What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-09 · 249 added, 404 removed, 198 unchanged (77% of the section changed)

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“us” and “our” refer to Harrow Health, Inc.

and its consolidated subsidiaries, consisting of Park Compounding,

Inc., ImprimisRx, LLC, ImprimisRx NJ, LLC dba ImprimisRx, Imprimis NJOF, LLC, Radley Pharmaceuticals, Inc., Mayfield Pharmaceuticals,

Inc., and Stowe Pharmaceuticals, Inc.

In this discussion and analysis, we refer to our consolidated subsidiaries ImprimisRx, LLC, ImprimisRx

NJ, LLC and Imprimis NJOF, LLC collectively as “ImprimisRx.”

and its consolidated subsidiaries, consisting of ImprimisRx, LLC,

ImprimisRx NJ, LLC dba ImprimisRx, Imprimis NJOF, LLC, and Imprimis Pharmaceuticals USA, LLC.

In this discussion and analysis, we refer

to our consolidated subsidiaries ImprimisRx, LLC, ImprimisRx NJ, LLC and Imprimis NJOF, LLC collectively as “ImprimisRx.”

addition to historical information, the following discussion contains forward-looking statements regarding future events and our future

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are an ophthalmic-focused healthcare company.

Our business specializes in the development, production and sale of innovative medications

that offer unique competitive advantages and serve unmet needs in the marketplace through our subsidiaries and deconsolidated companies.

We own and operate one of the nation’s leading ophthalmology pharmaceutical businesses, ImprimisRx.

In addition to wholly owning

ImprimisRx, we also have non-controlling equity positions in Surface Ophthalmics, Inc.

(“Surface”) and Melt Pharmaceuticals,

(“Melt”), both companies that began as subsidiaries of Harrow.

In 2020, Harrow created Visionology, Inc.

(“Visionology”)

and recently launched an online eye health platform business in certain regions.

We also own royalty rights in various drug candidates

being developed by Surface and Melt.

Our business specializes in the development, production, sale, and distribution of innovative

prescription medications that offer unique competitive advantages and serve unmet needs in the marketplace through our subsidiaries and

deconsolidated companies.

We own and operate ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical businesses,

and Visionology, Inc.

(“Visionology”), a direct-to-consumer digital eyecare subsidiary.

In addition, we also have non-controlling

equity positions in Surface Ophthalmics, Inc.

(“Surface”) and Melt Pharmaceuticals, Inc.

(“Melt”), both companies

that began as subsidiaries of Harrow and were subsequently deconsolidated.

We also own royalty rights in various drug candidates being

developed by Surface and Melt.

is our ophthalmology-focused prescription pharmaceutical business.

We offer to over 10,000 physician customers and their patients critical

medicines to meet their needs that are unmet by commercially available drugs.

We make our formulations available at prices that are,

in most cases, lower than non-customized commercial drugs.

Our current ophthalmology formulary includes over twenty compounded formulations,

many of which are patented or patent-pending, and are customizable for the specific needs of a patient.

Some of our compounded medications

are various combinations of drugs formulated into one bottle and numerous preservative free formulations.

Depending on the formulation,

the regulations of a specific state and ultimately the needs of the patient, ImprimisRx products may be dispensed as patient-specific

medications from our 503A pharmacy, or for in-office use, made according to current good manufacturing practices (or “cGMPs”)

or other FDA-guidance documents, in our FDA-registered New Jersey outsourcing facility (“NJOF”).

August 1, 2020, ImprimisRx entered into a Commercial Alliance Agreement (the “Dexycu Agreement”) with Eyepoint Pharmaceuticals,

(“Eyepoint”), pursuant to which Eyepoint granted ImprimisRx the non-exclusive right to co-promote DEXYCU® (dexamethasone

intraocular suspension) 9% for the treatment of post-operative inflammation following ocular surgery in the United States.

the Dexycu Agreement, Eyepoint pays ImprimisRx a fee that is calculated based on the quarterly sales of DEXCYU in excess of predefined

volumes to specific customers of ImprimisRx in the U.S.

has granted the Company the exclusive license and marketing rights to AMP-100 in the U.S.

AMP-100 is a patented, ophthalmic

topical anesthetic drug candidate.

If FDA-approved, the active ingredient used in AMP-100 will be the first approved use of this active

ingredient in the U.S.

From its inception in 2014, ImprimisRx, which consists of integrated

research and development, production, dispensing/distribution, sales, marketing, and customer serve capabilities, has offered physician

customers and their patients access to critical medicines to meet their clinical needs.

Initially, ImprimisRx focused exclusively on

compounded medications to serve needs unmet by commercially available drugs.

We make our formulations available at prices that are, in

most cases, lower than non-customized commercial drugs.

ImprimisRx’s customer base has grown to include more than 10,000 U.S.

dedicated prescribers and institutions.

Our current ophthalmology formulary includes over twenty compounded formulations, many of which

are patented or patent-pending, and are customizable for the specific needs of a patient.

Some of our compounded medications are various

combinations of drugs formulated into one bottle and others are preservative free formulations.

Depending on the formulation, the regulations

of a specific state, and ultimately, the needs of the patient, ImprimisRx products may be dispensed as patient-specific medications from

our 503A pharmacy, or for in-office use, or made according to current good manufacturing practices (or “cGMPs”) or other

FDA-guidance documents, in our FDA-registered New Jersey outsourcing facility (“NJOF”).

the past two years, in order to more fully serve the needs of our growing customer base, we have invested in broadening ImprimisRx’s

product portfolio to include FDA-approved products.

Our investments in this regard have led to commercial partnerships to sell DEXYCU®

and Avenova, the acquisition of two later stage drug candidates, and the recent acquisition of U.S.

rights to four FDA-approved ophthalmic

These transactions, and those we are continuing to pursue, are focused in eyecare pharmaceuticals.

