Mini-Pharma on an Acquisition Charge

Harrow Inc. is a pharmaceutical business transformed by a blizzard of acquisitions into an eye care specialist. The market and the opportunity look both wide open and large.

First, the company needed to raise money.

• April 2021 – Offering of $55m Senior Notes Due 2026 through B. Riley.
• May 2021 – Private Placement Offering of $11m of Series B Cumulative Preferred Stock, which the Company redeemed in June 2021.
• June 2021 – Offering of $20m Senior Notes Due 2026 through B. Riley, which trades interchangeably with the Company’s $55m in notes.
• October 2022 – Sale of non-ophthalmic compounding business to Revelation Pharma Corporation for a cash payment of $6m and up to $4.5m in milestone payments.
• December 2022 – Offering of a $40m bond offering through B. Riley and a $25m common stock offering with a select strategic group of shareholders, which was used along with a secured loan from B. Riley and cash on hand to fund a transformative transaction to acquire five well-known ophthalmic pharmaceutical products, known as the Fab Five.

Harrow Inc. web site

The company also embarked on a blizzard of acquisitions.

In 2019, we resolved to focus exclusively on growing our market-leading ophthalmic business. We had demonstrated success in the ophthalmic space, and we wanted to emulate two other large ophthalmic pharmaceutical companies – Allergan and Alcon – that began as compounding pharmacies and later grew into large multi-national pharmaceutical companies. In late 2020, we branched out to leverage our commercial capabilities through an alliance with EyePoint Pharmaceuticals to promote DEXYCU® 9pc for the treatment of post-operative inflammation following ocular surgery in the U.S. This was Harrow’s first “proof-point” that our commercial platform could be impactful on the sales of FDA‑approved ophthalmic products and set the stage for our transformation to a pharmaceutical company that delivers both compounded pharmaceutical products (CPPs) and branded pharmaceutical products (BPPs).

We continued to demonstrate our commitment to evolving beyond compounding:

• In 2021, we acquired the U.S. and Canadian marketing and supply rights for IHEEZO®, a patented, non-opioid ocular surface anesthetic drug candidate.
  • We filed a new drug application (NDA) with the U.S. Food and Drug Administration (FDA) in December 2021, for which we received a PDUFA target action date of October 16, 2022.
  • In September 2022, nearly three weeks early, we received FDA approval of IHEEZO.
  • In the first quarter of 2023, we received both a permanent, product-specific J-Code (J2403) and Transitional Pass-Through Reimbursement Status, effective April 1, 2023.
  • In May 2023, at the American Society of Cataract and Refractive Surgery (ASCRS) meeting in San Diego, CA, IHEEZO was officially launched.
• Also in 2021, we acquired the U.S. and Canadian commercial rights for drug candidate MAQ-100, a preservative-free triamcinolone acetonide ophthalmic injection. Marketed in Japan under the name MaQaid®, Harrow intends to leverage the clinical data used for Japanese market approval to support a clinical program and U.S. market NDA submission of MAQ-100, initially for visualization during vitrectomy.
• In December 2021, Harrow acquired the U.S. commercial rights of four FDA-approved ophthalmic medicines, IOPIDINE® 1pc and 0.5pc, MAXITROL® 3.5mg/10,000 units/0.1pc, and MOXEZA® 0.5pc. The acquired products (sold, marketed, and distributed through Harrow’s wholly owned subsidiary, ImprimisRx), combined with the Company’s existing ophthalmic-focused product portfolio, support Harrow’s growing ophthalmic surgical and acute care market presence.
• In January 2023, Harrow acquired the exclusive U.S. commercial rights to five FDA-approved ophthalmic medicines, ILEVRO®, NEVANAC®, VIGAMOX®, MAXIDEX®, and TRIESENCE®, known as the Fab Five. We believe the addition of these five products to our ophthalmic pharmaceutical portfolio represents a tremendous value to our customers – giving them more choices and flexibility when considering the best treatment options for their patients and the specific needs of their practices.
• In July 2023, Harrow acquired the U.S. and Canadian commercial rights to VEVYE®, which had been approved in May 2023 for treatment of both the signs and symptoms of dry eye disease. In January of 2024, VEVYE was launched.
• Simultaneous with the acquisition of VEVYE, Harrow acquired U.S. and Canadian commercial rights to FLAREX®, NATACYN®, TOBRADEX® ST, VERKAZIA®, ZERVIATE®, and non-prescription brands FRESHKOTE® and Cationorm® PLUS, which, when combined with VEVYE, represent a formidable dry eye vertical for Harrow.

We are continuing to execute our Five-Year Strategic Plan that was implemented in 2023 and aimed at positioning Harrow to be a top-tier U.S. ophthalmic pharmaceutical company. We have a very effective integrated national sales and customer service organization and an efficient, scalable, and tech-enabled national production and distribution platform licensed to do business in all 50 U.S. states. We are bolstering our infrastructure and commercial platform to support the additional products, both compounded and branded, and we look forward to learning from our future accomplishments!

On January 2, 2019, we changed our name from Imprimis Pharmaceuticals to Harrow and began trading on Nasdaq under “HROW.” Later that same year, we moved to Nashville, Tennessee, and narrowed our focus exclusively on eyecare.

Harrow Inc. web site

All this activity is starting to show up in the results.

This table shows sales from 2019, when the new initiatives were adopted, to 2023. Already we are seeing sales growing from $48.9m for 2020 to $130m for 2023. Now listen to what CEO and founder, Mark Baum, has to say about 2024.

Revenues for the second quarter of 2024 surged to a record of $48.9m, a 46pc increase over the prior year’s second quarter revenues of $33.5m and a 42pc sequential increase over the first quarter of 2024 revenues of $34.6m. Despite investing in growing the VEVYE commercial team to capitalize on the product’s new prescription and refill momentum, our GAAP net loss for the second quarter of 2024 was $(6.5)m, and Adjusted EBITDA (a non-GAAP measure1) was $8.8m. GAAP gross margins were 74pc for the second quarter of 2024 compared to 70pc in the same period in 2023, with core gross margins (a non-GAAP measure) floating up to 79pc in the second quarter of 2024 from 78pc in the same period in 2023. Two final points related to our second quarter results that illustrate that our promises are being kept and our plans are paying off: (1) our ImprimisRx compounding subsidiary achieved the highest quarterly revenue in its history, and (2) the second quarter of 2024 marked the first quarter in which revenues from our branded products meaningfully exceeded those from ImprimisRx – a trend we believe should accelerate. We expect that revenue in the back half of 2024 should substantially outperform revenue in the first half of this year, especially if TRIESENCE is relaunched. I remain confident that our 2024 revenue will be “greater than” $180m (excluding any TRIESENCE contribution), and given our progress and momentum, I believe that it’s really a question of how much “greater than” $180m it will be.

Harrow Inc, Letter to Shareholders, Q2 2024, 7 August 2024

Barely Scratched the Surface of the DED Market

The show’s star is VEVYE, a treatment for DED (dry eye disease), a complaint which affects one in five adults over 65.

Our presence in the Dry Eye Disease (DED) market, a multi-billion-dollar annual opportunity, is anchored by VEVYE, a patented formulation of 0.1pc cyclosporine delivered in a semifluorinated alkane vehicle, which is indicated for the treatment of the signs and symptoms of dry eye disease. The prescribing momentum for VEVYE is intensifying as total prescription volumes for the second quarter increased 212pc from the first quarter of 2024.

For patients suffering from DED – whether they are newly diagnosed or have failed many of the other not-so-great prescription choices – VEVYE works quickly, has strong data demonstrating efficacy as far out as 56 weeks, only requires twice daily (or BID) dosing, and is extraordinarily tolerable relative to nearly all other product choices. Harrow provides DED patients and their prescribers with a generous access program – to ensure that DED patients who are prescribed VEVYE can get their prescriptions filled. There is more work to do, but we believe we are building a powerful DED franchise and that over time, VEVYE’s market share will continue to grow, giving it a chance to become a category leading prescription DED product.

More good news as we continue to achieve VEVYE Market Access wins, including New York Medicaid and in California, MediCal. MediCal patients now receive VEVYE without a co-pay! Other notable successes include adding Michigan Medicaid (2.2m lives), which began August 1st, and Texas Medicaid (3.4m lives), which will begin August 8th. We anticipate having 100pc Medicaid access by the time we report results for the third quarter. In addition, VEVYE access to commercial payers has now increased to 58pc.

Since VEVYE’s launch in January 2024, despite having a small (but mighty) sales force, a growing number of eyecare professionals have prescribed VEVYE, allowing it to gain market traction quickly. The U.S. DED market is among the largest market opportunities in eyecare, and despite our progress to date, VEVYE’s share is only a tiny percentage of the overall DED prescription market – we’ve barely scratched the surface of what this product can achieve! That said, because of the Harrow team’s outstanding work executing the VEVYE launch (see slide #8 of our updated corporate presentation), positive ongoing prescribing and refilling trends, and market access wins, we opened additional VEVYE territories, expanding our field force to drive growth. This investment is a strategic bet – supported by evidence that the odds of success are heavily in our favor – that VEVYE has a long way to go and will be a major driver of cash flow and stockholder value for many years.

Harrow Inc, Letter to Shareholders, Q2 2024, 7 August 2024

The bottom line for Harrow Inc. is that the company has made dramatic changes and it is going well.

As excited as I am to report on the second quarter, the third quarter has started just as
strongly, and we are well positioned to meet all our targets for the second half of the year.

Harrow Inc, Letter to Shareholders, Q2 2024, 7 August 2024

Strategy

Harrow Inc. is a small, relatively unproven company but it is classic 3G (great chart, great growth, great story) and looks a worthy addition to a growth portfolio.

Share Recommendations

Harrow Inc. HROW. (20 August 2024)

No price as usual these days because I advocate buying now, on strength and into weakness. The shares are hot until they are not.