Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 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 oth ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 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 ju ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 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 j ...

Part I [Business](index=6&type=section&id=Item%201.%20Business.) Fortress Biotech operates as a diversified biopharmaceutical company, acquiring, developing, and commercializing products through its parent operations and partner companies - Fortress Biotech's business model involves acquiring, developing, and commercializing pharmaceutical products through its own operations, majority-owned subsidiaries, and significant minority ownership positions in founded entities[20](index=20&type=chunk) - The company has established collaborations with prominent research institutions such as Fred Hutchinson Cancer Research Center, St Jude Children's Research Hospital, and Dana-Farber Cancer Institute[20](index=20&type=chunk) - Fortress utilizes a variety of strategic arrangements to fund research and development, including joint ventures, out-licensings, and both public and private financings, with three partner companies currently publicly traded[20](index=20&type=chunk) [Product Portfolio](index=6&type=section&id=Item%201.%20Business.%20-%20Product%20Portfolio) The company's portfolio spans commercialized dermatology products, late-stage candidates like IV Tramadol and CUTX-101, and a robust early-stage and preclinical pipeline focused on CAR T and gene therapies Commercialized Dermatology Products (via Journey Medical) | Product | Indication | | :--- | :--- | | Ximino® | Inflammatory lesions of non-nodular moderate to severe acne vulgaris | | Targadox® | Adjunctive therapy for severe acne | | Exelderm® | Treatment of tinea infection (ringworm, jock itch) | | Ceracade® | Dry skin conditions and dermatitis | | Luxamend® | Management of superficial wounds, abrasions, and burns | | Accutane® | Severe recalcitrant nodular acne | Key Late-Stage Product Candidates | Candidate | Partner | Indication | Status | | :--- | :--- | :--- | :--- | | IV Tramadol | Avenue | Post-operative acute pain | NDA resubmitted to FDA; PDUFA date April 12, 2021 | | CUTX-101 | Cyprium | Menkes Disease | Positive top-line results; FDA Breakthrough Therapy Designation; Rolling NDA submission planned for H2 2021 | | MB-107 / MB-207 | Mustang | XSCID (Bubble Boy Disease) | Registrational Phase 2 trial for MB-107 initiated; IND for MB-207 trial planned for Q2 2021 | | Cosibelimab | Checkpoint | mCSCC and NSCLC | Registration-enabling trial ongoing; Top-line results expected H2 2021 | | CAEL-101 | Caelum | AL Amyloidosis | Two Phase 3 studies initiated and actively enrolling | - The early-stage pipeline is heavily focused on oncology, particularly CAR T therapies targeting CD123 (MB-102), IL13Rα2 (MB-101), CS1 (MB-104), CD20 (MB-106), HER2 (MB-103), and PSCA (MB-105) for various cancers including BPDCN, glioblastoma, multiple myeloma, and prostate cancer[38](index=38&type=chunk)[39](index=39&type=chunk)[43](index=43&type=chunk) - Preclinical development includes AAV-ATP7A gene therapy for Menkes disease, AVTS-001 gene therapy for complement-mediated diseases, and the ONCOlogues platform using peptic nucleic acids (PNAs) to target genetically driven cancers[52](index=52&type=chunk)[53](index=53&type=chunk)[60](index=60&type=chunk) [Competition](index=15&type=section&id=Item%201.%20Business.%20-%20Competition) Fortress and its partners face intense competition from larger pharmaceutical and biotechnology firms, with significant generic competition posing a threat to its commercialized dermatology products - The company competes with large pharmaceutical and biotechnology enterprises that have significantly greater financial, product development, manufacturing, and marketing resources[63](index=63&type=chunk) - In the dermatology sector, major competitors include Galderma, Vyne Therapeutics, Sol-Gel, Almirall, and Sun Pharma, with competition based on quality, efficacy, market acceptance, and price[63](index=63&type=chunk) - The company faces significant risk from generic competition, which typically leads to intense price competition and loss of market share for branded products once market exclusivity is lost[65](index=65&type=chunk) [Government Regulation](index=16&type=section&id=Item%201.%20Business.%20-%20Government%20Regulation) The company operates under extensive FDA regulation, requiring lengthy and costly preclinical and clinical development, adherence to manufacturing and clinical practices, and navigating complex reimbursement policies - The FDA approval process for a new pharmaceutical product generally includes preclinical lab and animal studies, submission of an Investigational New Drug (IND) application, and performance of adequate and well-controlled human clinical trials (Phase 1, 2, and 3)[67](index=67&type=chunk)[69](index=69&type=chunk) - Manufacturing facilities must comply with current Good Manufacturing Practices (CGMPs), and clinical trials must adhere to Good Clinical Practices (GCPs), with non-compliance potentially leading to sanctions or withdrawal of approval[67](index=67&type=chunk) - The Orphan Drug Act provides incentives, including seven years of market exclusivity, for products developed for rare diseases affecting fewer than 200,000 people in the U.S[76](index=76&type=chunk) - Sales of approved products are dependent on reimbursement from third-party payors, including government programs and private insurers, with healthcare reforms like the Affordable Care Act (ACA) potentially impacting coverage and pricing[80](index=80&type=chunk) [Corporate Information](index=20&type=section&id=Item%201.%20Business.%20-%20Corporate%20Information) As of December 31, 2020, Fortress and its partner companies employed 111 full-time personnel, led by an experienced executive team, with principal offices in New York, NY - As of December 31, 2020, the company and its partner companies employed **111 full-time personnel**[82](index=82&type=chunk) Executive Officers (as of Dec 31, 2020) | Name | Age | Position | | :--- | :--- | :--- | | Lindsay A Rosenwald, M.D. | 65 | Chairman of the Board of Directors, President and Chief Executive Officer | | Robyn M Hunter | 59 | Chief Financial Officer | | George Avgerinos, Ph.D. | 67 | Senior Vice President, Biologics Operations | | Michael S Weiss | 54 | Executive Vice Chairman, Strategic Development | [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks including high drug development failure rates, significant financing needs, reliance on limited revenue streams, complex business structure, dependence on third parties, intellectual property challenges, and commercialization uncertainties [Risks Inherent in Drug Development](index=22&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Inherent%20in%20Drug%20Development) Most product candidates are in early development, facing high risks of failure in clinical trials, regulatory approval delays, or being outcompeted by more advanced treatments - Most product candidates are in early development and may never be successfully developed or commercialized due to the high-risk, time-intensive, and costly nature of pharmaceutical development and regulation[91](index=91&type=chunk) - The FDA and other regulatory agencies may delay, limit, or refuse approval for numerous reasons, including disagreements with trial design, insufficient safety or efficacy data, or unsatisfactory manufacturing processes[93](index=93&type=chunk) - Competitors with greater resources may develop treatments more quickly or effectively, which could eliminate the commercial opportunity for Fortress's product candidates[97](index=97&type=chunk) [Risks Pertaining to the Need for and Impact of Existing and Additional Financing Activities](index=27&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Pertaining%20to%20the%20Need%20for%20and%20Impact%20of%20Existing%20and%20Additional%20Financing%20Activities) The company has a history of operating losses and an accumulated deficit, requiring substantial additional funding for R&D and commercialization, with existing debt covenants limiting financial flexibility - The company has a history of operating losses, reporting a loss from continuing operations of **$103.0 million** in 2020 and an accumulated deficit of **$482.8 million** as of December 31, 2020[104](index=104&type=chunk) - The company's **$60.0 million** senior secured credit agreement with Oaktree contains restrictive covenants on actions like incurring debt, making investments, and paying dividends, which could inhibit strategic transactions[104](index=104&type=chunk) - Substantial additional funding is needed for R&D programs, and failure to raise capital when needed may force delays, curtailment, or elimination of programs and commercialization efforts[108](index=108&type=chunk) [Risks Pertaining to Our Existing Revenue Stream from Journey Medical Corporation](index=30&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Pertaining%20to%20Our%20Existing%20Revenue%20Stream%20from%20Journey%20Medical%20Corporation) Operating income heavily relies on Journey Medical's dermatology product sales, which are vulnerable to manufacturing issues, competition, generic threats, and adverse changes in healthcare reimbursement policies - The vast majority of operating income is expected to come from the sale of dermatology products through Journey Medical, and any setback with these products could significantly impair operating results[111](index=111&type=chunk) - Most of Journey's sales are from products without patent protection, making them vulnerable to generic competition, which could lead to intense price competition and loss of market share[111](index=111&type=chunk)[112](index=112&type=chunk) - Market acceptance and sales depend on adequate coverage and reimbursement from third-party payors, and legislative changes, such as those related to the ACA, and payor policies could negatively affect profitability[114](index=114&type=chunk)[118](index=118&type=chunk)[122](index=122&type=chunk) [Risks Pertaining to our Business Strategy, Structure and Organization](index=36&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Pertaining%20to%20our%20Business%20Strategy%2C%20Structure%20and%20Organization) The company's strategy involves complex collaborations and potential divestitures, carrying execution risks, potential financial liabilities from subsidiary guarantees, and conflicts of interest due to overlapping management roles - The merger of partner company Avenue with InvaGen is at risk, as InvaGen has asserted a Material Adverse Effect due to COVID-19's impact and issues with the proposed product label for IV Tramadol, potentially allowing InvaGen to avoid closing the deal[127](index=127&type=chunk) - Fortress acts as an indemnitor for certain obligations of its subsidiaries, such as a potential indemnification obligation of up to **$35.0 million** to InvaGen related to the Avenue merger agreement[129](index=129&type=chunk) - The company's growth depends on acquiring or in-licensing new products, which entails risks such as exposure to unknown liabilities, integration challenges, and competition for attractive assets[129](index=129&type=chunk) - Certain officers and directors serve in similar roles at partner companies and related parties, which could create conflicts of interest regarding corporate opportunities and transactions[131](index=131&type=chunk) [Risks Pertaining to Reliance on Third Parties](index=40&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Pertaining%20to%20Reliance%20on%20Third%20Parties) Fortress is highly dependent on third-party manufacturers and clinical research organizations, introducing significant operational risks related to compliance, supply disruption, and data reliability - The company relies predominantly on third-party manufacturers for preclinical, clinical, and commercial product supplies, and any failure by these manufacturers to comply with CGMP could disrupt supply and impair commercialization[137](index=137&type=chunk) - The company relies on third-party CROs and clinical investigators to conduct its clinical trials, and poor performance or non-compliance by these parties could delay trials or render data unreliable[142](index=142&type=chunk) - This reliance on third parties reduces control over manufacturing and development activities but does not relieve Fortress of its responsibilities or potential liabilities under regulations like GCP and GLP[142](index=142&type=chunk) [Risks Pertaining to Intellectual Property and Potential Disputes with Licensors Thereof](index=44&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Pertaining%20to%20Intellectual%20Property%20and%20Potential%20Disputes%20with%20Licensors%20Thereof) Success hinges on robust intellectual property protection, but patents are uncertain and vulnerable to challenges, with in-licensed IP exposing the company to potential disputes with licensors and infringement claims - The company's ability to successfully commercialize products depends on obtaining and maintaining sufficient patent protection, but the patent process is uncertain and issued patents may be challenged or invalidated[146](index=146&type=chunk) - The company is exposed to litigation risk if it is sued for infringing third-party intellectual property rights, which could be costly and result in having to obtain licenses or abandon product candidates[150](index=150&type=chunk) - Since most product candidates are based on in-licensed IP, any dispute with licensors regarding the terms of license agreements could adversely affect the ability to develop and commercialize the applicable products[153](index=153&type=chunk) [Risks Pertaining to the Commercialization of Product Candidates](index=49&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Pertaining%20to%20the%20Commercialization%20of%20Product%20Candidates) Even with regulatory approval, product candidates face significant commercialization risks including limited market acceptance, substantial product liability exposure, and ongoing regulatory oversight that could lead to market withdrawal - Approved products may not gain market acceptance from physicians, patients, and payors, which would limit revenue, as acceptance depends on factors like efficacy, safety, cost, and advantages over alternatives[159](index=159&type=chunk) - The company faces potential product liability claims, which could lead to substantial financial liability and limit commercialization, a notable risk for products like Accutane, which has a history of litigation[161](index=161&type=chunk)[163](index=163&type=chunk) - Approved products remain subject to ongoing regulatory requirements and review, and failure to comply or the discovery of new problems could result in restrictions, recalls, or withdrawal of approval[163](index=163&type=chunk) [Risks Pertaining to Legislation and Regulation Affecting the Biopharmaceutical and Other Industries](index=53&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Pertaining%20to%20Legislation%20and%20Regulation%20Affecting%20the%20Biopharmaceutical%20and%20Other%20Industries) The company's business is subject to unpredictable changes in government regulation and healthcare policy, including drug pricing initiatives and complex anti-kickback laws, with non-compliance leading to severe penalties - The company cannot predict the impact of future legislation or administrative action, particularly regarding drug pricing, which could be affected by policies from the new presidential administration[169](index=169&type=chunk)[171](index=171&type=chunk) - Relationships with customers and payors are subject to anti-kickback, false claims, and other healthcare laws, and violations can lead to criminal sanctions, civil penalties, and exclusion from government healthcare programs[171](index=171&type=chunk) [General Risks](index=56&type=section&id=Item%201A.%20Risk%20Factors%20-%20General%20Risks) The company faces general business risks such as the adverse effects of public health crises like COVID-19, challenges in retaining key personnel, stock price volatility, and potential limitations on using net operating loss carryforwards - The COVID-19 pandemic could adversely affect clinical trials by causing delays in site initiation and patient enrollment, disrupting supply chains, and diverting healthcare resources[176](index=176&type=chunk) - The company's success depends on retaining key executive, scientific, and technical personnel in a highly competitive market[181](index=181&type=chunk)[183](index=183&type=chunk) - The ability to use pre-change Net Operating Losses (NOLs) to offset future income may be limited under Section 382 of the Internal Revenue Code if an "ownership change" occurs[189](index=189&type=chunk) - The company has never paid cash dividends on its Common Stock and does not intend to in the near future, so capital appreciation is the sole source of potential gain for common stockholders[192](index=192&type=chunk) [Unresolved Staff Comments](index=63&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[196](index=196&type=chunk) [Properties](index=63&type=section&id=Item%202.%20Properties) Fortress Biotech's principal executive offices are in New York, NY, with additional leased office space in Waltham, MA, and Scottsdale, AZ for Journey Medical, while Mustang Bio operates a cell therapy manufacturing facility in Worcester, MA - The company's principal executive offices are at 2 Gansevoort Street, New York, NY, under a 15-year lease, with portions subleased to related party TGTX[197](index=197&type=chunk) - Partner company Mustang Bio leases a 27,043 sq ft manufacturing facility in Worcester, MA, for producing personalized CAR T and gene therapies[199](index=199&type=chunk) - Partner company Journey Medical leases office space in Scottsdale, AZ, with a lease term extending to December 2022[198](index=198&type=chunk) [Legal Proceedings](index=64&type=section&id=Item%203.%20Legal%20Proceedings) Fortress Biotech is a defendant in a securities class action lawsuit regarding IV Tramadol's NDA and faces potential legal proceedings with Cipla and InvaGen concerning the Avenue merger - A securities class action complaint was filed against the company and two of its officers in November 2020, alleging false and/or misleading statements related to Avenue Therapeutics' NDA for IV Tramadol during the class period of December 11, 2019, to October 9, 2020[201](index=201&type=chunk) - The company notes a potential for legal proceedings arising from claims by Cipla and InvaGen that the conditions for the second closing of the Avenue merger cannot be met[201](index=201&type=chunk) [Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[201](index=201&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=64&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's Common Stock and 9.375% Series A Preferred Stock are listed on NASDAQ, with no cash dividends paid on common stock as future earnings are retained for business development - The company's Common Stock trades on the NASDAQ Capital Market under the symbol "FBIO"[203](index=203&type=chunk) - The 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock trades on the NASDAQ Capital Market under the symbol "FBIOP"[203](index=203&type=chunk) - The company has never paid cash dividends on its Common Stock and does not intend to in the near future, while dividends on the Series A Preferred Stock are paid monthly at a rate of 9.375% per annum[207](index=207&type=chunk) [Selected Consolidated Financial Data](index=65&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data) This item is not applicable to the company - Not applicable[208](index=208&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses the company's financial performance, liquidity, and recent operational events, highlighting increased net revenue, continued operating losses, and strong cash position from recent financings [Results of Operations](index=72&type=section&id=Item%207.%20MD%26A%20-%20Results%20of%20Operations) For 2020, net revenue increased by 24% to **$45.6 million**, driven by dermatology product sales, while the loss from operations improved to **$94.3 million** due to decreased R&D expenses, despite a rise in SG&A Consolidated Results of Operations (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | **Net revenue** | **$45,599** | **$36,629** | **$8,970** | **24%** | | Product revenue, net | $44,531 | $34,921 | $9,610 | 28% | | **Total operating expenses** | **$139,869** | **$147,448** | **($7,579)** | **(5)%** | | Cost of goods sold | $14,594 | $10,532 | $4,062 | 39% | | Research and development | $61,275 | $75,236 | ($13,961) | (19)% | | R&D – licenses acquired | $2,834 | $6,090 | ($3,256) | (53)% | | Selling, general and administrative | $61,166 | $55,590 | $5,576 | 10% | | **Loss from operations** | **($94,270)** | **($110,819)** | **$16,549** | **(15)%** | | **Net loss** | **($102,985)** | **($101,660)** | **($1,325)** | **1%** | | **Net loss attributable to common stockholders** | **($46,526)** | **($39,960)** | **($6,566)** | **16%** | - The decrease in R&D spending was primarily driven by lower clinical trial costs at Avenue following the completion of studies in 2019, and reduced manufacturing costs for cosibelimab at Checkpoint[242](index=242&type=chunk) - The increase in SG&A expenses was mainly due to higher headcount-related costs at Fortress and Checkpoint, and increased sales and marketing costs at JMC for its expanded product portfolio[244](index=244&type=chunk) [Liquidity and Capital Resources](index=77&type=section&id=Item%207.%20MD%26A%20-%20Liquidity%20and%20Capital%20Resources) As of December 31, 2020, the company had **$233.4 million** in cash and equivalents, with financing activities providing **$172.4 million**, sufficient for the next twelve months but requiring additional long-term capital - The company held cash and cash equivalents of **$233.4 million** as of December 31, 2020[251](index=251&type=chunk) Consolidated Cash Flow Summary (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($83,682) | ($94,961) | | Net cash (used in)/provided by investing activities | ($7,164) | $20,097 | | Net cash provided by financing activities | $172,410 | $146,714 | - In August 2020, the company entered into a **$60 million** senior secured credit agreement with Oaktree to refinance existing indebtedness[231](index=231&type=chunk) - The company raised significant capital through its At-The-Market (ATM) programs, issuing approximately **17.4 million** shares of common stock for gross proceeds of **$47.5 million** in 2020[251](index=251&type=chunk) - Management believes current cash is sufficient to fund operations for at least the next 12 months, but additional capital will be needed for long-term development plans[253](index=253&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=79&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This item is not applicable to the company - Not applicable[253](index=253&type=chunk) [Financial Statements and Supplementary Data](index=79&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section indicates that the company's consolidated financial statements and related notes are provided, beginning on page F-1 of the Annual Report on Form 10-K - The required information is set forth in the consolidated financial statements and notes beginning at page F-1 of the report[253](index=253&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=79&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[253](index=253&type=chunk) [Controls and Procedures](index=80&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2020, with no material changes during the quarter - Management concluded that as of December 31, 2020, the company's disclosure controls and procedures were effective[257](index=257&type=chunk) - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[258](index=258&type=chunk) [Other Information](index=81&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[260](index=260&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=81&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding the company's directors, executive officers, and corporate governance practices is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[262](index=262&type=chunk) [Executive Compensation](index=81&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[263](index=263&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=81&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership and equity compensation plans is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[263](index=263&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=81&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related-party transactions, and director independence is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[263](index=263&type=chunk) [Principal Accounting Fees and Services](index=81&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[263](index=263&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=82&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules.) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K, including corporate governance documents and material agreements - The consolidated financial statements, including the Report of Independent Registered Public Accounting Firm, are filed as part of this report[265](index=265&type=chunk)[267](index=267&type=chunk) - A comprehensive list of exhibits is provided, including corporate governance documents, material agreements such as the Oaktree Credit Agreement, and various stock incentive plans[269](index=269&type=chunk)[270](index=270&type=chunk) [Financial Statements](index=87&type=section&id=Financial%20Statements) The audited consolidated financial statements for 2020 and 2019 are presented with an unqualified auditor's opinion, highlighting increased assets and continued net losses, with detailed disclosures in the notes - The independent auditor, BDO USA, LLP, issued an unqualified opinion on the consolidated financial statements[275](index=275&type=chunk) - The auditor identified the accounting for the **$60.0 million** Oaktree Note and related warrants as a critical audit matter due to its complexity, including the assessment of potential embedded derivatives[277](index=277&type=chunk)[279](index=279&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $233,351 | $136,858 | | Total current assets | $261,571 | $156,252 | | Total assets | $328,834 | $226,422 | | **Liabilities & Equity** | | | | Total current liabilities | $47,959 | $45,616 | | Notes payable, long-term (net) | $51,677 | $77,436 | | Total liabilities | $131,835 | $153,890 | | Total stockholders' equity | $196,999 | $72,532 | Consolidated Statement of Operations Highlights (in thousands) | | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net revenue | $45,599 | $36,629 | | Loss from operations | ($94,270) | ($110,819) | | Net loss | ($102,985) | ($101,660) | | Net loss attributable to common stockholders | ($46,526) | ($39,960) | | Net loss per common share - basic and diluted | ($1.43) | ($1.86) |

Company Strategy & Programs - Fortress Biotech aims to build a pipeline of development-stage/commercial-stage assets and leverage efficient paths to move products forward with partners[2] - The company has 5 revenue-generating dermatology products and over 25 development-stage biotech product candidates[6] - Fortress Biotech focuses on opportunism and diversification across various disease areas and treatment modalities[7] Financial Status & Ownership - As of March 1, 2021, Fortress Biotech's market capitalization was approximately $367 million[51] - As of September 30, 2020, the company's consolidated cash was $220 million, and standalone cash was $974 million[51] - Fortress Biotech owns 93% of Journey on an outstanding share basis and 62% on a fully diluted basis as of January 29, 2021[20] Pipeline & Potential Monetization - Dermatology product revenue grew significantly, with a 331% increase from 2016 to 2017[20] - CUTX-101 for Menkes disease has an estimated peak sales of $175 million and may be eligible for a PRV valued at $75 million to $110 million[29, 28] - Cosibelimab, an anti-PD-L1 mAb, has a potential peak sales revenue between $300 million and $500 million for the initial indication of cutaneous squamous cell carcinoma[23] - MB-106 CD20 CAR T-cell therapy has estimated peak sales in the U S of $750 million to $1 billion[34] - IV Tramadol has an estimated peak sales of $790 million, with Fortress potentially receiving up to $48 million upfront and a CVR payout of 10-20% of gross profits[39, 45] - CAEL-101 for AL Amyloidosis has two ongoing Phase 3 trials and addresses a patient population of approximately 30,000 to 45,000 in the U S and EU[32]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents Fortress Biotech, Inc.'s unaudited condensed consolidated financial statements for the quarter ended September 30, 2020, including balance sheets, statements of operations, equity changes, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2020, the balance sheet shows increased cash and equity, with total assets at **$295,879 thousand** and liabilities at **$119,734 thousand**, driven by financing Condensed Consolidated Balance Sheet Highlights ($ in thousands) | Balance Sheet Item | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $218,389 | $136,858 | | Total current assets | $237,737 | $156,252 | | Total assets | $295,879 | $226,422 | | **Liabilities & Stockholders' Equity** | | | | Total current liabilities | $37,281 | $45,616 | | Total liabilities | $119,734 | $153,890 | | Total stockholders' equity | $176,145 | $72,532 | | Total liabilities and stockholders' equity | $295,879 | $226,422 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the nine months ended September 30, 2020, net revenue increased to **$31,850 thousand**, but net loss attributable to common stockholders widened to **$41,231 thousand** due to higher expenses Condensed Consolidated Statements of Operations Highlights ($ in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $9,475 | $9,772 | $31,850 | $25,499 | | Research and development | $13,298 | $14,571 | $43,868 | $56,355 | | General and administrative | $15,383 | $14,339 | $45,358 | $41,260 | | Loss from operations | ($23,043) | ($22,540) | ($69,967) | ($80,438) | | Net loss | ($29,964) | ($24,970) | ($82,495) | ($68,705) | | Net loss attributable to common stockholders | ($15,547) | ($12,762) | ($41,231) | ($24,468) | | Net loss per common share - basic and diluted | ($0.20) | ($0.22) | ($0.59) | ($0.46) | [Condensed Consolidated Statement of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' equity significantly increased from **$72,532 thousand** to **$176,145 thousand** by September 30, 2020, primarily due to various stock issuances - Total stockholders' equity grew from **$72,532 thousand** to **$176,145 thousand** in the first nine months of 2020[25](index=25&type=chunk)[26](index=26&type=chunk) - Key activities impacting equity include the issuance of common stock from at-the-market offerings (net proceeds of **$43,200 thousand**), issuance of Series A preferred stock (net proceeds of **$35,500 thousand**), and offerings from partner companies (net proceeds of **$87,200 thousand**)[25](index=25&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2020, operating activities used **$63,196 thousand**, while financing activities provided **$135,395 thousand**, leading to a net cash increase of **$66,602 thousand** Condensed Consolidated Statements of Cash Flows Highlights ($ in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($63,196) | ($69,909) | | Net cash (used in) provided by investing activities | ($5,597) | $19,787 | | Net cash provided by financing activities | $135,395 | $119,559 | | **Net increase in cash, cash equivalents and restricted cash** | **$66,602** | **$69,437** | - Major financing activities in the first nine months of 2020 included proceeds from the Oaktree Note (**$60,000 thousand**), partner companies' sale of stock (**$57,700 thousand**), and at-the-market offerings (**$44,800 thousand**), partially offset by over **$90,000 thousand** in debt repayments[38](index=38&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=16&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, liquidity, collaboration agreements, debt facilities including a new **$60 million** Oaktree note, capital raises, segment reporting, and related party transactions - The company's business model involves acquiring, developing, and commercializing products through its partner companies, including Avenue, Checkpoint, Mustang, and Journey Medical[43](index=43&type=chunk)[45](index=45&type=chunk) - In August 2020, Fortress entered into a **$60.0 million** senior secured credit agreement with Oaktree, using the proceeds to repay several existing debt facilities[117](index=117&type=chunk)[122](index=122&type=chunk) - The company operates in two reportable segments: Dermatology Product Sales (via Journey Medical) and Pharmaceutical and Biotechnology Product Development[206](index=206&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operational results, liquidity, and cash flows, highlighting clinical pipeline progress, the IV Tramadol setback, and the new **$60 million** Oaktree loan - Avenue Therapeutics received a Complete Response Letter (CRL) from the FDA for IV Tramadol in October 2020, with InvaGen asserting a Material Adverse Effect due to COVID-19 potentially impacting its acquisition obligation[226](index=226&type=chunk)[228](index=228&type=chunk) - Cyprium intends to begin the rolling submission of its NDA for CUTX-101 for Menkes disease by Q1 2021, following positive topline efficacy results showing an **80% reduction** in the risk of death[230](index=230&type=chunk)[231](index=231&type=chunk) - In August 2020, Fortress secured a **$60 million** loan from Oaktree, used to refinance and pay off existing debt facilities[249](index=249&type=chunk) Comparison of Operations for Nine Months Ended Sep 30 ($ in thousands) | Line Item | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $31,850 | $25,499 | $6,351 | 25% | | Research and development | $43,868 | $56,355 | ($12,487) | (22)% | | General and administrative | $45,358 | $41,260 | $4,098 | 10% | | Loss from operations | ($69,967) | ($80,438) | $10,471 | (13)% | | Net loss attributable to common stockholders | ($41,231) | ($24,468) | ($16,763) | 69% | [Quantitative and Qualitative Disclosures About Market Risks](index=71&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) The company's primary market risk is interest rate fluctuations, but a **100 basis point** change is deemed immaterial to financial instruments and net loss - The primary quantifiable market risk is sensitivity to changes in interest rates[297](index=297&type=chunk) - The company determined that the effect of a **100 basis point** change in interest rates on the value of its financial instruments and the resultant effect on net loss would be immaterial for the periods presented[299](index=299&type=chunk) [Controls and Procedures](index=72&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that as of September 30, 2020, the company's disclosure controls and procedures are effective[301](index=301&type=chunk) - No material changes to internal control over financial reporting occurred during the most recent quarter[302](index=302&type=chunk) [PART II. OTHER INFORMATION](index=72&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=72&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no material legal proceedings - None[304](index=304&type=chunk) [Risk Factors](index=72&type=section&id=Item%201A.%20Risk%20Factors) This section details numerous investment risks across drug development, financing, revenue reliance, business strategy, third-party dependence, intellectual property, commercialization, regulation, and general business, including COVID-19 impacts - **Drug Development Risk:** Most product candidates are in early development stages and may never be successfully commercialized or receive regulatory approval[309](index=309&type=chunk) - **Financing Risk:** The company has a history of operating losses and will require substantial additional funding; the Oaktree credit agreement contains restrictive covenants[338](index=338&type=chunk)[341](index=341&type=chunk) - **Revenue Risk:** The majority of operating income is expected from Journey Medical's dermatology products, and any setback could significantly impair operating results[364](index=364&type=chunk) - **Strategic Risk:** The business model of collaborating with and divesting assets carries risks, including potential loss of long-term value and failure to consummate transactions[396](index=396&type=chunk)[398](index=398&type=chunk) - **Third-Party Reliance Risk:** The company relies heavily on third parties for manufacturing, clinical trials, and development, introducing risks of delays and non-performance[418](index=418&type=chunk)[428](index=428&type=chunk) - **Intellectual Property Risk:** Success depends on obtaining and maintaining patent protection for in-licensed technology, subject to litigation, challenges, and disputes with licensors[442](index=442&type=chunk)[461](index=461&type=chunk) - **COVID-19 Risk:** The pandemic could adversely affect clinical trials, global supply chains, and business operations due to site closures, enrollment delays, and diversion of healthcare resources[499](index=499&type=chunk)[503](index=503&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=133&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[548](index=548&type=chunk) [Defaults Upon Senior Securities](index=134&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities - None[550](index=550&type=chunk) [Mine Safety Disclosures](index=134&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - None[551](index=551&type=chunk) [Other Information](index=134&type=section&id=Item%205.%20Other%20Information) The company reported no other information - None[552](index=552&type=chunk) [Exhibits](index=134&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including the Oaktree Credit Agreement, officer certifications, and XBRL data files - Key exhibits include the Credit Agreement with Oaktree Fund Administration, LLC, and certifications from the CEO and CFO[553](index=553&type=chunk) [Signatures](index=135&type=section&id=SIGNATURES) - The report was duly signed on November 9, 2020, by Lindsay A. Rosenwald, M.D. (Chairman, President and CEO) and Robyn M. Hunter (CFO)[557](index=557&type=chunk)

Fortress Biotech CORPORATE PRESENTATION August 2020 Forward Looking Statements This presentation may contain "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, as amended. For such forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. As used below and throughout this presentation, the words "we", ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Fortress Biotech, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents Fortress Biotech, Inc.'s unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, statements of changes in stockholders' equity, and statements of cash flows for the periods ended June 30, 2020, and December 31, 2019 (balance sheet), and June 30, 2020 and 2019 (income statement, equity, cash flow) [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The Condensed Consolidated Balance Sheets provide a snapshot of the company's financial position as of June 30, 2020, and December 31, 2019 | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total Assets | 268,573 | 226,422 | | Cash and Cash Equivalents | 183,278 | 136,858 | | Total Current Assets | 199,799 | 156,252 | | Total Liabilities | 151,715 | 153,890 | | Total Stockholders' Equity | 116,858 | 72,532 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The Condensed Consolidated Statements of Operations show the company's financial performance for the three and six months ended June 30, 2020 and 2019 | Metric | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | | :------------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net Revenue | 9,457 | 9,250 | 22,375 | 15,727 | | Product Revenue, net | 9,415 | 8,199 | 21,361 | 14,324 | | Research and Development | 15,703 | 18,511 | 30,570 | 41,784 | | Net Loss Attributable to Common Stockholders | (13,314) | (13,098) | (25,684) | (11,706) | | Net Loss per Common Share - Basic and Diluted | (0.19) | (0.24) | (0.39) | (0.23) | [Condensed Consolidated Statement of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) This section details the changes in stockholders' equity for the three and six months ended June 30, 2020 and 2019 | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total Stockholders' Equity | 116,858 | 72,532 | | Stock-based compensation expense (Six Months) | 7,148 | N/A | | Issuance of common stock for at-the-market offering, net (Six Months) | 22,083 | N/A | | Issuance of Series A preferred stock for cash, net (Six Months) | 23,503 | N/A | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The Condensed Consolidated Statements of Cash Flows present the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020 and 2019 | Cash Flow Activity | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :---------------------- | :--------- | | Net Cash Used in Operating Activities | (39,304) | (53,645) | 14,341 | -26.7% | | Net Cash Provided by (Used in) Investing Activities | (2,839) | 23,537 | (26,376) | -112.1% | | Net Cash Provided by Financing Activities | 88,563 | 114,007 | (25,444) | -22.3% | | Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash | 46,420 | 83,899 | (37,479) | -44.7% | [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the unaudited condensed consolidated financial statements, covering the company's organization, significant accounting policies, discontinued operations, collaboration agreements, property and equipment, fair value measurements, licenses acquired, research and clinical trial agreements, intangibles, debt, accrued liabilities, non-controlling interests, net loss per share, stockholders' equity, commitments, related party transactions, segment information, revenues, and income taxes [1. Organization and Description of Business](index=14&type=section&id=1.%20Organization%20and%20Description%20of%20Business) Fortress Biotech, Inc. is a biopharmaceutical company focused on acquiring, developing, and commercializing pharmaceutical and biotechnology products through its own operations, majority-owned subsidiaries, joint ventures, and entities with significant minority ownership - Fortress Biotech is a biopharmaceutical company that acquires, develops, and commercializes products at the Fortress level, through majority-owned subsidiaries, joint ventures, and entities with significant minority ownership[43](index=43&type=chunk) - The company's operations are financed primarily through the sale of equity and debt securities, from the sale of partner companies, and the proceeds from the exercise of warrants and stock options[46](index=46&type=chunk) - Fortress expects to incur substantial losses for several years as it continues to fully develop and prepare regulatory filings and obtain regulatory approvals for its existing and new product candidates[46](index=46&type=chunk) - Current cash and cash equivalents are sufficient to fund operations for at least the next 12 months, but additional funding will be needed for full development and regulatory approvals[46](index=46&type=chunk) - The company does not expect the COVID-19 pandemic to materially impact its operations based on current assessment[46](index=46&type=chunk) [2. Summary of Significant Accounting Policies](index=15&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the significant accounting policies, including the basis of presentation, principles of consolidation, and use of estimates for the unaudited interim condensed consolidated financial statements - Unaudited interim condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions[49](index=49&type=chunk) - The company consolidates subsidiaries where it owns less than 100% but maintains voting control, recording net loss attributable to non-controlling interests[51](index=51&type=chunk) - Adoption of ASU 2018-13 (Fair Value Measurement) on January 1, 2020, did not have a material impact on its condensed consolidated financial statements[57](index=57&type=chunk) - The company is evaluating the impact of ASU 2020-06 (Convertible Instruments), effective for fiscal years after December 15, 2023, and ASU 2019-12 (Income Taxes), effective for fiscal years after December 15, 2020[58](index=58&type=chunk)[60](index=60&type=chunk) - The FASB delayed adoption of ASU 2016-13 (Credit Losses) for smaller reporting companies to calendar year 2023, and the company is assessing its impact[59](index=59&type=chunk) [3. Discontinued Operations](index=16&type=section&id=3.%20Discontinued%20Operations) This note details the cash flows from the sale of the company's investment in National Holdings Corporation (NHLD) for the six months ended June 30, 2019 | Metric | June 30, 2019 ($ in thousands) | | :------------------------------------- | :----------------------------- | | Proceeds from sale of National | 13,089 | | Total cash provided by discontinued investing activities | 13,089 | - The company had no ownership interest in National Holdings Corporation as of June 30, 2020, and 2019[61](index=61&type=chunk) [4. Collaboration and Stock Purchase Agreements](index=18&type=section&id=4.%20Collaboration%20and%20Stock%20Purchase%20Agreements) This section describes key collaboration and stock purchase agreements, including Caelum's Development, Option and Stock Purchase Agreement with Alexion, and Avenue's Stock Purchase and Merger Agreement with InvaGen - Caelum entered a Development, Option and Stock Purchase Agreement with Alexion in January 2019, where Alexion purchased a **19.9% equity interest for $30 million** and obtained a contingent exclusive option to acquire the remaining equity for up to **$500 million**[64](index=64&type=chunk) - An amendment in December 2019 modified Alexion's option terms, provided an additional **$20 million in upfront funding**, and **$60 million for additional equity** upon a development milestone[65](index=65&type=chunk) - Avenue entered a Stock Purchase and Merger Agreement with InvaGen in November 2018, where InvaGen purchased **33.3% of Avenue's fully diluted capital stock for $31.5 million**[66](index=66&type=chunk) - InvaGen is obligated to acquire Avenue for **$180 million** (subject to reductions) upon FDA approval for IV Tramadol[67](index=67&type=chunk) - A Contingent Value Rights Agreement entitles Avenue common shareholders to contingent cash payments based on IV Tramadol net sales milestones, ranging from **10% to 20% of Gross Profit**, with payments terminating by December 31, 2036[72](index=72&type=chunk) [5. Property and Equipment](index=19&type=section&id=5.%20Property%20and%20Equipment) This note details Fortress' property and equipment, net of accumulated depreciation, as of June 30, 2020, and December 31, 2019 | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :------------------------- | :----------------------------- | :----------------------------- | | Property and equipment, net | 12,360 | 12,433 | | Total property and equipment (gross) | 17,949 | 16,919 | | Less: Accumulated depreciation | (5,589) | (4,486) | | Depreciation Expense | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | | :------------------- | :------------------------------------------------ | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Depreciation expense | 600 | 500 | 1,100 | 900 | [6. Fair Value Measurements](index=19&type=section&id=6.%20Fair%20Value%20Measurements) This note details the fair value measurements of Fortress' financial instruments, particularly its investment in Caelum and Cyprium warrant liability | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Fair value of investment in Caelum | 11,148 | 11,148 | | Warrant liabilities | 413 | 27 | - The investment in Caelum was valued using a risk-free rate of return of **1.6%**, volatility of **70%**, and a discount for lack of marketability of **28.7%**[77](index=77&type=chunk) - The change in fair value of derivative liability for the six months ended June 30, 2020, was **$386 thousand**[83](index=83&type=chunk) [7. Licenses Acquired](index=21&type=section&id=7.%20Licenses%20Acquired) This note details the costs incurred for technology licenses, which are expensed as research and development if the technology has not reached technological feasibility | Metric | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | | :------------------- | :------------------------------------------------ | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Total licenses acquired expense | 1,570 | 200 | 1,820 | 650 | | Mustang | 1,300 | 200 | 1,550 | 650 | | Oncogenuity | 270 | — | 270 | — | - Oncogenuity entered a license agreement with Columbia University in May 2020, paying an upfront fee of **$0.3 million** and transferring **1,000,000 shares of Oncogenuity common stock** (valued at **$21,000**)[88](index=88&type=chunk) - Development milestone payments for Oncogenuity's license total up to **$18.0 million** for the initial indication and **$15.3 million** for subsequent indications, plus a **$15 million sales milestone** and low-to mid-single digit royalties[89](index=89&type=chunk) [8. Sponsored Research and Clinical Trial Agreements](index=22&type=section&id=8.%20Sponsored%20Research%20and%20Clinical%20Trial%20Agreements) This note summarizes expenses related to sponsored research and clinical trial agreements for various partner companies | Partner Company | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | | :---------------- | :------------------------------------------------ | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Mustang Total | 2,816 | 1,670 | 4,166 | 3,265 | | Oncogenuity | 100 | — | 100 | — | - Mustang entered a clinical research and support agreement with COH in June 2020 for MB-104, with payments of **$0.8 million** for costs incurred and reimbursements up to **$2.4 million**[95](index=95&type=chunk) - Mustang entered a Data Transfer Agreement with St. Jude in June 2020 for XSCID (MB-107), with an upfront fee of **$1.1 million** paid on July 1, 2020[96](index=96&type=chunk) - Oncogenuity entered a clinical research and support agreement with Columbia in May 2020, with payments up to **$4.8 million** semiannually for five years[98](index=98&type=chunk) [9. Intangibles, net](index=24&type=section&id=9.%20Intangibles,%20net) This note provides a summary of Journey's intangible assets, primarily product licenses, net of accumulated amortization | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :------------------------- | :----------------------------- | :----------------------------- | | Net intangible assets | 6,667 | 7,377 | | Accumulated amortization | (3,267) | (2,557) | | Future Amortization | Six Months Ended Dec 31, 2020 ($ in thousands) | Year Ended Dec 31, 2021 ($ in thousands) | Year Ended Dec 31, 2022 ($ in thousands) | Year Ended Dec 31, 2023 ($ in thousands) | Year Ended Dec 31, 2024 ($ in thousands) | Thereafter ($ in thousands) | Total Amortization ($ in thousands) | | :------------------ | :--------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------------- | :---------------------------------- | | Ximino® | 509 | 1,019 | 1,019 | 1,019 | 1,019 | 1,615 | 6,200 | | Exelderm® | 200 | 267 | — | — | — | — | 467 | | **Total** | **709** | **1,286** | **1,019** | **1,019** | **1,019** | **1,615** | **6,667** | [10. Debt and Interest](index=25&type=section&id=10.%20Debt%20and%20Interest) This note details the company's total debt and interest expense | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total notes payable, net | 85,980 | 84,656 | | Debt Type | June 30, 2020 ($ in thousands) | Interest Rate | Maturity | | :-------------------------------- | :----------------------------- | :------------ | :--------------- | | IDB Note | 14,929 | 2.25% | Aug - 2021 | | 2017 Subordinated Note Financing | 28,356 | 8.00% (9.00% in 2020) | March - 2022 to Sept - 2022 | | 2018 Venture Notes | 21,707 | 8.00% | Aug - 2021 to Sept - 2021 | | 2019 Notes | 9,000 | 12.00% | Sept - 2021 | | Mustang Horizon Notes | 15,750 | 9.00% + 1-month LIBOR > 2.5% | Oct - 2022 | | Interest Expense and Financing Fee | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | | :--------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Total Interest Expense and Financing Fee | 3,059 | 3,106 | 6,184 | 5,575 | [11. Accrued Liabilities and other Long-Term Liabilities](index=27&type=section&id=11.%20Accrued%20Liabilities%20and%20other%20Long-Term%20Liabilities) This note provides a breakdown of accrued expenses and other long-term liabilities | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total accrued expenses | 21,138 | 25,399 | | Total other long-term liabilities | 7,338 | 7,126 | | Accrued Expense Category | June 30, 2020 ($ in thousands) | | :------------------------- | :----------------------------- | | Professional fees | 1,568 | | Salaries, bonus and related benefits | 4,064 | | Research and development | 5,477 | | Accrued coupon expense | 4,630 | - Other long-term liabilities include a **$5.3 million long-term note payable** (net of imputed interest discount) related to Journey's Ximino acquisition as of June 30, 2020[111](index=111&type=chunk) [12. Non-Controlling Interests](index=27&type=section&id=12.%20Non-Controlling%20Interests) This note details the non-controlling interests (NCI) in consolidated entities, which represent the portion of equity in subsidiaries not attributable to Fortress | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :------------------------------------- | :----------------------------- | :----------------------------- | | Total Non-Controlling Interests in Consolidated Entities | 56,381 | 46,317 | | Net Loss Attributable to Non-Controlling Interests (Six Months) | (26,847) | (61,700) | | Partner Company | NCI Equity Share (June 30, 2020, $ in thousands) | Non-controlling Ownership (%) | | :---------------- | :----------------------------------------------- | :---------------------------- | | Mustang | 71,410 | 75.6% | | Checkpoint | 17,334 | 76.9% | - Fortress maintains voting control over Checkpoint, Avenue, and Mustang through ownership of Preferred Class A Shares or Class A Common Shares, leading to their consolidation despite less than 100% ownership[115](index=115&type=chunk) [13. Net Loss per Common Share](index=29&type=section&id=13.%20Net%20Loss%20per%20Common%20Share) This note explains the calculation of basic and diluted net loss per common share and lists potentially dilutive securities excluded from the diluted weighted-average shares outstanding calculation because their inclusion would be anti-dilutive - Basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of Common Stock outstanding, and diluted net loss per share includes common stock equivalents[116](index=116&type=chunk) | Potentially Dilutive Security | Six Months Ended June 30, 2020 (Number of Shares) | | :---------------------------- | :------------------------------------------------ | | Warrants to purchase Common Stock | 904,037 | | Opus warrants to purchase Common Stock | 1,880,000 | | Options to purchase Common Stock | 1,210,502 | | Convertible preferred stock | 1,993,905 | | Unvested Restricted Stock | 14,306,355 | | Unvested Restricted Stock Units | 458,658 | | **Total** | **20,753,457** | [14. Stockholders' Equity](index=29&type=section&id=14.%20Stockholders'%20Equity) This comprehensive note details changes in stockholders' equity, including common stock authorization, stock-based compensation, equity compensation plans, stock options, restricted stock, warrants, capital raises, and a share repurchase program [Common Stock](index=29&type=section&id=Common%20Stock) At the 2020 Annual Meeting, stockholders approved an amendment to increase the number of authorized common stock shares by 50 million to 150 million, with a par value of $0.001 per share - Authorized common stock increased by **50,000,000 shares to 150,000,000 shares** with a par value of **$0.001 per share**, effective June 18, 2020[118](index=118&type=chunk) [Stock-based Compensation](index=30&type=section&id=Stock-based%20Compensation) Stock-based compensation expense for the three months ended June 30, 2020, was $3.7 million, an increase from $3.4 million in the prior year, and for the six months, it was $7.1 million, up from $6.7 million | Metric | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | | :--------------------------------- | :------------------------------------------------ | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Total stock-based compensation expense | 3,748 | 3,373 | 7,148 | 6,682 | - For the six months ended June 30, 2020, approximately **$1.8 million of stock-based compensation expense** was included in research and development, and **$5.4 million** in general and administrative expenses[122](index=122&type=chunk) [Equity Compensation Plans](index=30&type=section&id=Equity%20Compensation%20Plans) Shareholders approved an amendment to the 2013 Stock Incentive Plan, increasing common shares issuable by 3.0 million to 13.0 million - The 2013 Stock Incentive Plan was amended to increase common shares issuable by **3.0 million to 13.0 million**[123](index=123&type=chunk) - As of June 30, 2020, **4.7 million shares** remain to be issued under the Stock Plan[123](index=123&type=chunk) [Stock Options](index=30&type=section&id=Stock%20Options) As of June 30, 2020, Fortress had 1,410,501 options vested and expected to vest, with a weighted-average exercise price of $4.30 and a weighted-average remaining contractual life of 2.84 years | Metric | Number of shares | Weighted average exercise price | Weighted average remaining contractual life (years) | | :--------------------------------------- | :--------------- | :------------------------------ | :-------------------------------------------------- | | Options vested and expected to vest at June 30, 2020 | 1,410,501 | $4.30 | 2.84 | - As of June 30, 2020, Fortress had no unrecognized stock-based compensation expense related to options[125](index=125&type=chunk) [Restricted Stock and Restricted Stock Units](index=32&type=section&id=Restricted%20Stock%20and%20Restricted%20Stock%20Units) As of June 30, 2020, the unvested balance of restricted stock and restricted stock units was 14,015,023 shares, with a weighted-average grant price of $2.44 | Metric | Number of shares | Weighted average grant price | | :-------------------------- | :--------------- | :--------------------------- | | Unvested balance at June 30, 2020 | 14,015,023 | $2.44 | - As of June 30, 2020, the Company had unrecognized stock-based compensation expense related to restricted stock and restricted stock unit awards of approximately **$17.1 million**, expected to be recognized over a weighted-average vesting period of **4.0 years**[128](index=128&type=chunk) [Warrants](index=32&type=section&id=Warrants) As of June 30, 2020, Fortress had 2,841,180 outstanding warrants with a weighted-average exercise price of $3.15 and a remaining contractual life of 2.39 years | Metric | Number of shares | Weighted average exercise price | Weighted average remaining contractual life (years) | | :-------------------------- | :--------------- | :------------------------------ | :-------------------------------------------------- | | Outstanding as of June 30, 2020 | 2,841,180 | $3.15 | 2.39 | | Exercisable as of June 30, 2020 | 2,681,180 | $2.79 | 1.82 | [Employee Stock Purchase Plan](index=32&type=section&id=Employee%20Stock%20Purchase%20Plan) The Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase common stock at 85% of the lower fair market value at the beginning or end of the offering period - As of June 30, 2020, **507,783 shares** have been purchased under the ESPP, with **492,217 shares** available for future sale[130](index=130&type=chunk) | Metric | Six Months Ended June 30, 2020 ($ in thousands) | | :--------------------------------- | :---------------------------------------------- | | Share-based compensation expense | 43 | [Capital Raises](index=32&type=section&id=Capital%20Raises) Fortress Biotech conducted several capital raises, including two underwritten public offerings of its 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock in February and May 2020, raising approximately $25.9 million in gross proceeds - In May 2020, the company closed an underwritten public offering of **555,556 shares of Series A Preferred Stock** (plus option for **83,333 shares**) at **$18.00 per share**, for gross proceeds of approximately **$11.5 million**[131](index=131&type=chunk) - In February 2020, the company closed an underwritten public offering of **625,000 shares of Series A Preferred Stock** (plus option for **93,750 shares**) at **$20.00 per share**, for gross proceeds of approximately **$14.4 million**[132](index=132&type=chunk)[135](index=135&type=chunk) - Total gross proceeds from Series A Preferred Stock offerings as of June 30, 2020, were approximately **$25.9 million**[213](index=213&type=chunk) - For the six months ended June 30, 2020, Fortress issued approximately **9.3 million common shares** through at-the-market (ATM) offerings at an average price of **$2.47 per share**, for gross proceeds of **$23.0 million**[138](index=138&type=chunk) - During the six months ended June 30, 2020, Mustang issued approximately **2.1 million common shares** through its ATM offering for gross proceeds of **$8.0 million**[142](index=142&type=chunk) - During the six months ended June 30, 2020, Checkpoint sold **1,303,282 common shares** through its ATM offering for gross proceeds of approximately **$2.7 million**[147](index=147&type=chunk) [Share Repurchase Program](index=36&type=section&id=Share%20Repurchase%20Program) The Board of Directors approved a share repurchase program for up to $5.0 million of the company's outstanding Preferred Stock, which concluded on May 31, 2020 - The Board of Directors approved a share repurchase program of up to **$5.0 million** of the Company's outstanding Preferred Stock, which ended on May 31, 2020[149](index=149&type=chunk) - As of June 30, 2020, **5,000 Preferred Stock shares** were repurchased and retired under this program for total consideration of **$0.1 million**, net of fees[149](index=149&type=chunk) [15. Commitments and Contingencies](index=36&type=section&id=15.%20Commitments%20and%20Contingencies) This note outlines the company's commitments, primarily operating lease liabilities for its New York office and Mustang's cell processing facility, totaling $25.0 million as of June 30, 2020 | Metric | June 30, 2020 ($ in thousands) | | :----------------------------- | :----------------------------- | | Operating lease liabilities | 25,003 | | Right-of-use assets | 20,675 | | Lease Expense | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | | :-------------- | :------------------------------------------------ | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Total lease expense | 310 | 688 | 913 | 1,085 | - The company has indemnification obligations to its officers and directors for certain events, and to clinical trial sites under certain conditions[157](index=157&type=chunk) - The company may be subject to both insured and uninsured litigation in the ordinary course of business[158](index=158&type=chunk) [16. Related Party Transactions](index=38&type=section&id=16.%20Related%20Party%20Transactions) This note details transactions with related parties, including significant ownership by the Chairman, President, CEO, and Executive Vice Chairman - The Company's Chairman, President and Chief Executive Officer, Lindsay A. Rosenwald, M.D., beneficially owned approximately **11.0%** of the Company's common stock as of June 30, 2020[159](index=159&type=chunk) - The Company's Executive Vice Chairman, Strategic Development, Michael S. Weiss, beneficially owned approximately **11.9%** of the Company's common stock as of June 30, 2020[159](index=159&type=chunk) - Under a shared services agreement, the Company invoiced TG Therapeutics, Inc. (TGTX) **$0.2 million** for both the six months ended June 30, 2020, and 2019[160](index=160&type=chunk) - The **$9.0 million 2019 Notes** (formerly Opus Credit Facility) bear **12% interest per annum** and are held by DAK Capital Inc., Dr. Rosenwald, Mr. Weiss, and affiliated entities, with maturity extended to September 14, 2021[165](index=165&type=chunk)[166](index=166&type=chunk) - Avenue entered a Facility Agreement in June 2020, allowing it to borrow up to **$2 million** from Fortress (**$0.8 million commitment**) and InvaGen (**$1.2 million commitment**) starting October 1, 2020, at a **7% annual interest rate**[168](index=168&type=chunk) - Founders Agreements with partner companies typically include PIK dividends (**2.5% of fully diluted capitalization**) or annual equity fees (Checkpoint: **2.5%**), and Management Services Agreements (MSAs) typically involve an annual consulting fee of **$500 thousand** from partner companies to Fortress[171](index=171&type=chunk)[174](index=174&type=chunk) [17. Segment Information](index=42&type=section&id=17.%20Segment%20Information) Fortress Biotech operates in two reportable segments: Dermatology Product Sales and Pharmaceutical and Biotechnology Product Development - The Company operates in two reportable segments: Dermatology Product Sales and Pharmaceutical and Biotechnology Product Development[175](index=175&type=chunk) | Segment | Net Revenue (Six Months Ended June 30, 2020, $ in thousands) | Segment Income (Loss) (Six Months Ended June 30, 2020, $ in thousands) | | :-------------------------------------- | :--------------------------------------------- | :--------------------------------------------------- | | Dermatology Products Sales | 21,361 | 3,667 | | Pharmaceutical and Biotechnology Product Development | 1,014 | (56,198) | | **Consolidated** | **22,375** | **(52,531)** | | Segment | Intangible Assets, net (June 30, 2020, $ in thousands) | Tangible Assets (June 30, 2020, $ in thousands) | Total Segment Assets (June 30, 2020, $ in thousands) | | :-------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | | Dermatology Products Sales | 6,667 | 19,133 | 25,800 | | Pharmaceutical and Biotechnology Product Development | — | 242,773 | 242,773 | | **Consolidated** | **6,667** | **261,906** | **268,573** | [18. Revenues from Contracts and Significant Customers](index=44&type=section&id=18.%20Revenues%20from%20Contracts%20and%20Significant%20Customers) This note disaggregates total revenue, showing that product revenue primarily comes from Journey's five marketed dermatology products, while related party revenue is from Checkpoint's collaboration with TGTX | Revenue Type | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | | :-------------------- | :------------------------------------------------ | :------------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Product revenue, net | 9,415 | 8,199 | 21,361 | 14,324 | | Revenue – related party | 42 | 1,051 | 1,014 | 1,403 | | **Net Revenue** | **9,457** | **9,250** | **22,375** | **15,727** | - Product revenue is comprised of Journey's five marketed dermatology products: Targadox®, Luxamend®, Ceracade®, Exelderm® and Ximino®[184](index=184&type=chunk) - Related party revenue is from Checkpoint's collaboration with TG Therapeutics, Inc. (TGTX)[184](index=184&type=chunk) - For the six months ended June 30, 2020, one Dermatology Products customer accounted for more than **10.0% of its total gross product revenue** and **12.4% of its total accounts receivable balance**[185](index=185&type=chunk)[186](index=186&type=chunk) [19. Income taxes](index=44&type=section&id=19.%20Income%20taxes) This note discusses the company's income tax policies, including the recognition of deferred tax assets and liabilities and the impact of the CARES Act - The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law on March 27, 2020, including tax provisions related to refundable payroll tax credits, deferment of employer's social security payments, net operating loss utilization, and modifications to net interest deduction limitations[187](index=187&type=chunk) - The company does not believe the CARES Act will have a material impact on its income tax provision for 2020[187](index=187&type=chunk) - The company files a consolidated income tax return with subsidiaries for which it has an **80% or greater ownership interest**; other subsidiaries file separate returns[189](index=189&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Fortress Biotech's financial condition and operational results, highlighting its biopharmaceutical business model, recent product development milestones, and financial performance for the three and six months ended June 30, 2020 and 2019 [Forward-Looking Statements](index=47&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements, identified by words like 'expect,' 'anticipate,' and 'intend,' which are based on current information and subject to substantial risks and uncertainties - All forward-looking statements are based on information available on the date of the report and are subject to substantial risks and uncertainties[194](index=194&type=chunk) - The company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995[194](index=194&type=chunk) - Readers should carefully consider the information under 'Risk Factors' in this Form 10-Q and the Annual Report on Form 10-K[194](index=194&type=chunk) [Overview](index=47&type=section&id=Overview) Fortress Biotech is a biopharmaceutical company focused on acquiring, developing, and commercializing products through its own operations and a network of majority-owned and minority-owned partner companies - Fortress Biotech is a biopharmaceutical company dedicated to acquiring, developing, and commercializing pharmaceutical and biotechnology products and product candidates[195](index=195&type=chunk) - The company operates at the Fortress level, through majority-owned and majority-controlled subsidiaries and joint ventures, and at entities where it maintains significant minority ownership positions[195](index=195&type=chunk) - Fortress has executed arrangements in partnership with leading universities, research institutes, and pharmaceutical companies, including City of Hope, Fred Hutchinson, St. Jude, and AstraZeneca[195](index=195&type=chunk) - Three partner companies are publicly-traded, and two have consummated strategic partnerships with Alexion Pharmaceuticals, Inc. and InvaGen Pharmaceuticals, Inc.[196](index=196&type=chunk) [Recent Events](index=47&type=section&id=Recent%20Events) This section highlights recent operational and corporate developments, including net revenue from marketed dermatology products, progress in late-stage product candidates, early-stage developments, and corporate activities [Marketed Dermatology Products](index=47&type=section&id=Marketed%20Dermatology%20Products) Through its partner company Journey Medical Corporation (JMC), Fortress's marketed dermatology products generated $21.4 million in net revenue during the six months ended June 30, 2020 - Marketed dermatology products generated net revenue of **$21.4 million** for the six months ended June 30, 2020, through Journey Medical Corporation[197](index=197&type=chunk) [Late Stage Product Candidates](index=47&type=section&id=Late%20Stage%20Product%20Candidates) Fortress's late-stage pipeline includes IV Tramadol (Avenue), CUTX-101 (Cyprium), MB-107/MB-207 (Mustang), and Cosibelimab (Checkpoint), all progressing through clinical development and regulatory milestones - IV Tramadol (Avenue) NDA submitted in December 2019, accepted by FDA in February 2020, with a Prescription Drug User Fee Act (PDUFA) goal date of **October 10, 2020**[198](index=198&type=chunk) - CUTX-101 (Cyprium) granted Rare Pediatric Disease Designation for Menkes disease in January 2020; rolling NDA submission expected in the **fourth quarter of 2020**[200](index=200&type=chunk) - MB-107 (Mustang) received Advanced Therapy Medicinal Product (ATMP) classification from EMA in April 2020 and Regenerative Medicine Advanced Therapy (RMAT) designation from FDA in August 2019 for X-linked severe combined immunodeficiency (XSCID)[201](index=201&type=chunk) - Mustang submitted an IND application for a multicenter Phase 2 clinical trial of MB-107 in newly diagnosed infants with XSCID, targeting topline data in the **second half of 2022**[202](index=202&type=chunk) - Mustang expects to file an IND early in **Q4 2020** for MB-207, a registrational multi-center Phase 2 clinical trial in previously transplanted XSCID patients, targeting topline data in the **second half of 2022**[203](index=203&type=chunk) - Cosibelimab (Checkpoint) continues enrollment in its registration-enabling Phase 1 clinical trial for cutaneous squamous cell carcinoma (CSCC), expecting to complete enrollment near the **end of 2020**[204](index=204&type=chunk) - Checkpoint announced in April 2020 that the U.S. Patent and Trademark Office issued a composition of matter patent for Cosibelimab, providing protection through at least **May 2038**[205](index=205&type=chunk) [Early Stage Product Candidates](index=49&type=section&id=Early%20Stage%20Product%20Candidates) Early-stage developments include MB-106 (Mustang), a CD20-targeted CAR T cell therapy, which achieved a complete response in the first subject at the lowest dose in a Phase 1/2 trial, and ONCOlogues (Oncogenuity), a proprietary platform for genetically driven cancers, also being explored for COVID-19 treatment - MB-106 (Mustang), a CD20-targeted CAR T cell therapy, achieved a **complete response** at the lowest starting dose in an ongoing Phase 1/2 clinical trial for relapsed or refractory B-cell non-Hodgkin lymphomas[206](index=206&type=chunk) - In May 2020, Fortress entered an exclusive worldwide licensing agreement with Columbia University to develop novel oligonucleotides (ONCOlogues) for genetically driven cancers[207](index=207&type=chunk) - The ONCOlogues platform is also being explored for its potential to treat novel coronaviruses, such as COVID-19[210](index=210&type=chunk) [General Corporate](index=51&type=section&id=General%20Corporate) Fortress successfully completed two underwritten public offerings of its Series A Preferred Stock in February and May 2020, raising approximately $25.9 million in gross proceeds, and was added to the Russell 3000® index in June 2020 - Fortress raised gross proceeds of approximately **$25.9 million** as of June 30, 2020, through the sale of its Series A Preferred Stock from two underwritten public offerings in February and May 2020[212](index=212&type=chunk)[213](index=213&type=chunk) - From January 1, 2020, through August 5, 2020, the Company issued approximately **11.4 million shares of common stock** for gross proceeds of **$28.9 million** through at-the-market offerings[214](index=214&type=chunk) - In June 2020, Fortress was added to the Russell 3000® index[215](index=215&type=chunk) [Critical Accounting Policies and Use of Estimates](index=51&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section refers to Note 2 of the Condensed Consolidated Financial Statements for details on critical accounting policies and the use of estimates, which are integral to the preparation of the financial statements - Refer to Note 2 to the Condensed Consolidated Financial Statements for details on critical accounting policies and use of estimates[216](index=216&type=chunk) [Results of Operations](index=51&type=section&id=Results%20of%20Operations) This section provides an overview of the company's financial performance, detailing net revenue, cost of goods sold, research and development expenses, and general and administrative expenses [General](index=51&type=section&id=General) For the three and six months ended June 30, 2020, Fortress generated $9.5 million and $22.4 million in net revenue, respectively, primarily from Journey's product sales and Checkpoint's collaboration with TGTX | Metric | Three Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | | :-------------------- | :------------------------------------------------ | :---------------------------------------------- | | Net Revenue | 9,457 | 22,375 | | Cost of goods sold – product revenue | 3,124 | 6,934 | - As of June 30, 2020, the company had an accumulated deficit of **$461.9 million** and expects to continue incurring substantial losses from operations[217](index=217&type=chunk) - The increase in cost of goods sold is attributed to a growth in sales primarily from the expansion of Journey's marketed product portfolio with the addition of Ximino in the second half of 2019[218](index=218&type=chunk) [Research and Development Expenses](index=51&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses for the three months ended June 30, 2020, were $15.7 million, a decrease from $18.5 million in the prior year, while licenses acquired expense increased significantly to $1.6 million | Metric | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | | :--------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Research and development expenses | 15,703 | 18,511 | | Research and development – licenses acquired | 1,570 | 200 | | Noncash, stock-based compensation expense in R&D | 900 | 800 | | Partner Company | Research & Development (Three Months Ended June 30, 2020, $ in thousands) | % of Total | | :---------------- | :-------------------------------------------------------- | :--------- | | Mustang | 9,767 | 62% | | Checkpoint | 3,029 | 19% | | Avenue | 1,219 | 8% | | Fortress | 344 | 2% | | Other | 1,344 | 9% | | **Total** | **15,703** | **100%** | [General and Administrative Expenses](index=53&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses for the three months ended June 30, 2020, increased to $14.5 million from $13.4 million in the prior year | Metric | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | | :--------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | General and administrative expenses | 14,456 | 13,443 | | Noncash, stock-based compensation expense in G&A | 2,900 | 2,600 | | Partner Company | General & Administrative (Three Months Ended June 30, 2020, $ in thousands) | % of Total | | :---------------- | :-------------------------------------------------------- | :--------- | | Fortress | 5,177 | 36% | | JMC | 4,767 | 33% | | Mustang | 1,922 | 13% | | Checkpoint | 1,496 | 10% | | Avenue | 684 | 5% | | Other | 410 | 3% | | **Total** | **14,456** | **100%** | - Cost of outsourced sales force for JMC was **$1.6 million** for the three months ended June 30, 2020[225](index=225&type=chunk) [Comparison of three months ended June 30, 2020 and 2019](index=54&type=section&id=Comparison%20of%20three%20months%20ended%20June%2030,%202020%20and%202019) For the three months ended June 30, 2020, net revenues increased by 2% to $9.5 million, driven by a $1.2 million increase in product revenue from Journey, partially offset by a $1.0 million decrease in related party collaboration revenue | Metric | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------ | :------------------------------------------------ | :------------------------------------------------ | :---------------------- | :--------- | | Net Revenue | 9,457 | 9,250 | 207 | 2% | | Product Revenue, net | 9,415 | 8,199 | 1,216 | 15% | | Revenue – related party | 42 | 1,051 | (1,009) | -96% | | Cost of goods sold – product revenue | 3,124 | 2,386 | 738 | 31% | | Research and development | 15,703 | 18,511 | (2,808) | -15% | | General and administrative | 14,456 | 13,443 | 1,013 | 8% | | Total other expense | (3,067) | (2,190) | (877) | 40% | | Net loss attributable to common stockholders | (13,314) | (13,098) | (216) | 2% | - The decrease in research and development expense is primarily due to a **$5.1 million decrease at Avenue** (completion of studies) and a **$1.1 million decrease at Checkpoint** (reduced manufacturing and clinical costs), partially offset by a **$2.9 million increase at Mustang** (personnel, sponsored research, outside services)[232](index=232&type=chunk) - The increase in general and administrative expenses is primarily attributable to Fortress's increased expenses related to headcount, while Journey's decrease is due to the temporary furlough of its sales force[235](index=235&type=chunk) [Comparison of six months ended June 30, 2020 and 2019](index=57&type=section&id=Comparison%20of%20six%20months%20ended%20June%2030,%202020%20and%202019) For