Eton Pharmaceuticals Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 9, 2024

There are 4 speakers on the call.

Operator

Good afternoon, and welcome to the Eaton Pharmaceuticals First Quarter 2024 Financial Results Conference Call. At this time, all participants are in 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 Krimpa, Chief Business Officer at Eton Pharmaceuticals.

Operator

Please proceed.

Speaker 1

Thank you, operator. Good afternoon, everyone, and welcome to Eaton's Q1 2024 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, eatonpharma.com. Joining me on our call today, we have Sean Brynjelsen, our CEO and James Gruber, our CFO.

Speaker 1

In addition to taking live questions on today's call, we will be answering questions that are emailed to us. Investors can send their questions to investorrelationseatonpharma.com. Before we begin, I would like to remind everyone that remarks 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 CEO, Sean Brynjelsen.

Speaker 1

Thank you, David. Good afternoon, everyone, and thank you for joining us today. After a strong finish to 2023, I am pleased to say we carry this momentum into 2024 delivering our 13th straight quarter of sequential product revenue growth. It has been a very productive start to 2024 for the company and we have a number of exciting items to discuss today. In addition to posting record revenue sales in Q1, we also acquired a new commercial growth asset in PKU Go Like.

Speaker 1

We launched meticinone capsules and more importantly, Eaton submitted our new drug application for ET-four hundred. We were pleased to deliver another quarter of strong revenue growth and to do so while maintaining our disciplined cost structure. Revenue from product sales grew by more than 50% year over year to $8,000,000 while our SG and A spending actually declined by 4% year over year. As you can see, now that we have our infrastructure in place, there was significant operating leverage in our business. We believe we could support a revenue level in many multiples over our current run rate with only a modest increase in our SG and A spending.

Speaker 1

This should allow us to deliver substantial earnings as we scale our revenue towards our goal of being a $100,000,000 plus revenue company in the coming years. Our record product sales in the quarter were driven primarily by strong growth in both kaglumic acid and alchemia sprinkle. I remain very encouraged by the trajectory of our kaglumic acid product as it continues to exceed our expectations. We believe we have now captured more than 50% of the patient population, but the product continues to grow and we have added additional patients in Q1 and also additional ones in Q2. Kerglumik is a part of our metabolic portfolio that expanded from 2 products to 4 products in the Q1 as we launched metasalone capsules and acquired PKU Golide.

Speaker 1

As you may know, metasalone capsules launched in February and we were able to add a number of patients before the end of the quarter. The market for neticinone is estimated to be around $50,000,000 annually, but there are already a number of competitors in the market, so we have modest expectations for this product. We view the opportunities similar to the way we view Betaine. Neither one offers a large revenue opportunity on its own, but they require very little incremental expense to commercialize since we already have the metabolic infrastructure in place. Perhaps more importantly, the expanded portfolio helps us strengthen our relationship and increase the frequency of interactions with high value kerglumic acid prescribers.

Speaker 1

And now with our recent goal like acquisition, natisonone and betaine can help drive additional opportunities to cross sell goal like, which I will spend a few minutes talking about. I was very excited to close this acquisition in March and I believe it adds another compelling growth asset to our metabolic portfolio. Golike is a medical formula for patients with phenylketonuria, also known as PKU. PKU patients like the enzyme needed to break down phenylalanine, which is an amino acid found in protein. For these patients, eating protein results in the buildup of phenylalanine, which can cause neurological problems, including seizures and brain damage.

Speaker 1

As a result, many of these PKU patients must take specialized no or low protein medical formulas such as PKU GoLike. Just like our other metabolic products, GoLike is distributed by a specialty distributor that handles dispensing and patient support. The product is typically covered by insurance and it is prescribed by healthcare professionals. I believe GoLike is a compelling opportunity and I'm excited about it for a number of reasons. First, GoLike is very strategic fit with our corporate strategy and commercial infrastructure.

Speaker 1

The product serves an ultra orphan population of an estimated 8,000 PKU patients in the United States. These patients rely on medical formulas and the condition is managed by metabolic geneticists and their support staff, the same healthcare professionals that we are actively engaged with on our other metabolic products. Secondly, GoLike is an attractive product that we believe has significant advantages over the competition. Historically, PKU patients have relied on medical providers or medical powders that must be mixed and drank multiple times each day as meal replacements. GOL Like has a number of benefits.

Speaker 1

It comes in a convenient and ready to eat bar format. We believe it is significantly is better smelling than competitor products and it is a patented delayed release amino acid technology designed to keep patients full for longer periods of time. And finally, GoLike offered a compelling financial opportunity. We paid less than 2x annual revenue for the product and expect to see significant revenue growth for years to come. Golike Granules were launched at the end of 2022 and Golike Bars were launched in mid-twenty 23.

