Jaguar Health, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filed May 21, 2019. Jaguar is a commercial-stage gastrointestinal-products company operating in human health through Napo Pharmaceuticals and in animal health. Mytesi, its FDA-approved human product, generated nearly all revenue.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $1.59 million | $0.80 million |
| Operating expenses | $7.36 million | $5.93 million |
| Operating loss | $5.78 million | $5.13 million |
| Net loss | $8.30 million | $5.70 million |
| Net loss per share | $0.24 | $0.75 |
| Cash used in operating activities | $3.47 million | $9.62 million |
- Net product revenue rose 154% to $1.59 million, led by Mytesi revenue of $1.54 million, up from $0.58 million. Animal-product revenue was $46,612. There was no collaboration revenue; Q1 2018 included $177,389 from Elanco.
- Cost of product revenue increased 86% to $864,943. Product gross profit was approximately $725,000, or 45.6% of net product revenue, compared with approximately $163,000, or 26.0%, in Q1 2018.
- R&D expense increased 88% to $1.42 million, primarily from contract manufacturing and clinical-related costs. G&A rose 17% to $3.51 million; sales and marketing declined 9% to $1.57 million.
- Q1 net loss included a $1.94 million loss on extinguishment of debt. Net loss increased 46% year over year; 2018 also included a $995,000 deemed preferred-stock dividend in the loss attributable to common shareholders.
- Cash was $2.57 million at March 31, versus $2.57 million at year-end. Operating cash outflow was largely offset by $3.47 million of financing cash inflow; cash increased by only $3,587.
Financial position, financing and material changes
- Total assets were $40.66 million; current assets $7.32 million; current liabilities $24.75 million; and stockholders’ equity $6.80 million. The resulting current ratio was approximately 0.30.
- Current net convertible debt was $11.15 million, and net notes payable were $1.26 million. Q1 financing included $2.50 million from an Oasis equity line, $266,266 from a registered share offering, and $800,000 of short-term notes. The company also issued 18.76 million shares to CVP to reduce principal and accrued interest by approximately $6.1 million in total.
- The two March bridge notes carry 12% interest and mature in July 2019; related warrants substantially discounted their recorded net carrying value. The filing describes authority to issue up to $5.5 million in notes, but only $800,000 had been issued by quarter-end.
- Voting common shares outstanding rose from 24.6 million at year-end to 59.4 million at March 31, principally due to financing and debt exchanges. At May 14, the filing reported 66.3 million voting shares, 40.3 million non-voting shares, and preferred stock convertible into approximately 33.1 million voting shares, subject to restrictions.
- Series A preferred stock’s stated redemption/liquidation value was $12.74 million at March 31, compared with $9.20 million at year-end. A future redemption right may be triggered by specified Mytesi revenue or stock-price conditions in 2021.
- Cardinal Health became Mytesi’s exclusive distribution agent in January 2019. Revenue and receivables are highly concentrated: two distributors accounted for 98% of Q1 revenue and 99% of receivables at March 31. The company also relies on a single supplier each for drug substance and drug product.
Outlook, risks and other notable matters
- Going concern: Management said existing cash was insufficient for anticipated needs over the next 12 months and that capital was not sufficient to fund the operating plan through December 2019. The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance. Additional financing is needed; availability and terms are uncertain and could dilute shareholders or impose debt restrictions. Management expects continued losses and higher R&D and commercialization spending.
- Subsequent financing and listing: On April 1, the company entered into a new Oasis equity line for up to 20 million shares, with an option for an additional 20 million. A proposed offering of up to $10 million was registered in May but was not yet effective. Nasdaq staff indicated it would delist the securities for failure to meet the $1.00 minimum bid-price requirement unless the company obtained relief at a hearing; the company intended to request a hearing, with no assurance of continued listing.
- Controls: Management concluded disclosure controls were not effective because of a material weakness associated with accounting staff turnover and inadequate internal expertise to supervise review of complex accounting, including debt modifications, warrants and accruals. Remediation plans included hiring and training personnel and strengthening close and review controls; remediation was not assured.
- Contingency: A shareholder class action relating to merger disclosures and the company’s Equilevia strategy remained pending on a motion to dismiss. The company said a potential loss was not reasonably estimable and did not consider a loss probable.
- Development and commercial risks: The company expects increased development and commercialization costs, while success depends on clinical and formulation work, regulatory outcomes, product sales and financing. The filing reported no impairment of goodwill or indefinite-lived intangibles in Q1; goodwill had been fully impaired in Q4 2018.
Most important facts for investors to verify
- Cash runway, current obligations and whether subsequent equity or debt financing was completed on acceptable terms.
- Nasdaq hearing outcome and the company’s ability to meet the minimum bid-price requirement.
- Mytesi sales, distributor concentration, Cardinal Health arrangements and the sustainability of gross margins.
- Share-count dilution, warrant terms, debt maturities and potential preferred-stock redemption obligations.
- Progress in remediating the material weakness, and any update to the going-concern assessment or shareholder litigation.