Fortress Biotech, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Fortress is a biopharmaceutical company operating through subsidiaries and partner companies. Its commercial revenue is primarily from Journey Medical’s dermatology products; other activities focus on acquiring and developing drug candidates. Financial amounts below are in millions of dollars unless otherwise stated.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Net revenue | $12.4 | $23.9 |
| Operating loss | $(58.9) | $(47.3) |
| Net loss | $(55.1) | $(49.5) |
| Net loss attributable to common stockholders | $(21.5), or $(0.21) per share | $(15.8), or $(0.18) per share |
| Net cash used in operating activities | $(43.2) | $(46.9) |
| Cash and cash equivalents, March 31 | $152.5 | $178.3 at December 31, 2022 |
| Total assets / total liabilities | $263.6 / $243.7 | $294.3 / $244.3 at December 31, 2022 |
- Product revenue was $12.2 million; cost of goods sold was $6.4 million. The resulting product gross margin was approximately 47%, versus approximately 61% in Q1 2022, based on reported product revenue and cost of goods sold.
- Current assets were $202.4 million and current liabilities $129.5 million at March 31, 2023, for working capital of about $72.9 million. These consolidated balances include partner-company cash and obligations.
- Notes payable were reported at $90.0 million long-term, net on the balance sheet. The debt note lists $101.1 million of principal across the Oaktree, East West Bank and Runway facilities, before discounts. Other partner-company borrowing and financing obligations are also reported.
- Stockholders’ equity was $19.8 million, down from $50.0 million at year-end; equity attributable to Fortress was $37.8 million, while non-controlling interests were $(18.0) million.
Changes versus the prior comparable period
- Revenue fell 48%, mainly from lower Journey product sales and higher gross-to-net deductions. Qbrexza, Targadox and Ximino had lower unit sales; increased sales of other products were offset by higher rebates and discounts. Q1 2022 also included a $2.5 million licensing milestone not repeated in Q1 2023.
- Operating loss widened by $11.6 million. Operating expenses were nearly flat overall, but Q1 2023 included $4.2 million of acquired-license R&D expense related to Avenue’s AnnJi license.
- Common-stockholder loss increased 37%, notwithstanding a $6.7 million non-cash gain from changes in warrant fair value and higher interest income. Interest expense and financing fees rose to $4.3 million from $2.4 million.
- Operating cash use improved by $3.6 million year over year, but cash and restricted cash together decreased $26.0 million during Q1 2023. The company raised capital through a February common-stock offering and partner-company financings; Fortress’s common shares outstanding increased from 110.5 million at year-end to 130.4 million at March 31.
Outlook, developments and risks
- Management states current cash and cash equivalents are sufficient to fund operations for at least 12 months, while also expecting substantial future losses and needing additional funding. The filing cautions that development plans may be curtailed if financing is unavailable on acceptable terms.
- Key expected milestones include an FDA decision on Checkpoint’s cosibelimab BLA by the January 3, 2024 PDUFA goal date; completion of Cyprium’s rolling CUTX-101 NDA submission during 2023; DFD-29 Phase 3 topline results expected in June 2023 and an NDA filing planned for the second half of 2023; and Triplex Phase 2 topline data anticipated in 2024. These are forward-looking expectations, not assured outcomes.
- After quarter-end, Mustang repaid and terminated its Runway loan on April 11, 2023 for $30.7 million. Aevitas announced a potential asset sale with up to $140 million in contingent milestones and royalties; Checkpoint raised approximately $5.5 million net in an April offering. These post-quarter events do not represent Q1 cash flows.
- Fortress received a second Nasdaq 180-day grace period on May 2, 2023 to regain the $1.00 minimum bid-price requirement by October 30, 2023; failure could lead to delisting proceedings.
- Principal risks include continued operating losses and capital needs, dependence on Journey product sales, generic competition and reimbursement pressure, clinical and regulatory uncertainty, reliance on third-party manufacturers and trial operators, patent challenges, and debt covenants. The filing also describes a 2021 Journey cybersecurity incident involving approximately $9.5 million in misdirected wire transfers; recovery of seized cryptocurrency remained pending.
- Management reported disclosure controls and procedures effective as of March 31, 2023 and no material change in internal control over financial reporting during the quarter. The filing reports no material new legal-proceeding developments.
Important facts for investors to verify
- Whether Journey’s sales, product mix and rebates stabilize, and whether the reported product gross-margin movement persists.
- How much of the $152.5 million consolidated cash balance is available to Fortress itself, given partner-company cash needs, debt terms and restrictions.
- The cash and operating impact of Mustang’s $30.7 million post-quarter Runway payoff, and the status of remaining debt, covenants and financing needs.
- Progress and actual results for the cosibelimab, CUTX-101 and DFD-29 regulatory and clinical milestones, including timing changes or adverse findings.
- Potential dilution from further equity issuance, outstanding securities and the contingent subsidiary securities issued with Fortress’s February 2023 offering.
- Nasdaq bid-price compliance by October 30, 2023, and the timing and amount of any recovery related to Journey’s cybersecurity incident.