Fortress Biotech(FBIO) - 2019 Q3 - Quarterly Report

Form 10-Q Filing Information This section details the company's Form 10-Q filing specifics, including the reporting period, filer classification, and outstanding share information - The report is a Quarterly Report on Form 10-Q for the period ended September 30, 2019[2] - Fortress Biotech, Inc. is classified as an accelerated filer and a smaller reporting company[3] Outstanding Shares as of November 8, 2019 | Class of Stock | Outstanding Shares | | :------------- | :----------------- | | Common Stock | 70,780,103 | | Preferred Stock | 1,039,292 | PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Unaudited Condensed Financial Statements This section presents the unaudited condensed consolidated financial statements for Fortress Biotech, Inc. and its subsidiaries, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with accompanying notes. These statements are prepared in accordance with GAAP for interim financial information Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Total Assets | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 221,588 | | Dec 31, 2018 | 140,993 | Total Liabilities | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 146,588 | | Dec 31, 2018 | 121,250 | Total Stockholders' Equity | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 75,000 | | Dec 31, 2018 | 19,743 | Cash and Cash Equivalents | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 134,945 | | Dec 31, 2018 | 65,508 | Condensed Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, including net revenue, net loss, and other operational results Net Revenue | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | YoY Change (%) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | :------------- | | Three Months | 9,772 | 5,173 | 4,599 | 89% | | Nine Months | 25,499 | 17,891 | 7,608 | 43% | Net Loss Attributable to Common Stockholders | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | YoY Change (%) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | :------------- | | Three Months | (12,762) | (16,638) | 3,876 | -23% | | Nine Months | (24,468) | (59,267) | 34,799 | -59% | Loss from Continuing Operations (Nine Months) | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | YoY Change (%) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | :------------- | | Nine Months | (68,705) | (96,167) | 27,462 | -29% | - A gain of $18,521 thousand was recorded on the deconsolidation of Caelum for the nine months ended September 30, 2019[15] Condensed Consolidated Statement of Changes in Stockholders' Equity This section details the changes in the company's equity over time, reflecting capital contributions, net income/loss, and other equity adjustments Total Stockholders' Equity | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 75,000 | | Dec 31, 2018 | 19,743 | - Additional paid-in capital increased from $397,408 thousand at December 31, 2018, to $445,966 thousand at September 30, 2019[19] - Non-controlling interests increased from $17,891 thousand at December 31, 2018, to $49,205 thousand at September 30, 2019[19] Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities, illustrating the company's liquidity Net Cash Used in Operating Activities | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | | Nine Months | (69,909) | (76,688) | 6,779 (decrease in use) | Net Cash Provided by Investing Activities | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | | Nine Months | 19,787 | 5,302 | 14,485 | Net Cash Provided by Financing Activities | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | | Nine Months | 119,559 | 52,340 | 67,219 | Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | | Nine Months | 69,437 | (19,046) | 88,483 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements, clarifying accounting policies and specific transactions Note 1. Organization and Description of Business This note describes Fortress Biotech's core business as a biopharmaceutical company and its financial outlook, including expected losses and funding needs - 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 significant minority ownerships[40] - The company has incurred losses from operations and negative cash flows since inception and expects to continue to incur substantial losses for the next several years[43] - Current cash and cash equivalents are sufficient to fund operations for at least the next 12 months, but additional funding will be needed for product development and commercialization[43] Note 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements, including GAAP compliance and recent accounting standard adoptions - The unaudited interim condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information[44] - The National Holdings Corporation segment was classified as discontinued operations as of December 31, 2018[51] - Effective January 1, 2019, the company adopted ASC 842, Leases, recording a right-of-use asset of $23.0 million and a lease liability of $26.8 million, and ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, with no material impact[61][63] Note 3. Discontinued Operations This note details the classification and financial impact of the National Holdings Corporation segment as discontinued operations, including proceeds from its sale - The National Holdings Corporation segment was classified as discontinued operations as of December 31, 2018, with no activity related to National in 2019[51][68] - During the nine months ended September 30, 2019, the company received $13.1 million from the sale of its remaining ownership of National, resulting in no assets held for sale on its balance sheets as of September 30, 2019[73] Income (Loss) from Discontinued Operations (Nine Months) | Period | Sep 30, 2018 ($ in thousands) | | :----- | :---------------------------- | | Nine Months | (6,354) | Note 4. Collaboration and Stock Purchase Agreements This note describes significant agreements with Caelum and Avenue, including deconsolidation, equity interests, and contingent acquisition options - In January 2019, Caelum, a subsidiary, entered into a Development, Option and Stock Purchase Agreement with Alexion, leading to Fortress deconsolidating Caelum and recording an $18.5 million gain[74][79] - Fortress now owns approximately 40% of Caelum's outstanding capital stock following the deconsolidation[74] - Avenue, a partner company, entered into a Stock Purchase and Merger Agreement with InvaGen, selling a 33.3% equity interest for $31.5 million and granting Alexion a contingent exclusive option to acquire the remaining equity for $180 million upon FDA approval of IV Tramadol[80][81] Note 5. Property and Equipment This note provides details on the company's property and equipment, including net values and depreciation expenses over the reporting periods Net Property and Equipment | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 12,152 | | Dec 31, 2018 | 12,019 | Depreciation Expense (Nine Months) | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | | :----- | :---------------------------- | :---------------------------- | | Nine Months | 1,400 | 900 | Note 6. Fair Value Measurements This note explains the fair value estimation for financial instruments, particularly the investment in Caelum, and the treatment of convertible notes and warrant liabilities - The fair value of the investment in Caelum was estimated to be $11.2 million as of September 30, 2019[91][97] - Caelum's convertible notes automatically converted into common shares, and the warrant liability was issued in connection with the DOSPA, thus neither existed as of September 30, 2019[92][97] Level 3 Financial Instruments Roll-forward (Nine Months Ended Sep 30, 2019) | Item | Balance Dec 31, 2018 ($ in thousands) | Conversion/Issuance ($ in thousands) | Fair Value of Investment ($ in thousands) | Balance Sep 30, 2019 ($ in thousands) | | :--- | :------------------------------------ | :----------------------------------- | :---------------------------------------- | :------------------------------------ | | Investment in Caelum | - | - | 11,193 | 11,193 | | Caelum Convertible Note | 9,914 | (9,914) | - | - | | Warrant Liabilities | 991 | (991) | - | - | | Total | 10,905 | (10,905) | 11,193 | 11,193 | Note 7. Licenses Acquired This note details the accounting treatment for technology licenses and the expenses incurred by subsidiaries for various intellectual property rights - Costs incurred in obtaining technology licenses are charged to research and development expense if the technology has not reached technological feasibility and has no alternative future use[101] Total Licenses Acquired Expense (Nine Months) | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | YoY Change (%) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | :------------- | | Nine Months | 1,350 | 3,804 | (2,454) | -65% | - Mustang Bio incurred $1.35 million in license expenses for the nine months ended September 30, 2019, including fees for Calimmune, Nationwide, UCLA, PSCA, CD123, and CS1 licenses[106][107][108][109][110][111][113] Note 8. Sponsored Research and Clinical Trial Agreements This note outlines expenses related to sponsored research and clinical trial agreements with various institutions for Aevitas, Mustang, and Cellvation Aevitas Sponsored Research Expenses (Nine Months) | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | | :----- | :---------------------------- | :---------------------------- | | UMass - AAV | - | 564 | | UPenn - AAV | 755 | 250 | | Duke - AAV | 17 | - | | Total | 772 | 814 | Mustang Sponsored Research and Clinical Trial Expenses (Nine Months) | Item | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | | :--- | :---------------------------- | :---------------------------- | | City of Hope | 1,500 | 1,500 | | City of Hope - CD123 | 1,028 | 387 | | City of Hope - IL13Rα2 | 811 | 849 | | City of Hope - Manufacturing | 343 | 344 | | Fred Hutch - CD20 | 690 | 938 | | BIDMC - CRISPR | 69 | 69 | | Total | 4,441 | 4,087 | - Cellvation recorded $0.1 million and $0.2 million in research and development expense for its sponsored research arrangement with the University of Texas for the three and nine months ended September 30, 2019, respectively[119] Note 9. Intangibles, net This note details the acquisition of Ximino® by Journey Medical Corporation, its recording as an intangible asset, and related amortization expenses - Journey Medical Corporation purchased Ximino®, a minocycline hydrochloride used to treat acne, for $9.4 million in July 2019, with an upfront