Jaguar Health, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial statements are unaudited. Jaguar is a commercial-stage pharmaceuticals company; its human-health business sells Mytesi, while animal-health products include Neonorm.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $3.167m | $1.706m | $4.036m | $3.295m |
| Operating loss | $8.451m | $10.622m | $16.105m | $16.398m |
| Net loss | $9.238m | $16.721m | $17.174m | $25.025m |
| Net loss attributable to common shareholders | $10.597m | $16.721m | $19.013m | $25.025m |
| Basic and diluted loss per share | $0.44 | $15.11 | $0.97 | $31.22 |
Revenue was almost entirely Mytesi: $3.153m in Q2 and $3.988m for the half; Neonorm contributed $14,000 and $48,000, respectively. Approximate gross margin, calculated as revenue less product cost divided by revenue, was 67% in Q2 2020 versus 26% in Q2 2019, and 58% for the first half versus 36% in 2019.
At June 30, cash was $3.015m; current assets were $11.606m and current liabilities $24.758m (current ratio approximately 0.47). Notes payable, net, totaled $9.360m, of which $8.960m was current. Total liabilities were $25.158m. Stockholders’ equity was $1.544m, with accumulated deficit of $150.264m. Series A redeemable preferred stock had a $12.739m redemption amount.
For the six-month period, operating cash use was $8.298m, investing cash use $7,000, and financing cash provided $7.437m; cash declined by $868,000. Financing included $4.25m gross proceeds from warrant exercises, proceeds from receivables-backed borrowings, and a PIPE. The first Oasis receivables tranche was repaid by June 30; the second remained outstanding.
Material changes versus prior periods
- Q2 revenue increased 85.6%; first-half revenue rose 22.5%. Management attributed the Mytesi growth mainly to increased wholesaler demand, including an April 2020 list-price adjustment. Gross Mytesi sales rose substantially, but discounts, chargebacks, rebates, returns, and wholesaler fees also increased.
- First-half net loss narrowed by $7.851m. Lower interest expense and no repeat of the prior-year $4.0m intangible impairment or $4.605m debt-extinguishment loss helped; 2020 results included $3.696m of Series 3 warrant inducement expense and $1.647m of preferred-stock inducement expense.
- Common shares issued and outstanding increased from 14.273m voting shares at December 31, 2019 to 32.408m at June 30, alongside substantial warrant exercises and other equity issuance. The filing reports 16.991m warrants outstanding at June 30.
- Animal-health revenue remained small and declined year over year. Sales and marketing expense fell, partly due to sales-force reductions; general and administrative expense increased, including higher legal and stock-based compensation costs.
Outlook, risks, contingencies, and unusual items
- Going concern and funding: Management says current cash is insufficient to fund the operating plan for one year after issuance and describes an immediate need to raise cash. The filing states there is substantial doubt about the Company’s ability to continue as a going concern. Additional financing may dilute shareholders or impose debt obligations; failure to obtain funding could force activity cuts.
- Operating outlook: Management expects research and development spending to increase as clinical programs advance, including the planned NP-500 Phase 2 study. It expects to pursue market-access and commercial partnerships; it gave no quantified revenue or earnings guidance.
- Atlas agreement: Atlas paid $1.5m for NP-500 patent rights, but all related revenue was deferred at June 30 because consideration remained constrained pending timely initiation of the Phase 2 study. The study must be initiated by January 15, 2021; failure may trigger a $2.515m trial-delay fee and could permit license termination under specified conditions.
- Liquidity mechanisms: Oasis receivables purchases are accounted for as secured borrowings and carry high effective rates: 147.89% for the first tranche and 77.73% at issuance for the second. The company also sold a future royalty interest for $350,000 against a $500,000 repayment amount; a July amendment increased the remaining repayment amount by 10% and deferred payments until December 10, 2020.
- Preferred-stock redemption: Series A holders may require cash redemption if specified conditions are met, including a Mytesi revenue threshold, stock-price threshold, or missed SEC filing. The company had determined a redemption event was probable and was accreting the preferred carrying value toward the $12.739m redemption amount.
- COVID-19 and concentration: COVID-19 could disrupt manufacturing, logistics, clinical research, and commercialization. The company reported continued Mytesi supply to date, but clinic visits by sales staff were halted. One distributor accounted for 100% of Q2 revenue and 100% of accounts receivable at June 30; the company also depends on third-party manufacturers.
- Other notable matters: FDA denied the company’s EUA request for crofelemer for COVID-19-related symptoms on April 7, 2020. A congressional committee later inquired about the Mytesi price adjustment. A shareholder class action concerning 2017 merger disclosures was in discovery; the company said potential loss was not reasonably estimable. Nasdaq had extended the bid-price compliance deadline to September 10, 2020, with no assurance the company would regain compliance.
- Controls: Management concluded disclosure controls were not effective as of June 30 due to material weaknesses involving accounting staffing, financial-statement preparation and review, and oversight of complex accounting matters. Remediation was planned but not complete.
Most important facts for investors to verify
- Current cash runway, access to additional financing, and progress against the stated going-concern funding need.
- Whether Mytesi net sales growth persists after the price adjustment, and the impact of chargebacks, discounts, rebates, and reliance on one distributor.
- Whether the NP-500 Phase 2 study can be funded and initiated by January 15, 2021, avoiding the trial-delay fee and related license risks.
- Repayment obligations and effective costs under Oasis receivables financing and the royalty-interest agreement, plus the Series A redemption conditions and amount.
- Warrant exercises, potential dilution, Nasdaq bid-price compliance, and remediation of the disclosed material weaknesses.
- Developments in the congressional inquiry, shareholder litigation, and COVID-19-related supply, clinical, and demand risks.