Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Statements in the following discussion and throughout this report that are not historical in nature are “forward-looking statements.” You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. 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. We undertake no obligation to update any forward-looking statements in the discussion of our financial condition and results of operations to reflect events or circumstances after the date of this report or to reflect actual outcomes
We are a biopharmaceutical company dedicated to acquiring, developing and commercializing pharmaceutical and biotechnology products and product candidates, which we do at the Fortress level, at our majority-owned and majority-controlled subsidiaries and joint ventures, and at entities we founded and in which we maintain significant minority ownership positions. Fortress has a talented and experienced business development team, comprising scientists, doctors and finance professionals, who identify and evaluate promising products and product candidates for potential acquisition by new or existing partner companies. 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, Mayo Foundation for Medical Education and Research, AstraZeneca plc and Dr. 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. (“UR-1”).
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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, 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. (“Sentynl”). 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 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
DFD-29
● 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 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.
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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 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.
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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. Ltd. (“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)
● In October 2020, Mustang announced that the first patient was dosed in a Mustang-sponsored, open-label, multicenter Phase 1/2 clinical trial to evaluate the safety and efficacy of MB-102 ( CD123-targeted CAR T cell therapy) in patients with relapsed or refractory blastic plasmacytoid dendritic cell neoplasm (“BPDCN”).
MB-101 (IL13Rα2-targeted CAR T cell therapy)
● 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.
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MB-105 (PSCA-targeted CAR T cell therapy)
● 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 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. Dr. 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. Dr. 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 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.
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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)
● In May 2020, Oncogenuity entered into an exclusive worldwide licensing agreement with Columbia University to develop novel oligonucleotides for the treatment of genetically driven cancers. The proprietary platform produces oligomers, known as “ONCOlogues,” which are capable of binding gene sequences 1,000 times more effectively than complementary native DNA.
● ONCOlogues invade a DNA double helix and displace native mutated strands. This may prevent the mRNA that antisense binds to from ever being created. It is active higher upstream than traditional antisense approaches, as well as potentially more potent and broader in its utility.
● In addition, Oncogenuity is exploring the potential of the platform to treat novel coronaviruses, such as COVID-19.
General Corporate
● 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.
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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.
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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:
Level 1 : Quoted prices in active markets for identical assets or liabilities.
Level 2 : Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3 : 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.
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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.
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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.
Income Taxes
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.
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Results of Operations
General
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. While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, research and development payments in connection with strategic partnerships and/or product sales, our current non-marketed product candidates are at various stages of development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate significant revenues.
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
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 licenses and milestones, costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings and patents, laboratory costs and other supplies.
Also included in research and development is the total purchase price for licenses acquired during the period.
For the years ended December 31, 2021 and 2020, research and development expenses were approximately $113.2 million and $61.3 million, respectively. Additionally, during the years ended December 31, 2021 and 2020, we expensed approximately $15.6 million and $2.8 million, respectively, in costs related to the acquisition of licenses.
The table below provides a summary of research and development costs associated with the development of our licenses by entity, for the years ended December 31, 2021 and 2020:
Year Ended
December 31,
% of total
($ in thousands)
2021
2020
2021
2020
Research & Development
Fortress
$
2,593
$
1,725
2
%
3
%
Partner Companies:
Avenue
1,255
2,866
1
%
5
%
Checkpoint
41,855
11,734
37
%
19
%
JMC
2,739
—
2
%
—
%
Mustang
49,631
36,987
44
%
60
%
Other 1
15,167
7,963
14
%
13
%
Total Research & Development Expense
$
113,240
$
61,275
100
%
100
%
Note 1: Includes the following partner companies: 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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Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of personnel related costs, costs required to support the marketing and sales of our commercialized products, professional fees for legal, consulting, audit and tax services, rent and other general operating expenses not otherwise included in research and development expenses. For the years ended December 31, 2021 and 2020, selling, general and administrative expenses were $86.8 million and $61.2 million, respectively. Stock based compensation expense included in selling, general and administrative expenses in 2021 and 2020 was $15.2 million and $10.3 million, respectively.
The table below provides a summary by entity of selling, general and administrative expenses for the years ended December 31, 2021 and 2020, respectively:
Year Ended
December 31,
% of Total
($ in thousands)
2021
2020
2021
2020
Selling, General & Administrative
Fortress
$
26,062
$
21,350
30
%
35
%
Partner Companies:
Avenue
2,484
2,347
3
%
4
%
Checkpoint
7,006
6,517
8
%
11
%
JMC 1
39,895
22,100
46
%
36
%
Mustang
8,866
6,810
10
%
11
%
Other 2
2,530
2,042
3
%
3
%
Total Selling, General & Administrative Expense
$
86,843
$
61,166
100
%
100
%
Note 1: Includes field sales force costs for the year ended December 31, 2021 and 2020 of $16.0 million and $10.4 million, respectively. During the course of 2021, JMC expanded their field sales force to accommodate their increased product portfolio.
Note 2: Includes the following partner companies: Aevitas, Baergic, Cellvation, Cyprium, Helocyte, Oncogenuity and UR-1.
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Comparison of Years Ended December 31, 2021 and 2020
Year Ended December 31,
Change
($ in thousands)
2021
2020
$
%
Revenue
Product revenue, net
$
63,134
$
44,531
$
18,603
42
%
Collaboration revenue
5,389
—
5,389
100
%
Revenue – related party
268
1,068
(800)
(75)
%
Net revenue
68,791
45,599
23,192
51
%
Operating expenses
Cost of goods sold – product revenue
32,084
14,594
17,490
120
%
Research and development
113,240
61,275
51,965
85
%
Research and development – licenses acquired
15,625
2,834
12,791
451
%
Selling, general and administrative
86,843
61,166
25,677
42
%
Wire transfer fraud loss
9,540
—
9,540
100
%
Total operating expenses
257,332
139,869
117,463
84
%
Loss from operations
(188,541)
(94,270)
(94,271)
100
%
Other income (expense)
Interest income
649
1,518
(869)
(57)
%
Interest expense and financing fee
(15,308)
(15,326)
18
0
%
Change in fair value of investments
39,294
6,418
32,876
512
%
Change in fair value of derivative liability
(447)
(1,189)
742
(62)
%
Total other income (expense)
24,188
(8,579)
32,767
(382)
%
Loss before income tax expense
(164,353)
(102,849)
(61,504)
60
%
Income tax expense
473
136
337
248
%
Net loss
(164,826)
(102,985)
(61,841)
60
%
Less: net loss attributable to non-controlling interest
100,123
56,459
43,664
77
%
Net loss attributable to common stockholders
$
(64,703)
$
(46,526)
$
(18,177)
39
%
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.
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Research and development expenses increased $52.0 million, or 85%, from the year ended December 31, 2020 to the year ended December 31, 2021. The following table shows research and development spending for Fortress and each partner company:
Year Ended December 31,
Change
($ in thousands)
2021
2020
$
%
Research & Development
Stock-based compensation
Fortress
$
1,152
$
808
$
344
43
%
Partner Companies:
Avenue
172
274
(102)
(37)
%
Checkpoint
684
617
67
11
%
Mustang
2,278
1,437
841
59
%
Other 1
21
36
(15)
(42)
%
Sub-total stock-based compensation expense
4,307
3,172
1,135
36
%
Other Research & Development
Fortress
1,441
917
524
57
%
Partner Companies:
Avenue
1,083
2,592
(1,509)
(58)
%
Checkpoint
41,171
11,117
30,054
270
%
JMC
2,739
—
2,739
100
%
Mustang
47,353
35,550
11,803
33
%
Other 1
15,146
7,927
7,219
91
%
Total Research & Development Expense
$
113,240
$
61,275
$
51,965
85
%
Note 1: Includes the following partner company: 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 $25.7 million, or 42%, from the year ended December 31, 2020 to the year ended December 31, 2021. The following table shows selling, general and administrative spending for Fortress and by each partner company:
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Year Ended December 31,
Change
($ in thousands)
2021
2020
$
%
Selling, General & Administrative
Stock-based compensation
Fortress
$
8,897
$
5,976
$
2,921
49
%
Partner Companies:
Avenue
270
436
(166)
(38)
%
Checkpoint
2,453
2,163
290
13
%
JMC
2,466
153
2,313
1512
%
Mustang
1,030
1,550
(520)
(34)
%
Other 2
63
1
62
6200
%
Sub-total stock-based compensation expense
15,179
10,279
4,900
48
%
Other Selling, General & Administrative
Fortress
17,165
15,374
1,791
12
%
Partner Companies:
Avenue
2,214
1,911
303
16
%
Checkpoint
4,553
4,354
199
5
%
JMC 1
37,429
21,947
15,482
71
%
Mustang
7,836
5,260
2,576
49
%
Other 2
2,467
2,041
426
21
%
Total Selling, General & Administrative Expense
$
86,843
$
61,166
$
25,677
42
%
Note 1: 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.
