Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Statements in the following discussion and throughout this report that are not historical in nature are “forward-looking statements.” You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Please see the section of this report titled “Special Cautionary Notice Regarding Forward-Looking Statements” at the beginning of this Form 10-K. As used throughout this filing, (including in the risk factors described in Item 1A), the words “we”, “us” and “our” may refer to Fortress Biotech, Inc. individually, to one or more of its subsidiaries and/or partner companies, or to all such entities as a group, as dictated by context.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10-K. We undertake no obligation to update any forward-looking statements in the discussion of our financial condition and results of operations to reflect events or circumstances after the date of this report or to reflect actual outcomes.
Fortress Biotech, Inc. (“Fortress” or the “Company”) is a biopharmaceutical company focused on acquiring and advancing assets to enhance long-term value for shareholders through product revenue, equity holding and dividend and royalty revenue streams. Fortress works in concert with our extensive network of key opinion leaders to identify and evaluate promising products and product candidates for potential acquisition. We have executed arrangements with some of the world’s foremost universities, research institutes and pharmaceutical companies, including City of Hope National Medical Center (“COH” or “City of Hope”), Fred Hutchinson Cancer Center, St. Jude Children’s Research Hospital (“St. Jude”), 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 (“Mayo Clinic”), 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 financial expertise to help the partners achieve their goals. Partner and subsidiary 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, sales transactions, and public and private financings. To date, four partner companies are publicly-traded, and two have consummated strategic partnerships with industry leaders AstraZeneca plc as successor-in-interest to Alexion Pharmaceuticals, Inc. (“AstraZeneca”) and Sentynl Therapeutics, Inc. (“Sentynl”) a wholly owned subsidiary of Zydus Lifesciences Ltd.
Our subsidiary and partner companies that are pursuing development and/or commercialization of biopharmaceutical products and product candidates are 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”). Aevitas Therapeutics, Inc. (“Aevitas”) was a consolidated subsidiary company until the sale of its primary asset to 4D Molecular Therapeutics in April 2023.
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Recent Events
Revenue Portfolio
● For the years ended December 31, 2023 and 2022, total net revenue was $84.5 million and $75.7 million, respectively, which includes net product revenue from Journey’s commercial portfolio of $59.7 million and $71.0 million, respectively.
● In August 2023, Journey entered into an exclusive license agreement with Maruho Co., Ltd. (“Maruho”), a Japanese company specializing in dermatology and also Journey’s exclusive licensing partner that developed and is commercializing Qbrexza (Rapifort®) in Japan. Under the terms of the agreement, Journey Medical received a $19 million upfront payment and granted Maruho an exclusive license to develop and commercialize Qbrexza® (Rapifort) for the treatment of hyperhidrosis in additional territories in Asia (the “Territory”). Maruho is responsible for all development and commercialization costs for the program throughout the Territory.
Late Stage Product Candidates
Cosibelimab (anti-PD-L1 antibody)
● Our partner company, Checkpoint, submitted a Biologics License Application (“BLA”) to the U.S. Food and Drug administration (“FDA”) for cosibelimab, its investigational anti-PD-L1 antibody, as a treatment for patients with metastatic or locally advanced cutaneous squamous cell carcinoma (“cSCC”) who are not candidates for curative surgery or radiation, in January 2023. In December 2023, the FDA issued a complete response letter (“CRL”) for the cosibelimab BLA. The CRL only cited findings that arose during a multi-sponsor inspection of Checkpoint’s third-party contract manufacturing organization as approvability issues to address in a resubmission. The CRL did not state any concerns about the clinical data package, safety, or labeling for the approvability of cosibelimab. We believe we can address the feedback in a resubmission to enable marketing approval in 2024.
● In October 2023, Checkpoint announced the publication of results from the multicenter, multiregional, pivotal trial evaluating cosibelimab in patients with metastatic cSCC in the Journal for ImmunoTherapy of Cancer (JITC) , the peer-reviewed, online journal of the Society of Immunotherapy of Cancer. The paper, entitled, “ Efficacy and Safety of Cosibelimab, an Anti–PD-L1 Antibody, in Metastatic Cutaneous Squamous Cell Carcinoma ” (doi:10.1136/jitc-2023-007637), describes safety and efficacy results from 78 patients with metastatic cSCC enrolled at clinical sites in eight countries.
● In July 2023, Checkpoint announced new, longer-term data for cosibelimab from its pivotal studies in locally advanced and metastatic cSCC. These results demonstrate a deepening of response over time, resulting in substantially higher complete response rates than previously reported (55% objective response rate; 23% complete response rate in locally advanced cSCC and 50% objective response rate; 13% complete response rate in metastatic cSCC). Furthermore, responses continue to remain durable over time.
● In June 2023, Checkpoint announced that new pharmacokinetic modeling data on cosibelimab supporting the extension to an every-three-week dosing regimen were presented at the Population Approach Group Europe 2023 annual meeting. The results support the comparability of cosibelimab 800 mg every-two-week and 1200 mg every-three-week dosing regimens.
● A resubmission of the cosibelimab BLA is expected in 2024.
● Cosibelimab was sourced by Fortress and is currently in development at Checkpoint.
CUTX-101 (copper histidinate injection for Menkes disease)
● In December 2023, our subsidiary, Cyprium completed the asset transfer of CUTX-101 to Sentynl. Sentynl is obligated under the agreement to use commercially reasonable efforts to develop and commercialize CUTX-101, including the funding of the same. Additionally, Cyprium remains eligible to receive up to $129 million in aggregate development and sales milestones under the Agreement and royalties on net sales of CUTX-101 as follows: (i) 3% of annual net sales up to $75 million; (ii) 8.75% of annual net sales between $75 million and $100 million; and (iii) 12.5% of annual net sales in excess of $100 million. Cyprium will retain 100% ownership over any FDA priority review voucher that may be issued at the New Drug Application (“ NDA”) approval for CUTX-101.
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● The CUTX-101 rolling NDA submission is ongoing and is expected to be completed by Sentynl in 2024.
● CUTX-101 was sourced by Fortress and was developed by Cyprium until the asset transfer in December 2023.
