Jaguar Animal Health, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Financial statements are unaudited. The company develops and commercializes gastrointestinal products for companion and production animals; it reported its first product revenue during 2015.
Financial results and liquidity
- Revenue: $77,666 for Q3 and $203,195 for the first nine months, all from Neonorm sales to a distributor. The company defers revenue and related costs until distributor sales to end customers are reported.
- Profitability: Nine-month cost of revenue was $87,889, producing gross profit of about $115,000 (approximately 57% gross margin). Operating expenses were $8.81 million and operating loss was $8.60 million. Net loss was $12.16 million; net loss attributable to common stockholders was $12.51 million, or $2.28 per share. Q3 net loss was $2.96 million, or $0.36 per share.
- Cash flow: Operating activities used $10.39 million and investing activities used $4.50 million in the first nine months; financing activities provided $24.42 million. Cash and cash equivalents increased to $10.38 million from $845,000 at year-end 2014.
- Balance sheet and debt: Total assets were $16.64 million, total liabilities $8.28 million, and stockholders’ equity $8.37 million. Reported long-term debt, net of discount, was $4.46 million, with $1.45 million classified as current. The August 2015 loan had an initial $6 million commitment and requires $4.5 million to remain in restricted cash; restricted cash was $4.5 million at quarter-end.
Changes from the prior comparable period
- Revenue rose from zero in the first nine months of 2014 to $203,195; sales and marketing expense was $519,275, versus none reported in the prior period.
- Nine-month operating expenses increased to $8.81 million from $6.47 million, and net loss increased to $12.16 million from $6.64 million. Research and development rose to $4.41 million from $3.28 million, notably reflecting higher clinical and contract manufacturing costs.
- Net interest expense rose sharply to $3.03 million from $168,000, including substantial amortization of debt discounts and financing charges. A $502,000 warrant fair-value charge was also recorded in 2015.
- The May 2015 IPO raised approximately $15.9 million net and converted preferred stock and certain convertible notes into common shares. Common shares outstanding were 8,124,923 at September 30; 8,124,923 were reported outstanding as of November 13, 2015.
Outlook, risks, and notable items
- Management expects continued losses for at least two years as it funds product trials, toxicology studies, manufacturing capacity, and commercialization. It expects research and development and public-company costs to increase.
- Management stated that available funds, together with access to additional restricted loan proceeds upon milestones, were expected to fund its operating plan through April 2016. It also cautioned that plans may change and additional financing may be needed sooner. The filing states that recurring losses and funding needs raise substantial doubt about the company’s ability to continue as a going concern.
- Canalevia is the lead prescription candidate. The company reported statistically significant results in a canine proof-of-concept study and had begun a rolling FDA application for chemotherapy-induced diarrhea in dogs; the filing describes a planned pivotal study and regulatory filing for a broader watery-diarrhea indication. Neonorm Calf had launched in the U.S.; the company reported approximately $508,000 shipped to distributors, which is not the same as recognized revenue.
- The company entered a four-year API supply agreement in September. An October formulation and manufacturing contract carried estimated commitments of approximately $850,000 for 2015 and 2016. Further manufacturing payments and a $950,000 Napo license-fee balance were scheduled; royalties apply to Croton lechleri products under amended terms.
- The loan agreement carries a 9.9% stated rate after the interest-only period, an effective rate of 15.0% including a balloon interest payment, and cash-maintenance and milestone conditions. Additional borrowing and release of restricted cash depend on milestones.
- No material legal proceedings were reported. Management concluded disclosure controls were effective at the reasonable-assurance level, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Neonorm distributor shipments convert into end-customer sales and recognized revenue, given the company’s sell-through-based revenue policy.
- Canalevia’s clinical and FDA filing milestones, approval prospects, and expected launch timing.
- Cash runway assumptions through April 2016, milestone conditions for releasing restricted cash or accessing additional loan funds, and likely financing needs.
- Manufacturing readiness, remaining supplier commitments, and the ability to meet product quality and supply requirements.
- The impact of continuing operating losses, debt costs and repayment terms, dilution from future financing, and Napo-related license fees and royalties.