Mustang Bio, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2020. Mustang Bio is a clinical-stage cell and gene therapy company and a majority-controlled subsidiary of Fortress Biotech. It had no approved products or product sales.
Financial performance and position
- Revenue: No product revenue was reported.
- Operating expenses: $11.5 million, up 18% from $9.8 million in Q1 2019. Research and development expense rose 34% to $9.3 million, primarily due to personnel, contract research organization and consulting costs. General and administrative expense declined 17% to $2.0 million, mainly due to lower legal costs.
- Profit and loss: Operating loss was $11.5 million; net loss was $11.9 million, compared with $9.6 million a year earlier. Interest expense increased to $0.6 million, primarily reflecting the Horizon debt outstanding for the full quarter. Basic and diluted loss per share was $0.28, versus $0.34 in Q1 2019.
- Cash flow: Operating cash use was $10.2 million, compared with $6.5 million in Q1 2019. Investing cash use was $0.5 million, primarily for fixed assets. Financing provided $5.1 million, including approximately $4.9 million of net ATM proceeds. Cash, cash equivalents and restricted cash decreased $5.6 million during the quarter.
- Liquidity: Cash and cash equivalents were $55.8 million at March 31, 2020; restricted cash was an additional $1.0 million. Current assets were $57.7 million and current liabilities were $10.0 million. Management said cash and cash equivalents were expected to fund anticipated operating cash requirements for at least one year from the filing date. The company also said it would need additional financing to fully develop and commercialize its candidates.
- Debt: Notes payable had a net carrying amount of $13.7 million, including $3.1 million classified as current; the reported Horizon note balance before debt discount was $15.75 million. The notes bear interest at 9% plus any one-month LIBOR excess over 2.5%, and are scheduled to mature in October 2022.
- Equity and dilution: Mustang issued approximately 1.2 million shares through its ATM at an average $3.93 per share, raising $5.0 million gross and approximately $4.9 million net. About $15.9 million remained available under the shelf registration statement at quarter-end.
- Margins: Not meaningful because the company reported no product revenue.
Material changes versus the prior comparable period
- Net loss increased by $2.2 million, or 23%, as higher R&D costs and interest expense more than offset lower G&A and license-acquisition expense.
- Operating cash use increased by $3.7 million year over year. Financing cash inflow fell to $5.1 million from $13.6 million, when Horizon loan proceeds were received.
- Cash, cash equivalents and restricted cash were $56.8 million at March 31, 2020, compared with $36.1 million at March 31, 2019; the comparison reflects different financing and investing activity in the periods.
Outlook, developments and risks
- Pipeline and outlook: Mustang expected R&D spending to increase as it advanced existing candidates and potentially added programs; it also anticipated higher G&A in future periods. No formal financial forecast was provided. The company targeted topline data in the second half of 2022 for planned MB-107 and MB-207 XSCID trials. The MB-107 Phase 2 trial was on hold pending FDA chemistry, manufacturing and controls clearance; the company expected to file an MB-207 IND in Q3 2020.
- Reported developments after quarter-end: Mustang reported submitting an IND for an MB-107 Phase 2 trial and receiving EMA ATMP classification for MB-107. It also reported a complete response in the first subject treated using an optimized MB-106 manufacturing process and a PSA reduction with radiographic improvement in the first MB-105 patient treated following a standard conditioning regimen. These are early clinical observations, not evidence of established efficacy.
- COVID-19: Management did not expect a material effect on its long-term development timeline or liquidity based on its assessment at the time, but said it continued to monitor the situation. The filing describes possible disruption to trials, enrollment, manufacturing and supply chains, regulatory review, employees and access to capital.
- Principal risks and contingencies: The company expects continuing losses and may never become profitable. It depends on additional financing, third-party manufacturers and research institutions, clinical and regulatory success, and in-licensed intellectual property. Clinical, manufacturing, funding, competition, patent, and regulatory risks could delay or prevent development. Horizon debt is secured by substantially all assets other than certain intellectual property and includes restrictive covenants. The filing reported no legal proceedings and no off-balance-sheet arrangements.
- Governance and controls: Fortress controls a voting majority and receives equity grants tied to financing under the Founders Agreement. Management concluded disclosure controls were effective for the quarter and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether cash burn, trial spending and any subsequent financing remain consistent with the stated minimum one-year cash runway.
- FDA CMC clearance and timing, enrollment and progress for MB-107 and MB-207, and whether the stated 2022 data targets remain achievable.
- Clinical follow-up, safety and durability behind the reported MB-106 and MB-105 observations.
- Horizon debt terms, covenant compliance, repayment schedule and potential need for additional capital.
- Potential COVID-19 effects on trials, manufacturing, supply availability and regulatory timelines, as well as dilution from future equity sales and Fortress-related share issuances.