DFD-29 (modified release oral minocycline for the treatment of rosacea)
● In January 2024, Journey submitted an NDA to the FDA seeking approval for DFD-29 (minocycline hydrochloride modified release capsules, 40 mg) for the treatment of inflammatory lesions and erythema of rosacea in adults. If approved, DFD-29 has the potential to become the only oral, systemic therapy to address both inflammatory lesions and erythema (redness) from rosacea. Journey announced on March 18, 2024 that the FDA accepted the NDA and assigned a Prescription Drug User Fee Act (“PDUFA”) goal date of November 4, 2024.
● In October 2023, Journey announced data from a comparative bioavailability study of DFD-29 demonstrating systemic exposure of DFD-29 was significantly lower than that of Solodyn® (minocycline hydrochloride extended-release tablets, 105mg) and that DFD-29 was safe and well tolerated throughout the study.
● In July 2023, Journey announced positive topline data from the two DFD-29 Phase 3 clinical trials (MVOR-1 & MVOR-2) for the treatment of rosacea and achievement of co-primary and all secondary endpoints and subjects completed the 16-week treatment with no significant safety issues. DFD-29 demonstrated statistical superiority compared to Oracea® and placebo for Investigator’s Global Assessment (“IGA”) treatment success and the reduction in total inflammatory lesion count in both studies. In November 2023, Journey also announced data for the secondary endpoint relating erythema assessment, in which DFD-29 showed significantly superior reduction in Clinicians Erythema Assessment (“CEA”) compared to placebo in both trials. In January 2024, Journey also announced results from the Phase 3 studies (MVOR-1 & MVOR-2) for DFD-29 on a secondary endpoint related to erythema (redness) assessment. DFD-29 showed significantly superior reduction in CEA compared to placebo in both MVOR-1 and MVOR-2 clinical trials.
● In June 2023, Journey announced positive topline data from the Phase 1 clinical trial assessing the impact of DFD-29 on the microbial flora of healthy adults and also evaluated the safety and tolerability of DFD-29. The study achieved all primary objectives and no significant safety issues were noted during the study. The results indicate that DFD-29 can be safely used for up to 16 weeks with no significant risk of microbiota suppression or development of resistance.
CAEL-101 (monoclonal antibody for AL amyloidosis)
● CAEL-101 was sourced by Fortress in 2017 and was developed by Caelum until it was acquired by AstraZeneca o n October 5, 2021. AstraZeneca acquired Caelum for an upfront payment of approximately $150 million paid to Caelum shareholders, of which approximately $56.9 million was paid to Fortress, which was net of the ten percent escrow holdback amount and other miscellaneous transaction expenses. The agreement also provides for additional potential payments to Caelum shareholders totaling up to $350 million, payable upon the achievement of regulatory and commercial milestones. Fortress is eligible to receive 42.4% of all proceeds of the transaction, including approximately $148 million to Fortress, with $31.8 million upon BLA approval.
● There are two ongoing Phase 3 studies of CAEL-101 for AL amyloidosis. (ClinicalTrials.gov identifiers: NCT04512235 and NCT04504825 ).
● CAEL-101 (anselamimab) was sourced by Fortress and was developed by Caelum (founded by Fortress) until its acquisition by AstraZeneca in October 2021 .
IV Tramadol
● In January 2024, Avenue reached a final agreement with the FDA on the Phase 3 safety study protocol for IV tramadol and statistical analysis approach, including the primary endpoint which will be a composite of elements indicative of opioid-induced respiratory depression.
● The final non-inferiority safety study is designed to assess the risk of opioid-induced respiratory depression related to opioid stacking on IV tramadol compared to IV morphine. The study will randomize approximately 300 post-bunionectomy patients to IV tramadol or IV morphine for pain relief administered during a 48-hour post-operative period. Patients will have access to IV hydromorphone, a Schedule II opioid, for rescue of breakthrough pain.
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● IV tramadol was sourced by Fortress and is currently in development at our partner company, Avenue.
Triplex (cytomegalovirus (CMV) vaccine)
● In October 2023, we announced an exclusive option agreement with COH for patent rights to use Triplex, a cytomegalovirus vaccine, in combination with cytomegalovirus (“CMV”)-specific, Anti-Human Immunodeficiency Virus (“HIV”) Chimeric Antigen Receptor (“CAR”) (collectively, CMV/HIV-CAR) T Cells for the treatment of adults living with HIV. Additionally, the California Institute for Regenerative Medicine (“CIRM”) recently awarded an $11.3 million grant to COH to fund a Phase 1 clinical trial involving the CMV/HIV-CAR T cells. In preclinical studies, administration of the dual-action CAR T cells followed by administration of a CMV vaccine successfully eradicated HIV, including from latent reservoirs.
● In June 2023, we announced that the National Cancer Institute awarded a $3.2 million grant to COH for clinical studies of Triplex, a CMV vaccine being developed by Helocyte and COH. This award will fund two planned multicenter, placebo-controlled, randomized Phase 2 studies to evaluate the potential safety and immunological response of Triplex and its ability to enhance CMV-specific T cell immunity in stem cell donors to reduce the risk of CMV events in recipients of allogeneic hematopoietic cell transplant.
● Triplex is also the subject of a grant from the National Institute of Allergy and Infectious Diseases that could provide over $20 million in non-dilutive funding for a 420-patient multi-center, placebo-controlled, randomized Phase 2 study of Triplex for control of CMV in patients undergoing liver transplantation. The trial is expected to begin enrollment this year and we believe this data set could ultimately be used to support approval of Triplex in this setting.
● Triplex is currently the subject of multiple ongoing clinical trials, including: a Phase 1/2 trial for CMV control in pediatric recipients of HCT (ClinicalTrials.gov identifier: NCT03354728 ); a Phase 2 trial for reduction in viral load of Human Immunodeficiency Virus (“HIV”) in adults co-infected with HIV and CMV (ClinicalTrials.gov identifier: NCT05099965 ); and a Phase 1 trial of Triplex in combination with a bi-specific CMV/CD-19 Chimeric Antigen Receptor T Cell for the treatment of Non-Hodgkin Lymphoma (ClinicalTrials.gov identifier: NCT05432635 ). Triplex is also the subject of several planned studies, including: a Phase 2 evaluation for CMV control in recipients of liver transplant (ClinicalTrials.gov identifier: NCT06075745 ); a Phase 2 trial for CMV control in recipients of kidney transplant ; and a Phase 2 trial for CMV control in recipients of stem cell transplant in which the stem cell donor is vaccinated with Triplex ( ClinicalTrials.gov identifier: NCT06059391 ).
● The Phase 2 clinical trial of Triplex for adults co-infected with HIV and CMV is now fully enrolled with topline data anticipated in 2024. The study aims to show that vaccination with Triplex can potentially reduce the in intensity of highly active antiretroviral therapy (“HAART”) which is used in up to 1.7 million treated HIV patients.
● Triplex was sourced by Fortress and is currently in development at our subsidiary, Helocyte.
Early Stage Product Candidates
MB-106 (CD20-targeted CAR T cell therapy)
● In December 2023, Mustang announced initial data from its ongoing multicenter, open-label, non-randomized Phase 1/2 clinical trial evaluating the safety and efficacy of MB-106 CAR-T cell therapy at the 2023 American Society of Hematology (“ASH”) Annual Meeting. Initial data show that all patients responded clinically to treatment with MB-106 (n=9); 100% overall response rate for patients with follicular lymphoma (“FL”) and Waldenstrom macroglobulinemia (“WM”). 100% of patients with FL (n=5) had a complete response; 1 very good partial response and 2 partial responses were observed in WM patients (n=3); and the hairy cell leukemia variant (“HCL-v”) patient experienced stable disease, with prolonged, ongoing independence from blood transfusions. Complete responses were observed in patients previously treated with CD19-targeted CAR T-cell therapy. MB-106 was well tolerated in patients with indolent NHL, with no occurrence of cytokine release syndrome (“CRS”) above grade 1 and no immune effector cell-associated neurotoxicity syndrome (“ICANS”) of any grade. Outpatient administration was allowed and found to be feasible.
● Mustang intends to treat the first patient in a non-randomized registrational multicenter trial in relapsed or refractory WM in the second half of 2024.
● MB-106 was sourced by Fortress and is currently in development at our partner company, Mustang.
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Dotinurad (urate transporter (URAT1) inhibitor for gout)
● In the third quarter of 2023, Urica initiated a Phase 1b clinical trial in patients with gout and hyperuricemia in the U.S. to compare U.S. patients’ response to dotinurad with data generated in Japan, and to assess drug-drug interactions, if any, with allopurinol. Urica expects to announce data from this trial in the first half of 2024.
● In June 2023, Urica announced data from the Phase 1 clinical trial in healthy volunteers showed comparable pharmacokinetic, pharmacodynamic and safety profile between U.S. and Japanese healthy subjects.
● Dotinurad (URECE® tablet) was approved in Japan in 2020 as a once-daily oral therapy for gout and hyperuricemia. Dotinurad was efficacious and well-tolerated in more than 500 Japanese patients treated for up to 58 weeks in Phase 3 clinical trials. The clinical program supporting approval included over 1,000 patients.
● Dotinurad was sourced by Fortress and is currently in development at our subsidiary, Urica.
MB-101 ( IL13Rα2 ‐ targeted CAR-T cell therapy)
● The Phase 1 clinical trial sponsored by COH for MB-101 (ClinicalTrials.gov Identifier: NCT02208362) has completed the treatment phase, and patients continue to be assessed for long-term safety.
● In March 2024, Mustang announced that Phase 1 clinical data (ClinicalTrials.gov Identifier: NCT02208362) were published in Nature Medicine . The data showed stable disease or better was achieved in 50% (n=29/58) of heavily pretreated patients for at least two months, with two partial responses (PR), one complete response (CR), and a second CR after additional CAR-T cycles under compassionate use. Patients with recurrent GBM treated in the final cohort with dual intratumoral/intraventricular delivery and an optimized manufacturing process had a median overall survival of 10.2 months compared to the expected survival rate of six months in patients with recurrent GBM. The median overall survival for all patients was eight months.
● Three additional MB-101 studies are ongoing or planned: 1) MB-101 with or without nivolumab and ipilimumab in treating patients with recurrent or refractory glioblastoma (currently enrolling; ClinicalTrials.gov Identifier: NCT04003649) sponsored by COH; 2) MB-101 in treating patients with recurrent or refractory glioblastoma with a substantial component of leptomeningeal disease (currently enrolling; ClinicalTrials.gov Identifier: NCT04661384) sponsored by COH; and 3) MB-101 in combination with the herpes simplex virus type 1 oncolytic virus (MB-108) in treating patients with recurrent or refractory glioblastoma or high-grade astrocytoma.
● MB-101 was sourced by Fortress and is currently in development at Mustang.
MB-109 (MB-101 + MB-108 (HSV-1 oncolytic virus))
● In October 2023, Mustang announced that the FDA has accepted its IND application to initiate a Phase 1 open label, multicenter clinical trial to assess the safety, tolerability and efficacy of MB-109, a novel combination of MB-101 and MB-108 (herpes simplex virus 1 oncolytic virus), for the treatment of IL13Rα2+ recurrent glioblastoma (“rGBM”) and high-grade astrocytoma.
● MB-108 was sourced by Fortress and is currently in development at Mustang.
MB-110 (Ex Vivo Lentiviral Gene Therapy for RAG1 Severe Combined Immunodeficiency)
● In July 2022, Mustang announced that the first patient successfully received LV-RAG1 ex vivo lentiviral gene therapy to treat recombinase-activating gene-1 (“RAG1”) severe combined immunodeficiency (“RAG1-SCID”) in an ongoing Phase 1/2 clinical trial taking place in Europe.
● Leiden University Medical Centre is continuing to treat patients and expects to expand the trial to other centers in 2023.
● LV-RAG1 is exclusively licensed by Mustang for the development of MB-110, a first-in-class ex vivo lentiviral gene therapy for the treatment of RAG1-SCID.
● MB-110 was sourced by Fortress and is currently in development at Mustang.
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AJ201 (Nrf1 and Nrf2 activator, androgen receptor degradation enhancer)
● In January 2024, Avenue announced that all patients have been enrolled in Avenue’s Phase 1b/2a study, which is evaluating AJ201 in the U.S. for the treatment of spinal and bulbar muscular atrophy (“SBMA”), also known as Kennedy’s Disease. Topline data for the Phase 1b/2a clinical trial of AJ201 in SBMA are expected in the second quarter of 2024.
● In March 2023, Avenue entered into an exclusive license agreement with AnnJi Pharmaceutical Co., Ltd. for intellectual property related to AJ201. SBMA is a debilitating rare genetic neuromuscular disease primarily affecting men.
● AJ201 was sourced by Fortress and is currently in development at Avenue.
BAER-101(GABA A α2/3 positive allosteric modulator)
● In December 2023, Avenue presented the preclinical in vivo data evaluating BAER-101 using the GAERS model of absence epilepsy at the American Epilepsy Society (AES) 2023 Annual Meeting. The preclinical data demonstrated that BAER-101 significantly suppressed seizures in a translational animal model of absence epilepsy. In an in vivo evaluation using the SynapCell’s Genetic Absence Epilepsy Rat from Strasbourg (“GAERS”) model, BAER-101 fully suppressed seizure activity with a minimal effective dose of 0.3 mg/kg, PO.
● BAER-101 was sourced by Fortress and is currently in development at Baergic, a majority-owned subsidiary of Avenue.
General Corporate and Other
● In October 2023, Fortress effected a 1-for-15 reverse stock split of its issued and outstanding common stock (the “Reverse Stock Split”) which brought the Company into compliance with Nasdaq’s $1.00 per share minimum bid price requirement for continued listing.
● In May 2023, Mustang entered into an Asset Purchase Agreement with uBriGene (Boston) Biosciences, Inc. (“uBriGene”), pursuant to which Mustang agreed to sell its leasehold interests in its cell processing facility and associated assets relating to the manufacturing and production of cell and gene therapies. On July 28, 2023, Mustang completed the sale of all of its assets relating to its operations primarily relating to the manufacturing and production of cell and gene therapies. The aforementioned transaction is currently under review by the U.S. Committee on Foreign Investment in the United States (“CFIUS”), with the current review period set to conclude no later than March 28, 2024, although if CFIUS does not conclude on its review by March 28, 2024, the proceeding will transition to a second 45-day phase as CFIUS further investigates the transaction. There can be no assurance that CFIUS will ultimately provide clearance with respect to the transaction, or what mitigating measures may be required in order to obtain such clearance. Depending on the nature and severity of the national security risks identified, CFIUS may, among other mitigation measures, require suspension of the Transaction, require uBriGene to divest the Facility and/or other assets relating thereto, forfeit contracts that CFIUS deems to be sensitive, or require appointment of special compliance personnel or a proxy board consisting of U.S. persons. If CFIUS determines to require mitigating measures with respect to the Transaction, then uBriGene must comply with such measures although the Closing Date has already occurred.
● In April 2023, Aevitas entered into an asset purchase agreement for 4D Molecular Therapeutics (“4DMT”) to acquire Aevitas’ proprietary rights to its short-form human complement factor H (“sCFH”) asset for the treatment of complement-mediated diseases. Under the terms of the agreement, 4DMT will make cash payments to Aevitas totaling up to approximately $140 million in potential late-stage development, regulatory and sales milestones. A range of single-digit royalties on net sales are also payable. In connection with the 4DMT APA, the Class A preferred shares of Aevitas held by the Company converted to Aevitas common shares, at which point the Company no longer maintained voting control of Aevitas.
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Critical Accounting Policies and Use of Estimates
Our consolidated financial statements included in this Annual Report on Form 10-K include certain amounts that are based on management’s best estimates and judgments. Our significant estimates include, but are not limited to, provisions for product returns, coupons, rebates, 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, accrued expenses, and contingencies. Due to the uncertainty inherent in such estimates, actual results may differ from these estimates. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
While our significant accounting policies are described in the Notes to our Consolidated Financial Statements included in “Part IV, Item 15, Exhibits and Financial Statement Schedules” in this Annual Report on Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.
Revenue Recognition
Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, coupons, discounts, other sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period. Historically, adjustments to these estimates to reflect actual results or updated expectations have not been material to our overall business. Coupons, however, can have a significant impact on year-over-year individual product revenue growth trends. If any of our ratios, factors, assessments, experiences, or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected. The potential of our estimates to vary differs by program, product, type of customer and geographic location.
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.
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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. Our 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 our 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.
Issuance of Debt and Equity
Fortress and its partner companies and subsidiaries issue complex financial instruments which include equity and/or debt features. We analyze each instrument under ASC 480, Distinguishing Liabilities from Equity, ASC 815, Derivatives and Hedging and, ASC 470, Debt , in order to establish whether such instruments include any embedded derivatives.
We accounted for the Oaktree Note with detachable warrants in accordance with ASC 470, Debt . We assessed the classification of the common stock purchase warrants issued in connection with such transaction and determined that such instruments met the criteria for equity classification. The note proceeds were allocated between the Oaktree Note and the warrants on a relative fair value basis.
We recorded the related issue costs and value ascribed to the warrants as a debt discount of the Oaktree Note. The discount is being amortized utilizing the effective interest method over the term of the Oaktree Note, which is approximately 16.13% at December 31, 2023.
Accrued Research and Development Expense
We record accruals for estimated costs of research, preclinical, clinical and manufacturing development within accrued expenses which are significant components of research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers. We accrue the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress, or stage of completion or actual timeline (start-date and end-date) of the services and the agreed-upon fees to be paid for such services. Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses until the services are rendered.
If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust accrued expenses or prepaid expenses accordingly, which impact research and development expenses. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements included in “Part IV, Item 15, Exhibits and Financial Statement Schedules” in this Annual Report on Form 10-K.
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Smaller Reporting Company Status
We are a “smaller reporting company,” meaning that either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K , have reduced disclosure obligations regarding executive compensation, and smaller reporting companies are permitted to delay adoption of certain recent accounting pronouncements discussed in Note 2 to our Consolidated Financial Statements located in “ Part IV, Item 15, Exhibits and Financial Statement Schedules ” in this Annual Report on Form 10-K.
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 results of the Company’s subsidiaries for which it has voting control but does not own 100% of the outstanding equity of the subsidiaries. For consolidated entities where the Company owns less than 100% of the subsidiary, but retains voting control, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations and presents non-controlling interests as a component of stockholders’ equity on its consolidated balance sheets. All intercompany income and/or expense items are eliminated entirely in consolidation prior to the allocation of net gain/loss attributable to non-controlling interest, which is based on ownership interests as calculated quarterly for each subsidiary.
The following table summarizes the Company’s basic ownership of the issued and outstanding common and preferred shares in consolidated Fortress subsidiaries:
December 31,
Partner Company/Subsidiary
2023
Avenue 1
4
%
Cellvation
79
%
Checkpoint 1
9
%
Cyprium
74
%
Helocyte
83
%
Journey 1
50
%
Mustang 1
19
%
Oncogenuity
73
%
Urica
68
%
Note 1: Denotes entities that are publicly-traded.
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Results of Operations
Comparison of Years Ended December 31, 2023 and 2022
Year Ended December 31,
($ in thousands)
2023
2022
Revenue
Product revenue, net
$
59,662
$
70,995
Collaboration revenue
5,229
1,882
Revenue – related party
103
192
Other revenue
19,519
2,674
Net revenue
84,513
75,743
Operating expenses
Cost of goods sold – product revenue
26,660
30,775
Research and development
101,747
134,199
Research and development – licenses acquired
4,324
677
Selling, general and administrative
94,124
113,656
Total operating expenses
226,855
279,307
Loss from operations
(142,342)
(203,564)
Other income (expense)
Interest income
3,003
1,398
Interest expense and financing fee
(15,315)
(13,642)
Change in fair value of warrant liabilities
4,424
1,129
Other income (expense)
(3,403)
1,215
Total other expense
(11,291)
(9,900)
Loss before income tax expense
(153,633)
(213,464)
Income tax expense
521
449
Net loss
(154,154)
(213,913)
Less: net loss attributable to non-controlling interest
93,517
127,338
Net loss attributable to Fortress
$
(60,637)
$
(86,575)
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Revenue
Year Ended December 31,
Change
($ in thousands)
2023
2022
$
%
Revenue
Product revenue, net
$
59,662
$
70,995
$
(11,333)
(16)
%
Collaboration revenue
5,229
1,882
3,347
178
%
Revenue – related party
103
192
(89)
(46)
%
Other revenue
19,519
2,674
16,845
630
%
Net revenue
$
84,513
75,743
$
8,770
12
%
For the year ended December 31, 2023 we generated $84.5 million of net revenue, of which $59.7 million relates to the sale of Journey branded and generic products, $19.5 million of other revenue relates to Journey’s $19 million milestone payment and royalties of $0.5 million from Maruho Co., Ltd. (“Maruho”) related to the manufacturing and marketing approval and sales of Rapifort® Wipes 2.5% in Japan, $5.2 million relates to Cyprium’s collaboration revenue with Sentynl, and $0.1 million of revenue relates to Checkpoint’s collaborative agreements with TGTX, a related party. For the year ended December 31, 2022, we generated $75.7 million of net revenue, of which $71.0 million relates to the sale of Journey branded and generic products, $2.7 million relates to Journey’s royalties from Maruho, $1.9 million relates to Cyprium’s collaboration revenue with Sentynl and $0.2 million relates to Checkpoint’s collaborative agreements with TGTX.
For the year ended December 31, 2023, the net increase in revenue of $8.8 million or 12% is due to Journey’s $19.0 million non-refundable upfront payment from Maruho, offset by a decrease of $11.3 million or 16% of product revenue due to lower unit volumes, due to continued generic competition for Targadox and the discontinuation of Ximino in the third quarter of 2023. Collaboration revenue related to Cyprium’s agreement with Sentynl increased $3.3 million due to the receipt of $4.5 million associated with Sentynl’s assumption of control of the CUTX-101 development program, as well as recognition of $0.7 million of deferred revenue.
Cost of goods sold
Year Ended December 31,
Change
($ in thousands)
2023
2022
$
%
Cost of goods sold – product revenue
$
26,660
$
30,775
$
(4,115)
(13)
%
We had $26.7 million and $30.8 million of costs of goods sold in connection with the sale of JMC branded and generic products for the years ended December 31, 2023 and 2022, respectively. Cost of goods sold decreased by $4.1 million, or 13% year-over-year, with t he decrease mainly due to lower-than-prior-year product royalties driven by lower sales of products from period-to-period, and a permanent contractual decrease in the Qbrexza royalty percentage from the prior-year period.
Research and development expenses
Research and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for licenses and milestones, costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings and patents, laboratory costs and other supplies.
For the years ended December 31, 2023 and 2022, research and development expenses were approximately $101.7 million and $134.2 million, respectively. The table below provides a summary of research and development by entity, for the years ended December 31, 2023 and 2022:
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Year Ended
December 31,
Change
($ in thousands)
2023
2022
$
%
Research & development
Fortress
$
2,172
$
2,360
$
(188)
(8)
%
Subsidiaries/Partner Companies:
Avenue
5,426
2,381
3,045
128
%
Checkpoint
40,147
47,940
(7,793)
(16)
%
JMC
7,540
10,943
(3,403)
(31)
%
Mustang
38,830
62,030
(23,200)
(37)
%
Other 1
7,632
8,545
(913)
(11)
%
Total research & development expense
$
101,747
$
134,199
$
(32,452)
(24)
%
Note 1: Includes the following subsidiaries: Aevitas (until April 2023), Baergic (until November 2022), Cellvation, Cyprium, Helocyte, Oncogenuity and Urica.
The decrease in research and development spending at Mustang is due to a review of its portfolio of product candidates to determine the future strategy of its programs and the proper allocation of resources, which led to the discontinuation of development of MB-102 (CD123), MB-103 (HER2), MB-104 (CS1) and MB-105 (PSCA) programs, comprising a portion of Mustang’s portfolio of CAR T therapies being developed in partnership with COH, in addition to costs offset by reimbursements received from uBriGene through a subcontracting agreement. Journey’s decreased research and development costs are due to lower clinical trial expenses to develop DFD-29, as the project winds down and eventually concludes. Potential FDA approval for DFD-29 is expected in the second half of 2024.
Checkpoint’s decrease in research and development spending of $7.8 million is attributable to a $6.6 million decrease in manufacturing costs and a $5.6 million decrease in clinical costs, offset by an increase in regulatory costs of $0.8 million, due to the PDUFA fee to the FDA for the BLA filing for cosibelimab, and $2.3 million in license fees due upon the FDA filing acceptance of the BLA. Avenue’s increase in research and development in 2023 is primarily attributable to clinical costs related to the Phase 1b/2a of AJ201 for the treatment of SBMA, also known as Kennedy’s disease. The decrease in “Other” is attributable to a decrease of $1.3 million in costs incurred by Cyprium for the CUTX-101 development program as it was assumed by Sentynl, a decrease of $0.4 million for Aevitas development since the deconsolidation of that subsidiary due to the transaction with 4DMT, offset by an increase of $1.7 million of costs incurred by Urica for the dotinurad clinical program.
Noncash, stock-based compensation expense included in research and development for the years ended December 31, 2023 and 2022, was $3.2 million and $4.4 million, respectively.
Year Ended December 31,
Change
($ in thousands)
2023
2022
$
%
Stock-based compensation - research & development
Fortress
$
1,624
$
1,592
$
32
2
%
Partner Companies:
Avenue
199
297
(98)
(33)
%
Checkpoint
1,169
888
281
32
%
JMC
112
73
39
54
%
Mustang
133
1,583
(1,450)
(92)
%
Other 1
0
10
(10)
(100)
%
Total stock-based compensation expense - research and development
$
3,237
4,443
$
(1,206)
(27)
%
Note 1: Includes the following subsidiaries: Aevitas (until April 2023), Baergic (until November 2022), Cellvation, Cyprium, Helocyte, Oncogenuity and Urica.
We expect research and development costs to remain flat or decrease modestly in 2024.
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Research and development – licenses acquired
Year Ended December 31,
Change
($ in thousands)
2023
2022
$
%
Research and development – licenses acquired
$
4,324
$
677
$
3,647
539
%
The increase in research and development – licenses acquired of $3.6 million in 2023 is due primarily to $4.2 million paid for Avenue’s license from AnnJi for AJ201.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of personnel related costs, costs required to support the marketing and sales of our commercialized products, professional fees for legal, consulting, audit and tax services, rent and other general operating expenses not otherwise included in research and development expenses. For the years ended December 31, 2023 and 2022, selling, general and administrative expenses were $94.1 million and $113.7 million, respectively. The table below provides a summary by entity of selling, general and administrative expenses for the years ended December 31, 2023 and 2022, respectively:
Year Ended
December 31,
Change
($ in thousands)
2023
2022
$
%
Selling, general & administrative
Fortress
$
21,468
$
26,919
$
(5,451)
(20)
%
Subsidiaries/Partner Companies:
Avenue
3,676
5,013
(1,338)
(27)
%
Checkpoint
7,232
7,782
(550)
(7)
%
JMC 1
47,053
59,503
(12,449)
(21)
%
Mustang
9,289
10,740
(1,451)
(14)
%
Other 2
5,406
3,699
1,707
46
%
Total selling, general & administrative expense
$
94,124
$
113,656
$
(19,532)
(17)
%
Note 1: Includes an asset impairment charge of $3.1 million in the year ended December 31, 2023 for the Ximino product line.
Note 2: Includes the following subsidiaries: Aevitas (until April 2023), Baergic (until November 2022), Cellvation, Cyprium, Helocyte, Oncogenuity and Urica.
For the year ended December 31, 2023, the decrease in selling, general and administrative expenses of $19.0 million or 17% is primarily attributable to decreased expenses at Journey related to their expense reduction efforts in sales and marketing, as JMC began a cost reduction initiative designed to improve operational efficiencies, optimize expenses and reduce overall costs to better align costs to their revenue-generating capabilities. JMC’s cost reductions were offset slightly by a loss on impairment of intangible assets of $3.1 million related to the impairment of Ximino as a result of lower net product revenues and gross profit levels. JMC discontinued Ximino in September 2023. The decrease in selling, general and administrative costs at Fortress and Mustang is attributable to cost reduction efforts and optimization relating to personnel, consulting, and infrastructure.
Stock based compensation expense included in selling, general and administrative expenses in the years ended December 31, 2023 and 2022 was $13.8 million and $18.5 million, respectively.
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Year Ended December 31,
Change
($ in thousands)
2023
2022
$
%
Stock-based compensation - Selling, general and administrative
Fortress
$
8,320
$
11,060
$
(2,740)
(25)
%
Partner Companies:
Avenue
707
352
355
101
%
Checkpoint
1,728
2,036
(308)
(15)
%
JMC
2,494
4,352
(1,858)
(42)
%
Mustang
435
700
(265)
(38)
%
Other 1
108
44
64
145
%
Total stock-based compensation expense - selling, general and administrative
$
13,792
18,544
$
(4,752)
(26)
%
Note 1: Includes the following subsidiaries: Aevitas (until April 2023), Baergic (until November 2022), Cellvation, Cyprium, Helocyte, Oncogenuity and Urica.
We expect selling, general and administrative expenses to remain flat or decrease modestly in 2024.
Other expense
December 31,
Change
($ in thousands)
2023
2022
$
%
Other income (expense)
Interest income
$
3,003
$
1,398
$
1,605
115
%
Interest expense and financing fee
(15,315)
(13,642)
(1,673)
12
%
Change in fair value of warrant liabilities
4,424
1,129
3,295
292
%
Other income (expense)
(3,403)
1,215
(4,618)
(380)
%
Total other expense
$
(11,291)
(9,900)
$
(1,391)
14
%
Total other income (expense) increased $1.4 million, or (14)%, from expense of $9.9 million for the year ended December 31, 2022 to expense of $4.7 million for the year ended December 31, 2023, primarily due to the increase in change in fair value of warrant liabilities associated with warrants related to financings at Avenue and Checkpoint of $9.9 million, and an increase in interest income of $1.6 million, offset by an increase of $1.7 million in interest expense and financing fees due to costs associated with debt payoff at Journey and Mustang, and an increase of $4.6 million in other expense in the year ended December 31, 2023 due primarily to $4.1 million associated with the deconsolidation and dissolution of partner companies.
Liquidity and Capital Resources
Sources of Liquidity
At December 31, 2023, we had an accumulated deficit of $694.9 million primarily as a result of research and development expenses, purchases of in-process research and development and selling, general and administrative expenses.
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We will require additional financing to fully develop and prepare regulatory filings and obtain regulatory approvals for our existing and new product candidates, fund operating losses, and, if deemed appropriate, establish or secure through third parties manufacturing for our potential products, and sales and marketing capabilities. We have funded our operations to date primarily through the sale of equity and debt securities. We believe that our current cash and cash equivalents is sufficient to fund operations for at least the next twelve months. Our failure to raise capital as and when needed would have a material adverse impact on our financial condition and our ability to pursue our business strategies. We may seek funds through equity or debt financings, joint venture or similar development collaborations, the sale of partner companies, royalty financings, or through other sources of financing. See “Item 1A. Risk Factors—Risks Pertaining to the Need for and Impact of Existing and Additional Financing Activities.”
