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, 2023


	☐	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 Islands, 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 12, 2023
Common Stock, $0.001 par value		134,325,474
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, to one or more of its subsidiaries and/or partner companies, or to all such entities as a group, as dictated by context.

Risks Inherent in Drug Development

●

Many of our 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 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, and the applicable lending agreements may restrict our operations. Further, the occurrence of any default event under an 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, Accutane, Amzeeq, Zilxi, Targadox, Ximino, 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.

●

A significant portion 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 subsidiaries and partner companies have also entered into, and intend in the future to enter into, arrangements under which we and/or they have agreed to contingent dispositions of such 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 had developed and commercialized such products 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)


	March 31,		December 31,
	2023		2022

ASSETS
Current assets
Cash and cash equivalents	$	152,483	$	178,266
Accounts receivable, net		27,616		28,208
Inventory		13,278		14,159
Other receivables - related party		636		138
Prepaid expenses and other current assets		8,368		9,661
Total current assets		202,381		230,432

Property, plant and equipment, net		12,194		13,020
Operating lease right-of-use asset, net		19,467		19,991
Restricted cash		2,438		2,688
Intangible asset, net		26,128		27,197
Other assets		943		973
Total assets	$	263,551	$	294,301

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	105,419	$	97,446
Deferred revenue		547		728
Income taxes payable		722		722
Common stock warrant liabilities		9,459		13,869
Operating lease liabilities, short-term		2,515		2,447
Partner company term loan, short-term, net		2,318		—
Partner company convertible preferred shares, short-term, net		2,937		2,052
Partner company line of credit		3,000		2,948
Partner company installment payments - licenses, short-term, net		2,288		7,235
Other short-term liabilities		268		268
Total current liabilities		129,473		127,715

Notes payable, long-term, net		89,996		91,730
Operating lease liabilities, long-term		21,026		21,572
Partner company installment payments - licenses, long-term, net		1,450		1,412
Other long-term liabilities		1,800		1,847
Total liabilities		243,745		244,276

Commitments and contingencies (Note 14)

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 March 31, 2023 and December 31, 2022, respectively, liquidation value of $25.00 per share		3		3
Common stock, $0.001 par value, 200,000,000 shares authorized, 130,417,161 and 110,494,245 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		130		110
Additional paid-in-capital		693,433		675,841
Accumulated deficit		(655,770)		(634,233)
Total stockholders' equity attributed to the Company		37,796		41,721

Non-controlling interests		(17,990)		8,304
Total stockholders' equity		19,806		50,025
Total liabilities and stockholders' equity	$	263,551	$	294,301

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 Statements of Operations

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


	Three Months Ended March 31,
	2023		2022
Revenue
Product revenue, net	$	12,165	$	20,796
Collaboration revenue		181		577
Revenue - related party		35		52
Other revenue		48		2,500
Net revenue		12,429		23,925

Operating expenses
Cost of goods sold - product revenue		6,449		8,203
Research and development		35,276		36,722
Research and development - licenses acquired		4,230		—
Selling, general and administrative		25,341		26,270
Total operating expenses		71,296		71,195
Loss from operations		(58,867)		(47,270)

Other income (expense)
Interest income		1,036		142
Interest expense and financing fee		(4,296)		(2,350)
Foreign exchange loss		(47)		—
Change in fair value of warrant liabilities		6,678		—
Grant income		351		—
Total other income (expense)		3,722		(2,208)
Net loss		(55,145)		(49,478)

Net loss attributable to non-controlling interests		33,608		33,718
Net loss attributable to common stockholders	$	(21,537)	$	(15,760)

Net loss per common share attributable to common stockholders - basic and diluted	$	(0.21)	$	(0.18)

Weighted average common shares outstanding - basic and diluted		101,885,648		86,255,142

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, 2023



	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, 2022	3,427,138	$	3	110,494,245	$	110	$	675,841	$	(634,233)	$	8,304	$	50,025
Stock-based compensation expense	—		—	—		—		4,731		—		—		4,731
Issuance of common stock related to equity plans	—		—	2,675,122		3		(3)		—		—		—
Issuance of common stock for public offering, net	—		—	16,642,894		17		13,177		—		—		13,194
Issuance of common stock for at-the-market offering, net	—		—	604,900		—		447		—		—		447
Preferred A dividends declared and paid	—		—	—		—		(2,008)		—		—		(2,008)
Partner company’s offering, net	—		—	—		—		7,518		—		—		7,518
Partner company’s dividends declared and paid	—		—	—		—		(186)		—		—		(186)
Issuance of partner company’s common shares for research and development expenses	—		—	—		—		1,230		—		—		1,230
Non-controlling interest in partner companies	—		—	—		—		(7,314)		—		7,314		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		(33,608)		(33,608)
Net loss attributable to common stockholders	—		—	—		—		—		(21,537)		—		(21,537)
Balance as of March 31, 2023	3,427,138	$	3	130,417,161	$	130	$	693,433	$	(655,770)	$	(17,990)	$	19,806

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 under ESPP	—		—	—		—		—		—		—		—
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)
Issuance of partner company’s common shares for research and development expenses	—		—	—		—		—		—		—		—
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 Statements of Cash Flows

($ in thousands)


	Three Months Ended March 31,
	2023		2022
Cash Flows from Operating Activities:
Net loss	$	(55,145)	$	(49,478)
Reconciliation of net loss to net cash used in operating activities:
Depreciation expense		844		739
Bad debt expense (reserve)		126		(76)
Amortization of debt discount		644		389
Accretion of partner company convertible preferred shares		198		—
Non-cash interest		91		203
Amortization of product revenue license fee		1,069		1,017
Amortization of operating lease right-of-use assets		524		440
Stock-based compensation expense		4,731		5,563
Change in fair value of partner companies' warrant liabilities		(6,678)		—
Research and development-licenses acquired, expense		4,230		—
Increase (decrease) in cash and cash equivalents resulting from changes in operating assets and liabilities:
Accounts receivable		466		(7,995)
Inventory		881		(234)
Other receivables - related party		(498)		47
Prepaid expenses and other current assets		1,199		1,342
Other assets		30		126
Accounts payable and accrued expenses		4,774		2,188
Deferred revenue		(181)		(577)
Income taxes payable		—		1
Lease liabilities		(478)		(508)
Other long-term liabilities		(47)		(47)
Net cash used in operating activities		(43,220)		(46,860)

Cash Flows from Investing Activities:
Purchase of property and equipment		—		(1,337)
Acquisition of VYNE products		(5,000)		(20,000)
Net cash used in investing activities		(5,000)		(21,337)

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,
	2023		2022
Cash Flows from Financing Activities:
Payment of Series A perpetual preferred stock dividends	$	(2,008)	$	(2,008)
Proceeds from issuance of common stock for public offering, net		13,325		—
Proceeds from issuance of common stock for at-the-market offering, net		447		4,226
Proceeds from partner companies' ESPP		—		116
Partner company’s dividends declared and paid		(186)		(187)
Proceeds from partner companies' sale of stock and warrants, net		9,905		(371)
Proceeds from partner companies' at-the-market offering, net		—		10,783
Partner company’s net settlement of shares withheld for taxes		—		(1,698)
Repayment of partner company installment payments - licenses		—		(2,000)
Proceeds from partner company convertible preferred shares		854		—
Payment of debt issuance costs associated with partner company convertible preferred shares		(202)		(214)
Proceeds from partner company long-term debt, net		—		42,129
Proceeds from partner company's line of credit		28,000		—
Repayment of partner company's line of credit		(27,948)		(812)
Net cash provided by financing activities		22,187		49,964
Net decrease in cash and cash equivalents and restricted cash		(26,033)		(18,233)
Cash and cash equivalents and restricted cash at beginning of period		180,954		307,964
Cash and cash equivalents and restricted cash at end of period	$	154,921	$	289,731

Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,885	$	1,556
Cash paid (refunded) for tax	$	(104)	$	107

Supplemental disclosure of non-cash financing and investing activities:
Settlement of restricted stock units into common stock	$	3	$	3
Unpaid fixed assets	$	18	$	36
Partner company's unpaid intangible assets	$	—	$	4,740
Unpaid partner company’s debt offering cost	$	—	$	1,065
Unpaid partner company’s offering cost	$	156	$	—
Partner company derivative warrant liability associated with partner company convertible preferred shares	$	33	$	—
Partner company’s warrants issued in conjunction with debt	$	—	$	384
Prepaid public offering cost	$	94	$	—
Unpaid public offering cost	$	37	$	—

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 it does through Fortress itself and through partner companies and subsidiaries. Fortress has a talented and experienced business development team, comprising scientists, doctors and finance professionals, who work in concert with its extensive network of key opinion leaders to identify and evaluate promising products and product candidates for potential acquisition. The Company 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 Center, St. Jude Children’s Research Hospital (“St. Jude”), 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 (“Mayo Clinic”), 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 finance 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, sales transactions, 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”), respectively. In October 2021, AstraZeneca purchased 100% of our partner Caelum for approximately $150 million upfront and up to $350 million in contingent regulatory and sales milestone payments.

Our subsidiaries and partner companies that are pursuing development and/or commercialization of biopharmaceutical products and product candidates are Aevitas Therapeutics, Inc. (“Aevitas”), Avenue Therapeutics, Inc. (Nasdaq: ATXI, “Avenue”), Baergic Bio, Inc. (“Baergic”, a subsidiary of Avenue), Cellvation, Inc. (“Cellvation”), Checkpoint Therapeutics, Inc. (Nasdaq: CKPT, “Checkpoint”), Cyprium Therapeutics, Inc. (“Cyprium”), Helocyte, Inc. (“Helocyte”), Journey Medical Corporation (Nasdaq: DERM, “Journey” or “JMC”), Mustang Bio, Inc. (Nasdaq: MBIO, “Mustang”), Oncogenuity, Inc. (“Oncogenuity”) and Urica Therapeutics, Inc. (“Urica”).

As used throughout this filing, the words “we”, “us” and “our” may refer to Fortress individually, to one or more of its subsidiaries and/or partner companies, or to all such entities as a group, as dictated by context. Generally, “subsidiary” refers to a private Fortress subsidiary, “partner company” refers to a public Fortress subsidiary, and “partner” refers to entities with whom one of the foregoing parties has a significant business relationship, such as an exclusive license or an ongoing product-related payment obligation. The context in which any such term is used throughout this document, however, may dictate a different construal from the foregoing.

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 subsidiaries/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, sales of subsidiaries/partner companies, grants or other arrangements to 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 plans and plans for expansion of its general and administrative infrastructure may be curtailed. Fortress 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.

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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, Mustang and Journey. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on March 31, 2023 (the “2022 Form 10-K”), from which the Company derived the balance sheet data at December 31, 2022, as well as Checkpoint’s Form 10-K, filed with the SEC on March 31, 2023, Mustang’s Form 10-K, filed with the SEC on March 30, 2023, Avenue’s Form 10-K, filed with the SEC on March 31, 2023, and Journey’s Form 10-K, filed with the SEC on March 31, 2023.

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 subsidiaries and/or 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, provisions for product returns, coupons, rebates, chargebacks, discounts, allowances and distribution fees paid by Journey to certain wholesalers, inventory realization, useful lives assigned to long-lived assets and amortizable intangible 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, 2023 and December 31, 2022, the Company had $2.4 million and $2.7 million, respectively, of restricted cash representing pledges to secure letters of credit in connection with certain office leases and an undertaking posted by Cyprium to secure potential damages in an injunctive proceeding.

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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, 2023, and 2022:


	March 31,
	2023		2022
Cash and cash equivalents	$	152,483	$	287,511
Restricted cash		2,438		2,220
Total cash and cash equivalents and restricted cash	$	154,921	$	289,731

Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2022 Form 10-K.

Recently Issued Accounting Pronouncements

As of March 31, 2023, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2022 Form 10-K that would materially affect the Company’s present or future results of operations, overall financial condition, liquidity, or disclosures upon adoption.

3. Collaboration and Stock Purchase Agreements

Cyprium

Agreement with Sentynl

On February 24, 2021, Cyprium entered into a development and contingent asset purchase agreement with Sentynl. Pursuant to the asset purchase agreement, Sentynl paid Cyprium an upfront fee of $8.0 million upon execution, and Cyprium remains eligible to receive up to $12.0 million in additional future development cash milestones through New Drug Application (“NDA”) approval. Cyprium is also eligible to receive up to $255.0 million in sales milestone payments (payable pursuant to five separate milestones). Royalties on CUTX-101 net sales ranging from the mid-single digits up to the mid-twenties are also payable. All of the foregoing milestone and royalty payments are subject to 50% diminution in the event Sentynl decides, at its option, to assume development control of CUTX-101 during the 45-day period beginning on September 30, 2023. Under the asset purchase agreement, Cyprium retains development responsibility of CUTX-101 (subject to the aforementioned right by Sentynl to assume development) and Sentynl will be responsible for commercialization of CUTX-101 as well as progressing newborn screening activities. Continued development of CUTX-101 is overseen by a Joint Steering Committee consisting of representatives from Cyprium and Sentynl. Cyprium will in any event retain 100% ownership over any FDA priority review voucher that may be issued at NDA approval for CUTX-101.

The Company determined that this agreement falls within the scope of ASC 606-10-15-3 and ASC 808-10-15-5A Revenue from Collaborative Arrangements (“ASC 808”) and as such the Company will recognize revenue in connection with achievement of two future development milestone payments.

With respect to the $8.0 million upfront payment from Sentynl, the Company is recognizing revenue over the period in which the development activities occur using an input method based upon the costs incurred to date in relation to the total estimated costs to complete the development activities. For the three-month period ending March 31, 2023 and 2022, the Company recognized revenue from this arrangement of $0.2 million and $0.6 million, respectively.

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Avenue

Agreements with InvaGen

On November 12, 2018, Avenue entered into a Stock Purchase and Merger Agreement (the “Avenue SPMA”) with InvaGen Pharmaceuticals Inc. (“InvaGen”), and Madison Pharmaceuticals Inc. (the “Merger Sub”), which contemplated: (i) the purchase by InvaGen of a 33.3% stake in Avenue; and (ii) the contingent sale of Avenue to InvaGen. The first stage stock purchase closed in February 2019: InvaGen acquired approximately 0.4 million shares of Avenue’s common stock at $90.00 per share for total gross consideration of $35.0 million, representing a 33.3% stake in Avenue’s capital stock on a fully diluted basis. Under a contingent second stage closing, InvaGen could have acquired the remaining shares of Avenue’s capital stock (in some cases compulsorily and in some cases at InvaGen’s option), pursuant to a reverse triangular merger with Avenue remaining as the surviving entity. On November 1, 2021, Avenue delivered InvaGen notice of termination of the Avenue SPMA, meaning that the second stage acquisition of Avenue by InvaGen pursuant to the Avenue SPMA was no longer possible. In July 2022 Avenue entered into a Share Repurchase Agreement (the “Share Repurchase Agreement”) with InvaGen. In connection with the closing of the Share Repurchase Agreement, which occurred on October 31, 2022, all of the rights retained by InvaGen pursuant to the Stockholders Agreement entered into by and among Avenue, InvaGen and Fortress on November 12, 2018, were terminated.

In connection with the closing by Avenue of an underwritten public offering on October 11, 2022, Avenue consummated the transactions contemplated by the Share Repurchase Agreement with InvaGen, pursuant to which Avenue repurchased 100% of the shares in Avenue held by InvaGen (the “InvaGen Shares”) for a purchase price of $3 million. In addition, under the Share Repurchase Agreement Avenue agreed to pay InvaGen an additional amount as a contingent fee, payable in the form of seven and a half percent (7.5%) of the proceeds of future financings, up to $4 million. In connection with the closing of the Avenue Private Offering (see Note 13), which occurred on January 31, 2023, Avenue made a payment of $0.2 million to InvaGen on February 3, 2023.

4. Inventory


	March 31,		December 31,
($ in thousands)	2023		2022

Raw materials	$	5,829	$	6,454
Work-in-process		635		395
Finished goods		7,256		7,739
Inventory reserve		(442)		(429)
Total inventories	$	13,278	$	14,159

5. Property, Plant and Equipment

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


	Useful Life		March 31,		December 31,
($ in thousands)	(Years)		2023		2022


Computer equipment		3	$	739	$	739
Furniture and fixtures		5		1,387		1,387
Machinery & equipment		5		9,269		8,632
Leasehold improvements		2-15		13,175		13,175
Buildings		40		581		581
Construction in progress ¹		N/A		333		952
Total property and equipment				25,484		25,466
Less: Accumulated depreciation				(13,290)		(12,446)
Property, plant and equipment, net


PART I.	FINANCIAL INFORMATION	1
Item 1.	Unaudited Condensed Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	45
Item 4.	Controls and Procedures	46

PART II.	OTHER INFORMATION	47
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 3.	Defaults Upon Senior Securities	80
Item 4.	Mine Safety Disclosures	79
Item 5.	Other Information	81
Item 6.	Exhibits	82

SIGNATURES		84