Mustang Bio, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; unaudited. Mustang is a clinical-stage cell- and gene-therapy company and a majority-controlled subsidiary of Fortress Biotech. It had no approved products and no product sales.
Financial results and liquidity
Amounts are in millions of dollars unless otherwise stated.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | None | None | $0.05, related party | None |
| Research and development | $5.316 | $2.188 | $13.165 | $5.388 |
| License acquisition expense | $1.000 | $0.300 | $1.075 | $2.375 |
| General and administrative | $1.340 | $4.596 | $5.133 | $8.293 |
| Net loss | $(7.518) | $(6.940) | $(18.892) | $(15.687) |
| Basic and diluted loss per share | $(0.28) | $(0.27) | $(0.70) | $(0.63) |
- Cash flow: For the nine months, operating cash use was $12.721 million, investing cash use $4.139 million, and financing provided $0.181 million. Cash, cash equivalents and restricted cash declined $16.679 million to $18.796 million.
- Liquidity: At September 30, cash and cash equivalents were $18.296 million, short-term certificates of deposit $22.538 million, and restricted cash $0.500 million. Current assets were $41.825 million versus current liabilities of $4.052 million. Total liabilities were $4.522 million; the filing reports no outstanding debt at period-end.
- Balance sheet: Total assets were $49.512 million and stockholders’ equity $44.990 million. Accumulated deficit was $67.300 million. Property and equipment increased substantially as the company invested in its Worcester facility.
- Margins: Product revenue was nil, so product margins are not meaningful. The $50,000 nine-month revenue was an option fee from related-party TG Therapeutics, not product revenue.
Changes versus prior period
- Q3 operating expenses rose 8% and net loss widened 8% year over year. R&D increased by $3.128 million, reflecting hiring, laboratory supplies, facility costs and outside services; license expense included the $1.0 million St. Jude X-SCID license fee.
- Nine-month operating expenses increased 21% and net loss widened 20%. R&D rose $7.777 million, while acquired-license expense fell $1.300 million and G&A fell $3.160 million.
- Lower G&A primarily reflects litigation-related costs in 2017: the company cited a $2.2 million legal settlement and $1.0 million related legal fees in Q3 2017, and $3.6 million of litigation-related costs in the nine-month comparison.
- Operating cash use increased from $7.781 million to $12.721 million. Unlike the prior-year period, Mustang had no equity financing proceeds in 2018; 2017 financing had provided $50.296 million net from common stock and warrants.
Outlook, risks and notable items
- Going concern and funding: Management stated there was substantial doubt that it could execute its plan over the next 12 months without additional financing. If funding is unavailable on acceptable terms, development and infrastructure expansion may be curtailed. The company expects significant losses to continue and may never become profitable.
- Spending outlook: Management expects R&D and G&A costs to increase as programs advance, clinical and manufacturing activities expand, and public-company compliance costs continue. No quantified financial guidance was provided.
- Pipeline and agreements: Mustang entered an exclusive St. Jude license for X-SCID, paying $1.0 million upfront; up to $13.5 million in development and commercialization milestones and mid-single-digit royalties may be payable. It also reported sponsored research arrangements with City of Hope and Fred Hutch.
- Financing capacity: A shelf registration effective in July 2018 permits up to $75 million of securities sales; an at-the-market agreement provides for agent commissions of up to 3% of gross proceeds. No ATM sales were reported for the period.
- Related parties and control: Fortress controls the company and is entitled to an annual stock dividend equal to 2.5% of fully diluted equity, as well as shares tied to certain financings under the Founders Agreement. TG Therapeutics’ $50,000 option fee was related-party revenue; its option expired August 1, 2018 without exercise.
- Key risks: Clinical, preclinical, regulatory, manufacturing, intellectual-property and funding risks are substantial; the company depends on collaborators and third-party manufacturers. Its products had not received regulatory approval. It reported no legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls for the quarter.
- Subsequent event: Mustang announced Martina A. Sersch, M.D., Ph.D., as Chief Medical Officer on October 15, 2018.
Investor verification priorities
- Verify the company’s near-term cash runway, financing plans and the going-concern disclosure; distinguish cash and certificates of deposit from restricted cash.
- Track operating cash burn and whether planned R&D and facility spending can be funded without material dilution or program cuts.
- Confirm clinical and regulatory milestones, trial timelines, manufacturing readiness and the terms or progress of collaborations and licenses.
- Review related-party arrangements and potential dilution from Fortress’s annual stock dividend, financing-related share rights, options, warrants and other awards.
- Reconcile property and equipment: the balance sheet reports net property, plant and equipment of $6.760 million, while Note 4 reports $6.793 million.