Item 7.Management’s Discussion and Analysis of the Results of Operations
Statements in the following discussion and throughout this report that are not historical in nature are “forward-looking statements.” You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Please see “Forward-Looking Statements” at the beginning of this Form 10-K.
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10-K. We undertake no obligation to update any forward-looking statements in the discussion of our financial condition and results of operations to reflect events or circumstances after the date of this report or to reflect actual outcomes.
Overview
Mustang Bio, Inc. (“Mustang,” “We,” “Us” or the “Company”) is a clinical-stage biopharmaceutical company focused on translating today’s medical breakthroughs in cell and gene therapies into potential cures for hematologic cancers, solid tumors and rare genetic diseases. We aim to acquire rights to these technologies by licensing or otherwise acquiring an ownership interest in the technologies, funding their research and development and eventually either out-licensing or bringing the technologies to market.
Our pipeline is currently focused in three core areas: gene therapy programs for rare genetic disorders, chimeric antigen receptor (“CAR”) engineered T cell (“CAR T”) therapies for hematologic malignancies and CAR T therapies for solid tumors. For each therapy we have partnered with world class research institutions. For our gene therapy program, we have partnered with St. Jude Children’s Research Hospital (“St. Jude”) in the development of a first-in-class ex vivo lentiviral treatment of X-linked severe combined immunodeficiency (“XSCID”) and for our CAR T therapies we have partnered with the City of Hope National Medical Center (“COH”), Fred Hutchinson Cancer Research Center (“Fred Hutch”) and Nationwide Children’s Hospital (“Nationwide”).
Gene Therapy
In partnership with St. Jude and the National Institutes of Health (“NIH”), our gene therapy program is being conducted under an exclusive license to develop a potentially curative treatment for XSCID, a rare genetic immune system condition also known as bubble boy disease in which affected patients do not live beyond infancy without treatment. This first-in-class ex vivo lentiviral gene therapy is currently in two Phase 1/2 clinical trials involving two different autologous cell products: a multicenter trial of the MB-107 product in newly diagnosed infants sponsored by St. Jude and a single-center trial of the MB-207 product in previously transplanted patients sponsored by the NIH.
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In May 2020, we submitted an Investigational New Drug (“IND”) application with the FDA to initiate a registrational multicenter Phase 2 clinical trial of MB-107 in newly diagnosed infants with XSCID who are under the age of two. In response, the FDA identified Chemistry, Manufacturing, and Control (“CMC”) hold issues that Mustang satisfactorily addressed in a December 2020 submission to the FDA, and the CMC hold was removed in January 2021. The trial is expected to enroll 10 patients who, together with 15 patients enrolled in the current multicenter trial led by St. Jude, will be compared with 25 matched historical control patients who have undergone hematopoietic stem cell transplant (“HSCT”). The primary efficacy endpoint will be event-free survival and we are targeting topline data from the trial in the second half of 2022.
We further expect to file an IND in the second quarter of 2021 for a registrational multicenter Phase 2 clinical trial of lentiviral gene therapy in previously transplanted XSCID patients (MB-207). We anticipate enrolling 20 patients, and we are targeting topline data for this trial in the first half of 2023.
CAR T Therapies
Our pipeline of CAR T therapies is being developed under exclusive licenses from several world class research institutions. Our strategy is to license these technologies, support preclinical and clinical research activities by our partners and transfer the underlying technology to our cell processing facility located in Worcester, Massachusetts, to conduct our own clinical trials.
We are developing CAR T therapies for hematologic malignancies in partnership with COH targeting CD123 (MB-102) and CS1 (MB-104) and with Fred Hutch targeting CD20 (MB-106). Phase 1 clinical trials sponsored by COH for MB-102 and MB-104 and by Fred Hutch for MB-106 are underway. In the third quarter of 2019 the FDA approved our IND application to initiate a 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 plasmacytoid dendritic cell neoplasm. We expect to file an IND for MB-106 in the first quarter of 2021 and to initiate our own Phase 1/2 clinical trial shortly thereafter for the treatment of patients with non-Hodgkin lymphoma and chronic lymphocytic leukemia. 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 fourth quarter of 2021, we plan to file an IND for the combination of MB-101 and MB-108 for the treatment of patients with GBM. 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.
Recent Events
MB-106 (CD20 CAR T for Non-Hodgkin Lymphoma and Chronic Lymphocytic Leukemia)
In February 2020, we announced that the first subject treated with the optimized MB-106 (CD20-targeted, autologous CAR T cell therapy) manufacturing process, developed in collaboration with Fred Hutch, achieved a complete response at the lowest starting dose in an ongoing Phase 1/2 clinical trial. The trial is evaluating the safety and efficacy of MB-106 in subjects with relapsed or refractory B-cell non-Hodgkin lymphomas and chronic lymphocytic leukemia.
In December 2020, at the 62nd American Society of Hematology Annual Meeting, Mustang and Fred Hutch announced interim data in patients with relapsed or refractory B-cell NHL from the ongoing Phase 1/2 clinical trial of MB-106 at Fred Hutch. Data presented by Fred Hutch reported on an initial seven patients treated without response and without significant CAR T cell expansion or persistence. Among these 7 patients there was one occurrence of cytokine release syndrome (CRS; grade 3 – unexplained alkaline phosphatase elevation in the setting of fever), and there were no occurrences of immune effector cell-associated neurotoxicity syndrome (ICANS). Subsequently the trial was put on hold while Fred Hutch collaborated with Mustang to undertake a major modification in the cell manufacturing process.
Following IND amendment to implement this modified cell processing, 9 patients – 7 with follicular lymphoma and 2 with mantle cell lymphoma – were treated at 4 different dose levels ranging from 1 x 105 CAR T cells/kg to 3.3 x 106 CAR T cells/kg. The overall response rate was 89% (8/9), the complete response rate was 44% (4/9), and there was good expansion and persistence of CAR T cells. All complete responses were ongoing at the time of data disclosure. One patient experienced a grade 1 episode of CRS, and no patients experienced ICANS. Mustang plans to file an IND at the end of the first quarter of 2021 to enable the initiation of a multicenter Phase 1/2 trial of MB-106.
