Item 7. Management’s Discussion and Analysis
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, sustainably derived prescription medicines for people and animals with gastrointestinal (“GI”) distress, including chronic, debilitating diarrhea. Jaguar Health's wholly owned subsidiary, Napo
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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, a pivotal Phase 3 clinical trial for prophylaxis of diarrhea in adult cancer patients receiving targeted therapy. 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, rare disease indications of microvillus inclusion disease (“MVID”) and/or congenital diarrheal disorders (“CDD”). Jaguar Animal Health is a tradename of Jaguar Health.
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 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”). 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.
Napo’s marketed drug Mytesi (crofelemer 125 mg delayed-release tablets) is a first-in-class oral botanical drug product approved by the US 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 FDA in February 2023 for MVID, an ultrarare 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. In 2024 Jaguar expects results from 5 proof-of-concept studies of crofelemer conducted at least 8 clinical sites, including Cleveland Clinic, on three continents for the rare disease indications of MVID – an ultrarare CDD and SBS. In accordance with the guidelines of specific European Union countries, published data from such clinical investigations could support reimbursed early patient access to crofelemer for these debilitating conditions in 2025 while the company pursues approval of crofelemer for SBS and MVID from the EMA and the FDA. In August 2023 the FDA activated Napo’s Investigational New Drug (“IND”) application for a new crofelemer powder for oral solution formulation for the treatment of MVID.
SBS affects approximately 10,000 to 20,000 people in the US, 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.
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.
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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 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 US 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.
In January 2023, Jaguar and Filament Health (“Filament”), with funding from One Small Planet, formed the US-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.
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.
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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 comprehensive losses were $41.9 million and $49.1 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had total stockholders' equity of $4.9 million, an accumulated deficit of $308.2 million, an accumulated other comprehensive loss of $652,000 and cash of $6.5 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.
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 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. 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.
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
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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 Canalevia-CA1, Neonorm Calf or Neonorm Foal for the years ended December 31, 2023 and 2022.
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.
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.
Change in Fair Value of Financial Instruments and Hybrid Instrument Designated at Fair Value Option
Change in fair value of freestanding and hybrid financial instruments designated at Fair Value Option consists of gain or loss recognized related to fair values changes of our instruments designated at FVO.
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Gain (Loss) on Debt Extinguishment
Gain (loss) on debt extinguishment consists of gain or loss incurred related to the exchanges resulting from the extinguishment of our borrowings.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of financial statements in conformity with US generally accepted accounting principles (“US 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.
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
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, 2023 and 2022 together with the change in such items in dollars and as a percentage.
Year Ended
December 31,
(in thousands)
2023
2022
Variance
Variance %
Product revenue, net
$
9,761
$
11,956
$
(2,195)
(18.4)
%
Operating Expenses
Cost of product revenue
2,037
2,019
18
0.9
%
Research and development
18,596
17,647
949
5.4
%
Sales and marketing
6,460
8,837
(2,377)
(26.9)
%
General and administrative
16,588
17,868
(1,280)
(7.2)
%
Impairment loss on intangible assets
371
—
371
100.0
%
Total operating expenses
44,052
46,371
(2,319)
(5.0)
%
Loss from operations
(34,291)
(34,415)
124
(0.4)
%
Interest expense
(6,382)
(12,723)
6,341
(49.8)
%
Change in fair value of freestanding and hybrid financial instruments designated at Fair Value Option
(5,125)
(20)
(5,105)
25,525.0
%
Gain (loss) on extinguishment of debt
3,697
(2,187)
5,884
(269.0)
%
Other income
200
950
(750)
(78.9)
%
Loss before income tax
(41,901)
(48,395)
6,494
(13.4)
%
Income tax expense
—
—
—
100.0
%
Net loss
$
(41,901)
$
(48,395)
$
6,494
(13.4)
%
Net loss attributable to noncontrolling interest
$
(601)
$
(941)
$
340
(36.1)
%
Net loss attributable to common stockholders
$
(41,300)
$
(47,454)
$
6,154
(13.0)
%
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Revenue
Product revenue
Sales discounts were $1.4 million and $1.2 million for the years ended December 31, 2023, and 2022, respectively, an increase of $267,000.
Medicaid and AIDS Drug Assistance Program (“ADAP”) rebates accounted for $2.0 million and $1.8 million for the years ended December 31, 2023 and 2022, respectively, an increase of $205,000.
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, 2023 and 2022 are as follows:
Year Ended
December 31,
(in thousands)
2023
2022
Variance
Variance %
Gross product sales
Mytesi
$
13,435
$
14,804
$
(1,369)
(9.2)
%
Canalevia
130
167
(37)
(22.2)
%
Neonorm
42
48
(6)
(12.5)
%
Total gross product sales
13,607
15,019
(1,412)
(9.4)
%
Medicaid rebates
(2,041)
(1,836)
(205)
11.2
%
Sales discounts
(1,449)
(1,182)
(267)
22.6
%
Sales returns
(356)
(45)
(311)
691.1
%
Net product sales
$
9,761
$
11,956
$
(2,195)
(18.4)
%
Our gross product revenues were $13.6 million and $15.0 million for the years ended December 31, 2023 and 2022, respectively. These figures reflect revenue from the sale of our human drug Mytesi, our animal products branded as Neonorm Calf and Neonorm Foal.
Our Mytesi product revenues were $13.4 million and $14.8 million for the years ended December 31, 2023 and 2022, respectively. Our Canalevia product revenues were $130,000 and $167,000 for the years ended December 31, 2023 and 2022, respectively. Our Neonorm product revenues were $42,000 and $48,000 for the years ended December 31, 2023 and 2022, respectively. Sales and marketing expenses are not significant during 2023 and during the same period in 2022.
Cost of Product Revenue
Year Ended
December 31,
(in thousands)
2023
2022
Variance
Variance %
Cost of Product Revenue
Direct labor
$
1,152
$
755
$
397
52.6
%
Material cost
885
1,011
(126)
(12.5)
%
Royalties
—
54
(54)
(100.0)
%
Distribution fees
(49)
15
(64)
(426.7)
%
Other
49
184
(135)
(73.4)
%
Total
$
2,037
$
2,019
$
18
0.9
%
The change in cost of product revenue of $18,000 for the year ended December 31, 2023 compared to 2022 was primarily due to:
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● Direct labor increased $397,000 from $755,000 for the year ended December 31, 2022 to $1.2 million in 2023, due to increased resources in testing and manufacturing.
● Material cost decreased by $126,000 from $1.0 million for the year ended December 31, 2022, to $885,000 in 2023 relative to the decrease in net sales.
● Other costs which includes royalties and APIs decreased $135,000 from $184,000 for the year ended December 31, 2022 to $49,000 in 2023 relative to the decrease in net sales.
Research and Development Expense
The following table presents the components of research and development (“R&D”) expense for the years ended December 31, 2023 and 2022:
Year Ended
December 31,
(in thousands)
2023
2022
Variance
Variance %
Research and Development:
Clinical and contract manufacturing
$
8,155
$
8,326
$
(171)
(2.1)
%
Personnel and related benefits
5,815
5,543
272
4.9
%
Stock-based compensation
1,044
1,263
(219)
(17.3)
%
Materials expense and tree planting
367
309
58
18.8
%
Travel and other expenses
326
122
204
167.2
%
Other
2,889
2,084
805
38.6
%
Total
$
18,596
$
17,647
$
949
5.4
%
The change in R&D expense of $949,000 for the year ended December 31, 2023 compared to 2022 was primarily due to:
● Clinical and contract manufacturing expenses decreased $171,000 from $8.3 million for the year ended December 31, 2022 to $8.2 million in 2023 largely due to lower clinical trial activities related to start-up of CTD and other indications, additional CMC manufacturing, consulting and contractors’ expenses, and cholera/lechlemer research expenses.
● Personnel and related benefits increased $272,000 from $5.5 million for the year ended December 31, 2022 to $5.8 million in 2023 largely due an increase in headcount.
● Stock-based compensation expense decreased $219,000 from $1.3 million for the year ended December 31, 2022 to $1.0 million in 2023 primarily due to lower options and RSUs granted during the period as compared to 2022.
● Travel, and other expenses increased by $204 ,000 from $122,000 for the year ended December 31, 2022 to $326,000 in 2023 primarily due to more travel activities associated with the clinical trials.
● Other expenses consisting of consulting, formulation and regulatory fees increased $805,000 from $2.1 million for the year ended December 31, 2022, to $2.9 million in 2023 mainly due to increased CTD activities.
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Sales and Marketing Expense
The following table presents the components of sales and marketing (“S&M”) expense for the years ended December 31, 2023 and 2022:
Year Ended
December 31,
(in thousands)
2023
2022
Variance
Variance %
Sales and Marketing:
Personnel and related benefits
$
3,025
$
3,415
$
(390)
(11.4)
%
Direct marketing fees and expense
1,903
3,596
(1,693)
(47.1)
%
Stock-based compensation
152
267
(115)
(43.1)
%
Other
1,380
1,559
(179)
(11.5)
%
Total
$
6,460
$
8,837
$
(2,377)
(26.9)
%
The change in S&M expense of $2.4 million for the year ended December 31, 2023 compared to 2022 was primarily due to:
● Personnel and related benefits decreased $390,000 from $3.4 million for the year ended December 31, 2022 to $3.0 million in 2023 due to decreased sales commission and reduced headcount.
● Direct marketing fees and expense decreased $1.7 million from $3.6 million for the year ended December 31, 2022 to $1.9 million in 2023 due to savings associated with the utilization of a more cost-effective patient support services and other Mytesi marketing initiatives.
● Stock-based compensation benefits decreased $115,000 from $267,000 for the year ended December 31, 2022 to $152,000 in 2023 primarily due to lower options and RSUs granted during the period as compared to 2022.
● Other expenses decreased $179,000 from $1.6 million for the year ended December 31, 2022 to $1.4 million 2023 largely due to lower consulting and contractor services but slightly offset by increased travels for sales and marketing personnel.
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General and Administrative Expense
The following table presents the components of general and administrative (“G&A”) expense for the years ended December 31, 2023 and 2022:
Year Ended
December 31,
(in thousands)
2023
2022
Variance
Variance %
General and Administrative:
Personnel and related benefits
$
5,135
$
5,582
$
(447)
(8.0)
%
Legal services
2,009
1,225
784
64.0
%
Public company expense
1,789
2,692
(903)
(33.5)
%
Stock-based compensation
916
1,788
(872)
(48.8)
%
Lease expense
877
629
248
39.4
%
Third-party consulting services
679
507
172
33.9
%
Audit, tax and accounting services
537
454
83
18.3
%
Travel and other expenses
435
378
57
15.1
%
Other
4,211
4,613
(402)
(8.7)
%
Total
$
16,588
$
17,868
$
(1,280)
(7.2)
%
The change in G&A expenses of $1.3 million for the year ended December 31, 2023 compared to 2022 was due primarily to:
● Personnel and related benefits decreased $447,000 from $5.6 million for the year ended December 31, 2022 to $5.1 million in 2023 due to lower headcount and no bonus in 2023.
● Legal services increased $784,000 from $1.2 million for the year ended December 31, 2022 to $2.0 million in 2023 primarily due to increased legal consultations for contracts and agreements and other regulatory filings.
● Public company expenses decreased $903,000 from $2.7 million for the year ended December 31, 2022 to $1.8 million in 2023 due to less investor relations and communications consulting expenses, and decreased expenses related to the annual shareholder meetings.
● Stock-based compensation expense decreased $872,000 from $1.8 million for the year ended December 31, 2022 to $916,000 in 2023 primarily due to lower general and administrative expense incurred for options granted with immediate vesting to existing employees.
● Lease expense increased $248,000 from $629,000 for the year ended December 31, 2022 to $877,000 in 2023, primarily due to additional lease space and increase in fees.
● Third-party consulting services increased $172,000 from $507,000 for the year ended December 31, 2022 to $679,000 in 2023, mostly due to the increase in outsourced accounting transactions.
● Audit, tax and accounting services fees increased $83,000 from $454,000 for the year ended December 31, 2022 to $537,000 in 2023, mostly due to the additional financing and complex accounting transactions for the year.
● Other general and administrative expenses decreased $402,000 from $4.6 million for the year ended December 31, 2022 to $4.2 million in 2023 largely due to lower depreciation and amortization of fixed assets and intangible assets, insurance expenses and other support services.
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Impairment Loss on Intangible Asset
The Company recognized an impairment loss on intangible assets amounting to $371,000 as a result of impairment evaluation to its internal use software costs – registry triggered by experiencing lower-than-anticipated sales growth for Canalevia and Neonorm, its two primary animal health products.
Gain or Loss on Extinguishment of Debt
Gain on extinguishment of debt increased by $5.9 million from a loss of $2.2 million for the year ended December 31, 2022 to a gain of $3.7 million for the same period in 2023 due to significant modifications resulting to extinguishment recognition.
Change in Fair Value of Freestanding and Hybrid Financial Instruments Designated at FVO
Change in fair value of freestanding and hybrid financial instruments designated at FVO increased by
$5.1 million from a loss of $20,000 for the year ended December 31, 2022, to a loss of $5.1 million for the same period in 2023 primarily due to additional freestanding instruments measured at FVO.
Interest Expense, net
Interest expense decreased $6.3 million from $12.7 million for the year ended December 31, 2022 to
$6.4 million in 2023 primarily due to the election of certain freestanding instruments to be valued at Fair Value Option (“FVO”) upon extinguishment. The lower interest expense was offset by a higher loss in change in fair value of financial instruments and hybrid instrument designated at FVO.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred net losses since our inception. For the years ended December 31, 2023 and 2022, we had net losses of $41.9 million and $48.4 million, respectively, and expect to incur additional losses in the near-term future. At December 31, 2023, we had an accumulated deficit of $308.2 million and accumulated comprehensive loss of $652,000. To date, we have generated only limited revenue, and we may never achieve revenue sufficient to offset our expenses.
We had cash of $6.5 million as of December 31, 2023 to fund our operating plan through one year from the issuance of these consolidated financial statements.
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, 2023, were generated from the issuance of an aggregate of 54,283,779 shares of common stock under the ATM Agreement for total net proceeds of approximately $32.1 million, issuance of an aggregate 6,850,000 warrants and 137 Series G Convertible Preferred Stock in PIPE financing for a total net proceeds of $1.8 million, and investment from non-controlling interest for a total net proceeds of $1.2 million.
We expect our expenditures will continue to increase as we continue our efforts to develop our products and continue the 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 US, 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
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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, 2023 compared to the Year Ended December 31, 2022
The following table shows a summary of cash flows for the years ended December 31, 2023 and 2022:
Year Ended December 31,
(in thousands)
2023
2022
Total cash used in operating activities
$
(33,242)
$
(33,104)
Total cash used in investing activities
—
(1,675)
Total cash provided by financing activities
34,227
23,181
Effects of foreign exchange rate changes on assets and liabilities
15
16
Net increase (decrease) in cash
$
1,000
$
(11,582)
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Cash Used in Operating Activities
During the year ended December 31, 2023, net cash used in operating activities of $33.2 million resulted from our net comprehensive loss of $41.9 million adjusted by amortization of debt issuance costs, debt discount, and non-cash interest expense of $13.2 million, Change in fair value of freestanding and hybrid financial instruments designated at FVO of $5.1 million, stock-based compensation of $2.1 million, depreciation and amortization expenses of $2.0 million, amortization of operating lease right-of-use assets of $375,000, impairment loss on intangible asset of $371,000, shares issued in exchange for services of $171,000, share in joint venture’s loss of $51,000, gain on extinguishment of debt $3.7 million, and net changes in operating assets and liabilities of $11.1 million.
During the year ended December 31, 2022, net cash used in operating activities of $33.1 million resulted from our net 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 hybrid instruments designated at FVO of $21,000, and net changes in operating assets and liabilities of $4.4 million.
Cash Used in Investing Activities
There are no cash used in investing activities during the year ended December 31, 2023.
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.
Cash Provided by Financing Activities
During the year ended December 31, 2023, net cash provided by financing activities of $34.2 million consisted of $32.1 million in net proceeds from shares issued in an At the Market offering, $1.2 million net proceeds from issuance of warrants in PIPE financing, investment from non-controlling interest of $1.2 million and $611,000 net proceeds from issuance of preferred shares in PIPE financing, offset by $853,000 repayment of insurance financing, and $100,000 in principal payments of Tampesta Note.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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