Harrow, Inc.

Good morning and welcome to HERO's second quarter 2024 earnings conference call. My name is Josh 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 HERO.

Thank you, operator. Good

morning and welcome to HERO's second 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 law. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond HERO's control, including risks and uncertainties described from time to time in its SEC filings, such as the risks 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 are 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. HERO's results may differ materially from those projected. HERO displays 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, HERO 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 early 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, .hero.com. Joining me on today's call are HERO's Chief Executive Officer, Mark L. Baum, and HERO's Chief Financial Officer, Andrew Boll. 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 good morning and welcome to our second quarter 2024 conference call. Hopefully, you've reviewed our earnings release, corporate presentation, and letter to stockholders, all of which are available on the investor relations section of our website. As you now know, HERO achieved record quarterly revenue of $48.9 million. That's a 46% increase over the prior year quarter and a 42% increase over the previous quarter. Every part of our business contributed to these record results. I believe the data, some of which I will share shortly, demonstrate that IHESO is just ripping, and we knocked it out of the park with VIVI. Our interior segment business is performing beautifully, with revenue increasing by over versus the first quarter of this year. And our impromptu Rx compounding subsidiary achieved its highest quarterly revenue in its history. I'm happy to report that branded revenue is now firmly ahead of compounded revenue. This is now showing up in our margins as they float higher, as promised. We expect that branded revenue will continue to dominate overall revenues going forward, and in fact, that this should accelerate. Based on our overall operational momentum, we expect revenue in the back half of 2024 to outpace revenue in the first half of this year. And that's especially true if Triessence is relaunched later this year. I remain confident that 2024 revenue will be greater than $180 million, excluding any Triessence contribution. And at this point, I believe the question is just how much greater than $180 million we will print. I'll now provide some commentary on the quarter and why we're upbeat about the balance of this year, starting with our Retina Market products, which consist of IHESO and Triessence. IHESO quarterly unit volumes nearly doubled, up about 98% from last quarter. We've now signed 24 supply agreements with strategic retina practice accounts this year, including 10 in the second quarter and another 7 since June 30th. Probably, no, definitely the most exciting statement in my letter to stockholders was the announcement of a recent agreement with the largest and highest volume retina practice group in the United States. This agreement could have a big impact for us. And while we'll be phased in over the coming quarters, it should fuel and accelerate IHESO growth. And it's a major proof point for the value that IHESO can provide to the most respected practice groups in the country. On Triessence, I have a good interim update to share. We are making progress towards the eventual relaunch of Triessence, with all initial analytical testing of the second PPQ batch being in specification. In fact, the third PPQ batch is now scheduled for production in a matter of days, actually to be precise next week. More details on our Triessence relaunch work can be found in my letter to stockholders, including my view of our commercial prospects, which follow meetings with numerous key figures in the retina community at the recent ASRS meeting in Stockholm, Sweden. Moving on to dry eye disease, our dry eye disease franchise, which is anchored by VIVI, knocked it out of the park. And here's what I mean. Our latest corporate presentation, which provides select data from Just Fill Rx, that's our VIVI pharmacy partner, shows total prescriptions in the second quarter of 2024, increasing 212% from the first quarter of this year. New prescriptions continue to roll in, and critically, refills remain a major contributor to VIVI growth, with our eighth cycle of monthly refills underway. Keep in mind, this data doesn't include retail pharmacies and other access points for VIVI, which would increase these numbers markedly. VIVI prescribers are now about 3,000 strong, and this number grows literally every day. Another key factor driving VIVI's success is our market access strategy. You see, even the most clinically impressive drugs can fall short of their potential if it's not accessible to patients. VIVI is currently exceeding our internal market access goals with covered lives now beyond 166 million, and commercial coverage is at approximately 58%, and Medicaid coverage is currently at 80% and expected to reach 100% by the time we report third quarter results. We're particularly pleased with the positive feedback from physicians about their patients' successes with VIVI. Their feedback confirms that VIVI works quickly, has a longer durability of action, and is extraordinarily tolerable, resulting in wonderfully positive treatment outcomes. And here's a shameless plug. Given the number of people on this call, mathematically, there's a good chance that a fair number of you actually suffer from dry eye disease. I want to encourage you to speak to your eye care professionals to see if VIVI can help you. The proof is in the pudding, especially if you're a heroin stockholder. Patients who have put other cyclosporins in their eyes, including me, my family, and our friends, cannot believe how VIVI feels. It just feels different, and it works different in a good way. If you become a VIVI user, I want to encourage you to please reach out to us. Reach out to me and let me know what you think about VIVI. Because of the VIVI team's long success, and because we intend to compete for every single opportunity to help a dry eye patient, we are investing. By expanding our VIVI Salesforce and opening new territories, we carve the national geography into 59 territories or markets. And currently, we cover only 36 of these markets with feet on the street. But don't worry, our inside Salesforce fills the gaps where we don't have people in these markets, and they do a fantastic job. But a shift is underway, given our success, and assuming we can continue at this current pace, with strong demand and geography-specific market access wins, we intend to open up new territories throughout the year. I love what we've done so far, and I really love VIVI as a product, as you can tell. But we have barely scratched the surface with what we can do and what we intend to do with VIVI. I believe, and certainly the VIVI commercial team believes, that VIVI has best in class potential in the dry eye disease category. But VIVI, you ain't seen nothing yet. It's a long-term play for us to help millions of people suffering from dry eye disease, and we intend to sell more VIVI in 2035 than we do in 2025. As stockholders expect VIVI to be a major driver of cash flow and stockholder value for many years to come. I'll conclude by adding that while the HERO team delivered great results for the second quarter, executing beautifully, we are laser-focused on the back half of the year, meeting our revenue targets and exceeding them, in fact, and seizing the opportunity we see to become North America's leading ophthalmic pharmaceutical company. I believe HERO's contribution to our customers and their patients is growing, and that HERO, which we started from scratch not too long ago, is on the cusp of becoming a very special and valuable ophthalmic pharmaceutical company. While we made a lot of progress, we truly are just getting started. We're happy now to answer your questions. I'll pause to have our operator poll for questions. Operator?

Thank you. We will now begin the question and answer session. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.

One moment for questions. Our first question comes from

Jeffrey Cohen with Leidenberg, Dowman & Company. You may proceed.

Hey, good morning, Mark. How are you? Good morning, Jeff. I got some great quotes. Much appreciated. So a few questions come to mind. So specific on VIVI, could you talk about Medicare? I heard you call out the 166 million COVID lives, 58% in Medicaid, 80%. Did you call out Medicare or is there any commentary there?

Yeah, so we are going through the process of attaining Medicare coverage now. I think when we launched the product, we said that this was going to be an 18-month to 24-month process to get all of the requisite coverage. And we are absolutely pursuing Medicare coverage. We didn't call Medicare coverage out specifically because that's not a part of our coverage universe now, but we are certainly in the process, in an active negotiation process with those plans.

Got it. OK, perfect. On the commercial side, could you talk about the size or scope of the VIVI Salesforce and maybe give us a general flavor of the overall commercial size now, perhaps FTEs and perhaps what kind of 24 growth and 25 growth on that organization we should anticipate?

Yes, so the VIVI Salesforce, as I mentioned on the call, we hack up the national geography into specific markets and we only cover a little over half of those markets with feet on the street. The rest of the markets that we don't have discrete individuals covering is covered by our inside Salesforce. And as I mentioned on the call, they do a fantastic job. However, because of the market access wins that we've had, because of the word sort of spreading, I think, within the ophthalmic community amongst ophthalmologists and optometrists and the, I think, growing interest in VIVI, we are going to invest in expanding our sales organization. And so the goal is to certainly have all of those markets covered with feet on the street. And I think you should expect that to happen over the coming quarters. It's not going to happen instantaneously. Remember that when we launch products, we launch products to not only serve our customers and their patients, but to also ensure that we don't, you know, get over our skis financially. And so we've been able to launch products over the years in a profitable way, in a very disciplined way. And we're going to continue to do that over the coming quarters as we fill out our VIVI sales organization, which has been remarkably productive. The degree to which this team and their leadership have executed is remarkable. And we're really proud of them and grateful for what they've done. But there's a lot left to be done. We've really just scratched the surface, as I said, on the call, and we'll continue to grow the organization in 24 and 25. Andrew, do you want to add to that?

