Sunshine Biopharma, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Financial figures are in U.S. dollars unless stated otherwise.
Business context
Sunshine combines Canadian generic-drug and OTC-product sales with early-stage proprietary drug research. Its October 20, 2022 acquisition of Nora Pharma added a Canadian generic-pharmaceutical business with 49 prescription drugs and 11 OTC products; Nora’s results are consolidated only from the acquisition date. Proprietary candidates Adva-27a (oncology), K1.1 (mRNA oncology), and SBFM-PL4 (COVID-19) had no regulatory approval and remained in preclinical development.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $4.35 million | $228,426 |
| Cost of sales | $2.65 million | $117,830 |
| Gross profit / margin | $1.70 million / 39.0% | $110,596 / 48.4% |
| General and administrative expenses | $28.70 million | $2.55 million |
| Net loss | $26.74 million | $12.44 million |
| Basic and diluted loss per share | $(1.76) | $(4.76) |
| Cash used in operations | $5.25 million | $1.83 million |
| Cash and cash equivalents, year-end | $21.83 million | $2.05 million |
Revenue rose mainly because Nora Pharma contributed $3.80 million after acquisition. The company recorded an $18.33 million goodwill impairment, a major component of the year’s expenses. Financing activities provided $39.47 million, including $30.37 million net proceeds from stock offerings and $13.19 million from warrant exercises; investing activities used $14.62 million, primarily for the Nora acquisition. The company reported no notes payable at year-end 2022, compared with $1.90 million in 2021. Year-end liabilities were $7.62 million, including a $3.63 million acquisition earnout payable and $765,258 in lease liabilities. Current assets of $27.31 million compared with current liabilities of $6.93 million.
Material changes, outlook and risks
- The Nora Pharma acquisition substantially changed the business mix and expanded the company’s commercial operations. The purchase consideration was $18.86 million, paid with $14.35 million cash and 3.7 million common shares valued at $4.51 million; the company also paid $2.06 million of Nora debt.
- Management stated that existing cash was expected to fund operations for approximately 24 months, while also noting that additional capital would likely be needed and was not assured. The company said it was not generating adequate operating revenue to fully implement its business plan.
- Management listed anticipated launches for groups of generic products during 2023–2024, subject to regulatory review. Proprietary candidates had no firm launch dates. In February 2023, the company signed an agreement with Jewish General Hospital for Adva-27a IND-enabling studies; clinical trials and regulatory approvals remained future, uncertain steps.
- Key risks include continued losses and potential need for financing; generic-drug price competition, customer concentration and supply-chain disruptions; clinical, regulatory, manufacturing and commercialization uncertainty for development candidates; and dilution from outstanding warrants and future equity financing.
- A $5.0 million CAD acquisition earnout is payable based on sales growth and specified employment conditions. The CEO’s employment agreement provides for a $10 million payment if the company terminates him without cause and a $2 million payment upon agreement expiration.
- After year-end, the company announced a stock-repurchase program of up to $2 million and reported repurchasing 445,711 shares for $506,822 through the filing date. The filing states repurchased shares had not been returned to treasury.
- The independent auditor issued an unqualified opinion and reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal controls, as the company was exempt as a smaller reporting company.
Important facts for investors to verify
- Reconcile the reported net-loss and income-tax figures: the MD&A gives a $26.51 million loss before taxes, while the statements report a $26.74 million net loss and a $233,304 tax provision; the tax note reports total tax provision of $143,484.
- Check the goodwill disclosures: the acquisition allocation reports $18.33 million of goodwill and a full impairment, while a later note refers to $18.23 million; confirm the recorded balance and impairment treatment.
- Assess the sustainability and cash conversion of Nora Pharma revenue, including the fact that only post-acquisition results are included in reported FY2022 revenue.
- Review the $3.63 million earnout’s payment terms, conditions and accounting, as well as the CEO agreement’s potential termination and expiration payments.
- Evaluate potential dilution and financing needs. At year-end, 9.73 million April warrants were outstanding at $3.76 per share, in addition to other warrants; shares outstanding were 22.59 million at December 31, 2022.