Thanks for joining our call today. Shareholders told us they liked our new conference call and shareholder letter format, so we intend to continue to publish an update letter going forward.

With that said, I will highlight a few items and then open up to Q&A. First, though, with the recent coronavirus concerns upheavals in the energy market and the market repricing all assets, professionally as a Harrow investor myself, there are few things I’m thankful for.

First, that we're in the pharmaceutical business and that we're ophthalmology focused, which tends to be fairly recession proof; two, that we have a robust supply chain, no supply disruptions and none on the horizon. Only assurances to customers that our team is there for them; and third, that despite the doom and gloom, which I understand and appreciate, our business has been pretty strong.

What a blessing it is to be profitable, cash flow positive and not need to raise capital. Thematically, 2019 was a period where we plowed the ground for our next leg up for our company and our shareholders.

Our portfolio includes a powerful and valuable group of businesses. Operationally, in Q4 we hit the ball out of the park on gross margins, delivering a year ahead of schedule and with new equipment coming online in a few weeks and additional efficiencies we expect shortly, we should secure the gross margin targets we promise to deliver going forward.

We are a bit behind schedule on revenues because of a one-time event in Q4. But as I discuss in our shareholder letter, we're getting caught up quickly and we have numerous ways to meet or exceed our shareholders expectations.

Financially, we're making money. And as I said, we have no intention to dilute our shareholders.

In 2019, our core ImprimisRx business generated record highs in gross margins and adjusted EBITDA. Ophthalmology revenue grew 40% for the year with 2019 gross ophthalmology revenue equaling $47.7 million for the year and $12.4 million during the fourth quarter.

We expect this growth to continue in 2020 as we sign more supply agreements similar to the ones we've agreed to with VCNA, I owe our partners and I care services partners, but you'll also see us introduce new products to our portfolio, make improvements to our sales force, and hopefully benefit from several other potentially revenue generating initiatives. As I alluded to, gross margins hit a record 72% in Q4, an 8 percentage point improvement from 64% in the fourth quarter of 2018.

For the year we posted 67% compared to 60% for 2018. I believe our production and manufacturing team is on the right path and have the potential to keep gross margin at 70% or higher going forward, which puts us on a par with other ophthalmic pharmaceutical company peers.

Adjusted EBITDA reached a new record high of $4.6 million for the year. And we totaled adjusted EBITDA of $2.1 million in the fourth quarter, another record high for the company finishing the year strong.

Last point on the financials that I want to highlight is a big one for us, because we generated nearly $1.7 million in cash flow from operations during the fourth quarter. This is an important milestone for the company.

We look forward to build off it in the future as revenues continue to grow and we expect to generate more cash flow from our operations during 2020. We have other reasons to be excited about 2020 as well.

Beyond the lookout for significant value milestones from our drug development businesses, Eton, Surface, Melt, Mayfield and Radley, which are discussed in more detail in our shareholder letter. And top of mind in a very positive way is the progress we've made with our Stowe Pharmaceutical subsidiary, which recently completed several studies at a world renowned ophthalmology focused research laboratory on the killing power of STE-006 on various ophthalmic bacteria, fungi and viruses.

For our team, the results we've received have crystallized the great opportunity we see in this business and our ability to develop what I like to refer to as a potential category killer drug candidate. It's not just me who likes Stowe, because other folks who I'd say are much smarter than me, really like it too.

And I look forward to discussing Stowe in more detail in the quarters to come. Before we jump into the Q&A, while I'm truly proud and happy to own interests in all of the businesses we've started, I want to highlight the work we've done building Visionology, which we intend to launch this year.

We've recently agreed to terms with an experienced CEO candidate to run Visionology and he's doing a great job bringing this unique ophthalmology focused eye health platform to life, including making progress with one of Visionology's offerings, which is a novel patent pending formulation being developed to treat presbyopia, a massive market opportunity and one that we believe Visionology will uniquely address. More to come about Visionology.

Finally, many promising companies have been beaten down given the recent repricing of just about every publicly traded company. Having been through a few major cycles over the past quarter century, I know that there are times when one looks back and says, remember when such and such stock was at such and such price, I wish I would have bought it then.

I'm not making the promises, of course, but I believe Harrow is one of those companies and I believe Eton certainly fits into that category as well, and we will see. Without further ado, let's jump into the Q&A.

I'll pause to have our operator poll for questions. Operator?

Hey, good morning. Thanks for taking my questions and congrats on the growth throughout the year.

Just as it relates to the out-of-stock commentary that you had related to the named [ph] patient basis products, I'm assuming that's coming out of your 503A facility. And I was just curious if products like CLARITY were impacted there.

And maybe a little bit of context around what revenue could have looked like for the ophthalmology business had some of those operational issues not taking place?

Yes, thanks for the question, Andy. And in short, the impact was specifically to our 503A patient specific business.

So these are the chronic care formulations and CLARITY-C was impacted as well as other patient specific formulations that we make. And the answer is, frankly, if we wouldn't have had that issue, we would have been in the zone that you probably expected us to be in.

We view this as a one-time event. It has been the -- the software issues have been corrected.

The growth has come back rapidly, which is critical. And we're moving forward and making up on that revenue gap from the fourth quarter.

Okay. And just from a stickiness of customers, just using CLARITY an example, say, that there is issues with them getting their medication when they're expected to.

How sensitive are they to be able to move over to, perhaps FDA approved offerings or other compounded offerings that might be on the market if they're not able to get a refill when needed?

Well, it's a good question. And I think -- I don't -- we haven't studied that.

We haven't done market research. The only thing I can tell you is that when I alluded to this in the shareholder letter, when we had these issues fixed, the response was remarkable.

And I think, in other words, we didn't lose folks. People didn't switch over.

And frankly, they use our formulations because they've very likely failed on those other products. We always ship our products just for what it's worth with additional medication.

So oftentimes patients have extra medication and that's what we believe they used in these cases. But we didn't really lose patients.

We just weren't able to capture that revenue during the period. The patients are back.

And I think what's really important, because as you scale a business, you've got to have the systems and processes in place in order to do that when you're dealing with patient specific orders. In this software that we invested in, that we deployed and that didn't go perfectly on the deployment for sure is now delivering.

And I can tell you that for those patients, including the ones that were had delayed shipments, the ability to process their orders efficiently, literally in a matter of minutes without human intervention in most cases is tremendous for us as we continue to scale the business. So we did have that glitch in the fourth quarter.

The patients service is now online. We didn't lose folks and we're recapturing that revenue.

And I think most importantly, the systems, the processes and the software that we need to scale are in place going forward.

Great. Now that’s really good to hear.

And then on the CMS side, just as it relates to one, Dropless prescribing, maybe let us know where you are as it relates to deploying that? And then I was going through your 10-K and noticed that for certain products you're trying to obtain pass-through status through Medicare Part B.

I was curious on what kind of beneficial impact that could have in 2020 or beyond?

Yes. So the impact from the change in the CMS policy on Dropless has not materialized in a financial way for us.

So far volumes haven't changed. We continue to have the same levels of product sales and revenues from that products.

So it hasn't been impactful. I think the important factor though is that over the last five years, as you know, I've been interfacing with CMS and trying to get some kind of coverage to make sure that patients and surgeons have access to these formulations.

We've invested heavily in that process. And the ImprimisRx team, as I said in our shareholder letter, was able to meet with CMS specifically in the fourth quarter and discussed the opportunity to apply for a pass-through status for one specific high volume formulation.

And based on the outcome of that meeting and the advice of folks who we have a lot of respect for, we made an application. I think importantly, though, because if the application is approved, it's a really big thing for us, a very big thing.

But we'll know on that, we'll know about that. The application has been submitted.

We'll know what the status is by July 1st. So in a matter of a few short months, we'll have a readout on that.

Okay, great. I could ask a ton of questions.

I'll take the most, the rest [indiscernible] two more quick ones that I'll bundle together. First, as it relates to maybe the evolving sales strategy in your letter, it highlighted that you were going to be possibly partnering with other pharmaceutical companies with FDA approved products.

Maybe a little color on the timing and magnitude of that? And then as it just relates to some of the spin out opportunities, Stowe and Visionology, for example, seem to have overlap as it relates just to the end market opportunity.

Now, I was just curious if maybe down the road or currently you’ve even thinking about maybe integrating those two companies, or other potential spinouts into one subsidiary versus multiple, just to make maybe a broader or larger organization when we consolidate it? Thank you very much and good job last year.

Thank you. Thank you, Andy.

In terms of the partnering opportunity or the evolution of the ImprimisRx business model, we do say in our shareholder letter that we're going to be leveraging the ImprimisRx platform this year, shareholders will see that happen. We've built a very robust distribution platform, sales and marketing platform.

We have a lot of customers and we have a lot of loyal customers. I mean, the fact that we had this software glitch in the fourth quarter and things came back so rapidly, I think speaks to the reception that we have when we walk into our customers offices.

And what we believe is that there are a lot of companies out there that have taken ophthalmic products through an FDA approval, but are staring in the face, a very significant sales and marketing cost, a lot of risk related to commercialization. You know, they build sales models and that show that they're going to capture 4%, 5%, 6%, 7% market share, for example, in the cataract surgery market.

And the reality is, is that if I owned one of those products and I was facing those costs and risks and I saw a company like ImprimisRx that could dial me in immediately to that much market share and a lot more, and do it rapidly and efficiently and improve my gross to nets. That's an attractive feature.

That's an attractive partner. And so we've been in discussions with a number of companies like that who are interested in our platform.

And as I said in our shareholder letter, we intend to bring those products and acquire those products, or otherwise make them available through our platform. That's going to increase.

It should increase revenues. It should increase profits.

And it also should create an evolution of the ImprimisRx brand from a compounding specific brand to an ophthalmic pharmaceutical company brand. And so we're excited about that.

And throughout this year, I think you'll see more progress there. In terms of the overlap between Stowe and Visionology, we haven't said a lot about Visionology and I think when we say more, you'll see that there really is not any overlap between Visionology and Stowe in particular.

And so at this time, we continue to see these businesses as separate entities. We also think it's really important from a management perspective that the senior executives focus on the specific business.

So the fellow that will run Stowe has specific -- a specific history of success with those types of assets. And there really is no overlap between Stowe and, for example, Visionology, but we'll have to see going forward.

It may be the case that some of the investors that are helping us fund these businesses see things differently and they want to combine the businesses. So we'll see.

Okay, great. Thanks again and best of luck in 2020.

Thank you.

Good morning, guys. I wanted to follow on with Andy's last question and just ask you a little bit about the product supply agreements you've announced recently and how they relate to your -- what might be described as evolving strategy for ImprimisRx.

And I guess I'd also love to get your sense for whether you think that 72% gross margin number is sort of a baseline, it could go up, it could go down as your strategy evolves. Maybe some comments on that would be helpful, too?

Thank you.

Thanks, Brooks. The -- in the cataract surgery market, really in the ophthalmic space has been a trend towards consolidation.

So we've seen private equity firms come in and buy up premier practices in geographies around the country. They're creating clusters within states and frankly, they're creating even larger constellations between states.

So the trend is towards consolidation in the ophthalmic space. And if you're a private equity firm and you're looking at the math, and in the case of a cataract surgery, for example, you're getting paid a fixed fee and you're looking for a way to provide all of the pharmaceutical products that you need for a particular surgery.

ImprimisRx is a great potential partner. We are a low cost, high quality provider of those types of medicines.

And so we are able to bundle these formulations together to create a pharma pack, we call it a pharma pack for these partners. And as we've -- as the pharma pack is evolved, we've been approached by these firms that own these clusters of practices, and so we've published, I believe, three of the recent agreements that we've signed.

But there have been more. What we wanted to show when we published those agreements is that these are not insignificant numbers.

One partner alone was 2.5% of the U.S. market.

Another one was 2.5%. And so when you start adding this up and you start thinking about the potential revenue impact and profitability, when you have a nice 72% margin, which I think was the same gross margin that Bausch & Lomb put up in the most recent quarter.

So these are really good margins. We have a really good pharma pack and these partners that are consolidating these businesses really like this.

And once again, it ties in with this strategy of bringing in additional FDA approved products, because when you have that kind of market share and you have the ability to distribute products in all 50 states, which is what we have, you're much more than a compounding company. You're an ophthalmic pharmaceutical company with a pretty good reach in a national platform.

And so that's what we're going to leverage. We think it's a really valuable platform.

It's really hard to recreate, it would be very expensive and it would take a long, long time. And we're going to leverage that not only for our shareholders, but we're going to leverage it for these partners going forward.

It's awesome. Sounds tremendous.

I just want to check in and make sure that the transition of any of the Park assets and product has gone smoothly. And in your opinion, is that largely behind us, we will just move forward from here?

Well, by the way, I forgot your other question about margins. The 72% margin is what I thought we could hit.

It's what I expected. I think our team's done a great job and there may be some variability, a few percentage points here or there, but I actually think we can do better over time.

And there is room for improvement, believe me, but I'm really proud of the work the team has done. And I think that margins in this range is what you should expect going forward.

So we did hit that number ahead of time.

Right.

Your other question about Park is really simple. I mean, the park business, we're moving forward.

We said that we were going to recapture half of that revenue and we did. We're there, we did it.

The team did it, and we're excited about that. I think what's important is we said this in the letter as well, that business is growing pretty nice.

And there is this growth happening with that business that we're excited about, actually. And so not only did we recapture what we said we would recapture, I think you'll see even a trend towards growth in that segment of the business over the coming quarters.

Right. I wanted to ask you, Andrew, just a little detailed question about the numbers.

I see in the quarterly numbers, other income $1.674 million. I see up above that in the commentary that you reported, a gain of $2.2 million from the increase in fair value of Eton common shares.

Honestly, I'm just trying to calculate something that might represent an operating EPS number, Andrew. Can you help me and maybe help me understand the difference between the $2.2 million other expense and the $1.674 million that you recorded in the income statement?

The big difference is interest expense.

Okay. So the operating EPS was like, what was it like $0.375 or something?

Yes, operating income for the quarter was $918,000.

Yes.

And then we had our interest expense that was netted against the investment gain from Eton and equity losses from Melt and Surface, primarily.

Yes. Okay.

Last question for me and I appreciate all the information. If I was reading at least part of the letter quickly and accurately, you seemed pretty enthusiastic about what's going on.

Now, maybe you can just elaborate a little bit about your excitement there and appreciate all the color. Thank you very much.

Thanks, Brooks. The truth is, I just -- I'm really excited about Eton as well.

I think Eton is going to surprise people in a really great way. And the rest of the business is Surface, as I said in the letter.

You've got Phase 2 data. You've got great public company comps, company just raised north of $100 million as a comp recently at a pretty good price.

We own 30% of that business and a beautiful royalty. And Melt is another one.

Greg is doing a fabulous job. The business is progressing.

We will have an IND filed. We're going to get into the clinic this year.

And once again, you've got a really nice public company comp. If you look at Pacira, for example, they have one product, effectively one main technology, and they started with one indication and they've moved on from indication to indication.

And when we look at the potential opportunities for conscious sedation and analgesia with these multi patented formulations that Melt is developing, we see a tremendous opportunity. And Greg, the CEO just did a marketing study in the past three months or so.

And the data from the physicians, the prescribers, the users was overwhelming. Patients not only want this, but the physicians and the facilities want access to a formulation like the Melt.

And so, owning 44% of that business and a really nice royalty is a good thing for Harrow shareholders. But you're going to see good things with the other subsidiaries as well.

I think Stowe is probably -- has the potential to be the most valuable business we've built and more will come on that. So there are a lot of ways to win with our company, and we're looking forward to talking more about them over the coming year.

Great, Mark. Thanks very much.

Congratulations on all the progress.

Thank you, Brooks.

Thanks, Brooks.

Thanks again for attending our call today. And I hope this new format continues to provide shareholders with better insight into our progress and the outlook for the future of our business and businesses.

If you have any investor related questions, please do not hesitate to contact our Investor Relations Associate, Jon Patton. His direct phone number 858-704-4587.

This will conclude our call. Thank you.