Dr. Lindsay Rosenwald has created and sold numerous companies during his decades-long biopharma career. He came out of retirement in 2013 to create Fortress Biotech ($FBIO) because he saw an opportunity to fill a gap in drug development while also driving investor returns.
“By our count, roughly over $350 billion is invested globally each year in biopharma R&D, and that’s still not nearly enough,” said Rosenwald. “There are far more quality drug candidates than there are people and capital to develop them, and that gap has grown significantly over the past couple of years.”
As the SPDR S&P Biotech ETF ($XBI) has dropped roughly 50-70% during the past 20 months, dozens of companies have announced plans to shelve development programs to conserve cash rather than attempt to raise funds at depressed valuations. There has also been a trickle-down effect. According to Crunchbase, venture biotech funding is down more than 38% in 2022 compared with 2021.
Fortress Bio’s unique business model
Fortress doesn’t create new molecules. It leverages a large internal and external business development team to find, evaluate and primarily aims to acquire assets that have been significantly de-risked with strong clinical data and then builds companies to advance those programs (it currently has 11 partner companies). Ultimately, Fortress looks to generate shareholder returns through three channels: asset monetizations, growth in equity holdings in its partner companies and dividend and royalty revenue paid by its partner companies in return for the significant business development activities, as well as operational and strategic support, that Fortress provides. Most partner companies pay Fortress an annual equity dividend worth 2.5% of the partner’s market cap and a royalty of 4.5% on net sales.
Currently, Fortress has nine marketed products and 20 clinical development programs across its partner companies in therapeutic areas ranging from oncology ($CKPT), rare diseases ($ATXI) and cell/gene therapy ($MBIO) to commercial dermatology. Partner company Journey Medical Corporation ($DERM) achieved record dermatology revenues of $63.1M in 2021.
“Our model is designed to try to decrease risk and expense while at the same time creating a regular flow of value-creating events for our shareholders,” said Rosenwald. “We’ve always been incredibly selective with our acquisitions, and now the bar is higher because there are more opportunities available.”
The model in action
In January 2017, Fortress created Caelum Biosciences after it in-licensed CAEL-101, a monoclonal antibody (mAb) that was being evaluated as a potential treatment for the treatment of a rare systemic disorder called amyloid light chain amyloidosis in a Phase 1a/1b study, from a leading university.
After announcing positive Phase 1a/1b results, Fortress entered into a collaboration with Alexion Pharmaceuticals to develop CAEL-101 in January 2019. Alexion acquired a minority equity interest in Caelum and an exclusive option to acquire the remaining Caelum equity based on Phase 2 data for a pre-negotiated amount. Over the next two and a half years, Alexion funded CAEL-101 development to the tune of $140M.
In October 2021, AstraZeneca (which acquired Alexion in June 2021) exercised its option to purchase the remainder of Caelum Biosciences, triggering an upfront $150M payment to all other Caelum shareholders, approximately $64M of which went Fortress. Caelum shareholders are still eligible to receive additional payments totaling up to $350M, including up to $147M to Fortress, payable upon the achievement of regulatory and commercial milestones. CAEL-101 is currently enrolling across two global Phase 3 studies that could support approvals.
“CAEL-101 epitomizes our unique model,” says Rosenwald. “Our business development team was able to identify a valuable asset with excellent early human efficacy data that had not yet been published or presented to the public. The Caelum team efficiently moved CAEL-101 through Phase 2, and then we were able to negotiate an excellent deal for Fortress and Caelum shareholders with significant upfront payments and the potential for hundreds of millions more.”
Last year, Fortress partner company Cyprium Therapeutics announced execution of an asset purchase agreement with a commercial-stage rare disease company, Sentynl Therapeutics, for CUTX-101 for the treatment of Menkes disease, which prevents infants from properly absorbing copper and could lead to death in early childhood.
Cyprium is eligible to receive up to $20M in upfront development and regulatory cash milestones through NDA approval from Sentynl, as well as potential sales milestones and royalties. Cyprium will retain 100% ownership over any FDA priority review voucher that may be issued at NDA approval for CUTX-101. Recently, these vouchers have sold for $100-110M each.
Upcoming milestones
Fortress has more potential value inflection points than many similar sized companies. Among the upcoming events in which investors are focused on include:
- Urica Therapeutics is expected to report Phase 1 data for dotinurad early next year. Dotinurad is a potential best-in-class urate transporter (URAT1) inhibitor for gout and possibly other hyperuricemic indications including chronic kidney disease and heart failure. Dotinurad can lower blood uric acid levels by selectively inhibiting URAT1 and uric acid reabsorption in the kidneys. Dotinurad was approved and launched in Japan in 2020 as an oral therapy for gout and hyperuricemia. Fortress believes dotinurad may have blockbuster potential in its licensed markets, including the U.S. and E.U.
- Checkpoint Therapeutics ($CKPT) is expected to file a Biologics License Application (BLA) for the company’s anti-PD-L1 antibody candidate, cosibelimab, in patients with metastatic or locally advanced cutaneous squamous cell carcinoma. Cosibelimab has the potential to be a best-in-class drug that could disrupt the ~$25B+ checkpoint immunotherapy market and capture meaningful market share as a lower-priced alternative to currently available anti-PD-(L)1s, such as Keytruda, Opdivo and Libtayo.