FORTRESS BIOTECH, INC. Forward-Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q. Our condensed consolidated financial statements have been prepared in accordance withU.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words "expect," "anticipate," "intend," "believe," "may," "plan", "seek" or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof and we assume no obligation to update any such forward-looking statements. For such forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially, from those projected in, or implied by the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. As used below, the words "we," "us" and "our" may refer toFortress Biotech, Inc. individually or together with one or more partner companies, as dictated by context.
Overview
We are a biopharmaceutical company dedicated to acquiring, developing and commercializing pharmaceutical and biotechnology products and product candidates, which we do at the Fortress level, at its majority-owned and majority-controlled subsidiaries and joint ventures, and at entities we founded and in which we maintain significant minority ownership positions. Fortress has a talented and experienced business development team, comprised of scientists, doctors and finance professionals, who identify and evaluate promising products and product candidates for potential acquisition by new or existing partner companies. Our subsidiary and partner companies that are pursuing development and/or commercialization of biopharmaceutical products and product candidates include Avenue Therapeutics (Nasdaq: ATXI, "Avenue"),Aevitas Therapeutics, Inc. ("Aevitas"),Baergic Bio, Inc. ("Baergic"),Caelum Biosciences, Inc. ("Caelum"),Cellvation, Inc. ("Cellvation"),Checkpoint Therapeutics, Inc. (Nasdaq: CKPT, "Checkpoint"),Cyprium Therapeutics, Inc. ("Cyprium"),Helocyte, Inc. ("Helocyte"), Journey Medical Corporation (Nasdaq: DERM, "Journey" or "JMC"),Mustang Bio, Inc. (Nasdaq: MBIO, "Mustang"),Oncogenuity, Inc. ("Oncogenuity") andUrica Therapeutics, Inc. ("Urica"). Through our partner companies, we have executed such arrangements in partnership with some of the world's foremost universities, research institutes and pharmaceutical companies, includingCity of Hope National Medical Center ,Fred Hutchinson Cancer Research Center ,St. Jude Children's Research Hospital ,Dana-Farber Cancer Institute ,Nationwide Children's Hospital ,Cincinnati Children's Hospital Medical Center ,Columbia University , theUniversity of Pennsylvania ,Mayo Foundation for Medical Education and Research , AstraZeneca plc and Dr. Reddy's Laboratories, Ltd. Following the exclusive license or other acquisition of the intellectual property underpinning a product or product candidate, we leverage our business, scientific, regulatory, legal and financial expertise to help the partners achieve their goals. Our partner companies then assess a broad range of strategic arrangements to accelerate and provide additional funding to support research and development, including joint ventures, partnerships, out-licensings, and public and private financings. To date, four partner companies are publicly-traded, and two have executed strategic partnerships with industry leaders AstraZeneca and Sentynl.
Recent Events
Marketed Dermatology Products
Our eight branded and three authorized generic prescription drugs for
? dermatological conditions are actively marketed in the
company, Journey.
? During the three months ended
product revenue of
? During the nine months ended
product revenue of$55.1 million and$45.6 million , respectively. 31 Table of Contents Late Stage Product Candidates
Cosibelimab (Anti-PD-L1 Antibody for Solid Tumors (formerly CK-301))
In
("CMC") and clinical/non-clinical). Based upon favorable interactions with the
? agency, the planned BLA submission in
metastatic and locally advanced cutaneous squamous cell carcinoma indications.
Checkpoint also reached agreement with the FDA on all key aspects discussed
with regard to the content of the upcoming BLA submission.
? Cosibelimab was sourced by Fortress and is currently in development at our
partner company, Checkpoint.
CUTX-101 (Copper Histidinate for Menkes disease)
? In
CUTX-101, which is expected to be completed in 2023.
Cyprium is currently in a dispute with its contract manufacturing organization
(the "CMO"), regarding the CMO's attempt to terminate a Master Services
Agreement (together with related work orders, the "MSA") between Cyprium and
the CMO. Cyprium believes the CMO's grounds for purporting to terminate the MSA
are without merit and is currently availing itself of all appropriate legal
? remedies in efforts to ensure that the CMO abides by its obligations under the
MSA and/or to pursue monetary damages claims against the CMO. To that end,
Cyprium obtained a temporary restraining order in
injunction in
invalidated the CMO's attempted termination of the MSA and prohibited the CMO
from further attempts to terminate the MSA during the pendency of dispute
resolution procedures.
? CUTX-101 is currently in development at our partner company, Cyprium.
DFD-29 (modified release oral minocycline for the treatment of rosacea)
As of
? DFD-29 for the treatment of papulopustular rosacea. Topline data are
anticipated in the first half of 2023 with an NDA filing expected in the second
half of 2023.
