Eton Pharmaceuticals, Inc. (ETON)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with (i) our unaudited interim condensed financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations Included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission (the “SEC”) on March 19, 2026 (the “2025 10-K”).

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” “may,” “plan,” “seek” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider other matters set forth in our SEC filings, including the Risk Factors set forth in Part I, Item 1A of our 2025 10-K.

Overview

Eton is an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases. We currently have eleven commercial rare disease products: INCRELEX®, HEMANGEOL®, ALKINDI SPRINKLE®, KHINDIVI™, DESMODA™, GALZIN®, PKU GOLIKE®, IMPAVIDO®, Carglumic Acid, Betaine Anhydrous and Nitisinone, with IMPAVIDO® scheduled for commercialization in September 2026. We have four additional product candidates in late-stage development: Amglidia®, ET-700, ET-800 and ZENEO® hydrocortisone autoinjector.

Results of Operations (dollars in thousands)

During the three months ended June 30, 2026, we had $37,589 in total revenues that generated a gross profit of $25,413 compared to total revenues of $18,928 during the three-month period ended June 30, 2025 that generated a gross profit of $11,924 for the period. The increase in product sales, net was primarily the result of increased sales of INCRELEX®, GALZIN®, Carglumic Acid and the addition of HEMANGEOL® product sales in the current period.

During the six months ended June 30, 2026, we had $61,855 in total revenues that generated a gross profit of $40,148 compared to total revenues of $36,210 during the six-month period ended June 30, 2025 that generated a gross profit of $21,785 for the period. The increase in product sales, net was primarily the result of increased sales of INCRELEX®, GALZIN®, ALKINDI SPRINKLE®, Carglumic Acid and the addition of HEMANGEOL® product sales in the current period.

Licensing revenue during the six months ended June 30, 2026 was $0 compared to $3,286 in licensing revenue during the six months ended June 30, 2025. Licensing revenue during the six months ended June 30, 2025 was due to $1,786 from our out-licensing of INCRELEX® rights outside of the U.S. and $1,500 from the recognition of a development milestone event associated with our divestiture of DS-200.

Research and Development Expenses

During the three months ended June 30, 2026, we incurred $993 of research and development (“R&D”) expenses as compared to $3,712 for the same period in 2025. During the six months ended June 30, 2026, we incurred $2,868 of research and development (“R&D”) expenses as compared to $4,873 for the same period in 2025. In 2025, the Company paid a $2,155 NDA filing fee for DESMODA™, which was approved by the FDA in February of 2026.

General and Administrative Expenses

G&A expenses consist primarily of employee compensation expenses, legal and professional fees, product marketing expenses, FDA fees, distribution expenses, business insurance, travel expenses, and general office expenses. During the three-month periods ended June 30, 2026 and 2025, we incurred $11,626 and $9,687, respectively, of G&A expenses. During the six-month periods ended June 30, 2026 and 2025, we incurred $22,072 and $18,857, respectively, of G&A expenses. The increase in G&A expenses during the six months ended June 30, 2026 was primarily attributable to higher FDA fees as the Company no longer qualifies for the orphan fee exemption and higher employee-related costs due to increased headcount to support the business.

Liquidity and Capital Resources

As of June 30, 2026, we had total assets of $115.8 million, cash and cash equivalents of $26.8 million and working capital of $23.5 million.

Cash Flows

The following table sets forth a summary of our cash flows for the six-month periods ended June 30, 2026 and 2025 (dollars in thousands):

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Table of Contents

During the six months ended June 30, 2026, net cash from operating activities was $14,660 compared to $10,049 during the six months ended June 30, 2025. The increase in cash from operating activities during the six months ended June 30, 2026 was primarily due to higher cash collections from product sales and lower cash outlay for inventory purchases. During the six months ended June 30, 2026, net cash used in investing activities was $15,070 and was primarily attributable to a $14,000 payment associated with the acquisition of the U.S. commercial rights to HEMANGEOL® in February 2026 and the $1,000 upfront payment for the licensing of U.S. marketing rights to an ultra-rare disease product candidate, which also occurred in February 2026. During the six months ended June 30, 2026, net cash from financing activities was $1,313 compared to $394 during the six months ended June 30, 2025. The increase in net cash from financing activities related to increased proceeds of $3,649 from stock option exercises, proceeds of $270 from the employee stock purchase program, partially offset by a $3,000 principal debt payment.

