Harrow, Inc.

Good morning and welcome to HARO's third quarter 2024 earnings conference call. My name is Michelle 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 morning and welcome to HARO's third 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 risk and uncertainty many of which are beyond Harold's control, including risk and uncertainties described from time to time in its SEC filings, such as 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 factor 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. 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 Elbaum, and Harrow'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 to everyone. Thank you for joining us today. Please make sure to review our supplemental documents for the quarter, including our earnings release, corporate presentation, and letter to stockholders, all of which are available on the investor relations section of our website. In the third quarter, Harrell reported record revenue of $49.3 million, and that's a 44% increase over the prior year quarter. to slight increase over the previous quarter as well. Gross margins were solid, and we generated cash from operations. And operationally, while we could have done better, as I discussed in my letter to stockholders, overall, we are well positioned to meet my commitment to exceed our 2024 financial guidance, especially given what looks like record performance in October and the fourth quarter, which is expected to be our strongest quarterly period of the year. Now, let's discuss some of our key products and achievements from the third quarter. Vivi, our crown jewel dry eye asset, which we launched in January of this year, has surpassed our expectations, and we believe it is destined to be a category-leading product due to its rapid onset, efficacy, twice daily dosing, and favorable tolerability profile. Total prescription volume increased 55% in the third quarter compared with the second quarter. As I mentioned in my letter to stockholders, our commercial team did such an excellent job of selling Vivi that we reached the outer bounds of our internal forecast, leading to a temporary inventory shortage around mid-September. And our V-VI revenue potential, therefore, for the third quarter was unfortunately capped. The good news is that we were able to recover in the fourth quarter, and we have appropriately adjusted our inventory levels by ordering additional batches so that we will not run out again. What drives V-VI's strong sales growth is its clinical value, which is best demonstrated in the amazing resale rate we have seen. Listen to this statistic. Before Vivi, 90% of patients did not refill their dry eye prescriptions and were not on therapy at the end of the year. However, Vivi patients are now into their eighth and ninth refills, and we continue to see over 90% refill rates for Vivi. It's just incredible. Payers are also taking note. And as a result, we are seeing consistent improvement in insurance formulary access for VBI. And I talk more about that in our letter to stockholders. Strong VBI prescription growth has led us to increase the number of covered territories where we have boots on the ground from 51 in the second quarter to 61 in the third quarter. And in those 61 territories, even though we haven't filled all of those open positions, we are already beating Tervaya in about 50% of these markets, CEQA in about a third of the markets, and MIBO in nearly 10% of the markets. As demand increases and we continue to increase our market share, we will also add territories as warranted. IHESO continues to perform well too. In the third quarter, IHESO saw a 15% sequential increase in unit demand over the second quarter. And in addition, IHESO's reorder rate also was impressive at 82%. Unit demand has increased up and to the right every quarter. largely because eye care professionals are discovering that iHESO is not only an excellent clinical choice for their patients, but we also hear that it enhances their productivity by improving their procedural workflow. That said, in the third quarter, with the advice and support of our commercial leadership and after looking at the incredible opportunity before us, I made a strategic decision to implement what I have referred to in the letter to stockholders, as the retina pivot, which is to say that our commercial teams call points move nearly exclusively to the retina specialist community. There are numerous compelling reasons why I made this decision. It's because of the concentration of retina providers, which allows us to have more IESO unit volume impact with fewer call points. The intravitreal injection market is massive and growing. And IHESO is an ideal clinical choice for ophthalmic anesthesia in this setting of care. And beginning on July 1st of 2024, because we had clarity from CMS on reimbursement, even for same-day bilateral use cases, it just would have been foolish not to make this market our primary interest. I discussed the retina pivot more in the letter to stockholders, but suffice it to say that this pivot may have resulted in a somewhat subdued demand for IESO in the third quarter, as our sales folks focused on sales processes in the retina specialist community. I am more than pleased, though, to report that we are already seeing the benefits of this retina pivot in the fourth quarter, just as our commercial leadership predicted. And I am 100% convinced that this decision was the right one, for not only 2024, but for 2025 and beyond. And as promised, the relaunch of triessence has happened in the month of October. Following years of market absence, bringing triessence back to the retina specialist community is yet another compelling reason for our retina pivot. The absence of triessence in the market created a backlog of demand. for which there has been no on-label alternatives, and we are working hard to make sure that everyone in that community knows that Triessence is back. We are convinced that our investment in Triessence will be richly rewarded, and I can tell you that today I remain more convinced of this than ever. We also see the combination of IHESO and Triessence as a powerful one-two punch enhancing our commercial team's ability to effectively serve the retina market. Finally, other key parts of our business continue to perform, and I would encourage you to review the letter to stockholders to see my latest commentary on our anterior segment business and our Imprimis Rx business. We are happy to answer your questions. I will pause to have our operator poll for questions. Operator?