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 May 9, 2022 |
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 | 26 | |
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| 74 | |
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. |
3
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. |
● | 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, and subsequently, Amzeeq, two products 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. |
4
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. |
5
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 | |||||
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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, plant and equipment, net |
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Operating lease right-of-use asset, net |
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Restricted cash |
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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 | $ | | $ | | ||
Deferred revenue | | | ||||
Income taxes payable | | | ||||
Operating lease liabilities, short-term |
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Partner company line of credit | | | ||||
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 $ | | | ||||
Other long-term liabilities |
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Total liabilities | | | ||||
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Commitments and contingencies (Note 12) |
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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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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 March 31, | |||||||
| 2022 |
| 2021 |
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Revenue |
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Product revenue, net | $ | | $ | | |||
Collaboration revenue | | | |||||
Revenue - related party |
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Other revenue | | — | |||||
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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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 |
| ( |
| ( | |||
Change in fair value of investments | — | | |||||
Total other income (expense) |
| ( |
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Net loss |
| ( |
| ( | |||
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 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 |
| | $ | |
| | $ | |
| $ | | $ | ( | $ | |
| $ | | ||||
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 |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Partner company’s at-the-market offering, net |
| — |
| — |
| — |
| — |
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| — |
| — |
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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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| — |
| ( |
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| — |
| ( | ||||||
Partner company’s net settlement of shares withheld for taxes |
| — |
| — |
| — |
| — |
| ( |
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| — |
| ( | ||||||
Partner company’s warrants issued in conjunction with debt |
| — |
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Non-controlling interest in partner companies | — |
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| ( |
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Net loss attributable to non-controlling interest | — |
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| — |
| — |
| ( | ( | ||||||||
Net loss attributable to common stockholders |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance as of March 31, 2022 |
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| $ | |
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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 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 |
| | $ | |
| | $ | | ` | $ | | $ | ( | $ | |
| $ | | ||||
Stock-based compensation expense |
| — |
| — |
| — |
| — |
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| — |
| — |
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Issuance of common stock related to equity plans |
| — |
| — |
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| ( |
| — |
| — |
| — | ||||||
Preferred A dividends declared and paid | — | — | — | — | ( | — | — | ( | ||||||||||||||
Partner company’s at-the-market offering, net |
| — |
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Partner company’s exercise of options for cash |
| — |
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| — |
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Issuance of common stock under partner company’s ESPP |
| — |
| — |
| — |
| — | |
| — |
| — |
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Partner company’s dividends declared and paid |
| — |
| — |
| — |
| — | ( |
| — |
| — |
| ( | |||||||
Issuance of partner company’s common shares for research and development expenses |
| — |
| — |
| — |
| — | |
| — |
| — |
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Non-controlling interest in partner companies | — | — | — | — | ( | — | | — | ||||||||||||||
Net loss attributable to non-controlling interest | — | — | — | — | — | — | ( | ( | ||||||||||||||
Net loss attributable to common stockholders |
| — |
| — |
| — |
| — | — |
| ( |
| — |
| ( | |||||||
Balance as of March 31, 2021 |
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| $ | |
| |
| $ | | $ | |
| $ | ( | $ | |
| $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
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: |
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Net loss | $ | ( | $ | ( | ||
Reconciliation of net loss to net cash used in operating activities: |
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Depreciation expense |
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Bad debt (reserve) expense | ( |
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Amortization of debt discount |
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Non-cash interest | | | ||||
Amortization of product revenue license fee |
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Amortization of operating lease right-of-use assets |
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Stock-based compensation expense |
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Issuance of partner company’s common shares for research and development expenses |
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Change in fair value of investment in Caelum |
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Increase (decrease) in cash and cash equivalents resulting from changes in operating assets and liabilities: |
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Accounts receivable |
| ( |
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Inventory |
| ( |
| ( | ||
Other receivables - related party |
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| ( | ||
Prepaid expenses and other current assets |
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Other assets |
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| ( | ||
Accounts payable and accrued expenses |
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| ( | ||
Deferred revenue | ( | | ||||
Income taxes payable | | | ||||
Lease liabilities |
| ( |
| ( | ||
Other long-term liabilities |
| ( |
| ( | ||
Net cash used in operating activities |
| ( |
| ( | ||
Cash Flows from Investing Activities: |
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Purchase of property and equipment |
| ( |
| ( | ||
Acquisition of VYNE products | ( | | ||||
Net cash used in investing activities |
| ( |
| ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
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: |
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Payment of Series A perpetual preferred stock dividends |
| $ | ( |
| $ | ( |
Proceeds from issuance of common stock for at-the-market offering, net | | | ||||
Proceeds from partner companies' ESPP | |
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Partner company’s dividends declared and paid | ( |
| ( | |||
Payment of costs related to partner company's sale of stock |
| ( |
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Proceeds from partner companies' at-the-market offering, net |
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Payment of costs related to partner company's preferred stock offering | | ( | ||||
Proceeds from exercise of partner companies’ equity grants | | | ||||
Partner company’s net settlement of shares withheld for taxes |
| ( |
| | ||
Payment of debt issuance costs associated with Oaktree Note | | ( | ||||
Repayment of partner company installment payments - licenses | ( | ( | ||||
Payment of debt issuance costs associated with partner company convertible preferred shares | ( | | ||||
Proceeds from partner company long-term debt | | | ||||
Payment of debt issuance costs associated with partner company long-term debt | ( | | ||||
Repayment of partner company's line of credit | ( | | ||||
Net cash provided by financing activities |
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Net (decrease) increase in cash and cash equivalents and restricted cash |
| ( |
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Cash and cash equivalents and restricted cash at beginning of period |
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Cash and cash equivalents and restricted cash at end of period | $ | | $ | | ||
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Supplemental disclosure of cash flow information: |
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Cash paid for interest | $ | | $ | | ||
Cash paid for tax | $ | | $ | | ||
Supplemental disclosure of non-cash financing and investing activities: |
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Settlement of restricted stock units into common stock | $ | | $ | | ||
Unpaid fixed assets | $ | | $ | | ||
Partner company's unpaid intangible assets | $ | | $ | | ||
Unpaid partner company’s at-the-market offering cost | $ | | $ | | ||
Unpaid partner company’s debt offering cost | $ | | $ | | ||
Partner company derivative warrant liability associated with partner company convertible preferred shares | $ | | $ | | ||
Partner company’s warrants issued in conjunction with debt | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
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.
7
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
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 $
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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 |
| $ | |
| $ | |
Restricted cash |
| |
| | ||
Total cash and cash equivalents and restricted cash | $ | | $ | |
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 $
Upon the transfer of CUTX-101 to Sentynl, Cyprium is eligible to earn an additional
In connection with the $
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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 $
4. Inventory
March 31, |
| December 31, | |||
($ in thousands) | 2022 | 2021 | |||
Raw materials | $ | | $ | | |
Work-in-process |
| |
| — | |
Finished goods |
| |
| | |
Inventory reserve | ( | — | |||
Total inventories | $ | | $ | |
At March 31, 2022 included in finished goods inventory is a step up of $
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 |
| $ | | $ | | ||||
Furniture and fixtures |
|
| |
| | ||||
Machinery & equipment |
|
| |
| | ||||
Leasehold improvements |
| - |
| |
| | |||
Buildings | | | |||||||
Construction in progress 1 |
| N/A |
| |
| | |||
Total property and equipment |
| |
| | |||||
Less: Accumulated depreciation |
| ( |
| ( | |||||
Property, plant and equipment, net | $ | | $ | |
Note 1: | Relates to the Mustang cell processing facility. |
Fortress' depreciation expense for the three months ended March 31, 2022 and 2021 was approximately $
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 TechnologyTM proprietary platform from VYNE Therapeutics, Inc. (“VYNE”) for an upfront payment of $
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 $
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FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
million, $
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 | $ | |
Fair value of deferred cash payment due January 2023 |
| |
Transaction costs | | |
Total consideration transferred at closing | $ | |
The fair value of the deferred cash payment is being accreted to the $
The following table summarizes the assets acquired in the VYNE Product Acquisition:
($ in thousands) |
| Assets Recognized | |
Inventory | $ | | |
Identifiable intangibles: | |||
Amzeeq | | ||
Zilxi | | ||
Fair value of net identifiable assets acquired | $ | |
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 | $ | | $ | | ||||
Accumulated amortization |
|
|
| ( |
| ( | ||
Net intangible assets |
|
| $ | | $ | |
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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 $
The future amortization of these intangible assets is as follows:
Total | |||||||||||||||
($ in thousands) |
| Ximino® |
| Accutane® |
| Amzeeq® |
| Zilxi® |
| Amortization | |||||
Nine Months Ended December 31, 2022 | $ | | $ | | $ | | $ | | $ | | |||||
December 31, 2023 | | | | | | ||||||||||
December 31, 2024 | | | | | | ||||||||||
December 31, 2025 |
| |
| |
| |
| |
| | |||||
December 31, 2026 | |
| |
| |