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 March 31, 2021

☐ 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 May 13, 2021
Class A Common Stock, $0.0001 par value		845,385
Common Stock, $0.0001 par value		86,467,920

Table of Contents

MUSTANG BIO, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		5

Item 1.	Financial Statements	5

	Condensed Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020	5

	Condensed Statements of Operations for the three months ended March 31, 2021 and 2020 (unaudited)	6

	Condensed Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 (unaudited)	7

	Condensed Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)	8

	Notes to the Condensed Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risks	24

Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION		26

Item 1.	Legal Proceedings	26

Item 1A	Risk Factors	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3.	Defaults Upon Senior Securities	68

Item 4.	Mine Safety Disclosures	68

Item 5.	Other Information	68

Item 6.	Exhibits	69

Signatures		70

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SUMMARY OF RISK FACTORS

Our business is subject to risks of which you should be aware before making an investment decision. The risks described below are a summary of the principal risks associated with an investment in us and are not the only risks we face. You should carefully consider these risk factors, the risk factors described in Item 1A, and the other reports and documents that we have filed with the Securities and Exchange Commission (“SEC”).

Risks Related to our Finances and Capital Requirements

●

We have incurred significant losses since our inception and anticipate that we will incur continued losses for the foreseeable future. We have not generated any revenue from our development stage products, and we do not know when, or if, we will generate any revenue.

●

Our short operating history makes it difficult to evaluate our business and prospects.

●

Our success is contingent upon raising additional capital, which efforts may fail. Even if successful, our future capital raising activities may dilute our current stockholders, restrict our operations, cause us to relinquish proprietary rights.

Risks Pertaining to our Business Strategy, Structure and Organization

●

Our future growth and success depend on our ability to successfully develop and commercialize our product candidates, which we have yet to do.

●

Our growth and success depend on our acquiring or in-licensing products or product candidates and integrating such products into our business, and we may have limited growth opportunities if we fail to do so.

●

Our future success is highly dependent on the successful development of our CAR T technology and product candidates.

Risks Inherent in Drug Development and Commercialization

●

Preclinical development is highly speculative and carries a high failure risk.

●

We may not receive the required regulatory approvals for any of our product candidates on our projected timelines, if at all, which may result in increased costs and delay our ability to generate revenue.

●

We may not obtain the desired labeling claims or intended uses for product promotion, or favorable scheduling classifications, to successfully promote our products.

●

If a product candidate demonstrates adverse side effects, we may need to abandon or limit the development of such product candidate.

●

Even if a product candidate is approved, it may be subject to various post-marketing requirements, including studies or clinical trials, and increased regulatory scrutiny.

●

Our competitors may develop treatments for our or our partner companies’ products’ target indications, which could limit our product candidates’ commercial opportunity and profitability.

●

If our products are not broadly accepted by the healthcare community, the revenues from any such product will likely be limited.

●

Any successful products liability claim related to any of our current or future product candidates may cause us to incur substantial liability and limit the commercialization of such products.

●

Our gene therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval.

Risks Related to Reliance on Third Parties

●

We rely, and expect to continue to rely, on third parties to conduct our preclinical studies and clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials or complying with applicable regulatory requirements.

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●

We contract with third parties for the manufacture of our product candidates for preclinical and clinical testing and may also do so for commercialization, if and when our product candidates are approved.

●

We rely on clinical data and results obtained by third parties, which may prove inaccurate or unreliable.

●

We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

Risks Relating to Legislation and Regulation Affecting the Biopharmaceutical and Other Industries

●

We operate in a heavily regulated industry, and we cannot predict the impact that any future legislation or administrative or executive action may have on our operations.

●

We may be subject to anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

●

We are subject to numerous environmental, health and safety laws and regulations and could become subject to fines or penalties or incur costs that could harm our business

Risks Pertaining to Intellectual Property and Potential Disputes with Licensors Thereof

●

If we are unable to maintain sufficient patent protection for our technology and products, our competitors could develop and commercialize products similar or identical to ours and our ability to successfully commercialize our technology and products could be impaired.

●

We depend on our licensors for the maintenance and enforcement of to maintain and enforce the intellectual property covering certain of our product candidates.

●

We or our licensors may be subject to costly and time-consuming litigation for infringement of third-party intellectual property rights or to enforce our or our licensors’ patents.

●

Any dispute with our licensors may affect our ability to develop or commercialize our product candidates.

Risks Relating to Our Control by Fortress Biotech, Inc. (“Fortress”)

●

Fortress controls a voting majority of our common stock and has the right to receive significant share grants annually, which will result in dilution of our other stockholders and could reduce the value of our common stock.

●

We have entered into certain agreements with Fortress and may have received better terms from unaffiliated third parties.

Risks Related to Conflicts of Interest

●

We share certain directors with Fortress, which could create conflicts of interest between us and Fortress.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MUSTANG BIO, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)


	March 31,		December 31,
	2021		2020
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	129,371	$	97,804
Other receivables - related party		17		15
Prepaid expenses and other current assets		1,581		1,715
Total current assets		130,969		99,534

Property, plant and equipment, net		7,080		7,529
Fixed assets - construction in process		1,458		499
Restricted cash		1,000		1,000
Other assets		255		250
Operating lease right-of-use asset, net		1,060		1,088
Total Assets	$	141,822	$	109,900

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	5,959	$	8,747
Payables and accrued expenses - related party		343		490
Operating lease liabilities - short-term		284		278
Total current liabilities		6,586		9,515

Operating lease liabilities - long-term		1,875		1,950
Total Liabilities		8,461		11,465

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 March 31, 2021 and December 31, 2020, respectively		—		—
Common Stock ($0.0001 par value), 125,000,000 shares authorized
Class A common shares, 845,385 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		—		—
Common shares, 85,043,153 and 70,920,693 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		8		7
Common stock issuable, 63,688 and 2,103,122 shares as of March 31, 2021 and December 31, 2020, respectively		218		7,939
Additional paid-in capital		333,566		275,963
Accumulated deficit		(200,431)		(185,474)
Total Stockholders’ Equity		133,361		98,435
Total Liabilities and Stockholders’ Equity	$	141,822	$	109,900

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

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MUSTANG BIO, INC.

