UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _______________________ Commission file number: 001-38738 ETON PHARMACEUTICALS, INC. (Exact name of registrant as specified in its cha ...

Eton Pharmaceuticals, Inc. (NASDAQ:ETON) Q1 2020 Earnings Conference Call May 14, 2020 4:30 PM ET Company Participants David Krempa - VP, Business Development Sean Brynjelsen - Chief Executive Officer Wilson Troutman - Chief Financial Officer Paul Stickler - Senior Vice President of Sales and Marketing Conference Call Participants Andrew D'silva - B.Riley FBR Edward Marks - H.C. Wainwright Frank Takkinen - Lake Street Capital Markets Operator Good afternoon, and welcome to the Eton Pharmaceuticals First Qua ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _______________________ Commission file number: 001-38738 ETON PHARMACEUTICALS, INC. (Exact name of registrant as specified in its ch ...

Financial Data and Key Metrics Changes - Revenue for Q4 2019 was $0.5 million, with full-year 2019 revenue totaling $1.0 million, which included a $0.5 million milestone payment from Bausch Health for EM-100 marketing rights and initial Biorphen sales [18][19] - The net loss for Q4 2019 was $2.7 million, compared to a net loss of $2.3 million in Q4 2018. The full-year net loss for 2019 was $18.3 million, up from $12.7 million in 2018, driven by higher SG&A and R&D expenses [23] Business Line Data and Key Metrics Changes - Biorphen was approved and launched in December 2019, with over 100 institutions placing orders since launch. Initial interest has been strong, with expectations for increased adoption in Q2 and Q3 2020 [6][9] - Research and development expenses for Q4 2019 were $0.2 million, significantly reduced from $1.1 million in Q4 2018 due to a refund credit received. Full-year R&D expenses increased to $11.6 million from $5.6 million in 2018, primarily due to licensing payments and increased operational costs [20][21] Market Data and Key Metrics Changes - The addressable market for phenylephrine is estimated at over 20 million units annually, with a long-term goal to capture at least 4 million units. The company believes that enforcement of FDA regulations could lead to higher market capture [12][52] - The company secured its first GPO contract with Premier, which serves over 3,500 institutions, indicating progress in market penetration [12] Company Strategy and Development Direction - The company is actively pursuing high-value business development opportunities, focusing on late-stage development projects that align with its portfolio and can generate near-term revenue [17] - The introduction of additional product formats, such as vials and prefilled syringes, is planned to enhance market penetration and cater to customer needs [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the strong initial demand for Biorphen and the potential for increased sales as enforcement actions against compounding facilities are anticipated [36][52] - The company is confident in its pipeline, with three products under FDA review and plans to file additional ANDAs later in the year, which are expected to drive sustainable growth [16] Other Important Information - The company is engaged in discussions with the FDA regarding enforcement actions against compounding facilities that produce unapproved phenylephrine, which could significantly impact market dynamics [11][36] - The company expects to have a meeting with the FDA in April to discuss enforcement of regulations against compounders [11] Q&A Session Summary Question: Did the company have to pay an approval milestone during the quarter? - Yes, there was a $750,000 payment, which is capitalized and amortized over five years [26] Question: What is the expectation for co-promotion partnerships? - The company is excited about the partnership with Xellia and will evaluate future product launches on a case-by-case basis [27] Question: What is the status of EM-100? - The amendment filed was classified as a major amendment, and the product is expected to launch in the second half of the year [30] Question: What are the prospects for Biorphen with FDA enforcement? - The company is actively engaged with the FDA and believes enforcement will occur against compounders producing unapproved products [36] Question: What is the expected annualized running cost of the R&D lab? - The lab has 10 people, but specific operating expenses are not typically disclosed [43] Question: What is the expected revenue from capturing 4 million units of Biorphen? - The estimated revenue would be around $40 million, considering the current pricing structure [53]

Part I [Business](index=6&type=section&id=Item%201.%20Business) Eton Pharmaceuticals, established in April 2017, develops and commercializes innovative hospital injectables and pediatric retail prescriptions - Eton Pharmaceuticals is a specialty pharmaceutical company established in April 2017, focusing on developing, acquiring, and commercializing innovative pharmaceutical products for unmet patient needs, with a primary focus on hospital injectable and pediatric retail prescription products[20](index=20&type=chunk) - The company's corporate strategy targets product opportunities with short commercialization timelines (under 18 months), strong competitive protection (patents, exclusivity), and reduced clinical, regulatory, and commercial risks by leveraging existing data via the 505(b)(2) pathway[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) Product Portfolio Summary (as of Dec 31, 2019) | Product (Molecule) | Dosage Form | Category | Submission Timing | Market Size | | :--- | :--- | :--- | :--- | :--- | | Biorphen (Phenylephrine) | Injectable | Hospital | Approved | $45 million+ | | EM-100 (Ketotifen) | Ophthalmic | OTC** | Submitted | $50 million+ | | ET-105 (Lamotrigine) | Oral Liquid | Pediatric | Submitted | $700 million+ | | DS-300 | Injectable | Hospital | Submitted | $60 million*+ | | ET-104 | Oral Liquid | Pediatric | 2020 | $65 million+ | | ET-103 (Levothyroxine) | Oral Liquid | Pediatric | 2020 | $2.5 billion+ | | ET-203 | Injectable | Hospital | 2020 | $70 million+ | | DS-100 | Injectable | Hospital | 2020 | $100 million*+ | | ET-101 | Oral Liquid | Pediatric | 2020 | $800 million+ | - Eton relies on third-party Contract Manufacturing Organizations (CMOs) in the United States and Europe for all product manufacturing, which reduces capital investment and provides flexibility[51](index=51&type=chunk) - The company utilizes a co-promotion agreement with Xellia Pharmaceuticals for its commercial product, Biorphen, and plans to build its own sales force for its retail prescription product pipeline[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) [Product Portfolio Details](index=6&type=section&id=Item%201.