Harrow Health, Inc. (NASDAQ:HROW) Q4 2023 Earnings Call Transcript

Harrow Health, Inc. (NASDAQ:HROW) Q4 2023 Earnings Call Transcript March 20, 2024

Harrow Health, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to Harrow’s Fourth Quarter and Year-End 2023 Earnings Conference Call. My name is Drew, 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. [Operator Instructions]. I would now like to turn the call over to Jamie Webb, Director of Communications and Investor Relations for Harrow.

Jamie Webb: Thank you, operator. Good morning, and welcome to Harrow’s fourth quarter and year-end 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 will 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 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. I wanted to first address the change in timings for our earnings release and conference calls. We believed it was in the best interest of our analysts and investors to extend the amount of time between when we issued our earnings release and hosted our calls. We hoped this would allow more time to digest the results and read through our corporate presentation and my letter to stockholders prior to the call. We hope you have found this timing change helpful. So if you’re on this call, I assume you’ve reviewed these materials, and I’ll use this time to augment your understanding through some high-level commentary. 2023, which is now more than 75 days in the rearview mirror was a transformative year for Harrow.

It was a transformation that was four years in the making, all of which I pointed out in my letter to stockholders when I quoted what I said about four years ago in 2020, when we were hatching our plan to become a leading North American ophthalmic pharmaceutical business. Here are a few of the 2023 fruits of that plan. Number one, we achieved record revenues with 2023 revenues increasing 47% over 2022 revenues. Two, adjusted EBITDA more than doubled in 2023 from 2022. Three, the addition of numerous high-utility ophthalmic pharmaceutical products to our portfolio. Four, beginning to generate cash flow from our big three products, IHEEZO, VEVYE and Triesence, which made up our most significant short-term and long-term financial drivers. And finally, delivering $8.7 million in cash from operating activities in the fourth quarter of last year and delivering our second consecutive year of positive cash flow from operations.

You see we strengthened our balance sheet last year, especially our cash position, ending the year with $83 million in cash and cash equivalents, and this includes our position in pharmaceuticals. We expect our cash pile to continue to grow over the coming years. Equally important, we fortified our talent base, adding new members to the Harrow family, professionals with the experience, commercial relationships and fresh perspectives to further enhance our transformation. I have highlighted the names of a few of these folks in both the letter to stockholders and the new Harrow corporate deck. Our stockholders have been asking us for more granularity around our quarterly results. They want to know why we’re so bullish on our company and the growth trajectory we see in front of us.

In this cycle, I’ve tried to provide more granularity. This detailed information highlights, among other things, the amazing success we’ve had with our VEVYE launch. Based on our success to date, I am convinced that VEVYE has the potential to dominate the large U.S. chronic dry eye disease market as the leading cyclosporine and anti-inflammatory product. The VEVYE adoption curve, driven by our small but mighty sales force speaks volumes as does the positive feedback about VEVYE from actual patients on social media. I would encourage you to think about the size of the cyclosporine market alone in the United States. It was about 8 million units last year. Without question, cyclosporine is the number one most trusted active ingredient for U.S. dry eye disease patients.

Eye care professionals trust cyclosporine. Payers, trust cyclosporine. Patients trust cyclosporine. You see the VEVYE train is rolling with all of our key performance metrics moving in the right direction. In fact, the CEO of SILAREX, our specialty pharmacy partner, recently told me that VEVYE has been one of, if not the most successful launches he has seen. Mark by word, VEVYE will significantly benefit millions of U.S. dry eye disease patients and generate substantial value for Harrow stockholders over a very long period. I also discussed our progress in manufacturing Triesence, including a production batch, which is set for next month. This is a PPQ batch, and to the extent that we’re successful meeting all of the parameters would become a commercial batch.

I talk about the number of units we expect to have available for sale when Triesence is eventually reintroduced into the market. I also lay out the expected addressable market in terms of unit volume and our new pricing, which combined make clear why we believe Triesence should be a multi-9-figure revenue product, and hopefully soon. I hit on the continued uptake of IHEEZO since its May 2023 launch and news about the recent publication by CMS of the IHEEZO ASP, or average selling price in the physician’s ASP file. This is something that we had previously requested from CMS and that was not acted upon until soon after we met with them on January 9th of this year. I also talk about the return of ImprimisRx to its previous growth trajectory, fulfilling our performance promise that I made in our last stockholders’ letter.

I also included quotes from actual users of our product. You see in recent conversations with fellow stockholders, I’ve noted the reliance on opinions of so-called key opinion leaders, or KOLs, who, upon my further investigation, it actually not used our products. I thought it was important for you to hear from ophthalmologists and optometrists who with 100% certainty have actually used our products. I also want to mention that it’s never been a better time to be a Harrow stockholder. I say this because of the amazing progress we made in 2023, and because of what is right in front of us, right in front of our eyes, a clear pathway to achieving our goals, including significant revenue and profitability growth, ultimately making us a leading strategic North American ophthalmic pharmaceutical company.

Finally, as both a Harrow stockholder and a Senior Executive at this company, I continue to be perfectly fine eating my own cookie. I have never sold a share of Harrow stock, and I do not plan to do so. In fact, recently, I purchased Harrow shares. In fact, three times in the past 12 months, precisely because I believe in Harrow’s long-term value and because the shares have been available at an attractive price. We are now happy to answer your questions. I will pause to have our operator poll for questions. Operator?

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Q&A Session

Operator: [Operator Instructions]. The first question comes from Mayank Mamtani with B. Riley Securities. Please go ahead.

Mayank Mamtani: Hi, good morning team. Thanks for taking our questions and appreciate the granularity provided to both 4Q results and the forward-looking outlook. Maybe just on the 2024 guide and also the longer-term 2027 number that you put out. Are you able to give some breakdown on the incremental contribution you are reviewing there between your three growth drivers, IHEEZO, Triesence and VEVYE? And also relatedly, I notice you didn’t give EBITDA guidance forward-looking, it could help to understand how you’re thinking of spend in 2024? And then I have a couple of quick follow-ups.

Mark L. Baum: Thank you, Mayank. Yes. So look, we’re standing behind the better than $180 million in revenue guidance that we put out for 2024. We don’t guide by product. The one comment that I’ll make is what I think is the 800-pound animal in the room, and that is what we put out today in our Form 8-K filing and the confirmation from CMS that in fact, IHEEZO will be paid for separately in the physician’s office setting is, without a question the most positive consequential event, I think, that has happened to our company since I founded it with Andrew back in 2011. So this is a very big event. It certainly supports our confidence in our guidance, which is a number greater than $180 million. But once again, we’re not going to guide by product.

But we’re very excited about what we put out today in the Form 8-K. It’s something that happened yesterday afternoon about 2 o’clock Central. It kind of hit us with a very, very positive surprise. But it certainly gives us far greater confidence in our guidance. In terms of our spend in 2024, Andrew, do you want to kind of talk about our approach with some of the spend in the fourth quarter of maybe 2023 and how we’re thinking about 2024, especially in light of what we put out in the 8-K this morning?

Andrew R. Boll: Yes, I will Mark. Thanks for the question. And you can kind of see some of the expense infrastructure changing in the Q4 numbers. In November, we just started to make a shift in our plans or VEVYE and its launch. This resulted in a much heavier spend on the sales and marketing effort than we initially planned for. In the K, you can kind of read year-over-year. We added about 100 new employees. A vast majority of those were coming — or came in during the fourth quarter and were really tied to the VEVYE launch on the commercial side. And so a lot of that expense is going to obviously continue into 2024. One of the reasons we’re not giving specific EBITDA guidance is as revenues grow, we’ll invest in the operating expense.

We’ll invest in the sales and marketing efforts to further revenue growth. That said, we have a leverage ratio number that we want to get to, which is being — having a leverage ratio of less than five times. And so we’re focused on that. But at the same time, we’re going to be focused on growing revenues and accelerating revenue growth in these product areas, but we see an opportunity to invest further on the sales and marketing side, like Mark said, IHEEZO is a great example. Now we’ve got this great outcome with CMS. It’s time to invest more heavily on the sales and marketing efforts there and really kind of put the foot to the ground and try to grow revenues.

Mark L. Baum: Yes, I’ll add one further comment to that, and we said this in our Form 10-K, which we filed, you obviously know, and this kind of hits on one of the points Andrew made related to Oaktree, who is our senior lender, and you probably know that they can receive warrants if our leverage ratio exceeds five times in 2024. And I think both Andrew and I have a far greater confidence, but as a result of the Form 8-K that was filed this morning, we sincerely doubt that our friends at Oaktree will be receiving any warrants under our agreement with them.

Mayank Mamtani: Yes. That’s very helpful color, thank you. And on the cyber-attack issue in February, could you just clarify if that is you need to Harrow? Also, what visibility you have on utility of IHEEZO in year-to-date and expectation for that segment to expand, including, I think you made some reference for the bilateral IVT procedures, is that sort of organic demand you’re getting from these retina specialists as they’re using more injections on both eyes that you can have separate billing for two units versus one unit/ And maybe one final question on VEVYE.

Mark L. Baum: What was the first part, Mayank, I missed it.

Mayank Mamtani: The cyber-attack issue, whether that is unique to Harrow or that’s a broader pharma wide issue of processing claims right now?

Mark L. Baum: Sure, yes. So the issue with Change Healthcare has affected numerous companies, including us, that sell not only Part D as in David products, but also Part B is and Bravo products. So the system is still sort of being unclogged. And the Change Healthcare issue has affected payments to our customers from the government. And this has affected our sales temporarily in the first quarter, but we are seeing evidence of the systems beginning to be unclogged. We expect recovery and full normalization in the second quarter. But this is an issue, the cyber-attack that has affected us, but it has affected many, many companies who sell into the pharma market. In terms of retina, the reason why we went to CMS, and I talked about this in our last letter to stockholders is because there was uptake in the retina market.