Mustang Bio, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. The interim financial statements are unaudited. Mustang is a clinical-stage biopharmaceutical company developing cancer immunotherapies, including CAR T therapies; it has no approved products and generated no product revenue.
Financial condition and results
| Metric | Q3 2017 / September 30, 2017 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Operating expenses | $7.1 million for Q3; $16.1 million for nine months | $1.7 million for Q3 2016; $3.5 million for nine months 2016 |
| Net loss | $6.9 million for Q3; $15.7 million for nine months | $1.9 million for Q3 2016; $3.9 million for nine months 2016 |
| Basic and diluted loss per share | $0.27 for Q3; $0.63 for nine months | $0.19 for Q3 2016; $0.39 for nine months 2016 |
| Cash and cash equivalents | $33.2 million | $27.5 million at December 31, 2016 |
| Short-term investments | $34.1 million in certificates of deposit | None at December 31, 2016 |
| Current liabilities | $2.8 million | $3.2 million at December 31, 2016 |
| Accumulated deficit | $32.8 million | $17.1 million at December 31, 2016 |
For the nine months, operating cash outflow was $7.8 million, investing cash outflow was $36.5 million (primarily purchases of certificates of deposit and license payments), and financing cash inflow was $50.0 million. Cash increased by $5.7 million. Cash plus short-term investments totaled approximately $67.3 million. The balance sheet reported no debt at September 30, 2017; the company made a $0.3 million Fortress Note repayment during the nine-month period. Profit margins are not meaningful because the company had no product revenue.
Changes versus the prior comparable period
- Nine-month operating expenses rose $12.5 million, or 355%, and net loss increased $11.8 million, or 302%, year over year.
- Research and development expense increased to $5.4 million from $1.7 million, reflecting clinical research support, additional personnel and stock compensation. A further $2.4 million was expensed for acquired licenses, versus none in 2016.
- General and administrative expense increased to $8.3 million from $1.8 million. The company cited legal and public-company costs, compensation and a $2.2 million legal settlement expense.
- Financing proceeds supported liquidity: the company reported $50.3 million net proceeds from equity and warrant financing during the nine months. Common shares outstanding increased from 15.2 million at year-end 2016 to 25.2 million at September 30, 2017.
Outlook, risks and unusual items
- Management expected cash and short-term investments at September 30, 2017 to fund anticipated operating cash requirements for at least the next 12 months. It also expects R&D and G&A expenses to rise as programs advance, additional candidates are developed, and public-company and facility costs continue. No revenue or profit guidance was provided.
- Mustang reported two candidates in Phase 1 studies and other programs in preclinical development. It planned to begin a Fred Hutch Phase 1/2 CD20 CAR T trial in Q4 2017. The company also reported beginning Nasdaq trading on August 22, 2017.
- On November 3, 2017, the company settled litigation brought by Winson Tang. The settlement did not require Mustang to issue new shares; Fortress was to transfer 200,000 shares it held, and Mustang paid $0.1 million cash in November. The filing recorded approximately $2.1 million of share-related expense and accrued the cash settlement as of September 30, 2017.
- After quarter-end, Mustang signed a lease for a 27,043-square-foot Worcester facility through November 2026. Base rent is approximately $3.6 million over the lease term, with planned improvements of about $3.5 million; the facility was expected to support personalized CAR T production in 2018.
- License agreements include future milestone, royalty and sublicense-payment obligations. Disclosed examples include potential CD20 development milestones totaling $39.1 million and up to $5.3 million of funding for its clinical trial; other licensed programs also carry material potential milestone commitments.
- Key risks include clinical and regulatory failure or delay, patient enrollment and manufacturing constraints, reliance on City of Hope and Fred Hutch, intellectual-property and licensing risks, continued losses and possible need for additional financing. Fortress controls a voting majority through its Class A preferred shares and may receive additional shares under contractual financing-fee and annual PIK dividend provisions.
Important facts for investors to verify
- Current cash use, certificate-of-deposit maturities and whether the stated minimum 12-month liquidity outlook remains adequate as development and facility spending increase.
- Trial timing, enrollment, safety and progress for the Phase 1 programs and the planned CD20 Phase 1/2 trial.
- Amounts and timing of future license milestones, research commitments, clinical-trial funding and manufacturing-facility costs.
- Potential dilution from warrants, stock awards, Fortress contractual share issuances and its preferred-stock voting and dividend rights.
- Settlement accounting and completion of the share transfer, as well as lease buildout, security-deposit and operating-cost obligations.