Q2 2021 Harrow Health Inc Earnings Call
Pardon me, ladies and gentlemen, the Harrow health.
Quarter Conference call will begin shortly so please continue to hold again, the Harrow Health conference call will begin shortly so please continue to hold.
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Good afternoon, and welcome to Harrow Health second quarter 2021 earnings Conference call. My name is Eileen and I will be your operator for today's call on.
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'd now like to turn the call over to Jamie Webb Director of Communications and Investor Relations for Harrow Health.
Thank you operator, good afternoon, and welcome to Harrow Health second quarter 2021 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 laws.
Forward looking statements are subject to numerous risk and uncertainties many of which are beyond Harrow health's control, including risks and uncertainties described from time to time and it does he see filings.
And it's the risk and uncertainties related to the company's ability to make commercially available its 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.
Harrow health results may differ materially from those projected here.
Harrow 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, Harrow, where he referred to non-GAAP financial metrics, specifically adjusted EBITDA and our adjusted earnings.
A reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included and the company's letter to stockholders are available on the website.
And now you should have received a copy of the earnings press release and he has not received a copy. Please go to the Investor Relations page at the company's website Www Dot Harrow Inc. Dot com.
Joining me on today's call are Harris, Chief Executive Officer, Mark L Baum, and <unk>, Chief Financial Officer, Andrew Boll and.
With that I would like to turn the call over to Mark to go over some prepared remarks prior to the question and answer session Mark.
Thank you Jamie and thanks for joining our call today I would encourage everyone listening to review our second quarter 2021earnings release call.
Corporate presentation and letter to stockholders all of which were posted on the Investor Relations section of our website just after the close of trading today before we begin the Q&A portion of today's call I'd like to provide some additional color on our business since we last spoke and may here.
Pro continues to be a reliable and innovative pharmaceutical supplier to hundreds of thousands of Americans and many thousands of eyecare institutions across the country, including optometrists ophthalmologists ambulatory surgery centers and hospitals.
As a result of our commitment to our customers and the diligence of a dedicated team of Harrow affiliated employees. The second quarter of 2021 was our best financial quarter and company history, marking the fourth consecutive quarter of record results. We are pleased to report the total Rev.
<unk> for the second quarter were $18.1 million, that's an increase of 125 per cent compared with the $8.1 million reported and the prior year period and up 17% from revenues of $15.4 million and the first quarter of this.
Year 2021.
For the first half of 2021 total revenues were $33.6 million and that is a 69% increase compared with $19.9 million for the first half of 'twenty 'twenty.
Gross margin of 75, 6% for the second quarter of 2021 matched our company record for the first quarter of 2021 and was an increase over the prior year's gross margin of 62% adjusted.
Adjusted EBITDA of $5.7 million for the second quarter of 2021 was another record metric a significant increase compared with a loss of $1.7 million and the prior year quarter and.
And an increase over adjusted EBITDA of $4.3 million recorded and the first quarter of 2021 and the second quarter of 2021 segment contribution from Imprimis, Rx was $7.2 million, including noncash expenses related to depreciation.
Asian amortization and stock based compensation of $521000 compared to a negative segment contribution of $239000 and the prior year period and segment contribution of $5.7 million and the first quarter of 'twenty.
And 21 this important metric demonstrates the earnings power of the Imprimis Rx business separately from other Harrow businesses assets and liabilities and addition to recording record operating results and are ophthalmic pharmaceuticals business, we are delivering.
On our promise to execute our strategic vision aimed at becoming a leading U S eye care company and.
And alignment with that objective we are focused on growing revenues from F. D. A approved products to the point where.
And the next few years, they exceed our revenues from compounded products, our partnership with I point Pharmaceuticals to market Dexie Q was the first step towards the achievement of our goal our new partnership with Novabay for its product prescription based avenova.
Cause another step.
And our recently announced acquisition of AMT 100 is yet another step and a potentially big step. Indeed, we hope there are more steps if you will to announce soon.
During the second quarter, we raised $75 million and unsecured capital to fund our growth strategy and.
And to lower our cost of capital on.
All I might add without any common stock dilution.
As I mentioned, we recently announced the acquisition of rights and the U S and Canada to market and sell Amp 100, a patented ophthalmic topical anesthetic drug candidate with a total addressable market or Tam estimated at over 10 million annual proceed.
<unk> and the United States, including cataract surgeries and intra vitriol injections.
We expect a new drug application to be submitted to the F. D E and the next few months and.
And if approved we plan to launch Amp 100, and late 'twenty 'twenty 2.
Another component of our strategic goal serving eye care customers directly through vision Ology has also made excellent progress our regional soft launch continues as we fine tune, our marketing strategy and operational processes before expanding to additional regions.
And eventually becoming a nationwide enterprise based on our early results to date, we believe vision and allergy is the right marketing approach functionality and ease of use to be the national leader and the burgeoning direct to consumer eye care industry.
We believe we have developed a sound strategy for our company's future raise the capital needed to execute that strategy responsibly leveraged our assets to promote growth both organically and through a robust pipeline of new product opportunities.
And have a strong management team and partner employees, who have the expertise talent and dedication needed to achieve our very clear and shared objectives, we couldnt be more optimistic and excited about the remainder of 'twenty 'twenty..1 now let's take your questions I will pause.
For us to have our operator poll for questions operator.
Yeah.
I will now begin the question and answer session.
Asked a question you May press Star then 1 on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing Nicky.
To withdraw your question. Please press Star then 2.
Our first question today comes from Jeffrey Cohen with Ladenburg Thalmann.
Oh, Hi, Mark and Andrew how are you.
Real good Jeff good to speak with you.
I'm, just kind of 5 or 5 or 6 that you so and what's the timing of your Q filing this week.
Hey, Jeff This is Andrew and the Q got filed.
Good day.
And ground for 30.
So just got filed.
Okay got it and could you walk us through how we should think about the pull through into the back half of the year or is that a.
And 1 kind of a new base for and as far as you're thinking of it or how should we think about debt.
Andrew do you want to talk through that question.
Yeah, Jeff So 18, 1 and obviously is a big number from the prior quarter Q.
Q3 is traditionally sort of a seasonal seasonally low quarter for us.
Where we're going to expect some of that here and then.
Coming out of that and Q4, we expect them to be building off of 18.1.
And into next year as well.
Okay and Don.
I'll add to I'll add to that Jeff and we're seeing you know and the month of July and as we get into August and the business continues to be robust so, but Andrew is spot on that the third quarter and the eye care World is traditionally a softer quarter, but our business is as I said been pretty robust.
Yeah.
Okay got it and could.
Could you give us a little better sense of breakouts on revenue contribution or at least perhaps call out.
And you talked 2 contributors behind and Prime Michelle to 7 point too.
Andrew do you want to talk through a couple of the specific disclosures and our filings. It's usually that's probably about as much detail as we can provide I think.
Yeah.
And on on a product by product basis, Jeff other than the execute commissions, we're not going to book, we don't provide a whole lot of detail.
We did add some revenue concentration and the SKU, which was we haven't we do have 2 products and made up about 36% of total revenues.
But that was about that is consistent with prior quarters as well.
But the the revenue growth and general this quarter really came from.
The addition of new customers.
And record unit volumes.
And so we're seeing new customers that for us and the accounts.
Greater depth of and the accounts and just stronger volumes on the units.
Hello, and thank God I knew also also wanted to add.
Another trend I think that's really important is that our chronic product growth.
He has been strong and so you know as it relates to formulations that we make and dispense to help patients manage dry eye disease and glaucoma.
We're seeing very strong refill rates and customer retention rates are far higher than what you traditionally see and and the industry.
Got it Okay and then.
Any commentary on gross margins. It looked like you had a pretty large beat for the quarter off what we had and.
It looks like a little lift going forward, how do you feel about this low.
On the mid Seventy's number.
And I think I think you mentioned the word baseline I think that you know within a percentage point or 2 of where we are should be a new baseline for us we're consistently hitting margins and the low to mid seventies.
Although.
And we predicted that we would be and the seventies a few years ago back when we were and the forties.
And you know and we're quite happy that the team is delivering these types of margins.
Always tend to look at what we still can do and I strongly believe that we can see margins improve even from where they are now and we wanted to deliver on that and the team is committed to that but this is within a percentage point or 2.
I think a new baseline for us, but as I said and as more and more revenue comes from FDA approved products.
You'll see our gross margins continue to.
Float up and as opposed to down.
Okay got it and lastly force could you talk about asps or revenues on a per order basis any trends that you saw through Q2 or the trends that we should think about through Q3 and beyond.
Thanks.
Thank you Jeff yes, so.
Our revenues per fiber 3 be order were around the same level I think they may have been even down a smidge, but.
Right at sort of all time highs well I think what Andrew mentioned, a few minutes ago is a really critical point and that is what the key revenue drivers were this quarter and that was a meaningful and increase in the number of new customers that joined the platform.
We did all of this without price increases by the way and so there were no price increases during this period.
And we're also seeing greater density within these accounts that we have so more accounts or ordering more products from us and so we've talked about that on prior calls as well, we don't want to be an inch deep and a mile wide and you want to take more of their pharmaceutical revenue opportunity.
Low cataract surgery per lasik procedure per glaucoma surgery per rep.
And the procedure. So we are attempting.
Attempting to provide our customers with more of what they need and our philosophy is clear if we can help a customer with a product opportunity we want to be there for our customer we feel like we can provide them with.
Good or better of a product.
And then any anyone else that they would seek to 2 byproducts from so we want to be there for our customers.
And to capture more of that revenue per procedure.
Okay got it thanks for the commentary.
Thank you Jeff.
Our next question comes from Brooks O'neil with Lake Street capital market.
Good afternoon, guys and congratulations on the terrific results.
I was hoping recognizing that COVID-19 has been a topic of some interest nationally and then you can just talk a little bit about how you've seen.
Covid impact your business and <unk> and what you expect going forward.
Well thanks for the question Brooks.
When you say Q2, and Covid impact and I'm always reminded of the incredible impact that Covid had on our business in Q2, but it was Q2 of 2020 and not obviously Q2 of 2021.
And we were fortunate after the Q2, 2020 impact to have a record revenue quarter and Q3 of 2020, and then again were a record period and in the fourth quarter, and then first quarter 2020, 1 and now we followed it up with more records and the and the most recent period, we we obviously.
Are aware that there is a lot of media attention.
And concern and and certainly a real concern about the spread of Covid and and the Delta variant and the like we have not seen a lot of that show up.
And our and ordering patterns.
We have not seen office is closed down most of the surgery cataract surgeries for example.
Take place and ambulatory surgery centers, and so we have not heard of <unk>.
And.
What we saw last year, which begins.
Begins on electric procedures and not see any of the things that we saw in Q2 of 2020 Fortunately and.
So we really have not seen the impact of of Covid, certainly and the last period that doesn't mean that we won't see things and the coming months, but even into the third quarter and the month of July and and so far through August we really have not seen a lot of co.
Good impact.
Great and so.
Just to follow on there and just been share I'm hearing you correctly, you don't think there's any kind of pent up demand being satisfied from a eye surgery.
Is it any of that and other stuff that might have actually health.
And do this quarter as opposed to hurt you this quarter.
No.
And we don't see well first of all we do believe that there is some pent up demand from last year without question.
But we also don't believe that the capacity exists for all of that pent up demand to be satisfied and 1 quarterly period. We we believe and we've talked to colleagues that are in the space. They feel the same way that very likely the pent up demand of.
Estimates are around $1 million or so cases will take place over a probably 5 or 6 quarters and not.
Not the 1 quarter, but we definitely do not see.
You know.
So the so called pent up demand hitting us this quarter. This quarter was all about new customers.
Coming to the platform and the customers that we had buying more from us, allowing us to satisfy their needs.
More than we had in the past.
Great. That's fantastic. So secondly, I'd love to just get any additional color you can offer on debt to Q kind of.
You know what you hear about it.
And what the outlook is Ford would you just expect that to continue to grow kind of.
Steadily into the future or kind of how are you thinking that that might play out and in fact, the company going forward.
So first of all debt to Q when we heard this before we took the product on and and it remains the case today to execute is a fantastic product.
Yes.
We don't hear from from Ophthalmologists, who use the product that it produces bad clinical outcomes with the opposite.
Ophthalmologist like the product.
They are and and.
Our commercial team has done an incredible job you know we have not had to execute a for a year even on them.
And if you think about the success that we've been able to produce with this terrific product and a very short period of time.
And we've learned 2 things 1.
As I said excuse a terrific product and we want to continue selling it and it's a it's financially rewarding for us to do that but at the same time, we're getting and the FDA approved products business and the future I've talked about that many times, we talk about that and our stockholder letter and so our commercial team now has dip there.
Toes on the water they understand.
And you know what's involved and selling the reimbursed product liked execute we have experience now and so as we acquire more products that are FDA approved that sort of fit into the surgical suite.
We like our product like to execute does and.
We're going to be ready when it comes.
To launch time for products that we go out and acquire and so that's a real value for our commercial team you know where where are were.
We're not starting from from Us from scratch, if you will.
Yep, that's great so on.
And so a couple of comments from some of the news services, suggesting that EPS.
Mid estimates and I noticed there was a significant other expense item in and.
Income statement can Andrew and just talk us through what that was and help us to understand how that impacted the quarter.
Yes, so certainly the.
The biggest and baxter's was related to the change and.
Change in value of Eaton are in position and so.
And that drove most of that loss during the quarter.
And then and we also had some some investment loss and.
And the surface and milk.
And as well as a philosophy.
Loss from early extinguishment of loan and we paid off our secured senior lender as WK.
Right.
Great and then I guess lastly, I'd love to hear just a little bit about vision allergy and how that.
And it's going and what your outlook is for that business as well.
Great.
So vision knowledge and as you know we did a soft launch about 3 months ago and.
And so far we've built our core technology and this digital front door for consumers.
You can see a few visits division allergy website, but integrated with the front door. The digital front door is our back door.
And we now have our vision allergy Doctor App and we haven't publicized this but you know it's it's out there, but you can go to the Apple iOS App store you can go to the Google play.
Store for Android users and the vision allergy Doctor App is now live and downloadable for prescribers.
That will ultimately build out we will network with to build out and our distributed network of eye care providers.
So the entire system by the way is integrated with our back end fulfillment system and our pharmacy.
All of that has been done to date, we've gathered consumer feedback from our website utilization using tools like hot jar and other amazing tools and we spent about a month of the last 3 months.
Optimizing the site to relaunch so we're launching we're learning and we're optimizing.
Over the next 60 days or so we're going to continue that process continue to measure and optimize retention systems.
Build out and capability.
And for call Center operations, and the like and really build out.
And put on paper.
The planned 2 to create a national day.
Direct to consumer telemedicine service. So we're excited about it we've accomplished a lot drew and his team have done amazing things and we believe there's a tremendous amount of value there and and we're excited about the future of vision allergy, but it's very new.
It's at its infancy.
But the good news is is that it is working we're delivering prescriptions and we're taking care of patients.
Great.
Thanks for all that color.
Thank you Brooks.
As a reminder, if you have a question. Please press Star then 1.
Our next question comes from Andrew Desilva with B Riley FBR.
Yeah, B Riley Securities. Thank you and good afternoon, and I apologize if you answered any of these questions and I was jumping between calls but.
And a very impressive top line for the quarter and I know you gave a little context.
On a comparison relative to the first quarter and.
Am I correct and understanding that the primary driver between the just curious for sequential growth standpoint.
And is new customers predominantly or was it oh, so just better penetration with existing customers as well as and new product launches.
And primarily you're talking about from a product sales standpoint, obviously, it's choppy license and sales.
Yeah.
Yes, and Andy Thanks for the color there there were 3 revenue drivers 1.
On a meaningful increase and the number of new customers coming to the platform too.
Much more depth within the accounts, so accounts buying more from us.
And then the third factor was continued growth.
And our chronic care business and and related to that.
We saw a very solid refill rates for chronic care prescriptions and patient retention rates, our customer service team is doing and incredible job.
And we're really pleased there with the improvements that they've made and we're using technology better than we ever have it's it's really helping to drive our business and so all of those 3 factors contributed to.
This.
Sequential revenue increase.
Great great to hear that.
And then I heard you reference a 36% product concentration and that processing products.
I remember a couple of years back around.
It was on the time you were.
Involved with allergy and there were.
A couple of products that were almost <unk> 65 per cent.
Can you just talk about the diversification and since then and on the product side and you know where your are you seeing.
Increased sales come out and got it.
And bring down that concentration of those 2 primary products.
Yes, so across the line, where we're taking a look at and ophthalmic surgery, and we're making products now.
For to serve the entire process from sedation and.
Infection inflammation my dry assess.
And T sepsis all of the components are.
Debt a surge in debt and ASC that a hospital.
Need to purchase in order to take care of a cataract case of glaucoma surgery case, even rat and the case and and elastic case, we have a big presence and the domestic market and the U S as well.
So we saw.
We saw that entire process and we've now built formulations.
And 2 to serve patients throughout that entire process and so there's more that we can we can offer to our to our customer so beyond infection inflammation topical medications, we make a number of injectable products that we didn't.
Didn't make.
Back in the during allergy and days, but Youre right I think the diversification has been impressive not only in terms of.
Of the products that we sell but also in terms of our customer base.
And we don't have any single customers that are you know if they fell off and it would be a disaster force. So we have a very broad customer base and national customer base, we operate in all 50 states.
But what I think is really exciting also is.
While it is the case that we have a diversified product portfolio now.
1 of the points I wanted to highlight is that we really do believe and the next couple of years debt. Our revenues from FDA approved products will exceed the revenues that we have from compounded products and so as we make that transition.
That is going to create additional diversification.
As well and I think you know.
And more stable revenue source and a more profitable revenue source.
And useful very useful context.
A couple of accounting questions that the tests are finalized.
Finalize this.
I just noticed and your balance sheet you you no longer are having a day are attributed to your investment and surface and just.
Give a little bit of context around that and then.
With the recent acquisition.
And in licensing and acquisition of the and C 100 and.
And any sense of how we should think about that from an accounting standpoint.
We'll see R&D expenses are amortized over certain periods.
Sure.
Andrew.
I'm going to tackle both of those.
You bet, Hey, Andy Thanks for the questions. So on the service investment.
We still account for that investment under equity method accounting and so we had a value of the investment at the time of deconsolidation back in 2018.
And that value you got put on and the balance sheet and then we've been decreasing it proportionally for our.
Percentage ownership of their loss.
This quarter.
We had basically exhaust of that investment balance the the irony about GAAP is that during the quarter, even though we've now got that investment and service ophthalmic is now down to zero during the quarter surface successfully raised capital at an increase and valuation.
However were still maintaining and ownership position just on just over 20%. So we will continue to show that.
As a zone.
There's no value on our balance sheet, even though the true value of the equity is.
And that's much more than zero.
And then on to the the synthetic our milestones and how the accounting and will be.
And I've had preliminary discussions with our auditors and it seemed like we were on the same page with will probably <unk>.
Expense most of the milestones and milestone payments through our income statement, probably likely through our R&D.
And there are a few milestones post commercialization that we may be able to capitalize on.
And but it'll be more of a negotiation or discussion with our auditors at that point on the correct accounting treatment for those milestones, but the initial ones for sure and we'll run through R&D and the P&L.
Perfect perfect and.
Last question sticking on with that.
And T 100 offering.
Could you just help maybe frame the market a little bit.
And I understand it's a very very large but just from a you know.
Realistic opportunity to block and tackle and the near term.
Medium term would be useful.
And then.
Yes.
A little bit about how synergies.
Sure.
Between debt offering and just the infrastructure for that.
Several years.
Yes, so and.
Andy we are really excited about ample and hunger and you.
You know and I, I say that with 5 exclamation points behind it and and that's because.
It is really and our sweet spot fundamentally if you look at how we are.
And that created the revenue that we did this quarter, it's about ophthalmic surgeries.
And a lot of cataract surgeries, we probably touch now close to 20% of all of the cataract surgeries and the United States, So a meaningful presence and the market and so every 1 of those.
Cataract surgeries and the U S can use a product like and 100.
And as a non opioid.
Topical anesthetic.
Product and 100% of the clinical programs.
And are completed and.
And we expect to file an NDA with the FDA. This year as we mentioned before and hopefully launch the product a little a little later than a year from now.
But the product itself is going to offer unique advantages over the current standard of care and so we go to our customers and we have a lot of customers who know this space well.
We're going to offer a product that is ice and has it.
Net of advantages that are totally unique over the current standard of care. When you think about the overall market and we said this and the press release, it's cataract surgeries ophthalmic procedures and and that includes <unk> injection, so you're talking about on very large market.
There are a lot of products and the ophthalmic market that are made just for cataract surgery alone and that's a big space, but this is 10 million procedures annually and it's sort of the granddaddy of them, all and and the ophthalmic market $10 million a year and.
And.
And by the way, we filed the agreement recently and the and the queue on.
And the economic the specific economic terms are confidential.
But we were able to build protections are in and our agreement related to gross margins and at least 80% and you'll see that I think if you take a look at the agreement and and if you look at our unit cost that's going to be below $10 a unit, we expect and.
The bottom line is as debt and 100, if it's approved we believe has the potential to be a $100 million plus per year product.
We've never had access to products like that.
And that's a patented.
And we're not going out and hiring a sales organization and hoping to create a presence and the cataract surgery market.
We have a great sales team, we have and amazing commercial team, we have the ability to self distribute.
Our product.
And we have a lot of customers that do a lot of cataract surgery. So we think.
Our team is going to do an incredible job with and 100 and so this is a big big deal for us.
But the good news is is that we.
We have more hopefully that we'll be able to close kind of connected to you know our core focus and the ophthalmic surgery market. So we are transforming the company and the next few years, we we intend to.
Become.
And much larger U S eye care company.
Great great.
Sorry, I have 1 more question and that just kind of popped into my head.
As it relates to and 100 again.
You know you mentioned that the non opioid aspect of it right now we're thinking about it at least from a modeling standpoint from a cash day.
Cash pay basis.
And how should we think about it.
From a reimbursement standpoint, and then obviously, there's pass through status and sometimes they can go perpetually.
If it's a non opioid.
So just curious if.
And just thinking about rider or how we should be thinking about debt.
Payment for cash payer reimbursement.
Yes, so we're not really ready to comment on pricing, specifically or a reimbursement strategy, but.
I would reiterate that this is a patented non opioid topical anesthetic product per.
<unk> localized analgesia for ocular surgeries and.
And so we think it's a better product and offers unique advantages over the standard of care and we've talked to customers about it and we think theres going to be strong interest and we need to get.
The the NDA application in front of the F D a and and that's that's the next step.
But you know.
If we can get it approved we think it's going to it's going to offer tremendous advantages not only.
And 2 to physicians, but more importantly, even to patients and so we're excited about this opportunity it's a game changer for us.
Great.
Thank you very much for taking my question Congrats on all the progress really and debt and good luck going forward.
Thank you Andy we really appreciate it.
This concludes our question and answer session I'd like to turn the call back over to Mark Baum for any closing remarks.
Thank you Eiley and in closing let me. Thank everyone on this call for your interest and Harrow Health I know that a strong company is built on the hard work commitment and perseverance of its stakeholders on.
Also and amazing group of partner employees and many of them are on this call listening right now and <unk>.
We appreciate the incredible work that you provide to us, but also loyal stockholders tremendous numbers of customers and vendors and think well thankful.
Thankful for all of you.
Who share a strong belief passion and face and the products that we deliver and service that we provide and I'm thankful once again for our stockholders customers and vendors without <unk>.
Support we could never hope to achieve our goals. Thank you for attending today's call and if you have any investor related questions. Please email Jamie Webb at Jay Webb W. E B, B and Harrow Inc. Dot Com. This will conclude our call. Thank you.
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