UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 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 August 8, 2022
Common Stock, $0.001 par value		107,734,821
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, which may result in the identification of safety or efficacy concerns. 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 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 equity or equity-linked 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 current and newly approved therapeutics.

Risks Pertaining to our Business Strategy, Structure and Organization

●

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

●

We and our partner companies have also entered into several arrangements under which we and/or they have agreed to contingent dispositions of such partner companies and/or their assets. The failure to consummate any such transaction may impair the value of such companies and/or assets, and we may not be able to identify or execute alternative arrangements on favorable terms, if at all. The consummation of any such arrangements with respect to certain product candidates may also result in our eligibility to receive a lower portion of sales (if any) of resulting approved products than if we or our partner companies had developed and commercialized such product candidates ourselves.

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PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

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


	June 30,		December 31,
	2022		2021

ASSETS
Current assets
Cash and cash equivalents	$	248,771	$	305,744
Accounts receivable, net		28,671		23,112
Inventory		16,053		9,862
Other receivables - related party		376		678
Prepaid expenses and other current assets		5,120		7,066
Total current assets		298,991		346,462

Property, plant and equipment, net		14,021		15,066
Operating lease right-of-use asset, net		18,116		19,005
Restricted cash		2,220		2,220
Intangible asset, net		29,440		12,552
Other assets		1,167		1,198
Total assets	$	363,955	$	396,503

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	93,540	$	90,660
Deferred revenue		1,457		2,611
Income taxes payable		345		345
Operating lease liabilities, short-term		2,092		2,104
Partner company line of credit		—		812
Partner company installment payments - licenses, short-term, net		7,487		4,510
Total current liabilities		104,921		101,042

Notes payable, long-term, net		85,611		42,937
Operating lease liabilities, long-term		19,973		20,987
Partner company installment payments - licenses, long-term, net		3,808		3,627
Other long-term liabilities		1,940		2,033
Total liabilities		216,253		170,626

Commitments and contingencies (Note 13)

Stockholders’ equity
Cumulative redeemable perpetual preferred stock, $0.001 par value, 15,000,000 authorized, 5,000,000 designated Series A shares, 3,427,138 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively, liquidation value of $25.00 per share		3		3
Common stock, $0.001 par value, 200,000,000 shares authorized, 107,717,647 shares issued and outstanding as of June 30, 2022; 170,000,000 shares authorized, 101,435,505 shares issued and outstanding as of December 31, 2021, respectively		108		101
Additional paid-in-capital		661,691		656,033
Accumulated deficit		(584,579)		(547,463)
Total stockholders' equity attributed to the Company		77,223		108,674

Non-controlling interests		70,479		117,203
Total stockholders' equity		147,702		225,877
Total liabilities and stockholders' equity	$	363,955	$	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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenue
Product revenue, net	$	18,235	$	15,288	$	39,031	$	26,007
Collaboration revenue		577		2,400		1,154		3,200
Revenue - related party		18		155		70		223
Other revenue		56		—		2,556		—
Net revenue		18,886		17,843		42,811		29,430

Operating expenses
Cost of goods sold - product revenue		7,633		7,484		15,836		11,392
Research and development		33,130		22,831		69,852		42,859
Research and development - licenses acquired		1		11,003		1		11,129
Selling, general and administrative		29,048		19,382		55,318		36,924
Total operating expenses		69,812		60,700		141,007		102,304
Loss from operations		(50,926)		(42,857)		(98,196)		(72,874)

Other income (expense)
Interest income		150		146		292		373
Interest expense and financing fee		(3,154)		(2,760)		(5,504)		(4,949)
Change in fair value of investments		—		25,005		—		30,918
Change in fair value of derivative liability		—		(3,925)		—		(3,925)
Total other income (expense)		(3,004)		18,466		(5,212)		22,417
Net loss		(53,930)		(24,391)		(103,408)		(50,457)

Net loss attributable to non-controlling interests		32,574		20,856		66,292		38,100
Net loss attributable to common stockholders	$	(21,356)	$	(3,535)	$	(37,116)	$	(12,357)

Net loss per common share - basic and diluted	$	(0.61)	$	(0.30)	$	(1.18)	$	(0.62)
Net loss per common share attributable to non - controlling interests - basic and diluted	$	(0.37)	$	(0.26)	$	(0.76)	$	(0.47)
Net loss per common share attributable to common stockholders - basic and diluted	$	(0.24)	$	(0.04)	$	(0.42)	$	(0.15)

Weighted average common shares outstanding - basic and diluted		88,743,457		80,962,994		87,593,952		80,907,671

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

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands except for share amounts)

For the Three Months Ended June 30, 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 March 31, 2022	3,427,138	$	3	106,321,875	$	106	$	660,973	$	(563,223)	$	95,719	$	193,578
Stock-based compensation expense	—		—	—		—		5,081		—		—		5,081
Issuance of common stock related to equity plans	—		—	176,406		—		—		—		—		—
Issuance of common stock under ESPP	—		—	135,464		—		99		—		—		99
Issuance of common stock for at-the-market offering, net	—		—	1,083,902		2		1,299		—		—		1,301
Preferred A dividends declared and paid	—		—	—		—		(2,008)		—		—		(2,008)
Partner company’s at-the-market offering, net	—		—	—		—		3,693		—		—		3,693
Partner company’s dividends declared and paid	—		—	—		—		(188)		—		—		(188)
Reversal of partner company’s common shares for research and development expenses	—		—	—		—		(35)		—		—		(35)
Partner company’s exercise of options for cash	—		—	—		—		111		—		—		111
Non-controlling interest in partner companies	—		—	—		—		(7,334)		—		7,334		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		(32,574)		(32,574)
Net loss attributable to common stockholders	—		—	—		—		—		(21,356)		—		(21,356)
Balance as of June 30, 2022	3,427,138	$	3	107,717,647	$	108	$	661,691	$	(584,579)	$	70,479	$	147,702

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

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

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands except for share amounts)

For the Six Months Ended June 30, 2022


	Series A												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	—		—	—		—		10,644		—		—		10,644
Issuance of common stock related to equity plans	—		—	2,646,375		3		(3)		—		—		—
Issuance of common stock under ESPP	—		—	135,464		—		99		—		—		99
Issuance of common stock for at-the-market offering, net	—		—	3,500,303		4		5,523		—		—		5,527
Preferred A dividends declared and paid	—		—	—		—		(4,016)		—		—		(4,016)
Partner companies' at-the-market offering, net	—		—	—		—		14,476		—		—		14,476
Partner company’s exercise of options for cash	—		—	—		—		111		—		—		111
Issuance of common stock under partner company’s ESPP	—		—	—		—		116		—		—		116
Partner company’s dividends declared and paid	—		—	—		—		(375)		—		—		(375)
Partner company’s net settlement of shares withheld for taxes	—		—	—		—		(1,698)		—		—		(1,698)
Reversal of partner company’s common shares for research and development expenses	—		—	—		—		(35)		—		—		(35)
Partner company’s warrants issued in conjunction with debt	—		—	—		—		384		—		—		384
Non-controlling interest in partner companies	—		—	—		—		(19,568)		—		19,568		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		(66,292)		(66,292)
Net loss attributable to common stockholders	—		—	—		—		—		(37,116)		—		(37,116)
Balance as of June 30, 2022	3,427,138	$	3	107,717,647	$	108	$	661,691	$	(584,579)	$	70,479	$	147,702

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

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands except for share amounts)

For the Six Months Ended June 30, 2021


	Series A						Common				Additional				Total
	Preferred Stock			Common Stock			Shares		Paid-In		Accumulated		Non-Controlling		Stockholders’
	Shares	Amount		Shares	Amount		Issuable		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	—		—	—		—		—		8,123		—		—		8,123
Issuance of common stock related to equity plans	—		—	2,558,645		2		—		(2)		—		—		—
Issuance of common stock under ESPP	—		—	59,107		—		—		137		—		—		137
Preferred A dividends declared and paid	—		—	—		—		—		(4,015)		—		—		(4,015)
Partner companies' at-the-market offering, net	—		—	—		—		—		97,332		—		—		97,332
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	—		—	—		—		—


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	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	42
Item 4.	Controls and Procedures	42

PART II.	OTHER INFORMATION	43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77

SIGNATURES		79