Eton Pharmaceuticals (ETON) Q2 2026 Earnings Call Transcript

DATE

Thursday, Aug. 13, 2026, at 4:30 p.m. ET

CALL PARTICIPANTS

• Chief Business Officer-David Krempa
• Chief Executive Officer-Sean Brynjelsen
• Chief Commercial Officer-Ipek Trinkaus
• Chief Financial Officer-Judy Matthews

TAKEAWAYS

• Revenue -- $37.6 million, growing 99% year over year, driven by the relaunch of HEMANGEOL and growth in the pediatric endocrinology portfolio.
• FY 2026 Revenue Guidance -- Exceeding $145 million, increased from previous guidance of more than $120 million due to strong first-half performance.
• Adjusted EBITDA -- $16.2 million or 43% of revenue, compared with $3.1 million or 16% of revenue in the prior year quarter.
• FY 2026 Adjusted EBITDA Margin Guidance -- 35%, raised from the previous target of 30% even after incremental research and development expenses.
• HEMANGEOL Patient Transition -- 95% of existing patients successfully moved to the new distribution model by the end of June.
• HEMANGEOL Net Price -- $8,000 to $10,000 per treated patient, reflecting management expectations for the relaunch.
• Addressable Market (HEMANGEOL) -- 10,000 to 15,000 patients annually for the treatment of severe infantile hemangiomas.
• Addressable Market (ASN-001) -- 20,000 to 30,000 patients annually for moderate infantile hemangiomas, a population management estimates is two to three times larger than the severe segment.
• ASN-001 Licensing and Study Costs -- $3 million upfront payment and approximately $4 million in bioavailability study costs over the next 12 months.
• Adrenal Franchise Patients -- 600 active patients on ALKINDI SPRINKLE and KHINDIVI, with a long-term goal of reaching 1,000 patients.
• Non-GAAP Net Income -- $14.3 million or $0.43 per diluted share, compared to $1.5 million or $0.03 per diluted share in the prior year quarter.
• GAAP Net Income -- $11.6 million or $0.35 per diluted share, compared to a net loss of $2.6 million in the second quarter of 2025.
• FY 2026 R&D Expense Guidance -- $10 million to $14 million, reflecting increased development activity in the second half of the year.
• Adjusted G&A Expense -- $10.2 million, an increase from $7.6 million in the prior year period, driven by higher headcount and $900,000 in FDA program fees.
• Cash and Cash Equivalents -- $26.8 million as of June 30, 2026, after a $3 million prepayment on outstanding debt.
• ET-700 Peak Sales Potential -- Exceeding $100 million annually, according to management estimates for the Wilson disease candidate.
• SPIGFD Population Expansion -- 200 to 1,000 patients if the Increlex label harmonization study successfully aligns the U.S. definition with European standards.
• Valuation Allowance -- $22 million, which could result in a one-time non-cash income tax benefit if management determines it is no longer necessary in the second half of 2026.
• DESMODA Adoption -- 115% of internal patient-addition targets during the first five months on the market.
• Adjusted Gross Margin -- 73%, a decrease from 75% in the prior year period primarily due to negative-margin Increlex sales outside the U.S.
• FY 2026 Adjusted Gross Margin Guidance -- Exceeding 70% for the full year.
• Inventory Step-up Expense -- $0.7 million recognized in the second quarter, primarily related to revalued HEMANGEOL inventory.
• Wilson Disease Expansion -- Less than 50% of patients currently managed with zinc therapy have been converted to Galzin, leaving a substantial growth opportunity.
• ASN-001 Regulatory Timeline -- Management expects to submit the New Drug Application in the second half of 2027 for a potential 2028 launch.
• Long-term Revenue Target -- $500 million annually by 2030, supported by the addition of the ASN-001 pipeline program.

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RISKS

• Matthews noted that the 2 percentage point decrease in adjusted gross margin to 73% was primarily due to higher Increlex sales outside the U.S., which "generate a negative gross margin."
• Matthews stated that G&A expenses included "$0.9 million" in FDA program fees as the company no longer qualifies for the "orphan fee exemption."
• Brynjelsen stated that "rebate dynamics" weigh on the gross-to-net pricing of HEMANGEOL compared to the expected economics of the newer ASN-001 candidate.

