Jaguar Health, Inc. 10-K

Table of Contents ​ ​ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K (Mark One) ​ ​ ​ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ​ For the fiscal year ended December 31 , 2021 ​ ​ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ​ For the transition period from to COMMISSION FILE NO. 001-36714 JAGUAR HEALTH, INC. (Exact name of registrant as specified in its charter) ​ Delaware 46-2956775 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ​ 200 Pine Street, Suite 400 San Francisco , California 94104 (Address of principal executive offices) ​ Registrant’s telephone number, including area code: ( 415 ) 371-8300 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: ​ ​ ​ ​ ​ ​ Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, Par Value $0.0001 Per Share ​ JAGX ​ The Nasdaq Capital Market ​ SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ⌧ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ◻ No ⌧ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ⌧ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ​ Large accelerated filer ◻ Accelerated filer ◻ Non-accelerated filer ⌧ Smaller reporting company ⌧ ​ ​ ​ Emerging growth company ☐ ​ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧ As of June 30, 2021, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $ 215,622,279 based upon the closing sales price of the registrant’s common stock on The Nasdaq Capital Market on such date. The number of shares of the registrant’s common stock outstanding as of March 10, 2022 was 77,053,990 shares of voting common stock and 673 shares of non-voting common stock, par value $0.0001 per share (convertible into equivalent shares of voting common stock). DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the registrant’s 2022 Annual Meeting of Stockholders, or Proxy Statement, to be filed within 120 days of the end of the fiscal year ended December 31, 2021 are incorporated by reference in Part III hereof. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as a part hereof. ​ ​ ​ ​ Table of Contents TABLE OF CONTENTS Item No. ​ Page No. PART I ​ Item 1. Business 1 Item 1A. Risk Factors 37 Item 1B. Unresolved Staff Comments 71 Item 2. Properties 71 Item 3. Legal Proceedings 71 Item 4. Mine Safety Disclosure 72 PART II ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 73 Item 6. Selected Financial Data 73 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 74 Item 7A. Qualitative and Quantitative Disclosures About Market Risk 86 Item 8. Financial Statements and Supplementary Data 87 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 148 Item 9A. Controls and Procedures 148 Item 9B. Other Information 149 PART III ​ Item 10. Directors, Executive Officers and Corporate Governance 150 Item 11. Executive Compensation 150 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 150 Item 13. Certain Relationships and Related Transactions, and Director Independence 150 Item 14. Principal Accountant Fees and Services 150 PART IV ​ Item 15. Exhibits, Financial Statement Schedules 151 SIGNATURES 158 ​ ​ ​ i Table of Contents PART I Forward-looking statements This Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Form 10-K, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing of receipt of clinical trial, field study and other study data, and likelihood of success, commercialization plans and timing, other plans and objectives of management for future operations, and future results of current and anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “aim,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Form 10-K are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Form 10-K and are subject to a number of risks, uncertainties and assumptions described under the sections in this Form 10-K titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-K. Forward-looking statements are subject to inherent risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in a dynamic industry and economy. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties that we may face. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. Jaguar Health, our logo, Napo Pharmaceuticals, Napo Therapeutics, Mytesi, Equilevia, Canalevia, Canalevia-CA1, Canalevia-CA2, and Neonorm are our trademarks that are used in this Form 10 K. This Form 10 K also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Form 10 K appear without the ©, ® or ™ symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and tradenames. ​ ITEM 1. BUSINESS BUSINESS Jaguar Health, Inc. (“Jaguar” or the “Company”) is a commercial stage pharmaceuticals company focused on developing novel, plant-based, non-opioid, and sustainably derived prescription medicines for people and animals with GI distress, including chronic, debilitating diarrhea. Jaguar Animal Health is a tradename of Jaguar Health. Our wholly owned subsidiary, Napo Pharmaceuticals, Inc. (“Napo”), focuses on developing and commercializing proprietary plant-based human pharmaceuticals for the global marketplace from plants or plant products used traditionally in rainforest areas. Napo’s marketed drug Mytesi (crofelemer 125 mg delayed-release tablets) is a first-in-class oral botanical drug product approved by the U.S. Food and Drug Administration (“FDA”) for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. To date, this is the only oral plant-based botanical prescription medicine approved under the FDA’s Botanical Guidance. Jaguar Animal Health’s Canalevia-CA1 (crofelemer delayed-release tablets) drug is the first and only oral plant-based prescription product that is FDA conditionally approved to treat chemotherapy-induced diarrhea (“CID”) in dogs. Canalevia-CA1 1 Table of Contents is a canine-specific formulation of crofelemer. Napo Therapeutics S.p.A., Napo’s majority owned Italian subsidiary, focuses on expanding crofelemer access in Europe. Jaguar, formerly known as Jaguar Animal Health, Inc., was founded in San Francisco, California as a Delaware corporation on June 6, 2013 (inception). The Company was a majority-owned subsidiary of Napo until the close of the Company's initial public offering on May 18, 2015. The Company was formed to develop and commercialize first-in-class prescription and non-prescription products for companion and production animals and horses. The Company's first non-prescription commercial products, Neonorm Calf and Neonorm Foal, were launched in 2014 and 2016, respectively. On July 31, 2017, Jaguar completed a merger with Napo pursuant to the Agreement and Plan of Merger dated March 31, 2017, by and among Jaguar, Napo, Napo Acquisition Corporation (“Merger Sub”), and Napo's representative (the “Merger Agreement”). In accordance with the terms of the Merger Agreement, upon the completion of the merger, Merger Sub merged with and into Napo, with Napo surviving as the wholly-owned subsidiary (the “Merger” or “Napo Merger”). Immediately following the Merger, Jaguar changed its name from “Jaguar Animal Health, Inc.” to “Jaguar Health, Inc.” Napo now operates as a wholly-owned subsidiary of Jaguar focused on human health including the ongoing development of crofelemer and commercialization of Mytesi. On March 15, 2021, Jaguar established Napo EU S.p.A (which changed its name in January 2022 to Napo Therapeutics S.p.A. “Napo Therapeutics”) based in Milan, Italy as a subsidiary of Napo. Napo Therapeutics’ mission is to provide access to crofelemer in Europe to address significant rare/orphan disease indications, including, initially, two key orphan target indications: Short bowel syndrome with intestinal failure (“SBS-IF”), and congenital diarrheal disorders (“CDD”). On November 3, 2021, Napo Therapeutics merged with Dragon SPAC S.p.A. (“Dragon SPAC”). On December 13, 2021, the European Medicines Agency (“EMA”) granted orphan-drug designation (“ODD”) for crofelemer for short bowel syndrome (“SBS”) indication in the European Union following review of the ODD application Napo submitted to the EMA in September 2021. Following this decision from the EMA, Napo Therapeutics is initiating efforts to commence clinical development of crofelemer in both adult and pediatric SBS patients in support of the company’s key focus on leveraging the EMA’s accelerated conditional marketing authorization pathway in Europe for these rare diseases. Napo Therapeutics has also agreed to support an investigator-initiated trial (“IIT”) which will provide proof of concept (“POC”) support for potential expanded access programs for crofelemer for patients with CDD and/or SBS patients with intestinal failure (“IF”). The expanded access program will be initiated following completion of this study and upon publication of POC results, potentially in 2023. Crofelemer previously received ODD in the U.S. from the FDA for SBS. SBS affects approximately 10,000 to 20,000 people in the U.S., according to the Crohn's & Colitis Foundation, and it is estimated that the population of SBS patients in Europe is approximately the same size. Despite limited treatment options, the global SBS market exceeded $568 million in 2019 and is expected to reach $4.6 billion by 2027, according to a report by Vision Research Reports. On December 21, 2021, we received conditional approval from the FDA to market Canalevia-CA1 (crofelemer delayed-release tablets), our oral plant-based prescription drug and the only drug for the treatment of CID in dogs. We expect Canalevia-CA1 to be available to multiple leading veterinary distributors in the U.S. in the second quarter of 2022 after we complete a post-approval update to the chemistry, manufacturing and controls (“CMC”) related to crofelemer. This update will align with the CMC requirements related to crofelemer used as the active ingredient in Mytesi. On January 4, 2022, we announced the launch of Canalevia-CA1 (crofelemer delayed-released tablets), which is being commercialized as a prescription drug product under the Company’s Jaguar Animal Health tradename. Canalevia-CA1 is a tablet that is given orally and can be prescribed for home treatment of CID. Canalevia-CA1 is a canine-specific formulation of crofelemer that is conditionally approved by the FDA under application number 141-552. Conditional approval allows for commercialization of the product while Jaguar Animal Health continues to collect the substantial evidence of effectiveness required for a full approval. We have received Minor Use in a Major Species (“MUMS”) designation from the FDA for Canalevia-CA1 to treat CID in dogs. FDA has established a &quot;small number&quot; threshold for minor use in each of the seven major species covered by the MUMS act. The small number threshold is currently 70,000 for dogs, representing the largest number of dogs that can be affected by a disease or 2 Table of Contents condition over the course of a year and still have the use qualify as a minor use. We expect Canalevia-CA1 to be available to multiple leading veterinary distributors in the U.S. in the second quarter of 2022 after we complete a post-conditional-approval update to the CMC related to crofelemer. In the field of animal health, we are continuing limited activities related to developing and commercializing first in class gastrointestinal products for dogs, dairy calves, foals, and high value horses. Most of the activities of the Company are focused on the commercialization of Mytesi and Canalevia-CA1 and the ongoing clinical development of crofelemer for the prophylaxis of diarrhea in adult patients receiving targeted cancer therapy. In June 2021, Napo Pharmaceuticals recruited Dr. Darlene Horton, as the Chief Medical Officer (“CMO”) of Napo Pharmaceuticals to support the ongoing clinical development activities for prescription products for human health. Dr. Horton is a 25-year veteran of the biotech and pharmaceutical industry. Prior to joining Napo, she led clinical development and regulatory strategy as CMO at Coherus Biosciences, Itero Biopharmaceuticals, and SMC Biotechnology. As Head of Clinical and Medical Affairs at Scios, she led the clinical development program that led to the approval of Natrecor® and was on the senior executive team when Scios was acquired by JNJ for $2.4B. At JNJ, she co-led (with strategic marketing) the cardiovascular therapeutic area when JNJ in-licensed and began developing the blockbuster drug Xarelto®. She also served as CEO at Nile Therapeutics and TulangCo Inc. Dr. Horton completed her Pediatric Cardiology fellowship and Pediatrics Residency at UCSF. She holds M.D. and B.S. in Microbiology degrees from the University of Florida. We believe Jaguar is poised to realize a number of synergistic, value adding benefits—an expanded pipeline of potential blockbuster human follow on indications of crofelemer, and a second generation anti secretory agent—upon which to build global partnerships. Jaguar, through Napo, holds global unencumbered rights for crofelemer, Mytesi, and Canalevia-CA1. Additionally, several of the drug product opportunities in Jaguar’s crofelemer pipeline are backed by Phase 2 and proof of concept evidence from human clinical trials. Crofelemer is a novel, first in class anti secretory agent which has a normalizing effect on electrolyte and fluid balance while acting locally in the gut, and this mechanism of action has the potential to benefit multiple disorders that cause gastrointestinal distress, including diarrhea and abdominal discomfort. Crofelemer is also in development for possible follow on indications, including prophylaxis for cancer therapy related diarrhea (“CTD”); for rare disease indications for symptomatic treatment of infants and children with CDD and for adult and pediatric patients with SBS-IF. As mentioned above, crofelemer has received ODD for SBS in the US and in the European Union (“EU”). Furthermore, the drug is being evaluated for management of diarrhea and abdominal discomfort in inflammatory bowel disease (“IBD”); diarrhea-predominant irritable bowel syndrome (“IBS-D”); and for idiopathic/functional diarrhea. A second generation proprietary anti secretory agent, NP-300 (lechlemer), is undergoing preclinical development for symptomatic relief and treatment of diarrhea in patients with acute infection from cholera. Napo has a direct sales force of 8 sales representatives and a national sales director covering U.S. geographies with the highest commercial potential. In 2019, we hired Ian Wendt, an industry veteran with a broad range of experience that includes commercializing supportive care and HIV treatments, as Vice President of Commercial Strategy. He was promoted to Chief Commercial Officer in 2020. With support provided by concomitant marketing, promotional activities, patient education programs and peer education initiatives described below, we expect continued growth in the number of patients treated with Mytesi. Mr. Wendt will lead disease state educational initiatives that will pave the way for crofelemer’s final development for the CTD market and our commercial role for this next important, potential indication for Mytesi. Additionally, he is leading commercialization activities for Canalevia-CA1 in the U.S. veterinary market. A key component of our marketing strategies for Mytesi in 2021 was focused on the transition of Mytesi distribution to a closed network of specialty pharmacies rather than to wholesalers that resell the product to retail pharmacies. This transition was intended to help remove access barriers for patients receiving Mytesi and includes services such as a higher level of support for prior authorizations, appeals, adherence counseling, and home delivery options. While patients often visit retail pharmacies for short-term or uncomplicated medical needs, specialty pharmacies focus on serving patients with complex and chronic medical conditions like HIV. The transition to a closed network of specialty pharmacies is expected to result in a meaningful reduction in Mytesi distribution costs and 3 Table of Contents prepare our U.S. commercial distribution network for future indication expansion of crofelemer to other populations of patients with complex medical needs. However, when we made the full transition on September 3, 2021, to selling to specialty pharmacies, it resulted in an underrepresentation of actual Mytesi utilization, as wholesalers depleted their inventory during the transition process. The goal of Napo’s sales team is to deliver a frequent and consistent selling message to targeted, high volume prescribers of HIV antiretroviral therapies (“ART”) and to gastroenterologists who see large numbers of HIV patients. In 2017 we released the results of a survey of 350 people living with HIV and AIDS regarding the topic of “Talking to Your Doctor About Symptoms.” The survey results show that diarrhea remains prevalent in those living with HIV/AIDS, with 27% of respondents reporting that they currently have diarrhea, and 56% reporting that they have had diarrhea in the past. Additionally, the results of a 2017 Napo sponsored survey of 271 U.S. board certified gastroenterologists indicate that the number one GI complaint for people living with HIV/AIDS is diarrhea, and 93% of U.S. gastroenterologists see patients with HIV/AIDS in their practice. Key to the success of our sales representatives in growing Mytesi sales is segmenting and targeting the right health care providers—those HIV treaters who are high prescribers of ART and those gastrointestinal doctors who see large populations of people living with HIV/AIDS. The target list of prescribers for our sales reps includes a pool of approximately 1,300 high volume ART prescribing HIV specialists, and gastroenterologists who see the largest number of people living with HIV/AIDs, and we’ve strategically focused our sales force in the US geographies with the highest potential, including San Francisco, Sacramento, Seattle, southern California, Arizona, Nevada, Florida, New York City/Long Island, Connecticut, New Jersey, Pennsylvania, Maryland, Kansas, Texas, Missouri, Chicago, Michigan, Atlanta, Louisiana, DC, Virginia, North Carolina, South Carolina, Indianapolis, and Ohio. Medical education presentations led by health care providers (“HCPs”) participating in the Napo Speakers Bureau—a group that includes HIV/AIDS treaters, infectious disease specialists, gastroenterologists, colorectal surgeons, nurse practitioners, doctors of pharmacology, and physician assistants—focus on the prevalence and pathophysiology of gastrointestinal consequences of HIV infection and on the latest treatment options for HIV related diarrhea. Presentations given by patient advocate members provide information to HIV/AIDS patients about the prevalence of diarrhea in people living with HIV/AIDS (“PLWHA”) and offer guidance about talking to HCPs regarding diarrhea related concerns. With the introduction of newer antiretroviral (“ARV”) drug therapies, there has been a reduction in the severity of ARV induced diarrhea. However, a significant portion of this patient population still suffers from diarrhea caused by HIV enteropathy, which is due to the direct and indirect effects of HIV on the intestinal mucosa. Chronic diarrhea remains a significant complaint of PLWHA, particularly those who are older and have lived with the virus in their gut for 10+ years. According to data from the U.S. Centers for Disease Control and Prevention, currently more than 70% of people living with HIV are over age 50 and have lived with HIV for more than 10 years. Napo is on many AIDS Drug Assistance Program (“ADAP”) formularies. ADAPs provide lifesaving HIV treatments to low income, uninsured, and underinsured individuals living with HIV/AIDS in all 50 states and the territories. The ADAP program provides Mytesi free of charge to patients who qualify and copay support for some patients who have insurance coverage. Based on data from healthcare research firm Decision Resource Group, approximately 86% of ADAP eligible US lives now have access to Mytesi, which is now on the ADAP formularies for 30 states, including the four programs with the largest enrollment. In May 2020, Napo launched a program to educate insurance companies about the benefits of Mytesi and negotiate better access to Mytesi for commercially insured patients. We believed that our enhanced Mytesi market access strategy engaged select payors in contracting discussions with the objective of removing barriers for patients in order to allow them to more easily start on – and stay on – Mytesi. This initiative represented a commercial opportunity to employ a strategic mechanism that was well-established in the U.S. pharmaceutical industry to help patients access Mytesi. ​ 4 Table of Contents Napo expanded the NapoCares Patient Support Program for Mytesi in April 2020 as part of the Company's enhanced market access strategy. The expansion meaningfully increased co-pay support for commercially insured patients, which also includes allowing the co-pay amount to remain the same whether a patient fills a 30-day or a 90-day prescription of Mytesi. The expansion also increased the income ceiling from two times the Federal poverty limit to five times the Federal poverty limit for our patient assistance program, which will allow more low-income patients to receive Mytesi at no cost. The co-pay program and patient assistance program are components of a comprehensive suite of patient support services Napo rolled out in the second quarter of 2020 with the support of AssistRx, a specialty therapy initiation and patient support company. On August 2021, Napo signed a license agreement with Napo EU S.p.A. to study, develop, manufacture, and commercialize Napo’s plant-based crofelemer and lechlemer drug product candidates in the European Union (excluding Russia) and in specified non-EU countries in Europe for specific indications, which rights and obligations were assumed by the combined company formed by the merger of Napo Therapeutics with Dragon SPAC (the combined company uses the Napo Therapeutics name). Per the terms of the license agreement, Napo will receive payment of up to $10 million as the initial license fee (to be paid in two installments, the first of which has already been received) as the initial license fee and is eligible to receive additional payments related to milestones, royalties, and product transfers. In November 2021, Napo Therapeutics appointed Mr. Massimo Mineo, a veteran of the European pharmaceutical industry for 20+ years, as general manager (the equivalent in Europe of chief executive). He has significant experience in the field of orphan-drug development and commercialization activities and his leadership is expected to be instrumental in the ongoing development and commercialization activities for crofelemer for the planned SBS-IF indication in the EU. Mr. Mineo is responsible for the strategy, planning, direction, and implementation of all Napo Therapeutics’ commercial, operational, and product development activities within Europe, with success defined by bringing crofelemer to market for key initial target indications, beginning with SBS-IF and CDD. In November 2021, Napo Therapeutics announced the appointment of Annabella Amatulli as chief regulatory officer. A recognized expert in global regulatory affairs, Ms. Amatulli is responsible for both high-level strategic planning and hands-on support for Napo Therapeutics’ development programs and licensed products from a regulatory perspective and serves as the primary liaison between Napo Therapeutics and European health authorities. In January 2022, Napo Therapeutics announced the appointment of Martire Particco, MD, a physician with 30+ years of experience in Europe’s pharmaceutical industry and in clinical practice, as its CMO for the EU-related development activities of Napo Therapeutics. Dr. Particco possesses in-depth experience in the field of orphan and rare diseases, having been involved in the clinical development and launch of Pfizer’s pulmonary hypertension indication for sildenafil and the clinical development of Kerdion Biopharma’s ligneous conjunctivitis indication for plasminogen, with direct experience with patients and experts treating these rare pathologies. In February 2022, Napo announced the completion of a third-party, investigator-initiated preclinical enterocyte (intestinal cell) in vitro study to evaluate the effects of crofelemer on cells with certain genetic defects that result in specific forms of CDD. Jaguar believes that these study results will support certain requests received from the Office of Orphan Products Development at the U.S. FDA in response to the ODD application Napo filed with the FDA for crofelemer for CDD in infants and children. The data from this study will support the rare disease business model that Napo Therapeutics is pursuing in Europe under its exclusive license for crofelemer from Jaguar and Napo. CDD patients have intestinal failure and morbidity resulting in a failure to thrive due to malabsorption of nutrients and need parenteral nutrition. We believe the novel mechanism of action of crofelemer may have considerable potential to manage the severe secretory loss of electrolytes and fluid resulting in dehydration. There are currently no therapies for CDD except parenteral nutrition. Thus, crofelemer may reduce the associated morbidity and mortality of CDD and lessen the need for total parenteral nutrition (“TPN”). ​ 5 Table of Contents Napo has actively ensured that its intellectual property (“IP”) filings in support of the development of crofelemer for various proposed indications are protected appropriately. The IP portfolio for crofelemer includes the relief and treatment of HIV-associated diarrhea and chemotherapy-induced diarrhea as well as planned indications for inflammatory diarrhea, IBS-D, CID and SBS, with all indications, Napo prioritizes IP protection. Napo currently holds approximately 143 patents, the majority of which do not expire until 2027 - 2031, and approximately 43 patents pending. In October 2020, Napo initiated its pivotal Phase 3 clinical trial of crofelemer (Mytesi) for prophylaxis of diarrhea in adult cancer patients receiving targeted therapy (OnTarget study). The Phase 3 OnTarget clinical trial is a 24-week (two 12-week stages), randomized, placebo-controlled, double-blind study to evaluate the safety and efficacy of crofelemer in the prophylaxis of diarrhea in adult cancer patients with solid tumors receiving targeted cancer therapy-containing treatment regimens. Patients will be randomized to receive either crofelemer or matching placebo treatment that will start concurrently with the initiation of targeted cancer therapy regimen. The primary endpoint will be assessed at the end of the initial (Stage I) 12-week double-blind placebo-controlled primary treatment phase after the last patient has completed 12 weeks of treatment. After completing the Stage I treatment phase, the subjects will have the option to remain on their assigned treatment arm and reconsent to enter into the Stage II 12-week extension phase. The safety and efficacy of orally administered crofelemer will be evaluated for the prophylaxis of diarrhea in adult cancer patients receiving targeted cancer therapies with or without standard chemotherapy regimens. The assessment of the frequency of diarrhea will be measured by the average number of weekly loose and/or watery stools for the active (crofelemer) or placebo arms over 12-week Stage I treatment period. A significant proportion of patients undergoing cancer therapy experience diarrhea. Novel “targeted cancer therapy” agents, such as epidermal growth factor receptor (“EGFR”) antibodies and tyrosine kinase inhibitors (“TKIs”), with or without cycle chemotherapy agents, may activate intestinal chloride ion channel-mediated secretory pathways leading to increased electrolyte and fluid content in the gut lumen, which results in passage of loose/watery stools, i.e., secretory diarrhea. With increased approval of several novel targeted therapies, it is estimated that 13.6% of cancer patients in 2020 were eligible for targeted therapies with or without standard chemotherapy regimens, according to a paper published in April 2021 in the journal Annals of Oncology 1 . According to the National Cancer Institute, in 2020, 1,806,590 new cases of cancer were diagnosed and nearly 250,000 of these newly diagnosed patients could be eligible for available targeted therapies. Due to the chronic dosing and toxicity associated with targeted therapies, many cancer patients on targeted therapy require drug holidays or dose reductions in their therapy, including those due to diarrhea. By improving stool consistency and reducing the frequency of watery stools, crofelemer is expected to provide improved adherence to the therapeutic dosing of any targeted therapies, potentially leading to better clinical outcomes. We have learned from business development discussions with cancer drug manufacturers that the adoption and continued use of targeted cancer therapies is directly related to the ability of patients to tolerate these therapies—highlighting the importance of supportive care drugs like crofelemer to help manage cancer treatment-related diarrhea in this patient population. As previously announced, an abstract regarding patient outcomes associated with cancer-related diarrhea (“CRD”) by Napo and Napo's collaborators was accepted for poster presentation at the American Society of Clinical Oncology (ASCO®) Annual Meeting, which was held virtually from June 4-8, 2021. This study found that patients with CRD were 40% more likely to discontinue the chemotherapy or targeted therapy than patients without CRD. The persistence of index cancer therapy and time to switch were also lower for patients with CRD. Strategies to control CRD and continue cancer therapy are urgently needed 2 . In addition, two CRD-related abstracts from Napo and its collaborators were accepted for online publication at ASCO. One of these studies found that patients with CRD used significantly more resources, including outpatient services, ED visits, and hospitalizations. Effective prevention of CRD remains an unmet strategy to reduce the overall 1 A. Haslam, M.S. Kim, V. Prasad, Updated estimates of eligibility for and response to genome-targeted oncology drugs among US cancer patients, 2006-2020 2 Pablo C. Okhuysen, M.D., Lee Schwartzberg, M.D., FACP, Eric Roeland, M.D., FAAHPM , The impact of cancer-related diarrhea on changes in cancer therapy patterns: Real world evidence 6 Table of Contents cost of cancer care 3 . Findings from the other study indicated that patients with CRD had nearly 2.9 times higher all-cause total cost than patients without CRD after adjusting for covariates. Prevention of CRD may result in a significant reduction in cancer-treatment cost 4 . As previously announced in June 2020, the effects of crofelemer (Mytesi) were evaluated in reducing diarrhea associated with the irreversible pan-HER TKI neratinib in female dogs. The data were presented at the American Association for Cancer Research (“AACR”) Annual Meeting II in 2020. The results from the dog study provide further scientific support for the evaluation of crofelemer in providing symptomatic relief of watery diarrhea in patients receiving a targeted cancer therapy drug like neratinib with or without cycle chemotherapy, without the use of antimotility drugs like loperamide, in future clinical studies. The dog study was conducted without the prophylaxis or concomitant use of loperamide and demonstrated that crofelemer caused an approximate 30% reduction in the incidence and severity of diarrhea associated with daily oral administration of neratinib, which was statistically significant, within the 28-day period. Crofelemer also demonstrated significant improvement in the proportion of responder dogs, and there was a trend for fewer neratinib dose reductions in both crofelemer treatment groups when compared to the control group. The results and finding from a clinical, third-party investigator-initiated Phase 2 study (called HALT-D) evaluated the effectiveness of crofelemer for reduction of diarrhea in HER2 positive breast cancer patients receiving trastuzumab, pertuzumab, and chemotherapy agents such as docetaxel or pacilitaxel with or without carboplatin. The investigators of the HALT-D study, sponsored by Georgetown University and funded by Genentech, a member of the Roche Group, were presented at the San Antonio Breast Cancer Symposium on December 10, 2021. It has been reported that these pertuzumab-containing regimens cause diarrhea in up to 80% of breast cancer patients and approximately 8 to 12% of patients reach grade 3, which often requires hospitalization. No antidiarrheal medications are currently approved that specifically target the underlying mechanism of CID associated with pertuzumab-containing regimens. Recent studies have shown that EGFR inhibitors cause increased chloride secretion into the lumen of the gut and Crofelemer through its unique and novel mechanism of reducing the chloride-secretory actions of the cystic fibrosis transmembrane conductance regulator (“CFTR”) and calcium-activated chloride channels (CaCC), was considered to be mechanistically- and physiologically-appropriate for reducing the loss of electrolyte and fluid in breast cancer patients receiving this regimen. The Principal Investigator (“PI”), Paula Pohlmann, MD, PhD, Associated Professor at the University of Texas MD Anderson Cancer Center and formerly from Georgetown University, reported the results of the HALT-D study. This clinical study evaluated 51 breast cancer patients that were eligible to receive at least three cycles of pertuzumab-containing regimen with chemotherapy that were randomly assigned to either crofelemer in cycles 1 and 2 or the control group, in which patients received standard of care. Breakthrough anti-diarrheal medicines (“BAM”) were permitted but not given prophylactically. Findings showed that the primary endpoint, the incidence of diarrhea for at least two consecutive days, was not statistically different for the two groups. However, crofelemer patients demonstrated significantly better outcomes compared to control group patients across a number of key secondary endpoints including reductions in the incidence and severity of diarrhea in cycle 2 based on Investigator and Patient Reported Outcomes (“PRO”) (see Jaguar Health's November 19, 2021 press release). In the presentation, additional findings were reported that showed that CID occurred significantly lesser (by 23%) in the crofelemer group during cycle 1 and crofelemer patients were 1.8 times more likely than control patients to have their diarrhea resolved. These data provide concordance to the planned primary endpoint in Napo’s ongoing phase 3 OnTarget study. Dr. Pohlmann commented that the HALT-D study showed benefits of crofelemer across a range of important diarrhea-related measures, including its incidence, severity and probability of resolving and that the lack of difference in the primary endpoint was because about 70% of the patients in both groups would have at least two consecutive days of diarrhea regardless of cycle or CID treatment group. The incidence of two consecutive days of diarrhea is 3 Lee Schwartzberg, M.D., FACP, Eric Roeland, M.D., FAAHPM, Pablo C. Okhuysen, M.D., Characterizing unplanned resource utilization associated with cancer-related diarrhea 4 Eric Roeland, M.D., FAAHPM, Pablo C. Okhuysen, M.D., Lee Schwartzberg, M.D., FACP, Healthcare utilization and costs associated with cancer-related diarrhea 7 Table of Contents typical in cancer patient experiences from receiving chemotherapy regimens and is thus not clinically relevant as it does not differentiate the severity nor duration of CID among treatment groups. Dr. Pohlmann also commented that the secondary endpoints provided a more relevant assessment of CID, which may guide future studies that address this significant comorbidity in cancer patients receiving such regimens. Napo is also continuing to conduct preclinical and formulation activities to support the evaluation of its second generation, plant-based oral prescription drug product, NP-300 (lechlemer), for its planned evaluation in the symptomatic treatment of diarrhea associated with acute infections including that from Vibrio cholerae. Cholera produces a devastating loss of electrolytes and fluid in patients and without appropriate reduction in loss of fluid and electrolytes, patients experience significant hospitalization and mortality. Lechlemer provides the opportunity to treat cholera patients in combination with oral rehydration salts (“ORS”) and the recommended guidelines from the World Health Organization (“WHO”) for the use of appropriate antibiotics to reduce the burden of the pathogen. Appropriate preclinical toxicity studies and formulation development activities are ongoing to support the conduct of clinical studies with lechlemer. As previously mentioned, Napo completed 7-day and 28-day preclinical toxicology and safety studies in rats and dogs with lechlemer (NP-300) following repeated daily oral dosing. Napo received partial support for preclinical services from the National Institute of Allergy and Infectious Diseases (“NIAID”) of the National Institutes of Health, and Napo is grateful for their partial support of lechlemer’s development. Napo is currently conducting additional, prerequisite IND-enabling toxicity studies and also developing appropriate oral solid dosage forms to allow the clinical evaluation of lechlemer. The Company plans to provide appropriate regulatory documents by end of the second quarter of 2022 to support the initiation of first-in-human (“FIH”) evaluation in the third quarter of 2022. Cholera is an acute diarrheal illness caused by infection of the intestine with the bacterium Vibrio cholerae. According to the Centers for Disease Control and Prevention of the U.S. Department of Health & Human Services, an estimated 3 5 million cholera cases and more than 100,000 cholera-related deaths occur each year around the world. The infection is often mild or without symptoms but can sometimes be severe. Approximately one in 10 of infected persons will have severe disease characterized by profuse watery diarrhea, vomiting, and leg cramps. In these people, rapid loss of body fluids leads to dehydration and shock. Without treatment, death can occur within hours. The largest cholera outbreak in recorded history recently occurred in Yemen. According to Oxfam, the number of cholera cases in Yemen in 2019 was the second largest ever recorded in a country in a single year, surpassed only by the numbers in Yemen in 2017. According to the Brookings Institution, cholera continues to spread in Yemen, with 180,000 new cases reported in the first eight months of 2020. We expect that lechlemer will be significantly less expensive and would support development efforts to receive a tropical disease priority review voucher from the FDA for an indication for the symptomatic treatment of diarrhea from acute infections such as cholera. Priority review vouchers are granted by the FDA as an incentive to develop treatments for neglected diseases and rare pediatric diseases. Priority review vouchers are transferable and, in past transactions by other companies, have sold for prices ranging from $60 million to $350 million. Additionally, we believe lechlemer may provide a long-term pipeline opportunity as a second-generation anti-secretory agent for multiple gastrointestinal diseases—especially in resource-constrained countries. Napo received advice from the Division of Anti-Infectives at the U.S. FDA in September 2021 as part of the pre-investigational New Drug Application (“Pre-IND”) discussion. Napo plans to include the advice in its plans for the Phase 1 clinical trial in healthy volunteers, currently planned the second half of 2022. The NP-300 (lechlemer) program is paired with funding from a promissory note related to the potential future sale of a possible TDPRV. As previously announced, the Company also launched the Entheogen Therapeutics (“ETI”) initiative to support the discovery and development of novel, natural medicines derived from psychoactive and psychedelic plant compounds for treatment of mood disorders, neuro-degenerative diseases, addiction, and other mental health disorders. The initiative is initially focused on plants with the potential to treat depression and leverages Napo’s proprietary library of approximately 2,300 plants with medicinal properties. According to statistics available from the 8 Table of Contents National Institute of Mental Health Disorders, part of the National Institutes of Health, approximately 9.5% of American adults ages 18 and over will suffer from a depressive illness (major depression, bipolar disorder, or dysthymia) each year. Field research collaborations have been conducted in the past by members of the scientific strategy team (“SST”) of Jaguar’s predecessor company Shaman Pharmaceuticals, who are also members of the ETI SST, yielded possible applications for a compound called alstonine. Alstonine is derived from a plant used by traditional healers in Nigeria, and has demonstrated a potential novel mechanism of action for the treatment of difficult to manage conditions such as schizophrenia. The ETI SST consists of leading and globally renowned ethnobotanists, physicians, and pharmacologists as well as experts in the fields of natural product chemistry and neuropharmacology. We believe the wealth of expertise, experience, and commitment of the ETI SST—comprised of multiple members of the original SST that contributed to development of Jaguar's proprietary library of approximately 2,300 plants—will play an instrumental role in advancing our shared initial goal of identifying plants in our library that may have the potential to treat mood disorders and neurodegenerative diseases, such as Alzheimer's disease, Parkinson's disease, and amyotrophic sclerosis. Mood disorders and neurodegenerative diseases affect hundreds of millions of people around the globe and represent classic unmet medical needs. While Napo and Jaguar remain steadfastly focused on the commercial success of Mytesi and Canalevia-CA1, respectively, and on the development of potential crofelemer follow-on indications in the area of gastrointestinal treatments, the Company believes the same competencies and multi-disciplinary scientific strategy that led to the development of crofelemer will support collaborative efforts with potential partners to develop novel first-in-class prescription medicines derived from psychoactive plants. Our management team has significant experience in gastrointestinal product development for both humans and animals. Napo was founded 32 years ago to perform drug discovery and development by leveraging the knowledge of traditional healers working in rainforest areas. Ten members of the Jaguar and Napo team have been together for more than 15 years. Dr. Steven King, our chief sustainable supply, ethnobotanical research and intellectual property officer, and Lisa Conte, our founder, president and CEO, have worked together for more than 30 years. We have buttressed the early founding team with the expertise and experiences of team members like Dr. Darlene Horton and Dr. Karen Brunke to support the continued development and commercialization activities of the Napo and Jaguar family. We have assembled an impressive group of scientific advisory board (SAB) members that work closely with the Chair of Jaguar’s Scientific Advisory Board, Dr. Pravin Chaturvedi, who also serves as the Chief Scientific Officer (“CSO”) of Jaguar. Together, these dedicated personnel successfully transformed crofelemer, which is extracted from trees growing in the rainforest, to Mytesi and Canalevia-CA1, which are natural, sustainably harvested, FDA-approved drugs. As announced in February 2020, the American Botanical Council named Napo the recipient of the 2019 Varro E. Tyler Commercial Investment in Phytomedicinal Research Award in recognition of Napo’s ongoing commitment to the sustainable development and production of natural therapeutic preparations. Specifically, this award acknowledges the successful development and approval of crofelemer, which is derived from the medicinal Croton lechleri tree in the Amazon rainforest. Previous recipients of this award include Jaguar’s partner, Italy based Indena S.p.A., one of the world’s largest producers of clinically-tested botanical extracts for the food, dietary supplement, cosmetic, and pharmaceutical markets. Pipeline within a product—crofelemer Crofelemer is currently being evaluated for the prophylaxis of CTD in adult patients receiving targeted therapy. As announced in October 2020, Napo has initiated its pivotal Phase 3 clinical trial of crofelemer (Mytesi) for prophylaxis of diarrhea in adult cancer patients receiving targeted therapy (OnTarget study). A significant proportion of patients undergoing cancer therapy experience diarrhea. Novel targeted cancer therapy agents, such as epidermal growth factor receptor antibodies and tyrosine kinase inhibitors, with or without cycle chemotherapy agents, may 9 Table of Contents activate intestinal chloride secretory pathways leading to increased chloride secretion into the gut lumen, coupled with significant loss of water that would result in secretory diarrhea. According to data appearing in “Treatment Guidelines for CID” (chemotherapy induced diarrhea) in the April 2004 issue of Gastroenterology and Endoscopy News, diarrhea is the most common adverse event reported in chemotherapy patients. Approved third-party supportive care products for chemotherapy induced nausea and vomiting (“CINV”) include Sustol, Aloxi, Akynzeo and Sancuso. According to a report published by Allied Market Research, the global CINV market was valued at $1.66 billion in 2015 and is estimated to reach $2.66 billion by 2022. Diarrhea has been reported as the most common side effect of the recently approved CDK 4/6 inhibitor abemaciclib and the pan HER TKI neratinib, with occurrence ranging from 86% to >95% and grade 3 over 40%, in published studies. Diarrhea in this patient population has the potential to cause dehydration, potential infections, and non-adherence to treatment. A novel antidiarrheal like crofelemer may hold promise for treating secretory diarrhea—and therefore also support long term cancer treatment adherence—in this population. Napo has previously received orphan drug designation from the FDA for adult and/or pediatric SBS. The Orphan Drug Act provides for granting special status to a drug or biological product to treat a rare disease or condition upon request of a sponsor. Orphan drug designation qualifies the sponsor of the drug for various development incentives, including extended exclusivity, tax credits for qualified clinical testing, and relief of filing fees. As mentioned above, Napo Therapeutics has licensed the rights for the orphan and rare diseases associated with SBS and CDD with IF. Napo Therapeutics expects that an IIT in pediatric patients with CDD will study crofelemer in the second half of 2022. This study will be initiated in the Middle East/North Africa (“MENA”) region with sites that treat infants and children with CDD and SBS with IF. CDD is a group of rare, chronic intestinal channel diseases, with onset in early infancy, that are characterized by severe, lifelong diarrhea and a lifelong need for nutritional intake either parenterally or with a feeding tube. CDD is related to specific genetic defects inherited as autosomal recessive traits. The incidence of CDD is prevalent in regions where consanguineous marriage (related by blood) is part of the culture. CDD is directly associated with serious secondary conditions including dehydration, metabolic acidosis, and failure to thrive, prompting the need for immediate therapy to prevent death and limit lifelong disability. A recent preclinical study shows that crofelemer reduces the chloride secretion in intestinal cells derived from patients with CDD and these preclinical results provide additional support and rationale for the use of crofelemer in treating patients with CDD and/or SBS with IF. As previously announced (in 2019), a clinical research study sponsored by The University of Texas Health Science Center at Houston (“UTHealth”) is being supported by Napo. This study evaluates the safety and effectiveness of crofelemer for treatment of chronic idiopathic diarrhea in patients. Chronic idiopathic diarrhea is a common complaint of patients presenting to family practitioners and internists and is one of the most common reasons for referral to gastroenterologists. It is estimated that the prevalence of chronic idiopathic diarrhea in developed countries (including the U.S.) is approximately 3-5%. It has a significant negative effect on health-related quality of life and causes a high economic burden on patients and society. The American Gastroenterological Association Burden of Illness study (2012) showed that the estimated annual direct and indirect costs associated with chronic idiopathic diarrhea is up to $524 million per year and $136 million per year, respectively. The principal investigator for this study is Dr. Brooks D. Cash, MD, AGAF, FACG, FACP, FASGE, Chief – Division of Gastroenterology, Hepatology and Nutrition, Sterling Professor of Medicine, McGovern Medical School at UTHealth, Co-Director, Ertan Digestive Disease Center at Memorial Hermann-Texas Medical Center. The Study is titled Yield of Diagnostic Tests and Management of Crofelemer for Chronic Idiopathic Diarrhea in Non-HIV Patients. ​ 10 Table of Contents Crofelemer is also being evaluated in another investigator-initiated trial for the management of functional diarrhea in non-HIV patients. The principal investigator for this clinical study is Dr. Anthony Lembo, Professor, Gastroenterology, Beth Israel Deaconess Medical Center, Harvard Medical School, Boston, MA. This clinical study is a randomized double-blind, placebo-controlled study in adult subjects with functional diarrhea. Eligible patients will have functional diarrhea defined by Rome IV criteria as >25% loose watery stools and <25% hard/lumpy stools. The study plans to randomize 80 patients and the subjects will be randomized 1:1 for 4 weeks to either the placebo or crofelemer 125 mg delayed-release tablets (Mytesi) arm, administered twice daily for 4 weeks. Following the four-week placebo-controlled period, all subjects will receive Mytesi for an additional four weeks in an open label extension phase. The safety and tolerability of crofelemer and the clinical response during the placebo-controlled period will be evaluated in this study. Subjects will be allowed to use limited amounts of an antimotility drug (loperamide) during the placebo-controlled and open-label extension phase to manage uncontrolled diarrhea. However, no more than 11 doses of 2 mg loperamide will be permitted during any given week per subject. Jaguar’s and Napo’s portfolio development strategy involves meeting with Key Opinion Leaders (“KOLs”) to identify indications that are potentially high value because they address important medical needs that are significantly or globally unmet, obtain input on protocol practicality and protocol generation, and then strategically sequencing indication development priorities, second generation product pipeline development, and partnering goals on a global basis. Mytesi is the only antidiarrheal drug that has been approved by the US FDA for the treatment of chronic, noninfectious diarrhea in adult HIV/AIDS patients receiving ART. This approval was on the basis of the drug’s safety and efficacy in reducing the number of weekly and daily watery stools in patients and improvement of stool consistency, from unformed to formed stools, over a 24-week treatment period. Unlike other available diarrhea treatments, crofelemer does not act by inhibiting intestinal motility. It has minimal oral absorption and does not have any clinically significant food or drug interactions, thereby allowing patients to maintain their appropriate dosing of treatment to suppress their viral load and maintain adequate CD4 levels in PLWHA. Crofelemer is also the only approved antidiarrheal drug that is approved for chronic use. Moreover, it is not an opioid, like other traditionally used treatments, thus avoiding both the acute side effect of constipation and the potential for abuse. Napo’s Scientific Advisory Board has focused primarily on physician education, and community and global awareness regarding the importance and availability of solutions for neglected comorbidities, such as the first in class anti secretory mechanism of action of Mytesi for its currently approved indication. There are significant barriers to entry for Mytesi (crofelemer). Through Napo, we hold an extensive global patent portfolio. At the present time, we hold approximately 143 issued worldwide patents, with coverage in many cases that extends until 2031. These issued patents cover multiple indications, including HIV AIDS diarrhea, irritable bowel syndrome (“IBS”), IBD, manufacturing, enteric protection from gastric juices, among others. We also have approximately 43 pending patent applications worldwide in the human health areas that are being prosecuted. Mytesi is the first oral drug approved under the FDA’s Botanical Guidance, which provides another barrier to entry from potential generic competition. The FDA requires that the manufacturer of crofelemer use a validated proprietary bioassay to release the drug substance and drug product of Mytesi. While most generic products are fashioned to meet chemical release specifications that are in the public domain, the specifics of this assay are not publicly available. There is no pathway by which a generic product can be developed for a drug approved under botanical guidance. In addition, Mytesi is minimally absorbed systemically, so the classic approach of creating a generic drug by matching pharmacokinetic blood levels is not possible. A generic player would have to conduct costly and risky clinical trials. While Jaguar’s commercial and development efforts have evolved to focus primarily on Mytesi and human pipeline indications since its merger with Napo, the Company has commenced launch initiatives related to Canalevia-CA1, our drug product which received conditional approval in December 2021 for treatment of CID in dogs. CID in dogs is typically caused by the same mechanism of action as in humans, and hence the work in dogs serves as a 11 Table of Contents preclinical proof of concept for the diarrhea in humans that is related to targeted cancer therapy. CID is an interesting model for human medical need and is being pursued as a prescription indication for animal health. We believe there is an important unmet medical need for the treatment of CID in dogs. Certain cancer treatment agents provided to dogs are human drugs or have the same mechanism of action as human cancer drugs, and these agents and mechanisms of action often have meaningful rates of diarrhea in humans as well. As previously announced, Jaguar has received MUMS designation status from the FDA for Canalevia-CA1 for the indication of CID in dogs. MUMS designation is modeled on the orphan drug designation for human drug development and offers possible financial incentives to encourage MUMS drug development, such as the availability of grants to help with the cost of developing the MUMS drug. For Jaguar Animal Health’s second proposed indication for Canalevia, exercise induced diarrhea (“EID”) in dogs, the Company is leveraging the use of many of the same major technical sections that have been submitted in support of the Company's application for Canalevia-CA1 for the indication of CID in dogs. Conditional approval of Canalevia for EID, under the name Canalevia-CA2, is expected in the fourth quarter of 2022. Crofelemer is extracted and purified from the Croton lechleri tree, which we sustainably harvest and manage through programs that we have been developing over the past 30 years. This process has involved working with local and indigenous communities to plant trees, obtaining permits for export, and creating a supply network that is robust and reliable. Our team continues to have relationships with partners that we began working with in the 1990s. Additionally, through the establishment of a nonprofit called the Healing Forest Conservancy, our team has created a long term mechanism for benefit sharing that recognizes the intellectual contribution of Indigenous populations. This program is intended to contribute to the continued strength and effectiveness of the valued and strategically important relationships we have carefully cultivated over the past 30+ years. Product Pipeline In addition to our Mytesi (crofelemer) product that is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy, we are also developing a pipeline of prescription drug product candidates to address unmet needs in gastrointestinal health through Napo. Mytesi (crofelemer) is a novel, first in class anti secretory agent which has a basic normalizing effect locally in the gut and lumen, and this mechanism of action has the potential to benefit multiple disorders. Clinical trials demonstrated that nearly 80% of Mytesi users experienced an improvement in their diarrhea over a four week period. At week 20 of the pivotal trial, over half the patients had no watery stools, or a 100% decrease, and 83% had at least a 50% decrease in watery stools. Our Mytesi pipeline currently includes prescription drug product candidates for four follow on indications, several of which are backed by Phase 2 evidence from completed Phase 2 trials. In addition, a second generation proprietary anti secretory agent, lechlemer, is in development for cholera-related diarrhea. ​ 12 Table of Contents Napo Prescription Drug Product Candidates ​ Product Candidates ​ Indication Completed Milestones Current Phase of Development Anticipated Near-Term Milestones* Mytesi CTD • Initiated pivotal Phase 3 clinical trial in October 2020 • Findings of Phase 2 HALT-D study presented in Q4 2021 Phase 3 • Enrollment in Phase 3 trial ongoing ​ Novel lyophilized crofelemer product Rare disease indications (SBS & CDD) • Orphan drug designation for SBS granted by FDA and EMA Phase 2 • Initiate Phase 2 proof of concept (POC) study in SBS and/or CDD in 2022 Mytesi IBS-D • Two Phase 2 studies completed Phase 2 • Potential business development opportunities Mytesi Chronic idiopathic diarrhea • Initiated clinical study at The University of Texas Health Science Center at Houston (“UTH”) Phase 2 • Top line results of UTH trial expected in 2022 Mytesi Functional diarrhea • Initiated clinical study at Beth Israel Deaconess Medical Center, Harvard Medical School, Boston Phase 2 • Enrollment ongoing Mytesi IBD • Safety evidence from other chronic diarrhea indications Phase 2 • KOL discussions ongoing NP-300 (lechlemer) Second-generation antidiarrheal drug for infectious diarrhea including from cholera • Ongoing IND-enabling toxicology studies and formulation development Pre IND • Initiate Phase 1 trial in the second half of 2022 ​ ​ *Clinical trials are funding dependent Estimated Size of Mytesi Target Markets We believe the medical need for Mytesi is significant, compelling, and unmet, and that doctors are looking for a drug product with a mechanism of action that is distinct from the options currently available to resolve diarrhea. A growing percentage of HIV patients have lived with the virus in their gut for 10+ years, often causing gut enteropathy and chronic or chronic episodic diarrhea. According to data from the U.S. Centers for Disease Control and Prevention, by 2020 more than 70% of Americans with HIV are expected to be 50 and older and have lived with HIV for more than 10 years (1). ​ 13 Table of Contents ​ Market ​ Competition Market Size/Potential HIV-related Diarrhea None We estimate the U.S. market revenue potential for Mytesi to be approximately $50 million in gross annual sales CTD None An estimated 650,000 U.S. cancer patients receive chemotherapy in an outpatient oncology clinic(2). Comparable supportive care (i.e., CINV) product sales of ~$620 million in 2013(3). Global CINV market projected to reach a valuation of $2.7 billion by 2022(4) SBS/CDD 1 Financial benefits of Orphan Drug Designation. The global SBS market exceeded $568 million in 2019 and is expected to reach $4.6 billion by 2027, according to a report by Vision Research Reports(5) IBS-D 3 Most IBS products have an estimated revenue potential of greater than $1.0 billion(6) IBD None Estimated 1,171,000 Americans have IBD(7) Infectious Diarrhea from Cholera None In recent transactions by other companies, priority review vouchers have sold for $67 million to $350 million(8) (1) HIV Among People Aged 50 and Older (https://www.cdc.gov/hiv/group/age/olderamericans/index.html) ​ (2) Centers for Disease Control and Prevention. Preventing Infections in Cancer Patients: Information for Health Care Providers (cdc.gov/cancer/prevent infections/providers.htm) ​ (3) Heron Therapeutics, Inc. Form 10 K for the fiscal year ended December 31, 2016 ​ (4) Report published by Allied Market Research, titled, &quot;Chemotherapy-induced Nausea and Vomiting (CINV) Market-Global Opportunity Analysis and Industry Forecast, 2014-2022” (https://www.prnewswire.com/news-releases/chemotherapy-induced-nausea-and-vomiting-cinv-market-expected-to-reach-2659-million-by-2022-611755395.html) ​ (5) Short Bowel Syndrome Market – Global Industry Analysis, Size, Share, Trends, Revenue, Forecast 2020 to 2027 (https://www.mynewsdesk.com/us/medical-technology-news/pressreleases/short-bowel-syndrome-market-global-industry-analysis-size-share-trends-revenue-forecast-2020-to-2027-3069433) ​ (6) Merrill Lynch forecasts peak US sales of roughly $1.5 bn for Ironwood’s Linzess (https://247wallst.com/healthcare-business/2015/04/27/key-analyst-sees-nearly-30-upside-in-ironwood/); Rodman & Renshaw estimate peak annual sales of Synergy Pharmaceuticals’ Trulance at $2.3 bn in 2021 (https://www.benzinga.com/analyst-ratings/analyst-color/17/04/9304883/what-synergys-new-patents-mean-for-its-commercial-prospe) ​ (7) Kappelman, M. et al. Recent Trends in the Prevalence of Crohn’s Disease and Ulcerative Colitis in a Commercially Insured US Population. Dig Dis Sci. 2013 Feb; 58(2): 519 525 ​ (8) In Aug. 2015, AbbVie Inc. bought a priority review voucher from United Therapeutics Corp for $350 million (https://www.wsj.com/articles/united-therapeutics-sells-priority-review-voucher-to-abbvie-for-350-million-1439981104 ). In July 2014, BioMarin announced that it had sold a priority review voucher to Sanofi and Regeneron for $67.5 million. (https://investors.biomarin.com/2014-07-30-BioMarin-Sells-Priority-Review-Voucher-for-67-5-Million). ​ 14 Table of Contents The following diagram illustrates the mechanism of action of our human and animal gastrointestinal drug products and drug product candidates, which normalize chloride and water flow and transit time of fluids within the intestinal lumen. Business Strategy Our goal is to become a leading pharmaceutical company with first in class, sustainably derived products that address significant unmet gastrointestinal medical needs globally. To accomplish this goal, we plan to: Expand Mytesi by leveraging our significant gastrointestinal product knowledge, experience and intellectual property portfolio Mytesi is a novel, first in class anti secretory antidiarrheal agent which has a basic normalizing effect locally on the gut, and this mechanism of action has the potential to benefit multiple gastrointestinal disorders. Our Mytesi (crofelemer) product is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. Jaguar, through Napo, holds global unencumbered rights for Mytesi. Mytesi is in development for multiple possible follow on indications, including diarrhea related to targeted cancer therapy; orphan drug indications for infants and children with congenital diarrheal disorders and short bowel syndrome; inflammatory bowel disease; irritable bowel syndrome; and for idiopathic/functional diarrhea. In addition, a second generation proprietary anti secretory agent is in development for cholera. Our management team collectively has extensive experience in the development of prescription drugs. This experience covers all aspects of product development, including discovery, preclinical and clinical development, GMP manufacturing, regulatory affairs, and commercialization. Key members of this team successfully developed Mytesi. Maintain commercial capabilities in Mytesi sales and marketing efforts Napo’s direct sales organization is comprised of Mytesi field sales representatives strategically positioned to cover U.S. geographies with the highest potential. With support provided by concomitant marketing, promotional activities, patient empowerment programs, including an integrated social digital campaign, and medical education initiatives described below, we expect a proportional response in the number of patients treated with Mytesi. Leverage our relationships with Scientific Advisory Board (SAB) members for crofelemer commercialization and development in follow on indications The Company has retained 10 SAB members that have extensive clinical experience in HIV, CTD, IBD, SBS, and CDD. In addition, the Company engages key opinion leaders (KOLs) for specific turnkey needs. ​ 15 Table of Contents Establish partnerships to support moving pipeline indications to pivotal clinical trials Jaguar is actively pursuing the development of a robust pipeline of potential follow on indications for crofelemer, and the Company’s goal is to establish partnerships to support moving pipeline indications to pivotal clinical trials. Strategically sequence the development of follow on indications of Mytesi and seek geographically focused licensing opportunities As announced September 24, 2018, Jaguar and Knight Therapeutics Inc. (“Knight”) entered into a Distribution, License and Supply Agreement that grants Knight the exclusive right to commercialize Mytesi and related products in Canada and Israel. The License Agreement has a term of 15 years (with automatic renewals) and provides Knight with an exclusive right to commercialize current and future Jaguar human health products (including crofelemer, Lechlemer, and any product containing a proanthocyanidin or with an anti-secretory mechanism) in Canada and Israel. Knight forfeited its right of first negotiation for expansion to Latin America. Under the License Agreement, Knight is responsible for applying for and obtaining necessary regulatory approvals in the territory of Canada and Israel, as well as marketing, sales and distribution of the licensed products. Knight will pay a transfer price for all licensed products, and upon achievement of certain regulatory and sales milestones, the Company may receive payments from Knight in an aggregate amount of up to approximately $18 million payable throughout the initial 15-year term of the agreement. The Company did not have any license revenues since the execution of this agreement. Although it is possible that we may enter into additional corporate partnering relationships related to Mytesi, our intention would be to retain all or co commercialization and promotional rights in the U.S., so that we do not become primarily a royalty collecting organization, and we are opposed to entering into any Mytesi partnering relationship that would require splitting indications. We are seeking to put limited geographically focused partnerships in place in the near term, while also considering possibilities for a worldwide partnership with a leading global entity (excluding the U.S. exclusive commercial rights) in the field of gastrointestinal care and cancer in the long term. Reduce risks relating to product development Risk reduction is a key focus of our product development planning. Mytesi is approved for chronic indication, providing us the ability to leverage this corresponding safety data when seeking approval for planned follow on indications that are also chronic or chronic episodic indications. In an effort to reduce risk further, we have implemented the following approach: first, we meet with key opinion leaders, typically at medical conferences. Next, we confirm unmet medical needs with these key opinion leaders and discuss the practicality of patient enrollment and trial implementation. We then generate protocols to discuss with the FDA, seeking, when possible, special protocol assessments. Our goal is to have de risked the program as much as we believe we possibly can, by the time we start devoting significant funds to a clinical trial, in particular the regulatory pathway. We believe this approach will lead to better long-term outcomes for our products in development. We will continue to seek partnerships outside the United States for the above indications while focusing on development and commercial access in the United States directly. We are also focused on investigating (lechlemer) for various gastrointestinal indications. Lechlemer is a proprietary Jaguar pharmaceutical product, a standardized botanical extract distinct from crofelemer, also sustainably derived from the Croton lechleri tree. We believe lechlemer, which has a similar mechanism of action as crofelemer and is significantly less costly to produce, may support efforts to receive a priority review voucher from the U.S. FDA for symptomatic treatment of diarrhea from cholera infection. Priority review vouchers are granted by the FDA to drug developers for tropical disease indications (TDPRV) as an incentive to develop treatments for neglected diseases and rare pediatric diseases. Additionally, we believe lechlemer represents a long-term pipeline opportunity as a second generation anti secretory agent, on a global basis, for multiple gastrointestinal diseases—especially in resource constrained countries where the cost of goods is a factor, in part, because requirements often exist in such regions for drug prices to decrease annually. 16 Table of Contents The Company has previously presented Phase 2 data on crofelemer for the treatment of diarrhea in cholera patients from a study in Bangladesh. Napo plans to follow a similar clinical study design to support the development of lechlemer (NP-300) for a cholera related indication. Napo is conducting IND-enabling preclinical toxicology studies and developing novel NP-300 formulations that will support the initiation of clinical studies in 2022. Our portfolio development strategy is based on identifying indications that are potentially high value because they address important medical needs that are significantly or globally unmet, and then strategically sequencing indication development priorities, second generation product pipeline development, and partnering goals on a global basis. Our technology for proprietary gastrointestinal disease products is central to the product pipelines of both human and veterinary indications. Crofelemer is also the API in Canalevia-CA1, our prescription drug product recently conditionally approved by the FDA and launched for CID in dogs, and also expected to be approved and launched, under the name Canalevia-CA2, for EID in dogs in the fourth quarter of 2022. Napo Therapeutics Provides New Opportunities to Treat Orphan Indications Like Short Bowel Syndrome Jaguar is strategically pursuing multiple important shots on goal for its drug development pipeline: Crofelemer for CTD, led by Napo, and crofelemer for SBS and CDD, led by Napo Therapeutics. Jaguar’s exclusive license agreement with Napo Therapeutics provides a perpetual, royalty-bearing license for Europe (excluding Russia), and includes traditional terms such as up-front fees, milestone payments, royalties on sales in Europe, and a supply agreement, and rights to utilized all data Napo Therapeutics generates for Jaguar development and approval activities globally. Competition There are several significantly larger pharmaceutical companies competing with us in the gastrointestinal segment. Diarrhea in adult patients living with HIV/AIDs . We are not aware of any other FDA approved drugs for the symptomatic relief of diarrhea in HIV/AIDs patients. HIV/AIDs diarrhea patients may also use loperamide or Lomotil but these medications affect motility which can result in rebound diarrhea and are not indicated for chronic use. Other agents’ patients may use include over the counter anti diarrheal remedies such as Mylanta or Kaopectate. Cancer therapy related diarrhea. We are not aware of any FDA approved drugs specifically indicated for cancer therapy related diarrhea, including chemotherapy related diarrhea. A recent Phase 2b trial of elsiglutide for the treatment of chemotherapy induced diarrhea in colorectal cancer patients did not meet statistical significance. Opioids and over the counter drugs are commonly used to treat chemotherapy induced diarrhea, but these drugs affect motility. Certain tyrosine kinase inhibitor chemotherapy agents have diarrhea as a significant side effect. For example, FDA guidance suggests diarrhea prophylaxis prior to initiating adjuvant therapy with neratinib. Short Bowel Syndrome and Congenital Diarrheal Disorders . We are not aware of any FDA approved drugs specifically indicated for congenital diarrheal disorders. In the U.S., Takeda Pharmaceuticals’ GATTEX® (teduglutide) is indicated for the treatment of adults and pediatric patients 1 year of age and older with short bowel syndrome who are dependent on parenteral support, and Zorbtive® is a recombinant human growth hormone indicated for the treatment of short bowel syndrome in adult patients receiving specialized nutritional support. Diarrhea predominant irritable bowel syndrome . Two drugs were approved in 2015 for the treatment of diarrhea predominant irritable bowel syndrome, Allergan plc’s Virbezi and Xifaxan, which is marketed by Valeant Pharmaceuticals International. Also, Lotronex was approved by the FDA in 2000 but was withdrawn from the market and later reintroduced in 2002 under a Risk Management Program. With the exception of Lotronex, the sponsors of 17 Table of Contents Verbezi and Xifaxan employ extensive media and print promotion for the commercialization of these products. We are seeking a partner to further the clinical development and commercialization of crofelemer for IBS-D. There are currently numerous trials ongoing for IBS-D. Inflammatory Bowel Disorders. We are not aware of any FDA approved drugs specifically indicated as an anti-secretory agent for use to address IBD. Infectious Diarrhea from Cholera . We are not aware of any FDA approved drugs specifically indicated as an anti-secretory agent for use to address the devastating dehydration in cholera patients. Manufacturing The plant material used to manufacture is crude plant latex (“CPL”) extracted and purified from Croton lechleri, a widespread and naturally regenerating tree in the rainforest that is managed as part of sustainable harvesting programs. The tree is found in several South American countries and has been the focus of long term sustainable harvesting research and development work. Napo’s collaborating suppliers obtain CPL and arrange for the shipment of CPL to Napo’s third party contract manufacturer. Napo’s third party contract manufacturer, India based Glenmark Life Sciences Ltd. (“Glenmark”), a research driven, global, integrated pharmaceutical company, is Napo’s manufacturer of crofelemer, the active pharmaceutical ingredient in Mytesi. Glenmark processes CPL into crofelemer utilizing a proprietary manufacturing process. The processing occurs at an FDA approved Glenmark facility. Additionally, Napo is establishing a second processing site, which will be operated by Indena S.p.A. (“Indena”), a Milan, Italy based contract manufacturer dedicated to the identification, development and production of high quality active principles derived from plants, for use in the pharmaceutical, health food and personal care industries. Indena has completed the required technology transfer and feasibility and preparing for validation activities to support commercial scale manufacturing. We have contracts in place with all the manufacturers and third-party testing labs required to manufacture Mytesi, Canalevia-CA1, and lechlemer. We are finalizing a master service agreement with Indena for the manufacture of crofelemer. We are evaluating alternate drug substance and drug product manufacturers to establish redundancy for DP manufacturing. Proprietary Library of Medicinal Plants We possess a proprietary library of more than 2,300 medicinal plants. Intellectual Property Trademarks We plan to market all of our products under a trademark or trademarks we select, and we will own all rights, title and interest, including all goodwill, associated with such trademarks. Mytesi is a registered trademark owned by Napo. Jaguar Animal Health is a trademark owned by Jaguar. License Agreements Patent Portfolio Napo Napo owns a portfolio of patents and patent applications covering formulations of and methods of treatment with proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including Mytesi (crofelemer). The patent family associated with International Patent publication WO1998/16111 relates to enteric protected formulations 18 Table of Contents of proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including crofelemer, and methods of treating watery diarrhea using these enteric protected formulations. There is one U.S. patent in force in this family, US 7,341,744, which has a term until at least June 23, 2019, which term has been extended under 35 U.S.C. 156 by 1,075 days. Based upon the June 23, 2019 expiration date, the expiration date for crofelemer is June 2, 2022, to account for the regulatory delay in obtaining human marketing approval for crofelemer. Napo additionally owns a family of patents arising from International Patent Application Publication WO2012/058664 that cover methods of treating HIV associated diarrhea and HAART associated diarrhea with proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including crofelemer. In the U.S., there are two issued patents, US 8,962,680 and US 9,585,868, both of which expire October 31, 2031. Outside the U.S., patent protection for methods of treating HIV associated diarrhea has been obtained in Australia, Europe, Hong Kong, Japan, Kenya, Mexico, Russia, Ukraine, South Africa, and Zimbabwe, with expiration dates of October 31, 2031, and applications are pending in Brazil, Hong Kong, and China. Napo also has patent families related to methods of treating diarrhea predominant irritable bowel syndrome, methods of treating constipation predominant irritable bowel syndrome, and methods of treating inflammatory bowel disease, familial adenomatous polyposis and colon cancer, with proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including crofelemer. In particular, for diarrhea predominant irritable bowel syndrome, Napo has two issued U.S. patents, US 8,846,113 and US 9,980,938, which expire on February 9, 2027, as well as issued patents in Australia, Canada, Europe, Gulf States, Hong Kong, Japan, South Korea, Mexico, New Zealand, Singapore, and Taiwan and pending applications in Bangladesh, Bolivia, Chile, Paraguay, Thailand, and Venezuela, all of which are estimated to expire April 30, 2027; for constipation predominant irritable bowel syndrome, Napo has three issued U.S. patents, with terms to at least April 30, 2027, patents in Australia, Canada, Europe, Hong Kong, Mexico, New Zealand, and Singapore, all of which are estimated to expire April 30, 2027; and for inflammatory bowel disease, familial adenomatous polyposis and/or colon cancer, Napo has two issued U.S. patents, US 8,852,649 and US 9,987,250 with terms until at least January 4, 2028, as well as issued patents in Australia, Hong Kong, and Europe and Canada, which have estimated expiration dates of April 30, 2027. Napo has a pending U.S. non provisional application for the treatment of CID with crofelemer filed on March 9, 2018, as well as International and Taiwanese applications, and two International Patent Applications on other human indications including for the treatments of short bowel syndrome and congenital diarrhea disorder filed on May 31, 2018, with pending national phase applications in the United States, Australia, Canada, China, Europe, Israel, Jordan, Japan and the Gulf States. For methods of manufacturing proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including crofelemer, Napo owns issued patents in India, South Africa, and Eurasia with terms at least until August 26, 2029. Napo also owns issued patents in Brazil, India, Russia, and South Africa and pending applications in Argentina and Venezuela that also cover methods of manufacturing proanthocyanidin polymers isolated from Croton spp. or Calophyllum spp., including crofelemer, with terms at least until January 17, 2032. Lastly, Napo owns two U.S. patents covering a formulation of NP 500 (nordihydroguiaretic acid (“NDGA”)) and its use in treating a metabolic disorder that have terms until April 23, 2031. Napo grants license to Napo Therapeutics S.p.A. (formerly named Napo EU S.p.A.) On August 2021, Napo signed a license agreement with Napo EU S.p.A. to study, develop, manufacture, and commercialize Napo’s plant-based crofelemer and lechlemer drug product candidates in the European Union (excluding Russia) and in specified non-EU countries in Europe for specific indications, which rights and obligations were assumed by the combined company formed by the merger of Napo Therapeutics with Dragon SPAC (the combined company uses the Napo Therapeutics name). The license agreement grants Napo Thera the rights for SBS-IF, HIV-related diarrhea, and the symptomatic relief and treatment of IF-related diarrhea in patients with congenital disorders. The license agreement grants Napo Thera the right to study Per the terms of the license agreement, Napo will receive payment of up to $10 million as the initial license fee (to be paid in two installments, the first of which has already been received) as the initial license fee and is eligible to receive additional payments related to milestones, royalties, and product transfers. The license fees will be eliminated in the consolidated financial statements. 