Note 2: Includes the following partner companies: 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 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 $64.7 million for the year ended December 31, 2021.
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Liquidity and Capital Resources
Components of cash flows from publicly-traded partner companies are comprised of:
For the Year Ended December 31, 2021
($ in thousands)
Fortress 1
Avenue
Checkpoint
JMC
Mustang
Total
Statement of cash flows data:
Total cash (used in)/provided by:
Operating activities
$
(30,636)
$
(3,750)
$
(26,306)
$
(2,181)
$
(53,667)
$
(116,540)
Investing activities
55,880
—
—
(10,000)
(5,366)
40,514
Financing activities
(19,519)
4,381
40,269
53,016
70,847
148,994
Net increase in cash and cash equivalents and restricted cash
$
5,725
$
631
$
13,963
$
40,835
$
11,814
$
72,968
For the Year Ended December 31, 2020
($ in thousands)
Fortress 1
Avenue
Checkpoint
JMC
Mustang
Total
Statement of cash flows data:
Total cash (used in)/provided by:
Operating activities
$
(30,331)
$
(4,613)
$
(16,551)
$
5,132
$
(37,319)
$
(83,682)
Investing activities
(552)
(1,000)
—
(1,200)
(4,412)
(7,164)
Financing activities
63,529
—
31,246
(487)
78,122
172,410
Net increase in cash and cash equivalents and restricted cash
$
32,646
$
(5,613)
$
14,695
$
3,445
$
36,391
$
81,564
Note 1: Includes Fortress and non-public subsidiaries.
For the Year Ended December 31,
($ in thousands)
2021
2020
Change
Statement of cash flows data:
Total cash (used in)/provided by:
Operating activities
$
(116,540)
$
(83,682)
$
(32,858)
Investing activities
40,514
(7,164)
47,678
Financing activities
148,994
172,410
(23,416)
Net increase in cash and cash equivalents and restricted cash
$
72,968
$
81,564
$
(8,596)
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.
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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.
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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. We have funded our operations to date primarily through the sale of equity and debt securities. We believe that our current cash and cash equivalents is sufficient to fund operations for at least the next twelve months. Our failure to raise capital as and when needed would have a material adverse impact on our financial condition and our ability to pursue our business strategies. We may seek funds through equity or debt financings, joint venture or similar development collaborations, the sale of partner companies (such as the stock purchase of Caelum by Alexion that would result from option exercise or the contingent merger of Avenue with InvaGen), royalty financings, or through other sources of financing.
In addition to the foregoing, based on the Company’s current assessment, the Company does not expect any material impact on its long-term development timeline and its liquidity due to the worldwide spread of the COVID-19 virus. 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.
Recently Issued Accounting Pronouncements
See Note 2 of Notes to the Consolidated Financial Statements for a discussion of recent accounting standards and pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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Item 8. Financial Statements and Supplementary Data.
The information required by this Item is set forth in the consolidated financial statements and notes thereto beginning at page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.