0001493152-26-022254
SEC filingHarrow's Q1 2026 net loss widened to $27.6M as revenue fell 8% and operating expenses grew, driven by higher SG&A and R&D spending.
Harrow's first quarter of 2026 was marked by a 7.6% decline in total revenue to $44.2 million, driven by a steep 32.7% drop in its Compounding segment, which fell to $13.5 million from $20.1 million in the prior year. The decline was primarily attributed to lower volume and the discontinuation of the Klarity-C compounded formulation in the second quarter of 2025. In contrast, the Branded segment posted 10.5% revenue growth to $30.7 million, fueled by higher sales of other branded products (up $6.9 million) partially offset by declines in IHEEZO ($1.9 million vs $5.2 million) and a slight dip in VEVYE ($20.9 million vs $21.5 million). Gross profit decreased 16.3% to $27.0 million, with gross margin contracting from 67.5% to 61.2% due to product mix shifts and increased gross-to-net deductions for VEVYE. Operating expenses rose 12.8% to $49.1 million, as SG&A increased 6.7% to $43.2 million due to higher personnel costs, and R&D spending nearly doubled to $5.9 million driven by clinical trials for the Melt Pharmaceuticals drug candidate. Consequently, operating loss widened to $22.1 million from $11.2 million, and net loss increased to $27.6 million from $17.8 million. Basic and diluted EPS fell to $(0.74) from $(0.50).
As of March 31, 2026, Harrow held $94.6 million in cash and cash equivalents, up from $72.9 million at year-end 2025. Total assets increased to $419.5 million from $399.5 million, driven by a $18.0 million addition to intangible assets from product right acquisitions and milestone payments. Accounts receivable declined to $101.3 million from $110.9 million, reflecting improved collections. Total liabilities rose to $391.2 million from $347.4 million, primarily due to a $48.9 million increase in notes payable from the issuance of $50 million in additional 8.625% senior notes. Stockholders' equity fell sharply to $28.4 million from $52.1 million, as the $27.6 million net loss more than offset small stock issuances and stock-based compensation. The company had $300 million in senior notes outstanding (net of discount $292.1 million) and $292.1 million in total notes payable. The company also has a $40 million revolving credit facility (with an additional $20 million uncommitted) that remained undrawn.
Operating cash flow turned negative at $(9.0) million compared to a positive $19.7 million in the prior-year quarter. The large net loss of $27.6 million and working capital uses (e.g., $3.0 million increase in inventories, $3.4 million increase in payables and rebates) contributed to the outflow. Investing activities used $18.2 million, primarily $18.0 million for product rights (including milestone payments to Santen, Samsung, and for VEVYE). Financing activities provided $48.9 million from the note issuance and $0.025 million from option exercises. Free cash flow (operating minus capex) was approximately $(9.2) million, highlighting the cash drain from operations and investment. The company ended the quarter with $94.6 million in cash, but given the negative operating cash flow and upcoming debt service, liquidity remains a concern.
Management attributed the revenue decline to lower compounding volume and the Klarity-C discontinuation, while brand growth was driven by customer mix and product launches. The increase in SG&A reflects headcount additions to support growth, partially offset by lower stock-based compensation. R&D grew due to the Melt Pharmaceuticals clinical program. The company expressed confidence in its cash position ($94.6 million) to sustain operations for at least 12 months, but noted potential for larger strategic transactions that could require additional financing. No formal guidance was provided. The company also disclosed that it had not recognized the $34.9 million jury verdict award from the Ocular Science litigation due to collection uncertainty. Key risk factors included pricing and reimbursement pressures from government programs (Medicaid, Medicare Part D) and commercial payors, as well as the impact of gross-to-net adjustments on reported revenue.
Segment performance varied significantly: The Branded segment had a negative segment contribution of $11.6 million (down from a loss of $3.1 million), as SG&A and R&D spending outpaced gross profit growth. The Compounding segment generated a positive segment contribution of $0.3 million, albeit down from $5.0 million a year ago. Within Branded, VEVYE revenue remained stable at $20.9 million, IHEEZO dropped to $1.9 million, and other branded products surged to $7.8 million. The gross margin for Branded decreased 630 bps to 64.3%, while Compounding gross margin fell 940 bps to 54.0%. Interest expense decreased to $5.5 million from $6.5 million due to a lower effective rate. The company recorded an income tax expense of $25,000 versus $0 in the prior period. Stock-based compensation was $3.8 million, down from $4.6 million. No buybacks or dividends were declared. The company had $1.6 million in antidilutive securities at March 31, 2026.