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 inthe United States of America ("GAAP"). 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 theU.S. Securities and Exchange Commission (the "SEC"), including our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 and subsequent reports, which discuss our business in greater detail. As used in this discussion and analysis, unless the context indicates otherwise, the terms the "Company," "Harrow," "we," "us" and "our" refer toHarrow Health, Inc. and its consolidated subsidiaries, consisting ofImprimisRx, LLC ,ImprimisRx NJ, LLC dba ImprimisRx,Imprimis NJOF, LLC , andImprimis Pharmaceuticals USA, LLC . In this discussion and analysis, we refer to our consolidated subsidiariesImprimisRx, LLC ,ImprimisRx NJ, LLC andImprimis NJOF, LLC collectively as "ImprimisRx." 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, including inflation and supply chain challenges; 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 theSEC . You should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made and, except as required by law, we undertake no obligation to revise or publicly update any forward-looking statement for any reason.
Overview
We are an eyecare pharmaceutical company focused on the development, production, sale, and distribution of accessible and affordable innovative ophthalmic prescription medications.
The Company owns non-controlling equity positions inSurface Ophthalmics, Inc. ("Surface") andMelt Pharmaceuticals, Inc. ("Melt"), both companies that began as subsidiaries of Harrow. Harrow also owns royalty rights in various drug candidates being developed by Surface and Melt.
ImprimisRx
ImprimisRx is our ophthalmology-focused prescription pharmaceutical compounding 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 10,000U.S. eyecare dedicated prescribers and institutions. Our current ophthalmology formulary includes over twenty compounded formulations, many of which are patented or patent-pending, and are customizable for the specific needs of a patient. Some of our compounded medications are various combinations of drugs formulated into one bottle and others are preservative free formulations. Depending on the formulation, the regulations of a specific state, and ultimately, the needs of the patient, ImprimisRx products may be dispensed as patient-specific medications from our 503A pharmacy, or for in-office use, or made according to current good manufacturing practices (or "cGMPs") or other FDA-guidance documents, in our FDA-registeredNew Jersey outsourcing facility ("NJOF"). InAugust 2020 , 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 inthe United States . Pursuant to the Dexycu Agreement, Eyepoint pays ImprimisRx a fee that is calculated based on the quarterly sales of DEXYCU
in theU.S. 24Branded Pharmaceuticals Over the past two years, in order to more fully serve the needs of our growing customer base, we have invested in broadening our 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 ofU.S. rights to four FDA-approved ophthalmic products. These transactions, and those we are continuing to pursue, are focused in eyecare pharmaceuticals. We believe that our continued investments in these and other products will result in our ability to provide more physician prescribers and their patients with access to a complete portfolio of affordable eyecare pharmaceuticals to address their clinical needs.
IOPIDINE®, MAXITROL®, MOXEZA®
InDecember 2021 , we acquiredU.S. commercial rights to four FDA-approved ophthalmic medicines: IOPIDINE 1% and 0.5% (apraclonidine hydrochloride);MAXITROL (neomycin/polymyxin B/dexamethasone) ophthalmic suspension; and MOXEZA (moxifloxacin hydrochloride). We believe by expanding our product portfolio to include branded FDA-approved products, we will be uniquely positioned to leverage our ImprimisRx platform to introduce unique lifecycle management strategies that could grow sales and address needs of our customers that we are unable to meet with our other compounded product offerings. At the time of closing the acquisition of the four products, we agreed to a transitional period with the seller, which lasted six months following the closing of the transaction. During the transition period, the seller continued to sell the products and transferred the net profit from those sales to us. Following the transition period which ended inJune 2022 , we made IOPIDINE 1% andMAXITROL commercially available, and expect to re-launch MOXEZA at a later date. AMP-100 InJuly 2021 , we acquired the exclusive marketing and supply rights to AMP-100 in theU.S. andCanada fromSintetica S.A. ("Sintetica"). AMP-100 is a patented, ophthalmic topical anesthetic drug candidate. If FDA-approved, the active ingredient used in AMP-100 will be the first approved use of this active ingredient in theU.S. ophthalmic market. A new drug application ("NDA") for AMP-100 was submitted by Sintetica to the FDA in the fourth quarter of 2021 and the FDA has assigned the application standard review and a Prescription Drug User Fee Act (PDUFA) target action date ofOctober 16, 2022 .
MAQ-100
InAugust 2021 , we acquired the exclusive marketing rights to MAQ-100 in theU.S. andCanada from Wakamoto Pharmaceutical Co., Ltd. ("Wakamoto"). MAQ-100 is a preservative-free triamcinolone acetonide ophthalmic injection drug candidate. MAQ-100 is marketed and sold by Wakamoto inJapan as MaQaid®. FollowingJapan's Ministry of Health Labor and Welfare ("MHLW") approval, MaQaid was launched inJapan in 2010, indicated as an intravitreal injection for visualization for vitrectomy. Since its initial MHLW approval, the indication for MaQaid was expanded to include (a) treatments for alleviation of diabetic macular edema, (b) macular edema associated with retinal vein occlusion (or RVO), and (c) non-infectious uveitis. We intend to leverage the clinical data used for Japanese market approval of MaQaid to support a clinical program and U.S. market NDA submission of MAQ-100 for visualization during vitrectomy. InAugust 2022 , we had a Type B meeting with the FDA to discuss our planned clinical program for MAQ-100. The FDA provided clarity on what would be required for a future NDA filing of MAQ-100, and while we are still waiting on the release of theFDA's minutes from the meeting, we remain optimistic about being able to efficiently advance the clinical program of MAQ-100.
We expect to continue 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.
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 an 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.
25
Noncontrolling Equity Interests
Surface is a clinical-stage pharmaceutical company focused on development and commercialization of innovative therapeutics for ocular surface diseases.
? SURF-100 for Chronic Dry Eye Disease: Surface completed its 350-patient Phase 2
clinical trial, comparing five active arms of SURF-100 study drugs with the
current market-leading prescription chronic dry eye treatments. According to
Surface, the SURF-100 Phase 2 clinical trial achieved positive results for both
signs and symptoms of chronic dry eye disease, as well as generating positive
data on onset and duration of action.
? SURF-200 for Acute Dry Eye: Surface has completed enrollment of its Phase 2
clinical trial for SURF-200 and expects to announce top-line results later this
year.
? SURF-201 for Pain and Inflammation Following Ocular Surgery: According to the
Surface results, SURF-201 was dosed twice daily, met its primary endpoints of
absence of inflammation at both Day 8 and Day 15 and was found to be safe and
well-tolerated by the patient group. In addition, a secondary endpoint showed
almost 90% of patients given SURF-201 were pain free at Day 15.
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$4.50 per share resulting in gross proceeds to Surface of approximately$25,000,000 (the "Surface Series B Offering"). We own 3,500,000 shares of Surface common stock, which was approximately 20% of Surface's equity and voting interests as ofJune 30, 2022 . Harrow owns mid-single digit royalty rights on net sales of SURF-100, SURF-200 and SURF-201.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. InDecember 2018 , we entered into an Asset Purchase Agreement with Melt (the "Melt Asset Purchase Agreement"), pursuant to which Harrow assigned to Melt the underlying intellectual property for Melt's current pipeline, including its lead drug candidate MELT-300. The core intellectual property Melt owns is a patented series of combination non-opioid sedation drug formulations that we estimate to have multitudinous applications. 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 inJune 2020 and began its clinical program for MELT-300. InFebruary 2021 , Melt announced data from, and the successful completion of, its Phase 1 study. Melt began enrolling patients in its Phase 2 study for MELT-300 during the fourth quarter of 2021. InJanuary 2019 , Melt closed an offering of its Series A Preferred Stock. At that time, we gave up our controlling interest and deconsolidated Melt from our consolidated financial statements. We own 3,500,000 shares of Melt common stock, which was approximately 46% of Melt's equity and voting interests issued and outstanding as ofJune 30, 2022 . InSeptember 2021 , we provided Melt with a senior secured loan with a principal amount of$13,500,000 , which is intended to fund the Phase 2 program of MELT-300. In connection with the loan, we were given the right, but not the obligation, to match any offer received by Melt associated with the commercial rights to any of its drug candidates for a period of five years. Melt is required to make mid-single digit royalty payments to the Company on net sales of MELT-300, while any patent rights remain outstanding, subject to other conditions. Melt can require the Company to cease compounding like products at the time of FDA approval of MELT-300. If approved, we do not expect a cessation of compounding like products to have a material impact on our operations and financial performance.
