Jaguar Health(JAGX) - 2018 Q4 - Annual Report

PART I Business Jaguar Health is a commercial-stage pharmaceutical company focused on gastrointestinal products for humans and animals Overview Jaguar Health is a commercial-stage pharmaceutical company focused on sustainably derived gastrointestinal products, primarily Mytesi - The company is a commercial-stage pharmaceutical entity focused on developing and commercializing novel, sustainably derived gastrointestinal products for both human and animal health[16][18] - Its primary commercial product is Mytesi (crofelemer), approved by the FDA for treating noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy[16] - Following the merger with Napo Pharmaceuticals in July 2017, the company's main activities are the commercialization of Mytesi and the development of follow-on indications for crofelemer[18] Mytesi Commercialization and Market Access Napo utilizes a direct sales force and co-promotion agreements to expand Mytesi's market reach and formulary access - Napo employs a direct sales force of 16 representatives and has a co-promotion agreement with RedHill Biopharma to market Mytesi in key U.S. territories[21][24][26] - Mytesi is on ADAP formularies in 30 states, providing access to approximately 86% of ADAP-eligible individuals in the U.S[31] - The product is reimbursed by Medicaid in all 50 states and covered on 100% of the top 10 commercial insurance plan formularies, representing over 245 million U.S. lives[33] Product Pipeline and Development Strategy The company is developing crofelemer for new indications like CTD and rare diseases, and lechlemer for cholera Crofelemer (Mytesi) Follow-on Indications Pipeline | Indication | Current Phase of Development | Key Milestones | | :--- | :--- | :--- | | Cancer therapy-related diarrhea (CTD) | Phase 3 | Two ongoing investigator-initiated trials (IITs); FDA meeting held in March 2019 to discuss pivotal trial protocol | | Inflammatory Bowel Disease (IBD) | Phase 2 | Multiple Phase 2 studies in various secretory diarrheas completed | | Rare Disease (SBS & CDD) | Phase 2 | Orphan-drug designation for SBS; IIT planned for CDD in Abu Dhabi | | Irritable bowel syndrome—diarrhea predominant (IBS-D) | Phase 2 | Two Phase 2 studies completed | | Idiopathic/functional diarrhea | Phase 2 | Multiple Phase 2 studies in various secretory diarrheas completed | - The company has established scientific advisory boards with key opinion leaders (KOLs) for each potential follow-on indication to provide expert input on trial design and development[48][49] - A second-generation anti-secretory agent, lechlemer, is being developed for cholera, which may support efforts to receive a priority review voucher from the FDA[93] Animal Health Products Jaguar continues limited animal health initiatives, developing Canalevia for dogs and marketing Equilevia for horses - The company's lead animal drug candidate is Canalevia, for chemotherapy-induced diarrhea (CID) in dogs, with MUMS designation from the FDA[67][68] - Jaguar has completed CMC, Effectiveness, and Environmental Impact technical sections for Canalevia's conditional approval, with the final section filing planned for Q2 2019[68] - The company also markets Equilevia, a non-prescription product for total gut health in high-performance horses[67] Clinical Data and Products in Development This section details clinical evidence for Mytesi's approved and pipeline indications, including CTD, IBS-D, and rare diseases - In the pivotal ADVENT trial for HIV-diarrhea, 18% of Mytesi patients met the primary endpoint versus 8% on placebo, with 83% experiencing at least a 50% decrease in watery stools by week 20[98][99] - For Irritable Bowel Syndrome-Diarrhea Predominant (IBS-D), two Phase 2 studies showed statistically significant improvement in abdominal pain for female subjects[108][110][117] - A Phase 2 study of crofelemer in cholera patients showed a 25-30% reduction in median watery stool volumes in the first 12 hours of therapy[140] - The company is pursuing rare pediatric disease indications, including Congenital Diarrheal Disorders (CDD) and Short Bowel Syndrome (SBS), with orphan-drug status for pediatric SBS[122][126] Competition Jaguar Health faces competition from large pharmaceutical companies, but Mytesi has no direct FDA-approved competitors for its current indication - For its currently approved indication (diarrhea in HIV/AIDS patients), Mytesi has no direct FDA-approved competitors[148] - In the potential IBS-D market, Mytesi would compete with established products like Virbezi (Allergan) and Xifaxan (Valeant)[149] - No FDA-approved drugs exist for cancer therapy-related diarrhea, congenital diarrheal disorders, short bowel syndrome, or as an anti-secretory agent for cholera, representing key market opportunities[151][152] Manufacturing and Supply Crofelemer API is derived from Croton lechleri, with primary manufacturing by Glenmark and a third site with Indena - The raw material for crofelemer is crude plant latex (CPL) sustainably harvested from the Croton lechleri tree in South America[157] - The primary manufacturer is Glenmark Pharmaceuticals Ltd., operating out of two FDA-approved facilities in India[158] - A third manufacturing site is being established with Indena S.p.A. in Milan, Italy, to ensure supply chain redundancy and support commercial scale-up[158][160] Intellectual Property Jaguar holds an extensive global IP portfolio with 142 issued patents, primarily for methods of use, expiring in 2031 - The company holds approximately 142 issued patents worldwide and has 24 pending applications for human health indications[64] - Key U.S. patents for