10-Q: Fortress Biotech Reports Q3 2024 Results, Pauses Preferred Stock Dividends

Fortress Biotech's Q3 2024 results show a net loss of $12.9 million, impacted by decreased revenue and increased interest expenses, while the company paused preferred stock dividends.

Summary

• Fortress Biotech reported a net loss attributable to common stockholders of $15.0 million, or $0.76 per share, for the three months ended September 30, 2024.
• This compares to a net loss of $7.1 million, or $0.94 per share, for the same period in 2023.
• Net revenue decreased to $14.6 million from $34.8 million in the prior year, primarily due to a one-time licensing payment in 2023.
• Product revenue was $14.6 million, down from $15.3 million in the prior year.
• Operating expenses decreased to $36.7 million from $48.5 million.
• The company's loss from operations was $22.1 million, compared to $13.8 million in the prior year.
• Interest expense and financing fees increased to $6.2 million from $2.5 million.
• For the nine months ended September 30, 2024, the net loss attributable to common stockholders was $46.2 million, or $2.43 per share, compared to $57.4 million, or $7.94 per share, in the prior year.
• The company paused monthly dividends on its 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock, deferring approximately $0.7 million in cash dividend payments each month.

Sentiment

Score: 3

Explanation: The document presents a concerning financial picture with increased losses, decreased revenue, and a pause in preferred stock dividends. While there are some positive developments, the overall sentiment is negative due to the financial challenges and risks highlighted.

Positives

• Operating expenses decreased by 24% to $36.7 million, indicating cost management efforts.
• The company has $58.9 million in cash and cash equivalents, which is considered sufficient to fund operations for at least the next 12 months.
• Journey Medical Corporation received FDA approval for Emrosi (Minocycline Hydrochloride Extended-Release Capsules, 40mg) for the treatment of inflammatory lesions of rosacea in adults.

Negatives

• Net revenue decreased by 58% to $14.6 million, primarily due to a one-time licensing payment in the prior year.
• Interest expense and financing fees increased significantly to $6.2 million.
• The company paused monthly dividends on its Series A Preferred Stock, deferring approximately $0.7 million in cash dividend payments each month.
• The company reported a net loss of $12.9 million for Q3 2024, compared to a net loss of $5.0 million in Q3 2023.
• Mustang Bio recorded an impairment loss of approximately $2.6 million related to leasehold improvements and right-of-use assets.

Risks

• The company has a history of operating losses and expects such losses to continue.
• The company's research and development programs will require additional capital, which may not be available.
• The company's board of directors has paused payments of dividends on its preferred stock, and there is no assurance that payments will resume.
• The company relies heavily on third parties for manufacturing and developing product candidates.
• The company may be subject to costly and time-consuming litigation for infringement of third-party intellectual property rights.
• The company may not obtain the desired product labels or intended uses for product promotion.
• The company has previously failed to satisfy certain continued listing rules of Nasdaq, and if it is unable to meet the continued listing requirements, its stock may be subject to delisting.

Future Outlook

The company 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.

Management Comments

• The Board intends to revisit its decision regarding the monthly dividend regularly and will assess the profitability and cash flow of the Company to determine whether and when the pause should be lifted.

Industry Context

The biopharmaceutical industry is highly competitive, and Fortress Biotech faces competition from other companies developing treatments for similar indications. The company's reliance on third-party manufacturers and the regulatory approval process also present challenges.

Comparison to Industry Standards

• The decrease in revenue is significant and may be concerning compared to industry standards, especially given the one-time licensing payment in the prior year.
• The increase in interest expense and financing fees is also a negative trend, as it indicates higher borrowing costs.
• The pause in preferred stock dividends is a sign of financial strain and may be viewed negatively by investors.
• The company's cash position of $58.9 million is relatively low for a company with multiple ongoing clinical trials and development programs.
• The impairment loss at Mustang Bio is also a negative indicator, as it suggests that the value of certain assets has decreased.

Legal Proceedings

• On September 16, 2024, Caelum and UTRF entered into a stipulation with the court pursuant to which UTRFs claims were dismissed without prejudice; on October 16, 2024, Caelum and UTRF entered into a definitive settlement agreement (the UTRF-Caelum Settlement Agreement) pursuant to which UTRFs claims were dismissed with prejudice and Caelum agreed to make an upfront payment and additional potential milestone-based payments to UTRF.

Related Party Transactions

• The Company has entered into Founders Agreements and, in some cases, exchange agreements with certain of its subsidiaries.
• The Company has entered into Management Services Agreements (the MSAs) with certain of its partner companies/subsidiaries.
• In July 2015, TGTX and the Company entered into an arrangement to share the cost of certain research and development employees.
• 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 Desk Share Agreement with TGTX, as amended, requires TGTX to pay its share of the average annual rent for office space in New York, NY.
• Pursuant to a private placement in August 2020, Cyprium sold 320,000 shares of its 9.375% Series A Cumulative Redeemable Perpetual Preferred Stock (Cyprium PPS); as of September 30, 2024, there remain 320,000 shares of Cyprium PPS outstanding.
• On November 13, 2024, the Company entered into a Subscription and Forgiveness Agreement with Avenue, whereby the Company agreed to convert 50% of a total of $0.5 million owed by the Avenue under the MSA into newly issued common stock of Avenue and forgive the remaining 50% of the accrued balance.

Stakeholder Impact

• Shareholders will be negatively impacted by the decreased revenue, increased losses, and the pause in preferred stock dividends.
• Employees may be affected by cost-cutting measures and potential restructuring.
• Customers may be impacted by changes in product availability or pricing.
• Suppliers may be affected by changes in the company's financial condition.
• Creditors may be concerned about the company's ability to repay its debts.

Next Steps

• The company will continue to develop and prepare regulatory filings for its existing and new product candidates.
• The company will need to raise additional funding through strategic relationships, public or private equity or debt financings, sale of partner companies, grants or other arrangements.
• Journey Medical Corporation anticipates initial supply of Emrosi will be available in the late first quarter or early second quarter of 2025.

Key Dates

Keywords

Fortress Biotech, biopharmaceutical, financial results, Q3 2024, net loss, revenue, operating expenses, preferred stock, dividends, clinical trials, drug development, intellectual property, regulatory approval, Journey Medical, Emrosi, Mustang Bio, impairment, Oaktree, debt, capital raise