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. InMay 2017 , we gave up our controlling interest in Eton. We own 1,982,000 shares of Eton common stock, which is less than 10% of the equity and voting interests issued and outstanding of Eton as ofJune 30, 2022 . 26
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 PartB. New drugs approved by the FDA that are used in surgeries performed in a hospital outpatient departments or ambulatory surgical centers may receive a transitional pass-through reimbursement under Medicare, provided they meet certain criteria, including a "not insignificant" cost criterion. Pass-through status allows for separate payment (i.e., outside the packaged payment rate for the surgical procedure) under Medicare Part B, which consists of Medicare reimbursement for a drug based on a defined formula for calculating the minimum fee that a manufacturer may charge for the drug. Under current regulations of theCenters for Medicare & Medicaid Services ("CMS"), pass-through status applies for a period of three years; that is measured from the date Medicare makes its first pass-through payment for the product, following which the product would be incorporated into the cataract bundled payment system, which could significantly reduce the pricing for that product. Following expiration of pass-through status, under current CMS policy, non-opioid pain management surgical drugs when used on Medicare Part B patients in an outpatient setting can qualify for ongoing separate payment. CMS' current non-opioid separate payment policy, like other CMS policies, can be changed by CMS through its annual rulemaking and comment process. We believe that CMS will continue its separate payment policy for non-opioid pain management surgical drugs, which has been in effect since 2019. In July of 2022, CMS issued its Proposed CY 2023 Payment Rule for Hospital Outpatient Services and ASCs. Based on the summary in the proposed rule, Dexycu will no longer qualify as a separately payable product in an ASC or outpatient setting and will instead be bundled into the general cataract procedure code effectiveJanuary 1, 2023 , when the final rule, if approved as currently proposed, will go into effect. As a result, we expect our commissions from sales of Dexycu to significantly decrease at the end of 2022 and in 2023; however such effect will not have a material impact on our business, financial statements and cash flows. Our proprietary ophthalmic compounded formulations are currently primarily available on a cash-pay basis. However, MOXEZA,MAXITROL and IOPIDINE are, and we expect that other drug candidates we are developing, if approved, will be eligible for reimbursement by third-party payors. We are devoting time and resources to seek reimbursement and patient pay opportunities for these and other drug products and candidates. However, we may be unsuccessful in achieving these goals, as many third-party payors have imposed significant challenges for products to be eligible for reimbursement in recent years. Moreover, third-party payors, including Medicare, are increasingly attempting to contain health care costs by limiting coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Further, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the "Health Care Reform Law"), may have a considerable impact on the existingU.S. system for the delivery and financing of health care and could conceivably have a material adverse effect on our business. As a result, reimbursement from Medicare, Medicaid and other third-party payors may never be available for any of our products or, if available, may not be sufficient to allow us to sell the products on a competitive basis and at desirable price points. We are communicating with government and third-party payors in order to make our drug products and candidates available to more patients and at optimized pricing levels. However, if government and other third-party payors do not provide adequate coverage and reimbursement levels for our drug products and candidates, the market acceptance and opportunity for them may be limited.
COVID-19 Pandemic
A novel strain of coronavirus was first identified inWuhan, China inDecember 2019 . The disease caused by it, COVID-19, was declared a global pandemic by theWorld Health Organization inMarch 2020 . OnMarch 18, 2020 , CMS released guidance forU.S. healthcare providers to limit all elective medical procedures in order to conserve personal protective equipment and limit exposure to COVID-19 during the pendency of the pandemic. In addition to limiting elective medical procedures, many hospitals and other healthcare providers have strictly limited access to their facilities during the pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and healthcare delivery, led to social distancing recommendation, and created significant volatility in financial markets. InMay 2020 and the following months,U.S. states and geographies began easing restrictions associated with the COVID-19 pandemic including those restrictions related to elective procedures. We have since seen sales of our products return to historical norms and trends as restrictions associated with elective procedures and the COVID-19 pandemic have eased. 27 However, given the unprecedented and dynamic nature of the COVID-19 pandemic, including any virus 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
InApril 2022 , we entered into a First Amendment (the "Amendment") to our loan and security agreement previously entered into onSeptember 1, 2021 with Melt. The Amendment provides for the following:
? Melt is required to maintain a minimum cash balance of
following the effective date of the Amendment; and a minimum cash balance of
the Amendment.
