Jaguar Animal Health, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The unaudited filing covers Jaguar Animal Health, Inc., an animal-health company developing gastrointestinal products for companion and production animals. At quarter-end, it was majority-owned by Napo Pharmaceuticals; the May 2015 IPO subsequently ended that majority ownership.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $62,387 | $0 |
| Cost of revenue | $34,298 | $0 |
| Gross profit | $28,089 | $0 |
| Operating expenses | $2.741 million | $1.953 million |
| Operating loss | $2.679 million | $1.953 million |
| Net loss | $3.937 million | $1.966 million |
| Net loss attributable to common stockholders | $4.124 million | $2.046 million |
| Cash used in operating activities | $1.339 million | $613,117 |
| Cash and cash equivalents at quarter-end | $746,343 | $4.248 million |
- Sales were Neonorm shipments to a distributor. The company deferred revenue and cost recognition until the distributor resold products to end customers. Reported revenue therefore does not represent all product shipped.
- Research and development expense was $1.423 million, down from $1.458 million; clinical and contract-manufacturing costs rose substantially, while Q1 2014 included $1.197 million of materials expense.
- General and administrative expense increased to $1.094 million from $495,000; sales and marketing expense was $190,303 versus none in the prior-year quarter.
- Interest expense was $933,032, compared with $13,150, and the warrant fair-value charge was $328,516. The warrant liability, a Level 3 fair-value measurement, was $977,884 at March 31.
- Total assets were $4.844 million and total liabilities were $9.207 million. Current assets of $3.978 million compared with current liabilities of $9.207 million. Stockholders’ deficit was $11.855 million; accumulated deficit was $13.348 million.
- Operating cash outflow was partly offset by $1.240 million of financing cash inflow, including a $1.0 million loan advance and $250,000 of convertible notes. The company ended the quarter with less cash than at year-end 2014.
Material changes and subsequent events
- Net loss attributable to common stockholders approximately doubled year over year. Total operating expenses rose about 40%, primarily reflecting higher G&A and newly incurred sales and marketing costs; R&D was modestly lower.
- In May 2015, the company completed its IPO, issuing 2.86 million shares at $7.00 per share and receiving approximately $15.1 million net proceeds. Preferred stock converted into common stock at the IPO. These transactions are subsequent to the quarter and are not reflected in the March 31 financial statements.
- After the IPO, the company repaid the bridge financing, including $321,600 of interest, and certain convertible notes converted into common shares. A $1.0 million Dechra note issued in April also converted at the IPO; Dechra had provided the $1.0 million quarter-end loan advance under a non-binding letter of intent.
Outlook, risks and unusual items
- Management expected continuing losses for at least two years and increased 2015 spending for product development, studies, manufacturing capability and commercialization. It projected IPO proceeds plus existing cash would fund its operating plan through April 2016, while cautioning that changed plans or funding needs could require additional capital.
- The company reported recurring losses, a $13.348 million accumulated deficit and substantial doubt about its ability to continue as a going concern before the IPO. It warned that additional financing might not be available on acceptable terms and that failure to obtain funding could force cuts to planned activities.
- Canalevia, the lead prescription candidate, showed statistically significant results in a canine proof-of-concept study: 91% of treated dogs achieved formed stool versus 50% on placebo. The company had begun a rolling FDA application for chemotherapy-induced diarrhea in dogs and planned further work toward a broader watery-diarrhea indication. Neonorm Calf had launched in late 2014; management reported approximately $450,000 shipped to distributors.
- The company cited approximately $2.1 million in fees under manufacturing-arrangement memorandums with Indena, in addition to other manufacturing commitments. Timing and exact expenditures could vary; some payments had been delayed, with certain fees paid after quarter-end.
- The Napo license requires royalties on Croton lechleri products and includes scheduled license-fee payments. The company recorded a $250,000 license-fee abatement as a capital contribution from Napo.
- Management said disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting. Legal proceedings and market-risk disclosures were reported as not applicable.
Key facts for investors to verify
- How much of Neonorm distributor shipments had sold through to end customers, and how distributor inventory and deferred revenue were reconciled.
- Whether IPO proceeds and subsequent debt conversions and repayments provided sufficient runway relative to management’s April 2016 funding estimate and planned spending.
- Progress, timing, costs and regulatory requirements for Canalevia studies and FDA filings, and commercial uptake of Neonorm.
- Execution of the Indena manufacturing arrangement, associated payments and the availability of qualified product supply.
- Current related-party balances and obligations to Napo, including license-fee installments, royalties and any remaining commitments.
- Assumptions underlying the Level 3 warrant valuation and the effects of debt discounts, warrant liabilities and other financing costs on reported losses.