Mustang Bio, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Financial statements are unaudited; amounts below are in U.S. dollars unless noted.
Business context
Mustang Bio is a clinical-stage biopharmaceutical company developing cancer immunotherapies, primarily CAR T therapies, through licenses and research collaborations, including with City of Hope and Fred Hutch. It had no approved products and generated no product-sale revenue. The $50,000 of quarterly revenue was an option fee from related party TG Therapeutics for an option to enter a collaboration concerning CD20-licensed products.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $50,000, related-party option fee | None |
| Research and development expense | $4.292 million | $0.706 million |
| License-acquisition R&D expense | $75,000 | $575,000 |
| General and administrative expense | $2.110 million | $2.025 million |
| Total operating expenses | $6.477 million | $3.306 million |
| Operating loss | $6.427 million | $3.306 million |
| Net loss | $6.281 million | $3.218 million |
| Basic and diluted net loss per share | $0.24 | $0.14 |
| Net cash used in operating activities | $5.565 million | $2.036 million |
At March 31, cash and cash equivalents were $17.755 million and short-term certificates of deposit were $37.002 million; restricted cash was $0.5 million. Current assets totaled $55.626 million, current liabilities $5.323 million, and total liabilities $5.448 million. The balance sheet reported no debt at quarter-end. Total assets were $61.090 million and accumulated deficit was $54.689 million. No gross margin is meaningful or reported because the company had no product sales.
Investing activities used $11.751 million, including purchases of certificates of deposit and $0.676 million of construction in progress; $14.0 million of certificates of deposit matured. Financing activities provided $96,000 from warrant exercises. Cash, cash equivalents and restricted cash declined $17.220 million to $18.255 million. Cash-flow totals include restricted cash and differ from cash and investments shown on the balance sheet.
Material changes and notable items
- Net loss increased 95% year over year. R&D expense rose by $3.586 million, reflecting expanded research and clinical work, personnel and outside services, and $1.5 million of stock-based compensation. G&A increased by $85,000.
- Mustang recorded $1.995 million of stock-based compensation in Q1 2018, including $1.290 million for nonemployees.
- In March, 834,756 common shares were issued to Fortress under the Founders Agreement, representing the annual 2.5% equity fee. The associated $9.558 million previously recorded as common stock issuable was reclassified to additional paid-in capital; this was not a Q1 cash financing.
- Mustang entered a City of Hope manufacturing license and sponsored research agreement, and a Fred Hutch sponsored research agreement for CD20 cell processing. Disclosed funding commitments include $0.9 million for the initial City of Hope research program and $0.6 million for the Fred Hutch program.
- Cash used in operations increased, while the prior-year period included $50.242 million of net proceeds from common-stock and warrant issuance. Q1 2018 financing included no comparable offering.
Outlook, risks and other disclosures
Management stated that cash, cash equivalents and short-term investments at March 31, 2018 were expected to fund anticipated operating cash requirements for at least the next 12 months. The company also said it will require additional financing to fully develop candidates, prepare regulatory filings, obtain approvals and commercialize products. Management expects R&D and G&A costs to rise as development and public-company activities expand. Mustang had an accumulated deficit of $54.7 million and warned it may never become profitable.
Key risks include clinical and regulatory uncertainty, trial delays or failure, manufacturing capacity and supply constraints, dependence on City of Hope and Fred Hutch and other third parties, intellectual-property and licensing risks, and the need for further financing that could dilute stockholders or require unfavorable arrangements. Fortress controls a voting majority and receives recurring equity under the Founders Agreement; the filing also describes related-party arrangements. The TG Therapeutics option expires 180 days after February 2, 2018, unless extended by mutual written consent.
The company reported no legal proceedings, no material changes in contractual obligations outside the ordinary course, and no material changes to disclosed market risks. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the reported 12-month liquidity estimate remains adequate as clinical, research and facility costs progress, and what additional financing may be required.
- Development milestones, trial status and spending plans for Mustang’s CAR T candidates and its City of Hope and Fred Hutch programs.
- Terms and outcome of the TG Therapeutics option, including whether it was exercised or extended and any resulting collaboration economics.
- The ongoing impact of Fortress-related equity grants, voting control, management fees and other related-party transactions on dilution and governance.
- Cash and certificate-of-deposit balances, construction-in-progress spending, and the timing and cost of any planned cell-processing facility.