treating HIV-associated diarrhea with crofelemer expire on October 31, 2031[170] - Mytesi's approval under botanical guidance creates a high barrier to generic competition due to proprietary bioassay requirements and non-systemic absorption[65][66] Government and Animal Health Regulation The company's products are subject to extensive FDA regulation for human and animal health, including MUMS designation - Human drugs require FDA approval via an NDA process, involving pre-clinical studies and three phases of human clinical trials to demonstrate safety and efficacy[176][179] - Animal health products are regulated by the FDA's Center for Veterinary Medicine (CVM); Canalevia has MUMS designation, providing seven years of marketing exclusivity upon approval[229][230] - The company is also subject to U.S. healthcare laws like the Anti-Kickback Statute and Physician Payments Sunshine Act, regulating business practices and payments to healthcare providers[206][207][213] - The company believes its non-prescription animal products are not currently FDA-regulated, though this interpretation is subject to change[235][365][366] Risk Factors The company faces significant risks including recurring losses, dependence on Mytesi, supply chain issues, and intellectual property challenges Risks Related to Business and Financial Condition The company faces going concern uncertainty due to recurring losses, dependence on Mytesi, and need for additional capital - The company has a limited operating history, expects further losses, and its auditor expressed substantial doubt about its ability to continue as a going concern[247][250] - The business is substantially dependent on the success of Mytesi and Canalevia, with no certainty of future approvals or commercial success[262] - The company relies on two suppliers for raw material and third-party manufacturers for API and finished products, creating significant supply chain risk[299][300] - Obligations to CVP and Kingdon Note holders are secured by company assets, posing a foreclosure risk in case of default[327][329] Risks Related to Intellectual Property The company's IP relies on method-of-use patents, not composition-of-matter, posing risks of costly litigation and weak foreign protection - The company's proprietary position relies on formulation and method-of-use patents, as crofelemer's composition-of-matter patents have expired, allowing competitors to use the drug for other indications[341][342] - The company may face expensive lawsuits to protect its patents, and third parties may successfully challenge their validity or enforceability[343] - Protecting intellectual property rights globally is expensive and difficult, especially in developing countries, potentially impairing the business[353][354] Risks Related to Government Regulation The company faces ongoing regulatory compliance risks, potential reclassification of non-prescription products, and legislative changes - Even with regulatory approval, the company is subject to ongoing obligations and review, potentially incurring significant expense and penalties for non-compliance[357] - The FDA may disagree with the company's classification of non-prescription animal products, potentially leading to costly approval processes and commercialization delays[365][367] - Future legislative or regulatory reforms could significantly change product approval, manufacturing, and marketing statutes, imposing additional costs and lengthening review times[363][374] Risks Related to Our Common Stock Common stock faces delisting risk, high volatility, significant dilution potential, and material weakness in internal controls - The company's common stock is at risk of delisting from NASDAQ for failing to meet the minimum $1.00 bid price requirement[377] - A material weakness in internal control over financial reporting was identified for 2018 due to staff turnover and inadequate expertise in complex accounting matters[380][383] - Stockholders may be significantly diluted by the conversion of outstanding non-voting common stock, Series A Preferred Stock, convertible notes, and the exercise of options and warrants[394] - As of December 31, 2018, executive officers, directors, and 5% stockholders beneficially owned approximately 44% of outstanding voting common stock, giving them significant influence[404] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[409] Properties The company's corporate headquarters are in San Francisco, California, with a lease expiring September 30, 2020 - The company leases 6,311 square feet of office space for its corporate headquarters in San Francisco, California[410] - The lease expires on September 30, 2020[410] Legal Proceedings The company settled a vote miscalculation claim and is defending a class action lawsuit related to the Napo merger - A March 2018 demand letter alleging miscalculation of stockholder votes was settled in March 2019 without material financial cost[411][413] - A putative class action lawsuit filed in July 2017 alleges false and misleading information in the S-4 proxy statement related to the Napo merger, with a motion to dismiss pending[414][415] Mine Safety Disclosure This item is not applicable to the company's operations - Not applicable[417] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ, with no cash dividends paid or anticipated due to reinvestment for growth - The company's common stock trades on The NASDAQ Capital Market under the ticker symbol "JAGX"[420] - The company has never paid cash dividends and does not plan to for at least the next five years, retaining earnings for growth[421] Selected Financial Data This item is not applicable - Not