SUMMARY

Management at Eton Pharmaceuticals (NASDAQ:ETON) reported record revenue driven by the relaunch of HEMANGEOL and growth across the rare disease portfolio. The company stated that the licensing of ASN-001 significantly expands its footprint in the infantile hemangioma market, with the candidate expected to become the largest revenue generator in the portfolio. The company reported significant margin expansion as revenue growth outpaced operating expenses, with adjusted EBITDA margins reaching 43% in the quarter. Management confirmed an increase in full-year financial targets and highlighted late-stage clinical milestones expected in the endocrinology and Wilson disease franchises.

• CEO Brynjelsen stated, "Transitioning an entire patient population to a new distribution model was a significant operational undertaking," noting that the HEMANGEOL conversion occurred ahead of internal schedules.
• Management expects the ASN-001 candidate to complement the existing HEMANGEOL franchise by addressing the moderate segment of the infantile hemangioma market.
• The company received Fast Track designation for Amglidia and plans to submit the New Drug Application by the end of 2026, requesting priority review.
• Management expects to dose the first patient in the Increlex label harmonization study by the end of the year to support expanding the U.S. patient definition for SPIGFD.
• The company plans to begin U.S. distribution of IMPAVIDO in late September, adding an FDA-approved oral therapy for leishmaniasis to its commercial portfolio.
• Initial results from the ET-700 pilot study in Wilson disease are expected in the next month or two, supporting a potential pivotal study in early 2027.
• Management indicated that the Eton Cares support program and a $0 copay initiative are being used to convert patients from off-label adult formulations to FDA-approved pediatric therapies.

INDUSTRY GLOSSARY

• ALKINDI SPRINKLE: A replacement therapy for pediatric adrenal insufficiency.
• Amglidia: A liquid glyburide product under development for neonatal diabetes mellitus.
• ASN-001: A late-stage topical treatment candidate for moderate infantile hemangiomas.
• DESMODA: An oral liquid desmopressin solution for patients with diabetes insipidus.
• Eton Cares: The company's internal patient support program for access and affordability.
• ET-700: A proprietary, patent-pending, extended-release formulation of zinc acetate for Wilson disease.
• Galzin: An FDA-approved zinc acetate treatment for Wilson disease.
• HEMANGEOL: An FDA-approved oral treatment for severe infantile hemangiomas.
• IMPAVIDO: The only FDA-approved oral therapy for severe forms of leishmaniasis.
• Increlex: A treatment for severe primary insulin-like growth factor-1 deficiency (SPIGFD).
• KHINDIVI: A hydrocortisone oral liquid for adrenocortical insufficiency currently approved for patients five years and older.
• NDA: New Drug Application, the formal proposal for the FDA to approve a new pharmaceutical for sale.
• PAS: Prior Approval Supplement, a request to the FDA for a label change for an already approved drug.
• SPIGFD: Severe primary insulin-like growth factor-1 deficiency.

Full Conference Call Transcript

Operator: Good afternoon, and welcome to the Eton Pharmaceuticals second quarter 2026 financial results conference call. At this time, all participants are in listen only mode. Following the formal remarks, we will open the call up for your questions. 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.

David Krempa: 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 Brynjelsen, our CEO, Ipek Trinkaus, 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 Brynjelsen.

Sean Brynjelsen: 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 HEMANGEOL, 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 ASN-001, 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. Finally, we had a very productive few months on the R&D front. We submitted a PAS, Prior Approval Supplement, for the KHINDIVI 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.

HEMANGEOL had an exceptional relaunch quarter and was the largest contributor to our growth. 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 now 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 ASN-001 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 the dermatology, pediatric dermatology, which has quickly become an important new franchise for Eton.

We relaunched HEMANGEOL as planned on May 1st, and the product is performing ahead of our expectations. Historically, approximately 8,000 patients annually were treated with HEMANGEOL, and the patients accessed the product through 18 different pharmacies. When we acquired HEMANGEOL, 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 six 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 three to four 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 HEMANGEOL 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 hemangioma 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 for whom HEMANGEOL 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 contain excipients such as alcohol, sugar, and other ingredients that are not appropriate for infants. In our conversations with physicians, we have consistently heard that the historical out-of-pocket cost of HEMANGEOL was one factor contributing to off-label prescribing.

