Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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

Forward Looking Statements

This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. For example, statements in this Quarterly Report regarding our plans, strategy and focus areas are forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "aim," "anticipate," "could," "intend," "target," "project," "contemplate," "believe," "estimate," "predict," "potential" or "continue" or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report, our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 and in our publicly available filings with the Securities and Exchange Commission. Forward-looking statements reflect our analysis only as of the date of this Quarterly Report. Because actual events or results may differ materially from those discussed in or implied by forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statement. We do not undertake responsibility to update or revise any of these factors or to announce publicly any revision to forward-looking statements, whether as a result of new information, future events or otherwise.

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 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, 2025.

Overview

Jaguar Health, Inc. ("Jaguar"), in conjunction with Jaguar family company Napo Pharmaceuticals, Inc. ("Napo"), develops novel proprietary prescription drugs sustainably derived from plants for people with complicated gastrointestinal ("GI") disease states. Jaguar family companies Napo and Napo Therapeutics, S.p.A., an Italian corporation Jaguar established in Milan, Italy in 2021, are focused on expanding global crofelemer access and are developing new therapies for orphan and rare GI conditions. Magdalena Biosciences, a joint venture formed by Jaguar and Filament Health Corp., is focused on developing novel prescription medicines derived from plants for mental health indications. Jaguar Animal Health is a tradename the Company uses in the animal health space. In the animal health field, the Company focuses on developing and commercializing non-prescription GI products for companion and production animals.

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 crofelemer 125 mg delayed-release tablets (Mytesi) is an FDA-approved prescription drug for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. In January 2026, following Napo's entry into a US commercial licensing agreement with an affiliate of privately held Future Pak, LLC ("Future Pak"), Future Pak became the exclusive US marketer for Mytesi as well as the tablet formulation for animal health, Canalevia-CA1, which is Jaguar's crofelemer prescription drug for the treatment of chemotherapy-induced diarrhea in dogs. Jaguar was provided with $16.0 million of non-dilutive capital in January 2026 upon closing of the agreement with Future Pak, and satisfied the specified post-closing conditions required to receive payment of the non-dilutive $2.0 million holdback amount of the upfront fee from Future Pak. Per the terms of the agreement, Jaguar also has the opportunity to receive up to $17.0 million in additional milestone payments and other future payments. Jaguar will continue to manufacture crofelemer for Mytesi and Canalevia-CA1 for Future Pak. Mytesi and Canalevia-CA1 are both delayed-release tablet formulations of crofelemer.

On May 2025, Napo conducted a Type C Meeting with the Division of Gastroenterology at the FDA to discuss the responder analysis results of crofelemer in the cohort of breast cancer patients receiving targeted therapies with or without cytotoxic chemotherapy for prophylaxis of diarrhea from the company's pivotal OnTarget Phase 3 clinical trial. OnTarget was a 24-week (two 12-week stages), randomized, multicenter, placebo-controlled, double-blind global study to evaluate the safety and efficacy of crofelemer in diarrhea prophylaxis in adult solid tumor patients receiving targeted therapies with or without standard chemotherapy. As previously announced, the top line results from the OnTarget study showed that the trial did not meet its primary endpoint for the prespecified analysis of all tumor types and all targeted therapies. In the prespecified subgroup of patients with breast cancer, crofelemer showed statistically significant improvement in the monthly responder analysis. Breast cancer patients represent one of the largest group of adult patients with solid tumors with patients often remaining on targeted therapy over prolonged periods in both adjuvant and metastatic settings.

During the Type C Meeting in May 2025 with the Division of Gastroenterology of the FDA Napo discussed the statistically significant responder analysis results for adult patients with breast cancer in the OnTarget trial, and proposed two concurrent potential approaches during the meeting for potentially making crofelemer available to metastatic breast cancer patients with the significant unmet medical need of CTD: 1) proposed conduct of a pivotal treatment trial to facilitate approval of crofelemer for CTD in patients with metastatic breast cancer; and 2) the conduct of an expanded access program for treatment of breast cancer patients with CTD who may not be eligible for the planned phase 3 treatment trial, by 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 metastatic breast cancer patients using crofelemer.