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MB-107 and MB-207 (Ex vivo Lentiviral Therapy for X-linked Severe Combined Immunodeficiency (XSCID))
In May 2020, we submitted an IND application with the FDA to initiate a registrational multi-center Phase 2 clinical trial of MB-107 in newly diagnosed infants with XSCID who are under the age of two. In response, the FDA identified CMC hold issues that we satisfactorily addressed in a December 2020 submission to the FDA, and the CMC hold was removed in January 2021. The trial is expected to enroll 10 patients who, together with 15 patients enrolled in the current multicenter trial led by St. Jude, will be compared with 25 matched historical control patients who have undergone hematopoietic stem cell transplant (“HSCT”). The primary efficacy endpoint will be event-free survival and potential topline data from the trial are expected in the fourth quarter of 2022.
In August 2020, we announced that the FDA has granted Rare Pediatric Disease Designation to MB-107 and MB-207. The FDA previously granted Regenerative Medicine Advanced Therapy designation to MB-107 for the treatment of XSCID in newly-diagnosed infants in August 2019. Additionally, the European Medicines Agency granted Advanced Therapy Medicinal Product classification to MB-107 in April 2020.
The FDA grants Rare Pediatric Disease Designation for serious and life-threatening diseases that primarily affect children ages 18 years or younger and affect fewer than 200,000 people in the United States. If Mustang’s BLA is approved, the company may be eligible to receive a priority review voucher, which can be redeemed to obtain priority review for any subsequent marketing application and may be sold or transferred. This program is intended to encourage development of new drugs and biologics for the prevention and treatment of rare pediatric diseases.
In September 2020, we announced that the FDA has granted Orphan Drug Designation to MB-107 and MB-207. The FDA grants Orphan Drug Designation to drugs and biologics that are intended for the safe and effective treatment, diagnosis or prevention of rare diseases or disorders that affect fewer than 200,000 people in the U.S. Orphan Drug Designation provides certain incentives, such as tax credits toward the cost of clinical trials and prescription drug user fee waivers. If a product holding Orphan Drug Designation receives the first FDA approval for the disease in which it has such designation, the product is entitled to seven years of market exclusivity, which is independent from intellectual property protection.
In October 2020, we in-licensed LentiBOOSTTM technology from SIRION Biotech GmbH for the development of MB-207.
In November 2020, we signed an agreement with Minaris Regenerative Medicine GmbH to enable technology transfer and GMP clinical manufacturing of the MB-107 lentiviral gene therapy program for the treatment of XSCID in Europe.
Also in November 2020, we announced that the European Commission issued a positive opinion on its application for Orphan Drug Designation for the MB-107 lentiviral gene therapy for the treatment of XSCID.
MB-102 (CD123-targeted CAR T cell therapy)
In October 2020, we announced that the first patient has been dosed in a Mustang-sponsored, open label, multicenter Phase 1/2 clinical trial to evaluate the safety and efficacy of MB-102 in patients with relapsed or refractory BPDCN. Study sites include City of Hope, where the CAR T cell therapy was initially developed and where the clinical data were generated to support Mustang’s current multicenter trial, Dana-Farber Cancer Institute, Duke University and MD Anderson Cancer Center.
The Phase 1 portion of the trial will determine the maximum tolerated dose of MB-102 for the Phase 2 portion of the trial. Safety will be assessed at each dose level before proceeding to the next. Depending on the efficacy and safety profile of MB-102 in the Phase 1 portion of the trial, relapsed or refractory AML and demethylation resistant hrMDS may be added to the later dose escalation cohorts. The Phase 2 portion of the trial may be divided into as many as three arms to evaluate the efficacy of MB-102 in relapsed or refractory BPDCN (Arm 1), relapsed or refractory AML (Arm 2) and demethylation resistant hrMDS (Arm 3). The primary outcome that will be studied is the response rate at day 28 post infusion in all arms. Secondary outcome measures include duration of response, progression-free survival, overall survival and incidence of treatment-emergent adverse events, which will be followed for up to three years.
MB-101 (IL13Rα2-targeted CAR T cell therapy)
In December 2020, we announced that a Phase 1 single-center, two-arm clinical trial was initiated to establish the safety and feasibility of administering MB-101 to patients with leptomeningeal brain tumors (e.g., glioblastoma, ependymoma or medulloblastoma).
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MB-105 (PSCA CAR T for Prostate & Pancreatic Cancers)
In October 2020, we announced that one patient’s experience on the Phase 1 trial of MB-105 was presented at the virtual 27th Annual Prostate Cancer Foundation Scientific Retreat. In a 73-year-old male patient with PSCA-positive metastatic castrate-resistant prostate cancer who was treated with MB-105 and lymphodepletion (a standard CAR T pre-conditioning regimen) after failing eight prior therapies, MB-105 demonstrated on day 28 a 94 percent reduction in prostate-specific antigen (PSA), near complete reduction of measurable soft tissue metastasis by computerized tomography, and improvement in bone metastases by magnetic resonance imaging. The therapy was associated with cytokine release syndrome, which was clinically managed with tocilizumab (anti-IL-6 receptor antibody), and hemorrhagic cystitis requiring transfusion which clinically resolved in 30 days.
SIRION Biotech GmbH – LentiBOOSTTM
On September 30, 2020, Mustang entered into an exclusive, worldwide licensing agreement with SIRION Biotech (“SIRION”) for the rights to SIRION’s LentiBOOSTTM technology for the development of MB-207, Mustang’s lentiviral gene therapy for the treatment of previously transplanted XSCID patients (the “SIRION Technology License”). Pursuant to the SIRION Technology License, the Company paid a one-time upfront fee of €0.1 million ($0.1 million) during the year ended December 31, 2020. In addition, five future development milestone payments totaling up to approximately €4.7 million ($5.5 million) in the aggregate are due upon achievement of certain milestones. Additional milestone payments totaling up to €3.5 million ($4.1 million) in the aggregate are due in connection with the achievement of three commercial milestones, and low single digit royalties are due on aggregate cumulative worldwide net sales of licensed products.
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 December 31, 2020, approximately $85.7 million of the 2020 S-3 remains available for sales of securities.
Term Loan
On March 29, 2019 (the “Closing Date”), the Company entered into a $20.0 million Loan Agreement with Horizon (the “Loan Agreement”), the proceeds of which were used to provide the Company with additional working capital to continue development of its gene and cell therapies. In accordance with the Loan Agreement, $15.0 million of the $20.0 million loan was funded on the Closing Date, with the remaining $5.0 million fundable upon the Company achieving certain predetermined milestones. On September 30, 2020, the Company repaid in full all amounts that were outstanding under the Loan Agreement.
