Sunshine Biopharma, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Financial statements are unaudited. The company is a development-stage pharmaceutical business pursuing Canadian generic-drug sales and development of its proprietary anticancer candidate, Adva-27a.
Financial results and liquidity
| Metric | Q3 2017 / September 30, 2017 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 for the quarter and nine months | $0 in the 2016 comparable periods |
| Net loss | $147,611 for Q3; $828,757 for nine months | $1,585,620 for Q3 2016; $2,372,224 for nine months 2016 |
| General and administrative expense | $113,805 for Q3; $695,013 for nine months | $116,016 for Q3 2016; $657,011 for nine months 2016 |
| Interest expense | $27,427 for Q3; $46,169 for nine months | $12,129 for Q3 2016; $29,080 for nine months 2016 |
| Cash and cash equivalents | $188,086 | $57,453 at December 31, 2016 |
| Operating cash flow | $(334,038) for nine months | $(282,988) for nine months 2016 |
| Financing cash flow | $456,541 for nine months | $255,293 for nine months 2016 |
| Total current liabilities | $609,865 | $274,104 at December 31, 2016 |
| Shareholders’ equity (deficit) | $(353,865) | $(209,700) at December 31, 2016 |
- Current assets were $197,906, implying a working-capital deficit of approximately $411,959. Current liabilities included $391,569 of notes payable and $200,177 of related-party notes payable. The filing presents no clear separate total-debt figure beyond these balance-sheet amounts.
- Cash increased by $130,633 from year-end, supported primarily by financing. The company reported no investing cash flow in the nine-month period.
- Margins are not meaningful because the company had no revenue. Basic loss per share is displayed as $0.00 for 2017 despite reported net losses; the filing also reports approximately $0.01 loss per share for 2016 comparable periods.
Material changes and unusual items
- Nine-month net loss improved by about $1.54 million year over year, chiefly because debt-conversion losses fell to $76,929 from $1.72 million. This was partly offset by higher G&A, higher interest expense, and the absence of $25,000 of litigation-settlement proceeds recorded in 2016.
- Q3 net loss fell to $147,611 from $1.59 million in Q3 2016, principally because the prior-year quarter included a $1.47 million debt-conversion loss.
- During the nine months, the company issued 149.3 million common shares. This included 42.5 million shares to convert debt and shares issued for cash, services, directors’ fees, equipment, and other services. Common shares outstanding rose to 918.7 million from 769.4 million at year-end; 349.1 million shares were reserved for issuance.
- In August, the company paid off a $50,000 note with interest and a $15,559 prepayment penalty. After quarter-end, it paid $85,107 to settle another note, including a $17,500 prepayment penalty, and received a new convertible note with a face value of $115,000.
- Management cited an independent valuation report estimating the en bloc fair market value of issued and outstanding shares at $977 million to $1.133 billion as of March 31, 2017. The filing states this valuation was not used in the financial statements.
Outlook, operations and risks
- Going concern: The company reports recurring operating losses and negative operating cash flows that raise substantial doubt about its ability to continue as a going concern. It depends on additional financing; there is no assurance funding will be available on acceptable terms or at all.
- Management estimates it needs approximately $6 million to implement its plans: $1 million for generic-drug operations and $5 million for proprietary drug development. It entered a best-efforts placement-agent agreement for a proposed equity financing of up to C$10 million and stated that listing support for a potential TSX Venture Exchange listing was also contemplated. Completion and proceeds are not assured.
- The four licensed generic products are anastrozole, letrozole, bicalutamide and finasteride. The company was awaiting Health Canada inspection for its Drug Establishment License and was preparing Drug Identification Number applications; timing was uncertain. It was reviewing 23 additional generic products for potential in-licensing.
- Adva-27a remained preclinical. Management said development had been delayed by lack of funding and described GMP manufacturing, IND-enabling studies and Phase I trials as next steps. Subject to financing, it anticipated Phase I trials beginning in mid-2018 and lasting about 18 months; these are forward-looking expectations, not assured outcomes.
- A dispute with Lonza over low yield from a pilot manufacturing run remained unresolved. Lonza reportedly required $687,818 before further work; the company said it wanted a defined solution to the yield issue before paying. No other material legal proceedings were reported.
- Disclosure controls and procedures were assessed as ineffective at September 30, 2017. Cited weaknesses included staffing and CFO experience, period-end reporting, accounting policies, transaction review, revenue recognition, inventory controls, and accruals. The board said it was reviewing remediation options.
- Related-party exposure includes notes owed to the CEO and a principal shareholder, renewed through December 31, 2017, and officer/director compensation of $401,739 for the nine months, including $60,114 paid to a CEO-controlled company.
- One generic product, anastrozole, carries a royalty obligation of 5% of net sales for three years from its first sale. The filing does not report sales to date.
Important facts for investors to verify
- Whether the company can raise the capital it says it needs, and the resulting debt terms, dilution, and liquidity runway.
- Health Canada inspection and licensing progress, DIN applications, and whether any generic products can be launched and generate revenue.
- Funding, manufacturing resolution, regulatory milestones, and actual timing and feasibility of Adva-27a clinical development.
- Current note balances, maturities, conversion discounts, related-party terms, and post-quarter financing and repayments.
- Progress in remediating ineffective disclosure and financial-reporting controls, and clarification of the reported per-share loss presentation.
- Status and potential financial consequences of the Lonza dispute; the reported valuation was not used in the financial statements.