What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-07 · 118 added, 89 removed, 202 unchanged (51% of the section changed)

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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

Cybersecurity Incident

In November 2024, we became aware of a cybersecurity incident that involved unauthorized access of an employee’s

email account.

Through this unauthorized access the threat actor was able to fraudulently divert Company funds to its bank account.

detected the incident in a time that management believes minimized any financial, operational or reputational risk to the Company, we

believe this early detection will result in an immaterial impact to the Company’s financial results and at no point was our ability

to generate revenues disrupted.

We, along with our external cybersecurity experts, are continuing to work diligently to fully investigate

and assess the impact of the incident and we have notified, and are cooperating with, federal law enforcement.

As the investigation of

the incident is ongoing, the full scope, nature and impact of the incident are not yet fully known.

Re-Launch, Oaktree Second Amendment and Draw

October 2024, we announced the re-launch of TRIESENCE following the successful manufacturing of three process performance

qualification batches of the product.

In connection with the re-launch, during October 2024 we made a one-time payment of

$37,000,000 to Novartis Technology, LLC and Novartis Innovative Therapies AG (together, “Novartis”) pursuant to terms of

an asset purchase agreement between Novartis and the Company.

Also, during October 2024, we entered into the Second Amendment (the “Second Amendment”) to the Credit Agreement and Guaranty originally entered into

on March 27, 2023, as amended by that certain First Amendment to Credit Agreement and Guaranty and Consent, dated as of July 18,

2023 (as amended, the “Oaktree Loan”), with the lenders from time to time party thereto and Oaktree Fund Administration,

LLC, as administrative agent for the lenders (“Oaktree”).

Upon satisfaction of certain conditions to funding,

the Company drew down the principal amount of $30,000,000 (the “$30,000,000 Draw”) under a pre-existing commitment under

the Oaktree Loan to partially fund the one-time payment to Novartis.

the Second Amendment, the Company and Oaktree agreed to certain changes to the Oaktree Loan in connection with the Company’s draw

under the Oaktree Loan.

Pursuant to the amendment, Oaktree agreed to waive any make-whole costs associated with the $30,000,000 Draw

in the event of early repayment of the debt under the Oaktree Loan if paid before March 31, 2025.

In addition, Oaktree agreed to exclude

the $30,000,000 Draw from the calculation of the Total Leverage Ratio as defined in the Oaktree Loan.

No other material changes to the

Oaktree Loan were provided in the Second Amendment.

entry into the Second Amendment and the funding of the Novartis milestone payment, the Company has drawn down a total principal loan

amount of $107,500,000 under the Oaktree Loan and no additional principal loan amount remains available to the Company under the Oaktree

Apotex - Canadian Out-License

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

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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.

licenses, Harrow will earn amounts related to manufacturing, regulatory and commercial achievement milestones, in addition to royalties

on net sales of the Apotex Products.

Reimbursement

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

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.

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.

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

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of Operations

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.

following period-to-period comparisons of our financial results for the three and nine months ended September 30, 2024 and 2023 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

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arrangements.

following presents our revenues:

The following presents our revenues:

For the Three Months Ended

For the Six Months Ended

Product sales, net

Other revenues

Total revenues

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.

For the Nine Months Ended

September 30,

Other branded products (Anterior Segment)

Other revenues, net

(10,2109,000 )

Branded revenue, net

ImprimisRx revenue, net

Total revenues, net

$ 132,783,000

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

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

following presents our cost of sales:

following presents our Branded cost of sales:

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Cost of sales

increase in our cost of sales was largely attributable to expenses associated with unit volumes sold and increased direct and indirect

costs associated with production of our products.

increase in our Branded cost of sales was largely attributable to expenses associated with unit volumes sold.

following presents our ImprimisRx cost of sales:

For the Three Months Ended

For the Nine Months Ended

September 30,

Cost of sales

increase in our ImprimisRx cost of sales was largely attributable to expenses associated with unit volumes sold and increased direct

and indirect costs associated with production of our products.

Profit and Margin

For the Three Months Ended

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.

For the Nine Months Ended

September 30,

increase in Branded gross margin between the three and nine months ended September 30, 2024 and 2023 was primarily attributable to an

increase in sales reducing the impact of our fixed expenses, such as license amortization.

For the Three Months Ended

For the Nine Months Ended

September 30,

General and Administrative Expenses

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and formulations.

following presents our selling, general and administrative expenses:

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Selling, general and administrative

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VEVYE in December 2023.

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

the prior year period.

Stock-based compensation expense increased by $1,227,000 during the nine months ended September 30, 2024 compared

to the prior year period.

and Development Expenses

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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

the Three Months Ended

the Nine Months Ended

and development

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

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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.

expense, net was $5,525,000 and $16,411,000 for the three and nine months ended September 30, 2024, respectively, compared to $5,749,000

and $16,200,000 for the same periods in 2023, respectively.

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

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

The increase during the nine months ended September

30, 2024 compared to the same period in 2023 was primarily the result from the increase in the outstanding principal amount of our debt

(Loss) Gain from Eton

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.

the nine months ended September 30, 2024, we recorded a loss of $3,171,000 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 gain of $1,348,000

and gain of $2,676,000 during the three and nine months ended September 30, 2023, respectively.

on Extinguishment of Debt

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.

the nine months ended September 30, 2023, we recorded a loss on extinguishment of debt of $5,465,000, related to the early payoff of

the three and nine months ended September 30, 2024, we recorded other income of $4,000 and $76,000, respectively, related to a sublease

of lab and office space in Nashville.

During the three and nine months ended September 30, 2023, we recorded other expense, net of $195,000

and $344,000, 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 June 30, 2024 was $70,968,000, compared to $74,085,000 at December 31, 2023.

cash on hand at September 30, 2024 was $72,601,000, compared to $74,085,000 at December 31, 2023.

October 2024, we made a one-time payment of $37,000,000 upon the achievement of a milestone associated with one of our asset

purchase agreements which was funded, in part, from our availability under the delayed draw commitments of our Oaktree debt

of the date of this Quarterly Report, we believe that our cash and cash equivalents will be sufficient to sustain our planned level of

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following provides detailed information about our net cash flows:

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Net cash (used in) provided by:

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Cash and cash equivalents at end of the period

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

cash used in operating activities during the nine months ended September 30, 2024 was $(4,423,000) compared to $(4,856,000) 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.

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

to changes in our working capital balances including accounts receivable, accounts payable, prepaid expenses and inventories.

cash provided by (used in) investing activities during the nine months ended September 30, 2024 was $4,396,000 compared to $(152,350,000)

during the same period in the prior year.

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

products completed in 2023.

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

cash (used in) provided by financing activities during the nine months ended September 30, 2024 and 2023 was $(1,457,000) and $126,546,000,

respectively.

Cash used in financing activities during the nine months ended September 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 nine months

ended September 30, 2023 was primarily related to proceeds received from the sale of notes and common stock 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

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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