Jaguar Health, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results; amounts below are in U.S. dollars. Jaguar is a commercial-stage pharmaceutical company focused on human and animal gastrointestinal products, including Mytesi and Canalevia-CA1, and development of crofelemer and lechlemer.
Financial performance and position
- Revenue: Q2 product revenue was $2.921 million, up from $0.385 million in Q2 2021. First-half revenue was $5.546 million, up from $1.625 million. The company attributed the increase in net revenue largely to lower rebates, discounts, returns and wholesaler fees following its transition to specialty-pharmacy distribution; gross Mytesi sales declined year over year.
- Profit and margins: Q2 operating loss was $6.479 million versus $11.580 million; net loss was $9.390 million versus $14.081 million. First-half operating loss was $18.233 million versus $20.348 million, while net loss was $27.554 million versus $26.090 million. First-half net loss attributable to common shareholders was $27.353 million, or $0.40 per share, versus $26.090 million, or $0.60 per share. Gross margin was approximately 84% in both Q2 and the first half, based on reported product revenue less cost of product revenue.
- Costs: First-half operating expenses rose 8% to $23.779 million. R&D increased 18% to $7.396 million, sales and marketing increased 15% to $4.979 million, and general and administrative increased 24% to $10.493 million. Interest expense increased to $7.358 million from $3.909 million; debt extinguishment loss was $2.187 million.
- Cash flow and liquidity: Cash was $9.014 million at June 30, down from $17.051 million at year-end 2021. First-half operating cash use was $18.152 million; investing cash use was $1.258 million; financing provided $11.396 million, principally from ATM share sales. Current assets were $23.362 million and current liabilities $22.901 million.
- Debt and equity: Notes payable, net of discounts and issuance costs, totaled $31.312 million; total liabilities were $47.128 million and stockholders’ equity was $2.757 million. Common shares outstanding increased substantially through ATM sales and debt-for-equity exchanges. The filing reports 85.2 million voting shares outstanding at June 30 and 117.9 million as of August 19, 2022.
Material changes versus the prior comparable period
- Revenue increased sharply on a net basis, despite lower gross Mytesi sales. Management linked the change to the completed shift from a wholesaler title model to a limited specialty-pharmacy network, which reduced certain sales deductions and distribution costs.
- Canalevia-CA1 began generating revenue in 2022: $87,000 in Q2 and $131,000 in the first half. Neonorm revenue remained small.
- First-half operating loss narrowed, but net loss increased, primarily reflecting higher interest expense and the $2.187 million debt-extinguishment loss. Fair-value changes produced a $477,000 first-half gain, compared with a $1.074 million loss in 2021.
- Cash declined by $8.037 million during the first half. ATM financing and exchanges of royalty debt for common shares provided funding but increased share count.
Outlook, risks and notable items
- Going concern: Management states current cash is insufficient to fund the operating plan for one year from issuance of the financial statements, that the company has an immediate need to raise cash, and that substantial doubt exists about its ability to continue as a going concern. Additional financing is not assured; failure to obtain it could require curtailing activities and reducing costs.
- Outlook: No quantified revenue, earnings or cash-flow guidance is provided. Management expects continued losses and negative cash flows, and anticipates increased spending as product development, clinical trials and commercialization activities proceed.
- Development and commercialization: The Phase 3 OnTarget trial of crofelemer for cancer-therapy-related diarrhea is ongoing. Canalevia-CA1 is conditionally FDA-approved and commercialized while the company continues to collect evidence required for full approval. Crofelemer is also being developed for rare-disease indications; lechlemer remains in preclinical development for cholera-related diarrhea.
- Financing and dilution: The company raised $11.6 million net through ATM sales in the first half and another $5.0 million net after June 30 through August 22. Subsequent-period issuances increased voting shares outstanding by approximately 32.7 million from the June 30 balance. Royalty and note exchange provisions permit additional debt exchanges for shares, subject to conditions and limits.
- Listing and operating risks: Nasdaq granted an additional compliance period through February 13, 2023 to regain the $1.00 minimum bid-price requirement; failure may lead to delisting. The company also cites dependence on concentrated specialty-pharmacy customers and single third-party manufacturers for key supplies, clinical and regulatory uncertainty, and exposure to financing and market risks.
- Debt terms and contingencies: Certain royalty financings require payments tied to product sales and may impose minimum payments. The Streeterville note is secured by specified lechlemer-related collateral and includes potential default and trial-failure provisions; no trial failure or default was reported at June 30. A previously approved $2.6 million class-action settlement is expected to be covered by D&O insurance; the company reported no material accrual for active legal matters.
- Other items: A June 2022 China license agreement with SynWorld provides for aggregate non-refundable cash payments of $5.0 million over its initial two-year term, with possible regulatory-cost reimbursement capped at $2.0 million. Subsequent events included additional SynWorld share issuances and an August exchange of a $3.4 million royalty interest for 11.5 million common shares.
Important facts for investors to verify
- Available cash, subsequent financing proceeds, ongoing cash burn and management’s stated one-year funding shortfall.
- The terms, timing and remaining obligations of royalty financings, the Streeterville note, and any future debt-for-equity exchanges.
- Drivers and sustainability of net revenue growth, including specialty-pharmacy sales, gross-to-net deductions, customer concentration and product-level sales.
- Clinical and regulatory progress for the OnTarget Phase 3 trial, Canalevia-CA1 full approval, and crofelemer and lechlemer pipeline programs.
- Share-count changes, potential further dilution, and progress toward Nasdaq’s minimum bid-price compliance deadline.