Harrow, Inc.

Good morning, and welcome to HARO's second 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 conference over to Mike Villegas, Vice President of Investor Relations and Communications for HARO.

Thank you, operator. Good morning, and welcome to HARO's second quarter 2025 earnings conference call. My name is Mike Biega, and I'm excited to be introducing today's call, having joined HARO as Vice President of Investor Relations and Communications in June. It's a pleasure to be part of the HARO family and to speak with all of you this morning. Before we begin today, I would like to highlight a few new items for our quarterly report. We will be presenting slides during the webcast today. If you have registered and joined through the live conference call link, I would highly recommend that you also join through the webcast. You can find the link in the Investors Events section of our website at www.harrow.com or in our earnings press release that was issued yesterday. We also have a new corporate deck that was posted on our website yesterday. All the slides we will be presenting today can be found in that deck. Moving forward, you should expect that our earnings process will mirror this format with potentially a few additional changes, and we will certainly update you on any future changes to this format. In addition, we recently launched a new corporate website, which I encourage all of you to explore. The company's remarks may include forward-looking statements within the meaning of federal securities laws. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Harold'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 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. HARO's results may differ materially from those projected. HARO disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of today. Additionally, HARO 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 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 Investors Relations page of the company's website, www.harrow.com. Joining me on today's call are Harrow's Chief Executive Officer, Mark L. Baum, and Harrow's Chief Financial Officer, Andrew Boll. With that, I would like to turn to call over to Mark to go over some prepared remarks prior to the question and answer session. Mark?

Thanks, Mike, and good morning, everyone. Thank you for joining us today. I hope you've had the opportunity to review our supplemental documents for the second quarter, including our earnings release, corporate presentation, and letter to stockholders, all of which are now available on the investor relations section of our newly designed harrow.com website. Aero is a leading provider of ophthalmic disease management solutions in North America, enhancing the ability of eye care professionals to manage sight-threatening ophthalmic diseases. To achieve this, we ensure that our products are safe and efficacious, accessible and affordable, and that they increase patient compliance, which in turn facilitates improved ophthalmic disease management. Today, our ophthalmic disease management solutions are all pharmaceuticals, but in the future, this may evolve. In any case, our focus will always be to provide leading-edge products and outstanding service to help eye care professionals best care for their patients. Our primary financial goal is to deliver a $250 million revenue quarter by the end of 2027. I believe this is achievable because of what we own, how we're performing, and where I see the business heading, and our demonstrated history of growth from literally no customers, no products, and no revenue about a dozen years ago. I intend to provide more color on how we intend to achieve this $250 million quarterly revenue goal on September 26th, during our inaugural Investor and Analyst Day, an event that Mike Biega is working to put together. This event, which we intend to make an annual event, will be hosted by Harrow Leadership after Labor Day each year. I'm looking forward to our stockholders and analysts meeting members of the Harrow Leadership team, seeing our products live, and learning more about how we partner with US eye care professionals to manage ophthalmic diseases. For more information, please reach out to Mike at mbiega, B-I-E-G-A, at harrowinc.com if you're interested in attending. Now, over the past five years, we have built a sophisticated and hard-to-replicate infrastructure. Today, we own one of the most extensive portfolios of ophthalmic products in the United States, now totaling more than 59 prescription products. We address both front and back of the eye diseases. We sell into both the insurance reimbursed market and the cash pay market. We sell to the eye care professional office, the ASC and hospital, and we ship directly to patients. I think one of the things I'm most excited about is Andrew and I look over the one or two year horizon is the incredible leverage we have in our model. Essentially, our