What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-03-23 compared with 2022-03-10 · 582 added, 489 removed, 393 unchanged (73% of the section changed)

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 ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical businesses, and Visionology, Inc.

(“Visionology”), a direct-to-consumer eyecare subsidiary focused on chronic vision care.

In addition, we also have non-controlling

equity positions in Surface Ophthalmics, Inc.

are an ophthalmic-focused pharmaceutical company.

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 serve ophthalmologists and optometrists by providing FDA-approved branded ophthalmic pharmaceuticals

and innovative compounded prescription medicines that are accessible and affordable.

We own the U.S.

commercial rights to ten branded

ophthalmic pharmaceutical products, including IHEEZO TM , IOPIDINE® (both approved concentrations), MAXITROL® eye drops,

MOXEZA®, ILEVRO®, NEVANAC®, VIGAMOX®, MAXIDEX®, and TRIESENCE®.

We own and operate ImprimisRx, one of the nation’s

leading ophthalmology-focused pharmaceutical-compounding businesses, and our branded drugs are marketed under our Harrow name.

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.

both companies that began as subsidiaries of Harrow and were subsequently carved-out of our corporate structure and deconsolidated from

our financial statements.

We also own royalty rights in certain drug candidates being developed by Surface and Melt.

is our ophthalmology-focused pharmaceutical compounding businesses.

From its inception in 2014, ImprimisRx, whose business consists of

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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.

eyecare-dedicated prescribers and institutions.

Our current ophthalmology formulary includes over 20 compounded formulations, many of

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

Initially, ImprimisRx focused

exclusively on compounded medications to serve needs unmet by commercially available drugs.

Our compounded medications include various

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Food and Drug Administration (the “FDA”), in our FDA-registered New Jersey outsourcing facility.

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®

(“Dexycu”) and Avenova, the acquisition of two later stage drug candidates, and the recent acquisition of U.S.

to four FDA-approved ophthalmic products.

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 enable us 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.

Our current ophthalmology formulary includes over 30 compounded formulations, many of which are patented or patent-pending, that are

customizable for the specific needs of a patient.

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.

eyecare-dedicated prescribers and institutions.

Pharmaceuticals and Drug Candidates

the past three years, in order to more fully serve the needs of our growing customer base, we have invested in broadening our product

portfolio to include FDA-approved products.

Our investments in this regard have led to the pursuit and completion of several announced

transactions, and others we are continuing to pursue, all of which are focused on 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.

NEVANAC®, VIGAMOX®, MAXIDEX®, TRIESENCE®

December 2022, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Novartis Technology, LLC and Novartis

Innovative Therapies AG (together, “Novartis”), pursuant to which the Company agreed to purchase from Novartis the exclusive

commercial rights to assets associated with the following ophthalmic products (collectively the “Fab 5 Products”) in the

(the “Fab 5 Acquisition”):

(nepafenac ophthalmic suspension) 0.3%, a non-steroidal, anti-inflammatory eye drop indicated for pain and inflammation associated

with cataract surgery.

(nepafenac ophthalmic suspension) 0.1%, a non-steroidal, anti-inflammatory eye drop indicated for pain and inflammation associated

with cataract surgery.

(moxifloxacin hydrochloride ophthalmic solution) 0.5%, a fluoroquinolone antibiotic eye drop for the treatment of bacterial conjunctivitis

caused by susceptible strains of organisms.

(dexamethasone ophthalmic suspension) 0.1%, a steroid eye drop for steroid-responsive inflammatory conditions of the palpebral and

bulbar conjunctiva, cornea, and anterior segment of the globe.

(triamcinolone acetonide injectable suspension) 40 mg/ml, a steroid injection for the treatment of certain ophthalmic diseases and

for visualization during vitrectomy.

closed the Fab 5 Acquisition on January 20, 2023.

Under the terms of the Purchase Agreement, we made a one-time payment of $130,000,000

at closing, with up to another $45,000,000 due in a milestone payment related to the timing of the commercial availability of TRIESENCE.

Pursuant to the Purchase Agreement and various ancillary agreements, immediately following the closing and subject to certain conditions,

for a period that we expect to last approximately six months, and prior to the transfer of the Fab 5 Products new drug applications (the

“NDAs”) to us, Novartis will continue to sell the Fab 5 Products on our behalf and transfer the net profit from the sale

of the Fab 5 Products to us.

Novartis has agreed to supply certain Fab 5 Products to the Company for a period of time after the NDAs

are transferred to us and to assist with technology transfer of the Fab 5 Products manufacturing to other third-party manufacturers,

MAXITROL® EYE DROPS, MOXEZA®

December 2021, we entered into an Asset Purchase Agreement (the “NVS Agreement”) with Novartis Technology, LLC and Novartis

Ophthalmics AG (together, “NVS”), pursuant to which we acquired U.S.

December 2021, we acquired U.S.

commercial rights to four FDA-approved ophthalmic medicines:

1% (apraclonidine hydrochloride) is indicated to control or prevent post-surgical elevations in intraocular pressure (IOP) that occur

in patients after argon laser trabeculoplasty, argon laser iriodotomy or Nd:YAG posterior capsulotomy;

0.5% (apraclonidine hydrochloride) is for short-term adjunctive therapy in patients on maximally tolerated medical therapy

who require additional IOP reduction;

(neomycin/polymyxin B/dexamethasone) is an eye drop used to treat steroid-responsive inflammatory ocular conditions where bacterial

infection or a risk of bacterial ocular infection exists;

0.5% (moxifloxacin hydrochloride) is a topical fluoroquinolone anti-infective eye drop used to treat bacterial conjunctivitis.

to the NVS Agreement, NVS will continue to sell the products and transfer the net profit to us for a transitional period of approximately

six months after the date of execution.

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

and commercialize the products for the U.S.

believe by expanding our product portfolio to include these branded FDA-approved products, we will be 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.

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

and Canada from Sintetica S.A.

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 commercial 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 transition period with the seller, which lasted six months following

the closing of the transaction.

During the transition period, the seller continued to sell the products and transferred the net profit

from those sales to us.

Following the transition period which ended in June 2022, we made IOPIDINE 1% and MAXITROL commercially available,

and expect to re-launch MOXEZA at a later date.

July 2021, we acquired the exclusive U.S.

and Canadian marketing and supply rights to IHEEZO (chloroprocaine hydrochloride ophthalmic

gel) 3% 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 were evaluated 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 generally well tolerated, and the most common adverse event was mydriasis (dilation of pupil) in about 20% of patients,;

has similar onset of action and met the primary endpoint of a Phase 3 non-inferiority study comparing AMP-100 to

an active control (Phase 3);

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

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

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

no wide variance).

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.

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

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.

The FDA approved IHEEZO for ocular surface anesthesia in September 2022.

is protected by an Orange Book-listed patent that is valid until 2038.

We expect to commercially launch IHEEZO in the U.S.

market during

expect our commercial focus of IHEEZO to be on ophthalmic procedures that traditionally require the eye to be anesthetized, including

intravitreal injections and lens replacement procedures, which in aggregate we estimate to be over 11 million instances annually in the

(see also subheading “ Ophthalmology Market” ).

is protected by one issued, Orange Book listed patent and another patent-pending.

The issued patent includes composition of matter and

method of use claims and could provide protection for IHEEZO into 2037.

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

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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.

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

with eyecare professionals across the United States.

We recently launched a proof-of-concept model for Visionology within certain U.S.

markets, and if successful, expect to expand the launch on a nationwide basis in 2022.

We are currently working with Wakamoto to assess a clinical pathway for MaQaid.

are currently evaluating several programs to internally develop product candidates based on technology and know-how we own.

We also expect

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

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

Ophthalmology

any ocular procedure, a surgeon may require drugs for sedation, dilation, inflammation and infection prevention, and ocular surface preservation.

any ocular procedure, a surgeon may require drugs for sedation, dilation, anesthesia, inflammation and infection prevention, and ocular

surface preservation.

The cataract surgery market continues to experience significant growth.

According to Market Scope , approximately 4.2 million cataract

surgeries were performed in the U.S.

The National Eye Institute estimates that over 24 million Americans currently have cataracts

and that this number will grow to 38 million by 2030 and reach more than 50 million by 2050.

In addition, the American Academy of Ophthalmology

(AAO) estimates that over one-half of Americans require some form of vision correction and 43 million of these individuals are candidates

for refractive surgery.

Nearly 96 percent of the refractive surgery procedures performed are LASIK (laser in situ keratomileusis) surgeries,

an outpatient surgical procedure used to treat nearsightedness, farsightedness, and astigmatism.

According to Statista, an estimated

600,000 LASIK procedures were performed in the U.S.

to the Glaucoma Research Foundation, there are over 3 million Americans with glaucoma but only half are aware they have it.

glaucoma (the most common type of glaucoma) is a condition of increased intraocular pressure that causes gradual loss of sight.

is incurable, and if not managed, can lead to blindness.

Generally, the first line of treatment consists of a prostaglandin analogue

(PGA) eye drop regimen.

As the disease progresses, non-PGA products are generally added as a second line treatment.

Topical agents, other

than PGAs, include beta blockers, alpha agonists, miotics and steroids.

According to a 2013 article in Glaucoma Today , up to 50%

of glaucoma patients require more than one drug following a few months of initial treatment and there is a direct correlation between

the number of glaucoma bottles and decreased adherence;

however, the FDA has yet to approve a PGA combination product despite combination

products including a PGA (Xalacom ® , DuoTrav ® and Ganfort ® ) available outside of the U.S.

According to a 2017 Market Scope report, the glaucoma pharmaceuticals market is expected to reach $5.3 billion in 2022.

According to Market Scope , approximately

4.8 million lens procedures were performed in the U.S.

in 2021, 97% of those procedures for cataracts, with the number expected to grow

to 5.5 million lens procedures in 2026.

Nearly 96% of the refractive surgery procedures performed are LASIK (laser in situ keratomileusis)

surgeries, an outpatient surgical procedure used to treat nearsightedness, farsightedness, and astigmatism.

According to an article published

in 2021 in Clinical Ophthalmology , an estimated 800,000 eyes have been treated with laser correction surgery (such as LASIK) each

year for the last 10 years.

injections are one of the most common procedures performed by ophthalmologists in the United States.

According to a 2023 article

published in Healio , approximately 8 million intravitreal injections are expected to be performed this year.

