A potential multi bagger US specialty pharma - Harrow (HROW US)

I have been thinking about this question a lot - How to find the next Amazon ?

My answer is spot the CEO who is maniacal in a reasonable industry.

Mark Baum from Harrow founded the company in 2011. He has been CEO ever since. The original business of Harrow wasn't glamorous. It was a supplier of compounded drug for eye clinics/doctors in USA. By definition, anyone (licensed) can make compounded drugs. No IP protection to speak of. Nevertheless, Harrow grew to become one of the leading compounded drug maker in USA (ophthalmic pharma). Its key strength was its sales team/distribution/relationships with the doctors. Playbook was simple. Figure out what every eye clinic needed and built a portfolio to service their needs. Over time, Harrow grew its core business to $70-80M.

In that sense, management has proven itself... Street smart and aggressive. Also worth following Mark Baum on LinkedIn. The way he talks about people he looks to hire is interesting.... Harrow doesn't come across as a sleepy company at all.

Then a few years ago, it had a strategy shift. Leveraging its insights, it started to license under appreciated FDA approved drugs and commercialize them in USA, pushing these drugs through its sales network. Why ? When drugs are FDA approved, Harrow gained pricing power. It had to raise debts to fund its M&A of these drugs.

An important point to make was management has "taste". It only acquired drugs that are differentiated and under appreciated. In a way, think of Harrow as an aggressive entrant shaking up the comfortable status quo for the established brands.

Between 2021-2025, Harrow managed to grow its sales from $72M to $272M.

Now... Let's look at its sales mix.... In 2025, it had 4 major products - Vevye $89M, Iheezo $81M, compounded drug $92M, Triesence $10M.

Vevye is an interesting example of its playbook/management acumen. Vevye was acquired/licensed from Novaliq, a German drug maker in July 23, after the drug was approved by FDA in May 23. Novaliq is a private co.. presumably not a particularly large company. Novaliq by itself would struggle to market the drug in USA. Harrow paid $8M licensee fee + low double digits royalty. In other words, Harrow paid nothing for the drug. Vevye is a drug for dry eye... A crowded category in USA with many alternatives for patients. BUT Vevye is differentiated. Vevye doesn't sting when it is "installed". In 2 years, Harrow grew sales of Vevye from zero to $89M. Also patients on Vevye has much better repeat/retention than competing drugs.

Iheezo follows a similar playbook. It was licensed from Sintetica, a drug maker in Switzerland. Iheezo was the first branded branded ocular anesthetics approved in USA in 14 years. Again, Harrow grew sales from nothing to $80M in 3 years.

So what is so interesting about Harrow ?

1. Q1 26 was seasonally weak... The stock got sold down... In 2025, its high was $50 or so. Following the weak Q1 26, it was back down to $30 or so. BUT it is bouncing to a bit over $40... Folks are feeling better about its outlook in 2H.

2. In 2025, despite sales of $272M, the business was not that profitable (non-GAAP net profit of $24M or so).

3. My take is Harrow has spent the time to build the foundation. Now it is at the start of the hockey stick.

4. A noticeable move by management was aggressive hiring of sales folks.. In 2026, it will have twice as many sales folks as 2025. My read is management is comfortable with the foundation and is now ready to scale up. For example, it takes time to sort out reimbursement in USA. It has taken Harrow 2 years to improve the payor coverage for its different drugs.

5. Harrow is further adding to its portfolio. In 2026/2027, it plans to launch its biosimilars for Eyelea and Lucentis. The original Eyelea and Lucentis are multi-bn block busters before the patent expiry. On the other hand, the biosimilar market in USA is tricky to figure out. Who knows if Harrow will be successful.

6. What is intriguing is management has a financial target to achieve $250M quarterly sales in Q4 2027..... Now let's play around with the numbers.. Sales of $270M in 2025 and $365M or so in 2026... And management is targeting sales of $1bn in 2028. Now that is a hockey stick.

7. Let's look at its assumptions.. It expects Vevye to have quarterly sales of $75M in Q4 27. Its retina portfolio to deliver quarterly sales of $140M (Iheezo + 2 biosimilars + Triesence).. And then not much growth from its other products. Personally, I think these are aggressive targets.. BUT even if Harrow gets there somewhat... Say $800M in 2028, it is nothing to sneeze at... The point is management has much better visibility into what sales trajectory for its portfolio looks like... Yet, CEO still chose to stick to that aggressive target in public is interesting after the stock tanked after Q1 in a recent conference presentation.

8. Profitability will also inflect.. At scale, Harrow will earn EBIT margin of 30-40%....

But wait... There is more....Harrow expects to file approval for a new drug in Q1 27 (approval expected in 2028). The new drug is Melt.... It is a sedative/pain killer that can be taken sub-lingual i.e. it is a tablet that you take by putting it under your tongue. Its first application is for cataract surgery... Further out, it is applicable for other usage e.g. root canal, colonoscopy.... I am especially excited by Melt... I always wonder why can't I take something at dentist to ease the discomfort ? Management has always said melt will be its biggest drug in the coming years... Now keep in mind, melt is only expected to be commercially available in 2028... Harrow thinks its existing portfolio is good enough to get to $1bn in sales without Melt.

Put it another way, Vevye is expected to achieve $300M annual sales at some point... Melt is thus expected to do even better... My view is Melt will have sales much larger than $300M in time. Base line is there are 5M cataract surgeries each year in USA and 20M globally. There are over 100M procedures a year in USA that can use Melt in the long run.

MV is $1.6bn. When it reaches sales of $1bn in 2028 or 2029, assume net margin of 25%... It is on 6.4X PE. And then if we layer Melt on top, my hunch is Harrow could be a $1.5 to 2bn business at some point....Say $1.75bn in sales with net margin of 30%, it is on 3X PE. Considering it stands to grow much faster that most pharma co out there + respectable margin of 25-30% net + growing excitement about Melt, I would value Harrow at 20X PE when it reaches $1bn in sales...Or $5bn MV (200%+ upside) in 2028/2029...

Beyond $1bn, Melt alone can drive further upside... Melt has the potential to be a blockbuster.

Harrow has potential to be a multibagger with a multi-year trajectory.

PS... Not financial advice. Do your own research. I may buy or sell the stock.