Fortress Biotech, Inc. — FY 2022 Form 10-K
Business context and reporting period. Fortress Biotech is a biopharmaceutical company that acquires, develops and commercializes products through subsidiaries and partner companies. This filing covers the fiscal year ended December 31, 2022; it does not provide a separate fourth-quarter financial summary. Its two reportable segments are Dermatology Product Sales and Pharmaceutical and Biotechnology Product Development. The financial statements received an unqualified audit opinion.
Financial performance and position
| Metric | FY 2022 / December 31, 2022 | Prior comparable period / December 31, 2021 |
|---|---|---|
| Net revenue | $75.7 million | $68.8 million |
| Product revenue, net | $71.0 million | $63.1 million |
| Gross profit on product revenue | $40.2 million; approximately 56.7% product gross margin | $31.1 million; approximately 49.2% product gross margin |
| Loss from operations | $(203.6) million | $(188.5) million |
| Net loss | $(213.9) million | $(164.8) million |
| Net loss attributable to common stockholders | $(86.6) million; $(0.97) per share | $(64.7) million; $(0.79) per share |
| Cash used in operating activities | $(179.4) million | $(116.5) million |
| Cash and cash equivalents | $178.3 million | $305.7 million |
| Total debt, net of discount | $91.7 million | $42.9 million |
| Current assets / current liabilities | $230.4 million / $127.7 million | $346.5 million / $101.0 million |
| Total assets / total liabilities | $294.3 million / $244.3 million | $396.5 million / $170.6 million |
Cash and cash equivalents were held across Fortress and its partner companies; access to subsidiary cash may be subject to legal and contractual restrictions. Restricted cash was $2.7 million. Reported cash-flow totals include consolidated subsidiaries. Fortress reported an accumulated deficit of $634.2 million on its balance sheet at year-end.
Changes versus FY 2021
- Revenue increased 10.1%, principally as Journey’s dermatology product revenue grew with its expanded portfolio. Revenue included $2.7 million of Maruho milestone and royalty income; collaboration revenue fell to $1.9 million from $5.4 million, primarily due to the extended CUTX-101 NDA timeline.
- Journey product revenue growth was led by Qbrexza, Accutane, Amzeeq and Zilxi. Declines in Targadox, Ximino and Exelderm, including generic competition, partially offset growth.
- R&D expense rose 19% to $134.2 million, driven largely by Mustang, Checkpoint and Journey development activity. License-acquisition expense fell to $0.7 million from $15.6 million, which included significant DFD-29-related charges in 2021.
- Selling, general and administrative expense rose 31% to $113.7 million, including higher Journey sales-force and marketing costs and increased legal and public-company expenses.
- Net loss attributable to common stockholders widened to $86.6 million. The comparison also reflects a $39.3 million gain on the Caelum investment recognized in 2021, which did not recur in 2022.
- Operating cash use increased by $62.9 million, and year-end cash declined by $127.5 million. Investing cash flow shifted from $40.5 million provided in 2021, including Caelum sale proceeds, to $22.9 million used in 2022, including the $20.0 million Vyne product acquisition.
Outlook, commentary and principal risks
- Management stated that cash and cash equivalents were expected to fund operations in the normal course for at least 12 months from the filing date, while also warning that additional financing will be needed to advance development programs and operations. The company expects ongoing operating losses.
- Management expected R&D and SG&A expenses to remain flat or decrease modestly in 2023. These are expectations, not guarantees.
- Journey’s DFD-29 Phase 3 trials completed enrollment in January 2023; top-line results were expected in the first half of 2023, with a potential NDA filing in the second half. Checkpoint’s cosibelimab BLA was accepted in March 2023, with an FDA goal date of January 3, 2024.
- Cyprium expected to complete the rolling CUTX-101 NDA submission in 2023. It is in a dispute with its contract manufacturer; a court injunction prevented termination of the manufacturing agreement while dispute-resolution procedures continued.
- Development risks include early-stage or unapproved candidates, clinical and regulatory setbacks, reliance on third-party manufacturers and trial operators, patent challenges, reimbursement uncertainty and generic competition. MB-207’s pivotal trial was on FDA hold pending manufacturing work; an MB-207 study was suspended after clonal expansion was observed in some patients. The MB-108 Phase 1 trial was on clinical hold due to toxicity.
- On October 31, 2022, Nasdaq notified Fortress that its common stock had failed the $1.00 minimum-bid requirement. The stated initial compliance period ran through May 1, 2023; delisting remained a risk if compliance was not regained.
- Fortress’s Oaktree debt carries an 11% fixed rate and matures in August 2025; its covenants include minimum liquidity and Journey revenue tests. The company reported compliance at year-end. Partner-company debt includes a Runway facility with a 13.40% floating rate at year-end and Journey borrowing from East West Bank.
- Fortress paid approximately $8.0 million in 2022 Series A preferred dividends. The preferred stock accrues cumulative dividends at 9.375% annually; common-stock dividends were not paid.
- Journey reported a 2021 wire-transfer fraud loss of approximately $9.5 million. The filing states that a significant amount of related cryptocurrency had been seized and that recovery was expected after conversion to U.S. dollars; timing and final recovery were uncertain.
Important facts for investors to verify
- Whether the company and its partner companies can raise adequate capital without material dilution, restrictive debt terms or delays to development.
- Cash availability by legal entity, ongoing cash burn, debt service and compliance with Oaktree and partner-company loan covenants.
- Journey product-level sales, gross-to-net deductions, generic competition, supply reliability and reimbursement access; the auditor identified accrued coupon liability estimation as a critical audit matter.
- Regulatory and clinical milestones, especially cosibelimab review, CUTX-101 submission and manufacturing dispute, DFD-29 trial results, and holds or safety findings in the pipeline.
- Resolution of the Nasdaq minimum-bid deficiency and the effect of subsequent equity offerings on common-share dilution. Fortress’s February 2023 offering generated approximately $13.3 million in net proceeds and included contingent rights tied to future operating subsidiaries.
- The filing contains an accumulated-deficit inconsistency: the audited balance sheet reports $634.2 million, while one MD&A passage states $625.9 million. The audited balance-sheet figure is used above.