Harrow, Inc.

Good morning, and welcome to HARO's first quarter 2025 earnings conference call. My name is Shannon, 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.

Thank you, operator. Good morning and welcome to HAREL's first quarter 2025 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 HAREL'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 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. 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 calls are Harold's Chief Executive Officer, Mark Elbaum, and Harold'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, everyone. Thank you for joining us today. I hope you've had an opportunity to review our supplemental documents for the first quarter, including our earnings release, corporate presentation, and letter to stockholders. all of which are now available on the investor relations section of our corporate website. Let me begin by stating that as Harrell stockholders, the first quarter is always the toughest revenue period for the company. However, it is now in the rear view mirror. And as I will discuss in more detail shortly, we are very well positioned to achieve and hopefully exceed our 2025 directional revenue guidance of more than $280 million. To get there, we'll need to generate approximately $232 million in revenue over the remaining three quarters of the year. In the next few minutes, my intention is to discuss the key drivers underpinning my confidence in meeting our guidance for the year. As you know, the HARO team grew revenues in the first quarter of 2025 by 38% year over year. And that's growth that is nothing to sneeze at. We also delivered a record $19.7 million in cash flow from operations. Another bright spot, a very bright spot, was Vivi. Vivi revenue rose 35% sequentially from $16 million in the fourth quarter of 2024 to $21.5 million in the first quarter of 2025. And that was even before the launch of the VBI Access for All program, which happened at the very end of the first quarter. We also completed our critical market access initiatives for Triessence, allowing us to finally begin to realize this product's potential. On the expense side, the first quarter was challenged by a few one-time expenses, including increased costs related to our annual audit and a one-time special project, all which totaled $3.7 million in the aggregate. We also continued to invest in building out our commercial infrastructure to support both current operations and future growth, particularly in sales and marketing. The VBuy team now exceeds 80 sales and marketing professionals. The buy and build team for IHESO and TriEssence is just shy of 50 experienced commercial professionals. We're very comfortable with our current cost structure and believe investments in commercial labor in particular will be favorably viewed as we deliver quarterly results throughout the year. On the revenue side, first quarter revenues for certain segments of our business were softer than we had hoped. And as I explained in my letter to stockholders, there is seasonality to our business. And the first quarter, as I mentioned before, is always our weakest, especially this year, which followed such a strong fourth quarter in 2024. Our specially branded products stand out because of volatility in gross to net estimates, which caused a reduction in recognizable revenue for the period. Now with the above said, You've heard me describe myself as a glass half empty kind of guy. I'm always striving for performance improvement. I'm never really completely satisfied, especially when I know we could do a little bit better. That said, the first quarter will go down as one of the most important periods in our company's history. And I'm very proud of the work our team did. Importantly, I am truly excited about the remainder of the year. And I want to spend the rest of my prepared remarks discussing specific products and the setup for the balance of the year and how we intend to deliver and hopefully exceed our 2025 revenue guidance. So here we go. VBI continues to outperform expectations. As I said in my letter to stockholders, after launching more than 40 ophthalmic prescription products over the past 12 years, including VBI, I can say with confidence One, given the consistent weekly growth in new prescriptions, new prescribers, and the stability we see with Vivi refills, this product is poised to be our largest revenue product. And number two, the Vivi Access for All program is the most successful market access strategy I've been a part of. And finally, three, without question, Vivi is presently Harrell's most valuable asset. We launched the Vivi Access for All program or VAFA late in the first quarter. So there was little or no impact in the first quarter results. However, as of today, just seven weeks post-launch of this program, both new prescriptions and weekly Vivi prescribers at PhilRx have quadrupled. If things continue at the current pace, a year or two from now, I expect Vivi to be right at or near the top of the leading U.S. prescription drying medications. In fact, it should be at the top if we continue at this pace. In the more immediate term, assuming we can maintain our refill rates, even with our ASP expected to moderate a bit and then stabilize over the coming quarters, as we get into the third quarter and see more new prescriptions that we've been filling over the last seven weeks begin to stack or compound It is very easy for you as a HARO stockholder to come up with some very large potential revenue numbers for VBI, especially as we get into the third quarter. Those numbers are real, and that is what is possible. And that's without much NRX growth or new prescription growth from our current daily new prescription levels. The reality, though, is that we're seeing consistent weekly NRX growth. and we have been for the past seven weeks. So we don't expect this growth to abate in the near term. These are still early days, but the VIVI Access for All program's early momentum is surpassing our expectations, and it's reinforcing my conviction