Jaguar Animal Health (JAGX) Q2 2021 Earnings Call Transcript

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Jaguar Animal Health (JAGX 7.23%)
Q2 2021 Earnings Call
Aug 13, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Please standby, we're about to begin. Before I turn the call over to management, I'd like to remind you that management may make forward-looking statements relating to such matters as continued growth prospects for the company, uncertainties regarding market acceptance of products, the impact of competitive products and pricing, industry trends and product and technology initiatives, including products in the development stage, which may not achieve scientific objectives or meet stringent regulatory requirements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. These statements are based on currently available information and management's current assumptions, expectations and projections about future events.

While management believes that its assumptions, expectations and projections are reasonable in view of currently available information, you are cautioned not to place undue reliance on these forward-looking statements. The company's actual results may differ materially from those discussed in this call for a variety of reasons, including those described in the forward-looking statements and risk factors sections in the company's Form 10-K for the year ending December 31, 2020, which was filed March 31, 2021 and its other filings with the SEC, which are available on the investor relations section of the Jaguar's website. Except as required by law, Jaguar Health undertakes no obligation to update or revise any forward-looking statements contained in this presentation to reflect new information, future events or otherwise. Additionally, please note that the company supplements its condensed consolidated financial statements presented on a GAAP basis by providing gross sales, non-GAAP EBITDA and non-GAAP recurring EBITDA.

Jaguar believes that the disclosure items of these non-GAAP measures provide investors with additional information that reflects the basis upon which company management assesses and operates the business. These non-GAAP financial measures should not be viewed in isolation or as substitutes for GAAP net sales and GAAP net loss and are not substitutes for or superior to measures of financial performance in conformity with GAAP. Now, at this time, it's my pleasure to turn the call over to Lisa Conte, Jaguar Health's founder, president, and chief executive officer. Lisa, the floor is yours.

Lisa Conte -- Founder, President, and Chief Executive Officer

Thank you and welcome all. As you just heard, my name is Lisa Conte and I am the founder, president and CEO of Jaguar Health and our wholly owned subsidiary in the United States, Napo Pharmaceuticals. And I am a board member of our wholly owned subsidiary in Italy, Napo EU. We're going to begin with the key financial results for the second quarter of 2021, which will be provided by Carol Lizak, Jaguar's chief financial officer.

After Carol speaks, we will hear from Jaguar's chief commercial officer, Ian Wendt, who will discuss the positive impact of crofelemer's ongoing efforts as part of our patient market access program to transition to primarily selling Mytesi directly through specialty pharmacies. As Ian will explain, this initiative represents a significant benefit to patients and will, we believe, have a positive impact on net Mytesi revenue on a moving forward basis. After Ian's comments, I will provide a recap of activities related to Napo EU and Dragon SPAC and provide updates regarding our human and animal health pipeline. Before we jump in, I'd like to let all of you know participating today that we'll have a brief Q&A segment at the end of the webcast to address questions that are submitted in writing.

Questions can be submitted via the webcast link for today's event that appears on the events and presentations page of the investor relations section of Jaguar's website. The URL for Jaguar's website is jaguar.health. All right. We'll now move along to the key financial results for the second quarter of 2021.

Carol, let me hand it over to you, please.

Carol Lizak -- Chief Financial Officer

Thank you, Lisa and thank you all for joining our webcast today. Key financial highlights for the quarter ended June 30, 2021, are as follows. Mytesi net revenue during the quarter second quarter of 2021 was approximately $400,000 and $3.2 million in the second quarter of 2020, a decrease of $2.8 million quarter over quarter. In the second quarter of 2021, sales discounts and rebates from various government programs included an approximately $800,000 true-up charge from the state of California related to several quarters.

The company believes this true-up charge is nonrecurring and due in part to the impact of the COVID-19 pandemic on state administrative functions. Mytesi gross revenue, during the second quarter of 2021 was approximately $4.9 million and $6.3 million in the second quarter of 2020, representing a decrease of approximately $1.4 million quarter over quarter. We believe this is primarily due to the ongoing shift of our distribution to specialty pharmacies and the associated inventory drawdown from our previous wholesaler distribution model. For the second quarter of 2021, the loss from operations was $11.6 million compared to a loss of $8.5 million in the second quarter of 2020.

The loss increased $3.1 million quarter over quarter, largely attributable to the decrease in revenue. Operating expenses from research and development increased by $2.5 million for the second quarter of 2021 compared to the same period in 2020, consistent with the increased clinical activities related to development programs, representing additional shots on goal for crofelemer, such as our ongoing Phase 3 trial of crofelemer for cancer therapy-related diarrhea and development related to short bowel syndrome with intestinal failure, which Lisa will speak about this morning. General and administrative expenses increased by $1.3 million for the second quarter of 2021 compared to the second quarter of 2020, mostly related to the activities of the Annual Shareholders Meeting. These increases were largely offset by noncash investment expense of $3.6 million related to the warrant exercises in the second quarter of 2020.

That concludes my recap of high-level financials for the second quarter of 2021. I will now hand over the discussion to Ian Wendt, our chief commercial officer.

Ian Wendt -- Chief Commercial Officer

Thank you, Carol and good morning, all. Mytesi prescription volume, the metric we believe to be the best indicator of patient demand increased 4.3% in the second quarter of 2021 over the first quarter of 2021 and new Mytesi prescriptions increased 2.8% during the same time period. This is a positive result for patients and our commercial performance and importantly marks the first quarter-over-quarter prescription growth since the start of the COVID pandemic. Mytesi prescription volume decreased 9% from Q2 2021 over Q2 2020.

We believe that the necessary travel restrictions related to the COVID-19 pandemic played a role in this decline with the pandemic resulting in fewer patient visits to healthcare providers, fewer opportunities to diagnose new Mytesi patients and fewer prescription refills. Early in the COVID lockdowns, we did not see a large decrease in prescriptions since many patients had remaining refills and had stocked up on medication by getting 90-day prescription fills. As patient visits to their providers decreased last year, we saw a corresponding decrease in new starts. And at the same time, our sales representatives were not able to access their customers to provide the branded education that drives Mytesi utilization.

The increase in prescriptions we have recently seen in Q2 over Q1 2021 corresponds to more patients now seeing their providers and our sales representatives making significant improvements in their ability to access their customers. Over the same time period, we have also seen an increase in the number of commercially insured patients enrolling in and using our co-pay assistance program, which is another strong indicator that more patients are starting on Mytesi. Again, we view Mytesi prescription volume as an indicator of patient demand and this metric can differ from invoiced sales volume, which reflects, among other factors, varying buying patterns among wholesalers and specialty pharmacies as they manage their inventory levels. As Lisa mentioned in her opening comments, our plan to transition a substantial amount of Mytesi volume to select specialty pharmacies by the end of 2021 is a key component of our market access strategy.

This is intended to help remove access barriers for people living with HIV to start and stay on Mytesi. The availability of Mytesi through specialty pharmacies represents a significant benefit to these patients. The key difference between specialty pharmacies and traditional retail pharmacies is the level of support that they can provide. While patients often visit retail pharmacies for short-term or uncomplicated medical needs, specialty pharmacies focus on serving patients with complex and chronic conditions, like HIV, that require a more hands-on approach.

The services of specialty pharmacies include a higher level of support for prior authorizations, appeals, adherence counseling and home delivery options. Each of these support services can help appropriate patients start on Mytesi and stay on Mytesi for as long as is medically necessary. Additionally, the ongoing process of transitioning to primarily selling Mytesi directly through specialty pharmacies rather than to wholesalers that resell the product to retail pharmacies is expected to significantly decrease our distribution costs and have a positive impact on net Mytesi revenue on a moving forward basis. We currently have three contracts in place with large national specialty pharmacy chains with pharmacy benefit manager relationships that cover the majority of lives in the U.S.

Generally, our distribution fees selling directly to specialty pharmacies are approximately half of what we have historically paid by selling through wholesaler channels. As part of the shift to focusing on specialty pharmacies, we expect an overall decrease in the number of bottles carried in the inventory pipeline since specialty pharmacies typically carry less days on hand of inventory compared to wholesalers. During the transition period of moving more of our volume from wholesalers to specialty pharmacies, the wholesalers continue to draw down their inventory levels, which was not entirely offset by specialty pharmacy inventory and resulted in a corresponding decrease in sales for this period. Sales volume through our expanding pool of third-party specialty pharmacies through which we distribute Mytesi was approximately 17% of total sales volume in the second quarter of 2021 compared to approximately 14% in the first quarter of 2021.

That concludes my comments and I will now hand the discussion back to Lisa.

Lisa Conte -- Founder, President, and Chief Executive Officer

Thank you very much Ian for trying to explain and provide some clarity on the specialty pharmacy model. Moving along to Napo EU, our wholly owned subsidiary in Italy and Dragon SPAC, I and Josh Mailman, Dragon SPAC's founding sponsor and board member were thrilled to announce on July 19 the closing of the financing of Dragon SPAC for gross proceeds of approximately EUR 8.83 million. Net proceeds from this private placement transaction will be used to fund the anticipated merger of Dragon SPAC with Napo EU and therefore, the business plan and activities of the combined Napo EU Dragon SPAC entity resulting from the merger, which will be known as Napo EU. The merger is expected to be effective within approximately 60 days and this time period is filled with administrative activities, the time frame -- and the time frame it takes into account office closures and etc., that we're dealing with in Italy during the August holiday.

The parent company, Jaguar Napo, is providing Napo EU with an exclusive license to study, develop and commercialize our proprietary drug, crofelemer, for the European marketplace for multiple planned follow-on indications. The initial focus is on pursuing the accelerated conditional marketing authorization pathway from the EMA, which stands for the European Medicines Agency, the equivalent of the U.S. FDA for crofelemer for an important orphan designated disease short bowel syndrome with intestinal failure. As Carol mentioned, this represents another shot on goal for crofelemer to potentially benefit another dramatically in need patient population, along with a highly valued license agreement to the parent organization, Jaguar Napo and a potentially accelerated pathway to bring the product to short bowel syndrome patients with intestinal failure.

And to remind everyone of the nature of short bowel syndrome, this is a -- with intestinal failure, this is a catastrophic situation for patients where they have maybe 30 to 60 centimeters of intestine versus abnormal 22 to 24 feet. They, therefore, cannot absorb what I call the nutrients of life, fats, proteins, carbohydrates, minerals, vitamins and they live on parenteral nutrition sometimes for as much as 22 hours of the day. That obviously has an impact on quality of life, dignity, comfort and devastating morbidity and mortality associated with the potential for infection and organ failure. If an intervention could decrease the need for parenteral nutrition by even 20%, you have a huge positive impact for these patients.

Moving along to our U.S. pipeline, we are in the midst of our pivotal Phase 3 trial of crofelemer for cancer therapy-related diarrhea, we referred to as CTD. And that is the core planned follow-on program in the United States for crofelemer. Crofelemer, a product that is currently approved and commercialized for HIV-related diarrhea, a product with a chronic safety profile because the current indication is a chronic indication and a product, obviously, for which there is a global manufacturing supply chain already in existence and a product that is the only oral plant-based drug approved by the FDA as a drug under botanical guidance and the exclusivity advantage provided by that.

I believe it's also important to reiterate our ongoing commitment to fund our planned pipeline opportunities in a non-dilutive manner. This commitment is evidenced by the non-dilutive royalty financing transactions we entered in the fourth quarter of 2020 to secure funds to support primarily crofelemer's CTD development and also the agreement we entered this past January with proceeds from the sale of a potential future tropical disease priority review voucher we're pursuing as incentive for the development of our lechlemer drug product, our second-generation antisecretory product for the symptomatic relief of diarrhea from cholera and other acute infectious diseases. As I mentioned, Napo EU's focus on developing crofelemer for an important orphan designated disease, the short bowel syndrome with intestinal failure, is also slated to be funded in non-dilutive manner as a result of the anticipated business combination of Napo EU and Dragon SPAC, again, under license from the parent corporation, Jaguar Napo, in the United States. These pipeline within a product target follow-on indications represent not just additional shots on goal for crofelemer but also an opportunity to expand the possible benefits to be evaluated in a clinical development setting further along the value chain from where we are now, supportive care and that's how crofelemer is recognized and valued in the HIV community to a potential impact on patient outcome and the cost of care for cancer therapy-related diarrhea patients as the recent papers accepted for the past June's ASCO meeting, ASCO's American Society of Clinical Oncology and then possibly even further along the value chain in the case of crofelemer in development for short bowel central with intestinal failure, where we're potentially modifying disease management modification.

From a financial perspective, we've also focused heavily recently on cleaning up our balance sheet. And as this morning's earnings release states, there are no cashless warrants outstanding as of June 30, 2021. We believe all of these efforts grow the value of the company and we expect our patient market access strategy for which our planned transition to primarily selling Mytesi directly through specialty pharmacies is a main pillar to further grow value. With regard to Jaguar's legacy animal health business, we are eagerly looking forward to the expected approval and commercialization in the fourth quarter of this year of crofelemer for the treatment of chemotherapy-induced diarrhea in dogs.

According to our estimates, more than 230,000 dogs in the United States received chemotherapy treatment for various cancers each year. And roughly one in four, more than 50,000 dogs, will experience diarrhea as a side effect of the treatment. And following the expected approval of crofelemer for chemotherapy-induced diarrhea in dogs, we also expect crofelemer to be approved for exercise-induced diarrhea in dogs likely in early 2022. An interesting fact about exercise-induced diarrhea in dogs.

The condition is actually the second most common reason that dogs are removed for the world famous 100-mile long Iditarod Trail Sled Dog Race in Alaska each year. Lastly, as announced Friday of last week, we decided to adjourn our Annual Meeting of Stockholders one more time until Friday, September 3, 2021, because we are very, very, very close to reaching quorum, less than an additional 0.84% of the company's eligible common stock outstanding as of April 12, 2021, the record date for the meeting needs to be voted for us to achieve quorum. This ongoing attempt to reach quorum dating back to April of this year has been extremely costly and distracting for the company and we greatly encourage all eligible stockholders who have not yet voted their shares or provided voting instructions to their broker or other record holder to do so as soon as possible so that Jaguar can obtain a quorum and be able to conclude the annual meeting. Your participation is very important, very valued.

If you have any issues, don't know how to do this, please feel free to reach out to me or Peter Hodge on this topic. With that, we'll now open the floor for written questions, which I will look at right now.

One of the questions that we have here is what is the current status of Mytesi in COVID-19? So we -- Napo EU was initially looking at the long-hauler situation of COVID-19 recovery patients, which is a constellation of symptoms, which can include brain fog, cardiovascular issues, respiratory issues and diarrhea. It was about 30% of the patients we're dealing with diarrhea as an initial indication. Napo EU has now prioritized short bowel syndrome intestinal failure as the accelerated approval pathway and is watching. We're all watching what's going on with the long-hauler situation.

There are some reports that the long-hauler symptoms have been ameliorated as patients who experienced long-hauler got vaccinations. So it's still not clear what that market opportunity is. What are -- therefore, how would you access patients, what would the trial design look like. So that is on a wait and watch at this time.

But the goal of getting an accelerated approval in Europe for a very serious important patient population is being achieved and moving forward with the short bowel syndrome intestinal failure indication. OK. We have another question. When do you expect impact of pandemic to improve in light of recent surge Delta variant? How will the net price improve as you move Mytesi to special pharmacies? And what percentage of your sales do you expect to come from specialty pharmacies for Mytesi? And Ian, I'm going to turn it over to you to answer, please.

Ian Wendt -- Chief Commercial Officer

Yeah, happy to do so. And Louise, great questions. Ones I think about a lot. So there's three pieces here.

Let me take those in order here. So when do you expect the impact of the pandemic to improve in light of the recent surge Delta variant? Yes. I mean, of course, that can be difficult to predict. And we see, as you might expect, a lot of regional variations across the country, either at the state level or sub-state level, in terms of patients' ability to access their providers or reps frankly, to be able to access and influence our customers.

However, we look at the market data outside of Napo and then our own kind of performance data quite closely. And IQVIA publishes great reports on this every month and we do see some great trend lines of returning back to close to baseline in terms of both of those metrics, patients seeing providers and reps being able to see their physicians. And I think that's reflected in our patient populations and what our reps are able to achieve as well. So it's trending in the right direction.

With all the recent news and events associated with the Delta variant, we haven't seen that kind of reverse things too much. I mean, regionally here and there, yes, but we still think it's heading in the right direction. And we'll continue to make those assumptions until we see the data tell us something different. The second part of your question was, how will the net price improve as you move Mytesi to specialty pharmacies? Yes.

So there's a few things that are -- we believe are very valuable about this kind of strategic shift in terms of our distribution. And I mentioned one of them, I think, in my earlier comments, we're going to cut distribution fees through our contracted pharmacies by about half versus selling through wholesalers. So that's significant. We also believe and we're starting to see data to support this, but the specialty pharmacies just do a better job in managing Mytesi patients.

They are much better equipped, more capable in dealing with all the challenges that payers put in place. So think about prior authorizations and appeals just making sure that their overcoming access and reimbursement issues for those patients. And then that corresponds to greater adherence and persistency levels with these patients. So they stay on drug longer.

They do a great job of like adherence counseling, making sure that the medication is shipped directly to the patient's door, if that's what they choose, I mean there's all these kind of wraparound services that allow our patients to start on Mytesi more easily and stay on Mytesi longer if that's medically appropriate. So that certainly has implications on the bottom line. We also feel that there are some advantages to the payer mix in making this shift and that is quite important to us as well. Lastly, ultimately, what percentage of your sales do you expect to come from specialty pharmacies -- for specialty pharmacies from Mytesi? Yes, if we do a great job here and I think we will, we'll transition the majority, the vast majority of our Mytesi volume from wholesalers to specialty pharmacies.

There's very few exceptions to where that wouldn't make sense. There are a couple of contracts that we need to work through, like, for example, the VA, but that's a relatively small percentage of our overall volume. So ultimately, it will be the vast majority of our volume. We anticipate being transitioned over before the end of the year.

Lisa Conte -- Founder, President, and Chief Executive Officer

Terrific. Thank you, Ian. And thank you, Louise, for the question. Specialty pharmacy is a very, very important commercial strategy that we're pursuing and obviously has an impact on these second quarter results.

All right. We have another question about voting using DEGIRO or Trading 212. And believe it or not, European retail investors who hold shares through online brokers in Europe, such as eToro and DEGIRO, they are not always able to vote as these platforms don't provide any mechanism for holders to submit votes. We are in communication with them trying to see if we can come up with some sort of creative solution.

So we so are appreciative of our European retail investors who have reached out and are trying to figure out how they can vote and we are working on it. So you will hear from us on that topic, if we can find a solution. OK, I don't think I see any other questions. So that concludes our webcast for today.

Thank you all once again for joining. Please be safe and be well and look forward to the next time we're together. Thank you.

Questions & Answers:

Operator

[Operator signoff]

Duration: 29 minutes

Call participants:

Lisa Conte -- Founder, President, and Chief Executive Officer

Carol Lizak -- Chief Financial Officer

Ian Wendt -- Chief Commercial Officer

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