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 September 30, 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 November 10, 2023
Common Stock, $0.001 par value		8,942,751
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	5
Item 1.	Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	63
Item 4.	Controls and Procedures	64

PART II.	OTHER INFORMATION	64
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	99
Item 3.	Defaults Upon Senior Securities	99
Item 4.	Mine Safety Disclosures	99
Item 5.	Other Information	99
Item 6.	Exhibits	100

SIGNATURES		102

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 (until September 2023), 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 (until September 2023), 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.

Table of Contents

●

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 damages incurred by such 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.

General and Other Risks

●

If we fail to comply with the continued listing standards of Nasdaq, our common stock could be delisted from the exchange.

Table of Contents

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)


	September 30,		December 31,
	2023		2022

ASSETS
Current assets
Cash and cash equivalents	$	72,307	$	178,266
Accounts receivable, net		7,989		28,208
Inventory		11,024		14,159
Other receivables - related party		165		138
Prepaid expenses and other current assets		6,341		9,661
Total current assets		97,826		230,432

Property, plant and equipment, net		6,854		13,020
Operating lease right-of-use asset, net		17,507		19,991
Restricted cash		2,438		2,688
Intangible asset, net		21,102		27,197
Other assets		4,822		973
Total assets	$	150,549	$	294,301

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses	$	81,406	$	97,446
Income taxes payable		84		—
Common stock warrant liabilities		5,430		13,869
Operating lease liabilities, short-term		2,413		2,447
Partner company convertible preferred shares, short-term, net		3,797		2,052
Partner company line of credit		—		2,948
Partner company installment payments - licenses, short-term, net		3,000		7,235
Other short-term liabilities		1,221		1,718
Total current liabilities		97,351		127,715

Notes payable, long-term, net		45,791		91,730
Operating lease liabilities, long-term		18,944		21,572
Partner company installment payments - licenses, long-term, net		—		1,412
Other long-term liabilities		1,706		1,847
Total liabilities		163,792		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 September 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, 8,937,587 and 7,366,283 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		9		7
Additional paid-in-capital		702,253		675,944
Accumulated deficit		(685,591)		(634,233)
Total stockholders' equity attributed to the Company		16,674		41,721

Non-controlling interests		(29,917)		8,304
Total stockholders' equity (deficit)		(13,243)		50,025
Total liabilities and stockholders' equity (deficit)	$	150,549	$	294,301

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 Statements of Operations

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue
Product revenue, net	$	15,279	$	16,043	$	44,405	$	55,074
Collaboration revenue		182		364		546		1,518
Revenue - related party		31		48		97		118
Other revenue		19,260		73		19,519		2,629
Net revenue		34,752		16,528		64,567		59,339

Operating expenses
Cost of goods sold - product revenue		6,429		7,221		20,645		23,057
Research and development		20,288		29,855		87,702		99,707
Research and development - licenses acquired		60		47		4,293		48
Selling, general and administrative		21,733		30,139		71,512		85,457
Asset impairment		—		—		3,143		—
Total operating expenses		48,510		67,262		187,295		208,269
Loss from operations		(13,758)		(50,734)		(122,728)		(148,930)

Other income (expense)
Interest income		547		419		2,296		711
Interest expense and financing fee		(2,534)		(3,393)		(13,255)		(8,897)
Change in fair value of warrant liabilities		4,542		—		10,708		—
Other income (expense)		620		648		(2,049)		648
Total other income (expense)		3,175		(2,326)		(2,300)		(7,538)
Loss before income tax expense		(10,583)		(53,060)		(125,028)		(156,468)

Income tax expense		141		—		142		—
Net loss		(10,724)		(53,060)		(125,170)		(156,468)

Net loss attributable to non-controlling interests		5,679		30,549		73,812		96,841
Net loss attributable to Fortress		(5,045)		(22,511)		(51,358)		(59,627)

Preferred A dividends declared and paid		(2,008)		(2,008)		(6,024)		(6,024)
Net loss attributable to common stockholders	$	(7,053)	$	(24,519)	$	(57,382)	$	(65,651)

Net loss per common share attributable to common stockholders - basic and diluted	$	(0.94)	$	(4.11)	$	(7.94)	$	(11.15)

Weighted average common shares outstanding - basic and diluted		7,498,653		5,961,663		7,231,004		5,886,131

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 (Deficit)

($ in thousands except for share amounts)

For the Three Months Ended September 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 June 30, 2023	3,427,138	$	3	8,777,157	$	9	$	23	$	699,020	$	(680,546)	$	(34,452)	$	(15,943)
Stock-based compensation expense	—		—	—		—		—		4,377		—		—		4,377
Issuance of common stock related to equity plans	—		—	28,112		—		—		—		—		—		—
Issuance of common stock for at-the-market offering, net	—		—	117,578		—		—		837		—		—		837
Common shares issued for dividend on partner company's convertible preferred shares	—		—	14,740		—		(23)		91		—		—		68
Preferred A dividends declared and paid	—		—	—		—		—		(2,008)		—		—		(2,008)
Partner companies' offerings, net	—		—	—		—		—		9,261		—		—		9,261
Partner company’s at-the-market offering, net	—		—	—		—		—		160		—		—		160
Issuance of common stock under partner company’s ESPP	—		—	—		—		—		90		—		—		90
Partner company’s dividends declared and paid	—		—	—		—		—		(185)		—		—		(185)
Partner company’s exercise of options for cash	—		—	—		—		—		21		—		—		21
Dissolution of subsidiary non-controlling interests	—		—	—		—		—		—		—		802		802
Non-controlling interest in partner companies	—		—	—		—		—		(9,412)		—		9,412		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		—		(5,679)		(5,679)
Net loss attributable to common stockholders	—		—	—		—		—		—		(5,045)		—		(5,045)
Balance as of September 30, 2023	3,427,138	$	3	8,937,587	$	9	$	—	$	702,253	$	(685,591)	$	(29,917)	$	(13,243)

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 September 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 June 30, 2022	3,427,138	$	3	7,181,175	$	7	$	—	$	661,792	$	(584,579)	$	70,479	$	147,702
Stock-based compensation expense	—		—	—		—		—		6,837		—		—		6,837
Issuance of common stock related to equity plans	—		—	20,488		—		—		—		—		—		—
Issuance of common stock for at-the-market offering, net	—		—	15,625		—		—		223		—		—		223
Preferred A dividends declared and paid	—		—	—		—		—		(2,008)		—		—		(2,008)
Partner company’s at-the-market offering, net	—		—	—		—		—		1,717		—		—		1,717
Issuance of common stock under partner company’s ESPP	—		—	—		—		—		90		—		—		90
Partner company’s dividends declared and paid	—		—	—		—		—		(188)		—		—		(188)
Reversal of partner company’s common shares for research and development expenses	—		—	—		—		—		8		—		—		8
Partner company’s exercise of options for cash	—		—	—		—		—		31		—		—		31
Non-controlling interest in partner companies	—		—	—		—		—		249		—		(249)		—
Net loss attributable to non-controlling interest	—		—	—		—		—		—		—		(30,549)		(30,549)
Net loss attributable to common stockholders	—		—	—		—		—		—		(22,511)		—		(22,511)
Balance as of September 30, 2022	3,427,138	$	3	7,217,288	$	7	$	—	$	668,751	$	(607,090)	$	39,681	$	101,352

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 (Deficit)

($ in thousands except for share amounts)

For the Nine Months Ended September 30, 2023

Series A

Total

Preferred Stock

Common Stock

Paid-In

Accumulated

Non-Controlling

Stockholders’

Shares

Amount

Shares

Amount

Capital

Deficit

Interests

Equity (Deficit)

Balance as of December 31, 2022

3,427,138

7,366,283

675,944