HARROW INC
For the period ended Sep 30, 2024. Filed Nov 14, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 14, 2024
Extracted filing text, with the paragraph anchors used by the comparison.
See the whole filing, with its images and exhibitsContents
Item 1. Financial Statements (unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |
|---|---|---|
| 2024 | 2023 | |
| (Unaudited) | ||
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | $72,601,000 | $74,085,000 |
| Investment in Eton Pharmaceuticals | - | 8,681,000 |
| Accounts receivable, net | 53,734,000 | 36,261,000 |
| Inventories | 10,156,000 | 10,867,000 |
| Prepaid expenses and other current assets | 10,571,000 | 9,588,000 |
| Total current assets | 147,062,000 | 139,482,000 |
| Property, plant and equipment, net | 3,625,000 | 3,521,000 |
| Capitalized software costs, net | 1,869,000 | 2,138,000 |
| Operating lease right-of-use assets, net | 9,379,000 | 6,785,000 |
| Intangible assets, net | 189,272,000 | 159,906,000 |
| Goodwill | 332,000 | 332,000 |
| TOTAL ASSETS | $351,539,000 | $312,164,000 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||
| Current liabilities | ||
| Accounts payable and accrued expenses | $25,277,000 | $24,581,000 |
| Contingent consideration payable | 37,000,000 | - |
| Accrued rebates and copay assistance | 24,899,000 | 18,432,000 |
| Accrued payroll and related liabilities | 7,185,000 | 5,450,000 |
| Deferred revenue and customer deposits | 137,000 | 75,000 |
| Current portion of operating lease obligations | 507,000 | 806,000 |
| Total current liabilities | 95,005,000 | 49,344,000 |
| Operating lease obligations, net of current portion | 9,500,000 | 6,524,000 |
| Accrued expenses, net of current portion | 2,713,000 | 2,713,000 |
| Deferred tax liability | 643,000 | - |
| Notes payable, net of unamortized debt discounts | 186,057,000 | 183,172,000 |
| TOTAL LIABILITIES | 293,918,000 | 241,753,000 |
| Commitments and contingencies | - | |
| STOCKHOLDERS’ EQUITY | ||
| Common stock, $0.001 par value, 50,000,000 shares authorized, 35,611,365 and 35,168,260 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | 35,000 | 35,000 |
| Additional paid-in capital | 216,103,000 | 204,635,000 |
| Accumulated deficit | (158,162,000) | (133,904,000) |
| TOTAL HARROW, INC. STOCKHOLDERS’ EQUITY | 57,976,000 | 70,766,000 |
| Noncontrolling interests | (355,000) | (355,000) |
| TOTAL STOCKHOLDERS’ EQUITY | 57,621,000 | 70,411,000 |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $351,539,000 | $312,164,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended · For the Nine Months Ended | ||||
|---|---|---|---|---|
| September 30, | September 30, | |||
| 2024 | 2023 | 2024 | 2023 | |
| Revenues: | ||||
| Product sales, net | $49,019,000 | $31,809,000 | $132,398,000 | $81,804,000 |
| Other revenues | 238,000 | 2,456,000 | 385,000 | 12,034,000 |
| Total revenues | 49,257,000 | 34,265,000 | 132,783,000 | 93,838,000 |
| Cost of sales | (12,018,000) | (10,067,000) | (35,110,000) | (28,338,000) |
| Gross profit | 37,239,000 | 24,198,000 | 97,673,000 | 65,500,000 |
| Operating expenses: | ||||
| Selling, general and administrative | 33,645,000 | 21,033,000 | 94,275,000 | 56,878,000 |
| Research and development | 2,273,000 | 1,421,000 | 7,475,000 | 3,316,000 |
| Total operating expenses | 35,918,000 | 22,454,000 | 101,750,000 | 60,194,000 |
| Income (loss) from operations | 1,321,000 | 1,744,000 | (4,077,000) | 5,306,000 |
| Other (expense) income: | ||||
| Interest expense, net | (5,525,000) | (5,749,000) | (16,411,000) | (16,200,000) |
| Investment (loss) gain from Eton Pharmaceuticals | - | 1,348,000 | (3,171,000) | 2,676,000 |
| Loss on extinguishment of debt | - | - | - | (5,465,000) |
| Other income (expenses), net | 4,000 | (195,000) | 76,000 | (344,000) |
| Total other expense, net | (5,521,000) | (4,596,000) | (19,506,000) | (19,333,000) |
| Loss before income taxes | (4,200,000) | (2,852,000) | (23,583,000) | (14,027,000) |
| Provision for income taxes | (20,000) | (1,539,000) | (675,000) | (1,236,000) |
| Net loss | $(4,220,000) | $(4,391,000) | $(24,258,000) | $(15,263,000) |
| Basic and diluted net loss per share of common stock | $(0.12) | $(0.13) | $(0.68) | $(0.48) |
| Weighted average number of shares of common stock outstanding, basic and diluted | 35,702,200 | 34,255,197 | 35,597,409 | 31,689,947 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the periods ended September 30, 2024 and 2023
| Total · Total | |||||||
|---|---|---|---|---|---|---|---|
| Common Stock · Additional · Harrow, Inc. · Noncontrolling · Total | |||||||
| Par · Paid-in · Accumulated · Stockholders’ · Interest · Stockholders’ | |||||||
| Shares | Value | Capital | Deficit | Equity | Equity | Equity | |
| Balance at December 31, 2022 | 29,901,530 | $30,000 | $137,058,000 | $(109,493,000) | $27,595,000 | $(355,000) | $27,240,000 |
| Issuance of common stock in connection with: | |||||||
| Public offering, net of offering costs | 3,887,324 | 4,000 | 64,516,000 | - | 64,520,000 | - | 64,520,000 |
| Exercise of consultant stock-based options | 10,000 | - | 85,000 | - | 85,000 | - | 85,000 |
| Exercise of employee stock-based options | 219,246 | - | 270,000 | - | 270,000 | - | 270,000 |
| Vesting of RSUs and PSUs | 1,810,673 | 2,000 | (2,000) | - | - | - | - |
| Shares withheld related to net share settlement of equity awards | (711,152) | (1,000) | (12,970,000) | - | (12,971,000) | - | (12,971,000) |
| Stock-based compensation expense | - | - | 11,521,000 | - | 11,521,000 | - | 11,521,000 |
| Net loss | - | - | - | (15,263,000) | (15,263,000) | - | (15,263,000) |
| Balance at September 30, 2023 | 35,117,621 | $35,000 | $200,478,000 | $(124,756,000) | $75,757,000 | $(355,000) | $75,402,000 |
| Balance at December 31, 2023 | 35,168,260 | $35,000 | $204,635,000 | $(133,904,000) | $70,766,000 | $(355,000) | $70,411,000 |
| Issuance of common stock in connection with: | |||||||
| Exercise of employee stock-based options | 248,175 | - | 1,005,000 | - | 1,005,000 | - | 1,005,000 |
| Vesting of RSUs | 332,517 | - | - | - | - | - | - |
| Shares withheld related to net share settlement of equity awards | (137,587) | - | (2,362,000) | - | (2,362,000) | - | (2,362,000) |
| Stock-based compensation expense | - | - | 12,825,000 | - | 12,825,000 | - | 12,825,000 |
| Net loss | - | - | - | (24,258,000) | (24,258,000) | - | (24,258,000) |
| Balance at September 30, 2024 | 35,611,365 | $35,000 | $216,103,000 | $(158,162,000) | $57,976,000 | $(355,000) | $57,621,000 |
| Total · Total | |||||||
|---|---|---|---|---|---|---|---|
| Common Stock · Additional · Harrow, Inc. · Noncontrolling · Total | |||||||
| Par · Paid-in · Accumulated · Stockholders’ · Interest · Stockholders’ | |||||||
| Shares | Value | Capital | Deficit | Equity | Equity | Equity | |
| Balance at June 30, 2023 | 30,276,938 | $30,000 | $142,742,000 | $(120,365,000) | $22,407,000 | $(355,000) | $22,052,000 |
| Issuance of common stock in connection with: | |||||||
| Public offering, net of offering costs | 3,887,324 | 4,000 | 64,516,000 | - | 64,520,000 | - | 64,520,000 |
| Exercise of employee stock-based options | 2,430 | - | 18,000 | - | 18,000 | - | 18,000 |
| Vesting of PSUs | 1,567,913 | 2,000 | (2,000) | - | - | - | - |
| Shares withheld related to net share settlement of equity awards | (616,984) | (1,000) | (11,272,000) | - | (11,273,000) | - | (11,273,000) |
| Stock-based compensation expense | - | - | 4,476,000 | - | 4,476,000 | - | 4,476,000 |
| Net loss | - | - | - | (4,391,000) | (4,391,000) | - | (4,391,000) |
| Balance at September 30, 2023 | 35,117,621 | $35,000 | $200,478,000 | $(124,756,000) | $75,757,000 | $(355,000) | $75,402,000 |
| Balance at June 30, 2024 | 35,479,492 | $35,000 | $212,439,000 | $(153,942,000) | $58,532,000 | $(355,000) | $58,177,000 |
| Issuance of common stock in connection with: | |||||||
| Exercise of employee stock-based options | 160,980 | - | 484,000 | - | 484,000 | - | 484,000 |
| Shares withheld related to net share settlement of equity awards | (29,107) | - | (1,205,000) | - | (1,205,000) | - | (1,205,000) |
| Stock-based compensation expense | - | - | 4,385,000 | - | 4,385,000 | - | 4,385,000 |
| Net loss | - | - | - | (4,220,000) | (4,220,000) | - | (4,220,000) |
| Balance at September 30, 2024 | 35,611,365 | $35,000 | $216,103,000 | $(158,162,000) | $57,976,000 | $(355,000) | $57,621,000 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Nine Months Ended | ||||
|---|---|---|---|---|
| September 30, | ||||
| 2024 · 2023 | ||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Net loss | $(24,258,000) | $(15,263,000) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Depreciation and amortization of property, plant and equipment and software development costs | 1,382,000 | 1,095,000 | ||
| Amortization of intangible assets | 7,708,000 | 7,634,000 | ||
| Amortization of operating lease right-of-use assets | 636,000 | 541,000 | ||
| (Recovery of) provision for credit losses | (20,000) | 68,000 | ||
| Amortization of debt issuance costs and debt discount | 2,985,000 | 2,568,000 | ||
| Investment loss (gain) from investment in Eton | 3,171,000 | (2,676,000) | ||
| Loss on extinguishment of debt | - | 5,465,000 | ||
| Loss on disposal of intangible assets | - | 22,000 | ||
| Stock-based compensation | 12,825,000 | 11,521,000 | ||
| Deferred income tax | 643,000 | - | ||
| Changes in assets and liabilities: | ||||
| Accounts receivable | (17,453,000) | (12,287,000) | ||
| Inventories | 711,000 | (2,383,000) | ||
| Prepaid expenses and other current assets | (983,000) | (4,079,000) | ||
| Accounts payable, accrued expenses, accrued rebates and copay assistance | 6,433,000 | 1,584,000 | ||
| Accrued payroll and related liabilities | 1,735,000 | 1,294,000 | ||
| Deferred revenue and customer deposits | 62,000 | 40,000 | ||
| NET CASH USED IN OPERATING ACTIVITIES | (4,423,000) | (4,856,000) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||
| Net proceeds from sale of investment in Eton Pharmaceuticals | 5,510,000 | - | ||
| Investment in patent and trademark assets | (74,000) | - | ||
| Purchase of product NDAs and related patents | - | (151,084,000) | ||
| Purchases of property, plant and equipment | (1,040,000) | (1,266,000) | ||
| NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 4,396,000 | (152,350,000) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Proceeds from 11.875% notes payable, net of costs | - | 4,961,000 | ||
| Proceeds from Oaktree Loan, net of costs | - | 73,552,000 | ||
| Payment of debt issuance costs | (100,000) | - | ||
| Payment of payroll taxes upon vesting of PSUs, RSUs and exercise of stock options | (2,362,000) | (12,971,000) | ||
| Proceeds from exercise of stock options | 1,005,000 | 355,000 | ||
| Proceeds from B. Riley senior secured note, net of costs | - | 55,879,000 | ||
| Repayment of B. Riley senior secured note | - | (59,750,000) | ||
| Proceeds from public offering of common stock, net of costs | - | 64,520,000 | ||
| NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (1,457,000) | 126,546,000 | ||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (1,484,000) | (30,660,000) | ||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 74,085,000 | 96,270,000 | ||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $72,601,000 | $65,610,000 | ||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||
| Cash paid for income taxes | $ | - | $ | - |
| Cash paid for interest | $15,553,000 | $12,279,000 | ||
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||
| Reclassification of deferred financing costs | $ | - | $1,950,000 | |
| Accrual of exit fee related to Oaktree Loan | $ | - | $2,713,000 | |
| Insurance premium financed | $ | - | $1,321,000 | |
| Purchase of product NDAs associated with contingent consideration payable | $37,000,000 | $ | - | |
| Purchase of property, plant and equipment included in accounts payable and accrued expenses | $177,000 | $11,000 | ||
| Right-of-use assets obtained in exchange for new operating lease obligations | $3,230,000 | $ | - | |
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 2024 and 2023
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Company and Background
Harrow, Inc. (together with its consolidated subsidiaries, unless the context indicates or otherwise requires, the “Company” or “Harrow”) is a leading eyecare pharmaceutical company engaged in the discovery, development, and commercialization of innovative ophthalmic pharmaceutical products for the U.S. market. Harrow helps U.S. eyecare professionals preserve the gift of sight by making its comprehensive portfolio of prescription and non-prescription pharmaceutical products accessible and affordable to millions of Americans each year. The Company owns commercial rights to one of the largest portfolios of branded ophthalmic pharmaceutical products in the U.S, all of which are marketed under its Harrow name. The Company also owns and operates ImprimisRx, one of the nation’s leading ophthalmology-focused pharmaceutical-compounding businesses.
Basis of Presentation
The Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other period. For further information, refer to the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority owned subsidiaries.
Harrow consolidates entities in which it has a controlling financial interest. The Company assesses control under the variable interest entity (“VIE”) model to determine whether the Company is the primary beneficiary of that entity. The Company consolidates(i) entities in which it holds and/or controls, directly or indirectly, more than 50% of the voting rights, and (ii) VIEs for which the Company is deemed to be the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following represents an update for the three and nine months ended September 30, 2024 to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Segments
The Company’s chief operating decision-maker is its Chief Executive Officer who makes resource allocation decisions and assesses performance based on financial information presented as operating segments. During the period ended September 30, 2024, the Company identified two operating segments as reportable segments. See Note 15 for more information regarding the Company’s reportable segments.
Risks, Uncertainties and Liquidity
The Company is subject to certain regulatory standards, approvals, guidelines and inspections which could impact the Company’s ability to make, dispense, and sell certain products. If the Company was required to cease compounding and selling certain products as a result of regulatory guidelines or inspections, this may have a material impact on the Company’s financial condition, liquidity and results of operations.
Credit Losses
The Company estimates and records a provision for its expected credit losses related to its financial instruments, including its trade receivables. Management considers historical collection rates, the current financial status of the Company’s customers, macroeconomic factors, and other industry-specific factors when evaluating for current expected credit losses. Forward-looking information is also considered in the evaluation of current expected credit losses. However, because of the short time to the expected receipt of accounts receivable, management believes that the carrying value, net of expected losses, approximates fair value and therefore, relies more on historical and current analysis of such financial instruments, including its trade receivables.
To determine the provision for credit losses for accounts receivable, the Company has disaggregated its accounts receivable by class of customer at the business component level, as management determined that risk profile of the Company’s customers is consistent based on the type and industry in which they operate, mainly in the pharmaceuticals industry. Each business component is analyzed for estimated credit losses individually. In doing so, the Company establishes a historical loss matrix, based on the previous collections of accounts receivable by the age of such receivables, and evaluates the current and forecasted financial position of its customers, as available. Further, the Company considers macroeconomic factors and the status of the pharmaceuticals industry to estimate if there are current expected credit losses within its trade receivables based on the trends of the Company’s expectation of the future status of such economic and industry-specific factors. Also, specific allowance amounts are established based on review of outstanding invoices to record the appropriate provision for customers that have a higher probability of default.
The accounts receivable balance on the Company’s condensed consolidated balance sheet as of September 30, 2024 was $53,734,000, net of $281,000 of allowances. The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected at September 30, 2024:
| Balance at January 1, 2024 | $371,000 |
|---|---|
| Change in expected credit losses | (20,000) |
| Write-offs, net of recoveries | (70,000) |
| Balance at September 30, 2024 | $281,000 |
Fair Value Measurements
Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The established fair value hierarchy prioritizes the use of inputs used in valuation methodologies into the following three levels:
| ● | Level 1: Applies to assets or liabilities for which there are quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available. |
|---|---|
| ● | Level 2: Applies to assets or liabilities for which there are significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3: Applies to assets or liabilities for which there are significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, Level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method. |
At December 31, 2023, the Company measured its investment in Eton Pharmaceuticals, Inc. (“Eton”) on a recurring basis. The Company’s investment in Eton was classified as a Level 1 as the fair value was determined using quoted market prices in active markets for the same securities. As of December 31, 2023, the fair market value of the Company’s investment in Eton was $8,681,000. In April 2024, the Company sold all of its shares of common stock it held of Eton in a block trade at a gross price of $3.00 per share. After deducting trading expenses and commissions of approximately $436,000, the Company received net proceeds of $5,510,000 and recorded a loss of $3,171,000 related to the sale of its investment in Eton.
The Company’s 2026 Notes (as defined in Note 11) are carried at face value, including the unamortized premium, less unamortized debt issuance costs, the 2027 Notes (as described in Note 11) are carried at face value less unamortized debt issuance costs, and the Oaktree Loan (as defined in Note 11) is carried at face value less the original issue discount and unamortized debt issuance costs on the condensed consolidated balance sheets and the Company presents fair value for disclosure purposes only. The 2026 Notes and 2027 Notes are classified as Level 1 instruments as the fair value is determined using quoted market prices in active markets for the same securities. The Oaktree Loan is classified as a Level 2 instrument and its fair value is determined through an income approach that considers collateral coverage, yield calibration, yield analysis and any adjustments to implied yield associated with the Company’s fundamental measures.
The following table presents the estimated fair values and the carrying values:
| September 30, 2024 | December 31, 2023 | |||
|---|---|---|---|---|
| Carrying Value | Fair Value | Carrying Value | Fair Value | |
| 2026 Notes | $73,804,000 | $76,830,000 | $73,218,000 | $70,260,000 |
| 2027 Notes | $37,950,000 | $43,084,000 | $37,413,000 | $40,363,000 |
| Oaktree Loan | $74,303,000 | $78,663,000 | $72,541,000 | $76,627,000 |
The Company’s other financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, accrued payroll and related liabilities, contingent consideration payable, deferred revenue and customer deposits and operating lease liabilities. The carrying amount of these financial instruments, except for operating lease liabilities, approximates fair value due to the short-term maturities of these instruments. Based on borrowing rates currently available to the Company, the carrying value of the operating lease liabilities approximate their respective fair values.
Basic and Diluted Net Loss per Common Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common and common equivalent shares, such as stock options, restricted stock units (“RSUs”), and market-based vesting performance stock units (“PSUs”), outstanding during the period. Common equivalent shares (using the treasury stock method) from stock options, unvested RSUs, and unvested PSUs were 4,411,488 and 4,588,982 at September 30, 2024 and 2023, respectively, and are excluded in the calculation of diluted net loss per common share for the periods presented because the effect is anti-dilutive. Included in the basic and diluted net loss per share calculation were RSUs awarded to directors that had vested, but the issuance and delivery of the shares are deferred until the director ceases providing services. The number of shares underlying vested RSUs at September 30, 2024 and 2023 was 195,696 and 244,352, respectively.
The following table shows the computation of basic and diluted net loss per share of common stock:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Numerator – net loss | $(4,220,000) | $(4,391,000) | $(24,258,000) | $(15,263,000) |
| Denominator – weighted average number of shares outstanding, basic and diluted | 35,702,200 | 34,255,197 | 35,597,409 | 31,689,947 |
| Net loss per share, basic and diluted | $(0.12) | $(0.13) | $(0.68) | $(0.48) |
Income Taxes
The Company’s effective tax rate was(2.95)% and(8.81)% for the nine months ended September 30, 2024 and 2023, respectively. The Company’s effective tax rate for the nine months ended September 30, 2024 and 2023 differs from the U.S. federal statutory tax rate of 21% due to state taxes, permanent book-tax differences related to Internal Revenue Code of 1986, as amended, Section 162(m) excess officer compensation limitation, share-based compensation and the change in valuation allowance. In the current period ended September 30, 2024, the Company met the exception to using the estimated annual effective tax rate. The current period income tax expense reflects year-to-date income tax expense. The prior year third quarter income tax expense was recorded using the estimated annual effective tax rate.
As of September 30, 2024 and December 31, 2023, there wereno unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized, affect the effective tax rate.
Investment in Melt Pharmaceuticals, Inc. – Related Party
The Company owns 3,500,000 shares of common stock and 2,334,256 shares of preferred stock of Melt (representing in aggregate approximately 46% of Melt’s equity interests as of September 30, 2024). The Company analyzes its investment in Melt and related agreements on a regular basis to evaluate its position of variable interests in Melt. The Company has determined that it does not have the ability to control Melt, however it has the ability to exercise significant influence over the operating and financial decisions of Melt. Therefore, the Company uses the equity method of accounting for the Melt investment. Under this method, the Company recognizes 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.
On a quarterly basis, management assesses whether there are any indicators that the carrying value of the Company’s equity method investments may be other than temporarily impaired. Indicators include financial condition, operating performance, and near-term prospects of the investee. To the extent indicators suggest that a loss in value may have occurred, the Company will evaluate both quantitative and qualitative factors to determine if the loss in value is other than temporary. If a potential loss in value is determined to be other than temporary, the Company will recognize an impairment loss based on the estimated fair value of the equity method investments. The Company has no investments other than its common stock and preferred stock positions in Melt and no other requirements to advance funds to Melt.
The following table summarizes the Company’s investments in Melt as of September 30, 2024:
| Cost · Share of Equity Method · Net Carrying | ||||
|---|---|---|---|---|
| Basis · Losses · Value | ||||
| Common stock | $5,810,000 | $(5,810,000) | $ | - |
| Preferred stock | 18,397,000 | (18,397,000) | - | |
| $24,207,000 | $(24,207,000) | $ | - | |
See Note 4 for more information and related party disclosure regarding Melt.
Accounting Guidance Issued but Not Adopted at September 30, 2024
In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06,Disclosure Improvements—Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU modifies the disclosure or presentation requirements of a variety of topics in the codification by aligning them with the SEC’s regulations. The amendments to the various topics should be applied prospectively, and the effective date for the Company for each amendment will be determined based on the effective date of the SEC’s removal of the related disclosure from Regulation S-X or Regulation S-K. If the SEC has not removed the applicable requirement by June 30, 2027, then the related amendment in ASU 2023-06 will be removed from the codification and will not become effective. Early adoption of this ASU is prohibited. The Company does not expect the amendments in this ASU to have a material impact on the disclosures or presentation on its consolidated financial statements.
In November 2023, FASB issued ASU 2023-07,Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures, which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. ASU 2023-07 is effective for the Company in our annual reporting for fiscal 2024 and for interim period reporting beginning in fiscal 2025 on a retrospective basis, with all required disclosures to be made for all prior periods presented in the consolidated financial statements. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements.
In December 2023, FASB issued ASU 2023-09,Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, which enhances the disclosures required for income taxes in the Company’s annual consolidated financial statements. Notably, this ASU requires entities to disclose specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 is effective for the Company in its annual reporting for fiscal year 2025 on a prospective basis. Early adoption and retrospective reporting are permitted. The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03,Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures, to improve the disclosures by a public business entity about the types of expenses in commonly presented expense captions. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements.
**NOTE 3. REVENUES **
The Company accounts for contracts with customers in accordance with ASC 606,Revenue from Contracts with Customers. The Company has three primary streams of revenue: (1) product revenues, including revenue recognized from sales of products through its pharmacy and outsourcing facility and sales of branded products to wholesalers through a third-party logistics (“3PL”) partner, (2) revenue recognized from transfer of acquired product sales and profits, and (3) revenue recognized from intellectual property licenses and related arrangements.
Product Revenues
The Company sells prescription medications directly through its pharmacy, outsourcing facility and 3PL partner. Revenue from the Company’s pharmacy services include: (i) the portion of the price the client pays directly to the Company, net of any volume-related or other discounts paid back to the client, (ii) the price paid to the Company by individuals, and (iii) customer copayments made directly to the pharmacy network. Sales taxes are not included in revenue. 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. 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 the Company’s contracts consist of delivering the product to customers at their specified destination. 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. If the customer takes control of the goods before shipment, entities must make an accounting policy election to treat shipping and handling activities as either a fulfillment cost or as a separate performance obligation. The Company has elected to treat its shipping and handling activities as a fulfillment cost. |
| 3. | Determine the transaction price: The transaction price is based on an amount that reflects the consideration to which the Company expects 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. The Company utilizes 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. | 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. This generally occurs upon shipment unless contractual terms with a customer state that transfer of control occurs at delivery. |
Revenues From Transfer of Acquired Product Sales and Profits
The Company has entered into agreements whereby it 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 the Company. The revenue recognized by the Company from the transfer of net profit was recognized at the time profit from the product sales were calculated by the Sellers and confirmed by the Company, typically on a monthly basis, at which point there is no future performance obligation required by the Company and no consequential continuing involvement on the Company’s part to recognize the associated revenue. On a quarterly basis, the Sellers invoice the Company for all credits and reimbursements (“Chargebacks”) made to customers related to the products. The Company uses historical actual experience to estimate Chargebacks associated with the net sales and profit transferred. The estimated Chargebacks are recorded as a reduction in revenues from transfer of acquired product sales and profits in the Company’s consolidated statements of operations, and recorded as a reduction to accounts receivable in the consolidated balance sheets, at the time the revenue is recognized.
Intellectual Property License and Related Arrangements Revenues
As of September 30, 2024, the Company held five intellectual property licenses and related arrangements pursuant to which the Company has agreed to license or sell to a customer the right to access the Company’s intellectual property. License arrangements may consist of non-refundable upfront license fees, data transfer fees, research reimbursement payments, exclusive license rights to patented or patent pending compounds, technology access fees, and various performance or sales milestones. These arrangements can be multiple-element arrangements, the revenue of which is recognized at the point in time that the performance obligation is met.
Non-refundable fees that are not contingent on any future performance by the Company and require no consequential continuing involvement on the part of the Company are recognized as revenue when the license term commences and the licensed data, technology, compounded drug preparation and/or other deliverables are delivered. Such deliverables may include physical quantities of compounded drug preparations, design of the compounded drug preparations and structure-activity relationships, the conceptual framework and mechanism of action, and rights to the patents or patent applications for such compounded drug preparations. The Company defers recognition of non-refundable fees if it has continuing performance obligations without which the technology, right, product or service conveyed in conjunction with the non-refundable fee has no utility to the licensee and that are separate and independent of the Company’s performance under the other elements of the arrangement. In addition, if the Company’s continued involvement is required, through research and development services that are related to its proprietary know-how and expertise of the delivered technology or can only be performed by the Company, then such non-refundable fees are deferred and recognized over the period of continuing involvement. Guaranteed minimum annual royalties are recognized on a straight-line basis over the applicable term.
Revenue disaggregated by revenue source consisted of the following:
| For the Three Months Ended · For the Nine Months Ended | ||||
|---|---|---|---|---|
| September 30, | September 30, | |||
| 2024 | 2023 | 2024 | 2023 | |
| Product sales, net | $49,019,000 | $31,809,000 | $132,398,000 | $81,804,000 |
| Other revenues | 238,000 | 2,456,000 | 385,000 | 12,034,000 |
| Total revenues | $49,257,000 | $34,265,000 | $132,783,000 | $93,838,000 |
Deferred revenue and customer deposits at September 30, 2024 and December 31, 2023 were $137,000 and $75,000, respectively. All deferred revenue and customer deposit amounts at December 31, 2023 were recognized as revenue during the nine months ended September 30, 2024.
NOTE 4. INVESTMENT IN, AND NOTE RECEIVABLE FROM MELT PHARMACEUTICALS, INC. - RELATED PARTY TRANSACTIONS
In December 2018, the Company entered into an Asset Purchase Agreement with Melt (the “Melt APA”). Pursuant to the terms of the Melt APA, Melt was assigned certain intellectual property and related rights from the Company to develop, formulate, make, sell, and sub-license certain Company conscious sedation and analgesia related formulations (collectively, the “Melt Products”). Under the terms of the Melt APA, Melt is required to make mid-single digit royalty payments to the Company on net sales of the Melt Products while any patent rights remain outstanding, as well as other conditions.
In February 2019, the Company entered into a Management Services Agreement (the “Melt MSA”), whereby the Company provided to Melt certain administrative services and support, including bookkeeping, web services and human resources related activities, and Melt was required to pay the Company a monthly amount of $10,000. The Melt MSA was terminated effective July 1, 2023. During the three and nine months ended September 30, 2024, the Company did not record any reimbursable expenses and amounts payable by Melt pursuant to the Melt MSA. During the three and nine months ended September 30, 2023, the Company recorded $0 and $89,000 due from Melt for reimbursable expenses and amounts payable by Melt pursuant to the Melt MSA, which amounts are included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets. As ofboth September 30, 2024 and December 31, 2023, the Company was due $228,000 from Melt for reimbursable expenses and amounts payable under the Melt MSA.
In March 2024, Melt completed its Series B Preferred Stock financing which raised gross proceeds of approximately $23,900,000.
The Company’s Chief Executive Officer, Mark L. Baum, is a member of the Melt board of directors. The Melt board of directors consists of five members, including Mr. Baum. Mr. Baum is the only representative of the Company on Melt’s board of directors.
The unaudited condensed results of operations information of Melt is summarized below:
| For the Nine Months Ended September 30, | ||
|---|---|---|
| 2024 | 2023 | |
| Revenues, net · $ · - · $ · - | ||
| Loss from operations | $(11,334,000) | $(3,663,000) |
| Net loss | $(10,942,000) | $(5,407,000) |
The unaudited condensed balance sheet information of Melt is summarized below:
| At September 30, | At December 31, | |
|---|---|---|
| 2024 | 2023 | |
| Current assets | $7,366,000 | $13,404,000 |
| Total assets | $7,366,000 | $13,404,000 |
| Total liabilities | $5,242,000 | $3,922,000 |
| Total stockholders’ equity | 2,124,000 | 9,482,000 |
| Total liabilities and stockholders’ equity | $7,366,000 | $13,404,000 |
**NOTE 5. INVENTORIES **
Inventories are comprised of finished compounded formulations, over-the-counter and prescription retail pharmacy products, branded pharmaceutical products, including those held at the Company’s 3PL partner, related laboratory supplies and active pharmaceutical ingredients. The composition of inventories was as follows:
| At September 30, 2024 | At December 31, 2023 | |
|---|---|---|
| Raw materials | $5,306,000 | $5,477,000 |
| Work in progress | 176,000 | 54,000 |
| Finished goods | 4,674,000 | 5,336,000 |
| Total inventories | $10,156,000 | $10,867,000 |
NOTE 6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
| At September 30, 2024 | At December 31, 2023 | |
|---|---|---|
| Prepaid insurance | $1,639,000 | $1,241,000 |
| Prepaid computer software licenses and related expenses | 619,000 | 1,613,000 |
| Prefunded co-pay assistance | 4,514,000 | - |
| Other prepaid expenses | 1,749,000 | 906,000 |
| Receivable due from Melt | 228,000 | 228,000 |
| Prepaid FY 2024 Prescription Drug User (“PDUFA”) fees | - | 3,438,000 |
| Deferred Oaktree Loan commitment fee | 372,000 | 409,000 |
| Deposits and other current assets | 1,450,000 | 1,753,000 |
| Total prepaid expenses and other current assets | $10,571,000 | $9,588,000 |
**NOTE 7. PROPERTY, PLANT AND EQUIPMENT **
Property, plant and equipment consisted of the following:
| At September 30, 2024 | At December 31, 2023 | |
|---|---|---|
| Property, plant and equipment: | ||
| Computer hardware | $1,477,000 | $1,322,000 |
| Furniture and equipment | 965,000 | 936,000 |
| Lab and pharmacy equipment | 5,304,000 | 4,564,000 |
| Leasehold improvements | 6,899,000 | 6,771,000 |
| Property, plant and equipment, gross | 14,645,000 | 13,593,000 |
| Accumulated depreciation | (11,020,000) | (10,072,000) |
| Property, plant and equipment, net | $3,625,000 | $3,521,000 |
For the three and nine months ended September 30, 2024, depreciation related to property, plant and equipment was $351,000 and $948,000, respectively, compared to $290,000 and $743,000 during the same periods in 2023, respectively.
**NOTE 8. CAPITALIZED SOFTWARE COSTS **
Capitalized software costs consisted of the following:
| At September 30, 2024 | At December 31, 2023 | |
|---|---|---|
| Capitalized software costs: | ||
| Capitalized internal-use software development costs | $3,366,000 | $2,780,000 |
| Acquired third-party software license for internal-use | 205,000 | 159,000 |
| Total gross capitalized software for internal-use | 3,571,000 | 2,939,000 |
| Accumulated amortization | (1,702,000) | (1,268,000) |
| Capitalized internal-use software in process | - | 467,000 |
| Total capitalized software costs net | $1,869,000 | $2,138,000 |
The Company recorded amortization expense of $146,000 and $434,000 related to capitalized software costs during the three and nine months ended September 30, 2024, respectively, and $115,000 and $352,000 during the same periods in 2023, respectively.
NOTE 9. INTANGIBLE ASSETS AND GOODWILL
The Company’s intangible assets at September 30, 2024 consisted of the following:
| Amortization Periods (in years) | Cost | Accumulated Amortization | Net Carrying Value | |
|---|---|---|---|---|
| Patents | 7-19 | $610,000 | $(207,000) | $403,000 |
| Licenses | 7-20 | 50,000 | (36,000) | 14,000 |
| Trademarks | Indefinite | 226,000 | - | 226,000 |
| Acquired NDAs | 4-15 | 207,398,000 | (18,899,000) | 188,499,000 |
| Customer relationships | 3-15 | 596,000 | (539,000) | 57,000 |
| Trade name | 5 | 75,000 | (7,000) | 68,000 |
| Non-competition clause | 3-4 | 50,000 | (50,000) | - |
| State pharmacy licenses | 25 | 8,000 | (3,000) | 5,000 |
| $209,013,000 | $(19,741,000) | $189,272,000 | ||
Amortization expense for intangible assets was as follows:
| For the Three Months Ended · For the Nine Months Ended | ||||
|---|---|---|---|---|
| September 30, | September 30, | |||
| 2024 | 2023 | 2024 | 2023 | |
| Patents | $19,000 | $22,000 | $47,000 | $65,000 |
| Licenses | 34,000 | 2,000 | 34,000 | 7,000 |
| Acquired NDAs | 2,547,000 | 2,551,000 | 7,606,000 | 7,526,000 |
| Customer relationships | 3,000 | 9,000 | 19,000 | 36,000 |
| Trade name | 1,000 | - | 1,000 | - |
| State pharmacy licenses | 1,000 | - | 1,000 | - |
| Amortization expense of intangible assets | $2,605,000 | $2,584,000 | $7,708,000 | $7,634,000 |
Estimated future amortization expenses for the Company’s intangible assets at September 30, 2024 was as follows:
| Remainder of 2024 | $4,025,000 |
| 2025 | 16,630,000 |
| 2026 | 16,630,000 |
| 2027 | 16,281,000 |
| 2028 | 15,933,000 |
| Thereafter | 119,547,000 |
| Intangible assets | $189,046,000 |
In connection with an asset purchase agreement between Novartis and the Company, the Company is required to make a milestone payment following the release of the first commercially available batch of TRIESENCE . During the three months ended September 30, 2024, the Company determined that it was probable the first commercial batch would be released and, as such, recognized the $37,000,000 milestone payment as an increase in the amount of intangible assets for Acquired NDAs.
There wereno changes to the carrying value of the Company’s goodwill during the three and nine months ended September 30, 2024 and 2023.
NOTE 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
| At September 30, | At December 31, | |
|---|---|---|
| 2024 | 2023 | |
| Accounts payable | $23,202,000 | $21,424,000 |
| Accrued insurance premium | 21,000 | 873,000 |
| Other accrued payments | 106,000 | 306,000 |
| Accrued interest (see Note 11) | 1,948,000 | 1,978,000 |
| Accrued exit fee for Oaktree Loan (see Note 11) | 2,713,000 | 2,713,000 |
| Total accounts payable and accrued expenses | $27,990,000 | $27,294,000 |
| Less: current portion | (25,277,000) | (24,581,000) |
| Non-current total accrued expenses | $2,713,000 | $2,713,000 |
**NOTE 11. DEBT **
Oaktree Loan Due 2026
In March 2023, the Company entered into a Credit Agreement and Guaranty, (the “Oaktree Loan”) with Oaktree Fund Administration, LLC, as administrative agent for the lenders (“Oaktree”), providing for a senior secured term loan facility to the Company with a principal amount of up to $100,000,000. Upon entering into the Oaktree Loan, the Company drew a principal amount of $65,000,000. In July 2023, the Company drew an additional principal amount of $12,500,000 and entered into the First Amendment to the Oaktree Loan (the “First Amendment”). Under the First Amendment, the overall credit facility size was increased from $100,000,000 to $112,500,000. The additional principal loan amount of up to $35,000,000 available under the Oaktree Loan (“Tranche B”) was to be made available to the Company upon the commercialization of TRIESENCE. Since Tranche B was not drawn by the Company on or before March 27, 2024, the amount available under Tranche B decreased to $30,000,000. While undrawn, the Company is required to pay a commitment fee related to the Tranche B amount equal to 2% per annum, payable quarterly. This fee is recorded within prepaid expenses and other current assets and is being amortized on a straight-line basis over the access period.
Interest expense related to the Oaktree Loan totaled $3,026,000 and $8,923,000 for the three and nine months ended September 30, 2024, respectively, and included the amortization of debt issuance costs and discount of $656,000 and $1,861,000, respectively. Interest expense related to the Oaktree Loan totaled$2,995,000 and $5,660,000 for the three and nine months ended September 30, 2023, respectively, and included the amortization of debt issuance costs and discount of$567,000 and $1,093,000, respectively.
The Oaktree Loan carries an exit fee equal to 3.5% of the aggregate principal amount owed, payable at maturity. As of September 30, 2024 and December 31, 2023, the Company had recorded in accrued expenses the total exit fee liability of $2,713,000 and $2,713,000, respectively.
HROWM – 11.875% Senior Notes Due 2027
In December 2022 and January 2023, the Company closed offerings of $40,250,000 aggregate principal amount of 11.875% senior notes due December 2027 (the “2027 Notes”). Interest expense related to the 2027 Notes totaled $1,376,000 and $4,121,000 for the three and nine months ended September 30, 2024, respectively, and included amortization of debt issuance costs and debt discount of $181,000 and $537,000, respectively. Interest expense related to the 2027 Notes totaled $1,375,000 and $4,141,000 for the three and nine months ended September 30, 2023, respectively, and included amortization of debt issuance costs and debt discount of $180,000 and $556,000, respectively.
HROWL – 8.625% Senior Notes Due 2026
In April and September 2021, the Company closed offerings (including an over-allotment exercise in May 2021) of $75,000,000 aggregate principal amount of 8.625% senior notes due April 2026 (the “2026 Notes”). Interest expense related to the 2026 Notes totaled $1,814,000 and $5,438,000 for the three and nine months ended September 30, 2024, respectively, and included amortization of debt issuance costs and debt discount of $197,000 and $587,000, respectively. Interest expense related to the 2026 Notes totaled $1,814,000 and $5,436,000 for the three and nine months ended September 30, 2023, respectively, and included amortization of debt issuance costs and debt discount of $197,000 and $585,000, respectively.
A summary of the Company’s debt is described as follows:
| At September 30, | At December 31, | |
|---|---|---|
| 2024 | 2023 | |
| 8.625% Senior Notes due April 2026 | $75,000,000 | $75,000,000 |
| 11.875% Senior Notes due December 2027 | 40,250,000 | 40,250,000 |
| Oaktree Loan due January 2026 | 77,500,000 | 77,500,000 |
| Notes payable gross | 192,750,000 | 192,750,000 |
| Less: Unamortized debt issuance costs, net of premium | (6,693,000) | (9,578,000) |
| Notes payable net | $186,057,000 | $183,172,000 |
For the three and nine months ended September 30, 2024, the total effective interest rate of the Company’s debt was 11.03% and 11.17%, respectively, and 10.78% and 10.91% for the same periods in 2023, respectively.
At September 30, 2024, future minimum payments under the Company’s debt were as follows:
| Amount | |
|---|---|
| Remainder of 2024 | $5,166,000 |
| 2025 | 20,560,000 |
| 2026 | 159,895,000 |
| 2027 | 45,030,000 |
| Total minimum payments | 230,651,000 |
| Less: amount representing interest payments | (37,901,000) |
| Notes payable, gross principal amount due | 192,750,000 |
| Less: unamortized debt issuance costs, net of premium | (6,693,000) |
| Notes payable, net of unamortized debt issuance costs | $186,057,000 |
NOTE 12. LEASES
The Company leases office and laboratory space under non-cancellable operating leases listed below. These lease agreements have remaining terms betweenone toseven years and contain various clauses for renewal at the Company’s option.
| ● | An operating lease for 5,789 square feet of office space in Carlsbad, California, which commenced in January 2022 and will expire in March 2025. |
| ● | An operating lease for 38,153 square feet of lab, warehouse and office space in Ledgewood, New Jersey that expires in July 2027, with an option to extend the term for two additional five-year periods. This includes an amendment, which was made effective July 2020, that extended the term of the original lease and added 1,400 of additional square footage to the lease, another amendment entered into in May 2021 that extended the term of the lease to July 2027 and added 8,900 square feet of space, and another amendment entered into in January 2024 that added 2,861 square feet of space. |
| ● | An operating lease for 5,500 square feet of office space in Nashville, Tennessee, which commenced in January 2020 and will expire in December 2024, with an option to extend the term for two additional five-year periods. The Company does not intend to exercise its option to extend the term of this lease. |
| ● | An operating lease for 11,552 square feet of lab and office space in Nashville, Tennessee, which commenced in September 2022 and will expire in September 2027. |
| ● | In March 2024, the Company entered into an operating lease for 17,625 square feet of office space in Nashville, Tennessee that commenced in August 2024 and has a seven-year term with an option to extend the term for two additional five-year periods. This office space serves as the Company’s new corporate headquarters. Commensurate with the commencement date of the lease, the Company recognized an operating right of use asset and liability of $2,853,000. |
At September 30, 2024, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 7.85% and 10.4 years, respectively.
During the three and nine months ended September 30, 2024, cash paid for amounts included for the operating lease liabilities was $327,000 and $972,000, respectively, and $310,000 and $921,000 for the same periods in 2023, respectively. During the three and nine months ended September 30, 2024, the Company recorded operating lease expense of $414,000 and $1,053,000, respectively, and $309,000 and $926,000 for the same periods in 2023, respectively, which is included in selling, general and administrative expenses.
Future lease payments under operating leases as of September 30, 2024 were as follows**:**
| Operating Leases | |
|---|---|
| Remainder of 2024 | $329,000 |
| 2025 | 1,386,000 |
| 2026 | 1,767,000 |
| 2027 | 1,641,000 |
| 2028 | 1,342,000 |
| Thereafter | 7,971,000 |
| Total minimum lease payments | 14,436,000 |
| Less: amount representing interest payments | (4,429,000) |
| Total operating lease obligations | 10,007,000 |
| Less: current portion, operating lease obligations | (507,000) |
| Operating lease obligations, net of current portion | $9,500,000 |
**NOTE 13. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION **
Common Stock
During the nine months ended September 30, 2024, the Company issued 141,628 shares of common stock and received proceeds of $1,005,000 upon the exercise of options to purchase 141,628 shares of common stock with exercise prices ranging from $1.70 to $25.86 per share.
During the nine months ended September 30, 2024, the Company issued 32,580 shares of common stock upon the cashless exercise of options to purchase 39,237 shares with exercise prices ranging from $1.70 to $8.00 per share.
During the nine months ended September 30, 2024, the Company issued 44,860 shares of common stock upon the cashless exercise of options to purchase 90,000 shares at an exercise price of $7.37. The Company withheld 29,107 shares of common stock for payroll tax withholdings totaling $1,205,000.
During the nine months ended September 30, 2024,45,000 RSUs granted in February 2021 to Andrew R. Boll, the Company’s Chief Financial Officer, vested, and 26,520 shares of the Company’s common stock were issued to Mr. Boll, net of 18,480 shares of common stock withheld for payroll tax withholdings totaling $197,000.
During the nine months ended September 30, 2024,150,000 RSUs granted in February 2021 to Mark L. Baum, the Company’s Chief Executive Officer, vested, and 90,164 shares of the Company’s common stock were issued to Mr. Baum, net of 59,836 shares of common stock withheld for payroll tax withholdings totaling $638,000.
During the nine months ended September 30, 2024,30,000 RSUs granted in February 2021 to John Saharek, the Company’s Chief Commercial Officer, vested, and 17,384 shares of the Company’s common stock were issued to Mr. Saharek, net of 12,616 shares of common stock withheld for payroll tax withholdings totaling $135,000.
During the nine months ended September 30, 2024,50,000 RSUs granted in February 2021 to various other employees, vested, and 32,452 shares of the Company’s common stock were issued, net of 17,548 shares of common stock withheld for payroll tax withholdings totaling $187,000.
During the nine months ended September 30, 2024, the Company issued 57,517 shares of its common stock underlying RSUs held by directors that ceased providing services to the Company. The RSUs had previously vested, including 3,872 RSUs that vested during the nine months ended September 30, 2024, but the issuance and delivery of the shares were deferred until the director ceased providing services to the Company.
During the nine months ended September 30, 2024,34,008 shares of the Company’s common stock underlying RSUs issued to directors vested, but the issuance and delivery of these shares are deferred until the applicable directors cease providing services to the Company.
During the nine months ended September 30, 2024,3,667 shares of the Company’s common stock underlying RSUs issued to consultants vested, but the issuance and delivery of these shares has not occurred.
Stock Option Plan
On September 17, 2007, the Company’s Board of Directors and stockholders adopted the Company’s 2007 Incentive Stock and Awards Plan, which was subsequently amended on November 5, 2008, February 26, 2012, July 18, 2012, May 2, 2013 and September 27, 2013 (as amended, the “2007 Plan”). The 2007 Plan reached its term in September 2017, and we can no longer issue additional awards under this plan, however, options previously issued under the 2007 Plan will remain outstanding until they are exercised, reach their maturity or are otherwise cancelled/forfeited. On June 13, 2017, the Company’s Board of Directors and stockholders adopted the Company’s 2017 Incentive Stock and Awards Plan which was subsequently amended on June 3, 2021 (as amended, the “2017 Plan” together with the 2007 Plan, the “Plans”). As of September 30, 2024, the 2017 Plan provides for the issuance of a maximum of 6,000,000 shares of the Company’s common stock. The purpose of the Plans are to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons in the Company’s development and financial success. Under the Plans, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, RSUs and restricted stock. The Plans are administered by the Compensation Committee of the Company’s Board of Directors. The Company had 53,344 shares available for future issuances under the 2017 Plan at September 30, 2024.
Stock Options
A summary of stock option activity under the Plans for the nine months ended September 30, 2024 is as follows:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |
|---|---|---|---|---|
| Options outstanding – January 1, 2024 | 2,711,317 | $6.25 | ||
| Options granted | 140,000 | $14.72 | ||
| Options exercised | (270,865) | $7.12 | ||
| Options cancelled/forfeited | (100,063) | $13.56 | ||
| Options outstanding – September 30, 2024 | 2,480,389 | $6.33 | 3.44 | $95,807,000 |
| Options exercisable | 2,218,148 | $5.50 | 2.80 | $87,536,000 |
| Options vested and expected to vest | 2,444,924 | $6.21 | 3.36 | $94,733,000 |
The aggregate intrinsic value in the table above represents the total pre-tax amount of the proceeds, net of exercise price, which would have been received by option holders if all option holders had exercised and immediately sold all shares underlying options with an exercise price lower than the market price on September 30, 2024, based on the closing price of the Company’s common stock of $44.96 on that date.
During the nine months ended September 30, 2024, the Company granted stock options to certain employees. The stock options were granted with an exercise price equal to the current market price of the Company’s common stock, as reported by the securities exchange on which the common stock was then listed, at the grant date and have contractual terms of ten years. Vesting terms for options granted to employees during the nine months ended September 30, 2024 included the following vesting schedule: 25% of the shares subject to the option vest and become exercisable on the first anniversary of the grant date and the remaining 75% of the shares subject to the option vest and become exercisable quarterly in equal installments thereafter over three years. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plans) and in the event of certain modifications to the option award agreement.
The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model. The expected term of options granted to employees and directors was determined in accordance with the “simplified approach,” as the Company has limited, relevant, historical data on employee exercises and post-vesting employment termination behavior. The expected risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the 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. For option grants to employees and directors, the Company assigns a forfeiture factor of 10%. These factors could change in the future, which would affect the determination of stock-based compensation expense in future periods.
The table below illustrates the fair value per share determined using the Black-Scholes-Merton option pricing model with the following assumptions used for valuing options granted to employees:
| Weighted-average fair value of options granted | $9.64 |
|---|---|
| Expected terms (in years) | 6.11 |
| Expected volatility | 67.78 - 72.95% |
| Risk-free interest rate | 3.72 - 4.48% |
| Dividend yield | - |
The following table summarizes information about stock options outstanding and exercisable at September 30, 2024:
| Options Outstanding · Options Exercisable | |||||
|---|---|---|---|---|---|
| Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life in Years | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price |
| $1.47 - $1.70 | 31,942 | 2.96 | $1.68 | 31,942 | $1.68 |
| $1.73 | 250,000 | 3.25 | $1.73 | 250,000 | $1.73 |
| $2.23 | 270,000 | 2.34 | $2.23 | 270,000 | $2.23 |
| $2.40 - $2.60 | 14,068 | 2.33 | $2.57 | 14,068 | $2.57 |
| $3.95 | 308,500 | 1.50 | $3.95 | 308,500 | $3.95 |
| $4.49 - $5.72 | 92,300 | 4.86 | $5.53 | 92,300 | $5.53 |
| $6.30 | 285,000 | 4.39 | $6.30 | 285,000 | $6.30 |
| $6.75 - $7.26 | 46,036 | 7.76 | $6.85 | 18,162 | $6.77 |
| $7.30 | 274,500 | 5.26 | $7.30 | 274,500 | $7.30 |
| $7.60 - $39.63 | 908,043 | 3.31 | $9.63 | 673,676 | $8.04 |
| $1.47 - $39.63 | 2,480,389 | 3.44 | $6.33 | 2,218,148 | $5.50 |
As of September 30, 2024, there was approximately $2,071,000 of total unrecognized compensation expense related to unvested stock options granted under the Plans which is expected to be recognized over the weighted-average remaining vesting period of 2.83 years. The stock-based compensation for all stock options was $160,000 and $416,000 during the three and nine months ended September 30, 2024, respectively, and $154,000 and $617,000 during the same periods in 2023, respectively.
The intrinsic value of options exercised during the nine months ended September 30, 2024 was $6,651,000.
Restricted Stock Units
RSU awards are granted subject to certain vesting requirements and other restrictions, including time-based and performance-based vesting criteria. The grant date fair value of the RSUs, which has been determined based upon the market value of the Company’s common stock on the grant date, is expensed over the vesting period of the RSUs.
A summary of the Company’s RSU activity and related information for the nine months ended September 30, 2024 is as follows:
| Number of Shares | Weighted Average Grant Date Fair Value | |
|---|---|---|
| RSUs unvested - January 1, 2024 | 363,029 | $9.23 |
| RSUs granted | 319,081 | 23.93 |
| RSUs vested | (312,674) | 9.84 |
| RSUs cancelled/forfeited | (6,250) | 8.10 |
| RSUs unvested - September 30, 2024 | 363,186 | $21.63 |
As of September 30, 2024, the total unrecognized compensation expense related to unvested RSUs was approximately $7,324,000, which is expected to be recognized over a weighted-average period of 2 years, based on estimated and actual vesting schedules of the applicable RSUs. The stock-based compensation for RSUs during the three and nine months ended September 30, 2024 was $587,000 and $1,494,000, respectively, and was $374,000 and $789,000 during the same periods in 2023, respectively.
Performance Stock Units (Market-Based Vesting)
A summary of the Company’s PSU activity and related information for the nine months ended September 30, 2024 is as follows:
| Number of Shares | Weighted Average Grant Date Fair Value | |
|---|---|---|
| PSUs unvested – January 1, 2024 | 1,567,913 | $18.56 |
| PSUs granted | - | |
| PSUs vested | - | |
| PSUs cancelled/forfeited | - | |
| PSUs unvested – September 30, 2024 | 1,567,913 | $18.56 |
As of September 30, 2024, the total unrecognized compensation expense related to unvested PSUs was approximately $7,277,000, which is expected to be recognized over a weighted-average period of 0.51 years, based on estimated and actual vesting schedules of the applicable PSUs. The stock-based compensation for PSUs during the three and nine months ended September 30, 2024 was $3,638,000 and $10,915,000, respectively, and $3,948,000 and $10,115,000 during the same periods in 2023, respectively.
Stock-Based Compensation Summary
The Company recorded stock-based compensation related to equity instruments granted to employees, directors and consultants as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Employees - selling, general and administrative | $3,728,000 | $3,784,000 | $10,832,000 | $9,719,000 |
| Employees - research and development | 422,000 | 475,000 | 1,300,000 | 1,224,000 |
| Directors - selling, general and administrative | 199,000 | 200,000 | 601,000 | 528,000 |
| Consultants - selling, general and administrative | 36,000 | 17,000 | 92,000 | 50,000 |
| Total | $4,385,000 | $4,476,000 | $12,825,000 | $11,521,000 |
**NOTE 14. COMMITMENTS AND CONTINGENCIES **
Legal
General and Other
In the ordinary course of business, the Company is involved in various legal proceedings, government investigations and other matters that are complex in nature and have outcomes that are difficult to predict. The Company describes legal proceedings and other matters that are/were significant or that it believes could become significant in this note.
The Company records accruals for loss contingencies to the extent that it concludes it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. The Company evaluates, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of a liability that has been accrued previously.
The Company’s legal proceedings involve various aspects of its business and a variety of claims, some of which present novel factual allegations and/or unique legal theories. Typically, a number of the matters pending against the Company are at early stages of the legal process, which in complex proceedings of the sort the Company faces often extend for several years. While it is not possible to accurately predict or determine the eventual outcomes of matters that have not concluded, an adverse determination in one or more of the matters (whether discussed in this note or not) currently pending may have a material adverse effect on the Company’s condensed consolidated results of operations, financial position or cash flows.
Ocular Science, Inc. et. al
In July 2021, ImprimisRx, LLC, a subsidiary of the Company, filed a lawsuit against Ocular Science, Inc. and OSRX, Inc. (together, “OSRX”) in the U.S. District Court for the Southern District of California, asserting claims for copyright infringement, trademark infringement, unfair competition and false advertising (Lanham Act). Since July 2021, the complaint has been amended and OSRX added counterclaims alleging ImprimisRx, LLC is violating the Lanham Act with false advertising. The Court granted cross motions for summary judgement on each party’s Lanham Act claims thus leaving only ImprimisRx, LLC’s copyright infringement, trademark infringement and unfair competition claims for trial. ImprimisRx, LLC is seeking damages from OSRX. The trial associated with this matter began during the month of November 2024 and is ongoing as of the date of this Quarterly Report.
Product and Professional Liability
Product and professional liability litigation represents an inherent risk to all firms in the pharmaceutical and pharmacy industry. We utilize traditional third-party insurance policies with regard to our product and professional liability claims. Such insurance coverage at any given time reflects current market conditions, including cost and availability, when the policy is written.
Indemnities
In addition to the indemnification provisions contained in the Company’s charter documents, the Company generally enters into separate indemnification agreements with each of the Company’s directors and officers. These agreements require the Company, among other things, to indemnify the director or officer against specified expenses and liabilities, such as attorneys’ fees, judgments, fines and settlements, paid by the individual in connection with any action, suit or proceeding arising out of the individual’s status or service as the Company’s director or officer, other than liabilities arising from willful misconduct or conduct that is knowingly fraudulent or deliberately dishonest, and to advance expenses incurred by the individual in connection with any proceeding against the individual with respect to which the individual may be entitled to indemnification by the Company. Several of the Company’s asset purchase and license agreements contain customary representations, warranties, covenants and confidentiality provisions, and also contain mutual indemnification obligations related primarily to performance under the respective agreements. The Company also indemnifies its lessors in connection with its facility leases for certain claims arising from the use of the facilities. These indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities in the accompanying condensed consolidated balance sheets.
Asset Purchase, License and Related Agreements
FDA Approved Product Acquisitions
In recent years, the Company has acquired commercial and product rights to various FDA approved ophthalmic medications and products through asset purchase, licenses, supply and/or other related agreements. In general, in exchange for product and commercial rights these agreements provide the counterparties with certain upfront and contingent milestone payments typically related to certain annual sales amounts and manufacturing events, and in certain cases, per unit transfer prices and royalties on sales of some of the products. During the three and nine months ended September 30, 2024, $730,000 and $2,040,000, respectively, were incurred under these agreements as royalty expenses, and $220,000 and $705,000, respectively, during the same periods in 2023. During the three and nine months ended September 30, 2024, $0 was incurred under these agreements related to upfront and milestone payments under these agreements. During the three and nine months ended September 30, 2023, the Company amended the Sintetica Agreement to allow for early payment of previously accrued amounts for commercial related milestones associated with sales of IHEEZO in exchange for a $550,000 reduction in the milestone amounts due, and as a result of this amendment, the Company reduced the intangible asset value associated with IHEEZO by $550,000 and paid the remaining commercial milestone amount of $4,450,000. As of September 30, 2024, the remaining contingent consideration payable pursuant to these agreements were not considered probable and reasonably estimable and therefore, no amount was accrued related to these contingent obligations during the three and nine months ended September 30, 2024. At the time contingent consideration payable becomes probable and reasonably estimable the additional consideration, if any, paid will be allocated to the assets based on their initial estimated fair values as a percent of the total purchase price.
Formulation Acquisitions
The Company has acquired and sourced intellectual property rights related to certain proprietary innovations from certain inventors, innovator companies and related parties (the “Inventors”) through multiple asset purchase agreements and license agreements. In general, these agreements provide that the Inventors will cooperate with the Company in obtaining patent protection for the acquired intellectual property and that the Company will use commercially reasonable efforts to research, develop and commercialize a product based on the acquired intellectual property. In addition, the Company has acquired a right of first refusal on additional intellectual property and drug development opportunities presented by these Inventors.
In consideration for the acquisition of these intellectual property rights, the Company is obligated to make payments to the Inventors based on the completion of a milestone, generally consisting of: (1) a payment payable within 30 to 45 days after the issuance of the first patent in the United States arising from the acquired intellectual property (if any); (2) a payment payable within 30 days after the Company files the first investigational new drug application (“IND”) with the U.S. Food and Drug Administration (“FDA”) for the first product arising from the acquired intellectual property (if any); (3) for certain of the Inventors, a payment payable within 30 days after the Company files the first new drug application with the FDA for the first product arising from the acquired intellectual property (if any); and (4) certain royalty payments based on the net receipts received by the Company in connection with the sale or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) the Company’s development costs associated with such product. If, following five years after the date of the applicable asset purchase agreement, the Company either (a) for certain of the Inventors, has not filed an IND or, for the remaining Inventors, has not initiated a study where data is derived, or (b) has failed to generate royalty payments to the Inventors for any product based on the acquired intellectual property, the Inventors may terminate the applicable asset purchase agreement and request that the Company re-assign the acquired technology to the Inventors. During the three and nine months ended September 30, 2024, $453,000 and $949,000, respectively, were incurred under these agreements as royalty expenses and $300,000 and $951,000, respectively, during the same periods in 2023.
Sales and Marketing Agreements
The Company has entered various sales and marketing agreements with certain organizations to provide exclusive and non-exclusive sales and marketing representation services to Harrow in select geographies in the U.S. in connection with the Company’s ophthalmic pharmaceutical compounded formulations or related products.
Under the terms of the sales and marketing agreements, the Company was generally required to make commission payments equal to 10% to 14% of net sales for products above and beyond the initial existing sales amounts. In addition, the Company was required to make periodic milestone payments to certain organizations in shares of the Company’s restricted common stock if net sales in the assigned territory reach certain future levels by the end of their terms. Commission expenses of $0 and $130,000 were incurred under these agreements for commission expenses during the three and nine months ended September 30, 2023, respectively.
Contract Manufacturing
The Company has entered into manufacturing agreements with respect to third-party contract manufacturers for its FDA approved pharmaceutical products. Some of these contract manufacturing agreements require minimum annual order amounts. The Company has committed to pay approximately $2,728,000 related to contract manufacturing agreements for the year ending December 31, 2024.
NOTE 15. SEGMENTS AND CONCENTRATIONS
Prior to the three months ended September 30, 2024, the Company operated its business on the basis of asingle reportable segment due to the lack of discrete, precise financial information available to the chief operating decision maker (“CODM”). The CODM does not review segment assets when assessing segment performance and deciding how to allocate resources. During the three months ended September 30, 2024, refinements were made to the financial reporting information and the Company began reporting ontwo reportable segments which were generally determined based on the decision-making structure of the Company and the grouping of similar products and services: Branded and ImprimisRx.
| ● | The Branded segment includes activities of our FDA approved ophthalmology pharmaceutical products, including the out-licensing of rights to certain of our branded products. |
| ● | The ImprimisRx segment represents activities in our ophthalmology-focused pharmaceutical compounding business. |
Segment contribution for the segments represents net revenues less cost of sales, certain general and administrative expenses, selling and marketing expenses, and research and development expenses. The Company does not evaluate the following items at the segment level:
| ● | Selling, general and administrative expenses that result from shared infrastructure, including certain expenses associated with legal matters, public company costs (e.g. investor relations), board of directors and principal executive officers and other like shared expenses. |
| ● | Operating expenses within selling, general and administrative expenses that result from the impact of corporate initiatives. Corporate initiatives primarily include integration, restructuring, acquisition and other shared costs. |
| ● | Other select revenues and operating expenses including research and development expenses, amortization, and asset sales and impairments, net as not all such information has been accounted for at the segment level, or such information has not been used by all segments. |
Segment net revenues, segment operating expenses and segment contribution information consisted of the following:
| Branded | ImprimisRx | Consolidated | |
|---|---|---|---|
| Product sales, net | $28,314,000 | $20,705,000 | $49,019,000 |
| Other revenues | 238,000 | - | 238,000 |
| Total revenues | 28,552,000 | 20,705,000 | 49,257,000 |
| Cost of sales | (5,169,000) | (6,849,000) | (12,018,000) |
| Gross profit | 23,383,000 | 13,856,000 | 37,239,000 |
| Operating expenses: | |||
| Selling, general and administrative | 14,038,000 | 5,427,000 | 19,465,000 |
| Research and development | 212,000 | 84,000 | 296,000 |
| Segment contribution | $9,133,000 | $8,345,000 | 17,478,000 |
| Corporate | 14,180,000 | ||
| Research and development | 1,977,000 | ||
| Income from operations | $1,321,000 | ||
| Branded | ImprimisRx | Consolidated | |
|---|---|---|---|
| Product sales, net | $12,040,000 | $19,769,000 | $31,809,000 |
| Other revenues | 2,456,000 | - | 2,456,000 |
| Total revenues | 14,496,000 | 19,769,000 | 34,265,000 |
| Cost of sales | (3,335,000) | (6,732,000) | (10,067,000) |
| Gross profit | 11,161,000 | 13,037,000 | 24,198,000 |
| Operating expenses: | |||
| Selling, general and administrative | 1,930,000 | 7,703,000 | 9,633,000 |
| Research and development | 37,000 | 159,000 | 196,000 |
| Segment contribution | $9,194,000 | $5,175,000 | 14,369,000 |
| Corporate | 11,400,000 | ||
| Research and development | 1,225,000 | ||
| Income from operations | $1,744,000 | ||
| Branded | ImprimisRx | Consolidated | |
|---|---|---|---|
| Product sales, net | $69,395,000 | $63,003,000 | $132,398,000 |
| Other revenues | 385,000 | - | 385,000 |
| Total revenues | 69,780,000 | 63,003,000 | 132,783,000 |
| Cost of sales | (14,406,000) | (20,704,000) | (35,110,000) |
| Gross profit | 55,374,000 | 42,299,000 | 97,673,000 |
| Operating expenses: | |||
| Selling, general and administrative | 36,034,000 | 17,364,000 | 53,398,000 |
| Research and development | 321,000 | 261,000 | 582,000 |
| Segment contribution | $19,019,000 | $24,674,000 | 43,693,000 |
| Corporate | 40,877,000 | ||
| Research and development | 6,893,000 | ||
| Loss from operations | $(4,077,000) | ||
| Branded | ImprimisRx | Consolidated | |
|---|---|---|---|
| Product sales, net | $21,829,000 | $59,975,000 | $81,804,000 |
| Other revenues | 12,034,000 | - | 12,034,000 |
| Total revenues | 33,863,000 | 59,975,000 | 93,838,000 |
| Cost of sales | (8,396,000) | (19,942,000) | (28,338,000) |
| Gross profit | 25,467,000 | 40,033,000 | 65,500,000 |
| Operating expenses: | |||
| Selling, general and administrative | 4,797,000 | 23,334,000 | 28,131,000 |
| Research and development | 37,000 | 560,000 | 597,000 |
| Segment contribution | $20,633,000 | $16,139,000 | 36,772,000 |
| Corporate | 28,747,000 | ||
| Research and development | 2,719,000 | ||
| Income from operations | $5,306,000 | ||
All revenue is attributable to the United States. All long-lived assets at September 30, 2024 and December 31, 2023 were located in the United States.
Revenues by segment are further described as follows:
| For the Three Months Ended · For the Nine Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| September 30, · September 30, | ||||||||||
| 2024 · 2023 · 2024 · 2023 | ||||||||||
| IHEEZO | $12,882,000 | 26% | $5,927,000 | 17% | $26,498,000 | 20% | $10,073,000 | 11% | ||
| VEVYE | 5,186,000 | 11% | - | - | % | 12,099,000 | 9% | - | - | % |
| Other products (Anterior Segment) | 10,256,000 | 21% | 6,605,000 | 19% | 30,808,000 | 23% | 13,205,000 | 14% | ||
| Other revenue, net | 228,000 | 0% | 1,964,000 | 6% | 375,000 | 0% | 10,585,000 | 11% | ||
| Branded revenue, net | 28,552,000 | 58% | 14,496,000 | 42% | 69,780,000 | 53% | 33,863,000 | 36% | ||
| ImprimisRx revenue, net | 20,705,000 | 42% | 19,769,000 | 58% | 63,003,000 | 47% | 59,975,000 | 64% | ||
| Total revenues, net | $49,257,000 | 100% | $34,265,000 | 100% | $132,783,000 | 100% | $93,838,000 | 100% | ||
Other than IHEEZO, VEVYE, and one ImprimisRx product, no other products accounted for more than 10% of total revenues for the periods presented.
Customer and Supplier Concentrations
Substantially all of the Company’s Branded sales are made to a third-party logistics wholesaler who sells the products to the end-user. There were no customers who comprised more than 10% of ImprimisRx revenues for the three and nine months ended September 30, 2024 and 2023.
As of September 30, 2024 and December 31, 2023, accounts receivable from a single customer accounted for 64% and 80%, respectively, of total consolidated accounts receivable. For the three and nine months ended September 30, 2024, revenues from a single customer accounted for 46% and 42%, respectively, of total consolidated revenues. For the three and nine months ended September 30, 2023, revenues from a single customer accounted for 35% and 23%, respectively, of total consolidated revenues.
The Company receives its active pharmaceutical ingredients from three main suppliers. These suppliers collectively accounted for 50% and 51% of active pharmaceutical ingredient purchases during the three and nine months ended September 30, 2024, respectively, and 96% and 79% during the same periods in 2023, respectively.
NOTE 16. SUBSEQUENT EVENTS
The Company has performed an evaluation of events occurring subsequent to September 30, 2024 through the filing date of this Quarterly Report on Form 10-Q. Based on its evaluation, no events other than those described below need to be disclosed.
In October 2024, the Company entered into the Second Amendment to Credit Agreement and Guaranty with Oaktree (“Second Amendment”). Upon satisfaction of certain conditions to funding, the Company drew down the principal amount of $30,000,000 (the “$30,000,000 Draw”) under a pre-existing commitment under the Oaktree Loan to partially fund a one-time milestone payment to Novartis Technology, LLC and Novartis Innovative Therapies AG (together, “Novartis”). Under its asset purchase agreement with Novartis, the Company made a one-time milestone payment to Novartis equal to $37,000,000 upon the commercial availability of TRIESENCE, which the Company paid in October 2024. In connection with the Second Amendment, the Company incurred approximately $150,000 of costs. In connection with the Second Amendment and following the $30,000,000 Draw, the Company has drawn down a total principal loan amount of $107,500,000 under the Oaktree Loan and no additional principal loan amount remains available to the Company under the Oaktree Loan.
In November 2024, the Company became aware of a cybersecurity incident that involved unauthorized access of an employee’s email account. Through this unauthorized access the threat actor was able to fraudulently divert Company funds to its bank account. The Company, along with its external cybersecurity experts, is continuing to work diligently to fully investigate and assess the impact of the incident and has notified, and is cooperating with, federal law enforcement. As the investigation of the incident is ongoing, the full scope, nature and impact of the incident are not yet fully known.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.