Harrow's Focus - Reviving Old Drugs In A Crowded Market

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Harrow focuses on ophthalmology products, including Iheezo, Vevye, and Triesence, but its clinical differentiation is debatable.HROW reported a record $48.9 million in Q2 revenue, a 46% year-over-year...

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Below are three of their most featured products.   Brand Name Indication Details   Iheezo Local anesthetic for ophthalmic surgeries  Licensed from Sintetica; FDA approved in 2022 for ocular surface anesthesia.   Vevye Dry eye disease Acquired U.S. and Canadian rights from Novaliq for cyclosporine solution.   Triesence Ocular inflammation Acquired U.S. rights from Novartis in 2023 for corticosteroid use in eye conditions.   Click to enlarge Harrow's stock has recently gained traction after reaching 52-week highs and being mentioned on Jim Cramer's \"Mad Money.\" Harrow was founded in 2011 and began generating revenue in 2014 through its compounding division (ImprimisRx). In 2019, Harrow's strategy shifted to the commercialization of branded ophthalmology products, and a number of transactions were completed. Despite recent stock gains and media attention, a closer examination reveals several concerns about the company's long-term prospects. Q2 Earnings In August, Harrow announced Q2 financial results. Total revenues reached an all-time high of $48.9 million, up 46% year-over-year. The cost of sales was $12.5 million. SG&A and R&D costs totaled $31.8 million and $3.05 million, respectively. The net loss in Q2 was $6.473 million. Despite a significant increase in revenue, the net loss increased over the same period last year. In my opinion, the high SG&A costs are most likely due to extensive marketing and sales efforts to promote undifferentiated products. More on this below. Harrow Harrow's Product Line Struggles to Differentiate in Competitive Market Iheezo's core ingredient, chloroprocaine, has been used as a local anesthetic for decades but has been recently reintroduced with an improved ophthalmic delivery system. However, other topical anesthetics, including preservative-free lidocaine jelly, proparacaine solution, and tetracaine solution, are also utilized in eye surgeries. There is limited clinical data suggesting that Iheezo offers significant advantages over existing anesthetics. As such, insurance companies may be reluctant to cover a more expensive anesthetic. Vevye is a \"water-free\" cyclosporine-based dry eye treatment. It works in the same way that existing therapies like Restasis and Cequa do. While there is some evidence that water-free solutions improve stability, tolerability, and ocular retention, the benefits are not regarded as significantly superior. Moreover, other cyclosporine-based drugs like Restasis are well-established and available as generics. At the end of the day, price-sensitive patients and insurance companies may opt for less expensive alternatives. Finally, Triesence (triamcinolone acetonide), which was first approved in 1957, is a corticosteroid used to treat ocular inflammatory conditions such as uveitis and ocular inflammation that did not respond to topical corticosteroids, as well as for visualization during vitrectomy surgery. Generics such as Kenalog are available, but they are not \"preservative-free,\" which, while beneficial, is not widely regarded as superior. Trivaris, another preservative-free suspension of triamcinolone acetonide, was discontinued by Allergan years ago for commercial reasons. So Harrow, after purchasing the commercial rights for $130 million plus milestone payments, is trying to bring the drug back from the dead to compete with generics. Its market launch might occur before the end of the year. None of these products are particularly interesting or promising to me, yet these are the three featured assets within their investor slides. Harrow also owns a stake in Melt Pharmaceuticals, a clinical-stage biotechnology company based in the United States that is developing a sublingual formulation of midazolam, a sedative drug that was originally approved in 1985, for \"short-duration medical procedures.\" If approved (it's in Phase 3), Melt's product will compete with generic drugs that have been long utilized in surgical settings. Financial Health Turning to their balance sheet, as of June 30, Harrow had $70.968 million in cash and cash equivalents. Total current assets were $139.39 million, while total current liabilities were $53.551 million. Subsequently, Harrow's current ratio is comfortably over 2, which implies the company can readily cover any short-term obligations. Harrow currently owes $185.023 million in \"notes payable.\" Moving on to cash flows, Harrow spent $7.374 million on operating activities during the first half of the year. This translates to a monthly cash burn of roughly $1.22 million. If we divide their cash equivalents by this figure, we get a cash runway of approximately five years. However, a significant portion of their debt is due in 2026. This could drastically alter their cash runway unless the company is (1) soon able to generate cash from operations or (2) restructure their debt, among other possibilities (e.g., equity dilution). Harrow Note: Cash runway and burn estimates are based on historical data and my analysis and should be viewed as estimates only. The term \"cash burn\" can encompass various factors beyond cash flow, making these estimates somewhat subjective. If companies provide forward-looking estimates in their earnings releases, I will include them to supplement my analysis. HROW Stock: Risk/Reward Analysis and Investment Recommendation Harrow appears to be objectively overvalued at $1.56 billion in market capitalization (EV/Sales of 11.1 versus sector median of 4). Despite its ability to scale revenues (which are largely inorganic), its ability to generate cash remains weak. Because their flagship products lack significant clinical advantages over existing generics, market penetration figures to be challenging without overwhelming S&M spend. Remember that some of these products have already failed in the market and have been phased out by much larger companies. Their strategy, in my opinion, is unfocused, and investments in other companies such as Melt further complicate the picture and are unlikely to yield results. There is significant financial risk as well. High OpEx and looming debt obligations could impact the company's long-term viability, especially if revenue growth stalls. Author Investors seeking exposure in the ophthalmology sector may find better risk-adjusted returns in companies with stronger product pipelines, robust financials, and a clear strategic focus. Given the significant risks and a lack of clear pathways to significant returns, investing in Harrow requires a high risk tolerance and a blind trust in its management (\"sell\").  Risks to my \"sell\" recommendation include the growth of the ophthalmology market, which could increase Harrow's revenue, as well as successful product adoption. Importantly, I might be overestimating the financial risks. Harrow could potentially raise more capital by selling off parts of its business. Their debts may be restructured in a favorable manner. Finally, its stock may continue to outperform the market, particularly in the short term, creating opportunity costs for investors who sold their shares.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2472592232"}