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 September 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 November 11, 2021
Common Stock, $0.001 par value		99,629,396
9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value		3,427,138

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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 capital by issuing additional equity securities, our existing stockholders will be diluted.

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

●

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, any of which could have a significant adverse effect on our operating income. Two of Journey’s marketed products, Qbrexza and Ximino, as well as DFD-29, a modified release oral minocycline for the treatment of rosacea licensed from Dr. Reddy’s Laboratories, LTD, currently have patent protection. Three of Journey’s marketed products, Accutane, Targadox, and Exelderm, do not have patent protection or otherwise are not eligible for patent protection. 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 and our partner companies have also entered into several arrangements under which we and/or they have agreed to contingent dispositions of such 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. The consummation of any such arrangements with respect to certain product candidates may also result in our eligibility to receive a lower portion of sales (if any) of resulting approved products than if we or our partner companies had developed and commercialized such product candidates ourselves.

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PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

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


	September 30,		December 31,
	2021		2020
ASSETS
Current assets
Cash and cash equivalents	$	252,721	$	233,351
Accounts receivable, net		31,738		23,928
Inventory		11,614		1,404
Other receivables - related party		947		744
Prepaid expenses and other current assets		4,167		6,723
Total current assets		301,187		266,150

Property and equipment, net		13,975		11,923
Operating lease right-of-use asset, net		19,415		20,487
Restricted cash		1,645		1,645
Long-term investment, at fair value		56,860		17,566
Intangible asset, net		13,043		14,629
Other assets		1,708		1,013
Total assets	$	407,833	$	333,413

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	82,855	$	45,389
Accounts payable - related party		74		—
Deferred revenue		3,354		—
Operating lease liabilities, short-term		2,047		1,849
Notes payable, short-term		10,450		—
Partner company installment payments - licenses, short-term (net of imputed interest of $567 and $778 as of September 30, 2021 and December 31, 2020, respectively)		4,433		4,522
Total current liabilities		103,213		51,760

Notes payable, long-term (net of debt discount of $7,431 and $8,323 as of September 30, 2021 and December 31, 2020, respectively)		42,569		51,677
Operating lease liabilities, long-term		21,522		22,891
Partner company installment payments - licenses, long-term (net of imputed interest of $461 and $863 as of September 30, 2021 and December 31, 2020, respectively)		3,539		8,137
Partner company convertible preferred shares, short-term (net of debt discount of $1,923 as of September 30, 2021 )		18,078		—
Partner company derivative warrant liabilities		4,365		—
Other long-term liabilities		2,079		1,949
Total liabilities		195,365		136,414

Commitments and contingencies (Note 16)

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 September 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, 98,714,222 shares issued and outstanding as of September 30, 2021; 150,000,000 shares authorized, 94,877,492 shares issued and outstanding as of December 31, 2020, respectively		99		95
Common stock issuable, 116,866 and 0 shares as of September 30, 2021 and December 31, 2020, respectively		365		—
Additional paid-in-capital		608,089		583,000
Accumulated deficit		(515,898)		(482,760)
Total stockholders' equity attributed to the Company		92,658		100,338

Non-controlling interests		119,810		96,661
Total stockholders' equity		212,468		196,999
Total liabilities and stockholders' equity	$	407,833	$	333,413

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

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue
Product revenue, net	$	19,610	$	9,447	$	45,617	$	30,808
Collaboration revenue		1,446		—		4,646		—
Revenue - related party		29		28		252		1,042
Net revenue		21,085		9,475		50,515		31,850

Operating expenses
Cost of goods sold - product revenue		11,167		3,379		22,559		10,313
Research and development		27,367		13,298		70,226		43,868
Research and development - licenses acquired		713		458		15,585		2,278
Selling, general and administrative		22,221		15,383		59,145		45,358
Wire transfer fraud loss		9,540		—		9,540		—
Total operating expenses		71,008		32,518		177,055		101,817
Loss from operations		(49,923)		(23,043)		(126,540)		(69,967)

Other income (expense)
Interest income		132		265		505		1,228
Interest expense and financing fee		(4,444)		(6,958)		(9,393)		(13,142)
Change in fair value of investments		8,376		575		39,294		575
Change in fair value of derivative liability		(2)		(803)		(184)		(1,189)
Total other income (expense)		4,062		(6,921)		30,222		(12,528)
Net loss		(45,861)		(29,964)		(96,318)		(82,495)

Net loss attributable to non-controlling interests		25,080		14,417		63,180		41,264
Net loss attributable to common stockholders	$	(20,781)	$	(15,547)	$	(33,138)	$	(41,231)

Net loss per common share - basic and diluted	$	(0.56)	$	(0.39)	$	(1.19)	$	(1.19)
Net loss per common share attributable to non - controlling interests - basic and diluted	$	(0.31)	$	(0.19)	$	(0.78)	$	(0.59)
Net loss per common share attributable to common stockholders - basic and diluted	$	(0.26)	$	(0.20)	$	(0.41)	$	(0.59)

Weighted average common shares outstanding - basic and diluted		81,348,243		76,093,211		81,056,165		69,404,499

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

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands except for share amounts)

For the Three Months Ended September 30, 2021



	Series A Perpetual						Common								Total
	Preferred Stock			Common Stock			Shares		Paid-In		Accumulated		Non-Controlling		Stockholders’
	Shares	Amount		Shares	Amount		Issuable		Capital		Deficit		Interests		Equity
Balance as of June 30, 2021	3,427,138	$	3	97,495,244	$	97	$	263	$	603,035	$	(495,117)	$	140,020	$	248,301
Stock-based compensation expense	—		—	—		—		—		4,326		—		—		4,326
Issuance of common stock related to equity plans	—		—	354,007		1		—		(1)		—		—		—
Issuance of common stock for at-the-market offering, net	—		—	786,300		1		—		2,747		—		—		2,748
Preferred A dividends declared and paid	—		—	—		—		—		(2,008)		—		—		(2,008)
Partner company’s at-the-market offering, net	—		—	—		—		—		4,626		—		—		4,626
Issuance of common stock under partner company’s ESPP	—		—	—		—		—		151		—		—		151
Partner company’s dividends declared and paid	—		—	—		—		—		(187)		—		—		(187)
Issuance of partner company’s common shares for research and development expenses	—		—	—		—		—		7		—		—		7
Common shares issued for dividend on partner company's convertible preferred shares	—		—	78,671		—		(263)		263		—		—		—
Common shares issuable for dividend on partner company's convertible preferred shares	—		—	—		—		365		—		—		—		365
Non-controlling interest in partner companies	—		—	—		—		—		(4,870)		—		4,870		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		—		(25,080)		(25,080)
Net loss attributable to common stockholders	—		—	—		—		—		—		(20,781)		—		(20,781)
Balance as of September 30, 2021	3,427,138	$	3	98,714,222	$	99	$	365	$	608,089	$	(515,898)	$	119,810	$	212,468

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

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands except for share amounts)

For the Three Months Ended September 30, 2020



	Series A Perpetual						Common										Total
	Preferred Stock			Common Stock			Shares		Treasury		Paid-In		Accumulated		Non-Controlling		Stockholders’
	Shares	Amount		Shares	Amount		Issuable		Stock		Capital		Deficit		Interests		Equity
Balance as of June 30, 2020	2,693,806	$	3	86,113,331	$	86	$	813	$	—	$	521,493	$	(461,918)	$	56,381	$	116,858
Stock-based compensation expense	—		—	—		—		—		—		3,171		—		—		3,171
Issuance of common stock related to equity plans	—		—	268,800		—		—		—		—		—		—		—
Issuance of common stock for at-the-market offering, net	—


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	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	56
Item 4.	Controls and Procedures	56

PART II.	OTHER INFORMATION	57
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94
Item 3.	Defaults Upon Senior Securities	94
Item 4.	Mine Safety Disclosures	94
Item 5.	Other Information	94
Item 6.	Exhibits	95

SIGNATURES		96