Note 3 - License Agreements

 

 

On February 17, 2017, the Company and City of Hope National Medical Center (“City of Hope” or “COH”) amended and restated their license agreement, dated March 17, 2015 (the “Original Agreement”), in connection with the covered patents by entering into three separate amended and restated exclusive license agreements, one relating to CD123, one relating to IL-13 and one relating to the spacer technology, that amended the Original Agreement in certain other respects, and collectively replace the Original Agreement in its entirety. The total potential consideration payable to COH by the Company, in equity or cash, did not, in the aggregate, change materially from the Original Agreement.

 

In February 2017, COH was granted 293,588 additional shares of the Company’s common stock, the shares were valued utilizing a weighted market model at approximately $5.73 per share or approximately $1.7 million. The price per share was derived by utilizing the Option Pricing Method for allocating the enterprise value to the differing security holders, using a volatility of 77.0%, no discount for lack of marketability and a risk free rate of return of 1.93%. This additional grant was made pursuant to the terms of the agreement, which maintained COH ownership at 10% until the Company raised net proceeds of $10.0 million from third party investors. At December 31, 2016, since the Company did not have sufficient authorized Class A common shares available to issue this grant it was recorded on the balance sheet as a current liability in common share issuable. In February 2017, COH executed a waiver and acknowledgement agreement permitting issuance of the COH Anti-Dilution Shares in the form of Mustang common stock rather than Class A common shares as originally required, and such shares were issued. Therefore, in February 2017, the Company reclassified $1.7 million of common shares issuable liability to additional paid-in capital.

 

In addition, the Company entered into a sponsored research agreement with COH in which the Company will fund continued research in the amount of $2.0 million per year, payable in four equal installments, over the next five years. The research covered under this arrangement is for Il-13, CD123 and the Spacer technology. For the three months ended March 31, 2017 and 2016, the Company recorded $0.5 million and $0.5 million, respectively, in research and development expenses in the Statements of Operation.

  

 

 

On February 17, 2017, the Company entered into an Amended and Restated Exclusive License Agreement with COH to acquire intellectual property rights pertaining to CD123 patent rights (the “CD123 License”). Pursuant to the CD123 License, the Company and COH acknowledge that an upfront fee has already been paid under the Original Agreement. In addition, an annual maintenance fee will continue to apply. COH is eligible to receive milestone payments totaling approximately $14.5 million upon and subject to the achievement of certain milestones. Royalty payments in the mid-single digits are due on net sales of licensed products. The Company is obligated to pay COH a percentage of certain revenues received in connection with a sublicense in the mid-teens to mid-thirties, depending on the timing of the sublicense in the development of any product. In addition, equity grants made under the Original Agreement were acknowledged, and the anti-dilution provisions of the Original Agreement were carried forward.

 

Also on February 17, 2017, the Company entered into a Clinical Research Support Agreement for CD123 (“CD123 CRA”), pursuant to the terms of this agreement the Company made an upfront payment of $19,450 and will contribute an additional $97,490 related to patient costs in connection with the on-going investigator initiated study. Further, the Company agreed to fund approximately $231,300 over three years pertaining to the clinical development of CD123. For the three months ended March 31, 2017 and 2016, the Company recorded $19,450 and nil, respectively, in research and development expenses on the condensed statement of operations.

 

IL-13 License

 

On February 17, 2017, the Company entered into an Amended and Restated Exclusive License Agreement with COH to acquire intellectual property rights pertaining to IL-13 patent rights (the “IL-13 License”). Pursuant to the IL-13 License, the Company and COH acknowledge that an upfront fee has already been paid under the Original Agreement. In addition, an annual maintenance fee will continue to apply. COH is eligible to receive milestone payments totaling approximately $14.5 million upon and subject to the achievement of certain milestones. Royalty payments in the mid-single digits are due on net sales of licensed products. The Company is obligated to pay COH a percentage of certain revenues received in connection with a sublicense in the mid-teens to mid-thirties, depending on the timing of the sublicense in the development of any product. In addition, equity grants made under the Original Agreement were acknowledged, and the anti-dilution provisions of the Original Agreement were carried forward. During the three months ended March 31, 2017, the Company recorded an expense of $0.3 million in connection with the achievement of certain milestones pursuant to this license.

 

Also on February 17, 2017, the Company entered into a Clinical Research Support Agreement for IL-13 (“IL-13 CRA”), pursuant to the terms of this agreement the Company made an upfront payment of $9,238 and will contribute an additional $136,300 related to patient costs in connection with the on-going investigator initiated study. Further, the Company agreed to fund approximately $199,500 over three years pertaining to the clinical development of Il-13. For the three months ended March 31, 2017 and 2016, the Company recorded $9,238 and nil, respectively, in research and development expenses on the condensed statement of operations.

 

Spacer License

 

On February 17, 2017, the Company entered into an Amended and Restated Exclusive License Agreement with COH to acquire intellectual property rights pertaining to Spacer patent rights (the “Spacer License”). Pursuant to the Spacer License, the Company and COH acknowledged that an upfront fee has already been paid under the Original Agreement. In addition, an annual maintenance fee will continue to apply. No royalties are due if the Spacer technology is used in conjunction with a CD123 CAR or an IL-13 CAR, and royalty payments in the low single digits are due on net sales of licensed products if the Spacer technology is used in conjunction with other intellectual property. The Company is obligated to pay COH a percentage of certain revenues received in connection with a sublicense in the mid-thirties. In addition, equity grants made under the Original Agreement were acknowledged, and the anti-dilution provisions of the Original Agreement were carried forward. 

 

On February 17, 2017, the Company entered into an exclusive license agreement (the “IV/ICV Agreement”) with COH to acquire intellectual property rights in patent applications related to the intraventricular and intracerebroventricular methods of delivering T cells that express CARs. Pursuant to the IV/ICV Agreement, in March 2017, the Company paid COH an upfront fee of $125,000.. COH is eligible to receive a milestone payment totaling approximately $125,000, upon and subject to the achievement of a milestone, and an annual maintenance fee. Royalty payments in the low single digits are due on net sales of license products and license services.

 

 

On March 17, 2017 the Company entered into an exclusive license agreement with the Regents of the University of California (“UCLA License”) to acquire intellectual property rights in patent applications related to the engineered anti-prostatestem cell antigen antibodies for cancer targeting and detection. Pursuant to the Agreement, the Company paid UCLA the upfront fee of $200,000 on April 25, 2017, in addition to an annual maintenance fee. Additional payments are due for the achievement of certain development milestones and royalty payments in the mid-single digits are due on net sales of licensed products.

 

For the three months ended March 31, 2017 and 2016, the Company recorded the following expense in research and development – licenses acquired: