HARROW, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the related notes thereto contained in
Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report").
Our condensed consolidated financial statements have been prepared and, unless
otherwise stated, the information derived therefrom as presented in this
discussion and analysis is presented, in accordance with accounting principles
generally accepted in
The information contained in this Quarterly Report is not a complete description
of our business or the risks associated with an investment in our common stock.
We urge you to carefully review and consider the various disclosures made by us
in this Quarterly Report and in our other reports filed with the
In addition to historical information, the following discussion contains
forward-looking statements regarding future events and our future performance.
In some cases, you can identify forward-looking statements by terminology such
as "will," "may," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "forecasts," "potential" or "continue" or the negative
of these terms or other comparable terminology. All statements made in this
Quarterly Report other than statements of historical fact are forward-looking
statements. These forward-looking statements involve risks and uncertainties and
reflect only our current views, expectations and assumptions with respect to
future events and our future performance. If risks or uncertainties materialize
or assumptions prove incorrect, actual results or events could differ materially
from those expressed or implied by such forward-looking statements. Risks that
could cause actual results to differ from those expressed or implied by the
forward-looking statements we make include, among others, risks related to: the
impact of the COVID-19 pandemic on our financial condition, liquidity or results
of operations; our ability to successfully implement our business plan, develop
and commercialize our proprietary formulations in a timely manner or at all,
identify and acquire additional proprietary formulations, manage our pharmacy
operations, service our debt, obtain financing necessary to operate our
business, recruit and retain qualified personnel, manage any growth we may
experience and successfully realize the benefits of our previous acquisitions
and any other acquisitions and collaborative arrangements we may pursue;
competition from pharmaceutical companies, outsourcing facilities and
pharmacies; general economic and business conditions; regulatory and legal risks
and uncertainties related to our pharmacy operations and the pharmacy and
pharmaceutical business in general; physician interest in and market acceptance
of our current and any future formulations and compounding pharmacies generally;
and the other risks and uncertainties described under the heading "Risk Factors"
in Part II, Item 1A of this Quarterly Report and in our other filings with the
Overview
We are an ophthalmic-focused healthcare company. Our business specializes in the
development, production, sale, and distribution of innovative prescription
medications that offer unique competitive advantages and serve unmet needs in
the marketplace through our subsidiaries and deconsolidated companies. We own
and operate ImprimisRx, one of the nation's leading ophthalmology-focused
pharmaceutical businesses, and
25 ImprimisRx
ImprimisRx is our ophthalmology-focused prescription pharmaceutical business.
From its inception in 2014, ImprimisRx, which consists of integrated research
and development, production, dispensing/distribution, sales, marketing, and
customer serve capabilities, has offered physician customers and their patients
access to critical medicines to meet their clinical needs. Initially, ImprimisRx
focused exclusively on compounded medications to serve needs unmet by
commercially available drugs. We make our formulations available at prices that
are, in most cases, lower than non-customized commercial drugs. ImprimisRx's
customer base has grown to include more than 10,000
Over the past two years, in order to more fully serve the needs of our growing
customer base, we have invested in broadening ImprimisRx's product portfolio to
include FDA-approved products. Our investments in this regard have led to
commercial partnerships to sell DEXYCU® and Avenova, the acquisition of two
later stage drug candidates, and the recent acquisition of
DEXYCU®
ImprimisRx entered into a Commercial Alliance Agreement (the "Dexycu Agreement")
with Eyepoint Pharmaceuticals, Inc. ("Eyepoint"), pursuant to which Eyepoint
granted ImprimisRx the right to promote DEXYCU® (dexamethasone intraocular
suspension) 9% for the treatment of post-operative inflammation following ocular
surgery in
IOPIDINE®, MAXITROL®, MOXEZA®
In
At the time of closing the acquisition of the four products, we agreed to a transitional period with the seller, which is expected to last approximately six months following the closing of the transaction. During the transition period, the seller will continue to sell the products and transfer the net profit to us. Following the transition period, we expect to have the products manufactured by third parties and commercialize the products for the U.S. market.
AMP-100
In
MAQ-100
In
We expect to acquire and/or develop additional FDA-approved/approvable ophthalmic products and product candidates that will allow us to leverage our commercial infrastructure to promote, sell, and ultimately bring these products to market.
26 Visionology
Visionology, a direct-to-consumer digital eye health platform, leverages our
experience in the ophthalmic pharmaceutical business as well as our
relationships with eyecare professionals across
Carved-Out Businesses (De-Consolidated Businesses)
We have ownership interests in Surface, Melt, and Eton Pharmaceuticals, Inc. ("Eton") and hold royalty interests in some of Surface's and Melt's drug candidates. These companies are pursuing market approval for their drug candidates under the FDCA, including in some instances under the abbreviated pathway described in Section 505(b)(2), which permits the submission of a new drug application ("NDA") where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.
Noncontrolling Equity Interests
Surface Ophthalmics, Inc.
Surface is a clinical-stage pharmaceutical company focused on development and commercialization of innovative therapeutics for ocular surface diseases.
In
In 2018, Surface closed an offering of its Series A Preferred Stock. At that
time, we lost our controlling interest and deconsolidated Surface from our
consolidated financial statements. During May, June and July of 2021, Surface
closed an offering of its preferred stock at a purchase price of
Melt Pharmaceuticals, Inc.
Melt is a clinical-stage pharmaceutical company focused on the development and
commercialization of proprietary non-intravenous, sedation and anesthesia
therapeutics for human medical procedures in hospital, outpatient, and in-office
settings. Melt intends to seek regulatory approval for its proprietary
technologies, where possible. In
MELT-300 is a novel, sublingually delivered, non-IV, opioid-free drug candidate
being developed for procedural sedation. Melt filed an investigational new drug
application ("IND") with the FDA in
In
27 Eton Pharmaceuticals, Inc.
Eton is a commercial-stage orphan-disease focused pharmaceutical company
developing and commercializing innovative drug products. Its product portfolio
and pipeline includes several products and drug candidates in various stages of
development across a variety of dosage forms. In
Factors Affecting Our Performance
We believe the primary factors affecting our performance are our ability to increase revenues of our proprietary compounded formulations and certain non-proprietary products, grow and gain operating efficiencies in our pharmacy operations, potential regulatory-related restrictions, optimize pricing and obtain reimbursement options for our proprietary compounded formulations, and continue to pursue development and commercialization opportunities for certain of our ophthalmology and other assets that we have not yet made commercially available as compounded formulations. We believe we have built a tangible and intangible infrastructure that will allow us to scale revenues efficiently in the near and long-term. All of these activities will require significant costs and other resources, which we may not have or be able to obtain from operations or other sources. See "Liquidity and Capital Resources" below.
Reimbursement Options
Dexycu is covered under Medicare Part B, and we are developing drug candidates
that we believe will be covered under Medicare Part
We are working with outside consultants to potentially gain an extension to the
transitional payment system, or to separate the drug payment from the bundled
cataract surgery payment after the three-year transitional payment ends and
continue to be reimbursed separately for a longer period of time, potentially
through patent life. Unless extended, Dexycu transitional pass-through
reimbursement status will expire on
Our proprietary ophthalmic compounded formulations are currently primarily
available on a cash-pay basis. However, we expect that MOXEZA,
28 COVID-19 Pandemic
A novel strain of coronavirus was first identified in
However, given the unprecedented and dynamic nature of the COVID-19 pandemic virus, including any mutations/variants, we may not be able to reasonably estimate the impacts it may have on our financial condition, results of operations or cash flows in the future, especially if there are new restrictions in elective procedures in the future which would have an adverse impact, which may be material, on our future revenues, profitability and cash flows.
Recent Developments
In
? Melt is required to maintain a minimum cash balance of$7,000,000 for one (1) year following the effective date of the Amendment; and a minimum cash balance of$5,000,000 at all times after the one year anniversary of the effective date of the Amendment. ? The maturity date by which all amounts owed under the loan agreement are payable was extended toSeptember 1, 2026 , unless otherwise accelerated pursuant to the terms of the loan agreement. ? The definition of Material Adverse Effect was amended so that such an effect will be deemed to have occurred if the data from the phase 2 study of MELT-300 fails to demonstrate the benefit of the combination MELT-300 study drug versus the individual components of the same MELT-300 study drug, as reasonably determined by us. ? The effectiveness of the Amendment is subject to, among other conditions, Melt consummating a qualifying financing of a minimum amount of$15,000,000 from third-party investors byAugust 31, 2022 . Results of Operations
The following period-to-period comparisons of our financial results for the
three months ended
Revenues
Our revenues include amounts recorded from sales of proprietary compounded formulations, commissions from third parties and revenues received from royalty payments owed to us pursuant to out-license arrangements.
The following presents our revenues for the three months endedMarch 31, 2022 and 2021: For the Three Months Ended March 31, 2022 2021 $ Variance Product sales, net$ 20,340,000 $ 14,948,000 $ 5,392,000 Commission revenues 1,320,000 485,000 835,000 Transfer of profit 460,000 - 460,000 License revenues - 10,000 (10,000 ) Total revenues$ 22,120,000 $ 15,443,000 $ 6,677,000
The increase in revenues between periods was related to an increase in sales volumes of our ophthalmology products, an increase in commissions attributable to sales of Dexycu® and transfer of profit from recently acquired products.
29 Cost of Sales
Our cost of sales includes direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing equipment and tenant improvements depreciation, the write-off of obsolete inventory and other related expenses.
The following presents our cost of sales for the three months ended
For the
Three Months Ended
March 31,
2022 2021 $ Variance
Cost of sales $ 5,963,000 $ 3,770,000 $ 2,193,000 The increase in our cost of sales between periods was largely attributable to an increase in unit volumes sold.
Gross Profit and Margin
For the
Three Months Ended
March 31,
2022 2021 $ Variance
Gross profit $ 16,157,000 $ 11,673,000 $ 4,484,000
Gross margin 73.0 % 75.6 % (2.6 )%
The decrease in gross margin between the three months ended
Selling, General and Administrative Expenses
Our selling, general and administrative expenses include personnel costs, including wages and stock-based compensation, corporate facility expenses, and investor relations, consulting, insurance, filing, legal and accounting fees and expenses as well as costs associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations.
The following presents our selling, general and administrative expenses for the
three months ended
For the
Three Months Ended
March 31,
2022 2021 $ Variance
Selling, general and administrative
The increase in selling, general and administrative expenses between periods was
primarily attributable to an increase in compensation expense related to an
increase in stock-based compensation associated with performance stock units
that were granted in
Research and Development Expenses
Our research and development ("R&D") expenses primarily include personnel costs, including wages and stock-based compensation, expenses related to the development of intellectual property, investigator-initiated research and evaluations, formulation development, acquired in-process R&D and other costs related to the clinical development of our assets.
The following presents our research and development expenses for the three
months ended
For the
Three Months Ended
March 31,
2022 2021 $ Variance
Research and development $ 658,000 $ 592,000 $ 66,000
30
During the three months ended
Interest Expense, Net
Interest expense, net was
Equity in Losses from Unconsolidated Entities
During the three months ended
Investment Gain (Loss) from Eton
We recorded an unrealized gain of
Gain on Forgiveness of PPP Loan
During the three months ended
Net (Loss) Income
The following table presents our net (loss) income and per share net (loss)
income for the three months ended
For the
Three Months Ended
March 31,
2022 2021
Numerator - net (loss) income attributable to
Harrow Health, Inc. common stockholders $ (2,438,000 ) $ 217,000
Net (loss) income per share, basic $ (0.09 ) $ 0.01
Net (loss) income per share, diluted $ (0.09 ) $ 0.01
Liquidity and Capital Resources
Liquidity
Our cash on hand at
As of the date of this Quarterly Report, we believe that cash and cash
equivalents of
We expect to use our current cash position and funds generated from our operations and any financing to pursue our business plan, which includes developing and commercializing drug candidates, compounded formulations and technologies, integrating and developing our operations, pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of additional pharmacy, outsourcing facilities, drug company and manufacturers, drug products, drug candidates, and/or assets or technologies, and otherwise fund our operations. We may also use our resources to conduct clinical trials or other studies in support of our formulations or any drug candidate for which we pursue FDA approval, to pursue additional development programs or to explore other development opportunities.
31Net Cash Flow
The following provides detailed information about our net cash flows:
For the
Three Months Ended March 31,
2022 2021
Net cash provided by (used in):
Operating activities $ 967,000 $ 3,208,000
Investing activities (410,000 ) (224,000 )
Financing activities (776,000 ) (781,000 )
Net change in cash and cash equivalents (219,000 ) 2,203,000
Cash, cash equivalents and restricted cash at
beginning of the period 42,167,000 4,301,000
Cash, cash equivalents and restricted cash at
end of the period $ 41,948,000 $ 6,504,000
Operating Activities
Net cash provided by operating activities during the three months ended
Investing Activities
Net cash used in investing activities during the three months ended
Financing Activities
Net cash used in financing activities during the three months ended
Sources of Capital
Our principal sources of cash consist of cash provided by operating activities from our ImprimisRx business, and recently, proceeds from the sale of senior notes and a portion of our Eton common stock. We may also sell some or all of our ownership interests in Surface, Melt or our subsidiaries, along with the some or all of the remaining portion of our Eton common stock.
The changing trends and overall economic outlook in light of the COVID-19
pandemic, including the historic interim stay-at-home orders and bans on
elective surgeries, created uncertainty surrounding our operating outlook and
may impact our future operating results if there is a rise in COVID-19 related
cases in the
32
We may be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions, conditions in the pharmaceuticals and pharmacy industries, or our operating history, including our past bankruptcy proceedings. In addition, the fact that we have a limited history of profitability could further impact the availability or cost to us of future financings. As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are acceptable to us. If we are unable to raise funds to satisfy our capital needs when needed, then we may need to forego pursuit of potentially valuable development or acquisition opportunities, we may not be able to continue to operate our business pursuant to our business plan, which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue our operations entirely.
Recently Issued and Adopted Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included in this Quarterly Report.
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