What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 217 added, 203 removed, 781 unchanged (35% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

June 30, 2023

September 30, 2023

December 31, 2022

22 unchanged sentences

Total current liabilities

10,393  

Long-term debt, net of discount and including accrued fees

7 unchanged sentences

50,000,000 shares authorized;

25,561,994 and 25,353,119 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

25,658,396 and 25,353,119 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

14 unchanged sentences

For the three months ended

For the six months ended

For the nine months ended

September 30,

Licensing revenue

$ 5,500  

$ 5,000  

$ 5,500  

$ 5,000  

Product sales and royalties

11,801  

Total net revenues

11,997  

17,301  

Cost of sales:

2 unchanged sentences

Total cost of sales

13,028  

Operating expenses:

1 unchanged sentence

General and administrative

10,019  

10,059  

Total operating expenses

11,679  

12,367  

Income (loss) from operations

( 1,340 )  

Other income (expense):

Interest and other expense, net

( 124 )  

( 218 )  

( 250 )  

Total other income (expense)

( 218 )  

Income (loss) before income tax expense

( 1,558 )  

Income tax expense

Net income (loss)

Net income (loss) per share, basic

Weighted average number of common shares outstanding, basic

Net income (loss) per share, diluted

Weighted average number of common shares outstanding, diluted

The accompanying notes are an integral part of these condensed financial statements.

Eton Pharmaceuticals, Inc.

Condensed Statements of Stockholders ’

For the three months ended September 30, 2023 and 2022

(in thousands, except share amounts)

Additional Paid-in

Total Stockholders’

Balances at June 30, 2023

25,561,994  

1 unchanged sentence

$ ( 101,235 )  

Net income (loss) per share, basic

$ 16,725  

Stock-based compensation

Stock option exercises and vesting of restricted stock units

96,402  

( 579 )  

Weighted average number of common shares outstanding, basic

Balances at September 30, 2023

25,658,396  

2 unchanged sentences

$ 16,892  

Net income (loss) per share, diluted

Additional Paid-in

Total Stockholders’

Balances at June 30, 2022

25,272,037  

1 unchanged sentence

$ ( 101,001 )  

Weighted average number of common shares outstanding, diluted

$ 13,242  

Stock-based compensation

Stock option exercises

25,000  

( 3,045 )  

Balances at September 30, 2022

25,297,037  

The accompanying notes are an integral part of these condensed financial statements.

Eton Pharmaceuticals, Inc.

Condensed Statements of Stockholders ’

For the three months ended June 30, 2023 and 2022

(in thousands, except share amounts)

Additional Paid-in

Total Stockholders’

Balances at March 31, 2023

Stock-based compensation

Employee stock purchase plan

Balances at June 30, 2023

Additional Paid-in

Total Stockholders’

Balances at March 31, 2022

Stock-based compensation

Employee stock purchase plan

Warrant exercises

Warrant extensions

Balances at June 30, 2022

$ 115,202  

$ ( 104,046 )  

$ 11,181  

The accompanying notes are an integral part of these condensed financial statements.

1 unchanged sentence

Condensed Statements of Stockholders ’

For the six months ended June 30, 2023 and 2022

For the nine months ended September 30, 2023 and 2022

(in thousands, except share amounts)

2 unchanged sentences

Balances at December 31, 2022

25,353,119  

$ 116,187  

$ ( 103,134 )  

$ 13,078  

Stock-based compensation

Employee stock purchase plan

Stock option exercises

57,616  

Stock option exercises and vesting of restricted stock units

298,528  

Shares withheld related to net share settlement of stock option exercises

Balances at June 30, 2023

( 50,867 )  

( 181 )  

Balances at September 30, 2023

25,658,396  

$ 118,680  

$ ( 101,814 )  

$ 16,892  

Additional Paid-in

1 unchanged sentence

Balances at December 31, 2021

24,626,004  

$ 111,718  

$ ( 94,113 )  

$ 17,630  

Stock-based compensation

Employee stock purchase plan

47,585  

Stock option exercises

25,000  

Warrant exercises

598,448  

Warrant extensions

Balances at June 30, 2022

( 9,933 )  

Balances at September 30, 2022

25,297,037  

$ 115,202  

$ ( 104,046 )  

$ 11,181  

The accompanying notes are an integral part of these condensed financial statements.

2 unchanged sentences

(In thousands)

Six months ended

June 30, 2023

June 30, 2022

Nine months ended

September 30, 2023

September 30, 2022

Cash flows from operating activities

Net income (loss)

$ 1,899  

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

4 unchanged sentences

Accounts receivable

( 1,232 )  

( 259 )  

Prepaid expenses and other assets

8 unchanged sentences

Repayment of long-term debt

( 385 )  

Proceeds from employee stock purchase plan and stock option exercises

Payment of tax withholding related to net share settlement of stock option exercises

( 181 )  

Net cash used in financing activities

( 295 )  

Change in cash and cash equivalents

Cash and cash equivalents at beginning of period

16,305  

14,406  

Cash and cash equivalents at end of period

$ 21,566  

$ 17,046  

Supplemental disclosures of cash flow information

1 unchanged sentence

Cash paid for income taxes

Supplemental disclosures of non-cash transactions

Adjustment of operating lease right-of-use assets and liabilities due to tenant allowance

The accompanying notes are an integral part of these condensed financial statements.

4 unchanged sentences

Company Overview

Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing innovative products to address unmet needs in patients suffering from rare diseases.

Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing products to address unmet needs in patients suffering from rare diseases.