I'll just echo what you said, Mark, about letting sort of the access and revenue drive the sales force and making sure we're not going to get over our skis. That said, I think I said this on the last call, I love VIVI. We see so much potential from a revenue standpoint, from a long-term value perspective. The refill rate just continues to perform amazingly well for that product. And as Mark said, the leadership on that sales team is just doing a fantastic job. And so as we make investments, I love making investments in that sales force, and we're looking for ways to do that every day. And so it's going to be an exciting product for us for a long time. And certainly, I know the patients are benefiting, and we're excited to increase access and increase the patient availability of the product.

I think the number one patient that you know about is your dear old dad, Andrew. I mean, your dad is a VIVI patient who just loves VIVI. That's

right.

Got it. I got one more quick one on Ahizo, if you don't mind. You talked about these 24 supply agreements. Can you give us a little taste of what a supply agreement looks like, how many users associated with a typical supply agreement and any geographical commentary? Thanks.

Sure. So the supply agreements, to be clear, are licenses to hunt, if you will. These organizations, many of which are backed by private equity groups, require that you if you want to sell to the entire organization that you contract with sort of the head of the organization. So that's what these agreements allow us to do. They allow us to, in a very friction-free way, get into the individual sites that are parts of these organizations, the satellites, if you will, and sell into those organizations. The truth is, though, that you can't get these deals done unless you have folks within these organizations that want the products. And so the reason why we've been able to get these supply agreements over the line is because of the voices, the physician voices within these organizations that want the products. And they have been sort of carrying the torch for certainly IHESA within their organizations. And now that we have these deals done, we will phase those programs in. As I mentioned on the call, we just signed the largest retina practice group in the US, and it's a very big win for us and a very big opportunity. But it will take several quarters to implement and get these agreements sold, or get the products sold throughout these organizations. But that's part of the reason why we're so bullish on being able to grow revenue over the coming quarters as these agreements get fully implemented and phased in.

Super. Mark Andrews, thanks for taking our questions.

Thanks, Jeff. Thanks, Jeff.

Thank you. Our next question comes from Chase Nickerbacher with Craig Hallam. You may proceed.

Good morning, Mark and Andrew. Obviously, the quarter speaks for itself, but want to share my congratulations as well in the execution here. Maybe just first a couple specific market access questions from me. Can you just share kind of what you would expect the average copay to be for Medicaid patients? And then kind of the same question on commercial copays. Are we still doing kind of zero dollars on the first prescription? Speaking on V-Vie, of course. And then maybe speak to some of the barriers that might be up on some of those commercial contracts. Kind of speak to what sort of step edits are in place. Thanks.

Yeah, I'll just comment. And I think it's referenced in the letter to stockholders that we've had some big wins on Medicaid specifically in some very large markets in Texas and certainly in California. As I said in my letter to stockholders now, Medicaid patients have access to V-Vie with zero copay. So zero out of pocket, which is fantastic for a market of that size. Andrew, do you want to comment on some additional market access information and specifically any barriers and step edits?

And just coming more, a little bit more on the Medicaid side, you know, you know, this is state specific typically on the plans. But as Mark said, the copays are generally really low. In some cases, it's low to zero dollars. In many cases, you know, single digits. So it's a great, great win for the access team. On the step edit side, we are seeing some plans requiring that prior authorization. Typically, it's a failed patient on a different dry product. The good news for us is the market is full of patients that have failed other products. We talked about this in the launch V-Vie that the existing dry market kind of lacked a really good product. And so there are a lot of patients that have tried products and failed. And so while that step edit is there, there is a large population of patients that have failed other dry products. And so our ability to get through the steps and get the product paid for is isn't a huge barrier. And we're seeing increased wins with even prior authorization approvals.

