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Item 7. Management’s Discussion and Analysis

2022-03-28 compared with 2021-03-31 · 308 added, 185 removed, 138 unchanged (78% of the section changed)

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Please see “Forward-Looking Statements” at the beginning of this Form 10-K.

As used throughout this filing, the words “we”, “us” and “our” may refer to Fortress individually or together with our affiliates and partners, as dictated by context.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10-K.

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Through our partner companies, we have executed arrangements 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.

Reddy’s Laboratories, Ltd.

Our partner companies that are pursuing development and/or commercialization of biopharmaceutical products and product candidates include Aevitas Therapeutics, Inc.

(“Aevitas”), Baergic Bio, Inc.

(“Baergic”), Caelum Biosciences, Inc.

(“Caelum”), Cellvation, Inc.

(“Cellvation”), Checkpoint Therapeutics, Inc.

(“Checkpoint”), Cyprium Therapeutics, Inc.

(“Cyprium”), Helocyte, Inc.

(“Helocyte”), Journey Medical Corporation (“Journey” or “JMC”), Mustang Bio, Inc.

(“Mustang”), Oncogenuity, Inc.

(“Oncogenuity”) and UR-1 Therapeutics, Inc.

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 finance expertise to help our 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, three partner companies are publicly-traded, and two have consummated strategic partnerships with industry leaders Alexion Pharmaceuticals, Inc.

and InvaGen Pharmaceuticals, Inc.

(a subsidiary of Cipla Limited).

to date, four partner companies are publicly-traded, and two have entered into strategic partnerships with industry leaders AstraZeneca plc as successor-in-interest to Alexion Pharmaceuticals, Inc.

(“AstraZeneca”) and Sentynl Therapeutics, Inc.

On October 5, 2021, AstraZeneca purchased 100% of our partner company Caelum for approximately $150 million upfront and up to $350 million in contingent regulatory and sales milestone payments.

Recent Events

Marketed Dermatology Products

● In 2020, our marketed products generated net revenue of $44.5 million, compared to net revenue of $34.9 million in 2019.

● We currently have 42 sales representatives dedicated to the dermatology product portfolio.

● Our dermatology products are marketed by our partner company, Journey Medical Corporation (“Journey” or “JMC”).

● In 2021, Journey’s marketed products generated net revenue of $63.1 million, compared to net revenue of $44.5 million in 2020.

● Journey currently has 70 field sales representatives dedicated to their dermatology product portfolio.

● In May 2021, JMC acquired Qbrexza® (Rapifort® Wipes 2.5%) for the treatment of primary axillary hyperhidrosis, from Dermira, Inc., a wholly owned subsidiary of Eli Lilly and Company (“Dermira”).

● In March 2021, JMC launched Accutane® (isotretinoin) for the treatment of recalcitrant nodular acne.

● In January 2022, JMC acquired Amzeeq (minocycline) topical foam, 4%, and Zilxi (minocycline) topical foam, 1.5%, two U.S Food and Drug (“FDA”) - Approved Topical Minocycline Products and Molecule Stabilizing Technology (MST)™ from VYNE Therapeutics, Inc., which expands Journey’s product portfolio to seven actively marketed branded dermatology products.

Late Stage Product Candidates

Intravenous (IV) Tramadol

● On November 12, 2018, Avenue entered into a Stock Purchase and Merger Agreement (the “Avenue SPMA”) with InvaGen Pharmaceuticals Inc.

(“InvaGen”), Madison Pharmaceuticals Inc.

(the “Merger Sub”), and us under which Avenue would be sold to InvaGen in a two-stage transaction.

The first stage of the strategic transaction between InvaGen and Avenue closed in February 2019.

InvaGen acquired approximately 5.8 million shares of Avenue’s common stock at $6.00 per share for total gross consideration of $35.0 million, representing a 33.3% stake in Avenue’s capital stock on a fully diluted basis.

At the second stage closing, InvaGen will acquire the remaining shares of Avenue’s common stock, pursuant to a reverse triangular merger with Avenue remaining as the surviving entity.

The second stage closing is subject to the satisfaction of certain closing conditions, including conditions pertaining to the FDA approval, labeling, scheduling and the absence of any Risk Evaluation and Mitigation Strategy or similar restrictions in effect with respect to IV Tramadol, as well as the expiration of any waiting period applicable to the acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”).

● In October 2020, InvaGen communicated to Avenue that it believes a Material Adverse Effect (as defined in the Avenue SPMA) has occurred due to the impact of the COVID-19 pandemic on potential commercialization and projected sales of IV Tramadol, which means it is possible InvaGen could attempt to avoid its obligation to consummate the second stage closing under the Avenue SPMA, terminate the Avenue SPMA, and/or pursue monetary claims against Avenue and/or Fortress.

Avenue disagrees with InvaGen’s assertion that a Material Adverse Effect has occurred and has advised InvaGen of this position.

● In February 2020, the U.S.

Food and Drug Administration (“FDA”) accepted the submission of Avenue’s’ New Drug Application (“NDA”) for IV Tramadol for review and assigned a Prescription Drug User Fee Act (“PDUFA”) date of October 10, 2020.

In October 2020, Avenue announced that it had received a Complete Response Letter (“CRL”) from the FDA regarding Avenue’s NDA for IV Tramadol.

The FDA held a Type A meeting with Avenue in November 2020 to discuss the issues outlined in the CRL.

On February 12, 2021 Avenue resubmitted its NDA to the FDA for IV Tramadol.

The NDA resubmission followed the receipt of the official minutes from Avenue’s Type A meeting with the FDA.

The NDA resubmission included revised language relating to the proposed product label and a report relating to terminal sterilization validation.

On February 26, 2021, Avenue received an acknowledgement letter from the FDA that Avenue’s resubmission of its NDA is a complete, class 1 response to the CRL, and a PDUFA goal date was set for April 12, 2021.

● In connection with the resubmission of Avenue’s NDA, InvaGen communicated to Avenue that it believes the proposed label for IV Tramadol under certain circumstances would constitute a Material Adverse Effect on the purported basis that the proposed label for IV Tramadol would make the product commercially unviable, and in addition that the indiciation that the FDA approves may fail to satisfy a condition precedent to InvaGen’s obligation to consummate the second stage closing of the Avenue SPMA.

Avenue has notified InvaGen that it disagrees with InvaGen’s assertions.

Nevertheless, InvaGen may seek to avoid its obligation to consummate the second stage closing under the Avenue SPMA, terminate the Avenue SPMA, and/or pursue monetary claims against Avenue and/or Fortress.

● Over the past several months, Avenue has communicated with InvaGen relating to InvaGen’s assertions.

Nevertheless, InvaGen has communicated to Avenue its desire to consider all options on the proposed merger, including the option to not consummate the merger.

This indicates that InvaGen may attempt to avoid its obligations under the Avenue SPMA to consummate the merger, terminate the Avenue SPMA, and/or pursue monetary claims against Avenue and/or Fortress.

As a result, the possible timing and likelihood of the completion of the merger are uncertain, and, accordingly, there can be no assurance that such transaction will be completed on the expected terms, anticipated schedule, or at all.

During the pendency of any dispute regarding these matters, Avenue may be, and so long as the Avenue SPMA remains in place Avenue will be, prohibited from engaging in a change-of-control transaction, selling its rights to IV Tramadol or effecting an equity or debt financing, in each case without the prior written consent of InvaGen.

● If Avenue does not receive FDA approval for IV Tramadol by April 30, 2021, InvaGen will have the right to terminate the Avenue SPMA and will have no further obligations to consummate the second stage closing under the Avenue SPMA.

In the event that InvaGen does not exercise its right to terminate the Avenue SPMA, certain restrictions relating to financings and strategic alternatives could exist through October 31, 2021, the time at which Avenue can terminate the Avenue SPMA.

Regardless of whether the Avenue SPMA is terminated, InvaGen will retain certain rights pursuant to the Stockholder’s Agreement between Avenue and InvaGen.

These rights exist as long as InvaGen maintains at least 75% of the Avenue common shares acquired in the first stage closing.

