Eton Pharmaceuticals (NASDAQ: ETON) has seen its share price jump on Monday morning trading after announcing new approvals from the US Food and Drug Administration (FDA).
The company confirmed that the FDA approved ZONISADE™, an epilepsy treatment included in Eton's multi-product neurology oral solution partnership with Azurity Pharmaceuticals.
Under the agreement, Eton is entitled to receive an additional $5m payment upon the launch of ZONISADE™, royalty on net sales, and up to $15m of commercial milestones tied to the combined sales of all three products in the partnership.
Eton's CEO, Sean Brynjelsen, commented:
"We are proud to have another product approval from our team's development efforts. This is now the eighth product approval that our team has contributed to, and we are excited for Azurity to bring the product to patients. The proceeds from the launch milestone will be used to further grow our rare disease portfolio."
What Does Eton Pharmaceuticals Do?
Illinois-based Eton Pharmaceuticals is a specialty pharmaceutical company that is focused on developing and commercializing pharmaceutical products for rare diseases.
The company's products include Biorphen, a phenylephrine injection to treat clinically important hypotension resulting primarily from vasodilation in the setting of anesthesia.
Other offerings include Carglumic Acid for treating acute and chronic hyperammonemia and Rezipres, a ready-to-use formulation of a molecule that is indicated for the treatment of clinically important hypotension occurring in the setting of anesthesia.
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How Does Eton Pharmaceuticals Make Money?
The company makes money through the commercialization of its ALKINDI SPRINKLE® and Carglumic Acid tablets and has two additional rare disease products under development.
In addition, the company's royalty segment is entitled to receive milestone payments or royalties on six different products.
Recent months also saw the sale of the company's injectables portfolio to Dr. Reddy's Laboratories (NYSE: RDY) for an upfront payment of approximately $5m in cash, plus contingent payments of up to $45m. The company said that going forwards, its commercial portfolio will exclusively focus on products that treat rare diseases.
ETON Stock Financials
The stock has a price-to-book ratio of 5.26, above the average pharmaceutical stock's ratio of 2.29, according to CSIMarket. Meanwhile, the stock's price-to-sales ratio of 5.86 is well below the industry average of 19.53. This paints a mixed picture of the stock's value.
The share price has been on a rollercoaster over the past 12 months, rising as high as $6.59 in November 2021 but now sitting at around $3.11 per share.
In its most recent quarterly earnings, the company scored revenues of $2.18m compared with $11.90m in the same period 12 months prior. However, the comparative period's revenues included licensing revenues of $11.5m. Meanwhile, product sales and royalties increased from $397,000 to $2.18m.
This increase in product sales was attributed to growth in sales of ALKINDI SPRINKLE® and the launch of carglumic acid and Rezipres®.
ETON Growth Potential
The company has set itself ambitious targets, claiming that its ALKINDI SPRINKLE® product has an addressable market worth more than $100m.
Meanwhile, it aims to take a 25-30% market share of the American Carglumic Acid market by the end of this year. Eton says this market has a total value of $50m per year.
These are both currently commercially available. The company's dehydrated alcohol injection and hydrocortisone autoinjector have yet to receive approvals, but the company says these products have a combined addressable market opportunity of at least $170m.
ETON Investment Risks
Eton has two late-stage candidates which are still vying for approval, so there is a risk that these potential products may fail to ever receive approval and see the light of day.
As with many cheap stocks, the primary risk for investors in this company is that the business could seek to raise additional money from investors and dilute their interest or run out of money altogether. While Eton returned a loss in its most recent quarter, the business was profitable in the fourth quarter of 2021 and appears well-funded for the foreseeable.
Is ETON Stock a Good Investment?
While its recent results show the company is racking up losses each quarter, the deal with Dr. Reddy's should ensure that the company has enough money in the bank for the immediate future.
Indeed, the company is in a strong position to invest in its core interest: treating rare diseases. Product sales and royalty growth have consistently grown each quarter, but high costs mean the business is still making a loss in some quarters.
The company's renewed focus on its rare diseases segment, which has been steadily growing, could yield fruit for investors. However, as with all cheap stocks, this is far from guaranteed, and investors should take any decision to invest in ETON with caution.