HROW 10-K & 10-Q changes, risk factors and insider trading
Harrow, Inc. · Nasdaq · Pharmaceutical Preparations · CIK 1360214 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Our compounding operations and our broader pharmaceutical business are subject to significant regulatory, quality, and commercial risks, and we may not achieve our objectives for these operations.”
New heading “Our current and future use of artificial intelligence (“AI”), including by third-party vendors we rely on, may create new operational, regulatory, legal, and reputational risks, and may adversely affect our business.”
New heading “Global macroeconomic conditions could adversely affect our business and results of operations.”
New heading “Change in U.S. trade policy, including tariffs or other import restrictions, could increase our costs, disrupt our supply chain, and adversely affect our business.”
New heading “Disruptions at the FDA, CMS, the SEC, and other government agencies—due to funding lapses, shutdowns, staffing constraints, reorganizations, or shifting policy priorities—could adversely affect our business and results of operations.”
Removed heading “We sell our proprietary formulations primarily through pharmaceutical compounding facilities we own, but we may not be successful in our efforts to integrate these businesses into our operations.”
Removed heading “We are dependent on market acceptance of compounding pharmacies and compounded formulations, and physicians may be unwilling to prescribe, and patients may be unwilling to use, our proprietary customizable compounded formulations.”
Removed heading “Our business and operations could suffer in the event of cybersecurity or other system failures.”
Removed heading “The indenture under which the Notes were issued contains limited protection for holders of the Notes.”
Removed heading “An increase in market interest rates could result in a decrease in the value of the Notes.”
Removed heading “A lack of an active trading market for the Notes could adversely affect the market price of the Notes or limit a holder’s ability to sell them.”
Removed heading “The rating for the Notes could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency.”
Largest changes
“In addition, the indenture does not include any protection against certain events, such as a change of control, leveraged recapitalization, “going private” transaction (which may result in a significant increase of our indebtedness), restructuring or similar transactions. …”see in full comparison
“Despite the implementation of security measures, our internal computer systems and those of any third parties with which we partner are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. …”see in full comparison
“To assure compliance with USP guidelines, we have a policy whereby 100% of all sterile compound batches produced by our ImprimisRx compounding pharmacies are tested prior to their delivery to patients and physicians both in-house and externally by an FDA-registered laboratory that has represented to us that it operates in compliance with current good laboratory practices. …”see in full comparison
“We have received inspection observations, warning letters and other regulatory communications in the past from the FDA, and we continue to invest in quality systems, remediation activities, and compliance resources, including third-party support. If we are unable to maintain compliance, the FDA or other regulators could pursue enforcement actions, which may include additional warning letters, product seizures, recalls, restrictions on manufacturing or distribution, consent decrees, injunctions, civil or criminal penalties, or other measures. …”see in full comparison
“Sales of our branded products depend on the availability and extent of coverage and reimbursement from third-party payors, including government healthcare programs and private insurance plans. Governments and private payors continue to pursue initiatives to manage drug utilization and contain costs. Further, pressures on healthcare budgets from the pandemic, the economic downturn and inflation continue and are likely to increase across the markets we serve. …”see in full comparison
“Change in U.S. trade policy, including tariffs or other import restrictions, could increase our costs, disrupt our supply chain, and adversely affect our business.”see in full comparison
Full comparison: every changed paragraph (97)
Risks
Related to Government RegulationsRegulations, Trade Policy and Third-Party
Policies
You
should carefully consider
the following risk factors in addition to the other information contained in this Annual Report. Our business,
financial condition, results
of operations, and prices of our common stock and Notes could be materially adversely affected by any of these risks.
As
of December 31, 2024,2025, our
accumulated deficit was $(151,385,000).$156,524,000. Our current projections indicate that we will have operating income and/or
net income during
2025 2026; however, these projections may not be correct and our plans could change. Also, we could incur increasing operating losses
in the
foreseeable future for our commercialization activities, research and development, and our pharmaceutical compounding business,
which which
would impact net income. Although we have been generating revenue from our operations, our ability to generate the revenues necessary
to achieve and maintain profitability will depend on many factors, including those discussed in this “Risk Factors” section.
Our business plan and strategies involve costly activities that are susceptible to failure, and, therefore, we may not be able to generate
sufficient revenue to support and sustain our business or reach the level of sales and revenues necessary to achieve and sustain profitability.
Our business plan involves the sale and marketing of FDA-approved products, compounded formulations and development of drug candidates through third-party wholesaler and pharmacy channels and our ImprimisRx facilities. We have limited experience selling FDA-approved products, and we may be unable to successfully manage this business or generate sufficient revenue to recover our development costs and operational expenses. We may have only limited success in marketing and selling our products. Although we have established and plan to grow our internal sales teams to market and sell our products, we have limited experience with such activities and may not be able to generate sufficient physician and patient interest in our products to generate significant revenue from sales of these products.
The
success of our product
acquisitions will depend on, among other things, our ability to integrate the products into our commercial platform,
transfer the
products NDAs, maintain and obtain sufficient payor reimbursement coverage, maintain an adequate supply of the products,
market the
products to our existing customers and re-introduce TRIESENCEBYOOVIZ to the ophthalmic market. If we experience difficulties with the
implementation of plans with respect to our acquisitions, the anticipated benefits of recent or future acquisitions may not be realized
realized fully or at all, or may take longer to realize than expected. Integration efforts will also divert management’s
attention and resources.
These matters could have an adverse effect during any transition period and for an undetermined period
after completion of the acquisitions.
The
estimates of our future
operating and capital expenditures are based upon our current business plan, our current operations and our current
expectations expectations
regarding theproduct commercialization of our proprietary formulations.sales. Our projections have varied significantly from actual performance
in the past as a result of changes
to our business model, strategy and acquisitions. We may not accurately estimate the potential
revenues and expenses of our operations.
If we are unable to correctly estimate the amount of cash necessary to fund our business,
we could spend our available financial resources
much faster than we expect. If we do not have sufficient funds to continue to
operate and develop our business, we could be required
to seek additional financing earlier than we expect, which may not be
available when needed or at all, or be forced to delay, scale back
or eliminate some or all of our proposed operations.
We
plan to pursue the development
of new FDA approved products and drug candidates which may include continued activities to develop and
commercialize current assets or,
if and as opportunities arise, potential acquisitions of new intellectual property rights and assets.
We have historically relied, and
and, to a certain extent, we expect to continue to rely, primarily upon third parties to provide us with
additional development opportunities. We may seek to enter
into acquisition agreements or licensing arrangements to obtain rights to
develop new formulations and FDA approved products in the future,
but only if we are able to identify attractive products and formulations
and negotiate acquisition or license agreements on terms acceptable
to us, which we may not be able to do. Moreover, we have limited
resources to acquire additional potential product development assets
and integrate them into our business. Acquisition opportunities
may involve competition among several potential purchasers, which could
include large multi-national pharmaceutical companies and other
competitors that have access to greater financial resources than we do.
If we are unable to obtain rights to development and commercial
opportunities from third parties and we are unable to rely upon our compounding
pharmacies and current and future relationships with
pharmacists, physicians and other inventors to provide us with additional development
opportunities, our growth and prospects could be
limited.
Our
product development strategy
is to focus on ophthalmology and eye care related products and formulations for which we believe there is broad market potential, large
unmet needs and/or unique value to physicians and patients and to develop and offer formulations and products within these therapeutic
areas that could
afford us with gross and operating margins consistent with our current and historical figures. However, our expectations
and assumptions
about market potential and patient needs may prove to be wrong, and we may invest capital and other resources on products,
drug candidates,
and formulations that do not generate sufficient revenues for us to recoup our investment.
In January 2026 debt in the
amount of $107,500,000 principal amount becomes due under the Oaktree Loan. The maturity of this debt obligation without a
refinancing event could raise substantial doubt about the Company’s ability to continue as a going concern. While the Company
is currently in discussions with its current senior secured lender and other potential lenders about refinancing and management
believes it is probable that the Company will be able to refinance such amount based on the Company’s collateral strength and expected cash flows
from operations, there can be no assurance that the Company
completes a refinancing on terms acceptable to it, or at all. If the Company is unable to successfully refinance the Oaktree Loan,
the Company does not expect to have the ability to repay the amount in full. The Company believes that one of the other alternatives
available to it is the sale of one or more of the Company’s assets. There can be no assurance that any sale could be completed
on a timely basis or on terms acceptable to the Company.
We have raised over $375,000,000
in gross proceeds through equity and debt financings since 2021. We may seek to obtain additional capital through equity or debt financings,
funding from corporate partnerships or licensing arrangements,
sales of assets or other financing transactions. If we issue additional
equity or convertible debt securities to raise 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 and licensing
arrangements or sales of assets, we may have to relinquish potentially
valuable rights to our drug candidates or proprietary technologies,
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 those loans 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 options, convertible
notes and warrants, which would adversely impact our
financial results.
If we are unable to establish, train and maintain an effective sales and marketing infrastructure, we will not be able to commercialize our drug products and candidates successfully.
We
have built an internal sales
and marketing infrastructure to implement our business plan by developing internal sales teams and education
campaigns to market our
proprietary formulations and FDA-approved drug products. We will need to expend significant resources to further establish and grow this
internal infrastructure
and properly train sales personnel with respect to regulatory compliance matters. We may also choose to engage
or enter into other arrangements
with third parties to provide sales and marketing services for us in place of or to supplement our internal
commercialization infrastructure.
We may not be able to secure sales personnel or relationships with third-party sales organizations
that are adequate in number or expertise
to successfully market and sell our proprietary formulations, drug products and pharmacy services.
Further, any third-party organizations
we may seek to partner with or engage may not be able to provide sales and marketing services
in accordance with our expectations and
standards, may be more expensive than we can afford or may not be available on otherwise acceptable
terms or at all. If we are unable
to establish and maintain compliant and adequate sales and marketing capabilities, through our own
internal infrastructure or third-party
services or other arrangements, we may be unable to sell our formulations, drug products or services
or generate meaningful revenues.
If
any aof our products, compounded drugformulations, formulationor providedproduct through
ourcandidates compoundingcause, servicesor leadsare alleged to have caused, patient injury or deathdeath, or
are subject to a recall or resultsother incorrective a product recall,action, we maycould be exposed toface significant liabilities
and reputational harm.harm
Our business depends on the safety, quality, and performance of our products and services, as well as the perceptions of physicians, patients, regulators, and other stakeholders. We market and sell FDA-approved branded pharmaceutical products, we provide compounded formulations through our pharmacy operations, and we are developing additional product candidates. Any actual or perceived safety, quality, labeling, manufacturing, storage, distribution, or use-related issue involving any of our products, compounded formulations, or product candidates—including contamination, sterility failures, defects, adverse events, medication errors, misuse, off-label use, inadequate warnings, or quality concerns related to raw materials or components—could result in negative publicity, product complaints, regulatory scrutiny, loss of customer confidence, reduced demand, and harm to our reputation.
In addition, we may be subject to voluntary or involuntary recalls, market withdrawals, field corrections, “Dear Healthcare Provider” letters, product discontinuations, or other corrective actions, whether initiated by us, required by the FDA, state boards of pharmacy, or other regulators, or prompted by third parties in our supply chain. Such events could also lead to inspections, warning letters, enforcement actions, increased oversight, remediation costs, and, with respect to our pharmacy operations, the suspension, restriction, non-renewal, or loss of pharmacy licenses or registrations in one or more jurisdictions. Even if a safety or quality event ultimately is determined to be unrelated to our products or results from a false positive, isolated incident, or a third party’s actions, the resulting reputational and operational impacts could be significant.
If any of these events occur, we could incur substantial costs, including product and professional liability claims, litigation and settlement expenses, regulatory penalties, remediation and recall costs, increased insurance costs (or reduced availability of insurance), and lost revenue due to reduced prescribing, reduced utilization, supply disruption, or delays in development and commercialization. Any such outcomes could materially and adversely affect our business, financial condition, results of operations, and cash flows.
The success of our business,
including our proprietary formulations and pharmacy operations, is highly dependent upon medical and patient perceptions of us and the
actual safety and quality of our products. We could be adversely affected if we, any other compounding pharmacies or our formulations
and technologies are subject to negative publicity. We could also be adversely affected if any of our formulations or other products
we sell, any similar products sold by other companies, or any products sold by other compounding pharmacies prove to be, or are asserted
to be, harmful to patients. For instance, if any of the components of approved drugs or other ingredients used to produce our compounded
formulations have quality or other problems that adversely affect the finished compounded preparations, our sales could be adversely
affected. Because of our dependence upon medical and patient perceptions, adverse publicity associated with illness or other adverse
effects resulting from the use or misuse of our products, any similar products sold by other companies, or any other compounded formulations
could have a material adverse impact on our business.
To assure compliance with USP
guidelines, we have a policy whereby 100% of all sterile compound batches produced by our ImprimisRx compounding pharmacies are tested
prior to their delivery to patients and physicians both in-house and externally by an FDA-registered laboratory that has represented
to us that it operates in compliance with current good laboratory practices. However, we could still become subject to product recalls
and termination or suspension of our state pharmacy licenses if we fail to fully implement this policy, if the laboratory testing does
not identify all contaminated products, or if our products otherwise cause or appear to have caused injury or harm to patients. In addition,
laboratory testing may produce false positives, which could harm our business and impact our pharmacy operations and licensure even if
the impacted formulations are ultimately found to be sterile and no patients are harmed by them. If adverse events or deaths or a product
recall, either voluntarily or as required by the FDA or a state board of pharmacy, were associated with one of our proprietary formulations
or any compounds prepared by our ImprimisRx compounding pharmacies or any pharmacy partner, our reputation could suffer, physicians may
be unwilling to prescribe our proprietary formulations or order any prescriptions from such pharmacies, we could become subject to product
and professional liability lawsuits, and our state pharmacy licenses could be terminated or restricted. If any of these events were to
occur, we may be subject to significant litigation or other costs and loss of revenue, and we may be unable to continue our pharmacy
operations and further develop and commercialize our proprietary formulations.
Our compounding operations and our broader pharmaceutical business are subject to significant regulatory, quality, and commercial risks, and we may not achieve our objectives for these operations.
Our operations are subject to extensive federal and state regulation and oversight. This includes licensure and operational requirements applicable to our pharmacy and compounding activities, and FDA and other regulatory requirements applicable to the development, manufacture, labeling, promotion, and distribution of our FDA-approved branded products and product candidates. Failure to obtain, maintain, renew, or comply with required licenses, registrations, approvals, permits, or quality standards, or changes in applicable laws, regulations, guidance, or enforcement priorities, could restrict or delay our ability to operate in one or more jurisdictions, delay development or commercialization activities, increase compliance and remediation costs, or result in warnings, inspections, product seizures, recalls, injunctions, civil or criminal penalties, or other enforcement actions.
Compounded formulations are not FDA-approved drug products and may face limited acceptance, reimbursement constraints, and competition from FDA-approved alternatives. Negative publicity or regulatory activity involving compounding pharmacies (whether or not involving us) could also reduce demand for compounded products. We have previously received FDA regulatory observations and communications relating to our compounding operations, including with respect to our 503B outsourcing facility and certain pharmacy operations, and we continue to invest in compliance and quality initiatives. See “We have been in discussions with the FDA regarding past inspections of our 503B facility, and to the extent we are unable to demonstrate compliance with cGMPs and other required regulations, the government could pursue enforcement actions, the effects of which could be costly to us and could result in adverse consequences to our business.”
Our FDA-approved branded products and product candidates are subject to significant regulatory and commercial risks, including risks related to manufacturing quality and supply chain reliability, labeling and promotional restrictions, competitive dynamics (including from generics, biosimilars, and alternative therapies), and pricing and reimbursement pressures. We may incur significant costs to maintain and enhance quality systems, satisfy regulatory requirements, and respond to inspections or other regulatory inquiries, and these efforts may divert resources from other parts of our business and may not produce the intended benefits. If physicians, patients, or third-party payors are unwilling to prescribe, use, or reimburse our compounded formulations, branded products, or future product candidates, or if our operations are constrained by regulatory actions, licensure limitations, or increased compliance burdens, our business, financial condition, results of operations, and cash flows could be materially and adversely affected.
We sell our proprietary formulations primarily
through pharmaceutical compounding facilities we own, but we may not be successful in our efforts to integrate these businesses into
our operations.
We currently have two compounding
facilities in New Jersey. We have developed “ImprimisRx” as a uniform brand for our compounding pharmaceutical business.
As we have in the past purchased and operated certain pharmaceutical compounding businesses and pharmacies and subsequently divested
or sold those associated assets, we may pursue similar strategies in the future. Those things considered, we may experience difficulties
implementing and/or executing on our compounding pharmacy strategy, including difficulties that arise as a result of our lack of experience,
and we may be unsuccessful and our plans may change materially. For instance:
Moreover, all our efforts to
expand pharmacy operations will involve significant costs and other resources, which we may not be able to afford and may disrupt our
other operations and distract management and employees from the other aspects of our business. As a result, our business could materially
suffer if we are unable to further develop a group of unified compounding facilities and, even if we are successful, we may be unable
to generate sufficient revenue to recover our costs.
We are dependent on market acceptance of compounding
pharmacies and compounded formulations, and physicians may be unwilling to prescribe, and patients may be unwilling to use, our proprietary
customizable compounded formulations.
We currently
distribute our proprietary formulations through compounding pharmacies and an outsourcing facility. Formulations prepared and dispensed
by compounding pharmacies contain FDA-approved ingredients, but are not themselves approved by the FDA. Thus, our compounded formulations
have not undergone the FDA approval process and only limited data, if any, may be available about the safety and efficacy of our formulations
for any particular indication. Certain compounding pharmacies have been subject to widespread negative media coverage in recent years,
and the actions of these pharmacies have resulted in increased scrutiny of compounding pharmacy activities from the FDA and state governmental
agencies. For example, the FDA has issued formal requests to compounding pharmacies and outsourcing facilities to conduct a recall of
all non-expired, purportedly sterile drug products and to cease sterile compounding operations due to lack of sterility assurance. As
a result, some health care providers may be reluctant to purchase and use compounded drugs. Our growth and future sales depend not only
on our ability to demonstrate in the face of increased scrutiny the quality and safety of our pharmacies and outsourcing facilities and
our compliance with more stringent regulatory standards at the federal and state levels, but also on the continued acceptance of compounded
drugs and formulations, particularly outsourced compounded drugs and formulations, in the marketplace.
An incident
similar to the fungal meningitis outbreak in 2012, which was caused by a compounding pharmacy employing a non-sterile-to-sterile business
model, could cause our customers to reduce their use of compounded formulations significantly or even stop using compounded drugs altogether.
States have in the past, and could in the future, enact regulations prohibiting or restricting the use of compounding pharmacies and
outsourcing facilities in response to such incidents. Such prohibitions or restrictions by states or reduced customer demand as a result
of an incident with compounded drugs and formulations could have a material adverse effect on our business, results of operations and
financial condition.
We have received multiple FDA
Forms 483, a MedWatch notice, warning letters and other regulatory notifications relating to issues at NJOF and our pharmacy RxNJ,
and have ongoing communications with the FDA about compliance and quality plans at NJOF. See “—We have been in discussions with the federal government regarding past FDA inspections of our 503B
facility, and to the extent we are unable to demonstrate compliance with cGMPs and other required regulations, the government could
pursue enforcement actions, the effects of which could be costly to us and could result in adverse consequences to our
business.” As a result of the MedWatch notice, warning letters and other regulatory notifications, some physicians may be
hesitant to prescribe and some patients may be hesitant to purchase and use non-FDA-approved compounded formulations, particularly
when an FDA-approved potential alternative is available. For other reasons, physicians may be unwilling to prescribe or patients may
be unwilling to use our proprietary compounded formulations, including, but not limited to, the following: legal prohibitions on our
ability to discuss the efficacy or safety of our formulations with potential users to the extent applicable data is available; our
pharmacy operations are primarily operating on a cash-pay basis and reimbursement may or may not be available from third-party
payors, including the government Medicare and Medicaid programs; and certain formulations are not required to be prepared and are
not presently being prepared in a manufacturing facility governed by cGMP requirements. Any failure by physicians, patients and/or
third-party payors to accept and embrace compounded formulations could substantially limit our market and cause our operations to
suffer.
Our business and operations
could suffer in the event of cybersecurity or other system failures.
Despite the implementation of
security measures, our internal computer systems and those of any third parties with which we partner are vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced
any cybersecurity or system failure, accident or breach to date that has been determined to have had a material impact, if a significant
event were to occur, it could result in a material disruption of our operations, substantial costs to rectify or correct the failure,
if possible, and potentially violation of HIPAA and other privacy laws applicable to our operations. For example, the California Consumer
Privacy Act (the “CCPA”) became effective on January 1, 2020 and gave California residents expanded rights to access and
require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about
how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for
data breaches that may increase data breach litigation. Although the CCPA includes exemptions for certain clinical trials data, and HIPAA-protected
health information, the law may increase our compliance costs and potential liability with respect to other personal information we collect
about California residents. The CCPA has prompted a number of proposals for new federal and state privacy legislation. Other countries
also have, or are developing, laws governing the collection, use and transmission of personal information, such as the General Data Protection
Regulation (“GDPR”) in the European Union (the “EU”) that became effective in May 2018 and the Personal Information
Protection and Electronic Documents Act that became effective in Canada in April 2000. We anticipate that over time we may expand our
business outside of the U.S. With such expansion, we would be subject to increased governmental regulation in the EU countries in which
we might operate, including the GDPR. These laws and similar laws adopted in the future could increase our potential liability, increase
our compliance costs and adversely affect our business. If any disruption or security breach resulted in a loss of or damage to our data
or applications or inappropriate disclosure of confidential or protected information, we could incur liability, further development of
our proprietary formulations could be delayed, and our pharmacy operations could be disrupted, subject to restriction or forced to terminate
their operations, any of which could severely harm our business and prospects.
A
breakdown of our
information technology systems, or a cyberattack or information security breach could significantly compromise the confidentiality,
integrity integrity
and availability of our information technology systems, network-connected control systems and/or our data, interrupt the operation
of of
our business and/orbusiness, affect our reputation.reputation and result in remediation costs, litigation, or regulatory inquiries.
Domestic
and global government regulators, our business partners, suppliers with whom we do business, companies that provide us or our partners
with business services and companies we have acquired or may acquire face similar risks. Security breaches of their systems or service
outages have adversely affected systems and could, in the future, affect our systems and security, leave us without access to important
systems, products, raw materials, components, services or information, or expose our confidential data or sensitive personal information.
An extended service outage affecting these or other vendors, particularly where such vendor is the single source from which we obtain
the services, could have a material adverse effect on our business or results of operations. For example, in February 2024, UnitedHealth
Group announced that a suspected nation-state associated cyber securitycybersecurity threat actor had gained access to some of the Change Healthcare
(“Change”) information technology systems. Change is the largest clearinghouse for medical claims in the U.S. While Harrow
was not directly impacted by this cybersecurity incident, it was reported that as a reaction to the cybersecurity incident, Change temporarily
disconnected over 100 related payment systems and Change was unable to process medical claims through its primary platforms. This resulted
in the delays to the revenue and cash collection cycle for several ASCs and physician offices, putting a strain on their cash resources.
While temporary, the cash constraints for these ASCs and physician offices, we believe, impacted sales of some of our products, such
as IHEEZO, during this disrupted period of time. In addition, we distribute our products in the U.S. primarily through three pharmaceutical
wholesalers, and a security breach that impairs the distribution operations of our wholesalers could significantly impair our ability
to deliver our products to healthcare providers and patients. There can be no assurance that our cybersecurity risk management program
and processes, including our policies, controls, or procedures, will be effective in protecting our information technology systems and
sensitive data.
We
are also subject to various
laws and regulations globally regarding privacy and data protection, including laws and regulations relating
to the collection, storage,
handling, use, disclosure, transfer and security of personal data. The legislative and regulatory environment
regarding privacy and data
protection is continuously evolving and developing and the subject of significant attention globally. For
example, we are subject to
the CCPA, which became effective in January 2020, which can result in substantial penalties for noncompliance.
The CCPA was amended in
late 2020, to create the California Privacy Rights Act to create opt inopt-in requirements for the use of sensitive
personal data and the formation
of a new dedicated agency for the enforcement of the law, the California Privacy Protection Agency. Similar
consumer privacy laws went
into effect in Virginia, Colorado, Utah, Connecticut and Florida in 2023. Consumer privacy laws were also
passed in 11 other states,
with the earliest effective dates later this year, and proposed in three additional states. Failure to comply
with these current and
future laws could result in significant penalties and reputational harm and could have a material adverse effect
on our business and
results of operations.
Our current and future use of artificial intelligence (“AI”), including by third-party vendors we rely on, may create new operational, regulatory, legal, and reputational risks, and may adversely affect our business.
We and certain third parties that support our business may use artificial intelligence and machine learning technologies, including generative AI tools, to automate or enhance workflows, analyze data, and support decision-making across functions. These technologies are rapidly evolving and can be difficult to evaluate and control, and they may produce inaccurate, incomplete, misleading, or biased outputs that are not readily detectable. If AI-supported processes, analyses, or content are flawed or used inappropriately, we could experience operational inefficiencies, delays, or other adverse impacts.
Because we operate in highly regulated markets, the use of AI may heighten our compliance and liability risks. For example, AI-assisted materials used in commercial, medical, quality, complaint handling, or safety-related activities could contain errors or omit context, and inadequate governance, documentation, or human oversight could increase regulatory scrutiny, remediation costs, or reputational harm. In addition, reliance on third parties to develop, implement, or operate AI-enabled systems may reduce our visibility into how outputs are generated and how controls are applied.
AI tools can also increase confidentiality, cybersecurity, privacy, and intellectual property risks. Use of third-party AI platforms by our employees or service providers may result in unintended disclosure, processing, or use of confidential information, proprietary know-how, or personal data, and may increase exposure to cyber threats, including social engineering. Further, laws, regulations, and enforcement priorities relating to AI are developing rapidly and may be inconsistent across jurisdictions, which could increase compliance costs, restrict certain uses, or require changes to our controls; conversely, if we do not adopt AI effectively relative to competitors, we may be disadvantaged in efficiency and speed.
Global macroeconomic conditions could adversely affect our business and results of operations.
Macroeconomic volatility—including changes in inflation, interest rates, credit availability, and broader financial market conditions—may adversely affect our business. These conditions can reduce demand for healthcare services, increase the portion of costs borne by patients, and pressure third-party payors’ budgets, which may negatively affect utilization of and reimbursement for our products.
Macroeconomic and geopolitical developments may also increase or destabilize our operating costs, including labor, freight, energy, and materials, and may contribute to supply chain disruption, vendor constraints, or counterparty financial distress. In addition, changes in trade policy and international conflicts may create further uncertainty and cost pressure. If these conditions persist or worsen, our sales, operating expenses, and results of operations could be adversely affected.
Our proprietary compounded formulationsThe
are comprised of active pharmaceutical ingredients that are components of drugs that have received marketing approval from the FDA, although
our proprietary compounded formulations have not themselves received FDA approval. FDA approval is not required in order to market and
sell our compounded formulations. We are pursuing FDA approval to market and sell drug candidates. The marketing and sale of thoseour drug
candidates, FDA-approved drugs and compounded formulations are subject to and must comply with extensive
state and federal statutes and
regulations governing those products and compounding pharmacies. These compounding statutes and regulations
include, among other things,
restrictions on compounding for office use or in advance of receiving a patient-specific prescription or,
for outsourcing facilities,
requirements regarding preparation, such as regular FDA inspections and cGMP requirements, prohibitions on
compounding drugs that are
essentially copies of FDA-approved drugs, limitations on the volume of compounded formulations that may be
sold across state lines, and
prohibitions on wholesaling or reselling. These and other restrictions on the activities of compounding
pharmacies and outsourcing facilities
may significantly limit the market available for compounded formulations, compared to the market
available for FDA-approved drugs.
On July 30, 2020, the FDA issued a notice for comments related to certain bulk drug substances to be removed from the 503B Bulk’s List (or Category 1 List). Included in this notice for comment were certain bulk drug substances which we currently use in some of our compounded products. In the event one or more of these bulk substances are ultimately removed from the Category 1 List, we intend to utilize commercially available versions of these substances or similar active pharmaceutical ingredients (“APIs”) as replacements of the bulk powders contained in our sterile products. In addition, nothing in the FDA’s notice affects the dispensing of bulk powder-containing products from our 503A pharmacy. Nonetheless, if all or some of the bulk drug substances we use are removed from the 503B Bulk’s List, this may result in a disruption in our operations, revenues and cash flows.
Federal and state compounding frameworks—including evolving FDA policies regarding interstate distribution and information-sharing—may change and could impose additional compliance obligations or restrict aspects of our compounding operations, which could adversely affect our results of operations.
On October
27, 2020, the FDA announced availability of a final Memorandum of Understanding, Addressing Certain Distributions of Compounded Human
Drug Products Between the State Board of Pharmacy or Other Appropriate State Agency and the Food and Drug Administration (the “Final
MOU”). The Final MOU describes the responsibilities of a state board of pharmacy, or other appropriate state agency that chooses
to sign the Final MOU, in investigating and responding to complaints related to drug products compounded in such state and distributed
outside such state and in addressing the interstate distribution of inordinate amounts of compounded human drug products. Additionally,
as part of the Final MOU, the FDA refined the definition of “inordinate amount,” a threshold for certain information identification
and sharing which does not place a limit on the distribution of compounded human drug products interstate by a pharmacy located in a
state that has entered into the Final MOU. Section 503A of the FDCA sets a 5% limit on compounded drugs distributed outside the state
by a pharmacist, pharmacy or physician located in a state that has not entered into the Final MOU.
In February
2022, the FDA said it would suspend implementation of the Final MOU and engage in a formal rulemaking process. During the rulemaking
process, the agency will not enter into new agreements with states based on the Final MOU. The FDA does not expect states that have signed
the Final MOU to carry out the activities described in the Final MOU. Thus, there is no reporting requirement for any pharmacy concerning
interstate shipments pursuant to Section 503A and will not be until the Final MOU is finalized through the rulemaking process, which
will include the engagement of a notice-and-comment and rulemaking period to implement certain provisions of Section 503A. The agency
indicated that the process may take “several years” to complete. In the same announcement, the FDA stated it does not intend
to enforce the statutory 5% limit on the distribution of compounded drugs out of the state in which they are compounded by compounders
located in states that do not sign the Final MOU for the duration of the rulemaking process.
We
have been in
discussions with the federal governmentFDA regarding past FDA inspections of our 503B facility, and to the extent we are unable to demonstrate
demonstrate compliance with cGMPs and other required regulations, the government could pursue enforcement actions, the effects of
which could be
costly to us and could result in adverse consequences to our business.
We have received inspection observations, warning letters and other regulatory communications in the past from the FDA, and we continue to invest in quality systems, remediation activities, and compliance resources, including third-party support. If we are unable to maintain compliance, the FDA or other regulators could pursue enforcement actions, which may include additional warning letters, product seizures, recalls, restrictions on manufacturing or distribution, consent decrees, injunctions, civil or criminal penalties, or other measures. Any such actions could increase costs, disrupt operations, and negatively affect our reputation, results of operations, and financial condition.
From March 2024 through April 2024, NJOF was inspected by the FDA (the “2024 Inspection”), and the FDA issued a Form 483 with five observations. During the first quarter of 2025, we engaged in separate but related discussions with the federal government regarding the NJOF quality system and the 2024 Inspection. NJOF voluntarily recalled certain products and provided regular updates to the FDA regarding its remediation activities and other commitments, including Project Beagle (as discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments.”). The government has notified us that these discussions are now closed. In October 2025, ImprimisRx, had an in-person meeting with the FDA to further present and discuss its efforts to remediate certain deficiencies at NJOF. At this meeting the FDA ultimately decided to allow ImprimisRx to continue with its remediation efforts on a voluntary basis with ImprimisRx providing a commitment to ongoing communication regarding its remediation efforts with the FDA.
In August 2017, the FDA issued
a MedWatch notification regarding a curcumin emulsion and two adverse events that had been associated with the use of these emulsions
by prescribing physicians. We issued a press release on August 7, 2017, clarifying certain facts regarding the notice which outlined
our belief that the adverse events associated with the two patients occurred due to an allergic reaction caused by the products being
inappropriately administered and obtained by the prescribing physician, and our use of curcumin and excipients in our curcumin emulsion
formulation met regulatory standards required for dispensing of the curcumin emulsion. In September 2017, the FDA released a letter confirming
that the alleged misuse of certain ingredients in our curcumin emulsions was due to mislabeling by the underlying supplier and not of
our own misdoing. We no longer compound curcumin emulsion products.
Separately, in December 2017,
we were issued a warning letter from the FDA alleging that, in its interpretation of our public communications, we had made false or
misleading claims and omitted risk and side effect information regarding certain of our ophthalmology-focused compounded medications.
We immediately performed a full review of our public communications referenced in the warning letter and responded to the FDA in January
2018; notwithstanding our continued belief that our public communications were not, in fact, false and misleading, we remained in communication
with the FDA and took steps to address the items outlined in the FDA letter. The Company received another warning letter from the FDA
in June 2022 related to our alleged marketing activities. We immediately responded to the warning letter and the FDA sent the Company
notice in January 2023 that our corrective actions appear adequate.
In June 2019, our New Jersey-based
outsourcing facility (“NJOF”) was issued a warning letter related to an April 2017 inspection and our use of certain active
pharmaceutical ingredients in our compounded medications. During September 2020 through January 2021, our New Jersey based outsourcing
facility was inspected by the FDA (the “2020 Inspection”) and certain observations were made by the FDA in a Form 483. Five
observations made during the 2020 Inspection were considered repeat observations from a 2017 FDA inspection. In addition, during the
2020 inspection, the FDA noted that we were compounding drugs for which there is no change that produces a clinical difference for an
individual patient, as determined by a prescribing practitioner between a compounded drug and the comparable approved drug. We have responded
to the FDA regarding all of their observations from the 2020 Inspection, including providing documentation from prescribing clinicians
that indicate a clinical difference between our compounded drugs and the comparable approved drugs, while also committing to amend our
order process to collect “medical necessity/clinical difference” information for each order of our compounded drugs on a
go-forward basis.
Our pharmacy was inspected in
August 2022 and received a Form 483 with several observations from the FDA. In May 2023, our pharmacy received a warning letter related
to the inspection that occurred in August 2022. The warning letter indicated that our corrective actions from the inspection had appeared
to be adequate; however, the FDA could not fully evaluate the adequacy of our actions because we did not include sufficient information
or supporting documentation. As an example, we stated that smoke studies related to airflow in our laminar airflow hoods had been redone
to satisfy FDA requirements, however, we did not provide the FDA with supporting documentation (such as smoke study protocol, updated
detailed report and/or videos). We have responded to this warning letter and provided the FDA with additional information requested.
From March 2024 through April 2024,
NJOF was inspected by the FDA (the “2024 Inspection”), and the FDA issued a Form 483 with five observations. Following the
2024 Inspection, NJOF voluntarily recalled certain products in coordination with the FDA. Since the 2024 Inspection, NJOF has provided
regular updates to the FDA regarding its remediation activities and other commitments, including providing the FDA with a comprehensive
update in February 2025. Since January 2025, we have engaged in separate but related discussions with the federal government regarding
the NJOF quality system and the 2024 Inspection. In support of our ongoing commitment to compliance, we engaged an independent third-party
current good manufacturing practices (“cGMP”) expert to review our NJOF operations and to recommend actions to improve our
compliance and quality activities (the “cGMP Expert Engagement”). The cGMP Expert Engagement is ongoing, and we expect to
regularly update the FDA regarding our compliance and quality activities.
These Future
regulatory actions
could increase further scrutiny and could create negative publicity on us as a company. As part of our commitment to actively
work work
with regulators, at times, we have become aware of concerns related to certain formulations, and as a result, discontinued compounding
compounding certain drug formulations in an attempt to help mitigate potential regulatory risk. For other reasons, including, but
not limited to, the following, physiciansPhysicians may be unwilling to prescribe or patients
may be unwilling to use our compounded
formulations for other reasons, including but not limited to, the following: legal prohibitions
on our ability to discuss the efficacy or safety of our formulations with potential users to the
extent applicable data is available;
our pharmacy operations are primarily operating on a cash-pay basis and reimbursement may or
may not be available from third-party payors,
including the government Medicare and Medicaid programs; and certain formulations are
not required to be prepared and are not presently
being prepared in a manufacturing facility governed by cGMP requirements. These
factors and any future regulatory action could continue
to limit our production, and our ability to dispense and distribute our
compounded products, which would negatively affect sales of our
compounded products.
If
we (or oura partner
facilities facility) fail to comply with the Controlled Substances Act, FDCA, or similar state statutes and regulations, the pharmacy
facilities facilities
could be required to cease operations or become subject to restrictions that could adversely affect our business.
Our pharmacy operations are subject to extensive federal and state laws and regulations. Many states require pharmacies that dispense pharmaceuticals into the state to be appropriately licensed or registered, and state controlled substance laws generally require registration and compliance with standards promulgated by state pharmacy and controlled substance authorities. These laws and regulations often address the qualifications of personnel, prescription fulfillment and inventory control practices, facility standards, recordkeeping, and related compliance obligations, and they subject pharmacies to oversight by state boards of pharmacy and other regulators that may impose corrective actions, enhanced oversight, or operational restrictions if a pharmacy is found not in compliance.
While we maintain compliance and quality programs intended to support adherence to applicable requirements, if any of our pharmacy operations (or a partner facility on which we rely) fail to comply with applicable laws or regulations, the affected operations could be required to temporarily or permanently limit or cease dispensing or compounding activities, which could adversely affect our ability to provide compounded formulations and could materially harm our business. Noncompliance could also result in adverse actions by state boards of pharmacy or other regulators. In addition, FDA inspections and related enforcement under the FDCA, including with respect to the exemptions applicable to compounders under Sections 503A and 503B, could result in warning letters, injunctions, fines, loss of exemptions, or other enforcement actions, any of which could involve significant costs and could adversely affect our business.
ImprimisRx was subject to an administrative action by the California State Board of Pharmacy relating to certain regulatory compliance matters and entered into a settlement to resolve that matter in November, 2025. As part of the settlement, effective February 1, 2026, ImprimisRx voluntarily surrendered its California nonresident 503B outsourcing facility license and California nonresident 503A compounding pharmacy license. The loss of these licenses restricts our ability to sell or dispense certain compounded products in California and has reduced revenues from that state. We believe that, based on our current sales concentration and geographic diversification, this loss is not material to our consolidated statement of operations. However, if additional states were to take similar actions, or if broader or longer-term restrictions were imposed, the cumulative effect could be material.
State pharmacy laws require pharmacy
locations in those states to be licensed as an in-state pharmacy to dispense pharmaceuticals. In addition, state controlled substance
laws require registration and compliance with state pharmacy licensure, registration or permit standards promulgated by the state’s
pharmacy licensing authority. Pharmacy and controlled substance laws often address the qualification of an applicant’s personnel,
the adequacy of its prescription fulfillment and inventory control practices and the adequacy of its facilities. These laws also subject
pharmacies to oversight by state boards of pharmacy and other regulators that could impose burdensome requirements or restrictions on
operations if a pharmacy is found not in compliance with these laws. We believe that our compounding pharmacies are in material compliance
with applicable regulatory requirements. Further, if any of our compounding pharmacies fail to comply with regulatory requirements, they
could be forced to permanently or temporarily cease or limit their compounding operations, which would severely limit our ability to
market and sell our proprietary formulations and would materially harm our operations and prospects. Any noncompliance could also result
in complaints or adverse actions by other state boards of pharmacy. FDA inspection of a facility to determine compliance with the FDCA,
if not successful, may result in the loss of FDCA exemptions provided under Sections 503A and 503B, warning letters, injunctions, prosecution,
fines and loss of required government licenses, certifications and approvals, any of which could involve significant costs and could
cause us to be unable to realize the expected benefits of these pharmacies’ operations. Additionally, the permanent injunction
entered on July 22, 2019, by the U.S. District Court of the Central District of California (the “Court”) in the Allergan
litigation (also referenced in Item. 3 Legal Proceedings), enjoins the Company from engaging in activities that are inconsistent with
current FDA guidelines for 503A and 503B operations.
Management's Discussion & Analysis (MD&A)
New heading “Commercial and Sales Force Expansions”
New heading “Acquisition of Remaining Interests in Melt Pharmaceuticals, Inc.”
New heading “Fifth Third Revolving Credit Facility”
New heading “Harrow Access for All”
New heading “8.625% Senior Notes Due 2030 and Payoff of Prior Debt”
New heading “BYOOVIZ® and OPUVIZTM – Commercialization Agreement”
New heading “Acquisition of Commercial Rights to BYQLOVITM”
Removed heading “Cybersecurity Incident”
Removed heading “TRIESENCE Re-Launch, Oaktree Second Amendment and Draw”
Removed heading “Apotex - Canadian Out-License”
Removed heading “IHEEZO Reimbursement”
Removed heading “VEVYE U.S. Launch”
Removed heading “Variable Consideration”
Removed heading “Government Rebates”
Removed heading “Administrative Fees and Other Rebates”
Removed heading “Co-payment Assistance”
Removed heading “Prompt Payment Discounts”
Removed heading “Revenues From Transfer of Acquired Product Sales and Profits”
Removed heading “Intellectual Property License Revenues”
Largest changes
“Step 1. We compare the fair value of each reporting unit to its carrying amount, including the existing goodwill. The fair value of each reporting unit is determined using a discounted cash flow valuation analysis. The carrying amount of each reporting unit is determined by specifically identifying and allocating the assets and liabilities to each reporting unit based on headcount, relative revenues or other methods as deemed appropriate by management. …”see in full comparison
“During the year ended December 31, 2024, our principal sources of cash came from proceeds from the Oaktree Amendment. In future periods, including the year ending December 31, 2025, we expect cash to be provided from our operating activities, but our forecasts may not be accurate and our plans may change. We may also sell some or all of our ownership interests in Surface, Melt or our other subsidiaries In January 2026 the Oaktree Loan matures which totals $107,500,000 principal amount outstanding at December 31, 2024. …”see in full comparison
“We review our goodwill and indefinite-lived intangible assets for impairment as of January 1 of each year and when an event or a change in circumstances indicates the fair value of a reporting unit may be below its carrying amount. Events or changes in circumstances considered as impairment indicators include but are not limited to the following:”see in full comparison
“We used the net proceeds from the 2030 Notes offering to prepay all then outstanding senior debt borrowings, exit costs, and accrued interest including $107,500,000 in total principal loan amount borrowed under the Credit Agreement and Guaranty (the “Oaktree Loan”) with Oaktree Fund Administration, LLC, as administrative agent for the lenders (together, “Oaktree”), $75,000,000 in total principal amount senior notes due 2026 (the “2026 Notes”), and $40,250,000 in total principal amount senior notes due 2027 (the “2027 Notes”). …”see in full comparison
“Step 2. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to that reporting unit.”see in full comparison
Full comparison: every changed paragraph (118)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes contained in this Annual Report on Form 10-K (this “Annual Report”). Our 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 accounting principles generally accepted in the U.S. (GAAP). In addition to historical information, the following discussion contains forward-looking statements based upon our current views, expectations and assumptions that are subject to risks and uncertainties. Actual results may differ substantially from those expressed or implied by any forward-looking statements due to a number of factors, including, among others, the risks described in the “Risk Factors” section and elsewhere in this Annual Report. Additional information related to the comparison of our results of operations and liquidity and capital resources between the years 2024 and 2023 is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2024 Form 10-K filed with the SEC and is incorporated by reference herin.
We are a leading provider of ophthalmic disease management solutions in North America, and were founded with a commitment to deliver safe, effective, accessible, and affordable medications that enhance patient compliance and improve clinical outcomes. For over a decade, we have partnered with U.S. eyecare professionals to develop a comprehensive portfolio of high-quality products used to manage ophthalmic conditions affecting both the front and back of the eye, such as dry eye disease, wet (or neovascular) age-related macular degeneration, cataracts, refractive errors, glaucoma, and a range of other ocular surface conditions and retina diseases. By prioritizing clinical value – to the provider and the patient – Harrow empowers professionals to enhance patient outcomes and preserve vision. By combining our culture of creativity, entrepreneurship and groundbreaking innovation with operational discipline and strong financial performance, we are building a future where life-changing ophthalmic treatments are within reach for all.
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 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 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.
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
assets 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 allow
us to scale revenues efficiently in the near and long-term. All of these activities will require significant costs and other resources,
resources, which we may not have or be able to obtain from operations or other sources. See “Liquidity and Capital
Resources” below.
Commercial and Sales Force Expansions
In February 2026, we announced several commercial investments expected to be implemented during 2026 to support growth across key products. For VEVYE, following recent payor-coverage wins effective January 1, 2026, we began recruiting efforts to expand our commercial sales team from approximately 50 to 100 U.S. sales territories by late May 2026. For IHEEZO, we have begun expanding our commercial focus beyond retina practices into office-based ophthalmic procedures, targeting a broader set of anesthesia-dependent, reimbursed use cases, including non-retina intravitreal and subconjunctival injections, YAG/laser procedures, foreign body removals, and selected ocular surface and eyelid procedures. For TRIESENCE, we expect to increase the size of our dedicated sales force for this product during the coming months in response to favorable surgeon feedback and improving demand indicators, including increased interest in adoption and reordering for on-label uses in both office and surgical settings.
Acquisition of Remaining Interests in Melt Pharmaceuticals, Inc.
In September 2025, we entered into the Merger Agreement by and among Harrow, Harrow Acquisition Sub, Inc., a wholly owned subsidiary of Harrow, Melt, and D. Brad Osborne, as stockholder representative. Under the terms of the Merger Agreement and a related milestone payment agreement, we agreed to acquire the remaining equity interests of Melt in exchange for an initial cash payment of approximately $4,300,000 at closing, and contingent consideration consisting of cash and Company equity upon achievement of (i) FDA approval of the MELT-300 drug candidate, (ii) coding and reimbursement of the MELT-300 drug candidate, and (iii) various one-time sales milestones, as follows:
The regulatory and commercial milestones must be achieved, if at all, on or before December 31, 2035.
The Melt acquisition closed on November 17, 2025, and was treated as an asset acquisition for accounting purposes. As a result of such transaction, Melt’s drug candidates are now owned by Harrow and its R&D activities subsequent to the acquisition are included in Harrow’s consolidated financial results as of the year ended December 31, 2025.
Fifth Third Revolving Credit Facility
In September 2025, we entered into a Credit Agreement (the “5/3 Revolver”) with Fifth Third Bank, National Association, as administrative agent for itself and the other lenders (collectively, “Fifth Third”) providing for a senior secured revolving credit facility in the initial principal amount of $40,000,000, together with an uncommitted incremental revolving line of credit in the principal amount of up to $20,000,000. The 5/3 Revolver will mature on September 26, 2030, or, if earlier, the date that is 91 days prior to the earliest maturity date of the Company’s 2030 Notes.
Borrowings under the 5/3 Revolver bear interest at a floating rate equal to, at the Company’s option, either (i) a base rate plus a margin ranging from 0.25% to 0.75%, or (ii) a Secured Overnight Financing Rate (“SOFR”) based rate plus a margin ranging from 1.25% to 1.75%. In addition, an unused fee of 0.25% per annum is payable monthly in arrears based on the undrawn portion of the commitments in respect of the 5/3 Revolver. Borrowings under the 5/3 Revolver are secured by a first priority lien in substantially all of the present and future property and assets, real and personal, of the Company, subject to customary exceptions.
Under the 5/3 Revolver, we are subject to certain customary affirmative and negative covenants. In addition, the 5/3 Revolver contains certain financial covenants requiring the Company to maintain, on a consolidated basis as of the last day of each month, a fixed charge coverage ratio of at least 1.10 to 1.0.
Harrow Access for All
In September 2025, we announced Harrow Access For All (“HAFA”) to expand our proprietary patient access model from a single product to encompass Harrow’s comprehensive ophthalmic portfolio of branded, authorized generics (AGx), and compounded ophthalmic medications. Beginning in late 2025 and expanding into 2027, HAFA will provide a single, unified access point for prescribers and patients, offering affordability, streamlined prescribing, and predictable access. The platform creates a simpler, more predictable path to treatment—supporting better outcomes for patients and greater efficiency for physicians.
8.625% Senior Notes Due 2030 and Payoff of Prior Debt
In September 2025, we closed a private offering of $250,000,000, aggregate principal amount of 8.625% senior notes due 2030. The 2030 Notes offering resulted in net proceeds to us of approximately $242,748,000 after deducting underwriting discounts and commissions and other offering expenses of $7,252,000.
The 2030 Notes are senior unsecured obligations and are effectively subordinated to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness. The 2030 Notes are guaranteed on a senior unsecured basis by us, subject to certain exceptions. The 2030 Notes bear interest at the rate of 8.625% per annum. Interest on the 2030 Notes is payable semi-annually in arrears on March 15 and September 15 of each year. The issuance costs were recorded as a debt discount and are being amortized as interest expense over the term of the 2030 Notes using the effective interest rate method.
We used the net proceeds from the 2030 Notes offering to prepay all then outstanding senior debt borrowings, exit costs, and accrued interest including $107,500,000 in total principal loan amount borrowed under the Credit Agreement and Guaranty (the “Oaktree Loan”) with Oaktree Fund Administration, LLC, as administrative agent for the lenders (together, “Oaktree”), $75,000,000 in total principal amount senior notes due 2026 (the “2026 Notes”), and $40,250,000 in total principal amount senior notes due 2027 (the “2027 Notes”). The 2026 Notes and 2027 Notes were listed on The Nasdaq Stock Market under the symbols “HROWL” and “HROWM”, respectively. The 2026 Notes were delisted on October 10, 2025 and the 2027 Notes were delisted on October 8, 2025.
BYOOVIZ® and OPUVIZTM – Commercialization Agreement
In July 2025, we entered into a development and commercialization agreement (the “Samsung Agreement”) with Samsung Bioepis Co., Ltd. (“Samsung”). Under the terms of the Samsung Agreement, following completion of the transition of commercial rights from Biogen, Inc. back to Samsung, Samsung will develop, manufacture, and supply BYOOVIZ (ranibizumab-nuna) and OPUVIZ (aflibercept-yszy) (individually, a “Product” and together, the “Products”) for Harrow to commercialize in the U.S. market (the “Rights”). In consideration of the Rights, we made a one-time upfront payment to Samsung of $4,000,000 in February 2026, and Samsung will be eligible to receive additional one-time payments based on the achievement of net sales-based milestones of the Products. In addition to other mutually agreed terms, we shall pay to Samsung a share of net sales from the Products generated in the U.S. market. We expect BYOOVIZ to be available in the middle of 2026 and OPUVIZ to be available in the middle of 2027.
Acquisition of Commercial Rights to BYQLOVITM
In June 2025, we announced a licensing agreement whereby we acquired the exclusive U.S. commercial rights to BYQLOVI (clobetasol propionate ophthalmic suspension) 0.05% from Taiwan-based Formosa Pharmaceuticals. BYQLOVI was recently approved by the FDA for the treatment of post-operative inflammation and pain following ocular surgery and is the first new ophthalmic steroid in its class in over 15 years. Harrow expects BYQLOVI to be available to launch in the US in the middle of 2026.
