Eton Pharmaceuticals, Inc. (ETON) came out with a quarterly loss of $0.09 per share versus the Zacks Consensus Estimate of a loss of $0.04. This compares to earnings of $0.04 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -125%. A quarter ago, it was expected that this company would post a loss of $0.10 per share when it actually produced a loss of $0.02, delivering a surprise of 80%.Over the last four quarters, the company h ...

[Business Highlights and Outlook](index=1&type=section&id=Business%20Highlights%20and%20Outlook) Eton achieved its twelfth consecutive quarter of product sales growth, driven by ALKINDI SPRINKLE and Carglumic Acid, reported positive operating cash flow, and advanced its pipeline with positive study results for ET-400 and ET-600, positioning for future NDA submissions and growth - Achieved its twelfth consecutive quarter of sequential growth in product sales, with Q4 2023 product sales and royalty revenue reaching **$7.3 million**, a **109% year-over-year increase**[4](index=4&type=chunk) - Generated **$0.4 million** in positive operating cash flow during Q4 2023, ending the year with a cash and cash equivalents balance of **$21.4 million**[5](index=5&type=chunk)[14](index=14&type=chunk) - Advanced its product pipeline with key developments: * **ET-400:** Passed its pivotal bioequivalence study, with an NDA submission planned for Q2 2024 and a potential FDA approval in Q1 2025. A new U.S. patent was awarded, expiring in 2043 * **ET-600:** Passed its pilot bioequivalence study, with a pivotal study planned for the second half of 2024 and a potential NDA submission in early 2025[3](index=3&type=chunk)[6](index=6&type=chunk)[7](index=7&type=chunk) - Launched new commercial initiatives to drive growth, including an ALKINDI SPRINKLE sampling program and the launch of Nitisinone capsules, targeting a **$50 million market**[8](index=8&type=chunk)[9](index=9&type=chunk) [Financial Performance](index=1&type=section&id=Financial%20Performance) For the full year 2023, total net revenues grew to $31.6 million, driven by a 132% increase in product sales and royalties, resulting in a narrowed net loss of $0.9 million, an improvement from the prior year's $9.0 million loss [Fourth Quarter 2023 Financial Results](index=1&type=section&id=Fourth%20Quarter%202023%20Financial%20Results) In Q4 2023, total net revenues decreased to $7.3 million due to the absence of a prior-year licensing milestone, while product sales and royalty revenue grew 109%, resulting in a net loss of $2.3 million Q4 2023 vs. Q4 2022 Financial Highlights (in millions, except per share data) | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Product Sales & Royalties | $7.3 | $3.5 | +109% | | Licensing Revenue | $0.0 | $5.0 | -100% | | **Total Net Revenues** | **$7.3** | **$8.5** | **-14%** | | Gross Profit | $3.6 | $6.4 | -44% | | R&D Expenses | $1.0 | $0.9 | +11% | | G&A Expenses | $4.6 | $4.4 | +5% | | **Net Income (Loss)** | **($2.3)** | **$0.9** | **N/A** | | **EPS (Diluted)** | **($0.09)** | **$0.04** | **N/A** | - Gross profit was negatively impacted by a **$1.0 million** one-time commercial success-based milestone payment to Diurnal PLC related to ALKINDI SPRINKLE sales[11](index=11&type=chunk)[12](index=12&type=chunk) [Full Year 2023 Financial Results](index=4&type=section&id=Full%20Year%202023%20Financial%20Results) Total net revenues for full year 2023 increased to $31.6 million, driven by a 132% surge in product sales and royalties, significantly narrowing the net loss to $0.9 million from $9.0 million in 2022 Full Year 2023 vs. 2022 Financial Highlights (in millions, except per share data) | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Product Sales & Royalties | $26.1 | $11.3 | +132% | | Licensing Revenue | $5.5 | $10.0 | -45% | | **Total Net Revenues** | **$31.6** | **$21.3** | **+49%** | | Gross Profit | $21.1 | $14.3 | +47% | | Total Operating Expenses | $22.3 | $22.6 | -1% | | **Net Loss** | **($0.9)** | **($9.0)** | **-90%** | | **EPS (Diluted)** | **($0.04)** | **($0.36)** | **-89%** | [Financial Position and Cash Flow](index=2&type=section&id=Financial%20Position%20and%20Cash%20Flow) As of December 31, 2023, cash and cash equivalents increased to $21.4 million, with the company generating $6.8 million in net cash from operating activities for the full year - Cash and cash equivalents increased to **$21.4 million** as of December 31, 2023, up from **$16.3 million** at the end of 2022[14](index=14&type=chunk)[23](index=23&type=chunk) - Net cash provided by operating activities was **$6.8 million** for the full year 2023, a significant improvement from **$4.8 million** in 2022[25](index=25&type=chunk) Balance Sheet Summary (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $26,839 | $20,004 | | **Total Assets** | **$31,740** | **$25,030** | | Total Current Liabilities | $16,241 | $6,461 | | **Total Liabilities** | **$16,263** | **$11,952** | | **Total Stockholders' Equity** | **$15,477** | **$13,078** | [Financial Statements](index=4&type=section&id=Financial%20Statements) This section presents the detailed, unaudited financial statements for Eton Pharmaceuticals, Inc. for the periods ended December 31, 2023, and 2022, including Statements of Operations, Balance Sheets, and Statements of Cash Flows [Statements of Operations](index=4&type=section&id=Statements%20of%20Operations) The Statements of Operations detail the company's revenues, costs, and expenses for Q4 and full year 2023 compared to 2022, culminating in net income or loss Eton Pharmaceuticals, Inc. STATEMENTS OF OPERATIONS (In thousands, except per share amounts) | | For the three months ended (Unaudited) | For the years ended | | | :--- | :--- | :--- | :--- | | | **Dec 31, 2023** | **Dec 31, 2022** | **Dec 31, 2023** | **Dec 31, 2022** | | **Total net revenues** | **$7,313** | **$8,498** | **$31,642** | **$21,251** | | Gross profit (loss) | $3,630 | $6,360 | $21,061 | $14,318 | | Total operating expenses | $5,622 | $5,298 | $22,253 | $22,578 | | Income (loss) from operations | ($1,992) | $1,062 | ($1,192) | ($8,260) | | **Net income (loss)** | **($2,256)** | **$912** | **($936)** | **($9,021)** | | Net loss per share, basic | ($0.09) | $0.04 | ($0.04) | ($0.36) | | Net loss per share, diluted | ($0.09) | $0.04 | ($0.04) | ($0.36) | [Balance Sheets](index=5&type=section&id=Balance%20Sheets) The Balance Sheets provide a snapshot of the company's financial position at the end of 2023 and 2022, listing assets, liabilities, and stockholders' equity Eton Pharmaceuticals, Inc. BALANCE SHEETS (in thousands) | | **December 31, 2023** | **December 31, 2022** | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $21,388 | $16,305 | | Total current assets | $26,839 | $20,004 | | **Total assets** | **$31,740** | **$25,030** | | **Liabilities and stockholders' equity** | | | | Total current liabilities | $16,241 | $6,461 | | **Total liabilities** | **$16,263** | **$11,952** | | **Total stockholders' equity** | **$15,477** | **$13,078** | | **Total liabilities and stockholders' equity** | **$31,740** | **$25,030** | [Statements of Cash Flows](index=6&type=section&id=Statements%20of%20Cash%20Flows) The Statements of Cash Flows illustrate how cash was generated and used by operating, investing, and financing activities during 2023 and 2022, reconciling beginning and ending cash balances Eton Pharmaceuticals, Inc. STATEMENTS OF CASH FLOWS (In thousands) | | **December 31, 2023** | **December 31, 2022** | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $6,815 | $4,821 | | Net cash used in investing activities | ($775) | ($2,788) | | Net cash (used in) provided by financing activities | ($957) | ($134) | | **Change in cash and cash equivalents** | **$5,083** | **$1,899** | | Cash and cash equivalents at beginning of year | $16,305 | $14,406 | | **Cash and cash equivalents at end of year** | **$21,388** | **$16,305** | [Conference Call and Company Information](index=3&type=section&id=Conference%20Call%20and%20Company%20Information) This section provides details for the Q4 2023 conference call and webcast, along with an overview of Eton Pharmaceuticals' focus on rare diseases, its approved product portfolio, and late-stage development pipeline - A conference call and webcast were scheduled for March 14, 2024, at 4:30 p.m. ET to discuss the financial results[15](index=15&type=chunk)[16](index=16&type=chunk) - Eton is an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases[17](index=17&type=chunk) - The company's portfolio includes four FDA-approved products (ALKINDI SPRINKLE®, Carglumic Acid, Betaine Anhydrous, Nitisinone) and three late-stage candidates (ET-400, ET-600, ZENEO® hydrocortisone autoinjector)[17](index=17&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ Title of each class Trading Symbol Name of each exchange on which registered Common Stock, $0.001 par value ETON The Nasdaq Glob ...

DEER PARK, Ill., Feb. 29, 2024 (GLOBE NEWSWIRE) -- Eton Pharmaceuticals, Inc. (“Eton” or the "Company”) (Nasdaq: ETON), an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases, today announced that it will report fourth quarter and full year 2023 financial results on Thursday, March 14, 2024. Management will host a conference call and live audio webcast to discuss these results at 4:30 p.m. ET (3:30 p.m. CT). Register* (Audio Only) Click here In addition t ...

DEER PARK, Ill., Feb. 29, 2024 (GLOBE NEWSWIRE) -- Eton Pharmaceuticals, Inc. ("Eton" or the "Company") (NASDAQ:ETON), an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases, today announced that it will report fourth quarter and full year 2023 financial results on Thursday, March 14, 2024. Management will host a conference call and live audio webcast to discuss these results at 4:30 p.m. ET (3:30 p.m. CT). Register* (Audio Only) Click here In addition to ...

DEER PARK, Ill., Feb. 21, 2024 (GLOBE NEWSWIRE) -- Eton Pharmaceuticals ("Eton" or the "Company") (NASDAQ:ETON), an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases, today announced that the United States Patent and Trademark Office ("USPTO") has granted the Company's U.S. Patent Application No. 18/113,458, which covers the Company's ET-400 product candidate's proprietary formulation of oral liquid hydrocortisone. The patent has an expiration in 2043 a ...

-- Eton Cares patient support program offers $0 co-pay to eligible, commercially insured patients* ---- Current Nitisinone market is estimated to exceed $50 million annually ---- Product is now available exclusively through Optime Care -- DEER PARK, Ill., Feb. 02, 2024 (GLOBE NEWSWIRE) -- Eton Pharmaceuticals ("Eton" or "the Company") (NASDAQ:ETON), an innovative pharmaceutical company focused on developing, acquiring, and commercializing products to address unmet needs in patients suffering from rare disea ...

Financial Performance - Total net revenues for the three months ended September 30, 2023, were $7,028,000, a 118% increase from $3,219,000 in the same period of 2022[11] - Gross profit for the nine months ended September 30, 2023, was $17,431,000, compared to $7,958,000 for the same period in 2022, reflecting a 119% increase[11] - Net income for the nine months ended September 30, 2023, was $1,320,000, a significant improvement from a net loss of $9,933,000 in the same period of 2022[19] - For the three-month period ended September 30, 2023, total revenue was $7,028, generating a gross profit of $4,403, compared to $3,219 in revenue and $2,018 in gross profit for the same period in 2022, reflecting a significant increase in sales volume of ALKINDI SPRINKLE® and Carglumic Acid products[149] - For the nine months ended September 30, 2023, total revenue reached $24,329 with a gross profit of $17,431, up from $12,753 in revenue and $7,958 in gross profit for the same period in 2022, driven by increased sales volume and a $500 increase in licensing revenue[150] Cash and Assets - Cash and cash equivalents increased to $22,070,000 as of September 30, 2023, up from $16,305,000 at the end of 2022, representing a 35% increase[9] - Total current assets rose to $27,157,000 as of September 30, 2023, compared to $20,004,000 at the end of 2022, marking a 36% increase[9] - As of September 30, 2023, total assets were $31.5 million, including cash and cash equivalents of $22.1 million and working capital of $16.8 million, indicating a solid liquidity position[157] Liabilities and Equity - Total liabilities increased to $14,634,000 as of September 30, 2023, from $11,952,000 at the end of 2022, reflecting a 23% increase[9] - The accumulated deficit decreased to $(101,814,000) as of September 30, 2023, from $(103,134,000) at the end of 2022, indicating a reduction in losses[9] - The company had 25,658,396 shares outstanding as of September 30, 2023, an increase from 25,353,119 shares at the end of 2022[9] Operating Activities - The company reported a net cash provided by operating activities of $6,428,000 for the nine months ended September 30, 2023, compared to $1,981,000 in the same period of 2022[19] - The company recorded $800 of other income for the nine months ended September 30, 2023, from a break-up fee related to an asset acquisition auction process[156] Research and Development - Research and development (R&D) expenses for the three months ended September 30, 2023, were $615, down from $744 in the same period in 2022, primarily due to decreased expenses related to products sold to Dr. Reddy's[151] - R&D expenses for the nine months ended September 30, 2023, totaled $2,275, a decrease from $3,052 in the same period in 2022, again due to reduced expenses associated with products sold to Dr. Reddy's[152] General and Administrative Expenses - General and administrative (G&A) expenses for the three months ended September 30, 2023, were $4,336, slightly up from $4,169 in 2022, mainly due to increased employee-related expenses for sales force expansion[154] - G&A expenses for the nine months ended September 30, 2023, were $14,355, compared to $14,228 in 2022, reflecting incremental employee-related expenses offset by decreased sales and marketing expenses[155] Product Development and Licensing - The Company currently has three commercial rare disease products: ALKINDI SPRINKLE®, Carglumic Acid, and Betaine Anhydrous, with three additional product candidates in late-stage development[23] - The Company acquired an FDA-approved ANDA for Nitisinone Capsules from Oakrum Pharma LLC effective October 11, 2023[24] - The Company acquired exclusive rights to sell the EM-100 product in the U.S. for $250, with additional payments of $250 upon FDA approval and $500 upon the first commercial sale, plus a 10% royalty on net sales[115] - The Company received $5,000 for the sale of rights in Cysteine Hydrochloride, Biorphen®, and Rezipres®, with potential additional payments of up to $42,500 based on milestones[138] Debt and Interest - The company has a long-term debt obligation under the SWK Credit Agreement, with a total borrowing capacity of $10,000, of which $10,000 has been drawn[81] - Interest expense for the nine months ended September 30, 2023, was $805, including $90 of debt discount amortization, compared to $699 for the same period in 2022[87] - As of September 30, 2023, the company has long-term debt net of unamortized discount totaling $4,197, with a gross loan payable of $5,844[89] Internal Controls and Compliance - The company's Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective as of September 30, 2023[185] - There have been no changes in the internal control over financial reporting that materially affected the company during the period ended September 30, 2023[187] - The company has irrevocably elected not to take advantage of the extended transition period under the JOBS Act, meaning it will adopt new or revised accounting standards as required for public companies[179] Market and Risk Factors - The company operates in a dynamic environment with numerous risks and uncertainties that may materially affect its business and financial condition[190] - The company remains an emerging growth company until December 31, 2023, and is evaluating the benefits of relying on exemptions under the JOBS Act[180]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Eton Pharmaceuticals' unaudited condensed financial statements for Q2 2023 and 2022, including balance sheets, operations, equity, cash flows, and detailed notes [Condensed Balance Sheets](index=4&type=section&id=Condensed%20Balance%20Sheets) Total assets and stockholders' equity increased by June 30, 2023, driven by higher cash and reduced accumulated deficit | Metric | June 30, 2023 (Unaudited, in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $21,566 | $16,305 | | Total current assets | $26,333 | $20,004 | | Total assets | $30,932 | $25,030 | | Total current liabilities | $9,588 | $6,461 | | Total liabilities | $14,207 | $11,952 | | Total stockholders' equity | $16,725 | $13,078 | [Unaudited Condensed Statements of Operations](index=5&type=section&id=Unaudited%20Condensed%20Statements%20of%20Operations) Eton Pharmaceuticals achieved net income in Q2 2023, a turnaround from Q2 2022 loss, driven by higher revenues and gross profit | Metric (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total net revenues | $11,997 | $7,358 | $17,301 | $9,534 | | Total cost of sales | $2,315 | $2,745 | $4,273 | $3,594 | | Gross profit | $9,682 | $4,613 | $13,028 | $5,940 | | Total operating expenses | $5,799 | $5,953 | $11,679 | $12,367 | | Income (loss) from operations | $3,883 | $(1,340) | $1,349 | $(6,427) | | Net income (loss) | $4,559 | $(1,558) | $1,899 | $(6,888) | | Net income (loss) per share, basic | $0.18 | $(0.06) | $0.07 | $(0.28) | [Unaudited Condensed Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity increased from December 2022 to June 2023 due to net income and stock-based compensation, contrasting with a prior year net loss | Metric (in thousands) | Balances at Dec 31, 2022 | Stock-based compensation | Employee stock purchase plan | Stock option exercises | Shares withheld | Net income | Balances at Jun 30, 2023 | | :-------------------- | :----------------------- | :----------------------- | :--------------------------- | :--------------------- | :-------------- | :--------- | :----------------------- | | Common Stock Shares | 25,353,119 | — | 57,616 | 202,126 | (50,867) | — | 25,561,994 | | Common Stock Amount | $25 | — | — | $1 | — | — | $26 | | Additional Paid-in Capital | $116,187 | $1,657 | $140 | $131 | $(181) | — | $117,934 | | Accumulated Deficit | $(103,134) | — | — | — | — | $1,899 | $(101,235) | | Total Stockholders' Equity | $13,078 | $1,657 | $140 | $132 | $(181) | $1,899 | $16,725 | | Metric (in thousands) | Balances at Mar 31, 2022 | Stock-based compensation | Employee stock purchase plan | Warrant exercises | Warrant extensions | Net loss | Balances at Jun 30, 2022 | | :-------------------- | :----------------------- | :----------------------- | :--------------------------- | :---------------- | :----------------- | :------- | :----------------------- | | Common Stock Shares | 24,626,004 | — | 47,585 | 598,448 | — | — | 25,272,037 | | Common Stock Amount | $25 | — | — | — | — | — | $25 | | Additional Paid-in Capital | $112,801 | $1,056 | $117 | — | $244 | — | $114,218 | | Accumulated Deficit | $(99,443) | — | — | — | — | $(1,558) | $(101,001) | | Total Stockholders' Equity | $13,383 | $1,056 | $117 | — | $244 | $(1,558) | $13,242 | [Unaudited Condensed Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly increased for the six months ended June 30, 2023, with no investing cash usage and slightly higher financing cash usage | Cash Flow Activity (in thousands) | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $1,899 | $(6,888) | | Net cash provided by operating activities | $5,555 | $3,684 | | Net cash used in investing activities | $— | $(776) | | Net cash used in financing activities | $(295) | $(268) | | Change in cash and cash equivalents | $5,261 | $2,640 | | Cash and cash equivalents at end of period | $21,566 | $17,046 | [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) Detailed notes explain the company's business, liquidity, accounting policies, and financial statement items, providing crucial context [Note 1 — Company Overview](index=9&type=section&id=Note%201%20%E2%80%94%20Company%20Overview) Eton Pharmaceuticals is an innovative pharmaceutical company focused on developing, acquiring, and commercializing rare disease products - Eton Pharmaceuticals focuses on developing, acquiring, and commercializing innovative products for rare diseases[22](index=22&type=chunk) - The company currently has three commercial rare disease products: ALKINDI SPRINKLE® (pediatric adrenocortical insufficiency), Carglumic Acid (hyperammonemia due to NAGS deficiency), and Betaine Anhydrous (homocystinuria)[23](index=23&type=chunk) - Four additional product candidates are in late-stage development: dehydrated alcohol injection (methanol poisoning, Orphan Drug Designation), ZENEO® hydrocortisone autoinjector (adrenal crisis), ET-400 (adrenocortical insufficiency), and ET-600 (diabetes insipidus)[23](index=23&type=chunk) [Note 2 — Liquidity Considerations](index=9&type=section&id=Note%202%20%E2%80%94%20Liquidity%20Considerations) The company expects current cash and revenues to fund operations for twelve months but may need additional capital, facing risks like dilution or debt covenants - Eton Pharmaceuticals believes its cash and cash equivalents of **$21,566 thousand** as of June 30, 2023, combined with expected revenues and milestone payments, will be sufficient to fund operating expenses and capital expenditures for at least the next twelve months[24](index=24&type=chunk) - The company may seek additional capital through equity financings, debt issuance, or other arrangements, but cannot assure successful fundraising or acceptable terms[24](index=24&type=chunk) - Potential risks include dilution of existing stockholders, senior rights for newly issued stock, and limitations on dividends due to existing long-term debt covenants[24](index=24&type=chunk) [Note 3 — Summary of Significant Accounting Policies](index=10&type=section&id=Note%203%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) This note details the company's key accounting policies, including basis of presentation, estimates, revenue, inventory, intangible assets, and stock compensation, all under GAAP [Basis of Presentation](index=10&type=section&id=Basis%20of%20Presentation) The condensed financial statements are prepared in accordance with U.S. GAAP - The condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP")[27](index=27&type=chunk) [Unaudited Interim Financial Information](index=10&type=section&id=Unaudited%20Interim%20Financial%20Information) Interim condensed financial statements are unaudited, reflect necessary adjustments, and their results are not indicative of future performance - The accompanying interim condensed financial statements are unaudited and prepared on the same basis as audited statements, reflecting all necessary adjustments for fair presentation[28](index=28&type=chunk) - Results for the three-month and six-month periods ended June 30, 2023, are not necessarily indicative of results to be expected for the full year or any future period[28](index=28&type=chunk) [Use of Estimates](index=10&type=section&id=Use%20of%20Estimates) Management makes significant estimates and assumptions in financial statement preparation, which are reviewed periodically, and actual results may vary - Preparation of financial statements requires management to make significant estimates and assumptions, including for receivables, inventories, asset useful lives, R&D expenses, and valuation of stock options/warrants[29](index=29&type=chunk) - Estimates are periodically reviewed and adjusted, but actual results could differ from these estimates[29](index=29&type=chunk) [Segment Information](index=10&type=section&id=Segment%20Information) The company operates as a single reportable segment, focusing on developing and commercializing prescription drug products, with the CEO as the chief operating decision-maker - The Company operates as a single reportable segment, focusing on developing and commercializing prescription drug products[30](index=30&type=chunk) - The Chief Executive Officer (CEO) evaluates the Company as a single operating segment[30](index=30&type=chunk) [Cash and Cash Equivalents](index=10&type=section&id=Cash%20and%20Cash%20Equivalents) Cash equivalents are highly liquid, short-term investments held in U.S. financial institutions or money market funds, with minimal credit risk despite exceeding insured limits - Cash equivalents are highly liquid investments with original maturities of three months or less, held in U.S. financial institutions or short-term U.S. treasury bills/money market funds[31](index=31&type=chunk) - As of June 30, 2023, cash is in a non-interest-bearing account and a government money market fund[31](index=31&type=chunk) - Deposits may exceed federally insured limits, but the associated credit risk is considered minimal[31](index=31&type=chunk) [Accounts Receivable](index=10&type=section&id=Accounts%20Receivable) Accounts receivable are recorded net of allowances, with **$186 thousand** in reserves as of June 30, 2023, and minimal expected credit losses due to concentration with creditworthy customers - Accounts receivable are recorded at the invoiced amount, non-interest bearing, and net of allowances for doubtful accounts, discounts, chargebacks, returns, and Medicaid rebates[32](index=32&type=chunk) - Total reserves for these allowances were **$186 thousand** as of June 30, 2023, down from **$262 thousand** at December 31, 2022[32](index=32&type=chunk) - Accounts receivable are highly concentrated with specialty pharmacies and large wholesale pharmaceutical distributors, with minimal expected credit losses due to their creditworthiness[32](index=32&type=chunk) [Inventories](index=10&type=section&id=Inventories) Inventories, consisting of purchased finished goods, are valued at the lower of cost or net realizable value using FIFO, with reserves for expiry risk - Inventories are valued at the lower of cost or net realizable value using the first-in, first-out method[33](index=33&type=chunk) - Inventories consist solely of purchased finished goods and are reviewed for potential excess or obsolete issues[33](index=33&type=chunk) - Reserves for ALKINDI SPRINKLE® inventories due to expiry risk were **$76 thousand** at June 30, 2023, and **$62 thousand** at December 31, 2022[34](index=34&type=chunk) [Property and Equipment](index=12&type=section&id=Property%20and%20Equipment) Property and equipment are recorded at cost, depreciated straight-line over useful lives, with maintenance expensed and improvements capitalized - Property and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives (3-5 years for hardware/software, equipment, furniture; shorter of useful life or lease term for leasehold improvements)[36](index=36&type=chunk) - Maintenance and repairs are expensed as incurred, while renewals and improvements are capitalized[37](index=37&type=chunk) [Intangible Assets](index=12&type=section&id=Intangible%20Assets) Licensed product rights are capitalized upon FDA approval and amortized straight-line over their useful lives, with **$2,358 thousand** in accumulated amortization as of June 30, 2023 - Payments for licensed products are capitalized upon FDA approval if recoverable and amortized on a straight-line basis over their estimated useful life[38](index=38&type=chunk) - As of June 30, 2023, intangible assets, net, reflected **$2,358 thousand** of accumulated amortization[38](index=38&type=chunk) | Year | Amortization Expense (in thousands) | | :---------------- | :-------------------------------- | | Remainder of 2023 | $363 | | 2024 | $725 | | 2025 | $725 | | 2026 | $725 | | 2027 | $608 | | Thereafter | $1,246 | | Total estimated amortization expense | $4,392 | [Impairment of Long-Lived Assets](index=12&type=section&id=Impairment%20of%20Long-Lived%20Assets) Long-lived assets are reviewed for impairment when carrying amounts may not be recoverable, with no impairment recognized in the first six months of 2023 and 2022 - Long-lived assets are reviewed for impairment when events or changes indicate the carrying amount may not be recoverable, measured by comparing carrying amount to undiscounted future cash flows[40](index=40&type=chunk) - No impairment was recognized during the six months ended June 30, 2023, and 2022[40](index=40&type=chunk) [Debt Issuance Costs and Debt Discount and Detachable Debt-Related Warrants](index=12&type=section&id=Debt%20Issuance%20Costs%20and%20Debt%20Discount%20and%20Detachable%20Debt-Related%20Warrants) Debt issuance costs and warrant-related debt discounts are recorded as debt reductions and amortized over the debt's term using the effective interest method - Debt issuance costs are deferred and recorded as a reduction to the debt balance, amortized over the expected term using the effective interest method[41](index=41&type=chunk) - Debt discounts from warrants issued with debt are also recorded as a reduction to the debt balance and accreted to interest expense over the debt's expected term[41](index=41&type=chunk) [Leases](index=13&type=section&id=Leases) The company recognizes ROU assets and lease liabilities for operating leases, measuring liabilities by present value of payments and expensing costs straight-line - The Company accounts for leases under ASC Topic 842, recognizing right-of-use (ROU) assets and lease liabilities for operating leases[43](index=43&type=chunk) - Lease liabilities are measured based on the present value of lease payments, discounted using the company's incremental borrowing rate[43](index=43&type=chunk) - Operating lease expense is recognized on a straight-line basis over the lease term, and the company does not recognize ROU assets or liabilities for leases with terms of twelve months or less[46](index=46&type=chunk) [Concentrations of Credit Risk, Sources of Supply and Significant Customers](index=13&type=section&id=Concentrations%20of%20Credit%20Risk%2C%20Sources%20of%20Supply%20and%20Significant%20Customers) The company faces credit risk from concentrated cash holdings and accounts receivable, with AnovoRx being a significant customer, and relies on a few third-party suppliers - The Company is subject to credit risk from cash and cash equivalents held in one major commercial bank, with deposits exceeding federally insured limits[47](index=47&type=chunk) - The Company is dependent on a small number of third-party suppliers for manufacturing its products and product candidates[48](index=48&type=chunk) - Accounts receivable are highly concentrated; AnovoRx