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TICKERS: FBIO

Coverage Initiated on 'Biotech Machine'
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The compelling reasons behind those descriptors are explored in a Dawson James Securities report.

In an Aug. 26 research note, analyst Jason Kolbert reported that DawsonJames Securities initiated coverage on Fortress Biotech Inc. (FBIO:NASDAQ) with a Buy rating and a $19 per share price target. The stock is currently trading at around $1.74 per share.

Kolbert described Fortress as having "a unique model that manages risk but keeps the upside." The company has more than 25 candidates across six markets in development. Its robust, diversified pipeline encompasses seven commercialized products, along with eight late-stage and seven early-stage clinical products. "Combined, Fortress' clinical phase products have a market opportunity in the billions," the analyst pointed out.

Also, the biopharmaceutical firm has key investments in about 10 companies that contribute to its overall valuation. The analyst reviewed a handful of them along with their estimated potential value to Fortress.

1. Through its roughly 32% ownership of Avenue Therapeutics, Fortress "stands to pick up a $55 million milestone," noted Kolbert. Avenue is developing intravenous Tramadol to treat more moderate postsurgical pain without causing addiction. In two recent Phase 3 trials, Avenue's product showed statistically significant improvement in its primary endpoint(s) and all key secondary endpoints.

2. Fortress owns about 30% of Mustang Therapeutics and is entitled to a 4.5% royalty in MB-107, as well as a 2.5% equity dividend annually, Kolbert indicated. MB-107 is a gene therapy that Mustang is developing for bubble boy disease. MB-107 alone could result in an estimated $75 million for Fortress just for the partial ownership. Adding in the royalty and dividend takes it closer to $100 million.

3. With Checkpoint Therapeutics, Fortress owns 32% of the company and is entitled to a 4.5% royalty on sales of CK-101, an EGFR tyrosine kinase inhibitor (TKI), and cosibelimab, an anti-PD-L1 antibody, along with an annual 2.5% equity dividend. "Clinical progression of the TKI could go pivotal in 2020 and the PD-L1 in 2021," wrote Kolbert. Accounting for Fortress' percentage ownership only, these programs could generate about $640 million in value it.

4. As for Cyprium Therapeutics, Fortress owns 89% of the company and gets a 4.5% royalty. Cyprium is developing CUTX-101 for the rare genetic disorder, Menkes disease. With a Phase 3 trial in progress, receipt of a new drug application approval could potentially happen in 2020.

5. Caelum Biosciences' lead candidate is CAEL-101, a therapy designed to reduce or eliminate amyloid deposits in patients with AL amyloidosis. It is being developed in partnership with Alexion Pharmaceuticals. Fortress owns 43% of Caelum, a position valued at about $50 and $75 million "and we note that acquisition is triggered if Alexion is acquired," added Kolbert.

Fortress is the 100% owner pf Journey Medical Corp., whose dermatology franchise generated $23 million in revenue in 2018 and whose lead candidate is Targadox for acne. "The company is cash flow positive today and could contribute $5–10 million in cash annually depending on the growth of the core franchise," Kolbert relayed.

Additionally, Fortress owns a number of internal, early-stage private companies, including Aevitas Therapeutics (gene therapy), Cellvation (traumatic brain injury), Helocyte (cytomegalovirus) and Tamid Bio (adenoassociated virus gene therapies).

Kolbert concluded that, yes, undoubtedly, Fortress' pipeline and equity positions offer value, but the company's "real value is in the discovery, licensing, company infrastructure (access to a pool of EO/CFO/CMO/CSOs and the right boards) as well as established vendors (CROs, investment banks, regulatory expertise) to create the next company."

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Disclosures for Dawson James Securities, Fortress Biotech Inc., August 26, 2019,

The Firm does not make a market in the securities of the subject company(s). The Firm has NOT engaged in investment banking relationships with Dare in the prior twelve months, as a manager or co-manager of a public offering and has NOT received compensation resulting from those relationships. The Firm may seek compensation for investment banking services in the future from the subject company(s). The Firm has not received any other compensation from the subject company(s) in the last 12 months for services unrelated to managing or co-managing of a public offering.

Neither the research analyst(s) whose name appears on this report nor any member of his (their) household is an officer, director or advisory board member of these companies. The Firm and/or its directors and employees may own securities of the company(s) in this report and may increase or decrease holdings in the future. As of July 31, 2019, the Firm as a whole did not beneficially own 1% or more of any class of common equity securities of the subject company(s) of this report. The Firm, its officers, directors, analysts or employees may affect transactions in and have long or short positions in the securities (or options or warrants related to those securities) of the company(s) subject to this report. The Firm may affect transactions as principal or agent in those securities.

Analysts receive no direct compensation in connection with the Firm's investment banking business. All Firm employees, including the analyst(s) responsible for preparing this report, may be eligible to receive non-product or service specific monetary bonus compensation that is based upon various factors, including total revenues of the Firm and its affiliates as well as a portion of the proceeds from a broad pool of investment vehicles consisting of components of the compensation generated by investment banking activities, including but not limited to shares of stock and/or warrants, which may or may not include the securities referenced in this report.

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