? The maturity date by which all amounts owed under the loan agreement are
payable was extended to
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
third-party investors by
Results of Operations
The following period-to-period comparisons of our financial results for the
three and six months ended
Revenues
Our revenues include amounts recorded from sales of proprietary compounded formulations, sales of branded products to wholesalers through a third-party logistics facility, 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 and six months ended
For the Three Months Ended For the Six Months Ended
June 30, $ June 30, $
2022 2021 Variance 2022 2021 VarianceProduct sales, net$ 21,518,000 $ 17,297,000 $ 4,221,000 $ 41,858,000 $ 32,245,000 $ 9,613,000 Commission revenues 1,212,000 827,000 385,000 2,532,000 1,312,000 1,220,000 Transfer of profits 593,000 - 593,000 1,053,000 - 1,053,000 License revenues - 10,000 (10,000 ) - 20,000 (20,000 ) Total revenues$ 23,323,000 $ 18,134,000 $ 5,189,000 $ 45,443,000 $ 33,577,000 $ 11,866,000 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 profits from recently acquired products. In June of 2022, the Company completed the transfer from Seller to Harrow of Iopidine and Maxitrol NDAs and relaunched those products, as a result, we will not record revenues associated with the transfer of profits associated with those products in future periods. 28 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 and six months ended
For the Three Months Ended For the Six Months Ended
June 30, $ June 30, $
2022 2021 Variance 2022 2021 Variance
Cost of sales $ 6,534,000 $ 4,417,000 $ 2,117,000 $ 12,497,000 $ 8,187,000 $ 4,310,000 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 For the Six Months Ended
June 30, $ June 30, $
2022 2021 Variance 2022 2021 Variance
Gross Profit $ 16,789,000 $ 13,717,000 $ 3,072,000 $ 32,946,000 $ 25,390,000 $ 7,556,000
Gross Margin 72.0 % 75.6 % -3.6 % 72.5 % 75.6 % -3.1 %
The decrease in gross margin between the three and six months ended June 30,
2022 and 2021 is primarily attributable to amortization of acquired NDAs
beginning in January 2022 , along with a production event in April 2022 that led
to a one-time purge of inventory (and which had no impact on quality of released
product), and increased discounts provided during 2022 associated with
volume-based purchases.
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 and six months ended
For the Three Months Ended For the Six Months Ended
June 30, $ June 30, $
2022 2021 Variance 2022 2021 VarianceSelling, general and administrative$ 14,185,000 $ 9,123,000 $ 5,062,000 $ 27,583,000 $ 17,287,000 $ 10,296,000 The increase in selling, general and administrative expenses between periods was primarily attributable to an increase in consulting expense related to an increase in stock-based compensation associated with performance stock units that were granted inJuly 2021 , an increase in consulting expenses associated with regulatory improvements and to support the transition of recent product acquisitions, and an increase in expenses related to the addition of new employees in sales, marketing and other departments to support current and expected growth.
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.
29
The following presents our research and development expenses for the three and
six months ended
For the Three Months Ended For the Six Months Ended
June 30, $ June 30, $
2022 2021 Variance 2022 2021 Variance
Research and development $ 914,000 $ 425,000 $ 489,000 $ 1,572,000 $ 1,017,000 $ 555,000
During the three and six months ended June 30, 2022 , research and development
expenses increased from the same periods in 2021 primarily as a result of
increased costs associated with the clinical programs for AMP-100 and MAQ-100
and program fees associated with Iopidine.
Interest Expense, Net
Interest expense, net was$1,794,000 and$3,586,000 for the three and six months endedJune 30, 2022 compared to$1,314,000 and$1,827,000 for the same periods in 2021, respectively. The increase during the period endedJune 30, 2022 compared to the same period in 2021 was primarily due to an increase in the outstanding principal amount of our debt obligations.