We believe that our continued

investments in these and other products will result in our ability to provide more physician prescribers and their patients with access

to a complete portfolio of affordable eyecare pharmaceuticals to address their clinical needs.

entered into a Commercial Alliance Agreement (the “Dexycu Agreement”) with Eyepoint Pharmaceuticals, Inc.

(“Eyepoint”),

pursuant to which Eyepoint granted ImprimisRx the right to promote DEXYCU® (dexamethasone intraocular suspension) 9% for the treatment

of post-operative inflammation following ocular surgery in the United States.

Pursuant to the Dexycu Agreement, Eyepoint pays ImprimisRx

a fee that is calculated based on the quarterly sales of DEXYCU in the U.S.

MAXITROL®, MOXEZA®

December 2021, we acquired U.S.

commercial rights to four FDA-approved ophthalmic medicines:

IOPIDINE 1% and 0.5% (apraclonidine hydrochloride);

MAXITROL (neomycin/polymyxin B/dexamethasone) ophthalmic suspension;

and MOXEZA (moxifloxacin hydrochloride).

We believe by expanding

our product portfolio to include branded FDA-approved products, we will be uniquely positioned to leverage our ImprimisRx platform to

introduce unique lifecycle management strategies that could grow sales and address needs of our customers that we are unable to meet

with our other compounded product offerings.

the time of closing the acquisition of the four products, we agreed to a transitional period with the seller, which is expected to last

approximately six months following the closing of the transaction.

During the transition period, the seller will continue to sell the

products and transfer the net profit to us.

Following the transition period, we expect to have the products manufactured by third parties

and commercialize the products for the U.S.

July 2021, we acquired the exclusive marketing and supply rights to AMP-100 in the U.S.

and Canada from Sintetica S.A.

(“Sintetica”).

AMP-100 is a patented, ophthalmic topical anesthetic drug candidate.

If FDA-approved, the active ingredient used in AMP-100 will be the

first approved use of this active ingredient in the U.S.

ophthalmic market.

safety and efficacy of AMP-100 was demonstrated in various clinical trials including a Phase 2/3 randomized, double-masked, vehicle-controlled,

efficacy, safety and tolerability study in healthy volunteers and a non-inferiority Phase 3 study of 342 patients undergoing cataract

surgeries comparing AMP-100 to an active comparator.

Ultimately, these studies demonstrated:

is safe, and the most common adverse event was mydrasis (dilation of pupil) in about 20% of patients which is an effect most ophthalmologists

may consider beneficial;

has rapid onset, and no inferiority to the active comparator (Phase 3);

success of patients receiving AMP-100 was 95% vs.

20% with placebo (Phase 2/3 study);

administration of AMP-100 provides roughly 20 minutes of sensory loss;

has predictable offset (end of anesthesia) within a narrow bell curve (i.e.

no wide variance).

expect a new drug application (“NDA”) for AMP-100 to be submitted by Sintetica to the FDA in the fourth quarter of 2021 and,

if approved, we plan to commercially launch AMP-100 in the fourth quarter of 2022.

approved, we expect our initial commercial focus of AMP-100 to be on ophthalmic procedures that traditionally require the eye to be anesthetized.

According to a 2019 MarketScope report, there are over four million cataract surgeries performed in the U.S.

In addition to

cataract procedures, according to Ophthalmologica, there were about 5.9 million intravitreal injections performed in the U.S.

Most of these intravitreal injections, which are typically treatments for a variety of conditions, including age-related macular degeneration,

diabetic macular edema, and uveitis, often require the ocular surface to be anesthetized during the procedure.

is protected by one issued patent and another patent-pending.

The issued patent includes composition of matter and method of use claims

and could provide protection for AMP-100 into 2037.

addition to AMP-100, we expect to acquire and/or develop additional FDA-approved/approvable ophthalmic products and product candidates

that will allow us to leverage the commercial infrastructure of ImprimisRx to promote, sell, and ultimately bring these products to market.

August 2021, we obtained the exclusive license and marketing rights to MAQ-100 in the U.S.

and Canada from Wakamoto Pharmaceutical Co.,

A new drug application (“NDA”) for AMP-100 was

submitted by Sintetica to the FDA in the fourth quarter of 2021 and the FDA has assigned the application standard review and a Prescription

Drug User Fee Act (PDUFA) target action date of October 16, 2022.

August 2021, we acquired the exclusive marketing rights to MAQ-100 in the U.S.

and Canada from Wakamoto Pharmaceutical Co., Ltd.

(“Wakamoto”).

MAQ-100 is a preservative-free triamcinolone acetonide ophthalmic injection drug candidate.

marketed and sold by Wakamoto in Japan as MaQaid®.

Following Japan’s Ministry of Health Labor and Welfare (“MHLW”)

approval, MaQaid was launched in Japan in 2010, indicated as an intravitreal injection for visualization for vitrectomy.

Since its initial

MHLW approval, the indication for MaQaid was expanded to include (a) treatments for alleviation of diabetic macular edema, (b) macular

edema associated with retinal vein occlusion (or RVO), and (c) non-infectious uveitis.

We intend to leverage the clinical data used for

Japanese market approval of MaQaid to support a clinical program and U.S.

MAQ-100 is marketed and sold by Wakamoto

in Japan as MaQaid®.

Following Japan’s Ministry of Health Labor and Welfare (“MHLW”) approval, MaQaid was launched

in Japan in 2010, indicated as an intravitreal injection for visualization for vitrectomy.

Since its initial MHLW approval, the indication

for MaQaid was expanded to include (a) treatments for alleviation of diabetic macular edema, (b) macular edema associated with retinal

vein occlusion (or RVO), and (c) non-infectious uveitis.

We intend to leverage the clinical data used for Japanese market approval of

MaQaid to support a clinical program and U.S.

market NDA submission of MAQ-100 for visualization during vitrectomy.

We intend to request a meeting with FDA during the first half of 2022 to discuss our planned clinical program for MAQ-100.

