Harrow Health, Inc. (NASDAQ:HROW) Q2 2023 Earnings Call Transcript

Harrow Health, Inc. (NASDAQ:HROW) Q2 2023 Earnings Call Transcript August 9, 2023

Harrow Health, Inc. misses on earnings expectations. Reported EPS is $-0.02 EPS, expectations were $-0.00571.

Operator: Good afternoon, and welcome to Harrow’s Second Quarter 2023 Earnings Conference Call. My name is Kate, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Jamie Webb, Director of Communications and Investor Relations for Harrow. Please go ahead.

Jamie Webb: Thank you, operator. Good afternoon, and welcome to Harrow’s second quarter 2023 earnings conference call. Before we begin today, let me remind you that the company’s remarks may include forward-looking statements within the meaning of federal securities laws. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Harrow’s control, including risks and uncertainties described from time to time in its SEC filings, such as the risks and uncertainties related to the company’s ability to make commercially available its FDA-approved products and compounded formulations and technologies, and FDA approval of certain drug candidates in a timely manner or at all. For a list and description of those risks and uncertainties, please see the Risk Factors section of the company’s most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.

Harrow’s results may differ materially from those projected. Harrow disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of today. Additionally, Harrow refer to non-GAAP financial metrics specifically adjusted EBITDA and/or adjusted earnings as well as core results such as core gross margin, core net income and core diluted net income per share. A reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company’s earnings release and letter to stockholders, both of which are available on the website.

By now, you should have received a copy of the earnings press release. If you have not received a copy please go to the Investor Relations page of the company’s website www.harrow.com. Joining me on today’s call are Harrow’s Chief Executive Officer, Mark L. Baum; and Harrow’s Chief Financial Officer Andrew Boll. With that, I’d like to turn the call over to Mark to go over some prepared remarks prior to the question-and-answer session.

Mark L. Baum: Thanks, Jamie, and thanks to everyone for joining us on today’s call. As always, I would recommend that you review our second quarter 2023 earnings release corporate, presentation and letter to stockholders all of which have been posted to the Investor Relations section of our corporate website. These documents are important to review as we continue to use our time on these calls to provide color on the operational highlights from the quarter and of course taking your questions. To begin based on our results to-date, we remain confident in our 2023 financial guidance of $135 million to $143 million in net revenues and $44 million to $50 million in adjusted EBITDA. We intend to provide an update to our financial guidance later in the year after a few months of operations with our recently launched and newly acquired branded products.

As I said in my stockholder letter what a difference a few months makes. Since our last quarterly earnings call, we’ve added numerous products to our portfolio, including substantially all of the products in the North American Santen ophthalmic pharmaceutical portfolio as well as VEVYE from Novaliq. This is on top of the Fab Five portfolio we acquired from Novartis and closed on in the first quarter of 2023. Through the Santen acquisition, we acquired the rights to five branded prescription products and one OTC product for the US market as well as Canadian rights to one branded prescription product and one OTC product. Demand trends for all of the Santen products are positive and most assets have IP through 2028 or beyond. We expect this transaction to be immediately accretive to earnings following the NDA -New Drug Application or MA – Marketing Authorization transfers which we are currently working on.

Now under the Novaliq transaction, we acquired the North American rights to FDA-approved VEVYE, the first and only cyclosporine-based product indicated for both signs and symptoms of dry eye disease. VEVYE is based on Novaliq’s proprietary water-free EyeSol technology. In my view Novaliq through EyeSol has essentially reinvented the eye drop. I have put water-free Novaliq products on my eye and they feel completely different. Almost like a puff of air is hitting your eye. In fact my experience is that you barely know the drop has hit your eye. It’s a totally unique feel that I believe prescribers and patients will love. Those who have followed Harrow’s growth and development know that we have been keenly interested in and have studied the dry eye space for many years.

