Jaguar Animal Health, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; filed August 13, 2015. The company develops gastrointestinal products for companion and production animals. It completed its IPO in May 2015 and is no longer majority-owned by Napo Pharmaceuticals.
Financial performance and position
| Metric | Q2 2015 | Six months 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $63,142 | $125,529 | $0 |
| Cost of revenue | $16,957 | $51,255 | $0 |
| Research and development | $1.75 million | $3.17 million | $0.69 million Q2; $2.15 million H1 |
| Sales and marketing | $163,227 | $353,530 | $0 |
| General and administrative | $1.30 million | $2.39 million | $1.25 million Q2; $1.74 million H1 |
| Operating loss | $3.17 million | $5.85 million | $1.94 million Q2; $3.89 million H1 |
| Net loss | $5.26 million | $9.20 million | $1.94 million Q2; $3.91 million H1 |
| Net loss attributable to common stockholders | $5.42 million | $9.55 million | $2.15 million Q2; $4.20 million H1 |
The company recognized Neonorm distributor revenue only when distributors reported sales to end customers. It reported approximately $508,000 of Neonorm Calf shipments to distributors, but recognized substantially less revenue under this sell-through policy. For H1, reported revenue less cost of revenue was approximately $74,000; the filing does not present a gross-margin percentage.
H1 net cash used in operations was $7.03 million, compared with $1.78 million in 2014. Investing cash flow was zero, versus $55,000 used in 2014. Financing provided $18.56 million, primarily from the IPO. Cash increased by $11.53 million to $12.38 million at June 30, 2015.
At June 30, total assets were $13.86 million, total liabilities $2.74 million, and stockholders’ equity $11.11 million. The balance sheet showed $123,214 of current convertible notes payable and no notes payable; the filing describes other debt as repaid or converted into common stock at the IPO. Accumulated deficit was $18.61 million.
Material changes and unusual items
- In May, the IPO sold 2.86 million shares at $7.00 per share, generating approximately $15.9 million net proceeds. Preferred stock and convertible notes also converted into common stock. Common shares outstanding were 8,119,923 at June 30; the cover reports 8,124,923 as of August 13.
- H1 operating expenses rose to $5.97 million from $3.89 million. R&D increased to $3.17 million, primarily reflecting clinical studies, contract manufacturing, personnel, and stock compensation.
- H1 interest expense was $2.87 million, versus $20,164 a year earlier. The 2015 amount included substantial non-cash amortization of debt discounts and beneficial conversion features associated with financing that converted at the IPO. The company also recorded a $501,617 H1 warrant fair-value charge; the warrant liability was converted to additional paid-in capital at the IPO.
- The Napo license fee was reduced to $1.75 million. At June 30, $1.45 million remained payable to Napo; the filing records a $250,000 fee abatement as a capital contribution. IPO completion also reduced Croton lechleri product royalties to 2% for prescription products and 1% for nonprescription products, with no milestone payments due under the amended terms.
Outlook, risks and commitments
- Management expected continuing losses, at least for the next two years, as it funds trials, toxicology studies, manufacturing capabilities, and commercialization. It anticipated higher R&D and public-company costs.
- Management believed IPO proceeds and existing cash would fund the operating plan through April 2016, including anticipated Canalevia launch for chemotherapy-induced diarrhea (CID) in dogs and pivotal data and an FDA filing to expand the indication to general watery diarrhea. This is a management estimate, not a guarantee.
- The company stated that recurring losses, an accumulated deficit, expected future losses, and dependence on additional funding raised substantial doubt about its ability to continue as a going concern. Additional financing may be needed; availability and terms are uncertain and could dilute shareholders or impose debt restrictions.
- Canalevia had shown statistically significant proof-of-concept results in dogs; a rolling FDA new animal drug application for CID had begun in late 2014. Neonorm Calf had launched in the U.S.; the company intended to launch additional species formulations and develop Neonorm for six additional target species.
- Manufacturing commitments included approximately €650,000 of remaining payments under the Italian manufacturer agreement, plus other stated fees and deliverable payments. A new office sublease beginning July 1, 2015 runs through August 2018, with future minimum payments of $1.14 million.
- The filing reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether Neonorm distributor sell-through supports recurring recognized revenue and collections, given the gap between reported shipments and revenue.
- Canalevia clinical, manufacturing, and FDA submission milestones, including the timing and feasibility of the anticipated launch and indication expansion.
- Whether cash burn, remaining manufacturing and license commitments, and operating-plan changes affect the stated April 2016 funding runway or require new capital.
- The terms and potential dilution from outstanding options and warrants, and the continuing economics and related-party obligations under the Napo license.
- The impact of the large non-cash financing charges on reported losses versus ongoing cash requirements.