Good afternoon, and welcome to Eton Pharmaceuticals Second Quarter 2023 Financial Results Conference Call. [Operator Instructions] 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 go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Eaton's second quarter 2023 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. You can send your questions to investorrelations@etonpharma.com. Before we begin, I would like to remind everyone that remarks made during today's 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. Good afternoon, everyone, and thank you for joining us today. The second quarter was another exceptional quarter for Eton. We delivered record product sales of ALKINDI SPRINKLE and Carglumic Acid. We launched our third commercial product, Betaine Anhydrous, and we also recorded positive cash flow and net income. It was our 10th straight quarter of sequential product growth. As a result of this outperformance through the first half of this year, we are now increasing our revenue expectation for 2023. We expect total 2023 revenue of approximately $30 million. During the second quarter, total revenue was $12 million and net income was $4.6 million. Product sales and royalty revenue were $6.5 million for the quarter, up 176% from the second quarter of 2022 and up 22% sequentially from the first quarter of 2023. With ALKINDI, our expanded sales force and our direct-to-consumer marketing campaign have continued to help increase engagement with the adrenal insufficiency community. We continue to have patients each week, and our goal is to reach 400 active patients by the end of the year. Even with this fast rate of growth and significant patient base, we are still in the very early stages of the ALKINDI growth story. With an estimated total pediatric adrenal insufficiency patient population of 10,000 patients, a very large percentage of the market has yet to convert. We believe ALKINDI SPRINKLE on its own should continue to convert a significant portion of this market in the coming months and years. However, our ET-400 product is expected to turbocharge this effort when it is launched. ET-400 will be sold alongside ALKINDI SPRINKLE as a new liquid dosage form of hydrocortisone. Patients will choose to take either ALKINDI SPRINKLE or ET-400. ET-400's proprietary patent-pending formulation will address the texture issue that some…

Thank you, Sean. Our second quarter revenue was $12.0 million compared to $7.4 million in the second quarter of 2022 or a 63% increase, driven entirely by growth in product sales and royalties, specifically increased sales volume for ALKINDI SPRINKLE and Carglumic Acid. Licensing revenue was $5.5 million in the second quarter of 2023 compared to $5.0 million in the prior year period. Total revenue grew $6.7 million or 126% compared to the first quarter of 2023, and product sales and royalty revenue grew by $1.2 million. We expect product sales to continue growing quarter-over-quarter throughout the rest of this year and beyond. R&D expenses for the quarter were $1.1 million compared with $0.7 million in the prior year period due primarily to a $0.5 million fee paid upon the successful manufacturing of registration batches of ET-600, the innovative product candidate we acquired last quarter. We expect to see a slight increase in R&D spend in future quarters due to development activities related to both ET-400 and ET-600. General and administrative expenses for the quarter were $4.7 million compared with $5.3 million in the prior year period, due primarily to decreased FDA and legal fees associated with products sold to Dr. Reddy's in June of 2022. We expect expenses to continue to remain consistent throughout the rest of the year, and we still anticipate our full year G&A expense to be approximately $20 million. Total company net income was $4.6 million for the quarter compared to a net loss of $1.6 million in the prior year period. Net income per basic and diluted share during the quarter was $0.18 compared to a net loss per basic and diluted share of $0.06 in the prior year period. Eton finished the second quarter with $21.6 million of cash on hand and generated $7.1 million of operating cash during the quarter. We remain confident that our cash position is sufficient to allow us to execute our plan and continue pursuing bolt-on transactions and new product developments. This concludes our remarks on second quarter results. And with that, we'll turn it back over to the operator for Q&A.

Thank you. [Operator Instructions] Our first question comes from Raghuram Selvaraju from H.C. Wainwright. Please go ahead.

Hi. Thanks very much for taking my questions. Just a few quick ones. Firstly, I was wondering if you could perhaps comment on your criteria and potential time line for acquisition of new products, if you have some specific areas that you are going to be focusing on, if we should be thinking about these products as being directly complementary to or synergistic with the existing commercial products in your portfolio. Secondly, I wanted to make sure I fully understood the situation with the dehydrated alcohol product and whether you feel that there is going to be an opportunity to prepare for marketing in a more thorough way or do activities for prelaunch that you wouldn't otherwise have been able to do given the newly - the extended time line to potential market entry. And then lastly, with respect to the stock-based compensation, I was just wondering if you could point me to any potential trends we should be keeping an eye out for over the course of the remainder of this year. Thank you.

Thanks, Ram. Sean here. So regarding M&A activity, I do anticipate closing a deal or two prior to the year end, we hope. We would say that likely these products would be a good fit with our existing sales organization and would be accretive to revenue. Obviously, there's no guarantee of that, but we are in late-stage discussions. I'd say the environment is fantastic in terms of deal availability. And I'm not averse to closing a transaction outside of our core competency within endocrinology and metabolic genetics. But I think the product would have to justify the expenditure of additional SG&A resources. So that's something we're looking at, and we'll see what happens. Maybe, David, you want to take the second question?

In terms of the alcohol, no, Ram, dehydrated alcohol would be marketed by our partner. So we don't have any plans to do anything different based on the additional time line. It's a product that, as you know, is already used in the market by almost every hospital. So it's not one that requires a lot of promotion from them. It's mostly going to be ordered through the GPOs and the wholesalers without much promotion. And your third question, well, James will answer.

Sure. Yes. With the stock-based comp, Ram, second quarter was pretty representative. We don't expect anything unusual or onetime in that arena in the second half of 2023. So the most recent quarter would be a good run rate to use.

Okay. And then just very quickly, do you have any additional updates on the legal front with respect to cysteine hydrochloride?

No update at this time. We are expecting a decision sometime in early 2024, but there's no hard time line that could get delayed, but our best guess is sometime in the first half of 2024.

Great. Thanks very much.

Thank you. [Operator Instructions] I will now pass it over back to David.

Thank you. We have a few questions that were e-mailed to us that we can go through and answer at this time. First one, is there any chance that the FDA may issue a priority review voucher to Eton for ET-600 if the product is approved? No, we're not expecting a voucher for that product. Typically, the vouchers, among other things, have to be a new molecule. This one is going to be a 505(b)(2), so we're not expecting a voucher. Second question is, when do you expect to give guidance for 2024 revenue? I'll let James answer that one.

Sure. Historically, Eton has not provided full year guidance in advance. However, with ongoing M&A activity, if there was a transformational transaction in the second half of 2023, we would likely provide some guidance on how that would impact the portfolio going forward.

And the last question we have is, what are your commercial expectations for ET-400? And I'll let Sean answer that one.

Thanks. So ET-400 really was a patient and doctor request. It's a product that is desperately needed by especially young patients two and below. Sometimes they have trouble with the granularity of the sprinkles, and so they're forced to go to compounding pharmacies to obtain a liquid suspension of hydrocortisone that is not approved for, say, there's no demonstration of safety and efficacy. Also Pfizer had a liquid version many years ago that had issues and they got pulled from the market. Our product, our hydrocortisone oral solution is room temperature-stable. We expect a 24-month expiration date. And it's a product that we think is really going to drive sales of the franchise. We think there are approximately 10,000 patients, 18 and under, that can benefit from ALKINDI or ET-400. And I feel confident that we'll hit several thousand of those patients with the combination of these two products.

That concludes our questions. Thank you, everyone, for joining us today.

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