accounted for **63.5%** of total net revenues for the six months ended June 30, 2023, and **84.2%** of net accounts receivable as of June 30, 2023[49](index=49&type=chunk) [Revenue Recognition for Contracts with Customers](index=13&type=section&id=Revenue%20Recognition%20for%20Contracts%20with%20Customers) Revenue is recognized under ASC 606 upon transfer of control, with specific policies for milestone payments, royalties, and product sales, including estimates for variable consideration - Revenue is recognized under ASC 606 when a customer obtains control of promised goods or services, reflecting the consideration expected in exchange[50](index=50&type=chunk)[51](index=51&type=chunk) - Milestone payments are recognized when conditions are achieved and a significant revenue reversal is improbable, typically upon regulatory approvals[56](index=56&type=chunk) - For product sales, the company estimates transaction price reductions (e.g., co-pay assistance, Medicaid reimbursements, chargebacks, returns) to ensure no significant revenue reversal[61](index=61&type=chunk) [Cost of Product Sales](index=17&type=section&id=Cost%20of%20Product%20Sales) Cost of product sales includes profit-sharing, royalties, finished product costs, freight, and intangible asset amortization, recognized with revenue or as incurred - Cost of product sales includes profit-sharing and royalty fees, purchase costs for finished products, freight and handling/storage, and amortization expense of certain intangible assets[66](index=66&type=chunk) - Costs for profit-sharing, royalties, and purchased finished products are recorded when associated product sale revenue is recognized, while outbound freight and handling/storage fees are expensed as incurred[66](index=66&type=chunk) [Research and Development Expenses](index=17&type=section&id=Research%20and%20Development%20Expenses) R&D expenses, covering internal activities and external services, are expensed as incurred, including upfront and milestone payments for unapproved licensed products - R&D expenses include internal activities (salaries, benefits, stock-based compensation) and external contracted services (product development, clinical trials, manufacturing, regulatory costs)[67](index=67&type=chunk) - R&D expenses are charged to operations as incurred, with significant judgments and estimates made in determining accrued balances[67](index=67&type=chunk) - Upfront and milestone payments for licensed products not yet FDA-approved are expensed as R&D in the period incurred[68](index=68&type=chunk) [Income (Loss) Per Share](index=17&type=section&id=Income%20%28Loss%29%20Per%20Share) Basic EPS is calculated using weighted average common shares, while diluted EPS includes common equivalent shares unless anti-dilutive - Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding[69](index=69&type=chunk) - Diluted net income (loss) per share includes common equivalent shares (unvested restricted stock, stock options, RSUs, warrants) unless their inclusion would be anti-dilutive[69](index=69&type=chunk) - For the three and six months ended June 30, 2022, common stock equivalents were excluded from diluted EPS calculation due to their anti-dilutive effect[69](index=69&type=chunk) [Stock-Based Compensation](index=17&type=section&id=Stock-Based%20Compensation) Stock-based compensation is accounted for under ASC 718, with fair value estimated using the Black-Scholes-Merton model based on subjective assumptions and expensed over service periods - Stock-based compensation is accounted for under ASC 718, requiring estimation of fair value on the grant date and expense recognition over the service (vesting) periods[70](index=70&type=chunk) - The Black-Scholes-Merton (BSM) option-pricing model is used to estimate fair value, requiring subjective assumptions for volatility, expected term, forfeitures, and fair value of common stock[70](index=70&type=chunk) - Expected volatility is based on the company's own volatility and a limited weighting of comparable companies' historical volatilities[70](index=70&type=chunk) [Fair Value Measurements](index=18&type=section&id=Fair%20Value%20Measurements) Fair value measurements are categorized into a three-level hierarchy based on input observability, with most financial instruments approximating fair value due to short-term maturities - Fair value represents the price to sell an asset or transfer a liability in an orderly transaction, classified into a three-level hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs; Level 3: unobservable inputs)[72](index=72&type=chunk)[73](index=73&type=chunk) - The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and long-term debt obligation approximate their fair values[75](index=75&type=chunk) [Impact of Recent Accounting Pronouncements](index=18&type=section&id=Impact%20of%20Recent%20Accounting%20Pronouncements) The adoption of ASU 2016-13 on January 1, 2023, did not materially impact the company's financial statements due to minimal expected credit losses - The Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," on January 1, 2023[76](index=76&type=chunk) - The adoption of this standard did not have a material impact on the Company's consolidated financial statements or disclosures[76](index=76&type=chunk) - No provision for credit losses or cumulative-effect adjustment to accumulated deficit was recorded upon adoption, given the composition of accounts receivable and current market conditions[76](index=76&type=chunk) [Note 4 – Property and Equipment](index=19&type=section&id=Note%204%20%E2%80%93%20Property%20and%20Equipment) Net property and equipment decreased to **$46 thousand** by June 30, 2023, from **$72 thousand** at December 31, 2022, primarily due to depreciation | Category | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------ | :------------ | :---------------- | | Computer hardware and software | $187 | $177 | | Furniture and fixtures | $111 | $112 | | Equipment | $52 | $52 | | Leasehold improvements | $71 | $71 | | Construction in Progress | $— | $12 | | **Total** | **$421** | **$424** | | Less: accumulated depreciation | $(375) | $(352) | | **Property and equipment, net** | **$46** | **$72** | - Depreciation expense for the three months ended June 30, 2023, was **$10 thousand**, compared to **$18 thousand** in 2022[79](index=79&type=chunk) - Depreciation expense for the six months ended June 30, 2023, was **$23 thousand**, compared to **$39 thousand** in 2022[79](index=79&type=chunk) [Note 5 — Long-Term Debt](index=19&type=section&id=Note%205%20%E2%80%94%20Long-Term%20Debt) The company's long-term debt, primarily an SWK loan, was amended in April 2022 to defer principal payments and reduce interest, with payments scheduled through 2024 - The SWK Credit Agreement, initially providing up to **$10,000 thousand** in financing, was amended in April 2022 to defer loan principal payments until May 2023 and reduce the interest rate to LIBOR 3-month plus 8.0% (subject to a 2.0% floor)[80](index=80&type=chunk)[85](index=85&type=chunk) - Warrants were issued to SWK in connection with the loan, totaling **69,380 shares** with exercise prices of **$5.86** and **$6.62** per share[81](index=81&type=chunk)[82](index=82&type=chunk)[94](index=94&type=chunk) | Payment Period | Amount (in thousands) | | :--------------- | :-------------------- | | Remainder of 2023 | $1,181 | | 2024 | $6,468 | | **Total payments** | **$7,649** | | Less: amount representing interest | $(1,420) | | Loan payable, gross | $6,229 | | Less: current portion of long-term debt | $(1,540) | | Less: unamortized discount | $(136) | | **Long-term debt, net of unamortized discount** | **$4,553** | [Note 6 — Common