application was filed with the FDA by Eton and then became part of our multiproduct neurology oral solution agreement with Azurity Pharmaceuticals. This was the seventh FDA approval that our team has been a part of and I’m very proud of all the hard work put into the program over the last few years.
Azurity will be responsible for commercializing the product and we will receive a $5 million payment upon launch of the product. We are entitled to receive additional milestone payments as well as an ongoing royalty and commercial sales. I’m pleased to report that the product was launched in October, which triggered the second milestone payment of $5 million, which will be recorded as revenue in our fourth quarter results. Since this launch occurred after the third quarter ended, this $5 million benefit was not reflected in the cash balance that we reported today.
Now I’d like to turn over to the late-stage pipeline candidates, which we are also very excited about. On dehydrated alcohol, Eton is close to finalizing the FDA response. Now that we’ve thoroughly addressed each of the FDA’s concerns and requests, our goal is to have it resubmitted later this month, and we feel confident about the likelihood of approval. We expect that our submission will be assigned a six-month review cycle, which would allow for approval and launch of the product in the middle of next year. This product is a very compelling market opportunity. Based on the latest IQVIA data, the annualized market opportunity is approximately $80 million. We expect to be one of only two players in this market and are protected by orphan drug exclusivity — so our products should take a significant share of the market.
We also made strong progress this quarter on our ET400 product candidate. This is a pediatric endocrinology product that has been requested extensively by physicians and parents that we’ve engaged with while promoting LK Sprinkle. We have successfully manufactured our registration batches, which should allow us to file the NDA for the product before the end of 2023. We expect to be able to share additional details about this product shortly.
The other product that is consistently requested by pediatric endocrinology community is our ZENEO Hydrocortisone Autoinjector, which is under development as a rescue treatment for adrenal crisis. This innovative product, which saw the major hurdle to current treatment as many caregivers and patients are intimidated by the dilution, mixing and administration complexities associated with the Solu-Cortef lyophilized kit that is the standard of care today.
The complexity of the standard treatment often limits the child’s ability to participate in sports or other extracurricular activities where a parent or train caregiver is not available to administer treatment. Due to a slight delay at the European manufacturer, we now think the products NDA could be filed in early 2024 rather than the end of 2023, but we remain very optimistic about the opportunity to bring this product to patients.
With this attractive late-stage pipeline, commercial products that are still in the early innings of their launch, we are extremely excited about the outlook for 2023 and beyond. ALKINDI SPRINKLE and carglumic acid alone are poised to deliver major growth for the company in 2023. We are now adding in the launch of Betaine as well to that and expect to launch the dehydrated alcohol in the middle of next year.
These products should allow us to deliver very attractive revenue growth and more importantly, help us reach profitability in 2023. For more information about our financial position, I’ll now turn the call over to James. James?
James Gruber
Thank you, Sean. Our third quarter revenue was $3.2 million, compared to $0.8 million in the third quarter of 2021 or a 315% increase. In both periods, revenue was comprised entirely of product sales and royalties. Gross profit for the quarter was $2.0 million, compared with $0.1 million in the prior year period. R&D expenses for the quarter were $0.7 million, compared with $2.7 million in the prior year period. The decrease was primarily due to a $1.1 million fee related to the Biorphen and Rezipres vial projects in the prior year period and decreased development costs for new product candidates as we approach commercialization.
General and administrative expenses for the quarter were $4.2 million, compared with $3.3 million in the prior year period. The increase in G&A expenses was mainly due to incremental marketing and compensation to support our product sales growth, partially offset by decreased legal and consulting expenses. Total company net loss was $3.0 million for the third quarter, compared to a net loss of $6.1 million in the prior year period.
Eton finished the third quarter with $13.4 million of cash on hand. This does not include the $5 million milestone payment for the Zonisade launch we expect to receive in the fourth quarter. Our operating cash flow during the quarter was negative $1.7 million.
As Sean mentioned, we are confident that our cash on hand, licensing payments and royalty income will give us the flexibility to support our ongoing commercial growth and continue investing in new product opportunities.
This concludes our remarks on third quarter results. And with that, we’ll turn it over to the operator for Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] I see no phone questions at this time.
David Krempa
Thank you, operator. We can take the e-mailed questions that we’ve received. First question, I guess, this one is for James. Your G&A expense declined significantly from $5.3 million in Q2 to $4.2 million this quarter. What type of run rate are you expecting going forward?
James Gruber
The decrease in G&A from Q2 to Q3 was driven primarily by a handful of one-time items that occurred in the Q2, some severance, share-based comp and legal fees. So Q3 was a better representation. We expect approximately $4.5 million in G&A going forward.
David Krempa
Next question, for Sean, can you provide an update on the dehydrated alcohol resubmission?
Sean Brynjelsen
Sure. The resubmission is largely complete. We’re expecting to have that ideally submitted before the end of this month. And if not, it would be really early December, due to the holidays. So I expect that either to have a most likely a six-month review process, so that would put us in the second quarter in terms of approval. There is potential, obviously, it could be a three-month review. We’ll certainly let folks know once we get the guidance from the agency.
David Krempa
And our last question is, when do you expect to launch Betaine?
Sean Brynjelsen
So that’s — we’re excited to launch that product, obviously, as quickly as possible. We’re working with our supply chain partners to make it available. There’s no showstoppers. It’s just a matter of going through the operational process of producing the batches and then having them tested and release.
So, I think, early next year is a good time frame I’m comfortable with. And it’s a great opportunity. It fits well with our carglumic acid sales team and yes, the doctors so far are looking forward to us sort of bringing that to market.
David Krempa
That’s the end of our e-mailed questions. Thank you, everyone, for joining us today.
Operator
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.
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