Harrow, Inc. (NASDAQ:HROW), a leading eyecare pharmaceutical company, has demonstrated remarkable resilience in the first quarter of 2024, delivering strong financial results despite the challenges posed by the Change Healthcare cyberattack. The company's diversified portfolio of branded ophthalmic products and its market-leading compounding business have enabled it to navigate the industry's headwinds and position itself for continued growth.

Financials

Harrow's financial performance in the first quarter of 2024 showcased its ability to adapt and thrive. The company reported annual revenue of $130,193,000, a testament to the strength of its product portfolio and commercial execution. Despite the impact of the Change Healthcare cyberattack, which the company estimates cost it millions in lost revenue, Harrow managed to grow its top line by 33% compared to the same period in the prior year.

The company's annual net income for the year stood at -$24,411,000, reflecting the ongoing investments in product development, commercial expansion, and strategic initiatives. However, Harrow's annual operating cash flow of $3,840,000 and free cash flow of -$148,713,000 demonstrate its ability to generate cash from operations, even as it continues to invest in its future growth.

Quarterly Performance

In the first quarter of 2024, Harrow reported revenues of $34,587,000, a significant increase from the $26,103,000 generated in the same period of the previous year. This growth was primarily driven by the strong performance of the company's branded ophthalmic products, which accounted for $13,868,000 in revenue, compared to $6,272,000 (including revenue from the transfer of profits) in the prior-year quarter.

The company's gross profit margin for the quarter stood at 69.49%, reflecting the higher-margin profile of its branded products. Harrow's selling, general, and administrative expenses increased to $28,813,000 in the first quarter, up from $15,888,000 in the same period of 2023, primarily due to investments in regulatory enhancements, product transitions, and the expansion of its sales and marketing teams to support the launch of new products.

Research and development expenses also increased to $2,149,000 in the first quarter, compared to $734,000 in the prior-year period, as the company continued to invest in its pipeline and product development initiatives.

Business Overview

Harrow is a leading eyecare pharmaceutical company focused on the discovery, development, and commercialization of innovative ophthalmic products for the U.S. market. The company owns one of the largest portfolios of branded ophthalmic pharmaceutical products in North America, all of which are marketed under the Harrow name. Additionally, Harrow owns and operates ImprimisRx, one of the nation's leading ophthalmology-focused pharmaceutical-compounding businesses.

The company's product portfolio includes a diverse range of prescription and non-prescription pharmaceutical products, catering to the needs of eyecare professionals and their patients. Harrow's branded products, such as VEVYE, IHEEZO, and its Anterior Segment line, have gained significant traction in the market, driven by their clinical efficacy, patient-centric approach, and the company's strategic focus on market access and commercial execution.

Operational Highlights

Harrow's first-quarter performance was marked by several key operational achievements. The company's launch of VEVYE, the first and only water-free cyclosporine solution for the treatment of dry eye disease, has been a resounding success. Within just a few months, Harrow has secured coverage for over 150 million lives, a testament to its market access strategy and the product's clinical benefits.

The company's IHEEZO, the only J-coded ophthalmic anesthetic in the U.S. market, has also gained significant momentum following the recent confirmation from the Centers for Medicare and Medicaid Services (CMS) that the product is separately reimbursable in the physician's office setting. This development has opened up new opportunities for IHEEZO to gain market share, particularly among retina specialists and large group purchasers.

Harrow's progress in reintroducing TRIESENCE to the market is also noteworthy, with the company reporting that the recent commercial-scale production batch has passed all preliminary release parameters. The company plans to provide further updates on its TRIESENCE relaunch program in the current quarter.

Liquidity

Harrow's balance sheet remains strong, with $68,538,000 in cash and cash equivalents as of the end of the first quarter. This figure includes the company's investment in Eton Pharmaceuticals, which it has since divested, adding $5.5 million to its cash position.

The company believes that its current cash position, combined with the funds generated from operations and any potential financing or asset sales, will be sufficient to sustain its planned level of operations and capital expenditures for at least the next 12 months. Harrow may also consider the sale of certain non-strategic assets, such as its investments in Surface Ophthalmics and Melt Pharmaceuticals, to further strengthen its financial position and support its growth initiatives.

Outlook

Harrow has provided guidance for the full year 2024, stating that it expects to generate revenue in excess of $180 million. The company's management team has expressed confidence in its ability to exceed this target, citing the strong performance of its branded products, the continued growth of its ImprimisRx business, and the potential contributions from new product launches and strategic initiatives.

The company's management has also highlighted the resilience of its business model, noting that the impact of the Change Healthcare cyberattack, while significant in the first quarter, has been waning in the current quarter. Harrow's diversified product portfolio and its focus on market access and commercial execution have enabled it to navigate the industry's challenges and position itself for sustained growth.

Risks and Challenges

As with any pharmaceutical company, Harrow faces a range of risks and challenges that could impact its future performance. These include regulatory uncertainties, competition from other ophthalmic pharmaceutical companies, and the potential for supply chain disruptions or manufacturing issues.

The company also faces the ongoing challenge of securing favorable reimbursement and market access for its products, particularly in the evolving healthcare landscape. Harrow's ability to effectively manage these risks and execute its strategic initiatives will be crucial to its long-term success.

Conclusion

Harrow, Inc. has demonstrated its resilience and adaptability in the face of industry challenges, delivering strong financial results in the first quarter of 2024. The company's diversified portfolio of branded ophthalmic products, coupled with its market-leading compounding business, has enabled it to navigate the headwinds and position itself for continued growth.

With the successful launch of VEVYE, the progress in reintroducing TRIESENCE, and the growing momentum of IHEEZO, Harrow is well-positioned to capitalize on the opportunities in the ophthalmic pharmaceutical market. The company's focus on market access, commercial execution, and strategic investments in its pipeline and operations are expected to drive its future performance and create value for its shareholders.