Equity in Losses of Unconsolidated Entities
During the three and six months ended
Investment Loss from Eton
During the three and six months endedJune 30, 2022 we recorded a loss of$3,449,000 and$3,310,000 , respectively, related to the change in fair market value of Eton's common stock compared to losses of$3,584,000 and$6,419,000 for the same periods last year, respectively.
Gain on Forgiveness of PPP Loan
During the six months ended
Net Loss
The following table presents our net loss and per share net loss for the three
and six months ended
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Numerator - net loss
attributable to Harrow
Health, Inc. common
stockholders $ (6,239,000 ) $ (2,950,000 ) $ (8,677,000 ) $ (2,733,000 )
Net loss per share, basic
and diluted $ (0.23 ) $ (0.11 ) $ (0.32 ) $ (0.10 ) 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$46,438,000 atJune 30, 2022 will be sufficient to sustain our planned level of operations and capital expenditures for at least the next 12 months. In addition, we may consider the sale of certain assets including, but not limited to, part of, or all of, our investments in Eton, Surface, Melt, and/or any of our consolidated subsidiaries. However, we may pursue acquisitions of revenue generating products, drug candidates or other strategic transactions that involve large expenditures or we may experience growth more quickly or on a larger scale than we expect, any of which could result in the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing to support our operations. 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. 30Net Cash Flow
The following provides detailed information about our net cash flows:
For the Six Months Ended
June 30,
June 30, June 30,
2022 2021
Net cash provided by (used in):
Operating activities $ 5,827,000 $ 8,648,000
Investing activities (669,000 ) 8,445,000
Financing activities (887,000 ) 51,457,000
Net change in cash and cash equivalents 4,271,000 68,550,000
Cash and cash equivalents at beginning of the period 42,167,000 4,301,000
Cash and cash equivalents at end of the period
Operating Activities Net cash provided by operating activities during the six months endedJune 30, 2022 was$5,827,000 compared to$8,648,000 during the same period in the prior year. The decrease in net cash provided by operating activities between the periods was mainly attributed to an increase in our accounts receivable amounts.
Investing Activities
Net cash (used in) provided by investing activities during the six months endedJune 30, 2022 was$(669,000) compared to$8,445,000 during the same period in the prior year. Cash used in investing activities in 2022 was primarily associated with equipment and software purchases. Cash provided by investing activities in 2021 was primarily associated with the sale of a portion of our investment in Eton. Financing Activities Net cash (used in) provided by financing activities during the six months endedJune 30, 2022 and 2021 was$(887,000) and$51,457,000 , respectively. Cash used in financing activities during the six months endedJune 30, 2022 was primarily related to payment of taxes upon vesting of RSUs. Cash provided by financing activities during the six months endedJune 30, 2021 was primarily related to proceeds received from the sale of notes, net of the payment of all outstanding obligations to the Company's previous senior lender,SWK Funding, LLC and its partners. Sources of Capital Our principal sources of cash consist of cash provided by operating activities from our ImprimisRx business, and in 2021, 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 other 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 the COVID-19 pandemic worsens in theU.S. In addition, we may acquire new products, product candidates and/or businesses and, as a result, we may need significant additional capital to support our business plan and fund our proposed business operations. We may receive additional proceeds from the exercise of stock purchase warrants that are currently outstanding. We may also seek additional financing from a variety of sources, including other equity or debt financings, funding from corporate partnerships or licensing arrangements, sales of assets or any other financing transaction. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the newly issued equity or debt securities may have more favorable terms or rights, preferences and privileges senior to those of our existing stockholders. If we raise additional funds through collaboration or licensing arrangements or sales of assets, we may be required to relinquish potentially valuable rights to our product candidates or proprietary technologies or formulations, or grant licenses on terms that are not favorable to us. If we raise funds by incurring additional debt, we may be required to pay significant interest expenses and our leverage relative to our earnings or to our equity capitalization may increase. Obtaining commercial loans, assuming they would be available, would increase our liabilities and future cash commitments and may impose restrictions on our activities, such as the financial and operating covenants. Further, we may incur substantial costs in pursuing future capital and/or financing transactions, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which would adversely impact our financial
results. 31 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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