UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address including zip code of principal executive offices)
(
(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 | ||
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.
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).
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 | ◻ |
⌧ | 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
Class of Stock |
| Outstanding Shares as of November 11, 2021 |
Common Stock, $0.001 par value | ||
9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value |
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 44 | |
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94 | ||
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| 96 | |
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. |
3
● | 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 or omissions of said subsidiaries or affiliates. |
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 technologies and products, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technologies and products similar or identical to ours, and our ability to successfully commercialize our technologies 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 products 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. |
4
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 |
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Current assets |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
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Inventory |
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Other receivables - related party |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use asset, net |
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Restricted cash |
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Long-term investment, at fair value |
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Intangible asset, net |
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Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable and accrued expenses | $ | | $ | | ||
Accounts payable - related party | | | ||||
Deferred revenue | | | ||||
Operating lease liabilities, short-term |
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Notes payable, short-term | | | ||||
Partner company installment payments - licenses, short-term (net of imputed interest of $ | | | ||||
Total current liabilities |
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Notes payable, long-term (net of debt discount of $ |
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Operating lease liabilities, long-term |
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Partner company installment payments - licenses, long-term (net of imputed interest of $ | | | ||||
Partner company convertible preferred shares, short-term (net of debt discount of $ | | | ||||
Partner company derivative warrant liabilities | | | ||||
Other long-term liabilities |
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Total liabilities | | | ||||
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Commitments and contingencies (Note 16) |
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Stockholders’ equity |
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Cumulative redeemable perpetual preferred stock, $ |
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Common stock, $ |
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Common stock issuable, |
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Additional paid-in-capital |
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Accumulated deficit |
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Total stockholders' equity attributed to the Company |
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Non-controlling interests |
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Total stockholders' equity |
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Total liabilities and stockholders' equity | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
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 |
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| 2021 |
| 2020 |
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Revenue |
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Product revenue, net | $ | | $ | | $ | | $ | | |||||
Collaboration revenue | |
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Revenue - related party |
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Net revenue |
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Operating expenses |
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Cost of goods sold - product revenue |
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Research and development |
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Research and development - licenses acquired |
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Selling, general and administrative |
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Wire transfer fraud loss | | | | | |||||||||
Total operating expenses |
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Loss from operations |
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Other income (expense) |
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Interest income |
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Interest expense and financing fee |
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Change in fair value of investments | | | | | |||||||||
Change in fair value of derivative liability |
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Total other income (expense) |
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Net loss |
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Net loss attributable to non-controlling interests |
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Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per common share - basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per common share attributable to non - controlling interests - basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per common share attributable to common stockholders - basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Weighted average common shares outstanding - basic and diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
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 |
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| $ | ( |
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Stock-based compensation expense |
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Issuance of common stock related to equity plans |
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Issuance of common stock for at-the-market offering, net | — | — | |
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Preferred A dividends declared and paid |
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Partner company’s at-the-market offering, net |
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Issuance of common stock under partner company’s ESPP | — |
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Partner company’s dividends declared and paid |
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Issuance of partner company’s common shares for research and development expenses |
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Common shares issued for dividend on partner company's convertible preferred shares |
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Common shares issuable for dividend on partner company's convertible preferred shares |
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Non-controlling interest in partner companies | — |
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Net loss attributable to non-controlling interest | — |
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Net loss attributable to common stockholders |
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Balance as of September 30, 2021 |
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| $ | | $ | |
| $ | |
| $ | ( |
| $ | |
| $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
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 |
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| $ | |
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| $ | | $ | — | $ | |
| $ | ( | $ | |
| $ | | |||
Stock-based compensation expense |
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Issuance of common stock related to equity plans |
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Issuance of common stock for at-the-market offering, net | — |