SEC Form 10-Q filed by Eton Pharmaceuticals Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended |
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from _________________ to _______________________ |
Commission file number:
ETON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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| (State of incorporation) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (
| Securities registered pursuant to Section 12(b) of the Act | Trading Symbol | Name of each exchange on which registered | ||
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter time that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 9, 2025, Eton Pharmaceuticals, Inc. had outstanding
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Condensed Balance Sheet
(in thousands, except share and per share amounts)
| March 31, 2025 | December 31, 2024 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Other long-term assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued Medicaid rebates | ||||||||
| Accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of discount and including accrued fees | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| For the three months ended | ||||||||
| March 31, | March 31, | |||||||
| 2025 | 2024 | |||||||
| Revenues: | ||||||||
| Licensing revenue | $ | $ | ||||||
| Product sales and royalties, net | ||||||||
| Total net revenues | ||||||||
| Cost of sales: | ||||||||
| Licensing revenue | ||||||||
| Product sales and royalties | ||||||||
| Total cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expense: | ||||||||
| Interest and other expense, net | ( | ) | ( | ) | ||||
| Loss before income tax expense | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed financial statements.
Condensed Statements of Stockholders’ Equity
For the three months ended March 31, 2025 and 2024
(in thousands, except share amounts)
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balances at December 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balances at March 31, 2025 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Stock option exercises | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balances at March 31, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
| Three months ended | Three months ended | |||||||
| March 31, 2025 | March 31, 2024 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Inventory step-up | ||||||||
| Non-cash lease expense | ||||||||
| Debt discount amortization and non-cash interest expenses | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ||||||||
| Accrued Medicaid rebates | ||||||||
| Accrued liabilities | ( | ) | ( | ) | ||||
| Other non-current assets and liabilities | ||||||||
| Net cash from operating activities | ( | ) | ||||||
| Cash flows from investing activities | ||||||||
| Purchases of product license rights | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ||||||
| Net cash from investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Repayment of long-term debt | ( | ) | ||||||
| Proceeds from stock option exercises | ||||||||
| Net cash from financing activities | ( | ) | ||||||
| Change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of these condensed financial statements.
Eton Pharmaceuticals, Inc. is an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases. The Company currently has seven commercial rare disease products: INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone. The Company has six additional product candidates in late-stage development: ET-400, ET-600, Amglidia®, ET-700, ET-800 and ZENEO® hydrocortisone autoinjector.
Note 2 — Liquidity Considerations
The Company believes its existing cash and cash equivalents of $
Note 3 — Summary of Significant Accounting Policies
Basis of Presentation
The Company has prepared the accompanying condensed financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain prior period amounts, have been reclassified to conform to current year presentation in the condensed financial statements and notes to financial statements and these reclassifications had no impact to prior period condensed financial statements.
Unaudited Interim Financial Information
The accompanying interim condensed financial statements are unaudited and have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary for the fair presentation of the Company’s financial position as of March 31, 2025, and the results of its operations and its cash flows for the periods ended March 31, 2025 and 2024. The financial data and other information disclosed in these notes related to the three-month periods ended March 31, 2025 and 2024 are also unaudited. The interim financial statements are condensed and generally do not repeat the disclosures in the annual financial statements. As such, the interim financial statements herein should be read in conjunction with the Company’s latest annual financial statements filed on Form 10-K on March 18, 2025. The results for the three-month periods ended March 31, 2025 are not necessarily indicative of results to be expected for the year ending December 31, 2025, any other interim periods, or any future year or period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, Medicaid program rebates, valuation of inventories, useful lives of assets and the recoverability of long-lived assets, valuation of deferred tax assets, and the valuation of common stock, stock options, warrants, and restricted stock units (“RSUs”). Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates or assumptions.
Acquisitions
The Company evaluates each of its acquisitions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), to determine whether the transaction is a business combination or an asset acquisition. In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, the Company first performs a screening test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the acquired set is not deemed to be a business and is instead accounted for as an asset acquisition. If this is not the case, the Company then further evaluates whether the acquired set includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the acquired set is a business.
The Company accounts for business acquisitions using the acquisition method of accounting. Under this method of accounting, assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company’s estimates of fair value are based upon assumptions believed to be reasonable, but these assumptions are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill.
During the measurement period, which may be up to one year from the acquisition date, the Company adjusts the provisional amounts of assets acquired and liabilities assumed with the corresponding offset to goodwill to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded within the Company’s consolidated statements of operations.
Segment Information
The Company operates the business on the basis of a single reportable segment, which includes seven commercial rare disease products: INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone. The Company derives revenues from product sales to specialty pharmacy customers, who then provide order fulfillment, inventory storage and distribution services. The Company’s chief operating decision-maker (“CODM”) is the Chief Executive Officer, who evaluates the Company’s financial performance and results of operations as a single operating segment. The CODM reviews net income or loss as a measure of segment profit or loss in assessing performance and allocating resources. Segment revenues, expenses and profit or loss is reported on the Condensed Statements of Operations. Additionally, the measure of segment assets is reported on the Company’s balance sheet as total assets.