We intend to request

a meeting with FDA during the first half of 2022 to discuss our planned clinical program for MAQ-100.

expect to acquire and/or develop additional FDA-approved/approvable ophthalmic products and product candidates that will allow us to

leverage the commercial infrastructure of ImprimisRx to promote, sell, and ultimately bring these products to market.

a direct-to-consumer online eye health platform, leverages our experience in the ophthalmic pharmaceutical business as well as our relationships

leverage our commercial infrastructure to promote, sell, and ultimately bring these products to market.

a direct-to-consumer digital eye health platform, leverages our experience in the ophthalmic pharmaceutical business as well as our relationships

with eyecare professionals across the United States.

We recently launched a proof-of-concept model for Visionology within a certain region

of the U.S., and if successful, will expand the launch on a nationwide basis in 2022.

Pharmaceutical

Compounding Businesses

Pharmaceutical

compounding is the science of combining different active pharmaceutical ingredients (APIs), all of which are approved by the FDA (either

as a finished form product or as a bulk drug ingredient) and excipients, to create specialized pharmaceutical preparations.

and healthcare institutions use compounded drugs when commercially available drugs do not optimally treat a patient’s needs.

many cases, compounded drugs, such as ours, have wide market utility and may be clinically appropriate for large patient populations.

Examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms, such as topical creams

or gels, suspensions, or solutions with more tolerable drug delivery vehicles.

all of our sales revenue is derived from making, selling and dispensing our compounded prescription drug formulations as cash pay transactions

between us and our end-user customer.

As such, the majority of our commercial transactions do not involve distributors, wholesalers,

insurance companies, pharmacy benefit managers or other middle parties.

By not being reliant on insurance company formulary inclusion

and pharmacy benefit manager payment clawbacks, we are able to simplify the prescription transaction process.

We believe the outcome

of our business model is a simple transaction, involving a patient-in-need, a physician’s diagnosis, a fair price and great service

for a quality pharmaceutical product.

We sell our products through a network of employees and independent contractors and we dispense

our formulations in all 50 states, Puerto Rico and in selected markets outside the United States.

Compounding Facilities

Pharmaceutical

compounding businesses are governed by Sections 503A and 503B of the Federal Food Drug and Cosmetic Act (the “FDCA”).

503A of the FDCA provides that a pharmacy is only permitted to compound a drug for an individually identified patient based on a prescription

for a patient, and is only permitted to distribute the drug interstate if the pharmacy is licensed to do so in the states where it is

compounded and where the medication is received.

503B of the FDCA provides that a pharmacy engaged in preparing sterile compounded drug formulations may voluntarily elect to register

as an “outsourcing facility.” Outsourcing facilities are permitted to compound large quantities of drugs without a prescription

and distribute them out of state with certain limitations such as the formulation appearing on the FDA’s drug shortage list or

the bulk drug substances contained in the formulations appearing on the FDA’s “clinical need” list.

Entities voluntarily

registering with FDA as outsourcing facilities are subject to additional requirements that do not apply to compounding pharmacies (operating

under Section 503A of the FDCA), including adhering to standards such as current good manufacturing practices (cGMP) or other FDA guidance

documents and being subject to regular FDA inspection.

operate two compounding facilities located in Ledgewood, New Jersey.

Our New Jersey operations are comprised of two separate entities

and facilities, one of which is registered with the FDA as an outsourcing facility (“NJOF”) under Section 503B of the FDCA.

The other New Jersey facility (“RxNJ”) is a licensed pharmacy operating under Section 503A of the FDCA.

All products that

we sell, produce and dispense are made in the United States.

believe that, with our current compounding pharmacy facilities and licenses and FDA registration of NJOF, we have the infrastructure

to scale our business appropriately under the current regulatory landscape and meet the potential growth in demand we are targeting.

We plan to invest in one or both of our facilities to further their capacity and efficiencies.

Also, we may seek to access greater pharmacy

and production related redundancy and markets through acquisitions, partnerships or other strategic transactions.

Pharmaceutical

Development - Carve-Out Businesses

have ownership interests in Eton Pharmaceuticals, Inc.

(“Eton”), Surface and Melt and hold royalty interests in some of the

drug candidates of Surface and Melt.

These companies are pursuing market approval for their drug candidates under the FDCA, including

in some instances under the abbreviated pathway described in Section 505(b)(2) which permits the submission of a new drug application

(“NDA”) where at least some of the information required for approval comes from studies not conducted by or for the applicant

and for which the applicant has not obtained a right of reference.

2018 and 2019, we formed and created subsidiaries named Radley Pharmaceuticals, Inc.

(“Radley”), Mayfield Pharmaceuticals,

(“Mayfield”), and Stowe Pharmaceuticals, Inc.

In 2020, we halted nearly all operating activities

related to these subsidiaries to invest resources in other areas, and we may not restart any or all activities related to these businesses.

In addition, we terminated license and acquisition agreements for Mayfield’s MAY-66 and MAY-44 drug candidates, and Stowe’s

STE-006 drug candidate.

Businesses (De-Consolidated Businesses)

have ownership interests in Surface, Melt, and Eton Pharmaceuticals, Inc.

(“Eton”) and hold royalty interests in some of

Surface’s and Melt’s drug candidates.

These companies are pursuing market approval for their drug candidates under the FDCA,

including in some instances under the abbreviated pathway described in Section 505(b)(2), which permits the submission of a new drug

application (“NDA”) where at least some of the information required for approval comes from studies not conducted by or for

the applicant and for which the applicant has not obtained a right of reference.

Noncontrolling

Equity Interests (De-Consolidated Businesses)

Equity Interests

Ophthalmics, Inc.

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given SURF-201 were pain free at Day 15.

SURF-201 marks the first ophthalmic therapeutic in the United States to utilize betamethasone

and the first preservative-free unit dose therapy for the treatment of post-operative pain and inflammation.

in January 2021, Surface announced the first patient dosed in a head-to-head phase 2 trial for its drug candidate SURF-100 (mycophenolate

sodium and betamethasone in Klarity vehicle) for the treatment of chronic dry eye disease.