The Company currently has three commercial rare disease products, ALKINDI SPRINKLE®

for the treatment of pediatric adrenocortical insufficiency, Carglumic Acid for the treatment of hyperammonemia due to N-acetylglutamate synthase (NAGS) deficiency, and Betaine Anhydrous for the treatment of homocystinuria.

The Company has four  additional product candidates in late-stage development: dehydrated alcohol injection, which has received Orphan Drug Designation for the treatment of methanol poisoning, ZENEO®

The Company has three  additional product candidates in late-stage development:

hydrocortisone autoinjector for the treatment of adrenal crisis, ET- 400 for the treatment of adrenocortical insufficiency, and ET- 600 for the treatment of diabetes insipidus.

As noted in Note 12, effective October 11, 2023, the Company acquired an FDA-approved ANDA for Nitisinone Capsules from Oakrum Pharma LLC.

Note 2 —

Liquidity Considerations

The Company believes its existing cash and cash equivalents of $ 21,566  as of June 30, 2023  in addition to revenues from approved products and milestone payments expected to be paid in 2023 , will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months from the date of filing of this quarterly report.

The Company believes its existing cash and cash equivalents of $ 22,070  as of September 30, 2023  in addition to revenues from approved products will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months from the date of filing of this quarterly report.

This estimate is based on the Company’s current assumptions, including assumptions relating to estimated sales and its ability to manage spending.

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Unaudited Interim Financial Information

The accompanying interim condensed financial statements are unaudited and have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2023 , and the results of its operations and its cash flows for the periods ended June 30, 2023 and 2022 .

The financial data and other information disclosed in these notes related to the three -month and six -month periods ended June 30, 2023 and 2022 are also unaudited.

The results for the three -month and six -month periods ended June 30, 2023 , are not necessarily indicative of results to be expected for the year ending December 31, 2023 , any other interim periods, or any future year or period.

The accompanying interim condensed financial statements are unaudited and have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary for the fair presentation of the Company’s financial position as of September 30, 2023 , and the results of its operations and its cash flows for the periods ended September 30, 2023 and 2022 .

The financial data and other information disclosed in these notes related to the three -month and nine -month periods ended September 30, 2023 and 2022 are also unaudited.

The results for the three -month and nine -month periods ended September 30, 2023  are not necessarily indicative of results to be expected for the year ending December 31, 2023 , any other interim periods, or any future year or period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and assumptions reflected in these financial statements include, but are not limited to, provisions for uncollectible receivables, chargebacks and sales returns, Medicaid program rebates, valuation of inventories, useful lives of assets, and the impairment of property and equipment and intangible assets, deferred tax assets, the accrual of research and development expenses and the valuation of stock options and warrants, and restricted stock units (“RSUs”).

Significant estimates and assumptions reflected in these financial statements include, but are not limited to, provisions for uncollectible receivables, chargebacks and sales returns, Medicaid program rebates, valuation of inventories, useful lives of assets, and the impairment of property and equipment and intangible assets, valuation of deferred tax assets, the accrual of research and development expenses and the valuation of stock options and warrants, and restricted stock units (“RSUs”).

Estimates are periodically reviewed in light of changes in circumstances, facts, and experience.

9 unchanged sentences

treasury bills or high-grade money market funds.

As of June 30, 2023 , the Company’s cash is in a non-interest-bearing account and a government money market fund.

As of September 30, 2023 , the Company’s cash is in a non-interest-bearing account and a government money market fund.

From time to time, amounts deposited with its bank exceed federally insured limits.

3 unchanged sentences

Accounts receivable are recorded net of allowances for doubtful accounts, cash discounts for prompt payment, distribution fees, chargebacks, returns, and allowances.

The total for these reserves amounted to $ 186  and $ 262  as of June 30, 2023 and December 31, 2022 , respectively.

The total for these reserves amounted to $ 136  and $ 262  as of September 30, 2023 and December 31, 2022 , respectively.

The Company considers historical collection rates and the current financial status of its customers, as well as macroeconomic and industry-specific factors when evaluating potential credit losses.

2 unchanged sentences

The Company reviews its inventories for potential excess or obsolete issues on an ongoing basis and will record a write-down if an impairment is identified.

Inventories at June 30, 2023 and December 31, 2022 , consist solely of purchased finished goods.

At June 30, 2023 and December 31, 2022 , inventories are shown net of reserves for its ALKINDI SPRINKLE®

Inventories at September 30, 2023 and December 31, 2022 , consist solely of purchased finished goods.

At September 30, 2023 and December 31, 2022 , inventories are shown net of reserves for its ALKINDI SPRINKLE®

of $ 76  and $ 62 , respectively, due to the risk of expiry before this entire stock of inventories is sold.

24 unchanged sentences

In September 2022, the Company purchased the rights for its Betaine Anhydrous product for $ 2,000 and that cost is being amortized over five years.

The intangible assets, net on the Company’s balance sheet, reflected $ 2,358  of accumulated amortization as of June 30, 2023 .

The intangible assets, net on the Company’s balance sheet, reflected $ 1,040  of accumulated amortization as of September 30, 2023 .

The Company recorded $ 182  and $ 544 , respectively, of amortization expense for the 

three and six months ended June 30, 2023 . The table below shows the estimated remaining amortization for these products for each of the five years from 2023 to 2027 and thereafter.

three and nine months ended September 30, 2023 . The table below shows the estimated remaining amortization for these products for each of the five years from 2023 to 2027 and thereafter.

Remainder of 2023

6 unchanged sentences

No impairment was recognized during the 

six months ended June 30, 2023 and 2022 .

nine months ended September 30, 2023 and 2022 .

Debt Issuance Costs and Debt Discount and Detachable Debt-Related Warrants

1 unchanged sentence

The Company amortizes debt issuance costs over the expected term of the related debt using the effective interest method.

Debt discounts related to the relative fair value of warrants issued in conjunction with the debt are also recorded as a reduction to the debt balance and accreted over the expected term of the debt-to-interest expense using the effective interest method.

Debt discounts related to the relative fair value of warrants issued in conjunction with the debt are also recorded as a reduction to the debt balance and accreted over the expected term of the interest expense using the effective interest method.

Eton Pharmaceuticals, Inc.

12 unchanged sentences

Operating leases are reflected on the balance sheets as operating lease right-of-use assets, current accrued liabilities, and long-term operating lease liabilities.

The Company does not have any finance leases as of June 30, 2023 and 2022 .

The Company did 

not have any finance leases as of 

September 30, 2023  or 

December 31, 2022 .

The Company commences recognizing operating lease expense when the lessor makes the underlying asset available for use by the Company and the operating lease expense is recognized on a straight-line basis over the term of the lease.

10 unchanged sentences

These programs could be adversely affected by a significant interruption in the manufacturing process.

The Company is also subject to credit risk from its accounts receivable related to product sales as it extends credit based on an evaluation of the customer’s financial condition, and collateral is

not required.

The Company is also subject to credit risk from its accounts receivable related to product sales as it extends credit based on an evaluation of the customer’s financial condition, and collateral is not required.

Management monitors its exposure to accounts receivable by periodically evaluating the collectability of the account receivable based on a variety of factors, including the length of time the receivables are past due, the financial health of the customer and historical experience.

Based upon the review of these factors, the Company did

not record an allowance for doubtful accounts at 

June 30, 2023 and 2022 .

Based upon the review of these factors, the Company did not record an allowance for doubtful accounts at September 30, 2023 and December 31, 2022.

The accounts receivable balance at 

June 30, 2023 and product sales revenue recognized during the

six -month period ended

June 30, 2023 , consist of sales to and amounts due from AnovoRx for sales of the Company’s ALKINDI SPRINKLE®

September 30, 2023 and product sales revenue recognized during the 

nine months ended September 30, 2023 , primarily consist of sales to and amounts due from AnovoRx for sales of the Company’s ALKINDI SPRINKLE®

and Carglumic Acid products.

The accounts receivable balance at

June 30, 2022  and product sales revenue recognized during the

six -month period ended 

June 30, 2022 , consist of sales to and amounts due from AnovoRx for sales of the Company’s ALKINDI SPRINKLE®

The accounts receivable balance at September 30, 2022  and product sales revenue recognized during the 

nine months ended September 30, 2022 , consist of sales to and amounts due from AnovoRx for sales of the Company’s ALKINDI SPRINKLE®

and Carglumic Acid products as well as sales to and amounts due from AmerisourceBergen Corporation, Cardinal Health Services, and McKesson Corporation for sales of the Company’s Biorphen product.

AnovoRx sales made up

63.5 % of total net revenues recognized in the

six -month period ended 

June 30, 2023 and

84.2 % of net accounts receivable as of

June 30, 2023 , and

39.4 % of total net revenues recognized in the

six -month period ended 

June 30, 2022 , and

79.8 % of net accounts receivable as of 

AnovoRx sales made up 73 % of total net revenues recognized in the 

nine months ended September 30, 2023 and 98 % of net accounts receivable as of September 30, 2023 , and 

52 % of total net revenues recognized in the 

nine months ended September 30, 2022 , and 80 % of net accounts receivable as of 

December 31, 2022 .

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Significant Financing Component – In determining the transaction price, the Company will adjust consideration for the effects of the time value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the licensees will be more than one year.

The Company sells its rare disease products to one pharmacy distributor customer which provides order fulfillment and inventory storage/distribution services.

The Company sells its rare disease products to a pharmacy distributor customer which provides order fulfillment and inventory storage/distribution services.

The Company has sold products in the U.S.

to wholesale pharmaceutical distributors, who then sold the product to hospitals and other end-user customers.

to wholesale pharmaceutical distributors, who then sold the products to hospitals and other end-user customers.

Sales to wholesalers were made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual shipments represented performance obligations under each purchase order.

The Company used a third -party logistics ( “3PL”

) vendor to process and fulfill orders and concluded it is the principal in the sales to wholesalers because it controlled access to the 3PL vendor services rendered and directed the 3PL vendor activities.

) vendor to process and fulfill orders and concluded that the Company is the principal in the sales to wholesalers because it controlled access to the 3PL vendor services rendered and directed the 3PL vendor activities.

The Company had 

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Common stock equivalents are excluded from the computation when their inclusion would be anti-dilutive.

For the three -month period ended June 30, 2023, common stock equivalents were 390,176 and excluded 

For the 

three -month period ended 

September 30, 2023 , common stock equivalents excluded 

5,618,663  shares that were anti-dilutive.

For the six -month period ended June 30, 2023, common stock equivalents were 389,531 and excluded 

For the 

nine months ended September 30, 2023 , common stock equivalents were 

388,832 and excluded 

4,821,906  shares that were anti-dilutive.

