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, 2021


	☐	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 12, 2021
Common Stock, $0.001 par value		101,061,865
9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value		3,427,138

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q

TABLE OF CONTENTS


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	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	51
Item 4.	Controls and Procedures	51

PART II.	OTHER INFORMATION	52
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90
Item 3.	Defaults Upon Senior Securities	90
Item 4.	Mine Safety Disclosures	90
Item 5.	Other Information	90
Item 6.	Exhibits	91

SIGNATURES		92

Table of Contents

SUMMARY RISK FACTORS

Our business is subject to risks of which you should be aware before making an investment decision. The risks described below are a summary of the principal risks associated with an investment in us and are not the only risks we face. You should carefully consider these risk factors, the risk factors described in Item 1A, and the other reports and documents that we have filed with the Securities and Exchange Commission (“SEC”). As used below and throughout this filing (including in the risk factors described in Item 1A), the words “we”, “us” and “our” may refer to Fortress Biotech, Inc. individually or together with one or more partner companies, as dictated by context.

Risks Inherent in Drug Development

●

Many of our and our partner companies’ product candidates are in early development stages and are subject to time and cost intensive regulation and clinical testing. As a result, our product candidates may never be successfully developed or commercialized.

●

Our competitors may develop treatments for our or our partner companies’ products’ target indications, which could limit our product candidates’ commercial opportunity and profitability.

Risks Pertaining to the Need for and Impact of Existing and Additional Financing Activities

●

We have a history of operating losses and we expect such losses to continue in the future.

●

We have funded our operations in part through the assumption of debt, which lending agreements may restrict our operations. Further, the occurrence of any default event under any applicable loan document could adversely affect our business.

●

Our research and development (“R&D”) programs will require additional capital, which we may be unable to raise as needed and which may impede our R&D programs, commercialization efforts, or planned acquisitions.

●

If we raise additional capital by issuing securities, our existing stockholders will be diluted.

Risks Pertaining to Our Existing Revenue Stream from Journey Medical Corporation (“Journey”)

●

Our operating income derives primarily from the sale of our partner company Journey’s dermatology products, particularly Qbrexza, Ximino, Targadox, Accutane, and Exelderm. Any issues relating to the manufacture, sale, utilization, or reimbursement of Journey’s products (including products liability claims) could significantly impact our operating results.

●

The majority of Journey’s sales derive from products that are without patent protection and/or are or may become subject to third party generic competition; the introduction of new competitor products, or an increase in market share of existing competitor products, could have a significant adverse effect on our operating income. With respect to Journey products that are covered by valid claims of issued patents, such patents may be subject to invalidation, which would harm our operating income.

●

Continued sales and coverage, including formulary inclusion without the need for a prior authorization or step edit therapy, of our products for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors are increasingly examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy, and, accordingly, significant uncertainty exists as to the reimbursement status of newly approved therapeutics.

Risks Pertaining to our Business Strategy, Structure and Organization

●

We have entered, and will likely in the future enter, into certain collaborations or divestitures which may cause a reduction in our business’ size and scope, market share and opportunities in certain markets, or our ability to compete in certain markets and therapeutic categories.

●

We have also entered into several arrangements under which we have agreed to contingent dispositions of partner companies and/or their assets. The failure to consummate any such transaction may impair the value of such companies and/or assets, and we may not be able to identify or execute alternative arrangements on favorable terms, if at all.

●

Our growth and success depend on our acquiring or in-licensing products or product candidates and integrating such products into our business.

●

We act as guarantor and/or indemnitor of certain obligations of our subsidiaries and affiliates, which could require us to pay substantial amounts based on the actions of said subsidiaries or affiliates.

Table of Contents

Risks Pertaining to Reliance on Third Parties

●

We rely heavily on third parties for several aspects of our operations, including manufacturing and developing product candidates, conducting clinical trials, and producing commercial supplies for products. Such reliance on third-parties reduces our ability to control every aspect of the drug development process and may hinder our ability to develop and commercialize our products in a cost-effective and timely manner.

Risks Pertaining to Intellectual Property and Potential Disputes with Licensors Thereof

●

If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

●

We or our licensors may be subject to costly and time-consuming litigation for infringement of third-party intellectual property rights or to enforce our or our licensors’ patents.

●

Any dispute with our licensors may affect our ability to develop or commercialize our product candidates.

Risks Pertaining to Generic Competition and Paragraph IV Litigation

●

Generic drug companies may submit applications seeking approval to market generic versions of our products.

●

In connection with these applications, generic drug companies may seek to challenge the validity and enforceability of our patents through litigation and/or with the United States Patent and Trademark Office (PTO), such as the Paragraph IV certification made by Perrigo pertaining to the patents covering Qbrexza, a product being commercialized by our partner company Journey. Such challenges may subject us to costly and time-consuming litigation and/or PTO proceedings.

●

As a result of the loss of any patent protection from such litigation or PTO proceedings, or the “at-risk” launch by a generic competitor of our products, our products could be sold at significantly lower prices, and we could lose a significant portion of sales of that product in a short period of time, which could adversely affect our business, financial condition, operating results and prospects.

Risks Pertaining to the Commercialization of Product Candidates

●

If our products are not broadly accepted by the healthcare community, the revenues from any such product are likely to be limited.

●

We may not obtain the desired product labels or intended uses for product promotion, or favorable scheduling classifications desirable to successfully promote our products.

●

Even if a product candidate is approved, it may be subject to various post-marketing requirements, including studies or clinical trials, the results of which could cause such products to later be withdrawn from the market.

●

Any successful products liability claim related to any of our current or future product candidates may cause us to incur substantial liability and limit the commercialization of such products.

Risks Pertaining to Legislation and Regulation Affecting the Biopharmaceutical and Other Industries

●

We operate in a heavily regulated industry, and we cannot predict the impact that any future legislation or administrative or executive action may have on our operations.

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,
	2021		2020
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	274,992	$	233,351
Accounts receivable, net		26,193		23,928
Inventory		14,315		1,404
Other receivables - related party		842		744
Prepaid expenses and other current assets		4,003		6,723
Total current assets		320,345		266,150

Property and equipment, net		13,126		11,923
Operating lease right-of-use asset, net		19,731		20,487
Restricted cash		1,645		1,645
Long-term investment, at fair value		48,484		17,566
Intangible asset, net		13,701		14,629
Other assets		1,126		1,013
Total assets	$	418,158	$	333,413

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	59,906	$	45,389
Deferred revenue		4,800		—
Operating lease liabilities, short-term		2,035		1,849
Partner company installment payments - licenses, short-term (net of imputed interest of $639 and $778 at June 30, 2021 and December 31, 2020, respectively)		3,861		4,522
Total current liabilities		70,602		51,760

Notes payable, long-term (net of debt discount of $7,737 and $8,323 at June 30, 2021 and December 31, 2020, respectively)		52,263		51,677
Operating lease liabilities, long-term		21,906		22,891
Partner company installment payments - licenses, long-term (net of imputed interest of $565 and $863 at June 30, 2021 and December 31, 2020, respectively)		6,435		8,137
Partner company convertible preferred shares (net of debt discount of $1,824 at June 30, 2021 )		12,508		—
Partner company derivative warrant liabilities		4,287		—
Other long-term liabilities		1,856		1,949
Total liabilities		169,857		136,414

Commitments and contingencies

Stockholders’ equity
Cumulative redeemable perpetual preferred stock, $.001 par value, 15,000,000 authorized, 5,000,000 designated Series A shares, 3,427,138 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively, liquidation value of $25.00 per share		3		3
Common stock, $.001 par value, 170,000,000 shares authorized, 97,495,244 shares issued and outstanding as of June 30, 2021; 150,000,000 shares authorized, 94,877,492 shares issued and outstanding as of December 31, 2021, respectively		97		95
Common stock issuable, 78,671 and 0 shares as of June 30, 2021 and December 31, 2020,respectively		263		—
Additional paid-in-capital		603,035		583,000
Accumulated deficit		(495,117)		(482,760)
Total stockholders' equity attributed to the Company		108,281		100,338

Non-controlling interests		140,020		96,661
Total stockholders' equity		248,301		196,999
Total liabilities and stockholders' equity	$	418,158	$	333,413

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,
	2021		2020		2021		2020
Revenue
Product revenue, net	$	15,288	$	9,415	$	26,007	$	21,361
Collaboration revenue		2,400		—		3,200		—
Revenue - related party		155		42		223		1,014
Net revenue		17,843		9,457		29,430		22,375

Operating expenses
Cost of goods sold - product revenue		7,484		3,124		11,392		6,934
Research and development		22,831		15,703		42,859		30,570
Research and development - licenses acquired		11,003		1,570		11,129		1,820
Selling, general and administrative		19,382		14,456		36,924		29,975
Total operating expenses		60,700		34,853		102,304		69,299
Loss from operations		(42,857)		(25,396)		(72,874)		(46,924)

Other income (expense)
Interest income		146		336		373		963
Interest expense and financing fee		(2,760)		(3,059)		(4,949)		(6,184)
Change in fair value of investments		25,005		—		30,918		—
Change in fair value of derivative liability		(3,925)		(344)		(3,925)		(386)
Total other income (expense)		18,466		(3,067)		22,417		(5,607)
Net loss		(24,391)		(28,463)		(50,457)		(52,531)

Less: net loss attributable to non-controlling interests		20,856		15,149		38,100		26,847
Net loss attributable to common stockholders	$	(3,535)	$	(13,314)	$	(12,357)	$	(25,684)

Net loss per common share - basic and diluted	$	(0.30)	$	(0.42)	$	(0.62)	$	(0.80)
Net loss per common share attributable to non - controlling interests - basic and diluted	$	(0.26)	$	(0.22)	$	(0.47)	$	(0.41)
Net loss per common share attributable to common stockholders - basic and diluted	$	(0.04)	$	(0.19)	$	(0.15)	$	(0.39)

Weighted average common shares outstanding - basic and diluted		80,962,994		68,550,494		80,907,671		66,023,367

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 except for share amounts)

(Unaudited)

For the Three Months Ended June 30, 2021


															Total
	Series A Perpetual						Common								Stockholders’
	Preferred Stock			Common Stock			Shares		Paid-In		Accumulated		Non-Controlling		Equity
	Shares	Amount		Shares	Amount		Issuable		Capital		Deficit		Interests		(Deficit)
Balance at March 31, 2021	3,427,138	$	3	97,263,054	$	97	$	—	$	597,384	$	(491,582)	$	138,323	$	244,225
Stock-based compensation expense	—		—	—		—		—		4,350		—		—		4,350
Issuance of common stock related to equity plans	—		—	173,083		—		—		—		—		—		—
Issuance of common stock under ESPP	—		—	59,107		—		—		137		—		—		137
Preferred A dividends declared and paid	—		—	—		—		—		(2,008)		—		—		(2,008)
Partner company’s at-the-market offering, net	—		—	—		—		—		25,910		—		—		25,910
Partner company’s dividends declared and paid	—		—	—		—		—		(188)		—		—		(188)
Issuance of partner company’s common shares for research and development expenses	—		—	—		—		—		3		—		—		3
Common shares issuable for dividend on partner company's convertible preferred shares	—		—	—		—		263		—		—		—		263
Non-controlling interest in partner companies	—		—	—		—		—		(22,553)		—		22,553		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		—		(20,856)		(20,856)
Net loss attributable to common stockholders	—		—	—		—		—		—		(3,535)		—		(3,535)
Balance at June 30, 2021	3,427,138	$	3	97,495,244	$	97	$	263	$	603,035	$	(495,117)	$	140,020	$	248,301

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

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands except for share amounts)

(Unaudited)

For the Three Months Ended June 30, 2020


																	Total
	Series A Perpetual						Common										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	—		—	—		—		—		—