Based on discussions with the FDA in May 2025, the company plans to submit to the FDA the final clinical study report (CSR) for the OnTarget trial together with additional details of the responder analysis in the cohort of breast cancer patients, along with a patient survey evaluating clinically meaningful reductions in the frequency of weekly loose/watery stools for patients metastatic cancer patients receiving targeted therapies with or without standard chemotherapy.

The results in the cohort of patients with breast cancer are based on responder analysis, as was also the primary endpoint in the pivotal Phase 3 ADVENT trial that led to FDA approval of crofelemer for its currently commercialized indication, under the brand name Mytesi, for the symptomatic relief of noninfectious diarrhea in adults with HIV/AIDS on antiretroviral therapy. Patients with breast cancer accounted for 183 of the 287 participants in the OnTarget clinical trial, and the results of responder analysis for patients with breast cancer were the subject of a poster presentation at the Multinational Association of Supportive Care in Cancer (MASCC) in Seattle in June 2025. A greater proportion of patients with breast cancer randomized to the crofelemer arm were monthly responders for the entire 3-month period of the OnTarget study. This research underscores the potential of crofelemer for prophylaxis of cancer therapy-related diarrhea (CTD) in adult patients with breast cancer receiving targeted therapies with or without chemotherapy.

As previously announced, it has been reported that patients with cancer-related diarrhea ("CRD") were 40% more likely to discontinue chemotherapy or targeted therapy than patients without CRD. The persistence of index cancer therapy and the time to switch were also lower for patients with CRD. Strategies to control CRD and continue cancer therapy are urgently needed. Furthermore, it has been reported that patients with CRD used significantly more resources, including outpatient services, emergency room visits, and hospitalizations. Effective prevention of CRD provides an untapped market opportunity to reduce the overall cost of cancer care. Findings from studies have indicated that patients with CRD had nearly 2.9 times higher all-cause total cost of care than patients without CRD after adjusting for covariates. Thus, prophylaxis of CRD is expected to result in a significant reduction in cancer treatment costs.

Napo is developing a novel, highly concentrated lyophilized crofelemer powder for oral solution for its prioritized focus on intestinal failure (IF) for the treatment of the ultrarare pediatric disorder, microvillus inclusion disease (MVID), and short bowel syndrome with intestinal failure (SBS-IF). Crofelemer oral powder for solution formulation is a paradigm-shifting and first-in-class drug for the development of novel therapies for these serious unmet medical conditions. This lyophilized oral powder for solution is in advanced clinical development with near-term New Drug Application (NDA) opportunity for MVID and rapid time to market for this potentially breakthrough drug. The lyophilized crofelemer powder for solution has a unique IP position with a long period of exclusivity due to the botanical origin of the drug.

Intestinal failure (IF) is a debilitating condition that often requires patients to receive life-sustaining fluids, electrolytes and nutrients through intravenous administration, which consists of total parenteral nutrition (TPN) with supplemental intravenous fluids, which together constitute parenteral support (PS). Many intestinal failure patients require PS up to 7 days a week, and sometimes for 20 hours or more per day. While PS is supportive, palliative and life-sustaining, it is associated with serious complications including liver and kidney toxicities, and compromised cognitive functioning, and can have negative impact on growth and survival.

MVID is an ultrarare, fatal pediatric disorder with around 200 patients in the US and EU combined. There are currently no approved therapies and only lifelong PS, making it one of the most serious unmet medical needs in pediatric patients due to the lethal

natural history of the disease. Crofelemer's unique physiological mechanism of modulating intestinal chloride ion secretion results in normalizing electrolyte and fluid balance in the gastrointestinal (GI) tract which reduces the need for electrolyte and fluid requirements through PS. Since MVID patients lack a brush border membrane, this physiological MOA addresses the pathophysiology of MVID, and represents a paradigm-shifting therapy for reduction of PS, which would potentially reduce TPN- and MVID-related comorbidities and improve clinical outcomes.