commercial infrastructure is paid for in delivering profits as demand increases for key products like Viva and Iheso, and we add revenue-generating assets like the Samsung ophthalmic biosimilars portfolio, or we begin to sell triessence into a key large market, which I'll talk more about, we really aren't incurring meaningful additional costs, which means much of what we sow, we should reap. The second quarter was a great setup for the back half of the year, as we saw deeper market penetration across our core growth drivers. Largely due to the recently implemented V-VI Access for All initiative, V-VI saw a 66% growth in prescription volumes this quarter over the prior quarter, and we don't see any signs of that momentum slowing. Capitalizing on the growing demand for Vivi, today we announced a strategic alliance with ApolloCare, an innovative provider of patient access and commercial solutions that provides full nationwide coverage across the United States as HARO's second specialty pharmacy partner for the BAFA program. IHESO's RetinaPivot is taking hold with a 25% growth in unit volume quarter over quarter. Triessence continued to gain momentum with volumes accelerating and market share expanding, achieving 32% quarter-over-quarter growth. And by the way, the numbers for the third quarter for Triessence are also doing well. Our specialty branded product portfolio, well-known essential everyday therapies relied on by thousands of eye care professionals, delivered a strong quarter and a nice rebound from the first quarter. Finally, we recently announced two strategic acquisitions that fit in seamlessly with our commercial infrastructure. One, at the end of the second quarter, we secured the U.S. rights to Biclovi, which was a recently approved treatment for postoperative inflammation and pain following ocular surgery. This is the first new ophthalmic steroid in its class in over 15 years. And then second, We also recently acquired the U.S. rights to Samsung's ophthalmic biosimilars pipeline, including BioViz, an FDA-approved biosimilar referencing Lucentis, and OpioViz, an FDA-approved biosimilar referencing ILEA. Our total revenue for the second quarter was $63.7 million, a 30% increase over the second quarter of 2024, and a sequential increase of 33% from the first quarter of 2025. The first half of 2025 generated $111.6 million in revenue. To reach our guidance of more than $280 million for 2025, we need to generate approximately $169 million in revenue in the second half of the year. Given the math that I'm seeing today, I believe we are on track to meet our guidance goals. Now, I've repeatedly stated on prior calls that the second half of the year is always stronger than the first half of the year. And as you read from our letter to stockholders, and you will hear from my prepared remarks this morning, we are seeing momentum with our key growth drivers that should start to show meaningful revenue growth as early as the third quarter. I think next year, though, we will try to provide annual revenue guidance and split it into two halves, the first half of the year and then the second half of the year. I think that might work better for us. In any case, adjusted EBITDA was a great story. As second quarter adjusted EBITDA came in at $17 million with $5 million of net income. This, once again, highlights the operating leverage we've built into the business. HARO is at an inflection point. our revenue should reach new heights in the back half of this year. And as you saw from this quarter, our cost basis really remains fairly stable. This is a result of years of investment in building a strong, scalable commercial infrastructure that's designed to support this phase and level of growth. Vevi generated $18.6 million in revenue. a 13% decrease from the first quarter of 2025. As outlined in our letter to stockholders, the revenue reduction seen in the second quarter versus the first quarter of 2025 was driven by a normalization in average selling price, or ASP, which I called out during our first quarter conference call and in our Q1 letter to stockholders. We typically don't comment on changes in ASP quarter over quarter, but I think it's important to highlight that the ASP seen in the first quarter was an anomaly due to the changes in the business rules we implemented at the beginning of the year. With our present V-VI ASP reflective of those VAFA business rules, we expect to see and are seeing both V-VI volumes and revenues increase once again as we forecasted. Based on the ratios of the types of V-VI prescriptions we're seeing, we're confident that V-VI's ASP has stabilized, and we even see a path to modest improvement over the rest of the year. In addition to continuing to improve our business rules algorithm, as I shared in our earnings release, we've entered into a strategic alliance with ApolloCare, an innovative service provider with full national coverage. Now, this