Sunshine Biopharma Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included herein. This discussion includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The statements regarding Sunshine Biopharma, Inc. contained in this Report that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “anticipates,” “estimates,” “believes” or “plans,” or comparable terminology, are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Important factors known to us that could cause such material differences are identified in this report and in our annual report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable law. You are advised, however, to consult any future disclosures we make on related subjects in future reports to the SEC . About Sunshine Biopharma We are a pharmaceutical company offering and researching life-saving medicines in a wide variety of therapeutic areas, including oncology and antivirals. In addition to conducting our own drug development operations, we operate two wholly owned subsidiaries: (i) Nora Pharma Inc. (“Nora Pharma”), a Canadian corporation with a portfolio consisting of 50 generic prescription drugs on the market in Canada and 27 additional drugs scheduled to be launched during the next 18 months, and (ii) Sunshine Biopharma Canada Inc. (“Sunshine Canada”), a Canadian corporation which develops and sells nonprescription over-the-counter (“OTC”) products. History We were incorporated in the State of Colorado on August 31, 2006 and on October 15, 2009 we acquired Sunshine Biopharma, Inc. in a transaction classified as a reverse acquisition. Sunshine Biopharma, Inc. held an exclusive license to a new anticancer drug bearing the laboratory name, Adva-27a (the “License Agreement”). Upon completion of the reverse acquisition transaction, we changed our name to Sunshine Biopharma, Inc. and began operating as a pharmaceutical company. In December 2015, we acquired all worldwide issued (US Patent Number 8,236,935, and 10,272,065) and pending patents under PCT/FR2007/000697 and PCT/CA2014/000029 for the Adva-27a anticancer compound and terminated the License Agreement. In early 2020, we initiated a new R&D project focused on the development of a treatment for COVID-19 and on May 22, 2020, we filed a provisional patent application in the United States for the new coronavirus treatment. The patent application covers composition subject matter pertaining to small molecules for inhibition of the main Coronavirus protease, Mpro. On April 30, 2021, we filed a PCT application containing new research results and extending coverage to include the Coronavirus Papain-Like protease, PLpro. In June 2021, we initiated another R&D project in which we set out to determine if certain mRNA molecules can be used as anticancer agents. The data obtained for mRNA molecules bearing the laboratory name K1.1 became the subject of a new patent application filed in April 2022. In October 2022, we acquired Nora Pharma, a Canadian generic pharmaceuticals company based in the greater Montreal area. Nora Pharma has 41 employees and operates in a 15,000 square foot facility certified by Health Canada. Nora Pharma currently sells 50 generic prescription drugs in Canada. The consolidated financial statements contained in this report include the results of operations of Nora Pharma and Sunshine Canada. 16 Generic Prescription Drugs on the Market As a result of the acquisition of Nora Pharma we now have the following generic prescription drugs on the market in Canada: Drug Action/Indication Reference Brand Alendronate Osteoporosis Fosamax® Amlodipine Cardiovascular Norvasc® Apixaban Cardiovascular Eliquis® Atorvastatin Cardiovascular Lipitor® Azithromycin Antibacterial Zithromax® Candesartan Hypertension Atacand® Candesartan HCTZ Hypertension Atacand® Celecoxib Anti-inflammatory Celebrex® Cetirizine Allergy Reactine® Ciprofloxacin Antibiotic Cipro® Citalopram Central nervous system Celexa® Clindamycin Antibiotic Dalacin® Clopidogrel Cardiovascular Plavix® Donepezil Central nervous system Aricept® Duloxetine Central nervous system Cymbalta® Dutasteride Urology Avodart® Escitalopram Central nervous system Cipralex® Ezetimibe Cardiovascular Ezetrol® Finasteride Urology Proscar® Flecainide Cardiovascular Tambocor® Fluconazole Antifungal Diflucan® Fluoxetine Central nervous system Prozac® Hydroxychloroquine Antimalarial Plaquenil® Lacosamide Central nervous