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. In connection with, and because we desire to take advantage
of, the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995, we caution readers
regarding certain forward looking statements in the following
discussion and elsewhere in this report and in any other statement
made by, or on our behalf, whether or not in future filings with
the Securities and Exchange Commission. Forward looking statements
are statements not based on historical information and which relate
to future operations, strategies, financial results or other
developments. Forward looking statements are necessarily based upon
estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control and many of
which, with respect to future business decisions, are subject to
change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from
those expressed in any forward looking statements made by, or on
our behalf. We disclaim any obligation to update forward looking
statements.
Overview and History
We
were incorporated in the State of Colorado on August 31, 2006 under
the name “Mountain West Business Solutions,
Inc.” Until October 2009, our business was to
provide management consulting with regard to accounting, computer
and general business issues for small and home-office based
companies. Effective October 15, 2009, we executed an agreement to
acquire Sunshine Biopharma, Inc., a Colorado corporation, in
exchange for the issuance of 21,962,000 shares of our Common Stock
and 850,000 shares of Convertible Preferred Stock, each convertible
into twenty (20) shares of our Common Stock. As a result of this
transaction we changed our name to “Sunshine Biopharma, Inc.
and our officers and directors resigned their positions with us and
were replaced by our current management. The majority of the Common
Shares and all of the Convertible Preferred Shares we issued for
this transaction were issued to Advanomics Corporation, a privately
held Canadian company (“Advanomics”). As a result of
the issuance of this stock, Advanomics became a related party. On
December 21, 2011, Advanomics exercised its right to convert the
850,000 shares of Series “A” Preferred Stock it held in
our Company into 17,000,000 shares of Common Stock.
We operated under a technology license agreement
with Advanomics until December 2015, at which time we acquired all
of the worldwide right to the technology and became direct owner of
all issued and pending patents pertaining to our technology.
See “Plan of Operation – Intellectual Property”
below
.
Our principal place of business is located at 469
Jean-Talon West, 3
rd
Floor, Montreal, Quebec, Canada H3N
1R4. Our phone number is (514) 764-9698 and our website
address is
www.sunshinebiopharma.com
.
We
have not been subject to any bankruptcy, receivership or similar
proceeding.
Results Of Operations
Comparison of Results of Operations for the nine months ended
September 30, 2016 and 2015
For
the nine months ended September 30, 2016 and 2015, we did not
generate any significant revenue.
General
and administrative (“G&A”) expenses during the nine
month period ended September 30, 2016 were $657,011, compared to
G&A expense of $607,743 incurred during the nine month period
ended September 30, 2015, an increase of $49,268. While this
overall increase is not very large, some of the individual items in
our G&A expenses saw a significant increase or decrease during
the nine month period ended September 30, 2016. Specifically, we
saw an increase in our executive compensation of $205,719. This
increase was a result of stock issued to each of our officers and
directors during the second quarter of 2016. All of the executive
compensation paid during both 2016 and 2015 arose from the issuance
of shares of our Common or Preferred Stock. We also incurred
$49,045 in additional consulting fees as a result of stock based
payments to consultants we engaged to provide services related to
our Generic Pharmaceuticals Business. In addition, we saw a $24,136
increase in research and development expense during the nine months
ended September 30, 2016, compared to no R&D expenditure during
the similar period in 2015. We also incurred $19,190 in additional
office and travel expenses during the nine months ended September
30, 2016. In addition, we incurred $45,169 in amortization and
depreciation during the nine months ended September 30, 2016 which
we did not incur during the same period in 2015. This amount of
amortization and depreciation is largely related to the patents we
purchased in 2015. Finally, we saw an increase of $19,203 in
generic drugs licenses expenses which we did not have in the same
period in 2015. This expense is the result of new generic drugs
license agreements we signed during the period ended September 30,
2016. See Note 9 of the Financial Statements. These increases were
offset by our no longer being required to pay a license fee, which
saved $259,094 because we acquired the patent rights which were
previously the subject of the license fee. See “Plan of
Operation – Intellectual Property” below, as well as a
decrease of $50,074 in legal fees as the litigation we were
involved in was settled in exchange for a $25,000 payment made to
us during the nine month period ended September 30,
2016.
We
also incurred $29,080 in interest expense during the nine months
ended September 30, 2016, compared to $49,186 in interest expense
during the similar period in 2015 as a result of decreased
borrowings. However, we incurred $1,719,304 in losses
arising from debt conversion during the nine months ended September
30, 2016, compared to $359,677 on losses from debt conversion
during the nine months ended September 30, 2015, a difference of
$1,359,627. Although we retired over $1,000,000 in convertible debt
(including the related party debt in the amount of $835,394 for the
patents purchased in 2015) during the nine month period ended
September 30, 2016, we do not anticipate that we will fund our
operations using convertible debt financing moving forward. We also
negotiated the release of $7,790 of outstanding debt during the
nine months ended September 30, 2016
As
a result, we incurred a net loss of $2,372,224 (approximately $0.01
per share) for the nine month period ended September 30, 2016,
compared to a net loss of $1,005,229 (approximately $0.01 per
share) during the nine month period ended September 30,
2015.
Comparison of Results of Operations for the three months ended
September 30, 2016 and 2015
General
and administrative expenses during the three month period ended
September 30, 2016 were $116,016, compared to general and
administrative expense of $113,053 incurred during the three month
period ended September 30, 2015, an increase of $2,963. While this
increase was not overly significant, the various components of our
general and administrative expense varied significantly from prior
results of operations.
Specifically,
licensing fees decreased from $64,986 to nil during the three
months ended September 30, 2016 compared to the similar period in
2015 because we acquired the patent rights which were previously
the subject of the license fee. See “Plan of Operation
– Intellectual Property” below. Research and
development costs also decreased by $8,657, as our management
concentrated on developing our newly launched Generics
Pharmaceuticals Business. See “Plan of Operation”
below. Legal fees decreased by $16,621 because we were
no longer involved in any litigation. Offsetting these decreases
were increases in generic drugs licensing fees, accounting fees,
consulting fees and amortization and depreciation expenses. We
incurred $11,442 in generic drugs licenses expenses which we did
not incur in the same period in 2015. This expense is the result of
new generic drugs license agreements we signed during the period
ended September 30, 2016. See Note 9 of the Financial Statements.
We also incurred $43,611 in increased accounting fees during the
three months ended September 30, 2016, compared to the similar
period in 2015 because we used stock based compensation to pay for
all of 2016 bookkeeping and tax related services. The stock issued
in connection with these services was expensed at market value
during the three month period ended September 30, 2016. Similarly,
consulting fees increased by $18,043 during the three months ended
September 30, 2016 compared to the similar period in 2015 for
services related to financing and development of the Generic
Pharmaceuticals Business. Finally, we incurred $14,963 in
amortization and depreciation expenses during the three months
ended September 30, 2016 which we did not incur during the same
period in 2015, largely related to the patents we acquired in
2015.
We
also incurred $12,129 in interest expense during the three months
ended September 30, 2016, compared to $9,755 in interest expense
during the similar period in 2015 as a result of decreased
borrowings. However, we incurred $1,465,646 in losses
arising from debt conversion during the three months ended
September 30, 2016, compared to $80,211 during the corresponding
period in 2015. We also negotiated the release of $7,790 of
outstanding debt during the three months ended September 30,
2016.
As
a result, we incurred a net loss of $1,585,620 (approximately $0.00
per share) during the three month period ended September 30, 2016,
compared to a net loss of $202,815 (approximately $0.00 per share)
during the three month period ended September 30,
2015.
Because
we did not generate any significant revenues during our prior two
fiscal years, following is our Plan of Operation.
