Q2 2023 Harrow Health Inc Earnings Call
Good afternoon, and welcome to Harris second quarter 2023 earnings Conference call. My name is Kate 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 Webb Director of Communications and Investor Relations for Harold Please go ahead.
Thank you operator.
Good afternoon, and welcome to Harold second quarter, 'twenty twenty-three 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, 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 comps.
Their formulations and technologies and FDA approval of certain drug candidates in a timely manner or at all.
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.
<unk> 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 referred to non-GAAP financial metrics, specifically, adjusted EBITDA and or just at the earnings as well as core results such as core gross margin core net income and core diluted net income per share.
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've 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 dotcom.
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.
Okay.
Thanks, Jamie and thanks to everyone for joining us on today's call.
As always I would recommend that you review our second quarter 2023 earnings release corporate presentation and letter to stockholders all of which have been posted to the Investor Relations section of our corporate website.
Documents are important to review as we continue to use our time on these calls to provide color on the operational highlights from the quarter and are of course, taking your questions.
To begin based on our results to date, we remain confident in our 2023 financial guidance of 135 million to $143 million in net revenues and 44 million to $50 million and adjusted EBITDA.
We intend to provide an update to our financial guidance later in the year. After a few months of operations with our recently launched and newly acquired branded products.
As I said in my stockholder letter what a difference a few months makes since our last quarterly earnings call. We've added numerous products to our portfolio, including substantially all of the products in the North American Santana bottleneck pharmaceutical portfolio as well as V VI.
From Novo leak.
This is on top of that fab five portfolio, we acquired from Novartis and closed on in the first quarter of 2023.
Through the Santana acquisition, we acquired the rights to five branded prescription products and one O T C product for the U S market as well as Canadian rights to one branded prescription product in one O T C product.
Demand trends for all of the sand tin products are positive in most assets have IP through 2028 or beyond we expect this transaction to be immediately accretive to earnings following the N V a new drug application or MAA marketing authorization transfers.
<unk>, which we are currently working on now.
Now under the Novo linked transaction, we acquired the North American rights to F. D. A approved V. VI, the first and only cyclosporin based product indicated for both.
<unk> and symptoms of dry eye disease.
Revise based on <unk> proprietary water free I saw technology in my view, an oblique through I saw is essentially reinvented the eye drop.
I have put water free novo leaf products on my eye and they feel completely different almost like a puff of air is hitting your eye.
In fact, my experience is that in.
Barely know the drop has hit you right. It's a totally unique field that I believe prescribers and patients will love.
Those who have followed heroes growth and development no that we have been keenly interested in and have studied the dry eye space for many years. My view is that the U S. Dry eye market will consist of two camps on.
On the one side.
You'll have products from what I'm, calling the water world.
And on the other side, you'll have products from the water free World base.
Based on what I have seen in the data and my experience putting in I saw based product on my I am 100% all in as a water free believer I believe it will be challenging to sell what I'm, calling waterworld products when the water free options or sooner.
Level.
We believe the body can be a game changer, not only because of I saw technology, but also because V. By contains a 0.1% concentration of the immuno suppressive cyclosporin.
And no other active pharmaceutical ingredient has been prescribed to treat dry eye disease globally and in the United States.
More than cyclosporin. It is the number one most prescribed active pharmaceutical ingredient for this patient population.
Before V VI, though.
[laughter] profiles for cyclosporin based products are challenging.
You can review slide 10 of our corporate deck, which is on our website for a label comparison of these products, you'll get a sense of what dry eye patients and their prescribers have been dealing with with these legacy products for many years, we believe U S prescribers Wanna Cyclosporin.
Based dry eye formulation with a new product profile and that's what Veeva delivers.
Levi offers exceptional patient comfort provides rapid clinical onset of 29 days.
It has an extraordinarily mild adverse event profile and data has shown that it continues to help patients with both signs and symptoms of dry eye disease out to one year.