With Eton Cares and our $0 copay program now in place, we believe we have removed an important barrier to broader adoption and are well-positioned to drive continued growth. We are extremely pleased with the HEMANGEOL acquisition. It has quickly become our largest product and established Eton as a leader in the infantile hemangioma space. As we have spent more time with pediatric dermatologists, vascular anomaly specialists, and families, it has become clear that HEMANGEOL addresses only part of the treatment landscape. For severe hemangiomas requiring treatment, HEMANGEOL is the established standard of care, and we estimate that population to be approximately 10,000 to 15,000 patients annually.

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 is not 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 ASN-001, which was specifically developed for infantile hemangiomas and is supported by clinical data. There are several reasons we are particularly excited about ASN-001. First, the potential patient population could be two to three times larger than HEMANGEOL. Second, ASN-001 is expected to be prescribed by the same healthcare professionals as HEMANGEOL, allowing us to leverage our existing commercial infrastructure and the strong relationships we have already been building with thought leaders in vascular anomaly centers. Third, as a new product launch, ASN-001 would not be subject to certain rebate dynamics that weigh on HEMANGEOL's gross to net.

As a result, we believe ASN-001 will likely have more favorable net pricing economics for Eton. Put those factors together and we believe ASN-001 has a clear path to becoming the largest product in our portfolio. To be clear, we expect ASN-001 to complement HEMANGEOL rather than compete with it. The two 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 ASN-001 in our portfolio, we believe the addressable market could expand to approximately 20,000-30,000 patients annually. From a development standpoint, ASN-001 has already completed a phase III 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 ASN-001, and 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 ASN-001 transaction, together with the HEMANGEOL acquisition earlier this year, demonstrates two 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. We have 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 our shareholders.

The second defining capability is what we believe to be one 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 have already established. Pediatric dermatology is a great example. We entered the market with HEMANGEOL on May 1st. Just 90 days later, we expanded that franchise with ASN-001, a product that can leverage the same commercial organization, customer relationships, and foundational infrastructure. We have successfully executed this playbook before. We entered pediatric endocrinology with ALKINDI SPRINKLE and then expanded that platform with three 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 have been able to build these franchises while continuing to grow our existing portfolio and maintaining discipline around operating expenses. We have proven this is a repeatable strategy and one 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 have had a number of important developments across our commercial and development stage products. We will not have time to cover all of them this afternoon, but I will highlight several of the most significant, and I will start with our high-performing pediatric endocrinology portfolio.

Our adrenal franchise of ALKINDI SPRINKLE and KHINDIVI continues to deliver the reliable, steady growth we have seen for more than five years. We have now exceeded 600 active patients and continue to grow. Last week, we announced that our new KHINDIVI 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. KHINDIVI is currently approved for patients five years of age and older. We continue to believe expanding the label to include patients under five 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, KHINDIVI, 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. The 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 start-up 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 affecting 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 two, 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 could 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 three 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.

Third, to reach $500 million in annual revenue by 2030. Clearly, with the addition of ASN-001, Eton expects to achieve or exceed this goal. Following our first-half performance, the successful HEMANGEOL relaunch, the addition of ASN-001, 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.

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 our mission remains unchanged: To bring 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?

Judy Matthews: 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 HEMANGEOL, as well as strong year-over-year growth from Increlex, ALKINDI SPRINKLE, KHINDIVI, 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 inventories, 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, an 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 KHINDIVI. 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 ASN-001, 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 ASN-001 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 forecasts 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 6-12 months.

This concludes our remarks on second quarter results. With that, we will turn the call back over to the operator for Q&A.

Operator: Thank you. If you'd like to ask a question, please press star one. If your question has been answered and you'd like to remove yourself from the queue, press star one again. Our first question comes from Chase Knickerbocker with Craig-Hallum. Your line is open.

Chase Knickerbocker: Great. Good afternoon. Thanks for taking the questions and congrats on a really great quarter here.

Sean Brynjelsen: Thank you.

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

David Krempa: Chase, on the net pricing, we are still sticking with that $8,000-$10,000 net price. On average, we think that is 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 will be more or less in that $8,000-$10,000 range. In terms of patient volume, yes, historically, there has been 8,000 patients. We think we have converted all the patients now. We had 95% by end of June. We think we have 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.

That will be the game plan going forward.

Chase Knickerbocker: Got it. Maybe just to follow up there is a six-month turnover, obviously, in these patients as they roll off therapy. Can you just speak to the efforts on getting in front of all of those providers now that the HEMANGEOL is under Eton ownership and the success of how many of those physicians, those writers that you have been able to get in front of and capture scripts subsequent to the change in ownership? Then second, just on ASN-001, could you just outline exactly the FDA feedback that your partner got around the bioavailability bridging study?

Is that what is going to be considered the registrational study by FDA, or are they taking that clinical study in China into consideration as supportive evidence? Thanks.

Sean Brynjelsen: Hi, Chase. I will take that last question you have, and then Ipek can take the first part. For ASN-001, this is the only study we need to run before we file it. The rest of the dossier is largely complete. You can think of it almost as a bio. It is not exactly a bioequivalency study, but it is a demonstration that our product has absorption characteristics similar to a comparative product that is in the market today, and basically demonstrating that the absorption and metabolism of the molecule through the body is similar. We view it as very straightforward and low risk.

We are highly confident that we will be filing that product around the middle of next year. As we said in our earlier communications, we believe that product will be a very large product for the company, likely its largest product.

Operator: Thank you.

Ipek Trinkaus: Chase, hi. Ipek here. For the first part of your question on HEMANGEOL, I think a few things to note there for the kind of-

Operator: Thank you. Our next question comes from Gary Nachman with Canaccord Genuity. Your line is open.

Denis Reznik: Hey, guys. This is Denis Reznik on for Gary Nachman. Thanks for taking our questions, and congrats on the really strong quarter. Just starting with the recent acquisition of ASN-001, just talk a little bit more about the synergies you expect to leverage with the HEMANGEOL franchise and how much of the infrastructure there could help out this product once approved. On the IMPAVIDO acquisition, the product's been available since 2016, so maybe just talk about what you know about the market already and what you plan to do differently to ensure commercialization and growth and how big this product could get. I've got one follow-up.

Operator: Ladies and gentlemen, please stand by. Ladies and gentlemen, please stand by. We're experiencing technical difficulties.

Denis Reznik: Hello?

Operator: You may begin. Gary, please repeat the question.

Denis Reznik: Hey, guys. This is Denis Reznik on for Gary Nachman. Thanks for taking our question, and congrats on the really strong quarter. So just starting with the recent acquisition of ASN-001, can you just talk a little bit more about the synergies you expect to leverage with the HEMANGEOL franchise and how much of the infrastructure there could help out once this product is approved? Then on the recent acquisition of IMPAVIDO, the product has been available since 2016, so maybe just talk about what you already know about the market, then what you plan to do differently to ensure commercialization and growth and how big this product can get. I have got one follow-up.

Sean Brynjelsen: Sure. So on ASN-001, we are very excited about the product. We believe we will file it in the middle of next year. It will leverage our existing hemangioma sales team. We think this product is an ideal fit for the company. It is also a demonstration of our commitment to really supporting the hemangioma community. 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?

Ipek Trinkaus: 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. There are many levers that we are going to pull. Also, it was not 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 co-pay 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. We already know the targets. It is a very nice fit in terms of a very concentrated target space. It is going to be around 300 Salesforce targets. We're very much in a concentrated capacity that manage the leishmaniasis. We are pretty confident that with our specialist sales force, 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.

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.

Denis Reznik: That's super helpful. Thank you. Then just on the quarterly results, just any more color you can give about how much upside the HEMANGEOL launch provided this quarter, and how should we be thinking about sequential growth for that product moving forward? Then any color you can give about how the launch of DESMODA helped in this quarter, particularly. That answers my questions. Thanks so much.

Sean Brynjelsen: Sure. 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 HEMANGEOL. This is one where the patient support and the Eton Cares service adds a lot of value that wasn't there previously. Also, obviously, with the much lower copay, we think that patients will be less likely to use off-label product and will stay on HEMANGEOL, as well as be prescribed it to a greater extent. Ultimately, the annual patients should be exceeding 10,000 a year.

Regarding your question about the DESMODA impact, launch is going well, but from a financial standpoint, it was only its first full quarter on the market. 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.

Denis Reznik: Thanks so much. Congrats on the quarter.

Sean Brynjelsen: Thank you.

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

Madison El-Saadi: Yes. Thank you. Congrats on the quarter, guys, and thanks for taking the question. It sounds like much of the 2Q beat here came from HEMANGEOL. How much of the $25 million raised guide is HEMANGEOL versus everything else?

Sean Brynjelsen: Thanks for the question, Madison. As I said previously to a similar question, we are not going to break out our products, as we generally haven't done that in the past. I think that from a go-forward standpoint, I can say that we expect HEMANGEOL to continue to grow. As was indicated, we've largely completed all the conversions from the old pharmacies to the new pharmacy system, so the patient conversion process is complete. We are now looking to grow that business, and it is growing. Actually, we are really encouraged by the product. We think it still has a lot of runway.

More importantly, we are super excited about ASN-001 late-stage product that will fit in perfectly with our pediatric dermatology sales team. 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 12-20 months.

Madison El-Saadi: Got it. Thank you. If I may, a quick follow-up. Has your thinking on DESMODA peak opportunity, has that changed? Now, your sales team, KHINDIVI, Increlex, multiple options in the bag here. I guess, at what point does the team need to get bigger? Thanks.

Ipek Trinkaus: Thank you, Madison. I think in terms of the DESMODA peak opportunity at this point, we will keep it the same with our guidance from the past. I think we said around $40 million-$50 million as our peak number. So we will still keep it at the same. It's been a very encouraging first five months. Actually, in terms of the patient adds, we are around 115% of targets. 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. But we will keep our guidance and the proportion to the peak size the same.

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

Madison El-Saadi: Got it. Thank you.

Operator: Thank you. Our next question comes from RK with H.C. Wainwright. Your line is open.

RK Swayampakula: Thank you. Good evening, Sean and team. Excellent quarter. Congratulations on that. I know a lot of my questions have been asked. In general, just trying to understand how you plan on having ASN-001 and HEMANGEOL work out that franchise, especially with HEMANGEOL patent running out in October 2028, I believe. Is there any way for you to extend that, or is ASN-001 the answer for that?

Sean Brynjelsen: Thank you for the question, RK. The HEMANGEOL formulation, I would say has some aspects which can be improved, 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. There is an opportunity there to add some IP in addition. I would say that for ASN-001, that has a very, obviously, long runway in terms of patent protection. That market is several orders larger than HEMANGEOL. I'd say that if you look at HEMANGEOL as something that is used to treat the severe hemangiomas and ASN-001 will have 20,000-30,000, we believe, at a minimum number of patients.

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 we're giving it as accurate guidance as we can. But we believe the number could be significant. That will certainly be a large product for us. 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, and it's not a one-product kind of deal. We want to continue to build upon that.

RK Swayampakula: Thanks for that. On HEMANGEOL itself, in terms of the patient economics, you have 8,000 inherited patients. But at this point, how many are paying versus free drug program? In terms of new patient acquisition rate, where are you now since you started in May? By the end of 2026, where do you think realistically could be the paying patient number?

David Krempa: Hi, RK. 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. It's more or less in the ballpark. Obviously, it jumps around a little bit month to month and the first month or two with some transitions and some bridge product, but it should stabilize here as we go forward.

RK Swayampakula: Okay. Let me try on IMPAVIDO. On that molecule, you have a 50%-55% of net sales going to Knight. How much contribution does it do for your EBITDA line, and how much of the demand is there that you are actually handling at this point?

David Krempa: We are launching the product end of September, so no financial impact yet. Although there is a larger profit share, it was a little bit of a unique model. We paid very little upfront, so we think it is still going to be a very attractive deal for the company. We think it will contribute multiple millions of dollars annually with very little upfront, very little resource distraction, and good complementary fit with the rare disease strategy and the Eton Cares program.

It will be lower margin than some of our other products, but we think it will still be an attractive opportunity and a very attractive return on investment relative to what we put up to get the distribution rights.

RK Swayampakula: Thank you. Thanks for taking my questions.

Operator: Thank you. This concludes the question and answer session. You may now disconnect. Good day.

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