What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-16 compared with 2021-03-16 · 14 added, 326 removed, 4 unchanged (99% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

common stock is listed on the Nasdaq Global Market under the symbol “ETON.”

The closing price of our common stock

on the Nasdaq Global Market on December 31, 2020, the last trading date in 2020, was $8.13 per share.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

common stock is listed on the Nasdaq Global Market under the symbol “ETON.” The closing price of our common stock on the

Nasdaq Global Market on December 31, 2021, the last trading date in 2021, was $4.29 per share.

of March 7, 2022, we had 9 holders of record of our common stock.

The actual number of stockholders is greater than this number

of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and

other nominees.

This number of holders of record also does not include stockholders whose shares may be held in trust by other

The closing price per share of our common stock on March 8, 2021 was $7.48.

The actual number of stockholders is greater than this number of record

holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.

number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

The closing price

per share of our common stock on March 7, 2022 was $3.72.

have never declared or paid a cash dividend on our common stock.

We currently intend to retain any future earnings and do not

expect to pay any dividends in the foreseeable future.

Any future determinations to pay cash dividends will be made at the discretion

of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition,

results of operations, capital requirements, contractual restrictions, general business conditions, and any other factors that

our board of directors may deem relevant.

We currently intend to retain any future earnings and do not expect

to pay any dividends in the foreseeable future.

Any future determinations to pay cash dividends will be made at the discretion of our

board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of

operations, capital requirements, contractual restrictions, general business conditions, and any other factors that our board of directors

may deem relevant.

Sales of Unregistered Securities

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

should read the following discussion and analysis together with our financial statements and the related notes thereto included

in “Item 8.

Financial Statements and Supplementary Data”

in this Annual Report on Form 10-K.

The following discussion

contains forward-looking statements that involve risks and uncertainties.

For a complete discussion of forward-looking statements,

see the section above entitled “Forward Looking Statements.”

Our actual results could differ materially from those

expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the caption

“Item 1A.

Risk Factors.”

are a unique pharmaceutical company focused on developing, acquiring, and commercializing innovative pharmaceutical products that

fulfill an unmet patient need.

Since the formation of our company in 2017, we have used our expertise in business development,

regulatory, and product development to assemble a diversified portfolio of nine products.

All nine products have now been submitted

to the FDA and three of them have been approved and commercially launched.

We plan to continue growing our business through the

acquisition of additional late-stage, high-value product candidates.

of Operations

date we have realized limited revenues from a licensing arrangement on our EM-100 product that was sold to Bausch Health and the

launch of our Biorphen®

and Alkindi Sprinkle®

products in December 2019 and December 2020, respectively.

We anticipate

successfully growing our sales for these products and commercializing additional product candidates in 2021 and beyond.

Ended December 31, 2020 Compared to Year Ended December 31, 2019

revenues for 2020 reflected limited benefit from Alkindi Sprinkle which launched in December.

In addition, revenue was

negatively impacted by a price discount for Biorphen related to the shelf stock at our wholesale customers.

Our gross profit was

also adversely impacted by a reserve charge to cost of sales for certain slow-moving Biorphen inventory that we do not believe

we will be able to sell before its expiry date.

Revenue and gross profit in 2019 reflected the initial launch for Biorphen and

a $0.5 million milestone payment for our sale of EM-100 to Bausch Health.

For the years ended December 31, 2020 and 2019, we incurred

$14.1 million and $11.6 million of research and development (“R&D”) expenses, respectively, and $12.8 million

and $7.6 million of general and administrative (“G&A”) expenses, respectively.

The comparative period detail of

our R&D expense is listed in the table below.

The $5.2 million increase in G&A expenses was primarily due to personnel

additions and increased sales/marketing spending to support our recent product launches.

In addition, we incurred significant

legal expenses associated with our patent challenge against Exela Pharma Sciences for the Cysteine product that we have in development.

We incurred a net loss of $28.0 million and $18.3 million for the years ended December 31, 2020 and 2019, respectively.

and Administrative Expenses

expenses consist primarily of employee compensation expenses, selling and adverting/promotional expenses, legal and professional

fees, business insurance and travel expenses.

We anticipate that our G&A expenses will increase to support our business growth

particularly with respect to sales and marketing for additional personnel and promotional expenses.

and Development Expenses

forth below is our R&D spending for our current product candidates.

We currently have six employees that support our

overall product development and we also have facility and operating costs for a laboratory to support product development.

do not track internal costs by product for our employees and laboratory expenses and they are listed as indirect expenses in

the table below (amounts are in thousands).

Product Candidate

December 31, 2020

December 31, 2019

Alkindi Sprinkle

Selenious acid

Other products

Indirect expenses

Ended December 31, 2019 Compared to Year Ended December 31, 2018

the years ended December 31, 2019 and 2018, we generated $1.0 million and $0 in revenue, respectively.

The revenue realized in

2019 was from a licensing arrangement for our EM-100 product which is pending additional FDA review and the launch of our Biorphen

product in December 2019.

For the years 2019 and 2018, we incurred $11.6 million and $5.6 million of research and development

(“R&D”) expenses, respectively, and $7.6 million and $4.7 million of general and administrative (“G&A”)

expenses, respectively.

The comparative period detail of our R&D expense is listed in the table below.

The $2.9 million increase

in G&A expenses was primarily due to additional expenses related to becoming a public company, sales and marketing for the

launch of our Biorphen product, and the impact of personnel additions in the second half of 2018 and first half of 2019.

was partially offset by lower stock-based consulting expenses.

In addition, the change in the fair value of our warrant liability

reflected in other expense decreased by $2.6 million as this mark–to–market accounting treatment was terminated in

conjunction with our November 2018 initial public offering (the “IPO”).

We incurred a net loss of $18.3 million and

$12.7 million for the years ended December 31, 2019 and 2018, respectively.

and Development Expenses

forth below is our R&D spending for our product candidates.

As of December 31, 2019, we have ten employees that support

our overall product development and we also have facility and operating costs for a laboratory that supports our product development.

The laboratory personnel and related capital equipment additions were added in late 2018.

We do not track internal costs by product

for our employees and laboratory expenses and they are listed as indirect expenses in the table below (amounts are in thousands).

Product Candidate

December 31, 2019

December 31, 2018

Selenious acid

Preservative Fee (fka EM-100)

Other products

Indirect expenses

and Capital Resources

of December 31, 2020, we had total assets of $26.3 million, cash and cash equivalents of $21.3 million and working capital of

$20.9 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 and also

the IPO which provided us with net proceeds of $22.0 million.

In addition, we entered into a Credit Agreement with SWK Holdings

in November 2019 whereby we drew a $5.0 million loan amount at closing and an additional $2.0 million in August 2020.

and April 2020, we received net proceeds of approximately $7.8 million from the sale of shares of its common stock, and in October

2020, the Company received net proceeds of approximately $21.0 million from a public offering for its shares at an offering price

of $7.00 per share.

We believe that our existing funding, revenues from our approved products and $9.5 million received in February

2021 from the sale of three pediatric neurology product candidates will be sufficient for at least the next twelve months of our

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.

following table sets forth a summary of our cash flows for the years ended December 31, 2020, 2019 and 2018 (amounts are in thousands):

December 31, 2020

December 31, 2019

December 31, 2018

Net cash used in operating activities

Cash used in investing activities

Cash flows provided by financing activities

Net change in cash and cash equivalents

increase in cash used in operating activities is primarily a result of higher operating losses due to our business expansion including

additional personnel and increased product candidate development activity.

Investing activities consist primarily of licensing

fees for Biorphen and capital expenditures for setting up our laboratory facility and our headquarters office.

The financing activity

primarily consists of the November 2018 IPO, the November 2019 Credit Agreement borrowing from SWK Holdings and the October 2020

follow-on common stock offering.

Accounting Policies

financial statements are prepared in accordance with GAAP.

The preparation of our financial statements and related disclosures

requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses in our

financial statements.

We base our estimates on historical experience, known trends and events and various other factors that we

believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values

of assets and liabilities that are not readily apparent from other sources.

We evaluate our estimates and assumptions on an ongoing

Our actual results may differ from these estimates under different assumptions or conditions.

our significant accounting policies are described in more detail in Note 3 to our financial statements included herein, we believe

that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial

account for contracts with our customers in accordance with Accounting Standards Codification (“ASC”) 606 —

Revenue from Contracts with Customers.

ASC 606 applies to all contracts with customers, except for contracts that are within the

scope of other standards.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services,

in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine

the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue

when (or as) the entity satisfies a performance obligation.

contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised

within each contract and determines those that are performance obligations and assesses whether each promised good or service

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance

obligation when (or as) the performance obligation is satisfied.

Arrangements that include rights to additional goods or services

that are exercisable at a customer’s discretion are generally considered options.

We assess whether these options provide

a material right to the customer and, if so, they are considered performance obligations.

The exercise of a material right is

accounted for as a contract modification for accounting purposes.

recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as)

each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output

or input method.

Any amounts received prior to revenue recognition will be recorded as deferred revenue.

Amounts expected to be

recognized as revenue within the twelve months following the balance sheet date will be classified as current portion of deferred

revenue in our balance sheets.

Amounts not expected to be recognized as revenue within the twelve months following the balance

sheet date are classified as long-term deferred revenue, net of current portion.

Payments –

If a commercial contract arrangement includes development and regulatory milestone payments, we will evaluate

whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur

before recognizing the associated revenue.

Milestone payments that are not within our control or the licensee’s control,

such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which

are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties

relate, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to

which some or all of the royalty has been allocated has been satisfied or partially satisfied.

To date, we have not recognized

any royalty revenue resulting from any of our licensing arrangements.

Financing Component –

In determining the transaction price, we will adjust consideration for the effects of the time

value of money if the expected period between payment by the licensees and the transfer of the promised goods or services to the

licensees will be more than one year.

sell Biorphen in the U.S.

to wholesale pharmaceutical distributors, who then sell the product to hospitals and other end-user

Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery

of individual shipments of Biorphen represent performance obligations under each purchase order.

We use a third-party logistics

(“3PL”) vendor to process and fulfill orders and have concluded it is the principal in the sales to wholesalers because

it controls access to the 3PL vendor services rendered and directs the 3PL vendor activities.

We have no significant obligations

to wholesalers to generate pull-through sales.

In addition, we sell our Alkindi Sprinkle product to one pharmacy distributor customer

which provides order fulfillment and inventory storage/distribution services.

prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when the wholesalers

sell Biorphen at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government

In addition, we pay fees to wholesalers for their distribution services, inventory reporting and chargeback processing.

We pay GPOs fees for administrative services and for access to GPO members and concluded the benefits received in exchange for

these fees are not distinct from our sales of Biorphen, and accordingly we apply these amounts to reduce revenues.

also have rights to return unsold product nearing or past the expiration date.

Because of the shelf life of Biorphen and our lengthy

return period, there may be a significant period of time between when the product is shipped and when we issue credits on returned

For our Alkindi Sprinkle product, we bill at the initial product list prices which are subject to offsets for patient

co-pay assistance and potential state Medicaid reimbursements which are recorded as a reduction of net revenues at the date of

sale/shipment.

estimate the transaction price when we receive each purchase order, taking into account the expected reductions of the selling

price initially billed to the wholesaler arising from all of the above factors.

We have developed estimates for future returns

and chargebacks of Biorphen and the impact of the other discounts and fees we pay.

Our sales of Alkindi Sprinkle to our distributor

are not subject to returns.

When estimating these adjustments to the transaction price, we reduce it sufficiently to be able to

assert that it is probable that there will be no significant reversal of revenue when the ultimate adjustment amounts are known.

recognize revenue from Biorphen product sales and related cost of sales upon product delivery to the wholesaler location.

time, the wholesalers take control of the product as they take title, bear the risk of loss of ownership, and have an enforceable

obligation to pay us.

They also have the ability to direct sales of product to their customers on terms and at prices they negotiate.

Although wholesalers have product return rights, we do not believe they have a significant incentive to return the product to

We store our Alkindi Sprinkle inventory at our pharmacy distributor customer location and sales are recorded when stock is

pulled and shipped to fulfill specific patient orders.

recognition of revenue from product sales, the estimated amounts of credit for product returns, chargebacks, distribution fees,

prompt payment discounts, state Medicaid and GPO fees are included in sales reserves, accrued liabilities and net of accounts

We monitor actual product returns, chargebacks, discounts and fees subsequent to the sale.

If these amounts end up

differing from our estimates, we will make adjustments to these allowances, which are applied to increase or reduce product sales

revenue and earnings in the period of adjustment.

addition, we anticipate we will receive revenues from product licensing agreements where we have contracted for milestone payments

and royalties from products we have developed or for which we have acquired the rights to a product developed by a third party.

account for stock-based compensation under the provisions of Accounting Standards Codification (“ASC”) –

Compensation –

Stock Compensation.

The guidance under ASC 718 requires companies to estimate the fair value of the stock-based

compensation awards on the date of grant and record expense over the related service periods, which are generally the vesting

period of the equity awards.

Compensation expense is recognized over the period during which services are rendered by consultants

and non-employees until completed.

At the end of each financial reporting period prior to completion of the service, the fair

value of these awards is remeasured using the then-current fair value of our common stock and updated assumption inputs in the

Black-Scholes option-pricing model (“BSM”).

estimate the fair value of stock-based option awards to our using the BSM.

The BSM requires the input of subjective assumptions,

including the expected stock price volatility, the calculation of expected term, forfeitures and the fair value of the underlying

common stock on the date of grant, among other inputs.

The risk-free interest rate was determined from the implied yields for

zero-coupon U.S.

government issues with a remaining term approximating the expected life of the options or warrants.

on common stock are assumed to be zero for the BSM valuation of the stock options.

The expected term of stock options granted

is based on vesting periods and the contractual life of the options.

Expected volatilities are based on comparable companies’

historical volatility along with a limited weighting included for our own volatility subsequent to our IPO, which we believe represents

the most accurate basis for estimating expected future volatility under the current conditions.

We account for forfeitures as

to our initial public offering in November 2018, the fair value of the shares of common stock underlying our stock-based awards

was determined by our board of directors, with input from management.

Because there had been no public market for our common stock

prior to the IPO, our board of directors had determined the fair value of the common stock on the grant-date of the stock-based

award by considering a number of objective and subjective factors, including enterprise valuations of our common stock performed

by an unrelated third-party specialist, valuations of comparable companies, sales of our convertible preferred stock to unrelated

third parties, operating and financial performance, the lack of liquidity of our capital stock, and general and industry-specific

economic outlook.

Following our IPO, we use the closing stock price on the date of grant for the fair value of the common stock.

and Development Expenses

expenses include both internal R&D activities and external contracted services.

Internal R&D activity expenses include

salaries, benefits and stock-based compensation and other costs to support our R&D operations.

External contracted services

include product development efforts including certain product licensor milestone payments, clinical trial activities, manufacturing

and control-related activities and regulatory costs.

R&D expenses are charged to operations as incurred.

We review and accrue

R&D expenses based on services performed and rely upon estimates of those costs applicable to the stage of completion of each

Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period.

Actual results could differ from our estimates.

payments and milestone payments made for the licensing of technology for products that are not yet approved by the FDA are expensed

as R&D in the period in which they are incurred.

Nonrefundable advance payments for goods or services to be received in the

future for use in R&D activities are recorded as prepaid expenses and are expensed as the related goods are delivered or the

services are performed.

Balance Sheet Transactions

do not have any off-balance sheet transactions.

Act Transition Period

April 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), was enacted.

Section 107 of the JOBS

Act provides that an “emerging growth company”

can take advantage of the extended transition period provided in Section

7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

Thus, an emerging growth company can

delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have irrevocably

elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards

on the relevant dates on which adoption of such standards is required for other public companies.

to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation,

(i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section

404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting

Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information

about the audit and the financial statements, known as the auditor discussion and analysis.

We will remain an emerging growth

company until the earlier to occur of (1) the last day of the fiscal year (a) December 31, 2023, which is the end of the fiscal

year following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenues of at least

$1.07 billion or (c) in which we are deemed to be a “large accelerated filer”

under the rules of the SEC, which means

the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the

date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

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-K

Item 5. Market for Registrant’s Common Equity