UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address including zip code of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class | Trading Symbol(s) | Exchange Name | ||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ◻ | Accelerated filer | ◻ |
⌧ | Smaller reporting company | ||
|
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Class of Stock |
| Outstanding Shares as of May 13, 2024 |
Common Stock, $0.001 par value | | |
9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value |
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 | |
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SUMMARY OF 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, equity-linked securities or securities convertible into or exercisable for equity 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, Luxamend, 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. Three of Journey’s marketed products, Qbrexza, Amzeeq and Zilxi, 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. Four of Journey’s marketed products, Accutane, Targadox, Luxamend 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, including government 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 |
3
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. |
● | 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 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 product candidates, if approved, 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
● | We have previously failed to satisfy certain continued listing rules of The Nasdaq Stock Market LLC (“Nasdaq”), and if we again are unable to meet the continued listing requirements, our Common Stock and Preferred Stock may be subject to delisting from The Nasdaq Capital Market if we are unable to regain compliance with such rules. The delisting of our Securities from the Nasdaq may decrease the market liquidity and market price of our Common Stock and Preferred Stock. |
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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, | |||||
2024 | 2023 | |||||
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ASSETS |
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Current assets |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
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Inventory |
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Other receivables - related party |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use asset, net |
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Restricted cash |
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Intangible assets, net |
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Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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Current liabilities |
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Accounts payable and accrued expenses | $ | | $ | | ||
Income taxes payable | | | ||||
Common stock warrant liabilities | | | ||||
Operating lease liabilities, short-term |
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Partner company convertible preferred shares, short-term, net | | | ||||
Partner company installment payments - licenses, short-term, net | | | ||||
Other short-term liabilities | | | ||||
Total current liabilities |
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Notes payable, long-term, net |
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Operating lease liabilities, long-term |
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Other long-term liabilities |
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Total liabilities | | | ||||
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Commitments and contingencies (Note 14) |
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Stockholders’ equity (deficit) |
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Cumulative redeemable perpetual preferred stock, $ |
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Common stock, $ |
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Additional paid-in-capital |
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Accumulated deficit |
| ( |
| ( | ||
Total stockholders' equity attributed to the Company |
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Non-controlling interests |
| ( |
| ( | ||
Total stockholders' equity (deficit) |
| ( |
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Total liabilities and stockholders' equity (deficit) | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
($ in thousands except for share and per share amounts)
Three Months Ended March 31, | |||||||
| 2024 |
| 2023 |
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Revenue |
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Product revenue, net | $ | | $ | | |||
Collaboration revenue | — |
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Revenue - related party |
| — |
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Other revenue | — | | |||||
Net revenue |
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Operating expenses |
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Cost of goods sold - product revenue |
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Research and development |
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Research and development - licenses acquired |
| — |
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Selling, general and administrative |
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Total operating expenses |
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Loss from operations |
| ( |
| ( | |||
Other income (expense) |
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Interest income |
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Interest expense and financing fee |
| ( |
| ( | |||
Gain (loss) on common stock warrant liabilities |
| ( |
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Other income (expense) | ( | | |||||
Total other income (expense) |
| ( |
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Net loss |
| ( |
| ( | |||
Net loss attributable to non-controlling interests |
| |
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Net loss attributable to Fortress | $ | ( | $ | ( | |||
Net loss attributable to common stockholders | $ | ( | $ | ( | |||
Net loss per common share attributable to common stockholders - basic and diluted | $ | ( | $ | ( | |||
Weighted average common shares outstanding - basic and diluted |
| |
| |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
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 March 31, 2024
Series A Perpetual | 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, 2023 |
| |
| $ | |
| |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | |
Stock-based compensation expense |
| — |
| — |
| — |
| — |
| |
| — |
| — |
| | ||||||
Issuance of common stock related to equity plans |
| — |
| — |
| |
| — |
| — |
| — |
| — |
| — | ||||||
Issuance of common stock for public offering, net | | | | | ||||||||||||||||||
Issuance of common stock for at-the-market offering, net | — | — | |
| — | |
| — | — | | ||||||||||||
Common shares issued for dividend on partner company's convertible preferred shares |
| — |
| — |
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| — |
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| — |
| — |
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Preferred A dividends declared and paid |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Partner companies' offerings, net |
| — |
| — |
| — |
| — |
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| — |
| — |
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Partner company’s at-the-market offering, net |
| — |
| — |
| — |
| — |
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| — |
| — |
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Issuance of common stock under partner company’s ESPP | — |
| — |
| — |
| — |
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| — |
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Partner company’s dividends declared and paid |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Partner companies' proceeds from options and warrants, net |
| — |
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| — |
| — |
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Exercise of warrants for cash |
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Non-controlling interest in partner companies | — |
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| — |
| — |
| ( |
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Net loss attributable to non-controlling interest | — |
| — |
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| — |
| — |
| — |
| ( | ( | ||||||||
Net loss attributable to common stockholders |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance as of March 31, 2024 |
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| $ | |
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| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
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 |
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| $ | |
| |
| $ | | $ | |
| $ | ( | $ | |
| $ | | ||
Stock-based compensation expense |
| — |
| — |
| — |
| — |
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| — |
| — |
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Issuance of common stock related to equity plans |
| — |
| — |
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| — |
| — |
| — |
| — |
| — | ||||||
Issuance of common stock for public offering, net |
| — |
| — |
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| — |
| — |
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Issuance of common stock for at-the-market offering, net | — | — | |
| — | |
| — | — | | ||||||||||||
Preferred A dividends declared and paid |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Partner company’s offering, net |
| — |
| — |
| — |
| — |
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| — |
| — |
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Partner company’s dividends declared and paid |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Issuance of partner company’s common shares for research and development expenses |
| — |
| — |
| — |
| — |
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| — |
| — |
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Non-controlling interest in partner companies | — |
| — |
| — |
| — |
| ( |
| — |
| | — | ||||||||
Net loss attributable to non-controlling interest | — |
| — |
| — |
| — |
| — |
| — |
| ( | ( | ||||||||
Net loss attributable to common stockholders |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Balance as of March 31, 2023 | |
| $ | |
| |
| $ | | $ | |
| $ | ( | $ | ( |
| $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
($ in thousands)
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Cash Flows from Operating Activities: |
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Net loss | $ | ( | $ | ( | ||
Reconciliation of net loss to net cash used in operating activities: |
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Depreciation expense |
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Bad debt expense | |
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Amortization of debt discount |
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Accretion of partner company convertible preferred shares |
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Non-cash interest | | | ||||
Amortization of acquired intangible assets |
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Reduction in the carrying amount of operating lease right-of-use assets |
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Stock-based compensation expense |
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Loss on partner company warrant issuance |
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Common shares issued for dividend on partner company's convertible preferred shares | | | ||||
Change in fair value of partner companies' warrant liabilities |
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| ( | ||
Research and development - licenses acquired, expense |
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Increase (decrease) in cash and cash equivalents resulting from changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
| ( |
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Other receivables - related party |
| ( |
| ( | ||
Prepaid expenses and other current assets |
| ( |
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Other assets |
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Accounts payable and accrued expenses |
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Deferred revenue | | ( | ||||
Lease liabilities |
| ( |
| ( | ||
Other long-term liabilities |
| ( |
| ( | ||
Net cash used in operating activities |
| ( |
| ( | ||
Cash Flows from Investing Activities: |
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Acquisition of VYNE products | | ( | ||||
Net cash used in investing activities |
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| ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
($ in thousands)
Three Months Ended March 31, | ||||||
2024 | 2023 | |||||
Cash Flows from Financing Activities: |
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Payment of Series A perpetual preferred stock dividends |
| $ | ( |
| $ | ( |
Proceeds from issuance of common stock for public offering, net | | | ||||
Proceeds from issuance of common stock for at-the-market offering, net | | | ||||
Exercise of warrants for cash | | | ||||
Proceeds from partner companies' ESPP | |
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Partner company’s dividends declared and paid | ( |
| ( | |||
Proceeds from partner companies' sale of stock and warrants, net | | | ||||
Proceeds from partner companies' at-the-market offering, net |
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Proceeds from partner company convertible preferred shares, net | | | ||||
Proceeds from exercise of partner companies’ options and warrants, net | | | ||||
Proceeds from partner company's line of credit | | | ||||
Repayment of partner company's line of credit | | ( | ||||
Net cash (used in) provided by financing activities |
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Net increase (decrease) in cash and cash equivalents and restricted cash |
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| ( | ||
Cash and cash equivalents and restricted cash at beginning of period |
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Cash and cash equivalents and restricted cash at end of period | $ | | $ | | ||
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Supplemental disclosure of cash flow information: |
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Cash paid for interest | $ | | $ | | ||
Cash paid (refunded) for income taxes | $ | | $ | ( | ||
Supplemental disclosure of non-cash financing and investing activities: |
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Settlement of restricted stock units into common stock | $ | | $ | | ||
Unpaid fixed assets | $ | | $ | | ||
Unpaid partner company’s offering cost | $ | | $ | | ||
Partner company derivative warrant liability associated with partner company convertible preferred shares | $ | | $ | | ||
Prepaid public offering cost | $ | | $ | | ||
Unpaid public offering cost | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
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 focused on acquiring and advancing assets to enhance long-term value for shareholders through product revenue, equity holding and dividend and royalty revenue streams. Fortress works 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 (“COH” or “City of Hope”), Fred Hutchinson Cancer Center, Dana-Farber Cancer Institute, Nationwide Children’s Hospital, Cincinnati Children’s Hospital Medical Center, Columbia University, the University of Pennsylvania, 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 and subsidiary 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,
Our subsidiaries and partner companies that are pursuing development and/or commercialization of biopharmaceutical products and product candidates are: 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 an entity 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. 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 parent Company’s current cash and cash equivalents of $
11
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 28, 2024 (the “2023 Form 10-K”), from which the Company derived the balance sheet data at December 31, 2023, as well as Checkpoint’s Form 10-K, filed with the SEC on March 22, 2024, Mustang’s Form 10-K, filed with the SEC on March 11, 2024, Avenue’s Form 10-K, filed with the SEC on March 18, 2024, and Journey’s Form 10-K, filed with the SEC on March 29, 2024.
The Company’s unaudited condensed consolidated financial statements include the results of the Company’s subsidiaries for which it has voting control but does not own
Use of Estimates
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. 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, valuation of intangible assets, 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, accrued expenses 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, 2024 and December 31, 2023, the Company had $
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FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
The following table provides a reconciliation of cash, cash equivalents, and restricted cash from the unaudited condensed consolidated balance sheets to the unaudited condensed consolidated statements of cash flows as of the dates presented:
March 31, | ||||||
2024 | 2023 | |||||
Cash and cash equivalents |
| $ | |
| $ | |
Restricted cash |
| |
| | ||
Total cash and cash equivalents and restricted cash | $ | | $ | |
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2023 Form 10-K.
Recently Issued Accounting Pronouncements
Accounting Standards Note Yet Adopted
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires that an entity report segment information in accordance with Topic 280, Segment Reporting. The amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of the new standard on its financial statements and disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that this guidance will have on its financial statements and disclosures.
3. Asset Purchase Agreements
Mustang
Agreements with uBriGene (Boston) Biosciences, Inc. (“uBriGene”)
On May 18, 2023, Mustang entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with uBriGene, as amended by a first amendment thereto, dated June 29, 2023, and further amended by a second amendment thereto, dated as of July 28, 2023 (collectively the “Amended Asset Purchase Agreement”), pursuant to which Mustang agreed, subject to the terms and conditions therein, to sell its leasehold interest in its cell processing facility located in Worcester, MA (the “Facility”) and associated assets relating to the manufacturing and production of cell and gene therapies at the Facility to uBriGene. On July 28, 2023, the closing date, pursuant to the terms and conditions of the Amended Asset Purchase Agreement, Mustang completed the sale of Mustang’s assets primarily relating to the manufacturing and production of cell and gene therapies to uBriGene for base consideration of $
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FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
The Asset Purchase Agreement contemplates that Mustang will seek to procure the consent and approval of the landlord of the Facility, WCS-377 Plantation Street, Inc. (the “Landlord”), and the Landlord informed Mustang that it would not consider the lease transfer request until receipt of the final determination letter from with the U.S. Committee on Foreign Investment in the United States (“CFIUS”). In connection with the sale of its leasehold interest in the Facility and associated assets relating to the manufacturing and production of cell and gene therapies at the Facility (the “Facility Transaction”) to uBriGene and an indirect, wholly owned subsidiary of uBriGene (Jiangsu) Biosciences Co., Ltd., a Chinese contract development and manufacturing organization, Mustang and uBriGene previously submitted multiple voluntary notices to CFIUS.
As contemplated by the Amended Asset Purchase Agreement, on the Closing Date, Mustang and uBriGene entered into a Manufacturing Services Agreement (the “Manufacturing Services Agreement”). Under the Manufacturing Services Agreement, Mustang contracted uBriGene to manufacture Mustang’s lead product candidates, including MB-106, and Mustang committed to spend at least $
In addition, as contemplated by the Asset Purchase Agreement, on the closing date, Mustang and uBriGene entered into a sub-contracting Manufacturing Services Agreement (the “Sub-Contracting CDMO Agreement”). Under the terms of the Sub-Contracting CDMO Agreement, Mustang would manufacture its lead product candidates, including MB-106, and may from time to time manufacture other products as requested by uBriGene. In addition, under the Sub-Contracting CDMO Agreement, Mustang and uBriGene agreed to establish a joint steering committee comprising two representatives from each of Mustang and uBriGene to review, discuss and decide on operational matters relating to the services to be performed by Mustang under such agreement, including matters relating to expenses.
Because the Facility was not assigned to uBriGene within 120 days following July 28, 2023, so long as the lease has not been so assigned, uBriGene may deliver a notice to Mustang indicating its intention to enter into good faith negotiations (the “Repurchase Notice”) to provide for Mustang to repurchase the associated assets relating to the manufacturing and production of cell and gene therapies at the Facility (the “Equipment”), re-assume the transferred liabilities and resume all transferred operations. Upon receipt of such Repurchase Notice, Mustang and uBriGene have agreed to use our best commercial efforts to negotiate in good faith the terms of any such Repurchase Transaction.
On May 13, 2024, Mustang, uBriGene and CFIUS executed a National Security Agreement (the “NSA”), pursuant to which Mustang and uBriGene agreed to abandon the Facility Transaction and all other transactions contemplated by the Amended Asset Purchase Agreement and the agreements entered into in connection therewith. The NSA imposes certain conditions on the Company and uBriGene and its affiliates. Most significantly, Mustang agreed (i) not to effect the Facility Transaction with uBriGene or any of its affiliates; and (ii) to appoint a Point of Contact representative with whom CFIUS and uBriGene’s designated contact person may interact as needed. The NSA also obligates uBriGene to sell, or otherwise dispose of, the equipment assets purchased within 180 days after execution of the NSA, with uBriGene able to eliminate some of its obligations under the NSA if it is able to sell the equipment assets purchased back to Mustang within 45 days after signing.
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FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Avenue
InvaGen Pharmaceuticals Inc. (“InvaGen”) Share Repurchase
Under the Share Repurchase Agreement between Avenue and InvaGen Pharmaceuticals, Inc. (“InvaGen”) under which Avenue repurchased all of InvaGen’s shares in Avenue, Avenue agreed to pay InvaGen an additional amount as a contingent fee, payable in the form of seven and a half percent (
4. Inventory
March 31, | December 31, | ||||
($ in thousands) | 2024 | 2023 | |||
Raw materials | $ | | $ | | |
Work-in-process |
| |
| | |
Finished goods |
| |
| | |
Inventory reserve | ( | ( | |||
Total inventories | $ | | $ | |
5. Property and Equipment
| Useful Life |
| March 31, | December 31, | |||||
($ in thousands) | (Years) | 2024 | 2023 | ||||||
Computer equipment |
| $ | | $ | | ||||
Furniture and fixtures |
|
| |
| | ||||
Machinery & equipment |
|
| |
| — | ||||
Leasehold improvements |
|
| |
| | ||||
Buildings | | | |||||||
Construction in progress |
| N/A |
| |
| | |||
Total property and equipment |
| |
| | |||||
Less: Accumulated depreciation |
| ( |
| ( | |||||
Property and equipment, net | $ | | $ | |
Fortress' depreciation expense for the three months ended March 31, 2024 and 2023 was approximately $
6. Fair Value Measurements
Common Stock Warrant Liabilities
Warrants | |||
($ in thousands) |
| liabilities | |
Balance at December 31, 2023 | $ | | |
Change in fair value of common stock warrants - Avenue | | ||
Change in fair value of common stock warrants - Checkpoint | — | ||
Change in fair value of placement agent warrants - Urica | ( | ||
Exercise of common stock warrants - Avenue | ( | ||
Balance at March 31, 2024 | $ | |
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FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Checkpoint
At March 31, 2024 and December 31, 2023, the Checkpoint warrant liability relates to the placement agent warrants from a registered direct offering completed in December 2022 (the “December 2022 Placement Agent Warrants”). Checkpoint deemed the December 2022 Placement Agent Warrants to be classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside its control. The December 2022 Placement Agent Warrants were recorded at the time of closing at a fair value determined by using the Black-Scholes model. Checkpoint will revalue the December 2022 Placement Agent Warrants at each reporting period thereafter for as long as they remain outstanding. At March 31, 2024 and December 31, 2023, the liability associated with the December 2022 Placement Agent Warrants was $
A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:
March 31, | December 31, | |||||||
Checkpoint Warrants | 2024 | 2023 | ||||||
Exercise price | $ | | $ | | ||||
Volatility | | % | | % | ||||
Expected life | | | ||||||
Risk-free rate | | % | | % |
Avenue
Avenue had previously issued freestanding warrants to purchase shares of its common stock in connection with financing activities in October 2022 (the “October 2022 Warrants”) and January 2023 (the “January 2023 Warrants”, and together with the October 2022 Warrants, the “Avenue Warrants”). The Avenue Warrants are classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside of its control. The Black-Scholes model was used to value the Avenue Warrants, at the time of issuance and when re-measured at each financial reporting date, up to exercise or expiration of the warrants, with any changes in fair value being recognized in change in fair value of warrant liabilities, a component of other income (expense) in the unaudited condensed consolidated statements of operations.
In January 2024, Avenue entered in a warrant inducement for the immediate exercise of certain outstanding warrants, including the January 2023 Warrants (see Note 13). Avenue revalued the January 2023 Warrants on January 5, 2024, resulting in a fair value of $
Avenue | |||
Warrant | |||
($ in thousands) | Liability | ||
Common Stock Warrant liabilities at December 31, 2023 | $ | ||
Exercise of Avenue common warrants | ( | ||
Change in fair value of common stock warrant liabilities | | ||
Common Stock Warrant liabilities at March 31, 2024 | $ |
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FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:
March 31, | December 31 | ||||||
2024 | 2023 | ||||||
Stock price | $ | $ | |||||
Risk-free interest rate |
| % | | % | |||
Expected dividend yield |
| — |