Jaguar Health, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 14, 2023. Amounts below are in U.S. dollars. Financial statement amounts are unaudited.
Business context
Jaguar is a commercial-stage pharmaceutical company developing plant-based products for gastrointestinal disorders in people and animals. Its marketed human product is Mytesi (crofelemer); animal products include Canalevia-CA1 and Neonorm. The company’s major development program is crofelemer for prevention of diarrhea in adults receiving targeted cancer therapy. Management reported that enrollment in the pivotal Phase 3 OnTarget study was complete. Jaguar also pursues rare-disease programs and, through a new joint venture, plant-derived mental-health drug candidates.
Financial performance
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Product revenue | $2.68 million (2022: $2.92 million) | $4.65 million (2022: $5.55 million) |
| Gross profit and approximate gross margin | $2.19 million; 81.7% (2022: $2.47 million; 84.4%) | $3.81 million; 82.0% (2022: $4.64 million; 83.6%) |
| Research and development expense | $4.28 million (2022: $2.45 million) | $9.05 million (2022: $7.40 million) |
| Sales and marketing expense | $1.57 million (2022: $2.14 million) | $3.46 million (2022: $4.98 million) |
| General and administrative expense | $4.44 million (2022: $4.35 million) | $9.25 million (2022: $10.49 million) |
| Loss from operations | $8.10 million (2022: $6.48 million) | $17.95 million (2022: $18.23 million) |
| Net loss | $12.29 million (2022: $9.39 million) | $24.69 million (2022: $27.55 million) |
| Net loss per common share, basic | $0.69 (2022: $8.77) | $2.14 (2022: $29.51) |
Revenue was predominantly from Mytesi. Six-month revenue declined 16.2%, reflecting lower gross product sales, principally Mytesi. Q2 net loss widened 31% year over year as R&D and interest expense increased and the fair-value adjustment shifted from income to expense. For the first half, lower operating expenses overall and lower interest expense helped reduce net loss despite weaker revenue and higher R&D. The filing reports diluted loss per share of $0.42 for Q2 and $1.42 for the first half of 2023, versus basic loss per share of $0.69 and $2.14, respectively; verify the diluted-share treatment and calculation.
Cash, liquidity and debt
- Cash was $8.63 million at June 30, 2023, versus $5.47 million at December 31, 2022. Cash used in operations was $19.00 million in the first half, compared with $18.15 million in the prior-year period.
- Financing provided $22.17 million in the first half, including $19.42 million net ATM proceeds, PIPE proceeds, and investment from noncontrolling interests. Investing cash flow was zero.
- Current assets were $28.23 million and current liabilities $29.00 million, leaving a $0.78 million working-capital deficit. The approximate current ratio was 0.97.
- Notes payable, net of discount and issuance costs, totaled $30.65 million, including $13.81 million current and $16.85 million noncurrent. The reported gross principal and other note amounts before discounts totaled $43.22 million. Royalty financings make up a substantial part of the obligations; repayment timing can depend on revenues and contractual minimum payments. The Streeterville note was carried at fair value of $8.96 million, above its $6.22 million unpaid principal.
- Stockholders’ equity was $5.83 million, compared with a $1.36 million deficit at year-end 2022; accumulated deficit was $291.3 million.
- Management explicitly stated that cash on hand was not sufficient to fund the operating plan for one year from issuance of the statements and that substantial doubt existed about the company’s ability to continue as a going concern. Additional financing is not assured.
Material changes, outlook and risks
- First-half R&D rose 22.4%, with management citing clinical-trial, contract-manufacturing, consulting and CTD-related activity. Management expects R&D spending to increase as development programs advance. Sales and marketing declined 30.6%, largely due to reduced Mytesi patient-access and marketing programs; management expects spending to increase with market-access and partnership efforts. G&A declined 11.8%; management expects it to remain roughly flat in the near term.
- Management expects continued losses and negative operating cash flow and plans to pursue equity or debt financing, collaborations, licensing and product revenue. The filing gives no specific financial guidance or quantified profitability outlook.
- Jaguar entered into a May 2023 standstill with royalty investors, permitting it to refrain from royalty payments during the standstill period, subject to terms. Related exchanges reduced certain royalty balances in return for Series H preferred stock. The company also issued warrants to investors as consideration for the standstill. These arrangements affect debt repayment, potential dilution and financing flexibility.
- Common shares outstanding increased to 19.12 million at June 30 from 2.18 million at year-end, following a 1-for-75 reverse split, ATM issuance and debt-for-equity exchanges. The company issued 13.48 million shares through the ATM in the first half; 10.67 million warrants were outstanding at quarter-end.
- Nasdaq notified Jaguar that its share price had fallen below the $1 minimum bid requirement. The company had until November 6, 2023 to regain compliance; an extension would depend on meeting other listing conditions.
- Customer concentration is significant: two specialty-pharmacy customers represented 83% of Q2 revenue and 79% of first-half revenue. Jaguar also depends on two raw-material suppliers and one third-party finished-product manufacturer.
- Other development and commercial risks include clinical-trial and regulatory outcomes, product acceptance, financing availability, inventory estimates, and dependence on key suppliers. The filing reported no material legal proceedings or material active-litigation accruals. Management said disclosure controls and internal control over financial reporting were effective as of June 30.
- After quarter-end, on August 14, the company amended financing and standstill agreements to permit subsequent securities sales and investor trading, and agreed to issue an additional 685,000 warrants at $0.48 per share.
Important facts for investors to verify
- Cash runway, expected operating cash burn, and the timing, availability and terms of additional financing, given the express going-concern uncertainty.
- Royalty-financing balances, payment deferrals, minimum-payment schedules, and the consequences if future revenues or financing fall short.
- OnTarget Phase 3 results and timing, along with development and regulatory milestones for the company’s other programs.
- Potential dilution from outstanding and newly issued warrants, preferred stock, ATM sales and further debt-for-equity exchanges; also confirm the post-reverse-split share counts.
- Mytesi revenue trends and exposure to a small number of specialty pharmacies, as well as supplier and contract-manufacturer continuity.
- The basis for reported diluted loss per share being less negative than basic loss per share, and the assumptions behind fair-valued debt and related instruments.