HROWL - Harrow Health Has Done Very Well For Us In The Past Few Months And We Expect More

Summary

• Harrow is a slow and steady seller of various ophthalmic products.
• In the last few months, it has gone up considerably.
• I expect more from the company, although I am still trying to figure out their strengths and weaknesses.

I covered Harrow Health ( HROW ) in November last year, and the stock has done very well since then. Harrow Health has an interesting business model. It is an ophthalmic-focused company and it owns ImprimisRx, an ophthalmology outsourcing and pharmaceutical compounding business; and it also owns a few branded and non-branded assets. More interestingly, it has royalty interest in three separate (ophthalmic) focused companies, Surface Ophthalmics, Melt Pharmaceuticals, and Eton Pharmaceuticals. It holds royalty interest in four clinical stage candidates owned by the first two companies. 20% of Surface Ophthalmics, 46% of Melt and 2 million shares of Eton are currently held by Harrow, along with royalty interests.

I covered Harrow Health in detail last year, so I will just see what the company has been doing since then.

In the third quarter, Harrow reported 22% revenue growth. They also got approval for IHEEZO, Harrow’s first self-owned NDA that was approved for ocular surface anesthesia. Ocular anesthesia is a competitive market but IHEEZO is the first branded ocular anesthetic approved in 14 years, with Orange Book-listed patent protection to 2038. The company seems upbeat about the prospects of IHEEZO, assessing it to double Harrow’s revenues in 2 years. IHEEZO works fast, lasts long enough to complete a cataract surgery, and in clinical trials, patients did not need a supplemental anesthetic during the procedure. The company plans to market IHEEZO on the back of its current status as a primary vendor for roughly 20% of all cataract surgeries performed in the USA. They have already received a permanent J-code for the product, making reimbursements seamless.

Besides its branded FDA-approved pharmaceutical products, Harrow is also progressing with ImprimisRx, its suite of market-leading compounded pharmaceutical products (CPPs). Last year, the company also launched Fortisite, a suite of compounded high-concentration refrigeration-stable fortified antibiotics. The suite is led by a compounded combination of Tobramycin 1.5% and Vancomycin 5%, “in solution, that is uniquely stable at refrigerated temperatures (5°C) for up to 180 days and tested for both potency and sterility before it is dispensed.” The product is sold on a cash-pay basis on prescription, and costs $299 per bottle.

As I noted in my coverage last year, Harrow divested itself of its non-ophthalmic compounded product line and added funds to its balance sheet. It plans to become a pure-play ophthalmic-only company.

The company terminated its DEXYCU agreement with Eyepoint because “of the decision by the CMS in their CY 2023 Payment Rule for Hospital Outpatient Services and Ambulatory Surgery Centers (ASCs) that DEXYCU will no longer qualify as a separately payable product in an ASC or outpatient setting and will instead be bundled into the general cataract procedure code, effective January 1, 2023.” The company says that any loss from this will be offset by gains from new products being sold.

Another development is the pivotal data from a phase 2 study of the MELT-300 program at Melt Pharma, nearly half of which is owned by Harrow. Melt-300 is a fixed dose combination of midazolam (3mg) and ketamine (50mg) used sublingually for sedation and anesthesia in cataract surgery. The study met the primary endpoint of the trial, and the data generated will be subsequently used to file an NDA. Melt-300 is an IV-free and opioid-free product that will benefit millions of American patients, and many more millions of patients worldwide. The company may need to complete a phase 3 safety study before an approval.

Another major news is the deal to acquire 5 ophthalmic products from Novartis, including Ilevro and Nevanac - indicated in the U.S. for pain and inflammation associated with cataract surgery - for $130mn upfront and $45mn after the commercial launch of Triesence injection. This is the second such deal between the two companies and brings Harrow closer to its goal of becoming a one-stop company for cataract surgery and other ophthalmic products.

Financials

HROW has a market cap of $532mn and a cash balance of $45mn, and current assets of $65mn. In December, the company launched a $25mn secondary and also $100mn in senior secure notes due 2027 in order to finance the Novartis acquisition. Last quarter, the company netted $22mn in revenue, and $16mn in gross profits. The company has around $16mn in SG&A and just 775k in R&D costs. Thus this small company is very stable, financially. For 2023, Harrow has a guidance of $135mn-$143mn in product revenue.

Bottomline

Harrow is not my usual kind of investment. This is not a drug developer per se; it is, rather, a commercial establishment. This is a lean and mean seller of pharmaceutical products, and in the last few months, it has brought a good amount of profit. Frankly, I don’t understand the business as well as I should - meaning, I am yet to gauge their strengths and weaknesses properly. However, I shouldn’t look a gift horse in the mouth, and I will keep holding this name for a while longer, until I am able to figure it out.

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