The Company's revenues and its accounts receivable balances are highly concentrated and consist of sales to and amounts due from AnovoRx and Optime Care for the Company's INCRELEX®, ALKINDI SPRINKLE®, Carglumic Acid, GALZIN® and Betaine Anhydrous products, as well as from Pentec Heath for sales of the Company’s PKU GOLIKE® product. For the three months ended March 31, 2025 and 2024, AnovoRx product sales represented
As of March 31, 2025 and December 31, 2024, all long-lived assets were domiciled within the U.S.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. All cash and cash equivalents are held in U.S. financial institutions or invested in high-grade money market funds. As of March 31, 2025 and December 31, 2024, the Company’s cash is in a non-interest-bearing account and a high-grade money market fund. From time to time, amounts deposited with its bank exceed federally insured limits. The Company believes the associated credit risk to be minimal.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and are non-interest bearing. Accounts receivable are recorded net of allowances for credit losses, cash discounts for prompt payment, distribution fees, chargebacks and returns and allowances. The Company considers historical collection rates and the current financial status of its customers, as well as macroeconomic and industry-specific factors when evaluating potential credit losses. Historically, the Company's accounts receivable balances have been highly concentrated with a select number of customers, consisting primarily of specialty pharmacies and large wholesale pharmaceutical distributors. Given the size and creditworthiness of these customers, we have not experienced and do not expect to experience material credit losses. The total for all accounts receivable reserves was $
Inventories
The Company values its inventories at the lower of cost or net realizable value using the first-in, first-out method of valuation. The Company reviews its inventories for potential excess or obsolete issues on an ongoing basis and records a write-down if an impairment is identified. As of March 31, 2025 and December 31, 2024, inventories consisted of purchased finished goods, semi-finished goods and raw materials. At March 31, 2025, inventories are shown net of a reserve for Nitisinone, Betaine Anhydrous, GALZIN®, ALKINDI SPRINKLE® and PKU GOLIKE® inventory. As of March 31, 2025 and December 31, 2024, inventories included $
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is computed utilizing the straight-line method based on the following estimated useful lives. Computer hardware and software is depreciated over three years. Equipment, furniture and fixtures is depreciated over years. Leasehold improvements are amortized over their estimated useful lives or the remaining lease term, whichever is shorter. Construction in progress is capitalized but not depreciated until it is placed into service. Maintenance and repairs are charged to expense as incurred, while renewals and improvements are capitalized. Depreciation expense for the three-month periods ended March 31, 2025 and 2024 was $
Intangible Assets
The Company capitalizes payments it makes for licensed products when the payment is based on FDA approval for the product and the cost is recoverable based on expected future cash flows from the product. The cost is amortized on a straight-line basis over the estimated useful life of the product commencing on the approval date or the product acquisition date in accordance with ASC 350 — Intangibles - Goodwill and Other. In November 2021, the Company purchased the rights for its Carglumic Acid product for $
The intangible assets, net on the Company’s Condensed Balance Sheet, reflected $
| Amortization | ||||
| Year | Expense | |||
| Remainder of 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total estimated amortization expense | $ | |||
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the Company’s Condensed Statements of Operations for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Deferred Financing Costs, Debt Discount and Detachable Debt-Related Warrants
Costs incurred to issue debt are deferred and recorded as a reduction to the debt balance in the accompanying Condensed Balance Sheet. The Company amortizes these costs over the expected term of the related debt under the effective interest method. Debt discounts related to the relative fair value of warrants issued in conjunction with debt are also recorded as a reduction to the debt balance and accreted over the expected term into interest expense using the effective interested method.
Leases
The Company accounts for leases in accordance with ASC Topic 842 — Leases. The Company reviews all relevant facts and circumstances of a contract to determine if it is a lease whereby the terms of the agreement convey the right to control the direct use and receive substantially all the economic benefits of an identified asset for a period of time in exchange for consideration. The associated right-of-use assets and lease liabilities are recognized at lease commencement. The Company measures lease liabilities based on the present value of the lease payments over the lease term discounted using the rate it would pay on a loan with the equivalent payments and term for the lease. The Company does not include the impact for lease term options that would extend or terminate the lease unless it is reasonably certain that it will exercise any such options. The Company accounts for the lease components separately from non-lease components for its operating leases.
The Company measures right-of-use assets based on the corresponding lease liabilities adjusted for (i) any prepayments made to the lessor at or before the commencement date, (ii) initial direct costs it incurs, and (iii) any incentives under the lease. In addition, the Company evaluates the recoverability of its right-of-use assets for possible impairment in accordance with its long-lived assets policy.
Operating leases are reflected on the Condensed Balance Sheet as operating lease right-of-use assets, current accrued liabilities and long-term operating lease liabilities. The Company does have any finance leases as of March 31, 2025 and December 31, 2024.
The Company commences recognizing operating lease expense when the lessor makes the underlying asset available for use by the Company and the operating lease expense is recognized on a straight-line basis over the term of the lease. Variable lease payments are expensed as incurred.
The Company does not recognize right-of-use assets or lease liabilities for leases with a term of twelve months or less; such lease costs are recorded in the Condensed Statements of Operations on a straight-line basis over the lease term.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the successful award of a patent and the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.
Concentrations of Credit Risk, Sources of Supply and Significant Customers
The Company is subject to credit risk for its cash and cash equivalents, which are invested in money market funds and U.S. treasury bills from time to time. The Company maintains its cash and cash equivalent balances with one major commercial bank and the deposits held with the financial institution exceed the amount of insurance provided on such deposits and is exposed to credit risk in the event of a default by the financial institutions holding its cash and cash equivalents to the extent recorded on the Condensed Balance Sheet. The Company believes the associated credit risk to be minimal.
The Company is dependent on third-party suppliers for its products and product candidates. In particular, the Company relies, and expects to continue to rely, on a small number of suppliers to manufacture key chemicals, approved products and process its product candidates as part of its development programs. These programs could be adversely affected by a significant interruption in the manufacturing process.
The Company is also subject to credit risk from its accounts receivable related to product sales as it extends credit based on an evaluation of the customer’s financial condition, and collateral is not required. The Company's accounts receivables are evaluated to determine if any allowance should be recorded based on consideration of the current economic environment, expectations of future economic conditions, specific circumstances and the Company's historical collection experience. Additionally, Management monitors its exposure to accounts receivable by periodically evaluating the collectability of the account receivable based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and any prior customer credit loss experience. Based upon the review of these factors, the Company recorded no allowance for credit losses at March 31, 2025 or December 31, 2024.
Revenue Recognition for Contracts with Customers
The Company accounts for contracts with its customers in accordance with ASC 606 — Revenue from Contracts with Customers. ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses whether these options provide a material right to the customer and, if so, they are considered performance obligations. Renewal options that provide a material right are treated as a separate performance obligation, allocated a portion of the transaction price and related revenue is deferred until the option is exercised or the option expires unused.
