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Table of Contents

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, 2023

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 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 August 9, 2023

Common Stock, $0.001 par value

132,787,335

9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value

3,427,138

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

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

37

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

52

Item 4.

Controls and Procedures

53

PART II.

OTHER INFORMATION

53

Item 1.

Legal Proceedings

53

Item 1A.

Risk Factors

53

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

87

Item 3.

Defaults Upon Senior Securities

87

Item 4.

Mine Safety Disclosures

87

Item 5.

Other Information

87

Item 6.

Exhibits

88

 

 

 

SIGNATURES

 

90

Table of Contents

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 Journey’s 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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Our growth and success depend on our acquiring or in-licensing products or product candidates and integrating such products into our businesses.
We may act as guarantor and/or indemnitor of certain obligations of our subsidiaries and partner companies, which could require us to pay substantial amounts based on the actions or omissions of said entities.

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 product supply. 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, and Zilxi, three 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 product sales in a short period of time, which could adversely affect our business, financial condition, operating results and prospects.

Risks Pertaining to the Commercialization of Product Candidates

If our products are not broadly accepted by the healthcare community, the revenues from any such products are likely to be limited.
We may not obtain the desired product labels or intended uses for product promotion, or favorable scheduling classifications desirable to successfully promote our products.
Even if a product candidate is approved, it may be subject to various post-marketing requirements, including studies or clinical trials, the results of which could cause such products to later be withdrawn from the market.
Any successful products liability claim related to any of our current or future product candidates may cause us to incur substantial liability and limit the commercialization of such products.

Risks Pertaining to Legislation and Regulation Affecting the Biopharmaceutical and Other Industries

We operate in a heavily regulated industry, and we cannot predict the impact that any future legislation or administrative or executive action may have on our operations.

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General and Other Risks

On October 31, 2022, we were notified by the Listing Qualification Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) that the bid price of the Company’s common stock, par value $0.001 per share (the “Common Stock”), had closed below $1.00 per share for 30 consecutive business days and, as a result, the Company no longer satisfied Nasdaq Listing Rule 5550(a)(2), which sets forth the minimum bid price requirement for continued listing on The Nasdaq Capital Market. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company was afforded an initial 180-calendar day grace period, through May 1, 2023, to regain compliance with the Rule 5550(a)(2).
On May 2, 2023, in accordance with Nasdaq Listing Rule 5810(c)(3)(A)(ii), the Staff granted the Company a second 180-calendar day grace period to regain compliance with the Rule 5550(a)(2). The Company intends to closely monitor the closing bid price for its Common Stock and consider all available options to remedy the bid price deficiency. In the event the Company is not able to demonstrate compliance with Rule 5550(a)(2) by October 30, 2023, the Staff will provide written notification that the Company’s Common Stock is subject to delisting, which the Company may appeal. The Company’s appeal request would stay any further action by the Staff at least pending a hearing before the Nasdaq Hearings Panel (the “Panel”) and the expiration of any extension that may be granted by the Panel to the Company following the hearing.

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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, 

2023

2022

 

ASSETS

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

78,022

$

178,266

Accounts receivable, net

 

16,737

 

28,208

Inventory

 

12,166

 

14,159

Other receivables - related party

 

273

 

138

Prepaid expenses and other current assets

 

7,315

 

9,661

Restricted cash

8,750

Assets held for sale

 

4,348

 

Total current assets

 

127,611

 

230,432

Property, plant and equipment, net

 

7,230

 

13,020

Operating lease right-of-use asset, net

 

17,951

 

19,991

Restricted cash

 

2,438

 

2,688

Intangible asset, net

 

21,916

 

27,197

Other assets

 

3,573

 

973

Total assets

$

180,719

$

294,301

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

  

 

  

Current liabilities

 

 

Accounts payable and accrued expenses

$

99,162

$

97,446

Common stock warrant liabilities

9,971

13,869

Operating lease liabilities, short-term

 

2,329

 

2,447

Partner company term loan, short-term, net

9,942

Partner company convertible preferred shares, short-term, net

3,491

2,052

Partner company line of credit

2,948

Partner company installment payments - licenses, short-term, net

2,333

7,235

Other short-term liabilities

1,355

1,718

Total current liabilities

 

128,583

 

127,715

Notes payable, long-term, net

 

45,333

 

91,730

Operating lease liabilities, long-term

 

19,502

 

21,572

Partner company installment payments - licenses, long-term, net

1,490

1,412

Other long-term liabilities

 

1,754

 

1,847

Total liabilities

196,662

244,276

 

 

Commitments and contingencies (Note 14)

 

  

 

  

Stockholders’ equity (deficit)

 

  

 

  

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, 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, 131,657,369 and 110,494,245 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

132

 

110

Common stock issuable, 39,595 and 0 shares as of June 30, 2023 and December 31, 2022

 

23

 

Additional paid-in-capital

 

698,897

 

675,841

Accumulated deficit

 

(680,546)

 

(634,233)

Total stockholders' equity attributed to the Company

 

18,509

 

41,721

Non-controlling interests

 

(34,452)

 

8,304

Total stockholders' equity (deficit)

 

(15,943)

 

50,025

Total liabilities and stockholders' equity (deficit)

$

180,719

$

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 June 30, 

Six Months Ended June 30, 

    

2023

    

2022

    

2023

    

2022

    

Revenue

 

  

 

  

 

  

 

  

 

Product revenue, net

$

16,961

$

18,235

$

29,126

$

39,031

Collaboration revenue

183

 

577

364

1,154

Revenue - related party

 

31

 

18

 

66

 

70

Other revenue

211

56

259

2,556

Net revenue

 

17,386

 

18,886

 

29,815

 

42,811

Operating expenses

 

 

 

 

Cost of goods sold - product revenue

 

7,767

 

7,633

 

14,216

 

15,836

Research and development

 

32,139

 

33,130

 

67,415

 

69,852

Research and development - licenses acquired

 

3

 

1

 

4,233

 

1

Selling, general and administrative

 

24,439

 

29,048

 

49,780

 

55,318

Asset impairment

3,143

3,143

Total operating expenses

 

67,491

 

69,812

 

138,787

 

141,007

Loss from operations

 

(50,105)

 

(50,926)

 

(108,972)

 

(98,196)

Other income (expense)

 

  

 

  

 

  

 

  

Interest income

 

715

 

150

 

1,751

 

292

Interest expense and financing fee

 

(6,425)

 

(3,154)

 

(10,721)

 

(5,504)

Change in fair value of warrant liabilities

 

(512)

 

 

6,166

 

Loss from deconsolidation of Aevitas

(3,369)

(3,369)

Other income

395

699

Total other expense

 

(9,196)

 

(3,004)

 

(5,474)

 

(5,212)

Net loss

 

(59,301)

 

(53,930)

 

(114,446)

 

(103,408)

Net loss attributable to non-controlling interests

 

34,525

 

32,574

 

68,133

 

66,292

Net loss attributable to Fortress

(24,776)

(21,356)

(46,313)

(37,116)

Preferred A dividends declared and paid

(2,008)

(2,008)

(4,016)

(4,016)

Net loss attributable to common stockholders

$

(26,784)

$

(23,364)

$

(50,329)

$

(41,132)

Net loss per common share attributable to common stockholders - basic and diluted

$

(0.24)

$

(0.26)

$

(0.47)

$

(0.47)

Weighted average common shares outstanding - basic and diluted

 

110,659,985

 

88,743,457

 

106,297,241

 

87,593,952

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 (Deficit)

($ in thousands except for share amounts)

For the Three Months Ended June 30, 2023

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 (Deficit)

Balance as of March 31, 2023

 

3,427,138

    

$

3

    

130,417,161

    

$

130

    

$

    

$

693,433

    

$

(655,770)

    

$

(17,990)

    

$

19,806

Stock-based compensation expense

 

 

 

 

 

 

4,217

 

 

 

4,217

Issuance of common stock related to equity plans

 

 

 

82,728

 

 

 

 

 

 

Public offering cost

 

(41)

 

(41)

Issuance of common stock for at-the-market offering, net

991,481

 

2

719

 

721

Common shares issued for dividend on partner company's convertible preferred shares

 

 

 

165,999

 

 

23

 

108

 

 

 

131

Preferred A dividends declared and paid

 

 

 

 

 

 

(2,008)

 

 

 

(2,008)

Partner company’s offering, net

 

 

 

 

 

 

14,460

 

 

 

14,460

Issuance of common stock under partner company’s ESPP

 

 

 

 

 

88

 

 

88

Partner company’s dividends declared and paid

 

 

 

 

 

 

(185)

 

 

 

(185)

Issuance of partner company’s common shares for research and development expenses

 

 

 

 

 

 

3

 

 

 

3

Partner company’s exercise of options for cash

 

 

 

 

 

 

3

 

 

 

3

Warrants

 

 

 

 

 

 

272

 

 

 

272

Deconsolidation of Aevitas non-controlling interest

 

 

 

 

 

 

 

5,891

5,891

Non-controlling interest in partner companies

 

 

 

 

 

(12,172)

 

 

12,172

Net loss attributable to non-controlling interest

 

 

 

 

 

 

 

(34,525)

(34,525)

Net loss attributable to common stockholders

 

 

 

 

 

 

 

(24,776)

 

 

(24,776)

Balance as of June 30, 2023

 

3,427,138

    

$

3

    

131,657,369

    

$

132

    

$

23

    

$

698,897

    

$

(680,546)

    

$

(34,452)

    

$

(15,943)

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, 2022

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, 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 (Deficit)

($ in thousands except for share amounts)

For the Six Months Ended June 30, 2023

Series A

Common

Total

 

Preferred Stock

Common Stock

Shares

Paid-In

Accumulated

Non-Controlling

Stockholders’

Shares

Amount

Shares

Amount

Issuable

Capital

Deficit

Interests

Equity (Deficit)

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

 

 

 

 

 

8,948

 

 

 

8,948

Issuance of common stock related to equity plans

 

 

 

2,757,850

 

3

(3)

 

 

 

Issuance of common stock for public offering, net

 

 

16,642,894

 

17

13,137

 

 

 

13,154

Issuance of common stock for at-the-market offering, net

1,596,381

2

1,166