Correspondence 0001558370-23-016876 from Fortress Biotech, Inc. (FBIO, FBIOP) (CIK 0001429260) (FBIO)
Fortress Biotech, Inc. (FBIO, FBIOP) (CIK 0001429260)
Date: Oct. 26, 2023 · CIK: 0001429260 · Accession: 0001558370-23-016876
AI Filing Summary & Sentiment
File numbers found in text: 001-35366
Referenced dates: September 27, 2023
Letter
October 26, 2023
VIA EDGAR
Frank Wyman and Li Xiao
Division of Corporation Finance
Office of Life Sciences
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re:Fortress Biotech, Inc.
Form 10-K for Fiscal Year Ended December 31, 2022
Filed March 31, 2023
Form 8-K furnished May 15, 2023
Form 10-Q for Quarterly Period Ended June 30, 2023
Filed August 14, 2023
File No. 001-35366
Frank Wyman and Li Xiao:
We are writing to respond to the comments provided by the Staff (the “Staff”) of the Division of Corporation Finance of the U.S. Securities and Exchange Commission in your letter dated September 27, 2023 (the “Response Letter”), relating to the Fortress Biotech, Inc. (“we”, "Fortress", or the “Company”) Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed on March 31, 2023 (the “Form 10-K”), the Current Report on Form 8-K furnished on May 15, 2023 (the “Form 8-K”), and the Quarterly Report on Form 10-Q for period ended June 30, 2023 filed on August 14, 2023 (the “Form 10-Q”).
For ease of review, we have set forth below the numbered comment of the Response Letter in bold type, followed by the Company’s response thereto.
Frank Wyman and Li Xiao
Securities and Exchange Commission
October 26, 2023
Page 2 of 11
Form 10-K for the Fiscal Year Ended December 31, 2022
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies
Non-Controlling Interests, page F-16
1.
We acknowledge the information provided in your response to prior comment 1 but continue to have difficulty in understanding your basis for determining the allocation of net losses to the non-controlling interests. Please explain in greater detail how you determine ownership interest and allocate net losses to the non-controlling interests for your partner companies. In this regard, provide examples demonstrating how you determined the non-controlling ownership percentage and associated net loss attributable to non-controlling interests for each of your public partner companies based on publicly reported operating results and ownership percentages for each year, as disclosed on page F-33. Provide revised disclosure to be included in future filings.
Response to Comment:
The Company acknowledges the Staff’s comment and respectfully advises that the Company’s approach to determining the Company’s ownership interest for the purpose of allocating net losses to non-controlling interests of partner companies is based on the Company’s ownership percentage derived from dividing (a) Fortress-held shares in the partner company (the numerator) by (b) the total shares outstanding in the respective partner company (the denominator). Fortress-held shares in its partner companies comprises common, and/or Class A common or preferred shares, as issued by the partner company, and are included in the ownership calculation. Common, Class A common, and preferred shares all share the same residual economic interest in the underlying entity. The Class A common and preferred shares, if issued, are convertible at Fortress’ election on a 1:1 basis into common stock (with adjustments for stock splits) and upon conversion would have the same voting rights as the common stock. Only preferred stock and Class A common stock held by Fortress have majority voting rights, which rights would terminate upon conversion into common stock.
The resulting percentage provides the basis for the Company’s ownership interest for the purpose of calculating non-controlling interests, which is the result of 100% minus the Company’s ownership interest. The calculation and allocation to non-controlling interests is performed on a quarterly basis. The two primary components of the calculation, (a) and (b), may potentially change on a quarter-by-quarter basis: (a) may vary if Fortress acquires additional shares or disposes of shares in the partner company and (b) may vary if the partner company issues additional shares, including to Fortress. The Company allocates the partner companies’ net loss/income to the non-controlling interest on a quarterly basis, and the calculation of non-controlling ownership interest percentage for the net loss/gain allocation is determined as the average of the prior quarter and the current quarter’s non-controlling ownership interest.
Please see Exhibit A for detail to the calculation of the non-controlling ownership interest of the public partner companies of Fortress. Revised disclosure to be included in future filings will include additional detail as to how the non-controlling ownership percentage is calculated.
Frank Wyman and Li Xiao
Securities and Exchange Commission
October 26, 2023
Page 3 of 11
Example of disclosure for future filings is set forth below:
Footnote 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Company’s unaudited condensed consolidated financial statements include the results of the Company’s subsidiaries for which it has voting control but does not own 100% of the outstanding equity of the subsidiaries. For consolidated entities where the Company owns less than 100% of the subsidiary, but retains voting control, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations and presents non-controlling interests as a component of stockholders’ equity on its consolidated balance sheets. All intercompany income and/or expense items are eliminated entirely in consolidation prior to the allocation of net gain/loss attributable to non-controlling interest, which is based on ownership interests as calculated quarterly for each subsidiary.
Non-Controlling Interests
The Company records net loss attributable to non-controlling interests in its consolidated statements of operations and presents non-controlling interests as a component of stockholders’ equity on its consolidated balance sheets. All intercompany income and/or expense items are eliminated entirely in consolidation prior to the allocation of net gain/loss attributable to non-controlling interest, which is based on a quarterly calculation of ownership interests for each relevant subsidiary.
Subsidiary preferred shares and Class A common shares, if issued, are included in the ownership calculation on a 1:1 basis consistent with how the relevant contractual agreements provide for the allocation and distribution of earnings. These shares, if issued, are convertible at Fortress’ election on a 1:1 basis into common stock (with adjustments for stock splits, if any) and upon conversion would have the same voting rights as the common stock. Only preferred stock and Class A common stock held by Fortress have majority voting rights, which rights would terminate upon conversion into common stock.
The Company allocates the subsidiaries’ net loss/income to the non-controlling interest on a quarterly basis, and the calculation of non-controlling interest ownership percentage is determined as the average of the prior quarter and the current quarter’s non-controlling ownership interest.
The Company continually assesses whether changes to existing relationships or future transactions may result in the consolidation or deconsolidation of subsidiaries and/or partner companies.
17. Related Party Transactions, page F-47
2.
We acknowledge the information provided in your response to prior comment 3, which does not appear to have addressed your obligations as Indemnitor of potential losses or liabilities that may be experienced by your partner companies, their partners or investors, as discussed on pages 37-38. In this regard, please provide a detailed description and quantification of your obligations as Indemnitor for each partner company with reference to supporting legal agreements as applicable. Provide revised disclosure to be included in future filings.
Frank Wyman and Li Xiao
Securities and Exchange Commission
October 26, 2023
Page 4 of 11
Response to Comment:
The Company acknowledges the Staff’s comment and respectfully advises that in future filings the Company will provide supplementary disclosures with descriptions and quantifications of our obligations as indemnitor for each partner company or subsidiary, as applicable. Currently, the only applicable supplementary disclosure related to such obligations relate to our former subsidiary, Caelum Biosciences, Inc.; sample disclosure to be included in future filings is as set forth below:
University of Tennessee Research Foundation v. Caelum Biosciences, Inc.
Caelum Biosciences, Inc. (“Caelum”), a former subsidiary of Fortress that was sold to AstraZeneca’s Alexion (“Alexion”) in October 2021, is the defendant in a lawsuit brought by The University of Tennessee Research Foundation (“UTRF”) captioned as University of Tennessee Research Foundation v. Caelum Biosciences, Inc., No. 19-cv-00508, which is pending in the United States District Court for the Eastern District of Tennessee (the “UTRF Litigation”). UTRF brought claims against Caelum, for, inter alia, tortious interference and trade secret misappropriation. UTRF primarily alleges that Caelum unauthorizedly used non-patent trade secrets owned by UTRF in the development of Caelum’s 11-1F4 monoclonal antibody, known as CAEL-101. Under the agreement pursuant to which Alexion acquired Caelum (as amended, the “DOSPA”), Fortress has indemnification obligations of Caelum under certain circumstances, including for certain of Caelum’s legal expenses and potential damages arising out of the UTRF Litigation (with such indemnification capped in the aggregate as to Fortress at the amount of Caelum acquisition proceeds received by Fortress and which, at Caelum’s election, may be satisfiable in the form of offsets against future amounts that Caelum may owe Fortress under the DOSPA). Caelum is defending the UTRF Litigation, with Fortress participating in such defense and maintaining a consent right over any potential settlements. Caelum’s legal fees and costs in defending the UTRF Litigation are being reimbursed by Fortress by distribution from a $15 million escrow account established concurrently with the acquisition of Caelum; Fortress considers the amount remaining in escrow to be in excess of the amount of its anticipated out-of-pocket indemnifiable costs and damages in the UTRF Litigation and therefore has not accrued any liability pertaining to this indemnity. Caelum and Fortress both believe the UTRF Litigation is without merit and intend to continue defending it vigorously (including exhausting all appeals if applicable). Caelum’s motion for summary judgment is currently pending, and a trial is scheduled for March 2024 with respect to any of UTRF’s claims that may survive summary judgment.
Form 8-K dated May 15, 2023
Exhibit 99.1
Use of Non-GAAP Financial Measures, page F-50
We acknowledge the information provided in your response. Non-GAAP adjustments that eliminate net losses attributable to four of your public partner companies, which are consolidated entities, represent the application of individually tailored recognition principles. Further, we refer to the non-GAAP adjustment made in 2021 labeled “Realization in Caelum investment,” which appears to represent cash proceeds from the sale of Caelum. Comingling cash and accrual basis of accounting also represents the application of individually tailored recognition principles. Please confirm that you will no longer present these adjustments in future filings.
Frank Wyman and Li Xiao
Securities and Exchange Commission
October 26, 2023
Page 5 of 11
Response to Comment:
The Company acknowledges the Staff’s comment and confirms that the Company will no longer present non-GAAP financial measures with the adjustments for our partner companies as previously shown. The Company also respectfully advises that in the future, the Company may present revised non-GAAP measures, but will do so in a manner that does not represent the application of individually tailored recognition principles and that otherwise complies with Item 10(e) of Regulation S-K and Regulation G, as applicable.
Form 10-Q for Quarterly Period Ended June 30, 2023
Notes to Unaudited Condensed Consolidated Financial Statements
3. Collaboration and Stock Purchase Agreements
Aevitas, page 11
4. Please explain the nature of obligations represented by the "write-off of balance due Fortress" totaling $13.09 million, why this amount was forgiven and its relationship to net liabilities impacted by the deconsolidation of $13.03 million. In addition, describe the expected future business activities of Aevitas represented by the "interest retained" of $2.58 million and explain your consideration of criteria for discontinued operations in reporting this deconsolidation. Revise your disclosure accordingly.
Response to Comment:
The Company acknowledges the Staff’s comment and respectfully advises that the nature of Aevitas’ obligations of $13.09 million relates to funding and services provided by Fortress since the inception of Aevitas; these amounts previously eliminated in consolidation and did not have an impact on the “net liabilities” of the Company and were forgiven as part of the corporate transactions entered into by Aevitas and Fortress in connection with the Asset Purchase Agreement with 4D Molecular Therapeutics (“4DMT”), under which 4DMT acquired Aevitas’ only asset: proprietary rights to a technology in preclinical development. Pursuant to the agreements into which Fortress and Aevitas entered in connection with the 4DMT Asset Purchase Agreement, Fortress converted its majority voting preferred stock into Aevitas common stock. Following such conversion, Fortress no longer held either a majority of the economic interests in, or control over the stockholder vote of, Aevitas and therefore deconsolidated the now-former subsidiary.
The “interest retained” of $2.58 million is the fair value of the Aevitas shares that we continue to hold as of the date presented. The fair value is based on the risk-adjusted present value of the potential cash payments totaling up to approximately $140 million related to the completion of certain potential development and commercial milestones related to the continued development of the asset by 4DMT. Any such payments and associated rights to such payments are to Aevitas, of which Fortress and other shareholders continue to hold ownership interests.
In future filings we will revise our disclosure to clarify, in accordance with ASC 810-10-50-1B, that the fair value of the interest retained is based on the risk-adjusted present value of the potential cash payments totaling up to approximately $140 million related to the completion of certain potential development and commercial milestones related to the continued development of the asset by 4DMT, including that 4DMT is not a related party and that they have assumed all ongoing costs to further develop the technology. To better
Frank Wyman and Li Xiao
Securities and Exchange Commission
October 26, 2023
Page 6 of 11
clarify the consolidated impact, we plan to remove the initial table, and in the second table, will remove the lines: “net liabilities deconsolidated” $13,033 and “write-off of balance due Fortress” $(13,096).
In considering the criteria for treating this asset sale as discontinued operations, a disposal needs to represent a strategic shift in the Company’s business that has a major effect on an entity’s operations and financial results. The Company continues to actively develop and commercialize pharmaceutical and biotechnology products and product candidates with our other partner companies and subsidiaries; accordingly, this transaction does not have
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CORRESP 1 filename1.htm October 26, 2023 VIA EDGAR Frank Wyman and Li Xiao Division of Corporation Finance Office of Life Sciences United States Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 Re:Fortress Biotech, Inc. Form 10-K for Fiscal Year Ended December 31, 2022 Filed March 31, 2023 Form 8-K furnished May 15, 2023 Form 10-Q for Quarterly Period Ended June 30, 2023 Filed August 14, 2023 File No. 001-35366 Frank Wyman and Li Xiao: We are writing to respond to the comments provided by the Staff (the “Staff”) of the Division of Corporation Finance of the U.S. Securities and Exchange Commission in your letter dated September 27, 2023 (the “Response Letter”), relating to the Fortress Biotech, Inc. (“we”, "Fortress", or the “Company”) Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed on March 31, 2023 (the “Form 10-K”), the Current Report on Form 8-K furnished on May 15, 2023 (the “Form 8-K”), and the Quarterly Report on Form 10-Q for period ended June 30, 2023 filed on August 14, 2023 (the “Form 10-Q”). For ease of review, we have set forth below the numbered comment of the Response Letter in bold type, followed by the Company’s response thereto. Frank Wyman and Li Xiao Securities and Exchange Commission October 26, 2023 Page 2 of 11 Form 10-K for the Fiscal Year Ended December 31, 2022 Notes to Consolidated Financial Statements 2. Summary of Significant Accounting Policies Non-Controlling Interests, page F-16 1. We acknowledge the information provided in your response to prior comment 1 but continue to have difficulty in understanding your basis for determining the allocation of net losses to the non-controlling interests. Please explain in greater detail how you determine ownership interest and allocate net losses to the non-controlling interests for your partner companies. In this regard, provide examples demonstrating how you determined the non-controlling ownership percentage and associated net loss attributable to non-controlling interests for each of your public partner companies based on publicly reported operating results and ownership percentages for each year, as disclosed on page F-33. Provide revised disclosure to be included in future filings. Response to Comment: The Company acknowledges the Staff’s comment and respectfully advises that the Company’s approach to determining the Company’s ownership interest for the purpose of allocating net losses to non-controlling interests of partner companies is based on the Company’s ownership percentage derived from dividing (a) Fortress-held shares in the partner company (the numerator) by (b) the total shares outstanding in the respective partner company (the denominator). Fortress-held shares in its partner companies comprises common, and/or Class A common or preferred shares, as issued by the partner company, and are included in the ownership calculation. Common, Class A common, and preferred shares all share the same residual economic interest in the underlying entity. The Class A common and preferred shares, if issued, are convertible at Fortress’ election on a 1:1 basis into common stock (with adjustments for stock splits) and upon conversion would have the same voting rights as the common stock. Only preferred stock and Class A common stock held by Fortress have majority voting rights, which rights would terminate upon conversion into common stock. The resulting percentage provides the basis for the Company’s ownership interest for the purpose of calculating non-controlling interests, which is the result of 100% minus the Company’s ownership interest. The calculation and allocation to non-controlling interests is performed on a quarterly basis. The two primary components of the calculation, (a) and (b), may potentially change on a quarter-by-quarter basis: (a) may vary if Fortress acquires additional shares or disposes of shares in the partner company and (b) may vary if the partner company issues additional shares, including to Fortress. The Company allocates the partner companies’ net loss/income to the non-controlling interest on a quarterly basis, and the calculation of non-controlling ownership interest percentage for the net loss/gain allocation is determined as the average of the prior quarter and the current quarter’s non-controlling ownership interest. Please see Exhibit A for detail to the calculation of the non-controlling ownership interest of the public partner companies of Fortress. Revised disclosure to be included in future filings will include additional detail as to how the non-controlling ownership percentage is calculated. Frank Wyman and Li Xiao Securities and Exchange Commission October 26, 2023 Page 3 of 11 Example of disclosure for future filings is set forth below: Footnote 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The Company’s unaudited condensed consolidated financial statements include the results of the Company’s subsidiaries for which it has voting control but does not own 100% of the outstanding equity of the subsidiaries. For consolidated entities where the Company owns less than 100% of the subsidiary, but retains voting control, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations and presents non-controlling interests as a component of stockholders’ equity on its consolidated balance sheets. All intercompany income and/or expense items are eliminated entirely in consolidation prior to the allocation of net gain/loss attributable to non-controlling interest, which is based on ownership interests as calculated quarterly for each subsidiary. Non-Controlling Interests The Company records net loss attributable to non-controlling interests in its consolidated statements of operations and presents non-controlling interests as a component of stockholders’ equity on its consolidated balance sheets. All intercompany income and/or expense items are eliminated entirely in consolidation prior to the allocation of net gain/loss attributable to non-controlling interest, which is based on a quarterly calculation of ownership interests for each relevant subsidiary. Subsidiary preferred shares and Class A common shares, if issued, are included in the ownership calculation on a 1:1 basis consistent with how the relevant contractual agreements provide for the allocation and distribution of earnings. These shares, if issued, are convertible at Fortress’ election on a 1:1 basis into common stock (with adjustments for stock splits, if any) and upon conversion would have the same voting rights as the common stock. Only preferred stock and Class A common stock held by Fortress have majority voting rights, which rights would terminate upon conversion into common stock. The Company allocates the subsidiaries’ net loss/income to the non-controlling interest on a quarterly basis, and the calculation of non-controlling interest ownership percentage is determined as the average of the prior quarter and the current quarter’s non-controlling ownership interest. The Company continually assesses whether changes to existing relationships or future transactions may result in the consolidation or deconsolidation of subsidiaries and/or partner companies. 17. Related Party Transactions, page F-47 2. We acknowledge the information provided in your response to prior comment 3, which does not appear to have addressed your obligations as Indemnitor of potential losses or liabilities that may be experienced by your partner companies, their partners or investors, as discussed on pages 37-38. In this regard, please provide a detailed description and quantification of your obligations as Indemnitor for each partner company with reference to supporting legal agreements as applicable. Provide revised disclosure to be included in future filings. Frank Wyman and Li Xiao Securities and Exchange Commission October 26, 2023 Page 4 of 11 Response to Comment: The Company acknowledges the Staff’s comment and respectfully advises that in future filings the Company will provide supplementary disclosures with descriptions and quantifications of our obligations as indemnitor for each partner company or subsidiary, as applicable. Currently, the only applicable supplementary disclosure related to such obligations relate to our former subsidiary, Caelum Biosciences, Inc.; sample disclosure to be included in future filings is as set forth below: University of Tennessee Research Foundation v. Caelum Biosciences, Inc. Caelum Biosciences, Inc. (“Caelum”), a former subsidiary of Fortress that was sold to AstraZeneca’s Alexion (“Alexion”) in October 2021, is the defendant in a lawsuit brought by The University of Tennessee Research Foundation (“UTRF”) captioned as University of Tennessee Research Foundation v. Caelum Biosciences, Inc., No. 19-cv-00508, which is pending in the United States District Court for the Eastern District of Tennessee (the “UTRF Litigation”). UTRF brought claims against Caelum, for, inter alia, tortious interference and trade secret misappropriation. UTRF primarily alleges that Caelum unauthorizedly used non-patent trade secrets owned by UTRF in the development of Caelum’s 11-1F4 monoclonal antibody, known as CAEL-101. Under the agreement pursuant to which Alexion acquired Caelum (as amended, the “DOSPA”), Fortress has indemnification obligations of Caelum under certain circumstances, including for certain of Caelum’s legal expenses and potential damages arising out of the UTRF Litigation (with such indemnification capped in the aggregate as to Fortress at the amount of Caelum acquisition proceeds received by Fortress and which, at Caelum’s election, may be satisfiable in the form of offsets against future amounts that Caelum may owe Fortress under the DOSPA). Caelum is defending the UTRF Litigation, with Fortress participating in such defense and maintaining a consent right over any potential settlements. Caelum’s legal fees and costs in defending the UTRF Litigation are being reimbursed by Fortress by distribution from a $15 million escrow account established concurrently with the acquisition of Caelum; Fortress considers the amount remaining in escrow to be in excess of the amount of its anticipated out-of-pocket indemnifiable costs and damages in the UTRF Litigation and therefore has not accrued any liability pertaining to this indemnity. Caelum and Fortress both believe the UTRF Litigation is without merit and intend to continue defending it vigorously (including exhausting all appeals if applicable). Caelum’s motion for summary judgment is currently pending, and a trial is scheduled for March 2024 with respect to any of UTRF’s claims that may survive summary judgment. Form 8-K dated May 15, 2023 Exhibit 99.1 Use of Non-GAAP Financial Measures, page F-50 We acknowledge the information provided in your response. Non-GAAP adjustments that eliminate net losses attributable to four of your public partner companies, which are consolidated entities, represent the application of individually tailored recognition principles. Further, we refer to the non-GAAP adjustment made in 2021 labeled “Realization in Caelum investment,” which appears to represent cash proceeds from the sale of Caelum. Comingling cash and accrual basis of accounting also represents the application of individually tailored recognition principles. Please confirm that you will no longer present these adjustments in future filings. Frank Wyman and Li Xiao Securities and Exchange Commission October 26, 2023 Page 5 of 11 Response to Comment: The Company acknowledges the Staff’s comment and confirms that the Company will no longer present non-GAAP financial measures with the adjustments for our partner companies as previously shown. The Company also respectfully advises that in the future, the Company may present revised non-GAAP measures, but will do so in a manner that does not represent the application of individually tailored recognition principles and that otherwise complies with Item 10(e) of Regulation S-K and Regulation G, as applicable. Form 10-Q for Quarterly Period Ended June 30, 2023 Notes to Unaudited Condensed Consolidated Financial Statements 3. Collaboration and Stock Purchase Agreements Aevitas, page 11 4. Please explain the nature of obligations represented by the "write-off of balance due Fortress" totaling $13.09 million, why this amount was forgiven and its relationship to net liabilities impacted by the deconsolidation of $13.03 million. In addition, describe the expected future business activities of Aevitas represented by the "interest retained" of $2.58 million and explain your consideration of criteria for discontinued operations in reporting this deconsolidation. Revise your disclosure accordingly. Response to Comment: The Company acknowledges the Staff’s comment and respectfully advises that the nature of Aevitas’ obligations of $13.09 million relates to funding and services provided by Fortress since the inception of Aevitas; these amounts previously eliminated in consolidation and did not have an impact on the “net liabilities” of the Company and were forgiven as part of the corporate transactions entered into by Aevitas and Fortress in connection with the Asset Purchase Agreement with 4D Molecular Therapeutics (“4DMT”), under which 4DMT acquired Aevitas’ only asset: proprietary rights to a technology in preclinical development. Pursuant to the agreements into which Fortress and Aevitas entered in connection with the 4DMT Asset Purchase Agreement, Fortress converted its majority voting preferred stock into Aevitas common stock. Following such conversion, Fortress no longer held either a majority of the economic interests in, or control over the stockholder vote of, Aevitas and therefore deconsolidated the now-former subsidiary. The “interest retained” of $2.58 million is the fair value of the Aevitas shares that we continue to hold as of the date presented. The fair value is based on the risk-adjusted present value of the potential cash payments totaling up to approximately $140 million related to the completion of certain potential development and commercial milestones related to the continued development of the asset by 4DMT. Any such payments and associated rights to such payments are to Aevitas, of which Fortress and other shareholders continue to hold ownership interests. In future filings we will revise our disclosure to clarify, in accordance with ASC 810-10-50-1B, that the fair value of the interest retained is based on the risk-adjusted present value of the potential cash payments totaling up to approximately $140 million related to the completion of certain potential development and commercial milestones related to the continued development of the asset by 4DMT, including that 4DMT is not a related party and that they have assumed all ongoing costs to further develop the technology. To better Frank Wyman and Li Xiao Securities and Exchange Commission October 26, 2023 Page 6 of 11 clarify the consolidated impact, we plan to remove the initial table, and in the second table, will remove the lines: “net liabilities deconsolidated” $13,033 and “write-off of balance due Fortress” $(13,096). In considering the criteria for treating this asset sale as discontinued operations, a disposal needs to represent a strategic shift in the Company’s business that has a major effect on an entity’s operations and financial results. The Company continues to actively develop and commercialize pharmaceutical and biotechnology products and product candidates with our other partner companies and subsidiaries; accordingly, this transaction does not have