Fortress Biotech(US:FBIO)2025-08-14 20:16PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Unaudited Condensed Consolidated Financial Statements The company reported a net income attributable to Fortress of $4.9 million for the six months ended June 30, 2025, a significant improvement from a net loss of $26.4 million in the same period of 2024, primarily driven by a $27.1 million gain from the deconsolidation of its subsidiary, Checkpoint Therapeutics, following its sale to Sun Pharma Condensed Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $74,386 | $57,263 | | Total current assets | $110,396 | $90,371 | | Total assets | $159,895 | $144,223 | | Liabilities & Equity | | | | Total current liabilities | $57,521 | $71,399 | | Total liabilities | $122,512 | $145,867 | | Total stockholders' equity (deficit) | $37,383 | $(1,644) | - The company's financial position improved significantly, moving from a stockholders' deficit of $1.6 million at the end of 2024 to a positive stockholders' equity of $37.4 million as of June 30, 2025, mainly due to a reduction in total liabilities and an increase in cash22 Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $16,413 | $14,896 | $29,552 | $27,926 | | Loss from Operations | $(36,473) | $(27,788) | $(58,790) | $(64,352) | | Gain from deconsolidation of subsidiary | $27,127 | $0 | $27,127 | $0 | | Net Income (Loss) attributable to Fortress | $15,486 | $(10,948) | $4,902 | $(26,365) | | EPS - Diluted | $0.45 | $(0.73) | $0.02 | $(1.76) | - A significant gain of $27.1 million from the deconsolidation of a subsidiary (Checkpoint) in Q2 2025 was the primary driver for the company reporting net income attributable to Fortress, compared to a net loss in the prior year period24 Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(47,123) | $(47,225) | | Net cash provided by investing activities | $7,251 | $0 | | Net cash provided by financing activities | $56,663 | $42,124 | - Cash from investing activities was positive in H1 2025 due to a $6.1 million net cash increase upon the deconsolidation of a subsidiary and $1.2 million from the sale of property and equipment38 - Financing activities provided $56.7 million in cash, primarily from partner companies' equity offerings, options, and warrant exercises, which generated $54.3 million41 Notes to Financial Statements - In May 2025, Fortress's partner company, Checkpoint Therapeutics, was acquired by Sun Pharma, leading Fortress to deconsolidate Checkpoint and record a $27.1 million gain on the transaction, with $25.1 million in cash proceeds received in June 2025 and eligibility for future royalties and contingent payments6067 - On July 5, 2024, the Board of Directors paused the monthly dividend on its 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, resulting in approximately $8.0 million in total undeclared and cumulated dividends in arrears as of June 30, 2025119120 - The company's debt primarily consists of the 2024 Oaktree Note ($30.4M) and the SWK Term Loan ($25.0M), with the Oaktree note including financial covenants such as a minimum liquidity requirement of $7.0 million and a minimum net sales test for its subsidiary Journey, all of which the company was in compliance with as of June 30, 20259297100 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 10% increase in Q2 2025 net revenue to the successful launch of Journey's product Emrosi, which offset a decline in Accutane sales, while the significant increase in net income was driven by the one-time gain from the sale of Checkpoint, and the company believes its current cash of $74.4 million is sufficient to fund operations for at least the next twelve months Overview and Recent Events - Fortress's business model focuses on acquiring and advancing biopharmaceutical assets through a network of subsidiary and partner companies182 - A key recent event was the acquisition of partner company Checkpoint Therapeutics by Sun Pharma in May 2025, resulting in $28.0 million in proceeds to Fortress and future royalty/milestone eligibility188 - Subsidiary Journey Medical launched Emrosi in March 2025 for the treatment of rosacea, which is now a key revenue driver187 - Subsidiary Cyprium's NDA for CUTX-101 for Menkes disease was accepted for priority review by the FDA with a target action date of September 30, 2025192 Results of Operations Comparison of Three Months Ended June 30, 2025 and 2024 (in thousands) | Metric | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $16,413 | $14,896 | $1,517 | 10% | | R&D Expense | $8,126 | $12,671 | $(4,545) | (36)% | | SG&A Expense | $38,757 | $20,823 | $17,934 | 86% | | Net Income (Loss) to Fortress | $15,486 | $(10,948) | $26,434 | (241)% | - The 10% increase in Q2 2025 net revenue was driven by $2.8 million from the new product Emrosi, which offset a decline in Accutane sales due to market competition209 - R&D expenses decreased by 36% in Q2 2025, primarily due to a $4.3 million reduction in spending at Mustang following its 2024 restructuring and a $1.2 million decrease at Avenue216 - SG&A expenses increased by 86% in Q2 2025, mainly due to a $17.7 million increase at Checkpoint related to transaction costs for the Sun Pharma acquisition and accelerated stock-based compensation218 Liquidity and Capital Resources - As of June 30, 2025, the company had $74.4 million in cash and cash equivalents, with $38.1 million held by the parent entity and its private subsidiaries245 - Management believes current cash is sufficient to fund operations for at least the next twelve months246 - The company's ability to use its Form S-3 shelf registration for capital raises is currently suspended because it paused dividend payments on its Series A Preferred Stock in July 2024247 - During the first six months of 2025, partner companies raised significant capital: Checkpoint received ~$47.3M from warrant exercises, Mustang raised ~$7.4M from an equity offering and ATM sales, and Journey raised $4.1M from its ATM program251252256 Quantitative and Qualitative Disclosures About Market Risks As a "smaller reporting company," Fortress Biotech is not required to provide the information for this item - The company is exempt from this disclosure requirement due to its status as a "smaller reporting company"269 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025270 - No material changes in internal control over financial reporting occurred during the most recent quarter271 PART II. OTHER INFORMATION This section details legal proceedings, risk factors, equity security sales, defaults on senior securities, and other relevant information Legal Proceedings The company reports no material developments in legal proceedings for the quarter ended June 30, 2025, noting that it may be subject to routine litigation in the ordinary course of business but does not expect any pending proceedings to have a material adverse effect - There were no reportable events or material developments regarding legal proceedings during the quarter273 Risk Factors The company outlines extensive risks associated with its business, including the early stage of most product candidates, the inherent uncertainty of drug development and regulatory approval, a history of operating losses, reliance on debt financing with restrictive covenants, and the impact of paused preferred stock dividends on capital raising Risks Inherent in Drug Development - Most product candidates are in early development stages, requiring substantial capital and facing a high risk of failure in clinical trials or during regulatory review276 - The drug development process is subject to extensive and costly regulation by the FDA and other authorities, which can cause significant delays or prevent approval279 - The company faces intense competition from larger pharmaceutical companies with greater resources, which could render its product candidates obsolete or noncompetitive290291 Risks Pertaining to Financing Activities - The company has a history of operating losses, with an accumulated deficit of $736.0 million as of June 30, 2025, and expects losses to continue310 - The company relies on debt financing, and its credit agreement with Oaktree contains restrictive covenants that limit operational flexibility and require it to meet certain financial targets, such as minimum liquidity and sales levels for Journey308309 - The company has paused dividend payments on its Series A Preferred Stock, which makes it currently ineligible to use the more efficient Form S-3 for raising capital, potentially increasing future financing costs and complexity323324325 Risks Pertaining to Revenue Stream from Journey Medical - The company's operating income is primarily derived from the sale of dermatology products through its partner company, Journey, and any setbacks with these products could significantly harm financial results328 - A significant portion of Journey's product sales come from products without patent protection (e.g., Accutane, Targadox), making them vulnerable to generic competition, which could erode revenue and margins330331 - Sales are dependent on favorable reimbursement from third-party payors and inclusion in managed care formularies, and failure to secure or maintain adequate coverage could negatively impact product utilization336337 Risks Pertaining to Business Strategy and Structure - The business strategy involves collaborations and divestitures, such as the recent sale of Checkpoint, which can reduce the company's size and future opportunities in certain therapeutic areas351352 - The company acts as a guarantor and indemnitor for certain obligations of its subsidiaries, which could require substantial payments and create financial risk for the parent company357358 - Certain officers and directors serve in similar roles at partner companies and related parties, creating potential conflicts of interest regarding corporate opportunities and transactions362 Risks Pertaining to Reliance on Third Parties - The company relies heavily on third-party manufacturers for both clinical and commercial product supply, and any manufacturing failures, delays, or compliance issues (e.g., with cGMP) could severely disrupt operations374375 - Clinical trials are conducted by third-party contract research organizations (CROs), and poor performance by these CROs could delay development programs and jeopardize regulatory approval382383 - The company's business model depends on strategic collaborations, and the failure to establish or maintain these relationships on favorable terms could limit revenue and drug development389 Risks Pertaining to Intellectual Property - Success depends on obtaining and maintaining patent protection, but the patent process is uncertain, and issued patents may be challenged, invalidated, or circumvented by competitors395398 - The majority of the company's intellectual property is in-licensed from third parties, and disputes with licensors or failure to meet license obligations (e.g., diligence, payments) could lead to termination of these critical agreements412413 - The company may be sued for infringing on the intellectual property rights of others, which could be costly and time-consuming and could result in being forced to obtain licenses or cease commercialization409 Risks Pertaining to Commercialization - Even if approved, products may not achieve broad market acceptance among physicians, patients, and payors, which would limit revenue potential417 - The company faces significant product liability exposure from the use of its products in clinical trials and commercial sales, and a successful claim could result in substantial liabilities exceeding insurance coverage420421 - Approved products remain subject to ongoing regulatory requirements, and failure to comply could result in restrictions, withdrawal from the market, or other penalties423 Risks Pertaining to Legislation and Regulation - The company is subject to complex healthcare laws, including anti-kickback and false claims statutes, and violations can lead to criminal sanctions, civil penalties, and exclusion from government healthcare programs427428 - Healthcare reform measures, such as the Inflation Reduction Act (IRA), could lead to increased pricing pressure, more rigorous coverage criteria, and reduced reimbursement for products343345 - Changes in funding or staffing at the FDA and other government agencies could delay the review and approval of new products, negatively impacting the business458 General and Other Risks - The business is vulnerable to cybersecurity attacks and system failures, which could disrupt operations and lead to the loss of confidential information, as exemplified by a past incident at Journey that resulted in a $9.5 million fraudulent wire transfer433435 - The company has previously failed to meet Nasdaq's minimum bid price requirement, and future non-compliance with listing standards could result in the delisting of its securities, reducing market liquidity468 - The company's ability to use its net operating loss carryforwards (NOLs) to offset future taxable income may be limited if it undergoes an "ownership change" as defined under Section 382 of the Internal Revenue Code452 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None471 Defaults Upon Senior Securities The company announced on July 5, 2024, that its Board of Directors decided to pause the monthly dividend on its 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, with dividends continuing to accrue, and as of June 30, 2025, total undeclared dividends in arrears were approximately $8.0 million - On July 5, 2024, the company paused the monthly dividend payment on its Series A Preferred Stock472 - As of June 30, 2025, the cumulative undeclared dividends amounted to approximately $8.0 million474 Other Information During the quarter, none of the company's directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading plan during the quarter476 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and certifications required by the Sarbanes-Oxley Act