payment of $2.4 million and remaining payments of $7.0 million due in consecutive years[123] - The purchase of Ximino was recorded as an intangible asset of $7.1 million (net of a $2.3 million imputed interest discount) to be amortized over seven years[125][126] Net Intangible Assets | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 7,731 | | Dec 31, 2018 | 1,417 | Amortization Expense (Nine Months Ended Sep 30, 2019) | Item | Amount ($ in thousands) | | :--- | :---------------------- | | Amortization expense | 820 | Note 10. Debt and Interest This note provides information on the company's total debt, maturity extensions for existing agreements, and new venture debt financing arrangements Total Debt (Net of Discount) | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 84,014 | | Dec 31, 2018 | 79,503 | - The company extended the maturity dates for the 2017 Subordinated Note Financing ($28.4 million) by one year and the Opus Credit Agreement by one year to September 12, 2020[132][138] - Mustang entered into a $20.0 million venture debt financing agreement with Horizon Technology Finance Corporation, with $15.0 million funded in March 2019, accruing interest at 9.00% plus LIBOR, and maturing October 1, 2022[139][140] Interest Expense and Financing Fee (Nine Months) | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | YoY Change (%) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | :------------- | | Nine Months | 8,743 | 7,650 | 1,093 | 14% | Note 11. Leases This note details the company's major lease liabilities, including office and facility leases, and the associated right-of-use assets and total lease costs - The company's major lease liabilities are for its New York City office (expires 2031) and Mustang's Worcester, MA cell processing facility (expires 2026)[158] Operating Lease Liabilities and Right-of-Use Assets (Sep 30, 2019) | Item | Amount ($ in thousands) | | :--- | :---------------------- | | Operating lease liabilities | 25,909 | | Right-of-use assets | 21,900 | Total Lease Cost (Nine Months Ended Sep 30, 2019) | Item | Amount ($ in thousands) | | :--- | :---------------------- | | Operating lease cost | 2,397 | | Shared lease costs | (1,408) | | Variable lease cost | 575 | | Total lease cost | 1,564 | Note 12. Accrued Liabilities and other Long-Term Liabilities This note presents the company's accrued expenses and other long-term liabilities, including a specific note payable related to the Ximino® acquisition Total Accrued Expenses | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 19,405 | | Dec 31, 2018 | 16,360 | Other Long-Term Liabilities | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 7,025 | | Dec 31, 2018 | 5,211 | - As of September 30, 2019, Journey recorded a long-term note payable of $4.842 million (net of imputed interest discount) in connection with its acquisition of Ximino[164][165] Note 13. Non-Controlling Interests This note details the total non-controlling interests, identifying Mustang Bio and Avenue Therapeutics as the largest, and notes Caelum's deconsolidation Total Non-Controlling Interests | Date | Amount ($ in thousands) | | :--- | :---------------------- | | Sep 30, 2019 | 49,205 | | Dec 31, 2018 | 17,891 | - Mustang Bio and Avenue Therapeutics represent the largest non-controlling interests, with $43.846 million (70.2% ownership) and $9.245 million (77.3% ownership) respectively, as of September 30, 2019[167] - Effective January 30, 2019, Caelum ceased to be a controlled Fortress entity and is no longer consolidated[170] Note 14. Net Loss per Common Share This note presents the basic and diluted net loss per common share, along with the weighted average shares outstanding, and explains anti-dilutive exclusions Net Loss per Common Share (Basic and Diluted) | Period | Sep 30, 2019 | Sep 30, 2018 | | :----- | :----------- | :----------- | | Three Months | $(0.22) | $(0.37) | | Nine Months | $(0.46) | $(1.36) | - Common stock equivalents (unvested restricted stock, options, and warrants) were excluded from diluted net loss per share computations as their effect would be anti-dilutive[173][174] Weighted Average Common Shares Outstanding (Basic and Diluted) | Period | Sep 30, 2019 | Sep 30, 2018 | | :----- | :----------- | :----------- | | Nine Months | 53,060,565 | 43,578,763 | Note 15. Stockholders' Equity This note details stock-based compensation expenses, unrecognized compensation, and capital raises through common stock offerings by Fortress and its subsidiaries Total Stock-Based Compensation Expense (Nine Months) | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | YoY Change (%) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | :------------- | | Nine Months | 10,423 | 12,053 | (1,630) | -13.5% | - As of September 30, 2019, unrecognized stock-based compensation expense was approximately $12.7 million for restricted stock (over 5.0 years) and $1.8 million for restricted stock units (over 2.0 years)[179] - Capital raises for the nine months ended September 30, 2019, included $15.1 million gross proceeds from common stock at-the-market offerings and $31.6 million gross proceeds from Mustang's public offering of common stock[184][198] Note 16. Commitments and Contingencies This note outlines the company's indemnification obligations to