Stock](index=21&type=section&id=Note%206%20%E2%80%94%20Common%20Stock) During the six months ended June 30, 2023, the company issued common stock via stock option exercises and ESPP, and withheld shares for tax obligations - The Company has **50,000,000** authorized shares of **$0.001** par value common stock[91](index=91&type=chunk) - During the six months ended June 30, 2023, **202,126 shares** were issued from stock option exercises and **57,616 shares** from the Employee Stock Purchase Plan (ESPP)[92](index=92&type=chunk) - The Company withheld **50,867 shares** for payroll tax obligations totaling **$181 thousand** during the six months ended June 30, 2023[92](index=92&type=chunk) [Note 7 — Common Stock Warrants](index=21&type=section&id=Note%207%20%E2%80%94%20Common%20Stock%20Warrants) As of June 30, 2023, the company had **483,380** outstanding common stock warrants with a weighted average exercise price of **$7.29**, including placement agent and SWK debt-related warrants | Description of Warrants | No. of Shares | Exercise Price | | :---------------------- | :------------ | :------------- | | Placement Agent Warrants - IPO | 414,000 | $7.50 | | SWK Warrants – Debt – Tranche 1 | 51,239 | $5.86 | | SWK Warrants – Debt – Tranche 2 | 18,141 | $6.62 | | **Total (Avg)** | **483,380** | **$7.29** | - Warrant holders have registration rights under the Securities Act of 1933[94](index=94&type=chunk) - In June 2022, the company modified terms of 2017 preferred stock offering warrants to extend expiration, incurring a **$244 thousand** modification expense[95](index=95&type=chunk) [Note 8 — Share-Based Payment Awards](index=22&type=section&id=Note%208%20%E2%80%94%20Share-Based%20Payment%20Awards) The company grants stock options, RSAs, and RSUs under its 2017 and 2018 Equity Incentive Plans, with total stock-based compensation expense decreasing in the first six months of 2023 - The Company has granted RSAs, stock options, and RSUs under its 2017 and 2018 Equity Incentive Plans, with **628,485 shares** available for future issuance under the 2018 Plan as of June 30, 2023[98](index=98&type=chunk) | Metric (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total stock-based compensation expense | $785 | $1,300 | $1,657 | $2,383 | | G&A expenses | $715 | $1,216 | $1,534 | $2,211 | | R&D expenses | $70 | $84 | $123 | $172 | - As of June 30, 2023, there was **$4,777 thousand** of unrecognized compensation costs related to non-vested stock option awards and **$729 thousand** for unvested RSUs[107](index=107&type=chunk)[108](index=108&type=chunk) [Note 9 — Related-Party Transactions](index=24&type=section&id=Note%209%20%E2%80%94%20Related-Party%20Transactions) The company had a related-party agreement with Eyemax LLC for the EM-100 product, which was later sold to Bausch Health, with future royalties to be split - The Company had an exclusive sales and marketing agreement (Eyemax Agreement) for the EM-100 product with Eyemax LLC, an entity affiliated with the Company's CEO[113](index=113&type=chunk)[114](index=114&type=chunk) - The Eyemax Agreement was amended in February 2019, selling all rights in EM-100 to the Company, which then sold the asset to Bausch Health[115](index=115&type=chunk) - Future potential royalties from Bausch Health sales of Alaway® Preservative Free will be split between Eyemax and the Company, though Bausch Health discontinued sales in March 2023[115](index=115&type=chunk) [Note 10 — Leases](index=25&type=section&id=Note%2010%20%E2%80%94%20Leases) The company recognizes ROU assets and lease liabilities for operating leases, with a **1.75-year** weighted-average remaining lease term and **$145 thousand** in total operating lease liabilities as of June 30, 2023 - The Company recognizes a right-of-use (ROU) asset and a lease liability for substantially all operating leases[119](index=119&type=chunk) | Lease Metric (in thousands) | Amount | | :-------------------------- | :----- | | Operating lease right-of-use assets, net | $149 | | Operating lease liabilities, current | $79 | | Operating lease liabilities, noncurrent | $66 | | Total operating lease liabilities | $145 | - As of June 30, 2023, the weighted-average remaining lease term was **1.75 years**, and the weighted-average incremental borrowing rate was **8.6%**[120](index=120&type=chunk) [Note 11 — Commitments and Contingencies](index=26&type=section&id=Note%2011%20%E2%80%94%20Commitments%20and%20Contingencies) The company has no material legal proceedings and manages various license and product development agreements, including royalty sales and new product acquisitions - The Company is not aware of any pending or threatened litigation matters that would have a material impact on operations[124](index=124&type=chunk) - In June 2023, the Company sold its royalty interests in three pediatric neurology product candidates (Topiramate, Zonisamide, Lamotrigine) back to Azurity for **$5,500 thousand**, recognized as license revenue[126](index=126&type=chunk) - In March 2023, the Company acquired rare disease endocrinology product candidate ET-600 from Tulex, with future payments tied to FDA acceptance, commercial sale, and tiered royalties[138](index=138&type=chunk) [Note 12 — Subsequent Events](index=28&type=section&id=Note%2012%20%E2%80%94%20Subsequent%20Events) On July 12, 2023, the company issued **91,402 ordinary shares** due to RSU vesting, with no other material subsequent events identified - On July 12, 2023, the Company issued **91,402 ordinary shares** in connection with the vesting of restricted stock units[140](index=140&type=chunk) - No additional subsequent events requiring recognition or disclosure have occurred through the filing date of the Form 10-Q[140](index=140&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, liquidity, and capital resources for Q2 2023 and 2022, including revenue/expense drivers and critical accounting policies [Forward-Looking Statements](index=29&type=section&id=Forward-Looking%20Statements) The report includes forward-looking statements based on current information, subject to significant risks and uncertainties, with no obligation for the company to update them - This Quarterly Report contains forward-looking statements, identified by words like "expect," "anticipate," "intend," "believe," "may," "plan," "seek"[143](index=143&type=chunk) - Forward-looking statements are based on information available at the report date, and the company assumes no obligation to update them[143](index=143&type=chunk) - Actual results could differ materially due to substantial risks and uncertainties, including those in the 2022 10-K Risk Factors[143](index=143&type=chunk) [Overview](index=29&type=section&id=Overview) Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing rare disease products, with three commercial products and four late-stage candidates - Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing products for rare diseases[144](index=144&type=chunk) - The company has three commercial rare disease products: ALKINDI SPRINKLE®, Carglumic Acid, and Betaine Anhydrous[145](index=145&type=chunk) - Four product candidates are in late-stage development: dehydrated alcohol injection, ZENEO® hydrocortisone autoinjector, ET-400, and ET-600[145](index=145&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Total revenue and gross profit significantly increased for both the three and six months ended June 30, 2023, driven by higher sales volume of ALKINDI SPRINKLE® and Carglumic Acid | Metric (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $11,997 | $7,358 | $17,301 | $9,534 | | Gross profit | $9,682 | $4,613 | $13,028 | $5,940 | - The increase in revenue and gross profit was primarily due to increased sales volume of ALKINDI SPRINKLE® and Carglumic Acid products[146](index=146&type=chunk)[147](index=147&type=chunk) [Research and Development Expenses](index=29&type=section&id=Research%20and%20Development%20Expenses) R&D expenses increased in Q2 2023 due to an ET-600 manufacturing fee but decreased for the six-month period due to reduced expenses from products sold in 2022 | Metric (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | R&D expenses | $1,125 | $690 | $1,660 | $2,308 | - The increase in Q2 2023 R&D expenses was primarily due to a **$450 thousand** fee to Tulex for successful manufacturing of ET-600 registration batches[148](index=148&type=chunk) - The decrease in six-month YTD R&D expenses was primarily due to decreased expenses associated with products sold to Dr. Reddy's in June 2022[149](index=149&type=chunk) [General and Administrative Expenses](index=30&type=section&id=General%20and%20Administrative%20Expenses) G&A expenses decreased for both the three and six months ended June 30, 2023, primarily due to reduced FDA and legal fees from products sold in 2022, partially offset by higher employee costs | Metric (in thousands) | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | G&A expenses | $4,674 | $5,263 | $10,019 | $10,059 | - The decrease in G&A expenses was mainly due to decreased FDA fees and legal fees associated with products sold to Dr. Reddy's in June 2022[152](index=152&type=chunk)[153](index=153&type=chunk) - The slight decrease for the six-month period included incremental employee-related expenses from sales force expansion, offset by the aforementioned fee reductions[153](index=153&type=chunk) [Other Income and Expenses](index=30&type=section&id=Other%20Income%20and%20Expenses) The company recorded **$800 thousand** in other income for both the three and six months ended June 30, 2023, from a break-up fee in an asset acquisition auction - The Company recorded **$800 thousand** of other income for the three-month and six-month periods ended June 30, 2023[154](index=154&type=chunk) - This income was a break-up fee received from participating in an asset acquisition auction where the Company was not the winning bidder[154](index=154&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2023, the company had **$21.6 million** in cash and **$16.7 million** in working capital, expecting sufficient funds for twelve months but acknowledging potential future financing needs - As of June 30, 2023, the Company had total assets of **$30.9 million**, cash and cash equivalents of **$21.6 million**, and working capital of **$16.7 million**[155](index=155&type=chunk) - The Company believes its existing funding and revenues from approved products will be sufficient for at least the next twelve months of operations[155](index=155&type=chunk) - However, the company may need to seek additional financing sooner than expected if projected estimates for spending or growth are inaccurate[155](index=155&type=chunk) [Cash Flows](index=30&type=section&id=Cash%20Flows) Net cash from operating activities significantly increased for the six months ended June 30, 2023, driven by higher sales and gross profit, with no investing cash usage and slightly increased financing cash usage | Cash Flow Activity (in thousands) | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $1,899 | $(6,888) | | Net cash provided by operating activities | $5,555 | $3,684 | | Cash used in investing activities | $— | $(776) | | Cash used in financing activities | $(295) | $(268) | | Change in cash and cash equivalents | $5,261 | $2,640 | - The increase in cash provided by operating activities was primarily due to increased sales and gross profit from ALKINDI SPRINKLE® and Carglumic Acid products[156](index=156&type=chunk) - The decrease in cash used in investing activities was due to a **$750 thousand** payment related to the approval of Rezipres in the prior year, a product later sold to Dr. Reddy's[156](index=156&type=chunk) [Critical Accounting Policies](index=31&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies, including revenue recognition, stock-based compensation, and R&D expenses, involve significant estimates and judgments impacting financial statements [Revenue Recognition](index=31&type=section&id=Revenue%20Recognition) Revenue is recognized under ASC 606 upon transfer of control, with specific policies for milestone payments, royalties, and product sales, including estimates for variable consideration and sales reserves - Revenue is recognized in accordance with ASC 606 when the customer obtains control of promised goods or services, reflecting the expected consideration[159](index=159&type=chunk) - Milestone payments are recognized when conditions are achieved and a significant revenue reversal is improbable, typically upon regulatory approvals[162](index=162&type=chunk) - For product sales, the company estimates transaction price reductions (e.g., co-pay assistance, Medicaid reimbursements, chargebacks, returns) to ensure no significant revenue reversal, with sales reserves included in accrued liabilities and net accounts receivable[168](index=168&type=chunk)[170](index=170&type=chunk) [Stock-Based Compensation](index=32&type=section&id=Stock-Based%20Compensation) Stock-based compensation is accounted for under ASC 718, with fair value estimated using the Black-Scholes-Merton model based on subjective assumptions and expensed over service periods - Stock-based compensation is accounted for under ASC 718, requiring estimation of fair value on the grant date and expense recognition over the service (vesting) periods[171](index=171&type=chunk) - The Black-Scholes-Merton (BSM) option-pricing model is used to estimate fair value, requiring subjective assumptions for volatility, expected term, forfeitures, and fair value of common stock[171](index=171&type=chunk) - Following the IPO, the closing stock price on the grant date is used for the fair value of common stock[172](index=172&type=chunk) [Research and Development Expenses](index=33&type=section&id=Research%20and%20Development%20Expenses) R&D expenses, encompassing internal activities and external contracted services, are charged to operations as incurred, with upfront and milestone payments for unapproved licensed products also expensed as R&D - R&D expenses include both internal R&D activities and external contracted services, such as product development efforts, clinical trials, manufacturing, and regulatory costs[173](index=173&type=chunk) - R&D expenses are charged to operations as incurred, with significant judgments and estimates made in determining accrued balances[173](index=173&type=chunk) - Upfront payments and milestone payments for licensed products not yet FDA-approved are expensed as R&D in the period incurred[174](index=174&type=chunk) [Off Balance Sheet Transactions](index=33&type=section&id=Off%20Balance%20Sheet%20Transactions) The company does not have any off-balance sheet transactions - The Company does not have any off-balance sheet transactions[175](index=175&type=chunk) [JOBS Act Transition Period](index=34&type=section&id=JOBS%20Act%20Transition%20Period) As an emerging growth company, the company irrevocably elected not to use the extended transition period for new accounting standards and will remain an EGC until December 31, 2023 - The Company irrevocably elected not to avail itself of the extended transition period for complying with new or revised accounting standards provided by the JOBS Act[177](index=177&type=chunk) - As a result, the Company will adopt new or revised accounting standards on the relevant dates required for other public companies[177](index=177&type=chunk) - The Company will remain an emerging growth company until December 31, 2023[178](index=178&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk on cash and cash equivalents, managed through short-term, liquid investments, with no foreign currency risk exposure - The primary objective of the company's investment activities is to preserve capital, and it does not use hedging contracts[179](index=179&type=chunk) - The company is exposed to market risks primarily related to interest rate risk on cash and cash equivalents and the financial viability of institutions holding its capital[179](index=179&type=chunk) - These risks are managed by investing in short-term, liquid, highly rated instruments; as of June 30, 2023, cash is in a non-interest-bearing account and a government money market fund[179](index=179&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting [Disclosure Controls and Procedures](index=35&type=section&id=Disclosure%20Controls%20and%20Procedures) The company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of June 30, 2023, ensuring timely and accurate reporting - The company maintains disclosure controls and procedures designed to ensure information required for SEC reports is recorded, processed, summarized, and reported timely[181](index=181&type=chunk) - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[183](index=183&type=chunk) - A control system provides only reasonable, not absolute, assurance that objectives are met, and cannot prevent or detect all errors and fraud[184](index=184&type=chunk) [Changes in Internal Control over Financial Reporting](index=35&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There were no material changes in the company's internal control over financial reporting during the period ended June 30, 2023 - No change in internal control over financial reporting occurred during the period ended June 30, 2023, that materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting[185](index=185&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings - There are no legal proceedings to report[187](index=187&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) The company operates in a dynamic environment with numerous risks and uncertainties, and readers should consider the risk factors from the 2022 10-K, as unforeseen risks may arise - The company operates in a dynamic and rapidly changing environment involving numerous risks and uncertainties[188](index=188&type=chunk) - Readers should carefully consider the risk factors discussed in Part I, Item 1A of the company's 2022 10-K[189](index=189&type=chunk) - Additional risks and uncertainties not currently known or deemed immaterial may also materially adversely affect the business[189](index=189&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for the reporting period - This item is not applicable[190](index=190&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable for the reporting period - This item is not applicable[190](index=190&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period - This item is not applicable[191](index=191&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023 - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended June 30, 2023[192](index=192&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed or furnished with the report, including certifications, financial information in iXBRL format, and the cover page interactive data file [Exhibit Index](index=37&type=section&id=Exhibit%20Index) The Exhibit Index details documents accompanying the Form 10-Q, including CEO and CFO certifications and financial information in iXBRL format - Exhibit 31.1 and 31.2 are Certifications of the President and Chief Executive Officer and Chief Financial Officer, respectively, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002[196](index=196&type=chunk) - Exhibit 32.1 contains Certifications of the Principal Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350[196](index=196&type=chunk) - Exhibit 101 includes financial information from the Quarterly Report on Form 10-Q for the period ended June 30, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL)[196](index=196&type=chunk) [Signatures](index=38&type=section&id=Signatures) The report was duly signed on August 10, 2023, by Sean E. Brynjelsen, President and CEO, and James R. Gruber, CFO, for Eton Pharmaceuticals, Inc - The report was signed on August 10, 2023, by Sean E. Brynjelsen, President and Chief Executive Officer, and James R. Gruber, Chief Financial Officer[201](index=201&type=chunk)

Financial Data and Key Metrics Changes - Total product sales and royalty revenue reached $5.4 million, marking a 52% increase from Q4 2022 and a 144% increase from Q1 2022 [3][12] - General and administrative expenses for the quarter were $5.3 million, up from $4.8 million in the prior year, primarily due to employee-related expenses from sales force expansion [13] - The net loss for the quarter was $2.7 million, an improvement from a net loss of $5.3 million in the prior year, with net loss per share decreasing from $0.21 to $0.10 [29] Business Line Data and Key Metrics Changes - ALKINDI SPRINKLE and Carglumic Acid both reported record sales, contributing significantly to the overall revenue growth [3][12] - The launch of Betaine Anhydrous is expected to generate several million dollars in annual revenue with minimal incremental investment [7] Market Data and Key Metrics Changes - The company has expanded its sales force, which has positively impacted attendance at over 35 medical conferences this year, enhancing market presence [8][23] - The potential market for ET-400 and ALKINDI SPRINKLE combined is projected to exceed $50 million annually [21] Company Strategy and Development Direction - The company aims to double product sales in 2023, launch new rare disease products, and achieve profitability [18] - The strategic focus includes leveraging relationships developed from Carglumic Acid commercialization for the launch of Betaine Anhydrous [6][26] - The long-term goal is to have 10 commercial rare disease products on the market by the end of 2025 [42] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth trajectory, citing strong sales and the potential for new product launches [11][26] - The company is well-positioned to capitalize on opportunities in a challenging capital market environment, with a strong cash position and prudent spending [43] Other Important Information - R&D expenses for the quarter were $0.5 million, down from $1.6 million in the prior year, with expectations for a slight increase in future quarters due to ongoing development activities [28] - The company finished the quarter with $14.7 million in cash, with an operating cash burn of $1.5 million [14] Q&A Session Summary Question: Will the company expand the field sales force? - Management plans to maintain the current sales force size for the next quarter or two, with potential expansion as sales ramp up and new products are introduced [31] Question: What is the outlook for R&D spending in the coming quarters? - R&D spending is expected to increase slightly in future quarters due to development activities related to ET-400 and ET-600 [33] Question: Which new products are likely to contribute most to gross margin improvement? - ET-400 and ET-600 are anticipated to provide the most significant gross margin benefits, while Betaine will have a lower gross profit due to a profit split with the licensing partner [35][50] Question: What is the status of the legal collaboration with Dr. Reddy's? - The Cysteine appeal is in process, with management confident of a favorable outcome that could result in a $20 million commercialization milestone payment [48]