Company Quick10K Filing
Fortress Biotech
Price1.59 EPS-1
Shares70 P/E-2
MCap112 P/FCF-2
Net Debt-61 EBIT-49
TEV51 TEV/EBIT-1
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-16
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-18
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-16
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-03-16
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-10
10-K 2015-12-31 Filed 2016-03-15
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-10
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-16
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-11
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-14
10-Q 2013-09-30 Filed 2013-11-01
10-Q 2013-06-30 Filed 2013-08-05
10-Q 2013-03-31 Filed 2013-05-09
10-K 2012-12-31 Filed 2013-03-18
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-08
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-29
10-Q 2011-09-30 Filed 2011-11-14
8-K 2020-06-17
8-K 2020-05-29
8-K 2020-05-26
8-K 2020-05-11
8-K 2020-03-23
8-K 2020-03-16
8-K 2020-02-11
8-K 2019-12-31
8-K 2019-11-25
8-K 2019-11-12
8-K 2019-08-14
8-K 2019-08-09
8-K 2019-06-18
8-K 2019-05-10
8-K 2019-03-18
8-K 2019-02-11
8-K 2019-02-08
8-K 2019-01-30
8-K 2018-11-14
8-K 2018-11-12
8-K 2018-11-09
8-K 2018-08-09
8-K 2018-06-14
8-K 2018-05-10
8-K 2018-04-05
8-K 2018-03-16

FBIO 10Q Quarterly Report

Part I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
Note 1: Relates To The Mustang Cell Processing Facility.
Note 1: Represents A Non - Refundable Milestone Payment in Connection with The Twentieth Patient Treated in The Phase 1 Clinical Study of Mb - 103 At Coh.
Note 1: Amortization of Fees Note 2: Imputed Interest Expense Related To Ximino Purchase (See Note 9).
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Note 1: Includes The Following Partner Companies: Aevitas, Baergic (2020 Only), Cellvation, Cyprium, Helocyte and Tamid (2019 Only).
Note 1: Includes Fortress and Non - Public Partner Companies, Excluding Caelum.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 tm2014620d1_ex31-1.htm
EX-31.2 tm2014620d1_ex31-2.htm
EX-32.1 tm2014620d1_ex32-1.htm
EX-32.2 tm2014620d1_ex32-2.htm

Fortress Biotech Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2702161621085402012201420172020
Assets, Equity
75543312-9-302013201520172020
Rev, G Profit, Net Income
6546278-11-302012201420172020
Ops, Inv, Fin

10-Q 1 tm2014620-1_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

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.)

 

2 Gansevoort Street, 9th Floor

New York, New York 10014

(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   x   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   x   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 x
Non-accelerated filer ¨   Smaller reporting company x
      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   x

 

Class of Stock   Outstanding Shares as of May 7, 2020
Common Stock, $0.001 par value   82,474,127
9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value   2,059,917

 

 

 

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q

 

TABLE OF CONTENTS

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Consolidated Financial Statements

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

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

 

   March 31,   December 31, 
   2020   2019 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents   $135,943   $136,858 
Accounts receivable (net of allowance for doubtful accounts of $0 and $100 at March 31, 2020 and December 31, 2019, respectively)   15,810    13,539 
Inventory   769    857 
Other receivables - related party   1,753    865 
Prepaid expenses and other current assets   4,526    4,133 
Total current assets   158,801    156,252 
           
Property and equipment, net   12,785    12,433 
Operating lease right-of-use asset, net   21,076    21,480 
Restricted cash   16,574    16,574 
Long-term investment, at fair value   11,148    11,148 
Intangible asset, net   7,022    7,377 
Other assets   1,353    1,158 
Total assets  $228,759   $226,422 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $34,200   $35,451 
Accounts payable and accrued expenses – related party   13    - 
Interest payable   1,081    1,042 
Interest payable - related party   53    92 
Notes payable, short-term (net of debt discount of $0 at March 31, 2020 and December 31, 2019)   14,522    7,220 
Operating lease liabilities - short-term   1,794    1,784 
Derivative warrant liability   69    27 
Total current liabilities   51,732    45,616 
           
Notes payable, long-term (net of debt discount of $4,354 and $5,086 at March 31, 2020 and December 31, 2019, respectively)   70,866    77,436 
Operating lease liabilities - long-term   23,647    23,712 
Other long-term liabilities   7,229    7,126 
Total liabilities   153,474    153,890 
           
Commitments and contingencies          

 

1

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

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

 

   March 31,   December 31, 
   2020   2019 
   (Unaudited)     
Stockholders' equity          
Preferred stock, $.001 par value, 15,000,000 authorized, 5,000,000 designated Series A shares, 2,059,917 and 1,341,167 shares issued as of March 31, 2020 and December 31, 2019, respectively; 2,054,917 and 1,341,167 shares outstanding as of March 31, 2020 and December 31, 2019, respectively; liquidation value of $25.00 per share   2    1 
Common stock, $.001 par value, 100,000,000 shares authorized, 78,572,169 and 74,027,425 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively   79    74 
Common stock issuable, 489,095 and 251,337 shares as of March 31, 2020 and December 31, 2019, respectively   661    500 
Treasury stock   (70)   - 
Additional paid-in-capital   485,160    461,874 
Accumulated deficit   (448,604)   (436,234)
Total stockholders' equity attributed to the Company   37,228    26,215 
Non-controlling interests   38,057    46,317 
Total stockholders' equity   75,285    72,532 
Total liabilities and stockholders' equity  $228,759   $226,422 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

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

 

   For the Three Months Ended March 31, 
   2020   2019 
Revenue          
Product revenue, net  $11,946   $6,125 
Revenue - related party   972    352 
Net revenue   12,918    6,477 
           
Operating expenses          
Cost of goods sold - product revenue   3,810    1,884 
Research and development   14,867    23,273 
Research and development - licenses acquired   250    450 
General and administrative   15,519    13,478 
Total operating expenses   34,446    39,085 
Loss from operations   (21,528)   (32,608)
           
Other income (expense)          
Interest income   627    438 
Interest expense and financing fee   (3,125)   (2,469)
Change in fair value of derivative liability    (42)   - 
Gain on deconsolidation of Caelum   -    18,384 
Total other income (expense)   (2,540)   16,353 
           
Net loss   (24,068)   (16,255)
           
Less: net loss attributable to non-controlling interests   11,698    17,647 
Net income (loss) attributable to common stockholders  $(12,370)  $1,392 
           
Net loss per common share - basic  $(0.38)  $(0.34)
Net loss per common share – diluted  $(0.38)   (0.25)
Net income (loss) per common share attributable to common stockholders - basic  $(0.19)  $0.03 
Net income (loss) per common share attributable to common stockholders - diluted  $(0.19)  $0.02 
           
Weighted average common shares outstanding - basic   63,496,256    48,506,994 
Weighted average common shares outstanding - diluted   63,496,256    63,811,136 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

 

 FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands)
(Unaudited)

 

For the Three Months Ended March 31, 2020

 

   Series A Preferred Stock   Common Stock   Shares   Treasury   Paid-In   Accumulated   Non-
Controlling
   Total
Stockholders'

Equity
 
   Shares   Amount   Shares   Amount   Issuable   Stock   Capital   Deficit   Interests   (Deficit) 
Balance at December 31, 2019   1,341,167   $1    74,027,425   $74   $500   $-   $461,874   $(436,234)  $46,317   $72,532 
Stock-based compensation expense   -    -    -    -    -    -    3,400    -    -    3,400 
Issuance of common stock related to equity plans   -    -    1,952,407    2    -    -    (2)   -    -    - 
Issuance of common stock for at-the-market offering, net   -    -    2,341,000    3    -    -    5,877    -    -    5,880 
Preferred A dividends declared and paid   -    -    -    -    -    -    (1,207)   -    -    (1,207)
Repurchase of Series A preferred stock, net   (5,000)   -    -    -    -    (70)   (2)   -    -    (72)
Issuance of Series A preferred stock for cash, net   718,750    1    -    -    -    -    13,066    -    -    13,067 
Partner company’s at-the-market offering, net   -    -    -    -    -    -    4,910    -    -    4,910 
Partner company’s exercise of warrants for cash   -    -    -    -    -    -    13    -    -    13 
Partner company’s ESPP   -    -    -    -    -    -    169    -    -    169 
Common shares issued for NHLD interest expense   -    -    251,337    -    (500)   -    500    -    -    - 
Common shares issuable for NHLD interest expense   -    -    -    -    506    -    -    -    -    506 
Common shares issuable for Opus interest expense   -    -    -    -    155    -    -    -    -    155 
Non-controlling interest in partner companies   -    -    -    -    -    -    (3,438)   -    3,438    - 
Net loss attributable to non-controlling interest   -    -    -    -    -    -    -    -    (11,698)   (11,698)
Net loss attributable to common stockholders   -    -    -    -    -    -    -    (12,370)   -    (12,370)
Balance at March 31, 2020   2,054,917   $2    78,572,169   $79   $661   $(70)  $485,160   $(448,604)  $38,057   $75,285 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

 FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands)
(Unaudited)

 

 

For the Three Months Ended March 31, 2019

 

   Series A           Common   Additional        Non-   Total 
   Preferred Stock   Common Stock   Shares   Paid-In   Accumulated   Controlling   Stockholders' 
   Shares   Amount   Shares   Amount   Issuable   Capital   Deficit   Interests   Equity 
Balance at December 31, 2018   1,000,000   $1    57,845,447   $58   $659   $397,408   $(396,274)  $17,891   $19,743 
Stock-based compensation expense   -    -    -    -    -    3,309    -    -    3,309 
Issuance of restricted stock   -    -    1,609,325    2    -    (2)   -    -    - 
Issuance of subsidiaries' common shares for license expenses   -    -    -    -    (164)   164    -    -    - 
Issuance of common stock for at-the-market offering, net   -    -    2,927,427    3    -    6,139    -    -    6,142 
Preferred A dividends declared and paid   -    -    -    -    -    (586)   -    -    (586)
Partner company’s sale of stock, net   -    -    -    -    -    31,499    -    -    31,499 
Partner company’s at-the-market offering, net   -    -    -    -    -    355    -    -    355 
Issuance of partner company warrants in conjunction with Horizon Notes                            888              888 
Common shares issuable for 2017 Subordinated Note Financing interest expense   -    -    -    -    484    -    -    -    484 
Common shares issued for 2017 Subordinated Note Financing interest expense   -    -    744,322    -    (495)   495    -    -    - 
Common shares issuable for Opus interest expense   -    -    -    -    281    -    -    -    281 
Non-controlling interest in subsidiaries   -    -    -    -    -    (24,799)   -    24,799    - 
Deconsolidation of Caelum non-controlling interest   -    -    -    -    -    -    -    4,849    4,849 
Net loss attributable to non-controlling interest   -    -    -    -    -    -    -    (17,647)   (17,647)
Net income attributable to common stockholders   -    -    -    -    -    -    1,392    -    1,392 
Balance at March 31, 2019   1,000,000   $1    63,126,521   $63   $765   $414,870   $(394,882)  $29,892   $50,709 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

($ in thousands)
(Unaudited)

 

   For the Three Months Ended March 31, 
   2020   2019 
Cash Flows from Operating Activities:          
Net loss  $(24,068)  $(16,255)
Reconciliation of net loss to net cash used in operating activities:          
Depreciation expense   527    481 
Amortization of debt discount   747    622 
Non cash interest expense   150    - 
Amortization of product revenue license fee   355    234 
Amortization of operating lease right-of-use assets   403    381 
Stock-based compensation expense   3,400    3,309 
Common shares issuable for Opus interest expense   155    281 
Common shares issuable for 2017 Subordinated Note Financing interest expense   506    484 
Change in fair value of derivative liability   42    - 
Gain on deconsolidation of Caelum   -    (18,384)
Research and development-licenses acquired, expense   250    450 
           
Increase (decrease) in cash and cash equivalents resulting from changes in operating assets and liabilities:          
Accounts receivable   (2,271)   (2,524)
Inventory   88    49 
Other receivables - related party   (888)   (34)
Prepaid expenses and other current assets   (393)   2,483 
Other assets   (195)   (949)
Accounts payable and accrued expenses   (612)   3,664 
Accounts payable and accrued expenses - related party   13    (133)
Interest payable   39    (21)
Interest payable – related party   (39)   - 
Lease liabilities   (54)   (351)
Other long-term liabilities   (47)   888 
Net cash used in operating activities   (21,892)   (25,325)
           
Cash Flows from Investing Activities:          
Purchase of property and equipment   (526)   (300)
Purchase of intangible assets   (1,250)   - 
Redemption of short-term investment (certificates of deposit)   -    12,560 
Deconsolidation of Caelum   -    (1,201)
Net cash provided by (used in) continuing investing activities   (1,776)   11,059 
Net cash provided by discontinued investing activities   -    13,089 
Net cash provided by (used in) investing activities   (1,776)   24,148 
           
Cash Flows from Financing Activities:          
Payment of Preferred A dividends   (1,207)   (586)
Purchase of treasury stock   (70)   - 
Payment of costs related to purchase of treasury stock   (2)   - 
Proceeds from issuance of Series A preferred stock   14,375    - 
Payment of costs related to issuance of Series A preferred stock   (1,213)   - 
Proceeds from at-the-market offering   6,068    6,251 
Payment of cost related to at-the-market offering   (188)   (109)
Proceeds from partner company’s ESPP   169    - 
Proceeds from partner company’s sale of stock   -    34,999 
Payment of costs related to partner company’s sale of stock   (69)   (3,500)
Proceeds from partner company’s at-the-market offering   4,997    366 
Payment of costs related to partner company’s at-the-market offering   (87)   (11)
Proceeds from exercise of partner company’s warrants   13    - 
Payment of debt issue costs associated with 2017 Subordinated Note Financing   (26)   - 
Payment of debt issue costs associated with 2018 Venture Notes   (7)   (67)
Proceeds from partner company’s Horizon Notes   -    15,000 
Payment of debt issuance costs associated with partner company’s Horizon Notes   -    (230)
Net cash provided by financing activities   22,753    52,113 
           
Net (decrease) increase in cash and cash equivalents and restricted cash   (915)   50,936 
Cash and cash equivalents and restricted cash at beginning of period   153,432    81,582 
Cash and cash equivalents and restricted cash at end of period  $152,517   $132,518 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $1,609   $1,100 
           
Supplemental disclosure of non-cash financing and investing activities:          
Settlement of restricted stock units into common stock  $2   $2 
Unpaid debt offering costs  $8   $1,202 
Common shares issuable for license acquired  $-   $164 
Common shares issued for 2017 Subordinated Note Financing interest expense  $500   $495 
Issuance of partner company warrants in conjunction with Horizon Notes  $-   $888 
Unpaid fixed assets  $540   $191 
Unpaid at-the-market offering cost  $6   $- 
Unpaid Preferred A offering cost  $98   $- 
Unpaid research and development licenses acquired  $350   $250 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Description of Business

 

Fortress Biotech, Inc. (“Fortress” or the “Company”) is a biopharmaceutical company dedicated to acquiring, developing and commercializing pharmaceutical and biotechnology products and product candidates, which the Company does at the Fortress level, at its majority-owned and majority-controlled subsidiaries and joint ventures, and at entities the Company founded and in which it maintains significant minority ownership positions. Fortress has a talented and experienced business development team, comprising scientists, doctors and finance professionals, who identify and evaluate promising products and product candidates for potential acquisition by new or existing partner companies. Fortress through its partner companies has executed such arrangements in partnership with some of the world’s foremost universities, research institutes and pharmaceutical companies, including City of Hope National Medical Center, Fred Hutchinson Cancer Research Center, St. Jude Children’s Research Hospital, Dana-Farber Cancer Institute, Nationwide Children’s Hospital, Cincinnati Children’s Hospital Medical Center, Columbia University, the University of Pennsylvania, and AstraZeneca plc.

 

Following the exclusive license or other acquisition of the intellectual property underpinning a product or product candidate, Fortress leverages its business, scientific, regulatory, legal and finance expertise to help the partners achieve their goals. Partner companies then assess a broad range of strategic arrangements to accelerate and provide additional funding to support research and development, including joint ventures, partnerships, out-licensings, and public and private financings; to date, three partner companies are publicly-traded, and two have consummated strategic partnerships with industry leaders Alexion Pharmaceuticals, Inc. and InvaGen Pharmaceuticals, Inc. (a subsidiary of Cipla Limited).

 

Several of our partner companies possess licenses to product candidate intellectual property, including Aevitas Therapeutics, Inc. (“Aevitas”), Avenue Therapeutics, Inc. (“Avenue”), Baergic Bio, Inc. (“Baergic”), Caelum Biosciences, Inc. (“Caelum”), Cellvation, Inc. (“Cellvation”), Checkpoint Therapeutics, Inc. (“Checkpoint”), Cyprium Therapeutics, Inc. (“Cyprium”), Helocyte, Inc. (“Helocyte”), Hepla Sciences, Inc. (“Hepla”), Journey Medical Corporation (“Journey” or “JMC”), Mustang Bio, Inc. (“Mustang”) and Oncogenuity, Inc. (“Oncogenuity”).

 

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 partner companies, the proceeds from the exercise of warrants and stock options. The Company has incurred losses from operations and negative cash flows from operating activities since inception and expects to continue to incur substantial losses for the next several years as it continues to fully develop and prepare regulatory filings and obtain regulatory approvals for its existing and new product candidates. The Company’s current cash and cash equivalents are sufficient to fund operations for at least the next 12 months. However, the Company will need to raise additional funding through strategic relationships, public or private equity or debt financings, sale of a partner company, grants or other arrangements to fully develop and prepare regulatory filings and obtain regulatory approvals for the existing and new product candidates, fund operating losses, and, if deemed appropriate, establish or secure through third parties manufacturing for the potential products, sales and marketing capabilities.  If such funding is not available or not available on terms acceptable to the Company, the Company’s current development plan and plans for expansion of its general and administrative infrastructure will be curtailed. The Company also has the ability, subject to limitations imposed by Rule 144 of the Securities Act of 1933 and other applicable laws and regulations, to raise money from the sale of common stock of the public companies in which it has ownership positions. In addition to the foregoing, the Company cannot predict the long-term impact on its development timelines, revenue levels and its liquidity due to the worldwide spread of COVID-19. Based upon the Company’s current assessment, it does not expect the impact to be material. However, the Company is continuing to assess the impact the spread of COVID-19 may have on its operations.

 

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.

 

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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 the companies: Avenue, Checkpoint and Mustang. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on March 16, 2020, from which the Company derived the balance sheet data at December 31, 2019, as well as Checkpoint’s Form 10-K, filed with the SEC on March 11, 2020, Mustang’s Form 10-K, filed with the SEC on March 16, 2020, and Avenue’s Form 10-K, filed with the SEC on March 30, 2020.

 

The Company’s unaudited condensed consolidated financial statements include the accounts of the Company’s subsidiaries. For consolidated entities where the Company owns less than 100% of the subsidiary, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective non-controlling parties. The Company also consolidates subsidiaries in which it owns less than 50% of the subsidiary but maintains voting control. The Company continually assesses whether changes to existing relationships or future transactions may result in the consolidation or deconsolidation of partner companies.

 

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting period.

 

Use of Estimates

 

The Company’s unaudited condensed consolidated financial statements include certain amounts that are based on management’s best estimates and judgments. The Company’s significant estimates include, but are not limited to, useful lives assigned to long-lived assets, fair value of stock options and warrants, stock-based compensation, common stock issued to acquire licenses, investments, accrued expenses, provisions for income taxes and contingencies. Due to the uncertainty inherent in such estimates, actual results may differ from these estimates.

 

Significant Accounting Policies

 

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2019 Annual Report.

 

Recently Adopted Accounting Pronouncements

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. On January 1, 2020, the Company’s adoption of this guidance to did not have a material impact on its financial statements.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

 

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

3. Discontinued Operations

 

The table below depicts the cash flows from the sale of the Company’s investment in National Holdings Corporation, a diversified independent brokerage company (together with its subsidiaries, herein referred to as “NHLD” or “National”) for the three months ended March 31, 2019:

 

   March 31, 
($ in thousands)  2019 
Investing activities     
Proceeds from sale of National  $13,089 
Total cash provided by discontinued investing activities  $13,089 

 

At March 31, 2020, the Company had no ownership interest in National. 

 

4. Collaboration and Stock Purchase Agreements

 

Caelum

 

Agreement with Alexion

 

In January 2019, Caelum, a subsidiary of the Company, entered into a Development, Option and Stock Purchase Agreement (the “DOSPA”) and related documents by and among Caelum, Alexion Therapeutics, Inc. (“Alexion”), the Company and Caelum security holders parties thereto (including Fortress, the “Sellers”). Under the terms of the agreement, Alexion purchased a 19.9% minority equity interest in Caelum for $30 million. Additionally, Alexion has agreed to make potential payments to Caelum upon the achievement of certain developmental milestones, in exchange for which Alexion obtained a contingent exclusive option to acquire the remaining equity in Caelum. The agreement also provides for potential additional payments, in the event Alexion exercises the purchase option, for up to $500 million, which includes an upfront option exercise payment and potential regulatory and commercial milestone payments.

 

In December 2019, following the U.S. Food and Drug Administration (“FDA”) feedback which resulted in the redesign and expansion of Caelum’s planned clinical development program for CAEL-101, Caelum entered into an Amended and Restated DOSPA, which amended the terms of the existing agreement with Alexion. The amendment modified the terms of Alexion’s option to acquire the remaining equity in Caelum based on data from the expanded Phase II/III trials. The amendment also modified the development-related milestone events associated with the initial $30.0 million in contingent payments, provided for an additional $20.0 million in upfront funding, as well as funding of $60.0 million in exchange for an additional equity interest in Caelum at fair value upon achievement of a specific development-related milestone event.

 

Avenue

 

Agreement with InvaGen

 

On November 12, 2018, the Company’s partner company Avenue entered into a Stock Purchase and Merger Agreement (“SPMA”) with InvaGen Pharmaceuticals Inc. (“InvaGen”) and Madison Pharmaceuticals Inc., a newly formed, wholly-owned subsidiary of InvaGen. Pursuant to the SPMA, and following approval by Avenue’s stockholders on February 8, 2019, InvaGen purchased a number of shares of Avenue common stock representing 33.3% of Avenue’s fully diluted capital stock for net proceeds to Avenue of $31.5 million (after deducting fees and other offering-related costs).

 

Upon the achievement of certain closing conditions (including most notably U.S. Food and Drug Administration approval for IV Tramadol, Avenue’s product candidate), InvaGen will be obligated to acquire Avenue via reverse subsidiary merger (the “Merger Transaction”). Under the Merger Transaction, InvaGen will pay $180 million (subject to certain potential reductions) to the holders of Avenue’s capital stock (other than InvaGen itself).

 

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Subject to the terms and conditions described in the SPMA, InvaGen may also provide interim financing to Avenue in an amount of up to $7.0 million during the time period between February 8, 2019 and the Merger Transaction. Any amounts drawn on the interim financing will be deducted from the aggregate consideration payable to Company stockholders by virtue of the Merger Transaction.

 

Prior to the closing of the Merger Transaction, Avenue will enter into a Contingent Value Rights Agreement (the “CVR Agreement”) with a trust company as rights agent, pursuant to which holders of common shares of Avenue, other than InvaGen (each, a “Holder”), will be entitled to receive on Contingent Value Right (“CVR”) for each share held immediately prior to the Merger Transaction.

 

Each CVR represents the right of its holder to receive a contingent cash payment pursuant to the CVR Agreement upon the achievement of certain milestones. If, during the period commencing on the day following the closing of the Merger Transaction until December 31, 2028, IV Tramadol generates at least $325 million or more in Net Sales (as defined in the CVR Agreement) in a calendar year, each Holder shall be entitled to receive their pro rata share of (i) if the product generated less than $400 million in Net Sales during such calendar year, 10% of Gross Profit (as defined in the CVR Agreement), (ii) if the product generated between $400 million and $500 million in Net Sales during such calendar year, 12.5% of Gross Profit, or (iii) if the product generated more than $500 million in Net Sales during such calendar year, 15% of Gross Profit. Additionally, at any time beginning on January 1, 2029 that IV Tramadol has generated at least $1.5 billion in aggregate Net Sales, then with respect to each calendar year in which IV Tramadol generates $100 million or more in Net Sales, each Holder shall be entitled to receive their pro rata share of an amount equal to 20% of the Gross Profit generated by IV Tramadol. These additional payments will terminate on the earlier of December 31, 2036 and the date (which may be extended by up to 6 months) that any person has received approval from the FDA for an Abbreviated New Drug Application or an FDA AP-rated 505(b)(2) NDA using IV Tramadol.

 

5. Property and Equipment

 

Fortress’ property and equipment consisted of the following:

 

   Useful Life   March 31,   December 31, 
($ in thousands)  (Years)   2020   2019 
       (Unaudited)     
Computer equipment  3   $663   $648 
Furniture and fixtures  5    1,199    1,162 
Machinery & equipment  5    4,644    4,594 
Leasehold improvements  5-15    10,580    9,358 
Construction in progress 1  N/A    712    1,157 
Total property and equipment       17,798    16,919 
Less: Accumulated depreciation       (5,013)   (4,486)
Property and equipment, net      $12,785   $12,433 

 

Note 1: Relates to the Mustang cell processing facility.

 

Fortress' depreciation expense for the three months ended March 31, 2020 and 2019 was approximately $0.5 million and $0.5 million, respectively, and was recorded in both research and development expense and general and administrative expense in the Condensed Consolidated Statements of Operations.

 

6. Fair Value Measurements

 

Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.

 

Fair Value of Caelum

 

The Company valued its investment in Caelum in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, and estimated the fair value to be $11.1 million based on a per share value of $1.543. The following inputs were utilized to derive the value: risk free rate of return of 1.6%, volatility of 70% and a discount for lack of marketability of 28.7%.

 

In connection with the DOSPA Caelum’s convertible notes automatically converted into common shares of Caelum and the warrant liability payable to the placement agent in connection with the placement of the convertible notes was also issued (see Note 10).

 

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Cyprium Warrant Liability

 

The fair value of the Cyprium Contingently Issuable Warrants in connection with the 2018 Venture Debt was determined by applying management’s estimate of the probability of issuance of the Contingently Issuable Warrants together with an option-pricing model, with the following key assumptions:

 

   March 31,
2020
   December 31,
2019
 
Risk-free interest rate   0.70%   1.92%
Expected dividend yield        
Expected term in years   10.0    10.0 
Expected volatility   93%   93%
Probability of issuance of the warrant   10%   5%

 

($ in thousands)  Cyprium
Contingently
Issuable Warrant
Liability
 
Ending balance at January 1, 2020  $27 
Change in fair value   42 
Ending balance at March 31, 2020  $69 

 

The following tables classify into the fair value hierarchy of Fortress’ financial instruments, measured at fair value as of March 31, 2020 and December 31, 2019:

 

   Fair Value Measurement as of March 31, 2020 
($ in thousands)  Level 1   Level 2   Level 3   Total 
Assets                    
Fair value of investment in Caelum  $   $   $11,148   $11,148 
Total  $   $   $11,148   $11,148 

 

   Fair Value Measurement as of March 31, 2020 
($ in thousands)  Level 1   Level 2   Level 3   Total 
Liabilities                    
Warrant liabilities  $   $   $69   $69 
Total  $   $   $69   $69 

 

   Fair Value Measurement as of December 31, 2019 
($ in thousands)  Level 1   Level 2   Level 3   Total 
Assets                    
Fair value of investment in Caelum  $   $   $11,148   $11,148 
Total  $   $   $11,148   $11,148 

 

   Fair Value Measurement as of December 31, 2019 
($ in thousands)  Level 1   Level 2   Level 3   Total 
Liabilities                    
Warrant liabilities  $   $   $27   $27 
Total  $   $   $27   $27 

 

The table below provides a roll-forward of the changes in fair value of Level 3 financial instruments as of March 31, 2020:

 

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

($ in thousands)  Investment
in
Caelum
   Warrant
Liabilities
   Total 
Balance at December 31, 2019  $11,148   $27   $11,175 
Fair value of investment   -    42    42 
Balance at March 31, 2020  $11,148   $69   $11,217 

 

As of March 31, 2020, no transfers occurred between Level 1, Level 2 and Level 3 instruments.

 

7. Licenses Acquired

 

In accordance with ASC 730-10-25-1, Research and Development, costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future use. The licenses purchased by Fortress, Aevitas, Avenue, Cellvation, Checkpoint, Cyprium, Helocyte, Mustang and Baergic require substantial completion of research and development, and regulatory and marketing approval efforts in order to reach technological feasibility. As such, for the three months ended March 31, 2020 and 2019, the purchase price of licenses acquired was classified as research and development-licenses acquired in the Condensed Consolidated Statements of Operations as reflected in the table below:

 

   For the Three Months Ended
March 31,
 
($ in thousands)  2020   2019 
Partner company:          
Mustang  $250   $450 
Total Research and Development – Licenses Acquired  $250   $450 

 

Mustang

 

For the three months ended March 31, 2020 and 2019, Mustang recorded the following expense in research and development for licenses acquired:

 

   For the Three Months Ended
March 31,
 
($ in thousands)  2020   2019 
City of Hope (COH) – CD123 (MB-102)  $-   $250 
COH – HER2 (MB-103)1   250     
Nationwide Children’s Hospital – C134 (MB-108)   -    200 
Total  $250   $450 

 

Note 1: Represents a non-refundable milestone payment in connection with the twentieth patient treated in the Phase 1 clinical study of MB-103 at COH.

 

8. Sponsored Research and Clinical Trial Agreements

 

Aevitas

 

In 2018, Aevitas entered into a Sponsored Research Agreement (“SRA”) with the Trustees of the University of Pennsylvania (“UPenn SRA”), as amended in January 2020, for certain continued research and development activities related to the development of AAV gene therapies in complement-mediated diseases. For the three months ended March 31, 2020 and 2019, Aevitas recorded expense of $0.3 million and $0.3 million, respectively, in research and development associated with the UPenn SRA.

 

Cellvation

 

For the three months ended March 31, 2020 and 2019 Cellvation recorded expense of nil and $0.1 million, respectively, in connection with its sponsored research arrangement with the University of Texas. The expense was recorded in research and development expense in the Company’s condensed consolidated statements of operations.

 

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Mustang

 

For the three months ended March 31, 2020 and 2019, Mustang recorded the following expense in research and development for sponsored research and clinical trial agreements:

 

   For the Three Months Ended
March 31,
 
($ in thousands)  2020   2019 
City of Hope (COH)  $500   $500 
COH – CD123 (MB-102)   230    303 
COH – IL13Rα2 (MB-101)   92    342 
COH – manufacturing   -    114 
Fred Hutch-CD20 (MB-106)   527    267 
Beth Israel Deaconess Medical Center (BIDMC) – CRISPR   -    69 
Total  $1,349   $1,595 

 

9. Intangibles, net

 

On July 22, 2019 Journey purchased Ximino®, a minocycline hydrochloride used to treat acne from a third party. Pursuant to the terms and conditions of the Asset Purchase Agreement (“APA”), total consideration for the APA is $9.4 million, comprised of an upfront payment of $2.4 million payable within 60 days after execution on September 22, 2019. The remaining four payments totaling $7.0 million are due in consecutive years commencing on the second anniversary of execution of the APA. In addition, Journey is obligated to pay royalties in the mid-teens based on net sales of Ximino, subject to specified reductions.

 

The Company, in accordance with ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, determined the purchase of Ximino did not constitute the purchase of a business, and therefore recorded the purchase price of Ximino as an asset, to be amortized over the life of the product, which is deemed to be seven years. In addition, the Company determined pursuant to ASC 450, Contingencies, that royalty payments in connection with the APA will be recorded when they become payable with a corresponding charge to cost of goods sold.

 

In accordance with the terms of the APA, Journey will incur interest expense in the event of payment default. As such per ASC 835-30 Interest-Imputed Interest, Journey recorded an initial discount for imputed interest of $2.3 million. As of March 31, 2020, Journey recorded an intangible asset related to this transaction of $7.1 million which was recorded on the condensed consolidated balance sheet of Fortress.

 

The table below provides a summary of the Journey intangible assets as of March 31, 2020 and December 31, 2019, respectively:

 

   Estimated
Useful
  March 31,   December 31, 
($ in thousands)  Lives (Years)  2020   2019 
      (Unaudited)     
Intangible assets – asset purchases  3 to 7  $9,934   $9,934 
Total      9,934    9,934 
Accumulated amortization      (2,912)   (2,557)
Net intangible assets     $7,022   $7,377 

 

The table below provides a summary for the three months ended March 31, 2020, of Journey’s recognized expense related to its product licenses, which was recorded in costs of goods sold on the Condensed Consolidated Statement of Operations:

 

($ in thousands)  Intangible
Assets, Net
 
Beginning balance at January 1, 2020  $7,377 
Amortization expense   (355)
Ending balance at March 31, 2020  $7,022 

 

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The future amortization of these intangible assets is as follows ($ in thousands):

 

           Total 
   Ximino®   Exelderm®   Amortization 
Nine Months Ended December 31, 2020  $764   $300   $1,064 
Year Ended December 31, 2021   1,019    267    1,286 
Year Ended December 31, 2022   1,019    -    1,019 
Year Ended December 31, 2023   1,019    -    1,019 
Year Ended December 31, 2024   1,019    -    1,019 
Thereafter   1,615         1,615 
Total1  $6,455   $567   $7,022 

 

10. Debt and Interest

 

Debt

 

Total debt consists of the following as of March 31, 2020 and December 31, 2019:

 

($ in thousands)  March 31,
2020
   December 31,
2019
   Interest rate   Maturity 
IDB Note   $14,929   $14,929    2.25%  Aug – 2021 
2017 Subordinated Note Financing    3,254    3,254    8.00%3  March - 2022 
2017 Subordinated Note Financing    13,893    13,893    8.00%3  May - 2022 
2017 Subordinated Note Financing    1,820    1,820    8.00%3  June - 2022 
2017 Subordinated Note Financing    3,018    3,018    8.00%3  August - 2022 
2017 Subordinated Note Financing    6,371    6,371    8.00%3  September - 2022 
2018 Venture Notes    6,517    6,517    8.00%  August - 2021 
2018 Venture Notes    15,190    15,190    8.00%  September - 2021 
2019 Notes1     9,000    9,000    12.00%  September - 2021 
Mustang Horizon Notes2     15,750    15,750    9.00%  October - 2022 
Total notes payable    89,742    89,742          
Less: Discount on notes payable    4,354    5,086          
Total notes payable   $85,388   $84,656          

 

Note 1: Formerly the Opus Credit Facility
Note 2: Interest rate is 9.0% plus one-month LIBOR Rate in excess of 2.5%.
Note 3: As a result of a one-year maturity date extension effective 2020, the interest rate increased by 1% to 9.0%.
Note 4: At March 31, 2020 and December 31, 2019, $11.4 million and $6.0 million, respectively, are included in Notes payable, short-term on the condensed consolidated balance sheets.

 

2019 Notes (formerly the Opus Credit Facility Agreement)

 

As of December 31, 2019, Opus Point Healthcare Innovations Fund, LP (“OPHIF”) dissolved and distributed it assets among its limited partners. Following the distribution, the facility is comprised of three separate notes herein referred to as the 2019 Notes. The allocation of the $9.0 million facility was as follows: DAK Capital Inc.: $3.8 million; Fortress’s Chairman, President and Chief Executive Officer (Lindsay A. Rosenwald): $2.9 million; and Fortress’s Executive Vice President, Strategic Development (Michael S. Weiss): $2.3 million. Terms of the 2019 Notes did not change.

 

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Interest Expense

 

The following table shows the details of interest expense for all debt arrangements during the periods presented. Interest expense includes contractual interest and amortization of the debt discount and amortization of fees represents fees associated with loan transaction costs, amortized over the life of the loan:

 

   Three Months Ended March 31, 
   2020   2019 
($ in thousands)  Interest   Fees 1   Total   Interest   Fees 1   Total 
IDB Note  $84   $-   $84   $83   $-   $83 
2017 Subordinated Note Financing   1,084    312    1,396    1,028    363    1,391 
2019 Notes   269    -    269    281    113    394 
2018 Venture Notes   433    176    609    429    146    575 
LOC Fees   15        15    15        15 
Mustang Horizon Notes   341    259    600    11        11 
Note Payable2     150        150             
Other   2        2             
Total Interest Expense and Financing Fee  $2,378   $747   $3,125   $1,847   $622   $2,469 

 

Note 1: Amortization of fees
Note 2: Imputed interest expense related to Ximino purchase (see Note 9).