Stock Offerings and At-The-Market Share Issuances
We fund our operations through cash on hand, the sale of debt, third-party financings, and the sale of partner companies. At December 31, 2023, we had cash and cash equivalents of $80.9 million of which $40.6 million relates to Fortress and the private partner companies, primarily funded by Fortress, $4.9 million relates to Checkpoint, $6.2 million relates to Mustang, $27.4 million relates to JMC and $1.8 million relates to Avenue. Restricted cash related to an undertaking posted by Cyprium to secure potential damages in an injunctive proceeding and our office leases is $2.4 million.
In July 2021, the Company filed a shelf registration statement (File No. 333-255185) on Form S-3, which was declared effective on July 30, 2021 (the "2021 Shelf"). For the year ended December 31, 2023, the Company issued approximately 0.2 million shares of common stock at an average price of $9.61 per share for gross proceeds of $2.2 million. In connection with these sales, the Company paid aggregate fees of $0.1 million. Approximately $100.1 million of securities remain available for sale under the 2021 Shelf as of December 31, 2023. The amount of securities we are able to sell pursuant to the registration statement on Form S-3 may be limited to an aggregate of one-third of our public float. See “Item 1A. Risk Factors – We may need substantial additional funding and may be unable to raise capital when needed, which may force us to delay, curtail or eliminate one or more of our R&D programs, commercialization efforts or planned acquisitions and potentially change our growth strategy.”
In February 2023, the Company completed a registered direct offering of common stock priced At-the-Market under Nasdaq rules pursuant to which it issued and sold 1.1 million shares of its common stock at a purchase price of $12.53 per share (as adjusted for the Reverse Stock Split) and secured approximately $13.3 million in net proceeds after deducting estimated offering expenses. This included a concurrent private placement with investors in the registered direct offering for the pro rata rights to acquire securities exercisable into common stock in certain future operating subsidiaries that consummate a specified corporate development transaction within the next five years.
In November 2023, the Company closed on a public offering of the issuance and sale of an aggregate of 5,885,000 units at a purchase price of $1.70 per unit. Each unit consists of (i) one share of common stock, and (ii) one warrant to purchase one share of common stock, exercisable immediately upon issuance at a price of $1.70 per share and expiring five years following the issuance date. The total gross proceeds from the offering were approximately $10.0 million with net proceeds of approximately $8.9 million after deducting placement agent fees and other transaction costs. Certain directors and officers of the Company participated in the offering and purchased an aggregate amount of approximately $2.9 million of units at the same purchase price.
Subsequent to 2023, in January 2024, Fortress closed on a registered direct offering for the issuance and sale of an aggregate of 3,303,305 shares of its common stock and warrants to purchase up to 3,303,305 shares of its common stock at a combined purchase price of $3.33 per share of common stock and accompanying warrant priced at-the-market under Nasdaq rules. The warrants have an exercise price of $3.21 per share, are immediately exercisable, and will expire five years following the date of issue. Net proceeds to Fortress, after deducting the placement agent’s fees and other offering expenses, were approximately $10.2 million.
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Journey
In December 2022, Journey filed a shelf registration statement on Form S-3 (File No. 333-269079 ), which was declared effective in January 2023 (the “Journey 2022 S-3”). 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. For the year ended December 31, 2023, Journey issued approximately 0.7 million shares of common stock at an average price of $6.189 per share for gross proceeds of $4.6 million under the Journey ATM. In connection with these sales, Journey paid aggregate fees of $0.1 million. At December 31, 2023, 4,151,297 shares remain available for issuance under the Journey 2022 S-3.
Checkpoint
In March 2023, Checkpoint filed a shelf registration statement (File No. 333-270843) on Form S-3 (the “Checkpoint 2023 S-3”), which was declared effective May 5, 2023. Under the Checkpoint 2023 S-3, Checkpoint may sell up to a total of $150 million of its securities. As of December 31, 2023, approximately $91.7 million of the securities remains available for sale through the Checkpoint 2023 S-3.
In 2023, Checkpoint closed on registered direct offerings in February, April, May and July and sold a total of 6,957,186 shares of common stock and 2,663,903 pre-funded warrants at prices ranging from $3.07 to $5.25. All pre-funded warrants were exercised in 2023. Each of these offerings included Series A warrants with a five-year term and Series B warrants with an 18-month term. Total Series A warrants were 9,621,089 and total Series B warrants were 9,621,089 with exercise prices ranging from $2.82 to $5.00. Total gross proceeds were $33.6 million, with net proceeds of $30.4 million.
In October 2023, Checkpoint entered into an inducement offer letter agreement with a holder of certain of its existing warrants to exercise for cash an aggregate of 6,325,354 warrants for shares of Checkpoint’s common stock at a reduced exercise price of $1.76 per share. The warrants were issued to the holder on December 16, 2022 with an exercise price of $4.075 per share and on February 22, 2023 with an exercise price of $5.00 per share as part of registered direct offerings. The shares of Checkpoint common stock issuable upon exercise of the warrants were registered pursuant to effective registration statements on Form S-3 (File No. 333-251005) and Form S-3 (File No. 333-270474), respectively. As part of the inducement, Checkpoint agreed to issue new unregistered Series A Warrants to purchase up to 6,325,354 shares and new unregistered Series B Warrants to purchase up to 6,325,354 shares of Checkpoint Common Stock. The Series A and B warrants are exercisable immediately upon issuance with an exercise price of $1.51 per share. The Series A warrants will expire in five years and the Series B warrants will expire twenty-four months. The total gross proceeds from the offering were approximately $11.1 million with net proceeds of approximately $10.0 million after deducting approximately $1.1 million in commissions and other transaction costs.
Mustang
In April 2021, Mustang filed a shelf registration statement on Form S-3 (File No. 333-255476) which was declared effective in May 2021 (the “Mustang 2021 S-3”). Under the Mustang 2021 S-3, Mustang may sell up to a total of $200.0 million of its securities. During the year ended December 31, 2023, Mustang issued approximately 0.1 million shares of common stock at an average price of $3.15 per share for gross proceeds of $0.2 million under the ATM Agreement. In connection with these sales, Mustang paid aggregate fees of approximately $3,000 for net proceeds of approximately $0.2 million. As of December 31, 2023, approximately $195.6 million of the Mustang 2021 S-3 remained available for sales of securities.
In October 2023, Mustang closed on the October 2023 Registered Direct Offering with a single institutional accredited investor for the issuance and sale of an aggregate of (i) 920,000 shares of its common stock and (ii) pre-funded warrants to purchase up to 1,688,236 shares of its common stock at a purchase price of $1.70 per share and $1.699 per pre-funded warrant in a registered direct offering priced at-the-market under the rules of The Nasdaq Stock Market LLC. In a concurrent private placement, Mustang issued and sold 2,588,236 unregistered warrants to purchase shares of common stock. The unregistered warrants have an exercise price of $1.58, were exercisable immediately upon issuance and will expire five and one-half years following the issuance date. The total gross proceeds from the offerings were approximately $4.4 million before deducting approximately $0.5 million in placement agency fees and offering expenses.
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Avenue
In November 2023, Avenue closed on a public offering of the issuance and sale of an aggregate of 16,633,400 units at a purchase price of $0.3006 per unit. Each unit consists of (i) one share of common stock (or pre-funded warrant in lieu of), and (ii) one Series A warrant to purchase one share of common stock, exercisable immediately upon issuance at a price of $0.3006 per share and expiring five years following the issuance date, and (iii) one Series B warrant to purchase one share of common stock, exercisable immediately upon issuance at a price of $0.3006 per share and expiring eighteen months following the issuance date (in aggregate, the “November 2023 Warrants”). The total gross proceeds from the offering were approximately $5.0 million with net proceeds of approximately $3.8 million after deducting commissions and other transaction costs, before giving effect to any exercises of the November 2023 Warrants.
In January 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 for gross proceeds of approximately $3.0 million. 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 for gross proceeds of approximately $0.2 million. Avenue received approximately $2.8 million in net proceeds across both transactions.
Debt
In December 2023, Journey announced it had entered into a credit agreement with SWK Funding LLC that provided a term loan facility in the original principal amount of $20 million. Of the $20 million, $15 million was funded upon closing, and t he remaining $5.0 million may be drawn upon request by Journey within the first 12 months following credit agreement execution .
Cash Flows
The following table summarizes our cash flows during the periods indicated:
Year Ended December 31,
($ in thousands)
2023
2022
Change
Total cash (used in)/provided by:
Operating activities
$
(128,225)
$
(179,401)
$
51,176
Investing activities
(2,103)
(22,928)
20,825
Financing activities
32,739
75,319
(42,580)
Net increase in cash and cash equivalents and restricted cash
$
(97,589)
$
(127,010)
$
29,421
Operating Activities
Net cash used in operating activities decreased $51.2 million from the year ended December 31, 2022 to the year ended December 31, 2023. The decrease is primarily attributable to the decrease in net loss of $59.8 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022, and the net decrease in cash from changes in operating assets and liabilities of $11.9 million offset by the increase in loss from deconsolidation and dissolution of subsidiaries of $4.1 million and a $3.1 million asset impairment loss.
Investing Activities
Net cash used by investing activities for the year ended December 31, 2022 of $22.9 million decreased $20.8 million to net cash used by investing activities of $2.1 million for the year ended December 31, 2023. The change is primarily due to Journey’s purchase of the VYNE Therapeutics, Inc. (“VYNE”) product licenses of $20.0 million and Mustang’s property and equipment purchases of $2.7 million for the year ended December 31, 2022, offset by $6 million in proceeds from the sale of property and equipment recorded by Mustang for the uBriGene transaction.
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Financing Activities
Net cash provided by financing activities was $75.3 million for the year ended December 31, 2022, compared to $32.7 million of net cash provided by financing activities for the year ended December 31, 2023, a decrease of $42.6 million. The decrease is primarily due to the repayment of partner company debt of $81.3 million, partially offset by proceeds from the issuance of common stock in public offerings of $22.1 million, and proceeds from new partner company debt of $14.5 million.
Components of cash flows from publicly-traded partner companies are:
For the Year Ended December 31, 2023
($ in thousands)
Fortress 1
Avenue
Checkpoint
JMC
Mustang
Total
Statement of cash flows data:
Total cash (used in)/provided by:
Operating activities
$
(26,947)
$
(9,451)
$
(47,590)
$
5,240
$
(49,477)
$
(128,225)
Investing activities
11
(3,000)
—
(5,000)
5,886
(2,103)
Financing activities
15,648
7,526
40,450
(4,804)
(26,081)
32,739
Net increase in cash and cash equivalents and restricted cash
$
(11,288)
$
(4,925)
$
(7,140)
$
(4,564)
$
(69,672)
$
(97,589)
For the Year Ended December 31, 2022
($ in thousands)
Fortress 1
Avenue
Checkpoint
JMC
Mustang
Total
Statement of cash flows data:
Total cash (used in)/provided by:
Operating activities
$
(35,651)
$
(7,596)
$
(57,554)
$
(13,534)
$
(65,066)
$
(179,401)
Investing activities
24
—
—
(20,000)
(2,952)
(22,928)
Financing activities
(621)
10,541
14,887
16,456
34,056
75,319
Net increase in cash and cash equivalents and restricted cash
$
(36,248)
$
2,945
$
(42,667)
$
(17,078)
$
(33,962)
$
(127,010)
Note 1: Includes Fortress and non-public subsidiaries.
Contractual Obligations
Our short-term and long-term contractual obligations as of December 31, 2023 include:
● Contractual payments related to our long-term debt (see Note 9, Debt and Interest, to our Consolidated Financial Statements included in “Part IV, Item 15, Exhibits and Financial Statement Schedules” in this Annual Report on Form 10-K );
● obligations under our leases (see Note 14, Commitments and Contingencies to our Consolidated Financial Statements ); and
● obligations under license agreements (see Note 7, License Agreements to our Consolidated Financial Statements ).
Under the license agreements, we are required to make milestone payments upon successful completion and achievement of certain development, regulatory and commercial milestones, the payment obligations of which are contingent upon future events, such as our achievement of specified development, regulatory and commercial milestones, and the amount, timing, and likelihood of such payments are not known. We may also be required to make milestone payments and royalty payments in connection with the sale of products developed under these agreements, if approved and sold.
Additionally, we enter into agreements in the normal course of business with CROs and other vendors for clinical trials and with vendors for preclinical services and products for operating purposes, which are generally terminable by us upon written notice.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is set forth in the consolidated financial statements and notes thereto beginning at page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.