Jaguar Health, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Unaudited consolidated results include human-health subsidiary Napo; the July 2017 merger means 2017 comparative results generally exclude Napo and are not directly comparable. Jaguar develops and commercializes gastrointestinal products for human and animal health, including FDA-approved Mytesi.
Financial results and condition
| Metric | Q2 2018 | Six months 2018 | Comparable 2017 |
|---|---|---|---|
| Total revenue | $883,846 | $1,688,202 | Q2 $896,521; six months $1,718,931 |
| Operating expenses | $7,962,920 | $13,895,537 | Q2 $3,246,774; six months $7,944,786 |
| Operating loss | $7,079,074 | $12,207,335 | Q2 $2,350,253; six months $6,225,855 |
| Net loss | $7,657,183 | $13,353,820 | Q2 $1,805,642; six months $6,521,000 |
| Net loss attributable to common shareholders | $8,652,183 | $14,348,820 | Q2 $1,805,642; six months $6,521,000 |
| Loss per share, basic and diluted | $0.76 | $1.43 | Q2 $1.84; six months $6.78 |
Product revenue was $883,846 for Q2 and $1,510,813 for six months; it included Mytesi revenue of $854,170 and $1,437,439, respectively. Collaboration revenue was nil in Q2 and $177,389 for six months. Cost of product revenue was $608,024 for Q2 and $1,072,185 for six months. On a consolidated revenue-less-cost basis, gross profit was approximately $275,822 for Q2 and $616,017 for six months; this includes collaboration revenue where applicable.
For the six months, research and development expense was $2,362,752, sales and marketing $4,402,452, and general and administrative $6,058,148. Management attributed increased selling costs primarily to promoting Mytesi; higher research and development costs included manufacturing readiness and serialization work.
Cash and cash equivalents were $2,411,473 at June 30, 2018, versus $520,698 at December 31, 2017. Cash used in operations was $15,018,512; investing used $6,527; financing provided $16,676,646. Current assets were $6,876,130 and current liabilities $12,369,805. Total liabilities were $23,137,968, including $10,768,163 of long-term convertible debt and $3,990,104 of current notes payable. Stockholders’ equity was $14,018,294; Series A convertible preferred stock was presented separately, at $9,000,002.
Material changes and financing
- Six-month revenue declined 1.8% year over year despite higher product revenue, as collaboration revenue fell 88.8%. Elanco terminated its Canalevia and related crofelemer agreement effective January 30, 2018.
- Six-month operating expenses rose 74.9% and net loss increased to $13.4 million. Higher Mytesi marketing and post-merger operating costs were significant contributors.
- In March 2018, the company raised approximately $14.2 million gross through $9.2 million of Series A preferred stock and $5.0 million of common stock. It also completed other equity financings and issued shares to settle debt and interest. A 1-for-15 reverse split took effect June 1, 2018; reported voting common shares are post-split.
- The company repaid its prior secured long-term loan in March using equity proceeds, but continued to carry substantial convertible debt and CVP notes. The preferred shares are initially convertible at an effective $0.185 per common share, subject to ownership limits and required stockholder approval. They carry a liquidation preference and potential redemption provisions.
Outlook, risks and unusual items
- Management said existing cash would not cover anticipated needs for the next 12 months and would not fund the operating plan through June 2019. The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance. Additional financing, partnering, or cost reductions may be necessary; funding may not be available on acceptable terms.
- Management expects continued losses and increased research and development, sales and marketing, and general and administrative spending. The filing gives no specific revenue or earnings guidance.
- Three distributors represented 90% of Q2 revenue and 91% of six-month revenue. The company also relied on a single supplier each for drug substance and drug product. A $1.6 million non-cancelable vendor purchase commitment was due to be filled August–December 2018.
- CVP note maturities were subsequently extended on August 13, 2018: the $2.155 million secured convertible note and $1.588 million secured promissory note were extended to August 26, 2019. This occurred after quarter-end.
- A shareholder class action relating to the 2017 merger remained pending; the company disputed the claims, and the court had not ruled on its motion to dismiss. The company said potential loss was not reasonably estimable.
- Disclosure controls were deemed ineffective because of a material weakness in tax-provision review and related controls. Management planned remediation but gave no assurance it would be sufficient.
- The six-month common-shareholder loss includes a $995,000 noncash deemed dividend on preferred stock. The 2017 annual impairment of goodwill ($16.8 million) and in-process research and development ($2.3 million) were also disclosed; no new impairment charge was reported for this period.
Important facts for investors to verify
- Current cash runway, near-term financing needs, and availability and terms of additional capital.
- Mytesi sales trends, commercialization economics, distributor concentration, and whether marketing spending translates into sustainable revenue.
- Debt balances, CVP redemption limits and extended maturities, and the preferred stock’s conversion, liquidation, and potential redemption terms.
- Progress on Mytesi follow-on indications and animal-health programs, including the effects of Elanco’s termination and planned development spending.
- Status of the shareholder litigation, remediation of the tax-control material weakness, and any subsequent liquidity or impairment developments.