Q3 2022 Harrow Health Inc Earnings Call
Good afternoon, and well the heroes third quarter 2022 earnings Conference call. My name is Andrea 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 weapons Director of Communications and Investor Relations for Harold.
Go ahead.
Thank you operator.
Good afternoon, and welcome to hear all third 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.
Forward looking statements are subject to numerous risks and uncertainties many of which are beyond heralds control.
<unk> 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-K filed with the Securities and Exchange Commission.
Arrows 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 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 Dot Harrow Inc. Dot com.
Joining me on today's call are Harold 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.
Thanks, Jamie and thanks to everyone for joining us on today's call. Our third quarter 2022 earnings release corporate presentation and letter to stockholders have all been posted to the Investor Relations section of our website.
I would encourage you to review them.
These are great resources for anyone interested in what we've done.
And what we intend to accomplish going forward.
I'd like to begin by reminding you of what I said on our second quarter earnings conference call and that is that I believe the back half of 2022 would be a period of great consequence for hero and one that would yield some of the most transformative and hopefully financially valuable events in our history I believe the Herald team is making.
On that statement, given what has transpired in the past 60 days, including one.
The FDA approval of Ikea, Zoe, formerly known as F 100 for ocular surface anesthesia.
To.
The launch afford a site, which is a patent pending family of high concentration refrigeration stable compounded fortified antibiotics three the sale of our non ophthalmology product line, which enhances our balance sheet and achieved a strategic imperative for Harold but that has to be a pure play.
U S based U S focused ophthalmic pharmaceutical company.
Sure.
Felicia milk pharmaceuticals pivotal phase two efficacy study for its milk 300 program.
Five launch of atropine dot com to help bring the market a family of patent pending compounded atropine formulations and last but certainly not least six we made critical progress with product acquisition opportunities we've been pursuing for quite some time.
While we can't guarantee any one of these deals will get done I believe we're getting close and then completing any of these deals could meaningfully impact our long term goal of becoming a leading U S. Ophthalmic pharmaceutical company so stay tuned.
I'd also like to share some highlights of our results for the third quarter ended September 32022 third.
Third quarter revenues of $22.8 million represent a 22% increase over the prior year quarter and a slight decrease over the second quarter of 2022, primarily as a result of supply chain challenges along with the return of the seasonality that we've historically seen.
In the summer.
Third quarter gross profit was $16 $1 million.
A 17% increase over gross profit for the year earlier period of $13 $8 million core gross margin for the third quarter of 2022 with 72% compared with the prior year's 74%.
GAAP net loss in the third quarter of 2022 was $6 $5 million compared to $8 $3 million last year and adjusted EBITDA was $2 $5 million core results for the third quarter of 2022 included core net loss of $1 5 million.
And core diluted net loss per share of six cents.
I am pleased with the progress we made in the implementation of our strategic plan and I stand by my belief that 2022 was the set up year that we've been working towards for many previous years with the foundation. We built nearly complete we are set for 2023, which we foresee as a breakout.
Year for Harold.
As you should expect the Harry's team is focused on getting the market access strategy infrastructure and systems in place to successfully launch I E. Zoe early in the first half of 2023.
I remain confident that within 24 months post launch of I E.
With our market access strategy in place arrows revenue should more than double and.
In our core gross margin should float meaningfully higher.
Concurrent with the launch of <unk>, we continue to drive other sources of revenue growth, including revenues from our portfolio of branded pharmaceutical products and compounded pharmaceutical products, including 40 site atropine dot com and others that we are advancing through our pipeline.
I do want to mention that we continue to own noncontrolling, but meaningful equity positions and surface ophthalmic pharmaceuticals.
Pharmaceutical and Eton Pharmaceuticals, and Eaton just reported a nice quarter.
I also want to call special attention to melt pharmaceuticals, which recently completed the enrollment of patients in a phase two efficacy and safety study of melt 300. This is a pivotal study.
And it's expected to report top line clinical results in the next few weeks.
This data, which should come between Thanksgiving and Christmas is of great interest to us at hero, because we own a very large percentage of milk and we have tremendous confidence in the commercial viability of their product candidates.
Once again, there is quite a bit more color on these issues and others in our letter to stockholders, which is published each quarter.
And if you're a stockholder or considering becoming a stockholder of hero I would encourage you to read them. They are our attempt to provide a consistent and meaningful level of transparency into our company with that said now.
Now we're happy to take your questions I will pause to have our operator poll for questions operator.
Well now begin the question and answer session.
To ask a question.
Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Jeffrey Cohen.
Barack Salmon. Please go ahead.
Oh, Hi, Mark Andrew Jeremy how are you.
Good good to speak with you Jeff.
So a few questions from around so.
Clarify your last comment on the mill 300, so thats.
Top line phase two data, which could then lead to a pivotal or did you say that was pivotal.
This is the.
This is the pivotal efficacy study.
That we discussed with the F D a.
And the Phase III program is essentially a safety program and so as far as efficacy goes this is the pivotal program.
Okay.
Or could that move for us.
As far as finally got the agency on a timely basis.
Yeah.
In terms of timing, obviously, we need to see what the data looks like for the the program that's going to read out here in the next few weeks, but from.
From our standpoint, as I've said in the stockholder letter.
The study was designed.
Designed to actually produce a dataset that should yield an approvable.
Our product and that could either be the 210 program, which is the dazzling I'm only program or it could yield a dataset that supports the 300 combination Midazolam Academy program.
Really need to take a look at what the data or once we receive them and then assess.
The pathway forward for each each project the pathways themselves to directly answer your question are different for each product in the 210 program. We believe could have a a for a shorter period to an NDA filing.
And the.
The 300 program would would be extended somewhat because we would have to complete the safety study and the phase three but.
In terms of the commercial value of those programs.
I think as I said as I tried to allude to in our stockholder letter, we just have a very clear understanding of what the uptake might be.
For a product like that particularly in the cataract surgery market.
Where we have sold a compounded version of the milk 300 product a combination product for many years, it's been administered as a compounded medication.
Many hundreds of thousands of times and.
So we do know that there is a large customer base that is paying for that product from a capital needed fee.
Cataract surgery, and so we think if we can offer them an FDA approved product, whether it's next year or the year after and we're.
We're going to really change the game as far as sedation and analgesia go in the cataract surgery environment and then finally, it goes without saying that that the melt 300 program the melt to 10 program.
Have applications, we believe four outside of the ophthalmic arena and so they can make a big difference I think in women's health.
And Ah <unk> and a number of very large market opportunities.
Okay got it Mark could you talk about the.
The <unk> platform, how many skus would you imagine.
There's formulation onetime use in nature.
You know, we we first started talking about for the site at the a O meeting and I know you visited our booth.
At the meeting and hopefully you've had an opportunity to see some of the physician reactions to Florida site.
We initially envisioned one product we've built one product, but from discussions with our customers. We believe there will be a family of products.
Once we were able to talk to customers about Florida site. They gave us a more ideas about versions of Florida site before to take technology that they believed could be impactful to their practices and so.
I think next year it would not surprise me to see two or even three versions of Florida site made available.
But we're really excited about for the site and I provided some additional color about four to say once again in the stockholder letter.
You know, it's a it's a great value to customers, we've been able to open up some new customer accounts that we had never been able to penetrate before.
Before without Ford of sites. So we're really excited about it and the feedback.
From our users to clinical feedback has been tremendous so they're really excited about it we are as well and we think that the usage of Florida site is gonna be far broader than we had originally anticipated for.
A narrow band of sight saving conditions. So we're excited about it we'll see how things play out it's still early in the launch but the feedback has just been tremendous so as I said in the stockholder letter is the most positive feedback I have ever received.
For a product that we have brought to market.
Super that's helpful and one more if I could for Andrew.
So this this this.
Charge last year.
You received from synthetic or $5 million of cash was just a reclassification. If you could just clarify that and then walk us through then its impact on the adjusted margins there may be some commentary as far as the.
Adjusted margins hitting the high teens range, perhaps for full year 'twenty two and beyond.
Yeah.
And I think but I just want to clarify you're you're asking about the the change to the 2021 adjusted EBITDA number correct.
Yes, okay.
Okay, Yeah. The FCC recently came out with some.
Some suggestions about life science companies in particular.
Including.
In process R&D acquired in process R&D costs and their adjusted EBITDA number.
So that for us what that means is we paid synthetic a $5 million.
The upfront milestone payment when we acquired <unk> hundred or <unk>.
That was considered in process R&D it ran through our P&L.
That $5 million charge last quarter last year.
And showed up in R&D.
We initially reported adjusted EBITDA last year, we pulled that number out.
Based on the FCC's recent.
Sort of guidance on Zebra for life science companies.
We are changing that we changed our methodology.
Putting it back in.
For historical purposes, and printed additional acquisitions, we have in the future.
With <unk>, becoming approved so we're now now able to capitalize any additional milestone payments.
So we haven't for example, we added a milestone payment in Q3.
Related to the approval that expense is now capitalized.
You'll see an increase in our intangible assets on the balance balance sheet. This quarter and then theres some additional commercial milestones.
If we hit will capitalize those expenses as well and also run through our balance sheet on our P&L.
Okay got it and then lastly.
Lastly for us any comment on this 1 million dollar backlog order.
Any color as far as.
The product segment, the counterparty et cetera, thanks for taking our questions.
Okay. Thanks for that Jeff.
I think before this quarter, we had I believe eight quarters in a row of sequential revenue growth and we really were trying to make it a night and but for our ability to fill those orders we would have actually hit the mark.
Unfortunately, we did not and so these were just sales of products that we had no inventory of or that inventory was coming becoming available early into the fourth quarter. So.
The good news is we were able to ring the register as I said in our stockholder letter on these these orders, but we really wanted to have that.
Sequential revenue growth that we have had for so many prior quarters in and wanted to make our stockholders aware of that back order, which we traditionally have not had and once again, there's additional color on the back order in our stockholder letter thanks for that Jeff.
Super Thanks again.
Once again, if you would like to ask a question. Please press Star then one.
And our next question will come from Sahil <unk> of B Riley. Please go ahead.
Hey, good afternoon, Mark Andrew Jamie Thanks for taking our questions and congratulations on a really productive quarter.
Maybe starting on I E, though I know you're working through some of the pricing methodology, but can you remind us of.
Kind of the the reimbursement process here that you have to get through.
And then just your market access strategy broadly.
Yes, so the well.
Well to take a step back there are two significant markets for the product the <unk>.
<unk>. The first is in the ASC and hospital environment for procedures, such as cataract surgery as an example.
And the second large market would be in the physician's office for procedures, such as <unk> injections as an example.
The market for <unk> injections of the unit volumes are significantly higher than those for cataract surgery, but the type of coding or payment.
For each of those are those markets is very different. So for example in the ASC and hospital environment.
A product like <unk> might.
The pass through eligible and so a.
Part of our market access strategy would be to apply for a pass through code in.
And the the physician's office environment.
One might want to apply for a J code for example.
And.
As I said those those strategies are not mutually exclusive there are many products.
That initially received C codes.
They had pass through status and then ultimately received a J code as well one of the nice things about <unk>.
He is though as we believe that the impact of the product.
Is not only as I've said in the hospital and ASC environment, but also potentially even larger in the physician's office environment and so we're working through those issues. Obviously, we have a strong position in the market in the cataract surgery.
Space currently.
But the team is doing a lot of great work to figure out you.
You know, where we want to to target first and so we anticipate more information coming out on.
The initial market for the product as well as the pricing for the product in the coming months as we get ready for.
Our launch in the first half of 2023.
Yeah.
Excellent that's really helpful. Thank you and then as it relates to the new launch of Atropine Dot com.
Based on the existing formulation can you talk a little bit about the competitive advantage of sort of a next generation formulation that will be.
Distributed through the fiber three B facility and then just in general how youre thinking about the Tam.
Yes, so atropine is a really interesting market its a big market well, let me just start by saying.
Our formulation is compounded it is not FDA approved and as such it is not specifically labeled for any any condition. There are a number of companies that are working on products to treat a pediatric myopia, which is traditionally one of the market.