system Vimpat® Letrozole Oncology Femara® Levetiracetam Central nervous system Keppra® Mirtazapine Central nervous system Remeron® Metformin Diabetes Glucophage® Montelukast Allergy Singulair® Olanzapine ODT Central nervous system Zyprexa® Olmesartan Cardiovascular Olmetec® Olmesartan HCTZ Cardiovascular Olmetec Plus® Pantoprazole Acid Reflux Pantoloc® Paroxetine Central nervous system Paxil® Perindopril Cardiovascular Coversyl® Pravastatin Cardiovascular Pravachol® Pregabalin Central nervous system Lyrica® Quetiapine Central nervous system Seroquel® Quetiapine XR Central nervous system Seroquel XR® Ramipril Cardiovascular Altace® Rizatriptan ODT Central nervous system Maxalt® ODT Rosuvastatin Cardiovascular Crestor® Sertraline Central nervous system Zoloft® Sildenafil Urology Viagra® Tadalafil Urology Cialis® Telmisartan Cardiovascular Micardis® Telmisartan HCTZ Cardiovascular Micardis Plus® Tramadol Acetaminophen Central nervous system Tramacet® Zolmitriptan Central nervous system Zomig® Zopiclone Central nervous system Imovane® 17 Generic Prescription Drugs Pipeline In addition to the 50 drugs on the market, we currently have the following roster of generic prescription drugs scheduled to be launched later this year and in 2024: Generic Drugs Therapeutic Area(s) Development Stage Launch Date Group A (7 Products) Central Nervous System, Gastrointestinal, Urology Under Regulatory Review 2023Q3 Group B (1 Product) Oncology Under Regulatory Review 2023Q4 Group C (8 Products) Central Nervous System, Cardiovascular, Metabolism Under Regulatory Review 2024Q1 Group D (5 Products) Cardiovascular, Urology, Endocrinology Under Regulatory Review 2024Q2 Group E (6 Products) Urology, Cardiovascular, Oncology, Anti-infectives Under Regulatory Review 2024Q3 We believe the addition of these products to our existing portfolio will strengthen our presence in the Canadian generic drugs marketplace and provide us with greater access to pharmacies as we become more of a go-to supplier for every-day and specialty medicines. Proprietary Drugs in Development We are currently developing the following drug candidates: Proprietary Drugs Therapeutic Area Development Stage Launch Date Adva-27a (Small Molecule) Oncology (Pancreatic Cancer) IND-Enabling Studies TBD K1.1 (mRNA LNP) Oncology (Liver Cancer) Animal Testing TBD SBFM-PL4 (Small Molecule) Antiviral (COVID-19) Animal Testing TBD 18 Adva-27a Anticancer Drug Adva-27a is a small molecule designed for the treatment of aggressive forms of cancer. A Topoisomerase II inhibitor, Adva-27a has been shown to be effective at destroying Multidrug Resistant Cancer cells including Pancreatic Cancer cells, Breast Cancer cells, Small-Cell Lung Cancer cells and Uterine Sarcoma cells (Published in ANTICANCER RESEARCH, Volume 32, Pages 4423-4432, October 2012). We are the direct owner of all patents pertaining to Adva-27a including U.S. Patents Number 8,236,935 and 10,272,065. Adva-27a is a GEM-difluorinated C-glycoside derivative of Podophyllotoxin. Another derivative of Podophyllotoxin called Etoposide is currently on the market and is used to treat various types of cancer including leukemia, lymphoma, testicular cancer, lung cancer, brain cancer, prostate cancer, bladder cancer, colon cancer, ovarian cancer, liver cancer and several other forms of cancer. Etoposide is one of the most widely used anticancer drugs. Adva-27a and Etoposide are similar in that they both attack the same target in cancer cells, namely the DNA unwinding enzyme, Topoisomerase II. Unlike Etoposide however, Adva-27a has the advantage of being able to penetrate and destroy Multidrug Resistant Cancer cells. In addition, Adva-27a has been shown to have distinct and more desirable biological and pharmacological properties compared to Etoposide. In side-by-side studies using Multidrug Resistant Breast Cancer cells and Etoposide as a reference, Adva-27a showed markedly greater cell killing activity (see Figure 1). Figure 1 19 In February 2023, we signed a research agreement with the Jewish General Hospital (“JGH”), to complete the IND-enabling studies. The JGH has also agreed to negotiate with us the terms for Phase I Clinical Trials. Adva-27a’s initial indication will be pancreatic cancer for which there are currently little or no treatment options available. All aspects of the clinical trials in Canada will employ FDA standards at all levels. K1.1 Anticancer