Q1-2023 Letter to Stockholders

Letter to Stockholders

May 11, 2023

Dear Harrow Stockholders:

I am pleased to report that the Harrow team delivered record revenues of $26.1 million for the first quarter of 2023. Even more important than this strong sequential topline growth is that we have now entered a new revenue paradigm for Harrow from which we expect revenue growth from our branded pharmaceutical products ("BPPs") to meaningfully outpace growth from our compounded pharmaceutical products ("CPPs"), with revenue from branded products ultimately driving the lion's share of our future profitability and topline growth. Simply put, with the addition of a powerful portfolio of branded and reimbursable products "in our bag," we are now beginning to experience financial leverage from the many years of hard work invested in building our commercial infrastructure, distribution capabilities, and trusted relationships with thousands of U.S. prescribers and institutional customers.

Based on our results to date, we are reaffirming our 2023 guidance of $135 million to $143 million in net revenues and $44 million to $50 million in adjusted EBITDA. Harrow believes that both net revenues and adjusted EBITDA should grow further during 2024 and for at least three to five years thereafter.

This year, we also have made significant progress elevating Harrow into a leading position among top-tier U.S. eyecare pharmaceutical companies, in large part through the following initiatives:

• The successful launch of IHEEZO™, following the issuances of a permanentJ-Code(J2403) and transitional pass-throughreimbursement status.
  o IHEEZO was officially launched at the recent American Society of Cataract and Refractive Surgery ("ASCRS") Annual Meeting in San Diego, where it was well received by leading eyecare professionals in attendance.
• The closing of the "Fab Five" acquisition of U.S. commercial rights to ILEVRO®, NEVANAC®, MAXIDEX®, VIGAMOX®, and TRIESENCE® (collectively, the "Fab Five Products").
  o Harrow recently announced the transfer of the new drug applications ("NDAs") for ILEVRO, NEVANAC, and MAXIDEX, and we expect to transfer the NDAs for VIGAMOX and TRIESENCE later this year.
• At the close of the first quarter, weannounceda new $100 million secured credit facility with Oaktree Capital Management, which was initially used to pay off a secured loan with an affiliate of B. Riley Financial, Inc., and will be further used to support the remaining milestone payment that will be due at the time TRIESENCE becomes commercially available.
• We recently signed an agreement with a large health insurance carrier, including its national vision care network of patients and providers, to make available several of our chronic care CPPs on a cash-pay basis. See Page 4 for additional color on this big potential win.

Now let's take a look at the results for the first quarter of 2023.

First Quarter 2023 Financial Highlights and Commentary

Revenues of $26.1 million for the first quarter of 2023 - a retuto record revenue growth - represent an 18% increase over the prior-year period revenues of $22.1 million as well as a 28% increase over revenues of $20.3 million in the fourth quarter of 2022.

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As we had previously promised, we achieved these record revenues with no revenues from (a) our non-ophthalmic assets (which we sold in early October 2022) and (b) from sales of, or commissions from, DEXYCU® (as our agreement with EyePoint, the owner of DEXYCU®, terminated at the end of 2022). The first quarter of 2023 did include profit transfers for two months (February and March) from sales of ILEVRO, NEVANAC, MAXIDEX, and VIGAMOX. (There is currently no profit transfer from TRIESENCE because it remains out of stock - more to say about TRIESENCE on page 4).

Core gross margin was 76% in the first quarter of 2023 compared with core gross margin of 75% in the first quarter of 2022.

Selling, general and administrative (SG&A) expenses for the first quarter of 2023 were $15.9 million compared with $13.4 million during the same period last year and a slight increase compared with the $15.2 million reported in the fourth quarter of 2022.

Research and development costs were $734,000 in the first quarter of 2023 compared with $658,000 during the same period last year. As we grow our pharmaceutical presence and footprint with branded products, we expect this line item to grow in 2023.

GAAP operating income was $1.2 million for the first quarter of 2023, compared with a GAAP operating income of $2.1 million during the same period last year.

Adjusted EBITDA was $5.3 million for the first quarter of 2023 compared with Adjusted EBITDA of $4.9 million during the same period last year. Core net loss was ($1.0) million for the first quarter of 2023 compared with core net income of $713,000 for the first quarter of 2022.

Core diluted net loss per share for the first quarter of 2023 was ($0.03) compared with core diluted net income per share of $0.03 during the same period last year.

We had $19.2 million of cash and cash equivalents at the end of the first quarter, and we expect our cash balance to increase going forward. First quarter cash flows used in operations were negatively impacted due to the timing differences from recognition of revenue related to the profit transfer for the Fab Five products and their eventual cash receipts combined with an increase in our inventory levels as we caught up from third and fourth quarter stockouts.

A reconciliation of all non-GAAP financial measures in this letter begins on page 9.

Selected highlights regarding GAAP operating results for the three months ended March 31, 2023 and 2022 are as follows:

For the Three Months Ended

March 31,

In 2022, we began providing additional non-GAAP financial metrics - Core Results, which we define as the after-tax earnings and other operational and financial metrics generated from our principal business.

For the Three Months Ended

March 31,

1. Core gross margin, core net (loss) income, core basic and diluted net (loss) income per share (collectively, "Core Results"), and Adjusted EBITDA are non-GAAP measures. For additional information, including a reconciliation of such Core Results and Adjusted EBITDA to the most directly comparable measures presented in accordance with GAAP, see the explanation of non-GAAP measures and reconciliation tables at the endof this Letter to Stockholders.

IHEEZO, ASCRS 2023, and More

IHEEZO

This year's ASCRS Meeting included the formal launch of IHEEZO. In my experience, the most important factor in the success of an ophthalmic product launch is whether the product performs for the patient, the surgeon, and the surgical staff. If a product doesn't provide unique and meaningful value for every one of these constituencies, roadblocks to adoption will exist, growth will flag, and once launched, it's hard to recover.

Here is what we know so far about IHEEZO:

• All reports from IHEEZO customers to date have described clinical outcomes that mirror those that were reported in the clinical studies that supported IHEEZO's NDA.
• Surgeons and ophthalmic anesthesia providers who use IHEEZO are realizing what we learned when we did our market research years ago - that the idiosyncratic use of different anesthetic products, numerous instillation processes during various time intervals, and other related protocols to anesthetize the eye, create practice inefficiencies, and that there is a compelling need for a single agent to reliably anesthetize the eye - to "unify" the ophthalmic anesthetic protocol.
• Early adopters, and their staff, appreciate the ease of IHEEZO's use in the clinic and surgical suite - the way it seamlessly fits into their workflow.
• A single dose of IHEEZO (minimally, three drops) -and IHEEZO alone - has been reported to be sufficient, for example, to provide ocular surface anesthesia for cataract surgeries and intravitreal injections - once again, simplifying their anesthesia protocol and workflow.
• While I believed IHEEZO would be used primarily for cataract surgery and intravitreal injection anesthesia, several ophthalmologists I spoke to have other potential uses for IHEEZO, including anesthesia for other surgical and in-office interventions (e.g., photorefractive keratectomy ("PRK"), glaucoma surgeries, and laser procedures such as the yttrium aluminum garnet capsulotomy (or "YAG").

I am sure Harrow stockholders want to know how IHEEZO sales are looking. In fact, we are now recording sales of IHEEZO, and so far, we are confident that we remain on track to meet or exceed current revenue expectations for the year. I want to say more, but we are very early in the launch, and we still have market access work to do to optimize the potential for IHEEZO. Just know that, so far, we appear to be in good shape.

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The Fab Five Products

By transferring the NDAs ahead of schedule for ILEVRO, NEVANAC, and MAXIDEX, we were able to begin marketing and selling efforts for those products at the ASCRS meeting. Customers we met with at ASCRS were pleased to see us support these important products and revitalize them under the Harrow name.

We still have a few additional pieces of the Fab Five transaction puzzle to implement. As an example, we believe the VIGAMOX NDA should transfer sometime this summer, and once this occurs, we will reveal more information about our VIGAMOX strategy - which our commercial team is excited about. We also continue to believe that TRIESENCE should be back in stock through our distributor partners later this year and that soon thereafter, the TRIESENCE NDA will transfer.

My takeaway from customer feedback at ASCRS aligned with our internal market research for all of the Fab Five products, especially TRIESENCE, reinforcing our belief that we purchased the right products, paid the right price, and that the Fab Five products will beautifully complement our ophthalmic pharmaceutical portfolio, expand our customer base, and drive further revenue and profit growth for many years to come.

ImprimisRx (CPPs or Compounded Pharmaceutical Products)

I remain highly enthusiastic about our ImprimisRx CPP business. As many of you know, we have historically seen double-digityear-over-year revenue growth in our ophthalmic CPP business. We expect that growth trend to continue and that ImprimisRx will remain the dominant player in the U.S. ophthalmic CPP business. My enthusiasm is based, in part, on our strong innovation culture, exemplified in the development of CPPs such as the Fortisite™ and our proprietary compounded atropine formulations (available at atropine.com).

Innovative product development alone is insufficient to fuel my enthusiasm. I want to see positive market reception such as what occurred at ASCRS when Dr. Neel Desai presented two case studies citing his success using Fortisite compounded formulations, including the benefit of having fortified antibiotics available in his office for patients in need of this potentially sight-saving treatment. In addition to the potential for delays in filling custom prescriptions from local compounding pharmacies, there is no guarantee that such custom prescriptions will have undergone many or any of the strict battery of analytical chemistry tests that Fortisite formulations do (e.g., color, clarity, potency, sterility, fill size, pH, preservatives, and particulate matter, to name a few). I am making Dr. Desai's talk availableif you are interested because he explains his experience with Fortisite much better than I can. (Full disclosure … Dr. Desai was compensated a bit less than $1,000 for his time giving this talk). We also spoke to a large academic institution that requires patients to be admitted to the hospital for them to have access to the in-patient pharmacy so that fortified antibiotics can be made during normal business hours. Given the practical impact we anecdotally see, and the potential savings to our healthcare system, wouldn't it be great to develop Fortisite as anFDA-approvedproduct?

Another justification for my enthusiasm for our ImprimisRx CPP business is this:

Given the trend of increasing patient out-of-pocket costs for many medicines, we have been working hard for many years to partner with insurance carriers to make our cash-pay CPPs available to their prescriber networks and patients. Breaking into the insurance market with cash-pay CPPs has been tough for many reasons I won't expound on, but our drought with major insurance players is now over …

We recently signed a vendor contract with a very large health insurer, which includes one of the nation's largest vision care networks. Under this agreement, which kicks off on June 1 of this year, ImprimisRx will provide its next-generationpreservative-free and boric acid-free compounded atropine formulations (0.01%, 0.025%, and 0.05% concentrations) and its innovative Total Tears ophthalmic formulations, including Klarity-C 0.1% cyclosporine, to members of its vision care network. Our partner's national vision plan, which covers over nine million U.S. members, includes approximately 36,000 private practice eyecare professionals ("ECPs"), local optical stores, and national retail stores (including well-known national brand names). We are looking forward to building our relationship with this new partner, serving its ECPs and its patients, and making this new agreement a great success for everyone.

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Investments and Royalties

Harrow has non-controlling equity positions in three companies that were founded as Harrow subsidiaries before being deconsolidated into independent and separately managed companies.

Our largest interest is in Melt Pharmaceuticals, with Harrow owning 46% of its equity interests, a $13.5 million principal amount secured note receivable, and a 5% royalty interest in its lead drug candidate, MELT-300. Following the December 2022 release of robust results and topline data from Melt's Phase 2 efficacy and safety study of MELT-300, Melt scheduled a meeting with the FDA for May 16 to discuss the Phase 3 pathway for MELT-300. Because of Harrow's conservative approach to positioning itself in the Melt capital structure, Harrow should be able to capitalize on the value of Melt Pharmaceuticals regardless of the outcome of this meeting.

We continue to remain excited about being a large shareholder of both Eton Pharmaceuticalsand Surface Ophthalmics. We are big believers in the missions and potential of these companies and can't wait to hear more about their achievements in 2023 as they continue to execute their strategic initiatives.

Fulfilling our Mission

In my last Letter to Stockholders, I explained how your support of Harrow also supports our corporate mission of helping patients manage the preservation of their sight by providing access to innovative and affordable medicine and services.

I wanted to give you a quick update as we recently received e-mails from two separate physicians about mission trips to Guatemala. One group had historically made their mission trip annually and had just made their first trip after a nearly four-year COVID hiatus. Combined, the two teams were able to provide care to over 1,500 patients and provide cataract and other ophthalmic surgeries to nearly 100 patients. It was very heart-warming to leahow our donations to these mission trips helped these beautiful souls, especially a 10-year-old girl who had surgery on a tumor on one of her eyes that had prevented her from being able to completely close the eye for several years. Although it was not medically feasible to completely remove the tumor, these heroic ophthalmologists were able to flatten it and allow her to "once again close that eye." These are the types of blessed wonders that Harrow, and you (through your stockholdings), make possible. I am confident you are as honored to participate in these mission trips as we are!

Senior Executive Equity Compensation

The success of Harrow is dependent on the "above-and-beyond" efforts of many folks, including Andrew Boll, Dennis Saadeh, and John Saharek. Andrew and I have worked together for over 15 years, and he was with me at Harrow from Day 1, when our office comprised a grand total of 250 or so square feet. Dennis, whom I began to work with in the Fall of 2014, is responsible for building nearly all of our compounded formulations. His brilliant pharmaceutical design creativity has been a backbone to help build our business. John has been at the tip of the Harrow commercial spear, driving every single dollar of revenue we have produced from April 1, 2014 (the day we began to generate revenue) to the present. These men are exceptional, and I am grateful to have them as partners.

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