UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-38191

MUSTANG BIO, INC.

(Exact name of registrant as specified in its charter)

Delaware		47-3828760
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

377 Plantation Street

Worcester, MA 01605

(Address including zip code of principal executive offices)

(781) 652-4500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	MBIO	NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Class of Common Stock		Outstanding Shares as of November 4, 2020
Class A Common Stock, $0.0001 par value		845,385
Common Stock, $0.0001 par value		64,392,968

Table of Contents

MUSTANG BIO, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		3

Item 1.	Unaudited Condensed Financial Statements	3

	Condensed Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019	3

	Condensed Statements of Operations for the Three and Nine months Ended September 30, 2020 and 2019 (Unaudited)	4

	Condensed Statements of Stockholders’ Equity for the Three and Nine months Ended September 30, 2020 and 2019 (Unaudited)	5

	Condensed Statements of Cash Flows for the Three and Nine months Ended September 30, 2020 and 2019 (Unaudited)	7

	Notes to the Condensed Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risks	27

Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION		29

Item 1.	Legal Proceedings	29

Item 1A	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73

Item 3.	Defaults Upon Senior Securities	73

Item 4.	Mine Safety Disclosures	73

Item 5.	Other Information	73

Item 6.	Exhibits	74

Signatures		75

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

MUSTANG BIO, INC.

Condensed Balance Sheets

($ in thousands, except for share and per share amounts)


	September 30,		December 31,
	2020		2019
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	75,251	$	61,413
Other receivables - related party		37		19
Prepaid expenses and other current assets		344		1,631
Total current assets		75,632		63,063

Property, plant and equipment, net		7,250		6,779
Fixed assets - construction in process		821		1,157
Restricted cash		1,000		1,000
Other assets		250		250
Operating lease right-of-use asset, net		1,115		1,196
Total Assets	$	86,068	$	73,445

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short-term notes payable	$	—	$	1,250
Accounts payable and accrued expenses		7,054		5,668
Payables and accrued expenses - related party		305		596
Operating lease liabilities - short-term		271		257
Total current liabilities		7,630		7,771

Notes payable		—		12,179
Operating lease liabilities - long-term		2,022		1,843
Total Liabilities		9,652		21,793

Commitments and Contingencies

Stockholders’ Equity
Preferred stock ($0.0001 par value), 2,000,000 shares authorized, 250,000 shares of Class A preferred stock issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		—		—
Common Stock ($0.0001 par value), 85,000,000 shares authorized
Class A common shares, 845,385 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		—		—
Common shares, 60,164,539 and 39,403,519 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		5		4
Common stock issuable, 65,810 and 1,206,667 shares as of September 30, 2020 and December 31, 2019, respectively		235		4,923
Additional paid-in capital		241,042		172,184
Accumulated deficit		(164,866)		(125,459)
Total Stockholders’ Equity		76,416		51,652
Total Liabilities and Stockholders’ Equity	$	86,068	$	73,445

The accompanying notes are an integral part of these condensed financial statements.

Table of Contents

MUSTANG BIO, INC.

Condensed Statements of Operations

($ in thousands, except for share and per share amounts)

(Unaudited)


	For the three months ended September 30,				For the nine months ended September 30,
	2020		2019		2020		2019
Operating expenses:
Research and development	$	7,987	$	7,309	$	27,131	$	21,092
Research and development – licenses acquired		287		700		1,837		1,350
General and administrative		2,153		1,987		7,100		7,520
Total operating expenses		10,427		9,996		36,068		29,962
Loss from operations		(10,427)		(9,996)		(36,068)		(29,962)

Other income (expense)
Interest income		162		406		567		945
Interest expense		(2,687)		(578)		(3,906)		(1,163)
Total other income (expense)		(2,525)		(172)		(3,339)		(218)
Net Loss	$	(12,952)	$	(10,168)	$	(39,407)	$	(30,180)

Net loss per common share outstanding, basic and diluted	$	(0.23)	$	(0.25)	$	(0.82)	$	(0.87)

Weighted average number of common shares outstanding, basic and diluted		57,253,715		39,875,209		48,116,158		34,752,938

The accompanying notes are an integral part of these condensed financial statements.

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MUSTANG BIO, INC.

Condensed Statements of Stockholders’ Equity

($ in thousands, except for share amounts)

(Unaudited)


	For the Three Months Ended September 30, 2020
										Common		Additional				Total
	Class A Preferred Stock			Class A Common Shares			Common Shares			Stock		Paid-in		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Issuable		Capital		Deficit		Equity
Balances at June 30, 2020	250,000	$	—	845,385	$	—	54,826,243	$	5	$	—	$	222,938	$	(151,914)	$	71,029
Issuance of common shares, net of offering costs - At-the-Market Offering	—		—	—		—	5,044,803		—		—		17,240		—		17,240
Issuance of common shares, equity fee on At-the-Market Offering	—		—	—		—	64,015		—		235		215		—		450
Issuance of common shares, net of offering costs - Public Offering	—		—	—		—	—		—		—		(137)		—		(137)
Issuance of common shares under ESPP	—		—	—		—	72,505		—		—		180		—		180
Stock-based compensation expenses	—		—	—		—	156,973		—		—		606		—		606
Exercise of warrants	—		—	—		—	—		—		—		—		—		—
Net loss	—		—	—		—	—		—		—		—		(12,952)		(12,952)
Balances at September 30, 2020	250,000	$	—	845,385	$	—	60,164,539	$	5	$	235	$	241,042	$	(164,866)	$	76,416


	For the Nine Months Ended September 30, 2020
										Common		Additional				Total
	Class A Preferred Stock			Class A Common Shares			Common Shares			Stock		Paid-in		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Issuable		Capital		Deficit		Equity
Balances at December 31, 2019	250,000	$	—	845,385	$	—	39,403,519	$	4	$	4,923	$	172,184	$	(125,459)	$	51,652
Issuance of common shares - Founders Agreement	—		—	—		—	1,206,667		—		(4,923)		4,923		—		—
Issuance of common shares, net of offering costs - At-the-Market Offering	—		—	—		—	7,180,437		—		—		25,083		—		25,083
Issuance of common shares, equity fee on At-the-Market Offering	—		—	—		—	117,405		—		235		417		—		652
Issuance of common shares, net of offering costs - Public Offering	—		—	—		—	11,455,604		1		—		34,786		—		34,787
Issuance of common shares, equity fee on Public Offering	—		—	—		—	286,390		—		—		932		—		932
Issuance of common shares under ESPP	—		—	—		—	140,856		—		—		349		—		349
Stock-based compensation expenses	—		—	—		—	370,662		—		—		2,368		—		2,368
Exercise of warrants	—		—	—		—	2,999		—		—		—		—		—
Net loss	—		—	—		—	—		—		—		—		(39,407)		(39,407)
Balances at September 30, 2020	250,000	$	—	845,385	$	—	60,164,539	$	5	$	235	$	241,042	$	(164,866)	$	76,416

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MUSTANG BIO, INC.

Condensed Statements of Stockholders’ Equity (Continued)

($ in thousands, except for share amounts)

(Unaudited)


	For the Three Months Ended September 30, 2019
										Common		Additional				Total
	Class A Preferred Stock			Class A Common Shares			Common Shares			Stock		Paid-in		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Issuable		Capital		Deficit		Equity
Balances at June 30, 2019	250,000	$	—	862,392	$	—	39,454,316	$	4	$	—	$	170,522	$	(99,082)	$	71,444
Issuance of common shares, net of offering costs - Public Offering	—		—	—		—	—		—		—		52		—		52
Stock-based compensation expenses	—		—	—		—	96,477		—		—		1,120		—		1,120
Exercise of warrants	—		—	—		—	27,578		—		—		—		—		—
Net loss	—		—	—		—	—		—		—		—		(10,168)		(10,168)
Balances at September 30, 2019	250,000	$	—	862,392	$	—	39,578,371	$	4	$	—	$	171,694	$	(109,250)	$	62,448


	For the Nine Months Ended September 30, 2019
										Common		Additional				Total
	Class A Preferred Stock			Class A Common Shares			Common Shares			Stock		Paid-in		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Shares	Amount		Issuable		Capital		Deficit		Equity
Balances at December 31, 2018	250,000	$	—	1,000,000	$	—	26,610,183	$	3	$	2,085	$	113,378	$	(79,070)	$	36,396
Issuance of common shares - Founders Agreement	—		—	—		—	709,314		—		(2,085)		2,085		—		—
Issuance of common shares- Equity fee on Horizon Notes to Fortress Biotech	—		—	—		—	108,069		—		—		375		—		375
Issuance of warrants- Horizon Notes	—		—	—		—	—		—		—		888		—		888
Conversion of Class A Common shares to common shares	—		—	(137,608)		—	137,608		—		—		—		—		—
Issuance of common shares, net of offering shares -At-the-Market Offering	—		—	—		—	3,506,222		—		—		21,972		—		21,972
Issuance of common shares - Equity fee on At-the-Market Offering	—		—	—		—	87,656		—		—		495		—		495
Issuance of common shares, net of offering costs- Public Offering	—		—	—		—	7,906,250		1		—		29,536		—		29,537
Issuance of common shares- Equity fee on Public Offering	—		—	—		—	197,656		—		—		791		—		791
Stock-based compensation expenses	—		—	—		—	222,477		—		—		2,174		—		2,174
Exercise of warrants	—		—	—		—	92,936		—		—		—		—		—
Net loss	—		—	—		—	—		—		—		—		(30,180)		(30,180)
Balances at September 30, 2019	250,000	$	—	862,392	$	—	39,578,371	$	4	$	—	$	171,694	$	(109,250)	$	62,448

The accompanying notes are an integral part of these condensed financial statements.

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MUSTANG BIO, INC.

Condensed Statements of Cash Flows

($ in thousands)

(Unaudited)


	For the nine months ended September 30,
	2020		2019
Cash Flows from Operating Activities:
Net loss	$	(39,407)	$	(30,180)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of debt discount		2,321		466
Issuance of common shares - Equity fee on At-the-Market Offering to Fortress Biotech		417		495
Issuance of common shares - Equity fee on Public Offering to Fortress Biotech		932		791
Issuance of common shares - Equity fee on Horizon Notes to Fortress Biotech		—		375
Common shares issuable for Founders Agreement		235		—
Research and development - licenses acquired		1,837		1,350
Stock-based compensation expenses		2,368		2,174
Depreciation expense		1,223		907
Amortization of operating lease right-of-use assets		81		80
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		1,594		(440)
Other receivables - related party		(325)		(55)
Accounts payable and accrued expenses		978		(203)
Payable and accrued expenses - related party		(291)		48
Lease liabilities		193		101
Net cash used in operating activities		(27,844)		(24,091)

Cash Flows from Investing Activities:
Maturity of certificate of deposit		—		17,604
Purchase of research and development licenses		(1,720)		(850)
Purchase of fixed assets		(1,228)		(1,454)
Net cash (used in) provided by investing activities		(2,948)		15,300

Cash Flows from Financing Activities:
Proceeds from Horizon Notes		—		15,000
Debt issuance costs		—		(1,393)
Proceeds from issuance of common shares - At-the-Market Offering		25,570		22,515
Offering costs for the issuance of common shares - At-the-Market Offering		(487)		(543)
Proceeds from issuance of common shares - Public Offering		37,230		31,625
Offering costs for the issuance of common shares - Public Offering		(2,282)		(2,088)
Repayment of notes payable		(15,750)		—
Proceeds from issuance of common shares under ESPP		349		—
Net cash provided by financing activities		44,630		65,116

Net change in cash, cash equivalents and restricted cash		13,838		56,325
Cash, cash equivalents and restricted cash, beginning of the period		62,413		16,969
Cash, cash equivalents and restricted cash, end of the period	$	76,251	$	73,294

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,577	$	698

Supplemental disclosure of noncash investing and financing activities:
Fixed assets (acquired but not paid)	$	317	$	288
Issuance of common shares - Founders Agreement	$	4,923	$	2,085
Research and development licenses included in accounts payable and accrued expenses	$	117	$	500
Offering costs for the issuance of common shares - Public Offering, in accounts payable and accrued expenses	$	161	$	—
Issuance of warrants - Horizon Notes	$	—	$	888

The accompanying notes are an integral part of these condensed financial statements

Table of Contents

Note 1 - Organization, Description of Business and Liquidity and Capital Resources

Mustang Bio, Inc. (the “Company” or “Mustang”) was incorporated in Delaware on March 13, 2015. Mustang is as a clinical-stage biopharmaceutical company focused on translating today’s medical breakthroughs in cell and gene therapy into potential cures for hematologic cancers, solid tumors and rare genetic diseases. The Company may acquire rights to these technologies by licensing the rights or otherwise acquiring an ownership interest in the technologies, funding their research and development and eventually either out-licensing or bringing the technologies to market.

The Company is a majority-controlled subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).

Liquidity and Capital Resources

The Company has incurred substantial operating losses and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2020, the Company had an accumulated deficit of $164.9 million.

The Company has funded its operations to date primarily through the sale of equity and its venture debt financing agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”), herein referred to as the “Horizon Notes.” The Company expects to continue to use the proceeds from previous financing transactions primarily for general corporate purposes, including financing the Company’s growth, developing new or existing product candidates, and funding capital expenditures, acquisitions and investments. The Company currently anticipates that its cash and cash equivalents balances at September 30, 2020, are sufficient to fund its anticipated operating cash requirements for at least one year from the date of this Form 10-Q.

The Company will be required to expend significant funds in order to advance the development of its product candidates. The Company will require additional financings through equity and debt offerings, collaborations and licensing arrangements or other sources to fully develop, prepare regulatory filings, obtain regulatory approvals and commercialize its existing and any new product candidates. In addition to the foregoing, based on the Company’s current assessment, the Company does not expect any material impact on its long-term development timeline and its liquidity due to the worldwide spread of the COVID-19 virus. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world.

Note 2 - Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the Exchange Act. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. They may not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended December 31, 2019, which were included in the Company’s Form 10-K and filed with the SEC on March 16, 2020. The results of operations for any interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

Use of Estimates

The Company’s unaudited condensed financial statements include certain amounts that are based on management’s best estimates and judgments. The Company’s significant estimates include, but are not limited to, assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Due to the uncertainty inherent in such estimates actual results could differ from those estimates.

Table of Contents

Net Loss per Share

Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period less unvested restricted stock. Since dividends are declared, paid and set aside among the holders of shares of common stock and Class A common shares pro-rata on an as-if-converted basis, the two-class method of computing net loss per share is not required. Diluted net loss per share does not reflect the effect of shares of common stock to be issued upon the exercise of warrants or outstanding Class A preferred shares, as their inclusion would be anti-dilutive.

The table below summarizes potentially dilutive securities that were not considered in the computation of diluted net loss per share because they would be anti-dilutive.


	For the nine months ended September 30,
	2020	2019
Warrants	5,402,670	5,405,946
Options	1,141,675	1,241,675
Class A Preferred Shares	250,000	250,000
Unvested restricted stock awards	302,114	571,696
Unvested restricted stock units	1,500,310	932,917
Total	8,596,769	8,402,234

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies previously disclosed in the Company’s Form 10-K filed with the SEC on March 16, 2020.

Recently Issued Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires that expected credit losses relating to financial assets are measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its financial statements.

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), - Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company’s adoption of this standard on January 1, 2020, did not have a material impact on its condensed financial statements and related disclosures.

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Note 3 - License, Clinical Trial and Sponsored Research Agreements

Research and Development Expenses - All Licenses

For the three and nine months ended September 30, 2020 and 2019, the Company recorded the following expense in research and development for licenses acquired:


	For the three months ended September 30,				For the nine months ended September 30,
($ in thousands)	2020		2019		2020		2019
City of Hope National Medical Center
CD123	$	—	$	—	$	334	$	250
CS1		—		—		—		200
IL13Rα2		—		—		333		—
Spacer		—		—		333		—
PSCA		—