Eton Pharmaceuticals, Inc. Stock

Thank you. Good afternoon, and welcome to the Eton Pharmaceuticals Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised this call is being recorded at the company's request. At this time, I'd like to turn the call over to David Krempa, Chief Business Officer at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Eton's second quarter 2026 conference call. This afternoon, we issued a press release that outlines the topics we plan to discuss on today's call. The release is available on our website, etonpharma.com. Joining me on our call today, we have Sean Brynjolfsson, CEO; Ipek Erincin, our Chief Commercial Officer; and [ Judy Matthews ], our Chief Financial Officer. Before we begin, I would like to remind everyone that today's remarks made during the call may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those contained in these forward-looking statements. Please see the forward-looking statements disclaimer in our earnings release and the risk factors in the company's filings with the SEC. Now, I will turn the call over to our CEO, Sean Brynjolfsson.

Thank you, David. Good afternoon, everyone, and thank you for joining us today. We had an exceptional second quarter with record revenue, significant margin expansion, and important progress across both our commercial portfolio and pipeline. We also completed several strategic transactions that we believe will support Eton's continued long-term growth. I'll begin by highlighting a few of the quarter's key accomplishments. We once again achieved record revenue, delivering 99% year-over-year growth with contributions from across the portfolio. At the same time, we delivered significant margin expansion and accelerated adjusted EBITDA and net income growth.

We established a strong commercial foundation in pediatric dermatology with the successful relaunch of Hemangiol, which is already performing ahead of our expectations. We expanded our portfolio through the acquisition of U.S. rights to Impavido and the licensing of ASN001, adding both a commercial rare disease product and a late-stage development candidate that we believe has the potential to become the largest product in our portfolio. And finally, we had a very productive few months on the R&D front. We submitted a PAS, Prior Approval Supplement, for the [ KendiV ] label expansion, initiated the ET-700 pilot study, began preparations for the Increlex label harmonization study, and also received Fast Track designation for Amglidia.

Starting with the financials, it was another record quarter for Eton. Revenue reached $37.6 million, an increase of 99% year over year. Hemangiol had an exceptional relaunch quarter and was the largest contributor to our growth. But importantly, the strength was broad-based with continued momentum across our pediatric endocrinology franchise and Galzin. Based on our strong second quarter performance and favorable outlook for the remainder of the year, we are once again raising our 2026 revenue guidance. We expect full-year revenue to exceed $145 million, up from our previous guidance of more than $120 million. Profitability has always been a core focus at Eton, and that was apparent in our results this quarter. Adjusted EBITDA increased to $16.2 million, or 43% of revenue, compared with $3.6 million, or 16% of revenue, in the prior year quarter.

Even after new incremental expenses related to the ASN001 transaction, which I will discuss in detail shortly, we now expect our full-year adjusted EBITDA margin to exceed 35%, up from our prior guidance of greater than 30%. For the last several years, we've talked about the scalability and operating leverage inherent in our model. We're now seeing that play out in the financial results. As we continue to grow revenue, we expect an increasing proportion of that growth to translate into earnings. Longer term, we continue to believe this business can generate an adjusted EBITDA margin above 50%.

Turning to our product portfolio, I'll start with pediatric dermatology, which has quickly become an important new franchise for Eton. We relaunched Hemangiol as planned on May 1, and the product is performing ahead of our expectations. Historically, approximately 8,000 patients annually were treated with Hemangiol, and the patients accessed the product through 18 different pharmacies. When we acquired Hemangiol, we saw a significant opportunity to streamline and improve that experience by moving patients to a single, high-touch access model through Eton Cares, reducing patient out-of-pocket costs, accelerating access to medication, and providing 24/7 patient support. Transitioning an entire patient population to a new distribution model was a significant operational undertaking, particularly given the nature of infantile hemangioma treatment, where therapy typically lasts only about 6 months.

We weren't simply transitioning a static patient population. We were simultaneously converting existing patients, onboarding newly diagnosed infants, and supporting patients completing therapy, all while introducing physicians and their office staff to an entirely new access and fulfillment model. We originally expected that transition to take 3 to 4 months. I'm very proud of our team's execution. By the end of June, we estimate that approximately 95% of patients had transitioned to the new model well ahead of our expectations. Critically, this was accomplished while maintaining continuity of care for patients and their families. Today, every Hemangiol patient has access to the full Eton Cares patient support program. Previously, many families were paying approximately $55 per bottle, which in some cases could total more than $100 per month.

Our goal is simple. Families dealing with infantile hemangiomas shouldn't also have to worry about whether they can afford the medication their child needs. With the transition of existing patients largely behind us, our commercial attention is now shifting to the broader opportunity, helping ensure that more infants from whom Hemangiol is appropriate receive a therapy specifically developed and approved for infantile hemangioma, instead of relying on off-label adult formulations. Those off-label products were not developed for infantile hemangioma and contained excipients such as alcohol, sugar, and other ingredients that are not appropriate for infants. In our conversations with physicians, we've consistently heard that the historical out-of-pocket cost of Hemangiol was 1 factor contributing to off-label prescribing. With Eton Cares and our $0 copay program now in place, we believe we've removed an important barrier to broader adoption and are well positioned to drive continued growth.

We are extremely pleased with the Hemangiol acquisition. It has quickly become our largest product and established Eton as a leader in the infantile hemangioma space. But as we've spent more time with pediatric dermatologists, vascular anomaly specialists, and families, it's become clear that Hemangiol addresses only part of the treatment landscape. For severe hemangiomas requiring treatment, Hemangiol is the established standard of care, and we estimate that population to be approximately 10,000 to 15,000 patients annually. But infantile hemangiomas affect more than 100,000 patients annually in the United States and exist across a broad spectrum of severity. This means that a significant number of infants with moderate infantile hemangiomas, we estimate 10,000 annually, are being treated off-label with ophthalmic timolol because there simply isn't an FDA-approved topical therapy available.

These timolol ophthalmic products were developed for glaucoma, not infantile hemangiomas, and present a number of practical limitations, including variable dosing, formulation challenges, the absence of FDA-approved labeling, and reimbursement limitations. To us, that represented both a clear unmet need, and we saw firsthand the evidence that physicians and families are looking for a better option. That is what ultimately led us to ASN001, which was specifically developed for infantile hemangiomas and is supported by clinical data. There are several reasons we're particularly excited about ASN001. First, the potential patient population could be 2 to 3 times larger than Hemangiol. Second, ASN001 is expected to be prescribed by the same healthcare professionals as Hemangiol, allowing us to leverage our existing commercial infrastructure and strong relationships we've already been building with thought leaders and vascular anomaly centers. And third, as a new product launch, ASN001 would not be subject to certain rebate dynamics that weigh on Hemangiol's gross-to-net.

As a result, we believe ASN001 will likely have more favorable net pricing economics for Eton. Put those factors together and we believe ASN001 has a clear path to becoming the largest product in our portfolio. And to be clear, we expect ASN001 to complement Hemangiol rather than compete with it. The 2 products address different segments of the disease spectrum and together would allow Eton to support physicians treating infantile hemangiomas across a much broader range of patients. With ASN001 in our portfolio, we believe the addressable market could expand to approximately 20,000 to 30,000 patients annually. From a development standpoint, ASN001 has already completed a Phase 3 trial that showed compelling efficacy compared with placebo. Our final remaining development requirement is a bioavailability bridging study, which we plan to initiate in the coming weeks.

The proposed study protocol has been reviewed by the FDA and consists of a 24-patient, 29-day study assessing the pharmacokinetics of ASN001. We expect that study to cost approximately $4 million over the next 12 months. Following completion of the study, we expect to be ready to submit the NDA in the second half of 2027, allowing for a potential approval and launch in 2028. We believe the ASN001 transaction, together with the Hemangiol acquisition earlier this year, demonstrates 2 defining aspects of Eton's strategy and capabilities. First is our ability to identify and execute highly strategic, potentially transformational transactions. At the end of 2024, Increlex represented a transformational acquisition and became our largest product. Now, in just the last 6 months, we have acquired and successfully integrated what has become our largest revenue-generating product, while also adding what we believe is now our highest-value pipeline program, and we've accomplished both without external financing and while expanding profitability.

We believe that combination demonstrates the strength of our business model and our disciplined approach to capital allocation. We will continue pursuing commercial and development stage transactions that we believe can accelerate revenue and earnings growth and create significant long-term value for shareholders. The second defining capability is what we believe to be 1 of Eton's greatest competitive advantages, our ability to thoughtfully enter new therapeutic areas and rapidly build leadership positions by leveraging the commercial capabilities we've already established. Pediatric dermatology is a great example. We entered the market with Hemangiol on May 1. Just 90 days later, we expanded that franchise with ASN001, a product that can leverage the same commercial organization, customer relationships, and foundational infrastructure.

We've successfully executed this playbook before. We entered pediatric endocrinology with Alkindi Sprinkle and then expanded that platform with 3 additional high-value commercial products in the specialty. Similarly, we entered metabolics with carglumic acid and subsequently expanded the platform through additional transactions. Importantly, we've been able to build these franchises while continuing to grow our existing portfolio and maintaining discipline around operating expenses. We've proven this is a repeatable strategy and 1 that Eton is particularly well positioned to execute. We expect to enter a number of new specialties in the coming years. Ultimately, our mission is simple: bring as many important rare disease therapies to patients as possible.

Beyond infantile hemangioma, we've had a number of important developments across our commercial and development stage products. We won't have time to cover all of them this afternoon, but I'll highlight several of the most significant. And I'll start with our high-performing pediatric endocrinology portfolio. Our adrenal franchise of Alkindi Sprinkle and [ KendiV ] continues to deliver the reliable, steady growth we've seen for more than 5 years, now exceeding 600 active patients and continuing to grow. Last week, we announced that our new [ KendiV ] formulation successfully demonstrated bioequivalence to the reference product Alkindi Sprinkle. As a result, we were able to submit our prior approval supplement, requesting approval of a broader age range. [ KendiV ] is currently approved for patients 5 years of age and older. We continue to believe expanding the label to include patients under 5 would be an important catalyst for broader adoption and accelerate our path toward our goal of 1,000 active patients. We expect the expanded label to be approved in the first half of 2027.

We also launched [ Desmoda ] at the end of the first quarter and have been very encouraged by the early response from the endocrinology community who are glad to have the option of an oral liquid desmopressin solution to enable individualized dosing. Desmopressin dosing can vary significantly from patient to patient and often requires multiple dose adjustments throughout the treatment journey. [ Desmoda ] was specifically designed to address that need through precise, flexible dosing, and that differentiation is resonating strongly with clinicians. Beyond the launch itself, [ Desmoda ] is also helping us establish relationships with adult endocrinologists, expanding our commercial reach beyond our traditional pediatric call point. We are continuing to invest in peer-to-peer education, engage key opinion leaders, and build awareness through national and regional medical meetings, which include a strong presence at the Endocrine Society Annual Meeting in June. These activities are supporting the [ Desmoda ] launch while also strengthening our broader endocrinology platform and creating opportunities across Alkindi Sprinkle, [ KendiV ], and Increlex.

Increlex also delivered strong year-over-year revenue growth during the quarter, and we continue to advance our label harmonization study, which we believe could substantially expand the product's long-term market opportunity. FDA has signed off on our study protocol and we have executed an agreement with a leading CRO to initiate the study. Our team is now actively engaged in study startup activities with the goal of dosing the first patient by the end of the year. Rounding out our pediatric endocrinology portfolio is Amglidia. We recently received Fast Track designation from the FDA, which is designated or designed to facilitate the development and expedite the review of drugs intended to treat serious conditions and fill an unmet medical need. Amglidia is a liquid glyburide product used to treat neonatal diabetes, an extremely rare condition infecting only a few hundred children in the United States.

While the product is approved and widely used in Europe, there is currently no approved oral treatment for neonatal diabetes in the United States. We are initiating the product's bioavailability study this month and plan to submit the NDA by the end of the year, allowing for potential approval and launch in 2027. Given the Fast Track designation, we intend to request priority review with our NDA submission. Now, moving on to our Wilson Disease franchise. Galzin once again delivered strong revenue growth during the quarter as we continue to convert patients who have historically relied on over-the-counter zinc products. Despite the progress we've made since the relaunch, we believe we have converted less than half of the patients currently managed with zinc therapy. That leaves a substantial opportunity for continued growth.

We're continuing to strengthen the franchise through our strategic partnership with the Wilson Disease Association, deeper engagement with leading centers of excellence, and expanded participation at hepatology congresses. Combined with the differentiated support offered through Eton Cares, we believe these investments position Galzin well ahead for sustained growth. Longer term, we see an opportunity to further expand our Wilson disease franchise with ET-700, our proprietary patent-pending extended release formulation of zinc acetate. Our pilot study is currently ongoing. It is a double-blind placebo-controlled clinical trial involving 36 healthy volunteers. The study will use PET scans with radioactive tracer copper to compare the effects of Galzin, ET-700, and placebo on intestinal copper absorption. We expect initial results in the next month or 2 with the full study report expected by the end of the year.

If successful, the pilot study would support the initiation of a pivotal clinical study in early 2027. If ultimately approved, we believe ET-700 could potentially exceed $100 million in peak annual U.S. sales. Lastly, I'll finish the portfolio discussion with another recent addition, Impavido. Impavido is the only FDA-approved oral therapy for severe forms of leishmaniasis, a rare but potentially life-threatening parasitic disease that can cause severe skin lesions, disfiguring mucosal disease, or life-threatening visceral infection. As a life-saving treatment for an ultra-rare condition, Impavido was a strong strategic fit for Eton, and we believe patients will benefit from expanded access through our Eton Cares program. Eton will also begin distributing the product in the U.S. in late September, and we expect Impavido to be another strong addition to our growing portfolio of orphan therapies.

