Jaguar Health, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016; unaudited. Jaguar develops and commercializes animal-health products. Commercial products included Neonorm Calf and Neonorm Foal; the company’s lead drug candidate, Canalevia, was in pivotal testing for acute diarrhea in dogs.
Financial performance and liquidity
- Revenue: $50,357 for Q3 and $112,646 for the first nine months. Reported revenue included $24,000 of botanical-extract sales to a China distributor during the quarter; the company recorded no cost of revenue for those sales because the extract had no carrying cost.
- Profitability: Q3 net loss was $3.42 million ($0.30 per share); nine-month net loss was $11.06 million ($1.07 per share). Nine-month operating expenses were $10.38 million, including $5.67 million of R&D. Nine-month gross profit was approximately $75,800, or 67% of revenue.
- Cash flow: Operations used $11.69 million of cash in the first nine months. Investing activities provided $1.91 million, primarily from the release of restricted cash, while financing provided $3.90 million. Cash and cash equivalents declined to $1.81 million from $7.70 million at year-end 2015.
- Balance sheet: Total assets were $5.10 million, current liabilities $3.10 million, and stockholders’ deficit $273,000. Restricted cash was $988,580. Long-term debt, net of discounts and issuance costs, was $4.12 million; an additional $150,000 convertible note remained outstanding.
Changes versus the prior period
- For the first nine months, revenue fell 44% from $203,195, while operating expenses increased 18% to $10.38 million. Operating loss widened to $10.27 million from $8.60 million.
- Nine-month net loss improved to $11.06 million from $12.16 million, mainly because prior-year results included substantially higher debt-discount interest expense and a warrant fair-value charge.
- R&D expense rose 29% to $5.67 million, reflecting added personnel, consulting and formulation work, and clinical studies; sales and marketing expense declined 32% to $355,000. General and administrative expense increased 14% to $4.32 million.
- Q3 revenue declined 35% year over year to $50,357, and net loss increased to $3.42 million from $2.96 million, largely alongside higher R&D spending.
Outlook, risks and notable items
- Going concern and funding: Management said existing cash was insufficient for anticipated needs over the next 12 months and not enough to fund its operating plan through September 2017. The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Additional equity, debt, collaboration or other financing may be needed and could dilute shareholders or impose repayment obligations and restrictions.
- Development and spending: Management expected continued losses and increased expenditures for product development, clinical studies, manufacturing and commercialization. Canalevia’s pivotal dog study was expected to complete enrollment around year-end 2016; timing and costs depend on trial results, regulatory requirements and approvals.
- Financing and listing: A private-investor stock purchase agreement provided for up to $15 million of purchases over approximately 30 months, subject to its terms. Jaguar received a Nasdaq notice for falling below the $2.5 million stockholders’ equity requirement; Nasdaq granted an extension, with compliance due by February 21, 2017.
- Strategic developments: A September agreement made Integrated Animal Nutrition and Health the exclusive distributor of botanical extract in China for four years, subject to annual minimum purchases and required local registrations. An October 6 non-binding LOI contemplated a possible merger with Napo at an indicative 3-to-1 Napo-to-Jaguar value ratio; completion was uncertain and subject to definitive terms and approvals.
- Debt and dilution: Subsequent to quarter-end, the $150,000 convertible note maturity was extended to January 1, 2017; the lender received a warrant for 120,000 shares at $0.01 per share. The company also reported subsequent stock sales, including $794,810 under the purchase agreement on October 4 and $150,000 under a separate agreement on October 19.
- The company reported no material legal proceedings. Management concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Cash runway, near-term financing requirements, and the availability and terms of remaining purchase-agreement capacity.
- Progress, enrollment completion and results of Canalevia and other clinical or formulation programs, plus regulatory timelines.
- Compliance with Nasdaq’s stockholders’ equity requirement by February 21, 2017.
- Whether the Napo merger LOI advances to a definitive agreement, and its final terms, approvals and capitalization conditions.
- China distributor minimum purchases, product registrations, and whether botanical-extract sales can become recurring and economically meaningful.