Sunshine Biopharma, Inc. — Q3 2022 Form 10-Q
Business context and period: This unaudited quarterly report covers the three and nine months ended September 30, 2022. Sunshine Biopharma develops drug candidates, including Adva-27a, K1.1 mRNA and SBFM-PL4, and sells the Essential 9 nutritional supplement. On October 20, 2022, after quarter-end, it acquired Canadian generic-drug company Nora Pharma.
Financial results and liquidity
- Revenue: Q3 revenue was $132,808, up from $50,376 in Q3 2021; nine-month revenue was $405,760, versus $143,308. All reported revenue came from nutritional supplements.
- Gross profit and margin: Q3 gross profit was $67,025, compared with $30,870; gross margin was approximately 50.5%, down from 61.3%. Nine-month gross profit was $205,449, versus $86,767; margin was approximately 50.6%, down from 60.5%. The company attributed higher cost of sales to manufacturing costs.
- Operating expenses and losses: Q3 general and administrative expenses rose to $1.79 million from $527,129, and operating loss widened to $1.72 million from $496,259. For nine months, expenses increased to $3.84 million from $2.25 million and operating loss widened to $3.64 million from $2.16 million.
- Net loss: Q3 net loss was $1.46 million, versus $4.04 million; nine-month net loss was $3.23 million, versus $13.10 million. The improvement principally reflects the absence of prior-year debt-conversion losses ($3.50 million in Q3 2021 and $10.71 million in the first nine months of 2021) and 2022 interest income of $260,938 for Q3 and $406,984 year to date. Operating losses increased.
- Cash flow: Nine-month operating cash use was $3.00 million, compared with $1.52 million in 2021. Financing provided $41.56 million, mainly from 2022 equity offerings and warrant exercises. Investing cash flow was zero. Cash increased to $40.56 million from $2.05 million at December 31, 2021.
- Balance sheet and debt: At September 30, cash was $40.56 million, current assets $40.86 million, and current liabilities $480,209, implying substantial reported short-term liquidity. Total liabilities were $480,209; notes payable were zero, versus $1.90 million at year-end 2021. Shareholders’ equity was $40.38 million.
Material changes and capital structure
The company raised net proceeds of approximately $6.8 million in a February public offering, $6.8 million in a March private placement and $16.8 million in an April private placement. It also received proceeds from warrant exercises. Common shares outstanding increased from 2,591,240 at December 31, 2021 to 18,885,632 at September 30, 2022; the cover reports 22,585,632 shares outstanding on November 7. At September 30, the filing lists 11,490,284 outstanding warrants across three warrant classes, creating potential dilution.
On October 20, the company acquired Nora Pharma for CAD $30 million (approximately $21.9 million): CAD $20 million in cash, CAD $5 million in company shares, and up to CAD $5 million in contingent earn-out payments tied to sales targets and the seller’s continued employment. Nora reported USD $10.7 million in sales and $0.3 million in net income for its fiscal year ended June 30, 2022. These post-quarter results are not included in the reported period’s financial statements.
Outlook, risks and other disclosures
- Management said existing cash was expected to fund operations, expanded R&D and the supplement business for the next 24 months, but cautioned that estimates may be inaccurate. The company has no committed future capital sources and expects it may need to raise additional funds, including for R&D, clinical trials and Nora Pharma expansion.
- SBFM-PL4 remained in preclinical development; further studies and testing in infected mice were planned before any human trials. The company exercised its option to pursue University of Arizona PLpro technology in September 2022.
- For Adva-27a, planned steps include GMP manufacturing, IND-enabling studies, regulatory filing and a proposed Phase I pancreatic cancer trial. The filing notes no assurance of trial success, regulatory progress, a licensing or sale offer, or adequate funding to develop and commercialize the drug.
- The company planned to begin K1.1 mRNA mouse xenograft studies within approximately 12 months, subject to formulation work with potential partners. It was also considering a 2023 launch of its approved Essential Calcium-Vitamin D supplement.
- Management cited increased marketing, R&D and Nasdaq-related professional costs. It warned that COVID-19-related conditions could adversely affect business and fundraising, with duration and impact uncertain. No material legal proceedings or off-balance-sheet arrangements were reported.
- Management concluded disclosure controls were effective at a reasonable-assurance level as of September 30, 2022; no material change in internal control was reported. The filing does not provide a separate numerical forecast for revenue, profit or cash flow.
Important facts for investors to verify
- How the Nora Pharma acquisition was funded and its post-acquisition cash, debt, operating results and purchase accounting; those effects are not reflected in September 30 balances.
- The reconciliation between 18,885,632 shares outstanding at quarter-end and 22,585,632 reported on November 7, including subsequent warrant exercises and dilution.
- The number, terms and potential dilution of outstanding warrants, and the filing’s diluted-loss-per-share treatment while the company reported net losses.
- Whether supplement revenue growth and gross margins can improve enough to reduce operating losses, given the small revenue base and higher operating expenses.
- The assumptions supporting the 24-month cash runway, particularly after the Nora acquisition and planned R&D, clinical development and expansion spending.