Fortress Biotech, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 28, 2024. This is an annual report, not a report covering Q4 alone. Fortress is a biopharmaceutical company that develops and licenses drug candidates through subsidiaries and partner companies. Its principal marketed-product revenue is generated by Journey Medical’s dermatology portfolio.
Financial performance and condition
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Net revenue | $84.5 million | $75.7 million | Up 12%; growth was driven mainly by a $19.0 million Maruho upfront license payment. |
| Product revenue, net | $59.7 million | $71.0 million | Down 16%, primarily from lower volumes, generic competition for Targadox and discontinuation of Ximino. |
| Operating loss | $142.3 million | $203.6 million | Loss narrowed as research and development and SG&A expenses declined. |
| Net loss | $154.2 million | $213.9 million | Consolidated loss; $93.5 million was attributable to non-controlling interests in 2023. |
| Net loss attributable to Fortress | $60.6 million | $86.6 million | After preferred dividends, loss attributable to common stockholders was $68.7 million, or $8.47 per share, versus $94.6 million, or $15.97 per share, in 2022. Per-share amounts reflect the 1-for-15 reverse split. |
| Operating cash flow | $(128.2) million | $(179.4) million | Cash used declined by $51.2 million. |
| Cash and cash equivalents | $80.9 million | $178.3 million | Additionally, restricted cash was $2.4 million. Year-end cash included $40.6 million at Fortress and private partner companies; the remainder was held at public partner companies. |
| Debt | $60.9 million net carrying value | $91.7 million | Gross principal outstanding was $65.0 million: $50.0 million Oaktree and $15.0 million Journey SWK loan. |
| Total assets / liabilities | $167.5 million / $165.9 million | $294.3 million / $244.3 million | Consolidated stockholders’ equity was $1.6 million; accumulated deficit was $694.9 million. |
Product gross margin, calculated as product revenue less product cost of goods sold divided by product revenue, was approximately 55.3% in 2023 versus 56.6% in 2022. This is a product-level measure, not a consolidated operating margin. Total operating expenses fell to $226.9 million from $279.3 million, including R&D of $101.7 million versus $134.2 million and SG&A of $94.1 million versus $113.7 million.
Material changes and notable developments
- Journey’s product revenue declined despite higher total company revenue, because the Maruho upfront payment and increased collaboration revenue more than offset lower product sales.
- Journey licensed Qbrexza rights in additional Asian territories to Maruho for a non-refundable $19.0 million upfront payment. The revised agreement also removed Japanese royalties for sales after October 1, 2023 and a previously specified $10 million sales milestone; other potential milestones remain.
- Cyprium transferred control of CUTX-101 development to Sentynl in December 2023 and received $4.5 million. Cyprium remains eligible for up to $129 million in milestones, tiered royalties and any qualifying priority review voucher.
- Mustang sold cell-processing facility assets to uBriGene for $6.0 million and repaid its Runway debt. The transaction remained subject to CFIUS review at the report date; Mustang also committed to at least $8 million of manufacturing services over two years.
- Fortress completed a 1-for-15 reverse stock split in October 2023 to regain compliance with Nasdaq’s minimum bid-price requirement. It raised approximately $8.9 million net in a November unit offering, which included warrants.
Outlook, risks and contingencies
- Management stated that available cash and cash equivalents were expected to fund operations for at least the next 12 months. The filing also says Fortress and its private subsidiaries had $40.6 million of cash; cash held by public partner companies may not be freely available to the parent.
- Management expected R&D costs and SG&A costs to remain flat or decrease modestly in 2024. The filing provides no consolidated revenue or profitability guidance.
- Cosibelimab’s BLA received an FDA Complete Response Letter in December 2023. The cited approvability issues concerned a third-party contract manufacturer inspection, not clinical data, safety or labeling. Checkpoint planned a 2024 resubmission after addressing the manufacturing findings.
- Journey submitted the DFD-29 NDA in January 2024; the FDA accepted it and set a November 4, 2024 PDUFA goal date. Avenue planned a Phase 3 IV tramadol safety study, subject to financing. Mustang planned a registrational MB-106 trial in Waldenstrom macroglobulinemia in the second half of 2024. These are forward-looking plans, not completed outcomes.
- Fortress reported a history of operating losses and expects losses to continue. It requires additional financing for development and may face dilution, constrained financing capacity under the baby-shelf rules, and debt covenant restrictions. The Oaktree Note bears 11% interest and matures in August 2025; the SWK loan has a 15.1% effective interest rate for 2023, revenue and liquidity covenants, and a 5% exit fee on repayment in full. Fortress and Journey reported covenant compliance at year-end.
- Principal business risks include reliance on Journey sales, generic competition and reimbursement pressure; clinical and regulatory uncertainty; dependence on third-party manufacturers and trial providers; patent and licensing disputes; and the need for substantial funding. Fortress reported no material pending legal proceedings against it, but disclosed the UTRF litigation involving former subsidiary Caelum and potential indemnification obligations. It also disclosed a prior Journey cyber incident involving approximately $9.5 million in misdirected wire transfers.
Important facts for investors to verify
- How much of reported cash is available to Fortress itself, and the latest cash burn, financing needs and runway.
- Whether the cosibelimab manufacturing findings are resolved and the timing and outcome of any BLA resubmission; and the FDA review progress for DFD-29.
- Journey’s current product-level sales trends, generic competition, pricing and reimbursement, particularly for Targadox and other products without patent protection.
- Debt balances, interest, maturities, collateral and compliance with Oaktree and SWK covenants, including Journey’s ability to service its obligations.
- Potential dilution from outstanding warrants, future equity offerings and the 2024 financing activity described in the filing.
- Outcomes of CFIUS review of Mustang’s facility transaction and the UTRF litigation, as well as any related financial or operational effects.