Speaker 1

So the product is still in its infancy stages of launch. We believe our larger commercial footprint and existing relationships with the metabolic community can help accelerate the product's adoption. The U. S. Market for PKU GoLite medical formulas is estimated to be approximately $100,000,000 annually.

Speaker 1

With GOL Life's attractive product benefits and our commercial infrastructure, our goal is to capture at least 10% market share or $10,000,000 annually in the coming years. Our sales team launched the product under Eton's ownership at the Metabolic Dieticians International Conference in mid April and we received very strong interest and positive feedback from the dietitian community at the conference. This further reinforced our belief that GoLike provides an improved patient experience and should see significant growth in the years to come as we raise awareness and education in the community. Switching now to the endocrinology side of our business. Alkendi Sprinkle also posted record sales and significant growth in the quarter.

Speaker 1

As we discussed in our previous call, we recently introduced a sampling program and our commercial team has been very active at medical conferences so far this year, including exhibiting at the Pediatric Endocrine Society meeting last week. We have seen growth in new patient prescriptions so far and most patients who try Alkindi have a positive experience and remain on therapy. Eaton does however continue to see patients that choose to discontinue treatment due to the texture of the granules. As Okeindi continues to grow, we have a number of initiatives underway to lessen this discontinuation rate, including revamping our educational and administrative materials, but we also believe ET-four hundred will most adequately address this issue. In addition to reducing discontinuation, ET-four hundred will provide an important treatment alternative to the large contingent of patients that use a liquid product today, either a suspension formulation from a compounder that is not FDA approved or their own version that they make at home by crushing tablets and mixing them with water or have been resistant to alkeny sprinkle because they want to stay with a liquid dosage form.

Speaker 1

We believe that this portion of the population, which could include several 1,000 patients will be pleased with the accurate dosing in the liquid form that ET-four hundred will provide once it is approved. On our last call, I mentioned that we had passed our clinical study, which was the final hurdle in submission of the ET-four hundred NDA. I am now thrilled to say that we submitted the NDA last week. We anticipate that the FDA will assign the application a 10 month review, allowing for potential approval during the Q1 of 2025. Our team has begun preparing launch activities in order to be in a position to efficiently and effectively commercialize the product shortly after approval.

Speaker 1

I remain confident that once approved, the commercialization of ET-four hundred will significantly accelerate the company's growth trajectory and we believe that ET-four hundred and ALK kidney Sprinkle will achieve combined peak sales of over $50,000,000 annually. We also continue to make progress with ET-six hundred, a product candidate under development for the treatment of diabetes ET-six hundred is another new pediatric endocrinology product that we hope to launch soon after ET-four hundred. The product was passed as pilot bioequivalency study and we are on track to run a pivotal study in the second half of this year. Our team expects to submit the NDA in early 2025 for potential approval near the end of 2025. I think it is clear that our 5 commercial products plus our attractive late stage pipeline position us well for sustained long term growth.

Speaker 1

That being said, we continue to look for business development opportunities that can propel us even further. Our business development team is currently focused on commercial revenue generating products. Our available capital positions us for a large value creating acquisition. And given our current valuation and expected growth, we would intend to use primarily debt for any such acquisition. As an example of our capacity, in April, we were the runner-up bidder in the bankruptcy auction for Iger Biopharmaceuticals' Zokinbi product.

Speaker 1

While we did not we were able to quickly arrange committed capital within a matter of days to support a $46,000,000 bid. While we submitted a competitive offer for the asset, at the end of the day, we are not interested in overpaying for any asset. Given our attractive current financial position, our strong organic growth potential and the expectation for ET-four hundred to deliver significant tailwind next year, we have the luxury of being able to remain extremely disciplined on M and A. While we would like to add a larger asset to the product portfolio, I am cautiously optimistic that we can do so. We certainly do not need to.

Speaker 1

Our existing portfolio and pipeline positions us to reach our profitability goals in the coming years. And with that, I'll turn it over to James, our Chief Financial Officer, to to discuss the financials. James?

Speaker 2

Thank you, Sean. Our first quarter revenue was 8,000,000 dollars compared to $5,300,000 in the Q1 of 2023, an increase of 50%. In both periods, revenue was comprised entirely of product sales and royalties and the increase was primarily due to increased sales volume of our Arkindi sprinkle and kardalumic acid products. We expect product sales to continue to grow quarter over quarter throughout the rest of this year and beyond. Gross profit for the quarter was $5,000,000 compared with $3,300,000 in the prior year period.

Speaker 2

R and D expenses for the quarter were $700,000 compared with $500,000 in the prior year period, and the increase was primarily due to development activities related to ET-four hundred. While we expect an increase in 2nd quarter R and D expenses with a $2,000,000 filing fee for ET-four hundred, we expect total R and D spend for 2024 to remain at approximately 4,000,000 dollars excluding the one time filing fee. General and administrative expenses for the quarter were $5,200,000 compared with $5,300,000 in the prior year period with the decrease due to a slight reduction in employee related expenses and logistics costs. We expect general and administrative expenses to remain relatively constant throughout the remainder of 2024 even with the recent PKU Go Like acquisition and neticinone launch. Total company net loss was $800,000 for the quarter compared to a net loss of $2,700,000 in the prior year period.

Speaker 2

Net loss per basic and diluted share was $0.03 during the quarter compared to a net loss per basic and diluted share of $0.10 in the prior year period. Given our current expectations surrounding the timing of R and D activities, we expect to report positive quarterly net income by the end of this year. Eaton finished the Q1 with $16,700,000 of cash on hand and our operating cash burn during the quarter was 2,500,000 dollars While we achieved positive operating cash flow in the second half of twenty twenty three, the Q1 of 2024 was impacted by a one time milestone payment of $1,000,000 related to 2023 al Kindi Sprinkle sales achievement, a payment of $500,000 for inventory associated with the PKU Go Like product acquisition and by the calendarization of marketing and promotion spent that is heavily weighted in the first half of the year. We remain confident that our continued sales growth and disciplined cost structure will result in positive operating cash flow throughout the remainder of 2024 and allow us to actively pursue new product opportunities. This concludes our remarks on Q1 results.

Speaker 2

And with that, I'll turn it over to the operator for Q and A.

Operator

Thank you. At this time, we will conduct a question and answer session. First question comes from the line of Chase Knickerbocker of Craig Hallum. Your line is now open.

Speaker 3

Good afternoon, guys. Thanks for taking the questions. I'm just going to kind of go product line by product line here. Maybe just to start on Carglumac, Sean. Where are we at in that product's lifecycle?

Speaker 3

Do you think we can add a couple handfuls of patients this year still? Or should we think about it as you kind of maintaining the patient volumes that you have, say, in 1Q kind of through this year?

Speaker 1

Well, hi, Chase. There's still some runway apparently. We continue to add patients. We just added 3 more patients for the past week. And our estimate is there's up to 100 patients.

Speaker 1

We have about a little more than half of that and it continues to grow. We get a lot of new patients on, which actually tend to use that same product over extended period of time. In terms of the product life, it has been robust it's been a robust product for us, primarily due to the detailing the patient services and we think all the RevPARANT service that we provide for patients.

Speaker 3

Got it. And then maybe on the new one on Go Like, you're expecting quite a bit of growth there. You already know all of those physicians. How quickly do you think you can kind of get to that 10% penetration level from here? Is it 3 years?

Speaker 3

Is it 1 or 2 years? I mean, just kind of help us benchmark kind of how quickly you would expect that growth considering you already know the 100 or so on positions?

Speaker 1

Yes. I that's a little more difficult to predict, but we have approximately 50% of that. Let's say, we want to hit $10,000,000 in peak sales, which will be about 10% of the current market. We actually could exceed that depending on how fast the uptake is. There are very few companies out there that are positioned as well as us in terms of being able to promote a PKU product.

Speaker 1

So with that said, for us to hit $5,000,000 next year in go like sales is very achievable. It may be significantly higher than that, but I believe that's in the cards.

Speaker 3

Got it. That's helpful. And if we kind of think about LKANDI and hydrocortisone portfolio before the ET-four hundred launch, obviously, you're seeing nice growth there still. Do you think there's kind of runway to add another kind of 100 patients from here before ET-four hundred launch or just kind of help benchmark us on kind of growth in alkyndi as we're waiting for ET-four hundred?

Speaker 1

Yes. The challenge with the LKINDI is that we it's not a challenge of getting new scripts. So we get a lot of scripts. What happens is some of the patients do not stay on product due to the texture issue that we've mentioned before. So we have a fairly higher rate of discontinuation than I've seen in other pharmaceutical products.

Speaker 1

It can be mitigated by education. It can be mitigated by working with the doctors and the caregivers, which we are doing all of those things. And we are planning some additional educational materials to go out to all of the physicians' offices. So when patients are prescribed product, they understand it can be a challenge of texture with the child initially. And I think that for us to have we have growth for the product quarter over quarter.

Speaker 1

Can we add another 100 patients? It's not it's certainly an achievable goal, but it's going to hinge largely on reducing the discontinuation rate, which is really the main driver of why we did ET-four hundred in the first place. We look at the reasons why LKINDI patients go off drug and ET-four hundred handles really most of those issues right out of the gate. So I think that is that's why we're really excited about the product. Now that it's been filed, we're already looking to produce and have product even ahead of a 10 month PDUFA date.

Speaker 1

So, LKINDI numbers will continue to get scripts week after week. If we can reduce the discontinuations, we can add another 100 patients. If discontinuations are at the same level, it's going to be a little bit more challenging. But it's a robust product and we're going to keep going.

Speaker 3

Got it. Maybe shifting gears to AT400 and I just have a couple more guys. Thanks for the time. Maybe speak to us on obviously you've established the PK bridge. Maybe just talk to us on kind of your confidence around the CMC kind of side of that submission.

Speaker 3

I mean, are you kind of are you working with a manufacturer who has recently kind of successfully gotten through some FDA audits along the lines of some recent approvals that they are manufacturing? Just kind of talk to us about the confidence of your manufacturing partner there?

Speaker 1

Sure. So the files are very similar to what we did with topiramate and zonisomide oral solutions. One of the manufacturers is the same as one of the products, I won't say which one. And so we're confident in their FDA readiness. They have already gone through that process and passed our quality inspections.

Speaker 1

So I don't feel the facility has really any risk around it. We feel good about the way the NDA submission has been put together. It's actually been put together at a higher level than what we did for topiramate and zornissomide, both of which are approved in commercial products today. So the process and the deliverables that we had in those files are exactly the same as what we have with ET400. So I really don't see significant barriers to launching the product on time and we'll obviously be very timely in any inquiries we'll get from the FDA and make sure that that process is going smoothly as possible.

Speaker 3

And then just last for me, Sean. This is really kind of a line extension with ET-four hundred. You know all these physicians already. You'll obviously be kind of targeting some of those discontinuation patients that ET-four hundred is a great fit with. How quickly should investors be thinking that you can kind of drive scripts with ET-four hundred post launch, just kind of speak to your confidence on how quick that launch can be?

Speaker 3

And thanks for taking the time.

Speaker 1

Yes, absolutely. Our pleasure. So in terms of the ramp up to what we stated, I think in our press release and in our comments earlier today, it was our goal is to get $50,000,000 plus in revenue between these two products. I feel that within a 12 month timeframe, we'll be well on our way. And I think that getting to that $50,000,000 with the 24 months of launch is achievable.

Speaker 1

So that gives you some idea of what how we're thinking on things. Of course, once you get out there, we just did, for example, a panel of doctors of I believe it was 8, maybe it was 10 doctors, who specialize in treating adrenocorticoid insufficiency. And they could not be more excited about this product. There are some of the top prescribers in the nation and so for us to have conversations that just sort of like marketing studies in advance to understand their needs is really important. We want to serve the patients and we believe we've designed a product that will meet patient needs and be well received and prescribed by doctors.

Speaker 3

Great. Thanks guys.

Speaker 1

You're welcome.

Operator

All right. Thank you. I'm showing no further questions at this time. This does conclude the question and answer session and the program. Thank you for your participation in today's conference.

Operator

You may now disconnect.

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Key Takeaways

  • Eaton delivered its 13th consecutive quarter of sequential product revenue growth, reporting a record $8 million in Q1 sales (up 50% YoY) while reducing SG&A spending by 4%, highlighting strong operating leverage.
  • The metabolic portfolio expanded from two to four products with the launch of meticinone capsules and acquisition of PKU GoLike, targeting $10 million in annual GoLike sales by capturing 10% of the U.S. PKU market.
  • Eaton submitted the NDA for ET-400 (hydrocortisone oral solution) and anticipates FDA approval in Q1 2025, with ET-400 and ALKINDI Sprinkle expected to achieve combined peak sales of over $50 million annually.
  • The ET-600 diabetes candidate passed its pilot bioequivalence study and is on track for a pivotal trial in H2 2024, aiming for an early 2025 NDA submission to bolster the late-stage pipeline.
  • With $16.7 million in cash, disciplined R&D and SG&A management, and access to debt financing, Eaton is positioned for positive operating cash flow and opportunistic, value-creating acquisitions.
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Earnings Conference Call
Eton Pharmaceuticals Q1 2024
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