What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-14 · 225 added, 399 removed, 97 unchanged (87% of the section changed)

31 unchanged sentences

actual results to differ from those expressed or implied by the forward-looking statements we make include, among others, risks related

the impact of the COVID-19 pandemic on our financial condition, liquidity or results of operations;

our ability to successfully implement

our business plan, develop and commercialize our proprietary formulations in a timely manner or at all, identify and acquire additional

proprietary formulations, manage our pharmacy operations, service our debt, obtain financing necessary to operate our business, recruit

and retain qualified personnel, manage any growth we may experience and successfully realize the benefits of our previous acquisitions

and any other acquisitions and collaborative arrangements we may pursue;

competition from pharmaceutical companies, outsourcing facilities

and pharmacies;

general economic and business conditions, including inflation and supply chain challenges;

regulatory and legal risks

and uncertainties related to our pharmacy operations and the pharmacy and pharmaceutical business in general;

physician interest in and

market acceptance of our current and any future formulations and compounding pharmacies generally;

and the other risks and uncertainties

described under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report and in our other filings with the

You should not place undue reliance on forward-looking statements.

Forward-looking statements speak only as of the date they are

made and, except as required by law, we undertake no obligation to revise or publicly update any forward-looking statement for any reason.

are an eyecare pharmaceutical company exclusively focused on the discovery, development, and commercialization of innovative ophthalmic

therapies that are accessible and affordable.

Company owns non-controlling equity positions in Surface Ophthalmics, Inc.

liquidity or results of operations;

our ability to successfully implement our business plan, develop and commercialize our products,

product candidates and proprietary formulations in a timely manner or at all, identify and acquire additional products, manage our pharmacy

operations, service our debt, obtain financing necessary to operate our business, recruit and retain qualified personnel, manage any

growth we may experience and successfully realize the benefits of our previous acquisitions and any other acquisitions and collaborative

arrangements we may pursue;

competition from pharmaceutical companies, outsourcing facilities and pharmacies;

general economic and business

conditions, including inflation and supply chain challenges;

regulatory and legal risks and uncertainties related to our pharmacy operations

and the pharmacy and pharmaceutical business in general;

physician interest in and market acceptance of our current and any future formulations

and compounding pharmacies generally;

and the other risks and uncertainties described under the heading “Risk Factors” in

Part II, Item 1A of this Quarterly Report and in our other filings with the SEC.

You should not place undue reliance on forward-looking

Forward-looking statements speak only as of the date they are made and, except as required by law, we undertake no obligation

to revise or publicly update any forward-looking statement for any reason.

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™, 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.

In addition, we

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

(“Surface”) and Melt Pharmaceuticals, Inc.

both companies that began as subsidiaries of Harrow.

Harrow also owns royalty rights in various drug candidates being developed by Surface

is our ophthalmology-focused prescription pharmaceutical compounding business.

From its inception in 2014, ImprimisRx, which

consists of integrated research and development, production, dispensing/distribution, sales, marketing, and customer service

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 medications.

also make these unique formulations available at prices that are, in most cases, lower than non-customized commercial medications.

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

eyecare dedicated prescribers and institutions.

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 (a) as patient-specific medications from our 503A

or, (b) 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”).

In August 2020, ImprimisRx

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.

2022, we entered into a mutual termination agreement with Eyepoint, pursuant to which we agreed to (a) continue to support the sale

of DEXYCU through the fourth quarter of 2022, consistent with our level of effort during the January through June 2022 period, (b)

decrease the required minimum quarterly sales levels based on DEXYCU unit demand for the fourth quarter of 2022, and (c) terminate

the Dexycu Agreement, along with ancillary letter agreements, effective January 1, 2023.

a result, we expect our commissions from sales of DEXYCU to decrease through the end of

2022 and cease in 2023;

however such effect is not expected to have a material impact on our business, financial statements and cash

Pharmaceuticals and Drug Candidates

the past two 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 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.

