Jaguar Health, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2021. Jaguar develops and commercializes gastrointestinal products for human and animal health. Its principal commercial product is Mytesi (crofelemer), FDA-approved for noninfectious diarrhea in adults with HIV/AIDS receiving antiretroviral therapy. The company is also developing crofelemer for additional indications and lechlemer for cholera.
Financial performance and position
| Metric | Q3 2021 | First nine months 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | $0.63 million | $2.26 million | $2.77 million; $6.81 million |
| Cost of product revenue | $0.62 million | $1.86 million | $0.78 million; $2.49 million |
| Gross profit and margin | About $0.01 million; 2% | About $0.39 million; 17% | About $1.99 million; 72%; about $4.32 million; 63% |
| Operating expenses | $10.16 million | $32.14 million | $8.15 million; $28.29 million |
| Net loss | $12.19 million | $38.28 million | $7.87 million; $25.04 million |
| Net loss per share | $0.27 | $0.87 | $0.62; $3.09 |
Revenue and costs. Nearly all revenue was from Mytesi; animal-product revenue was $15,000 in Q3 and $54,000 for the nine-month period. Management attributed the decline in Mytesi revenue primarily to the transition from the wholesaler title model to specialty-pharmacy distribution. For the nine months, gross Mytesi sales decreased about 9%, while net product revenue fell 67%, reflecting higher discounts and Medicaid/ADAP rebates, including California chargebacks. Research and development expense rose 113% to $9.60 million for the nine months, mainly due to clinical-trial start-up, manufacturing, personnel, and lechlemer research. Sales and marketing rose 40% to $6.60 million.
Cash flow and liquidity. At September 30, cash was $12.38 million, current assets were $24.01 million, and current liabilities were $11.95 million. The company used $26.05 million in operating activities and $10.48 million in investing activities, including a $10.48 million advance for the planned Napo EU/SPAC combination. Financing provided $40.82 million, principally from equity offerings and debt; cash increased $4.29 million from year-end 2020.
Debt and equity. Notes payable had a net carrying value of $26.71 million, including $1.78 million current and $24.93 million non-current; total liabilities were $37.70 million. Interest expense for the first nine months was $5.99 million, versus $1.26 million in 2020. The balance sheet also included a $7.50 million Streeterville note measured at fair value. Voting common shares outstanding increased from 38.01 million at December 31, 2020 to 46.09 million at September 30, 2021. The filing reports a 1-for-3 reverse split effective September 8, 2021, reflected retrospectively in share data.
Material changes versus the prior period
- Nine-month revenue declined $4.55 million, while net loss widened by $13.24 million. Q3 revenue declined 77% and net loss widened 55% from Q3 2020.
- Operating cash use increased to $26.05 million from $11.22 million; financing cash flow rose to $40.82 million from $8.69 million.
- Interest expense increased substantially, primarily from royalty-interest financing. The nine-month results also included a $0.75 million loss on extinguishment of debt.
- The company ended its Cardinal Health distribution arrangement in September 2021, completing its transition to a specialty-pharmacy model.
- On November 3, 2021, after quarter-end, the Napo EU/SPAC merger became effective and the SPAC became a controlled subsidiary. The $10.5 million advance was to be converted into an investment at the standalone level and eliminated in consolidation.
Outlook, risks, contingencies, and unusual items
- Going concern: Management stated that available cash was not sufficient to fund the operating plan for one year after issuance of the financial statements and that the company had an immediate need to raise cash. The filing identifies substantial doubt about its ability to continue as a going concern. Additional financing may not be available on acceptable terms or in time; planned activities may need to be curtailed.
- Funding and royalty obligations: The company expects continued losses and higher development expenditures. Disclosed minimum royalty payments are $6.0 million in 2022, $18.0 million in 2023, $13.9 million in 2024, $7.1 million in 2025, and $3.9 million in 2026. Payments may strain cash even if product sales are insufficient.
- Development and commercial risks: Clinical, regulatory, manufacturing, market-access, and partnership outcomes are uncertain. Revenue and receivables are concentrated among a small number of distributors, and the company relies on single third-party manufacturers for Mytesi API and finished product.
- Controls: Management concluded disclosure controls were not effective at September 30, 2021 because of material weaknesses involving financial-statement preparation and review, fair-value assumptions, and insufficient accounting resources. Remediation was ongoing; effectiveness was not assured.
- Legal and unusual matters: A shareholder class action settlement received final court approval in May 2021; the D&O insurer was to fund the $2.6 million settlement, with no net income effect recorded. The filing also describes a congressional inquiry into Mytesi pricing and the company’s prior COVID-19 EUA request, which the FDA denied in April 2020. No other pending litigation was identified as likely to have a material adverse effect.
- Guidance: The filing provides no numerical revenue, earnings, or cash-flow guidance. Management expects R&D and sales-and-marketing costs to increase; it expected G&A to remain broadly flat in the near term.
Important facts for investors to verify
- Whether the company can obtain sufficient financing to meet its stated operating needs and address the going-concern uncertainty.
- Whether the specialty-pharmacy transition improves Mytesi sales, collections, and net revenue after rebates, discounts, and chargebacks.
- The timing, terms, and cash impact of royalty repayments and other debt, including fair-value changes and any financing covenants or default provisions.
- The post-quarter accounting and funding consequences of the Napo EU/SPAC merger and the treatment of the $10.5 million advance.
- Progress in remediating the disclosed material weaknesses and the reliability of financial estimates, particularly valuations of complex instruments.
- Clinical and regulatory progress for CTD, SBS-IF and other crofelemer programs, and lechlemer for cholera.