Fortress Biotech, Inc. annual report, FY2011

Business context and reporting period

Entity mismatch: The supplied filing is Coronado Biosciences, Inc.’s Form 10-K, not a Fortress Biotech, Inc. filing. It reports the fiscal year ended December 31, 2011; quarterly figures are also provided for Q4 2011. Coronado was a development-stage biopharmaceutical company developing TSO for autoimmune diseases and CNDO-109 for cancer.

Financial performance and position

Figures are in U.S. dollars; losses and cash outflows are shown as positive amounts in the table. FY 2011 loss included the $20.706 million noncash charge for the Asphelia asset acquisition. The company reported no product revenue, so operating margins are not meaningful. Q4 2011 net loss was $6.719 million, versus $1.628 million in Q4 2010.

Year-end total assets were $23.375 million and total liabilities were $4.243 million, including $3.493 million of current liabilities and a $750,000 related-party note payable due in December 2013 or earlier upon a qualifying transaction. Stockholders’ equity was $19.132 million; accumulated deficit was $56.574 million. The company reported $23.093 million of financing cash inflows in 2011, primarily net proceeds from its Series C financing.

Material changes versus prior period

• Net loss rose to $36.360 million from $9.982 million, principally due to the $20.706 million Asphelia acquisition charge and higher G&A expense. G&A increased $4.855 million, reflecting public-company costs, professional fees and personnel expenses.
• R&D expense increased modestly, by $242,000. Operating cash use increased to $10.952 million from $5.677 million.
• The company raised approximately $22.9 million in net proceeds from its Series C financing. In November 2011, preferred shares converted into common stock; 18,604,245 common shares were outstanding at year-end.
• FY 2011 included a $1.407 million noncash warrant expense from remeasurement of Series C placement-agent warrants, and a $5.861 million common-stock dividend to Series A holders that increased the loss attributable to common stockholders.

Outlook, commentary, risks and contingencies

• Management said year-end cash was expected to fund operations only into Q4 2012 and that substantial additional financing would be needed. The auditor’s report cited recurring losses and negative operating cash flows and stated that these conditions raised substantial doubt about the company’s ability to continue as a going concern.
• Management expected increased R&D spending as clinical programs advanced. Planned milestones included a U.S. Phase 2 Crohn’s trial for TSO and a Phase 1/2 AML trial for CNDO-109, both anticipated to start in 2012. These are forward-looking expectations, not reported outcomes.
• In March 2012, Coronado, OvaMed and Falk entered a TSO collaboration. Coronado agreed to pay Falk €5 million, estimated at approximately $6.5 million and expected to be paid by the first half of 2013, plus a 1% royalty on TSO net sales in its territory. A $1.5 million TSO IND milestone was accrued at year-end and was payable in 2012.
• TSO had shown acceptable tolerability in the company’s 36-patient single-dose Phase 1 study; the filing describes earlier investigator-sponsored results as encouraging but preliminary. CNDO-109 evidence was also early-stage, based on an investigator-sponsored UK Phase 1 trial of eight AML patients.
• Key risks include clinical and regulatory uncertainty, need for additional capital, reliance on third-party manufacturers and CROs, and dependence on licensors. OvaMed was the sole TSO supplier, producing at one German facility. The company had no commercial manufacturing arrangement for CNDO-109.
• The company reported no material litigation. It also disclosed historical weaknesses in accounting personnel and documented controls that contributed to prior audit adjustments; management said disclosure controls were effective at year-end. The 10-K did not include management’s assessment or auditor attestation of internal control over financial reporting, citing the newly public company transition period.

Most important facts for investors to verify

1. Confirm the issuer identity: this filing is for Coronado Biosciences, not Fortress Biotech.
2. Check subsequent financing, cash runway and any developments affecting the going-concern uncertainty.
3. Verify the timing, enrollment and results of the planned and ongoing TSO and CNDO-109 clinical trials.
4. Review the Falk payment and royalty obligations, OvaMed milestone terms, and the company’s ability to meet these commitments.
5. Assess the status of single-source manufacturing, regulatory readiness and any remediation of previously disclosed financial-reporting control weaknesses.