Q4 2023 Harrow Inc Earnings Call
Participants
Jamie Webb; IR; Harrow, Inc.
Mark L. Baum; CEO; Harrow, Inc.
Andrew Boll; CFO; Harrow, Inc.
Mayank Mamtani; Analyst; B. Riley Securities, Inc.
Aaron Wukmir; Analyst; Lake Street Capital Markets, LLC
Jeffrey Cohen; Analyst; Ladenburg Thalmann & Co. Inc.
Presentation
Operator
Good morning, and welcome to Harrow's fourth quarter and year-end 2023 earnings conference call. My name is Drew, and I will be your operator for today's call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the call over to Jamie Webb, Director of Communications and Investor Relations for Harrow.
Jamie Webb
Thank you, operator. Good morning, and welcome to Harrow's fourth quarter and year end 2023 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 law. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Antero'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 is the FDA approved products and 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. Erroneous results may differ materially from those projected herein 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, here, I will refer to non-GAAP financial metrics, specifically adjusted EBITDA and our adjusted earnings as well as core results for just core gross margin, core net income and core diluted net income per share for a reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company's earnings release and letter to stockholders, both of which are available on the website.
By now, you should have received a copy of the earnings press release. Do you have not received a copy, please go to the Investor Relations page at the Company's website, www.harrow.com. Joining me on today's call are Harrow's Chief Executive Officer, Mark L. Baum; and Arrow's Chief Financial Officer, Andrew Boll. With that, I'll turn the call over to Mark to go over some prepared remarks prior to the question and answer session.
Mark L. Baum
Thanks, Jamie, and thanks to everyone for joining us on today's call. I wanted to first address the change in cadence for earnings release and conference calls. We believed it was in the best interest of our analysts and investors to extend the amount of time between when we issued our earnings release and hosted our calls, we hoped this would allow more time to digest the results and read through our corporate presentation and my letter to stockholders prior to the call, we hope you have found this timing change helpful.
So if you're on this call, I assume you'll review these materials, and I'll use this time to augment your understanding through some high-level commentary. 2023, which is now more than 75 days in the rearview mirror was a transformative year for Harrow was a transformation that was four years in the making, all of which I pointed out in my letter to stockholders when I quoted what I said about four years ago in 2020 when we were hatching our plan to become a leading North American ophthalmic pharmaceutical business here or a few of the 2023 fruits of that plan.
Number one, we achieved record revenues with 2023 revenues increasing 47% over 2022 revenues, two adjusted EBITDA more than doubled in 2023 from 2022. Three, the addition of numerous high utility ophthalmic pharmaceutical products to our portfolio before beginning to generate cash flow from our big three products.
I hear so Viva and triathlons, which made up our most significant short term and long term financial drivers. And finally, delivering $8.7 million in cash from operating activities in the fourth quarter of last year and delivering our second consecutive year of positive cash flow from operations.
You see we strengthened our balance sheet last year, especially our cash position ending the year with $83 million in cash and cash equivalents, and this includes our position in pharmaceuticals. We expect our cash pile to continue to grow over the coming years.
Equally important, we fortified our talent base, adding new members to the Harrow family professionals with experience commercial relationships and fresh perspectives to further enhance our transformation. I have highlighted the names of a few of these folks in both the letter to stockholders and the new hero corporate deck. Our stockholders have been asking us for more granularity around our quarterly results.
They want to know why we're so bullish on our company and the growth trajectory we see in front of us this cycle. I've tried to provide more granularity this detailed information highlights among other things, the amazing success we've had with our by launch. Based on our success to date, I am convinced that Veeva has the potential to dominate the large US chronic dry eye disease market as the leading cyclosporin and anti-inflammatory product.
The V. by adoption curve driven by our small but mighty sales force speaks volumes as a positive feedback about Veeva from actual patients on social media, I would encourage you to think about the size of the cyclosporin market alone in the United States has about 8 million units last year. Without question, cyclosporin is the number one, most trusted active ingredient for U.S. dry eye disease patients.
Eye care professionals, trust, cyclosporin payers, trust, cyclosporin patients, trust cyclosporin. You see the V by tree is rolling with all of our key performance metrics moving in the right direction. In fact, ICEO. of Silarx, our specialty pharmacy partner recently told me that Veeva has been one of if not the most successful launches he has seen mark by word, Veeva will significantly benefit millions of U.S. dry eye disease patients and generate substantial value for Harrow stockholders over a very long period.
I'll also discuss our progress in manufacturing triathlons, including a production batch, which is set for next month. This is a PPQ batch and to the extent that we're successful meeting, all the parameters would become a commercial batch. I talk about the number of units we expect to have available for sale when triathlons is eventually reintroduced into the market we also lay out the expected addressable market in terms of unit volume and our new pricing, which combined make clear why we believe Trius and should be a multi nine figure revenue product.
And hopefully soon I hit on the continued uptake of by Hazel since its May 2023 launch and news about the recent publication by CMS of the IESOASP. or average selling price in thus positioned ASP. file. This is something that we had previously requested from CMS and it was not acted upon until soon after we met with them on January 9 of this year.
I'll also talk about the return of infamous Rx to its previous growth trajectory, fulfilling our performance promise that I made in our last stockholders' letter. I also included quotes from actual users of our products. You see in recent conversations with fellow stockholders.
I have noted the reliance on opinions of so-called key opinion leaders, KOLs who Paul my further investigation. It actually not used our products. I thought it was important for you to hear from ophthalmologists and optometrists who with 100% certainty have actually used our products.
I also want to mention that it's never been a better time to be a hero stockholder. I say this because of the amazing progress we made in 2023. And because of what is right in front of us, right in front of our eyes, a clear pathway to achieving our goals including significant revenue and profitability growth, ultimately making us a leading strategic North American ophthalmic pharmaceutical company, fine as both a hero stockholder and a senior executive at this company.
I continue to be perfectly fine eating my own cooking. I have never sold a share of Harrow stock, and I do not plan to do so. In fact, recently I purchased Taro shares fact 3 times in the past 12 months precisely because I believe in Harold's long term value and because the shares have been available at an attractive price, we are now happy to answer your questions. I will pause to have our operator poll for questions.
Question and Answer Session
Operator
(Operator Instructions) Mayank Mamtani, B. Riley Securities.
Mayank Mamtani
With bonding theme. Thanks for taking our questions and appreciate the granularity provided to what 4Q results and the forward looking outlook. Maybe just on the 2024 guide and also the longer term on '27 number that you put out, are you able to give some breakdown on the incremental contribution that was in there between you three drivers that either drives in them.
We let me why. And also, relatedly notice you didn't give EBITDA guidance of forward-looking. It could help to understand how you're thinking of spend in 2024? And then I have a couple of quick follow-ups.
Mark L. Baum
Thank you, Mike. Yes. So look, where we are standing behind the better than $180 million in revenue guidance that we put out for 2024. We don't guide by product. And the one comment that I'll make is what I think is 800 pound animal in the room. And that is what we put out today in our Form 8-K filing and the confirmation from CMS that in fact, he so we'll be paid for separately in the physician's office setting is without question the most positive consequential event.
I think that has happened to our company since founded it with Andrew back in 2011. So this is a very big event. It certainly supports our confidence in our guidance, which is a number of greater than $180 million. And but once again, we're not going to guide by product, but we're very excited about what we put out today in the Form 8-K.
It's something that happened yesterday afternoon about 2 o'clock Central it kind of hit us with a very, very positive surprise, but it certainly gives us far greater confidence in our guidance. In terms of our spend in 2024, Andrew do you want to kind of talk about our approach with some of the spend in the fourth quarter, maybe 2023? And how we're thinking about 2024, especially in light of what we put out in the 8-K this morning.
Andrew Boll
Yes, I think smart mine think thanks for the question. And you can kind of see some of the expense infrastructure changing in the Q4 numbers, November, we decided to make a shift in our Our plans are we buying this launch on this resulted in a much heavier spend on the sales and marketing efforts in the initial plan for it. And in the K you can kind of read, year over year we added about 100 new employees, some of which the vast majority of those were coming from or came in during the fourth quarter and were really tied to the V by launch on the commercial side from.
And so a lot of that expense is going to obviously continue into 2024. One of the reasons we're not giving specific EBITDA guidance is as revenues grow. We will invest in the the operating expense will invest in the sales and marketing efforts to further revenue growth. And that said, we have a leverage ratio number that we want to we want to get to, which is being having a leverage ratio less than five times.
And so we're focused on that. But at the same time, we're going to be focused on growing revenues and accelerating revenue growth from these product areas. But we see an opportunity to invest further on the sales marketing side, like Mark said, he's a great example where we're now we've got this great outcome with CMS. It's time to invest more heavily on the sales and marketing efforts there and really kind of put the fruits of now trying to grow revenues.
Mark L. Baum
Yes, I'll add one further comment to that. And we said this in our Form 10-K, which we filed the you obviously know, and this is kind of hits on one of the points Andrew made related to Oaktree, who is our senior lender, and you probably know that they can receive warrants if our leverage ratio it exceeds 5 times in 2024. And I think both Andrew and I have a far greater confidence, but as a result of the Form 8-K that was filed this morning, we sincerely doubt that our friends at Oaktree will be receiving any warrants under our agreement with them.
Mayank Mamtani
Yes, that's very helpful color. Thank you. And on the cyber-attack issued in February of good. Could you just clarify if that is unique to hydro and also what visibility you have on a utility by either and yet maintain a clear debate and expectation for that segment to expand, including I think you make some reference to the bilateral IVD procedures.
Is that sort of organic demand you're getting from these right now and especially those of you know they're using more I am more worried and injections unbilled days that you can have separate billing for them to do units versus one year or so. And maybe one final question. I wouldn't be right.
Mark L. Baum
What was the first part, Mike, I missed it?
Mayank Mamtani
The cyber attack issue, whether that is unique to hydro or that's a broader pharma wide issue of processing claims right now.
Mark L. Baum
Sure. Yes. So the issue of Change Healthcare is affected numerous companies, including us that sell not only Part D as in David products, but also Part B as in Bravo product. So the system is still sort of being unplugged and the change healthcare issue has affected payments to our customers from the government and this has affected our sales temporarily in the first quarter, but we are seeing evidence that the systems beginning to be unclog.
We expect recovery in full normalization in the second quarter but this is an issue the cyber attack that has affected us, but it has affected many, many companies who are selling to the pharma market in terms of retina, the the reason why we went to CMS and I talked about this in our last letter to stockholders is because there was uptake in the retina market.
The retina market is in the form of the intravitreal injection market specifically is a very large market, exceeding 10 million unit opportunities per year. We saw uptake in that market. We were seeing reimbursement happen in that market around the country, but the market is unique in that it is highly concentrated.
There are very large groups of potential buyers for these these products. And so in the face of those sorts of opportunities in front of us. We thought it was prudent to confirm with CMS that in fact, our J code, which is a product-specific permanent J code, would in fact, be separately reimbursable in the physician's office setting.
And so as we promised in the last letter to stockholders, we requested a meeting with CMS. We had that meeting on January ninth, and we have been waiting patiently to hear from them. As we said in the call, the prepared remarks, we were added to the ASP. file the physicians ASP. file recently, but we did not know whether or not that confirmed separate payment in the physician's office.
And that happened just yesterday afternoon, which as I said, is a very important event for the Company. Our expectation now is that we will be able to, with this news open up of the market for intravitreal injections that can benefit from the unique it attributes to buy his own and that that is going to start here very, very soon and that it will significantly change.
I think the trajectory or I hear So and also, I think for our Company, but he does a fantastic product for that application. It's also obviously used in numerous other ophthalmic interventions, and it's a very, very exciting opportunity for us and thank you.
Mayank Mamtani
And lastly, on the why you put out some good launch metrics that you say it could take up to 18 months for ramp up. So just curious what dynamics in play I have to follow to get visibility and what peak sales could be on that. I'll hop back into queue. Thanks for taking my questions.
Mark L. Baum
Thank you, Mike. First of all, with respect to ZY., I want to mention a person because V by the team, the commercial effort is being led by a woman named Maria Lloyd, and she is extraordinary and the effort that she has put into this project is just amazing. So I'm really grateful to everything that she has done. He's very experienced.
She was involved in the launch of Restasis knows the dry eye market extremely well. And she's brought a lot of wonderful people into our organization that are working on her team, but as you saw in our recent corporate presentation, all of the numbers, all of the metrics with respect to the Veeva launch are up into the right, which is fantastic.
But importantly, the product is performing extremely well in the market. And I referenced the social media information that's out there and publicly available. And so we have very high hopes for that product as I've said for several years, we've studied the dry eye market. We know it very well. We've compounded 0.1% cyclosporin with our infamous Rx business now for over five years.
And what Veeva presents to the market is really a complete shift in the cyclosporin market, which is 8 million units strong last year in the U.S. market. So we think we have a product that can dominate the category. And in terms of what what the opportunity is, there's so many patients that have failed other cyclosporin products, whether it's the 0.05% branded version of cyclosporin or its generic version or even the 0.09% cyclosporin product that is branded and available.
