Eton Pharmaceuticals Inc (ETON) 2020 Q2 法說會逐字稿

Good afternoon, and welcome to Eton Pharmaceuticals' second-quarter 2020 financial and operating results conference call. (Operator Instructions) 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 proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Eton's second-quarter 2020 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; 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 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.

Thank you, everyone, for joining us. We have a number of exciting topics to discuss today, including significant developments in our pipeline, an update on our commercial progress and our plans for Eton's first orphan drug launch later this year.

I'd like to start with an update on our EM-100 product. Due to a proprietary name change submission, the FDA has extended the target action date for the application to a few weeks from now, specifically on September 15. We've been told that there are no other deficiencies outstanding, and we remain confident that the product will be approved very shortly.

Now moving over to a few words regarding our DS-100 product, as an outcome of the COVID-19 situation, hand sanitizer demand has skyrocketed. Unfortunately, this has also resulted in the production of low-grade sanitizers with high levels of methanol. This is a toxic impurity and has very strict limits in terms of product quality. Left untreated, methanol poisoning can cause both blindness and death.

The FDA has issued recalls for over 100 different hand sanitizers this year. There also have been many serious adverse events due to methanol poisoning and ERs across the nation. I therefore am pleased to communicate, we submitted our DS-100 antidote in July and look forward to launching in the very near future. We believe DS-100 represents a significant opportunity for our company. And the current market for dehydrated alcohol injection is estimated to be in excess of $100 million annually. We expect to be one of only two players in this market for a prolonged period of time.

Also in July, we submitted an NDA for ET-104, which is our patent-pending liquid formulation of zonisamide. We have received strong interest from neurologists on this product and are excited to be one step closer to reaching the market. Zonisamide is one of our three oral liquid epilepsy products along with lamotrigine and topiramate. We expect to file the topiramate NDA in the coming months, which should allow us to launch all three epilepsy products next year. With these filings, we now have five products submitted to the FDA and we expect two additional submissions to go in later this year. These submissions are expected to translate into as many as six branded product launches between now and the end of next year, which is truly unprecedented for a company of our size.

Turning to our commercial updates, I'd like to start with Biorphen. Unfortunately, COVID-19 continues to weigh on sales of Biorphen. Surgical procedures and volumes have started to rebound slightly from March and April lows, but hospital policies continue to restrict sales representatives from visiting with pharmacy directors and staff. While this has created a challenge for driving new adoption, we are adjusting our plan to overcome these challenges and are in the process of implementing new targeting strategies and promotional campaigns that are expected to significantly drive higher Biorphen sales in the second half of this year.

Another key catalyst to Biorphen adoption will be the launch of our vial presentation. We're on pace to submit a prior approval supplement later this year which will allow us to launch the vial in early 2021. We continue to hear feedback from many institutions that fully support ready-to-use phenylephrine, but are resistant to utilizing ampules. We believe the vial launch next year will help us achieve our long-term goal of capturing 4 million of what we estimate to be a more than 20 million unit market opportunity.

Now a few words regarding Alkindi Sprinkle, which we believe to be the largest revenue product in our pipeline. Alkindi Sprinkle is an orphan drug candidate under review with the FDA for treatment as a replacement therapy for pediatric adrenal insufficiency. Based on the review communications our partner has received from the FDA to date, we believe the product should be approved on its PDUFA date of September 29. We have ordered launch inventory, we have added commercial staff with vast experience in launching ultra-orphan drugs, and we expect to be in a position to launch shortly after its approval.

As part of these prelaunch activities, we have engaged with key stakeholders in the pediatric endocrinology community. Just last week, we held an advisory panel with leaders in the endocrinology industry and the feedback was overwhelmingly positive and they are anxious awaiting Alkindi's approval. With the experienced commercial team we have assembled at Eton and hearing from leading endocrinologists as we prepare for launch, I am more convinced than ever that Alkindi will be a major success for the company.

Today, we are also pleased to announce that we have expanded our relationship with SWK Holdings and amended our credit facility. Due to the strong progress in our pipeline over the last year, we were able to favorably renegotiate our existing credit facility. Under these new terms, the facility's available capacity will be increased and the interest rate will be reduced when we reach certain performance metrics.

We were already in a strong financial position prior to this renegotiation with quarter end cash of more than $10 million. But now we expect to have a total of $8 million of untapped capital available at our option after the approval of Alkindi next month. This amendment provides us with even greater flexibility as we continue to pursue growth opportunities and invest in our product launches.

Before we open it up for Q&A, I'd like to reiterate how proud I am of our team's achievements over the past months and how excited for Eton's future over the coming quarters. We have spent three years focused on aggressively progressing our pipeline candidates to NDA filings, and we are now on the brink of realizing the fruits of that labor. With five drugs currently submitted to the FDA, we have laid the groundwork to begin to deliver significant revenue next year and more importantly, earnings next year. My goal for the company is to reach profitability before the end of 2021.

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

(Operator Instructions) Ram Selvaraju, H.C. Wainwright.

Thanks so much for taking my questions. Firstly, I was wondering if you could elaborate on the nature of the commercial effort behind the three oral CNS-focused products. And if you could maybe give us a sense of how each of those fits into the treatment of the overall epilepsy treatment continuum. And how each of these addresses a different need among epilepsy patients, so that by marketing all three of them, you're not necessarily marketing products that overlap with each other.

Hi, Ram. My name is Paul Stickler, and I'm responsible for commercial operations here at Eton Pharmaceuticals. And thank you for your question. We are very excited about the portfolio of anti-epileptic drugs that we intend to bring to the market here very shortly. And each of the three products are widely used products in the adult and pediatric space, but have all always been, I guess, missing a key delivery methodology, and that is the oral liquid.

And Eton is going to be in a great spot to deliver those products to this space in the near future. And we think that based upon the research that we've done that there should be very reasonable uptake in this space in the targeted patient populations.

Okay. And then just very briefly on Alkindi Sprinkle, can you talk about the sales infrastructure that you expect to require in order to ensure an efficient launch of the product? And in particular, if there is likely to be any specific strategy that you would need to employ in order to overcome any possible restrictions or special circumstances due to the presence of the COVID-19 pandemic. Like, for example, you know, any restrictions you think there might be once the product is launched on face-to-face sales promotions. Thank you.

Yes. Thank you, Ram. Yes, we're planning for the worst, but hoping for the best, really. The mechanics of the personal promotion elements are a bit in flux at the moment, as we're all aware, related to the pandemic. We're currently planning for an efficiently designed and relatively low-cost commercialization effort comprised of between four and seven sales representatives that will call on approximately half of the pediatric endocrinologist community or a little less than 1,000 HCPs.

This target base will be the ones that predominantly prescribe or see adrenal insufficiency patients. We also intend to have a mix, both of personal promotion and nonpersonal promotion, and we're going to be as flexible as we need to be and obviously monitor and listen to the market in terms of our ability to get to the key stakeholders.

Okay. And then lastly, on BS-100, just two items there. Can you comment on what your pricing disposition would be for this product, assuming approval. [Relative delta] has priced its own dehydrated alcohol product. And then also if you plan to actively promote this product or simply make it commercially available and let market demand do the rest. Thank you.

Yeah, we have -- this is Sean Brynjelsen. We've not determined pricing at this time. I imagine that will be something we'll settle on as we get closer to launch. We know there have been numerous hospitalizations over the past few months due to methanol poisoning and we know the market is significant. There are more than 100,000 units of dehydrated alcohol. Some of it's used not necessarily for methanol poisoning, but it has other uses as well. So the -- I would imagine that we'll have some sort of a discount, but I don't think we'll have a large sales force. That's not something that is necessary for the product. It's a product that hospitals have used in the past and over the years.

