Good afternoon and welcome to the Eton Pharmaceuticals Second Quarter 2021 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, Senior Vice President of Business Development and Investor Relations at Eton Pharmaceuticals. Please proceed..

Thank you, operator. Good afternoon, everyone and welcome to Eton’s second quarter 2021 conference call. This afternoon, we issued a press release that outlines the topics that we plan to discuss on today’s call. The release is available on our website, etonpharma.com.

Joining me on the call today, we have Sean Brynjelsen, our CEO; Wilson Troutman, our CFO; and Paul Stickler, our Senior Vice President of Sales and Marketing.

Before we begin, I would like to remind everyone that statements made during this call may contain forward-looking statements that 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..

Thank you, David. Thank you everyone for joining us today as we discuss our second quarter earnings results. During the second quarter, we had a number of important accomplishments, including the approval of Rezipres, a ready-to-use formulation of ephedrine injection.

For years, hospitals have had to manually dilute or compound concentrated ephedrine Eton in emergency care situations. Now, with the approval of Rezipres, Eton’s offering yet another value-enhancing option for physicians and caregivers. This is now our fourth FDA approval.

And I’m very proud of our team and the hard work they’ve put in to achieve the so many approvals in such a short period of time. Of the nine products in our pipeline, nearly 50% are now approved with the others under FDA review and approval expected over the next couple of weeks and months.

Currently, there are over 6 million vials of the concentrated ephedrine injection sold annually in the U.S. market. As you can imagine, this would translate into a significantly higher number of ready-to-use doses, once they have been diluted for administration.

We would expect to launch Rezipres at a slight premium to the ephedrine concentrate in the coming months. Eton also expanded our orphan drug pipeline in the quarter with the acquisition of the U.S. and Canadian rights to ZENEO Hydrocortisone.

ZENEO is a proprietary needle-free autoinjector that is designed to quickly and safely deliver a rescue dose of hydrocortisone during an adrenal crisis. Since launching ALKINDI SPRINKLE, we have constantly heard patients describing an autoinjector as the number one unmet need for the adrenal insufficiency community.

So, we are very excited to be able to work with Crossject to try to bring this treatment to the community as quickly as possible. This product is a perfect strategic fit with ALKINDI SPRINKLE.

ALKINDI SPRINKLE is the daily maintenance treatment for pediatric AI patients, and ZENEO Hydrocortisone is the rescue treatment that AI patients are likely to carry with them, similar to how someone would carry EpiPen for obviously different indication.

The announcement of our deal has also helped further deepen our relationship with the AI community. Numerous physicians and patient advocacy groups reached out to express their excitement for the project, including some leading pediatric endocrinologists that had previously been hard to reach. Now, more on our ALKINDI SPRINKLE commercial launch.

We were pleased to be able to initiate in-person meetings during the second quarter. Now, we are prioritizing in-person meetings and their frequency has surpassed our Zoom and telephone calls in recent months. We are finding in-person meetings to be significantly more effective than Zoom calls.

Physicians are much more engaged when meeting person-to-person and they enjoy being able to see ALKINDI candidate samples, so they can feel comfortable knowing exactly what they are prescribing to their patients.

As a result of this ability to now host more in-person meetings and the positive feedback we’ve received, we are now planning to expand our field sales force. The ongoing feedback is clear, physicians and patients like ALKINDI.

So, we believe increasing the reach and frequency of our in-person meetings with doctors will accelerate adoption of the product. To illustrate this point, to-date, we’ve only reached approximately 10% of prescribing physicians in-person. What that means is that we have a long runway of growth ahead of us.

The Company is also seeing favorable support from payers that understand the critical need to dose precisely in pediatric patients. We are not aware of any patients that have had ALKINDI coverage rejected by their insurer.

And many patients are starting with a quick start program where we immediately fill the prescription, so the child can begin treatment, and handle the paperwork and administrative aspects on the back end. This process has worked seamlessly with patients converting to their insurance coverage by the second monthly script.

Currently, more than 90% of patients and treatment are being reimbursed for the product, and the remainder or newly added patients in the quick start that are expected to convert to commercial coverage by next month.

While the initial launch faced some COVID-related headwinds that limited our ability to get in front of doctors, the physicians’ reactions to in-person meetings and a strong payer support has confirmed our assumptions about the product and given us greater confidence in our long-term expectations which remain unchanged.

While we had some delays in our pipeline during the quarter, in large part due to COVID-19 delaying the FDA’s international inspections, our team has proven that we are resilient, and I’m confident we will be able to achieve approval on these products in short order. The Company is looking forward to the new topiramate PDUFA date of November 6th.

