Harrow, Inc.

Good afternoon, and welcome to HARO's second quarter 2023 earnings conference call. My name is Kate, 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 second quarter 2023 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 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. HARO's results may differ materially from those projected. HARO 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 referred 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.harrow.com. Joining me on today's call are Harrow's Chief Executive Officer, Mark Albom, 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, Jamie, and thanks to everyone for joining us on today's call. As always, I would recommend that you review our second quarter 2023 earnings release, corporate presentation, and letter to stockholders, all of which have been posted to the investor relations section of our corporate website. These documents are important to review as we continue to use our time on these calls to provide color on the operational highlights from the quarter and, of course, taking your questions. To begin, based on our results to date, we remain confident in our 2023 financial guidance of $135 million to $143 million in net revenues and $44 million to $50 million in adjusted EBITDA. We intend to provide an update to our financial guidance later in the year after a few months of operations with our recently launched and newly acquired branded products. As I said in my stockholder letter, what a difference a few months makes. Since our last quarterly earnings call, we've added numerous products to our portfolio, including substantially all of the products in the North American Santan Ophthalmic Pharmaceutical Portfolio, as well as Vivi from NovaLeak. This is on top of the Fab Five portfolio we acquired from Novartis and closed on in the first quarter of 2023. Through the Santan acquisition, we acquired the rights to five branded prescription products and one OTC product for the U.S. market, as well as Canadian rights to one branded prescription product and one OTC product. Demand trends for all of the San10 products are positive, and most assets have IP through 2028 or beyond. We expect this transaction to be immediately accretive to earnings following the NDA, New Drug Application, or MA, Marketing Authorization, transfers, which we are currently working on. Now, under the NovaLeak transaction, we acquired the North American rights to FDA-approved Vivi, the first and only cyclosporine-based product indicated for both signs and symptoms of dry eye disease. Vivi is based on NovaLeak's proprietary water-free eye-solve technology. In my view, NovaLeak through eye-solve has essentially reinvented the eye drop. I have put water-free NovaLeak products on my eye, and they feel completely different, almost like a puff of air is hitting your eye. In fact, my experience is that you barely know the drop has hit your eye. It's a totally unique feel that I believe prescribers and patients will love. Those who have followed Harold's growth and development know that we have been keenly interested in and have studied the dry eye space for many years. My view is that the U.S. dry eye market will consist of two camps. On the one side, you'll have products from what I'm calling the water world. And on the other side, you'll have products from the water-free world. Based on what I have seen, In the data and my experience putting an ISOL-based product on my eye, I am 100% all in as a water-free believer. I believe it will be challenging to sell what I am calling water world products when the water-free options are soon available. We believe Vivi can be a game changer, not only because of ISOL technology, but also because Vivi contains a 0.1% concentration of the immunosuppressant cyclosporine. And no other active pharmaceutical ingredient has been prescribed to treat dry eye disease globally and in the United States more than cyclosporine. It is the number one most prescribed active pharmaceutical ingredient for this patient population. Before Vivi, though, The product profiles for cyclosporine-based products are challenging. You can review slide 10 of our corporate deck, which is on our website, for a label comparison of these products. You'll get a sense of what dry eye patients and their prescribers have been dealing with with these legacy products for many years. We believe U.S. prescribers want a cyclosporine-based dry eye formulation with a new product profile. And that's what Vivi delivers. Vivi offers exceptional patient comfort, provides rapid clinical onset of 29 days. It has an extraordinarily mild adverse event profile, and data has shown that it continues to help patients with both signs and symptoms of dry eye disease out to one year. As I said in my letter to stockholders, I view the U.S. dry eye market as totally wide open, And this is despite the handful or so of products that are currently approved and others that are in development. The market is large and growing and includes over 16 plus million diagnosed dry eye disease patients, of which about 9 million are diagnosed with moderate to severe disease. For a number of reasons, including the suboptimal profiles of the existing prescription choices, which, by the way, still do over $1 billion in annual revenue in the U.S. market alone, only about 10% of the patient population, the dry eye patient population, is benefiting from a prescription dry eye therapy. And we intend to upend the U.S. dry eye market by providing this new choice, Vivi, to those dry eye patients who have tried and failed one or more of the existing dry eye prescription products, but we also want to increase the overall pool of diagnosed patients who are on a prescription therapy, who can benefit from a prescription therapy. Importantly, because of Vivi's unique comfort and efficacy of attributes, we believe a meaningful number of Vivi patients will also choose to maintain Vivi therapy to treat their disease. With Vivi and the other adjacent ocular surface disease products we now own, including Fresh Coat, Tobredex ST, and Flarex, Aero is planting a flag in the U.S. dry eye and ocular surface disease markets, and we intend to compete vigorously to win meaningful market share and ultimately help millions of suffering American dry eye disease patients. And of course, we remain resolutely focused on and excited about iHESO, which we officially launched in May of this year at the American Society of Cataract and Refractive Surgeons annual meeting in San Diego. While it is still very early in its launch, we are encouraged, especially given the math on the iHESO market opportunity, which is very straightforward. there are two main anesthetic use cases for IHESO. One, for surgical interventions, such as cataract surgery, glaucoma surgery, and retina procedures, all of which take place in a hospital or an outpatient setting of care. And then secondly, an intervention in a physician's office, such as an intravitreal injection. We estimate that in the aggregate, there are more than 12 million such use cases in the U.S. each year. And we were granted a product-specific JCO that's J2403 for all such use cases. And the current wholesale acquisition cost or WAC pricing on IESO is $544 per unit. The positive feedback we're getting from early adopters of iHESO on its clinical value is adding to our enthusiasm about the product. iHESO just works, and it works well. iHESO users have indicated that there are even more potential applications than we had previously anticipated, that eye care professionals are even eliminating opioids from many of their surgeries. And that IHESO is getting reimbursed in both the ambulatory surgery center setting of care as well as for in-office applications as well, that second setting of care. In summary, we've been hard at work building a company that we believe with the current HARO product portfolio and continued execution by the HARO team can become a top-tier U.S.-focused ophthalmic pharmaceutical company. We now believe that we have five discreet, what I call revenue buckets, with nine-figure annual revenue potential. These revenue buckets, which are described in full detail in our stockholders letter, include bucket one, GESAISO. Bucket two is our dry eye disease and other ocular surface conditions bucket, which is led by Vevi. Bucket three has one product, triessence. Bucket four consists of our specialty, anterior segment products. And bucket five is our tried and true cornerstone, imprimis RX, compounded pharmaceutical products business. So those are the five buckets, as I said, more fully described in our stockholder letter. Some of the revenue buckets consist of a single product and others contain groups of products. I believe IHESO and VIVI are our largest revenue opportunities without question. That said, they are also new sources of revenue, with IHESO only launching a few months ago and VIVI expected to launch later in the year. Regardless of the exact timing of the start and steady build of revenue flow from these two exciting products, the key is that, number one, HERO now has them both. And two, we have an incredibly strong conviction of market need and ultimately market acceptance of both products. And, of course, now we have one of the most comprehensive ophthalmic portfolios of products in the U.S. market, a position we always wanted to be in and a position that we now are in. We're happy to take your questions. I'll pause to have our operator poll for questions. Operator?