Exploring Harrow Inc (HROW)

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Harrow Inc is a company which makes medications for eyes. It’s a founder led company and the CEO Mark Baum has impressed me over the material I’ve reviewed. They have 17 products in total with their two main products showing incredible quarter over quarter growth.

VEVYE, a dry eye medication, has sales up 212% qoq
IHEEZO, an ophthalmic anesthetic, has sales up 98% qoq

These numbers line up well with the last four quarters of reported revenue numbers where revenue was more flat but has exploded in the last quarter. The last year of revenue looks like,

34.3M → 36.4 → 34.6 → 48.9

VEVYE was only launched in 2024, and IHEEZO was launched last year. Additionally they have a medication TRIESENCE which they own and bought the rights from Novartis. It is in high demand from doctors but has been off the market for the last few years. The manufacturing process for this medication is challenging, but the company says they have produced quantities which look good and are awaiting approval.

Harrow has an investment in a Melt Pharmaceuticals which they basically started and own 46% of the company with a 5% royalty rate. The product produced is a sublingual tab that serves as anesthetic or sedation medication. It started in the eye market but doctors from dermatology, surgeons and veterinarians are now using the product. It’s a compounded drug which is now seeking FDA approval. In the meantime they will have sold 150k over the course of this year.

Lastly accounting for the rest of Harrow’s 17 total products they have ImprimisRX which has a lot of products that eye doctors need. One standout is they have the only FDA approved anti-fungal in this basket of products.

Having reviewed their Q2, Q1, HC Wainwright conference, and Cantor Fitzgerald conference, there are a number of points which I believe make this company an attractive investment,

First on specific drugs and compounds they make,

IHEEZO

  • ocular anesthetic, first new one approved by the FDA in more than a decade and launched last year, treats macular degeneration
  • only reimbursable product for this segment and patent lasts through 2039, reorder rate of 87%
  • market penetration is “de minimus in the 1% range” with lots of room to grow
  • large TAM, 10M annual intravitreal injections
  • “beyond actually what our internal projections were”
  • Q1 → Q2 saw a large jump in customer unit demand, expect more growth in second half
  • on track for 9-figure annual revenue
  • have supply agreements in place with vast majority of the major purchasers of these products
  • very attractive economics, performing well clinically
  • getting 10% of intravitreal injections market will make “a lot of very happy stock holders”
  • in Q1 executed supply agreements with seven large multi-practice strategic accounts

VEVYE

  • category leading dry eye product that delivers 22x more cyclosporin to the cornea than RESTASIS a popular competitor
  • other competitors have worse side effects and lower duration of effect
  • value is in the refills for shareholders, seeing “absolutely extraordinary” refill rates, “way beyond our internal projections”
  • refill rates are better than even for glaucoma medications, and the “penalty for not taking glaucoma medication is you go blind”
  • everything about the drug is up and to the right on all metrics including refills and total prescriptions
  • competing products do not have great refill rates, studied the market before releasing
  • IQVIA data (some independent data provider) shows breaking records with VEVYE
  • product will be sold for a “long, long time and has category leading potential”
  • going through the process of attaining Medicare coverage now
  • going to have 100% of Medicaid market by time of next report
  • there has not been a dry eye product on the market that generates this type of benefit

TRIESENCE

  • third leg of the stool
  • long admired drug from Novartis has been on shortage list north of five years and completely out of stock last two years
  • beloved product in ophthalmology and doctors want it back in stock
  • making three commercial batches now with promising results, prior batches had issues
  • hope to be able to relaunch and sell units from three latest batches during Q4
  • also has product specific J-code meaning it’s reimbursable
  • 90,000 gross units from three test batches, can be sold commercially later, not factored in any guide
  • so many great reasons doctors like TRIESCENSE, easy to make friends in the industry with this product

ImprimisRx

  • compounding business, “throws off a lot of cash”
  • record revenues last quarter of 21M, expecting growth to be in the 10%+ range (not sure if that meant qoq or yoy)

MELT 300

  • combination of midazolam and ketamine, under tongue for sedation, looking to get product FDA approved so it is easier to sell and become reimbursable, doctors fine to pay cash now
  • plan is to stop selling the compounded version once getting FDA approval
  • all different types of doctors started calling and asking to purchase the product
  • in midst of phase 3 study after phase 2 data showed exceptional data on sedation
  • eliminates need for opioid or IV

Some other points gathered throughout my research,

  • sequential revenue increase of 42%
  • core gross margins floating up into the 80s
  • remaining products are “workhorse group” such as anti-inflammatories, anti-bacterial, and anti-fungal
  • workhorse group creates a lot of friends in the eye care professional community
  • “1B annual revenue run rate is achievable by 2027” (analysts project 2026 revenue at less than 400M)
  • attracted a ton of new talented employees, high profile ones such as Greg Depasquale who left Regeneron running a 6B portfolio there
  • new employees joining because they believe in the promise of IHEEZO
  • sales force really going to kick in on years 2025 and 2026, see many Qs and “actually several years of continued growth through 2027”
  • “we are just really jazzed, tough 10-12 years to get to this point, having fun and growing, we see a lot of blue sky”

My biggest concerns for the company are that net income is still negative at -6.5M in the last quarter and they haven’t been showing a profit yet. However, I’m willing to overlook this for now as the last sequential revenue growth was incredible. I would normally like to see more of a pattern of acceleration in revenue growth rather than just a sudden jump up one quarter.

However, I believe the revenue growth is directly attributable to their products absolutely taking off in the marketplace. It would be rare enough to have one product grow 200% qoq, but there’s a second product growing nearly 100% qoq as well, with a lot of other promising opportunities in their third major product which isn’t even accounted for in guidance. The company has a had a big run-up in stock price recently and probably deservedly so, valuation may be on the higher side but I still think this is an attractive opportunity at the moment.

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@wpr101 I’m feeling shy about being the first one to reply to your excellent post. I’m not a pharmaceutical or biotech expert, although I have spent time with founders and CEOs of biotech startups for many years.
In my quick review of HROW’s financials, I see their cash position is weak ($70m on hand vs $185m in LT debt). It looks like they most recently issued about $12m in debt about a year ago to shore up their cash position. It would be great to see the revenue gains translating into improving operating cashflow but I don’t think we can say yet that’s what’s happening.
My biggest observation is that it’s a struggle for any biotech or pharma company to produce a stream of innovative products that make it through clinical trials. If you look at the structure of the industry, there are several dozen very large players, and thousands of very small players, and very few companies in between. There are lots of structural barriers that make it extremely hard for a small company to grow into a very large one in this industry. VRTX is the last one I can name that made that leap successfully.
The fact that HROW has figured out how to bring a stream of products to market suggests they might be the next. I’m interested to learn more - thanks for bringing it forward!

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One important note: at least 7 of their products came through acquisition:

Acquiring products by buying a company or by licensing them from another company are methods available to any company in the industry. What would have me sitting up in my seat would be if there’s evidence that Harrow has built a culture that enables them to invent their own drugs that succeed in reaching the market.

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@wpr101 I’m feeling shy about being the first one to reply to your excellent post. I’m not a pharmaceutical or biotech expert, although I have spent time with founders and CEOs of biotech startups for many years.

Appreciate the feedback! The more information the better in my view. A critique which lowers my confidence in a company is still beneficial.

That’s good callout as I had not checked the cash/debt which is something I would normally check. I realized the company did not mention it which may be a little bit of a yellow flag. I was wondering myself why in the writeup for Castle Biosciences I discussed their cash balance and it’s probably because the company brought it up. On the other hand this CEO Mark Baum sounded unusually strong as a leader which I mentioned here and I don’t always emphasize leadership teams. At the same time I haven’t looked into Castle’s leadership team because leadership there sounded more run of the mill.

Usually I’m circling back to items like cash/debt, shares outstanding, leadership teams, company websites, reviews, and their social media on a second or third pass. There’s a lot to ramp up on for any one company. I don’t want to create the write-ups in too formulaic a way at the same time because the bull case for different companies is so varied. I’m considering though creating a checklist of sorts before writing up any company just to make sure there’s not something completely off about the company.

Speaking of shares outstanding, there is a decent rise HROW’s shares outstanding over the course of the last 10 years. At least the last two years are mostly flat, and I’d would definitely be concerned if this ~35M shares bumped up significantly from here, now that their products are taking off more.

HROW shares outstanding
HROW shares outstanding2958×1468 242 KB

Acquiring products by buying a company or by licensing them from another company are methods available to any company in the industry. What would have me sitting up in my seat would be if there’s evidence that Harrow has built a culture that enables them to invent their own drugs that succeed in reaching the market.

There’s quite a lot of biotech companies I’ve researched where I’ll write them off and it usually falls into two categories,

  • not enough innovation, usually evidenced by purchasing rights or low R&D spend
  • limited TAM, sometimes they might be treating conditions where there’s ~10,000 cases a year or less

With Harrow I’m okay with some of those earlier purchases. It makes sense to me that some owners of rights for eye medications may have not had the proper network or manufacturing in place to be able to sell the products. The seller may want to offload the rights to an eye specific company so they don’t want to deal with it.

I’d be more concerned if all their products were acquired. In the case of the MELT 300 product I believe they created this product themselves but then spun it off into its own company specifically because there is large demand outside of eye care as they saw unexpectedly. Seems like it could be a big win for both patients and doctors to give a patient a tab that is reliable rather than using an IV/opioid which are known to create dependencies.

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