The product is manufactured at an already FDA approved U.S. manufacturing site that was successfully inspected in late 2020. So, we do not expect any inspection issues during the review. We also continue to believe that the zonisamide application is fully ready for approval whenever the FDA can complete the foreign manufacturing site inspection.

Unfortunately, we have not been given any indication of timing from the agency, but the manufacturing side has many other pending product applications, similar situation to ours. And we’re hopeful the agency will prioritize the site with a near-term inspection and allow these important products to get to patients.

Regarding our dehydrated alcohol and lamotrigine products, we expect both product applications will have amendments filed shortly with the FDA. And after responding to these FDA questions, we believe approval of the product should occur early next year.

Eton’s excited for all four of these products to be approved and launched in the near future, which sets the Company up for a very strong growth in 2022 and beyond. Before discussing financial results, we’d like to just summarize and to thank also our long-term shareholders for their continued support and their belief in the vision of the Company.

I sincerely believe that Eton’s outlook has never been stronger than it is today for a number of reasons. One, the ALKINDI launch has taken stride, growing sales every week. Two, we’re on the cusp of launching our fourth commercial product. Three, we have four more potential product approvals lined up in the coming quarters.

And lastly, we are fully funded with more than $25 million of cash today, plus more milestone payments expected to come in soon. Therefore, no need for external financing the foreseeable future. With that I would like to turn the call over to Wilson who will briefly walk through some of the financials before we open up the call for Q&A.

Wilson?.

Thank you, Sean. Eton reported revenue of $3.1 million for the second quarter of 2021. Revenue included $2.5 million of licensing revenue related to the Company’s previously announced transaction with Azurity. In the prior year period, the Company did not record material revenue.

General and administrative expense for the second quarter of 2021 were $3.3 million compared to $2.9 million in the prior year period. The increase was largely due to increased costs related to commercialization of ALKINDI SPRINKLE. G&A expenses for the second quarter of 2021 included $0.7 million of noncash expenses.

R&D expenses for the second quarter of 2021 were $2.0 million compared to $1.6 million in the prior-year period. R&D expenses in the quarter included a one-time $0.5 million payment related to the acquisition of U.S. and Canadian rights to ZENEO Hydrocortisone.

Eton reported a net loss of $2.0 million, compared to a net loss of $4.7 million in the prior-year period, and resulted in a loss of $0.08 per share in the second quarter of 2021 compared to a loss of $0.23 per share in the prior year period. Eton finished the second quarter with cash and cash equivalents of $25.8 million.

We remain confident that our current cash position is sufficient to allow us to launch our products and continue to pursue value-creating business development opportunities. With that, I would like to turn it over to the operator for Q&A.

Operator?.

[Operator Instructions] Our first question comes from the line of Jason, a Private Investor. Sir, your line is open..

Hey, guys. So, there was some third-party media outlet, Seeking Alpha, I believe that published something about labeling related to ALKINDI and the FDA getting involved.

Curious if you guys are aware of that, and I don’t know if you have any comments there?.

Yes. We are aware of it. Just for everybody on the call, this was a Google ad. We believe when we distributed the link, this was a sponsored link, that it was acceptable to provide a link to the risk information. It was now understood that that was incorrect. So, the risk information had to be a part of that whole thing. So, we removed the ad.

And sometimes what happens on these things is certainly it was inadvertent and it wasn’t purposeful. I think it’ll be resolved. And obviously, we take this things seriously. We’re committed to regulatory compliance. And more importantly, we made the corrective stuff..

Thank you. And as you guys look at where you’re at with the ALKINDI ramp, sort of going into the fourth quarter with this Delta variant propping up in certain parts of the country.

And the complementary first month dose through this acceleration program that you have, I mean, should we be thinking about modeling sales over the coming quarters or months differently than say, how we might have thought of things quarter ago?.

That’s a good question. It’s hard to say, many states and in fact many countries feel that with the large number of people that have been vaccinated and those who have not been vaccinated probably caught COVID anyways, that you have a pretty robust population in terms of resistance to the Delta variant.

I think that there’s -- this is my own private opinion that there’s a lot of fatigue about lockdowns and that people are ready to move forward. So, we’re not seeing really reversion. There are some states obviously. But, we believe will continue to be able to reach prescribing docs face-to-face in many places.

And I think that one point we made in our opening remarks is that we really have only scratched the surface. In terms of face-to-face visits, it’s been approximately 10%. So, there’s a lot of runway.

And yet, we’re seeing each week, more and more patients, as each week goes by, which is very typical for an orphan drug product where you’re trying to change prescribing practices, you’re trying to find good doctors who are familiar and used to the concept of switching from whatever they were doing in the past to something that is more appropriate for this age group and for these patients, and more importantly indicated for these patients..

