MUSTANG BIO, INC. quarterly report, Q2 FY2020

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Mustang Bio, Inc. — Q2 2020 Form 10-Q

Reporting period: Three and six months ended June 30, 2020. Financial statements are unaudited. Mustang is a clinical-stage cell and gene therapy company with no approved products and no product sales.

Financial results and liquidity

  • Revenue: No product revenue; the filing reports no product sales.
  • Q2 2020: Operating expenses were $14.1 million, including $9.8 million of R&D and $1.3 million of acquired-license R&D expense. Net loss was $14.6 million, or $0.32 per share, versus a $10.4 million loss, or $0.29 per share, in Q2 2019. Gross margin is not meaningful because there were no product sales.
  • First half 2020: Operating expenses were $25.6 million and net loss was $26.5 million, or $0.61 per share, compared with $20.0 million and $20.0 million, or $0.62 per share, respectively, in the first half of 2019.
  • Cash flow: Net cash used in operations was $17.7 million in the first half, versus $15.3 million a year earlier. Investing used $1.3 million; financing provided $43.0 million. Cash, cash equivalents and restricted cash totaled $86.4 million at June 30.
  • Balance sheet: Cash and cash equivalents were $85.4 million; current assets were $86.3 million and current liabilities $14.8 million, implying working capital of about $71.5 million. Total liabilities were $25.8 million. Notes payable, net of discount, were $14.0 million, including $5.0 million current; the Horizon loan bears interest at 9% plus any one-month LIBOR amount above 2.5% and matures in October 2022.

Material changes versus comparable periods

  • Q2 operating expenses rose 38% year over year, primarily from higher R&D staffing and clinical and sponsored research activity, plus increased license costs. First-half operating expenses rose 28%.
  • Net loss increased 40% in Q2 and 32% in the first half. First-half interest expense more than doubled to $1.2 million, mainly due to the Horizon notes; lower interest income also contributed to higher other expense.
  • Financing strengthened cash: the June public offering generated approximately $34.9 million net, and the ATM generated approximately $7.9 million net in the first half. Common shares outstanding increased to 54.8 million at June 30 from 39.4 million at December 31, 2019.

Outlook, management commentary and risks

  • Management stated that June 30 cash and cash equivalents were expected to fund anticipated operating cash requirements for at least one year from the filing date. The company expects continued losses and says further financing will be needed to fully develop and potentially commercialize its candidates.
  • R&D spending is expected to increase as programs advance. The MB-107 Phase 2 trial in newly diagnosed infants with XSCID remained on hold pending FDA CMC clearance, expected in early Q4 2020; topline data were targeted for the second half of 2022. An IND for MB-207 in previously transplanted XSCID patients was expected in Q4 2020, with topline data also targeted for the second half of 2022.
  • COVID-19 had not materially affected the business to date, and management did not expect a material effect on long-term development timelines or liquidity based on its then-current assessment. The filing cautions that the pandemic could disrupt trials, recruitment, manufacturing, supply chains, regulatory review and access to capital.
  • Reported clinical observations included a complete response at the lowest starting dose for the first subject treated with optimized MB-106 manufacturing, and a PSA reduction with radiographic improvement in the first MB-105 patient treated after a standard conditioning regimen. These are early clinical observations, not proof of efficacy.
  • Key risks include clinical and regulatory uncertainty, reliance on research institutions and third-party manufacturers, potential trial delays, continuing funding needs, intellectual-property and licensing risks, and Fortress Biotech’s voting control and financing-linked share grants. No legal proceedings were reported. Management concluded disclosure controls were effective; no material internal-control changes were reported.

Investor verification priorities

  1. Confirm cash runway against the stated burn rate, planned trial spending, and any financing required beyond management’s one-year estimate.
  2. Track FDA CMC clearance and initiation of MB-107, the expected MB-207 IND filing, and whether stated clinical timelines remain achievable.
  3. Review Horizon debt obligations, including the interest-only period, amortization schedule, collateral and covenants.
  4. Assess dilution from equity offerings, future capital needs, and Fortress’s 2.5% financing-linked share grants and voting control.
  5. Monitor whether COVID-19 or other operational factors affect trial enrollment, manufacturing, regulatory review or the company’s liquidity.