Good afternoon, and welcome to the Eton Pharmaceuticals Second Quarter 2019 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call up for your questions. Please be advised that this call is being recorded at the Company's request.

At this time, I'd like to turn the call over to David Krempa, Vice President of Business Development at Eton Pharmaceuticals. Please go ahead..

Thank you, Operator. Good afternoon everyone, and welcome to Eton's second quarter 2019 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 Web site, etonpharma.com. Joining me on our call today is, Sean Brynjelsen, our CEO; and Wilson Troutman our CFO.

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 company's forward-looking statements disclaimer in our earnings release and the risk factors in the company's filings with the SEC. Now, I'll turn the call over to our CEO, Sean Brynjelsen..

Thanks, David, and good afternoon everyone. Thank you for joining our second quarter investor call.

On our call today, I'd like to highlight some of our major accomplishments in the quarter, and then I'll discuss our outlook for the rest of the year, including our expectations for additional products submissions on our ongoing launch preparations for ET-202, our ready-to-use phenylephrine injection product.

Afterwards, I'll hand it over to Wilson Troutman to review our financial results. During the quarter, we made significant progress in expanding and advancing our pipeline of product candidates, particularly with our pediatric neurology franchise. A few of the noteworthy events include the following.

In June we announced the licensing of ET-105, our patent-pending formulation of lamotrigine for the treatment of epilepsy. ET-105's NDA has been accepted for review and has been assigned a PDUFA date in March of 2020. Lamotrigineis currently one of the most widely used epilepsy treatments with sales exceeding $700 million.

However, it's currently only approved in tablet form, our product will be delivered to patients as an oral liquid, and specifically designed to fulfill the unmet need for pediatric patients requiring precision-dosing in patients with dysphagia.

We're very excited about the market potential for this product, and we're pleased to have added another high-value near-term product launch to our portfolio. Next, during the quarter we also initiated a bioequivalence study of ET-104, another of our patent pending neurology products.

We expect to receive the study results by September, and if successful, we expect to file products NDA in the fourth quarter of this year.

And thirdly, we also made significant progress across the board advancing our earlier stage product candidates, including the completion of successful registration batch manufacturing on ET-101, our third neurology oral liquid. We expect to initiate ET-101's bioequivalent study in early 2020 allowing for potential NDA filing later that year.

With the continued progress on these three products, we believe we're on track to create one of the strongest pediatric neurology franchises in industry. On the hospital side of the portfolio, we're pleased to be announcing for the first time today that our NDA for ET-203 injectable product candidate was submitted to the FDA.

ET-203 is a ready-to-use formulation or our frequently compounded injectable product. ET-203 will nicely complement ET-202, a ready-to-use phenylephrine and will benefit from the groundwork laid by our ET-202 commercial activities.

The hospitals that convert their phenylephrine purchasing, our ready-to-use product will become easy conversions once ET-203 is available accelerating the adoption of the product.

Shortly after the second of the quarter, we reported that our partner Bausch Health received a complete response letter for EM-100, our preservative-free ophthalmic treatment for allergic conjunctivitis.

Since the product is now owned by Bausch, we are limited in the comments we can make, however, we believe all of the FDA issues can be addressed and responded to with an amendment to the application within the coming months.

We believe the amendment will be classified as a minor amendment, which should receive a three-month goal date for the FDA to response to the amendment. We were of course disappointed about Bausch receiving the CRO, but remain very confident in the approvability of the filing and the commercial opportunity.

We've been extremely happy with Bausch as a partner on this product, and encouraged by their commitment and resources they've dedicated to its approval. Bausch is one of the most experienced ophthalmic product companies in the world, so the product is in very good hands.

We remain very optimistic about the market opportunity for EM-100 as the first FDA approved preservative free product available in the $600 million market for over-the-counter allergy ophthalmics.

As we look forward to the rest of the year, we are at a very exciting point in the history of the company's on the cast [ph] for becoming a commercial company.

While we are extremely excited and focused on preparing for upcoming product launches, we continue to execute on our efficient drug development strategy to build on our diversified portfolio that will provide long-term growth for years to come.

In this month of August alone we have three in-person meeting scheduled with the agency to discuss three different products. Even among peers that are much larger than us, very few pharmaceutical companies have three in-person FDA meetings in a given year, much less than a month.

This efficient drug development has allowed us to rapidly build one of the industry's largest strongest 505(b) (2) pipelines in a very short period.

We just recently passed the two-year anniversary of Eton's founding, and we already have a total of four products that have been submitted to the FDA with three additional product applications expected to be submitted before the end of this year.

These three products, which we expect to file later this year, include DS-300, ET-103, and ET-104, which we discussed earlier in the call. Regarding DS-300, as we previously disclosed, the FDA has requested that we re-file DS-300 as an ANDA due to the approval of a competing product with the same molecule.

Since our NDA was submitted prior to this approval of the competing product, our belief is that our application should be eligible for the FDA to continue with their ongoing review of the application. Regardless of the following pathway we expect our potential launch in 2020.

On ET-103our liquid formulation of levothyroxine, bioequivalence study is ongoing and is expected to read out in September. So many results are successful we plan to submit the NDA in the fourth quarter.

Levothyroxine is one of the most frequently prescribed medications in America, in the sales of the tablet success 2.5 billion annually so we see a significant opportunity for liquid formulation.

Finally, I would like to discuss the launch preparations for ET-202 our ready-to-use formulation of injectable phenylephrine that has been assigned PDUFA date of October 21.Our sales and marketing team is been working tirelessly to prepare our commercial activities and ensure that we have a successful first product launch.

During this quarter we held advisory panel meetings with pharmacy directors and key opinion leaders and anesthesia and emergency care. The feedback has been overwhelmingly positive as both pharmacy directors and physician are very excited about the potential safety benefits and convenience of having a standardized formulation.

In addition, customers have expressed excitement about the three year shelf life of our product compared to 30 to 90 days for phenylephrine purchase from 503. The compounder is just 24 hours for product compounded in-house.

The increased dating will allow hospital stock ET-202 in new location throughout their facilities including the credit card emergency rooms that outpatient centers and will reduce waste in the hospital.

If ET-202is approved on its PDUFA date of October 21, we plan to be in a position to launch the product quickly in the fourth quarter and immediately start earning revenue.

I couldn't be more excited about Eton's business prospects as we start the transition to becoming a commercial business and while phenylephrine will be a critical product launch it's just one of many that we expect over the coming year. Following phenylephrine we should see a steady cadence of product approvals and launches going forward.

In the first quarter 2020 we have our PDUFA date for lamotrigine and we were potential for as many as six different product approvals throughout 2020. With that I'd like to hand it over to our CFO, Wilson Troutman to discuss our financial results.

Wilson?.

Thanks, Sean. For a complete review of our second quarter financial results please consult the press release we issued this afternoon or our Form 10-Q filed with the SEC. Eton reported no revenue in the second quarter of 2019 and did not have revenue in the prior year second quarter.

Our R&D expenses were $1.4 million for the second quarter 2019 versus $1.7 million for the same period in 2018. The decline is finally driven by reduced product-specific development costs in the period, partially offset by increased costs associated with headcount and the operation of our R&D laboratory facility that we set up in late 2018.

Eaton's G&A expenses were $1.9 million for the second quarter of 2019 versus $1.0 million for the same period in 2019 -- in 2018.The increase is primarily driven by higher employee related cost from increased headcount, public company expenses and marketing expenses associated with product launch preparation activities.

Excluding non-cash expenses, G&A expenses for the quarter were 1.5 million which is euro 0.6 million in the prior year period. Our net loss for the second quarter of 2019 was 3.2 million as compared to a net loss of 3.1 million for the same period in 2018.

The slight loss increase is a result of the increase in G&A expense in 2019 which was offset by reduced R&D spending. In addition the second quarter 2018 other expense category reflected a $413,000 increase in the fair value of our warrant liability.

The ongoing expense for the fair evaluation of these warrants was eliminated at the November 2018 IPO when the number of issuable shares associated with the exercise of the warrants became a fixed amount.

Our balance sheet remains in strong financial shape with 14.9 million in cash and cash equivalents as of June 30, 2019 compared to 19.6 million at March 31, 2019. Subsequent to the quarter end in early July we received $1.3 million refund from the FDA for an NDA filing fee which we had paid in March 2019.

With that we would now like to open up the call for your questions.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Ram Selvaraju with H.C. Wainwright. Your line is open..

Thanks very much for taking my questions.

Just one quick clarification first, the NDA filing fee refund, could you just remind us which specific application that was related to?.

Sure. Hi, Ram. That was for DS-200, where we had submitted a PDUFA waiver on that product, and rather than wait for the waiver to come through, we went ahead, we didn't want to delay the filing, so we went ahead and paid the fee knowing that we would get that refund back most likely assuming the waiver was granted.

The waiver was granted, and we ended up getting that as a refund..

Okay.

And then on ET-105, could you maybe give us some more color on the logistics associated with preparing for the launch rollout of that product? What you expect to be the approximate timeframe between potential receipts of approval, I understand you now have a PDUFA data of March 17 of next year assigned? And what kind of overall sales infrastructure you expect to put behind the product? And what sorts of promotional activities you expect to use to move for the commercialization on that front? Thank you..

