Harrow, Inc.

Q1 2024 Earnings Conference Call


spk02: Good day, everyone, and welcome to the HARO, Inc. First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Jamie Webb, Director of Communications and Investor Relations. Please go ahead.
spk01: Thank you, Operator. Good morning and welcome to Harold's first quarter 2024 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 HARO'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 risks 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 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. The reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company's earnings relief 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 Elbaum, and Harrow's Chief Financial Officer, Andrew Bowles. 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.
spk04: Thanks, Jamie, and welcome to everyone joining us on today's call. I will start as I always do with a reminder to review our earnings release, corporate presentation, and letter to stockholders, all of which are posted to the investor relations section of our website. Our business demonstrated remarkable resilience in the first quarter of 2024. especially given the effects of the change healthcare cyber attack, with revenues for the first quarter of 2024 increasing 33% over the same period in 2023. Here are a few key recent accomplishments of note. We strengthened our management team, adding Greg DePasquale, who started this week in the newly created role of Senior Vice President and Head of Commercials. Greg is responsible for all sales, marketing, and sales operations activities for Harrow's portfolio of branded ophthalmic products. Greg comes to us from a sales leadership role at Regeneron, where he experienced great success driving revenue growth for the retina product ILEA and ILEA HD. Prior to Regeneron, Greg held leadership roles at Essilor, Novartis' retina division, ZEISS, and Bausch & Lomb. We are excited about what Greg brings to Harrow, especially at this time in our development. John Saharik will continue to oversee Harrow's commercial business as Chief Commercial Officer. However, he also serves as the CEO of Impromiss Rx, and he will focus on the day-to-day management of our market-leading Impromiss Rx compounded division. Let's talk about V-VI, the first and only water-free cyclosporine designed to treat the signs and symptoms of dry eye disease. Vevi is the cornerstone product in our dry eye disease franchise. We launched Vevi in January of 2024, and with four months under our belt since the launch, the early success we are seeing in the numbers coupled with feedback from very experienced ophthalmic leaders is gratifying. For our stockholders, given the opportunity we see in the U.S. chronic dry eye disease market, the reception for Vevi thus far should give you confidence and what we are doing at Harrow. Not only have new prescriptions continued to ramp up month to month, but we are now seeing the beginning of our fifth refill cycle. This is very good news as the true value to Harrow stockholders is not in the initial VBI prescription, but in the stream of monthly refills. We're also pleased with our success with market access for VBI. As of our last earnings call in mid-March, only a couple of months ago, Our market access team had secured coverage for just over 40 million lives. I am thrilled to report that this number has since climbed to north of 150 million covered lives for Vivi. New payer contracts are also being added daily. I've always believed that being the best product in a market, while important, isn't enough for long-term success. It must also be accessible and affordable to patients. And I'm delighted to say that our market access strategy is ahead of schedule and is helping to ensure patient access to this amazing new dry eye product. Levi's success is also the result of our dedicated and experienced small but mighty Levi's sales team. Size can matter less when your team has deep experience in the ophthalmic business and specifically with dry eye. And many of our sales leaders have participated in launching products some of the best selling dry disease products. That said, as we ramp up sales, gain coverage, and hit our internal average sales price or ASP targets, we intend to add more Vivi sales professionals. The most rewarding aspect of our Vivi launch so far has been the positive responses from both prescribers and patients. Prescribers are anecdotally reporting that patients who previously found no relief with other treatments are experiencing significant improvements with Vivi, often in as little as two weeks and with little or no adverse side effects. Vivi refills are also a great story. Our data demonstrates and plain common sense supports the notion that patients don't refill a chronic disease prescription unless they're getting relief. The consistent increase in Vivi prescription refills, as I said, now into this fifth cycle, underscores the value Vivi provides to patients nationwide. Let's also spend some time on IHESO, the only J-coded or reimbursable ophthalmic anesthetic in the U.S. market. IHESO is now a full year into its launch. We are pleased with the increase in adoption that we are seeing from eye care professionals in all settings of care, particularly following the recent confirmation from the Centers for Medicare and Medicaid Services, or CMS, that IHESO is separately reimbursable in the physician's office setting of care and for both unilateral and bilateral in-office procedures. As a result, IHESO is well-positioned to gain market penetration, especially among retina specialists, and in particular, with large group purchasers. Since CMS confirms separate payments, we have executed supply agreements with seven large multi-practice strategic accounts that, in the aggregate, are responsible for over 450,000 annual cataract surgeries and over 1.1 million intravitreal injections each year. These supply agreements are critical to our commercial strategy, as is order pull-through at the practice level, which will be a primary focus for Greg over the next few months. One last item of note on IHESO is that the U.S. Patent and Trademark Office recently granted IHESO a new set of patent claims with an expiration date of 2039. We also continue to progress in our strategy to reintroduce triessence to the market. Analytical testing of the commercial scale process performance qualification or PPQ batch of triessence That was manufactured during the week of April 15 is nearing completion and I am pleased to report that the batch has passed all preliminary release parameters. We anticipate having final results by the end of May and we intend to communicate our plan for the balance of our tri essence relaunch program during the current calendar quarter. I want to add that we are making solid progress with our interior segment products as well. And we expect this line of products to continue to be valuable for eye care physician customers who count on these products on a daily basis to maintain the eye health of their patients. These products have great market access stories as well. For example, you can see from slide six in our corporate presentation, Madison has 88% coverage or approximately 276 million covered lives. while Elevero has 75% coverage or 236 million covered lives. It's up to us to get out there and tell the stories of these great products, and we are. Lastly, I want to confirm that the progress we reported last quarter in our Imprimis RX compounding business is continuing. We are firmly back on track with our historical growth trajectory over the last several years of low double-digit growth in this business. Our balance sheet continues to be solid with $76 million in cash and cash equivalents, including our investment in Eaton Pharmaceuticals as of the end of the first quarter. Since the close of the first quarter, however, we divested our non-strategic holdings of about 2 million shares in Eaton, adding $5.5 million to our cash position, which can now be deployed into more strategic investments and activities. In closing, Harold has made critical strides executing our five-year strategic plan. And this progress and what we're working on currently are the sources for the tremendous enthusiasm for what lies ahead during the balance of 2024. We're now happy to answer your questions. I will pause to have our operator pull for questions. Operator?
spk02: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jeffrey Cohen with Ladenburg-Bauman. Please go ahead.
spk03: Hi, Mark and Andrew. How are you? Morning, Jeff. So, I guess, firstly, could you talk about V-VI a bit? It looks like you made some strong progress on Covered Lives. How does that look for the balance of the year on the Covered Lives and remind us how things look with Medicare and CMS?
spk04: Yes, so obviously in a matter of really less than two months, we've dramatically increased the number of covered lives, as I said on the call, from the low 40 million range to more than 150 million. And we continue to add covered lives almost on a daily basis. We expect that to continue through the balance of the year and into the first quarter of next year. From the time that we launched V-VI, we always said that coverage was about an 18-month activity and that Medicare Part D coverage in particular would take some time. The coverage improvements that we're seeing with V-VI, I think, may accelerate our timeframes, but right now we're kind of still leaving the overall coverage picture in that Q1 of 2025 range. But you should expect on a quarterly basis in August when we report Q2 numbers to see further improvements and then further improvements in November when we report again.
spk03: Got it. That's helpful. Andrew, any comment on margins or margins at all as far as gross margins for 24 and how you expect them to fold out or any cadence or any guidance on the margin side for the year?
spk06: Yeah, absolutely, Jeff. Thanks for the question. Good morning. On gross margins, core gross margins in particular, where we're backing out the amortization of acquisition NDAs for the non-cash expense. We expect those right now in the mid-70s to float up, hopefully into the low 80s by the end of the year. And the reason for that is as the company grows this year from a revenue standpoint, most of that growth we expect to come from the branded products, which are going to carry a higher gross margin profile than our compounded products.
spk03: Got it. Okay. And could you talk about, we've heard about this cyber attack from a couple folks out there. So was there an impact on the revenue for Q2? And if so, is that impact going to be seeping back in for Q3? Or from Q1 to Q2, sorry. Sure.
spk04: You know, obviously, and you've heard from other companies you've covered, the change cyber attack had a big impact on the overall US healthcare industry. It certainly had an impact on our customers. And in Q1, to be clear, it had a material impact on our sales. We're still assessing the total hit, but it's definitely in the millions of dollars. The good news, I think, is that we saw signs of improvement in the month of March and in April, and we're seeing the overall hit kind of die down. Uh, you know, and frankly, the month of April and Q2 in general, where the numbers look pretty good. So, uh, we, we think the, uh, the risks and the damage from the change cyber attack are waning for sure.
spk03: Okay. Got it. And then lastly, for us, could you talk about the top line and it's a cadence for 2024, anything to guide us on as far as, uh, quarterly readouts?
spk04: Yes. So, you know, we don't really give quarterly guidance, as you know, uh, we've given a guidance number for the 2024 period, which is greater than $180 million. Um, and you know, what I can tell you is, is we have kind of creeped into 2024 second quarter. So this present quarter, the numbers look pretty good. And, uh, We have a lot of interesting activities, I think, that we're excited about this year that give us even greater confidence that we'll be able to focus on the greater than sign of the 180 million and not just on the 180 million, but hopefully going over 180 in a more pronounced way.
spk03: Got it. Is there any reason to believe it would not be sequential through the balance of the year? Talk about that.
spk06: Yeah, Jeff, so the answer to that is I think it depends. Our belief is we will see sequential quarterly revenue growth. There are times, though, where we'll see wholesaler stocking quarter to quarter that may have some fluctuations. But our general expectation this year is that each quarter we will continue to see revenue growth. Part of that is, you know, Mark talked about the VIVI resales coming in. Those should just mount and grow quickly. and that will help extend and really accentuate that quarterly revenue growth, we believe, in addition to, you know, the additional new accounts on IHESA and that pull through on some of these larger account wins that we landed recently.
spk03: Perfect. Okay, that does it for us. Thanks for the questions. Nice quarter.
spk05: Thanks, Jeff. Thanks, Jeff.
spk02: The next question comes from Chase Knickerbocker with Craig Hallam. Please go ahead.
spk00: Good morning. Thanks for taking the questions, guys. I just want to start first on kind of that impact from change. Those millions of dollars of impact, Mark, that you just mentioned, was that primarily in the anterior segment kind of products bucket? And then maybe a related question, can you kind of speak to if there was any kind of impact from change just from like a position payment perspective driving less willingness there that kind of drove sequential declines in volumes for IHESO in Q1, and then along those lines, just maybe speak to what you're seeing so far in Q2 for IHESO. I think the script data that we've seen so far in April has gotten some people excited from an acceleration perspective now that you have that J-code.
spk04: Yeah, so thanks for the question, and welcome to the mix, by the way. Good to speak with you. The assessment that we've done so far has really been on IHESO with respect to the change cyber attack. And so when I say that the hit has been in the millions of dollars, that assessment is really just for IHESO. We're still looking at the other lines of our business. As we think about what our options are with respect to the change healthcare cyber attack. So I really can't comment on anything other than IHESO specifically, but it certainly was in the millions of dollars. As far as IHESO into quarter two, we are seeing a pickup. And I would say that the pickup is not only due to the waning nature of the changed uh, healthcare cyber attack, which certainly affected our customers. Uh, I was in an office in New Jersey recently, and this, this doctor was still not getting paid. In fact, I know of several accounts that were taking out personal loans in order to make payroll. So this is a very serious event, uh, not only for our customers, but for the entire healthcare system in the United States. I think the good news on IESO, is that we have seen a recovery, not only, as I said, because of the waning nature of change, but primarily because of what happened on March the 20th with CMS confirming that IHESO was separately payable, and then only a few hours later confirming that it was separately payable in the office for not only unilateral but also bilateral cases. completely changed the game for us in terms of our ability to sell that product into the office setting. And we say that for good reason, because our J code, our ability to get reimbursement in the surgical setting is limited. You know, it's a temporary passive period, but that is simply not the case for the office setting. And so we have permanence there, we have a permanent J code, and we have now confirmation that it is separately payable. So we are seeing an uptick in a meaningful way for IESO. That was one of, I think, the attractants to Greg, along with some other interesting attractants as well, to come and join HARO. And he's going to do a great job, I think, you know, helping us pull through with the strategic accounts that we have signed since March 20th and then, you know, numerous others that are in the works.
spk00: Got it. And then maybe just kind of parlaying that into kind of peeling back the layers on guidance. Just to confirm, there's still no tri-essence contribution in that. And then just maybe speak to what that $180 million floor is. kind of assumes from a sequential growth perspective, the largest growth, you know, driver sequentially, certainly in our model, is IHESO. Can you just kind of confirm that? And then on the anterior segment ocular surface products, does it assume a fairly meaningful kind of sequential growth from that bucket of products as well, Mark?
spk04: Andrew, you want to take both of those on guidance related to inclusion of triessence and then anterior surface?
spk06: Yeah. Hey, Chase. Good morning. In regards to Triessence, just to confirm, the 180 does not include any contribution from Triessence on the revenue side. We feel good about that number regardless of any outcome with Triessence and the ability to relaunch that product this year. In regard to sort of product contribution to that revenue number, IESO is definitely going to be a big contributor, and that's what we have modeled, certainly, from a product perspective. VIVI is really kicking in, too. I've been surprised at what we had modeled and how the actuals are coming in. The refill rates are higher than remodeled, which is, for a product like this where it's chronic and refills are super important to actual rubbing contribution. we're seeing a resale rate much higher where we're taking up our own internal expectations. So, Vivi could be a bigger contributor than we initially thought as well. And then on the other anterior segment products, you know, we talked a little bit about the change impact to IHESO, and certainly we focused in on that impact internally, but But we definitely saw fluctuations in volatility in the other front of the eye products during the first quarter. And we think part of that was related to change. But we're also investing a little bit on the sales and marketing side for those other products, bringing in some additional commercial resources to help stabilize and then turn those products into growth products as well. So our expectation is we should get growth in all of the product lines, including the Impermiss Rx business, which we didn't really even discuss here. But that product line and business is returning to growth as well from a top line perspective.
spk00: Thanks, Andrew. And then just last for me, guys. I just want to talk a little bit about the supply agreements with those seven large multi-practice organizations. you know, what are the terms there? Is that essentially just, you know, you guys have access to their clinic network and now it's a fairly easy process for those individual clinics to adopt when you kind of send your sales rep out and, you know, kind of pull that, you know, demand through? Or is there some sort of contracted kind of volume commitment from these large kind of multi-practice organizations? Just kind of dive into a little bit more detail around terms there. Thank you.
spk04: Sure, sure. I can't get into specific terms with, you know, with a individual account but it's a bit of a mix actually you know some some of these deals are essentially licenses to hunt if you will and they're really more than that though because in order to get into some of these practices you know you really need to have authorization and approval it's got to be easy to for the physician to go ahead and make an order and ultimately purchase. In other contracts, we certainly have volume discounts and other incentives built into those agreements. But it's a bit of a mixed bag. And I think the exciting thing for us is it's not easy to get these agreements in place, number one. And I think the most important feature that I'm seeing, and I believe you'll start to see this more in the numbers as we progress into the quarter and into the third quarter as well, is the pull-through. Pull-through is the key. And we certainly are signing these agreements, but I think our team is doing a much better job of pull-through and actually getting orders from these accounts. I think you're going to see more of those numbers Strategic accounts happen in the retina side, which is very exciting. And that really hasn't even begun to kind of kick in, but we expect it to. And certainly Greg's involvement will, I think, support that effort.
spk00: Thanks, Chase.
spk02: The next question comes from Brooks O'Neill with Lake Street Capital. Please go ahead.
spk05: Thank you. Good morning. I jumped on a few minutes late, so if I ask you about something you talked about already, just mention it and I'll read the transcript. But I was hoping you could provide a little color on your pricing realization, in particular for the two e-branded drugs and what you're seeing. and how that's impacting your performance so far with those products?
spk04: Yes, so pricing, you know, really from our perspective is all about ASP, so our average selling price, which is really kind of what we end up getting. I can't go into ASP specifically by product for competitive reasons, but what I can tell you is, you know, With respect to both IHESO and V-VI, we're really pleased with where we are. And internally, I think we're probably ahead of where we thought we would be. But we're still getting data. Particularly with V-VI, it's a new launch, but we're pleased with where we are on ASP. And as we collect more data, I think there'll be more visibility into kind of where we are with that publicly. Perfect.
spk05: Yes. And then I'm just curious, I think the G&A spending was a couple million higher than we were thinking. Not a shock to me at all, but I'm just curious how you're thinking about your level of G&A spending so far and what you anticipate sort of for the balance of the year.
spk04: Andrew, you want to take that?
spk06: Sure. Hey, Brooks. Morning. Morning. In regards to SG&A and spend there, so the answer, as we look at the year, the answer is it depends. We're trying to manage to that leverage ratio number that we talked about on the last call coming in under five times. And so if revenue growth is there, if we're able to support support the revenue growth and can with additional resources on the sales and marketing side to drive further revenue growth and still hit our EBITDA number, at least from what we project internally, then we're going to do that. Right now, the expectation is we'll make some incremental investments on the sales and marketing side and G&A side to just support what we have. And if there's an opportunity to invest, we will, but we're going to be cautious and sort of take a measured approach on that expense to manage the EBITDA number. I think last quarter we talked about, too, right after we filed the AK regarding the announcement from CMS or the message from CMS, we put up job postings for additional AHISO key account managers. And so we invested in that sales floor. So we'll see a little bit of additional sales and marketing expense related to that in Q2. And if there are opportunities to continue to be strategic with deployment of capital on the sales and marketing side, that will drive revenue growth, and we'll do that. But in full, we'll be cautious and measured about the approach to make sure we're managing to even a number that we have targeted.
spk05: Perfect. Thanks for that, Collin. Congratulations on a great start to the year. Thanks, Brooks.
spk02: That's all the time we have for questions today. I would like to turn the conference back over to Mark Baum for any closing remarks.
spk04: Thanks, Betsy, and thank you for everyone joining today. We remain confident that our five-year strategic plan is going to lead to HARO becoming a leader in the North American ophthalmic pharmaceuticals industry. And your trust and collaboration are the cornerstones of our success, and we're excited to share further developments in the near term and, of course, in upcoming quarters. Thank you once again for your commitment to our journey towards innovation and excellence, and thank you to everyone for attending today's call and for your interest in Harrow. If you have any investor-related questions, please email jamiewebb at jay, This will conclude our call.
spk02: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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