Harrow Inc (HROW) 2020 Q4 法說會逐字稿

Good afternoon, and welcome to the Harrow Health's Q4 2020 Earnings Conference Call. My name is John, and I will be your operator for today's call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to Jamie Webb, Director of Communications and Investor Relations for Harrow Health. Jamie, please go ahead.

Thank you, John. Good afternoon, and welcome to Harrow Health's fourth quarter 2020 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 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 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's 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/or adjusted earnings. A reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company's matter to shareholders 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.harrowinc.com. Joining me on today's call are Harrow's Chief Executive Officer, Mark L. Baum; Harrow's Chief Financial Officer, Andrew Boll.

With that, I'd like to turn the call over to Mark Baum to go over some prepared remarks prior to the Q&A session. Mark?

Thanks, Jamie, and thanks for joining our call today. I would encourage everyone listening to review our fourth quarter 2020 earnings release and letter to stockholders, which was 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 quickly touch on a few items to provide some additional color on our business since we last spoke in November. The Harrow team showed financial and operating resilience for the fourth quarter of 2020, reflecting a continuation of the momentum we saw in the record-setting third quarter of 2020. On both a year-over-year and sequential quarter basis, key financial metrics continued to improve despite interim challenges we faced during the fourth quarter related to COVID-19 resurgence and unpredictable weather. We also saw significant progress in terms of major milestones, customer growth, product development and the expansion of our revenue sources.

We are pleased to report that total revenues for the fourth quarter were $14.6 million, an increase of 16% compared with the $12.6 million reported in the prior year period, and slightly up from revenue of $14.4 million in the third quarter of 2020. Gross margins have remained relatively consistent at 73% for the fourth quarter of 2020, compared with 72% in the fourth quarter of 2019 and 74% in the third quarter of 2020.

Adjusted EBITDA for the fourth quarter of 2020 rose to a new record level of $4 million compared with $2.1 million reported in the prior year period, and that represented a 33.3% increase over the third quarter of 2020.

In the fourth quarter of 2020, segment contribution from ImprimisRx for the quarter was $5 million, including noncash expenses related to depreciation, amortization and stock-based comp of $434,000, and that was compared to $2.2 million in the prior year period and $4.7 million in the third quarter of 2020. This important metric demonstrates the earnings power of the ImprimisRx business separately from other Harrow businesses, assets and liabilities.

As I reflect on the full year 2020, I am proud of how our teams stayed true to our mission and continue to execute our strategy even in the face of the challenges and uncertainties brought on by the COVID-19 pandemic. Early in the pandemic, Harrow Health took steps to manage its balance sheet and expense levels. We also worked aggressively to maintain our competitive advantages by strengthening our product and service offerings, further improving the ImprimisRx prescriber and patient experience, advancing several key new product development opportunities and beginning the process of expanding ImprimisRx beyond pharmaceutical compounding. Those measures paid off, resulting in a rapid return to pre-COVID-19 performance levels and building a pipeline of new value drivers for our customers and stockholders alike.

During 2020, we began to exclusively focus on growing our eye care businesses as we seek to become eye care-focused health care only. Since beginning our commercial operations in 2014, we have built our eye care business by selling innovative pharmaceutical compounded products only to institutional customers such as doctors, hospitals and ambulatory surgery centers. Today, we are positioned to expand beyond pharmaceutical compounding.

In the future, while we continue to organically grow our pharmaceutical compounding business, the next major phase of development of Harrow Health will leverage our market position and add high value in terms of revenue per unit and gross margins, FDA-approved products and late-stage drug candidates ophthalmic drug candidates to our platform.

Our first strategy proof point was the transaction we completed with EyePoint Pharmaceuticals to market Dexycu, but we are working diligently to further expand Harrow's value by acquiring additional high-value products and technologies, and by deploying new eye care services, which will drive the next major phase of our growth at Harrow.

This year, we'll also see the launch of Visionology, our direct-to-consumer eye care subsidiary, that we've been diligently developing over the past 3 years. To give some context, before I had ever heard of the word COVID, I had a strong conviction that with the help of new telemedicine technology, other software tools and mobile diagnostics, the provision of eye care goods and services would move closer and closer to the consumer, the end user, the patient.

With the help of Drew Livingston, the Co-Founder and former CEO of doxy.me, which is the world's largest SaaS-based telemedicine business, together, we have been able to build Visionology. And what we have trademarked, and what we call eye care as a service, which, with the help of a network of local eye care professionals, many of whom are our customers now, we will deliver a simple and seamless user experience to help patients manage their chronic eye diseases. Our goal is to drive value, transparency and access to eye care through Visionology, which is launching regionally during the second quarter. I look forward to updating you on our progress in rolling out this exciting new business.

Now let's take your questions. I will pause to have our operator poll for questions. Operator?

(Operator Instructions) And your first question is coming from Brook O'Neil.

So let's start off by talking just a little bit about the COVID resurgence impact in Q4, the bad weather, sort of what you guys are seeing now here in Q1? And obviously, everyone's focused on what the impact of reopening might be on your business?

Well, thanks for the question, Brooks. Let's talk about COVID resurgence. Look, it's -- we're about 10 days away from the anniversary of when there were stay-at-home orders, mandatory stay-at-home orders. So it's been a full year of COVID-19 being in our lives in a major way. It's certainly in our lives at Harrow because we're in the eye surgery business. And to this day, there are many markets that are still impacted. Markets, particularly, markets like California, as an example. And it is the case that many offices around the country are not -- that in states that are open are not operating at full capacity. So all of that said, what I think is really promising about what we've been able to accomplish as a team is that despite the impact of COVID-19, which continues to this day, we've been able to actually get the train back on the tracks, grow our business, take ground, add to our customer base, the number of customers who purchased from us and do other creative things like transact with EyePoint Pharmaceuticals. So we're really excited.

I think, to a very certain extent, as more and more people are vaccinated and patients feel comfortable getting back into the doctor's office, we're expecting to see this backlog of cataract surgeries from the last 12 months-or-so start to feather in, and we believe we'll be a beneficiary of that. So to a certain extent, we are kind of a reopening play, and we expect that we'll see some benefit, as I said, as these surgeons come back online at 100%. But without question, there has been impact. There continues to be impact and the weather certainly doesn't help. But thankfully, the storms pass, the snow melts, and we're really excited about the balance of the year.

Great. Let me just ask you -- let me just say, I'm personally very excited about the shift to an eye-focused strategy. That makes a lot of sense to me, but I'm trying to be sure I understand how you think about Melt and Eton, in particular, as assets you hold that do not strike me as consistent with your strategic direction? I'm just curious how you think about handling those assets going forward?

Sure. I tried to lay this out in our stockholder letter, which I would encourage everyone to read. But we birth, if you will, Eton and Surface and Melt because we had really great pharmaceutical assets that we wanted developed, and we wanted to use external capital to do that, and we wanted management -- a management team in each instance to focus exclusively on the development of those assets.

The upshot for us is that we have a really nice set of assets in terms of equity in those businesses. Eton has kind of been -- it's gone in a different direction under the leadership of Sean Brynjelsen. He has made that company in his own eyes. And are they in the eye care business? No. Are we really excited about what Sean is building? Absolutely. Are we even more excited that we own 3.5 million shares of that stock? Most certainly. Is it a critical eye care asset? No, it's not. But we will decide, down the line, what to do with our ownership interest, but I'm really happy that Eton is in terrific shape, has great leadership. And the same is true with Surface and Melt.

And Melt, by the way, their initial indication for their MELT-100 program is, in fact, for ophthalmic surgery. So it is very much connected to what we're doing here in the eye care world. So I hope that answers your question, but we see great things with Eton. Really exciting, fairly imminent things going on with Surface. They have some really interesting programs that are going to read out in the next 12 months. And the same is true with Melt. So we're happy to be shareholders of all 3 of those businesses as well as royalty owners in 4 programs that are being developed by Surface and Melt.

Cool. I'll just ask one more, Mark. So again, I'm excited about the outlook for Visionology. And I get that you haven't fully decided how you might seek to monetize your investment in that platform, but just tell us your sort of current thoughts of do you think you'll spin that out as a separate company? Will it stay a part of Imprimis? How are you thinking about that right this minute?

Yes. So we developed the Visionology platform because from the moment we started Harrow, operationally, myself, Andrew, our entire team, is 100% customer- and patient-centric. I mean, we are, as a team, completely obsessed with delivering an amazing experience for customers. And historically, the way that we've -- and when I say customers, I mean patients actually, the people who use our products, our parents, grandparents, cousins, et cetera, who benefit from the innovation that we've been able to bring to the market. So we are really focused, and I would like to use the word obsessed with delivering a great user experience for those people, the end users, the patients. And we've done that historically through institutional customers, hospitals, doctors and ambulatory surgery centers.

It is a natural progression, though, for us to get closer to the end user, the customer, and we're going to do that by partnering with local doctors to deliver an incredible experience, an eye care experience. And that's really because, for the consumer, eye care really hasn't changed that much in about 50 years. And it's going to change, we believe, when we roll this business out.

In terms of how we finance it, we have the resources right now to do the work to make this what we believe to be a really valuable business. So we're going to make the investments at the Harrow level right now. And figure out what our customer acquisition costs are and get a better idea of what the long-term expected value is of a new relationship that we create with a patient. And once we have all of that data, we'll be able to determine better how we ultimately finance the business.

But we're going to be, we believe, first to market with a platform like this, and there isn't anyone out there, the hims, the hers, the teledocs, the other telemedicine companies are not really in eye care, but we're going to hopefully be first to market with an exciting platform. And we believe, as we roll this out and learn more about how the business operates, a very valuable platform, one that will be a subsidiary of Harrow for now.

Your next question is coming from Andrew D'Silva from B. Riley.

Congrats on a strong quarter. So we'll start off with ImprimisRx. On that side of the business today, could you just touch on how initiatives to bring in additional approved or branded drug is going?

And then can you give any insight to how conversion from Tri-Moxi to Dexycu is charting? Is that resonating the way we discussed or what you were thinking previously?

Sure. Andy, thanks for the questions. We are -- we have been working on and currently have 4 active initiatives to bring in either approved products or near-approved products under the Harrow umbrella that we can then commercialize through one of our channels, and then there is another service-oriented program that we're working. So it's a total of 5, and they're at various stages of engagement. Some are quite close, others less so. But we believe that we will get some over the line. I can't guarantee that we'll get any over the line, but there's strong likelihood that we get one of these done and maybe more.

And over time, it's not necessarily about even these 5 programs that we're engaged with now. It's really just, in the big picture, the idea that the platform will benefit, the business will benefit. And ultimately, our shareholders will benefit from bringing on these high-value FDA-approved products. So we're very focused there, and we're going to get something done.

In terms of the first proof point that we can actually do that, you mentioned the Dexycu partnership with EyePoint. And in terms of conversions of that -- of our Tri-Moxi customers to Dexycu, it does take longer to convert customers, the sales cycle is a little bit longer. But I'm really pleased with the progress that we made, particularly in the fourth quarter, which is really, the last couple of months of the fourth quarter were really the first couple of months that we actually had it. We had our people trained up. They were out in the field, making calls. And even in a COVID-19 environment, we did really well. And I think, EyePoint, we were grateful that they acknowledge that we made a material impact in the fourth quarter. I think that, that trend is going to continue, by the way. I think we're going to see more and more conversions of some of our customers. And they may not necessarily be just Tri-Moxi customers, but other customers that may want to benefit from what Dexycu offers.

So -- but it is not like flipping on a light switch. It takes time. And our team, though, is doing a superb job, and I'm really, really proud of the job they're doing. And I think EyePoint is quite happy with the job that we're doing as well.

Yes. Great to hear that. Great insight. I'll keep it with ImprimisRx. On the regulatory side, I believe there, at least recently, was guidance tied to the bulk list and then the MOU as well, any impact to core products? Markets? And/or how we should be thinking about revenue as 2021 moves on?

Yes. So the MOU that was recently published, we believe that our home state of New Jersey intends to sign the MOU, and we've heard that from very reliable sources. So we do not believe there will be any impact from the MOU on the business.

And in terms of a guidance and regulatory action on various ingredients, we, too, do not believe that there will be any impact on our offerings and that we'll be able to continue to service the customers that we have now and that -- that we'll bring on down the line with our products.

We've been through this before, by the way. This is not the first time that the FDA has come out and challenged the use of certain ingredients. And that's okay. That's the FDA doing its job. Our job is to always be compliant, and we have alternative formulations, great formulations that we've done a lot of market work on and that we believe will be well received with our customers. So we don't anticipate any impact.

Okay. Useful. And then just last question. As it relates to Visionology, obviously, him, just to spec, I believe that's a fairly similar business model obviously, you're with an ophthalmology direct-to-consumer twist on it. Can you discuss just where you are setting up the infrastructure? And things like a physician network, just the platform, et cetera? And then how should we think about products being distributed through Visionology? What -- will that be largely the same offerings that ImprimisRx has? Will it be a narrower list? Or will it have other proprietary branded offerings that maybe ImprimisRx currently doesn't offer?

Yes. So Visionology is going to be entirely focused on helping patients manage chronic eye disease. So Visionology, for example, isn't in the surgical market at all. We want to help patients who are suffering from glaucoma dealing with challenging dry eye disease. We intend to offer formulations and services that can help patients with presbyopia, allergy, chronic eye conditions. And so we will use some of the technology, some of the drug formulation assets that we have. But there will be also new formulations that have never been seen in the market.

But it's important to note that Visionology is not about prescription medications exclusively, Visionology is a service. And Visionology is partnering with local doctors, and we're partnering with eye care professionals in order to make this service available and to leverage the software, the technology that we've been building for quite some time. So it will extend beyond the prescription medication, and it does involve the use of technology that has not been seen and is really even beyond, I think, what you see with the hims or hers in some of these other markets. So we're really focused on helping manage these diseases, not just by going online and having a telemedicine visit and having a prescription sent to you, this exceeds that offering, the value to the consumer far exceeds just a prescription medication.

(Operator Instructions) I would like to turn the conference call back over to Mark Baum for any closing remarks.

Thanks again for attending our call today. In closing, let me again express my gratitude to the employees of the Harrow family for their unwavering hard work, dedication and loyalty delivered day after day in the face of an extraordinary year full of challenges brought on by a global health crisis.

Thanks to the team approach of all of our employees. We have made significant progress on many levels, and we are excited about the future prospects of our company as we begin this next major phase of our growth and development. Our pipeline of potential transformative transactions is strong, and I am confident that our efforts will lead to new opportunities and the addition of new ophthalmic products that will continue to contribute to our success.

If you have any investor related questions, please contact Jamie Webb at jwebb, that's J-W-E-B-B, @harrowinc.com. This will conclude our call. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.