WeIn
recentlyMarch 2025, we initiated a 360-degree review of opportunities to offer ImprimisRx customers a Harrow-owned FDA-approved product
alternative to a compounded formulation. We call this initiative Project Beagle. In that vein, we began implementing a continuity of
care program to transition approximately 25,000 ImprimisRx patients from our Klarity-C (0.1% cyclosporine) compounded formulation to
VEVYE (0.1% cyclosporine), and we expect to discontinuediscontinued compounding Klarity-C by June 30,during 2025. We are also discontinuing
discontinued another related
compounded formulation called Klarity PF. Klarity PF is primarily purchased by a concentrated group of customers
who we expect to
continue acceptaccepting our FRESHKOTE product as an alternative. In February 2026, we announced the launch of PharmaPack™, a direct-to-prescriber cash-pay offering designed to expand access to
affordable, FDA-approved branded ophthalmic therapies as alternatives to compounded formulations. As we work through Project Beagle, we will continue to review
review opportunities to reduce the size of our compounded formulary, improve and simplify our compounding capabilities, and transition
transition other ImprimisRx customers from compounded formulations to Harrow’s FDA-approved products.
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. We detected the incident in a
timeframe management believes minimized any financial, operational or reputational risk to the Company, and at no point was our ability
to generate revenues disrupted.
TRIESENCE Re-Launch,
Oaktree Second Amendment and Draw
In
October 2024, we announced the re-launch of TRIESENCE following the successful manufacturing of three process performance
qualification batches of the product. In March 2025, we announced TRIESENCE was granted temporary pass-through reimbursement status
to be made effective April 1, 2025. 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 (together “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.
In 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.
Following
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
Loan.
Apotex - Canadian Out-License
In February
2024, we entered into a license and supply agreement with Apotex Inc. (“Apotex”). Under the terms of the agreement, Apotex
licensed exclusive rights and marketing authorizations of the following products in the Canadian market from Harrow: VERKAZIA (cyclosporine
ophthalmic emulsion) 0.1% and Cationorm PLUS. Apotex was also granted a license for products Apotex will pursue approval for in Canada:
VEVYE (cyclosporine ophthalmic solution) 0.1%, IHEEZO (chloroprocaine hydrochloride ophthalmic gel) 3%, and ZERVIATE (cetirizine ophthalmic
solution) 0.24% (with VERKAZIA and Cationorm Plus, collectively, the “Apotex Products”). In exchange for these licenses,
Harrow will earn amounts related to manufacturing, regulatory and commercial achievement milestones, in addition to royalties on net
sales of the Apotex Products.
IHEEZO Reimbursement
In January
2024, we met with the Centers for Medicare & Medicaid Services (“CMS”) to request clarification related to its anesthesia
billing policy which has historically not allowed for the separate billing of anesthesia services in the physician’s office. During
the meeting we requested that CMS clarify that J-Code 2403, IHEEZO’s permanent J-Code, is appropriate to be billed for the anesthesia
product itself (i.e., IHEEZO in our case) in the physician office setting. In March 2024, we received communication from a representative
at CMS that the inclusion of J-Code 2403 in CMS’s April 2024 quarterly drug pricing file of the average sales prices (ASP) of some
Medicare Part B-covered drugs and biologicals confirms that IHEEZO is separately payable in the physician office setting.
In February
2024, we made a request to CMS to consider increasing the Medically Unlikely Edits (“MUE”) for IHEEZO’s J-Code from
1 to 2. This request was made because the limitation of one MUE only allowed a single IHEEZO administration (equal to one single-use
vial) to be used and billed, while many ophthalmologists perform bilateral ocular procedures, which would require two vials of IHEEZO
to be used. 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.
VEVYE U.S. Launch
In January
2024, we launched VEVYE (cyclosporine ophthalmic solution) 0.1%, the first and only water-free cyclosporine dissolved in a semifluorinated
alkane approved to treat both the signs and symptoms of dry eye disease in the U.S. We partnered with various entities including PhilRx,
Apollo Care and PARx Solutions to enhance our market and patient access program for VEVYE.
Our revenues include amounts recorded from sales of branded products to wholesalers through a third-party logistics facility, sales of proprietary compounded formulations, and revenues received from royalty payments owed to us pursuant to out-license and like arrangements. The following table presents our revenues for the years ended December 31, 2025 and 2024:
The increase in Branded revenues from product sales between the years ended December 31, 2025 and 2024 was primarily related to an increase in sales and units sold of IHEEZO and VEVYE resulting from increased marketing efforts. These increases were partially offset by lower sales of other brands and lower Imprimis revenue.
The decrease in ImprimisRx revenue was primarily due to a decrease in volume for the year ended December 31, 2025 compared to 2024.
The increase in revenues
from product sales between the years ended December 31, 2024 and 2023 was largely attributed to increased sales and marketing
efforts, new product launches (e.g. VEVYE) and the closing of certain product acquisitions that occurred in 2023. The decrease in
other revenues between the years ended December 31, 2024 and 2023 was the result of profit transfers from acquired products during
2023, and upon transfer of those product New Drug Applications (“NDAs”) we stopped recording a profit transfer and began
booking revenues from the sale of those products.
Our
cost of sales includes direct
and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients,API, 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.
The
following followingtable presents our cost
of sales for the years ended December 31, 20242025 and 20232024:
The
increase in Branded cost of sales
associated withwas ourprimarily brandedattributable productsto betweenan increase in units sold of IHEEZO and VEVYE during the years ended
December 31, 20242025 and 20232024 wasas largelywell attributableas to thean increase in products
soldintangible andasset amortization ofrelated to acquired product NDAs which totaled $10,093,000rights for theTRIESENCE yearand
royalties ended December 31, 2024, comparedrelated to $9,314,000
duringVEVYE theand prior year.IHEEZO.
The
increase in ourImprimisRx ImprimisRx
costcosts of sales between the years ended December 31, 20242025 and 20232024 was largelyprimarily attributable to expensesproduct associatedmix withthat
included themore increasesales in
unitof volumeslower sold.gross margin products and inventory losses.
Gross
Margin increased due to increased sales. The increaseslight decrease in Branded gross
margin percentage between the years ended December 31, 2024
2025 and 20232024 was primarily attributable to an increase in overall sales which reduced the
net impact of our fixed expensesexpenses, in costparticular, acquired product rights amortization related
to the launch of sales,TRIESENCE suchand asa NDArelated licensecontingent amortization.milestone payment that was capitalized in the fourth quarter of 2024.
ImprimisRx gross margin decreased during the year ended December 31, 2025 compared to 2024 due to the previously mentioned change in product mix as well as inventory losses from lower manufacturing efficiency.
The increase in ImprimisRx gross margin between the
years ended December 31, 2024 and 2023 was primarily attributable to an increase in sales of products during 2024 with lower gross margin
profiles as compared to 2023.
The
following followingtable presents our
SG&A expenses for the years ended December 31, 20242025 and 20232024:
The increase in SG&A expenses between the years ended December 31, 2025 and 2024 was primarily attributable to (1) increased payroll and related expenses of $15,092,000 due to the addition of new employees in sales, marketing and other departments to support current and expected growth, (2) increased marketing and advertising expense of $3,600,000 and (3) increased audit fees as a result of the Company being subject to the audit attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. These increases were partially offset by a decrease in stock-based compensation expense of $5,114,000 between the periods.
The increase in SG&A
expenses between periods was primarily attributable to the addition of new employees in sales, marketing and other departments to
support current and expected growth, including the commercial launch of VEVYE, which when combined contributed to a $32,743,000
increase in SG&A during the year ended December 31, 2024 compared to the prior year. In addition, stock-based compensation
expense increased by $1,863,000 during the year ended December 31, 2024 compared to the prior year. Regulatory enhancements and
costs to support the transition of recent product acquisitions also caused SG&A to be higher for the year ended December 31,
2024 compared to 2023.
Our
research and development (“R&D”) expenses primarily included 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 followingtable presents our R&D
expenses for the years ended December 31, 20242025 and 20232024:
The
increase in R&D expenses
between the years ended December 31, 20242025 and 20232024 was primarily attributable to one time in-process R&D
expense related to the acquisition of Melt of $8,450,000 during the fourth quarter of 2025. In addition, increased development activity
related to our expanded branded product portfolio,
technical transfer activities associated with the production of certain products related to ournew product acquisitions that occurred in
2023, productcandidate development efforts, product launches, and clinical and medical support. In addition, duringDuring the fourth quarter of 2024,
we recorded $2,000,000 of one-time R&D costs associated with the product development
of TRIESENCE.
During
the year ended December 31, 2025, there were no impairments or disposals of long-lived assets. During the year ended December
31, 2024,
we recognized an impairment loss of $253,000 related to intellectual property that we expect to no longer utilize in future
revenue generating
products and compounded formulations. During the year ended December 31, 2023, we recorded a charge of $548,000, of
which, $380,000 was related to the impairment of licenses, trademarks, patents and patent applications and $168,000 was related to equipment
that was no longer in service.
Interest
expense, net was $22,786,000
during the year ended December 31, 2024, compared to $21,324,000$24,180,000 during the year ended December 31, 2023.2025, compared to $22,786,000 during the year ended December 31, 2024.
The increase was primarily
due to an increase in the principal balance of our loans throughoutover the two periods presented.
During
the year ended December 31, 2025, there was no gain (loss) from investments. During the year ended December
31, 2024, we recorded a loss
of $(3,171,000)$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,$436,000. comparedIn toApril a2024, gainwe sold all of $3,092,000our duringremaining theshares yearin ended December
31, 2023.Eton.
During the year ended December 31, 2025, other income of $47,000 represents foreign exchange gains on settlement of foreign-denominated payables. During the year ended December 31, 2024, we recorded other expense, net, of $185,000 related primarily to income from the sublease of office space in Nashville, offset by a loss associated with a cybersecurity incident.
During the year ended December
31, 2024 we recorded other expense, net of $(185,000) related primarily to income from the sublease of office space in Nashville, offset
by a loss associated with the cybersecurity incident. During the year ended December 31, 2023 we recorded other expense, net of
$(444,000) related primarily to transition services and write-off of inventories associated with the divestment of our non-ophthalmology
business, and a charge related to equipment that was no longer in service.
What changed in the latest 10-Q
Risk Factors
Full comparison: every changed paragraph (1)
In
addition to the other information contained in this Quarterly ReportReport, you should consider the risk factors and the other information in
our Annual Report on Form 10-K for the year ended December 31, 2025, including our audited financial statements and the related notes
and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If any such risks actually
occur, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely
affected. In these circumstances, the market price of our common stock would likely decline and you may lose all or part of your investment.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Management's Discussion & Analysis (MD&A)
New heading “Acquisition of TYRVAYA®”
Largest changes
“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. …”see in full comparison
As ofsee in full comparisonMarchJuly26,31, 2026, Moody’s Investors Serviceaffirmedmaintained a Long-Term Corporate Family Rating of B3tofor Harrow, Inc.and affirmedwith a Stableoutlook.OutlookAs of March 26, 2026,and Fitch Ratingsaffirmedmaintained a Long-Term Issuer Default Rating of B-(with a Stable OutlookStable) tofor Harrow,Inc.,Inc. and a rating of Btofor our senior unsecured notes due September20302030, 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 theissuingapplicableagenciesrating agency andshoulddo notbe construed asconstitute a recommendation to purchase, hold or sell securities orasa 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 downgradeinof our corporate or senior unsecured debtratingratingsmaycould increase ourcostborrowingof borrowingcosts andmayadverselynegatively impactaffect our ability to raise additional debt capital.
“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.”see in full comparison
“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.”see in full comparison
Net cash used in operating activities during thesee in full comparisonthreesix months endedMarchJune31,30, 2026 was$8,992,000$18,747,000 compared to net cash provided by operating activities of$19,668,000$18,865,000 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,$32,087,000webetweencollectedthe$39,196,000periods and an unfavorable change in accountsreceivablereceivable, which increased by $7,369,000 during thethree2026monthsperiod,endedresultingMarchin31,a use of cash, compared with a decrease of $37,211,000 during the 2025dueperiod,towhichincreased collectionprovidedefforts.cash.
Full comparison: every changed paragraph (28)
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.
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$48,445,000 after deducting underwriting discounts, commissions
and other unpaid offering expenses of $1,474,000.$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 to
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.
The
following period-to-period comparisons of our financial results for the three and six months ended MarchJune 31,30, 2026 and 2025 are not necessarily
indicative of results for any future period.
The
following presents our revenues for the three and six months ended MarchJune 31,30, 2026 and 2025:
The
increase in Branded revenues from product sales was primarily related to aan changeincrease in ourVEVYE customervolume mix,and other branded products, such as TRIESENCE, offset by a decrease in IHEEZO
volume. 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. 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.
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.
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.
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.
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.
The
following presents our selling, general and administrative expenses for the three and six months ended MarchJune 31,30, 2026 and 2025:
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.
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.
The
following presents our research and development expenses for the three and six months ended MarchJune 31,30, 2026 and 2025:
The
increase in R&D expenses of $2,869,000$5,204,000 and $8,073,000 in the three and six months ended MarchJune 31,30, 20262026, asrespectively, compared to the same periodperiods in 2025 was primarily
due to clinical trials associated with the Melt Pharmaceuticals, Inc. drug candidate we acquired in November 2025.
Interest
expense, netnet, was $5,497,000$6,263,000 and $11,760,000 for the three and six months ended MarchJune 31,30, 2026, compared to $6,548,000$6,408,000 and $12,956,000 for the same periodperiods in 2025. The decrease
of $1,051,000in both periods was primarily due to a lower effective interest rate during the three and six months ended MarchJune 31,30, 2026 compared to the same
period periods in 2025.
Our
cash on hand at MarchJune 31,30, 2026 was $94,644,000$83,889,000 compared to $72,927,000 at December 31, 2025.
We
believe that cash and cash equivalents of $94,644,000$83,889,000 at MarchJune 31,30, 2026 will be sufficient to sustain our planned level of operations
andoperations, 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, pharmacies, outsourcing facilities, drug companycompanies 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.
The
following provides detailed information about our net cash flows for the threesix months ended MarchJune 31,30, 2026 and 2025:
Net
cash used in operating activities during the threesix months ended MarchJune 31,30, 2026 was $8,992,000$18,747,000 compared to net cash provided by operating
activities of $19,668,000$18,865,000 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,$32,087,000 webetween collectedthe $39,196,000periods and an unfavorable change in accounts receivablereceivable, which increased by $7,369,000 during the three2026 monthsperiod, endedresulting Marchin 31,a use of cash, compared with a decrease of $37,211,000 during the 2025 dueperiod, towhich increased
collectionprovided efforts.cash.
Net
cash used in investing activities during the threesix months ended MarchJune 31,30, 2026 was $18,203,000$18,737,000 compared to $212,000$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 investmentsacquired in our acquiredBranded product rights.
Net
cash provided by financing activities during the threesix months ended MarchJune 31,30, 2026 andwas $48,446,000 compared to cash used in financing activities during the six months ended June 30, 2025 wasof $48,912,000$12,644,000. and $23,000, respectively.
We completed the sale of $50,000,000 in principal amount of 2030 Notes during the threesix months ended MarchJune 31,30, 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.
During
the threesix months ended MarchJune 31,30, 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 MarchJune 31,30, 2026, we
have not drawn down on the line of credit.
As
of MarchJuly 26,31, 2026, Moody’s Investors Service affirmedmaintained a Long-Term Corporate Family Rating of B3 tofor Harrow, Inc. and affirmedwith a
Stable outlook.Outlook As of March 26, 2026,and Fitch Ratings affirmedmaintained a Long-Term Issuer Default Rating of B- (with a Stable Outlook Stable) tofor Harrow, Inc.,
Inc. and a rating of B tofor our senior unsecured notes due September 20302030, 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 issuingapplicable agenciesrating agency and shoulddo not be construed asconstitute 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 inof our corporate or senior unsecured debt ratingratings maycould increase our costborrowing of borrowingcosts and mayadversely negatively
impactaffect our ability to raise additional debt capital.
HROW insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 4 Form 4 filings (4 insiders, 2 trade dates, 15,500 shares, about $468.7K) and open-market sales in 1 filing (1 insider, 1 trade date, 11,250 shares, about $450.0K). Net open-market shares: 4,250 (purchases minus sales); net value about $18.7K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-14 | Shojaei Amir |
Option exercise | 11,250 | $35.96 | $404.6K |
| 2026-08-14 | Shojaei Amir |
Open-market sale | 11,250 | $40.00 | $450.0K |
| 2026-05-18 | Graves Adrienne L |
Open-market purchase | 1,000 | $31.07 | $31.1K |
| 2026-05-18 | Silvernail Lauren P |
Open-market purchase | 1,000 | $31.00 | $31.0K |
| 2026-05-14 | Baum Mark L |
Open-market purchase | 10,000 | $30.20 | $302.0K |
| 2026-05-14 | Boll Andrew R. |
Open-market purchase | 3,500 | $29.90 | $104.7K |
Well-known investors holding HROW (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 359,874 | $15.3M | 0.01% | Added 63% |
| Millennium Management (Israel Englander) | 2026-06-30 | 84,182 | $3.6M | 0.0% | New position |
| Renaissance Technologies | 2026-06-30 | 44,617 | $1.9M | 0.0% | Reduced 47% |
| Two Sigma Investments | 2026-06-30 | 22,476 | $954.6K | 0.0% | New position |
| Gotham Asset Management (Joel Greenblatt) | 2026-06-30 | 26,219 | $924.5K | — | Sold out |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 6,548 | $230.9K | — | Sold out |