The head-to-head study will compare SURF-100

against leading on-market competitors lifitegrast ophthalmic solution 5% (marketed as Xiidra®) and cyclosporine ophthalmic emulsion

0.05% (marketed as Restasis®).

February 2021, Surface announced the first patient dosed in a phase 2 trial for its drug candidate SURF-200 (betamethasone in Klarity

Also in January 2021, Surface announced the first patient dosed in a head-to-head Phase 2 trial

for its drug candidate SURF-100 (mycophenolate sodium and betamethasone in Klarity vehicle) for the treatment of chronic dry eye disease.

In February 2021, Surface announced the first patient dosed in a Phase 2 trial for its drug candidate SURF-200 (betamethasone in Klarity

vehicle) for the treatment of episodic dry eye flares.

The dose ranging study for SURF-200 will be administered in two different low

concentration formulations of betamethasone in the Klarity vehicle.

The trial will enroll 120 to 140 patients with a primary endpoint

of Symptom Improvement of one unit based on the University of North Carolina Dry Eye Management Scale by the eighth day.

2018, Surface closed an offering of its Series A Preferred Stock.

3 unchanged sentences

purchase price of $4.50 per share resulting in gross proceeds to Surface of approximately $25,000,000 (the “Surface Series B Offering”).

We own 3,500,000 shares of Surface common stock which was approximately 20% of the equity and voting interests following the final closing

of the Surface Series B Offering.

We own 3,500,000 shares of Surface common stock, which was approximately 20% of the equity and voting interests as of March 31, 2022.

Harrow owns mid-single digit royalty rights on net sales of SURF-100, SURF-200 and SURF-201.

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announced data from, and the successful completion of, its Phase 1 study.

Melt recently began enrolling patients in its phase 2 study

for MELT-300.

Melt began enrolling patients in its Phase 2 study for MELT-300

during the fourth quarter of 2021.

January 2019, Melt closed an offering of its Series A Preferred Stock.

At that time, we lost our controlling interest and deconsolidated

At that time, we gave up our controlling interest and deconsolidated

Melt from our consolidated financial statements.

We own 3,500,000 shares of Melt common stock, which was approximately 46% of the equity

and voting interests issued and outstanding of as of September 30, 2021.

In September 2021, we provided Melt with a senior secured loan

in the amount of $13,500,000, which is intended to fund the Phase 2 program of MELT-300.

In connection with the loan we provided Melt,

we also were provided the right, but not the obligation, to match any offer received by Melt associated with the commercial rights to

any of its drug candidates for a period of five years.

Melt is required to make mid-single digit royalty payments to the Company on net

sales of MELT-300, while any patent rights remain outstanding, subject to other conditions.

Melt can require the Company to cease compounding

like products at the time of FDA approval of MELT-300.

If approved, we do not expect a cessation of compounding like products to have

a material impact on our operations and financial performance.

and voting interests issued and outstanding as of March 31, 2022.

In September 2021, we provided Melt with a senior secured loan with

a principle amount of $13,500,000, which is intended to fund the Phase 2 program of MELT-300.

In connection with the loan, we were given

the right, but not the obligation, to match any offer received by Melt associated with the commercial rights to any of its drug candidates

for a period of five years.

Melt is required to make mid-single digit royalty payments to the Company on net sales of MELT-300, while

any patent rights remain outstanding, subject to other conditions.

Melt can require the Company to cease compounding like products at

the time of FDA approval of MELT-300.

If approved, we do not expect a cessation of compounding like products to have a material impact

on our operations and financial performance.

Pharmaceuticals, Inc.

is a commercial-stage pharmaceutical company focused on developing and commercializing innovative drug products.

Its pipeline includes

several products and drug candidates in various stages of development across a variety of dosage forms.

In May 2017, Eton closed an offering

of its Series A Preferred Stock and we gave up our controlling interest in it.

In November 2018, Eton completed an initial public offering

of its common stock.

As of the date of this Quarterly Report and following our April 2021 sale, we own 1,982,000 shares of Eton common

We owned less than 10% of the equity and voting interests issued and outstanding of Eton as of September 30, 2021.

is a commercial-stage orphan-disease focused pharmaceutical company developing and commercializing innovative drug products.

portfolio and pipeline includes several products and drug candidates in various stages of development across a variety of dosage forms.

In May 2017, we gave up our controlling interest in Eton.

We own 1,982,000 shares of Eton common stock, which is less than 10% of the

equity and voting interests issued and outstanding of Eton as of March 31, 2022.

Affecting Our Performance

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Reimbursement

is covered under Medicare Part B, and we are developing drug candidates that we believe will be covered under Medicare Part B.

approved by the FDA that are used in surgeries performed in a hospital outpatient departments or ambulatory surgical centers may receive

a transitional pass-through reimbursement under Medicare, provided they meet certain criteria, including a “not insignificant”

cost criterion.

Pass-through status allows for separate payment (i.e., outside the packaged payment rate for the surgical procedure)

under Medicare Part B, which consists of Medicare reimbursement for a drug based on a defined formula for calculating the minimum fee

that a manufacturer may charge for the drug.

Under current regulations of the Centers for Medicare & Medicaid Services (“CMS”),

pass-through status applies for a period of three years;

that is measured from the date Medicare makes its first pass-through payment

for the product, following which the product would be incorporated into the cataract bundled payment system, which could significantly

reduce the pricing for that product.

Following expiration of pass-through status, under current CMS policy, non-opioid pain management

surgical drugs when used on Medicare Part B patients in an outpatient setting can qualify for ongoing separate payment.

non-opioid separate payment policy, like other CMS policies, can be changed by CMS through its annual rulemaking and comment process.

We believe that CMS will continue its separate payment policy for non-opioid pain management surgical drugs, which has been in effect

are working with outside consultants to potentially gain an extension to the transitional payment system, or to separate the drug payment

from the bundled cataract surgery payment after the three-year transitional payment ends and continue to be reimbursed separately for

a longer period of time, potentially through patent life.

Unless extended, Dexycu transitional pass-through reimbursement status will

expire on December 31, 2022, which will have an adverse impact on our commission revenues from this product.

proprietary ophthalmic compounded formulations are currently primarily available on a cash-pay basis.

However, we work with third-party

insurers, pharmacy benefit managers and buying groups to offer patient-specific customizable compounded formulations at accessible prices.

We may devote time and other resources to seek reimbursement and patient pay opportunities for these and other compounded formulations

and we have hired pharmacy billers to process certain existing reimbursement opportunities for certain formulations.

However, we may

be unsuccessful in achieving these goals, as many third-party payors have imposed significant restrictions on reimbursement for compounded

formulations in recent years.

Moreover, third-party payors, including Medicare, are increasingly attempting to contain health care costs

by limiting coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved

products for disease indications for which the FDA has not granted labeling approval.

Further, the Patient Protection and Affordable

Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “Health Care

Reform Law”), may have a considerable impact on the existing U.S.

system for the delivery and financing of health care and could

conceivable have a material effect on our business.

As a result, reimbursement from Medicare, Medicaid and other third-party payors may

never be available for any of our products or, if available, may not be sufficient to allow us to sell the products on a competitive

However, we expect that MOXEZA,

MAXITROL and IOPIDINE are, and we expect that other drug candidates we are developing, if approved, will be eligible for reimbursement

by third-party payors.

We may devote time and other resources to seek reimbursement and patient pay opportunities for these and other

drug products and candidates.

However, we may be unsuccessful in achieving these goals, as many third-party payors have imposed significant

challenges for products to be eligible for reimbursement in recent years.

Moreover, third-party payors, including Medicare, are increasingly

attempting to contain health care costs by limiting coverage and the level of reimbursement for new drugs and by refusing, in some cases,

to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval.

the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010

(collectively, the “Health Care Reform Law”), may have a considerable impact on the existing U.S.

system for the delivery

and financing of health care and could conceivably have a material

adverse effect on our business.

As a result, reimbursement from Medicare, Medicaid and other third-party

payors may never be available for any of our products or, if available, may not be sufficient to allow us to sell the products on a competitive

basis and at desirable price points.

We are communicating with government and third-party payors in order to make our formulations available

to more patients and at optimized pricing levels.

However, if government and other third-party payors do not provide adequate coverage

and reimbursement levels for our formulations, the market acceptance and opportunity for our formulations may be limited.

We are communicating with government and third-party payors in order to make our drug products and

candidates available to more patients and at optimized pricing levels.

However, if government and other third-party payors do not provide

adequate coverage and reimbursement levels for our drug products and candidates, the market acceptance and opportunity for them may be

novel strain of coronavirus was first identified in Wuhan, China in December 2019.

18 unchanged sentences

profitability and cash flows.

following describes certain developments in 2021 to date that are important to understand our financial condition and results of operations.

See the notes to our condensed consolidated financial statements included in this report for additional information about each of these

developments.

April 2020, we entered into an unsecured promissory note and related Business Loan Agreement with Renasant Bank, as lender, for a loan

(the “PPP Loan”) in the principal amount of $1,967,000 and received cash proceeds of the same amount, pursuant to the Paycheck

Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”),

which was enacted March 27, 2020.

The PPP is administered by the U.S.

Small Business Administration.

On March 30, 2021, the Company received

a notice of forgiveness of the full balance of the PPP Loan, including all accrued interest, in accordance with the terms and conditions

of the CARES Act and accordingly recognized a gain on forgiveness of debt of $1,967,000.

April 2021, we closed an underwritten public offering of 1,518,000 shares of our Eton common stock at a public offering price of $7.00

per share (the “Eton Stock Sale”).

The gross proceeds to us from the Eton Stock Sale were $10,626,000 before deducting underwriting

discounts and commissions and other offering expenses payable by the Company.

Following such sale, we own 1,982,000 shares of Eton common

stock, which represented less than 10% of the equity interests issued and outstanding of Eton as of September 30, 2021.

part of the Eton Stock Sale, we also agreed, for a period of 180 days, not to conduct any further sales of shares of its common stock

of Eton or otherwise dispose of, directly or indirectly, any common stock of Eton (or any securities convertible into, or exercisable

or exchangeable for, the common stock of Eton).

Senior Notes Due 2026

April, May and June 2021, we closed offerings totaling $75,000,000 aggregate principal amount of 8.625% senior notes due 2026 (the “Notes”).

T he Notes are senior unsecured obligations of the Company

and rank equally in right of payment with all of our other existing and future senior unsecured and unsubordinated indebtedness.

Notes are effectively subordinated in right of payment to all of our existing and future secured indebtedness and structurally subordinated

to all existing and future indebtedness of the Company’s subsidiaries, including trade payables.

The Notes bear interest at the

rate of 8.625% per annum.

Interest on the Notes is payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each

year, commencing on July 31, 2021.

The Notes will mature on April 30, 2026.

to February 1, 2026, we may, at our option, redeem the Notes, in whole at any time or in part from time to time, at a redemption price

equal to 100% of the principal amount of the Notes to be redeemed, plus a make-whole amount, if any, plus accrued and unpaid interest

to, but excluding, the date of redemption.

We may redeem the Notes for cash in whole or in part at any time at our option on or after

February 1, 2026 and prior to maturity, at a price equal to 100% of their principal amount, plus accrued and unpaid interest to, but

excluding, the date of redemption.

On and after any redemption date, interest will cease to accrue on the redeemed Notes.

B Cumulative Preferred Stock - Redeemed

May 5, 2021, we sold 440,000 shares of Series B Cumulative Preferred Stock (the “Series B Preferred Stock”) for net proceeds

of $10,670,000.

On June 17, 2021, the Company redeemed all of the outstanding shares of the Series B Preferred Stock.