At the beginning of this year, we laid out 3 ambitious long-term goals for Eton. First, to exit 2027 at a $200 million annualized revenue run rate. We now believe that Eton is well ahead of this goal. Second, to achieve a 50% adjusted EBITDA margin in 2028. As noted, we have already exceeded 40% in the second quarter this year. And third, to reach $500 million in annual revenue by 2030. With the addition of ASN001, Eton expects to achieve or exceed this goal. Following our first half performance, the successful Hemangiol relaunch, the addition of ASN001, and the continued strength of our broader portfolio, we believe we are well positioned to sustain momentum into the future.

Just as importantly, our recent success has put Eton in an even stronger position to continue pursuing value-creating business development opportunities. Our commercial track record has demonstrated to potential partners that Eton can be an excellent partner for commercializing ultra-rare disease products in the United States. And our growing profitability has expanded our financial capacity, allowing us to pursue a broader range of transactions, including potentially larger opportunities. We remain incredibly excited about Eton's future. We believe we are still in the early stages of building the leading rare disease company in the United States and bringing as many important therapies as possible to patients with rare diseases while creating significant long-term value for our shareholders. With that, I'll turn it over to [ Judy Matthews ], our Chief Financial Officer, to discuss our financial results. [ Judy ]?

Thank you, Sean. Second quarter revenue increased 99% to $37.6 million compared to $18.9 million in the second quarter of 2025, driven by the addition of Hemangiol, as well as strong year-over-year growth from Increlex, [ Alcatraz ], and the U.S. Alkindi Sprinkle, [ KendiV ], Galzin, and carglumic acid. Gross profit for the quarter was $25.4 million compared to $11.9 million in the prior year period, an increase of 113%, primarily driven by higher product sales. Adjusted gross profit, which excludes the impact of acquired inventory step-up adjustments and intangible amortization, was $27.4 million in the second quarter of 2026, representing an adjusted gross margin of 73%. This compares to adjusted gross profit of $14.1 million and adjusted gross margin of 75% in the prior year period. The decrease in adjusted gross margin was primarily attributable to higher Increlex sales outside the U.S., which generate a negative gross margin.

We expect full-year adjusted gross margin to exceed 70%, inclusive of a potential commercial milestone expected to be recorded in the fourth quarter of 2026 upon achievement of certain net sales thresholds for Alkindi Sprinkle and [ KendiV ]. R&D expenses for the quarter were $1 million compared to $3.7 million in the prior year period. The decrease was primarily due to the [ Desmoda ] FDA filing fee incurred in 2025. We expect full year R&D spending to be between $10 million and $14 million, including the $3 million upfront licensing payment for ASN001, which we expect to expense as R&D in the third quarter of 2026. General and administrative expenses for the quarter were $11.6 million compared to $9.7 million in the prior year period, an increase of 20%. On an adjusted basis, which excludes the impact of share-based compensation, transaction-related costs, and other one-time expenses, G&A expense was $10.2 million compared to $7.6 million in the prior year period.

The increase was primarily driven by additional headcount to support the growth of our business with FDA fees accounting for $0.9 million of the year-over-year increase. Adjusted EBITDA for the second quarter of 2026 was $16.2 million or 43% of revenue compared to $3.1 million or 16% of revenue in the prior year period. We expect our full-year adjusted EBITDA margin to exceed 35%, even after the potential commercial milestone referenced above and R&D expenses related to the ASN001 licensing payment and bioavailability study. Total company net income was $11.6 million or $0.35 per diluted share compared to a net loss of $2.6 million or $0.10 per basic and diluted share in the prior year period. On a non-GAAP basis, we reported net income of $14.3 million for the second quarter of 2026 compared to $1.5 million in the prior year period. Diluted earnings per share were $0.43 compared to $0.03 per share in the prior year period.

Through the second quarter of 2026, we maintained a full valuation allowance against our net deferred tax assets. While our operating results have improved significantly, we remained in a cumulative loss position at quarter end for purposes of our valuation allowance assessment. If we continue to execute against our current forecast and exit this cumulative loss position during the second half of 2026, we may determine that some or all of the valuation allowance is no longer necessary. As of June 30, 2026, our valuation allowance was approximately $22 million. If the valuation allowance is released in a future period, the release would result in a significant one-time non-cash income tax benefit and a corresponding increase in reported GAAP net income in the period in which it is recorded.

We ended the second quarter with $26.8 million in cash on hand after making a $3 million prepayment on our outstanding debt. We remain in a strong financial position and expect cash generated from operations to grow throughout the second half of the year. We will continue to prioritize the use of our cash reserves to fund accretive product acquisitions while accelerating the repayment of our remaining credit facility over the next 6 to 12 months. This concludes our remarks on second quarter results. With that, we'll turn the call back over to the operator for Q&A.

[Operator Instructions] Our first question comes from Chase Knickerbocker with Craig-Hallam Capital Group. Your line is open.

Maybe just first from me on Hemangiol. Can you give us a sense for what the net realized price is in the quarter now that we have a couple months under our belt? How does that compare to the previous quarter, to the kind of $8,000 to $10,000 per treated patient for a full course of therapy that you had kind of previously expected? And if you could give us a sense for volume, we had a sense for kind of the patients that were on drug prior to the purchase. Is that pretty comparable in 95% of kind of the patients who were on prior were retained and, you know, we should be thinking about that volume kind of going forward?

Chase, on the net pricing, we're still sticking with that $8,000 to $10,000 net price. On average, we think that's going to be our best estimate. It moves around month to month, especially during this transition based on patient mix, but we still think it'll be more or less in that $8,000 to $10,000 range. In terms of patient volume, yes, historically there's been 8,000 patients. We think we've converted all the patients now. We had 95% by end of June. We think we've got them all now. Now the commercial team's focus is on trying to grow that volume and convert some of the patients that historically have used the off-label adult product. So that'll be the game plan going forward.

Got it. Maybe just to follow up there, there's kind of a 6 months turnover, obviously, in these patients as they roll off therapy. Can you just speak to kind of the efforts on getting in front of all of those providers now that the Hemangiol is under Eton ownership and kind of the success of kind of how many of those physicians, those writers that you've, you know, have been able to get in front of and kind of capture scripts subsequent to the change in ownership? And then second, just on ASN001, could you just outline exactly the FDA feedback that your partner got around the bioavailability bridging study? Is that what's going to be considered the registrational study by FDA? Or are they taking that clinical study in China into consideration as supportive evidence?

Hi, Chase. I'll take that last question you have, and then Ipek can take the first part. So, for ASN001, this is the only study we need to run before we file it. The rest of the dossier is largely complete. This is, you can think of it almost as a bio, it's not exactly a bioequivalency study. It's a demonstration that our product has absorption characteristics similar to a comparator product that's in the market today, and that basically demonstrating that the absorption and metabolism of the molecule for the body is similar. We view it as very straightforward and low-risk. We're highly confident that we will be filing that product middle of next year. And as we said in our earlier communications, we believe that product will be a very large product for the company, likely its largest product.

Thank you for the first part of your question on Hemangiol. Things to note there for the kind of.

Ladies and gentlemen, please stand by. Gary, please repeat the question.

Hey guys, this is [ Dennis Resnick ], on for Gary Nachman. So just starting with the recent acquisition of ASN001, can you just talk a little bit more about the synergies you expect to leverage with the Hemangiol franchise and how much of the infrastructure there could help out once this product is approved? And then on the recent acquisition of Impavido. The product's been available since 2016, so maybe just talk about what you already know about the market and then what you plan to do differently to ensure commercialization and growth and how big this product can get. And I've got 1 follow-up.

Sure. So on ASN001, we're very excited about the product. We believe we'll file it in the middle of next year. It'll leverage our existing hemangioma sales team. We think this product is an ideal fit for the company. It's also a demonstration of our commitment to really supporting the hemangioma community. And the product is expected to be our largest revenue generating product when we launch it, likely in 2028. Regarding Impavido, Ipek, why don't you take that one?

Sure. So I think if you look at the previous commercialization before our time, before our acquisition, it was basically distributed by a single person distributor structure. So there was no field sales force on the ground actually talking to these infectious disease experts and specialists. So there are many levers that we are going to pull. Also, it wasn't covered traditionally by Medicaid. The distribution was quite dispersed in the sense that it was relatively difficult for patients to figure out what pharmacy to get the product. There was obviously not a copay support in place. So we think that we are going to pull many of those levers and really bring meaningful value to both the prescribers and the patients.

It's obvious, we already know the targets. It's a very nice fit in terms of a very concentrated target space. It's going to be around 300 clients. Salesforce targets were very much in a concentrated capacity that managed the leishmaniasis. So we are pretty confident that with our Salesforce, specialist Salesforce, we are going to get to those infectious disease specialists. Obviously, the guidelines and the therapy profile supports as it is the only FDA-approved product for the therapy. And then we are putting it into our Eton Cares model where these providers and patients will know where to get the product, get the $0 copay support. We are obviously going to be able to cover the Medicaid patients that actually need the government coverage and hopefully we'll be in a much better place in terms of the patient and provider experience.

That's super helpful. And then just on the quarterly results, I mean just any more color you can give about how much upside Hemangiol, about how much the Hemangiol launch provided this quarter and how should we be thinking about sequential growth for that product moving forward? And then any color you can give about how the launch of [ Desmoda ] helped in this quarter particularly? And that's the rest of my questions.

Sure, so we're not going to give product-specific guidance as we haven't done that in the past, but I can tell you that we believe there's significant growth opportunity on Hemangiol. This is 1 where the patient support and the Eton Cares service adds a lot of value that wasn't there previously. And also, obviously, with the much lower copay, we think that patients will be less likely to use off-label product and will stay on Hemangiol as well as be prescribed it to a greater extent. Ultimately, the annual patients should be exceeding 10,000 a year.

And regarding your question about the [ Desmoda ] impact, you know, launch is going well, but from a financial standpoint, it was only its first full quarter on the market. So it wasn't a huge contributor to the growth that you saw in Q2, but as we exit this year, we expect to start seeing a meaningful contribution from that product that will drive our long-term growth as we get to some of those peak sales numbers we talked about for the product.

Our next question comes from [ Madison El-Saadi ] with B. Riley Securities. Your line is open. Madison, if you're muted, please unmute.

So it sounds like much of the Q2 beat here came from Hemangiol. How much of the $25 million raised guide is Hemangiol versus everything else?

So, thanks for the question, Madison. As I said previously to a similar question, we're not going to break out our products, as we generally haven't done that in the past. And I think that from a go-forward standpoint, I can say that we expect Hemangiol to continue to grow. As was indicated, we've largely completed all the conversions from, you know, the old pharmacies to the new pharmacy system. And so that the patient conversion process is complete. We're now looking to grow that business and it is growing. It actually, we're really encouraged by the product. We think it still has a lot of runway. And more importantly, we're super excited about ASN001, a late-stage product that will fit in perfectly with our pediatric dermatology sales team. And that's a product that's been a patient request and a doctor request for a long time that will certainly fit well and we hope to launch that in the next whatever 12 to 20 months.

Got it. If I may, a quick follow-up. As you're thinking on [ Desmoda ] peak opportunity, has that changed? And now, you know, your sales team, you know, [ KendiV ], Increlex, multiple, you know, options in the bag here. I guess at what point does the team need to get bigger?

Thank you, Madison. I think in terms of the [ Desmoda ] peak opportunity at this point, we'll keep it the same with our guidance from the past. So I think we said around 40 to 50 as our peak number. So we will still keep it at the same. It's been a very encouraging first 5 months. Actually, in terms of the patient ads, we are over, like we are around 115% of targets. But from a, again, how fast we are going to get there, it's too early to tell, but the clinician feedback and current patient build has been very much encouraging. So, but we'll keep our guidance and the apportion to the peak size the same.

In terms of the Salesforce size, I think at this point, the Alkindi and [ KendiV ] being basically an adrenal insufficiency franchise, so they are really addressing the same conditions. So we are approaching that as a portfolio sell. Increlex, as you know, is a very much ultra-rare specialty cells. And the great thing here is when you look at the prescribers, obviously they're all endocrinologists, but there's also a very strong over 90% overlap, even though some endocrinologists are specialists in certain diseases. So I think at this point, we are not planning any expansion of the sales force. We think that our infrastructure is pretty much, you know, sufficient and effective for the current portfolio.

Our next question comes from RK with H.C. Wainwright. Your line is open.

In general, it's just trying to understand how you plan on having ASN001 and Hemangiol work out that franchise, especially with Hemangiol patent running out in October '28, I believe. Is there any way for you to extend that or is ASN001 the answer for that?

So thank you for the question. Okay, the Hemangiol formulation, I would say, has some aspects which can be improved, and so we're looking at some formulation improvements, which we think will be better for the patients and certainly for the caregivers. We'll get into that a little later. So there is an opportunity there to add some IP in addition. I would say that for ASN001, that has a very obviously long runway in terms of patent protection. That market is several orders larger than Hemangiol. I'd say that, you know, look at Hemangiol as something that is used to treat the severe hemangiomas and ASN001 will have 20,000 to 30,000, we believe at a minimum, number of patients. There actually is, you know, 200, FDA believes there's more than 200,000 patients that have hemangiomas in the United States. But we're giving it a nice haircut to make sure that, you know, we're giving it as accurate guidance as we can. But we believe, you know, the number could be significant. So that will certainly be a large product for us.

And, you know, we'll continue to do M&A and licensing and expand our pediatric dermatology franchise. When we get into a given therapeutic area, we continue to invest in it. For us, it's all about the patients. It's about building upon the treatment areas that we get involved in. It's not a 1 product kind of deal. We want to continue to build upon that.

Thanks for that. Then on the Hemangiol itself, in terms of the patient economics, you know, you have 8,000 inherited patients, but at this point, how many are paying versus free drug program? And in terms of new patient acquisition rate, you know, where are you now since you started in May? And by the end of 2026, where do you think, you know, realistically could be the paying patient number?

All right, okay, we're not going to get into the specific breakdown of the payer mix for each patient, but we've said it's more or less coming in as we expected when we put out that $8,000 to $10,000 net number. So it's more or less in the ballpark. Obviously, it jumps around a little bit month to month and the first month or 2 with some transitions and some bridge product, but it should stabilize here as we go forward.