? DFD-29 is currently in development at our partner company, Journey Medical
Corp. IV Tramadol
In
regarding a meeting conducted on
meeting, Avenue presented a study design for a single safety clinical trial
that Avenue believes could address the concerns regarding risks related to
opioid stacking. The FDA stated that the proposed study design appears
? reasonable and agreed on various study design aspects with the expectation that
additional feedback would be provided to Avenue upon review of a more detailed
study protocol. Avenue intends to incorporate the
meeting minutes and submit a detailed study protocol that could form the basis
for the submission of a complete response to the second Complete Response
Letter for IV Tramadol.
? IV Tramadol was sourced by Fortress and is currently in development at our
partner company, Avenue.
Triplex (Cytomegalovirus ("CMV") vaccine)
In
? Health that could provide over
will fund a multi-center, placebo-controlled, randomized Phase 2 study of
Triplex for control of cytomegalovirus in patients undergoing liver transplantation.
Triplex is currently the subject of five ongoing trials, funded by non-dilutive
? sources, in various settings including: CMV control in stem cell and solid
organ transplantation, the treatment of HIV; and in combination with a CAR T
cell therapy for the treatment of NHL.
? Triplex was sourced by Fortress and is currently in development at our partner
company, Helocyte.
MB-107 and MB-207 (Lentiviral Gene Therapies for X-linked Severe Combined Immunodeficiency (XSCID))
In 2023, we expect to enroll the first patient in a pivotal multicenter Phase 2
? clinical trial under Mustang's IND to evaluate MB-107, a lentiviral gene
therapy for the treatment of infants under the age of two with XSCID.
Also in 2023, we expect to enroll the first patient in
? multicenter Phase 2 clinical trial of MB-207, a lentiviral gene therapy for the
treatment of patients with XSCID who have been previously treated with a
hematopoietic stem cell transplantation and for whom re-treatment is indicated.
? MB-107 and MB-207 were sourced by Fortress and are currently in development at
our partner company, Mustang.
32
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Early Stage Product Candidates
MB-106 (CD20-targeted CAR T cell therapy)
On
multicenter Phase ½ Clinical Trial of MB-106, a first-in-class CD20-targeted,
autologous CAR T cell therapy to treat B-cell non-Hodgkin lymphoma and chronic
? lymphocytic leukemia. This multicenter trial under Mustang's Investigational
New Drug Application ("IND") builds upon the initial, ongoing Phase ½ clinical
trial taking place at Fred Hutch in a single-center study under Fred Hutch's
IND. Mustang expects to enroll 3 to 6 patients in this multicenter trial by the
end of 2022. Interim data from 28 patients treated in the initial, ongoing Phase ½
investigator-sponsored clinical trial at Fred Hutch continue to support MB-106
as a viable CAR T cell therapy for B-NHLs and CLL. An overall response rate of
96% and complete response ("CR") rate of 75% were observed in a wide range of
hematologic malignancies including follicular lymphoma ("FL"), CLL, diffuse
large B-cell lymphoma, and Waldenstrom macroglobulinemia. Twelve patients have
? experienced CR for more than 12 months (10 ongoing); four patients with CR for
more than two years and the longest patient with CR is at 33 months. Six
patients with partial response ("PR") improved to CR and all remain in ongoing
CR. All three patients previously treated with CD19 CAR T cell therapy
responded to treatment with MB-106. A favorable safety profile for MB-106 as an
outpatient therapy remains with no CRS or ICANS ? Grade 3. CAR-T persistence
results in deepening responses following initial 28-day assessments.
? MB-106 was sourced by Fortress and is currently in development at our partner
company, Mustang.
Dotinurad (Urate Transporter (URAT1) Inhibitor)
In
? healthy volunteers in
treatment of gout and possibly other hyperuricemic conditions. We anticipate
topline data from the Phase 1 trial in the first half of 2023.
Dotinurad (URECE® tablet) was approved in
therapy for gout and hyperuricemia. Dotinurad was efficacious and
? well-tolerated in more than 500 Japanese patients treated for up to 58 weeks in
Phase 3 clinical trials. The clinical program supporting approval included over
1,000 patients.
? Dotinurad was sourced by Fortress and is currently in development at our
partner company, Urica Therapeutics.
