Jaguar Health, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are to fiscal 2018. This is an annual filing, not a standalone fourth-quarter report. Jaguar is a commercial-stage gastrointestinal drug company, with Mytesi (crofelemer) approved in the U.S. for noninfectious diarrhea in adults with HIV/AIDS receiving antiretroviral therapy. Its other human and animal programs remain in development or have limited commercial activity.
Financial performance and position
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $5.78 million | $4.42 million |
| Cost of product revenue | $3.82 million | $2.77 million |
| Gross profit and gross margin | $1.96 million; 33.9% | $1.65 million; 37.4% |
| Operating loss | $28.95 million | $30.82 million |
| Net loss | $38.54 million | $32.15 million |
| Net loss attributable to common shareholders | $44.73 million, including $6.19 million of preferred-stock and warrant deemed dividends | $32.15 million |
| Cash used in operating activities | $20.46 million | $22.73 million |
| Cash provided by financing activities | $21.77 million | $24.55 million |
- Net product revenue rose 36.2%. Mytesi revenue increased to $5.67 million from $4.12 million; animal-health revenue fell to $0.10 million from $0.29 million. There was no collaboration revenue in 2019, compared with $0.18 million in 2018.
- Gross margin declined despite revenue growth, as cost of product revenue rose 38.0%. Management cited inventory write-off and cancellation charges, as well as fees from the former distributor, among the year’s cost items.
- At December 31, 2019, cash was $3.50 million, plus $0.39 million of restricted cash; current assets were $9.52 million and current liabilities $15.39 million. Working capital was therefore approximately negative $5.87 million.
- Notes payable totaled $7.23 million, including $6.78 million current and $0.45 million long-term; no convertible debt remained on the year-end balance sheet. The company also reported Series A redeemable convertible preferred stock with a $12.74 million redemption amount.
- Total assets were $36.41 million, total liabilities $15.84 million, stockholders’ equity $10.67 million, and accumulated deficit $133.09 million. The $4.00 million impairment of indefinite-lived in-process R&D reduced its carrying value; 2018 included a $5.21 million goodwill impairment.
Material changes and unusual items
- Revenue increased, primarily from higher Mytesi sales following distribution changes and increased prescription volume. However, Mytesi sales were highly concentrated: one distributor represented 91% of 2019 net revenue and 99% of year-end accounts receivable.
- Sales and marketing expense fell 29.4% to $6.94 million, mainly due to lower marketing programs and advertising. R&D rose 12.9% to $5.82 million, while G&A rose 10.0% to $13.50 million.
- Interest expense increased to $5.73 million, and the company recorded a $4.94 million loss on extinguishment of debt, largely associated with debt modifications and exchanges. It also recorded a $0.65 million Tempesta royalty settlement expense.
- 2019 financing included a public offering and other equity, warrant, and debt transactions. Debt exchanges for stock and warrant issuances contributed to substantial potential dilution; the filing reports 19.42 million warrants outstanding at year-end.
Outlook, risks, and contingencies
- Liquidity and going concern: Management said cash was insufficient to fund the operating plan through March 2021 and that additional financing was immediately needed. The independent auditor highlighted substantial doubt about the company’s ability to continue as a going concern. Jaguar warned that financing may not be available on acceptable terms and that it may need to curtail activities.
- Development outlook: Mytesi’s lead follow-on opportunity was cancer therapy-related diarrhea (CTD). The company planned a pivotal Phase 3 study, subject to funding and continued FDA discussions; the HALT-D investigator-initiated study was allowed to enroll to completion, with results then expected in late 2020. Other crofelemer programs included pediatric short bowel syndrome/congenital diarrheal disorders, IBD, IBS, and idiopathic/functional diarrhea. Lechlemer for cholera remained pre-IND.
- Animal health: FDA veterinary reviewers had identified Canalevia’s CMC, effectiveness, and environmental sections as complete for conditional approval for chemotherapy-induced diarrhea in dogs; target-animal safety remained open. The company anticipated a Q1 2021 launch only if conditional approval was obtained.
- COVID-19: Jaguar cited potential disruption to suppliers, manufacturing, trials, sales activity, and distribution. On March 21, 2020, it submitted an FDA Emergency Use Authorization request for Mytesi for diarrhea and other gastrointestinal symptoms associated with COVID-19 and certain antiviral treatments; the filing does not report that authorization was granted.
- Subsequent financing: After year-end, the company disclosed a $350,000 sale of a royalty interest in exchange for up to $500,000 of future royalties and certain licensing payments, with minimum monthly payments beginning September 2020. It also disclosed a $720,000 private placement and an equity line commitment of up to $2.0 million, subject to its terms and registration requirements.
- Other risks: The company disclosed a Nasdaq minimum-bid-price deficiency notice with a June 29, 2020 deadline to regain compliance; a continuing material weakness in financial-reporting controls and ineffective disclosure controls; and a pending shareholder class action related to the 2017 merger. The company said potential loss in that action was not reasonably estimable.
Most important facts for investors to verify
- Current cash runway, subsequent cash raised, and the timing and terms of any additional financing.
- Whether Mytesi revenue growth can continue, and the effect of distributor concentration, rebates, discounts, and returns on net revenue and gross margin.
- Progress and funding for the CTD pivotal trial, HALT-D results, and other pipeline programs; verify regulatory status rather than relying on anticipated milestones.
- Canalevia’s remaining safety requirements and whether conditional approval and the anticipated launch occur.
- Nasdaq listing compliance, remediation of the material weakness, and any material developments in the shareholder litigation.
- Potential dilution and obligations from outstanding warrants, preferred stock, debt, and the royalty transaction; review the complete terms of post-year-end financing arrangements.