The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time.
Milestone Payments – If a commercial contract arrangement includes development milestone payments, the Company will evaluate whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.
Licensing Revenues – The Company recognizes revenues from licensing arrangements primarily associated with product license agreements that could contain development activity milestones and agreements to divest the licensing rights to products or product candidates. At the inception of each licensing agreement, the Company assesses the goods or services promised within the contract to identify performance obligations. If a license to the Company's product rights is determined to be distinct from other promised goods or services, it is accounted for as a separate performance obligation. If a license grants the customer a right to use the Company's product license, revenue is recognized at the point in time when the license is transferred to the customer and the customer has the ability to use and benefit from the product license. Additionally, revenue is recognized from product license agreements with development activity milestones when these development activities occur per the contractual terms of the agreement.
Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.
Significant Financing Component – In determining the transaction price, the Company will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more than one year.
The Company sells its INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone products to pharmacy distributor customers which provide order fulfilment and inventory storage/distribution services. The Company may sell products in the U.S. to wholesale pharmaceutical distributors, who then sell the product to hospitals and other end-user customers. Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual shipments represent performance obligations under each purchase order. The Company uses a third-party logistics (“3PL”) vendor to process and fulfill orders and has concluded it is the principal in the sales to wholesalers because it controls access to the 3PL vendor services rendered and directs the 3PL vendor activities. The Company has no significant obligations to wholesalers to generate pull-through sales.
For its INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone products, the Company bills at the initial product list price which are subject to offsets for patient co-pay assistance and potential state Medicaid reimbursements which are recorded as a reduction of net revenues at the date of sale/shipment. Selling prices initially billed to wholesalers may be subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sell products at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs.
The Company estimates the transaction price when it receives each purchase order taking into account the expected reductions of the selling price initially billed to the wholesaler/distributor arising from all of the above factors. The Company has developed estimates for future returns and chargebacks and the impact of other discounts and fees it pays, although INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone sales are not subject to returns.
The Company stores its INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone inventory at its pharmacy distributor customer locations, and sales are recorded when stock is pulled and shipped to fulfill specific patient orders. The Company may recognize revenue and cost of sales from products sold to wholesalers upon delivery to the wholesaler location. At that time, the wholesalers take control of the product as they take title, bear the risk of loss of ownership and have an enforceable obligation to pay the Company. They also have the ability to direct sales of product to their customers on terms and at prices they negotiate. Although wholesalers have product return rights, the Company does not believe they have a significant incentive to return the product.
Upon recognition of revenue from product sales, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, state Medicaid and GPO fees are included in sales reserves, accrued liabilities and net accounts receivable. The Company monitors actual product returns, chargebacks, discounts and fees subsequent to the sale. If these amounts end up differing from its estimates, it will make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings in the period of adjustment.
The state Medicaid rebate and related liability are estimated based on monthly sales, historical experience of claims submitted by the various states and jurisdictions, historical rebate rates and estimated lag time of the rebate invoices.
Cost of Sales
Cost of product sales consists of the profit-sharing and royalty fees with the Company’s product licensing and development partners, the purchase costs for finished products from third-party manufacturers, freight and handling/storage from the Company’s 3PL logistics service providers, and amortization expense of certain intangible assets. The costs of sales for profit-sharing, royalty fees, purchased finished products, and the associated inbound freight expense are recorded when the associated product sale revenue is recognized in accordance with the terms of shipment to customers while outbound freight and handling/storage fees charged by the 3PL service provider are expensed as they are incurred. Intangible assets are amortized on a straight-line basis over the estimated useful life of the product. Cost of product sales also reflects any write-downs or reserve adjustments for the Company’s inventories.
Licensing cost of sales may consist of supply agreements and profit-sharing agreements associated with the Company’s sale of its product licenses to customers. The costs of sales for profit-sharing agreements are recognized upon the achievement of certain development and commercial milestones. For the three months ended March 31, 2025, the Company recognized $
Research and Development Expenses
Research and development (“R&D”) expenses include both internal R&D activities and external contracted services. Internal R&D activity expenses include salaries, benefits and stock-based compensation and other costs to support the Company’s R&D operations. External contracted services include product development efforts such as certain product licensor milestone payments, clinical trial activities, manufacturing and control-related activities and regulatory costs. R&D expenses are charged to operations as incurred. The Company reviews and accrues R&D expenses based on services performed and may, from time to time, make estimates of those costs applicable as to the stage of completion of each project. Actual results could differ from the Company’s estimates.
Upfront payments and milestone payments made for the licensing of technology for products that are not yet approved by the FDA are expensed as R&D in the period in which they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in R&D activities are recorded as prepaid expenses and are expensed as the related goods are delivered or the services are performed.
Income (Loss) Per Share
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such as unvested restricted stock, stock options and warrants that are outstanding during the period. Common stock equivalents are excluded from the computation when their inclusion would be anti-dilutive. No such adjustments were made for 2025 or 2024 as the Company reported a net loss for the three months ended March 31, 2025 and 2024 and including the effects of common stock equivalents in the diluted earnings per share calculation would have been anti-dilutive (see Note 8).
Income Taxes
The Company accounts for income taxes under the provisions of ASC 740 - Income Taxes. As part of the process of preparing the Company’s financial statements, the Company must estimate the actual current tax liabilities and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Condensed Balance Sheet. The Company must assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely, a valuation allowance must be established. To the extent the Company establishes a valuation allowance or increase or decrease to this allowance in a period, the impact will be included in income tax expense in the Condensed Statements of Operations. As of March 31, 2025 and December 31, 2024, the Company has established a
Stock-Based Compensation
The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation – Stock Compensation. The guidance under ASC 718 requires companies to estimate the fair value of the stock-based compensation awards on the date of grant and record expense over the related service periods, which are generally the vesting period of the equity awards. Compensation expense is recognized over the period during which services are rendered by consultants and non-employees until completed.