The following are some of the actions that shall not be taken by Avenue without the prior written consent of InvaGen:

increase in authorized shares of Avenue’s capital stock;

any agreement or transaction that would adversely treat the holders of Avenue’s common shares as compared to the holders of Avenue’s Class A Preferred Shares;

issuance of any shares of Avenue’s capital stock or any securities convertible into, or other rights to acquire, shares of Avenue’s capital stock (including options, warrants or bonds), except for issuances to Avenue’s officers for services performed;

any transfer or license of any asset for less than fair market value, as determined by a recognized independent valuation firm agreed upon by Avenue and Invagen;

entry into any transaction or agreement with any affiliate of Avenue’s (including the Company or its Affiliates).

● In June 2021, Journey entered into an agreement with Dr.

Reddy’s Laboratories, Ltd.

(“DRL”) for the development of DFD-29, a modified release oral minocycline that is being evaluated for the treatment of inflammatory lesions of rosacea.

JMC and DRL intend to conduct two Phase 3 clinical trials to assess the efficacy, safety and tolerability of DFD-29 as a treatment for rosacea for regulatory approval.

JMC expects the first patient to be dosed in the first quarter of 2022.

CUTX-101 (Copper Histidinate injection for Menkes Disease)

● In January 2020, our partner company Cyprium Therapeutics, Inc.

(“Cyprium”) announced that the FDA granted Rare Pediatric Disease Designation to Copper Histidinate, also referred to as CUTX-101, for the treatment of Menkes disease.

● In July 2020, the European Medicines Agency issued a positive opinion on the application for Orphan Drug Designation for CUTX-101.

EMA Orphan Drug Designation provides companies with certain benefits and incentives, including clinical protocol assistance, differentiated evaluation procedures for Health Technology Assessments in certain countries, access to a centralized marketing authorization procedure valid in all EU member states, reduced regulatory fees and 10 years of market exclusivity.

The FDA previously granted Orphan Drug and Fast Track Designations to CUTX-101 for the treatment of Menkes disease.

● In August 2020, Cyprium reported positive topline clinical efficacy results for CUTX-101.

The study demonstrated statistically significant improvement in the primary endpoint of overall survival in Menkes disease patients who received early treatment with CUTX-101, compared to an untreated historical control, with a nearly 80% reduction in the risk of death (Hazard Ratio = 0.21, p<0.0001).

Median survival for the early treatment cohort was 14.8 years (177.1 months) compared to 1.3 years (15.9 months) for the untreated historical control cohort.

● In December 2020, the FDA granted Breakthrough Therapy Designation to CUTX-101.

Breakthrough Therapy Designation is intended to expedite the development and review of drugs for serious or life-threatening conditions.

The criteria for Breakthrough Therapy Designation require preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one clinically significant endpoint over available therapy.

A Breakthrough Therapy Designation conveys all of the fast-track program features, more intensive FDA guidance on an efficient drug development program, an organizational commitment involving senior managers and eligibility for rolling review and priority review.

CAEL-101 (mAB for AL Amyloidosis)

● In March 2020, Caelum Biosciences, Inc.

(“Caelum”) began dosing patients in its Phase 2 dose selection clinical trial of CAEL-101, a light chain fibril-reactive monoclonal antibody for the treatment of AL amyloidosis.

Subsequently upon completed dosing, the Phase 2 study met its primary objective, supporting the initiation of two parallel Phase 3 studies that will enroll approximately 370 AL amyloidosis patients.

● In September 2020, Caelum announced the initiation of two Phase 3 studies of CAEL-101 for AL amyloidosis.

Both Phase 3 studies are actively enrolling patients.

● CAEL-101 is currently in development at Caelum Biosciences, Inc., a company founded by Fortress, in collaboration with Alexion Pharmaceuticals, Inc.

● In December 2020, AstraZeneca (“AZ”) announced its intention to acquire Alexion, with the acquisition expected to close by the third quarter of 2021, as the acquisition is subject to approval by both AZ and Alexion shareholders, as well as certain regulatory approvals, share listing approvals, and other customary closing conditions.

The acquisition of Alexion by AZ triggers the Change of Control clause in the Amended and Restated Development, Option and Stock Purchase Agreement entered into by and among Caelum, Alexion, the Company, and Caelum security holders, such that Alexion’s purchase option expires on the date that is six months after the closing of any Change of Control.

● In February 2021, our partner company, Cyprium, and Sentynl signed a Development and Asset Purchase Agreement for CUTX-101 for the treatment of Menkes disease.

Under the terms of the agreement, Cyprium received $8 million upfront to fund the development of CUTX-101 and could receive up to $12 million in regulatory milestone payments through NDA approval, and is eligible to receive sales milestones plus royalties.

Royalties start from mid-single digits, scaling up to 25% on sales exceeding $100 million annually.

Cyprium will retain 100% ownership over any FDA priority review voucher that may be issued at the New Drug Application (“NDA”) approval for CUTX-101.

Cyprium is responsible for the development of CUTX-101 through approval of the NDA by the FDA, and Sentynl will be responsible for commercialization of CUTX-101, as well as progressing newborn screening activities.

● In October 2021, Cyprium announced positive results from an efficacy and safety analysis of data integrated from two completed pivotal studies in patients with Menkes disease treated with CUTX-101, copper histidinate (CuHis).

These data were presented as a virtual poster at the 2021 American Academy of Pediatrics National Conference & Exhibition.

● In December 2021, Cyprium initiated the rolling submission of a NDA to the FDA for CUTX-101.

Cyprium intends to complete the rolling submission of the NDA for CUTX-101 in mid-2022.

● CUTX-101 was sourced by Fortress and is currently in development at our partner company, Cyprium Therapeutics, Inc.

CAEL-101 (Light Chain Fibril-reactive Monoclonal Antibody for AL Amyloidosis)

● There are two ongoing Phase 3 studies of CAEL-101 for AL amyloidosis.

● In June 2021, Caelum announced that CAEL-101 clinical data were presented at EHA2021.

The data, presented in two e-posters, strengthen the safety and tolerability profile of CAEL-101 to further support the dose selection for the ongoing Phase 3 study, and suggest possible cardiac and renal response.

● Also in June 2021, the FDA granted Fast Track designation to CAEL-101 for the treatment of light chain AL amyloidosis.

● CAEL-101 was sourced by Fortress in 2017 and was developed by Caelum until it was acquired by AstraZeneca plc (“AstraZeneca”) o n October 5, 2021.

AstraZeneca acquired Caelum for an upfront payment of approximately $150 million paid to Caelum shareholders, of which approximately $56.9 million was paid to Fortress, net of the ten percent, 24-month escrow holdback amount and other miscellaneous transaction expenses.

The agreement also provides for additional potential payments to Caelum shareholders totaling up to $350 million, payable upon the achievement of regulatory and commercial milestones.

Fortress is eligible to receive 42.4% of all proceeds of the transaction, totaling up to approximately $212 million.

Cosibelimab (Anti-PD-L1 mAb for CSCC and NSCLC)

● In January 2022, Checkpoint announced positive topline results from its registration-enabling clinical trial evaluating the safety and efficacy of our anti-PD-L1 antibody, cosibelimab, administered as a fixed dose of 800 mg every two weeks in patients with metastatic cutaneous squamous cell carcinoma (“CSCC”).

The study met its primary endpoint, with cosibelimab demonstrating a confirmed objective response rate (“ORR”) of 47.4% (95% CI:

36.0, 59.1) based on independent central review of 78 patients enrolled in the metastatic CSCC cohort using Response Evaluation Criteria in Solid Tumors version 1.1 (“RECIST 1.1”) criteria.

Checkpoint intends to submit a Biologics License Application (“BLA”) for cosibelimab in late 2022, followed thereafter by a Marketing Authorization Application (“MAA”) submission in Europe and additional potential submissions in markets worldwide.

● In December 2021, Checkpoint announced the initiation of the CONTERNO study, a global, open-label, multi-center, randomized Phase 3 trial of cosibelimab in combination with pemetrexed and platinum chemotherapy for the first-line treatment of patients with non-squamous non-small cell lung cancer (“NSCLC”).

● Cosibelimab was sourced by Fortress and is currently in development at our partner company, Checkpoint.

MB-107 and MB-207 (Ex vivo Lentiviral Therapies for X-linked Severe Combined Immunodeficiency (XSCID))

● In April 2020, our partner company Mustang Bio, Inc.

(“Mustang”) announced that the European Medicines Agency (“EMA”) granted Advanced Therapy Medicinal Product (“ATMP”) classification to MB-107, a lentiviral gene therapy for the treatment of X-linked severe combined immunodeficiency (“XSCID”), also known as bubble boy disease.

● In May 2020, Mustang submitted an Investigational New Drug (“IND”) application with the FDA to initiate a registrational multi-center Phase 2 clinical trial of MB-107 in newly diagnosed infants with XSCID who are under the age of two.

In response, the FDA identified CMC hold issues that Mustang satisfactorily addressed in a December 2020 submission to the Agency, and the CMC hold was removed in January 2021.

The trial is expected to enroll 10 patients who, together with 15 patients enrolled in the current multicenter trial led by St.

Jude Children’s Research Hospital, will be compared with 25 matched historical control patients who have undergone hematopoietic stem cell transplant (“HSCT”).

The primary efficacy endpoint will be event-free survival.

Mustang is targeting topline data from the trial in the second half of 2022.

● Mustang further expects to file an IND in the second quarter of 2021 for a registrational multi-center Phase 2 clinical trial of its lentiviral gene therapy in previously transplanted XSCID patients.

This product is designated MB-207.

Mustang anticipates enrolling 20 patients and is targeting topline data for this trial in the first half of 2023.

● In August 2020, Mustang announced that the FDA granted Rare Pediatric Disease Designations to MB-107, a lentiviral gene therapy for the treatment of XSCID in newly diagnosed infants, and MB-207 .

● In September 2020, Mustang announced that the FDA granted Orphan Drug Designations to MB-107 for the treatment of XSCID in newly diagnosed infants and to MB-207.

● In October 2020, Mustang in-licensed LentiBOOST™ technology from SIRION Biotech GmbH for the development of MB-207.

● In November 2020, Mustang signed an agreement with Minaris Regenerative Medicine GmbH to enable technology transfer and GMP clinical manufacturing of the MB-107 lentiviral gene therapy program in Europe.

● Also in November 2020, Mustang announced that the European Commission issued a positive opinion on its application for Orphan Drug Designation for the MB-107 lentiviral gene therapy for the treatment of XSCID.

Cosibelimab (Anti-PD-L1 mAb for mCSCC and NSCLC)

● In January 2020, our partner company Checkpoint Therapeutics, Inc.

(“Checkpoint”) announced confirmation of the registration path for cosibelimab in metastatic cutaneous squamous cell carcinoma (“mCSCC”) and the FDA feedback supports the plan to submit a Biologics license application (“BLA”) based on data from ongoing Phase 1 trial.

● In April 2020, Checkpoint announced the issuance of a composition of matter patent for cosibelimab by the USPTO providing protection through at least May 2038.

● In September 2020, positive interim results from the registration-enabling trial of cosibelimab in mCSCC were presented at the European Society for Medical Oncology Virtual Congress 2020.

The e-poster presentation provided updated interim efficacy and safety results in mCSCC patients from the ongoing multicenter Phase 1 clinical trial.

A 51.4% objective response rate and 13.5% complete response rate were observed.

Median duration of response had not been reached yet, with 84.2% of responses ongoing and the longest response duration was 24 months (ongoing) at the time of analysis.

Cosibelimab appeared to be safe and well-tolerated with a potentially favorable safety profile as compared to currently available anti-PD-1 therapies.

Grade ≥3 treatment-related adverse events occurred in only 6 patients (5.3%).

Checkpoint expects to report full topline results from the pivotal trial in the second half of 2021.

● In November 2020, Checkpoint announced the expansion of a long-term manufacturing partnership for cosibelimab with Samsung Biologics.

Building upon an existing contract manufacturing agreement entered into in 2017, Samsung Biologics will provide additional commercial-scale drug substance manufacturing for cosibelimab.

● Also in November 2020, updated results from the previously untreated high PD-L1 expressing patients with advanced non-small cell lung cancer (“NSCLC”) cohort of the Phase 1 clinical trial of cosibelimab were announced at the Society for Immunotherapy of Cancer 35 th Anniversary Annual Meeting.

A 44% objection response rate and 10.3 month median progression-free survival were observed.

Cosibelimab appeared to be safe and well-tolerated with a potentially favorable safety profile as compared to currently available anti-PD-1 therapies.

Grade ≥3 treatment-related adverse events occurred in only 6 patients (4.9%).

CK-101 (EGFR inhibitor for EGFR mutation-positive NSCLC)

● In November 2020, NeuPharma, Inc.

commenced a Phase 3 clinical trial in China evaluating CK-101 in treatment-naïve locally advanced or metastatic NSCLC patients whose tumors have EGFR exon 19 deletion mutations.

We intend to meet with the FDA to discuss the adequacy of the ongoing Phase 3 trial in China.

● In February 2021, Mustang announced encouraging MB-107 and MB-207 clinical updates from our investigator-IND X-linked severe combined immunodeficiency (“XSCID”) trials, as well as additional consistent safety and efficacy data.

● In August 2021, Mustang announced that the European Medicines Agency (“EMA”) granted Priority Medicines (“PRIME”) designation to MB-107, a lentiviral gene therapy for the treatment of XSCID in newly diagnosed infants.

● In the third quarter of 2022, Mustang expects to enroll the first patient in a pivotal multicenter Phase 2 clinical trial under Mustang Bio’s IND to evaluate MB-107, a lentiviral gene therapy for the treatment of infants under the age of two with XSCID.

We also expect to receive guidance from the FDA regarding the CMC hold on our IND application for our pivotal 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 (“HSCT”) 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 Bio.

Olafertinib (formerly CK-101, a third-generation epidermal growth factor receptor (“EGFR”) inhibitor)

● During the second quarter of 2021, Checkpoint had productive interactions with the FDA regarding our development program for olafertinib (formerly CK-101), our third-generation epidermal growth factor receptors (“EGFR”) inhibitor being evaluated by our partner in an ongoing double-blind, randomized Phase 3 study in China.

We intend to utilize the Phase 3 study, if successful, to support an NDA submission for olafertinib as a potential first-line treatment for patients with NSCLC whose tumors have certain types of EGFR mutations.

● Olafertinib was sourced by Fortress and is currently in development at our partner company, Checkpoint.

Triplex (Cytomegalovirus (“CMV”) vaccine)

● In December 2021, we announced that a Phase 2 double-blind, randomized, placebo-controlled clinical trial was initiated to evaluate the safety and efficacy of Triplex, a cytomegalovirus (“CMV”) vaccine, in eliciting a CMV-specific immune response and reducing CMV replication in people living with HIV.

The trial is being conducted by the AIDS Clinical Trials Group and is funded by the National Institute of Allergy and Infectious Disease, part of the National Institutes of Health.

● Triplex was sourced by Fortress and is currently in development at our partner company, Helocyte, Inc.

Early Stage Product Candidates

Dotinurad (Urate Transporter (URAT1) Inhibitor)

● In May 2021, we announced an exclusive license agreement with Fuji Yakuhin Co.

(“Fuji”) to develop Dotinurad in North America and Europe.

Dotinurad is a potential best-in-class urate transporter (“URAT1”) inhibitor for gout and possibly other hyperuricemic indications including chronic kidney disease (“CKD”) and heart failure.

Dotinurad (URECE® tablet) was approved in Japan in 2020 as a once-daily oral 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.

● In December 2021, we filed an Investigational New Drug Application (“IND”) with the FDA.

We expect to initiate a Phase 1 clinical trial to evaluate Dotinurad for the treatment of gout in the first half of 2022.

● Dotinurad was sourced by Fortress and is currently in development at our partner company, UR-1 Therapeutics.

MB-102 (CD123-targeted CAR T cell therapy)

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MB-101 (IL13Rα2-targeted CAR T cell therapy)

● In December 2020, Mustang announced that a Phase 1 single-center, two-arm clinical trial was initiated to establish the safety and feasibility of administering MB-101 to patients with leptomeningeal brain tumors (e.g., glioblastoma, ependymoma or medulloblastoma).

● In October 2021, Christine Brown, Ph.D., Deputy Director, T Cell Therapeutics Research Laboratory and The Heritage Provider Network Professor in Immunotherapy at City of Hope, presented updated Phase 1 clinical data regarding MB-101 (IL13Rα2 ‐ targeted CAR T cells) for the treatment of glioblastoma at two scientific conferences, the First Annual Conference on CNS Clinical Trials, co-sponsored by the Society for Neuro-Oncology and American Society of Clinical Oncology and the American Association for Cancer Research Virtual Special Conference:

Brain Cancer.

● In May 2021, we announced that the first patient has been dosed at City of Hope in a clinical trial to establish the safety and feasibility of administering MB-101 (autologous IL13Rα2-targeted CAR T cells) to patients with leptomeningeal brain tumors (e.g., glioblastoma, ependymoma or medulloblastoma).

● MB-101 was sourced by Fortress and is currently in development at our partner company, Mustang Bio.

MB-105 (PSCA-targeted CAR T cell therapy)

● In October 2020, Mustang announced that initial Phase 1 data on MB-105, a prostate stem cell antigen (“PSCA”) -targeted CAR T administered systemically to patients with PSCA-positive metastatic castration-resistant prostate cancer (“mCRPC”), were presented by City of Hope at the virtual 27 th Annual Prostate Cancer Foundation Scientific Retreat.

A 73-year-old male patient with PSCA-positive mCRPC was treated with MB-105 and lymphodepletion (a standard CAR T pre-conditioning regimen) after failing eight prior therapies.

On day 28 of the patient’s treatment, MB-105 demonstrated a 94% reduction in prostate-specific antigen, near complete reduction of measurable soft tissue metastasis by computerized tomography, and improvement in bone metastases by magnetic resonance imaging.

● In February 2022, Phase 1 data on MB-105, a PSCA-targeted CAR T administered systemically to patients with PSCA-positive metastatic castration-resistant prostate cancer (mCRPC), were presented by City of Hope at the 2022 American Society of Clinical Oncology Genitourinary Cancers Symposium.

● MB-105 was sourced by Fortress and is currently in development at our partner company, Mustang Bio.

MB-106 (CD20-targeted CAR T cell therapy)

● In February 2020, Mustang announced that the first subject treated with the optimized MB-106 (CD20-targeted, autologous CAR T cell therapy) manufacturing process, developed in collaboration between Mustang and the Fred Hutchinson Cancer Research Center, achieved a complete response at the lowest starting dose in an ongoing Phase 1/2 clinical trial.

The trial is evaluating the safety and efficacy of MB-106 in subjects with relapsed or refractory B-cell non-Hodgkin lymphomas and chronic lymphocytic leukemia.

● In December 2020, Mustang announced positive interim Phase 1/2 data on MB-106 for patients with relapsed or refractory B-cell non-Hodgkin lymphomas, which were presented at the 62nd American Society of Hematology (ASH) Annual Meeting.

Data presented showed a favorable safety profile and clinical activity, with an 89% overall response rate and 44% complete response rate in patients treated with the modified cell manufacturing process.

● In May 2021, we announced that the FDA approved Mustang Bio Inc.’s (“Mustang Bio”) Investigational New Drug (“IND”) application to initiate a multicenter Phase 1/2 clinical trial investigating the safety and efficacy of MB-106, a CD20-targeted CAR T for relapsed or refractory B-cell non-Hodgkin lymphomas (“NHL”) and chronic lymphocytic leukemia (“CLL”).

We intend to dose the first patient in the second quarter of this year.

● In June 2021, we announced that MB-106 CD20-targeted CAR T data were presented at EHA2021.

Mazyar Shadman of Fred Hutchinson Cancer Research Center presented updated interim data from the ongoing Phase 1/2 clinical trial for B-NHL and CLL, which showed a favorable safety profile and compelling clinical activity, with a 93% overall response rate and 67% complete response rate in patients treated with the modified cell manufacturing process.

● In November 2021, we announced that Mustang Bio was awarded a grant of approximately $2 million from NCI of the National Institutes of Health.

This two-year grant will partially fund the Mustang-sponsored Phase 1, multicenter trial to assess the safety, tolerability and efficacy of MB-106, a CD20-targeted, autologous CAR T cell therapy for patients with relapsed or refractory B-cell NHL or CLL.

● In December 2021, we announced MB-106 data presented at ASH2021.

Mazyar Shadman of Fred Hutchinson Cancer Research Center presented updated interim data showing a 95% overall response rate, 65% complete response rate and favorable safety profile from the ongoing Phase 1/2 clinical trial for NHL and CLL.

● In January 2022, we announced that interim Phase 1/2 data on MB-106, a CD20-targeted, autologous CAR T cell therapy for patients with relapsed or refractory B-cell NHL and CLL, have been selected for a poster presentation at the 2022 Tandem Meetings I Transplantation & Cellular Therapy Meetings of the American Society of Transplantation and Cellular Therapy and Center for International Blood & Marrow Transplant Research, rescheduled to take place in April 2022 in Salt Lake City, Utah.

● MB-106 was sourced by Fortress and is currently in development at our partner company, Mustang Bio.

MB-108 (HSV-1 Oncolytic Virus C134)

● In October 2020, the Phase 1 trial of MB-108 was put on hold due to toxicity at the highest dose level.

The University of Alabama at Birmingham, the clinical trial site for the Phase 1 trial, expects FDA clearance in the first half of 2021 in order to resume enrolling patients at a lower dose level.

● In October 2020, the Phase 1 trial of MB-108 at the University of Alabama at Birmingham was put on hold due to toxicity at the highest dose level;

following dose reduction, no further dose-limiting toxicities have been observed.

Novel CAR T Technology

● In August 2021, we announced an exclusive license agreement with Mayo Foundation for Medical Education and Research (“Mayo Clinic”) for a novel technology that may be able to transform the administration of chimeric antigen receptor engineered T cell (“CAR T”) therapies and has the potential to be used as an off-the shelf therapy.

Successful implementation may lead to an off-the-shelf product with no need to isolate and expand patient T cells ex vivo .

● Preclinical proof-of-concept has been established, and the ongoing development of this technology will take place at Mayo Clinic.

Mustang plans to file an IND application for a multicenter Phase 1 clinical trial once a lead construct has been identified.

● The novel CAR T technology was sourced by Fortress and is currently in development at our partner company, Mustang Bio.

MB-110 Ex Vivo Lentiviral Gene Therapy for RAG1 Severe Combined Immunodeficiency (“RAG1-SCID”)

● In November 2021, we announced the execution of an exclusive license agreement with Leiden University Medical Centre (“LUMC”) for a first-in-class ex vivo lentiviral gene therapy for the treatment of RAG1-SCID.

The therapy, which includes low-dose conditioning prior to reinfusion of the patients’ own gene-modified blood stem cells, is currently being evaluated in a Phase 1/2 multicenter clinical trial in Europe.

This therapy was developed in the laboratory of Frank J.

Staal, Ph.D., professor of Molecular Stem Cell biology and co-director of the LUMC Flow Cytometry Core Facility.

The ongoing clinical trial recently enrolled its first patient, and additional clinical sites plan to onboard in the near future.

The RAG1-SCID program has been granted Orphan Drug Designation by the European Medicines Agency.

● The ex vivo lentiviral gene therapy was sourced by Fortress and is currently in development at our partner company, Mustang Bio.

ONCOlogues (proprietary platform technology using PNA oligonucleotides)

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It is active higher upstream than traditional antisense approaches, as well as potentially more potent and broader in its utility.

● In addition, Oncugenuity is exploring the potential of the platform to treat novel coronaviruses, such as COVID-19.

● In addition, Oncogenuity is exploring the potential of the platform to treat novel coronaviruses, such as COVID-19.

General Corporate

● In February 2020, we closed an underwritten public offering of our 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock for gross proceeds of $14.4 million.

● In May 2020, we closed an additional underwritten public offering of our 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock for gross proceeds of $11.5 million.

● In June 2020, we announced the Company had been added to the Russell 3000 index.

● Also in June 2020, Mustang completed an underwritten public offering in which it sold its’ common stock for gross proceeds of approximately $37.2 million.

