Good afternoon, and welcome to the conference call covering Imprimis Pharmaceuticals Financial Results and Business Update for the Third Quarter 2018. My name is Brock, and I will be your operator for today's call. [Operator Instructions] By now you should have received a copy of the earnings press release. If you have not received a copy, please go on the Investor Relations page of the company's website at www.imprimisrx.com. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meanings of federal securities laws. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Imprimis' control, including risks and uncertainties described from time to time in its SEC filings, such as risks and uncertainties related to Imprimis' ability to make commercially available its 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 Factor 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. Imprimis results may differ materially from those projected. Imprimis 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, Imprimis will refer to non-GAAP financial metrics, specifically, adjusted EBITDA and/or adjusted earnings. A reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company's press release available on the website. With that, I will now turn the call over to Mark Baum, Chief Executive Officer of Imprimis. Mark?

Thanks for joining us today as we discussed the performance of our business during the third quarter. During this period, our team was able to deliver on strong year-over-year revenue growth, continued adjusted earnings, record-high gross margins and we made significant progress with our Project 15 spinout businesses. There's plenty to discuss and let me start by providing a brief overview of the company for any new listeners in attendance today. Our vision is to ensure that Americans have access to innovative medicines they need at prices they can afford. In furtherance of our vision, we own a diversified portfolio of health care businesses, including the nation's leading ophthalmology-focused pharmaceutical compounder, ImprimisRx. And we've used our significant experience with compounded drugs, including how they perform and practice in thousands of doctors' offices, surgery centers and hospitals across our country to create and fund entirely new pharmaceutical companies to develop these medicines as drug candidates for FDA approval through the FDA's 505(b)(1) or (b)(2) development pathways. Our strategy is to create shareholder value through equity ownership in these businesses and to generate cash from profits and royalties we hold in drug candidates they are developing. Because of the growth we've delivered on over the past 4 years, our core pharmaceutical compounding business has arguably never been more successful and valuable, but our shareholders are beginning to also see the value in our ownership of our spinout or Project 15 companies, including the royalty interests we own in many of the drugs they are developing. To better reflect the entirety of what our company is, and our diversification of assets, our Board of Directors recently voted to change the name of our company to Harrow Health, Inc. Our new proposed name will reflect the future of our company and our ability to…

Hi, everyone. Thank you for joining our call today. As Mark stated previously during the third quarter of 2018, we're able to build upon the milestones we reached during the second quarter. Total revenues for the third quarter were just over $10.7 million compared to $6.5 million a year ago, a 66% increase. Total cost of sales for the third quarter 2018 was just under $4.2 million, yielding a gross profit of about $6.6 million and a gross margin of 61%. This is compared to a gross profit of $3.1 million last year and a gross margin of 48%. The revenue growth was driven by our ImprimisRx ophthalmology business. When looking at this revenue, year-over-year, one of the key drivers of growth between our third quarter in 2018 compared to the third quarter last year, was a steady increase in sales associated with new products that we launched in the past year. Now in 2018, quarter-after-quarter, we're seeing growing revenues impacted by increasing reaccelerates from chronic care medications, which are affected much less by seasonal factors. We continued our trend for record-high gross margins of 61%, which is just slightly above our 60% figure from last quarter. While we are still perfecting our production processes, and we should expect some variability in our efficiencies, our intent is to remain near these levels as we find incremental ways to improve in the coming quarters. Operating expenses totaled $7.2 million, which resulted in a loss from operations of approximately $650,000 during the third quarter of 2018. Compared to the third quarter last year, we reported operating expenses of $5.8 million and operating loss of approximately $2.8 million. Our adjusted EBITDA for the third quarter in 2018 was $424,000, which is the second time in 2 quarters in a row Imprimis has recorded…

Thanks, Andrew. After 7 years of building and refining our company, we are hitting a good stride. Our team appreciates our long-time investors and those who are now taking a look at our company. I firmly believe that our best days of creativity and value creation are ahead of us by taking advantage of what we know and planting new seeds to grow. At this time, I'd like to open up the call to questions from our participants.

[Operator Instructions] Our first question today comes from Brooks O'Neil of Lake Street Capital Markets.