alliance significantly expands DVI's distribution network, improving both pharmacy access and insurance coverage for patients nationwide, and it should buttress our ASP at current levels and, as I said, provide an upward bias towards ASP improving over the coming quarters. Apollo Cares Pharmacy Network spans more than 500 pharmacies and is broadly contracted with major and smaller commercial plans, as well as TRICARE and Medicare. With coverage reaching every U.S. geography and payer type, this collaboration positions us to reach more patients than ever before. Importantly for our stockholders, nearly every prescription of Vivi that is dispensed is now profitable for HARO under the VAFA initiative, a notable shift from pre-VAFA times. These adjustments cause structural improvements that enhance the quality of our revenue and our ability to invest and further scale Vivi's long-term profitability. When we provided V-VI revenue guidance of more than $100 million for 2025, we accounted for the anticipated decline in subsequent stabilization of ASP from Q1 to Q2. Once again, we expect V-VI to generate over $60 million in revenue for the second half of 2025. If you straight line Q2 growth for the balance of the year with a stable ASP, this puts us ahead of where we need to be by the end of this year for the Vivi franchise. Ahizo generated $18.3 million in revenue, a 251% increase from the first quarter of 2025. Ahizo is gaining momentum and growing market share. The growth this quarter is driven by the momentum from our retina pivot and expanded distribution through the group purchasing organization agreements we've signed. IHESO is on the path to have a record year this year, and I'm confident it will surpass our guidance of $50 million or more in revenue. By essence in our specialty branded portfolio generated 5.2 million in revenue. That's a 447% increase from the first quarter of 2025. With TriEssence capturing more market share and a large market on the horizon, I'm confident the second half will outperform the first half by a wide margin. ImpromiseRx generated $21.5 million in revenue. That's a 7% increase from the first quarter of 2025. This is a stable, cash-generating business, and it is performing as expected and is on track to reach our guidance of $80 million or more this year. In sum, our 2025 guidance remains intact, and I remain very confident in our team's ability to hit that number. Since launching V-VI Access for All in late March of this year, the demand for V-VI has surged. The promise of the VAFA Market Access Program for V-VI is, one, increased access for patients, two, lower out-of-pocket costs for patients, and three, a reasonable and sustainable profit for HARO. As I detail more in the letter to stockholders, the VAFA program is meeting all of our commercial objectives. Vevi continues to exceed our prelaunch expectations in every category, new prescriptions, refill rates, patient satisfaction, and prescriber engagement. The impact of VAFA can be seen on this slide. Prescription volumes were up 66% sequentially for a total of 119,526 units. Of those, nearly 50,000 were new prescriptions, resulting in a 62% increase and new prescriptions over the first quarter of 2025. As prescription volumes grow, we're maintaining industry-leading refill rates, an important indicator of product adoption and satisfaction. In 2024, covered patients receiving Vivi through PhilRx received an average of nine refills, a figure that significantly outpaces the typical refill rates seen with other therapies in the dry eye disease market. This sustained refill behavior highlights not only VIVA's clinical value, but also its ability to foster ongoing patient engagement well beyond the initial prescription. The compounding effect of rising numbers of new prescriptions and consistently high refill rates positions us for sustained revenue growth. We anticipate the first meaningful financial impact as early as the third quarter of this year. driven by the continued momentum and new prescription volume, a more stable ASP, and a growing wave of refill activity. This surge is largely attributable to the strong demand generated since the launch of the VAFA program. To reiterate what I said earlier, under the VAFA initiative, nearly every prescription written for V-VI is now profitable. And this is a notable shift from before we had this program going. when that wasn't always the case. We've also secured additional manufacturing capacity for 2025, enabling us to further scale our commercial reach. In parallel, we are revisiting next year's forecasts, increasing our supply chain flexibility and ensuring that we are well-positioned to meet the sustained and growing demand we anticipate for both new and refill prescriptions of Vivi. Importantly, as noted earlier, We're also preparing to bring a second Vivi manufacturing site online next year, and this will further strengthen our supply chain and