For the 

three -month and six -month periods ended June 30, 2022 , common stock equivalents of 

three -month and nine -month periods ended September 30, 2022 , common stock equivalents of 

5,349,891  and 5,118,574 , respectively, are excluded from the calculation of diluted net loss per share because the effect is anti-dilutive. Included in the basic and diluted net income (loss) per share calculation are RSUs awarded to employees or directors that have vested, but the issuance and delivery of the shares of common stock are deferred until the director retires from service as a director.

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Based on the composition of the Company’s accounts receivable, including current market conditions and historical credit loss activity, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements or disclosures.

Specifically, the Company’s estimate of expected credit losses as of June 30, 2023 , using its expected credit loss evaluation process described above, resulted in no provision for credit losses and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard.

Specifically, the Company’s estimate of expected credit losses as of September 30, 2023 , using its expected credit loss evaluation process described above, resulted in no provision for credit losses and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard.

Eton Pharmaceuticals, Inc.

4 unchanged sentences

Property and equipment consist of the following:

September 30,

Computer hardware and software

6 unchanged sentences

Depreciation expense for the 

three months ended June 30, 2023 and 2022 was $ 10  and $ 18 , respectively. 

three months ended September 30, 2023 and 2022 was $ 9  and $ 14 , respectively. 

Depreciation expense for the 

six months ended June 30, 2023 and 2022 was $ 23 and $ 39 , respectively.

nine months ended September 30, 2023 and 2022 was $ 32 and $ 53 , respectively.

Note 5 —

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8.0 %, subject to a stated LIBOR floor rate of 

In accordance with the change, the Company has classified $ 1,540  as principal due in the next 12 months, and the remainder classified as long-term debt in its balance sheet at June 30, 2023 .

Because LIBOR was phased out as of June 30, 2023, future borrowings under the SWK Credit Agreement could be subject to reference rates other than LIBOR.

However, synthetic LIBOR rates will continue to be published through September 2024, and we do not expect the discontinuation of LIBOR to have a material impact on interest payments incurred under the SWK Credit Agreement.

The Company is in discussions with SWK regarding an amendment to the Credit Agreement which will include an alternate reference rate.

Interest expense of $ 538  was recorded during the six months ended June 30, 2023 , which included $ 61  of debt discount amortization.

Interest expense of $ 466  was recorded during the six months ended June 30, 2022 , which included $ 66  of debt discount amortization.

As of June 30, 2023 , $ 281  of accrued interest is included in accrued liabilities.

The table below reflects the future payments for the SWK loan principal and interest as of June 30, 2023 .

In accordance with the change, the Company has classified $ 1,540  as principal due in the next 12 months, and the remainder classified as long-term debt in its balance sheet at September 30, 2023 .

Because LIBOR was phased out as of June 30, 2023, the Company amended the Credit Agreement in August 2023 to refer to the secured overnight financing rate ("Term SOFR"), with an interest rate of Term SOFR plus 8.26 %, subject to a stated Term SOFR floor rate of 5.0 %.

Interest expense of $ 805  was recorded during the nine months ended September 30, 2023 , which included $ 90  of debt discount amortization.

Interest expense of $ 699  was recorded during the nine months ended September 30, 2022 , which included $ 96  of debt discount amortization.

As of September 30, 2023 , $ 307  of accrued interest is included in accrued liabilities.

The table below reflects the future payments for the SWK loan principal and interest as of September 30, 2023 .

Remainder of 2023

$ 1,181  

Total payments

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The Company has 50,000,000 authorized shares of $ 0.001 par value common stock under its Amended and Restated Certificate of Incorporation.

During the six months ended June 30, 2023 , the Company issued 202,126  shares of its common stock resulting from cash and non-cash stock option exercises under its 2018 Equity Incentive Plan (see Note 8 ). 

The Company withheld 

During the nine months ended September 30, 2023 , the Company issued 298,528  shares of its common stock resulting from cash and non-cash stock option exercises under its 2018 Equity Incentive Plan as amended December 2020 ( see Note 8 ) and vesting of restricted stock units. The Company withheld 

50,867  shares for payroll tax obligations totaling $ 181 for the 

six months ended June 30, 2023 .

In June 2023, the Company issued 57,616  shares of its common stock to employees in accordance with its Employee Stock Purchase Plan (“ESPP”). During the six months ended June 30, 2022, a holder of the Company’s common stock warrants exercised 

nine months ended September 30, 2023 .

In June 2023, the Company issued 57,616  shares of its common stock to employees in accordance with its Employee Stock Purchase Plan (“ESPP”). During the 

nine months ended September 30, 2022 , a holder of the Company’s common stock warrants exercised 

600,000  warrants on a cashless basis and the Company issued 

3 unchanged sentences

47,585  shares of its common stock to employees in accordance with its ESPP.

In July 2022, the Company issues 25,000 shares of its common stock to an employee for a stock option exercise under its 2018 Equity Incentive Plan as amended December 2020.

Note 7 —

Common Stock Warrants

The Company’s outstanding warrants to purchase shares of its common stock at June 30, 2023 are summarized in the table below.

The Company’s outstanding warrants to purchase shares of its common stock at September 30, 2023 are summarized in the table below.

Description of Warrants

18 unchanged sentences

No other terms were modified.

Due to this modification, the Company incurred a modification expense of $ 244 that is included in general and administrative (“G&A”) expense on the Condensed Statements of Operations for the six months ended June 30, 2022 .

Eton Pharmaceuticals, Inc.

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The Company adopted the Eton Pharmaceuticals, Inc.

2017 Equity Incentive Plan (the “2017 Plan”), which authorized the issuance of up to 5,000,000 shares of the Company’s common stock, and in 2018 it adopted the 2018 Equity Incentive Plan (as amended in December 2020, the “2018 Plan”).

2017 Equity Incentive Plan (the “2017 Plan”), which authorized the issuance of up to 5,000,000 shares of the Company’s common stock, and in 2018 it adopted the 2018 Equity Incentive Plan as amended December 2020 ( the “2018 Plan”) which succeeded the 2017 Plan.

The Company has granted restricted stock awards (“RSAs”), stock options and RSUs for its common stock under the 2017 Plan and 2018 Plan as detailed in the tables below.

There were 628,485  shares available for future issuance under the 2018 Plan as of June 30, 2023 .

There were 693,597  shares available for future issuance under the 2018 Plan as of September 30, 2023 .

Share awards that are expired, terminated, surrendered, or canceled without having been fully exercised will be available for future awards under the 2018 Plan.

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The Company’s previous CFO had 

474,295  employee stock options with an exercise price range of $ 1.37  to $ 8.61  which were set to expire three months after his retirement date of May 31, 2022, however, the Company extended the expiration date to April 10, 2023.

Of these options, 365,858 options were exercised in January and March 2023, with the remainder expiring in April 2023.

474,295  employee stock options with an exercise price range of $ 1.37  to $ 8.61  which were set to expire three months after his retirement date of May 31, 2022; 

however, the Company extended the expiration date to April 10, 2023.

Of these options, 365,858 options were exercised in January and March 2023, and the remainder expired in April 2023.

No other terms were modified.

Due to this modification, the Company incurred a modification expense of approximately $ 72  that is included in general and administration expense on the Condensed Statements of Operations for the three and six -month periods ended June 30, 2022.

For the three months ended June 30, 2023 and 2022 , the Company’s total stock-based compensation expense was $ 785  and $ 1,300 , respectively.

For the three months ended September 30, 2023 and 2022 , the Company’s total stock-based compensation expense was $ 730  and $ 949 , respectively.

Of these amounts, $ 657  and $ 893  were recorded in G&A expenses, respectively, and $ 73  and $ 56  were recorded in research and development expenses, respectively.

For the six months ended June 30, 2023 and 2022 , the Company’s total stock-based compensation expense was $ 1,657  and $ 2,383 , respectively.

For the nine months ended September 30, 2023 and 2022 , the Company’s total stock-based compensation expense was $ 2,387  and $ 3,332 , respectively.

Of these amounts, $ 2,191  and $ 3,102  were recorded in G&A expenses, respectively, and $ 196  and $ 230  were recorded in research and development expenses, respectively.

Stock Options

The following table summarizes stock option activity during the six months ended June 30, 2023 :

The following table summarizes stock option activity during the nine months ended September 30, 2023 :

Outstanding as of December 31, 2022

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$ 5.94  

Outstanding as of June 30, 2023

Outstanding as of September 30, 2023

4,809,726  

$ 4.58  

Exercisable as of June 30, 2023

$ 2,725  

Exercisable as of September 30, 2023

3,139,749  

Vested and expected to vest at June 30, 2023

$ 4.81  

$ 1,828  

Vested and expected to vest at September 30, 2023

4,809,726  

$ 4.58  

$ 2,725  

Eton Pharmaceuticals, Inc.

3 unchanged sentences

Share-Based Payment Awards (continued)

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock at June 30, 2023 for those stock options that had strike prices lower than the fair value of the Company’s common stock.

Stock-based compensation related to stock options was $ 698  and $ 1,476  for the three and six months ended June 30, 2023 , respectively.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock at September 30, 2023 for those stock options that had strike prices lower than the fair value of the Company’s common stock.

Stock-based compensation related to stock options was $ 639  and $ 2,115  for the three and nine months ended September 30, 2023 , respectively.

Stock-based compensation related to stock options was $ 853  and $ 2,850  for the 

three and six months ended June 30, 2022 , respectively.

As of June 30, 2023 , there was a total of $ 4,777  of unrecognized compensation costs related to non-vested stock option awards.

three and nine months ended September 30, 2022 , respectively.

As of September 30, 2023 , there was a total of $ 4,164  of unrecognized compensation costs related to non-vested stock option awards.

The weighted average grant date fair value of stock option awards for the 

six months ended June 30, 2023  was $ 2.29  per share.

nine months ended September 30, 2023  was $ 2.31  per share.

In the 

six months ended June 30, 2023 , there were 

five  stock option exercises which totaled 402,308  shares at a weighted average exercise price of $ 2.22  per share with an intrinsic value of $ 601 .

There were no stock option exercises during the 

six -month period ended June 30, 2022 .

nine months ended September 30, 2023 , there were  

stock option exercises which totaled 407,308  shares at a weighted average exercise price of $ 2.23  per share with an intrinsic value of $ 611 .

In the nine -month period ended September 30, 2022, there was one stock option exercise which totaled 25,000 shares at an exercise price of $ 1.38 per share with an intrinsic value of $ 31 .

Restricted Stock Units (RSUs)

The following table summarizes restricted stock unit activity during the six months ended June 30, 2023 :

The following table summarizes restricted stock unit activity during the nine months ended September 30, 2023 :

Number of Units

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$ 2.63  

Outstanding and unvested as of June 30, 2023

( 4,000 )  

$ 2.63  

Stock-based compensation related to RSUs was $ 60  and $ 118 for the three and six months ended June 30, 2023 .

As of June 30, 2023 , there was $ 729  of unrecognized stock-based compensation expense related to unvested RSUs, which will be recognized over a weighted average period of 3.0  years.

Outstanding and unvested as of September 30, 2023

274,204  

$ 2.63  

Stock-based compensation related to RSUs was $ 61  and $ 179 for the three and nine months ended September 30, 2023 .

As of September 30, 2023 , there was $ 668  of unrecognized stock-based compensation expense related to unvested RSUs, which will be recognized over a weighted average period of 2.8  years.

Employee Stock Purchase Plan

The Company’s 2018 Employee Stock Purchase Plan (“ESPP”) provides for an initial reserve of 150,000 shares, and this reserve is automatically increased on January 1 of each year by the lesser of 1 % of the outstanding common shares at December 31 of the preceding year or 150,000 shares, subject to reduction at the discretion of the Company’s board of directors.

As of June 30, 2023 , there were 652,680  shares available for issuance under the ESPP.

As of September 30, 2023 , there were 652,680  shares available for issuance under the ESPP.

The annual offerings consist of two stock purchase periods, with the first purchase period ending in June and the second ending in December.

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The terms of the ESPP provide a restart feature if the Company's stock price is lower at the end of a six -month period within the twelve -month offering period than it was at the beginning of the twelve -month offering period.

For the six months ended June 30, 2023 and 2022 , there were 

57,616 and 

47,585 share issuances, respectively, under the ESPP.

The weighted average grant date fair value of share awards in the first  

six months of 2023 and 2022 was $ 1.14  and $ 1.32 , respectively.

Employees contributed $ 133  and $ 128  via payroll deductions during the six months ended June 30, 2023 and 2022 , respectively.

The Company recorded an expense of $ 63  and $ 70  related to the ESPP in the six months ended June 30, 2023 and 2022 , respectively.

The Company recorded an expense of $ 27  and $ 25  related to the ESPP in the three months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and December 31, 2022 , the accompanying condensed balance sheets include $ 16  and $ 23 , respectively, in accrued liabilities for remaining employee ESPP contributions.

For the nine months ended September 30, 2023 and 2022 , there were 57,616   and 

47,585  share issuances, respectively, under the ESPP.

The weighted average fair value of share awards in the first  

nine months of 2023 and 2022 was $ 1.22  and $ 1.32 , respectively.

Employees contributed $ 181  and $ 174  via payroll deductions during the nine months ended September 30, 2023 and 2022 , respectively.

The Company recorded an expense of $ 93  and $ 97  related to the ESPP in the nine months ended September 30, 2023 and 2022 , respectively.

The Company recorded an expense of $ 30 and $ 27 related to the ESPP in the 

three months ended 

September 30, 2023 and 2022 , respectively.

As of September 30, 2023 and December 31, 2022 , the accompanying condensed balance sheets include $ 63  and $ 23 , respectively, in accrued liabilities for employee ESPP contributions.

Eton Pharmaceuticals, Inc.

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Chief Executive Officer

The CEO has a partial interest in a company that the Company has partnered with for its EM- 100/Alaway Preservative Free eye allergy product as described below.

The CEO has a partial interest in a company that the Company had partnered with for its EM- 100/Alaway®

Preservative Free eye allergy product as described below.

The Company acquired the exclusive rights to sell the EM- 100 product in the United States pursuant to a sales and marketing agreement (the “Eyemax Agreement”) dated August 11, 2017, between the Company and Eyemax LLC (“Eyemax”), an entity affiliated with the Company’s CEO.

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(i) one milestone payment for $ 250  upon regulatory approval in the territory by the FDA of the first single agent product and (ii) one milestone payment for $ 500  following the first commercial sale of the first single agent product in the territory.

Following payment of the milestones, the Company is entitled to retain all of the non-royalty transaction revenues and royalties up to $ 2,000  (the “Recovery Amount”).

After the Company has retained the full Recovery Amount, it is entitled to retain half of all royalty and non-royalty transaction revenue.

The Company has realized $ 1,833  of the non-royalty and royalty revenue as of June 30, 

Following payment of the milestones, the Company was entitled to retain all of the non-royalty transaction revenues and royalties up to $ 2,000  (the “Recovery Amount”).

After the Company had retained the full Recovery Amount, it was entitled to retain half of all royalty and non-royalty transaction revenue.

The Company has realized $ 1,840  of the non-royalty and royalty revenue as of 

September 30, 2023 .

The Amended Agreement also contains customary representations, warranties, covenants, and indemnities by the parties.

The EM- 100 asset and its associated product rights were sold to Bausch Health on February 18, 2019, and future potential royalties of twelve percent on Bausch Health sales of the product, named Alaway®

Preservative Free by Bausch, which was approved by the FDA in September 2020, will be split between Eyemax and the Company.

Preservative Free by Bausch, which was approved by the FDA in September 2020, would be split between Eyemax and the Company.

The royalty from Bausch Health is subject to reduction if a competitive product with the same active pharmaceutical ingredient is launched in the U.S.

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Preservative Free effective March 24, 2023.

There were no amounts due to Eyemax under the terms of the Amended Agreement as of June 30, 2023 or December 31, 2022 .

There were no amounts due to Eyemax under the terms of the Amended Agreement as of September 30, 2023 or December 31, 2022 .

Eton Pharmaceuticals, Inc.

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The Company recognizes a right-of-use (“ROU”) asset and a lease liability on the balance sheet for substantially all leases, including operating leases, and separates lease components from non-lease components related to its office space lease. 

The Company’s operating lease cost as presented as G&A in the condensed statements of operations was $ 46  for the six  months ended 

June 30, 2023 , and $ 21  for the six  months ended June 30, 2022 .

Cash paid for amounts included in the measurement of operating lease liabilities was $ 37  for the six months ended June 30, 2023 , and $ 44  for the six months ended June 30, 2022 .

The Company’s operating lease cost as presented as G&A in the condensed statements of operations was $ 57  for the 

nine months ended September 30, 2023 , and $ 64 for the 

nine months ended September 30, 2022 .

Cash paid for amounts included in the measurement of operating lease liabilities was $ 66  for the nine months ended September 30, 2023 , and $ 66  for the nine months ended September 30, 2022 .

The ROU asset amortization was $ 11  and $ 50 for the 

three and six -month periods ended June 30, 2023 , respectively, and $ 21  and $ 41  for the three and six -month periods ended June 30, 2022 , respectively, and is reflected within depreciation and amortization on the Company’s condensed statements of cash flows.

As of June 30, 2023 , the weighted-average remaining lease term was 1.75  years, and the weighted-average incremental borrowing rate was 8.6 %.

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of June 30, 2023 (in thousands).

three and nine -month periods ended September 30, 2023 , respectively, and $ 21  and $ 62  for the three and nine -month periods ended September 30, 2022 , respectively, and is reflected within depreciation and amortization on the Company’s condensed statements of cash flows.

As of September 30, 2023 , the weighted-average remaining lease term was 1.50  years, and the weighted-average incremental borrowing rate was 8.6 %.

The table below presents the lease-related assets and liabilities recorded on the balance sheet as of September 30, 2023 (in thousands).

Classification

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Total operating lease liabilities

The Company’s future lease commitments for its administrative offices in Deer Park, Illinois as of June 30, 2023 , is as indicated below:

The Company’s future lease commitments for its administrative offices in Deer Park, Illinois as of September 30, 2023 , is as indicated below:

Operating Lease Liabilities

Undiscounted lease payments

Imputed interest

( 12 )  

Total lease liabilities

* The Company expects to receive a tenant improvement allowance reimbursement of $ 32 in November 2023 which results in a negative lease commitment for the remainder of 2023.

Eton Pharmaceuticals, Inc.

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The Company has recognized $ 27,500 in milestone revenues to date from these three products.

Azurity has assumed royalty or profit share obligations owed to development partners as well as additional milestone payments based on sales volume targets.

In June 2023, the Company amended its asset purchase agreement with Azurity, and sold the royalty interests it received back to Azurity for total consideration of $ 5,500 which was recognized as license revenue for the three and six months ended June 30, 2023.

Azurity assumed the royalty or profit share obligations owed to development partners as well as additional milestone payments based on sales volume targets.

During the years ended December 31, 2021 and 2020, the Company worked with Tulex Pharmaceuticals, Inc.

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In March 2023, the Company acquired rare disease endocrinology product candidate ET- 600 from Tulex.

The Company paid $ 450 to Tulex in July 2023, which was accrued for as of June 30, 2023, as a result of successful manufacturing of registration batches.

The Company will pay $ 200 upon acceptance by the FDA of the NDA for the product, $ 250 upon 

The Company paid $ 450 to Tulex in July 2023 

as a result of successful manufacturing of registration batches.

The Company will pay Tulex $ 200 upon acceptance by the FDA of the NDA for the product, $ 250 upon 

first commercial sale of the product, and tiered royalties of 12.5 % to 

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The Company believes the fair value of the indemnification rights and agreements is minimal.

Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of June 30, 2023 or 

Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of September 30, 2023 or 

December 31, 2022 .

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Subsequent Events

On July 12, 2023 the Company issued 91,402 ordinary shares in connection with the vesting of restricted stock units.

The Company has evaluated subsequent events through the filing date of the Form 10 -Q and has determined that no additional subsequent events have occurred that would require recognition in the condensed financial statements or disclosure in the notes thereto, except as disclosed in the notes herein.

Effective October 11, 

2023, the Company acquired an FDA-approved ANDA for Nitisinone Capsules from Oakrum Pharma LLC.

The Company paid $ 150 to the seller for the acquired product and $ 500 to the manufacturer.

Eton will retain 80 % of product profit and will pay 20 % of product profit to the manufacturer.

Management ’

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In evaluating our business, you should carefully consider other matters set forth in our SEC filings, including the Risk Factors set forth in Part I, Item 1A of our 2022 10-K.

Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing innovative products to address unmet needs in patients suffering from rare diseases.

Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing products to address unmet needs in patients suffering from rare diseases.

The Company currently has three commercial rare disease products, ALKINDI SPRINKLE®

for the treatment of adrenocortical insufficiency, Carglumic Acid for the treatment of hyperammonemia due to N-acetylglutamate synthase (NAGS) deficiency, and Betaine Anhydrous for the treatment of homocystinuria.

The Company has four additional product candidates in late-stage development: dehydrated alcohol injection, which has received Orphan Drug Designation for the treatment of methanol poisoning, ZENEO®

The Company has three additional product candidates in late-stage development:

hydrocortisone autoinjector for the treatment of adrenal crisis, ET-400, an innovative patent, and ET-600 for the treatment of an endocrinology condition.

As noted in Note 12, effective October 11, 2023, the Company acquired an FDA-approved ANDA for Nitisinone Capsules from Oakrum Pharma LLC.

Results of Operations (dollars in thousands)

For the three months ended June 30, 2023, we had $11,997 in total revenue that generated a gross profit of $9,682.

We had total revenue of $7,358 for the three-month period ended June 30, 2022 that generated a gross profit of $4,613 for the period.

