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, or complete pending acquisitions on terms and in the timeframe expected, or at all, 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. 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 17 Table of Contents 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 $ 48,445,000 after deducting underwriting discounts, commissions and other offering expenses of $ 1,555,000 . 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 as interest expense using the effective-interest method over the remaining term of the debt. Acquisition of TYRVAYA ® In August 2026, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Viatris Inc. and certain of its subsidiaries (collectively, “Viatris”), pursuant to which we agreed to acquire the global rights to TYRVAYA ® (varenicline solution) nasal spray 0.03% (“TYRVAYA”), a cholinergic agonist indicated for the treatment of the signs and symptoms of dry eye disease (the “Acquisition”). As consideration for the Acquisition, we will pay Viatris $30,000,000 in cash at the closing of the Acquisition (the “Closing”) and have agreed to pay up to an additional $70,000,000 in contingent milestone payments, payable if specified annual net sales thresholds for TYRVAYA are achieved in certain calendar years following the Closing. The Company expects to fund the cash payment due at Closing with cash on hand. The purchase price is subject to a customary post-closing adjustment based on the net working capital transferred at the Closing. Results of Operations The following period-to-period comparisons of our financial results for the three and six months ended June 30, 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. 18 Table of Contents The following presents our revenues for the three and six months ended June 30, 2026 and 2025: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 Variance 2026 2025 Variance IHEEZO $ 15,619,000 $ 18,336,000 $ (2,717,000) $ 17,535,000 $ 23,558,000 $ (6,023,000) VEVYE 29,387,000 18,641,000 10,746,000 50,335,000 40,156,000 10,179,000 Other branded products 11,009,000 5,212,000 5,797,000 18,776,000 6,169,000 12,607,000 Other revenues 90,000 85,000 5,000 163,000 171,000 (8,000) Branded revenue, net 56,105,000 42,274,000 13,831,000 86,809,000 70,054,000 16,755,000 Compounding revenue, net 14,556,000 21,468,000 (6,912,000) 28,055,000 41,519,000 (13,464,000) Total revenues, net $ 70,661,000 $ 63,742,000 $ 6,919,000 $ 114,864,000 $ 111,573,000 $ 3,291,000 The increase in Branded revenues was primarily related to an increase in VEVYE volume and other branded products, such as TRIESENCE, offset by a decrease in IHEEZO volume for both the three and six months ended June 30, 2026 compared to the same periods in 2025. 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. 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 June 30, Six Months Ended June 30, 2026 2025 Variance 2026 2025 Variance Cost of Sales $ 13,434,000 $ 8,734,000 $ 4,700,000 $ 24,389,000 $ 16,915,000 $ 7,474,000 Gross profit $ 42,671,000 $ 33,540,000 $ 9,131,000 $ 62,420,000 $ 53,139,000 $ 9,281,000 Gross margin 76.1 % 79.3 % (3.2) % 71.9 % 75.9 % (4.0) % The decrease in gross margin during the three and six months ended June 30, 2026 compared to the same periods in 2025 was primarily due to a change in the product mix, pricing associated with VEVYE, and an increase in fixed costs associated with the amortization of intangible assets between the periods. Compounding Three Months Ended June 30, Six Months Ended June 30, 2026 2025 Variance 2026 2025 Variance Cost of Sales $ 6,864,000 $ 7,496,000 $ (632,000) $ 13,067,000 $ 14,839,000 $ (1,772,000) Gross profit $ 7,692,000 $ 13,972,000 $ (6,280,000) $ 14,988,000 $ 26,680,000 $ (11,692,000) Gross margin 52.8 % 65.1 % (12.3) % 53.4 % 64.3 % (10.9) % The decrease in the gross margin for the three and six months ended June 30, 2026 compared to the same periods in 2025 was primarily due to a decrease in overall revenue and unit volumes along with higher inventory losses, unfavorable manufacturing absorption, increased personnel costs and increased analytical testing. 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 19 Table of Contents well as costs associated with our marketing activities and sales of our proprietary compounded formulations and other non-proprietary pharmacy products and formulations. The following presents our selling, general and administrative expenses for the three and six months ended June 30, 2026 and 2025: Three Months Ended June 30, Six Months Ended June 30, 2026 2025 Variance 2026 2025 Variance Selling, general and administrative $ 53,298,000 $ 33,235,000 $ 20,063,000 $ 96,528,000 $ 73,748,000 $ 22,780,000 The increase in selling, general and administrative expenses for the three and six months ended June 30, 2026 compared to the same periods in 2025 was primarily due to increased personnel-related costs, including stock-based compensation, and consulting expenses, of $15,985,000 and $19,647,000, respectively, largely as a result of an increase in our headcount in sales, marketing and other departments, including quality and compliance, to support current and expected growth. In addition, there was an increase in variable costs during the periods and costs due to the increase in sample utilization of branded products. 