The redemption

price for the 440,000 shares of the Series B Preferred Stock outstanding was equal to $25.00 per share, plus accrued and unpaid dividends,

which in aggregate totaled $11,127,000.

July 2021, we entered into a License and Supply Agreement (the “Sintetica Agreement”) with Sintetica S.A.

(“Sintetica”),

pursuant to which Sintetica granted the Company the exclusive license and marketing rights to its patented ophthalmic drug candidate

(“AMP-100”) in the U.S.

to the Sintetica Agreement, the Company will pay Sintetica a per unit transfer price to supply AMP-100, along with a per unit royalty

for units sold.

The Company is required to pay Sintetica up to $18,000,000 in one-time milestone payments including a $5,000,000 payment

due within 30 days of signing the Sintetica Agreement and the balance of payments due upon achievement of certain regulatory and commercial

Under the terms of the Sintetica Agreement, Sintetica will be responsible for regulatory filings for AMP-100 in the U.S.

to certain limitations, the term of the Sintetica Agreement is ten years, and allows for a ten-year extension if certain sales thresholds

August, 2021, we entered into a License Agreement and a Basic Sale and Purchase Agreement (together, the “Wakamoto Agreements”)

with Wakamoto Pharmaceutical Co., Ltd.

(“Wakamoto”), pursuant to which Wakamoto granted the Company the exclusive license

and marketing rights to its ophthalmic drug candidate (“MAQ-100”) in the U.S.

to the Wakamoto Agreements, Wakamoto will supply MAQ-100 to us, and we will pay Wakamoto a per unit transfer price to supply MAQ-100.

In addition, we are required to pay Wakamoto various one-time milestone payments totaling up to $2,000,000 upon the achievement of certain

regulatory milestones and up to $6,200,000 upon the achievement of certain commercial milestones.

Under the terms of the Wakamoto Agreements,

we are responsible for regulatory filings and fees for MAQ-100 in the U.S.

to certain limitations, the term of the Wakamoto Agreements is for five years from the date of the FDA’s market approval of MAQ-100

and allows for a five-year extension if certain unit sales thresholds are met.

September 2021, we entered into a loan and security agreement in the principal amount of $13,500,000 (the “Melt Loan Agreement”),

as lender, with Melt, as borrower.

Amounts borrowed under the Melt Loan Agreement bear interest at twelve and one-half percent (12.50%)

per annum, which can be paid in kind interest at the option of Melt until the maturity date.

The Melt Loan Agreement permits Melt to

pay interest only on the principal amount loaned thereunder through the term and all amounts owed will be due and payable on September

Melt may elect to prepay all, but not less than all, of the amounts owed prior to the maturity date at any time without penalty.

has granted us a security interest in substantially all of its personal property, rights and assets, including intellectual property

rights, to secure the payment of all amounts owed under the Melt Loan Agreement.

The Melt Loan Agreement contains customary representations,

warranties and covenants, including covenants by Melt limiting additional indebtedness, liens, mergers and acquisitions, dispositions,

investments, distributions, subordinated debt, and transactions with affiliates.

The Melt Loan Agreement includes customary events of

default, and upon the occurrence of an event of default (subject to cure periods for certain events of default), all amounts owed by

Melt thereunder may be declared immediately due and payable by the us, and the interest rate on the loan may be increased by three percent

(3%) per annum.

connection with the Melt Loan Agreement, we entered into a Right of First Refusal Agreement with Melt providing us with the right, but

not the obligation, to match any offer received by Melt associated with the commercial rights to any of Melt’s drug candidates

for a period of five years following the effective date of the Melt Loan Agreement.

In April 2022, we entered into a First Amendment (the “Amendment”) to our loan and security agreement previously entered

into on September 1, 2021 with Melt.

The Amendment provides for the following:

is required to maintain a minimum cash balance of $7,000,000 for one (1) year following the effective date of the Amendment;

a minimum cash balance of $5,000,000 at all times after the one year anniversary of the effective date of the Amendment.

maturity date by which all amounts owed under the loan agreement are payable was extended to September 1, 2026, unless otherwise

accelerated pursuant to the terms of the loan agreement.

definition of Material Adverse Effect was amended so that such an effect will be deemed to have occurred if the data from the phase

2 study of MELT-300 fails to demonstrate the benefit of the combination MELT-300 study drug versus the individual components of the

same MELT-300 study drug, as reasonably determined by us.

effectiveness of the Amendment is subject to, among other conditions, Melt consummating a qualifying financing of a minimum amount

of $15,000,000 from third-party investors by August 31, 2022.

of Operations

following period-to-period comparisons of our financial results for the three and nine months ended September 30, 2021 and 2020, are

not necessarily indicative of results for the current period or any future period.

following period-to-period comparisons of our financial results for the three months ended March 31, 2022 and 2021, are not necessarily

indicative of results for the current period or any future period.

revenues include amounts recorded from sales of proprietary compounded formulations, commissions from third parties and revenues received

from royalty payments owed to us pursuant to out-license arrangements.

following presents our revenues for the three and nine months ended September 30, 2021 and 2020:

Product sales,

following presents our revenues for the three months ended March 31, 2022 and 2021:

Three Months Ended

Product sales, net

Commission revenues

increase in revenues between periods was related to an increase in sales volumes of our ophthalmology products and commissions attributable

to sales of Dexycu®.

Transfer of profit

License revenues

Total revenues

increase in revenues between periods was related to an increase in sales volumes of our ophthalmology products, an increase in commissions

attributable to sales of Dexycu® and transfer of profit from recently acquired products.

cost of sales includes direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients,

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the write-off of obsolete inventory and other related expenses.

following presents our cost of sales for the three and nine months ended September 30, 2021 and 2020:

following presents our cost of sales for the three months ended March 31, 2022 and 2021:

Three Months Ended

Cost of sales

increase in our cost of sales between periods was largely attributable to an increase in unit volumes sold.

