Good afternoon and welcome to the Eton Pharmaceuticals Third 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 it over to David Krempa, Vice President of Business Development at Eton Pharmaceuticals. Please proceed..

Thank you, operator. Good afternoon, everyone and welcome to Eton’s third 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 website, 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 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 Sean Brynjelsen, our CEO..

Thanks, David and thank you for everyone for joining us on the call today. I’d like to start with our third quarter highlights before turning the call over to Wilson Troutman who will review the financial results in detail. First and foremost, our product approval Biorphen was a major milestone for Eton and a great accomplishment by our team.

This product and the interest in Biorphen from hospitals has been very strong and we expect to have the product available for customers before the end of this month. We have a large stocking orders already placed and we also continue to make progress in advancing the rest of our pipeline which I’ll speak to later in the call.

A few updates on the Biorphen commercial launch. Eton currently has a team of 5 hospital-focused sales representatives who are actively promoting Biorphen and we expect to expand that team to more than 10 representatives by the first quarter of 2020.

Since the approval, Eton’s team has promoted Biorphen and we met with key institutions as well as key opinion leaders at various conferences and engaged in discussions with pharmacy directors and physicians from over 200 different institutions.

And the interest in the product has been strong, we’re greatly encouraged by this and we estimate that the current phenylephrine injection market is significant and greater than 20 million Biorphen equivalents per year.

Over time, we expect to convert a significant market share of this product, of the ready-to-use and in addition expect to grow the market since it has a three-year shelf life unlike the currently available phenylephrine ready-to-use which has a short shelf life.

Our product allows it to be stocked in additional locations throughout the hospital, including emergency rooms, crash carts and surgical centers where previously it was not feasible to stock ready-to-use phenylephrine due to the short expiry dating of compounded products.

In addition, I would point out, compounded products are not reviewed by the FDA for safety or efficacy, our product is safer in the sense that it has been reviewed and has gone through the FDA approval process. Currently, ready-to-use phenylephrine injection is only available from compounding pharmacies.

We believe there is no longer a clinical need for the 503B facilities to compound phenylephrine into ready-to-use formulations. And based on FDA guidelines, 503B facilities would be in breach of FDA policy if they continue to sell ready-to-use phenylephrine injection after the availability of Biorphen.

Secondly, I’m pleased to announce that we have executed the debt transaction with SWK Holdings. This week Eton announced it has secured a $10 million debt facility from SWK.

This facility will give the company additional flexibility to pursue accretive business development activities, while this is the non-dilutive transaction and which is important to us, that also allows us to invest in the commercial launch of Biorphen and the planned launch of ET-105 in early 2020.

Thirdly, lamotrigine oral solution, that’s our ET-105 product. So significant market size and we believe with our product Hoduca as it will be known will be the first and only FDA-approved lamotrigine for oral suspension, 75% of neurologists has a favorable first proof impression on this product after some marketing research.

We are now doing the pre-launch activities generating advocacy and with neurology KOLs and developing a high-touch support services program that will ensure a profitable and successful launch for the product. ET-105. The FDA review of ET-105 is ongoing and has been assigned a PDUFA date of actually that is our lamotrigine product on March 17th.

We’ve also initiated a human factors study to support the filing and mitigate the potential for a delay in the approval timing. The human factors study that we’re running is expected to be completed in January and will be added to the submission under review. Another product I’d like to update is our ET-203.

Eton’s partner Sintetica has had an FDA meeting that is one scheduled to discuss our options to address the FDA’s concerns that were raised recently regarding the original NDA submission.

Eton believes the NDA will be resubmitted in the coming months and the FDA’s concerns were not showstoppers, these were concerns around CMC and questions regarding the exact concentration of the product compared to what we were doing. And then fourthly on the pipeline, our DS-300. We expect to resubmit that ANDA for DS-300 before the end of the year.

And we’re encouraged by that market formation we believe that product will be still a significant product for the company. So with that, I will go ahead and turn it over to Wilson, I’d also like to conclude by saying, we’re very proud of the progress we’ve made on our pipeline.

We look forward to additional product launches in 2020 and this year as we had previously stated, we will be a revenue-generating company. Our next push is to the milestone of becoming a profit-generating company in near future. So with that, Wilson, take it away with the third quarter financial results..

Thanks, Sean. Research and Development expenses were $3.4 million for the third quarter of 2019 versus $1.5 million for the same period in 2018.

The increase was primarily due to a $2.0 million licensing payment to acquire marketing rights to ET-105 lamotrigine along with increased costs associated with headcount and the operation of the company’s R&D laboratory facility that was set up in late 2018, this is only partially offset by reduced product-specific development costs in the period.

General and Administrative expenses were $1.6 million for the third quarter of 2019 versus $0.8 million for the same period in 2018. The increase was primarily driven by higher employee-related costs from increased headcount, public company expenses and marketing expenses associated with our product launch preparation activities.

Eton reported a net loss of $5.0 million for the third quarter of 2019 versus $2.9 million loss for the same period of 2018, as a result of these increases in our R&D and marketing and administrative expenses. As of September 30th, Eton reported cash and cash equivalents of $11.8 million compared to $26.7 million as of December 31st, 2018.

Subsequent to the quarter end period, Eton closed on a credit agreement with SWK Holdings which provides for up to $10 million in borrowing capacity which will support our future growth, our ability to pursue new product development and acquisitions. With that, we would now like to open up the call for your questions.

Operator?.

Thank you. [Operator Instructions] And our first question is from Andrew D’Silva with B. Riley FBR. Please go ahead..

Hey, thanks for taking the time and I got a couple of quick questions. So, obviously congrats on the approval you had gone through a pivotal transition period as you commercially launched your product.

So your former parent company and its management team really said that yesterday, coming up and obtaining approval for a product was one thing, but successfully commercially launching an offering is another thing entirely. So I’m just curious as you’re here in the early stage of the launch.

Are there any data points that you’re aware of that you didn’t realize or think about before that we should be thinking about as you’ll find the models or do you believe you had a very good sense of the pulse of the space when you last provided us with an update?.

I think that if anything, the demand that we thought we would have is initial interest has been stronger. If you were to talk to our Head of Sales, he would as he analyzed the market initially thought it was certain size, and then as we’ve gone into this thing, our confidence in the product has increased significantly..

Okay, that’s great to hear. I mean, just moving over to ET-203.

Could you just give us a little bit of an update where you are on that process right now for reengagement with the FDA and as far as what we should think about from a timing standpoint?.

Sure. The FDA agency sent earlier this month a list of questions or points that they wanted to share it to us in the filing, those points will be addressed, there’s a meeting later this say, in December with the agency, a tele-con to make sure that we’re on the same page as the agency and then some Sintetica will resubmit that filing.

So there were no showstoppers and if anything there, we believe once it’s resubmitted in the coming months the product should go through a smooth approval and review process..

Okay. Good, good. Last question for me just related to EM-100. Are you feeling pretty comfortable about everything coming together for the spring time as allergy season start ramping up then and I expect OTC market that be really robust during that time as well..

Yeah. Certainly is as you may or may not know, Ketotifen is really the top over-the-counter as well as prescription anti-allergy drug in the US market. This product meets as an unmet need in the sense that it doesn’t have the preservative so there’s the value add there.

I wouldn’t really comment too much on the overall market opportunity to the Bausch, our marketing partner I think has that covered pretty well. I know it’s an important product for them, it’s a product that they have physician for success, and I believe they will be an outstanding partner.

I can say that, the amendment is essentially finalized and we would expect that amendment to be submitted before the end of this month..

Okay, great. That’s a good timeline then. Perfect. Thank you very much and congrats on all the progress you may do in quarters..

You’re welcome..

Thank you. And our next question is from Raghuram Selvaraju with H.C. Wainwright. Your line is open..

Good afternoon. This is Edward Marks on for Ram. Thank you for taking the questions. Just in terms of the rollout for Biorphen.

You provided a lot of details and I’m just wondering how quickly you expect Biorphen to replace everything that’s in those carts and in the hospitals and whether the hospital themselves would have to immediately withdraw all the other products that are competing with Biorphen?.

It’s good question. I think it’s something – be better prepare to answer on our next call as we have a couple of months under our belt, I will say we got initial orders, large orders already in hand and we expect to begin shipping in the next 10 days or so as the inventory rise in our warehouses.

It’s not just matter of hospitals having to switch I think the hospitals will want to switch that just for the benefits, the shelf life the fact they’re using a product that’s been reviewed for safety and efficacy is important, I think the important to any hospital especially when you see the FDA’s own report on compounded product shows 33% of them have the wrong amount of potency.

So the idea of not using a ready-to-use FDA approved product and to substitute the compounded product with that is it would be quite strange for me to see a hospital choose to do that, especially when we price this product more or less in the same ranges what they’re currently buying. So we believe the conversion process will be quick..

Understood, good points. Moving on to ET-105 and DS-300, just because those are coming up with some milestones here.

Just making sure that it is the human factors study the only aspect that you’re requiring completing before the March PDUFA date and then on DS-300, are there any other items that need to be completed before submitted by the end of the year?.

I’ll start with DS-300. So DS-300, the ANDA is essentially complete. We are just handling some paper work that goes along with that and we’re expected to be submitted in the next few weeks. The datas are all compiled.

Lamotrigine, the study is really the primary feedback we’ve received at this point so we feel like it’s encouraging to see that’s what the FDA is asking is really to demonstrate that the parents and the users of the product can follow the package and certain instructions without somebody there telling them what to do and that they can follow those instructions and implement it.

We feel confident that the human factors study will have a positive outcome and we believe the instructions for user a clear this is not an unusual request, it’s a very common request for new drug products..

Right, right. And my final question just quick overall commercialization strategy question.

Just wondering if there was any prioritization for the asset being submitted in 2020 or if it was just how kind of dice fell?.

So and maybe I’ll take this question. Now that was just how the dice fell. We try to file every product as quickly as we can. So we’re not planning and prioritizing certain products we have a team here that can handle multi filings at once. So every product will get filed as quickly as we can..

Okay, that’s all for me. I appreciate all the details..

You’re welcome..

Thank you. And our next question is from Frank Takkinen with Lake Street Capital. Please go ahead..

Hey, guys. Thanks for taking my questions. Just first one on Biorphen’s commercialization.

What is all left that needs to be done before the end of November when the product will be ready to be on the market and how fast do you think you could start to get actual hard orders filled and accounted for at the end of the quarter? And then I think you talked about maybe possibly having about a million units in the first full year of commercialization with this product, so I’m just curious if that was something that if I’m correct, if that was something that you are just still thinking as possible?.

We’re not providing guidance on product sales, I think what I can say is that, we believe there are 20 million units or outfields available for us to chase, if you want to use the term.

So we expect to take a significant portion of that, I’m working with a hard number around it, if I might have been looking at different scenarios in the past, but this is as far as I think after we have a quarter on our belt, we’ll be able to provide a little bit more color on that.

We do have orders in hand, significant orders we believe we’ll start shipping product I think we’re saying the first week of December, we do expect to have inventory before that. So I would see us capturing revenue in December..

Great. And then, when thinking about your sales force, you said you can get to 5 reps by the end of this quarter and then 10 reps on the hospital side by the end of quarter 1.

Do you plan to use some of those additional 5 reps in quarter one of next year to start launching the neuro product or you’d have plans to bring on a couple extra neruo-specific sales reps at the beginning of 2020 and advance of lamo?.

So each product will likely have to have its own separate sales team. If we can leverage the sales team to let’s say cross sell or to go to two different areas, throughout an institution for example, because it’s both pharmacy directors as well as neurologist will do that. We do have 5 folks in place already, actively selling Biorphen.

We have an inside sales team as well as our filed sales of 3 and we expect that to increase before the end of the year. For lamotrigine, we’re putting together the sales and marketing approach on that. And we’ll provide additional clarity on what that will look like.

The thought process is obviously the minimized our cost or costs associated with the other SG&A.

And part of that, we can put it a one size sales force whatever that size is, validate the model, validate the sales and then expand that sales team rather than going in with a largest sales team possible I’d rather increase the size of that sales team as we’ve validated the conversion process in the different territories..

Great.

And then just lastly from me, do you guys have any update on the business development front and that would be my final question?.

We are always looking at licensing opportunities, the company is built around that, our business development is a key competency for us and let’s say, discussions not I suppose you could say later stage discussions on a couple of products, you never know how these will ultimately turn out, because there’s can be other bidders in the mix on it.

But the types of products we’re looking at are really no different from what we did with lamotrigine, there’ll be late-stage assets either something that can be filed within 12 months or something that’s already filed we’ll look at assets that have IP and patent protection, we look at assets that require relatively small sales force and something that we can manage as a small pharmaceutical and midsized pharmaceutical company.

There are plenty out there and we look at more than 100 deals a year and our goal is to have a let’s say approximately 3 meaningful transactions per year so..

Great. Thanks for taking my questions..

You’re welcome..

Thank you. And gentlemen, I’m showing no more questions..

Great. Well, thank you everyone for joining the call today. I look forward to our next call and any questions or thoughts you can always reach out to either myself or to our investor relations..

And with that, thank you ladies and gentlemen. This concludes today’s conference call. Thank you for participating. You may now disconnect..