Q1 2022 Harrow Health Inc Earnings Call
Good afternoon, and welcome to Harrow Health's Q1, 2022 earnings conference call.
My name is Allison and I will be your conference operator for today.
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 Harrow Health.
Thank you operator.
Good afternoon, and welcome to Harrow Health's first quarter 2022 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.
We're looking statements are subject to numerous risks and uncertainties many of which are beyond Harrow health'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 in 58 products and compounded formulations and.
Jeez 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.
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 will refer to non-GAAP financial metrics, specifically adjusted EBITDA and our adjusted earnings as well as core results such as core gross margin coordinate that income and core diluted net income per share of <unk>.
Conciliation 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 dot harrowing dot com.
Joining me on today's call are heroes, Chief Executive Officer, Mark L. Baum, and <unk>, 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.
Andrew is going to get things started with a short discussion of our knee financial metrics Andrew.
Good afternoon, and as Jamie mentioned, we are reporting new non-GAAP figures called core results, which are included in our earnings release and letter to stockholders.
We expect these figures to be included in future disclosures as well.
Before Mark begins his discussion about the quarter I wanted to briefly explain our intent with providing these metrics.
Which is to provide the investing community more transparency and clarity regarding the earnings of our principal revenue generating business.
In short our core gross margins are basically GAAP gross margins.
Noncash add back for intangible asset amortization expenses.
Trust is primarily related to the amortization of the branded drug Nda's.
At the end of last year.
Our core net income and core diluted net income per share metrics include add backs for intangible asset amortization charges Andas I, just mentioned investment losses and gains such as those we incur each quarter related to our equity method investment in milk and the mark to market fair value of our Eaton position along with other ones.
Time extra ordinary gains and losses, such as the gain we recorded last year related to the forgiveness of our PPP loan.
In the future as we grow both organically and potentially through additional acquisitions, which may involve the amortization of engie. As for example, our hope is that these new metrics allow investors are useful and to a certain extent a more precise insight into our core business, how we performed well operationally.
And how best to assess future earnings.
With that explanation I'll now hand things off to Merck to jump into the quarter.
Thanks, Andrew and thanks to everyone for joining us on today's call before I get started as I, usually do I ask that you. Please consider reviewing our first quarter 2022 earnings release corporate presentation and letter to stockholders all of which were posted on the Investor Relations section.
Our website just after the close of trading today.
With that said I'd like to provide some highlights of our results for the first quarter ended March 31 2022.
And then we'll jump into the Q&A.
Our first quarter financial and operational results have validated our belief that 2022 will be a breakout year for Harrow health.
During the first quarter not only did revenues increased 43% over the prior year quarter to $22 $1 million, but they also increased nearly 10% over the sequential quarter, making the first quarter of 2022, our seventh consecutive quarter of records in many key.
Financial metrics first quarter gross profit was a record $62 million, that's a 38% increase over gross profit for the year earlier period of $11 $7 million and a 7% increase over the sequential fourth quarter of 2021 core grew.
Margin for the first quarter of 2022 was 75% compared with prior year's 76% adjust.
Adjusted EBITDA was $4 $9 million for the first quarter of 2022, compared with $4 $3 million in the prior year period.
Core net income was $713000 for the first quarter of 2022, compared with core net income of $2 $4 million in the first quarter of 2021.
Core diluted net income per share for the first quarter of 2022 was three cents compared with nine cents during the same period last year.
Operationally, we are all hands on deck preparing for the relaunch in June of our newly acquired branded products and the launch of Amp 100 in early to mid 2023. In this regard we have been investing in our commercial and distribution infrastructure acquiring T tally.
<unk> and integrating new technologies into our it platform.
Assured that this team will be ready to launching up 100 provided we get approval on or produce the target action date.
October 16th of this year as I mentioned on the last few conference calls I believe that within 24 months of FDA approval for <unk> hundred revenues from branded pharmaceutical products should eclipse revenues from our compounded pharmaceutical products and that's not because sales of the ladder.
