Good afternoon and welcome to the Eton Pharmaceuticals' Fourth Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen only mode. Following the formal remarks, we will open the call out for your question. Please be advised that this call is being recorded at the company's request. At this time, I would like to turn it over to David Krempa, Chief Business Officer at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone and welcome to Eton's fourth quarter 2022 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; and James Gruber, our CFO. In addition to taking live questions on today's call, we will be answering questions that are e-mailed to us. Investors can send their questions to investorrelations@etonpharma.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.

Thank you, David. Thank you, everyone, for attending today's call. Good afternoon, everyone, and thank you for joining us to discuss Eton's fourth quarter results. I am pleased to share that the company's momentum continued in the fourth quarter of 2022 with $8.5 million in revenue and positive net income of $0.9 million. This was our 8th straight quarter of sequential growth in product sales and not only do we expect that streak to continue through 2023 and beyond, we are expecting that growth to accelerate in 2023 due to some of the items we will be talking about today. We expect our product sales and royalty revenue most importantly to at least double this year compared to 2022. First off, I would like to start today with an exciting update on our commercial organization. As many of you know, in 2021, we were in the early stages of our ALKINDI SPRINKLE launch. We entered into a copromotion agreement with Tolmar Pharmaceuticals. This agreement allowed us to leverage Tomar's existing large pediatric endocrinology sales force to promote ALKINDI SPRINKLE and save Eton millions of dollars in sales force costs. Due to the significant growth in the product since we entered the agreement and our strong forecast for 2023, our projected sales commission at Tolmar for this year was going to be roughly the same amount as it would cost us to expand our own sales force. So in January, we exercised our right to exit the copromotion agreement at no cost and we hired our own team. Tolmar was a good partner and we thank them for their contributions to the product. But ultimately there's no replacement for having complete control over your own sales team. Now that the financials justify, we are excited to bring it fully in house.…

Thank you, Sean. Our fourth quarter revenue was $8.5 million compared to $6.1 million in the fourth quarter of 2021 or a 39% increase. The increase was largely due to growth in our ALKINDI SPRINKLE and the launch of Carglumic Acid. Revenue for the fourth quarter of 2022 included a $5.0 million milestone received from Azurity for the launch of ZONISADE. The prior year period included a $5.0 million milestone related to the launch of EPRONTIA from Azurity. Product sales and royalty revenue totaled $3.5 million for the quarter, compared to $1.1 million in the fourth quarter of 2021 or a 220% increase. Sequentially, product sales of royalty revenue grew 9% over the third quarter of 2022. Sequential growth was impacted by the timing of product orders from our specialty pharmacy, plus a slight slowdown in the number of new patient starts for both products in Q4 due to the holidays. We expect the growth rate to accelerate significantly in the first quarter of 2023. Gross profit for the quarter was $6.4 million compared with $5.7 million in the prior year period. R&D expenses for the quarter were $0.9 million compared with $0.7 million in the prior year period. Following any not yet announced business development activities or new project initiations, we expect to see only a small increase in R&D spend in 2023 relative to 2022 due primarily to the development activities and payments related to ET-400 and ET-600. General and administrative expenses for the quarter were $4.4 million compared with $3.7 million in the prior year period due primarily to incremental marketing and compensation expenses to support our product commercialization partially offset by decreased legal and consulting expenses. Despite the expansion of our internal sales force, we expect only a minor increase in SG&A expense for 2023 and expect full year SG&A expenses to remain below $20 million. The increased costs related to the sales force are being partially offset by lower legal costs, reduced marketing spend from some initial launch related expenses that will not repeat in 2023, the elimination of the copromotion commission paid to our marketing partner and the elimination of expenses that were associated with supporting products that were divested in 2022. Total company net income was $0.9 million for the fourth quarter which is a slight decrease compared to $1.0 million in the prior year period. Net income per basic and diluted share was $0.04 in both periods. Eton finished the fourth quarter with $16.3 million of cash on hand and our operating cash flow during the quarter was $2.8 million. We continue to feel confident that our cash position is sufficient to allow us to execute our commercialization plan, allow us to continue to pursue bolt-on transactions or new product developments and take us to profitability. That concludes our remarks on fourth quarter results. And with that, we'll turn it over to the operator for Q&A.

[Operator Instructions] And we have James Kennedy from Marathon Micro Partners. Your line is now open.

Thank you. Hi guys. Congratulations on a tremendous progress. It sounds like you're very well positioned for a very nice 2023 and beyond. Sean, I wanted to start with understanding a little bit about the, I'll call it, the internal expansion in the sales force. Now the people coming over, were they actually Tolmar employees that you just acquired?

No, they weren't. Actually, we spent a fair amount of time recruiting from some of the top rare disease companies, Tolmar was not one of them. The focus was on sales personnel that had a track record of success. So really we're looking at individuals from companies really across the United States had proven over time that they really could go out there and get it. And we're really pleased with the team we've put together.

Good. Now when Tolmar was in place, were their reps responsible for more than just ALKINDI SPRINKLE or were they dedicated strictly to ALKINDI SPRINKLE?

No, they were responsible for their own products as well as ALKINDI SPRINKLE. Our product was not from a - I guess, a commission standpoint, was not at the top. And that was one of the reasons that we felt having a dedicated team would make all the difference. We've already started seeing that. This even though the team was not fully deployed until February and I'm really happy with the results thus far. Not just on ALKINDI SPRINKLE, but on Carglumic. Tolmar did a -- they're fine people, great sales force, but it was just a matter of focus. And I think that anyone would agree if sometimes you just need to do it yourself.

Yes. No, it sounds like a wonderful expansion. Now in terms of those, I think you said 12 people. Will they be dedicated to ALKINDI or they will have also multiple products?

They will be primarily dedicated to ALKINDI. Let's say 80% and then maybe 20% to Carglumic Acid and Betaine. The reason for that at this point is there aren't that many call points for Betaine and Carglumic Acid. So we feel we can do that without really diluting the ALKINDI sales effort. As we bring in more products and launch more products, we ultimately will have to expand that sales team and whether we have two teams where one focuses on ALKINDI and the other team focuses on this bucket of ultra-rare disease products, we haven't decided. We may still end up with one large team, but perhaps having two people in each of the major areas to ensure that we cover all of the ALKINDI call points.

Great. And to the uninitiated like myself about your ET products, what is the overlap or how do they coordinate with ALKINDI because they both sound like they're sort of in that adrenal deficiency market? Are they complementary? Would a doctor use both? How do they fit together?

David, go ahead.

Yes. So the ET-400 is the product that it's complementary to ALKINDI SPRINKLE. It would be targeting the same condition. The patients would actually probably take either ALKINDI SPRINKLE or the ET-400. We think having the second option would help us penetrate that market much faster. The ET-600 product, which we announced today, we're very excited -- we announced this week we're very excited about. It's a completely different condition. It's not in the adrenal insufficiency space, but it is in pediatric endocrinology. So it's the same doctors that are treating patients and prescribing ALKINDI SPRINKLE would be prescribing the ET-600 product. So there's a lot of synergies and overlap there. It's a space we know well. We know those doctors very well. They've told us about the need for this ET-600 product. So we think it will be a very good fit to our portfolio.

Excellent. And can you comment on either the structure of the deal or what it looked like compared to your prior acquisitions in terms of ET-600?

Yes, it was relatively similar structure that payments are derisked over time, paid with success based milestones. It's not going to be extremely expensive project. We think we've found a pretty good pathway to market that it can be done pretty inexpensively. So I think James mentioned, even including it into our R&D for this year, you're only going to see a slight increase versus last year. But for competitive reasons, we're not going into too much detail on the product at this time, but we hope to share more about it as we get closer to bring it to market.

Very good. Okay. Thank you for taking my questions.

Thank you.

And, thank you. And I would now like to turn the call back over to David Krempa for further remarks.

Thank you, operator. So we had two questions emailed into us I think we -- Jim touched on both of them. The first was about ET-600. We talked about, it's the same prescriber base. We don't expect a significant increase in R&D related to the project. The second question was on the sales reps. And how quickly you expect to see a benefit? I think we already touched on that that we're starting to see the early indications now. I think Carglumic Acid, we see the benefit much more quickly. It's a little bit of an easier switch to convince the doctor to make. The ALKINDI SPRINKLE, you are actually doing some changing of prescribing habits. There's a little more education that goes into it. So oftentimes you need to see a couple of visits with the doctor before they changed their habits. So that one takes a little bit longer than Carglumic Acid switch, but we still expect to have a pretty good indication of the efficiency of the sales force in the next few months.

Thanks David. And last, I'd just like to say, this is by far the most exciting year in our company's history. I'd like to thank everybody who attended the call today. We are really looking forward to providing further updates as the year progresses. And we wouldn't anticipate additional, let's say, transactions, licensing deals, late stage products that will be part of that 10 that I mentioned.

This concludes today's conference call. Thank you for participating. You may now disconnect.