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 March 31, 2022


	☐	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.)

1111 Kane Concourse Suite 301

Bay Harbor Island, FL 33154

(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 May 9, 2022
Common Stock, $0.001 par value		107,413,121
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 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, Amzeeq, Zilxi, Accutane, Ximino, Targadox 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. Four of Journey’s marketed products, Qbrexza, Amzeeq, Zilxi and Ximino, as well as DFD-29, a modified release oral minocycline for the treatment of rosacea licensed from Dr. Reddy’s Laboratories, 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.

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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)


	March 31,		December 31,
	2022		2021

ASSETS
Current assets
Cash and cash equivalents	$	287,511	$	305,744
Accounts receivable, net		31,183		23,112
Inventory		16,137		9,862
Other receivables - related party		631		678
Prepaid expenses and other current assets		5,724		7,066
Total current assets		341,186		346,462

Property, plant and equipment, net		14,430		15,066
Operating lease right-of-use asset, net		18,565		19,005
Restricted cash		2,220		2,220
Intangible asset, net		30,457		12,552
Other assets		1,072		1,198
Total assets	$	407,930	$	396,503

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	91,268	$	90,660
Deferred revenue		2,034		2,611
Income taxes payable		346		345
Operating lease liabilities, short-term		2,129		2,104
Partner company line of credit		—		812
Partner company installment payments - licenses, short-term (net of imputed interest of $637 and $490 as of March 31, 2022 and December 31, 2021, respectively)		7,363		4,510
Total current liabilities		103,140		101,042

Notes payable, long-term (net of debt discount of $10,994 and $7,063 as of March 31, 2022 and December 31, 2021, respectively)		85,056		42,937
Operating lease liabilities, long-term		20,454		20,987
Partner company installment payments - licenses, long-term (net of imputed interest of $284 and $373 as of March 31, 2022 and December 31, 2021, respectively)		3,716		3,627
Other long-term liabilities		1,986		2,033
Total liabilities		214,352		170,626

Commitments and contingencies (Note 12)

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 March 31, 2022 and December 31, 2021, respectively, liquidation value of $25.00 per share		3		3
Common stock, $.001 par value, 170,000,000 shares authorized, 106,321,875 and 101,435,505 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		106		101
Additional paid-in-capital		660,973		656,033
Accumulated deficit		(563,223)		(547,463)
Total stockholders' equity attributed to the Company		97,859		108,674

Non-controlling interests		95,719		117,203
Total stockholders' equity		193,578		225,877
Total liabilities and stockholders' equity	$	407,930	$	396,503

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 March 31,
	2022		2021
Revenue
Product revenue, net	$	20,796	$	10,719
Collaboration revenue		577		800
Revenue - related party		52		68
Other revenue		2,500		—
Net revenue		23,925		11,587

Operating expenses
Cost of goods sold - product revenue		8,203		3,908
Research and development		36,722		20,028
Research and development - licenses acquired		—		126
Selling, general and administrative		26,270		17,542
Total operating expenses		71,195		41,604
Loss from operations		(47,270)		(30,017)

Other income (expense)
Interest income		142		227
Interest expense and financing fee		(2,350)		(2,189)
Change in fair value of investments		—		5,913
Total other income (expense)		(2,208)		3,951
Net loss		(49,478)		(26,066)

Net loss attributable to non-controlling interests		33,718		17,244
Net loss attributable to common stockholders	$	(15,760)	$	(8,822)

Net loss per common share - basic and diluted	$	(0.57)	$	(0.32)
Net loss per common share attributable to non - controlling interests - basic and diluted	$	(0.39)	$	(0.21)
Net loss per common share attributable to common stockholders - basic and diluted	$	(0.18)	$	(0.11)

Weighted average common shares outstanding - basic and diluted		86,255,142		80,851,671

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 Statement of Changes in Stockholders’ Equity

($ in thousands except for share amounts)

For the Three Months Ended March 31, 2022



	Series A Perpetual												Total
	Preferred Stock			Common Stock			Paid-In		Accumulated		Non-Controlling		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Interests		Equity
Balance as of December 31, 2021	3,427,138	$	3	101,435,505	$	101	$	656,033	$	(547,463)	$	117,203	$	225,877
Stock-based compensation expense	—		—	—		—		5,563		—		—		5,563
Issuance of common stock related to equity plans	—		—	2,469,969		3		(3)		—		—		—
Issuance of common stock for at-the-market offering, net	—		—	2,416,401		2		4,224		—		—		4,226
Preferred A dividends declared and paid	—		—	—		—		(2,008)		—		—		(2,008)
Partner company’s at-the-market offering, net	—		—	—		—		10,783		—		—		10,783
Issuance of common stock under partner company’s ESPP	—		—	—		—		116		—		—		116
Partner company’s dividends declared and paid	—		—	—		—		(187)		—		—		(187)
Partner company’s net settlement of shares withheld for taxes	—		—	—		—		(1,698)		—		—		(1,698)
Partner company’s warrants issued in conjunction with debt	—		—	—		—		384		—		—		384
Non-controlling interest in partner companies	—		—	—		—		(12,234)		—		12,234		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		(33,718)		(33,718)
Net loss attributable to common stockholders	—		—	—		—		—		(15,760)		—		(15,760)
Balance as of March 31, 2022	3,427,138	$	3	106,321,875	$	106	$	660,973	$	(563,223)	$	95,719	$	193,578

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 Statement of Changes in Stockholders’ Equity

($ in thousands except for share amounts)

For the Three Months Ended March 31, 2021



	Series A Perpetual													Total
	Preferred Stock			Common Stock				Paid-In		Accumulated		Non-Controlling		Stockholders’
	Shares	Amount		Shares	Amount			Capital		Deficit		Interests		Equity
Balance as of December 31, 2020	3,427,138	$	3	94,877,492	$	95	`	$	583,000	$	(482,760)	$	96,661	$	196,999
Stock-based compensation expense	—		—	—		—			3,773		—		—		3,773
Issuance of common stock related to equity plans	—		—	2,385,562		2			(2)		—		—		—
Preferred A dividends declared and paid	—		—	—		—			(2,007)		—		—		(2,007)
Partner company’s at-the-market offering, net	—		—	—		—			71,422		—		—		71,422
Partner company’s exercise of options for cash	—		—	—		—			7		—		—		7
Issuance of common stock under partner company’s ESPP	—		—	—		—			158		—		—		158
Partner company’s dividends declared and paid	—		—	—		—			(187)		—		—		(187)
Issuance of partner company’s common shares for research and development expenses	—		—	—		—			126		—		—		126
Non-controlling interest in partner companies	—		—	—		—			(58,906)		—		58,906		—
Net loss attributable to non-controlling interest	—		—	—		—			—		—		(17,244)		(17,244)
Net loss attributable to common stockholders	—		—	—		—			—		(8,822)		—		(8,822)
Balance as of March 31, 2021	3,427,138	$	3	97,263,054	$	97		$	597,384	$	(491,582)	$	138,323	$	244,225

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 Cash Flows

($ in thousands)


	Three Months Ended March 31,
	2022		2021
Cash Flows from Operating Activities:
Net loss	$	(49,478)	$	(26,066)
Reconciliation of net loss to net cash used in operating activities:
Depreciation expense		739		603
Bad debt (reserve) expense		(76)		70
Amortization of debt discount		389		309
Non-cash interest		203		221
Amortization of product revenue license fee		1,017		584
Amortization of operating lease right-of-use assets		440		415
Stock-based compensation expense		5,563		3,773
Issuance of partner company’s common shares for research and development expenses		—		126
Change in fair value of investment in Caelum		—		(5,913)
Increase (decrease) in cash and cash equivalents resulting from changes in operating assets and liabilities:
Accounts receivable		(7,995)		(160)
Inventory		(234)		(887)
Other receivables - related party		47		(105)
Prepaid expenses and other current assets		1,342		1,206
Other assets		126		(108)
Accounts payable and accrued expenses		2,188		(2,457)
Deferred revenue		(577)		7,200
Income taxes payable		1		—
Lease liabilities		(508)		(453)
Other long-term liabilities		(47)		(46)
Net cash used in operating activities		(46,860)		(21,688)

Cash Flows from Investing Activities:
Purchase of property and equipment		(1,337)		(458)
Acquisition of VYNE products		(20,000)		—
Net cash used in investing activities		(21,337)		(458)

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 Cash Flows

($ in thousands)


	Three Months Ended March 31,
	2022		2021
Cash Flows from Financing Activities:
Payment of Series A perpetual preferred stock dividends	$	(2,008)	$	(2,007)
Proceeds from issuance of common stock for at-the-market offering, net		4,226		—
Proceeds from partner companies' ESPP		116		158
Partner company’s dividends declared and paid		(187)		(187)
Payment of costs related to partner company's sale of stock		(371)		—
Proceeds from partner companies' at-the-market offering, net		10,783		71,363
Payment of costs related to partner company's preferred stock offering		—		(13)
Proceeds from exercise of partner companies’ equity grants		—		7
Partner company’s net settlement of shares withheld for taxes		(1,698)		—
Payment of debt issuance costs associated with Oaktree Note		—		(13)
Repayment of partner company installment payments - licenses		(2,000)		(1,800)
Payment of debt issuance costs associated with partner company convertible preferred shares		(214)		11,184
Proceeds from partner company long-term debt		45,000		—
Payment of debt issuance costs associated with partner company long-term debt		(2,871)		—
Repayment of partner company's line of credit		(812)		—
Net cash provided by financing activities		49,964		78,692
Net (decrease) increase in cash and cash equivalents and restricted cash		(18,233)		56,546
Cash and cash equivalents and restricted cash at beginning of period		307,964		234,996
Cash and cash equivalents and restricted cash at end of period	$	289,731	$	291,542

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,556	$	1,670
Cash paid for tax	$	107	$	—

Supplemental disclosure of non-cash financing and investing activities:
Settlement of restricted stock units into common stock	$	3	$	2
Unpaid fixed assets	$	36	$	545
Partner company's unpaid intangible assets	$	4,740	$	400
Unpaid partner company’s at-the-market offering cost	$	—	$	25
Unpaid partner company’s debt offering cost	$	1,065	$	135
Partner company derivative warrant liability associated with partner company convertible preferred shares	$	—	$	362
Partner company’s warrants issued in conjunction with debt	$	384	$	—

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

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Description of Business

Fortress Biotech, Inc. (“Fortress” or the “Company”) is a biopharmaceutical company dedicated to acquiring, developing and commercializing pharmaceutical and biotechnology products and product candidates, which the Company does at the Fortress level, at its majority-owned and majority-controlled subsidiaries and joint ventures, and at entities the Company founded and in which it maintains significant minority ownership positions. Fortress has a talented and experienced business development team, comprised of scientists, doctors and finance professionals, who identify and evaluate promising products and product candidates for potential acquisition by new or existing partner companies. Fortress through its partner companies has executed such arrangements in partnership with some of the world’s foremost universities, research institutes and pharmaceutical companies, including City of Hope National Medical Center, Fred Hutchinson Cancer Research Center, St. Jude Children’s Research Hospital, Dana-Farber Cancer Institute, Nationwide Children’s Hospital, Cincinnati Children’s Hospital Medical Center, Columbia University, the University of Pennsylvania, Mayo Foundation for Medical Education and Research, AstraZeneca plc and Dr. Reddy’s Laboratories, Ltd.

Following the exclusive license or other acquisition of the intellectual property underpinning a product or product candidate, Fortress leverages its business, scientific, regulatory, legal and financial expertise to help the partners achieve their goals. Partner companies then assess a broad range of strategic arrangements to accelerate and provide additional funding to support research and development, including joint ventures, partnerships, out-licensings, and public and private financings. To date, four partner companies are publicly-traded, and two have consummated strategic partnerships with industry leaders AstraZeneca plc as successor-in-interest to Alexion Pharmaceuticals, Inc., (“AstraZeneca”) and Sentynl Therapeutics, Inc. (“Sentynl”).

Our subsidiary and partner companies that are pursuing development and/or commercialization of biopharmaceutical products and product candidates include Aevitas Therapeutics, Inc. (“Aevitas”), Baergic Bio, Inc. (“Baergic”), Caelum Biosciences, Inc. (“Caelum”), Cellvation, Inc. (“Cellvation”), Checkpoint Therapeutics, Inc. (“Checkpoint”), Cyprium Therapeutics, Inc. (“Cyprium”), Helocyte, Inc. (“Helocyte”), Journey Medical Corporation (“Journey” or “JMC”), Mustang Bio, Inc. (“Mustang”), Oncogenuity, Inc. (“Oncogenuity”) and UR-1 Therapeutics, Inc. (“UR-1”).

As used throughout this filing, the words “we”, “us” and “our” may refer to Fortress individually or together with our affiliates and partners, and the word “partner” refers to either entities that are publicy traded and in which we own or control a majority of the ownership position or third party entities with whom we have a significant business relationship, each as dictated by context. We refer to private companies in which we own or control a majority of the ownership position as our subsidiaries; however instances of either term should be read as applying to either or both as dictated by context.

Liquidity and Capital Resources

Since inception, the Company’s operations have been financed primarily through the sale of equity and debt securities, from the sale of partner companies, and the proceeds from the exercise of warrants and stock options. The Company has incurred losses from operations and negative cash flows from operating activities since inception and expects to continue to incur substantial losses for the next several years as it continues to fully develop and prepare regulatory filings and obtain regulatory approvals for its existing and new product candidates. The Company’s current cash and cash equivalents are sufficient to fund operations for at least the next 12 months. However, the Company will need to raise additional funding through strategic relationships, public or private equity or debt financings, sale of a partner company, grants or other arrangements to fully develop and prepare regulatory filings and obtain regulatory approvals for the existing and new product candidates, fund operating losses, and, if deemed appropriate, establish or secure through third parties manufacturing for the potential products, sales and marketing capabilities. If such funding is not available or not available on terms acceptable to the Company, the Company’s current development plan and plans for expansion of its general and administrative infrastructure may be curtailed. The Company also has the ability, subject to limitations imposed by Rule 144 of the Securities Act of 1933 and other applicable laws and regulations, to raise money from the sale of common stock of the public companies in which it has ownership positions. In addition to the foregoing, the Company experienced minimal impact on its development timelines, revenue levels and its liquidity due to the worldwide spread of COVID-19.

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed consolidated financial statements have read or have access to the audited financial statements for the preceding fiscal year for each of Avenue, Checkpoint and Mustang. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on March 28, 2022 (the “2021 Form 10-K”), from which the Company derived the balance sheet data at December 31, 2021, as well as Checkpoint’s Form 10-K, filed with the SEC on March 28, 2022, Mustang’s Form 10-K, filed with the SEC on March 23, 2022, Avenue’s Form 10-K, filed with the SEC on March 25, 2022, and Journey’s Form 10-K, filed with the SEC on March 28, 2022.

The Company’s unaudited condensed consolidated financial statements include the accounts of the Company’s subsidiaries. For consolidated entities where the Company owns less than 100% of the subsidiary, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective non-controlling parties. The Company also consolidates subsidiaries in which it owns less than 50% of the subsidiary but maintains voting control. The Company continually assesses whether changes to existing relationships or future transactions may result in the consolidation or deconsolidation of partner companies.

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting period.

Use of Estimates

The Company’s unaudited condensed consolidated financial statements include certain amounts that are based on management’s best estimates and judgments. The Company’s significant estimates include, but are not limited to, useful lives assigned to long-lived assets, fair value of stock options and warrants, stock-based compensation, common stock issued to acquire licenses, investments, accrued expenses, provisions for income taxes, and contingencies. Due to the uncertainty inherent in such estimates, actual results may differ from these estimates.

Restricted Cash

The Company records cash held in trust or pledged to secure certain debt obligations as restricted cash. As of March 31, 2022 and December 31, 2021, the Company had $2.2 million of restricted cash representing pledges to secure letters of credit in connection with certain office leases.

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

The following table provides a reconciliation of cash, cash equivalents, and restricted cash from the unaudited condensed consolidated balance sheets to the unaudited condensed consolidated statements of cash flows at March 31, 2022, and 2021:


	March 31,
	2022		2021
Cash and cash equivalents	$	287,511	$	289,897
Restricted cash		2,220		1,645
Total cash and cash equivalents and restricted cash	$	289,731	$	291,542

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2021 Form 10-K.

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption will be permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses. The ASU sets forth a current expected credit loss model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for for smaller reporting companies in 2023. The Company is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.

3. Collaboration and Stock Purchase Agreements

Cyprium

Agreement with Sentynl

On February 24, 2021, Cyprium entered into an asset purchase agreement with Sentynl. Pursuant to the terms of the agreement, Sentynl paid Cyprium an upfront fee of $8.0 million specifically earmarked to complete the CUTX-101 development program for the treatment of Menkes disease, through the filing of Cyprium’s New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”). As further compensation, Cyprium will receive an additional $12.0 million to be paid (i) $3.0 million upon NDA acceptance by the FDA and (ii) $9.0 million upon FDA approval of the NDA and transfer of CUTX-101 to Sentynl. The Company will recognize revenue associated with these future milestones based upon achievement. At March 31, 2022, none of these future milestones were deemed probable.

Upon the transfer of CUTX-101 to Sentynl, Cyprium is eligible to earn an additional five potential sales milestones totaling $255.0 million in addition to royalties on CUTX-101 net sales ranging from mid-single digits up to the mid-twenties. Cyprium will retain 100% ownership over any FDA priority review voucher that may be issued at NDA approval for CUTX-101.

In connection with the $8.0 million upfront payment from Sentynl, the Company is recognizing revenue using an input method based upon the costs incurred to date in relation to the total estimated costs to complete the development activities. Accordingly, revenue is

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

being recognized over the period in which the development activities are expected to occur. For the three month period ending March 31, 2022 and 2021, the company recognized revenue of $0.6 million and $0.8 million, respectively.

4. Inventory


	March 31,		December 31,
($ in thousands)	2022		2021

Raw materials	$	8,357	$	5,572
Work-in-process		533		—
Finished goods		7,297		4,290
Inventory reserve		(50)		—
Total inventories	$	16,137	$	9,862

At March 31, 2022 included in finished goods inventory is a step up of $0.6 million related to the Vyne Product Acquisition (as defined in Note 6). This amount will be expensed within cost of sales as the inventory is sold to customers. For additional information on Journey’s acquisition of Vyne Products, please refer to Note 6.

5. Property, Plant and Equipment

Fortress’ property, plant and equipment consisted of the following:


	Useful Life		March 31,		December 31,
($ in thousands)	(Years)		2022		2021


Computer equipment		3	$	743	$	739
Furniture and fixtures		5		1,387		1,387
Machinery & equipment		5		6,634		6,550
Leasehold improvements		2-15		13,175		13,175
Buildings		40		581		581
Construction in progress ¹		N/A		2,043		2,028
Total property and equipment				24,563		24,460
Less: Accumulated depreciation				(10,133)		(9,394)
Property, plant and equipment, net			$	14,430	$	15,066

Note 1:

Relates to the Mustang cell processing facility.

Fortress' depreciation expense for the three months ended March 31, 2022 and 2021 was approximately $0.7 million and $0.6 million, respectively, and was recorded in both research and development expense and general and administrative expense in the Condensed Consolidated Statement of Operations.

6. Intangibles, net

VYNE Therapeutics Product Acquisition (“VYNE Product Acquisition”)

In January 2022, we acquired two FDA-Approved Topical Minocycline Products, Amzeeq (minocycline) topical foam 4%, and Zilxi (minocycline) topical foam, 1.5%, and a Molecule Stabilizing Technology^TMproprietary platform from VYNE Therapeutics, Inc. (“VYNE”) for an upfront payment of $20.0 million and an additional $5.0 million payment on the one (1)-year anniversary of the closing (The "VYNE Product Acquisition"). This expands Journey’s product portfolio to seven actively marketed branded dermatology products. Journey also acquired certain associated inventory.

The VYNE Product Acquisition also provides for contingent net sales milestone payments. In the first calendar year in which annual sales reach each of $100 million, $200 million, $300 million, $400 million and $500 million, a one-time payment of $10 million, $20

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

million, $30 million, $40 million and $50 million, respectively, will be paid in that year only, per product, totaling up to $450 million. In addition, Journey will pay VYNE 10% of any upfront payment received by Journey from a licensee or sublicensee of the products in any territory outside of the United States, subject to exceptions for certain jurisdictions as detailed in the VYNE Product Acquisition.

The following table summarizes the aggregate consideration transferred for the assets acquired by Journey in connection with the VYNE Product Acquisition:



($ in thousands)	Aggregate Consideration Transferred
Consideration transferred to VYNE at closing	$	20,000
Fair value of deferred cash payment due January 2023		4,740
Transaction costs		223
Total consideration transferred at closing	$	24,963

The fair value of the deferred cash payment is being accreted to the $5.0 million January 2023 cash payment over a one-year period through interest expense. The fair value of the deferred cash payment of $4.8 million at March 31, 2022 is included in partner company installment payments – short term on the condensed consolidated balance sheets.

The following table summarizes the assets acquired in the VYNE Product Acquisition:


($ in thousands)	Assets Recognized
Inventory	$	6,041
Identifiable intangibles:
Amzeeq		15,162
Zilxi		3,760
Fair value of net identifiable assets acquired	$	24,963

The table below provides a summary of the Journey intangible assets as of March 31, 2022 and December 31, 2021, respectively:


	Estimated Useful
($ in thousands)	Lives (Years)	March 31, 2022		December 31, 2021

Intangible assets – product licenses	3 to 9	$	37,925	$	19,003
Accumulated amortization			(7,468)		(6,451)
Net intangible assets		$	30,457	$	12,552

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

For the three months ended March 31, 2022 and 2021, Journey’s amortization expense related to its product licenses was $1.0 million and $0.6 million, respectively, which was recorded as a component of cost of goods sold on the Condensed Consolidated Statement of Operations.

The future amortization of these intangible assets is as follows:


									Total
($ in thousands)	Ximino®		Accutane®		Amzeeq®		Zilxi®		Amortization
Nine Months Ended December 31, 2022	$	764	$	710	$	1,264	$	313	$	3,051
December 31, 2023		1,019		945		1,684		418		4,066
December 31, 2024		1,019		946		1,685		417		4,067
December 31, 2025		1,019		945		1,685		418		4,067
December 31, 2026		595		157		1,684


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	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	35
Item 4.	Controls and Procedures	35

PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	72

SIGNATURES		74