%20Business%20-%20Product%20Portfolio) Eton's portfolio includes one approved product, Biorphen, three under FDA review, and five late-stage candidates - **Approved Product:** Biorphen® (Phenylephrine HCl Injection) was approved in October 2019 and launched in December 2019 for treating hypotension during anesthesia. The market is estimated at over **20 million units annually**[27](index=27&type=chunk)[28](index=28&type=chunk) - **Products Under FDA Review:** - **ET-105 (Lamotrigine Oral Suspension):** PDUFA date was March 17, 2020, but the FDA requested a human factors validation study, expected to be submitted in 2020[32](index=32&type=chunk) - **EM-100 (Ketotifen Ophthalmic Solution):** Rights sold to Bausch Health. Has a target action date in August 2020. Eton is eligible for a **$1.5 million milestone payment** and royalties[34](index=34&type=chunk) - **DS-300 (Injectable):** Submitted as a first-to-file ANDA with a target action date in October 2020, though litigation will likely delay final approval[35](index=35&type=chunk) - **Late-Stage Pipeline (2020 NDA Submission Expected):** - **ET-203:** Ready-to-use injectable. NDA resubmission expected in 2020 after a refuse-to-file letter[37](index=37&type=chunk) - **ET-104:** Oral liquid for a neurological indication[38](index=38&type=chunk) - **ET-103:** Oral liquid levothyroxine[39](index=39&type=chunk) - **DS-100:** Injectable for a new indication[40](index=40&type=chunk) - **ET-101:** Oral liquid for a neurological condition with an over **$800 million market**[41](index=41&type=chunk) [Licensing Arrangements](index=11&type=section&id=Item%201.%20Business%20-%20Licensing%20Arrangements) Eton utilizes various licensing and acquisition agreements to build its portfolio, involving profit-sharing, milestones, and royalties - **Biorphen & ET-203 (Sintetica):** Eton pays for marketing, Sintetica for development/manufacturing. Profits are split **50/50** after Eton retains a **5% net sales marketing fee** and Sintetica receives the first **$500,000 of profit**[52](index=52&type=chunk)[62](index=62&type=chunk) - **ET-105 (Aucta):** Eton paid **$2 million** upon FDA acceptance and owes further milestones upon approval and patent issuance, plus low double-digit royalties and sales-based milestones up to **$18 million**[53](index=53&type=chunk) - **EM-100 (Eyemax/Bausch):** Rights acquired from Eyemax (affiliated with CEO) and sold to Bausch Health. Eton received **$500,000 upfront** from Bausch and is due a **$1.5 million milestone** upon launch, plus low-double digit royalties. Eton will split this revenue with Eyemax after recovering **$2 million**[55](index=55&type=chunk)[56](index=56&type=chunk) - **DS-300:** Eton is responsible for commercialization and Paragraph IV litigation, and is entitled to **62.5% of product profit**[58](index=58&type=chunk) [Government Regulations](index=14&type=section&id=Item%201.%20Business%20-%20Government%20Regulations) Eton operates under extensive FDA regulations, utilizing the 505(b)(2) pathway, and is subject to healthcare laws and reimbursement policies - The company is subject to extensive regulation by the FDA, requiring data on safety and efficacy, and manufacturing in compliance with current Good Manufacturing Processes (cGMP)[66](index=66&type=chunk) - Eton primarily intends to use the Section 505(b)(2) regulatory pathway, which permits an NDA to rely on studies not conducted by the applicant. This can reduce development time and cost but requires patent certifications against the reference drug, potentially triggering patent litigation and a **30-month stay of approval**[80](index=80&type=chunk)[82](index=82&type=chunk)[154](index=154&type=chunk) - The company is subject to federal and state healthcare laws, including the Anti-Kickback Statute, False Claims Act, and the Physician Payments Sunshine Act, which regulate marketing practices and financial relationships with healthcare providers[85](index=85&type=chunk) - Sales and pricing are significantly impacted by coverage and reimbursement from third-party payors and government programs. Legislative changes, such as the Health Care Reform Law and ongoing efforts to control drug costs, could further affect profitability[87](index=87&type=chunk)[92](index=92&type=chunk)[96](index=96&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from limited operating history, financial needs, product development, regulatory hurdles, intellectual property, and stock ownership [Risks Relating to Our Business](index=21&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Relating%20to%20Our%20Business) Business risks include limited operating history, net losses, financing needs, growth management, and potential conflicts of interest - As a company founded in April 2017 with a limited operating history and recent commencement of revenue, it is difficult for investors to evaluate the business[103](index=103&type=chunk)[104](index=104&type=chunk) Net Loss History | Year | Net Loss | | :--- | :--- | | 2019 | $18.3 million | | 2018 | $12.7 million | - The company may need additional financing to execute its business plan, and there is no guarantee that funds will be available on reasonable terms[109](index=109&type=chunk)[110](index=110&type=chunk) - Arrangements with related parties, where the CEO has a material ownership interest in companies from which Eton has licensed products, present potential conflicts of interest[127](index=127&type=chunk)[216](index=216&type=chunk) [Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization](index=24&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Related%20to%20Product%20Development%2C%20Regulatory%20Approval%2C%20Manufacturing%20and%20Commercialization) Product development and commercialization face risks from competition, regulatory challenges, manufacturing reliance, market acceptance, and healthcare laws - The business depends entirely on the successful development, regulatory approval, and commercialization of its product candidates, which is not guaranteed[128](index=128&type=chunk)[129](index=129&type=chunk) - The company faces substantial competition from major pharmaceutical companies with greater resources, and its 505(b)(2) strategy may have low barriers to entry for competitors[134](index=134&type=chunk)[135](index=135&type=chunk) - The 505(b)(2) regulatory pathway is subject to risks, including the FDA disagreeing with the approach, or patent infringement lawsuits from reference drug holders, which can trigger an automatic **30-month stay on approval**[146](index=146&type=chunk)[151](index=151&type=chunk)[154](index=154&type=chunk) - Eton is completely dependent on third-party contract manufacturers for its API and finished products. Any failure by these partners to comply with cGMP or maintain supply could halt or delay commercialization[195](index=195&type=chunk)[196](index=196&type=chunk) - Future revenue is constrained by third-party payor coverage and reimbursement, as well as cost-containment initiatives and healthcare reform legislation that could affect drug prices[178](index=178&type=chunk)[228](index=228&type=chunk) [Risks Relating to Our Intellectual Property Rights](index=46&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Relating%20to%20Our%20Intellectual%20Property%20Rights) Intellectual property risks involve protecting patents, licensed rights, and potential infringement claims, which are costly and uncertain - The company depends on licensed rights for certain pharmaceutical compounds, and the loss of