At-the-Market Offering
On July 13, 2018, the Company filed a shelf registration statement No. 333-226175 on Form S-3, as amended on July 20, 2018 (the “2018 S-3”), which was declared effective in August 2018. Under the 2018 S-3, the Company may sell up to a total of $75.0 million of its securities. In connection with the 2018 S-3, the Company entered into an At-the-Market Issuance Sales Agreement (the “ATM Agreement”) with B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.), Cantor Fitzgerald & Co., National Securities Corporation, and Oppenheimer & Co. Inc. (each an “Agent” and collectively, the “Agents”), relating to the sale of shares of common stock. Under the ATM Agreement, 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 ATM Agreement was amended to add H.C. Wainwright & Co., LLC as an Agent.
During the year ended December 31, 2020, the Company issued approximately 17.6 million shares of common stock at an average price of $3.40 per share for gross proceeds of $59.8 million under the ATM Agreement. In connection with these sales, we paid aggregate fees of approximately $1.1 million for net proceeds of approximately $58.7 million.
Public Offering of Common Stock
On June 11, 2020, we announced the pricing of an underwritten public offering, whereby we sold 10,769,231 shares of common stock, (plus a 30-day option to purchase up to an additional 1,615,384 shares of common stock, which was partially exercised) at a price of $3.25 per share for gross proceeds of approximately $37.2 million, before deducting underwriting discounts and commissions and offering expenses. In connection with the public offering, the Company paid aggregate fees of approximately $2.4 million for net proceeds of approximately $34.8 million.
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Authorized Shares
On November 11, 2020, the Company’s Board adopted resolutions of the Board to ratify, approve and recommend stockholder approval of an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to revise Article IV, Section A thereof in order to effect an increase in the authorized number of shares of the Company’s common stock, par value $0.0001, from 85 million to 125 million (the “Amendment”). On November 11, 2020, the Company received approval of the Amendment by written consent in lieu of a meeting from the holders of a majority of issued and outstanding shares of the Company’s common and preferred stock. The increase in authorized shares to 125 million became effective on December 4, 2020.
To date, we have not received approval for the sale of our product candidates in any market and, therefore, have not generated any product sales from our product candidates. In addition, we have incurred substantial operating losses since our inception, and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of December 31, 2020, we have an accumulated deficit of $185.5 million.
We are a majority-controlled subsidiary of Fortress Biotech, Inc. (“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
See Note 2 to our Financial Statements.
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
For the year ended December 31, Change
Operating expenses:
Other income (expense)
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.
Research and development expense increased by approximately $7.2 million from $30.0 million for the year ended December 31, 2019 to $37.2 million for the year ended December 31, 2020. The increase in research and development expense for the year ended December 31, 2020 was primarily attributable to the following:
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Research and development expenses - licenses acquired increased by $3.8 million from $6.3 million for the year ended December 31, 2019 to $10.1 million for the year ended December 31, 2020. The increase in research and development expenses - licenses acquired for the year ended December 31, 2020 was primarily attributable to the following:
● Approximately $2.7 million for the annual stock dividend to Fortress;
● $1.3 million related to our licenses with COH;
● $0.3 million related to our CD20 license with Fred Hutch;
● $0.1 million related to our LentiBOOSTTM license with SIRION; and
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;
● facility expenses, which include rent, utilities and maintenance costs;
● the cost of acquiring and manufacturing clinical trial materials; and
● costs associated with non-clinical activities, and regulatory approvals.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses, including stock-based compensation, for executives and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including investor relations, legal activities including patent fees, and facilities-related expenses.
General and administrative expense decreased by approximately $0.1 million from $9.6 million for the year ended December 31, 2019 to $9.5 million for the year ended December 31, 2020. The decrease in general and administrative expense for the year ended December 31, 2020 was primarily attributable to the following:
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We anticipate general and administrative expenses will increase in future periods, reflecting continued and increasing costs associated with:
● stock compensation granted to key employees and non-employees;
● support of business development activities; and
Other Income (Expense)
Other income (expense) consists primarily of interest income earned on cash balances and short-term investments and interest expense on the Company’s notes payable. For the year ended December 31, 2020 and 2019, total other income (expense) were approximately $3.2 million and $0.5 million of expense, respectively. The $2.7 million increase in other income (expense) for the year ended December 31, 2020 was primarily attributable to $1.6 million of debt discount amortization, debt prepayment penalties of $0.6 million and lower interest income of $0.6 million.
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 December 31, 2020, the Company had an accumulated deficit of $185.5 million.
The Company has funded its operations to date primarily through the sale of equity and its venture debt financing agreement (the "Loan Agreement") with Horizon Technology Finance Corporation ("Horizon"), herein referred to as the "Horizon Notes." In September 2020, we repaid the Horizon Notes in full all amounts that were outstanding under the loan agreement, which was comprised of $15.0 million face value of the outstanding notes, $112,500 accrued and unpaid interest, a $750,000 loan termination fee and prepayment penalties of $550,000. 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 December 31, 2020, are sufficient to fund its anticipated operating cash requirements for at least one year from the date of this Form 10-K.
From January 1, 2021 through March 18, 2021, the Company issued approximately 10.6 million shares of common stock at an average price of $4.24 per share for gross proceeds of $44.9 million under the ATM Agreement.
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. If the Company is unable to arrange for such financings, or unable to arrange for them on terms acceptable to the Company, the Company’s current development plans and plans for expansion of its facility and general and administrative infrastructure will be curtailed.
Cash Flows for the Years Ended December 31, 2020 and 2019
For the year ended December 31,
Statement of cash flows data:
Total cash (used in) provided by:
Net change in cash, cash equivalents and restricted cash $ 36,391 $ 45,444
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Operating Activities
Net cash used in operating activities was $37.3 million for the year ended December 31, 2020, compared to $33.6 million for the year ended December 31, 2019. Net cash used in operating activities for the year ended December 31, 2020, was primarily due to approximately $60.0 million in net loss, partially offset by $7.6 million of common shares issuable for Founders shares, $3.1 million change in operating assets and liabilities, $3.0 million of non-cash stock compensation expenses, $2.5 million of research and development-licenses acquired, $2.4 million of equity fee on issuance of common shares to Fortress, $2.3 million of accretion of debt discount and $1.7 million of depreciation expense.
