Fortress Bio’s Unique Busi­ness Mod­el Ide­al­ly Suit­ed to Thrive in Biotech’s Bear Mar­ket

Dr. Lind­say Rosen­wald cre­at­ed Fortress Biotech (FBIO), pur­su­ing an op­por­tu­ni­ty to fill a gap in drug de­vel­op­ment while dri­ving in­vestor re­turns. Af­ter decades of suc­cess­ful­ly cre­at­ing and sell­ing nu­mer­ous bio­phar­ma com­pa­nies, he came out of re­tire­ment with an idea for a new life sci­ences busi­ness mod­el. The mod­el would take the best at­trib­ut­es of a roy­al­ty busi­ness, pri­vate eq­ui­ty, and tra­di­tion­al bio­phar­ma to fo­cus pri­mar­i­ly on clin­i­cal de­vel­op­ment and com­mer­cial­iza­tion, with­out the risk of ex­ten­sive re­search and pre­clin­i­cal de­vel­op­ment. He com­bined this in­to Fortress Bio.

“There are 14,000 clin­i­cal-stage ther­a­pies around the world with rough­ly $350 bil­lion spent glob­al­ly on re­search and de­vel­op­ment each year,” said Rosen­wald. “Yet, the bio­phar­ma­ceu­ti­cal mar­ket re­mains frag­ment­ed and in­ef­fi­cient. An un­met de­mand re­mains for both pa­tients and cap­i­tal to de­vel­op these qual­i­ty drug can­di­dates. With the on­go­ing mar­ket down­turn, that gap con­tin­ues to grow af­fect­ing the po­ten­tial for in­no­v­a­tive treat­ments to reach pa­tients.”

This is where Fortress Bio thrives. The com­pa­ny ac­quires prod­uct can­di­dates with hu­man proof-of-con­cept in ar­eas of high un­met med­ical need and re­duced de­vel­op­ment risk.

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“Fortress Bio’s’ in­trin­sic val­ue in­creas­es as pro­grams ad­vance in the clin­ic and new ther­a­pies are ac­quired, re­sult­ing in mul­ti­ple near- and medi­um-term cat­a­lysts. Our mod­el is de­signed to de­crease risk and ex­pense while gen­er­at­ing a reg­u­lar flow of po­ten­tial­ly val­ue-cre­at­ing events for our share­hold­ers,” said Rosen­wald. “We’re in­cred­i­bly se­lec­tive with our ac­qui­si­tions. We’ve ob­tained nine as­sets dur­ing the past two years since the bear mar­ket start­ed and see new op­por­tu­ni­ties dri­ven by mar­ket con­di­tions on a dai­ly ba­sis.”

Fortress Bio’s unique busi­ness mod­el

Fortress’ mod­el is fo­cused on col­lab­o­rat­ing with a pro­pri­etary net­work of lead­ing physi­cians and sci­en­tists to iden­ti­fy un­der­val­ued, promis­ing ther­a­pies with proof-of-con­cept da­ta. Fortress cur­rent­ly has 10 sub­sidiaries, al­so known as part­ner com­pa­nies, with a com­bined eight mar­ket­ed prod­ucts and over 20 pro­grams in de­vel­op­ment, and re­search and de­vel­op­ment ex­pens­es fund­ed pri­mar­i­ly at the sub­sidiary lev­el. In 2022, ~$135 mil­lion was spent on R&D across the port­fo­lio of com­pa­nies with Fortress it­self hav­ing on­ly spent ~$11 mil­lion. Fortress has al­so es­tab­lished 25 ac­qui­si­tion com­pa­nies with ex­pert opin­ion lead­ers in mul­ti­ple dis­ease ar­eas over the past year. These ex­pert opin­ion lead­ers work with our busi­ness de­vel­op­ment team to iden­ti­fy, eval­u­ate, and ac­quire po­ten­tial best-in-class ther­a­pies to form the bases of these new com­pa­nies. Ul­ti­mate­ly, Fortress’ busi­ness mod­el cre­ates a snow­ball ef­fect that gen­er­ates share­hold­er re­turns through the fol­low­ing chan­nels: as­set mon­e­ti­za­tions, growth in eq­ui­ty hold­ings in its sub­sidiary com­pa­nies, and div­i­dend and roy­al­ty rev­enue. Fortress re­ceives an an­nu­al eq­ui­ty div­i­dend from most of the part­ner com­pa­nies equal to 2.5% of the part­ner’s cap­i­tal­iza­tion and a 4.5% roy­al­ty on net prod­uct sales once those prod­ucts are ap­proved and mar­ket­ed. This great­ly in­cen­tivizes Fortress to con­tin­ue to add val­ue to the part­ner com­pa­nies through its busi­ness de­vel­op­ment ac­tiv­i­ties, as well as on­go­ing op­er­a­tional and strate­gic sup­port.

The mod­el in ac­tion

In Jan­u­ary 2017, Fortress cre­at­ed Caelum Bio­sciences af­ter it in-li­censed CAEL-101, a mon­o­clon­al an­ti­body be­ing eval­u­at­ed as a po­ten­tial treat­ment for a rare hema­to­log­ic 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 a fu­ture clin­i­cal da­ta read­out at a pre-de­ter­mined val­u­a­tion. Over the next two and a half years, Alex­ion con­tin­ued to fund the de­vel­op­ment of CAEL-101 in­to Phase 3 tri­als.

In Oc­to­ber 2021, As­traZeneca (which ac­quired Alex­ion in June 2021) ex­er­cised its op­tion to pur­chase the re­main­der of Caelum, trig­ger­ing an up­front $150M pay­ment to Caelum share­hold­ers, in­clud­ing ~$64M to Fortress. Caelum share­hold­ers are el­i­gi­ble to re­ceive ad­di­tion­al reg­u­la­to­ry and com­mer­cial mile­stone pay­ments to­tal­ing up to $350M, in­clud­ing up to $147M to Fortress. CAEL-101 is cur­rent­ly en­rolling across two glob­al Phase 3 stud­ies that could sup­port a BLA sub­mis­sion and ap­proval. As an ex­am­ple of the mar­ket in­ef­fi­cien­cy preva­lent in the mar­ket, Fortress’ to­tal in­vest­ment was less than $1M and an­tic­i­pates re­ceiv­ing up to $212M to­tal in mile­stones.

“CAEL-101 epit­o­mizes our unique mod­el,” says Rosen­wald. “Our busi­ness de­vel­op­ment team iden­ti­fied an as­set with ex­cel­lent ear­ly hu­man ef­fi­ca­cy da­ta that had not yet been pub­lished or pub­licly pre­sent­ed. Caelum ef­fi­cient­ly moved CAEL-101 through Phase 2, and then we were able to ex­e­cute an ex­cel­lent deal for Fortress and Caelum share­hold­ers with sig­nif­i­cant up­front pay­ments and fu­ture mile­stone pro­ceeds.”

In 2021, Fortress Bio’s part­ner com­pa­ny Cypri­um Ther­a­peu­tics an­nounced a de­vel­op­ment and as­set pur­chase agree­ment with Sen­tynl Ther­a­peu­tics for CUTX-101 to treat Menkes dis­ease, which pre­vents in­fants from prop­er­ly ab­sorb­ing cop­per and typ­i­cal­ly re­sults in high mor­tal­i­ty in ear­ly child­hood.

Cypri­um is el­i­gi­ble to re­ceive up to $20M in mile­stones through NDA ap­proval from Sen­tynl, as well as po­ten­tial sales mile­stones and roy­al­ties. Cypri­um will re­tain 100% own­er­ship of an FDA pri­or­i­ty re­view vouch­er if one is 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 in­clud­ing:

• The FDA ac­cept­ed a BLA for Check­point Ther­a­peu­tics’ an­ti-PD-L1 an­ti­body can­di­date, cosi­be­limab, to treat metasta­t­ic or lo­cal­ly ad­vanced cu­ta­neous squa­mous cell car­ci­no­ma in March 2023, with a PDU­FA goal date of Jan­u­ary 3, 2024. Cosi­be­limab has the po­ten­tial to be a best-in-class drug that could com­pete in the ~$32B+ PD-(L)1 mar­ket.
• Uri­ca Ther­a­peu­tics is ex­pect­ed to re­port topline Phase 1 da­ta for dot­in­u­rad, which is in de­vel­op­ment for the treat­ment of gout, this year. Uri­ca ex­pects to be in piv­otal clin­i­cal tri­als in ear­ly 2024. Dot­in­u­rad is a po­ten­tial­ly 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 and may have block­buster po­ten­tial in its li­censed mar­kets, in­clud­ing the U.S., E.U., Mid­dle East and North Africa and Turkey ter­ri­to­ries.
• Jour­ney Med­ical’s DFD-29, be­ing de­vel­oped to treat papu­lo­pus­tu­lar rosacea, com­plet­ed Phase 3 clin­i­cal tri­al en­roll­ment in Jan­u­ary 2023. Topline da­ta is ex­pect­ed in the first half of 2023, and an NDA fil­ing is sub­se­quent­ly ex­pect­ed in the sec­ond half of 2023. Up­on ap­proval, peak an­nu­al net sales ex­ceed­ing $100 mil­lion are an­tic­i­pat­ed.

“Us­ing in­for­ma­tion ar­bi­trage, Fortress Bio ex­pands its di­verse drug can­di­date port­fo­lio across mul­ti­ple dis­ease ar­eas, which de­creas­es risk and in­creas­es the like­li­hood of suc­cess. We search for and find as­sets where oth­ers fail to look,” added Rosen­wald. “We are con­fi­dent that Fortress’ mod­el is a smart, ef­fi­cient way to ad­vance mean­ing­ful treat­ments for pa­tients while re­ward­ing in­vestors and share­hold­ers.”