Fortress Biotech(FBIO) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements 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 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 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 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][26] - 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] Condensed Consolidated Statements of Cash Flows 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] Notes to Condensed Consolidated Financial Statements 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][45] - 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][122] - The company operates in two reportable segments: Dermatology Product Sales (via Journey Medical) and Pharmaceutical and Biotechnology Product Development[206] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][228] - 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][231] - In August 2020, Fortress secured a $60 million loan from Oaktree, used to refinance and pay off existing debt facilities[249] Comparison of Operations for Nine Months Ended Sep 30 ($ 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 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] - 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] Controls and Procedures 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] - No material changes to internal control over financial reporting occurred during the most recent quarter[302] PART II. OTHER INFORMATION Legal Proceedings The company reported no material legal proceedings - None[304] Risk Factors 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] - Financing Risk: The company has a history of operating losses and will require substantial additional funding; the Oaktree credit agreement contains restrictive covenants[338][341] - Revenue Risk: The majority of operating income is expected from Journey Medical's dermatology products, and any setback could significantly impair operating results[364] - 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][398] - 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][428] - Intellectual Property Risk: Success depends on obtaining and maintaining patent protection for in-licensed technology, subject to litigation, challenges, and disputes with licensors[442][461] - 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][503] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[548] Defaults Upon Senior Securities The company reported no defaults upon its senior securities - None[550] Mine Safety Disclosures This item is not applicable to the company - None[551] Other Information The company reported no other information - None[552] Exhibits 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] 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]