8-K: Harrow Reports 33% Revenue Growth in Q1 2024, Reaffirms Full-Year Guidance Despite Challenges

Harrow, a leading North American eyecare pharmaceutical company, announced a 33% increase in revenues for the first quarter of 2024, reaching $34.6 million, and reaffirmed its full-year revenue guidance of $180 million despite headwinds from the Change Healthcare cyberattack.

Summary

• Harrow reported revenues of $34.6 million for the first quarter of 2024, marking a 33% increase compared to $26.1 million in the same period last year.
• The company experienced a GAAP operating loss of $6.9 million in Q1 2024, compared to a GAAP operating income of $1.2 million in Q1 2023.
• Adjusted EBITDA for Q1 2024 was $227,000, down from $5.3 million in the prior-year quarter, primarily due to the Change Healthcare cyberattack and increased operating expenses.
• Harrow reaffirmed its 2024 revenue guidance of at least $180 million, expecting stronger growth in the second half of the year.
• The company highlighted progress in its three key operational initiatives: building a dry eye disease franchise with VEVYE, developing a retina franchise with IHEEZO and TRIESENCE, and stabilizing the ImprimisRx business.
• VEVYE prescriptions and insurance coverage continue to grow, with covered lives increasing to over 150 million.
• IHEEZO received confirmation from CMS for separate reimbursement in office settings, and new supply agreements were signed with seven large multi-practice organizations.
• The recent process performance qualification batch for TRIESENCE has passed all preliminary release parameters, with final results expected by the end of May.
• ImprimisRx revenues returned to sequential quarterly growth and are on track to achieve a low double-digit growth rate.
• Harrow sold its stake in Eton Pharmaceuticals for $5.5 million, which will be used to further invest in its core ophthalmic pharmaceuticals business.

Sentiment

Score: 6

Explanation: While the company reported strong revenue growth and positive developments for key products, the GAAP operating loss, decreased Adjusted EBITDA, and impact of the cyberattack temper the overall sentiment. However, the reaffirmation of full-year guidance and progress on strategic initiatives suggest a cautiously optimistic outlook.

Positives

• Strong revenue growth of 33% in Q1 2024.
• Positive developments for IHEEZO, including CMS confirmation of separate reimbursement and new supply agreements.
• VEVYE continues to gain traction with increased prescriptions, prescribers, and insurance coverage.
• Successful preliminary testing of the TRIESENCE PPQ batch.
• ImprimisRx business is stabilizing and returning to growth.
• Strategic divestment of Eton Pharmaceuticals shares to reinvest in core business.

Negatives

• GAAP operating loss of $6.9 million in Q1 2024.
• Decrease in Adjusted EBITDA to $227,000 in Q1 2024.
• The Change Healthcare cyberattack negatively impacted revenues in Q1 2024, particularly for IHEEZO.
• Increase in operating expenses associated with commercial activities of VEVYE and other recently acquired products.

Risks

• Potential impact of future cyberattacks or system disruptions on operations and revenue.
• Challenges in achieving market acceptance and adoption of new products like VEVYE.
• Dependence on third-party manufacturers and suppliers for key products like TRIESENCE.
• Regulatory and legal risks related to pharmacy operations and the pharmaceutical business.
• Competition from other pharmaceutical companies, outsourcing facilities, and pharmacies.
• General economic and business conditions, including inflation and supply chain challenges.
• Ability to service debt and obtain necessary financing to operate the business.

Future Outlook

Harrow reaffirmed its 2024 revenue guidance of at least $180 million and expects revenue growth throughout the year, with the second half being stronger than the first. The company is optimistic about the potential of VEVYE and IHEEZO to drive future growth and is focused on the successful re-launch of TRIESENCE.

Management Comments

• Our primary focus for 2024 remains on three key operational initiatives building a formidable dry eye disease franchise, including successfully launching VEVYE; continuing to build a retina franchise with IHEEZO and TRIESENCE; and stabilizing ImprimisRx and our Anterior Segment Products and returning them to a growth trajectory.
• I am very pleased with the success we had in all three of these areas during the first quarter, and I remain optimistic for 2024 based on what we are seeing in the second quarter.
• Given the strength we see with both IHEEZO and VEVYE, the upcoming re-introduction of TRIESENCE to the ophthalmic market, and the significant momentum that we have built so far in 2024, we are well positioned to meet our 2024 revenue guidance of more than $180 million.

Industry Context

Harrow's focus on dry eye disease and retina aligns with broader industry trends of an aging population and increasing prevalence of these conditions. The company's strategy of acquiring and commercializing established ophthalmic products complements its development of innovative formulations. The confirmation of separate reimbursement for IHEEZO positions it favorably within the growing market for ophthalmic anesthesia.

Comparison to Industry Standards

• Harrow's VEVYE is positioned to compete with other dry eye disease treatments such as Restasis (Allergan/Abbvie), Xiidra (Novartis), and Cequa (Sun Pharma).
• Harrow's reported revenue growth of 33% is higher than the overall ophthalmic pharmaceutical market growth rate, which is estimated to be in the mid-single digits.
• Harrow's IHEEZO is the only FDA approved topical anesthetic gel indicated for ocular surface anesthesia, competing with off-label compounded anaesthetics and other anaesthetic products such as Akten (Akorn) which is indicated for ophthalmic procedures.
• Harrow's TRIESENCE is the only FDA-approved product for visualization of the vitreous during vitrectomy, competing with off-label use of Kenalog (Bristol-Myers Squibb).
• Harrow's ImprimisRx is a leading player in the ophthalmic compounding market, competing with other compounding pharmacies such as Avella (now part of McKesson) and Fagron.

Management Changes

Stakeholder Impact

• Shareholders: Potential for increased shareholder value through revenue growth and successful execution of the strategic plan, but also risk of dilution from potential future capital raises.
• Employees: Opportunities for growth and development as the company expands its commercial operations and product portfolio.
• Customers: Increased access to innovative and established ophthalmic products, but potential for disruptions due to cyberattacks or supply chain challenges.
• Suppliers: Potential for increased business as Harrow grows its product sales and expands its manufacturing needs.
• Creditors: Increased risk if the company is unable to service its debt or obtain necessary financing.

Next Steps

• Continue to drive adoption and growth of VEVYE and IHEEZO.
• Complete testing and prepare for the re-launch of TRIESENCE.
• Further stabilize and grow the ImprimisRx business.
• Execute supply contracts and drive order pull-through for IHEEZO with strategic accounts.
• Monitor the impact of the Change Healthcare cyberattack and implement mitigation strategies if necessary.
• Continue to evaluate potential acquisitions and collaborative arrangements to expand the product portfolio.

Key Dates

Keywords

eyecare pharmaceuticals, ophthalmic, dry eye disease, retina, VEVYE, IHEEZO, TRIESENCE, ImprimisRx, compounding pharmacy, CMS reimbursement, intravitreal injection, cataract surgery, anterior segment products, pharmaceutical sales, revenue growth, market access