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 and six months ended June 30, 2026 and 2025 : Three Months Ended June 30, Six Months Ended June 30, 2026 2025 Variance 2026 2025 Variance Research and development $ 8,072,000 $ 2,868,000 $ 5,204,000 $ 13,967,000 $ 5,894,000 $ 8,073,000 The increase in R&D expenses of $5,204,000 and $8,073,000 in the three and six months ended June 30, 2026, respectively, compared to the same periods 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 $6,263,000 and $11,760,000 for the three and six months ended June 30, 2026, compared to $6,408,000 and $12,956,000 for the same periods in 2025. The decrease in both periods was primarily due to a lower effective interest rate during the three and six months ended June 30, 2026 compared to the same periods in 2025. Liquidity and Capital Resources Liquidity Our cash on hand at June 30, 2026 was $83,889,000 compared to $72,927,000 at December 31, 2025. We believe that cash and cash equivalents of $83,889,000 at June 30, 2026 will be sufficient to sustain our planned level of operations, capital expenditures and acquisitions 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, 20 Table of Contents pharmacies, outsourcing facilities, drug companies 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. Net Cash Flow The following provides detailed information about our net cash flows for the six months ended June 30, 2026 and 2025: Six Months Ended June 30, 2026 2025 Net cash (used in) provided by: Operating activities $ (18,747,000) $ 18,865,000 Investing activities (18,737,000) (505,000) Financing activities 48,446,000 (12,644,000) Net change in cash and cash equivalents 10,962,000 5,716,000 Cash at beginning of period 72,927,000 47,247,000 Cash at end of period $ 83,889,000 $ 52,963,000 Operating Activities Net cash used in operating activities during the six months ended June 30, 2026 was $18,747,000 compared to net cash provided by operating activities of $18,865,000 during the same period in the prior year. The variance was primarily due to an increase in our net loss of $32,087,000 between the periods and an unfavorable change in accounts receivable, which increased by $7,369,000 during the 2026 period, resulting in a use of cash, compared with a decrease of $37,211,000 during the 2025 period, which provided cash. Investing Activities Net cash used in investing activities during the six months ended June 30, 2026 was $18,737,000 compared to $505,000 during the same period in the prior year. Cash used in investing activities in 2026 was primarily attributable to milestone payments related to acquired Branded product rights. Financing Activities Net cash provided by financing activities during the six months ended June 30, 2026 was $48,446,000 compared to cash used in financing activities during the six months ended June 30, 2025 of $12,644,000. We completed the sale of $50,000,000 in principal amount of 2030 Notes during the six months ended June 30, 2026. The cash used in financing activities during the six months ended June 30, 2025 was primarily the payment of payroll related taxes associated with the issuance of equity awards. Sources of Capital During the six months ended June 30, 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 June 30, 2026, we have not drawn down on the line of credit. 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 21 Table of Contents 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 July 31, 2026, Moody’s Investors Service maintained a Long-Term Corporate Family Rating of B3 for Harrow, Inc. with a Stable Outlook and Fitch Ratings maintained a Long-Term Issuer Default Rating of B- with a Stable Outlook for Harrow, Inc. and a rating of B for our senior unsecured notes due September 2030, with a Recovery Rating of RR3. These ratings were most recently affirmed in March 2026 and have not changed since that time. Credit ratings are subject to revision or withdrawal at any time by the applicable rating agency and do not constitute a recommendation to purchase, hold or sell securities or a guarantee of our future performance. Any downgrade of our corporate or senior unsecured debt ratings could increase our borrowing costs and adversely affect 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.