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74986535961663723100458861310001429260--12-312023Q3false34271383427138Fortress Biotech, Inc.FL893758773662830.944.117.9411.150.06670.0667August 31, 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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

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 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

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.

3

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.

4

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.

5

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.

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 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.

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 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.

8

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