Got it. That's helpful. And then kind of building off that, how should how should investors be thinking about Medicare coverage here? Obviously, it's early days, but do you guys have goals for kind of progress there by the end of the year, you know, by midway next? I mean, how are you guys thinking about Medicare coverage and then maybe speak to what you would expect there as far as how your market access team is trying to make that as affordable, affordable as possible for Medicare beneficiaries for V-Vie?

Yes, to be clear, as I said in my prepared remarks, we intend to compete for every single dry eye prescription and to be able to help every single dry eye disease patient in need. And that includes Medicare beneficiaries. So we're in active discussions and have been for quite some time to be able to serve that patient population. The goal, I think, from the time that we launched the product, we were realistic that it was going to take 18 to 24 months or so to get all of the coverage in place that we would need, you know, for the following many, many years as we as we grew this product. And so I don't think that there's anything that's changed today from where we, you know, had been planning when we launched the product. But we are going after Medicare coverage. We intend to have coverage, hopefully in the first quarter or so of next year to have that in place. But I can't really comment specifically on, you know, how those negotiations are going, because, you know, it is these are, you know, very competitive markets for that patient population. And as I said, our goal is to be able to serve that patient population. And we intend to aggressively compete for every one of those patients.

Makes sense. And then just maybe on the supply agreements for IHISO, I mean, now up to 24, that's great to see. Could you help us quantify kind of what the overall opportunity is in those within those supply agreements? You said, you know, their licenses to hunt, just kind of how big is that ground? You know, whether you kind of quantify it by maybe like a market share metric or, you know, overall revenue opportunity just to help us kind of think about, you know, what that overall size of those supply agreements are. Thanks.

Yeah, sure. So the agreements that we have in place now, you know, what we haven't done is posted sort of what percentage of the TAM these agreements reflect. And I don't think that we're going to do that. I can give you some additional color and just give you a sense of the scale of some of these agreements. And I'll just give you one data point from the most recent agreement that we signed that I was so excited about to serve the largest retina practice group in the U.S. That group alone has about 2.1 million patient visits per year. 2.1 million. So this is a very large market opportunity. And I would think that many of those patient visits are connected with the administration of introvertrial injections. So it's a very exciting account. But as I said, we have more than two dozen of these agreements in place now. And we intend to serve those groups over time. These agreements have to be phased in and they will be. And that's, as I said, part of the reason why we're so excited about the coming quarters and the coming years, because we really have not yet seen the effects financially from the agreements that we've been able to get in place. But that will happen.

Got it. And then just last for me, I'll hop back in queue. Sorry for so many here. But assuming everything goes right, Mark, when would you expect to relaunch Triasens this year, assuming kind of everything goes smoothly with these one in process batch and the next, the third one here? And then the 100,000 units is kind of what I have was kind of previously here in the Triasens market before all the supply constraints. How are you thinking about penetrating that kind of original opportunity in the first couple quarters after launch?