Your next question comes from the line of Andrew D’silva from B. Riley Securities. Your line is open..

Hey. Good afternoon. Thanks for taking my question. Sorry, if you answered this question. I actually got dropped off. I was having a bad connection for a second.

But, if you could just give any color on product revenue breakout during the quarter? And then, how should we think about product revenue up-ticking in the back half of the year, now that you have obtained approval for Rezipres?.

Hi, Andy. Thanks for the question. So, we didn’t break out product-specific revenue. But, as we’ve talked about in the past, obviously, ALKINDI is the biggest driver -- revenue driver going forward.

The back half of the year, we expect ALKINDI to continue to ramp even more as we grow patients, and we talked about potentially increasing our sales force, which accelerates the revenue growth in the back half of the year..

Okay, perfect.

And then, with Rezipres, is that -- that’s a vial, correct, not that the ampule formulation that was approved?.

No. Actually -- yes, this is a little bit of a redo with regards to Biorphen. It is a -- it is an ampule, it is -- we will offer it into a vial at some point. But we believe the -- we’ll have sales. We’re in the process of that -- of converting it. And I think that that won’t be nearly as long.

Part of the reason with the Biorphen vial conversion, it took long is that we had completed the site transfer, nearly completed the site transfer at a facility in France and the French government basically took it over for COVID production -- for vaccine production. So, we had to then do the site transfer again to the U.S.

So, it’s been a little longer. But, that’s really close to being completed. And we think that both, Biorphen and Rezipres and vials are big drivers and important products over the coming months, not years..

And then, as it relates to the ZENEO injection -- or injector acquisition, first, are you aware of any competing hydrocortisone injections that are being developed? And then, could you talk about the market synergies with ALKINDI, as far as any differences in the target physicians or anything like that?.

Sure. So, shortly after we announced our deal, Antares Pharma announced their own Rezipres -- not Rezipres, but hydrocortisone emergency auto injector. They had indicated -- we didn’t indicate market. They had indicated a market of 100 million or something like that.

There’s enough room for both of us, but I’ll tell you these products, especially with devices are not always the easiest. They don’t always stay on time. We believe the crosschecked device is really just -- it’s not in a development stage, it’s really a complete, very reliable, in my opinion, very usable system.

It’s needleless, which we think will appeal to patients. And we believe the product will be preferred over a needle. And it’s really easy-to-use, it’s like two steps. I mean, somebody put it in front of me, I had no instructions, and I was able to activate it and use it. Obviously, we’re using this on a test recipient -- It’s a test case.

It’s kind of like this vial that you injected into. The product has been on the wish list for adrenal insufficiency patients for a number of years.

And the fact that Antares was working on it sort of validates that we made the right decision in terms of the market is a good market and will continue to be a good market, and I think we’ll get there before them. This is my opinion..

Great, great color. And I understand a lot of the CRL and regulatory-related delays are tied to manufacturing or candidates to be sold.

But, in general, is there anything else Eton can do, be it through bringing in additional development-focused specialists or reallocating your team members to that area of focus? I’m just looking at the CRL to approval rate, since you went public, it’s just not aligning with industry norms.

I wonder if a greater investment in the area of oversight, would this enable you to resolve critical issues prior to CRL being issued, or at least be able to convey a potential holdup to us in advance?.

Yes. It’s a fair question. Some of the products have been literally fully developed by our partners, and so we had very little in the development and have been submitted and get the CRL. But, with the 505(b)(2)s, the CRL process has almost become routine. It’s like having a deficiency of some sort. And you have to go and respond to it.

But, you can see that of the four products that we have approved, three of them had CRLs, if my memory is correct. And they ultimately get approved. So, this isn’t like a new drug entity or a branded product being developed by, let’s say, a Pfizer where you get a CRL and it potentially is dead because the clinical didn’t work.

The products we are developing, we know they work for their indication. So, we think the risk is much lower. And a lot of the CRLs have to do with CMC, chemistry type related issues or manufacturing, and we want to minimize those obviously.

To your point though, we have contracted -- we do have a contract, kind of like a scientific consultant that’s now on staff, or I should say not really staff but a consultant that we’re using to really dig into the due-diligence on a lot of our projects.

And we hope to improve that and have a lower CRL rate which obviously is what everybody would like to see, and I get that. But, they do come this -- like topiramate, I don’t know if I really called out a CRL. We’ve submitted information. They -- FDA wanted more time. That’s fine. But, I think that product is well-poised for approval..

Okay. Fair enough. Thank you very much. And best of luck going forward..