officers, directors, and clinical trial sites, and its exposure to potential litigation - The company has indemnification obligations to its officers and directors, covered by director and officer insurance, and to clinical trial sites[200] - In the ordinary course of business, the company and its subsidiaries may be subject to both insured and uninsured litigation, with no claims to date[202] Note 17. Related Party Transactions This note describes transactions with related parties, including significant common stock ownership by key executives, debt maturity extensions, and termination of agreements - The company's Chairman, President, and CEO beneficially owned 11.7% of common stock, and the Executive Vice Chairman, Strategic Development, owned 13.4% as of September 30, 2019[203] - The Opus Credit Facility's maturity date was extended by one year to September 12, 2020, and $500,000 of debt was prepaid by issuing 396,825 common shares to Dr. Rosenwald[206][208] - The Caelum Founders Agreement and Management Services Agreement with Fortress were terminated effective January 31, 2019, with $1.0 million of accrued fees written off[213][217] Note 18. Segment Information This note identifies the company's two reportable segments: Dermatology Product Sales and Pharmaceutical and Biotechnology Product Development, detailing their respective income/loss and assets - The company operates in two reportable segments: Dermatology Product Sales and Pharmaceutical and Biotechnology Product Development[218] Segment Income (Loss) from Operations (Nine Months Ended Sep 30, 2019) | Segment | Income (Loss) ($ in thousands) | | :------ | :----------------------------- | | Dermatology Products Sales | 2,972 | | Pharmaceutical and Biotechnology Product Development | (83,410) | | Consolidated | (80,438) | Segment Assets (Sep 30, 2019) | Segment | Assets ($ in thousands) | | :------ | :---------------------- | | Dermatology Products Sales | 18,697 | | Pharmaceutical and Biotechnology Product Development | 202,891 | | Consolidated | 221,588 | Note 19. Revenues from Contracts and Significant Customers This note provides a breakdown of total revenue and product revenue, highlighting contributions from specific branded products and the impact of the 3PL Title Model Total Revenue (Nine Months) | Period | Sep 30, 2019 ($ in thousands) | Sep 30, 2018 ($ in thousands) | YoY Change ($ in thousands) | YoY Change (%) | | :----- | :---------------------------- | :---------------------------- | :-------------------------- | :------------- | | Nine Months | 25,499 | 17,891 | 7,608 | 43% | Product Revenue Breakdown (Nine Months Ended Sep 30, 2019) | Product | Revenue ($ in thousands) | | :------ | :----------------------- | | Targadox® | 19,538 | | Ximino® | 2,194 | | Exelderm® | 1,712 | | Other branded revenue | 372 | | Total Product Revenues | 23,816 | - For the nine months ended September 30, 2019, gross product revenue under a third-party logistics (3PL) Title Model accounted for approximately 76.0% of total gross product revenue[228] Note 20. Incomes taxes This note explains the company's income tax filing structure and the policy for reducing deferred tax assets with a valuation allowance - 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[232] - Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion, or all, of the deferred tax asset will not be realized[231] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting its biopharmaceutical business model, recent clinical development milestones, and financial performance for the three and nine months ended September 30, 2019. It also discusses liquidity, capital resources, and off-balance sheet arrangements Overview This section introduces Fortress Biotech's business model, focusing on its biopharmaceutical development, collaborations, and strategic partnerships with publicly traded entities - Fortress Biotech is a biopharmaceutical company focused on acquiring, developing, and commercializing products through its own operations and various partner companies[236] - The company collaborates with leading universities and research institutes, including City of Hope and St. Jude Children's Research Hospital[236] - Three partner companies are publicly traded, and two have strategic partnerships with industry leaders Alexion Pharmaceuticals, Inc. and InvaGen Pharmaceuticals, Inc[237] Recent Events This section highlights key recent developments, including Journey Medical's product revenue, Mustang Bio's RMAT designation, and Checkpoint Therapeutics' clinical trial updates - Journey Medical Corporation's marketed dermatology products generated net revenue of $9.5 million and $23.8 million for the three and nine months ended September 30, 2019, respectively[238] - Mustang Bio's MB-107 (XSCID gene therapy) was granted Regenerative Medicine Advanced Therapy (RMAT) designation by the FDA, facilitating expedited development and review[244] - Checkpoint Therapeutics announced updated interim results from its Phase 1 clinical trial of Cosibelimab and continues to enroll patients for a BLA submission for cutaneous squamous cell carcinoma (CSCC)[248] Reportable Business Segments This section explains that financial results are presented on a detailed revenue and expense basis rather than by reportable business segment due to the company's early stage and fluctuations - Results of Operations are presented on a detailed revenue and expense basis rather than on a reportable business segment basis due to the company's early stage of development and wide fluctuations[250] Results of Operations This section summarizes the company's overall financial performance, including net revenue, accumulated deficit, and cost of goods sold, for the reporting periods - Net revenue for the three and nine months ended September 30, 2019, was $9.8 million and $25.5 million, respectively, primarily from Journey's branded products and Checkpoint's collaborative agreements[252] - The company had an accumulated deficit of $420.7 million at September 30, 2019, and expects to continue incurring substantial losses[252] - Cost of goods sold increased to $7.0 million for the nine months ended September 30, 2019, from $4.5 million in the prior year, driven by increased sales and product portfolio expansion[253] Comparison of three months ended September 30, 2019 and 2018 This section analyzes the financial performance for the three-month period, detailing changes in net revenues, operating expenses, and net loss attributable to common stockholders - Net revenues increased by $4.6 million (89%) to $9.8 million, primarily due to a $4.3 million increase in Journey's marketed product revenue and a $0.3 million increase in Checkpoint's collaboration revenue[267] - Research and development expenses decreased by $1.5 million (9%) to $14.6 million, mainly due to lower license acquisition costs and changes in stock-based compensation accounting[267][270][271][272] - General and administrative expenses increased by $2.2 million (18%) to $14.3 million, primarily driven by Journey's sales and marketing costs and Mustang's increased headcount and professional fees[267][274] - Net loss attributable to common stockholders decreased by $3.9 million (23%) to $(12.8) million, partly due to the absence of a $2.6 million loss from discontinued operations in the prior year[267][276] Comparison of nine months ended September 30, 2019 and 2018 This section analyzes the financial performance for the nine-month period, detailing changes in net revenues, operating expenses, total other income, and net loss attributable to common stockholders - Net revenues increased by $7.6 million (43%) to $25.5 million, driven by a $6.5 million increase in Journey's marketed product revenue and a $1.2 million increase in Checkpoint's collaboration revenue[277][280] - Research and development expenses decreased by $2.2 million (4%) to $56.4 million, primarily due to lower stock-based compensation and license acquisition costs, partially offset by increased spending at Mustang[277][282][283][284] - Total other income (expense) swung from a loss of $(8.4) million to an income of $11.7 million, primarily due to an $18.5 million gain on the deconsolidation of Caelum[278][287] - Net loss attributable to common stockholders decreased by $34.8 million (59%) to $(24.5) million, largely due to the gain on Caelum's deconsolidation and the absence of discontinued operations loss[278][288] Liquidity and Capital Resources This section discusses the company's need for additional financing to support product development and commercialization, and its historical funding sources - The company requires additional financing to fully develop and prepare regulatory filings, obtain approvals, and commercialize existing and new product candidates[289] - Operations have been funded primarily through the sale of equity and debt securities[289] - Current cash and cash equivalents are believed to be sufficient to fund operations for at least the next twelve months, but further capital raises will be necessary[289] Cash Flows for the Nine Months Ended September 30, 2019 and 2018 This section analyzes the changes in cash flows from operating, investing, and financing activities for the nine-month periods, highlighting key drivers of these movements - Net cash used in operating activities decreased by $6.8 million, from $(76.7) million in 2018 to $(69.9) million in 2019[291][292] - Net cash provided by investing activities increased by $14.5 million, from $5.3 million in 2018 to $19.8 million in 2019, primarily due to $13.1 million received from the sale of National[291][293] - Net cash provided by financing activities significantly increased by $67.2 million, from $52.3 million in 2018 to $119.6 million in 2019, driven by $61.0 million from partner offerings and $13.6 million from Mustang's Horizon Notes[291][294] Off-Balance Sheet Arrangements This section confirms that the company is not involved in any off-balance sheet transactions, guarantees, or obligations beyond normal business operations - The company is not party to any off-balance sheet transactions and has no guarantees or obligations other than those arising out of normal business operations[296] Item 3. Quantitative and Qualitative Disclosures About Market Risks The company's primary market risk is sensitivity to changes in interest rates, which is assessed using a hypothetical 100 basis point increase. The effect of such a change on financial instruments and net loss has been determined to be immaterial. The company does not use foreign currency contracts or derivative instruments for speculative purposes - The primary quantifiable market risk is sensitivity to changes in interest rates[299] - A hypothetical 100 basis point increase in interest rates is determined to have an immaterial effect on the value of financial instruments and net loss[301] - The company does not use foreign currency contracts or other derivative instruments for speculative or trading purposes[298] Item 4. Controls and Procedures Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of September 30, 2019. No material changes in internal control over financial reporting occurred during the most recent quarter - The company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2019[302] - No material changes in internal control over financial reporting occurred during the most recent quarter[303] PART II. OTHER INFORMATION This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The company reports no legal proceedings - The company reports no legal proceedings[306] Item 1A. Risk Factors This section outlines significant risks associated with investing in Fortress Biotech, Inc. and its securities, covering aspects of its growth strategy, biopharmaceutical business, financial condition, and capital stock. These risks include challenges in acquisitions, product development, regulatory approvals, market acceptance, funding, and intellectual property, as well as potential conflicts of interest and market volatility Risks Related to our Growth Strategy This section details risks associated with the company's growth strategy, including challenges in acquisitions, product innovation, third-party financing, and managing collaborative relationships - Acquisitions, joint ventures, and investments in other companies involve numerous risks, including integration difficulties, diversion of resources, and regulatory impacts[309] - The company's growth strategy depends on its ability to innovate, develop, and commercialize biopharmaceutical products; failure to do so may prevent anticipated revenue growth[311] - Reliance on third-party financing for early-stage partner companies poses a risk, as their inability to obtain funding could materially adversely affect the value of Fortress's ownership stakes[312][314] - Substantial capital is required for R&D programs, and if additional funds cannot be obtained on favorable terms, product development may be reduced, impacting the growth strategy[317] - Collaborative relationships with third parties for R&D and commercialization are difficult to establish and manage, potentially limiting revenue and drug development if terms are unfavorable or resources are insufficient[318][319][320] - Anticipated growth may strain management, administrative, operational, and financial systems, requiring significant time and effort for integration and hiring additional qualified employees[324][326] - The company is exposed to risks of employee fraud or misconduct, including non-compliance with regulations, which could result in regulatory sanctions, reputational harm, and civil/criminal liability[329] - Shared directors and officers with partners and affiliates could create conflicts of interest, potentially leading to lost profits, claims, and adverse effects on operations[331][332] Risks Related to Our Biopharmaceutical Business and Industry This section covers risks inherent in the biopharmaceutical sector, such as limited operating history, market acceptance, regulatory approvals, clinical trial delays, manufacturing reliance, and intellectual property challenges - As an early-stage biopharmaceutical company, Fortress has a limited operating history, has incurred significant net losses, and relies heavily on third parties for product development and manufacturing[335][336][337][338] - Even if product candidates receive regulatory approval, they may not gain market acceptance among physicians, patients, and payors due to factors like efficacy, safety, cost, and competition[342][343] - Reimbursement for products may be limited or unavailable, and legislative/regulatory changes (e.g., ACA) could adversely affect profitability and market access[344][345][349][350][356][357][358][359][360][361][363][364] - Product candidates may not receive regulatory approval due to clinical trial design disagreements, insufficient safety/efficacy, manufacturing issues, or changing regulatory policies, leading to delays or denial of commercialization[379][381][383][384][385] - Unacceptable adverse events from product candidates could interrupt, delay, or stop clinical trials, potentially preventing regulatory approval or leading to market withdrawal[386][387][389] - Delays in the commencement or completion of clinical trials, caused by various factors including patient recruitment or regulatory holds, could increase costs and delay regulatory approval[390][391][393][394][395] - Heavy reliance on third-party manufacturers for preclinical, clinical, and commercial supplies means non-compliance with regulations or supply delays could significantly impair development and commercialization[399][400][401][402] - Success depends on obtaining and maintaining intellectual property rights; patent applications may not result in issued patents, or patents may be challenged, invalidated, or circumvented, leading to competitive disadvantages[417][418][419][422][424][425][426][427][428] - The company operates in highly competitive biopharmaceutical markets, facing competitors with significantly greater financial and development resources, which could render its product candidates obsolete[409][410] - The use of biological and hazardous materials carries risks of accidental injury or contamination, potentially leading to substantial costs, fines, and suspension of clinical trials or regulatory approvals[413][414][416] - Unpredictable government regulation, including executive actions and funding changes for agencies like the FDA, could hinder product development and commercialization timelines[442][443][445][447][448] Risks Relating to our Finances, Capital Requirements and Other Financial Matters This section addresses financial risks, including operating losses, debt obligations, guarantees for subsidiaries, impacts of collaborations, funding needs, internal control failures, and revenue volatility - The company has a history of operating losses and an accumulated deficit of $420.7 million as of September 30, 2019, expecting continued substantial expenditures and losses[449][450] - Total debt outstanding was $84.0 million at September 30, 2019; default on obligations could lead to accelerated repayment and inability to finance future operations[451] - The ability to service debt depends on generating significant cash flow, particularly from Journey, and access to capital markets for refinancing, which is subject to economic conditions and financial health[452][453][454][456][457] - The company acts as a guarantor for subsidiaries' debt and an indemnitor for affiliated companies (e.g., $35 million for Avenue SPMA), exposing it to substantial financial obligations that could reduce available cash[458][459][460] - Past and future collaborations/divestitures (e.g., Caelum, Avenue) may reduce business scope, market share, and long-term value, diverting management attention and incurring costs[462][463][464][465][466] - Substantial additional funding is needed; inability to raise capital when needed may force delays, curtailment, or elimination of R&D programs, commercialization efforts, or planned acquisitions[473][474] - Failure to maintain proper and effective internal control over financial reporting could impair the ability to produce accurate and timely financial statements, harming operating results and stock value[477][478] - Future revenue from dermatology products (Targadox®, Ximino®, Exelderm®) may be lower than expected due to shipping, demand, manufacturing, regulatory, or competitive issues, including generic competition[480][481] Risks Associated with our Capital Stock This section outlines risks related to the company's capital stock, including significant insider ownership, stock price volatility, potential dilution from sales, dividend policy, and anti-takeover provisions - The Chairman, President, and CEO (11.7%) and Executive Vice Chairman (13.4%) beneficially own significant common stock, allowing them to influence company direction and policies, potentially adverse to other stockholders' interests[482][483] - The market price of the company's securities may be volatile and fluctuate disproportionately to operating performance due to company announcements, stock sales, industry conditions, and changes in analyst estimates[484][486] - Sales of a substantial number of common stock shares, including those under shelf registration statements, or the perception of such sales, may adversely impact the stock price[488] - The company has never paid and does not intend to pay cash dividends on common stock in the near future (except for Series A Preferred Stock), making capital appreciation the sole source of gain for stockholders[489][490] - Provisions in the certificate of incorporation, bylaws, and Delaware law (e.g., inability of stockholders to call special meetings, Board's ability to issue new series of preferred stock) may discourage, delay, or prevent a change in control or management[491][492][493][495] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds - The company reports no unregistered sales of equity securities or use of proceeds[496] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - The company reports no defaults upon senior securities[497] Item 4. Mine Safety Disclosures The company reports no mine safety disclosures - The company reports no mine safety disclosures[498] Item 5. Other Information The company reports no other information - The company reports no other information[499] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and XBRL taxonomy documents - Exhibits include certifications from the Chairman, President, and Chief Executive Officer (Section 302 and 906) and the Chief Financial Officer (Section 302 and 906)[501] - XBRL taxonomy extension documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are also filed as exhibits[501] SIGNATURES This section confirms the official signing of the Form 10-Q report by the company's Chairman, President, CEO, and Chief Financial Officer - The report was signed on November 12, 2019, by Lindsay A. Rosenwald, M.D., Chairman, President and Chief Executive Officer, and Robyn M. Hunter, Chief Financial Officer[505][506]