Item 9A. Controls and Procedures
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are designed only to provide reasonable assurance that they will meet their objectives. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness, as of December 31, 2022, of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.
84
Table of Contents
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making the assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013) . Based on the results of this assessment, management (including our Chief Executive Officer and our Chief Financial Officer) has concluded that, as of December 31, 2022, our internal control over financial reporting was effective.
Changes in Internal Controls over Financial Reporting
Except for the remediation efforts described above taken to address the material weakness, there were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders.
85
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) Financial Statements.
The following financial statements are filed as part of this report:
Reports of Independent Registered Public Accounting Firms (KPMG LLP, Short Hills, NJ; PCAOB No.: 185)
F-2
Consolidated Balance Sheets
F-4
Consolidated Statements of Operations
F-5
Consolidated Statements of Changes in Stockholders’ Equity
F-6
Consolidated Statements of Cash Flows
F-7
Notes to the Consolidated Financial Statements
F-9 – F-54
86
Table of Contents
(b) Exhibits.
Exhibit
Number
Exhibit Title
3.1
Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc. (formerly Coronado Biosciences, Inc.) dated April 1, 2020 (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10 (file No. 000-54463) filed with the SEC on July 15, 2011).
3.2
First Certificate of Amendment of Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc. dated May 20, 2011 (incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10 (file No. 000-54463) filed with SEC on July 15, 2011) .
3.3
Second Certificate of Amendment of Amended and Restated Certificate of Incorporation, as amended, of Fortress Biotech, Inc. dated October 1, 2013 (incorporated by reference to Exhibit 3.8 of the Registrant’s Annual Report on Form 10-K (file No. 001-35366) filed with the SEC on March 14, 2014) .
3.4
Third Certificate of Amendment of Amended and Restated Certificate of Incorporation, as amended, of Fortress Biotech, Inc. dated April 22, 2015 (incorporated by reference to Exhibit 3.9 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on April 27, 2015) .
3.5
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc. dated June 18, 2020 (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on June 19, 2020).
3.6
Certificate of Amendment to the Certificate of Designations of Rights and Preferences of the Fortress Biotech, Inc. 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock under the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc. dated June 18, 2020 (incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on June 19, 2020).
3.7
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc. dated June 23, 2021, (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on June 23, 2020) .
3.8
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Fortress Biotech, Inc. dated July 8, 2022 (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on July 11, 2022).
3.9
Second Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.7 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on October 31, 2013.
4.1
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10 (file No. 000-54463) filed with the SEC on July 15, 2011) .
4.2
Certificate of Designation of Rights and Preferences of the Fortress Biotech, Inc. 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on November 7, 2017) .
4.3
Description of Securities of Fortress Biotech, Inc.*
10.2
Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.9 of the Registrant’s Form 10 (file No. 000-54463) filed with the SEC on July 15, 2011). #
10.3
Amended and Restated Consulting Agreement, entered into as of January 1, 2019, by and between the Registrant and Eric Rowinsky (incorporated by reference to Exhibit 10.3 of the Registrant’s Annual Report on Form 10-K (file No. 001-35366) filed with the SEC on March 18, 2019). #
87
Table of Contents
Exhibit
Number
Exhibit Title
10.4
Form of Indemnification Agreement by and between the Registrant and its officers and directors (incorporated by reference to Exhibit 10.25 of the Registrant’s Form 10 (file No. 000-54463) filed with the SEC on August 24, 2011).
10.5
Fortress Biotech, Inc. 2012 Employee Stock Purchase Plan (incorporated by reference to Annex A of the Registrant’s Schedule 14A (file No. 001-35366) filed with the SEC on July 13, 2012). #
10.6
Restricted Stock Issuance Agreement, dated as of February 20, 2014, by and between the Registrant and Michael S. Weiss (incorporated by reference to Exhibit 10.55 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on February 26, 2014). #
10.7
Restricted Stock Issuance Agreement, dated as of December 19, 2013, by and between the Registrant and Michael S. Weiss (incorporated by reference to Exhibit 10.57 of the Registrant’s Annual Report on Form 10-K (file No. 001-35366) filed with the SEC on March 14, 2014).
10.8
Restricted Stock Issuance Agreement, dated as of December 19, 2013, by and between the Registrant and Lindsay A. Rosenwald, M.D (incorporated by reference to Exhibit 10.58 of the Registrant’s Annual Report on Form 10-K (file No. 001-35366) filed with the SEC on March 14, 2014).#
10.9
Form of Coronado Biosciences, Inc. 2013 Stock Incentive Plan Award Agreement (2013 Stock Incentive Plan) (incorporated by reference to Exhibit 10.60 of the Registrant’s Form S-8 (file No. 333-194588) filed with the SEC on March 14, 2014). #
10.10
Coronado Biosciences, Inc. Deferred Compensation Plan for Directors, dated March 12, 2015 (incorporated by reference to Exhibit 10.67 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on March 18, 2015). #
10.11
Fortress Biotech, Inc. 2013 Stock Incentive Plan, as amended (incorporated by reference to Appendix A of the Registrant’s Schedule 14-A (file No. 001-35366) filed with the SEC on June 4, 2015). #
10.13
Form of Common Stock Purchase Warrant in favor of National Securities Corporation (incorporated by reference to Exhibit 10.35 of the Registrant’s Quarterly Report on Form 10-Q (file No. 001-35366) filed with the SEC on May 10, 2017) .
10.14
Fortress Biotech, Inc. 2012 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.38 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on June 12, 2017) .
10.15
Fortress Biotech, Inc. Amended and Restated Long-Term Incentive Plan (incorporated by reference to Exhibit 10.39 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on June 12, 2017) .
10.16
Development, Option and Stock Purchase Agreement by and among Caelum Biosciences, Inc., Alexion Pharmaceuticals, Inc., Fortress Biotech, Inc., and the several shareholders of Caelum Biosciences, Inc., dated January 30, 2019 (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (file No. 001-35366) filed with the SEC on May 10, 2019).*
10.17
Amendment to the Fortress Biotech, Inc. 2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on June 19, 2020).#
88
Table of Contents
Exhibit
Number
Exhibit Title
10.18
Amendment to the Fortress Biotech, Inc. 2013 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on June 27, 2022).#
10.19
Credit Agreement entered into by and among Fortress Biotech, Inc. the lenders from time to time party thereto, and Oaktree Fund Administration, LLC on August 27, 2020 (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (file No. 001-35366) filed with the SEC on November 9, 2020) .
10.20
Restricted Stock Unit Award Agreement between Fortress Biotech, Inc. and David Jin effective October 26, 2022 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on October 28, 2022).#
10.21
Indemnification Agreement between Fortress Biotech, Inc. and Lucy Lu, M.D. dated as of December 14, 2022 (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the Sec on December 19, 2022).#
10.22
Amendment to Fortress Biotech, Inc. 2012 Employee Stock Purchase Plan (incorporated by reference to Exhibit A of the Registrant’s Schedule 14A (file No. 001-35366) filed with the SEC on April 30, 2018).#
16.1
Letter from BDO USA, LLP to the Securities and Exchange Commission dated September 22, 2021 (incorporated by reference to Exhibit 16.1 of the Registrant’s Current Report on Form 8-K (file No. 001-35366) filed with the SEC on September 24, 2021).
21.1
Subsidiaries of the Registrant. *
23.1
Consent Independent Registered Accounting Firm (KPMG LLP, Short Hills, NJ). *
31.1
Certification of Chairman, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2
Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1
Certification of Chairman, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS
Inline XBRL Instance Document.*
101.SCH
Inline XBRL Taxonomy Extension Schema Document.*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*
# Management contract or compensatory plan.
89
Table of Contents
* Filed herewith
Item 16. Form 10-K Summary
None.
90
Table of Contents
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms ( KPMG LLP , Short Hills, NJ ; PCAOB No.: 185 )
F-2
Consolidated Balance Sheets
F-4
Consolidated Statements of Operations
F-5
Consolidated Statements of Changes in Stockholders’ Equity
F-6
Consolidated Statements of Cash Flows
F-7
Notes to the Consolidated Financial Statements
F-9 – F-54
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
Fortress Biotech, Inc.:
1 Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Fortress Biotech, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Table of Contents
Evaluation of accrued coupon liability
As discussed in Note 11 of the consolidated financial statements, the Company accrues for coupons on products for certain qualified commercially-insured parties. At December 31, 2022, the Company recorded $7,604 thousand in accrued coupon and rebates, which included the accrued coupon liability. The Company estimates the amount of its expected coupon redemptions for product that is still in the distribution channel and records the estimate as a reduction of revenue in the period the related product revenue is recognized. The Company’s accrued coupon liability is primarily based on historical company coupon redemption costs, cost per coupon claims, and estimates of product remaining in the distribution channel.
We identified the evaluation of the accrued coupon liability as a critical audit matter. There was a high degree of auditor judgment required in the evaluation of certain assumptions used in the determination of the accrued coupon liability, including the estimation of product in the distribution channel, coupon redemption costs, and the cost per coupon claims.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls over the Company’s accrued coupon process, including a control over the assumptions. We performed a risk assessment procedure to assess the sensitivity of changes in the estimate of distribution channel inventory on the accrued coupon liability. We tested the sales data and coupon redemption data used by management to calculate coupon redemption costs and cost of coupon claims by comparing the data to historical information. We developed an expectation of the accrued coupon liability based on an independent estimate of the product in the distribution channel and we compared our expectation to the Company’s accrued coupon liability.
We have served as the Company’s auditor since 2021.
Short Hills, New Jersey
March 31, 2023
F-3
Table of Contents
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands except for share and per share amounts)
December 31,
December 31,
2022
2021
ASSETS
Current assets
Cash and cash equivalents
$
178,266
$
305,744
Accounts receivable, net
28,208
23,112
Inventory
14,159
9,862
Other receivables - related party
138
678
Prepaid expenses and other current assets
9,661
7,066
Total current assets
230,432
346,462
Property, plant and equipment, net
13,020
15,066
Operating lease right-of-use asset, net
19,991
19,005
Restricted cash
2,688
2,220
Intangible asset, net
27,197
12,552
Other assets
973
1,198
Total assets
$
294,301
$
396,503
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses
$
97,446
$
90,660
Deferred revenue
728
2,611
Income taxes payable
722
345
Common stock warrant liabilities
13,869
—
Operating lease liabilities, short-term
2,447
2,104
Partner company convertible preferred shares, short-term, net
2,052
—
Partner company line of credit
2,948
812
Partner company installment payments - licenses, short-term, net
7,235
4,510
Other short-term liabilities
268
—
Total current liabilities
127,715
101,042
Notes payable, long-term, net
91,730
42,937
Operating lease liabilities, long-term
21,572
20,987
Partner company installment payments - licenses, long-term, net
1,412
3,627
Other long-term liabilities
1,847
2,033
Total liabilities
244,276
170,626
Commitments and contingencies (Note 15)
Stockholders’ equity
Cumulative redeemable perpetual preferred stock, $ 0.001 par value, 15,000,000 authorized, 5,000,000 designated Series A shares, 3,427,138 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively, liquidation value of $ 25.00 per share
3
3
Common stock, $ 0.001 par value, 200,000,000 shares authorized, 110,494,245 shares issued and outstanding as of December 31, 2022; 170,000,000 shares authorized, 101,435,505 shares issued and outstanding as of December 31, 2021, respectively
110
101
Additional paid-in-capital
675,841
656,033
Accumulated deficit
( 634,233 )
( 547,463 )
Total stockholders' equity attributed to the Company
41,721
108,674
Non-controlling interests
8,304
117,203
Total stockholders' equity
50,025
225,877
Total liabilities and stockholders' equity
$
294,301
$
396,503
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
($ in thousands except for share and per share amounts)
Year Ended December 31,
2022
2021
Revenue
Product revenue, net
$
70,995
$
63,134
Collaboration revenue
1,882
5,389
Revenue - related party
192
268
Other revenue
2,674
—
Net revenue
75,743
68,791
Operating expenses
Cost of goods sold - product revenue
30,775
32,084
Research and development
134,199
113,240
Research and development - licenses acquired
677
15,625
Selling, general and administrative
113,656
86,843
Wire transfer fraud loss
—
9,540
Total operating expenses
279,307
257,332
Loss from operations
( 203,564 )
( 188,541 )
Other income (expense)
Interest income
1,398
649
Interest expense and financing fee
( 13,642 )
( 15,308 )
Foreign exchange loss
( 89 )
—
Change in fair value of investments
—
39,294
Change in fair value of warrant liabilities
1,129
( 447 )
Grant income
1,304
—
Total other income (expense)
( 9,900 )
24,188
Loss before income tax expense
( 213,464 )
( 164,353 )
Income tax expense
449
473
Net loss
( 213,913 )
( 164,826 )
Net loss attributable to non-controlling interests
127,338
100,123
Net loss attributable to common stockholders
$
( 86,575 )
$
( 64,703 )
Net loss per common share attributable to common stockholders - basic and diluted
$
( 0.97 )
$
( 0.79 )
Weighted average common shares outstanding - basic and diluted
88,874,519
81,700,220
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
Additional
Total
Series A Preferred Stock
Common Stock
Paid-In
Accumulated
Non-Controlling
Stockholders'
($ in thousands except for share amounts)
Shares
Shares
Amount
Capital
Deficit
Interests
Equity
Balance at December 31, 2020
3,427,138
$
3
94,877,492
$
95
$
583,000
$
( 482,760 )
$
96,661
$
196,999
Stock-based compensation expense
—
—
—
—
19,486
—
—
19,486
Issuance of common stock related to equity plans
—
—
3,236,752
3
275
—
—
278
Issuance of common stock for at-the-market offering, net
—
—
3,067,446
3
9,082
—
—
9,085
Payment of Series A perpetual preferred stock dividends
—
—
—
—
( 8,031 )
—
—
( 8,031 )
Partner company’s offering, net
—
—
—
—
34,996
—
—
34,996
Partner companies' at-the-market offering, net
—
—
—
—
110,887
—
—
110,887
Issuance of common stock under partner company’s ESPP
—
—
—
—
309
—
—
309
Partner company’s dividends declared and paid
—
—
—
—
( 749 )
—
—
( 749 )
Partner company’s exercise of options for cash
—
—
—
—
7
—
—
7
Issuance of partner company’s common shares for research and development expenses
—
—
—
—
176
—
—
176
Common shares issued for dividend on partner company's convertible preferred shares
—
—
253,815
—
820
—
—
820
Conversion of partner company convertible preferred shares
—
—
—
—
21,812
—
—
21,812
Conversion of partner company derivative warrant liabilities
—
—
—
—
4,628
—
—
4,628
Non-controlling interest in subsidiaries
—
—
—
—
( 120,665 )
—
120,665
—
Net loss attributable to non-controlling interest
—
—
—
—
—
—
( 100,123 )
( 100,123 )
Net loss attributable to common stockholders
—
—
—
—
—
( 64,703 )
—
( 64,703 )
Balance at December 31, 2021
3,427,138
$
3
101,435,505
$
101
`
$
656,033
$
( 547,463 )
$
117,203
$
225,877
Stock-based compensation expense
—
—
—
—
22,987
—
—
22,987
Issuance of common stock related to equity plans
—
—
4,913,804
5
169
—
—
174
Issuance of common stock for at-the-market offering, net
—
—
4,144,936
4
6,049
—
—
6,053
Payment of Series A perpetual preferred stock dividends
—
—
—
—
( 8,031 )
—
—
( 8,031 )
Partner company’s offering, net
—
—
—
—
3,205
—
—
3,205
Partner companies' at-the-market offering, net
—
—
—
—
16,370
—
—
16,370
Partner company’s exercise of options for cash
—
—
—
—
142
—
—
142
Partner company’s exercise of warrants for cash
—
—
—
—
148
—
—
148
Partner company’s reclassification of warrant liability to equity
—
—
—
—
89
—
—
89
Partner company's repurchase of stock
—
—
—
—
( 1,105 )
—
—
( 1,105 )
Issuance of common stock under partner company’s ESPP
—
—
—
—
206
—
—
206
Partner company’s dividends declared and paid
—
—
—
—
( 749 )
—
—
( 749 )
Partner company’s redemption of preferred shares
—
—
—
—
( 85 )
—
—
( 85 )
Partner company’s stock adjustment
—
—
—
—
( 6 )
—
—
( 6 )
Partner company’s net settlement of shares withheld for taxes
—
—
—
—
( 1,698 )
—
—
( 1,698 )
Partner company stock adjustment
—
—
—
—
( 23 )
—
—
( 23 )
Partner company’s warrants issued in conjunction with debt
—
—
—
—
384
—
—
384
Partner company’s retained earning adjustment
—
—
—
—
195
( 195 )
—
—
Non-controlling interest in subsidiaries
—
—
—
—
( 18,439 )
—
18,439
—
Net loss attributable to non-controlling interest
—
—
—
—
—
—
( 127,338 )
( 127,338 )
Net loss attributable to common stockholders
—
—
—
—
—
( 86,575 )
—
( 86,575 )
Balance at December 31, 2022
3,427,138
$
3
110,494,245
$
110
$
675,841
$
( 634,233 )
$
8,304
$
50,025
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in thousands)
Year Ended December 31,
2022
2021
Cash Flows from Operating Activities:
Net loss
$
( 213,913 )
$
( 164,826 )
Reconciliation of net loss to net cash used in operating activities:
Depreciation expense
3,109
2,628
Loss on disposal of property and equipment
255
—
Bad debt expense
284
48
Amortization of debt discount
2,065
3,914
Accretion of partner company convertible preferred shares
—
2,845
Non-cash interest
770
781
Prepayment penalty of Oaktree Note
—
450
Amortization of product revenue license fee
4,277
2,474
Amortization of operating lease right-of-use assets
1,967
1,689
Stock-based compensation expense
22,987
19,486
Common shares issued for dividend on partner company's convertible preferred shares
—
820
Change in fair value of investment in Caelum
—
( 39,294 )
Change in fair value of partner companies' warrant liabilities
( 1,129 )
447
Research and development-licenses acquired, expense
642
15,625
Increase (decrease) in cash and cash equivalents resulting from changes in operating assets and liabilities:
Accounts receivable
( 5,380 )
768
Inventory
1,744
( 8,458 )
Other receivables - related party
540
66
Prepaid expenses and other current assets
( 2,595 )
( 309 )
Other assets
344
( 185 )
Accounts payable and accrued expenses
8,349
43,307
Deferred revenue
( 1,883 )
2,611
Income taxes payable
377
345
Lease liabilities
( 2,025 )
( 1,856 )
Other long-term liabilities
( 186 )
84
Net cash used in operating activities
( 179,401 )
( 116,540 )
Cash Flows from Investing Activities:
Purchase of research and development licenses
( 340 )
( 11,380 )
Purchase of property and equipment
( 2,715 )
( 4,566 )
Proceeds from the sale of partner company's fixed assets
127
—
Purchase of intangible asset
—
( 400 )
Acquisition of Vyne products
( 20,000 )
—
Proceeds from sale of Caelum
—
56,860
Net cash used in investing activities
( 22,928 )
40,514
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in thousands)
Year Ended December 31,
2022
2021
Cash Flows from Financing Activities:
Payment of Series A perpetual preferred stock dividends
$
( 8,031 )
$
( 8,031 )
Proceeds from issuance of common stock for at-the-market offering, net
6,053
9,085
Proceeds from issuance of common stock under ESPP
174
278
Proceeds from partner companies' ESPP
206
309
Partner company’s dividends declared and paid
( 749 )
( 749 )
Proceeds from partner companies' sale of stock and warrants, net
17,835
35,367
Proceeds from partner companies' at-the-market offering, net
16,370
110,803
Proceeds from partner company convertible preferred shares, net
—
16,971
Proceeds from partner company's preferred stock offering, net
—
( 13 )
Proceeds from exercise of partner companies’ equity grants
290
7
Partner company’s net settlement of shares withheld for taxes
( 1,698 )
—
Partner company's cash payout for reverse stock split fractional shares
( 6 )
—
Payment of partner company’s redemption of preferred shares
( 85 )
—
Payment of partner company's repurchase of stock
( 1,105 )
—
Payment of partner company's deferred financing cost
( 119 )
—
Payment of debt issuance costs associated with Oaktree Note
—
( 95 )
Repayment of Oaktree Note
—
( 10,450 )
Repayment of partner company installment payments - licenses
( 5,000 )
( 5,300 )
Proceeds from partner company convertible preferred shares
2,533
—
Payment of debt issuance costs associated with partner company convertible preferred shares
( 597 )
—
Proceeds from partner company long-term debt, net
47,112
—
Proceeds from partner's company line of credit
5,000
7,000
Repayment of partner company's line of credit
( 2,864 )
( 6,188 )
Net cash provided by financing activities
75,319
148,994
Net (decrease) increase in cash and cash equivalents and restricted cash
( 127,010 )
72,968
Cash and cash equivalents and restricted cash at beginning of period
307,964
234,996
Cash and cash equivalents and restricted cash at end of period
$
180,954
$
307,964
Supplemental disclosure of cash flow information:
Cash paid for interest
$
9,419
$
6,918
Cash paid for tax
$
858
$
993
Supplemental disclosure of non-cash financing and investing activities:
Settlement of restricted stock units into common stock
$
5
$
3
Unpaid fixed assets
$
—
$
1,270
Conversion of partner company convertible preferred shares
$
—
$
21,812
Conversion of partner company derivative warrant liabilities
$
—
$
4,628
Conversion of partner company annual maintenance fee to a promissory note
$
268
$
—
Partner company's unpaid intangible assets
$
4,740
$
—
Unpaid partner company’s debt offering cost
$
1,058
$
214
Unpaid partner company’s offering cost
$
4
$
371
Unpaid partner company’s repurchase of stock
$
—
$
—
Partner company’s retained earning adjustment
$
195
$
—
Partner company’s reclassification of warrant liability to equity
$
89
$
—
Partner company derivative warrant liability associated with partner company convertible preferred shares
$
90
$
362
Partner company’s warrants issued in conjunction with debt
$
384
$
—
Unpaid research and development licenses acquired
$
325
$
250
Lease liabilities arising from obtaining right-of-use assets
$
2,953
$
207
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
FORTRESS BIOTECH, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
1. Organization and Description of Business
Fortress Biotech, Inc. (“Fortress” or the “Company”) is a biopharmaceutical company dedicated to acquiring, developing and commercializing pharmaceutical and biotechnology products and product candidates, which it does through Fortress itself and through partner companies and subsidiaries. Fortress has a talented and experienced business development team, comprising scientists, doctors and finance professionals, who work in concert with its extensive network of key opinion leaders to identify and evaluate promising products and product candidates for potential acquisition. The Company has executed such arrangements in partnership with some of the world’s foremost universities, research institutes and pharmaceutical companies, including City of Hope National Medical Center, Fred Hutchinson Cancer 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.
Following the exclusive license or other acquisition of the intellectual property underpinning a product or product candidate, Fortress leverages its business, scientific, regulatory, legal and finance expertise to help the partners achieve their goals. Partner companies then assess a broad range of strategic arrangements to accelerate and provide additional funding to support research and development, including joint ventures, partnerships, out-licensings, and public and private financings; to date, four partner companies are publicly-traded, and three have consummated strategic partnerships with industry leaders Alexion Pharmaceuticals, Inc. and InvaGen Pharmaceuticals, Inc. (a subsidiary of Cipla Limited) and Sentynl Therapeutics, Inc. (“Sentynl”), respectively. In October 2021, AstraZeneca plc (“AstraZeneca”) (acquiror of Alexion) purchased 100 % of the Company’s partner Caelum Biosciences, Inc. (“Caelum”) for approximately $ 150 million upfront and up to $ 350 million in contingent regulatory and sales milestone payments.
Several of the Company’s partner companies possess licenses to product candidate intellectual property are Aevitas Therapeutics, Inc. (“Aevitas”), Avenue Therapeutics, Inc. (Nasdaq: ATXI, “Avenue”), Baergic Bio, Inc. (“Baergic”, a subsidiary of Avenue), Cellvation, Inc. (“Cellvation”), Checkpoint Therapeutics, Inc. (Nasdaq: CKPT, “Checkpoint”), Cyprium Therapeutics, Inc. (“Cyprium”), Helocyte, Inc. (“Helocyte”), Journey Medical Corporation (Nasdaq: DERM, “Journey” or “JMC”), Mustang Bio, Inc. (Nasdaq: MBIO, “Mustang”) Oncogenuity, Inc. ("Oncogenuity"), and Urica Therapeutics, Inc. (“Urica”, formerly UR-1 Therapeutics, Inc).
Liquidity and Capital Resources
Since inception, the Company’s operations have been financed primarily through the sale of equity and debt securities, from the sale of subsidiaries/partner companies, and the proceeds from the exercise of warrants and stock options. The Company has incurred losses from operations and negative cash flows from operating activities since inception and expects to continue to incur substantial losses for the next several years as it continues to fully develop and prepare regulatory filings and obtain regulatory approvals for its existing and new product candidates. The Company’s current cash and cash equivalents are sufficient to fund operations for at least the next 12 months. However, the Company will need to raise additional funding through strategic relationships, public or private equity or debt financings, sale of a partner companies, grants or other arrangements to develop and prepare regulatory filings and obtain regulatory approvals for the existing and new product candidates, fund operating losses, and, if deemed appropriate, establish or secure through third parties manufacturing for the potential products, sales and marketing capabilities. If such funding is not available or not available on terms acceptable to the Company, the Company’s current development plans, and plans for expansion of its general and administrative infrastructure may be curtailed. Fortress also has the ability, subject to limitations imposed by Rule 144 of the Securities Act of 1933 and other applicable laws and regulations, to raise money from the sale of common stock of the public companies in which it has ownership positions.
F-9
Table of Contents
On October 31, 2022, we received a letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the bid price of the Company’s common stock, par value $ 0.001 per share (the “Common Stock”), had closed below $ 1.00 per share for 30 consecutive business days and, as a result, the Company is not in compliance with Nasdaq Listing Rule 5550(a)(2), which sets forth the minimum bid price requirement for continued listing on The Nasdaq Capital Market. Our Common Stock may be subject to delisting from The Nasdaq Capital Market if we are unable to regain compliance which may decrease the market liquidity and market price of our Common Stock.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s consolidated financial statements include the accounts of the Company and the accounts of the Company’s subsidiaries, listed above. All intercompany balances and transactions have been eliminated.
The accompanying consolidated financial statements include the accounts of the Company’s subsidiaries. For consolidated entities where the Company owns less than 100 % of the subsidiary, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective non-controlling parties. The Company also consolidates subsidiaries in which it owns less than 50 % of the subsidiary but maintains voting control. The Company continually assesses whether changes to existing relationships or future transactions may result in the consolidation or deconsolidation of partner companies.
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.
Revenue Recognition
The Company records and recognizes revenues in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
The Company’s revenues primarily result from contracts with customers, which are generally short-term and have a single performance obligation – the delivery of product. The Company’s performance obligation to deliver products is satisfied at the point in time that the goods are received by the customer, which is when the customer obtains title to and has the risks and rewards of ownership of the products. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.
F-10
Table of Contents
Many of the Company’s products sold are subject to a variety of deductions. Revenues are recorded net of provisions for variable consideration, including coupons, chargebacks, wholesaler fees, prompt pay discounts, specialty pharmacy discounts, managed care rebates, product returns, government rebates and other deductions customary to the pharmaceutical industry. Accruals for these provisions are presented in the consolidated financial statements as reductions to gross sales in determining net sales and as a contra asset within accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash). Amounts recorded for revenue deductions can result from a complex series of judgements about future events and uncertainties and can rely heavily on estimates and assumptions. The following section briefly describes the nature of the Company’s provisions for variable consideration and how such provisions are estimated:
Coupons — The Company offers coupons on products for qualified commercially-insured parties with prescription drug co-payments. Such product sales flow through both traditional wholesaler and specialty pharmacy channels. Coupons are processed and redeemed at the time of prescription fulfilment by the pharmacy. The majority of coupon reserve accrual at the end of the period reflects coupons that have been redeemed for which the Company has been billed in addition to an accrual for expected redemptions for product in the distribution channel. The expected accrual reserve requires us to estimate the distribution channel inventory at period end, the expected redemption rates, and the cost per coupon claim that the Company expects to receive. The estimate of product remaining in the distribution channel is comprised of estimated inventory at the wholesaler as well as an estimate of inventory on the shelves at the specialty pharmacies, which the Company estimates based upon historical ordering patterns. The estimated redemption rate is based on historical redemptions as a percentage of units sold. The cost per coupon is based on the coupon rate.
Chargebacks and Government Chargebacks — The Company sells a portion of its products indirectly through wholesaler distributors to contracted indirect customers, qualified government healthcare providers, qualified U.S. Department of Veterans Affairs hospitals, and 340B entities. The Company enters into specific agreements with or provides discounts to these indirect customers and entities to establish pricing for the Company’s products, and in-turn, the indirect customers and entities independently purchase these products. Because the price paid by the indirect customers and/or entities is lower than the price paid by the wholesaler, the Company provides a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and their purchase price. The Company’s provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels as well as historical chargeback rates. The Company continually monitors its reserve for chargebacks and adjusts the reserve accordingly when expected chargebacks differ from actual experience.
Wholesaler fees – The Company provides allowances to its wholesale customers for sales order management, data, and distribution services. The Company also pays administrative and other fees to certain wholesale customers consistent with pharmaceutical industry practices. The Company records a provision for these fees based on contracted rates. Assumptions used to establish the provision include contract sales volumes and average contract pricing. The Company regularly reviews the information related to these estimates and adjusts the provision accordingly.
Prompt-Pay Discounts – The Company provides for prompt pay discounts if payment is received within contractual payment term days, which generally ranges from 30 to 90 days . These discounts are recorded at the time of sale based on the customer’s contracted rate and recorded as a reduction of revenue and a reduction to accounts receivables.
Specialty Pharmacy Discounts - The Company has in place contractual arrangements with specialty pharmacies and provides for contractually agreed upon discounts. These discounts are recorded at the time of sale based on the customer’s contracted rate and recorded as a reduction of revenue.
F-11
Table of Contents
Managed Care Rebates — The Company is subject to rebates in connection with its agreements with certain contracted commercial payers. The Company estimates its managed care rebates based on the Company’s estimated payer mix and the applicable contractual rebate rate. The Company’s accrual for managed care rebates is based on an estimate of future claims that the Company expects to receive, which considers an estimate for inventory in the distribution channel. The accrual is recognized at the time of sale, resulting in a reduction of gross product revenue.
Product Returns — Consistent with industry practice, the Company offers customers a right to return any unused product. The customer’s right of return commences six months prior to product expiration date and ends one year after product expiration date. Products returned for expiration are reimbursed at current wholesale acquisition cost or indirect contract price. The Company estimates the amount of its product sales that may be returned by the Company’s customers and accrues this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company estimates products returns as a percentage of sales to its customers. The rate is estimated by using historical and its own sales information, including its visibility and estimates into the inventory remaining in the distribution channel.
Collaboration Revenue
The Company’s collaboration revenue includes service revenue, license fees and future contingent milestone-based payments. Collaboration revenue is recognized for contracted R&D services performed for it’s customers over time. The Company measures it’s progress using an input method based on the effort expended or costs incurrd toward the satisfaction of the Company’s performance obligation. The Company estimates the amount of effort to be expended, including the time it will take to complete the activities, or the costs that may be incurred in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that is multiplied by the transaction price to determine the amount of revenue the Comapny recognizes each period. This approach requires the use of estimates and judgemenst. If the Company’s estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that is recognized in the current and future periods.
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.
F-12
Table of Contents
Segment Reporting
The Company operates in two operating and reportable segments, Dermatology Product Sales and Pharmaceutical and Biotechnology Product Development. The Company evaluates the performance of each segment based on operating profit or loss. There is no inter-segment allocation of interest expense and income taxes.
Cash and Cash Equivalents
The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents at December 31, 2022 and 2021, consisted of cash and certificates of deposit in institutions in the United States. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are currently adequately protected against credit risk. At times, portions of the Company’s cash and cash equivalents may be uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation (FDIC) limits, though the Company customarily invests a significant portion of its cash in Certificate of Deposit Account Registry Service (“CDARS”) accounts to maximize FDIC insurance coverage across its holdings. As of December 31, 2022, the Company had not experienced losses on these accounts, and management believes the Company is not exposed to significant risk on such accounts. The Company’s cash equivalents and investments may comprise money market funds that are invested in U.S. Treasury obligations, corporate debt securities, U.S. Treasury obligations and government agency securities. Credit risk in these securities is reduced as a result of the Company’s investment policy to limit the amount invested in any single issuer and to only invest in securities of a high credit quality. The Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
Property and Equipment
Computer equipment, furniture and fixtures and machinery and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful life of each asset. Leasehold improvements are amortized over the shorter of the estimated useful lives or the term of the respective leases.
In connection with Mustang’s cell processing facility, Mustang incurred costs for the design and construction of the facility and the purchase of equipment; $ 1.0 million and $ 2.0 million are recorded in fixed assets – construction in process on the balance sheet at December 31, 2022 and 2021, respectively. Upon completion of the facility’s construction, all costs associated with the buildout will be recorded as leasehold improvements and amortized over the shorter of the estimated useful lives or the term of the respective leases, upon the improvement being placed in service.
Intangible Assets
Intangible assets are reported at cost, less accumulated amortization. Intangible assets with finite lives are amortized over their estimated useful lives, which represents the estimated life of the product. Amortization is calculated primarily using the straight-line method.
The Company reviews long-lived assets, including intangible assets with finite useful lives, for impairment at least annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable (a “triggering event”). Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the long-lived asset in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. The Company has not recorded any impairment losses on long-lived assets for the years ended December 31, 2022 and 2021.
F-13
Table of Contents
During the ordinary course of business, the Company has entered into certain licenses and asset purchase agreements. Potential milestone payments for achieving sales targets or regulatory development milestones are recorded when it is probable of achievement. Upon a milestone payment being achieved, the milestone payment will be capitalized and amortized over the remaining useful life for approved products and expensed for milestones prior to FDA approval. Royalty payments are recorded as cost of goods sold as sales are recognized.
Restricted Cash
The Company records cash held in trust or pledged to secure certain debt obligations as restricted cash. As of December 31, 2022, the Company had $ 2.7 million of restricted cash representing pledges to secure letters of credit in connection with certain office leases and an undertaking posted by Cyprium to secure potential damages in an injunctive proceeding. As of December 31, 2021, the Company had $ 2.2 million of restricted cash representing pledges to secure letters of credit in connection with certain office leases.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash from the consolidated balance sheets to the consolidated statements of cash flows for the years ended 2022 and 2021:
December 31,
2022
2021
Cash and cash equivalents
$
178,266
$
305,744
Restricted cash
2,688
2,220
Total cash and cash equivalents and restricted cash
$
180,954
$
307,964
Inventories
Inventories are recorded at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. The Company periodically reviews the composition of inventory in order to identify excess, obsolete, slow-moving or otherwise non-saleable items taking into account anticipated future sales compared with quantities on hand, and the remaining shelf life of goods on hand. If non-saleable items are observed and there are no alternate uses for the inventory, the Company records a write-down to net realizable value in the period that the decline in value is first recognized. The Company’s inventory reserves were $ 0.4 million and zero at December 31, 2022 and 2021, respectively.
Accounts Receivable, net
The Company’s accounts receivable consists of amounts due from customers related to product sales and have standard payment terms. For certain customers, the accounts receivable for the customer is net of prompt payment or specialty pharmacy discounts. The Company monitors the financial performance and creditworthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company reserves against accounts receivable for estimated losses that may arise from a customer’s inability to pay, and any amounts determined to be uncollectible are written off against the reserve when it is probable that the receivable will not be collected. The Company has historically not experienced significant credit losses. The allowance for doubtful accounts was $ 0.4 million and $ 0.1 million at December 31, 2022 and 2021, respectively.
Investments at Fair Value
The Company elects the fair value option for its long-term investments at fair value (see Note 6). The decision to elect the fair value option, which is irrevocable once elected, is determined on an instrument-by-instrument basis and applied to an entire instrument. The net gains or losses, if any, on an investment for which the fair value option has been elected are recognized as a change in fair value of investments on the Consolidated Statements of Operations.
The Company has various processes and controls in place to ensure that fair value is reasonably estimated. While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
F-14
Table of Contents
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable (a “triggering event”). Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the long-lived asset in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. The Company has not recorded any impairment losses on long-lived assets for the years ended December 31, 2022 and 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. 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. Accordingly, the total purchase price for the licenses acquired is reflected in research and development – licenses acquired in the Company’s Consolidated Statements of Operations.
Contingencies
The Company records accruals for contingencies and legal proceedings expected to be incurred in connection with a loss contingency when it is probable that a liability has been incurred and the amount can be reasonably estimated.
If a loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
Leases
The Company accounts for its leases under ASC 842, Leases . Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company's incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right-of-use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
F-15
Table of Contents
In calculating the right-of-use asset and lease liability, the Company elects to combine lease and non-lease components. The Company continues to account for leases in the prior period consolidated financial statements under ASC Topic 840, Leases .
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.
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.
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, 2022 and 2021. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
Net Loss Per Common Share
Basic net loss per share of common stock is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the reporting period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of shares of common stock outstanding during the reporting period after giving effect to dilutive potential common shares for stock options and restricted stock units, determined using the treasury stock method.
Non-Controlling Interests
Non-controlling interests in consolidated entities represent the component of equity in consolidated entities held by third parties. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests.
Comprehensive Loss
The Company’s comprehensive loss is equal to its net loss for all periods presented.
F-16
Table of Contents
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023 for smaller reporting companies. Early adoption will be permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses . The ASU sets forth a current expected credit loss model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.
3. Collaboration and Stock Purchase Agreements
Caelum
Agreement with AstraZeneca’s Alexion
In January 2019, Caelum, a subsidiary of the Company at that time, entered into a Development, Option and Stock Purchase Agreement (as amended, the "DOSPA") and related documents by and among Caelum, AstraZeneca as successor-in-interest to Alexion Therapeutics, Inc., the Company and Caelum’s other equity holders as parties thereto (such equity holders, including Fortress, the "Sellers"). Under the terms of the DOSPA, AstraZeneca obtained a minority interest in Caelum and a contingent exclusive option to acquire the remaining equity in Caelum.
On September 28, 2021 AstraZeneca notified Caelum of its intention to exercise its purchase option, and on October 5, 2021 AstraZeneca acquired 100 % of the capital stock of Caelum. Fortress received 42.4 % of the distribution of proceeds from the option exercise price of $ 150 million, approximately $ 56.9 million, which is net of the 10 % , 24-month escrow holdback and other miscellaneous transaction expenses. The Sellers currently remain eligible to receive up to an additional $ 350 million in contingent regulatory and commercial milestone payments, of which Fortress is eligible to receive 42.4 % or approximately $ 148.6 million.
F-17
Table of Contents
Cyprium
Agreement with Sentynl
On February 24, 2021, Cyprium entered into a development and contingent asset purchase agreement with Sentynl. Pursuant to the terms of the agreement, Sentynl paid Cyprium an upfront fee of $ 8.0 million to complete the CUTX-101 development program for the treatment of Menkes disease, through the filing of Cyprium’s New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”). Cyprium also remains eligible to receive up to an additional $ 12.0 million in development milestones, payable as follows: (i) $ 3.0 million upon acceptance by the FDA of the NDA for review; and (ii) $ 9.0 million upon FDA approval of the NDA and transfer of CUTX-101 to Sentynl. Cyprium would also be eligible to receive up to $255.0 million in additional sales milestone payments (payable pursuant to five separate milestones), as well as royaltieson CUTX-101 net sales ranging from mid-single digits up to the mid-twenties. All of the foregoing milestone and royalty payments are subject to 50% diminution in the event Sentynl decides, at its option, to assume development control of CUTX-101 during the 45-day period beginning on September 30, 2023. The Company will recognize revenue associated with these future milestones based upon achievement. At December 31, 2022, none of these future milestones was deemed probable.
Cyprium would retain 100 % ownership over any FDA Priority Review Voucher that may be issued at NDA approval for CUTX-101.
The Company determined that this agreement falls within the scope of ASC 606-10-15-3 and ASC 808-10-15-5A Revenue from Collaborative Arrangements (“ASC 808”) and as such the Company will recognize revenue in connection with achievement of two future development milestone payments.
In connection with the $ 8.0 million upfront payment to Sentynl, the Company is recognizing revenue using an input method based upon the costs incurred to date in relation to the total estimated costs to complete the development activities. Accordingly, revenue is being recognized over the period in which the development activities are expected to occur. For the years ended December 31, 2022 and 2021, the Company recognized revenue of $ 1.9 million and $ 5.4 million, respectively.
Avenue
Agreements with InvaGen
On November 12, 2018, Avenue entered into a Stock Purchase and Merger Agreement (the “Avenue SPMA”) with InvaGen Pharmaceuticals Inc. (“InvaGen”), and Madison Pharmaceuticals Inc. (the “Merger Sub”), which contemplated: (i) the purchase by InvaGen of a 33.3 % stake in Avenue and; (ii) the contingent sale of Avenue to InvaGen. The first stage stock purchase 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. Under a contingent second stage closing, InvaGen may have acquired the remaining shares of Avenue’s capital stock (in some cases compulsorily and in some cases at InvaGen’s option), pursuant to a reverse triangular merger with Avenue remaining as the surviving entity. On November 1, 2021, Avenue delivered InvaGen notice of termination of the Avenue SPMA, meaning that the second stage acquisition of Avenue by InvaGen pursuant to the Avenue SPMA is no longer possible. In July 2022 Avenue entered into a Share Repurchase Agreement with InvaGen (described below).
In connection with the closing by Avenue of an underwritten public offering (see Note 14) on October 11, 2022, Avenue consummated the transactions contemplated by the Share Repurchase Agreement with InvaGen, pursuant to which Avenue repurchased 100 % of the shares in Avenue held by InvaGen (the “InvaGen Shares”) for a purchase price of $ 3 million. In addition, under the Share Repurchase Agreement Avenue agreed to pay InvaGen an additional amount as a contingent fee, payable in the form of seven and a half percent ( 7.5 %) of the proceeds of future financings, up to $ 4 million. In connection with the closing of the Share Repurchase Agreement, which occurred on October 31, 2022, all of the rights retained by InvaGen pursuant to the Stockholders Agreement entered into by and among Avenue, InvaGen and Fortress on November 12, 2018, were terminated.
F-18
Table of Contents
4. Inventory
Inventory consisted of the following:
December 31,
December 31,
($ in thousands)
2022
2021
Raw materials
$
6,454
$
5,572
Work-in-process
395
—
Finished goods
7,739
4,290
Inventory reserve
( 429 )
—
Total inventories
$
14,159
$
9,862
5. Property and Equipment
Fortress’ property and equipment consisted of the following:
Useful Life
December 31,
December 31,
($ in thousands)
(Years)
2022
2021
Computer equipment
3
$
739
$
739
Furniture and fixtures
5
1,387
1,387
Machinery & equipment
5
8,632
6,550
Leasehold improvements
2 - 15
13,175
13,175
Buildings
40
581
581
Construction in progress 1
N/A
952
2,028
Total property and equipment
25,466
24,460
Less: Accumulated depreciation
( 12,446 )
( 9,394 )
Property, plant and equipment, net
$
13,020
$
15,066
Note 1: Relates to the Mustang cell processing facility.
Depreciation expenses of Fortress’ property and equipment for the years ended December 31, 2022 and 2021 was $ 3.1 million and $ 2.6 million, respectively, and was recorded in research and development, and selling, general and administrative expense in the Consolidated Statements of Operations.
6. Fair Value Measurements
Common Stock Warrant Liabilities
Warrants
($ in thousands)
liabilities
Balance at December 31, 2020
$
—
Journey contingent payment liability
3,819
Journey placement agent warrant
362
Change in fair value of contingent payment liability
447
Satisfaction of partner company contingent payment
( 4,628 )
Balance at December 31, 2021
$
—
Checkpoint Series A & B common stock warrants
7,640
Checkpoint placement agent warrants
278
Avenue common stock warrants
8,278
Urica placement agent warrants
90
Change in fair value of common stock warrants - Avenue
( 5,669 )
Change in fair value of common stock warrants - Checkpoint
3,252
Balance at December 31, 2022
$
13,869
F-19
Table of Contents
Checkpoint
On December 16, 2022, Checkpoint closed on an offering for the sale of shares of its common stock and pre-funded warrants as part of a registered direct offering (the “December 2022 Registered Direct Offering”). The common stock and the pre-funded warrants were sold together with December 2022 common warrants and placement agent warrants. Net proceeds from the December 2022 Registered Direct Offering were $ 6.7 million after deducting commissions and other transaction costs (See Note 14).
The Company deemed the December 2022 common warrants and placement agent warrants to be classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside its control. The common warrants and placement agent warrants were recorded at the time of closing at a fair value of $ 7.9 million, determined by using the Black-Scholes model. As the total fair value of the common stock warrant liability exceeded the total net proceeds of $ 6.7 million, the Company recorded a loss of $ 1.2 million to loss on common stock warrant liabilities in the Consolidated Statements of Operations. Accordingly, there were no proceeds allocated to the common stock and pre-funded warrants issued as part of this transaction.
The Company revalued the December 2022 common warrants and placement agent warrants at December 31, 2022 using the Black-Scholes model. This resulted in an increase in common stock warrant liability of $ 3.3 million, with an offsetting loss recorded to loss on common stock warrant liabilities in the Statements of Operations.
Checkpoint
Warrant
($ in thousands)
Liability
Common stock warrant liabilities at December 31, 2021
$
-
Issuance of Checkpoint common warrants
7,640
Issuance of placement agent warrants
278
Change in fair value of common stock warrant liabilities
3,252
Common Stock Warrant liabilities at December 31, 2022
$
11,170
A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:
December 16,
December 31,
Checkpoint Series A Warrants
2022
2022
Exercise price
$
4.08
$
4.08
Volatility
89.5
%
89.4
%
Expected life
5.0
5.0
Risk-free rate
3.6
%
4.0
%
Dividend yield
—
—
December 16,
December 31,
Checkpoint Series B Warrants
2022
2022
Exercise price
$
4.08
$
4.08
Volatility
79.1
%
82.4
%
Expected life
1.5
1.5
Risk-free rate
4.2
%
4.7
%
Dividend yield
—
—
F-20
Table of Contents
December 16,
December 31,
Checkpoint Placement Agent Warrants
2022
2022
Exercise price
$
5.51
$
5.41
Volatility
59.5
%
89.4
%
Expected life
5.0
5.0
Risk-free rate
3.6
%
4.0
%
Dividend yield
—
—
Avenue
On October 11, 2022, Avenue announced the closing of an underwritten public offering of 3,636,365 common and pre-funded units. Each common unit consists of one share of common stock and one warrant to purchase one share of common stock, and each pre-funded unit consists of one pre-funded warrant to purchase one share of common stock and one warrant to purchase one share of common stock. Each share of common stock (or pre-funded warrant) was sold together with one warrant at a combined purchase price of $ 3.30 per common unit (or $ 3.2999 per pre-funded unit after reducing $ 0.0001 attributable to the exercise price of the pre-funded warrants). Avenue also simultaneously closed on the sale of an additional 545,454 warrants to purchase common stock, which were sold pursuant to a partial exercise of the underwriter’s over-allotment option. Avenue received net proceeds of approximately $ 10.3 million at closing after deducting underwriting discounts and commissions and other expenses of the offering.
The Company deemed the warrants to be classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside its control. The warrants were recorded at the time of closing at a fair value of $ 8.3 million, determined by using the Monte Carlo simulation approach.
The Company revalued the warrants at December 31, 2022 using the Monte Carlo simulation approach. This resulted in a decrease in common stock warrant liability of $ 5.7 million, with an offsetting gain recorded in the Statements of Operations.
Avenue
Warrant
($ in thousands)
Liability
Common stock warrant liabilities at December 31, 2021
$
-
Issuance of Avenue common warrants
8,278
Change in fair value of common stock warrant liabilities
( 5,669 )
Common Stock Warrant liabilities at December 31, 2022
$
2,609
A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:
December 31
2022
Risk-free interest rate
4.02 % - 4.14
%
Expected dividend yield
—
Expected term in years
4.8 - 5.0
Expected volatility
92.8 % - 90.3
%
F-21
Table of Contents
Urica
The fair value of Urica’s contingently issuable placement agent warrants in connection with Urica’s first close of their preferred offering in December 2022 (see Note 10), was measured using a Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Urica’s warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:
December 31
2022
Risk-free interest rate
3.94
%
Expected dividend yield
—
Expected term in years
1.5
Expected volatility
70.7
%
At December 31, 2022 the value of the Urica’s contingent payment warrant is $ 0.1 million, and was recorded on the consolidated balance sheet. No liability was recorded at December 31, 2021.
Caelum
Fair Value of Investment in Caelum
Upon AstraZeneca’s notification of their intent to acquire Caelum in September 2021, the Company increased the carrying value of its investment in Caelum to 42.4 % of the distribution of proceeds from the option exercise price of $ 150 million, or $ 56.9 million. Fortress received the funds at the acquisition close in October 2021. Prior to AstraZeneca’s notification, the Company had valued its holdings in Caelum in accordance with ASC Topic 820, Fair Value Measurements and Disclosures.
Journey
Journey Placement Agent Warrant Liability
The fair value of Journey’s contingently issuable Placement Agent Warrants in connection with Journey’s preferred offering in March 2021 (see Note 10), was measured using a Monte Carlo simulation valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring Journey’s warrant liability that are categorized within Level 3 of the fair value hierarchy was as follows:
December 31
2022
Risk-free interest rate
0.98
%
Expected dividend yield
—
Expected term in years
1.00
Expected volatility
0.50
%
Upon the closing of the Journey Initial Public Offering (“Journey IPO”) (see note 14), Journey issued the Placement Agent Warrants to purchase 5 % of the shares of Journey common stock into which the Journey Preferred Stock converted. The Placement Agent Warrants have a term of 5 years . At December 31, 2021, Journey issued 111,567 shares of Journey common stock related to the exercise of all of the Placement Agent Warrants.
F-22
Table of Contents
Journey Contingent Payment Warrant
In connection with the Journey license, collaboration, and assignment agreement (the “DFD Agreement”) to obtain the global rights for the development and commercialization of DFD-29 with Dr. Reddy’s Laboratories, Ltd (“DRL”) (see Note 7), Journey agreed to pay DRL additional consideration upon either an IPO of the Journey’s common stock or an acquisition of Journey, the agreement further specifies that only one payment can be made. The contingent payment associated with an IPO of Journey’s common stock is deemed to be achieved if upon the completion of an IPO Journey’s market capitalization on a fully diluted basis is $ 150 million or greater at the close of business on the date of such Journey IPO. The payment due for the achievement of the IPO criteria is a follows: (a) issue to DRL a number of shares of Journey’s common stock equal to $ 5.0 million as calculated using a fifteen (15) day volume weighted average price (“VWAP”) of Journey’s closing price, measured fifteen (15) days following the Journey IPO; or (b) make a cash payment to DRL equal to $ 5.0 million. Journey valued the contingent payment discussed above utilizing a Probability Weighted Expected Return Method (PWERM) model using a discount rate of 30 % and expected term of 3 - 5 months.
As a result of Journey’s IPO on November 16, 2021, Journey issued 545,131 unregistered shares of Journey common stock to DRL, calculated using a 15-day VWAP of $ 9.1721 per share.
7. Licenses Acquired
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. The 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 alternate use. As such, for the years ended December 31, 2022 and 2021, the total purchase price of licenses acquired, totaling approximately $ 0.7 million and $ 15.6 million, respectively, was classified as research and development-licenses acquired in the Consolidated Statements of Operations.
For the years ended December 31, 2022 and 2021, the Company’s research and development-licenses acquired are comprised of the following:
Year Ended December 31,
($ in thousands)
2022
2021
Partner companies:
JMC
$
—
$
13,819
Mustang
365
1,630
Urica
300
—
Other
12
176
Total
$
677
$
15,625
Journey
On June 29, 2021, Journey entered into a license, collaboration, and assignment agreement (the “DFD-29 Agreement”) to obtain the global rights, except for DRL retained rights in the BRIC and CIS countries, for the development and commercialization of a late-stage development modified early release oral minocycline for the treatment of rosacea (“DFD-29”) with Dr. Reddy’s Laboratories, Ltd.(“DRL”). Pursuant to the terms and conditions of the DFD-29 agreement, Journey paid $ 10.0 million. Additional contingent regulatory and commercial milestone payments totaling up to $ 158.0 million may also be payable. Royalties ranging from approximately 10 % to approximately 15 % are payable on net sales of the DFD-29 product.
The product candidates acquired by the Company require substantial completion of research and development, and regulatory and marketing approval efforts in order to reach technological feasibility. As such, the $ 10.0 million for the year ended December 31, 2021 for the purchase price of licenses acquired were classified as research and development-licenses acquired in the consolidated statement of operations.
F-23
Table of Contents
The DFD-29 Agreement contained contingent consideration payable by Journey upon either an IPO of Journey’s common stock or an acquisition of Journey. Journey recognized $ 3.8 million of expense classified as research and development-licenses acquired upon execution of the DFD-29 Agreement associated with the contingent consideration. In connection with the closing of Journey’s IPO on November 16, 2021, Journey issued 545,131 shares of its common stock to DRL in a transaction exempt from registration under the Securities Act calculated using a 15 -day volume weighted average price (“VWAP”) of $ 9.1721 per share in full settlement of the contingent payment to DRL. The restrictions on the unregistered shares of common stock are governed by the terms set forth in the DFD-29 Agreement and applicable securities laws. See “Journey Contingent Payment Derivative” in Note 6 for further details.
