Business context and reporting period
Mustang Bio, Inc. is a clinical-stage biopharmaceutical company developing cell and gene therapies for cancers and rare genetic diseases. This Form 10-K covers the fiscal year ended December 31, 2018, compares results with 2017, and includes unaudited quarterly results. The company had no approved products and no product sales.
Programs include MB-107 gene therapy for X-linked severe combined immunodeficiency; CAR T candidates for hematologic cancers (MB-102, MB-104 and MB-106) and solid tumors (MB-101, MB-103 and MB-105); and the C134 oncolytic virus program, licensed in February 2019. Most clinical work was conducted with academic partners. Mustang opened its Worcester cell-processing facility in 2018.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | No product sales; quarterly table reports $0 net revenue for the year | No product sales |
| Research and development | $21.1 million | $7.9 million |
| R&D—licenses acquired | $3.4 million | $12.4 million |
| General and administrative | $6.8 million | $11.4 million |
| Total operating expenses | $31.2 million | $31.8 million |
| Net loss | $30.7 million | $31.3 million |
| Net loss per share | $1.14 | $1.24 |
| Cash used in operating activities | $19.2 million | $12.9 million |
At December 31, 2018, cash and cash equivalents were $16.5 million, short-term investments were $17.6 million, and restricted cash was $0.5 million. Current assets were $35.1 million and current liabilities were $5.6 million. Total liabilities were $6.4 million; the balance sheet reports no debt balance. Accumulated deficit was $79.1 million. The company reported $6.9 million of fixed-asset purchases in 2018, primarily associated with its facility.
Quarterly results show a fourth-quarter operating loss of $11.85 million and net loss of $11.77 million, versus a $7.52 million net loss in Q3 2018. The quarterly table lists revenue of $50,000 in Q1 and negative $50,000 in Q4, summing to zero for the year; the filing does not clearly explain this quarterly revenue reversal.
Material changes versus 2017
- Annual net loss narrowed by $0.6 million, while operating expenses declined 2% overall. Lower license-acquisition expense ($9.1 million less) and G&A ($4.7 million less) largely offset the $13.2 million increase in R&D.
- Operating cash use increased by $6.3 million. Investing cash flow was positive $0.6 million, compared with $29.1 million used in 2017; 2017 financing included $50.3 million net proceeds from stock issuance, whereas 2018 financing provided only $0.2 million from warrant exercises.
- R&D growth reflected expanded research and clinical activity, personnel, stock compensation, laboratory costs and facility operations. 2018 license expense included $2.1 million related to Fortress’s annual stock dividend and a $1.0 million St. Jude upfront license fee.
- Mustang issued 709,314 common shares to Fortress on January 1, 2019 for the annual stock dividend, representing 2.0% of fully diluted equity on a pro-rata basis under the amended terms.
Outlook, commentary and risks
Management said year-end cash and cash equivalents were expected to fund anticipated operating requirements for at least one year from the March 18, 2019 filing date. It also stated that further financing would be needed to fully develop, obtain approval for and commercialize its candidates; without acceptable financing, development and facility or infrastructure plans could be curtailed. Management expected R&D and G&A spending to increase as programs advanced.
- Planned 2019 steps included transferring the MB-107 IND from St. Jude in the second half of the year; filing a Mustang IND for MB-102 in the first half and pursuing INDs or trials for other candidates. These are forward-looking plans, not achieved results.
- Clinical evidence remained early-stage. The filing describes encouraging MB-107 results in 13 patients across two trials and preliminary MB-101 data, including one reported complete response lasting 7.5 months before recurrence. These findings do not establish efficacy or approval.
- Key risks include clinical failure or delay, patient enrollment, adverse effects, regulatory uncertainty, manufacturing capacity and quality, reliance on academic partners, competition, intellectual-property protection, and the need for additional capital.
- Fortress controls Mustang’s voting majority and receives stock-based consideration under the Founders Agreement, including annual share issuances and a financing-related equity fee. Related-party arrangements and resulting dilution merit attention.
- The company leases its 27,043-square-foot Worcester facility through November 2026; disclosed minimum lease payments total approximately $3.6 million. The filing expected about $1.9 million of lease liabilities and corresponding right-of-use assets upon adoption of the new lease standard in 2019.
- The 2017 Tang litigation was settled; Fortress transferred 200,000 shares and Mustang paid $0.2 million. The filing reports no other litigation it believes would materially affect financial position or results.
Important facts for investors to verify
- Reconcile the $50,000 Q1 revenue and negative $50,000 Q4 revenue entries with the zero annual total and confirm the underlying accounting explanation.
- Assess the cash runway using actual post-year-end spending, financing and clinical commitments; management’s one-year estimate depended on assumptions.
- Track quarterly operating cash use and spending as Mustang-sponsored trials and manufacturing responsibilities expand.
- Verify progress against stated IND, trial and IND-transfer timelines, and evaluate the maturity and follow-up of reported clinical results.
- Review potential dilution from Fortress share issuances, outstanding warrants and equity awards; at year-end there were 5.21 million warrants outstanding.
- Confirm funding capacity and the status of material license, milestone, royalty and sponsored-research obligations.