Fortress Biotech, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Licenses Acquired

Licenses Acquired	3 Months Ended
Mar. 31, 2023
Licenses Acquired
Licenses Acquired	8. Licenses Acquired In accordance with ASC 730-10-25-1, Research and Development, costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future use. The licenses purchased by Fortress and its subsidiaries and partner companies require substantial completion of research and development, and regulatory and marketing approval efforts, in order to reach technological feasibility. As such, for the three months ended March 31, 2023, the purchase price of the license acquired was classified as research and development-licenses acquired in the unaudited condensed consolidated statement of operations. Avenue On February 28, 2023, Avenue entered into a license agreement with AnnJi Pharmaceutical Co. Ltd. ("AnnJi"), whereby Avenue obtained an exclusive license (the "AnnJi License Agreement") from AnnJi to intellectual property rights pertaining to the molecule known as JM17, which activates Nrf1 and Nrf2, enhances androgen receptor degradation and underlies AJ201, a clinical product candidate currently in a Phase 1b/2a clinical trial in the U.S. for the treatment of spinal and bulbar muscular atrophy ("SBMA"), also known as Kennedy's Disease. Under the AnnJi License Agreement, in exchange for exclusive rights to the intellectual property underlying the AJ201 product candidates, Avenue agreed to pay $3.0 million, of which $2.0 million was paid on April 27, 2023 and $1 million is payable within 180 day after the effective date of the AnnJi License Agreement. The license provided under the AnnJi License Agreement is exclusive as to all oral forms of AJ201 for use in all indications (other than androgenetic alopecia and Alzheimer’s disease) in the United States, Canada, the European Union, the United Kingdom and Israel. The AnnJi License Agreement also contains customary representations and warranties and provisions related to confidentiality, diligence, indemnification and intellectual property protection. Avenue will initially be obligated to obtain both clinical and commercial supply of AJ201 exclusively through AnnJi. Pursuant to the terms of the AnnJi License Agreement, Avenue is also obligated to issue two tranches of shares of its common stock and make additional payments including: reimbursement of payments up to $10.8 million in connection with the product’s Phase 1b/2a clinical trial, (which AnnJi is administering with Joint Steering Committee Oversight before assigning the IND to Avenue upon such trial’s conclusion, and which is reflective of market pricing for the services to be received), up to $14.5 million in connection with certain development milestones pertaining to the first indication in the U.S., up to $27.5 million in connection with certain drug development milestones pertaining to additional indications and development outside the U.S., up to $165 million upon the achievement of certain net sales milestones ranging from $75 million to $750 million in annual net sales, and royalty payments based on a percentage of net sales ranging from mid-single digits (on annual net sales at or below $50 million) to the low double digits (on annual net sales equal to or greater than $300 million), which are subject to potential diminution in certain circumstances. In connection with the signing of the AnnJi License Agreement, Avenue entered into a Subscription Agreement with AnnJi, pursuant to which Avenue issued 831,618 shares of its common stock to AnnJi (“First Tranche Shares”) and recognized expense of $0.9 million; and will subsequently issue an additional 276,652 shares of common stock upon enrollment of the eighth patient in the ongoing Phase 1b/2a SBMA clinical trial (“Second Tranche Shares”). Avenue recognized $0.3 million in expense related to the shares issuable for the Second Tranche Shares. In the event that the common stock of Avenue ceases to be traded on a national securities exchange, AnnJi has the right to sell the common stock of Avenue back to Avenue at a price of $2.10 subject to the terms in the License Agreement. In connection with execution of the AnnJi License Agreement, Avenue entered into a registration rights agreement with AnnJi (“AnnJi Registration Rights Agreement”), pursuant to which Avenue will be required to file, on or prior to August 28, 2023, a registration statement with the SEC to register the resale of the First Tranche and Second Tranche Shares.

Licenses Acquired

3 Months Ended

Mar. 31, 2023

8. Licenses Acquired

In accordance with ASC 730-10-25-1, Research and Development, costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future use. The licenses purchased by Fortress and its subsidiaries and partner companies require substantial completion of research and development, and regulatory and marketing approval efforts, in order to reach technological feasibility. As such, for the three months ended March 31, 2023, the purchase price of the license acquired was classified as research and development-licenses acquired in the unaudited condensed consolidated statement of operations.

Avenue

On February 28, 2023, Avenue entered into a license agreement with AnnJi Pharmaceutical Co. Ltd. ("AnnJi"), whereby Avenue obtained an exclusive license (the "AnnJi License Agreement") from AnnJi to intellectual property rights pertaining to the molecule known as JM17, which activates Nrf1 and Nrf2, enhances androgen receptor degradation and underlies AJ201, a clinical product candidate currently in a Phase 1b/2a clinical trial in the U.S. for the treatment of spinal and bulbar muscular atrophy ("SBMA"), also known as Kennedy's Disease. Under the AnnJi License Agreement, in exchange for exclusive rights to the intellectual property underlying the AJ201 product candidates, Avenue agreed to pay $3.0 million, of which $2.0 million was paid on April 27, 2023 and $1 million is payable within 180 day after the effective date of the AnnJi License Agreement.

The license provided under the AnnJi License Agreement is exclusive as to all oral forms of AJ201 for use in all indications (other than androgenetic alopecia and Alzheimer’s disease) in the United States, Canada, the European Union, the United Kingdom and Israel. The AnnJi License Agreement also contains customary representations and warranties and provisions related to confidentiality, diligence, indemnification and intellectual property protection. Avenue will initially be obligated to obtain both clinical and commercial supply of AJ201 exclusively through AnnJi.

Pursuant to the terms of the AnnJi License Agreement, Avenue is also obligated to issue two tranches of shares of its common stock and make additional payments including: reimbursement of payments up to $10.8 million in connection with the product’s Phase 1b/2a clinical trial, (which AnnJi is administering with Joint Steering Committee Oversight before assigning the IND to Avenue upon such trial’s conclusion, and which is reflective of market pricing for the services to be received), up to $14.5 million in connection with certain development milestones pertaining to the first indication in the U.S., up to $27.5 million in connection with certain drug development milestones pertaining to additional indications and development outside the U.S., up to $165 million upon the achievement of certain net sales milestones ranging from $75 million to $750 million in annual net sales, and royalty payments based on a percentage of net sales ranging from mid-single digits (on annual net sales at or below $50 million) to the low double digits (on annual net sales equal to or greater than $300 million), which are subject to potential diminution in certain circumstances.

In connection with the signing of the AnnJi License Agreement, Avenue entered into a Subscription Agreement with AnnJi, pursuant to which Avenue issued 831,618 shares of its common stock to AnnJi (“First Tranche Shares”) and recognized expense of $0.9 million; and will subsequently issue an additional 276,652 shares of common stock upon enrollment of the eighth patient in the ongoing Phase 1b/2a SBMA clinical trial (“Second Tranche Shares”). Avenue recognized $0.3 million in expense related to the shares issuable for the Second Tranche Shares. In the event that the common stock of Avenue ceases to be traded on a national securities exchange, AnnJi has the right to sell the common stock of Avenue back to Avenue at a price of $2.10 subject to the terms in the License Agreement.

In connection with execution of the AnnJi License Agreement, Avenue entered into a registration rights agreement with AnnJi (“AnnJi Registration Rights Agreement”), pursuant to which Avenue will be required to file, on or prior to August 28, 2023, a registration statement with the SEC to register the resale of the First Tranche and Second Tranche Shares.