HARROW, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”). Our condensed consolidated financial statements have been prepared and, unless otherwise stated, the information derived therefrom as presented in this discussion and analysis is presented, in accordance with GAAP. The information contained in this Quarterly Report is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2025 and subsequent reports, which discuss our business in greater detail. As used in this discussion and analysis, unless the context indicates otherwise, the terms the “Company,” “Harrow,” “we,” “us” and “our” refer to Harrow, Inc. and its consolidated subsidiaries, including ImprimisRx, LLC, ImprimisRx NJ, LLC dba ImprimisRx, Imprimis NJOF, LLC, Harrow IP, LLC and Harrow Eye, LLC. In this discussion and analysis, we refer to our consolidated subsidiaries ImprimisRx, LLC, ImprimisRx NJ, LLC and Imprimis NJOF, LLC collectively as “ImprimisRx.” In addition to historical information, the following discussion contains forward-looking statements regarding future events and our future performance. In some cases, you can identify forward-looking statements by terminology such as “will,” “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential” or “continue” or the negative of these terms or other comparable terminology. All statements made in this Quarterly Report other than statements of historical fact are forward-looking statements. These forward-looking statements involve risks and uncertainties and reflect only our current views, expectations and assumptions with respect to future events and our future performance. If risks or uncertainties materialize or assumptions prove incorrect, actual results or events could differ materially from those expressed or implied by such forward-looking statements. Risks that could cause actual results to differ from those expressed or implied by the forward-looking statements we make include, among others, risks related to: 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, refinance and otherwise 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; the ongoing communications with the U.S. Food and Drug Administration relating to compliance and quality plans at our outsourcing facility in New Jersey; 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 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. Overview We are a leading eyecare pharmaceutical company engaged in the discovery, development, and commercialization of innovative ophthalmic pharmaceutical products for the U.S. market. We help U.S. eyecare professionals preserve the gift of sight by making our 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 North America, all of which are marketed under the Harrow name. We also own and operate ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical-compounding businesses. 19 Factors Affecting Our Performance We 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, avoid or mitigate any 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. All of these activities may 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. Recent Developments The following 2026 activity is important to understanding 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. 8.625% Senior Notes Due 2030 In March 2026, we entered into the First Supplemental Indenture to the Indenture dated September 12, 2025 pursuant to which we issued $50,000,000 aggregate principal amount of additional 8.625% Senior Notes due 2030 (the “New Notes”). The New Notes were issued at 100.25% of par value and resulted in net proceeds to us of $48,526,000 after deducting underwriting discounts, commissions and other unpaid offering expenses of $1,474,000. The New Notes, together with the 8.625% Senior Notes due 2030 issued in September 2025 (the “Existing Notes”) (together, the “2030 Notes”) are treated as a single series and have the same terms as the Existing Notes. The issuance costs and premium relating to the New Notes were deferred and will be recognized to interest expense using the effective-interest method over the remaining term of the debt. Results of Operations The following period-to-period comparisons of our financial results for the three months ended March 31, 2026 and 2025 are not necessarily indicative of results for any future period. Revenues Our revenues include amounts recorded from sales of proprietary compounded formulations, sales of branded products to wholesalers through a third-party logistics facility, commissions from third parties and revenues received from royalty payments owed to us pursuant to out-license arrangements. Revenues are recognized net of estimates for variable consideration, including government rebates, commercial rebates, chargebacks, wholesaler and distribution service fees, returns, patient assistance programs and other revenue deductions, and these estimates may be affected by delayed or incomplete claims data, channel inventory, product utilization, payor mix, labeler-code or product attribution, government program requirements, contractual interpretation, and disputed or reconciled deductions. From time to time, we receive claims, invoices or deductions from government agencies, wholesalers, distributors, customers, former product owners or other third parties that we believe are unsupported, overstated, duplicative, attributable to another party or product, or otherwise inconsistent with applicable requirements, and if our estimates differ from actual results or disputed amounts are resolved adversely to us, we may be required to record adjustments to net revenues, gross margin, operating income, cash flows or related balance sheet accounts in future periods. 20 The following presents our revenues for the three months ended March 31, 2026 and 2025: For the Three Months Ended March 31, 2026 2025 Variance IHEEZO $ 1,851,000 $ 5,222,000 $ (3,371,000 ) VEVYE 20,947,000 21,516,000 (569,000 ) Other branded products 7,833,000 956,000 6,877,000 Other revenue, net 73,000 86,000 (13,000 ) Branded revenue, net 30,704,000 27,780,000 2,924,000 Compounding revenue, net 13,499,000 20,051,000 (6,552,000 ) Total revenues, net $ 44,203,000 $ 47,831,000 $ (3,628,000 ) The increase in Branded revenues from product sales was primarily related to a change in our customer mix, offset by a decrease in IHEEZO volume. The decrease in compounding revenue was primarily due to a decrease in volume and the discontinuation of sales of our Klarity-C compounded formulation which occurred during the second quarter of 2025. Our revenue for VEVYE decreased slightly from the three months ended March 31, 2025 as we recognized an increase in the gross-to-net revenue deductions associated with our recent coverage wins and our cash pay program. Cost of Sales, Gross Profit and Gross Margin Our 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 rights, and other related expenses. Branded Three Months Ended March 31, 2026 2025 $ Variance Cost of sales $ 10,954,000 $ 8,181,000 $ 2,773,000 Gross profit $ 19,750,000 $ 19,599,000 $ 151,000 Gross margin 64.3 % 70.6 % (6.3 )% The increase in Branded cost of sales was primarily attributable to an increase in units sold during the three months ended March 31, 2026 compared to the prior year period and an increase in our fixed expenses. The decrease in the gross margin as a percent of revenue was primarily due to a decrease in sales of products that have a higher gross margin profile and an increase in gross-to-net revenue deductions associated with VEVYE as a result of our recent coverage wins and our cash pay program which reduced the gross margin profile for the product. Compounding Three Months Ended March 31, 2026 2025 $ Variance Cost of sales $ 6,204,000 $ 7,343,000 $ (1,139,000 ) Gross profit $ 7,295,000 $ 12,708,000 $ (5,413,000 ) Gross margin 54.0 % 63.4 % (9.4 )% The decrease in Compounding costs of sales between the three months ended March 31, 2026 and 2025 was primarily attributable to a decrease in units sold. The decrease in the gross margin as a percent of revenue was largely due to a decrease in the utilization of our compounding facility during the three months ended March 31, 2026 compared to the same period in 2025. Selling, General and Administrative Expenses Our selling, general and administrative expenses include personnel costs, including wages and stock-based compensation, corporate facility 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. 21 The following presents our selling, general and administrative expenses for the three months ended March 31, 2026 and 2025: Three Months Ended March 31, 2026 2025 $ Variance Selling, general and administrative $ 43,230,000 $ 40,513,000 $ 2,717,000 The increase in selling, general and administrative expenses between periods was primarily due to an increase in personnel costs of $3,800,000 as we increased our headcount in sales, marketing and other departments to support current and expected growth partially offset by a decrease in stock-based compensation of $721,000 primarily due to market-based performance awards recognized in the three months ended March 31, 2025. Research 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. The following presents our research and development expenses for the three months ended March 31, 2026 and 2025: Three Months Ended March 31, 2026 2025 $ Variance Research and development $ 5,895,000 $ 3,026,000 $ 2,869,000 The increase in R&D expenses of $2,869,000 in the three months ended March 31, 2026 as compared to the same period in 2025 was primarily due to clinical trials associated with the Melt Pharmaceuticals, Inc. drug candidate we acquired in November 2025. Interest Expense, Net Interest expense, net was $5,497,000 for the three months ended March 31, 2026, compared to $6,548,000 for the same period in 2025. The decrease of $1,051,000 was primarily due to a lower effective interest rate during the three months ended March 31, 2026 compared to the same period in 2025. Liquidity and Capital Resources Liquidity Our cash on hand at March 31, 2026 was $94,644,000 compared to $72,927,000 at December 31, 2025. We believe that cash and cash equivalents of $94,644,000 at March 31, 2026 will be sufficient to sustain our planned level of operations and capital expenditures for at least the next 12 months. We may consider the sale of certain assets including, but not limited to, part of, or all of, our investments and any of our consolidated subsidiaries. However, we may pursue acquisitions of products, 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. We 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 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. 22 Net Cash Flow The following provides detailed information about our net cash flows for the three months ended March 31, 2026 and 2025: For the Three Months Ended March 31, 2026 2025 Net cash provided by (used in): Operating activities $ (8,992,000 ) $ 19,668,000 Investing activities (18,203,000 ) (212,000 ) Financing activities 48,912,000 23,000 Net change in cash and cash equivalents 21,717,000 19,479,000 Cash and cash equivalents at beginning of the period 72,927,000 47,247,000 Cash and cash equivalents at end of the period $ 94,644,000 $ 66,726,000 Operating Activities Net cash used in operating activities during the three months ended March 31, 2026 was $8,992,000 compared to net cash provided by operating activities of $19,668,000 during the same period in the prior year. The variance was primarily due to an increase in our net loss of $9,822,000. Additionally, we collected $39,196,000 in accounts receivable during the three months ended March 31, 2025 due to increased collection efforts. Investing Activities Net cash used in investing activities during the three months ended March 31, 2026 was $18,203,000 compared to $212,000 during the same period in the prior year. Cash used in investing activities in 2026 was primarily related to investments in our acquired product rights. Financing Activities Net cash provided by financing activities during the three months ended March 31, 2026 and 2025 was $48,912,000 and $23,000, respectively. We completed the sale of $50,000,000 in principal amount of 2030 Notes during the three months ended March 31, 2026. Sources of Capital During the three months ended March 31, 2026, our principal source of cash was from our financing activities. We expect future cash needs to be provided by operating activities, but our forecasts may not be accurate, and our plans may change. We may also sell some of our assets, or some or all of our ownership interests in our consolidated subsidiaries. In September 2025, we refinanced our long-term debt and entered into a revolving line of credit with Fifth Third Bank. The line of credit provides for an initial amount of $40,000,000 with an additional uncommitted amount of up to $20,000,000. The line of credit will mature in September 2030, or, if earlier, the date that is 91 days prior to the earliest maturity of our 2030 Notes. As of March 31, 2026, we have not drawn down on the line of credit. 23 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 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. We may be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions, conditions in the pharmaceuticals and pharmacy industries, or our operating history. In addition, the fact that we have a limited history of profitability could further impact the availability or cost to us of future financings. As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are acceptable to us. 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, which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue our operations entirely. Credit Ratings As of March 26, 2026, Moody’s Investors Service affirmed a Long-Term Corporate Family Rating of B3 to Harrow, Inc. and affirmed a Stable outlook. As of March 26, 2026, Fitch Ratings affirmed a Long-Term Issuer Default Rating of B- (Outlook Stable) to Harrow, Inc., and a rating of B to our senior unsecured notes due September 2030 with a Recovery Rating of RR3. Credit ratings are subject to revision or withdrawal at any time by the issuing agencies and should not be construed as a recommendation to purchase, hold or sell securities or as a guarantee of our future performance. To the best of our knowledge, there have been no further changes to these ratings as of the date of this filing. Any downgrade in our corporate or senior unsecured debt rating may increase our cost of borrowing and may negatively impact our ability to raise additional debt capital. Recently Issued and Adopted Accounting Pronouncements See Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report.