Profit and Margin

decrease in gross margin between the three months ended September 30, 2021 and 2020 is primarily attributable to a second production

shift that was added in 2021 along with increased personnel within our quality department, in preparation for increased production expected

during the remainder of 2021 and into 2022.

increase in gross margin between the nine months ended September 30, 2021 and 2020 is largely attributable to increased unit volumes

sold, efficiencies in our production process, including increased batch sizes, and improved utilization of capacities as a result of

increased output.

Three Months Ended

decrease in gross margin between the three months ended March 31, 2022 and 2021 is primarily attributable to amortization of certain

intangible assets related to recently acquired products beginning in January 2022.

General and Administrative Expenses

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our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations.

following presents our selling, general and administrative expenses for the three and nine months ended September 30, 2021 and 2020:

following presents our selling, general and administrative expenses for the three months ended March 31, 2022 and 2021:

Three Months Ended

Nine Months Ended

general and administrative

increase in selling, general and administrative expenses between periods was primarily attributable to an increase in commissions and

other expenses related to increased sales, and as well as an increase in our sales and marketing expenses related to in-person conferences

and new employee costs to support sales growth.

During the three and nine months ended September 30, 2021, the Company recorded $1,500,000

in expenses related to a litigation settlement.

Selling, general and administrative

increase in selling, general and administrative expenses between periods was primarily attributable to an increase in compensation

expense related to an increase in stock-based compensation associated with performance stock units that were granted in July 2021,

an increase in consulting expenses associated with regulatory improvements and to support the transition of recent product acquisitions,

and increase in sales and marketing expenses related to new employee costs to support current sales and expected future growth.

and Development Expenses

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expenses related to the development of intellectual property, investigator-initiated research and evaluations, formulation development,

license fees, acquired in-process R&D and other costs related to the clinical development of our assets.

following presents our research and development expenses for the three and nine months ended September 30, 2021 and 2020:

and development

the three and nine months ended September 30, 2021, research and development expenses increased between periods primarily as a result

of the upfront payment of $5,000,000 to Sintetica upon execution of the license and supply agreement for AMP-100 along with increased

costs associated with the clinical program for MAQ-100.

expense, net was $1,685,000 and $3,512,000 for the three and nine months ended September 30, 2021, respectively, compared to $498,000

and $1,563,000 for the same periods last year, respectively.

The increase during the period ended September 30, 2021 compared to the

same period in 2020 was primarily due to an increase in the outstanding principal amount of our debt obligations.

Loss from Melt

the three and nine months ended September 30, 2021, we recorded a loss of $706,000 and $1,653,000, respectively, related to our share

of losses in Melt.

During the three and nine months ended September 30, 2020, we recorded a loss of $300,000 and $1,536,000, respectively,

for our share of losses based on our ownership of Melt.

Loss from Surface

the three and nine months ended September 30, 2021, we recorded a loss of $0 and $1,314,000, respectively, for our share of losses based

on our ownership of Surface.

During the three and nine months ended September 30, 2020, we recorded a loss of $756,000 and $1,694,000,

respectively, for our share of losses based on our ownership of Surface.

(Loss) Gain from Eton

recorded a loss of $2,220,000 and $8,639,000 related to the change in fair market value of Eton’s common stock and the sale of

a portion of our Eton stock during the three and nine months ended September 30, 2021, respectively.

We recorded a gain of $8,575,000

and $2,450,000 related to the change in fair market value of Eton’s common stock during the three and nine months ended September

30, 2020, respectively.

From Early Extinguishment of Loan

the nine months ended September 30, 2021, we recorded a loss from the early extinguishment of loan of $756,000 related to the early payoff

of the SWK Loan.

acquired in-process R&D and other costs related to the clinical development of our assets.

following presents our research and development expenses for the three months ended March 31, 2022 and 2021:

Three Months Ended

Research and development

the three months ended March 31, 2022, research and development expenses increased compared to the same period in 2021 primarily as a

result of increased costs associated with the clinical programs for AMP-100 and MAQ-100.

expense, net was $1,792,000 for the three months ended March 31, 2022 compared to $513,000 for the same period in 2021.

during the period ended March 31, 2022 compared to the same period in 2021 was primarily due to an increase in the outstanding principal

amount of our debt obligations.

in Losses from Unconsolidated Entities

the three months ended March 31, 2022, we recorded a loss of $2,886,000 related to our share of losses in Melt compared to $1,319,000

for the same period last year.

Gain (Loss) from Eton

recorded an unrealized gain of $139,000 related to the change in fair market value of Eton’s common stock during the three

months ended March 31, 2022.

We recorded an unrealized loss of $2,835,000 related to the change in fair market value of Eton’s

common stock for the three months ended March 31, 2021.

on Forgiveness of PPP Loan

the nine months ended September 30, 2021, we recorded gain on forgiveness of PPP loan of $1,967,000 related to the forgiveness of our

the three months ended March 31, 2021, we recorded gain on forgiveness of PPP (as defined below) loan of $1,967,000 related to the forgiveness

of our $1,967,000 loan received pursuant to the Paycheck Protection Program (“PPP”) under the Federal Coronavirus Aid, Relief,

and Economic Security Act.

(Loss) Income

following table presents our net (loss) income and per share net (loss) income for the three and nine months ended September 30, 2021

– net (loss) income attributable to Harrow Health, Inc.

following table presents our net (loss) income and per share net (loss) income for the three months ended March 31, 2022 and 2021:

Three Months Ended

Numerator – net (loss) income attributable to Harrow Health, Inc.

common stockholders

$ (2,438,000 )

$ (11,061,000 )

$ (4,506,000 )

Net (loss) income per share,

(loss) income per share, diluted

Information About Segments and Geographic Areas

evaluates performance of the Company based on operating segments.

Segment performance for our two operating segments are based on segment

contribution.

Our reportable segments consist of (i) our commercial stage pharmaceutical business ImprimisRx;

and (ii) the start-up operations

associated with our pharmaceutical drug development business (Pharmaceutical Drug Development).

Segment contribution for the segments

represents net revenues less cost of sales, research and development, selling and marketing expenses, and select general and administrative

We do not evaluate the following items at the segment level:

general and administrative expenses that result from shared infrastructure, including certain

expenses associated with litigation and other legal matters, public company costs (e.g.

relations), board of directors and principal executive officers, and other like shared expenses.

expenses within selling, general and administrative expenses that result from the impact

of corporate initiatives.

Corporate initiatives primarily include integration, restructuring,

acquisition and other shared costs.

select revenues and operating expenses including R&D expenses, amortization, and asset

sales and impairments, net as not all such information has been accounted for at the segment

level, or such information has not been used by all segments.

assets including capital expenditures.

Company defines segment net revenues as pharmaceutical compounded drug sales, licenses and other revenue derived from related agreements.

of sales within segment contribution includes direct and indirect costs to manufacture formulations and sell products, including active

pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing equipment and

tenant improvements depreciation, the write-off of obsolete inventory and other related expenses.

general and administrative expenses consist mainly of personnel-related costs, marketing and promotion costs, distribution costs, professional

service costs, insurance, depreciation, facilities costs, transaction costs, and professional services costs which are general in nature

and attributable to the segment.

Note 16 to our condensed consolidated financial statements included in this Quarterly Report for more information about our reportable

Net (loss) income per share, basic

Net (loss) income per share, diluted

and Capital Resources

cash on hand (including restricted cash) at September 30, 2021 was $57,856,000, compared to $4,301,000 at December 31, 2020.

of the date of this Quarterly Report, we believe that cash and cash equivalents of $57,656,000 and restricted cash of $200,000, totaling

approximately $57,856,000 at September 30, 2021, will be sufficient to sustain our planned level of operations and capital expenditures

for at least the next 12 months.

In addition, we may consider the sale of certain assets including, but not limited to, part of, or all

of, our ownership interest in Eton, Surface, Melt, and/or any of our consolidated subsidiaries.

However, we may pursue acquisitions of

pharmacies, revenue generating products, drug candidates or other strategic transactions that involve large expenditures or we may experience

growth more quickly or on a larger scale than we expect, any of which could result in the depletion of capital resources more rapidly

than anticipated and could require us to seek additional financing to support our operations.

cash on hand at March 31, 2022 was $41,948,000, compared to $42,167,000 at December 31, 2021.

of the date of this Quarterly Report, we believe that cash and cash equivalents of $41,948,000 at March 31, 2022 will be sufficient to

sustain our planned level of operations and capital expenditures for at least the next 12 months.

In addition, we may consider the sale

of certain assets including, but not limited to, part of, or all of, our investments in Eton, Surface, Melt, and/or any of our consolidated

subsidiaries.

However, we may pursue acquisitions of revenue generating products, drug candidates or other strategic transactions that

involve large expenditures or we may experience growth more quickly or on a larger scale than we expect, any of which could result in

the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing to support our operations.

expect to use our current cash position and funds generated from our operations and any financing to pursue our business plan, which

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following provides detailed information about our net cash flows:

Three Months Ended March 31,

Net cash provided by (used in):

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Investing activities

Financing activities

Net change in cash and cash equivalents

Cash, cash equivalents

and restricted cash at beginning of the period

Cash, cash equivalents

and restricted cash at end of the period

cash provided by operating activities during the nine months ended September 30, 2021 was $6,572,000 compared to net cash used in operating

activities of $534,000 during the same period in the prior year.

The increase in net cash provided by operating activities during the

periods was mainly attributed to the increase in revenues.

cash used in investing activities during the nine months ended September 30, 2021 was $4,489,000 compared to net cash used in investing

activities of $891,000, during the same period in the prior year.

Cash used in investing activities in 2021 was primarily associated

with cash payments made in connection with the Melt note receivable offset by cash received through the sale of a portion of our Eton

Common Stock.

Cash used in investing activities during the 2020 period was primarily associated with equipment and software purchases

Cash, cash equivalents and restricted cash at beginning of the period

Cash, cash equivalents and restricted cash at end of the period

cash provided by operating activities during the three months ended March 31, 2022 was $967,000 compared to $3,208,000 during the same

period in the prior year.

The decrease in net cash provided by operating activities during the periods was mainly attributed to an increase

in our accounts receivable amounts and decrease in our accounts payable and accrued liabilities balances.

cash used in investing activities during the three months ended March 31, 2022 was $410,000 compared to $224,000, during the same

period in the prior year.

Cash used in investing activities in 2022 and 2021 was primarily associated with equipment and software purchases

and upgrades along with investments in our intellectual property portfolio

cash provided by financing activities during the nine months ended September 30, 2021 and 2020 was $51,472,000 and $2,203,000, respectively.

Cash provided by financing activities during the nine months ended September 30, 2021 was primarily related to proceeds received from

the sale of Notes, net of the payment of all outstanding obligations to the Company’s previous senior lender, SWK Funding, LLC

and its partners.

cash used in financing activities during the three months ended March 31, 2022 and 2021 was $776,000 and $781,000, respectively.

Cash used in financing activities during the three months ended March 31, 2022 was primarily related to payment of taxes upon vesting

of RSUs and exercise of stock options and principal payments on loans outstanding during the same period in the prior year.

principal sources of cash consist of cash provided by operating activities from our ImprimisRx business, and recently, proceeds from

the sale of the Notes and sale of Eton Common Stock.

We may also sell some or all of our ownership interests in Surface, Melt or our

other subsidiaries, along with the some or all of the remaining portion of our Eton common stock.

the sale of senior notes and a portion of our Eton common stock.

We may also sell some or all of our ownership interests in Surface,

Melt or our subsidiaries, along with the some or all of the remaining portion of our Eton common stock.

changing trends and overall economic outlook in light of the COVID-19 pandemic, including the historic interim stay-at-home orders and

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis