1. Organization and Description of Business

 

Fortress Biotech, Inc., formerly Coronado Biosciences, Inc. (“Fortress” or “the Company”) is a biopharmaceutical company dedicated to acquiring, developing and commercializing novel pharmaceutical and biotechnology products.  Fortress plans to develop and commercialize products that it acquires both directly as well as indirectly by establishing subsidiary companies, also known as Fortress Companies.  The Company will leverage its biopharmaceutical business expertise and drug development capabilities to help the Fortress Companies achieve their goals.  Additionally, the Company will provide funding and management services to each of the Fortress Companies and, from time to time, the Company and the Fortress Companies will seek licensing, partnerships, joint ventures and/or public and private financings to accelerate and provide additional funding to support their research and development programs.

  

As of March 31, 2015, the Company has several consolidated Fortress Companies, which contain product licenses, Journey Medical Corporation (“JMC”), Coronado SO Co. (“Coronado SO”), Checkpoint Therapeutics, Inc. (“Checkpoint”) and Mustang Bio, Inc. (“Mustang”) and other consolidated Fortress subsidiaries, which have minimal activity: Avenue Therapeutics, Inc. (“Avenue”), Innmune Limited, CB Securities Corporation (holds marketable securities), Cyprium Inc., and Altamira Bio Inc.

 

Fortress

 

Epidermal Growth Factor Receptors (“EGFR”) Inhibitors

 

In March 2015, the Company entered into an exclusive license agreement with NeuPharma, Inc. (“NeuPharma”) to develop and commercialize novel irreversible, 3rd Generation EGFR inhibitors on a worldwide basis other than certain Asian countries. The program is currently in pre-clinical development. Under the terms of the agreement, the Company paid NeuPharma an up-front licensing fee of $1.0 million included in research and development licenses acquired on the Condensed Consolidated Statement of Operations and will also make development and sales-based milestone payments and will pay a tiered single digit royalty on net sales.

 

IV Tramadol

 

In February 2015, the Company purchased an exclusive license to an intravenous (“IV”) formulation of Tramadol for the U.S. market from Revogenex Ireland Ltd (“Revogenex”), a privately held company in Dublin, Ireland. Fortress made an upfront payment of $2.0 million to Revogenex upon execution of the exclusive license included in research and development licenses-acquired on the Condensed Consolidated Statement of Operations, with an additional $1.0 million due 120 days later and after receiving all the assets acquired in this agreement. Under the terms of the agreement Revogenex is eligible to receive additional milestone payments upon the achievement of certain development milestones, in addition to royalty payments for sales of the product. Tramadol is a centrally acting synthetic opioid analgesic for moderate to moderately severe pain and is available as immediate release or extended-release tablets in the United States. In connection with this purchase, the Company formed a Fortress subsidiary, Avenue, to acquire, in-license, develop and commercialize products principally for use in the U.S. hospital market. The Company will transfer the Revogenex license to Avenue during the first half of 2015.

 

Avenue plans to initiate a Phase III development program of IV Tramadol for the management of post-operative pain later this year. Under the terms of the agreement, the Company and Avenue will assume sole responsibility for the development and commercialization of IV Tramadol in the United States. In addition to IV Tramadol, Avenue plans to seek additional products.

 

Fortress Companies

 

 

 

In March 2015 the Company announced the formation of a Fortress Company, Checkpoint, to develop a portfolio of fully human immuno-oncology targeted antibodies generated in the laboratory of Dr. Wayne Marasco, MD, PhD, a Professor in the Department of Cancer Immunology and AIDS at the Dana-Farber Cancer Institute (“Dana-Farber”). Dr. Marasco will chair the Scientific Advisory Board of Checkpoint, for which Checkpoint granted Dr. Marasco 1,500,000 shares of restricted stock and will be paid $0.2 million a year paid quarterly for these services. Under the terms of the agreement, Checkpoint paid Dana-Farber an up-front licensing fee of $1.0 million included in research and development licenses acquired on the Condensed Consolidated Statement of Operation and in addition will pay development and sales-based milestone payments and royalties on net sales. The portfolio of antibodies licensed from Dana-Farber includes antibodies targeting Programmed-death Ligand 1 (“PD-L1”), glucocorticoid-induced TNFR-related protein (“GITR”) and carbonic anhydrase 9 (“CAIX”). Checkpoint plans to develop these novel immuno-oncology and checkpoint inhibitor antibodies on their own and in combination with each other, as data suggest that combinations of these targets can work synergistically together. We expect clinical trials to start in the second half of next year.

 

An independent consultant valued the restricted stock Checkpoint granted to Dr. Marasco utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 44.8% and a weighted average cost of capital of 30%, resulting in a value of $0.10 per share. Under the terms of the stock grant, the shares vest 25% on the first anniversary of the grant date and monthly thereafter for 48 months. At March 31, 2015, we recorded expense of approximately $3,000 in research and development expense on the Condensed Consolidated Statement of Operations.

 

Collaboration Agreement with TG Therapeutics

 

In connection with the license agreement with Dana-Farber, Checkpoint entered into a collaboration agreement with TG Therapeutics, Inc. (“TGTX”) to develop and commercialize the Anti-PD-L1 and Anti-GITR antibody research programs in the field of hematological malignancies. Michael Weiss, the Company’s Executive Vice Chairman, Strategic Development is also Co-Portfolio Manager and a Partner of Opus Point Partners Management, LLC (“OPPM”) with Dr. Rosenwald the Company’s Chairman and Chief Executive Officer. Further, Michael Weiss is the Executive Chairman, Interim President and Chief Executive Officer and a stockholder of TGTX. Checkpoint retains the right to develop and commercialize these antibodies in the field of solid tumors. Both programs are currently in pre-clinical development. Under the terms of the agreement, TGTX paid Checkpoint $0.5 million, representing an up-front licensing fee, and will make additional development and sales-based milestone payments as well as pay a tiered single digit royalty on net sales. During the three months ended March 31, 2015, the Company recognized $0.5 million in revenue from its collaboration agreement with TGTX in the Condensed Consolidated Statement of Operations.

 

Mustang Bio, Inc.

 

License Agreement with the City of Hope

 

In March 2015, the Company formed Mustang to develop immunotherapies based on Chimeric Antigen Receptor Technology (“CAR-T”) and Mustang entered into a license agreement with the City of Hope (“COH”) to acquire such technology. Pursuant to the agreement Mustang paid COH an upfront fee of $2.0 million, in April 2015, included in research and development-licenses acquired expense, and granted  1,000,000 shares of Mustang common stock, representing 10% of Mustang, with additional milestones due to COH upon the achievement of certain development goals and royalty payments for sales of the product. In addition, Mustang entered into a Sponsored Research Agreement with the COH in which Mustang will fund continued research in the amount of $2.0 million per year, payable in four equal installments, over the next five years.

 

An independent consultant valued the stock grant to the COH utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 44.8% and a weighted average cost of capital of 30%, resulting in a $0.26 value per share or $0.3 million and is included in research and development-licences acquired expense on the Condensed Consolidated Statement of Operations.

 

In February 2015, Coronado SO entered into an exclusive license agreement with a third party for a topical product used in the treatment of Hand-Foot Syndrome, a common painful side effect of chemotherapeutics. Coronado SO paid $0.9 million upfront, included in research and development-licenses acquired expense, issued a stock grant of 150,000 shares of common stock or 13% of Coronado SO and will pay $0.9 million nine months from the execution date. Additional milestone payments are due upon the achievement of certain development milestones and royalties will become due on sales of the product.

 

An independent consultant valued the stock grant to the third party utilizing a discounted cash flow model to determine the weighted market value of invested capital, discounted by a lack of marketability of 44.8% and a weighted average cost of capital of 30%, resulting in a $1.67 value per share or $0.2 million, included in research and development-licenses acquired expense.

 

 

In March 2015, JMC entered into a license and supply agreement to acquire rights to distribute a dermatological product for the treatment of acne. JMC made an upfront payment of $1.2 million capitalized as Intangible Asset License and will incur another fee of $0.7 million upon receipt of the product. Further payments will be made based on a revenue sharing arrangement. (Note 6)