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Jaguar Health(JAGX) - 2023 Q2 - Quarterly Report

PART I. — FINANCIAL INFORMATION This section covers Jaguar Health, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Condensed Consolidated Financial Statements This section presents Jaguar Health, Inc.'s unaudited condensed consolidated financial statements and detailed notes for the reporting periods Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show Jaguar Health, Inc.'s financial position as of June 30, 2023, and December 31, 2022. Total assets increased to $52.17 million from $47.45 million, driven by an increase in current assets, particularly cash and prepaid expenses. Total liabilities decreased slightly, while stockholders' equity shifted from a deficit to a positive balance, primarily due to an increase in additional paid-in capital Summary of Condensed Consolidated Balance Sheets | Metric (in thousands) | June 30, 2023 | December 31, 2022 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Assets | | | | | Total current assets | $28,227 | $22,321 | +$5,906 | | Total assets | $52,172 | $47,452 | +$4,720 | | Liabilities | | | | | Total current liabilities | $29,003 | $30,339 | -$1,336 | | Total liabilities | $46,344 | $48,808 | -$2,464 | | Equity (Deficit) | | | | | Total Stockholders' equity (deficit) | $5,828 | $(1,356) | +$7,184 | - Cash increased from $5.47 million at December 31, 2022, to $8.63 million at June 30, 20237 - Additional paid-in capital significantly increased from $266.97 million to $297.66 million7 Condensed Consolidated Statements of Comprehensive Losses The statements of comprehensive losses show a net loss for both the three and six months ended June 30, 2023, and 2022. For the six months ended June 30, 2023, the net loss was $24.69 million, an improvement from $27.55 million in the prior year, primarily due to decreased interest expense and the absence of debt extinguishment loss, despite a decline in product revenue and increased R&D expenses Summary of Condensed Consolidated Statements of Comprehensive Losses | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Product revenue | $2,676 | $2,921 | $4,648 | $5,546 | | Total operating expenses | $10,778 | $9,400 | $22,595 | $23,779 | | Loss from operations | $(8,102) | $(6,479) | $(17,947) | $(18,233) | | Interest expense | $(3,453) | $(2,536) | $(5,634) | $(7,358) | | Net loss | $(12,291) | $(9,390) | $(24,688) | $(27,554) | | Net loss per share, basic | $(0.69) | $(8.77) | $(2.14) | $(29.51) | - Product revenue decreased by 8.4% for the three months ended June 30, 2023, and by 16.2% for the six months ended June 30, 2023, compared to the same periods in 20229297 - Research and development expenses increased significantly by 74.5% for the three months and 22.4% for the six months ended June 30, 2023, compared to the prior year9297 Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Equity This section details changes in convertible preferred stock and stockholders' equity, showing a shift to positive equity Summary of Changes in Stockholders' Equity | Metric (in thousands) | Balances as of Jan 1, 2023 | Balances as of June 30, 2023 | | :-------------------- | :------------------------- | :--------------------------- | | Total Stockholders' Equity (deficit) | $(1,356) | $5,828 | | Additional paid-in capital | $266,971 | $297,659 | | Accumulated deficit | $(266,948) | $(291,300) | - Issuance of 137 shares of Series G convertible preferred stock and 105 shares of Series H convertible preferred stock in exchange for notes payable and accrued interest1520 - Issued 13,483,460 shares of common stock in an At-the-Market offering, generating $19.42 million in additional paid-in capital20 Condensed Consolidated Statements of Cash Flows The statements of cash flows show a net increase in cash driven by financing activities offsetting operating cash usage Summary of Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(19,001) | $(18,152) |\n| Net cash used in investing activities | $0 | $(1,258) | | Net cash provided by financing activities | $22,168 | $11,396 | | Net increase (decrease) in cash | $3,158 | $(8,037) | | Cash at end of the year | $8,627 | $9,014 | - Cash provided by financing activities increased by 94.5% to $22.17 million in 2023, largely from ATM offerings and PIPE financing26331337 - Non-cash financing activities included $2.02 million in common stock issued to Irving and $1.93 million in warrants issued to Irving in exchange for notes payable and Standstill agreements29 Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures supporting financial statements, highlighting operational losses, liquidity, and segment performance 1. Organization and Business Jaguar Health, Inc. operates in human and animal health, facing significant liquidity