HROW - NASDAQ

Good morning and welcome to the Harrow Second Quarter 2024 Earnings Conference Call. My name is Josh 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.

Thank you, operator. Good morning, and welcome to Harrow second quarter 2024 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 refers 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.

Thanks Jamie and good morning and welcome to our second quarter 2024 conference call. Hopefully, you've reviewed our earnings release, corporate presentation, and letter to stockholders, all of which are available on the Investor Relations section of our website. As you now know, Harrow achieved record quarterly revenue of $48.9 million, that's a 46% increase over the prior year quarter and a 42% increase over the previous quarter. Every part of our business contributed to these record results. I believe the data, some of which I will share shortly demonstrate that IHEE

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jeffrey Cohen with Ladenburg Thalmann & Company. You may proceed.

Hey, good morning, Mark, how are you?

Good morning, Jeff.

I got some great quotes much appreciated. So a few questions come to mind. So specific on VEVYE. Could you talk about Medicare? I heard you call out the $166 million covered by 58% in Medicaid at 80%. Could you call out Medicare, or is there any commentary there?

Yeah. So we are going through the process of attaining Medicare coverage now. I think when we launched the product, we said that this was going to be an 18-month to 24-month process to get all of the requisite coverage. And we are absolutely pursuing Medicare coverage. We didn't call Medicare coverage out specifically because that's not a part of our coverage universe now. But we are certainly in the process and in an active negotiation process with those plans.

Got it. Okay, perfect. On the commercial side, could you talk about the size or scope of the VEVYE sales force and then maybe give us a general flavor of the overall commercial size now, perhaps FTEs, and then perhaps what kind of '24 growth and '25 growth on that organization you should anticipate?

Yes, so the VEVYE sales force, as I mentioned on the call, we hack up the national geography into specific markets, and we only cover a little over half of those markets with feet on the street. The rest of markets that we don't have discrete individuals covering is covered by our inside sales force. And as I mentioned on the call, they do a fantastic job. However, because of the market access wins that we've had, because of the word sort of spreading, I think, within the ophthalmic community amongst ophthalmologists and optometrists, and the I think, growing interest in VEVYE, we are going to invest in expanding our sales organization. And so the goal is to certainly have all of those markets covered with feet on the street, and I think you should expect that to happen over the coming quarters. It's not going to happen instantaneously. Remember that when we launch products to not only serve our customers and their patients, but to also ensure that we don't get over our schemes financially. And so we've been able to launch products over the years in a profitable way, in a very disciplined way, and we're going to continue to do that over the coming quarters as we fill out our VEVYE sales organization, which has been remarkably productive. The degree to which this team and their leadership have executed is remarkable, and we're really proud of them and grateful for what they've done. But there's a lot left to be done. We've really just scratched the surface, as I said, on the call, and we'll continue to grow the organization in '24 and '25. Andrew, do you want to add to that?

I'll just echo what you said, Mark, about letting sort of the access and revenue drive the sales force and making sure we're not going to get over our schemes. That said, I think I said this on the last call, I love VEVYE. We see so much potential from a revenue standpoint, from a long-term value perspective. The refill rate just continues to perform amazingly well for that product, and as Mark said, the leadership on that sales team is just doing a fantastic job. And so as we make investments, I love making investments in that sales force, and we're looking for ways to do that every day. And so it's going to be an exciting product for us for a long time. And certainly, I know the patients are benefiting and we're excited to increase access and increase the patient availability of the product.

I think the number one patient that you know about is your dear old daddy, Andrew. I mean, your dad is a VEVYE patient who just loves VEVYE.

That's right.

Got it. I got one more quick one on IHEE

Sure. So the supply agreements, to be clear, are licenses to hunt, if you will. These organizations, many of which are backed by private equity groups require that you -- if you want to sell to the entire organization that you contract with the head of the organization. So that's what these agreements allow us to do. They allow us to, in a very friction-free way get into the individual sites that are parts of these organizations, the satellites, if you will, and sell into those organizations. The truth is, though, that you can't get these deals done unless you have folks within these organizations that want the products. And so the reason why we've been able to get the supply agreements over the line is because of the voices, the physician voices within these organizations that want the products, and they have been carrying the torch for certainly IHEE

Super, Mark and Andrew thanks for taking the questions.

Thanks, Jeff.

Thank you. Our next question comes from Chase Knickerbocker with Craig Hallum. You may proceed.

Good morning, Mark and Andrew. Obviously, the quarter speaks for itself, but I want to share my congratulations as well on the execution here. Maybe just first, a couple of specific market access questions for me. Can you just share what you would expect the average co-pay to be for Medicaid patients? And then kind of the same question on commercial co-pays are we still doing kind of $0 on the first prescription speaking on VEVYE, of course. And then maybe speak some of the barriers that might be up on some of those commercial contracts kind of speak to what steps are there in place? Thanks.

Yeah. I'll just comment, and I think it's referenced in the letter of stockholders that we've had some big wins on Medicaid specifically and some very large markets in Texas and certainly in California. As I said in my letter to stockholders, now Medicaid patients have access to VEVYE with zero co-pay. So zero out of pocket, which is fantastic for a market of that size. Andrew, do you want to comment on some additional market access information and specifically any barriers and step-edit.

And just coming more -- a little bit more on the Medicaid side, you know this is state-specific typically on the plans. But as Mark said, the co-pays are generally really low, in some cases, as low as zero dollar, in many cases single digits. So it's a great win for the access team. On the step-edit side, we are seeing some plans requiring that prior authorization. Typically, it's a failed patient on a different product. The good news for us is the market is full of patients that have failed other products. You talked about this in the launch VEVYE that the existing dry eye market kind of lacked a really good product. And so there are a lot of patients that have tried products and failed. And so all that step edited there, there is a large population of patients that have failed other dry eye products. And so our ability to get to the step and get the product paid for us. Is a huge barrier and we're seeing increased wins with even prior authorization approvals.

Got it. That's helpful. And then kind of building off that. How should investors be thinking about Medicare coverage here? Obviously, it's early days, but do you guys have goals for kind of progress there by the end of the year by Midway next? I mean how are you guys thinking about Medicare coverage? And then maybe speak to what you would expect there as far as how your market access team is trying to make that as affordable as possible for Medicare beneficiaries for VEVYE?

Yes. So to be clear, as I said in my prepared remarks, we intend to compete for every single dry eye prescription and to be able to help every single dry eye disease patient in need, and that includes Medicare beneficiaries. So we are in active discussions and have been for quite sometime to be able to serve that patient population. The goal, I think, from the time that we launched the product, we were realistic that it was going to take 18 months to 24 months or so to get all of the coverage in place that we would need for the following many, many years as we grew this product. And so I don't think that there's anything that's changed today from where we had been planning when we launched the product. But we are going after Medicare coverage. We intend to have coverage, hopefully, in the first quarter or so of next year to have that in place. But I can't really comment specifically on how those negotiations are going because these are very competitive markets for that patient population. And as I said, our goal is to be able to serve that patient population, and we intend to aggressively compete for every one of those patients.

Makes sense. And then just maybe on the supply agreements for IHEE

Yes, sure. So the agreements that we have in place now what we haven't done is posted sort of what percentage of the TAM these agreements reflect. And I don't think that we're going to do that. I can give you some additional color and just give you a sense of the scale of some of these agreements. And I'll just give you one data point from the most recent agreement that we signed that I was so excited about to serve the largest retina practice group in the US. That group alone has about 2.1 million patient visits per year, 2.1 million. So this is a very large market opportunity. And I would think that many of those patient visits are connected with the administration of intravitreal injections. So it's a very exciting account. But as I said, we have more than two dozen of these agreements in place now, and we intend to serve those Groups over time. They have -- these agreements have to be phased in, and they will be. And that's, as I said, part of the reason why we're so excited about the coming quarters and the coming years because we really have not yet seen effects financially from the agreements that we've been able to get in place, but that will happen.