As I said in my letter to stockholders.
I view the U S dry eye market is totally wide open and this is despite a handful or so of products that are currently approved and others that are in development the.
The market is large and growing and includes over 60 plus million diagnosed dry eye disease patients of which about 9 million are diagnosed with moderate to severe disease for a number of reasons, including the suboptimal profiles of the existing prescription choices.
Which by the way still do over $1 billion in annual revenue in the U S market alone.
Only about 10% of the patient population with dry eye patient population is benefiting from a prescription dry eye therapy.
We intend to up in the U S dry eye market by providing this new choice V VI.
To those dry eye patients, who have tried and failed one or more of the existing dry eye prescription products.
We also want to increase the overall pool of diagnosed patients who are on a prescription therapy, who can benefit from a prescription therapy.
Importantly, because of Levi's unique comfort and efficacy attributes we believe a meaningful number of veeva patients will also choose to maintain vivo therapy to treat their disease.
With the buy and the other adjacent ocular surface disease products, we now own include.
Including fresh coat tober, Dex S T and flare acts.
<unk> is planting a flag in the U S dry eye in ocular surface disease markets and we intend to compete vigorously.
To win meaningful market share and ultimately help millions of suffering American dry eye disease patients.
And of course, we remain resolutely focused on and excited about items, though.
Which we officially launched in May of this year at the American Society of cataract and refractive surgeons <unk>.
Annual meeting in San Diego.
It is still very early in its launch we are encouraged especially given the math on the <unk> market opportunity, which is very straightforward.
There are two main anesthetic use cases for <unk> one.
For surgical interventions, such as cataract surgery glaucoma surgery in retina procedures, all of which take place in a hospital or an outpatient setting of care.
And then secondly, and intervention in a physician's office, such as an interim vitriol injection.
We estimate that in the aggregate there are more than 12 million such use cases in the U S. Each year.
And we were granted a product specific J code. That's J 2403 for all such use cases, and the current wholesale acquisition cost or WAC pricing on items. So is $544 per unit.
The positive feedback we're getting from early adopters of <unk>, He's though on its clinical value is adding to our enthusiasm about the product just works and it works well.
He's though users have indicated that they're even more potential applications than we had previously anticipated.
That eye care professionals are even eliminating opioids for many of their surgeries and then I hear Zoe is getting reimbursed in both the ambulatory surgery Center.
[noise] of care as well as for in office applications as well that second setting of care.
In summary, we've been hard at work building a company that we believe with the current hero product portfolio and continued execution by the hero team.
Can become a top tier U S focus ophthalmic pharmaceutical company.
We now believe that we have five discrete what I call revenue buckets.
With nine figure annual revenue potential there.
These revenue buckets, which are described in full detail and our stockholders' letter include bucket.
Bucket one just.
<unk>.
Bucket two is our dry eye disease, and other ocular surface conditions bucket, which is led by V. VI.
Bucket three has one product try essence.
Four consists of our specialty anterior segment products.
And bucket five is our tried and true cornerstone imprimis Rx compounded pharmaceutical products business. So those are the five buckets as I said more fully described in our stockholder letter.
Some of the revenue buckets consist of a single product and others contained groups of products I believe I. He's on Veeva are our largest revenue opportunities without question.
That said there are also new sources of revenue with I. He's only launch in a few months ago and V. VI expected to launch later in the year.
Regardless of the exact timing of the start and steady build of revenue flow from these two exciting products. The key is that number one hero now has them both in.
Two we have an incredibly strong conviction of market need and ultimately market acceptance of both products and of course now we have one of the most comprehensive ophthalmic portfolios of products in the U S market.
Position, we always wanted to be in a position that we now are in where how.
Happy to take your questions a pause to have our operator poll for questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the key to withdraw from the question queue. Please press Star then two.
The first question is from Jeffrey Cohen of Ladenburg Thalmann. Please go ahead.
Oh, Hi, Jeremy Marc and Andrew how are you.
Great great good to speak with you Jeff.
So I know it's been a while so just a few questions.
From our end maybe.
Could you just expand a little bit clarify I guess, Andrew on the core versus the regular on the on the margin front as the core.
Our historical products up to resume and then the other gross margin number includes all the recent editions.
Yeah, Hey, Jeff Thanks for the question.
So on the core and we've got a pretty good reconciliation table in the back of the shareholder letter, but the.
The basic difference between core and GAAP on gross margin.
Is the amortization of those NDA for the noncash amortization.
Of the capitalized purchase price of the fab five products, primarily and there are a couple other capitalized.
Capitalized expenses that were amortizing through cost of goods sold.
And so that's that that amortization is reflected in the GAAP number the core number we're pulling that amortization.
Okay got it and Mark any specific commentary on the initial launch thus far from the April as far as a physician acceptance and any relevant bullet points to two communicated thus far.
No I think the.
Color that's provided in the letter to stockholders on Zoe is fairly detailed I mentioned in my prepared remarks that.
The performance of the product has been exceptional.
We haven't had anyone who has.
Use the product.
Say that it doesn't perform exceptionally well so people who try the product like the product.
With a product like a <unk> zone, you have such a large market opportunity.
You know the.
Real key is reimbursement and actually getting claims paid that was sort of the last piece of the puzzle.
We recognize that we're not going to win over every customer account, we're not going to win every unit opportunity, but given the total number of unit opportunities, even winning a very small percentage of those.
Creates a tremendous amount of value.
For our stockholders and for the company.
So.
We're really pleased now.
The doctors, who are using it we're seeing them get reimbursed not only in the ASC setting of care.
The hospital setting of care, but also.
And in the for the in office setting of care and so these are <unk> injections.
The in office setting of care, our permanent J code is powerful.
So that was sort of the last piece of the reimbursement puzzle for us.
I'm really really pleased that the reports back from retina doctors are very positive just got one actually earlier today. So we're seeing claims paid for a car.
<unk> Payors Medicare of course, and then also advantage. So Medicare advantage plan. So I'm really excited about the payment side of it the products performing really well.
And as I said I.
Gave an analogy in the letter to stockholders about.
My old Blackberry that I use 15 years ago.
And said Hey, you know when I had my Blackberry.
Loved the texting features phone was.
Good camera was good and had great access to my email I, probably would not have been interested in the iPhone. This thing called the iPhone, but of course once I experienced the benefits of the iPhone I never went back to the Blackberry and we're seeing that same sort of pattern happen for users of I. He is though.
Doctors are thinking about their old way of duty anesthesia, ocular anesthesia and Theyre seeing I think.
A better way to do it and of course, we're the only reimbursable topical anesthetic in the U S market, which I.
I think as a as a boon for the product.
Got it and then lastly for us could you.
Bring us up to speed on how the commercial team currently looks as far as total ftes and maybe demographic presence and then tie that into the.
The recent acquisitions of Shanshan.
Sachin portfolios and.
Levi if they came with any commercial folks in.
How they would be integrated.
Let's see I think the the personal world.
Dedicated W. Twos, we've transitioned away from 10 99, so the sales organization, they're all employees apparel that's 0.1.
Secondly, I think in terms of Ftes.
I believe we're getting close to 50 folks know and as.
As we've talked about in the past.
Our strategy here is to let revenue and demand sort of drive increases in expense.
<unk>.
As related to sales.
Sales folks, but we are building the <unk>.
Jim out slowly I mean, you can look on linked in and you see that there are open positions and I think one other comment.
My sense from our commercial leadership is that.
The quality of candidates that we're seeing.
Is very different today than it was years ago. There is a bit of a buzz I think in the formic pharmaceutical community.
Very strong sales leaders are wanting to join the hero team, they're seeing the activity, they're seeing the portfolio that we've built.
And so we're getting better candidates to join the team as well Andrew do you want to add to that at all.