challenges and recurring operating losses - Jaguar Health, Inc. manages operations through two segments: human health (Napo Pharmaceuticals, Inc.) and animal health (Jaguar Animal Health)34 - The company has incurred recurring operating losses and negative cash flows, with an accumulated deficit of $291.3 million as of June 30, 202337 - Received a Nasdaq notice on May 10, 2023, for failing to meet the minimum $1.00 bid price requirement, with a grace period until November 6, 20233536 2. Summary of Significant Accounting Policies This section outlines Jaguar Health, Inc.'s significant accounting policies, including consolidation, estimates, and revenue recognition - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and consolidate the accounts of the Company and its subsidiaries with controlling interest4043 - The Company consolidates Napo Therapeutics, where it owns 88% as of June 30, 2023, and 90% as of December 31, 2022. An additional investment from a private entity increased non-controlling interest percentage in 202344 Customer Revenue Concentration | Customer | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Customer 1 | 29% | 34% | 27% | 34% | | Customer 2 | 54% | 53% | 52% | 53% | | Customer 3 | — | 10% | — | 5% | - Substantially all revenue is derived from Mytesi sales, with significant concentration among three specialty pharmacies. The company also faces concentration risk from two raw material suppliers and a single third-party contract manufacturer for Mytesi54 3. Fair Value Measurements This section details fair value measurements of financial instruments, primarily the Level 3 Streeterville Note, using unobservable inputs Fair Value Measurement of Streeterville Note | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Streeterville note (Level 3) | $8,960 | $7,839 | | Total fair value | $8,960 | $7,839 | - The fair value of the Streeterville Note increased by $1.12 million for the six months ended June 30, 2023, compared to a decrease of $477,000 in the same period of 2022118207 - Key unobservable inputs for Level 3 fair value measurement include risk-adjusted discount rates (9.64%-24.00% in 2023) and estimated sales proceeds from Tropical Disease Priority Review Vouchers (TDPRV)121 4. Balance Sheet Components This section provides a breakdown of key balance sheet components, including inventory, property, and intangible assets Inventory Breakdown | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Inventory | $8,264 | $7,024 | | Raw Material | $2,000 | $2,101 | | Work in Process | $5,396 | $3,599 | | Finished Goods | $868 | $1,324 | Property and Intangible Assets | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Property and equipment, net | $526 | $557 | | Intangible assets, net | $21,463 | $22,439 | - Prelaunch inventory for the Company's lyophilized drug, amounting to $2.5 million, is included in prepaid expenses and other assets, with POC data expected by end of 2023129 5. Related Party Transactions This section details related party transactions, specifically Board of Directors cash compensation, which increased in 2023 Board of Directors Cash Compensation | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | BOD Cash Compensation | $68 | $69 | $136 | $104 | 6. Commitments and Contingencies Jaguar Health, Inc. has various commitments, including leases, supply agreements, and a joint venture - The Company has office and vehicle lease agreements, with total operating lease liability of $1.01 million as of June 30, 2023144 - A manufacturing and supply agreement with Glenmark Life Sciences Limited commits the Company to purchase a minimum of 300 kilograms of crofelemer per year, with a remaining commitment of 375 kilograms as of June 30, 2023149 - Formed a joint venture, Magdalena Biosciences, Inc., in January 2023, a joint venture with Filament Health, to develop novel, natural prescription medicines from plants for mental health indications like ADHD. The Company accounts for its 40% investment under the equity method154155 - No material accruals for legal actions were made as of June 30, 2023, as the ultimate outcome or potential exposure could not be reasonably estimated157 7. Debt Jaguar Health, Inc.'s debt primarily consists of royalty interests and a secured promissory note, totaling $30.65 million Summary of Debt Components | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Royalty Interest | $33,480 | $38,931 | | Streeterville Note | $8,960 | $7,840 | | Insurance Financing | $579 | $234 | | Tempesta Note | $200 | $250 | | Notes payable, net of discount | $30,653 | $33,627 | - The Company entered into a Standstill Agreement on May 8, 2023, to refrain from making royalty payments on four outstanding royalty interests during a specified period177 - The fair value of the Streeterville Note, accounted for under the Fair Value Option, increased by $1.1 million for the six months ended June 30, 2023, to $9.0 million207 8. Warrants Jaguar Health, Inc. had 10.67 million warrants outstanding, a significant increase due to PIPE and Standstill Warrants Warrants Outstanding | Metric | June 30, 2023 | December 31, 2022 | | :----- | :------------ | :---------------- | | Warrants outstanding, ending balance | 10,674,807 | 7,505 | - Issued 6,850,000 PIPE Warrants with an exercise price of $0.48 per share, valued at $4.6 million using the Black-Scholes model213215217 - Issued 3,817,302 Standstill Warrants with an exercise price of $0.48 per share, valued at $2.5 million using the Black-Scholes model, as part of the Standstill Agreement218220 9. Preferred Stock This section outlines preferred stock structure, with 242 shares of Series G and H convertible preferred stock outstanding Preferred Stock Summary | Series | Shares Authorized (June 30, 2023) | Issued and Outstanding (June 30, 2023) | | :----- | :-------------------------------- | :------------------------------------- | | B-2 | 10,165 | — | | C | 1,011,000 | — | | E | 10 | — | | G and H | 242 | 242 | - 137 shares of Series G Convertible Preferred Stock were issued in a private placement for an aggregate purchase price of approximately $1.86 million231 - 105 shares of Series H Convertible Preferred Stock were issued in exchange for a reduction in outstanding royalty interest balances232 10. Stockholders' Equity This section details stockholders' equity, including authorized and outstanding common and preferred stock and reserved shares Stockholders' Equity and Reserved Shares | Metric | June 30, 2023 | December 31, 2022 | | :----- | :------------ | :---------------- | | Options issued and outstanding | 26,264 | 26,533 | | Restricted stock unit awards issued and outstanding | 35,278 | 44,865 | | Warrants issued and outstanding | 10,674,807 | 7,505 | | Total shares reserved for issuance | 11,340,253 | 203,427 | - The number of authorized voting common stock increased from 150,000,000 to 298,000,000 shares on September 30, 2022236237 - A 1-for-75 reverse stock split of voting common shares became effective on January 23, 2023241 - During the six months ended June 30, 2023, the Company issued 13,483,460 shares under the At the Market (ATM) Agreement for net proceeds of $19.4 million244 11. Stock-based Compensation This section details stock-based compensation plans, with total expense decreasing to $998,000 for the six months ended June 30, 2023 Stock-based Compensation Expense | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Research and development expense | $257 | $365 | $484 | $713 | | Sales and marketing expense | $86 | $120 | $115 | $202 | | General and administrative expense | $175 | $532 | $399 | $1,165 | | Total | $518 | $1,017 | $998 | $2,080 | - As of June 30, 2023, there was $294,000 of unrecognized stock-based compensation expense, expected to be recognized over a weighted-average period of 0.83 years257 - The decrease in stock-based compensation expense is primarily due to fewer options and RSUs granted during the period compared to 2022303307311 12. Net Loss Per Share This section presents basic and diluted net loss per share, showing significant improvement for the six months ended June 30, 2023 Net Loss Per Share Calculation | Metric (in thousands, except per share data) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss attributable to common stockholders (basic) | $(12,150) | $(9,367) | $(24,352) | $(27,353) | | Shares used to compute net loss per common stock, basic | 17,631,514 | 1,068,267 | 11,405,153 | 927,040 | | Net loss per share attributable to common stockholders, basic | $(0.69) | $(8.77) | $(2.14) | $(29.51) | | Net loss per share attributable to common stockholders, diluted | $(0.42) | $(8.77) | $(1.42) | $(29.51) | - Diluted net loss per share for the six months ended June 30, 2023, was $(1.42), a substantial improvement from $(29.51) in the prior year, reflecting a lower net loss and a higher weighted-average number of diluted common stock outstanding (17,175,861 vs. 927,040)261 - Potentially dilutive securities, including Standstill warrants, PIPE warrants, and convertible preferred stock, were included in the diluted EPS computation for the six months ended June 30, 2023261262 13. Segment Data Jaguar Health, Inc. operates in human and animal health segments, both reporting net losses for the six months ended June 30, 2023 Segment Revenue and Net Loss | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue from external customers | | | | | | Human Health | $2,627 | $2,819 | $4,553 | $5,380 | | Animal Health | $49 | $102 | $95 | $166 | | Segment net loss | | | | | | Human Health | $(4,576) | $372 | $(11,115) | $(9,596) | | Animal Health | $(7,715) | $(9,762) | $(13,573) | $(17,958) | - Human Health segment assets were $40.82 million and Animal Health segment assets were $145.15 million as of June 30, 2023265 14. Subsequent Events As of June 30, 2023, there were no subsequent events to report - No subsequent events were reported as of June 30, 2023266 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and operational results, highlighting clinical trials and financing Overview Jaguar Health, Inc. is a commercial-stage pharmaceutical company focused on plant-based GI medicines, facing net losses and relying on financing - Jaguar is a commercial-stage pharmaceutical company developing plant-based prescription medicines for GI distress in humans and animals268 - Crofelemer is in a pivotal Phase 3 clinical trial (OnTarget study) for prophylaxis of diarrhea in adult cancer patients receiving targeted therapy268 - Napo Therapeutics, a majority-owned subsidiary, focuses on expanding crofelemer access in Europe for rare diseases like Short bowel syndrome (SBS) and microvillus inclusion disease (MVID)268272 - Formed Magdalena Biosciences, Inc. in January 2023, a joint venture with Filament Health, to develop novel, natural prescription medicines from plants for mental health indications, initially ADHD279 - Net loss was $24.7 million for the six months ended June 30, 2023, with an accumulated deficit of $291.3 million, indicating continued reliance on external financing283 Financial Operations Overview Jaguar Health, Inc. continues to experience net losses and negative cash flows, with an accumulated deficit of $291.3 million - The Company has not yet generated enough revenue to achieve break-even or positive cash flows, with a net loss of $24.7 million for the six months ended June 30, 2023, and an accumulated deficit of $291.3 million283 - Revenues are primarily from Mytesi sales (human drug) and animal products (Canalevia-CA1, Neonorm Calf, Neonorm Foal), sold through distributors and specialty pharmacies286 - Research and development expenses are expected to increase due to new clinical trials and manufacturing activities290 Critical Accounting Policies and Significant Judgments and Estimates This section emphasizes that financial statement preparation requires significant estimates and judgments for complex areas like valuation - Critical accounting policies involve significant estimates and judgments, including valuation of stock options, restricted stock units, hybrid instruments, warrant liabilities, acquired in-process R&D, and useful lives of long-lived assets45295 - Estimates also cover impairment assessment of non-financial assets, inventory valuation adjustments, allowance for doubtful accounts, deferred taxes, and revenue recognition45 Results of Operations This section analyzes financial performance, showing an improved net loss for the six-month period despite decreased product revenue Comparison for the six months ended June 30, 2023 and 2022 For the six months ended June 30, 2023, Jaguar Health, Inc. reported an improved net loss despite decreased product revenue and increased R&D Six-Month Operating Results Comparison | Metric (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Variance | Variance % | | :-------------------- | :--------------------------- | :--------------------------- | :------- | :--------- | | Product revenue | $4,648 | $5,546 | $(898) | (16.2)% | | Research and development | $9,052 | $7,396 | $1,656 | 22.4% | | Sales and marketing | $3,457 | $4,979 | $(1,522) | (30.6)% | | General and administrative | $9,250 | $10,493 | $(1,243) | (11.8)% | | Interest expense | $(5,634) | $(7,358) | $1,724 | (23.4)% | | Net loss | $(24,688) | $(27,554) | $2,866 | (10.4)% | - The decrease in product revenue was primarily due to a 12.1% decline in Mytesi gross sales and a 48.9% decrease in Canalevia sales299 - R&D expense increase was driven by higher clinical and contract manufacturing expenses ($708,000 increase) and other expenses ($955,000 increase) related to CTD activities303 - S&M expense decrease was mainly due to a $1.1 million reduction in direct marketing fees and patient access programs for Mytesi307 Comparison of the three months ended June 30, 2023 and 2022 For the three months ended June 30, 2023, Jaguar Health, Inc. reported an increased net loss with decreased product revenue and surging R&D Three-Month Operating Results Comparison | Metric (in thousands) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Variance | Variance % | | :-------------------- | :--------------------------- | :--------------------------- | :------- | :--------- | | Product revenue | $2,676 | $2,921 | $(245) | (8.4)% | | Research and development | $4,277 | $2,451 | $1,826 | 74.5% | | Sales and marketing | $1,573 | $2,144 | $(571) | (26.6)% | | General and administrative | $4,437 | $4,349 | $88 | 2.0% | | Interest expense | $(3,453) | $(2,536) | $(917) | 36.2% | | Net loss | $(12,291) | $(9,390) | $(2,901) | 30.9% | - The increase in R&D expense was primarily due to higher personnel and related benefits ($592,000 increase) and other expenses ($1.1 million increase) related to clinical trial activities321 - The decrease in S&M expense was mainly due to a $514,000 reduction in direct marketing fees and patient access programs for Mytesi325 - The increase in G&A expenses was driven by higher personnel and related benefits ($251,000 increase) and third-party consulting services ($239,000 increase), partially offset by lower public company expenses326 Liquidity and Capital Resources Jaguar Health, Inc. faces liquidity challenges with recurring net losses and insufficient cash, relying on debt and equity Sources of Liquidity Jaguar Health, Inc. has incurred net losses since inception, with current cash insufficient to fund operations, requiring additional financing - The Company has incurred net losses since inception, with an accumulated deficit of $291.3 million as of June 30, 2023329 - Current cash balances of $8.6 million as of June 30, 2023, are not sufficient to fund operating plans through one year from the issuance of these financial statements330 - Operations are primarily funded through debt and equity securities, collaboration arrangements, license royalty agreements, and future product sales332 Cash Flows for the Six months ended June 30, 2023 Compared to Six Months Ended June 30, 2022 For the six months ended June 30, 2023, Jaguar Health, Inc. saw a net increase in cash, driven by financing activities Six-Month Cash Flow Comparison | Metric (in thousands) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | | Total cash used in operating activities | $(19,001) | $(18,152) | | Total cash used in investing activities | $0 | $(1,258) | | Total cash provided by financing activities | $22,168 | $11,396 | | Net increase (decrease) in cash | $3,158 | $(8,037) | - Cash provided by financing activities increased by 94.5% to $22.17 million in 2023, primarily from $19.4 million in ATM offerings and $1.2 million from PIPE financing warrants337 - Net cash used in operating activities increased slightly to $19.0 million in 2023 from $18.2 million in 2022, mainly due to the net comprehensive loss334335 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable for the reporting period - Not applicable for this reporting period339 Item 4. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2023 - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of June 30, 2023340342 - Internal control over financial reporting was concluded to be effective as of June 30, 2023, based on the COSO 2013 Framework343 - No material changes in internal control over financial reporting were reported during the period344 PART II. — OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, and subsequent events Item 1. Legal Proceedings Jaguar Health, Inc. is not currently subject to any material legal proceedings or claims - The Company is not currently subject to any material legal proceedings346 Item 1A. Risk Factors There have been no material changes to the Risk Factors previously disclosed in the Company's Annual Report on Form 10-K - No material changes to the Risk Factors previously disclosed in the Annual Report on Form 10-K347 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for this period - None348 Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for this period - None349 Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to Jaguar Health, Inc - Not applicable350 Item 5. Other Information On August 14, 2023, Jaguar Health, Inc. amended agreements to terminate restrictions on subsequent equity sales - On August 14, 2023, the PIPE Purchase Agreement was amended to terminate restrictions on subsequent equity sales by the Company351 - In exchange for the PIPE Purchase Agreement amendment, the Company issued 685,000 PIPE Amendment Warrants with an exercise price of $0.48 per share351 - The Standstill Agreement was also amended on August 14, 2023, to allow the Company to offer and sell securities and remove trading restrictions on Standstill Investors352 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certificates, warrants, agreements, and certifications - Includes Certificates of Designation for Series G and H Convertible Preferred Stock355 - Lists the Form of Warrant, Securities Purchase Agreement, and Standstill Agreement, along with amendments355 - Contains certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act355 SIGNATURE The report is duly signed by Carol R. Lizak, Principal Financial and Accounting Officer, on August 14, 2023 - Report signed by Carol R. Lizak, Principal Financial and Accounting Officer, on August 14, 2023358