Mustang Bio, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. Financial figures below are in U.S. dollars; the financial statements report amounts in thousands. The 2015 comparison covers only March 13, 2015 (inception) through December 31, 2015, so it is not a full-year comparison.
Business context
Mustang is a clinical-stage biopharmaceutical company developing cancer immunotherapies, principally CAR-T cell programs licensed from City of Hope (COH). It had no approved products and generated no product revenue. Its lead programs were MB-101 for glioblastoma and MB-102 for acute myeloid leukemia (AML). Mustang was majority-controlled by Fortress Biotech.
Financial and operating metrics
| Metric | 2016 | 2015 inception period |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $2.468 million | $1.707 million |
| License-related R&D expense | $6.079 million | $2.337 million |
| General and administrative expense | $2.816 million | $0.254 million |
| Total operating expenses | $11.363 million | $4.298 million |
| Net loss | $12.654 million | $4.466 million |
| Operating cash flow | $(4.129) million | $(1.571) million |
- There are no meaningful sales margins to assess because the company had no product revenue.
- At year-end, cash was $27.499 million, total assets $27.499 million, current liabilities $3.223 million, and stockholders’ equity $24.276 million. Working capital was approximately $24.276 million.
- Cash from financing activities was $31.628 million in 2016, primarily from equity financing. The $3.6 million NSC note was repaid during 2016; $320,000 remained due to Fortress at year-end and was repaid in the first quarter of 2017.
- Contractual obligations totaled $7.413 million: $2.793 million due within one year and $4.620 million in one to three years, mainly for COH research and license fees and related-party note interest.
- Management stated that year-end cash was expected to fund anticipated operating needs for approximately 12 months. Separately, the company reported $94.6 million in cumulative gross proceeds from its private placement through its January 2017 closing, including $55.5 million raised in that final closing; placement-agent fees and warrants applied.
Changes versus the prior comparable period
- Net loss increased by $8.188 million to $12.654 million; operating expenses rose by $7.065 million to $11.363 million. Increased license-related expense included the $4.4 million accounting charge for Fortress’s 2.5% stock dividend and approximately $1.7 million for COH anti-dilution shares.
- R&D expense increased 45%, while G&A rose from $0.254 million to $2.816 million, including legal fees, founder-share expense, and Fortress management-service fees.
- Cash rose from zero at the end of 2015 to $27.499 million, primarily reflecting 2016 private-placement financing. Operating cash use also increased.
- Fourth-quarter 2016 net loss was $8.748 million, compared with $911,000 in fourth-quarter 2015; fourth-quarter operating expenses were $7.831 million. No quarterly revenue was reported.
Outlook, developments, and key risks
- Clinical programs: MB-101 was in Phase 1, with 17 patients treated by December 31, 2016. Investigators reported no dose-limiting toxicities to date and one complete response sustained for 7.5 months before recurrence at four separate sites. MB-102 was in Phase 1, with three patients treated by year-end.
- Management estimates: The filing estimated completion of the current Phase 1/2 development phase by the first half of 2018 for MB-101 and the second half of 2018 for MB-102, at estimated costs of $2.5–$5 million for each. These are uncertain estimates dependent on trial progress and available funding.
- Post-year-end licensing: In February 2017, Mustang amended and restated COH licenses and added an IV/ICV delivery-method license. COH may receive approximately $14.5 million in milestone payments under each of the CD123 and IL-13 licenses, plus royalties and certain sublicense revenue. A March 2017 UCLA license added another program, with approximately $14.3 million of potential milestones. These amounts are contingent, not current debt.
- Financing, control, and dilution: Fortress holds voting control. Its preferred shares carry an annual 2.5% stock dividend, and the founders agreement provides Fortress 2.5% of gross equity or debt financings while it retains majority voting control. COH also has anti-dilution rights. These arrangements may dilute other shareholders. NSC, the placement agent, was majority-owned by Fortress’s parent, and received substantial fees and warrants.
- Key business risks: Mustang expects continued losses and requires further funding; clinical efficacy, safety, regulatory approval, commercialization, and profitability are uncertain. It relies heavily on COH for research and clinical manufacturing and on third parties for trials and production. Competition in CAR-T is intense, and intellectual-property protection, patient enrollment, manufacturing capacity, reimbursement, and financing are material risks.
- Contingency: A lawsuit by Dr. Winson Tang seeks declaratory relief relating to an alleged 15% ownership interest. The company recorded no loss accrual, considers the claims without merit, and reported the case was set for trial in November 2017.
- Audit and controls: The 2016 financial statements received an unmodified audit opinion. Management concluded internal control over financial reporting was effective as of December 31, 2016. The 2015 audit report included substantial doubt about going concern at that time, citing recurring losses and reliance on additional financing.
Important facts for investors to verify
- Current cash, cash runway, and spending plans after the January 2017 financing, including fees, warrant terms, and the resulting share count and dilution.
- Updated MB-101 and MB-102 enrollment, safety, response durability, trial milestones, and whether the stated development timelines and cost estimates remain achievable.
- The precise impact of Fortress’s voting control, annual stock dividend, financing-related equity fee, and COH anti-dilution provisions on common-share dilution and governance.
- Current status and potential exposure from the Tang litigation, and the amounts and timing of contingent COH and UCLA milestones, royalties, and sublicense obligations.
- Trading and listing status: the filing’s cover identifies Nasdaq Capital Market, while its market-information section says there was no established public trading market.