Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K as of and for the year ended December 31, 2024 which was filed to the SEC on March 31, 2025 and amended on April 15, 2025.

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's wholly owned subsidiary, Napo Pharmaceuticals, Inc. ("Napo"), focuses on developing and commercializing proprietary plant-based human prescription drugs from plants for significant unmet supportive care GI needs for complex disease states like cancer, orphan indications, and HIV. Our crofelemer drug product candidate is the subject of the OnTarget study, a recently conducted pivotal Phase 3 clinical trial for prophylaxis of diarrhea in adult cancer patients receiving targeted therapy. While the initial top line results from the OnTarget study showed that this multicenter, double-blind, placebo-controlled pivotal clinical trial did not meet its primary endpoint for the prespecified analysis of all tumor types, an analysis by the Company of the prespecified subgroup of adult patients with breast cancer from OnTarget indicates that crofelemer achieved statistical significance in this subgroup. Patients with breast cancer accounted for 183 of the 287 participants in this trial in adult patients with solid tumors receiving targeted therapy with or without standard chemotherapy. The OnTarget results in breast cancer patients were the subject of a poster presentation conducted December 11, 2024 at the San Antonio Breast Cancer Symposium ("SABCS"). Overall, crofelemer was significantly more effective than placebo in providing sustained response in breast cancer patients in the OnTarget study. This research underscores the potential of crofelemer for prophylaxis of cancer therapy-related diarrhea ("CTD").

A late-breaker abstract Napo submitted to the Multinational Association of Supportive Care in Cancer ("MASCC") on additional significant results in adult breast cancer patients from the OnTarget study were the subject of an oral rapid e-poster at MASCC's June 26-28, 2025 Annual Meeting.

Napo participated in an in-person Type C Meeting on May 28, 2025 with the Division of Gastroenterology of the FDA to discuss the statistically significant responder analysis results for adult patients with breast cancer in the OnTarget trial. Napo proposed two simultaneous potential pathways during the meeting for making crofelemer available to metastatic breast cancer patients with the significant unmet medical need of CTD: conducting a pivotal treatment trial to facilitate approval of crofelemer for CTD in this focused patient population; and the prompt pursuit of authorization to initiate an expanded access program for breast cancer patients with CTD who may not be eligible for this study, including breast cancer patients in the adjuvant and neoadjuvant settings. The FDA formally acknowledged both of these key discussion points in correspondence to Napo, and Napo plans to submit a protocol to the FDA for a pivotal treatment trial for a smaller number of metastatic breast cancer patients using crofelemer.

The currently estimated US metastatic breast cancer population potentially qualifies as an orphan population, in alignment with the Company's core focus on orphan diseases. The Company therefore intends to request orphan drug designation from the FDA for the CTD indication in this population. Given crofelemer's novel and paradigm-shifting mechanism of action, the Company also plans to seek Breakthrough Therapy designation and/or Fast Track designation from the FDA to support potentially expedited regulatory approval in the US for crofelemer for CTD in metastatic breast cancer patients.

As part of our strategy to expand our commercial footprint beyond HIV-related supportive care to include cancer-related supportive care, on April 12, 2024, we entered into an exclusive 5-year in-license agreement with United Kingdom-based Venture Life Group PLC ("Venture Life"), an international consumer health company focused on the global self-care market, for Venture Life's 510(k) cleared oral mucositis prescription product, Gelclair, for the US market. Gelclair is a 510(k) cleared prescription product and can be commercialized without any clinical development costs for Jaguar. We initiated the commercial launch in October 2024 for Gelclair. Oral mucositis is among the most common, painful, and debilitating cancer treatment-related side effects. Gelclair is a protective gel with a mechanical action indicated for the management of pain and relief of pain by adhering to the mucosal surface of the mouth, soothing oral lesions of various etiologies, including oral mucositis/stomatitis. Unlike other products for oral mucositis, it is not a numbing agent and does not sting the mouth.

Napo is the majority stockholder of Napo Therapeutics S.p.A. ("Napo Therapeutics"), an Italian corporation established by Jaguar in Milan, Italy in 2021, focusing on expanding crofelemer access in Europe. Napo Therapeutics' core mission is to provide access to crofelemer in Europe to address significant orphan disease indications, including, initially, short bowel syndrome with intestinal failure ("SBS-IF") and microvillus inclusion disease ("MVID"), an ultrarare congenital diarrheal disorder ("CDD").

Magdalena Biosciences, Inc. ("Magdalena"), a joint venture formed by Jaguar and Filament Health Corp. ("Filament") that emerged from Jaguar's Entheogen Therapeutics Initiative ("ETI"), is focused on identifying the next generation of plant-based first-in-class agents for treatment of mental health and central nervous system ("CNS") conditions.

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 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'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.

Jaguar, through Napo and Napo Therapeutics, is currently supporting two independent proof-of-concept ("POC") investigator-initiated trials ("IIT"), and conducting two placebo-controlled Phase 2 studies, of crofelemer in patients with intestinal failure due to the orphan indications short bowel syndrome ("SBS") or microvillus inclusion disease ("MVID") in the United States, European Union, and/or Middle East/North Africa regions.

As announced, and as presented April 26, 2025 at the Annual ELITE PED-GI Congress, the initial proof-of-concept results of the ongoing IIT of a novel crofelemer powder formulation for oral solution in Abu Dhabi in the United Arab Emirates show that crofelemer reduced the required total parenteral nutrition ("TPN") and supplementary intravenous fluids in the first participating MVID patient by up to 27% and in the first participating SBS-IF patient by up to 12.5%. In addition, this data showed that crofelemer reduced stool volume output and/or frequency of watery stools, and increased urine output - an indicator of improved nutrient oral absorption.

As announced in June 2025, initial proof-of-concept results from this ongoing exploratory, single-arm open label non-randomized IIT in Abu Dhabi show that crofelemer reduced the required TPN and supplementary intravenous fluids in a third pediatric intestinal failure patient - a patient with SBS-IF. The first two patients in this IIT were taken off crofelemer after 12 weeks of treatment for a period intended to last 30 days, per the study protocol, but were promptly placed back on daily crofelemer treatment because their symptoms worsened.

The Company's strategy is to seek business development partnerships for license rights for development and commercialization of Jaguar's intestinal failure products - with the goal of generating non-dilutive funding for Jaguar.

Based on the initial findings of the ongoing IIT in Abu Dhabi, crofelemer's paradigm-shifting antisecretory mechanism of action appears to have the potential to provide a novel therapeutic option to reduce TPN and associated complications, including liver, renal, and cognitive deficits, as well as infections from IV infusion, in patients with intestinal failure due to MVID and SBS. The observed groundbreaking TPN reduction is particularly compelling for MVID, an ultrarare pediatric disease characterized by severe diarrhea and malabsorption that requires intensive parenteral support for nutritional and fluid management and for which no approved drug treatments exist, or any potential approach to reduce TPN.

As of June 23, 2025, as announced, enrollment in the Company's first-of-its-kind placebo-controlled Phase 2 study to evaluate the efficacy of crofelemer for MVID in pediatric patients was at approximately 25% and patient screening is continuing. For the Company's placebo-controlled Phase 2 study to evaluate the efficacy of crofelemer for SBS-IF in adults, enrollment is above 10%, and patient screening is continuing. Additionally, enrollment is continuing in the two ongoing proof-of-concept IITs. These are important milestones in development efforts for crofelemer for the treatment and management of intestinal failure related to these devastating orphan diseases. Additional proof-of-concept results from IITs are expected throughout 2025 and will provide additional preliminary data on the safety and potential effectiveness of crofelemer for these highly unmet clinical needs.

The global Phase 2 trial of crofelemer in adults with SBS-IF is taking place under a Clinical Trial Application ("CTA") approved by European health authorities. In August 2023, Napo's Investigational New Drug ("IND") application was activated by the FDA for a new crofelemer powder for oral solution formulation for treating MVID. Our global MVID Phase 2 trial for Jaguar is being conducted under this IND. We expect that enrollment will continue in 2025 for the MVID Phase 2 trial and the Phase 2 trial for SBS-IF, with data expected in the beginning of 2026 for both trials.

In accordance with the guidelines of specific European Union countries, published data from clinical investigations could support reimbursed early patient access to crofelemer for these debilitating conditions in 2026 while the Company pursues approval of crofelemer for SBS and MVID from the EMA and the FDA. Participation in early access programs, which do not exist in the US, provides an opportunity for reimbursement while impacting the morbidity and high cost of care for these chronic unmet needs. Additionally, the Company expects that if even just a very small number of MVID patients show benefit with crofelemer, this may potentially allow pathways for regulatory approval in the US and other regions and qualify crofelemer for participation in PRIME, a European Medicines Agency (EMA) program providing enhanced interaction and early dialogue with drug developers of novel medicines targeting unmet medical needs, and in the FDA's Breakthrough Therapies program.

In both the US and European Union, crofelemer has been granted orphan drug designation for the orphan diseases SBS and MVID. Crofelemer has been granted orphan drug designation for treatment of diarrhea in cholera in the US, where cholera is an orphan disease. Orphan drug designation in the US qualifies the sponsor of a drug for various development incentives, including tax credits for qualified clinical testing and relief of filing fees. Additionally, orphan drug designation in the US provides a seven-year period of marketing exclusivity to the first sponsor who obtains marketing approval for the designated orphan drug. Sponsors who obtain orphan drug designation in the EU for their drug can benefit from Scientific Advice from the EMA for clinical trials for the orphan indication and receive market exclusivity for a period of ten years once the medicine is approved for commercialization.

The IIT in Abu Dhabi is being conducted by Dr. Miqdady at Sheikh Khalifa Medical City (SKMC), a flagship tertiary hospital in the United Arab Emirates and the largest teaching medical center in Abu Dhabi. Dr. Miqdady, a recognized leader in pediatric gastroenterology, serves as the Chief of Pediatric Gastroenterology, Hepatology and Nutrition at SKMC. He is an American board-certified pediatric GI, hepatology and nutrition professor at Khalifa University in Abu Dhabi, and also serves as a member of Napo's Scientific Advisory Board.

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.

MVID is an ultrarare pediatric disease, with an estimated prevalence of a couple of hundred patients globally.

Most of the activities of the Company are focused on the development and commercialization of Mytesi, the ongoing clinical development of crofelemer for the prophylaxis of diarrhea in adult metastatic breast cancer patients receiving targeted cancer therapy, the ongoing commercial launch of Gelclair, and our prioritized clinical program centered around development of crofelemer for intestinal failure due to MVID and SBS.

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 that 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 GI distress, including diarrhea and abdominal discomfort. Crofelemer is in development for multiple possible follow-on indications, including for our lead Phase 3 program in CTD, investigating 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 being evaluated for chronic idiopathic/functional diarrhea in investigator-initiated trials.

Crofelemer powder for oral solution is being developed to support orphan disease indications for adults with SBS-IF and MVID patients.

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. This program is being pursued with the potential targeted incentive from the FDA for a tropical disease priority review voucher.

In December 2021, we received conditional approval from the FDA to market Canalevia, under the name Canalevia-CA1 (crofelemer delayed-release tablets), for the treatment of chemotherapy-induced diarrhea ("CID") in dogs. Canalevia-CA1, the first and only treatment for CID in dogs to receive any type of approval from the FDA, is now available from multiple leading veterinary distributors in the US. Importantly, Canalevia is not an antibiotic drug. The overuse and misuse of antibiotics, both in humans and animals, contribute to the development of bacteria that are resistant to antibiotics.

As announced, the Company plans to pursue approval from the EMA's Committee for Veterinary Medicinal Products ("CVMP") for Canalevia in the European Union for treatment of general diarrhea in dogs.

Jaguar's primary objective for Canalevia is to identify a partner with which to collaborate to achieve our three parallel goals for the drug: Obtain approval in the EU for Canalevia for treatment of general diarrhea in dogs based on existing Jaguar study data; maintain continuity of availability in the US of Canalevia for treatment of CID in dogs; and to expand the US indication from CID in dogs to treatment of general diarrhea in dogs. Jaguar has been in discussions with multiple potential animal health company partners to collaborate to bring Canalevia to regulatory approval and commercialization for general diarrhea globally.

In the EU, it may be possible to obtain approval of Canalevia for treatment of general diarrhea in dogs based on the results of a study Jaguar completed in 200 dogs with general diarrhea. While this trial did not meet its stated primary endpoint, the study results are clinically significant when analyzed using an alternate, simplified endpoint, defining treatment success as any dog that had no episodes of diarrhea following the first treatment with either Canalevia or placebo. Using this revised endpoint, the study data shows that dogs treated with Canalevia had significantly better outcomes - with fewer watery stools and significant improvement in fecal scores compared to placebo-treated dogs.

Jaguar plans to submit a dossier to the EMA's CVMP to outline the results of the updated analysis of the Company's completed study of Canalevia in dogs with general diarrhea. If acceptable to the EMA, the company will then submit a Marketing Authorization Application ("MAA") for Canalevia for general diarrhea in dogs. If the application is approved, Canalevia will be marketable for treatment of general diarrhea in dogs in all 27 EU member countries.

Data from the European Pet Food Industry Federation concluded that there were 104 million dogs in Europe in 2022. We have been pleased with the marketplace reception of crofelemer for treatment of CID in dogs in the US and believe there is clearly an unmet medical need for a product for the much larger market of treatment of general diarrhea in dogs - both in the US and the EU. We estimate that US veterinarians see approximately six million annual cases of acute and chronic diarrhea in dogs, and we look forward to identifying a partner to fund and execute development and commercialization of crofelemer for the treatment of general diarrhea in the US and/or globally. Forging a partnership for this purpose is a key focus of our business development efforts in 2025 and has been designated as a key potential catalyst for the Company this year.

Diarrhea is one of the most common reasons dogs are seen by general practice veterinarians and is the second most common reason for visits to veterinary emergency hospitals, yet there is currently no FDA-approved drug to treat general, non-infectious diarrhea in dogs. According to the American Veterinary Medical Association, there were an estimated 89.7 million dogs in the United States in 2024, with nearly half (45.5%) of US households owning a dog in 2024. Devastating diarrhea-related dehydration can occur rapidly for the animal, and the lack of easy access to outdoor facilities is a significant problem for families living in urban settings with dogs.

Canalevia-CA1 is a tablet that is given orally and can be prescribed for home treatment of CID. The FDA conditionally approves Canalevia-CA1 under application number 141-552. Conditional approval allows for product commercialization while Jaguar Animal Health continues to collect the substantial evidence of effectiveness required for full approval. We have received a 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 a year and still have the use qualify as a minor use.

In January 2023, Jaguar and Filament, with funding from One Small Planet, formed the US-based joint venture Magdalena. Magdalena's focus is on the development of novel, natural prescription medicines derived from plants for mental health and central nervous system ("CNS") indications. 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 venture aligns with Jaguar's ETI program 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 specific mental health and CNS indications. Magdalena is currently approximately 40-percent owned by Jaguar.

As announced, Jaguar recently executed an out-license deal with Magdalena for a botanical drug candidate for possible schizophrenia and psychoses indications and for development with potential corporate partners. Sourced from a medicinal plant that has a long history of use by traditional healers, the drug candidate demonstrates antipsychotic activity and has a mechanism of action distinct from currently FDA-approved therapies for schizophrenia and other mental conditions that present psychotic symptoms. The drug candidate may have the potential to be the first in a new class of plant-based antipsychotic compounds.

We believe Jaguar is poised to realize a number of near-term catalysts and value-adding benefits from 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. Additionally, several drug product opportunities in Jaguar's crofelemer pipeline are backed by Phase 2 and POC 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 flows, and we expect to continue to incur significant research and development and other expenses. Our net loss was $21.2 million and $19.0 million for the six months ended June 30, 2025 and 2024, respectively. As of June 30, 2025, we had a total stockholders' equity of $6.9 million, an accumulated deficit of $367.4 million, and cash of $2.2 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. Payments of cash compensation to directors under the Director Compensation Program for the six months ended June 30, 2025 and 2024, amounted to $213,000 and $218,000, respectively.

Revenues

Our product and license revenue consists of the following:

See "Results of Operations" below for a more detailed discussion on revenues.

Costs of Product Revenue

The cost of revenue consists of direct drug substance and drug product materials expenses, direct labor, distribution fees, royalties, and other related expenses associated with the sale of our products.

Research and Development

Research and development expenses consist primarily of clinical and contract manufacturing, personnel and related benefits, stock-based compensation, employee travel, and reforestation expenses. Clinical and contract manufacturing expenses consist primarily of costs for stability, safety, and efficacy studies and manufacturing startup at an outsourced API provider in Italy. It also includes expenses with a third-party provider for transferring 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, and we track personnel or other internal costs related to the development of specific programs or development compounds.

As of June 30, 2025, the Company has incurred approximately $2.3 million on its primary R&D projects. 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 total project costs remain uncertain due to regulatory and clinical trial complexities. Management continues to monitor timelines closely to address any risks that could impact timely project completion and future operations.

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:

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 expenses to decrease with the Phase 3 OnTarget Trial completion in the second half of 2025 as there are no significant developments on clinical trials for the succeeding months.

Materials expense and tree planting refers to the Company's ongoing environmental costs related to the sustainable sourcing of crofelemer and reforestation activities in the Amazon Rainforest. These expenses include capital investments in seedling nurseries and tree planting. As of June 30, 2025, no significant non-recurring environmental remediation costs are anticipated. The Company continues to monitor its environmental impact and may incur future costs as needed.

Sales and Marketing

Sales and marketing expenses consist of personnel and related benefits, stock-based compensation, direct sales and marketing, employee travel, and management consulting expenses. We currently incur sales and marketing expenses to promote Mytesi and Gelclair. We do not have significant marketing or promotional expenses related to Canalevia and Neonorm Calf or Neonorm Foal for the six months ended June 30, 2025 and 2024.

We expect sales and marketing expenses to increase going forward as we focus on expanding our market access activities and commercial partnerships to develop follow-on indications of Mytesi, Gelclair and crofelemer.

General and Administrative

General and administrative expenses consist of personnel and related benefits expenses, stock-based compensation expenses, employee travel expenses, legal and accounting fees, rent and facilities expenses, and management consulting expenses.

In the near term, we expect general and administrative expenses 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 FVO

Change in fair value of financial instruments and hybrid instruments designated at FVO consists of gain or loss recognized related to fair values changes of our instruments designated at FVO.

Gain (Loss) on Extinguishment of Debt

Gain (loss) on debt extinguishment consists of gain (loss) incurred related to the exchanges resulting from the extinguishment of our borrowings.

Critical Accounting Policies and Significant Judgments and Estimates

Preparing condensed consolidated financial statements in conformity with US GAAP requires using estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the consolidated 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 various other factors that we believe to be reasonable, actual results may differ from these estimates under different assumptions or conditions. Note 2 of the unaudited condensed consolidated financial statements describes our significant accounting policies. Our critical accounting policies and estimates were described in Part II, Item 7, Critical Accounting Policies and Estimates, in our Annual Report on Form 10-K for the year ended December 31, 2024.

Potential Material Effects of Trends, Events, and Uncertainties

Inflation and the Inflation Reduction Act (IRA)

The Company continues to monitor the effects of ongoing inflationary pressures and the IRA, which became effective on January 1, 2023. Inflation has contributed to higher operating costs across the pharmaceutical industry, including increases in raw material prices, distribution expenses, and labor costs. These cost pressures have affected the Company's gross margins and may continue to do so in future periods.

For three and six months ended June 30, 2025, the only material impacts of IRA are a significant reduction in the Company's Medicare Part D rebates payable to CMS and a reduction in patients' out-of-pocket copays for their Mytesi prescriptions. Management continues to assess the evolving implications of the IRA on pricing, reimbursement, and research incentives.

Lease Commitments

As of June 30, 2025, the Company holds several lease agreements, including two San Francisco office leases: Suite 400 and Suite 600. Both offices comprise 10,526 rentable square feet, with each suite accounting for 5,263 square feet. Both leases began on September 1, 2021, with an original expiration date of August 31, 2024. The first amendment executed on December 24, 2021, initially extended both leases to February 28, 2025, with monthly rent escalating from $42,000 to $45,000 in the final year.

On October 25, 2023, the second amendment extended Suite 400's lease to August 31, 2030, increased its rentable area to 5,735 square feet, bringing the total leased area to 10,998 square feet, and established a new monthly rent for Suite 400 of $18,000. The second amendment did not affect Suite 600.

The third amendment executed on January 1, 2025, extended Suite 600's lease to August 31, 2030, aligning it with the lease term of Suite 400. It also revised Suite 600's rent to $24.00 per sq. ft., with 3% annual increases. The third amendment did not affect Suite 400.

Given these escalating lease commitments, particularly the planned increases in base rent and the uncertainties surrounding the potential exercise of extension options, the Company is focused on maintaining effective liquidity management strategies to address potential cash flow impacts. Moreover, fluctuations in occupancy rates or operational changes may affect the utilization of leased spaces, thereby influencing amortization expenses associated with right-of-use assets.

The Company regularly evaluates its lease portfolio and market conditions to make informed decisions regarding future lease renewals or new lease agreements. Effective management of these lease liabilities will be essential for ensuring operational flexibility and financial stability in the upcoming years.

Results of Operations

Comparison for the six months ended June 30, 2025 and 2024

The following table summarizes the Company's operations results for the items outlined in the table for the six months ended June 30, 2025 and 2024, together with the change in such items in dollars and as a percentage.

Revenue

Product revenue

Medicaid and AIDS Drug Assistance Program ("ADAP") rebates accounted for $1.4 million and $1.3 million for the six months ended June 30, 2025 and 2024, respectively, an increase of $100,000, relative to the increase in sales volume.

Sales discounts were $566,000 and $511,000 for the six months ended June 30, 2025 and 2024, respectively, an increase of $55,000, relative to the increase in sales volume.

Sales returns were $21,000 and $126,000 for the six months ended June 30, 2025 and 2024, respectively, a decrease of $105,000, relative to the decrease in volume of sales returns.

Due to the Company's arrangements, including elements of variable consideration, gross product sales are reduced to reflect the expected consideration to arrive at net product sales. Deductions to reduce gross product sales to net product sales for the six months ended June 30, 2025 and 2024, were as follows:

Our gross product revenues were $7.1 million and $7.0 million for the six months ended June 30, 2025 and 2024, respectively. These periods reflect revenue from the sale of our human drug Mytesi and our animal products branded as Canalevia-CA1, Neonorm Calf and Neonorm Foal.

The increase in gross product revenue of $83,000 for the six months ended June 30, 2025, compared to the same period in 2024 was primarily due to the increase in the volume of sales of Mytesi, Canalevia and Neonorm. The Company launched Gelclair in the fourth quarter of 2024. Revenue recognition continued this quarter in line with the timing of product sales and applicable revenue recognition principles.

License revenue

License revenues increased by $43,000 from $43,000 for the six months ended June 30, 2024, to $86,000 in the same period in 2025, due to license agreement entered by the Company with Gen on March 18, 2024. The license revenue is recognized as the Licensee receives and consumes the benefits from the Company's performance of providing access to its intellectual property evenly over the license period of five years.

Cost of Product Revenue

The increase in cost of product revenue of $185,000 for the six months ended June 30, 2025, compared to the same period in 2024 was primarily attributable to higher costs incurred for materials, outsourced contract manufacturing services and royalty fees with Gelclair, partially offset by changes in distribution and other costs.

Research and Development

The following table presents the components of research and development ("R&D") expense for the six months ended June 30, 2025 and 2024, together with the change in such components in dollars and as a percentage:

The decrease in R&D expense of $970,000 for the six months ended June 30, 2025, compared to the same period in 2024 was largely due to:

Sales and Marketing

The following table presents the components of sales and marketing ("S&M") expense for the six months ended June 30, 2025 and 2024, together with the change in such components in dollars and as a percentage:

The increase in S&M expense of $2.0 million for the six months ended June 30, 2025, compared to the same period in 2024 was largely due to:

General and Administrative

The following table presents the components of general and administrative ("G&A") expense for the six months ended June 30, 2025 and 2024, together with the change in such components in dollars and as a percentage:

The increase in G&A expenses of $929,000 for the six months ended June 30, 2025, compared to the same period in 2024 was largely due to:

Interest Income (Expense)

Interest expense decreased by $574,000 from $503,000 expense for the six months ended June 30, 2024, to $71,000 income in the same period in 2025, primarily due to changes in accounting of certain debt instruments to FVO.

Change in Fair Value of Financial Instruments and Hybrid Instrument Designated at FVO

The fair value of financial instrument and hybrid instrument designated at FVO increase by $1.4 million, from a loss of $3.8 million in the six months ended June 30, 2024, to a loss of $2.4 million in the same period in 2025 primarily due to fair value adjustments in liability classified warrants and notes payable designated at FVO.

Gain (Loss) on Extinguishment of Debt

Gain (loss) on extinguishment of debt decreased by $3.1 million from $1.2 million gain in the six months ended June 30, 2024, to $1.8 million loss in the same period in 2025 primarily due to proceeds from debt modifications are higher than the carrying amount of debt as of second quarter of 2025, as compared to debt as of June 30, 2024, where proceeds from debt modifications are lower than the carrying amount of debt.

Segment Data

The Company has two reportable segments: animal health and human health. The animal health segment develops and commercializes products for animals, while the human health segment focuses on human products, specifically Mytesi, which is approved for the symptomatic relief of non-infectious diarrhea in adults with HIV/AIDS on antiretroviral therapy.

Comparison of the three months ended June 30, 2025, and 2024

The following table summarizes the Company's operations results to the items outlined in the table for the three months ended June 30, 2025 and 2024, together with the change in such items in dollars and as a percentage.

Revenue

Product revenue

Sales discounts were $306,000 and $239,000 for the three months ended June 30, 2025 and 2024, respectively, an increase of $67,000, relative to the increase in sales volume.

Sales returns were $4,000 and $68,000 for the three months ended June 30, 2025 and 2024, respectively, a decrease of $64,000, relative to the decrease in volume of sales returns.

Due to the Company's arrangements, including elements of variable consideration, gross product sales are reduced to reflect the expected consideration to arrive at net product sales. Deductions to reduce gross product sales to net product sales for the three months ended June 30, 2025 and 2024, were as follows:

Our gross product revenues were $3.9 million and $3.6 million for the three months ended June 30, 2025 and 2024, respectively. These periods reflect revenue from the sale of our human drug Mytesi and our animal products branded as Canalevia-CA1, Neonorm Calf and Neonorm Foal.

The increase in gross product revenue of $319,000 for the three months ended June 30, 2025 and 2024, compared to the same period in 2024 was primarily due to the increase in the volume of sales of Mytesi and Canalevia, an increase of $258,000 and $34,000, respectively. The Company launched Gelclair in the fourth quarter of 2024. Revenue recognition continued this quarter in line with the timing of product sales and applicable revenue recognition principles.

Cost of Product Revenue

The increase in cost of product revenue of $100,000 for the three months ended June 30, 2025, compared to the same period in 2024 was primarily attributable to higher costs incurred for materials, outsourced contract manufacturing services and royalty fees with Gelclair, partially offset by changes in distribution and other costs.

Research and Development

The following table presents the components of R&D expense for the three months ended June 30, 2025 and 2024, together with the change in such components in dollars and as a percentage:

The decrease in R&D expense of $388,000 for the three months ended June 30, 2025, compared to the same period in 2024 was largely due to:

Sales and Marketing

The following table presents the components of S&M expense for the three months ended June 30, 2025 and 2024, together with the change in such components in dollars and as a percentage:

The increase in S&M expense of $943,000 for the three months ended June 30, 2025, compared to the same period in 2024 was largely due to:

General and Administrative

The following table presents the components of G&A expense for the three months ended June 30, 2025 and 2024, together with the change in such components in dollars and as a percentage:

The increase in G&A expenses of $413,000 for the three months ended June 30, 2025, compared to the same period in 2024 was largely due to:

Interest Income

Interest income decreased by $93,000 from $108,000 for the three months ended June 30, 2024, to $15,000 in the same period in 2025, primarily due to changes in accounting of certain debt instruments to FVO.

Change in Fair Value of Financial Instruments and Hybrid Instrument Designated at FVO

The change in fair value of financial instrument and hybrid instrument designated at FVO decreased by $741,000, from a loss of $1.8 million in the three months ended June 30, 2024, to a loss of $1.1 million in the same period in 2025 primarily due to fair value adjustments in liability classified warrants and notes payable designated at FVO.

Loss on Extinguishment of Debt

Loss on extinguishment of debt increased by $1.8 million from zero in the three months ended June 30, 2024, to $1.8 million in the same period in 2025 due to the recognition of extinguishment accounting in the second quarter of 2025 in connection with certain debt modifications, whereas no such transactions occurred during the second quarter of 2024.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred net losses since our inception. For the six months ended June 30, 2025 and 2024, we had net losses of $21.2 million and $19.0 million, respectively. We expect to incur additional losses in the near-term future due to significant expenses incurred related to the research and development phase. At June 30, 2025, we had an accumulated deficit of $367.4 million. We continue our efforts to develop our products and continue the development of our pipeline in the near term and to date, we have generated only limited revenues.

As of June 30, 2025, we had cash of $2.2 million. While we are actively exploring various strategies to optimize our cash flows, we recognize that our current capital resources will not be sufficient to fund our operating plan for at least one year from the issuance of these unaudited condensed consolidated financial statements.

We have funded our operations primarily through issuing debt and equity securities, in addition to selling our commercial products. Cash provided by financing activities for the six months ended June 30, 2025, were generated from the issuance of an aggregate of 423,192 shares of common stock under the ATM Agreement for total net proceeds of approximately $3.3 million, $3.4 million proceeds from Convertible Notes, offset by $313,000 repayment of insurance financing, and $50,000 in principal payments of the Tempesta Note.

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 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 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 fund operating needs or ultimately achieve profitability adequately. 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.

Liquidity Management

As of June 30, 2025, the Company is actively monitoring trends in its capital resources, recognizing favorable and unfavorable developments that may materially impact its financial position. The Company has experienced a slight increase in debt levels due to recent financing activities intended to support operational growth. In contrast, equity levels remain stable, though future fundraising efforts may affect the capital structure.

The Company expects changes in the mix of capital resources, particularly concerning the relative costs of debt versus equity financing. Current market conditions indicate a trend of rising interest rates, which may increase the cost of future debt issuances.

Furthermore, the Company recognizes challenges related to liquidity. It has incurred recurring operating losses and negative cash flows, which raises uncertainties about its future liquidity. The ability to meet current obligations relies on successful ongoing development efforts and securing additional financing.

While the Company plans to finance its operations through equity and/or debt financing, collaboration arrangements, and revenue from future product sales, it currently believes that existing cash balances may not be sufficient to fund its operating plan in the next years. There can be no assurance that additional funding will be available on acceptable terms.

To address these liquidity concerns, the Company is committed to pursuing all available avenues for financing and will continuously assess its capital structure and operational needs to ensure financial stability.

Comparison of Operating Income and Cash Flow

For the six months ended June 30, 2025, the Company reported an increased operating loss of $21.2 million, up $2.2 million, or 11%, compared to the prior period. This increase was primarily driven by higher operating expenses, particularly in sales and marketing, reflecting the Company's investment in growth initiatives. Cash used in operating activities rose by $1.7 million. This smaller increase suggests a greater proportion of non-cash activities-such as depreciation and stock-based compensation-as well as higher working capital requirements to support expanded operations. The variance underscores the Company's strategic focus on managing liquidity while supporting growth and maintaining operational stability.

Analysis of Cost of Capital Resources

Changes in market conditions may impact our cost of capital resources. Rising interest rates could increase our cost of debt, while seeking equity financing may lead to higher required returns on equity due to potential dilution. We will actively monitor these factors as part of our financial strategy.

Cash Flows for the Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024

The following table shows a summary of cash flows for the six months ended June 30, 2025 and 2024:

Cash Used in Operating Activities

During the six months ended June 30, 2025, net cash used in operating activities of $13.5 million resulted from our net comprehensive loss of $21.4 million, adjusted by the change in fair value of financial instrument and hybrid instrument designated at FVO of $2.4 million, loss on extinguishment of debt of $1.8 million, depreciation and amortization expenses of $957,000, stock-based compensation of $580,000, amortization of operating lease right-of-use asset of $145,000, equity in a net loss in the joint venture of $75,000 and changes in operating assets and liabilities of $1.9 million.

Net cash used in operating activities decreased by $1.7 million compared to the prior year, primarily due to net increase in working capital despite the higher net comprehensive loss. Cash flows continue to be insufficient to meet ongoing operational needs, highlighting the Company's continued reliance on alternative funding sources.

During the six months ended June 30, 2024, net cash used in operating activities of $15.2 million resulted from our net comprehensive loss of $18.9 million, adjusted by the change in fair value of financial instrument and hybrid instrument designated at FVO of $3.8 million, stock-based compensation of $964,000, depreciation and amortization expenses of $948,000, amortization of debt discounts and debt issuance costs of $274,000, amortization of operating lease right-of-use asset of $221,000, equity in a net loss in the joint venture of $46,000 and changes in operating assets and liabilities of $1.4 million, partially offset by the gain on extinguishment of debt of $1.2 million.

Cash Used in Investing Activities

No cash was also used in investing activities during the six months ended June 30, 2025.

This reflects management's commitment to maintaining liquidity, as there were no cash outflows from investing activities during the quarter.

During the six months ended June 30, 2024, net cash used in investing activities of $16,000 consisted of a $16,000 purchase of equipment.

Cash Provided by Financing Activities

During the six months ended June 30, 2025, net cash provided by financing activities of $7.6 million consisted of $3.4 million in net proceeds from Convertible Notes, $3.2 million in net proceeds from shares issued in an At the Market offering, $1.3 million in net proceeds from shares issued to HCW investors, offset by $313,000 repayment of insurance financing, and $70,000 in principal payments of the notes payable.

Net cash provided by financing activities decreased by $17.2 million in 2025, primarily due to a decline in proceeds from the ATM offering, which totaled $24.0 million in the prior period compared to $3.2 million in the current period. This overall trend highlights the Company's continued reliance on external financing to offset cash flow shortfalls from operations.

During the six months ended June 30, 2024, net cash provided by financing activities of $24.8 million consisted of $24.0 million in net proceeds from shares issued in an At the Market offering, $1.2 million proceeds from the issuance of common shares in exchange of License Agreement, offset by $266,000 repayment of insurance financing, and $50,000 in principal payments of the notes payable.