The tolerability profile of those products is very different from the tolerability profile of VSI. And so there are a lot of people that have failed those products and those are candidates to benefit from device and in terms of what the size of the market can be, this is a product that gives me far greater confidence that the number that I wrote about a couple of letters to stockholders ago, which was a $1 billion in revenue in the aggregate for our product portfolio that that can actually be met.
I mean that is a that is a real target for us now and the uptake in refi, certainly this Form 8-K that was filed this morning. This puts us in the zone of where we wanted to be I talked about our revenue getting to $1 billion or more with our product portfolio of certain things went our way. Well, the the things that we announced today that certainly qualifies as something going our way. So we're really excited about that and what Maria and her amazing team are doing with Veeva.
Operator
Aaron Wukmir, Lake Street Capital Markets.
Aaron Wukmir
Hey, good morning, guys. This is Aaron on the line for Brooks. Appreciate all the color so far, I guess related to trial it has there been anymore on setbacks. I mean, I know you had a few comments in the US in the prepared remarks, but I guess if you could just provide a bit more color on sort of the inventory timing and how you're thinking about that and maybe just your confidence there to get that four before year end would be helpful, sir. Thank you.
Mark L. Baum
So look, as I said in the letter to stockholders, Triapine was not really being made for more than five years by our manufacturing partner and the people and the processes that are involved in making that product were kind of dormant and because they weren't practicing that knowledge wasn't being produced. And we knew that it was going to be a challenge of reintroducing the product into the market in terms of manufacturing it. But what I can tell you is that the progress that we've made in the last six months in particular is given that everyone in our organization, a very high degree of confidence that we're going to have success meeting all of the required parameters to make trade-offs.
And here very soon, there were people on our organization by the way that were somewhat doubtful. But what I can tell you is at this point because of the progress that we've made, there is no one in our organization, whether they're an employee or a consultant who does not have a high degree of confidence that we're going to have presence made successfully.
And very soon, we have a batch being produced a PPQ batch, which is effectively a commercial batch that meets the production parameters, the performance specifications that's going to happen, as I said, in the middle of it middle of April. So we'll produce two more batches if that first one is successful and then within a period of a couple of months, we should be able to be back on track.
There's quite a bit more information, as I said, in the letter to stockholders and also in our corporate presentation about presence. But it is a very high utility product. It's an unusual product with an unusual label and of the physician community. I can tell you is very interested in seeing it back in the market and we think it's going to happen very soon.
We I can't predict whether it's going to happen I know by June or or by August. What I can tell you is that we're getting very strong help from our our manufacturing partner and our manufacturing partner, as you can see on the box for the product is a very sophisticated organization. And we, as I said, have a high degree of confidence. We'll have Travis back here very, very soon.
Aaron Wukmir
Great. That's super helpful commentary.
Mark L. Baum
Thanks.
Operator
(Operator Instructions) Jeffrey Cohen, Ladenburg Thalmann.
Jeffrey Cohen
Good morning. Thanks for taking our questions. I should hold true for Mark and Andrew, firstly, could you talk about perhaps the anticipated cadence on the top line for the year? Should we expect something somewhat linearly increasing as we did last year? And then secondly, on could you touch upon anticipated margins for the year inclusive of trend?
Mark L. Baum
Yes, Andrew, do you want to tackle that? I think we're going to keep our numbers where we are, which is an over $180 million. And I think with that said, the news of this morning our margins should the increase, not decrease. But Andrew, do you want to add anything?
Andrew Boll
Yes, Jeff, just to reiterate what Mark said from a revenue perspective, we're sticking with what we say, which is more than $180 million this year, and we feel like it strongly intact. And then on EBITDA margins or operating margins, the approach is going to be kind of dependent upon revenue opportunity. And so we're going to kind of temper and for revenue growth with EBITDA expectations.
I mentioned the leverage ratios, and we want to be sure we're coming in under four times levered at the end of the year. Some But outside of that will continue if we see opportunities to invest in that revenue growth plan for the out years, especially I'm thinking about Veeva, can you give us a Easel and traffic to an extent we'll do it and so that the actual margin percent may be different depending on the revenue number for the year. But certainly we'll keep the leverage ratio in mind as we make investments and and plan for the future.
Jeffrey Cohen
Okay, got it. And lastly, first, could you talk about pricing at all if you take any pricing in '23 years or any anticipated pricing for '24? And any commentary would be appreciated. Thank you.
Mark L. Baum
Andrew, you want to touch on that? I'll just say to start in that to be clear, our philosophy on on pricing of any product is focused on access and affordability. The that is the cornerstone of our company and there are products that we have raised prices on. There are also other products in our portfolio.
We've actually lowered prices on and made and even more accessible. But before we do anything, just philosophically, we always make sure that we have a patient assistance program in place that is aggressive, whether it's a branded product or a compounded product to ensure access and affordability to anyone who can benefit from our product. Andrew, do want to add anything on pricing?
Andrew Boll
Yes, Jeff, just some more specifically in the corporate deck, we have some some wholesale acquisition cost pricing for some of the products tracings from being the most notable one where lack pricing for that product is going to be $944 at the time we relaunched the product into the market. And to Mark's point Black is list price. There's a gross to net element to that.
And you see that in the accounting and the footnotes, we talked a lot about the growth in our accounting and which factors in the patient assistance programs the co-pay assistance programs, making sure we're living up to our mission change access and affordability for the patient. And so ultimately, we're going to price the products to make sure we have steady supply of the products we can make money, selling the products and getting them to the patients. But we're also keeping in mind that patient home and the actual [settlement].
Mark L. Baum
Yeah, a great example of that related to trade essence is related to transition to the price of trade. Essence had not see any adjustment for 16 years since the product actually hit the market. And so one of the challenges is with a product that's on the FDA's drug shortage list that's not being made that has not been priced competitively.
There's just not a profit incentive to actually make the product available and therefore, it ends up on the drug shortage list year after year after year. And so we thought about pricing for triathlons which is, as Andrew said, [944] unit. We looked at the other preservative free. It came so on product that's in the market. It's not competitive with our product, but it is a preservative free triamcinolone product, and it's priced at more than $1,800 per unit. And so we're almost half of that price.
So we're always going to the lower end price and trying to be more accessible and more affordable on their other intravitreal steroid products that are certainly over $1,400, $1,500 per unit. And so we remain significantly lower than them, but we did adjust the price to create enough profit incentive for us to invest in the product and make sure that we have a steady supply of the product to provide to the market, which is considerable.
Jeffrey Cohen
Carsten, I think it does for us. Thanks again for the comprehensive commentary and Rudolf Fischer.
Mark L. Baum
Thank you, Jeff.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Mark L. Baum for any closing remarks.
Mark L. Baum
Thank you, Drew. And I guess I kind of want to apologize to those of you who are waiting for the issuance of our fourth quarter and year end earnings and letter to stockholders less yesterday, which we intended to publish immediately after the market closed. But as I said earlier, very fortunately, yes, fortunately, after drafting all of our documents and preparing our press release and getting everything ready to go, the most positively.
Consequential thing that has happened to our company actually happened on I mentioned the news that we received from CMS yesterday. I was just going to make a huge, though, which is our low viscosity patented topical anesthetic gel, which is doing fantastic things in clinics and surgery centers across the country.
It's going to make it separately payable separately reimbursable in the physician's office and it opens up a very large market for IESO., and it allows Medicare beneficiaries to experience the unique benefits of the product. So as we calm down from that excitement and we decided to not delay our filings. We made those filings and then ultimately put out a separate Form 8-K before the market opened revealing this wonderful new development.
So once again, we apologize for being slightly tardy yesterday and publishing everything I heard from some of our stockholders, but we hope you appreciate that this was an example of no news being very good news. Indeed, yesterday was special for every member of the aero family, and it was an answer to some of our players actually on past letters to stockholders.
As I mentioned earlier, I have opined about aggregate revenue potential. It said that our product portfolio can achieve $1 billion in annual revenue, if as I said some things go. Our way from yesterday's news was an example of a thing that went our way. It's a beautiful thing for many reasons because we're seeing amazing stories, practical stories of how I hear those positively changing anesthesia protocols around the country for ophthalmic procedures, Stephen, reducing patient exposure to dangerous opioids.
Our team feels very good about what we believe is going to happen to a he though and therefore Harrow. So they close this communication from what has been a world win a couple of days. I want to acknowledge and thank all members of our hero family, our loyal employees, their families, support our employees and our stockholders for their patience and steadfast support.
Your belief in our mission has been a cornerstone of our progress. And together, we're going to build a company that we can be proud of never been truer than today that the very best is not only yet to come for Hero, but it is soon to come. Thanks to everyone for attending today's call and for your interest in Harrow, you have any investor-related questions, please email Jamie Webb at J Web -- JWEBB at Harrow, inc.com.
This will conclude our call.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