Okay, let me try on Impavido. On that molecule, you know, you have a 50% to 55% of net sales going to Knight. So how much contribution does it do for your EBITDA line and how much of the demand is there that you're actually handling at this point?

So we're launching the product end of September, so no financial impact yet, but... Although there's a larger profit share, it was a little bit of a unique model. We paid very little up front, so we think it's still going to be a very attractive deal for the company. We think it can contribute multiple millions of dollars annually with very little up front, very little resource distraction, and good complementary fit with the rare disease strategy and the Eton Cares program. So it will be lower margin than some of our other products, but we think it'll still be an attractive opportunity and a very attractive return on investment relative to what we put up to get the distribution rights.

This concludes the question and answer session. You may now disconnect. Good day.

Good afternoon, and welcome to the Eton Pharmaceuticals First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that this call is being recorded at the company's request.

At this time, I'd like to turn it over to David Krempa, Chief Business Officer at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Eton's First Quarter 2026 Conference Call. This afternoon, we issued a press release that outlines the topics we plan to discuss on today's call. The release is available on our website, etonpharma.com.

Joining me on our call today, we have Sean Brynjelsen, our CEO; James Gruber, our CFO; Judy Matthews, our Executive Vice President of Finance; and Ipek Trinkaus, our Chief Commercial Officer.

In addition to taking live questions on today's call, we will also be answering questions that are e-mailed to us. Investors can send their questions to Investor Relations at etonpharma.com.

Before we begin, I would like to remind everyone that remarks made during the call may contain forward-looking statements that involve risks and uncertainties that could cause the actual results to differ materially from those contained in these forward-looking statements. Please see the forward-looking statements disclaimer in our earnings release and the risk factors in the company's filings with the SEC.

Now I will turn the call over to our CEO, Sean Brynjelsen.

Thank you, David. Good afternoon, everyone, and thank you for joining us today. The first quarter was another great quarter for Eton. We achieved record product sales delivering 73% year-over-year product revenue growth. We launched 2 new major products, DESMODA and HEMANGEOL. And we made great strides advancing our R&D programs with the achievement of several development milestones.

We will discuss all of these items and more on the call today. On the quarterly results, it was another great quarter for Eton with $24 million in product sales, an increase of 73% year-over-year. Our growth continues to be driven by contributions across the product portfolio, including INCRELEX, ALKINDI, GALZIN and Carglumic Acid, highlighting the diversification and durability of our rare disease portfolio. This impressive revenue growth did not even include the benefit of the product launches of DESMODA and HEMANGEOL since they launched in mid-March and May, respectively.

Based on the outperformance in the first quarter and the trends we are seeing midway through the second quarter, I'm pleased to report that we are raising our full year revenue guidance. We now expect revenue to exceed $120 million, up from our previous guidance of $110 million. Importantly, we delivered this notable first quarter revenue growth in a highly profitable manner.

We grew product revenue by 73%, but G&A spending increased by only 14% year-over-year on a GAAP basis and 22% on a non-GAAP basis. The majority of the G&A increase was due to increased costs of FDA annual program fees now that we no longer qualify for the orphan PDUFA exemption rather than the true increases in our discretionary spend.

Adjusted EBITDA for the quarter was $5.7 million or 24% of revenue. We continue to expect to achieve a greater than 30% adjusted EBITDA margin for the full year and believe we are on track to reach our goal of a 50% adjusted EBITDA margin by 2028. The results are a testament to the effectiveness and scalability of our unique rare disease model and infrastructure.

Our nimble proven infrastructure has allowed us to launch 2 new products in 2026 so far without a significant increase in expenses and without impacting the execution of growth in our existing portfolio. We expect to see similar trends in the coming quarters as we continue to quickly grow revenue and bring to market new rare disease therapies.

Turning to product specifics. I will start with our exciting new launch of HEMANGEOL, which took place just a matter of days ago. HEMANGEOL is the only FDA-approved treatment for infantile hemangiomas, which are noncancerous vascular tumors that appear shortly after birth and can sometimes lead to serious complications, including loss of vision, trouble breathing or permanent disfigurement.

HEMANGEOL treatment is typically initiated as soon as an infant is diagnosed, which is usually before 6 months of age, and patients normally stay on treatment for approximately 6 months. HEMANGEOL is a remarkable product with impressive efficacy and clinically proven safety. The results are often life-changing for patients and their families. If you have not done so, I encourage you to search for before-and-after photos of severe infantile hemangiomas treated with HEMANGEOL to gain some perspective on how dramatic the results can be.

With HEMANGEOL, we saw an opportunity to add meaningful value to an important treatment by, among other things, streamlining therapy access and distribution and improving patient support. HEMANGEOL is a time-sensitive treatment and we're dedicated to helping patients start therapy quickly and supporting families from the moment of prescription through treatment.

HEMANGEOL expanded Eton into a third therapeutic area, pediatric dermatology, and importantly, brought an incredibly experienced team into the organization that was already promoting HEMANGEOL. This team has spent nearly a decade supporting physicians, families and patients within this community and have built deep, long-standing relationships focused on helping children access HEMANGEOL.

One of the things we were most excited about in this acquisition was the opportunity to combine that experience and commitment to patients with Eton's rare disease commercialization model and patient support infrastructure. We believe Eton's focused rare disease approach, including Eton Cares, high-touch patient support, specialty pharma infrastructure and our no-patient-left-behind philosophy will further strengthen the work this team has already been doing for years on behalf of patients and families.

We have already implemented several changes that we believe will improve the therapy experience for patients and providers and add value, including we have streamlined the distribution, shifting to a rare disease-focused model that reduces fragmentation and improves visibility and efficiency during the patient's journey. Under the prior structure, prescriptions could move across multiple pharmacies and intermediaries, which often created confusion for providers and families around where prescriptions were located, who was responsible for fulfillment and how to resolve access issues quickly.

Secondly, we have launched our full Eton Cares patient support program, including streamlined $0 co-pay support for commercially insured patients and expanded patient assistance programs for uninsured and underinsured families. Previously, many families were paying approximately $55 per bottle, and in some cases, more than $100 per month depending on dosing and coverage, while access to co-pay support and financial assistance was often fragmented and difficult for offices and families to navigate.

Third, we are already building upon the strong physician relationships the team developed over many years and are taking the next step in expanding engagement with thought leaders, professional societies and broader healthcare provider education initiatives to further increase awareness, education and appropriate patient identification within the treatment window.

And lastly, we are actively engaging with the patient advocacy community around HEMANGEOL and are increasing our investment in long-term commitment to advocacy partnerships, caregiver education and community support initiatives. Our goal is not simply to support the therapy itself but to become a more active and visible partner to the broader patient community through meaningful engagement, education and resources. The responses from advocacy organizations and professional society partners have been incredibly positive, them welcoming Eton's commitment to expanding patient support, access resources and long-term investment in the community.

Historically, we believe there has been significant usage of off-label adult propranolol formulations that are approved for cardiovascular indications. These adult formulations contain alcohol, sugar and other preservatives that are not suitable for infants. By contrast, HEMANGEOL, which is the only FDA-approved treatment for infantile hemangiomas, was formulated specifically for infants without containing alcohol or sugar.

During our due diligence, we found that the primary reasons for the -- using off-label adult product were, one, the fact that the adult product had a lower co-pay than the $55 HEMANGEOL co-pay; and two, a lack of awareness among parents and prescribers about the alcohol and other excipients that are present in the adult formulation. We have addressed the co-pay issue with our $0 co-pay program, and we plan to address the awareness issue through our investments and efforts in new campaigns targeted at both prescribers and caregivers.

There are still many variables and uncertainties involved with the launch. However, our preliminary view is that between our free drug patient assistance program, government patients and certain commercial payer contracts we inherited, we estimate that around 60% to 65% of the volume may be near 0 revenue, which should result in an estimated average net price per patient of around $8,000 to $10,000 for a full course of therapy. Of course, this is a preliminary estimate and a number of factors such as patient mix could cause the actual number to differ materially. We should have more precise insight by our next earnings call in August, and we'll update you accordingly.

While it is a massive undertaking to get thousands of patients transferred from a broad distribution to a new single pharmacy in such a short period, our team has been preparing and working hard to complete it quickly and ensure that the process is as smooth as possible for families and prescribers. We're still early in HEMANGEOL's launch -- relaunch, I should say, but we have experienced cooperation from certain prior dispensing pharmacies, which we believe will help the situation in the transition.

HEMANGEOL's revenue contribution to second quarter results is expected to be limited. Since it is launching mid-quarter, it may take several weeks or months to get patients fully transferred to the new pharmacy. We expect to start seeing a sizable revenue contribution beginning in the third quarter. And while it is still too early in the launch to say definitively, since there are a number of variables yet to play out, we believe that HEMANGEOL could be our largest product in 2027.

Eton also launched DESMODA during the first quarter, shortly after its FDA approval. As the first and only FDA-approved desmopressin oral solution, DESMODA is a game-changer for patients because it eliminates the need to split or crush tablets, allowing for very precise dosing. Thought leaders in the community have described DESMODA as potentially transformative, given how individualized desmopressin dosing is from patient to patient and even with -- in the same patient over time throughout their treatment journey.

Historically, patients and providers have often had reliance on suboptimal workarounds using tablets, nasal sprays, injections, none of which are designed to provide the combination of oral administration and precise flexible dose titration that many patients require.

During our March earnings call, we were just a few weeks into the DESMODA launch, but I shared that I was encouraged by what I saw. I'm pleased to say the excitement level has continued in April and thus far in May. I am proud of our operations and commercial teams' exceptional launch plan and execution, and I believe that it was the best executed product launch in Eton's history and sets a new standard for future product launches.

Since day 1 of the launch, peer-to-peer education efforts have complemented targeted field engagement across key accounts supporting early awareness and clinical dialogue. In parallel, Eton has had strong opportunities to engage with thought leaders at national and regional conferences.

Earlier this month, our team attended 2 of the most important endocrinology conferences of the year: the Pediatric Endocrinology Nursing Society, and Pediatric Endocrine Society annual meetings. The timing was very favorable, coming in the midst of our DESMODA launch, and our team was able to take advantage of the opportunity to engage with hundreds of leading pediatric endocrinology prescribers of DESMODA.

Importantly, the feedback was overwhelmingly positive. We believe the launch has also opened doors to important institutions that historically could be difficult to access, creating broader opportunities for meaningful dialogue not only around DESMODA, but across the rest of our pediatric endocrinology portfolio, including ALKINDI, INCRELEX and KHINDIVI. We believe the impact of these engagements will continue to build in the coming weeks and months.

DESMODA fulfills a very specific need, and we've seen an enthusiastic reception from prescribers. DESMODA is being promoted by the same team of pediatric endocrinology rare disease specialists who promote ALKINDI, KHINDIVI and INCRELEX. So far, the product launch is meeting my high expectations and we continue to believe it could reach peak sales of $30 million to $50 million.

Turning to the rest of our commercial products. The story remains consistent with that of the last few quarters. We continue to see strong, steady growth from across our diversified portfolio. INCRELEX, ALKINDI SPRINKLE and GALZIN all provided major growth contributions in the quarter. As we have discussed before, we believe we have captured relatively small share of the market opportunity for all 3 of these key growth products. So we continue to believe that they have long runways for growth ahead of them.

On the R&D side of Eton, we have made strong progress advancing our pipeline and achieved a number of critical milestones in recent months. First, on INCRELEX, the label harmonization program, I am pleased to share that we now have received the FDA's clearance to proceed with our proposed clinical study. We intend to initiate the study in the second half of this year. The study will track approximately 30 patients over 5 years or until they reach full adult height with a primary endpoint of change in average annual height velocity at month 12 compared to pretreatment height velocity.

As we've discussed extensively, we see a significant opportunity to expand the potential patient population by harmonizing the U.S. definition of severe primary IGF-1 deficiency to match that of Europe. If we are successful with harmonizing the label, we believe the INCRELEX market opportunity could increase fivefold in the United States.

On ET-700, our extended-release zinc acetate, we announced that a pilot study has been initiated to test the efficacy of ET-700 relative to GALZIN and placebo in a double-blinded placebo-controlled clinical trial comprised of 36 healthy volunteers. PET scans with radioactive tracer copper will compare the effects on intestinal copper absorption of GALZIN taken 3 times daily, ET-700 taken twice daily plus a placebo taken daily as well. And a placebo also, I'm sorry, taken 3 times daily.

The study treatment will last 4 weeks, and we expect to have the top line results in the second half of 2026. If early results are positive, they could lead to a pivotal clinical study in early 2027. We believe ET-700 could exceed $100 million of annual peak sales in the United States once it's approved.

On our KHINDIVI label expansion program, where we are seeking to expand the FDA-approved range of the label beyond the current label of ages 5 and up, we are wrapping up final patient dosing in our bioequivalency study and expect to have results in the next couple of months. If successful, that will allow us to file our supplemental filing to the existing NDA in the third quarter and potentially receive approval in the second quarter of 2027. We have continued to see tepid uptake of KHINDIVI with its current restrictive label and believe the extended label will be the catalyst to see greater adoption.

In addition, we progressed Amglidia, our oral liquid glyburide program, for the treatment of neonatal diabetes. Amglidia is approved and widely used in Europe, but has not been approved in the United States. Currently, there are no FDA-approved treatments for neonatal diabetes, so it represents a critical unmet need. Amglidia is a perfect strategic fit for us. It treats an extremely rare condition impacting only a few hundred patients in the United States, and it is prescribed by pediatric endocrinologists.

2 characteristics that we specialize in here at Eton. We recently filed an IND with the FDA, which should allow us to initiate the required bioavailability study by July of this year. Based on our current timelines, we expect to submit the product's NDA in the fourth quarter, which would give us the potential to deliver a high-value product launch in 2027.

As you've heard this afternoon, it's been a great start to the year, and we're well positioned for an exceptional 2026. The momentum from our existing products remains strong. We've added 2 additional high-value product launches. We're meaningfully adding and advancing our pipeline to fuel long-term growth. And as always, we're continuing to pursue acquisition opportunities to expand our portfolio and add incremental revenue while maintaining our disciplined approach to operating expenses.

Based on the strong performance in Q1, I believe we remain on track to reach the following forward long-term goals I outlined in March. Number one, build the largest rare disease portfolio in the United States. Two, reach a $200 million annual revenue run rate by end of 2027. Three, achieve a 50% adjusted EBITDA margin profile in 2028. And fourth, reach $500 million of annual revenue in 2030. Thank you for your ongoing support, and we look forward to keeping you apprised of the many exciting milestones ahead.

Before I turn it over to James for the final time, I'd like to take a moment to personally thank him for his contributions and dedication to the organization over the last 4 years. He's done an exceptional job leading our finance department during a period of rapid growth as we grew from 2 to 10 commercial products in short order. Thank you, James, for all you've done on behalf of Eton.

On June 1, Judy Matthews will take over as CFO. Judy joined us last month as Executive Vice President of Accounting and Finance and has been quickly getting caught up to speed on our business. Judy previously led finance departments of high-growth pharmaceutical companies, and we're excited to have her on board.

With that, I'll turn it over to James to discuss the financial results. James?

Thank you, Sean. First quarter revenue increased 40% to $24.3 million compared to $17.3 million in the first quarter of 2025, and we had $3.3 million of licensing revenue in the first quarter of 2025. Product sales and royalty revenue were $24.3 million during the quarter compared to $14.0 million in the prior year period, an increase of 73%, driven by strong growth across the portfolio, in particular INCRELEX, ALKINDI SPRINKLE, GALZIN and Carglumic Acid, as well as from the addition of sales from KHINDIVI, which was approved and launched in mid-2025.

Gross profit for the quarter was $14.7 million compared with $9.9 million in the prior year period, an increase of 49%, primarily due to increased product sales. Adjusted gross profit, which adjusts for the impact of acquired inventory step-up adjustments and intangible amortization, was $16.2 million in the first quarter of 2026 or 67% of revenue compared to adjusted gross profit of $12.0 million and 69% of revenue in the prior year period. First quarter of 2026 included revenue from INCRELEX sales outside the U.S., which was dilutive to gross margin.

We continue to expect to deliver full year 2026 adjusted gross margin of at least 70% and reach between 75% and 80% in the coming years. HEMANGEOL and DESMODA are both expected to have gross margin profiles well above our historic company average.

R&D expenses for the quarter were $1.9 million, an increase of $0.7 million compared to $1.2 million in the prior year period, primarily due to higher clinical study expenses associated with the KHINDIVI label expansion and ET-700 development activities. We continue to expect full year 2026 R&D spending to be above last year's $7.8 million but less than $10 million.

General and administrative expenses for the quarter were $10.4 million compared with $9.2 million in the prior year period. On an adjusted basis, which removes the impact of share-based compensation, transaction-related costs and other onetime expenses, G&A expense was $9.0 million compared to $7.3 million in the prior year period.

The largest driver of the increase was higher FDA annual program fees since Eton no longer qualifies for the orphan PDUFA exemption as we now exceed the revenue threshold required to qualify. These fees were responsible for $0.9 million of the year-over-year G&A increase. The remaining increase was largely due to incremental headcount to support the growing portfolio.

Adjusted EBITDA for the first quarter of 2026 was $5.7 million or 24% of revenue compared to $3.7 million or 21% of revenue in the first quarter of 2025, which had the benefit of licensing revenue. Our adjusted EBITDA will likely see fluctuations quarter-to-quarter depending on the timing of R&D expenses and ex U.S. INCRELEX orders, but we expect the full year adjusted EBITDA margin to be above 30%.

Total company net income was $1.6 million for the quarter compared to a net loss of $1.6 million in the prior year period. Net income per basic and diluted share during the quarter was $0.06 and $0.05, respectively, compared to a net loss per basic and diluted share of $0.06 in the prior year period. On a non-GAAP basis, we reported net income of $4.5 million for the first quarter of 2026 compared to $2.4 million in the prior year period and diluted earnings per share of $0.14 for the first quarter of 2026 compared to $0.07 per share in the prior year period.

In the first quarter, we generated $7.4 million in cash flow from operations, paid $14 million for HEMANGEOL and finished the quarter with $19.7 million of cash on hand. We recently amended our existing $30 million credit facility, which lowered our interest rate by approximately 200 basis points at no cost to Eton and no change to the end of 2027 maturity date.

We remain in a very strong financial position and expect to see our cash balance grow significantly throughout the year, even with planned debt principal repayments. We expect to have significant excess cash at our disposal that can be used for accretive product acquisitions. In addition, given our significant EBITDA generation and our diversified portfolio, we believe we'd have significant debt capacity available to us should a larger acquisition opportunity present itself.

Before we conclude, I'd like to express my sincere gratitude to Sean, the entire team here at Eton for the opportunity to work alongside such a talented, dedicated and passionate group of professionals. It's been a privilege to make a small contribution to Eton's remarkable growth and success, and most importantly, to the company's mission of improving the lives of the rare disease patients we serve. I'm extremely appreciative of the relationships and accomplishments that we've shared, and I remain confident that Eton will experience continued success and make a lasting impact on the healthcare community for many years to come.

This concludes our remarks on first quarter results. And with that, we'll turn it back over to the operator for Q&A.

[Operator Instructions] And our first question comes from the line of Madison El-Saadi of B. Riley Securities.

Congrats on the quarter. And James, congrats on all the success here at Eton and wishing you the best of luck. So when we look at the product-level dollar contribution behind your $10 million guide, maybe just walk us through that. And we should probably assume this is 4Q loaded.

And then secondly, regarding the HEMANGEOL price, maybe walk us through the $8,000 per patient per year. How does this compare to the base price that Pierre had it set at? I'm guessing this captures a typical 6-month course. And then if you could, any clarity into the proportion of the 8,000 patients that are retaining coverage at this new list price? And maybe since it's still pretty early, if you could just talk about kind of your expectations for that going forward?

Sure, Madison. Starting with your question on the guidance -- increase in guidance. The HEMANGEOL launch was a big part of that as we got more comfortable launching it and a little more insights of what we thought we could do this year as well as outperformance from the rest of our portfolio. We had a strong Q1. We were happy with the results. We're seeing good trends already in Q2. We're happy with the DESMODA launch. So a combination of everything, but HEMANGEOL was definitely one of the important drivers of that.

In terms of your question on the net price, yes, we do expect to net more than it was previously netting. We walked through -- roughly 60% to 65% of the patients will likely be non-revenue-generating or very low revenue-generating, but it should average out to around that $8,000 to $10,000 net price per patient. And that's our current estimate. Obviously, as you alluded to, it's still very early. We're only 2 weeks into it. I think it's too early to make any definitive statements to answer your question about the coverage. We historically had very good coverage on our products. So we expect that to continue, but too early in the launch to make any statements about that.

Our next question comes from the line of Charles Wallace of H.C. Wainwright.

This is Charles on for RK from H.C. Wainwright. So for my first question, something kind of struck me on the call, you said that HEMANGEOL could be the largest product by 2027. And I was just kind of curious, currently, on an annual run rate, what is currently the largest product currently sitting at for my first question?

This is Sean. We have indicated INCRELEX is our current largest product that continues to grow as well. With HEMANGEOL, we have obviously big expectations for it. We've transferred a large number of the patients over to -- and we're continuing that transfer process.

We'll provide a little bit more color, I would imagine, on future calls. But we do want to see how this ramps before we can maybe give some directional guidance on that. Historically, we have not broken out sales by product, but we've spoken descriptively of it. And I think we'll certainly do that and revise our guidance as it transpires.

And I guess for my second question from me, so I guess where are you currently with the patient number for INCRELEX, and are you confident with the 120 patients at the end of the year?

Yes. So again, we're not going to get into patient counts. Otherwise, I'll be giving patient count updates on every call. I can tell you that we're very much on track with what we've stated previously. We're very pleased with INCRELEX's performance. We have patients. It's been a great product.

And it's the reason why it's our largest. We are also looking at initiating that label expansion study. So we do have significant plans for the product, and we'll keep everyone apprised as that enrollment occurs and as we get closer to being able to file that label update.

And sorry, one more question, if I may. So I was just curious if -- as you're acquiring all these products, is it 1 specialty pharmacy that's handling all these drugs in the distribution?

That is correct. As we -- that's a good question, actually, because we've been -- we certainly -- that's where we're at today. And as long as they can continue to service our needs and meet our objectives for our portfolio, we're very happy with them. But we are -- we do have aspirations to have the largest rare disease portfolio in the industry. And if ever comes a point where we think we need to add another specialty pharmacy, we'll do that. But for right now, we're very pleased with Anovo and the work that they do.

Our next question comes from the line of Chase Knickerbocker of Craig-Hallum.

Congrats on another nice quarter here. Sean, could you maybe just bridge the kind of change in guidance? Was -- the updated raised guidance, was it solely driven by kind of refining the HEMANGEOL model? Or what else drove it as far as how your assumptions changed from March to now?

Sure. So as David had indicated earlier, we have driven -- we've raised that guidance for a number of factors. Certainly, HEMANGEOL was a key part of that. Two, our base business, the commercial sales levels continue to be very strong. And as we're going into -- in the past few weeks, we see that momentum continue. Really across the board, we've been kind of hitting our numbers that we expect.

And I guess the third thing is DESMODA, that launch is bringing in a significant number of patients. We're very happy with the launch. We just got out of an endocrinology meeting where there's a tremendous amount of excitement on that product, and I'm hoping to provide a little bit more clarity on what we think that -- ultimately that product can do. We've given off that guidance of $30 million to $50 million. We'll update that, I imagine, on our -- on future calls. And we'll see how -- but all of that kind of came together. And we said more than $120 million. So obviously, it's more than $120 million. We don't -- we'll leave it at that, and we'll see what happens.

Helpful. And maybe if I can draw some cross-currents between kind of your experiences with GALZIN and HEMANGEOL here. I mean you guys did a pretty good job of switching those patients pretty quickly into your distribution platform. I mean maybe talk about some of the learnings that you had from GALZIN and potential -- the potential for any sort of opportunity to do a little bit better than you guys are expecting as far as the kind of switching of those patients into your platform? Because again, we did outperform on GALZIN. So maybe just kind of talk about if that's a fair comparison and just some of your learnings.

Sure. So Chase, I'm going to turn that question over to our Chief Commercial Officer, Ipek. Ipek?

Thank you for the question. That is actually a great parallel, Few things that are very similar and a few things that are different. I think with GALZIN, it was all open network. It was multiple pharmacies. We actually -- we didn't even have the luxury at the time of collaborating with those pharmacies. So we kind of had to find all those patients ourselves. And I think we did a very good job, very effective job.

And we knew at the time, without any numbers, anything that we inherited from the previous ownership that there was around 200 to 300 patients that were already on GALZIN. I think we already shared before, we are already over those numbers. We are about 300 patients already within the course of the year, which obviously was a very effective transition without having any collaboration.

I think with HEMANGEOL the positives there obviously are -- there were 17 pharmacies, but this is also 8,000 patients. It's a big -- much bigger existing base of active patients. And basically pulling them from some local small pharmacies, some big pharmacies like Walgreens, so we've been working very hard for about 60 days between our sales team putting transition agreements with some of those pharmacies as well as Anovo, our specialty pharmacy, pulling those transfers through, which has been very good. Almost 60% of that 8,000 base, we were able to actually put some sort of a collaboration with the former pharmacies to agree to transfer the patients.

So that's because we have been very good. But at the same time, it's a much bigger volume of patients to serve and make sure that there's continuity of care, nobody is behind without their drug. It's a much shorter course of therapy. That's another important distinction with GALZIN Obviously, it's a lifetime chronic therapy.

So we still are finding those patients who were on GALZIN but also converting from patients who have never been on GALZIN on the competitive over-the-counter non-Rx therapies. So that's the goal right now of that conversion. But with HEMANGEOL, it's the -- time is of essence because we need to get those 8,000 patients into our system, serve them without any disruption, but also it's a 6-month therapy window. So we need to start acquiring new patients as well.

Helpful color. And then maybe just last from me, James, one last question for you here. Just as we think about the magnitude of the amount of OUS revenue for INCRELEX in the quarter, if you could share that. And then just what the associated COGS was of that? And certainly wish you all the best in your next endeavors, and it's been a pleasure working with you.

Likewise. Thanks, Chase. So we have -- as far as the diluted margin profile on our ex U.S. INCRELEX revenue, it's about 2:1. So $2 of COGS to $1 of revenue. And it was low single-digit millions in Q1. We should have maybe a handful of similar orders. I think previously, we have estimated annual ex U.S. INCRELEX revenue of $2 million to $3 million, and that's still the estimate for 2026.

Thank you. This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good afternoon, and welcome to the Eton Pharmaceuticals Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that this call is being recorded at the company's request. At this time, I'd like to turn it over to David Krempa, Chief Business Officer at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Eton's Fourth Quarter 2025 Conference Call. This afternoon, we issued a press release that outlines the topics we plan to discuss on today's call. The release is available on our website, etonpharma.com. Joining me on our call today, we have Sean Brynjelsen our CEO; James Gruber, our CFO; and Ipek Trinkaus, our Chief Commercial Officer.

In addition to taking live questions on today's call, we will also be answering questions that are e-mailed to us. Investors can send their questions to investor relations at etonpharma.com.

Before we begin, I would like to remind everyone that remarks made during this call may contain forward-looking statements and involve risks and uncertainties and that could cause actual results to differ materially from those contained in these forward-looking statements. Please see the forward-looking statements disclaimer in our earnings release and the risk factors in the company's filings with the SEC. Now I will turn the call over to our CEO, Sean Brynjelsen.

Thank you, David. Good afternoon, everyone, and thank you for joining us today. As you've seen, it's been a very active time at Eton with a number of major developments in the recent weeks, and we have some exciting topics to discuss today. During the call, we'll review fourth quarter results provide additional color on HEMANGEOL acquisition and an update on our recent FDA approval and commercial launch of this motor. We'll also cover growth trends in our on-market products and provide an update on clinical development programs. And finally, we'll provide 2026 financial guidance and unveil our new long-term goals for the company.

Let me start with our financial results. It was another strong quarter for Eton capping off an outstanding year. 2025 was truly another transformational year for our company as we successfully launched 3 new products, Increlex, Galzin and Khindivi. These were not minor products. They represent important cornerstones of our long-term growth plan. These new products helped us more than double our revenue in 2025 compared to 2024 and set us up for a major growth in 2026 and beyond.

Our fourth quarter product revenue was $21.3 million, an increase of 83% year-over-year driven by continuing strong performance from Alkindi Sprinkle and the addition of revenue from Increlex, Galzin, Khindivi and Alkindi. Galzin and Increlex have continued to be great success stories for Eton. Both products were relaunched by Eton in early 2025 and contributed revenue well beyond our initial expectations for the year. A key goal for us in continuing to drive strong revenue growth while maintaining our focus on profitability through disciplined cost management and expanding margins. And I'm pleased to report that we made meaningful progress on that in the fourth quarter as our adjusted EBITDA margin was 29%, a significant improvement from 18% in the prior year period.

We also reported GAAP net income of $1.5 million and non-GAAP net income of $5.4 million. Looking ahead, we expect our profit margin profile to continue improving as revenue scales across our portfolio. And we will further discuss our profitability outlook later in the call when we communicate new long-term goals.

Now let me turn to one of our most important recent developments. The approval and launch of our oral liquid formulation of Desmopressin Desmoda, which received FDA approval at the end of February for the treatment of central diabetes insipidus, Diabetes insipidus is a serious condition caused by inadequate production of the hormone vasopressin and treatment with Desmopressin is the standard of care. Dosing is patient-specific and must be individualized and fine-tuned over time, but there were historically no products available that could provide accurate low doses of Desmopressin. As a result, clinicians and caregivers were forced to use workarounds, including splitting or crushing tablets. As the only FDA-approved liquid oral formulation, Desmoda offers patients a treatment option that provides precision, consistency and convenience fulfilling a large unmet need frequently expressed to us by pediatric endocrinologists.

Leveraging our established team of pediatric endocrinology rare disease specialists, we launched Desmoda within 2 weeks of FDA approval. While we are still in the early phases of launch, I could not be happier with how Desmoda watch is going. I believe this was the most well prepared we urban for a commercial launch.

Our entire team was ready to execute on day 1 and initial demand of interest in the product has been incredibly encouraging. Our team has been hard at work promoting the product for 2 weeks and we've already seen significant traction. Many institutions that were historically unreceptive to sales visits have reached out to us asking for meetings because they are interested in learning about the product. We've already seen a number of patients begin therapy in the first 5 weeks of launch. Another important aspect of the approval is that Desmoda received a clean label with no age restriction. In fact, the FDA's indication even includes adults. This means that our addressable market will not be solely the 3,000 to 4,000 children in the U.S. We will also be able to meet the therapeutic needs of the 9,000 to 10,000 adults living with central diabetes insipidus.

Our historic market assessment and $30 million to $50 million peak sales forecast were based solely on the pediatric market. However, we believe there could be a meaningful incremental opportunity within the adult population for patients who have difficulty swallowing tablets require precise and titratable dosing or simply prefer a liquid option.

While the percentage of adults mating a liquid or precise dose will likely be smaller, the population is roughly 3x as large, so it could be a quite meaningful number of patients. This month, we are launching a pilot initiative where our existing sales team will target high Desmopressin prescribing adult endocrinologists. We will assess the opportunity over the next 90 days. And if we see traction with the adult patient community, we will expand our commercial efforts to fully capture this additional opportunity. Regarding pricing, the dosing varies by patients, but we believe we will net an average of approximately $80,000 per patient per year. As I said, it is still too early in the loss to say definitively, but all initial signs are pointing to a successful launch for Desmoda. For now, we're confirming our guidance of $30 million to $50 million in potential peak sales. We should know more in the coming quarters, and we'll update our outlook accordingly.

Desmoda also benefits from strong intellectual property protection via multiple patents extending to 2044, which we believe positions the product as a critical long-term value driver for Eton. Turning now to our other pediatric endocrinology assets. When we acquired Increlex in December 2024, the product only had 67 patients on therapy. We saw a tremendous opportunity to increase awareness and education of severe primary insulin-like growth factor 1 deficiency, otherwise known as SPIGFD.

In conjunction with our relaunch of Increlex, in January of 2025, we kicked off an extensive disease and therapy education campaign to complement physician engagement efforts of our season pediatric endocrinology sales team. This included targeted outreach to health care providers, strong conference engagement and endocrinology space, peer-to-peer presentations and strategic collaboration with patients and patient advocacy groups. Increlex is approved for pediatric patients age 2 and up and is highly effective at increasing height during critical development years. Because earlier diagnosis leads to better outcomes, increasing awareness and improving time to diagnosis are central to our strategy. ensuring that every patient achieves their full therapeutic potential.

We are already seeing encouraging progress. Since acquiring the product, we have meaningfully reduced the average age of which patients begin therapy and continue to see steady growth in the treated population. Based on ongoing discussions with physicians in the community, we remain confident that a significant opportunity for growth remains with the existing indication.

We now have over 100 patients on treatment, and our goal is to reach 120 patients by year-end. So far this year, we have seen the number of patient age outs and closures declined significantly from the level we saw earlier in the fourth quarter of 2025 prior to our last earnings call. Long term, we see a big opportunity in harmonizing the patient definition between the U.S. and the EU. In the U.S., a patient meets the label criteria if their IGF-1 levels are more than 3 standard deviations below the media. In Europe, where Increlex is also available, the definition is 2 standard deviations below the median. And based on the European patient registry data collected over the past 15 years, we believe that Increlex is a safe and effective treatment for patients with IGF-1 levels between minus 2 and minus 3 standard deviations.

We held a meeting with the FDA December to discuss label harmonization, which we believe was positive. As a result, we submitted the final proposed study protocol to the FDA in February and we expect to receive their feedback either clearance to proceed or comments later this month. Once the FDA signs off, we will initiate the study with our and we expect to see the first patient dose in the third quarter of this year.

Our proposed study is an open-label study of approximately 30 patients tracked for 5 years or until they reach full adult height with a primary endpoint of change in average annual height velocity at month 12 compared to pretreatment height velocity. Given that it is an open-label study, if the data is as compelling and clear as we expect it to be, we believe there may be an opportunity to approach the FDA with interim data after a couple of years. The study is expected to cost approximately $1 million per year. If we are successful with this label harmonization, we believe that the Increlex market opportunity could increase fivefold in the United States.

Also in our pediatric endocrinology portfolio, we continue to see strong growth from our adrenal insufficiency franchise, Alkindi Sprinkle and Khindivi. 2025 was kind's fifth full calendar year on the market and its strongest year yet in terms of number of patients on therapy and number of new patient referrals. This momentum reflects the continued impact of our focused efforts to expand awareness and adoption of pediatric appropriate hydrocortisone dosing and to reduce friction for both physicians and caregivers making it easier for providers to diagnose, prescribe and initiate therapy for children with adrenal insufficiency.

Khindivi was developed to address the needs of patients that had an aversion to the texture of the Alkindi granules or who preferred a liquid option and it is the first and only FDA-approved oral solution of hydrocortisol. Similar to Desmoda, the liquid dosage form laws for mixing and accurate dosing tailored to patient needs and does not require refrigeration mixing or shaking. Together, Alkindi and Khindivi allow us to offer physicians multiple pediatric appropriate hydrocortisone options, enabling them to choose the formulation that best fits the needs of each child and caregiver. For our combined franchise, our target market is the estimated 5,000 children under the age of 8 in the U.S. with adrenal insufficiency.

We believe we have captured around 12% of the market to date, and there is still a long runway ahead of us. Eton remains confident that the franchise can achieve peak annual sales of at least $50 million, which requires only around 20% market share and we ultimately believe that Eton can capture even greater market share if we are accessible in expanding the Khindivi label.

Khindivi is currently approved for patients 5 and over, but we believe the largest unmet need is within children under 5. The FDA restricted the age due to limited availability on safety data of the 3 active ingredients when these ingredients are used in combination. However, we've developed a new formulation which substantially lowers levels of these excipients and Eton held a meeting with the FDA in the fourth quarter, where the agency indicated the receptive to a label expansion. The agency requested that we run a bioequivalency study and then submit our supplement to the existing NDA. Last week, we dosed the first patient in that bioequivalency study and now plan to submit the supplement as soon as the final study report is available, which we currently expect to be in the third quarter. The FDA indicated the submission would receive a 10-month review aligned for a potential launch by mid-2027. Next, I'd like to discuss our recent acquisition, which we are very excited about.

Earlier this month, we announced the acquisition of HEMANGEOL, the only FDA-approved treatment for infantile hemangiomas that require systemic therapy. Infantile hemangiomas are noncancerous vascular tumors that typically appear shortly after birth and in severe cases, can lead to serious complications including loss of vision, trouble breathing or permanent disfigurement.

An estimated 5,000 to 10,000 infants are treated with HEMANGEOL annually in the United States. We've been clear with our acquisition strategy, Eton seeks opportunities where we can meaningfully add value to product. We are unlikely to earn remarkable returns and create value for shareholders if we are purchasing assets only to maintain the status quo of their current level of revenue and earnings. We look for opportunities we're a rare disease company with wide expertise and commercial infrastructure can unlock significant growth and profitability. Similar to how we successfully executed on Galzin and Increlex last year, we believe there is a significant opportunity for value creation with HEMANGEOL.

HEMANGEOL had the product characteristics we look for. It treats a rare condition with a small prescriber base. It is the only FDA-approved treatment in its class. It has strong safety and efficacy profile, and there's a meaningful opportunity to improve operational efficiency and margin performance. Our team is hard at work preparing for our May 1 relaunch of the product. One of the key opportunities we see is optimizing the product's distribution model with our dedicated rare disease infrastructure and proven go-to-market capabilities.

Currently, the product goes through the traditional pharma distribution model, utilizing the large national wholesalers open pharmacy distribution and significant payer rebating. While this may make sense for higher-volume products, we believe transitioning to our rare disease focused distribution model can significantly lower costs improve the patient and provider experience and significantly strengthen the long-term economics of the product by reducing gross to net deductions. In addition, we will implement our best-in-class Eton Cares patient support program, which we believe will improve the treatment journey for families and expand access to treatment. For instance, we will be offering our standard 0 commercial co-pay per patients where today, most patients are paying $55 a month on their co-pay.

HEMANGEOL will also establish a third strategic call point for us. Te majority of prescribing occurs within pediatric dermatology, but care for these patients can also involve pediatric hematology oncology physicians who specialize in vascular anomalies. This is a highly concentrated specialty with roughly 400 pediatric dermatologists and a smaller number of specialized pediatric hematology oncology physicians actively managing these patients.

While we look for other bolt-on opportunities within pediatric dermatology. The HEMANGEOL opportunity is certainly large enough on its own to justify the dedicated commercial efforts. In tandem with the transaction, we are hiring 7 new commercial employees that were previously working for the seller and fully dedicated HEMANGEOL. They will start with eaten on April 1, and we are excited to have them joining our organization. This existing team had done an excellent job growing HEMANGEOL in recent years, and we believe their current relationships combined with Eton's rare disease infrastructure, expertise and capabilities will position the product for accelerated momentum following the relaunch in May. We were pleased that because of our strong cash flow generation, in 2025, we were able to pay for the $14 million HEMANGEOL acquisition entirely with cash on hand and avoid any dilution or incremental debt.

This will make the transaction even more accretive to our earnings. With our ongoing plans to streamline distribution, shrink the gross to net GAAP, optimize revenue and expand access, we believe HEMANGEOL can be one of Eton's largest products in 2027. Now let me turn to Galzin, which was another very impressive contributor for the year. When we acquired the product, we expected to be able to grow the product over time, but the product has actually performed well ahead of our expectations.

When Eton relaunched in March of 2025, we made major investments into physician education, patient awareness and access support, and those investments are clearly paying off. Through Eton Cares, we know that more people than ever are able to access their medication. And we have heard from many patients were previously forced to take non-FDA-approved zinc supplements because they could not afford their co-pay obligations. They are very grateful to now be able to receive the FDA-approved treatment. In addition, we have found that many patients and providers were unaware of the availability of Galzin or we're unaware of the advantages of the prescription product. We have also seen renewed interest from patients and physicians.

Now that we know that Eton Cares will provide patients with access to medication regardless of potential insurance pushback or lack of insurance Physicians can prescribe the product with confidence and not worry that the patient will call them back in a week to complain about high co-pays or looking for alternatives. The benefit to physicians is twofold. First, they have increased comfort knowing that the FDA approved Galzin is manufactured to pharmaceutical standards for quality potency and consistency, whereas the over-the-counter products are not.

Second, patients taking the prescription product require periodic refills and return visits, so they have much better compliance with follow-up visits and regular lab monitoring and make any needed dose adjustments. Many over-the-counter users end up failing to return for regular visits contributing to worst patient outcomes. I am pleased to share that last week, we reached 300 active patients on Galzin, a big accomplishment just 1 year after our launch. We still believe there are at least 800 Wilson disease patients in the U.S. taking therapy and potentially over 1,000. So most of the markets still relies on the non-FDA-approved zinc products. We view this as a substantial opportunity for us to potentially more than double our 1,000 patients in the coming years.

Through our deep collaboration in the Wilson disease community and Galzin, we have seen the strong desire for an extended release version of Galzin and ET-700 was developed to address this need. Currently, Galzin must be taken 3 times per day with patients fasting both before and after each dose. It's an onerous schedule that can often lead to noncompliance, especially with the middle of the day dose.

Eton has developed a proprietary patent-pending extended release formula. Our clinical batches have been manufactured, and we are ready to initiate a proof-of-concept positron emission tomography, or PET study to verify that our proprietary delayed-release formulation can effectively block copper absorption. The study should begin in April, and we expect top line results later this year. If we are successful, we expect to initiate a dose-ranging study and pivotal clinical trial in early 2027. If approved, we are confident that 700 has the potential for more than $100 million of peak annual sales. We've also made strong progress advancing our internal pipeline and in fact, 2026 is set to be by far our busiest year ever in terms of clinical studies.

Eton has already touched on the anticipated studies for Khindivi, Increlex label harmonization and ET-700 and we also plan to run PK studies on Amglidia and ET-800 later this year. Our goal is to submit the Amglidia NDA by the end of this year and the ET-800 NDA in 2027. So our pipeline for new product launches in the coming years remains very strong.

Overall, 2025 was a standout year for Eton and we have set the stage for an even stronger 2026, which is reflected in our 2026 financial guidance. We expect 2026 revenue to exceed $110 million and to deliver an adjusted EBITDA margin of at least 3%. As we wrap up 2025 and set our plans for 2026, it was a good moment to reflect on how far we've come and where we are headed. A few years ago, I outlined 3 long-term goals for the company. Goal #1 to have 10 commercial products. Goal #2, to reach $100 million revenue rate Goal number 3 to reach a $1 billion market cap. At this time, we had just 3 products when that goal was announced. We had only $20 million of revenue and $100 million market cap. While these goals may have seen miles away from the outside, internally, we have a strong conviction in the opportunity ahead of us, and I believe that these goals were much more attainable than the market perceive them to be.

I am pleased to share that we have now achieved 2 of these long-term goals. With the acquisition of HEMANGEOL, we have reached 10 commercial products. And as you have heard, we are expecting more than $100 million of revenue this year. While there is still work to do on the market cap goal, we are confident that if we continue executing our strategy and delivering consistent profitable growth that we expect to achieve the long-term value creation will be elected in our stock price.

I believe it's important to keep pushing the organization forward towards ambitious but achievable long-term goals. As a result, we are setting some new long-term goals today. First, we want to build the largest rare disease portfolio in the United States. Among the dedicated rare disease companies, we are already near the top in reaching 13 or 14 key commercial products will position Eton as having the largest portfolio of any dedicated rare disease company in the United States. We believe that this is very achievable in the coming years through both our internal pipeline and business development activities. Second, we want to exit 2027 at a $200 million revenue run rate. This requires roughly doubling our revenue over the next -- within the next 24 months, and we see a very realistic path to doing this.

Continued growth of Alkindi, Increlex, Galzin, a successful integration and relaunch of HEMANGEOL, strong launch of Desmoda and the expected launch of Khindivi's expanded label in 2027. Plus, we remain confident that we can close at least one more product acquisition that will provide incremental revenue before the end of 2027.

Third, we want to reach 50% adjusted EBITDA margin in 2028. Profit has always been a central focus of our company. Unlike many of our peers in the industry, we are not pursuing revenue growth at the expense of profitability. We have made continued progress in our profit margins and expect to continue to see improvement as we grow. Our adjusted EBITDA margins first turned positive from product sales in 2024 when we reported an 8% margin, they grew to 20% in 2025, and we expect to be over 30% this year. With continued revenue growth, we expect to see the benefits of operating leverage that can drive us to 50% EBITDA margins in the coming years. With our existing base of commercial and operational infrastructure as well as our products continuing to grow and an outside portion of growth should fall to the bottom line. Our fourth and final goal is to reach a $500 million worth of revenue by 2030. And Again, we believe that this is an achievable goal through our 3-pillar growth strategy. First, our existing portfolio has strong organic growth prospects. This includes Increlex, Alkindi, Khindivi, Galzin, Desmoda. All of these products have achieved just a fraction of the market share that we think they can reach in the years ahead.

Second, our existing pipeline has several large programs that could add significant revenue by 2030. This was ET-700,, which we believe is peak revenue potential well in excess of $100 million annually on its own. Plus our Increlex label expansion opportunity Amglidia, ET-800 and other programs in development that we have not yet announced. And finally, we will layer on more business development deals. We believe we have proven our ability to close, integrate and create significant value through acquisitions, and we begin -- and we expect to sign more deals like Increlex, Galzin, HEMANGEOL, which will further boost our revenue in the years to come. It's clear that we've come a long way over the last few years, but I truly believe that we are just getting started. We have found a proven winning strategy, assemble the right team, accumulated a diversified portfolio of growing products and build an attractive pipeline to fuel long-term growth.

We're in the best addition we've ever been. Thank you for your continued support, and we look forward to keeping you updated on our price developments in the months and the years ahead. With that, I'll hand it over to James, our Chief Financial Officer, to discuss the financials. James?

Thank you, Sean. Our fourth quarter revenue increased 83% to $21.3 million compared to $11.6 million in the fourth quarter of 2024 and revenue was comprised entirely of product sales in both periods. Revenue growth in the quarter was driven primarily by increased sales of Alkindi Sprinkle plus the addition of sales from Increlex, Galzin and Khindivi. As we discussed previously, our third quarter revenue included a meaningful contribution from Increlex outside the U.S. tie to the transition of that business to a new licensing partner. Looking strictly at U.S. product sales. Our revenue grew sequentially by 8% in the fourth quarter relative to the third quarter. We expect our reported total revenue to resume sequential quarterly growth in the first quarter of 2026 and continue to ramp throughout the year. Cost of sales for the fourth quarter was $8.2 million compared to $5.2 million in the fourth quarter of 2024.

Adjusted gross profit, which adjusts for the impact of acquired inventory step-up adjustments and intangible amortization, was $15.5 million in the fourth quarter of 2025 or 73% compared to adjusted gross profit of $6.8 million and 59% in the prior year period. The margin improvement was driven by favorable product mix as well as manufacturing cost efficiencies as the products grow.

HEMANGEOL and Desmoda are both expected to have margin profiles well above our store company average so they should be positive contributors to future gross margins. We still see a slightly lower adjusted gross margin profile in early 2026, and due to margin dilutive orders of Increlex outside the U.S. as our licensing partner ramps up their distribution efforts in more countries. But on a full year basis, we expect adjusted gross margin to be comfortably above 70%, and this margin is expected to continue to ramp and reach between 75% and 80% in the coming years. R&D expenses for the quarter were $1.8 million, an increase of $2.7 million compared to negative $0.9 million in the prior year period. due primarily to increased expenses associated with our development activities. In addition, during the fourth quarter of 2024, Eton's ET 400 product was granted orphan drug designation by the FDA, which resulted in Eton receiving a $2.0 million refund of the NDA filing fee that was paid and expensed in a prior quarter.

R&D expense for 2026 will depend on the timing and final protocol of the numerous studies that we have planned for this year, and we believe it will likely increase from the $7.8 million in 2025 and remained below $10 million for 2026. General and administrative expenses for the quarter were $8.9 million compared with $6.7 million in the prior year period primarily due to increased promotional and launch-related investments associated with the expansion of our product portfolio, an increase in compensation and benefit expenses due to increased general and administrative head count and an increase in FDA program fees. On an adjusted basis, which removes the impact of share-based compensation, transaction-related costs and other onetime expenses, G&A expense was $7.8 million compared to $5.8 million in the prior year period. We have talked extensively about the onetime increase of additional investments made in 2025 and support our long-term growth, driving increased spending in SG&A. However, we are pleased that the increased G&A investment was substantially less than our growth in revenue.

One of the factors driving increased G&A spend is the FDA's annual program fees. For all NDA products, the FDA charges a program fee each year, exemption for products that have orphan designations if the parent company has gross sales of less than $50 million. Eton has previously received these exemptions and thus avoided the fees. However, starting with the October 1, 2025 annual program fees, Eton no longer qualified for an exemption. For the FDA's fiscal year 2026, the annual program fee is $442,000 per strength for NDA products.

As of October 25, when the annual fee was assessed, Eton had 8 unique strengths for a total annual fee of $3.5 million. This annual fee is prepaid on October 1 and accounting purposes, the expense is amortized throughout the year. As a result, $0.9 million was recorded as an SG&A expense in Q4 of 2025. These program fees are estimated to drive an incremental $2.8 million increase in SG&A spend for 2026 over 2025. Regarding overall SG&A spending for 2026, we have 2 main growth drivers: FDA program fees and HEMANGEOL. The FDA program fees are estimated to add an incremental $2.8 million expense over 2025 and the HEMANGEOL acquisition is expected to add approximately $3.5 million in annualized SG&A spend and about $2.5 million in the partial year 2026.

Separately from those 2 onetime step-ups, we believe that our base SG&A spending would have increased by less than 10% in 2026. Adjusted EBITDA for the fourth quarter of 2025 was $6.2 million or 29% of revenue compared to $2.1 million or 18% of revenue in the fourth quarter of 2024. Again, adjusted EBITDA will likely see large fluctuations quarter-to-quarter depending on the timing of inconsistent R&D expenses and ex U.S.

Increlex orders, but we expect the full year adjusted EBITDA margin to be above 30%. Total company GAAP net income was $1.5 million for the quarter compared to a net loss of $0.6 million in the prior year period. Net income per basic and diluted share during the quarter was $0.06 and $0.05, respectively, compared to a net loss per basic and diluted share of $0.02 in the prior year period. On a non-GAAP basis, we reported net income of $5.4 million for the fourth quarter of 2025 compared to $0.7 million in the prior year period. and diluted earnings per share of $0.19 for the fourth quarter of 2025 compared to $0.02 per share in the prior year period. Eton finished the fourth quarter with $25.9 million of cash on hand.

We had an operating cash outflow of $11.6 million in Q4 of 2025 compared to an operating cash inflow of $12.0 million in the previous quarter. The fourth quarter included $12.4 million of Medicaid rebate payments as multiple quarters' worth of Increlex rebates were paid in Q4, $3.5 million of the aforementioned FDA program fees and $1.4 million of inventory payments associated with the onetime transition of ex U.S. Increlex distribution in Europe.

Looking forward, we expect to generate significant operating cash flow throughout 2026 and beyond. This concludes our remarks on fourth quarter results. And with that, I'll turn it back over to the operator for Q&A.

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

Congrats on all the progress here. A lot to get to. But maybe just first on HEMANGEOL, you mentioned that, that could be 1 of your largest products in 2027 that implies quite a lot of growth from kind of the roughly $12 million in 2025 sales. Can you walk us through your assumption on how the assumptions on how the product gets there? What do you think from a volume perspective? And then what does that assume as far as any actions on price or gross to net improvements.

This is Sean. Thanks for the question. we believe we will increase the number of patients on product, partly that zero co-pay was preventing a lot of patients using the product that are previously had a higher co-pay amount and went to other alternatives. So we think that's part of it. That will certainly drive more patient adoption. We will be raising awareness working with the efficacy groups and certainly detailing the product that are much more aggressive level. We want to use that word, but to we want to be able to reach out and make sure that all the patients that can use a product, we'll get the product. And in terms of the pricing, we haven't made any final decisions on that. We'll launch it on first, and we'll see where we end up on that. But our philosophy has always been to be at the lower end of rare disease pricing.

And so as a general rule, that's our approach. And it's largely based upon how many patients are out there and making sure that the pricing is competitive with the rare disease products out.

Got it. And maybe just on Desmoda on kind of how you see the pace to peak the value proposition is pretty similar to kind of the idea behind Khindivi. You obviously know all these physicians already selling to multiple assets. How do you kind of think about the time to peak sales as far as being potentially quicker here because of those dynamics?

Well, I don't know if I could comment too much on the time of peak sales, right? The launch has gone well. We're very pleased. We're getting scripts continuously. Doctors are very excited about the product. I will say, I believe the launch to peak sales will be far quicker than what we had in Alkindi. This is a very specific unmet need. Obviously, Alkindi, an unmet need in a bit of a different way. But unlike Alkindi, there were not a lot of compounders out there, compounding Desmopressin.

So doctors are thrilled to have the product. We know that the uptake has been right according to the plan and not better. So I would say that it faster. We guided to that $30 million to $50 million hoping we're well on our way there in 6 months or so.

Got it. And maybe just last kind of 2-parter here. Maybe just one for James on how you see cash flow conversion from EBITDA in 2026? And then, Sean, just kind of lastly, on that $200 million run rate exiting 2027. Could you kind of delineate between what might come through BD and kind of how you see the existing portfolio today kind of performing to get to that run rate at the end of 2017.

Sure. Yes. Sure. James, well, I can take the first part.

Sure. We try to give some context on the Q3, Q4 cash flow at the end of 2025. 2026 will firmly be in positive operating cash flow territory. We do have -- we will have some timing commitments, namely with Increlex that will plan for the second half of the year. In the first half of the year, there should be not nearly as much as we experienced in Q3 of 2021.

But some of the larger larger-than-average volume with study orders in Europe for Increlex. But other than that, we are firmly in positive operating capital territory. We will start making debt principal payments, which will be new in 2026. And versus 2025, but even with that, we'll be generating a lot of positive cash flow.

Okay. And then, Chase, regarding your question on the $200 million run rate, as you know, and as I think we've demonstrated throughout our the history of our company, we generally set goals which are achievable. We believe the $200 million run rate in the Q4 of next year is entirely achievable primarily based on what we have on deck. This doesn't really include new product deals, licensing that type of thing.

We believe that manage will be a great product for the company. We believe Desmoda will continue to grow quickly. We're seeing higher sales than ever on and Alkindi and Khindivi. Those continue to increase. We're very pleased with the Increlex business and how that grows and it's been nice because we haven't lost as many the older patients, and now we're gaining momentum and going forward on that, that's been solid.

And really all areas of the business are functioning well. There's a lot of growth prospects in the coming quarters in terms of the revenue and hitting the $200 million run rate in Q4 next year, I think, is entirely achievable. We will be providing further updates on future conference calls to try to better ascertain what's the number what can it be and that type of thing?

Our next question comes from the line of Madison El-Saadi of B. Riley Securities.

