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Table of Contents

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

OR

    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

2

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.

3

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.

4

Table of Contents

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

5

Table of Contents

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.

6

Table of Contents

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

7

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.

8

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.

9

Table of Contents

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