● In August 2020, we closed an additional underwritten public offering of our 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock for gross proceeds of $13.2 million and announced a $60 million loan agreement with funds managed by Oaktree Capital Management to refinance existing indebtedness.

● In September 2020, we closed a private offering of Cyprium’s 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock for gross proceeds of $8.0 million.

● Also in September 2020, Checkpoint completed an underwritten public offering in which it sold its’ common stock for gross proceeds of approximately $20.5 million.

● On November 16, 2021, Journey completed an initial public offering (“IPO”) of its common stock, in which Journey sold 3,520,000 common shares at $10.00 per share, resulting in net proceeds of approximately $30.6 million after deducting underwriting discounts and other offering costs.

Journey’s common stock trades on the Nasdaq Capital Market under the ticker symbol “DERM.”

● In November 2021, through an underwritten public offering, Avenue sold 2,238,805 shares of its common stock at a price of $1.34 per share resulting in net proceeds of $2.6 million.

In addition, in December 2021, through an underwritten public offering, Avenue sold 1,910,100 shares of its common stock at a price of $1.07 per share resulting in net proceeds of $1.8 million.

● In September 2021, Journey was the victim of a business e-mail compromise cybersecurity incident affecting its accounts payable function, which led to the misdirection of approximately $9.5 million in wire transfers to apparently fraudulent accounts.

The details of the incident and its origin are under investigation with the assistance of third-party cybersecurity experts, working at the direction of legal counsel.

The incident does not appear to have compromised any personally identifiable information or protected health information.

The matter has been reported to the Federal Bureau of Investigation.

As the controlling stockholder of Journey and as its supporting partner in its back-office functions, Fortress provided Journey with $9.5 million to ensure Journey’s accounts payable operations continue to function smoothly and was converted into 954,013 shares of Journey common stock at the IPO price.

● In July 2021, JMC privately offered and issued 758,680 shares of its Class A Preferred Stock at a price of $25.00 per share, for gross proceeds of $19.0 million (the “JMC Class A Preferred Offering”).

In connection with the closing of its’ IPO, JMC issued 2,231,346 shares of common stock resulting from the conversion of all of its’ Class A Preferred Stock.

● In April 2021, JMC entered into an agreement with East West Bank (“EWB”) in which EWB provided a $7.5 million working capital line of credit.

In January 2022 the line of credit was increased to $30.0 million.

Subsequent Events

Acquisition of new marketed products

● In January 2022, Journey acquired AMZEEQ (minocycline) topical foam, 4%, and ZILXI (minocycline) topical foam, 1.5%, two FDA-Approved Topical Minocycline Products and Molecule Stabilizing Technology (MST)™ from VYNE Therapeutics, Inc.

(“VYNE”) which expands their product portfolio to seven actively marketed branded dermatology products.

Regulatory milestone

● On February 11, 2022 Journey announced, QBREXZA® (Rapifort® Wipes 2.5%), received manufacturing and marketing approval in Japan, triggering a net $2.5 million milestone payment to us.

The net payment reflects a milestone payment of $10 million to Journey from their exclusive licensing partner in Japan, Maruho Co., Ltd.

(“Maruho”), offset by a $7.5 million payment to Dermira, pursuant to the terms of the Asset Purchase Agreement between Journey and Dermira.

Critical Accounting Policies and Use of Estimates

The Company’s consolidated financial statements include certain amounts that are based on management’s best estimates and judgments.

The Company’s significant estimates include, but are not limited to, provisions for product returns, coupons, rebates, chargebacks, discounts, allowances and distribution fees paid by Journey to certain wholesalers, inventory realization, useful lives assigned to long-lived assets and amortizable intangible assets, fair value of stock options and warrants, stock-based compensation, common stock issued to acquire licenses, investments, accrued expenses, provisions for income taxes and contingencies.

Due to the uncertainty inherent in such estimates, actual results may differ from these estimates.

Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this Report, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Revenue Recognition

Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized.

Such variable consideration represents chargebacks, coupons, rebates, sales allowances and sales returns.

These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period.

Historically, adjustments to these estimates to reflect actual results or updated expectations, have not been material to our overall business.

Coupon and trade-related discounts, however, can have a significant impact on year-over-year individual product revenue growth trends.

If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected.

The potential of our estimates to vary (sensitivity) differs by program, product, type of customer and geographic location.

However, estimates associated with U.S.

Medicare, Medicaid and performance-based contract rebates are most at risk for material adjustment because of the time delay.

Fair Value Measurement

The Company follows accounting guidance on fair value measurements for financial assets and liabilities measured at fair value on a recurring basis.

Under the accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Quoted prices in active markets for identical assets or liabilities.

Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.

Asset Impairments

We review all of our long-lived assets for impairment indicators throughout the year.

We perform impairment testing for intangible assets at least annually and for all other long-lived assets whenever impairment indicators are present.

When necessary, we record charges for impairments of long-lived assets for the amount by which the fair value is less than the carrying value of these assets.

Our impairment review processes are described in Note 2.

Examples of events or circumstances that may be indicative of impairment include:

•A significant adverse change in legal factors or in the business climate that could affect the value of the asset.

For example, a successful challenge of our patent rights would likely result in generic competition earlier than expected.

•A significant adverse change in the extent or manner in which an asset is used such as a restriction imposed by the FDA or other regulatory authorities that could affect our ability to manufacture or sell a product.

•An expectation of losses or reduced profits associated with an asset.

This could result, for example, from a change in a government reimbursement program that results in an inability to sustain projected product revenues and profitability.

This also could result from the introduction of a competitor’s product that impacts projected revenue growth, as well as the lack of acceptance of a product by patients, physicians and payers.

Issuance of Debt and Equity

The Company issues complex financial instruments which include both equity and debt features.

The Company analyzes each instrument under ASC 480, Distinguishing Liabilities from Equity, ASC 815, Derivatives and Hedging and, ASC 470, Debt , in order to establish whether such instruments include any embedded derivatives.

The Company accounted for the Oaktree Note with detachable warrants in accordance with ASC 470, Debt .

The Company assessed the classification of its common stock purchase warrants as of the date of the transaction and determined that such instruments met the criteria for equity classification.

The note proceeds were allocated between the Oaktree Note and the warrants on a relative fair value basis.

The Company recorded the related issue costs and value ascribed to the warrants as a debt discount of the Oaktree Note.

The discount is being amortized utilizing the effective interest method over the term of the Oaktree Note, which is approximately 16.08% at December 31, 2021.

Research and Development

Research and development costs are expensed as incurred.

Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Upfront and milestone payments due to third parties that perform research and development services on the Company’s behalf will be expensed as services are rendered or when the milestone is achieved.

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, and costs associated with regulatory filings, laboratory costs and other supplies.

In accordance with ASC 730-10-25-1, Research and Development , costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative future use.

In each case, we evaluate if the license agreement results in the acquisition of an asset or a business.

Such licenses purchased by the Company require substantial completion of research and development, regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternative future use.

Accrued Research and Development Expense

We record accruals for estimated costs of research, preclinical, clinical and manufacturing development within accrued expenses which are significant components of research and development expenses.

A substantial portion of our ongoing research and development activities is conducted by third-party service providers.

We accrue the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements.

We determine the estimated costs through discussions with internal personnel and external service providers as to the progress, or stage of completion or actual timeline (start-date and end-date) of the services and the agreed-upon fees to be paid for such services.

Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses until the services are rendered.

If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust accrued expenses or prepaid expenses accordingly, which impact research and development expenses.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.

Stock-Based Compensation

The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards and forfeitures, which are recorded upon occurrence.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model.

The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

We will continue to use judgment in evaluating the expected volatility, expected terms and interest rates utilized for our stock-based compensation expense calculations on a prospective basis.

As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

We expect to continue to grant options and other stock-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

The Company accounts for income taxes under ASC 740, Income Taxes (“ASC 740”).

ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards.

ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.

Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.

Our unrecognized tax benefits, if recognized, would not have an impact on our effective tax rate assuming we continue to maintain a full valuation allowance position.

We do not expect our unrecognized tax benefits to change significantly over the next 12 months.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.

ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition.

Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.

The 2017 through 2019 tax years are the only periods subject to examination upon filing of appropriate tax returns.