SBS-IF affects an estimated 12,000 patients in the US. SBS-IF patients without colon-in-continuity have poor prognosis with significant comorbidities associated with life-sustaining PS and disease pathology. Despite availability of GLP-2 therapies, which require intestinal adaptation of 2-3 years following abdominal surgery in a subset of SBS-IF patients, PS remains the life-sustaining standard of care for these patients. Novel crofelemer powder for oral solution is a first-in-class paradigm-shifting therapy which does not require intestinal adaptation and can be initiated within 6-12 months after surgery upon stabilization of PS. Since it is not a growth hormone, it can be used in SBS-IF patients who have had abdominal surgery due to cancer, mesenteric etiologies, and inflammatory bowel conditions such as Crohn's disease and colitis. Furthermore, crofelemer, due to its unique physiological MOA of modulating intestinal chloride ion secretion for maintaining electrolyte and fluid balance, can be used in combination with GLP-2 analogs as well as in patients who are either intolerant or for whom GLP-2 is contraindicated.

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, and the US population of SBS-IF patients was estimated at 12,000 patients in 2021 in a well-done epidemiology study. Despite limited treatment options, the global market for SBS is estimated to reach $7.93 billion by 2033, according to report by DataM Intelligence. MVID is an ultrarare pediatric disease, with an estimated prevalence of a couple of hundred patients globally. According to a third-party market research report, the value of the market for nutritional support for MVID is $856 million in 2026 in North America, Europe and the MENA (Middle East and North Africa) region combined, and estimated to exceed $1 billion in these markets as a whole by 2033.

Crofelemer was granted Orphan Drug Designation ("ODD") by the FDA in February 2023 for MVID, an ultrarare congenital diarrheal disorder ("CDD"), and granted ODD for MVID by the European Medicines Agency ("EMA") in October 2022. Crofelemer was granted ODD for short bowel syndrome ("SBS") by the EMA in December 2021 and by the FDA in August 2017. 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.

The Orphan Drug Act ("ODA") in the US grants special status to a small molecule drug or biological product to treat a rare disease or condition upon request of a sponsor. This status is referred to as ODD (or sometimes "orphan status"). ODD qualifies the drug's sponsor for various development incentives, including tax credits for qualified clinical testing and relief of filing fees. Additionally, the ODA provides a seven-year period of marketing exclusivity to the first sponsor who obtains marketing approval for a designated orphan drug. In the EU, receipt of ODD supports some specific regulatory pathways, and sponsors who obtain ODD 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.

Napo is currently supporting multiple proof-of-concept (POC) investigator-initiated trials (IIT), and also conducting two pivotal clinical trials, of crofelemer powder for oral solution for MVID and SBS-IF in the US, European Union (EU), and/or Middle East. The Company's trial to evaluate the safety and efficacy of crofelemer powder for oral solution in pediatric MVID patients is ongoing at multiple sites. Napo Therapeutics is conducting a Phase 2 study in adult SBS-IF patients at multiple clinical sites in Italy and Germany. An open label IIT is ongoing in pediatric IF patients with MVID and/or SBS in Abu Dhabi in the United Arab Emirates. As presented at the 58th Annual European Society for Pediatric Gastroenterology, Hepatology & Nutrition (ESPGHAN) Meeting in Lille, France in June 2026, the results of ongoing investigations of liquid oral crofelemer demonstrate substantial reductions of PS and PS normalized to body weight in pediatric IF patients dosed orally for more than one year, with no significant clinical or laboratory abnormalities. In one MVID patient, the weekly PS requirements normalized to body weight have been reduced by up to 48% following >12 months of liquid oral high-dose crofelemer therapy. In two pediatric SBS-IF patients, weekly PS requirements normalized to body weight were reduced up to 40% following >12 months of liquid oral high dose crofelemer therapy. Napo is also supporting an IIT in the US to evaluate crofelemer powder for oral solution for treatment of adult SBS-IF patients. The Company plans to pursue approval of crofelemer powder for oral solution for MVID in the US following the completion of the pivotal pediatric MVID trial. In accordance with the guidelines of specific EU countries, published data from such clinical investigations could support reimbursed early patient access to crofelemer for these debilitating IF conditions. 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 expedited pathways for regulatory approval in the US. In the US, Napo plans to pursue Breakthrough Therapy Designation (BTD) from the FDA. If a drug is designated as breakthrough therapy, the FDA will expedite the review timeline for the drug.

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 of a tropical disease review voucher from the FDA.

In keeping with the Company's focus on supportive care for patients undergoing cancer treatment, Jaguar in April 2024 signed 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 FDA-approved oral mucositis prescription product, Gelclair, for the US market. In October 2024, Jaguar initiated the commercial launch of Gelclair, the Company's third commercialized prescription product, in the US.

Oral mucositis is among the most common, painful, and debilitating cancer treatment-related side effects. Gelclair is a gel with a mechanical action indicated for the management of pain and relief of pain by adhering to the mucosal surface of the mouth. It coats and protects the oral mucosa, which supports healing. Gelclair is convenient and easy to use, provides rapid and long-lasting pain relief, and improves the ability of oral mucositis patients to eat, drink, and swallow. Unlike other products for oral mucositis, it is not a numbing agent and does not sting the mouth.

In January 2023, Jaguar and Filament Health, with funding from One Small Planet, formed the US-based joint venture Magdalena Biosciences ("Magdalena"). Magdalena's focus is on the development of novel, natural prescription medicines derived from plants for mental health indications, including, initially, cognitive impairment associated with schizophrenia (CIAS). 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 Entheogen Therapeutics Initiative (ETI) and Filament's corporate mission to develop novel, natural prescription medicines from plants. Magdalena is leveraging 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. Magdalena is currently approximately 40-percent owned by Jaguar.

In the field of animal health, Jaguar Animal Health is continuing limited activities related to developing first-in-class gastrointestinal products for dogs. In December 2021, the Company received conditional approval from the FDA to market Canalevia-CA1 (crofelemer delayed-release tablets) for the treatment of chemotherapy-induced diarrhea (CID) in dogs. The FDA conditionally approved Canalevia-CA1 under application number 141-552.

In June 2026 the company completed submission of its New Animal Drug Application (NADA) to the FDA's Center for Veterinary Medicine for full approval of crofelemer for the treatment of CID in dogs.

As announced, Jaguar is planning the commercial launch of Neonorm Dog, a new extension of Jaguar's Neonorm franchise for companion animals. Neonorm Dog is designed to provide dog owners with access to a plant-based, non-prescription product intended to support normal stool consistency and GI fluid balance in dogs. Jaguar expects to make Neonorm Dog available through both Amazon and Chewy. The Neonorm franchise currently includes Neonorm Foal and Neonorm Calf, plant-based products developed to support proper hydration and bowel health in pre-weaned foals and calves. Neonorm products contain a standardized botanical extract derived from the sustainably harvested Croton lechleri tree, which acts locally in the gut.

Napo completed its requisite preclinical and formulation activities to support the IND application for NP-300, its second-generation, plant-based oral prescription drug product, for clinical development for the 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. Following the completion of the Phase 1 trial, the Company will be positioned to initiate the next stage of our clinical development program for cholera-related diarrhea when our development team has the requisite resources and bandwidth to initiate the additional required trials.

Cholera produces a devastating loss of electrolytes and fluid in patients, and without appropriate reduction in loss of fluid and electrolytes, patients experience significant hospitalization and mortality. NP-300 provides the opportunity to treat cholera patients in combination with oral rehydration salts ("ORS") and the recommended guidelines from the World Health Organization ("WHO") for the use of appropriate antibiotics to reduce the burden of the pathogen. Appropriate preclinical toxicity studies and formulation development activities are ongoing to support the conduct of clinical studies with NP-300.

Napo received partial financial support for preclinical services from the National Institute of Allergy and Infectious Diseases ("NIAID") of the National Institutes of Health, and Napo is grateful for their support of NP-300's development.

Cholera is an acute diarrheal illness caused by intestine infection with the bacterium Vibrio cholerae. According to the Centers for Disease Control and Prevention of the US Department of Health & Human Services, an estimated 1.3 to 4 million people around the world get cholera each year, and 21,000 to 143,000 people die from it. The infection is often mild or without symptoms but can sometimes be severe. Approximately one in ten infected persons will have severe disease characterized by profuse, watery diarrhea, vomiting, and leg cramps. In these people, rapid loss of body fluids leads to dehydration and shock. Without treatment, death can occur within hours. Cholera is now endemic in many countries outside the US. From January 1, 2024 to July 28, 2024, a cumulative total of 307,433 cholera cases and 2,326 deaths were reported from 26 countries across five World Health Organization (WHO) regions. WHO classified the global resurgence of cholera as a grade 3 emergency in January 2023, the highest internal level for emergencies in WHO. Based on the number of outbreaks and their geographic expansion, alongside the shortage of vaccines and other resources, WHO continues to assess the risk at the global level as very high and the event remains classified as a grade 3 emergency.

We expect that NP-300 could be significantly less expensive and would support development efforts to receive a tropical disease priority review voucher ("TDPRV") from the FDA for an indication of the symptomatic treatment of diarrhea from acute infections such as cholera. The FDA grants priority review vouchers as an incentive to develop treatments for neglected diseases and rare pediatric diseases. Priority review vouchers are transferable and, in past transactions by other companies, have sold for prices ranging from $60 million to $350 million. The NP-300 program is paired with funding from a promissory note related to the potential future sale of a possible TDPRV.

Napo has actively ensured that its intellectual property ("IP") filings in support of the development of crofelemer for various proposed indications are protected appropriately. The IP portfolio for crofelemer includes the relief and treatment of HIV-associated diarrhea and CID as well as planned indications for inflammatory diarrhea, IBS-D, CDD, and SBS, with all indications, Napo prioritizes IP protection. Napo currently holds approximately 185 patents, the majority of which do not expire until 2027-2031.

Napo and Napo Therapeutics remain focused on the development of crofelemer powder for solution for the rare disease intestinal failure (IF) indications of MVID and SBS-IF. Our management team has significant experience in gastrointestinal product development. We have assembled an impressive group of scientific advisory board ("SAB") members who work closely with the Chair of Napo's and Jaguar's Scientific Advisory Board, Dr. Pravin Chaturvedi, who also serves as the Chief Scientific Officer ("CSO") of Napo and Jaguar.

We believe Jaguar is poised to realize the opportunities for the commercialization of crofelemer powder for oral solution for our IF programs from MVID and SBS-IF. Jaguar, through Napo, holds global unencumbered rights for crofelemer.

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 income (losses) were $4.1 million net loss and $21.2 million net losses for the six months ended June 30, 2026 and 2025, respectively. As of June 30, 2026, we had a total stockholders' equity (deficit) of $4.9 million, an accumulated deficit of $403.7 million, an accumulated other comprehensive loss of $1.2 million and cash of $3.8 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 three and six months ended June 30, 2026 amounted to $108,000 and $217,000, respectively.

Revenues

Our product and collaboration revenue consists of the following:

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

Costs of Product Revenue

The cost of product 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 ("R&D") expenses consist primarily of clinical trial expenses and contract manufacturing costs, personnel and related benefits, stock-based compensation, employee travel, and reforestation expenses. Clinical and contract manufacturing expenses consist primarily of costs for executing clinical study protocols for safety and efficacy together with evaluating the stability, and manufacturing costs for crofelemer delayed-release tablets as well as crofelemer drug substance from Alivus an outsourced, FDA-approved crofelemer API provider in India. It also includes expenses with a third-party provider for transferring the Mytesi manufacturing process and the related feasibility and validation activities at a contract manufacturing facility in the US.

We capitalize certain tangible research and development materials, such as API and intermediate lyophilized products, that have a probable alternative future use. We reclassify and expense these materials as R&D expense when they are consumed in research activities or become specifically dedicated to a clinical trial. The determination of when materials are "specifically dedicated" to a clinical trial is a critical accounting estimate because it requires significant management judgment. We evaluate dedication based on several factors, including the finalization of clinical protocols, trial-specific labeling requirements, and the initiation of trial-specific manufacturing or packaging runs. If management's judgment regarding the timing or probability of clinical trial commencement were to change, it could result in the immediate expensing of significant capitalized balances. A material delay or change in clinical strategy could result in the recognition of substantial R&D expenses in a single period, which could materially impact our reported results of operations.

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.

The Company has incurred approximately $25.0 million of expenses for its primary R&D projects from the inception of the projects until June 30, 2026. 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.

Research and development expenses decreased following the completion of the in-life portion of the Phase 3 OnTarget Trial in first half of 2025. During the second half of 2026, the Company will submit clinical study report (CSR).

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, 2026, 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-CA1 and Neonorm Calf or Neonorm Foal for the six months ended June 30, 2026 and 2025.

On January 12, 2026, Napo and the Company entered into a license agreement with Woodward and Future Pak, pursuant to which, Napo granted to Woodward an exclusive, nontransferable, sublicensable, royalty-free right and license (subject to certain exceptions as set forth in the License Agreement) under the Napo Mytesi Patents (as defined in the License Agreement) to sell, offer for sale, have sold, make, have made, promote, distribute and otherwise commercialize the Mytesi Product and the Canalevia Product. Thus, we expect no sales and marketing expenses for these products going forward.

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 expenses to decrease as we focus on our pipeline development and market access expansion on our Intestinal Failure (IF) programs.

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 ("FVO") consists of gain or loss recognized related to fair values changes of our instruments designated at FVO.

Gain (Loss) on Debt Extinguishment

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

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.

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 the three and six months ended June 30, 2026, 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, 2026, 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, 2026 and 2025

The following table summarizes the Company's results of operations with respect to the items set forth in such table for the six months ended June 30, 2026 and 2025, together with the change in such items in dollars and as a percentage.

Revenue

Product revenue

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 six months ended June 30, 2026 and 2025, were as follows:

Our gross product revenues were approximately $2.5 million and $7.1 million for the six months ended June 30, 2026 and 2025, respectively. These figures reflect revenue from the sale of our human drug Mytesi, our animal products branded as Neonorm Calf and Neonorm Foal and exclusive distribution agreement for the sale of Gelclair.

The decrease in gross product revenue of $4.6 million for six months ended June 30, 2026 compared to the same period in 2025, was primarily due to the decrease in sales volume of Mytesi, following the license agreement entered by the Company with Woodward on January 12, 2026.

Medicaid and AIDS Drug Assistance Program ("ADAP") rebates were $64,000 and $1.4 million for the six months ended June 30, 2026 and 2025, respectively, a decrease of $1.3 million due to lower product utilization within the program coupled with changes in rebate agreements and the license agreement entered by the Company with Woodward.

Sales discounts were $24,000 and $566,000 for the six months ended June 30, 2026 and 2025, respectively, a decrease of $542,000 due to changes in sales discount arrangements to various customers.

Sales returns were $0 and $21,000 for the six months ended June 30, 2026 and 2025, respectively, a decrease of $21,000 due to the decrease in volume of sales returns.

License revenue

License revenues increased by $19.0 million from $86,000 for the six months ended June 30, 2025 to $19.0 million in the same period in 2026, due to license agreement entered by the Company with Woodward. The license revenue is recognized at a point in time when control of the underlying functional intellectual property is transferred, permitting Woodward to use and benefit from the license.

Cost of Product Revenue

The following table presents the components of cost of product revenue for the six months ended June 30, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The increase in cost of product revenue of $1.1 million for the six months ended June 30, 2026 compared to 2025 was primarily due to:

Research and Development

The following table presents the components of R&D expense for the six months ended June 30, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The increase in R&D expense of $269,000 for the six months ended June 30, 2026, compared to 2025 was primarily due to:

The following table presents the components of R&D expense per project for the six months ended June 30, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The increase in R&D expense of $269,000 for the six months ended June 30, 2026 compared to 2025 was primarily 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, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The decrease in S&M expense of $4.1 million for the six months ended June 30, 2026, compared to the same period in 2025 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, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The decrease in G&A expenses of $1.1 million for the six months ended June 30, 2026, compared to the same period in 2025 was largely due to:

Interest Income (Expense)

Interest expense increased by $931,000 from $71,000 income for the six months ended June 30, 2025, to $860,000 expense in the same period in 2026, due to interest accrual on the new notes, which collectively resulted in higher interest expense incurred during the year.

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

The fair value loss of financial instrument and hybrid instrument designated at FVO decreased by $156,000, from $2.4 million in the six months ended June 30, 2025, to $2.3 million in the same period in 2026, primarily due to lower outstanding carrying amounts of royalty interests, and notes payable designated at FVO relative to their fair values, resulting in lower fair value changes during the period.

Loss on Extinguishment of Debt

Loss on extinguishment of debt increased by $2.3 million from $1.8 million in the six months ended June 30, 2025, to $4.1 million in the same period in 2026, primarily due to exchanges of royalty interest debt with Uptown and Streeterville in exchange of Series Q Preferred Stock and pre-funded warrants during the current period that qualified for extinguishment accounting.

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 for the three months ended June 30, 2026

The following table summarizes the Company's results of operations with respect to the items set forth in such table for the three months ended June 30, 2026, together with the change in such items in dollars and as a percentage.

Revenue

Product revenue

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 three months ended June 30, 2026, were as follows:

Our gross product revenues were approximately $1.2 million and $3.9 million for the three months ended June 30, 2026 and 2025, respectively. These figures reflect revenue from the sale of our human drug Mytesi, our animal products branded as Neonorm Calf and Neonorm Foal and exclusive distribution agreement for the sale of Gelclair.

The decrease in gross product revenue of $2.7 million for three months ended June 30, 2026 compared to the same period in 2025, was primarily due to the decrease in sales volume of Mytesi.

Medicaid and AIDS Drug Assistance Program ("ADAP") rebates were $0 and $656,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of $656,000 due to lower product utilization within the program coupled with changes in rebate agreements and the license agreement entered by the Company with Woodward.

Sales discounts were $0 and $306,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of $306,000 due to changes in sales discount arrangements to various customers.

Sales returns were $0 and $4,000 for the three months ended June 30, 2026 and 2025, respectively, a decrease of $4,000 due to the decrease in volume of sales returns.

Cost of Product Revenue

The following table presents the components of cost of product revenue for the three months ended June 30, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The increase in cost of product revenue of $504,000 for the three months ended June 30, 2026 compared to 2025 was primarily due to:

Research and Development

The following table presents the components of R&D expense for the three months ended June 30, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The increase in R&D expense of $71,000 for the three months ended June 30, 2026, compared to 2025 was primarily due to:

The following table presents the components of R&D expense per project for the three months ended June 30, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The increase in R&D expense of $71,000 for the three months ended June 30, 2026 compared to 2025 was primarily due to:

Sales and Marketing

The following table presents the components of sales and marketing ("S&M") expense for the three months ended June 30, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The decrease in S&M expense of $2.5 million for the three months ended June 30, 2026, compared to the same period in 2025 was largely due to:

General and Administrative

The following table presents the components of general and administrative ("G&A") expense for the three months ended June 30, 2026 and 2025, together with the change in such components in dollars and as a percentage:

The decrease in G&A expenses of $277,000 for the three months ended June 30, 2026, compared to the same period in 2025 was largely due to:

Interest Income (Expense)

Interest expense increased by $176,000 from $15,000 income for the three months ended June 30, 2025, to $161,000 expense in the same period in 2026, due to interest accrual on the new notes, which collectively resulted in higher interest expense incurred during the year.

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