Business Overview and History
Harrow, Inc. (HROW) has emerged as a dominant player in the North American eyecare pharmaceutical market, leveraging its diverse portfolio of branded ophthalmic products and its leading ophthalmology-focused pharmaceutical compounding business, ImprimisRx. The company's strategic focus on innovation, operational excellence, and patient accessibility has enabled it to deliver consistent growth and solidify its position as a go-to partner for healthcare professionals and patients alike.
Harrow, Inc. is a leading eyecare pharmaceutical company engaged in the discovery, development, and commercialization of innovative ophthalmic pharmaceutical products for the U.S. market. The company owns one of the largest portfolios of branded ophthalmic pharmaceutical products in North America, all marketed under the Harrow name. Over the years, Harrow has acquired commercial and product rights to various FDA-approved ophthalmic medications and products through asset purchase, licenses, supply, and other related agreements. These agreements typically involve upfront and contingent milestone payments, per unit transfer prices, and royalties on product sales.
In March 2023, Harrow entered into a $100 million senior secured term loan facility with Oaktree Fund Administration, LLC. The company initially drew $65 million upon entering the agreement and later drew an additional $12.5 million in July 2023, increasing the overall credit facility size to $112.5 million. This financing has enabled Harrow to acquire additional products and fund its operations, further strengthening its market position.
A significant legal development occurred in July 2021 when ImprimisRx, a subsidiary of Harrow, filed a lawsuit against Ocular Science, Inc. and OSRX, Inc., asserting claims for copyright infringement, trademark infringement, unfair competition, and false advertising. The trial associated with this matter began in November 2024 and was ongoing as of the date of the Q3 2024 report, highlighting the company's commitment to protecting its intellectual property and market position.
Financial Performance and Ratios
Harrow's financial performance has been impressive, with the company consistently generating solid revenues and cash flow. As of the latest 10-Q filing in 2024, the company reported revenue of $132.78 million for the first nine months of the year, a 41.5% increase compared to the same period in the prior year.
In the third quarter of 2024, Harrow reported record revenue of $49.26 million, representing a 43.8% increase compared to $34.27 million in the same period in 2023. This growth was primarily driven by the strong performance in the Branded segment, which saw revenue increase to $28.55 million from $14.50 million in the prior year period. The ImprimisRx segment also contributed with revenue of $20.70 million, up slightly from $19.77 million in the prior year period.
The company's gross profit margin has remained strong, averaging around 73.5% over the past year, reflecting the high-value nature of its product portfolio. In the third quarter of 2024, the Branded segment gross margin improved to 81.9% from 77.0% in Q3 2023, while the ImprimisRx segment maintained a robust gross margin of 66.9%.
Harrow's operating cash flow for the first nine months of 2024 was $4.42 million, indicating the company's ability to convert its sales into readily available funds. In the third quarter alone, the company generated $2.95 million in operating cash flow and $2.43 million in free cash flow.
Liquidity
The company's liquidity position is robust, with $72.60 million in cash and cash equivalents as of September 30, 2024. Harrow's current ratio of 1.55 and quick ratio of 1.44 suggest a healthy balance sheet and the ability to meet short-term obligations.
Harrow's debt-to-equity ratio stands at 3.38, reflecting the company's leveraged position. As of the recent quarter, the company had drawn down $107.5 million of its $112.5 million senior secured term loan facility with Oaktree. An additional $30 million was drawn down in October 2024 to partially fund a milestone payment, further utilizing the available credit line.
Key Product Highlights and Competitive Landscape
VEVYE, Harrow's dry eye treatment, has been a standout performer, with prescription volumes increasing 55% in the third quarter of 2024 compared to the previous quarter. The product's unique formulation and favorable tolerability profile have resonated with healthcare providers and patients, driving strong refill rates of over 90%. VEVYE contributed $5.19 million to the company's revenue in Q3 2024, although a temporary inventory shortage around mid-September capped its revenue potential for the quarter. The company has since adjusted inventory levels to meet the high demand.
IHEEZO, Harrow's ophthalmic anesthesia product, has also seen remarkable growth, with a 15% sequential increase in unit demand in the third quarter of 2024. The product's reorder rate of 82% underscores its clinical value and the efficiency it brings to ophthalmic procedures. IHEEZO generated $12.88 million in revenue during Q3 2024, contributing significantly to the Branded segment's growth.
The relaunch of TRIESENCE, a key asset in Harrow's posterior segment portfolio, is another significant development. The company's strategic pivot to focus on the retina specialist community, combined with the product's unique positioning, is expected to drive strong adoption and revenue growth.
Harrow's comprehensive portfolio and its ability to offer a "one-stop-shop" solution for eyecare professionals have given the company a competitive edge in the market. The company's ImprimisRx business, which provides specialized compounded formulations, further enhances its value proposition and customer loyalty.
Risks and Regulatory Landscape
Harrow operates in a highly regulated industry, and the company's ability to navigate the complex regulatory environment is crucial to its success. Potential challenges include obtaining timely regulatory approvals for new products, maintaining compliance with current Good Manufacturing Practices (cGMP), and addressing any product quality or safety concerns.
The company's reliance on third-party manufacturers and suppliers also introduces supply chain risks that could disrupt its operations. Additionally, the competitive nature of the eyecare pharmaceutical market and the potential for pricing pressures or the entry of new competitors may impact Harrow's profitability.
Outlook and Conclusion
Harrow's strong performance, innovative product portfolio, and strategic focus on the retina specialist community position the company for continued success. The company's commitment to enhancing patient access and affordability, as evidenced by its recent partnerships and pricing initiatives, further solidifies its reputation as a trusted partner in the eyecare industry.
Looking ahead, Harrow expects the fourth quarter of 2024 to be their strongest quarterly period of the year. The company is confident they will exceed their 2024 financial guidance, given the record performance they expect in October and the fourth quarter. While specific numerical guidance for the full year 2024 was not provided, the company's management expressed confidence in their ability to meaningfully overperform their revenue targets.
The ophthalmic pharmaceutical market is expected to grow at a CAGR of around 5-7% over the next 5 years, driven by factors such as the aging population, increasing prevalence of eye diseases, and advancements in ophthalmic treatments. Harrow's pipeline of product launches and lifecycle management strategies, coupled with its proven operational excellence, suggest a bright future for the company as it solidifies its position as a leading North American eyecare pharmaceutical company.