 

11. Accrued Liabilities and other Long-Term Liabilities

 

Accrued expenses and other long-term liabilities consisted of the following:

 

($ in thousands)  March 31,
2020
   December 31,
2019
 
Accrued expenses:          
Professional fees  $1,050   $1,153 
Salaries, bonuses and related benefits   6,139    6,683 
Accrued expense – related party   13    - 
Research and development   2,096    4,215 
Research and development - manufacturing   1,032    1,017 
Research and development – clinical supplies   2,055    - 
Research and development - license maintenance fees   133    361 
Research and development - milestones   850    - 
Accrued royalties payable   2,456    2,320 
Accrued coupon expense   8,735    8,391 
Other   1,311    1,259 
Total accrued expenses  $25,870   $25,399 
           
Other long-term liabilities:          
Deferred rent and long-term lease abandonment charge1  $2,089   $2,136 
Long-term note payable 2   5,140    4,990 
Total other long-term liabilities  $7,229   $7,126 

 

Note 1: As of March 31, 2020, and December 31, 2019, balance consists of deferred charges related to build-out of the New York facility.
Note 2: As of March 31, 2020 and December 31, 2019, balance consists of Journey’s note payable of $7.0 million, net of an imputed interest discount of $1.9 million and $2.0 million, respectively, in connection with its acquisition of Ximino in July 2019 (see Note 9). The imputed interest discount was calculated utilizing an 11.96% effective interest rate based upon a non-investment grade “CCC” rate over a five-year period.  Amortization of interest discount was $0.1 million for the three months ended March 31, 2020.  No expense was recorded for the three months ended March 31, 2019.

 

15

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

12. Non-Controlling Interests

 

Non-controlling interests in consolidated entities are as follows:

 

       For the three months ended         
   As of March 31, 2020   March 31, 2020   As of March 31, 2020     
($ in thousands)  NCI equity share   Net loss attributable to non-
controlling interests
   Non-controlling interests
in consolidated entities
   Non-controlling
ownership
 
Aevitas  $(1,989)  $(186)  $(2,175)   35.8%
Avenue 2   5,419    (955)   4,464    77.3%
Baergic   (1,201)   (3)   (1,204)   33.0%
Cellvation   (917)   (38)   (955)   20.6%
Checkpoint 1   15,121    (2,403)   12,718    78.4%
Coronado SO   (290)   -    (290)   13.0%
Cyprium   (795)   (89)   (884)   18.9%
Helocyte   (4,700)   (165)   (4,865)   18.8%
JMC   118    159    277    6.9%
Mustang 2   39,640    (8,008)   31,632    69.0%
Tamid   (651)   (10)   (661)   22.8%
Total  $49,755   $(11,698)  $38,057      

 

       For the twelve months ended         
   As of December 31, 2019   December 31, 2019   As of December 31, 2019     
($ in thousands)  NCI equity share   Net loss attributable to non-
controlling interests
   Non-controlling interests
in consolidated entities
   Non-controlling
ownership
 
Aevitas  $(1,249)  $(694)  $(1,943)   35.8%
Avenue 2   24,269    (19,011)   5,258    77.3%
Baergic   23    (1,162)   (1,139)   33.0%
Cellvation   (732)   (158)   (890)   20.6%
Checkpoint 1   29,389    (14,687)   14,702    78.0%
Coronado SO   (290)   -    (290)   13.0%
Cyprium   (320)   (99)   (419)   10.6%
Helocyte   (4,322)   (402)   (4,724)   19.3%
JMC   (211)   325    114    6.9%
Mustang 2   62,025    (25,727)   36,298    70.3%
Tamid   (565)   (85)   (650)   22.8%
Total  $108,017   $(61,700)  $46,317      

 

Note 1: Checkpoint is consolidated with Fortress’ operations because Fortress maintains voting control through its ownership of Checkpoint’s Class A Common Shares which provide super-majority voting rights.
Note 2: Avenue and Mustang are consolidated with Fortress’ operations because Fortress maintains voting control through its ownership of Preferred Class A Shares which provide super-majority voting rights.

 

16

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

13. Net Loss per Common Share

 

The Company calculates loss per share using the two-class method, which is an earnings allocation formula that determines earnings per share for Common Stock and participating securities, if any, according to dividends declared and non-forfeitable participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to Common Stock and participating securities, if any, based on their respective rights to receive dividends. Holders of restricted Common Stock were entitled to all cash dividends, when and if declared, and such dividends are non-forfeitable. The participating securities do not have a contractual obligation to share in any losses of the Company. As a result, net losses are not allocated to the participating securities for any periods presented.

 

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of Common Stock outstanding during the period, without consideration for Common Stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of Common Stock and Common Stock equivalents outstanding for the period.

 

Included in Common Stock issued and outstanding as of March 31, 2020 and 2019 were 14,307,564 and 12,622,076 shares of unvested restricted stock, which is excluded from the weighted average Common Stock outstanding for the quarter ended March 31, 2020 since its effect would be dilutive.

 

The following table sets forth the computation of earnings per share attributable to common stockholders for the quarter ended March 31, 2019 (amounts in thousands except share and per share data):

 

   Three Months Ended
March 31,
 
   2019 
Net income attributable to common stockholders  $1,392 
      
Weighted average shares outstanding - basic   48,506,994 
Preferred stock, Series A   1,000,000 
Stock options   378,835 
Warrants   60,000 
Unvested restricted stock   12,622,076 
Unvested restricted stock units   1,243,231 
Weighted average shares outstanding - diluted   63,811,136 
      
Per share data:     
Basic  $0.03 
Diluted  $0.02 

 

The Company’s common stock equivalents, including unvested restricted stock, options, and warrants have been excluded from the computation of diluted loss per share for the three months ended March 31, 2020 as the effect would be to reduce the loss per share. Therefore, the weighted average common stock outstanding used to calculate both basic and diluted income loss per share is the same for the quarter ended March 31, 2020.

 

The following shares of potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, as the effect of including such securities would be anti-dilutive for the three months ended March 31, 2020:

 

   March 31,
2020
 
Warrants to purchase Common Stock   773,234 
Opus warrants to purchase Common Stock   1,880,000 
Options to purchase Common Stock   1,210,502 
Convertible Preferred Stock   1,706,208 
Unvested Restricted Stock   14,307,564 
Unvested Restricted Stock Units   487,996 
Total   20,365,504 

 

17

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

14. Stockholders’ Equity

 

Stock-based Compensation 

 

The following table summarizes the stock-based compensation expense from stock option, employee stock purchase programs and restricted Common Stock awards and warrants for the three months ended March 31, 2020 and 2019:

 

    For the Three Months Ended
March 31,
 
($ in thousands)   2020     2019  
Employee awards   $ 1,217     $ 935  
Executive awards of Fortress partner companies’ stock     401       352  
Non-employee awards     54       (2 )
Fortress partner companies:                
Avenue     215       751  
Checkpoint     639       798  
Mustang     805       432  
Other     69       43  
Total stock-based compensation   $ 3,400     $ 3,309  

  

For the three months ended March 31, 2020 and 2019, approximately $0.9 million and $0.6 million, respectively, of stock-based compensation expense was included in research and development expenses in connection with equity grants made to employees and consultants and approximately $2.5 million and $2.7 million, respectively, was included in general and administrative expenses in connection with grants made to employees, members of the board of directors and consultants.

 

Stock Options

 

The following table summarizes Fortress stock option activities excluding activity related to Fortress partner companies:

 

   Number of
shares
   Weighted average
exercise price
   Total weighted
average intrinsic
value
   Weighted average
remaining
contractual life
(years)
 
Options vested and expected to vest at December 31, 2019   1,410,501   $4.30   $684,752    2.33 
Options vested and expected to vest at March 31, 2020   1,410,501   $4.30   $285,744    2.08 
Options vested and exercisable at March 31, 2020   1,310,501   $4.54   $214,744    1.95 

 

As of March 31, 2020, Fortress had no unrecognized stock-based compensation expense related to options.

 

Restricted Stock and Restricted Stock Units

 

The following table summarizes Fortress restricted stock awards and restricted stock units activities, excluding activities related to Fortress Companies:

 

   Number of shares   Weighted average
grant price
 
Unvested balance at December 31, 2019   13,768,014   $2.46 
Restricted stock granted   1,873,072    2.57 
Restricted stock vested   (1,539,564)   2.69 
Restricted stock units granted   6,836    2.56 
Restricted stock units forfeited   (81,250)   3.28 
Restricted stock units vested   (79,335)   3.56 
Unvested balance at March 31, 2020   13,947,773   $2.47 

 

As of March 31, 2020 and 2019, the Company had unrecognized stock-based compensation expense related to restricted stock and restricted stock unit awards of approximately $17.9 million and $14.8 million, respectively, which is expected to be recognized over the remaining weighted-average vesting period of 4.2 years and 5.4 years, respectively.

 

18

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Warrants

 

The following table summarizes Fortress warrant activities, excluding activities related to Fortress Companies:

 

    Number of
shares
    Weighted average
exercise price
    Total weighted
average intrinsic
value
    Weighted average
remaining
contractual life
(years)
 
Outstanding as of December 31, 2019     2,741,180     $ 3.19     $ 111,000       2.73  
Granted                        
Forfeited                        
Outstanding as of March 31, 2020     2,741,180     $ 3.19     $ 31,200       2.48  
Exercisable as of March 31, 2020     2,656,180     $ 2.79     $ 31,200       1.99  

 

Employee Stock Purchase Plan

 

Eligible employees can purchase the Company’s Common Stock at the end of a predetermined offering period at 85% of the lower of the fair market value at the beginning or end of the offering period. The ESPP is compensatory and results in stock-based compensation expense.

 

As of March 31, 2020, 454,515 shares have been purchased and 545,485 shares are available for future sale under the Company’s ESPP. Share-based compensation expense recorded was approximately $18,000 and $20,000, respectively, for the three months ended March 31, 2020 and 2019.

 

Capital Raises

  

At-the-Market Offering

 

Pursuant to the terms of the Company’s Amended and Restated At Market Issuance Sales Agreement, or Sales Agreement, with B. Riley FBR, Inc. (“B. Riley,” f/k/a MLV & Co. LLC, and FBR Capital Markets & Co.) (the “ATM”), for the three-month period ended March 31, 2020, the Company issued approximately 2.3 million shares of common stock at an average price of $2.59 per share for gross proceeds of $6.1 million. In connection with these sales, the Company paid aggregate fees of approximately $0.2 million.

 

These shares were sold pursuant to the current shelf registration statement on Form S-3; approximately $17.9 million of the shelf remains available for sale at March 31, 2020.

 

9.375% Series A Cumulative Redeemable Perpetual Preferred Stock Offering

 

On February 14, 2020, the Company announced the closing of an underwritten public offering, whereby it sold 625,000 shares of its 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (Nasdaq: FBIOP) (the “Preferred Stock”), (plus a 45-day option to purchase up to an additional 93,750 shares, which was exercised in February 2020) at a price of $20.00 per share for gross proceeds of approximately $14.4 million, before deducting underwriting discounts and commissions and offering expenses of approximately $1.3 million.

 

The shares of Preferred Stock were sold under the Company’s shelf registration statement on Form S-3 originally filed on July 6, 2018 and declared effective July 23, 2019 (the “2019 Shelf”). Approximately $17.9 million of securities remain available for sale under the 2019 Shelf at March 31, 2020.

 

19

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Mustang Bio, Inc.

 

Mustang At-the-Market Offering

 

On July 13, 2018, Mustang filed a shelf registration statement No. 333-226175 on Form S-3, as amended on July 20, 2018 (the “2018 Mustang S-3”), which was declared effective in August 2018. Under the 2018 Mustang S-3, Mustang may sell up to a total of $75.0 million of its securities. In connection with the 2018 Mustang S-3, Mustang entered into an At-the-Market Issuance Sales Agreement (the “Mustang ATM”) with B. Riley FBR, Inc., Cantor Fitzgerald & Co., National Securities Corporation, and Oppenheimer & Co. Inc. (each an "Agent" and collectively, the “Agents”), relating to the sale of shares of common stock. Under the Mustang ATM, Mustang pays the Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock.

 

During the three months ended March 31, 2020, Mustang issued approximately 1.2 million shares of common stock at an average price of $3.93 per share for gross proceeds of $5.0 million under the Mustang ATM. In connection with these sales, Mustang paid aggregate fees of approximately $0.1 million for net proceeds of approximately $4.9 million. No sales were made under the 2018 Mustang ATM during the three months ended March 31, 2019. Pursuant to the Founders Agreement, Mustang issued 31,220 shares of common stock to Fortress at a weighted average price of $4.00 per share for the ATM offering noted above.

 

Approximately $15.9 million of the shelf remains available for sale under the 2018 Mustang S-3, following the offerings noted above. Mustang may offer the securities under the 2018 Mustang S-3 from time to time in response to market conditions or other circumstances if it believes such a plan of financing is in the best interests of its stockholders.

 

Share Repurchase Program

 

On March 23, 2020, the Company announced that its Board of Directors had approved a share repurchase program of the Company’s outstanding Preferred Stock in an aggregate amount of up to $5 million. Repurchases under the program may be made in the open market or through privately-negotiated transactions from time to time up until the earlier to occur of the repurchase of $5 million of the Company’s Preferred Stock or the close of trading on May 31, 2020, subject to applicable laws and regulations. The program may be amended, suspended, or discontinued at any time and does not commit the Company to repurchase any shares of Preferred Stock. As of March 31, 2020, 5,000 Preferred Stock shares have been repurchased under this program for total consideration of $0.1 million, net of fees of approximately $2,000, and are recorded as Treasury stock on the consolidated balance sheet.

  

15.Commitments and Contingencies

 

Most of the Company’s lease liabilities result from the lease of its New York City, NY office, which expires in 2031, and Mustang’s Worcester, MA cell processing facility lease, which expires in 2026. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees.  Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options.  The Company does not act as a lessor or have any leases classified as financing leases. On March 31, 2020, the Company had operating lease liabilities of $23.7 million and right of use assets of $21.1 million, which were included in the condensed consolidated balance sheet.

 

During the three months ended March 31, 2020 and 2019, the Company recorded the following as lease expense.

 

   As of   As of 
($ in thousands)  March 31, 2020   March 31, 2019 
Lease cost          
Operating lease cost  $809   $796 
Shared lease costs   (470)   (477)
Variable lease cost   264    26 
Total lease cost  $603   $345 

 

The following tables summarize quantitative information about the Company’s operating leases, under the adoption of Topic 842:

 

($ in thousands) 

Three Month Ended

March 31, 2020

   Three Months Ended
March 31, 2019
 
Operating cash flows from operating leases  $(451)  $(767)
Right-of-use assets exchanged for new operating lease liabilities  $21,076   $22,618 
Weighted-average remaining lease term – operating leases (years)   6.1    6.7 
Weighted-average discount rate – operating leases   6.2%   6.2%

 

($ in thousands)  Future Lease
Liability
 
Nine months ended December 31, 2020  $2,515 
Year ended December 31, 2021   3,114 
Year ended December 31, 2022   3,084 
Year ended December 31, 2023   3,137 
Year ended December 31, 2024   3,190 
Other   20,273 
Total operating lease liabilities   35,313 
Less: present value discount   (9,872)
Net operating lease liabilities, short-term and long-term  $25,441 

 

20

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Indemnification

 

In accordance with its certificate of incorporation, bylaws and indemnification agreements, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance to address such claims. Pursuant to agreements with clinical trial sites, the Company provides indemnification to such sites in certain conditions.

 

Legal Proceedings

 

Fortress Biotech, Inc.

 

In the ordinary course of business, the Company and its subsidiaries may be subject to both insured and uninsured litigation. Suits and claims may be brought against the Company by customers, suppliers, partners and/or third parties (including tort claims for personal injury arising from clinical trials of the Company’s product candidates and property damage) alleging deficiencies in performance, breach of contract, etc., and seeking resulting alleged damages.

 

16. Related Party Transactions

 

Other Related Parties

 

The Company’s Chairman, President and Chief Executive Officer, individually and through certain trusts over which he has voting and dispositive control, beneficially owned approximately 11.9% of the Company’s issued and outstanding Common Stock as of March 31, 2020. The Company’s Executive Vice Chairman, Strategic Development owns approximately 13.0% of the Company’s issued and outstanding Common Stock at March 31, 2020.

 

Shared Services Agreement with TGTX

 

TGTX and the Company entered into an arrangement to share the cost of certain research and development employees. The Company’s Executive Vice Chairman, Strategic Development, is Executive Chairman and Interim Chief Executive Officer of TGTX. Under the terms of the Agreement, TGTX will reimburse the Company for the salary and benefit costs associated with these employees based upon actual hours worked on TGTX related projects. For the three months ended March 31, 2020 and 2019, the Company invoiced TGTX $0.1 million and $0.1 million, respectively. On March 31, 2020, the amount receivable from TGTX related to this arrangement approximated $36,000.

 

Desk Space Agreements with TGTX and OPPM

 

In connection with the Company’s Desk Space Agreements with TGTX and Opus Point Partners Management, LLC (“OPPM”), as of March 31, 2020, the Company had paid $0.7 million in rent under the Desk Space Agreements, and invoiced TGTX and OPPM approximately $0.4 million and nil, respectively, for their prorated share of the rent base. On March 31, 2020, the amount due from TGTX approximated $0.1 million and the amount due from OPPM approximated $0.4 million.

 

2019 Notes (formerly the Opus Credit Facility)

 

On March 12, 2018, the Company and OPHIF amended and restated the Opus Credit Facility (the “A&R Opus Credit Facility”). The A&R Opus Credit Facility extended the maturity date of the notes issued under the Opus Credit Facility from September 14, 2018 by one year to September 14, 2019. The A&R Opus Credit Facility also permits the Company to make portions of interest and principal repayments in the form of shares of the Company’s common stock and/or in common stock of the Company’s publicly-traded subsidiaries, subject to certain conditions. On September 13, 2019, the Company and OPHIF extended the maturity dates of the notes from September 14, 2019 by two years to September 14, 2021. Fortress retains the ability to prepay the Notes at any time without penalty. The notes payable under the A&R Opus Credit Facility continue to bear interest at 12% per annum.

 

21

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

As of December 31, 2019, OPHIF dissolved and distributed it assets among its limited partners. Following the distribution, the facility is comprised of three separate notes herein referred to as the 2019 Notes. The allocation of the $9.0 million Opus Credit Facility was as follows: DAK Capital Inc.: $3.8 million; Fortress’s Chairman, President and Chief Executive Officer (Lindsay A. Rosenwald): $2.9 million; and Fortress’s Executive Vice President, Strategic Development (Michael S. Weiss): $2.3 million. Terms of the 2019 Notes did not change.

 

For the three months ended March 31, 2020 and 2019, the Company paid interest in the Company’s common stock of $0.2 million or 60,245 shares at $2.58 and $0.3 million or 131,353 shares at $2.14, respectively, in connection with the 2019 Notes.

 

Founders Agreements

 

The Company has entered into Founders Agreements and, in some cases, Exchange Agreements with certain of its subsidiaries as described in the Company’s Form 10-K for the year ended December 31, 2018, filed with the SEC on March 16, 2020. The following table summarizes, by subsidiary, the effective date of the Founders Agreements and PIK dividend or equity fee payable to the Company in accordance with the terms of the Founders Agreements, Exchange Agreements, and the subsidiaries’ certificates of incorporation. 

 

Founders Agreements

 

The Company has entered into Founders Agreements and, in some cases, Exchange Agreements with certain of its subsidiaries as described in the Company’s Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020. The following table summarizes, by subsidiary, the effective date of the Founders Agreements and PIK dividend or equity fee payable to the Company in accordance with the terms of the Founders Agreements, Exchange Agreements, and the subsidiaries’ certificates of incorporation.

 

Fortress Partner Company   Effective Date 1  

PIK Dividend as

a % of fully

diluted

outstanding

capitalization

   

Class of Stock

Issued

Helocyte   March 20, 2015     2.5 %   Common Stock
Avenue   February 17, 2015     0.0 %2   Common Stock
Mustang   March 13, 2015     2.5 %   Common Stock
Checkpoint   March 17, 2015     0.0 %3   Common Stock
Cellvation   October 31, 2016     2.5 %   Common Stock
Caelum   January 1, 2017     0.0 %4   Common Stock
Baergic   December 17, 20195     2.5 %   Common Stock
Cyprium   March 13, 2017     2.5 %   Common Stock
Aevitas   July 28, 2017     2.5 %   Common Stock
Tamid   November 30, 2017 5     2.5 %   Common Stock

 

Note 1: Represents the effective date of each subsidiary’s Founders Agreement. Each PIK dividend and equity fee is payable on the annual anniversary of the effective date of the original Founders Agreement or has since been amended to January 1 of each calendar year.
Note 2: Concurrently with the execution and delivery of the Stock Purchase and Merger Agreement (“SPMA”) entered into between, Avenue, the Company and InvaGen Pharmaceuticals Inc. (“InvaGen”) (together, the “SPMA Parties”), the SPMA Parties entered into a waiver agreement (the “Waiver Agreement”), pursuant to which the Company irrevocably waived its right to receive the annual dividend of Avenue’s common shares under the terms of the Class A preferred stock and any fees, payments, reimbursements or other distributions under the management services agreement between the Company and Avenue and the Founders Agreement, for the period from the effective date of the Waiver Agreement to the termination of InvaGen’s rights under the SPMA. Pursuant to the Waiver Agreement, immediately prior to the closing of the Merger Transaction contemplated under the SPMA, the Company will convert all of its preferred shares into common shares pursuant to the terms of the certificate of incorporation of Avenue, as amended from time to time.
Note 3: Instead of a PIK dividend, Checkpoint pays the Company an annual equity fee in shares of Checkpoint’s common stock equal to 2.5% of Checkpoint’s fully diluted outstanding capitalization.
Note 4: Effective January 31, 2019 the Caelum Founders Agreement and MSA with Fortress were terminated in conjunction with the execution of a Development Option and Share Purchase Agreement (“DOSPA”) between Caelum and Alexion Therapeutics, Inc. (See Note 4).
Note 5: Represents the Trigger Date, the date that the Fortress partner company first acquires, whether by license or otherwise, ownership rights in a product.

 

22

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Management Services Agreements

 

The Company has entered in Management Services Agreements (the “MSAs”) with certain of its subsidiaries as described in the Company’s Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020. The following table summarizes, by subsidiary, the effective date of the MSA and the annual consulting fee payable by the subsidiary to the Company in quarterly installments:

   

Fortress partner company  Effective Date  

Annual MSA Fee

(Income)/Expense

 
Helocyte   March 20, 2015   $500 
Avenue 1   February 17, 2015     
Mustang   March 13, 2015    500 
Checkpoint   March 17, 2015    500 
Cellvation   October 31, 2016    500 
Baergic   March 9, 2017    500 
Cyprium   March 13, 2017    500 
Aevitas   July 28, 2017    500 
Tamid2   November 30, 2017    - 
Fortress        (3,500)
Consolidated (Income)/Expense       $ 

 

Note 1: Concurrently with the execution and delivery of the SPMA entered into between, Avenue, the Company and InvaGen Pharmaceuticals Inc. (“InvaGen”) (together, the “SPMA Parties”), the SPMA Parties entered into a waiver agreement (the “Waiver Agreement”), pursuant to which the Company irrevocably waived its right to receive the annual dividend of Avenue’s common shares under the terms of the Class A preferred stock and any fees, payments, reimbursements or other distributions under the management services agreement between the Company and Avenue and the Founders Agreement, for the period from the effective date of the Waiver Agreement to the termination of InvaGen’s rights under the SPMA. Pursuant to the Waiver Agreement, immediately prior to the closing of the Merger Transaction contemplated under the SPMA, the Company will convert all of its preferred shares into common shares pursuant to the terms of the certificate of incorporation of Avenue, as amended from time to time. (See Note 4).
Note 2: In December 2019, Tamid discontinued development and terminated the related licenses and clinical trial agreements with the University of North Carolina at Chapel Hill for all three of its preclinical product candidates, effectively terminating their MSA with the Company.

 

23

 

 

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

17. Segment Information

 

The Company operates in two reportable segments, Dermatology Product Sales and Pharmaceutical and Biotechnology Product Development. The accounting policies of the Company’s segments are the same as those described in Note 2. The following tables summarize, for the periods indicated, operating results from continued operations by reportable segment:

 

   Dermatology  

Pharmaceutical

and

Biotechnology

     
($ in thousands)  Products   Product     
Three Months Ended March 31, 2020  Sales   Development   Consolidated 
Net revenue  $11,946   $972   $12,918 
Direct cost of goods   (3,810)       (3,810)
Sales and marketing costs   (4,679)       (4,679)
Research and development       (15,117)   (15,117)
General and administrative   (953)   (9,887)   (10,840)
Other expense   (207)   (2,333)   (2,540)
Segment income (loss)  $2,297    (26,365)  $(24,068)
Segment assets               
Intangible assets, net   7,022    -    7,022 
Tangible assets   23,550    198,187    221,737 
Total segment assets  $30,572   $198,187   $228,759 

 

   Dermatology  

Pharmaceutical

and

Biotechnology

     
($ in thousands)  Products   Product     
Three Months Ended March 31, 2019  Sales   Development   Consolidated 
Net revenue  $6,125   $352   $6,477 
Direct cost of goods   (1,884)       (1,884)
Sales and marketing costs   (3,493)       (3,493)
Research and development       (23,723)   (23,723)
General and administrative   (387)   (9,598)   (9,985)
Other expense   -    16,353    16,353 
Segment income (loss)  $361   $(16,616)  $(16,255)
Segment assets               
Intangible assets, net   1,183    -    1,183 
Tangible assets   9,896    189,459    199,355 
Total segment assets  $11,079   $189,459   $200,538 

 

18. Revenues from Contracts and Significant Customers

 

Disaggregation of Total Revenue

 

Product revenue is comprised of Journey’s five marketed products: Targadox®, Luxamend®, Ceracade®, Exelderm® and Ximino®. Substantially all of the product revenue is recorded in the U.S. The Company’s related party revenue is from Checkpoint’s collaboration with TGTX. The table below summarizes the Company’s revenue for the three months ending March 31, 2020 and 2019:

 

   Three months ended March 31, 
($ in thousands)  2020   2019 
Product revenue, net  $11,946   $6,125 
Revenue – related party   972    352 
Net Revenue  $12,918   $6,477 

 

Significant Customers

 

For the three months ended March 31, 2020, two of the Company’s Dermatology Products customers accounted for more than 10.0% of its total gross product revenue in the amount of $7.7 million and $5.1 million.

 

For the three months ended March 31, 2019, one of the Company’s Dermatology Products customers accounted for more than 10.0% of its total gross product revenue in the amount of $19.9 million.

 

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FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

At March 31, 2020, two of the Company’s Dermatology Products customers accounted for more than 10.0% of its total accounts receivable balance in the amount of $5.4 million and $2.5 million.

 

At March 31, 2019, one of the Company’s Dermatology Products customers accounted for more than 10.0% of its total accounts receivable balance in the amount of $7.7 million.

 

19. Incomes taxes

 

 In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020.  The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer’s social security payments, net operating loss utilization and carryback periods and modifications to the net interest deduction limitations.  At this time, the Company does not believe that the CARES Act will have a material impact on its income tax provision for 2020.  The Company will continue to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows.

 

The Company and its subsidiaries are subject to US federal and state income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of Management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.

 

The Company files a consolidated income tax return with subsidiaries for which the Company has an 80% or greater ownership interest. Subsidiaries for which the Company does not have an 80% or more ownership are not included in the Company’s consolidated income tax group and file their own separate income tax return. As a result, certain corporate entities included in these financial statements are not able to combine or offset their taxable income or losses with other entities’ tax attributes.

 

Income tax expense for the three months ended March 31, 2020 and 2019 is based on the estimated annual effective tax rate.

 

25

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this Form 10-Q. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” “may,” “plan”, “seek” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially, from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Overview

 

We are a biopharmaceutical company dedicated to acquiring, developing and commercializing pharmaceutical and biotechnology products and product candidates, which we do at the Fortress level, at our majority-owned and majority-controlled subsidiaries and joint ventures, and at entities we founded and in which we maintain significant minority ownership positions. Fortress has a talented and experienced business development team, comprising scientists, doctors, and finance professionals, who identify and evaluate promising products and product candidates for potential acquisition by new or existing partner companies. Through our partner companies, we have executed such arrangements in partnership with some of the world’s foremost universities, research institutes and pharmaceutical companies, including City of Hope National Medical Center, Fred Hutchinson Cancer Research Center, St. Jude Children’s Research Hospital, Dana-Farber Cancer Institute, Nationwide Children’s Hospital, Cincinnati Children’s Hospital Medical Center, Columbia University, the University of Pennsylvania, and AstraZeneca plc.

 

Following the exclusive license or other acquisition of the intellectual property underpinning a product or product candidate, we leverage our business, scientific, regulatory, legal and finance expertise to help our partners achieve their goals. Our partner companies then assess a broad range of strategic arrangements to accelerate and provide additional funding to support research and development, including joint ventures, partnerships, out-licensings, and public and private financings; to date, three partner companies are publicly-traded, and two have consummated strategic partnerships with industry leaders Alexion Pharmaceuticals, Inc. and InvaGen Pharmaceuticals, Inc. (a subsidiary of Cipla Limited).

 

Recent Events

 

Marketed Dermatology Products

 

During the three months ended March 31, 2020, through our partner company Journey Medical Corporation (“Journey” or “JMC”), our marketed products generated net revenue of $11.9 million.

 

Late Stage Product Candidates

 

Intravenous (IV) Tramadol

 

IV Tramadol is currently in development with our partner company, Avenue Therapeutics, Inc. (“Avenue”) (NASDAQ: ATXI). Avenue submitted a new drug application (“NDA”) for IV Tramadol to treat moderate to moderately severe postoperative pain pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (“FDCA”) in December 2019. In February 2020, the FDA accepted Avenue’s NDA submission and set a Prescription Drug User Fee Act goal date of October 10, 2020.

 

CUTX-101 (Copper Histidinate)

 

In January 2020, Cyprium Therapeutics, Inc. (“Cyprium”) announced that the U.S. Food and Drug Administration (“FDA”) had granted Rare Pediatric Disease Designation to Cyprium’s Copper Histidinate, also referred to as CUTX-101, for the treatment of Menkes disease. Menkes disease is a rare X-linked recessive pediatric disease caused by genetic mutations of the copper transporter, ATP7A. The FDA previously granted Orphan Drug and Fast Track Designations to CUTX-101 for the treatment of Menkes disease. The FDA grants Rare Pediatric Disease Designation for serious and life-threatening diseases that primarily affect children ages 18 years or younger and fewer than 200,000 people in the United States. If Cyprium’s NDA is approved, it may be eligible to receive a priority review voucher, which can be redeemed to obtain priority review for any subsequent marketing application and may be sold or transferred. This program is intended to encourage development of new drugs and biologics for the prevention and treatment of rare pediatric diseases.

 

26

 

 

MB-107 (Ex vivo Lentiviral Therapy for X-linked Severe Combined Immunodeficiency (XSCID))

 

In April 2020, Mustang Bio, Inc. (“Mustang”) (NASDAQ: MBIO) announced that the European Medicines Agency (“EMA”) had granted Advanced Therapy Medicinal Product (“ATMP”) classification to MB-107, Mustang’s lentiviral gene therapy for the treatment of X-linked severe combined immunodeficiency (“XSCID”), also known as bubble boy disease. The FDA previously granted Regenerative Medicine Advanced Therapy (“RMAT”) designation to MB-107 for the treatment of XSCID in August 2019. 

 

In May 2020, Mustang submitted an IND application with the FDA to initiate a multicenter Phase 2 clinical trial of MB-107 in newly diagnosed infants with XSCID who are under the age of two. The trial is expected to enroll 10 patients who, together with 15 patients enrolled in the current multicenter trial led by St. Jude Children’s Research Hospital, will be compared with 25 matched historical control patients who have undergone hematopoietic stem cell transplant (“HSCT”). The primary efficacy endpoint will be event-free survival. The initiation of this trial is currently on hold pending CMC clearance by the FDA. Mustang is targeting topline data from the trial in the second half of 2022.

 

Mustang further expects to file an IND in the third quarter of 2020 for a registrational multi-center Phase 2 clinical trial of its lentiviral gene therapy in previously transplanted XSCID patients. This product will be designated MB-207. Mustang anticipates enrolling 20 patients and comparing them to matched historical control patients who have undergone a second HSCT. Mustang is targeting topline data for this trial in the second half of 2022.

 

Cosibelimab (formerly CK-301)

 

Our partner company, Checkpoint Therapeutics, Inc. (“Checkpoint”) (NASDAQ: CKPT) continues to enroll cutaneous squamous cell carcinoma (“CSCC”) patients to support an initial BLA submission for Cosibelimab based on their ongoing clinical trial. Additional information on the Phase 1 trial can be found on www.ClinicalTrials.gov using identifier NCT03212404.

 

In April 2020, Checkpoint announced that the U.S. Patent and Trademark Office had issued a composition of matter patent for Cosibelimab. U.S. Patent No. 10,590,199 specifically covers the antibody, Cosibelimab, or a fragment thereof, providing protection through at least May 2038, exclusive of any additional patent-term extensions that might become available.

 

Early Stage Product Candidates

 

MB-106 (CD20-targeted CAR T cell therapy)

 

In February 2020, Mustang announced that the first subject treated with the optimized MB-106 manufacturing process, developed in collaboration between Mustang and Fred Hutchinson Cancer Research Center (“Fred Hutch”), has achieved a complete response (“CR”) at the lowest starting dose in an ongoing Phase 1/2 clinical trial. The trial is evaluating the safety and efficacy of MB-106 in subjects with relapsed or refractory B-cell non-Hodgkin lymphomas. Additional information on the Phase 1/2 trial can be found on www.ClinicalTrials.gov using identifier NCT03277729.

 

ONCOlogues (proprietary platform technology using oligonucleotides)

 

In May 2020, we entered into an exclusive worldwide licensing agreement with Columbia University to develop novel oligonucleotides for the treatment of genetically driven cancers. The proprietary platform produces oligomers, known as “ONCOlogues,” which are capable of binding gene sequences 1,000 times more effectively than complementary native DNA. ONCOlogues invade a DNA double helix and displace native mutated strands. This prevents the mRNA that antisense binds to from ever being created. It is higher upstream than an antisense approach as well as potentially more potent and broader in its utility.

 

In addition, we are exploring the potential of the platform to treat novel coronaviruses, such as COVID-19.

 

The ONCOlogues platform is currently in development at our partner company, Oncogenuity, Inc. 

 

General Corporate

 

In February 2020 Fortress announced the pricing of an underwritten public offering of 625,000 shares of its Perpetual Preferred Stock, (plus a 45-day option to purchase up to an additional 93,750 shares, which was exercised in February 2020) at a price of $20.00 per share for gross proceeds of approximately $14.4 million, before deducting underwriting discounts and commissions and offering expenses of $1.3 million.

 

Critical Accounting Policies and Use of Estimates

 

See Note 2 to the Condensed Consolidated Financial Statements.

 

Results of Operations

 

General

 

For the three months ended March 31, 2020, we generated $12.9 million of net revenue, of which $11.9 million relates primarily to the sale of Journey branded and generic products and $1.0 million relates to Checkpoint’s collaborative agreements with TG Therapeutics Inc. (“TGTX”), including a milestone of $0.9 million upon the 12th patient dosed in a phase 1 clinical trial for Cosibelimab achieved during March 2020. As of March 31, 2020, we had an accumulated deficit of $448.6 million. While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, research and development payments in connection with strategic partnerships and/or product sales, our and our subsidiaries’ current product candidates are at an early stage of development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future, and there can be no assurance that we will ever generate significant revenues.

 

For the three months ended March 31, 2020, we had $3.8 million of costs of goods sold in connection with the sale of Journey’s marketed products, compared to $1.9 million for the three months ended March 31, 2019. The increase is attributed to a growth in sales primarily attributed to the expansion of the marketed product portfolio with the addition of Ximino in the second half of 2019.

 

27

 

 

Research and Development Expenses

 

Research and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license and milestone costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings and patents, laboratory costs and other supplies.

 

For the three months ended March 31, 2020 and 2019, research and development expenses were approximately $14.9 million and $23.3 million, respectively. Additionally, during the three months ended March 31, 2020 and 2019, we expensed approximately $0.3 million and $0.5 million, respectively, in costs related to the acquisition of licenses. Noncash, stock-based compensation expense included in research and development for the three months ended March 31, 2020 and 2019, was $0.9 million and $0.6 million, respectively.

 

The table below provides a summary of research and development costs associated with the development of our licenses by entity, for the quarter ended March 31, 2020 and 2019, by entity:

 

   Three Months Ended March 31,   % of total 
($ in thousands)   2020    2019    2020    2019 
Research & Development                    
Fortress  $678   $711    5%   3%
Partner Companies:                    
Avenue   697    10,242    5%   44%
Checkpoint   2,635    4,581    18%   20%
Mustang   9,251    6,897    62%   30%
Other1