Fortress Biotech, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The company, formerly Coronado Biosciences, changed its name to Fortress Biotech in April 2015. It is a biopharmaceutical company building a portfolio of product candidates through direct development and subsidiary companies; the reported financial statements are unaudited and consolidated.
Financial results and position
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $0.5 million, all license fees from related-party TGTX | None |
| Research and development | $1.6 million, plus $7.4 million of acquired-license costs expensed | $4.5 million; no acquired-license expense |
| General and administrative | $3.5 million | $2.1 million |
| Operating loss | $12.1 million | $6.6 million |
| Net loss | $12.5 million; $12.1 million attributable to common shareholders | $7.4 million |
| Basic and diluted loss per share | $0.31 | $0.21 |
| Cash used in operations | $8.8 million | $6.1 million |
| Cash and cash equivalents | $48.9 million at March 31 | $49.8 million at December 31, 2014 |
| Marketable securities / restricted cash | $20.0 million / $14.6 million | $20.0 million / $14.6 million at December 31, 2014 |
| Long-term debt | $24.0 million | $14.0 million at December 31, 2014 |
Current assets were $69.6 million and current liabilities $5.9 million at quarter-end. Restricted cash includes $14.0 million securing the IDB note and $0.6 million securing a lease letter of credit. No meaningful product-sales margin is reported; revenue was licensing income. Interest expense was $0.3 million, and a $0.2 million fair-value decrease in investments was recorded.
Material changes and business developments
- Operating loss widened by $5.5 million year over year, principally due to $7.4 million of newly expensed license acquisitions and higher G&A, partly offset by lower ongoing R&D expense.
- R&D expense excluding acquired licenses fell 63% to $1.6 million, reflecting reduced TSO development, lower manufacturing activity and reduced personnel costs. G&A increased 67%, including spending on Journey Medical’s sales and marketing infrastructure and business development.
- The company paid or recorded license costs for EGFR inhibitors, IV tramadol, CAR-T technology, immuno-oncology antibodies and a topical hand-foot syndrome product. It also paid $1.2 million for a dermatology product license, recorded as an intangible asset; product sales were expected to begin in Q4 2015.
- In March, the company raised $10 million through an 8% NSC note, with $0.9 million of issuance costs. The IDB note remained $14.0 million, bears 2.25% interest and was extended to February 2017.
Outlook, risks and unusual items
- Management expected substantial operating losses to continue and stated that existing cash was sufficient to fund operations for at least the next 12 months. No revenue, earnings or clinical-development guidance was provided.
- Management warned that additional financing may be needed; funding may not be available on acceptable terms, potentially requiring programs or the growth strategy to be delayed, curtailed or eliminated.
- In April 2015, Fortress discontinued TSO development and terminated ongoing trials, including a Phase 2A autism study, after preliminary analysis showed no signal of activity. The company also reported that Ovamed, its TSO supplier/manufacturer, filed for insolvency; the related $1.5 million obligation was accrued as current. The filing says the trials were terminated in April.
- April developments included formation of DiaVax and a City of Hope license for CMV vaccine programs, with Phase II studies expected later in 2015; these are forward-looking plans, not completed milestones.
- Other notable exposures include milestone and royalty obligations under licenses, $2.0 million payable to City of Hope recorded in accrued expenses, and a related-party TGTX license payment recognized as revenue. Management disclosed shared-service arrangements with OPPM, whose partners include senior company executives, and a TGTX relationship involving the executive vice chairman.
- The company reported no legal proceedings, no off-balance-sheet arrangements, and no material change in contractual commitments outside the ordinary course. It described interest-rate sensitivity as immaterial.
Most important facts for investors to verify
- Whether the TGTX-related $0.5 million license revenue and the disclosed executive affiliations were appropriately approved, valued and recognized.
- Cash runway assumptions and planned financing needs, considering quarterly operating cash use of $8.8 million, debt terms and restricted cash.
- Execution, remaining payments, milestones and royalty obligations for newly acquired licenses, including IV tramadol, CAR-T, antibody and dermatology programs.
- Consequences of ending TSO development, including the status and settlement of the $1.5 million Ovamed obligation.
- Whether anticipated clinical and commercialization timelines—including Journey Medical sales expected in Q4 2015 and DiaVax studies expected later in 2015—were subsequently achieved.