Fortress Biotech, Inc. — filing summary
Entity and period: The request identifies Fortress Biotech, Inc., but the supplied Form 10-K is for Coronado Biosciences, Inc. It covers the fiscal year ended December 31, 2013, with unaudited quarterly data for Q4 2013. The filing was signed March 14, 2014.
Business context
Coronado was a development-stage biopharmaceutical company with no product revenue. Its principal candidates were TSO (CNDO-201), being developed for autoimmune conditions, and CNDO-109, an investigational natural-killer-cell therapy initially targeting acute myeloid leukemia. The company also described a strategy to in-license, acquire, or invest in additional products or businesses.
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $25.7 million | $17.5 million |
| General and administrative expense | $10.1 million | $8.7 million |
| Operating loss | $35.8 million | $27.2 million |
| Net loss | $37.2 million | $27.6 million |
| Basic and diluted loss per share | $1.22 | $1.27 |
| Net cash used in operating activities | $29.6 million | $23.2 million |
| Cash at year-end | $99.5 million | $40.2 million |
| Total assets | $100.6 million | $41.0 million |
| Total liabilities | $19.3 million | $19.0 million |
| Stockholders’ equity | $81.3 million | $22.0 million |
Cash provided by financing activities was $89.2 million in 2013, principally reflecting $89.4 million of net proceeds from at-the-market stock sales. The company issued 10.6 million shares through its ATM programs, increasing shares outstanding from 24.4 million at year-end 2012 to 39.7 million at year-end 2013. No product-sales margins are available because the company had no product revenue.
At December 31, 2013, the company reported $13.2 million in note payable, including current and long-term portions, primarily the Hercules loan. In February 2014, it repaid Hercules and entered into a $15.0 million note with Israel Discount Bank, secured by a $15.0 million money-market account. The filing said cash on hand was expected to fund operations for at least 12 months, while also stating that additional financing would be needed to fully develop candidates and pursue the business plan.
Material changes and notable items
- TSO Crohn’s disease studies weakened the program outlook: The U.S. Phase 2 TRUST-I trial did not meet its primary response endpoint or key secondary remission endpoint. A predefined subgroup signal among patients with baseline CDAI above 290 was not statistically significant. Falk discontinued its European Phase 2 TRUST-II study after an independent committee recommended stopping for lack of efficacy; no safety concerns were reported.
- Spending and losses increased: R&D expense rose 47%, mainly due to TSO manufacturing development and external development costs. Net loss increased 35% year over year. Operating cash use also increased.
- Funding materially increased cash but diluted shareholders: ATM proceeds drove the year-end cash increase. The filing also reported a sharp share-price reaction after TRUST-I results: the stock fell 70%, from $5.77 on October 11 to $1.72 on October 21, 2013.
- Other pipeline activity: The company submitted an IND for a Phase 2 TSO psoriasis study and held a pre-IND meeting concerning autism. CNDO-109’s U.S. Phase 1/2 AML trial continued; three patients were enrolled in 2013 and no dose-limiting toxicities had been observed as of the filing.
- Leadership and restructuring: CEO and board changes, executive departures, severance charges, and a November 2013 reduction in force followed the TRUST-I results. The company recorded a $900,000 severance obligation for former CEO Harlan Weisman, in addition to other termination-related expenses and obligations.
- Unusual accounting and obligations: Stock-based compensation was $5.9 million in 2013. The company had $41.1 million of deferred tax assets fully offset by a valuation allowance, and reported federal NOL carryforwards of $87.6 million and state NOL carryforwards of $35.2 million, subject to possible ownership-change limitations.
Outlook, risks, and contingencies
Management could not provide a clear development path, timeline, or cost outlook for TSO pending further analysis of TRUST-I and receipt and review of the TRUST-II clinical study report. The company said it did not expect current spending levels to increase until it determined TSO’s future development plan. Management nevertheless anticipated continued substantial losses and additional funding needs.
Key risks include clinical failure and regulatory uncertainty; dependence on third-party manufacturers and single-source supplies; the need for additional capital and potential shareholder dilution; reliance on license partners and licensors; and the company’s lack of commercial manufacturing, sales, and marketing capability. The Woburn TSO manufacturing facility remained under evaluation after TRUST-I; approximately $373,000 of related long-lived assets were recorded, with no impairment recorded at year-end. The filing reported no material pending legal proceedings. Management and the auditor concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2013.
Most important facts for investors to verify
- Confirm the issuer: the supplied filing is Coronado Biosciences, not Fortress Biotech.
- Review the full TRUST-I data, the final TRUST-II study report, and management’s subsequent decisions on TSO indications and spending.
- Check the terms, maturity, interest rate, collateral, and available borrowing under the February 2014 IDB note, including that $15.0 million of cash collateral is pledged.
- Assess cash burn against the stated 12-month runway, outstanding contractual commitments, and the company’s financing and dilution capacity.
- Track CNDO-109 enrollment, safety, manufacturing readiness, and whether any proposed additional trials proceed.
- Review executive compensation, severance, restricted-stock awards, and subsequent share issuance for their impact on cash and dilution.