We will be falling off a cliff rather to the contrary, we expect them to continue to grow as they have for the past eight years straight.
I also anticipate that our gross margins from these branded pharmaceutical products will be larger.
Dan from our compounded pharmaceutical products, resulting in overall gross margins floating higher.
I also want to mention at this time, but we continue to be on the hunt for additional products to add to our portfolio of exciting ophthalmology formulations in products. In fact, we are currently engaged in a handful of potential transactions that are at various stages and while I cannot guarantee completion of any specific deal.
We remain excited that potential partners seem highly motivated to work with us and leverage the Harrow commercial and distribution platform within the ophthalmic pharmaceutical space.
We continue to see strong organic growth.
And as we approach our October 16th 2022, <unk> date, the opportunity presented by the launch of Amp 100. It just speaks for itself.
Potentially reimbursable product for a market.
That exceeds 12 million procedures annually, and which Harold has today a meaningful commercial presence.
In addition to Amp 100, we expect growth from other initiatives that are underway.
A relaunch of <unk> maxa troll and <unk>. The continued development of Mac 100, following a planned meeting with the FDA to finalize our development strategy.
And the launch of several internally developed product families that address large unmet needs in the ophthalmic pharmaceutical space and if that wasn't enough both surface and milk are slated to produce major value milestones soon.
Eton pharmaceuticals of which we own 2 million shares is seriously starting to gain commercial traction.
Now, let's take your questions I will pause to have our operator poll for questions operator.
Thank you and we will now begin the question and answer session to ask a question you May Press Star and then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star and then two at this time, we will pause for a moment to assemble our roster.
Our first question today will come from Jeffrey Cohen of Ladenburg Thalmann. Please go ahead.
Hi, This is actually destiny on for Jeff. Thank you for taking our questions. Just start maybe have you added any new accounts during the quarter and then on the other side of that.
What is your sales organization looking like in terms of size at the moment and was there any change there during the quarter.
Thanks for the question Destiny.
I think the question really relates to growth.
And the sequential growth as well as the year over year growth.
It's the same story.
We continue to bring on new accounts every month with sales team led by John Saharkhiz, just done a tremendous job and then along with new accounts.
Continue to see greater depth within the accounts that we have it really is incredible the number of accounts that we have the we're so grateful to be able to service. These people, but I'm always amazed at the number of accounts that we don't have to.
Or not yet using our platform.
So more and more doctors month after month quarter after quarter continue to be interested in accessing our platform, but thats, where the growth came from.
Landing and expanding and more accounts and that's really.
What gets us excited about the endpoint hundreds launch as well because.
The accounts that we serve now that make up the 22 plus million dollars print this quarter.
Each and every one of them.
We think are going to be candidates.
And and some.
Potential users of Amp 100, if it's approved.
Okay.
I got it Okay, and then I was wondering you put out a press release recently about milk to Penn West.
Top line data.
What are the next steps here and is there any idea on timing in terms of maybe the next required clinical evaluation and then how you may take it to the regulatory side.
Sure so milk.
Nope Pharmaceuticals is a company that was a subsidiary of Harrow health as a company that we started back in 2018.
It would be consolidated subsequent to an external financing.
Financing, we still own 46% of the company and just to set up your question.
There are.
Three products that milk is developing.
One is a 300.
The other issue as you referenced is melt to 10 <unk>.
Two tenants in a dazzling I'm only trop.
Troche.
Utilizes catalysts proprietary guidance technology.
And we were able to complete a pharmacokinetics study, let's say we have milk was able to complete that study here recently they put out.
An announcement that it was in fact successful in so.
The reference drug, which is IV midazolam compared favorably to the melt to 10.
Product candidates.
And so in terms of next steps I believe.
The team at melt and tends to get in front of the F. D. A.
And determine whether or not they have sufficient data for a filing an NDA filing there.
There is precedent for that.
Midazolam active ingredient is available not only by IV, but also in the form of a syrup.
And the syrup in fact was approved.
With similar data to the data as it.
Currently has and so.
More to come on that they need to get in front of the FDA, but we're really hopeful.
But they can proceed with the filing.
But it's an exciting development.
We have tremendous confidence commercially and milk to 10.
And when it when it gets approved so we're excited about that.
I said, we own about 46% of the equity interest in milk pharmaceuticals.
Yeah.
Alright got it. Thank you and then lastly for US could you give us an update on the vision.
One six.
Sure sure vision allergy.
No sudden away on the last couple of conference calls is is not going to be a a.
A revenue generator.
Tens of millions of dollars a quarter for us, but we continue to develop vision allergy and we have great confidence in the value of vision ology in terms of what it can provide to our customers I was just at the Crs meeting and met with a very large customer and talk to him about our vision.
Allergy and the ability for vision allergy for example to assist.
And facilitating refills for chronic care medications.
The ability to build a distributed network of doctors for this particular customer which happens to be a national customer.
With an organization and about 35 states. So there's a lot of value that our vision LG is going to provide to our customers.
It's a value added platform.
We remain excited about it but it is a it is as I said not going to be the.
The catalyst for our revenue more than doubling.
Which I.
I referred to in.
Our stockholder letter, but it is I think going to be a valuable asset and service to our customers, it's definitely going to create stickiness and a reason for our customers to come back to our platform.
Alright got it. Thank you again for taking our question.
Thank you destiny.
Our next question today will come from Nathan Weinstein of Aegis capital. Please go ahead.
Yeah.
Thank you.
Congratulations mark into the whole Harrow health team for another strong quarter of growth and continued strong margins. So I guess, if I could just ask you a question regarding the organic growth from the existing product portfolio any areas of strength that were worth calling out.
No.
The team really delivered.
Growth.
Across all areas.
That we're focused in on specifically the surgical side as well as the chronic care side.
Did see I think better.
Growth from certain segments of our chronic care portfolio for example, formulations with doctors prescribed to help patients manage dry eye disease.
That has been growing probably.
Faster than some of the other areas, but truthfully.
More customers.
You know on the surgical side for perioperative.
Perioperative medications as.
As well as the chronic care side. So it's just across the board candidly.
Okay Fantastic. Thank you and just one follow up for me and that's regarding the evolution of the business with the.
Expected introduction of numerous branded products can you just talk about some of the activity that you've undertaken recently.
Terms of preparing for those launches what does that entail and whats the outlook there as well thank you.
Yeah. So we.
First of all we are making investments and.
And market access.
On the distribution side integrating new.
<unk> software into our it platform.
We just hired a fantastic head of marketing for our branded products within the stockholder letter I referred to.
Some of the personnel that we've been able to attract them to the business and these are just a.
Very impressive people in my view and people that are going to make a big big difference in the company.
In terms of the number of folks for example in the sales organization.
And destiny asked about that as well.
The number really hasn't changed markedly.
From the first quarter to the fourth quarter of last year I think this may be a handful of additional <unk>.
Folks in the sales organization, but.
There are are.
There are layers of of.
Our operations that we need.
We really haven't had for the compounded segment that are required for the branded segment.
So we're I think the team's just doing <unk>.
Harvest job of bringing in the talent and the.
Resources, putting in place the processes that we need in order to be.
Successful and deliver the kind of results that our shareholders are.
Hopefully going to see.
Great. Thanks, again for taking the questions Mark and we're just looking forward to seeing the progress with the business throughout the balance of 2022.
Thank you Nathan.
And again, if you have a question. Please press star and then one our next question will come from Justin Walsh of B Riley Securities. Please go ahead.
