Business context and reporting period
Mustang Bio, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2017. The clinical-stage biopharmaceutical company is developing CAR-T cancer immunotherapies and had no approved products or product revenue. During the quarter it added City of Hope licenses for HER2, CS1 and PSCA programs; it also licensed PSCA-related technology from the University of California. CEO Manuel Litchman was appointed in April 2017.
Financial results and liquidity
Amounts below are in millions, except per-share data. The company reported no revenue; accordingly, revenue-based margins are not meaningful.
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 | Comparable 2016 period |
|---|---|---|---|
| Research and development | $2.494 | $3.200 | $0.582 / $1.149 |
| License-acquisition R&D expense | $1.500 | $2.075 | Nil |
| General and administrative | $1.671 | $3.696 | $0.458 / $0.713 |
| Total operating expenses | $5.665 | $8.971 | $1.040 / $1.862 |
| Net loss | $5.529 | $8.747 | $1.133 / $2.036 |
| Basic and diluted loss per share | $(0.21) | $(0.36) | $(0.11) / $(0.20) |
At June 30, cash and cash equivalents were $53.790 million and short-term certificates of deposit were $20.038 million, totaling $73.828 million in current assets. Current liabilities were $4.762 million, including $4.478 million of accounts payable and accrued expenses and $0.146 million of related-party notes payable. Accumulated deficit was $25.867 million. No long-term debt was reported.
For the six months, operating cash outflow was $3.010 million, investing outflow $20.613 million (mainly $20.038 million of certificates of deposit), and financing inflow $49.914 million. Cash increased $26.291 million to $53.790 million. Financing included $50.234 million of net proceeds from common-stock and warrant issuance; the company also reported $55.9 million gross proceeds from 2017 private-placement closings and $95.0 million gross proceeds from seven closings from September 2016 through June 2017.
Material changes versus prior comparable periods
- Six-month net loss increased to $8.747 million from $2.036 million; operating expenses rose to $8.971 million from $1.862 million. Management attributed the increase chiefly to expanded R&D and clinical-research activity, license costs, higher legal and professional costs, and equity compensation.
- Quarterly R&D increased 329% and G&A increased 265% year over year. Six-month G&A included approximately $1.2 million of stock-based expense related to Fortress financing fees.
- Common shares outstanding rose from 15.165 million at December 31, 2016 to 25.222 million at June 30, 2017. The financing also issued warrants; 5.254 million warrants were outstanding at quarter-end.
- Interest income increased with the company’s cash and investments; related-party interest expense reported in 2016 was absent in the six months ended June 30, 2017.
Outlook, commentary, risks and unusual items
- Management expects operating losses and R&D and G&A expenses to increase as development expands. There is no formal earnings or revenue guidance. The filing gives differing liquidity runway estimates: approximately 12–15 months in the notes and approximately 12 months in MD&A, based on June 30 resources.
- License obligations include sponsored research funding of $2.0 million annually for five years, milestone payments, maintenance fees, royalties and sublicense revenue-sharing. The HER2, CS1 and PSCA agreements each include up to $14.9 million in development milestones; their $1.2 million combined upfront payments were made July 3, after quarter-end.
- A lawsuit by Winson Tang seeks a declaration relating to a claimed 15% ownership interest. The company had accrued no loss, disputed the claims, and reported a November 6, 2017 trial date. It stated that any judgment would be funded without issuing new shares.
- Fortress controls a voting majority through Class A preferred stock and has contractual rights to financing-related share fees and annual stock dividends, creating control and dilution risks. Related-party arrangements include Fortress management services and placement-agent fees paid to an affiliate.
- Key business risks include clinical, regulatory, safety, manufacturing, intellectual-property and financing uncertainty; the company depends substantially on City of Hope and third parties. It has no product revenue and may never become profitable.
- Management concluded disclosure controls were effective as of June 30, 2017 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the stated cash runway estimates of 12 months versus 12–15 months and assess expected spending against the $73.8 million cash-and-investment balance.
- Review clinical-trial status, timelines, enrollment and results for existing programs, and the development plans and funding needs for newly licensed assets.
- Quantify potential future license milestones, royalties, research commitments and other contractual payments, including the post-quarter upfront fees.
- Assess dilution from warrants, Fortress’s financing and PIK share rights, COH anti-dilution rights, and future capital needs.
- Monitor the Tang litigation, related-party governance and fee arrangements, and changes in the company’s cash use and financing requirements.