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spk05: Good afternoon and welcome to HARO Health Q1 2022 earnings conference call. My name is Alison 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 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 HARO Health.
spk04: Thank you, Operator. Good afternoon and welcome to Harrell 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 law. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Harrell Health's control, including risks and uncertainties described from time to time in its SEC filings. such as the risk and uncertainties related to the company's ability to make commercially available its FDA 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 risk 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. Harold Health's results may differ materially from those projected. Harold 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, Harold 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.harrellinc.com. Joining me on today's call are Harrell's Chief Executive Officer, Mark Elbaum, and Harrell's Chief Financial Officer, Andrew Bowe. 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?
spk01: 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 position, along with other 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 that these new metrics allow investors a useful, and to a certain extent, a more precise insight into our core business, how we perform operationally, and how best to assess future earnings. With that explanation, I'll now hand things off to Mark to jump into the quarter.
spk03: 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 31st, 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 $16.2 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 years 76 percent adjusted ebitda was 4.9 million dollars for the first quarter of 2022 compared with 4.3 million dollars in the prior year period core net income was 713 thousand dollars for the first quarter of 2022 compared with core net income of 2.4 million dollars in the first quarter of 2021 core diluted net income per share for the first quarter of 2022 was three cents compared with nine cents during the same period last year operationally we are all hands on deck preparing for the relaunch 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 16th 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 of the latter 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 that 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 HARO commercial and distribution platform within the ophthalmic pharmaceutical space. We continue to see strong organic growth. And as we approach our 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 HERO has today a meaningful commercial presence. In addition to AMP-100, we expect growth from other initiatives that are underway. The relaunch of Iopidine, Maxitrol, and Moxasa. The continued development of MAC-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?
spk05: Thank you. And we will now begin the question and answer session. To ask a question, you may press star and then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star and then two. At this time, we will pause for a moment to assemble our roster. Our first question today will come from Jeffrey Cohen of Leidenberg Thalmann. Please go ahead.
spk06: 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?
spk03: 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 Saharik has 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 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 print this quarter, each and every one of them we think are gonna be candidates and potential users of AMP 100 if it's approved.
spk06: I got it, okay. And then I was wondering, you put out a press release recently about MELT 210 with 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?
spk03: Sure. So Melt Pharmaceuticals is a company that was a subsidiary of Hero Health. It's a company that we started back in 2018 and was deconsolidated 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 an Adazolam-only trochee that utilizes Catalan's proprietary Zytus technology. And we were able to complete a pharmacokinetic study. When I say we, I mean MELT was able to complete that study here 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 MELT210 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 precedence 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, if and 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.
spk06: All right. Got it. Thank you. And then lastly for us, could you give us an update on the Visionology platform, please?
spk03: Sure. Sure. Visionology, as I've said on the last couple of conference calls, is 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, which happens to be a national customer with an organization in about 35 states. So there is 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 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 a 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 ages capital please go ahead
spk02: Thank you. Congratulations, Mark, and to the whole Hirel Health team for another strong quarter of growth and continued strong margins. So I guess if I could just ask a question regarding the organic growth from the existing product portfolio, any areas of strength that were worth calling out?
spk03: You know, the team really delivered growth across all areas. that we're focused in on, specifically, you know, the surgical side as well as the chronic care side. We did see, I think, better growth from certain segments of our chronic care portfolio. For example, formulations that doctors prescribe to help patients manage dry eye disease. That has been growing probably faster than some of the other areas. But truthfully, you know, 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.
spk02: 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 activity that you've undertaken recently in terms of preparing for those launches? What does that entail and And what's the outlook there as well? Thank you.
spk03: Yeah, so we, you know, 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, you know, and Destiny asked about that as well, the number really hasn't changed markedly, you know, 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's 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.
spk02: 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.
spk05: And again, if you have a question, please press star and then 1. Our next question will come from Justin Walsh of B. Riley Securities. Please go ahead.
spk00: Hey, team. Good afternoon. This is Sahil Kazmian for Justin. Congrats on all the progress through the quarter. Maybe just a couple questions from us, starting with, could you add some color on the process and the significance of transitioning the NDAs sort of under the HARO 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.
spk03: Andrew, do you want to talk about the NDA transition process a little bit and timing on that?
spk01: Yeah, certainly. 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 HARO name. And it sounds real simple like, hey, we should just be able to file 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 legwork 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.
spk03: 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's done a great job there. So we do intend to have that completed in the June timeframe. 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. To the contrary, we see that revenue continuing to grow. We see the trend of more accounts coming onto the platform and greater depth within 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 Dexacute. And in 2021, as we continue to see success with Dexacube, you know, that percentage changed even more, a little bit more. We had the month of December with these Novartis acquisition products. And what we're excited about is really putting some marketing muscle, 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 DexEQ 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 MAC 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.
spk00: No, yeah, absolutely. Thank you. That was really helpful. Thanks for taking our questions, and congratulations on the quarter and all of the new additions to the team as well.
spk03: Thank you so much.
spk05: 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.
spk03: Thank you, Allison. And in closing, I just want to personally thank all the HARO 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 hoped 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 HARO'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 email Jamie Webb at jwebb, W-E-B-B, at harrowinc.com. Thank you, and this will conclude our call.
spk05: And again, the conference is now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
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