Okay, Mark, Andrew, I have a couple of questions. The first one is pretty basic and some of your longer-term shareholders might know the answer but could you just describe the difference between your compounded medications and the FDA-approved medications you're developing in some of your Project 15 companies, following the 505(b)(2) pathway?

Sure. I think the fundamental difference is in making sort of the final steps to getting to a complete chemistry manufacturing and a CMC dossier. The drugs that we are taking through the 505(b)(2) pathway through the spinout businesses are made to GMP spec in our FDA-registered facility. So fundamentally, there isn't that much of a difference. We're buying the same chemicals, we're using the same analytical methods to determine stability and purity and potency. So there isn't that much of a difference. There is, however, a little bit of additional paperwork and controls that are completed once a drug is eligible for an NDA submission under 505(b)(2).

Great. And then secondly, I was hoping you might just describe in a little bit more detail your move to the commission-only sales organization and the potential you see to continue growing your sales using that approach in 2019 and beyond.

Sure. The strategy was executed towards the end of last year. We went from a little more than a handful of W-2 reps to about 25 1099 reps, commission-only reps in the first quarter. In the second quarter, you saw that during that period, we had some of the fastest growth that we've experienced in the history of the company. Part of that was due to the increase in 1099 reps, these commission-only reps. But I think it's important is that between the second quarter and the third quarter, the middle part of the third quarter, we actually added to our rep count and more than doubled from the second quarter to the middle of the third quarter. And so what we're excited about is the work that those reps are going to do and have done here towards the end of the third quarter and getting into the fourth quarter. We're actually seeing that already in the fourth quarter, actually last month, the month of October, was the best month that we've had in the history of the company by far. So the strategy of bringing on more commission-only reps is definitely working and we think it will continue to work this year and then the next year and beyond.

Great. And then you also, I think, mentioned the potential for additional new products to complement the growth of your sales organization. Are you willing to say anything about some of the things you're thinking about or working on in terms of new product development at the base company?

You know, we've -- there've been points in time, as we've developed the business, that we thought about providing specific metrics by product or by therapeutic category. But what we've come to learn is that one of the great advantages that we have is that there is no IMS data on what we sell. We have -- our data is a trade secret. And we really want to preserve that, particularly in ophthalmology where our business is performing so well. So we do have 5 exciting projects -- products that we're going to launch next year. Some of the products are smaller market products, but some of them are very large market products. There's no guarantee that any one of them is going to meet our expectations, but we do believe that the opportunity for continued growth will be hinged, in part, on those launches, along with the other 5 factors that I mentioned.

The next question is from Philip Belcher, a private investor.

Terrific quarter. You're right on track. Everyone, I'm sure, is fairly pleased with what you've presented. Could you comment a little bit on -- I have just 3 quick items. The first is the Allergan Restasis situation, the enzyme or ownership of the company and any research coverage you might be able to garner going forward.

Sure. With respect to Allergan and Restasis, we're not commenting on Allergan or any matter connected to Restasis. As far as insider ownership goes, myself and Andrew retained a significant percentage ownership of the company. Some years ago, when we were negotiating our compensation agreement, some of you may know that I really believed in the future of the business and as did Andrew. And so we asked our Board of Directors to give us performance stock units. And so we would earn equity on an "eat what you kill" basis as the stock performed. And so our options are contingent on our stock price reaching certain levels. One of the reasons why we call our spinout business as Project 15 is because a $15 stock target is where our Board of Directors has incentivized us to get our stock price so that we can get all of our equity incentives. So we are heavily equity incentivized, Andrew, myself and the rest of the senior management team. And we'd be happy, offline, to give you that information, specifically, if you can't find it. As far as coverage goes, we did have coverage, a couple of years ago. And we have not had coverage recently. We were hopeful that reputable folks will begin to take a look at what we're doing, the excitement in the company and I think, importantly, on this management team's ability to save it, we're going to do something and actually deliver. We think that matters. We think shareholders are taking notice and we hope that analysts do as well.

Our next question is from Andrew D'Silva of B. Riley FBR.