Sure. Lot of questions there, I would say first and foremost, we are preparing the sales map. There would be a dedicated sales team for the pediatric neurology. The size of that sales team is being established. We work with focus groups as well as with medical doctors and prescribers, key opinion leaders in terms of how we position that market.

Prior to launch we don't anticipate hiring in advance of approval, but we would really wait for the approval before we ramp up the sales team. And yes, it's a product that's in very high demand.

We did significant amount of market research before we went forward with licensing the product, and it looks to me that it should have a -- I don't want to say, "Easy adoption," that's probably not the right word, but high demand in the marketplace, and we're looking forward to getting that in the hands of patients..

Okay.

And then on ET-202, can you give us an update on whether there had been any sort of recent request for information by the FDA, if there any specific steps that need to be completed prior to the PDUFA dates of October 21 on this application?.

So, on ET-202, that product review we believe is going along quite nicely. We're not aware of any outstanding issues at the moment. I can say we received some labeling comments and things of that nature, but as of today, we are projecting October 21 as an approval date.

Obviously that's not -- we can never predict what the FDA will come back with, but it appears to us that the review is going favorably..

Okay.

And then just finally on EM-100, have you received anymore granular information from your partner Bausch Health regarding the specific timeline of the resubmission of the NDA? They clearly didn't say anything about that on their earnings conference call this morning, but I was wondering if you had any dialog with them regarding the timeline for resubmission..

Sure.

We have a detailed timeline internally I am not prepared to share that with the public at this point, but I can say that our target is Q4 for responding to that, and as we had indicated in our press release, we believe the request from the FDA are not out of the ordinary, there are items that we believe are manageable, and we can respond within a short period of time..

Thank you very much..

You're welcome..

Thank you [Operator Instructions] And we have a question from Michael Brook [ph] with National Securities. Your line is open..

Yes, hi.

Just on the EM-100 letter, I know obviously you are not going to go and just fixed about exactly what they said, but can you give us some sort of idea does it have to do with in manufacturing, does it -- obviously you mentioned it doesn't have to do with clinical data?.

Correct..

But is it about manufacturing something like that?.

It's not I'll say it depends on how you define manufacturing so CMC is a broad section of an NDA file that includes chemistry manufacturing and controls of the manufacturing site is in good standing with the FDA. The ability to produce is there so there is no problem with the facility if that's your question.

There is other questions unrelated let's say the production more around I don't want to specific here but more around kind of specs and things of that nature that they ask you to tighten up and that sort of thing. So all of it is very answerable and we we're not concerned with our ability to respond during the Q4 we believe that is very achievable..

Thank you. And our next question comes from Brooks O'Neil with Lake Street Capital. Your line is open..

Hey, you have Frank talking on Brooks O'Neil. Thanks for taking my questions. So first one if we could take another deep dive into what you're -- some of your largest opportunities are you see near-term.

Obviously we have a lot of different things coming in the next six to 12 months I was just hoping you guys help us prioritize what you're looking at the most attractive especially as a ease of approval.

And then as - I don't want to say easy adoption, but with the most likely strong commercial adoption initially?.

Well, I would restate that phenylephrine is a very important product launch for us. It's a very large market one of the largest in terms of the hospital injectable market.

We're looking at over 10 million units a year for that product at least that's the market opportunity I am not saying we're going to capture 100% but we'll capture a significant amount of that market. Also lamotrigine its one of the most widely prescribed oral tablet for epilepsy and bipolar disorders.

We believe the oral solution market on that is quite attractive. So these are two really near-term opportunities we believe both of them are significant product launches for the company. We'll result in us putting in a sales team obviously that we hope to leverage really for both channels.

Lamotrigine is if you speak to any neurologist there is a product that is - it's in demand it's a product that's heavily compounded today, it really fits our strategy quite well, and we're happy to partner with Oct on that.

Looking down the road, I would say that the product that we announced today are ET-203 filing that is very complementary to 202 it also a very heavily compounded product today.

We believe that we can convert the market to already choose formulation and even hospitals that choose to continue to order from compounders are more still the ordering our product if nothing else they have an inventory, they have on hand which has much longer shelf life.

So, both of those, those three are certainly comprise some of our heavy hitters. Really EM-100 is a much smaller product for us and it was interesting how a lot of focus on EM-100. I'm not saying it's not important but the opportunities that's certainly one of the smaller ones.

David, you have anything else you want to add to that?.

Okay. And then going to ET-203 a little bit more, I saw there is a 90 million reference product market size in your press release.

Could you break that down a little bit and maybe talk to what you guys see as some of the low hanging fruit there and then in addition, how do you guys see the layering effect taking hold as your in-place hospital sales force with ET-202 such develop relationships and then layers upon ET-203 into there?.

Well I don't want to get too specific on ET-203, if I give you too much information, we might as well just tell you the molecule. But I can say that it is a market that the size of the markets and the millions in terms of units, in terms of the actual market opportunity, a lot of that will depend on where we price it up.

So that that comes in to play, the product is it's heavily used in emergency care situations, so it's the hospitals have this in demand. And for them they have to go and order this through compounders, it's not a very convenient option and in Europe where the ready-to-use version is available, it's seen a very strong conversion to the raw materials.

So we believe the two products are complementary. The same call point, lot of the call points are within the hospital pharmacy. So I look at this more of a conversion process rather than a product where you have to go and teach them about what it does or how to use it and that sort of thing.

This isn't a traditional branded NDA detailing; it's more of a conversion process of the pharmacy directors..

Great, and then just my last question, could you guys give us an update on the business development initiatives you have potentially planned for the remainder of the year, if you have anything worth noting or how you guys think about the rest of the year and then beyond as well into 2020?.

Yes, great question. We are our company is really built around business development. I'll say technically we have a lab and we can do internal developments but the growth of the company is predicated on our ability to go out and transact at any one time, we're looking at two to three opportunities. We really see I tell people this.

So we see two a week and we really do, we see probably more than two a week. We are looking closely at two opportunities at the moment. These are late stage products which are at or near filing or products that we could launch.

And it just depends on which ones we want to pursue, how much cash we want to allocate for BD activities and that sort of thing. So I would expect to continue to transact, we find that licensing products in is a much more efficient way of growing a pharmaceutical company than developing it from scratch.

So though you could develop something from scratch, you're going to take maybe three, three times as long or four times as long and you're incurring risks and costs and delays versus than licensing something and perhaps sharing a little bit of that, that revenue stream you can still build a company in a much, much more efficient way through that assuming you can get the deal.

That's the trick. The number one question we get is where do you find all these transactions well, they kind of feed upon themselves so when we do a deal and other companies see that, we do transact and we do move quickly on things that brings in other opportunities that maybe we wouldn't have seen..

Great.

And then I actually have one more follow-up to that, maybe for Wilson if you could touch on current cash levels right now 49, then you have $1.2 million coming back $16 million, if you could touch on how you'll get cash burn through the next 12 months and how do you feel about your current levels?.

We're pretty comfortable with our cash position at this point in time. Our base level is only about $2.8 million or so if you look at the second quarter run rate for things outside of BD type activities. So we're pretty comfortable with that. We're looking at the launch of phenylephrine in Q4, some revenue from EM-100 coming up..

Great, thank you..

Thank you and we have a follow-up from Ram Selvaraju with H.C. Wainwright. Your line is open..

Yes. Thanks very much for taking the follow-up. This is just really on the scope and nature of the bio equivalent studies that you expect to report, I believe in September for both ET-103 and I think it was ET-104.

I was wondering if you could just clarify for us specifically what the nature of these studies is, how many subjects were enrolled in them and in what format you might be presenting the results of these studies or if it's just going to be a case of your telling the market that bio equivalence criteria were met and that you're moving forward with submission? Thank you..

Sure. What we like most of our products we dialog with the agency before we really run the studies or we follow certain guidance documents which they have issued. Regarding the ET-104 and 103, these are both oral solutions which we run studies against the oral tablet.

And what you want what you're looking for there is a similar kind of CMAX where really a distribution of the drug through the body. So there are a number of endpoints that can go into on the call today in terms of the number of patients but typical bio-equivalence study would have anywhere from 50 to 150 patients something like that..

Thank you..

And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Sean Brynjelsen..

Sure. Thank you.

I just wanted to also just say to all of the investors and the people that support Eton Pharmaceuticals' are really excited at this point and our history we just celebrated our two-year anniversary as a company and now is where we take the deal that we've been working on and we're looking at the next six months to just have a number of product launches.

It's exciting to be where we're at and to make this type of progress. I think that you'll be hard pressed to find any drug company that is up and running and with sitting with four registrations at this point in their history. There will be more to come and we look forward to disclosing that.

And I would say that in the fourth quarter with the launch of phenylephrine, we as we convert into a commercial organization, it will provide a little bit more transparency in terms of what our future revenue expectations are and our profitability expectations.

So with that, I thank everyone, and there are no further questions I guess, going to turn..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day..