Good day, everyone, and welcome to the Harrow, Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jamie Webb, Director of Communications and Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Harrow's First Quarter 2024 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 laws. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Harrow'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 its 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. Harrow's results may differ materially from those projected. Harrow's 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, Harrow referred to non-GAAP financial metrics, specifically adjusted EBITDA and our adjusted earnings as well as core results such as core gross margin, core net income and core diluted net income per share. 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. If you have not received a copy, please go to the Investor Relations page of the company's website, www.harrow.com. Joining me on today's call are Harrow's Chief Executive Officer, Mark L. Baum; and our Chief Financial Officer, Andrew Boll. With that, I'd like to turn the call over to Mark to go over some prepared remarks prior to the question-and-answer session.

Thanks, Jamie, and welcome to everyone joining us on today's call. I will start, as I always do, with a reminder to review our earnings release, corporate presentation and letter to stockholders, all of which are posted to the Investor Relations section of our website. Our business demonstrated remarkable resilience in the first quarter of 2024, especially given the effects of the Change Healthcare cyberattack, with revenues for the first quarter of 2024 increasing 33% over the same period in 2023. Here are a few key recent accomplishments of note. We strengthened our management team, adding Greg DiPasquale, who started this week in the newly created role of Senior Vice President and Head of Commercial. Greg is responsible for all sales, marketing and sales operations activities for Harrow's portfolio of branded ophthalmic products. Greg comes to us from a sales leadership role at Regeneron, where he experienced great success driving revenue growth for the retina product, EYLEA, and EYLEA HD. Prior to Regeneron, Greg held leadership roles at Essilor, Novartis' retina division, Zeiss and Bausch & Lomb. We're excited about what Greg brings to Harrow, especially at this time in our development. John Saharek will continue to oversee Harrow's commercial business as Chief Commercial Officer. However, he also serves as the CEO of ImprimisRx, and he will focus on the day-to-day management of our market-leading ImprimisRx compounded division. Let's talk about VEVYE, the first and only water-free cyclosporin designed to treat the signs and symptoms of dry eye disease. VEVYE is the cornerstone product in our dry eye disease franchise. We launched VEVYE in January of 2024, and with 4 months under our belt since the launch, the early success we are seeing in the numbers, coupled with feedback from very experienced ophthalmic leaders is gratifying. For our stockholders, given…

[Operator Instructions] The first question today comes from Jeffrey Cohen with Ladenburg Thalmann.

So I guess, firstly, could you talk about VEVYE a bit? It looks like you made some strong progress on covered lives. How does that look for the balance of the year on the covered lives and remind us how things look with Medicare and CMS?

Yes. So obviously, in a matter of really less than 2 months, we've dramatically increased the number of covered lives, as I said on the call, from the low 40 million range to more than 150 million. And we continue to add covered lives almost on a daily basis. We expect that to continue through the balance of the year and into the first quarter of next year. From the time that we launched VEVYE, we always said that coverage was about an 18-month activity, and that Medicare Part D coverage, in particular, would take some time. The coverage improvements that we're seeing with VEVYE, I think may accelerate our time frames. But right now, we're kind of still leaving the overall coverage picture in that Q1 of 2025 range. But you should expect on a quarterly basis in August when we report Q2 numbers to see further improvements and then further improvements in November when we report again.

Got it. That's helpful. Andrew, any comment on margins or margins at all as far as gross margins for '24, and how you expect them to fold out or any cadence or any guidance on the margin side for the year?

Yes, absolutely, Jeff. Thanks for the question. On gross margins, core gross margins, in particular, where we're backing out the amortization of acquisition NDA for the noncash expense, we expect those right now in the mid-70s to float up hopefully into the low 80s by the end of the year. And the reason for that is as the company grows this year from a revenue standpoint, most of that growth we expect to come from the branded products, which are going to carry a higher gross margin profile than our compounded products.

Got it. Okay. And could you talk about -- we've heard about this cyberattack from a couple of folks out there. So was there an impact on the revenue for Q2? And if so, is that impact going to be a seeping back in for Q3? -- or from Q1 to Q2, sorry.

Sure. Obviously, the -- and you've heard from other companies you cover, the Change cyberattack had a big impact on the overall U.S. health care industry. It certainly had an impact on our customers. And in Q1, to be clear, it had a material impact on our sales. We're still assessing the total hit, but it's definitely in the millions of dollars. The good news, I think, is that we saw signs of improvement in the month of March and in April. And we're seeing the overall hit kind of die down. And frankly, the month of April and Q2 in general, the numbers look pretty good. So we think the risks and the damage from the Change cyberattack are waning for sure.

Okay. Got it. And then lastly, first, could you talk about the top line and its cadence for 2024, anything to guide us on as far as quarterly readouts?

