10-Q: Fortress Biotech Q2 2025: Net Income Up, Key Asset Sold

Fortress Biotech reported a significant increase in net income for Q2 2025, driven by the deconsolidation gain from the sale of Checkpoint Therapeutics to Sun Pharma, despite ongoing operating losses.

Summary

• Net income attributable to Fortress was $15.5 million for the three months ended June 30, 2025, a substantial improvement from a net loss of $10.9 million in the prior year period.
• For the six months ended June 30, 2025, net income attributable to Fortress was $4.9 million, compared to a net loss of $26.4 million for the same period in 2024.
• The positive financial shift is primarily due to a $27.1 million gain from the deconsolidation of Checkpoint Therapeutics, which was acquired by Sun Pharma in May 2025.
• Net revenue increased by 10% to $16.4 million for Q2 2025 and 6% to $29.6 million for the six months ended June 30, 2025, largely driven by Journey Medical's product sales, including the launch of Emrosi.
• Research and Development (R&D) expenses decreased significantly by 36% to $8.1 million for Q2 2025 and 68% to $12.1 million for the six months, mainly due to reduced spending at Mustang Bio and Avenue Therapeutics, and the transition of Urica's dotinurad program.
• Selling, General and Administrative (SG&A) expenses increased by 86% to $38.8 million for Q2 2025 and 66% to $64.4 million for the six months, primarily due to increased stock-based compensation and transaction-related costs at Checkpoint prior to its sale, and Emrosi launch costs at Journey.
• Cash and cash equivalents stood at $74.4 million as of June 30, 2025, with $38.1 million attributed to Fortress and its private subsidiaries.
• The company paused monthly dividend payments on its Series A Preferred Stock on July 5, 2024, resulting in $8.0 million in undeclared dividends in arrears as of June 30, 2025.
• Journey Medical's Emrosi received FDA approval in November 2024 and launched in March 2025, with expanded payer coverage reaching 65% of commercial lives in the U.S. by July 2025.
• Checkpoint Therapeutics' UNLOXCYT (cosibelimab-ipdl) received FDA approval in December 2024 for metastatic or locally advanced cSCC.
• Avenue Therapeutics was delisted from Nasdaq in July 2025 and now trades on the OTC Markets system.
• Mustang Bio completed a 1-for-50 reverse stock split in January 2025 to regain Nasdaq compliance and exited its manufacturing facility in February 2025, selling fixed assets for $1.0 million.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the significant improvement in net income driven by the Checkpoint sale and positive developments for Journey Medical and Cyprium. However, the ongoing operating losses, the pause in preferred stock dividends, Avenue's delisting, and the CAEL-101 Phase 3 setback temper the overall optimism. The company's ability to monetize assets and advance pipeline candidates is a strong positive, but the need for future capital raises and the associated dilution risks remain.

Positives

• Net income attributable to Fortress significantly improved to $15.5 million for Q2 2025 and $4.9 million for the six months ended June 30, 2025, compared to losses in prior periods.
• A $27.1 million gain was recognized from the deconsolidation of Checkpoint Therapeutics following its acquisition by Sun Pharma, providing a substantial cash inflow of $28.0 million.
• Journey Medical's Emrosi (rosacea treatment) launched successfully in March 2025 and achieved expanded payer coverage for 65% of commercial lives in the U.S. by July 2025.
• Checkpoint Therapeutics' UNLOXCYT (cosibelimab-ipdl) received FDA approval in December 2024 for cSCC, validating a key product candidate.
• Significant reduction in R&D expenses (36% for Q2, 68% for six months) due to strategic actions at Mustang Bio and Avenue Therapeutics, and the transition of Urica's dotinurad program.
• Journey Medical joined the small-cap Russell 2000 Index and broad-market Russell 3000 Index in June 2025, enhancing visibility.
• Mustang Bio received Orphan Drug Designation for MB-101 for recurrent diffuse and anaplastic astrocytoma and glioblastoma in July 2025, a broader designation than initially proposed.
• Mustang Bio's MB-106 showed favorable safety and efficacy in Waldenstrom macroglobulinemia patients, with a 90% overall response rate and durable responses, including three complete responses.
• Cyprium's CUTX-101 (Menkes disease) NDA was accepted for priority review by the FDA with a target action date of September 30, 2025, and Cyprium retains 100% ownership of any potential Priority Review Voucher.

Negatives

• The company has a history of operating losses and expects these to continue, with an accumulated deficit of $736.0 million as of June 30, 2025.
• Dividend payments on Series A Preferred Stock have been paused since July 5, 2024, leading to $8.0 million in undeclared dividends in arrears, which impacts investor confidence and Form S-3 eligibility.
• Avenue Therapeutics was delisted from Nasdaq in July 2025, reducing market liquidity and potentially investor interest.
• The termination of Avenue's license agreement with AnnJi Pharmaceutical for AJ201, despite a one-time revenue recognition, indicates a setback in that development program.
• Accutane revenue decreased due to lower sales volume driven by recent market competition, impacting Journey Medical's overall product revenue mix.
• CAEL-101 (anselamimab) Phase 3 studies did not achieve statistical significance for the primary endpoint, although a prespecified subgroup showed clinically meaningful improvement, indicating a potential setback for this asset.
• Selling, General and Administrative expenses increased significantly, partly due to substantial stock-based compensation and transaction costs related to the Checkpoint sale.
• The company is currently ineligible to use Form S-3 for new shelf registration statements due to the paused preferred stock dividends, making future capital raises potentially more costly and time-consuming.
• The Oaktree Agreement imposes financial covenants, including minimum liquidity and Journey's net sales targets, and requires annual capital raises or monetizations, which could restrict operations.

Risks

• Many product candidates are in early development stages, subject to time and cost-intensive regulation and clinical testing, with no assurance of successful development or commercialization.
• Competitors may develop treatments for target indications, limiting commercial opportunity and profitability.
• The company has a history of operating losses and expects them to continue, requiring substantial additional capital that may be difficult to raise.
• Existing debt agreements may restrict operations, and a default could adversely affect the business.
• If additional capital is raised by issuing equity or equity-linked securities, existing stockholders will be diluted.
• Issues relating to the manufacture, sale, utilization, or reimbursement of Journey's dermatology products (Emrosi, Qbrexza, Accutane, Amzeeq, Zilxi, Targadox, Exelderm) could significantly impact operating results.
• A significant portion of Journey's sales derive from products without patent protection or subject to generic competition, which could adversely affect operating income.
• Continued sales and coverage depend on reimbursement from third-party payors, which are increasingly scrutinizing medical necessity and cost-effectiveness.
• The business may be materially adversely affected by duties, tariffs, and other trade barriers.
• Collaborations or divestitures may reduce business size, scope, market share, or ability to compete.
• Failure to consummate contingent disposition arrangements may impair asset value, and alternative arrangements may not be found on favorable terms.
• Reliance on third parties for manufacturing, clinical trials, and commercial supply reduces control and may hinder timely, cost-effective development and commercialization.
• Inability to obtain and maintain patent protection or disputes with licensors could impair commercialization and allow competitors to develop similar products.
• Generic drug companies may challenge patents through litigation or PTO proceedings, leading to costly litigation and potential loss of market exclusivity.
• If approved product candidates are not broadly accepted by the healthcare community, revenues will be limited.
• Approved products may not obtain desired labels or favorable scheduling classifications, or may be subject to post-marketing requirements that could lead to market withdrawal.
• Successful product liability claims could result in substantial liability and limit commercialization.
• Operating in a heavily regulated industry means future legislation or administrative action could impact operations.
• Failure to meet Nasdaq continued listing rules could lead to delisting, decreasing market liquidity and price of securities.
• Negative public opinion and increased regulatory scrutiny of gene therapy or other underlying technologies could damage public perception or affect regulatory approvals.
• DEA regulations may limit the supply of controlled substances used in clinical trials or commercial production.
• FDA approval is limited to specific indications, and failure to obtain approval for desired future indications could reduce marketing effectiveness.
• If the Section 505(b)(2) regulatory pathway is not successful or as expected, approval could take longer, cost more, and entail greater risks.
• Inability to generate sufficient cash flow to service debt obligations could lead to default, acceleration of debt, and adverse impact on business.
• Repayment of indebtedness depends on Journey's cash generation and ability to make distributions, which may be limited by legal/contractual restrictions.
• Inability to hire or retain key officers or employees could hinder business strategy and product development.
• Employees, consultants, or third-party partners may engage in misconduct or improper activities, leading to regulatory sanctions, reputational harm, and liability.
• Claims that employees/consultants wrongfully used or disclosed trade secrets of former employers could lead to costly litigation.
• The market price of securities may be volatile and disproportionate to operating performance.
• Sales or other issuances of substantial amounts of common stock could adversely impact the price.
• Inability to manage anticipated growth could adversely impact the business.
• Catastrophic disasters could damage facilities or cause data loss beyond insurance limits, curtailing or ceasing operations.
• Ability to use pre-change Net Operating Losses (NOLs) and other tax attributes may be limited by ownership changes.
• Failure to comply with environmental, health, and safety laws could result in fines or penalties.
• Challenges with properly managing the use of artificial intelligence could adversely affect the business.
• Changes in funding for the FDA and other government agencies could delay product development or commercialization.
• Significant increased costs from operating as a public company and failure to maintain effective internal control over financial reporting could harm operating results and investor views.
• Provisions in corporate documents and Delaware law might discourage, delay, or prevent a change in control or management changes.

Future Outlook

The company expects to continue incurring operating losses for several years as it develops and commercializes product candidates. It will need to raise additional funding through strategic relationships, equity/debt financings, or asset sales to support R&D, fund operating losses, and establish commercial capabilities. The ability to use Form S-3 for capital raises is currently suspended due to paused preferred stock dividends, which will be regained upon payment of all accrued dividends and timely payment of future dividends. Journey Medical's minimum net sales amount under the Oaktree Agreement will increase by $7.5 million each quarter, beginning in Q3 2025, up to $80.0 million. Topline data for Triplex Phase 2 trial is anticipated in Q3 2025. An investigator-sponsored trial for MB-109 and a Phase 1b study for MB-108 are potentially initiating in Q1 2026 and early 2026, respectively. Planning for a proof-of-concept Phase 1 trial for MB-106 in autoimmune diseases is underway for potential Q1 2026 initiation. The FDA target action date for Cyprium's CUTX-101 NDA is September 30, 2025.

Management Comments

• Management believes current cash and cash equivalents are sufficient to fund operations for at least 12 months from the filing date.
• The Board intends to revisit its decision regarding the monthly dividend on preferred stock regularly and will assess profitability and cash flow to determine when the pause should be lifted.
• The sale of Checkpoint is considered consistent with the ongoing strategy to opportunistically monetize investments in biopharma companies and assets.

Industry Context

The biopharmaceutical industry is characterized by high R&D costs, lengthy regulatory processes, and intense competition. Fortress Biotech's strategy of acquiring and advancing assets through subsidiaries and partner companies, and then monetizing them (like the Checkpoint sale), aligns with a common model for smaller biotechs to generate value and fund further development. The successful launch of Emrosi by Journey Medical and the FDA approval of UNLOXCYT by Checkpoint (prior to sale) demonstrate progress in commercialization and regulatory milestones, which are critical value drivers in the sector. However, the delisting of Avenue Therapeutics from Nasdaq highlights the challenges smaller companies face in maintaining listing requirements and accessing capital markets. The mixed results for CAEL-101's Phase 3 program underscore the inherent risks in late-stage clinical development, even for promising candidates. The increasing scrutiny on drug pricing and the impact of legislation like the Inflation Reduction Act are significant industry-wide trends that could affect future revenue and profitability.

Comparison to Industry Standards

• The successful FDA approval of UNLOXCYT (cosibelimab-ipdl) for cSCC by Checkpoint Therapeutics, now acquired by Sun Pharma, is a significant achievement, as only a small percentage of drugs under development successfully obtain regulatory approval. This compares favorably to the industry average for drug development success rates.
• The launch of Emrosi by Journey Medical and its rapid payer coverage expansion to 65% of commercial lives in the U.S. within months of launch is a strong commercial execution, indicating effective market penetration for a new dermatology product.
• The failure of CAEL-101 (anselamimab) to achieve statistical significance for its primary endpoint in Phase 3 studies for AL amyloidosis, despite showing improvement in a prespecified subgroup, is a common occurrence in late-stage clinical trials where many candidates fail to meet stringent endpoints. This outcome is not unusual in the high-risk biopharmaceutical development landscape.
• The delisting of Avenue Therapeutics from Nasdaq is a negative event, reflecting challenges in maintaining market capitalization or share price, a common hurdle for smaller, development-stage biotechs, especially those with limited commercial products.
• The significant reduction in R&D expenses at Mustang Bio and Avenue Therapeutics, while improving short-term financials, could be viewed as a strategic shift or a response to financial pressures, potentially impacting the long-term pipeline compared to larger, well-funded industry peers who maintain consistent R&D investment.
• The company's reliance on third-party manufacturers and CROs is standard practice in the biotech industry, but the risks associated with this reliance are amplified for smaller companies with less negotiating leverage.

Corporate Governance

Legal Proceedings

• No reportable events or material developments with respect to previously disclosed proceedings for the quarter ended June 30, 2025.
• The company and its subsidiaries may be subject to both insured and uninsured litigation in the ordinary course of business, including tort claims for personal injury from clinical trials or property damage.

Related Party Transactions

• Fortress has Founders Agreements with subsidiaries and partner companies (Avenue, Cellvation, Cyprium, Helocyte, Mustang, Oncogenuity, Urica) for PIK dividends or equity fees, typically 2.5% of fully diluted outstanding capitalization.
• Checkpoint's obligation to pay an annual equity fee to Fortress ceased upon its acquisition by Sun Pharma in May 2025.
• Fortress has Management Services Agreements (MSAs) with its partner companies/subsidiaries (Avenue, Cellvation, Cyprium, Helocyte, Mustang, Oncogenuity, Urica) for annual consulting fees of $500,000 each, which are eliminated in consolidation.
• Fortress has a Shared Services Agreement with TG Therapeutics, Inc. (TGTX) to share R&D employee costs, invoicing TGTX $0.4 million in Q2 2025 and $0.5 million for the six months ended June 30, 2025.
• Fortress has a Desk Share Agreement with TGTX, requiring TGTX to pay 65% of the New York office rent, invoicing TGTX $0.5 million in Q2 2025 and $0.9 million for the six months ended June 30, 2025.
• Michael S. Weiss, Executive Vice Chairman, Strategic Development of Fortress, also serves as Executive Chairman and Interim Chief Executive Officer of TGTX and previously as Chairman of Checkpoint's Board (via Caribe BioAdvisors, LLC and Hawkins BioVentures, LLC), receiving advisory fees and equity incentive grants.
• Mustang recognized approximately $15,000 in Q2 2025 and $30,000 for the six months ended June 30, 2025, in expenses related to Mr. Weiss's advisory agreement.
• Journey and Fortress have a Shared Services Agreement for certain legal, finance, regulatory, and R&D employees, with Fortress employees providing services to Journey totaling approximately $10,000 in Q2 2025 and $22,000 for the six months ended June 30, 2025.
• Cyprium's 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (Cyprium PPS) is fully and unconditionally guaranteed by Fortress. The Cyprium PPS will be automatically redeemed upon a Priority Review Voucher (PRV) sale or exchanged for Fortress Series A Preferred Stock or cash by March 31, 2026, if no PRV sale occurs.

Stakeholder Impact

• **Shareholders (Common Stockholders):** Experienced dilution from past equity raises and face potential future dilution. Capital appreciation is the sole source of gain due to no cash dividends. The pause in preferred stock dividends impacts the company's ability to use Form S-3, potentially making future capital raises more expensive and dilutive.
• **Preferred Stockholders (Series A):** Dividends have been paused since July 5, 2024, but continue to accrue, with $8.0 million in arrears. This impacts their expected income stream and the market price of their preferred stock.
• **Employees:** Workforce reductions at Mustang Bio in 2024 impacted personnel. Stock-based compensation remains a significant component, particularly with vesting events tied to change of control (e.g., Checkpoint).
• **Customers:** Journey Medical's Emrosi launch and expanded payer coverage benefit patients with rosacea. FDA approval of UNLOXCYT provides a new treatment option for cSCC patients.
• **Creditors (Oaktree, SWK):** Fortress made principal payments to Oaktree from Checkpoint sale proceeds, reducing debt. Journey Medical is in compliance with SWK Credit Facility covenants. However, the Oaktree Agreement's financial covenants and capital raise requirements impose ongoing obligations.
• **Partner Companies (Journey, Mustang, Cyprium, Urica, Avenue):** Journey benefits from Emrosi launch and Russell Index inclusion. Mustang is advancing CAR T-cell therapies and received Orphan Drug Designation. Cyprium's CUTX-101 is under priority review. Avenue's delisting from Nasdaq is a negative for its market visibility and capital access. Urica's dotinurad program was transferred to Crystalys, with Urica retaining an equity stake and royalty rights.

Next Steps

• Fortress will need to raise additional funding through strategic relationships, public or private equity or debt financings, sale of partner companies, grants or other arrangements.
• The Board intends to regularly revisit its decision regarding the monthly dividend on Series A Preferred Stock and assess profitability and cash flow to determine when the pause should be lifted.
• Fortress will regain eligibility to use the 2024 Shelf registration statement on Form S-3 upon filing its Annual Report on Form 10-K, provided all accrued and future dividends on Series A Preferred Stock are paid.
• Journey Medical will continue to commercialize Emrosi, aiming to expand payer coverage and market share.
• Helocyte anticipates topline data for the Triplex Phase 2 clinical trial in adults co-infected with HIV and CMV in the third quarter of 2025.
• Cyprium awaits the FDA's target action date of September 30, 2025, for the priority review of the CUTX-101 NDA.
• Mustang Bio is exploring the launch of an investigator-sponsored single-institution trial for MB-109 in Q1 2026.
• UAB plans to initiate a Phase 1b study for MB-108 in recurrent malignant glioma in early 2026.
• Mustang Bio is planning a proof-of-concept Phase 1 investigator-sponsored clinical trial evaluating MB-106 in autoimmune diseases, potentially initiating in Q1 2026.
• Avenue Therapeutics plans to continue filing required periodic reports with the SEC despite Nasdaq delisting.

Key Dates

Recommendation

Fortress Biotech presents a mixed financial picture. The significant net income for Q2 and the six months ended June 30, 2025, driven by the Checkpoint Therapeutics sale, is a strong positive, demonstrating successful asset monetization. Journey Medical's Emrosi launch and positive developments for Cyprium's CUTX-101 also provide future growth potential. However, the company continues to incur operating losses, has a substantial accumulated deficit, and faces challenges such as the paused preferred stock dividends (impacting Form S-3 eligibility) and Avenue Therapeutics' Nasdaq delisting. The mixed Phase 3 results for CAEL-101 also add uncertainty. While the company has a strategy of developing and monetizing assets, the inherent risks in early-stage drug development, the ongoing need for significant capital, and potential dilution for common stockholders suggest a 'hold' recommendation. Investors should monitor progress on pipeline candidates, resolution of preferred dividend payments, and future capital raising activities before considering a stronger position.

Keywords

Biopharmaceutical, SEC Filing, 10-Q, Fortress Biotech, FBIO, Financial Results, Net Income, Operating Loss, Checkpoint Therapeutics, Sun Pharma, Acquisition, Emrosi, Rosacea, FDA Approval, UNLOXCYT, cSCC, Journey Medical, Mustang Bio, Avenue Therapeutics, R&D Expenses, SG&A Expenses, Capital Raise, Debt, Preferred Stock Dividends, Clinical Trials, Drug Development, Orphan Drug, CAR T-cell therapy, Menkes Disease, Gout, Intellectual Property, Risk Factors