Plan of Operation
Until
recently, we have been operating as a pharmaceutical company
focused on the research, development and commercialization of drugs
for the treatment of various forms of cancer. Following
our recent entry and expansion into the generic pharmaceuticals
business, we have become a fully integrated pharmaceutical company
offering generic and proprietary drugs for the treatment of cancer
and other acute and chronic indications. In what follows, we
describe our generic pharmaceuticals operations followed by our
proprietary drug development activities.
Generic Pharmaceuticals Operations
On July
25, 2014, we formed Sunshine Biopharma Canada Inc. (“Sunshine
Canada”), a Canadian wholly owned subsidiary for the purposes
of conducting generic pharmaceuticals business in Canada and
elsewhere around the globe. Sunshine Canada recently signed Cross
Referencing Agreements with a major pharmaceutical company for four
prescription generic drugs for the treatment of Breast Cancer,
Prostate Cancer and Enlarged Prostate. We will market and sell
these new pharmaceutical products under our own Sunshine Biopharma
label. These four generic products are as follows:
●
Anastrozole (brand
name Arimidex® by AstraZenica) for treatment of Breast
Cancer
●
Letrozole (brand
name Femara® by Novartis) for treatment of Breast
Cancer
●
Bicalutamide (brand
name Casodex® by AstraZenica) for treatment of Prostate
Cancer
●
Finasteride (brand
name Propecia® by Merck) for treatment of BPH (Benign
Prostatic Hyperplasia)
Worldwide sales of
the brand name version of these products as reported by the
respective owner of the registered trademark are as
follows:
●
Arimidex®
$250M in 2015
●
Propecia®
$183M in 2015
Sunshine Canada is
currently in the process of securing a Drug Identification Number
(“DIN”) for each of these products from Health Canada.
The Company is also working on finding an appropriate facility and
obtaining a Drug Establishment License (“DEL”) from
Health Canada. Upon receipt of the DEL and DIN’s, we will be
able to accept orders for our own label SBI-Anastrozole,
SBI-Letrozole, SBI-Bicalutamide and SBI-Finasteride. While no
assurances can be provided, we hope to build a much larger
portfolio of “SBI” label Generic Pharmaceuticals over
time.
While
no assurances can be provided and subject to the availability of
adequate financing, of which there is no assurance, we anticipate
that profits from the sales of Generic Products will be used to
finance our proprietary drug development program, including
Adva-27a, our flagship anticancer compound. In addition to
near-term revenue generation, building the generics business
infrastructure and securing the proper permits will render Sunshine
Canada appropriately positioned for the marketing and distribution
of our proprietary Adva-27a drug candidate, provided that Adva-27a
is approved for such marketing and distribution, of which there can
be no assurance.
Proprietary Drug Development Operations
Since
inception, our proprietary drug development activities have been
focused on the development of a small molecule called Adva-27a for
the treatment of aggressive cancers. 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). Sunshine Biopharma is direct owner of all
issued and pending worldwide patents pertaining to Adva-27a
including U.S. Patent Number 8,236,935 (See “Intellectual
Property” below).
Adva-27a Preclinical Studies
Adva-27a is a
GEM-difluorinated C-glycoside derivative of Podophyllotoxin,
targeted for various forms of cancer. If we are
successful in our current financing efforts, Adva-27a is expected
to enter Phase I clinical trials for pancreatic cancer and, in
parallel, multidrug resistant breast cancer in late 2017. See
“Clinical Development Path” and “Clinical
Trials” below. 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. Like Etoposide, Adva-27a
is a Topoisomerase II inhibitor; however, unlike Etoposide and
other anti-tumor drugs currently in use, Adva-27a is able to
destroy Multidrug Resistant cancer cells. Adva-27a is a
new chemical entity and has been shown to have distinct and more
desirable biological properties compared to
Etoposide. Most notably, Adva-27a is very effective
against Multidrug Resistant breast cancer cells while Etoposide has
no activity against this aggressive form of cancer (see Figure
1). In other side-by-side studies against Etoposide as a
reference, Adva-27a showed markedly improved cell killing activity
in various other cancer types. Our preclinical studies to date have
shown that:
●
Adva-27a is
effective at killing different types of Multidrug Resistant cancer
cells, including:
°
Breast
Cancer Cells (MCF-7/MDR)
°
Small-Cell Lung
Cancer Cells (H69AR)
°
Uterine Sarcoma
Cells (MES-SA/Dx5)
°
Pancreatic Cancer
Cells (Panc-1)
●
Adva-27a is
unaffected by P-Glycoprotein, the enzyme responsible for making
cancer cells resistant to anti-tumor drugs.
●
Adva-27a has
excellent clearance time (half-life = 54 minutes) as indicated by
human microsomes stability studies and pharmacokinetics data in
rats.
●
Adva-27a clearance
is independent of Cytochrome P450, a mechanism that is less likely
to produce toxic intermediates.
●
Adva-27a is an
excellent inhibitor of Topoisomerase II with an IC50 of only 13.7
micromolar (this number has recently been reduce to 1.44 micromolar
as a result of resolving the two isomeric forms of
Adva-27a).
●
Adva-27a has shown
excellent pharmacokinetics profile as indicated by studies done in
rats.
●
Adva-27a does not
inhibit tubulin assembly.
These
and other preclinical data have been published in ANTICANCER
RESEARCH, a peer-reviewed International Journal of Cancer Research
and Treatment. The manuscript entitled “Adva-27a,
a Novel Podophyllotoxin Derivative Found to Be Effective Against
Multidrug Resistant Human Cancer Cells” appeared in print in
the October 2012 issue of the journal [ANTICANCER
RESEARCH
32
: 4423-4432
(2012)]. A copy of the full manuscript as it appeared in
the journal is available on our website at
www.sunshinebiopharma.com
.
Clinical Development Path
The
early stage preclinical studies for our lead compound, Adva-27a,
were successfully completed and the results have been published in
ANTICANCER RESEARCH
32
:
4423-4432 (2012). We have been delayed in our
implementation of our clinical development program due to lack of
funding. Our fund raising efforts are continuing and as
soon as adequate financing is in place we will continue our
clinical development program of Adva-27a by conducting the next
sequence of steps comprised of the following. There are
no assurances we will be successful in our fund raising
efforts:
●
GMP
Manufacturing of 2 kilogram for use in IND-Enabling Studies and
Phase I Clinical Trials
●
Regulatory Filing
(Fast-Track Status Anticipated)
●
Phase
I Clinical Trials (Pancreatic Cancer and Multidrug Resistant Breast
Cancer)
GMP Manufacturing
On
November 14, 2014, we entered into a Manufacturing Services
Agreement with Lonza Ltd. and Lonza Sales Ltd. (hereinafter jointly
referred to as “Lonza”), whereby we engaged Lonza to be
the manufacturer of our Adva-27a anticancer drug (the “Lonza
Agreement”). Lonza is one of the world’s
leading and most-trusted manufacturers of pharmaceutical
ingredients. Headquartered in Basel, Switzerland, Lonza
has more than 40 major manufacturing facilities
worldwide. The Lonza Agreement was effective
November 10, 2014, has a term of 5 years, and may be extended or
terminated earlier as provided in the Lonza Agreement.
In June
2015 we received a sample of the scale-up manufacturing process for
evaluation and confirmation of adherence to
specifications. Based upon our laboratory analyses, the
sample meets all of the required chemical, physical and biological
specifications. The amount of material (the
“Yield”) generated by this pilot run was found to be
significantly lower than anticipated and we are currently working
towards finding possible solutions to increase the Yield and define
a path forward. During the course of our discussions concerning the
problem of the low Yield, Lonza informed us that they required us
to pay them $687,818 prior to moving forward with any activity
pertaining to the agreement we have with them for the manufacturing
of our compound. We have repeatedly indicated to Lonza that a clear
path defining exactly how the extremely low yield issue would be
addressed is imperative prior to us making any payments. As of the
date of this report, neither party has changed its
position
.
Clinical Trials
Adva-27a’s
initial indication will be pancreatic cancer and multidrug
resistant breast cancer for which there are currently little or no
treatment options available. In June 2011 we concluded
an agreement with McGill University’s Jewish General Hospital
in Montreal, Canada to conduct Phase I clinical trials for these
two indications. All aspects of the planned clinical
trials in Canada will employ FDA standards at all
levels. Subject to obtaining the necessary financing, we
now anticipate that Phase I clinical trials will commence in mid to
late 2017 and we estimate that it will take 18 months to complete,
at which time we expect to receive limited marketing approval for
“compassionate-use” under the FDA and similar
guidelines in Canada. See “Potential Future
Opportunities” below.
Potential Future Opportunities
According to the
American Cancer Society, nearly 1.5 million new cases of cancer are
diagnosed in the U.S. each year. Given the terminal and
limited treatment options available for the pancreatic cancer and
multidrug resistant breast cancer indications we are planning to
study, we anticipate being granted limited marketing approval
(“compassionate-use”) for our Adva-27a following
receipt of funding and a successful Phase I clinical
trial. There are no assurances that either will
occur. Such limited approval will allow us to make the
drug available to various hospitals and health care centers for
experimental therapy and/or “compassionate-use”,
thereby generating some revenues in the near-term.
We
believe that upon successful completion of Phase I Clinical Trials
we may receive one or more offers from large pharmaceutical
companies to buyout or license our drug. However, there
are no assurances that our Phase I Trials will be successful, or if
successful, that any pharmaceutical companies will make an
acceptable offer to us. In the event we do not
consummate such a transaction, we will require significant capital
in order to manufacture and market our new drug.
Intellectual Property
Effective October
8, 2015, we executed a Patent Purchase Agreement (the
“October Purchase Agreement”), with Advanomics, a
related party, pursuant to which we acquired all of the right,
title and interest in and to U.S. Patent Number 8,236,935 (the
“US Patent”) for our anticancer compound,
Adva-27a. On December 28, 2015, we executed a second
Patent Purchase Agreement (the “December Purchase
Agreement”), with Advanomics, pursuant to which we acquired
all of the right, title and interest in and to all of the remaining
worldwide rights covered by issued and pending patents under
PCT/FR2007/000697 and PCT/CA2014/000029 (the “Worldwide
Patents”) for our anticancer compound, Adva-27a.
Effective December
28, 2015, we entered into amendments (the “Amendments”)
of these Purchase Agreements pursuant to which the total purchase
price was reduced from $17,142,499 to $618,810, the book value of
this intellectual property on the financial statements of
Advanomics. Further, the Amendments provided for
automatic conversion of the promissory notes representing the new
purchase price into an aggregate of 321,305,416 shares of our
Common Stock once we increase our authorized capital such that
these shares can be issued. The October and December
Purchase Agreements and Amendments thereof provide us with direct
ownership of all worldwide patents and rights pertaining to
Adva-27a.
Our Lead Anti-Cancer Compound, Adva-27a, in 3D
Liquidity and Capital Resources
As
of September 30, 2016, we had cash or cash equivalents of
$21,789.
Net
cash used in operating activities was $282,988 during the nine
month period ended September 30, 2016, compared to $524,851 for the
nine month period ended September 30, 2015. We
anticipate that overhead costs in current operations will increase
in the future as we move forward with our Generic Pharmaceuticals
and Proprietary Drug Developments operations discussed
above.
Cash
flows from financing activities were $255,293 for the nine month
periods ended September 30, 2016, compared to $505,530 during the
nine months ended September 30, 2015. Cash flows used by
investing activities were $2,343 for the nine months ended
September 30, 2016, compared to $0 for the nine month periods ended
September 30, 2015.
At
September 30, 2016, we had issued and outstanding 636,025,383
shares of our Common Stock. During the nine months ended September
30, 2016, we issued a total of 437,760,265 shares of our Common
Stock. Of these, 366,454,709 shares valued at $2,767,254 were
issued pursuant to conversion of outstanding convertible notes
payable, reducing debt by $1,041,430 and interest payable by $6,520
and generating a loss on conversion of $1,719,304 for the
period.
