What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-13 · 125 added, 92 removed, 166 unchanged (57% of the section changed)

58 unchanged sentences

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

In addition, we have a non-controlling equity interest in Melt Pharmaceuticals, Inc.

(“Melt”), and two other

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

financial statements.

Affecting Our Performance

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.

believe the primary factors affecting our performance are (1) our ability to increase revenues of our branded pharmaceutical products,

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

(2) potential and ongoing regulatory-related restrictions, (3) our ability to 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.

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.

See “Liquidity and Capital Resources” below.

following describes certain developments in 2024 to date that are important to understand our financial condition and results of operations.

See the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for additional information

about each of these developments.

Apotex - Canadian Out-License

following is a summary of selected significant developments affecting our business that occurred since December 31, 2023.

For additional

developments, see our Annual Report on Form 10-K for the year ended December 31, 2023.

PPQ Batches and Manufacturing

June 2024, we announced the successful manufacture of a process performance qualification (“PPQ”) batch of TRIESENCE.

order to re-launch TRIESENCE for commercial use, we believe two additional, consecutive and successful PPQ batches (an aggregate of three

PPQ batches) of TRIESENCE will need to be made.

A second PPQ batch was produced in July 2024, and we are currently waiting for analytical

results associated with this batch.

If the second PPQ batch was produced successfully, the Company (along with its manufacturing partners)

expects to produce a third PPQ batch before the end of the third quarter 2024.

If these three PPQ batches are manufactured successfully,

we believe TRIESENCE could be re-launched in the U.S.

prior to the end of 2024.

In accordance with the terms of the Asset Purchase Agreement

we entered into with Novartis Technology, LLC and Novartis Innovative Therapies AG (collectively, “Novartis”), a $37,000,000

milestone payment will be due to Novartis upon re-launch in the U.S.

- Canadian Out-License

February 2024, we entered into a license and supply agreement with Apotex Inc.

6 unchanged sentences

ophthalmic solution) 0.24% (with VERKAZIA and Cationorm Plus, collectively, the “Apotex Products”).

In exchange, Apotex will

make payments to Harrow for milestones related to manufacturing arrangements, regulatory and commercial achievements, in addition to

royalties on net sales of the Apotex Products.

IHEEZO Reimbursement

In exchange for these

licenses, Apotex will make payments to Harrow for milestones related to manufacturing arrangements, regulatory and commercial achievements,

in addition to royalties on net sales of the Apotex Products.

Reimbursement

January 2024, we met with the Centers for Medicare & Medicaid Services (“CMS”) to request clarification related to its

8 unchanged sentences

vial) to be used and billed, while many ophthalmologists perform bilateral ocular procedures, which would require two vials of IHEEZO

On March 20, 2024, the Company received communication from the National Correct Coding Initiative (NCCI) program of CMS stating

On March 20, 2024, we received communication from the National Correct Coding Initiative (NCCI) program of CMS stating

that CMS decided to increase the MUE for IHEEZO’s J-Code (J2403) from 1 to 2.

While not final until published, CMS stated in its

communication to the Company that the MUE edit will be (1) effective in July 2024, and (2) made retroactive for procedures dating to

January 1, 2024.

The MUE edit was made effective on July 1, 2024.

January 2024, we launched VEVYE (cyclosporine ophthalmic solution) 0.1%, the first and only water-free cyclosporine dissolved in a semifluorinated

3 unchanged sentences

of Operations

following period-to-period comparisons of our financial results for the three months ended March 31, 2024 and 2023 are not necessarily

following period-to-period comparisons of our financial results for the three and six months ended June 30, 2024 and 2023 are not necessarily

indicative of results for any future period.

2 unchanged sentences

arrangements.

following presents our revenues for the three months ended March 31, 2024 and 2023:

following presents our revenues:

For the Three Months Ended

For the Six Months Ended

Product sales, net

1 unchanged sentence

Total revenues

increase in revenues between periods was related to an increase in sales of our branded ophthalmology products.

During 2023, the Company

recorded $5,650,000 in revenues associated with the transfer of profits of recently acquired products where the product new drug applications

(“NDAs”) had not yet transferred to Harrow.

During the three months ended March 31, 2024, revenues from branded products

totaled $13,868,000, compared to $6,272,000 (which included revenues from the transfer of profits) during the same period in the prior

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

increase in revenues between periods was related to an increase in sales volumes of our branded ophthalmology products.

During the three

and six months ended June 30, 2023, the Company recorded $3,928,000 and $9,578,000, respectively, in revenues associated with the transfer

of sales and profits of recently acquired products where the product new drug applications (“NDAs”) had not yet transferred

During the three months and six months ended June 30, 2024, revenues from branded products totalled $27,292,000 and $41,229,000,

respectively, compared to $13,095,000 and $19,367,000 (which included revenues from the transfer of profits) during the same periods

in the prior year, respectively.

Net sales of IHEEZO were $11,294,000 and $13,616,000 during the three months and six months ended June

30, 2024, respectively.

cost of sales includes direct and indirect costs to manufacture formulations and 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, 2024 and 2023:

following presents our cost of sales:

For the Three Months Ended

For the Six Months Ended

Cost of sales

3 unchanged sentences

For the Three Months Ended

increase in gross margin between the three months ended March 31, 2024 and 2023 was primarily attributable to an increase in sales associated

with our branded ophthalmology products, which generally have a higher gross margin profile than our compounded products.

For the Six Months Ended

increase in gross margin between the three and six months ended June 30, 2024 and 2023 was primarily attributable to an increase in sales

associated with our branded ophthalmology products, which generally have a higher gross margin profile than our compounded products.

General and Administrative Expenses

1 unchanged sentence

expenses, and investor relations, consulting, insurance, filing, legal and accounting fees and expenses as well as costs associated with

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, 2024 and 2023:

the Three Months Ended

general and administrative

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

our marketing activities and sales of our FDA approved, proprietary compounded formulations and other non-proprietary pharmacy products

and formulations.

following presents our selling, general and administrative expenses:

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 including

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

1 unchanged sentence

VEVYE in December 2023.

In addition, stock-based compensation expense increased by $2,260,000 for the three months ended March 31, 2024,

compared to the prior year period represented another notable increase.

Stock-based compensation expense increased by $1,266,000 during the six months ended June 30, 2024 compared to

the prior year period.

and Development Expenses

1 unchanged sentence

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 months ended March 31, 2024 and 2023:

the Three Months Ended

and development

increase in R&D expenses between periods was primarily attributable to increased activity related to our expanded branded product

portfolio, product acquisitions, product development efforts, product launches, clinical and medical support.

expense, net was $5,415,000 for the three months ended March 31, 2024, compared to $4,747,000 for the same period in 2023.

during the period ended March 31, 2024 compared to the same period in 2023 was primarily to the result of an increase in the outstanding

principal amount of our debt obligations.

and other costs related to the clinical development of our assets.

following presents our research and development expenses:

For the Three Months Ended

For the Six Months Ended

Research and development

increase in R&D expenses between periods was primarily attributable to activity related to our expanded branded product portfolio,

technical transfer activities associated with the production of certain products related to our product acquisitions that occurred in

2023, product development efforts, product launches, and clinical and medical support.

expense, net was $5,471,000 and $10,886,000 for the three and six months ended June 30, 2024, respectively, compared to $5,704,000 and

$10,451,000 for the same periods in 2023, respectively.

The decrease during the three months ended June 30, 2024 compared to the same

period in 2023 was primarily the result of increased interest income earned.

The increase during the six months ended June 30, 2024 compared

to the same period in 2023 was primarily the result of the increase in the outstanding principal amount of our debt obligations.

(Loss) Gain from Eton

the three months ended March 31, 2024, we recorded a loss of $(1,248,000), related to the change in fair market value of Eton’s

common stock compared to a gain of $2,042,000 for the same period in 2023.

the three and six months ended June 30, 2024, we recorded a loss of $(1,923,000) and $(3,171,000), respectively, related to the change

in fair market value of Eton’s common stock at the time of its sale, including trading expenses and commissions of approximately

$436,000, compared to a loss of $(714,000) and gain of $1,328,000, respectively, during the same periods in 2023.

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 a loan.

the three months ended March 31, 2024, we recorded other income of $26,000, related to our sublease at our lab and office space in Nashville.

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

the three and six months ended June 30, 2024, we recorded other income of $46,000 and $72,000, respectively, related to a sublease of

lab and office space in Nashville.

During 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

(Expense)/Benefit

the three and six months ended June 30, 2024, we recorded income tax expense of $(655,000) and tax benefit of $15,000 and $303,000, during

the same periods in 2023, respectively.

The income tax expense in 2024 is primarily related to the timing differences related to the

tax deductibility for stock-based compensation, interest expense and loss on our investment in Eton.

We expect the timing differences

will result in taxable income for the year ending December 31, 2024.

and Capital Resources

cash on hand at March 31, 2024 was $68,538,000, compared to $74,085,000 at December 31, 2023.

of the date of this Quarterly Report, we believe that cash and cash equivalents of $68,538,000 at March 31, 2024, in addition to net

proceeds received from the sale of our Eton investment in April 2024, 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 Surface Ophthalmics, Inc.

(“Surface”) and Melt and any of our consolidated subsidiaries.

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

expenditures or we may experience growth more rapidly 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, 2024 was $70,968,000, compared to $74,085,000 at December 31, 2023.

of the date of this Quarterly Report, we believe that our cash and cash equivalents 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 Surface Ophthalmics, Inc.

(“Surface”) and Melt Pharmaceuticals,

(“Melt”) and any of our consolidated subsidiaries.

However, we may pursue acquisitions of revenue generating products

or drug candidates or other strategic transactions that involve large expenditures or we may experience growth more rapidly 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

5 unchanged sentences

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 March 31, 2024 and 2023:

For the Three Months Ended

following provides detailed information about our net cash flows:

For the Six Months Ended June 30,

Net cash (used in) provided by:

9 unchanged sentences

Cash and cash equivalents at end of the period

cash used in operating activities during the three months ended March 31, 2024 was $(4,628,000) compared to $(8,214,000) during the same

period in the prior year.

The decrease in net cash used in operating activities between the periods was mainly attributed to an increase

in revenues during 2023 and a decrease of $8,396,000 in accounts receivable due to collections during the three months ended March 31,

2024 compared to an increase of $5,882,000 during the same period in 2023.

The net cash used in operating activities in 2023 was also

impacted due to an increase in inventory levels, coupled with operating expenses associated with the commercial launch of IHEEZO, product

acquisitions and integrations and increased costs of goods sold.

cash used in investing activities during the three months ended March 31, 2024 was $(110,000) compared to $(130,970,000) during the same

period in the prior year.

Cash used in investing activities in 2023 was primarily related to the acquisition of five branded products

which closed in January 2023.

Cash used in investing activities in 2024 was primarily related to equipment and software purchases.

cash (used in) provided by financing activities during the three months ended March 31, 2024 and 2023 was $(809,000) and $62,162,000,

respectively.

Cash used in financing activities during the three months ended March 31, 2024 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 three

months ended March 31, 2023 was primarily related to proceeds received from the sale of the notes and entering into loan arrangements,

offset by payment of payroll taxes upon vesting and exercise of equity instruments in exchange for shares withheld from employees.

principal sources of cash consist of cash provided by operating activities.

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

Surface, Melt or our other subsidiaries.

cash used in operating activities during the six months ended June 30, 2024 was $(7,374,000) compared to $(3,648,000) during the

same period in the prior year.

The increase in net cash used in operating activities between the periods was mainly attributed to increase in operating expenses associated with the commercial launch of VEVYE in January 2024, including increased headcount associated with the sales force, recent product acquisition integrations and increased costs of goods

cash provided by (used in) investing activities during the six months ended June 30, 2024 was $4,993,000 compared to $(132,219,000) during

the same period in the prior year.

Cash used in investing activities in 2023 was primarily related to the acquisition of five branded

products completed in January 2023.

Cash provided by investing activities in 2024 was primarily related to the sale of our investment

position in Eton.

cash (used in) provided by financing activities during the six months ended June 30, 2024 and 2023 was $(736,000) and $62,351,000, respectively.

Cash used in financing activities during the six months ended June 30, 2024 was primarily related to payment of payroll taxes upon vesting

of RSUs in exchange for shares withheld from employees.

Cash provided by financing activities during the six months ended June 30, 2023

was primarily related to proceeds received from the sale of notes in our 2023 capital markets transactions and entering into loan arrangements,

offset by repayment of the B.

Riley senior secured note and payment of payroll taxes upon vesting and exercise of equity instruments

in exchange for shares withheld from employees.

principal sources of cash have consisted of sales of our common stock, debt issuances, sales of our investments, and on an annual basis

for the year ended December 31, 2023) cash generated from operating activities.

We may also sell some or all of our ownership interests

in Surface, Melt or our other subsidiaries.

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 receive additional proceeds from the exercise of stock options that

are currently outstanding.

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

32 unchanged sentences

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