19 Table of Contents Government Regulation The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the clinical development, manufacture, marketing and distribution of prescription drugs such as those Napo is that Jaguar and its subsidiaries are commercializing and/or developing. These agencies and other federal, state and local entities regulate, among other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post approval monitoring and reporting, sampling and export and import of Napo’s drug product candidates. To comply with the regulatory requirements in each of the jurisdictions in which Napo is seeking to market and subsequently sell its prescription products, Napo has established processes and resources to provide oversight of the development, approval processes and launch of its products and to position those products in order to gain market share U.S. Government Regulation In the United States, the FDA approves and regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”), and it’s implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending New Drug Applications (“NDAs”), withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. The process required by the FDA before a human or animal health prescription drug may be marketed in the United States generally involves the following: ● completion of pre-clinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or good laboratory practices (“GLPs”) regulations; ● submission to the FDA of an investigational new drug application (“IND”) for human clinical trials, or an investigational new animal drug (“INAD”) for animal health studies; ● approval by an institutional review board (“IRB”) for human trials, and appropriate animal care and use committees for animal health studies. Multiple sites may necessitate the involvement of multiple IRBs and submissions for human health products; ● performance of adequate and well controlled human clinical trials in accordance with good clinical practices (“GCPs”), requirements to establish the safety and efficacy of the proposed drug product for each indication; ● submission to the FDA of an NDA for marketing approval of human prescription drugs; and a new animal drug application (“NADA”) for marketing authorization of animal health products; ● satisfactory completion of FDA advisory committees review, if applicable; ● satisfactory completion of an FDA pre-approval inspection (“PAI”) of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practices (“cGMPs”), requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and 20 Table of Contents ● FDA review and approval of the NDA or NADA. Pre-clinical Studies Pre-clinical studies include laboratory evaluation of the drug product’s chemistry, toxicity and formulation, as well as animal studies to assess potential safety and effectiveness. An IND sponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some pre-clinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence. Clinical Trials for Human Prescription Drugs Clinical trials involve the administration of the investigational new drug to human subjects pursuant to a clinical protocol, under the supervision of qualified investigators in accordance with GCPs requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives or endpoints of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA under the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their www.clinicaltrials.gov website. Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined: • Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness depending on the endpoints set forth in the protocol. • Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. • Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Special Protocol Assessment for Human Health Prescription Drugs The special protocol assessment, or SPA, process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate issues related to the adequacy of certain clinical trials, including Phase 3 21 Table of Contents clinical trials that can form the primary basis for a drug product’s efficacy claim in an NDA. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding a SPA must be clearly documented in a SPA letter or the minutes of a meeting between the sponsor and the FDA. Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement under the following circumstances: • public health concerns emerge that were unrecognized at the time of the protocol assessment; • the director of the review division determines that a substantial scientific issue essential to determining safety or efficacy has been identified after testing has begun; • a sponsor fails to follow a protocol that was agreed upon with the FDA; or • the relevant data, assumptions, or information provided by the sponsor in a request for SPA change, are found to be false statements or misstatements, or are found to omit relevant facts. A documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. Marketing Approval for Human Prescription Drugs Assuming successful completion of the required clinical testing, the results of the pre-clinical studies and clinical trials, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act (“PDUFA”), guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to the FDA because the FDA has approximately two months to make a “filing” decision. In addition, under the Pediatric Research Equity Act of 2003, as amended and reauthorized, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations; this would include information which supports dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults or full or partial waivers from the pediatric data requirements. The FDA may also require submission of a risk evaluation and mitigation strategy, or REMS, plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools. The FDA may also require other information as part of the NDA filing, such as an environmental impact statement. The FDA can waive some or delay compliance with some of these requirements. The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be 22 Table of Contents resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity. The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMPs requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs requirements. After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter must contain a statement of specific items that prevent the FDA from approving the application and will also contain conditions that must be met in order to secure final approval of the NDA and may require additional clinical or pre-clinical testing in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. Even if the FDA approves a product, it may limit the approved indications for use the of product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval. Post-Approval Requirements for Human Prescription Drugs Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. New secondary indications must be supported by clinical trials or data. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data. The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. 23 Table of Contents In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMPs requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMPs compliance. Once approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, include, but are not limited to: ● restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; ● fines, warning letters or holds on post-approval clinical trials; ● refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals; ● product seizure or detention, or refusal to permit the import or export of products; or ● injunctions or the imposition of civil or criminal penalties. The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. In addition, the FDA regulates the purity and or consistency of the approved product. Products, if deemed adulterated, can lead to serious consequences as set forth above as well as civil and criminal penalties. Animal Health Prescription Drugs Under the Federal Food, Drug, and Cosmetic Act (the “Act”), the term &quot;drug&quot; means articles recognized in the official United States Pharmacopoeia, official Homeopathic Pharmacopoeia of the United States, or official National Formulary; articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals; and articles other than food intended to affect the structure or any function of the body of man or other animals. It also includes articles intended for use as a component of a drug. Once a product is determined to be a drug for animal use, the next step is to determine whether or not it is a new animal drug. The Act defines a new animal drug (in part) as any drug intended for use for animals other than man, the composition of which is not generally recognized, among experts qualified by scientific training and experience, as safe and effective for use under the conditions prescribed, recommended, or suggested in its labeling. By virtue of Supreme Court interpretations of the necessary basis for general recognition, there are, for all practical purposes, no animal drugs which are not also new animal drugs. ​ ​ 24 Table of Contents Under the Act, a new animal drug may not be legally introduced into interstate commerce unless it is the subject of either: ● an approved NADA or abbreviated new animal drug application (ANADA) under section 512 of the Act; ● a conditional approval under section 571 of the Act; ● a listing on the Legally Marketed Unapproved New Animal Drug Index for Minor Species (the Index) under section 572 of the Act; ● an emergency use authorization (“EUA”) under section 564 of the Act (an EUA may only be issued under very limited circumstances, more information regarding EUAs is available at this webpage: Emergency Use Authorization) ; or ● an investigational exemption under section 512(j) of the Act. Three Regulatory Pathways in the U.S. to Legal Marketing Status for Animal Health Drugs Approval An approved animal drug has gone through the New Animal Drug Application (NADA) process, or for an approved generic animal drug, the Abbreviated New Animal Drug Application (ANADA) process. If the information in the application meets the requirements for approval, FDA approves the animal drug. FDA’s approval means the drug is safe and effective when it is used according to the label. FDA’s approval also ensures that the drug’s strength, quality, and purity are consistent from batch to batch, and that the drug’s labeling is truthful, complete, and not misleading. Conditional Approval Conditional approval is only available for some animal drugs for use in a minor species or in a major species under special circumstances. A conditionally approved animal drug has gone through FDA's drug approval process except the drug has not yet met the effectiveness standard for full approval. FDA’s conditional approval means that when used according to the label, the drug is safe and has a “reasonable expectation of effectiveness.” FDA's conditional approval also means that the drug is properly manufactured. The conditional approval is valid for one year. The drug company can ask FDA to renew the conditional approval annually for up to four more years, for a total of five years of conditional approval. During the 5-year period, the drug company can legally sell the animal drug while collecting the remaining effectiveness data. After collecting the remaining effectiveness data, the company submits an application to FDA for full approval. The agency reviews the application and, if appropriate, fully approves the drug. Indexing An indexed animal drug is a drug on FDA’s Index of Legally Marketed Unapproved New Animal Drugs for Minor Species, referred to simply as “the Index.” As the name says, a drug listed on the Index is unapproved but has legal marketing status. It can be legally sold for a specific use in certain minor species. Indexing is allowed for drugs for: ● Non-food-producing minor species, such as pet birds, hamsters, and ornamental fish. These animals are typically not eaten by people or by other animals that produce food for people to eat; and ● An early non-food life stage of a food-producing minor species, such as oyster spat (immature oysters). Because people do not generally eat oyster spat, a drug to treat a disease in spat can be indexed, but a drug to treat a disease in adult oysters, which people commonly eat, cannot be indexed. 25 Table of Contents Indexing a drug is quite different from the drug approval process. Indexing relies heavily on a panel of qualified experts outside FDA. The experts review the drug’s safety in the specific minor species and the drug’s effectiveness for the intended use. All experts on the panel must agree that, when used according to the label, the drug’s benefits outweigh the risks to the treated animal. If FDA agrees with the panel, the agency adds the drug to the Index. Animal Health Business Regulations The development, approval and sale of animal health products are governed by the laws and regulations of each country in which we intend to seek approval, where necessary, to market and subsequently sell our prescription drug and non-drug products. To comply with these regulatory requirements, we have established processes and resources to provide oversight of the development, approval processes and launch of our products and to position those products in order to gain market share in each respective market. Certain U.S. federal regulatory agencies are charged with oversight and regulatory authority of animal health products in the United States. These agencies, depending on the product and its intended use, may include the FDA, the USDA and the Environmental Protection Agency. The approval of prescription drugs intended for animal use is regulated by the FDA’s CVM. In addition, the Drug Enforcement Administration regulates animal therapeutics that are classified as controlled substances. In addition, the Federal Trade Commission may, in the case of non-drug products, regulate the marketing and advertising claims being made. Labeling The FDA plays a significant role in regulating the labeling, advertising and promotion of animal drugs. This is also true of regulatory agencies in the EU and other territories. In addition, advertising and promotion of animal health products is controlled by regulations in many countries. These rules generally restrict advertising and promotion to those claims and uses that have been reviewed and approved by the applicable agency. We will conduct a review of advertising and promotional material for compliance with the local and regional requirements in the markets where we sell our product candidates. EMA Regulation of Human Prescription Drugs Napo and Napo Therapeutics intend to leverage the orphan medicines marketing authorization incentives from the EMA for the short bowel syndrome and congenital diarrheal disorders indications for crofelemer for the licensed territories in the European Union. EMA has developed a regulatory procedure for sponsor eligibility for incentives available for drugs with ODD for the appropriate patient populations in an expedited manner. The EMA is responsible for scientific evaluation of centralized marketing authorization applications (“MAA”). Once granted by the European Commission, the centralized MAA is valid in all EU member states, Iceland, Norway and Liechtenstein. Centralized authorization procedure Under the centralized authorization procedure, pharmaceutical companies submit a single marketing authorization application to EMA. This allows the marketing-authorization holder to market the medicine and make it available to patients and healthcare professionals throughout the EU on the basis of a single marketing authorization. EMA's Committee for Medicinal products for Human Use (“CHMP”) or Committee for Medicinal products for Veterinary Use (“CVMP”) carry out a scientific assessment of the application and give a recommendation on whether the medicine should be marketed or not. However, under EU law EMA has no authority to actually permit marketing in the different EU countries. The European Commission is the authorizing body for all centrally authorized product, who takes a legally binding decision based on EMA's recommendation. This decision is issued within 67 days of receipt of EMA’s recommendation. Once granted by the European Commission, the centralized marketing authorization is valid in all EU Member States as well as in the European Economic Area (“EEA”) countries Iceland, Liechtenstein and Norway. Commission decisions are published in the Community Register of medicinal products for human use. 26 Table of Contents Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. Conditional marketing authorization The EMA supports the development of medicines that address unmet medical needs. In the interest of public health, applicants may be granted a conditional marketing authorization for such medicines on less comprehensive clinical data than normally required, where the benefit of immediate availability of the medicine outweighs the risk inherent in the fact that additional data are still required. Medicines for human use are eligible if they are intended for treating, preventing or diagnosing seriously debilitating or life-threatening diseases. This includes orphan medicines. Its use is also intended for a public health emergency (e.g. a pandemic). For these medicines, less comprehensive pharmaceutical and non-clinical data may also be accepted. The legal basis is Article 14-a of Regulation (EC) No 726/2004. The provisions for granting a conditional marketing authorization are further elaborated in Regulation (EC) No 507/2006. Criteria and conditions EMA's CHMP may grant a conditional marketing authorization for a medicine if it finds that all of the following criteria are met: ● the benefit-risk balance of the medicine is positive; ● it is likely that the applicant will be able to provide comprehensive data post-authorization; ● the medicine fulfils an unmet medical need; ● the benefit of the medicine's immediate availability to patients is greater than the risk inherent in the fact that additional data are still required. Conditional marketing authorizations are valid for one year and can be renewed annually. Once a conditional marketing authorization has been granted, the marketing authorization holder must fulfil specific obligations within defined timelines. These obligations could include completing ongoing or new studies or collecting additional data to confirm the medicine's benefit-risk balance remains positive. EMA publishes the conditions of the marketing authorization in the medicine's European public assessment report. The marketing authorization can be converted into a standard marketing authorization (no longer subject to specific obligations) once the marketing authorization holder fulfils the obligations imposed and the complete data confirm that the medicine's benefits continue to outweigh its risks. Initially, this is valid for 5 years. It can then be renewed for unlimited validity. As for any medicine, if new data show that the medicine’s benefits no longer outweigh its risks, EMA can take regulatory action, such as suspending or revoking the marketing authorization. EMA can also take regulatory action if the company does not comply with the imposed obligations. Despite earlier approval, it guarantees that the medicine meets rigorous EU standards for safety, efficacy and quality and that comprehensive data is still generated post-approval. It offers a robust post-authorization regulatory framework based on legally binding obligations, safeguards and controls. These include: ● full prescribing information and package leaflet with detailed instructions for safe use and conditions for storage; ● a robust risk-management and safety monitoring plan; 27 Table of Contents ● manufacturing controls including official batch controls for vaccines, as required; ● legally binding post-approval obligations (i.e. conditions) for the marketing authorization holder and a clear legal framework for the evaluation of emerging efficacy and safety data; ● a pediatric investigation plan. Guidance for applicants for conditional marketing authorization EMA advises applicants to discuss their development plans with the Agency via scientific advice or protocol assistance early in the development process. Involving health technology assessment bodies early is also encouraged, which is possible via EMA's parallel consultations procedure. The applicant should indicate a request for conditional marketing authorization in their notification of intention to submit a marketing authorization application. They should submit this 6 to 7 month before submitting the application. EMA also encourages applicants to further discuss their plans with EMA as part of a pre-submission meeting. For products deemed suitable for a conditional marketing authorization, EMA encourages applicants to also consider requesting accelerated assessment. Applicants should include a formal request for a conditional marketing authorization in their marketing authorization application. The CHMP will assess this request together with the application. Guideline on the scientific application and the practical arrangements necessary to implement Regulation (EC) No 507/2006 on the conditional marketing authorization for medicinal products for human use falling within the scope of Regulation (EC) No 726/2004. Distinction from authorization under exceptional circumstances EMA may also grant a marketing authorization in absence of comprehensive data under exceptional circumstances. Unlike conditional marketing authorization, where marketing approval is granted in the likelihood that the sponsor will provide such data within an agreed timeframe, EMA can grant authorization under exceptional circumstances when comprehensive data cannot be obtained even after authorization. This authorization route normally does not lead to a standard marketing authorization. Orphan drug development incentives from EMA Protocol assistance The Agency provides a form of scientific advice specifically for orphan medicines called protocol assistance. This allows sponsors to get answers to their questions on the types of studies needed to demonstrate the medicine's quality, benefits and risks, and information on the significant benefit of the medicine. Protocol assistance is available at a reduced charge for designated orphan medicines, linked to a fee-reduction scale that depends on the status of the sponsor. There is no restriction on the number of times a sponsor can request protocol assistance. The Agency encourages sponsors to consider coordinating the timing of protocol assistance from the Agency with request for scientific advice from the United States Food and Drug Administration (FDA). Parallel scientific advice with the FDA is available. Access to the centralized authorization procedure All designated orphan medicines are assessed for marketing authorization centrally in the European Union. This allows companies to make a single application to the European Medicines Agency, resulting in a single opinion and a single decision from the European Commission, valid in all EU Member States. Sponsors may also have access via orphan designation to conditional approval, which is conducted under the centralized procedure. Ten years of market exclusivity Authorized orphan medicines benefit from ten years of protection from market competition with similar medicines with similar indications once they are approved. This period of protection is extended by two years for 28 Table of Contents medicines that also have complied with an agreed pediatric investigation plan granted at the time of review of the orphan medicine designation. Additional incentives for micro, small and medium-sized enterprises (“SMEs”) Companies classified as SMEs benefit from further incentives when developing medicines with orphan designation. These include administrative and procedural assistance from the Agency's SME office and fee reductions. Fee reductions Companies applying for designated orphan medicines pay reduced fees for regulatory activities. This includes reduced fees for protocol assistance, marketing-authorization applications, inspections before authorization, applications for changes to marketing authorizations made after approval, and reduced annual fees. Fee reductions are revised each year in relation to the budget available. EMA Grants The Agency does not offer research grants for sponsors of orphan medicines, but funding is available from the European Commission and other sources: ● Horizon 2020, the EU Framework Programme for Research and Innovation; ● E-Rare, a transnational project for research programs on rare diseases. ● Grants are also available for sponsors considering research in the United States or Japan: ● United States: Food and Drug Administration: Orphan products grants program ● Japan: National Institute of Biomedical Innovation: Services to promote development of medicinal products for rare diseases Incentives in Member States Details on incentives available for designated orphan medicines in EU Member States are available in the European Commission's Inventory of Union and Member State incentives to support research into, and the development and availability of, orphan medicinal products. Activities after orphan designation Orphan designation makes the sponsor eligible for a number of orphan incentives. Sponsors need to comply with various activities that take place after a designation has been granted. Sponsors should submit all post-designation activities, including annual reports. For information and guidance on using IRIS, see the IRIS homepage. Sponsors must submit an annual report on development to the Agency summarizing the status of development of the medicine. Sponsors of medicines with orphan designation should also remember to apply for a pediatric investigation plan (“PIP”), deferral or waiver at the appropriate time, as specified in the Pediatric regulation. Sponsors also need to submit an application for maintenance of the orphan designation at the time of marketing authorization, in order to be eligible for the ten-year market exclusivity incentive. A valid and completed PIP could make the sponsor eligible for the two-year marketing exclusivity extension to the ten-year marketing exclusivity which is granted at the time of review of the orphan medicinal designation. Transfers of orphan designation from one sponsor to another are possible. Transfers are free of charge. Sponsors can also request removal of an orphan designation. 29 Table of Contents EMA Compassionate Use Program Compassionate use is a treatment option that allows the use of an unauthorized medicine. Under strict conditions, products in development can be made available to groups of patients who have a disease with no satisfactory authorized therapies and who cannot enter clinical trials. The EMA provides recommendations through the Committee for Medicinal Products for Human Use (“CHMP”), but these do not create a legal framework. Compassionate use programs are coordinated and implemented by Member States, which set their own rules and procedures. Established by Article 83 of Regulation (EC) No 726/2004, this tool is designed to: ● facilitate and improve access to compassionate use programs by patients in the EU; ● favor a common approach regarding the conditions of use, the conditions for distribution and the patients targeted for the compassionate use of unauthorized new medicines; ● increase transparency between Member States in terms of treatment availability. These programs are only put in place if the medicine is expected to help patients with life-threatening, long-lasting or seriously debilitating illnesses, which cannot be treated satisfactorily with any currently authorized medicine. The medicine must be undergoing clinical trials or have entered the marketing-authorization application process and while early studies will generally have been completed, its safety profile and dosage guidelines may not be fully established. How to request an opinion for Compassionate Use National competent authorities can ask EMA for an opinion on how to administer, distribute and use certain medicines for compassionate use. The CHMP also identifies which patients would benefit, and Member States should take note of these recommendations when making decisions. Manufacturers and marketing-authorization applicants should not contact EMA to request an opinion, but they may wish to inform the Agency of applications underway at national level. National competent authorities will inform the Agency if they are making a product available to a group of patients for compassionate use. Comparison to individual basis treatment (Named Patient Program) Compassionate use should not be confused with 'named-patient basis' treatments, which see doctors obtain medicines directly from manufacturers before authorization. This is done on an individual basis under the direct responsibility of the doctor, and the Agency does not need to be informed. In general, medicines that are not yet authorized are first made available through clinical trials and patients should always be considered for inclusion in trials before being offered compassionate use programs. Compassionate use recommendations EMA's recommendations cover how a medicine should be used in compassionate use programs across the EU, and the type of patient who may benefit from treatment. EMA does not update its recommendations after a medicine receives marketing authorization, as all relevant information on the medicine's use is available in its European public assessment report (“EPAR”). However, compassionate use programs may continue in certain Member States until the medicine becomes available on the market. Rewards and incentives for pediatric medicines Several rewards and incentives for the development of pediatric medicines for children are available in the EU. Medicines authorized across the EU with the results of studies from a pediatric investigation plan included in the 30 Table of Contents product information are eligible for an extension of their supplementary protection certificate by six months. This is the case even when the studies' results are negative. For orphan medicines, the incentive is an additional two years of market exclusivity. Scientific advice and protocol assistance at the Agency are free of charge for questions relating to the development of pediatric medicines. Medicines developed specifically for children that are already authorized but are not protected by a patent or supplementary protection certificate are eligible for a pediatric-use marketing authorization (“PUMA”). If a PUMA is granted, the product will benefit from 10 years of market protection as an incentive. The above can be complemented by other incentives to support the research, development and availability of medicinal products for pediatric use. Market exclusivity: Orphan medicines Orphan medicines benefit from ten years of market exclusivity once they receive a marketing authorization in the EU. This measure is intended to encourage the development of medicines for rare diseases, by protecting them from competition from similar medicines with similar indications, which cannot be marketed during the exclusivity period. Market exclusivity is an orphan incentive awarded by the European Commission to a specific clinical indication with an orphan designation. Each indication with an orphan designation confers ten years' market exclusivity for the particular indication. A medicine that has multiple orphan designations for different conditions will benefit from separate market exclusivity periods pertaining to its different orphan designations. To benefit from market exclusivity, a medicine must maintain its orphan designation at the time of marketing authorization. Extension of market exclusivity period The market exclusivity period is extended by two additional years for an orphan-designated condition when the results of specific studies are reflected in the summary of product characteristics (“SmPC”) addressing the pediatric population and completed in accordance with a fully compliant PIP. The European Commission grants the extension based on a positive compliance check from the Pediatric Committee and opinion from the Committee for Medicinal Products for Human Use (“CHMP”), and includes this information in the Community register of orphan medicinal products. Review of market exclusivity period Article 8(2) of the Orphan Regulation establishes the possibility for Member States to request that the market exclusivity be reduced from ten to six years, under certain circumstances. Expiry of market exclusivity When the period of market exclusivity for an indication ends, the orphan designation for that indication expires and the European Commission removes it from the Community register of orphan medicinal products. Once all of the orphan designations associated with an approved medicine have expired or been withdrawn by the sponsor, the medicine ceases to be classified as an orphan medicine and no longer benefits from the orphan incentives. European Union new chemical entity exclusivity In the EU, new chemical entities, sometimes referred to as new active substances, qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a 31 Table of Contents generic application for eight years, after which a generic marketing authorization application can be submitted, and the innovator’s data may be referenced, but not approved for two years. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. European Union orphan designation and exclusivity In the EU, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the European Union Community and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the medicinal product. In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following medicinal product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. European Union Pediatric Plan In the EEA, marketing authorization applications for new medicinal products not authorized have to include the results of studies conducted in the pediatric population, in compliance with a pediatric investigation plan, or PIP, agreed with the EMA’s Pediatric Committee (“PDCO”). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the drug for which marketing authorization is being sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide pediatric clinical trial data can be waived by the PDCO when these data is not needed or appropriate because the product is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a significant therapeutic benefit over existing treatments for pediatric patients. Once the marketing authorization is obtained in all Member States of the EU and study results are included in the product information, even when negative, the product is eligible for six months’ supplementary protection certificate extension. For orphan drug designated medicinal products, the 10 year period of market exclusivity is extended to 12 years. Clinical Trials Regulation in Europe In the EU, pursuant to the currently applicable Clinical Trials Directive 2001/20/EC and the Directive 2005/28/EC on GCP, a system for the approval of clinical trials in the EU has been implemented through national legislation of the EU member states. Under this system, an applicant must obtain approval from the national competent authority of an EU member state in which the clinical trial is to be conducted, or in multiple member states if the clinical trial is to be conducted in a number of member states. Furthermore, the applicant may only start a clinical trial at a specific study site after the independent ethics committee for each site has issued a favorable opinion. The clinical trial application must be accompanied by an investigational medicinal product dossier with supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and corresponding national laws of the individual EU member states and further detailed in applicable guidance documents. In April 2014, the EU adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical Trials Directive 2001/20/EC. It is anticipated that the new Clinical Trials Regulation (EU) No 536/2014 may come into effect in late 2021with a three-year transition period for some types of clinical trials. It will overhaul the current system of 32 Table of Contents approvals for clinical trials in the EU. Specifically, the new regulation, which will be directly applicable in all EU member states, aims at simplifying and streamlining the approval of clinical trials in the EU. For instance, the new Clinical Trials Regulation provides for a streamlined application procedure via a single-entry point and strictly defined deadlines for the assessment of clinical trial applications Other U.S. Healthcare Laws In addition to FDA restrictions on marketing of pharmaceutical and biological products, other U.S. federal and state healthcare regulatory laws restrict business practices in the pharmaceutical industry, which include, but are not limited to, state and federal anti-kickback, false claims, data privacy and security and physician payment and drug pricing transparency laws. The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, formulary managers and beneficiaries on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not meet the requirements of a statutory or regulatory exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the U.S. federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case by case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. Additionally, the intent standard under the U.S. federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, to a stricter standard such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. The majority of states also have Anti-Kickback laws, which establish similar prohibitions and, in some cases, may apply to items or services reimbursed by any third-party payor, including commercial insurers. The federal false claims and civil monetary penalties laws, including the civil False Claims Act, prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the civil False Claims Act can result in very significant monetary penalties and treble damages. Several pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved, or off label, uses. Companies also have been prosecuted for allegedly violating the Anti-Kickback Statute and False Claims Act as a result of impermissible arrangements between companies and healthcare practitioners or as a result of the provision of remuneration by the companies to the healthcare practitioners. In addition, the civil monetary penalties statute imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health 33 Table of Contents program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Many states also have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Violations of fraud and abuse laws, including federal and state Anti-Kickback and false claims laws, may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such companies. Given the significant size of actual and potential settlements, it is expected that the government authorities will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws. The federal Health Insurance Portability and Accountability Act (“HIPAA”) of 1996 created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, the ACA broadened the reach of certain criminal healthcare fraud statutes created under HIPAA by amending the intent requirement such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain other healthcare providers. The ACA imposed, among other things, new annual reporting requirements through the Physician Payments Sunshine Act for covered manufacturers for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per year for “knowing failures.” Covered manufacturers must submit reports by the 90th day of each subsequent calendar year. In addition, certain states require the implementation of compliance programs and compliance with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices and/or tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities. Napo may also be subject to data privacy and security regulation by both the federal government and the states in which Napo conducts its business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, including the Final HIPAA Omnibus Rule, published on January 25, 2013, impose specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. Among other things, HITECH made HIPAA’s security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same requirements, thus complicating compliance efforts. 