For the three months ended September 30, 2023, we had $7,028 in total revenue that generated a gross profit of $4,403.

We had total revenue of $3,219 for the three-month period ended September 30, 2022 that generated a gross profit of $2,018 for the period.

The increase was primarily due to increased sales volume of the Company's ALKINDI SPRINKLE®

and Carglumic Acid products.

For the six months ended June 30, 2023, we had $17,301 in total revenue that generated a gross profit of $13,028.

We had total revenue of $9,534 for six months ended June 30, 2022 that generated a gross profit of $5,940 for the period.

For the nine months ended September 30, 2023, we had $24,329 in total revenue that generated a gross profit of $17,431.

We had total revenue of $12,753 for nine months ended September 30, 2022 that generated a gross profit of $7,958 for the period.

The increase was primarily due to increased sales volume of the Company's ALKINDI SPRINKLE®

and Carglumic Acid products.

and Carglumic Acid products as well as a $500 increase in licensing revenue.

Research and Development Expenses

For the three months ended June 30, 2023, we incurred $1,125 of research and development (“R&D”) expenses as compared to the $690 for the same period in 2022.

The increase was primarily due to a $450 fee due to Tulex as a result of successful manufacturing of registration batches of product candidate ET-600.

For the six months ended June 30, 2023, we incurred $1,660 of research and development (“R&D”) expenses as compared to the $2,308 for the same period in 2022.

For the three months ended September 30, 2023, we incurred $615 of research and development (“R&D”) expenses as compared to the $744 for the same period in 2022.

The decrease was primarily due to decreased expenses associated with products sold to Dr.

Reddy's in June 2022.

For the nine months ended September 30, 2023, we incurred $2,275 of research and development (“R&D”) expenses as compared to the $3,052 for the same period in 2022.

The decrease was primarily due to decreased expenses associated with products sold to Dr.

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G&A expenses consist primarily of employee compensation expenses, legal and professional fees, product marketing expenses, distribution expenses, business insurance, travel expenses, and general office expenses.

For the three-month periods ended June 30, 2023 and 2022, we incurred $4,674 and $5,263, respectively, of G&A expenses.

The decrease in G&A expenses was mainly due to decreased FDA fees and legal fees associated with products sold to Dr.

Reddy's in June 2022.

For the six months ended June 30, 2023 and 2022, we incurred $10,019 and $10,059, respectively, of G&A expenses.

The slight decrease in G&A expenses included incremental employee-related expenses related to our sales force expansion offset by decreased FDA fees and legal fees associated with products sold to Dr.

For the three-month periods ended September 30, 2023 and 2022, we incurred $4,336 and $4,169, respectively, of G&A expenses.

The slight increase in G&A expenses was mainly due to increased employee-related expenses related to our sales force expansion and was partially offset by decreased sales and marketing expenses associated with third-party sales commissions.

For the nine months ended September 30, 2023 and 2022, we incurred $14,355 and $14,228, respectively, of G&A expenses.

The slight increase in G&A expenses included incremental employee-related expenses related to our sales force expansion and was partially offset by decreased sales and marketing expenses associated with third-party sales commissions along with decreased FDA fees and legal fees associated with products sold to Dr.

Reddy's in June 2022.

Other Income and Expenses

For the three-month and six-month periods ended June 30, 2023, we recorded $800 of other income in accordance with a break-up fee received as the result of participating in an asset acquisition auction process where the Company was not ultimately named the winning bidder.

For the nine months ended September 30, 2023, we recorded $800 of other income in accordance with a break-up fee received as the result of participating in an asset acquisition auction process where the Company was not ultimately named the winning bidder.

Liquidity and Capital Resources

As of June 30, 2023, we had total assets of $30.9 million, including cash and cash equivalents of $21.6 million and working capital of $16.7 million.

As of September 30, 2023, we had total assets of $31.5 million, including cash and cash equivalents of $22.1 million and working capital of $16.8 million.

We had previously capitalized our operations from the June 2017 private placement of approximately $20.1 million of Series A preferred stock which converted into shares of our common stock concurrent with our IPO in November 2018, which provided us with net proceeds of $22.0 million.

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However, our projected estimates for our product development spending, administrative expenses, and our working capital requirements could be inaccurate, or we may experience growth more quickly or on a larger scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing earlier than we expect to support our operations.

The following table sets forth a summary of our cash flows for the six-month periods ended June 30, 2023 and 2022 (dollars in thousands):

Six months ended

June 30, 2023

June 30, 2022

The following table sets forth a summary of our cash flows for the nine-month periods ended September 30, 2023 and 2022 (dollars in thousands):

Nine months ended

September 30, 2023

September 30, 2022

Net cash provided by operating activities

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The increase in cash provided by operating activities was primarily due to increased sales and gross profit from sales of our Alkindi Sprinkle and Carglumic Acid products.

The decrease in cash used in investing activities was due to a $750 payment related to the approval of Rezipres, a product sold to Dr.

The decrease in cash used in investing activities was due to a $2,000 payment related to the acquisition of Betaine Anhydrous in September 2022, and a $750 payment related to the approval of Rezipres, a product sold to Dr.

Reddy's in June 2022.

The increase in cash used in financing activities was primarily due to lower stock option net proceeds in the six months ended June 30, 2023.

The increase in cash used in financing activities was primarily due to increased repayments of the Company's long-term debt and lower stock option net proceeds in the nine months ended September 30, 2023.

Critical Accounting Policies

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements