SRK Capital, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of -9.41% was recorded by the fund for the second half of 2021. In contrast, the S&P 500 and the Russell 2000 returned +11.67% and -2.34%, respectively. For the year, the Fund appreciated 46.71%, compared to 28.71% for the S&P 500 and 14.78% for the Russell 2000. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
SRK Capital, in its Q4 2021 investor letter, mentioned Harrow Health, Inc. (NASDAQ: HROW) and discussed its stance on the firm. Harrow Health, Inc. is a Nashville, Tennessee-based biopharmaceutical company with a $223.5 million market capitalization. HROW delivered a -3.82% return since the beginning of the year, while its 12-month returns are down by -11.31%. The stock closed at $8.31 per share on February 15, 2022.
Here is what SRK Capital has to say about Harrow Health, Inc. in its Q4 2021 investor letter:
“Harrow Health was introduced in our previous letter. Harrow is underfollowed, misunderstood, and has been the victim of indiscriminate selling recently (Harrow was added to the Nasdaq Biotechnology Index which is down about 20% over the past few months; Harrow is far from a biotech company). The company’s subsidiary, ImprimisRx, is the leading compounding pharmacy in the ophthalmology industry. Their top products are combination eye drop solutions for pre and postoperative cataract surgery. ImprimisRx’s solutions provide a win-win outcome for the practitioner and the patient. The compounded formulation simplifies the eye drop regimen for patients by combining the medications into one simple to use bottle compared to separate solutions that require different dosing regimens for each solution. This increases the likelihood of patient compliance and significantly reduces the practice’s staff from being inundated with calls regarding medication questions. Also, ImprimisRx’s products are at a more affordable out of pocket cost for the patient. Currently, 1 out of every 5 cataract surgeries in the US use ImprimsRx’s products and I believe the company is on a path to increase their penetration through highly accretive acquisitions and partnerships that will be plugged into their distribution network on top of double-digit organic growth. In the most recent quarter, Harrow Health grew revenue 30% year over year. On a two-year basis they have increased revenue by 47%. Yet, as of recently shares can be had for the same price as two years ago. Harrow Health is profitable and has high amounts of operating leverage. I believe the business is trading for about 10x free cash flow. As revenues continue to grow a significant portion should fall to the bottom line which can be used for acquisitions and returning capital to shareholders.
To understand how competitive ImprimisRx’s compounded solutions are, consider the following story from a former employee of ImprimisRx. A certain large pharmaceutical company that sells an antibiotic for postoperative cataract surgery has told its reps to just walk away if they go into a practice and are told that they have switched over to ImprimisRx. When a practice switches to ImprimisRx they get 100% of the business.”
Photo by National Cancer Institute on Unsplash
Our calculations show that Harrow Health, Inc. (NASDAQ: HROW) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. HROW was in 14 hedge fund portfolios at the end of the third quarter of 2021, compared to 17 funds in the previous quarter. Harrow Health, Inc. (NASDAQ: HROW) delivered a -22.70% return in the past 3 months.
In August 2021, we also shared SRK Capital’s Q2 2021 views on HROW in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