facilitate our growth strategy. Vivi's market penetration continues to accelerate. By the end of Q2, we had captured a 7.8% share of the national dry eye disease market. That's a 2.6 plus percent increase quarter over quarter. Notably, according to IQVIA and Filarex data, Vivi has now surpassed CEQA in national market share. This is an important milestone that reinforces the effectiveness of our commercial strategy and execution. According to IQVIA, Vivi is now the second largest cyclosporine-based dry eye brand being prescribed. Once again, a significant milestone that validates the strength of our primary strategy which is to win the cyclosporine category in dry eye. Vivi is beginning to also gain ground on Mibo, having surpassed Mibo in new prescriptions in four U.S. markets that are quite sizable. In summary, we're still in the early stages of a Vivi launch, and the growth trajectory is compelling. Demand continues to rise sharply. Refill rates remain industry leading, and with only 7.8% market share captured so far, the runway ahead is significant. With a best-in-class clinical profile, strong access infrastructure in place, and a robust commercial team, we believe VIVA is well-positioned to exceed $100 million in annual revenue this year, marking just the beginning of a multi-year growth opportunity. In June of 2025, we announced the acquisition of Biclovi from Formosa Pharmaceuticals. I'm particularly excited about Biclovi, an FDA-approved steroid indicated for the treatment of inflammation and pain after ocular surgery. And it's the first novel steroid introduced to the U.S. market in over a decade. Biclovi is a highly potent next-generation therapy And it's the only FDA-approved ocular steroid formulated with clovidazole, delivering robust clinical efficacy supported by a well-established safety profile. From a clinician's perspective, the typical risks associated with ophthalmic corticosteroids includes increased intraocular pressure, or ILP, And in this case, the resultant IOP increase was only 1.4% of the population exposed to the product during pivotal clinical studies. The incidence of increased IOP was substantially higher with products such as Dextenza and others, all comprised of less potent corticosteroids than Biclovi, but with a higher risk profile. Biclovi also has longer duration of action, allowing for reduced frequency of administration. In this case, twice daily versus four times daily. And in the ophthalmic market, when a product is to be administered four times daily, it's typically every four hours while awake, which could pose significant compliance issues. Therefore, we believe Biclovi may offer important patient compliance features. Finally, in terms of efficacy, both in terms of the percent of responders to full pain relief at the earliest regulatory time point of four days post-op, and in terms of complete clearance of inflammation post-op four days, Biclovi performed better than all other approved products for the same indication in the U.S., While this assessment is not based on head-to-head studies, it's based on a cross-comparison between approved product labels. With over 7 million ophthalmic surgeries performed annually in the U.S. and a wide range of additional clinical applications for topical steroids, we see a substantial market opportunity ahead. And I'm confident our commercial team is well-equipped to drive strong adoption of this differentiated product. We expect to launch by Clovey in the first quarter of 2026. I'm encouraged to see both IHESO's revenue and unit volumes return to near fourth quarter 2024 levels, a period that benefited from increased stocking, showing clear signs of momentum and growing market share. The second quarter showed new account growth and deeper utilization within existing practices, with 25% growth in unit volume over the first quarter of 2025. This surge in demand is being fueled by strong momentum from our retina pivot strategy and expanded distribution through new GPO relationships. This expansion led to the addition of 19 new accounts during the period, all of which were retina practices, underscoring the targeted success of our strategic focus and IHESO's growing adoption in this critical specialty. Notably, IHESO volume grew 33% quarter over quarter within the largest retina GPO, which represents approximately 70% of the retina market. Overall, distributor shipment volume for IHESO increased by an impressive 170% in Q2 compared to Q1 of 2025, underscoring the strong and accelerating demand we're seeing. IHESO currently enjoys broad coverage, with better than 81% of commercial and government payers providing reimbursement. Our data indicates that only 3% of IHESO claims are categorized as not covered, and only 4% require prior authorization. Amazing coverage data. In response to the strong access position, I recently developed the IHESO for all strategy, an initiative focused on expanding IHESO