Business context and reporting period
Jaguar Health, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2020. The company commercializes Mytesi, an FDA-approved treatment for noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy, and develops additional human and animal gastrointestinal products. Mytesi generated nearly all revenue.
Key financial metrics
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $0.869 | $1.590; down 45.3% |
| Cost of product revenue / gross profit | $0.676 / $0.193 | $0.865 / $0.725 |
| Gross margin | 22.2% | 45.6% |
| Operating expenses | $8.523 | $7.365 |
| Operating loss | $(7.654) | $(5.775) |
| Net loss | $(7.936) | $(8.304) |
| Net loss attributable to common shareholders / diluted loss per share | $(8.416) / $(0.56) | $(8.304) / $(16.84) |
| Cash used in operating activities | $(4.296) | $(3.465) |
| Cash and restricted cash at quarter-end | $1.603, including $1.215 unrestricted cash | $2.572 at March 31, 2019 |
| Total debt, net of discount | Approximately $7.532 | Not clearly comparable in the supplied filing text |
| Total assets / stockholders’ equity | $33.276 / $6.233 | At December 31, 2019: $36.410 / $10.673 |
At March 31, 2020, current assets were $6.840 million and current liabilities were $16.268 million, a working-capital deficit of approximately $9.428 million. Accumulated deficit was $141.026 million. Series A redeemable preferred stock had a $12.739 million redemption amount.
Material changes versus the prior comparable period
- Mytesi revenue was $0.835 million, down from $1.543 million; management attributed the decline mainly to distributor transition and initial stocking in Q1 2019. Animal product revenue fell to $0.034 million from $0.047 million.
- Operating loss widened by $1.879 million, reflecting lower revenue and higher operating expenses, including a $1.647 million Series B preferred-stock inducement charge. Net loss narrowed modestly, partly because Q1 2019 included a $1.942 million debt-extinguishment loss.
- Operating cash outflow increased by $0.831 million. Financing provided $2.023 million, versus $3.469 million in Q1 2019; cash and restricted cash consequently declined by $2.280 million during the quarter.
- Common shares issued and outstanding rose to 18.286 million from 14.273 million at year-end 2019. The company also had 40.301 million non-voting shares outstanding and substantial additional potential dilution from warrants, options, and convertible preferred stock.
Outlook, risks, contingencies and unusual items
- Going concern: Management stated existing cash was insufficient to fund operations for one year from issuance and that the company had an immediate need to raise cash. The filing concludes substantial doubt exists about the company’s ability to continue as a going concern. Further financing may be unavailable or dilutive; cost reductions could impair execution of its plans.
- COVID-19: The company warned of potential disruption to supply chains, clinical trials, and Mytesi commercialization; the full impact was not yet known. The FDA denied its request for emergency use authorization for crofelemer for COVID-19-related gastrointestinal symptoms on April 7, 2020.
- Management outlook: No quantitative revenue or earnings guidance was provided. Management expected R&D expense to decrease absent partnerships to expand trials, while anticipating increased sales and marketing activity over time. It also described near-term G&A expectations as both decreasing and remaining broadly stable in different parts of the discussion.
- Funding and debt: Q1 funding included warrant exercises, a private placement, and a $350,000 sale of future royalties for a $500,000 repayment amount. The royalty financing carries a stated 105% initial discount rate based on projected cash flows. A $2.0 million equity line was available subject to its terms; no draws had been made by quarter-end.
- Subsequent events: In April, Jaguar received $1.5 million from selling certain NP-500 patent rights and obtained a 10-year license back, subject to initiating a Phase 2 study by October 15, 2020. Failure to initiate can trigger a $2.265 million trial-delay fee. In May, it agreed to sell April Mytesi receivables with a stated gross value of $2.754 million to Oasis for $1.032 million, plus a 5.45% fee; verify the transaction’s complete economics and collection terms.
- Other material risks: Nasdaq had tolled its bid-price compliance period during the pandemic; the filing said the company would have until September 10, 2020 to regain compliance after the tolling period, with no assurance of success. A shareholder class action concerning the 2017 merger was in discovery; the company said any potential loss was not reasonably estimable. A House committee also inquired about Mytesi’s price adjustment and the company’s COVID-19 EUA request.
- Controls: Management reported disclosure controls were ineffective because of material weaknesses involving accounting staffing, financial statement preparation and review, and oversight of complex transactions. Remediation was planned but not complete.
Important facts for investors to verify
- Near-term liquidity, cash runway, and the availability, timing, and cost of additional financing.
- Mytesi demand, distributor inventory and concentration: one distributor accounted for 96% of Q1 revenue and 99% of accounts receivable.
- Debt maturity and repayment terms, including the royalty-interest financing, and the actual cash proceeds and costs of receivable sales.
- Potential dilution from warrants, preferred-stock conversion terms, equity-line draws, and other share issuances.
- Progress on Nasdaq bid-price compliance, remediation of control weaknesses, and developments in the shareholder litigation and congressional inquiry.
- NP-500 Phase 2 funding and timing, including exposure to the contractual trial-delay fee.