the six months ended June 30, 2020, net revenues increased by 42% to $22.4 million, primarily driven by a $7.0 million increase in Journey's product revenue | Metric | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :---------------------- | :--------- | | Net Revenue | 22,375 | 15,727 | 6,648 | 42% | | Product Revenue, net | 21,361 | 14,324 | 7,037 | 49% | | Revenue – related party | 1,014 | 1,403 | (389) | -28% | | Cost of goods sold – product revenue | 6,934 | 4,270 | 2,664 | 62% | | Research and development | 30,570 | 41,784 | (11,214) | -27% | | General and administrative | 29,975 | 26,921 | 3,054 | 11% | | Total other (expense) income | (5,607) | 14,163 | (19,770) | -140% | | Net income (loss) attributable to common stockholders | (25,684) | (11,706) | (13,978) | 119% | - The decrease in research and development expense is primarily due to a **$14.5 million decrease at Avenue** (completion of studies) and a **$3.0 million decrease at Checkpoint** (reduced manufacturing and clinical costs), partially offset by a **$4.8 million increase at Mustang** (personnel, sponsored research, clinical trial materials)[244](index=244&type=chunk) - The increase in general and administrative expenses is primarily attributable to Journey's sales and marketing cost increases due to the expanded product portfolio, and Fortress's increase due to increased headcount-related costs and professional fees[247](index=247&type=chunk) - The shift in total other income (expense) is primarily due to the **$18.5 million gain on deconsolidation of Caelum** recorded in the prior year[248](index=248&type=chunk) [Liquidity and Capital Resources](index=59&type=section&id=Liquidity%20and%20Capital%20Resources) Fortress Biotech will require additional financing to fully develop product candidates, fund operating losses, and establish commercial capabilities, despite believing current cash is sufficient for the next 12 months - Additional financing will be required to fully develop and prepare regulatory filings for existing and new product candidates, fund operating losses, and establish manufacturing, sales, and marketing capabilities[250](index=250&type=chunk) - The company believes its current cash and cash equivalents are sufficient to fund operations for at least the next **12 months**[250](index=250&type=chunk) - Funding may be sought through equity or debt financings, collaborative arrangements, sales of partner company stakes, or other sources[250](index=250&type=chunk) - Based on current assessment, the company does not expect any material impact on its long-term development timeline and liquidity due to the worldwide spread of the COVID-19 virus[251](index=251&type=chunk) | Cash Flow Activity | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | Change ($ in thousands) | | :----------------------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :---------------------- | | Operating Activities | (39,304) | (53,645) | 14,341 | | Investing Activities | (2,839) | 23,537 | (26,376) | | Financing Activities | 88,563 | 114,007 | (25,444) | | **Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash** | **46,420** | **83,899** | **(37,479)** | - Net cash used in operating activities decreased by **$14.3 million**, primarily due to the decrease of **$18.5 million** in the gain recognized on the deconsolidation of Caelum, offset by increases in cash used from changes in operating assets and liabilities and licenses acquired[254](index=254&type=chunk) - Net cash provided by investing activities decreased by **$26.4 million**, primarily due to a **$17.6 million decrease** in the redemption of certificates of deposit and a **$5.0 million decrease** in the purchase of short-term investments[255](index=255&type=chunk) - Net cash provided by financing activities decreased by **$25.4 million**, with 2020 proceeds from Series A preferred stock (**$23.6 million**), at-the-market offerings (**$32.7 million**), and partner company stock sales (**$34.9 million**), offset by preferred dividends (**$2.8 million**)[256](index=256&type=chunk)[257](index=257&type=chunk) [Off-Balance Sheet Arrangements](index=63&type=section&id=Off-Balance%20Sheet%20Arrangements) Fortress Biotech is not party to any off-balance sheet transactions and has no guarantees or obligations beyond those arising from normal business operations - The company is not party to any off-balance sheet transactions[259](index=259&type=chunk) - The company has no guarantees or obligations other than those which arise out of normal business operations[259](index=259&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risks](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) This section discusses Fortress Biotech's exposure to market risks, primarily interest rate risk, as its assets and liabilities are denominated in U.S. dollars - The primary quantifiable market risk associated with the company's financial instruments is sensitivity to changes in interest rates[262](index=262&type=chunk) - The company's assets and liabilities are denominated in U.S. dollars, and it does not use foreign currency contracts or other derivative instruments for speculative or trading purposes[261](index=261&type=chunk) - Based on analysis, a hypothetical **100 basis point increase in interest rates** would have an immaterial effect on the company's net loss for the years ended December 31, 2018 and 2019, and for the interim period through June 30, 2020[264](index=264&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2020, concluding they are effective - Management, including the principal executive officer and principal financial officer, concluded that disclosure controls and procedures were effective as of June 30, 2020[265](index=265&type=chunk) - No change in internal control over financial reporting occurred during the most recent quarter that materially affected, or is reasonably likely to materially affect, internal controls over financial reporting[266](index=266&type=chunk) [PART II. OTHER INFORMATION](index=65&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no legal proceedings to report - No legal proceedings are reported[269](index=269&type=chunk) [Item 1A. Risk Factors](index=65&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks associated with investing in Fortress Biotech's securities, covering a broad range of potential adverse impacts [Impact of COVID-19 Pandemic](index=65&type=section&id=Major%20public%20health%20issues,%20and%20specifically%20the%20pandemic%20caused%20by%20the%20coronavirus%20COVID-19%20outbreak,%20could%20have%20an%20adverse%20effect%20on%20the%20clinical%20trials%20of%20our%20partner%20companies,%20and%20as%20a%20result,%20have%20an%20adverse%20impact%20on%20our%20financial%20condition%20and%20results%20of%20operations%20and%20other%20aspects%20of%20our%20business.) The COVID-19 pandemic poses significant risks to clinical trials, supply chains, and financial condition - The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial markets[273](index=273&type=chunk) - Factors from the COVID-19 outbreak that may delay or adversely affect clinical trial programs include difficulties in clinical site initiation and patient enrollment, missed study visits, diversion of healthcare resources, and limitations on travel[274](index=274&type=chunk) - Disruptions and delays caused by potential workplace, laboratory, and office closures, and increased reliance on employees working from home, may negatively impact productivity and increase cybersecurity risk[276](index=276&type=chunk)[280](index=280&type=chunk) [Risks Related to our Growth Strategy](index=67&type=section&id=Risks%20Related%20to%20our%20Growth%20Strategy) Fortress's growth strategy, which involves acquisitions, joint ventures, and in-licensing, carries numerous risks including diversion of resources, integration difficulties, and potential inability to secure adequate financing - Acquisitions, joint ventures, and investments in other companies involve numerous risks, including diversion of financial and managerial resources, difficulties in integrating operations, and potential inability to maintain relationships with customers[283](index=283&type=chunk)[285](index=285&type=chunk) - The company's growth strategy depends on its ability to innovate, develop, and commercialize biopharmaceutical products, and failure to do so may prevent revenue generation[287](index=287&type=chunk) - Future growth depends on identifying and acquiring or in-licensing products and product candidates, which entails risks such as exposure to unknown liabilities, business disruption, and difficulty securing financing[288](index=288&type=chunk)[289](index=289&type=chunk) - The company's business depends in large part on the ability of its partner companies to obtain additional third-party financing to fund product development or acquisitions[293](index=293&type=chunk) - Research and development programs require substantial additional capital, and if funds cannot be obtained on favorable terms, product development may be reduced, adversely impacting the growth strategy[294](index=294&type=chunk)[295](index=295&type=chunk) - Collaborative relationships with third parties for R&D and commercialization could cause significant resource expenditure and business risk with no assurance of financial return[296](index=296&type=chunk)[298](index=298&type=chunk)[299](index=299&type=chunk) - Inability to manage anticipated growth, including improving infrastructure and hiring/retaining key officers or employees, may adversely impact the business[303](index=303&type=chunk)[304](index=304&type=chunk)[306](index=306&type=chunk) [Risks Related to Our Biopharmaceutical Business and Industry](index=73&type=section&id=Risks%20Related%20to%20Our%20Biopharmaceutical%20Business%20and%20Industry) The biopharmaceutical business faces inherent risks due to its early-stage nature, heavy reliance on third parties for development and manufacturing, and the complex regulatory landscape - The company is an early-stage biopharmaceutical company with limited operating history and relies heavily on third parties for product development and manufacturing[314](index=314&type=chunk)[315](index=315&type=chunk)[318](index=318&type=chunk) - Failure to establish or maintain sales and marketing capabilities or enter into agreements with third parties could prevent effective marketing and sales of products[320](index=320&type=chunk)[321](index=321&type=chunk) - Even if approved, product candidates may not achieve broad market acceptance among physicians, patients, healthcare payors, and the medical community, limiting revenue[322](index=322&type=chunk)[323](index=323&type=chunk) - Reimbursement may be limited or unavailable, making it difficult to sell products profitably, and legislative/regulatory changes to the healthcare system (e.g., ACA) could adversely affect the business[327](index=327&type=chunk)[330](index=330&type=chunk)[332](index=332&type=chunk) - Relationships with customers and third-party payors are subject to anti-kickback, fraud and abuse, false claims, transparency, and privacy laws, which could expose the company to criminal sanctions, civil penalties, and reputational harm[349](index=349&type=chunk)[350](index=350&type=chunk)[353](index=353&type=chunk) - Most product candidates are at early stages of development and may not be successfully developed or commercialized, as only a small percentage of drugs in development obtain regulatory approval[357](index=357&type=chunk)[358](index=358&type=chunk) - Disputes with licensors or non-performance of license agreements could adversely affect the ability to develop and commercialize product candidates, as intellectual property is in-licensed from third parties[359](index=359&type=chunk)[361](index=361&type=chunk)[365](index=365&type=chunk) - Product candidates advanced into clinical trials may not receive regulatory approval due to insufficient safety or efficacy, disagreements with regulatory authorities, or manufacturing issues[366](index=366&type=chunk)[367](index=367&type=chunk)[375](index=375&type=chunk) - Unacceptable adverse events from product candidates in clinical trials could delay or prevent regulatory approval or commercialization[378](index=378&type=chunk)[379](index=379&type=chunk) - Delays in the commencement or completion of clinical trials increase costs and delay the ability to pursue regulatory approval, potentially leading to denial of approval[381](index=381&type=chunk)[385](index=385&type=chunk) - Reliance on third parties to manufacture preclinical and clinical supplies, and commercial supplies, creates dependence that could adversely impact businesses if manufacturers fail to comply with regulatory requirements or meet supply needs[389](index=389&type=chunk)[390](index=390&type=chunk)[392](index=392&type=chunk) - Reliance on third parties to conduct clinical trials reduces control and could lead to delays or unsuccessful programs if they do not meet deadlines or adhere to protocols[393](index=393&type=chunk)[394](index=394&type=chunk)[397](index=397&type=chunk) - Reliance on clinical and pre-clinical data obtained by third parties carries the risk that such data could ultimately prove to be inaccurate or unreliable[399](index=399&type=chunk)[400](index=400&type=chunk) - The biotechnology and pharmaceutical industries are subject to rapid and intense technological change, and competitors may develop more effective or faster-approved treatments, reducing commercial opportunity[401](index=401&type=chunk)[402](index=402&type=chunk)[406](index=406&type=chunk) - The company faces potential product liability exposure from clinical trials and product sales, which could result in substantial liability and limit commercialization[407](index=407&type=chunk)[408](index=408&type=chunk) - Failure to comply with environmental, health, and safety laws and regulations could lead to fines, penalties, or substantial costs[410](index=410&type=chunk)[413](index=413&type=chunk) - Inability to obtain and maintain patent protection for technology and products, or if the scope is insufficient, could allow competitors to develop similar products, impairing commercialization[414](index=414&type=chunk)[415](index=415&type=chunk)[417](index=417&type=chunk) - Lawsuits for infringing intellectual property rights of third parties are costly and time-consuming, and an unfavorable outcome would materially adversely affect the business[426](index=426&type=chunk)[428](index=428&type=chunk) - Lawsuits to protect or enforce patents are expensive, time-consuming, and may be unsuccessful, potentially invalidating patents or limiting their enforceability[429](index=429&type=chunk)[430](index=430&type=chunk) - The company may be subject to claims that employees/consultants wrongfully used or disclosed alleged trade secrets of former employers, leading to costly litigation[432](index=432&type=chunk)[433](index=433&type=chunk) - Any product with marketing approval could be subject to restrictions or withdrawal from the market, and failure to comply with regulatory requirements could result in penalties[434](index=434&type=chunk)[435](index=435&type=chunk)[437](index=437&type=chunk) - Reliance on information technology means internet or internal computer system failures, inadequacies, interruptions, or compromises of systems could damage reputation and harm business[438](index=438&type=chunk)[439](index=439&type=chunk)[440](index=440&type=chunk) - A catastrophic disaster could damage facilities beyond insurance limits or lead to loss of key data, causing operations to curtail or cease[441](index=441&type=chunk)[442](index=442&type=chunk) - The likelihood, nature, or extent of government regulation from future legislation or administrative/executive action, both in the United States and abroad, is unpredictable and could impact the business[444](index=444&type=chunk)[445](index=445&type=chunk)[446](index=446&type=chunk)[447](index=447&type=chunk)[448](index=448&type=chunk)[449](index=449&type=chunk)[450](index=450&type=chunk)[451](index=451&type=chunk) - Changes in funding for the FDA and other government agencies could hinder their ability to hire personnel or prevent timely development/commercialization of new products[453](

Part I. Financial Information [Unaudited Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This chapter presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, statements of changes in stockholders' equity, and cash flow statements, along with detailed notes providing in-depth explanations of business, accounting policies, collaboration agreements, debt, equity, segment information, and customer revenue [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total Assets Change | Metric | March 31, 2020 (Unaudited, $ in thousands) | December 31, 2019 ($ in thousands) | | :------------- | :----------------------------------------- | :--------------------------------- | | Total Assets | 228,759 | 226,422 | | Change | +2,337 | | | % Change | +1.03% | | Total Liabilities Change | Metric | March 31, 2020 (Unaudited, $ in thousands) | December 31, 2019 ($ in thousands) | | :---------------- | :----------------------------------------- | :--------------------------------- | | Total Liabilities | 153,474 | 153,890 | | Change | -416 | | | % Change | -0.27% | | Total Stockholders' Equity Change | Metric | March 31, 2020 (Unaudited, $ in thousands) | December 31, 2019 ($ in thousands) | | :------------------------- | :----------------------------------------- | :--------------------------------- | | Total Stockholders' Equity | 75,285 | 72,532 | | Change | +2,753 | | | % Change | +3.80% | | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net Revenue Change | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :---------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Net Revenue | 12,918 | 6,477 | 6,441 | 99.45% | Net Loss Change | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Net Loss | (24,068) | (16,255) | (7,813) | 48.07% | Net Income (Loss) Attributable to Common Stockholders Change | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------------ | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Net Income (Loss) Attributable to Common Stockholders | (12,370) | 1,392 | (13,762) | -988.65% | [Condensed Consolidated Statement of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) Total Stockholders' Equity Change | Metric | Balance at December 31, 2019 ($ in thousands) | Balance at March 31, 2020 ($ in thousands) | Change ($ in thousands) | | :------------------------- | :-------------------------------------------- | :----------------------------------------- | :---------------------- | | Total Stockholders' Equity | 72,532 | 75,285 | 2,753 | - In Q1 2020, net proceeds from Series A preferred stock issuance were **$13,067 thousand**, and net proceeds from common stock market offerings were **$5,880 thousand**, which were the primary factors contributing to the increase in stockholders' equity[18](index=18&type=chunk) - Net loss attributable to common stockholders was **($12,370) thousand**, and net loss attributable to non-controlling interests was **($11,698) thousand**, negatively impacting stockholders' equity[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary | Activity | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | | :----------------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | | Operating Activities | (21,892) | (25,325) | 3,433 | | Investing Activities | (1,776) | 24,148 | (25,924) | | Financing Activities | 22,753 | 52,113 | (29,360) | | Net Change | (915) | 50,936 | (51,851) | Cash and Cash Equivalents and Restricted Cash at Period End | Metric | March 31, 2020 ($ in thousands) | March 31, 2019 ($ in thousands) | | :------------------------------------------------ | :------------------------------ | :------------------------------ | | Cash and cash equivalents and restricted cash at end of period | 152,517 | 132,518 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization and Description of Business](index=11&type=section&id=1.%20Organization%20and%20Description%20of%20Business) - Fortress Biotech is a biopharmaceutical company focused on acquiring, developing, and commercializing pharmaceutical products and product candidates, including through its own operations, majority-owned subsidiaries, joint ventures, and entities in which it holds significant minority interests[29](index=29&type=chunk) - The company's operations are primarily financed through proceeds from sales of equity and debt securities, sales by partner companies, and the exercise of warrants and stock options[32](index=32&type=chunk) - The company's current cash and cash equivalents are sufficient to support operations for at least the next 12 months, but additional financing is required for full development and regulatory approval[32](index=32&type=chunk) [2. Summary of Significant Accounting Policies](index=11&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and should be read in conjunction with the company's Form 10-K filed on March 16, 2020[33](index=33&type=chunk)[36](index=36&type=chunk) - The company consolidates its subsidiaries, and for consolidated entities with less than 100% ownership, net loss attributable to non-controlling interests is recorded in the consolidated statements of operations[37](index=37&type=chunk) - The adoption of ASU 2018-13 (Fair Value Measurement) on January 1, 2020, had no material impact on the financial statements; the company is currently evaluating the impact of ASU 2016-13 (Financial Instruments – Credit Losses) and ASU 2019-12 (Income Taxes)[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) [3. Discontinued Operations](index=15&type=section&id=3.%20Discontinued%20Operations) Cash Flows from Discontinued Investing Activities | ($ in thousands) Investing activities | March 31, 2019 | | :----------------------------------- | :------------- | | Proceeds from sale of National | $ 13,089 | | Total cash provided by discontinued investing activities | $ 13,089 | - As of March 31, 2020, the company no longer held any ownership interest in National Holdings Corporation[47](index=47&type=chunk) [4. Collaboration and Stock Purchase Agreements](index=15&type=section&id=4.%20Collaboration%20and%20Stock%20Purchase%20Agreements) - Caelum entered into an agreement with Alexion Therapeutics, Inc., where Alexion purchased a **19.9% minority interest** in Caelum for **$30 million** and obtained a contingent exclusive option to acquire the remaining equity for potential payments up to **$500 million**[48](index=48&type=chunk) - In December 2019, Caelum and Alexion amended their agreement, modifying the acquisition option terms and providing an additional **$20 million** upfront funding and **$60 million** equity investment upon achieving specific development milestones[49](index=49&type=chunk) - Avenue Therapeutics, Inc. entered into an agreement with InvaGen Pharmaceuticals Inc., where InvaGen purchased a **33.3% stake** in Avenue for **$31.5 million** and committed to acquire Avenue for **$180 million** upon FDA approval of IV Tramadol[50](index=50&type=chunk)[51](index=51&type=chunk) - Avenue's stockholders will receive Contingent Value Rights (CVRs) for cash payments based on IV Tramadol achieving specific sales milestones, such as annual net sales exceeding **$325 million** or cumulative net sales exceeding **$1.5 billion**[55](index=55&type=chunk)[56](index=56&type=chunk) [5. Property and Equipment](index=16&type=section&id=5.%20Property%20and%20Equipment) Property and Equipment, Net | Metric | March 31, 2020 (Unaudited, $ in thousands) | December 31, 2019 ($ in thousands) | | :-------------------------- | :----------------------------------------- | :--------------------------------- | | Property and equipment, net | 12,785 | 12,433 | | Change | 352 | | | % Change | 2.83% | | - Depreciation expense for the three months ended March 31, 2020, and 2019, was approximately **$0.5 million** for both periods, recorded in research and development expenses and general and administrative expenses[58](index=58&type=chunk) [6. Fair Value Measurements](index=16&type=section&id=6.%20Fair%20Value%20Measurements) Fair Value of Investment in Caelum | Metric | March 31, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :-------------------------- | :------------------------------ | :--------------------------------- | | Fair value of investment in Caelum | 11,148 | 11,148 | Cyprium Contingent Warrant Issuance Liability Change | Metric | March 31, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------- | :------------------------------ | :--------------------------------- | :---------------------- | :--------- | | Warrant Liabilities (Ending Balance) | 69 | 27 | 42 | 155.56% | - Key assumptions for the fair value of Cyprium's contingent warrant issuance liability include a risk-free interest rate of **0.70%**, an expected term of **10.0 years**, expected volatility of **93%**, and a warrant issuance probability of **10%** as of March 31, 2020[64](index=64&type=chunk) [7. Licenses Acquired](index=19&type=section&id=7.%20Licenses%20Acquired) R&D – Licenses Acquired Expenses | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Total R&D – Licenses Acquired | 250 | 450 | (200) | -44.44% | - Mustang recorded **$250 thousand** in R&D expenses for the COH – HER2 (MB-103) license in Q1 2020, compared to **$450 thousand** for COH – CD123 (MB-102) and Nationwide Children's Hospital – C134 (MB-108) in the same period of 2019[69](index=69&type=chunk) [8. Sponsored Research and Clinical Trial Agreements](index=19&type=section&id=8.%20Sponsored%20Research%20and%20Clinical%20Trial%20Agreements) - Aevitas recorded **$0.3 million** in R&D expenses for sponsored research agreements with the University of Pennsylvania in both Q1 2020 and Q1 2019[70](index=70&type=chunk) - Cellvation recorded no sponsored research expenses in Q1 2020, compared to **$0.1 million** in the same period of 2019[71](index=71&type=chunk) Mustang Sponsored Research and Clinical Trial Agreement R&D Expenses | Program | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | | :----------------------- | :------------------------------------------------- | :------------------------------------------------- | | 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 | | BIDMC – CRISPR | - | 69 | | Total | 1,349 | 1,595 | [9. Intangibles, net](index=21&type=section&id=9.%20Intangibles,%20net) - Journey Medical Corporation acquired Ximino® in July 2019 for a total consideration of **$9.4 million**, comprising **$2.4 million** upfront payment and **$7.0 million** in future installments[75](index=75&type=chunk) - The purchase price of Ximino® was recorded as an intangible asset and will be amortized over seven years[76](index=76&type=chunk) Net Intangible Assets Change | Metric | March 31, 2020 (Unaudited, $ in thousands) | December 31, 2019 ($ in thousands) | | :---------------------- | :----------------------------------------- | :--------------------------------- | | Net intangible assets | 7,022 | 7,377 | | Change | (355) | | | % Change | -4.81% | | - Journey's intangible asset amortization expense was **$355 thousand** in Q1 2020[78](index=78&type=chunk) [10. Debt and Interest](index=22&type=section&id=10.%20Debt%20and%20Interest) Total Notes Payable, Net | Metric | March 31, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :---------------------- | :------------------------------ | :--------------------------------- | | Total notes payable, net | 85,388 | 84,656 | | Change | 732 | | | % Change | 0.86% | | - The 2019 Notes (formerly Opus credit facility) were reallocated to DAK Capital Inc. (**$3.8 million**), Fortress Chairman and CEO Lindsay A. Rosenwald (**$2.9 million**), and Executive Vice Chairman Michael S. Weiss (**$2.3 million**) after OPHIF's dissolution, with unchanged terms[83](index=83&type=chunk)[136](index=136&type=chunk) Total Interest Expense and Financing Fee | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Total Interest Expense and Financing Fee | 3,125 | 2,469 | 656 | 26.57% | - The increase in interest expense was primarily due to Mustang Horizon Notes (from **$11 thousand** to **$600 thousand**) and estimated interest expense related to the Ximino purchase (**$150 thousand** in 2020, zero in 2019)[86](index=86&type=chunk) [11. Accrued Liabilities and other Long-Term Liabilities](index=23&type=section&id=11.%20Accrued%20Liabilities%20and%20other%20Long-Term%20Liabilities) Total Accrued Expenses | Metric | March 31, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :--------------------- | :------------------------------ | :--------------------------------- | | Total accrued expenses | 25,870 | 25,399 | | Change | 471 | | | % Change | 1.85% | | - The increase in accrued expenses was primarily due to increases in R&D – clinical supplies (**$2,055 thousand**) and R&D – milestones (**$850 thousand**)[87](index=87&type=chunk) Total Other Long-Term Liabilities | Metric | March 31, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :-------------------------------- | :------------------------------ | :--------------------------------- | | Total other long-term liabilities | 7,229 | 7,126 | | Change | 103 | | | % Change | 1.45% | | [12. Non-Controlling Interests](index=24&type=section&id=12.%20Non-Controlling%20Interests) Total Non-controlling Interests | Metric | March 31, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :---------------------------------------- | :------------------------------ | :--------------------------------- | | Total Non-controlling Interests | 38,057 | 46,317 | | Change | (8,260) | | | % Change | -17.83% | | - Net loss attributable to non-controlling interests for the three months ended March 31, 2020, was **($11,698) thousand**[92](index=92&type=chunk) - As of March 31, 2020, non-controlling interests in Mustang, Checkpoint, and Avenue were **$31,632 thousand** (**69.0% ownership**), **$12,718 thousand** (**78.4% ownership**), and **$4,464 thousand** (**77.3% ownership**), respectively[92](index=92&type=chunk) [13. Net Loss per Common Share](index=25&type=section&id=13.%20Net%20Loss%20per%20Common%20Share) Net Income (Loss) Attributable to Common Stockholders per Share | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :----- | :-------------------------------- | :-------------------------------- | | Basic | $(0.19) | $0.03 | | Diluted | $(0.19) | $0.02 | - For the three months ended March 31, 2020, both basic and diluted weighted-average common shares outstanding were **63,496,256 shares**[15](index=15&type=chunk) - As of March 31, 2020, a total of **20,365,504 potentially dilutive securities** (including warrants, options, convertible preferred stock, and unvested restricted stock/units) were excluded from the diluted loss per share calculation due to their anti-dilutive effect[98](index=98&type=chunk) [14. Stockholders' Equity](index=27&type=section&id=14.%20Stockholders'%20Equity) Total Stock-Based Compensation Expense | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Total stock-based compensation | 3,400 | 3,309 | 91 | 2.75% | - Mustang's stock-based compensation expense increased from **$432 thousand** in 2019 to **$805 thousand** in 2020[101](index=101&type=chunk) - In Q1 2020, the company received **$6.1 million** in gross proceeds from common stock market offerings and approximately **$14.4 million** in gross proceeds from the public offering of Series A preferred stock[110](index=110&type=chunk)[112](index=112&type=chunk) - The company's Board of Directors approved a repurchase program for up to **$5 million** of preferred stock, with **$0.1 million** repurchased as of March 31, 2020[120](index=120&type=chunk) [15. Commitments and Contingencies](index=30&type=section&id=15.%20Commitments%20and%20Contingencies) - As of March 31, 2020, the company's operating lease liabilities were **$23.7 million**, and right-of-use assets were **$21.1 million**[121](index=121&type=chunk) Total Lease Cost | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--------------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Total lease cost | 603 | 345 | 258 | 74.78% | - As of March 31, 2020, the weighted-average remaining lease term for operating leases was **6.1 years**, with a weighted-average discount rate of **6.2%**[125](index=125&type=chunk) [16. Related Party Transactions](index=32&type=section&id=16.%20Related%20Party%20Transactions) - As of March 31, 2020, Dr. Lindsay A. Rosenwald, Chairman, President, and CEO, beneficially owned **11.9%** of the company's outstanding common stock, and Michael S. Weiss, Executive Vice Chairman, beneficially owned **13.0%**[130](index=130&type=chunk) - The company has a shared services agreement with TGTX for R&D employee costs, invoicing TGTX **$0.1 million** in both Q1 2020 and Q1 2019[131](index=131&type=chunk) - The 2019 Notes (formerly Opus credit facility) were reallocated to DAK Capital Inc. (**$3.8 million**), Lindsay A. Rosenwald (**$2.9 million**), and Michael S. Weiss (**$2.3 million**) after OPHIF's dissolution[136](index=136&type=chunk) - The company has management services agreements (MSAs) with several subsidiaries, charging an annual consulting fee of **$0.5 million**, though Avenue's MSA has been waived and Tamid's MSA terminated[143](index=143&type=chunk) [17. Segment Information](index=36&type=section&id=17.%20Segment%20Information) Segment Net Revenue (Q1 2020) | Segment | Net Revenue ($ in thousands) | | :----------------------------------------- | :--------------------------- | | Dermatology Products Sales | 11,946 | | Pharmaceutical and Biotechnology Product Development | 972 | | Consolidated | 12,918 | Segment Income (Loss) (Q1 2020) | Segment | Segment Income (Loss) ($ in thousands) | | :----------------------------------------- | :------------------------------------- | | Dermatology Products Sales | 2,297 | | Pharmaceutical and Biotechnology Product Development | (26,365) | | Consolidated | (24,068) | Segment Assets (March 31, 2020) | Segment | Total Segment Assets ($ in thousands) | | :----------------------------------------- | :------------------------------------ | | Dermatology Products Sales | 30,572 | | Pharmaceutical and Biotechnology Product Development | 198,187 | | Consolidated | 228,759 | [18. Revenues from Contracts and Significant Customers](index=36&type=section&id=18.%20Revenues%20from%20Contracts%20and%20Significant%20Customers) Net Revenue Breakdown | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Product revenue, net | 11,946 | 6,125 | 5,821 | 95.03% | | Revenue – related party | 972 | 352 | 620 | 176.14% | | Net Revenue | 12,918 | 6,477 | 6,441 | 99.45% | - In Q1 2020, two dermatology product customers accounted for **$7.7 million** and **$5.1 million** of total gross product revenue[149](index=149&type=chunk) - As of March 31, 2020, two dermatology product customers accounted for **$5.4 million** and **$2.5 million** of the total accounts receivable balance[152](index=152&type=chunk) [19. Income Taxes](index=38&type=section&id=19.%20Incomes%20taxes) - The company currently does not believe the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) will have a material impact on its 2020 income tax provision[153](index=153&type=chunk) - The company files consolidated income tax returns with subsidiaries in which it holds an **80% or greater ownership interest**, while other subsidiaries file separately[155](index=155&type=chunk) - Income tax expense is calculated based on an estimated annual effective tax rate[156](index=156&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This chapter discusses the company's financial condition and results of operations for the three months ended March 31, 2020, highlighting significant net revenue growth but expanded net loss due to the absence of non-recurring gains from the prior year, with changes in R&D and SG&A expenses, and emphasizing future financing needs and COVID-19 impact assessment [Overview](index=39&type=section&id=Overview) - Fortress Biotech is a biopharmaceutical company dedicated to acquiring, developing, and commercializing pharmaceutical products and product candidates through its own operations, majority-owned subsidiaries, joint ventures, and entities in which it holds significant minority interests[159](index=159&type=chunk) - The company collaborates with top universities, research institutions, and pharmaceutical companies, such as City of Hope, Fred Hutchinson Cancer Research Center, and AstraZeneca, through its partner companies to license or acquire product and candidate arrangements[159](index=159&type=chunk) [Recent Events](index=39&type=section&id=Recent%20Events) - Journey Medical Corporation generated **$11.9 million** in net revenue from its marketed products in Q1 2020[161](index=161&type=chunk) - Avenue Therapeutics, Inc.'s New Drug Application (NDA) for IV Tramadol has been accepted by the FDA, with a target action date of **October 10, 2020**[162](index=162&type=chunk) - Cyprium Therapeutics, Inc.'s Copper Histidinate (CUTX-101) received FDA Rare Pediatric Disease Designation, potentially qualifying for a Priority Review Voucher[163](index=163&type=chunk) - Mustang Bio, Inc.'s MB-107 received Advanced Therapy Medicinal Product (ATMP) classification from the European Medicines Agency (EMA) and an IND application for a Phase 2 clinical trial for XSCID was submitted[165](index=165&type=chunk)[166](index=166&type=chunk) - Checkpoint Therapeutics, Inc.'s Cosibelimab was granted a compound patent by the U.S. Patent and Trademark Office, providing protection until at least **May 2038**[169](index=169&type=chunk) - The company entered into a global exclusive license agreement with Columbia University for the ONCOlogues platform to develop novel oligonucleotides for gene-driven cancers and explore their potential for COVID-19 treatment[171](index=171&type=chunk)[172](index=172&type=chunk) - Fortress completed a public offering of Series A Cumulative Redeemable Perpetual Preferred Stock in February 2020, generating approximately **$14.4 million** in gross proceeds[174](index=174&type=chunk) [Critical Accounting Policies and Use of Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) - Refer to Note 2 of the condensed consolidated financial statements for this section's content[175](index=175&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Net Revenue Change | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :---------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Net Revenue | 12,918 | 6,477 | 6,441 | 99% | Cost of Goods Sold – Product Revenue Change | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :--------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Cost of goods sold – product revenue | 3,810 | 1,884 | 1,926 | 102% | Research and Development Expense Change | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | Research and development | 14,867 | 23,273 | (8,406) | -36% | - Avenue's R&D expenses decreased by **$9.4 million**, primarily due to the completion of its abdominoplasty and safety studies; Checkpoint's R&D expenses decreased by **$1.9 million**, mainly due to reduced Cosibelimab manufacturing costs and CK-101 clinical expenses incurred in 2019[191](index=191&type=chunk) - Mustang's R&D expenses increased by **$2.0 million**, primarily due to higher personnel costs, lab supplies, and consulting and external services[191](index=191&type=chunk) General and Administrative Expense Change | Metric | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :------------------------------------ | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | :--------- | | General and administrative | 15,519 | 13,478 | 2,041 | 15% | - The increase in general and administrative expenses was primarily attributable to higher sales and marketing costs at Journey (due to product portfolio expansion and increased sales personnel) and increased professional service fees, legal, and accounting fees at Fortress[193](index=193&type=chunk) - Net loss attributable to common stockholders increased by **$13.8 million** (**989%**), primarily due to the absence of the Caelum deconsolidation gain in Q1 2019[195](index=195&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) - The company requires additional financing to fully develop and obtain regulatory approval for existing and new product candidates, fund operating losses, and establish or acquire manufacturing, sales, and marketing capabilities for potential products through third parties[197](index=197&type=chunk) - The company believes its current cash and cash equivalents are sufficient to support operations for at least the next 12 months[197](index=197&type=chunk) Cash Flow Summary | Activity | Three Months Ended March 31, 2020 ($ in thousands) | Three Months Ended March 31, 2019 ($ in thousands) | Change ($ in thousands) | | :----------------- | :------------------------------------------------- | :------------------------------------------------- | :---------------------- | | Operating Activities | (21,892) | (25,325) | 3,433 | | Investing Activities | (1,776) | 24,148 | (25,924) | | Financing Activities | 22,753 | 52,113 | (29,360) | | Net Change | (915) | 50,936 | (51,851) | - Net cash used in investing activities decreased by **$25.9 million**, primarily due to **$13.1 million** from the sale of National in Q1 2019 and a **$12.6 million** decrease in short-term investment purchases[202](index=202&type=chunk) - Net cash provided by financing activities decreased by **$29.4 million**, with Q1 2020 primarily driven by **$13.2 million** in net proceeds from Series A preferred stock issuance and **$10.8 million** in net proceeds from market offerings[203](index=203&type=chunk) [Off-Balance Sheet Arrangements](index=49&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company has no off-balance sheet transactions, guarantees, or other obligations beyond those arising from normal business operations[204](index=204&type=chunk) [Quantitative and Qualitative Disclosures About Market Risks](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) The company primarily faces market risk from interest rate fluctuations, but a hypothetical 100 basis point increase is not deemed to significantly impact net loss, with all assets and liabilities denominated in USD and no use of foreign exchange contracts or derivatives for speculation or trading - The company's primary quantitative market risk for financial instruments is sensitivity to changes in interest rates[207](index=207&type=chunk) - Based on analysis, the impact of a hypothetical 100 basis point increase in interest rates on the value of the company's financial instruments and its net loss is considered insignificant[209](index=209&type=chunk) - The company's assets and liabilities are denominated in U.S. dollars, and it does not use foreign exchange contracts or other derivative instruments to manage exchange rate fluctuations[206](index=206&type=chunk) [Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2020, the company's management assessed and determined its disclosure controls and procedures to be effective, with no significant changes in internal control over financial reporting during the quarter - As of March 31, 2020, the company's management (including the Chief Executive Officer and Chief Financial Officer) assessed and determined its disclosure controls and procedures to be effective[210](index=210&type=chunk) - No significant changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[212](index=212&type=chunk) Part II. Other Information [1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) The company currently has no legal proceedings requiring disclosure - None[215](index=215&type=chunk) [1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) Investing in the company's securities involves high risks, including potential adverse impacts of the COVID-19 pandemic on clinical trials and business operations. The company's growth strategy faces challenges in integrating acquisitions, financing, talent retention, and managing expansion. Biopharmaceutical business risks include regulatory approval uncertainties, product liability, intellectual property disputes, and intense competition. Financial risks encompass continuous losses, substantial financing needs, debt obligations, and stock price volatility. Additionally, government regulation and market acceptance pose significant risks - The COVID-19 pandemic may cause delays or adverse impacts on clinical trial programs, including difficulties in clinical site initiation, delayed patient enrollment, missed study visits or procedures, diversion of healthcare resources, and delays in regulatory approvals[217](index=217&type=chunk)[220](index=220&type=chunk)[222](index=222&type=chunk) - The company's growth strategy involves acquisitions, joint ventures, and investments in other companies, which presents risks of entering new markets, resource dispersion, integration difficulties, financing uncertainties, and failure to realize anticipated benefits[228](index=228&type=chunk)[229](index=229&type=chunk)[234](index=234&type=chunk) - As an early-stage biopharmaceutical company, the company has a limited operating history, relies heavily on third parties for product development and manufacturing, and has not yet demonstrated its ability to commercialize any pre-market product candidates[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk) - The company relies on intellectual property licensed from third parties, and any disputes with licensors or non-performance of license agreements could adversely affect the development and commercialization of product candidates[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk) - The company faces product liability risks, and successful claims could result in substantial liabilities, disruption of clinical trials, decreased product demand, reputational damage, and limited commercialization[355](index=355&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk) - The company has a history of recurring operating losses and expects to continue incurring significant operating losses and interest expenses in the future, with no predictability as to when profitability might be achieved[411](index=411&type=chunk)[412](index=412&type=chunk) - The company requires substantial additional capital, and failure to raise necessary funds in a timely manner may force it to delay, scale back, or cancel R&D programs, commercialization efforts, or planned acquisitions, potentially altering its growth strategy[434](index=434&type=chunk)[435](index=435&type=chunk) [2. Unregistered Sales of Equity Securities and Use of Proceeds](index=92&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds during this reporting period - None[462](index=462&type=chunk) [3. Defaults Upon Senior Securities](index=92&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during this reporting period - None[463](index=463&type=chunk) [4. Mine Safety Disclosures](index=92&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There were no mine safety disclosures during this reporting period - None[464](index=464&type=chunk) [5. Other Information](index=92&type=section&id=Item%205.%20Other%20Information) There is no other information requiring disclosure during this reporting period - None[465](index=465&type=chunk) [6. Exhibits](index=92&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with Form 10-Q, including certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL taxonomy extension files - Exhibits include certifications by the Chairman, President, and Chief Executive Officer, and the Chief Financial Officer, filed pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[467](index=467&type=chunk) - Exhibits also include XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, Label Linkbase Document, and Presentation Linkbase Document[467](index=467&type=chunk) Signatures - This report was signed on May 11, 2020, by Lindsay A. Rosenwald, M.D., Chairman, President, and Chief Executive Officer, and Robyn M. Hunter, Chief Financial Officer[470](index=470&type=chunk)[471](index=471&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Title of Class Trading Symbol(s) Exchange Name Common Stock FBIO Nasdaq Capital Market 9.375% Series A Cumulative Redeemable Perpetual Preferred StockFBIOP Nasdaq Capital Market FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2019 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period f ...