applicable[424] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2018, total revenue was flat at $4.4 million, net loss increased to $32.1 million, and cash was $2.6 million Results of Operations In 2018, total revenue was $4.4 million, product revenue grew 185%, and net loss widened to $32.1 million due to higher expenses Consolidated Results of Operations (2018 vs. 2017) | Metric | 2018 | 2017 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $4,416,145 | $4,361,186 | +1.3% | | Product Revenue | $4,238,756 | $1,485,114 | +185% | | Collaboration Revenue | $177,389 | $2,876,072 | -94% | | Total Operating Expenses | $35,240,113 | $38,608,246 | -9% | | R&D Expense | $5,154,748 | $4,269,455 | +21% | | Sales & Marketing Expense | $9,831,576 | $3,083,739 | +219% | | G&A Expense | $12,277,222 | $11,247,647 | +9.2% | | Impairment of Goodwill | $5,210,821 | $16,827,000 | -69% | | Net Loss | $(32,146,057) | $(21,968,614) | +46% | Gross to Net Product Sales Reconciliation (2018 vs. 2017) | Item | 2018 | 2017 | | :--- | :--- | :--- | | Total Gross Product Sales | $5,847,126 | $1,737,398 | | Mytesi Gross Sales | $5,730,283 | $1,237,204 | | Neonorm Gross Sales | $116,843 | $422,194 | | Deductions (Rebates, Discounts, Returns) | ($1,608,370) | ($252,284) | | Net Product Sales | $4,238,756 | $1,485,114 | Liquidity and Capital Resources The company reported a $32.1 million net loss in 2018, with $2.6 million cash, raising going concern doubts and requiring more financing - The company had cash of $2.6 million as of December 31, 2018, insufficient for the next 12 months of operations[481] - The independent auditor included a going concern paragraph due to recurring losses and insufficient cash[481][498] Summary of Cash Flows (2018 vs. 2017) | Cash Flow Activity | 2018 | 2017 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(22,730,832) | $(9,824,940) | | Net Cash Used in Investing Activities | $(6,527) | $(1,285,215) | | Net Cash Provided by Financing Activities | $24,545,683 | $10,679,874 | Qualitative and Quantitative Disclosures About Market Risk This item is not applicable - Not applicable[492] Financial Statements and Supplementary Data The 2018 financial statements show $41.0 million in assets, a $32.1 million net loss, and a going concern uncertainty Consolidated Balance Sheet Highlights (as of Dec 31, 2018) | Metric | Amount | | :--- | :--- | | Cash | $2,568,191 | | Total Current Assets | $8,149,941 | | Total Assets | $41,041,945 | | Total Current Liabilities | $26,658,822 | | Total Liabilities | $26,658,822 | | Total Stockholders' Equity | $5,383,121 | Consolidated Statement of Operations Highlights (Year Ended Dec 31, 2018) | Metric | Amount | | :--- | :--- | | Total Revenue | $4,416,145 | | Total Operating Expenses | $35,240,113 | | Loss from Operations | $(30,823,968) | | Net Loss | $(32,146,057) | | Net Loss Per Share | $(2.19) | - The Report of Independent Registered Public Accounting Firm includes a paragraph expressing substantial doubt about the Company's ability to continue as a going concern[498] Notes to Financial Statements Notes detail going concern uncertainty, accounting policies, the Napo merger, goodwill impairment, debt, and subsequent events - The company adopted revenue recognition standard ASC 606 on January 1, 2018, with no material impact to previously reported amounts[545] - The company recorded a goodwill impairment charge of $5.2 million in 2018, writing off the entire remaining balance from the Napo merger due to market capitalization decline[540][598] - In March 2018, the company issued 5,524,926 shares of Series A convertible preferred stock for aggregate proceeds of $9.0 million[655] - Subsequent to year-end 2019, the company entered into equity line agreements and exchanged approximately $4.4 million of CVP notes for 18.8 million shares of common stock[696][697][699] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting principles, financial disclosure, or auditing scope - None[703] Controls and Procedures Management identified a material weakness in internal controls for 2018 due to staff turnover, but remediated a 2017 weakness - A material weakness was identified as of December 31, 2018, due to staff turnover in the accounting department, leading to insufficient personnel for complex transactions[706] - As a result of the material weakness, management concluded that disclosure controls and procedures were not effective as of the end of the period[705] - The company has implemented a remediation plan to address the weakness, including hiring and training permanent accounting staff and reassessing control design[707] - The material weakness identified in the 2017 fiscal year related to the income tax provision review was successfully remediated during 2018[709][710] Other Information There is no other information to report under this item - None[714] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2019 Annual Meeting of Stockholders[717] Executive Compensation Information for this item is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2019 Annual Meeting of Stockholders[718] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2019 Annual Meeting of Stockholders[719] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2019 Annual Meeting of Stockholders[720] Principal Accountant Fees and Services Information for this item is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2019 Annual Meeting of Stockholders[721] PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including corporate governance documents and material contracts - This item provides a comprehensive list of all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications[723][726][728]