MB-109 (MB-101 (IL13R?2-targeted CAR T Cell Therapy) + MB-108 oncolytic virus)
In
investigator-sponsored Phase 1 clinical trials evaluating two clinical
candidates, MB101 (IL13R?2targeted CAR T cell therapy licensed from City of
? Hope) and MB-108 (herpes simplex virus type 1 oncolytic virus licensed from
Mustang is in the process of completing IND-enabling manufacturing and
preclinical activities requested by the FDA in a Pre-IND meeting and expects to
file an IND for a Mustang-sponsored Phase 1 trial in 2023.
? MB-101 and MB-108 were sourced by Fortress and are currently in development at
our partner company, Mustang.
MB-110 Ex Vivo Lentiviral Gene Therapy for RAG1 Severe Combined Immunodeficiency ("RAG1-SCID")
In
? ex vivo lentiviral gene therapy to treat recombinase-activating gene-1 ("RAG1")
severe combined immunodeficiency (RAG1-SCID"), in an ongoing Phase ½
multicenter clinical trial taking place in
? LV-RAG1 is exclusively licensed by Mustang for the development of MB-110, a
first-in-class ex vivo lentiviral gene therapy for the treatment of RAG1-SCID.
? MB-110 was sourced by Fortress and is currently in development at our partner
company, Mustang. General Corporate
In
? company in compliance with the minimum bid price listing requirement of the
Nasdaq Capital Market.
In
Avenue received net proceeds of approximately
deducting underwriting discounts and commissions and other expenses of the
? offering.
owned by a certain minority investor. With the completion of the offering and
the reverse-split, Avenue received correspondence from Nasdaq indicating that
the company had evidenced compliance for continued listing on The Nasdaq
Capital Market.
33
Table of Contents
On
Staff of Nasdaq indicating that the bid price of the Company's common stock had
closed below
? Fortress is not in compliance with Nasdaq minimum bid price requirement.
Nasdaq's notice has no immediate effect on the listing of the common stock on
Nasdaq. The Company intends to closely monitor the closing bid price of the
Common Stock and consider all available options to remedy the bid price
deficiency, but no decision regarding any action has yet been made.
? In
from Fortress, pursuant to the Stock Contribution Agreement dated
Also in
stock of Checkpoint approved a 1-for-10 reverse stock split of Checkpoint's
common stock. Checkpoint expects its common shares will begin trading on a
? split-adjusted basis on The Nasdaq Capital Market in
of Directors determined the 1-for-10 ratio to be appropriate in order to
improve the marketability and liquidity of Checkpoint's common stock and to
remain in compliance with all of Nasdaq's continued listing requirements.
Critical Accounting Policies and Use of Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted inthe United States . Applying these principles requires our judgment in determining the appropriateness of acceptable accounting principles and methods of application in diverse and complex economic activities. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of revenues, expenses, assets and liabilities, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of our critical accounting estimates, see the MD&A in the Company's Form 10-K, which was filed with theUnited States Securities and Exchange Commission ("SEC") onMarch 28, 2022 ("2021 Form 10-K"). There were no material changes in our critical accounting estimates or accounting policies fromDecember 31, 2021 . Accounting Pronouncements
During the nine-month period ended
Smaller Reporting Company Status
We are a "smaller reporting company," meaning that the market value of our shares held by non-affiliates is less than$700 million and our annual revenue was less than$100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than$250 million or (ii) our annual revenue was less than$100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than$700 million . As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in the 2021 Form 10-K, have reduced disclosure obligations regarding executive compensation and certain other matters, and smaller reporting companies are permitted to delay adoption of certain recent accounting pronouncements discussed in Note 2 to our consolidated financial statements in this report on Form 10-Q.
