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Item 7. Management’s Discussion and Analysis

2023-03-24 compared with 2022-03-11 · 117 added, 132 removed, 162 unchanged (61% of the section changed)

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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” or the “Company”) is a commercial stage pharmaceuticals company focused on developing novel, plant-based, sustainably derived prescription medicines for people and animals with gastrointestinal (“GI”) distress, including chronic, debilitating diarrhea.

Jaguar Health's wholly owned subsidiary, Napo Pharmaceuticals, Inc.

(“Napo”), focuses on developing and commercializing proprietary plant-based human pharmaceuticals from plants harvested responsibly from rainforest areas.

Our crofelemer drug product candidate is the subject of the OnTarget study, an ongoing pivotal Phase 3 clinical trial for prophylaxis of diarrhea in adult cancer patients receiving targeted therapy.

As announced, patient enrollment in OnTarget reached approximately 75% in February 2023, and target trial enrollment of 256 patients is expected to complete in the second quarter of 2023.

Jaguar is the majority stockholder of Napo Therapeutics S.p.A.

(“Napo Therapeutics”), an Italian corporation established by Jaguar in Milan, Italy in 2021 that focuses on expanding crofelemer access in Europe.

Napo Therapeutics’ core mission is to provide access to crofelemer in Europe to address significant rare/orphan disease indications, including, initially, two key rare disease target indications:

Short bowel syndrome (“SBS”) with intestinal failure and/or congenital diarrheal disorders (“CDD”).

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).

Jaguar 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.

The Company was formed to develop and commercialize first-in-class prescription and non-prescription products for companion animals.

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”).

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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.

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.

The Company’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.

Crofelemer was granted ODD by the U.S.

FDA in February 2023 for microvillus inclusion disease (“MVID”), a rare CDD condition, and granted ODD for MVID by the European Medicines Agency (“EMA”) in October 2022.

Crofelemer was granted ODD for SBS by the EMA in December 2021 and by the FDA in August 2017.

The Company is currently supporting investigator-initiated proof-of-concept (“POC”) studies of crofelemer in patients with SBS with intestinal failure or CDD, focused on obtaining POC of reduction of requirements of parenteral support including parenteral nutrition and/or intravenous fluids, throughout 2023.

In accordance with the guidelines of specific European Union countries, publications of POC data from these trials could support early patient access to crofelemer for SBS with intestinal failure or CDD in 2023 through programs in Europe.

Early access programs are revenue generating, and reimbursable for participating patients.

Napo Therapeutics is initiating efforts to commence clinical development of crofelemer in 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.

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.

Most of the activities of the Company are focused on the development and/or commercialization of Mytesi, including the ongoing clinical development of crofelemer for the prophylaxis of diarrhea in adult patients receiving targeted cancer therapy, and our prioritized clinical program centered around the approved investigator-initiated POC trial of crofelemer for SBS and CDD.

Napo’s pivotal OnTarget Phase 3 clinical trial of crofelemer for prophylaxis of cancer therapy-related diarrhea (“CTD”) was initiated in October 2020 and is ongoing.

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 and foals.

Crofelemer is a novel, first-in-class anti-secretory antidiarrheal drug which has a normalizing effect on electrolyte and fluid balance in the gut, and this mechanism of action has the potential to benefit multiple disorders that cause gastrointestinal distress, including diarrhea and abdominal discomfort.

Mytesi is in development for multiple possible follow-on indications, including prophylaxis of diarrhea related to targeted therapy with or without standard chemotherapy.

Crofelemer delayed-release tablets are also being evaluated in diarrhea-predominant irritable bowel syndrome (“IBS-D”) and idiopathic/functional diarrhea.

Crofelemer powder for oral solution is being developed to support orphan or rare disease indications for infants and/or children with SBS and/or CDD, such as MVID.

In addition, a second-generation proprietary anti-secretory antidiarrheal drug (“NP-300”) is in development for symptomatic relief and treatment of moderate-to-severe diarrhea, with or without concomitant antimicrobial therapy, from bacterial, viral and parasitic infections including Vibrio cholerae , the bacterium that causes cholera.

In January 2023, Jaguar and Filament Health (“Filament”), with funding from One Small Planet, formed the U.S.-based joint venture Magdalena Biosciences, Inc.

(“Magdalena”).

Magdalena’s focus is on the development of novel, natural prescription medicines derived from plants for mental health indications including, initially, attention-deficit/hyperactivity disorder (“ADHD”) in adults.

The goal of the collaboration is to extend the botanical drug development capabilities of Jaguar and Filament in order to develop pharmaceutical-grade, standardized drug candidates for mental health disorders, and to partner with a potential future licensee to develop and commercialize these novel plant-based drugs.

This new venture aligns with Jaguar's mental health Entheogen Therapeutics Initiative (“ETI”) and Filament's corporate mission to develop novel, natural prescription medicines from plants.

Magdalena will leverage Jaguar's proprietary medicinal plant library and Filament's proprietary drug development technology.

Jaguar’s library of 2,300 highly characterized medicinal plants and 3,500 plant extracts, all from firsthand ethnobotanical investigation by Jaguar and members of the ETI Scientific Strategy Team, is a key asset we have generated over 30 years that bridges the knowledge of traditional healers and Western medicine.

Magdalena holds an exclusive license to plants and plant extracts in Jaguar's library, not including any sources of crofelemer or NP-300, for specific indications and is in the process of identifying plant candidates in the library that may prove beneficial for addressing indications such as ADHD.

In December 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 available veterinary drug for the treatment of chemotherapy-induced diarrhea (“CID”) in dogs, and Canalevia-CA1 is now available to multiple leading veterinary distributors in the U.S.

Canalevia-CA1 is a tablet that is given orally and can be prescribed for home treatment of CID.

Canalevia-CA1 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 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 "small number"

threshold for minor use in each of the seven major species covered by the MUMS act.

The small number threshold is

currently 80,000 for dogs, representing the largest number of dogs that can be affected by a disease or condition over the course of a year and still have the use qualify as a minor use.

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.

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.

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.

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.

Our net losses and comprehensive losses were $49.1 million and $52.6 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, we had total stockholders' deficit of $1.4 million, an accumulated deficit of $266.9 million, an accumulated other comprehensive loss of $680,000 and cash of $5.5 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 active pharmaceutical ingredient (“API”) manufacturing capabilities and begin additional commercialization activities.

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.

● Revenues from the sale of our human drug Mytesi, which is sold through distributors and wholesalers and specialty pharmacies.

● Revenues from the sale of our animal products branded as Canalevia-CA1, Neonorm Calf and Neonorm Foal.

Our Canalevia-CA1, 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.

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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 do not currently have any marketing or promotional expenses related to Canalevia-CA1, Neonorm Calf or Neonorm Foal for the years ended December 31, 2022 and 2021.

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.

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Product revenue

Total revenue

Operating Expenses

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ELOC warrants inducement expense

Series B convertible preferred stock inducement expense

Total operating expenses

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Interest expense

Loss on extinguishment of debt and exchange of Series D perpetual preferred stock

Loss on extinguishment of debt

Change in fair value of financial instruments and hybrid instrument designated at Fair Value Option

Other expense, net

Other income (expense)

Loss before income tax

Income tax expense

Net loss and comprehensive loss

Deemed dividend attributable to Series C perpetual preferred stock

Deemed dividend attributable to accretion of Series A redeemable convertible preferred stock

Deemed dividend attributable to Series 1, Series 2 and Bridge warrant holders

Stock dividend attributable to Series C perpetual preferred stock

Adjusted net loss and comprehensive loss

Net loss attributable to noncontrolling interest

Net loss attributable to common shareholders

Net loss attributable to common stockholders

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

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.

The transition caused a one-time inventory draw-down of Mytesi across our third-party logistics warehouse, wholesalers, distributors, and retail stores.

This significantly contributed to the decrease of $853,000 of Mytesi gross revenue and $1.5 million of wholesaler fees for the year 2022 compared to 2021.

Sales discounts were $1.2 million and $6.3 million for the years ended December 31, 2022, and 2021, respectively, a decrease of $5.1 million.

In line with our switch to the closed Specialty Pharmacy distribution network.

No wholesaler fees were recognized for the year ended December 31, 2022.

Medicaid and AIDS Drug Assistance Program (“ADAP”) rebates accounted for $1.8 million and $3.5 million for the years ended December 31, 2022 and 2021, respectively, a decrease of $1.6 million primarily due to the WAC

increase implemented by the Company which resulted in higher government rebates from Medicaid, ADAP, public health services programs.

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.

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Net product sales

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.

Our gross product revenues were $15.0 million and $15.7 million for the years ended December 31, 2022 and 2021, respectively.

These figures reflect revenue from the sale of our human drug Mytesi, our animal products branded as Neonorm Calf and Neonorm Foal, and our new animal drug Canalevia that is designed for dogs released only this 2022 amounting to $167,000.

The majority of the decrease were contributed from the decrease of $853,000 of Mytesi gross revenue for the year 2022 compared to 2021.

Although Mytesi gross product sales decreased, net product sales increased by $7.6 million for the year 2022 compared to 2021 largely due to the transition from selling to the wholesalers to the closed Specialty Pharmacy distribution networks.

Our Neonorm product revenues were $48,000 and $62,000 for the years ended December 31, 2022 and 2021, respectively.

Sales and marketing expenses for Neonorm products are not significant during 2022 compared to 2021.

Cost of Product Revenue

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The change in cost of product revenue of $314,000 for the year ended December 31, 2022 compared to 2021 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-

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.

● Direct labor decreased $241,000 from $996,000 for the year ended December 31, 2021 to $755,000 in 2022, due to decreased resources in manufacturing.

● Distribution fees decreased $184,000 from $199,000 for the year ended December 31, 2021, to $15,000 in 2022 anticipated as cost savings in line with our transition from Title model to Specialty Pharmacy distribution network.

● Royalties increased $54,000 from a zero balance for the year ended December 31, 2021.

● Other costs increased $44,000 from $140,000 for the year ended December 31, 2021 to $184,000 in 2022 mainly consisting of $118,000 less in write-offs of non-conforming inventory, and an increase in equipment maintenance of $9,000 in 2022.

Research and Development Expense

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The change in R&D expense of $2.6 million for the year ended December 31, 2022 compared to 2021 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.

● Clinical and contract manufacturing expenses increased $2.1 million from $6.3 million for the year ended December 31, 2021, to $8.3 million in 2022 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/NP-300 research expenses.

● Personnel and related benefits increased $1.6 million for the year ended December 31, 2022, from $4.0 million in 2021 to $5.5 million in 2022 largely from the additional headcount.

● Other expenses decreased $1.1 million from $3.1 million for the year ended December 31, 2021, to $2.1 million in 2022 mainly due to decreased consulting fees.

Sales and Marketing Expense

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Sales and Marketing:

Personnel and related benefits

Direct marketing fees and expense

Personnel and related benefits

Stock-based compensation

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.

The change in S&M expense of $57,000 for the year ended December 31, 2022 compared to 2021 was primarily due to:

● Personnel and related benefits decreased $501,000 from $3.9 million for the year ended December 31, 2021 to $3.4 million in 2022 due to reduction in resources in Commercial Operations and Sales.

● Direct marketing fees and expense increased $181,000 from $3.4 million for the year ended December 31, 2021 to $3.6 million in 2022 due to an increase in marketing programs for Mytesi related to the expanding market access through Specialty Pharmacy channels.

● Other expenses increased $315,000 from $1.2 million for the year ended December 31, 2021 to $1.6 million in 2022 largely due to additional marketing consulting costs.

General and Administrative Expense

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Personnel and related benefits

Public company expense

Stock-based compensation

Legal services

Public company expense

Audit, tax and accounting services

Third-party consulting services

Audit, tax and accounting services

Rent and lease expense

Travel, other expenses

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.

● 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.

The change in G&A expenses of $765,000 for the year ended December 31, 2022 compared to 2021 was due primarily to:

● Personnel and related benefits increased $2.2 million from $3.4 million for the year ended December 31, 2021 to $5.6 million in 2022 due to increased number of hires for the year.

● Legal services decreased $1.1 million from $2.3 million for the year ended December 31, 2021 to $1.2 million in 2022 primarily due to a decrease in fees related to legal proceedings and other regulatory filings.

● Stock-based compensation expense decreased $548,000 from $2.3 million for the year ended December 31, 2021 to $1.8 million in 2022 primarily due to lower expense incurred for options granted with immediate vesting to existing employees.

● Audit, tax and accounting services fees decreased $528,000 from $982,000 for the year ended December 31, 2021 to $454,000 in 2022, mostly due to the decreased audit fees related to complex debt and equity transactions.

● Public company expenses increased $422,000 from $2.3 million for the year ended December 31, 2021 to $2.7 million in 2022 largely attributable to the investor relations and communications consulting expenses, and expenses for the annual stockholder meeting.

● Third-party consulting services decreased $352,000 from $859,000 for the year ended December 31, 2021 to $507,000 in 2022, mostly due to the decrease in outsourced legal and accounting transactions.

● Rent and lease expense increased $347,000 from $282,000 for the year ended December 31, 2021 to $629,000 in 2022 as a result of the transfer to a higher-cost facility and the occupancy of more space, including office space in Italy.

● Travel, other expenses increased $181,000 from $197,000 for the year ended December 31, 2021 to $378,000 in 2022 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.

● Other general and administrative expenses increased $129,000 from $4.5 million for the year ended December 31, 2021 to $4.6 million in 2022 largely due to increase recruitment and insurance expense in 2022.

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.

In 2022, the value of Series 3 Warrants Inducement Expense is zero.

ELOC Warrants Inducement Expense

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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

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.

In 2022, the value of ELOC Warrants Inducement Expense is zero.

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;

● 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.

Interest expense increased $4.3 million from $8.4 million for the year ended December 31, 2021 to $12.7 million in 2022 primarily due to additional interest expense incurred on royalty interest agreements primarily as result of the change in the timing of payments due to exchanges and a new royalty interest purchase agreement.

Loss on Extinguishment of Debt

The loss on extinguishment of debt increased $1.4 million from $753,000 for the year ended December 31, 2021 to $2.2 million in 2022 due to the extinguishment loss from the exchange of the outstanding balance of Iliad’s royalty agreements for shares of the Company’s 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

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.

Change in fair value of financial instruments increased $1.9 million from a loss of $2.0 million for the year ended December 31, 2021, to a loss of $21,000 in 2022 primarily due to fair value adjustments in liability classified warrants and notes payable designated at FVO.

Other income (expenses)

Other income (expenses) increased $1.7 million from $765,000 other expense for the year ended December 31, 2021 to $950,000 other income in 2022 due to write-off of extinguished liabilities as a result of legal release and reversal of long outstanding accruals with reasonable uncertainty to not be incurred.

Liquidity and Capital Resources

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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.

For the years ended December 31, 2022 and 2021, we had net losses and comprehensive losses of $49.1 million and $52.6 million, respectively, and we expect to incur additional losses in the near-term future.

At December 31, 2022, we had an accumulated deficit of $266.9 million and accumulated comprehensive loss of $680,000.

To date, we have generated only limited revenue, and we may never achieve revenue sufficient to offset our expenses.

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We had cash of $5.5 million as of December 31, 2022 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.

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, joint ventures, 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.

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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.

● 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 have funded our operations primarily through the issuance of debt and equity securities, in addition to sales of our commercial products.

Cash provided by financing activities for the year ended December 31, 2022 were generated from the issuance of an aggregate of 923,164 shares of common stock under the ATM Agreement for total net proceeds of $20.5 million.

The Company also raised an additional net proceeds of $17.5 million from the issuance of 10,135,550 shares of common stock under the ATM agreement between January 1, 2023 to March 23, 2023.

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.

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Total cash provided by financing activities

Net increase in cash

Effects of foreign exchange rate changes on assets and liabilities

Net (decrease) increase in cash

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.

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.

During the year ended December 31, 2022, net cash used in operating activities of $33.1 million resulted from our net loss and comprehensive loss of $49.1 million adjusted by amortization of debt issuance costs, debt discount, and non-cash interest expense of $11.8 million, stock-based compensation of $3.3 million, loss on extinguishment of debt of $2.2 million, depreciation and amortization expenses of $2.0 million, shares issued in exchange for services of $823,000, amortization of operating lease right-of-use assets of $311,000, change in fair value of financial instruments and hybrid instruments designated at FVO of $21,000, and net changes in operating assets and liabilities of $4.4 million.

During the year ended December 31, 2021, net cash used in operating activities of $35.0 million resulted from our net loss and comprehensive loss of $52.6 million adjusted by amortization of debt discounts, debt issuance costs, 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 expense of $1.6 million, a 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 of 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.

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, 2022, cash used in investing activities was $1.7 million which consisted of cash used in software development activities of $1.6 million and cash used to purchase property and equipment of $77,000.

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.

Cash Provided by Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities of $23.2 million consisted of $20.5 million in net proceeds from shares issued in an At the Market offering, $4.0 million in net proceeds from notes payable with Streeterville, offset by $1.2 million repayment of insurance financing and $100,000 payment of Tempesta Note.

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis