Introducing Eton Pharmaceuticals (Ticker: ETON)

[ryshab]

I found another interesting business and wanted to introduce it to our community.

The company is called ETON Pharmaceuticals. Ticker ETON.

Here is the investor presentation:
https://ir.etonpharma.com/static-files/af94ebe9-4a6f-4479-855a-ac18d7532c5f

What do they do?
They operate in ultra rare disease category. Basically, from what I understood, they buy out the orphan drugs from big pharma and then revitalize them, get FDA approval and commercialize them to a very few customer base that relies on them.

Since big pharma can’t focus on these niche portfolios, this is where ETON steps in. The TAM in most cases of each of these drugs are 50 mil. to 250 mil. But what they have is a amazing pipeline, understanding of this space and great execution. So far!!

This is from their website. I think this accurately explains what they are about.
“We strive to develop our therapies, file for FDA approval, and launch them with unprecedented speed.”

Portfolio of Products:
This is their portfolio:

The fact they have added 5 products in 9 months and gotten to commercialization for 2 already is something I have not seen in bio tech space. They have a different model - high on acquisition of orphan drugs basically.

What does numbers look like:
NTM Growth: 77% analyst estimates
Analyst estimate beat in last 12 months: 64%
TTM Revenue: 48 mil.
FCF Margin TTM: 11%
Gross Margin: 58% (long term ETON is targeting 70 to 75% - investor presentation

My Take:
Methodology score in top 5 at 78. (Mainly driven by analyst beat bump for ntm growth)
Like all bio stocks, this has pulled back a bit, so I took a Tier 3 starter position of 5%.

On earnings call, the three analysts that cover the stock congratulated management team for execution. Looks quite promising to me. Let’s see how this plays out.

Please note: This is not investment advice. Just my opinion on ETON.

[jkemps]

ryshab - thanks for the quick intro. I dived in a bit, just read 10Q and company website presentation info. Appears promising - a short track record but they do seem to know what they are doing in terms of resurrecting acquired products and building good sales/margin around them. I wonder if you or someone else with more knowledge than me can weigh in on the big question I have. That is, what is likelihood that they will continue to be able to acquire future new products? Does the pharma industry have a slew of viable candidates (that they won’t pursue further due to limited market size) for them to pick through? I do note that they have spent R&D money to further improve some of the drugs they acquired, but their model is designed to be R&D-light and manufacturing-light, relying instead on contract manufacturers. Wonderful model IF they can continue to find viable candidates into the future. JK

[ryshab]

I think that is a legitimate concern of can they keep going with new acquisitions to bolster their portfolio and pipeline.

The team seems competent in identifying opportunities - mainly because they operate in a niche pediatric endocrinology and
metabolics space. The current approvals and launches should ensure good pipeline over next 12-18 months for sales. And, we will just have to wait and see in the next 3-6 months if they can acquire more labels for commercialization. If not, that’s a red flag. The pipeline products are hitting the market by 2027, so as long as they can sustain with current approved product lines till then, the new revenue streams should kick in.

They seem very confident on Galzin acquisition. They launched that in end of Q1. So Q2 was first dips for sales team to generate revenue. My bet is they accelerate in Q3/Q4 and more revenue comes in from Galzin. The other encouraging sign is they are focusing on operational efficiency for the rest of the year which in turn should show higher margins and cash flow.