Jaguar Health, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed April 9, 2018. The filing reports full-year results, not a standalone fourth-quarter income statement. Jaguar develops and commercializes gastrointestinal products for human and animal health. Its July 31, 2017 merger with Napo brought FDA-approved Mytesi (crofelemer) and its human-health pipeline into the company; results include Napo only after the merger unless otherwise noted.
Financial results and position
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Total revenue | $4.36 million | $141,523 |
| Product revenue | $1.49 million | $141,523 |
| Collaboration revenue | $2.88 million | None reported |
| Operating expenses | $38.61 million | $13.73 million |
| Loss from operations | $(34.25) million | $(13.59) million |
| Net loss | $(21.97) million | $(14.73) million |
| Basic and diluted loss per share | $(0.51) | $(1.35) |
| Cash used in operating activities | $(9.82) million | $(14.41) million |
- Mytesi revenue was $1.06 million for 2017, following its launch in February. Neonorm revenue was $344,194; botanical extract revenue was $78,000. Collaboration revenue included $2.37 million recognized from Elanco’s upfront payment and $504,771 in expense reimbursements.
- Product revenue less cost of product revenue was approximately $605,000, or a 40.7% product gross margin. This excludes collaboration revenue and is not a company-wide operating margin.
- Cash and cash equivalents were $520,698 at year-end, plus $239,169 of restricted cash. Current assets were $3.80 million and current liabilities $15.39 million. Total assets were $43.63 million; total liabilities were $26.37 million; stockholders’ equity was $17.26 million.
- Year-end debt included $13.65 million of net convertible notes, $1.14 million of net notes payable, and $1.61 million of net long-term debt, approximately $16.40 million combined. The company also had $7.35 million in accounts payable.
- Accumulated deficit was $62.40 million. No meaningful positive operating cash flow or profitability was reported.
Material changes and unusual items
- Revenue grew sharply from a low base, reflecting the Mytesi launch, Elanco collaboration revenue, and increased Neonorm sales. The merger also changed the company’s business mix and reporting scope; 2017 includes only five months of Napo operations.
- Net loss widened by $7.23 million. Operating expenses rose substantially, including $16.83 million of goodwill impairment and $2.30 million of in-process research and development impairment. The latter followed termination of the C. difficile program. General and administrative expense included approximately $3.52 million of merger-related costs.
- Research and development expense fell 40.8% to $4.27 million, principally because clinical and manufacturing activity was lower than in 2016. Sales and marketing expense increased to $3.08 million as Mytesi promotion expanded.
- A $13.18 million income tax benefit, largely associated with the Napo acquisition and a partial release of valuation allowance, reduced reported net loss. The company still maintained a valuation allowance against deferred tax assets.
- Operating cash use improved year over year, but financing activities provided $10.68 million and cash declined by $430,281. Funding came from equity issuances, debt, and warrant exercises.
Outlook, risks, and contingencies
- Going concern and funding: The auditor highlighted substantial doubt about the company’s ability to continue as a going concern. Management said existing cash was insufficient to fund planned operations through December 2018; the filing also states insufficient cash resources to fund operations through March 31, 2019. Additional financing or partnerships are needed, with no assurance of availability on acceptable terms. Management anticipated higher 2018 spending on development and commercialization.
- Commercial outlook: Management planned to expand the Mytesi sales team and promotional, education, and patient-access programs. It estimated the U.S. market potential for Mytesi’s approved indication at about $100 million in gross annual sales; this is a company estimate, not guidance. Preliminary Mytesi sales for August–December 2017 were announced at approximately $1.40 million, while recognized 2017 Mytesi revenue was $1.06 million.
- Pipeline: Mytesi follow-on programs include cancer therapy-related diarrhea, rare pediatric indications, IBD, IBS, and a second-generation agent for cholera. Canalevia had completed two of four technical sections toward conditional approval for chemotherapy-induced diarrhea in dogs, per the company’s subsequent March 2018 update. These programs remain subject to clinical, regulatory, manufacturing, and funding risks.
- Partner termination: Elanco gave notice in November 2017 to terminate its Canalevia collaboration, effective January 30, 2018; rights reverted to Jaguar. Potential milestone payments and royalties under that agreement had not been recognized and should not be treated as secured future revenue.
- Financing and dilution: At year-end, the company had substantial convertible debt, warrants, options, and non-voting shares convertible into voting shares. Subsequent to year-end, it entered a March 2018 agreement to issue preferred stock for approximately $9.2 million and reported a concurrent approximately $5.0 million common-stock offering. It also issued additional debt and repaid the Hercules loan in March 2018, with CVP obtaining a security interest in substantially all company assets upon repayment.
- Other risks: A merger-related shareholder class action was pending; Jaguar disputed the claims. The stock had fallen below Nasdaq’s $1.00 minimum bid requirement and had until May 14, 2018 to regain compliance. Management reported ineffective disclosure controls and a material weakness in tax accounting review. The filing also identifies risks from competition, reliance on contract manufacturers and limited suppliers, reimbursement, regulatory approvals, and patent protection.
Important facts for investors to verify
- Current cash runway, financing proceeds actually received, near-term debt maturities and repayment terms, and the impact of the March 2018 financings on dilution and collateral.
- Mytesi net sales, prescription and refill trends, gross-to-net deductions, and reconciliation of announced preliminary sales to recognized revenue.
- Commercial and development plans following Elanco’s termination, including Canalevia funding, approval milestones, and launch timing.
- Progress in remediating the tax-accounting material weakness and the outcome of Nasdaq listing compliance efforts.
- Status and potential exposure from the merger-related litigation, and any further impairment of goodwill or intangible assets.