Eton IPO: EM-100 Expects To Receive Marketing Approval In 2019

With several products that may be accepted by the FDA soon, Eton (ETON) may be an interesting name in 2019. Some data should be received from the FDA regarding two product candidates. With that, investors should know that the target market of these two products is not that large. The stock returns should not be large.

The company has two other products at an early stage with more than $1 billion total addressable market. However, Eton will take many years to have them approved by the FDA. Finally, Eton does not seem undervalued as compared to peers. There may be some stock potential, but it is not large.

Source: Prospectus

Business Overview

Initially owned by Imprimis Pharmaceuticals, Inc. (IMMY), incorporated in Delaware and headquartered in Deer Park, Illinois, Eton is a specialty pharmaceutical company commercializing and developing eight product candidates.

The two most relevant product candidates are DS-300 and EM-100. DS-300, a patent-pending injectable product to treat nutritional deficiencies, is awaiting FDA approval of the manufacturing site. The company expects to submit supportive data by the end of 2018. The market should be ready to assess the results of these tests. Eton may be able to manufacture DS-300 if they are successful, which should make the share price increase.

In addition, EM-100 is another product candidate. It is intended for the treatment of allergic conjunctivitis for which Eton expects to receive marketing approval in 2019.

With that, the company is also developing DS-100 and DS-200 among others. The former is an injectable product candidate intended to treat pain management for which the company expects to file a new drug application in 2019. In addition, the latter is an injectable product candidate intended to treat nutritional deficiencies. DS-200 has received Fast Track Designation, and a new drug application will be filed in 2019. With this information in mind, investors should not expect stock returns originated from the research on DS-100 and DS-200 until 2019-2020.

The image below provides the company’s pipeline as reported in the prospectus:

Source: Company’s Website

DESI Conversion Products: DS-300, DS-100 and DS-200

DESI products or “grandfathered” products are candidates that were sold prior to 1962, prior to the obligation of providing a proof of efficacy and safety to gain approval from the FDA. With this in mind, the company expects to pursue an approval via the 505B(2) NDA pathway for DS-300, DS-100, and DS-200. The report reads that the company is not aware of any negative side effects associated with the API in these DESI products.


EM-100 is an ophthalmic product, which includes what the company believes to be a unique preservative-free formulation of the active ingredient ketotifen. It is intended to be a treatment for allergic conjunctivitis. A 65-patient trial with ketotifen showed magnificent results. Read the following lines for further details:

The 65-patient clinical trial successfully showed statistically significant non-inferiority to ZADITOR (ketotifen fumarate ophthalmic solution 0.035%) and statistically significant superiority to the placebo with no adverse events reported.”

Source: Prospectus

The company has already submitted an abbreviated new drug application for EM-100. Additionally, in April 2018, Eton conducted a bioequivalence trial on this candidate. The marketing approval from the FDA is expected in 2019.

Market Opportunity: Not That Large

The market size of DS-300 and EM-100 is expected to be up to $25 million and $25-$50 million, respectively. This is obviously not large, thus investors should not expect the stock returns to be very large if the FDA approves DS-300 and EM-100.

With that, Eton has other products for which the company will submit filing to the FDA in 2019 and 2020 with larger market sizes. The image below provides information on the total addressable market of each product candidate and when Eton is expected to submit each filing to the FDA:

Source: Prospectus

Buyers of Eton shares should expect the company to report some revenue from the sale of DS-300 and EM-100. The most important revenues should come from the sale of ET-103, intended for the treatment of hypothyroidism, and ET-101, an innovative oral liquid product for use in seizure control. If the FDA approves these two products, the target market size of Eton should be very large.

Assets And Liabilities

As of March 31, 2018, with an asset/liability ratio of 7.55x, the company’s financial situation seemed quite stable. Elton had $11.21 million in cash and cash equivalents and only $1.55 million in total liabilities, which does not seem worrying. The images below show the assets and liabilities as shown in the prospectus:

Source: Prospectus

Source: Prospectus

The contractual obligations are also quite small. The company will only need to pay for operating lease commitments. With this in mind, as of March 31, 2018, the company did not seem to have financial obligations, which seems quite beneficial.

Source: Prospectus

Income Statement And Cash Burn Rate

On the income statement front, the company seems to be burning cash at a high pace, which may not be ideal. With $11.21 million in cash in March 2018, the company reported losses of -$6.1 million in the six months period ended June 30, 2018. With this in mind, in twelve months, the company could easily burn its cash in hand. Investors should be aware of the cash burn rate. If the company needs to raise further cash, there will be stock dilution risk, which could make the stock price decline. The image below provides further details on this matter:

Source: Prospectus

The cash flow from operations was equal to $1.85 million in the three months period ended March 31, 2018, and $4.71 million in the period from April 27, 2017, to December 31, 2017. This means that the company may burn $7.4 million every twelve months, which seems a large amount of money. The image below provides further details:

Source: Prospectus

The company expects to receive $15.5 million in proceeds from the IPO. $13.3 million will be used for clinical trials, $2.6 million will be used for FDA filing fees, while $2 million will be used to expand the company’s laboratory. As said, the company is burning cash at a high pace. The prospectus reads that the company could burn its cash in the next 12 months. With this in mind, the market should be careful. In 12 months, the company could raise more capital, which may create stock dilution risk. The image below provides further details:

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Source: Prospectus


With 16.318 million shares expected after the IPO at $6, the expected market capitalization should be $97.9 million. The company expects to have $24.62 million in cash, no preferred stock, and no warrant liabilities, so the total enterprise value should equal $73.28 million. The image below provides further details regarding the capitalization:

Source: Prospectus

The report does not provide the list of competitors, which does not help assess the valuation of Eton. Research on Owler shows the following competitors:

Source: Owler

The valuation of Eton does not seem undervalued as compared to other peers. Imprimis Pharmaceuticals, Inc., which makes revenues of $33 million, has an enterprise value of $62 million. Keep in mind that IMMY was the owner of Eton, and it seems now to have an enterprise value, which may be smaller than that of Eton. It also trades at 1.88x, which shows how low this sector is valued.

Sienna Biopharmaceuticals (SNNA) has a market capitalization of $263 million, which is larger than that of Eton. However, the pipeline of SNNA shows that it has several candidates at Phase 2 of development and is targeting diseases with large target market. Psoriasis had market size of $11.3 billion in 2016, and atopic dermatitis had a market size of $4.04 billion in 2016. These market sizes are much larger than that of the products of Eton. It makes sense that SNNA has a market capitalization larger than that of Eton.

Source: Sienna’s Website

List of Shareholders: Imprimis Pharmaceuticals Has A 21.4% Stake

Imprimis Pharmaceuticals is expected to own 21.4% of Eton after the IPO. The amount directors owning is quite small, only 12.4% stake is controlled by them, which is not usual. As a result, the float will be low, which means that the stock volatility will not be that high. The table below provides further details:

Source: Prospectus

In this case, it is very beneficial that the Board of Directors has a majority of independent directors. Read the following lines for further details:

Source: Prospectus


With several products that may be accepted by the FDA soon, Eton has come across as an opportunity. However, research on the prospectus shows that the market size of the product candidates of Eton is not that large. The FDA may approve the products in 2019 and 2020, but the revenues are not expected to be very large. With this in mind, the stock returns after the FDA accepts them may not be that high. Additionally, the company does not seem to be undervalued as compared to peers. There will be certain stock potential if the FDA approves ET-103 and ET-101, but investors should know that this will happen after a long time.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.