Good afternoon, and welcome to Harrow Health’s Q1 2022 Earnings Conference Call. My name is Allison, and I will be your conference operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-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 Health..

Thank you, operator. Good afternoon, and welcome to Harrow Health’s first quarter 2022 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 Health’s control, including risks and uncertainties described from 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 Health’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.harrowinc.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.

Andrew is going to get things started with a short discussion of our new financial metrics, Andrew?.

Good afternoon. And as Jamie mentioned, we are reporting new non-GAAP figures called core results which are included in our earnings release and letter to stockholders. We expect these figures to be included in future disclosures as well.

Before Mark begins his discussion about the quarter, I want to briefly explain our intent with providing these metrics, which is to provide the investing community more transparency and clarity regarding the earnings of our principal revenue generating business.

In short, our core gross margins are basically GAAP gross margins, but with a non-cash add back for intangible asset amortization expenses, which for us is primarily related to the amortization of the branded drug NDAs we acquired at the end of last year.

Our core net income and core diluted net income per share metrics include add backs for intangible asset amortization, such as the NDAs I just mentioned; investment losses and gains, such as those we incur each quarter related to our equity method investment Melt and the mark to market fair value of our Eaton position, along with one-time extraordinary gains and losses, such as the gain we recorded last year related to the forgiveness of our PPP loan.

In the future, as we grow both organically and, potentially, through additional acquisitions, which may involve the amortization of NDAs, for example, our hope is these new metrics allow investors a useful, and to a certain extent, a more precise insight into our core business; how we performed operationally, and how best to assess future earnings.

With that explanation, I’ll now hand things off to Mark to jump into the quarter..

And thanks, Andrew, and thanks to everyone for joining us on today’s call.

Before I get started, as I usually do, I ask that you please consider reviewing our first quarter 2022 earnings release, corporate presentation, and letter to stockholders, all of which were posted on the investor relations section of our website just after the close of trading today.

With that said, I’d like to provide some highlights of our results for the first quarter ended March 31, 2022 and then we’ll jump into the Q&A. Our first quarter financial and operational results have validated our belief that 2022 will be a breakout year for Harrow Health.

During the first quarter, not only did revenues increase 43% over the prior year quarter to $22.1 million, but they also increased nearly 10% over the sequential quarter, making the first quarter of 2022, our seventh consecutive quarter of records in many key financial metrics. First quarter gross profit was a record $60.2 million.

That’s a 38% increase over gross profit for the year earlier period of $11.7 million, and a 7% increase over the sequential fourth quarter of 2021. Core gross margin for the first quarter of 2022 was 75%, compared with prior year’s 76%. Adjusted EBITDA was $4.9 million for the first quarter of 2022, compared with $4.3 million in the prior year period.

Core net income was $713,000 for the first quarter of 2022, compared with core net income of $2.4 million in the first quarter of 2021. Core diluted net income per share for the first quarter of 2022 was $0.03, compared with $0.09 during the same period last year.

Operationally, we are all hands on deck, preparing for the re-launch in June of our newly acquired branded products and the launch of AMP-100 in early to mid 2023. In this regard, we have been investing in our commercial and distribution infrastructure, acquiring key talent and integrating new technologies into our IT platform.

Rest assured that this team will be ready to launch AMP-100, provided we get approval on our PDUFA target action date of October 16 of this year.

As I mentioned on the last few conference calls, I believe that within 24 months of FDA approval for AMP-100 revenues from branded pharmaceutical products should eclipse revenues from our compounded pharmaceutical products.

And that’s not because sales or the ladder will be falling off a cliff, rather to the contrary, we expect them to continue to grow as they have for the past eight years straight.

I also anticipate that our gross margins from these branded pharmaceutical products will be larger than from our compounded pharmaceutical products, resulting in overall gross margins floating higher.

I also want to mention at this time that we continue to be on the hunt for additional products to add to our portfolio of exciting ophthalmology, formulations and products. In fact, we are currently engaged in a handful of potential transactions there are at various stages.

And while I cannot guarantee completion of any specific deal, we remain excited that potential partners seem highly motivated to work with us and leverage the Harrow commercial and distribution platform within the ophthalmic pharmaceutical space. We continue to see strong organic growth.

And as we approach October 16, 2022 PDUFA date, the opportunity presented by the launch of AMP-100, It just speaks for itself, a potentially reimbursable product for a market that exceeds 12 million procedures annually and which Harrow has today a meaningful commercial presence.

In addition to AMP-100, we expect growth from other initiatives that are underway, the re-launch of IOPIDINE, MAXITROL and MOXEZA, the continued development of MAQ-100, following a planned meeting with the FDA to finalize our development strategy and the launch of several internally developed product families that address large unmet needs in the ophthalmic pharmaceutical space.

And if that wasn’t enough, both Surface and Melt are slated to produce major value milestones soon and Eaton Pharmaceuticals, of which we own 2 million shares, is seriously starting to gain commercial traction. Now, let’s take your questions. I will pause to have our operator poll for questions.

Operator?.

[Operator Instructions] Our first question today we’ll come from Jeffrey Cohen of Ladenburg Thalmann. Please go ahead..

Hi, this is actually Destiny on for Jeff. Thank you for taking our questions.

To start maybe, have you added any new accounts during the quarter? And then on the other side of that, what is your sales organization looking like in terms of size at the moment? And was there any change there during the quarter?.

Thanks for the question Destiny. I think the question really relates to growth, and the sequential growth as well as the year-over-year growth and it’s the same story. We continue to bring on new accounts every month, the sales team led by John Saharek, it’s just done a tremendous job.

And then along with new accounts, we continue to see greater depth within the accounts that we have.

It really is incredible, the number of accounts that we have, we’re so grateful to be able to service these people, but I’m always amazed at the number of accounts that we don’t have, who are not yet using our platform, and so more and more doctors month after month, quarter after quarter continue to be interested in accessing our platform.

But that’s where the growth came from, landing and expanding and more accounts.

And that’s really what gets us excited about the AMP-100 launch as well, because the accounts that we serve now that make up the 22 plus million dollar from this quarter, each and every one of them, we think, are going to be candidates and potential users of AMP-100, if it’s approved..

I got it. Okay. And then I was wondering, you put out a press release recently about MELT-210, the top-line data.

What are the next steps here? And is there any idea on timing in terms of maybe the next required clinical evaluation? And then how you may take it to the regulatory side?.

Sure. So Melt Pharmaceuticals is a company that was a subsidiary of Harrow Health. It’s a company that we started back in 2018 and was de-consolidated, subsequent to an external financing. We still own 46% of the company and just to set up your question, there are three products that Melt is developing.

One is MELT-300, the other, as you referenced, is MELT-210. MELT-210 is in the midazolam only atrophy that utilizes Catalent’s proprietary Zydis technology. And we were able to complete a pharmacokinetic study. And I say we and Melt was able to complete that study and recently they put out an announcement that it was in fact successful.

And so the reference drug, which is IV midazolam compared favorably to the MELT-210 product candidate.

And so in terms of next steps, I believe the team at Melt intends to get in front of the FDA and determine whether or not they have sufficient data for a filing an NDA filing, there is precedents for that the midazolam active ingredient is available not only by IV, but also in the form of a syrup.

And the syrup, in fact was approved with similar data to the data that Melt currently has. And so more to come on that, they need to get in front of the FDA, but we’re really hopeful that they can proceed with a filing, but it’s an exciting development.

We have tremendous confidence commercially in MELT-210 when it gets approved, so we’re excited about that. And as I said we own about 46% of the equity interest in Melt Pharmaceuticals..

All right. Got it. Thank you.

And then lastly for us, could you give us an update on the Visionology platform please?.

Sure. Visionology, as I said on the last couple of conference calls, is not going to be a revenue generator of tens of millions of dollars a quarter for us, but we continue to develop Visionology, and we have great confidence in the value of Visionology in terms of what it can provide to our customers.

I was just at the ASCRS meeting and met with a very large customer and talked to them about Visionology and the ability for Visionology, for example, to assist in facilitating refills for chronic care medications, the ability to build a distributed network of doctors, for this particular customer chap, it happens to be a national customer, with an organization in about 35 states.

So there’s a lot of value that Visionology is going to provide to our customers. It’s a value-add platform and we remain excited about it. But it is, as I said, not going to be the catalyst for our revenue, more than doubling, which I referred to, in our stockholder letter, but it is, I think, going to be a valuable asset and service to our customers.

It’s definitely going to create stickiness, and reason for our customers to come back to our platform..

All right. Got it. Thank you again for taking our questions..

Thank you, Destiny..

Our next question today will come from Nathan Weinstein of Aegis Capital. Please go ahead..

Thank you. Congratulations, Mark, and to the whole Harrow Health team for another strong quarter of growth and continued strong margins.

So I guess if I could just ask you a question regarding the organic growth from the existing product portfolio, any areas of strength that were worth calling out?.

You know, the team really delivered growth across all areas that were focused in on specifically, the surgical side as well as the chronic care side.

We did see better growth from certain segments of our chronic care portfolio, for example, formulations that doctors prescribed to help patients manage dry eye disease that has been growing probably faster than some of the other areas.

But truthfully, it’s just more customers on the surgical side, for perioperative medications, as well as the chronic care side. So it’s just across the board candidly..

Okay, fantastic. Thank you. And just one follow-up from me and that’s regarding the evolution of the business with the expected introduction of numerous branded products.

Can you just talk about some of the activities that you’ve undertaken recently in terms of preparing for those launches? What does that entail and what’s the outlook there as well? Thank you..

Yeah, first of all, we are making investments in market access on the distribution side, integrating new software into our IT platform, we just hired a fantastic Head of Marketing for our branded products. Within the stockholder letter, I referred to some of the personnel that we’ve been able to attract to the business.

And these are just very impressive people in my view, and people that are going to make a big, big difference in the company.

In terms of the number of folks, for example, in the sales organization, and Destiny asked about that as well, the number really hasn’t changed markedly from the first quarter to the fourth quarter of last year, I think there’s maybe a handful of additional folks in the sales organization.

But there are layers of operations that we need, that we really haven’t had for the compounded segment that are required for the branded segment.

And so, I think the team is just doing a marvelous job of bringing in the talent and the resources, putting in place the processes that we need in order to be successful, and deliver the kind of results that our shareholders are hopefully going to see..

Great. Thanks again for taking the questions, Mark. And we’re just looking forward to seeing the progress with the business throughout the balance of 2022..

Thank you, Nathan..

[Operator Instructions] Our next question will come from Justin Walsh of B. Riley Securities. Please go ahead..

Hi, team. Good afternoon. This is Sahil Kazmi on for Justin. Congrats on all the progress through the quarter.

Maybe just a couple of questions from us starting with, could you add some color on the process, any significance of transitioning the NDAs sort of under the Harrow umbrella for the branded segment and how that sort of contributes to the ratio shifting in the branded segments way ahead of the AMP-100 launch?.

Andrew, do you want to talk about the NDA transition process a little bit and timing on that..

Yeah, certainly. So we’ve been working on this for the last -- well, really, since we completed the deal with Novartis at the end of last year. And it’s been a lot of work on distribution. A lot of different regulatory affairs, as Mark mentioned, market access work that’s just preparing to move those NDAs to the Harrow name.

And it sounds real simple, like, hey, we just fill the file or something with the FDA, but there’s a lot of work that goes in ahead of that, preparing artwork with the contract manufacturer, working within the Compendia, to update Compendia, making sure all the customers know of the new ownership. So, all that like work is getting done ahead of time.

And then once we transfer the NDAs in mid-June, we should be positioned to have a clean transfer so that customers won’t really miss a beat upon the actual ownership transfer..

And to add to that, that was agreed to be about a six-month process and so we’re on target for that. The team has done a great job there. So we do intend to have that completed in the June time frame.

In terms of how that affects this ratio, as I said, in the stockholder letter, the mandate here is to see more revenue, more of our revenue and certainly a greater percentage of our overall revenue come from branded products as opposed to the compounded products that we’ve built our business on.

And I want to reiterate, that is not because the compounded revenue is going to precipitously fall. And to the contrary, we see that revenue continuing to grow. We see the trend of more accounts coming on to the platform and greater depth when accounts continuing and that is happening really to this day.

Actually, into the month of May, we see that continuing to happen. And in 2019, we had no revenue, as I said, from branded products and that changed with the addition of DEXYCU. And in 2021, as we continue to see success with DEXYCU, that percentage changed even more, a little bit more.

We had the month of December with the Novartis acquisition products. And what we’re excited about is really putting some marketing muscles, some energy, creativity, enthusiasm behind these products and giving them the attention that we think they deserve, along with the work that we’re doing with DEXYCU on an ongoing basis.

But what is really exciting and what I think is going to shift that ratio to, as I said, below one is the launch of AMP-100.

We also believe that continued progress with MAQ-100 is exciting as well, and when that product becomes commercially available, that will create an even greater shift of our revenue, more towards branded products, as opposed to the revenue that we are delivering continuously from our compounded products.

Hopefully, that answers your question?.

No, yes, absolutely. Thank you. That was really helpful. Thank you for taking our questions and congratulations on the quarter and all of the new additions to the team as well..

Thank you so much..

Ladies and gentlemen, at this time, we will conclude our question-and-answer session. I’d like to turn the conference back over to Mark Baum for any closing remarks..

Thank you, Alison. And in closing, I just want to personally thank all the Harrow employees for their hard work and their contributions. These have provided the fuel for getting us to this point. And where we are is really an exciting place. We are at the place we would hope we would be at many years ago.

Within the company, I believe the enthusiasm for our near, medium, and long-term prospects is palpable. It resonates with our employees, and that is, I think, evidenced by the number of and caliber of new executives and partners that we’ve been able to attract to the company.

The people working here, the people that I get to work with day in and day out are experienced, they’re talented, they’re committed.

In other words, they’re just as good as it gets and we remain confident in Harrow’s future, as we implement this growth plan, we build a profitable business and we serve our customers with products and services that are being chosen by an ever-expanding group of leading US ophthalmologists, optometrists, hospitals and ambulatory surgery centers.

So thanks, everyone, for attending today’s call and for your interest in our company, Harrow Health. If you have any investor-related questions, please e-mail Jamie Webb at jwebb@harrowinc.com. Thank you and this will conclude our call..

And again, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines..