Harrow - Earnings Call - Q4 2024

Executive Summary

• Record Q4 revenue of $66.831M (+84% YoY; +36% QoQ) and GAAP diluted EPS $0.24; Core diluted EPS $0.40; Adjusted EBITDA $22.489M, reflecting strong momentum across IHEEZO and VEVYE.
• Wall Street consensus was materially low: revenue $61.801M vs actual $66.831M (+8.1% beat) and Primary EPS $0.0625 vs actual $0.40; both were significant beats, driven by higher gross-to-net and demand; management launched VEVYE Access For All to sustain ASP and refill growth.*
• 2025 revenue guidance introduced at “over/more than $280M” (>40% YoY growth), with branded margins expected to drive most growth; TRIESENCE pass-through reimbursement begins April 1, 2025, expanding addressable reimbursement sites and supporting H2 acceleration.
• Working capital tightened in Q4: AR up sharply due to extended distributor terms for buy-and-bill products (IHEEZO, TRIESENCE), and FY 2024 operating cash flow was negative; interest expense remained heavy, though management expects operating leverage and plans debt refinancing.

What Went Well and What Went Wrong

What Went Well

• Demand inflection: IHEEZO Q4 revenue was $23M (34% of total) with +43% QoQ unit volume after the Retina Pivot; VEVYE prescriptions grew +44% QoQ, underpinning sequential revenue acceleration.
• Margin expansion: Q4 gross margin 79% and core gross margin 84%; Adjusted EBITDA $22.489M vs $8.808M in Q3, evidencing scale and mix benefits.
• Management confidence: “We closed out 2024 with record financial performance... core gross margins... 84% for Q4 and 80% for the full year 2024,” and “VAFA... guarantees access for eligible patients for as little as $0 to $59 per bottle,” supporting sustained ASP and refill growth.

What Went Wrong

• Working capital build: AR increased as Harrow extended distributor payment terms to allow end-user revenue cycle completion for buy-and-bill products; “AR was up about $68 million sequentially” (analyst), with management confirming extended terms for IHEEZO/TRIESENCE.
• Cash flow and interest burden: FY 2024 operating cash flow was $(22.202)M and total other expense net was $(26.142)M; interest expense for FY 2024 was $22.786M, constraining cash conversion.
• Auditor timing and reporting cadence: Audited Q4/FY results were delayed due to new auditor integration; management committed to avoiding future delays.

Transcript

Operator (participant)

Good morning, and welcome to Harrow's fourth quarter and year-end 2024 earnings conference call. My name is Gigi, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Jamie Webb, Director of Communications and Investor Relations for Harrow.

Jamie Webb (Director of Communications and Investor Relations)

Thank you, Operator. Good morning, and welcome to Harrow's fourth quarter and year-end 2024 earnings conference call. Before we begin today, let me remind you that the company's remarks may include forward-looking statements within the meaning of federal securities laws. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Harrow's control, including risks and uncertainties described from time to time in its SEC filings, such as the risks and uncertainties related to the company's ability to make commercially available its FDA-approved products and compounded formulations and technologies, and FDA approval of certain drug candidates in a timely manner or at all. For a list and description of those risks and uncertainties, please see the risk factors section of the company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.

Harrow's results may differ materially from those projected. Harrow disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of today. Additionally, Harrow will refer to non-GAAP financial metrics, specifically adjusted EBITDA and/or adjusted earnings, as well as core results such as core gross margin, core net income, and core diluted net income per share. A reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company's earnings release and letter to stockholders, both of which are available on the website. By now, you should have received a copy of the earnings press release. If you have not received a copy, please go to the Investor Relations page of the company's website, www.harrow.com.

Join me on today's call are Harrow's Chief Executive Officer, Mark L. Baum, and Harrow's Chief Financial Officer, Andrew Boll. With that, I turn the call over to Mark to go over some prepared remarks prior to the question-and-answer session.

Mark Baum (CEO)

Thanks, Jamie, and good morning, everyone. We appreciate you joining us today. We're also grateful for your flexibility, as it took a bit more time than we would have liked to get our Form 10-K filed this cycle. This was the first annual filing made since our auditor that we had worked with for more than a decade had merged with a new auditing firm. Nevertheless, we're pleased with our presentation, and we pledge to work to avoid such filing delays in the future. The supplemental documents we've provided for many years, including our earnings release, corporate presentation, and letter to stockholders, are now available on the investor relations section of our website. As you also know, now we closed out 2024 with record financial performance, reporting fourth-quarter revenue of $66.8 million. That's a remarkable 84% increase over the fourth quarter of 2023 and a 36% sequential quarterly increase.

We also recorded Q4 net income of approximately $6.8 million and Adjusted EBITDA of approximately $22.5 million for the quarterly period. Strong fourth-quarter results drove a 53% increase in full-year 2024 revenues to a whisker under $200 million at $199.6 million. Adjusted EBITDA increased 43% to $40.3 million. Also, GAAP gross margins floated up because of our strong fourth-quarter results, pushing core gross margins into the 80s, actually 84% for Q4 and 80% for the full year 2024. Demand for our key revenue-driving products remains strong, with unit demand for Iheezo and total prescriptions for Vevye each increasing by more than 40% over the previous quarter. As I said in the letter to stockholders, our record Q4 performance included minimal contribution from Triesence.

Now, beginning in Q2 of this year, particularly following our recent market access wins, I have a high level of confidence that Triesence will play a more significant role in driving revenues and profits, enabling us to meet or exceed our internal 2025 forecast for this key product. Let's discuss a few highlights of our top three products, Iheezo, Vevye, and Triesence, before we open the call up to questions. First, Iheezo. Thanks primarily to our previously announced retina pivot, Iheezo achieved a 43% increase in unit volume in the fourth quarter versus the prior quarter. This was Iheezo's highest quarter-over-quarter revenue growth since its launch in April of 2023. Iheezo produced $23 million in revenue for the fourth quarter of 2024, or 34% of Harrow's total revenues.

Customer unit demand remains on the rise, supported by an impressive reorder rate, new account starts, and positive feedback from physicians and patients regarding the clinical benefits Iheezo offers. Despite being proud of what we've achieved to date and considering there may be some quarter-to-quarter volatility in unit demand, the facts are that we still serve a very small percentage of the cases that could benefit from Iheezo. This leads me to say emphatically that we are just in the early innings of the growth cycle for this product. Now, let's talk about Vevye. This January marked the first anniversary of Vevye's launch. It has been a stellar first year, and the fourth quarter specifically provided a bumper crop of Vevye prescriptions, as we experienced a 44% increase in TRx over the prior quarter.

The Vevye launch experience taught me that there are three keys to winning in the competitive U.S. dry eye market. First, you must have an efficient, highly productive commercial team, what I would call a Cracker Jack commercial team. Salespeople always gravitate to places where they can be effective. They can serve their prescriber relationships well with an outstanding product and, of course, a place that they can make money. We were fortunate to recruit an unstoppable, creative, and experienced team that is a force to be reckoned with. These folks appreciate our strong record of commercial success, and they want to be a part of our authentic and palpable entrepreneurial energy. Second, though, you must have the right product. In the dry eye market, this means a product that works quickly, feels great, and provides long-lasting, disease-modifying relief.

It sounds easy, but believe me, few, if any, of the products that we compete with can check all of these boxes. Vevye, I believe, on the other hand, does check all the boxes. Number one, it has a unique composition. It is the only semi-fluorinated alkane in the U.S. market with an anti-inflammatory active pharmaceutical ingredient, and that distinguishes it in both function and feel. Second, Vevye provides rapid onset of relief, with many patients seeing relief within two weeks. Third, dosing is important, with Vevye being the only semi-fluorinated alkane-based product with twice-daily dosing. The other semi-fluorinated alkane product has double the daily dosing frequency. Finally, tolerability. Vevye's tolerability profile is simply outstanding. We have the right product. As I said, I wouldn't change places with any existing or prospective product in the market. The last requirement is critical.

You must have a smart and modern market access program. Even with the best commercial team and a truly outstanding product like Vevye, you can fail if patients can't obtain or afford your product. Over the past 20 years, many companies in our industry have been lulled into accepting what I would call a pay-for-access rebate system, in which pharmaceutical companies provide rebates to benefit managers to gain access to a formulary. If pharmaceutical companies do not participate in this system, then benefit managers or PBMs can create logistical impediments that prevent patients from accessing their product. Now, we at Harrow don't mind discounts and rebates as long as they benefit patients. Unfortunately, patients haven't historically been on the receiving end of these rebates.

Considering this reality and Harrow's creative entrepreneurial culture, we just launched Vevye Access for All, or VAPA for short, which I believe is the most generous market access program in the U.S. prescription dry eye market. Importantly, discounts on Vevye now directly benefit patients. The program is launched. It is now available through our PhilRx specialty pharmacy partner, and we guarantee access to Vevye for eligible patients and health plans for as little as $0-$59 per bottle. We ensure that every patient can affordably start treatment without prior authorizations and other obstacles like step therapy, all this nonsense. The first week of this program was nothing short of amazing. Our team is now working feverishly to continue and accelerate this momentum.

Harrow stockholders should expect Vevye Access for All to boost prescription volumes, both new and refill orders, and support consistent revenue growth for our Vevye franchise because, once again, we still have such a small share of the overall market. Last two points on Vevye Access for All. First, every Vevye prescription is now profitable for Harrow, and that is without paying rebates for formulary access. Second, in the next few weeks, we're going to stop reporting prescription data to IQVIA. For our stockholders and those interested in becoming stockholders, please be aware that that data will be less accurate and actionable than ever. Here's the bottom line. We have the right team, the right product, and an unbelievable access program that ensures prescribers that their patients will get what they write for.

I think this is an unbeatable combination for prescribers, dry eye patients, and Harrow stockholders. Finally, let's discuss Triesence. I continue to be very excited about Triesence, which is a broad-label injectable steroid that offers compelling clinical and economic benefits to ophthalmologists. I was so pleased to have recently announced that CMS approved our pass-through application. The potential impact of this cannot be understated. Having reimbursement for Triesence now in all sites of care, especially the high-volume ASC and hospital and outpatient department market, positions us to meet and hopefully exceed our internal revenue forecasts. Aside from this, another Triesence market access wins, which I discuss in greater detail in the letter to stockholders, we are investing in several programs that should promote longer-term success with this brand, including supply chain and lifecycle management of the Triesence brand.

On the supply chain side, we signed a five-year strategic supply and development agreement with the U.S.-based contract manufacturing organization that has been making Triesence for the last 15 years. In terms of lifecycle management, we are developing a next-generation version of Triesence, and we aim to submit a new drug application to FDA before the end of 2027. Now, aside from Iheezo, Vevye, and Triesence, other segments of our business, including our specialty branded products and the ImprimisRx business, continue to perform well. Hopefully, after digesting the entirety of the letter to stockholders and our other updated materials, you have a better sense of where our growth is coming from and why we are confident in our line of sight to that growth continuing for many years.

Our ability to leverage what we've built, which is considerable at this point, makes Harrow an incredibly dynamic, exciting, and valuable ophthalmic pharmaceutical company. We are now happy to answer your questions. I will pause to have our operator poll for questions. Operator?

Operator (participant)

We will now begin the question and answer session. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Chase Knickerbocker from Craig-Hallum.

Chase Knickerbocker (Analyst)

Good morning. Thanks for taking the questions, and congrats, guys, on the great results here in Q4. Maybe just a lot to focus on, but I'm going to focus on Vevye here.

Maybe, Mark, help me understand kind of the it seems like there was a pretty big growth to net improvement sequentially with Vevye. By my math, they kind of over 100% kind of uplift. Can you kind of walk me through kind of the different drivers here, just kind of improving market access, or just kind of walk me through the math? You had mentioned you were going to get there in Q3, and you certainly did. Can you just walk me through kind of the specific drivers on that uplift? Is there anything else I'm missing on the Vevye revenue line, kind of the drivers there?

Mark Baum (CEO)

Yeah, sure. Thanks for the question, Chase. You're right. Vevye revenue, I think, what, more than tripled. And you're right. ASP did improve considerably.

I would also call attention to Andrew and I flagging that we had changed some business rules, I think, late last year, and that we anticipated a significant improvement in ASP. I'm happy that you're noticing that, and we certainly delivered on that. The team delivered on that. In actual fact, without getting into the specifics, towards the end of the year, there are fewer copay buy-downs and other factors that allowed for that improvement, along with the business rule changes. There was also a significant improvement in demand. That was a demand change from last year. What I can tell you is everything that we just discussed about the fourth quarter is almost passé, given what we're seeing with the Vevye Access for All program. I'm happy to tell you that you're right. We did see ASP improvement.

We did see massive increase in demand and revenue improvement in the fourth quarter. I think that is just the tip of the iceberg in terms of what that brand and the product is going to deliver this year. We are really, really pleased with what we are seeing with the Vevye Access for All program. Stay tuned for more growth and hopefully even more accelerated growth this year with that brand. That is one of the reasons, obviously, I think, one of the considerations for us falling out of the IQVIA system as well.

Chase Knickerbocker (Analyst)

On that front, Mark, just to maybe get an update on something you said in the last call, you had previously said that Vevye was on track to more than double in 2025. I would love to get your updated thoughts there now that we have a very strong quarter in Q4.

We have Vevye for All here, that program starting. Maybe just kind of speak to what you think that program can do to make it a much simpler access profile for physicians and patients and kind of what that can do for not only kind of prescriptions in, call it, Medicare Part D, but also kind of broader even where you do have coverage.

Mark Baum (CEO)

To be clear, the Vevye Access for All program opens up access to all patients: MedD patients, commercial patients, every patient, rich, poor, good insurance, bad insurance, no insurance. That concept is consistent with the values of our company. I've always said that I want to make products and offer them for the kinds of people that I grew up with who maybe couldn't afford a $700 product per month. We are doing that. We're matching our words with action.

In terms of the market opportunity, I've long since believed that when executives talk about the size of the dry eye market, they mention numbers like 30 million, 35 million in the United States. There could be 8, 9 million moderate to severe dry eye patients. Why is it that less than 2 million of those patients are actually on therapy? Why is it that the over-the-counter market, which is a far lower price point market, has grown markedly over the last, let's say, 10 years? I think a lot of this has to do with access and affordability issues. What we did is design a program that actually reduces the cost to the patient.

We're actually taking less for certain prescriptions, and we're passing those savings on directly to the patient, which sounds like common sense, but it's actually a radical idea in the pharmaceutical industry: lower cost, pass savings on to patients. They do it in every other business, but for whatever reason, it has not been done in our industry. Like I said, the uptake has just been tremendous. We think this expands the market. We want those OTC patients to come back to the prescription market. We think that our product can do more for those patients than an over-the-counter product. For the prescriber, they finally get to prescribe something and not have it switched at the pharmacy. They get to prescribe something and see their patients get the benefit from it.

They get to prescribe something and not hear their patients come back and complain about $300, $400 out-of-pocket expenses. This is an amazing program. It's working. It's new. We have to see how things play out, but it is absolutely being taken up in the market, and it is going to shift the overall projections that we have, I think, internally for this product this year and for many years to come. As I said in my prepared remarks, Chase, we have a very small percentage of the overall market, but this is going to expand the prescription market, and it's going to, I think, dramatically increase our market share within the U.S. dry eye prescription market.

Chase Knickerbocker (Analyst)

Thanks for those thoughts, Mark. Last one from me.

Andrew, I'm trying to get a good look at kind of what we should be thinking of for EBITDA in 2025, maybe just on OpEx growth. I'm at about, kind of call it, 20% kind of SG&A growth in 2025. Do you think that's about the right ballpark? I appreciate the working capital comments in the shareholder letter, but can you give us an idea of what we should be thinking of from cash flow conversion from Adjusted EBITDA in 2025?

Andrew Boll (CFO)

Yeah, Chase, thanks for the question. On the SG&A side, when you look at 2024, especially quarter over quarter, obviously, we had a significant jump in SG&A 2024 to 2023. Looking at 2025, though, you should really look at the second half of 2024 when you're modeling out 2025 as sort of your reference point.

Q3 over Q4, we started to see SG&A slow down. Actually, a lot of the increase in Q4 was variable. It was tied directly to the revenue increase quarter over quarter. I think that trend will sort of continue into 2025. We do not have a whole lot of sort of what we call fixed operating expenses going into the forecast. Obviously, things can change. We are a dynamic company, and we may make pivots here and there as we see opportunities create value. We are really expecting a lot of lift in the operating leverage in 2025, especially year over year. As we think about cash flow conversion, we are a CapEx-like company. I think hopefully we got through this. We extended the terms to the distributor that impacted cash flow in Q4, but we should be sort of through that as we look forward in 2025.

Most of the EBITDA is going to convert other than, obviously, interest expense. I do expect us to start paying taxes in 2025, and so there will be some impact from the tax as well.

Very helpful, Andrew. Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Thomas Flaten from Lake Street Capital Markets.

Thomas Flaten (Managing Director and Senior Research Analyst)

Good morning. I appreciate you taking the questions. Andrew, just on the last point there with the distributor, can you just walk us through the need for that distributor to take extended payment terms? Because it looks like AR was up about $68 million sequentially. Just trying to dig into that a little bit.

Andrew Boll (CFO)

Yeah. It is really tied to the buy-and-bill products, Thomas. You had the introduction of a new buy-and-bill product with Triesence as well in Q4.

Iheezo and Triesence, we really want the end user to complete their revenue cycle before we're asking them for payment. The extended terms really allow that. It became more, I would say, pronounced in Q4, especially with the introduction of Triesence, which is a higher WAC product. We're asking the customer to take a little bit more, I would say, reimbursement risk when they reimbursement and really cash management risk when they take inventory of the product.

Thomas Flaten (Managing Director and Senior Research Analyst)

Got it. Mark, you mentioned in your shareholder letter that there were eight metro markets where Vevye had kind of an outsized market share compared to the overall country. Any commonalities between those metro markets that are good learnings for us? Is it great sales rep, good insurance coverage, maybe both?

Mark Baum (CEO)

No, that data point was kind of an old data point, to be honest with you. It's a data point from probably the third quarter. I think the number of metro markets that would fit into that category today is even larger. I can't really go into specifics about the commonalities of those markets other than to say, as I said, we think we have the right product. We definitely have a phenomenal team. The issue with dry eye is access. We think we've cracked the code to a certain extent in figuring out how to reduce barriers for patients, reduce the logistical burdens for the prescribers, and get our product into the hands of these patients. At the same time, as I said in my prepared remarks, we are making money on every prescription.

We're not giving away and going in the red, for example, on MedD patients, like I think many of our friends are in the ophthalmic space. This is an exciting program. It's working. It's going to drive a lot of value this year, probably, I think, more than we even had anticipated when we did our initial forecasting for 2025. It is new. Let's see how it goes. I look forward on our next conference call to providing an additional update.

Thomas Flaten (Managing Director and Senior Research Analyst)

Got it. One last one, if I can squeeze it in. The Next Generation Triesence, anything you can share with us, like what it is about that product that makes it Next Generation, new formulation, new delivery? What can you tell us about that?

Mark Baum (CEO)

I would, thanks, Thomas. I'd love to tell you, but we're in a really competitive market.

What I can tell you is we've done a lot of market research. We, as you know, talk to our customers. We build relationships and try and understand what they want and need in their practices. We have a high degree of confidence that we can make this, that we can make it in an extraordinarily efficient way for our stockholders. We're not expensing millions and tens of millions, even of dollars, to build this product. We're going to do it efficiently. It's something the market wants, and it's going to give us, I think, a competitive advantage. Remember, I did say when we acquired that product that I believe that we would sell more Triesence in 2035 than we sell in 2025. I said that, I think, probably over a year ago.

This is part of the reason why I was confident that that would be the case. Once again, when we file the NDA, as things go further along, I think our stockholders will be happy with what we're doing with the Triesence brand.

Thomas Flaten (Managing Director and Senior Research Analyst)

I appreciate you taking the questions and congrats on the quarter.

Mark Baum (CEO)

Thank you, Thomas.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann & Company.

Jeffrey Cohen (Managing Director of Equity Research)

Hey, good morning. Thanks for taking our questions and congrats on a strong Q4. Two for us. I guess, firstly, could you talk about, maybe give us a sense of sequential guidance for 2025? Top line, the $280 million plus is tremendous, but any commentary on how that may read out, or should we expect some form of similar cadence to how 2024 read out? Any puts and takes there?

Mark Baum (CEO)

I want Andrew to chime in, Jeffrey, but look, we're trying to provide 40% or better sequential revenue growth. I think we've done that now for three years. To repeat what I've also said in the past, we're probably going to do better on some products and worse on others. On a blended basis, I think Andrew and I have a high degree of confidence in the revenue guidance that we gave. Having in mind that we really do not like giving any guidance at all, I think Andrew and I feel quite comfortable with the better than $280 million number. I think to kind of hitch my wagon to the last answer about Vevye, I think Vevye is very likely to overperform.

Iheezo continues to do incredibly well, and we've only really scratched the surface in terms of the unit volume opportunity with it. Triesence hasn't, frankly, contributed in a material way yet, and I think you're going to see that happen starting in the second quarter. We are set up really well for 2025, and that guide number is something we're really comfortable with. Andrew, do you want to add to that?

Andrew Boll (CFO)

Yeah. And Jeffrey, Mark hinted on it. The really great thing about the business from a financial perspective is sort of that diversity in revenue, especially in the immediate and long term. We've got these products that we have some durability with on IP, especially with Iheezo and Vevye, that's going to take us out for a long period of time. You have the other products in the portfolio and the ImprimisRx business.

There are going to be things that do not perform as well as we hoped, and there are going to be things that really outperform. I think importantly for us and for investors, I think the products that are going to drive long-term value and long-term value creation are those products with the durable IP, and that will take us not only to the next level in 2025, but continue to see growth well beyond 2025 into 2023 and beyond. It is an exciting time for us. I am really excited as a CFO because I think we started to see that operating leverage in Q4 that I have been talking about for a long time. I expect it to continue to really show through in 2025 as the revenue continues to ramp.

This Vevye Access for All program, Mark's been talking a lot about it and the value it's creating, especially in the first couple of weeks that we've seen the growth. That's recurring revenue. I mean, these are refills, recurring revenue. That's what, as a CFO, you dream of, is that long-term recurring revenue stream. It's a really—it's going to be a really exciting time for the business this year and I think in the future.

Jeffrey Cohen (Managing Director of Equity Research)

Got it. That's helpful. Secondly, could you talk a little further about Project Beagle and give us a sense of Klarity-C and PF and the C conversions to Vevye and the ramifications that they may have on ImprimisRx as far as modeling purposes?

Mark Baum (CEO)

Yeah. I talked a little bit about Project Beagle in the letter.

For those who have not read the letter, essentially what we're doing is taking compounded unit volume that typically has a lower margin profile. These are not FDA-approved products. From a regulatory perspective, there are challenges with some of those products or more challenges. We have a large and I think loyal customer base. For many of those compounded products, we're able to offer now, because we've done such a good job, I think, on the supply chain side, an FDA-approved alternative for, in many cases, less money or certainly at the same price. What that translates to the customer is an FDA-approved product instead of a compounded product and no real economic difference, perhaps even some economic savings. For Harrow, it is certainly reduced risk and at this point now increases in profitability. That is an exciting thing to be.

You talk about leverage. We make drug for a lot of cataract surgeries, probably one out of five cataract surgeries in the United States. We are going to be talking more about a specific Project Beagle program. I think in the next two weeks, we will have an announcement out about that, and you will really see how powerful this is. I think you will get a better sense of how what we have built over the last decade or so is going to be leveraged now that we have this 17-branded product portfolio. Finally, I would just say that Melt is another great example of a potential Project Beagle opportunity. I have said this in the past. We will sell about 175,000 MKO Melts this year. That is a compounded product.

If there was an FDA-approved Melt that was reimbursed, it would deliver more revenue for us, and it would replace a fairly modest stream of compounded revenue. In terms of modeling, I think the financial impact is extremely positive for us on some of these products, but it's positive in all of them, even if it's less positive. I think this is something that customers even want as well. Theywould prefer an FDA-approved product over a compounded product.

Jeffrey Cohen (Managing Director of Equity Research)

Super. Thanks for taking our questions. Congrats again.

Mark Baum (CEO)

Thank you, Jeffrey.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Mayank Mamtani from B. Riley Securities.

Mayank Mamtani (Managing Director and Senior Research Analyst)

Good morning, team. Thanks for taking our questions. Congrats also on the results. A few questions from us. Are you able to comment on 1Q trends?

How should we account for some of the expected seasonality impact as we think of walk to your Fifolia 25 guide? Between Vevye and Iheezo, you seem to already be in a $160 million run rate range. Is there a 4Q stocking dynamic we should be modeling? To your point on prepared remarks, the prescription volume data seem to not be very helpful. Any color on 1Q would be great. I have a couple of follow-ups.

Mark Baum (CEO)

We'll give you the full monty on 1Q in a few weeks. What I can tell you is the best way to view our business, and I was thinking about this last night, analysts and stockholders typically use the quarterly convention. They think about things on a quarterly basis. In our industry, there are really two halves to our business.

There's the first half of the year and the second half of the year, especially as more and more of our revenue comes from branded products that are reimbursed. The way I would look at it, if I was a stockholder, is to say, "Hey, with resets in the first quarter, first quarter is typically going to be lighter for some products." We have such a broad portfolio that some products actually do fairly well in the first quarter, especially Vevye as an example, is really setting up well, although we only are going to benefit from a couple of weeks of this Vevye Access for All program. I think as I think about what I've heard from our team in preparation for the second quarter, the second quarter is just a stellar period for us. It was last year, as you recall.

Sort of the same pattern happens in the back half of the year. The third quarter is typically lighter when there are fewer surgeries in the summer season. You saw what we were able to do in the fourth quarter. I like to think of our business in two halves as opposed to quarters. As a public company, we adhere to the quarterly convention, and we'll have our quarterly numbers out in a couple of weeks. Not a couple, but a month.

Mayank Mamtani (Managing Director and Senior Research Analyst)

Yeah. Yeah.

Mark Baum (CEO)

A month and a half or so.

Mayank Mamtani (Managing Director and Senior Research Analyst)

Right. Exciting VAFA announcement, rationale and execution that you talked about. Could you maybe give us a little bit more color on net price and profitability per script impact?

There's some confusion out there on how these may trend going forward, given obviously this is very different than how peers in dry eye market have been doing things.

Mark Baum (CEO)

Yeah. Look, as I've said to some friends, I'm relatively new to this business. I'm new to the branded pharmaceutical world. We make, through our ImprimisRx business, the finest compounded products, I think, in the United States. We built our business on compounding, and we make great products, and our prescribers love what we do. The branded reimbursed world is fairly new to me.

When I started to learn about how so-called market access works and this concept of investing in coverage, when you talk about our peers, and I don't want to name any specific company, but really the way the system is set up for the last 20 years or so, these pharmaceutical companies are paying for access through rebates that don't really benefit consumers. There is a movement, I think, in our country right now towards thinking about things on a common sense basis. I think I may not be the smartest person in the world, but I do have a fair amount of common sense.

We were able to look at market access in the pharma space with a high degree of common sense and deconstruct how things work, work with our partners and our vendors, and we were able to get a cost structure down that allows us to really pass benefits on to consumers and reduce or eliminate prescriber exposure to prior authorizations and step therapy and all this other nonsense. Here's the bottom line, though, and this should be all bold, underlined in caps. The result of Vevye Access for All is not only going to increase access, it's going to reduce all the benefits I've been talking about. I'll bet that six months from now, we have further increases in our ASP. We're going to have more ASP as a result of this program.

We're going to have more units, a higher ASP through what we've been able to accomplish with this program and a lot of patients that are on this terrific therapy.

You can hold me to that. You can hold me to that one, Mayank.

Mayank Mamtani (Managing Director and Senior Research Analyst)

Okay. Will do in six months. Lastly, on your five-year strategic plan, obviously you had a long-term guide number, which it wasn't there in the stockholder letter. If you could give any update to that. Also, obviously, any insight on how you're thinking strategically about Melt, given the 50% ownership you already have, and how do you balance, obviously, the debt, January 2026 coming up, as you think about continuing to be inquisitive on new asset acquisition? Thanks again for taking our questions.

Mark Baum (CEO)

Andrew, do you want to talk about the debt, and I'll talk about the former question?

Andrew Boll (CFO)

Yeah.

Mark Baum (CEO)

On the five-year plan.

Andrew Boll (CFO)

Absolutely. Yeah. On the debt side, Mayank, I think the plan right now is to enter into some sort of refinancing arrangement with either our partners at Oaktree or some other partner. We're going to start that. We have started that process, but really dive into that process over the next couple of quarters. The good news there is we've got great options, and there's been some really receptive feedback to the business and the model on the lending side. I think we love the team at Oaktree, and they've been incredibly supportive of what we're doing and the way we've built the business. There are also other great partners that we've been able to interact with and be introduced to. As the business continues to grow, I think there's some really great options for us on the financing side.

I'm not really worried about the debt. I think we've got a we're well-positioned to have it refied. The business has never been in a better situation. Certainly, from an ability to service the debt, there's no risk there in the immediate.

Mark Baum (CEO)

Yeah. I think, Andrew, it's amazing. Everybody that we've worked with over the last decade that has helped us build this business on the debt side, and I think certainly even on the equity side, they've done pretty well. I think that's one of the reasons why we've got really good options on that. In terms of the five-year plan, Mayank, we don't have to do anything in terms of being acquisitive to continue to grow. We have Vevye. It's doing phenomenal. Price is set up beautifully for the second quarter, and then Iheezo is ripping.

I mean, you saw the growth from Q3 to Q4, and I think you'll see further unit volume growth in 2025 because, as I said, we just have a tiny percentage of the overall market opportunity, and we have an extraordinary team directing the sales efforts on all of those products. We don't need to do anything, but there is a lot of low-hanging fruit out there. We have been inquisitive over the years, and I think to the extent that our potential partners are agreeable, we'll be able to reach some do some deals, hopefully, this year. Melt is one of those. The one thing I would highlight is we're going to try to continue to do things intelligently. We're not going to blow out equity and do stupid financings and destroy shareholder value with any single transaction or series of transactions. A lot of opportunity.

We're excited about the fact that a lot of the big companies have created a vacuum in ophthalmology. We're trying to fill that void and really attain that leadership position that we think we can achieve here over the next few years. The five-year plan is intact. I'm hoping if we can get some of these deals done, we might be able to exceed that, but we'll see.

Mayank Mamtani (Managing Director and Senior Research Analyst)

Looking forward to learning more on that. Thanks again for taking our questions, and congrats again.

Mark Baum (CEO)

Thank you, Mayank.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Yi Chen from HC Wainwright.

Yi Chen (Managing Director and Senior Healthcare Analyst)

Hi. Thank you for taking my questions. Would you be able to give us some color on what percentage of Iheezo prescription volume were used for anti-VEGF injections after your retina pivot? Thanks.

Mark Baum (CEO)

Thank you, Yi, and thanks for the question. We do not provide specific data on how the product is used, but I would highlight that in the third quarter of last year, really actually beginning in the late second quarter of last year, we saw this opportunity following the confirmation from CMS about reimbursement in the office for Iheezo. We invested heavily in this so-called retina pivot. We hired what I would say are world-class commercial people. We have an incredible team. The roster, as I have referred to them, it is the murderer's row, so to speak, of retina commercial people. They are just executing. I think they are doing exactly what we said we would do. The growth is coming, though, to try to answer your question, simply from those anti-VEGF injections. A lot of it is. That will continue. As you know, it is a huge market.

It's north of 10 million units of potential demand per year, really probably closer to 12 million or more. As dry AMD comes on stronger, there'll be more injections. It's an exciting product. The clinical benefits are extraordinary, and we have a team that is out there talking to retina professionals and specialists, and they're bringing the product on, and patients are benefiting from it and preferring it.

Yi Chen (Managing Director and Senior Healthcare Analyst)

Got it. With respect to Melt 300, what is your estimated timeline to the next regulatory milestone?

Mark Baum (CEO)

Yeah. I chair the Melt board, and we're a minority owner of Melt. What I can tell you, and I think this is in the public domain, is they have a SPA with the FDA. They have an agreement with the FDA as to what would be required in order to have an NDA reviewed.

The phase three study that was completed in terms of a safety and efficacy study was the pivotal study required under that SPA. There are a few ancillary studies that the company needs to complete. I might refer to them as perfunctory studies. They are very straightforward, and I think the risk profile of those studies is extremely low. The question is, when is an NDA filing happening? It is probably going to happen, hopefully, around this time next year. It is an exciting product. It is a company we started from scratch, and I think they will be extremely successful commercially because of—we say that because of our experience with the compounded version of that product.

Yi Chen (Managing Director and Senior Healthcare Analyst)

Thanks. Lastly, does your quarterly revenue include stocking of the products by distributors, or is it more reflective of end-user demand?

Mark Baum (CEO)

Andrew, do you want to touch on that?

Andrew Boll (CFO)

I think from a rev rec—yeah, I think so. Yeah, rev rec.

Mark Baum (CEO)

Yeah. Go ahead.

Andrew Boll (CFO)

Thanks, Yi. Yeah. From a revenue recognition perspective on the branded side, we're obviously recognizing revenue at the time it goes to the distributor. With Q4, we did benefit from seasonality, like Mark was talking about, where Q4 is typically a very strong quarter for us. Year over year is going to be typically the strong—or when we're looking at the year as a whole, it's going to be the strongest quarter for us for the year. I do believe there was probably some light stocking on some of the products, but really what drove the revenue number for Q4 was increased demand for Vevye, increased demand for Iheezo and some of these other products. What we're really excited about, though, is these initiatives that we put into place.

We got the pass-through on Triesence. Right? It's going to come live in April. We got the new Vevye Access for All program right here at the end of Q1. I think those two things in particular are really going to help push revenue in 2025 to the next level for us. We will start to see that really be impactful in the second half of the year and certainly in Q2 of 2025.

Yi Chen (Managing Director and Senior Healthcare Analyst)

Thank you very much.

Operator (participant)

Thank you. At this time, I will now turn the call back over to Mark L. Baum for closing remarks.

Mark Baum (CEO)

Thank you, everybody, and thank you for the questions. We appreciate you joining us today. On behalf of our entire leadership team, I want to extend my gratitude to every one of you, our employees, our stockholders, customers, business partners. They have supported us.

You've believed in our vision, and your trust and dedication is really responsible for us in making these achievements in 2024 and I think what we're going to achieve together here in 2025 and beyond. If you have any further questions or you need additional information, don't hesitate to reach out to Jamie Webb at [email protected]. This will conclude our call.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.