Q BIOMED INC. Forward-Looking Statements
This Quarterly Report contains forward-looking statements about our business, financial condition and prospects that reflect management's assumptions and beliefs based on information currently available. The expectations indicated by such forward-looking statements might not be realized. If any of our management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, our actual results may differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to create and expand our customer base, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.
There may be other risks and circumstances that management may be unable to predict. When used in this Quarterly Report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.
Overview
Q BioMed Inc. (or "the Company") was incorporated in theState of Nevada onNovember 22, 2013 and is a commercial stage biomedical acceleration and development company focused on licensing, acquiring and providing strategic resources to life sciences and healthcare companies. We intend to mitigate risk by acquiring multiple assets over time and across a broad spectrum of healthcare related products, companies and sectors. We intend to develop these assets to provide returns via organic growth, revenue production, out-licensing, sale or spin out. Our mission is to solve problems by accelerating the development of important therapies and availability of those therapies to patients.
The focus for 2022 is to monetize the current pipeline and build a platform for future growth. There are three areas of focus: commercial product revenue growth, partnerships or collaborations value and future development platform.
Commercial Product
The Company is pleased to report that its second quarter revenues in 2022 are up over 100% from its first quarter revenues and up over 300% from the second quarter of 2021, representing the best quarter result for sales despite market conditions that the Company believes are making additional investment into the sales effort challenging. The Company also believes that it is making progress with the required data package to complete additional regulatory filings that may facilitate entry into other international jurisdictions. We believe that Strontium89 has great potential in the cancer palliation space. As a result of a world in which opioids were a treatment of choice for those patients unlucky enough to be diagnosed with painful metastatic cancers in the bone, we felt that Strontium89 had become a neglected and forgotten drug. We have stayed committed to our belief that Strontium89 was a valuable treatment and have focused on advancing that asset from concept, a neglected drug, to a fully approved, reimbursed commercial product. Since we acquired Strontium89, we have built an infrastructure to commercialize the product, including manufacturing, branding, pharmacovigilance, reporting, federal supply contract, and entering into distribution agreements inthe United States and several other countries. We believe that our last remaining investment is now focused on a sales team to promote the drug both in federal and non-government institutions and clinics. Revenue has started to grow even without a sales force fully deployed. Our recent partnership with a sales organization is in place, and once funded we plan to capitalize on the groundwork in place. We expect revenues to grow steadily and over the next 12-18 months.
We are also assessing additional products in nuclear medicine that could complement our infrastructure and provide additional revenue opportunities.
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Partnership or Collaboration Opportunities
UTTROSIDE B - Liver Cancer Chemotherapeutic
Along with our developmental partners, we are advancing an innovative treatment for liver cancer, a disease indication that currently has a high unmet need. This molecule was identified inIndia , traditionally used to treat liver ailments. Subsequent research on that isolated molecule showed promising data, indicating that the molecule was more cytotoxic, killing cancer cells more effectively, in liver cancer cells lines than the current first line liver cancer chemotherapeutic. We have advanced this from a naturally occurring unsustainable plant product to a commercially viable and scalable synthetic drug candidate. This provides an opportunity to partner this asset with a larger oncology focused institution. Currently, there are only two approved first-line liver cancer therapies. We have received Orphan Drug Designation, and we are now preparing to advance this toward clinical partnership. In the light of the recently announced data, the company has been approached and is assessing partnership opportunities for Uttroside B, its chemotherapeutic drug candidate for liver cancer. There are very few options for these patients and the company believes this is a very promising drug and looks forward to working with potential partners to bring it to the clinic.
Mannin
Our Mannin drug platform development program is making good progress and aims to have a clinical trial in ARDS (acute respiratory disease syndrome), one of three initial indications, completed in the next 8 months. Data from this trial will support the filings for further indications, including kidney disease and glaucoma. Combined, the addressable market for these therapies is over$150 billion . It is the company's intent to convert its current royalty agreement with Mannin into an equity position that will add real asset value to the balance sheet. The Company expects this value to grow as the asset progresses through the near and mid-term milestones that it expects over the next 6 to 18 months requiring little capital from QBioMed. The Mannin programs are substantially supported now by non-dilutive funding from the governments ofCanada andGermany underpinning the value and importance of this platform to provide much needed drugs. Rare Disease Focus During 2022 we will focus our future development platform on the Rare Disease Space. This focusses our resources on an area in which we already have a presence. Our liver cancer drug candidate, Uttroside B, has already received Orphan Drug Designation. We expect to partner this asset in 2022 and will grow our development platform through in-licensing or acquisition. This rare disease platform will also complement our early-stage treatment for young minimally verbal children on the Autism Spectrum. While our immediate focus is on the above-mentioned assets, we are also developing a new drug candidate to treat young children with pediatric minimally verbal autism. The advancement of this program will depend on the availability of funds and resources as we prioritize our clinical development milestones. There is no effective treatment available to help an estimated 250,000 children born with the condition worldwide each year, 20,000 of them inthe United States . We are working on a discovery and development program to address this highly unmet need.