Non-GAAP Financial Measures

EBITDA, or earnings before interest, taxes, depreciation and amortization, adjusted EBITDA, non-GAAP net income and non-GAAP earnings per share are used and provided by us as non-GAAP financial measures. These non-GAAP financial measures are intended to provide additional information on our performance, operations and profitability. Adjustments to our GAAP figures as well as EBITDA includes non-recurring acquisition or divestiture-related costs and severance costs, as well as non-cash items such as share-based compensation, inventory step-up expense, depreciation and amortization, and other non-cash adjustments. Certain other special items or substantive events may also be included in the non-GAAP adjustments periodically when their magnitude is significant within the periods incurred. We maintain an established non-GAAP policy that guides the determination of what costs or gains will be included in non-GAAP adjustments.

We believe that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of our financial and operating performance. The non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of our historical financial results and trends and to facilitate comparisons between periods. In addition, these non-GAAP financial measures are among the indicators our management uses for planning and forecasting purposes and measuring our performance. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The non-GAAP financial measures used by us may be calculated differently from, and therefore may not be comparable to, non-GAAP financial measures used by other companies.

Reconciliations of reported GAAP net income (loss) to EBITDA, adjusted EBITDA and non-GAAP net income, and the related per share amounts, were as follows (in thousands, except share and per share amounts):

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You 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.”

Overview

Eton is an innovative pharmaceutical company focused on developing and commercializing treatments for rare diseases. We currently have eight commercial rare disease products: INCRELEX®, ALKINDI SPRINKLE®, KHINDIVITM, GALZIN®, PKU GOLIKE®, Carglumic Acid, Betaine Anhydrous and Nitisinone. We have five additional product candidates in late-stage development: ET-600, Amglidia®, ET-700, ET-800 and ZENEO® hydrocortisone autoinjector.

Results of Operations

Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

During the twelve months ended December 31, 2025, we had $80.0 million in total revenues that generated a gross profit of $42.7 million, compared to total revenues of $39.0 million during the twelve-months ended December 31, 2024 that generated a gross profit of $23.4 million during the period. During the twelve-months ended December 31, 2025, we had product sales and royalties, net of $76.7 million, compared to product sales and royalties, net of $38.5 million during the twelve-months ended December 31, 2024, an increase of $38.2 million. The increase in product sales and royalties, net was the result of increased sales volume of our INCRELEX®, ALKINDI SPRINKLE® and GALZIN® products in the current year.

Licensing revenue during the twelve-months ended December 31, 2025 was $3.3 million, compared to $0.5 million in licensing revenue during the twelve-months ended December 31, 2024. The increase in licensing revenue during the twelve-months December 31, 2025 was due to $1.8 million from our out-licensing of INCRELEX® rights outside of the U.S. and $1.5 million from the recognition of a development milestone event associated with our divestiture of DS-200. During the twelve-months ended December 31, 2024, we recognized $0.5 million in licensing revenue associated with the sale of our DS-200 product candidate in September 2024.

Cost of Sales

During the twelve-months ended December 31, 2025, total costs of sales was $37.2 million, compared to $15.6 million in total costs of sales during the twelve-months ended December 31, 2024. The increase in total costs of sales during the twelve-months December 31, 2025, was due to increases in INCRELEX® and ALKINDI SPRINKLE® product sales and higher commissions with respect to our out-licensing of INCRELEX® rights outside of the U.S. Gross profit during the twelve-months ended December 31, 2025 was $42.7 million or 53.5% as a percentage of total net revenues, compared to gross profit of $23.4 million or 60.0% as a percentage of total net revenues during the twelve-months ended December 31, 2024. The decrease in gross profit during the twelve-months ended December 31, 2025 was primarily attributable to higher commission with respect to our out-licensing of INCRELEX® rights outside of the U.S.

Research and Development Expenses

We currently have twelve employees that support our overall product development function. The majority of our spend in research and development (“R&D”) expenses is to third parties we contract with to develop, test our products and the development of partner milestone payments. During the twelve-months ended December 31, 2025, we incurred $7.8 million of R&D expenses, compared to $3.3 million during the twelve-months ended December 31, 2024. The increase in R&D expenses was primarily due to a $2.2 million NDA filing fee for ET-600 and increased expenses associated with our ET-700 and ET-800 project development activities.

