Mustang Bio, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Mustang is a clinical-stage biopharmaceutical company developing cancer immunotherapies, including CAR-T candidates. It had no approved products and generated no product revenue.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $0.706 million | $0.567 million |
| License-acquisition expense | $0.575 million | None |
| General and administrative expense | $2.025 million | $0.255 million |
| Operating loss | $3.306 million | $0.822 million |
| Net loss | $3.218 million; $0.14 per share | $0.903 million; $0.09 per share |
| Operating cash flow | Used $2.036 million | Used $0.581 million |
| Investing cash flow | Used $0.375 million | None |
| Financing cash flow | Provided $49.922 million | Provided $0.581 million |
| Cash | $75.010 million at March 31 | $27.499 million at December 31, 2016 |
Gross margin is not applicable because the company reported no product sales. Total assets were $75.025 million and total liabilities were $0.811 million at quarter-end. The balance sheet included $28,000 of related-party notes payable. Accumulated deficit was $20.338 million. Management said quarter-end cash was expected to fund anticipated operating cash requirements for approximately 12 months.
Changes and financing
- Net loss increased by $2.315 million year over year. G&A increased $1.770 million, including $1.2 million of stock compensation for shares issued to Fortress under the Founders Agreement. R&D rose $139,000; the new $575,000 license expense related to IL-13, IV/ICV and UCLA licenses.
- From September 2016 through March 2017, the company raised $95.0 million gross in seven private-placement closings. Q1 financing cash flow included $50.242 million of net proceeds from stock and warrant issuance and repayment of $320,000 of the Fortress note. The placement agent, a related party, received approximately $5.6 million in Q1 fees and warrants; cumulative placement fees for the offering were reported as $9.5 million.
- Common shares outstanding rose to 25,041,889 at March 31 from 15,165,244 at December 31, 2016. The company also had 5,253,934 warrants outstanding at quarter-end.
Outlook, agreements and risks
- Management expects R&D and G&A costs to rise as programs expand, including clinical and preclinical work, licensing and milestone payments, staffing, compliance and professional fees. The company expects significant operating losses to continue and may never become profitable.
- Mustang amended and restated its City of Hope licenses for CD123, IL-13 and spacer technology and added an IV/ICV delivery license; it also licensed anti-prostate stem cell antigen technology from the University of California. COH licenses include milestone, royalty and sublicense-payment obligations. A separate COH sponsored-research agreement calls for $2.0 million annually for five years.
- Fortress controls a voting majority through its Class A preferred shares and is entitled to annual 2.5% stock dividends and financing-related equity fees under the Founders Agreement. The filing describes these arrangements and related-party transactions as potential sources of dilution and conflicts of interest.
- A lawsuit alleges that Dr. Winson Tang is entitled to 15% of the company’s shares. Mustang denied the claims, recorded no litigation accrual, and said trial was scheduled for November 6, 2017.
- Key risks include clinical and regulatory failure or delay, manufacturing and trial-enrollment challenges, dependence on City of Hope and other third parties, intellectual-property uncertainty, future financing needs and dilution. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
- Subsequent event: Manuel Litchman, M.D., became president and CEO on April 24, 2017. His agreement provides a $395,000 annual base salary, target bonus eligibility and an option for 1,041,675 shares.
Important facts for investors to verify
- Whether the approximately 12-month cash runway remains adequate against planned clinical, research and license commitments.
- The timing, design and progress of clinical programs, and any regulatory or safety developments.
- Full economics and potential dilution from Fortress and COH agreements, warrants and future financing.
- Placement-agent fees and other related-party arrangements, including governance and conflict-of-interest safeguards.
- Developments in the Tang litigation and any effect on ownership, cash or dilution.