Good afternoon, and welcome to the Eaton Pharmaceuticals Second Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please be advised, this call is being recorded at the company's request. At this time, I'd like to turn it over to David Krempa, Chief Business Officer at Eaton Pharmaceuticals. Please proceed.

Good afternoon, everyone, and welcome to Eton's Second Quarter 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, 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. Good afternoon, everyone, and thank you for joining us today. We are pleased to be reporting yet another quarter of record product sales. Eaton began 2024 with high expectations across all areas of the business and now that we've reached the midpoint of the year, I'm proud to say we're executing on all fronts. We've continued to rapidly grow sales of our existing commercial products while also delivering on the advancement of our pipeline products, most notably ET-400. And we were able to do all of this while generating positive cash flow from operations in the second quarter. I could not be happier with our corporate performance so far this year. The second quarter was Eaton's 14th straight quarter of sequential product sales growth. We are very proud of this streak and based on our portfolio's long runway for growth, we expect the streak to continue for the foreseeable future. Product sales increased 40% year-over-year to $9.1 million in the quarter and grew 14% over the previous high in the preceding quarter. Absent any unannounced M&A transactions, we expect to reach positive GAAP net income by the end of this year. These impressive results were primarily due to continued strength from both of our lead products, ALKINDI SPRINKLE and Carglumic Acid. ALKINDI SPRINKLE saw its growth accelerate in the second quarter as we have seen a strong uptick in the number of new patient referrals received this year. ALKINDI revenue increased an impressive 63% year-over-year. Given that ALKINDI is our highest margin product and one which we believe has the largest market opportunity, we are very pleased to see this acceleration of growth. Sales are benefiting from several key initiatives, including our team's strong presence at endocrinology medical conferences during the first half of the year, the…

Thank you, Sean. Our second quarter revenue was $9.1 million compared to $12.0 million in the second quarter of 2023. The prior year period included $5.5 million of onetime licensing revenue related to the divestment of our neurology product royalties. Net product sales and royalty revenues for the second quarter of 2024 increased 40% to $9.1 million compared to $6.5 million in the prior year period, which included $0.6 million of nonrecurring royalty revenue. The second quarter product sales increase was driven primarily by growth in ALKINDI SPRINKLE and Carglumic Acid. Product sales also grew $1.1 million or 14% compared to the first quarter of 2024 and as Sean mentioned, 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 $3.0 million compared with $1.1 million in the prior year, with the increase due to the payment of a $2.0 million onetime NDA submission fee for ET-400. Absent of any new business development transactions, we expect R&D expense to return to its recent historic levels in the second half of the year. General and administrative expenses for the quarter were $5.6 million compared with $4.7 million in the prior year period, due primarily to increased sales and marketing expenses related to the PKU GOLIKE commercial launch as well as onetime legal fees associated with ongoing M&A activities. Total company net loss was $2.9 million for the quarter, which includes the $2.0 million ET-400 filing fee compared to net income of $4.6 million in the prior year period, which included the $5.5 million royalty sale to Azurity. Net loss per basic and diluted share during the quarter was $0.11 compared to net income per basic and diluted share of $0.18 in the prior year period. Eaton finished the second quarter with $17.7 million of cash on hand and generated $1.3 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 over to the operator for Q&A.

[Operator Instructions] Your first question comes from the line of Chase Knickerbocker of Craig-Hallum.

First, maybe on GOLIKE, maybe just talk to how the reception has been kind of relative to your expectations when you bought it now that you've relaunched it and interacted with a lot of your physicians?

Sure. Chase, this is David. We've got very good reception since we acquired the product. It was not promoted for a number of months before we acquired it. So the launch trajectory had lost a little bit of momentum, but we started promoting it in April and a number of conferences and have been meeting with physicians face-to-face, and they've been very excited to see the support behind the product again. And we've already seen an uptick in the number of referrals that we get off the product. So we're still very excited about the product. We still hope to capture 10% of that $100 million market. It's just going to take us a little bit to get back on a strong growth trajectory, given that it wasn't promoted for a number of months before we took over.

Got it. Maybe on Carglumic next. It seems like every kind of quarter, and we're talking about kind of another couple of patients that we've added. Maybe just speak to discontinuations, any potential discontinuations? And then so are these -- basically asked another way, are we net adding patients and you expect to have a decent number of patients growing through the year on Carglumic?

Chase, it's Sean. Yes, we have been pleasantly surprised by Carglumic performance. We continue to add additional patients. We just added 2 more patients recently. And it looks like we're going to be adding more month-over-month. So I'm continuously pleased with the product. And once we think we sort of have reached our max, patients seem to like a room temperature version of Carglumic Acid better than the brand. And I wouldn't be surprised if that revenue continues to grow.

And is it that difference things driving it? Or is there may be some additional patients out there that we maybe didn't think of before or just kind of talk to what's different versus expectations?

Yes, that's certainly part of it is the ease of the product, the longer shelf life after opening in the room temperature improvement over the brand product. But probably more importantly is that many of the new patients go on our products. So we're getting a lot of younger patients. What we're seeing is that our detailing our services, our patient care, Eaton Cares Program has had a big impact. We find that the doctors enjoy working with the company and we try to make it easy for them and so that there aren't a lot of hurdles to writing prescriptions.

Got it. And maybe, James, on gross margins, I appreciate the commentary on kind of the strength with ALKINDI in the quarter. Gross margins were a little bit down sequentially. Can you just speak to kind of the drivers there? And then on cash flow positive in the quarter. Can you speak to kind of the working capital benefit that you had? And then how you see that playing out in the back half of the year from a cash flow from operations perspective and kind of EBITDA?

Sure. Margin -- gross margin profile, a real slight decrease in the second quarter. I don't think it's anything more than product mix, just given the very different profiles that ALKINDI and Carglumic Acid have. We do expect at least consistent, if not slightly improved profile as we move forward as ALKINDI makes up a larger percentage of overall revenue. From a working capital standpoint, absent that $2 million filing fee for ET-400. We turned cash flow positive from an operating standpoint in the second half of last year, definitely expect that to continue. Even amidst timing changes with some sales rebates and discount things like that. We should firmly be in positive operating cash flow for the rest of 2024 and moving toward GAAP income profitability as well.

Got it. And then maybe just a little bit of color on the ET-600 trial. Is it a pretty kind of straightforward pivotal PK? Anything you could call out specifically around the trial that makes it a little bit more complex? Or is it fairly straightforward from a lot of trials that you've ran in the past?

Chase, this is Sean. So the trial is a repeat of our pilot study, which passed with flying colors. I don't expect any difference from the pilot study to the pivotal study. The main difference in the design is the number of patients so that if you run a pilot and you run a fair number of patients, which we did. We don't expect that to be statistically different on the pivotal study because it was spot on in terms of the results. I think that may be the gating item because in terms of filing it, but we expect that to be filed in the first quarter of 2025. And it's an exciting product. It's a product that was request from doctors, and we did some market research with patients as well. I think it will be very successful, and it will be a great launch for us in 2026.

Got it. And as we kind of think about commercial preparations before potentially ET-400 launch, have you given any thought to any additional resources in the sales force, any additional heads there? And then how soon after a potential approval at the end of February, would you expect to launch the drug?

So we are currently happy with the size of our sales force. We have 12 reps. We are open to adding additional reps for the ET-400 launch. I don't know that it will be necessary. That's something that we'll decide. If it is necessary, it would be kind of in the two to four rang, but at the moment, we have pretty good coverage in pediatric endocrinology. So the launch itself is really should happen shortly after approval. So let's say we get approval on February 28. We will already have batches produced. We are producing commercial batches this year. They will be tested and released and ready. The only thing that would delay us from launching on February 28 is the labeling of the product. Normally, the FDA provides the labeling as the last step, and you typically need three to four weeks to print the new labeling and then package the product. So I would expect the launch to happen. Let's just say, April to play it on the safe side, it could potentially be March, but we'll say April.

Got it, and then just on BD, Sean, maybe speak to kind of the materiality of some of these deals we're pursuing and kind of how you're thinking about a potential fairly large transformative transaction for the company potentially by the end of the year. Just kind of some general more in-depth thoughts there. And then just last for James. Speak to kind of SG&A cadence through the back half of the year here, James, kind of some interesting seasonality last year, kind of speak to how we should be modeling that in the back half?

So on the BD side, we are pursuing deals where for late-stage products, ideally commercial products, we do have those in progress for anything that would give us $10 million or more in additional revenue literally right out of the gate. So the size of the deal could be in the $20 million, $30 million range. We can do obviously some smaller deals, but our focus really is on $10 million and above at this point as we've been growing our revenue, our need to do smaller transactions has lessened. And it's really about the pivotal deals that are more meaningful. It doesn't really take a lot more work to do a larger deal versus a smaller deal. So that's where our focus is. We are expecting to add one to two commercial products before the end of the year. And we're not that far to the end of the year, believe it or not. So I think that says a lot about perhaps where we are in our discussions.

And then Chase, from an SG&A standpoint, Q2 did have a handful of onetime items namely some legal consulting expenses related to ongoing M&A activity. As far as second half of the year, we would expect it to fall back to more like Q1 levels. Year-over-year, to your point, an uptick from 2023, the 1 big driver there is just with the commercial launch of GOLIKE, Eaton's commercial launch, there's a decent amount of commercial resource in this initial year. So that's really the one kind of year-over-year item, but it's not going to significantly change that run rate. So I would look more like Q1 for the rest of the year.

Got it. Congrats on the progress, guys.

I am showing no further questions. Thank you for your participation in today's call. This does conclude the program. [Operator Closing Remarks].