Additionally, the Company is required to fund and oversee the Phase 3 clinical trials. Either party may terminate the agreement prior to NDA approval in the event of bankruptcy or a material breach that remains uncured beyond the applicable cure period. Additionally, DRL may terminate the agreement if the Company: i.) ceases development of the product for 6 consecutive months (except if such cessation is caused by DRL, applicable laws, or action/inaction of any third party beyond Company’s control); ii.) files a patent challenge on any claim for a product patent or DRL background patent; or iii.) fails to initiate development of the product in the European Union (“EU”) (such termination solely relates to the rights granted in EU) within 24 months after product regulatory approval or cause first commercial sale in at least one country in the EU within 72 months after product regulatory approval. From inception to date the Company has incurred approximately $ 13.0 million associated with the development of DFD-29.
Urica
In May 2021, Urica entered into an exclusive license agreement with Fuji Yakuhin Co. Ltd. (“Fuji”) to develop Dotinurad in North America, Europe, and the UK. Dontinurad is approved for the treatment of gout and hyperuricemia in Japan. The license agreement includes contingent regulatory and commercial milestone payments totaling up to $ 88 million with subsequent sales royalties ranging from approximately 7 % to approximately 10 % payable on net sales of Dotinurad. Urica paid a $ 3.0 million milestone payment in December 2021 upon IND submission of Dotinurad.
In December 2022 Urica Therapeutics expanded its exclusive license agreement with Fuji for the development of Dotinurad to include the Middle East and North Africa (“MENA”) and Turkey territories. The amendment to the exclusive license agreement included a one-time amendment payment of $ 0.3 million, which was paid in December 2022.
Partner Companies
The Company’s partner companies and subsidiaries have entered into various license agreements with other medical centers. These license agreements include upfront payments which are expensed and various d evelopmental milestone payments due upon achievement of various milestones which in the aggregate are approximately $ 521.2 million, of which $ 348.2 million relates to Mustang agreements. The license agreements also have sales-based milestone payments that total approximately $ 378.4 million. The agreements also include royalty payments on any future sales .
8. Sponsored Research and Clinical Trial Agreements
For the years ended December 31, 2022 and 2021, the Company recorded $ 7.0 million and $ 7.8 million, respectively, in research and development expenses in the Company’s Consolidated Statement of Operations pursuant to the terms of various sponsored research and clinical trial agreements. The breakout of this expense by partner company is as follows:
F-24
Table of Contents
For the Year Ended December 31,
($ in thousands)
2022
2021
Mustang
$
6,989
$
6,591
Aevitas
62
289
Cellvation
11
—
Checkpoint
17
—
Oncogenuity
(69)
965
Total
$
7,011
$
7,845
9. Intangibles
Journey
Agreement with Vyne Therapeutics Inc.
On January 12, 2022, Journey entered into an agreement with Vyne Therapeutics Inc. (“Vyne”) to acquire two FDA-approved topical minocycline products, Amzeeq ® (minocycline) topical foam, 4%, and Zilxi ® (minocycline) topical foam, 1.5%, and a Molecule Stabilizing Technology™ proprietary platform from Vyne for an upfront payment of $ 20.0 million and an additional $ 5.0 million payment on the one year anniversary of the closing (the “Vyne APA”), which was paid in January 2023. This expanded Journey’s commercial portfolio to eight marketed branded dermatology products. Journey also acquired the associated inventory related to the products.
The Vyne APA also provides for contingent net sales milestone payments, on a product-by-product basis. In the first calendar year in which annual net sales reach each of $100 million, $200 million, $300 million, $400 million and $500 million, Journey is required to make a one-time payment of $ 10 million, $ 20 million, $ 30 million, $ 40 million and $ 50 million, respectively, in that year only, per product, totaling up to $ 450 million. In addition, Journey will pay Vyne 10 % of any upfront payment received by Journey from a licensee or sublicensee of the products in any territory outside of the United States, subject to exceptions for certain jurisdictions as detailed in the Vyne APA.
The following table summarizes the aggregate consideration transferred for the assets acquired by Journey in connection with the Vyne APA:
($ in thousands)
Aggregate Consideration Transferred
Consideration transferred to Vyne at closing
$
20,000
Fair value of deferred cash payment due January 2023
4,740
Transaction costs
223
Total consideration transferred at closing
$
24,963
The fair value of the deferred cash payment is being accreted to the $ 5.0 million January 2023 cash payment over a one-year period through interest expense. The deferred cash payment had a carrying value of $ 5.0 million in the Company’s consolidated balance sheets at December 31, 2022, and was paid to Vyne on January 12, 2023.
F-25
Table of Contents
The following table summarizes the assets acquired in the Vyne Product Acquisition Agreement:
($ in thousands)
Assets Recognized
Inventory
$
6,041
Identifiable intangibles:
Amzeeq
15,162
Zilxi
3,760
Fair value of net identifiable assets acquired
$
24,963
The intangible assets were valued using an income approach, while the inventory was valued using a final sales value less cost to dispose approach.
On March 31, 2021, Journey executed an Asset Purchase Agreement (the “Qbrexza APA”) with Dermira, Inc. a subsidiary of Eli Lilly and Company (“Dermira”). Pursuant to the terms of the agreement, Journey acquired global rights to Qbrexza® (glycoprronium), a prescription cloth towelette to treat primary axillary hyperhidrosis in patients nine years of age or older. Journey paid an upfront fee of $ 12.5 million to Dermira. In addition, Journey is obligated to pay Dermira up to $ 144 million in the aggregate upon the achievement of certain sales milestones. The royalty structure for the agreement is tiered with royalties for the first two years ranging from approximately 40 % to 30 %. Thereafter for a period of eight years royalties are approximately 12.0 % to 19.0 %. Royalty amounts are subject to 50 % diminution in the event of loss of exclusivity due to generic competition.
Upon closing of the Qbrexza® purchase on May 13, 2021, Journey was substituted for Dermira as the plaintiff in U.S. patent litigation commenced by Dermira on October 21, 2020 in the U.S. District Court of Delaware (the “Patent Litigation”) against Perrigo Pharma International DAC (“Perrigo”) alleging infringement of certain patents covering Qbrexza® (the “Qbrexza® Patents”), which are included among the proprietary rights to Qbrexza®. The Patent Litigation was initiated following the submission by Perrigo, in accordance with the procedures set out in the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”), of an Abbreviated New Drug Application (“ANDA”). The ANDA sought approval to market a generic version of Qbrexza® prior to the expiration of the Qbrexza® Patents and alleged that the Qbrexza® Patents were invalid. Perrigo was subject to a 30-month stay preventing it from selling a generic version, but that stay was set to expire on March 9, 2023. As of December 31, 2022, the Patent Litigation was settled by and between the parties and the case subsequently has been dismissed. Pursuant to the terms of the settlement agreement, Padagis is prohibited from launching its generic to Qbrexza, under its ANDA or otherwise, until August 15, 2030.
The purchase price of $ 12.5 million included the asset Qbrexza as well as finished goods and raw material inventory. Journey also has the obligation to accept any product returns related to sales made by Dermira. Journey allocated the upfront payment to inventory since the fair value of the inventory and Qbrexza rights exceeded the purchase price. The future contingent milestone payments, if achieved, will be recorded to intangible asset and amortized over the seven-year life of the asset commencing on the closing date.
The table below provides a summary of intangible assets as of December 31, 2022 and 2021, respectively:
Estimated Useful
($ in thousands)
Lives (Years)
December 31, 2022
December 31, 2021
Intangible assets – product licenses
3 to 9
$
37,925
$
19,003
Accumulated amortization
( 10,728 )
( 6,451 )
Net intangible assets
$
27,197
$
12,552
F-26
Table of Contents
Intangible asset activity for the years ended December 31, 2022 and 2021:
Intangible
($ in thousands)
Assets, Net
Ending balance at December 31, 2020
$
14,629
Additions:
Exelderm milestone
397
Amortization expense
( 2,474 )
Bbalance at December 31, 2021
$
12,552
VYNE Product Acquisition:
Amzeeq®
15,162
Zilxi®
3,760
Amortization expense (recorded in cost of goods sold)
( 4,277 )
Ending balance at December 31, 2022
$
27,197
The future amortization of these intangible assets is as follows:
Total
($ in thousands)
Amortization
December 31, 2023
$
4,277
December 31, 2024
4,277
December 31, 2025
4,277
December 31, 2026
3,064
Thereafter
7,360
Sub-total
$
23,255
Asset not yet placed in service
3,942
Total
$
27,197
10. Debt and Interest
Debt
Total debt consists of the following:
December 31,
December 31,
($ in thousands)
2022
2021
Interest rate
Maturity
Oaktree Note
$
50,000
$
60,450
11.00
%
August - 2025
EWB Term Loan
20,000
—
9.23
%
January - 2026
Runway Note
31,050
—
13.40
%
April - 2027
Less: Discount on notes payable
( 9,320 )
( 7,063 )
Repayment of Oaktree Note
—
( 10,450 )
Total notes payable
$
91,730
$
42,937
Oaktree Note
On August 27, 2020 (the “Closing Date”), Fortress, as borrower, entered into the $ 60.0 million senior secured credit agreement with Oaktree (the “Oaktree Agreement” and the debt thereunder, the “Oaktree Note”) with Oaktree Fund Administration, LLC and the lenders from time-to-time party thereto (collectively, “Oaktree”) . The Oaktree Note bears interest at a fixed annual rate of 11.0 %, payable quarterly and maturing on the fifth anniversary of the Closing Date, August 27, 2025 , the (“Maturity Date”). The Company is required to make quarterly interest-only payments until the Maturity Date, at which point the outstanding principal amount is due. The Company may voluntarily prepay the Oaktree Note at any time subject to a Prepayment Fee. The Company is also required to make mandatory prepayments of the Oaktree Note under various circumstances. No amounts paid or prepaid may be reborrowed without Oaktree consent.
F-27
Table of Contents
AstraZeneca’s notification of its intent to acquire Caelum, received on September 28, 2021, is defined in the Oaktree Agreement as a monetization event and as such, triggered a $ 10 million prepayment and an applicable prepayment fee of $ 0.5 million. The prepayment fee of $ 0.5 million is included in interest expense for the year ended December 31, 2021. The Company paid the $ 10.5 million on October 12, 2021.
The Oaktree Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, affiliate transactions, investments, acquisitions, mergers, dispositions, prepayment of permitted indebtedness, and dividends and other distributions, subject to certain exceptions. These affirmative and negative covenants apply in different instances to Fortress itself, its private subsidiaries, its public subsidiaries, or certain combinations of the foregoing. The limitations on dividends and other distributions have the practical effect of preventing any further issuances by the Company or its private subsidiaries of equity securities with cash dividends or redemption features.
In addition, the Oaktree Agreement contains certain financial covenants, including, among other things, (i) maintenance of minimum liquidity and (ii) a minimum revenue test that requires Journey’s annual revenue to be equal to or to exceed annual revenue projections set forth in the agreement. Failure by the Company or Journey, as applicable, to comply with the financial covenants will result in an event of default, subject to certain cure rights of the Company. The Company was in compliance with all applicable covenants under the Oaktree Note as of December 31, 2022.
The Oaktree Agreement contains customary events of default, in certain circumstances subject to customary cure periods. These events of default apply in different instances to Fortress itself, its private subsidiaries, its public subsidiaries, or a certain combination of the foregoing. Following an event of default and any cure period, if applicable, the Agent will have the right upon notice to accelerate all amounts outstanding under the Oaktree Agreement, in addition to other remedies available to the lenders as secured creditors of the Company.
The Oaktree Agreement grants a security interest in favor of the Agent, for the benefit of the lenders, in substantially all of the Company’s assets (consisting principally of the Company’s shareholdings in, and in some cases debt owing from, its subsidiaries and partner companies) as collateral securing the Company’s obligations under the Oaktree Agreement, except for: (i) certain interests in controlled foreign corporation subsidiaries of the Company; (ii) the Company’s holdings in Avenue; and (iii) those portions of the Company’s holdings in certain subsidiaries and partner companies that are encumbered by pre-existing equity pledges to certain of the Company’s officers. None of Fortress’ subsidiaries or partner companies is a party to the Oaktree Agreement, and the collateral package does not include the assets of any such subsidiaries or partner companies.
Pursuant to the terms of the Oaktree Agreement, on the Closing Date the Company paid Oaktree an upfront commitment fee equal to 3 % of the $ 60.0 million, or $ 1.8 million. In addition, the Company paid a $ 35,000 Agency fee to the Agent, which was due on the Closing Date and will be due annually, together with fees of $ 2.5 million directly to third parties involved in the transaction, and issued warrants to Oaktree and certain of its affiliates to purchase up to 1,749,450 shares of common stock of the Company (see Note 14) with a relative fair value of $ 4.4 million. The Company recorded the fees totaling $ 8.7 million ($ 1.8 million to Oaktree, $ 2.5 million of expenses paid to third-parties and $ 4.4 million representing the relative fair value of the Oaktree Warrants) to debt discount, to be amortized over the term of the Oaktree Note. For the years ended December 31, 2022 and 2021, the Company amortized $ 1.5 million and $ 1.3 million, respectively, of debt discount associated with the Oaktree Note.
F-28
Table of Contents
East West Bank Line of Credit and Long-Term Debt (“EWB Term Loan”)
On January 12, 2022, Journey entered into a third amendment of the loan and security agreement with East West Bank (“EWB”) (the “Amendment”), which increased the borrowing capacity of Journey’s revolving line of credit to $ 10.0 million, $ 2.9 million of which was outstanding at December 31, 2022, and added a term loan not to exceed $ 20.0 million. Both the revolving line of credit and the term loan mature on January 12, 2026. In January 2022 and August 2022, Journey borrowed $ 15.0 million and $ 5.0 million, respectively, against the term loan. The term loan bears interest at a floating rate equal to 1.73 % above the prime rate and are payable monthly. The term loan effective interest rate at December 31, 2022 is 9.64 %. The term loan contains an interest-only payment period through January 12, 2024, with an extension through July 12, 2024, if certain covenants are met, after which the outstanding balance of each term loan is payable in equal monthly installments of principal, plus all accrued interest, through the term loan maturity date. Journey may prepay all or any part of the term loan without penalty or premium, but may not re-borrow any amount, once repaid. Any outstanding borrowing against the revolving line of credit bears interest at a floating rate equal to 0.70 % above the prime rate. The Amendment includes customary financial covenants such as collateral ratios and minimum liquidity provisions. Journey was in compliance with all applicable financial covenants under the Amendment as of December 31, 2022. The remaining $ 7.1 million revolving line of credit is fully available to Journey without any restrictions, other than certain customary and ordinary closing conditions.
Journey accounted for the Amendment as a debt modification. The remaining unamortized debt issuance costs related to the original revolving facility together with any lender fees and direct third-party costs incurred in connection with the entry into the Amendment are considered associated with the new arrangement. The fees allocated to the revolving line are amortized over the new four-year term of the amended revolving facility. The fees allocated to the term loan are recorded as a debt discount and amortized to interest expense over the four-year term of the term loan under the effective interest method.
Mustang Runway Growth Finance Corp. Debt Facility (“Runway Note”)
On March 4, 2022 (the “Closing Date”), Mustang entered into a $ 75.0 million long-term debt facility with Runway Growth Finance Corp. (the “Runway Note”). Under the Runway Note, $ 30.0 million of the $ 75.0 million loan was funded on the Closing Date, with the remaining $ 45.0 million fundable when Mustang achieves certain predetermined milestones.
The Runway Note matures on April 15, 2027 (the “Maturity Date”). Starting March 15, 2022, Mustang makes monthly payments of interest only until April 1, 2024 (the “Amortization Date”). The Amortization Date may be extended to April 1, 2025, if Mustang achieves certain predetermined milestones based on equity raises and the initiation of certain clinical trials. After that, Mustang will make monthly payments of interest and principal. If the Amortization Date is extended to April 1, 2025, the monthly payments will be recalculated in equal amounts according to the remaining number of payment dates through the Maturity Date. All unpaid outstanding principal and accrued and unpaid interest will be due and payable in full on the Maturity Date.
The Runway Note accrues interest at a variable annual rate equal to 8.75 % plus the greater of (i) 0.50 % and (ii) the three month LIBOR Rate for U.S. dollar deposits or a rate equivalent to the three month LIBOR (the “Applicable Rate”); provided that the Applicable Rate will not be less than 9.25 %. On December 7, 2022, Mustang entered into the Runway First Amendment (the “Runway First Amendment”) to the Runway Note by and between Mustang and Runway. The Runway First Amendment amended certain definitions and other provisions of the Runway Note to replace LIBOR-based benchmark rates applicable to loans outstanding under the Runway Note with SOFR-based rates, subject to adjustments as specified in the Runway First Amendment. At December 31, 2022 the floating interest rate was 13.40 %.
Mustang has the option to prepay all of the outstanding Runway Note but not less. Prepayment would include outstanding principal, accrued interest, prepayment fee and final payment which is equal to the original principal amount of the Runway Note times 3.5 % or $ 1.1 million and is accreted over the life of the Runway Note.
F-29
Table of Contents
In addition, Mustang’s Runway Note is secured by a lien on substantially all of Mustang’s assets other than certain intellectual property assets and certain other excluded collateral, and it contains a minimum liquidity covenant and other covenants that include among other items: (i) limits on indebtedness, repurchase of stock from employees, officers and directors. Mustang was in compliance with all applicable covenants as of December 31, 2022.
The Runway Note contains customary events of default, in certain circumstances subject to customary cure periods. Following an event of default and any cure period, if applicable, Runway will have the right upon notice to accelerate all amounts outstanding under the Runway Note, in addition to other remedies available to the lenders as secured creditors of the Mustang.
Pursuant to the terms of the Runway Note, upon closing Mustang paid Runway an upfront commitment fee equal to 1 % of the $ 30 million, or $ 0.3 million. In addition, Mustang paid a $ 75,000 deposit fee to Runway, together with other cash fees of $ 2.7 million directly to third parties involved in the transaction. Mustang also issued to Runway a warrant to purchase up to 748,036 of Mustang common shares with an exercise price of $ 0.8021 per share, pursuant to the terms of the Runway Note. In addition, the provisions of the warrant provide for additional warrants to be issued upon funding of the loan tranches.
The fair value of the warrant was determined utilizing a Black Scholes Model with the following assumptions: risk free rate of return 1.74 % , volatility of 57.3 % , 10 -year life yielding a value of approximately $ 0.4 million at March 4, 2022. The fair value of the warrant was recorded in debt discount and will be amortized over the life of the note. For the year ended December 31, 2022, Mustang amortized approximately $ 0.5 million of debt discount associated with the Runway Note, which was included in interest expense in the consolidated statement of operations.
IDB Letters of Credit
The Company has letters of credit (“LOC”) with IDB of approximately $ 2.7 million and $ 2.2 million as of December 31, 2022 and December 31, 2021, respectively, securing rent deposits for lease facilities and an undertaking posted by Cyprium to secure potential damages in an injunctive proceeding. The Company’s LOC’s are secured by cash, which is included in restricted cash on the Company’s Consolidated Balance Sheet . Interest paid on the letters of credit is 2 % per annum.
Urica 8 % Cumulative Convertible Class B Preferred Offering
On December 27, 2022, Urica consummated the first closing in a private offering of its 8 % Cumulative Convertible Class B Preferred Stock (the “Urica Preferred Stock”), at a price of $ 25.00 per share (“Subscription Price”) pursuant to which it sold 101,334 shares of Preferred Stock for gross proceeds of $ 2.5 million, before deducting underwriting discounts and commissions and offering expenses of approximately $ 0.3 million (the “Urica Offering”). A non-cash contingent warrant value of $ 0.1 million was also recorded in debt discount (see Note 6).
Dividends on the Preferred Stock are payable quarterly in shares of Fortress common stock based upon a 7.5 % discount to the average trading price over the 10-day period preceding the dividend payment date. Dividends will be recorded as interest expense and were immaterial in 2022.
The shares mandatorily convert into Urica common stock upon either: (i) a qualified financing pursuant to which Urica raises at least $ 20 million in aggregate gross proceeds; or (ii) a sale of Urica (in each case, at a 20 % discount to the lowest price per share at which Urica common stock is issued/sold in such transaction). Additionally, in the event that neither such a qualified financing nor a sale of Urica has occurred prior to June 27, 2024, then each holder of Urica Preferred Stock is eligible to receive, at Fortress’ election, one of: (x) a cash payment equal to the product of the Subscription Price and the number of shares of Urica Preferred Stock held by such holder; (y) a number of shares of Fortress common stock equal to the Fortress Share Exchange Amount; or (z) a combination of the foregoing (in each case plus cash in lieu of any fractional shares, plus cash in lieu of accumulated and unpaid dividends otherwise payable in Fortress shares up to the conversion/exchange date).
F-30
Table of Contents
The Urica Preferred Shares have no voting rights and have liquidation rights on parity with all equity securities issued by Urica, and junior to all equity securities issued by Urica with terms outlining senior rank and current and future indebtedness.
The Company evaluated the terms of the Urica Preferred Offering under ASC 480, Distinguishing Liabilities from Equity, and determined the instrument met the criteria to be recorded as a liability. The value at conversion does not vary with the value of Urica’s common shares, therefore the settlement provision would not be considered a conversion feature. Accordingly, the Company determined liability classification is appropriate and as such, this instrument was accounted for as a liability.
Harley Capital LLC (“Harley”) was the primary placement agent for the Urica Offering and received a 10 % fee on gross proceeds raised, plus either warrants to purchase 10 % of the Urica common stock into which the Urica Preferred Stock converts (in the event of a sale of Urica or a qualified financing) or 10 % of the Company common stock for which the Urica Preferred Stock is exchanged (in the event neither a sale of Urica nor a qualified financing occurs), in addition to reimbursement of legal and other expenses. See Note 6.
In February 2023, Urica completed two additional closings, raising a combined additional $ 0.9 million and paid placement agent fees of $ 0.1 million for net proceeds of $ 0.8 million.
Journey 8 % Cumulative Convertible Class A Preferred Offering
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 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.
The Journey Preferred Stock automatically converts into Journey’s Common Stock upon a sale of Journey or a financing in an amount of at least $ 25.0 million within a year of the closing date of the Journey Preferred Offering (extendable by another six months at Journey’s option) at a discount of 15 % to the per share qualified stock price. On November 12, 2021 the Journey IPO was completed, resulting in the conversion of all of the Journey Preferred Stock into 2,231,346 shares of Journey common stock (see Note 14).
The Company evaluated the terms of the Journey Preferred Offering under ASC 480, Distinguishing Liabilities from Equity , and determined the instrument met the criteria to be recorded as a liability. The value at conversion does not vary with the value of Journey’s common shares, therefore the settlement provision would not be considered a conversion feature. Accordingly, the Company determined liability classification is appropriate and as such, this instrument was accounted for as a liability, until it converted into Journey common stock upon completion of the Journey IPO.
Dividends on the Journey Preferred Stock were paid quarterly in shares of Fortress common stock based upon a 7.5 % discount to the average trading price over the 10-day period preceding the dividend payment date. Dividends paid on the Journey Preferred Stock was recorded as interest expense on the consolidated statements of operations. For the year ended December 31, 2021, Journey issued 253,815 shares of common stock representing dividends paid of $ 0.8 million from issuance through conversion. As consideration for the foregoing, Journey issued to Fortress 81,985 shares of its common stock at the Journey IPO price of $ 10.00 .
In connection with the Journey Preferred Offering, Journey issued upon the closing of the Journey IPO to the placement agent (“the Placement Agent Warrants”) to purchase 5 % of the shares of Journey common stock into which the Journey Preferred Stock converted. The Placement Agent Warrants have a term of 5 years . At December 31, 2021 Journey issued 111,567 shares of Journey common stock related to the conversion of all of the placement agent warrants.
F-31
Table of Contents
Interest Expense
The following table shows the details of interest expense for all debt arrangements during the periods presented. Interest expense includes contractual interest and amortization of the debt discount and amortization of fees represents fees associated with loan transaction costs, amortized over the life of the loan:
Year Ended December 31,
2022
2021
($ in thousands)
Interest
Fees
Total
Interest
Fees
Total
LOC Fees
$
54
$
—
$
54
$
51
$
—
$
51
Oaktree Note 1
5,561
1,532
7,093
6,897
1,342
8,239
Partner company convertible preferred shares
—
—
—
2,845
2,572
5,417
Partner company dividend payable
—
—
—
820
—
820
Partner company installment payments - licenses 2
770
—
770
781
—
781
Partner company notes payable
4,021
533
4,554
—
—
—
Other
11
—
11
—
—
—
Total Interest Expense and Financing Fee
$
10,417
$
2,065
$
12,482
$
11,394
$
3,914
$
15,308
Note 1: Includes $ 0.5 million prepayment fee for the Oaktree Note included in interest expense in 2021.
Note 2: Imputed interest expense related to Ximino, Accutane, Anti-itch product license and Vyne product licenses (see Note 9).
11. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
December 31,
December 31,
($ in thousands)
2022
2021
Accounts payable
$
57,244
$
47,429
Accrued expenses:
Professional fees
1,693
1,835
Salaries, bonus and related benefits
9,772
8,809
Research and development
7,390
7,932
Research and development - license maintenance fees
632
4,640
Research and development - milestones
4,600
850
Accrued royalties payable
2,627
3,833
Accrued coupon and rebates
7,604
10,603
Return reserve
3,689
3,240
Accrued interest
342
—
Other
1,853
1,489
Total accounts payable and accrued expenses
$
97,446
$
90,660
F-32
Table of Contents
12. Non-Controlling Interests
Non-controlling interests in consolidated entities are as follows:
For the Year Ended
As of December 31, 2022
December 31, 2022
As of December 31, 2022
Non-controlling interests
Net loss attributable to
Non-controlling interests
Non-controlling
($ in thousands)
equity share
non-controlling interests
in consolidated entities
ownership
Urica
$
( 2,657 )
$
( 1,251 )
$
( 3,908 )
40.2
%
Aevitas
( 5,328 )
( 425 )
( 5,753 )
45.2
%
Avenue 2
5,409
( 2,355 )
3,054
89.9
%
Baergic 3
113
( 113 )
—
—
%
Cellvation
( 1,689 )
( 102 )
( 1,791 )
21.3
%
Checkpoint 1
32,398
( 48,406 )
( 16,008 )
82.2
%
Coronado SO
( 291 )
—
( 291 )
13.0
%
Cyprium
( 2,644 )
( 1,173 )
( 3,817 )
29.0
%
Helocyte
( 5,778 )
( 122 )
( 5,900 )
17.9
%
JMC
19,887
( 12,458 )
7,429
43.7
%
Mustang 2
98,461
( 60,821 )
37,640
81.3
%
Oncogenuity
( 1,464 )
( 111 )
( 1,575 )
27.4
%
Tamid
( 775 )
( 1 )
( 776 )
22.8
%
Total
$
135,642
$
( 127,338 )
$
8,304
For the Year Ended
As of December 31, 2021
December 31, 2021
As of December 31, 2021
Non-controlling interests
Net loss attributable to
Non-controlling interests
Non-controlling
($ in thousands)
equity share
non-controlling interests
in consolidated entities
ownership
Urica
$
( 442 )
( 1,353 )
$
( 1,795 )
34.5
%
Aevitas
( 4,159 )
( 901 )
( 5,060 )
45.9
%
Avenue 2
5,739
( 2,909 )
2,830
82.0
%
Baergic
( 2,047 )
( 39 )
( 2,086 )
39.0
%
Cellvation
( 1,413 )
( 131 )
( 1,544 )
21.7
%
Checkpoint 1
63,464
( 39,226 )
24,238
81.5
%
Coronado SO
( 290 )
—
( 290 )
13.0
%
Cyprium
( 1,397 )
( 807 )
( 2,204 )
29.8
%
Helocyte
( 5,440 )
( 89 )
( 5,529 )
18.3
%
JMC
23,150
( 5,652 )
17,498
41.6
%
Mustang 2
141,527
( 48,518 )
93,009
82.7
%
Oncogenuity
( 627 )
( 497 )
( 1,124 )
24.9
%
Tamid
( 739 )
( 1 )
( 740 )
22.8
%
Total
$
217,326
$
( 100,123 )
$
117,203
Note 1: Checkpoint is consolidated with Fortress’ operations because Fortress maintains voting control through its ownership of Checkpoint’s Class A Common Shares which provide super-majority voting rights.
Note 2: Avenue and Mustang are consolidated with Fortress’ operations because Fortress maintains voting control through its ownership of Class A Preferred Shares which provide super-majority voting rights.
Note 3: Fortress’ ownership in Baergic was transferred to Avenue as of November 7, 2022 (see Note 17).
13. Net Loss per Common Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of Common Stock outstanding during the period, without consideration for Common Stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of Common Stock and Common Stock equivalents outstanding for the period.
F-33
Table of Contents
The following shares of potentially dilutive securities, weighted during the years ended December 31, 2022 and 2021 have been excluded from the computations of diluted weighted average shares outstanding as the effect of including such securities would be anti-dilutive:
Year Ended December 31,
2022
2021
Warrants to purchase Common Stock
3,495,870
4,528,196
Options to purchase Common Stock
724,757
832,134
Unvested Restricted Stock
18,375,001
16,363,068
Unvested Restricted Stock Units
39,125
180,848
Total
22,634,754
21,904,246
14. Stockholders’ Equity
Common Stock
Fortress’ Certificate of Incorporation, as amended, authorizes the Company to issue 200,000,000 shares of $ 0.001 par value Common Stock of which 110,494,245 shares of Common Stock are outstanding as of December 31, 2022. As of December 31, 2021, 170,000,000 shares were authorized and 101,435,505 shares of Common Stock were outstanding.
The terms, rights, preference and privileges of the Common Stock are as follows:
Voting Rights
Each holder of Common Stock is entitled to one vote per share of Common Stock held on all matters submitted to a vote of the stockholders, including the election of directors. The Company’s certificate of incorporation and bylaws do not provide for cumulative voting rights.
Dividends
Subject to preferences that may be applicable to any then outstanding Preferred Stock, the holders of the Company’s outstanding shares of Common Stock are entitled to receive dividends, if any, as may be declared from time to time by the Company’s Board of Directors out of legally available funds.
Liquidation
In the event of the Company’s liquidation, dissolution or winding up, holders of Common Stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other liabilities, subject to the satisfaction of any liquidation preference granted to the holders of any outstanding shares of Preferred Stock.
Rights and Preference
Holders of the Company’s Common Stock have no preemptive, conversion or subscription rights, and there is no redemption or sinking fund provisions applicable to the Common Stock. The rights, preferences and privileges of the holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of the Company’s Preferred Stock that are or may be issued.
Fully Paid and Nonassessable
All of the Company’s outstanding shares of Common Stock are fully paid and nonassessable.
F-34
Table of Contents
Series A Cumulative Redeemable Perpetual Preferred Stock
On October 26, 2017, the Company designated 5,000,000 shares of $ 0.001 par value preferred stock as Series A Cumulative Redeemable Perpetual Preferred Stock (the “Series A Preferred Stock”). As of December 31, 2022 and 2021, 3,427,138 shares of Series A Preferred Stock were issued and outstanding.
The terms, rights, preference and privileges of the Series A Preferred Stock are as follows:
Voting Rights
Except as may be otherwise required by law, the voting rights of the holders of the Series A Preferred Stock are limited to the affirmative vote or consent of the holders of at least two-thirds of the votes entitled to be cast by the holders of the Series A Preferred Stock outstanding at the time in connection with the: (1) authorization or creation, or increase in the authorized or issued amount of, any class or series of capital stock ranking senior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or reclassification of any of the Company’s authorized capital stock into such shares, or creation, authorization or issuance of any obligation or security convertible into or evidencing the right to purchase any such shares; or (2) amendment, alteration, repeal or replacement of the Company’s certificate of incorporation, including by way of a merger, consolidation or otherwise in which the Company may or may not be the surviving entity, so as to materially and adversely affect and deprive holders of Series A Preferred Stock of any right, preference, privilege or voting power of the Series A Preferred Stock.
Dividends
Dividends on Series A Preferred Stock accrue daily and will be cumulative from, and including, the date of original issue and shall be payable monthly at the rate of 9.375 % per annum of its liquidation preference, which is equivalent to $ 2.34375 per annum per share. The first dividend on Series A Preferred Stock sold in the offering was payable on December 31, 2017 (in the amount of $ 0.299479 per share) to the holders of record of the Series A Preferred Stock at the close of business on December 15, 2017 and thereafter for each subsequent quarter in the amount of $ 0.5839375 per share. The Company recorded approximately $ 8.0 million and $ 8.0 million of dividends in Additional Paid in Capital on the Consolidated Balance Sheets as of December 31, 2022 and 2021, respectively.
No Maturity Date or Mandatory Redemption
The Series A Preferred Stock has no maturity date, and the Company is not required to redeem the Series A Preferred Stock. Accordingly, the Series A Preferred Stock will remain outstanding indefinitely unless the Company decides to redeem it pursuant to its optional redemption right or its special optional redemption right in connection with a Change of Control (as defined below), or under the circumstances set forth below under “Limited Conversion Rights Upon a Change of Control” and elect to convert such Series A Preferred Stock. The Company is not required to set aside funds to redeem the Series A Preferred Stock.
Optional Redemption
The Series A Preferred Stock may be redeemed in whole or in part (at the Company’s option) any time on or after December 15, 2022, upon not less than 30 days nor more than 60 days ’ written notice by mail prior to the date fixed for redemption thereof, for cash at a redemption price equal to $ 25.00 per share, plus any accumulated and unpaid dividends to, but not including, the redemption date. As of December 31, 2022, no Series A Preferred Stock shares have been redeemed.
F-35
Table of Contents
Special Optional Redemption
Upon the occurrence a Change of Control (as defined below), the Company may redeem the shares of Series A Preferred Stock, at its option, in whole or in part, within one hundred twenty (120) days of any such Change of Control, for cash at $ 25.00 per share, plus accumulated and unpaid dividends (whether or not declared) to, but excluding, the redemption date. If, prior to the Change of Control conversion date, the Company has provided notice of its election to redeem some or all of the shares of Series A Preferred Stock (whether pursuant to the Company’s optional redemption right described above under “Optional Redemption” or this special optional redemption right), the holders of shares of Series A Preferred Stock will not have the Change of Control conversion right with respect to the shares of Series A Preferred Stock called for redemption. If the Company elects to redeem any shares of the Series A Preferred Stock as described in this paragraph, the Company may use any available cash to pay the redemption price.
A “Change of Control” is deemed to occur when, after the original issuance of the Series A Preferred Stock, the following have occurred and are continuing:
● the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of the Company’s stock entitling that person to exercise more than 50% of the total voting power of all the Company’s stock entitled to vote generally in the election of the Company’s directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
● following the closing of any transaction referred to in the bullet point above, neither the Company nor the acquiring or surviving entity has a class of common equity securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE American LLC or the Nasdaq Stock Market, or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American LLC or the Nasdaq Stock Market.
Conversion, Exchange and Preemptive Rights
Except as described below under “Limited Conversion Rights upon a Change of Control,” the Series A Preferred Stock is not subject to preemptive rights or convertible into or exchangeable for any other securities or property at the option of the holder.
Limited Conversion Rights upon a Change of Control
Upon the occurrence of a Change of Control, each holder of shares of Series A Preferred Stock will have the right (unless, prior to the Change of Control Conversion Date, the Company has provided or provides irrevocable notice of its election to redeem the Series A Preferred Stock as described above under “Optional Redemption,” or “Special Optional Redemption”) to convert some or all of the shares of Series A Preferred Stock held by such holder on the Change of Control Conversion Date, into the Common Stock Conversion Consideration, which is equal to the lesser of:
● the quotient obtained by dividing (i) the sum of the $ 25.00 liquidation preference per share of Series A Preferred Stock plus the amount of any accumulated and unpaid dividends (whether or not declared) to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a record date for a Series A Preferred Stock dividend payment and prior to the corresponding Dividend Payment Date, in which case no additional amount for such accumulated and unpaid dividend will be included in this sum) by (ii) the Common Stock Price (such quotient, the “Conversion Rate”); and
● 13.05483 shares of common stock, subject to certain adjustments.
F-36
Table of Contents
In the case of a Change of Control pursuant to which the Company’s common stock will be converted into cash, securities or other property or assets, a holder of Series A Preferred Stock will receive upon conversion of such Series A Preferred Stock the kind and amount of Alternative Form Consideration which such holder would have owned or been entitled to receive upon the Change of Control had such holder held a number of shares of the Company’s common stock equal to the Common Stock Conversion Consideration immediately prior to the effective time of the Change of Control.
Notwithstanding the foregoing, the holders of shares of Series A Preferred Stock will not have the Change of Control Conversion Right if the acquiror has shares listed or quoted on the NYSE, the NYSE American LLC or Nasdaq Stock Market or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American LLC or Nasdaq Stock Market, and the Series A Preferred Stock becomes convertible into or exchangeable for such acquiror’s listed shares upon a subsequent Change of Control of the acquiror.
Liquidation Preference
In the event the Company liquidates, dissolves or is wound up, holders of the Series A Preferred Stock will have the right to receive $ 25.00 per share, plus any accumulated and unpaid dividends to, but not including, the date of payment, before any payment is made to the holders of the Company’s common stock.
Ranking
The Series A Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon the Company’s liquidation, dissolution or winding up, (1) senior to all classes or series of the Company’s common stock and to all other equity securities issued by the Company other than equity securities referred to in clauses (2) and (3); (2) on a par with all equity securities issued by the Company with terms specifically providing that those equity securities rank on a par with the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon the Company’s liquidation, dissolution or winding up; (3) junior to all equity securities issued by the Company with terms specifically providing that those equity securities rank senior to the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon the Company liquidation, dissolution or winding up; and (4) junior to all of the Company’s existing and future indebtedness.
Stock-Based Compensation
As of December 31, 2022, the Company had four equity compensation plans: the Fortress Biotech, Inc. 2007 Stock Incentive Plan (the “2007 Plan”), the Fortress Biotech, Inc. 2013 Stock Incentive Plan, as amended (the “2013 Plan”), the Fortress Biotech, Inc. 2012 Employee Stock Purchase Plan (the “ESPP”) and the Fortress Biotech, Inc. Long Term Incentive Plan (“LTIP”). In 2007, the Company’s Board of Directors adopted and stockholders approved the 2007 Plan authorizing the Company to grant up to 6,000,000 shares of Common Stock to eligible employees, directors, and consultants in the form of restricted stock, stock options and other types of grants. In 2013, the Company’s Board of Directors adopted and stockholders approved the 2013 Plan authorizing the Company to grant up to 2,300,000 shares of Common Stock to eligible employees, directors, and consultants in the form of restricted stock, stock options and other types of grants. In 2015, the Company’s Board of Directors and stockholders approved an increase of 7,700,000 shares for the 2013 Plan and in 2020 and 2022, the Company’s Board of Directors and stockholders approved an increase of 3,000,000 shares each year, bringing the total number of shares approved under this plan to 16,000,000 , with the aggregate total of authorized shares available for grants under the 2007 Plan and the 2013 Plan of up to 22,000,000 shares. An aggregate 21,110,948 shares have been granted under both the Company’s 2007 and 2013 plans, net of cancellations, and 889,052 shares were available for issuance as of December 31, 2022.
F-37
Table of Contents
Certain partner companies have their own equity compensation plan under which shares are granted to eligible employees, directors and consultants in the form of restricted stock, stock options, and other types of grants of stock of the respective partner company’s common stock. The table below provides a summary of those plans as of December 31, 2022:
Partner
Shares
Shares available at
Company
Stock Plan
Authorized
December 31, 2022
Aevitas
Aevitas Therapeutics, Inc. 2018 Long Term Incentive Plan
2,000,000
376,585
Avenue
Avenue Therapeutics, Inc. 2015 Stock Plan
266,666
122,489
Baergic
FBIO Acquisition Corp. III 2017 Incentive Plan
2,000,000
1,150,000
Cellvation
Cellvation Inc. 2016 Incentive Plan
2,000,000
300,000
Checkpoint
Checkpoint Therapeutics, Inc. Amended and Restated 2015 Stock Plan
3,000,000
2,238,798
Cyprium
Cyprium Therapeutics, Inc. 2017 Stock Plan
2,000,000
575,000
Helocyte
DiaVax Biosciences, Inc. 2015 Incentive Plan
2,000,000
341,667
Journey
Journey Medical Corporation 2015 Stock Plan
7,642,857
1,146,620
Mustang
Mustang Bio, Inc. 2016 Incentive Plan
11,000,000
4,462,870
Oncogenuity
FBIO Acquisition Corp. VII 2017 Incentive Plan
2,000,000
1,200,000
Urica
FBIO Acquisition Corp. VIII 2017 Incentive Plan
4,000,000
589,315
The purpose of the Company’s and its subsidiaries’ and partner companies’ equity compensation plans is to provide for equity awards as part of an overall compensation package of performance-based rewards to attract and retain qualified personnel. Such awards include, without limitation, options, stock appreciation rights, sales or bonuses of restricted stock, restricted stock units or dividend equivalent rights, and an award may consist of one such security or benefit, or two or more of them in any combination or alternative. Vesting of awards may be based upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions.
Incentive and non-statutory stock options are granted pursuant to option agreements adopted by the plan administrator. Options generally have 10-year contractual terms and vest in three equal annual installments commencing on the grant date.
The Company estimates the fair value of stock option grants using a Black-Scholes option pricing model. In applying this model, the Company uses the following assumptions:
● Risk-Free Interest Rate : The risk-free interest rate is based on the yields of United States Treasury securities with maturities similar to the expected term of the options for each option group.
● Volatility : The Company utilizes the trading history of its Common Stock to determine the expected stock price volatility for its Common Stock.
● Expected Term : Due to the limited exercise history of the Company’s stock options, the Company determined the expected term based on the Simplified Method under SAB 107 and the expected term for non-employees is the remaining contractual life for both options and warrants.
● Expected Dividend Rate : The Company has not paid and does not anticipate paying any cash dividends in the near future on its common stock.
The fair value of each option award was estimated on the grant date using the Black-Scholes option-pricing model and expensed under the straight-line method.
The following table summarizes the stock-based compensation expense from stock option, employee stock purchase programs and restricted Common Stock awards and warrants for the years ended December 31, 2022 and 2021
F-38
Table of Contents
Year Ended December 31,
($ in thousands)
2022
2021
Employee and non-employee awards
$
9,934
$
8,603
Executive awards of Fortress Companies' stock
2,718
1,446
Partner Companies:
Avenue
649
442
Checkpoint
2,924
3,137
Mustang
2,283
3,308
Journey
4,425
2,466
Other
54
84
Total stock-based compensation expense
$
22,987
$
19,486
For the years ended 2022 and 2021, $ 4.4 million and $ 4.3 million was included in research and development expenses, and $ 18.5 million and $ 15.2 million was included in selling, general and administrative expenses, respectively.
Options
The following table summarizes Fortress stock option activities excluding activities related to partner companies:
Weighted average
Total
remaining
Weighted average
weighted average
contractual life
Number of shares
exercise price
intrinsic value
(years)
Options vested and expected to vest at December 31, 2020
1,053,490
$
5.02
$
647,482
2.63
Forfeited
( 35,000 )
4.33
—
—
Options vested and expected to vest at December 31, 2021
1,018,490
$
5.04
$
368,344
1.68
Granted
2,002,500
0.54
230,000
6.98
Expired
( 370,000 )
6.27
—
—
Options vested and expected to vest at December 31, 2022
2,650,990
$
1.47
$
230,000
5.64
Options vested and exercisable at December 31, 2022
650,990
$
4.34
$
—
1.55
During the years ended December 31, 2022 and 2021, there were no exercises of stock options.
The Company used the Black-Scholes option pricing model for determining the estimated fair value of stock-based compensation related to stock options. The table below summarizes the assumptions used:
Year Ended December 31,
2022
2021
Risk-free interest rate
3.78
%
1.04 - 1.50
%
Expected dividend yield
—
—
Expected term in years
7.0
10.0
Expected volatility
78.48
%
100.65 - 102.71
%
As of December 31, 2022, the Company had $ 0.1 million of unrecognized stock-based compensation expense related to options.
F-39
Table of Contents
Restricted Stock
Consolidated stock-based compensation expense from restricted stock awards and restricted stock units for the years ended December 31, 2022 and 2021 was $ 21.9 million and $ 19.5 million, respectively. Restricted stock awards and restricted stock unit awards are expensed under the straight-line method over the vesting period. Expense for awards with performance-based vesting criteria will be measured and recorded if and when it becomes probable that the milestone will be achieved.
During 2022, the Company granted 3.8 million restricted shares of its Common Stock to executives and directors of the Company and 1.6 million restricted stock units to employees and non-employees of the Company. The fair value of the restricted stock awards issued during 2022 of $ 7.0 million and the fair value of the restricted stock unit awards issued during 2022 of $ 2.1 million were valued on the grant date using the Company’s stock price as of the grant date. The 2022 restricted stock awards and restricted stock unit awards vest upon both the passage of time as well as meeting certain performance criteria.
During 2021, the Company granted 2.3 million restricted shares of its Common Stock to executives and directors of the Company and 1.4 million restricted stock units to employees and non-employees of the Company. The fair value of the restricted stock awards issued during 2021 of $ 7.4 million and the fair value of the restricted stock unit awards issued during 2021 of $ 5.5 million were valued on the grant date using the Company’s stock price as of the grant date. The 2021 restricted stock awards and restricted stock unit awards vest upon both the passage of time as well as meeting certain performance criteria.
The following table summarizes Fortress restricted stock awards and restricted stock units activities, excluding activities related to Fortress subsidiaries:
Weighted
average grant
Number of shares
price
Unvested balance at December 31, 2020
15,507,504
$
2.49
Restricted stock granted
2,330,678
3.17
Restricted stock vested
( 374,825 )
2.69
Restricted stock units granted
1,405,842
3.92
Restricted stock units forfeited
( 96,750 )
3.49
Restricted stock units vested
( 712,449 )
3.54
Unvested balance at December 31, 2021
18,060,000
$
2.64
Restricted stock granted
3,755,972
1.87
Restricted stock vested
( 1,755,637 )
2.47
Restricted stock units granted
1,604,945
1.31
Restricted stock units forfeited
( 232,500 )
3.67
Restricted stock units vested
( 882,753 )
3.41
Unvested balance at December 31, 2022
20,550,027
$
2.36
The total fair value of restricted stock units and awards that vested during the years ended December 31, 2022 and 2021 was $ 7.3 million and $ 3.5 million, respectively. As of December 31, 2022, the Company had unrecognized stock-based compensation expense related to all unvested restricted stock and restricted stock unit awards of $ 16.3 million and $ 1.5 million, respectively, which is expected to be recognized over the remaining weighted-average vesting period of 2.4 years and 1.1 years, respectively. This amount does not include 0.1 million restricted stock units as of December 31, 2022 which are performance-based and vest upon achievement of certain corporate milestones. Stock-based compensation for these awards will be measured and recorded if and when it is probable that the milestone will be achieved.
F-40
Table of Contents
Deferred Compensation Plan
On March 12, 2015, the Company’s Compensation Committee approved the Deferred Compensation Plan allowing all non-employee directors the opportunity to defer all or a portion of their fees or compensation, including restricted stock and restricted stock units. During the year ended December 31, 2022 and 2021, certain non-employee directors elected to defer an aggregate of 330,000 and 230,000 restricted stock awards, respectively, under this plan.
Employee Stock Purchase Plan
Eligible employees can purchase the Company’s Common Stock at the end of a predetermined offering period at 85 % of the lower of the fair market value at the beginning or end of the offering period. The ESPP is compensatory and results in stock-based compensation expense.
As of December 31, 2022, 961,898 shares have been purchased and 38,102 shares are available for future sale under the Company’s ESPP. The Company recognized share-based compensation expense of $ 0.1 million and $ 0.1 million for the years ended December 31, 2022 and 2021, respectively.
Warrants
The following table summarizes Fortress warrant activities, excluding activities related to partner companies:
Total weighted
Weighted average
average
remaining
Number of
Weighted average
intrinsic
contractual life
shares
exercise price
value
(years)
Outstanding as of December 31, 2020
4,590,621
$
3.17
$
607,848
4.85
Expired
( 60,000 )
1.37
—
Forfeited
( 25,000 )
3.00
—
Outstanding as of December 31, 2021
4,505,621
$
3.20
$
68,800
3.93
Expired
( 2,596,171 )
3.26
—
Outstanding as of December 31, 2022
1,909,450
$
3.11
$
—
7.45
Exercisable as of December 31, 2022
1,774,450
$
3.19
$
—
7.61
During 2020, in connection with the issuance of the Oaktree Note, the Company issued warrants to purchase 1,749,450 shares of common stock; in connection with a consulting agreement the Company issued warrants to purchase 100,000 shares of common stock. The relative fair value of the Oaktree warrants was recorded to debt discount and is being amortized over the term of the Oaktree Note (see Note 10). As of December 31, 2022, the Company had no unrecognized stock-based compensation expense related to warrants.
Long-Term Incentive Program (“LTIP”)
On July 15, 2015, the stockholders approved the LTIP for the Company’s Chairman, President and Chief Executive Officer, Dr. Rosenwald, and Executive Vice Chairman, Strategic Development, Mr. Weiss. The LTIP consists of a program to grant equity interests in the Company and in the Company’s subsidiaries, and a performance-based bonus program that is designed to result in performance-based compensation that is deductible without limit under Section 162(m) of the Internal Revenue Code of 1986, as amended.
F-41
Table of Contents
On January 1, 2022 and 2021, the Compensation Committee granted 1,102,986 and 1,030,339 shares each to Dr. Rosenwald and Mr. Weiss, respectively. These equity grants, made in accordance with the LTIP, represent 1 % of total outstanding shares of the Company as of the dates of such grants and were granted in recognition of their performance in 2021 and 2020. The shares will vest in full once both of the following conditions are met: (i) the Company’s market capitalization has increased by a minimum of $ 100.0 million, and (ii) the employee is either in the service of the Company as an employee or as a Board member (or both) on the tenth anniversary of the LTIP, or the eligible employee has had an involuntary separation from service (as defined in the LTIP). The Company’s repurchase option on such shares will also lapse upon the occurrence of a corporate transaction (as defined in the LTIP) if the eligible employee is in service on the date of the corporate transaction. The fair value of each grant on the grant date was approximately $ 2.8 million for the January 1, 2022 grant and $ 3.3 million for the January 1, 2021 grant. For the year ended December 31, 2022 and 2021, the Company recorded stock compensation expense of approximately $ 5.3 million and $ 3.8 million, respectively related to the LTIP grants on the Consolidated Statements of Operations.
Capital Raises
2021 Shelf
On July 23, 2021, the Company filed a 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.
Common Stock At the Market Offering and 2020 Shelf
On July 23, 2021, the Company filed shelf registration statement 333-258145 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 (File No. 333-238327), 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. ATM activity since June 1, 2020 were made under the 2020 Shelf. For the year ended December 31, 2022, the Company issued approximately 4.1 million shares of common stock at an average price of $ 1.50 per share for gross proceeds of $ 6.2 million. In connection with these sales, the Company paid aggregate fees of $ 0.2 million. Approximately $ 11.1 million of securities remain available for sale under the 2020 Shelf at December 31, 2022.
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 gross proceeds of $ 9.4 million. In connection with these sales, the Company paid aggregate fees of $ 0.3 million.
Journey
On December 30, 2022, Journey filed a shelf registration statement on Form S-3 (File No. 333-269079 ), which was declared effective by the Securities and Exchange Commission (“SEC”) on January 26, 2023. This shelf registration statement covers the offering, issuance and sale by Journey of up to an aggregate of $ 150.0 million of Journey’s common stock, preferred stock, debt securities, warrants, and units (the “Journey 2022 Shelf”). At December 31, 2022, $ 150.0 million remains available under the Journey 2022 Shelf. In connection with the Journey 2022 shelf, Journey has entered into an At-the-Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (“B. Riley”), relating to shares of the Journey’s common stock. In accordance with the terms of the Sales Agreement, Journey may offer and sell up to 4,900,000 shares of its common stock, par value $ 0.0001 per share, from time to time through or to B. Riley acting as Journey’s agent or principal.
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 net proceeds of $ 30.6 million, after deducting underwriting discounts and other offering costs of $ 4.6 million.
F-42
Table of Contents
Checkpoint
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 At-the-Market Issuance Sales Agreement (the “Checkpoint 2020 ATM”) with certain agents relating to the sale of shares of Checkpoint’s common stock. Under the Checkpoint 2020 ATM, Checkpoint will pay the sales 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, 2022, Checkpoint sold a total of 532,816 shares of common stock under the Checkpoint 2020 ATM for aggregate total gross proceeds of approximately $ 10.1 million at an average selling price of $ 18.99 per share, resulting in net proceeds of approximately $ 9.9 million after deducting commissions and other transaction costs.
During the year ended December 31, 2021, Checkpoint sold a total of 1,189,999 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 $ 34.69 per share, resulting in net proceeds of approximately $ 40.3 million after deducting commissions and other transaction costs.
In December 2022, Checkpoint closed on the December 2022 Registered Direct Offering with a single institutional investor for the issuance and sale of 950,000 shares of its common stock and 784,105 pre-funded warrants. Each pre-funded warrant was exercisable for one share of Checkpoint’s common stock. The common stock and the pre-funded warrants were sold together with Series A warrants to purchase up to 1,734,105 shares of common stock and Series B warrants to purchase up to 1,734,105 shares of common stock, at a purchase price of $ 4.325 per share of common stock and associated common stock warrants, and $ 4.33249 per pre-funded warrant and associated common stock warrants. The pre-funded warrants were funded in full at closing except for a nominal exercise price of $ 0.0001 and are exercisable commencing on the closing date and will terminate when such pre-funded warrants are exercised in full. The Series A warrants are exercisable immediately upon issuance and will expire five years following the issuance date and have an exercise price of $ 4.075 per share and the Series B warrants are exercisable immediately upon issuance and will expire eighteen months following the issuance date and have an exercise price of $ 4.075 per share. Net proceeds from the registered direct offering were $ 6.7 million after deducting commissions and other transaction costs. As the total fair value of the resulting warrant liability exceeded the total net proceeds of $ 6.7 million, Checkpoint recorded a loss of $ 1.2 million to loss on common stock warrant liabilities in the Consolidated Statements of Operations. Accordingly, there were no proceeds allocated to the common stock and pre-funded warrants issued as part of this transaction (See Note 6).
As of December 31, 2022, approximately $ 22.3 million of the shelf remains available for sale under the Checkpoint 2020 S-3.
Pursuant to the Founders Agreement, Checkpoint issued to Fortress 2.5 % of the aggregate number of shares of Checkpoint common stock issued in the offerings noted above. Accordingly, Checkpoint issued 56,671 shares and 29,749 shares to Fortress for the year ended December 31, 2022 and 2021, respectively.
Mustang
On April 23, 2021, Mustang filed a 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, 2022, $ 200 million of the Mustang 2021 S-3 remained available for sales of securities.
On October 23, 2020, Mustang filed a shelf registration statement No. 333-249657 on Form S-3 (the "2020 Mustang S-3"), which was declared effective in December 2020. Under the 2020 Mustang S-3, Mustang may sell up to a total of $ 100.0 million of its securities. As of December 31, 2022, approximately $ 8.0 million of the 2020 S-3 remains available for sales of securities.
F-43
Table of Contents
During the year ended December 31, 2022, Mustang issued approximately 7.9 million shares of common stock at an average price of $ 0.84 per share for gross proceeds of $ 6.6 million under the Mustang ATM. In connection with these sales, Mustang paid aggregate fees of approximately $ 0.1 million for net proceeds of approximately $ 6.5 million.
During the year ended December 31, 2021, Mustang 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.
Pursuant to the terms of the Second Amended and Restated Founders Agreement, Mustang issued to Fortress 2.5 % of the aggregate number of shares of Mustang common stock issued in the offerings noted above. Accordingly, Mustang issued 196,952 shares of common stock to Fortress for the year ended December 31, 2022 and issued 576,157 common shares to Fortress for the year ended December 31, 2021.
Avenue
On October 11, 2022, Avenue announced the closing of an underwritten public offering of 3,636,365 common and pre-funded units. Each common unit consists of one share of common stock and one warrant to purchase one share of common stock, and each pre-funded unit consists of one pre-funded warrant to purchase one share of common stock and one warrant to purchase one share of common stock. Each share of common stock (or pre-funded warrant) was sold together with one warrant at a combined purchase price of $ 3.30 per common unit (or $ 3.2999 per pre-funded unit after reducing $ 0.0001 attributable to the exercise price of the pre-funded warrants). Avenue also simultaneously closed on the sale of an additional 545,454 warrants to purchase common stock, which were sold pursuant to a partial exercise of the underwriter’s over-allotment option. Avenue received net proceeds of approximately $ 10.3 million at closing after deducting underwriting discounts and commissions and other expenses of the offering. This transaction, along with Avenue’s repurchase of 100 % of the Avenue shares held by InvaGen for a purchase price of $ 3.0 million, and the closing of the Share Repurchase Agreement between Avenue and InvaGen in October 2022 (see Note 3), resulted in the November 2022 consummation of the Contribution Agreement between Fortress and Avenue (see Note 17).
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.
Urica
In December 2022, Urica commenced an offering of 8 % Cumulative Convertible Class B Preferred Stock. Urica issued an aggregate of 101,334 Class B Preferred shares at a price of $ 25.00 per share, for gross proceeds of $ 2.5 million. Following the payment of placement agent fees and other expenses of $ 0.3 million, Urica received $ 2.2 million in net proceeds (see Note 21). The Company determined liability classification is appropriate and as such, this instrument was accounted for as a liability (see Note 10) at December 31, 2022.
15. Commitments and Contingencies
Leases
The Company’s lease portfolio includes leases for our corporate headquarters, office spaces, and a cell manufacturing facility. Most of the Company’s lease liabilities result from the lease of its New York City, NY office, which expires in 2031 and Mustang’s Worcester, MA cell processing facility lease, which expires in 2026 . Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options.
F-44
Table of Contents
The Company does not act as a lessor or have any leases classified as financing leases. At December 31, 2022, the Company had operating lease liabilities of $ 24.0 million and right of use assets of $ 20.0 million, which are included in the Company’s Consolidated Balance Sheet.
The Company recognizes rent expense on a straight-line basis over the non-cancellable lease term. Rent expense for the years ended December 31, 2022 and 2021 was $ 2.0 million and $ 2.1 million, respectively. The components of lease cost are as follows:
Year Ended December 31,
($ in thousands)
2022
2021
Operating lease cost
$
3,524
$
3,253
Shared lease costs
( 2,127 )
( 1,835 )
Variable lease cost
648
727
Total lease expense
$
2,045
$
2,145
The following tables summarize quantitative information about the Company’s operating leases:
Year Ended December 31,
($ in thousands)
2022
2021
Operating cash flows from operating leases
$
( 3,473 )
$
( 3,366 )
Right-of-use assets exchanged for new operating lease liabilities
$
2,953
$
207
Weighted-average remaining lease term – operating leases (years)
4.7
5.2
Weighted-average discount rate – operating leases
6.6
%
6.3
%
Future Lease
($ in thousands)
Liability
Year Ended December 31, 2023
$
3,550
Year Ended December 31, 2024
3,665
Year Ended December 31, 2025
4,134
Year Ended December 31, 2026
3,879
Year Ended December 31, 2027
3,572
Other
12,486
Total operating lease liabilities
31,286
Less: present value discount
( 7,267 )
Net operating lease liabilities, short-term and long-term
$
24,019
License Agreements
The Company has undertaken to make contingent milestone payments to the licensors of its portfolio of drug products and candidates. In addition, the Company shall pay royalties to such licensors based on a percentage of net sales of each drug candidate following regulatory marketing approval. For additional information on future milestone payments and royalties, see Note 7.
Indemnification
In accordance with its certificate of incorporation, bylaws and indemnification agreements, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance to address such claims. The Company and its subsidiaries and partner companies also provide indemnification of contractual counterparties (sometimes without monetary caps) to clinical sites, service providers and licensors.
F-45
Table of Contents
Legal Proceedings
In the ordinary course of business, the Company and its subsidiaries may be subject to both insured and uninsured litigation. Suits and claims may be brought against the Company by customers, suppliers, partners and/or third parties (including tort claims for personal injury arising from clinical trials of the Company’s product candidates and property damage) alleging deficiencies in performance, breach of contract, etc., and seeking resulting alleged damages.
16. Employee Benefit Plan
On January 1, 2008, the Company adopted a defined contribution 401(k) plan which allows employees to contribute up to a percentage of their compensation, subject to IRS limitations and provides for a discretionary Company match up to a maximum of 4 % of employee compensation. For the years ended December 31, 2022 and 2021, the Company paid a matching contribution of $ 1.1 million and $ 0.8 million, respectively.
17. Related Party Transactions
The Company’s Chairman, President and Chief Executive Officer, individually and through certain trusts over which he has voting and dispositive control, beneficially owned approximately 10.5 % and 10.3 % of the Company’s issued and outstanding Common Stock as of December 31, 2022 and 2021, respectively. The Company’s Executive Vice Chairman, Strategic Development individually owns approximately 11.2 % and 11.1 % of the Company’s issued and outstanding Common Stock at December 31, 2022 and 2021, respectively.
Shared Services Agreement with TGTX
In July 2015, TGTX and the Company entered into an arrangement to share the cost of certain research and development employees. The Company’s Executive Vice Chairman, Strategic Development, is Executive Chairman and Interim Chief Executive Officer of TGTX. Under the terms of the Agreement, TGTX will reimburse the Company for the salary and benefit costs associated with these employees based upon actual hours worked on TGTX related projects. In connection with the shared services agreement, the Company invoiced TGTX $ 0.4 million and $ 0.4 million, and received payments of $ 0.4 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively.
Shared Services Agreement with Journey
On November 12, 2021, Journey and the Company entered into an arrangement to share the cost of certain legal, finance, regulatory, and research and development employees. The Company’s Executive Chairman and Chief Executive Officer is the Executive Chairman of Journey. Under the terms of the Agreement, Journey will reimburse the Company for the salary and benefit costs associated with these employees based upon actual hours worked on Journey related projects following the completion of their initial public offering. For the year ended December 31, 2021, the Company’s employees have provided services to Journey totaling approximately $ 0.6 million. Upon completion of Journey’s initial public offering in November 2021 (see Note 14) $ 0.5 million was converted into 52,438 shares of Journey common stock at the initial public offering price of $ 10.00 per share.
Desk Share Agreement with TGTX
The Desk Share Agreement with TGTX, as amended, requires TGTX to pay 65 % of the average annual rent. Additionally, the Company has reserved the right to execute desk share agreements with other third parties and those arrangements will affect the cost of the lease actually borne by the Company. Each initial Desk Share Agreement has a term of five years . In connection with the Company’s Desk Share Agreement with TGTX for the New York, NY office space, for the years ended December 31, 2022 and 2021, the Company had paid $ 2.7 million and $ 2.7 million in rent, respectively, and invoiced TGTX approximately $ 1.9 million and $ 1.6 million respectively, for their prorated share of the rent base. At December 31, 2022, there were no amounts due from TGTX related to this arrangement.
F-46
Table of Contents
As of July 1, 2018, TGTX employees began to occupy desks in the Waltham, MA office under the Desk Share Agreement. TGTX began to pay their share of the rent based on actual percentage of the office space occupied on a month by month basis. For the years ended December 31, 2022 and 2021, the Company had paid approximately $ 0.2 million and $ 0.2 million in rent for the Waltham, MA office, and invoiced TGTX approximately $ 0.1 million and $ 0.1 million, respectively.
Checkpoint Collaborative Agreements with TGTX
Checkpoint has entered into various agreements with TGTX to develop and commercialize certain assets in connection with its licenses, including a collaboration agreement for some of the Dana Farber licensed antibodies, and a sublicense agreement for the Jubilant family of patents. Checkpoint believes that by partnering with TGTX to develop these compounds in therapeutic areas outside of its business focus, it may substantially offset its preclinical costs and milestone costs related to the development and marketing of these compounds in solid tumor indications.
Journey Promissory Note
On September 30, 2021, the Company increased the Journey promissory note by $ 9.5 million in response to a cyber incident that occurred at Journey and resulted in $ 9.5 million of fraudulent payments. The $ 9.5 million contribution was approved by the boards of directors of both the Company and Journey, and ensured that Journey’s accounts payable function continued to operate smoothly. This contribution, along with the $ 5.2 million already outstanding under the Journey Promissory Note, converted into 1,476,044 shares of Journey common stock upon completion of Journey’s initial public offering in November 2021 (see Note 14) at the initial public offering price of $ 10.00 per share. The amounts associated with the Journey Promissory Note are eliminated in the consolidated balance sheets.
Avenue Share Contribution Agreement
In November 2022, Fortress completed a Share Contribution Agreement with Avenue to contribute its’ shares in Baergic, which is developing BAER-101, a novel α2/3–subtype-selective GABA A positive allosteric modulator (“PAM”), to Avenue. As a result, Baergic became a majority-controlled and owned subsidiary company of Avenue. Under the Contribution Agreement, Fortress also agreed to assign to Avenue certain intercompany agreements existing between Fortress and Baergic, including a Founders Agreement and Management Services Agreement.
Founders Agreement and Management Services Agreement
The Company has entered into Founders Agreements with each of the Fortress partner companies and subsidiaries listed in the table below. Pursuant to each Founders Agreement, in exchange for the time and capital expended in the formation of each partner company/subsidiary and the identification of specific assets the acquisition of which result in the formation of a viable emerging growth life science company, Fortress will loan each such partner company/subsidiary an amount representing the up-front fee required to acquire assets. Each Founders Agreement has a term of 15 years , which upon expiration automatically renews for successive one-year periods unless terminated by the Company or a Change in Control (as defined in the Founders Agreement) occurs. In connection with each Founders Agreement the Company receives 250,000 Class A Preferred shares (except for that with Checkpoint, in which the Company holds Class A Common Stock).
The Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is identical to common stock other than as to voting rights, conversion rights and the Payment-in-Kind (“PIK”) Dividend right (as described below). Each share of Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is entitled to vote the number of votes that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the shares of outstanding common stock and (B) the whole shares of common stock into which the shares of outstanding Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) are convertible and the denominator of which is the number of shares of outstanding Class A Preferred Stock (Class A Common Stock with respect to Checkpoint). Thus, the Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) will at all times constitute a voting majority. Each share of Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is convertible, at the holder’s option, into one fully paid and nonassessable share of common stock of such partner company/subsidiary, subject to certain adjustments.
F-47
Table of Contents
The holders of Class A Preferred Stock (and the Class A Common Stock with respect to Checkpoint), as a class, are entitled receive on each effective date or “Trigger Date” (defined as the date that the Company first acquired, whether by license or otherwise, ownership rights to a product) of each agreement (each a “PIK Dividend Payment Date”) until the date all outstanding Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) is converted into common stock or redeemed (and the purchase price is paid in full), pro rata per share dividends paid in additional fully paid and nonassessable shares of common stock (“PIK Dividends”) such that the aggregate number of shares of common stock issued pursuant to such PIK Dividend is equal to two and one-half percent ( 2.5 %) of such partner company or subsidiary’s fully-diluted outstanding capitalization on the date that is one (1) business day prior to any PIK Dividend Payment Date. The Company has reached agreements with several of the partner companies and subsidiaries to change the PIK Dividend Interest Payment Date to January 1 of each year - a change that has not and will not result in the issuance of any additional partner company/subsidiary common stock beyond that amount to which the Company would otherwise be entitled absent such change(s). The Company owns 100 % of the Class A Preferred Stock (Class A Common Stock with respect to Checkpoint) of each partner company/subsidiary that has a Founders Agreement with the Company.
As additional consideration under the Founders Agreement, each partner company and subsidiary with which the Company has entered into a Founders Agreement will also: (i) pay an equity fee in shares of the common stock of such partner company/subsidiary, payable within five (5) business days of the closing of any equity or debt financing for each partner company/subsidiary or any of its respective subsidiaries that occurs after the effective date of the Founders Agreement and ending on the date when the Company no longer has majority voting control in such partner company or subsidiary’s voting equity, equal to two and one-half ( 2.5 %) of the gross amount of any such equity or debt financing; and (ii) pay a cash fee equal to four and one-half percent ( 4.5 %) of such partner company or subsidiary’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year. In the event of a Change in Control, each such partner company/subsidiary will pay a one-time change in control fee equal to five (5x) times the product of (A) net sales for the twelve (12) months immediately preceding the change in control and (B) four and one-half percent ( 4.5 %). In the case of Urica, however, the obligation to pay Fortress royalties under the Founders Agreement would survive any such Change in Control.
The following table summarizes, by subsidiary, the effective date of the Founders Agreements and PIK dividend or equity fee payable to the Company in accordance with the terms of the Founders Agreements, Exchange Agreements and the partner companies’/subsidiaries’ certificates of incorporation.
PIK Dividend as
a % of fully
diluted
outstanding
Class of Stock
Partner Company/Subsidiary
Effective Date 1
capitalization
Issued
Aevitas
July 28, 2017
2.5
%
Common Stock
Avenue
February 17, 2015
2.5
% 2
Common Stock
Baergic
December 17, 2019 5
2.5
% 3
Common Stock
Cellvation
October 31, 2016
2.5
%
Common Stock
Checkpoint
March 17, 2015
-
% 4
Common Stock
Cyprium
March 13, 2017
2.5
%
Common Stock
Helocyte
March 20, 2015
2.5
%
Common Stock
Mustang
March 13, 2015
2.5
%
Common Stock
Oncogenuity
April 22, 2020 5
2.5
%
Common Stock
Urica
November 7, 2017 5
2.5
%
Common Stock
Note 1:
Represents the effective date of each subsidiary’s Founders Agreement. Each PIK dividend and equity fee is payable on the annual anniversary of the effective date of the original Founders Agreement or has since been amended to January 1 of each calendar year.
Note 2:
Pursuant to the terms of the agreement between Avenue and InvaGen Pharmaceuticals, Inc. during the term of the Avenue SPMA PIK dividends were not be paid or accrued. Upon the repurchase of the securities held by InvaGen, such PIK dividends have resumed.
F-48
Table of Contents
Note 3:
Pursuant to the Share Contribution Agreement between Fortress and Avenue, under which Baergic became a majority-controlled and owned subsidiary of Avenue, Fortress also assigned to Avenue the Founders Agreement previously between Fortress and Baergic, such that Baergic’s annual PIK dividend is now payable to Avenue.
Note 4:
Instead of a PIK dividend, Checkpoint pays the Company an annual equity fee in shares of Checkpoint’s common stock equal to 2.5 % of Checkpoint’s fully diluted outstanding capitalization.
Note 5:
Represents the Trigger Date, the date that the Fortress partner company first acquires, whether by license or otherwise, ownership rights in a product.
Equity Fees
The following table summarizes, by subsidiary, the PIK dividend or equity fee recorded by the Company in accordance with the terms of the Founders Agreements, Exchange Agreements and the partner companies’/subsidiaries’ certificates of incorporation for the years ended December 31, 2022 and 2021 ($ in thousands):
PIK Dividend
Year Ended
Year Ended
Partner company
Date
December 31, 2022
December 31, 2021
Aevitas
July 28
$
23
$
22
Avenue
January 1
268
—
Baergic 1
December 17
—
10
Cellvation
October 31
10
9
Checkpoint
January 1
1,885
6,598
Cyprium
January 1
422
1,304
Helocyte
January 1
90
141
Mustang
January 1
1,109
4,212
Oncogenuity
May 8
8
5
Urica
November 25
51
26
Fortress
( 3,866 )
( 12,327 )
Total
$
—
$
—
Note 1: Pursuant to the Share Contribution Agreement between Fortress and Avenue, under which Baergic became a majority-controlled and owned subsidiary of Avenue, Fortress also assigned to Avenue the Founders Agreement previously between Fortress and Baergic, such that Baergic’s annual PIK dividend is now payable to Avenue.
Management Services Agreements
The Company has entered into Management Services Agreements (the “MSAs”) with certain of its partner companies and subsidiaries. Pursuant to each MSA, the Company’s management and personnel provide advisory, consulting and strategic services to each partner company/subsidiary that has entered into an MSA with Fortress for a period of five (5) years. Such services may include, without limitation, (i) advice and assistance concerning any and all aspects of each such company’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of each such company with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”). Each such partner company/subsidiary is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices. However, such companies are not obligated to take or act upon any advice rendered from Fortress, and Fortress shall not be liable to any such partner company/subsidiary for its actions or inactions based upon Fortress’ advice. Fortress and its affiliates, including all members of Fortress’ Board of Directors, have been contractually exempted from fiduciary duties to each such partner company/subsidiary relating to corporate opportunities.
The following table summarizes, by partner company/subsidiary, the effective date of the MSA and the annual consulting fee payable by the partner company/subsidiary to Fortress in quarterly installments ($ in thousands):
F-49
Table of Contents
Year Ended December 31,
Partner Company/Subsidiary
Effective Date
2022
2021
Aevitas
July 28, 2017
$
500
$
500
Avenue 1
February 17, 2015
83
—
Baergic 2
March 9, 2017
417
500
Cellvation
October 31, 2016
500
500
Checkpoint
March 17, 2015
500
500
Cyprium
March 13, 2017
500
500
Helocyte
March 20, 2015
500
500
Mustang
March 13, 2015
1,000
500
Oncogenuity
February 10, 2017
500
500
Urica
November 7, 2017
500
500
Fortress
( 5,000 )
( 4,500 )
Consolidated (Income)/Expense
$
—
$
—
Note 1: Fees under the MSA were not due or accrued during the pendency of agreements formerly in place between Avenue and InvaGen (now terminated).
Note 2: Pursuant to the Share Contribution Agreement between Fortress and Avenue, under which Baergic became a majority-controlled and owned subsidiary of Avenue, Fortress also assigned to Avenue the MSA previously between Fortress and Baergic, such that Baergic’s annual MSA fee is now payable to Avenue.
Fees and Stock Grants Received by Fortress
Fees recorded in connection with Fortress’ agreements with its subsidiaries and partner companies are eliminated in consolidation. These include management services fees, issuance of common shares of partner companies in connection with third party raises and annual stock dividend or issuances on the anniversary date of respective Founders Agreements.
18. Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The components of the income tax provision are as follows:
For the years ended December 31,
($ in thousands)
2022
2021
Current
Federal
$
—
$
—
State
449
473
Deferred
Federal
—
—
State
—
—
Total
$
449
$
473
For the years ended December 31, 2022 and 2021, income tax expense was $0.4 million and $ 0.5 million, respectively, resulting in an effective income tax rate of 0 % and 0 %. The income tax expense in 2022 is primarily due to the recording of uncertain tax positions and state income taxes.
F-50
Table of Contents
The Company has incurred net operating losses since inception. The Company has not reflected any benefit of such net operating loss carryforwards (“NOL”) in the accompanying consolidated financial statements and has established a valuation allowance of $ 318.0 million against its net deferred tax assets. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The significant components of the Company’s deferred taxes consist of the following:
As of December 31,
($ in thousands)
2022
2021
Deferred tax assets:
Net operating loss carryforwards
$
198,250
$
180,994
Amortization of license fees
30,151
31,556
Amortization of in-process R&D
334
384
Stock compensation
13,754
13,560
Lease liability
7,011
6,965
Accruals and reserves
3,402
2,265
Tax credits
33,501
23,239
Startup costs
42
49
Unrealized gain/loss on investments
406
420
Section 174 R&D expenditure capitalization
34,170
—
State taxes
192
215
Business interest limitation
2,359
7
Reserve on Sales Return, Discount and Bad Debt
2,286
1,883
Total deferred tax assets
325,858
261,537
Less: valuation allowance
( 317,959 )
( 251,052 )
Net deferred tax assets
$
7,899
$
10,485
Deferred tax liabilities:
Section 483 imputed interest
$
(92)
$
—
Debt issuance costs
(347)
—
Right of use asset
( 5,835 )
( 5,732 )
Basis in subsidiary
( 1,625 )
( 4,753 )
Total deferred tax assets, net
$
—
$
—
A reconciliation of the statutory tax rates and the effective tax rates is as follows:
For the Year Ended December 31,
2022
2021
Percentage of pre-tax income:
U.S. federal statutory income tax rate
21.00
%
21.00
%
State taxes, net of federal benefit
7.00
%
10.00
%
Credits
4.00
%
4.00
%
Non-deductible items
( 1.00 )
%
( 3.00 )
%
Provision to return
2.00
%
—
%
Stock based compensation shortfall
( 1.00 )
%
( 1.00 )
%
Change in state rate
( 2.00 )
%
1.00
%
Intercompany elimination adjustments
—
%
—
%
Change in valuation allowance
( 31.00 )
%
( 29.00 )
%
Change in subsidiary basis
—
%
( 2.00 )
%
Other
1.00
%
( 1.00 )
%
Effective income tax rate
—
%
—
%
F-51
Table of Contents
The Company files a consolidated income tax return with subsidiaries for which the Company has an 80 % or greater ownership interest. Subsidiaries and partner companies for which the Company does not have an 80 % or more ownership are not included in the Company’s consolidated income tax group and file their own separate income tax return. As a result, certain corporate entities included in these financial statements are not able to combine or offset their taxable income or losses with other entities’ tax attributes.
ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of all positive and negative evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Realization of the deferred tax assets is substantially dependent on the Company’s ability to generate sufficient taxable income within certain future periods. Management has considered the Company’s history of cumulative tax and book losses incurred since inception, and the other positive and negative evidence, and has concluded that it is more likely than not that the Company will not realize the benefits of the net deferred tax assets as of December 31, 2022 and 2021. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2022 and 2021. The valuation allowance increased by a net $ 67.0 million during the current year.
The Company has incurred net operating losses (“NOLs”) since inception. At December 31, 2021, the Company had federal NOLs of $ 680.1 million, which will begin to expire in the year 2032 , state NOLs of $ 838.1 million, which will begin to expire in 2023 , and federal income tax credits of $ 30.3 million and state income tax credits of $ 4.0 million, which will begin to expire in 2028 . Approximately $ 476.7 million of the federal NOLs and $ 10.8 million of the state NOLs can be carried forward indefinitely. Under the provisions of Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change”, as defined therein, is subject to limitations on its use of pre-change NOLs and income tax credits carryforwards to offset future tax liabilities. It appears the Company underwent previous ownership changes potentially limiting its use of tax attributes. The Company has recorded a full valuation allowance on all of its deferred tax assets, as it believes that it is more likely than not that the deferred tax assets will not be realized regardless of whether an “ownership change” has occurred.
In accordance with the provisions related to accounting for uncertainty in income taxes, the Company recognizes the benefit of tax position if the position is “more likely than not” to prevail upon examination by the relevant tax authority. For the year ended December 31, 2022, the company added $3.2 million of unrecognized tax benefits. If the $3.2 million of unrecognized tax benefits is recognized, approximately $0.7 million would affect the effective tax rate. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s recognized tax positions will significantly increase or decrease within the next 12 months. At this time, the estimate of the range of the reasonably possible outcomes cannot be made.
The Company classifies interest and penalties related to uncertain tax positions as income tax expense. The Company had an immaterial amount of accrued interest and penalties at December 31, 2022 and 2021. The NOLs from tax years 2006 through 2021 remain open to examination (and adjustment) by the Internal Revenue Service and state tax authorities. In addition, Federal tax years ending December 31, 2019, 2020 and 2021 are open for assessment of federal taxes. The expiration of the statute of limitations related to the various state income and franchise tax returns varies by state.
19. Segment Information
The Company operates in two reportable segments, Dermatology Product Sales and Pharmaceutical and Biotechnology Product Development. The accounting policies of the Company’s segments are the same as those described in Note 2. The following tables summarize, for the periods indicated, operating results from continued operations by reportable segment:
F-52
Table of Contents
Pharmaceutical
and
Dermatology
Biotechnology
Products
Product
Year Ended December 31, 2022
Sales
Development
Consolidated
Net revenue
$
73,669
$
2,074
$
75,743
Cost of goods - product revenue
( 30,775 )
—
( 30,775 )
Research and development
( 10,943 )
( 123,933 )
( 134,876 )
Selling, general and administrative
( 59,503 )
( 54,153 )
( 113,656 )
Other income
( 2,048 )
( 7,852 )
( 9,900 )
Income tax expense
—
(449)
(449)
Segment loss
$
( 29,600 )
$
( 184,313 )
$
( 213,913 )
Pharmaceutical
and
Dermatology
Biotechnology
Products
Product
Year Ended December 31, 2021
Sales
Development
Consolidated
Net revenue
$
63,134
$
5,657
$
68,791
Cost of goods - product revenue
( 32,084 )
—
( 32,084 )
Research and development
( 16,558 )
( 112,307 )
( 128,865 )
Selling, general and administrative
( 39,895 )
( 46,948 )
( 86,843 )
Wire transfer fraud loss
( 9,540 )
—
( 9,540 )
Other expense
( 7,479 )
31,667
24,188
Income tax expense
—
( 473 )
( 473 )
Segment income (loss)
$
( 42,422 )
$
( 122,404 )
$
( 164,826 )
The following tables summarize, for the periods indicated, total assets by reportable segment:
Pharmaceutical
and
($ in thousands)
Dermatology
Biotechnology
Products
Product
December 31, 2022
Sales
Development
Total Assets
Intangible assets, net
$
27,197
$
—
$
27,197
Tangible assets
77,964
189,140
267,104
Total segment assets
$
105,161
$
189,140
$
294,301
Pharmaceutical
and
($ in thousands)
Dermatology
Biotechnology
Products
Product
December 31, 2021
Sales
Development
Total Assets
Intangible assets, net
$
12,552
$
—
$
12,552
Tangible assets
84,732
299,219
383,951
Total segment assets
$
97,284
$
299,219
$
396,503
20. Revenues from Contracts and Significant Customers
Disaggregation of Total Revenues
All of Journey’s product revenues are recorded in the U.S. The Company’s collaboration revenue is from Cyprium’s agreement with Sentynl (see Note 3). The Company’s related party revenue is from Checkpoint’s collaborations with TGTX (see Note 17).
F-53
Table of Contents
The table below summarizes the Company’s revenue for the years ended December 31, 2022 and 2021:
Year Ended December 31,
2022
2021
Revenue
Qbrexza®
$
26,715
$
17,056
Accutane®
18,373
10,053
Amzeeq®
7,242
—
Targadox®
7,972
22,378
Ximino®
4,957
8,247
Zilxi®
2,273
—
Exelderm®
3,463
5,363
Other branded revenue
—
37
Collaboration revenue
1,882
5,389
Revenue – related party
192
268
Other revenue 1
2,674
—
Net revenue
$
75,743
$
68,791
Note 1:
Other revenue for the year ended December 31, 2022 included a net $ 2.5 million milestone payment from Maruho Co., Ltd, upon receipt of marketing and manufacturing approval for Rapifort® Wipes 2.5% (Qbrexza®), as well as $ 0.2 million in royalties from Maruho on sales of Rapifort® Wipes 2.5% in Japan.
Significant Customers
For the years ended December 31, 2022, none of Journey’s Dermatology Products customers accounted for more than 10.0% of its total gross product revenue.
At December 31, 2022, two of Journey’s customers accounted for more than 10% of its total accounts receivable balance at 16.3 % and 12.9 %. As of December 31, 2021, one of the Company’s Dermatology Products customers accounted for 12 % of its total accounts receivable balance.
21. Subsequent Events
Avenue Therapeutics Private Offering
On January 27, 2023, Avenue entered into an agreement with a single institutional investor for the sale of 1,940,299 shares of common stock and pre-funded warrants. In a concurrent private placement, Avenue also agreed to issue to the same investor a total of 1,940,299 warrants to purchase up to one share of common stock each at an exercise price of $ 1.55 per share and a purchase price of $ 0.125 . The purchase price of each share is $ 1.55 . The purchase price of each pre-funded warrant is $ 1.5499 with an exercise price of $ 0.0001 . Avenue received $ 2.8 million in net proceeds.
F-54
Table of Contents
Avenue License Agreement
In March 2023, Avenue announced that it had entered into an exclusive license agreement with AnnJi Pharmaceutical Co., a Taiwanese clinical-stage drug company, for AJ201, a first-in-class clinical asset currently in a Phase 1b/2a study in the U.S. for the treatment of spinal and bulbar muscular atrophy, also known as Kennedy's Disease. Under the license agreement, in exchange for exclusive rights to the intellectual property underlying the AJ201 product candidate, Avenue will pay an initial cash license fee of $ 3.0 million, of which $ 2.0 million is payable within 60 days and $ 1.0 million payable within 180 days after the effective date of the License Agreement.
Checkpoint Therapeutics Registered Direct Offering
In February 2023, Checkpoint closed on a registered direct offering (“February 2023 Direct Offering”) with a single institutional investor for the issuance and sale of 1,180,000 shares of its common stock and 248,572 pre-funded warrants. Each pre-funded warrant is exercisable for one share of common stock. The common stock and the pre-funded warrants were sold together with Series A warrants to purchase up to 1,428,572 shares of common stock and Series B warrants to purchase up to 1,428,572 shares of common stock, at a purchase price of $ 5.25 per share of common stock and associated common stock warrants, and $ 4.2499 per pre-funded warrant and associated common stock warrants. Net proceeds from the February 2023 Direct Offering were $ 6.7 million after deducting commissions and other transaction costs.
Checkpoint BLA Submission and Acceptance
Checkpoint submitted a BLA to FDA in January 2023, for Cosibelimab as a Treatment for Patients with Metastatic or Locally Advanced Cutaneous Squamous Cell Carcinoma. In March 2023 the FDA accepted this submission and set a Prescription Drug User Fee Act (“PDUFA”) goal date of January 3, 2024.
Fortress Registered Direct Offering and Concurrent Private Placement
On February 10, 2023, the Company completed a registered direct offering of common stock pursuant to which it issued and sold 16,642,894 shares of its common stock at a purchase price of $ 0.835 per share and secured approximately $ 13.3 million in net proceeds after deducting estimated offering expenses.
The Company also simultaneously closed on a concurrent private placement with investors in the registered direct offering, for the pro rata rights to acquire, in the aggregate, securities exercisable into approximately 3.5 % of the outstanding shares of common stock in each of the Company’s next 20 new operating subsidiaries (the “Contingent Subsidiary Securities”). The Contingent Subsidiary Securities will only be issued to the extent such a new operating subsidiary first consummates a specified corporate development transaction within the next five years , and will be exercisable immediately upon issuance, with an exercise period of 10 years , at an exercise price equal to the fair market value of one share of common stock of the subsidiary on the date of the corporate development transaction. The issuance of the rights and Contingent Subsidiary Securities are conditioned on the approval of the Company’s stockholders required by Nasdaq Listing Rule 5635.
Urica Preferred Offering
In February 2023, Urica completed two additional closings of the Urica Preferred Offering, whereby it sold 34,160 Class B Preferred shares at a price of $ 25.00 per share, for net proceeds of $ 0.8 million, after deducting placement agent fees of $ 0.1 million.
F-55
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Fortress Biotech, Inc.
March 31, 2023
By:
/s/ Lindsay A. Rosenwald, M.D.
Lindsay A. Rosenwald, M.D.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Lindsay A. Rosenwald, M.D.
Chairman of the Board of Directors, President and Chief
March 31, 2023
Lindsay A. Rosenwald, M.D.
Executive Officer ( Principal Executive Officer )
/s/ David Jin
Chief Financial Officer
March 31, 2023
David Jin
( Principal Financial Officer and Principal Accounting Officer )
/s/ Eric K. Rowinsky, M.D.
Vice Chairman of the Board of Directors
March 31, 2023
Eric K. Rowinsky, M.D.
/s/ Michael S. Weiss
Executive Vice Chairman, Strategic Development and
March 31, 2023
Michael S. Weiss
Director
/s/ Jimmie Harvey, Jr., M.D.
Director
March 31, 2023
Jimmie Harvey, Jr., M.D.
/s/ Malcolm Hoenlein
Director
March 31, 2023
Malcolm Hoenlein
/s/ Dov Klein
Director
March 31, 2023
Dov Klein
/s/ J. Jay Lobell
Director
March 31, 2023
J. Jay Lobell
/s/ Kevin L. Lorenz, J.D.
Director
March 31, 2023
Kevin Lorenz
/s/ Lucy Lu, M.D.
Director
March 31, 2023
Lucy Lu, M.D.
92
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.