Yes. So the timing on Triasens, as I said, we're going to be making the third batch next week. It's scheduled for next week, which is amazing. And boy, do I want to thank the team that has been working so diligently for about a year to get us to this point. So they've done an incredible job. And the reason why we've scheduled the third batch is because all of the indications so far is that we've been successful with the second batch. We don't have all of the data, but we have a lot of the data. And we're pretty positive on the balance of the data that we expect to get here in the coming days. In terms of when we might be able to relaunch that product, assuming that we're successful with the third batch, it does take somewhere between 30, and it has taken as long as 60 days to get validated analytical test results from a batch. And so it's very easy to look at the calendar and say, hey, if they're doing this in the middle of August, and even if it takes two months. And I said in the letter that it takes about 30 days to do all the paperwork, you can see that sometime in the fourth quarter, if all goes well, we'll be able to relaunch this product. What I'm most excited about, you know, beyond having inventory finally of this product, is the feedback that I received from retina specialists at ASRS about Triessence. We had meetings with these folks about programs that we were considering working on, and many of these programs got a big thumbs down. These retina specialists said, don't consider that, or here's why I wouldn't work on that. But when we talked to them about Triessence, there was, and I have to, you know, normally you don't want to say all, use the word all, but I would say that all retina specialists that we spoke to, and I spoke to probably 15 high level folks, everyone was really excited to have Triessence back in the market. And so I'm very confident that we're going to be able to sell all that we can produce for quite a long time. Right now, we're very busy, not only preparing for the preparation of this third batch, but also working with our contract manufacturer to schedule additional batches this year and into the first half of next year based on our internal forecast for the product. So Triessence is a winner. The market wants Triessence, and we've got some really exciting plans for Triessence, not only hopefully for this year, but for several years to come to develop the Triessence brand.

Thanks, Mark. Congrats again.

Thanks, Chase.

Thank you. Our next question comes from Mayank Montani with B. Riley Securities. He may proceed.

Good morning, team. Congrats on a strong quarter, and thanks for taking the question. So before we go into the three growth products, could you just maybe help us understand that 40% growth quarter over quarter in the anterior product business?

Well, there's not much to say other than, you know, that portfolio of products, which we acquired from Santan and Novartis. So those two transactions that we did make up that portfolio. And as you recall, we, I think, got a pretty good deal when we acquired those products. And our goal was to stabilize them. They had been falling in terms of their revenues for many years before we got involved. And I think, you know, not only were we trying to stabilize things, but get them back into a growth position. And the thesis was that if we could do that, given the price that we paid and given a long term need for these products, that we would have a financial winner and that we would be able to serve our customers with a very broad portfolio of an amazing toolkit for ophthalmologists and optometrists for many years to come and make a lot of friends in the ophthalmic community with these products to make sure they had access to them. And so that's what we've done. I think we've met our promise there. These products have certainly stabilized. And in fact, from the first quarter, the second quarter, as we said, we had 40 over 40% growth. And to be candid with you, as Andrew told me the other day, the third quarter is looking really good, too. So this is turning out to be a very positive transaction. And I think as in keeping with the other transactions that we were able to complete, you know, five transactions over the course of a couple of years, I think all of them have worked out really well for our stockholders.

Yes, no, that's great to hear. And then on Ahizo, if you're able to segment how unilateral versus bilateral procedure proportions could look like, as you know, there are certain forms of treatments that are having side effects in the other eye where you may need a VEGF. And I'm talking about these complement drugs. So I was just curious, you know, what's your expectation in lateral versus bilateral? And then also, some of these procedures could be retroactively built to January 1st. Is that a reasonably interesting number or is that relatively small? And then I have a follow up on VY.

Yeah, in terms of the retroactivity, I wouldn't make a big deal out of that. That's mainly a benefit for our customers, you know, to be able to ensure that any any issues with billing that were in the past are kind of cleaned up. And that's a good thing from a credibility perspective from us, for us rather. And in terms of, you know, bilateral versus unilateral, this is a really big point to make because it's simple math that if you are selling an account, you know, 2000 units a year and they're only using Ahizo on one eye and, you know, half of the patients are being administered bilateral injections, then you're going to increase your unit volumes with that one account by 50%. And if it's being used on 100% of the patients bilaterally, then your revenues or unit volume demand is going to double. So it's really easy math. It's it's good math. But I think the important thing is that the product is really performing well in the clinic. And, you know, not only in surgical cases, but in laser interventions and glaucoma surgeries, certainly in introvertural injections, we're getting very positive feedback. And I think that's where, you know, the greatest opportunity for unit demand will be, you know, well north of 10 million units per year and growing, especially with, you know, these GA products now that are in the market. So we're excited about that market. That's one of the reasons why Greg DePasquale joined our company. He's already making a big impact. The reason why we have so many of these strategic agreements done and not only done, but now that now we're seeing pull through, you know, purchases through these agreements is because of the great work that Greg and the entire team that's working on Ahizo is doing. I mean, we have a phenomenal team commercially on Ahizo and they're really producing results, but they're just getting started. This is if you look at the overall market share, Mike, of what what we're doing versus what we maybe can do. We have, as I said in the letter, just scratched the surface.

Yeah, no, absolutely. Looking forward to the penetration trends, including, you know, through the course of this year. And I know you're not going to comment on the proportion of contribution to guidance for Rahizo, but sort of my other related question is also around VY, net price assumption, you know, longer term that we could model here. And also, like based on the refill rate, you know, what duration of treatment on average you anticipate patients being on drugs would also be helpful. Just given, you know, we are seeing one of your peers, you know, materially increased guidance. So just kind of trying to understand, you know, what I see, though, and we why on an annual rate basis contribution would be and, you know, what are some of those, at least for VY where we still have to learn more about net price and, you know, number of units per patient over the course of year. If you're able to give some color, that would be helpful.

Sure. So, you know, to be clear, whether it's VY or IHESO, we really will not discuss ASP at all. There's no competitive rationale for us publicly discussing ASP. And so we won't do that. And, you know, I think over time, as we report more on a product specific basis, people like you who have your training will be able to sort of, you know, get a much better idea of kind of where net pricing is or ASP pricing is for these products. In any case, in terms of refill rates or durations of treatment, if you are diagnosed with chronic dry disease and you start VY and, you know, you refill the prescription, what we're seeing is that, you know, the refill rates, and we have a history, by the way, of understanding refill rates for chronic dry disease patients through our compounding formula, so we understand what, you know, good looks like because our refill rates for our compounded formulations were very strong and certainly much higher than even refill rates for FDA approved products historically. But what we're seeing with VY far exceeds what we've seen with our compounded products. And, you know, I don't have any specific information, specific data to give to you, but other than to tell you that we're now in our eighth refill cycle. And if you look at NRX, you know, as a component of TRX, over time, the NRX component of the TRX is going to become smaller because more and more patients are refilling. And so the refills become a larger percentage of the TRX. But given the way our TRX is growing, that's not a bad thing. It's a good thing. And as we add more salespeople in these territories, the NRX will continue to grow. And then you get this sort of amazingly beautiful compounding of prescriptions. Andrew, do you want to add to that?

Yeah, I can add a little color. You know, earlier in the call, Mark mentioned that my father takes VY. And I was there when he first took it. And to see him, who's suffered from all sorts of eye diseases, including terrible dry eye, and he's tried all of the products, I remember still him putting that drop in his eye, the first drop, and he looked at me and he said,

wow.

And it's really helped him as a patient and really, I think, changed his life, his quality of life. And that's one of the reasons we're seeing these refills. There has not been a dry eye product on the market that generates this type of benefit. And so I think you'll continue to see refills reach time. As Mark said, we'll see more and more refills be a part of the TRX number. But we will continue to see NRXs and we'll continue to drive NRXs and new prescriptions. In regards to pricing, too, one of the great things about the Market Access Program is we're focused on making money. And so as we get these Market Access wins, we should see ASP improve. We've got a really generous program right now to make sure we're getting patients on therapy. But overall, the Market Access Program is executing. We're getting wins. And so we should start seeing ASP get a little better on that product as well. And importantly, the refill rates as those increase, we'll continue to see ASP go up as well. Because a lot of those people have gone through the power authorization process and now they're getting a lot of their claims paid for. A lot of the claims for VIVA are paid for. So all good things for VIVA. That's probably the product I'm most excited about. And that tells you how great a product is because IHESO is also an amazing product. As Mark mentioned, we're having tons of wins there. And that's going to be a really big and important product for us for a long time as well.

Great. And my final question about your ASRS meeting at Stockholm. You identified, I believe, some additional strategic opportunities that you're getting to be on the table for now that you're a bigger brand in I-Care. Could you just talk to how you plan to prosecute these and obviously balance against the laser focus that you have with the current product portfolio? And congrats again. Thanks for taking my questions.

Thank you, Mike. Yeah, you know, as I said in the letter, we continue to be on the hunt for wonderful products with great economics that will allow us to serve our customers. You know, we want to be an important company, not only to the ophthalmic community at large, but really to these doctors and their offices. We want to be a contributor to the staff in these offices by giving them products that make their job easier, that get paid for, that don't create prior authorization nightmares for them. So we're looking for products that will allow us to build the persona in ophthalmology as an ophthalmic pharmaceutical company that we can be proud of, that our stockholders can be proud of, that the people who work at Hero can be proud of. And so there are great products out there. And there are also a lot of duds. And Andrew and I have our fingerprints on all of these deals. We work on them together very actively. And we're always on the hunt for things that can help us reach our goals. But as you know, we're not going to overpay. We're not going to get overly excited about something and put ourselves in a financially perilous position. So we have a history of doing deals, I think, that is very positive. I think if you look at the five deals that we've done in the last couple of years, we've been able to generate a tremendous amount of value for our stockholders. And so we are convinced that there are deals out there to be done. And we're actively looking at many of them. And we have a lot to offer to partners. I want to close with that because if you look at our history, whether it's an interior segment product or whether it's a product being sold into the posterior segment, our commercial organization is a winner. I mean, these people know how to get the ball over the line. They know how to score points. They know how to get things done. And so to a potential partner, we have a lot of credibility, certainly more credibility than we've ever had, which allows us to speak to potential partners and sort of, you know, with credibility and to, I think, get better terms or more reasonable terms that involve more back-ended, less front-end. But we're actively looking and we'll see what we're able to get done. The main focus, though, to be clear, at Harrow is executing on what we have. We have an amazing portfolio, 17 branded products now, the number one compounded franchise in the US. So we've got a lot going for us now. We've got a lot to do day in and day out. But if there's a chance to buy something that we believe is worth a dollar and we can pay a dime for it up front, we're going to certainly take a hard look at that.

Makes a lot of sense. Thank you.

Thank you, Mike.

Thank you. Our next question comes from Brooks O'Neill with Lake Street Capital Markets. You may proceed.

Good morning, all. Thanks for taking my questions. I'm going to focus on two things. One, I noticed in the shareholder letter, I think I did it, I read it late last night, but I think you said around 11 million of revenue in the quarter from IHESO. I know it's still very early in the development and commercialization of that product, but can you speak at all to reorder activity so far? Are you seeing any doctors or practices coming back to the place to reorder IHESO?

Yeah,

thank you for that, Brooks.

Yeah, in the corporate deck, we actually lay out what the reorder rate is specifically for IHESO. I think this quarter it was 87%. So that's pretty good. As you know, because you've known me for a while now, I'm a glass half empty kind of guy. And so I say to our people, what about the other 13%? But 87% is not bad. It really isn't bad. But overall, we still have a very, very small percentage of the market. I think we're just about, I think on the run rate of about 1% of the addressable opportunities. It's a very, very small percentage of the market. But doctors who use it, they like it, and they're ordering more. And I think we can improve that refill rate above 87%. But that's where we are now.

Like you say, 87% is a very impressive number at this stage of the rollout. And with 1% of the market, I can even do the math to figure out what the opportunity is. And it looks quite large. So my second to last question is, I'm just curious about this. Obviously, many times we see Medicare come through, commercial payers come through before Medicaid. It's my experience that our friends in state government are not always the most proactive players. Is there any reason you have been so successful in establishing VIVI in the Medicaid market? I mean, is there anything unique to Medicaid patients in terms of their proclivity or incidence of dry eye disease? Or what do you think is driving that on the Medicaid side? And I'm guessing that over time, there's a big opportunity in Medicare and commercial as well.

Yeah, so in terms of what's driving Medicaid,

I

have to say that our Market Access team deserves a lot of credit from the leadership on down. And so I want to give them that credit because they're the ones – when I walk back to Rob's office, he's got a big smile on his face because he's got a big win. I mean, he just loves this stuff. He's a competitive guy and he loves getting these wins and he's getting them. And I think he's going to get a lot more. You know, as I said, we're going to have 100 percent of Medicaid by the time of our next quarterly report. That's what we expect. But as Andrew said a few moments ago, we have to be profitable. So when we contract, we have to do that in a way that allows us to earn a profit. You know, we take our time. We don't do launch extravaganzas with hundreds and hundreds of reps just right out of the gate. We are patient. We are deliberate and we're disciplined. And that's the way we do things here. And that's the way we built this business over the last 10 plus years. And that's the way we'll continue to do that. Medicaid, though, is a big, big success for us. We will get Medicare. I do believe, you know, certainly this time next year, you'll see that coverage hopefully in place. But we're patient and we're going to get the right deals done. And ultimately, I think we're going to be able to serve this patient population that will benefit tremendously from VBI.

That's great. I lied. I have one last question and I appreciate you taking my questions. It's my sense that in both in the case of both IHESO and VBI, that many of these patients are essentially in their doctor's office or in need of these medications repeatedly throughout the year, perhaps even every month. Can you just comment on that so that I understand the market opportunity a little bit better and maybe investors do as well?

Well, look at our portfolio. You know, on the compounded side, you know, we have medications that are prescribed for patients that suffer. They're incredibly affordable. They're preservative free. The value there is tremendous. That's certainly a chronic condition, although these are compounded products. They're not FDA approved. If you look throughout our portfolio, you know, we own Vigamox. Vigamox is an incredible product and the entirety of the portfolio is a tremendous toolkit for ophthalmologists and optometrists. And as I said, it creates a lot of friends when they need these products and, you know, many of them are not big products. They're small market products and big companies sometimes for small market products ignore them and in many cases they become unavailable. They go on drug shortage. And so that's not what we're going to do. We're going to continue to make these products available to ophthalmologists and optometrists. We're going to do our darndest to make sure that we control pricing so that they're accessible and affordable. Sometimes we have to raise price from time to time. But, you know, believe it or not, and I'm probably going to talk about this on our next earnings call. In many cases we lower prices. And we've got some examples of that that we're going to share. You know, since when do you hear about pharmaceutical companies actually lowering prices? We've raised a few to be sure, but we're lowering others. And the goal ultimately is to have a balanced portfolio for acute care needs, chronic care needs, and to ultimately be an amazing partner, a reliable, trusted partner to the ophthalmic community. And that's what we're doing with this portfolio. In terms of a market opportunity for IHESO, it's gigantic. You know, there's over 17 million annual use cases, we believe, in the U.S. alone for IHESO. And the market for chronic dry eye disease is enormous, with more than 9 million patients alone suffering from moderate to severe dry eye disease. I'm not using the 35 million number, 38 million that a lot of companies use, of total dry eye patients. I'm just saying moderate to severe is more than 9 million. So it's a huge patient population. We think we have best in class potential with VIVI. And as I said, it's got a long runway. We're going to sell a lot more VIVI in 2035 than we will next year in 2025.

Great. Thank you very much.

Thank you. I would now like to turn the call back over to Mark

Baum for any closing remarks. Hello?

I'd

like to

turn the call back over to Mark Baum for any closing remarks.

Hello?

We can

hear you,

Mark. Operator, any more questions?

No questions. I would like to turn the call back over to you for any closing remarks.

Terrific. So thanks again. We're, as you can tell, I think enthusiastic about the second half of the year. The progress that we discussed is years in the making, and it comes from the efforts of a dedicated team at HERO. So I want to thank all of them, our stockholders, our customers, and the entire HERO family for their contributions in getting us to this place. As a reminder, if you have any investor-related questions, please email Jamie Webb at .heroinc.com. Thank you, and this will conclude our call.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.