The Company estimates the fair value of stock-based option awards using the Black-Scholes option-pricing model (“BSM”). The BSM requires the input of subjective assumptions, including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying common stock on the date of grant, among other inputs. The risk-free interest rate was determined from the implied yields for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options or warrants. Dividends on common stock are assumed to be zero for the BSM valuation of the stock options. The expected term of stock options granted is based on vesting periods and the contractual life of the options. Expected volatilities are based on the Company's historical volatility subsequent to our IPO, which we believe represents the most accurate basis for estimating expected future volatility under the current conditions. The Company accounts for forfeitures as they occur.
Fair Value Measurements
We measure certain of our assets and liabilities at fair value. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value accounting requires characterization of the inputs used to measure fair value into a three-level fair value hierarchy as follows:
Level 1 — Inputs based on quoted prices in active markets for identical assets or liabilities. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 — Observable inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the entity.
Level 3 — Unobservable inputs that reflect the entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available.
Fair value measurements are classified based on the lowest level of input that is significant to the measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels. The determination of the fair values stated below take into account the market for the Company’s financials, assets and liabilities, the associated credit risk and other factors as required. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and debt obligation. The carrying amounts of these financial instruments approximate their fair values due to the short-term maturities of these instruments. Based on borrowing rates currently available to the Company, the carrying value of the debt obligation approximates its fair value.
Impact of Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for the Company's annual periods beginning January 1, 2025, with early adoption permitted, and may be applied either prospectively or retrospectively. The Company is assessing the guidance, noting the adoption impacts disclosure only.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40). Additionally, in January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. The standard provides guidance to expand disclosures related to the disaggregation of income statement expenses. The standard requires, in the notes to the financial statements, disclosure of specified information about certain costs and expenses, which includes purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each relevant expense caption. This guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, on a retrospective or prospective basis, with early adoption permitted. The Company is assessing the guidance, noting the adoption impacts disclosure only.
Note 4 — Long-Term Debt
SWK Loan
In November 2019, the Company entered into a credit agreement (the “SWK Credit Agreement”) with SWK, which provided $
In September 2024, the Company and SWK entered into a subsequent amendment to the SWK Credit Agreement. Under the terms of the amendment, the Company expanded its existing credit facility by $
Interest payments are payable quarterly, with quarterly principal payments of $
The Company recorded interest expense of $
The table below reflects the future payments for the SWK loan principal and interest as of March 31, 2025.
| Amount | ||||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| Total payments | ||||
| Less: unamortized discount | ( | ) | ||
| Plus: accrued exit fees at March 31, 2025 | ||||
| Debt, net of unamortized discount and accrued exit fees | $ | |||
Note 5 — Common Stock
The Company has
During the three months ended March 31, 2025, the Company issued
Note 6 — Common Stock Warrants
The Company’s outstanding warrants to purchase shares of its common stock at March 31, 2025 are summarized in the table below.
| Description of Warrants | Warrant Issuance Date | No. of Shares | Exercise Price | ||||||
| SWK Warrants – Debt – Tranche #1 | 11/13/2019 | $ | |||||||
| SWK Warrants – Debt – Tranche #2 | 8/11/2020 | $ | |||||||
| SWK Warrants – Debt – Tranche #3 | 9/30/2024 | $ | |||||||
| Total shares and weighted average exercise price | $ | ||||||||
The holders of these warrants or their permitted transferees, are entitled to rights with respect to the registration under the Securities Act of their shares that are converted to common stock, including demand registration rights and piggyback registration rights. These rights are provided under the terms of a registration rights agreement between the Company and the investors.
Note 7 — Share-Based Payment Awards
The Company’s board of directors and stockholders approved the Eton Pharmaceuticals, Inc. 2017 Equity Incentive Plan in May 2017 (the “2017 Plan”), which authorized the issuance of up to
Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards under the 2018 Plan. In addition, the 2018 Plan provides that commencing January 1, 2019 and through January 1, 2028, the share reserve will be increased by
To date, all stock options issued have been non-qualified stock options, and the exercise prices were set at the fair value for the shares at the dates of grant. Options typically have a -year life, except for options to purchase
For the three months ended March 31, 2025 and 2024, the Company’s total stock-based compensation expense was $
Stock Options
The following table summarizes stock option activity during the three months ended March 31, 2025:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic | ||||||||||||||
| Shares | Price | Term (Yrs) | Value | |||||||||||||
| Outstanding as of December 31, 2024 | $ | |||||||||||||||
| Issued | $ | |||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Forfeited/Cancelled | ( | ) | $ | |||||||||||||
| Outstanding as of March 31, 2025 | $ | $ | ||||||||||||||
| Options exercisable as of March 31, 2025 | $ | $ | ||||||||||||||
| Options vested and expected to vest at March 31, 2025 | $ | $ | ||||||||||||||
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock at March 31, 2025 for those stock options that had strike prices lower than the fair value of the Company’s common stock.
Stock based compensation related to stock options was $
Restricted Stock Units (RSUs)
The following table summarizes restricted stock unit activity during the three months ended March 31, 2025:
| Number of Units | Weighted Average Grant-Date Fair Value Per Unit | |||||||
| Outstanding and unvested as of December 31, 2024 | $ | |||||||
| Granted | $ | |||||||
| Vested | $ | |||||||
| Forfeited | ( | ) | $ | |||||
| Outstanding and unvested as of March 31, 2025 | $ | |||||||
Stock-based compensation related to RSUs was $
Employee Stock Purchase Plan
The Company’s 2018 Employee Stock Purchase Plan (“ESPP”) provides for an initial reserve of
The annual offerings consist of two stock purchase periods, with the first purchase period ending in June and the second ending in December. The terms of the ESPP permit employees of the Company to use payroll deductions to purchase stock at a price per share that is at least the lesser of (1)
For the three-month periods ended March 31, 2025 and 2024, there were
Note 8 — Basic and Diluted Net Loss per Common Share
For the three months ended March 31, 2025, basic and diluted net loss per share is computed using the weighted average number of shares of common stock outstanding during the period and includes common stock equivalents (using the treasury stock and “if converted” method) from stock options, RSUs, and warrants. For the three months ended March 31, 2025 and 2024,
The following table shows the computation of basic and diluted net loss per common share:
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2025 | 2024 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding (basic and diluted) | ||||||||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
Note 9 — Income Taxes
The following table summarizes the Company's income tax expense and effective tax rates for the three months ended March 31, 2025 and 2024:
| Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2025 | 2024 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Income tax expense | ||||||||
| Effective tax rate | %) | % | ||||||
The Company's quarterly income tax provision is calculated under the discrete method, which treats the interim period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The Company believes, at this time, the use of the discrete method is more appropriate as the annual effective tax rate cannot be reliably estimated given the Company's full valuation allowance recorded on its deferred tax assets and annual utilization limitations that prevent the Company from fully offsetting its expected current income tax liabilities with its available net operating loss and income tax credits.
The effective tax rate for the three months ended March 31, 2025 varies from the three months ended March 31, 2024, primarily as a result of the Company's valuation allowance recorded against its net deferred tax assets and annual tax attribute limitations that result in current income tax expense. Income taxes paid during the three months ended March 31, 2025 and 2024 were $
Note 10 — Related-Party Transactions
Chief Executive Officer
The CEO has a partial interest in a company that the Company had partnered with for its EM-100/Alaway® Preservative Free eye allergy product as described below.
The Company acquired the exclusive rights to sell the EM-100 product in the United States pursuant to a Sales and Marketing Agreement (the “Eyemax Agreement”) dated August 11, 2017, between the Company and Eyemax LLC (“Eyemax”), an entity affiliated with the Company’s CEO. Under the terms of the Eyemax Agreement, the Company would pay Eyemax $
On February 18, 2019, the Company entered into an Amended and Restated Agreement with Eyemax amending the Sales Agreement (the “Amended Agreement”). Pursuant to the Amended Agreement, Eyemax sold the Company all of its right, title and interest in EM-100, including any such product that incorporates or utilizes Eyemax’s intellectual property rights. Pursuant to the Amended Agreement, the Company paid Eyemax two milestone payments: (i) one milestone payment for $
The CEO has a partial interest in a company that the Company has entered into an agreement with as described below.
Previously, the Company acquired DS-200 and all related intellectual property pursuant to an asset purchase agreement (the “Selenix Agreement”) dated June 23, 2017 between the Company and Selenix LLC (“Selenix”), an entity affiliated with the CEO. On August 30, 2024, the Company amended the Selenix Agreement in tandem with an agreement to sell DS-200 in August 2024 (see Note 12). Pursuant to the terms of the amended Selenix Agreement, Selenix waived its rights to future milestone payments and
Note 11 — Leases
The Company recognizes a right-of-use (“ROU”) asset and a lease liability on the balance sheet for substantially all leases, including operating leases, and separates lease components from non-lease components related to its office space lease.
In June 2024, the Company renewed its office lease for a -year period through March 2027 and recorded $
The Company’s operating lease cost as presented as G&A in the Condensed Statements of Operations was $
The table below presents the lease-related assets and liabilities recorded on the balance sheet as of March 31, 2025 and December 31, 2024 (in thousands).
| March 31, | December 31, | ||||||||
| Assets | Classification | 2025 | 2024 | ||||||
| Operating lease right-of-use assets | Operating lease right-of-use assets, net | $ | $ | ||||||
| Total leased assets | $ | $ | |||||||
| Liabilities | |||||||||
| Operating lease liabilities, current | Accrued liabilities | $ | $ | ||||||
| Operating lease liabilities, noncurrent | Operating lease liabilities, net of current portion | ||||||||
| Total operating lease liabilities | $ | $ | |||||||
The Company’s future lease commitments as of March 31, 2025, are as indicated below:
| Total | 2025 (Remainder) | 2026 | 2027 | |||||||||||||
| Undiscounted lease payments | $ | $ | $ | $ | ||||||||||||
| Less: Imputed interest | ( | ) | ||||||||||||||
| Total lease liabilities | $ | |||||||||||||||
Note 12 — Commitments and Contingencies
Legal
The Company is subject to legal proceedings and claims that may arise in the ordinary course of business. The Company is not aware of any pending or threatened litigation matters at this time that would have a material impact on the operations of the Company.
License and product development agreements
The Company has entered into various agreements which are described below.
In March 2020, the Company entered into an Exclusive License and Supply Agreement (the “Alkindi License Agreement”) with Diurnal for marketing ALKINDI SPRINKLE® in the United States. In September 2020, ALKINDI SPRINKLE®’s New Drug Application (NDA) was approved by the FDA as a replacement therapy for pediatric patients with adrenocortical insufficiency. For the initial licensing milestone fee, the Company paid Diurnal $
In June 2021, the Company acquired U.S. and Canadian rights to Crossject’s ZENEO® hydrocortisone needleless autoinjector, which is under development as a rescue treatment for adrenal crisis. The Company paid Crossject $500 upon signing, $500 in March 2022 upon a completion of a successful technical batch and could pay up to $3,500 in additional development milestones and up to $6,000 in commercial milestones, as well as a 10% royalty on net sales.
In March 2024, the Company acquired the U.S. rights to PKU GOLIKE® from Relief Therapeutics Holding SA. The Company paid $
In August 2024, the Company entered into an agreement to sell its DS-200 product candidate. The Company received $
In November 2024, the Company entered into a licensing agreement with AMMTeK. pursuant to which the Company has agreed to acquire the U.S. rights to Amglidia (glyburide oral suspension). Amglidia was approved by the European Medicines Agency in 2018 and has been granted Orphan Drug Designation by the U.S. FDA. AMMTeK. has conducted a post-approval study tracking five years of real-world safety and efficacy in European patients, which will be used to support the Company's s New Drug Application (“NDA”) submission. The Company intends to hold a meeting with the FDA in 2025. Under the terms of the licensing agreement, the Company will not make any upfront payments and retains the right to terminate the licensing agreement based on FDA meeting results prior to any payments being owed. The Company could pay up to $
In December 2024, the Company acquired GALZIN® (zinc acetate) from Teva Pharmaceuticals USA, Inc and assumed the commercialization of the product in the U.S. during March of 2025. The Company accounted for the purchase as a product acquisition and paid $
In December 2024, the Company acquired INCRELEX® (mecasermin injection) from Ipsen S.A. The Company paid $
In March 2025, the Company out-licensed the commercial rights to Increlex® in territories outside of the U.S. to Esteve Pharmaceuticals, S.A. (“Esteve”). Under the terms of the licensing agreement, Esteve will pay the Company up front to license the rights to Increlex® for up to ten years, and Esteve is also receiving an option to acquire the international rights in the future for a purchase price of up to In addition, the Company also entered into a supply agreement and will supply product to Esteve at a fixed transfer price. In accordance with the accounting pronouncement guidance in ASC 606 with respect to the license and supply agreements between the Company and Esteve, the Company recognized as of and for the three months ended March 31, 2025, $
Indemnification
As permitted under Delaware law and in accordance with the Company’s Amended and Restated Bylaws, the Company is required to indemnify its officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its directors and officers. The Company believes the fair value of the indemnification rights and agreements is minimal. Accordingly, the Company has recorded any liabilities for these indemnification rights and agreements as of March 31, 2025 or December 31, 2024.
Note 13 — Subsequent Events
On April 28, 2025, the Company submitted an NDA to the FDA for ET-600, the Company's proprietary, patented oral solution of desmopressin under development for the treatment of central diabetes insipidus. The Company expects the application to be assigned a 10-month FDA review, allowing for potential approval and launch in the first quarter of 2026.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with (i) our unaudited interim condensed financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations Included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2025 (the “2024 10-K”).
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” “may,” “plan,” “seek” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider other matters set forth in our SEC filings, including the Risk Factors set forth in Part I, Item 1A of our 2024 10-K.
Overview
Eton is an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases. We currently have seven commercial rare disease products: INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone. We have six additional product candidates in late-stage development: ET-400, ET-600, Amglidia®, ET-700, ET-800 and ZENEO® hydrocortisone autoinjector.
Results of Operations (dollars in thousands)
During the three months ended March 31, 2025, we had $17,282 in total revenues that generated a gross profit of $9,861 compared to total revenues of $7,966 during the three-month period ended March 31, 2024 that generated a gross profit of $5,007 for the period. During the three months ended March 31, 2025, we had product sales and royalties, net of $13,996, compared to product sales and royalties, net of $7,966 during the three months ended March 31, 2024, an increase of $6,030. The increase in product sales and royalties, net was the result of increased sales of our INCRELEX®, ALKINDI SPRINKLE® and Carglumic Acid products in the current period, along with sales volume from Nitisinone and PKU GOLIKE® products launched in 2024.
Licensing revenue during the three months ended March 31, 2025 was $3,286, compared to zero licensing revenue during the three months ended March 31, 2024. The increase in licensing revenue during the three months ended March 31, 2025 was due to $1,786 from our out-licensing of INCRELEX® rights outside of the U.S. and $1,500 from the recognition of a development milestone event associated with our divestiture of DS-200.
Research and Development Expenses
During the three months ended March 31, 2025, we incurred $1,161 of research and development (“R&D”) expenses as compared to $651 for the same period in 2024. The increase was primarily due to increased expenses associated with our ET-700 and ET-800 project development activities.
General and Administrative Expenses
G&A expenses consist primarily of employee compensation expenses, legal and professional fees, product marketing expenses, distribution expenses, business insurance, travel expenses, and general office expenses. During the three-month periods ended March 31, 2025 and 2024, we incurred $9,170 and $5,156, respectively, of G&A expenses. The increase in G&A expenses during the three months ended March 31, 2025 was primarily attributable to an increase in product advertising and promotional expenses, an increase in product development expenses and an increase in compensation and benefit expenses due to an increase in general and administrative headcount.
Liquidity and Capital Resources
As of March 31, 2025, we had total assets of $84.0 million, cash and cash equivalents of $17.4 million and working capital of $24.6 million. We believe that our cash and cash equivalents on hand, along with continued product revenues, will be sufficient for at least the next twelve months of our operations. However, our projected estimates for our product development spending, administrative expenses, and our working capital requirements could be inaccurate, or we may experience growth more quickly or on a larger scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing earlier than we expect to support our operations.
Cash Flows
The following table sets forth a summary of our cash flows for the three-month periods ended March 31, 2025 and 2024 (dollars in thousands):
| Three months ended |
Three months ended |
|||||||
| March 31, 2025 |
March 31, 2024 |
|||||||
| Net cash from operating activities |
$ | 2,090 | $ | (2,473 | ) | |||
| Cash from investing activities |
— | (1,882 | ) | |||||
| Cash from financing activities |
394 | (378 | ) | |||||
| Change in cash and cash equivalents |
$ | 2,484 | $ | (4,733 | ) | |||
The increase in cash from operating activities during the three months ended March 31, 2025 was primarily due to higher cash collections from product sales and a filing fee refund from the FDA related to ET-400. During the three months ended March 31, 2024, net cash from investing activities was $1,882, which reflected $1,868 payment associated with the acquisition of the PKU GOLIKE® product license in March 2024. During the three months ended March 31, 2025, net cash provided by financing activities was $394 and was associated with proceeds from stock option exercises, compared to net cash used by financing activities of $378, which reflected $385 repayment of debt and proceeds of $7 from stock option exercises during the three months ended March 31, 2024.