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General and Administrative Expenses

General and administrative expenses (“G&A”) expenses consist primarily of employee compensation expenses, selling and advertising/promotional expenses, legal and professional fees, business insurance and FDA fees associated with approved products. We anticipate that our G&A expenses will increase to support our business growth, particularly with respect to sales and marketing activities and additional personnel. During the twelve-months ended December 31, 2025 and 2024, we incurred $35.8 million and $22.8 million, respectively, of G&A expenses. The increase in G&A expenses during the twelve-months ended December 31, 2025 was primarily attributable to an increase in product advertising and promotional expenses, higher stock-based compensation expense and an increase in compensation and benefit expenses due to an increase in general and administrative headcount during the current year.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Net revenues of $39.0 million in 2024 included $0.5 million of licensing revenue from the sale of our DS-200 product candidate in September 2024. Net revenue of $31.6 million in 2023 included $5.5 million of licensing revenue from the sale of our neurology product royalty streams to Azurity in June 2023. Net product revenue of $38.5 million in 2024 increased by $12.4 million from $26.1 million in 2023 primarily as a result of higher product sales for ALKINDI SPRINKLE® and Carglumic Acid.

Our 2024 gross profit of $23.4 million was up from $21.1 million in 2023 primarily as a result of higher product sales for ALKINDI SPRINKLE® and Carglumic Acid.

For the years ended December 31, 2024 and 2023, we incurred $3.3 million and $3.3 million in R&D expenses, respectively, and $22.8 million and $18.9 million of G&A expenses, respectively. The $3.8 million increase in G&A expenses was primarily due to personnel additions to support our growing business as well as marketing spend on new products. We incurred a net loss of $3.8 million and $0.9 million for the years ended December 31, 2024 and 2023, respectively.

Liquidity and Capital Resources

As of December 31, 2025, we had total assets of $92.1 million, cash and cash equivalents of $25.9 million and working capital of $22.1 million. We believe that our revenues and cash flows from our product portfolio will be sufficient for at least the next twelve months of our operations. However, our projected estimates for our product development spending, administrative expenses and our working capital requirements could change significantly, 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 would expect to support our operations.

Cash Flows

The following table sets forth a summary of our cash flows for the years ended December 31, 2025, 2024 and 2023 (in thousands):

During the twelve-months ended December 31, 2025, 2024 and 2023, net cash from operating activities was $10.5 million, $1.0 million and $6.8 million, respectively. The increase in cash from operating activities during the twelve-months ended December 31, 2025 was primarily due to higher cash collections from product sales, a filing fee refund from the FDA related to ET-400 and the collection of a licensing milestone payment. The decrease in cash from operating activities during December 31, 2024 as compared to December 31, 2023, was primarily associated with an increase in prepaid expenses associated with FDA filing fees in addition to higher inventory purchases in the current year.

During the twelve-months ended December 31, 2025, 2024 and 2023, net cash used in investing activities was $0.3 million, $40.0 million and $0.8 million, respectively.  The decrease in net cash used in investing activities during the twelve-months ended December 31, 2025 was primarily attributable to one-time cash outflows for the business combination of INCRELEX® and the purchase of product licensing rights associated with GALZIN® and PKU GOLIKE®, which were cash outflows during the twelve-months ended December 31, 2024. During the twelve-months ended December 31, 2023, we purchased the product licensing rights for Nitisinone.

During the twelve-months ended December 31, 2025 and 2024, net cash from financing activities was $0.8 million and $32.6 million, respectively, compared to net cash used in financing activities during the twelve months ended December 31, 2023 of $1.0 million. The decrease in cash from financing activities during the twelve-months ended December 31, 2025 was primarily associated with net proceeds received from expanding our credit agreement with SWK Holdings Corporation ("SWK") and proceeds from common stock issued in a private placement offering in 2024. During the twelve-months ended December 31, 2023, net cash used in financing activities primarily represented $1.2 million in debt repayments to SWK, partially offset by proceeds received from stock option exercises and employee stock purchase plan proceeds.

Non-GAAP Financial Measures

EBITDA, which is derived from GAAP income or loss from operations, then excluding interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as net income or before interest expense, income taxes, depreciation and intangible amortization, stock-based compensation expense, restructuring charges, acquisition and divestiture-related costs, and other non-recurring items, non-GAAP net income and non-GAAP earnings per share are used and provided by us as non-GAAP financial measures. These non-GAAP financial measures are intended to provide additional information on our performance, operations and profitability. Adjustments to our GAAP figures as well as EBITDA includes non-recurring acquisition or divestiture-related costs, fees related to refinancing activities, as well as non-cash items such as share-based compensation, inventory step-up expense, depreciation and amortization, non-cash interest expense, and other non-cash adjustments. Certain other special items or substantive events may also be included in the non-GAAP adjustments periodically when their magnitude is significant within the periods incurred. We maintain an established non-GAAP policy that guides the determination of what costs or gains will be included in non-GAAP adjustments.

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We believe that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of our financial and operating performance. The non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of our historical financial results and trends and to facilitate comparisons between periods. In addition, these non-GAAP financial measures are among the indicators our management uses for planning and forecasting purposes and measuring our performance. These non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures calcu

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