utilization and retina procedures across both existing and new accounts with the goal of driving near-term sales growth. Now, with all four major GPOs on board and strong clinical synergy between IHESO, TriEssence, and eventually our new anti-VEGF products, BioViz and OpioViz, I believe IHESO's growth is just beginning. These are still early days in its launch, but with four differentiated and highly complementary therapies in HARO's portfolio and a proven commercial team to execute our strategy, I expect IHESO is entering a new phase of accelerated growth. By the way, so far in the early days of the third quarter, we've already eclipsed the number of new IHESO account starts achieved in the entirety of the second quarter, with all of our new accounts being retina practices. Triessence is gaining strong traction within the retina community with accelerating volumes and growing market share. Year to date, Triessence added 870 new accounts and achieved 32% quarter over quarter growth. Triessence has also achieved 84% coverage with only 8% of claims requiring prior authorization and a mere 3% of documented claims being returned is uncovered. This is near completely pervasive coverage. Our go-to-market strategy with triessence is showing clear signs of momentum in the early days of our relaunch. Now that we have all the necessary buy-and-bill commercial infrastructure in place, we'll be expanding its use into the ocular inflammation market, such as cataract surgery, the largest market opportunity for triessence, and the one that we have not marketed into to date. We recently hired Chad Brines to lead our specialty brands sales team, which includes TriEssence. One of Chad's chief responsibilities is to drive our strategic efforts with TriEssence in the ocular inflammation market. Chad has extensive experience selling buy and build ophthalmic steroid products in this market, positioning him well to lead this critical initiative. Based on feedback from our physician customers, we believe these new go-to-market approaches will result in unit demand growth, which will begin to show in the fourth quarter and into 2026, especially as we move more resolutely into the ocular inflammation market. I couldn't be more excited about the transaction we announced in July with Samsung BioEpis. We secure the exclusive U.S. commercial rights to their biosimilars ophthalmology portfolio. That includes BioViz, an FDA-approved biosimilar referencing Lucentis, and OpioViz, an FDA-approved biosimilar referencing ILEA, two of the most widely used anti-VEGF therapies for retinal diseases. Importantly, both products have interchangeability status. These products will integrate seamlessly with our existing commercial infrastructure, and we expect to leverage our significant commercial flexibility to compete aggressively in this market. By combining HARO's deep retina expertise with Samsung's key learnings from its prior BioViz launch, we're uniquely positioned to refine our offering and compete effectively in this large, competitive, and contested market. We look forward to sharing more about our upcoming commercial launch soon. ImpromiseRx showed signs of sequential recovery following seasonal softness in Q1. April was a record month for the business, and momentum continued throughout the quarter, with steady growth across key product lines. The team is driving several initiatives to enhance gross margins, drive revenue growth, and improve operational efficiency. The business just continues to generate cash flow contributing meaningful value to our stockholders. To wrap up, Harrow is firmly in growth mode, and we're just at the beginning of an exciting journey. I couldn't be more energized by the incredible team we've assembled, the strategic products we've brought into our portfolio, and the tremendous opportunities that lie ahead. The best is yet to come for Harrow. With the accelerating performance of Vivi, TriEssence finally positioned to enter its largest market, IHESO hitting a growth stride, and the recent addition of Biclovia and a robust pipeline of biosimilars on deck, not to mention our proven compounding business, ImprimisRx, we now cover the full spectrum of high-value ocular conditions. Our nationwide GPO partnerships, specialty pharmacy reach, and track record of commercial execution create powerful leverage. Each new launch accelerates uptake of the others by deepening our presence in surgical centers and retina practices and general ophthalmic practices and even in optometry offices. Combined with a seasoned leadership team, strong balance sheet, well-defined R&D roadmap, and an active M&A strategy, our runway for growth is substantial. Simply put, we've assembled the right products, platforms, and people to redefine what success looks like in the ophthalmic market, and the most significant gains lie ahead. With that, I'll turn it over to our operator to open the line for questions. Operator,