On value, investing, and everything in between

Strong Catalyst in '23

Mar 21, 2023
Harrow Health

Harrow Health is our latest stock pick. Below is a snippet from one of our write-ups for the Value Investor Members. We put this company on the active recommendation list, early March.

Disclaimer: this analysis is for informational purposes only and is not investment advice. See for detail. 

What does the company do? 

Harrow Health is a ophthalmologic focused healthcare company that develops, produces, and sells medications through its subsidiaries. 

The business serves in an industry with many unmet needs - the company provides a distribution network that simplifies the buying process for their customers.  This network creates a distribution network with high operating leverage where the same network can sell many different products to its niche customers.

Currently Harrow is the largest ophthalmic pharmacy business in the US after starting operations in 2014. HROW operates a pharmacy compounding business in ImprimisRx. Visionology is the direct to consumer eye health platform. 

In addition the company operates a marketplace to bring needed medications for procedures for sedation, dilation, infection prevention, and ocular (eye) surface protection. The company also owns ownership in certain drug candidates (Surface, Melt, and Eton Pharmaceuticals) 


Does the business have a competitive advantage?  Describe them in the following categories: Brand, Network Effects, Switching Cost, Low Cost, and Intangible Assets.

Deep Moat - switching costs and low cost.  The company has a very solid understanding of what their customers need and delivers on that to their customers.   

With the moat the company has built they are able to leverage that to deliver their own products (compound pharmacy medications) along with 3rd part customer products.  Generally, bringing a drug to market is very expensive and afterwards a company has to find ways to deliver that to physicians.  Harrow has built the distribution network and is therefore able to efficiently deliver to its customers whether it directly or indirectly controls the drug.

How durable is the competitive advantage? What are the risks to the current (legacy) competitive advantage?

Harrow has spent the majority of its life (2014 to now) building out SG&A for the legacy compounding business.  The same compounding business SG&A can be leveraged for the new branded drugs. 

The competitive advantage here is that HROW owns outright 5 drugs that it can sell in the space that will be on patent through 2030 and the anesthetic through 2038.  This gives it a long run way to sell with no interference.


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