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 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 transitional period with the seller, which lasted nine 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 marketing and supply rights to IHEEZO (chloroprocaine hydrochloride ophthalmic gel) 3% in the U.S.

and Canada for ocular surface anesthesia from Sintetica S.A.

(“Sintetica”).

The FDA approved IHEEZO for ocular surface anesthesia

in September 2022.

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

We expect to commercially launch IHEEZO

market during 2023.

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.

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.

In August 2022, we

had a Type B meeting with the FDA to discuss our planned clinical program for MAQ-100.

The FDA provided clarity on what would be required

for a future NDA filing of MAQ-100, and we are working with Wakamoto accordingly in an effort to efficiently advance the clinical program

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.

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 Food Drug and Cosmetic Act,

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.

Noncontrolling

Equity Interests

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

positive results for both signs and symptoms of chronic dry eye disease, 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 later this year.

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 group.

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 September

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

Pharmaceuticals, Inc.

is a clinical-stage pharmaceutical company focused on the development and commercialization of proprietary non-intravenous, sedation

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

Melt intends to seek regulatory

approval for its proprietary technologies, where possible.

In December 2018, we entered into an Asset Purchase Agreement with Melt (the

“Melt Asset Purchase Agreement”), pursuant to which Harrow assigned to Melt the underlying intellectual property for Melt’s

current pipeline, including its lead drug candidate MELT-300.

The core intellectual property Melt owns is a patented series of combination

non-opioid sedation drug formulations that we estimate to have multitudinous applications.

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

during the fourth quarter of 2021, and we expect Melt to release top-line data related to this study sometime during the fourth quarter

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

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 Melt’s equity and voting interests issued and outstanding as of September 30, 2022.

In September 2021, we

provided Melt with a senior secured loan with a principal amount of $13,500,000, which is intended to fund the Phase 2 program of

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.

In September 2022, Melt filed a

registration statement on Form S-1 with the United States Securities and Exchange Commission related to an initial public offering

of Melt’s common stock in an underwritten offering (the “Melt IPO”).

The registration statement contains, among

other things, a description of Melt’s business, financial statements and strategic plans.

If the Melt IPO is completed, we

expect to settle ten million dollars ($10,000,000) of the principal balance of our loan to Melt in exchange for Melt common stock at

the price of the Melt IPO, net of any underwriting discounts.

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

currently commercializes ALKINDI SPRINKLE® and Carglumic Acid tablets and has four 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 was less than 10% of the equity and voting

interests issued and outstanding of Eton as of September 30, 2022.

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.

Affecting Our Performance

believe the primary factors affecting our performance are our ability to increase revenues of our proprietary compounded formulations

and certain non-proprietary products, grow and gain operating efficiencies in our pharmacy operations, potential regulatory-related restrictions,

optimize pricing and obtain reimbursement options for our proprietary compounded formulations, and continue to pursue development and

commercialization opportunities for certain of our ophthalmology and other assets that we have not yet made commercially available as

compounded formulations.

We believe we have built a tangible and intangible infrastructure that will allow us to scale revenues efficiently

in the near and long-term.

All of these activities will require significant costs and other resources, which we may not have or be able

to obtain from operations or other sources.

believe the primary factors affecting our performance are our ability to increase revenues of our branded pharmaceutical products, proprietary

compounded formulations and certain non-proprietary products, grow and gain operating efficiencies in our operations, potential regulatory-related

restrictions, optimize pricing and obtain reimbursement options for our drug products, and continue to pursue development and commercialization

opportunities for certain of our ophthalmology and other assets that we have not yet made commercially available.

We believe we have

built a tangible and intangible infrastructure that will allow us to scale revenues efficiently in the near and long-term.

activities will require significant costs and other resources, which we may not have or be able to obtain from operations or other sources.

See “Liquidity and Capital Resources” below.

Reimbursement

believe IHEEZO and possibly other drug candidates that we may develop will also be covered under Medicare Part B.

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 drug.

Under current regulations of CMS, pass-through status

applies for a period of three years;

following describes certain developments in 2023 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 Quarterly Report for additional information about each

of these developments.

Reimbursement and Launch

February 2023, we announced that the Centers for Medicare & Medicaid Services (“CMS”) had issued a permanent, product specific J-code for IHEEZO (J2403) which became effective under

the Healthcare Procedure Coding System (HCPCS) on April 1, 2023, which physicians can use for reimbursement purposes of that product.

New drugs 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 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.

We intend to apply for temporary pass-through reimbursement for IHEEZO during

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.

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

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 will no longer qualify as a separately payable product in an ASC or outpatient setting and will instead be bundled into

the general cataract procedure code effective January 1, 2023, when the final rule, if approved as currently proposed, will go into effect.

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 are devoting time and 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.

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

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 limited.

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

The disease caused by it, COVID-19, was declared a

global pandemic by the World Health Organization in March 2020.

On March 18, 2020, CMS released guidance for U.S.

healthcare providers

to limit all elective medical procedures in order to conserve personal protective equipment and limit exposure to COVID-19 during the

pendency of the pandemic.

In addition to limiting elective medical procedures, many hospitals and other healthcare providers have strictly

limited access to their facilities during the pandemic.

The COVID-19 pandemic has negatively impacted the global economy, disrupted global

supply chains and healthcare delivery, led to social distancing recommendation, and created significant volatility in financial markets.

In May 2020 and the following months, U.S.

states and geographies began easing restrictions associated with the COVID-19 pandemic including

those restrictions related to elective procedures.

We have since seen sales of our products return to historical norms and trends as

restrictions associated with elective procedures and the COVID-19 pandemic have eased.

given the unprecedented and dynamic nature of the COVID-19 pandemic, including any virus mutations/variants, we may not be able to reasonably

estimate the impacts it may have on our financial condition, results of operations or cash flows in the future, especially if there are

new restrictions in elective procedures in the future which would have an adverse impact, which may be material, on our future revenues,

profitability and cash flows.

of Non-Ophthalmic Revenues

October 2022, we entered into an Asset Purchase Agreement (the “RPC Agreement”) with Innovation Compounding Pharmacy,

LLC (the “Buyer”).

The closing of the RPC Agreement was made effective on September 30, 2022.

Under the terms of the RPC

Agreement, the Company agreed to sell substantially all its assets associated with its non-ophthalmology related compounding

business, including but not limited to, certain intellectual property rights, customer lists, databases, and formulations (the

“RPC Assets”).

The Buyer agreed to make offers of employment to six of the Company’s employees that were

responsible for the sales activities associated with the RPC Assets.

In connection with the RPC Agreement, the Company entered into

a separate transition services agreement with the Buyer related to providing on going services, such as procuring and dispensing

prescription orders associated with RPC Assets.

The Company expects to provide transition services to the Buyer for up to six months

following the effective date of the RPC Agreement.

Under the terms of the RPC Agreement, the Buyer paid to the Company an aggregate

cash amount of $6,000,000 on October 5, 2022.

In addition, the Buyer is obligated to pay up to $4,500,000 to the Company based on

mutually agreed upon revenue milestones during the calendar year 2023.

Loan Amendments

April and September 2022, we entered into a First Amendment and Second Amendment (collectively the “Amendments”) to our

loan and security agreement previously entered into on September 1, 2021 with Melt.

The Amendments provide for the

is required to maintain a minimum cash balance of $7,000,000 for one year following the effective

date of the Second Amendment;

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

maturity date by which all amounts owed under the loan agreement are payable was extended

to June 1, 2023, which can be extended further to September 1, 2026 following

a qualified financing of at least $10,000,0000, 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.

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.

pass-through reimbursement for IHEEZO was awarded by CMS and made effective in April 2023.

the beginning of April 2023, we initiated a regional and targeted launch of IHEEZO (chloroprocaine HCL ophthalmic gel) 3%.

2023, our full commercial launch of IHEEZO occurred, with the product being highlighted by our commercial team at the ASCRS (American

Society of Cataract and Refractive Surgery) Annual Meeting during May 5 – 8, 2023.

of Ilevro, Nevanac, Vigamox, Maxidex and 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 Products on our behalf and transfer the net profit from the sale of the

Products to us.

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

us and to assist with technology transfer of the Products manufacturing to other third-party manufacturers, if needed.

April 28, 2023, we transferred the NDAs for ILEVRO, NEVANAC and MAXIDEX.

We expect to transfer the NDA for VIGAMOX in the second half

of 2023, and the NDA for TRIESENCE around the timing of its commercial availability.

Credit and Guaranty Agreement

March 27, 2023, we entered into a Credit and Guaranty Agreement (the “Oaktree Loan”) with Oaktree Fund Administration,

LLC, as administrative agent for the lenders (together, “Oaktree”), providing for a loan to us with a principal amount

of up to $100,000,000.

Upon entering into the Oaktree Loan, we drew a principal amount of $65,000,000 from the Oaktree Loan and used

the net proceeds to repay all amounts owed by us pursuant to the BR Loan (see below).

No remaining amounts are due under the BR Loan, and no

exit or prepayment fees were paid as a result of the payoff of the BR Loan.

The additional principal loan amount of up to

$35,000,000 available under the Oaktree Loan (the “Tranche B”) will be made available to the Company upon the

commercialization of TRIESENCE.

Oaktree Loan is secured by nearly all of the assets, including intellectual property, of the Company and its material subsidiaries.

Oaktree Loan has a maturity date of January 19, 2026 and carries an interest rate equal to the Secured Overnight Financing Rate (SOFR)

plus 6.5% per annum.

The Oaktree Loan requires interest-only payments through its term (there is no amortization of the principal amount

or excess cash flow sweeps during the term of the Oaktree Loan).

– Senior Notes Offering

December 2022, the Company entered into an underwriting agreement with B.

Riley Securities, Inc., as representative of the several

underwriters named therein, pursuant to which we agreed to sell $35,000,000 aggregate principal amount of 11.875% Senior Notes due

2027 (the “2027 Notes”) plus up to an additional $5,250,000 aggregate principal amount of 11.875% Senior Notes due 2027

pursuant to the option to purchase additional 2027 Notes.

In January 2023, the underwriters exercised their option to purchase the

additional $5,250,000 aggregate principal amount 2027 Notes.

Riley Loan and Security Agreement – Paid in Full

December 14, 2022 (the “Effective Date”), we entered into a Loan and Security Agreement (the “BR Loan”) with

Riley Commercial Capital, LLC, as Administrative Agent for the Lenders from time to time party thereto.

The proceeds of the BR

Loan were used to finance the Fab 5 Acquisition.

BR Loan provided for a loan facility of up to $100,000,000 to the Company with a maturity date of December 14, 2025, at an interest rate

of 10.875% per annum.

The BR Loan was secured by an intellectual property security agreement and by all assets of the Company and its

material subsidiaries.

The Company drew $59,750,000 of the BR Loan in January 2023, and subsequently

paid back the BR Loan in March 2023 at the time of closing the Oaktree Loan.

No remaining amounts are due under the BR Loan, and no exit

or prepayment fees were paid as a result of the payoff of the BR Loan.

Stock Offering

D ecember 2022, we

entered into an underwriting agreement (the “Common Stock Underwriting Agreement”) with B.

Riley Securities, Inc.

to a registered direct offering of shares of the Company’s common stock to certain accredited investors, at an offering price of

Under the terms of the Common Stock Underwriting Agreement we sold 2,376,426 shares of our common stock for gross proceeds of

of Operations

following period-to-period comparisons of our financial results for the three and nine months ended September 30, 2022 and 2021 are not

necessarily indicative of results for any future period.

following period-to-period comparisons of our financial results for the three months ended March 31, 2023 and 2022 are not necessarily

indicative of results for any future period.

revenues include amounts recorded from sales of proprietary compounded formulations, sales of branded products to wholesalers through

1 unchanged sentence

arrangements.

following presents our revenues for the three and nine months ended September 30, 2022 and 2021:

following presents our revenues for the three months ended March 31, 2023 and 2022:

For the Three Months Ended

For the Nine Months Ended

Product sales, net

1 unchanged sentence

Transfer of profits

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 profits from recently acquired products.