that this groundbreaking initiative is one of the most impactful and potentially financially transformative in HARO's history. And by the way, when I talked about producing $250 million in revenue in a calendar quarter by the end of 2027. This is the type of product, given the success we're seeing in this program, that is going to help us deliver on that promise and that belief that we can hit those numbers. But what about IHESO? IHESO's first quarter sales were impacted by an elevated stocking activity at the end of 2024. Many of you know that. That dynamic, though, has now normalized with significant destocking occurring during the first quarter. We're now back in growth mode for IESO. For example, in April, unit sales more than doubled compared to the monthly average in the first quarter. This rebound indicates a return to typical ordering behavior, and it reflects strengthening demand as downstream inventory levels rebalance and new accounts begin to ramp up utilization. We also made solid commercial headway in the first quarter with our sales team engaging with several new and potentially large accounts moving through the various early stages of onboarding, such as sample evaluations, formulary discussions, and initial orders. With a quarterly average of 30 new IHSO institutional accounts and the top 10 accounts in our pipeline representing an estimated 80,000 incremental annual units of IHESO unit demand, we are confident in seeing meaningful unit demand growth through the remainder of the year and a sizable increase in IHESO revenue in 2025 versus 2024. So, what about tri-essence? When is that going to blossom? Well, the first quarter was truly a pivotal period for the long-term plans that we have for this product. We were able to complete market access initiatives, including the publication of Triessence's average selling price, the granting of pass-through status for the product, opening the market for ASC use and hospital and outpatient department use, as well as the authorization for bilateral use case reimbursement for Triessence. This all happened in the first quarter. These changes have greatly increased purchasers' confidence in their ability to obtain reimbursement for Triessence. So these market access initiatives took effect April 1st, effectively unlocking, you know, about 40% of the overall market for Triessence. And this is being reflected in sales momentum that we're seeing in the second quarter accelerating meaningfully. Already, the number of accounts ordering triessence has more than doubled since the beginning of the year, a strong signal of growing market confidence and adoption. Ophthalmologists and retina specialists in particular are performing procedures in the ASC and hospital and outpatient department settings of care now have the assurance that triessence will be reimbursed outside of the bundled fee, a reimbursement feature that we saw directly positively impact the success of IESO. We now have that for Triessence. We believe this momentum will accelerate throughout the year. Now, outside of our lead brands, our specially branded products, which faced gross-to-net challenges during the first quarter, are picking up in the second quarter. In addition, our Impermis Rx compounding business continues to perform well, showing consistent revenue and operational reliability. In fact, April appears to be a record month for ImprimisRx. So let's bring this back to the original objective for today's call to show you how we expect to achieve our 2025 revenue guidance of more than $280 million. Remember, we have $232 million left to go, and here's how I break things down. On VBI, we believe we are on a glide path to generate at least $100 million in VBI revenues this year and perhaps much more. We've already reported over $21 million in revenue for the first quarter. Given VBI's refill profile, averaging nine refills per year per covered patient and VAFA's strong momentum, we expect revenues from VBI to consistently grow quarter to quarter with accelerated growth expected in the third and fourth quarters. Based on the number of refills and the growth and the number of new prescriptions and prescribers since launching this program, you should be able to build a model with some very big numbers, large numbers, similar to what we're seeing in our internal models. However, we will try to be conservative and leave the opportunity to surprise stockholders meaningfully as the year progresses. On IHESO, we're on track. We expect to deliver over $50 million in 2025 revenue for this product, with quarter-over-quarter increases expected now that distributor inventory levels have normalized. are specially branded products, which includes TriEssence. In the aggregate, we expect them to deliver at least $50 million in revenue this year. And in terms of our ImprimisRx compounding business, it is a consistent performer, on track once again to deliver more than $80 million in revenue in 2025. So if you add all of this up, these expected contributions, you will get to that $280 million or more in 2025 revenue with a clear runway for upside. Again, we're expecting to see overall quarter-over-quarter growth this year, and while the third quarter can be a historically softer period, this year we anticipate stronger numbers driven by the compounding effect from new Levi prescriptions under this program. Finally, We expect fourth quarter to be our strongest revenue quarter, as it was last year. So, in sum, I hope after today's discussion, combined with our letter to stockholders and other supporting materials, you have a clear view of where our growth is coming from and why we're confident in its acceleration and durability. With a diverse portfolio of category-leading products, innovative market access initiatives like the V-Buy Access for All program, and accelerating momentum across multiple franchises, Harrow is distinguishing itself as a leading U.S. ophthalmic pharmaceutical company. Now we're happy to answer your questions. I'll pause to have our operator poll for questions. Operator?