Mustang Bio, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. The unaudited filing describes Mustang as a clinical-stage biopharmaceutical company developing immunotherapies, including CAR T therapies. It had no approved products and no product sales.
Financial performance and position
| Metric | Q2 2018 | Six months 2018 | Comparable 2017 |
|---|---|---|---|
| Revenue | $0 | $50,000, related party | $0 |
| Research and development | $3.557 million | $7.849 million | $2.494 million and $3.200 million |
| R&D—licenses acquired | $0 | $75,000 | $1.500 million and $2.075 million |
| General and administrative | $1.683 million | $3.793 million | $1.671 million and $3.696 million |
| Net loss | $5.093 million | $11.374 million | $5.529 million and $8.747 million |
| Net loss per share, basic and diluted | $0.19 | $0.43 | $0.21 and $0.36 |
| Net cash used in operating activities | Not provided quarterly | $8.921 million | $3.010 million |
At June 30, 2018, cash and cash equivalents were $11.744 million, short-term certificates of deposit were $35.000 million, and restricted cash was $0.500 million. Total assets were $55.675 million; total liabilities were $4.070 million, including $3.675 million current liabilities; and stockholders’ equity was $51.605 million. The filing reports no debt outstanding. Six-month investing cash outflow was $14.491 million, including $5.418 million of fixed-asset purchases and net certificate-of-deposit purchases. Financing cash inflow was $181,000 from warrant exercises. The filing provides no meaningful product gross margin; operating margins are not applicable to the company’s pre-commercial business.
Changes versus prior comparable periods
- Q2 net loss improved 8% year over year, while operating expenses declined 8%. The comparison includes $1.5 million of license acquisition expense in Q2 2017 and none in Q2 2018.
- Q2 R&D expense increased 43%, primarily reflecting hiring, stock-based compensation, research agreements, consulting, facility costs, and other development spending.
- For the first six months, net loss increased 30% and R&D expense increased 145%. Management attributed the R&D increase principally to personnel costs, including equity compensation, and increased research and development activity. Lower license-acquisition expense partly offset the increase.
- Cash, cash equivalents and restricted cash fell $23.231 million during the first half. Operating cash use increased from $3.010 million to $8.921 million; the prior-year period included $49.914 million of net financing cash inflow from a stock and warrant offering.
Outlook, commentary and risks
- Management stated that cash, cash equivalents and short-term investments at June 30 were expected to fund anticipated operating cash requirements for at least the next 12 months. The company also said it will need additional financing to fully develop candidates, pursue regulatory approvals and commercialize products.
- Management expects R&D and G&A expenses to rise as programs expand, candidates advance, and public-company and other operating costs continue. No quantitative earnings or revenue guidance was provided.
- The $50,000 related-party option fee came from an option granted to TG Therapeutics to enter a global collaboration concerning CD20 products. The option expired August 1, 2018 without action.
- On August 2, 2018, Mustang entered an exclusive worldwide license with St. Jude Children’s Research Hospital for an X-linked severe combined immunodeficiency gene therapy then being evaluated in a Phase 1/2 trial.
- Key risks include clinical and regulatory failure or delay, manufacturing and trial execution challenges, dependence on research and licensing partners, intellectual-property disputes, and the need for further financing. Mustang reported an accumulated deficit of $59.8 million and said it may never become profitable.
- Fortress Biotech controls Mustang and receives an annual stock dividend equal to 2.5% of fully diluted equity; 834,756 shares were issued to Fortress during the first half. This arrangement and other related-party relationships may create dilution and conflicts of interest.
- The company reported effective disclosure controls, no material change in internal control over financial reporting, no legal proceedings, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the stated minimum 12-month liquidity runway remains adequate given the higher operating cash use and planned R&D and capital spending.
- Development, trial, manufacturing and regulatory milestones for the existing CAR T programs and the newly licensed St. Jude X-SCID program.
- Whether the TG Therapeutics option’s expiration affects any anticipated collaboration or potential future revenue.
- The terms and potential dilution from Fortress’s annual stock dividend and other related-party arrangements.
- Reconcile property-and-equipment presentation across the balance sheet and note: the balance sheet reports $5.672 million of net property and equipment plus $0.864 million of construction in process, while the note reports $6.536 million of net property and equipment including construction in process.