Corporate Strategic Goals
Our mission is to solve problems by accelerating the development of important
therapies and the availability of those therapies to patients. We have been busy
building a portfolio that we believe has significant value ranging from
blockbuster potential drugs to revenue-producing opportunities Since Q BioMed's
inception 5 years ago, the Company has brought a product to market, started
generating revenue, supported the development of a drug platform that addresses
major therapeutic markets and developed a new liver cancer chemotherapeutic
previously believed to be impossible to synthesize. We believe that each of the
opportunities being advancing has significant potential in multi-billion-dollar
markets.
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Financial Overview
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States of America ("U.S. GAAP"). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. Other than as set out in Note 3 to our accompanying unaudited condensed consolidated financial statements, if anything, we believe there have been no significant changes in our critical accounting policies as described in the Form 10-K. Unaudited Results of Operations for the three months endedMay 31, 2022 and 2021: For the three months ended May 31, 2022 May 31, 2021 Change Net Sales$ 170,487 $ 45,000 $ 125,487 Cost of sales 72,751 46,400 26,351 Gross income (loss) 97,736 (1,400) 99,136 Operating expenses: General and administrative expenses 1,019,168 1,519,660 (500,492) Research and development expenses 13,052 291,940 (278,888) Total operating expenses 1,032,220 1,811,600 (779,380) Loss from operations (934,484) (1,813,000) 878,516 Other (income) expenses: Interest expense 454,357 85,209 369,148 Change in fair value of derivatives (123,895) 10,072 (133,967) Total other expenses 330,462 95,281 235,181 Net loss$ (1,264,946) $ (1,908,281) $ 643,335 Net Sales During the three months endedMay 31, 2022 and 2021, we recognized approximately$170,000 and$45,000 , respectively, of revenue from sales of Strontium89. The increase was due to more vials were sold during the three months endedMay 31, 2022 compared to the same period in the prior year.
Cost of Sales
During the three months endedMay 31, 2022 and 2021, we recognized approximately$73,000 and$46,000 , respectively, in cost of sales. These costs were related to raw materials cost, manufacturing cost, handling cost and write-offs of expired inventory.
The increase in cost of sales was due to more production and sales during the
three months ended
The gross margins increased dramatically due to the increased sales and less inventory written off during the three months endedMay 31, 2022 compared to the same period in the prior year. We expect our gross margins to remain robust in 2022 and 2023 but the net margin will continue to be affected by write offs due to the inherent short shelf life of radiopharmaceutical drugs. 19 Table of Contents Operating expenses
We incur various costs and expenses in the execution of our business. The
decrease in operating expenses was mainly due to less costs from marketing,
legal and other professional services during the three months ended
Interest expense
The following table summarizes interest expense incurred during the three months endedMay 31, 2022 and 2021, respectively (amounts are rounded to nearest thousand): For the three months endedMay 31, 2022
$ 59,000 $ 15,000 Accretion of debt discount 391,000
70,000
Other 4,000 -
Total interest expense $ 454,000 $ 85,000
The Company sold additional convertible debentures in July and September 2021 ,
which resulted in the embedded derivative liabilities and corresponded debt
discount increased during the three months ended May 31, 2022 . Due to the
increased amount of debt discount, the change in the accretion of the debt
discount was significantly increased as well during the three months ended May
31, 2022 compared to the same period in the prior year.
Change in fair value of derivatives
We recognized a gain and loss of approximately$124,000 and$10,000 , resulting from the change in fair value of embedded contingent put options in convertible notes and derivative liabilities during the three months endedMay 31, 2022 and 2021, respectively. The fluctuation is mainly due to the increased amount of outstanding convertible notes in 2022 and derivative liabilities due the sequencing policy, and change of our stock price during the reporting periods.
Net loss
During the three months endedMay 31, 2022 and 2021, we incurred net losses of approximately$1.3 million and$1.9 million , respectively. Our management expects to continue to incur net losses for the foreseeable future, due to our need to continue to establish a broader pipeline of assets, expenditure on R&D and to implement other aspects of our business plan. 20
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Unaudited Results of Operations for the six months endedMay 31, 2022 and 2021: For the six months ended May 31, 2022 May 31, 2021 Change Net Sales$ 245,546 $ 45,000 $ 200,546 Cost of sales 146,696 86,993 59,703 Gross income (loss) 98,850 (41,993) 140,843 Operating expenses:
General and administrative expenses 2,115,468 3,656,992 (1,541,524) Research and development expenses 82,320 465,370
(383,050) Total operating expenses 2,197,788 4,122,362 (1,924,574) Loss from operations (2,098,938) (4,164,355) 2,065,417 Other expenses: Interest expense 868,734 135,334 733,400
Change in fair value of derivatives 117,805 27,473
90,332
Loss on debt extinguishment 232,100 56,122
175,978
Settlement of registration liability 241,875 -
241,875
Total other expenses 1,460,514 218,929 1,241,585
Net loss $ (3,559,452) $ (4,383,284) $ 823,832
Net Sales
During the six months ended May 31, 2022 and 2021, we recognized approximately
$246,000 and $45,000 , respectively, of revenue from sales of Strontium89. The
increase was due to more vials were sold during the six months ended May 31,
2022 compared to the same period in the prior year.
Cost of Sales
During the six months endedMay 31, 2022 and 2021, we recognized approximately$147,000 and$87,000 , respectively, in cost of sales. These costs were related to raw materials cost, manufacturing cost, handling cost and write-offs of expired inventory.
The increase in cost of sales was due to more production and sales during the
six months ended
The gross margins increased dramatically due to the increased sales and less inventory written off during the six months endedMay 31, 2022 compared to the same period in the prior year. We expect our gross margins to remain robust in 2022 and 2023 but the net margin will continue to be affected by write offs due to the inherent short shelf life of radiopharmaceutical drugs.
Operating expenses
We incur various costs and expenses in the execution of our business. The decrease in operating expenses was mainly due to significantly less stock-based compensation recognized in the six months endedMay 31, 2022 compared to the same period in the prior year. We recognized approximately$0.7 million and$2.0 million of stock-based compensation in general and administrative expense during the six months endedMay 31, 2022 and 2021, respectively. Additionally, we incurred less costs from marketing, legal and other professional services during the six months endedMay 31, 2022 compared to the same period in the prior
year.
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Interest expense
The following table summarizes interest expense incurred during the six months
ended May 31, 2022 and 2021, respectively (amounts are rounded to nearest
thousand):
For the six months ended
May 31, 2022 $ 120,000 $ 25,000 Accretion of debt discount 743,000
110,000
Other 5,000 -
Total interest expense $ 868,000 $ 135,000
The Company sold additional convertible debentures in July and September 2021 ,
which resulted in the embedded derivative liabilities and corresponded debt
discount increased during the six months ended May 31, 2022 . Due to the
increased amount of debt discount, the change in the accretion of the debt
discount was significantly increased as well during the six months ended May 31,
2022 compared to the same period in the prior year.
Change in fair value of derivatives
We recognized a loss of approximately$118,000 and$27,000 , resulting from the change in fair value of embedded contingent put options in convertible notes and warrant liability during the six months endedMay 31, 2022 and 2021, respectively. The fluctuation is mainly due to the increased amount of outstanding convertible notes in 2022 and derivative liabilities due the sequencing policy, and change of our stock price during the reporting periods.
Loss on debt extinguishment
We recognized a loss of approximately$232,000 and$56,000 due to the exchange of outstanding debentures for shares of common stock during the six months endedMay 31, 2022 and 2021, respectively.
Settlement of registration liability
During the six months endedMay 31, 2022 , we entered into a Mutual Release Agreement with a holder of our convertible note, pursuant to which, the holder agreed to add the$241,875 registration payment liability to the outstanding principal amount. We recognized a loss of$241,875 in settlement of the registration liability for the six months endedMay 31, 2022 .
Net loss
During the six months endedMay 31, 2022 and 2021, we incurred net losses of approximately$3.6 million and$4.4 million , respectively. Our management expects to continue to incur net losses for the foreseeable future, due to our need to continue to establish a broader pipeline of assets, expenditure on R&D and to implement other aspects of our business plan.
Liquidity and Capital Resources
We prepared the accompanying condensed consolidated financial statements assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
We have not yet established an ongoing source of significant revenues and must cover our operating costs through debt and equity financings to allow us to continue as a going concern. We had approximately$27,000 in cash as ofMay 31, 2022 . Our ability to continue as a going concern depends on the ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.
