Jaguar Health, Inc. (JAGX) Earnings Call Transcript & Summary

Before I turn the call over to management, I 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, impact of competitive products and pricing, industry trends and product and technology initiatives, including products in the development stage, which may not achieve the 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 it's 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. 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 of the company's Form 10-K for the year ending December 31, 2020, which was filed March 31, 2021. And it's other filings with the SEC, which are available on the Investor Relations section of 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. At this time, it's my pleasure to turn the call over to Ms. Lisa Conte, Jaguar Health's President and Chief Executive Officer. Lisa, the floor is yours.

Thanks very much, Ryan. Welcome, and thank you all for your participation. 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'm a Board member of our wholly-owned subsidiary in Italy, Napo EU. In response to many questions that have come into the company and to me directly, I have 3 topics I'd like to cover this morning. I am appreciative of your interest in Jaguar Health and the company updates. I'm going to address the 1 for 3 reverse split recently completed by Jaguar Health, the timing of steps to complete the administrative activities associated with the planned merger of Dragon SPAC and Napo EU as well as the business plan of Napo EU and the upcoming milestones and expected near-term value drivers of Jaguar Health. As a reminder, Jaguar Health is our parent corporation listed on NASDAQ as JAGX with Napo Pharmaceuticals, Inc. as a wholly-owned subsidiary in the U.S. and the owner of all the crofelemer technology. Throughout this call, I will refer to the entire parent organization as Jaguar. Napo EU is currently a wholly-owned European subsidiary of Napo Pharmaceuticals, Inc. in Italy with an exclusive European, excluding Russia, license to crofelemer technology from Jaguar. So let's start with the reverse split. Why did we do it? Given the number of inquiries we've received, I'm going to be comprehensive in addressing this topic. So please bear with me. First, let's be sure we all understand the facts associated with our reverse split. The reverse split did not change the fundamentals of our business. For company value, a reverse split is a math equation. By illustration, imagine a pie representing the value of the company, having again for illustration, let's say, 15 slices. Now after a 1 for 3 reverse split, the same pie of the same size has 5 slices, 1 for every 3. That's a 1 for 3 reverse split. The pie pieces are 3x bigger and you get 1/3 as many, yet you have the same amount of the same pie in the end. When we announced our reverse split, the stock price dropped meaning the pie representing the value of the company got smaller and meaningfully smaller. There is no fundamental value-related reason for that to happen. Nevertheless, it did. And I have great empathy and recognize the economic pain and loss this caused for JAGX shareholders. To attempt to indicate that this was not associated with any company issue and to indicate our commitment to the company, I, along with Jaguar's CFO, and the sponsor of Dragon SPAC, who is also a large shareholder in JAGX and Indena, an Italy-based pioneer and leader in plant-based pharmaceutical manufacturing with which Jaguar has a long-standing relationship. All purchased unregistered stock we can immediately sell on the open market last week in a private placement at a slight premium to the NASDAQ market price following the reverse split as was previously disclosed. So why was the reverse split implemented? Our recent Annual Stockholder Meeting proxy describes our circumstances very succinctly as is publicly filed, and I do encourage you to read it. In plain English, at this time, Jaguar was -- as a corporation, was essentially out of shares, meaning we had very few authorized, but unissued shares by the state of Delaware where we are incorporated. That could be issued for any purpose. That is not a responsible situation for a public company to be in. Authorized shares provide optionality. For example, for potential business development activities such as Mergers and Acquisitions; such as for incentives for bringing on new employees; such as the ability to address debt and equity responsibilities. Authorizing shares is not issuing shares. It's not dilution. It's optionality for the future as I will outline shortly. Anyone who follows the public announcements of Jaguar knows that we had to postpone our annual meeting 4 times because we couldn't get to a quorum, and that was an expensive post moment each time. We eventually got to quorum, but we didn't achieve the challenging rule of having more than 50% of our shares outstanding voting in favor of what was known as Proposal 3, the proposal to approve an increase to the number of authorized shares of common stock. This is because we feel the good. We have a large percentage of retail investors holding shares. That provides volume trading, which provides liquidity, momentum upon news. So that's all good. This situation also provides a challenge for Jaguar. And it's not just Jaguar, other companies that have a similar retail-heavy shareholder base are experiencing the same challenge to achieving their quorums and shareholder votes. I personally called over 150 individual shareholders to get us to quorum. While we were not able to obtain sufficient votes during this year's annual meeting for the proposal to increase the number of authorized shares of common stock to pass, I do want to point out that of the votes we received for this proposal, more than 75% were cast in favor and the recommendation of the Board. As we noted in our last proxy, the Board believed and still does that the proposed increase in the number of authorized shares of common stock would be beneficial. And I, again, refer you to publicly available information on what's known as Proposal 3 set forth in our most recent Annual Stockholder Meeting proxy for greater detail on the various reasons and needs to increase our authorized shares of common stock. Given the insufficient votes to increase the number of authorized shares of common stock, the Board determined that without the effectuation of stock split, our option just described and as referenced in our proxy that I just mentioned, would be severely constrained, which could adversely affect our financial performance and growth opportunities. In light of these factors, the only way for Jaguar to achieve the optionality provided by additional unissued shares. A type of optionality any responsible public company should have was to implement a reverse split, which decreased by a factor of 3, the quantity of shares outstanding without a proportional reduction in our authorized, but unissued shares, thereby initially increasing the per share price of the issued and outstanding shares following the split by 3x, so 1/3 less quantity of shares outstanding. Increasing the price by 3x and freeing up 2/3 of the share base for share optionality. Those are the primary reasons why the reverse split was done. There is no hidden message or planning or filings or other shoes to drop. It was simply a situation of taking a necessary step to allow a public company to operate responsibly with authorized share optionality. As a reminder, the effectuation of the reverse stock split was approved at a special meeting of the stockholders of Jaguar last December. Nevertheless, I hear the shareholder frustration with the stock price response to the split. We, as a Board and management team, felt we needed to be prepared for the long-term health of the company and we, too, are quite frankly surprised by the extent of the stock price reaction. And hence, this comprehensive explanation in response to questions and concerns that have come to us. The reverse split is done, it's over and we continue to focus on moving forward. So now I'm going to address an exciting and important upcoming product milestone, Canalevia. Canalevia is our first prescription product candidate in our veterinarian business, and it is crofelemer for the targeted indication of chemotherapy-induced Diarrhea in dogs. Crofelemer is of course the active pharmaceutical ingredient in the FDA-approved drug, which we commercialize Mytesi, which is labeled -- commercialized in the U.S. and labeled for the symptomatic relief of noninfectious diarrhea in adult patients with HIV/AIDS on antiretroviral therapy. We are planning for the expected approval and immediate commercial launch of Canalevia, again for chemotherapy-induced Diarrhea in dogs, which we call CID in December of this year, 2021. We recently hired Chip Whitlow, a terrific, seasoned veteran of the animal pharmaceutical arena, in the role of Director of Marketing to head the commercial activities associated with the launch of Canalevia. The opportunity for Canalevia has been enhanced by a few animal market dynamics, in part aided by a pandemic-related increase in dog ownership. There are now more than 90 million pet dogs in the United States. And medication expenditures on pets has increased by over 13% from 2019 to 2020 when it was last reported, the largest increase in the last decade. This is amazing. 25% of canines, 1 in 4 will suffer from neoplasia, a tumor, at some point in their life. Almost half of all dogs aged 10 years or older will be diagnosed with cancer. On average, there are over 500,000 dogs diagnosed with cancer each year. And dogs, for the most part, receive human chemotherapeutic agents during their treatment and therefore, suffer the same side effects as humans, which means approximately 40% may have their cancer therapy reduced, changed or discontinued due to diarrhea. In the United States, 80-plus-percent of dog health care is paid out of pocket. And cancer therapy ranges from $5,000 to $15,000 or more per incident. So here's the scenario. As the dog parent who has made the choice to treat their doggy, their doggy patient with chemotherapy at a cost of, let's for argument, say, $8,000. Wouldn't you be willing to pay a fraction of that to be sure that, first of all, your dog can, in fact, tolerate the therapeutic dose of chemo. Secondly, your dog is comfortable during treatment. And finally, your home, your rug, your couch, your bed are not soiled from your dog losing control during this difficult situation, which just has to happen once. And there's a couple of other interesting market dynamics. Veterinary products are dispensed by the vets offices, which provides convenience for patients and financial incentives for veterinarians. And since pet medicine manufacturers do not offer payer discounts, we expect to have much greater predictability on net price than in the human health care market. And while we don't issue revenue guidance, as you know, as we are learning more about the veterinary market and in particular, about CID in dogs, we feel it's possible this market is similar to the specialty market opportunity we have with Mytesi for the current HIV-related diarrhea indication in humans. The upcoming milestones to look for are regulatory actions from the FDA Center for Veterinary Medicine, the CVM. And they differ from a new drug application filing for a human drug. For animals, there are 4 major pieces of what's called the new animal drug application that are filed on a rolling basis and then each is deemed complete by the CVM. 3 of these sections for crofelemer for CID have, in fact, been deemed complete. And we expect the fourth, which is our target animal safety section, to be accepted in the beginning of October 2021, to be deemed complete in the beginning of 2020 -- October 2021. Upon the acceptance of this fourth major piece, then the new animal drug application is filed, which is an administrative activity that results in an approval for launch 60 days later, which we're planning on in December of this year, December 2021. And Canalevia for CID is expected to be followed by an indication for exercise-induced diarrhea in dogs, think the Iditarod. And this would be in the first half of next year 2022. In fact, the leading Iditarod dog team, as reported to us, had to withdraw from the race in the winter of last year 2020 -- 2021 due to doggy diarrhea. Finally, I'm going to address Napo EU and the merger with Dragon SPAC, all occurring in Italy. I've communicated the reality in timing, in press releases, in webcasts when I felt there were clarifications warranted. Again, responding to questions that come into the company, that come into me. Of course, we can't make news happen overnight for something as important as the establishment of an overseas operating company, funding of the overseas operating company, progressing operations and product developments in Europe, recruiting skilled senior management, executing a license agreement and so on. Attention and effort to operational activities at Napo EU are occurring weekly, if not daily, though all activities are not necessarily announceable milestones. This is why what we anticipate. This is what we anticipate that you can look forward to after the consummation of the merger. Napo Pharma's wholly-owned subsidiary, Napo EU, has executed a license agreement with Jaguar granting Napo EU the right to study, develop and commercialize crofelemer in Europe, excluding Russia. This is an exclusive license for the important rare disease indication of short bowel syndrome with intestinal failure as well as HIV-related diarrhea and congenital diarrheal disorders. And the agreement provides Napo EU with the right to license additional potential indications for crofelemer, again exclusively. Napo EU's initial focus is on pursuing approval of crofelemer for the rare disease indication of short bowel syndrome with intestinal failure. Rare disease drug development in Europe allows for the possibility of accelerated conditional marketing authorization. It allows for potentially a clearer pathway to appropriate reimbursement by single-payer health care systems unlike the complex reimbursement process that we have here in the United States, and even a possibility of faster patient access through the named patient programs in certain European countries while the product is undergoing clinical trials for this catastrophic and devastating rare disease. Napo EU has hired a general manager, essentially the CEO of Napo EU, which we're very excited about with great depth of experience in rare disease business management in Europe, which, remember, is not one market, it's not one country. He is currently completing the 2-month required notice period to his current employer, which is a common requirement in Europe, and will be fully onboard and announced in November of this year. Offers are pending to a candidate for Chief Medical Officer role and a candidate for the Head of Regulatory role as well for Napo EU employment. The procedures to consummate what has been previously announced the merger between Dragon SPAC and Napo EU have required various notarial deeds -- notary, notarial deeds in Italy, which could not be completed last month because of the typical vacation period-related shutdown in Italy that occurs every August. And also due to various shareholder actions of Dragon SPAC and Napo EU, which will be completed this week. And a filing related to the Italian government so-called Golden Powers law, which is also expected to occur this week. It is anticipated that the merger will be completed somewhere between 10 and up to as many as 45 days from today, following completion of the review and approval process required for consummation of the merger under that Golden Powers law. Our expectation is that the announcement of the consummation of the merger of Dragon SPAC and Napo EU will occur in the first half of October. Next month, October 2021. Turning our attention back to Napo EU's business plan, crofelemer, which has orphan drug designation in the United States for short bowel syndrome is not yet approved and it's not yet approved obviously for this indication in the United States, not approved for commercialization was the subject of an orphan drug designation application filing, which has been accepted for review by the European Medicines Agency, referred to as EMA, the equivalent of the U.S. FDA. It will be approximately 90 days to receive a response from EMA on this application. Orphan drug designation in the EU allows for the various accelerated regulatory activities mentioned above as well as access to clinical trial-related scientific advice from EMA and other advantages. KOLs, Key Opinion Leaders, are being identified who can participate in a global clinical development program to support the European filing for short bowel syndrome with intestinal failure as well as a U.S. filing. And let me summarize the value that Jaguar, JAGX, expects from our ownership of Napo EU and our license agreement with Napo EU. First, Jaguar do a license fee of up to $10 million for the short bowel syndrome indication and up to $40 million more at Napo EU's sole election if it desires additional indications, subject to having adequate financing. There are typical royalty in transfer pricing arrangements upon commercialization of crofelemer in Europe, included in the license agreement, milestone payments. Well, Jaguar is providing all the regulatory data in clinical trial results to Napo EU for crofelemer, an FDA-approved product, remember Mytesi, and ongoing clinical development of crofelemer. For example, the Phase III trial currently underway in the United States for cancer therapy-related diarrhea with Mytesi, which, by the way, represents over $200 million of historical investments. Napo EU will share with Jaguar all the clinical data, it will generate on short bowel syndrome with intestinal failure, providing Jaguar with another clinical shot on goal for crofelemer. Finally, Jaguar will continue to be the majority shareholder of Napo EU immediately following the merger and anticipate that this will be the case for the near future. Everything I've just addressed is on top of the backdrop of the ongoing important operations at Jaguar, a Phase III trial. Remember, we are in the midst of a Phase III single pivotal trial for the important indication of cancer therapy-related diarrhea for crofelemer in humans. Expected to complete enrollment in late 2022. A collared program progressing with a second-generation antisecretory agent, term lechlemer, sourced from the same plant as crofelemer. And a crofelemer development program for congenital diarrheal disorders, a subset of intestinal failure, the complement, the work that Napo EU will be conducting for short bowel syndrome with intestinal failure, which benefits Jaguar's regulatory pursuit for this orphan indication in the United States. Finally, I want to make one more comment on upcoming news. We do have a publication that has been submitted on crofelemer for a third-party investigator-initiated trial in breast cancer patients suffering from diarrhea, which was submitted for consideration for presentation at the prestigious San Antonio Breast Cancer Symposium taking place in San Antonio, Texas this December. It's a hybrid conference. This is not a regulatory study. Though it is expected to provide important information, for example, creating awareness and precommercial education in the cancer health care practitioner community, of the importance of managing diarrhea in cancer therapy patients. The study supplements the third-party papers presented in July of this year at the American Society of Clinical Oncology, which is known as ASCO, ASCO's Annual Meeting, and indicating the impact on outcome management of cancer patients, their cancer outcome by managing diarrhea. So for example, they don't have to take drug holidays or dose reductions in their life-saving therapy. As a reminder, the same situation exists in dogs undergoing chemotherapy, which we are planning to address with Canalevia. Thank you for listening. I know this is a lengthy discussion, though it's important, and there are topics and many questions that we've received that sometimes cannot be adequately addressed with a press release headline. Our next investor call is expected for mid-November following the release of our Q3 quarterly earnings. And I want to restate that as we are transitioning commercially from a warehouse model of Mytesi distribution to a specialty pharmacy model in the United States and all the advantages that come with that, which we've described in our previous quarterly calls for patient support for reduction in distribution costs and more. There is a drawdown of inventory that will continue to occur at the wholesalers in 2021. Prescription growth is our indicator for help for the specialty indication. And the switch to specialty pharma throughout 2021 will be a onetime adjustment throughout several quarters in 2021 as inventory is brought down from the warehouse model. That concludes our webcast for today. Thank you all once again for joining. Thank you for your questions. So I'm aware of what you are interested in. Please be safe and be well. Thank you for your time.

This concludes today's call. Thank you for your participation. You may now disconnect.