Sunshine Biopharma, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; filed August 11, 2017. Financial statements are unaudited. The company is a development-stage pharmaceutical business pursuing generic-drug commercialization and development of its proprietary anticancer candidate, Adva-27a.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| General and administrative expense | $472,218 | $471,313 | $581,208 | $540,995 |
| Net loss | $485,444 | $481,310 | $681,146 | $786,604 |
| Net loss per share, basic | $0.00 | $0.00 | $0.00 | $0.00 |
- Margins: Not meaningful because the company reported no revenue.
- Cash flow, six months: Operating cash outflow was $185,850, investing outflow $22,295, and financing inflow $275,665. Cash increased to $128,768 from $57,453 at year-end 2016.
- Balance sheet at June 30: Total assets were $164,335; current liabilities and total liabilities were $780,624; shareholders’ deficit was $616,289. Cash was $128,768, against current liabilities of $780,624.
- Debt and liquidity: Current notes payable totaled $404,491, including $191,129 owed to related parties. The company reported substantial doubt about its ability to continue as a going concern and stated it needs additional financing.
Changes versus prior comparable periods
- Q2 net loss increased by $4,134 year over year, while six-month net loss improved by $105,458. The six-month comparison benefited from lower losses on debt conversions ($76,929 versus $253,658); 2016 also included $25,000 of litigation settlement proceeds.
- Six-month G&A increased $40,213. Accounting costs and officer/director remuneration rose; consulting and research-and-development costs fell as the company shifted resources toward generic pharmaceuticals.
- Common shares outstanding increased from 769,399,858 at December 31, 2016 to 868,594,650 at June 30, 2017. The company issued 99,194,792 shares during the six months, including shares for debt conversions, cash, equipment, and services.
Business, outlook, and material risks
- Sunshine Canada had licensing arrangements for four generic drugs and submitted its Drug Establishment License application in June 2017. A Health Canada warehouse inspection and product Drug Identification Number applications remained pending; management could not estimate approval timing.
- Management said it was evaluating 23 additional generic products for potential in-licensing. No sales had occurred, and the company’s ability to launch products depends on regulatory approvals and financing.
- Adva-27a remained preclinical. Planned next steps include GMP manufacturing, IND-enabling studies, regulatory filing, and Phase I trials. Management anticipated trials could begin in mid-2018, subject to financing; timing and outcome are uncertain.
- The company estimated it would need approximately $6 million to implement its plans ($1 million for generics and $5 million for drug development) and had no committed financing for that amount. It warned that additional financing could dilute shareholders or carry restrictive terms and high interest costs.
- A dispute with Lonza over Adva-27a manufacturing remained unresolved. Lonza sought $687,818 before proceeding, while the company said it wanted a clear plan to address low manufacturing yield first. The filing reported no other material legal proceedings.
- Disclosure controls and procedures were deemed ineffective at June 30, 2017. Cited weaknesses included insufficient qualified personnel, period-end reporting deficiencies, and inadequate controls over accounting, revenue recognition, inventory, and accruals.
- After quarter-end, the company issued 42 million shares to directors for services valued at $336,000, issued additional shares for equipment and consulting, received an $80,000 convertible note, and paid $67,422 to retire a note, including a $15,559 prepayment penalty.
- The company disclosed an independent valuation report estimating the en bloc fair market value of its issued and outstanding shares at $977 million to $1.133 billion as of March 31, 2017. It stated that the valuation was not used in preparing its financial statements.
Most important facts for investors to verify
- Whether Sunshine Canada obtains its establishment license and product approvals, and when it can begin generating sales.
- Whether the company can raise the stated funding requirement and sustain operations; the filing identifies substantial going-concern doubt.
- The terms, maturity, collateral, conversion prices, and dilution potential of outstanding and subsequent convertible notes.
- Progress and cost resolution in the Lonza manufacturing dispute, and whether Adva-27a can advance to clinical trials.
- Remediation of the disclosed control deficiencies and the basis, assumptions, and intended use of the reported independent share valuation.