Hey, good afternoon. This is sahil kazmi on for Justin Congrats on all the progress through the quarter, maybe just a couple of questions from us starting with could you describe could you add some color on the process any significance of transitioning the nba's sort of under the Harrow umbrella for the branded segment and how that sort of contributes.
Two the ratio of shifting in the branded segments way ahead of the ample Hunter launch.
So Andrew do you want to talk about the.
N D a transition process a little bit.
And timing on that.
Yes, certainly.
So we've been working on this for the last really since we completed the deal with Novartis at the end of last year.
And it's been a lot of.
A lot of work on distribution.
A lot of them.
A lot of different.
Regulatory affairs.
As market as Mark mentioned market access work that just preparing to move those the NDA to the Harrow name.
And it sounds really simple like hey, we should just be able to file something with the FDA, but theres a lot of work that goes in ahead of that preparing artwork with the contract manufacturer.
Working with.
The companion to update companion.
Making sure all the customers know of the new ownership.
So all of that Legwork getting done ahead of time and then once we transfer the Indian mid June .
We should be positioned to have a clean transfer.
So that customers will really miss a beat.
Upon the actual ownership transfer.
So to add to that that as was agreed to be about a six month process and so we're on target for that the team's done a great job there so.
So we do intend to have that completed in the June timeframe in terms of how that affects.
This ratio.
As I said in the stockholder letter.
The mandate here is to see more revenue more of our revenue and certainly a greater percentage of our overall revenue come from branded products as opposed to the.
The compounded products that we've built our business on them and I want to reiterate that is not because the compounded revenue is going to precipitously fall.
To the contrary, we see that revenue continuing to grow we see the trend of more accounts coming onto the platform in greater depth when accounts continuing.
And that is happening really.
To this day actually.
Into the month.
May we.
We see that continuing to happen.
And in 2019, we had no revenue.
Said from branded products and that changed with the addition of execute and in 2021 as we continued to see success with to execute.
You know that that percentage.
Percentage changed even more a little bit more we had the month of December with these novartis acquisition products.
And what we're excited about is really putting some marketing muscle some energy creativity enthusiasm.
Behind.
These products and giving them the attention that we think they deserve.
Along with the work that we're doing with that to execute on an ongoing basis, but what is really exciting and what I think is going to shift that ratio to as I said below one.
As the launch of the endpoint of 100.
We also believe that our continued progress with Mac 100.
As exciting as well and when that product becomes commercially available that will create an even greater shift of our revenue more towards branded products.
As opposed to the revenue that we are delivering continuously from our compounded products I hopefully that answers your question.
No yeah, absolutely. Thank you that was really helpful. Thanks for taking our questions and congratulations on the quarter and all of the new additions to the team as well.
Thank you so much.
Yeah.
Ladies and gentlemen at this time, we will conclude our question and answer session I'd like to turn the conference back over to Mark Baum for any closing remarks.
Thank you Allison and in closing I just want to personally thank all of the hero employees for their hard work and their contributions.
<unk> provided the fuel for getting us to this point.
And where we are is really an exciting place we are at the place. We hope we would hope we would be at many years ago.
Within the company I believe the enthusiasm for our near medium and long term prospects is palpable.
Resonates with our employees and that is I think evidenced by the number of and caliber of new executives and partners that we've been able to attract to the company. The people working here the people that I get to work with day in and day out our experienced and talented they're committed in other words, they're just as good as it gets.
And we remain confident in <unk> future as.
As we implement this growth plan, we build a profitable business and we serve our customers with products and services that are being chosen by an ever expanding group of leading U S. Ophthalmologists optometrists hospitals and ambulatory surgery centers. So thanks, everyone for attending today's call and for your interest in our.
Harrow Health do you have any investor related questions. Please email Jamie Webb at Jay Webb W. E B b.
Arrow, Inc. I N C dot com.
Thank you and this will conclude our call.
And again the conference has now concluded we thank you for attending today's presentation. You may now disconnect your lines.