On
July 1, 2016, we issued 5,750,000 shares of our $0.001 par value
Common Stock in exchange for services.
On
July 1, 2016, we executed a Convertible Promissory Note payable
having a face value of $55,000.00. The proceeds from this Note were
received by us on September 30, 2016 and were recorded in our
Financial Statements included in this report as a current
liability.
On
July 1, 2016, we executed a Convertible Promissory Note payable
having a face value of $174,852, comprised of the principal amount
($165,000.00) and all accrued interest ($9,852.00) on the
Convertible Promissory Note payable that matured on September 30,
2016. See Note 4 to Financial Statements.
On
July 6, 2016, we amended our Articles of Incorporation, increasing
our authorized capital to 3,000,000,000 shares of Common Stock,
$0.001 par value per share, and 30,000,000 shares of Preferred
Stock, $0.10 par value per share.
On
July 8, 2016, we issued 321,305,416 shares of our $0.001 par value
Common Stock to Advanomics Corporation (“Advanomics”),
a related party, in exchange for cancellation of the two notes
payable in the aggregate principal amount of $835,394 applicable to
our acquisition of the patent rights discussed above and in Note 5
to our Financial Statements.
We also
issued 7,000,000 shares of Common Stock for $105,000 Canadian
(approximately $79,128 US) to finance our Generic Pharmaceuticals
operations and 5,555,556 shares of Common Stock for $25,000 to pay
for our filing expenses.
In
addition, we issued, 10,000,000 shares of $0.001 par value Common
Stock to an unrelated party for services valued at $100,000 or
$0.01 per share. These services are for a two year period but were
fully expensed during the period ended June 30, 2016.
We also
issued 36,000,000 shares of our Common Stock for services rendered
to us by our current directors, valued at $252,000 or $0.007 per
share.
We
are generating only nominal revenue from our operations, and our
ability to implement our business plan for the future will depend
on the future availability of financing. Such financing will be
required to enable us to continue our Generic Pharmaceuticals
business and Proprietary Drug Development operations. We intend to
raise funds through private placements of our Common Stock and
through short-term borrowing. We estimate that we will require
approximately $5 million in debt and/or equity capital to fully
implement our business plan in the future and there are no
assurances that we will be able to raise this capital. While we
have engaged in discussions with various investment banking firms
and venture capitalists to provide us these funds, as of the date
of this report we have not reached any agreement with any party
that has agreed to provide us with the capital necessary to
effectuate our business plan. Our inability to obtain sufficient
funds from external sources when needed will have a material
adverse effect on our plan of operation, results of operations and
financial condition.
Our
cost to continue operations as they are now conducted is nominal,
but these are expected to increase as we advance our Generic
Pharmaceuticals business and we commence Phase I clinical trials.
We do not have sufficient funds to cover the anticipated increase
in these expenses. We need to raise additional funds in order to
continue our existing operations and advance our plans to expand
our operations for the next year. If we are successful in raising
additional funds, our Generic Pharmaceuticals business and
Proprietary Drug Development efforts will continue and
expand.
Subsequent Events
On
October 14, 2016, we issued 10,000,000 shares of $0.001 par value
Common Stock to an unrelated party for financial consulting
services.
On
October 18, 2016, the holder of the convertible note having a face
value of $174,852 elected to convert $74,852 in principal amount
into 40,374,475 shares of $0.001 par value Common Stock, leaving a
principal balance of $100,000.
Inflation
Although
our operations are influenced by general economic conditions, we do
not believe that inflation had a material effect on our results of
operations during the nine month period ended September 30,
2016.
Critical Accounting Estimates
The
discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these
consolidated 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. The following represents a
summary of our critical accounting policies, defined as those
policies that we believe are the most important to the portrayal of
our financial condition and results of operations and that require
management’s most difficult, subjective or complex judgments,
often as a result of the need to make estimates about the effects
of matters that are inherently uncertain.