Net cash used in operating activities for the year ended December 31, 2019, was primarily due to approximately $46.4 million in net loss, partially offset by $4.9 million of common shares issuable for Founders shares, $2.7 million of non-cash stock compensation expenses, $1.7 million of equity fee on issuance of common shares to Fortress, $1.4 million of research and development-licenses acquired, $1.3 million of depreciation expense and $0.7 million of accretion of debt discount.
Investing Activities
Net cash used in investing activities was $4.4 million for the year ended December 31, 2020, representing $2.5 million in purchases of research and development licenses and $1.9 million in purchases of fixed assets.
Net cash provided by investing activities was $13.9 million for the year ended December 31, 2019, representing our $17.6 million in maturities of certificates of deposits, offset by $1.4 million in purchases of research and development licenses and $2.3 million in purchases of fixed assets.
Financing Activities
Net cash provided by financing activities was $78.1 million during the year ended December 31, 2020, gross proceeds of $59.8 million, net of offering costs of $1.1 million, from the Mustang ATM; gross proceeds of $37.2 million, net of offering costs of $2.4 million, from our June 2020 underwritten public offering and $0.3 million raised from the issuance of the Company’s common shares in connection with the ESPP, partially offset by the prepayment of the Horizon Notes of $15.7 million.
Net cash provided by financing activities was $65.1 million during the year ended December 31, 2019, due to net proceeds of $13.6 million from the Horizon Notes; gross proceeds of $22.5 million, net of offering costs of $0.5 million, from the Mustang ATM; and gross proceeds of $31.6 million, net of offering costs of $2.1 million, from our May 2019 underwritten public offering.
Item 7A.Quantitative and Qualitative Disclosures About Market Risks
Not applicable.
Item 8.Financial Statements and Supplementary Data.
The information required by this Item is set forth in the financial statements and notes thereto beginning at page F-1 of this Annual Report on Form 10-K.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A.Controls and Procedures.
Disclosure Controls and Procedures
Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are designed only to provide reasonable assurance that they will meet their objectives. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness, as of December 31, 2020, of the design
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and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making the assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013).
Based on our assessment, our management has concluded that, as of December 31, 2020, our internal controls over financial reporting were effective based upon those criteria.
Changes in Internal Controls over Financial Reporting.
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.Other Information
None.
PART III
Item 10.Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2021 Annual Meeting of Stockholders.
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Item 11.Executive Compensation
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2021 Annual Meeting of Stockholders.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2021 Annual Meeting of Stockholders.
Item 13.Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2021 Annual Meeting of Stockholders.
Item 14.Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2021 Annual Meeting of Stockholders.
PART IV
Item 15.Exhibits, Financial Statement Schedules.
(a) Financial Statements.
The following financial statements are filed as part of this Form 10-K:
Report of Independent Registered Public Accounting Firm F-2
Financial Statements:
Statements of Operations for the Years Ended December 31, 2020 and 2019 F-4
Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-6
Notes to Financial Statements F-7 - F-30
(b) Exhibits.
Exhibit No. Description
Filed as Exhibit 3.1 on the Company’s Form 10-Q filed on August 13, 2018.
Filed as Exhibit 3.1 on the Company’s Form 8-K filed on September 30, 2019.
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Exhibit No. Description
4.3 Description of Securities of Mustang Bio, Inc. **
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Exhibit No. Description
24.1 Power of Attorney (included on signature page).
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Exhibit No. Description
# Confidential treatment has been granted with respect to omitted portions of this exhibit.
† Indicates management contract or compensatory plan or arrangement.
* Previously Filed.
** Filed herewith.
Item 16.Form 10-K Summary.
None.
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INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Statements of Operations for the Years Ended December 31, 2020 and 2019 F-4
Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-6
Notes to Financial Statements F-7 – F-30
F-1
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Mustang Bio, Inc.
New York, New York
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Mustang Bio, Inc. (the “Company”) as of December 31, 2020 and 2019, the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2016.
/s/ BDO USA, LLP
Boston, Massachusetts
March 24, 2021
F-2
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MUSTANG BIO, INC.
BALANCE SHEETS
(in thousands, except for share and per share amounts)
December 31, December 31,
ASSETS
Current Assets:
Other receivables - related party 15 19
Prepaid expenses and other current assets 1,715 1,631
Property, plant and equipment, net 7,529 6,779
Fixed assets - construction in process 499 1,157
Operating lease right-of-use asset, net 1,088 1,196
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 8,747 $ 5,668
Payables and accrued expenses - related party 490 596
Short-term notes payable — 1,250
Operating lease liabilities - short-term 278 257
Total current liabilities 9,515 7,771
Notes payable — 12,179
Operating lease liabilities - long-term 1,950 1,843
Commitments and Contingencies
Stockholders’ Equity
Total Liabilities and Stockholders’ Equity $ 109,900 $ 73,445
The accompanying notes are an integral part of these financial statements.
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MUSTANG BIO, INC.
STATEMENTS OF OPERATIONS
(in thousands, except for share and per share amounts)
For the year ended December 31,
Operating expenses:
Research and development – licenses acquired 10,064 6,273
General and administrative 9,505 9,570
Other income (expense)
Total other income (expense) (3,209) (504)
Net loss per common share outstanding, basic and diluted $ (1.14) $ (1.29)
The accompanying notes are an integral part of these financial statements.
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MUSTANG BIO, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Common Additional Total
Shares Amount Shares Amount Shares Amount Issuable Capital Deficit Equity
Stock-based compensation expenses — — — — 30,341 — — 2,664 — 2,664
Exercise of warrants — — — — 93,213 — — — — —
Net loss — — — — — — — — (46,389) (46,389)
Exercise of warrants — — — — 2,999 — — — — —
Net loss — — — — — — — — (60,015) (60,015)
The accompanying notes are an integral part of these financial statements.
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MUSTANG BIO, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
For the year ended December 31,
Cash Flows from Operating Activities:
Accretion of debt discount 2,321 710
Common shares issuable for Founders Agreement 7,577 4,923
Research and development - licenses acquired 2,487 1,350
Stock-based compensation expenses 2,987 2,664
Amortization of operating lease right-of-use assets 108 110
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (84) (558)
Other receivables - related party 4 (19)
Accounts payable and accrued expenses 3,151 296
Payable and accrued expenses - related party (106) 360
Lease liabilities 128 53
Net cash used in operating activities (37,319) (33,581)
Cash Flows from Investing Activities:
Maturity of certificate of deposit — 17,604
Purchase of research and development licenses (2,487) (1,350)
Purchase of fixed assets (1,925) (2,345)
Net cash (used in) provided by investing activities (4,412) 13,909
Cash Flows from Financing Activities:
Proceeds from Horizon Notes — 15,000
Debt issuance costs — (1,393)
Proceeds from issuance of common shares - Public Offering 37,230 31,625
Repayment of notes payable (15,750) —
Proceeds from issuance of common shares under ESPP 349 —
Net cash provided by financing activities 78,122 65,116
Net change in cash, cash equivalents and restricted cash 36,391 45,444
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,593 $ 1,057
Supplemental disclosure of noncash investing and financing activities:
Fixed assets (acquired but not paid) $ 31 $ 187
Issuance of common shares - Founders Agreement $ 4,923 $ 2,085
Issuance of warrants - Horizon Notes $ — $ 888
The accompanying notes are an integral part of these financial statements.
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Notes to Financial Statements
Note 1 - Organization and Description of Business
Mustang Bio, Inc. (the “Company” or “Mustang”) was incorporated in Delaware on March 13, 2015. Mustang is as a clinical-stage biopharmaceutical company focused on translating today’s medical breakthroughs in cell and gene therapy into potential cures for hematologic cancers, solid tumors and rare genetic diseases. The Company may acquire rights to these technologies by licensing the rights or otherwise acquiring an ownership interest in the technologies, funding their research and development and eventually either out-licensing or bringing the technologies to market.
The Company is a majority-controlled subsidiary of Fortress Biotech, Inc. (“Fortress” or “Parent”).
Liquidity and Capital Resources
The Company has incurred substantial operating losses and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of December 31, 2020, the Company had an accumulated deficit of $185.5 million.
The Company has funded its operations to date primarily through the sale of equity and its venture debt financing agreement (the "Loan Agreement") with Horizon Technology Finance Corporation ("Horizon"), herein referred to as the "Horizon Notes." In September 2020, we repaid the Horizon Notes in full all amounts that were outstanding under the loan agreement, which was comprised of $15.0 million face value of the outstanding notes, $112,500 accrued and unpaid interest, a $750,000 loan termination fee and prepayment penalties of $550,000. 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 December 31, 2020, are sufficient to fund its anticipated operating cash requirements for at least one year from the date of this Form 10-K.
The Company will be required to expend significant funds in order to advance the development of its product candidates. The Company will require additional financings through equity and debt offerings, collaborations and licensing arrangements or other sources to fully develop, prepare regulatory filings, obtain regulatory approvals and commercialize its existing and any new product candidates.In addition to the foregoing, based on the Company’s current assessment, the Company does not expect any material impact on its long-term development timeline and its liquidity due to the worldwide spread of the COVID-19 virus. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world.
Note 2 - Significant Accounting Policies
Basis of Presentation
The Company’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company has no subsidiaries.
All inter-company transactions between Fortress and Mustang are classified as due from or due to related party in the financial statements. The Company believes that the assumptions underlying the financial statements are reasonable.
Segments
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating and reporting segment.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of 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. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents at December 31, 2020 and 2019, consisted of cash and money market funds in institutions in the United States. Balances at certain institutions have exceeded Federal Deposit Insurance Corporation (“FDIC”) insured limits.
Other Receivables – Related Party
Other receivables includes amounts due to the Company from Fortress and Journey Medical Corporation, both related parties, and is recorded at the invoiced amount.
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 Company had $1.0 million in restricted cash as of December 31, 2020 and 2019, respectively. The Facility initiated cell processing operations for personalized CAR T and gene therapies in 2018.
Property, plant and equipment, net
Property and equipment, net, which consists mainly of laboratory equipment, are carried at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the respective assets, generally five years, using the straight-line method.
Property and equipment - Construction in Process
In connection with the Company’s cell processing facility, the Company incurred costs for the design and construction of the facility and the purchase of equipment; $0.5 million and $1.2 million are recorded in fixed assets - construction in process on the balance sheet at December 31, 2020 and 2019, respectively. Upon completion of the facility’s construction, all costs associated with the buildout will be recorded as leasehold improvements and amortized over the shorter of the estimated useful lives or the term of the respective leases, upon the improvement being placed in service.
Research and Development Costs
Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Upfront and milestone payments due to third parties that perform research and development services on the Company’s behalf will be expensed as services are rendered or when the milestone is achieved.
Research and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license 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.
In accordance with Accounting Standards Codification (“ASC”) 730-10-25-1, Research and Development, costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached commercial feasibility and has no alternative future use. The licenses purchased by the Company require
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substantial completion of research and development, regulatory and marketing approval efforts to reach commercial feasibility and has no alternative future use. Accordingly, the total purchase price for the licenses acquired is reflected as research and development - licenses acquired in the Company’s Statements of Operations.
Annual Stock Dividend
In July 2016, in connection with the Amended and Restated Articles of Incorporation, the Company issued 250,000 Class A preferred shares to Fortress. The Class A preferred shares entitle the holder to a stock dividend equal to 2.5% of the fully diluted outstanding equity of the Company (“The Annual Stock Dividend”). The Annual Stock Dividend was part of the consideration payable for formation of the Company and the identification of certain assets, including the license contributed to Mustang by Fortress (see Note 4).
In June 2018, in connection with the Amended and Restated Articles of Incorporation, the Company amended the annual stock dividend due date from March 13th to January 1st.
Pursuant to the Amended and Restated Articles of Incorporation, the Company issued 1,206,667 shares of common stock to Fortress for the Annual Stock Dividend, representing 2.0%, on a pro rata basis, of the fully-diluted outstanding equity of Mustang on January 1, 2020. This was shown in the Statement of Stockholders’ Equity at December 31, 2019, as Common stock issuable – Founders Agreement. The Company recorded an expense of approximately $4.9 million in research and development - licenses acquired related to these issuable shares during the year ended December 31, 2019.
Pursuant to the Amended and Restated Articles of Incorporation, the Company issued 2,001,490 shares of common stock to Fortress for the Annual Stock Dividend, representing 2.5% of the fully-diluted outstanding equity of Mustang on January 1, 2021. This was shown in the Statement of Stockholders’ Equity at December 31, 2020 as Common stock issuable - Founders Agreement. The Company recorded an expense of approximately $7.6 million in research and development – licenses acquired related to these issuable shares during the year ended December 31, 2020.
Fair Value Measurement
The Company follows accounting guidance on fair value measurements for financial assets and liabilities measured at fair value on a recurring basis. Under the accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
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Leases
Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company's incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses are recorded when incurred. In calculating the right of use asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.
Stock-Based Compensation
The Company expenses stock-based compensation to employees over the requisite service period based on the estimated grant-date fair value of the awards and forfeiture rates.
For stock-based compensation awards to non-employees, prior to the adoption of ASU 2018-07 on January 1, 2019, the Company remeasured the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award. Changes in the estimated fair value of these non-employee awards were recognized as compensation expense in the period of change. Subsequent to the adoption of ASU 2018-07, the Company recognizes non-employee compensation costs over the requisite service period based on a measurement of fair value for each stock award.
The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model or 409a valuations, as applicable. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Income Taxes
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes a valuation allowance if management believes it is more likely than not that the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit.
Net Loss per Share
Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period less unvested restricted stock. Since dividends are declared, paid and set aside among the holders of shares of common stock and Class A common shares pro-rata on an as-if-converted basis, the two-class method of computing net loss per share is not required. Diluted net loss per share does not reflect the effect of shares of common stock to be issued upon the exercise of warrants or outstanding Class A preferred shares, as their inclusion would be anti-dilutive.
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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 year ended December 31,
Comprehensive Loss
The Company has no components of other comprehensive loss, and therefore, comprehensive loss equals net loss.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company’s adoption of this standard on January 1, 2020, did not have a material impact on its financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”, which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company’s adoption of this standard on January 1, 2020, did not have a material impact on its financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The changes take effect for public companies for fiscal years starting after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted ASU No. 2018-07 as of January 1, 2019. The adoption of this update did not have a material impact on the Company’s financial statements.
In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU
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is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The adoption of this ASU on January 1, 2019, did not have a material impact on the Company’s financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods), using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carry forward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets of approximately $1.2 million, lease liability of approximately $2.0 million and eliminated deferred rent of approximately $0.7 million.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its financial statements.
Note 3 - License, Clinical Trial and Sponsored Research Agreements
Research and Development Expenses – All Licenses
For the years ended December 31, 2020 and 2019, the Company recorded the following expense in research and development for licenses acquired:
For the year ended December 31,
City of Hope National Medical Center
Spacer 333 —
CSL Behring (Calimmune) 170 200
UCLA — 300
Fred Hutchinson Cancer Research Center - CD20 300 —
Nationwide Children's Hospital - C134 — 200
SIRION Biotech LentiBOOSTTM 117 —
Fortress PIK Dividend 7,577 4,923
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License Agreements
City of Hope
CD123 License (MB-102)
In February 2017, the Company entered into an Amended and Restated Exclusive License Agreement with the City of Hope National Medical Center (“COH”) to acquire intellectual property rights pertaining to CD123 -specific chimeric antigen receptor (“CAR”) engineered T cell (“CAR T”) technology. Pursuant to this agreement, the Company and COH acknowledged that an upfront fee was previously paid. In addition, COH is eligible to receive an annual maintenance fee of $25,000 and milestone payments totaling $14.5 million upon the achievement of certain milestones. Royalty payments in the mid-single digits are due on net sales of licensed products.
For the year ended December 31, 2020, the Company expensed a non-refundable milestone payment of $0.3 million in connection with our public underwritten offerings. For the year ended December 31, 2019, the Company expensed a non-refundable milestone payment of $0.3 million upon the twelfth patient dosed in a Phase 1 clinical study of the CD123-directed CAR T.
CS1 License (MB-104)
In May 2017, the Company entered into an exclusive license agreement with the COH for the use of CS1-specific CAR T technology. Pursuant to this agreement, the Company paid an upfront fee of $0.6 million and pays an annual maintenance fee of $50,000. Additional payments are due for the achievement of ten development milestones totaling $14.9 million, and royalty payments in the mid-single digits are due on net sales of licensed products.
For the year ended December 31, 2020, the Company expensed a non-refundable milestone payment of $0.2 million upon issuance of the first patent related to the CS1 CAR T technology. For the year ended December 31, 2019, the Company expensed a non-refundable milestone payment of $0.2 million upon the first patient dosed in a Phase 1 clinical study of the CS1-directed CAR T.
IL13Rα2 License (MB-101)
In February 2017, the Company entered into an Amended and Restated Exclusive License Agreement with COH to acquire intellectual property rights pertaining to IL13Rα2-specific CAR T technology. Pursuant to this agreement, payments are due for the achievement of eight development milestones totaling $14.5 million; additional payments are due upon the occurrence of certain one-time; events and royalty payments as a percentage of revenue in the mid-single digits are due on net sales of licensed products.
For the year ended, December 31, 2020, the Company expensed a non-refundable milestone payment of $0.3 million in connection with Mustang’s public underwritten offerings. There was no expense recorded for the year ended December 31, 2019.
IV/ICV License
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, we paid COH an upfront fee of $0.1 million in March 2017. COH is eligible to receive up to approximately $0.1 million in milestone payments upon the achievement of a certain milestone as well as an annual maintenance fee. Royalty payments in the low-single digits are due on net sales of licensed products and services. During the years ended December 31, 2020 and 2019, there was no expense in connection with the IV/ICV Agreement.
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Spacer License
In February 2017, the Company entered into an Amended and Restated Exclusive License Agreement with COH to acquire intellectual property rights pertaining to Spacer patent rights. Pursuant to this agreement, payments are due upon the occurrence of certain one-time events and royalty payments as a percentage of revenue in the low single digits are due on net sales of licensed products.
For the year ended December 31, 2020, the Company expensed a non-refundable milestone payment of $0.3 million in connection with Mustang’s public underwritten offerings. There was no expense recorded for the year ended December 31, 2019.
