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What changed in HARROW, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HARROW, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+428 added−411 removedSource: 10-K (2024-03-19) vs 10-K (2023-03-23)

Top changes in HARROW, INC.'s 2023 10-K

428 paragraphs added · 411 removed · 297 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

95 edited+21 added−66 removed96 unchanged
Biggest changeIn each of these areas, as described above, the FDA and other government agencies have broad regulatory and enforcement powers, including, among other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, licenses or permits, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect on our business.
Biggest changeIn each of these areas, as described above, the FDA and other government agencies have broad regulatory and enforcement powers, including, among other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, licenses or permits, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect on our business. 16 Research and Development Expenses Our research and development (“R&D”) expenses incurred in 2023 and 2022 primarily included expenses related to development of intellectual property, researcher and investigator-initiated evaluations, and formulation development related primarily to our ophthalmic products, formulations and certain other assets, in addition to costs associated with our drug candidate development programs.
This allows for a variety of repairs, including the removal of scar tissue, laser repair of retinal detachments and treatment of macular holes. According to an October 2022 article on the Cleveland Clinic website, U.S. surgeons perform about 225,000 vitrectomies each year. The number is likely to continue to grow as eye care providers find more uses for vitrectomy.
This allows for a variety of repairs, including the removal of scar tissue, laser repair of retinal detachments and treatment of macular holes. According to an October 2022 article published on the Cleveland Clinic website, U.S. surgeons perform about 225,000 vitrectomies each year. The number is likely to continue to grow as eye care providers find more uses for vitrectomy.
Therefore, we believe as these products and product candidates gain commercial adoption, the number of annual intravitreal injections should increase further and at an increased rate as compared to recent years. Vitrectomy is a surgical procedure undertaken by a specialist where the vitreous humor gel that fills the eye cavity is removed to provide better access to the retina.
Therefore, we believe as these products and product candidates gain commercial adoption, the number of annual intravitreal injections should increase further and at an increased rate as compared to recent years. 7 Vitrectomy is a surgical procedure undertaken by a specialist where the vitreous humor gel that fills the eye cavity is removed to provide better access to the retina.
Entities voluntarily registering with FDA as outsourcing facilities are subject to additional requirements that do not apply to compounding pharmacies (operating under Section 503A of the FDCA), including adhering to standards such cGMPs or other FDA guidance documents and being subject to regular FDA inspection. We operate two compounding facilities located in Ledgewood, New Jersey.
Entities voluntarily registering with FDA as outsourcing facilities are subject to additional requirements that do not apply to compounding pharmacies (operating under Section 503A of the FDCA), including adhering to standards such cGMPs or other FDA guidance documents and being subject to regular FDA inspection. 6 We operate two compounding facilities located in Ledgewood, New Jersey.
These payors may not cover or adequately reimburse for use of our products or may do so at levels that disadvantage them relative to competitive products. Our proprietary ophthalmic compounded formulations are primarily available on a cash-pay basis and generally are not subject to Medicare, Medicaid, or other payor-related initiatives.
These payors may not cover or adequately reimburse for use of our products or may do so at levels that disadvantage them relative to competitive products. 11 Our proprietary ophthalmic compounded formulations are primarily available on a cash-pay basis and generally are not subject to Medicare, Medicaid, or other payor-related initiatives.
We also rely on unpatented trade secrets and know-how and continuing technological innovation in order to develop our formulations, which we seek to protect, in part, by confidentiality agreements with our employees, consultants, collaborators and others, including certain service providers. We also have invention or patent assignment agreements with our current employees and certain consultants.
We also rely on unpatented trade secrets and know-how and continuing technological innovation in order to develop our products and formulations, which we seek to protect, in part, by confidentiality agreements with our employees, consultants, collaborators and others, including certain service providers. We also have invention or patent assignment agreements with our current employees and certain consultants.
Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized. Pharmacy Regulation Our pharmacy operations are regulated by both individual states and the federal government.
Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its products only to be subject to significant delay and patent litigation before its products may be commercialized. 13 Pharmacy Regulation Our pharmacy operations are regulated by both individual states and the federal government.
We expect to continue to acquire and/or develop additional FDA-approved ophthalmic drugs that allow us to leverage our existing commercial infrastructure to promote, sell, and ultimately bring these products to market. As we execute this strategy, we will continue to expand our sales and marketing team, expertise and expenses.
We expect to continue to acquire and/or develop additional FDA-approved ophthalmic products that allow us to leverage our existing commercial infrastructure to promote, sell, and ultimately bring these products to market. As we execute this strategy, we will continue to expand our sales and marketing team, expertise and expenses.
The governing statute provides for civil monetary penalties for failure to provide information timely or for knowingly submitting false information to the government. 8 Medicare Part D provides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that are not administered by a physician).
The governing statute provides for civil monetary penalties for failure to provide information timely or for knowingly submitting false information to the government. Medicare Part D provides coverage to enrolled Medicare patients for self-administered drugs (i.e., drugs that are not administered by a physician).
The complexity of the current state and federal regulatory environment, as well as the expected continued evolution of state and federal laws governing pharmaceutical compounding, have and will continue to present potentially significant challenges to our business model and the fulfillment of our mission as a company.
The complexity of the current state and federal regulatory environment, as well as the expected continued evolution of state and federal laws governing pharmaceutical compounding, have presented, and will continue to present, potentially significant challenges to our business model and the fulfillment of our mission as a company.
However, we may not be successful in doing so, whether due to the safety, quality or availability of our proprietary compounded formulations, the size of the markets for such formulations, which could be smaller than we expect, the timing of market entry relative to competitive products, the availability of alternative compounded formulations or FDA-approved drugs, the price of our compounded formulations relative to alternative products or the success of our sales and marketing efforts, which is dependent on our ability to build and grow a qualified and adequate internal sales function.
However, we may not be successful in doing so, whether due to the safety, quality or availability of our products and proprietary compounded formulations, the size of the markets for such products, which could be smaller than we expect, the timing of market entry relative to competitive products, the availability of alternative compounded formulations or FDA-approved drugs, the price of our products relative to alternative products or the success of our sales and marketing efforts, which is dependent on our ability to further build and continue to grow a qualified and adequate internal sales function.
The IRA also creates a drug price negotiation program under which, after being on the market for a certain period of time, the prices for certain high Medicare spending drugs and biological products provided to Medicare patients without generic or biosimilar competition will be capped by reference to, among other things, a specified non-federal average manufacturer price, starting in 2026.
The IRA also created a drug price negotiation program under which, after being on the market for a certain period of time, the prices for certain high Medicare spending drugs and biological products provided to Medicare patients without generic or biosimilar competition will be capped by reference to, among other things, a specified non-federal average manufacturer price, starting in 2026.
While USP has no role in enforcement, we believe the revisions to USP chapter in particular will likely cause two changes to our business, which in the aggregate should have a neutral to positive revenue impact on Harrow: (i) we expect a reduction in revenues generated from sales of formulations compounded by our 503A pharmacy, and (ii) we expect an increase in revenues from sales of formulations compounded in our 503B facility.
While USP has no role in enforcement, we believe the revisions to USP in particular will likely cause two changes to our business, which in the aggregate should have a neutral to positive revenue impact on Harrow: (i) a reduction in revenues generated from sales of formulations compounded by our 503A pharmacy, and (ii) an increase in revenues from sales of formulations compounded in our 503B facility.
Temporary pass-through reimbursement for IHEEZO was awarded by CMS and will be made effective in the second quarter of 2023. Following the expiration of pass-through status, under current CMS policy, non-opioid pain management surgical drugs when used on Medicare Part B patients in an outpatient setting can qualify for ongoing separate payments.
Temporary pass-through reimbursement for IHEEZO was awarded by CMS and made effective in the second quarter of 2023. Following the expiration of pass-through status, under current CMS policy, non-opioid pain management surgical drugs when used on Medicare Part B patients in an outpatient setting can qualify for ongoing separate payments.
The regulatory and quality compliance environment for compounded drugs has become significantly more rigorous, complex and strict since the passage of The Drug Quality and Security Act of 2013.
The regulatory and quality compliance environment for compounded drugs has become significantly more rigorous, complex and strict since the passage of The Drug Quality and Security Act of 2013 (the “DQSA”).
We believe we have built a tangible and intangible infrastructure that will allow us to scale revenues efficiently in the near and long-term. All of these activities will require significant costs and other resources, which we may not have or be able to obtain from operations or other sources. See “Liquidity and Capital Resources” below.
We believe we have built a tangible and intangible infrastructure that will allow us to scale revenues efficiently in the near and long-term. All of these activities will require increased costs and other resources, which we may not have or be able to obtain from operations or other sources. See “Liquidity and Capital Resources” below.
We do, however, believe that our proprietary drug formulations, drug candidates and drug products could have commercial appeal in international markets, and in the past we have engaged distributors and entered into out-licensing arrangements for certain of our proprietary formulations in certain non-U.S. markets, including Canada.
We do, however, believe that our proprietary drug formulations, drug candidates and drug products could have commercial appeal in international markets, and have engaged distributors and entered into out-licensing arrangements for certain of our products and proprietary formulations in certain non-U.S. markets, including Canada.
In general, Section 503A provides that pharmacies are exempt from the provisions of the FDCA requiring compliance with cGMP, labeling with adequate directions for use and FDA approval prior to marketing if the pharmacy complies with certain other requirements.
In general, Section 503A provides that pharmacies are exempt from the provisions of the FDCA requiring compliance with cGMPs, labeling with adequate directions for use and FDA approval prior to marketing if the pharmacy complies with certain other requirements.
The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference product has expired.
The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired.
From its inception in 2014, ImprimisRx, whose business consists of integrated research and development, production, dispensing/distribution, sales, marketing, and customer-service capabilities, has offered physician customers and their patients access to critical medicines to meet their clinical needs. Initially, ImprimisRx focused exclusively on compounded medications to serve needs unmet by commercially available drugs.
From its inception in 2014, ImprimisRx, whose business consists of integrated research and development, production, dispensing/distribution, sales, marketing, and customer-service capabilities, has offered ophthalmologist and optometrist customers and their patients access to critical medicines to meet their clinical needs. Initially, ImprimisRx focused exclusively on compounded medications to serve needs unmet by commercially available drugs.
Manufacturers that fail to pay refunds could be subject to civil monetary penalties. Further, starting in 2023, the Inflation Reduction Act of 2022 (“IRA”) establishes a Medicare Part B inflation rebate scheme under which, generally speaking, manufacturers will owe rebates if the average sales price of a Part B drug increases faster than the pace of inflation.
Manufacturers that fail to pay refunds could be subject to civil monetary penalties. Further, starting in 2023, the Inflation Reduction Act of 2022 (“IRA”) established a Medicare Part B inflation rebate scheme, effective in 2023, under which, generally speaking, manufacturers will owe rebates if the average sales price of a Part B drug increases faster than the pace of inflation.
In addition, during September 2020 through January 2021, NJOF 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 of NJOF.
In addition, between September 2020 and January 2021, NJOF 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 of NJOF.
In September 2007, we closed a merger transaction with Transdel Pharmaceuticals Holdings, Inc. and changed our name to Transdel Pharmaceuticals, Inc. We changed our name to Imprimis Pharmaceuticals, Inc. in February 2012. We changed the name of our company to Harrow Health, Inc. in December 2018.
In September 2007, we closed a merger transaction with Transdel Pharmaceuticals Holdings, Inc. and changed our name to Transdel Pharmaceuticals, Inc. We changed our name to Imprimis Pharmaceuticals, Inc. in February 2012. We changed the name of our company to Harrow Health, Inc. in December 2018 and then to Harrow, Inc. in September 2023.
Noncontrolling Equity Interests Melt Pharmaceuticals, Inc. Melt is a clinical-stage pharmaceutical company focused on the development and commercialization of proprietary non-intravenous, sedation and anesthesia therapeutics for human medical procedures in hospital, outpatient, and in-office settings. Melt is seeking regulatory approval for its proprietary technologies, where possible.
Melt Pharmaceuticals, Inc. Melt is a clinical-stage pharmaceutical company focused on the development and commercialization of proprietary non-intravenous, sedation and anesthesia therapeutics for human medical procedures in hospital, outpatient, and in-office settings. Melt is seeking regulatory approval for its proprietary technologies, where possible.
The core intellectual property Melt owns is a patented series of combination non-opioid sedation drug formulations that we estimate to have multitudinous applications. 4 MELT-300 is a novel, sublingually delivered, non-IV, opioid-free drug candidate being developed for procedural sedation. In February 2021, Melt announced data from, and the successful completion of, its Phase 1 study.
The core intellectual property Melt owns is a patented series of combination non-opioid sedation drug formulations that we estimate to have many clinical applications. MELT-300 is a novel, sublingually delivered, non-IV, opioid-free drug candidate being developed for procedural sedation. In February 2021, Melt announced data from, and the successful completion of, its Phase 1 study.
Program benefits are intended to provide protection and security, so employees can have peace of mind concerning events that may require time away from work or that may impact their financial well-being. Diversity, Equity, and Inclusion We believe a diverse workforce is critical to our success.
Program benefits are intended to provide protection and security, so employees can have peace of mind concerning events that may require time away from work or that may impact their financial well-being. 17 Diversity, Equity, and Inclusion We believe a workforce with diverse life experiences is critical to our success.
In December 2022, Melt announced topline data from its Phase 2 study for MELT-300: ● In a study of more than 300 patients, at 9 study sites, all undergoing cataract surgery, MELT-300 achieved its primary procedural sedation endpoint, demonstrating statistical superiority for procedural sedation compared to all comparator treatment arms, including midazolam 3mg (P=0.0129) and ketamine 50mg (P=0.0096). ● Using the validated Ramsey Sedation Scale (RSS), MELT-300 treatment arm patients were 50% less likely to require rescue sedation compared to midazolam 3mg (P=0.0198). ● Using the RSS, MELT-300 treatment arm patients were 66% less likely to require rescue sedation pre-operatively compared to the midazolam 3mg treatment arm. ● MELT-300’s safety profile was generally comparable to the placebo arm.
In December 2022, Melt announced topline data from its Phase 2 study for MELT-300 as set forth below: ● In a study of more than 300 patients, undergoing cataract surgery conducted at nine study sites, MELT-300 achieved its primary procedural sedation endpoint, demonstrating statistical superiority for procedural sedation compared to all comparator treatment arms, including midazolam 3mg (P=0.0129) and ketamine 50mg (P=0.0096). ● Using the validated Ramsey Sedation Scale (RSS), MELT-300 treatment arm patients were 50% less likely to require rescue sedation compared to midazolam 3mg (P=0.0198). ● Using the RSS, MELT-300 treatment arm patients were 66% less likely to require rescue sedation pre-operatively compared to the midazolam 3mg treatment arm. ● MELT-300’s safety profile was generally comparable to the placebo arm.
Although we prepare some of our compounded formulations in accordance with cGMP standards and our other formulations are produced according to the standards provided by United States Pharmacopoeia (USP) and USP and applicable state and federal law, our compounded formulations are not required to be, and have not been, approved for marketing and sale by the FDA.
Although we prepare some of our compounded formulations in accordance with cGMP standards and our other formulations are produced according to the standards provided by United States Pharmacopoeia (USP) Chapter (“USP 795”) and USP Chapter (“USP 797”) and applicable state and federal law, our compounded formulations are not required to be, and have not been, approved for marketing and sale by the FDA.
In addition, as of March 15, 2023, we owned and/or licensed more than 50 total issued and pending patent applications, which include U.S.-issued patents, international-issued patents, and U.S. and foreign/international patent pending applications. We expect to file additional patent applications in the U.S. and pursue patent protection for certain of our formulations in other important international jurisdictions in the future.
In addition, as of March 1, 2024, we owned and/or licensed more than 50 total issued and pending patent applications, which include U.S.-issued patents, international-issued patents, and U.S. and foreign/international patent pending applications. We expect to file additional patent applications in the U.S. and pursue patent protection for certain of our formulations in other important international jurisdictions in the future.
Starting in 2023, manufacturers must pay refunds to Medicare for single-source drugs or biological products, or biosimilar biological products, reimbursed under Medicare Part B and packaged in single-dose containers or single-use packages for units of discarded drug reimbursed by Medicare Part B in excess of 10% of total allowed charges under Medicare Part B for that drug.
Starting in 2023, manufacturers are now required to pay refunds to Medicare for single-source drugs or biological products, or biosimilar biological products, reimbursed under Medicare Part B and packaged in single-dose containers or single-use packages for units of discarded drug reimbursed by Medicare Part B in excess of 10% of total allowed charges under Medicare Part B for that drug.
According to Market Scope , approximately 4.8 million lens procedures were performed in the U.S. in 2021, 97% of those procedures for cataracts, with the number expected to grow to 5.5 million lens procedures in 2026.
According to Market Scope , approximately 4.8 million lens procedures were performed in the U.S. in 2021, 97% of which were cataracts, with the number expected to grow to 5.5 million lens procedures in 2026.
Many of these laws apply to our business. 12 International Regulation If we pursue commercialization of our branded products and proprietary formulations in countries other than the United States, then we may need to obtain the approvals required by the regulatory authorities of such foreign countries that are comparable to the FDA and state boards of pharmacy, and we would be subject to a variety of other foreign statutes and regulations comparable to those relating to our U.S. operations.
International Regulation If we pursue commercialization of our branded products and proprietary formulations in countries other than the United States, then we may need to obtain the approvals required by the regulatory authorities of such foreign countries that are comparable to the FDA and state boards of pharmacy, and we would be subject to a variety of other foreign statutes and regulations comparable to those relating to our U.S. operations.
The federal Patient Protection and Affordable Care Act (the “PPACA”) made significant changes to the Medicaid Drug Rebate program, and CMS issued a final regulation, which became effective on April 1, 2016, to implement the changes to the Medicaid Drug Rebate program under the PPACA.
The federal Patient Protection and Affordable Care Act (the “PPACA” or “Health Care Reform Law”) made significant changes to the Medicaid Drug Rebate program, and CMS issued a final regulation, which became effective on April 1, 2016, to implement the changes to the Medicaid Drug Rebate program under the PPACA.
On October 27, 2020, the FDA announced availability of a final MOU, 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”).
On October 27, 2020, the FDA announced availability of a final MOU, Memorandum of Understanding Addressing Certain Distributions of Compounded Human Drug Products Between the State Board of Pharmacy or Other Appropriate State Agency and the U.S. Food and Drug Administration (the “Final MOU”).
Nearly 96% of the refractive surgery procedures performed are LASIK (laser in situ keratomileusis) surgeries, an outpatient surgical procedure used to treat nearsightedness, farsightedness, and astigmatism. According to an article published in 2021 in Clinical Ophthalmology , an estimated 800,000 eyes have been treated with laser correction surgery (such as LASIK) each year for the last 10 years.
Nearly 96% of the refractive surgery procedures performed are LASIK (laser in situ keratomileusis) surgeries, an outpatient surgical procedure used to treat nearsightedness, farsightedness, and astigmatism. According to an article published in 2021 in Clinical Ophthalmology , an estimated 800,000 eyes were treated with laser correction surgery (such as LASIK) each year for the previous ten years.
These regulations impose substantial requirements on covered entities and their business associates regarding the storage, utilization and transmission of and access to personal health and non-health information.
These regulations impose substantial requirements on covered entities and their business associates regarding the storage, utilization and transmission of and access to personal health and non-health information. Many of these laws apply to our business.
These companies are pursuing market approval for their drug candidates under the FDCA, including in some instances under the abbreviated pathway described in Section 505(b)(2), which permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.
These companies are pursuing market approval for their drug candidates under the Federal Food Drug and Cosmetic Act (the “FDCA”), including in some instances under the abbreviated pathway described in Section 505(b)(2), which permits the submission of a new drug application (an “NDA”) where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.
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.
Thus, there is no reporting requirement for any pharmacy concerning interstate shipments pursuant to Section 503A and there will not be one 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.
We are smaller than some of our competitors, and we may lack the financial and other resources needed to develop, produce, distribute, market and commercialize any of our branded products and proprietary formulations or compete for market share in these sectors.
We compete against branded drug companies, generic drug companies, outsourcing facilities and compounding pharmacies. We are smaller than some of our competitors, and we may lack the financial and other resources needed to develop, produce, distribute, market and commercialize any of our branded products and proprietary formulations or compete for market share in these sectors.
The standard of care treatment for this disease typically involves the use of short-acting corticosteroids to reduce uveitic flares (such as TRIESENCE) followed by additional treatments of sustained release, lower dose steroids to minimize the risk of further flares.
The standard of care treatment for this disease typically involves the use of short-acting corticosteroids to reduce uveitic flares (such as TRIESENCE) followed by additional treatments of sustained release, lower dose steroids to minimize the risk of further flares. Competition The pharmaceutical and pharmacy industries are highly competitive.
Although we believe we are positioned to compete favorably with respect to many of these factors, if our proprietary formulations are unable to compete with the products of our competitors, we may never gain market share or achieve profitability. 6 Factors Affecting Our Performance We believe the primary factors affecting our performance are our ability to increase revenues of our proprietary compounded formulations and certain non-proprietary products, grow and gain operating efficiencies in our pharmacy operations, potential regulatory-related restrictions, optimize pricing and obtain reimbursement options for our proprietary compounded formulations, and continue to pursue development and commercialization opportunities for certain of our ophthalmology and other assets that we have not yet made commercially available as compounded formulations.
Although we believe we are positioned to compete favorably with respect to many of these factors, if our proprietary formulations are unable to compete with the products of our competitors, we may never gain a significant market share or achieve profitability. 8 Factors Affecting Our Performance We believe the primary factors affecting our performance are our ability to increase revenues of our ophthalmic products, grow and gain operating efficiencies in our pharmacy operations, successfully adjust our operations to account for any future regulatory-related restrictions, optimize pricing and obtain reimbursement options for our ophthalmic products, and continue to pursue development and commercialization opportunities for certain of our ophthalmology and other assets that we have not yet made commercially available or have been recently launched.
Currently, the rebate is capped at 100% of the average manufacturer price, but effective January 1, 2024, this cap on the rebate will be removed, and our rebate liability could increase accordingly.
The rebate was previously capped at 100% of the average manufacturer price, but effective January 1, 2024, this cap on the rebate was removed, and our rebate liability could increase accordingly.
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.
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. 15 We prepare our compounded formulations in accordance with the standards provided by USP and USP and applicable state and federal law.
Dry eye is among the most common conditions seen by eyecare professionals. 3 Pharmaceutical Compounding Businesses Pharmaceutical Compounding Pharmaceutical compounding is the science of combining different active pharmaceutical ingredients (APIs), all of which are approved by the FDA (either as a finished form product or as a bulk drug ingredient), and excipients to create specialized pharmaceutical preparations.
Pharmaceutical Compounding Businesses Pharmaceutical Compounding Pharmaceutical compounding is the science of combining different active pharmaceutical ingredients (APIs), all of which are approved by the FDA (either as a finished form product or as a bulk drug ingredient), and excipients to create specialized pharmaceutical preparations.
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.
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. 14 Certain provisions of the FDCA govern the preparation, handling, storage, marketing and distribution of pharmaceutical 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.
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.
FDA New Drug Application Process As discussed in other sections of this Annual Report, we are pursuing, and may continue to pursue, alone or with project partners, FDA approval to market and sell one or more of our product candidates through the FDA’s NDA process.
Below are descriptions of some of the various federal and state laws and regulations which may govern or impact our current and planned operations. 12 FDA New Drug Application Process As discussed in other sections of this Annual Report, we are pursuing, and may continue to pursue, alone or with project partners, FDA approval to market and sell one or more of our product candidates through the FDA’s NDA process.
Also, the FDA or other regulatory authorities require post-marketing reporting to monitor the adverse effects of a drug.
Also, the FDA or other regulatory authorities require post-marketing reporting to monitor the adverse effects of a drug. Results of post-marketing programs may limit or expand the further marketing of a product.
Title 1 of the DQSA, the Compounding Quality Act, modifies provisions of the Section 503A of the FDCA that were found to be unconstitutional by the U.S. Supreme Court in 2002.
The DQSA clarifies and strengthens the federal regulatory framework governing compounding pharmacies. Title 1 of the DQSA, the Compounding Quality Act, modified provisions of the Section 503A of the FDCA that were found to be unconstitutional by the U.S. Supreme Court in 2002.
Our investments in this regard have led to the pursuit and completion of several announced transactions, and others we are continuing to pursue, all of which are focused on eyecare pharmaceuticals.
Our investments in this regard have led to the pursuit and completion of several announced transactions, all of which are focused on eyecare pharmaceuticals primarily for the U.S. and Canadian markets.
These injections are utilized to administer critical medications into the eye that treat diseases including but not limited to: proliferative diabetic retinopathy, diabetic macular edema, wet age-related macular degeneration, neovascular glaucoma, retinal vein occlusions, intraocular tumors, and endophthalmitis.
According to a 2023 article published in Healio , approximately 8 million intravitreal injections were expected to be performed that year. These injections are utilized to administer critical medications into the eye that treat diseases including but not limited to proliferative diabetic retinopathy, diabetic macular edema, wet age-related macular degeneration, neovascular glaucoma, retinal vein occlusions, intraocular tumors, and endophthalmitis.
TRIESENCE has a permanent product specific J-code (J3301) as well, which physicians can use for reimbursement purposes of that product. New drugs approved by the FDA that are used in surgeries performed in a hospital outpatient departments or ambulatory surgical centers may receive a transitional pass-through reimbursement under Medicare, provided they meet certain criteria, including a “not insignificant” cost criterion.
New drugs approved by the FDA that are used in surgeries performed in a hospital outpatient departments or ambulatory surgical centers may receive a transitional pass-through reimbursement under Medicare, provided they meet certain criteria, including a “not insignificant” cost criterion.
Some examples of products that may be allowed to follow a Section 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration, formulation or indication. The AMP-100 NDA that was submitted and we expect the MAQ-100 NDA will be submitted as Section 505(b)(2) NDAs.
Some examples of products that may be allowed to follow a Section 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration, formulation or indication.
The 340B ceiling price is calculated using a statutory formula, which is based on the average manufacturer price and Medicaid rebate amount for the covered outpatient drug as calculated under the Medicaid Drug Rebate program. In general, products subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price calculation and discount requirement.
The 340B ceiling price is calculated using a statutory formula, which is based on the average manufacturer price and Medicaid rebate amount for the covered outpatient drug as calculated under the Medicaid Drug Rebate program.
While we strive to provide real-time recognition of employee performance, we have a formal annual review process not only to determine pay and equity adjustments tied to individual contributions, but to identify areas where training and development may be needed. 14 Corporate Transparency In early 2022, we released and published on our corporate website (harrowinc.com) our Corporate Transparency Report, which describes and summarizes the initiatives the Company has undertaken and associated metrics related to certain issues including: ● Energy, Emissions, Waste and Water ● Embracing our Community ● Supply Chain Management ● Innovation/Sustainable Products ● Community Involvement ● Employee Health and Safety ● Employee Recruitment, Development and Retention ● Governance ● Employee Diversity ● Drug Safety ● Business Ethics, Compliance and Bribery ● Data Protection, Patient Data Privacy Company Information We were incorporated in Delaware in January 2006 as Bywater Resources, Inc.
Corporate Transparency In 2022, we released and published on our corporate website (harrow.com) our Corporate Transparency Report, which describes and summarizes the initiatives the Company has undertaken and associated metrics related to certain issues including: ● Energy, Emissions, Waste and Water ● Embracing our Community ● Supply Chain Management ● Innovation/Sustainable Products ● Community Involvement ● Employee Health and Safety ● Employee Recruitment, Development and Retention ● Governance ● Employee Diversity ● Drug Safety ● Business Ethics, Compliance and Bribery ● Data Protection, Patient Data Privacy Company Information We were incorporated in Delaware in January 2006 as Bywater Resources, Inc.
In addition, during the 2020 Inspection, the FDA noted that we were compounding drugs for which there is no change that produces for an individual patient a clinical difference, as determined by a prescribing practitioner, between a compounded drug and the comparable approved drug.
In addition, during the 2020 Inspection, the FDA noted that we were compounding drugs that did not produce for an individual patient a clinical difference from comparable approved drugs, as determined by a prescribing practitioner.
Chronic non-infectious uveitis affecting the posterior segment of the eye is an inflammatory disease that afflicts people of all ages, producing swelling and destroying eye tissues, which can lead to severe vision loss and blindness. We estimate this disease affects approximately 100,000 people each year in the U.S. and causes approximately 30,000 new cases of blindness every year.
Chronic non-infectious uveitis affecting the posterior segment of the eye is an inflammatory disease that afflicts people of all ages, producing swelling and destroying eye tissues, which can lead to severe vision loss and blindness.
Our sales and marketing activities consist primarily of efforts to educate doctors, ambulatory surgery centers, healthcare systems, hospitals and other users throughout the U.S. about our branded drug products and compounded formulations.
Our sales and marketing activities consist primarily of efforts to educate doctors, ambulatory surgery centers, healthcare systems, hospitals and other users throughout the U.S. about our branded drug products and compounded formulations. We expect that we may experience growth in the sales of our products in future periods, particularly in light of our recent product launches and commercial campaigns.
We own and operate ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical-compounding businesses, and our branded drugs are marketed under our Harrow name. In addition, we also have non-controlling equity positions in Surface Ophthalmics, Inc. (“Surface”) and Melt Pharmaceuticals, Inc.
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. In addition, we have a non-controlling equity interest in Melt Pharmaceuticals, Inc.
Failure to comply with requirements under the drug price negotiation program is subject to an excise tax and a civil monetary penalty. This or any other legislative change could impact the market conditions for our products.
Failure to comply with requirements under the drug price negotiation program is subject to an excise tax and a civil monetary penalty.
We plan to invest in one or both of our facilities to further their capacity and efficiencies. Also, we may seek to access greater pharmacy and production related redundancy and markets through acquisitions, partnerships or other strategic transactions. Carved-Out Subsidiaries (De-Consolidated Businesses) We have ownership interests in Surface, Melt, and Eton Pharmaceuticals, Inc.
We plan to invest in one or both of our facilities to further their capacity and efficiencies. Also, we may seek to access greater pharmacy and production related redundancy and markets through acquisitions, partnerships or other strategic transactions. Sales and Marketing The focus of our sales and marketing is in the U.S.
Any charge by HRSA that we have violated the requirements of the regulation could result in civil monetary penalties.
It is currently unclear how HRSA will apply its enforcement authority under this regulation. Any charge by HRSA that we have violated the requirements of the regulation could result in civil monetary penalties.
Harrow owns mid-single-digit royalty rights on net sales of SURF-100, SURF-200 and SURF-201. Eton Pharmaceuticals, Inc. Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing treatments for rare diseases. Eton currently commercializes ALKINDI SPRINKLE® and Carglumic Acid tablets and has additional rare disease products under development, including dehydrated alcohol injection and the ZENEO® hydrocortisone autoinjector.
Eton is an innovative pharmaceutical company focused on developing, acquiring, and commercializing treatments for rare diseases. Eton currently commercializes ALKINDI SPRINKLE® and Carglumic Acid tablets and has additional rare disease products under development, including dehydrated alcohol injection and the ZENEO® hydrocortisone autoinjector. In May 2017, we gave up our controlling interest in Eton.
Health, Safety, and Wellness The health, safety, and wellness of our employees is a priority in which we have always invested and will continue to do so. We provide our employees and their families with access to a variety of innovative, flexible, and convenient health and wellness programs.
We provide our employees and their families with access to a variety of innovative, flexible, and convenient health and wellness programs.
In addition, inventions relevant to us could be developed by a person not bound by an invention assignment agreement with us, in which case we may have no rights to use the applicable invention.
In addition, inventions relevant to us could be developed by a person not bound by an invention assignment agreement with us, in which case we may have no rights to use the applicable invention. The following table lists our outstanding material patents in the U.S. for certain branded products, general subject matter and latest expiry date.
Section 505(b)(2) New Drug Applications As an alternate path for FDA approval of new indications or new formulations of previously-approved products, a company may file a Section 505(b)(2) NDA instead of a “stand-alone” or “full” NDA.
Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising, fines and potential civil and criminal penalties. Section 505(b)(2) New Drug Applications As an alternate path for FDA approval of new indications or new formulations of previously-approved products, a company may file a Section 505(b)(2) NDA instead of a “stand-alone” or “full” NDA.
In May 2017, we gave up our controlling interest in Eton. We own 1,982,000 shares of Eton common stock, which represented less than 10% of Eton’s equity and voting interests issued and outstanding as of December 31, 2022. 5 Sales and Marketing The focus of our sales and marketing is in the U.S.
We own 1,982,000 shares of Eton common stock, which represented less than 10% of Eton’s equity and voting interests issued and outstanding as of December 31, 2023.
Results of post-marketing programs may limit or expand the further marketing of a product. 9 The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet.
The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. A company can make only those claims relating to safety and efficacy that are approved by the FDA.
According to a 2023 Market Scope report, the global glaucoma pharmaceuticals market was expected to be $4.3 billion in 2022. Dry eye occurs when the eye does not produce enough tears, or when the tears are not of the correct consistency and evaporate too quickly. Inflammation of the surface of the eye may also occur.
Dry eye occurs when the eye does not produce enough tears, or when the tears are not of the correct consistency and evaporate too quickly. Inflammation of the surface of the eye may also occur.
We provide our employees with a tuition reimbursement program, and in certain instances, onsite training programs.
Training and Development We believe in encouraging employees in becoming lifelong learners by providing ongoing learning, training and leadership opportunities. We provide our employees with a tuition reimbursement program, and in certain instances, onsite training programs.
IHEEZO and TRIESENCE are covered under Medicare Part B and we may develop other drug candidates and/or acquire drug products that are also covered under Medicare Part B. In February 2023, we announced that CMS had issued a permanent, product specific J-code for IHEEZO (J2403) which will become effective under the Healthcare Procedure Coding System (HCPCS) on April 1, 2023.
In February 2023, we announced that CMS had issued a permanent, product specific J-code for IHEEZO (J2403) which will become effective under the Healthcare Procedure Coding System (HCPCS) on April 1, 2023. TRIESENCE has a permanent product specific J-code (J3300) as well, which physicians can use for reimbursement purposes of that product.
Based on our history of meeting the needs of our customers, we are able to anticipatorily compound batches of our formulations for our customers, per the applicable regulations. 10 Many of the states into which we deliver pharmaceuticals have laws and regulations that require out-of-state pharmacies to register with, or be licensed by, the boards of pharmacy or similar regulatory bodies in those states.
Many of the states into which we deliver pharmaceuticals have laws and regulations that require out-of-state pharmacies to register with, or be licensed by, the boards of pharmacy or similar regulatory bodies in those states. These states generally permit the dispensing pharmacy to follow the laws of the state within which the dispensing pharmacy is located.
We believe that we continue to attract and retain superior talent as measured by our turnover rate and employee service tenure. Total Rewards Our total rewards philosophy has been to create investment in our workforce by offering competitive compensation and benefits packages. We provide employees with compensation packages that include base salary, annual incentive bonuses, and long-term equity awards.
Our talent acquisition team uses internal and external resources to recruit highly skilled candidates in the U.S. We believe that we continue to attract and retain superior talent as measured by our turnover rate and employee service tenure. Total Rewards Our total rewards philosophy has been to create investment in our workforce by offering competitive compensation and benefits packages.
Examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms, such as topical creams or gels, suspensions, or solutions with more tolerable drug delivery vehicles.
Examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms, such as topical creams or gels, suspensions, or solutions with more tolerable drug delivery vehicles. Sales revenue from our compounded products are derived from us making, selling and dispensing our compounded prescription drug formulations as cash payment transactions between us and our end-user customers.
Human Capital As of March 15, 2023, we employed 217 employees. Our employees are engaged in pharmacy operations, sales, marketing, research, development, and general and administrative functions. We expect to add additional employees in all departmental functions, with a focus on commercial activities as we carry out our business plan in the next 12 months.
We expect to add additional employees in all departmental functions, with a focus on sales force additions and other commercial activities as we carry out our business plan in the next 12 months. We are not party to any collective bargaining agreements with any of our employees.
HRSA issued a final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities, which became effective on January 1, 2019. It is currently unclear how HRSA will apply its enforcement authority under this regulation.
In general, products subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price calculation and discount requirement. 10 HRSA issued a final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities, which became effective on January 1, 2019.
Melt can require the Company to cease compounding like products at the time of FDA approval of MELT-300. If approved, we do not expect a cessation of compounding like products to have a material impact on our operations and financial performance. Surface Ophthalmics, Inc.
If approved, we do not expect a cessation of compounding like products to have a material impact on our operations and financial performance. 5 Surface Ophthalmics, Inc. Surface is a clinical-stage pharmaceutical company focused on development and commercialization of innovative therapeutics for ocular surface diseases.
In regard to our compounded formulations, by not being reliant on insurance company formulary inclusion and pharmacy benefit manager payment clawbacks, we are able to simplify the prescription transaction process. We believe the outcome of our compounding business model is a simple transaction, involving a patient-in-need, a physician’s diagnosis, a fair price and great service for a quality pharmaceutical product.
We believe the outcome of our compounding business model is a simple transaction, involving a patient-in-need, a physician’s diagnosis, a fair price and great service for a quality pharmaceutical product. ImprimisRx Compounding Facilities Pharmaceutical compounding businesses are governed by Sections 503A and 503B of the FDCA.
We also offer comprehensive employee benefits, which vary by country and region, such as life, disability, and health insurance, health savings and flexible spending accounts, paid time off, and a 401(k) plan. It is our expressed intent to be an employer of choice in our industry by providing market-competitive compensation and benefits packages.
We provide employees with compensation packages that include base salary, annual incentive bonuses, and long-term equity awards. We also offer comprehensive employee benefits, which vary by country and region, such as life, disability, and health insurance, health savings and flexible spending accounts, paid time off, and a 401(k) plan.
Included in this notice for comment were certain bulk drug substances which we currently use in some of our compounded products.
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks that we deem material are described under “Risk Factors” below and include, but are not limited to, the following: Risks Related to Economic Conditions and Operations of Our Business. ● Our ability to achieve and maintain profitability for our business; ● Our ability to successfully market, commercialize, and sell current, recently acquired and future products; ● Our current indebtedness and ability to access additional capital; ● Our ability to attract customers and increase sales of current and future products; ● Our ability to obtain marketing approval and ongoing expense associated with it for any of our drug candidates, including those we own royalty rights of; ● Our reliance on third parties for manufacturing certain components, FDA approved drugs and to conduct clinical trials; ● Our exposure to liabilities and reputation harm if our products give rise to defects, recalls, patient injury or death; ● The potential adverse impact of health epidemics, including the COVID-19 pandemic; Risks Related to Government Regulations and Third-Party Policies ● Governmental regulations, including, but not limited to, potential changes to USP 797, 503B bulks list and others, that could or currently do burden operations or narrow the market for our products; ● Our sales depend on coverage and reimbursement from government and commercial third-party payers, and pricing and reimbursement pressures have affected, and are likely to continue to affect, our profitability. ● The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability. ● Our business may be affected by litigation and government investigations.
Biggest changeRisks that we deem material are described under “Risk Factors” below and include, but are not limited to, the following: Risks Related to Economic Conditions and Operations of Our Business. ● Our ability to achieve and maintain profitability for our business ● Our ability to successfully market, commercialize, and sell current, recently acquired and future products ● Our current indebtedness and ability to access additional capital ● Our ability to attract customers and increase sales of current and future products ● Our ability to obtain marketing approval and ongoing expense associated with it for any of our drug candidates, including those for which we own royalty rights ● Our reliance on third parties for manufacturing certain components, FDA approved drugs and to conduct clinical trials ● Our exposure to liabilities and reputation harm if our products give rise to defects, recalls, patient injury or death ● Our information technology systems exposure to cyberattack or information security breach could significantly compromise the confidentiality, integrity and availability of our information technology systems Risks Related to Government Regulations and Third-Party Policies ● Governmental regulations, including, but not limited to, potential changes to USP 797, 503B bulks list and others, that could or currently do burden operations or narrow the market for our products ● Our sales depend on coverage and reimbursement from government and commercial third-party payors, and pricing and reimbursement pressures have affected, and are likely to continue to affect, our profitability ● The adoption and interpretation of new tax legislation or exposure to additional tax liabilities could affect our profitability ● Our business may be affected by litigation and government investigations Risks Related to Competition ● Securing and maintaining patent or other intellectual property protection for our products and related improvements ● Market acceptance of our drug products, drug candidates, compounded drugs and pharmacies ● Our ability to successfully research, develop and timely manufacture our current and future products and drug candidates ● Our ability to enforce protect our intellectual property rights along with the potential of future legal proceedings filed against us claiming intellectual property infringement ● Retention, recruitment, and training of senior management and key personnel Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization ● We may not be able to develop commercial products despite significant investments in R&D ● Our branded products and product candidates in development cannot be sold without regulatory approval ● Our drug candidates may face competition sooner than we expect ● We rely on third parties to manufacture and conduct clinical trials of our branded drug products and product candidates ● We may not be successful in obtaining market exclusivity for our product candidates Risks Related to the Notes ● Our ability to pay the interest and debt service payments associated with the Notes ● The Notes are unsecured, effectively subordinated to any secured indebtedness, with limited protection for holders of the Notes ● The Notes are subject to various market factors, including market interest rates, trading activity, third-party ratings and other factors 19 Risks Related to Our Common Stock ● Volatility of the price of our common stock ● Our stock price falling as a result of future offerings or sales You should carefully consider the following risk factors in addition to the other information contained in this Annual Report.
The degree of market acceptance for any of our drug candidates will depend on a number of factors, including: ● demonstration of clinical safety and efficacy; ● relative convenience, dosing burden and ease of administration; ● the prevalence and severity of any adverse effects; ● the willingness of physicians to prescribe our drug candidates, and the target patient population to try new therapies; ● efficacy of our drug candidates compared to competing products; ● the introduction of any new products that may in the future become available targeting indications for which our drug candidates may be approved; ● new procedures or therapies that may reduce the incidences of any of the indications in which our drug candidates may show utility; ● pricing and cost-effectiveness; ● the inclusion or omission of our drug candidates in applicable therapeutic and vaccine guidelines; ● the effectiveness of our own or any future collaborators’ sales and marketing strategies; 28 ● limitations or warnings contained in approved labeling from regulatory authorities; ● our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and ● the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals.
The degree of market acceptance for any of our drug candidates will depend on a number of factors, including: ● demonstration of clinical safety and efficacy; ● relative convenience, dosing burden and ease of administration; ● the prevalence and severity of any adverse effects; ● the willingness of physicians to prescribe our drug candidates, and the target patient population to try new therapies; ● efficacy of our drug candidates compared to competing products; ● the introduction of any new products that may in the future become available targeting indications for which our drug candidates may be approved; 36 ● new procedures or therapies that may reduce the incidences of any of the indications in which our drug candidates may show utility; ● pricing and cost-effectiveness; ● the inclusion or omission of our drug candidates in applicable therapeutic and vaccine guidelines; ● the effectiveness of our own or any future collaborators’ sales and marketing strategies; ● limitations or warnings contained in approved labeling from regulatory authorities; ● our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and ● the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals.
Further, we believe the changes to USP chapter will likely cause a reduction in the ability of local 503A pharmacies to produce compounded formulations to serve local markets, and that these changes in policy affecting sterile compounded formulations, if adopted by the various states, may increase demand for compounded formulations from larger vendors such as Harrow and cause further consolidation in the market for compounded formulations as smaller 503A pharmacies see a reduction in revenues from certain segments of their formularies affected by these changes.
Further, we believe the changes to USP will likely cause a reduction in the ability of local 503A pharmacies to produce compounded formulations to serve local markets, and that these changes in policy affecting sterile compounded formulations, if adopted by the various states, may increase demand for compounded formulations from larger vendors such as Harrow and cause further consolidation in the market for compounded formulations as smaller 503A pharmacies see a reduction in revenues from certain segments of their formularies affected by these changes.
Statutory or regulatory changes could require us to make changes to our business model and operations and/or could require us to incur significantly increased costs to comply with such regulations. 22 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).
Statutory or regulatory changes could require us to make changes to our business model and operations and/or could require us to incur significantly increased costs to comply with such regulations. 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).
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. 18 Our business and operations would suffer in the event of cybersecurity or other system failures.
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. Our business and operations would suffer in the event of cybersecurity or other system failures.
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. We have in the past and may in the future participate in strategic transactions that could impact our liquidity, increase our expenses and distract our management.
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. We have in the past participated and may in the future participate in strategic transactions that could impact our liquidity, increase our expenses and distract our management.
Additionally, the permanent injunction entered on July 22, 2019, by the United States District Court of the Central District of California 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.
Additionally, the permanent injunction entered on July 22, 2019, by the United States 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.
We also rely on unpatented trade secrets and know-how and continuing technological innovation in order to develop our formulations, which we seek to protect, in part, by confidentiality agreements with our employees, consultants, collaborators and others, including certain service providers. We also have invention or patent assignment agreements with our current employees and certain consultants.
We also rely on unpatented trade secrets and know-how and continuing technological innovation in order to develop our products, formulations, which we seek to protect, in part, by confidentiality agreements with our employees, consultants, collaborators and others, including certain service providers. We also have invention or patent assignment agreements with our current employees and certain consultants.
We believe, to date, we have addressed all of the material items of concern in the FDA’s 483, warning letters and those related to the MedWatch notification (and any other requirements observed by the FDA and noted to us), and we do not believe there will be any further action taken by the FDA in these matters.
We believe, to date, we have addressed all of the material items of concern in the FDA’s Form 483, warning letters and those related to the MedWatch notification (and any other requirements observed by the FDA and noted to us), and we do not believe there will be any further action taken by the FDA in these matters.
We are highly dependent on these executives for the implementation of our business plan and the future development of our assets and our business, and the loss of their services and leadership could materially adversely impact our Company. If we are unable to attract and retain key personnel and consultants, we may be unable to maintain or expand our business.
We are highly dependent on these executives for the implementation of our business plan and the future development of our assets and our business, and the loss of their services and leadership could materially adversely impact our Company. 35 If we are unable to attract and retain key personnel and consultants, we may be unable to maintain or expand our business.
If we experience difficulties with the implementation of plans with respect to our acquisitions, the anticipated benefits of the recent or future acquisition may not be realized fully or at all, or may take longer to realize than expected. Integration efforts will also divert management’s attention and resources.
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 fully or at all, or may take longer to realize than expected. Integration efforts will also divert management’s attention and resources.
If any of these events occur, we could be subject to significant costs and damage to our reputation, business, results of operations and financial condition. If we are unable to establish, train and maintain an effective sales and marketing infrastructure, we will not be able to commercialize our drug candidates successfully.
If any of these events occur, we could be subject to significant costs and damage to our reputation, business, results of operations and financial condition. 22 If we are unable to establish, train and maintain an effective sales and marketing infrastructure, we will not be able to commercialize our drug candidates successfully.
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. 19 We carry product and professional liability insurance, which may be inadequate.
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. We carry product and professional liability insurance, which may be inadequate.
In November 2022, USP published finalized revisions to USP chapters and , which had been previously proposed for public comment in September 2021. The revisions include limitations on beyond use dating of sterile and preservative-free products and batch sizes, among other changes.
In November 2022, USP published finalized revisions to USP and USP , which had been previously proposed for public comment in September 2021. The revisions include limitations on beyond use dating of sterile and preservative-free products and batch sizes, among other changes.
For other reasons, physicians may be unwilling to prescribe or patients may be unwilling to use our proprietary compounded formulations, including 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.
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.
Although we prepare our compounded formulations in accordance with the standards provided by USP chapter and USP chapter and applicable state and federal law, our proprietary compounded formulations are not required to be, and have not been, approved for marketing and sale by the FDA.
Although we prepare our compounded formulations in accordance with the standards provided by USP and USP and applicable state and federal law, our proprietary compounded formulations are not required to be, and have not been, approved for marketing and sale by the FDA.
Any such event or occurrence could severely and negatively impact our operations and prospects. The indenture under which the Notes were issued contains limited protection for holders of the Notes. The indenture under which the Notes were issued offers limited protection to holders of the Notes.
Any such event or occurrence could severely and negatively impact our operations and prospects. 47 The indenture under which the Notes were issued contains limited protection for holders of the Notes. The indenture under which the Notes were issued offers limited protection to holders of the Notes.
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. 21 In August 2017, the FDA issued a MedWatch notification regarding our curcumin emulsion and two adverse events that had been associated with the use of these emulsions by prescribing physicians.
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. 25 In August 2017, the FDA issued a MedWatch notification regarding our curcumin emulsion and two adverse events that had been associated with the use of these emulsions by prescribing physicians.
Any future clinical trial results for our drug candidates may not be successful. In addition, a number of factors could contribute to a lack of favorable safety and efficacy results for any of our drug candidates.
Any future clinical trial results for our drug candidates may not be successful. 37 In addition, a number of factors could contribute to a lack of favorable safety and efficacy results for any of our drug candidates.
Our failure or the failure of our CROs or clinical sites to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action up to and including civil and criminal penalties. 34 Although we intend to design the clinical trials for our drug candidates in consultation with CROs, we expect that the CROs will manage all of the clinical trials conducted at contracted clinical sites.
Our failure or the failure of our CROs or clinical sites to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action up to and including civil and criminal penalties. 44 Although we intend to design the clinical trials for our drug candidates in consultation with CROs, we expect that the CROs will manage all of the clinical trials conducted at contracted clinical sites.
Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of our contract manufacturers or the contract manufacturers of our development partners are affected by a man-made or natural disaster or other business interruption. 20 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.
Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of our contract manufacturers or the contract manufacturers of our development partners are affected by a man-made or natural disaster or other business interruption. 24 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.
This high degree of consolidation among insurers and PBMs and other payers, including through integrated healthcare delivery systems and/or with specialty or mail-order pharmacies and pharmacy retailers, has increased the negotiating leverage such entities have over us and other biopharmaceutical manufacturers and has resulted in greater price discounts, rebates and service fees realized by those payers from our business.
This high degree of consolidation among insurers and PBMs and other payors, including through integrated healthcare delivery systems and/or with specialty or mail-order pharmacies and pharmacy retailers, has increased the negotiating leverage such entities have over us and other biopharmaceutical manufacturers and has resulted in greater price discounts, rebates and service fees realized by those payors from our business.
While USP has no role in enforcement, we believe the revisions to USP chapter in particular will likely cause two changes to our business, which in the aggregate should have a neutral to positive revenue impact on Harrow: (i) we expect a reduction in revenues generated from sales of formulations compounded by our 503A pharmacy, and (ii) we expect an increase in revenues from sales of formulations compounded in our 503B facility.
While USP has no role in enforcement, we believe the revisions to USP in particular will likely cause two changes to our business, which in the aggregate should have a neutral to positive revenue impact on Harrow: (i) a reduction in revenues generated from sales of formulations compounded by our 503A pharmacy, and (ii) an increase in revenues from sales of formulations compounded in our 503B facility.
See “- Our sales depend on coverage and reimbursement from government and commercial third-party payers, and pricing and reimbursement pressures have affected, and are likely to continue to affect, our profitability.” Such recommendations or guidelines may affect our reputation, and any recommendations or guidelines that result in decreased use, dosage or reimbursement of our products could have a material adverse effect on our product sales, business and results of operations.
See “- Our sales depend on coverage and reimbursement from government and commercial third-party payors, and pricing and reimbursement pressures have affected, and are likely to continue to affect, our profitability.” Such recommendations or guidelines may affect our reputation, and any recommendations or guidelines that result in decreased use, dosage or reimbursement of our products could have a material adverse effect on our product sales, business and results of operations.
We have worked and communicated, and will continue to work and communicate, with the FDA to assure that all allegations in the warning letters and 483s have been addressed.
We have worked and communicated, and will continue to work and communicate, with the FDA to assure that all allegations in the warning letters and Form 483s have been addressed.
However, to the extent that payer actions further decrease or modify the coverage or reimbursement available for our products, require that we pay increased rebates or shift other costs to us, limit or affect our decisions regarding the pricing of or otherwise reduce the use of our products, such actions could have a material adverse effect on our business and results of operations.
However, to the extent that payor actions further decrease or modify the coverage or reimbursement available for our products, require that we pay increased rebates or shift other costs to us, limit or affect our decisions regarding the pricing of or otherwise reduce the use of our products, such actions could have a material adverse effect on our business and results of operations.
In addition, the perception by the investment community or stockholders that such recommendations or guidelines will result in decreased use and dosage of our products could adversely affect the market price of our common stock. 25 Risks Related to Competition There are many competitive risks related to marketing and selling our proprietary formulations and operating our compounding pharmacy business.
In addition, the perception by the investment community or stockholders that such recommendations or guidelines will result in decreased use and dosage of our products could adversely affect the market price of our common stock. 32 Risks Related to Competition There are many competitive risks related to marketing and selling our proprietary formulations and operating our compounding pharmacy business.
Certain of our distributors, customers and payers have substantial purchasing leverage, due to the volume of our products they purchase or the number of patient lives for which they provide coverage. The substantial majority of our U.S. branded product sales are made through three pharmaceutical product wholesaler distributors: McKesson Corporation, AmerisourceBergen Corporation and Cardinal Health, Inc.
Certain of our distributors, customers and payors have substantial purchasing leverage, due to the volume of our products they purchase or the number of patient lives for which they provide coverage. The substantial majority of our U.S. branded product sales are made through three pharmaceutical product wholesaler distributors: McKesson Corporation, AmerisourceBergen Corporation and Cardinal Health, Inc.
If we cannot provide reliable financial results, our consolidated financial statements could be misstated, our reputation may be harmed and the trading price of our common stock could decline. As we discuss in Item 9A of this Annual Report, our management concluded that our internal controls over financial reporting were effective as of December 31, 2022.
If we cannot provide reliable financial results, our consolidated financial statements could be misstated, our reputation may be harmed and the trading price of our common stock could decline. As we discuss in Item 9A of this Annual Report, our management concluded that our internal controls over financial reporting were effective as of December 31, 2023.
Six states (Colorado, Maine, New Hampshire, Maryland, Oregon and Washington) have enacted laws that establish Prescription Drug Affordability Boards (PDABs) to study drug prices and identify drugs that pose affordability challenges, and in three states (Colorado, Maryland and Washington) include authority for the state PDAB to set upper payment limits on certain drugs in state regulated plans.
Six states (Colorado, Maine, New Hampshire, Maryland, Oregon and Washington) have enacted laws that establish Prescription Drug Affordability Boards (“PDABs”) to study drug prices and identify drugs that pose affordability challenges, and in three states (Colorado, Maryland and Washington) include authority for the state PDABs to set upper payment limits on certain drugs in state regulated plans.
Government agencies promulgate regulations and guidelines directly applicable to us and to our products. Professional societies, practice management groups, insurance carriers, physicians’ groups, private health and science foundations and organizations involved in various diseases also publish guidelines and recommendations to healthcare providers, administrators and payers, as well as patient communities.
Government agencies promulgate regulations and guidelines directly applicable to us and to our products. Professional societies, practice management groups, insurance carriers, physicians’ groups, private health and science foundations and organizations involved in various diseases also publish guidelines and recommendations to healthcare providers, administrators and payors, as well as patient communities.
Separately, in December 2017, we were issued a warning letter from the FDA alleging that, in their 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.
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.
See “ – Our sales depend on coverage and reimbursement from government and commercial third-party payers, and pricing and reimbursement pressures have affected, and are likely to continue to affect, our profitability.” The three largest PBMs in the United States are now part of major health insurance providers.
See “ – Our sales depend on coverage and reimbursement from government and commercial third-party payors, and pricing and reimbursement pressures have affected, and are likely to continue to affect, our profitability.” The three largest PBMs in the United States are now part of major health insurance providers.
The success of our product acquisitions will depend on, among other things, our ability to successfully integrate the products into our commercial platform, transfer the products NDAs, maintain payer reimbursement coverage, maintain an adequate supply of the products, market the products to our existing customers and re-introduce TRIESENCE to the ophthalmic market.
The success of our product acquisitions will depend on, among other things, our ability to successfully integrate the products into our commercial platform, transfer the products NDAs, maintain payor reimbursement coverage, maintain an adequate supply of the products, market the products to our existing customers and re-introduce TRIESENCE to the ophthalmic market.
Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. 38 A consistently active trading market for shares of our common stock may not be sustained.
Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. 49 A consistently active trading market for shares of our common stock may not be sustained.
These matters could have an adverse effect during any transition period and for an undetermined period after completion of the acquisitions. 16 We may not be able to correctly estimate our future operating expenses, which could lead to cash shortfalls.
These matters could have an adverse effect during any transition period and for an undetermined period after completion of the acquisitions. 20 We may not be able to correctly estimate our future operating expenses, which could lead to cash shortfalls.
Value assessments may come from private organizations that publish their findings and offer recommendations relating to the products’ reimbursement by government and private payers. Some companies and payers have announced pricing and payment decisions based in part on the assessments of private organizations.
Value assessments may come from private organizations that publish their findings and offer recommendations relating to the products’ reimbursement by government and private payors. Some companies and payors have announced pricing and payment decisions based in part on the assessments of private organizations.
The commencement and completion of clinical studies can be delayed for a number of reasons, including delays related to: ● the FDA or a comparable foreign regulatory authority failing to grant permission to proceed and placing the clinical study on hold; ● subjects for clinical testing failing to enroll or remain in our trials at the rate we expect; ● a facility manufacturing any of our drug candidates being ordered by the FDA or other government or regulatory authorities to temporarily or permanently shut down due to violations of cGMP requirements or other applicable requirements, or cross-contaminations of drug candidates in the manufacturing process; ● any changes to our manufacturing process that may be necessary or desired; ● subjects choosing an alternative treatment for the indications for which we are developing our drug candidates, or participating in competing clinical studies; ● subjects experiencing severe or unexpected drug-related adverse effects; ● reports from clinical testing on similar technologies and products raising safety and/or efficacy concerns; ● third-party clinical investigators losing their license or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or employing methods consistent with the clinical trial protocol, cGMP requirements, or other third parties not performing data collection and analysis in a timely or accurate manner; ● inspections of clinical study sites by the FDA, comparable foreign regulatory authorities, or IRBs finding regulatory violations that require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study, or that prohibit us from using some or all of the data in support of our marketing applications; ● third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or any of the data produced by such contractors in support of our marketing applications; ● one or more IRBs refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial; reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; ● deviations of the clinical sites from trial protocols or dropping out of a trial; ● adding new clinical trial sites; ● the inability of the CRO to execute any clinical trials for any reason; and ● government or regulatory delays or “clinical holds” requiring suspension or termination of a trial. 35 Product development costs for any of our drug candidates will increase if we have delays in testing or approval or if we need to perform more or larger clinical studies than planned.
The commencement and completion of clinical studies can be delayed for a number of reasons, including delays related to: ● the FDA or a comparable foreign regulatory authority failing to grant permission to proceed and placing the clinical study on hold; ● subjects for clinical testing failing to enroll or remain in our trials at the rate we expect; ● a facility manufacturing any of our drug candidates being ordered by the FDA or other government or regulatory authorities to temporarily or permanently shut down due to violations of cGMP requirements or other applicable requirements, or cross-contaminations of drug candidates in the manufacturing process; ● any changes to our manufacturing process that may be necessary or desired; ● subjects choosing an alternative treatment for the indications for which we are developing our drug candidates, or participating in competing clinical studies; ● subjects experiencing severe or unexpected drug-related adverse effects; ● reports from clinical testing on similar technologies and products raising safety and/or efficacy concerns; ● third-party clinical investigators losing their license or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or employing methods consistent with the clinical trial protocol, cGMP requirements, or other third parties not performing data collection and analysis in a timely or accurate manner; ● inspections of clinical study sites by the FDA, comparable foreign regulatory authorities, or IRBs finding regulatory violations that require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study, or that prohibit us from using some or all of the data in support of our marketing applications; 45 ● third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or any of the data produced by such contractors in support of our marketing applications; ● one or more IRBs refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial; reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; ● deviations of the clinical sites from trial protocols or dropping out of a trial; ● adding new clinical trial sites; ● the inability of the CRO to execute any clinical trials for any reason; and ● government or regulatory delays or “clinical holds” requiring suspension or termination of a trial.
Our product development strategy is to focus on a ophthalmology and eye care related products and formulations in 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.
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.
Ultimately, additional discounts, rebates, fees, coverage changes, plan changes, restrictions or exclusions imposed by these commercial payers could have a material adverse effect on our product sales, business and results of operations.
Ultimately, additional discounts, rebates, fees, coverage changes, plan changes, restrictions or exclusions imposed by these commercial payors could have a material adverse effect on our product sales, business and results of operations.
In addition, government health technology assessment organizations in many countries make reimbursement recommendations to payers in their jurisdictions based on the clinical effectiveness, cost-effectiveness and service effects of new, emerging and existing medicines and treatments.
In addition, government health technology assessment organizations in many countries make reimbursement recommendations to payors in their jurisdictions based on the clinical effectiveness, cost-effectiveness and service effects of new, emerging and existing medicines and treatments.
Although we believe we are positioned to compete favorably with respect to many of these factors, if our proprietary formulations are unable to compete with the products of our competitors, we may never gain market share or achieve sustained profitability. Concentration of sales at certain of our wholesaler distributors and consolidation of private payers may negatively affect our business.
Although we believe we are positioned to compete favorably with respect to many of these factors, if our proprietary formulations are unable to compete with the products of our competitors, we may never gain market share or achieve sustained profitability. 33 Concentration of sales at certain of our wholesaler distributors and consolidation of private payors may negatively affect our business.
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 have been in communication with the FDA and took steps to address the items outlined in the FDA letter.
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.
For example, in the United States, as of the beginning of 2023, we believe the top five integrated health plans and PBMs controlled approximately 92% of all pharmacy prescriptions.
For example, in the United States, as of the beginning of 2024, we believe the top five integrated health plans and PBMs controlled approximately 92% of all pharmacy prescriptions.
Although the Notes are quoted, we cannot provide any assurances that an active trading market will be maintained for the Notes or that a holder will be able to sell the Notes.
Although the Notes are listed, we cannot provide any assurances that an active trading market will be maintained for the Notes or that a holder will be able to sell the Notes.
Obtaining and maintaining regulatory approval of our drug candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our drug candidates in other jurisdictions.
Obtaining and maintaining regulatory approval of our products and drug candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our products or drug candidates in other jurisdictions.
Ultimately, as with U.S. federal government actions, existing or future state government actions or ballot initiatives may also have a material adverse effect on our product sales, business and results of operations. 24 U.S. commercial payer actions have affected and may continue to affect access to and sales of our products Payers, including healthcare insurers, pharmacy benefit managers (“PBMs”), integrated healthcare delivery systems (vertically-integrated organizations built from consolidations of healthcare insurers and PBMs) and group purchasing organizations, increasingly seek ways to reduce their costs.
Ultimately, as with U.S. federal government actions, existing or future state government actions or ballot initiatives may also have a material adverse effect on our product sales, business and results of operations. 31 U.S. commercial payor actions have affected and may continue to affect access to and sales of our products Payors, including healthcare insurers, pharmacy benefit managers (“PBMs”), integrated healthcare delivery systems (vertically-integrated organizations built from consolidations of healthcare insurers and PBMs) and group purchasing organizations, increasingly seek ways to reduce their costs.
The Company received another warning letter from the FDA related to our alleged marketing activities; we immediately responded to this warning letter received and the FDA sent the Company notice in January 2023 that our corrective actions appear adequate.
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.
A consistently active and liquid trading market in our securities may never develop or be sustained. Our stock price may be volatile.
A consistently active and liquid trading market in our common stock may never develop or be sustained. Our stock price may be volatile.
Our success depends on the receipt of regulatory approval and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following: ● the results of toxicology studies may not support the filing of an investigational new drug application for our drug candidates; ● the FDA or comparable foreign regulatory authorities or Institutional Review Boards (“IRBs”) may disagree with the design or implementation of our clinical trials; ● we may not be able to provide acceptable evidence of our drug candidates’ safety and efficacy; ● the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA, the European Medicines Agency (the “EMA”), or other regulatory agencies for marketing approval; ● the dosing of our drug candidates in a particular clinical trial may not be at an optimal level; ● patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to our drug candidates; ● the data collected from clinical trials may not be sufficient to support the submission of an NDA, BLA or other submission or to obtain regulatory approval in the United States or elsewhere; ● the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and ● the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval. 31 Failure to obtain regulatory approval for our drug candidates for the foregoing, or any other reasons, will prevent us from commercializing our drug candidates, and our ability to generate revenue will be materially impaired.
Our success depends on the receipt of regulatory approval and the issuance of such regulatory approvals is uncertain and subject to a number of risks, including the following: ● the results of toxicology studies may not support the filing of an investigational new drug application for our drug candidates; ● the FDA or comparable foreign regulatory authorities or Institutional Review Boards (“IRBs”) may disagree with the design or implementation of our clinical trials; ● we may not be able to provide acceptable evidence of our drug candidates’ safety and efficacy; ● the results of our clinical trials may not be satisfactory or may not meet the level of statistical or clinical significance required by the FDA, the European Medicines Agency (the “EMA”), or other regulatory agencies for marketing approval; ● the dosing of our drug candidates in a particular clinical trial may not be at an optimal level; ● patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to our drug candidates; ● the data collected from clinical trials may not be sufficient to support the submission of an NDA, BLA or other submission or to obtain regulatory approval in the United States or elsewhere; 40 ● the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and ● the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
Our proprietary compounded formulations 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.
Our proprietary compounded formulations 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.
If we are not successful in defending against these legal actions should they arise, we may be subject to monetary liability or be forced to alter our products, cease some or all of our operations relating to the affected products, or seek to obtain a license in order to continue manufacturing and marketing the affected products, which may not be available on acceptable terms or at all. 27 We are dependent on our Chief Executive Officer, Mark L.
If we are not successful in defending against these legal actions should they arise, we may be subject to monetary liability or be forced to alter our products, cease some or all of our operations relating to the affected products, or seek to obtain a license in order to continue manufacturing and marketing the affected products, which may not be available on acceptable terms or at all.
Moreover, attempting to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Our proprietary formulations and technologies could potentially conflict with the rights of others.
Moreover, attempting to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Our products, drug candidates and compounded formulations and technologies could potentially conflict with the rights of others.
Our projections have varied significantly in the past as a result of changes to our business model and strategy, our termination of efforts to pursue FDA approval of a drug candidate in November 2013, our acquisitions of compounding facilities and various product and corporate development opportunities since 2014, and the expenses in developing our pharmacy facilities into outsourcing facilities and registering them as such with the FDA.
Our projections have varied significantly in the past as a result of changes to our business model and strategy, our termination of efforts to pursue FDA approval of a drug candidate in November 2013, our acquisitions of compounding facilities and various product and corporate development opportunities since 2014, the expenses associated with developing our pharmacy facilities into outsourcing facilities and registering them as such with the FDA and our recent strategic shift to develop and commercialize FDA approved products.
Government actions or ballot initiatives at the state level also represent a highly active area of policymaking and experimentation, including pursuit of proposals that limit drug reimbursement under state run Medicaid programs based on reference prices or permitting importation of drugs from Canada. Such state policies may also eventually be adopted at the federal level.
Government actions or ballot initiatives at the state level also represent a highly active area of policymaking and experimentation, including pursuit of proposals that limit drug reimbursement under state run Medicaid programs based on reference prices or permitting importation of drugs from Canada.
Similar requirements exist in many of these areas in other countries. In addition, if any of our drug candidates are approved for a particular indication, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products.
In addition, if any of our drug candidates are approved for a particular indication, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products.
In addition, any staffing interruptions resulting from geopolitical actions, including war and terrorism, adverse public health developments such as the COVID-19 pandemic, or natural disasters including earthquakes, typhoons, floods and fires, could have a material adverse effect on our business.
In addition, any staffing interruptions resulting from geopolitical actions, including war and terrorism, adverse public health developments, or natural disasters including earthquakes, typhoons, floods and fires, could have a material adverse effect on our business.
An increase in market interest rates could result in a decrease in the value of the Notes. In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value. Consequently, if the market interest rates increase, the market value of the Notes may decline. We cannot predict the future level of market interest rates.
An increase in market interest rates could result in a decrease in the value of the Notes. In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value. Consequently, if the market interest rates increase, the market value of the Notes may decline.
Additionally, our plans may change or the estimates of our operating expenses and working capital requirements could be inaccurate, we may pursue acquisitions of FDA-approved products, drug candidates, pharmacies or other strategic transactions that involve large expenditures, or we may experience growth more quickly or on a larger scale than we expect, any of which may result in the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing earlier than we expect to support our operations. 17 We have raised over $200,000,000 in funds through equity and debt financings since 2021.
Additionally, our plans may change or the estimates of our operating expenses and working capital requirements could be inaccurate, we may pursue acquisitions of FDA-approved products, drug candidates, pharmacies or other strategic transactions that involve large expenditures, or we may experience growth more quickly or on a larger scale than we expect, any of which may result in the depletion of capital resources more rapidly than anticipated and could require us to seek additional financing earlier than we expect to support our operations.
If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory requirements, we may be subject to the following administrative or judicial sanctions: ● restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls; ● issuance of warning letters or untitled letters; ● clinical holds; ● injunctions or the imposition of civil or criminal penalties or monetary fines; ● suspension or withdrawal of regulatory approval; ● suspension of any ongoing clinical trials; ● refusal to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals; ● suspension or imposition of restrictions on operations, including costly new manufacturing requirements; or ● product seizure or detention or refusal to permit the import or export of product.
The FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or curtailed. 38 If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory requirements, we may be subject to the following administrative or judicial sanctions: ● restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls; ● issuance of warning letters or untitled letters; ● clinical holds; ● injunctions or the imposition of civil or criminal penalties or monetary fines; ● suspension or withdrawal of regulatory approval; ● suspension of any ongoing clinical trials; ● refusal to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals; ● suspension or imposition of restrictions on operations, including costly new manufacturing requirements; or ● product seizure or detention or refusal to permit the import or export of product.
The preparation or sale of our proprietary formulations and use of our technologies may infringe on the patent or other intellectual property rights of others.
The preparation or sale of our products, drug candidates and compounded formulations and use of our technologies may infringe on the patent or other intellectual property rights of others.
If we were to experience delays in the commencement or completion of, or if we were to terminate, any clinical or non-clinical trials we pursue in the future, the commercial prospects for the applicable drug candidates may be limited or eliminated, which may prevent us from recouping our investment in research and development efforts for the drug candidate and would have a material adverse effect on our business, results of operations, financial condition and prospects. 30 We may depend on the success of our drug candidates, and those we have royalty rights to, which have not yet demonstrated efficacy for their target or any other indications.
If we were to experience delays in the commencement or completion of, or if we were to terminate, any clinical or non-clinical trials we pursue in the future, the commercial prospects for the applicable drug candidates may be limited or eliminated, which may prevent us from recouping our investment in research and development efforts for the drug candidate and would have a material adverse effect on our business, results of operations, financial condition and prospects.
Also, an event of default or acceleration under our other indebtedness would not necessarily result in an event of default under the Notes. 37 Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for the holders of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for the holders of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.
Medicaid Drug Rebate Program, the Federal Supply Schedule of the U.S. Department of Veterans Affairs, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to U.S. federal and state consumer protection and unfair competition laws.
Medicaid Drug Rebate Program, the Federal Supply Schedule of the VA, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to U.S. federal and state consumer protection and unfair competition laws. Similar requirements exist in many of these areas in other countries.
If we do not successfully identify and acquire rights to potential formulations and successfully integrate them into our operations, our growth opportunities may be limited.
If we do not successfully identify and acquire rights to new products and drug candidates and successfully integrate them into our operations, our growth opportunities may be limited.
We have made, and expect to continue to make, significant investments in certain of our proprietary formulations prior to the grant of any patents covering these formulations, and we may not receive a sufficient return on these investments if patent coverage or other appropriate intellectual property protection is not obtained and their competitiveness and value decreases.
We have made, and expect to continue to make, significant investments in certain of our proprietary formulations prior to the grant of any patents covering these formulations, and we may not receive a sufficient return on these investments if patent coverage or other appropriate intellectual property protection is not obtained and their competitiveness and value decreases. 34 The patent and intellectual property positions of pharmacies and pharmaceutical companies, including ours, are uncertain and involve complex legal and factual questions.
The availability for sale of a substantial number of shares of our common stock, whether or not sales have occurred or are occurring, also could make it more difficult for us to raise additional financing through the sale of equity or equity-related securities in the future, when needed, on acceptable terms or at all.
The availability for sale of a substantial number of shares of our common stock, whether or not sales have occurred or are occurring, also could make it more difficult for us to raise additional financing through the sale of equity or equity-related securities in the future, when needed, on acceptable terms or at all. 50 Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
We plan to pursue the development of new proprietary compounded formulations in the ophthalmology and/or other therapeutic areas, 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 also intend to seek opportunities to FDA approved products and drug candidates.
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.
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. The Notes are quoted on Nasdaq under the symbols “HROWL” and “HROWM”.
We cannot predict the future level of market interest rates. 48 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. The Notes are listed on Nasdaq under the symbols “HROWL” and “HROWM”.
We are unable to predict which or how many policy, regulatory, administrative or legislative changes may ultimately be, or effectively estimate the consequences to our business if, enacted and implemented.
Such state policies may also eventually be adopted at the federal level. 30 We are unable to predict which or how many policy, regulatory, administrative or legislative changes may ultimately be, or effectively estimate the consequences to our business if, enacted and implemented.
Failure to obtain patents that sufficiently cover our formulations and technologies would limit our protection against compounding pharmacies, outsourcing facilities, generic drug manufacturers, pharmaceutical companies and other parties who may seek to copy our products, produce products substantially similar to ours or use technologies substantially similar to those we own.
Failure to obtain patents that sufficiently cover our formulations and technologies would limit our protection against compounding pharmacies, outsourcing facilities, generic drug manufacturers, pharmaceutical companies and other parties who may seek to copy our products, produce products substantially similar to ours or use technologies substantially similar to those we own. 42 We also intend to seek data exclusivity or market exclusivity for our drug candidates provided under the FDCA and similar laws in other countries.
Even if we complete our clinical trials, it does not assure marketing approval. Our clinical trials may be unsuccessful, which would materially harm our business.
We must successfully complete clinical trials for our drug candidates before we can apply for marketing approval. Even if we complete our clinical trials, it does not assure marketing approval. Our clinical trials may be unsuccessful, which would materially harm our business.
We note that most drug candidates never reach the clinical development stage and even those that do commence clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval. Therefore, aspects of our business depend on the successful development, regulatory approval and commercialization of our drug candidates, which may never occur.
We note that most drug candidates never reach the clinical development stage and even those that do commence clinical development have only a small chance of successfully completing clinical development and gaining regulatory approval.
Additionally, changes in regulatory requirements and policies may occur and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our study protocols to the FDA, comparable foreign regulatory authorities, and IRBs for reexamination, which may impact the costs, timing or successful completion of that study.
Amendments may require us to resubmit our study protocols to the FDA, comparable foreign regulatory authorities, and IRBs for reexamination, which may impact the costs, timing or successful completion of that study.
Our operations, and those of contract research organizations (“CROs”), contractors and consultants, could be subject to power shortages, telecommunications failures, wildfires, water shortages, floods, earthquakes, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, such as the COVID-19 pandemic, and other natural or man-made disasters or business interruptions for which we are predominantly self-insured.
Our operations, and those of CROs, contractors and consultants, could be subject to power shortages, telecommunications failures, wildfires, water shortages, floods, earthquakes, hurricanes, typhoons, fires, extreme weather conditions, public health crises, and other natural or man-made disasters or business interruptions for which we are predominantly self-insured.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing of clinical superiority to the product with orphan exclusivity by a competitor product.
In addition to the potential period of exclusivity, orphan designation makes a company eligible for grant funding of up to $400,000 per year for four years to defray costs of clinical trial expenses, tax credits for clinical research expenses and potential exemption from the FDA application user fee. 46 If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked; (ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing of clinical superiority to the product with orphan exclusivity by a competitor product.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price. From time to time, global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.
From time to time, global credit and financial markets have experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability.
If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them, and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements.
Failure by our contract manufacturers to comply with or maintain any of these standards could adversely affect our ability to develop, obtain regulatory approval for or market any of our drug candidates. 43 If, for any reason, these third parties are unable or unwilling to perform, we may not be able to terminate our agreements with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them, and we cannot be certain that any such third parties will have the manufacturing capacity to meet future requirements.
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.
We have raised over $285,000,000 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 the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our drug candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our drug candidates, if approved. 33 Our contract manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements.
If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our drug candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our drug candidates, if approved.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe current lease term commenced in June 2022 and expires in June 2027. This office generally serves as our customer service center and analytical laboratory. We expect to lease additional space in the near term to accommodate an internally run analytical lab and expanded office use.
Biggest changeThe current lease term commenced in June 2022 and expires in June 2027. This office generally serves as our customer service center and analytical laboratory.
ITEM 2. PROPERTIES We lease approximately 35,300 square feet of lab, warehouse, and office space in Ledgewood, New Jersey, in three separate suites. The current lease term expires on July 31, 2027 and includes options to extend the lease term through 2037. This space serves as an outsourcing facility and pharmacy for ImprimisRx.
ITEM 2. PROPERTIES We lease approximately 38,200 square feet of lab, warehouse, and office space in Ledgewood, New Jersey, in three separate suites. The current lease term expires on July 31, 2027 and includes options to extend the lease term through 2037. This space serves as an outsourcing facility and pharmacy for ImprimisRx.
The current lease term began January 1, 2022 and expires on March 31, 2025 and includes an option to extend the lease term through March 2028. This office generally supports the sales, general and administrative functions. We lease approximately 11,600 square feet of lab and office space in Nashville, Tennessee.
The current lease term began January 1, 2022 and expires on March 31, 2025 and includes an option to extend the lease term through March 2028. This office generally supports the certain marketing and administrative functions. We lease approximately 11,600 square feet of lab and office space in Nashville, Tennessee.
We lease approximately 5,500 square feet of office space in Nashville, Tennessee. The current lease term expires on December 31, 2024 and includes options to extend the lease term through 2034. This office serves as our corporate headquarters. We lease approximately 5,800 square feet of office space in Carlsbad, California.
We lease approximately 5,500 square feet of office space in Nashville, Tennessee. The current lease term expires on December 31, 2024. This office serves as our corporate headquarters. We lease approximately 5,800 square feet of office space in Carlsbad, California.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS See Note 18 to our consolidated financial statements included in this Annual Report for information on various legal proceedings, which is incorporated into this Item by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 40 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS See Note 18 to our consolidated financial statements included in this Annual Report for information on various legal proceedings, which is incorporated into this Item by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 40 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 41 Item 6. Selected Financial Data 41 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 42 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 52 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 52 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 52 Item 6. [Reserved] 52 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 53 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 66 Item 8.
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Financial Statements and Supplementary Data 67 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 67 Item 9A. Controls and Procedures 67 Item 9B. Other Information 68

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on The Nasdaq Stock Market LLC under the symbol “HROW” and the Notes are listed on The Nasdaq Stock Market LLC under the symbols “HROWL” and “HROWM.
Biggest changeMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on The Nasdaq Stock Market LLC under the symbol “HROW” and the Notes are listed on The Nasdaq Stock Market LLC under the symbols “HROWL” and “HROWM.” Holders As of March 18, 2024, there were approximately 67 stockholders of record (excluding an indeterminable number of stockholders whose shares are held in street or “nominee” name) of our common stock.
Dividends We have not paid any dividends on our common stock since our inception and do not expect to pay dividends on our common stock in the foreseeable future. Purchase of Equity Securities We did not purchase any of our equity securities during the fourth quarter of 2022. Recent Sales of Unregistered Securities None.
Dividends We have not paid any dividends on our common stock since our inception and do not expect to pay dividends on our common stock in the foreseeable future. Purchase of Equity Securities We did not purchase any of our equity securities during the fourth quarter of 2023. Recent Sales of Unregistered Securities None.
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Holders As of March 15, 2023, there were approximately 74 stockholders of record (excluding an indeterminable number of stockholders whose shares are held in street or “nominee” name) of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResearch and Development Expenses Our research and development (“R&D”) expenses primarily include expenses related to acquired in-process R&D, the development of acquired intellectual property, investigator-initiated research and evaluations and other costs related to the clinical development of our assets and drug candidates.
Biggest changeOther areas of increased expenses included $3,257,000 related to new regulatory costs and enhancements and a $6,844,000 increase in expenses related to the addition of new employees in sales, marketing and other departments to support current and expected growth, including the transition of the Santen Products, and the commercial launch of IHEEZO in April 2023 and VEVYE in December 2023. 58 Research and Development Expenses 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.
We may also sell some or all of our ownership interests in Surface, Melt or our other subsidiaries, along with the some or all of the remaining portion of our Eton common stock.
We may also sell some or all of our ownership interests in Surface, Melt or our other subsidiaries, along with some or all of the remaining portion of our Eton common stock.
To the extent we establish a valuation allowance or increase or decrease this allowance in a period, the impact will be included in income tax expense in the consolidated statements of operations. We account for income taxes under the provisions of Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes .
To the extent we establish a valuation allowance or increase or decrease this allowance in a period, the impact will be included in income tax expense in the consolidated statements of operations. We account for income taxes under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes .
Assets to be disposed would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.
For branded products, orders are received through our 3PL partner, and the customer takes title of the products via formal purchase orders placed and fulfilled. 2. Identify the performance obligations in the contract : Obligations for fulfillment of our contracts consist of delivering the product to customers at their specified destination.
For branded products, orders are received through the Company’s 3PL partner, and the customer takes title of the products via formal purchase orders placed and fulfilled. 2. Identify the performance obligations in the contract: Obligations for fulfillment of our contracts consist of delivering the product to customers at their specified destination.
Impairment of Long-Lived Assets Long-lived assets, such as property, plant and equipment, purchased intangibles subject to amortization and patents and trademarks, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Impairment of Other Long-Lived Assets Other long-lived assets, such as property, plant and equipment, purchased intangibles subject to amortization and patents and trademarks, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. 51
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
(the “Fab 5 Acquisition”): ● ILEVRO® (nepafenac ophthalmic suspension) 0.3%, a non-steroidal, anti-inflammatory eye drop indicated for pain and inflammation associated with cataract surgery. ● NEVANAC® (nepafenac ophthalmic suspension) 0.1%, a non-steroidal, anti-inflammatory eye drop indicated for pain and inflammation associated with cataract surgery. ● VIGAMOX® (moxifloxacin hydrochloride ophthalmic solution) 0.5%, a fluoroquinolone antibiotic eye drop for the treatment of bacterial conjunctivitis caused by susceptible strains of organisms. ● MAXIDEX® (dexamethasone ophthalmic suspension) 0.1%, a steroid eye drop for steroid-responsive inflammatory conditions of the palpebral and bulbar conjunctiva, cornea, and anterior segment of the globe. ● TRIESENCE® (triamcinolone acetonide injectable suspension) 40 mg/ml, a steroid injection for the treatment of certain ophthalmic diseases and for visualization during vitrectomy.
(the “NVS 5 Acquisition”): ● ILEVRO (nepafenac ophthalmic suspension) 0.3%, a non-steroidal, anti-inflammatory eye drop indicated for pain and inflammation associated with cataract surgery. ● NEVANAC (nepafenac ophthalmic suspension) 0.1%, a non-steroidal, anti-inflammatory eye drop indicated for pain and inflammation associated with cataract surgery. ● VIGAMOX (moxifloxacin hydrochloride ophthalmic solution) 0.5%, a fluoroquinolone antibiotic eye drop for the treatment of bacterial conjunctivitis caused by susceptible strains of organisms. ● MAXIDEX (dexamethasone ophthalmic suspension) 0.1%, a steroid eye drop for steroid-responsive inflammatory conditions of the palpebral and bulbar conjunctiva, cornea, and anterior segment of the globe. ● TRIESENCE (triamcinolone acetonide injectable suspension) 40 mg/ml, a steroid injection for the treatment of certain ophthalmic diseases and for visualization during vitrectomy.
Acquisition of ILEVRO, NEVANAC, VIGAMOX, MAXIDEX and TRIESENCE In December 2022, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Novartis Technology, LLC and Novartis Innovative Therapies AG (together, “Novartis”), pursuant to which the Company agreed to purchase from Novartis the exclusive commercial rights to assets associated with the following ophthalmic products (collectively the “Fab 5 Products”) in the U.S.
Acquisition of ILEVRO, NEVANAC, VIGAMOX, MAXIDEX and TRIESENCE In December 2022, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Novartis Technology, LLC and Novartis Innovative Therapies AG (together, “Novartis”), pursuant to which the Company agreed to purchase from Novartis the exclusive commercial rights to assets associated with the following ophthalmic products (collectively the “NVS 5 Products”) in the U.S.
We utilize the services of a third-party professional services firm to estimate rebates and chargebacks associated with sales of its branded products. The transfer of promised goods is satisfied within a year, and therefore there are no significant financing components. There is no non-cash consideration related to product sales. 4.
We utilize the services of a third-party professional services firm to estimate rebates and chargebacks associated with sales of our branded products. The transfer of promised goods is satisfied within a year, and therefore there are no significant financing components. There is no non-cash consideration related to product sales. 4.
Determine the transaction price : The transaction price is based on an amount that reflects the consideration to which we expect to be entitled, net of accruals for estimated rebates, wholesaler chargebacks, discounts and other deductions (collectively, sales deductions) and an estimate for returns and replacements established at the time of sale.
Determine the transaction price: The transaction price is based on an amount that reflects the consideration to which we expect to be entitled, net of accruals for estimated rebates, wholesaler chargebacks, discounts, copay assistance and other deductions (collectively, sales deductions) and an estimate for returns and replacements established at the time of sale.
In addition, we may acquire new products, product candidates and/or businesses and, as a result, we may need significant additional capital to support our business plan and fund our proposed business operations. We may receive additional proceeds from the exercise of stock purchase warrants that are currently outstanding.
We may acquire new products, product candidates and/or businesses and, as a result, we may need significant additional capital to support our business plan and fund our proposed business operations. We may receive additional proceeds from the exercise of stock purchase warrants that are currently outstanding.
We closed the Fab 5 Acquisition on January 20, 2023. Under the terms of the Purchase Agreement, we made a one-time payment of $130,000,000 at closing, with up to another $45,000,000 due in a milestone payment related to the timing of the commercial availability of TRIESENCE.
We closed the NVS 5 Acquisition on January 20, 2023. Under the terms of the Purchase Agreement, we made a one-time payment of $130,000,000 at closing, with up to another $45,000,000 due in a milestone payment related to the timing of the commercial availability of TRIESENCE.
The revenue we recognized from the transfer of net profit was recognized at the time profit from the product sales was calculated by the Seller and confirmed by us, typically on a monthly basis, at which point there is no future performance obligation required and no consequential continuing involvement on our part to recognize the associated revenue.
The revenue we recognized from the transfer of net profit was recognized at the time profit from the product sales were calculated by the Sellers and confirmed by us, typically on a monthly basis, at which point there is no future performance obligation required and no consequential continuing involvement on our part to recognize the associated revenue.
Allocate the transaction price to the performance obligations in the contract : Given that there is only one performance obligation for product sales, no allocation is necessary. 5. Recognize revenue when (or as) the entity satisfies a performance obligation : Revenue from products is recognized upon transfer of control of a product to a customer.
Allocate the transaction price to the performance obligations in the contract: Because there is only one performance obligation for product sales, no allocation is necessary. 5. Recognize revenue when (or as) the entity satisfies a performance obligation: Revenue from products is recognized upon transfer of control of a product to a customer.
Non-refundable fees that are not contingent on any future performance and require no consequential continuing involvement on our part are recognized as revenue when the license term commences and the licensed data, technology, compounded drug preparation and/or other deliverable is delivered.
Non-refundable fees that are not contingent on any future performance and require no consequential continuing involvement on our part are recognized as revenue when the license term commences and the licensed data, technology, compounded drug preparation and/or other deliverables are delivered.
This generally occurs upon shipment unless contractual terms with a customer state that transfer of control occurs at delivery. Commission Revenues We entered into an agreement whereby we are paid a fee calculated based on sales we generate from a pharmaceutical product that is owned by a third party.
This generally occurs upon shipment unless contractual terms with a customer state that transfer of control occurs at delivery. 62 Commission Revenues We have entered into an agreement whereby it is paid a fee calculated based on sales we generate from a pharmaceutical product that is owned by a third party.
On a quarterly basis, the Seller invoiced us for all credits and reimbursements (“Chargebacks”) made to customers related to the products. We used historical actual experience to estimate Chargebacks associated with the net profit transferred.
On a quarterly basis, the Sellers invoiced us for all credits and reimbursements (“Chargebacks”) made to customers related to the products. We used historical actual experience to estimate Chargebacks associated with the net sales and profit transferred.
Recent Developments The following describes certain developments in 2022 to date that are important to understand our financial condition and results of operations. See the notes to our condensed consolidated financial statements included in this Annual Report for additional information about each of these developments.
Recent Developments The following describes certain developments in 2023 and 2024 to date that are important to understand our financial condition and results of operations. See the notes to our consolidated financial statements included in this Annual Report for additional information about each of these developments.
Following the core principles of ASC 606, we have identified the following: 1. Identify the contract(s) with a customer : A contract is deemed to exist when the customer places an order through receipt of a prescription, via an online order or via receipt of a purchase order from a customer.
Following the core principles of ASC 606, the Company has identified the following: 1. Identify the contract(s) with a customer: A contract is deemed to exist when the customer places an order through receipt of a prescription, via an online order or via receipt of a purchase order from a customer.
Product Revenues from Pharmacy Services We sell prescription medications directly through our pharmacy, outsourcing facility and 3PL partner.
Product Revenues We sell prescription medications directly through our pharmacy, outsourcing facility and 3PL partner.
Equity in Losses of Unconsolidated Entities During the years ended December 31, 2022 and 2021, we recorded a loss of $11,133,000 and $5,334,000, respectively, for our share of losses based on our ownership of Melt and Surface.
Equity in Losses of Unconsolidated Entities During the years ended December 31, 2023 and 2022, we recorded a loss of $0 and $11,133,000, respectively, for our share of losses based on our ownership of Melt and Surface.
Investment Loss from Eton We recorded a loss of $2,914,000 related to the change in fair market value of Eton’s common stock for the year ended December 31, 2022.
Investment Gain (Loss) from Eton We recorded a gain of $3,092,000 related to the change in fair market value of our investment in Eton’s common stock for the year ended December 31, 2023. We recorded a loss of $2,914,000 related to our investment in Eton’s common stock for the year ended December 31, 2022.
If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.
If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. The fair value of the asset is based on the discounted value of its estimated future cash flows.
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 FDA-approved products, compounded formulations, and technologies, developing our overall operations, pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of products, compounding pharmacies and outsourcing facilities, drug companies and manufacturers, and/or assets or technologies, and otherwise fund 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 products, drug candidates, compounded formulations and technologies, integrating and developing our operations, pursuing potential future strategic transactions as opportunities arise, including potential acquisitions of additional drug products, drug candidates, and/or assets or technologies, pharmacies, outsourcing facilities, drug company and manufacturers, and otherwise fund our operations.
Interest Expense, net Interest expense, net was $7,244,000 during the year ended December 31, 2022 compared to $5,436,000 during the year ended December 31, 2021. The increase was primarily due to an increase in the principal balance of our loans throughout the two periods presented.
Interest Expense, net Interest expense, net was $21,324,000 during the year ended December 31, 2023, compared to $7,244,000 during the year ended December 31, 2022. The increase was primarily due to an increase in the principal balance of our loans throughout the two periods presented.
We are subject to taxation in the United States, California, Florida, Georgia, Illinois, New Jersey, New York, Tennessee, and Wisconsin. Our tax years since 2000 may be subject to examination by the federal and state tax authorities due to the carryforward of unutilized net operating losses.
We are subject to taxation in the United States, California, New Jersey, Tennessee and various other states. Our tax years since 2000 may be subject to examination by the federal and state tax authorities due to the carryforward of unutilized net operating losses.
Events or changes in circumstances considered as impairment indicators include but are not limited to the following: ● significant underperformance of the our business relative to expected operating results; ● significant adverse economic and industry trends; ● significant decline in the our market capitalization for an extended period of time relative to net book value; and ● expectations that a reporting unit will be sold or otherwise disposed.
Events or changes in circumstances considered as impairment indicators include but are not limited to the following: ● significant underperformance of the Company’s business relative to expected operating results; ● significant adverse economic and industry trends; ● significant decline in the Company’s market capitalization for an extended period of time relative to net book value; and ● expectations that a reporting unit will be sold or otherwise disposed. 65 The goodwill impairment test consists of a two-step process as follows: Step 1.
Under this method, we recognize earnings and losses of Melt in its consolidated financial statements and adjusts the carrying amount of its investment in Melt accordingly. Our share of earnings and losses are based on our ownership interest of Melt. Any intra-entity profits and losses are eliminated.
Under this method, we recognize earnings and losses in Melt in its consolidated financial statements and adjusts the carrying amount of its investment in Melt accordingly. Any intra-entity profits and losses are eliminated.
Riley Securities, Inc., as representative of the several underwriters named therein, pursuant to which we agreed to sell $35,000,000 aggregate principal amount of 11.875% senior notes due 2027 (the “2027 Notes”) plus up to an additional $5,250,000 aggregate principal amount of 11.875% senior notes due 2027 pursuant to the underwriters’ option to purchase additional 2027 Notes, which was exercised in January 2023. 43 B.
Riley Securities, Inc., as representative of the several underwriters named therein, pursuant to which we agreed to sell $35,000,000 aggregate principal amount of 11.875% Senior Notes due 2027 (the “2027 Notes”) plus up to an additional $5,250,000 aggregate principal amount of 2027 Notes pursuant to an option granted to the underwriters to purchase additional 2027 Notes.
If we are unable to raise funds to satisfy our capital needs when needed, then we may need to forego pursuit of potentially valuable development or acquisition opportunities, we may not be able to continue to operate our business pursuant to our business plan, which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue our operations entirely.
If we are unable to raise funds to satisfy our capital needs when needed, then we may need to forego pursuit of potentially valuable development or acquisition opportunities, we may not be able to continue to operate our business pursuant to our business plan, which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing and other activities, or we may be forced to discontinue our operations entirely. 61 Critical Accounting Policies We rely on the use of estimates and make assumptions that impact our financial condition and results.
Other Income, net During the year ended December 31, 2022, we recorded other income, net of $102,000 which was primarily the result of income of $102,000 related to the transition services provided as part of non-ophthalmology related compounding product line. During the year ended December 31, 2021, we recorded other income, net of $197,000.
During the year ended December 31, 2022, we recorded other income, net of $102,000 related to the transition services provided as part of our non-ophthalmology related compounding product line.
Although we believe that the estimates we use are reasonable, actual results could differ materially from these estimates. 47 We believe that the accounting policies described below are critical to understanding our business, results of operations and financial condition because they involve the use of more significant judgments and estimates in the preparation of our consolidated financial statements.
We believe that the accounting policies described below are critical to understanding our business, results of operations and financial condition because they involve the use of more significant judgments and estimates in the preparation of our consolidated financial statements.
As of December 31, 2022 and 2021, there were no unrecognized tax benefits included in the consolidated balance sheets that would, if recognized, affect the effective tax rate. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
As of December 31, 2023 and 2022, there was $2,853,000 and $0, respectively, of unrecognized tax benefits included in the consolidated balance sheets that would, if recognized, affect the effective tax rate. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
Pursuant to the Purchase Agreement and various ancillary agreements, immediately following the closing and subject to certain conditions, for a period that we expect to last approximately six months, and prior to the transfer of the Fab 5 Products new drug applications (the “NDAs”) to us, Novartis will continue to sell the Fab 5 Products on our behalf and transfer the net profit from the sale of the Fab 5 Products to us.
Pursuant to the Purchase Agreement and various ancillary agreements, immediately following the closing and subject to certain conditions, for a period that lasted approximately nine months, and prior to the transfer of the NVS 5 Products new drug applications (the “NDAs”) to us, Novartis continued to sell the NVS 5 Products on our behalf and transferred the net profit from the sale of the NVS 5 Products to us.
Cash used in investing activities during the 2022 period was primarily associated with equipment and software purchases and upgrades along with investments in our intellectual property portfolio, offset by cash received on the sale of our non-ophthalmic assets.
Cash used in investing activities during the 2022 period was primarily associated with equipment and software purchases and upgrades along with investments in our intellectual property portfolio, offset by cash received on the sale of our non-ophthalmic assets. Financing Activities Net cash provided by financing activities in 2023 and 2022 was $126,528,000 and $54,141,000, respectively.
Gain on Forgiveness of PPP Loan During the year ended December 31, 2021, we recorded gain on forgiveness of loan of $1,967,000 related to the forgiveness of our PPP Loan. 45 Gain on Sale of Non-Ophthalmology Assets During the year ended December 31, 2022, we recorded a gain on the sale of our non-ophthalmology assets to Innovation Compounding Pharmacy, LLC of $5,259,000.
Gain on Sale of Non-Ophthalmology Assets During the year ended December 31, 2022, we recorded a gain on the sale of our non-ophthalmology assets to Innovation Compounding Pharmacy, LLC of $5,259,000.
Novartis has agreed to supply certain Fab 5 Products to the Company for a period of time after the NDAs are transferred to us and to assist with technology transfer of the Fab 5 Products manufacturing to other third-party manufacturers, if needed.
Novartis has agreed to supply certain NVS 5 Products to the Company for a period of time after the NDAs are transferred to us and to assist with technology transfer of the NVS 5 Products manufacturing to other third-party manufacturers, if needed. On April 28, 2023, we transferred the NDAs for ILEVRO, NEVANAC and MAXIDEX.
ASU 2016-10 was issued in April 2016 and amended ASC 606 for shipping and handling activities as follows: If the customer takes control of the goods after shipment, shipping and handling activities would always be considered a fulfillment activity and not treated as a separate performance obligation.
For shipping and handling activities under ASC 606, if the customer takes control of the goods after shipment, shipping and handling activities would always be considered a fulfillment activity and not treated as a separate performance obligation.
The goodwill impairment test consists of a two-step process as follows: 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.
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.
We also may consider the sale of certain assets including, but not limited to, part of, or all of, our ownership interest in Eton, Surface, Melt, and/or any of our consolidated subsidiaries.
In addition, we may consider the sale of certain assets including, but not limited to, part of, or all of, our investments in Eton, Surface, and Melt.
However, our plans for this period may change, our estimates of our operating expenses, capital expenditures and working capital requirements could be inaccurate, we may pursue acquisitions of products, companies or other strategic transactions that involve large expenditures or we may experience growth more quickly 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 earlier than we expect to support our operations.
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.
If the carrying amount of a reporting unit exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and we then perform the second step of the impairment test. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required. Step 2.
If the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired, and we then perform the second step of the impairment test to measure the impairment loss. If the fair value of a reporting unit exceeds its carrying amount, no further analysis is required. Step 2.
As of the date of this Annual Report, we believe that cash and cash equivalents of $96,270,000 at December 31, 2022, along with proceeds received from the BR Loan will be sufficient to sustain our planned level of operations and capital expenditures for at least the next 12 months.
As of the date of this Annual Report, we believe that cash and cash equivalents of $74,085,000 at December 31, 2023 will be sufficient to sustain our planned level of operations and capital expenditures for at least the next 12 months.
Impairment and Disposal of Long-Lived Assets During the year ended December 31, 2021, we recorded a loss of $249,000, of which, $99,000 was related to the impairment of patents and patent applications and $150,000 was related to equipment that was no longer in service.
Impairment and Disposal of Long-Lived Assets 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.
Financing Activities Net cash provided by financing activities in 2022 and 2021 was $54,141,000 and $51,470,000, respectively. Net cash provided by financing activities during the year ended December 31, 2022 was primarily related to net proceeds from the sale of $35,000,000 Notes and sale of common stock.
Net cash provided by financing activities during the year ended December 31, 2022 was primarily related to net proceeds from the sale of the 2027 Notes and sale of common stock.
We had no accrual for interest or penalties in its consolidated balance sheets at December 31, 2022 and 2021, and have not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2022 and 2021.
We had an accrual for interest or penalties of $40,000 and $0 in the consolidated balance sheets at December 31, 2023 and 2022, respectively, and have recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2023 and 2022 of $40,000 and $0, respectively.
Patents and trademarks are recorded at cost and capitalized at a time when the future economic benefits of such patents and trademarks become more certain (See “—Goodwill and Intangible Assets” below). We began capitalizing certain costs associated with acquiring intellectual property rights during 2015, if costs are not capitalized, they are expensed as incurred.
Patents and trademarks are recorded at cost and capitalized at a time when the future economic benefits of such patents and trademarks become more certain (see subheading “Goodwill and Intangible Assets” below). If costs are not capitalized they are expensed as incurred.
Net Cash Flows The following provides detailed information about our net cash flows for the years ended December 31, 2022 and 2021: For the Years Ended December 31, 2022 2021 Net cash provided by (used in): Operating activities $ 1,705,000 $ 5,082,000 Investing activities (1,743,000 ) (18,686,000 ) Financing activities 54,141,000 51,470,000 Net change in cash and cash equivalents 54,103,000 37,866,000 Cash and cash equivalents at beginning of the year 42,167,000 4,301,000 Cash and cash equivalents at end of the year $ 96,270,000 $ 42,167,000 46 Operating Activities Net cash provided by operating activities was $1,705,000 in 2022, compared to $5,082,000 in the prior year.
Net Cash Flows The following provides detailed information about our net cash flows for the years ended December 31, 2023 and 2022: For the Years Ended December 31, 2023 2022 Net cash provided by (used in): Operating activities $ 3,840,000 $ 1,705,000 Investing activities (152,553,000 ) (1,743,000 ) Financing activities 126,528,000 54,141,000 Net change in cash and cash equivalents (22,185,000 ) 54,103,000 Cash and cash equivalents at beginning of the year 96,270,000 42,167,000 Cash and cash equivalents at end of the year $ 74,085,000 $ 96,270,000 Operating Activities Net cash provided by operating activities was $3,840,000 in 2023, compared to $1,705,000 in the prior year.
As used in this discussion and analysis, unless the context indicates otherwise, the terms the “Company,” “Harrow” “we,” “us” and “our” refer to Harrow Health, Inc. and its consolidated subsidiaries, consisting of Imprimis Rx NJ, LLC, Imprimis NJOF, LLC, ImprimisRx, LLC, and Harrow Eye, LLC. Overview We are an ophthalmic-focused pharmaceutical company.
As used in this discussion and analysis, unless the context indicates otherwise, the terms the “Company,” “Harrow” “we,” “us” and “our” refer to Harrow, Inc. and its consolidated subsidiaries, including Imprimis RxNJ, LLC, Imprimis NJOF, LLC, ImprimisRx, LLC, Harrow IP, LLC and Harrow Eye, LLC.
We no longer have a controlling position in Melt; however, we do have the ability to exercise significant influence over the operating and financial decisions of Melt. We use the equity method of accounting for this investment.
We have determined that we do not have the ability to control Melt, however we have the ability to exercise significant influence over the operating and financial decisions of Melt and uses the equity method of accounting for this investment.
We own 3,500,000 common shares of Melt, which represented approximately 46% of its equity and voting interests as of December 31, 2022. We analyze our investment in Melt and related agreements on a regular basis to evaluate our position of variable interests in Melt.
Investment in Melt Pharmaceuticals, Inc. – Related Party We own 3,500,000 shares of common stock and 2,334,256 shares of preferred stock of Melt (representing in aggregate approximately 47% of the equity interests as of December 31, 2023). We analyze our investment in Melt and related agreements on a regular basis to evaluate its position of variable interests in Melt.
We may be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions, conditions in the pharmaceuticals and pharmacy industries, or our operating history, including our past bankruptcy proceedings.
We may be unable to obtain financing when necessary as a result of, among other things, our performance, general economic conditions, conditions in the pharmaceuticals and pharmacy industries, or our operating history,. In addition, the fact that we have a limited history of profitability could further impact the availability or cost to us of future financings.
Comparison of Years Ended December 31, 2022 and 2021 Revenues Our revenues include amounts recorded from sales of proprietary and non-proprietary pharmaceutical compounded drug formulations and revenues received from royalty and milestone payments owed to us pursuant to out-license arrangements.
Comparison of Years Ended December 31, 2023 and 2022 Revenues Our revenues include amounts recorded from sales of proprietary compounded formulations, sales of branded products to wholesalers through a third-party logistics facility, commissions from third parties and revenues received from royalty payments owed to us pursuant to out-license arrangements.
We use the Black-Scholes option pricing model and Monte-Carlo simulation model to estimate the fair value of stock-based awards. Fair value is determined at the date of grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates.
The estimated fair value is determined at the date of grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates.
The following table presents our net loss for the years ended December 31, 2022 and 2021: For the Years Ended December 31, 2022 2021 Net loss $ (14,086,000 ) $ (18,479,000 ) Net loss per share, basic and diluted $ (0.51 ) $ (0.69 ) Liquidity and Capital Resources Liquidity Our cash on hand at December 31, 2022 was $96,270,000, compared to $42,167,000 at December 31, 2021.
Tax Expense During the years ended December 31, 2023 and 2022, we recorded income tax expense of $701,000 and $75,000, respectively. 59 The following table presents our net loss for the years ended December 31, 2023 and 2022: For the Years Ended December 31, 2023 2022 Net loss $ (24,411,000 ) $ (14,086,000 ) Net loss per share, basic and diluted $ (0.75 ) $ (0.51 ) Liquidity and Capital Resources Liquidity Our cash on hand at December 31, 2023 was $74,085,000, compared to $96,270,000 at December 31, 2022.
Critical Accounting Policies We rely on the use of estimates and make assumptions that impact our financial condition and results. These estimates and assumptions are based on historical results and trends as well as our forecasts of how results and trends might change in the future.
These estimates and assumptions are based on historical results and trends as well as our forecasts of how results and trends might change in the future. Although we believe that the estimates we use are reasonable, actual results could differ materially from these estimates.
Amortization of debt issuance costs and the debt discount is calculated using the effective interest method over the term of the debt and is recorded in interest expense in the accompanying consolidated statement of operations.
Amortization of debt issuance costs and the debt discount is calculated using the effective interest method over the term of the related debt and is recorded in interest expense in the accompanying consolidated statements of operations. At December 31, 2022, we recorded deferred financing costs of $1,950,000 related to the B.
The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. 50 Goodwill and Intangible Assets Patents and trademarks are recorded at cost and capitalized at a time when the future economic benefits of such patents and trademarks become more certain.
The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material.
In addition, the fact that we have a limited history of profitability could further impact the availability or cost to us of future financings. As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are acceptable to us.
As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are acceptable to us.
Cost of Sales Our cost of sales includes direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing equipment and tenant improvements depreciation, the write-off of obsolete inventory depreciation and amortization of certain intangibles and other related expenses.
During the year ended December 31, 2023, revenues, including transfer of acquired product sales and profits, from branded products totaled $50,258,000, as compared to $2,716,000 in the prior year. 57 Cost of Sales Our cost of sales includes direct and indirect costs to manufacture formulations and sell products, including active pharmaceutical ingredients, personnel costs, packaging, storage, royalties, shipping and handling costs, manufacturing equipment and tenant improvements depreciation, the write-off of obsolete inventory, amortization of acquired product NDAs, and other related expenses.
The estimate is recorded as a reduction in revenues in our consolidated statements of operations and accounts receivable in the consolidated balance sheets at the time the revenue is recognized. 48 Intellectual Property License Revenues We currently hold five intellectual property licenses and related agreements pursuant to which we have agreed to license or sell to a customer with the right to access our intellectual property.
Intellectual Property License Revenues We currently hold five intellectual property licenses and related agreements pursuant to which we have agreed to license or sell to a customer with the right to access our intellectual property.
The BR Loan provided for a loan facility of up to $100,000,000 to the Company with a maturity date of December 14, 2025, at an interest rate of 10.875% per annum. The BR Loan is secured by an intellectual property security agreement and by all assets of the Company and its material subsidiaries.
The proceeds of the BR Loan were used to finance the NVS 5 Acquisition. The BR Loan provided for a loan facility of up to $100,000,000 to the Company with a maturity date of December 14, 2025, at an interest rate of 10.875% per annum.
The following presents our cost of sales for the years ended December 31, 2022 and 2021: For the Years Ended December 31, $ 2022 2021 Variance Cost of sales $ 25,383,000 $ 18,214,000 $ 7,169,000 The increase in our cost of sales between periods was largely attributable to an increase in unit volumes sold and increased direct and indirect costs associated with production of our products during the year ended December 31, 2022 compared to 2021.
The following presents our cost of sales for the years ended December 31, 2023 and 2022: For the Years Ended December 31, $ 2023 2022 Variance Cost of sales $ 39,640,000 $ 25,383,000 $ 14,257,000 The increase in our cost of sales was largely attributable to the amortization of acquired product NDAs which totaled $9,314,000 for the year ended December 31, 2023, compared to $1,364,000 during the prior year, offset by lesser increases in expenses associated with unit volumes sold and increased direct and indirect costs associated with production of our products.
Intellectual Property The costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where we have not identified an alternative future use for the acquired rights, and are capitalized in situations where we have identified an alternative future use for the acquired rights.
Riley Loan and Security Agreement (the “BR Loan”), which was recorded as a debt issuance cost and net of the related BR Loan when it funded in January 2023 (see the accompany Note 13 to our consolidated financial statements). 63 Intellectual Property The costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where we have not identified an alternative future use for the acquired rights, and are capitalized in situations where we have identified an alternative future use for the acquired rights.
Following the reduction of the carrying value of our common stock investment in Melt to $0 we began recording 100% of the equity method losses of Melt, based on our ownership of total debt owed by Melt. We recorded equity in net losses of Melt of $11,133,000 and $4,020,000 during the years ended December 31, 2021 and 2022, respectively.
Following the reduction of the carrying value of our common stock investment in Melt to $0, we began recording 100% of the equity method losses of Melt, based on its ownership of Melt’s total indebtedness.
Sources of Capital Our principal sources of cash consist of cash provided by operating activities from our ImprimisRx business, our brand ophthalmic pharmaceuticals business, proceeds from the sale of the Notes and sale of Eton common stock.
Sources of Capital Our principal sources of cash consist of cash provided by operating activities, and in 2023 and 2022, proceeds from the sale of the 2027 Notes, the Offering and the Oaktree Loan and Oaktree Amendment.
The following presents our revenues for the years ended December 31, 2022 and 2021: For the Years Ended December 31, $ 2022 2021 Variance Product sales, net $ 83,524,000 $ 69,104,000 $ 14,420,000 Commission revenues 3,866,000 3,253,000 613,000 Transfer of profits 1,205,000 99,000 1,106,000 License revenues - 20,000 (20,000 ) Total revenues $ 88,595,000 $ 72,476,000 $ 16,119,000 The increase in revenues between periods was related to an increase in sales volumes of our ophthalmology products, an increase in commissions attributable to sales of Dexycu® and transfer of profits from recently acquired products.
The following presents our revenues for the years ended December 31, 2023 and 2022: For the Years Ended December 31, $ 2023 2022 Variance Product sales, net $ 117,447,000 $ 83,524,000 $ 33,923,000 Commission revenues - 3,866,000 (3,866,000 ) Transfer of acquired product sales/profit 12,746,000 1,205,000 11,541,000 Total revenues $ 130,193,000 $ 88,595,000 $ 41,598,000 The increase in revenues between periods was related to an increase in sales of our branded ophthalmology products, as well as an increase in the transfer of acquired products sales and profits related to the NVS 5 Acquisition and Santen Products Acquisition.
Riley Loan and Security Agreement On December 14, 2022 (the “Effective Date”), we entered into a Loan and Security Agreement (the “BR Loan”) with B. Riley Commercial Capital, LLC, as Administrative Agent for the Lenders. The proceeds from the BR Loan were used to finance the Fab 5 Acquisition.
In January 2023, the underwriters exercised their option to purchase the additional $5,250,000 aggregate principal amount of 2027 Notes. B. Riley Loan and Security Agreement – Paid On December 14, 2022, we entered into a Loan and Security Agreement (the “BR Loan”) with B. Riley Commercial Capital, LLC, as administrative agent for the lenders from time to time party thereto.
Revenues From Transfer of Acquired Product Profit We entered into an agreement whereby we purchased the exclusive commercial rights to assets associated with certain ophthalmic products from another pharmaceutical company (the “Seller”).
Revenues From Transfer of Acquired Product Sales and Profits We entered into agreements whereby we purchased the exclusive commercial rights to assets associated with certain ophthalmic products from other pharmaceutical companies (the “Sellers”). During a temporary, transition period, the Sellers continue to manufacture and market these products and transfer the net profit from the sale of the products to us.
See Notes 2 and 5 to our consolidated financial statements for more information and related party disclosure regarding Melt. 49 Stock-Based Compensation All stock-based payments to employees, directors and consultants, including grants of stock options, warrants, restricted stock units and restricted stock, are recognized in the consolidated financial statements based upon their estimated fair values.
Stock-Based Compensation All stock-based payments to employees, directors and consultants, including grants of stock options, warrants, restricted stock units (“RSUs”), performance stock units (“PSUs) and restricted stock, are recognized in the consolidated financial statements based upon their estimated fair values. We use the Black-Scholes-Merton option pricing model and Monte Carlo simulation model to estimate the fair value of stock-based awards.
During the year ended December 31, 2021 we reduced our common stock investment in Melt to $0. As of December 31, 2022 and 2021 and at the time of entering into the Melt Loan Agreement, we owned 100% of the debt owed by Melt.
As of December 31, 2022, and at the time of entering into the Melt Loan Agreement (see Note 5 to our consolidated financials statements), we owned 100% of Melt’s indebtedness.
Trademarks are an indefinite life intangible asset and are assessed for impairment based on future projected cash flows as further described below.
Acquired product rights, including new drug applications (“NDAs”), are amortized over their estimated useful lives, generally 4-15 years, based on a straight-line method. Trademarks are an indefinite-lived intangible asset and are assessed for impairment based on future projected cash flows as further described below.
Loss on Early Extinguishment of Debt During the year ended December 31, 2021, we recorded a loss from early extinguishment of $756,000 related the payment of all outstanding obligations to the Company’s previous senior lender, SWK Funding, LLC, and its partners.
Loss on Early Extinguishment of Debt During the year ended December 31, 2023, we recorded a loss on extinguishment of debt of $5,465,000, related to the payoff of the BR Loan.
The following presents our selling, general and administrative expenses for the years ended December 31, 2022 and 2021: For the Years Ended December 31, $ 2022 2021 Variance Selling, general and administrative $ 58,243,000 $ 41,315,000 $ 16,928,000 The increase in selling, general and administrative expenses between periods was primarily attributable to an increase in consulting expenses associated with regulatory improvements, to support the transition of recent product acquisitions, and an increase in expenses related to the addition of new employees in sales, marketing and other departments to support current and expected growth, including the anticipated commercial launch of IHEEZO in 2023.
The following presents our selling, general and administrative expenses for the years ended December 31, 2023 and 2022: For the Years Ended December 31, $ 2023 2022 Variance Selling, general and administrative $ 83,090,000 $ 58,243,000 $ 24,847,000 The increase in selling, general and administrative expenses between periods was primarily attributable to an increase in stock-based compensation expense, including new expenses associated with performance stock units (“PSUs”) granted in April 2023 of $7,722,000 for the year ended December 31, 2023, compared to the prior year.
In addition, we also have non-controlling equity positions in Surface Ophthalmics, Inc. (“Surface”) and Melt Pharmaceuticals, Inc. (“Melt”), both companies that began as subsidiaries of Harrow and were subsequently carved-out of our corporate structure and deconsolidated from our financial statements. We also own royalty rights in certain drug candidates being developed by Surface and Melt.
(“Melt”), and two other companies that began as subsidiaries of Harrow and were subsequently carved-out of our corporate structure and deconsolidated from our financial statements.
If the carrying amount of the reporting unit’s goodwill exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess. Debt Issuance Costs and Debt Discount Debt issuance costs and the debt discount are recorded net of loans payable in the consolidated balance sheet.
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. As a result of its assessment in 2023, we concluded that goodwill is not impaired as of December 31, 2023.
We own the U.S. commercial rights to ten branded ophthalmic pharmaceutical products, including IHEEZO TM , IOPIDINE® (both approved concentrations), MAXITROL® eye drops, MOXEZA®, ILEVRO®, NEVANAC®, VIGAMOX®, MAXIDEX®, and TRIESENCE®. We own and operate ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical-compounding businesses, and our branded drugs are marketed under our Harrow name.
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. In addition, we have a non-controlling equity interest in Melt Pharmaceuticals, Inc.
Gross Profit and Margin For the Years Ended December 31, $ 2022 2021 Variance Gross profit $ 63,212,000 $ 54,262,000 $ 8,950,000 Gross margin 71.3 % 74.9 % (3.6 )% 44 The decrease in gross margin is primarily attributable to amortization of acquired NDAs beginning in January 2022, along with a one-time adverse production related event in April 2022, increased discounts provided during 2022 associated with volume-based purchases and increased (direct and indirect) production costs incurred during 2022.
Gross Profit and Margin For the Years Ended December 31, $ 2023 2022 Variance Gross profit $ 90,553,000 $ 63,212,000 $ 27,341,000 Gross margin 69.6 % 71.3 % (1.7 )% The decrease in gross margin between the years ended December 31, 2023 and 2022 was primarily attributable to amortization of acquired NDAs from the NVS 5 Acquisition, beginning in January 2023.
Net cash provided by financing activities during the year ended December 31, 2021 was primarily related to net proceeds received from the sale of $75,000,000 senior notes due April 2026, net of the payment of all outstanding obligations to the Company’s previous senior lender, SWK Funding, LLC, and its partners.
Cash provided by financing activities during the year ended December 31, 2023 was primarily related to proceeds received from the sale of the 2027 Notes, the Oaktree Loan and Oaktree Amendment, and the Offering, offset by payment of payroll taxes upon vesting of PSUs in exchange for shares withheld from employees.

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