In June of 2022, the Company completed

the transfer from the seller to Harrow of Iopidine and Maxitrol NDAs and relaunched those products, as a result, we will not record revenues

associated with the transfer of profits associated with those products in future periods.

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

increase in the transfer of profits related to the Fab 5 Acquisition.

This increase in 2023 was offset slightly by a decrease in

commissions attributable to sales of Dexycu® pursuant to a Commercial Alliance Agreement between the Coompany and Eyepoint

Pharmaceuticals which terminated effective January 1, 2023 and decrease in sales from our non-ophthalmology compounded products due

to the divestment of those assets in the fourth quarter of 2022.

cost of sales 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.

following presents our cost of sales for the three and nine months ended September 30, 2022 and 2021:

the write-off of obsolete inventory, amortization of acquired product NDAs, and other related expenses.

following presents our cost of sales for the three months ended March 31, 2023 and 2022:

For the Three Months Ended

For the Nine Months Ended

Cost of sales

increase in our cost of sales between periods was largely attributable to an increase in unit volumes sold and increased direct and indirect

costs associated with production of our products.

increase in our cost of sales between periods was largely attributable to an increase in unit volumes sold, increased direct and indirect

costs associated with production of our products and amortization of acquired product NDAs.

Profit and Margin

The following presents our gross profit and gross

margin for the three months ended March 31, 2023 and 2022:

For the Three Months Ended

For the Nine Months Ended

decrease in gross margin between the three and nine months ended September 30, 2022 and 2021 is primarily attributable to

amortization of acquired NDAs beginning in January 2022, along with a one-time adverse production related event in April 2022,

increased discounts provided during 2022 associated with volume-based purchases and increased (direct and indirect) production costs incurred during 2022.

decrease in gross margin between the three months ended March 31, 2023 and 2022 was primarily attributable to amortization of acquired

NDAs from the Fab 5 Acquisition, beginning in January 2023.

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, 2022 and 2021:

following presents our selling, general and administrative expenses for the three months ended March 31, 2023 and 2022:

For the Three Months Ended

For the Nine Months Ended

Selling, general

and administrative

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

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

to the addition of new employees in sales, marketing and other departments to support current and expected growth, including the anticipated

commercial launch of IHEEZO in 2023.

Selling, general and administrative

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

with regulatory enhancements, costs to support the transition of recent product acquisitions, and an increase in expenses related to

the addition of new employees in sales, marketing and other departments to support current and expected growth, including the commercial

launch of IHEEZO in April 2023.

and Development Expenses

research and development (“R&D”) expenses primarily include personnel costs, including wages and stock-based compensation,

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

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, 2022 and 2021:

Our research and development (“R&D”) expenses primarily include personnel costs, including

wages and stock-based compensation, expenses related to the development of intellectual property, investigator-initiated research and

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

following presents our R&D expenses for the three months ended March 31, 2023 and 2022:

For the Three Months Ended

For the Nine Months Ended

Research and development

$ (5,350,000 )

$ (4,795,000 )

the three and nine months ended September 30, 2022, research and development expenses decreased from the same periods in 2021 primarily

as a result of a one-time payment for acquired research and development incurred in 2021 related to the acquisition of IHEEZO.

expense, net was $1,800,000 and $5,386,000 for the three and nine months ended September 30, 2022, respectively, compared to $1,685,000 and $3,512,000

for the same periods in 2021, respectively.

The increase during the period ended September 30, 2022 compared to the same periods in 2021

was primarily the result of an increase in the outstanding principal amount of our debt obligations.

increase in R&D expenses between the periods was primarily attributable to an increase in expenses associated with regulatory

enhancements, and an increase in expenses related to the addition of new employees.

expense, net was $4,747,000 for the three months ended March 31, 2023 compared to $1,792,000 for the same periods in 2022, respectively.

The increase during the period ended March 31, 2023 compared to the same period in 2022 was primarily due to an increase in the outstanding

principal amount of our debt obligations.

in Losses of Unconsolidated Entities

the three and nine months ended September 30, 2022, we recorded a loss of $3,504,000 and $9,036,000, respectively, related to our share

of losses in Melt, compared to $706,000 and $2,967,000 for the same periods last year, respectively.

Loss from Eton

the three and nine months ended September 30, 2022, we recorded a loss of $1,031,000 and $4,341,000, respectively, related to the change

in fair market value of Eton’s common stock compared to losses of $2,220,000 and $8,639,000 for the same periods last year, respectively.

on Forgiveness of PPP Loan

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

to the Paycheck Protection Program under the Federal Coronavirus Aid, Relief, and Economic Security Act.

following table presents our net loss and per share net loss for the three and nine months ended September 30, 2022 and 2021:

the Three Months Ended

September 30,

the Nine Months Ended

September 30,

Numerator – net loss attributable

to Harrow Health, Inc.

the three months ended March 31, 2023, we recorded a loss of $0 related to our share of losses in Melt, compared to $2,886,000 for the

same period last year.

Gain from Eton

the three months ended March 31, 2023, we recorded a gain of $2,042,000, related to the change in fair market value of Eton’s common

stock, compared to $139,000 for the same period last year.

on Extinguishment of Debt

the three months ended March 31, 2023, we recorded a loss on extinguishment of debt of $5,465,000, related to the payoff of the BR

following table presents our net loss and per share net loss for the three months ended March 31, 2023 and 2022:

Three Months Ended

Numerator – net loss attributable to Harrow Health, Inc.

common stockholders

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$ (2,438,000 )

$ (15,141,000 )

$ (10,589,000 )

Net loss per share, basic and diluted

and Capital Resources

cash on hand at September 30, 2022 was $44,959,000, compared to $42,167,000 at December 31, 2021.

of the date of this Quarterly Report, we believe that cash and cash equivalents of $44,959,000 at September 30, 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

cash on hand at March 31, 2023 was $19,248,000, compared to $96,270,000 at December 31, 2022.

of the date of this Quarterly Report, we believe that cash and cash equivalents of $19,248,000 at March 31, 2023 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.

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following provides detailed information about our net cash flows:

For the Nine Months Ended

Net cash provided by (used in):

For the Three Months Ended

Net cash (used in) provided by:

Operating activities

$ (8,214,000 )

Investing activities

(130,970,000 )

Financing activities

Net change in cash and cash equivalents

(77,022,000 )

Cash and cash equivalents at beginning of the period

Cash and cash equivalents at end of the period

cash provided by operating activities during the nine months ended September 30, 2022 was $5,417,000 compared to $6,572,000 during the

same period in the prior year.

The decrease in net cash provided by operating activities between the periods was mainly attributed to

increased operating expenses associated with planned 2023 commercial launch of IHEEZO and increased costs of goods sold.

cash used in investing activities during the nine months ended September 30, 2022 was $(1,738,000) compared to $(4,489,000) during the

same period in the prior year.

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

Cash used in investing activities in 2021 was primarily associated with the issuance of a note receivable to Melt and partially offset

by cash provided by the sale of a portion of our investment in Eton.

cash (used in) provided by financing activities during the nine months ended September 30, 2022 and 2021 was $(887,000) and $51,472,000,

cash used in operating activities during the three months ended March 31, 2023 was $(8,214,000) compared to cash provided by of

$967,000 during the same period in the prior year.

The increase in net cash used in operating activities between the periods was

mainly attributed to the increase in accounts receivable related to payment terms for the profit transfer associated with the Fab 5

Acquisition, increase in inventory levels, and operating expenses associated with planned 2023 commercial launch of IHEEZO and

increased costs of goods sold.

cash used in investing activities during the three months ended March 31, 2023 was $(130,970,000) compared to $(410,000) during the same

period in the prior year.

Cash used in investing activities in 2023 was primarily associated with the Fab 5 Acquisition.

investing activities in 2022 was primarily associated with equipment and software purchases.

cash provided by (used in) financing activities during the three months ended March 31, 2023 and 2022 was $62,162,000 and $(776,000),

respectively.

Cash used in financing activities during the nine months ended September 30, 2022 was primarily related to payment of payroll

taxes upon vesting of RSUs in exchange for shares withheld from the employees.

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.

principal sources of cash consist of cash provided by operating activities from our ImprimisRx and branded pharmaceutical business, and

in 2021, proceeds from 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 other 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

bans on elective surgeries, created uncertainty surrounding our operating outlook and may impact our future operating results if the

COVID-19 pandemic worsens in the U.S.

In addition, we may acquire new products, product candidates and/or businesses and, as a result,

we may need significant additional capital to support our business plan and fund our proposed business operations.

We may receive additional

proceeds from the exercise of stock purchase warrants that are currently outstanding.

We may also seek additional financing from a variety

of sources, including other equity or debt financings, funding from corporate partnerships or licensing arrangements, sales of assets

or any other financing transaction.

If we issue equity or convertible debt securities to raise additional funds, our existing stockholders

may experience substantial dilution, and the newly issued equity or debt securities may have more favorable terms or rights, preferences

and privileges senior to those of our existing stockholders.

If we raise additional funds through collaboration or licensing arrangements

or sales of assets, we may be required to relinquish potentially valuable rights to our product candidates or proprietary technologies

or formulations, or grant licenses on terms that are not favorable to us.

If we raise funds by incurring additional debt, we may be required

to pay significant interest expenses and our leverage relative to our earnings or to our equity capitalization may increase.

commercial loans, assuming they would be available, would increase our liabilities and future cash commitments and may impose restrictions

on our activities, such as the financial and operating covenants.

Further, we may incur substantial costs in pursuing future capital

and/or financing transactions, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and

We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible

notes and warrants, which would adversely impact our financial results.

Cash provided by financing activities during the three months ended March 31, 2023 was primarily related to proceeds received

from the issuance of senior notes and the Oaktree Loan.

Cash used in financing activities during the three months

ended March 31, 2022 was primarily related to payment of payroll taxes upon vesting of RSUs in exchange for shares withheld from employees.

principal sources of cash consist of cash provided by operating activities from our ImprimisRx and branded pharmaceutical

businesses, and in 2022 and 2023, proceeds from the sale of senior notes and the Oaktree Loan.

We may also sell some or all of our

ownership interests in Surface, Melt or our other subsidiaries, along with the sale of some or all of our remaining Eton common stock.

may acquire new products, product candidates and/or businesses and, as a result, we may need significant additional capital to support

our business plan and fund our proposed business operations.

We may receive additional proceeds from the exercise of stock purchase warrants

that are currently outstanding.

We may also seek additional financing from a variety of sources, including other equity or debt financings,

funding from corporate partnerships or licensing arrangements, sales of assets or any other financing transaction.

If we issue equity

or convertible debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the newly

issued equity or debt securities may have more favorable terms or rights, preferences and privileges senior to those of our existing

stockholders.

If we raise additional funds through collaboration or licensing arrangements or sales of assets, we may be required to

relinquish potentially valuable rights to our product candidates or proprietary technologies or formulations, or grant licenses on terms

that are not favorable to us.

If we raise funds by incurring additional debt, we may be required to pay significant interest expenses

and our leverage relative to our earnings or to our equity capitalization may increase.

Obtaining commercial loans, assuming they would

be available, would increase our liabilities and future cash commitments and may impose restrictions on our activities, such as the financial

and operating covenants.

Further, we may incur substantial costs in pursuing future capital and/or financing transactions, including

investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs.

We may also be required to

recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which would adversely

impact our financial results.

may be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions, conditions

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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