Good afternoon and welcome to the Eton Pharmaceuticals First Quarter 2022 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, Senior Vice President of Business Development and Investor Relations at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Eton's First 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; James Gruber, our CFO; and Kevin Guthrie, our Executive Vice President of Commercial. 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 investorrelations@etonpharma.com. 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.

David, thank you. Good afternoon, everyone, and thank you for joining us. On today's call, I will discuss our strong first quarter commercial performance as well as some product-related development updates. Starting with the commercial results. Very pleased with our revenue that we posted in the first quarter with our fifth straight quarter of sequential growth in product sales and royalty revenue. And we expect that streak of sequential growth to continue throughout the rest of this year and into the foreseeable future. In the first quarter, we reported product sales revenue of $2.2 million, which was double what we had reported in the fourth quarter of 2021. Our revenue continues to build month-over-month. ALKINDI, carglumic acid, Biorphen all saw record revenue levels in April and are also expected to exceed those levels in May. These products are starting to gain significant traction, and they are still in the early stages of their launches. So I hope it's becoming more evident to investors that they hold significant revenue potential for the company. I believe it will be even more apparent as we report the coming quarters throughout the rest of this year. And I continue to expect us to report more than $25 million in revenue this year composed of $10 million of milestone payments and at least $15 million of product sales and royalty revenue. By the way, on a side note, I wouldn't say we're going to hit $25 million if I didn't think we could at least hit that. I think we could probably hit more. To be clear, the $15 million of product sales is only from products on the market today, and any of our potential new approvals and launches in the back half of the year would be additional upside. Turning to product-specific updates.…

Thank you, Sean. Eton reported product revenue of $2.2 million for the first quarter of 2022, which is an increase of $1.8 million over the $0.4 million in product revenue reported in the first quarter of 2021. Q1 of 2021 also included $11.5 million of licensing revenue, primarily from Azurity Pharmaceuticals, while there was no licensing revenue in the first quarter of 2022. Eton's gross profit for Q1 of 2022 was $1.4 million and reflected continued growth of our ALKINDI SPRINKLE product as well as the launch of carglumic acid. The gross product (sic) [ gross profit ] on product revenue for the prior year quarter was $0.3 million and gross profit on licensing revenue was $10 million in Q1 of 2021. Research and development expenses for the first quarter of 2022 were $1.6 million compared to $0.9 million in the prior year period. R&D expenses in the first quarter of 2022 included a $0.5 million payment triggered by a successful development milestone on our hydrocortisone auto-injector product and continued development of our other new product candidates. Selling, general and administrative expenses for the first quarter of 2022 were $4.9 million, which was $0.8 million higher than the $4.1 million in the first quarter of 2021. Q1 of 2022 expenses included increased sales and quality assurance activities supporting the growing commercial landscape at Eton, along with increased legal expenses compared to the prior year quarter. As a result of these factors, Eton reported a net loss of $5.4 million for the first quarter of 2022 compared to net income of $5.1 million in the prior year period. Eton reported diluted earnings per share of negative $0.21 in the first quarter of 2022 compared to positive $0.19 per share in the first quarter of 2021. Cash and cash equivalents were $15.2 million as of March 31, 2022. That concludes our first quarter remarks. And with that, we're happy to take questions. Operator?

[Operator Instructions] Our first question comes from the line of Ram Selvaraju with H.C. Wainwright.

This is Mitchell on for Ram. The first one is, now that you have seven products approved, just wondering how you're thinking through the strategy for your commercial efforts and allocating resources?

Sure. I think the key for us is we have -- for the rare disease products, we're going to continue to focus on that as a company. That is really where we want to allocate resources for the sales and marketing team. As we grow that out, we'll add another product like, for example, carglumic acid. We have a dedicated sales force for that product. As we add another orphan drug product, we'll likely have a dedicated sales force for that. In some instances, it makes sense to partner. So we do this promotional -- this co-promotional arrangement with Tolmar because that was what was required. So we really want to look at each product individually. But I don't expect our SG&A expenses to go up significantly. I think that as a small company, sometimes you give up longer-term value in order for shorter-term value. And that's important for us because as we grow, we have to be able to grow for the short term and do that successfully. And that ultimately will position us long term. But you don't always maximize the NPV or the present value by always partnering. But sometimes it's the right thing to do. I hope that answered your question.

Yes, absolutely. And then the second question I have is just thinking about kind of the business development opportunities ahead. And if you could just elaborate on kind of the potential search for rare disease products and what fits well and also just kind of when you hit a critical mass of what you can handle.

Sure. We would expect to close a deal, let's say, in the next 3 months, I would say. We would -- and we were in multiple conversations. It could be -- there's no guarantee, but we would expect to close a deal in the next 3 months, which would another commercial product to our revenue base. We're looking for products which are strategic and really position us more and more into the rare disease space. That's where we want to be. We probably won't do too many hospital products in the future, so that business will probably have a lower percentage of sales compared to the rare disease drugs. We don't look for early-stage drugs. We typically will look for late stage, so something that can be filed or launched in a, I don't know, a 24-month period, ideally 12. And then the best scenario really is to look at commercial products where we can add value. So there are some large companies, for example, that might have an orphan drug they just don't promote because it's not -- it wouldn't be significant, even if they put an entire sales team behind it, as a percentage of their overall revenue, and that might be a good fit for us where we're willing to do that because it's more meaningful. So those are the types of opportunities we'll continue to look at and we are actually in conversations with.

[Operator Instructions] Our next question comes from the line of Justin Walsh with B. Riley.

Just one for me. I'm wondering if you can expand on any feedback you've gotten from customers with respect to interest in purchasing the Biorphen and/or Rezipres vials once approved and how that feeds into your expectations for sales there.

Yes, I think that that's a good question, actually. We have been approached by more than three companies for that franchise. I think that they see the value in that. It's not out of the question because it's become -- the hospital business is a little bit noncore for what we want to do. It probably is more of a core strategy for other companies. But that was -- we still believe that is a very strong just business overall with the demand that we've seen in the shift. And the fact is, the hospitals which were reluctant to buy ampules are buying them more and more every month. Every month, we're setting a new record on Biorphen, which was not really expected, but it's been happening, and we really can feel that switch to the vial is going to happen in a big way. So I see that as well. And we think this franchise will have some robustness to it long term for a variety of reasons which I won't go into too much detail on that. But we think it will be robust. It will be a product that will see revenue -- significant growth over the years to come. And if what our research has shown is that the majority, more than 80%, of the hospitals will switch to the ready-to-use vial immediately versus buying compounded products, which have no safety or efficacy shown or demonstrated, we believe they will switch quickly. So I think that product is really going to take off.

Thank you. And I'm showing no further questions on the phone line. I'll now turn it back to David Krempa for any emailed questions.

Thank you, operator. Most of the questions were asked. We have one here about how do you feel about our cash position. I'll let James answer that.

Sure. we're in good shape overall, our burn rate. Current burn rate is expected to decrease as we move throughout the year with continued growth of our on-market products. As Sean mentioned, we do expect to receive 2 $5 million milestones in the second half of 2022. So that being said, we should end the year with approximately $10 million of cash on hand, which still allows us some flexibility to continue to look for new product opportunities.

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

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