Mustang Bio, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Financial statements are unaudited; amounts below are in U.S. dollars unless stated otherwise. Mustang is a clinical-stage cell and gene therapy company and reported no product revenue.
Key financial metrics
| Metric | Q2 2019 / June 30, 2019 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 in Q2 2018; six-month 2018 revenue was $50,000 |
| Operating expenses | $10.2 million for Q2; $20.0 million for six months | $5.2 million and $11.7 million, respectively, in 2018 |
| Net loss | $10.4 million for Q2; $20.0 million for six months | $5.1 million and $11.4 million, respectively, in 2018 |
| Net loss per share | $0.29 for Q2; $0.62 for six months | $0.19 and $0.43, respectively, in 2018 |
| Operating cash used | $15.3 million for six months | $8.9 million in six-month 2018 |
| Cash and cash equivalents | $82.6 million; plus $0.5 million restricted cash | $16.5 million cash and $0.5 million restricted cash at December 31, 2018 |
| Total assets / stockholders’ equity | $92.6 million / $71.4 million | $42.8 million / $36.4 million at December 31, 2018 |
| Notes payable | $13.0 million carrying value, net of debt discount | None at December 31, 2018 |
Gross margin is not meaningful because Mustang had no product sales. No profitability guidance was provided.
Material changes and financing
- Q2 research and development expense rose 92% to $6.8 million; six-month expense rose 76% to $13.8 million. Management cited increased staffing, laboratory supplies, clinical-trial and sponsored-research activity, consulting, and depreciation.
- General and administrative expense increased 89% in Q2 to $3.2 million; the six-month increase was $1.7 million. Management attributed the increase primarily to Fortress Biotech’s 2.5% financing-related equity fee.
- In 2019, Mustang raised approximately $22.0 million net through its ATM offering and $29.5 million net through a public offering, issuing approximately 3.5 million and 7.9 million shares, respectively. Common shares outstanding increased from 26.6 million at year-end 2018 to 39.5 million at June 30, 2019. About $20.9 million remained available under the shelf registration statement.
- Mustang borrowed $15.0 million under a $20.0 million Horizon facility; the remaining $5.0 million is contingent on milestones. The loan is secured by substantially all assets other than specified intellectual property and excluded collateral. It bears interest at 9% plus any one-month LIBOR amount above 2.5%, includes an interest-only period, and matures in October 2022 for the initial advances. The agreement includes minimum-cash covenants, other restrictions, and warrants for 288,184 shares at $3.47.
Liquidity, outlook and risks
Cash, cash equivalents and restricted cash totaled $83.1 million at June 30, 2019. Management said available cash and cash equivalents were expected to fund anticipated operating requirements for at least one year from the filing date. The company also stated it would need additional financing to fully develop, obtain approvals for, and commercialize its candidates. Operating cash use increased year over year, and ongoing losses are expected; accumulated deficit was $99.1 million. The filing does not provide specific revenue, earnings, or cash-burn guidance.
Management expects research and development and general and administrative costs to increase as programs advance and public-company, staffing, regulatory, and development costs grow. Key uncertainties include clinical results and enrollment, regulatory approval and timing, manufacturing capacity and supply, reliance on research and licensing partners, intellectual-property protection, competition, and the need for additional capital. Future equity financing could dilute shareholders; debt carries covenants and secured-lender enforcement risks. Fortress controls a voting majority and receives financing-related share grants, creating control, related-party, and dilution considerations.
Pipeline developments included ongoing early-stage trials across gene therapy and CAR T programs. After quarter-end, Mustang reported FDA approval of its IND for a company-sponsored multi-center Phase 1/2 MB-102 trial, with initiation planned later in 2019; the FDA had also granted MB-102 orphan designation for AML. The company anticipated transferring the MB-107 XSCID IND from St. Jude by year-end 2019 and described plans to advance additional trials and INDs. These are plans, not guaranteed milestones. The company had no approved products and no product sales. It reported no legal proceedings or commitments and contingencies, and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Cash runway assumptions and actual quarterly operating cash burn, including the effect of continued R&D spending.
- Conditions for the remaining $5.0 million Horizon advance, minimum-cash covenant requirements, interest terms, and debt repayment obligations.
- Clinical-trial start dates, enrollment, safety and efficacy data, and progress on the MB-102, MB-104 and MB-107 programs.
- Further financing needs, shelf capacity, potential dilution, and the impact of Fortress’s financing-related equity rights and voting control.
- Whether the company’s manufacturing facility and external partners can support planned clinical programs and product supply.