These injections

are utilized to administer critical medications into the eye that treat diseases including but not limited to:

proliferative

diabetic retinopathy, diabetic macular edema, wet age-related macular degeneration, neovascular glaucoma, retinal vein occlusions,

intraocular tumors, and endophthalmitis.

In addition, products and product candidates are being developed and used to treat symptoms

associated with an eye disease known as geographic atrophy.

Most of the medicines in these products and product candidates are

administered via intravitreal injection.

Therefore, we believe as these products and product candidates gain commercial adoption,

the number of annual intravitreal injections should increase further and at an increased rate as compared to recent

is a surgical procedure undertaken by a specialist where the vitreous humor gel that fills the eye cavity is removed to provide

better access to the retina.

This allows for a variety of repairs, including the removal of scar tissue, laser repair of retinal

detachments and treatment of macular holes.

According to an October 2022 article on the Cleveland Clinic website,

surgeons perform about 225,000 vitrectomies each year.

The number is likely to continue to grow as eye care providers find more

uses for vitrectomy.

non-infectious uveitis affecting the posterior segment of the eye is an inflammatory disease that afflicts people of all ages, producing

swelling and destroying eye tissues, which can lead to severe vision loss and blindness.

We estimate this disease affects approximately

100,000 people each year in the U.S.

and causes approximately 30,000 new cases of blindness every year.

The standard of care treatment

for this disease typically involves the use of short-acting corticosteroids to reduce uveitic flares (such as TRIESENCE) followed by

additional treatments of sustained release, lower dose steroids to minimize the risk of further flares.

to the Glaucoma Research Foundation, there are over 3 million Americans experiencing glaucoma, and that only half of this population

are aware of their condition.

Open-angle glaucoma (the most common type of glaucoma) is a condition of increased intraocular

pressure that causes gradual loss of sight.

Glaucoma is incurable, and if not managed, can lead to blindness.

Generally, the first

line of treatment consists of a prostaglandin analog (PGA) eye drop regimen.

As the disease progresses, non-PGA products are

generally added as a second-line treatment.

Topical agents, other than PGAs, include beta blockers, alpha agonists, miotics, and

According to a 2013 article in Glaucoma Today , up to 50% of glaucoma patients require more than one drug following

a few months of initial treatment and there is a direct correlation between the number of glaucoma bottles and decreased adherence;

however, the FDA has yet to approve a PGA combination product despite that combination products including a PGA

(Xalacom ® , DuoTrav ® and Ganfort ® ) are available outside of the U.S.

According to a 2023 Market

Scope report, the global glaucoma pharmaceuticals market was expected to be $4.3 billion in 2022.

eye occurs when the eye does not produce enough tears, or when the tears are not of the correct consistency and evaporate too quickly.

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According to a 2022 Market Scope

report, the global dry eye treatments market is expected to grow from $3.7 billion in 2017 to $4.9 billion in 2022.

report, the global dry eye product market was expected to grow from $5.7 billion in 2022 to $7.0 billion in 2027.

Dry eye is among

the most common conditions seen by eyecare professionals.

is the normal loss of near focusing ability that occurs with age.

Most people begin to notice the effects of presbyopia sometime after

age 40, when they start having trouble seeing small print clearly.

According to an American Academy of Ophthalmology report from

2018, there are an estimated 1.8 billion people worldwide who suffer from presbyopia, with eye glasses (more commonly referred to as

“readers”) being the most common treatment option.

Based on our understanding, there are currently four eyedrops undergoing

clinical trials/development in the U.S.

aiming to be first to market topical eye drops to treat the symptoms associated with presbyopia.

We believe most of these are designed to enhance depth of field via a “pinhole effect” and in one case to reduce lens stiffening;

and some of these medications could be synergistic with each other or combined with refractive surgery to enhance outcomes.

as of the date of this Annual Report, none of these drug candidates has received market approval from the FDA.

Pharmaceutical

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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 select markets outside the United States.

majority of our sales revenue in 2021 and 2022 was derived from making, selling and dispensing our compounded prescription drug formulations

as cash payment transactions between us and our end-user customer.

As such, the majority of our commercial transactions did not involve

distributors, wholesalers, insurance companies, pharmacy benefit managers or other middle parties.

In regard to our compounded formulations,

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 compounding 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.

Compounding Facilities

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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.

All of our compounded

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

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

Businesses (De-Consolidated Businesses)

Subsidiaries (De-Consolidated Businesses)

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

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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 NDA where

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

Noncontrolling

Equity Interests

Ophthalmics, Inc.

is a clinical-stage pharmaceutical company focused on development and commercialization of innovative therapeutics for ocular surface

January 2021, Surface announced positive top-line results from a Phase 2 trial of its drug candidate SURF-201, a 0.2% betamethasone,

preservative-free ophthalmic solution in the Klarity delivery vehicle for the treatment of post cataract surgery pain and inflammation.

According to the Surface results, SURF-201 was dosed twice daily, met its primary endpoints of absence of inflammation at both Day 8

and Day 15 and was found to be safe and well-tolerated by the patient group.

In addition, a secondary endpoint showed almost 90% of patients

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

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.

At that time, we lost our controlling interest and deconsolidated Surface

from our consolidated financial statements.

During May, June and July of 2021, Surface closed an offering of its preferred stock at a

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 is approximately 20% of the equity and voting interests as of December 31, 2021.

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

Pharmaceuticals, Inc.

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and anesthesia therapeutics for human medical procedures in hospital, outpatient, and in-office settings.

Melt intends to seek regulatory

Melt is seeking regulatory

approval for its proprietary technologies, where possible.

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is a novel, sublingually delivered, non-IV, opioid-free drug candidate being developed for procedural sedation.

Melt filed an investigational

new drug application (“IND”) with the FDA in June 2020 and began its clinical program for MELT-300.

In February 2021, Melt

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.

In December 2022, Melt announced topline data from its Phase

2 study for MELT-300:

a study of more than 300 patients, at 9 study sites, all undergoing cataract surgery, MELT-300 achieved its primary procedural sedation

endpoint, demonstrating statistical superiority for procedural sedation compared to all comparator treatment arms, including midazolam

3mg (P=0.0129) and ketamine 50mg (P=0.0096).

the validated Ramsey Sedation Scale (RSS), MELT-300 treatment arm patients were 50% less likely to require rescue sedation compared

to midazolam 3mg (P=0.0198).

the RSS, MELT-300 treatment arm patients were 66% less likely to require rescue sedation pre-operatively compared to the midazolam

3mg treatment arm.

safety profile was generally comparable to the placebo arm.

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 as of December

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 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

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

If approved, we do not expect a cessation of compounding like products to have a material impact on our operations and financial

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

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

In September 2021, we provided Melt with a senior secured

loan with a principal amount of $13,500,000, which was used to fund the Phase 2 program of MELT-300.

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.

Ophthalmics, Inc.

is a clinical-stage pharmaceutical company focused on development and commercialization of innovative therapeutics for ocular surface

for Chronic Dry Eye Disease:

Surface completed its 350-patient Phase 2 clinical trial, comparing five active arms of SURF-100

study drugs with the current market-leading prescription chronic dry eye treatments.

According to Surface, the SURF-100 Phase 2 clinical

trial achieved superiority for both signs and symptoms of chronic dry eye disease compared to market leading incumbents, as well

as generating positive data on onset and duration of action.

for Acute Dry Eye :

Surface has completed enrollment of its Phase 2 clinical trial for SURF-200 and expects to announce top-line

results in 2023.

for Pain and Inflammation Following Ocular Surgery :

According to the Surface results, SURF-201 was dosed twice daily, met its

primary endpoints of absence of inflammation at both Day 8 and Day 15 and was found to be safe and well-tolerated by the patient

In addition, a secondary endpoint showed almost 90% of patients given SURF-201 were pain free at Day 15.

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

At that time, we lost our controlling interest and deconsolidated Surface

from our consolidated financial statements.

During May, June and July of 2021, Surface closed an offering of its preferred stock at a

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 Surface’s equity and voting interests as of December

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

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, as a result of which we gave up our controlling interest in it.

In November 2018, Eton completed an

initial public offering of its common stock.

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

and voting interests issued and outstanding as of December 31, 2021.

is an innovative pharmaceutical company focused on developing, acquiring, and commercializing treatments for rare diseases.

Eton currently

commercializes ALKINDI SPRINKLE® and Carglumic Acid tablets and has additional rare disease products under development, including

dehydrated alcohol injection and the ZENEO® hydrocortisone autoinjector.

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

We own 1,982,000 shares of Eton common stock, which represented less than 10% of Eton’s equity and voting interests issued and

outstanding as of December 31, 2022.

and Marketing

4 unchanged sentences

markets, including Canada.

Our sales and marketing efforts

are currently organized into two teams, the larger of which focuses on our ophthalmology pharmaceutical business and the other on our

non-ophthalmology pharmaceutical compounding business.

Our sales and marketing activities consist primarily of efforts to educate doctors,

ambulatory surgery centers, healthcare systems, hospitals and other users throughout the U.S.

about our compounded formulations.

that we may experience growth in the sales of our proprietary pharmaceutical compounded formulations in future periods, particularly

in light of our current and planned launches of new formulations and commercialization campaigns.

However, we may not be successful in

doing so, whether due to the safety, quality or availability of our proprietary compounded formulations, the size of the markets for

such formulations, which could be smaller than we expect, the timing of market entry relative to competitive products, the availability

of alternative compounded formulations or FDA-approved drugs, the price of our compounded formulations relative to alternative products

or the success of our sales and marketing efforts, which is dependent on our ability to build and grow a qualified and adequate internal

sales function.

expect to continue to acquire and/or develop additional FDA-approved ophthalmic drugs that allow us to leverage the commercial infrastructure

of ImprimisRx to promote, sell, and ultimately bring these products to market.

As we execute this strategy, we will likely expand our

sales and marketing team, expertise and expenses.

This would include the addition of market access expertise and team members, where

roles include discussions with payors regarding the costs and benefits of our products for their members, assisting with the addition

of our products to the medical policy of payors, and providing the market with assistance regarding reimbursement queries.

have entered into various sales and marketing agreements with certain organizations to provide exclusive sales and marketing representation

services to ImprimisRx in select geographies in the U.S., in connection with our pharmaceutical products and compounded formulations.

Under the terms of the sales and marketing agreements, we are required to make commission payments, generally equal to 10% to 14% of

net sales for products above and beyond the initial existing sales amounts.

In addition, we are required to make periodic milestone payments

to certain organizations in shares of our restricted common stock if net sales in the assigned territory reach certain future levels

by the end of their terms, as applicable.

We believe these sales and marketing agreements will continue to accelerate launches of our

new ophthalmology programs and limit our initial capital requirements commonly associated with new product launches and increased sizes

of sales forces.

Our sales and marketing activities

consist primarily of efforts to educate doctors, ambulatory surgery centers, healthcare systems, hospitals and other users throughout

about our branded drug products and compounded formulations.

We expect that we may experience growth in the sales of our products

in future periods, particularly in light of our current and planned launches of new formulations and commercialization campaigns.

we may not be successful in doing so, whether due to the safety, quality or availability of our proprietary compounded formulations,

the size of the markets for such formulations, which could be smaller than we expect, the timing of market entry relative to competitive

products, the availability of alternative compounded formulations or FDA-approved drugs, the price of our compounded formulations relative

to alternative products or the success of our sales and marketing efforts, which is dependent on our ability to build and grow a qualified

and adequate internal sales function.

expect to continue to acquire and/or develop additional FDA-approved ophthalmic drugs that allow us to leverage our existing commercial

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

As we execute this strategy, we will continue to expand

our sales and marketing team, expertise and expenses.

This includes the addition of market access expertise and team members, where roles

include discussions with payors regarding the costs and benefits of our products for their members, assisting with the addition of our

products to the medical policy of payors, and providing the market with assistance regarding reimbursement queries.

the past, we entered into various sales and marketing agreements with certain organizations to provide exclusive sales and marketing

representation services in select geographies in the U.S., in connection with our pharmaceutical products and compounded formulations.

Under the terms of the sales and marketing agreements, we are required to make commission payments, generally equal to a certain percentage

of net sales for products above and beyond the initial existing sales amounts.

At the end of 2022, we began to end many of these arrangements

and we plan to replace these arrangements with and invest in a traditional salaried salesforce over time.

pharmaceutical and pharmacy industries are highly competitive.

We compete against branded drug companies, generic drug companies, outsourcing

facilities and other compounding pharmacies.

We are significantly smaller than some of our competitors, and we may lack the financial

and other resources needed to develop, produce, distribute, market and commercialize any of our proprietary formulations or compete for

market share in these sectors.

The drug products available through branded and generic drug companies with which our formulations compete

have been approved for marketing and sale by the FDA and are required to be manufactured in facilities compliant with cGMP standards.

Although we prepare some of our compounded formulations in accordance with cGMP standards and our other formulations are produced according

to the standards provided by United States Pharmacopoeia (USP) <795> and USP <797> and applicable state and federal law,

our proprietary compounded formulations are not required to be, and have not been, approved for marketing and sale by the FDA.

some physicians may be unwilling to prescribe, and some patients may be unwilling to use, our formulations.

Additionally, under federal

and state laws applicable to our current compounding pharmacy operations operating under Section 503A of the FDCA, we are not permitted

to prepare significant amounts of a specific formulation in advance of a prescription, compound quantities for office use or utilize

a wholesaler for distribution of our formulations;

instead, our compounded formulations must be prepared and dispensed in connection

with a physician prescription for an individually identified patient.

Pharmaceutical companies, on the other hand, are able to sell their

FDA-approved products to large pharmaceutical wholesalers, who can in turn sell to and supply hospitals and retail pharmacies.

we have registered NJOF with the FDA, our business may not be scalable on the scope available to our competitors that produce FDA-approved

drugs, which may limit our potential for profitable operations.

These facets of our operations may subject our business to limitations

our competitors offering FDA-approved drugs may not face.

facilities and compounding pharmacies.

We are smaller than some of our competitors, and we may lack the financial and other resources

needed to develop, produce, distribute, market and commercialize any of our branded products and proprietary formulations or compete

for market share in these sectors.

The drug products available through branded and generic drug companies with which our products and

formulations compete have been approved for marketing and sale by the FDA and are required to be manufactured in facilities compliant

with cGMP standards.

Although we prepare some of our compounded formulations in accordance with cGMP standards and our other formulations

are produced according to the standards provided by United States Pharmacopoeia (USP) <795> and USP <797> and applicable

state and federal law, our compounded formulations are not required to be, and have not been, approved for marketing and sale by the

As a result, some physicians may be unwilling to prescribe, and some patients may be unwilling to use, our compounded formulations.

Additionally, under federal and state laws applicable to our current compounding pharmacy operations operating under Section 503A of

the FDCA, we are not permitted to prepare significant amounts of a specific formulation in advance of a prescription, compound quantities

for office use or utilize a wholesaler for distribution of our formulations;

instead, our compounded formulations must be prepared and

dispensed in connection with a physician prescription for an individually identified patient.

Pharmaceutical companies, on the other

hand, are able to sell their FDA-approved products to large pharmaceutical wholesalers, who can in turn sell to and supply hospitals

and retail pharmacies.

Even though we have registered NJOF with the FDA, our compounding business may not be scalable on the scope available

to our competitors that produce FDA-approved drugs, which may limit our potential for profitable operations.

These facets of our operations

may subject our business to limitations our competitors offering only FDA-approved drugs may not face.

Biotechnology

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See “Liquidity and Capital Resources” below.

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 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, 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 the ASC setting can qualify for ongoing separate payment.

CMS’ current non-opioid

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

that CMS will continue its separate payment policy for non-opioid pain management surgical drugs, which has been in effect since 2019.

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, 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, in some cases, by refusing 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 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 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

Medicaid and Other Reimbursement Options

in the United States of our marketed products are dependent, in large part, on the availability and extent of reimbursement from third-party

payors, including private payor healthcare and insurance programs, health maintenance organizations, pharmacy benefit management companies,

and government programs such as Medicare and Medicaid, see also Part I, Item 1A.

“Risk Factors” for additional risks related

to reimbursement and government programs.

participate in, and have certain price reporting obligations to, the Medicaid Drug Rebate program, state Medicaid supplemental rebate

program(s), and other governmental pricing programs.

We also have obligations to report the average sales price for certain drugs to

the Medicare program.

Under the Medicaid Drug Rebate program, we are required to pay a rebate to each state Medicaid program for our

covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having

federal funds being made available for our drugs under Medicaid and Part B of the Medicare program.

is a federal program that is administered by the federal government that covers individuals age 65 and over or that are disabled as well

as those with certain health conditions.

Medicare Part B generally covers drugs that must be administered by physicians or other health

care practitioners;

are provided in connection with certain durable medical equipment;

or are certain oral anti-cancer drugs and certain

oral immunosuppressive drugs.

Medicare Part B pays for such drugs under a payment methodology based on the average sales price of the

Manufacturers, including us, are required to report average sales price information to the Centers for Medicare & Medicaid

Services (“CMS”) on a quarterly basis.

The manufacturer-submitted information may be used by CMS to calculate Medicare payment

Starting in 2023, manufacturers must pay refunds to Medicare for single-source drugs or biological products, or biosimilar biological

products, reimbursed under Medicare Part B and packaged in single-dose containers or single-use packages for units of discarded drug

reimbursed by Medicare Part B in excess of 10% of total allowed charges under Medicare Part B for that drug.

Manufacturers that fail

to pay refunds could be subject to civil monetary penalties.

Further, starting in 2023, the Inflation Reduction Act of 2022 (“IRA”)

establishes a Medicare Part B inflation rebate scheme under which, generally speaking, manufacturers will owe rebates if the average

sales price of a Part B drug increases faster than the pace of inflation.

Failure to timely pay a Part B inflation rebate is subject

to a civil monetary penalty.

IRA also creates a drug price negotiation program under which, after being on the market for a certain period of time, the prices for

certain high Medicare spending drugs and biological products provided to Medicare patients without generic or biosimilar competition

will be capped by reference to, among other things, a specified non-federal average manufacturer price, starting in 2026.

comply with requirements under the drug price negotiation program is subject to an excise tax and a civil monetary penalty.

other legislative change could impact the market conditions for our products.

and TRIESENCE are covered under Medicare Part B and we may develop other drug candidates and/or acquire drug products that are also covered

under Medicare Part B.

In February 2023, we announced that CMS had issued a permanent, product specific J-code for IHEEZO (J2403) which

will become effective under the Healthcare Procedure Coding System (HCPCS) on April 1, 2023.

TRIESENCE has a permanent product specific

J-code (J3301) as well, which physicians can use for reimbursement purposes of that product.

New drugs 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

Under current regulations of CMS, pass-through status applies for a period of three years;

which is measured from the date Medicare

makes its first pass-through payment for the product.

Following the three-year period, the product would be incorporated into the cataract

bundled payment system, which could significantly reduce the pricing for that product.

Temporary pass-through reimbursement for IHEEZO

was awarded by CMS and will be made effective in the second quarter of 2023.

Following the 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 payments.

CMS’ current 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 since 2019.

July of 2022, CMS issued its Proposed CY 2023 Payment Rule for Hospital Outpatient Services and ASCs.

Based on the summary in the proposed

rule, DEXYCU, a product we previously promoted through a commercial alliance agreement with EyePoint Pharmaceuticals, Inc.

qualified as a separately payable product in an ASC or outpatient setting and instead is now bundled into the general cataract procedure

code effective January 1, 2023.

is a joint federal and state program that is administered by the states for low-income and disabled beneficiaries.

Medicaid rebates are

based on pricing data reported by us on a monthly and quarterly basis to CMS, the federal agency that administers the Medicaid and Medicare

These data include the average manufacturer price and, in the case of innovator products, the best price for each drug which,

in general, represents the lowest price available from the manufacturer to any entity in the U.S.

in any pricing structure, calculated

to include all sales and associated rebates, discounts, and other price concessions.

The amount of the rebate is adjusted upward if the

average manufacturer price increases at a faster rate than inflation (measured by reference to the Consumer Price Index – Urban).

Currently, the rebate is capped at 100% of the average manufacturer price, but effective January 1, 2024, this cap on the rebate will

be removed, and our rebate liability could increase accordingly.

we become aware that our reporting for a prior quarter was incorrect, or has changed as a result of recalculation of the pricing data,

we are obligated to resubmit the corrected data for up to three years after those data originally were due, which revisions could affect

our rebate liability for prior quarters.

The federal Patient Protection and Affordable Care Act (the “PPACA”) made significant

changes to the Medicaid Drug Rebate program, and CMS issued a final regulation, which became effective on April 1, 2016, to implement

the changes to the Medicaid Drug Rebate program under the PPACA.

Effective in 2022, CMS modified Medicaid Drug Rebate program regulations

to, among other things, permit reporting multiple best price figures with regard to value-based purchasing arrangements and provide definitions

for “line extension,” “new formulation,” and related terms with the practical effect of expanding the scope of

drugs considered to be line extensions.

monetary penalties can be applied if we are found to have knowingly submitted any false pricing or other information to the government,

if we are found to have made a misrepresentation in the reporting of our average sales price, or if we fail to submit the required data

on a timely basis.

Such conduct also could be grounds for CMS to terminate our Medicaid drug rebate agreement, in which case federal

payments may not be available under Medicaid or Medicare Part B for our covered outpatient drugs.

law requires that any company that participates in the Medicaid Drug Rebate program also participate in the Public Health Service’s

340B drug pricing program (the “340B program”) in order for federal funds to be available for the manufacturer’s drugs

under Medicaid and Medicare Part B.

The 340B program, which is administered by the Health Resources and Services Administration (“HRSA”),

requires participating manufacturers to agree to charge statutorily defined covered entities no more than the 340B “ceiling price”

for the manufacturer’s covered outpatient drugs.

Covered entities include hospitals that serve a disproportionate share of financially

needy patients, community health clinics, and other entities that receive certain types of grants under the Public Health Service Act.

The PPACA expanded the list of covered entities to include certain free-standing cancer hospitals, critical access hospitals, rural referral

centers, and sole community hospitals, but exempts “orphan drugs” from the ceiling price requirements for these covered entities.

The 340B ceiling price is calculated using a statutory formula, which is based on the average manufacturer price and Medicaid rebate

amount for the covered outpatient drug as calculated under the Medicaid Drug Rebate program.

In general, products subject to Medicaid

price reporting and rebate liability are also subject to the 340B ceiling price calculation and discount requirement.

issued a final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers

that knowingly and intentionally overcharge covered entities, which became effective on January 1, 2019.

It is currently unclear how

HRSA will apply its enforcement authority under this regulation.

Any charge by HRSA that we have violated the requirements of the regulation

could result in civil monetary penalties.

Moreover, under a final regulation effective January 13, 2021, HRSA established a new administrative

dispute resolution (“ADR”) process for claims by covered entities that a manufacturer has engaged in overcharging, and by

manufacturers that a covered entity violated the prohibitions against diversion or duplicate discounts.

Such claims are to be resolved

through an ADR panel of government officials rendering a decision that could be appealed only in federal court.

An ADR proceeding could

subject us to onerous procedural requirements and could result in additional liability.

On November 30, 2022, HRSA issued a notice of

proposed rulemaking that proposes several changes to the ADR process.

HRSA also implemented a price reporting system under which we are

required to report our 340B ceiling prices to HRSA on a quarterly basis, which then publishes those prices to 340B covered entities.

In addition, legislation could be passed that would further expand the 340B program to additional covered entities or would require participating

manufacturers to agree to provide 340B discounted pricing on drugs used in an inpatient setting.

order to be eligible to have our products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by

certain federal agencies and grantees, we participate in the U.S.

Department of Veterans Affairs (“VA”) Federal Supply Schedule

(“FSS”) pricing program.

FSS participation is required for our products to be purchased by the VA, Department of Defense

(“DoD”), Coast Guard, and Public Health Service (“PHS”).

Prices for innovator drugs purchased by the VA, DoD,

Coast Guard, and PHS are subject to a cap (known as the “Federal Ceiling Price”) equal to 76% of the annual non-federal average

manufacturer price (“non-FAMP”) minus, if applicable, an additional discount.

The additional discount applies if non-FAMP

increases more than inflation (measured by reference to the Consumer Price Index - Urban).

We also participate in the Tricare Retail

Pharmacy Program, under which we pay quarterly rebates to DoD for prescriptions of our innovator drugs dispensed to Tricare beneficiaries

through Tricare Retail network pharmacies.

The governing statute provides for civil monetary penalties for failure to provide information

timely or for knowingly submitting false information to the government.

Part D provides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that are not administered by a physician).

Medicare Part D is administered by private prescription drug plans approved by the U.S.

government and, subject to detailed program rules

and government oversight, each drug plan establishes its own Medicare Part D formulary for prescription drug coverage and pricing, which

the drug plan may modify from time to time.

The prescription drug plans negotiate pricing with manufacturers and pharmacies, and may

condition formulary placement on the availability of manufacturer discounts.

In addition, manufacturers, including us, are required to

provide to CMS a 70% discount on brand name prescription drugs utilized by Medicare Part D beneficiaries when those beneficiaries are

in the coverage gap phase of the Part D benefit design.

The IRA includes a sunset provision with respect to the coverage gap discount

program starting in 2025 and replaces it with a new manufacturer discount program.

In addition, as of October 2022, the IRA established

a Medicare Part D inflation rebate scheme under which, manufacturers will generally owe additional rebates if the average manufacturer

price of a Part D drug increases faster than the pace of inflation.

Failure to timely pay a Part D inflation rebate is subject to a civil

monetary penalty.

payor healthcare and insurance providers, health maintenance organizations, and pharmacy benefit managers in the United States are adopting

more aggressive utilization management techniques and are increasingly requiring significant discounts and rebates from manufacturers

as a condition to including products on formulary with favorable coverage and copayment/coinsurance.

These payors may not cover or adequately

reimburse for use of our products or may do so at levels that disadvantage them relative to competitive products.

proprietary ophthalmic compounded formulations are primarily available on a cash-pay basis and generally are not subject to Medicare,

Medicaid, or other payor-related initiatives.

success and ability to compete depends upon our ability to protect our intellectual property.

1 unchanged sentence

property landscape prior to acquiring rights to formulations and filing patent applications.

In addition, as of March 1, 2022,

we owned and/or licensed 117 total issued and pending patent applications, which includes 18 U.S.

issued patents, 11

international issued patents, and 88 U.S.

In addition, as of March 15, 2023, we owned

and/or licensed more than 50 total issued and pending patent applications, which include U.S.-issued patents, international-issued patents,

and foreign/international patent pending applications.

We expect to file additional

patent applications in the U.S.

and pursue patent protection for certain of our formulations in other important international jurisdictions

in the future.

of March 1, 2022, we had, on a worldwide basis, 162 issued trademarks, pending trademark and copyright applications, or

registered copyright and/or trademarks including, but not limited to:

Imprimis ® , ImprimisRx ® , Harrow Health ® ,

Dropless ® , LessDrops ® , Dropless Cataract Surgery ® , Dropless Cataract Therapy ® ,

Dropless Therapy ® , MKO Melt ® , and Simple Drops ® .

We may choose to pursue trademark protection

in other jurisdictions for any one or more of these or other marks in the future.

also rely on unpatented trade secrets and know-how and continuing technological innovation in order to develop our formulations, which

we seek to protect, in part, by confidentiality agreements with our employees, consultants, collaborators and others, including certain

service providers.

We also have invention or patent assignment agreements with our current employees and certain consultants.

our employees and consultants may breach these agreements, and we may not have adequate remedies for any breach, or our trade secrets

may otherwise become known or be independently discovered by competitors.

In addition, inventions relevant to us could be developed by

a person not bound by an invention assignment agreement with us, in which case we may have no rights to use the applicable invention.

We expect to file additional patent applications in the U.S.

patent protection for certain of our formulations in other important international jurisdictions in the future.

of March 15, 2023, we had, on a worldwide basis, more than 100 issued trademarks, pending trademark and copyright applications, or

registered copyright and/or trademarks including, but not limited to IHEEZO™, Imprimis®, ImprimisRx®, Harrow

Health®, Dropless®, LessDrops®, Dropless Cataract Surgery®, Dropless Cataract Therapy®, Dropless Therapy®,

MKO Melt®, and Simple Drops®.

We may choose to pursue trademark protection in other jurisdictions for any one or more of

these or other marks in the future.

We also rely on unpatented trade secrets and know-how and continuing technological innovation in

order to develop our formulations, which we seek to protect, in part, by confidentiality agreements with our employees, consultants,

collaborators and others, including certain service providers.

We also have invention or patent assignment agreements with our

current employees and certain consultants.

However, our employees and consultants may breach these agreements, and we may not have

adequate remedies for any breach, or our trade secrets may otherwise become known or be independently discovered by competitors.

addition, inventions relevant to us could be developed by a person not bound by an invention assignment agreement with us, in which

case we may have no rights to use the applicable invention.

business is subject to federal, state and local laws, regulations, and administrative practices, including, among others:

2 unchanged sentences

the Health Insurance

Portability and Accountability Act (“HIPAA”);

Portability and Accountability Act of 1996 (“HIPAA”);

the Health Care Reform Law;

statutes and regulations of the FDA, the U.S.

Trade Commission, the U.S.

statutes and regulations of the FDA, the

Federal Trade Commission (the “FTC”), the U.S.

Drug Enforcement Administration and the U.S.

Consumer Product Safety Commission, as well as regulations promulgated

by comparable state agencies concerning the sale, advertisement and promotion of the products we sell.

The regulatory and quality compliance

environment for compounded drugs has become significantly more rigorous, complex and strict since the passage of The Drug Quality and

Security Act of 2013.

The complexity of the current state and federal regulatory environment, as well as the expected continued evolution

of state and federal laws governing pharmaceutical compounding, have and will continue to present potentially significant challenges

to our business model and the fulfillment of our mission as a company.

Below are descriptions of some of the various federal and state

laws and regulations which may govern or impact our current and planned operations.

Consumer Product Safety

Commission, as well as regulations promulgated by comparable state agencies concerning the sale, advertisement and promotion of the products

The regulatory and quality compliance environment for compounded drugs has become significantly more rigorous, complex and strict

since the passage of The Drug Quality and Security Act of 2013.

The complexity of the current state and federal regulatory environment,

as well as the expected continued evolution of state and federal laws governing pharmaceutical compounding, have and will continue to

present potentially significant challenges to our business model and the fulfillment of our mission as a company.

Below are descriptions

of some of the various federal and state laws and regulations which may govern or impact our current and planned operations.

New Drug Application Process

discussed in other sections of this Annual Report, we are pursing, and may continue to pursue, alone or with project partners, FDA approval

to market and sell one or more of our formulations through the FDA’s NDA process.

As a condition of approval, the FDA or other

regulatory authorities may require further studies, including Phase 4 post-marketing studies, to provide additional data.

What changed 10-K

Item 1. Business