Business context and reporting period
Jaguar Health, Inc. (then Jaguar Animal Health, Inc.) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2017. At period-end, it focused on gastrointestinal products for animals, including Neonorm and the Canalevia drug candidate. The July 31, 2017 merger with Napo Pharmaceuticals occurred after the reporting date; Napo became a wholly owned subsidiary focused on human health and Mytesi.
Financial results and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 |
|---|---|---|
| Total revenue | $896,521 | $1,718,931 |
| Operating loss | $(2,350,253) | $(6,225,855) |
| Net loss | $(1,805,642) | $(6,521,000) |
| Basic and diluted loss per share | $(0.12) | $(0.45) |
| Operating cash used | $1,466,211 for the six months |
- Six-month revenue included $135,989 of product revenue and $1,582,942 of collaboration revenue. Product revenue comprised Neonorm sales and $30,000 of botanical extract sales.
- At June 30, cash and cash equivalents were $2,760,848; current assets were $3,960,545 versus current liabilities of $10,362,110. Total assets were $4,938,591, total liabilities $11,205,357, and stockholders’ deficit $6,266,766.
- Carrying amounts of convertible notes and long-term debt were $1,777,346 and $2,907,622, respectively. The company also reported a $551,880 warrant liability and a $20,000 derivative liability.
- Cash increased by $1,809,869 in the six months, mainly reflecting $2,764,787 of financing cash inflows and the $511,293 release of restricted cash, partly offset by operating cash use and $991,749 of long-term debt repayments.
Changes versus prior comparable periods
- Six-month total revenue rose from $62,289 in 2016 to $1,718,931 in 2017, primarily due to the new Elanco collaboration and higher Neonorm sales.
- Six-month net loss narrowed from $7,641,679 to $6,521,000. R&D expense fell 41% to $2,182,243, while G&A expense rose 70% to $5,441,493, including approximately $2.45 million of merger-related costs.
- For Q2, revenue increased from $24,143 to $896,521 and net loss narrowed from $3,657,475 to $1,805,642. The quarter included a $700,740 non-cash gain from the change in warrant fair value.
- Operating cash use improved from $8,303,055 in the first half of 2016 to $1,466,211 in the first half of 2017, helped by changes in operating assets and liabilities, including higher payables and deferred collaboration revenue.
Outlook, risks, and unusual items
- Management stated that existing cash was insufficient for anticipated needs over the next 12 months and that capital was not sufficient to fund the operating plan through June 2018. The filing cited substantial doubt about the company’s ability to continue as a going concern absent additional financing or other resources.
- Management expected continued losses and increased spending on product development, commercialization, sales and marketing, and general administration. No specific consolidated financial guidance was provided.
- The January 2017 Elanco agreement provided a $2,548,689 upfront payment, recognized over an estimated one-year development period, expense reimbursements, royalties on sales, and up to $61 million in contingent development and commercial milestones. At June 30, $1,451,789 remained deferred; milestone revenue had not been recognized.
- The June 29 secured convertible note generated $1.7 million of net proceeds against $2.155 million face value, carries 8% interest, and is convertible at $1 per share. Its creditor has optional monthly redemption rights; the filing classified the note as current. The terms also include default provisions and a derivative liability.
- Subsequent events materially changed the capital structure: the Napo merger included shares issued to creditors and an investor, and July financing and warrant exercises brought in additional cash. The company reported 67,430,585 common shares outstanding as of August 9, including voting and non-voting shares, compared with 17,482,501 issued and outstanding at June 30.
- The filing estimated approximately $3.6 million of professional and other fees associated with the merger through July 31. It reported no material pending legal proceedings and said disclosure controls were effective at the reasonable assurance level.
Important facts for investors to verify
- Cash runway, near-term financing plans, and the impact of the going-concern warning.
- The full terms, redemption mechanics, conversion dilution, and repayment status of the Chicago Venture Partners note and existing long-term debt.
- Post-merger capitalization, including voting versus non-voting shares, contingent Napo stockholder rights, and any further dilution.
- Elanco development progress, expense reimbursements, royalty terms, exclusivity conditions, and the likelihood and timing of milestone payments.
- Whether product sales, clinical and regulatory progress, and spending trends support management’s stated commercialization plans.