Everyone, I'm Jennifer Kim, one of the biotech analysts at Cantor, and I'm looking forward to hosting this fireside chat with Harrow. I'm joined by Mark Baum, the CEO, and Andrew Boll, CFO. Guys, thanks for joining us.
Thank you for having us. We appreciate your audience.
Oh, of course. Maybe to kick things off, can you give a quick snapshot of Harrow?
Sure. Harrow is a very simple company. We only do eye pharmaceuticals in the North American market. We've been in revenue for 10 years, so since 2014, and during that time, we've developed not only the number one ophthalmic compounding franchise in the United States, we also own 17 branded pharmaceutical products.
Okay, maybe to set the stage, it's a simple company, but a lot going on. Your stock is up, I think, 280% year to date. It's up another 100% plus since your earnings last quarter. At a high level, what do you think is grabbing investors' attention now?
I would say, you know, first of all, we write quarterly stockholder letters, and so we kind of lay out in these stockholder letters everything that we intend to do. I think from a credibility perspective, if you look at what we said we were going to do, by and large, we've been able to accomplish that. So credibility is certainly an important factor. And then the business is just performing. The numbers are working out. The acquisitions that we've done, we've done at the right prices and, you know, many companies may have not thought, or investors may have not thought that we could launch drugs, and I think, you know, we've been able to have success there.
You know, with VEVYE out and IHEEZO out and hopefully Triessence out soon, we're once again doing what we said we would do, so credibility matters.
Let's go into the legs of the commercial story. So you've guided to revenues north of $180 million for this year. Can you just talk about what is or isn't yet going into that guidance?
It's really everything that's in our most recent corporate deck. VEVYE is certainly on track to not only be a leading, if not the leading, chronic dry eye disease product in the U.S. market and produce more than $100 million in annual revenue, and hopefully far in excess of that, because it's a product where you not only get the initial prescription, but you also get the refills. So it's about getting the fifteenth prescription in addition to the first. But IHEEZO is the only reimbursable topical anesthetic in the U.S. market. That is on track to being a nine-figure revenue product and hopefully a multi nine-figure revenue product, given that there are 17 million annual use cases in the U.S. where an eye is either being poked or cut, and you need to anesthetize that eye.
And then we're very hopeful about Triessence coming into the U.S. market. And so on the heels of those three products achieving success with our anterior segment portfolio showing growth now 40% from Q1 to Q2, and even our compounding business producing a record quarter, you know, the business is on track, and that is the set of products that will produce that revenue level. Plus, we have some exciting things happening with Melt in a phase III, a pivotal phase III study that we expect in the next 60 or 70 days.
I am looking forward to that. The reason why I asked about the $180 million is if we assume just flat quarter over quarter performance for the rest of the year, I think that gets you north of $180 million. You've said that revenue in the back half should outpace the first half, and fact that consensus is forecasting, I think around $198 million for this year. Any thoughts on how optimistic we should be on that back half growth?
We don't really like forecasts and can't predictions. We really wanna focus on the longer term. What I said in our last stockholder letter is that we certainly, you know, have confidence in being over $180. It's really just a question of how big the greater than sign really is. There is a good chance that Triessence comes back, and if that comes back, then the greater than sign is much larger. What we're really focused on is another feature, another item we put in our corporate deck, and that is that, you know, we do have some visibility into this portfolio, being able to produce during the 2027 period. We're interested in more longer-term periods, $1 billion of annual revenue run rate, and we do believe that is achievable with this product set.
That would be a huge accomplishment. We actually just had a board meeting yesterday, and we operate on a five-year planning cycle, and we were able to achieve the financial goals that were in our most recent five-year strategic plan within actually less than twenty-four months. So we're reforecasting that plan now, and so we're really interested in that billion-dollar revenue run rate target, which we do believe is achievable.
I'm interested in going into what goes into that billion. But maybe just also thinking about what we could see this year. You've talked about core growth margins floating up into the 80% range and seeing some growth in the adjusted EBITDA. Can you talk about the drivers here and sort of the potential ranges we should consider?
... So we said gross margins were going to float into the 80s%. I think we're there. So we're delivering on our promise. In terms of, you know, what lies beyond the low 80s%, which is what we've said, you know, we really haven't gone there. As more revenue comes from these branded products, you should see gross margins continue to improve. And that leverage that we have, with the, you know, continued revenue growth and only marginal increases in operating expenses, you know, should continue, I think, to bode well.
Yeah, I can provide additional color. On the branded side, most of those products are going to be producing well over 80% gross margin, number of them, 90% plus. And so like Mark was saying, as the product mix moves more towards branded, more towards those big three products, which have that higher gross margin profile, we'll get up into the 80s and beyond on core gross margins. We're starting to see operating leverage within the model now too. Most of the operating infrastructure is in place. Most of the new expenses are gonna be on the sales and marketing side, maybe some market access support, a little regulatory support, but mostly revenue-generating type expenses. And so as there is any additional expense, we should see correlating revenue growth in excess of that expense is the expectation.
Okay, great. So a lot to go through in the commercial business. Maybe we can start with the retina products, IHEEZO and Triessence. Starting with IHEEZO, IHEEZO essentially doubled its unit volume demand last quarter. Maybe we can start with what has been driving this step-up in growth, and any thoughts on the growth trajectory over the next two quarters, and then looking into twenty twenty-five?
So what we've accomplished with IHEEZO is, first of all, it's the first new FDA-approved topical anesthetic in the U.S. market in nearly fourteen years. It's the only reimbursable topical anesthetic in the U.S. market. We have now in place supply agreements with the vast majority of the major purchasers of these products, and these are entities that do intravitreal injections. They own large surgery center chains, so they're doing cataract surgeries, as an example. And they like the product because it has clinical features that matter: predictable onset of anesthesia, predictable duration of anesthesia. Many of you may not know this, but a significant percentage of the intravitreal injections in the U.S. market actually involve the injection of an anesthetic.
And so if you can replace a poke with a topical anesthetic that happens to be reimbursable, that you're not paying for out of your capitated fee, that's very attractive. Those are attractive economics. So we have a product that's performing clinically, which is paramount, and offers unique features economically. And that is part of the reason why we've been able to attract some amazing new talent. Greg DiPasquale left Regeneron, he was running a $6 billion portfolio, to join us. We had Dave Zucconi left Apellis, running national strategic accounts, to join Harrow. Allie Harrison just left, running the RCA business for Regeneron, just joined Harrow. So we're attracting talent that years ago we could never attract.
They're coming here because they really believe in the promise of Iheezo, their ability to sell Triessence, and our ability to really build a powerful retina franchise.
Great. And a big part of that growth is the relationships there and the supply agreements that you've talked about. What does the phase-in of your supply agreements look like from a timing perspective? And do you know when you'll get a better sense of some key metrics, like the number of procedures per practice and reorder rates and all that?
So with IHEEZO, we have published reorder rates. So reorder rates for IHEEZO, as an example, currently are about 87%, so pretty, pretty strong reorder rates there. In terms of phase-in of those agreements, we did announce that we had an agreement, for example, with the largest purchaser of products in the retina space, and without naming the entity, it's not hard to figure out who that is. But you need pull-through. You need those relationships because there's a lot of blocking and tackling to sell through those agreements, and that's why it's valuable to have Dave and Ally and Greg on board, and there will be others. You will start to see some of that work in the third quarter.
You'll see a lot more of it happening in the fourth quarter, and I think, you know, it'll really kick in significantly in twenty twenty-five and twenty twenty-six. But we see many quarters and actually several years of continued growth through that twenty twenty-seven.
Well, I mean, the 87% reorder rate, pretty fantastic. As all those agreements come online, do you expect that to hold or...?
I've been in enough surgical procedures where this drug is being used, and I've seen what doctors used beforehand, and so it was a mishmash of all sorts of different protocols, and the efficiency of anesthetizing a patient with a single dose of a reimbursable product that has predictable onset and duration, and has other unique clinical value, it's like you say... "And by the way, you don't have to pay for it out of your capitated fee," it's hard to understand why a doctor certainly wouldn't try it, and if they used it and it worked for them, why they wouldn't continue to use it, so we do it. We would expect the number to be higher, but we're quite happy with where it is.
So thinking ahead, can you lay out what the key priorities are now, and where are the most attractive points of growth, and what could peak market penetration look like?
For IHEEZO?
IHEEZO.
So we initially, when we launched, were focused on the surgical market, so cataract surgeries in particular. We have, in the last, I'd say nine to 12 months, pivoted more towards the retina market, and we are making a hard charge in the retina market now. There is very clear reimbursement in the office. CMS has been supportive of reimbursement in the office, not only for single eye cases, but also bilateral same-day procedures. So we have a great opportunity there. The doctors who use it like it. As I said, if we can replace an injection with a topical administration of Iheezo, that's fantastic for patients, it's good for everybody. So what's the opportunity there? Well, gosh, there's 12 million of these intravitreal injections per year in the United States.
If we only had 10% market share, we'd have a lot of very, very happy stockholders. So we, we do need to, you know, be patient, but everything is up and to the right, with that, that particular product, and doctors who use it, like it. Patients who, are administered this medication, like it, and so that bodes well for the long-term success.
Maybe turning to Triessence, you recently announced you got a positive third commercial scale, process a PPQ batch. Congrats. What is left to do ahead of a potential relaunch this year?
We made the third batch, and the initial data showed that it was in specification. So we need to complete all of those analytical results, and if they stay in spec, then we expect to relaunch and sell the inventory that we have. So we had about 90,000 gross units from the three batches that have been produced. There is a significant number of those units that is sort of lost to these analytical tests, but there is a meaningful number that we will be able to sell to the extent that the data stays in spec, and we're really hopeful that it happens this year. If it does, it's a really good...
The revenue guidance, that doesn't assume any trial?
That's right.
So, if you relaunch by this year and you sell all the units, is the way to think about what incremental revenue that could be?
Yes.
Okay, look forward to it!
You know, from a revenue recognition. We're working through revenue recognition and unit revenue recognition. So, you know, we haven't done all that work, but what I can say is doctors really love this product. We've long admired the product. I think if anyone does diligence and talks to retina specialists and asks them whether they would prefer to use Triessence instead of a preserved Kenalog-40 as an example, they would prefer to have a non-preserved Triessence. They would prefer to be able to use the product-specific J-code. There's so many great reasons why they like Triessence.
We'll be able to sell whatever we can produce, and we'll work through the revenue recognition, but this is a product that enables you to really make a friend with a retina specialist because they want this product back in their armamentarium. We're hopeful that we're gonna be able to deliver that. It also helps with Iheezo, frankly, because, you know, when you build a relationship, giving a retina specialist a product back that they want, they're open-minded to hearing the Iheezo story.
Maybe we can turn to dry eye, VEVYE. That's also been performing quite strongly.
VEVYE.
Oh, VEVYE.
VEVYE. VEVYE, like Levi with a V.
Can you talk about the latest key launch metrics, and where do you see that product could go in terms of opportunity and peak sales?
We studied the dry eye market. I think of all the markets we've discussed, I think the one that we have done the most work on internally is dry eye disease. We actually, you know, wanted to understand the market from a physician perspective, a payer perspective, of course. Those are sort of, you know, those are the basics. What you really need to understand is consumer behavior, because if you look at the history of the legacy products that were in this space, whether it's Xiidra or Cequa, Tyrvaya, and certainly Restasis, the refill rates on these products were not outstanding, and so understanding why consumers did not refill those products was important, I think, for us, you know, feeling confident about what we have, which is VEVYE, in this market.
VEVYE, the data is fantastic. It works very quickly, amazing duration of really. So you get it works quick, it lasts a long time. We have data going out 56 weeks with continued improvement in both signs and symptoms, and the tolerability profile for the consumer. You know, when a patient has to put these eye drops in their eye, and they burn and sting, or in the case of Xiidra, they can cause dysgeusia. When you can eliminate those issues for the consumer, you have more of a shot of getting that second, third, fourth, fifteenth refill. Our refill rates with VEVYE are extraordinary. They are better than we've seen with refills for glaucoma medications, and the penalty for not taking glaucoma medications, you go blind.
So our refill rates are far better than we had internally projected with VEVYE, and everything is up and to the right, TRXs, NRXs, number of prescribers. It's a, it's a great story. We have great leadership within that team, and we're very, very bullish on VEVYE potentially becoming the leading product in that category. Not tomorrow, but in the next couple of years.
By the way, I think I was combining VEVYE with VEVYE, so.
Ah!
Um-
VEVYE is a good product, too.
VEVYE. I guess thinking about that competitive space, what investments have you made so far, and what... where do you think those investments have to go to get you to a category-leading product?
We don't. So you mentioned VEVYE. You know, that product was launched in a very big way with a lot of resources from a very large company. We don't do extravaganza launches. We're much more disciplined and methodical. We don't have those resources to play with, and so we went into markets with feet on the street where we had coverage. So coverage really drives where we invest. In our last stockholder letter, you know, we kinda talked about the one before, how we divide the market up. We are not participating in all of the territories in the United States now. We gap fill where we aren't with inside sales reps, and they do a fantastic job.
But, in the markets where we are competing, we are, in the vast majority of them now, beating Tyrvaya, beating Cequa, and in some, beating [audio distortion]. So where we're competing, we're winning, and we are growing. And we don't see the momentum slowing down. We're very bullish on VEVYE.
Where are you at in terms of, market access? Can we start there?
Sure. We have. We expect by the end of the year to have 100% of Medicaid. We just picked up Medi-Cal. Medi-Cal in California, the largest dry eye disease drug vendors in the United States. We have New York Medicaid, just picked up Texas and Michigan. So we've picked up a lot of Medicaid. We do not have Medicare. We expect to hopefully have Medicare in the first half, hopefully towards the first quarter of next year, but we don't have it yet. We do have, what? 160-
160 million lives-
Okay
... covered currently. Yep.
And then, as I guess, Medicare access comes online, should we be mindful of any expected changes in terms of net pricing?
Yeah, we expect overall gross nets on that product to start shrinking, or maybe a better way to put that is start increasing. So we should start recognizing more revenue on a per-unit basis next year, and certainly in the upcoming.
And then just looking at the other commercial levers of your business, how should we think about the growth of those legs, the prioritization between ImprimisRx and then the anterior segment products versus your key branded products?
So the growth in the business is really on the revenue side. It's a Triessence, VEVYE, IHEEZO story. The anterior segment cluster of products, you know, are high margin, now growing products, but you know, we're not gonna hit the numbers that I described exclusively on, with compounding or the anterior segment products. They are important products to our customers, and so we wanna make them available, but this is really, you know, a VEVYE, IHEEZO, Triessence story. To the extent Melt comes online, it's a Melt story as well. Those are products that can deliver, you know, as a single entity, nine figures of revenue. The other products that we have are nice to have, they're important to have, our customers appreciate them, and they're high-margin products.
Going forward, we're really looking at larger market opportunities.
Let's talk about the Melt piece of the story. Phase III data coming soon. I think you've said it could come at or around the time of earnings. Can you walk us through what this trial is designed to show, what the bar is, and how are you thinking about that opportunity?
This drug was invented by a cataract surgeon who was trying to sedate cataract surgery patients without an IV and without opioids. So it's sublingual sedation, and it's a little troche that goes under the tongue. It's the product originally was compounded, and it started with one doctor, and ended up being hundreds and hundreds of doctors that wanted it. And actually, we started getting calls from dermatologists, and plastic surgeons, and dentists, and so we decided to start a company called Melt Pharmaceuticals, and take it through a traditional FDA approval process. We partnered with Catalent. We're using their Zydis drug delivery technology, which is the same technology that's in Claritin RediTabs. It's actually in 35 other FDA-approved products, none of which have been genericized. And we did a phase II study to compare the combination product.
Our product's a combination of midazolam and ketamine, and we compared it against the individual constituents and a placebo. It was a forearm study, and what that study showed, the phase II study showed, is that for sedation, there is a synergy. The combination performed better, provided better sedation than either midazolam alone or ketamine alone, and certainly placebo, and so in this phase III study, which has 537 patients, I believe is what will be fully what it'll be when it's fully enrolled, it's only three arms, so it's the combination against midazolam and placebo, and it's using the Ramsay Sedation Scale. Once again, we're looking for the ability to sedate patients, and it's in cataract surgery.
Initially, this will be a cataract surgery product, but we believe in due course, you know, the product could be used in much larger markets or outside of ophthalmology, IV and women's health, emergency room medicine, dentistry, derm, plastics, and so on.
So then, thinking about the opportunity and the economics to you guys, you do sell the compounded formulation, so how do you think about the balance between what you gain and versus what you could lose?
So we're strong on the commercial side. We sell about 150,000 units of the compounded drug now, and to the extent this product becomes approved, we would not sell the compounded version, we would sell the FDA-approved version. And depending on how the pricing goes, you know, it could deliver, you know, just replacing the compounded revenue with the branded revenue, about $100 million of annual sales, and that's really for a compounded medication. It is not easy to sell non-FDA-approved products, and so if we had an FDA-approved product, we think, you know, hopefully the unit volumes would increase markedly.
And you have right of first refusal on commercialization? What would make or break that decision?
If the data is positive, we're very interested, to be clear. We own 46% of the equity. We have a 5% royalty right, and, you know, first right of refusal on the commercial side, but this is a product that we know very well. We created it at Harrow. We did the spin out. We externally financed it, and I chair the board, but look, all I can tell you is I've been in a lot of surgeries where this drug's been used. It's fantastic. Patients love it. The ability to eliminate an IV and the use of an opioid is really important, and it's an improvement in the standard of care for these patients.
Any closing remarks that you'd like to share?
We're just really jazzed. I mean, it is not—it has been a tough 10, 12 years to get to this point. We're getting great people that are joining our company. We're having fun, and we're growing, and it's a really fun time to be at Harrow, and we're grateful and appreciative of where we are. And as my—one of my mentors, Dick Lindstrom, says, "It's onward and upward." We see a lot of blue skies, so we're excited. We're grateful for your audience once again.
Thanks. We're grateful for your time as well. This ends the fireside chat. Enjoy the rest of the conference, everyone.