No Mark nothing out on my side I'll, just I'll just add.
<unk> kind of what you were saying, though that importantly, Jeff we're going to make sure that we're doing this work on the analytics side that.
That market access.
The reimbursement is going to drive hiring were not going to go and hire.
Another 50 reps when we don't have the revenue to support it well, let that revenue and demand.
Sort of create and build and fill in behind it with additional expense.
Got it Okay Super helpful. Nice readout, thanks for taking my questions.
Thank you Jeff.
The next question is from Brooks O'neil of Lake Street Capital markets. Please go ahead.
Thank you very much good afternoon, everyone I confess.
I skimmed the shareholder letter as quickly and thoroughly as they could but I did have great company.
Report after the close the guys. So you can appreciate I might ask you about something thats.
Well documented in the letter and I apologize in advance for that but I.
I just wanted to start.
Maybe down the past, Jeff was going with a he though.
And read much of the commentary in the letter.
Just wanted to ask a little bit about you mentioned, specifically the $544.
It's wholesale acquisition cost.
That's called for and you mentioned, specifically that doctors have indicated they are being reimbursed by Medicare in MMA and commercial plans.
Can you help us just get a sense for.
What that 544 price means to you guys instead of price.
That you guys would realize.
Each vial of our Haynesville that you sell or help us understand that dynamic and then help us to understand how much a doctor yet.
Yes reimbursed in these various sites et cetera for.
For I E zone.
Sure.
Just to start you know we don't sell.
The doctors on the spread and any benefit economic benefit.
Physician or an ASC gets is not part of.
The sales process or the marketing process to be clear.
Yes in terms of the costs, we don't get the entire $544 and so there are distribution costs.
And other related expenses, so Andrew can kind of give you a rough breakdown of how that works.
And with a broad brush.
Yes Brooks.
Like Mark said, we're not seeing the whole growth. This is.
This goes for all of our branded products.
As Mark mentioned, we're going at our net revenues is going to be net of.
Estimated rebates wholesaler chargeback discount.
Discounts any other deduction.
And so that can run the gamut on.
On products from 12% up.
Two weeks, we've seen products that we've done acquisition diligence on where their gross to net is 80% discount.
The methane Arthur 80%, but it ranges based on the product, whereas he used.
And how heavily it's discounted, especially with.
With the payers.
Okay, I get all that and Thats very helpful guys any sense for what the Doctor gets reimbursed in these various sites again I understand that.
It's various buckets, whether were talking to hospitals or physician offices, whether we're talking commercial Medicare or Medicare advantage.
Just help us with a general sense.
If I understand correctly, it's 544.
Plus.
Margin right.
Yes, there is so there is a.
Obviously, a price that the ASC hospital or physician is paying for the product.
And then there is.
That is that is typically a lower amount than the.
The reimbursed amount sometimes there is.
An extra fee.
So our so called gap.
That can be build to a supplemental and so what we're seeing is is that the payments are coming in through the J code and the supplemental are being paid as well if that coverage is available. So we're not hearing.
Any complaints and when I say anyhow literally mean any complaints. So there are always cases, where you know the Washington D C as builder.
There are issues like that those are sort of administrative.
But but the code itself is being paid.
In the supplemental.
<unk> commercial.
The advantages are covering the delta.
Great.
Your sense is that the physicians in their office.
I've had reasonable success getting paid too.
Which is really the big market right.
The in office market is about twice the size we estimate.
Two the cataract and sort of the surgical market. So the <unk> <unk> injection market in particular is double the size of the.
ASC hospital market and so we are seeing coverage there as well.
And as I said I think the big picture message with a huge though is that that meet that last piece of the puzzle too.
To ensure adoption of the product when you have a product that works like I use, though you want to make sure and it's and it does have a J code, which I use though has you want to make sure that physicians are able to build the code and that was sort of a last piece of the puzzle and were seeing that.
<unk> get paid.
So there are real really no barriers to doctors now adopting the product and that's I think very very positive.
Very positive that's great. Let me shift gears and just ask I don't know nearly as much.
Know much about it he though I know nothing about.
Which I apologize for and I'm going to learn a lot more about it both today and in the near future but.
Can you help me understand our us understand.
The reimbursement picture for the.
The buy in terms of where you stand with regard to getting.
The same kind of.
All of us.
Reimbursement established for that product or whatever is required for that product.
In round numbers what.
Amount of reimbursement might be for that product.
Yes, so I use though is a buy and bill product and approach.
Part D as in Bravo product.
And Veeva is different.
It is.
A part D as in Delta, it's a drug product.
And it'll be built to a different.
Part of.
The coverage now Levi is.
<unk> newly FDA approved.
And the key activity now you know in addition to all of the marketing work that's going on behind the scenes. What's already started is really market access.
So our team is working.
Oh and focused on market access activities for Veeva.
He knows those activities now.
And we'll go through a contracting price not only with public payers, but also private payers as well we have an amazing.
Market access team.
This product Levi is certainly a priority for them.
So we have not priced the product yet.
<unk> products.
In this category I think range anywhere from.
600 to $800 range.
We have not actually priced veeva, yet and so that will take that'll happen over the coming months.
But as I said, regardless of the price and regardless of the.
Access status, what I can tell you because we will work through the market access issues, we are going to vigorously compete.
One of the benefits with the Vivat transaction he is our cost.
In acquiring the rights that we have.
Is low relative.
Relative to the costs for example.
Other competing companies.
So that gives us I think some leverage some flexibility in terms of pricing in terms of rebates and so on so we're going to compete.
You're going to compete hard.
And get as many patients access to what we feel is an extraordinary therapy.
But this.
This is not something that's going to impact our 2023 revenues.
A 2024 and really.
Beyond sort of.
Activity in the market is massive we have a an amazing IP estate.
Hi, <unk>.
It is an unusual product the feel of the product efficacy and so the key for US is that we have it.
It's totally unique it's FDA.
FDA approved we will work through the access issues and we have a large market and a completely really wide open playing field, we believe two to create value not only for patients.
But for our stockholders.
That's fantastic that's great. So let me just shift gears, one more time, and then I'll jump back.
<unk>.
I think you've mentioned in the letter and then your comments.
Also a product with enormous.
<unk>.
Hi, Dan.
Historically.
One issue has been manufacture ability and I saw it in the letter that you commented that you're.
You've made some test batches.
But.
Just to give us a little more color about the status.
Sure sure.
Broadly what you expect the timing to be.
My sense is if you can.
Get that product to be available to your customers. It is a pretty big market opportunity.
Are you there.
Without question, where we are.
And I've said this in the stockholder letter.
A lot of inbound from.
Ophthalmologists.
Every week about Triathletes they want it back.
Back they want access to it.
For all of the various uses of the product.
And you.
You can tell from the stockholder letter that we've been doing a lot of work in that regard with our manufacturing partner I think the good news is that.
The a batch of the material has been successfully produced and so.
What we're doing now is we're replicating that.
Our partner is and we expect that activity to really kind of conclude in the early part of the fourth quarter.
So we should have some results from these P PQ batches and assuming those results match the results of the batch.
That was already successfully produced.
We should have.
Material.
Available to us.
Hopefully by the end of the year if not in the early part of the first quarter of next year. One final point the deal that we struck with Novartis.
Has a financial incentive for them to provide us with a release of a commercial batch buyer before the middle of January .
The payment that is owed to novartis in connection with the NDA transfer try essence is $45 million.
However, if the batch is not produced by that time period, so that sort of the middle of January .
The payment that is owed as reduced from 45 million to $37 million. So there was an 8 million dollar incentives.
To get this right.
To provide us with inventory.
By the middle of June .
So.
So I understand well they manufactured for you for a period of time or are they just helping you and you're a commercial partner.
Get b.
Being able to manufacture it.
With all of the products that we've acquired them.
It's from Novartis are San Tan.
We always ensure that we have an ongoing multi year.
The contract manufacturing agreement in place.
And of course, we have flexibility to move the manufacturing to another partner if we so choose but we do have a partner in place for all four try essence, and we intend to continue that relationship and we're excited to hopefully have some.
<unk> by the end of the year and I think the nice thing about Triathletes as we don't get a lot of salespeople to sell triathletes it'll pretty much sell itself. So if we have the inventory I think our wholesalers will take as much as we could produce.
We will be able to produce a lot of value for stockholders.
Great I appreciate your taking my questions and your patience with me and I look forward to talking to you guys again.
No.
Thank you Brooks.
The next question is from <unk> <unk> of B Riley. Please go ahead.
Good afternoon, and congrats on a strong quarter and good to see the five year strategic plan in your shareholder letter. So a couple of fairly targeted question from us.
Maybe to start in thinking your thoughts regarding the full year guidance.
Get a lot of question on the push and pull there.
Terms of how much I think might be driving that but also you got buy products seem to be ramping up relatively ahead of plan and one day that also how much accretion you are able to have from sand then.
Calendar year, when you're going to see if you could just comment on that that'd be great.
Yeah. So thank you for the question the revenue growth is being driven.
Broadly speaking by our branded portfolio.
Figure marks its Max Max Index.
<unk> never knack and of course, our Haynesville.
So that's where we're seeing the growth.
And.
We expect the Santander portfolio to also provide.
You know not only.
The revenue base that we acquired when we bought the products on.
But we also expect to see some meaningful growth in that portfolio. Once we have the marketing authorizations under our control that's not going to happen tomorrow, it's going to take a few months, so theres sort of a transition period that were undergoing.
And you should see I think in 2024.
Pick up from Santander.
<unk> portfolio in terms of revenues and overall contribution but.
But I think the real growth drivers in the business in 2024 are going to come from.
Though we expect significant.
Continued growth in 2024, and 2025 and beyond for Ferrari.
Right, So and we're very excited about veeva.
And really beginning the market access work there.
And this is just a market you know I personally have spent a lot of time.
Trying to understand we have interviewed hundreds and hundreds of <unk>.
Chronic dry eye disease patients.
<unk> conducted telephonic interviews and so we think we understand this patient population very well.
What the nuances are.
You have to overcome to help these folks and so.
We just are very very excited about V VI and what it will offer to this patient population.
And this is going to be a product that will build.
In 2024 and for many many years to come I mean, you've got very strong IP.
On the bi.
Out into 2000, 2039 and beyond actually so it's a it's a product that we're gonna offered for a long long time, it's going to help a lot of people.
Great. Thank you and then maybe staying on your business the marketplace entry and by the way Love Nevada.
Novartis C analogy.
Meanwhile, the product differentiation relative to maybe some more of the same drug launches that have created with perception.
The update being slower to market all of which may be being limited.
It is a function of a lot of substations deal blind going under treated they don't comply.
Maybe just purely from a clinical data standpoint.
What sort of profile that we are talking about radical based on some of these drugs and obviously folks that also curious to know how it.
Differentiation against this basis that the genetic cyclosporine.
Yeah as I said.
The reason for our enthusiasm.
Is two fold one.
Because of what we have.
Which is.
Exceptional so we have a great product.
Our enthusiasm is buttressed.
By the competition that we face.
And so on the one hand, you may look at the.
Products that are in the market and say there is a lot of them, but if you're a dry eye patient and you have pain.
And you're right you're feeling grittiness in redness.
You know youre aggravated and it's hard to work in <unk>.
You go to put a product in your eye and.
22% of the patients experience pain.
When you instill a product in your iron ore.
You know the adverse event profile its even get worse than that for some of the products that are in development. So.
Youre that patient and you need something that suits your your pain.
I don't think that these products that live in the so called Waterworld are really helping them and we have a totally unique different approach.
And as I said I personally have put.
And I saw product in my eye on my eye and Theres, just nothing that feels like it and having.
Listen to literally hundreds of interviews of chronic dry eye disease patients I. Just think we have something that's going to really benefit them not on the margin.
Like some of the existing products may benefit patients, but we're talking about in a completely new way.
No it doesn't.
Have that burning and stinging doesn't caused excuse me it doesn't cause pain of installation something you don't have to spray up your nose or doesn't cause sneezing. When you put it up you knows.
This is a different approach.
And.
We're gonna patiently execute star.
Our strategy to make sure patients have access to V. VI. It is.
It is a totally new world, it's the water free world.
Got it and maybe just last one.
Andrew.
Most of the globe target range.
Leverage ratio you are trying to get to in the near to medium term.
It's improved but there is some sort of range you are working towards Andrew.
I think that.
Good question and thanks for that.
It depends the answer and I think.
What I mean by that is we're.
We're obviously sort of deal focus and our DNA.
And so if there are transactions that we can transact on and lever into it.
We're not going to pass it up and so that's what I'm, saying, we're not going to.
And obviously, it's got to be an attractive deal to do that.
But.
<unk>.
The current just based on the current leverage ratio, especially on an annualized basis.
I personally would like to see it lower.
We're definitely working towards that I think as you see it in the guidance even our expectation is EBIT is going to continue to grow throughout the year.
In order for us to hit the guidance number.
But at the same time, we like to use that as a way to fund. These transactions. If there are additional transactions for us to do.
We will do that and we'll take advantage of the instrument.
And our partners on the debt side.
Unless it makes a lot of sense. Thanks again for taking our questions.
Thank you Mike.
The next question near term, Jim rollout of Rommel asset management. Please go ahead.
Thanks, just a quick question.
New to the story, but been following it.
Our net equity dropped a nearly 20% in the quarter.
I haven't had a chance to look at really the pushes and pulls but can you give a little color as to kind of what.
Decisions your balance sheet decisions you are making.
Expansion of.
Credit.
Two for growth, but just a little color on why your net equity dropped nearly 20% in the quarter or in the first half of the year.
Hey, Jamie this is Andrew.
Happy to talk about that and address it so on a GAAP basis for the year, we've lost about just under $11 million.
There are a lot of noncash.
Impacts related to that such as amortization of.
The NDA that we talked about at the beginning of the call are Jeff.
Importantly.
Subsequent to quarter end, we also did raised about $69 million of new capital that will increase that that equity balance.
Hum.
And a subsequent periods.
Okay.
So.
Okay.
A lot of noncash charges in the first half of the year.
That's right.
So what are you what are you writing off our these are.
Are you is this just kind of amortizing acquisitions or are you actually writing things down.
Sure I can go through a couple of examples.
A big a big chunk of that about $4 $7 million of it. So far is the amortization of these intangible assets.
Noncash amortization, there is some investment losses related to our holding in Eden.
And then we also had a debt extinguishment costs of about $5 6 million.
That is essentially non noncash or non operating.
Okay.
Yes.
Okay, well I'll appreciate that all.
Probably a follow up.
<unk>.
Thank you Jim Okay. Thank you.
That is all the time, we have for questions today I will now turn the call back to Mark Baum for closing remarks.
Thank you operator, the first half of 2023 has proven to be a productive and exciting period for Harrow momentum is continuing to build in.
2023, and we expect it to continue for many years to come.
I know that we would never have achieved this or had a shot at achieving our goals without the trust of our loyal employees customers vendors and stockholders, who have supported us throughout this journey.
Thanks to everyone for attending today's call and for your interest in hero. If you have any investor related questions. Please email Jamie Webb at J W. E. B B at Hero, Inc. Dot com. Thank you and this will conclude our call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.