these rights could prevent the sale of its products[235](index=235&type=chunk)[236](index=236&type=chunk) - Protecting intellectual property is difficult and costly. Patent applications may be challenged, invalidated, or circumvented, and may not provide a competitive advantage[238](index=238&type=chunk)[240](index=240&type=chunk) - Changes in U.S. patent law, such as the America Invents Act (AIA), have introduced a "first-to-file" system and new ways for third parties to challenge patents, potentially weakening the company's ability to protect its products[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - The company's products may infringe on the intellectual property rights of others, which could result in costly litigation, require licensing agreements, or prevent commercialization efforts[256](index=256&type=chunk)[257](index=257&type=chunk) [Risks Related to Owning Our Common Stock](index=50&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Related%20to%20Owning%20Our%20Common%20Stock) Common stock risks include market volatility, dilution, reduced disclosure, no dividends, concentrated ownership, and anti-takeover provisions - The trading market for the company's common stock may not be active or liquid, and the price is subject to volatility[264](index=264&type=chunk) - As an "emerging growth company," Eton is subject to reduced disclosure requirements, which may make its stock less attractive to investors[272](index=272&type=chunk)[273](index=273&type=chunk) - The company has not paid and does not plan to pay dividends; returns will be limited to stock appreciation[281](index=281&type=chunk)[282](index=282&type=chunk) - Significant stock ownership by executives, directors (approx. **11.4%**), and former parent company Harrow Health, Inc. (approx. **19.6%**) may limit other stockholders' ability to influence corporate matters[304](index=304&type=chunk)[305](index=305&type=chunk) - The company's charter includes a forum selection clause designating the Court of Chancery of the State of Delaware as the exclusive forum for certain stockholder litigation, which could limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable[299](index=299&type=chunk)[300](index=300&type=chunk) [Unresolved Staff Comments](index=56&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) None - The company reports no unresolved staff comments[308](index=308&type=chunk) [Properties](index=56&type=section&id=Item%202.%20Properties) Eton leases administrative and R&D office spaces in Illinois, considered adequate for current operations - The company leases a **5,507 sq. ft.** office space in Deer Park, IL for administrative activities, with the lease expiring March 31, 2021[309](index=309&type=chunk) - A **2,782 sq. ft.** research and development facility is leased in Lake Zurich, IL, with the lease expiring February 28, 2021[310](index=310&type=chunk) [Legal Proceedings](index=56&type=section&id=Item%203.%20Legal%20Proceedings) None - The company reports no legal proceedings[312](index=312&type=chunk) [Mine Safety Disclosures](index=56&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - This item is not applicable to the company[313](index=313&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=57&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Eton's common stock trades on Nasdaq, with 16 record holders, and the company has no plans for cash dividends - The company's common stock is listed on the Nasdaq Global Market under the symbol "ETON"[316](index=316&type=chunk) - As of February 28, 2020, there were **16 holders of record** of the common stock[317](index=317&type=chunk) - The company has never declared or paid a cash dividend and does not expect to in the foreseeable future[318](index=318&type=chunk) [Selected Financial Data](index=57&type=section&id=Item%206.%20Selected%20Financial%20Data) Not applicable - This item is not applicable to the company[323](index=323&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=58&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Eton generated its first revenues in 2019 but incurred increased net losses due to higher R&D and G&A expenses [Results of Operations](index=58&type=section&id=Item%207.%20MD%26A%20-%20Results%20of%20Operations) Eton's 2019 operations saw first revenues but increased net losses driven by higher R&D and G&A expenses Financial Performance (2019 vs. 2018) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Revenue | $1.0 million | $0 | | R&D Expenses | $11.6 million | $5.6 million | | G&A Expenses | $7.6 million | $4.7 million | | Net Loss | $18.3 million | $12.7 million | Research and Development Expenses by Project (in thousands) | Product Candidate | 2019 | 2018 | | :--- | :--- | :--- | | DS-200 | $1,901 | $910 | | DS-300 | $1,237 | $1,251 | | EM-100 | - | $1,265 | | ET-105 | $2,127 | - | | ET-202 | $2,000 | - | | Other products | $1,374 | $1,026 | | Indirect expenses | $2,766 | $1,175 | | **Total** | **$11,555** | **$5,627** | [Liquidity and Capital Resources](index=60&type=section&id=Item%207.%20MD%26A%20-%20Liquidity%20and%20Capital%20Resources) Eton's liquidity is supported by IPO proceeds and a credit facility, despite increased cash usage from operations - As of December 31, 2019, the company had total assets of **$17.1 million** and working capital of **$13.0 million**[339](index=339&type=chunk) - Key funding sources include the 2018 IPO (net proceeds of **$22.0 million**) and a November 2019 Credit Agreement with SWK Holdings for up to **$10 million**, with **$5.0 million** received at closing[339](index=339&type=chunk) Summary of Cash Flows (in thousands) | Activity | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(18,026) | $(8,145) | $(4,718) | | Cash used in investing activities | $(1,846) | $(236) | $(130) | | Cash flows provided by financing activities | $5,203 | $21,960 | $18,004 | [Critical Accounting Policies](index=60&type=section&id=Item%207.%20MD%26A%20-%20Critical%20Accounting%20Policies) Critical accounting policies include revenue recognition, R&D expense treatment, and stock-based compensation valuation - **Revenue Recognition (ASC 606):** For Biorphen product sales, revenue is recognized upon delivery to wholesalers. The transaction price is estimated net of variable consideration such as chargebacks, returns, distribution fees, and discounts[343](index=343&type=chunk)[433](index=433&type=chunk)[435](index=435&type=chunk) - **Research and Development Expenses:** R&D costs are expensed as incurred. Upfront and milestone payments for the licensing of technology for products not yet approved by the FDA are expensed as R&D[360](index=360&type=chunk)[361](index=361&type=chunk)[443](index=443&type=chunk) - **Stock-Based Compensation:** The company uses the Black-Scholes model to estimate the fair value of stock option awards. Prior to the IPO, the board determined the fair value of common stock; post-IPO, the closing stock price on the grant date is used[357](index=357&type=chunk)[359](index=359&type=chunk)[450](index=450&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=64&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk is primarily interest rate risk on cash, with no material foreign currency exposure - The company's primary market risk is interest rate risk on its cash and cash equivalents, which are held in money market funds[366](index=366&type=chunk) - Management believes there is no material exposure to interest rate risk due to the low-rate environment and short duration of investments[366](index=366&type=chunk) - The company does not currently have exposure to foreign currency risk[366](index=366&type=chunk) [Financial Statements and Supplementary Data](index=65&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited financial statements, including balance sheets, statements of operations, and cash flows [Balance Sheets](index=67&type=section&id=Item%208.%20Financial%20Statements%20-%20Balance%20Sheets) The balance sheet shows a decrease in total assets and stockholders' equity, with an increase in total liabilities Balance Sheet Summary (in thousands) | | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $12,066 | $26,735 | | Total current assets | $15,009 | $27,502 | | **Total assets** | **$17,072** | **$28,327** | | **Liabilities & Equity** | | | | Total current liabilities | $1,963 | $2,024 | | Long-term debt, net | $4,540 | $— | | **Total liabilities** | **$6,522** | **$2,024** | | **Total stockholders' equity** | **$10,550** | **$26,303** | [Statements of Operations](index=68&type=section&id=Item%208.%20Financial%20Statements%20-%20Statements%20of%20Operations) The statement of operations reflects first revenues in 2019 but increased net losses due to higher operating expenses Statement of Operations Summary (in thousands, except per share data) | | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :--- | :--- | :--- | | Total revenues | $959 | $— | | Gross profit | $506 | $— | | Total operating expenses | $19,107 | $10,321 | | Loss from operations | $(18,601) | $(10,321) | | **Net loss** | **$(18,320)** | **$(12,740)** | | Net loss per share | $(1.03) | $(5.80) | [Statements of Cash Flows](index=71&type=section&id=Item%208.%20Financial%20Statements%20-%20Statements%20of%20Cash%20Flows) Cash flow statements show increased cash usage from operations, partially offset by financing activities, leading to a net cash decrease Statement of Cash Flows Summary (in thousands) | | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(18,026) | $(8,145) | | Net cash used in investing activities | $(1,846) | $(236) | | Net cash provided by financing activities | $5,203 | $21,960 | | **Net change in cash** | **$(14,669)** | **$13,579** | | Cash at end of period | $12,066 | $26,735 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=101&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) None - The company reports no changes in or disagreements with accountants on accounting and financial disclosure[573](index=573&type=chunk) [Controls and Procedures](index=101&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[576](index=576&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019[577](index=577&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2019[579](index=579&type=chunk) [Other Information](index=101&type=section&id=Item%209B.%20Other%20Information) Not applicable - This item is not applicable to the company[581](index=581&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=103&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[584](index=584&type=chunk) [Executive Compensation](index=103&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[586](index=586&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=103&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership and related stockholder matters are incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[587](index=587&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=103&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships and director independence is incorporated by reference from the Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[588](index=588&type=chunk) [Principal Accountant Fees and Services](index=103&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Principal accountant fees and services information is incorporated by reference from the Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[589](index=589&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=104&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section provides an index of financial statements, schedules, and exhibits filed with the Annual Report - This item lists the financial statements, schedules, and exhibits filed as part of the Form 10-K[591](index=591&type=chunk)[594](index=594&type=chunk)

Eton Pharmaceuticals, Inc. (NASDAQ:ETON) Q3 2019 Earnings Conference Call November 14, 2019 4:30 PM ET Company Participants David Krempa - Vice President, Business Development Sean Brynjelsen - Chief Executive Officer Wilson Troutman - Chief Financial Officer Conference Call Participants Andrew D’Silva - B. Riley FBR Edward Marks - H.C. Wainwright Frank Takkinen - Lake Street Capital Operator Good afternoon and welcome to the Eton Pharmaceuticals Third Quarter 2019 Financial and Operating Results Conference ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents Eton Pharmaceuticals, Inc.'s unaudited condensed financial statements for Q3 2019 and FY 2018, covering balance sheets, operations, equity, cash flows, and notes [Condensed Balance Sheets](index=4&type=section&id=Condensed%20Balance%20Sheets) Condensed Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :-------------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $11,777 | $26,735 | | Total current assets | $12,107 | $27,502 | | Total assets | $13,507 | $28,327 | | Total current liabilities | $1,107 | $2,024 | | Total liabilities | $1,159 | $2,024 | | Total stockholders' equity | $12,348 | $26,303 | - Total assets decreased from **$28,327 thousand** at December 31, 2018, to **$13,507 thousand** at September 30, 2019, primarily driven by a significant reduction in cash and cash equivalents[9](index=9&type=chunk) - Total stockholders' equity decreased from **$26,303 thousand** at December 31, 2018, to **$12,348 thousand** at September 30, 2019, largely due to the accumulated deficit[9](index=9&type=chunk) [Unaudited Condensed Statements of Operations](index=5&type=section&id=Unaudited%20Condensed%20Statements%20of%20Operations) Condensed Statements of Operations Highlights (in thousands) | Metric | Three months ended Sep 30, 2019 | Three months ended Sep 30, 2018 | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | :------------------------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $— | $— | $500 | $— | | Research and development expenses | $3,418 | $1,544 | $11,322 | $4,525 | | General and administrative expenses | $1,624 | $830 | $5,123 | $3,510 | | Total operating expenses | $5,042 | $2,374 | $16,445 | $8,035 | | Loss from operations | $(5,042) | $(2,374) | $(15,945) | $(8,035) | | Net loss | $(4,965) | $(2,910) | $(15,624) | $(9,010) | | Net loss per share attributable to common stockholders, basic and diluted | $(0.28) | $(0.65) | $(0.88) | $(2.40) | - For the nine months ended September 30, 2019, the company reported **$500 