What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-11 · 211 added, 151 removed, 171 unchanged (68% of the section changed)

49 unchanged sentences

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 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.

are a leading eyecare pharmaceutical company engaged in the discovery, development, and commercialization of innovative ophthalmic pharmaceutical

products for the U.S.

Harrow helps U.S.

eyecare professionals preserve the gift of sight by making its comprehensive portfolio

of prescription and non-prescription pharmaceutical products accessible and affordable to millions of Americans each year We own commercial

rights to one of the largest portfolios of branded ophthalmic pharmaceutical products in the U.S.

that are marketed under our Harrow

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

In addition, we have non-controlling equity positions in Surface Ophthalmics, Inc.

(“Surface”) and Melt Pharmaceuticals,

(“Melt”), 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

Affecting Our Performance

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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.

See the notes to our unaudited 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.

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

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

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;

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

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.

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

of Ilevro, Nevanac, Vigamox, Maxidex and Triesence

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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.

for a period that lasted approximately six months, and prior to the transfer of the Fab 5 Products new drug applications (the “NDAs”)

to us, Novartis continued to sell the Products on our behalf and transferred the net profit from the sale of the Products to us.

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.

In July 2023, we transferred the NDA for VIGAMOX, and the NDA for TRIESENCE is expected to transfer upon 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.

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.

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 B.

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.

July 18, 2023, we entered into the First Amendment to Credit Agreement and Guaranty and Consent (the “Oaktree Amendment”)

to the Oaktree Loan.

Under the Oaktree Amendment, the overall credit facility size was increased from $100,000,000 to $112,500,000, and

we made other changes related to the Santen Products Acquisition.

Upon satisfaction of certain conditions to funding, we drew down a

principal amount of $12,500,000 (the “Loan Increase”) on August 1, 2023 to fund the initial one-time payment associated with

the Santen Products Acquisition and for other working capital and general corporate purposes.

No other material changes to the Oaktree

Loan were provided in the Oaktree Amendment.

Following entry into the Oaktree Amendment and the funding of the Loan Increase upon closing

of the Santen Products Acquisition, we have drawn down a total principal loan amount of $77,500,000 under the Oaktree Loan and an additional

Tranche B loan amount of up to $35,000,000 remains available to us upon the commercialization of TRIESENCE, provided, that if Tranche

B is not drawn by the Company on or before March 27, 2024, the amount available under Tranche B decreased to $30,000,000.

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

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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.

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 of 2027 Notes.

of VEVYE TM U.S.

and Canadian Commercial Rights

July 2023, we acquired commercial rights of VEVYE (cyclosporine ophthalmic solution) 0.1%, an ophthalmic drug product, for the U.S.

Canadian markets (the “VEVYE Acquisition”).

VEVYE, which is dispensed topically in a unique ten microliter per one drop and

is labeled for twice-daily (BID) dosing, is the first and only cyclosporine-based product indicated for the treatment of both signs and

symptoms of dry eye disease (DED).

VEVYE was approved on May 30, 2023 by the FDA.

We acquired the commercial rights to VEVYE by entering

into a license agreement with Novaliq GmbH (“Novaliq”).

As consideration, we made initial payments to Novaliq totaling $8,000,000

and will pay low double-digit royalties on net sales of VEVYE along with potential commercial milestone payments.

of Certain U.S.

and Canadian Commercial Rights to Santen and Eyevance Products

July 2023, we entered into an Asset Purchase Agreement with Eyevance Pharmaceuticals, LLC and a License Agreement with Santen S.A.S.

(collectively, the “Santen Agreements”), each a subsidiary of Santen Pharmaceuticals Co., Ltd.

(collectively, “Santen”).

Pursuant to the Santen Agreements, we acquired the exclusive commercial rights to assets associated with the following ophthalmic products

(collectively, the “Santen Products”):

(fluorometholone acetate ophthalmic suspension) 0.1%, a corticosteroid prepared as a sterile topical ophthalmic suspension indicated

for use in the treatment of steroid-responsive inflammatory conditions of the palpebral and bulbar conjunctiva, cornea, and anterior

segment of the eye.

(natamycin ophthalmic suspension) 5%, a sterile, antifungal drug for the treatment of fungal blepharitis, conjunctivitis, and keratitis

caused by susceptible organisms, including Fusarium solani keratitis.

ST (tobramycin and dexamethasone ophthalmic suspension) 0.3%/0.05%, a topical antibiotic and corticosteroid combination for steroid-responsive

inflammatory ocular conditions for which a corticosteroid is indicated and where superficial bacterial ocular infection or a risk

of bacterial ocular infection exists.

(cetirizine ophthalmic solution) 0.24%, a histamine-1 (H1) receptor antagonist indicated for treatment of ocular itching associated

with allergic conjunctivitis.

a preservative-free formulation for temporary relief of symptoms of dry eye.

(cyclosporine ophthalmic emulsion) 0.1%, an orphan designated drug that is a calcineurin inhibitor immunosuppressant indicated for

the treatment of vernal keratoconjunctivitis.

PLUS, a preservative-free formulation for dry eye or allergy relief.

transactions pursuant to the Santen Agreements are referred to in this Quarterly Report as the “Santen Products Acquisition.”

the terms of the Santen Agreements, we made an initial one-time payment of $8,000,000.

In addition, the Santen Agreements provide for

various one-time milestone payments associated with certain manufacturing-related events as well as low-double digit royalty payments

on net sales of Verkazia and high-single digit royalty payments on net sales of Cationorm Plus.

Under the Santen Agreements, we also

assumed certain obligations associated with other third parties that require mid-single digit royalties on sales of Freshkote and Zerviate.

Immediately following the closing and subject to certain conditions, for a period that we expect to last approximately four months, and

prior to the transfer of the Santen Product NDAs and other marketing authorizations to us, Santen will continue to sell the Santen Products

on our behalf and transfer the net profit from the sale of the Santen Products to us.

Stock Offering

July 2023, we closed a public offering of shares of our common stock at an offering price of $17.75 per share (the “Offering”).

We sold 3,887,324 shares of our common stock in the Offering, resulting in us receiving aggregate gross proceeds of $69,000,000, before

commissions and other offering expenses.

Riley Loan and Security Agreement – Paid

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

Riley Commercial Capital, LLC, as

Administrative Agent for the Lenders from time to time party thereto.

The proceeds of the Loan Agreement 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

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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

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.

of Operations

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

following period-to-period comparisons of our financial results for the three and six months ended June 30, 2023 and 2022 are not necessarily

indicative of results for any future period.

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arrangements.

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

following presents our revenues for the three and six months ended June 30, 2023 and 2022:

For the Three Months Ended

For the Six Months Ended

Product sales, net

Commission revenues

Transfer of profits

Transfer of acquired product profit

Total revenues

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.

increase in revenues between periods was related to an increase in sales of our branded 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® (which agreement terminated January 1, 2023) and a decrease in sales from our non-ophthalmology compounded products

as a result of our sale 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, 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:

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

following presents our cost of sales for the three and six months ended June 30, 2023 and 2022:

For the Three Months Ended

For the Six Months Ended

Cost of sales

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.

increase in our cost of sales was largely attributable to the amortization of acquired product NDAs which totaled $2,649,000 and $4,694,000

for the three and six months ended June 30, 2023, respectively, compared to $341,000 and $682,000 during the prior year periods, respectively,

coupled with lesser increases in expenses associated with unit volumes sold and increased direct and indirect costs associated with production

of our products.

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

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

For the Six Months Ended

decrease in gross margin between the three and six months ended June 30, 2023 and 2022 is primarily attributable to amortization of acquired

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

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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 months ended March 31, 2023 and 2022:

following presents our selling, general and administrative expenses for the three and six months ended June 30, 2023 and 2022:

For the Three Months Ended

For the Six Months Ended

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.

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

expense of $3,010,000 and $2,650,000 for the three and six months ended June 30, 2023, respectively, compared to the prior year periods,

including new expenses associated with performance stock units granted in April of 2023.

Other areas of increased expenses included 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

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:

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 six months ended June 30, 2023 and 2022:

For the Three Months Ended

For the Six Months Ended

Research and development

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.

increase in R&D expenses between periods was primarily attributable to increased activity related to product acquisitions, launches

and clinical and medical support.

expense, net was $5,704,000 and $10,451,000 for the three and six months ended June 30, 2023, respectively, compared to $1,794,000 and

$3,586,000 for the same periods in 2022, respectively.

The increase during the periods ended June 30, 2023 compared to the same periods

in 2022 was primarily due to an increase in the outstanding principal amount of our debt obligations.

in Losses of Unconsolidated Entities

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.

the three and six months ended June 30, 2023, we recorded a loss of $0, related to our share of losses in Melt, compared to $2,646,000

and $5,532,000 for the same periods in 2022, respectively.

Gain (Loss) from Eton

the three and six months ended June 30, 2023, we recorded a (loss)/gain of $(714,000) and $1,328,000, respectively, related to the change

in fair market value of Eton’s common stock compared to losses of $3,449,000 and $3,310,000 for the same periods in 2022, respectively.

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

$ (6,643,000 )

$ (2,438,000 )

Net loss per share, basic and diluted

the six months ended June 30, 2023, we recorded a loss on extinguishment of debt of $5,465,000, related to the payoff of the B.

the three and six months ended June 30, 2023, we recorded other expense, net of $178,000 and $149,000, respectively, related primarily

to transition services and write-off of inventories associated with the divestment of our non-ophthalmology business.

and Capital Resources

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.

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

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

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

cash on hand at June 30, 2023 was $22,754,000, compared to $96,270,000 at December 31, 2022.

of the date of this Quarterly Report, we believe that cash and cash equivalents of $22,754,000 at June 30, 2023, along with proceeds

received subsequent to June 30, 2023 from the Offering and Oaktree Amendment, will be sufficient to sustain our planned level of operations

and capital expenditures for at least the next 12 months.

In addition, we may consider the sale of certain assets including, but not

limited to, part of, or all of, our investments in Eton, Surface, Melt, and/or any of our consolidated subsidiaries.

However, we may

pursue acquisitions of revenue generating products, drug candidates or other strategic transactions that involve large expenditures or

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

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

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

includes developing and commercializing drug candidates, compounded formulations and technologies, integrating and developing our operations,

pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of additional pharmacy, outsourcing

facilities, drug company and manufacturers, drug products, drug candidates, and/or assets or technologies, and otherwise fund our operations.

We may also use our resources to conduct clinical trials or other studies in support of our formulations or any drug candidate for which

we pursue FDA approval, to pursue additional development programs or to explore other development opportunities.

pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of additional drug products,

drug candidates, and/or assets or technologies, pharmacies, outsourcing facilities, drug company and manufacturers, and otherwise fund

our operations.

We may also use our resources to conduct clinical trials or other studies in support of our formulations or any drug

candidate for which we pursue FDA approval, to pursue additional development programs or to explore other development opportunities.

following provides detailed information about our net cash flows:

For the Three Months Ended

Net cash (used in) provided by:

Operating activities

For the Six Months Ended

June 30, 2023

June 30, 2022

Net cash (used in) provided by operating activities

$ (3,648,000 )

Investing activities

Net cash used in investing activities

(132,219,000 )

Financing activities

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

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Cash and cash equivalents at end of the period

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.

cash used in operating activities during the six months ended June 30, 2023 was $(3,648,000) compared to cash provided by operating activities

of $5,827,000 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

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

and branded product sales, which was an increase in our receivables of $12,038,000 during the six months ended June 30, 2023 compared

to an increase of $2,314,000 during the six months ended June 30, 2022.

The increase in net cash used in operating activities was also

attributed to an increase in inventory levels, coupled with operating expenses associated with the commercial launch of IHEEZO and increased

costs of goods sold.

cash used in investing activities during the six months ended June 30, 2023 was $(132,219,000) compared to $(669,000) during the same

period in the prior year.

1 unchanged sentence

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 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.

cash provided by (used in) financing activities during the six months ended June 30, 2023 and 2022 was $62,351,000 and $(887,000), respectively.

Cash provided by financing activities during the six months ended June 30, 2023 was primarily related to proceeds received from the sale

of the 2027 Notes, and proceeds from the Oaktree Loan.

Cash used in financing activities during the six months ended June 30, 2022 was

primarily related to payment of payroll taxes upon vesting of RSUs in exchange for shares withheld from the employee.

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, the Offering and the Oaktree Loan and Oaktree Amendment.

We may also sell

some or all of our ownership interests in Surface, Melt or our other subsidiaries, along with some or all of the remaining portion of

our Eton common stock.

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

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acceptable to us.

If we are unable to raise funds to satisfy our capital needs when needed, we may need to forego pursuit of potentially

If we are unable to raise funds to satisfy our capital needs when needed, then we may need to forego pursuit of potentially

valuable development or acquisition opportunities, we may not be able to continue to operate our business pursuant to our business plan,

3 unchanged sentences

Issued and Adopted Accounting Pronouncements

Note 2 to our condensed consolidated financial statements included in this Quarterly Report.

Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report.

Quantitative and Qualitative Disclosures About Market Risk

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