Condensed Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)


	For the three months ended March 31,
	2021		2020
Operating expenses:
Research and development	$	11,618	$	9,314
Research and development – licenses acquired		—		250
General and administrative		3,469		1,956
Total operating expenses		15,087		11,520
Loss from operations		(15,087)		(11,520)

Other income (expense)
Interest income		134		263
Interest expense		(4)		(600)
Total other income (expense)		130		(337)
Net Loss	$	(14,957)	$	(11,857)

Net loss per common share outstanding, basic and diluted	$	(0.19)	$	(0.28)

Weighted average number of common shares outstanding, basic and diluted		80,466,049		41,971,316

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 share amounts)

(Unaudited)


	For the Three Months Ended March 31, 2021
										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, 2020	250,000	$	—	845,385	$	—	70,920,693	$	7	$	7,939	$	275,963	$	(185,474)	$	98,435
Issuance of common shares - Founders Agreement	—		—	—		—	2,001,490		—		(7,577)		7,577		—		—
Issuance of common shares, net of offering costs - At-the-Market Offering	—		—	—		—	11,597,503		1		—		47,530		—		47,531
Issuance of common shares, equity fee on At-the-Market Offering	—		—	—		—	325,221		—		(144)		1,342		—		1,198
Issuance of common shares under ESPP	—		—	—		—	54,920		—		—		158		—		158
Stock-based compensation expenses	—		—	—		—	143,188		—		—		996		—		996
Exercise of warrants	—		—	—		—	138		—		—		—		—		—
Net loss	—		—	—		—	—		—		—		—		(14,957)		(14,957)
Balances at March 31, 2021	250,000	$	—	845,385	$	—	85,043,153	$	8	$	218	$	333,566	$	(200,431)	$	133,361


	For the Three Months Ended March 31, 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 shares -At-the-Market Offering	—		—	—		—	1,248,834		—		—		4,910		—		4,910
Issuance of common shares - Equity fee on At-the-Market Offering	—		—	—		—	31,220		—		—		125		—		125
Issuance of common shares under ESPP	—		—	—		—	68,351		—		—		169		—		169
Stock-based compensation expenses	—		—	—		—	115,250		—		—		805		—		805
Exercise of warrants	—		—	—		—	2,999		—		—		—		—		—
Net loss	—		—	—		—	—		—		—		—		(11,857)		(11,857)
Balances at March 31, 2020	250,000	$	—	845,385	$	—	42,076,840	$	4	$	—	$	183,116	$	(137,316)	$	45,804

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 three months ended March 31,
	2021		2020
Cash Flows from Operating Activities:
Net loss	$	(14,957)	$	(11,857)
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of common shares - Equity fee on At-the-Market Offering to Fortress Biotech		1,198		125
Research and development - licenses acquired		—		250
Stock-based compensation expenses		996		805
Depreciation expense		462		373
Accretion of debt discount		—		259
Amortization of operating lease right-of-use assets		28		31
Changes in operating assets and liabilities:
Prepaid expenses and other assets		129		(246)
Other receivables - related party		(2)		5
Accounts payable and accrued expenses		(3,218)		(163)
Payable and accrued expenses - related party		(147)		(50)
Lease liabilities		(69)		316
Net cash used in operating activities		(15,580)		(10,152)

Cash Flows from Investing Activities:
Purchase of fixed assets		(458)		(526)
Net cash used in investing activities		(458)		(526)

Cash Flows from Financing Activities:
Proceeds from issuance of common shares - At-the-Market Offering		48,379		4,997
Offering costs for the issuance of common shares - At-the-Market Offering		(932)		(87)
Proceeds from issuance of common shares under ESPP		158		169
Net cash provided by financing activities		47,605		5,079

Net change in cash, cash equivalents and restricted cash		31,567		(5,599)
Cash, cash equivalents and restricted cash, beginning of the period		98,804		62,413
Cash, cash equivalents and restricted cash, end of the period	$	130,371	$	56,814

Supplemental disclosure of cash flow information:
Cash paid for interest	$	—	$	341

Supplemental disclosure of noncash investing and financing activities:
Fixed assets (acquired but not paid)	$	545	$	540
Issuance of common shares - Founders Agreement	$	7,577	$	4,923
Research and development licenses included in accounts payable and accrued expenses	$	—	$	250

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

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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”).

The Company's common stock is listed on the NASDAQ Global Market and trades under the symbol “MBIO”.

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 March 31, 2021, the Company had an accumulated deficit of $200.4 million.

The Company has funded its operations to date primarily through the sale of equity. 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 March 31, 2021, are sufficient to fund its anticipated operating cash requirements for at least one year from the filing 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, 2020, which were included in the Company’s Form 10-K and filed with the SEC on March 24, 2021. 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.

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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 24, 2021.

Recently Issued Accounting Standards

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption will be permitted. The Company is currently evaluating the impact of this standard on its financial statements.

In June 2016, 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.

Note 3 - License, Clinical Trial and Sponsored Research Agreements

Research and Development Expenses - All Licenses

For the three months ended March 31, 2021 and 2020, the Company recorded the following expense in research and development for licenses acquired:


	For the three months ended March 31,
($ in thousands)	2021		2020
City of Hope National Medical Center
HER2		—		250
Total	$	—	$	250

City of Hope

HER2 License (MB-103)

On May 31, 2017, the Company entered into an exclusive license agreement with City of Hope National Medical Center (“COH”) for the use of human epidermal growth factor receptor 2 (“HER2”) chimeric antigen receptor (“CAR”) engineered T cell (“CAR T”) technology, which will initially be applied in the treatment of glioblastoma multiforme and brain metastases from HER2+ malignancies. Pursuant to this agreement, the Company paid an upfront fee of $0.6 million and pays an annual maintenance fee of $50,000 (which began in 2019). Additional payments are due for the achievement of ten development milestones totaling $14.9 million, and royalty payments in the mid-single digits are due on net sales of licensed products.

For the three months ended, March 31, 2021 and March 31, 2020, the Company recorded nil and $0.3 million, respectively, in connection with the HER2 license agreement with COH. The $0.3 million represented a non-refundable milestone payment in connection with the twelfth patient treated in the Phase 1 clinical study of MB-103 at COH, for the three months ended March 31, 2020.

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Research and Development Expenses - Sponsored Research and Clinical Trial Agreements

For the three months ended March 31, 2021 and 2020, the Company recorded the following expense in research and development for sponsored research and clinical trial agreements:


	For the three months ended March 31,
($ in thousands)	2021		2020
City of Hope National Medical Center	$	—	$	500
CD123		205		230
IL13Rα2		514		92
CS1		175		—
HER2		123		—
PSCA		50		—
Fred Hutchinson Cancer Research Center - CD20		671		527
St. Jude Children's Research Hospital - XSCID		104		—
Total	$	1,842	$	1,349

City of Hope

Sponsored Research Agreement

In March 2015, the Company entered into a Sponsored Research Agreement (“SRA”) with COH in which the Company funded continued research in the amount of $2.0 million per year, payable in four equal installments, through the first quarter of 2020. The research covered under this arrangement is for the IL13Rα2-directed CAR T program, the CD123-directed CAR T program and the Spacer technology. For the three months ended March 31, 2021 and 2020, the Company recorded expense of nil and $0.5 million, respectively, in research and development expenses in the Condensed Statements of Operations pursuant to the terms of this agreement.

CD123 (MB-102) Clinical Research Support Agreement

In February 2017, the Company entered into a Clinical Research Support Agreement for the CD123-directed CAR T program (the “CD123 CRA”). Pursuant to the terms of the CD123 CRA, the Company made an upfront payment of $19,450 and will contribute an additional $97,490 per patient in connection with the on-going investigator-initiated study. Further, the Company agreed to fund approximately $0.2 million over three years pertaining to the clinical development of the CD123-directed CAR T program. For the three months ended March 31, 2021 and 2020, the Company recorded $0.2 million and $0.2 million, respectively, in research and development expenses in the Condensed Statements of Operations pursuant to the terms of this agreement.

IL13Rα2 (MB-101) Clinical Research Support Agreements

In February 2017, the Company entered into a clinical research support agreement for the IL13Rα2-directed CAR T program (the “IL13Rα2 CRA”). Pursuant to the terms of the IL13Rα2 CRA, the Company made an upfront payment of approximately $9,300 and will contribute an additional $0.1 million related to patient costs in connection with the on-going investigator-initiated study. Further, the Company agreed to fund approximately $0.2 million over three years pertaining to the clinical development of the IL13Rα2-directed CAR T program.

In October 2020, the Company entered into a Clinical Research Support Agreement for the IL13Rα2-directed CAR T program for adult patients with leptomeningeal glioblastoma, ependymoma or medulloblastoma (the “IL13Rα2 Leptomeningeal CRA”). Pursuant to the terms of the IL13Rα2 Leptomeningeal CRA, the Company made an upfront payment of approximately $29,000 and will contribute an additional $0.1 million per patient in connection with the on-going investigator-initiated study. Further, the Company agreed to fund approximately $0.2 million annually pertaining to the clinical development of the IL13Rα2-directed CAR T program.

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For the three months ended March 31, 2021 and 2020, the Company recorded $0.5 million and $0.1 million, respectively, in research and development expenses in the Condensed Statements of Operations pursuant to the terms of these agreements.

CS1 (MB-104) Clinical Research and Support Agreement with City of Hope

In June 2020, Mustang entered into a clinical research and support agreement with COH in connection with an Investigator-sponsored study conducted under an Institutional Review Board-approved, investigator-initiated protocol entitled: “Phase I Study to Evaluate Cellular Immunotherapy Using Memory-Enriched T Cells Lentivirally Transduced to Express a CS1-Targeting, Hinge-Optimized, 41BB-Costimulatory Chimeric Antigen Receptor and a Truncated EGFR Following Lymphodepleting Chemotherapy in Adult Patients with CS1+ Multiple Myeloma.” The CAR T being studied under this protocol has been designated by the Company as MB-104. Under the terms of the agreement Mustang paid COH $0.8 million for costs incurred and will reimburse COH for costs associated with this trial, when incurred, not to exceed $2.4 million. The agreement will expire upon the delivery of a final study report or earlier. For the three months ended March 31, 2021 and 2020, the Company recorded $0.2 million and nil, respectively, in research and development expenses in the Condensed Statements of Operations pursuant to the terms of this agreement.

HER2 (MB-103) Clinical Research Support Agreement

In September 2020, the Company entered into a clinical research support agreement with COH in connection with an Investigator-sponsored study conducted under an Institutional Review Board-approved, investigator-initiated protocol entitled: “Phase I Study of Cellular Immunotherapy using Memory-Enriched T Cells Lentivirally Transduced to Express a HER2-Specific, Hinge-Optimized, 41BB-Costimulatory Chimeric Receptor and a Truncated CD19 for Patients with Recurrent/Refractory Malignant Glioma.” The CAR T being studied under this protocol has been designated as MB-103. Under the terms of the agreement the Company paid COH $29,375 upon execution and will reimburse COH for costs associated with this trial not to exceed $3.0 million. The agreement will expire upon the delivery of a final study report or earlier. For the three months ended March 31, 2021 and 2020, the Company recorded $0.1 million and nil, respectively, in research and development expenses in the Condensed Statements of Operations pursuant to the terms of this agreement.

PSCA (MB-105) Clinical Research Support Agreement

In October 2020, the Company entered into a clinical research support agreement with COH in connection with an Investigator-sponsored study conducted under an Institutional Review Board-approved, investigator-initiated protocol entitled: “A Phase 1b study to evaluate PSCA-specific chimeric antigen receptor (CAR)-T cells for patients with metastatic castration resistant prostate cancer.” The CAR T being studied under this protocol has been designated as MB-105. Under the terms of the agreement the Company paid COH $33,000 upon execution and will reimburse COH for costs associated with this trial not to exceed $2.3 million. The agreement will expire upon the delivery of a final study report or earlier. For the three months ended March 31, 2021 and 2020, the Company recorded $0.1 million and nil, respectively, in research and development expenses in the Condensed Statements of Operations pursuant to the terms of this agreement.

Fred Hutchinson Cancer Research Center

CD20 (MB-106) Clinical Trial Agreement

On July 3, 2017, in conjunction with the CD20 Technology License from Fred Hutchinson Cancer Research Center (“Fred Hutch”), we entered into an investigator-initiated clinical trial agreement (the “CD20 CTA”) to provide partial funding for a Phase 1/2 clinical trial at Fred Hutch evaluating the safety and efficacy of the CD20 Technology in patients with relapsed or refractory B-cell non-Hodgkin lymphomas. In connection with the CD20 CTA, the Company agreed to fund up to $5.3 million of costs associated with the clinical trial, which commenced during the fourth quarter of 2017. In November 2020, the CD20 CTA was amended to include additional funding of approximately $0.8 million for the treatment of five patients with chronic lymphocytic leukemia. For the three months ended March 31, 2021 and 2020, the Company recorded $0.7 million and $0.5 million, respectively, in research and development expenses in the Condensed Statements of Operations pursuant to the terms of this agreement.

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XSCID (MB-107) Data Transfer Agreement with St. Jude Children’s Research Hospital

In June 2020, Mustang entered into a Data Transfer Agreement with St. Jude Children’s Research Hospital (“St. Jude”) under which Mustang will reimburse St. Jude for costs associated with St. Jude’s clinical trial for the treatment of infants with X-linked Severe Combined Immunodeficiency (“XSCID”). Pursuant to the terms of this agreement Mustang paid an upfront fee of $1.1 million on July 1, 2020, and will continue to reimburse St. Jude for costs incurred in connection with this trial. For the three months ended March 31, 2021 and 2020, the Company recorded $0.1 million and nil, respectively, in research and development expenses in the Condensed Statements of Operations pursuant to the terms of this agreement.

Note 4 - Related Party Agreements

Founders Agreement and Management Services Agreement with Fortress

In connection with the Company’s Management Services Agreement (the “MSA”) with Fortress for the three months ended March 31, 2021 and 2020, respectively, expenses related to the MSA are recorded 50%in research and development expenses and 50% in general and administrative expenses in the Statements of Operations. For the three months ended March 31, 2021 and 2020, respectively, the Company recorded expense of $0.1 million and $0.1 million, respectively, related to this agreement.

Under the terms of the Second Amended and Restated Founders Agreement, which became effective July 22, 2016, Fortress will receive a grant of shares of our common stock equal to two and one-half percent (2.5%) of the gross amount of any equity or debt financing. In March 2021, the Company issued 325,221 shares of common stock to Fortress, which equaled 2.5% of the gross proceeds of $48.4 million from the sale of shares of common stock under Mustang’s At-the-Market Offering. The Company recorded an expense of approximately $1.2 million in general and administrative expenses related to these shares during the three months ended March 31, 2021.

Annual Stock Dividend

Pursuant to the Amended and Restated Articles of Incorporation, the Company issued 2,001,490 shares of common stock to Fortress for the Annual Stock Dividend, representing 2.5% of the fully-diluted outstanding equity of Mustang on January 1, 2021. This was shown in the Statement of Stockholders’ Equity at December 31, 2020 as Common stock issuable – Founders Agreement. The Company recorded an expense of approximately $7.6 million in research and development – licenses acquired related to these issuable shares during the year ended December 31, 2020.

Payables and Accrued Expenses Related Party

In the normal course of business Fortress pays for certain expenses on behalf of the Company. Such expenses are recorded as Payables and accrued expenses - related party and are reimbursed to Fortress in the normal course of business.

Note 5 - Property and Equipment

At March 31, 2021 and December 31, 2020, Mustang’s property and equipment consisted of the following:


	Estimated Useful	March 31,		December 31,
($ in thousands)	Life (in years)	2021		2020
Computer equipment	3	$	68	$	68
Furniture and fixtures	5		194		181
Machinery and equipment	5		5,748		5,748
Leasehold improvements	9		5,099		5,099
Construction in process	N/A		1,458		499
Total property and equipment			12,567		11,595
Less: accumulated depreciation			(4,029)		(3,567)
Property and equipment, net		$	8,538	$	8,028

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Depreciation expense for the three months ended March 31, 2021, and 2020, was approximately $0.5 million and $0.4 million and was recorded in research and development expense in the Condensed Statements of Operations.

Note 6 - Accounts Payable and Accrued Expenses

At March 31, 2021 and December 31, 2020, accounts payable and accrued expenses consisted of the following:


	March 31,		December 31,
($ in thousands)	2021		2020
Accounts payable	$	2,918	$	3,518
Research and development		1,968		2,862
Accrued compensation		844		2,009
Other		229		358
Total accounts payable and accrued expenses	$	5,959	$	8,747

Note 7 - Commitments and Contingencies

Leases

On October 27, 2017, the Company entered into a lease agreement with WCS - 377 Plantation Street, Inc., a Massachusetts nonprofit corporation. Pursuant to the terms of the lease agreement, we agreed to lease 27,043 square feet from the landlord, located at 377 Plantation Street in Worcester, MA (the “Facility”), through November 2026, subject to additional extensions at the Company’s option. Base rent, net of abatements of $0.6 million over the lease term, totals approximately $3.6 million, on a triple-net basis.

The terms of the lease also require that we post an initial security deposit of $0.8 million, in the form of a $0.5 million letter of credit and $0.3 million in cash, which increased to $1.3 million ($1.0 million letter of credit, $0.3 million in cash) on November 1, 2019. After the fifth lease year, the letter of credit obligation is subject to reduction.

The Facility began operations for the production of personalized CAR T and gene therapies in 2018.

The Company leases office space and copiers under agreements classified as operating leases that expire on various dates through 2026. The Company’s lease liabilities result from the lease of its Facility in Massachusetts, which expires in 2026, and its copier, which expires in 2021. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. The Company does not act as a lessor or have any leases classified as financing leases. At March 31, 2021, the Company had operating lease liabilities of $2.2 million and right of use assets of $1.1 million, which were included in the Condensed Balance Sheet.

The following summarizes quantitative information about the Company’s operating leases:


	For the Three Months Ended
		March 31,		March 31,
($ in thousands)	2021		2020
Lease cost
Operating lease cost	$	76	$	83
Variable lease cost		147		234
Total	$	223	$	317

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	For the Three Months Ended
		March 31,			March 31,
($ in thousands)	2021			2020
Operating cash flows from operating leases	$	118		$	(270)
Weighted-average remaining lease term – operating leases		5.6			3.1
Weighted-average discount rate – operating leases		9.0	%		9.0	%

Maturities of our operating leases, excluding short-term leases, are as follows:


($ in thousands)
Year ended December 31, 2021	$	349
Year ended December 31, 2022		476
Year ended December 31, 2023		489
Year ended December 31, 2024		503
Year ended December 31, 2025		516
Thereafter		439
Total		2,772
Less present value discount		(613)
Operating lease liabilities	$	2,159

Note 8 - Stockholders’ Equity

Registration Statements

On October 23, 2020, the Company filed a shelf registration statement No. 333-249657 on Form S-3 (the “2020 S-3”), which was declared effective on December 4, 2020. Under the 2020 S-3, the Company may sell up to a total of $100.0 million of its securities. As of March 31, 2021, approximately $37.8 million of the 2020 S-3 remains available for sales of securities.

Common Stock

At-the-Market Offering

On July 13, 2018, the Company filed a shelf registration statement No. 333-226175 on Form S-3, as amended on July 20, 2018 (the “2018 Mustang S-3”), which was declared effective in August 2018. Under the 2018 Mustang S-3, the Company may sell up to a total of $75.0 million of its securities. In connection with the 2018 Mustang S-3, the Company entered into an At-the-Market Issuance Sales Agreement (the “Mustang ATM”) with B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.), Cantor Fitzgerald & Co., National Securities Corporation, and Oppenheimer & Co. Inc. (each an “Agent” and collectively, the “Agents”), relating to the sale of shares of common stock. Under the Mustang ATM, the Company pays the Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock. On December 31, 2020, the Mustang ATM was amended to add H.C. Wainwright &Co., LLC as an Agent.

During the three months ended March 31, 2021, the Company issued approximately 11.6 million shares of common stock at an average price of $4.17 per share for gross proceeds of $48.4 million under the Mustang ATM. In connection with these sales, we paid aggregate fees of approximately $0.9 million for net proceeds of approximately $47.5 million. During the three months ended March 31, 2020, the Company issued approximately 1.2 million shares of common stock at an average price of $3.93 per share for gross proceeds of $5.0 million under the Mustang ATM. In connection with these sales, we paid aggregate fees of approximately $0.1 million for net proceeds of approximately $4.9 million.

Pursuant to the Founders Agreement, we issued 325,221 shares of common stock to Fortress at a weighted average price of $4.16 per share for the three months ended March 31, 2021 and recorded 63,688 shares issuable to Fortress in connection with the Mustang ATM offering noted above. During the three months ended March 31, 2020, we issued 31,220 shares of common stock to Fortress at a weighted average price of $4.00 per share in connection with the Mustang ATM.

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Equity Incentive Plan

The Company has in effect the 2016 Incentive Plan (the “Incentive Plan”). The Incentive Plan was adopted in 2016 by our stockholders and the compensation committee of the Company’s board of directors and is authorized to grant stock-based awards to directors, officers, employees and consultants. The plan initially authorized grants to issue up to 2,000,000 shares of authorized but unissued common stock, expires 10 years from adoption, and limits the term of each option to no more than 10 years from the date of grant. In June 2018, the Company’s stockholders approved an amendment to the Incentive Plan to increase the number of authorized shares issuable by 3,000,000 shares, for a total of 5,000,000 shares.

As of March 31, 2021, 636,585 shares are available for issuance under the Incentive Plan.

Stock Options

The following table summarizes stock option activities for the three months ended March 31, 2021:


				Weighted Average
				Remaining
		Weighted Average		Contractual Life (in
	Stock Options	Exercise Price		years)
Outstanding at December 31, 2020	1,141,675		5.73	6.31
Outstanding at March 31, 2021	1,141,675		5.73	6.06
Options vested and exercisable at March 31, 2021	820,579	$	5.73	6.06

As of March 31, 2021, the Company had unrecognized stock-based compensation expense related to options of $0.1 million, which is expected to be recognized over the remaining weighted average vesting period of approximately 0.6 years.

Restricted Stock

The following table summarizes restricted stock award activities for the three months ended March 31, 2021:


		Weighted Average
		Grant Date Fair
	Number of Shares	Value
Nonvested at December 31, 2020	302,114	$	4.93
Nonvested at March 31, 2021	302,114	$	4.93

As of March 31, 2021, the Company had unrecognized stock-based compensation expense related to restricted stock of $0.4 million, which is expected to be recognized over the remaining weighted average vesting period of approximately 1.6 years.

Restricted Stock Units

Certain employees and consultants have been awarded restricted stock units with time-based vesting. The following table summarizes restricted stock units’ activities for the three months ended March 31, 2021:


		Weighted Average
		Grant Date Fair
	Number of Units	Value
Nonvested at December 31, 2020	1,468,559	$	3.87
Granted	589,250		3.46
Forfeited	(45,750)		4.15
Vested	(168,188)		4.96
Nonvested at March 31, 2021	1,843,871	$	3.63

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As of March 31, 2021, the Company had unrecognized stock-based compensation expense related to restricted stock units of approximately $4.1 million, which is expected to be recognized over the remaining weighted average vesting period of approximately 1.9 years.

The following table summarizes stock-based compensation expense for the three months ended March 31, 2021 and 2020 (in thousands).


	For the three months ended March 31,
	2021		2020
General and administrative	$	324	$	352
Research and development		672		453
Total stock-based compensation expense	$	996	$	805

Employee Stock Purchase Plan

Eligible employees can purchase the Company’s Common Stock at the end of a predetermined offering period at 85% of the lower of the fair market value at the beginning or end of the offering period. The Employee Stock Purchase Plan (“ESPP”) is compensatory and results in stock-based compensation expense.

For the three months ended March 31, 2021 and 2020, 55,963 and 68,351 shares, respectively, have been purchased and 203,181 shares are available for future sale under the Company’s ESPP. The Company received proceeds of $0.2 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively.

Warrants

A summary of warrant activities for the three months ended March 31, 2021 is presented below:


				Weighted Average
				Remaining
		Weighted Average		Contractual Life (in
	Warrants	Exercise Price		years)
Outstanding as of December 31, 2020	5,402,670	$	8.21	1.39
Cashless exercised	(138)		—	—
Outstanding as of March 31, 2021	5,402,532	$	8.21	1.14

Upon the cashless exercise of warrants, the Company will issue new shares of common stock.

Note 9 – 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 options and warrants, outstanding Class A preferred shares, and unvested restricted stock and restricted stock units as their inclusion would be anti-dilutive.

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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.

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.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 options and warrants, outstanding Class A preferred shares, and unvested restricted stock and restricted stock units 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.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 options and warrants, outstanding Class A preferred shares, and unvested restricted stock and restricted stock units 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.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 three months ended March 31,
	2021	2020
Warrants	5,402,532	5,402,670
Options	1,141,675	1,241,675
Class A Preferred Shares	250,000	250,000
Unvested restricted stock awards	302,114	299,060
Unvested restricted stock units	1,843,871	980,667
Total	8,940,192	8,174,072

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

Forward-Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes included elsewhere in this Form 10-Q. Our financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” “may,” “plan”, “seek” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” herein.

Overview

Mustang Bio, Inc. (“Mustang,” “We,” “Us” or the “Company”) is a clinical-stage biopharmaceutical company focused on translating today’s medical breakthroughs in cell and gene therapies into potential cures for hematologic cancers, solid tumors and rare genetic diseases. We aim to acquire rights to these technologies by licensing 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.

Our pipeline is currently focused in three core areas: gene therapy programs for rare genetic disorders, chimeric antigen receptor (“CAR”) engineered T cell (“CAR T”) therapies for hematologic malignancies and CAR T therapies for solid tumors. For each therapy we have partnered with world class research institutions. For our gene therapy program, we have partnered with St. Jude Children’s Research Hospital (“St. Jude”) in the development of a first-in-class ex vivo lentiviral treatment of X-linked severe combined immunodeficiency (“XSCID”), and for our CAR T therapies we have partnered with the City of Hope National Medical Center (“COH”), Fred Hutchinson Cancer Research Center (“Fred Hutch”) and Nationwide Children’s Hospital (“Nationwide”).

Gene Therapy

In partnership with St. Jude and the National Institutes of Health (“NIH”), our gene therapy program is being conducted under an exclusive license to develop a potentially curative treatment for XSCID, a rare genetic immune system condition also known as bubble boy disease in which affected patients do not live beyond infancy without treatment. This first-in-class ex vivo lentiviral gene therapy is currently in two Phase 1/2 clinical trials involving two different autologous cell products: a multicenter trial of the MB-107 product in newly diagnosed infants sponsored by St. Jude and a single-center trial of the MB-207 product in previously transplanted patients sponsored by the NIH.

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In May 2020, we submitted an Investigational New Drug (“IND”) application with the U.S. Food and Drug Administration (“FDA”) to initiate a registrational multicenter Phase 2 clinical trial of MB-107 in newly diagnosed infants with XSCID who are under the age of two. In response, the FDA identified Chemistry, Manufacturing, and Control (“CMC”) hold issues that the Company satisfactorily addressed in a December 2020 submission to the FDA, and the CMC hold was removed in January 2021. The trial is expected to enroll 10 patients who, together with 15 patients enrolled in the current multicenter trial led by St. Jude, will be compared with 25 matched historical control patients who have undergone hematopoietic stem cell transplant (“HSCT”). The primary efficacy endpoint will be event-free survival, and we are targeting topline data from the trial in the second half of 2022.

We further expect to file an IND in the second quarter of 2021 for a registrational multicenter Phase 2 clinical trial of lentiviral gene therapy in previously transplanted XSCID patients (MB-207). We anticipate enrolling 20 patients, and we are targeting topline data for this trial in the first half of 2023.

CAR T Therapies

Our pipeline of CAR T therapies is being developed under exclusive licenses from several world class research institutions. Our strategy is to license these therapies, support preclinical and clinical research activities by our partners and transfer the underlying manufacturing technology to our cell processing facility located in Worcester, Massachusetts, to conduct our own clinical trials.

We are developing CAR T therapies for hematologic malignancies in partnership with COH targeting CD123 (MB-102) and CS1 (MB-104) and with Fred Hutch targeting CD20 (MB-106). Phase 1 clinical trials sponsored by COH for MB-102 and MB-104 and by Fred Hutch for MB-106 are underway. In the third quarter of 2019 the FDA approved our IND application to initiate a multicenter Phase 1/2 clinical trial of MB-102, and our clinical trial has begun enrollment for the treatment of patients with blastic plasmacytoid dendritic cell neoplasm (“BPDCN”). On May 10, 2021, the FDA approved our IND application to initiate a multicenter Phase 1/2 clinical trial of MB-106 for the treatment of patients with non-Hodgkin lymphoma and chronic lymphocytic leukemia, and in the third quarter of 2021 we expect to enroll the first patient in this trial. We plan to file an IND application for a multicenter Phase 1/2 trial for MB-104 for the treatment of patients with multiple myeloma once COH has established a safe and effective dose.

We are also developing CAR T therapies for solid tumors in partnership with COH targeting IL13Ra2 (MB-101), HER2 (MB-103) and prostate stem cell antigen (“PSCA”) (MB-105). In addition, we have partnered with Nationwide for the C134 oncolytic virus (MB-108) in order to enhance the activity of MB-101 for the treatment of patients with glioblastoma multiforme (GBM). Phase 1 clinical trials sponsored by COH for MB-101, MB-103 and MB-105 are underway. A Phase 1 clinical trial sponsored by the University of Alabama at Birmingham (“UAB”) for MB-108 began during the third quarter of 2019 and, in the fourth quarter of 2021, we plan to file an IND application for the combination of MB-101 and MB-108 for the treatment of patients with GBM. In the third quarter of 2019, we announced that COH had started enrolling patients on a Phase 1 clinical trial of MB-101 in combination with nivolumab (commercial name: Opdivo^®) and ipilimumab (commercial name: Yervoy^®) in patients with recurrent malignant glioma. In the fourth quarter of 2020 we announced that COH had initiated a Phase 1, two-arm clinical trial of MB-101 in patients with leptomeningeal brain tumors (e.g., glioblastoma, ependymoma or medulloblastoma). We also plan to file IND applications and initiate our own clinical trials for MB-103 for the treatment of patients with metastatic breast cancer to brain and for MB-105 for the treatment of patients with prostate and pancreatic cancer.

Recent Events

MB-106 (CD20 CAR T for Non-Hodgkin Lymphoma and Chronic Lymphocytic Leukemia)

MB-106 targets CD20, a commercially validated target on the surface of B-cell malignancies such as non-Hodgkin lymphoma (“NHL”) and chronic lymphocytic leukemia (“CLL”) – cancers that lack a strong CAR T-based clinical focus in the U.S. MB-106 cells express a third-generation CAR derived from a fully human antibody that originated in the Fred Hutch laboratories of the late Oliver Press, M.D., Ph.D., and Brian Till, M.D., Associate Professor in the Clinical Research Division. The CAR T therapy was exclusively licensed to Mustang in 2017, and Fred Hutch and Mustang collaborated to develop the cell processing that will be used in the Mustang IND Phase 1/2 clinical trial.

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To date, the same vector planned for use in the manufacturing of MB-106 is currently being evaluated in the ongoing Phase 1/2 study sponsored by Fred Hutch, where Mazyar Shadman, M.D., M.P.H., Associate Professor in the Clinical Research Division, is the principal investigator. Data from this ongoing study were presented by Dr. Shadman at the 62nd Annual American Society of Hematology meeting in 2020 and demonstrated a favorable safety profile in patients with NHL, with an 89% overall response rate (ORR; 8/9 patients) and a 44% complete response rate (CR; 4/9 patients).

On May 10, 2021, we announced that that the FDA has accepted the Company’s IND application to initiate a Phase 1/2 multicenter, study to assess the safety, tolerability and efficacy of MB-106.

On May 12, 2021, we announced that interim data from the ongoing Fred Hutch-sponsored Phase 1/2 clinical trial investigating the safety and efficacy of MB-106 have been selected for an e-poster presentation at the European Hematology Association 2021 Virtual Congress (“EHA2021”).

In the abstract posted on the EHA2021 website, Fred Hutch reported on 12 patients treated with MB-106, which underwent a major cell manufacturing modification after treating 7 patients with no objective responses as previously reported at the 62^nd Annual American Society of Hematology meeting in 2020. The 12 patients were treated at dose levels (“DL”) ranging from 3.3x10⁵ to 1x10⁷ CAR T cells/kg, and clinical responses were observed at all DLs with no dose-limiting toxicities. Cytokine release syndrome occurred in 3 patients (25%): 2 patients with grade 1 and 1 patient with grade 2. Only 1 patient required tocilizumab and dexamethasone, and no immune effector cell-associated neurotoxicity syndrome of any grade was observed. Overall response rate (“ORR”) was 92% (11/12) with a complete response (“CR”) rate of 58% (7/12). In 9 patients with follicular lymphoma, ORR and CR were 89% (8/9) and 67% (6/9), respectively. The patient with CLL had a PET-negative CR and undetectable measurable residual disease in peripheral blood and bone marrow by flow cytometry (10^-4) (uMRD4) on day 28. Among patients who received the highest two dose levels, DL3 (3.3x10⁶ CAR T cells/kg; n=4) and DL4 (1x10⁷ CAR T cells/kg; n=1), CR rate was 100% (5/5). All 7 patients who achieved a CR remain in remission at a median follow-up of 4 months. CAR T expansion was robust, with median peak blood levels of CAR+ T cells of 122 CAR+ cells/μl (range 0.27-2024), corresponding to 19% (range 0.15 - 65%) of all CD3+ cells. Updated data will be presented at EHA2021.

MB-107 (Ex vivo Lentiviral Therapy for X-linked Severe Combined Immunodeficiency (XSCID) in newborn patients)

In February 2021, we announced that the FDA removed the clinical hold on the MB-107 pivotal Phase 2 clinical trial IND application after reviewing a comprehensive CMC package that was submitted in late December 2020. The Company is proceeding with its plans to initiate the pivotal Phase 2 trial in newly diagnosed XSCID patients.

The same lentiviral vector used in MB-107 is currently being assessed in a Phase 1/2 clinical trial for XSCID in newly diagnosed infants under the age of two at St. Jude, UCSF Benioff Children’s Hospital in San Francisco and Seattle Children’s Hospital. Additionally, it is being assessed in a Phase 1/2 clinical trial at the National Institute of Allergy and Infectious Diseases (“NIAID”), part of the NIH, for XSCID patients who have been previously treated with HSCT and for whom re-treatment is indicated.

Data from the Phase 1/2 clinical trial led by St. Jude that were presented at the 61st American Society of Hematology (“ASH”) Annual Meeting in December 2019 included 11 newly diagnosed XSCID patients who had been treated with a median follow-up at data cut-off of 23.6 months (range 1.5 to 33.9 months). No serious adverse events related to treatment were reported other than hematologic ones related to low-dose busulfan conditioning. Nine patients, with a follow up of greater than 3 months, achieved normal-for-age T-cell and natural killer (NK)-cell numbers within 3-4 months post treatment. Five patients were off intravenous immunoglobulin (“IVIG”) therapy, of whom 3 responded to vaccines.

To date, all 11 patients have continued to do well and, as also announced in February 2021, 5 additional patients were enrolled at the time of the most recent analysis in early September 2020. At that time, follow-up for these 16 patients ranged from 3 months to 47 months. Similar to previous reports, the therapy continued to be well tolerated in all patients, and stable vector marking was noted in all lineages, with successful engraftment of genetically-modified T-, B-, & NK cells. All patients cleared pre-existing infections, no new severe infections were noted, and all patients were outpatients. Finally, there was no evidence of malignant transformation at a median follow up of 2 years. Enrollment will continue at all three clinical sites until Mustang initiates its multicenter pivotal Phase 2 trial of MB-107.

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In September 2020, The Journal of Allergy and Clinical Immunology: In Practice published a case study of one patient with XSCID and disseminated Bacille Calmette-Guérin (“BCG”) infection, who was enrolled in the clinical trial at St. Jude. After 2.5 years of treatment, the patient has remained clinically well with a stable, functional immune system and protective vaccine titers, despite the complication of the disseminated BCG infection.

MB-207 (Ex vivo Lentiviral Therapy for X-linked Severe Combined Immunodeficiency (XSCID) in previously transplanted patients)

Also in February 2021, we updated results from the ongoing Phase 1/2 clinical trial being conducted by the NIH in older XSCID patients, all of whom had previously received haplo-identical HSCT as infants and were subsequently noted to be experiencing declining immune function with symptomatic infections. At the time of the most recent NIH data presentation at ASH in 2019, 8 patients had been treated without transduction enhancers (referred to as Cohort A) and had been followed for 3 to 7 years. Seven of these 8 patients experienced gradual clinical benefit in terms of clearance of chronic norovirus and associated improved abdominal complaints, malabsorption, growth and IgG production. One of these 7 patients died 27 months after gene therapy of a pulmonary bleed related to chronic bronchiectasis that predated the therapy and was deemed to be unrelated to therapy.

In an attempt to address the relatively slow resolution of chronic norovirus observed in most of these 7 patients and the delayed immune cell recovery and persistent clinical disease in the eighth patient, transduction enhancers were introduced in the cell processing for the subsequent 6 patients (referred to as Cohort B), which included retreatment of the eighth patient in Cohort A who had delayed immune recovery and persistent clinical disease. This enhanced transduction procedure achieved much greater transduction efficiencies than were observed in Cohort A, with greater than 10-fold less vector, and resulted in faster immune reconstitution and more significant clinical benefit by 3 months. As a result, Mustang has licensed Sirion Biotech’s Lentiboost™ and will include transduction enhancement in its pivotal Phase 2 clinical trial for MB-207 in this patient population.

To date, of the 6 Cohort A patients who were alive at the time of the 2019 NIH data readout and who did not undergo repeat therapy, 3 patients have been able to discontinue IVIG and have experienced sustained restoration of humoral responses to immunization. The remaining 3 patients have had reduced IVIG requirements. All chronic norovirus infections have resolved, and the quality of life of all patients has improved significantly.

The original 6 patients in Cohort B also continue to do well, with longest follow-up now 22 months. Two additional patients have been successfully treated with transduction enhancers, for a total of 8 patients in Cohort B. As was the case in Cohort A, no serious adverse events related to treatment were reported other than hematologic related to low-dose busulfan conditioning, and there was no evidence of malignant transformation. Further enrollment at NIH is now limited pending Mustang’s initiation of its pivotal multicenter Phase 2 clinical trial, and the company expects to submit an IND application for this trial in the second quarter of 2021.

At-the-Market Offering

During the three months ended March 31, 2021, we issued approximately 11.6 million shares of common stock at an average price of $4.17 per share for gross proceeds of $48.4 million under the At-the-Market Issuance Sales Agreement (the “Mustang ATM”) with B. Riley Securities, Inc., Cantor Fitzgerald & Co., National Securities Corporation, Oppenheimer & Co. Inc. and H.C. Wainwright & Co., LLC (each an “Agent” and collectively, the “Agents”). In connection with these sales, we paid aggregate fees of approximately $0.9 million for net proceeds of approximately $47.5 million.

Registration Statement

On April 23, 2021, the Company filed a shelf registration statement on Form S-3 (the “2021 S-3”), which has not yet been declared effective. Under the 2021 S-3, the Company may sell up to a total of $200.0 million of its securities upon being declared effective.

Table of Contents

Critical Accounting Policies and Use of Estimates

See Note 2 to our Financial Statements.

Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020


	For the three months ended March 31,				Change
($in thousands)	2021		2020		$		%
Operating expenses:
Research and development	$	11,618	$	9,314	$	2,304	25	%
Research and development – licenses acquired		—		250		(250)	(100)	%
General and administrative		3,469		1,956		1,513	77	%
Total operating expenses		15,087		11,520		3,567	31	%
Loss from operations		(15,087)		(11,520)		(3,567)	31	%

Other income (expense)
Interest income		134		263		(129)	(49)	%
Interest expense		(4)		(600)		596	(99)	%
Total other income (expense)		130