thousand** in revenue, compared to no revenue in the prior year period[11](index=11&type=chunk) - Research and development expenses significantly increased by **150%** to **$11,322 thousand** for the nine months ended September 30, 2019, from **$4,525 thousand** in the same period of 2018[11](index=11&type=chunk) - Net loss for the nine months ended September 30, 2019, increased to **$15,624 thousand** from **$9,010 thousand** in the prior year, reflecting higher operating expenses[11](index=11&type=chunk) [Unaudited Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the three months ended September 30, 2019 and 2018](index=6&type=section&id=Unaudited%20Condensed%20Statements%20of%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders%27%20Equity%20(Deficit)%20for%20the%20three%20months%20ended%20September%2030%2C%202019%20and%202018) Stockholders' Equity Changes (Three Months Ended Sep 30, 2019 vs. 2018) (in thousands) | Metric | Sep 30, 2019 | Sep 30, 2018 | | :------------------------------------------------------------------ | :----------- | :----------- | | Balances at June 30 | $16,699 | $(12,936) | | Stock-based compensation | $537 | $165 | | Stock option exercises | $77 | $— | | Accrued dividends on redeemable convertible preferred stock | $— | $(300) | | Deemed dividends for accretion of redeemable convertible preferred stock issuance costs | $— | $(429) | | Net loss | $(4,965) | $(2,910) | | Balances at September 30 | $12,348 | $(16,410) | - Total stockholders' equity increased from a deficit of **$(16,410) thousand** at September 30, 2018, to an equity of **$12,348 thousand** at September 30, 2019, primarily due to the IPO in November 2018 and subsequent equity activities[12](index=12&type=chunk) - Stock-based compensation expense increased to **$537 thousand** for the three months ended September 30, 2019, from **$165 thousand** in the same period of 2018[12](index=12&type=chunk) [Unaudited Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the nine months ended September 30, 2019 and 2018](index=7&type=section&id=Unaudited%20Condensed%20Statements%20of%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders%27%20Equity%20(Deficit)%20for%20the%20nine%20months%20ended%20September%2030%2C%202019%20and%202018) Stockholders' Equity Changes (Nine Months Ended Sep 30, 2019 vs. 2018) (in thousands) | Metric | Sep 30, 2019 | Sep 30, 2018 | | :------------------------------------------------------------------ | :----------- | :----------- | | Balances at December 31 | $26,303 | $(6,874) | | Stock-based compensation | $1,387 | $1,631 | | Stock option exercises | $154 | $— | | Employee stock purchase plan | $128 | $— | | Accrued dividends on redeemable convertible preferred stock | $— | $(900) | | Deemed dividends for accretion of redeemable convertible preferred stock issuance costs | $— | $(1,257) | | Net loss | $(15,624) | $(9,010) | | Balances at September 30 | $12,348 | $(16,410) | - The accumulated deficit increased to **$(61,492) thousand** at September 30, 2019, from **$(45,868) thousand** at December 31, 2018, primarily due to the net loss incurred[13](index=13&type=chunk) - The company issued **134,122 shares** for stock option exercises and **23,083 shares** for its Employee Stock Purchase Plan during the nine months ended September 30, 2019[13](index=13&type=chunk) [Unaudited Condensed Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Statements%20of%20Cash%20Flows) Condensed Statements of Cash Flows Highlights (Nine Months Ended Sep 30, 2019 vs. 2018) (in thousands) | Category | 2019 | 2018 | | :---------------------------------------- | :---------- | :--------- | | Net cash used in operating activities | $(14,178) | $(6,371) | | Cash used in investing activities | $(1,062) | $(182) | | Cash flows from financing activities | $282 | $— | | Change in cash and cash equivalents | $(14,958) | $(6,553) | | Cash and cash equivalents at end of period | $11,777 | $6,603 | - Net cash used in operating activities increased significantly to **$14,178 thousand** for the nine months ended September 30, 2019, from **$6,371 thousand** in the prior year, driven by higher operating losses and increased product development[16](index=16&type=chunk) - Cash used in investing activities increased to **$1,062 thousand**, primarily due to purchases of property and equipment for the new laboratory facility[16](index=16&type=chunk) - Cash and cash equivalents decreased by **$14,958 thousand** during the nine months ended September 30, 2019, resulting in an ending balance of **$11,777 thousand**[16](index=16&type=chunk) [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) [Note 1 — Company Overview](index=9&type=section&id=Note%201%20%E2%80%94%20Company%20Overview) - Eton Pharmaceuticals, Inc. was incorporated in Delaware on April 27, 2017, as a specialty pharmaceutical company focused on developing and commercializing prescription drug products via the FDA's 505(b)(2) regulatory pathway[20](index=20&type=chunk) - The company completed an initial public offering (IPO) in November 2018, selling **4,140,000 shares** of common stock at **$6.00 per share**, generating net proceeds of **$21,960 thousand**[21](index=21&type=chunk) [Note 2 — Liquidity Considerations](index=9&type=section&id=Note%202%20%E2%80%94%20Liquidity%20Considerations) - As of September 30, 2019, the company had an accumulated deficit of **$61,492 thousand** and net cash used in operating activities of **$14,178 thousand** for the nine months ended September 30, 2019[22](index=22&type=chunk) - The company received its first FDA product approval for Biorphen® in October 2019 and believes its existing cash and cash equivalents of **$11,777 thousand** will be sufficient to fund operations for at least the next twelve months, based on expected Biorphen sales and spending management[23](index=23&type=chunk) - The company may seek additional capital through equity financings, debt sales, or other arrangements, acknowledging potential dilution for existing stockholders or restrictive covenants with debt[23](index=23&type=chunk) [Note 3 — Summary of Significant Accounting Policies](index=9&type=section&id=Note%203%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) - The financial statements are prepared in accordance with GAAP, and interim condensed financial statements are unaudited, reflecting management's necessary adjustments for fair presentation[24](index=24&type=chunk)[25](index=25&type=chunk) - The company operates as a single reportable segment, focusing on developing and commercializing prescription drug products[29](index=29&type=chunk) - The company adopted ASC 842 (Leases) effective January 1, 2019, using the modified retrospective approach, which did not materially affect its financial condition, results of operations, or cash flows[58](index=58&type=chunk) [Note 4 — Revenues](index=14&type=section&id=Note%204%20%E2%80%94%20Revenues) - Prior to 2019, the company had no revenues. For the nine months ended September 30, 2019, revenue of **$500 thousand** resulted from the sale of EM-100 product rights to Bausch Health Ireland Limited[61](index=61&type=chunk) - Under the Asset Purchase Agreement, Bausch is obligated to pay a **$1,500 thousand** milestone upon first commercial sale of EM-100 and royalties on net sales for ten years[61](index=61&type=chunk) [Note 5 – Property and Equipment](index=14&type=section&id=Note%205%20%E2%80%93%20Property%20and%20Equipment) Property and Equipment, Net (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :--------------------------- | :----------- | :----------- | | Computer hardware and software | $170 | $93 | | Furniture and fixtures | $115 | $98 | | Equipment | $993 | $99 | | Leasehold improvements | $147 | $53 | | Construction in progress | $3 | $492 | | Total | $1,428 | $835 | | Less: accumulated depreciation | $(259) | $(62) | | Property and equipment, net | $1,169 | $773 | - Property and equipment, net, increased to **$1,169 thousand** at September 30, 2019, from **$773 thousand** at December 31, 2018, primarily due to increased investment in equipment and leasehold improvements[62](index=62&type=chunk) - Depreciation expense for the nine-month period ended September 30, 2019, was **$197 thousand**, a significant increase from **$33 thousand** in the same period of 2018[62](index=62&type=chunk) [Note 6 — Redeemable Convertible Preferred Stock — Series A](index=14&type=section&id=Note%206%20%E2%80%94%20Redeemable%20Convertible%20Preferred%20Stock%20%E2%80%94%20Series%20A) - In June 2017, the company issued **6,685,082 shares** of Series A Preferred stock at **$3.00 per share**, raising **$20,055 thousand**[63](index=63&type=chunk) - The Series A Preferred stock was classified as temporary equity due to a possible cash redemption feature and automatically converted to common stock upon the IPO in November 2018[64](index=64&type=chunk)[65](index=65&type=chunk) - Upon conversion, the company recorded a beneficial conversion amount of **$21,747 thousand** as a deemed dividend[65](index=65&type=chunk) [Note 7 — Common Stock](index=14&type=section&id=Note%207%20%E2%80%94%20Common%20Stock) - The company has **50,000,000** authorized shares of **$0.001** par value common stock[66](index=66&type=chunk) - During the nine months ended September 30, 2019, the company issued **134,122 shares** for stock option exercises, **23,083 shares** for its Employee Stock Purchase Plan, and **42,034 shares** for stock warrant exercises[66](index=66&type=chunk) [Note 8 — Common Stock Warrants](index=15&type=section&id=Note%208%20%E2%80%94%20Common%20Stock%20Warrants) - The company issued warrants for **600,000 shares** to consultants (exercise price **$0.01**) and **649,409 shares** to a placement agent (exercise price **$3.00**, adjusted post-IPO) in 2017[69](index=69&type=chunk)[70](index=70&type=chunk) - Prior to the IPO, certain warrants were classified as a warrant liability due to variable share amounts, with fair value changes recorded as other income/expense. Post-IPO, the number of shares became fixed, and the liability was reclassified to additional paid-in-capital[71](index=71&type=chunk)[72](index=72&type=chunk) Outstanding Warrants as of September 30, 2019 | Warrant Type | Shares | Exercise Price (Avg) | | :-------------------------------- | :---------- | :------------------- | | Business Advisory Warrants | 600,000 | $0.01 | | Placement Agent Warrants - Series A Preferred | 636,447 | $3.00 | | Placement Agent Warrants - IPO | 414,000 | $7.50 | | Total | 1,650,447 | $3.04 | [Note 9 — Share-Based Payment Awards](index=16&type=section&id=Note%209%20%E2%80%94%20Share-Based%20Payment%20Awards) - The company operates under the 2017 and 2018 Equity Incentive Plans, with **872,837 shares** available for future issuance under the 2018 Plan as of September 30, 2019[78](index=78&type=chunk) Stock-Based Compensation Expense (in thousands) | Period | General and Administrative | Research and Development | Total | | :------------------------------------ | :------------------------- | :----------------------- | :---- | | Three months ended Sep 30, 2019 | $460 | $77 | $537 | | Three months ended Sep 30, 2018 | $147 | $18 | $165 | | Nine months ended Sep 30, 2019 | $1,150 | $237 | $1,387| | Nine months ended Sep 30, 2018 | $1,581 | $50 | $1,631| Stock Option Activity (as of Sep 30, 2019) | Metric | Shares | Weighted Average Exercise Price | | :-------------------------------------- | :---------- | :------------------------------ | | Options outstanding as of Dec 31, 2018 | 1,295,000 | $1.78 | | Issued | 717,500 | $7.44 | | Exercised | (134,122) | $1.15 | | Options outstanding as of Sep 30, 2019 | 1,878,378 | $3.99 | | Options exercisable at Sep 30, 2019 | 643,431 | $2.65 | - The company adopted an Employee Stock Purchase Plan (ESPP) in December 2018, with an initial reserve of **150,000 shares**. In June 2019, **23,083 shares** were issued under the ESPP at **$5.53 per share**[96](index=96&type=chunk)[98](index=98&type=chunk) [Note 10 — Basic and Diluted Net Loss per Common Share](index=19&type=section&id=Note%2010%20%E2%80%94%20Basic%20and%20Diluted%20Net%20Loss%20per%20Common%20Share) Basic and Diluted Net Loss per Common Share | Metric | Three months ended Sep 30, 2019 | Three months ended Sep 30, 2018 | | :------------------------------------------------------------------ | :------------------------------ | :------------------------------ | | Net loss attributable to common stockholders | $(4,965) | $(3,639) | | Weighted average common shares outstanding (basic and diluted) | 17,878,114 | 5,614,892 | | Net loss per common share (basic and diluted) | $(0.28) | $(0.65) | | | Nine months ended Sep 30, 2019 | Nine months ended Sep 30, 2018 | | Net loss attributable to common stockholders | $(15,624) | $(11,167) | | Weighted average common shares outstanding (basic and diluted) | 17,705,852 | 4,657,900 | | Net loss per common share (basic and diluted) | $(0.88) | $(2.40) | - Common stock equivalents (stock options, RSAs, RSUs, warrants, and convertible preferred stock) were anti-dilutive and thus excluded from diluted net loss per share calculations for both periods[101](index=101&type=chunk) - The decline in common stock equivalents from **9,039,088** in 2018 to **3,573,885** in 2019 was primarily due to the automatic conversion of Series A Preferred stock at the IPO[101](index=101&type=chunk) [Note 11 — Related Party Transactions](index=20&type=section&id=Note%2011%20%E2%80%94%20Related%20Party%20Transactions) - The company was formed as a wholly-owned subsidiary of Harrow Health, Inc. (Harrow), which contributed **3,500,000 shares** of common stock[103](index=103&type=chunk) - The company sold its rights to CT-100 to Harrow in May 2019, with Harrow obligated to make milestone and royalty payments[104](index=104&type=chunk) - The company has various agreements with entities affiliated with its CEO, including exclusive rights for EM-100 (later sold to Bausch), DS-100, and DS-200, involving upfront payments, milestone payments, and profit-sharing arrangements[108](index=108&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) [Note 12 — Leases](index=21&type=section&id=Note%2012%20%E2%80%94%20Leases) - Effective January 1, 2019, the company adopted ASC 842, recognizing **$281 thousand** in ROU assets and **$272 thousand** in operating lease liabilities for its office and laboratory space[113](index=113&type=chunk)[114](index=114&type=chunk) - The weighted-average remaining lease term was **1.5 years**, and the weighted-average incremental borrowing rate was **7.8%** as of September 30, 2019[119](index=119&type=chunk) Lease-Related Assets and Liabilities (as of Sep 30, 2019) (in thousands) | Category | Amount | | :-------------------------------------- | :----- | | Operating lease right-of-use assets, net | $191 | | Operating lease liabilities, current | $130 | | Operating lease liabilities, noncurrent | $52 | | Total operating lease liabilities | $182 | [Note 13 — Commitments and Contingencies](index=23&type=section&id=Note%2013%20%E2%80%94%20Commitments%20and%20Contingencies) - The company is subject to legal proceedings in the ordinary course of business but is not aware of any material pending or threatened litigation[122](index=122&type=chunk) - The company has entered into various license and product development agreements for DS-300, ET-103, ET-104, ET-202 (Biorphen®), and ET-203, involving upfront payments, milestone payments upon regulatory approvals or commercial sales, and profit/royalty sharing[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[129](index=129&type=chunk) - For ET-105, the company paid Aucta Pharmaceuticals **$2,000 thousand** upon FDA acceptance for review and will pay additional milestones up to **$18,000 thousand** based on commercial success (e.g., **$1,000 thousand** when net sales exceed **$10 million**)[130](index=130&type=chunk) [Note 14 — Subsequent Events](index=24&type=section&id=Note%2014%20%E2%80%94%20Subsequent%20Events) - On November 13, 2019, the company entered into a credit agreement with SWK Holdings Corporation for up to **$10,000 thousand** in financing, receiving **$5,000 thousand** at closing[132](index=132&type=chunk) - Additional borrowings of **$5,000 thousand** are contingent on FDA approval of a second product (excluding EM-100), or **$2,000 thousand** upon EM-100 approval and **$3,000 thousand** upon another product's approval[132](index=132&type=chunk) - The credit agreement has a five-year term, bears interest at LIBOR 3-month plus **10.0%** (with a **2.0%** LIBOR floor), includes warrants to SWK, a **2.0%** unused credit limit fee, and a **5.0%** exit fee[132](index=132&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis of Eton Pharmaceuticals, Inc.'s Q3 2019 financial condition and operations, focusing on product development, FDA approval, and increased expenses [Overview](index=25&type=section&id=Overview) - Eton Pharmaceuticals, formed in April 2017, is a specialty pharmaceutical company developing and commercializing innovative products, primarily focusing on hospital-based and pediatric oral liquid products[136](index=136&type=chunk)[138](index=138&type=chunk) - The company received FDA approval for Biorphen® (phenylephrine HCl injection) in October 2019, which will be marketed in the United States for treating hypotension during anesthesia[137](index=137&type=chunk) - The business model targets low-risk candidates with established safety/efficacy to reduce clinical burden and address unmet patient needs[136](index=136&type=chunk)[138](index=138&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) - The company generated limited revenues through September 2019 but expects significant revenue-generating activities to commence in late 2019 and beyond following Biorphen® FDA approval[139](index=139&type=chunk) Net Loss (in thousands) | Period | Net Loss | | :------------------------------------ | :------- | | Three months ended Sep 30, 2019 | $(4,965) | | Three months ended Sep 30, 2018 | $(2,910) | | Nine months ended Sep 30, 2019 | $(15,624)| | Nine months ended Sep 30, 2018 | $(9,010) | - The increase in net loss is attributed to higher operating expenses, including increased R&D and G&A costs[148](index=148&type=chunk) [Research and Development Expenses](index=25&type=section&id=Research%20and%20Development%20Expenses) Research and Development Expenses (in thousands) | Period | R&D Expenses | | :------------------------------------ | :----------- | | Three months ended Sep 30, 2019 | $3,418 | | Three months ended Sep 30, 2018 | $1,544 | | Nine months ended Sep 30, 2019 | $11,322 | | Nine months ended Sep 30, 2018 | $4,525 | - R&D expenses for the three months ended September 30, 2019, increased by **121%** to **$3,418 thousand**, driven by milestone spending for ET-105 and higher indirect expenses for new personnel and laboratory operating costs[140](index=140&type=chunk) - For the nine months ended September 30, 2019, R&D expenses rose by **150%** to **$11,322 thousand**, primarily due to licensing fees and milestone payments for DS-200, ET-202, ET-203, and ET-104, along with increased indirect expenses[141](index=141&type=chunk) [General and Administrative Expenses](index=26&type=section&id=General%20and%20Administrative%20Expenses) General and Administrative Expenses (in thousands) | Period | G&A Expenses | | :------------------------------------ | :----------- | | Three months ended Sep 30, 2019 | $1,624 | | Three months ended Sep 30, 2018 | $830 | | Nine months ended Sep 30, 2019 | $5,123 | | Nine months ended Sep 30, 2018 | $3,510 | - G&A expenses for the three months ended September 30, 2019, increased by **96%** to **$1,624 thousand**, mainly due to increased headcount, public company expenses, initial product marketing, and distribution setup costs[145](index=145&type=chunk) - For the nine months ended September 30, 2019, G&A expenses increased by **46%** to **$5,123 thousand**, driven by similar factors, partially offset by lower stock-based consulting service fees[146](index=146&type=chunk) [Cash Flows](index=26&type=section&id=Cash%20Flows) Summary of Cash Flows (Nine Months Ended Sep 30, 2019 vs. 2018) (in thousands) | Category | 2019 | 2018 | | :---------------------------------------- | :---------- | :--------- | | Net cash used in operating activities | $(14,178) | $(6,371) | | Cash used in investing activities | $(1,062) | $(182) | | Cash flows from financing activities | $282 | $— | | Change in cash and cash equivalents | $(14,958) | $(6,553) | - The increase in cash used in operating activities is primarily due to higher operating losses from increased product candidate licensing and development, personnel, and operating expenses for the new laboratory and business expansion[149](index=149&type=chunk) - Investing activities increased due to capital expenditures for the new laboratory facility, while financing activities in 2019 were driven by ESPP stock purchases and stock option exercises[149](index=149&type=chunk) [Critical Accounting Policies](index=27&type=section&id=Critical%20Accounting%20Policies) - The company's financial statements require management to make estimates and judgments, particularly for revenue recognition, stock-based compensation, and research and development expenses[151](index=151&type=chunk)[152](index=152&type=chunk) - Revenue recognition follows ASC 606, where revenue is recognized when customers obtain control of promised goods or services, with specific considerations for milestone payments and royalties[154](index=154&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - Stock-based compensation is accounted for under ASC 718, with fair value estimated using the Black-Scholes-Merton model, incorporating subjective assumptions like expected volatility and term[161](index=161&type=chunk)[162](index=162&type=chunk) - R&D expenses, including internal activities and external contracted services, are charged to operations as incurred, with upfront and milestone payments for unapproved products expensed immediately[163](index=163&type=chunk)[164](index=164&type=chunk) [Off Balance Sheet Transactions](index=28&type=section&id=Off%20Balance%20Sheet%20Transactions) - The company does not have any off-balance sheet transactions[165](index=165&type=chunk) [JOBS Act Transition Period](index=28&type=section&id=JOBS%20Act%20Transition%20Period) - The company, as an 'emerging growth company' under the JOBS Act, has irrevocably elected not to use the extended transition period for complying with new or revised accounting standards, adopting them on the same dates as other public companies[166](index=166&type=chunk) - The company may rely on other exemptions under the JOBS Act, such as not providing an auditor's attestation report on internal controls over financial reporting[167](index=167&type=chunk) - The company will remain an emerging growth company until the earliest of December 31, 2023, reaching **$1.07 billion** in annual gross revenues, becoming a 'large accelerated filer,' or issuing over **$1.0 billion** in non-convertible debt[167](index=167&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Eton Pharmaceuticals, Inc.'s market risk exposure, mainly interest rate risk on cash and equivalents, managed via short-term investments, with minimal foreign currency risk - The company's primary investment objective is capital preservation, and it does not use hedging contracts[169](index=169&type=chunk) - Market risks are primarily related to interest rate risk on cash and cash equivalents and the financial viability of institutions holding its capital[169](index=169&type=chunk) - As of September 30, 2019, cash equivalents and investments are exclusively in money market funds. The company believes its exposure to interest rate risk is minimal due to low interest rates and short duration of invested funds, and it has no foreign currency risk[169](index=169&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Eton Pharmaceuticals, Inc.'s disclosure controls and procedures, effective as of September 30, 2019, with no material changes in internal control over financial reporting [Disclosure Controls and Procedures](index=29&type=section&id=Disclosure%20Controls%20and%20Procedures) - The company maintains disclosure controls and procedures designed to ensure information required for SEC reports is recorded, processed, summarized, and reported timely[170](index=170&type=chunk) - Management, including the CEO and CFO, evaluated the effectiveness of these controls for the nine months ended September 30, 2019, and concluded they are effective[172](index=172&type=chunk) - Management acknowledges that no control system can provide absolute assurance against all errors or fraud due to inherent limitations and resource constraints[173](index=173&type=chunk) [Changes in Internal Control over Financial Reporting](index=29&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There have been no material changes in the company's internal control over financial reporting during the period ended September 30, 2019[174](index=174&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) Eton Pharmaceuticals, Inc. has no legal proceedings to report - The company has no legal proceedings[176](index=176&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) Refers readers to the risk factors in the company's 2018 10-K, noting no material changes to these risks - Readers should consider the risk factors outlined in Part I, Item 1A of the company's 2018 10-K[176](index=176&type=chunk) - There have been no material changes to the risk factors included in the 2018 10-K[176](index=176&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Eton Pharmaceuticals, Inc. has no unregistered sales of equity securities or use of proceeds to report - The company has no unregistered sales of equity securities and use of proceeds to report[177](index=177&type=chunk) [Item 3. Defaults Upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Eton Pharmaceuticals, Inc. has no defaults upon senior securities to report - The company has no defaults upon senior securities to report[178](index=178&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to Eton Pharmaceuticals, Inc - Mine safety disclosures are not applicable to the company[179](index=179&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) There is no other information to report - There is no other information to report[180](index=180&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the report, including licensing agreements, certifications, and XBRL financial information [Exhibit Index](index=31&type=section&id=Exhibit%20Index) - Key exhibits include an Exclusive License and Product Development Agreement with Aucta Pharmaceuticals, Inc., and certifications from the President/CEO and CFO[184](index=184&type=chunk) - The report also includes financial information formatted in Extensible Business Reporting Language (XBRL)[184](index=184&type=chunk) [Signatures](index=32&type=section&id=Signatures) Contains signatures of Eton Pharmaceuticals, Inc.'s President/CEO and CFO, certifying the report's submission - The report is signed by Sean E. Brynjelsen, President and Chief Executive Officer, and W. Wilson Troutman, Chief Financial Officer, on November 14, 2019[189](index=189&type=chunk)

PHARMACEUTICALS Reimagining Molecules to Advance Medicine Corporate Presentation October 2019 Safe Harbor 2 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This document contains forward-looking statements concerning Eton Pharmaceuticals, Inc. ("Eton", the "Company," "we," "us," and "our"). The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect" and similar expressions that convey uncertainty of future events or outco ...

Eton Pharmaceuticals, Inc. (NASDAQ:ETON) Q2 2019 Earnings Conference Call August 6, 2019 4:30 PM ET Company Participants David Krempa - VP, Business Development Sean Brynjelsen - CEO Wilson Troutman - CFO Conference Call Participants Ram Selvaraju - H.C. Wainwright Operator Good afternoon, and welcome to the Eton Pharmaceuticals Second Quarter 2019 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call up ...

P H A R M A C E U T I C A L S Reimagining Molecules to Advance Medicine Corporate Presentation August 2019 Safe Harbor 2 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This document contains forward-looking statements concerning Eton Pharmaceuticals, Inc. ("Eton", the "Company," "we," "us," and "our"). The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect" and similar expressions that convey uncertainty of future ev ...