My view is that the US dry eye market will consist of two camps. On the one side, you’ll have products from what I’m calling the water world. And on the other side you’ll have products from the water-free world. Based on what I have seen in the data and my experience putting an EyeSol-based product on my eye I am 100% all in as a water-free believer. I believe it will be challenging to sell what I am calling water world products when the water-free options are soon available. We believe VEVYE can be a game changer, not only because of EyeSol technology, but also because VEVYE contains a 0.1% concentration of the immunosuppressant cyclosporine. And no other active pharmaceutical ingredient has been prescribed to treat dry eye disease globally and in the United States more than cyclosporine.

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It is the number one most prescribed active pharmaceutical ingredient for this patient population. Before VEVYE though, the product profiles for cyclosporine-based products are challenging. You can review Slide 10 of our corporate deck, which is on our website for a label comparison of these products. You’ll get a sense of what dry eye patients and their prescribers have been dealing with these legacy products for many years. We believe US prescribers want a cyclosporine-based dry eye formulation with a new product profile and that’s what VEVYE delivers. VEVYE offers exceptional patient comfort provides rapid clinical onset of 29 days. It has an extraordinarily mild, adverse event profile and data has shown that it continues to help patients with both signs and symptoms of dry eye disease out to one year.

As I said in my letter to stockholders, I view the US dry eye market is totally wide open and this is despite the handful or so of products that are currently approved and others that are in development. The market is large and growing and includes over 16-plus million diagnosed dry eye disease patients, of which about nine million are diagnosed with moderate to severe disease for a number of reasons including the suboptimal profiles of the existing prescription choices which by the way still do over $1 billion in annual revenue in the US market alone, only about 10% of the patient population, the dry eye patient population is benefiting from a prescription dry eye therapy. And we intend to upend the US dry eye market by providing this new choice VEVYE to those dry eye patients who have tried and failed one or more of the existing dry eye prescription products.

But we also want to increase the overall pool of diagnosed patients who are on a prescription therapy, who can benefit from a prescription therapy, importantly because of VEVYE’s unique, comfort and efficacy of attributes, we believe a meaningful number of VEVYE patients will also choose to maintain VEVYE therapy to treat their disease. With VEVYE and the other adjacent ocular surface disease products we now own including Freshkote, Tobradex ST and Flarex, Harrow is planting a flag in the US dry eye and ocular surface disease markets and we intend to compete vigorously to win meaningful market share and ultimately help millions of suffering American dry eye disease patients. And of course, we remain resolutely focused on and excited about IHEEZO which we officially launched in May of this year at the American Society of Cataract and Refractive Surgeons Annual Meeting in San Diego.

While it is still very early in its launch, we are encouraged, especially given the math on the IHEEZO market opportunity which is very straightforward. There are two main anesthetic use cases for IHEEZO. One, for surgical interventions such as cataracts or glaucoma surgery and retina procedures all of which take place in a hospital or an outpatient setting of care. And then secondly, an intervention in a physician’s office such as an intravitreal injection. We estimate that in the aggregate there are more than 12 million such use cases in the US each year. And we were granted a product-specific J-code that’s J2403 for all such use cases and the current wholesale acquisition cost or WAC pricing on IHEEZO is $544 per unit. The positive feedback we’re getting from early adopters of IHEEZO on its clinical value is adding to our enthusiasm about the product.

IHEEZO just works and it works well. IHEEZO users have indicated that there are even more potential applications than we had previously anticipated that eye care professionals are even eliminating opioids from many of their surgeries and that IHEEZO is getting reimbursed in both the ambulatory surgery center setting of care as well as for in-office applications as well that second setting of care. In summary, we’ve been hard at work building a company that we believe with the current Harrow product portfolio and continued execution by the Harrow team can become a top-tier US-focused ophthalmic pharmaceutical company. We now believe that we have five discrete what I call revenue buckets with 9-figure annual revenue potential. These revenue buckets which are described in full detail in our stockholders’ letter include Bucket 1 just IHEEZO.

Bucket two is our dry eye disease and other ocular surface conditions bucket which is led by VEVYE. Bucket three has one product TRIESENCE. Bucket four consists of our specialty anterior segment products. And Bucket five is our tried and improved cornerstone ImprimisRx Compounded Pharmaceutical Products business. So those are the five buckets as I said more fully described in our stockholder letter. Some of the revenue buckets consist of a single product and others contain groups of products. I believe IHEEZO and VEVYE are our largest revenue opportunities without question. That said they are also new sources of revenue with IHEESO only launched a few months ago and VEVYE expected to launch later in the year. Regardless of the exact timing of the start and steady build of revenue flow from these two exciting products the key is that number one Harrow now has them both.

And two, we have an incredibly strong conviction of market need and ultimately market acceptance of both products. And of course now, we have one of the most comprehensive ophthalmic portfolios of products in the US market a position we always wanted to be in and a position that we now are in. We’re happy to take your questions. I’ll pause to have our operator poll for questions. Operator?

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Q&A Session

Operator: [Operator Instructions] The first question is from Jeffrey Cohen of Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen: Hi, Jamie, Mark and Andrew. How are you?

Mark L. Baum: Great, great. Good to speak with you Jeff.

Jeffrey Cohen: I know, it’s been a while. So just a few questions from our end. Maybe could you just expand a little bit and clarify I guess Andrew on the core versus the regular on the margin front? Is the core the historical products up to recent and then the other gross margin number includes all the recent additions?

Andrew Boll: Yeah. Hey, Jeff thanks for the question. So on the core we’ve got a pretty good reconciliation table on the back of the shareholder letter. But the basic difference between core and GAAP on gross margin is the amortization of those NDAs. So the non-cash amortization of the capitalized purchase price of the Fab Five products primarily. And there are a couple of other capitalized expenses that we’re amortizing through cost of goods sold. And so that amortization is reflected in the GAAP number. The core number we’re pulling that amortization out.

Jeffrey Cohen: Okay. Got it. And Mark any specific commentary on the IHEEZO launch thus far from April as far as physician acceptance and any relevant bullet points to communicate thus far?

Mark L. Baum: No, I think the color that’s provided in the letter to stockholders on IHEEZO is fairly detailed. I mentioned in my prepared remarks that the performance of the product has been exceptional. We haven’t had anyone who has use the product say that it doesn’t perform exceptionally well. So people who try the product like the product. With a product like IHEEZO and you have such a large market opportunity, the real key is reimbursement and actually getting claims paid. That was sort of the last piece of the IHEEZO puzzle. We recognize that, we’re not going to win over every customer account. We’re not going to win every unit opportunity. But given the total number of unit opportunities even winning a very small percentage of those creates a tremendous amount of value for our stockholders and for the company.

And so we’re really pleased now that the doctors who are using it, we’re seeing them get reimbursed not only in the ASC setting of care the hospital study of care, but also in the for the in-office setting of care. And so these are intravitreal injections. And the in-office setting of care our permanent J-code is powerful. And so that, was sort of the last piece of the reimbursement puzzle for us. And I’m really, really pleased that the reports back from retina doctors are very positive. Just got one actually earlier today. So we’re seeing claims paid for commercial payers Medicare of course and then also Advantage. So Medicare Advantage plans. So, really excited about the payment side of it. The product is performing really well. And as I said, I gave an analogy in the letter to stockholders about my old Blackberry that I used 15 years ago and said hey, when I had my BlackBerry I love the texting features.

The phone was good. The camera was good and had great access to my e-mail. I probably would not have been interested in the iPhone this thing called the iPhone. But of course, once I experience the benefits of the iPhone I never went back to the BlackBerry. And we’re seeing that same sort of pattern happened for users of IHEEZO. Doctors are thinking about their old way of doing anesthesia ocular anesthesia, and they’re seeing I think a better way to do it. And of course we’re the only reimbursable topical anesthetic in the US market which I think is a boon for the product.

Jeffrey Cohen: Got it. And then lastly for us, could you bring us up to speed on how the commercial team currently looks as far as total FTEs and maybe demographic presence and then tie that into the recent acquisitions to Santen portfolios and VEVYE, and if they came with any commercial folks and how they would be integrated?