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, 2023

☐ 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 Capital 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, 2023
Class A Common Stock, $0.0001 par value		845,385
Common Stock, $0.0001 par value		7,315,528

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MUSTANG BIO, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		5

Item 1.	Unaudited Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

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	67

Item 3.	Defaults Upon Senior Securities	67

Item 4.	Mine Safety Disclosures	67

Item 5.	Other Information	67

Item 6.	Exhibits	68

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.

●

There is substantial doubt regarding our ability to continue as a going concern. We will need to raise additional financing in upcoming periods, which may not be available on acceptable terms to the Company, or at all. Failure to obtain necessary capital when needed may force us to delay, limit or terminate our commercial readiness efforts, activities to support a potential commercial launch following any approval of our product candidates, or other operations.

●

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 chimeric antigen receptor (“CAR”) engineered T cell (“CAR T”) technology and gene therapy 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.

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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.

●

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 obtain and 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 Financial Statements

MUSTANG BIO, INC.

Balance Sheets (Unaudited)

(in thousands, except share and per share amounts)


	March 31,		December 31,
	2023		2022

ASSETS
Current Assets:
Cash and cash equivalents	$	58,098	$	75,656
Other receivables - related party		—		36
Prepaid expenses and other current assets		3,033		3,160
Total current assets		61,131		78,852

Property, plant and equipment, net		8,324		8,440
Fixed assets - construction in process		333		951
Restricted cash		750		1,000
Other assets		257		261
Operating lease right-of-use asset, net		2,812		2,918
Total Assets	$	73,607	$	92,422

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	11,438	$	13,731
Payables and accrued expenses - related party		601		766
Operating lease liabilities - short-term		629		612
Total current liabilities		12,668		15,109

Deferred income		270		270
Note payable, long-term, net		27,579		27,436
Operating lease liabilities - long-term		3,275		3,334
Total Liabilities		43,792		46,149

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, 2023 and December 31, 2022, respectively		—		—
Common stock ($0.0001 par value), 200,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively
Class A common shares, 845,385 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		—		—
Common shares, 7,293,242 and 7,100,111 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		1		11
Common stock issuable, zero and 187,134 shares as of March 31, 2023 and December 31, 2022, respectively		—		1,109
Additional paid-in capital		375,876		374,522
Accumulated deficit		(346,062)		(329,369)
Total Stockholders’ Equity		29,815		46,273
Total Liabilities and Stockholders’ Equity	$	73,607	$	92,422

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

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MUSTANG BIO, INC.

Statements of Operations (Unaudited)

(in thousands, except share and per share amounts)


	For the three months ended March 31,
	2023		2022
Operating expenses:
Research and development	$	14,000	$	16,289
General and administrative		2,321		3,349
Total operating expenses		16,321		19,638
Loss from operations		(16,321)		(19,638)

Other income (expense)
Grant income		351		—
Interest income		453		73
Interest expense		(1,176)		(230)
Total other income (expense)		(372)		(157)
Net Loss	$	(16,693)	$	(19,795)

Net loss per common share outstanding, basic and diluted	$	(2.06)	$	(2.71)

Weighted average number of common shares outstanding, basic and diluted		8,093,662		7,316,687

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

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MUSTANG BIO, INC.

Statements of Stockholders’ Equity (Unaudited)

(in thousands, except share amounts)


	For the Three Months Ended March 31, 2023
										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, 2022	250,000	$	—	845,385	$	—	7,100,111	$	11	$	1,109	$	374,522	$	(329,369)	$	46,273
Issuance of common shares - Founders Agreement	—		—	—		—	187,134		—		(1,109)		1,109		—		—
Stock-based compensation expenses	—		—	—		—	5,905		—		—		235		—		235
Exercise of warrants	—		—	—		—	92		—		—		—		—		—
Reverse Split (15:1)	—		—	—		—	—		(10)		—		10		—		—
Net loss	—		—	—		—	—		—		—		—		(16,693)		(16,693)
Balances at March 31, 2023	250,000	$	—	845,385	$	—	7,293,242	$	1	$	(0)	$	375,876	$	(346,062)	$	29,815


	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	$	—	6,238,866	$	9	$	4,329	$	359,906	$	(251,844)	$	112,400
Issuance of common shares - Founders Agreement	—		—	—		—	169,107		—		(4,212)		4,212		—		—
Issuance of common shares, net of offering shares -At-the-Market Offering	—		—	—		—	184,920		1		—		2,738		—		2,739
Issuance of common shares - Equity fee on At-the-Market Offering	—		—	—		—	6,292		—		(90)		163		—		73
Issuance of common shares under ESPP	—		—	—		—	10,485		—		—		116		—		116
Stock-based compensation expenses	—		—	—		—	12,524		—		—		664		—		664
Issuance of common shares - Equity fee on RWG debt	—		—	—		—	63,662		—		—		750		—		750
Issuance of warrants for RWG debt	—		—	—		—	—		—		—		384		—		384
Net loss	—		—	—		—	—		—		—		—		(19,795)		(19,795)
Balances at March 31, 2022	250,000	$	—	845,385	$	—	6,685,856	$	10	$	27	$	368,933	$	(271,639)	$	97,331

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

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MUSTANG BIO, INC.

Statements of Cash Flows (Unaudited)

(in thousands)


	For the three months ended March 31,
	2023		2022
Cash Flows from Operating Activities:
Net loss	$	(16,693)	$	(19,795)
Issuance of common shares - Equity fee on at-the-market offering to Fortress Biotech		—		73
Issuance of common shares - Equity fee on note payable to Fortress Biotech		—		750
Stock-based compensation expenses		235		664
Depreciation expense		752		640
Amortization of debt discount		143		19
Amortization of operating lease right-of-use assets		106		39
Prepaid expenses and other assets		131		209
Other receivables - related party		36		18
Accounts payable and accrued expenses		(2,311)		1,091
Payable and accrued expenses - related party		(165)		88
Lease liabilities		(42)		(85)
Net cash used in operating activities		(17,808)		(16,289)

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

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

Net change in cash, cash equivalents and restricted cash		(17,808)		12,598
Cash, cash equivalents and restricted cash, beginning of the period		76,656		110,618
Cash, cash equivalents and restricted cash, end of the period	$	58,848	$	123,216

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,024	$	—

Supplemental disclosure of noncash activities:
Fixed assets (acquired but not paid)	$	18	$	35
Issuance of common shares - Founders Agreement	$	1,109	$	4,212
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 financial statements

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MUSTANG BIO, INC.

Notes to Unaudited 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 Capital Market and trades under the symbol “MBIO.”

Reverse Stock Split

On March 3, 2022, the Board of Directors of the Company (the “Board”) unanimously adopted resolutions to approve and recommend stockholder approval of a form amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of our issued and outstanding Common Stock within a range of between 5-for-1 and 20-for-1 (with our Board being authorized to determine the exact ratio), with such reverse stock split to be effected at such time and date before January 31, 2024, if at all, as determined by the Board in its sole discretion (such reverse stock split, the “Reverse Stock Split” and such amendment, the “Amendment”). On March 3, 2023, the holders of a majority in voting power of issued and outstanding shares of our Common Stock and issued and outstanding shares of our Class A Preferred Stock, par value $0.0001 (together, the “Majority Holders”) approved the Amendment by written consent in lieu of a meeting (the “Written Consent”). On March 15, 2023, the Board selected the 15-for-1 reverse stock split ratio.

Pursuant to rules adopted by the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, a Schedule 14C information statement was filed with the SEC and provided to the stockholders of the Company. The Reverse Stock Split became effective on April 3, 2023, or twenty (20) days from the mailing of the information statement to the common stockholders of record.

All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and warrants outstanding at April 3, 2023, which resulted in a proportional decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants.

No fractional shares were issued in connection with the Reverse Stock Split and stockholders who would otherwise be entitled to a fraction of one share received a proportional cash payment.

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, 2023, the Company had an accumulated deficit of $346.1 million.

The Company has funded its operations to date primarily through the sale of equity and via debt raises, including its loan and financing agreement with Runway Growth Finance Corporation (the "Lender"), herein referred to as the "Term Loan." On April 11, 2023, we repaid the Term Loan, see Note 12. The Company expects to continue to use the proceeds from its other 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.

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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. The continuation of our business as a going concern is dependent upon raising additional capital and eventually attaining and maintaining profitable operations.

In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. In performing its evaluation, management excluded certain elements of its operating plan that cannot be considered probable. Under ASC 205-40, the future receipt of potential funding from future equity or debt issuances, and the potential sale of priority review vouchers cannot be considered probable at this time because these plans are not entirely within the Company’s control nor have been approved by the Board of Directors as of the date of these financial statements.

The Company's expectation to generate operating losses and negative operating cash flows in the future, and the need for additional funding to support its planned operations raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date that these consolidated financial statements are issued. The Company continues to monitor its spending by reducing 2023 expenses, which may include projected savings through delaying the development timelines of certain programs, or termination of such programs and the pursuit of additional cash resources through public or private equity or debt financings. The Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these unaudited financial statements.

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary if the Company is unable to continue as a going concern.

Note 2 - Significant Accounting Policies

Basis of Presentation

The accompanying interim unaudited 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 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, 2022, which were included in the Company’s Form 10-K and filed with the SEC on March 30, 2023. 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 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 Balance Sheets to the Unaudited Statements of Cash Flows for the three months ended March 31, 2023 and 2022:


	March 31,
($ in thousands)	2023	2022
Cash and cash equivalents	$ 58,098	$ 122,216
Restricted cash	750	1,000
Total cash, cash equivalents and restricted cash	$ 58,848	$ 123,216

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 30, 2023.

Recently Issued Accounting Standards

As of March 31, 2023, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2022 Form 10-K that affect the Company’s present or future results of operations, overall financial condition, liquidity, or disclosures upon adoption.

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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, 2023 and 2022, the Company recorded the following expense in research and development for sponsored research and clinical trial agreements in the Unaudited Statements of Operations pursuant to the terms of this agreement:


	For the three months ended March 31,
($ in thousands)	2023		2022
City of Hope National Medical Center
CD123	$	—	$	51
IL13Rα2		310		228
CS1		50		50
HER2		—		271
PSCA		22		22
Fred Hutchinson Cancer Center - CD20		554		488
St. Jude Children's Research Hospital - XSCID		419		124
LUMC - RAG1 SCID		112		127
Mayo Clinic		275		231
Total	$	1,742	$	1,592

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 October 2020, the Company has been party to a Sponsored Research Agreement (“SRA”) with COH to conduct combination studies of a potential IL13Rα2 CAR and C134 oncolytic virus therapy. Pursuant to the SRA, the Company funded research in the amount of $0.3 million for the program. In November 2022, the SRA was amended to include additional funding of $0.6 million.

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.

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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 agreement will expire upon the delivery of a final study report or earlier. Since inception, the Company has reimbursed COH $1.9 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 $3.0 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 $0.4 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 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 $7.7 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 X-linked severe combined immunodeficiency (“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 $3.4 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.

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Sponsored Research Support Agreement with Mayo Clinic

Since June 2021, the Company has been party to an SRA with the Mayo Clinic under which the Company will fund research in the amount of $2.1 million over a period of two years. In October 2022, the SRA was amended to include additional funding of approximately $0.1 million. The research performed pursuant to this agreement will support technology the Company has licensed from Mayo Clinic 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 $1.9 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, 2023 and 2022, respectively, expenses related to the MSA are recorded 50% in research and development expenses and 50% in general and administrative expenses in the Unaudited Statements of Operations. For the three months ended March 31, 2023 and 2022, the Company recorded expense of $0.1 million and $0.3 million, respectively, related to the MSA.

Under the terms of the Second Amended and Restated Founders Agreement (the “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, 2023, the Company issued zero shares of common stock to Fortress under the Founders Agreement. For the three months ended March 31, 2023 and 2022, the Company recorded expense of approximately zero and $0.8 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 187,134 shares of common stock to Fortress for the Annual Stock Dividend, representing 2.5% of the fully-diluted outstanding equity of Mustang on January 6, 2023. This was shown in the Statement of Stockholders’ Equity at December 31, 2022, as Common stock issuable – Founders Agreement. The Company recorded an expense of approximately $1.1 million in research and development – licenses acquired related to these issuable shares during the year ended December 31, 2022.

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, 2023 and December 31, 2022, property, plant and equipment consisted of the following:


	Estimated Useful	March 31,		December 31,
($ in thousands)	Life (in years)	2023		2022
Computer equipment	3	$	145	$	145
Furniture and fixtures	5		370		370
Machinery and equipment	5		9,268		8,632
Leasehold improvements	9		7,694		7,694
Construction in process	N/A		333		951
Total property, plant and equipment			17,810		17,792
Less: accumulated depreciation			(9,153)		(8,401)
Property, plant and equipment, net		$	8,657	$	9,391

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Depreciation expense for the three months ended March 31, 2023 and 2022, was approximately $0.8 million and $0.6 million, respectively, and was recorded in research and development expense in the Unaudited Statements of Operations.

Note 6 - Accounts Payable and Accrued Expenses

At March 31, 2023 and December 31, 2022, accounts payable and accrued expenses consisted of the following:


	March 31,		December 31,
($ in thousands)	2023		2022
Accounts payable	$	6,403	$	6,833
Research and development		2,193		2,782
Accrued compensation		1,899		3,468
Other		943		648
Total accounts payable and accrued expenses	$	11,438	$	13,731

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 achieved certain predetermined milestones.

On April 11, 2023, the Term Loan was terminated upon receipt by Runway of a payoff amount of $30.7 million from the Company comprised of principal, interest and the applicable final payment amount.

The Term Loan accrued 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%. On December 7, 2022, the Company entered into the First Amendment (the “First Amendment”) to the Loan Agreement by and between the Company and Runway. The First Amendment amended certain definitions and other provisions of the Loan Agreement to replace LIBOR-based benchmark rates applicable to loans outstanding under the Loan Agreement with SOFR-based rates, subject to adjustments as specified in the First Amendment. The Applicable Rate at March 31, 2023 and 2022 was 13.77% and 9.36%, respectively. For the three months ended March 31, 2023 and 2022, the Company made interest payments of $1.0 million and $0.1 million respectively, recorded in interest expense in the Unaudited Statements of Operations.


	March 31,		December 31,
($ in thousands)	2023		2022
Note payable ⁽¹⁾	$	31,050	$	31,050
Discount on note payable		(3,471)		(3,614)
Long-term note payable	$	27,579	$	27,436

⁽¹⁾ Balance includes $1.1 million final payment fee.

Amortization of the debt discount associated with the Term Loan was approximately $0.2 million for the three months ended March 31, 2023 and was recorded in interest expense in the Unaudited Statements of Operations. 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 Statements of Operations.

In addition, the Term Loan was secured by a lien on substantially all of our assets other than certain intellectual property assets and certain other excluded collateral, and it contained a minimum liquidity covenant and other covenants that included 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, 2023 and December 31, 2022.

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Note 8 - Stockholders’ Equity

Reverse Stock Split

No fractional shares were issued in connection with the Reverse Stock Split and stockholders who would otherwise be entitled to a fraction of one share received a proportional cash payment.

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, 2023, approximately $8.0 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, 2023, there have been no sales of securities under the 2021 S-3.

As of the filing of this Quarterly Report on Form 10-Q, the Company is subject to the general instructions on Form S-3 known as the “baby shelf rules,” which limit the amount of securities we can sell under our registration statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources,” and “Risk Factors – We will require substantial additional funding which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additional capital, we may be unable to complete the development and commercialization of our product candidates, or continue our development programs.”

At-the-Market Offering

In July 2018, 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 (now B. Riley FBR, Inc.), 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

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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. On April 14, 2023, the Mustang ATM was amended to add the limitations imposed by General Instruction I.B.6 to Form S-3 and remove Oppenheimer & Co., Inc. as an Agent.

During the three months ended March 31, 2023, the Company issued zero shares of common stock under the Mustang ATM. During the three months ended March 31, 2022, the Company issued approximately 185,000 shares of common stock at an average price of $15.00 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.

Pursuant to the Founders Agreement, the Company issued zero shares of common stock to Fortress for the three months ended March 31, 2023, under the Mustang ATM. Pursuant to the Founders Agreement, Mustang issued 6,292 shares of common stock to Fortress at a weighted average price of $25.95 per share for the three months March 31, 2022, 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 133,333 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 200,000 shares, for a total of 333,333 shares. In June 2021, the Company’s stockholders approved an amendment to the Incentive Plan to increase the number of authorized shares issuable by 200,000 shares, for a total of 533,333 shares. In June 2022, the Company’s stockholders approved an amendment to the Incentive Plan to increase the number of authorized shares issuable by 200,000 shares, for a total of 733,333 shares.

As of March 31, 2023, 278,139 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, 2023:


				Weighted Average
				Remaining
		Weighted Average		Contractual Life (in
	Stock Options	Exercise Price		years)
Outstanding at December 31, 2022	76,112	$	59.09	4.31
Outstanding at March 31, 2023	76,112	$	59.09	4.06
Options vested and exercisable at March 31, 2023	47,570	$	59.09	4.06

As of March 31, 2023, 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, 2023:


		Weighted Average
		Grant Date Fair
	Number of Shares	Value
Nonvested at December 31, 2022	34,016	$	22.20
Nonvested at March 31, 2023	34,016	$	22.20

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As of March 31, 2023, 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 2 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, 2023:


		Weighted Average
		Grant Date Fair
	Number of Units	Value
Nonvested at December 31, 2022	165,912	$	27.60
Granted	19,398		5.43
Forfeited	(10,699)		35.75
Vested	(14,220)		35.64
Nonvested at March 31, 2023	160,391	$	23.66

As of March 31, 2023, the Company had unrecognized stock-based compensation expense related to restricted stock units of approximately $1.6 million, which is expected to be recognized over the remaining weighted average vesting period of approximately 2.7 years.

The following table summarizes stock-based compensation expense for the three months ended March 31, 2023 and 2022 (in thousands):


	For the three months ended March 31,
	2023		2022
General and administrative	$	109	$	147
Research and development		126		517
Total stock-based compensation expense	$	235	$	664

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 26,667 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 40,000 shares, for a total of 66,667 shares.

As of March 31, 2023, 39,067 shares have been purchased and 27,600 shares are available for future sale under the Company’s ESPP.

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Warrants

A summary of warrant activities for the three months ended March 31, 2023, is presented below:


				Weighted Average
				Remaining
		Weighted Average		Contractual Life (in
	Warrants	Exercise Price		years)
Outstanding as of December 31, 2022	70,195	$	22.80	8.29
Exercised	(93)		—	—
Outstanding as of March 31, 2023	70,102	$	22.80	8.05

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 49,869 shares of the Company’s common stock with an exercise price of $12.03, 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.

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,
	2023	2022
Warrants	70,102	70,428
Options	76,112	76,112
Class A Preferred Shares	250,000	250,000
Unvested restricted stock awards	34,016	18,732
Unvested restricted stock units	160,391	127,891
Total	590,621	543,163

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.

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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.

Leases

On June 14, 2022, the Company entered into a sublease agreement with The Paul Revere Life Insurance Company. Pursuant to the terms of the sublease lease agreement, the Company agreed to lease 26,503 square feet, located at 1 Mercantile Street, Worcester, MA (the “Facility”), through January 2030. The Company recorded a right of use asset and related operating lease liability of $2.2 million on the Unaudited Balance Sheet at the lease inception.

The Company also 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 copiers, which expire in 2024. 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, 2023, the Company had operating lease liabilities of $3.9 million and right of use assets of $2.8 million, which were included in the Unaudited Balance Sheet. At December 31, 2022, the Company had operating lease liabilities of $3.9 million and right of use assets of $2.9 million, which were included in the Unaudited Balance Sheet.

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


	For the Three Months Ended
		March 31,		March 31,
($ in thousands)	2023		2022
Lease cost
Operating lease cost	$	197	$	85
Variable lease cost		224		66
Total	$	421	$	151


	For the Three Months Ended
		March 31,			March 31,
($ in thousands)	2023			2022
Operating cash flows from operating leases	$	132		$	128
Weighted-average remaining lease term – operating leases		5.7			6.5
Weighted-average discount rate – operating leases		9.1	%		9.0	%

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


($ in thousands)
Nine months ended December 31, 2023	$	397
Year ended December 31, 2024		614
Year ended December 31, 2025		1,139
Year ended December 31, 2026		1,076
Year ended December 31, 2027		650
Thereafter		1,381
Total		5,257
Less present value discount		(1,353)
Operating lease liabilities	$	3,904

Note 12 – Subsequent Events

On April 3, 2023, the Company filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation, as amended, to effect a 15-for-1 reverse stock split of the Company’s common stock. The reverse stock split became effective on April 3, 2023, and the Company’s common stock was quoted on the Nasdaq Stock Market on a post-split basis beginning at the open of business on April 4, 2023.

On April 11, 2023, the Term Loan was terminated upon receipt by Runway of a payoff amount of $30.7 million from the Company (comprising principal, interest and the applicable final payment amount); provided that the Company continues to be bound by certain indemnification obligations under Section 12.3 of the Runway Loan Agreement. The payoff amount paid by the Company in connection with the termination of the Term Loan was pursuant to a payoff letter with Runway.

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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: CAR T therapies for hematologic malignancies, CAR T therapies for solid tumors and gene therapies for rare genetic disorders. For each therapy we have partnered with world class research institutions. For our CAR T therapies we have partnered with COH, Fred Hutch, Nationwide and Mayo Clinic. For our gene therapies, we have partnered with St. Jude in the development of a first-in-class ex vivo lentiviral (“LV”) treatment of XSCID and with LUMC in the development of a first-in-class ex vivo LV treatment of RAG1-SCID.

The Company expects to incur substantial expenses for the foreseeable future relating to research, development and commercialization of its potential products. However, there can be no assurance that the Company will be successful in securing additional resources when needed, on terms acceptable to the Company, if at all. Therefore, there exists substantial doubt about the Company’s ability to continue as a going concern. The unaudited financial statements do not include any adjustments related to the recoverability of assets that might be necessary despite this uncertainty.

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 academic 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 CS1 (MB-104) and with Fred Hutch targeting CD20 (MB-106). In the first quarter of 2023, we decided to close out the MB-102 study as we do not have plans to enroll more patients in the foreseeable future.

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

MB-106 continues to generate promising safety and efficacy data in patients with B-cell malignancies, and the product profile of this autologous CD20-directed CAR T suggests a favorable profile compared to the currently-approved

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autologous CD19-directed CAR Ts. In 2023, Mustang Bio anticipates dose escalation in its multicenter, 3-arm Phase 1 trial and reporting response data from this trial at major medical meetings.

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

In April 2022, Mustang announced interim data from two ongoing investigator-sponsored Phase 1 clinical trials evaluating two clinical candidates, MB‐101 (IL13Rα2‐targeted CAR T cell therapy licensed from City of Hope) and MB-108 (herpes simplex virus type 1 oncolytic virus licensed from Nationwide Children’s Hospital) for the treatment of recurrent glioblastoma. Mustang completed all IND-enabling preclinical activities and is in the process of completing IND-enabling manufacturing activities requested by the FDA in a Pre-IND meeting. Mustang expects to file an IND for a Company-sponsored Phase 1 trial in 2023.

In Vivo CAR T Platform Technology

Mustang is 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. In 2023, the Mayo Clinic expects to publish in vivo proof-of-concept data in a mouse model of cancer in a major scientific journal, and Mustang plans to file an IND application for a multicenter Phase 1 clinical trial once a lead construct has been identified.

Gene Therapies

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 LV gene therapy has been utilized in two Phase 1/2 clinical trials involving two different autologous cell products: an ongoing multicenter trial of the MB-107 product in newly diagnosed infants sponsored by St. Jude (LVXSCID-ND) and a single-center trial of the MB-207 product in previously transplanted patients sponsored by the National Institutes of Health (“NIH”) (LVXSCID-OC). Both of these Phase 1/2 clinical trials have been suspended. No safety concerns have been noted in either trial, nor has insertional mutagenesis or malignancy been detected.

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

The MB-107 timeline has been extended due to unanticipated issues related to the materials used in manufacturing. We continue to work with the FDA and St. Jude to enable us to advance our XSCID therapy for newborns in 2023.

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

The IND for MB-207 was submitted to the FDA in December 2021. In January 2022, the FDA issued a clinical hold, pending additional CMC data. We continue to work with the FDA to enable us to advance our XSCID therapy for previously transplanted patients in 2023.

LUMC License

MB-110, a first-in-class ex vivo treatment for RAG1 SCID, is currently being evaluated at LUMC in a Phase 1/2 multicenter clinical trial in Europe. In 2022 the first patient was treated without any complications, after which the patient developed a functioning immune system which responded well to the standard vaccinations for newborns. In 2023 we expect that additional centers will be added in Europe and that additional patients will be enrolled.

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Financing Activities

At-the-Market Offering

During the three months ended March 31, 2023, the Company issued zero shares of common under the Mustang ATM.

The amount of securities we are able to sell pursuant to the registration statements on Form S-3 is limited. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

Term Loan

We are a majority-controlled subsidiary of Fortress. As a “Controlled Company” we rely on the exemption provided by Nasdaq Listing Rule 5615(c)(2), which permits us to maintain less than a majority of independent directors on our board.

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 2022 Form 10-K. There were no material changes in our critical accounting estimates or accounting policies from December 31, 2022.

Accounting Pronouncements

During the three months ended March 31, 2023, there were no new accounting pronouncements or updates to recently issued accounting pronouncements disclosed in the 2022 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.

Table of Contents

Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022


	For the three months ended March 31,				Change
($ in thousands)	2023		2022		$		%
Operating expenses:
Research and development	$	14,000	$	16,289	$	(2,289)	(14)	%
General and administrative		2,321		3,349		(1,028)	(31)	%
Total operating expenses		16,321		19,638		(3,317)	(17)	%
Loss from operations		(16,321)		(19,638)		3,317	(17)	%

Other income (expense)
Grant income		351		—		351	100	%
Interest income