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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to

Commission File Number 001-35366

FORTRESS BIOTECH, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-5157386

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2 Gansevoort Street, 9th Floor

New York, New York 10014

(Address including zip code of principal executive offices)

(781) 652-4500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class

Trading Symbol(s)

Exchange Name

Common Stock

FBIO

Nasdaq Capital Market

9.375% Series A Cumulative Redeemable Perpetual Preferred Stock

FBIOP

Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No  

Class of Stock

   

Outstanding Shares as of May 13, 2021

Common Stock, $0.001 par value

97,319,238

9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.001 par value

3,427,138

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

1

Item 1.

Unaudited Condensed Consolidated Financial Statements

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

41

Item 4.

Controls and Procedures

42

PART II.

OTHER INFORMATION

42

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

43

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

80

Item 3.

Defaults Upon Senior Securities

80

Item 4.

Mine Safety Disclosures

80

Item 5.

Other Information

80

Item 6.

Exhibits

81

 

 

 

SIGNATURES

 

82

Table of Contents

SUMMARY RISK FACTORS

Our business is subject to risks of which you should be aware before making an investment decision. The risks described below are a summary of the principal risks associated with an investment in us and are not the only risks we face. You should carefully consider these risk factors, the risk factors described in Item 1A, and the other reports and documents that we have filed with the Securities and Exchange Commission (“SEC”).  As used below and throughout this filing (including in the risk factors described in Item 1A), the words “we”, “us” and “our” may refer to Fortress Biotech, Inc. individually or together with one or more partner companies, as dictated by context.

Risks Inherent in Drug Development

Many of our and our partner companies’ product candidates are in early development stages and are subject to time and cost intensive regulation and clinical testing. As a result, our product candidates may never be successfully developed or commercialized.
Our competitors may develop treatments for our or our partner companies’ products’ target indications, which could limit our product candidates’ commercial opportunity and profitability.

Risks Pertaining to the Need for and Impact of Existing and Additional Financing Activities

We have a history of operating losses and we expect such losses to continue in the future.
We have funded our operations in part through the assumption of debt, which lending agreements may restrict our operations. Further, the occurrence of any default event under any applicable loan document could adversely affect our business.
Our research and development (“R&D”) programs will require additional capital, which we may be unable to raise as needed and which may impede our R&D programs, commercialization efforts, or planned acquisitions.
If we raise additional capital by issuing securities, our existing stockholders will be diluted.

Risks Pertaining to Our Existing Revenue Stream from Journey Medical Corporation (“Journey”)

Our operating income derives primarily from the sale of our partner company Journey’s dermatology products, particularly Qbrexza, Ximino, Targadox, Accutane, and Exelderm. Any issues relating to the manufacture, sale, utilization, or reimbursement of Journey’s products (including products liability claims) could significantly impact our operating results.
The majority of Journey’s sales derive from products that are without patent protection and/or are or may become subject to third party generic competition; the introduction of new competitor products, or an increase in market share of existing competitor products, could have a significant adverse effect on our operating income. With respect to Journey products that are covered by valid claims of issued patents, such patents may be subject to invalidation, which would harm our operating income.
Continued sales and coverage, including formulary inclusion without the need for a prior authorization or step edit therapy, of our products for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors are increasingly examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy, and, accordingly, significant uncertainty exists as to the reimbursement status of newly approved therapeutics.

Risks Pertaining to our Business Strategy, Structure and Organization

We have entered, and will likely in the future enter, into certain collaborations or divestitures which may cause a reduction in our business’ size and scope, market share and opportunities in certain markets, or our ability to compete in certain markets and therapeutic categories.
We have also entered into several arrangements under which we have agreed to contingent dispositions of partner companies and/or their assets. The failure to consummate any such transaction may impair the value of such companies and/or assets, and we may not be able to identify or execute alternative arrangements on favorable terms, if at all.
Our growth and success depend on our acquiring or in-licensing products or product candidates and integrating such products into our business.
We act as guarantor and/or indemnitor of certain obligations of our subsidiaries and affiliates, which could require us to pay substantial amounts based on the actions of said subsidiaries or affiliates.

3

Table of Contents

Risks Pertaining to Reliance on Third Parties

We rely heavily on third parties for several aspects of our operations, including manufacturing and developing product candidates, conducting clinical trials, and producing commercial supplies for products. Such reliance on third-parties reduces our ability to control every aspect of the drug development process and may hinder our ability to develop and commercialize our products in a cost-effective and timely manner.

Risks Pertaining to Intellectual Property and Potential Disputes with Licensors Thereof

If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.
We or our licensors may be subject to costly and time-consuming litigation for infringement of third-party intellectual property rights or to enforce our or our licensors’ patents.
Any dispute with our licensors may affect our ability to develop or commercialize our product candidates.

Risks Pertaining to Generic Competition and Paragraph IV Litigation

Generic drug companies may submit applications seeking approval to market generic versions of our products.
In connection with these applications, generic drug companies may seek to challenge the validity and enforceability of our patents through litigation and/or with the United States Patent and Trademark Office (PTO), such as the Paragraph IV certification made by Perrigo pertaining to the patents covering Qbrexza, a product being commercialized by our partner company Journey. Such challenges may subject us to costly and time-consuming litigation and/or PTO proceedings.
As a result of the loss of any patent protection from such litigation or PTO proceedings, or the “at-risk” launch by a generic competitor of our products, our products could be sold at significantly lower prices, and we could lose a significant portion of sales of that product in a short period of time, which could adversely affect our business, financial condition, operating results and prospects.

Risks Pertaining to the Commercialization of Product Candidates

If our products are not broadly accepted by the healthcare community, the revenues from any such product are likely to be limited.
We may not obtain the desired product labels or intended uses for product promotion, or favorable scheduling classifications desirable to successfully promote our products.
Even if a product candidate is approved, it may be subject to various post-marketing requirements, including studies or clinical trials, the results of which could cause such products to later be withdrawn from the market.
Any successful products liability claim related to any of our current or future product candidates may cause us to incur substantial liability and limit the commercialization of such products.

Risks Pertaining to Legislation and Regulation Affecting the Biopharmaceutical and Other Industries

We operate in a heavily regulated industry, and we cannot predict the impact that any future legislation or administrative or executive action may have on our operations.

4

Table of Contents

PART I.         FINANCIAL INFORMATION

Item 1.    Unaudited Condensed Consolidated Financial Statements

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

($ in thousands except for share and per share amounts)

March 31, 

December 31, 

2021

2020

 

(Unaudited)

ASSETS

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

289,897

$

233,351

Accounts receivable, net

 

19,439

 

19,349

Inventory

 

2,291

 

1,404

Other receivables - related party

 

849

 

744

Prepaid expenses and other current assets

 

5,517

 

6,723

Total current assets

 

317,993

 

261,571

Property and equipment, net

 

12,291

 

11,923

Operating lease right-of-use asset, net

 

20,072

 

20,487

Restricted cash

 

1,645

 

1,645

Long-term investment, at fair value

 

23,479

 

17,566

Intangible asset, net

 

14,442

 

14,629

Other assets

 

1,121

 

1,013

Total assets

$

391,043

$

328,834

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities

 

 

  

Accounts payable and accrued expenses

$

39,181

$

40,674

Deferred revenue

7,200

Income taxes payable

136

136

Operating lease liabilities, short-term

 

1,840

 

1,849

Partner company note payable, short-term

5,463

5,300

Total current liabilities

 

53,820

 

47,959

Notes payable, long-term (net of debt discount of $8,014 and $8,323 at March 31, 2021 and December 31, 2020, respectively)

 

51,986

 

51,677

Operating lease liabilities, long-term

 

22,447

 

22,891

Partner company note payable, long-term

5,613

7,359

Partner company convertible preferred shares

10,687

Partner company derivative warrant liability

362

Other long-term liabilities

 

1,903

 

1,949

Total liabilities

146,818

131,835

 

 

Commitments and contingencies

 

  

 

  

Stockholders’ equity

 

  

 

  

Cumulative redeemable perpetual preferred stock, $.001 par value, 15,000,000 authorized, 5,000,000 designated Series A shares, 3,427,138 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively, liquidation value of $25.00 per share

 

3

 

3

Common stock, $.001 par value, 150,000,000 shares authorized, 97,263,054 and 94,877,492 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

 

97

 

95

Additional paid-in-capital

 

597,384

 

583,000

Accumulated deficit

 

(491,582)

 

(482,760)

Total stockholders' equity attributed to the Company

 

105,902

 

100,338

Non-controlling interests

 

138,323

 

96,661

Total stockholders' equity

 

244,225

 

196,999

Total liabilities and stockholders' equity

$

391,043

$

328,834

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

($ in thousands except for share and per share amounts)

(Unaudited)

Three Months Ended March 31, 

    

2021

    

2020

Revenue

 

  

 

  

Product revenue, net

$

10,719

$

11,946

Collaboration revenue

800

 

Revenue - related party

 

68

 

972

Net revenue

 

11,587

 

12,918

Operating expenses

 

 

Cost of goods sold - product revenue

 

3,908

 

3,810

Research and development

 

20,028

 

14,867

Research and development - licenses acquired

 

126

 

250

Selling, general and administrative

 

17,542

 

15,519

Total operating expenses

 

41,604

 

34,446

Loss from operations

 

(30,017)

 

(21,528)

Other income (expense)

 

  

 

  

Interest income

 

227

 

627

Interest expense and financing fee

 

(2,189)

 

(3,125)

Change in fair value of investments

5,913

Change in fair value of derivative liability

 

 

(42)

Total other income (expense)

 

3,951

 

(2,540)

Net loss

 

(26,066)

 

(24,068)

Less: net loss attributable to non-controlling interests

 

17,244

 

11,698

Net loss attributable to common stockholders

$

(8,822)

$

(12,370)

Net loss per common share - basic and diluted

$

(0.32)

$

(0.38)

Net loss per common share attributable to non - controlling interests - basic and diluted

$

(0.21)

$

(0.18)

Net loss per common share attributable to common stockholders - basic and diluted

$

(0.11)

$

(0.19)

Weighted average common shares outstanding - basic and diluted

 

80,851,671

 

63,496,256

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands)

(Unaudited)

For the Three Months Ended March 31, 2021

Total

Series A Perpetual

Stockholders’

Preferred Stock

Common Stock

Paid-In

Accumulated

Non-Controlling

Equity

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Deficit

    

Interests

    

(Deficit)

Balance at December 31, 2020

 

3,427,138

    

$

3

    

94,877,492

    

$

95

    

$

583,000

    

$

(482,760)

    

$

96,661

    

$

196,999

Stock-based compensation expense

 

 

 

 

 

3,773

 

 

 

3,773

Issuance of common stock related to equity plans

 

 

 

2,385,562

 

2

 

(2)

 

 

 

Preferred A dividends declared and paid

 

 

 

 

 

(2,007)

 

 

 

(2,007)

Partner company’s at-the-market offering, net

 

 

 

 

 

71,422

 

 

 

71,422

Partner company’s exercise of options for cash

 

 

 

 

7

 

 

7

Issuance of common stock under partner company’s ESPP

 

 

 

 

158

 

 

158

Partner company’s dividends declared and paid

 

 

 

 

 

(187)

 

 

 

(187)

Issuance of partner company’s common shares for research and development expenses

 

 

 

 

 

126

 

 

 

126

Non-controlling interest in partner companies

 

 

 

 

(58,906)

 

 

58,906

Net loss attributable to non-controlling interest

 

 

 

 

 

 

(17,244)

(17,244)

Net loss attributable to common stockholders

 

 

 

 

 

 

(8,822)

 

 

(8,822)

Balance at March 31, 2021

 

3,427,138

    

$

3

    

97,263,054

    

$

97

    

$

597,384

    

$

(491,582)

    

$

138,323

    

$

244,225

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

($ in thousands)

(Unaudited)

For the Three Months Ended 3/31/2020

Total

Series A Perpetual

Stockholders’

Preferred Stock

Common Stock

Shares

Treasury

Paid-In

Accumulated

Non-Controlling

Equity

    

Shares

    

Amount

    

Shares

    

Amount

    

Issuable

Stock

    

Capital

    

Deficit

    

Interests

    

(Deficit)

Balance at December 31, 2019

 

1,341,167

    

$

1

    

74,027,425

    

$

74

    

$

500

$

$

461,874

    

$

(436,234)

$

46,317

    

$

72,532

Stock-based compensation expense

 

 

 

 

 

 

3,400

 

 

 

3,400

Issuance of common stock related to equity plans

 

 

 

1,952,407

 

2

 

 

(2)

 

 

 

Issuance of common stock for at-the-market offering, net

2,341,000

3

5,877

5,880

Preferred A dividends declared and paid

(1,207)

(1,207)

Repurchase of Series A preferred stock for cash, net

(5,000)

(70)

(2)

(72)

Issuance of Series A preferred stock for cash, net

718,750

 

1

 

 

 

 

13,066

 

 

 

13,067

Partner company’s at-the-market offering, net

 

 

 

 

 

 

4,910

 

 

 

4,910

Partner company’s exercise of warrants for cash

 

 

 

 

 

 

13

 

 

 

13

Issuance of common stock under partner company’s ESPP

 

 

 

 

 

 

169

 

 

 

169

Common shares issued for 2017 Subordinated Note Financing interest expense

 

 

251,337

 

 

(500)

 

500

 

 

 

Common shares issuable for 2017 Subordinated Note Financing interest expense

506

506

Common shares issuable for 2019 Notes interest expense

 

 

 

 

 

155

 

 

 

 

155

Non-controlling interest in partner companies

(3,438)

3,438

Net loss attributable to non-controlling interest

(11,698)

(11,698)

Net loss attributable to common stockholders

 

 

 

 

 

 

 

(12,370)

 

 

(12,370)

Balance at March 31, 2020

 

2,054,917

    

$

2

    

78,572,169

    

$

79

    

$

661

$

(70)

$

485,160

    

$

(448,604)

$

38,057

    

$

75,285

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

($ in thousands)

(Unaudited)

Three Months Ended March 31, 

    

2021

    

2020

Cash Flows from Operating Activities:

 

  

 

  

Net loss

$

(26,066)

$

(24,068)

Reconciliation of net loss to net cash used in operating activities:

 

  

 

  

Depreciation expense

 

603

 

527

Bad debt expense

70

 

Amortization of debt discount

 

309

 

747

Non-cash interest

221

150

Amortization of product revenue license fee

 

584

 

355

Amortization of operating lease right-of-use assets

 

415

 

403

Stock-based compensation expense

 

3,773

 

3,400

Issuance of partner company’s common shares for research and development expenses

 

126

 

Common shares issuable for 2017 Subordinated Note Financing interest expense

 

 

506

Common shares issuable for 2019 Notes interest expense

155

Change in fair value of derivative liability

 

 

42

Change in fair value of investment

 

(5,913)

 

Research and development-licenses acquired, expense

 

 

250

Increase (decrease) in cash and cash equivalents resulting from changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

(160)

 

(2,271)

Inventory

 

(887)

 

88

Other receivables - related party

 

(105)

 

(888)

Prepaid expenses and other current assets

 

1,206

 

(393)

Other assets

 

(108)

 

(195)

Accounts payable and accrued expenses

 

(2,457)

 

(612)

Accounts payable and accrued expenses - related party

 

 

13

Interest payable

 

 

39

Interest payable - related party

 

 

(39)

Deferred revenue

7,200

Lease liabilities

 

(453)

 

(54)

Other long-term liabilities

 

(46)

 

(47)

Net cash used in operating activities

 

(21,688)

 

(21,892)

Cash Flows from Investing Activities:

    

  

    

  

Purchase of research and development licenses

 

 

(1,250)

Purchase of property and equipment

 

(458)

 

(526)

Net cash used in investing activities

 

(458)

 

(1,776)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

($ in thousands)

(Unaudited)

Three Months Ended March 31, 

2021

2020

Cash Flows from Financing Activities:

 

  

 

  

Payment of Series A perpetual preferred stock dividends

 

$

(2,007)

 

$

(1,207)

Purchase of treasury stock

(70)

Payment of costs related to purchase of treasury stock

 

 

(2)

Proceeds from issuance of Series A perpetual preferred stock

14,375

Payment of costs related to issuance of Series A perpetual preferred stock

(1,213)

Proceeds from issuance of common stock for at-the-market offering

6,068

Payment of costs related to issuance of common stock for at-the-market offering

 

 

(188)

Proceeds from partner companies' ESPP

158

 

169

Partner company’s dividends declared and paid

(187)

 

Payment of costs related to partner companies' sale of stock

 

 

(69)

Proceeds from partner companies' at-the-market offering

 

72,947

 

4,997

Payment of costs related to partner companies' at-the-market offering

 

(1,584)

 

(87)

Payment of costs related to partner company's preferred stock offering

(13)

Proceeds from exercise of partner company’s warrants

 

 

13

Proceeds from exercise of partner company’s options

7

Payment of debt issuance costs associated with 2017 Subordinated Note Financing

 

 

(26)

Payment of debt issuance costs associated with 2018 Venture Notes

 

 

(7)

Payment of debt issuance costs associated with Oaktree Note

(13)

Repayment of partner company note payable

(1,800)

Proceeds from partner company convertible preferred shares

12,537

Payment of debt issuance costs associated with partner company convertible preferred shares

(1,353)

Net cash provided by financing activities

 

78,692

 

22,753

Net increase (decrease) in cash and cash equivalents and restricted cash

 

56,546

 

(915)

Cash and cash equivalents and restricted cash at beginning of period

 

234,996

 

153,432

Cash and cash equivalents and restricted cash at end of period

$

291,542

$

152,517

Supplemental disclosure of cash flow information:

 

 

Cash paid for interest

$

1,670

$

1,609

Supplemental disclosure of non-cash financing and investing activities:

 

  

 

  

Settlement of restricted stock units into common stock

$

2

$

2

Common shares issued from 2017 Subordinated Note Financing interest expense

$

$

500

Unpaid fixed assets

$

545

$

540

Partner company's unpaid intangible assets

$

400

$

Unpaid debt offering cost

$

$

8

Unpaid partner company’s debt offering cost

$

135

$

Partner company derivative warrant liability associated with partner company convertible preferred shares

$

362

$

Unpaid at-the-market offering cost

$

$

6

Unpaid partner company’s at-the-market offering cost

$

25

$

Unpaid Series A perpetual preferred stock offering cost

$

$

98

Unpaid research and development licenses acquired

$

$

350

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Description of Business

Fortress Biotech, Inc. (“Fortress” or the “Company”) is a biopharmaceutical company dedicated to acquiring, developing and commercializing pharmaceutical and biotechnology products and product candidates, which the Company does at the Fortress level, at its majority-owned and majority-controlled subsidiaries and joint ventures, and at entities the Company founded and in which it maintains 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. Fortress through its partner companies has executed such arrangements in partnership with some of the world’s foremost universities, research institutes and pharmaceutical companies, including City 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, the University of Pennsylvania, and AstraZeneca plc.

Following the exclusive license or other acquisition of the intellectual property underpinning a product or product candidate, Fortress leverages its business, scientific, regulatory, legal and financial expertise to help the partners achieve their goals. 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, three partner companies are publicly-traded, and three have consummated strategic partnerships with industry leaders Alexion Pharmaceuticals, Inc., InvaGen Pharmaceuticals, Inc. (“InvaGen”) (a subsidiary of Cipla Limited) and Sentynl Therapeutics, Inc. (“Sentynl”).

Several of our partner companies possess licenses to product candidate intellectual property, including Aevitas Therapeutics, Inc. (“Aevitas”), Avenue Therapeutics, Inc. (“Avenue”), Baergic Bio, Inc. (“Baergic”), Caelum Biosciences, Inc. (“Caelum”), Cellvation, Inc. (“Cellvation”), Checkpoint Therapeutics, Inc. (“Checkpoint”), Cyprium Therapeutics, Inc. (“Cyprium”), FBIO Acquisition Corp. VIII, Helocyte, Inc. (“Helocyte”), Journey Medical Corporation (“Journey” or “JMC”), Mustang Bio, Inc. (“Mustang”) and Oncogenuity, Inc. (“Oncogenuity”).

Liquidity and Capital Resources

Since inception, the Company’s operations have been financed primarily through the sale of equity and debt securities, from the sale of partner companies, and the proceeds from the exercise of warrants and stock options. The Company has incurred losses from operations and negative cash flows from operating activities since inception and expects to continue to incur substantial losses for the next several years as it continues to fully develop and prepare regulatory filings and obtain regulatory approvals for its existing and new product candidates. The Company’s current cash and cash equivalents are sufficient to fund operations for at least the next 12 months. However, the Company will need to raise additional funding through strategic relationships, public or private equity or debt financings, sale of a partner company, grants or other arrangements to fully develop and prepare regulatory filings and obtain regulatory approvals for the existing and new product candidates, fund operating losses, and, if deemed appropriate, establish or secure through third parties manufacturing for the potential products, sales and marketing capabilities.  If such funding is not available or not available on terms acceptable to the Company, the Company’s current development plan and plans for expansion of its general and administrative infrastructure may be curtailed. The Company also has the ability, subject to limitations imposed by Rule 144 of the Securities Act of 1933 and other applicable laws and regulations, to raise money from the sale of common stock of the public companies in which it has ownership positions. In addition to the foregoing, the Company does not expect any material impact on its development timelines, revenue levels and its liquidity due to the worldwide spread of COVID-19. However, the Company is continuing to assess the impact the spread of COVID-19 may have on its operations.

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Table of Contents

FORTRESS BIOTECH, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period.

The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed consolidated financial statements have read or have access to the audited financial statements for the preceding fiscal year for each of Avenue, Checkpoint and Mustang. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K, which was filed with the United States Securities and Exchange Commission (“SEC”) on March 31, 2021, from which the Company derived the balance sheet data at December 31, 2020, as well as Checkpoint’s Form 10-K, filed with the SEC on March 12, 2021, Mustang’s Form 10-K, filed with the SEC on March 24, 2021, and Avenue’s Form 10-K, filed with the SEC on March 31, 2021.

The Company’s unaudited condensed consolidated financial statements include the accounts of the Company’s subsidiaries. For consolidated entities where the Company owns less than 100% of the subsidiary, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective non-controlling parties. The Company also consolidates subsidiaries in which it owns less than 50% of the subsidiary but maintains voting control. The Company continually assesses whether changes to existing relationships or future transac