34 Table of Contents Coverage and Reimbursement Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical products for which Napo obtains regulatory approval. In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use Napo’s products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of Napo’s products. Sales of any products for which Napo receives regulatory approval for commercial sale will, therefore depend, in part, on the availability of coverage and adequate reimbursement from third party payors. Third party payors include government authorities, managed care plans, private health insurers and other organizations. In the United States, the process for determining whether a third party payor will provide coverage for a pharmaceutical or biological product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. Third party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA approved products for a particular indication. A decision by a third party payor not to cover Napo’s product candidates could reduce physician utilization of Napo’s products once approved and have a material adverse effect on Napo’s sales, results of operations and financial condition. Moreover, a third party payor’s decision to provide coverage for a pharmaceutical or biological product does not imply that an adequate reimbursement rate will be approved. Adequate third party reimbursement may not be available to enable Napo to maintain price levels sufficient to realize an appropriate return on Napo’s investment in product development. Additionally, coverage and reimbursement for products can differ significantly from payor to payor. One third party payor’s decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require Napo to provide scientific and clinical support for the use of Napo’s products to each payor separately and will be a time consuming process. In the EEA, governments influence the price of products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription products, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross border imports from low priced markets exert commercial pressure on pricing within a country. The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of pharmaceutical or biological products have been a focus in this effort. Third party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost effectiveness of pharmaceutical or biological products, medical devices and medical services, in addition to questioning safety and efficacy. If these third party payors do not consider Napo’s products to be cost effective compared to other available therapies, they may not cover Napo’s products after FDA approval or, if they do, the level of payment may not be sufficient to allow Napo to sell its products at a profit. Healthcare Reform A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. For example, in March 2010, the ACA was enacted, which, among other things, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended the Medicaid Drug Rebate Program to the utilization of prescriptions of individuals enrolled in Medicaid managed care plans; imposed mandatory discounts for 35 Table of Contents certain Medicare Part D beneficiaries as a condition for manufacturers’ outpatient drugs covered under Medicare Part D; subjected drug manufacturers to new annual fees based on pharmaceutical companies’ share of sales to federal healthcare programs; created a new Patient Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; creation of the Independent Payment Advisory Board, once empaneled, will have authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs; and establishment of a Center for Medicare Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending. Since its enactment, the U.S. federal government has delayed or suspended the implementation of certain provisions of the ACA. Napo expects that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement and additional downward pressure on the price that Napo receives for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. Moreover, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. The implementation of cost containment measures or other healthcare reforms may prevent Napo from being able to generate revenue, attain profitability or commercialize Napo’s drugs. Additionally, on August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013, and due to subsequent legislative amendments to the statute, will stay in effect through 2025 unless additional action is taken by Congress. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. More recently, there has been heightened governmental scrutiny recently over the manner in which manufacturers set prices for their marketed products, which have resulted in several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products. Napo expects that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for Napo’s products once approved or additional pricing pressures. Other Regulatory Considerations We believe regulatory rules relating to human food safety, food additives, or drug residues in food will not apply to the products we currently are developing because our animal prescription drug product candidates are not intended for use in production animals, with the exception of horses, which qualify as food animals in Europe and Canada; and our nonprescription products are not regulated by section 201(g) of the Federal Food, Drug, and Cosmetic Act, which the FDA is authorized to administer. We do not believe that our animal nonprescription products are currently subject to regulation in the United States. The CVM only regulates those animal supplements that fall within the FDA’s definition of an animal drug, food or feed additive. The Federal Food Drug and Cosmetic Act defines food as “articles used for food or drink for man or other animals and articles used as components of any such article.” Animal foods are not subject to pre-market approval and are designed to provide a nutritive purpose to the animals that receive them. Feed additives are defined as those articles that are added to an animal’s feed or water, as illustrated by the guidance documents. Our nonprescription products are not added to food, are not ingredients in food, nor are they added to any animal’s drinking water. There is no intent to make our nonprescription products a component of an animal food, either directly 36 Table of Contents or indirectly. We do not believe that our nonprescription products fit the definition of an animal drug, food or food additive and therefore are not regulated by the FDA at this time. In addition to the foregoing, we may be subject to state, federal and foreign healthcare and/or veterinary medicine laws, including but not limited to anti-kickback laws, as we may from time to time enter consulting and other financial arrangements with veterinarians, who may prescribe or recommend our products. If our financial relationships with veterinarians are found to be in violation of such laws that apply to us, we may be subject to penalties. Legal Proceedings From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Other than as set forth in “Item 3. LEGAL PROCEEDINGS”, there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows. Corporate Information We were incorporated in the State of Delaware on June 6, 2013. Our principal executive office is located at 200 Pine Street, Suite 400, San Francisco, CA 94104 for human health prescription drugs and the telephone number is (415) 371 8300. We have an additional office at 200 Pine Street, Suite 600, San Francisco, CA 94104 for Jaguar Animal Health. Our website for the corporation is https://jaguar.health. The information contained on, or that can be accessed through, our website is not part of this annual report. Our voting common stock is listed on the NASDAQ Capital Market and trades under the symbol “JAGX.” On July 31, 2017, we completed the acquisition of Napo pursuant to the Agreement and Plan of Merger, dated March 31, 2017, by and among the Company, Napo, Napo Acquisition Corporation, and Napo’s representative (the “Merger”). Employees As of December 31, 2021, we had 52 employees. Ten employees hold M.D., D.V.M and/or Ph.D. degrees. Twenty-one of our employees are engaged in research and development activities and 17 employees are engaged in sales and marketing. We have two employees within Napo Therapeutics in Italy. None of our employees are represented by labor unions or covered by collective bargaining agreements. Description of Properties Our corporate headquarters are located in San Francisco, California, where we currently lease 10,526 rentable square feet of office space from M & E, LLC. ITEM 1A. RISK FACTORS The business, financial condition and operating results of the Company may be affected by a number of factors, whether currently known or unknown, including but not limited to those described below. Anyone or more of such factors could directly or indirectly cause the Company’s actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, results of operations and stock price. The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report. ​ 37 Table of Contents Risk Factor Summary ​ The following is a summary of the principal risks that could adversely affect our business, operations and financial results. ​ Risks Related to Our Business ● We have a limited operating history, expect to incur further losses as we grow and may be unable to achieve or sustain profitability. ● We expect to incur significant additional costs as we continue commercialization efforts for current prescription drug candidates or other product candidates, and undertake the clinical trials necessary to obtain any necessary regulatory approvals, which will increase our losses. ● We will need to raise substantial additional capital in the future in the event that we conduct clinical trials for new indications and we may be unable to raise such funds when needed and on acceptable terms, which would force us to delay, limit, reduce or terminate one or more of our product development programs. ● We are substantially dependent on the success of Mytesi, our current lead prescription drug product, and Canalevia-CA1, our conditionally approved prescription drug product for CID in dogs, and Canalevia-CA2, our candidate for EID in dogs. We cannot be certain that necessary approvals will be received for planned Mytesi, Canalevia-CA1 or Canalevia-CA2 follow-on indications or that these product candidates will be successfully commercialized, either by us or any of our partners. ● If we are not successful in identifying, licensing, developing and commercializing additional product candidates and products, our ability to expand our business and achieve our strategic objectives could be impaired. ● Mytesi faces significant competition from other pharmaceutical companies, both for its currently approved indication and for planned follow-on indications, and our operating results will suffer if we fail to compete effectively. ● We may be unable to obtain, or obtain on a timely basis, regulatory approval for our existing or future human or animal prescription drug product candidates under applicable regulatory requirements, which would harm our operating results. ● The results of our earlier studies of Mytesi may not be predictive of the results in any future clinical trials and species-specific formulation studies, respectively, and we may not be successful in our efforts to develop or commercialize line extensions of Mytesi. ● Development of prescription drug products is inherently expensive, time-consuming and uncertain, and any delay or discontinuance of our current or future pivotal trials would harm our business and prospects. ● We will partially rely on third parties to conduct our development activities. If these third parties do not successfully carry out their contractual duties, we may be unable to obtain regulatory approvals or commercialize our current or future human or animal product candidates on a timely basis, or at all. ● Even if we obtain regulatory approval for planned follow-on indications of crofelemer, Canalevia or our other product candidates, they may never achieve market acceptance. Further, even if we are successful in the ongoing commercialization of Mytesi and Canalevia, we may not achieve commercial success. ● Human and animal gastrointestinal health products are subject to unanticipated post-approval safety or efficacy concerns, which may harm our business and reputation. ● Future federal and state legislation may result in increased exposure to product liability claims, which could result in substantial losses. ● If we fail to retain current members of our senior management, or to identify, attract, integrate and retain additional key personnel, our business will be harmed. ● We are dependent on two suppliers for the raw material used to produce the active pharmaceutical ingredient in Mytesi and Canalevia. The termination of either of these contracts would result in a disruption to product development and our business will be harmed. ● We are dependent upon third-party contract manufacturers, both for the supply of the active pharmaceutical ingredient in Mytesi and Canalevia-CA1, as well as for the supply of finished products for commercialization. ● If we are unable to establish sales capabilities on our own or through third parties, we may not be able to market and sell our current or future human products and product candidates, if approved, and generate 38 Table of Contents product or other revenue. ● We will need to increase the size of our organization and may not successfully manage such growth. ● Canalevia-CA1 and, our animal health prescription drug product candidates, if approved may be marketed in the United States only in the target animals and for the indications for which they are approved, and if we want to expand the approved animals or indications, it will need to obtain additional approvals, which may not be granted. ● The misuse or extra-label use of Mytesi, Canalevia, and our human or animal prescription drug product candidates if approved by regulatory authorities, may harm our reputation or result in financial or other damages. ● We may be unable to obtain, or obtain on a timely basis, a renewal of conditional approval for Canalevia-CA1, or to eventually obtain full regulatory approval of Canalevia-CA1, which would harm our operating results. ● We may not maintain the benefits associated with MUMS designation, including market exclusivity. ● The market for our human and animal products, and the gastrointestinal health market as a whole, is uncertain and may be smaller than we anticipate, which could lead to lower revenue and harm our operating results. ● Insurance coverage for Mytesi for its current approved indication could decrease or end, or Mytesi might not receive insurance coverage for any approved follow-on indications, which could lead to lower revenue and harm our operating results. ● We may engage in future acquisitions that increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks. ● Certain of the countries in which we plan to commercialize our products in the future are developing countries, some of which have potentially unstable political and economic climates. ● Fluctuations in the exchange rate of foreign currencies could result in currency transactions losses. ● Laws and regulations governing global trade compliance could adversely impact our business. ● There are other gastrointestinal-focused human pharmaceutical companies, and we face competition in the marketplaces in which we operate or plan to operate. ● Our obligations to Streeterville are secured by a security interest in all of Napo’s lechlemer assets, so if we default on those obligations, Streeterville could foreclose on our assets. ● Our royalty interests require us to make minimum royalty payments, even if we do not sell a sufficient amount of products to cover the amount of such payments, which may strain our cash resources. ● Failure in our information technology systems, including by cyber-attacks or other data security incidents, could significantly disrupt our operations. ● The novel coronavirus global pandemic could adversely impact our business, including our supply chain, clinical trials and commercialization of Mytesi and Canalevia. ● Long-term remote work arrangements may adversely affect our business. ● Substantially all of our revenue for recent periods has been received from three customers. ● We are subject to state laws in California that require gender and diversity quotas for boards of directors of public companies headquartered in California. ​ Risks Related to Our Intellectual Property ● We cannot be certain that our patent strategy will be effective to protect against competition ● Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. ● Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, which would be costly, time-consuming and, if successfully asserted against us, delay or prevent the development and commercialization of our current or future products and product candidates. ● Our proprietary position depends upon the botanical guidance of our drug approval and patents that are formulation or method-of-use patents, which do not prevent a competitor from using the same human or animal drug for another use. ● We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time- 39 Table of Contents consuming and unsuccessful, and third parties may challenge the validity or enforceability of our patents and they may be successful. ● If we are unable to prevent disclosure of our trade secrets or other confidential information to third parties, our competitive position may be impaired. ● Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products. ● We may not be able to protect our intellectual property rights throughout the world, which could impair our business. ● Our business could be harmed if we fail to obtain certain registered trademarks in the United States or in other countries. ● We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. ● Even if we receive any of the required regulatory approvals for our current or future prescription drug product candidates and non-prescription products, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. ● Any of our current or future prescription drug product candidates or non-prescription products may cause or contribute to adverse medical events that we would be required to report to regulatory authorities and, if we fail to do so, we could be subject to sanctions that would harm our business. ● Legislative or regulatory reforms with respect to animal health may make it more difficult and costly for us to obtain regulatory clearance or approval of any of our current or future product candidates and to produce, market, and distribute our products after clearance or approval is obtained. ● We believe that our non-prescription products are not subject to regulation by regulatory agencies in the United States, but there is a risk that regulatory bodies may disagree with our interpretation, or may redefine the scope of their regulatory reach in the future, which would result in additional expense and could delay or prevent the commercialization of these products. ● Even if we receive the required regulatory approvals for our current or future prescription drug product candidates and non-prescription products, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense ​ Risks Related to Our Common Stock ● Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our common stock. ● If we issue all shares available for issuance pursuant to the ATM Agreement, we will have no shares of common stock available for new securities issuances, which may restrict us from accessing additional capital through the sale of new securities. ● If our shares become subject to the penny stock rules, it would become more difficult to trade our shares. ● The price of our common stock could be subject to volatility related or unrelated to our operations, and purchasers of our common stock could incur substantial losses. ● A possible “short squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to further price volatility in our common stock. ● You may not be able to resell our common stock when you wish to sell them or at a price that you consider attractive or satisfactory. ● If securities or industry analysts do not publish research or reports about our company, or if they issue adverse or misleading opinions regarding us or our stock, our stock price and trading volume could decline. ● You may be diluted by conversions of outstanding shares of non-voting common stock, exercises of outstanding options and warrants and issuances of securities pursuant to our ATM Agreement. ● Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management. ● Our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees. ● We do not intend to pay dividends on our common stock, and your ability to achieve a return on your 40 Table of Contents investment will depend on appreciation in the market price of our common stock. ● The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner. ● We are a smaller reporting company and the reduced reporting requirements applicable to smaller reporting companies may make our common stock less attractive to investors. ​ Risks Related to Our Business ​ We have a limited operating history, expect to incur further losses as we grow and may be unable to achieve or sustain profitability. ​ Since the consummation of our merger with Napo Pharmaceuticals Inc. in 2017, our operations have been primarily focused on research, development and the ongoing commercialization of our lead prescription drug product, Mytesi, which is approved by the U.S. FDA for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. As a result, we have limited meaningful historical operations upon which to evaluate our business and prospects and have not yet demonstrated an ability to broadly commercialize any of our human health products beyond Mytesi for HIV-related diarrhea or animal health products, obtain any required marketing approval for any of our animal prescription drug product candidates or successfully overcome the risks and uncertainties frequently encountered by companies in emerging fields such as the animal health industry or the gastrointestinal health industry in general. Our revenues to date have been insufficient to offset our expenses, and we expect to continue to incur significant research and development and other expenses. Our net loss and comprehensive loss for the years ended December 31, 2021 and 2020 was $52.6 million and $33.8 million, respectively. As of December 31, 2021, we had total stockholders’ equity of $11.9 million. We expect to continue to incur losses for the foreseeable future, which will increase significantly from historical levels as we expand our product development activities, seek necessary approvals for our human and veterinary drug product candidates, conduct species-specific formulation studies for our non-prescription products and increase commercialization activities. Even if we succeed in developing and broadly commercializing one or more of our products or product candidates, we expect to continue to incur losses for the foreseeable future, and we may never become profitable. If we fail to achieve or maintain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or cease operations. ​ As more fully discussed in Note 1 to our consolidated financial statements, we believe there is substantial doubt about our ability to continue as a going concern as we do not currently have sufficient cash resources to fund our operations through March 11, 2023, or one year from the filing date of our Form 10-K. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we are unable to continue as a viable entity, our stockholders may lose their investment. ​ We expect to incur significant additional costs as we continue commercialization efforts for current prescription drug candidates or other product candidates, and undertake the clinical trials necessary to obtain any necessary regulatory approvals, which will increase our losses. ​ Napo commenced sales of Mytesi for adults with HIV/AIDS on antiretroviral therapy in September 2016. Jaguar launched Canalevia-CA1 for chemotherapy-induced diarrhea in dogs in December 2021. We will need to continue to invest in developing our internal and third-party sales and distribution network and outreach efforts to key opinion leaders in the gastrointestinal health industry, including physicians and veterinarians as applicable. ​ We are actively identifying additional products for development and commercialization, and will continue to expend substantial resources for the foreseeable future to develop Mytesi, lechlemer and Canalevia-CA1. These expenditures will include costs associated with: ​ ● identifying additional potential prescription drug product candidates and non-prescription products; ​ 41 Table of Contents ● formulation studies; ​ ● conducting pilot, pivotal and toxicology studies; ​ ● completing other research and development activities; ​ ● payments to technology licensors; ​ ● maintaining our intellectual property; ​ ● obtaining necessary regulatory approvals; ​ ● establishing commercial supply capabilities; and ​ ● sales, marketing and distribution of our commercialized products. ​ We also may incur unanticipated costs in connection with developing and commercializing our products. Because the outcome of our development activities and commercialization efforts is inherently uncertain, the actual amounts necessary to successfully complete the development and commercialization of our current or future products and product candidates may be greater than we anticipate. ​ Because we anticipate incurring significant costs for the foreseeable future, if we are not successful in broadly commercializing any of our current or future products or product candidates or raising additional funding to pursue our research and development efforts, we may never realize the benefit of our development efforts and our business may be harmed. ​ We will need to raise substantial additional capital in the future in the event that we conduct clinical trials for new indications and we may be unable to raise such funds when needed and on acceptable terms, which would force us to delay, limit, reduce or terminate one or more of our product development programs. ​ We are forecasting continued losses and negative cash flows as we continue to fund our operating and marketing activities and research and development programs, and to complete the development of all the current products in our pipeline, or any additional products we may identify. We will need to seek additional funds through public or private equity or debt financings or other sources such as strategic collaborations. Any such financings or collaborations may result in dilution to our stockholders, the imposition of debt covenants and repayment obligations or other restrictions that may harm our business or the value of our common stock. We may also seek from time to time to raise additional capital based upon favorable market conditions or strategic considerations such as potential acquisitions or potential license arrangements. ​ Our future capital requirements depend on many factors, including, but not limited to: ​ ● the scope, progress, results and costs of researching and developing our current and future prescription drug product candidates and non-prescription products; ​ ● the timing of, and the costs involved in, obtaining any regulatory approvals for our current and any future products; ​ ● the number and characteristics of the products we pursue; ​ ● the cost of manufacturing our current and future products and any products we successfully commercialize; ​ ● the cost of commercialization activities for Mytesi and Canalevia, if approved, including sales, 42 Table of Contents marketing and distribution costs; ​ ● the expenses needed to attract and retain skilled personnel; ​ ● the costs associated with being a public company; ​ ● our ability to establish and maintain strategic collaborations, distribution or other arrangements and the financial terms of such agreements; and ​ ● the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation. ​ Additional funds may not be available when we need them on terms that are acceptable to us, or at all or we may not have sufficient authorized shares to raise additional capital. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate one or more of our product development programs or future commercialization efforts. ​ We are substantially dependent on the success of Mytesi, our current lead prescription drug product, and Canalevia-CA1, our conditionally approved prescription drug product for CID in dogs, and Canalevia-CA2, our candidate for EID in dogs. We cannot be certain that necessary approvals will be received for planned Mytesi and Canalevia-CA1 follow-on indications or that these product candidates will be successfully commercialized, either by us or any of our partners. ​ Other than Mytesi and Canalevia-CA1 (for which we have conditional approval), we currently do not have regulatory approval for any of our prescription drug product candidates. Our current efforts are primarily focused on the ongoing commercialization of Mytesi and Canalevia-CA1, and development efforts related to Mytesi and Canalevia-CA1. With regard to Mytesi, we are focused on marketing the product in the United States as well as on development efforts related to a follow-on indication for Mytesi in CTD, an important supportive care indication for patients undergoing primary or adjuvant chemotherapy for cancer treatment, and symptomatic relief of COVID-related diarrhea. Mytesi is also in development for other possible follow-on indications, including orphan drug indications for symptomatic relief of diarrhea in infants and children with CDD and for adult and pediatric patients with SBS; and for supportive care for diarrhea relief in IBD; IBS-D; and for idiopathic/functional diarrhea. With regard to Canalevia-CA1, we are focused on the launch of the product in the United States for chemotherapy-induced diarrhea in dogs. In addition, a second-generation proprietary anti-secretory agent is in development for cholera. Mytesi previously received orphan-drug designation for SBS. Accordingly, our near term prospects, including our ability to generate material product revenue, obtain any new financing if needed to fund our business and operations or enter into potential strategic transactions, will depend heavily on the success of Mytesi and Canalevia-CA1. ​ Substantial time and capital resources have been previously devoted by third parties in the development of crofelemer, the active pharmaceutical ingredient, or API, in Mytesi and Canalevia, and the development of the botanical extract used in Equilevia and Neonorm. Both crofelemer and the botanical extract used in Equilevia and Neonorm were originally developed at Shaman Pharmaceuticals, Inc. (“Shaman”), by certain members of our management team, including Lisa A. Conte, our chief executive officer and president, and Steven R. King, Ph.D., our executive vice president of sustainable supply, ethnobotanical research and intellectual property and secretary. Shaman spent significant development resources before voluntarily filing for bankruptcy in 2001 pursuant to Chapter 11 of the U.S. Bankruptcy Code. The rights to crofelemer and the botanical extract used in Equilevia and Neonorm, as well as other intellectual property rights, were subsequently acquired by Napo from Shaman in 2001 pursuant to a court approved sale of assets. Ms. Conte founded Napo in 2001 and was the current interim chief executive officer of Napo and a member of Napo’s board of directors prior to the Merger. While at Napo, certain members of our management team, including Ms. Conte and Dr. King, continued the development of crofelemer. Following the merger of Jaguar and Napo in July 2017, Napo became Jaguar’s wholly-owned subsidiary. If we are not successful in the development and commercialization of Mytesi, our business and our prospects will be harmed. ​ 43 Table of Contents The successful development and commercialization of Mytesi and Canalevia-CA1 will depend on a number of factors, including the following: ​ ● our ability to demonstrate to the satisfaction of the FDA and any other regulatory bodies, the safety and efficacy of Canalevia; ​ ● our ability and that of our contract manufacturers to manufacture supplies of Mytesi and Canalevia-CA1 and to develop, validate and maintain viable commercial manufacturing processes that are compliant with current good manufacturing practices, or cGMPs, if required; ​ ● our ability to successfully market Mytesi and Canalevia-CA1, whether alone or in collaboration with others; ​ ● the availability, perceived advantages, relative cost, relative safety and relative efficacy of our prescription drug product candidates compared to alternative and competing treatments; ​ ● the acceptance of our prescription drug product candidates and non-prescription products as safe and effective by physicians, veterinarians, patients, animal owners and the human and animal health community, as applicable; ​ ● our ability to achieve and maintain compliance with all regulatory requirements applicable to our business; and ​ ● our ability to obtain and enforce our intellectual property rights and obtain marketing exclusivity for our prescription drug product candidates and non-prescription products, and avoid or prevail in any third-party patent interference, patent infringement claims or administrative patent proceedings initiated by third parties or the U.S. Patent and Trademark Office (“USPTO”). ​ Many of these factors are beyond our control. Accordingly, we may not be successful in developing or commercializing Mytesi, Neonorm, Equilevia, Canalevia or any of our other potential products. If we are unsuccessful or are significantly delayed in commercializing Mytesi, our business and prospects will be harmed and you may lose all or a portion of the value of your investment in our common stock. ​ If we are not successful in identifying, licensing, developing and commercializing additional product candidates and products, our ability to expand our business and achieve our strategic objectives could be impaired. ​ Although a substantial amount of our efforts is focused on the commercial performance of Mytesi and Canalevia-CA1, a key element of our strategy is to identify, develop and commercialize a portfolio of products to serve the gastrointestinal health market. Most of our potential products are based on our knowledge of medicinal plants. Our current focus is primarily on product candidates whose active pharmaceutical ingredient or botanical extract has been successfully commercialized or demonstrated to be safe and effective in human or animal trials. In some instances, we may be unable to further develop these potential products because of perceived regulatory and commercial risks. Even if we successfully identify potential products, we may still fail to yield products for development and commercialization for many reasons, including the following: ​ ● competitors may develop alternatives that render our potential products obsolete; ​ ● an outside party may develop a cure for any disease state that is the target indication for any of our planned or approved drug products; ​ ● potential products we seek to develop may be covered by third-party patents or other exclusive rights; ​ ● a potential product may on further study be shown to have harmful side effects or other characteristics 44 Table of Contents that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria; ​ ● a potential product may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and ​ ● a potential product may not be accepted as safe and effective by physicians, veterinarians, patients, animal owners, key opinion leaders and other decision-makers in the gastrointestinal health market, as applicable. ​ While we are developing specific formulations, including flavors, methods of administration, new patents and other strategies with respect to our current potential products, we may be unable to prevent competitors from developing substantially similar products and bringing those products to market earlier than we can. If such competing products achieve regulatory approval and commercialization prior to our potential products, our competitive position may be impaired. If we fail to develop and successfully commercialize other potential products, our business and future prospects may be harmed and we will be more vulnerable to any problems that we encounter in developing and commercializing our current potential products. ​ Mytesi faces significant competition from other pharmaceutical companies, both for its currently approved indication and for planned follow-on indications, and our operating results will suffer if we fail to compete effectively. ​ The development and commercialization of products for human gastrointestinal health is highly competitive and our success depends on our ability to compete effectively with other products in the market. During the ongoing commercialization of Mytesi for its currently approved indication, and during the future commercialization of Mytesi for any planned follow-on indications, if such follow-on indications receive regulatory approval, we expect to compete with major pharmaceutical and biotechnology companies that operate in the gastrointestinal space, such as Takeda Pharmaceuticals, Allergan, Inc., Ironwood Pharmaceuticals, Inc., Synergy Pharmaceuticals Inc., Sebela Pharmaceuticals, Inc. and Salix Pharmaceuticals. ​ Many of our competitors and potential competitors in the human gastrointestinal space have substantially more financial, technical and human resources and greater ability to lower costs of manufacturing and sales and marketing than we do. Many also have more experience in the development, manufacture, regulation and worldwide commercialization of human gastrointestinal health products. ​ For these reasons, we cannot be certain that we and Mytesi can compete effectively. ​ We may be unable to obtain, or obtain on a timely basis, regulatory approval for our existing or future human or animal prescription drug product candidates under applicable regulatory requirements, which would harm our operating results. ​ The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of human and animal health products are subject to extensive regulation. We are typically not permitted to market our prescription drug product candidates in the United States until we receive approval of the product from the FDA through the filing of an NDA or NADA, as applicable. To gain approval to market a prescription drug, we must provide the FDA with safety and efficacy data from pivotal trials that adequately demonstrate that our prescription drug product candidates are safe and effective for the intended indications. Likewise, to gain approval to market an animal prescription drug for a particular species, we must provide the FDA with safety and efficacy data from pivotal trials that adequately demonstrate that our prescription drug product candidates are safe and effective in the target species (e.g., dogs, cats or horses) for the intended indications. In addition, we must provide manufacturing data evidencing that we can produce our product candidates in accordance with cGMPs. For the FDA, we must also provide data from toxicology studies, also called target animal safety studies, and in some cases environmental impact data. In addition to our internal activities, we will partially rely on contract research organizations (“CROs”), and other third parties to conduct our toxicology studies and for certain other product development activities. The results of toxicology studies, other initial development activities, and/or any previous studies in humans or animals conducted by us or third parties 45 Table of Contents may not be predictive of future results of pivotal trials or other future studies, and failure can occur at any time during the conduct of pivotal trials and other development activities by us or our CROs. Our pivotal trials may fail to show the desired safety or efficacy of our prescription drug product candidates despite promising initial data or the results in previous human or animal studies conducted by others. Success of a prescription drug product candidate in prior animal studies, or in the treatment of humans, does not ensure success in subsequent studies. Clinical trials in humans and pivotal trials in animals sometimes fail to show a benefit even for drugs that are effective because of statistical limitations in the design of the trials or other statistical anomalies. Therefore, even if our studies and other development activities are completed as planned, the results may not be sufficient to obtain a required regulatory approval for a product candidate. ​ Regulatory authorities can delay, limit or deny approval of any of our prescription drug product candidates for many reasons, including: ​ ● if they disagree with our interpretation of data from our pivotal studies or other development efforts; ​ ● if we are unable to demonstrate to their satisfaction that our product candidate is safe and effective for the target indication and, if applicable, in the target species; ​ ● if they require additional studies or change their approval policies or regulations; ​ ● if they do not approve of the formulation, labeling or the specifications of our current and future product candidates; and ​ ● if they fail to approve the manufacturing processes of our third-party contract manufacturers. ​ Further, even if we receive a required approval, such approval maybe for a more limited indication than we originally requested, and the regulatory authority may not approve the labeling that we believe is necessary or desirable for successful commercialization. ​ Any delay or failure in obtaining any necessary regulatory approval for the intended indications of our human or animal product candidates would delay or prevent commercialization of such product candidates and would harm our business and our operating results. ​ The results of our earlier studies of Mytesi may not be predictive of the results in any future clinical trials and species-specific formulation studies, respectively, and we may not be successful in our efforts to develop or commercialize line extensions of Mytesi. ​ Our human and animal product pipeline includes a number of potential indications of Mytesi, our lead prescription product. The results of our studies and other development activities and of any previous studies in humans or animals conducted by us or third parties may not be predictive of future results of these clinical studies and formulation studies, respectively. Failure can occur at any time during the conduct of these trials and other development activities. Even if our formulation/clinical studies and other development activities are completed as planned, the results may not be sufficient to pursue a particular line extension for Mytesi. Further, even if we obtain promising results from our clinical trials or species-specific formulation studies, as applicable, we may not successfully commercialize any line extension. Because line extensions are developed for a particular market, we may not be able to leverage our experience from the commercial launch of Mytesi in new markets. If we are not successful in developing and successfully commercializing these line extension products, we may not be able to grow our revenue and our business may be harmed. ​ Development of prescription drug products is inherently expensive, time-consuming and uncertain, and any delay or discontinuance of our current or future pivotal trials would harm our business and prospects. ​ Development of prescription drug products for human and animal gastrointestinal health remains an inherently lengthy, expensive and uncertain process, and our development activities may not be successful. We do not 46 Table of Contents know whether our current or planned pivotal trials for any of our product candidates will begin or conclude on time, and they may be delayed or discontinued for a variety of reasons, including if we are unable to: ​ ● address any safety concerns that arise during the course of the studies; ​ ● complete the studies due to deviations from the study protocols or the occurrence of adverse events; ​ ● add new study sites; ​ ● address any conflicts with new or existing laws or regulations; or ​ ● reach agreement on acceptable terms with study sites, which can be subject to extensive negotiation and may vary significantly among different sites. ​ Further, we may not be successful in developing new indications for Mytesi and Canalevia-CA1, and Neonorm may be subject to the same regulatory regime as prescription drug products in jurisdictions outside the United States. Any delays in completing our development efforts will increase our costs, delay our development efforts and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects. In addition, factors that may cause a delay in the commencement or completion of our development efforts may also ultimately lead to the denial of regulatory approval of our product candidates, which, as described above, would harm our business and prospects. ​ We will partially rely on third parties to conduct our development activities. If these third parties do not successfully carry out their contractual duties, we may be unable to obtain regulatory approvals or commercialize our current or future human or animal product candidates on a timely basis, or at all. ​ We will partially rely upon CROs to conduct our toxicology studies and for other development activities. We intend to rely on CROs to conduct one or more of our planned pivotal trials. These CROs are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount or timing of resources that they devote to our programs or manage the risks associated with their activities on our behalf. We are responsible for ensuring that each of our studies is conducted in accordance with the development plans and trial protocols presented to regulatory authorities. Any deviations by our CROs may adversely affect our ability to obtain regulatory approvals, subject us to penalties or harm our credibility with regulators. The FDA and foreign regulatory authorities also require us and our CROs to comply with regulations and standards, GCPs or GLPs, for conducting, monitoring, recording and reporting the results of our studies to ensure that the data and results are scientifically valid and accurate. ​ Agreements with CROs generally allow the CROs to terminate in certain circumstances with little or no advance notice. These agreements generally will require our CROs to reasonably cooperate with us at our expense for an orderly winding down of the CROs’ services under the agreements. If the CROs conducting our studies do not comply with their contractual duties or obligations, or if they experience work stoppages, do not meet expected deadlines, or if the quality or accuracy of the data they obtain is compromised, we may need to secure new arrangements with alternative CROs, which could be difficult and costly. In such event, our studies also may need to be extended, delayed or terminated as a result, or may need to be repeated. If any of the foregoing were to occur, regulatory approval, if required, and commercialization of our product candidates may be delayed and we may be required to expend substantial additional resources. ​ Even if we obtain regulatory approval for planned follow-on indications of crofelemer, Canalevia or our other product candidates, they may never achieve market acceptance. Further, even if we are successful in the ongoing commercialization of Mytesi and Canalevia, we may not achieve commercial success. ​ If we obtain necessary regulatory approvals for planned follow-on indications of crofelemer or our other product candidates, such products may still not achieve market acceptance and may not be commercially successful. Market acceptance of Mytesi, Canalevia, and any of our other products depends on a number of factors, including: ​ 47 Table of Contents ● the safety of our products as demonstrated in our target animal studies; ​ ● the indications for which our products are approved or marketed; ​ ● the potential and perceived advantages over alternative treatments or products, including generic medicines and competing products currently prescribed by physicians or veterinarians, as applicable, and, in the case of animal products, products approved for use in humans that are used extra-label in animals; ​ ● the acceptance by physicians, veterinarians, companion animal owners, as applicable, of our products as safe and effective; ​ ● the cost in relation to alternative treatments and willingness on the part of physicians, veterinarians, patients and animal owners, as applicable, to pay for our products; ​ ● the prevalence and severity of any adverse side effects of our products; ​ ● the relative convenience and ease of administration of our products; and ​ ● the effectiveness of our sales, marketing and distribution efforts. ​ Any failure by Mytesi or Canalevia to achieve market acceptance or commercial success would harm our financial condition and results of operations. ​ Human and animal gastrointestinal health products are subject to unanticipated post-approval safety or efficacy concerns, which may harm our business and reputation. ​ The success of our commercialization efforts will depend upon the perceived safety and effectiveness of human and animal gastrointestinal health products, in general, and of our products, in particular. Unanticipated safety or efficacy concerns can subsequently arise with respect to approved prescription drug products, such as Mytesi, or non-prescription products, such as Neonorm, which may result in product recalls or withdrawals or suspension of sales, as well as product liability and other claims. Any safety or efficacy concerns, or recalls, withdrawals or suspensions of sales of our products could harm our reputation and business, regardless of whether such concerns or actions are justified. ​ Future federal and state legislation may result in increased exposure to product liability claims, which could result in substantial losses. ​ Under current federal and state laws, companion and production animals are generally considered to be the personal property of their owners and, as such, the owners’ recovery for product liability claims involving their companion and production animals may be limited to the replacement value of the animal. Companion animal owners and their advocates, however, have filed lawsuits from time to time seeking non-economic damages such as pain and suffering and emotional distress for harm to their companion animals based on theories applicable to personal injuries to humans. If new legislation is passed to allow recovery for such non-economic damages, or if precedents are set allowing for such recovery, we could be exposed to increased product liability claims that could result in substantial losses to us if successful. In addition, some horses can be worth millions of dollars or more, and product liability for horses may be very high. While we currently have product liability insurance, such insurance may not be sufficient to cover any future product liability claims against us. ​ ​ 48 Table of Contents If we fail to retain current members of our senior management, or to identify, attract, integrate and retain additional key personnel, our business will be harmed. ​ Our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We are highly dependent upon our senior management, particularly Lisa A. Conte, our president and Chief Executive Officer. The loss of services of any of our key personnel would cause a disruption in our ability to develop our current or future product pipeline and commercialize our products and product candidates. Although we have offer letters with these key members of senior management, such agreements do not prohibit them from resigning at any time. For example, the resignation of our former Chief Financial Officer and Treasurer, Karen Wright, in August 2019, caused us to incur additional expenses and expend resources to ensure a smooth transition with her successor, which diverted management attention away from executing our operational plan during this period. To help attract, retain, and motivate qualified management and other personnel, we use share-based incentive awards such as employee stock options and restricted stock units. However, given the volatility in our stock price, it may be more difficult and expensive to recruit and retain employees, particularly senior management, through grants of stock or stock options. If our share-based compensation ceases to be viewed as a valuable benefit, our ability to attract, retain, and motivate qualified management and other personnel could be weakened, which could harm our results of operations and adversely affect the timing or outcomes of our current and planned studies, as well as the prospects for commercializing our products. ​ In addition, competition for qualified personnel in the human gastrointestinal health field is intense because there are a limited number of individuals who are trained or experienced in the field. We will need to hire additional personnel as we expand our product development and commercialization activities. Even if we are successful in hiring qualified individuals, as we are a growing organization, we do not have a track record for integrating and retaining individuals. If we are not successful in identifying, attracting, integrating or retaining qualified personnel on acceptable terms, or at all, our business will be harmed. ​ We are dependent on two suppliers for the raw material used to produce the active pharmaceutical ingredient in Mytesi and Canalevia. The termination of either of these contracts would result in a disruption to product development and our business will be harmed. ​ The raw material used to manufacture Mytesi and Canalevia-CA1 is CPL derived from the Croton lechleri tree, which is found in countries in South America, principally Peru. The ability of our contract suppliers to harvest CPL is governed by the terms of their respective agreements with local government authorities. Although CPL is available from multiple suppliers, we only have contracts with two suppliers to obtain CPL and arrange the shipment to our contract manufacturer. Accordingly, if our contract suppliers do not or are unable to comply with the terms of our respective agreements, and we are not able to negotiate new agreements with alternate suppliers on terms that we deem commercially reasonable, it may harm our business and prospects. The countries from which we obtain CPL could change their laws and regulations regarding the export of the natural products or impose or increase taxes or duties payable by exporters of such products. Restrictions could be imposed on the harvesting of the natural products or additional requirements could be implemented for the replanting and regeneration of the raw material. Such events could have a significant impact on our cost and ability to produce Mytesi, Canalevia-CA1 and anticipated line extensions. ​ We are dependent upon third-party contract manufacturers, both for the supply of the active pharmaceutical ingredient in Mytesi and Canalevia-CA1, as well as for the supply of finished products for commercialization. ​ We are in negotiations with Indena for the purification of the CPL received from our suppliers into the API used to manufacture Canalevia-CA1 and Mytesi , as well as the botanical extract in Neonorm. Indena has never manufactured either such ingredient to commercial scale. Glenmark is the current manufacturer of crofelemer, the active API in Canalevia-CA1and Mytesi. As announced in October of 2015, we have entered into an agreement with Patheon, a provider of drug development and delivery solutions, under which Patheon provides enteric-coated tablets to us for use in humans and animals. We also may contract with additional third parties for the formulation and supply of finished products, which we will use in our planned studies and commercialization efforts. ​ 49 Table of Contents We are dependent upon our contract manufacturers for the supply of the API in Mytesi and Canalevia-CA1. We currently have sufficient quantities of the API used in Mytesi and Canalevia to support our projected sales efforts. We are working with our contract manufacturers to increase API manufacturing capacity of the API to support the sales forecast for 2022 and beyond. If our contract manufacturer cannot manufacture sufficient quantities of the API in a timely manner, we could suffer losses due to lost sales opportunities. We currently have sufficient quantities of the botanical extract used in Neonorm and Equilevia to support planned commercialization efforts for Neonorm and Equilevia. If we are not successful in reaching agreements with third parties on terms that we consider commercially reasonable for manufacturing and formulation of Mytesi and Canalevia-CA1, or if our contract manufacturer and formulator are not able to produce sufficient quantities or quality of the Mytesi and Canalevia-CA1 API or finished product under their agreements, it could delay our plans and harm our business prospects. For example, as a result of the outbreak in 2020 of SARS-CoV-2, the virus that causes COVID-19, that originated in Wuhan, China and then spread globally, our suppliers and contract manufacturer could be disrupted by worker absenteeism, quarantines, or other travel or health-related restrictions or could incur increased costs associated with ensuring the safety and health of their personnel. If our suppliers or contract manufacturer is so affected, our supply chain could be disrupted, our product shipments could be delayed, our costs could be increased and our business could be adversely affected. ​ The facilities used by our third-party contractors are subject to inspections, including by the FDA, and other regulators, as applicable. We also depend on our third-party contractors to comply with cGMPs. If our third-party contractors do not maintain compliance with these strict regulatory requirements, they and we will not be able to secure or maintain regulatory approval for their facilities, which would have an adverse effect on our operations. In addition, in some cases, we also are dependent on our third-party contractors to produce supplies in conformity to our specifications and maintain quality control and quality assurance practices and not to employ disqualified personnel. If the FDA or a comparable foreign regulatory authority does not approve the facilities of our third-party contractors if so required, or if it withdraws any such approval in the future, we may need to find alternative manufacturing or formulation facilities, which could result in delays in our ability to develop or commercialize our products, if at all. We and our third-party contractors also may be subject to penalties and sanctions from the FDA and other regulatory authorities for any violations of applicable regulatory requirements. The European Medicines Agency (the “EMA”), employ different regulatory standards than the FDA, so we may require multiple manufacturing processes and facilities for the same product candidate or any approved product. We are also exposed to risk if our third-party contractors do not comply with the negotiated terms of our agreements, or if they suffer damage or destruction to their facilities or equipment. ​ If we are unable to establish sales capabilities on our own or through third parties, we may not be able to market and sell our current or future human products and product candidates, if approved, and generate product or other revenue. ​ We currently have limited sales, marketing or distribution capabilities, and prior to Napo’s launch of Mytesi for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy, and our launch of Neonorm for pre-weaned dairy calves and Canalevia for chemotherapy-induced diarrhea in dogs, we had no experience in the sale, marketing and distribution of human or animal health products. There are significant risks involved in building and managing a sales organization, including our potential inability to attract, hire, retain and motivate qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively oversee a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities and entry into adequate arrangements with distributors or other partners would adversely impact the commercialization of Mytesi, and Canalevia-CA1. If we are not successful in commercializing Mytesi and/or Canalevia-CA1, for their respective currently approved or conditionally approved indications or for any potential follow-on indications, either on our own or through one or more distributors, or in generating upfront licensing or other fees, including through the previously announced licensing arrangement between Napo Pharmaceuticals, Inc. and Napo Therapeutics S.p.A., we may never generate significant revenue and may continue to incur significant losses, which would harm our financial condition and results of operations. ​ ​ 50 Table of Contents We will need to increase the size of our organization and may not successfully manage such growth. ​ As of December 31, 2021, we had 52 employees. Our ability to manage our growth effectively will require us to hire, train, retain, manage and motivate additional employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring of additional senior management personnel or the development of additional expertise by our senior management personnel. If we fail to expand and enhance our operational, financial and management systems in conjunction with our potential future growth, it could harm our business and operating results. ​ Canalevia-CA1 and, our animal health prescription drug product candidates, if approved, may be marketed in the United States only in the target animals and for the indications for which they are approved, and if we want to expand the approved animals or indications, it will need to obtain additional approvals, which may not be granted. ​ We may market or advertise Canalevia-CA1 and our animal health prescription drug product candidates are approved by regulatory authorities, only in the specific species and for treatment of the specific indications for which they were approved, which could limit use of the products by veterinarians and animal owners. We intend to develop, promote and commercialize approved products for new animal treatment indications in the future, but we cannot be certain whether or at what additional time and expense we will be able to do so. If we do not obtain marketing approvals for new indications, our ability to expand our animal health business may be harmed. ​ Under the Animal Medicinal Drug Use Clarification Act of 1994, veterinarians are permitted to prescribe extra-label uses of fully approved animal drugs and approved human drugs for animals under certain conditions. While veterinarians may in the future prescribe and use human-approved products or use our products for extra-label uses, we may not promote our animal health products for extra-label uses. We note that extra-label uses are uses for which the product has not received approval. If the FDA determines that any of our marketing activities constitute promotion of an extra-label use, we could be subject to regulatory enforcement, including seizure of any misbranded or mislabeled drugs, and civil or criminal penalties, any of which could have an adverse impact on our reputation and expose us to potential liability. We will continue to spend resources ensuring that our promotional claims for our animal health products and product candidates remain compliant with applicable FDA laws and regulations, including materials we post or link to on our website. For example, in 2012, our Chief Executive Officer received an “untitled letter” from the FDA while at Napo regarding preapproval promotion statements constituting misbranding of crofelemer, which was then an investigational drug. These statements were included in archived press releases included on Napo’s website. Napo was required to expend time and resources to revise its website to remove the links in order to address the concerns raised in the FDA’s letter. ​ The misuse or extra-label use of Mytesi, Canalevia and our human or animal prescription drug product candidates approved by regulatory authorities, may harm our reputation or result in financial or other damages. ​ If our human or animal prescription drug product candidates are approved by regulatory authorities, there may be increased risk of product liability if physicians, veterinarians, patients, animal owners or others, as applicable, attempt to use such products extra-label, including the use of our products for indications or in species for which they have not been approved. Furthermore, the use of an approved human or animal drug such as Mytesi and Canalevia for indications other than those indications for which such products have been approved may not be effective, which could harm our reputation and lead to an increased risk of litigation. If we are deemed by a governmental or regulatory agency to have engaged in the promotion of any approved human or animal product for extra-label use, such agency could request that we modify our training or promotional materials and practices and we could be subject to significant fines and penalties, and the imposition of these sanctions could also affect our reputation and position within the gastrointestinal health industry. Any of these events could harm our reputation and our operating results. ​ ​ 51 Table of Contents We may be unable to obtain, or obtain on a timely basis, a renewal of conditional approval for Canalevia-CA1, or to eventually obtain full regulatory approval of Canalevia-CA1, which would harm our operating results. ​ On December 21, 2021, the FDA conditionally approved Canalevia-CA1 (crofelemer delayed-release tablets) for the treatment of CID in dogs under application number 141-552. FDA’s conditional approval allows the Company to legally sell Canalevia-CA1 before proving it meets the “substantial evidence” standard of effectiveness for full approval. The Company may request renewal of the conditional approval annually for up to four more years, for a total of five years of conditional approval. To receive a renewal from FDA, the Company must show active progress toward proving “substantial evidence of effectiveness” for full approval. ​ If FDA grants all four annual renewals, the Company has up to four-and-a-half years to develop and submit the necessary data to complete the effectiveness requirement. If the Company does not submit all necessary information to support full approval of Canalevia-CA1 by this four-and-a-half-year deadline, the conditional approval terminates immediately. The Company would then be required to stop marketing the drug because it would be considered to be unapproved. ​ If the Company submits the necessary information before the four-and-a-half-year deadline, the conditional approval period runs another six months, for a total of five years, while FDA reviews the application for full approval. The conditional approval automatically terminates five years after the date of the initial conditional approval. If FDA does not fully approve the drug before the five-year termination date, the Company would then have to stop marketing the drug because it would be considered to be unapproved. ​ We may not maintain the benefits associated with MUMS designation, including market exclusivity. ​ Although we have received MUMS designation for Canalevia-CA1 for the treatment of CID in dogs, we may not maintain the benefits associated with MUMS designation. MUMS designation is a status similar to “orphan drug” status for human drugs. When we were granted MUMS designation for Canalevia-CA1 for the indication of CID in dogs, we became eligible for incentives to support the approval or conditional approval of the designated use. This designation does not allow us to commercialize a product until such time as we obtain approval or conditional approval of the product. ​ Because Canalevia-CA1 has received MUMS designation for the identified particular intended use, we are eligible to obtain seven years of exclusive marketing rights upon approval (or conditional approval) of Canalevia-CA1 for that intended use and become eligible for grants to defray the cost of our clinical work. Each designation that is granted must be unique, i.e., only one designation can be granted for a particular API in a particular dosage form for a particular intended use. The intended use includes both the target species and the disease or condition to be treated. ​ At some point, we could lose MUMS designation. The basis for a lost designation can include but is not limited to, our failure to engage with due diligence in moving forward with a non-conditional approval. In addition, MUMS designation may be withdrawn for a variety of reasons such as where the FDA determines that the request for designation was materially defective, or if the manufacturer is unable to assure sufficient quantity of the prescription drug product to meet the needs of animals with the rare disease or condition. If this designation is lost, it could have a negative impact on the product and us, which includes but is not limited to, market exclusivity related to MUMS designation, or eligibility for grants as a result of MUMS designation. ​ The market for our human and animal products, and the gastrointestinal health market as a whole, is uncertain and may be smaller than we anticipate, which could lead to lower revenue and harm our operating results. ​ It is very difficult to estimate the commercial potential of any of our human or animal products because the gastrointestinal health market continues to evolve and it is difficult to predict the market potential for our products. The market will depend on important factors such as safety and efficacy compared to other available treatments, changing standards of care, preferences of physicians, as applicable, the willingness of patients, as applicable, to pay for such products, and the availability of competitive alternatives that may emerge either during the product development process or after commercial introduction. If the market potential for our human or animal products is less 52 Table of Contents than we anticipate due to one or more of these factors, it could negatively impact our business, financial condition and results of operations. Further, the willingness of patients to pay for our products may be less than we anticipate, and may be negatively affected by overall economic conditions. ​ Insurance coverage for Mytesi for its current approved indication could decrease or end, or Mytesi might not receive insurance coverage for any approved follow-on indications, which could lead to lower revenue and harm our operating results. ​ For its current approved indication, Mytesi is currently reimbursed by almost all of commercial and Medicare insurance plans. Mytesi is currently covered on Medicaid in all 50 states. However, the nature or extent of coverage for Mytesi by any of these plans or programs could change or be terminated, or Mytesi might not receive insurance coverage for any approved follow-on indications. Either outcome could lead to significantly lower revenue and significantly harm our operating results. ​ We may engage in future acquisitions that increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks. ​ We may evaluate various strategic transactions, including licensing or acquiring complementary products, technologies or businesses. Any potential acquisitions may entail numerous risks, including increased operating expenses and cash requirements, assimilation of operations and products, retention of key employees, diversion of our management’s attention and uncertainties in our ability to maintain key business relationships of the acquired entities. In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business. ​ Certain of the countries in which we plan to commercialize our products in the future are developing countries, some of which have potentially unstable political and economic climates. ​ We may commercialize our products in jurisdictions that are developing and emerging countries. This may expose us to the impact of political or economic upheaval, and we could be subject to unforeseen administrative or fiscal burdens. At present, we are not insured against the political and economic risks of operating in these countries. Any significant changes to the political or economic climate in any of the developing countries in which we operate or plan to sell products either now or in the future may have a substantial adverse effect on our business, financial condition, trading performance and prospects. ​ Fluctuations in the exchange rate of foreign currencies could result in currency transactions losses. ​ As we expand our operations, we expect to be exposed to risks associated with foreign currency exchange rates. We anticipate that we may commercialize Mytesi and Canalevia-CA1 and its line extensions in jurisdictions outside the United States. As a result, we may also be further affected by fluctuations in exchange rates in the future to the extent that sales are denominated in currencies other than U.S. dollars. We do not currently employ any hedging or other strategies to minimize this risk, although we may seek to do so in the future. ​ Laws and regulations governing global trade compliance could adversely impact our business. ​ The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), and the Bureau of Industry and Security (“BIS”) at the U.S. Department of Commerce, administer certain laws and regulations that restrict U.S. persons and, in some instances, non-U.S. persons, in conducting activities, transacting business with or making investments in certain countries, governments, entities and individuals subject to U.S. economic sanctions. In addition, engaging in sales activities to foreign governments introduces additional compliance risks, including risks specific to anti-bribery regulations, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.K. Bribery Act 2010 and other similar statutory requirements prohibiting bribery and corruption in the jurisdictions in which we operate. The FCPA prohibits U.S. corporations and their representatives from offering, 53 Table of Contents promising, authorizing or making payments to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business abroad. The scope of the FCPA includes interactions with certain healthcare professionals in many countries. Other countries have enacted similar anti-corruption laws and/or regulations. ​ Our international operations subject us to these laws and regulations, which are complex, restrict our business dealings with certain countries, governments, entities, and individuals, and are constantly changing. Further restrictions may be enacted, amended, enforced or interpreted in a manner that materially impacts our operations. ​ Violations of these regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We have established policies and procedures designed to assist with our compliance with such laws and regulations. However, there can be no assurance that our policies and procedures will prevent us from violating these regulations in every transaction in which we may engage, or that any businesses that we may acquire have complied with such regulations, and such a violation could adversely affect our reputation, business, financial condition, results of operations and cash flows. ​ There are other gastrointestinal-focused human pharmaceutical companies, and we face competition in the marketplaces in which we operate or plan to operate. ​ Our commercial success in the human drug arena remains dependent on maintaining or establishing a competitive position in the market for the current, approved specialty indication of Mytesi as well as for planned Mytesi follow-on indications. In the IBS-D market in particular, several competitors have commercially available products approved for our planned IBS-D indication. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any drug candidate we develop. The inability to compete with existing or subsequently introduced drug candidates would have a material adverse impact on our business, financial condition and prospects. ​ Our obligations to Streeterville are secured by a security interest in all of Napo’s lechlemer assets, so if we default on those obligations, Streeterville could foreclose on our assets. ​ Our obligations under the secured promissory note issued to Streeterville Capital, LLC (“Streeterville”) are secured by a first priority security interest in all existing and future lechlemer technology held by Napo, including intellectual property, as provided in the Security Agreement, dated January 19, 2021 between Napo and Streeterville. As a result, if we default on our obligations under these agreements, Streeterville could foreclose on its security interests and liquidate some or all of these assets, which would harm our plans to develop and commercialize lechlemer, financial condition and results of operations and could require us to reduce or cease operations with respect to lechlemer. ​ Our royalty interests require us to make minimum royalty payments, even if we do not sell a sufficient amount of products to cover such payments, which may strain our cash resources. ​ Since March 2020, we have sold royalty interests to certain lenders that entitle such lenders to receive future royalties on sales of our products. These royalty interests require us to make minimum royalty payments beginning 2021, even if we do not sell a sufficient amount of product to cover such payments, which may strain our cash resources. The total minimum royalty payments will be $6.0 million in 2022, $18.0 million in 2023, $13.9 million in 2024, $7.10 million 2025, and $3.9 million in 2026. ​ Failure in our information technology systems, including by cyber-attacks or other data security incidents, could significantly disrupt our operations. ​ Our operations depend, in part, on the continued performance of our information technology systems. Our information technology systems are potentially vulnerable to physical or electronic break-ins, computer viruses, phishing attacks and other types of disruptions. We have and continue to experience cyber-attacks of varying degrees. 54 Table of Contents Our security measures may also be breached due to employee error, malfeasance, system errors or other vulnerabilities. Such breach or unauthorized access or attempts by outside parties to fraudulently induce employees or users to disclose sensitive information in order to gain access to our data could result in significant legal and financial exposure, and damage to our reputation that could potentially have an adverse effect on our business. Because the techniques used to obtain unauthorized access, or sabotage systems change frequently, become more sophisticated, and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Additionally, cyber-attacks could also compromise trade secrets and other sensitive information and result in such information being disclosed to others and becoming less valuable, which could negatively affect our business. Although we have information technology security systems, a successful cybersecurity attack or other data security incident could result in the misappropriation and/or loss of confidential or personal information, create system interruptions, deploy malicious software that attacks our systems, or result in financial losses. It is possible that a cybersecurity attack might not be noticed for some period of time. The occurrence of a cyber security attack or incident could result in business interruptions from the disruption of our information technology systems, or negative publicity resulting in reputational damage with our shareholders and other stakeholders and/or increased costs to prevent, respond to or mitigate cybersecurity events. In addition, the unauthorized dissemination of sensitive personal information or proprietary or confidential information could expose us or other third-parties to regulatory fines or penalties, litigation and potential liability, or otherwise harm our business. ​ The novel coronavirus global pandemic could adversely impact our business, including our supply chain, clinical trials and commercialization of Mytesi and Canalevia. ​ As a result of the outbreak of SARS-CoV-2, the virus that causes COVID-19, we may experience disruptions that could severely impact our supply chain, ongoing and future clinical trials and commercialization of Mytesi and Canalevia. For example, COVID-19 has resulted in increased travel restrictions and the shutdown or delay of business activities in various regions, including certain activities of our contract manufacturers in India and in Italy. To the extent our suppliers and contract manufacturer are unable to comply with their obligations under our agreements with them or they are otherwise unable to deliver or are delayed in delivering raw materials, Mytesi and Canalevia API or finished products to us due to COVID-19, our ability to continue meeting commercial demand for Mytesi and Canalevia in the United States or advancing development of our product candidates may become impaired. Travel restrictions and shutdowns in business operations as a result of the outbreak may also limit our ability to pursue business development activities, including limiting onsite diligence of manufacturing facilities owned or operated by the Company and our contractors. ​ Such travel restrictions and shutdowns in business operations may also adversely impact our commercialization of Mytesi and Canalevia, including limiting the ability of our marketing and sales force to engage with healthcare providers and patient groups, and could result in patients postponing visits to healthcare provider facilities, healthcare providers temporarily closing their offices or restricting patient visits, pharmacies being closed or suffering supply chain disruptions, healthcare provider and/or pharmacy employees being unavailable and general disruptions in the operations of payors, distributors, logistics providers and other third parties that are necessary for Mytesi to be prescribed and reimbursed. ​ COVID-19 continues to rapidly evolve. The extent to which COVID-19, and mutated variants of SARS-CoV-2 – the virus that causes COVID-19, may impact our business, including our supply chain, clinical trials, commercialization of Mytesi and Canalevia and distribution channels, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the pandemic, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the pandemic. ​ ​ 55 Table of Contents Long-term remote work arrangements may adversely affect our business. ​ Many of our employees have been working remotely the past year and will continue to do so this year. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cyber-security risks, impair the effectiveness of our internal controls over financial reporting and impact our ability to manage our business. ​ Substantially all of our revenue for recent periods has been received from three customers. ​ Substantially all of our revenue has been derived from three customers. Except for the shelter-in-place mandate, we have not been made aware by our customers if they have experienced other issues arising due to COVID-19 that may materially impact our financial condition, liquidity or results of operations. We will continue to have dialogues with our customers. ​ We are subject to state laws in California that require gender and diversity quotas for boards of directors of public companies headquartered in California. ​ In September 2018, California enacted SB 826, requiring public companies headquartered in California to maintain minimum female representation on their boards of directors as follows: by December 31, 2019, public company boards must have a minimum of one female director; by December 31, 2021, public company boards with five members will be required to have at least two female directors, and public company boards with six or more members will be required to have at least three female directors. ​ Additionally, on September 30, 2020, California enacted AB 979, requiring public companies with principal executive offices in California to each have at least one director from an underrepresented community based on ethnicity and sexual orientation by December 31, 2021. By December 31, 2022, each of these companies will be required to have at least two directors from such underrepresented communities if such company has more than four but fewer than nine directors, or at least three directors from underrepresented communities if the company has nine or more directors. ​ Our board of directors currently includes one female director. As a result, we are currently not in compliance with either law. An initial violation of either law can result in a fine from the California Secretary of State in the amount of $100,000, with each subsequent violation resulting in a fine of $300,000. We cannot assure that we can recruit, attract and/or retain qualified members of the board and continue to meet gender and diversity quotas as required by California law, which may cause certain investors to divert their holdings in our securities and expose us to financial penalties and/or reputational harm. ​ Risks Related to Intellectual Property ​ We cannot be certain that our patent strategy will be effective to protect against competition. ​ Our commercial success depends in large part on obtaining and maintaining patent, trademark and trade secret protection of our human or animal products, both prescription and non-prescription, our current human or animal product candidates and any future human or animal product candidates, and their respective components, formulations, methods used to manufacture them and methods of treatment, as well as successfully defending our patents and other intellectual property rights against third-party challenges. Our ability to stop unauthorized third parties from making, using, selling, offering to sell or importing our products or our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents, trade secrets and other similar intellectual property that cover these activities. The patent prosecution process is expensive and time-consuming, and we may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of inventions made in the course of development and commercialization activities in time to obtain patent protection on them. ​ ​ 56 Table of Contents We have a portfolio of United States and foreign issued patents and pending applications related to our products and product candidates. We have three issued United States patents listed in the FDA’s Orange Book for Mytesi. We plan to rely on certain of these issued patents as protection for Canalevia. The strength of patents in the field of pharmaceuticals and animal health involves complex legal and scientific questions and can be uncertain. We cannot be certain that pending applications will issue as patents. For those patents that are already issued and even if other patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents may not adequately protect our intellectual property or prevent others from designing around their claims. If the patents we have are not maintained or their scope is significantly narrowed or if we are not able to obtain issued patents from pending applications, our business and prospects would be harmed. ​ The Leahy-Smith America Invents Act, patent reform legislation enacted in 2011, could increase the uncertainties and costs surrounding the prosecution of any patent applications and the enforcement or defense of any patents that issue. The Leahy-Smith Act introduced significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation, and switch the U.S. patent system from a “first-to-invent” system to a “first-to-file” system. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally is entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The USPTO developed regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first-to-file provisions, became effective on March 16, 2013. Among some of the other changes to the patent laws are changes that limit where a patentee may file a patent infringement suit and that provide opportunities for third parties to challenge any issued patent in the USPTO. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our patents and any other patents that issue, all of which could harm our business and financial condition. ​ Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. ​ Periodic maintenance and annuity fees on any issued patent and, in certain jurisdictions, pending applications, are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our prescription drug products, prescription drug product candidates and non-prescription products, our competitors might be able to enter the market, which would harm our business. ​ Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, which would be costly, time-consuming and, if successfully asserted against us, delay or prevent the development and commercialization of our current or future products and product candidates. ​ Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patents owned or controlled by other parties. There may be patents already issued of which we are unaware that might be infringed by a product or one of our current or future prescription drug product candidates or non-prescription products. Moreover, it is also possible that patents may exist that we are aware of, but that we do not believe are relevant to our current or future prescription drug product candidates or non-prescription products, which could nevertheless be found to block our freedom to market these products. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be 57 Table of Contents applications now pending of which we are unaware and which may later result in issued patents that may be infringed by our current or future prescription drug product candidates or non-prescription products. We cannot be certain that our products, current or future prescription drug product candidates or non-prescription products will not infringe these or other existing or future third-party patents. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. ​ To the extent we become subject to future third-party claims against us or our collaborators, we could incur substantial expenses and, if any such claims are successful, we could be liable to pay substantial damages, including treble damages and attorney’s fees if we or our collaborators are found to be willfully infringing a third party’s patents. If a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the human or animal prescription drug or non-prescription product that is the subject of the suit. Even if we are successful in defending such claims, infringement and other intellectual property claims can be expensive and time-consuming to litigate and divert management’s attention from our business and operations. As a result of or in order to avoid potential patent infringement claims, we or our collaborators may be compelled to seek a license from a third party for which we would be required to pay license fees or royalties, or both. Moreover, these licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain such a license, the rights may be nonexclusive, which could allow our competitors access to the same intellectual property. Any of these events could harm our business and prospects. ​ Our proprietary position depends upon the botanical guidance of our drug approval and patents that are formulation or method-of-use patents, which do not prevent a competitor from using the same human or animal drug for another use. ​ Composition-of-matter patents on the API in prescription drug products are generally considered to be the strongest form of intellectual property protection because such patents provide protection without regard to any particular method of use or manufacture or formulation of the API used. The composition-of-matter patents for crofelemer, the API in Mytesi and Canalevia-CA1, have expired, and the issued patents and applications relevant to our products and product candidates cover methods of use for crofelemer and the botanical extract in Neonorm and Equilevia. ​ Method-of-use patents protect the use of a product for the specified method and formulation patents cover formulations of the API or botanical extract. These types of patents do not prevent a competitor from developing or marketing an identical product for an indication that is outside the scope of the patented method or from developing a different formulation that is outside the scope of the patented formulation. Moreover, with respect to method-of-use patents, even if competitors do not actively promote their product for our targeted indications or uses for which we may obtain patents, physicians may recommend that patients use our products extra-label, and veterinarians may recommend that animal owners use these products extra-label, or animal owners may do so themselves. Although extra-label use may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute. ​ We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming and unsuccessful, and third parties may challenge the validity or enforceability of our patents and they may be successful. ​ We intend to rely upon a combination of regulatory exclusivity periods, patents, trade secret protection, and confidentiality agreements to protect the intellectual property related to Mytesi, our current prescription drug product candidates, non-prescription products and our development programs. ​ If the breadth or strength of protection provided by any patents, patent applications or future patents we may own, license, or pursue with respect to any of our current or future product candidates or products is threatened, it could threaten our ability to commercialize any of our current or future human or animal product candidates or products. Further, if we encounter delays in our development efforts, the period of time during which we could market any of our current or future product candidates or products under any patent protection we obtain would be reduced. ​ 58 Table of Contents Given the amount of time required for the development, testing and regulatory review of new product candidates or products, patents protecting such candidates might expire before or shortly after such product candidates or products are commercialized. The United States Patent and Trademark Office has issued a patent term extension certificate extending the term of US 7,341,744 by 1075 days under 35 USC 156. With respect to requests for patent term extensions, the applicable authorities, including the USPTO and the FDA, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to patents, or may grant more limited extensions than requested. If this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case. ​ Even where laws provide protection or we are able to obtain patents, costly and time-consuming litigation may be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against us, and some of our competitors have substantially greater intellectual property portfolios than we have. To counter infringement or unauthorized use of any patents we may obtain, we may be required to file infringement claims, which can be expensive and time-consuming to litigate. In addition, if we or one of our future collaborators were to initiate legal proceedings against a third party to enforce a patent covering one of our products, current product candidates, or one of our future products, the defendant could counterclaim that the patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace and challenges to validity of patents in certain foreign jurisdictions is common as well. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. Under the Hatch-Waxman Act, a competitor seeking to market a generic form of Mytesi before the expiration of any of the patents listed in the FDA’s Orange Book for Mytesi could file an ANDA with a certification under 21 U.S.C. § 3559(j)(2)(A)(iv) that each of these patents (except for those which the ANDA filer states it will market only after its expiration) is either invalid, unenforceable or not infringed. We may assert the patents in Hatch-Waxman litigation against the party filing the ANDA to keep the competing product off of the market until the patents expire but there is a risk that we will not succeed. The party filing the ANDA may also counterclaim in the litigation that our patents are not valid or unenforceable, and the court may find one or more claims of our patents invalid or unenforceable. If this occurs, a competing generic product could be marketed prior to expiration of our patents listed in the Orange Book, which would harm our business. ​ Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as ex parte reexaminations, inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future patent protection on one or more of our products or our current or future product candidates. Such a loss of patent protection could harm our business. We cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution or other basis for a finding of invalidity. Litigation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be unsuccessful, it could have an adverse effect on the price of our common stock. Finally, we may not be able to prevent, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States. ​ ​ 59 Table of Contents If we are unable to prevent disclosure of our trade secrets or other confidential information to third parties, our competitive position may be impaired. ​ We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or for which we have not filed patent applications, processes for which patents are difficult to enforce and other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or had access to our proprietary information, or that our agreements will not be breached. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. If we are unable to prevent disclosure of our intellectual property to third parties, we may not be able to maintain a competitive advantage in our market, which would harm our business. ​ Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, and erode our competitive position in our market. ​ Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products. ​ As is the case with other human or animal pharmaceutical product companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the human and animal health industries involves both technological and legal complexity. Therefore, obtaining and enforcing patents is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and implemented wide-ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have or that we might obtain in the future. ​ We may not be able to protect our intellectual property rights throughout the world, which could impair our business. ​ Filing, prosecuting and defending patents on human and animal drug products, product candidates and non-prescription products throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. ​ Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to animal health products, which could make it difficult for us to stop the infringement of our future patents, if any, or patents we have in licensed, or marketing of competing products in violation of our proprietary rights generally. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. Proceedings to enforce our future patent rights, if any, in foreign 60 Table of Contents jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. ​ Our business could be harmed if we fail to obtain certain registered trademarks in the United States or in other countries. ​ Our registered and pending U.S. trademarks include MYTESI®, JAGUAR HEALTH®, the Jaguar Health Logo®, NAPO®, Napo Logo®, Napo Therapeutics, CANALEVIA, CANALEVIA-CA1, CANALEVIA-CA2, EQUILEVIA, NEONORM®, JAGUAR ANIMAL HEALTH®, and the Jaguar Animal Health Logo®. We also own registered and pending applications for the CANALEVIA mark in a number of foreign countries. During trademark registration proceedings, we may receive rejections of our trademark applications. If so, we will have an opportunity to respond, but we may be unable to overcome such rejections. In addition, the USPTO and comparable agencies in many foreign jurisdictions may permit third parties to oppose pending trademark applications and to seek to cancel registered trademarks. If opposition or cancellation proceedings are filed against any of our trademark applications or any registered trademarks, our trademarks may not survive such proceedings. Moreover, any name we propose to use with our prescription drug product candidates in the United States, including CANALEVIA and CANALEVIA-CA1, must be approved by the FDA, regardless of whether we have registered or applied to register as a trademark. The FDA typically conducts a review of proposed prescription drug product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. ​ We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties. ​ We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology, pharmaceutical or animal health companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against any such claims. Even if we were successful in defending against any such claims, such litigation could result in substantial cost and be a distraction to our management and employees. ​ Even if we receive any of the required regulatory approvals for our current or future prescription drug product candidates and non-prescription products, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense and delays. ​ If the FDA or any other regulatory body approves any of our current or future prescription drug product candidates, or if necessary, our non-prescription products, the manufacturing processes, clinical development, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product may be subject to extensive and ongoing regulatory requirements. These requirements could include, but are not limited to, submissions of efficacy and safety and other post-marketing information and reports, establishment registration, and product listing, compliance with new rules promulgated under the FSMA, as well as continued compliance with cGMPs, GLPs and GCPs for any studies that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our contract manufacturers or manufacturing processes, or failure to comply with regulatory requirements, are reportable events to the FDA and may result in, among other things: ​ ● restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, revised labeling, or voluntary or involuntary product recalls; ​ ● additional clinical studies, fines, warning letters or holds on target animal studies; ​ ● refusal by the FDA, or other regulators to approve pending applications or supplements to approved applications filed by us or our strategic collaborators related to the unknown problems, or suspension or 61 Table of Contents revocation of the problematic product’s license approvals; ​ ● product seizure or detention, or refusal to permit the import or export of products; and ​ ● injunctions and/or the imposition of civil or criminal penalties. ​ The FDA or other regulatory agency’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates or require certain changes to the labeling or additional clinical work concerning safety and efficacy of the product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would harm our business. In addition, failure to comply with these regulatory requirements could result in significant penalties and delays. ​ In addition, from time to time, we may enter into consulting and other financial arrangements with physicians or veterinarians, who prescribe or recommend our products, once approved. As a result, we may be subject to state, federal and foreign healthcare and/or veterinary medicine laws. If our financial relationships with veterinarians are found to be in violation of such laws that apply to us, we may be subject to penalties. ​ Further, our commercial supply is regulated by the FDA, which requires regular filings, annual reports, and may include modifications by the Company to our approvals. Failure to gain agreement from the FDA on a timely basis could adversely affect our commercial supply of product. ​ Lastly, if we obtain conditional approval for our current or future drug product candidates, this conditional approval is renewable annually for five years and may be withdrawn or terminated under certain circumstances either during or at the end of the five-year period. For example, even though we have obtained conditional approval for Canalevia-CA1, if we do not undertake substantial efforts to do additional clinical research each year for the next five years, the FDA could terminate such conditional approval by refusing to renew the conditional approval. ​ Any of our current or future prescription drug product candidates or non-prescription products may cause or contribute to adverse medical events that we would be required to report to regulatory authorities and, if we fail to do so, we could be subject to sanctions that would harm our business. ​ If we are successful in commercializing any of our current or future prescription drug product candidates or non-prescription products, certain regulatory authorities will require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if such event is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the regulatory authorities could take action including, but not limited to, criminal prosecution, seizure of our products, facility inspections, removal of our products from the market, recalls of certain lots or batches, or cause a delay in approval or clearance of future products. ​ ​ 62 Table of Contents Legislative or regulatory reforms with respect to animal health may make it more difficult and costly for us to obtain regulatory clearance or approval of any of our current or future product candidates and to produce, market, and distribute our products after clearance or approval is obtained. ​ From time to time, legislation is drafted and introduced in the U.S. Congress or other jurisdictions in which we intend to operate that could significantly change the statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition, the FDA’s regulations and guidance are often revised or reinterpreted by the FDA and such other regulators in ways that may significantly affect our business and our products and product candidates. Similar changes in laws or regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing regulations in the United States or in other countries may impose additional costs or lengthen review times of any of our current or future products and product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require: ​ ● changes to manufacturing methods; ​ ● additional clinical trials or testing; ​ ● new requirements related to approval to enter the market; ​ ● recall, replacement, or discontinuance of certain products; and ​ ● additional record keeping or the development of certain regulatory required hazard identification plans. ​ Each of these would likely entail substantial time and cost and could harm our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition, and results of operations. ​ We believe that our non-prescription products are not subject to regulation by regulatory agencies in the United States, but there is a risk that regulatory bodies may disagree with our interpretation, or may redefine the scope of their regulatory reach in the future, which would result in additional expense and could delay or prevent the commercialization of these products. ​ The FDA retains jurisdiction over all animal prescription drug products however, in many instances, the Federal Trade Commission will exercise primary or concurrent jurisdiction with FDA on non-prescription products as to post marketing claims made regarding the product. On April 22, 1996, the FDA published a statement in the Federal Register, 61 FR 17706, that it believes that the Dietary Supplement and Health Education Act (“DSHEA”), does not apply to animal health supplement products, such as our non-prescription products. Accordingly, the FDA’s Center for Veterinary Medicine only regulates those animal supplements that fall within the FDA’s definition of an animal drug, animal food or animal feed additive. The Federal Food Drug and Cosmetic Act defines food as “articles used for food or drink for man or other animals and articles used as components of any such article.” Animal foods are not subject to pre-market approval and are designed to provide a nutritive purpose to the animals that receive them. Feed additives are defined as those articles that are added to an animal’s feed or water as illustrated by the guidance documents. Our non-prescription products are not added to food, are not ingredients in food nor are they added to any animal’s drinking water. Therefore, our non-prescription products do not fall within the definition of a food or feed additive. In light of the pronouncement by the FDA that the DSHEA was not intended to apply to animals, the FDA seeks to regulate such supplements as food or food additives depending on the intended use of the product. The intended use is demonstrated by how the article is included in a food, or added to the animals’ intake (i.e., through its drinking water). If the intended use of the product does not fall within the proscribed use making the product a food, it cannot be regulated as a food. There is no intent to make our non-prescription products a component of an animal food, either directly or indirectly. A feed additive is a product that is added to a feed for any reason including the top dressing of an already prepared feed. Some additives, such as certain forage, are deemed to be Generally Recognized as Safe, or GRAS, and therefore, not subject to a feed Additive Petition approval prior to use. However, the 63 Table of Contents substances deemed GRAS are generally those that are recognized as providing nutrients as a food does. We do not believe that our non-prescription products fit within this framework either. Finally, a new animal drug refers to drugs intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in animals. Our non-prescription Neonorm Foal and Neonorm Calf products are not intended to diagnose, cure, mitigate, treat or prevent disease and therefore, do not fit within the definition of an animal drug. Additionally, because a previously marketed human formulation of the botanical extract in our non-prescription products was regulated as a human dietary supplement subject to the DSHEA (and not regulated as a drug by the FDA), we do not believe that the FDA would regulate the animal formulation used in our non-prescription products in a different manner. We do not believe that our non-prescription products fit the definition of an animal drug, food or food additive and therefore are not regulated by the FDA at this time. ​ However, despite many such unregulated animal supplements currently on the market, the FDA may choose in the future to exercise jurisdiction over animal supplement products in which case, we may be subject to unknown regulations thereby inhibiting our ability to launch or to continue marketing our non-prescription products. In the past, the FDA has redefined or attempted to redefine some non-prescription non-feed products as falling within the definition of drug, feed or feed additive and therefore subjected those products to the relevant regulations. We have not discussed with the FDA its belief that the FDA currently does not exercise jurisdiction over our non-prescription products. Should the FDA assert regulatory authority over our non-prescription products, we would take commercially reasonable steps to address the FDA’s concerns, potentially including but not limited to, seeking registration for such products, reformulating such products to further distance such products from regulatory control, or ceasing sale of such products. Further, the Animal and Plant Health Inspection Service, an agency of the USDA, may at some point choose to exercise jurisdiction over certain non-prescription products that are not intended for production animals. We do not believe we are currently subject to such regulation, but could be in the future. If the FDA or other regulatory agencies, such as the USDA, try to regulate our non-prescription products, we could be required to seek regulatory approval for our non-prescription products, which would result in additional expense and could delay or prevent the commercialization of these products. ​ Even if we receive the required regulatory approvals for our current or future prescription drug product candidates and non-prescription products, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. ​ If the FDA or any other regulatory body approves any of our current or future prescription drug product candidates, or if necessary, our non-prescription products, the manufacturing processes, clinical development, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product is subject to extensive and ongoing regulatory requirements. These requirements could include, but are not limited to, submissions of efficacy and safety and other post-marketing information and reports, establishment registration, and product listing, compliance with new rules promulgated under the FSMA, as well as continued compliance with cGMPs, GLPs and GCPs for any studies that Napo conducts post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our contract manufacturers or manufacturing processes, or failure to comply with regulatory requirements, are reportable events to the FDA and may result in, among other things: ​ ● restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, revised labeling, or voluntary or involuntary product recalls; ​ ● additional clinical studies fines, warning letters or holds on studies; ​ ● refusal by the FDA, or other regulators to approve pending applications or supplements to approved applications filed by Napo or Napo’s strategic collaborators related to the unknown problems, or suspension or revocation of the problematic product’s license approvals; ​ ● product seizure or detention, or refusal to permit the import or export of products; and ​ ● injunctions or the imposition of civil or criminal penalties. 64 Table of Contents ​ The FDA or other regulatory agency’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates or require certain changes to the labeling or require additional clinical work concerning safety and efficacy of the product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would harm our business. In addition, failure to comply with these regulatory requirements could result in significant penalties. ​ In addition, from time to time, we may enter into consulting and other financial arrangements with physicians, who prescribe or recommend our products, once approved. As a result, we may be subject to state, federal and foreign healthcare laws, including but not limited to anti-kickback laws. If our financial relationships with physicians or veterinarians are found to be in violation of such laws that apply to us, we may be subject to penalties. ​ Risks Related to Our Common Stock ​ Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our common stock. ​ If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market, such as the minimum closing bid price requirement, Nasdaq may take steps to delist our common stock. The closing bid price for our common stock must remain at or above $1.00 per share to comply with Nasdaq’s minimum bid requirement for continued listing. If the closing bid price for our common stock is less than $1.00 per share for 30 consecutive business days, Nasdaq may send us a notice stating that we will be provided a period of 180 days to regain compliance with the minimum bid requirement or else Nasdaq may make a determination to delist our common stock. Our common stock traded for less than $1.00 for 30 consecutive trading days, and we received notice of this from the Listing Qualifications Staff of The Nasdaq Stock Market LLC on February 17, 2022. Under Nasdaq Listing Rule 5810(c)(3)(A), the Company has been granted a 180 calendar day grace period, or until August 16, 2022, to regain compliance with the minimum bid price requirement. The minimum bid price requirement will be met if our common stock has a minimum closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days during the 180 calendar day grace period. We are diligently working to evidence compliance with the minimum bid requirement for continued listing on Nasdaq; however, there can be no assurance that we will be able to regain compliance or that Nasdaq will grant us a further extension of time to regain compliance, if necessary. ​ The Company may be eligible for additional time to comply if it does not achieve compliance with the minimum bid price requirement by August 16, 2022. In order to be eligible for consideration for such additional time, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the minimum bid price requirement, and must notify Nasdaq in writing of its intention to cure the deficiency during the second compliance period. ​ The delisting of our common stock from Nasdaq may make it more difficult for us to raise capital on favorable terms in the future. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. Further, if we were to be delisted from The Nasdaq Capital Market, our common stock would cease to be recognized as covered securities and we would be subject to regulation in each state in which we offer our securities. Moreover, there is no assurance that any actions that we take to restore our compliance with the Nasdaq minimum bid requirement would stabilize the market price or improve the liquidity of our common stock, prevent our common stock from falling below the Nasdaq minimum bid price required for continued listing again or prevent future non-compliance with Nasdaq’s listing requirements. ​ ​ 65 Table of Contents If we issue all shares available for issuance pursuant to the ATM Agreement, we will have no shares of common stock available for new securities issuances, which may restrict us from accessing additional capital through the sale of new securities. ​ Our Third Amended and Restated Certificate of Incorporation, as amended, authorizes us to issue up to 150,000,000 shares of voting common stock, 77,053,990 of which are issued and outstanding and 6,634,077 of which are reserved for issuance upon exercise of options, warrants, vesting of RSUs, and shares to consultants as of March 10, 2022. Accordingly, assuming the sale by us under our ATM Agreement at a price of $0.72 per share, which was the closing price of our Common Stock on The Nasdaq Capital Market on January 28, 2022, the maximum amount of shares that we could issue in this offering pursuant to the ATM Agreement without exceeding our total authorized but unissued shares is approximately $68.1 million. If we were to issue the maximum amount of shares in this offering pursuant to the ATM Agreement, we will have no shares of voting common stock available for additional issuances. Our failure to increase our authorized shares may restrict our ability to access additional capital through the sale of new securities, which may harm our financial position and business prospects. ​ If our shares become subject to the penny stock rules, it would become more difficult to trade our shares. ​ The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on The Nasdaq Capital Market and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares. ​ The price of our common stock could be subject to volatility related or unrelated to our operations, and purchasers of our common stock could incur substantial losses. ​ We have experienced and may continue to experience significant volatility in the price of our common stock. From January 29, 2021 through January 28, 2022, the share price of our common stock ranged from a high of $10.74 to a low of $0.70. The reason for the volatility in our stock is not well understood and may continue. Factors that may have contributed to such volatility include, but are not limited to, those discussed previously in this “Risk Factors” section of this report and others, such as: ​ ● delays in the commercialization of Mytesi, Neonorm, Canalevia-CA1, Equilevia or our other current or future prescription drug product candidates and non-prescription products; ​ ● any delays in, or suspension or failure of, our current and future studies; ​ ● announcements of regulatory approval or disapproval of any of our current or future product candidates or of regulatory actions affecting our company or our industry; ​ ● manufacturing and supply issues that affect product candidate or product supply for our studies or commercialization efforts; ​ ● quarterly variations in our results of operations or those of our competitors; ​ 66 Table of Contents ● changes in our earnings estimates or recommendations by securities analysts; ​ ● the payment of licensing fees or royalties in shares of our common stock; ​ ● announcements by us or our competitors of new prescription drug products or product candidates or non-prescription products, significant contracts, commercial relationships, acquisitions or capital commitments; ​ ● announcements relating to future development or license agreements including termination of such agreements; ​ ● adverse developments with respect to our intellectual property rights or those of our principal collaborators; ​ ● commencement of litigation involving us or our competitors; ​ ● any major changes in our board of directors or management; ​ ● new legislation in the United States relating to the prescription, sale, distribution or pricing of gastrointestinal health products; ​ ● product liability claims, other litigation or public concern about the safety of our prescription drug product or product candidates and non-prescription products or any such future products; ​ ● market conditions in the human or animal industry, in general, or in the gastrointestinal health sector, in particular, including performance of our competitors; ​ ● future issuances of shares of common stock or other securities; ​ ● uncertainties related to COVID-19; ​ ● general economic conditions in the United States and abroad; and ​ ● market speculation regarding ​ In addition, the stock market, in general, or the market for stocks in our industry, in particular, may experience broad market fluctuations, which may adversely affect the market price or liquidity of our common stock. Any sudden decline in the market price of our common stock could trigger securities class-action lawsuits against us. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the time and attention of our management would be diverted from our business and operations. We also could be subject to damages claims if we were found to be at fault in connection with a decline in our stock price. ​ A possible “short squeeze” due to a sudden increase in demand of our common stock that largely exceeds supply may lead to further price volatility in our common stock. ​ Investors may purchase shares of our common stock to hedge existing exposure in our common stock or to speculate on the price of our common stock. Speculation on the price of our common stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of our common stock available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our common stock for delivery to lenders of our common stock. Those repurchases may in turn, dramatically increase the price of our common stock until investors with short exposure are able to purchase additional shares of common stock to cover their short position. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in shares of our common stock that are not directly correlated to the performance or prospects of our 67 Table of Contents company and once investors purchase the shares necessary to cover their short position the price of our common stock may decline. ​ You may not be able to resell our common stock when you wish to sell them or at a price that you consider attractive or satisfactory. ​ The listing of our common stock on The Nasdaq Capital Market does not assure that a meaningful, consistent and liquid trading market exists. Although our common stock is listed on The Nasdaq Capital Market, trading volume in our common stock has been limited and an active trading market for our shares may never develop or be sustained. If an active market for our common stock does not develop, you may be unable to sell your shares when you wish to sell them or at a price that you consider attractive or satisfactory. The lack of an active market may also adversely affect our ability to raise capital by selling securities in the future, or impair our ability to license or acquire other product candidates, businesses or technologies using our shares as consideration. ​ If securities or industry analysts do not publish research or reports about our company, or if they issue adverse or misleading opinions regarding us or our stock, our stock price and trading volume could decline. ​ The trading market for our common stock depends in part on the research and reports that industry or financial analysts publish about us or our business. We do not influence or control the reporting of these analysts. If one or more of the analysts who do cover us downgrade or provide a negative outlook on our company or our industry, or the stock of any of our competitors, the price of our common stock could decline. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause the price of our common stock to decline. ​ You may be diluted by conversions of outstanding shares of non-voting common stock, exercises of outstanding options and warrants and issuances of securities pursuant to our ATM Agreement. ​ As of March 10, 2022, we had (i) outstanding options to purchase an aggregate of 2,327,368 shares of our common stock at a weighted average exercise price of $9.83 per share, (ii) outstanding options to purchase an aggregate of 127,949 shares of our common stock issuable upon exercise of outstanding inducement options, with a weighted-average exercise price of $4.42 per share, (iii) 563,108 shares of our common stock issuable upon exercise of warrants outstanding, with weighted-average exercise price of $7.17, (iv) 465,194 shares of our common stock issuable upon vesting of outstanding RSUs, (v) 38,333 shares of our common stock issuable to third parties upon exercise of those shares, and (vi) 673 shares of our non-voting common stock issuable at an equivalent share of voting common stock. The exercise of such options, warrants, vesting of RSUs, and conversion of the non-voting common stock will result in further dilution of your investment. ​ In addition, you may experience further dilution if we issue common stock in the future, including common stock issued pursuant to our existing At The Market Offering Agreement (the “ATM Agreement”). Pursuant to the ATM Agreement with Ladenburg Thalmann & Co. Inc. (“Ladenburg”), we may offer and sell up to $75.0 million of our common stock from time to time through Ladenburg as our sales agent. During the year ended December 31, 2021, we sold 2,261,596 shares of common stock pursuant to the ATM Agreement for gross proceeds of $3.5 million. ​ As a result of this dilution, you may receive significantly less in net tangible book value than the full purchase price you paid for the shares in the event of liquidation. ​ ​ 68 Table of Contents Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management. ​ Our third amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions to include the following: ​ ● a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; ​ ● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ​ ● the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ​ ● the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could adversely affect the rights of our common stockholders or be used to deter a possible acquisition of our company; ​ ● the ability of our board of directors to alter our bylaws without obtaining stockholder approval; ​ ● the required approval of the holders of at least 75% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our third amended and restated certificate of incorporation regarding the election and removal of directors; ​ ● a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; ​ ● the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and ​ ● advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. ​ These provisions could inhibit or prevent possible transactions that some stockholders may consider attractive. ​ We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation generally may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction. ​ ​ 69 Table of Contents Our amended and restated bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees. ​ Our amended and restated bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, (iv) any action asserting a claim that is governed by the internal affairs doctrine or (v) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our amended and restated bylaws. This choice-of-forum provision may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our amended and restated bylaws inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could harm our business and financial condition. ​ We do not intend to pay dividends on our common stock, and your ability to achieve a return on your investment will depend on appreciation in the market price of our common stock. ​ We currently intend to invest our future earnings, if any, to fund our growth and not to pay any cash dividends on our common stock. Because we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market price of our common stock. We cannot be certain that our common stock will appreciate in price. ​ The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner. ​ Our initial public offering had a significant, transformative effect on us. Prior to our initial public offering, our business operated as a privately-held company, and we were not required to comply with public reporting, corporate governance and financial accounting practices and policies required of a publicly-traded company. As a publicly-traded company, we incur significant additional legal, accounting and other expenses compared to historical levels. In addition, new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations thereunder, as well as under the Sarbanes-Oxley Act, the JOBS Act and the rules and regulations of the SEC and The Nasdaq Capital Market, may result in an increase in our costs and the time that our board of directors and management must devote to our compliance with these rules and regulations. These rules and regulations have substantially increased our legal and financial compliance costs and diverted management time and attention from our product development and other business activities. ​ The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act, or Section 404, requires us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. We have needed to expend time and resources on documenting our internal control over financial reporting so that we are in a position to perform such evaluation when required. As a smaller reporting company (“SRC”), we expect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an SRC. When our independent registered 70 Table of Contents public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 requires that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. ​ We are a smaller reporting company and the reduced reporting requirements applicable to smaller reporting companies may make our common stock less attractive to investors. ​ We are a smaller reporting company (“SRC”) and a non-accelerated filer, which allows us to take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not SRCs or non-accelerated filers, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, reduced disclosure obligations regarding executive compensation in our Annual Report and our periodic reports and proxy statements and providing only two years of audited financial statements in our Annual Report and our periodic reports. We will remain an SRC so long as (a) the aggregate market value of our outstanding common stock held by non-affiliates as of the last business day our most recently completed second fiscal quarter is less than $250 million or (b) (1) we have less than $100 million in annual revenues and (2) the aggregate market value of our outstanding common stock held by non-affiliates as of the last business day our most recently completed second fiscal quarter is less than $700 million. We cannot predict whether investors will find our common stock less attractive if we rely on certain or all of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and may decline. ​ ​ ITEM 1B. UNRESOLVED STAFF COMMENTS None. ​ ITEM 2. PROPERTIES Our corporate headquarters are located at 200 Pine Street, Suite 400, San Francisco, California. ​ ITEM 3. LEGAL PROCEEDINGS May 2020 Letter from the Committee on Oversight and Reform of the U.S. House of Representatives ​ On May 4, 2020, Jaguar Health, Inc. received a letter from the Committee on Oversight and Reform of the U.S. House of Representatives (the “Committee”) regarding the list price adjustment of Mytesi. Among other things, the Committee expressed an interest in understanding whether the price adjustment was connected to the Company’s expectation that it could market crofelemer to treat coronavirus patients given the Company’s submission of a request to the U.S. Food and Drug Administration for Emergency Use Authorization (“EUA”) for crofelemer for the symptomatic relief of diarrhea and other gastrointestinal symptoms in patients with COVID-19 and for patients with COVID-19 who have diarrhea associated with certain antiviral treatments, which submission was denied by the FDA on April 7, 2020 as previously disclosed. ​ The Company has cooperated with the Committee’s inquiry and has prepared a public statement regarding the price adjustment, which is available on the Company’s website at https://jaguarhealth.gcs-web.com/company-statement. In its statement, the Company explains that the decision to adjust the price for crofelemer was made in December 2019 as part of expanding the Company’s comprehensive patient access program, and had the Company received EUA, it would have deferred the price adjustment until after the emergency use period ended. 71 Table of Contents ​ July 2017 Complaint Relating to the Merger ​ On July 20, 2017, a putative class action complaint was filed in the United States District Court, Northern District of California, Civil Action No. 3:17 cv 04102, by Tony Plant (the “Plaintiff”) on behalf of shareholders of the Company who held shares on April 12, 2017 and were entitled to vote at the 2017 Special Shareholders Meeting, against the Company and certain individuals who were directors as of the date of the vote (collectively, the “Defendants”), in a matter captioned Tony Plant v. Jaguar Animal Health, Inc., et al. (Jaguar Health, Inc. was formerly known as Jaguar Animal Health, Inc.), making claims arising under Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a 9, 17 C.F.R. § 240.14a 9, promulgated thereunder by the SEC. The claims alleged false and misleading information provided to investors in the Joint Proxy Statement/Prospectus on Form S 4 (File No. 333 217364) declared effective by the Commission on July 6, 2017 related to the solicitation of votes from shareholders to approve the merger and certain transactions related thereto. ​ Following the completion of document discovery, the parties engaged in a mediation that resulted in an agreement in principle to settle the litigation on a class-wide basis for $2.6 million, subject to court approval. ​ On May 27, 2021, the court gave the final approval to the proposed settlement and the entire settlement consideration was provided by the Company’s director and officer liability insurance carrier. Under the loss recovery model in ASC 450 and in reference to ASC 410, the ultimate net income effect of the recognized loss and the insurance proceeds directly related to the recognized loss is zero. ​ As of December 31, 2021 and 2020, the Company concluded not to record any loss contingency and insurance recovery. ​ Other than as described above, there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows. ​ ITEM 4. MINE SAFETY DISCLOSURE Not applicable. ​ 72 Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on The Nasdaq Capital Market under the symbol “JAGX.” Holders As of March 10, 2022 there were approximately 28 stockholders of record of our common stock. These figures do not reflect the beneficial ownership or shares held in nominee name, nor do they include holders of any RSUs. Dividend Policy We have never paid any cash dividends on our common stock to date. We currently anticipate that we will retain all future earnings, if any, to fund the development and growth of our business and do not anticipate paying any cash dividends for at least the next five years, if ever. Recent Sales of Unregistered Securities Other than as provided on our quarterly reports on Form 10-Q filed with the SEC on May 17, 2021, August 13, 2021 and November 17, 2021 and our current reports on Form 8 K filed with the SEC on January 8, 2021, January 22, 2021, March 11, 2021, April 8, 2021, September 17, 2021, there were no unregistered sales of equity securities during the period. The offers, sales, and issuances of the securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 3(a)(9) of the Securities Act, Section 4(a)(2) of the Securities Act, or Regulation D or Regulation S promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us. ​ ​ ​ ITEM 6. SELECTED FINANCIAL DATA Not Applicable. ​ ​ ​ 73 Table of Contents ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this report. Overview Jaguar Health, Inc. (“Jaguar” or the “Company”) is a commercial stage pharmaceuticals company focused on developing novel, plant-based, non-opioid, and sustainably derived prescription medicines for people and animals with GI distress, including chronic, debilitating diarrhea. Jaguar Animal Health is a tradename of Jaguar Health. Our wholly owned subsidiary, Napo Pharmaceuticals, Inc. (“Napo”), focuses on developing and commercializing proprietary plant-based human pharmaceuticals for the global marketplace from plants or plant products used traditionally in rainforest areas. Napo’s marketed drug Mytesi (crofelemer 125 mg delayed-release tablets) is a first-in-class oral botanical drug product approved by the U.S. Food and Drug Administration (“FDA”) for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. To date, this is the only oral plant-based botanical prescription medicine approved under the FDA’s Botanical Guidance. Jaguar Animal Health’s Canalevia-CA1 (crofelemer delayed-release tablets) drug is the first and only oral plant-based prescription product that is FDA conditionally approved to treat chemotherapy-induced diarrhea (CID) in dogs. Canalevia-CA1 is a canine-specific formulation of crofelemer. Napo Therapeutics S.p.A., Napo’s majority owned Italian subsidiary, focuses on expanding crofelemer access in Europe. Jaguar, formerly known as Jaguar Animal Health, Inc., was founded in San Francisco, California as a Delaware corporation on June 6, 2013 (inception). The Company was a majority-owned subsidiary of Napo until the close of the Company's initial public offering on May 18, 2015. The Company was formed to develop and commercialize first-in-class prescription and non-prescription products for companion and production animals and horses. The Company's first non-prescription commercial products, Neonorm Calf and Neonorm Foal, were launched in 2014 and 2016, respectively. On July 31, 2017, Jaguar completed a merger with Napo pursuant to the Agreement and Plan of Merger dated March 31, 2017, by and among Jaguar, Napo, Napo Acquisition Corporation (“Merger Sub”), and Napo's representative (the “Merger Agreement”). In accordance with the terms of the Merger Agreement, upon the completion of the merger, Merger Sub merged with and into Napo, with Napo surviving as the wholly-owned subsidiary (the “Merger” or “Napo Merger”). Immediately following the Merger, Jaguar changed its name from “Jaguar Animal Health, Inc.” to “Jaguar Health, Inc.” Napo now operates as a wholly-owned subsidiary of Jaguar focused on human health including the ongoing development of crofelemer and commercialization of Mytesi. On March 15, 2021, Jaguar established Napo EU S.p.A (which changed its name in December 2021 to “Napo Therapeutics”) based in Milan, Italy as a subsidiary of Napo. Napo Therapeutics’ mission is to provide access to crofelemer in Europe to address significant rare/orphan disease indications, including, initially, two key orphan target indications: Short bowel syndrome with intestinal failure (SBS-IF), and congenital diarrheal disorders (CDD). On November 3, 2021, Napo Therapeutics merged with Dragon SPAC S.p.A. (“Dragon SPAC”). Most of the activities of the Company are focused on the commercialization of Mytesi and Canalevia-CA1 and the ongoing clinical development of crofelemer for the prophylaxis of diarrhea in adult patients receiving targeted cancer therapy. In the field of animal health, we are continuing limited activities related to developing and commercializing first in class gastrointestinal products for dogs, dairy calves, foals, and high value horses. We believe Jaguar is poised to realize a number of synergistic, value adding benefits—an expanded pipeline of potential blockbuster human follow on indications of crofelemer, and a second generation anti secretory agent—upon which to build global partnerships. Jaguar, through Napo, holds global unencumbered rights for crofelemer, Mytesi, and Canalevia-CA1. Additionally, several of the drug product opportunities in Jaguar’s crofelemer pipeline are backed Phase 2 and proof of concept evidence from human clinical trials. 74 Table of Contents Crofelemer is a novel, first in class anti secretory agent which has a normalizing effect on electrolyte and fluid balance while acting locally in the gut, and this mechanism of action has the potential to benefit multiple disorders that cause gastrointestinal distress, including diarrhea and abdominal discomfort. Crofelemer is also in development for possible follow on indications, including prophylaxis for cancer therapy related diarrhea (“CTD”); for rare disease indications for symptomatic treatment of infants and children with congenital diarrheal disorders (“CDD”) and for adult and pediatric patients with short bowel syndrome with intestinal failure (“SBS-IF”). Crofelemer has received orphan drug designation (ODD) for short bowel syndrome (SBS) in the US and in EU. Furthermore, the drug is being evaluated for management of diarrhea and abdominal discomfort in inflammatory bowel disease (“IBD”); diarrhea-predominant irritable bowel syndrome (“IBS-D”); and for idiopathic/functional diarrhea. A second generation proprietary anti secretory agent, NP-300 (lechlemer), is undergoing preclinical development for symptomatic relief and treatment of diarrhea in patients with acute infection from cholera. Financial Operations Overview On a consolidated basis, we have not yet generated enough revenue to date to achieve break even or positive cash flow, and we expect to continue to incur significant research and development and other expenses. Our net loss was $52.6 million and $33.8 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had total stockholders' equity of $11.9 million, an accumulated deficit of $219.5 million, and cash of $17.1 million. We expect to continue to incur losses and experience increased expenditures for the foreseeable future as we expand our product development activities, seek necessary approvals for our product candidates, conduct species-specific formulation studies for our non-prescription products, establish API manufacturing capabilities and begin additional commercialization activities. Revenue Our product and collaboration revenue consists of the following: ● Revenues from the sale of our human drug Mytesi, which is sold through distributors and wholesalers. ● Revenues from the sale of our animal products branded as Neonorm Calf and Neonorm Foal. Our Neonorm and Botanical extract products are primarily sold to distributors, who then sell the products to the end customers. ● Our policy typically permits returns if the product is damaged, defective, or otherwise cannot be used when received by the customer if the product has expired. Returns are accepted for product that will expire within six months or that have expired up to one year after their expiration dates. Estimates for expected returns of expired products are based primarily on an ongoing analysis of our historical return patterns. See “Results of Operations” below for more detailed discussion on revenues Cost of Revenue Cost of revenue consists of direct drug substance and drug product materials expense, direct labor, distribution fees, royalties and other related expenses associated with the sale of our products. ​ 75 Table of Contents Research and Development Expense Research and development expenses consist primarily of clinical and contract manufacturing expense, personnel and related benefit expense, stock-based compensation expense, employee travel expense and reforestation expenses. Clinical and contract manufacturing expense consists primarily of costs to conduct stability, safety and efficacy studies, and manufacturing startup expenses at an outsourced API provider in Italy. It also includes expenses with a third-party provider for the transfer of the Mytesi manufacturing process, and the related feasibility and validation activities. We typically use our employee and infrastructure resources across multiple development programs. We track outsourced development costs by prescription drug product candidate and non-prescription product but do not allocate personnel or other internal costs related to development to specific programs or development compounds. The timing and amount of our research and development expenses will depend largely upon the outcomes of current and future trials for our prescription drug product candidates as well as the related regulatory requirements, the outcomes of current and future species-specific formulation studies for our non-prescription products, manufacturing costs and any costs associated with the advancement of our line extension programs. We cannot determine with certainty the duration and completion costs of the current or future development activities. The duration, costs and timing of trials, formulation studies and development of our prescription drug and non-prescription products will depend on a variety of factors, including: ● the scope, rate of progress, and expense of our ongoing, as well as any additional clinical trials, formulation studies and other research and development activities; ● future clinical trial and formulation study results; ● potential changes in government regulations; and ● the timing and receipt of any regulatory approvals. A change in the outcome of any of these variables with respect to the development of a prescription drug product candidate or non-prescription product could mean a significant change in the costs and timing associated with our development activities. We expect research and development expense to increase due to the start-up costs associated with our clinical trials for other indications. Sales and Marketing Expense Sales and marketing expenses consist of personnel and related benefit expense, stock-based compensation expense, direct sales and marketing expense, employee travel expense, and management consulting expense. We currently incur sales and marketing expenses to promote Mytesi. We do not currently have any marketing or promotional expenses related to Neonorm Calf or Neonorm Foal for the years ended December 31, 2021 and 2020. We expect sales and marketing expense to increase going forward as we focus on expanding our market access activities and commercial partnerships for the development of follow-on indications of Mytesi and crofelemer. General and Administrative Expense General and administrative expenses consist of personnel and related benefit expense, stock-based compensation expense, employee travel expense, legal and accounting fees, rent and facilities expense, and management consulting expense. 76 Table of Contents In the near term, we expect general and administrative expense to remain flat as we focus on our pipeline development and market access expansion. This will include efforts to grow the business. Interest Expense Interest expense consists primarily of non-cash and cash interest costs related to our borrowings. Critical Accounting Policies and Significant Judgments and Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 2 to the consolidated financial statements, appearing elsewhere in this report. ​ 77 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2021 and 2020 The following table summarizes the Company’s results of operations with respect to the items set forth in such table for the years ended December 31, 2021 and 2020 together with the change in such items in dollars and as a percentage. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Variance Variance % Product revenue ​ $ 4,335 ​ $ 9,385 ​ $ (5,050) (53.8) % Total revenue ​ 4,335 ​ 9,385 ​ (5,050) (53.8) % Operating Expenses ​ ​ ​ ​ ​ Cost of product revenue ​ 2,333 ​ 3,280 ​ (947) (28.9) % Research and development ​ 15,079 ​ 6,413 ​ 8,666 135.1 % Sales and marketing ​ 8,894 ​ 6,609 ​ 2,285 34.6 % General and administrative ​ 17,103 ​ 14,387 ​ 2,716 18.9 % Series 3 warrants inducement expense ​ ​ 1,462 ​ ​ 3,696 ​ ​ (2,234) ​ (60.4) % ELOC warrants inducement expense ​ ​ 172 ​ ​ — ​ ​ 172 ​ 100.0 % Series B convertible preferred stock inducement expense ​ — ​ 1,647 ​ (1,647) (100.0) % Total operating expenses ​ 45,043 ​ 36,032 ​ 9,011 25.0 % Loss from operations ​ (40,708) ​ (26,647) ​ (14,061) 52.8 % Interest expense ​ (8,421) ​ (2,792) ​ (5,629) 201.6 % Loss on extinguishment of debt and exchange of Series D perpetual preferred stock ​ (753) ​ (1,864) ​ 1,111 (59.6) % Change in fair value of financial instruments and hybrid instrument designated at Fair Value Option ​ (1,953) ​ (2,696) ​ 743 (27.6) % Other expense, net ​ (765) ​ 190 ​ (955) (502.6) % Loss before income tax ​ (52,600) ​ (33,809) ​ (18,791) 55.6 % Income tax expense ​ ​ — ​ ​ — ​ ​ — ​ 100.0 % Net loss and comprehensive loss ​ ​ (52,600) ​ ​ (33,809) ​ ​ (18,791) ​ 55.6 % Deemed dividend attributable to Series C perpetual preferred stock ​ ​ — ​ ​ (2,521) ​ ​ 2,521 ​ (100) % Deemed dividend attributable to accretion of Series A redeemable convertible preferred stock ​ ​ — ​ ​ (1,332) ​ ​ 1,332 ​ (100) % Deemed dividend attributable to Series 1, Series 2 and Bridge warrant holders ​ ​ — ​ ​ (856) ​ ​ 856 ​ (100) % Stock dividend attributable to Series C perpetual preferred stock ​ ​ — ​ ​ (130) ​ ​ 130 ​ (100) % Adjusted net loss and comprehensive loss ​ $ (52,600) ​ $ (38,648) ​ $ (13,952) ​ 36.1 % Net loss attributable to noncontrolling interest ​ $ (5) ​ $ — ​ $ (5) ​ 100 % Net loss attributable to common shareholders ​ $ (52,595) ​ $ (38,648) ​ $ (13,947) ​ 36.1 % ​ Revenue Product revenue We transitioned from selling to the wholesalers that resell the product to retail pharmacies to the closed Specialty Pharmacy distribution networks throughout the year 2021 and we fully transitioned in the fourth quarter of the same year. The transition caused a one-time inventory draw-down of approximately 1,300 bottles of Mytesi across 78 Table of Contents our third-party logistics warehouse, wholesalers, distributors, and retail stores. This significantly contributed to the decrease of $4.8 million of Mytesi gross revenue for the year 2021 compared to 2020. ​ Medicaid and AIDS Drug Assistance Program (“ADAP”) rebates accounted for $3.5 million and $1.7 million for the year ended December 31, 2021 and 2020, respectively, an increase of $1.7 million primarily due to the WAC increase implemented by the Company in April 2020 which resulted in higher government rebates from Medicaid, ADAP, public health services programs, and includes approximately $800,000 in chargebacks from the State of California. Sales discounts were $6.2 million and $7.0 million for the year ended December 31, 2021 and 2020, respectively, a decrease of $778,000. We expect the wholesaler fees to decline in line with our switch to the closed Specialty Pharmacy distribution network. ​ Due to the Company’s arrangements, including elements of variable consideration, gross product sales are reduced in order to reflect the expected consideration to arrive at net product sales. Deductions to reduce gross product sales to net product sales for the years ended December 31, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ (in thousands) 2021 2020 Variance Variance % Gross product sales ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mytesi ​ $ 15,657 ​ $ 20,434 ​ $ (4,777) (23.4) % Neonorm ​ ​ 62 ​ ​ 77 ​ (15) (19.5) % Total gross product sales ​ ​ 15,719 ​ ​ 20,511 ​ (4,792) (23.4) % Medicaid rebates ​ ​ (3,484) ​ ​ (1,738) ​ (1,746) 100.5 % Sales discounts ​ ​ (6,268) ​ ​ (7,046) ​ ​ 778 ​ (11.0) % Sales returns ​ ​ (104) ​ ​ (273) ​ ​ 169 ​ (61.9) % Wholesaler fee ​ ​ (1,528) ​ ​ (2,069) ​ ​ 541 ​ (26.1) % Net product sales ​ $ 4,335 ​ $ 9,385 ​ $ (5,050) (53.8) % ​ Our gross product revenues were $15.7 million and $20.5 million for the year ended December 31, 2021 and 2020, respectively. These periods reflect revenue from the sale of our human drug Mytesi and our animal products branded as Neonorm Calf and Neonorm Foal. This contributed to the decrease of $4.8 million of Mytesi gross revenue for the year 2021 compared to 2020. ​ Our Neonorm product revenues were $62,000 and $77,000 for the year ended December 31, 2021 and 2020, respectively. Sales and marketing expenses for Neonorm products are not significant during 2021 and none during the same period in 2020. ​ Cost of Product Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ (in thousands) 2021 2020 Variance Variance % Cost of Product Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Material cost $ 998 $ 1,800 $ (802) (44.6) % Direct labor ​ 996 ​ 724 ​ 272 37.6 % Distribution fees ​ 199 ​ 430 ​ (231) (53.7) % Other ​ 140 ​ 326 ​ (186) (57.1) % Total $ 2,333 $ 3,280 $ (947) (28.9) % ​ The change in cost of product revenue of $947,000 for the year ended December 31, 2021 compared to 2020 was primarily due to: ● Material costs decreased $802,000 from $1.8 million for the year ended December 31, 2020 to $998,000 in 2021, largely attributable to lower sales resulting in less cost of materials for bottles sold and to non- 79 Table of Contents recurring write-off of non-conforming inventory in the year ended December 31, 2020. There was no write-off in 2021. ● Distribution fees decreased $231,000 from $430,000 for the year ended December 31, 2020 to $199,000 in 2021 in line with our transition from Title model to Specialty Pharmacy distribution network. ● Other costs decreased $186,000 from $326,000 for the year ended December 31, 2020 to $140,000 in 2021 mainly consisting of $118,000 less in write-offs of non-conforming inventory, and a decrease in equipment maintenance of $9,000 in 2020. ● Direct labor increased $272,000 from $724,000 for the year ended December 31, 2020 to $996,000 in 2021, due to increased resources in manufacturing. Research and Development Expense The following table presents the components of research and development (“R&D”) expense for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ (in thousands) 2021 2020 Variance Variance % Research and Development: ​ ​ ​ ​ Clinical and contract manufacturing ​ $ 6,257 ​ $ 1,674 ​ $ 4,583 273.8 % Personnel and related benefits ​ ​ 3,954 ​ ​ 1,771 ​ ​ 2,183 123.3 % Stock-based compensation ​ 1,319 ​ 749 ​ ​ 570 76.1 % Materials expense and tree planting ​ 361 ​ 94 ​ ​ 267 284.0 % Travel, other expenses ​ 40 ​ 45 ​ ​ (5) (11.1) % Other ​ 3,148 ​ 2,080 ​ ​ 1,068 51.3 % Total ​ $ 15,079 ​ $ 6,413 ​ $ 8,666 135.1 % ​ The change in R&D expense of $8.7 million for the year ended December 31, 2021 compared to 2020 was primarily due to: ● Clinical and contract manufacturing expenses increased $4.6 million from $1.7 million for the year ended December 31, 2020 to $6.3 million in 2021 largely due to increased clinical trial activities related to the start-up of CTD and other indications, additional CMC manufacturing, consulting and contractors’ expenses, and cholera/lechlemer research expenses. ● Personnel and related benefits increased $2.2 million from $1.8 million for the year ended December 31, 2020 to $4.0 million in 2021 due to increased resources, salary increases in April 2021 and an increase in bonus. ● Other expenses increased $1.1 million from $2.1 million for the year ended December 31, 2020 to $3.1 million in 2021 mainly consisting of consulting, formulation and regulatory fees. Consulting expenses increased due to increase in clinical trial consultants while direct R&D testing costs also increased due to an increase in R&D work. ● Stock-based compensation increased $570,000 from $749,000 for the year ended December 31, 2020 to $1.3 million in 2021 primarily due to new options granted in April 2021. ● Material expense and tree planting increased $267,000 from $94,000 for the year ended December 31, 2020 to $361,000 in 2021 due to increased clinical trials. 80 Table of Contents Sales and Marketing Expense The following table presents the components of sales and marketing (“S&M”) expense for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ (in thousands) 2021 2020 Variance Variance % Sales and Marketing: ​ ​ ​ ​ Personnel and related benefits ​ $ 3,916 ​ $ 3,323 ​ $ 593 17.8 % Direct marketing fees and expense ​ ​ 3,415 ​ ​ 2,187 ​ ​ 1,228 56.1 % Stock-based compensation ​ 319 ​ 220 ​ 99 45.0 % Other ​ 1,244 ​ 879 ​ 365 41.5 % Total ​ $ 8,894 ​ $ 6,609 ​ $ 2,285 34.6 % ​ The change in S&M expense of $2.3 million for the year ended December 31, 2021 compared to 2020 was primarily due to: ● Direct marketing fees and expense increased $1.2 million from $2.2 million for the year ended December 31, 2020 to $3.4 million in 2021 due to an increase in marketing programs for Mytesi related to the expanding market access through specialty pharmacy channels. ● Personnel and related benefits increased $593,000 from $3.3 million for the year ended December 31, 2020 to $3.9 million in 2021 due to the addition of four new personnel within Commercial Operations, increase in bonus, and salary increases in April 2021. ● Other expenses increased $365,000 from $879,000 for the year ended December 31, 2020 to $1.2 million in 2021 largely due to additional marketing consulting costs. General and Administrative Expense The following table presents the components of general and administrative (“G&A”) expense for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ (in thousands) 2021 2020 Variance Variance % General and Administrative: ​ ​ ​ ​ Personnel and related benefits ​ $ 3,390 ​ $ 1,845 ​ $ 1,545 83.7 % Stock-based compensation ​ 2,336 ​ 1,855 ​ 481 25.9 % Legal services ​ 2,303 ​ 2,449 ​ (146) (6.0) % Public company expense ​ 2,270 ​ 1,179 ​ 1,091 92.5 % Audit, tax and accounting services ​ 982 ​ 706 ​ 276 39.1 % Third-party consulting services ​ 859 ​ 845 ​ 14 1.7 % Rent and lease expense ​ 282 ​ 690 ​ (408) (59.1) % Travel, other expenses ​ 197 ​ 38 ​ 159 418.4 % Other ​ 4,484 ​ 4,780 ​ (296) (6.2) % Total ​ $ 17,103 ​ $ 14,387 ​ $ 2,716 18.9 % ​ The change in G&A expenses of $2.7 million for the year ended December 31, 2021 compared to 2020 was due primarily to: ● Personnel and related benefits increased $1.5 million from $1.8 million for the year ended December 31, 2020 to $3.4 million in 2021 due to new hires and increase in bonus. 