Harrow Health(HROW) - 2025 Q2 - Quarterly Report

Part I FINANCIAL INFORMATION Financial Statements (unaudited) Harrow, Inc.'s unaudited condensed consolidated financial statements for Q2 and H1 2025 highlight debt reclassification, Q2 profitability, and improved operating cash flow Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $345,033,000 | $388,971,000 | | Cash and cash equivalents | $52,963,000 | $47,247,000 | | Accounts receivable, net | $78,822,000 | $116,373,000 | | Intangible assets, net | $176,666,000 | $184,949,000 | | Total Liabilities | $295,734,000 | $319,674,000 | | Current portion of notes payable | $183,619,000 | $0 | | Notes payable, non-current | $38,484,000 | $219,539,000 | | Total Stockholders' Equity | $49,299,000 | $69,297,000 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $63,742,000 | $48,939,000 | $111,573,000 | $83,526,000 | | Gross Profit | $47,512,000 | $36,400,000 | $79,819,000 | $60,434,000 | | Income (Loss) from Operations | $11,409,000 | $1,530,000 | $177,000 | $(5,398,000) | | Net Income (Loss) | $4,995,000 | $(6,473,000) | $(12,785,000) | $(20,038,000) | | Diluted EPS | $0.13 | $(0.18) | $(0.35) | $(0.56) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity (Six Months Ended June 30) | 2025 | 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $18,865,000 | $(7,374,000) | | Net Cash from Investing Activities | $(505,000) | $4,993,000 | | Net Cash from Financing Activities | $(12,644,000) | $(736,000) | | Net Change in Cash | $5,716,000 | $(3,117,000) | Note 2: Summary of Significant Accounting Policies This note details significant accounting policies, emphasizing liquidity risk from upcoming 2026 debt maturities that raise going concern doubts without successful refinancing - The Oaktree Loan and 2026 Notes, totaling $182.5 million in principal, mature in January and April 2026, respectively. The company's ability to continue as a going concern is contingent on refinancing these obligations[21] - Management is in discussions with current and potential lenders to refinance the debt and believes it is probable they will succeed based on collateral strength and expected cash flows. However, there is no guarantee of success[22] - As an alternative to refinancing, management is considering the sale of one or more company assets, though the timing and terms of any potential sale are uncertain[23] Note 3: Revenues Revenue is primarily from product sales, detailing the five-step ASC 606 recognition process and significant judgments for variable consideration like rebates and returns Revenue by Source | Revenue Source | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Product sales, net | $63,657,000 | $48,871,000 | $111,402,000 | $83,379,000 | | Other revenues | $85,000 | $68,000 | $171,000 | $147,000 | | Total revenues | $63,742,000 | $48,939,000 | $111,573,000 | $83,526,000 | - Sales of branded pharmaceutical products are subject to variable consideration, including chargebacks, government rebates, returns, and co-pay assistance, which require significant estimation[42] Note 10: Debt This note details the company's $222.75 million total debt, with $183.6 million reclassified as current liabilities due to early 2026 maturities - The Oaktree Loan has a principal of $107.5 million, matures in January 2026, and carries an interest rate of SOFR + 6.5% (10.84% at June 30, 2025)[68][69] - The 8.625% Senior Notes (HROWL) have a principal of $75 million and mature in April 2026[72] - The 11.875% Senior Notes (HROWM) have a principal of $40.25 million and mature in December 2027[75] Debt Classification | Debt Portion | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Current Portion | $183,619,000 | $0 | | Non-Current Portion | $38,484,000 | $219,539,000 | Note 13: Commitments and Contingencies This note outlines legal proceedings, including a $34.9 million jury verdict for ImprimisRx, and contractual commitments, such as $8.5 million for 2025 manufacturing - In November 2024, a jury awarded the company's subsidiary, ImprimisRx, $34.9 million ($20.4 million punitive, $14.5 million actual damages) in a trademark infringement and unfair competition lawsuit against OSRX. The company has not recognized any gain due to uncertainty of collection[105] - The company entered into a license and supply agreement with Formosa Pharmaceuticals for BYQLOVI in June 2025, which includes a $500,000 payment upon first commercial sale and potential future milestones and royalties[108] - The company has committed to approximately $8.527 million in payments for contract manufacturing agreements for the year ending December 31, 2025[112] Note 14: Segments and Concentrations The company operates in Branded and ImprimisRx segments, with Q2 2025 revenues of $42.3 million and $21.5 million respectively, and faces significant customer concentration risk Segment Performance (Three Months Ended June 30, 2025) | Segment | Total Revenues | Gross Profit | Segment Contribution | | :--- | :--- | :--- | :--- | | Branded | $42,274,000 | $33,540,000 | $10,820,000 | | ImprimisRx | $21,468,000 | $13,972,000 | $6,432,000 | Revenue by Key Products (Q2 2025 vs Q2 2024) | Product | Q2 2025 Revenue | Q2 2024 Revenue | | :--- | :--- | :--- | | IHEEZO | $18,336,000 | $11,295,000 | | VEVYE | $18,641,000 | $4,315,000 | - Significant customer concentration exists, with two customers representing 87% of total consolidated accounts receivable at June 30, 2025[118] Note 15: Subsequent Events Subsequent events include a July 2025 agreement with Samsung Bioepis for U.S. rights to BYOOVIZ and OPUVIZ, and the grant of 1.3 million performance stock units to executives - In July 2025, Harrow entered into a development and commercialization agreement with Samsung Bioepis for the U.S. rights to BYOOVIZ (ranibizumab-nuna) and OPUVIZ (aflibercept-yszy). The agreement includes an upfront payment, sales-based milestones, and a share of net sales for Samsung[123] - In July 2025, the company granted 1,295,249 performance stock units to its CEO and CFO, which vest based on achieving stock price targets from $50 to $100 per share and a minimum three-year service period[124][125] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 30% Q2 2025 revenue growth to $63.7 million, strategic initiatives, and plans to address upcoming 2026 debt maturities and liquidity challenges - Recent strategic developments include a commercialization agreement with Samsung for BYOOVIZ and OPUVIZ, the acquisition of U.S. rights to BYQLOVI, and the launch of the 'VEVYE Access for All' program[131][132][133] - The company initiated 'Project Beagle' to transition ImprimisRx compounding customers to Harrow's FDA-approved products, discontinuing the Klarity-C compounded formulation in favor of VEVYE[134] Total Revenue Growth (Q2 and H1 2025 vs 2024) | Period | 2025 Revenue | 2024 Revenue | $ Variance | % Variance | | :--- | :--- | :--- | :--- | :--- | | Q2 | $63,742,000 | $48,939,000 | $14,803,000 | +30.2% | | H1 | $111,573,000 | $83,526,000 | $28,047,000 | +33.6% | - The company faces significant liquidity challenges with the Oaktree Loan ($107.5 million principal) and 2026 Notes ($75 million principal) maturing in early 2026. Management believes refinancing is probable but acknowledges the risk and is also considering asset sales[150][157] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure from its variable-rate Oaktree Loan, where a 100 basis point SOFR increase would raise annual interest expense by $1.075 million - The company is exposed to interest rate risk through its Oaktree Loan, which has a variable interest rate based on SOFR plus a 6.5% spread[162][164] - A 100 basis point increase in SOFR would increase annual interest expense by approximately $1.075 million[164] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[166] - No material changes to internal control over financial reporting were identified during the quarter ended June 30, 2025[167] Part II OTHER INFORMATION Legal Proceedings This section refers to Note 13 for legal matters, highlighting the $34.9 million jury verdict awarded to ImprimisRx in a trademark infringement lawsuit - For detailed information on legal proceedings, the company refers to Note 13 in the financial statements[169] Risk Factors This section updates key risk factors, including potential FDA enforcement, pricing pressures, global economic conditions, and increased costs from U.S. trade policy and tariffs - The company details a history of FDA inspections and warning letters concerning its NJOF, noting that discussions with the federal government regarding a 2024 inspection are now closed after the company took remedial actions[175][177] - Sales are dependent on third-party payer reimbursement, which is under pressure from cost-containment initiatives and legislation like the Inflation Reduction Act, potentially limiting the company's pricing power and profitability[179] - Global economic conditions, including inflation and higher interest rates, may reduce demand for products and increase operating costs[182] - Potential U.S. tariffs on imported active pharmaceutical ingredients (APIs) and other components could significantly increase costs and disrupt the supply chain[183][184] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[186] Other Information No directors or officers adopted or terminated Rule 10b5-1 trading plans during the six months ended June 30, 2025 - No directors or officers adopted or terminated Rule 10b5-1 trading plans during the six months ended June 30, 2025[190]