Jaguar Health, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; unaudited. Jaguar operates human-health and animal-health businesses. Mytesi, its FDA-approved human drug, generated nearly all revenue. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $2.773 | $0.973 | $6.809 | $4.268 |
| Gross profit | $1.989 | $0.025 | $4.318 | $1.195 |
| Gross margin | 71.7% | 2.6% | 63.4% | 28.0% |
| Operating loss | $(5.375) | $(6.727) | $(21.480) | $(23.124) |
| Net loss | $(7.866) | $(7.555) | $(25.040) | $(32.580) |
| Net loss attributable to common shareholders | $(8.271) | $(11.683) | $(27.284) | $(36.708) |
| Basic and diluted loss per share | $(0.21) | $(2.00) | $(1.03) | $(13.37) |
At September 30, cash was $1.349, total current assets $10.723, current liabilities $25.768, total liabilities $28.428, and stockholders’ equity $7.806. Current liabilities included $6.430 of Series D preferred stock classified as a liability. Notes payable, net of discount, totaled $9.441, of which $6.781 was current. Accumulated deficit was $158.1.
For the first nine months, operating cash outflow was $11.217, investing outflow $0.007, and financing inflow $8.690; cash declined by $2.534 to $1.349. Cash used in operations improved from $17.317 in the prior-year period. The filing does not provide a separate reported operating margin; operating loss was $(21.480) on $6.809 revenue for the nine months.
Material changes versus comparable periods
- Nine-month revenue rose 59.5%; Q3 revenue rose 185.0%. Management attributed Mytesi growth mainly to greater wholesaler demand, following an April 2020 list-price increase. Mytesi net sales were $6.7 million for the nine months; Neonorm animal-product revenue was only $61,000.
- Revenue growth was partly offset by increased deductions. Nine-month sales discounts were $4.307 million versus $1.055 million, including $4.1 million of Mytesi chargeback allowances versus $0.9 million. Chargebacks were about 30% of Mytesi gross sales versus 15% a year earlier.
- Nine-month operating loss narrowed by $1.644 million, while net loss improved by $7.540 million. Lower interest expense and no repeat of 2019 impairment and debt-extinguishment charges contributed; 2020 included warrant fair-value losses and inducement expenses. In Q3, net loss increased by $0.311 million, with a $2.946 million unfavorable year-over-year swing in fair value of financial instruments partly offset by lower interest expense.
- Common shares issued and outstanding increased substantially during the period, including through warrant exercises and debt exchanges. At November 6, 2020, the company reported 69.4 million voting common shares outstanding, plus 21.8 million non-voting shares and convertible preferred securities.
Outlook, risks, contingencies and unusual items
- Going concern and financing: Management said available cash was insufficient to fund its operating plan for one year after issuance of the statements, noted an immediate need to raise cash, and disclosed substantial doubt about the company’s ability to continue as a going concern. Further equity or debt financing, asset/royalty transactions, or spending cuts may be necessary; financing may dilute shareholders or impose additional obligations.
- Spending outlook: Management expected R&D expense to rise with clinical-trial start-up and development work, and indicated near-term sales and marketing spending could increase as it expands market access and partnerships. It expected G&A to remain broadly flat. No quantified revenue or earnings guidance was provided.
- Clinical programs: After quarter-end, Napo entered arrangements for a planned pivotal Phase 3 trial of Mytesi for cancer-therapy-related diarrhea, with CRO fees of up to approximately $12.4 million subject to milestones. The company also decided not to proceed with the NP-500 Phase 2 study under its Atlas agreement; it recorded a $1.015 million excess trial-delay loss in Q3 and subsequently settled the $2.5 million fee with common shares and pre-funded warrants.
- Subsequent financing: In October, the company entered a $6 million royalty transaction with Iliad, tied to a $12 million royalty repayment amount, interest, minimum payments, and potential increases under specified share-price conditions. It also registered an ATM program for up to $7 million; no shares had been sold under it as of the filing.
- Nasdaq listing: The company received notice of noncompliance with the $1.00 minimum bid-price requirement. Nasdaq granted an extension through December 23, 2020, requiring at least ten consecutive business days at or above $1.00; management was seeking shareholder approval for a possible 1-for-2 to 1-for-20 reverse split. The filing states compliance was not assured. Stockholders’ equity compliance had been regained, but continued compliance remained subject to future reporting.
- Concentration and operations: One U.S. distributor represented 100% of revenue and accounts receivable at September 30. The company relies on a single contract manufacturer for Mytesi API and finished product, with two raw-material suppliers. COVID-19 could disrupt supply, trials, sales, and collections.
- Controls and legal matters: Management concluded disclosure controls were not effective and reported unremediated material weaknesses involving accounting staffing, complex transaction review, and financial-statement preparation. A proposed $2.6 million class-action settlement relating to the 2017 merger remained subject to court approval; the company said its D&O insurer would pay if effective.
Investor verification priorities
- Confirm current cash, burn rate, financing raised since the filing, and whether management’s one-year funding shortfall has been resolved.
- Check Mytesi net sales, wholesaler concentration, chargeback and discount assumptions, and whether the April price increase produces sustainable net revenue growth.
- Verify subsequent share issuance, warrant exercises, preferred-stock exchanges, and resulting fully diluted share count and potential dilution.
- Review terms and payment performance for the Oasis receivables-backed borrowings, royalty financing, and CVP notes, including maturity obligations and pledged receivables.
- Track Nasdaq bid-price compliance and any reverse split, as well as remediation of the disclosed material weaknesses.
- Confirm the Atlas settlement’s completion and status, and assess funding and execution of the planned Phase 3 trial and other clinical programs.