Non-GAAP Financial Measures
EBITDA, or earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, non-GAAP net income and non-GAAP earnings per share are used and provided by us as non-GAAP financial measures. These non-GAAP financial measures are intended to provide additional information on our performance, operations and profitability. Adjustments to our GAAP figures as well as EBITDA includes non-recurring acquisition or divestiture-related costs, fees related to refinancing activities, as well as non-cash items such as share-based compensation, inventory step-up expense, depreciation and amortization, non-cash interest expense, and other non-cash adjustments. Certain other special items or substantive events may also be included in the non-GAAP adjustments periodically when their magnitude is significant within the periods incurred. We maintain an established non-GAAP policy that guides the determination of what costs or gains will be included in non-GAAP adjustments.
We believe that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of our financial and operating performance. The non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of our historical financial results and trends and to facilitate comparisons between periods. In addition, these non-GAAP financial measures are among the indicators our management uses for planning and forecasting purposes and measuring our performance. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, non-GAAP financial measures used by other companies.
Reconciliations of reported GAAP net loss to EBITDA, adjusted EBITDA and non-GAAP net income, and the related per share amounts, were as follows (in thousands, except share and per share amounts):
| For the three months ended |
||||||||
| March 31, |
March 31, |
|||||||
| 2025 |
2024 |
|||||||
| GAAP net loss |
$ | (1,572 | ) | $ | (811 | ) | ||
| Depreciation (1) |
12 | 14 | ||||||
| Intangible amortization expense (2) |
1,001 | 220 | ||||||
| Interest expense (including debt discount amortization and non-cash interest expenses) |
1,163 | 238 | ||||||
| Income tax expense |
74 | — | ||||||
| EBITDA |
$ | 678 | $ | (339 | ) | |||
| Other non-GAAP adjustments: |
||||||||
| Inventory step-up expense (3) |
1,142 | — | ||||||
| Stock-based compensation (4) |
1,200 | 821 | ||||||
| Severance expense (5) |
335 | — | ||||||
| Divestiture-related costs (6) |
320 | — | ||||||
| Total of Other non-GAAP adjustments |
2,997 | 821 | ||||||
| Adjusted EBITDA |
$ | 3,675 | $ | 482 | ||||
| GAAP loss before income tax |
$ | (1,498 | ) | $ | (811 | ) | ||
| Non-GAAP adjustments: |
||||||||
| Depreciation (1) |
12 | 14 | ||||||
| Intangible amortization expense (2) |
1,001 | 220 | ||||||
| Inventory step-up expense (3) |
1,142 | — | ||||||
| Share-based compensation (4) |
1,200 | 821 | ||||||
| Severance expense (5) |
335 | — | ||||||
| Divestiture-related costs (6) |
320 | — | ||||||
| Total pre-tax non-GAAP adjustments |
4,010 | 1,055 | ||||||
| Income tax effect of pre-tax non-GAAP adjustments (7) |
117 | — | ||||||
| Total non-GAAP adjustments |
3,893 | 1,055 | ||||||
| Non-GAAP Net Income |
$ | 2,395 | $ | 244 | ||||
| Weighted average number of common shares outstanding, basic |
26,886 | 25,763 | ||||||
| Weighted average number of common shares outstanding, diluted |
31,017 | 31,706 | ||||||
| GAAP loss per share - Basic |
$ | (0.06 | ) | $ | (0.03 | ) | ||
| Non-GAAP adjustments |
0.14 | 0.04 | ||||||
| Non-GAAP earnings per share - Basic |
$ | 0.08 | $ | 0.01 | ||||
| GAAP loss per share - Basic |
$ | (0.06 | ) | $ | (0.03 | ) | ||
| Non-GAAP adjustments |
0.13 | 0.03 | ||||||
| Non-GAAP earnings per share - Diluted |
$ | 0.07 | $ | — | ||||
| (1) | Represents depreciation expense related to our property and equipment. |
| (2) | Intangible amortization expenses are associated with our intellectual property rights related to INCRELEX®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone. |
| (3) | During the three months ended March 31, 2025, we recognized in cost of sales $1,142 for inventory step-up expense primarily attributable to INCRELEX® inventory revalued in connection with this product acquisition. |
| (4) | Represents share-based compensation expense associated with our stock option and restricted stock unit stock unit grants to our employees and non-employee directors and our employee share purchase plan. |
| (5) | Represents severance and benefit expenses associated with role redundancy within commercial operations during the three months ended March 31, 2025. |
| (6) | Represents legal expense and other divestiture-related costs associated with the out-licensing of the INCRELEX® commercial rights in territories outside of the U.S. |
| (7) | Income tax adjustments on pre-tax non-GAAP adjustments represent the estimated income tax impact of each pre-tax non-GAAP adjustment based on the effective income tax rate for the period. As discussed further in Note 9, we are in a full income tax valuation allowance position and the income tax effect on pre-tax non-GAAP adjustments is commensurate with the performance measure. |
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 3 to our financial statements included herein, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition for Contracts with Customers
We account for contracts with our customers in accordance with Accounting Standards Codification (“ASC”) 606 — Revenue from Contracts with Customers. ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
At contract inception, once we determine the contract falls within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. We assess whether these options provide a material right to the customer and, if so, they are considered performance obligations. Renewal options that provide a material right are treated as a separate performance obligation, allocated a portion of the transaction price, and related revenue is deferred until the option is exercised or the option expires unused.
We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time. For the three months ended March 31, 2025 and 2024, all revenues recognized in the Condensed Statements of Operations were point in time sales to our customers.
Milestone Payments – If a commercial contract arrangement includes development milestone payments, we will evaluate whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.
Licensing Revenues – The Company recognizes revenues from licensing arrangements primarily associated with product license agreements that could contain development activity milestones and agreements to divest the licensing rights to products or product candidates. At the inception of each licensing agreement, the Company assesses the goods or services promised within the contract to identify performance obligations. If a license to the Company's product rights is determined to be distinct from other promised goods or services, it is accounted for as a separate performance obligation. If a license grants the customer a right to use the Company's product license, revenue is recognized at the point in time when the license is transferred to the customer and the customer has the ability to use and benefit from the product license. Additionally, revenue is recognized from product license agreements with development activity milestones when these development activities occur per the contractual terms of the agreement.
Royalties – For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied.
Significant Financing Component – In determining the transaction price, we will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more than one year.
The Company sells its INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone products to pharmacy distributor customers which provide order fulfilment and inventory storage/distribution services. The Company may sell products in the U.S. to wholesale pharmaceutical distributors, who then sell the product to hospitals and other end-user customers. Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual shipments represent performance obligations under each purchase order. The Company uses a third-party logistics (“3PL”) vendor to process and fulfill orders and has concluded it is the principal in the sales to wholesalers because it controls access to the 3PL vendor services rendered and directs the 3PL vendor activities. The Company has no significant obligations to wholesalers to generate pull-through sales.
For its INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone products, the Company bills at the initial product list price which are subject to offsets for patient co-pay assistance and potential state Medicaid reimbursements which are recorded as a reduction of net revenues at the date of sale/shipment. Selling prices initially billed to wholesalers may be subject to discounts for prompt payment and subsequent chargebacks when the wholesalers sell products at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs.
The Company estimates the transaction price when it receives each purchase order taking into account the expected reductions of the selling price initially billed to the wholesaler/distributor arising from all of the above factors. The Company has developed estimates for future returns and chargebacks and the impact of other discounts and fees it pays, although INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, Carglumic Acid, Betaine Anhydrous, and Nitisinone sales are not subject to returns.
The Company stores its INCRELEX®, ALKINDI SPRINKLE®, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous, and Nitisinone inventory at its pharmacy distributor customer locations, and sales are recorded when stock is pulled and shipped to fulfill specific patient orders. The Company recognizes revenue and cost of sales from products sold to wholesalers upon delivery to the wholesaler location. At that time, the wholesalers take control of the product as they take title, bear the risk of loss of ownership and have an enforceable obligation to pay the Company. They also have the ability to direct sales of product to their customers on terms and at prices they negotiate. Although wholesalers have product return rights, the Company does not believe they have a significant incentive to return the product.
Upon recognition of revenue from product sales, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, state Medicaid and GPO fees are included in sales reserves, accrued liabilities and net accounts receivable. The Company monitors actual product returns, chargebacks, discounts and fees subsequent to the sale. If these amounts end up differing from its estimates, it will make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings in the period of adjustment.
Acquisitions
The Company accounts for business acquisitions using the acquisition method of accounting. Under this method of accounting, assets acquired and liabilities assumed are recorded at their respective fair values at the date of the acquisition. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company’s estimates of fair value are based upon assumptions believed to be reasonable but that are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill. The Company also uses best estimates and assumptions to determine the useful lives of those acquired intangible assets that have a finite life.
Critical estimates in valuing certain of the intangible assets acquired include:
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future expected cash flows from customer contracts and license agreements; |
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historical and expected customer attrition rates and anticipated growth in revenues from acquired customers; and |
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discount rates. |
The Company accounts for stock-based compensation under the provisions of ASC 718 Compensation – Stock Compensation. The guidance under ASC 718 requires companies to estimate the fair value of the stock-based compensation awards on the date of grant and record expense over the related service periods, which are generally the vesting period of the equity awards. Compensation expense is recognized over the period during which services are rendered by consultants and non-employees until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model (“BSM”).
The Company estimates the fair value of stock-based option awards using the BSM. The BSM requires the input of subjective assumptions, including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying common stock on the date of grant, among other inputs. The risk-free interest rate was determined from the implied yields for zero-coupon U.S. government issues with a remaining term approximating the expected life of the options or warrants. Dividends on common stock are assumed to be zero for the BSM valuation of the stock options. The expected term of stock options granted is based on vesting periods and the contractual life of the options. Expected volatilities are based on the Company's historical volatility subsequent to our IPO, which we believe represents the most accurate basis for estimating expected future volatility under the current conditions. We account for forfeitures as they occur.
Off Balance Sheet Transactions
We do not have any off-balance sheet transactions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary objective of our investment activities is to preserve capital. We do not utilize hedging contracts or similar instruments. We are exposed to certain market risks relating primarily to interest rate risk on our cash and cash equivalents and risks relating to the financial viability of the institutions which hold our capital and through which we have invested our funds. We manage such risks by investing in short-term, liquid, highly rated instruments. As of March 31, 2025, our cash equivalents only included cash deposits at our bank. From time to time, we do have cash investments in short-term money market or U.S. treasury bills. We do not believe that we have any material exposure to interest rate risk in the current interest rate environment and the short duration of the invested funds we hold. Declines in interest rates would reduce our investment income but would not have a material effect on our financial condition or results of operations. We do not currently have exposure to foreign currency risk.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating these disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective
The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With respect to the three-month period ended March 31, 2025, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.
Management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
Changes in Internal Control over Financial Reporting
There has not been any change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three-month period ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
None.
We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business, financial condition, and results of operations, and you should carefully consider them. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our results of operations and financial condition.
You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2024 10-K, which could materially affect our business, financial condition, cash flows or future results. The risk factors described in our 2024 10-K, are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Rule 10b-5(1) Trading Plans. During the three-month period ended March 31, 2025, director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
The exhibits listed on the Exhibit Index are either filed or furnished with this report or incorporated herein by reference.
| Exhibit No. |
Description |
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| 31.1 |
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| 31.2 |
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| 32.1* |
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| 101 |
The following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2025 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Condensed Balance Sheet, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Stockholders’ Equity, (iv) the Condensed Statements of Cash Flows and (v) Notes to Condensed Financial Statements. |
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| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * |
These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ETON PHARMACEUTICALS, INC. |
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| May 13, 2025 |
By: |
/s/ Sean E. Brynjelsen |
| Sean E. Brynjelsen |
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| President and Chief Executive Officer |
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| (Principal Executive Officer) |
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| By: |
/s/ James R. Gruber |
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| James R. Gruber |
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| Chief Financial Officer |
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| (Principal Financial Officer) |
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