This product was for many years a unapproved drug product and recently the regulations tightened up where you need to seek product approval. So our indication we think is very timely. It's one that we believe as -- I mean, there are no explicit instructions on how to administer dehydrated alcohol to treat methanol poisoning. So certainly having the label, which spells that out for the physicians, many of which may not be familiar with how to treat a methanol poisoning, we think, is essential.

Thank you very much.

You're welcome.

Andrew D'silva, B. Riley FBR.

Hey, good afternoon. Thank you very much for taking my questions. Just a couple of quick ones. As it relates to the previous question you answered, maybe just discuss a little bit more broadly about DS-100. I know at Acorn, for example, used to sell it under the DESI designation until Belcher kind of got the FDA clearance to be the only one in the market. And you did reference the 100,000 units across a multitude of indications.

So Belcher's product is only for cardiomyopathy, at least from a label standpoint. Since the other DESI products are no longer on the market, is effectively Belcher filling the whole 100,000-unit need going forward? And how do you think you play more broadly within the dehydrated alcohol injection space once approval takes place outside of just your particular indication?

Okay. So couple of answers there. One is the Belcher product is indicated for -- actually has a very narrow indication. Certainly the 100,000-plus units that are used each year by hospitals are not for that per se. So I imagine there is some off-label usage. Our product will be identical in terms of the fill volume and things of that nature. So our product will be promoted as an antidote for methanol poisoning. That's -- the only way we sell any of our products is on label.

But, I don't know how hospitals ultimately -- it's up to the physician and their patients on how they end up using the product. So yes, at the end of the day, they'll probably be a splitting of the market to some extent, and I -- it probably would be roughly 50-50 in a perfect world.

Okay, great. And thank you for the color there. And just my last question is related to -- as it relates to Biorphen, have you had any success with compounders as far as the cease-and-desist goes and where are you from the ampule production standpoint? Thank you very much.

Sure. Okay. So for the second part of your question, we are very close to filing the vial. We're looking to exit the ampule format and go into a vial format. We found across the board that hospitals are readily willing to switch to the vial even if they have to switch off of a prefilled syringe supplied by a compounder. They -- we've had the feedback that is -- that would be enough of a value proposition. Our product will be priced comparably to what you can buy from a compounder.

So we took pricing off the table in terms of an issue. And we believe that once we can communicate that message directly to the doctors, to the pharmacists and such, which we have a new advertising campaign and promotional campaign that can do that without necessarily having the face-to-face interactions, we're going to see and we're confident we're going to see us capture a large amount of the 4-million-unit target that we're going for.

In terms of the status of the letters and the cease-and-desist letters, compounders are known for just not wanting to follow the rules when it comes to those types of things. It's taken lawsuits in the past to remove them from the market on other products that have been approved. We've exchanged correspondence with the FDA. They have communicated their desire to not have copies of approved products in the market.

So that's really where our focus is is ensuring that there are not copies -- really what we view as illegal copies or copies which were made without FDA approval. And there's no safety and efficacy with these compounded products. We think it also risks patients' lives. But to have an FDA approved product that has been reviewed for safety and efficacy, has a much longer shelf life, there's all the reasons in the world to use the product, especially when price is really not an issue here. So the value proposition is tremendous. It's a matter of now just getting that through the hospitals.

Great. Well, hey, thank you very much. Congrats on all the success with the pipeline and best of luck going into the end of Q3 and closing out the year.

Appreciate it. Thank you.

Brooks O'Neil, Lake Street Capital.

Thank you. Good afternoon, everyone. I guess I'll start with EM-100 and I'm hoping you guys can give us just a little more color on whether the name change was driven by Bausch? Or was it driven by the FDA or kind of what's going on there?

Well, the name -- as a product goes through the approval process, there's a discussion about what -- especially if you want to brand it, it has to go through a division of the FDA, OPDP, and it's a division that has approve the name. So there's a process involved there. This name was modified at a later point during the review process. Did a agency questions. Once that name was modified from what it originally was, FDA, I guess, decided that was worthy of a four-week delay in our date, our target action date.

I don't really view this as a big deal. Four weeks is not something that was going to affect the timing of the launch. And the good news here, which I believe is truly good news, is there are no other open issues that we're aware of. Everything we've been told has been closed on the other sections, and we're really just sort of finalizing this labeling piece.

So yeah, September 15, four weeks from now, we would expect approval and actually September will be a very exciting month because we're also, as you know, accepting -- expecting approval of Alkindi that month. And we have a number of other, let's say, events and milestones we're looking to achieve in September.

Great. That's fantastic. And my own view is the next two weeks and heading into Labor Day, nothing's going to happen anyway. So four weeks is no big deal

Exactly.

Actually [it's done] here. So will you just remind us of the economics associated with EM-100 approval? I have a recollection it's maybe $1 million-plus milestone payment and a 12% royalty, but am I in the ballpark on that?

That's correct. The milestone was paid on the launch of the product.

Okay, great. And then, as we think about DS-100, I know you've gotten a couple of questions on this. But I think you described the primary target for -- that you guys are going after is methanol poisoning. And recognizing good portion of the $100 million established market is a focus of the other orphan drug, how do you size the methanol opportunity? Obviously, it's relatively new here in response to COVID, but I mean, do you think that's truly a $50 million market opportunity or $100 million or how do you --?

Well, a lot of it will depend on how fast that market shapes up. And all we can do is take the number of units and I think people know what the current pricing is. We didn't create that market. Our mission is to be able to provide medicines that are affordable and available to all patients. So we would not go higher in price certainly. As I said, we haven't settled on the exact price, but we want to be -- this is for us a low volume product. And you truly don't want to price the product either as a grandfathered or unapproved product where you did no work to bring something to market.

Once you go and do the studies and you go through the process of getting something approved, it really does cost many millions to do that. So you do want to have some sort of return on your investment, especially when you've got -- not every product is going to hit like you want. I do believe that it will be at some sort of a discount. And I believe that we would target a 50% market share. So that's how we're looking at it. I guess I'll leave it at that.

Perfect. Just a couple more real fast, and I couldn't be more excited to see that come to market. Can you give us any color whether you're seeing any inbound inquiries or initial orders for that product at this point?

Hey, Brooks, this is Paul Stickler here. At this point in time, we certainly have gotten a lot of interest as our engagement with the pediatric endocrinology community has increased as well as our engagement with the advocacy groups in the area. So we've got a lot of interest, but given the fact that the product is not yet available, we haven't gotten any specific interest in getting product per se, particularly because of the knowledge of the PDUFA date being in late September.

Sure. That makes sense, Paul. Thanks a lot. And then just my last one. I think you mentioned the interest rate on the SWK facility decreases once you become EBITDA positive. Can -- you mentioned, I think, Sean, you hope to be both generating revenue and profits in 2021. Can you help us sort of think about how you expect the year to unfold? Is everything going to come together in Q4? Or do you think you can have some kind of a progression as we move through the year that kind of gets you to that profitability later in the year?

Well, I think two of the big drivers will be Alkindi Sprinkle, dehydrated alcohol, as well as the neurology products. So hitting just two of those three will allow us to achieve profitability in this, I'll say the second half of the year. So that as our goal. We also are avoiding doing any dilutive deals necessarily that would prevent us from being able to achieve profitability. So we're being careful about the types of deals. Doesn't mean we wouldn't go for something if it was -- create a lot of value out there. But as things stand today, that's what our models are showing us.

Great. That's very helpful. Thanks a lot. We'll talk soon.

Thank you.

Thank you. I show no further questions in the queue at this time. I'd like to turn the call over to Mr. Sean Brynjelsen, CEO, for closing remarks.

Thank you. And I'd like to thank everyone for joining us today. As always, we're always happy to communicate our progress. This has been an exciting quarter past -- couple of quarters as a matter of fact. I think that over the past few years, we've been developing and coming up to this point, where we're now pivoting to a commercial organization, pivoting to a profit generating and revenue generating company. So that is something that we'll look forward to sharing with everybody in the coming quarters. And take care, everyone. Be safe and we'll talk soon.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.