Just actually 2 quick ones. First, as far as the IPO goes, could you maybe discuss the transition between equity and cost method and how you're going to be recognizing that on the balance sheet now that you have, I guess, the benchmark to do that against? And then my second question is just related to the launch of Dexycu, which you expected to happen next year and if you see that impacting maybe your sales that you're seeing right now.

Sure, Andrew, do you want to tackle the first question? I'll tackle the second.

Sure. Hey, Andy. On the Eton IPO, so right now, before it actually closes, we're just above 20% still equity method. Based on what I calculated out, and assuming the underwriter exercises their overallotment in full, we'll fall just below 20%, which means we'll move away from that equity method accounting and should be booking those on our balance sheet at fair market value. So in other words, the trading price of the stock at the end of the quarter. What that does for us from a balance sheet perspective is pretty impactful. It should create, assuming their stock price remains near what it is at right now, creates a $21 million asset on our books.

And as far as the Dexycu launch goes, we have not heard anything that we believe will impact our relationships with our customers about that product launch, or really anything that is on the horizon. There are multiple reasons why physicians choose to use our formulations. And they go far beyond any one simple factor. Dexycu happens to be a single active ingredient product and as you may know, for post-cataract surgery treatment for inflammation and infection, there are typically 3 medicines that are used and we believe that physicians will continue to choose to want to have access or have onboard all 3 of those medications. Our formulations uniquely provide that ability. And we suspect that, at least from an FDA-approved competition going forward, it will be very difficult to see a combination post-cataract surgery medication that contains 2 -- even 2 of those active ingredients that are typically onboard.

Great. And actually one more quick question and I'm sorry if you mentioned this before, I was actually hopping between calls, but has there been any change from a regulatory standpoint that you're aware of related to either of your compounding facilities? I know that there are some guidance that was issued a little while ago and I wasn't sure if there was anything updated there that could either be beneficial or be a headwind for you.

Yes, nothing material has come from the FDA in terms of guidance documents. From a regulatory perspective, we continue to -- we believed to be in good standing and we've continued to respond to any questions or comments the FDA has had about our facilities or the formulations that we make. So we continue to service thousands and thousands of customers of expositions in the United States. And we have not seen any impact in our business related to regulatory concerns.

[Operator Instructions] Our next question is from Sandy Greenberg of SDG Consulting.

Great, great quarter. Really interesting the way you're doing the spinouts. It's very exciting. It appears to me you're not going to have a lot of trouble realizing that value where your incentives are there. Just a couple of questions. I think Andrew covered it. The cash balance that you have right now on hand and I think you mentioned that there's been about $2.2 million in warrants that came in that were exercised for cash. Can you, if possible, disclose the amount that's still outstanding of potential warrants that could come in?

Sure. Hey, Sandy. The cash balance at the end of the quarter was $6.3 million and so that's up over the past few quarters, including end of the year last year, which is about $4.2 million. That was -- we received about $2.6 million in warrant exercises or from warrant exercises during the quarter. So that leaves about $4.3 million outstanding. After the quarter had ended, we received another, let's say, about 685,000 warrants that were exercised. And we have another $1 million in cash after the quarter had closed. That's in our subsequent events footnote in the 10-Q that was filed.

Okay. And then you have...

Sandy, we have not had this level of cash in nearly 2 years. Our cash balances are in pretty good shape on a relative basis.

It looks like you're in great shape. You're not really burning any cash. And that spinout strategy, is excellent. I mean, you're talking about Eton or these others maintaining their value of the IPO but it could also go up. So it's a great way to participate. And I said a very impressive quarter. Congratulations to you guys and keep it up.

There are no further questions at this time. I'll turn the call back to Mark Baum for closing remarks.

Thank you, and I want to just thank everyone for attending. I want to mention, as I alluded to on the call, we really appreciate all of our shareholders' support. We're building a unique, diversified business, a unique diversified portfolio of assets. And from an operational perspective, the business is in good shape. We just had, I'm proud to say, our best month in our company's history. So thank you so much for your support. Our team really appreciates it. If you have any investor-related questions, please contact our Investor Relations associate, Jon Patton. His direct number is (858) 704-4587. And this will conclude our call. Thank you.