Mustang Bio, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Financial statement amounts below are in millions of dollars unless otherwise noted. Mustang is a clinical-stage biopharmaceutical company developing cell and gene therapies. It reported no product sales.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $6.96 | $4.29; up 62% |
| License-acquisition R&D expense | $0.45 | $0.08 |
| General and administrative expense | $2.34 | $2.06; up 14% |
| Total operating expenses / operating loss | $9.75 | $6.43; expenses up 52% |
| Net loss | $9.61 | $6.28; loss increased 53% |
| Basic and diluted loss per share | $0.34 | $0.24 |
| Operating cash used | $6.48 | $5.57 |
Gross profit and operating margins are not meaningful because Mustang had no product revenue. Interest income was $0.15 million; interest expense was $0.01 million.
- Cash and investments: At March 31, cash and cash equivalents were $35.60 million, short-term certificates of deposit were $5.04 million, and restricted cash was $0.50 million. Cash, short-term investments, and restricted cash totaled approximately $41.14 million.
- Balance sheet: Total assets were $50.49 million; total liabilities were $22.01 million; stockholders’ equity was $28.48 million. Accumulated deficit was $88.68 million.
- Cash flow: Investing activities provided $12.00 million, primarily from certificate-of-deposit maturities. Financing activities provided $13.61 million, principally from the Horizon loan. Cash, cash equivalents, and restricted cash increased $19.13 million during the quarter.
- Debt: Horizon funded $15.0 million of a $20.0 million secured loan; the additional $5.0 million is contingent on milestones. Net debt carrying value was $12.73 million after a $2.28 million debt discount. The loan bears interest at 9% per year plus any one-month LIBOR above 2.5%; the initial advances mature in October 2022. Interest-only payments began May 2019, with principal amortization scheduled thereafter. The loan is secured by substantially all assets other than specified intellectual property and excluded collateral and includes covenants and minimum-cash requirements.
- Lease accounting: Adoption of ASC 842 in January 2019 recorded a $1.2 million right-of-use asset and approximately $2.0 million of lease liabilities, while eliminating $0.7 million of deferred rent. Lease liabilities were about $2.0 million at quarter-end.
Changes versus the prior comparable period
- Net loss rose by $3.33 million as total operating expenses increased by $3.33 million. Management attributed higher R&D costs mainly to personnel, laboratory supplies, clinical-trial activity, consulting, and outside services; lower stock-based compensation partly offset the increase.
- License-acquisition expense increased to $0.45 million, including upfront fees for the Nationwide C134 license and the City of Hope CD123 license.
- Operating cash use increased by approximately $0.92 million. Financing shifted from modest warrant-exercise proceeds in Q1 2018 to $13.61 million of net proceeds from Horizon in Q1 2019.
- Common shares outstanding increased during the quarter, including 709,314 shares issued to Fortress under the annual stock dividend and 108,069 shares issued as the financing fee tied to the Horizon loan.
Outlook, developments, and risks
- Management expected March 31 cash and cash equivalents to cover anticipated operating cash requirements for at least one year from the filing date. It also stated that further funding would be needed to fully develop, obtain approvals for, and commercialize its candidates. The company expected R&D and G&A expenses to increase; it provided no revenue or earnings guidance.
- Pipeline plans included an anticipated MB-107 (XSCID) IND transfer from St. Jude in the second half of 2019; planned IND and trial steps for MB-102, MB-104, and other CAR T programs; and a planned MB-108 trial in the first half of 2019. These are forward-looking plans, not assured outcomes.
- In February 2019, Mustang licensed Nationwide Children’s Hospital’s C134 oncolytic virus, MB-108, for potential development with MB-101 for glioblastoma. The agreement includes up to $152.8 million in development and commercialization milestone payments and low-single-digit royalties on net sales.
- Post-quarter financing: After March 31, the company sold approximately 3.5 million shares through its ATM for $22.5 million gross proceeds, paying about $0.4 million in fees. It also completed a public offering of 7,906,250 shares at $4.00 per share for about $31.6 million gross proceeds and approximately $29.8 million net of underwriting discounts, before other offering expenses. These transactions add liquidity but dilute existing holders.
- Key risks include the early-stage nature of the pipeline, clinical and regulatory uncertainty, trial enrollment and manufacturing challenges, dependence on research and licensing partners, need for additional capital, and dilution. Horizon’s secured loan has covenants, minimum monthly cash thresholds, and default provisions that may permit acceleration.
- Mustang reported no legal proceedings and no material change in market-risk disclosures. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether operating cash burn, clinical spending, and the company’s cash runway remain consistent with management’s one-year liquidity assessment.
- The conditions for drawing the remaining $5.0 million of Horizon financing, ongoing interest and repayment obligations, collateral provisions, and compliance with minimum-cash covenants.
- Actual progress and timing for the stated IND transfers, filings, and clinical trials, including MB-107, MB-102, MB-104, and MB-108.
- The financial and dilution effects of the post-quarter ATM and public offerings, and the remaining availability under the shelf registration statement.
- Potential milestone and royalty obligations under the Nationwide license, and the terms of other collaboration and licensing agreements.