Congrats on a lot of positive updates here. Maybe to follow up on Desmoda. It sounds like you're having interest both de novo and from existing. Could you kind of characterize if the majority of interest is from the existing Alkindi population and how much of it is de novo. Also curious if you're seeing already some adult patient interest? And then secondly, on Increlex as you prepare for this registry study, just wondering if you had any payer discussions regarding potential internal payer reimbursements for the registry patients, if that something that's possible?

Sure. It's Matt. So I'm going to have pack our Chief Commercial Officer, answer the first part of your question with regards to Desmoda and the pediatric versus adult.

Madison, it's Ipek. So -- for -- I think you're right from our script, more than 97% -- 97%, 98% of our existing relationships. The pediatric anthology are actually the -- our target subscribers for central diabetes antivirus, which is for Desmoda. So these relationships are already there from the day 1 of launch, which was March 9, our team was already talking to these physicians. There's a lot of excitement from key riders, salt leaders, big institutions already in the past 2 weeks.

What we are excited about is call points that our team traditionally have not gone after maturity adult anthologies like Sean mentioned. It is we gave our team 2 weeks ago when we launched the product, more than 3,000 new targets, and they just started going after those. We've talked to soften actually, who are big in the adult space. Some of them actually end up still keeping the pediatric patients. So they definitely see a role in it as a right therapy for several adult patients as well. And they also see the pediatric patients based on the region and institutions. So there is definitely a dual pet opportunity that is incremental to our existing relationships there.

And remind me the second part of your question.

And then on Increlex, if there's been any early payer to related to...

Yes, the payer discussions haven't happened because we feel it would be any different. If we get the label expansion, there shouldn't be any issues with payers right now. If a doctor has even prescribe something off like from time to time due to a medical need and can demonstrate that there will be reimbursement.

But generally speaking, what we want to do is initiate that study as soon as possible. That protocol feedback should happen by the end of this month. And I am quite confident that we will be undertaking the study later this year as -- and obviously, it's going to have a huge impact on our acrylic sales. We are hoping that when we're -- portion of that way into the study is open label, we can go to the agency and get that label updated as soon as possible.

Our next question comes from the line of RK with H.C. Wainright.

This is RK from H.C. Wainright. Good afternoon, Sean and James. So I mean, obviously, there's a lot of things to chew here and all good stuff. In terms of the ongoing business, especially focusing on Galzin, you said you have already eclipsed 300 active patients at this point. And then within -- still about 500 remaining out there and possibly on OTC products.

What portion of that is achievable in the immediate couple of quarters? And how much of that are you how much contribution of that are you assuming going into 2027 when you're trying to hit that $50 million per quarter on the fourth quarter.

Thanks, RK, for the question. We obviously did the 300 patients much faster than we had expected that continues to increase week over week. I'm going to ask Ipek actually to comment a little bit more on the second part.

RK, I think your diagnosis of the fact that the next chapter of growth needing to come from the OTC products is correct. We -- the good part is we -- in Wilson disease space, obviously, the centers of excellence are pretty established. And at this point, after a year into launch, we have pretty strong relationships and ongoing initiatives with several of these centers of excellent thought leaders and the top prescribers.

So we do know where some of these patients, some of that population is. I think based on our projections, I am confident to say within that time frame that you mentioned, we will be able to get to half of that remaining population out there who are on therapy or some form that is not FDA approved between everything that we are doing in the field with these prescribers as well as the awareness and education initiatives that we are closely working on with the Wilson Disease Association, which is the key patient advocacy group and really, a lot of patients are very much in sync and present in that community as of this community.

Great. So my next question is on the label expansions or the indication expansions that you're trying to achieve. One is on the Increlex. What specific feedback do you need from the FDA at this point in terms of harmonizing the definition of SPIGFD and to get your study going? And the second part is on the Khindivi 1, if the patient population gets increased successfully below 85%, what sort of population are we assuming that you will have access to?

Sure. On the Increlex, we've already received feedback from the agency on the. We took the feedback and put that in the formula protocol. So they send you feedback at the general letter, they say we want to see this and this and this. then you formalize that in a scientific protocol that takes a number of weeks, then you submit it to the agency. They then should look at that, make sure that they feel you incorporate their thoughts and comments. And hopefully, when we get it back, there's few or no changes, if that's the case, which it should be, unless they change their mind, then our belief is we can start to study.

We hope to have that protocol back by the end of this month. So that's that one. And then regarding the Khindivi formulation, we're -- well we should have that wrapped up the seat here shortly, get it submitted in the third, fourth quarter, maybe third quarter, I'm guessing third quarter submission and then it will launch next year.

The population, it's really intended for under 5%. That's really what the whole product was about -- we believe -- I believe it will do an excess $20 million of additional revenue rather short quarter.

Okay. And then the last question is on the inventory burn off. How much is on the remaining inventory step-up from the Ipsen acquisitions and to be fully amortized through the P&L?

Yes, very little. There will be a slight amount remaining in early 2026, but a small fraction, we burned through most of it in 2025.

And that is all the time we have for Q&A today and does conclude today's conference call. Thank you for participating. You may now disconnect.

Good afternoon, and welcome to the Eton Pharmaceuticals Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that this call is being recorded at the company's request.

At this time, I'd like to turn it over to David Krempa, Chief Business Officer at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Eton's Third Quarter 2025 Conference Call. This afternoon, we issued a press release that outlines the topics we plan to discuss on today's call. The release is available on our website, etonpharma.com. Joining me on our call today, we have Sean Brynjelsen, our CEO; James Gruber, our CFO; and Ipek Trinkaus, our Chief Commercial Officer. In addition to taking live questions on today's call, we will be answering questions that are e-mailed to us. Investors can send their questions to [email protected].

Before we begin, I would like to remind everyone that remarks made during the call may contain forward-looking statements and involve risks and uncertainties that could cause actual results to differ materially from those contained in these forward-looking statements. Please see the forward-looking statements disclaimer in our earnings release and the risk factors in the company's filings with the SEC.

Now I will turn the call over to our CEO, Sean Brynjelsen.

Thank you, David. Good afternoon, everyone, and thank you for joining us today. I'm thrilled to report another record quarter for the company with triple-digit year-over-year revenue growth. I look forward to discussing the underlying drivers in more detail and highlighting some of our initiatives that help deliver this growth. In addition, we will have made significant progress with our development activities, which are not reflected in this quarter's numbers, but will propel our revenue and earnings growth for many years to come.

Third quarter product revenue was $22.5 million, an increase of 129% year-over-year and up 19% compared to the second quarter. It was our 19th straight quarter of sequential product revenue growth, driven by strong year-over-year growth from ALKINDI SPRINKLE and Carglumic Acid, as well as additions from the recently acquired products, INCRELEX and GALZIN, which are both tracking ahead of our deal models. ALKINDI SPRINKLE has delivered reliable growth for many years and shows no signs of stopping. Carglumic Acid had previously plateaued, but we had a few new patient adds in recent months that helped deliver the year-over-year increase, which was nice to see.

In addition to delivering on the top line, we remain focused on profitability, and I am pleased to share that we generated $12 million of cash from operations in the quarter. Eton is committed to controlling our expenses, and I am proud to report that even though our revenue is growing rapidly, we were able to reduce our adjusted SG&A expense sequentially from the second quarter to the third quarter. Continued control of our operating expenses in tandem with strong revenue growth will position us for significant margin expansion. We reported adjusted EBITDA of $2.9 million in the quarter, and this figure was weighed down by some nonrecurring Increlex ex U.S. transition costs that James will provide more details on. So we expect to deliver even stronger EBITDA in the quarters ahead.

Now turning to product-specific commentary. I'll start with INCRELEX, which has been our largest revenue contributor this year. INCRELEX revenue and patient count continue to track well ahead of our original projections for the product. Prior to our acquisition, the product and the condition has suffered from low awareness. Our efforts to improve education and awareness have paid off, allowing us to deliver significant growth so far this year. Our commercial team has done an excellent job on the relaunch through our rare disease specialists' outreach to health care providers, our conference engagements, and peer-to-peer presentations, as well as collaborating closely with patients and patient advocacy groups, we have been able to substantially grow awareness and increase product usage in a matter of months.

When Eton took the product over in December 2024, there were only 67 active patients on therapy. By August, we shared that we had reached our 100-patient goal 5 months ahead of schedule. We continue to add a number of new patient starts during the last 3 months, but we saw a higher number of patients age out and discontinued treatment during the same period, which resulted in our net active patient count remaining relatively flat around 100. In severe primary insulin growth like Factor 1 deficiency, success is partially measured not only by how many patients are on therapy, but in addition, what truly drives outcomes is how early the treatment begins and how well it's optimized. Early initiation during the critical growth window and appropriate vial utilization are key to maximizing efficiency during the treatment duration.

Since we have inherited several older pediatric patients in December during transition, we saw a large group of age-outs coming through from that cohort. Our focus remains on both expanding new patient starts and driving growth through earlier diagnosis and optimized dosing to ensure every patient achieves their full therapeutic potential. We believe these efforts will increase the average duration of treatment. I expect to continue bringing new patients into treatment and continue growing the net patient count. As a reminder, INCRELEX is approved for pediatric patients aged 2 and up with severe primary IGF-1 deficiency. These are patients who present with extremely short stature and need IGF supplementation to grow. INCRELEX is very effective in increasing patient height during their growing years, but it's no longer needed once patients reach their adult height, which is typically around 18 years old. We believe with our ongoing educational and awareness campaigns, we will start seeing patients diagnosed earlier in life, which would likely lead to a longer duration of therapy.

Eton is confident in the long-term growth opportunity for the product. And as we expect to continue converting more of the estimated 200 patients in the U.S. that meet the current label. In addition, we remain committed to expanding access to even more children in need through the harmonization of the U.S. and EU definitions of severe primary 1 deficiency. Last month, we submitted a meeting request to the FDA with our proposed clinical study to support the harmonization. We expect to have the FDA's feedback by the end of December. And if they are in agreement, we would initiate the study in 2026.

Given the European patient registry data that has been collected over the last 15 years, we believe that INCRELEX is a safe and effective treatment for patients with IGF-1 levels between minus 2 and minus 3 standard deviations. We are confident our proposed study would confirm that for the FDA. And if successful in harmonizing the labels, it could potentially increase the INCRELEX market opportunity roughly fivefold.

ALKINDI was another major contributor to our Q3 revenue growth, and I am proud of the team's ability to continue generating consistent growth. As you remember, starting in January, we split our sales force into 2 teams, one of which, which is now 100% dedicated to pediatric endocrinology. We think has contributed to ALKINDI SPRINKLE's strong year, and 2025 is the product's fifth calendar year on market and remains on pace to be the strongest year of its history by number of patients on therapy and number of new patient referrals. So far, we have not been seeing much, if any, cannibalization of ALKINDI from the launch of KHINDIVI.

Though ALKINDI continues to see strong growth, we developed and launched KHINDIVI to address the needs of patients that did not like the texture of the ALKINDI granules or prefer the convenience of a liquid dosage form. KHINDIVI is the first and only FDA-approved oral solution of hydrocortisone. KHINDIVI allows simple and accurate dosing tailored to patient needs and does not require refrigeration, mixing, or shaking. The FDA approved KHINDIVI for patients 5 and over. The agency restricted the age due to a limited amount of existing safety data on 3 of the inactive ingredients in the formulation when being used in combination.

Unfortunately, the largest unmet need for this product is among young children under 5 years old. And as a result, the label restriction has weighed on the adoption of KHINDIVI. However, our team has been working on a plan to address this. When we first heard of the FDA's restriction this summer, we immediately developed a new formula with substantially lower levels of the excipients. And in September, we held a meeting with the FDA to discuss this new formulation. We believe the meeting was successful as the FDA indicated they would be receptive to a label expansion with our revised formulation. In response, we will conduct a bioequivalency study, which is scheduled to start by January 2026, and I expect to submit the new formulation as a supplement to our existing NDA in the second quarter of 2026.

The FDA indicated a 10-month review for the formulation, so this could allow for an approval by the first quarter of 2027. We believe this label expansion would significantly accelerate adoption of the product. Even with the current KHINDIVI label, we continue to see attractive long-term growth for our adrenal insufficiency franchise. Eton has only converted less than 15% of the estimated 5,000 target patients in the United States. So we see a long runway of growth ahead of us. We remain confident that ALKINDI and KHINDIVI can combine for peak sales of more than $50 million with the current KHINDIVI label and ultimately higher levels if the label is expanded.

Another bright spot in our portfolio this quarter was GALZIN. As I mentioned, we're extremely pleased with this performance. It now has over 200 active patients, a number we originally set as our year-end 2025 target. The product is continuing to grow well ahead of our original expectations, and we couldn't be happier with the team's efforts to support this relaunch. During our 8 months in the field actively commercializing GALZIN, we've been surprised by the low level of awareness that the product had both among physicians and patients. Even though GALZIN is the only FDA-approved zinc therapy for Wilson disease, many patients and prescribers were unaware of it, misinformed, or mistakenly believe the product was discontinued after a prior shortage in 2020 and subsequent lack of promotion. We view this low awareness as a positive for the long-term growth prospects for GALZIN.

While we have work to do educating the market, it is clear that this represents a substantial growth opportunity as we inform patients, healthcare practitioners, and caregivers, and raise awareness of this critical medication. Our entry into Wilson disease has been warmly received by patients and health care providers. Before our relaunch, very few pharmacies stocked GALZIN, out-of-pocket costs were high, and there was a lack of support services to help patients navigate the insurance process. We have now implemented full patient support services, increased access to medication, and substantially reduced out-of-pocket costs for patients. These changes have resonated with the patient community, and we have heard strong positive feedback and appreciation for the new programs.

In October, our team attended the Wilson Disease Association Annual Summit, where patients, caregivers, and leading physicians gathered to discuss diagnosis, treatment, and management of the disease. Our team was able to engage with numerous patients and prescribers, helping to drive awareness and give us the chance to better understand the struggles that patients and prescribers are dealing with. Working to understand the needs of patients, caregivers, and health care providers is a top priority for us and our vision to be a champion of those in the Wilson disease community. Our expanded access and patient support services have made a major impact on Wilson disease patients, but we think we can make an even greater impact on their lives with ET-700, our extended-release version of GALZIN.

Currently, GALZIN is taken 3 times per day with patients fasting both before and after, and this cumbersome regimen leads to high rates of noncompliance. Eton has heard directly from patients and caregivers just how challenging the current dosing schedule is, and we know there's a very strong interest in an extended-release version. Eton is working quickly and making meaningful progress with our development of ET-700. We've already developed a proprietary formulation, filed our patents, and met with the FDA to discuss the regulatory pathway. We are now nearing production of clinical study supply and starting our clinical program with our positron emission tomography or PET study scheduled to begin in the first quarter. This study is a proof-of-concept study designed to verify that our proprietary delayed-release formulation is able to effectively block copper absorption in patients with less frequent dosing.

We expect to receive top-line results from this study in the middle of 2026. And if positive, it would support the initiation of a dose-ranging and pivotal clinical study later in the year.

Switching back to our pediatric endocrinology portfolio. During the quarter, we had another piece of good news when the FDA accepted our ET-600 NDA submission for review and assigned a February 25 PDUFA date. We developed ET-600 in direct response to an unmet need expressed by pediatric endocrinologists for an oral solution of desmopressin to treat central diabetes insipidus. If approved, ET-600 would be the first oral liquid formulation available and would allow for the small precise titratable doses required to treat pediatric patients. The review of the product appears to be proceeding well, and we scheduled the production of inventory at risk in preparation for an anticipated commercial launch shortly after the PDUFA target action date. Prelaunch marketing activities, including key thought leader engagements, advisory boards, and patient focus groups are also underway.

We recently held an ET-600 advisory board with key opinion leaders at the National Endo Conference. We continue to hear positive feedback and strong excitement for the product. Since ET-600 shares the same pediatric endocrinology call points as ALKINDI, KHINDIVI, and INCRELEX, Eton can leverage our well-established relationships and existing commercial footprint, and we expect to be able to hit the ground running upon launch next year. Given the growth opportunity ahead for our commercial products and the attractive pipeline and label expansion opportunities discussed today, it is clear that our business is set up for very attractive long-term growth for many years to come. However, we believe that we can accelerate our growth through additional business development transactions.

I remain confident that we have the necessary skills and capabilities to execute value-creating acquisitions and believe that our track record speaks for itself. We continue to explore opportunities to acquire additional strategically aligned ultra-rare disease products where Eton is positioned to add value. With $37 million in cash on our balance sheet and a diversified growing business that is already generating strong EBITDA, we have plenty of capacity to finance acquisitions, large or small. We'll continue to approach opportunities from a position of strength and with our customary discipline.

2025 has been a transformational year for us, highlighted by 3 high-value commercial product launches, record levels of product sales and profitability, and the submission of an NDA for ET-600. We continue to push full speed ahead to close out the year strong and position us for an even more impressive 2026. Next year, we expect a number of critical milestones, including continued strong revenue growth from ALKINDI SPRINKLE, INCRELEX, GALZIN, and KHINDIVI, increased profitability and operating margin expansion, the expected launch of ET-600, the submission of our revised formulation of KHINDIVI, the completion of our ET-700 pilot study, and the initiation of our INCRELEX label harmonization clinical study.

As you can see, we have some very exciting and event-filled quarters ahead of us, and we look forward to keeping all of you up to date on our progress. We thank you for your continued support.

And with that, I'll hand it over to James, our Chief Financial Officer, to discuss the financials. James?

Thank you, Sean. Our third-quarter revenue increased 118% to $22.5 million compared to $10.3 million in the third quarter of 2024, and revenue was primarily comprised of product sales in both periods. Third quarter revenue included $0.9 million of product revenue from the sale of finished product inventory to Ipsen and Esteve to facilitate the ownership transition of INCRELEX in certain European countries, and these sales are expected to be nonrecurring.

In addition, $2.4 million of revenue was derived from an initial loading order of semi-finished INCRELEX inventory for Esteve. When Eton out-licensed the rights to ex-U.S. INCRELEX, it entered into a long-term supply agreement with Esteve, under which Eton will provide semi-finished goods to Esteve at a fixed transfer price. The company expects these ongoing purchases to produce roughly $2 million to $3 million of annual revenue. However, the ordering patterns may be inconsistent and not occur every quarter.

Revenue growth in the quarter was driven primarily by increased sales of ALKINDI SPRINKLE and Carglumic acid, plus the addition of sales from INCRELEX and GALZIN. While Sean mentioned that the INCRELEX net active patient count was relatively flat, we saw a less favorable payer mix in the third quarter, which resulted in lower revenue per patient compared to the second quarter. Eton expects U.S. product sales to continue to grow sequentially in the fourth quarter compared to the third quarter. But given that some of the third quarter INCRELEX-related ex U.S. revenue is not expected to recur, total product sales may be flat or slightly decline in Q4 relative to Q3.

Cost of sales for the third quarter was $14.6 million compared to $4.0 million in the third quarter of 2024, an increase of $10.6 million, driven by increased sales volumes and approximately $7.4 million of costs associated with the transition of the ex-U.S. distribution of INCRELEX. Adjusted gross profit was $10.2 million in the third quarter, representing an adjusted gross margin of 45% compared to adjusted gross profit of $6.6 million and adjusted gross margin of 64% in the prior year period. Adjusted gross margin in the quarter was negatively impacted by INCRELEX ex U.S. related costs, including the transition of ex U.S. distribution and the supply agreement with Esteve. The company expects to report fourth-quarter adjusted gross margin of approximately 70%.

R&D expenses for the quarter were $1.1 million, an increase of $0.6 million compared to the prior year period due primarily to increased expenses associated with our ET-700 and ET-800 development activities. General and administrative expenses for the quarter were $8.1 million compared with $5.3 million in the prior year period due primarily to an increase in product advertising and launch year promotional expenses, higher stock-based compensation expense, and an increase in compensation and benefit expenses due to an increase in general and administrative headcount. General and administrative expenses were down $1.6 million compared to the second quarter of 2025.

On an adjusted basis, which removes the impact of share-based compensation, transaction-related costs, and other one-time expenses, G&A expense was $6.9 million compared to $4.3 million in the prior year period and $7.6 million in the second quarter of 2025, and we were pleased to see this sequential decline in spending. As we have discussed previously, the first half of this year had increased G&A expenses associated with our 3 product launches, and we expect adjusted G&A spending in the second half of the year to remain materially lower.

Adjusted EBITDA for the third quarter of 2025 was $2.9 million compared to $2.0 million in the third quarter of 2024. Total company net loss was $1.9 million for the quarter compared to net income of $0.6 million in the prior year period. Net loss per basic and diluted share during the quarter was $0.07 compared to a net income per basic and diluted share of $0.02 in the prior year period.

On a non-GAAP basis, we reported net income of $1.5 million for the third quarter of 2025 compared to $1.9 million in the prior year period and diluted earnings per share of $0.04 for the third quarter of 2025 compared to $0.07 per share in the prior year period. Eton finished the third quarter with $37.1 million in cash on hand, and we generated $12.0 million in operating cash flow during the quarter. This includes a $4.3 million payment received from Esteve for the international rights to INCRELEX.

This concludes our remarks on third-quarter results. And with that, we'll turn it back over to the operator for Q&A.

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

James, maybe just first, a quick one. If you back out those -- that $2 million to $3 million in OUS kind of related revenue on those inventory shipments and then the associated costs that got into COGS, can you just give us what kind of, call it, pro forma gross margins would be kind of on the core U.S. business would have been -- sorry.

Sure. So adjusted the GAAP gross margins with all that -- with the ex U.S. INCRELEX activity in there was 35%. Adjusted was 45%. And if we remove all of that ex-U.S. activity, it's north of just over 70% for the quarter.

And then, Sean, maybe just as we think about that reacceleration for ALKINDI, is it truly just that kind of refocusing of the sales force kind of solely on PDENO? Or are there kind of other drivers that you would point to as far as kind of how that sequential revenue growth has accelerated so far through '25?

I think the big lever certainly was the focus of the PDENO group. Secondary aspect, I would say our physicians are comfortable with the product. They know it works. It's a product that has early adopters, we've got late adopters, and we're seeing a lot of late adopters and those who took a wait-and-see attitude now they believe in it. And I would say that we'll continue to add patients for the foreseeable future. It's not a perfect product. That's why we came out with the liquid version. And so we've got -- we want to be able to offer that, and we think that will really jump-start the growth next year. But right now, it's a steady increase in ALKINDI patients in addition to the KHINDIVI. As we said during the call, we don't see a lot of cannibalization. Really, it's additive.

And then maybe just on INCRELEX. First, could you just, if you wouldn't mind, give that gross adds number since August, just so we can kind of get a sense for demand generation? And then just second, on INCRELEX and additional thoughts or details that you can give us as far as that trial design that you submitted to FDA that we're waiting to hear feedback on kind of timelines, number of patients, that sort of thing, as far as how you're thinking?

So on the numbers, we're roughly where we were at on our last call, and it had to do with the number of ads, but then we had a number of folks go off, but now we're seeing more ads. We just saw a number of ads just the past week in terms of new scripts. So we're going to see if we can hit that 110 number by the end of next month. And -- but I would say that we're very pleased with the product overall. It's -- we knew it was going to slow down a little bit, but it's a little bit lumpy in terms of when people come on and off the product. We had that significant increase in Q1 and going a little bit into Q2. So that's that.

And then regarding the clinical, we've submitted it. We expect to get feedback from the FDA in the coming weeks. And I do think that, that will be favorable. And hopefully, we can start enrolling patients in the first half of next year.

Last one for me. Maybe just as we look -- start to look into 2026 as you guys prepare your budget, any initial thoughts that you'd be willing to give us just as far as how you're thinking about top-line growth next year? It looks like -- the Street is somewhere kind of mid- to high 20s as far as top line growth goes from a percentage perspective. I mean do you have any initial thoughts that you'd be willing to give on '26?

Sure. I'll let David answer that one.

As we said on the prepared remarks, we expect significant growth to continue for INCRELEX, GALZIN, ALKINDI, KHINDIVI. So we're expecting healthy growth, but we're not going to get into any directional guidance yet. When we report our Q4 numbers, we will have something to share with you.

Our next question comes from the line of Madison El-Saadi of B. Riley.

Congrats on the progress and multiple positive updates. Question about the INCRELEX U.S. registry. Would this take place at the same sites that are active in the global registry trial? There are a few sites in that global registry that are U.S.-based.

Yes, Madison, it would be just the U.S. It would just be U.S. sites. We would not be enrolling folks overseas.

Would it be at separate sites that are activated in the global registry? I think there are about 7 U.S. sites that are active as part of that global registry.

It would probably be different sites, Madison, if one of those sites did have a meaningful number of patients within that negative 2 to negative 3 standard deviation, we would consider adding them, but it will probably be different sites within the U.S.

And then maybe if you could comment on how -- partner, how you're ranking the potential business development opportunities as we look to the end of the year and even into kind of next year and beyond?

Well, we -- I would say right now, they're strong. We're in late discussions. We've been in late-stage discussions with 2 parties, and we're hoping to get something done before the end of the year. If not, it would be shortly thereafter. Obviously, nothing is done until you sign, but these are ultra-rare disease products. The late stage, a very good strategic fit. We think they would add appreciable revenue over the next 12 to 24 months. So -- and we'll see what happens, but that's always been a core part of our strategy as a company is to take on the right acquisitions.

Obviously, we don't just do acquisitions for the sake of doing acquisitions. They have to be the right fit. And with or without the acquisitions, we're going to continue to grow. We've got a good pipeline of internal products, but I believe we will close transactions that we will end up with, I'll say, at least 2 additional product launches next year.

Our next question comes from the line of Swayampakula Ramakanth of H.C. Wainwright.

Quick question on INCRELEX. You said some -- there were some patients who discontinued as you are putting on some patients. So generally, what are the reasons for the discontinuation? And is there anything either your salesforce or some amount of detailing, additional detailing needed for kind of stopping that getting off the drug?

RK, primarily, it's patients aging out. So discontinuations is almost misleading. All the kids are going to be on it until they stop growing. So typically around age 18, they will age out, they no longer need it. So it is expected and normal, and you're always going to have it. That's the vast majority of the discontinuations. We see very little of what you think about as traditional discontinuations where somebody stops taking treatment before they reach their full adult or their full height, primarily because there's no other alternatives. It's not something like ALKINDI where they try to go to something else.

So it was primarily age-outs. I think we are starting to promote and educate the market better. We think we are getting patients that are being diagnosed earlier. So their total duration on therapy is going to be longer. They're going to age out around 18 regardless of when they start. But if we can get them diagnosed and starting much earlier, that's going to lead to much better outcomes for the patients, and they're going to be on treatment much longer. So we think our average age is shifting much lower than it was when we inherited the business at the start of the year.

And James, you gave us -- you guided for a 70% gross margin into the fourth quarter. But in general, if I start thinking about beyond '25, '26 to '28 or '29, as you start seeing the new formulation of KHINDIVI come on board and whatnot, how -- what will be the cadence of the gross margin over that time period?

RK, we have stated before, we think we can get to north of 75% by 2028. And how we get there is as the majority of our product revenue growth is concentrated in the products where we own more of the economics in KHINDIVI and ALKINDI and INCRELEX. That product mix shifts more towards those higher-margin products, which will continue to increase our margin profile over the next several years.

And then last question, Sean, in general, what's the pricing power that you have with your products? And do you -- are you seeing any pressures at all either from the government or from some of your private payers?

No, I'd say we're always trying to be on the lower end in terms of the pricing for the -- compared to the number of patients. So we're a company that prides itself on pricing products appropriately. We don't believe that all the pricing discussions will fall down into the orphan drug products. We're talking about many of these diseases have only a few hundred patients. And so for them to start putting pressure on those products.

I'm showing no further questions at this time. I'd like to thank you for your participation in today's conference. This does conclude the program. You may now disconnect.