Yes. So we don't really give quarterly guidance. As you know, we've given a guidance number for the 2024 period, which is greater than $180 million. And what I can tell you is, as we have kind of creeped into 2024 2nd quarter, so this present quarter, the numbers look pretty good. And we have a lot of interesting activities, I think, that we're excited about this year that give us even greater confidence that we'll be able to focus on the greater than sign of the $180 million and not just on the $180 million, but hopefully going over $180 million in a more pronounced way.

Got it. Is there any reason to believe it would not be sequential through the balance of the year?

Jeff, so the answer to that is, I think it depends. Our belief is that we will see sequential quarterly revenue growth. There are times though where we'll see wholesaler stocking quarter-to-quarter that may have some fluctuations. But our general expectation this year is that each quarter, we will continue to see revenue growth part of that as Mark talked about the VEVYE resales coming in. Those should just mount and grow, and that will help extend and really accentuate that quarterly revenue growth, we believe, in addition to the additional new accounts on IHEEZO and that pull-through on some of the larger account wins that we landed recently.

The next question comes from Chase Knickerbocker with Craig-Hallum.

I just want to start first on kind of that impact from Change. Those millions of dollars of impact Mark, that you just mentioned, was that primarily in the Anterior Segment kind of products bucket? And then maybe a related question. Can you kind of speak to if there was any kind of impact from Change just from like a position payment perspective driving less willingness there that kind of drove sequential declines in volumes for IHEEZO in Q1? And then along those lines, just maybe speak to what you're seeing so far in Q2 for IHEEZO. I think the script data that we've seen so far in April has gotten some people excited from an acceleration perspective, now that you have that J-code.

Yes. So thanks for the question, and welcome to the mix, by the way, good to speak with you. The assessment that we've done so far has really been on IHEEZO with respect to the Change cyberattack. And so when I say that the hit has been in the millions of dollars, that assessment is really just for IHEEZO. We're still looking at the other lines of our business as we think about what our options are with respect to the Change Healthcare cyberattack. So I really can't comment on anything other than IHEEZO specifically, but it certainly was in the millions of dollars. As far as IHEEZO into quarter 2, we are seeing a pickup. And I would say that the pickup is not only due to the waning nature of the Change Healthcare cyberattack, which certainly affected our customers. I was in an office in New Jersey recently, and this doctor was still not getting paid. In fact, I know of several accounts that we're taking out personal loans in order to make payroll. So this is a very serious event not only for our customers but for the entire healthcare system in the United States. I think the good news on IHEEZO is that we have seen a recovery, not only as I said, because of the waning nature of Change, but primarily because of what happened on March 20 with CMS confirming that IHEEZO is separately payable. And then only a few hours later, confirming that it was separately payable in the office for not only unilateral but also bilateral cases. This completely changed the game for us in terms of our ability to sell that product into the office setting. And we say that for good reason because our J-code, our ability to get reimbursement in the surgical setting is limited. It's a temporary pass-through period. But that is simply not the case for the office setting. And so we have permanence there. We have a permanent J-code, and we have now confirmation that it is separately payable. So we are seeing an uptick in a meaningful way for IHEEZO. That was one of, I think, the attractants to Greg, along with some other interesting attractants as well to come and join Harrow, and he's going to do a great job, I think, helping us with pull-through with the strategic accounts that we have signed since March 20 and then numerous others that are in the works.

And then maybe just kind of parlaying that into kind of peeling back the layers on guidance. Just to confirm, there's still no TRIESENCE contribution in that? And then just maybe speak to what that $180 million floor kind of assumes from a sequential growth perspective, the largest growth driver sequentially, certainly, in our model is IHEEZO. Can you just kind of confirm that? And then on the Anterior Segment, ocular surface products, does it assume a fairly meaningful kind of sequential growth from that bucket of products as well, Mark?

Andrew, you want to take both of those on guidance related to inclusion of TRIESENCE and the Anterior surface?

Yes. Chase, in regards to TRIESENCE, just to confirm, the $180 million does not include any contribution from TRIESENCE on the revenue side. So we feel good about that number regardless of any outcome with TRIESENCE and the ability to relaunch that product this year. In regard to sort of product contribution to that revenue number, IHEEZO is definitely going to be a big contributor, and that's what we have modeled, certainly from a product perspective. VEVYE is really kicking in, too. I've been surprised at what we had modeled and how the actuals are coming in. The refill rates are higher than we modeled, which is for a product like this where it's chronic and refills are super important to actual revenue contribution. We're seeing a refill rate much higher where we're taking up our own internal expectations. So VEVYE could be a bigger contributor than we initially thought as well. And then on the other Anterior Segment products, we talked a little bit about the Change impact to IHEEZO and certainly, we focused in on that impact internally, but we definitely saw fluctuations and volatility in the other front of the eye products during the first quarter, and we think part of that was related to Change. But we're also investing a little bit on the sales and marketing side for those other products, bringing in some additional commercial resources to help stabilize and then bring those products into growth products as well. So our expectation is we should get growth in all the product lines, including the ImprimisRx business, which we didn't really even discuss here. But that product is returning to -- or that product line and business is returning to growth as well from a top line perspective.

And then just last for me, guys. I just wanted to talk a little bit about the supply agreements at the 7 large multi-practice organizations. What are the terms there? Is that essentially just you guys have access to their clinic network and now it's a fairly easy process for those individual clinics to adopt when you kind of send your sales rep out and kind of pull that demand through? Or is there some sort of contracted kind of volume commitment from these large kind of multi-practice organizations? Just kind of dive into a little bit more detail around terms there.

Sure. Sure. I can't get into specific terms with an individual account, but that's a bit of a mix, actually. Some of these deals are essentially licenses to hunt, if you will. And they're really more than that, though, because in order to get into some of these practices, you really need to have authorization and approval. It's got to be easy for the physician to go ahead and make an order and ultimately purchase. In other contracts, we certainly have volume discounts and other incentives built into those agreements. But it's a bit of a mixed bag. And I think the exciting thing for us is it's not easy to get these agreements in place, number one, and I think the most important feature that I'm seeing, and I believe you'll start to see this more in the numbers as we progress into the quarter and into the third quarter as well is the pull-through. Pull-through is the key. And we certainly are signing these agreements, but I think our team is doing a much better job of pull-through and actually getting orders from these accounts. I think you're going to see more of those strategic accounts happen on the retina side, which is very exciting. And that really hasn't even begun to kind of kick in, but we expect it to. And certainly, Greg's involvement will, I think, support that effort.

The next question comes from Brooks O'Neil with Lake Street Capital.

I jumped on a few minutes late. So if I ask you about something you talked about already, just mention it now read the transcript. But I was hoping you could provide a little color on your pricing realization in particular for the 2 key branded drugs and what you're seeing and how that's impacting your performance so far with those products?

Yes. So pricing, really, from our perspective, is all about ASP, so our average selling price, which is really kind of what we end up getting. I can't go into ASP specifically by product for competitive reasons. But what I can tell you is with respect to both IHEEZO and VEVYE, we're really pleased with where we are. And internally, I think we're probably ahead of where we thought we would be. But we're still getting data, particularly with VEVYE, it's a new launch, but we're pleased with where we are on ASP. And as we collect more data, we'll be able to -- I think there'll be more visibility into kind of where we are with that publicly.

Perfect. Yes. And then I'm just curious, I think the G&A spending was a couple of million higher than we were thinking, not a shock to me at all, but I'm just curious how you're thinking about your level of G&A spending so far and what you anticipate sort of for the balance of the year?

Andrew, do you want to take that?

Sure. In regards to SG&A and spend there, so the answer is -- as we look at the year, the answer is it depends. We're trying to manage to that leverage ratio number that we talked about on the last call being coming in under 5 times. And so if revenue growth is there, if we're able to support the revenue growth and can with additional resources on the sales and marketing side to drive further revenue growth and still hit our EBITDA number, at least from what we project internally, then we're going to do that. Right now, the expectation is we'll make some incremental investments on the sales and marketing side and G&A side, you just support what we have. And if there's an opportunity to invest, we will. But we're going to be cautious and sort of take a measured approach on that expense to manage the EBITDA number. I think last quarter, we talked about, too, right after the -- right after we filed the 8-K regarding the announcement from CMS or the message from CMS, we put out job postings for additional IHEEZO Key Account Managers. And so we invested in that sales force. So we'll see a little bit of additional sales and marketing expense related to that in Q2. And if there are opportunities to continue to be strategic with deployment of capital on the sales and marketing side that will drive revenue growth, we'll do that. But in full, we'll be cautious and measured about the approach to make sure we're managing to an EBITDA number that we have targeted.

Congratulations on the great start to the year.

That's all the time we have for questions today. I would like to turn the conference back over to Mark Baum for any closing remarks.

Thanks [indiscernible], and thank you for everyone joining today. We remain confident that our 5-year strategic plan is going to lead to Harrow becoming a leader in the North American Ophthalmic Pharmaceuticals industry. And your trust and collaboration are the cornerstones of our success, and we're excited to share further developments in the near term and, of course, in upcoming quarters. Thank you once again for your commitment to our journey towards innovation and excellence, and thank you to everyone for attending today's call and for your interest in Harrow. If you have any investor-related questions, please e-mail Jamie Webb at jwebb@harrowinc.com. This will conclude our call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.