Harrow, Inc.

Good afternoon and welcome to HARO's third quarter 2022 earnings conference call. My name is Andrea and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Jamie Webb, Director of Communications and Investor Relations for HARO. Please go ahead.

Thank you, operator. Good afternoon and welcome to Harold's third 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 risk and uncertainties, many of which are beyond Harold's control, including risk 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-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 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'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 are 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 Elbaum, and Harrow'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.

Thanks, Shami, and thanks to everyone for joining us on today's call. Our third quarter 2022 earnings release, corporate presentation, and letter to stockholders have all been posted to the investor relations section of our website. I would encourage you to review them. These are great resources for anyone interested in what we have done and what we intend to accomplish going forward. I'd like to begin by reminding you of what I said on our second quarter earnings conference call. And that is that I believe the back half of 2022 would be a period of great consequence for HARO and one that would yield some of the most transformative and hopefully financially valuable events in our history. I believe the HARO team is making good on that statement, given what has transpired in the past 60 days, including one, the FDA approval of IHESO, formerly known as AMP 100, for ocular surface anesthesia. Two, The launch of Fortisite, which is a patent-pending family of high-concentration, refrigeration-stable, compounded, fortified antibiotics. Three, the sale of our non-ophthalmology product line, which enhances our balance sheet and achieved a strategic imperative for Harrow, and that is to be a pure-play, U.S.-based, U.S.-focused ophthalmic pharmaceutical company. And four, the completion of Melt Pharmaceuticals' pivotal Phase II efficacy study for its Melt 300 program. Five, the launch of Atropine.com to help bring to market a family of patent-pending compounded atropine formulations. And last, but certainly not least, six, we made critical progress with product acquisition opportunities we've been pursuing for quite some time. While we can't guarantee any one of these deals will get done, I believe we're getting close and that completing any of these deals could meaningfully impact our long-term goal of becoming a leading U.S. ophthalmic pharmaceutical company. So stay tuned. I'd also like to share some highlights of our results for the third quarter ended September 30th, 2022. Third quarter revenues of $22.8 million represent a 22% increase over the prior year quarter and a slight decrease over the second quarter of 2022, primarily as a result of supply chain challenges, along with a return to the seasonality that we've historically seen in the summer. Third quarter gross profit was $16.1 million, a 17% increase over gross profit for the year earlier period of $13.8 million. Core gross margin for the third quarter of 2022 was 72%, compared with the prior year's 74%. Gap net loss in the third quarter of 2022 was $6.5 million, compared to $8.3 million last year, and adjusted EBITDA was $2.5 million. Core results for the third quarter of 2022 included core net loss of $1.5 million and core diluted net loss per share of $0.06. I am pleased with the progress we made in the implementation of our strategic plan, and I stand by my belief that 2022 was the setup year that we've been working towards for many previous years. With the foundation we built nearly complete, we are set for 2023, which we foresee is a breakout year for Harrow. As you should expect, the HARO team is focused on getting the market access strategy, infrastructure, and systems in place to successfully launch IHESO early in the first half of 2023. I remain confident that within 24 months post-launch of IHESO, with our market access strategy in place, HARO's revenues should more than double and our core gross margins should float meaningfully higher. Concurrent with the launch of IHESO, we continue to drive other sources of revenue growth, including revenues from our portfolio of branded pharmaceutical products and compounded pharmaceutical products, including Fortisite, Atropine.com, and others that we are advancing through our pipeline. I do want to mention that we continue to own non-controlling but meaningful equity positions in Surface Ophthalmics, Melt Pharmaceuticals, and Eaton Pharmaceuticals. And Eaton just reported a nice quarter. I also want to call special attention to Melt Pharmaceuticals, which recently completed the enrollment of patients in a Phase II efficacy and safety study of Melt 300. This is a pivotal study, and it's expected to report top-line clinical results in the next few weeks. This data, which should come between Thanksgiving and Christmas, is of great interest to us at Harrow because we own a very large percentage of Melt, And we have tremendous confidence in the commercial viability of their product candidates. Once again, there is quite a bit more color on these issues and others in our letter to stockholders, which is published each quarter. And if you're a stockholder or considering becoming a stockholder of Harrow, I would encourage you to read them. They are our attempt to provide a consistent and meaningful level of transparency into our company. With that said, Now we are happy to take your questions. I will pause to have our operator poll for questions. Operator?