mRNA In June 2021, we initiated a new research project in which we set out to determine if certain mRNA molecules can be used as anti-cancer agents. The data collected to date have shown that a selected group of mRNA molecules are capable of destroying cancer cells in vitro including multidrug resistant breast cancer cells (MCF-7/MDR), ovarian adenocarcinoma cells (OVCAR-3), and pancreatic cancer cells (SUIT-2). Studies using non-transformed (normal) human cells (HMEC cells) showed that these mRNA molecules had little cytotoxic effects. These new mRNA molecules, bearing the laboratory name K1.1, are readily adaptable for delivery into patients using the mRNA vaccine technology. In April 2022, we filed a provisional patent application in the United States covering the subject mRNA molecules. We recently concluded an agreement with a specialized partner for the purposes of formulating our K1.1 mRNA molecules into lipid nanoparticles, ready for use to conduct studies in xenograft mice. We anticipate commencing such studies later this year. SBFM-PL4 Coronavirus Treatment The initial genome expression products following infection by Betacoronavirus, the causative agent of COVID-19, are two large polyproteins, referred to as pp1a and pp1ab. These two polyproteins are cleaved at 15 specific sites by two virus encoded proteases, called Mpro and PLpro, to generate 16 different non-structural proteins essential for viral replication. Mpro and PLpro represent attractive anti-viral drug development targets as they play a central role in the early stages of viral replication. PLpro is of particular interest as a therapeutic target in that, in addition to processing essential viral proteins, it is also responsible for suppression of the human immune system making the virus more life-threatening. PLpro is present only in Betacoronaviruses, the subgroup of Coronaviruses represented by the highly pathogenic SARS-CoV, MERS-CoV, and SARS-CoV-2. Our Anti-Coronavirus research effort has been focused on developing an inhibitor of PLpro and, on May 22, 2020, we filed a patent application in the United States covering composition subject matter pertaining to small molecules for inhibition of the Coronavirus PLpro as well as Mpro. In February 2022, we expanded our PLpro inhibitors research effort by entering into a research agreement with the University of Arizona for the purposes of conducting research focused on determining the in vivo safety, pharmacokinetics, and dose selection properties of three University of Arizona owned PLpro inhibitors, to be followed by efficacy testing in mice infected with SARS-CoV-2 (the “Research Project”). Under the agreement, the University of Arizona granted the Company a first option to negotiate a commercial, royalty-bearing license for all intellectual property developed by University of Arizona under the Research Project. In addition, the Company and the University of Arizona entered into an option agreement (the “Option Agreement”) whereby the Company was granted a first option to negotiate a royalty-bearing commercial license for the underlying technology of the Research Project. On September 13, 2022, we exercised our options, and on February 24, 2023, we entered into an exclusive worldwide license agreement with the University of Arizona for all of the technology related to the Research Project. With the evolution of the COVID-19 pandemic to its current state, we have expanded our objective to develop a late-preclinical injectable candidate of first-in-class PLpro inhibitor to treat SARS-CoV2 (and potentially SARS-CoV and MERS-CoV) infection in patients who could not use Paxlovid, Molnupiravir, or Remdesivir, due to concerns about drug interaction and possible ‘rebound’ infections and other side effects. 20 Intellectual Property We are the sole owner of all worldwide rights pertaining to Adva-27a. These patent rights are covered by PCT/FR2007/000697 and PCT/CA2014/000029. The patent applications filed under these two PCT's have been issued in the United States (US Patent Number 8,236,935 and 10,272,065), Europe, and Canada. On May 22, 2020, we filed a provisional patent application in the United States for a new treatment for Coronavirus infections. Our patent application covers composition subject matter pertaining to small molecules for inhibition of the main Coronavirus protease, Mpro, an enzyme that is essential for viral replication. The patent application has a priority date of May 22, 2020. On April 30, 2021, we filed a PCT application containing new research results and extending coverage to include the Coronavirus Papain-Like protease, PLpro. The priority date of May 22, 2020 has been maintained in the newly filed PCT application. On April 20, 2022, we filed a provisional patent application in the United States covering mRNA molecules capable of destroying cancer cells in vitro. The patent application contains composition and utility subject matter pertaining to the structure and sequence of the relevant mRNA molecules. Our recently acquired wholly owned subsidiary, Nora Pharma, owns 179 Drug Identification Numbers (“DIN’s”) issued by Health Canada for prescription drugs currently on the market in Canada. These DIN’s were secured through in-licenses or cross-licenses from international manufacturers of generic pharmaceutical products. In addition, we are the owner of two Natural Product Numbers (“NPN’s”) issued by Health Canada: NPN 80089663 authorizes us to manufacture and sell our in-house developed OTC product, Essential 9™, and NPN 80093432 authorizes us to manufacture and sell the OTC product, Calcium-Vitamin D under the brand name Essential Calcium-Vitamin D ™ . Results of Operations Comparison of results of operations for the three months ended June 30, 2023 and 2022 During the three months ended June 30, 2023, we generated $5,560,865 in sales, compared to $150,307 for the three months ended June 30, 2022, an increase of $5,410,558. The increase is attributable to sales generated by our recently acquired wholly owned subsidiary, Nora Pharma. The direct cost for generating these sales was $3,608,118 (64.9%) for the three months ended June 30, 2023, compared to $74,683 (49.7%) for the three months ended June 30, 2022. The increase in the cost of goods sold in 2023 is due to the cost of manufacturing the generic prescription drugs sold by Nora Pharma. Our gross profit grew to $1,952,747 for the three months ended June 30, 2023, compared to $75,624 for the three months ended June 30, 2022. General and administrative expenses during the three-month period ended June 30, 2023 were $2,942,370, compared to $771,420 during the three-month period ended June 30, 2022, an increase of $2,170,950. This increase was the result of increased overhead associated with being a Nasdaq listed company and expenses related to Nora Pharma operations. Specifically, we incurred increased costs in accounting ($34,221), consulting ($290,771), office ($304,978), research and development ($322,622), salaries ($960,167) and taxes ($96,649). Overall, we incurred a loss of $989,623 from our operations for the three months ended June 30, 2023, compared to a loss of $695,796 from our operations in the three-month period ended June 30, 2022. 21 In addition, we had net interest income of approximately $175,453 during the three months ended June 30, 2023, compared to a net interest income of approximately $146,043 during the three months ended June 30, 2022, as a result of interest earned on cash on hand. As a result, we incurred a net loss of $902,108 ($0.02 per share) for the three months ended June 30, 2023, compared to a net loss of $538,872 ($0.03 per share) for the three-month period ended June 30, 2022. Comparison of results of operations for the six months ended June 30, 2023 and 2022 During the six months ended June 30 2023, we generated revenues of $10,454,918, compared to revenue of $272,952 for the six months ended June 30, 2022, an increase of $10,181,966. The increase is attributable to sales generated by our recently acquired wholly owned subsidiary, Nora Pharma. The direct cost for generating these revenues was $6,674,049 for the six months ended June 30, 2023 (63.8%), compared to $134,528 (49.3%) for the six months ended June 30, 2022. The increase in the cost of goods sold in 2023 is due to the cost of manufacturing the generic prescription drugs sold by Nora Pharma. Our gross profit increased to $3,780,869 for the six months ended June 30, 2023, compared to a gross profit of $138,424 for the same period in 2022. General and administrative expenses during the six-month period ended June 30, 2023 were $6,599,473 compared to $2,057,584 during the six-month period ended June 30, 2022, an increase of $4,541,889. This increase was the result of increased overhead associated with being a Nasdaq listed company and expenses related to Nora Pharma operations. Specifically, we incurred increased costs in accounting ($130,171), consulting ($416,888), office costs ($504,931), research and development ($393,895), salaries ($2,640,424) and taxes ($160,367). Overall, we incurred a loss of $2,818,604 from our operations in the six-month period ended June 30, 2023, compared to a loss from operations of $1,919,160 in the similar period of 2022. In addition, we had net interest income of approximately $348,259 during the six months ended June 30, 2023, compared to a net interest income of approximately $133,182 during the six months ended June 30, 2022, as a result of interest earned on cash on hand. As a result, we incurred a net loss of $2,604,538 ($0.09 per share) for the six-month period ended June 30, 2023, compared to a net loss of $1,775,106 ($0.18 per share) for the six-month period ended June 30, 2022. Liquidity and Capital Resources As of June 30, 2023, we had cash or cash equivalents of $19,729,491. Net cash used in operating activities was $5,628,146 during the six months ended June 30, 2023, compared to $1,878,010 during the six-month period ended June 30, 2022. The increase was a result of the addition of Nora Pharma’s operations. Cash flows used in investing activities were $405,779 for the six months ended June 30, 2023, compared to $0 for the six months ended June 30, 2022. The increase was the result of cash invested in Nora Pharma. Cash flows provided by financing activities were $3,519,672 during the six months ended June 30, 2023, compared to $41,561,363 during the six months ended June 30, 2022. The decrease was primarily as a result of one offering made during the six months ended June 30, 2023, compared to three offerings completed in February, March, and April 2022, and due to our purchase of $506,822 in common stock in the first quarter of 2023. 22 We are not generating adequate revenues from our operations to fully implement our business plan as set forth herein. On February 17, 2022, we received net proceeds of approximately $6.8 million from the sale of common stock and warrants in an underwritten public offering. On March 14, 2022, we received net proceeds of approximately $6.8 million from the sale of common stock and warrants in a private placement. On April 28, 2022, we received net proceeds of approximately $16.8 million from the sale of common stock and warrants in a private placement. On May 16, 2023, we received net proceeds of approximately $4.1 million from the sale of common stock and warrants in a private placement. We believe our existing cash will be sufficient to fund our operations, including general and administrative expenses, research and development activities, and the generic pharmaceuticals sales business, for the next 18 to 24 months. There is no assurance our estimates will be accurate. Management estimates that we will need additional capital in the amount of approximately $30 million for expansion of our drug development activities and generic pharmaceuticals operations, including possibly a Phase I clinical trial. Additional capital may not be available on terms acceptable to us, or at all. Currently, we do not have any firm committed arrangements for financing and can provide no assurance that we will be able to obtain financing when required. No assurance can be given that we will obtain access to capital markets in the future or that financing, adequate to satisfy the cash requirements of implementing our business will be available on acceptable terms. Our inability to obtain acceptable financing could have an adverse effect upon the results of our operations and financial condition. Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a detailed list of significant accounting policies, please see our annual report on Form 10-K for the fiscal year ended December 31, 2022, including our financial statements and notes thereto included therein as filed with the SEC on April 4, 2023. Recently Adopted Accounting Standards In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements. 23 In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its unaudited consolidated financial statements. Off Balance-Sheet Arrangements None. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company and are not required to provide the information under this item.