Results of Operations
General
For the three months endedSeptember 30, 2022 and 2021, we generated$16.5 million and$21.1 million , respectively, of net revenue, of which$16.0 million and$19.6 million , respectively, relates primarily to the sale of Journey branded and generic products and approximately$48,000 and$29,000 , respectively, relates to Checkpoint's collaborative agreements with TGTX. Collaboration revenue of$0.4 million and$1.4 million , respectively, recognized in the quarters endedSeptember 30, 2022 and 2021 is a result of Cyprium's agreement with Sentynl. Other revenue of$0.1 million in the quarter endedSeptember 30, 2022 includes Journey's receipt of royalties from its exclusive out-licensing partner for Qbrexza. 34
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For the nine months endedSeptember 30, 2022 and 2021, we generated$59.3 million and$50.5 million , respectively, of net revenue, of which$55.1 million and$45.6 million , respectively, relates primarily to the sale of Journey branded and generic products and approximately$0.1 million and$0.3 million , respectively, relates to Checkpoint's collaborative agreements with TGTX. Collaboration revenue of$1.5 million and$4.6 million , respectively, recognized in the nine months endedSeptember 30, 2022 and 2021 is a result of Cyprium's agreement with Sentynl. Other revenue of$2.6 million in the nine months endedSeptember 30, 2022 includes Journey's receipt of royalties as well as a$2.5 million milestone payment from its' exclusive out-licensing partner for Qbrexza. For the three months endedSeptember 30, 2022 and 2021, we had$7.2 million or 45.0% of product revenue, and$11.2 million or 56.9% of product revenue, net, respectively, of costs of goods sold in connection with the sale of Journey's marketed products. The decrease is related to lower overall sales volume and related royalty expense. In addition to the impact of sales volume, royalty expense was also impacted by a contractual double digit percentage decrease in the royalty rate of Qbrexza that occurred inMay 2022 . For the nine months endedSeptember 30, 2022 and 2021, we had$23.1 million or 41.9% of product revenue, and$22.6 million or 49.5% of product revenue, net, respectively, of costs of goods sold in connection with the sale of Journey's marketed products. The increase is a result of higher sales volume, incremental royalties from Qbrexza and Accutane, which were launched in the first half of 2021, and an incremental increase in amortization of acquired intangible assets due to the acquisition of Amzeeq and Zilxi from VYNE inJanuary 2022 . As ofSeptember 30, 2022 , we had an accumulated deficit of$607.1 million . While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, research and development payments in connection with strategic partnerships and/or product sales, our and our subsidiaries' current product candidates are at an early stage of development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future, and there can be no assurance that we will ever generate significant revenues.
Research and Development Expenses
Research and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license and milestone costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings and patents, laboratory costs and other supplies. For the three and nine months endedSeptember 30, 2022 , research and development expenses were approximately$29.9 million and$99.7 million , respectively. For the three and nine months endedSeptember 30, 2021 , research and development expenses were approximately$27.4 million and$70.2 million , respectively Additionally, during the three and nine months endedSeptember 30, 2021 , we expensed approximately$0.7 million and$15.6 million , respectively, in costs related to the acquisition of licenses. 35
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Noncash, stock-based compensation expense included in research and development for the three months endedSeptember 30, 2022 and 2021, was$1.0 million and$1.1 million , respectively. Noncash, stock-based compensation expense included in research and development for the nine months endedSeptember 30, 2022 and 2021, was$3.6 million and$3.1 million , respectively. The table below provides a summary of research and development costs associated with the development of our licenses by entity, for the three and nine months endedSeptember 30, 2022 and 2021, by entity: Nine Months Ended Three Months Ended September 30, % of total September 30, % of total ($ in thousands) 2022 2021 2022
2021 2022 2021 2022 2021 Research & Development Fortress
$ 515 $ 651 2 % 2 % $ 1,889 $ 1,979 2 % 3 %
Partner Companies:
Avenue 194 278 1 % 1 % 2,153 864 2 % 1 %
Checkpoint 8,866 9,384 30 % 34 % 35,589 20,795 36 % 30 %
JMC 2,812 718 9 % 3 % 6,687 747 6 % 1 %
Mustang 15,309 14,028 51 % 51 % 46,537 36,430 47 % 52 %
Other1 2,159 2,308
7 % 9 % 6,852 9,411 7 % 13 %
Note 1: Includes the following partner companies: Aevitas, Baergic, Cellvation,
Cyprium, Helocyte, Oncogenuity and Urica.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of sales and marketing costs, personnel-related costs, professional fees for legal, consulting, audit and tax services, rent, and other general operating expenses not otherwise included in research and development expenses. For the three months endedSeptember 30, 2022 and 2021, selling, general and administrative expenses were approximately$30.1 million and$22.2 million , respectively. Noncash, stock-based compensation expense included in selling, general and administrative expenses for the three monthsSeptember 30, 2022 and 2021, was$5.8 million and$3.2 million , respectively. For the nine months endedSeptember 30, 2022 and 2021, selling, general and administrative expenses were approximately$85.5 million and$59.1 million , respectively. Noncash, stock-based compensation expense included in selling, general and administrative expenses for the nine monthsSeptember 30, 2022 and 2021, was$13.9 million
and$9.4 million , respectively. 36 Table of Contents
The table below provides a summary of selling, general and administrative costs
for the three and nine months ended
Nine Months Ended
Three Months Ended September 30, % of Total September 30, % of Total
($ in thousands) 2022 2021 2022 2021 2022 2021 2022 2021
Selling, General & Administrative
Fortress $ 7,781 $ 5,989 26 % 27 % $ 21,334 $ 18,425 26 % 31 %
Partner Companies:
Avenue 469 594 1 % 3 % 1,978 1,960 2 % 3 %
Checkpoint 1,695 1,760 6 % 8 % 5,604 5,110 6 % 9 %
JMC1 15,574 11,003 52 % 49 % 45,517 24,848 53 % 42 %
Mustang 3,232 2,219 11 % 10 % 8,485 6,508 10 % 11 %
Other2 1,388 656 4 % 3 % 2,539 2,294 3 % 4 %Total Selling, General & Administrative Expense $ 30,139 $
22,221 100 % 100 % $ 85,457 $ 59,145 100 % 100 %
Includes cost of outsourced sales force for the three months ended
Note 1:
respectively, and for the nine months ended September 30, 2022 and 2021
of $17.8 million and $11.1 million , respectively.
Note 2: Includes the following partner companies: Aevitas, Baergic, Cellvation,
Cyprium, Helocyte, Oncogenuity and Urica.
Comparison of three months ended
Three Months Ended September 30, Change
($ in thousands) 2022 2021 $ %
Revenue
Product revenue, net $ 16,043 $ 19,610 $ (3,567) (18) %
Collaboration revenue 364 1,446 (1,082) (75) %
Revenue - related party 48 29 19 66 %
Other revenue 73 - 73 100 %
Net revenue 16,528 21,085 (4,557) (22) %
Operating expensesCost of goods sold - product revenue 7,221 11,167 (3,946) (35) % Research and development 29,855 27,367 2,488 9 % Research and development - licenses acquired 47 713 (666) (93) % Selling, general and administrative 30,139
22,221 7,918 36 %
Wire transfer fraud loss - 9,540 (9,540) (100) %
Total operating expenses 67,262 71,008 (3,746) (5) %
Loss from operations (50,734) (49,923) (811) 2 %
Other income (expense)
Interest income 419 132 287 217 %Interest expense and financing fee (3,393) (4,444) 1,051 (24) % Foreign exchange loss (21) - (21) 100 % Change in fair value of investments - 8,376 (8,376) (100) % Change in fair value of derivative liability -
(2) 2 (100) %
Grant income 669 - 669 100 %
Total other income (expense) (2,326) 4,062 (6,388) (157) %
Net Loss (53,060) (45,861) (7,199) 16 %
Less: net loss attributable to
non-controlling interest 30,549 25,080 5,469 22 %
Net loss attributable to common stockholders $ (22,511) $
(20,781) $ (1,730) 8 %
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Net revenue decreased $4.6 million , or 22%, from the three months ended
September 30, 2021 to the three months ended September 30, 2022 primarily due to
the $3.6 million decrease in product revenue, net associated Targadox and its
authorized generic, as a result of continued generic competition. In addition,
net product revenues of Ximino and its authorized generic, as well as Exelderm
and its authorized generic, have been negatively impacted by contract
manufacturer product shortages, which have since been resolved. Collaboration
revenue as a result of Cyprium's agreement with Sentynl decreased $1.1 million
in the quarter ended September 30, 2022 . Revenue-related party consists of
patent fees related to Checkpoint's collaborations with TGTX. Other revenue of
$0.1 million for the quarter ended September 30, 2022 consists of Journey's
royalty revenue associated with Qbrexza.
Cost of goods sold decreased by $3.9 million , or 35%, from the three months
ended September 30, 2021 to the three months ended September 30, 2022. The
decrease is primarily due to a $2.1 million decrease in the product royalties we
are required to pay as a result of lower sales in the three-month period ended
September 30, 2022 compared to the year-earlier period, and, to a lesser extent,
a contractual double digit percentage decrease in the royalty rate of Qbrexza
that occurred in May 2022 . In addition, the three-month period ended September
30, 2021 included an inventory step-up of $3.0 million for inventory units sold
related to the acquired finished goods of Qbrexza® in 2021. Offsetting, in part,
the above decreases are increases in cost of goods sold related to higher
amortization of licenses of approximately $0.4 million , and higher freight,
testing and product validation costs of approximately $0.7 million as a result
of our newly acquired and launched products, Amzeeq and Zilxi (acquired in
January 2022 ) and a $0.1 million increase in FDA manufacturing fees from the
prior-year quarter.
Research and development expenses increased $2.5 million or 9% from the three
months ended September 30, 2021 to the three months ended September 30, 2022 .
The following table shows the change in research and development spending by
Fortress and its partner companies:
Three Months Ended September 30, Change
($ in thousands) 2022 2021 $ %
Research & Development
Stock-based compensation
Fortress $ 375 $ 275 $ 100 36 %
Partner Companies:
Avenue 8 25 (17) (67) %
Checkpoint 276 161 115 72 %
JMC 34 - 34 100 %
Mustang 302 655 (353) (54) %
Other1 5 2 3 129 %Sub-total stock-based compensation expense 1,000 1,118 (118) (11) % Other Research & Development Fortress 140 376 (236) (63) % Partner Companies: Avenue 186 253 (67) (27) % Checkpoint 8,590 9,223 (633) (7) % JMC 2,778 718 2,060 287 % Mustang 15,007 13,373 1,634 12 % Other1 2,154 2,306 (152) (7) %
Total Research & Development Expense $ 29,855 $
27,367
Note 1: Includes the following partner companies: Aevitas, Baergic, Cellvation,
Cyprium, Helocyte, Oncogenuity and Urica.
The decrease in stock-based compensation for the quarter endedSeptember 30, 2022 is primarily due to the effect of new equity grants to key employees at Checkpoint offset by Mustang's decrease in stock based compensation of$0.4
million.
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JMC's research and development expense increase of$2.1 million is related to clinical trial expenses to develop DFD-29, for which dosing began inMarch 2022 , and these costs are expected to increase as more patients are enrolled. Mustang's increase in research and development spending of$1.6 million is primarily attributable to increased expenses of$0.6 million for personnel related expenses in connection with the advancement of its clinical programs,$0.3 million for third party clinical trial and sponsored research costs,$0.4 million for laboratory supplies and$0.8 million for various other costs, partially offset by a$0.5 million decrease in consulting and outside services costs. The decreased spending at Checkpoint of$0.6 million is attributable primarily to decreased costs related to Checkpoint's manufacturing costs for cosibelimab of$1.0 million , as well as decreased clinical costs of$1.2 million related to Checkpoint's product candidates, offset by$0.9 million increase in personnel costs due to increased headcount, and$0.6 million increase in regulatory costs. The decrease in "Other" of$0.2 million is attributable to the decreased spend in the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 for Cyprium, as the prior quarter spend related to costs for the preparation of Cyprium's rolling NDA submission, and Oncogenuity, as the license was returned to Columbia, offset by an increase in spending at Urica due to costs associated with the Phase 1 clinical trial to evaluate Dotinurad, which was initiated inJune 2022 . General and administrative expenses increased$7.9 million , or 36%, from the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2022 . The following table shows the change in general and administrative spending by Fortress and its partner companies: Three Months Ended September 30, Change ($ in thousands) 2022 2021 $ % Selling, General & Administrative Stock-based compensation Fortress $ 3,704 $ 2,287$ 1,417 62 % Partner Companies: Avenue 18 44 (26) (60) % Checkpoint 505 618 (113) (18) % JMC 1,404 7 1,397 19958 % Mustang 194 229 (35) (15) % Other2 12 23 (11) (47) %
Sub-total stock-based compensation expense 5,837 3,208 2,629 82 % Other Selling, General & Administrative Fortress 4,077 3,702 375 10 % Partner Companies: Avenue 451 550 (99) (18) % Checkpoint 1,190 1,142 48 4 % JMC1 14,170 10,996 3,174 29 % Mustang 3,038 1,990 1,048 53 % Other2 1,376 633 743 117 %
Total Selling, General & Administrative Expense $ 30,139 $ 22,221
Includes cost of outsourced sales force for the three months ended
Note 1:
respectively.
Note 2: Includes the following partner companies: Aevitas, Baergic, Cellvation,
Cyprium, Helocyte, Oncogenuity and Urica.
For the quarter endedSeptember 30, 2022 , the increase in general and administrative expenses of$7.9 million , or 36%, is primarily attributable to Journey's expanded salesforce and increased sales and marketing costs associated with product portfolio, as well as Mustang's increase in professional fees and outside services, and personnel related expenses. The increase in "Other" is due to increased professional fees at Cyprium and Baergic. Total other income (expense) decreased$6.4 million , or 157%, from income of$4.1 million for the three months endedSeptember 30, 2021 to expense of$2.3 million for the three months endedSeptember 30, 2022 , primarily due to the change in fair value of the Company's investment in Caelum of$8.4 million recorded in the three months endedSeptember 30, 2021 . There is no comparable change in fair value of investment in Caelum in the current quarter as Caelum was acquired in the fourth quarter of 2021 by AstraZeneca. Grant income of$0.7 million recorded in the three months endedSeptember 30, 2022 relates to Mustang's income related to itsNIH grant. 39
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Net loss attributable to Common Stockholders increased$1.7 million , or 8%, from a net loss of$20.8 million for the three months endedSeptember 30, 2021 to a net loss of$22.5 million for the three months endedSeptember 30, 2022 .
Comparison of nine months ended
Nine Months Ended September 30, Change
($ in thousands) 2022 2021 $ %
Revenue
Product revenue, net $ 55,074 $ 45,617 $ 9,457 21 %
Collaboration revenue 1,518 4,646 (3,128) (67) %
Revenue - related party 118 252 (134) (53) %
Other revenue 2,629 - 2,629 100 %
Net revenue 59,339 50,515 8,824 17.5 %
Operating expensesCost of goods sold - product revenue 23,057 22,559 498 2 % Research and development 99,707 70,226 29,481 42 % Research and development - licenses acquired 48 15,585 (15,537) (100) % Selling, general and administrative 85,457
59,145 26,312 44 %
Wire transfer fraud loss - 9,540 (9,540) (100) %
Total operating expenses 208,269 177,055 31,214 18 %
Loss from operations (148,930) (126,540) (22,390) 18 %
Other income (expense)
Interest income 711 505 206 41 %Interest expense and financing fee (8,897) (9,393) 496 (5) % Foreign exchange loss (21) - (21) 100 % Change in fair value of investments - 39,294 (39,294) (100) % Change in fair value of derivative liability -
(184) 184 (100) %
Grant income 669 - 669 100 %
Total other income (expense) (7,538) 30,222 (37,760) (125) %
Net loss (156,468) (96,318) (60,150) 62 %
Less: net loss attributable to
non-controlling interest 96,841 63,180 33,661 53 %
Net loss attributable to common stockholders $ (59,627) $
(33,138)
Net revenues increased$8.8 million , or 18%, from the nine months endedSeptember 30, 2021 to the nine months endedSeptember 30, 2022 primarily due to incremental revenues from Qbrexza, acquired and launched during the second quarter of 2021, the revenue growth of Accutane, launched at the end of the first quarter of 2021, and incremental net revenues as a result of our newly acquired and launched products, Amzeeq and Zilxi (acquired inJanuary 2022 ). Offsetting, in part, the increases above is a decrease in the net product revenue of Targadox and its authorized generic as a result of continued generic competition. In addition, net product revenues of Ximino and its authorized generic, and Exelderm and its authorized generic, have been negatively impacted by contract manufacturer product shortages. These shortages were resolved in the third quarter of 2022. Collaboration revenue as a result of Cyprium's agreement with Sentynl decreased$3.1 million for the nine months endedSeptember 30, 2022 due to the prolonged timeline for the NDA submission. Other revenue of$2.6 million for the nine months endedSeptember 30, 2022 is a result of a milestone payment of$10 million to Journey from their exclusive licensing partner inJapan ,Maruho , offset by a$7.5 million payment toDermira , pursuant to the terms of the Qbrexza APA between Journey andDermira . Revenue-related party consists of patent fees related to Checkpoint's collaborations with TGTX. Cost of goods sold increased by$0.5 million , or 2%, from the nine months endedSeptember 30, 2021 to the nine months endedSeptember 30, 2022 due to higher product cost of goods sold of$2.1 million driven by increased net product sales from period-to-period, increased amortization of$1.1 million related to acquired intangible assets from the acquisition of Amzeeq and Zilxi inJanuary 2022 , costs of approximately$1.1 million related to freight, product validation and stability testing for Amzeeq and Zilxi. The above increases to cost goods sold from period-to-period are offset, in part, by a decrease as the nine-month period endedSeptember 30, 2021 included an inventory step-up of$4.2 million for inventory units sold related to the acquired finished goods of Qbrexza
in
2021.
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Research and development expenses increased $29.5 million or 42% from the nine
months ended September 30, 2021 to the nine months ended September 30, 2022 . The
following table shows the change in research and development spending by
Fortress and its partner companies.
Nine Months Ended September 30, Change
($ in thousands) 2022 2021 $ %
Research & Development
Stock-based compensation
Fortress $ 1,218 $ 869 $ 349 40 %
Partner Companies:
Avenue 297 108 189 175 %
Checkpoint 752 480 272 57 %
JMC 34 - 34 100
Mustang 1,262 1,633 (371) (23) %
Other1 8 7 1 7 %Sub-total stock-based compensation expense 3,571 3,097 474 358 % Other Research & Development Fortress 671 1,110 (439) (40) % Partner Companies: Avenue 1,856 756 1,100 145 % Checkpoint 34,837 20,315 14,522 71 % JMC 6,653 747 5,906 791 % Mustang 45,275 34,797 10,478 30 % Other1 6,844 9,404 (2,560) (27) %
Total Research & Development Expense$ 99,707 $
70,226
Note 1: Includes the following partner companies: Aevitas, Baergic, Cellvation,
Cyprium, Helocyte, Oncogenuity and Urica.
The increase in stock-based compensation for the nine months endedSeptember 30, 2022 is primarily due to the effect of new equity grants to key employees and non-employees at Fortress, Avenue and Checkpoint. The increased spending at Checkpoint of$14.5 million is attributable primarily to increased costs related to Checkpoint's manufacturing costs for cosibelimab of$9.5 million as validation work continues, as well as increased clinical costs of$0.7 million related to Checkpoint's product candidates,$2.4 million increase in personnel costs due to increased headcount, and$0.8 million increase in other costs. Mustang's increase in research and development spending of$10.5 million is primarily attributable to higher expenses of$4.0 million for personnel related expenses in connection with the advancement of Mustang's programs,$2.4 million for third party clinical trial costs,$1.8 million for laboratory supplies,$1.3 million for plasmid manufacturing costs,$0.5 million for depreciation expense, and$0.5 million for other expenses. Avenue's increase of$1.1 million is primarily due to$1.0 million increase in expenses related to advisory committee preparation costs as well as$0.1 million increase in personnel-related costs. JMC's research and development expense increase of$5.9 million is related to clinical trial expenses to develop DFD-29 for which dosing began inMarch 2022 . The decrease in "Other" of$2.6 million is attributable to the decreased spend in the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 for Cyprium, as the prior year-to-date spend related to costs for the preparation of Cyprium's
rolling NDA submission.
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General and administrative expenses increased
Nine Months Ended September 30, Change
($ in thousands) 2022 2021 $ %
Selling, General & Administrative
Stock-based compensation
Fortress $ 8,505 $ 6,437 $ 2,068 32 %
Partner Companies:
Avenue 341 191 150 78 %
Checkpoint 1,533 1,839 (306) (17) %
JMC 2,951 40 2,911 7280 %
Mustang 549 794 (245) (31) %
Other2 31 51 (20) (29) %Sub-total stock-based compensation expense 13,910 9,352 4,558 49 % Other Selling, General & Administrative Fortress 12,829 11,988 841 7 % Partner Companies: Avenue 1,637 1,769 (132) (7) % Checkpoint 4,071 3,271 800 24 % JMC1 42,566 24,808 17,758 72 % Mustang 7,936 5,714 2,222 39 % Other2 2,508 2,243 265 12 %
Total Selling, General & Administrative Expense$ 85,458 $
59,145
Includes cost of outsourced sales force for the nine months ended
Note 1:
respectively.
Note 2: Includes the following partner companies: Aevitas, Baergic, Cellvation,
Cyprium, Helocyte, Oncogenuity and Urica.
For the nine months ended
Total other income (expense) decreased$37.8 million , or 125%, from income of$30.2 million for the nine months endedSeptember 30, 2021 to expense of$7.5 million for the nine months endedSeptember 30, 2022 , primarily due to the change in fair value of the Company's investment in Caelum of$39.3 million recorded in the nine months endedSeptember 30, 2021 . There is no comparable change in fair value of investment in Caelum in the nine months endedSeptember 30, 2022 as Caelum was acquired in the fourth quarter of 2021 by AstraZeneca.
The fair value increase was offset slightly by the increase in grant income of
Net loss attributable to Common Stockholders increased$26.5 million , or 80%, from a net loss of$33.1 million for the nine months endedSeptember 30, 2021 to a net loss of$59.6 million for the nine months endedSeptember 30, 2022 . 42
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Liquidity and Capital Resources
We will require additional financing to fully develop and prepare regulatory filings and obtain regulatory approvals for our existing and new product candidates, fund operating losses, and, if deemed appropriate, establish or secure through third parties manufacturing for our potential products, and sales and marketing capabilities. We have funded our operations to date primarily through the sale of equity and debt securities. We believe that our current cash and cash equivalents is sufficient to fund operations for at least the next twelve months. Our failure to raise capital as and when needed would have a material adverse impact on our financial condition and our ability to pursue our business strategies. We may seek funds through equity or debt financings, joint venture or similar development collaborations, the sale of partner companies (such as the stock purchase of Caelum by AstraZeneca that resulted from an option exercise), royalty financings, or through other sources of financing; the rising interest rate environment may cause the Company to pay more interest on its various debt instruments, which could lead to higher operating expenses. In addition to the foregoing, based on the Company's current assessment, the Company does not expect any material impact on its long-term development timeline and its liquidity due to the ongoing COVID-19 pandemic. However, the Company is continuing to assess the effect on its operations by monitoring ongoing development in connection with the continuing COVID-19 pandemic and the actions implemented to combat the virus throughout the world.
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