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, 2022

☐ 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 10, 2022
Class A Common Stock, $0.0001 par value		845,385
Common Stock, $0.0001 par value		102,201,459

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MUSTANG BIO, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		5

Item 1.	Unaudited Condensed Financial Statements	5

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		28

Item 1.	Legal Proceedings	28

Item 1A	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71

Item 3.	Defaults Upon Senior Securities	71

Item 4.	Mine Safety Disclosures	71

Item 5.	Other Information	71

Item 6.	Exhibits	72

Signatures		73

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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, or 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 and gene therapy 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 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 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. Unaudited Condensed Financial Statements

MUSTANG BIO, INC.

Unaudited Condensed Balance Sheets

(in thousands, except share and per share amounts)


	March 31,		December 31,
	2022		2021

ASSETS
Current Assets:
Cash and cash equivalents	$	122,216	$	109,618
Other receivables - related party		32		50
Prepaid expenses and other current assets		1,905		2,038
Total current assets		124,153		111,706

Property, plant and equipment, net		8,468		9,025
Fixed assets - construction in process		2,043		2,027
Restricted cash		1,000		1,000
Other assets		286		362
Operating lease right-of-use asset, net		1,011		1,050
Total Assets	$	136,961	$	125,170

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	9,615	$	9,744
Payables and accrued expenses - related party		811		723
Operating lease liabilities - short-term		358		348
Total current liabilities		10,784		10,815

Deferred income		270		270
Note payable, long-term (net of discount of $4,064 and nil as of March 31, 2022 and December 31, respectively)		26,986		—
Operating lease liabilities - long-term		1,590		1,685
Total Liabilities		39,630		12,770

Commitments and Contingencies (Note 11)

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, 2022 and December 31, 2021, respectively		—		—
Common Stock ($0.0001 par value), 150,000,000 and 125,000,000 shares authorized as of March 31, 2022 and December 31, 2021, respectively
Class A common shares, 845,385 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		—		—
Common shares, 100,287,838 and 93,582,991 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		10		9
Common stock issuable, 27,393 and 2,536,607 shares as of March 31, 2022 and December 31, 2021, respectively		27		4,329
Additional paid-in capital		368,933		359,906
Accumulated deficit		(271,639)		(251,844)
Total Stockholders’ Equity		97,331		112,400
Total Liabilities and Stockholders’ Equity	$	136,961	$	125,170

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

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MUSTANG BIO, INC.

Unaudited Condensed Statements of Operations

(in thousands, except share and per share amounts)


	For the three months ended March 31,
	2022		2021
Operating expenses:
Research and development	$	16,289	$	11,618
General and administrative		3,349		3,469
Total operating expenses		19,638		15,087
Loss from operations		(19,638)		(15,087)

Other income (expense)
Interest income		73		134
Interest expense		(230)		(4)
Total other income (expense)		(157)		130
Net Loss	$	(19,795)	$	(14,957)

Net loss per common share outstanding, basic and diluted	$	(0.20)	$	(0.19)

Weighted average number of common shares outstanding, basic and diluted		97,914,916		80,466,049

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

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MUSTANG BIO, INC.

Unaudited Condensed Statements of Stockholders’ Equity

(in thousands, except share amounts)


	For the Three Months Ended March 31, 2022
										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, 2021	250,000	$	—	845,385	$	—	93,582,991	$	9	$	4,329	$	359,906	$	(251,844)	$	112,400
Issuance of common shares - Founders Agreement	—		—	—		—	2,536,607		—		(4,212)		4,212		—		—
Issuance of common shares, net of offering costs - At-the-Market Offering	—		—	—		—	2,773,794		1		—		2,738		—		2,739
Issuance of common shares, equity fee on At-the-Market Offering	—		—	—		—	94,375		—		(90)		163		—		73
Issuance of common shares under ESPP	—		—	—		—	157,281		—		—		116		—		116
Stock-based compensation expenses	—		—	—		—	187,863		—		—		664		—		664
Issuance of common shares - Equity fee on RWG debt	—		—	—		—	954,927		—		—		750		—		750
Issuance of warrants for RWG debt	—		—	—		—	—		—		—		384		—		384
Exercise of warrants	—		—	—		—	—		—		—		—		—		—
Net loss	—		—	—		—	—		—		—		—		(19,795)		(19,795)
Balances at March 31, 2022	250,000	$	—	845,385	$	—	100,287,838	$	10	$	27	$	368,933	$	(271,639)	$	97,331


	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 shares -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

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

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MUSTANG BIO, INC.

Unaudited Condensed Statements of Cash Flows

(in thousands)


	For the three months ended March 31,
	2022		2021
Cash Flows from Operating Activities:
Net loss	$	(19,795)	$	(14,957)
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		73		1,198
Issuance of common shares - Equity fee on note payable to Fortress Biotech		750		—
Stock-based compensation expenses		664		996
Depreciation expense		640		462
Amortization of debt discount		19		—
Amortization of operating lease right-of-use assets		39		28
Changes in operating assets and liabilities:
Prepaid expenses and other assets		209		129
Other receivables - related party		18		(2)
Accounts payable and accrued expenses		1,091		(3,218)
Payable and accrued expenses - related party		88		(147)
Lease liabilities		(85)		(69)
Net cash used in operating activities		(16,289)		(15,580)

Cash Flows from Investing Activities:
Purchase of fixed assets		(1,334)		(458)
Net cash used in investing activities		(1,334)		(458)

Cash Flows from Financing Activities:
Proceeds from issuance of common shares - at-the-market offering		2,788		48,379
Offering costs for the issuance of common shares - at-the-market offering		(49)		(932)
Proceeds from debt issuance		30,000		—
Fees paid on the issuance of debt		(2,634)		—
Proceeds from issuance of common shares under ESPP		116		158
Net cash provided by financing activities		30,221		47,605

Net change in cash, cash equivalents and restricted cash		12,598		31,567
Cash, cash equivalents and restricted cash, beginning of the period		110,618		98,804
Cash, cash equivalents and restricted cash, end of the period	$	123,216	$	130,371

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

Supplemental disclosure of noncash investing and financing activities:
Fixed assets (acquired but not paid)	$	35	$	545
Issuance of common shares - Founders Agreement	$	4,212	$	7,577
Debt issuance fees (incurred but not paid)	$	1,065	$	—
Issuance of warrants - note payable	$	384	$	—

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

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MUSTANG BIO, INC.

Notes to Unaudited Condensed Financial Statements

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 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, 2022, the Company had an accumulated deficit of $271.6 million.

The Company has funded its operations to date primarily through the sale of equity and its loan and financing agreement with Runway Growth Finance Corp. (the “Lender”), herein referred to as the (“Term Loan”). 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, 2022, 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, the Company has experienced minimal impact on its long-term development timeline and its liquidity due to the worldwide spread of the COVID-19 virus. The Company has experienced some delays in clinical trial accrual, as well as in the availability and delivery of certain consumables and raw materials used in its laboratory and manufacturing operations due to the negative impact of COVID-19 on the global supply chain.

Note 2 - Significant Accounting Policies

Basis of Presentation

The accompanying interim unaudited 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 interim unaudited 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 do 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, 2021, which were included in the Company’s Form 10-K and filed with the SEC on March 23, 2022. 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.

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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.

Cash, Cash Equivalents and Restricted Cash

The Company records cash held in an escrow account as a security deposit for the manufacturing facility in Worcester, Massachusetts, as restricted cash.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash from the Unaudited Condensed Balance Sheets to the Unaudited Condensed Statements of Cash Flows for the three months ended March 31, 2022 and 2021:


	March 31,
($ in thousands)	2022	2021
Cash and cash equivalents	$ 122,216	$ 129,371
Restricted cash	1,000	1,000
Total cash, cash equivalents and restricted cash	$ 123,216	$ 130,371

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 23, 2022.

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.

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Note 3 - Clinical Trial and Sponsored Research Agreements

Research and Development Expenses - Sponsored Research and Clinical Trial Agreements

For the three months ended March 31, 2022 and 2021, the Company recorded the following expense in research and development for sponsored research and clinical trial agreements in the Unaudited Condensed Statements of Operations pursuant to the terms of this agreement:


	For the three months ended March 31,
($ in thousands)	2022		2021
City of Hope National Medical Center	$	—	$	—
CD123		51		205
IL13Rα2		228		514
CS1		50		175
HER2		271		123
PSCA		22		50
Fred Hutchinson Cancer Research Center - CD20		488		671
St. Jude Children's Research Hospital - XSCID		124		104
LUMC - RAG1 SCID		127		—
Mayo Clinic		231		—
Total	$	1,592	$	1,842

City of Hope National Medical Center

CD123 (MB-102) Clinical Research Support Agreement

Since February 2017, the Company has been party to a clinical research support agreement for the CD123-directed CAR T program (the “CD123 CRA”) with COH whereby, the Company has agreed to contribute approximately $0.1 million per patient in connection with the ongoing investigator-initiated study.

IL13Rα2 (MB-101) Clinical Research Support Agreements

Since February 2017, the Company has been party to a clinical research support agreement for the IL13Rα2-directed CAR T program (the “IL13Rα2 CRA”) with COH whereby, the Company has agreed to contribute $0.1 million related to patient costs in connection with the on-going investigator-initiated study.

Since October 2020, the Company has been party to 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”) with COH whereby, the Company has agreed to contribute $0.1 million per patient in connection with the ongoing 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 for this patient population.

Since March 2021, the Company has been party to a clinical research support agreement for an Institutional Review Board-approved, investigator-initiated protocol entitled: “Single Patient Treatment with Intraventricular Infusions of IL13Rα2-targeting and HER2-targeting Chimeric Antigen Receptor (CAR)-T cells for a Single Patient (UPN 181) with Recurrent Multifocal Malignant Glioma.” Pursuant to the terms of this agreement, the Company will contribute up to $0.2 million in connection with the ongoing investigator-initiated study.

CS1 (MB-104) Clinical Research Support Agreement

Since June 2020, the Company has been party to a clinical research and support agreement with COH in connection with an investigator-sponsored study conducted under an Institutional Review Board-approved for MB-104 whereby, the Company has agreed to reimburse COH for costs associated with this trial, when incurred, not to exceed $2.4 million. The

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agreement will expire upon the delivery of a final study report or earlier. Since inception, the Company has reimbursed COH $1.5 million.

HER2 (MB-103) Clinical Research Support Agreement

Since September 2020, the Company has been party to 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” for MB-103. Under the terms of the agreement the Company 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. Since inception, the Company has reimbursed COH $2.2 million.

PSCA (MB-105) Clinical Research Support Agreement

Since October 2020, the Company has been party to 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 1 Study to Evaluate PSCA-Specific Chimeric Antigen Receptor (CAR)-T Cells for Patients with Metastatic Castration Resistant Prostate Cancer” for MB-105. The Company has agreed to 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. Since inception, the Company has reimbursed COH $0.3 million.

CD20 (MB-106) Clinical Trial Agreement with Fred Hutchinson Cancer Research Center

Since July 3, 2017, in conjunction with the CD20 Technology License from Fred Hutchinson Cancer Research Center (“Fred Hutch”), the Company has been party to 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 $1.8 million, which includes $0.8 million for the treatment of five patients with chronic lymphocytic leukemia. In January 2022, the CD20 CTA was amended to include additional funding of $2.2 million increasing the total payment obligation of the Company in connection with the CD20 CTA not to exceed $9.3 million. Since inception, the Company has reimbursed Fred Hutch $5.2 million.

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

Since June 2020, the Company has been party to 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 XSCID whereby, the Company will continue to reimburse St. Jude for costs incurred in connection with this trial. Since inception, the Company has reimbursed St. Jude $2.7 million.

RAG1-SCID (MB-110) Sponsored Research Support Agreement (“SRA”) with Leiden University Medical Centre

Since September 8, 2021, in connection with the Leiden License, the Company has been party to a Sponsored Research Support Agreement (“SRA”) with Leiden University Medical Centre (“LUMC”) under which the Company will fund research in the amount of approximately $0.5 million annually over a period of 5 years. The research performed pursuant to this agreement will support technology the Company has licensed from Leiden for the use of a gene therapy under development for the treatment of severe immunodeficiency caused by mutations in the RAG1 gene.

Sponsored Research Support Agreement with Mayo Clinic

Since June 2021, the Company has been party to an SRA with the Mayo Foundation for Medical Education and Research (“Mayo Clinic”) under which the Company will fund research in the amount of $2.1 million over a period of two years. The research performed pursuant to this agreement will support technology the Company has licensed from Mayo Clinic

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for a novel technology that may be able to transform the administration of CAR T therapies and has the potential to be used as an off-the-shelf therapy. Since inception, the Company has funded $0.9 million.

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, 2022 and 2021, respectively, expenses related to the MSA are recorded 50%in research and development expenses and 50% in general and administrative expenses in the Unaudited Condensed Statements of Operations. For the three months ended March 31, 2022 and 2021, the Company recorded expense of $0.3 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. For the three months ended March 31, 2022, the Company issued 1,049,302 shares of common stock to Fortress, which equaled 2.5% of the gross proceeds of $2.8 million from the sale of shares of common stock under Mustang’s at-the-market offering and $30 million from the Runway Growth Capital Term Loan. For the three months ended March 31, 2022 and 2021, the Company recorded expense of approximately $0.8 million and $1.2 million, respectively, in general and administrative expenses related to these shares.

Annual Stock Dividend

Pursuant to the Amended and Restated Articles of Incorporation, the Company issued 2,536,607 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, 2022. This was shown in the Statement of Stockholders’ Equity at December 31, 2021, as Common stock issuable – Founders Agreement. The Company recorded an expense of approximately $4.2 million in research and development – licenses acquired related to these issuable shares during the year ended December 31, 2021.

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, Plant and Equipment

At March 31, 2022 and December 31, 2021, Mustang’s property, plant and equipment consisted of the following:


	Estimated Useful	March 31,		December 31,
($ in thousands)	Life (in years)	2022		2021
Computer equipment	3	$	145	$	145
Furniture and fixtures	5		370		370
Machinery and equipment	5		6,633		6,550
Leasehold improvements	9		7,694		7,694
Construction in process	N/A		2,043		2,027
Total property, plant and equipment			16,885		16,786
Less: accumulated depreciation			(6,374)		(5,734)
Property, plant and equipment, net		$	10,511	$	11,052

Depreciation expense for the three months ended March 31, 2022 and 2021, was approximately $0.6 million and $0.5 million, respectively, and was recorded in research and development expense in the Unaudited Condensed Statements of Operations.

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Note 6 - Accounts Payable and Accrued Expenses

At March 31, 2022 and December 31, 2021, accounts payable and accrued expenses consisted of the following:


	March 31,		December 31,
($ in thousands)	2022		2021
Accounts payable	$	5,540	$	3,512
Research and development		1,535		3,083
Accrued compensation		2,094		2,595
Other		446		554
Total accounts payable and accrued expenses	$	9,615	$	9,744

Note 7 – Notes Payable

On March 4, 2022 (the “Closing Date”), the Company entered into a $75.0 million long-term debt facility with Runway Growth Finance Corp. (the “Term Loan”). Under the Term Loan, $30.0 million of the $75.0 million loan was funded on the Closing Date, with the remaining $45.0 million fundable if the Company achieves certain predetermined milestones.

The Term Loan matures on April 15, 2027 (the “Maturity Date”). Starting March 15, 2022, the Company will make monthly payments of interest only until April 1, 2024 (the “Amortization Date”). The Amortization Date may be extended to April 1, 2025 if the Company achieves certain predetermined milestones based on equity raises and the initiation of certain clinical trials. After that, the Company will make monthly payments of interest and principal. If the Amortization Date is extended to April 1, 2025, the monthly payments will be recalculated in equal amounts according to the remaining number of payment dates through the Maturity Date. All unpaid outstanding principal and accrued and unpaid interest will be due and payable in full on the Maturity Date.

The Term Loan accrues interest at a variable annual rate equal to 8.75% plus the greater of (i) 0.50% and (ii) the three month LIBOR Rate for U.S. dollar deposits or the rate otherwise reasonably determined by the Lender to be the rate at which U.S. dollar deposits with a term of three months would be offered by banks in London, England to major banks in the London or other offshore interbank market (the “Applicable Rate”); provided that the Applicable Rate will not be less than 9.25%.

Pursuant to the terms of the Term Loan on the Closing Date the Company paid the Lender upfront fees out of proceeds of $0.4 million consisting of a 1% commitment fee and a deposit of $75,000. In addition, the Company paid other cash fees directly to third parties comprising of an advisory fee and legal fees totaling $2.3 million.

Also, in connection with the Term Loan, on March 4, 2022, the Company issued a warrant to the Lender to purchase 748,036 shares of the Company’s common stock with an exercise price of $0.8021 (the “Warrant”) via a warrant agreement (the “Warrant Agreement”). The Warrant is exercisable for ten years from the date of issuance. The Lender may exercise the Warrant with cash or through a net issuance conversion. The shares of the Company’s common stock will be registered at the Company’s first opportunity after the date of the exercise of the Warrant. In addition, the provisions of the Warrant Agreement provide for additional warrants to be issued upon funding of the term loan tranches. The fair value of the warrant was determined utilizing a Black Scholes Model with the following assumptions: risk free rate of return 1.74%, volatility of 57.3%, 10-year life yielding a value of approximately $0.4 million as of March 31, 2022. The fair value of the warrant was also recorded in debt discount and will be amortized over the life of the note.

Amortization of the debt discount associated with the Term Loan was approximately $19,400 for the three months ended March 31, 2022 and was recorded in interest expense in the Unaudited Condensed Statements of Operations.

The Company has the option to prepay all of the outstanding Term Loan but not less. Prepayment would include outstanding principal, accrued interest, prepayment fee and Final Payment which is equal to the original principal amount of the Term Loan times 3.5% or $1.0 million.

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In addition, the Term Loan is secured by a lien on substantially all of our assets other than certain intellectual property assets and certain other excluded collateral, and it contains a minimum liquidity covenant and other covenants that include among other items: (i) limits on indebtedness, repurchase of stock from employees, officers and directors. The Company was in compliance with all applicable covenants as of March 31, 2022.

The Term Loan contains customary events of default, in certain circumstances subject to customary cure periods. Following an event of default and any cure period, if applicable, Runway will have the right upon notice to accelerate all amounts outstanding under the Term Loan, in addition to other remedies available to the lenders as secured creditors of the Company.

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, 2022, approximately $11.7 million of the 2020 S-3 remains available for sales of securities.

On April 23, 2021, the Company filed a shelf registration statement No. 333-255476 on Form S-3 (the “2021 S-3”), which was declared effective on May 24, 2021. Under the 2021 S-3, the Company may sell up to a total of $200.0 million of its securities. As of March 31, 2022, there have been no sales of securities under the 2021 S-3.

Common Stock

At-the-Market Offering

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 pursuant to the 2020 S-3. 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, 2022, the Company issued approximately 2.8 million shares of common stock at an average price of $1.00 per share for gross proceeds of $2.8 million under the Mustang ATM. In connection with these sales, the Company paid aggregate fees of approximately $49,000. 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, the Company paid aggregate fees of approximately $0.9 million.

Pursuant to the Founders Agreement, the Company issued 94,375 shares of common stock to Fortress at a weighted average price of $1.73 per share for the three months ended March 31, 2022, and recorded 27,393 shares issuable to Fortress in connection with the shares issued under the Mustang ATM. Pursuant to the Founders Agreement, Mustang 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, in connection with the shares issued under the Mustang ATM.

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

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Incentive Plan to increase the number of authorized shares issuable by 3,000,000 shares, for a total of 5,000,000 shares. In June 2021, 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 8,000,000 shares.

As of March 31, 2022, 2,955,524 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, 2022:


				Weighted Average
				Remaining
		Weighted Average		Contractual Life (in
	Stock Options	Exercise Price		years)
Outstanding at December 31, 2021	1,141,675	$	5.73	5.31
Outstanding at March 31, 2022	1,141,675		5.73	5.06
Options vested and exercisable at March 31, 2022	713,547	$	5.73	5.06

As of March 31, 2022, the Company had no unrecognized stock-based compensation expense related to options. The Company accounts for forfeited awards as they occur as permitted.

Restricted Stock

The following table summarizes restricted stock award activities for the three months ended March 31, 2022:


		Weighted Average
		Grant Date Fair
	Number of Shares	Value
Nonvested at December 31, 2021	280,983	$	4.05
Nonvested at March 31, 2022	280,983	$	4.05

As of March 31, 2022, the Company had unrecognized stock-based compensation expense related to restricted stock of $0.3 million, which is expected to be recognized over the remaining weighted average vesting period of approximately 1.5 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, 2022:


		Weighted Average
		Grant Date Fair
	Number of Units	Value
Nonvested at December 31, 2021	2,335,557	$	3.27
Granted	—		—
Forfeited	(146,686)		—
Vested	(270,500)		3.51
Nonvested at March 31, 2022	1,918,371	$	3.00

As of March 31, 2022, the Company had unrecognized stock-based compensation expense related to restricted stock units of approximately $3.1 million, which is expected to be recognized over the remaining weighted average vesting period of approximately 2.7 years.

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The following table summarizes stock-based compensation expense for the three months ended March 31, 2022 and 2021 (in thousands):


	For the three months ended March 31,
	2022		2021
General and administrative	$	147	$	324
Research and development		517		672
Total stock-based compensation expense	$	664	$	996

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. The ESPP was initially authorized in 2019 to sell up to 400,000 shares of authorized but unissued common stock. In June 2021, the Company’s stockholders approved an amendment to the ESPP to increase the number of authorized shares issuable by 600,000 shares, for a total of 1,000,000 shares.

As of March 31, 2022, 412,458 shares have been purchased and 587,542 shares are available for future sale under the Company’s ESPP.

Warrants

A summary of warrant activities for the three months ended March 31, 2022, is presented below:


				Weighted Average
				Remaining
		Weighted Average		Contractual Life (in
	Warrants	Exercise Price		years)
Outstanding as of December 31, 2021	3,308,654	$	8.02	0.73
Expired	(3,000,270)		8.50	—
Granted	748,036		0.80	9.93
Outstanding as of March 31, 2022	1,056,420	$	1.54	9.01

Upon the cashless exercise of warrants, the Company will issue new shares of common stock. In connection with the Term Loan, on March 4, 2022, the Company issued a warrant to the Lender to purchase 748,036 shares of the Company’s common stock with an exercise price of $0.8021, see Note 7.

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.


	For the three months ended March 31,
	2022	2021
Warrants	1,056,420	5,402,532
Options	1,141,675	1,141,675
Class A Preferred Shares	250,000	250,000
Unvested restricted stock awards	280,983	302,114
Unvested restricted stock units	1,918,371	1,843,871
Total	4,647,449	8,940,192

Note 10 – Income Taxes

The Company incurred net operating losses and recorded a full valuation allowance against net deferred tax assets for all periods presented. Accordingly, the Company has not recorded a provision for federal or state income taxes.

The Company is subject to US federal and state income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of Management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.

Note 11 – Commitments and Contingencies

Indemnification

In accordance with its certificate of incorporation, bylaws and indemnification agreements, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. The Company has director and officer insurance to address such claims. The Company also provides indemnification of contractual counterparties in certain situations, including without limitation to clinical sites, service providers and licensors.

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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 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which are often indicated by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “look forward to,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions, include, but are not limited to, any statements relating to our growth strategy and product development programs, including the timing of and our ability to make regulatory filings such as INDs and other applications and to obtain regulatory approvals for our product candidates, statements concerning the potential of therapies and product candidates, and any other statements that are not historical facts. 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 therapies 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 therapies, we have partnered with St. Jude in the development of a first-in-class ex vivo lentiviral treatment of X-linked severe combined immunodeficiency (“XSCID”) and with LUMC for RAG1 severe combined immunodeficiency (“RAG1-SCID”). For our CAR T therapies we have partnered with the COH, Fred Hutch, Nationwide Children’s Hospital (“Nationwide”) and the Mayo Foundation for Medical Education and Research (“Mayo Clinic”).

Gene Therapy

In partnership with St. Jude, our XSCID gene therapy programs (MB-107 and MB-207) are being conducted under an exclusive license to develop a potentially curative treatment for XSCID, a rare genetic immune system condition 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 National Institutes of Health (“NIH”).

MB-107 (Ex vivo Lentiviral Therapy for Newly Diagnosed X-linked Severe Combined Immunodeficiency (XSCID))

On May 3, 2022, we announced that interim Phase 1/2 data on treatment of newly diagnosed infants under the age of two with the same lentiviral vector used in MB-107 were selected for an oral presentation at the American Society of Gene & Cell Therapy (“ASGCT”) 25th Annual Meeting taking place May 16-19, 2022. The data include 23 infants with XSCID treated with the lentiviral vector at a median age of 3 months (range: 2.4-13.8) with a median follow-up of 2.4 years (range: 1.4 months to 5.4 years), making it the largest known cohort of infants treated with lentiviral (LV) gene therapy with the longest follow-up. Transduced autologous bone marrow CD34+ cells were generated for all patients with a median vector copy number (VCN) of 0.81/cell (range: 0.16-1.81), and a median CD34+ cell dose of 9.61x106/kg (range 4.4-18.95).

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Prior to the infusion of cells, patients received busulfan targeted to a cumulative area-under-the-curve (cAUC) of 22 mg*hr/L. All had hematopoietic recovery.

Seventeen of 18 patients with a follow up of >6 months achieved robust immune reconstitution [median CD3+ 2,545/uL (range: 922-4,321), CD4+ 1,568/uL (range: 436-3,556), CD4+/CCR7+/CD45RO- 1,416/uL (range: 298-3,307)]. In these 17 patients, T cells matured appropriately as assessed by normal T cell receptor excision circles (TRECs) and TCRvβ repertoire diversity and were functional as judged by phytohemagglutinin activation. As presented previously in St. Jude’s 2019 New England Journal of Medicine paper (N Engl J Med 2019;380:1525-34.) and the accompanying Supplemental Appendix, the eighteenth patient achieved robust immune reconstitution as well following a gene therapy boost 12 months after the first infusion. Immunoglobulin replacement was discontinued in 15 patients, 12 have been immunized and two more have begun immunizations. Substantial multilineage engraftment occurred in all patients and was sustained over time as judged by VCN analysis in T, B, NK, and myeloid cells separated from peripheral blood. This analysis included 55 samples of 14 patients with ≥1.5 years of follow-up (VCN sample range: 1.5 to 5 years).

All treated patients are alive and 20 patients with a follow-up >4 months recovered from pre-existing infections, are off protective isolation and prophylactic antimicrobials, and have normal growth velocity. Identified integration site hotspots were consistent with previous reports for LV vectors, and no evidence of clonal expansion was observed.

In the second half of 2022, we expect to enroll the first patient in a pivotal multicenter Phase 2 clinical trial under our Investigation New Drug Application (“IND”) to evaluate MB-107, a lentiviral gene therapy for the treatment of infants under the age of two with XSCID.

MB-207 (Ex vivo Lentiviral Gene Therapy for Previously Transplanted XSCID)

In January 2022, the FDA issued a hold, pending Chemistry, Manufacturing and Controls (“CMC”) clearance, on our IND application to conduct a pivotal non-randomized multicenter Phase 2 clinical trial of MB-207 in previously transplanted XSCID patients. In order to lift this hold and receive FDA clearance for the IND, we believe the most critical activities will be to (1) perform process validation manufacturing runs using healthy donor material and (2) ensure qualification of all assays related to the product release. We estimate that these activities will take 3-6 months to complete, and we therefore expect to enroll the first patient in a pivotal multicenter Phase 2 clinical trial in the first quarter of 2023.

Leiden University Medical Centre License

On November 10, 2021, the Company announced that it has executed an exclusive license agreement with LUMC for a first-in-class ex vivo lentiviral gene therapy for the treatment of RAG1 severe combined immunodeficiency (“RAG1-SCID”). The development of additional lentiviral gene therapies in his lab, to which we have rights under the agreement.

The RAG1-SCID therapy expands the pipeline of ex vivo lentiviral gene therapies we are currently developing. The lead programs, MB-107 and MB-207, are being investigated for the treatment of XSCID. A pivotal multicenter trial studying MB-107 is expected to enroll its first patient in the second half of 2022. Combined, XSCID and RAG1-SCID make up almost 60% of all SCID cases combined.

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 technologies, support preclinical and clinical research activities by our partners and transfer the underlying technology to our cell processing facility located in Worcester, Massachusetts, in order 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). A Phase 1 clinical trials sponsored by COH for MB-102 has completed enrollment and Phase 1 clinical trials sponsored by COH for 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 multi-center Phase 1/2 clinical trial of MB-102, and our clinical trial began enrollment in 2020 for the treatment of patients with blastic

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plasmacytoid dendritic cell neoplasm. In May 2021, the FDA approved our IND application to initiate a multi-center Phase 1/2 clinical trial of MB-106, and we expect to begin the treatment of patients with non-Hodgkin lymphoma and chronic lymphocytic leukemia in the second quarter of 2022. We plan to file an IND 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 IL13Rα2 (MB-101), HER2 (MB-103) and 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 second half of 2022, we plan to file an IND for the combination of MB-101 and MB-108 – which is referred to as MB-109 – for the treatment of patients with relapsed or refractory GBM and anaplastic astrocytoma. We also plan to file INDs 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 once COH has established safe and effective doses for these therapies. The Company is also collaborating with the Mayo Clinic to develop a novel technology that may be able to transform the administration of CAR T therapies and potentially be used as an off-the-shelf therapy. Mustang plans to file an IND application for a multicenter Phase 1 clinical trial once a lead construct has been identified.

MB-105 (PSCA CAR T for Prostate & Pancreatic Cancers)

In February 2022, we announced that Phase 1 clinical trial data on patients with PSCA-positive metastatic castration-resistant prostate cancer treated at COH with MB-105 were selected for a poster presentation at the 2022 American Society of Clinical Oncology (“ASCO”) Genitourinary (“GU”) Cancers Symposium taking place February 17-19, 2022.

The primary objectives of the Phase 1 clinical trial are to define the dose limiting toxicity (“DLT”), identify a recommended Phase 2 dose and describe preliminary bioactivity and efficacy. To date, 12 patients have been treated, with a median age of 68 (42-72). Dosing began at 100 million (“M”) cells without lymphodepletion chemotherapy, then lymphodepletion consisting of fludarabine and cyclophosphamide was added to 100M cells prior to dose escalation to a planned maximum of 600M cells. Three patients were treated at the 100M cell dose with no DLTs. In the 100M cells plus lymphodepletion dose level, two patients experienced DLT of grade 3 non-infective cystitis and fatigue. The protocol was amended to reduce the cyclophosphamide dose and to intensify the monitoring with early intervention for cystitis.

No DLT occurred in three patients treated in the modified lymphodepletion 100M cell cohort. Cytokine release syndrome occurred in four patients, none with higher than Grade 2. The Response Evaluation Criteria in Solid Tumors (“RECIST”) of the 12 patients included seven stable disease patients and five progressive disease patients. PSA declines (one >90%) were seen as well as radiographic improvement, though RECIST response was limited to stable disease by concurrent bone metastases. Correlative studies indicated bioactivity of PSCA CAR T-cells.

The results indicate that PSCA-CAR T-cell therapy is feasible in patients with mCRPC with DLT of cystitis and show preliminary anti-tumor effect at a dose of 100M cells plus lymphodepletion. It was concluded that escalation up to the next dose level of 300M can proceed in the trial.

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

In April 2022, the Company announced that interim Phase 1/2 data on MB-106 had been presented at the 2022 Tandem Meetings | Transplantation & Cellular Therapy Meetings of the American Society of Transplantation and Cellular Therapy (“ASTCT”) and Center for International Blood & Marrow Transplant Research (“CIBMTR”), which were held from April 23-26, 2022.

As presented by Mazyar Shadman, M.D., M.P.H., Associate Professor and physician at Fred Hutchinson Cancer Center (“Fred Hutch”) and University of Washington, the data demonstrated high efficacy and a very favorable safety profile in all patients (n=25). Five dose levels were used during the study, and complete responses were observed at all dose levels. Durable responses were observed in a wide range of hematologic malignancies including follicular lymphoma (“FL”),

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CLL, diffuse large B-cell lymphoma (“DLBCL”), and Waldenstrom macroglobulinemia (“WM”). An overall response rate (“ORR”) of 96% and complete response (“CR”) rate of 72% was observed in all patients across all dose levels. Additionally, two patients had been previously treated with CD19-directed CAR T therapy and subsequently relapsed, and both responded to treatment, one patient with FL with a CR and the other with DLBCL with a partial response.

CAR T expansion was observed across all dose levels. At the 28-day evaluation, a favorable safety profile was observed in all 25 patients. No patients experienced grade 3 or 4 cytokine release syndrome or immune effector cell‐associated neurotoxicity syndrome (“ICANS”), and none of the FL patients experienced ICANS of any grade (n=18).

On April 30, 2022, Dr. Shadman presented data focused on CLL from this same trial at the 4th International Workshop on CAR-T and Immunotherapies (“iwCAR-T”), and on May 12, 2022, the Company announced that Dr. Shadman would present results from the FL cohort of this trial in an oral presentation at the European Hematology Association 2022 Hybrid Congress (“EHA2022”) taking place June 9-12, 2022.

MB-109 (Combination of MB-101 CAR T Therapy with MB-108 Oncolytic Virus Therapy for Malignant Brain Tumors)

The overall objective of combining these two therapies is to first achieve initial cell kill and convert highly malignant brain tumors from immunologically “cold” tumors to immunologically “hot” tumors by injecting them with MB-108 oncolytic virus therapy, then subsequently achieve more robust tumor cell kill by treating these patients with locoregional administration of MB-101 IL13Rα2-directed CAR-T therapy. This trial design is based on MB-108 phase 1 data from UAB, MB-101 phase 1 data from COH, and in vivo studies at COH that combined the two therapies in a mouse tumor model.

In April 2022, we disclosed data from a late-breaking poster presentation at the American Association for Cancer Research (AACR) Annual Meeting 2022, which included results from the MB-108 and MB-101 phase 1 trials, as well as data from the in vivo mouse studies.

COH’s Phase 1 clinical trial (NCT02208362) evaluated the feasibility and safety of repetitive administration of locoregionally delivered MB-101 in 65 heavily pretreated patients with recurrent or refractory malignant glioma, the majority of which were recurrent glioblastoma (rGBM). Following maximal surgical resection / biopsy, dose escalating schedules of MB-101 were administered weekly either intratumorally (“ICT”), intraventricularly (“ICV”) to the cerebrospinal fluid, or to both sites (dual ICT/ICV). Infusions appeared to be well tolerated with clinically manageable flu-like symptoms and two grade 3 events (transient encephalopathy and ataxia) possibly related to the CAR T cells. Optimization of manufacturing and administration in the final cohort of 19 evaluable patients suggested MB-101 provides a possible survival benefit versus historical controls. The only two patients with immunologically hot tumors – as demonstrated by high levels of intratumoral CD3+ T cells pre-therapy – achieved complete responses lasting 7.5 and 31+ months, respectively.

UAB researchers are conducting a Phase 1 clinical trial (NCT03657576) evaluating MB-108 for rGBM that will enroll up to 24 patients. The AACR poster highlighted one clinical trial participant who received a single infusion of MB-108 that was well-tolerated. MRI changes at approximately 7 weeks post-treatment could not discriminate between tumor progression and pseudoprogression. Therefore, the patient underwent tumor biopsy 7 weeks post treatment that showed necrotic areas in tumor after treatment with MB-108. Immune infiltrates, both treated and untreated, evaluated by flow cytometry at that time point suggested that MB-108-treated tumor regions exhibited T cell immune recruitment differences when compared to an untreated region, with increased numbers of CD3+ CD8+ effector T cells that express granzyme B and lower numbers of naïve T cells. These findings suggest successful conversion by MB-108 therapy of a previously “cold” tumor to an immunologically “hot” tumor.

Finally, preclinical data from orthotopic GBM models in nude mice showed that pre-treatment with MB-108 re-shaped the tumor microenvironment by increasing immune cell infiltrates, and the overall treatment with MB-109 gave no adverse reactions. These data also showed that MB-109 combination therapy could be safely administered at low doses and leads to tumor shrinkage. As noted above, an upcoming Mustang-sponsored Phase 1 clinical trial will evaluate the safety, tolerability, feasibility and preliminary efficacy of MB-109 in patients with IL13Rα2-positive relapsed or refractory GBM

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and anaplastic astrocytoma. Correlative studies will evaluate whether the combination approach can modify the tumor microenvironment, facilitate CAR T cell trafficking, and mitigate tumor immune escape by antigen loss.

Runway Growth Capital LLC (“Runway”) Term Loan

In March 2022, we completed a $75 million long-term debt facility with Runway. We received funding of $30 million and we are eligible to receive an additional $45 million if we meet certain predetermined development milestones and well as equity raise milestones.

At-the-Market Offering

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. Applying these principles requires our judgment in determining the appropriateness of acceptable accounting principles and methods of application in diverse and complex economic activities. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of expenses, assets and liabilities, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

For a discussion of our critical accounting estimates, see the MD&A in the 2021 Form 10-K. There were no material changes in our critical accounting estimates or accounting policies from December 31, 2021.

Accounting Pronouncements

During the three-month period ended March 31, 2022, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2021 Form 10-K that are expected to materially affect the Company’s present or future financial statements.

Smaller Reporting Company Status

We are a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Reports on Form 10-K, have reduced disclosure obligations regarding executive compensation and certain other matters, and smaller reporting companies are permitted to delay adoption of certain recent accounting pronouncements discussed in Note 2 to our financial statements in this report on Form 10-Q.

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Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021


	For the three months ended March 31,				Change
($in thousands)	2022		2021		$		%
Operating expenses:
Research and development	$	16,289	$	11,618	$	4,671	40	%
Research and development – licenses acquired		—		—		—	—	%
General and administrative		3,349		3,469		(120)	(3)	%
Total operating expenses		19,638		15,087		4,551	30	%
Loss from operations		(19,638)		(15,087)		(4,551)	30	%

Other income (expense)
Interest income		73		134		(61)	(46)	%
Interest expense		(230)		(4)		(226)	5,650	%
Total other income (expense)		(157)		130		(287)	(221)	%
Net Loss	$	(19,795)	$	(14,957)	$	(4,838)	32	%

Research and Development Expenses

Research and development expenses primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license, sponsored research and milestone costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings, laboratory costs and other supplies.

For the three months ended March 31, 2022 and 2021, research and development expenses were $16.3 million and $11.6 million, respectively. The increase of approximately $4.7 million is primarily due to higher expenses of $2.0 million for personnel related expenses in connection with the advancement of our programs, $1.4 million for third party clinical trial costs, $1.0 million for laboratory supplies, and $0.5 million for plasmid manufacturing costs. Non-cash stock compensation expense included in research and development expense for the three months ended March 31, 2022 and 2021 approximated $0.5 million and $0.7 million, respectively, a decrease of $0.2 million.

We expect our research and development activities to increase as we develop our existing product candidates and potentially acquire new product candidates, reflecting increasing costs associated with the following:

●

employee-related expenses, which include salaries and benefits;