81 Table of Contents ● Public company expenses increased $1.1 million from $1.2 million for the year ended December 31, 2020 to $2.3 million in 2021 largely attributable to the investor relations and communications consulting expenses, and expenses for the annual shareholder meeting. ● Stock-based compensation expense increased $481,000 from $1.9 million for the year ended December 31, 2020 to $2.3 million in 2021 primarily due to higher expense incurred for options granted with immediate vesting to existing employees. ● Audit, tax and accounting services fees increased $276,000 from $706,000 for the year ended December 31, 2020 to $982,000 in 2021, mostly due to the increased audit fees related to complex debt and equity transactions. ● Travel, other expenses increased $159,000 from $38,000 for the year ended December 31, 2020 to $197,000 in 2021 due to other corporate and investor relations activities. ● Rent and lease expense decreased $408,000 from $690,000 for the year ended December 31, 2020 to $282,000 in 2021 as a result of the transfer to a lower-cost facility and the occupancy of less space. ● Other general and administrative expenses decreased $296,000 from $4.8 million for the year ended December 31, 2020 to $4.5 million in 2021 largely due to decreased consulting expenses in 2021. There was a non-recurring charge of $1.0 million for the Atlas trial delay penalty incurred in the year ended December 31, 2020. ● Legal services decreased $146,000 from $2.4 million for the year ended December 31, 2020 to $2.3 million in 2021 primarily due to a decrease in fees related to legal proceedings and other regulatory filings. Series 3 Warrants Inducement Expense The decrease in the Series 3 Warrants inducement expense of $2.2 million is due to the following: ● In January 2021, the Company issued 135,416 Series 3 Warrants to a certain investor for the exercise of 135,416 Bridge Note Warrants in accordance with the May 2020 Modification of the 2019 Bridge Note Warrants and Inducement Offer. These Series 3 Warrants were valued at $1.5 million using the Black-Scholes-Merton option pricing model on the issuance date. ● In May 2020, concurrent with the May 2020 modification of the exercise price of the Series 1, Series 2 and Bridge Warrants and inducement offer, the Company issued unregistered Series 3 warrants to purchase 2,890,284 shares of common stock. These Series 3 warrants were valued at $3.7 million using the Black-Scholes-Merton option pricing model on the issuance date. ELOC Warrants Inducement Expense In April 2021, in consideration for Oasis Capital’s entry into the amendment to the March 2020 Equity Line of Credit, the Company issued Oasis Capital a common stock purchase warrant exercisable for 33,333 shares of common stock with an exercise price per share equal to $5.61 on the date of the amendment. These warrants were valued at $172,000 on the issuance date. Series B Convertible Preferred Stock Inducement Expense On March 24, 2020, the Company entered into a Warrant Exercise and Preferred Stock Amendment Agreement with a holder of its Series 2 warrants previously issued in the Company’s registered public offering on July 23, 2019, pursuant to which the holder agreed to exercise in cash its warrants to purchase an aggregate of 416,666 82 Table of Contents shares of common stock, at a reduced exercise price of $1.57 per share for gross proceeds to the Company of approximately $653,000. As a further inducement to enter into the Amendment Agreement, the Company agreed to reduce the conversion price of the Company’s Series B Convertible Preferred Stock from $6.00 to $1.34. The modification of the conversion price of the Series B Convertible Preferred shares was qualitatively considered an extinguishment and the Company followed the guidance in ASC 260-10-S99-2 and recorded an expense of $1.6 million and derecognizing the Series B Convertible Preferred shares. ​ Interest Expense, net Interest expense increased $5.6 million from $2.8 million for the year ended December 31, 2020 to $8.4 million in 2021 primarily due to additional interest expense incurred on royalty interest agreements. Loss on Extinguishment of Debt and Exchange of Series D Perpetual Preferred Stock The loss on extinguishment of debt and conversion of Series D Perpetual Preferred Stock decreased $1.1 million from $1.9 million for the year ended December 31, 2020 to $753,000 in 2021 is due to the following: ● During 2020, the Company recorded a $560,000 extinguishment loss from exchanges of the outstanding Exchange Note 1 for shares of the Company’s common stock; and ● In December 2020, the Company recorded a $1.3 million loss from exchanges of Series D Perpetual Preferred Stock for shares of the Company’s common stock. ● In January 2021, the Company recorded a $753,000 loss from the exchange of the outstanding balance of Exchange Note 2 for the Company’s shares common stock. Change in Fair Value of Financial Instruments and Hybrid Instrument Designated at FVO Change in fair value of financial instruments decreased $743,000 from a loss of $2.7 million for the year ended December 31, 2020 to a loss of $2.0 million in 2021 primarily due to fair value adjustments in liability classified warrants and notes payable designated at FVO. Deemed Dividend Attributable to Series C Perpetual Preferred Stock The Company recorded a deemed dividend of $2.5 million for the year ended December 31, 2020 that resulted from the series of exchanges of Series C Perpetual Preferred Stock in October and December 2020. Deemed Dividend Attributable to Accretion of Series A Redeemable Convertible Preferred Stock The Company recorded a deemed dividend charge of $1.3 million for the year ended December 31, 2020 for the accretion of the redemption amount and carrying value of the Series A Convertible Preferred Stock. Deemed Dividend Attributable to Series 1, Series 2 and Bridge Warrant Holders The Company recorded a deemed dividend of $856,000 for the year ended December 31, 2020 that resulted from the modification of the Series 1, Series 2 and Bridge Warrants in May 2020. Stock Dividend Attributable to Series C Perpetual Preferred Stock The Company recorded a $130,000 stock dividend attributable to the Series C Perpetual Preferred Stock for the year ended December 31, 2020. The Series C Perpetual Preferred shares were entitled to receive 10% cumulative stock dividends, to be payable in arrears on a monthly basis for 24 consecutive months. Dividends payable on the 83 Table of Contents Series C Perpetual Preferred shares shall be payable through the Company’s issuance of Series C Perpetual Preferred share by delivering to each record holder the calculated number of payment-in-kind dividend shares. Liquidity and Capital Resources Sources of Liquidity We have incurred net losses since our inception. For the years ended December 31, 2021 and 2020, we had net losses of $52.6 million and $33.8 million, respectively, and we expect to incur additional losses in the near-term future. At December 31, 2021, we had an accumulated deficit of $219.5 million. To date, we have generated only limited revenue, and we may never achieve revenue sufficient to offset our expenses. The Company expects to incur substantial losses and negative cash flows in future periods. Further, the Company’s future operations, which include the satisfaction of current obligations, are dependent on the success of the Company’s ongoing development and commercialization efforts, as well as securing of additional financing and generating positive cash flows from operations. There is no assurance that the Company will have adequate cash balances to maintain its operations. We had cash of $17.1 million as of December 31, 2021 to fund our operating plan through one year from the issuance of these consolidated financial statements. Although the Company plans to finance its operations and cash flow needs through equity and/or debt financing, collaboration arrangements with other entities, license royalty agreements, as well as revenue from future product sales, the Company does not believe its current cash balances are sufficient to funds its operating plan through one year from the issuance of these consolidated financial statements. The Company has an immediate need to raise cash. There can be no assurance that additional funding will be available to the Company on acceptable terms, or on a timely basis, if at all, or that the Company will generate sufficient cash from operations to adequately fund operating needs. If the Company is unable to obtain an adequate level of financing needed for the long-term development and commercialization of our products, the Company will need to curtail planned activities and reduce costs. Doing so will likely have an adverse effect on our ability to execute our business plan; accordingly, there is substantial doubt about the ability of the Company to continue in existence as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. We have funded our operations primarily through the issuance of equity and debt financing, in addition to sales of commercial products. Cash provided by financing activities in 2021 are as follows: ● During January 2021, an aggregate of 416,664 shares of common stock was issued upon the exercise of the December 2019 PIPE Financing Warrants for total proceeds of $975,000. ● On January 13, 2021, the Company entered into a securities purchase agreement, pursuant to which the Company agreed to issue and sell, in a registered public offering an aggregate of 1,479,290 shares of common stock, at an offering price of $10.14 per share for net proceeds of approximately $13.5 million. ● On January 19, 2021, the Company entered into a note purchase agreement with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company issued a secured promissory note in the aggregate principal amount of $6.2 million for an aggregate purchase price of $6.0 million. ● During January and February 2021, the Company issued an aggregate of 669,850 shares under the ATM Agreement for total net proceeds of $5.4 million. ● On March 8, 2021, the Company entered into a Royalty Purchase Agreement with Streeterville, pursuant to which the Company sold a royalty interest entitling Streeterville to $10.0 million and any interest, fees, and charges as royalty repayment amount for an aggregate purchase price of $5.0 million. Interest will accrue on the royalty repayment amount at a rate of 5% per annum, compounding quarterly, and will increase to 10% per annum, compounding quarterly on the 12-month anniversary of the closing date. 84 Table of Contents ● Between January to March 2021, an aggregate of 1,383,524 shares of common stock were issued upon the exercise of Series 1, Series 2 and Bridge Note Warrants for total proceeds of $2.0 million. ● On April 29, 2021, the Company entered into a securities purchase agreement, pursuant to which the Company agreed to issue and sell, in a registered public offering an aggregate of 2,549,000 shares of common stock at an offering price of $4.23 per share for gross proceeds of approximately $10.8 million before deducting placement agent fees and related offering expenses of $948,000. ● On September 13, 2021, the Company entered into a securities purchase agreement (the “September 2021 PIPE Financing”) with certain investors, pursuant to which the Company agreed to issue and sell to the investors in a private placement an aggregate of 309,242 unregistered shares of the Company’s common stock for an aggregate purchase price of approximately $776,000 or $2.51 per share. ● On December 10, 2021, the Company entered into another ATM Agreement (“December 2021 ATM Agreement”) with Ladenburg, pursuant to which the Company may offer and sell, from time to time through Ladenburg, shares of common stock having an aggregate offering price of up to $15.0 million. As of December 31, 2021, the Company has issued 2,261,596 shares under the December 2021 ATM Agreement for a total net proceeds of $3.2 million. We expect our expenditures will continue to increase as we continue our efforts to develop our products and continue development of our pipeline in the near term. We may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. We may also not be successful in entering into partnerships that include payment of upfront licensing fees for our products and product candidates for markets outside the United States, where appropriate. If we do not generate upfront fees from any anticipated arrangements, it would have a negative effect on our operating plan. We still plan to finance our operations and capital funding needs through equity and/or debt financing as well as revenue from future product sales. However, there can be no assurance that additional funding will be available to us on acceptable terms on a timely basis, if at all, or that we will generate sufficient cash from operations to adequately fund operating needs or ultimately achieve profitability. If we are unable to obtain an adequate level of financing needed for the long-term development and commercialization of our products, we will need to curtail planned activities and reduce costs. Doing so will likely have an adverse effect on our ability to execute on our business plan. Cash Flows for Year Ended December 31, 2021 compared to the Year Ended December 31, 2020 The following table shows a summary of cash flows for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ (in thousands) 2021 2020 Total cash used in operating activities ​ $ (34,970) ​ $ (15,278) ​ Total cash used in investing activities ​ (6) ​ (7) ​ Total cash provided by financing activities ​ 43,937 ​ 19,492 ​ Net increase in cash ​ $ 8,961 ​ $ 4,207 ​ ​ Cash Used in Operating Activities During the year ended December 31, 2021, net cash used in operating activities of $35.0 million resulted from our net loss of $52.6 million adjusted by amortization of debt issuance costs, debt discount, and non-cash interest expense of $5.2 million, stock-based compensation of $4.0 million, change in fair value of financial instruments and hybrid instruments designated at FVO of $2.0 million, depreciation and amortization expenses of $1.7 million, Series 3 and ELOC warrants inducement expenses of $1.6 million, loss on extinguishment of debt of $753,000, amortization of operating lease right-of-use assets of $94,000, derecognition of debt discount on settlement of receivables secured borrowing of $49,000, shares issued in exchange for services of $16,000, and net changes in operating assets and liabilities of $2.3 million. 85 Table of Contents During the year ended December 31, 2020, net cash used in operating activities of $15.3 million resulted from our net loss of $33.8 million adjusted by depreciation and amortization expenses of $1.7 million, interest paid on the conversion of debt to equity of $0.6 million, a loss on extinguishment of debt and conversion of Series D Perpetual Preferred Stock of $1.9 million, a loss on recourse obligation on secured borrowing of $15,000, amortization of operating lease right-of-use assets of $553,000, expense on modifications of warrants of $86,000, inducement charge of $1.6 million on the modification of Series B Convertible Preferred Stock, stock-based compensation of $2.8 million, other stock and warrant payments of $1.1 million, amortization of debt discounts, debt issuance costs, and non-cash interest expense of $2.7 million, $2.5 million in shares issued to Atlas Sciences for settlement of the Trial Delay Fee, an increase in fair value of financial instruments of $2.7 million, and $3.7 million charge for Series 3 Warrants issued as an inducement to exercise equity-classified Series 1, Series 2 and Bridge warrants, offset by changes in operating assets and liabilities of $3.5 million. Cash Used in Investing Activities During the year ended December 31, 2021, cash used in investing activities was $6,000 which consisted of cash used to purchase property and equipment. During the year ended December 31, 2020, cash used in investing activities was $7,000 which consisted of cash used to purchase property and equipment. Cash Provided by Financing Activities During the year ended December 31, 2021, net cash provided by financing activities of $43.9 million consisted of $23.2 million in net proceeds received from shares issued in registered public offering, $11.0 million in net proceeds received from issuance of notes payable, $8.6 million in net proceeds from shares issued in an At the Market offering, $2.0 million in net proceeds received from shares issued on conversion of Series 1, Series 2, and 2019 Bridge Note Warrants, $1.8 million in net proceeds received from shares issued in PIPE financing, $247 million noncontrolling interest, and $3,000 in net proceeds from exercise of stock options, offset by $1.8 million repayment of receivables secured borrowing, $943,000 repayment of insurance financing, $100,000 in principal payments of the notes payable and $35,000 payment of ELOC warrants offering costs. During the year ended December 31, 2020, net cash provided by financing activities of $19.5 million consisted of $12.3 million in net proceeds received from issuances of a notes payable, $7.1 million received from borrowings secured by the Company’s trade receivables, $668,000 in net proceeds received from shares of common stock issued via a PIPE financing, $5.8 million in net proceeds received from shares of common stock issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants, and $1.3 million in net proceeds received from issuance of other shares of common stock, offset by $7.3 million in principal payments of the notes payable, secured borrowings and insurance premium borrowings, $185,000 million in issuance costs from shares issued as part of the underwriter settlement agreement, and $142,000 other payments of issuance costs. Off-Balance Sheet Arrangements Since inception, we have not engaged in the use of any off-balance sheet arrangements, such as structured finance entities, special purpose entities or variable interest entities. ​ ​ ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. ​ ​ 86 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Jaguar Health, Inc. Index to Financial Statements ​ Page Financial Statements ​ Reports of Independent Registered Public Accounting Firms 88 Consolidated Balance Sheets as of December 31, 2021 and 2020 92 Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 93 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021 and 2020 94 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 96 Notes to Consolidated Financial Statements 98 ​ 87 Table of Contents Report of Independent Registered Public Accounting Firm ​ ​ ​ To the Board of Directors and Shareholders of Jaguar Health, Inc.: ​ ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheet of Jaguar Health, Inc., (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. ​ The Company’s Ability to Continue as a Going Concern ​ The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit, recurring losses, and expects continuing future losses. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. ​ Basis for Opinion ​ These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. ​ Critical Audit Matter ​ The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) 88 Table of Contents relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ Impairment of Intangible Assets, Net—Refer to Note 2 and Note 7 to the financial statements ​ Critical Audit Matter Description ​ As of December 31, 2021, the Company had intangible assets, net, of $22.7 million. Intangible assets are evaluated based on the asset group based on product as well as being evaluated between definite-lived and indefinite-lived intangible assets for the purpose of the impairment assessment. The Company assesses potential impairments whenever events or circumstances indicate that the asset may be impaired. For finite-lived intangibles assets the impairment is based on recoverability. Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its forecasted cash flows expected to be generated by the asset group. If the carrying amount of the asset group exceeds its estimated forecasted cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. An indefinite-lived intangible asset is considered impaired if the carrying amount exceeds the fair value of the asset group. The fair value of the asset group was determined using the income approach. The Company did not recognize an impairment loss in the financial statements for the year ended December 31, 2021. ​ We identified the evaluation of intangible asset impairment as a critical audit matter because the determination of the forecasted individual asset group’s cash flows, including revenue, expenses, and other items, requires a high degree of auditor judgment and increased extent of effort. ​ How the Critical Audit Matter Was Addressed in the Audit ​ The principal considerations for our determination that performing procedures relating to the valuation of intangible assets as a critical audit matter are (1) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value of intangible assets acquired due to the significant judgment by management when developing the estimates and (2) significant audit effort was required in evaluating the significant assumptions relating to the estimates, including the income projections and discount rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained. ​ Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included the following: ● Inquiry of management regarding the development of the assumptions used in the valuation of the intangible assets. ● Testing management’s process included evaluating the appropriateness of the valuation models, testing the completeness, accuracy, and relevance of underlying data used in the models, and testing the reasonableness of significant assumptions, including the income projections and discount rates. ● Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of significant assumptions. ● Evaluated the experience, qualifications and objectivity of the Company’s specialist, a third-party valuation firm. ● Obtained an understanding of the nature of the work the Company’s specialist performed, including the objectives and scope of the specialist’s work; the methods or assumptions used; and a comparison of the methods or assumptions used with those used in the preceding period. Identified and evaluated assumptions developed by the specialist considering assumptions generally used in the specialist’s field; supporting evidence provided by the specialist; existing market data; historical or recent experience and changes in conditions and events affecting the Company. 89 Table of Contents ● Tested the accuracy and completeness of company-produced data used by the specialist, and evaluated the relevance and reliability of externally obtained data. For assumptions provided to the specialist by the company, evaluated whether there is a reasonable basis for using each assumption considering whether other reasonably likely outcomes could materially affect the relevant financial statement assertions. Identified and evaluated significant assumptions used by the specialist for reasonableness. ● Evaluated the Company’s estimates of future revenue projections by completing a retrospective comparison to historical revenue projections. We tested the significant assumptions discussed above, as well as the completeness and accuracy of the underlying data used in the projected cash flows and valuations. ● To reflect the uncertainty inherent in the projections, we performed our own sensitivity analyses by increasing or decreasing the significant assumptions and evaluated the potential impact on the fair value. In addition, we tested the reconciliation of the fair value of the asset group developed by management to the market capitalization of the Company as of the valuation date. ​ ​ ​ /s/ RBSM, LLP ​ ​ We have served as the Company's auditor since 2021. Larkspur, California March 11, 2022 ​ PCAOB ID Number 587 ​ 90 Table of Contents Report of Independent Registered Public Accounting Firm ​ ​ ​ To the Board of Directors and Stockholders of Jaguar Health, Inc.: ​ ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheet of Jaguar Health, Inc. (“Company”) as of December 31, 2020, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. ​ ​ /s/ Mayer Hoffman McCann P.C. ​ ​ We served as the Company's auditor since 2019, which ended in 2021. San Diego, California March 31, 2021 (except for the effects of the reverse stock split described in Note 1, as to which the date is March 11, 2022) ​ PCAOB ID Number 199 ​ ​ ​ 91 Table of Contents JAGUAR HEALTH, INC. CONSOLIDATED BALANCE S HEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (In thousands, except share and per share data) 2021 2020 Assets ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash ​ $ 17,051 ​ $ 8,090 Accounts receivable ​ ​ 1,709 ​ ​ 2,098 Accounts receivable - pledged ​ — ​ 2,434 Other receivable ​ ​ 435 ​ ​ 28 Inventory ​ ​ 4,900 ​ ​ 2,782 Prepaid expenses and other current assets ​ ​ 4,339 ​ ​ 2,360 Total current assets ​ 28,434 ​ 17,792 Property and equipment, net ​ ​ 650 ​ ​ 677 Operating lease - right-of-use asset ​ ​ 1,084 ​ ​ — Intangible assets, net ​ ​ 22,651 ​ ​ 24,337 Other assets ​ 446 ​ 37 Total assets ​ $ 53,265 ​ $ 42,843 ​ ​ ​ ​ ​ ​ ​ Liabilities and stockholders' equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 4,929 ​ $ 4,759 Accrued liabilities ​ ​ 7,117 ​ ​ 4,493 Warrant liability ​ ​ 1 ​ ​ 179 Operating lease liability, current ​ ​ 240 ​ ​ — Notes payable, current ​ 3,184 ​ 3,789 Series D perpetual preferred stock: $ 0.0001 par value; 977,300 shares authorized at December 31, 2021 and 2020; zero shares issued and outstanding at December 31, 2021 and 2020 ​ ​ — ​ ​ — Total current liabilities ​ 15,471 ​ 13,220 Operating lease liability, net of current portion ​ ​ 919 ​ ​ — Notes payable, net of discount, net of current portion (includes hybrid instrument designated at Fair Value Option amounting to $ 7.8 million and zero as of December 31, 2021 and 2020, respectively) ​ ​ 25,022 ​ ​ 12,421 Total liabilities ​ ​ 41,412 ​ ​ 25,641 ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (See Note 6) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' equity ​ ​ ​ ​ ​ ​ Series B-2 convertible preferred stock: $ 0.0001 par value, 10,165 shares authorized at December 31, 2021 and 2020; zero shares issued and outstanding at December 31, 2021 and 2020 ​ ​ — ​ ​ — Series C perpetual preferred stock: 1,011,000 shares authorized at December 31, 2021 and 2020; zero shares issued and outstanding at December 31, 2021 and 2020 ​ ​ — ​ ​ — Common stock - voting: $ 0.0001 par value, 150,000,000 shares authorized at December 31, 2021 and 2020; 48,352,527 and 38,007,420 shares issued and outstanding at December 31, 2021 and 2020, respectively ​ 5 ​ 4 Common stock - non-voting: $ 0.0001 par value, 50,000,000 shares authorized at December 31, 2021 and 2020; 2,120,786 shares issued and outstanding at December 31, 2021 and 2020 ​ ​ — ​ ​ — Additional paid-in capital ​ 231,100 ​ 184,097 Noncontrolling interest ​ ​ 242 ​ ​ — Accumulated deficit ​ ( 219,494 ) ​ ( 166,899 ) Total stockholders' equity ​ ​ 11,853 ​ ​ 17,202 Total liabilities and stockholders' equity ​ $ 53,265 ​ $ 42,843 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 92 Table of Contents JAGUAR HEALTH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands, except share and per share data) 2021 2020 Product revenue ​ $ 4,335 ​ $ 9,385 Operating expenses ​ ​ ​ ​ ​ ​ Cost of product revenue ​ ​ 2,333 ​ ​ 3,280 Research and development ​ 15,079 ​ 6,413 Sales and marketing ​ ​ 8,894 ​ ​ 6,609 General and administrative ​ ​ 17,103 ​ ​ 14,387 Series 3 warrants inducement expense ​ ​ 1,462 ​ ​ 3,696 ELOC warrants inducement expense ​ ​ 172 ​ ​ — Series B convertible preferred stock inducement expense ​ ​ — ​ ​ 1,647 Total operating expenses ​ 45,043 ​ 36,032 Loss from operations ​ ( 40,708 ) ​ ( 26,647 ) Interest expense ​ ( 8,421 ) ​ ( 2,792 ) Loss on extinguishment of debt and exchange of Series D perpetual preferred stock ​ ​ ( 753 ) ​ ​ ( 1,864 ) Change in fair value of financial instruments and hybrid instrument designated at Fair Value Option ​ ​ ( 1,953 ) ​ ​ ( 2,696 ) Other income (expense), net ​ ​ ( 765 ) ​ ​ 190 Loss before income tax ​ ​ ( 52,600 ) ​ ​ ( 33,809 ) Income tax expense ​ ​ — ​ ​ — Net loss and comprehensive loss ​ ​ ( 52,600 ) ​ ​ ( 33,809 ) Deemed dividend attributable to Series C perpetual preferred stock ​ ​ — ​ ​ ( 2,521 ) Deemed dividend attributable to accretion of Series A redeemable convertible preferred stock ​ ​ — ​ ​ ( 1,332 ) Deemed dividend attributable to Series 1, Series 2 and Bridge warrant holders ​ ​ — ​ ​ ( 856 ) Stock dividend attributable to Series C perpetual preferred stock ​ ​ — ​ ​ ( 130 ) Adjusted net loss and comprehensive loss ​ $ ( 52,600 ) ​ $ ( 38,648 ) Net loss attributable to noncontrolling interest ​ $ ( 5 ) ​ $ — Net loss attributable to common shareholders ​ $ ( 52,595 ) ​ $ ( 38,648 ) Net loss per share, basic and diluted ​ $ ( 1.18 ) ​ $ ( 3.00 ) Weighted-average common shares outstanding, basic and diluted ​ 44,711,588 ​ 12,880,868 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 93 Table of Contents JAGUAR HEALTH, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Series A ​ ​ Series B ​ Series B-2 ​ Series C ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible Preferred Stock ​ ​ Convertible Preferred Stock ​ Convertible Preferred Stock ​ Perpetual Preferred Stock ​ Common Stock - voting ​ Common Stock - non-voting ​ Additional ​ Noncontrolling ​ Accumulated ​ Total Stockholders' (In thousands, except share data) Shares Amount Shares ​ Amount ​ Shares Amount ​ Shares Amount ​ Shares ​ Amount ​ Shares ​ Amount ​ paid-in capital ​ interest ​ deficit ​ Equity Balances as of January 1, 2020 ​ 5,524,926 ​ $ 9,895 ​ ​ 1,971 ​ $ 476 ​ 10,165 ​ $ 1,236 ​ — ​ $ — ​ 4,757,683 ​ $ 1 ​ 40,301,237 ​ $ 4 ​ $ 142,046 ​ $ — ​ $ ( 133,090 ) ​ $ 10,673 Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 182,986 ​ ​ — ​ — ​ ​ — ​ ​ 392 ​ ​ — ​ ​ — ​ ​ 392 Shares issued on exercise of Series 2 warrants and inducement offer conversion of Series B-1 convertible preferred stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 416,666 ​ ​ — ​ — ​ ​ — ​ ​ 2,341 ​ ​ — ​ ​ — ​ ​ 2,341 Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note warrants, net of issuance costs of $ 461 ; May 2020 ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 2,890,283 ​ ​ — ​ — ​ ​ — ​ ​ 3,788 ​ ​ — ​ ​ — ​ ​ 3,788 Shares issued on conversion of Series 1, Series 2, and 2019 Bridge Note warrants; June 2020 ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 244,104 ​ ​ — ​ — ​ ​ — ​ ​ 359 ​ ​ — ​ ​ — ​ ​ 359 Modification of Series 1, Series 2 and Bridge warrants ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 856 ​ ​ — ​ ​ — ​ ​ 856 Deemed dividend attributable to Series 1, Series 2 and Bridge warrant holders ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 856 ) ​ ​ — ​ ​ — ​ ​ ( 856 ) Shares issued on exercise of Series 3 warrants ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ — ​ ​ — ​ 2,818,779 ​ ​ — ​ — ​ ​ — ​ ​ 6,057 ​ ​ — ​ ​ — ​ ​ 6,057 Shares issued on exercise of Series 1 and Series 2 warrants ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 426,416 ​ ​ — ​ — ​ ​ — ​ ​ 626 ​ ​ — ​ ​ — ​ ​ 626 Shares issued to Atlas Sciences for settlement of Trial Delay Fee ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 666,666 ​ ​ — ​ — ​ ​ — ​ ​ 612 ​ ​ — ​ ​ — ​ ​ 612 Warrants issued and converted to common shares to Atlas Sciences for settlement of Trial Delay Fee ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 2,072,984 ​ ​ — ​ — ​ ​ — ​ ​ 1,904 ​ ​ — ​ ​ — ​ ​ 1,904 Issuance of common stock in PIPE financing, net of issuance costs of $ 51 ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 571,427 ​ ​ — ​ — ​ ​ — ​ ​ 668 ​ ​ — ​ ​ — ​ ​ 668 Shares issued in Underwriter settlement agreement ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 33,333 ​ ​ — ​ — ​ ​ — ​ ​ 45 ​ ​ — ​ ​ — ​ ​ 45 Warrants issued in Underwriter settlement agreement ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 31 ​ ​ — ​ ​ — ​ ​ 31 Underwriter settlement offering cost ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 185 ) ​ ​ — ​ ​ — ​ ​ ( 185 ) Conversion of Series B-2 convertible preferred stock into common stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ ( 10,165 ) ​ ​ ( 1,236 ) ​ — ​ ​ — ​ 748,761 ​ ​ — ​ — ​ ​ — ​ ​ 1,236 ​ ​ — ​ ​ — ​ ​ — Conversion of Series B convertible preferred stock into common stock ​ — ​ ​ — ​ ​ ( 1,971 ) ​ ​ ( 476 ) ​ — ​ ​ — ​ — ​ ​ — ​ 1,474,416 ​ ​ — ​ — ​ ​ — ​ ​ 476 ​ ​ — ​ ​ — ​ ​ — Shares issued to Oasis as consideration under the March 2020 equity purchase agreement ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 22,935 ​ ​ — ​ — ​ ​ — ​ ​ 33 ​ ​ — ​ ​ — ​ ​ 33 Shares issued to Oasis under the March 2020 equity purchase agreement, put option exercise, net of issuance costs of $ 13 ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 17,333 ​ ​ — ​ — ​ ​ — ​ ​ 10 ​ ​ — ​ ​ — ​ ​ 10 Series A convertible preferred stock redeemed and Series C perpetual preferred issued under the exchange transaction ​ ( 5,524,926 ) ​ ​ ( 11,227 ) ​ ​ — ​ ​ — ​ — ​ ​ — ​ 842,500 ​ ​ 4,717 ​ — ​ ​ — ​ — ​ ​ — ​ ​ 150 ​ ​ — ​ ​ — ​ ​ 4,867 Stock dividend attributable to Series C perpetual preferred stock of $ 8 per share ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ 16,310 ​ ​ 130 ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 130 ) ​ ​ — ​ ​ — ​ ​ — Extinguishment of Series C perpetual preferred stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ ( 2,521 ) ​ — ​ ​ — ​ — ​ ​ — ​ ​ 2,521 ​ ​ — ​ ​ — ​ ​ — Deemed dividend attributable to Series C perpetual preferred stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ 2,521 ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 2,521 ) ​ ​ — ​ ​ — ​ ​ — Shares issued to third party for services ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 91,666 ​ ​ — ​ — ​ ​ — ​ ​ 105 ​ ​ — ​ ​ — ​ ​ 105 Shares issued to Sagard Capital in exchange of services ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 763,158 ​ ​ — ​ — ​ ​ — ​ ​ 879 ​ ​ — ​ ​ ​ ​ ​ 879 Shares issued in exchange of CVP Exchange Notes ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 7,157,239 ​ ​ 1 ​ — ​ ​ — ​ ​ 6,512 ​ ​ — ​ ​ — ​ ​ 6,513 Warrants issued and converted to common shares to Pacific Capital Management in exchange of promissory note ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 16,666 ​ ​ — ​ — ​ ​ — ​ ​ 24 ​ ​ — ​ ​ — ​ ​ 24 Shares issued to PoC Capital in Payment of Contracted Research Fees ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 444,444 ​ ​ — ​ — ​ ​ — ​ ​ 437 ​ ​ — ​ ​ — ​ ​ 437 Shares issued to Iliad in exchange of Royalty Interest ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 438,324 ​ ​ — ​ — ​ ​ — ​ ​ 256 ​ ​ — ​ ​ — ​ ​ 256 Shares issued on conversion of Series C perpetual preferred stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ( 858,810 ) ​ ​ ( 4,847 ) ​ 2,817,959 ​ ​ — ​ — ​ ​ — ​ ​ 4,847 ​ ​ — ​ ​ — ​ ​ — Warrants issued and converted to common stock in exchange for Series C Preferred Stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 2,352,563 ​ ​ 1 ​ — ​ ​ — ​ ​ ( 1 ) ​ ​ — ​ ​ — ​ ​ — Shares issued on conversion of Series D convertible preferred stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 5,296,623 ​ ​ 1 ​ — ​ ​ — ​ ​ 7,876 ​ ​ — ​ ​ — ​ ​ 7,877 Conversion of non-voting common stock to voting common stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 12,120 ​ ​ — ​ ( 38,180,451 ) ​ ​ ( 4 ) ​ ​ 4 ​ ​ — ​ ​ — ​ ​ — Shares issued in Registered Direct Offering Priced Above-the-Market, net of $ 78 offering costs ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 1,271,639 ​ ​ — ​ — ​ ​ — ​ ​ 1,207 ​ ​ — ​ ​ — ​ ​ 1,207 Accretion to redemption value of redeemable preferred stock ​ — ​ ​ 1,332 ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 1,332 ) ​ ​ — ​ ​ — ​ ​ ( 1,332 ) Fractional shares ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 62 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Shares issued upon exercise of stock options ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 185 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 2,824 ​ ​ — ​ ​ — ​ ​ 2,824 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 33,809 ) ​ ​ ( 33,809 ) Balances as of December 31, 2020 ​ — ​ $ — ​ ​ — ​ $ — ​ — ​ $ — ​ — ​ $ — ​ 38,007,420 ​ $ 4 ​ 2,120,786 ​ $ — ​ $ 184,097 ​ $ — ​ $ ( 166,899 ) ​ $ 17,202 The accompanying notes are an integral part of these consolidated financial statements. 94 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Series A ​ ​ Series B ​ Series B-2 ​ Series C ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible Preferred Stock ​ ​ Convertible Preferred Stock ​ Convertible Preferred Stock ​ Perpetual Preferred Stock ​ Common Stock - voting ​ Common Stock - non-voting ​ Additional ​ Noncontrolling ​ Accumulated ​ Total Stockholders' (In thousands, except share data) Shares ​ Amount Shares ​ Amount ​ Shares ​ Amount ​ Shares ​ Amount ​ Shares ​ Amount ​ Shares ​ Amount ​ paid-in capital ​ interest ​ deficit ​ Equity Balances as of January 1, 2021 ​ — ​ $ — ​ ​ — ​ $ — ​ — ​ $ — ​ — ​ $ — ​ 38,007,420 ​ $ 4 ​ 2,120,786 ​ $ — ​ $ 184,097 ​ $ — ​ $ ( 166,899 ) ​ $ 17,202 Shares issued on exercise of Series 1, Series 2, and 2019 Bridge Note Warrants ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 1,383,524 ​ ​ — ​ — ​ ​ — ​ ​ 2,034 ​ ​ — ​ ​ — ​ ​ 2,034 Shares issued in PIPE financing ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 725,906 ​ ​ — ​ — ​ ​ — ​ ​ 1,751 ​ ​ — ​ ​ — ​ ​ 1,751 Shares issued in At the Market offering, net of issuance and offering costs of $ 465 ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 2,931,446 ​ ​ — ​ — ​ ​ — ​ ​ 8,595 ​ ​ — ​ ​ — ​ ​ 8,595 Shares issued in registered public offering, net of issuance and offering costs of $ 2,550 ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 4,028,290 ​ ​ 1 ​ — ​ ​ — ​ ​ 23,231 ​ ​ — ​ ​ — ​ ​ 23,232 Shares issued in extinguishment of Exchange Note 2 ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 471,202 ​ ​ — ​ — ​ ​ — ​ ​ 2,516 ​ ​ — ​ ​ — ​ ​ 2,516 Shares issued on exercise of Series 3 warrants ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 206,915 ​ ​ — ​ — ​ ​ — ​ ​ 1,776 ​ ​ — ​ ​ — ​ ​ 1,776 Shares issued to Iliad in exchange of notes payable and accrued interest ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 588,235 ​ ​ — ​ — ​ ​ — ​ ​ 2,982 ​ ​ — ​ ​ — ​ ​ 2,982 Warrants issued to Oasis for ELOC amendment, net of offering costs of $ 48 ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 124 ​ ​ — ​ ​ — ​ ​ 124 Shares issued on conversion of Napo merger common shares ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 726 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Shares issued upon exercise of stock options ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 3,147 ​ ​ — ​ — ​ ​ — ​ ​ 4 ​ ​ — ​ ​ — ​ ​ 4 Shares issued to third party for services ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 5,666 ​ ​ — ​ — ​ ​ — ​ ​ 16 ​ ​ — ​ ​ — ​ ​ 16 Fractional shares ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ 50 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Merger of subsidiary ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 247 ​ ​ ​ ​ ​ 247 Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ 3,974 ​ ​ — ​ ​ — ​ ​ 3,974 Net loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 5 ) ​ ​ ( 52,595 ) ​ ​ ( 52,600 ) Balances as of December 31, 2021 ​ — ​ $ — ​ ​ — ​ $ — ​ — ​ $ — ​ — ​ $ — ​ 48,352,527 ​ $ 5 ​ 2,120,786 ​ $ — ​