PSCA License (MB-105)
In May 2017, the Company entered into an exclusive license agreement with COH for the use of prostate stem cell antigen (“PSCA”) CAR T technology to be used in the treatment of prostate cancer, pancreatic cancer and other solid tumors. Pursuant to this agreement, the Company paid an upfront fee of $0.3 million and pays an annual maintenance fee of $50,000. Additional payments are due for the achievement of ten development milestones totaling $14.9 million, and royalty payments in the mid-single digits are due on net sales of licensed products.
For the year ended December 31, 2020, the Company expensed a non-refundable milestone payment of $0.2 million upon issuance of the first patent related to the PCSA CAR T technology. For the year ended December 31, 2019, the Company expensed a non-refundable milestone payment of $0.2 million upon the first patient dosed in a Phase 1 clinical study of PSCA.
HER2 License (MB-103)
On May 31, 2017, the Company entered into an exclusive license agreement with the COH for the use of human epidermal growth factor receptor 2 (“HER2”) CAR T technology, which will initially be applied in the treatment of glioblastoma multiforme. Pursuant to this agreement, the Company paid an upfront fee of $0.6 million and pays an annual maintenance fee of $50,000 (which began in 2019). Additional payments are due for the achievement of ten development milestones totaling $14.9 million, and royalty payments in the mid-single digits are due on net sales of licensed products.
For the year ended, December 31, 2020, the Company expensed a non-refundable milestone payment of $0.5 million in connection with the 12th patient treated in the Phase 1 clinical study of HER2 CAR T technology at COH. There was no expense recorded for the year ended December 31, 2019.
CSL Behring (Calimmune) License
On August 23, 2019, the Company entered into a non-exclusive license agreement with CSL Behring (Calimmune, Inc.) (“Calimmune License”) for the rights to the CytegrityTM stable producer cell line for the production of viral vector for our lentiviral gene therapy program for the treatment of XSCID (MB-107 and MB-207). We previously licensed the XSCID gene therapy program from St. Jude Children’s Research Hospital, Inc. (“St. Jude”) in August 2018. Pursuant to the terms of the Calimmune License, the Company paid an upfront fee of $0.2 million. CSL Behring is eligible to receive additional payments totaling $1.2 million upon the achievement of three development and commercialization milestones. Royalty payments in the low-single digits are due on net sales of licensed products.
For the year ended December 31, 2020, the Company expensed a non-refundable milestone payment of $0.2 million due upon the first anniversary of the Calimmune license. For the year ended December 31, 2019, upon the execution of the Calimmune License, the Company recorded research and development expense of $0.2 million.
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University of California Los Angeles License
On March 17, 2017, the Company entered into an exclusive license agreement with the Regents of the University of California at Los Angeles (“UCLA License”) to acquire intellectual property rights in patent applications related to engineered anti-prostate stem cell antigen antibodies for cancer targeting and detection. In September 2019, COH commenced its Phase 1 clinical trial resulting in the achievement of a development milestone, and the Company recorded an expense of $0.3 million in the Statements of Operations for the year ended December 31, 2019. There was no expense recorded for the year ended December 31, 2020.
Fred Hutchinson Cancer Research Center - CD20 License (MB-106)
On July 3, 2017, the Company entered into an exclusive, worldwide licensing agreement with Fred Hutchinson Cancer Research Center (“Fred Hutch”) for the use of a CAR T therapy related to autologous T cells engineered to express a CD20-specific chimeric antigen receptor (“CD20 Technology License”). Pursuant to the CD20 Technology License, the Company paid Fred Hutch an upfront fee of $0.3 million and will owe an annual maintenance fee of $50,000 on each anniversary of the license until the achievement by the Company of regulatory approval of a licensed product using CD20 Technology. Additional payments are due for the achievement of eleven development milestones totaling $39.1 million and royalty payments in the mid-single digits are due on net sales of licensed products.
For the year ended December 31, 2020, the Company expensed a non-refundable milestone payment of $0.3 million in connection with the twelfth patient treated in the Phase 1 clinical study of CD20 CAR T technology at Fred Hutch. There was no expense recorded for the year ended December 31, 2019.
Nationwide Children’s Hospital – C134 License (MB-108)
In February 2019, the Company announced that it partnered and entered into an exclusive worldwide license agreement with Nationwide Children’s Hospital (“Nationwide”) to develop their C134 oncolytic virus (MB-108) for the treatment of glioblastoma multiforme (“GBM”). We intend to combine MB-108 with MB-101 (IL13Rα2-specific CAR T) to potentially enhance efficacy in treating GBM. The Company paid $0.2 million in consideration for the license to exclusive, worldwide rights to develop and commercialize products that incorporate data, know-how and/or patents related to MB-108 that were developed at Nationwide. Additional payments are due to Nationwide upon achievement of development and commercialization milestones totaling $152.8 million. Royalty payments in the low-single digits are due on net sales of licensed products.
For the year ended December 31, 2019, the Company recorded an expense of $0.2 million in connection with this license. There was no expense recorded for the year ended December 31, 2020.
SIRION Biotech GmbH - LentiBOOSTTM
In October 2020, we announced a licensing agreement with SIRION Biotech (“SIRION”) for the rights to SIRION’s LentiBOOSTTM technology for the development of MB-207, our lentiviral gene therapy for the treatment of previously transplanted XSCID patients (the “SIRION Technology License”). Pursuant to the SIRION Technology License, the Company paid SIRION a one-time upfront fee of $0.1 million (€0.1 million). In addition, five future development milestone payments totaling up to approximately $5.6 million (€4.7 million) in the aggregate are due upon achievement of certain milestones. Additional milestone payments totaling up to $4.1 million (€3.5 million) in the aggregate are due in connection with the achievement of three commercial milestones and low- to mid-single digit royalties are due on aggregate cumulative worldwide net sales of licensed products.
For the year ended December 31, 2020, the Company expensed an up-front payment of $0.1 million. There was no expense recorded for the year ended December 31, 2019.
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St. Jude Children’s Research Hospital License (MB-107 and MB-207)
On August 2, 2018, the Company entered into an exclusive worldwide license agreement with St. Jude for the development of a first-in-class ex vivo lentiviral gene therapy for the treatment of X-linked severe combined immunodeficiency (“XSCID”). The Company paid $1.0 million in consideration for the exclusive license in addition to an annual maintenance fee of $0.1 million (which began in 2019). St. Jude is eligible to receive payments totaling $13.5 million upon the achievement of five development and commercialization milestones. Royalty payments in the mid-single digits are due on net sales of licensed products. During the years ended December 31, 2020 and 2019, there were no expenses recorded in connection with this license.
Harvard College License
On November 20, 2017, the Company entered into an exclusive, worldwide license agreement with the President and Fellows of Harvard College (the “Harvard Agreement”) for the use of gene editing, via the use of CRISPR/Cas9, to be used in enhancing the efficacy of CAR T cell therapies for solid tumor indications and to generate universal off the shelf CAR T cell therapies for both liquid and solid tumor indications. Pursuant to the Harvard Agreement, we paid Harvard College an upfront fee of $0.3 million and will owe an annual maintenance fee of $25,000 and $50,000 for calendar years 2018 and 2019, respectively, and $100,000 for each subsequent calendar year during the term of the agreement. Additional payments are due for the achievement of seven development milestones totaling $16.7 million and royalty payments in the low-single digits are due on the net sales of licensed products. During the years ended December 31, 2020 and 2019, we recorded no expense in connection with the Harvard Agreement. The Harvard Agreement was terminated in January 2020.
Research and Development Expenses - Sponsored Research and Clinical Trial Agreements
For the year ended December 31, 2020 and 2019, the Company recorded the following expense in research and development for sponsored research and clinical trial agreements:
For the year ended December 31,
City of Hope National Medical Center 500 2,000
PSCA 204 —
Manufacturing — 457
Fred Hutchinson Cancer Research Center - CD20 1,804 762
St. Jude Children's Research Hospital - XSCID 1,842 777
Beth Israel Deaconess Medical Center - CRISPR — 69
City of Hope
Sponsored Research Agreement
In March 2015, the Company entered into a Sponsored Research Agreement (“SRA”) with COH in which the Company funded continued research in the amount of $2.0 million per year, payable in four equal installments, through the first quarter of 2020. The research covered under this arrangement is for IL13Rα2, CD123 and the Spacer technology. For the years ended December 31, 2020 and 2019, the Company recorded $0.5 million and $2.0 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement.
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CD123 (MB-102) Clinical Research Support Agreement
In February 2017, the Company entered into a Clinical Research Support Agreement for CD123 (the “CD123 CRA”). Pursuant to the terms of the CD123 CRA the Company made an upfront payment of $19,450 and will contribute an additional $97,490 per patient in connection with the on-going investigator-initiated study. Further, the Company agreed to fund approximately $0.2 million over three years pertaining to the clinical development of CD123. For the years ended December 31, 2020 and 2019, the Company recorded $0.4 million and $1.2 million, respectively, in research and development expenses in the Statements of Operations pursuant to the terms of this agreement.
IL13Rα2 (MB-101) Clinical Research Support Agreements
In February 2017, the Company entered into a clinical research support agreement for IL13Rα2 (the “IL13Rα2 CRA”). Pursuant to the terms of the IL13Rα2 CRA the Company made an upfront payment of approximately $9,300 and will contribute an additional $0.1 million related to patient costs in connection with the on-going investigator-initiated study. Further, the Company agreed to fund approximately $0.2 million over three years pertaining to the clinical development of IL13Rα2. For the years ended December 31, 2020 and 2019, the Company recorded $0.5 million and $0.9 million, respectively, in research and development expenses under the IL13Rα2 CRA in the Statements of Operations pursuant to the terms of this agreement.
In October 2020, the Company entered into a Clinical Research Support Agreement for the IL13Rα2-directed CAR T program for adult patients with leptomeningeal glioblastoma, ependymoma or medulloblastoma (the “IL13Rα2 Leptomeningeal CRA”). Pursuant to the terms of the IL13Rα2 Leptomeningeal CRA, the Company made an upfront payment of approximately $29,000 and will contribute an additional $0.1 million per patient in connection with the on-going investigator-initiated study. Further, the Company agreed to fund approximately $0.2 million annually pertaining to the clinical development of the IL13Rα2-directed CAR T therapy.
CS1 (MB-104) Clinical Research Support Agreement
In June 2020, the Company entered into a clinical research support agreement with COH in connection with an Investigator-sponsored study conducted under an Institutional Review Board-approved, investigator-initiated protocol entitled: “Phase I Study to Evaluate Cellular Immunotherapy Using Memory-Enriched T Cells Lentivirally Transduced to Express a CS1-Targeting, Hinge-Optimized, 41BB-Costimulatory Chimeric Antigen Receptor and a Truncated EGFR Following Lymphodepleting Chemotherapy in Adult Patients with CS1+ Multiple Myeloma.” The CAR T being studied under this protocol has been designated as MB-104. Under the terms of the agreement we will reimburse COH for costs associated with this trial not to exceed $2.4 million. The agreement will expire upon the delivery of a final study report or earlier. During the year ended December 31, 2020, the Company recorded $0.9 million in research and development expenses in the Statements of Operations pursuant to the terms of this agreement.
HER2 (MB-103) Clinical Research Support Agreement
In September 2020, the Company entered into a clinical research support agreement with COH in connection with an Investigator-sponsored study conducted under an Institutional Review Board-approved, investigator-initiated protocol entitled: “Phase I Study of Cellular Immunotherapy using Memory-Enriched T Cells Lentivirally Transduced to Express a HER2-Specific, Hinge-Optimized, 41BB-Costimulatory Chimeric Receptor and a Truncated CD19 for Patients with Recurrent/Refractory Malignant Glioma.” The CAR T being studied under this protocol has been designated as MB-103. Under the terms of the agreement the Company will pay COH $29,375 upon execution and will reimburse COH for costs associated with this trial not to exceed $3.0 million. The agreement will expire upon the delivery of a final study report or earlier. For the year ended December 31, 2020, the Company recorded $1.5 million in research and development expenses in the Statements of Operations pursuant to the terms of this agreement.
PSCA (MB-105) Clinical Research Support Agreement
In October 2020, the Company entered into a clinical research support agreement with COH in connection with an Investigator-sponsored study conducted under an Institutional Review Board-approved, investigator-initiated protocol entitled: “A Phase 1b study to evaluate PSCA-specific chimeric antigen receptor (CAR)-T cells for patients with metastatic
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