Fortress Biotech, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited consolidated results include Fortress and controlled subsidiaries/partner companies; amounts below are in U.S. dollars. Fortress acquires, develops and commercializes biopharmaceutical products through this network. Journey Medical’s dermatology products are the principal current commercial revenue source.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $17.4m | $18.9m | $29.8m | $42.8m |
| Operating loss | $50.1m | $50.9m | $109.0m | $98.2m |
| Net loss | $59.3m | $53.9m | $114.4m | $103.4m |
| Net loss attributable to Fortress | $24.8m | $21.4m | $46.3m | $37.1m |
| Net loss per common share | $(0.24) | $(0.26) | $(0.47) | $(0.47) |
| Operating cash flow | Not separately presented for the quarter | $(76.5)m | $(88.3)m |
- Q2 product revenue was $17.0m, down 7% year over year; six-month product revenue was $29.1m, down 25%. Consolidated net revenue fell 8% in Q2 and 30% for the first half.
- Product gross profit, calculated as product revenue less cost of goods sold, was approximately $9.2m (54% margin) in Q2 versus $10.6m (58%) a year earlier; for the first half it was $14.9m (51%) versus $23.2m (59%).
- Q2 operating expenses were $67.5m, including $32.1m R&D, $24.4m SG&A and a $3.1m Ximino intangible impairment. First-half expenses included $67.4m R&D, $49.8m SG&A, $4.2m acquired-license R&D expense and the same impairment.
- At June 30, cash and cash equivalents were $78.0m, plus $11.2m restricted cash; current assets were $127.6m and current liabilities $128.6m. Total liabilities were $196.7m and stockholders’ deficit was $15.9m. Cash and restricted cash declined $91.7m during the first half.
- Notes payable, net, totaled $55.3m at June 30. The Oaktree note had $50.0m principal, an 11% rate and an August 2025 maturity. Journey repaid its $10.0m EWB term loan in July; Mustang repaid its Runway debt in April. The balance sheet also reports a separate $9.9m current partner-company term-loan liability.
Changes, outlook and material items
- Revenue weakness reflected lower sales of Journey’s Targadox, Ximino and Exelderm, including generic competition for Targadox. Q2 growth in Qbrexza, Accutane, Amzeeq and Zilxi partly offset declines. First-half results also faced higher rebates and returns; the prior-year period included a $2.5m licensing milestone not repeated in 2023.
- SG&A fell 16% in Q2, primarily following Journey cost reductions, including salesforce cuts and lower marketing spending. R&D declined 3% in Q2 and 3% for the first half, with lower Mustang spending offsetting increased Avenue and Checkpoint investment.
- Management said existing cash and cash equivalents should fund operations for at least 12 months, but stated that additional funding will be needed for development, regulatory work and operating losses. Funding may come from equity or debt, partnerships, asset/company sales or other arrangements; unavailable or unacceptable financing could curtail plans. The company has a history of losses and expects substantial losses to continue.
- Key development milestones cited include a January 3, 2024 PDUFA goal date for Checkpoint’s cosibelimab BLA; expected completion of Cyprium’s CUTX-101 NDA rolling submission during 2023; anticipated DFD-29 NDA submission in the second half of 2023 after positive Phase 3 topline results reported in July; and an Avenue Phase 3 IV tramadol study planned for 2023 subject to financing. These are management expectations, not guaranteed outcomes.
- Unusual items included a $3.4m loss on Aevitas deconsolidation after Fortress lost voting control; a $2.8m Mustang debt-extinguishment loss; a $3.1m noncash Ximino impairment; and a $6.2m first-half gain from changes in warrant fair value. Mustang sold its manufacturing-related assets to uBriGene on July 28 for $6.0m, with up to $5.0m additional contingent consideration subject to financing and landlord-consent conditions.
- Fortress received a second Nasdaq 180-day grace period for its minimum bid-price deficiency, through October 30, 2023; failure to regain compliance could lead to delisting proceedings. The Oaktree agreement includes minimum-liquidity and Journey revenue covenants; Fortress reported compliance as of June 30.
- Principal risks include clinical and regulatory failure or delay, dependence on third-party manufacturers and trial providers, generic competition and reimbursement pressure, financing needs and potential dilution, debt covenants, patent disputes, and execution of collaborations and asset sales. The filing reports disclosure controls as effective and no material internal-control changes during the quarter.
Most important facts for investors to verify
- Whether cash availability across Fortress and its partner companies supports the stated 12-month runway, given the first-half cash decline and continuing operating cash burn.
- Journey’s product-level sales, gross-to-net deductions, inventory reserves and progress against generic competition, particularly for Targadox and Ximino.
- Financing requirements and timing for clinical programs, and whether expected regulatory and trial milestones are achieved.
- Nasdaq bid-price compliance by October 30, 2023, alongside Oaktree covenant compliance and debt-service obligations.
- Whether Mustang satisfies the conditions for additional uBriGene consideration and whether announced debt repayments and financing proceeds improve liquidity as expected.