Our primary requirements for liquidity are to fund our working capital needs,
capital expenditures and general corporate needs. Our ongoing capital
expenditures are principally related to expanding revenue generating sales
efforts and ongoing research and development costs. We estimate our capital
expenditures will be approximately
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We depend upon our ability, and will continue to attempt, to secure equity
and/or debt financing. We cannot be certain that additional funding will be
available on acceptable terms, or at all. Our management determined that there
was substantial doubt about our ability to continue as a going concern within
one year after the condensed consolidated financial statements were issued, and
management's concerns about our ability to continue as a going concern within
the year following this report persist.
The accompanying condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might result fromthis uncertainty. Cash Flows
The following table sets forth the significant sources and uses of cash for the periods addressed in this report:
For the six months ended
May 31, 2022 May 31, 2021
Net cash (used in) provided by:
Operating activities $ (486,872) $ (1,901,718)
Financing activities 170,030 2,015,000
Net (decrease) increase in cash
During the six months endedMay 31, 2022 , operating activities used$0.5 million of cash, resulting from a net loss of$3.6 million , partially offset by$0.7 million of share-based compensation, change in fair value of derivatives of$0.1 million , settlement on registration liability of approximately$0.2 million , loss on debt extinguishment of approximately$0.2 million , and non-cash interest expense resulting from accretion of debt discounts of$0.7 million and changes in our operating assets and liabilities of approximately$1.0 million . During the six months endedMay 31, 2021 , operating activities used$1.9 million of cash, resulting from a net loss of$4.4 million , partially offset by$2 million of share-based compensation, change in fair value of embedded conversion options of$27,000 , loss on debt extinguishment of$56,000 , and non-cash interest expense resulting from accretion of debt discounts of$110,000 and changes in our operating assets and liabilities of approximately$0.3 million .
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the six months endedMay 31, 2022 and 2021 was$0.2 million and$2.0 million , respectively. The net cash provided in the 2022 period relates to proceeds received from the issuance of common stock and warrant, warrants modification and cash advances. The net cash provided in the 2021 period relates to proceeds received from the issuance
of common stock and debentures. Commitments and Contingencies Legal Periodically, we review the status of significant matters, if any exist, and assess their potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, we reassess the potential liability related to pending claims and litigation. OnMarch 31, 2022 , we received a complaint filed in theCourt of Common Pleas in Buck County,Pennsylvania claiming that we had failed to pay approximately$106,000 in fees for services provided under two master services agreements that we entered into with the plaintiff. Under those agreements, the plaintiff was to have provided services in connection with the promotion of our Strontium-89 product. We are analyzing how to respond to this recently received complaint. 23 Table of Contents OnJuly 12, 2022 , we received notice thatWSI PBG, LLC ("WSI") filed a complaint for fees it alleges are due in the amount of$196,216 plus fees and expenses for consulting services provided by WSI as a result of aMay 6, 2021 Master Professional Services Agreement. We have not filed an answer and is currently determining its next steps. Advisory Agreements
We entered into customary consulting arrangements with various counterparties to provide consulting services, business development and investor relations services, pursuant to which we agreed to issue shares of common stock as services are received.
OnMarch 11, 2022 , the Company entered into an engagement letter agreement ("Agreement") with EF Hutton, division ofBenchmark Investments, LLC ("EF Hutton") to effectuate the Corporation's Firm Commitment Public Offering and Uplisting and to engage EF Hutton to act as the placement agent for a bridge or other private offering consisting of approximately$2 million . The Company shall be responsible for EF Hutton's external counsel legal costs irrespective of whether the Offering is consummated or not, subject to a maximum of$50,000 in the event that there is not a Closing.
Lease Agreement
InDecember 2016 , we entered into a lease agreement for office space located inCayman Islands for$30,000 per annum. The initial term of the agreement ended inDecember 2019 and has been further renewed for another three years. This agreement does not identify a specific asset and does not convey the use of substantially all of the shared office capacity. As such, this agreement does not contain a lease under ASC 842. We recognize monthly license payments as incurred over the term of the arrangement.
Rent expense is classified within general and administrative expenses on a straight-line basis.
Related Party Transactions
We entered into consulting agreements with certain management personnel and
stockholders for consulting and legal services. Consulting and legal expenses
resulting from such agreements were included within general and administrative
expenses in the accompanying Condensed Consolidated Statements of Operations as
follows (amounts are rounded to nearest thousand):
For the three months ended For the six months ended
May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021
Consulting and legal expenses $ 105,000 $
105,000
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