Mustang Bio, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited financial statements; dollar amounts below are in millions unless stated otherwise. Mustang is a clinical-stage cell- and gene-therapy company and had no approved products or product sales.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0.05 related-party revenue |
| Research and development | $7.31 | $5.32 | $21.09 | $13.17 |
| License-acquisition R&D | $0.70 | $1.00 | $1.35 | $1.08 |
| General and administrative | $1.99 | $1.34 | $7.52 | $5.13 |
| Total operating expenses | $10.00 | $7.66 | $29.96 | $19.37 |
| Net loss | $10.17 | $7.52 | $30.18 | $18.89 |
| Basic and diluted loss per share | $0.25 | $0.28 | $0.87 | $0.70 |
Q3 operating expenses increased 31% year over year and net loss increased 35%. Nine-month operating expenses rose 55% and net loss rose 60%. Management attributed higher R&D spending mainly to staffing, laboratory supplies, clinical-trial work, consulting and outside services; G&A growth included Fortress financing-related equity fees and higher legal and stock-compensation costs. No meaningful gross margin is reported because the company had no product revenue.
- Cash and liquidity: Cash and cash equivalents were $72.8 at September 30, 2019, versus $16.5 at December 31, 2018; restricted cash was $0.5. Total current assets were $74.4 and current liabilities $6.3. Working capital was approximately $68.1.
- Cash flows, nine months: Operating cash use was $24.1, compared with $12.7 in 2018; investing activities provided $15.3, largely from maturing certificates of deposit; financing activities provided $65.1, versus $0.2 in 2018. Ending cash, cash equivalents and restricted cash totaled $73.3.
- Debt: The Horizon loan provided $15.0 of the $20.0 commitment, with another $5.0 available subject to milestones. Notes payable were $13.2 net of debt discount at quarter-end; the table shows $15.75 including the final payment fee before a $2.57 discount. Interest is 9% plus any one-month LIBOR excess over 2.5%; the initial advances mature in October 2022. The loan is secured by substantially all assets other than specified excluded collateral and includes financial covenants and minimum-cash requirements.
- Balance sheet and dilution: Total assets were $83.8, total liabilities $21.4 and stockholders’ equity $62.4. Common shares outstanding were 39.58 million at September 30; approximately 8.40 million potentially dilutive securities were excluded from diluted loss per share as anti-dilutive. The company issued about 3.5 million shares through its ATM and 7.9 million in a public offering during the nine-month period.
Material changes, outlook and notable developments
- The company raised approximately $22.0 net through its ATM and $29.5 net in a May public offering, and received $15.0 from the initial Horizon loan advance. These transactions drove the increase in cash and expanded the share count.
- Management said September 30 cash was expected to fund anticipated operating cash needs for at least one year from the November 11, 2019 filing date. It also stated that further financing will be needed to develop, obtain approval for and commercialize candidates. Management expects R&D and G&A expenses to rise as programs advance; no revenue or earnings guidance was provided.
- Pipeline updates included FDA approval of the company’s MB-102 IND for a company-sponsored Phase 1/2 trial, planned to begin in early 2020; plans to file an MB-104 IND in the first half of 2020; and FDA Regenerative Medicine Advanced Therapy designation for MB-107. The filing also reported 2019 clinical activity for MB-105 and MB-108 and external grant support for certain collaborator-led trials. These are development milestones, not evidence of approval or commercial revenue.
- Key risks include clinical, regulatory and manufacturing uncertainty; dependence on research, clinical and manufacturing partners and licensed intellectual property; need for additional capital and potential dilution; and competition, reimbursement and commercialization risks. The Horizon loan’s covenants, cash minimums and security interest may constrain operations. Fortress controls the company and receives equity fees under the Founders Agreement, creating dilution and potential related-party conflicts.
- The company reported no legal proceedings or material contingencies in the financial-statement note, no off-balance-sheet arrangements, and effective disclosure controls for the quarter. Operating leases were recorded under the new lease standard; September 30 operating lease liabilities were approximately $2.1.
Important facts for investors to verify
- Whether cash burn and clinical-development spending remain consistent with management’s stated minimum one-year runway, and how the Horizon minimum-cash covenant affects available liquidity.
- Progress and timing of planned company-sponsored trials and IND filings, including MB-102 and MB-104, and whether external collaborator results support Mustang’s development plans.
- Conditions for accessing the remaining $5.0 of Horizon financing, as well as debt interest, maturity, security and covenant terms.
- Future financing needs, remaining shelf-registration capacity and the dilution impact of equity issuances, warrants, equity fees and Fortress’s ownership and voting control.
- Trial safety, enrollment, manufacturing capacity, partner performance, license obligations and any changes to the company’s development timelines or cash-runway expectations.