Sunshine Biopharma, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. The company is a development-stage pharmaceutical business focused on cancer therapies, particularly its Adva-27a drug candidate; it also describes plans to pursue generic pharmaceutical activities through its Canadian subsidiary.
Financial performance and position
| Metric | Q2 2015 / June 30, 2015 | Comparable period / December 31, 2014 |
|---|---|---|
| Revenue | $1,708 for the quarter and first half, from scientific consulting | $0 for Q2 and first half of 2014 |
| Net loss | $517,512 for Q2; $811,879 for first half | $765,513 for Q2 2014; $1,319,644 for first half 2014 |
| Operating expenses | $369,865 for Q2; $494,690 for first half | $765,513 for Q2 2014; $1,171,387 for first half 2014 |
| Cash and cash equivalents | $157,227 | $143,423 |
| Total assets | $170,748 | $143,423 |
| Total liabilities | $436,066, including $390,640 current notes payable | $531,003 |
| Shareholders’ equity | Deficit of $265,318 | Deficit of $387,580 |
| Cash flow, first half | Operations used $417,886; financing provided $431,690; investing used $0 | Operations used $272,829; financing provided $280,000; investing used $0 |
Revenue was immaterial, so a meaningful operating margin is not indicated. The company reported interest expense of $33,226 for Q2 and $39,431 for the first half. First-half basic loss per share was approximately $0.01, versus approximately $0.02 in 2014.
Changes and notable items
- First-half net loss narrowed by $507,765 year over year as general and administrative expenses fell, principally because the company recorded no R&D expense in 2015, used fewer consultants, and incurred no public-relations fees. Management said it focused on fundraising rather than R&D.
- Lower interest expense was partly offset by losses on debt conversions: $279,466 in the six-month income statement. The filing’s cash-flow reconciliation shows a different debt-conversion adjustment of $288,931; investors should verify the reconciliation.
- The company issued 52,921,409 common shares in the first half. It also issued 500,000 Series B preferred shares to its CEO for services valued at $50,000; each preferred share carries 1,000 votes.
- At June 30, common shares outstanding were 126,472,450; the filing reports 129,290,768 outstanding as of August 6. On July 17, authorized common shares increased from 200 million to 500 million.
Liquidity, outlook, and risks
- Management states that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. It says approximately $5 million of debt and/or equity capital is needed to implement its business plan, with no assurance that funding will be obtained. Additional financing could cause dilution or involve restrictive terms and high interest costs.
- A Canadian private offering authorized up to 60 million shares at C$0.015 each. By June 30, two subscriptions totaling 20 million shares had produced approximately $236,550 in U.S. proceeds; the offering was scheduled to expire September 20, 2015.
- After quarter-end, the company engaged Emerging Growth Equities on a best-efforts basis to raise up to $5 million. The agreement provides for an 8% placement fee, warrants for 8% of securities sold, and certain expenses. This is not a guarantee of financing.
- Adva-27a’s scale-up sample reportedly met specifications, and Lonza was proceeding with 2-kilogram manufacturing. Management estimated delivery in Q1 2016 and Phase I trials in late 2016 or early 2017, subject to financing and other conditions. The filing describes an estimated 18-month trial period; clinical, regulatory, and marketing outcomes are uncertain. No FDA or other regulatory filing had been made as of the report date.
- Other risks include competition from better-resourced pharmaceutical companies, the need to secure manufacturing and clinical-development funding, and the possibility that the drug candidate will not succeed or receive approval. The company disclosed litigation it initiated against JMJ Financial concerning a convertible note; mediation was anticipated for late August 2015. It said another outstanding matter was not expected to present material potential liability.
- Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material changes in internal control over financial reporting during the period.
Important facts for investors to verify
- Availability, timing, terms, and net proceeds of new financing, including the post-quarter best-efforts offering and remaining Canadian offering.
- Cash runway against the reported first-half operating cash use and the company’s stated $5 million funding requirement.
- Debt balances, maturities, conversion terms, and the discrepancy between debt-conversion loss and cash-flow adjustment figures.
- Share dilution and voting control, including subsequent conversions, the increased authorized share count, and the Series B preferred stock’s voting rights.
- Lonza manufacturing progress, actual delivery timing, required IND-enabling work, regulatory filings, and the feasibility of the projected clinical-trial schedule.