Sure. Thank you.

Next?.

Thank you. Your next question comes from the line of Ram Selvaraju from H.C. Wainwright..

I was wondering if you could provide a bit more granularity regarding what you expect to be the steady state size of the sales force to support ALKINDI SPRINKLE.

And if you could also give us some visibility into how you anticipate the commercialization effort for ALKINDI SPRINKLE to be dovetailed with or complementary to the efforts you make with respect to the ZENEO auto-injector product?.

Go ahead, Paul. I’m going to let Paul take this question. He’s our Senior VP of Sales and Marketing..

Thanks, Sean. Hi, Ram. Thanks for your questions. With regards to the steady state, it really comes down to determining how many key physicians we need to see in the United States, and are we able to see them with the right reach and frequency. And ultimately, when we launched ALKINDI SPRINKLE, we were in unusual times in the pandemic.

And so, we allocated resources to a different modality. We put some on the inside sales and then outside sales, but always with the intention of fully resourcing the outside sales team appropriately.

And since we’ve started to see some more in-person calls, the productivity of those calls is substantially higher than the type of calls that we’d be delivering over Zoom and telephone. And so that was something that we saw and we knew at some point we were going to go do that.

And then, as the country opened up we do anticipate getting to our full size of between five and eight sales representatives to support ALKINDI SPRINKLE. Your other question related to ZENEO, I think that there’s a tremendous amount of synergy that can be unlocked with these -- with ALKINDI and ZENEO together.

To put a little finer point, the advocacy organizations and the adrenal insufficiency community have stated that this is their number one concern to have an auto injector for emergency crisis situations. And we are calling on those very same physicians that would be prescribing ZENEO in the future.

And so, we’ve already established a great relationship with them and anticipate continuing to do so. And so, I think it’s going to be a very nice synergistic fit, and I think we’ll be well-positioned to grow this product once it’s approved by the FDA..

I also wanted to visit the timing that you anticipate for the payment of future regulatory-related milestones from Azurity.

Is it reasonable to expect that only the milestone related to the topiramate approval, which you now anticipate to occur in November of this year, will be the milestone that’s paid in 2021 and everything else that you expect from Azurity would most likely occur after the end of 2021, or is there a possibility that you could receive payments from Azurity beyond the topiramate approval-related regulatory milestone payment in 2021?.

I think that it’s a fair assessment, how you communicated it, that it’s likely that topiramate payment will happen this year. And then, likely, and the other ones will happen in early 2022. For us, it’s not a huge -- it’s not that meaningful because it’s still -- like I said, we have plenty of cash for a long time.

And those payments coming in, let’s say, Q1 is not really material from our perspective. We like to get them sooner, of course, but they’re coming. The products are strong. They’re solid. They’re good. FDA comments have been very constructive, and it’s -- more importantly, are products that are needed by patients.

So, I think that they’re all positioned for approval in the coming months, so..

Okay.

And then, with respect to the dehydrated alcohol injection product candidate, can you just clarify for us what type of review period you expect the FDA to assign to the application amendment, once it has been submitted?.

Sure. I believe it will be approximately three months, as long as they classify it as a minor. I think major is six months. But, minor -- we believe it will be minor. And we’ll respond to it shortly. One of the items was just they wanted some additional stability data and things like that.

But, no real additional work per se, just additional literature information, additional clarification on indication. I’m just giving you sort of a -- few of the types of things that were in there. And yes, we’re happy with how that’s going.

And we’ll have a meeting with the agency and just say, look, this is what we’re going to give and make sure they’re all onboard with it. But it’s been a good dialogue. I think that the product is in good shape..

Okay.

And then, lastly, with respect to the Cysteine injection, can you just give us a little bit more background on what gives you confidence that you will prevail in this litigation?.

Sure. Well, I know that in any litigation, the opposing side would like to make things complex. But the reality is, our partner, which, I guess, you could say us in a way, have been making this product for 20 years.

Same formula, same specs, same everything, and somebody decides to come out and patent a formula that we’ve had on the market for a very long time. So, we have a very good position, a very strong position. There’s nothing new or novel, in my opinion, about what they’re trying to claim as new and novel.

All these things were already part of our products. So fundamentally, it is, to me, immoral for companies to try patenting old products that have been on the market for decades and then try to secure a monopoly at extremely high prices and really abuse of the U.S. health care system. So, we’re going to convey what the facts of the situation is.

And the best way to win a case is to have the facts on your side. And we believe the facts are on our side..

There are no other questions on the queue. Ladies and gentlemen, this does conclude today’s conference call. Thank you for participating. You may now disconnect..

Thank you..