Got it. And then just last for me, I'll hop back in queue. Sorry for so many here. But assuming everything goes right, Mark, when would you expect to relaunch TRIESENCE this year, assuming kind of everything goes smoothly with these on in-process batch in the next -- the third one here. And then the 100,000 units is kind of what I have was kind of previously here in the TRIESENCE market before all the supply constraints. How are you thinking about penetrating that kind of original opportunity in the first couple of quarters after launch?

Yes. So the timing on TRIESENCE, as I said, we're going to be making the third batch next week. It's scheduled for next week, which is amazing. And boy, do I want to thank the team that has been working so diligently for about a year to get us to this point. So they've done an incredible job. And the reason why we've scheduled the third batch is because all of the indications so far is that we've been successful with the second batch. We don't have all of the data, but we have a lot of the data, and we're pretty positive on the balance of the data that we expect to get here in the coming days. In terms of when we might be able to relaunch that product assuming that we're successful with the third batch. It does take somewhere between 30, and it has taken as long as 60 days to get validated analytical test results from a batch. And so it's very easy to look at the calendar and say, "Hey, if they're doing this in the middle of August and even if it takes two months, and I've said in the letter that it takes about 30 days to do all the paperwork, you can see that sometime in the fourth quarter of all those well, we'll be able to relaunch this product. What I'm most excited about beyond having inventory finally of this product is the feedback that I received from retina specialists and ASRS about TRIESENCE. We had meetings with these folks about programs that we were considering working on and many of these programs got a big thumbs down. These retina specialists don't consider that or here's why I wouldn't work on that. But when we talk to them about TRIESENCE, there was -- and I have to -- normally, you don't want to say all, the word -- we use the word all, but I would say that all retina specialists that we spoke to, and I spoke to probably 15 high-level folks, everyone was really excited to have TRIESENCE back in the market. And so, I'm very confident that we're going to be able to sell all that we can produce for quite a long time. Right now, we're very busy not only preparing for the preparation of this third batch, but also working with our contract manufacturer to schedule additional batches this year and into the first half of next year based on our internal forecast for the product. So, TRIESENCE a winner, the market wants TRIESENCE, and we've got some really exciting plans for TRIESENCE not only hopefully for this year, but for several years to come to develop the TRIESENCE brand.

Thanks Mark. Congrats again.

Thanks Chase.

Thank you. Our next question comes from Mayank Mamtani with B. Riley Securities. You may proceed.

Good morning, team. Congrats on a strong quarter and thanks for taking the question. So before we go into the three growth products, could you just maybe help us understand that 40% growth quarter-over-quarter in the Anterior product business?

Well, there's not much to say other than that portfolio of products, which we acquired from Santen and Novartis, so those two transactions that we did make up that portfolio. And as you recall, we, I think, got a pretty good deal when we acquired those products, and our goal was to stabilize them. They have been falling in terms of their revenues for many years before we got involved. And I think not only were we trying to stabilize things but get them back into a growth position. And the thesis was that if we could do that, given the price that we paid and given the long-term need for these products that we would have a financial winner and that we would be able to serve our customers with a very broad portfolio of an amazing toolkit for ophthalmologists and optometrists for many years to come and make a lot of friends in the ophthalmic community with these products to make sure they had access to them. And so that's what we've done. I think we've met our promise there. These products have certainly stabilized. And in fact, from the first quarter to the second quarter, as we said, we had over 40% growth. And to be candid with you, as Andrew told me the other day, the third quarter is looking really good, too. So, this is turning out to be a very positive transaction. And I think is in keeping with the other transactions that we were able to complete five transactions over the course of a couple of years. I think all of them have worked out really well for our stockholders.

Yes. No, that's great to hear. And then on IHEE

Yes. In terms of the retro activity, I wouldn't make a big deal out of that. That's mainly a benefit for our customers to be able to ensure that any issues with Billy that were in the past are kind of cleaned up. And that's a good thing from a credibility perspective from us -- for us, rather. And in terms of bilateral versus unilateral, this is a really big point to make because it's simple math that if you are selling an account 2,000 units a year, and they're only using IHEE

Yes. No, absolutely looking forward to the penetration trends, including through the course of this year. And I know you're not going to comment on the proportion of contribution to guidance for IHEE

Sure. So to be clear, whether it's VEVYE or IHEE

Yes, I can add a little color. Earlier on the call, Mark, you mentioned my father was on VEVYE. I was there when he first look and to see him who he's suffered from all sorts of eye diseases, including terrible dry eye, and he's tried all of the products. I remember still him putting that drop in inside the first drop, and he looked at him and he said, wow, and it's really helped him as a patient, and it's really, I think, changes lights quality life. And that's one of the reasons we're seeing these refills is -- there isn't -- there has not been a dry eye product on the market that generates this type of benefit. And so I think you'll continue to see refill rates climb, as Mark said, we'll see more and more refill be a part of the TRx number, but we'll continue to see interactions and we'll continue to drive NRxs in the new prescriptions. In regards to pricing, too, one of the great things about the market access program is we're focused on making money. And so, as we get these market access wins, we should see ASP improves. We've got a really generous program right now to make sure we're getting patients on therapy. But overall, the market access program is executing. We're getting wins. And so we should start seeing ASP get a little better on that product as well. And importantly, the refill rates as those increase, we'll continue to see ASP go up as well as a lot of those people have gone through the prior authorization process, and now they're getting a lot of their claims paid for -- a lot of the claims for VEVYE paid for. So, all good things for VEVYE and that’s probably the product I'm most excited about, and that tells you how great product is because IHEE

Great. And my final question about your ASRS Meeting at Stockholm. You identified, I believe, some additional strategic opportunities that you're getting to be on the table for now that you have a bigger brand in eye care. Could you just talk to how you plan to prosecute these and obviously, balance against the laser-focus that you have with the current product portfolio? And congrats again, thanks for taking my questions.

Thank you, Mike. Yes, as I said in the letter, we continue to be on the hunt for wonderful products with great economics that will allow us to serve our customers. We want to be an important company, not only to the ophthalmic a community, at large, but really to these doctors in their offices, we want to be a contributor to the staff in these offices by giving them products that make their job easier that get paid for, that don't create prior authorization nightmare. So, we're looking for products that will allow us to build the persona in ophthalmology as an ophthalmic pharmaceutical company that we can be proud of that our stockholders can be proud of, that the people who work at Harrow can be proud of. And so there are great products out there, and there are also a lot of duds and Andrew and I have our fingerprints on all of these deals. We work on them together very actively and we're always on the hunt for things that can help us reach our goals. But as you know, we're not going to overpay. We're not going to get overly excited about something and put ourselves in a financially perilous position. So, we have a history of doing deals, I think, that is very positive. I think if you look at the five deals that we've done in the last couple of years, we've been able to generate a tremendous amount of value for our stockholders. And so we are convinced that there are deals out there to be done and we're actively looking at many of them, and we have a lot to offer to partners. I want to -- I'll close with that because if you look at our history, whether it's an Anterior Segment product or whether it's a product being sold into the Posterior segment, our commercial organization is a winner. I mean these people know how to get the ball over the line. They know how to score points. They know how to get things done. And so to a potential partner, we have a lot of credibility, certainly more credibility than we've ever had, which allows us to speak to potential partners and sort of with credibility and to, I think, get better terms or more reasonable terms that involve more back end or less front end. But we're actively looking, and we'll see what we're able to get done. The main focus, though, to be clear, at Hero is executing on what we have. We have an amazing portfolio. 17 branded products, now the number one compounded franchise in the US. So we've got a lot going for us now. We've got a lot to do day-in and day-out. But if there's a chance to buy something that we believe is worth $1 and we can pay a dime for it upfront, we're going to certainly take a hard look at that.

Makes a lot of sense. Thank you...

Thank you, Mayank.

Thank you. Our next question comes from Brooks O'Neil with Lake Street Capital Markets. You may proceed.

Good morning, all. Thanks for taking my questions. I'm going to focus on two things. One, I noticed in the shareholder letter, I think I did -- I read it late last night, but I think you said around $11 million of revenue in the quarter from IHEE

Yeah, thank you for the Brooks. Yeah. In the corporate deck, we actually lay out what the reorder rate is, specifically for IHEE

Like you say 87% is a very impressive number at this stage of the rollout and with 1% of the market, I can even do the math to figure out what the opportunity is and it looks quite large. So my second and last question is just curious about this. Obviously, many times, we see Medicare come through commercial payers come through before Medicaid. It's my experience that our friends and state government are not always the most proactive players. Is there any reason you have been so successful in establishing VEVYE in the Medicaid market? I mean, is there anything you need to Medicaid patients in terms of their proclivity or incidence of dry eye disease? Or what do you think is driving that on the Medicaid side? And I'm guessing that over time, there's a big opportunity in Medicare and commercial as well.

Yes. So in terms of what's driving Medicaid, look, I have to say that our market access team deserves a lot of credit from the leadership on down. And so I want to give them that credit because they're the ones when I walk back to Rob's office, he's got a big smile on his face because he's got a big win. I mean he just loves this stuff. He's a competitive guy, and he loves getting these wins and he is getting them. And I think it's going to get a lot more. As I said, we're going to have 100% of Medicaid by the time of our next quarterly report. That's what we expect. But as Andrew said, a few moments ago, we have to be profitable. So when we contract, we have to do that in a way that allows us to earn a profit, we take our time. We don't do launch extravaganzas with hundreds and hundreds of reps just right out of the gate. We are patient, and we are deliberate and we're disciplined. And that's the way we do things here. And that's the way we built this business over the last 10-plus years, and that's the way we'll continue to do that. Medicaid, though, is a big, big success for us. We will get Medicare. I do believe certainly this time next year, you'll see that coverage hopefully in place. But we're patient, and we're going to get the right deals done. And ultimately, I think we're going to be able to serve this patient population that will benefit tremendously from VEVYE.

That's great. I have one last question, and I appreciate you taking my questions. It's my sense that in both -- in the case of both IHEE

Well, I mean we look at our portfolio, on the compounded side, we have medications that are prescribed for patients that suffer they're incredibly affordable, they're preservative free. The value there is tremendous. That's certainly a chronic condition, although these are compounded products, they're not FDA approved. If you look throughout our portfolio, we own Vigamox. Vigamox is an incredible product. And the entire here the portfolio is a tremendous tool kit for ophthalmologists and optometrists. And as I said, it creates a lot of friends when they need these products. And many of them are not big products. They're small market products. And big companies, sometimes for small market products, ignore them. And in many cases, they become unavailable. They go on drug shortage. And so that's not what we're going to do. We're going to continue to make these products available to ophthalmologists and optometrists. We're going to do our darndest to make sure that we control pricing so that they're accessible and affordable. Sometimes, we have to raise price from time to time. But believe it or not, and I'm probably going to talk about this on our next earnings call. In many cases, we lower prices. And we've got some examples of that -- that we're going to share. Since when do you hear about pharmaceutical companies actually lowering prices? We've raised a few to be sure, but we're lowering others. And the goal ultimately is to have a balanced portfolio for acute care needs, chronic care needs and to ultimately be an amazing partner, a reliable, trusted partner to the ophthalmic community. And that's what we're doing with this portfolio. In terms of the market opportunity for IHEE

Great. Thank you very much.

Thank you. I would now like to turn the call back over to Mark Baum for any closing remarks.

Hello.

I'd like to turn the call back over to Mark Baum for any closing remarks.

Hello?

We can hear you Mark.

Operator any more questions?

No questions. I would like to turn the call back over to you for any closing remarks.

Terrific. So thanks, again. We're, as you can tell, I think, enthusiastic about the second half of the year. The progress that we discussed is years in the making, and it comes from the efforts of a dedicated team at Harrow. I want to thank all of them, our stockholders, our customers and the entire Harrow family for their contributions and getting us to this place. As a reminder, if you have any investor-related questions, please e-mail Jamie Webb at [email protected]. Thank you. And this will conclude our call.