Prepared remarks
Good day, and welcome to the Harrow Third Quarter 2025 Earnings Conference Call. As a reminder, this call may be recorded. I would like to turn the call over to Mike Biega, Vice President of Investor Relations and Communications. Please go ahead.
Thank you, operator. Good morning, and welcome to Harrow's third quarter 2025 earnings conference call. My name is Mike Biega, Vice President of Investor Relations and Communications, and I'm excited to be introducing today's call. Similar to our last quarterly call, we will be presenting slides during the webcast today. If you have registered and joined through the live conference call link, I would highly recommend that you also join through the webcast. You can find the link in the Investors Section of our website at www.harrow.com or in our earnings press release that was issued yesterday. 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 technology 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. Now joining me on today's call are Mark L. Baum, Chief Executive Officer; Andrew Boll, President and Chief Financial Officer; and Patrick Sullivan, Head of Commercial. With that, I would like to turn the call over to Mark.
Thanks, Mike, and good morning to everyone. Thanks for joining us today. As always, please review our supplemental documents for the third quarter, including our earnings release, corporate presentation and Letter to Stockholders, all of which are now available on the Investor Relations section of our corporate website. During this call and in future quarterly conference calls, I'm pleased to have Pat Sullivan, Harrow's Head of Commercial, join us. Next quarter, I intend to have our Chief Scientific Officer, Amir Shojaei, join us as well. Today, Harrow is one of the leading providers of ophthalmic disease management solutions in North America. Our portfolio helps manage both front and back of the eye conditions. And I believe we are the only ophthalmic company in the world to offer branded, generic, over-the-counter, compounded and biosimilars, literally every legally available type of ophthalmic medication. At the center of everything we do is our vision to become the next great U.S. ophthalmic company. Now 12 years into building this patient and physician-centric business, I believe we're still just getting started. Our key products are in their early stages of launch with tremendous and durable growth ahead as adoption continues to accelerate. Over the next 2 years, we have 4 new product launches scheduled, each representing a significant opportunity to expand our reach, strengthen our leadership and pave the way for even greater growth in the future. I am particularly proud of the fully scalable commercial infrastructure we've built, which will soon support multiple launches and continued expansion without requiring heavy additional investment. Combine that with a low-risk, capital-efficient pipeline development and M&A strategy and it's clear, Harrow's growth and market impact are in their infancy. Now our momentum continued during the third quarter with rising revenue and clear evidence of the operating leverage in our business model. As I've mentioned before, some areas of our business will overperform while others may lag, sometimes due to seasonal factors. And the third quarter was no exception. What matters most, though, is the overall trajectory of the business and that trajectory remains very strong. Our key growth engines such as VEVYE, IHEEZO and to a certain extent, beginning very recently, TRIESENCE are rolling and momentum continues to build across the business, especially as we approach the launch of the Samsung biosimilar portfolio and conclude the acquisition of Melt Pharmaceuticals, which I'm very excited about. Now VEVYE and IHEEZO continue to lead the way and are on track to finish the year very strong. In fact, 2025 is expected to be a record year for both products. They've shown consistent momentum and continue to drive the majority of our growth. Driven by strong demand and best-in-class clinical performance, VEVYE delivered 22% quarter-over-quarter revenue growth. Perhaps a key highlight of my remarks, though, should be the news that we have recently signed agreements with several leading national payers for VEVYE. Beginning in January 2026, only a couple of months away, VEVYE will be listed on multiple new formularies with preferred product status, including the largest U.S. pharmacy benefit manager. This means that certain products are becoming uncovered and that creates an opportunity for prescription transfers. And going forward, VEVYE will be covered on those formularies. This particular pharmacy benefit manager covers tens of millions of lives and I view this as a major development for VEVYE and for Harrow. With major improvements in coverage and the addition of Apollo Care and Alto joining our specialty pharmacy network this quarter, we expect a higher proportion of patients will receive VEVYE as a covered therapy. These advancements strengthen VEVYE's market access foundation and fuel continued prescription growth, resulting in an improved ratio of covered to cash pay prescriptions. This includes estimates of current cash pay patients who are likely to convert to covered prescriptions and that gives us confidence in VEVYE's pricing stability and long-term growth. IHEEZO also had an excellent quarter, delivering 20% quarter-over-quarter revenue growth. That's an impressive performance, given the typical seasonal slowdown for that product in the third quarter. Meanwhile, TRIESENCE in our rare and specialty portfolio underperformed this year, as I talk more about in our stockholder letter and that also included the third quarter. The good news, though, is that we have the right leadership and strategies in place, I believe, to get both on track in short order. TRIESENCE, in particular, is gaining traction in retina. And as of October of this year, we launched it in its largest market opportunity yet, ocular inflammation. Our rare and specialty portfolio also has new leadership and they are supporting our Harrow Access for All program, which is positioned to return this portfolio to growth, beginning in the fourth quarter and into 2026. Please review the Letter to Stockholders for more specific thoughts, though, on TRIESENCE and our rare and specialty products portfolio. We also made important strategic moves this quarter as we work to complete the acquisition of Melt Pharmaceuticals and its non-opioid procedural sedation candidate, MELT-300 and we also expanded our Access for All model across our entire ophthalmic portfolio. We're also preparing for 4 product launches over the next 3 years, BYOOVIZ, OPUVIZ, BYQLOVI and MELT-300, which I'm particularly excited about. In short, our strategy is bearing fruit. We're executing with discipline, scaling with purpose and building a company defined by innovation, access and sustainable growth, creating meaningful, long-term value for both patients and shareholders. Before I hand it over to Andrew, I want to take a moment to address our ImprimisRx business in California, where, as many of you know, we have been engaged in a dispute with the California Board of Pharmacy for many years. ImprimisRx remains licensed to operate in California, but its license is up for renewal on December 1, 2025. We are actively communicating with the California Board towards a global resolution, which would include a renewal of our license. Because these discussions are ongoing and frankly, no outcome can be certain, I can't comment on other specific details, but this is top of mind for us and we believe a solution may be at hand. As more information becomes available, we will communicate with our stockholders. With that, I would like to now turn it over to our President and Chief Financial Officer, Andrew Boll.
Thanks, Mark. And thank you to everyone joining the call today. Turning now to our financial performance. Total revenue for the third quarter was $71.6 million, representing a 45% increase over the same period in 2024 and a 12% sequential increase from the second quarter of this year. For the first 9 months of 2025, total revenue reached $183.2 million. We remain firmly on track for another strong year of revenue growth, advancing toward our long-term financial targets with disciplined execution. Based on what we're seeing across the business today and which I'll walk through in greater detail on the next slide, we are updating our full year revenue outlook to a range of $270 million to $280 million. While hitting our original target of over $280 million is still within reach, we want to take a slightly more conservative approach and update guidance to a range we believe we can deliver on. Adjusted EBITDA for the third quarter was $22.7 million with GAAP-based net income of $1 million. Operating expenses continue to be relatively stable quarter-to-quarter and we are seeing more operating leverage manifest itself within the new revenue gains. As we continue to scale, our ability to translate revenue growth into earnings remains a core strength of Harrow's model. As we advance into the fourth quarter, we expect to see operating expenses moderately increase as further investments are made in our commercial infrastructure to accelerate sales and that trend should continue into 2026. Let's turn to our product performance. VEVYE continues to outperform, generating approximately $22.6 million in revenue during the third quarter. This is a 22% increase from the second quarter of 2025. This revenue increase was driven on continued increase in unit volumes year-over-year and quarter-over-quarter. VEVYE is set up for a record fourth quarter. October hit an all-time high in prescriptions and that momentum has carried right through the first week of November. Q4 was VEVYE's strongest period last year. And with the trends we're seeing, I'm confident we're on track to finish near our $100 million annual revenue target for 2025, with additional meaningful growth expected in 2026 as improved coverage kicks in and we further invest into VEVYE's commercial infrastructure to fuel the next phase of growth. Turning to IHEEZO. Revenue for the third quarter came in at $21.9 million. This is up 20% from the second quarter. As we've seen in prior years, the third quarter tends to be seasonally softer due to the July and August slowdown as both patients and physicians take time off. That said, demand rebounded sharply in September and remained strong through October. IHEEZO has significantly outperformed our expectations this year and is also on track for a very strong fourth quarter and a record year. The fourth quarter has historically been IHEEZO's highest volume quarter, supported by end-of-year ordering patterns and stocking activity, and we've already seen large orders placed early in the period. Based on those dynamics, we expect IHEEZO to deliver a strong close to 2025. Our TRIESENCE and broader specialty branded portfolio generated $6.9 million in revenue. This is a 33% sequential increase. As Mark discussed and highlighted in our Letter to Stockholders, with new leadership in place, a dedicated sales force, the launch of Harrow Access for All and TRIESENCE's launch into ocular inflammation, we now have the focus and strategies in place to reignite growth starting as early as the fourth quarter of this year. ImprimisRx products continue to provide stable recurring revenue, generating approximately $20.1 million of revenue in the third quarter. As Mark mentioned earlier, if we are unable to resolve the dispute with the California Board of Pharmacy, we may see a minor impact on ImprimisRx's fourth quarter revenue. In addition, ImprimisRx had an inventory shortage during the month of October, causing a one-time decrease of about $4 million to $6 million in its revenue for the fourth quarter. In summary, we are fully focused on achieving our third consecutive year of 40% or higher annual revenue growth with all hands on deck across the organization. VEVYE and IHEEZO are both positioned for a strong finish to the year and a record quarter. However, given the certain near-term factors, we're updating our full year outlook to a range of $270 million to $280 million. While our original target is still within reach, this new range is one I believe we can deliver on based on where we are today. That said, the fundamentals of our business remain strong and I couldn't be more confident in the long-term growth trajectory. Looking ahead, following what we expect to be a strong fourth quarter, we anticipate a typical seasonal decline from Q4 2025 to Q1 2026, likely consistent with the pattern we saw earlier this year. This doesn't mean that we won't achieve record results next year, which is what we expect to happen. However, we want to establish that Q1 presents a seasonality that we need to consider. I'll provide more color on the magnitude of that dynamic when we report full year results, including the expected impact from the fourth quarter stocking activities.
Thanks, Andrew. My responsibility as Harrow's commercial leader is crystal clear: unlock the massive commercial potential in our portfolio and position Harrow for sustained, profitable growth. As many of you know, I've been in this role for less than 6 months, but I am not new to commercial leadership, building successful teams to execute thoughtful strategies and ultimately delivering extraordinary results. I would like to highlight the 5 commercial priorities that will drive my team's efforts. First, we're activating our advanced key account management initiative. This is about deepening relationships with high-value accounts, fueling trial, accelerating adoption and building long-term loyalty across the brands. Second, we're elevating our focus on driving depth and breadth, expanding our reach to more prescribers and new accounts while going deeper within existing users. This is key to unlocking the full potential of our portfolio. Third, we have a scalable investment model across the commercial organization, one that allows us to grow efficiently, invest intelligently and maximize return on every dollar spent. Fourth, we're expanding awareness of our Harrow Access solutions program to ensure a smooth and positive experience for both eyecare professionals and their patients. Removing barriers to access remains a cornerstone of our strategy. And finally, we're sustaining operational discipline and stability, maintaining an efficient cost base while continuing to execute at a high level. These commercial acceleration priorities position us to drive stronger adoption, profitable growth and continue our journey as an emerging leader in the ophthalmic market. VEVYE continued to strengthen and expand its position in the dry eye market during the third quarter, delivering strong and sustained growth. Our commercial strategy is working. We're seeing increasing physician confidence, excellent patient outcomes and faster, more affordable access to therapy. By the end of September, we saw a 36% increase in prescribing physicians, a strong indicator of continued growth and expanding physician adoption. Our VEVYE Access For All initiative remains a key enabler of growth for VEVYE, simplifying the patient experience and fueling demand. Starting in January, VEVYE will appear on several new national formularies with preferred status, including the largest pharmacy benefit manager in the United States. VEVYE's improving coverage serves as another catalyst to expand utilization among eyecare physicians and among more patients with dry eye disease. We anticipate that these increased coverage wins, many current cash pay patients will take advantage of VEVYE's improved coverage in their plans. We also expanded our specialty pharmacy network. PhilRx handled all prescriptions in Q3, while Apollo Care went live in Q4 and AltoRx will follow later this quarter, steps to further improve patient access for patients. Combined with the broader payer coverage coming in 2026, these developments favorably position VEVYE for continued growth and pricing stability. Let's look at VEVYE's outlook. Looking at the chart on the top left, the picture is clear. The dry eye disease market is large, active and growing. The branded segment is the key driver for growth in the overall market. By the end of the third quarter, VEVYE captured 10.5% of the total dry eye market, up 2.7 share points from the prior quarter, effectively doubling its market share in just 2 quarters. It's a clear sign of strong, sustained growth and proof that our strategy is delivering results. Our goal remains the same: to make VEVYE the number one prescribed cyclosporine therapy in the U.S. and we're making steady progress toward that. We're building momentum every quarter, increasing adoption, improving access and expanding coverage and we remain confident in our path to becoming the leading cyclosporine therapy in the dry eye space. Looking ahead, we're focused on accelerating growth through both depth and breadth, deepening utilization with existing eyecare physicians while expanding use among new physicians and their patients. Now that we are comfortable with our supply, we are also preparing for the next phase of expansion with plans to invest in VEVYE's commercial infrastructure and open 10 additional sales territories to fuel the next phase of growth. We anticipate that more territories will open during the first half of 2026 and we are going to focus on markets served by the new plans that will cover VEVYE. The momentum behind VEVYE is clear. With growing adoption, strong clinical outcomes, a patient-centric access model and improving coverage, we're just getting started. VEVYE has doubled its market share over the past 2 quarters and with new investments in our commercial infrastructure to support the next phase of expansion, the opportunity ahead is tremendous. I'm confident our team is fully aligned and focused on making VEVYE the new standard of care for dry eye disease. Let's look at IHEEZO. IHEEZO had another excellent quarter. Unit demand was up 47% from last year and 3% sequentially. That's strong, sustained growth and continued proof that IHEEZO's value proposition is resonating in the market. As expected, the third quarter followed normal seasonality, a brief slowdown in July and August, but demand rebounded quickly in September and continued through October. With a large order already placed in October, entering its strongest quarter of the year when we typically see increased stocking activity, IHEEZO is well positioned for a strong finish to 2025 and real momentum heading into 2026. Our strategy is working exactly as planned. The retina pivot we executed last year, along with our new IHEEZO For All education initiative is driving awareness, engagement and adoption across retina practices. Nearly half of the accounts ordering IHEEZO this year are brand new, a clear sign that we're expanding reach and deepening loyalty. With an 86% reorder rate, IHEEZO is not only winning new users, but also keeping them, a strong foundation for sustained growth ahead. Looking ahead, we're still just scratching the surface of IHEEZO's potential. We're in the very early stages of this growth story and the opportunity ahead is tremendous. Our retina team is focused on both driving both breadth and depth, reaching new accounts and deepening relationships with existing customers and expanding awareness among retina specialists. As adoption continues to grow, we're confident that IHEEZO will become an even stronger growth engine for Harrow, especially once we introduce our biosimilars starting in mid-2026. Shifting to TRIESENCE. TRIESENCE is showing real progress in the retina market. The trends we're seeing now indicate an acceleration in adoption and growing traction across the retinal community. Since relaunching TRIESENCE last October in 2024, there has been a 4x growth factor with significant headroom remaining. TRIESENCE unit demand grew 67% sequentially. Importantly, more than half of the accounts ordering TRIESENCE in the third quarter, about 53% were new customers. That tells us our reach is expanding and physicians are responding to TRIESENCE strong clinical performance and favorable reimbursement profile. With its proven safety, excellent efficacy and broad payer coverage, TRIESENCE is well positioned to continue gaining share in the retina market. The big news is our official launch of TRIESENCE into the ocular inflammation market, the largest and most promising opportunity for the brand to date. We're still early in the launch, but the response from the field has been encouraging. Physicians are giving strong, positive feedback and early utilization trends are moving in the right direction. The early traction reinforces exactly what we believe from the start that TRIESENCE delivers real clinical value and fits seamlessly into physician workflows. We see this launch as a true catalyst, opening a major new growth channel for TRIESENCE. With proven safety, strong efficacy and broad payer coverage, TRIESENCE is gaining traction in the retina market and has just entered its largest opportunity yet, ocular inflammation with positive early feedback. As awareness builds and adoption expands, I'm confident TRIESENCE will become a key growth driver and increasingly important contributor to Harrow's leadership in ophthalmic care. Turning to Rare & Specialty products. This is an area of untapped potential for Harrow. Earlier this quarter, we're excited to welcome Tom Pertallo as the Vice President of this segment. Tom brings deep commercial experience and a proven track record of driving growth, and his leadership comes at exactly the right time as we work to unlock the full value of this portfolio. Right now, these products represent less than 1% of the total market volume, which means the upside is significant. With Tom leading the charge and a dedicated sales force being built to focus exclusively on this business, we're tightening execution, reenergizing our commercial approach and positioning these brands to return to growth. We're also launching the Harrow Access for All program this quarter, which will improve affordability and expand patient access, key levers to drive sustainable growth across the portfolio. This portfolio once generated nearly $10 million in quarterly revenue and we see a clear path to reignite that growth and ultimately exceed those levels. With strong leadership now in place, renewed focus and clear strategies in place, I'm confident this business is positioned to return for growth and deliver stronger, more consistent performance moving forward. To close, I couldn't be more excited about where Harrow is headed. We're still very early in the growth stage across all of our key growth drivers with significant catalysts and ample room for further growth. We are well positioned for our next stage of growth. Our commercial momentum is strong. The plan is clear and the opportunities in front of us are huge. In dry eye, VEVYE continues to lead the charge, expanding its share, broadening access, improving coverage and deepening adoption among prescribers. In retina, we're strengthening relationships, expanding awareness and gearing up for 2 major launches, BYOOVIZ in mid-2026 and OPUVIZ in mid-2027. In the Surgical segment, we're building a differentiated portfolio that supports the perioperative space, delivering efficiency and value for practices. In Rare & Specialty, new leadership, a focused plan of action and the launch of Harrow Access for All, are unlocking the potential of a diverse portfolio that represents less than 1% of its addressable market today. The opportunity across these 4 segments is tremendous. With best-in-class products, a scalable commercial platform and a disciplined strategy for execution, we're building a company with durable, long-term growth potential. Harrow's path forward is clear, stronger execution, expanding leadership and sustained momentum across every part of the business. With that, we can turn it over to the operator for Q&A.
Questions and answers
Our first question comes from Jeffrey Cohen with Ladenburg.
Congrats on the quarter. A couple from our end. Firstly, could you talk about VEVYE prescription data and why we don't see it this quarter?
Jeff, this is Mark. What we decided to do is to make sure that we have the most accurate information available. As you know, we withdrew from some of the reporting services, some of the data reporting services a few quarters ago. And it's really important that we have confidence, absolute confidence that what we're putting out is accurate as possible. And from our perspective, I think the key metric was revenue generated from these products and not necessarily IQVIA data or data from a data feed that may or may not be completely accurate. So because of that, we decided to change the way that we're reporting. Andrew, do you want to add to that at all?
Yes. The only other part of that to add to what Mark was saying is really one of the reasons we're pulling out of these third-party aggregators was for competitive reasons. And so if we're doing that, it didn't really make sense to us to present the data and make it available to all of our competitors in our earnings release. That's driven a lot of the decision-making with presentation of the TRx data. But to Mark's point, we're going to do our best to be transparent about the progress of VEVYE without giving up competitive positioning.
Okay. That's perfect. And then secondly, maybe for you, Andrew, could you talk about the leverage that you're achieving? You had some pretty nice leverage on the SG&A in the third quarter. But as you continue to expand your commercial teams, how should we think about leverage overall into 2026, mainly as a percent of revenues?
Yes. And this has been a topic for us that we brought up for a long time now where we expected to see operating leverage, especially this year in the model on the new revenue growth we expected. We spent a lot of money on the operational and commercial infrastructure to support the branded group. That is mostly in place and we're seeing that leverage show up in the numbers. Obviously, Q3, we had great adjusted EBITDA just under $23 million. The business is producing a lot of cash, I think about $16 million of cash in the third quarter from operations. And as we look out, Pat talked a little bit about adding to that commercial infrastructure to drive revenue. The additional OpEx that we're looking at is revenue-generating OpEx, so we should start seeing immediate return on that expense. So again, even though we're going to be making investments in the commercial infrastructure, it's not like it's going to be a 50% increase in OpEx; it's going to be a moderate increase. And importantly, and this is probably the most important thing, that investment in the expense should see almost an immediate impact and return on revenue.
Our next question comes from Chase Knickerbocker with Craig-Hallum.
Maybe just first to start, a couple on VEVYE. Mark, you had mentioned in the stockholder letter that ASP was down modestly sequentially in Q3. Could you just define the magnitude of that modest decline for us just so we can kind of understand that? And then just as we think about, you kind of spoke to stabilization in the near term. Can you just walk us through some of your modeling assumptions on VEVYE that kind of lead to that ASP stabilization in the near term? Is it improving mix that you're seeing so far in October? And then I've got a follow-up.
In terms of what "modestly" means, I can't provide a precise definition. I believe it’s less than 10%. However, the more significant concern is how the average selling price or net revenue per unit will stabilize in the near term and, as I mentioned in previous calls, start to increase. What will justify that increase? To clarify, we are relying on coverage improvements. We need the ratio of covered prescriptions to cash pay prescriptions to change, favoring covered prescriptions. If that occurs, stabilization will follow, and the average selling price will begin to rise. The encouraging aspect for us, which I believe you have noted, is that this increase will impact every single unit of VEVYE. So, the key question is how and when this will happen. I addressed this in the Letter to Stockholders and discussed it in our prepared remarks. We have recently achieved a coverage win with the largest pharmacy benefit manager in the U.S., specifically their commercial lives group, which represents tens of millions of potential new lives covered. Starting January 1, we expect the ratio of covered to cash pay prescriptions to start changing. In fact, I’ve received letters from doctors that confirm this benefit manager has already informed them about plan changes regarding drug coverage and the specific patients who will no longer have coverage for certain products. This is very promising for VEVYE. We anticipate seeing some shifts from other dry eye products to VEVYE in the fourth quarter, but we expect it to really accelerate in the first quarter. Once that ratio begins to shift, we will see stabilization, and I believe, as I said during our last call, we could start seeing not just modest improvements in the average selling price, but perhaps even more significant ones.
Yes, that's what I was hoping to follow up on is just any more specifics you'd be willing to share as far as the largest PBM, that win? Was it the commercial plans? Was it commercial and Medicare? Just any sort of details there. And then as we think about that ASP improvement, to your point, any way you can help us kind of define how you see your current volume and kind of the amount of your current volume that could benefit from that win and how that affects ASP? And any thoughts you'd be willing to give there as we enter next year?
Yes. I would say that these are commercial lives, number one. So they're, I would say, the most attractive of those lives that you can get. So it's a major coverage win. I was talking to our team earlier and I said, I hope that our investors, the main takeaway from the stockholder letter, I think, it's the most important part of the stockholder letter, is this coverage win, because it dramatically changes things. I mean, if you get a $20 or $30 or $40 improvement and I'm not suggesting that we'll see a $40 improvement on ASP, but if it's a $20 improvement as an example, it affects every single one of those units. And as units are growing and they will grow regardless, we are going to see significant improvement in total units for VEVYE. But the question is how much money are we going to make from all of those units? And I think that this improvement in coverage is going to be a major factor at the beginning of this coming year. And you also know that we are very conservative in terms of how we invest commercially. We don't do extravagant launches because we dip our toes into the water, we kind of get in, we see what works. It's just our style and it's the way that we've been able to invest in new product launches. And for us to now make investments in VEVYE and specifically open up 10 new territories in the very near term and then I think by the middle part of next year, we're going to have upwards of about 100 total territories for VEVYE. The reason why we're making those investments is because candidly, it would be malpractice for us not to make those investments now that we have such strong coverage in these specific markets. So we're very bullish on VEVYE next year. I think you can expect to see some improvements in ASP as this ratio begins to flip and biases more covered versus cash pay prescriptions. And it's a really good time for VEVYE and the drug, by the way, is phenomenal. If you've ever put the drug in your eye, it's phenomenal. I think it's the best product in the class. So it does a great job and patients love it, and the refill rates are absolutely extraordinary, I believe, best-in-class.
Our next question comes from Steve Seedhouse with Cantor.
Hoping just to start you could give us a sense of what proportion of the VEVYE cash pay patients currently you'd actually expect to transition to insurance coverage in 2026 and just ballpark the expected impact that that particular variable would have on net price per unit.
Yes, I can’t provide a precise answer at this time. We have established internal models to estimate this. This is the largest commercial pharmacy benefit manager, and if we analyze the number of dry eye patients and the prescriptions coming from those plans, several things become clear. Firstly, there are patients who have been denied coverage and are currently paying out of pocket, and we aim to transition them from cash payments to insurance coverage since this is not merely a non-preferred brand status, but a preferred one, meaning lower or sometimes no co-pay. This indicates very favorable coverage for VEVYE. Additionally, we have seen letters sent to physicians informing them that legacy products previously prescribed are no longer covered. I reviewed the number of patients from just one physician in a small community, and considering the many letters sent to thousands of physicians, this could align with what we are projecting in our modeling. Andrew, would you like to add anything?
Yes. I am really excited about this coverage win because it demonstrates the potential of our VAFA program. While I see VAFA as a temporary initiative not intended for the long term, its primary aim is to secure coverage wins and enhance patient access through insurance reimbursement. We believe this will lead to an improvement in ASP. What's advantageous about the program is that it provides us with a solid foundation to negotiate with PBMs and payers. We have no reason to settle for less from a payer, so we will avoid bidding ourselves into a disadvantageous position. The VAFA program is performing exceptionally well, especially on the cash pay side, which positions us for significant long-term growth for the product as we expect insurance wins to materialize. The volume and demand we are experiencing will give us increased negotiating power in our interactions with payers during these bidding cycles. This first coverage win serves as a strong indicator of our capabilities, and we anticipate seeing more successes in 2026 and 2027.
I just want to ask, just focusing on, I guess, fourth quarter specifically and on that point, you were just noting like you're in this moment, right, where the volume growth is tremendous and you have this sort of couple of month window between now and 2026, where it would be critical to keep people on drug until their insurance coverage kicks in. So are you doing anything like providing free prescriptions beyond the first month to VAFA patients? Or just anything new to bridge that gap given the new coverage decisions that would impact fourth quarter revenue? And then on the flip side, just with the addition of the new specialty pharmacies, is there any expected like inventory or stocking or sort of one-time impact to fourth quarter that we should be considering for our models?
Andrew, why don't you take the last question and I'll touch on the first question and ask Pat for some guidance as well.
Yes. Regarding any inventory stocking, Steve, I don't anticipate anything significantly impactful from VEVYE in the fourth quarter. The orders are almost just-in-time, not quite as regular, but they are taking less inventory than wholesalers usually do. Therefore, there won't be any notable impact at the end of the year related to that.
And specifically on keeping patients on therapy, I don't know that we want to go into any specific tactics, but I know that the dry eye team, Maria and her entire team are hustling. Pat, do you want to add to that at all?
Yes. Thanks, Mark. I think this is a super exciting opportunity and this is part of the plan. So I think to me, we have a very, very clear activation plan to really take advantage of evolving from VAFA to support these patients and really capitalizing on our managed care wins. And I think to me, it's very much focused on the communications that are happening from the plans at this point in time to their patients, making sure that doctors know about our VAFA program and these wins that are going to be taking place to ultimately support the patient end of the year. So we have a very robust high-touch program that is taking place and activating as we speak now that will continue to wrap up the year to support these patients and really accelerate growth at the end of the year. I think in addition, our program right now, our fill program in VAFA is a very high-touch program. So we have a very, very clear view into who the patients are that are coming on our product and that are eligible for conversion to this commercial win. So it's a super exciting time. But to answer your question, we have a very clear plan to really drive conversion and help these patients.
I was excited when we received the coverage win information because it boosted my confidence in Pat, Maria, and the team. They even had an internal name for the plan they were about to execute. It was just a simple text message indicating that we were ready to get started. This reassured me that we have the right people and strategy to capitalize on this excellent opportunity and continue the growth of VEVYE. I want to commend the work that Pat and Maria are doing.
Our next question comes from Mayank Mamtani with B. Riley Securities.
Thank you for the insights on business momentum. I have a general question regarding the transition from the third to the fourth quarter. Some trends you noted last year seem different this year. Could you share your thoughts on the significant $80 million revenue target for the fourth quarter? This represents a substantial increase compared to the third quarter, and it appears to largely stem from VEVYE, which has seen about a 60% sequential increase. Mark, could you provide some details on the balance between volume and price that you're anticipating across the various product lines? I also have a follow-up question.
In the fourth quarter, I believe last year's revenue was likely more than a third of our total annual revenue, possibly slightly above that mark. I don't expect that to change this year; I think we can achieve a similar range. An exciting aspect of Q4 is the progression of TRIESENCE. I have been quite honest that we could have performed better with TRIESENCE throughout this year, particularly in the first three quarters, and the same applies to our Rare & Specialty portfolio. However, the important thing is that we have taken action. We are starting to see positive developments with TRIESENCE, not just in discussions but in actual results. I've mentioned to the team that we aren't yet at a point where Mark can publicly express enthusiasm for TRIESENCE. It's time for actual orders, revenue, reorders, and the initiation of new accounts. I am personally involved in the sales efforts and have been engaging with high-volume surgeons specifically about TRIESENCE. I'm witnessing surgeries begin with the product, which is very encouraging. I've experienced this cycle before, and it gives me great confidence in the product's trajectory, not just in Q4 but into next year. I believe it will reach the levels we initially anticipated, which is extremely significant. Andrew, do you have any insights regarding the dynamics between Q3 and Q4?
Yes, Mayank, I think we've kind of talked about VEVYE on the ASP side and expecting at least stabilization there. Typically, at the end of the year, your patients are out of that co-pay deductible and amounts like that. So our co-pay buydowns are a little bit lower on a per unit basis. So hopefully, that helps to see a little bit of price improvement. But in general, the expectation is we're going to see volume improve across the portfolio that will drive most of the revenue growth for the quarter.
Great. I have a couple of specific product-level questions. Regarding Project Beagle, it enabled patients who transitioned to branded VEVYE. Do you have any information on the conversion rate from cash payments to commercially insured prescriptions? Can you share any insights or learnings from this? Additionally, on TRIESENCE, what is the new price point? It seems like you're really focused on improving access to drive substantial volume growth as you enter the ocular inflammation market. I'm also very interested to know your goal regarding how close you aim to get to the product’s status before it was on the shortage list a few years ago.
Regarding Project Beagle and the move from Klarity-C to VEVYE, there isn't much more to add. We had over 25,000 patients using cash pay Klarity-C, but we stopped its production in the summer. Most conversions to VEVYE have likely occurred, although some units may still be in various offices across the country. I expect these will be cleared up by the end of the year, and those patients will have transitioned to VEVYE. As for TRIESENCE pricing, it was set at $9.44. We're entering the ocular inflammation market, where products typically cost about 20% to 25% less. Our team believes that this pricing may have impacted adoption, especially since we're focusing on this market. However, new orders are coming in, and we're now seeing consistent revenue from reorders. We've also confirmed reimbursement for TRIESENCE, which has significant coverage and a very low prior authorization requirement, along with a long history of effectiveness. This product is highly regarded by ocular surgeons for various clinical and economic reasons, many of whom weren't aware of the reimbursement opportunities available. I have experienced this adoption cycle before with our first product, Tri-Moxi, which was a compounded mixture of triamcinolone acetonide and moxifloxacin hydrochloride. In surgical settings, once doctors try a few cases and witness excellent clinical results, they tend to adopt the product widely. We have now navigated through the reimbursement process, so there's no reason these physicians can't implement TRIESENCE throughout their practices. Once these doctors start using it and see their patients with great outcomes, they are reluctant to switch to anything else. When they discuss reimbursement with their surgery center administrators and realize they don’t have to deal with prior authorizations, their commitment to TRIESENCE solidifies. In the past, we sold over 300,000 units of Tri-Moxi and Tri-Moxi-Vanc, along with other sterile injectables. Considering the previous volume of a non-FDA-approved product compared to what TRIESENCE could achieve, I believe there is a tremendous market opportunity. I can't see why any surgeon would choose not to use TRIESENCE. We're optimistic that TRIESENCE will become the new standard of care for these patients. If it were my loved one undergoing a procedure, I would want their doctor to administer TRIESENCE to avoid the hassle of post-surgery eye drops, especially in older patients with additional medical issues. I believe more physicians will adopt TRIESENCE, marking an exciting time for the product as we are just at the beginning of its journey.
Our next question comes from Tom Shrader with BTIG.
Congratulations on the quarter. The TRIESENCE, that had a pretty good user base before and we agree people loved the drug. Is it easy to move back into those people? Or have they moved on? Could you just give us a sense of is that low-hanging fruit? Are those people waiting for the drug? And then you commented on fueling commercial operations for VEVYE. Does that mean adding conventional salespeople? And if so what other products do you think they could most easily help? Is TRIESENCE too far away for someone to market both VEVYE and TRIESENCE?
I appreciate the opportunity to address both questions. Regarding reengaging with physicians, when TRIESENCE was unavailable, they indeed switched to alternatives that contained preservatives. Patients, especially those who care about their loved ones, understandably prefer not to have potentially harmful chemicals in their eyes. This is precisely why Alcon pursued FDA approval for TRIESENCE years ago, recognizing a significant need in the market for a preservative-free triamcinolone acetonide. That uniqueness is what sets TRIESENCE apart. For example, if the iPhone 17 were unavailable, one might resort to a BlackBerry, but as soon as the iPhone 17 became available, they'd switch back. It does take time to reconnect with these physicians, many of whom are still unaware that TRIESENCE is back in stock or about its favorable prior authorization rate and reimbursement options. That’s where our team, led by Chad, comes in. They are working hard to raise awareness, making steady progress despite the numerous call points involved. I believe that our efforts will pay off in the long run. I have always viewed TRIESENCE as a potential nine-figure revenue product, and I anticipate reaching that milestone eventually. While the progress might not be apparent in the early quarters, I believe when we speak again this time next year, you will see that my optimism was justified. As for VEVYE, we are making strategic investments because we now have coverage. Having that coverage allows for a smoother prescription process, and we’ve seen that once we bring a commercially covered VEVYE patient into the system, we have excellent retention rates for refills. This compound effect of acquiring and keeping new patients will drive growth. In terms of expanding our offerings, we recently added two products to our dry eye team’s bag, which I'm very excited about. Our dry eye team is exceptional and will be expanding, aiming for 100 territories by mid-next year. They will not only help patients but also bring access to FLAREX and FRESHKOTE. FRESHKOTE, a product that helps retain tears and prevents evaporation through its polyvinyl alcohol base, is notable for being over-the-counter and affordable. We see great potential in FRESHKOTE and are eager to undertake exciting initiatives with it. Maria now has FLAREX in her portfolio, alongside VEVYE, which remains a cornerstone of her offerings.
Our next question comes from Lachlan Hanbury-Brown with William Blair.
I guess I'd be curious on the new coverage for VEVYE. Can you just talk about how the economics there shake up or stack up compared to the current net pricing you're seeing? Because I know you've been sort of vocal, Mark, in the past about the economics that PBMs try to extract. So would be interested to know just sort of where that shakes out. And also once those new plans come online in '26, what kind of coverage level are you looking at? Like what proportion of commercial lives nationally are covered for VEVYE?
Yes. What I can tell you, and Andrew mentioned this, is that when you have a VAFA program and you establish a base, it takes you out of what we would call desperation mode to do bad deals with PBMs. Andrew, do you want to kind of add to that? You talked about it a little while earlier.
Yes, as Mark mentioned, we start with a base and assess what the economics need to be for a coverage win. It must be an improvement over our current cash number. Although I can't specify the exact impact, we expect it to improve the situation for patients compared to the cash price we currently receive per unit. We've discussed how the ASP impact from the coverage win will help stabilize and likely increase that figure in 2026. Additionally, VEVYE was not preferred in this plan, but now that it is preferred, and another product has been removed from that status, the payer is informing physicians that their patients on that product will need to switch, while VEVYE remains preferred. This means we will not only see an increase in ASP but also a rise in volume driven by the preferred status. One outcome supports the other, so we anticipate an increase in both ASP and volume for the product.
Great. And maybe a quick one on the VEVYE expansion, the new territory. So just to make sure I heard correctly, is that you're adding 10 new reps this quarter and then we'll keep adding more until you get to about 100 next year, which if I have my numbers right, is sort of roughly double where you're at now?
Yes. We're planning to increase by 10, bringing us to a little over 60 in the near term. By the second quarter, we aim to reach about 100 territories.
Our next question comes from Thomas Flaten with Lake Street Capital Markets.
Mark, just a follow-up. You mentioned the refill rates are great. Could you give us a sense of duration of therapy that some of these long-duration patients are on products for?
I think the last time we examined the data for patients with commercial coverage, we found that when considering their initial prescription and refills, as well as the number of drops per bottle and daily dosages, these patients were receiving therapy for almost the entire year. They were just a few weeks short of refilling throughout the year. We never expected to see such a high refill rate from these patients, which was beyond even our most optimistic projections. That's what we've observed. Andrew, do you want to add anything?
No, nothing to add.
And then maybe if I could, bigger picture. You guys have been pretty busy on the BD front and have kind of created a really impressive to-do list for yourselves over the next couple of years. What should we anticipate in '26, '27? Is this more of an absorb, digest and act? Or is it more deals, more deals? Where do you land on that?
We are extremely excited about Melt and are looking to finalize this deal soon. We believe there is significant potential with Melt that people may not fully grasp yet. This opportunity is transformative for us, especially in relation to our strategic goals for cataract surgery, which includes the vision of opioid IV and drop-free procedures. This would greatly benefit patients by enabling same-day bilateral surgeries without the need for IVs or opioids and eliminating the need for eye drops afterward. That’s extraordinary and has the potential to change the landscape for the nearly 5 million cataract surgeries performed each year in the U.S. We are open to exploring other deals and partnerships, but our primary focus right now is on Melt. We are eager to finalize this deal, complete the collection of data, and prepare a dossier to submit an NDA for approval, which will help us realize our vision for transforming ophthalmic surgery. In the future, we aim to see the MELT-300 drug candidate expand beyond ophthalmology into larger market opportunities in areas like dental, gastrointestinal procedures, and treatment for claustrophobia during MRIs, where we anticipate significant impact. This marks our first global initiative, as historically we have concentrated on the U.S. market. The MELT-300 is not only protected by numerous patents in the U.S. but also in many major global markets. We are excited about discussing this global opportunity with potential partners around the world. Overall, we believe we have something very special with Melt and our recent acquisitions, and I’m thrilled to have Pat as my partner in executing this strategy.
Our next question comes from Yi Chen with H.C. Wainwright.
Mark, you mentioned that with the coverage win, some prescriptions shifted to VEVYE. Could you provide more insight into the market dynamics? Specifically, did those prescriptions that shifted to VEVYE originally come from prescriptions for other cyclosporine formulations, or could they have come from non-cyclosporine prescriptions as well?
Yes. In terms of which product incurred the loss to our potential win, it wasn't related to cyclosporine-based products but rather to anti-inflammatories. We're really focused on becoming the number one cyclosporine in the market, which I believe adds to our momentum. To achieve that position, we’re looking at about 22% to 23% market share with generics, and we’re currently just over 10%. We anticipate improvement in new treatment pathways as we gain more coverage and the dynamics shift. This will help us drive new prescriptions from patients and also from these changes. I’ve seen communications sent to eyecare professionals indicating the product that is no longer covered and the affected patients. From discussions with a few physicians, it's clear they intend to transition these patients to VEVYE. However, I must note that there are many physicians nationwide who are unaware of what VEVYE is. It is our responsibility to ensure they understand the clinical benefits of VEVYE, along with the new coverage, which should facilitate a smoother prescribing process.
I'm showing no further questions. I'd like to turn the call back over to Mark Baum, CEO, for closing remarks.
Thank you, operator, and thanks, everyone, for their questions. And we really appreciate you joining us today. As we look into the future, I remain confident in where we're heading. We've built a solid foundation. We've brought together an outstanding leadership team and defined a clear strategy that touches every part of our business. And we have a portfolio of best-in-class products and expanding access for patients and physicians and driving a culture that thrives on focus and execution. It positions Harrow for sustained growth and long-term value creation. The opportunities that we have ahead of us with TRIESENCE and VEVYE and IHEEZO are tremendous and we are ready to capture them. If you have any further questions or you need additional information, please don't hesitate to reach out to Mike Biega. His e-mail address is m as in Mary, b as in bravo, iega@harrowoinc.com. This will conclude our call.
Thank you for your participation. You may now disconnect. Good day.