That's one of the areas where atrophy.
Atropine has been very helpful. In us frequently prescribed so the and by the way all of the companies that we know that are developing products for the pediatric myopia market 100% of them.
Developing atrophy.
So.
Interesting pharmaceutical ingredient to treat this condition as I said, our formulation is not FDA approved it is compounded.
But the market itself is significant.
I think Kaiser just put some numbers out and they said been about eight 6% of our targeted population of kids Mrs.
50 million people.
Would would be impacted by a formulation to treat pediatric myopia, so you're talking about 6 million potential.
Potential patients.
Some of the companies that are developing these types of products. It said that the number is somewhere between five and $6 million. So it's a big big market.
In terms of the overall patient population its public information, what what our formulation and selling for which is $39.
For a bottle.
And so you can kind of do the math and figure out how we think about the market, but it is certainly a market that exceeds $1 billion a year.
We have a formulation.
That that we believe is differentiated from anything else that is being developed.
Or that is available in the compounded market and and we're really excited about that we filed to my P. M on that we've done a lot of.
Our freedom to operate work and a lot of analysis of the overall market and we're excited to be able to make an affordable accessible atropine formulation available to this very large market, which is consistent with how we have operated our business in terms of serving the market survey physicians in serving their pay.
<unk> from inception.
That's great. Thanks, very much for that maybe just one final one great to hear all that.
And by the way.
By the way, we love our brands, we love the brand Brighten Dot Com I think if youre going to be in the atropine business to own atropine dot com and to be able to offer compounded atropine is just.
Fantastic.
No. It certainly does not get much better than that from a marketing perspective, yes. So I appreciate all the updates on melt 300, but also just was wondering if you could provide any color on surface and the dry eye disease program, specifically I know, we've heard anecdotally about the data from the phase II program, but just wondering if there.
Our plans for near term publication or distributing that data at a large medical meeting.
We sure would like to see the data published the.
You know I really don't have much more to say about the process that surface is undergoing they do have some additional data the final data set from their phase III or phase III programs.
We're expecting in the month of December actually.
But but theres really not much more to say about about that I would suspect that you'll see.
That data are published.
Certainly in the next quarter.
Quarter, or so I think on the positive side. There has been some serious interest in chronic dry eye disease and drive in general we have been a couple of meaningful transactions in this space and so we continue to believe that the data that I've seen that.
The surface has been able to create.
Is a is the best.
The data that I've ever seen and that I think has been published on chronic dry disease. So we think there's real value there.
And theyre going through a process now to assess what is next whether it's to do a strategic transaction or the work with a partner.
Two to take things to the next step but.
We believe there is a lot more value there and you know.
I think there'll be more information coming here fairly soon about what surfacing tends to do.
Hi, Kurt where you will look out for that thank you very much for taking my questions and again, congratulations on a really productive quarter here looking forward to continued progress.
Thank you Sergio.
This concludes our question.
I would like to turn the conference back over to Mark Palmer for any closing remarks.
Thank you Andrea and I.
I hope everyone on this call I was able to see what we see in that is that we have been able to lay the groundwork for the commercialization of <unk> and to support other branded products.
While remaining adjusted EBITDA positive we are preparing for the growth that we clearly see on the horizon. We're building a different kind of pharmaceutical company. One that is deeply connected to our customers, including doctors institutions that we serve and even down to the consumer level and this structure facilitates.
Our relentless desire and dedication to serve these customers better and allows us to maintain a competitive advantage and to differentiate <unk> from other rivals in our industry, which should in turn ultimately reward our stockholders to borrow a quote from one of my idols.
Buffett the stock market is designed to transfer money from the active to the patient.
We are grateful for our stockholders, who have hung in there with us through bad times and good times and we look forward soon to rewarding them for their patients with further value creation. Thanks to everyone for attending today's call and for your interest in hero. If you have any investor related questions. Please email Jane.
Any web at Jay Webb W. E B B at Harrow, Inc. Dot Com and this will conclude our call.
The conference has now concluded thank you for attending today's presentation.
Disconnect.
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