| PART I | | 7 |
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| Item 1. | Business. | 7 |
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| Item 1A. | Risk Factors | 28 |
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| Item 1B. | Unresolved Staff Comments | 64 |
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| Item 1C. | Cybersecurity | 65 |
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| Item 2. | Properties | 66 |
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| Item 3. | Legal Proceedings | 66 |
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| Item 4. | Mine Safety Disclosures | 66 |
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| PART II | | 67 |
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 67 |
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| Item 6. | Reserved | 67 |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 68 |
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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. | 86 |
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| Item 8. | Financial Statements and Supplementary Data. | 86 |
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| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. | 86 |
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| Item 9A. | Controls and Procedures. | 86 |
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| Item 9B. | Other Information | 87 |
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| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 87 |
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| PART III | | 87 |
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| Item 10. | Directors, Executive Officers and Corporate Governance | 87 |
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| Item 11. | Executive Compensation | 87 |
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 87 |
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| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 87 |
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| Item 14. | Principal Accounting Fees and Services | 87 |
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| PART IV | | 88 |
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| Item 15. | Exhibits and Financial Statement Schedules. | 88 |
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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K that are not descriptions of historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. The words “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology are generally intended to identify forward-looking statements. These forward-looking statements are based on management’s current expectations and are subject to risks and uncertainties that could negatively affect our business, operating results, financial condition and stock price. Factors that could cause actual results to differ materially from those currently anticipated include those set forth under “Item 1A. Risk Factors” including, in particular, risks relating to:
| ● | financing and strategic agreements and relationships; |
| ● | our need for substantial additional funds and uncertainties relating to financings; |
| ● | our ability to identify, acquire, close and integrate product candidates successfully and on a timely basis; |
| ● | our ability to attract, integrate and retain key personnel; |
| ● | the early stage of products under development; |
| ● | the results of research and development activities; |
| ● | uncertainties relating to preclinical and clinical testing; |
| ● | our ability to obtain regulatory approval for products under development; |
| ● | our ability to successfully commercialize products for which we receive regulatory approval; |
| ● | the ability to secure and maintain third-party manufacturing, marketing and distribution of our and our partner companies’ products and product candidates; |
| ● | patent and intellectual property matters; and |
We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations or any changes in events, conditions or circumstances on which any such statement is based, except as may be required by law, and we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The information contained herein is intended to be reviewed in its totality, and any stipulations, conditions or provisos that apply to a given piece of information in one part of this Annual Report on Form 10-K should be read as applyingmutatis mutandis to every other instance of such information appearing herein.
SUMMARY OF RISK FACTORS
Our business is subject to risks of which you should be aware before making an investment decision. The risks described below are a summary of the principal risks associated with an investment in us and are not the only risks we face. You should carefully consider these risk factors, the risk factors described in Item 1A, and the other reports and documents that we have filed with the Securities and Exchange Commission (“SEC”). As used below and 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.
Risks Inherent in Drug Development
| ● | Many of our product candidates are in early development stages and are subject to time and cost intensive regulation and clinical testing, which may result in the identification of safety or efficacy concerns. As a result, our product candidates may never be successfully developed or commercialized. |
| ● | Our competitors may develop treatments for our products’ target indications, which could limit our product candidates’ commercial opportunity and profitability. |
Risks Pertaining to the Need for and Impact of Existing and Additional Financing Activities
| ● | We have a history of operating losses and expect such losses to continue in the future. |
| ● | We have funded our operations in part through the assumption of debt, and the applicable lending agreements may restrict our operations. Further, the occurrence of any default event under an applicable loan document could adversely affect our business. |
| ● | Our research and development (“R&D”) programs will require additional capital, which we may be unable to raise as needed and which may impede our R&D programs, commercialization efforts, or planned acquisitions. |
| ● | If we raise additional capital by issuing equity, equity-linked securities or securities convertible into or exercisable for equity securities, our existing stockholders will be diluted. |
Risks Pertaining to Our Existing Revenue Stream from Journey Medical Corporation (“Journey”)
| ● | Our operating income derives primarily from the sale of our partner company Journey’s dermatology products, particularly Qbrexza, Accutane, Amzeeq, Zilxi, Targadox, and Exelderm. Any issues relating to the manufacture, sale, utilization, or reimbursement of Journey’s products (including products liability claims) could significantly impact our operating results. |
| ● | A significant portion of Journey’s sales derive from products that are without patent protection and/or are or may become subject to third party generic competition, the introduction of new competitor products, or an increase in market share of existing competitor products, any of which could have a significant adverse effect on our operating income. Three of Journey’s marketed products, Qbrexza, Amzeeq and Zilxi, as well as DFD-29, a modified release oral minocycline for the treatment of rosacea licensed from Dr. Reddy’s Laboratories, currently have patent protection. Three of Journey’s marketed products, Accutane, Targadox, and Exelderm, do not have patent protection or otherwise are not eligible for patent protection. With respect to Journey products that are covered by valid claims of issued patents, such patents may be subject to invalidation, which would harm our operating income. |
| ● | Continued sales and coverage, including formulary inclusion without the need for a prior authorization or step edit therapy, of our products for commercial sale will depend in part on the availability of reimbursement from third-party payors, including government payors. Third-party payors are increasingly examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy, and, accordingly, significant uncertainty exists as to the reimbursement status of current and newly approved therapeutics. |
Risks Pertaining to our Business Strategy, Structure and Organization
| ● | We have entered, and will likely in the future enter, into certain collaborations or divestitures which may cause a reduction in our business’ size and scope, market share and opportunities in certain markets, or our ability to compete in certain markets and therapeutic categories. |
| ● | We and our subsidiaries and partner companies have also entered into, and intend in the future to enter into, arrangements under which we and/or they have agreed to contingent dispositions of such companies and/or their assets. The failure to consummate any such transaction may impair the value of such companies and/or assets, and we may not be able to identify or execute alternative arrangements on favorable terms, if at all. The consummation of any such arrangements with respect to certain product candidates may also result in our eligibility to receive a lower portion of sales (if any) of resulting approved products than if we had developed and commercialized such products ourselves. |
| ● | Our growth and success depend on our acquiring or in-licensing products or product candidates and integrating such products into our businesses. |
| ● | We may act as guarantor and/or indemnitor of certain obligations of our subsidiaries and partner companies, which could require us to pay substantial amounts based on the actions or omissions of said entities. |
Risks Pertaining to Reliance on Third Parties
| ● | We rely heavily on third parties for several aspects of our operations, including manufacturing and developing product candidates, conducting clinical trials, and producing commercial product supply. Such reliance on third parties reduces our ability to control every aspect of the drug development process and may hinder our ability to develop and commercialize our products in a cost-effective and timely manner. |
Risks Pertaining to Intellectual Property and Potential Disputes with Licensors Thereof
| ● | If we are unable to obtain and maintain patent protection for our technologies and products, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technologies and products similar or identical to ours, and our ability to successfully commercialize our technologies and products may be impaired. |
| ● | We or our licensors may be subject to costly and time-consuming litigation for infringement of third-party intellectual property rights or to enforce our or our licensors’ patents. |
| ● | Any dispute with our licensors may affect our ability to develop or commercialize our product candidates. |
Risks Pertaining to Generic Competition and Paragraph IV Litigation
| ● | Generic drug companies may submit applications seeking approval to market generic versions of our products. |
| ● | In connection with these applications, generic drug companies may seek to challenge the validity and enforceability of our patents through litigation and/or with the United States Patent and Trademark Office (“PTO”). Such challenges may subject us to costly and time-consuming litigation and/or PTO proceedings. |
| ● | As a result of the loss of any patent protection from such litigation or PTO proceedings, or the “at-risk” launch by a generic competitor of our products, our products could be sold at significantly lower prices, and we could lose a significant portion of product sales in a short period of time, which could adversely affect our business, financial condition, operating results and prospects. |
Risks Pertaining to the Commercialization of Product Candidates
| ● | If our product candidates, if approved, are not broadly accepted by the healthcare community, the revenues from any such products are likely to be limited. |
| ● | We may not obtain the desired product labels or intended uses for product promotion, or favorable scheduling classifications desirable to successfully promote our products. |
| ● | Even if a product candidate is approved, it may be subject to various post-marketing requirements, including studies or clinical trials, the results of which could cause such products to later be withdrawn from the market. |
| ● | Any successful products liability claim related to any of our current or future product candidates may cause us to incur substantial liability and limit the commercialization of such products. |
Risks Pertaining to Legislation and Regulation Affecting the Biopharmaceutical and Other Industries
| ● | We operate in a heavily regulated industry, and we cannot predict the impact that any future legislation or administrative or executive action may have on our operations. |
General and Other Risks
| ● | We have previously failed to satisfy certain continued listing rules of The Nasdaq Stock Market LLC (“Nasdaq”), and if we again are unable to meet the continued listing requirements, our Common Stock and Preferred Stock may be subject to delisting from The Nasdaq Capital Market if we are unable to regain compliance with such rules. The delisting of our Securities from the Nasdaq may decrease the market liquidity and market price of our Common Stock and Preferred Stock. |