The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.

The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense.

There were no amounts accrued for penalties or interest as of or during the years ended December 31, 2021 and 2020.

Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

Recent Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements.

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 our Annual Report on Form 10-K , have reduced disclosure obligations regarding executive compensation, and smaller reporting companies are permitted to delay adoption of certain recent accounting pronouncements discussed in Note 2 to our consolidated financial statements located in “ Part IV, Item 15., Exhibits and Financial Statement Schedules ” in this Annual Report on Form 10-K.

Results of Operations

For the year ended December 31, 2020 we generated $45.6 million of net revenue $44.5 million relates to the sale of Journey branded and generic products and $1.1 million of revenue is in connection with Checkpoint’s collaborative agreements with TGTX, a related party.

For the year ended December 31, 2021 we generated $68.8 million of net revenue, of which $63.1 million relates to the sale of Journey branded and generic products, $5.4 million relates to Cyprium’s collaboration revenue with Sentynl, and $0.3 million of revenue relates to Checkpoint’s collaborative agreements with TGTX, a related party.

For the year ended December 31, 2020 we generated $45.6 million of net revenue, of which $44.5 million relates to the sale of Journey branded and generic products and $1.1 million relates to Checkpoint’s collaborative agreements with TGTX.

At December 31, 2021, we had an accumulated deficit of $547.5 million primarily as a result of research and development expenses, purchases of in-process research and development and selling, general and administrative expenses.

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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.

We had $14.6 million of costs of goods sold in connection with the sale of JMC branded and generic products for the year ended December 31, 2020.

We had $32.1 million and $14.6 million of costs of goods sold in connection with the sale of JMC branded and generic products for the years ended December 31, 2021 and 2020, respectively.

Research and Development Expenses

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Includes the following partner companies:

Aevitas, Baergic, Cellvation, Cyprium, Helocyte, Oncogenuity and Tamid Bio, Inc.

(a Fortress partner company that has since discontinued operations) (“Tamid”).

Aevitas, Baergic, Cellvation, Cyprium, Helocyte, Oncogenuity and UR-1.

Noncash, stock-based compensation expense included in research and development for the years ended December 31, 2021 and 2020, was $4.3 million and $3.2 million, respectively.

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Total Selling, General & Administrative Expense

Includes sales force costs for the year ended December 31, 2020 and 2019 of $10.4 million and $10.7 million, respectively.

Includes field sales force costs for the year ended December 31, 2021 and 2020 of $16.0 million and $10.4 million, respectively.

During the course of 2021, JMC expanded their field sales force to accommodate their increased product portfolio.

Includes the following partner companies:

Aevitas, Baergic, Cellvation, Cyprium, Helocyte, Oncogenuity and Tamid.

Aevitas, Baergic, Cellvation, Cyprium, Helocyte, Oncogenuity and UR-1.

Comparison of Years Ended December 31, 2021 and 2020

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Product revenue, net

Collaboration revenue

Revenue – related party

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Selling, general and administrative

Wire transfer fraud loss

Total operating expenses

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Interest expense and financing fee

Change in fair value of investments

Change in fair value of derivative liability

Change in fair value of investment

Gain on deconsolidation of Caelum

Total other (expense) income

Income before income tax expense

Total other income (expense)

Loss before income tax expense

Income tax expense

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Net loss attributable to common stockholders

For the year ended December 31, 2020, $1.1 million of revenue – related party was in connection with Checkpoint’s collaborative agreements with TGTX.

The net increase in revenue of $9.0 million or 24% is due to the expansion of Journey’s marketed products, as well as overall sales growth, which resulted in a product revenue increase of $9.6 million offset by a decrease in revenue from a related party of $0.6 million.

Cost of goods sold increased by $4.1 million or 39% due to the growth in Journey’s product sales.

Research and development expenses decreased $14.0 million, or 19%, from the year ended December 31, 2019 to the year ended December 31, 2020.

For the year ended December 31, 2021, the net increase in revenue of $23.2 million or 51% is due to Journey’s expanded product portfolio, which resulted in a net product revenue increase of $18.6 million, and the increase in collaboration revenue of $5.4 million due to Cyprium’s agreement with Sentynl, offset by a decrease in revenue from a related party of $0.8 million due to a non-recurring milestone achievement.

Journey’s increased net product revenues are a result of the expansion of Journey’s marketed products, with Accutane launched in the first quarter of 2021 and Qbrexza introduced in the second quarter of 2021, offset slightly by a decrease in net sales of Journey’s legacy products.

Cost of goods sold increased by $17.5 million or 120% in 2021 due to increased revenue as well as the step-up charge of approximately $6.5 million resulting from the fair value accounting adjustment for the Qbrexza acquired inventory as part of the asset purchase in the second quarter of 2021, which required that the Qbrexza inventory be recorded at fair value.

Also contributing to this increase is the increase in royalty expense, primarily related to the terms of the Qbrexza agreement.

Research and development expenses increased $52.0 million, or 85%, from the year ended December 31, 2020 to the year ended December 31, 2021.

The following table shows research and development spending for Fortress and each partner company:

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Includes the following partner company:

Aevitas, Baergic, Cellvation, Cyprium, Helocyte, Oncogenuity and Tamid.

The increase in stock-based compensation at both Fortress and Mustang is due to new equity grants to key employees and consultants in 2020, while the decrease in both Avenue and Checkpoint’s stock-based compensation is due to the effect of fully vested equity grants to key employees and consultants.

The decrease in Fortress research and development spending is due to the lower research and development headcount in 2020 as compared to 2019.

Avenue’s decrease in research and development spending is attributable to the decrease in clinical trial costs associated with the completion of both the abdominoplasty study and the safety study in the first half of 2019 as well as the costs associated with an NDA submission in December 2019.

Checkpoint’s decrease in research and development spending is attributable to the decreased manufacturing costs for cosibelimab and clinical trial expense for CK-101.

Mustang’s increase in research and development spending is attributable to increased headcount, lentiviral manufacturing costs and sponsored research for several programs, including XSCID.

The increase in “Other” is attributable to costs incurred by Cyprium as it prepares to file its rolling NDA submission for CUTX-101 in 2021 and Oncogenuity for its sponsored research costs related to the continued development of novel oligonucleotides for the treatment of genetically driven diseases.

Aevitas, Baergic, Cellvation, Cyprium, Helocyte, Oncogenuity and UR-1.

The increase in stock-based compensation at both Fortress and Mustang is due to new equity grants to key employees and consultants in 2021, while the decrease in Avenue’s stock-based compensation is due to the effect of fully vested equity grants to key employees and consultants.

The increase in Fortress research and development spending is due to the increased research and development headcount in 2021 as compared to 2020.

Avenue’s decrease in research and development spending is attributable to the decrease in costs of $1.5 million associated with the NDA submission that incurred in 2020.

Checkpoint’s increase in research and development spending is attributable to the increased clinical costs associated with their product candidates of $6.3 million, as well as increased manufacturing costs of $15.3 million as Checkpoint prepares for a Biologic License Application (“BLA”) submission for cosibelimab.

Mustang’s increase in research and development spending is attributable to increased employee compensation costs of $4.5 million as research and development headcount is increased to support clinical program development, increased lentiviral vector manufacturing costs of $3.9 million to support Mustang-sponsored clinical trials, and increased sponsored research and clinical trial costs for several programs, including XSCID.

The increase in “Other” is attributable to costs incurred by Cyprium for its rolling NDA submission for CUTX-101 and UR-1 for the milestone due Fuji per the license agreement for Dotinurad.

Selling, general and administrative expenses increased $25.7 million, or 42%, from the year ended December 31, 2020 to the year ended December 31, 2021.

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Total Selling, General & Administrative Expense

Includes sales force costs for the year ended December 31, 2020 and 2019 of $10.4 million and $10.7 million, respectively.

Includes field sales force costs for the year ended December 31, 2021 and 2020 of $16.0 million and $10.4 million, respectively.

During the course of 2021, JMC expanded their field sales force to accommodate their increased product portfolio.

Includes the following partner companies:

Aevitas, Baergic, Cellvation, Cyprium, Helocyte, Oncogenuity and Tamid.

For the year ended December 31, 2020, the increase in selling, general and administrative expenses of $5.6 million or 10% is primarily attributable to increased headcount-related costs for Fortress and Checkpoint as well as an increase in JMC’s sales and marketing costs due to the increased product portfolio and costs related to the launch of Ximino, an oral acne treatment.

Mustang’s decrease is due to less legal costs and less professional fees related to strategic marketing.

The increase in “Other” is driven by the increase in professional fees incurred by Cyprium and Oncogenuity.

Total other income (expense) changed $17.7 million, or 194%, from income of $9.2 million for the year ended December 31, 2019 to expense of $8.6 million for the year ended December 31, 2020, primarily due to the $18.5 million gain on the deconsolidation of Caelum recognized in 2019 and an increase of $3.5 million in interest expense and financing fees due to the new credit facility transaction with Oaktree Fund Administration, LLC.

Aevitas, Baergic, Cellvation, Cyprium, Helocyte, Oncogenuity and UR-1.

The increase in stock-based compensation at Fortress is due to new equity grants to key employees and consultants in 2021, while the increase in Journey’s stock-based compensation is due to the vesting of restricted stock units in connection with the Journey IPO on November 16, 2021, as well as new employee grants.

For the year ended December 31, 2021, the increase in selling, general and administrative expenses of $25.7 million or 42% is primarily attributable to the expansion of Journey’s salesforce as well as increased marketing expense related to Journey’s expanded product portfolio.

Journey also increased headcount and other supporting services related to being a public company.

Mustang’s increase is due to increased headcount costs offset by a decrease in legal and professional fees, consulting fees, and state taxes.

For the year ended December 31, 2021, wire fraud related costs totaled approximately $9.5 million.

These costs were attributable to funds erroneously wired to fraudulent accounts as a result of a sophisticated business email compromise fraud scheme.

Any insurance proceeds will be recorded when considered probable.

Total other income (expense) changed $32.8 million, or 382%, from expense of $8.6 million for the year ended December 31, 2020 to income of $24.2 million for the year ended December 31, 2021, primarily due to the $39.3 million gain on the fair value of Caelum recognized in 2021 offset by $15.3 million in interest expense and financing fees due to Journey’s interest and financing costs related to its convertible preferred stock offering and the interest expense associated with the credit facility with Oaktree Fund Administration, LLC.

Net loss attributable to non-controlling interests decreased $43.7 million, or 77%, from the year ended December 31, 2020 to the year ended December 31, 2021.

This decrease reflects the partner companies’ share of net loss.

This increase reflects the partner companies’ share of net loss.

Net loss attributable to common stockholders increased $18.2 million or 39%, from a net loss of $46.5 million for the year ended December 31, 2020 to a net loss of $64.7 million for the year ended December 31, 2021.

Liquidity and Capital Resources

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Financing activities

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

Net increase in cash and cash equivalents and restricted cash

For the Year Ended December 31, 2020

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Includes Fortress and non-public subsidiaries.

For the Year Ended December 31,

($ in thousands)

Statement of cash flows data:

Total cash (used in)/provided by:

Operating activities

Net cash used in operating activities decreased $11.3 million from the year ended December 31, 2019 to the year ended December 31, 2020.

The decrease is primarily due to the decrease in gain from the deconsolidation of Caelum of $18.5 million recognized in 2019, offset by the increase in the fair value of investments of $6.4 million as well as the increase in net loss of $1.3 million for the year ended December 31, 2020.

Investing activities

Net cash provided by investing activities for the year ended December 31, 2019 of $20.1 million decreased $27.3 million to net cash used in investing activities of $7.2 million for the year ended December 31, 2020.

The change is primarily due to cash provided by discontinued investing activities of $13.1 million received in 2019 related to the sale of National, as well as the redemption of $22.6 million of certificates of deposit in 2019, offset by the purchase of $5.0 million of certificates of deposit, also in 2019.

Cash used to purchase intangible assets decreased in 2020 by $1.2 million, cash used to purchase property and equipment and research and development licenses also decreased for the year ended December 31, 2020, by $0.4 million and $0.6 million, respectively.

Financing activities

Net cash provided by financing activities was $172.4 million for the year ended December 31, 2020, compared to $146.7 million of net cash provided by financing activities for the year ended December 31, 2019, an increase of $25.7 million.

The increase is primarily due to an increase of $33.0 million in net proceeds from the issuance of Series A preferred stock, $26.8 million increase in proceeds from the Company’s at-the-market offering, $42.0 million increase in partner companys’ at-the-market offering, and the $60 million gross proceeds from the Oaktree Note.

Offsetting these financing activities was the decrease in proceeds from partner companies’ sale of stock of $28.5 million, payment of partner company’s Horizon Notes of $15.8 million, and repayment of $28.4 million of 2017 Subordinated Note Financing, $21.7 million of 2018 Venture Notes, $9.0 million of 2019 Notes, and $14.9 million for the payoff of the IDB Note.

We fund our operations through cash on hand, the sale of debt and third-party financings.

At December 31, 2020, we had cash and cash equivalents of $233.4 million of which $78.8 million relates to Fortress, $40.8 million relates to Checkpoint, $97.8 million relates to Mustang, $3.1 million relates to Avenue, and $12.9 million relates to the remaining partner companies.

Restricted cash of $1.6 million is comprised of:

$0.6 million secures a letter of credit used as a security deposit for the New York, NY lease that became effective on October 3, 2014, $1.0 million secures the Worcester, Massachusetts lease signed by Mustang that became effective on October 27, 2017, and $0.1 million securing the Waltham, Massachusetts lease signed by Fortress that became effective in October 2015.

On June 28, 2019, Fortress entered into an At Market Issuance Sales Agreement (“2019 Common ATM”), with Cantor Fitzgerald & Co., Oppenheimer & Co., Inc., H.C.

Wainwright & Co.

Inc., Jones Trading Institutional Services LLC and B.

Riley, as selling agents, governing potential sales of the Company’s common stock.

For the year ended December 31, 2020, the Company issued approximately 17.4 million shares of common stock for gross proceeds of $47.5 million at an average selling price of $2.73.

Under the 2019 Common ATM, the Company pays the agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock, and in connection with these sales, with respect to the year ended December 31, 2020, Fortress paid aggregate fees of approximately $1.4 million.

On February 14, 2020, the Company announced the closing of an underwritten public offering, whereby it sold 625,000 shares of its 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (Nasdaq:

FBIOP) (the "Preferred Stock"), (plus a 45-day option to purchase up to an additional 93,750 shares, which was exercised in February 2020) at a price of $20.00 per share for gross proceeds of approximately $14.4 million, before deducting underwriting discounts and commissions and offering expenses of approximately $1.3 million.

On May 29, 2020, the Company closed on an underwritten public offering whereby it sold 555,556 shares of its Preferred Stock, (plus a 45-day option to purchase up to an additional 83,333 shares, which was exercised in May 2020) at a price of $18.00 per share for gross proceeds of approximately $11.5 million, before deducting underwriting discounts and commissions and offering expenses of approximately $1.1 million.

On August 26, 2020, the Company closed on an underwritten public offering whereby it sold 666,666 shares of its Preferred Stock, (plus a 45-day option to purchase up to an additional 66,666 shares, which was exercised in August 2020) at a price of $18.00 per share for gross proceeds of approximately $13.2 million, before deducting underwriting discounts and commissions and offering expenses of approximately $1.1 million.

During the year ended December 31, 2020, Checkpoint sold a total of 5,104,234 shares of common stock under an At-the-Market Issuance Sales Agreement for aggregate total gross proceeds of approximately $12.8 million at an average selling price of $2.50 per share, resulting in net proceeds of approximately $12.4 million after deducting commissions and other transaction costs.

In September 2020, Checkpoint completed an underwritten public offering in which it sold 7,321,429 shares of its common stock at a price of $2.80 per share for gross proceeds of approximately $20.5 million.

Total net proceeds from the offering were approximately $18.9 million, net of underwriting discounts and offering expenses of approximately $1.6 million.

The shares were sold under the Checkpoint 2017 S-3.

From January 1, 2021 through March 5, 2021 Checkpoint issued approximately 3.2 million shares of common stock for gross proceeds of $12.3 million at an average selling price of $3.88 under the Checkpoint ATM.

During the year ended December 31, 2020, Mustang issued approximately 17.6 million shares of common stock at an average price of $3.40 per share for gross proceeds of $59.8 million under the Mustang ATM.

In connection with these sales, Mustang paid aggregate fees of approximately $1.1 million for net proceeds of approximately $58.7 million.

On June 11, 2020, Mustang entered into an underwriting agreement (the “Mustang Underwriting Agreement”) with Cantor Fitzgerald & Co., as representative of the underwriters named therein (each, an “Underwriter” and collectively with Cantor Fitzgerald & Co., the “Underwriters”).

In connection with the Mustang Underwriting Agreement, Mustang issued 10,769,231 shares of common stock (plus a 30-day option to purchase up to an additional 1,615,384 shares of common stock, of which 686,373 were exercised) at a price of $3.25 per share for gross proceeds of approximately $37.2 million, before deducting underwriting discounts and commissions and offering expenses.

In connection with the public offering, Mustang paid aggregate fees of approximately $2.4 million for net proceeds of approximately $34.8 million.

The shares were sold under our S-3 registrations filed with the Securities and Exchange Commission.

From January 1, 2021 through March 18, 2021 Mustang issued approximately 10.6 million shares of common stock for gross proceeds of $44.9 million at an average selling price of $4.24 under the Mustang ATM.

In 2020, Fortress raised $0.3 million from the issuance of common shares in connection with the ESPP, compared to $0.1 million raised from the issuance of common shares in connection with the ESPP in 2019 .

Net increase in cash and cash equivalents and restricted cash

Operating Activities

Net cash used in operating activities increased $32.9 million from the year ended December 31, 2020 to the year ended December 31, 2021.

The increase is primarily due to the increase in net loss of $61.8 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020, with the increases in cash used by accounts payable and accrued expenses of $36.8 million, accounts receivable of $6.6 million, and deferred revenue of $2.6 million as compared to the year ended December 31, 2020.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2020, of $7.2 million increased $47.7 million to net cash provided by investing activities of $40.5 million for the year ended December 31, 2021.

The change is primarily due to cash provided by the proceeds from the sale of Caelum of $56.9 million received in 2021 related to AstraZeneca’s exercise of their purchase option, offset by the purchases of research and development licenses of $11.4 million and property and equipment of $4.6 million for the year ended December 31, 2021.

Financing Activities

Net cash provided by financing activities was $149.0 million for the year ended December 31, 2021, compared to $172.4 million of net cash provided by financing activities for the year ended December 31, 2020, a decrease of $23.4 million.

The decrease is primarily due to the decrease of $39.1 million in net proceeds from the issuance of Series A Cumulative Redeemable Perpetual Preferred Stock, the decrease of $36.8 million in proceeds from the Company’s at-the-market offering, the decrease of $18.3 million in partner companies’ sale of stock, and the $60 million decrease in gross proceeds from the Oaktree Note.

Offsetting these decreases was the increase in proceeds from partner companies’ at-the-market offerings of $39.7 million, as well as $89.8 million of 2020 repayments of Fortress’ and partner company’s notes.

We fund our operations through cash on hand, the sale of debt, third-party financings, and the sale of partner companies.

At December 31, 2021, we had cash and cash equivalents of $305.7 million of which $88.5 million relates to Fortress and the private partner companies, primarily funded by Fortress, $54.7 million relates to Checkpoint, $109.6 million relates to Mustang, $49.1 million relates to JMC and $3.8 million relates to Avenue.

Restricted cash related to our leases is $2.2 million.

On July 23, 2021, the Company filed shelf registration statement 333-255185 on Form S-3, which was declared effective on July 30, 2021 (the “2021 Shelf”).

No securities have been drawn down under the 2021 Shelf.

On May 18, 2020, the Company filed a shelf registration statement on Form S-3, which was declared effective on May 26, 2020 (the "2020 Shelf").

In connection with the 2020 Shelf, the Company entered into an At Market Issuance Sales Agreement ("2020 Common ATM") governing potential sales of the Company's common stock.

For the year ended December 31, 2021, the Company issued approximately 3.1 million shares of common stock, at an average price of $3.05 per share for net proceeds of $9.1 million.

Approximately $17.4 million of securities remain available for sale under the 2020 Shelf at December 31, 2021.

Journey’s common stock began trading on the Nasdaq Capital Market on November 12, 2021 under the ticker symbol “DERM.” On November 16, 2021, Journey completed an initial public offering (the “Journey IPO”) whereby it sold 3,520,000 shares of its common stock at a price of $10.00 per share for gross proceeds of $35.2 million, before deducting underwriting discounts and other offering costs of $4.6 million for net proceeds of $30.6 million.

In March 2021, Journey commenced an offering of 8% Cumulative Convertible Class A Preferred Stock (“Journey Preferred Offering”) in an aggregate minimum amount of $12.5 million and an aggregate maximum amount of $30.0 million.

The Journey Preferred Offering terminated on July 18, 2021.

Journey issued an aggregate of 758,680 Cumulative Convertible Class A Preferred shares at a price of $25.00 per share, for gross proceeds of $19.0 million.

Following the payment of placement agent fees of $1.9 million, and other expenses of $0.1 million, Journey received $17.0 million of net proceeds.

As a result of the Journey IPO in November 2021, the Journey Preferred shares converted into 2,231,346 shares of Journey common stock.

In November 2020, Checkpoint filed a shelf registration statement on Form S-3 (the “Checkpoint 2020 S-3”), which was declared effective in December 2020.

Under the Checkpoint 2020 S-3, Checkpoint may sell up to a total of $100 million of its securities.

In connection with the Checkpoint 2020 S-3, Checkpoint entered into an ATM (the “Checkpoint 2020 ATM”) with the Agents relating to the sale of shares of Checkpoint’s common stock.

Under the Checkpoint 2020 ATM, Checkpoint pays the Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of Checkpoint’s common stock.

During the year ended December 31, 2021, Checkpoint sold a total of 11,899,983 shares of common stock under the Checkpoint 2020 ATM for aggregate total gross proceeds of approximately $41.3 million at an average selling price of $3.47 per share, resulting in net proceeds of approximately $40.4 million after deducting commissions and other transaction costs.

On April 23, 2021, Mustang filed shelf registration statement No.

333-255476 on Form S-3 (the “Mustang 2021 S-3”), which was declared effective on May 24, 2021.

Under the Mustang 2021 S-3, Mustang may sell up to a total of $200 million of its securities.

As of December 31, 2021, $200 million of the Mustang 2021 S-3 remains available for sales of securities.

On July 13, 2018, Mustang filed a shelf registration statement No.

333-226175 on Form S-3 , as amended on July 20, 2018 (the "2018 Mustang S-3"), which was declared effective in August 2018.

Under the 2018 Mustang S-3, Mustang may sell up to a total of $75.0 million of its securities.

In connection with the 2018 Mustang S-3, Mustang entered into an At-the-Market Issuance Sales Agreement (the "Mustang ATM") relating to the sale of shares of common stock.

Under the Mustang ATM, Mustang pays the Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock.

During the year ended December 31, 2021, the Company issued approximately 19.4 million shares of common stock at an average price of $3.70 per share for gross proceeds of $71.9 million under the ATM Agreement.

In connection with these sales, the Company paid aggregate fees of approximately $1.3 million for net proceeds of approximately $70.6 million.

In November 2021, Avenue, pursuant to an underwritten public offering, sold 2,238,805 shares of its common stock at a price of $1.34 per share for gross proceeds of approximately $3.0 million.

After deducting underwriting discounts and commissions and other expenses, net proceeds to Avenue from this underwritten public offering were $2.6 million.

In December 2021, Avenue, pursuant to an underwritten public offering, sold 1,910,100 shares of its common stock at a price of $1.07 per share for gross proceeds of approximately $2.0 million.

After deducting underwriting discounts and commissions and other expenses, net proceeds to Avenue from this underwritten public offering were $1.8 million.

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.

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However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world.

Off-Balance Sheet Arrangements

We do not have any financings or other relationships with unconsolidated entities or other persons.

Recently Issued Accounting Pronouncements

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis