UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35366

FORTRESS BIOTECH, INC.

(Exact name of registrant as specified in its charter)


Delaware	20-5157386
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2 Gansevoort Street, 9th Floor

New York, New York 10014

(Address including zip code of principal executive offices)

(781) 652-4500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Class	Trading Symbol(s)	Exchange Name
Common Stock	FBIO	Nasdaq Capital Market
9.375% Series A Cumulative Redeemable Perpetual Preferred Stock	FBIOP	Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	◻	Accelerated filer	⌧
Non-accelerated filer	◻	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒



Class of Stock		Outstanding Shares as of August 6, 2020
Common Stock, $0.001 par value		88,007,185
9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value		2,693,806

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

($ in thousands except for share and per share amounts)


	June 30,		December 31,
	2020		2019
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	183,278	$	136,858
Accounts receivable (net of allowance for doubtful accounts of $176 and $100 at June 30, 2020 and December 31, 2019, respectively)		11,173		13,539
Inventory		1,209		857
Other receivables - related party		936		865
Prepaid expenses and other current assets		3,203		4,133
Total current assets		199,799		156,252

Property and equipment, net		12,360		12,433
Operating lease right-of-use asset, net		20,675		21,480
Restricted cash		16,574		16,574
Long-term investment, at fair value		11,148		11,148
Intangible asset, net		6,667		7,377
Other assets		1,350		1,158
Total assets	$	268,573	$	226,422

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	31,836	$	35,451
Interest payable		1,093		1,042
Interest payable - related party		52		92
Notes payable, short-term (net of debt discount of $0 at June 30, 2020 and December 31, 2019)		21,823		7,220
Operating lease liabilities – short-term		1,752		1,784
Derivative warrant liability		413		27
Total current liabilities		56,969		45,616

Notes payable, long-term (net of debt discount of $3,762 and $5,086 at June 30, 2020 and December 31, 2019, respectively)		64,157		77,436
Operating lease liabilities – long-term		23,251		23,712
Other long-term liabilities		7,338		7,126
Total liabilities		151,715		153,890
Commitments and contingencies

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

($ in thousands except for share and per share amounts)


	June 30,		December 31,
	2020		2019
	(Unaudited)

Stockholders’ equity
Preferred stock, $.001 par value, 15,000,000 authorized, 5,000,000 designated Series A shares, 2,693,806 and 1,341,167 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively; liquidation value of $25.00 per share		3		1
Common stock, $.001 par value, 150,000,000 shares authorized, 86,113,331 and 74,027,425 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively		86		74
Common stock issuable, 311,499 and 251,337 shares as of June 30, 2020 and December 31, 2019, respectively		813		500
Additional paid-in-capital		521,493		461,874
Accumulated deficit		(461,918)		(436,234)
Total stockholders' equity attributed to the Company		60,477		26,215

Non-controlling interests		56,381		46,317
Total stockholders' equity		116,858		72,532
Total liabilities and stockholders' equity	$	268,573	$	226,422

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

($ in thousands except for share and per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue
Product revenue, net	$	9,415	$	8,199	$	21,361	$	14,324
Revenue - related party		42		1,051		1,014		1,403
Net revenue		9,457		9,250		22,375		15,727

Operating expenses
Cost of goods sold - product revenue		3,124		2,386		6,934		4,270
Research and development		15,703		18,511		30,570		41,784
Research and development - licenses acquired		1,570		200		1,820		650
General and administrative		14,456		13,443		29,975		26,921
Total operating expenses		34,853		34,540		69,299		73,625
Loss from operations		(25,396)		(25,290)		(46,924)		(57,898)

Other income (expense)
Interest income		336		779		963		1,217
Interest expense and financing fee		(3,059)		(3,106)		(6,184)		(5,575)
Change in fair value of derivative liability		(344)		—		(386)		—
Gain on deconsolidation of Caelum		—		137		—		18,521
Total other income (expense)		(3,067)		(2,190)		(5,607)		14,163
Net loss		(28,463)		(27,480)		(52,531)		(43,735)

Less: net loss attributable to non-controlling interests		15,149		14,382		26,847		32,029
Net loss attributable to common stockholders	$	(13,314)	$	(13,098)	$	(25,684)	$	(11,706)

Net loss per common share - basic and diluted	$	(0.42)	$	(0.51)	$	(0.80)	$	(0.86)
Net loss per common share attributable to non - controlling interests - basic and diluted	$	(0.22)	$	(0.27)	$	(0.41)	$	(0.63)
Net loss per common share attributable to common stockholders - basic and diluted	$	(0.19)	$	(0.24)	$	(0.39)	$	(0.23)
Weighted average common shares outstanding - basic and diluted		68,550,494		53,726,125		66,023,367		51,130,977

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands)

(Unaudited)

For the Three Months Ended June 30, 2020


																	Total
	Series A																Stockholders’
	Preferred Stock			Common Stock			Shares		Treasury		Paid-In		Accumulated		Non-Controlling		Equity
	Shares	Amount		Shares	Amount		Issuable		Stock		Capital		Deficit		Interests		(Deficit)
Balance at March 31, 2020	2,054,917	$	2	78,572,169	$	79	$	661	$	(70)	$	485,160	$	(448,604)	$	38,057	$	75,285
Stock-based compensation expense	—		—	—		—		—		—		3,748		—		—		3,748
Issuance of common stock related to equity plans	—		—	86,024		—		—		—		—		—		—		—
Issuance of common stock under ESPP	—		—	53,268		—		—		—		90		—		—		90
Issuance of common stock for at-the-market offering, net	—		—	6,973,020		7		—		—		16,196		—		—		16,203
Preferred A dividends declared and paid	—		—	—		—		—		—		(1,581)		—		—		(1,581)
Retirement of Series A preferred stock	—		—	—		—		—		70		(70)		—		—		—
Issuance of Series A preferred stock for cash, net	638,889		1	—		—		—		—		10,435		—		—		10,436
Partner company’s offering, net	—		—	—		—		—		—		34,924		—		—		34,924
Partner company’s at-the-market offering, net	—		—	—		—		—		—		5,537		—		—		5,537
Issuance of partner company’s common shares for research and development expenses	—		—	—		—		—		—		21		—		—		21
Common shares issued for 2017 Subordinated Note Financing interest expense	—		—	428,850		—		(506)		—		506		—		—		—
Common shares issuable for 2017 Subordinated Note Financing interest expense	—		—	—		—		500		—		—		—		—		500
Common shares issuable for 2019 Notes interest expense	—		—	—		—		158		—		—		—		—		158
Non-controlling interest in partner companies	—		—	—		—		—		—		(33,473)		—		33,473		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		—		—		(15,149)		(15,149)
Net loss attributable to common stockholders	—		—	—		—		—		—		—		(13,314)		—		(13,314)
Balance at June 30, 2020	2,693,806	$	3	86,113,331	$	86	$	813	$	—	$	521,493	$	(461,918)	$	56,381	$	116,858

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands)

(Unaudited)

For the Three Months Ended June 30, 2019


	Series A														Total
	Preferred Stock			Common Stock			Shares		Paid-In		Accumulated		Non-Controlling		Stockholders’
	Shares	Amount		Shares	Amount		Issuable		Capital		Deficit		Interests		Equity
Balance at March 31, 2019	1,000,000	$	1	63,126,521	$	63	$	765	$	414,870	$	(394,882)	$	29,892	$	50,709
Stock-based compensation expense	—		—	—		—		—		3,373		—		—		3,373
Issuance of restricted stock	—		—	55,417		—		—		—		—		—		—
Issuance of common stock under ESPP	—		—	54,221		—		—		60		—		—		60
Issuance of common stock for at-the-market offering, net	—		—	4,463,399		5		—		7,720		—		—		7,725
Preferred A dividends declared and paid	—		—	—		—		—		(586)		—		—		(586)
Partner company’s offering, net	—		—	—		—		—		29,485		—		—		29,485
Partner company’s at-the-market offering, net	—		—	—		—		—		25,984		—		—		25,984
Common shares issuable for 2017 Subordinated Note Financing interest expense	—		—	—		—		490		—		—		—		490
Common shares issued for 2017 Subordinated Note Financing interest expense	—		—	268,324		—		(484)		484		—		—		—
Common shares issued for Opus interest expense	—		—	170,321		—		(281)		341		—		—		60
Non-controlling interest in subsidiaries	—		—	—		—		—		(42,436)		—		42,436		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		—		(14,382)		(14,382)
Net loss attributable to common stockholders	—		—	—		—		—		—		(13,098)		—		(13,098)
Balance at June 30, 2019	1,000,000	$	1	68,138,203	$	68	$	490	$	439,295	$	(407,980)	$	57,946	$	89,820

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands)

(Unaudited)

For the Six Months Ended June 30, 2020


																	Total
	Series A																Stockholders’
	Preferred Stock			Common Stock			Shares		Treasury		Paid-In		Accumulated		Non-Controlling		Equity
	Shares	Amount		Shares	Amount		Issuable		Stock		Capital		Deficit		Interests		(Deficit)
Balance at December 31, 2019	1,341,167	$	1	74,027,425	$	74	$	500	$	—	$	461,874	$	(436,234)	$	46,317	$	72,532
Stock-based compensation expense	—		—	—		—		—		—		7,148		—		—		7,148
Issuance of common stock related to equity plans	—		—	2,038,431		2		—		—		(2)		—		—		—
Issuance of common stock under ESPP	—		—	53,268		—		—		—		90		—		—		90
Issuance of common stock for at-the-market offering, net	—		—	9,314,020		10		—		—		22,073		—		—		22,083
Preferred A dividends declared and paid	—		—	—		—		—		—		(


PART I.	FINANCIAL INFORMATION	1
Item 1.	Unaudited Condensed Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	46
Item 4.	Controls and Procedures	46

PART II.	OTHER INFORMATION	47
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	81
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81
Item 3.	Defaults Upon Senior Securities	81
Item 4.	Mine Safety Disclosures	81
Item 5.	Other Information	81
Item 6.	Exhibits	82

SIGNATURES		83