Just Released
1. U.S. DEPARTMENT OF JUSTICE INVESTIGATED DEXYCU SALES & MARKETING PRACTICES
2. FDA HURRICANE: REGULATORY MEETING, RECALL, INSPECTION, WARNING LETTER
3. HROW LICENSED UNPOPULAR LEGACY NOVARTIS DRUGS WITH LITTLE/NO RX GROWTH
4. IHEEZO FACES ESTABLISHED COMPETITION – FDA APPROVED COMPOUND SINCE 1955
5. LOSSES FROM PREVIOUS DRUG INVESTMENT FAILURES – HISTORY OF BAD ACTORS
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February 22, 2023 - SHORT HARROW HEALTH ($HROW)
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Harrow Health, Inc. (“Harrow”, “HROW”) primarily sells ophthalmic prescription pharmaceuticals (“drugs”) using the ImprimisRx brand in the United States. Historically Harrow sold only bespoke compound drugs mixed at its compound pharmacies. In the past decade compound pharmacies have come under increased scrutiny due to fatalities from quality control issues without regulatory oversight. In recent years, Harrow tried to transition from a bespoke compound pharmacist to become a pharmaceutical development company through a variety of initiatives such as:
• Signed a deal with EyePoint Pharmaceuticals, Inc. (“Eyepoint”) (Nasdaq: EYPT) to sell, market, and promote Dexycu, EYPT’s drug approved by the Food and Drug Administration (“FDA”).
• Acquired a total of nine (9) licensed drugs from Novartis AG (“Novartis”) (NYSE: NVS) in two separate transactions paying over US$ 215 million in December 2021 and January 2023.
• Received FDA approval for another licensed drug, Iheezo, an ocular anesthetic in September 2022.
• Invested in drug development entities and spin-offs since 2017.
While investors have bought into the story of change, our findings suggest that at best, Harrow is an unprofitable stock promotion neglecting risk disclosures and quality control standards at its compounding pharmaceutical operations.
1. U.S. Department of Justice (“DOJ”) Investigation into Dexycu sales practices: In August 2022, Eyepoint received a DOJ subpoena seeking the production of documents related to sales, marketing, and promotional practices related to Dexycu. Harrow did not disclose this subpoena to investors despite being the responsible party for Dexycu sales, marketing, and promotional practices.
2. Harrow has not disclosed to investors recent FDA actions: In June 2022, Harrow received a FDA Warning Letter for false and misleading marketing claims. In August 2022 Harrow received a FDA Form 483 inspection report which cited unsanitary conditions and drug quality issues. Harrow did not disclose any such actions to investors. A few months later following these actions, the company issued a nationwide recall with the FDA.
3. Acquired Novartis drugs show abysmal growth: We reviewed Rx unit growth reported for Harrow’s nine licensed drugs from Novartis. Despite Harrow’s claim that sales of the FDA-approved Novartis drugs are an exciting growth opportunity, our research showed that these drugs have suffered from a massive decline in Rx unit fulfillments due to competition from alternative branded and generic drugs. To us, this suggests that Harrow licensed unpopular legacy Novartis drugs with little Rx unit count growth.
4. Iheezo does not look like a beacon of growth: Despite Harrow’s bullish comments about Iheezo, we expect the first branded ocular anesthetic in 14 years to have a tough time becoming a successful growth story. Iheezo’s compound was initially approved by the FDA in 1955 (~68 years ago) and faces established competition in a very mature category that shows little Rx unit count growth.
5. Off balance sheet drug development entities filled with losses: In recent years, Harrow made five off balance sheet investments into former Harrow subsidiary spin-offs (the “Fab Five”) generating significant losses for Harrow shareholders. One of Harrow’s investments, Surface Ophthalics (“Surface”), was written down to zero as of FYE 2021. Another Harrow investment, Melt Pharmaceuticals (“Melt”) filed and withdrew its S-1, implying limited interest since September 2022. These investments follow a similar pattern whereby Harrow insiders receive personal stock incentives in, employment and consulting fees from, Harrow’s former subsidiaries to enrich themselves.
Harrow burns cash from operations and relies on external financing for survival. We think Harrow did not disclose to investors the existence of a DOJ investigation because it would have compromised Harrow’s ability to raise capital. With significant liabilities managed by bad actors willing to enrich themselves at the expense of minority Harrow shareholders, we are short Harrow and think its stock is going lower.