UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
or
For the Transition Period from to .
Commission File No. 001-38191
MUSTANG BIO, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
47-3828760
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
377 Plantation Street
Worcester, Massachusetts 01605
(Address including zip code of principal executive offices)
(781) 652-4500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
MBIO
NASDAQ Global Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Securities registered pursuant to section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act:
Large accelerated filer
Non-accelerated filer
Emerging growth company
¨
¨
x
Accelerated filer
Smaller reporting company
x
x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Class of Common Stock
Class A Common Stock, $0.0001 par value
Common Stock, $0.0001 par value
Outstanding Shares as of March 13, 2020
845,385
41,999,369
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
MUSTANG BIO, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this annual report on Form 10-K (“Form 10-K”) may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended
(the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve known and unknown risks, uncertainties and other factors that
may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such
forward-looking statements. The words “anticipate,” “believe,” “estimate,” “may,” “expect” and similar expressions are generally intended to identify forward-looking
statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation,
those discussed under the captions “Risk Factors,” and elsewhere in this Form 10-K. All written or oral forward-looking statements attributable to us are expressly qualified in
their entirety by these cautionary statements. Such forward-looking statements include, but are not limited to, statements about our:
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expectations for increases or decreases in expenses;
expectations for the clinical and pre-clinical development, manufacturing, regulatory approval, and commercialization of our pharmaceutical product candidates or any
other products we may acquire or in-license;
use of clinical research centers and other contractors;
expectations for incurring capital expenditures to expand our research and development and manufacturing capabilities;
expectations for generating revenue or becoming profitable on a sustained basis;
expectations or ability to enter into marketing and other partnership agreements;
expectations or ability to enter into product acquisition and in-licensing transactions;
expectations or ability to build our own commercial infrastructure to manufacture, market and sell our drug candidates;
expectations for the acceptance of our products by doctors, patients or payors;
ability to compete against other companies and research institutions;
ability to secure adequate protection for our intellectual property;
ability to attract and retain key personnel;
ability to obtain reimbursement for our products;
estimates of the sufficiency of our existing cash and cash equivalents and investments to finance our operating requirements, including expectations regarding the value
and liquidity of our investments;
stock price and the volatility of the equity markets;
expected losses; and
expectations for future capital requirements.
The forward-looking statements contained in this Form 10-K reflect our views and assumptions as of the effective date of this Form 10-K. Except as required by law, we assume
no responsibility for updating any forward-looking statements.
We qualify all of our forward-looking statements by these cautionary statements.
Item 1.
Business
OVERVIEW
PART I
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
programs, 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, our gene therapy program (MB-107) is being conducted under an exclusive license to develop a potentially curative treatment for XSCID, a rare
genetic immune system condition in which affected patients do not live beyond infancy without treatment. This first-in-class ex vivo lentiviral gene therapy is currently in two
Phase 1/2 clinical trials: a multicenter trial in newly diagnosed infants sponsored by St. Jude and a single-center trial in previously transplanted patients sponsored by the
National Institutes of Health (“NIH”). We plan to file separate Investigational New Drug Applications in 2020 in order to conduct a pivotal non-randomized phase 2 registration
trial in each of the two patient populations.
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 U.S. Food
and Drug Administration (“FDA”) approved our IND application to initiate a multi-center Phase 1/2 clinical trial of MB-102, and our clinical trial is expected to begin
enrollment in the first half of 2020 for the treatment of patients with acute myeloid leukemia, blastic plasmacytoid dendritic cell neoplasm, and high-risk myelodysplastic
syndrome. We expect to file an IND for MB-104 in the second half of 2020 and to initiate our own Phase 1 clinical trial shortly thereafter for the treatment of patients with
multiple myeloma. We also plan to file an IND and initiate our own clinical trial for MB-106 for the treatment of patients with non-Hodgkin lymphoma and chronic
lymphocytic leukemia.
We are also developing CAR T therapies for solid tumors in partnership with COH targeting IL13Ra2 (MB-101), HER2 (MB-103) and PSCA (MB-105). In addition, we have
partnered with Nationwide for the C134 oncolytic virus (MB-108) in order to enhance the activity of MB-101 for the treatment of patients with glioblastoma multiforme
(“GBM”). Phase 1 clinical trials sponsored by COH for MB-101, MB-103 and MB-105 are underway. A Phase 1 clinical trial sponsored by the University of Alabama at
Birmingham (“UAB”) for MB-108 began during the third quarter of 2019 and, in the second half of 2020, 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.
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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, 2019, we have an accumulated deficit of $125.5 million.
We are a majority-controlled subsidiary of Fortress Biotech, Inc. (“Fortress”).
CORPORATE INFORMATION
Mustang Bio, Inc. was incorporated in Delaware on March 13, 2015. Our executive offices are located at 377 Plantation Street, Worcester, Massachusetts 01605. Our telephone
number is (781) 652-4500, and our email address is info@mustangbio.com.
Our website address is www.mustangbio.com. The information set forth on our website is not a part of this report. We will make available free of charge through our website
our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports, as soon as reasonably practicable after
we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (“SEC”). We are not including the information on our website as
a part of, nor incorporating it by reference into, this report. The SEC maintains a website that contains annual, quarterly, and current reports, proxy and information statements,
and other information that issuers (including us) file electronically with the SEC. The SEC’s website address is http://www.sec.gov/.
PRODUCTS UNDER DEVELOPMENT
Gene Therapy for Rare Genetic Disorders
MB-107 (Ex vivo Lentiviral Therapy for X-linked Severe Combined Immunodeficiency)
XSCID is 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 has already been given to 24 patients in two early stage clinical trials, with highly encouraging results. Eleven patients under the
age of two years were treated at St. Jude and UCSF Benioff Children’s Hospital San Francisco, with results presented at the 61st Annual Meeting of the American Society of
Hematology (“ASH”) in December 2019 (ClinicalTrials.gov Identifier: NCT01512888), and eleven patients 3-34 years of age were treated in a single-center trial at the NIH
(ClinicalTrials.gov Identifier: NCT01306019), with results presented at that same ASH meeting in December 2019.
The existing data from these 24 patients are encouraging. In the initial Phase 1/2 NIH trial, eight patients (referred to as Cohort A) have now been followed for 3 to 7 years.
Among Cohort A, seven patients aged 3 to 23 years increased host T cells chimerism from 0-2% to 28-93% and had normal T cell proliferation response. These seven patients
also normalized their IgM levels, and four of these patients were able to discontinue immunoglobulin replacement therapy. In addition, gradual clinical benefit was observed in
the clearance of chronic norovirus and associated abdominal complaints, malabsorption, and growth retardation, with six of seven affected patients being cured of their disease.
Five of six patients resolved their protein-losing enteropathy.
While the Cohort A results were impressive, the relatively inefficient transduction of hematopoietic stem/progenitor cells (“HSPCs”) required large quantities of vector. This
resulted in relatively low vector copy number in myeloid cells in some patients, with delayed immune cell recovery and persistent clinical disease, especially in the last patient
treated (patient 8). To address this, NIH developed a refined enhanced transduction (“ET”) procedure and incorporated two transduction enhancers: LentiBoost 1:100 and
dimethyl prostaglandin 2 (dmPGE2; 1mM).
In addition to the Cohort A results, the NIH presentation at the 2019 ASH Annual Meeting included data from six ET patients (referred to as Cohort B) treated from February to
June 2019, including re-treatment of patient 8. Prior to undergoing gene therapy, the patients, who were aged 12 to 36 years, had significant problems with donor T cell
infiltration of liver, bone marrow and kidneys, and were nearly absent of B and NK cells. The ET procedure achieved much greater transduction efficiencies than were observed
in Cohort A, with greater than 10-fold less vector, and resulted in faster immune reconstitution and more significant clinical benefit by 3 months. As noted by the investigators,
longer follow-up will be required to know if the increased vector marking using the ET regimen will prove to be stable and safe long term.
In all NIH patients, the low-dose, nonmyeloablative busulfan pretreatment conditioning was well tolerated, and of a low enough intensity to avoid the need for transfusions of
red blood cells or platelets. No evidence of malignant transformation was observed.
Subsequent to the initiation of the NIH trial, eleven patients under two years old who had not previously undergone HSCT were treated with the ex-vivo gene therapy in a St.
Jude/UCSF Phase 1/2 trial, resulting in highly encouraging results. Low-dose busulfan conditioning caused adverse events in only two patients (mild mucositis; mucositis, hair
loss), and no patients required blood product support. All 11 patients had robust hematopoietic recovery within 3-4 weeks post cell infusion, and the nine patients who had a
follow-up of greater than 3 months achieved normal-for-age T-cell and natural killer (“NK”)-cell numbers within 3-4 months post gene therapy. Five patients were reported to
have successfully discontinued intravenous immunoglobulin (“IVIG”) therapy, of whom 3 responded to vaccines. Median vector copy number (“VCN”) at 12 months post-
gene therapy in the seven patients who had a follow-up of greater than 12 months was 2.25 VCN/cell (range: 1.24-3.03) in T cells, 0.34 VCN/cell (range: 0.23-1.25) in B cells,
1.55 VCN/cell (range 1.27-3.39) in NK cells, and 0.08 VCN/cell (range: 0.03-0.76) in myeloid cells in peripheral blood, and 0.10 (range: 0.05-0.66) in CD34+ bone marrow
cells, respectively. With a median follow-up of 23.6 months, no evidence of malignant transformation was observed.
5
CAR T Therapies for Hematologic Malignancies
MB-102 (CD123 CAR T cell Program for AML)
CD123 is a subunit of the heterodimeric interleukin-3-receptor (“IL-3R”) which is widely expressed on human hematologic malignancies including acute myeloid leukemia
(“AML”). In addition, CD123 can be found on the surface of B cell acute lymphoblastic leukemia (“B-ALL”), hairy cell leukemia, myelodysplastic syndrome (“MDS”), blastic
plasmacytoid dendritic cell neoplasm (“BPDCN”), chronic myeloid leukemia (“CML”) and Hodgkin lymphoma.
Of these malignancies, we are currently investigating CD123 as a target for adoptive cellular immunotherapy in AML, high-risk myelodysplastic syndrome (“hrMDS”) and
BPDCN, since high CD123 expression is associated with enhanced AML blast proliferation, increased resistance of blasts to apoptosis, and poor clinical prognosis. CD123 is
overexpressed in the vast majority of cases of AML and hrMDS and in essentially all cases of BPDCN.
Acute myeloid leukemia is a cancer of the myeloid line of blood cells characterized by rapid growth of abnormal white blood cells that accumulate in the bone marrow. AML is
the most common form of acute leukemia. Although AML is a relatively rare disease, there are approximately 20,000 new cases per year in the U.S. and 10,000 deaths per year,
accounting for approximately 1.8% of cancer deaths in the U.S. [Source: The Surveillance, Epidemiology, and End Results (“SEER”) Program of the National Cancer Institute].
AML standard of care involves chemotherapy to induce remission followed by additional chemotherapy or hematopoietic stem cell transplant. Allogeneic stem cell
transplantation is the preferred treatment for AML following a second remission. It can lead to a 5-year disease-free survival in 26% of patients. Unfortunately, however,
currently only about half of relapsed patients are able to achieve a second remission with traditional chemotherapy agents. Patients who do not achieve a second remission are
much less likely to benefit from transplantation and face a dismal outcome.
MDS is a heterogeneous group of malignant hematopoietic stem cell disorders characterized by dysplastic and ineffective blood cell production and a variable risk of
transformation to acute leukemia. Patients with MDS have varying reductions in the production of red blood cells, platelets, and mature granulocytes that may also exhibit
functional defects; these abnormalities often result in anemia, bleeding, and increased risk of infection. The precise incidence of de novo MDS is not known; conservative
estimates from cancer databases suggest that there are approximately 10,000 cases diagnosed annually in the U.S. The actual incidence of MDS is likely higher than that
predicted by cancer databases, since the nonspecific symptoms may evade detection in early stages of the disease and suspected cases may not undergo definitive testing (i.e.,
bone marrow biopsy) due to comorbidities. Investigations that have analyzed reimbursement claims have estimated the incidence in the U.S. to be 30,000 to 40,000 new cases
per year. MDS occurs most commonly in older adults, with a median age at diagnosis in most series of ≥65 years and a male predominance.
MDS and AML lie along a disease continuum with distinction between the two largely made based upon the percentage of myeloblasts, which are immature cells with large
nuclei, nucleoli, and a scant rim of dark blue cytoplasm, suggesting an underlying malignant hematologic disorder. In the current World Health Organization (“WHO”)
classification system, blast forms must account for less than 20% of the total cells of the bone marrow aspirate and peripheral blood in order to meet the criteria for MDS.
MDS prognosis is often assessed using the revised International Prognostic Scoring System (“IPSS-R”), which takes into account cytogenetics, percentage of bone marrow
blasts, and the degree of anemia, thrombocytopenia, and neutropenia. This System categorizes patients into very low, low, intermediate, high, and very high risk MDS. High
risk and very high risk MDS are generally progressive in nature and can easily progress to AML. Treatment is stratified according to medical fitness in a manner similar to that
for older patients with AML. Patients who are medically fit or of intermediate fitness are generally evaluated soon after diagnosis to determine their suitability for allogeneic
hematopoietic cell transplantation. For patients who are not candidates for intensive treatment, care is focused on relieving symptoms and improving the quality of life and
might involve lower intensity treatment, for example, with azacitidine, decitabine, or targeted therapy. Patients with recurrent or refractory higher risk MDS may be encouraged
to participate in clinical trials. Outside of a clinical trial, the management of patients with recurrent or refractory MDS is largely dependent on the patient's prior therapy.
BPDCN is categorized by the World Health Organization under AML. Most often, BPDCN presents with features of both lymphoma and leukemia. There are little data about
BPDCN and the only approved drug for this disease is tagraxofusp-erzs, which is indicated for the treatment of adult and pediatric patients with both treatment-naïve and
previously-treated BPDCN. The average age at diagnosis is 60 to 70 years. BPDCN is very often misdiagnosed and under-reported. The skin is the most frequently involved site
of disease (80 percent of cases). However, BPDCN usually progresses with bone marrow involvement and a decrease in red blood cell, white blood cell and platelet counts. The
lymph nodes and spleen may also be involved. Common misdiagnoses for BPCDN include non-Hodgkin lymphoma (“NHL”), AML, leukemia cutis [a nonspecific term used
for cutaneous (skin) manifestation of any type of leukemia], melanoma (a type of skin cancer), and lupus erythematosus (chronic inflammatory disease that occurs when the
body's immune system attacks its own tissues and organs). There are no data or clinical trials that can define the best first treatment for patients with BPDCN. In addition to the
emerging use of tagraxofusp-erzs, which was approved by the FDA in December 2018, treatment sometimes includes therapies that are used for AML, ALL, or lymphoma. The
time for which a patient responds to these treatments is usually short. After a relapse, second remissions with conventional chemotherapy are difficult to achieve. Allogeneic
hematopoietic stem cell transplant (“allo-SCT”), especially if offered in first remission, may result in longer remissions. The current recommendation is for BPDCN patients to
be evaluated for an allo-SCT as soon as possible and to begin searching for a donor.
The use of CAR T immunotherapy in relapsed AML, hrMDS and BPDCN patients may offer the potential to achieve a complete or longer lasting remission. We have
developed CD123-targeted CAR T cells designed both to be activated to proliferate and to kill CD123-expressing tumor cells [Mardiros A et al. Blood. 2013;122(18):3138-
3148]. The therapy is designed to recognize and eliminate leukemic cells, leading to remission in patients with relapsed or refractory AML, and could serve as a bridge to
potentially curative allogeneic stem cell transplant. The manufacturing process genetically modifies T cells isolated from peripheral blood mononuclear cells in order to express
a CD123-specific, hinge-optimized, CD28 co-stimulatory domain-expressing CAR.
In addition to the COH trial with MB-102 that is currently nearing the end of enrollment of AML and BPDCN patients (ClinicalTrials.gov Identifier: NCT02159495), Mustang
has initiated a multicenter MB-102 trial under its IND to treat AML, hrMDS, and BPDCN patients (ClinicalTrials.gov Identifier: NCT04109482). This trial is open for the
accrual of patients at COH and Duke University, and additional centers are scheduled for initiation at MD Anderson Cancer Center and Dana-Farber Cancer Institute.
MB-106 (CD20 CAR T cell Program for B cell non-Hodgkin lymphoma)
CD20 is a promising target for immunotherapy of B-cell lymphomas. CD20 is a B-cell lineage-specific phosphoprotein that is expressed in high, homogeneous density on the
surface of more than 95% of B-cell NHL. CD20 is stable on the cell surface with minimal shedding or internalization upon binding antibody and is present at only nanomolar
levels as soluble antigen. It is well established as an effective immunotherapy target, with extensive studies demonstrating improved tumor responses and survival of B-NHL
patients treated with rituximab and other anti-CD20 antibodies. Importantly, CD20 continues to be expressed on the lymphoma cells of most patients with relapsed B-NHL
despite repetitive rituximab treatments, and loss of CD20 expression is not a major contributor to treatment resistance. Thus, there is strong rationale for testing CD20 CAR T
cells as an immunotherapy for NHL.
More than 70,000 new cases of NHL are diagnosed each year in the United States, and more than 19,000 patients die of this group of diseases annually. Most forms of NHL
including follicular lymphoma, mantle cell lymphoma, marginal zone lymphoma, lymphoplasmacytic lymphoma, and small lymphocytic lymphoma, which account collectively
for ~45% of all cases of NHL, are incurable with available therapies, except for allogenic hematopoietic stem cell transplant (“allo-SCT”). However, many NHL patients are not
suitable candidates for allo-SCT, and this treatment is also limited by significant rates of morbidity and mortality due to graft-versus-host disease. Aggressive B-cell lymphomas
such as diffuse large B-cell lymphoma account for 30-35% of NHL. The majority of patients with aggressive B-NHL are successfully treated with combination chemotherapy,
but a significant proportion relapse or have refractory disease, and the outcome of these patients is poor. Innovative new treatments are therefore urgently needed.
Fred Hutch has an open IND for a Phase 1/2 clinical study to evaluate the maximum tolerated dose of MB-106 (ClinicalTrials.gov Identifier: NCT03277729). Secondary
endpoints include safety and toxicity, preliminary antitumor activity as measured by overall response rate and complete remission rate, progression-free survival, and overall
survival. The trial will also assess CAR T cell persistence and determine the potential immunogenicity of the cells, and Mustang together with Fred Hutch will determine a
recommended Phase 2 dose. Fred Hutch intends to enroll approximately 30 subjects on the trial, which is being led by principal investigator Mazyar Shadman, M.D., M.P.H.,
Assistant Member of Fred Hutch’s Clinical Research Division. This IND was submitted on February 24, 2017, with Fred Hutch as the sponsor.
6
The IND was amended in 2019 to incorporate an optimized manufacturing process that had been developed in collaboration with Mustang. Due to the expected increased
potency of the CAR-T cells, the dose in the first cohort treated with this optimized manufacturing process was reduced back to the cohort 1 dose of 3.3 x 105 CAR T cells/kg.
The first patient treated in this cohort had follicular lymphoma that had relapsed after initial therapy, maintenance therapy, and two salvage regimens. She achieved a complete
response (CR) on Day 28, and no cytokine release syndrome or neurologic toxicity was observed. While this initial success using the optimized MB-106 process is important,
additional clinical testing is necessary, and accrual to the new cohort continues.
MB-104 (CS1 CAR T for Multiple Myeloma and Light Chain Amyloidosis)
CS1 (also known as CD319, CRACC and SLAMF7) was identified as an NK cell receptor regulating immune functions. It is also expressed on B cells, T cells, dendritic cells,
NK-T cells, and monocytes. CS1 is overexpressed in multiple myeloma (“MM”) and light chain amyloidosis (“AL”), which makes it a good target for immunotherapy. A
humanized anti-CS1 antibody, elotuzumab (Empliciti™), has shown promising results in clinical studies. Despite great advances in treatment, MM remains an incurable
malignancy of plasma cells. AL is a protein deposition disorder that is a result of a plasma cell dysplasia, similar to MM. Immunotherapy is an attractive approach for AL
because of the low burden of disease. Our academic partners at COH have developed a novel second generation CS1-specific CAR T cell therapy. In preclinical studies, they
have demonstrated efficacy of these CAR T cells, both in vitro and in vivo, within the context of clinically relevant models of MM and AL. COH is evaluating the safety of this
CS1-specific CAR T cell therapy in a Phase 1/2 trial that commenced in the first half of 2019 (ClinicalTrials.gov Identifier: NCT03710421).
CAR T Therapies for Solid Tumors
MB-101 (IL13Ra2 CAR T Cell Program for Glioblastoma)
GBM is the most common brain and central nervous system (“CNS”) cancer, accounting for 45.2% of malignant primary brain and CNS tumors, 54% of all gliomas, and 16%
of all primary brain and CNS tumors. An estimated 12,390 new glioblastoma cases were predicted in 2017 in the U.S. Malignant brain tumors are the most common cause of
cancer-related deaths in adolescents and young adults aged 15-39 and the most common cancer occurring among 15-19 year-olds in the U.S. While GBM is a rare disease [(2-3
cases per 100,000 persons per year in the U.S. and European Union (“EU”)], it is quite lethal, with five-year survival rates historically under 10%. Standard of care therapy
consists of maximal surgical resection, radiation and chemotherapy with temozolomide, which, while rarely curative, is shown to extend median overall survival from 4.5 to 15
months. GBM remains difficult to treat due to the inherent resistance of the tumor to conventional therapies.
Immunotherapy approaches targeting brain tumors offer promise over conventional treatments. IL13Ra2 is an attractive target for CAR T therapy, as it has limited expression in
normal tissue but is overexpressed on the surface of greater than 50% of GBMs. CAR T cells are designed to express membrane-tethered IL-13 receptor ligand (“IL-13”)
mutated at a single site (glutamic acid at position 13 to a tyrosine; E13Y) with high affinity for IL13Rα2 and reduced binding to IL13Ra1 in order to reduce healthy tissue
targeting (Kahlon KS et al. Cancer Research. 2004;64:9160-9166).
We are developing an optimized CAR T product incorporating enhancements in CAR T design and T cell engineering to improve antitumor potency and T cell persistence. We
include a second-generation hinge-optimized CAR containing mutations in the IgG4 linker to reduce off-target Fc interactions (Jonnalagadda M et al. Molecular Therapy.
2015;23(4):757-768.). We also include the 4-1BB (CD137) co-stimulatory signaling domain for improved survival and maintenance of CAR T cells. Finally, we incorporate the
extracellular domain of CD19 as a selection/tracking marker. In order to further improve persistence, either central memory T-cells (T CM; Arms 1 – 4) or enriched CD62L+
naïve and memory T cells (TN/MEM; Arm 5) are isolated and enriched. The manufacturing process limits ex vivo expansion, which is designed to reduce T cell exhaustion and
maintain a TCM or TN/MEM phenotype. These CAR modified TCM and TN/MEM cells are shown to be more potent and persistent than earlier generations of CAR T cells, based
on experiments with CAR Ts in mouse xenograft models of GBM.
Our academic partners at COH have an open IND to assess the feasibility and safety of using TCM or TN/MEM enriched IL13Ra2-specific CAR engineered T cells for clinical
study participants with recurrent/refractory malignant glioma (ClinicalTrials.gov Identifier: NCT02208362). This IND was submitted in October 2014, with COH as the
sponsor. COH has enrolled and treated 60patients as of December 31, 2019. In the annual meeting of the American Association for Cancer Research in April 2018, our
collaborators at COH presented the preliminary data for patients enrolled on Arm 2 of the protocol (the “Intracavitary Arm”). The investigators reported that the CAR T cells
were well-tolerated, meaning that no dose-limiting toxicities were seen to date. In 2016 the investigators reported on a patient that they determined had a complete response to
treatment based on the imaging and clinical features set forth by the Response Assessment in Neuro-Oncology Criteria (“RANO”). This result was published as a case report in
the New England Journal of Medicine (Brown CE et al. NEJM. 2016;375:2561-9). As described in the paper, a patient with recurrent multifocal glioblastoma received multiple
infusions of IL13Ra2-specific CAR T cells over 220 days through two intracranial delivery routes – infusions into the resected tumor cavity followed by infusions into the
ventricular system. Intracranial infusions of IL13Rα2-targeted CAR T cells were not associated with any toxic effects of grade 3 or higher. After CAR T-cell treatment,
regression of all intracranial and spinal tumors was observed, along with corresponding increases in levels of cytokines and immune cells in the cerebrospinal fluid. This clinical
response was sustained for 7.5 months after the initiation of CAR T-cell therapy; however, the patient’s disease eventually recurred at four new locations that were distinct and
non-adjacent to the original tumors, and biopsy of one of these lesions showed decreased expression of IL13Rα2. With enrollment in this Phase 1 study nearly complete, COH
has established the recommended Phase 2 dose, schedule and route of administration, as well as optimal T cell selection. Results from this study have laid the foundation for 3
new MB-101 studies:
1. MB-101 with or without nivolumab and ipilimumab in treating patients with recurrent or refractory glioblastoma (currently enrolling patients; ClinicalTrials.gov
Identifier: NCT04003649)
2. MB-101 in treating patients with recurrent or refractory glioblastoma with a substantial component of leptomeningeal disease (expected to open for enrollment in the
second half of 2020)
3. MB-101 in combination with the C134 oncolytic virus (MB-108) in treating patients with recurrent or refractory glioblastoma (expected to open for enrollment in the
first half of 2021)
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MB-103 (HER2 CAR T for GBM & Metastatic Breast Cancer to Brain)
HER2/neu (“HER2”) is a growth-promoting protein on the outside of all breast cells. Breast cancer cells with higher than normal levels of HER2 are called HER2-positive
(“HER2+”). These cancers tend to grow and spread faster than other breast cancers. Breast cancer is the most commonly diagnosed cancer in women, with over 42,000 women
in the United States expected to die from advanced metastatic disease in 2020. Approximately 20% to 25% of breast cancers overexpress HER2, which is an established
therapeutic target of both monoclonal antibodies (mAbs) and receptor tyrosine kinase inhibitors. With the advent of effective mAbs directed against HER2, the median overall
survival of patients with metastatic HER2+ breast cancer has improved. However, management of metastatic disease in the brain and/or CNS – observed in up to 50% of
HER2+ breast cancer patients – continues to be a clinical challenge in large part due to the inability of mAbs to sufficiently cross the blood-brain barrier. Although small-
molecule inhibitors of HER2 exist and have been clinically approved, their single-agent efficacy in the context of metastatic disease to the brain has been limited. While HER2-
targeted therapy in combination with conventional agents has shown some promise for the treatment of patients with metastatic breast cancer, control of brain metastases
remains a significant unmet clinical need, as most patients survive less than two years following CNS involvement. Recent advances in cellular immunotherapy approaches
have underscored the potential for potent antitumor immune responses and clinical benefit against solid cancers, and these approaches may be effective in the treatment of
HER2+ cancers – in particular breast cancer – that have metastasized to the brain. Likewise, HER2 has been suggested as a suitable target for GBM, wherein elevated HER2
protein levels have been correlated with impaired survival.
CAR-based T-cell immunotherapy is being actively investigated for the treatment of solid tumors, including HER2+ cancers. Our academic partners at COH have developed a
second-generation HER2-specific CAR T-cell for the treatment of brain and/or leptomeningeal metastases from HER2 positive cancers, as well as for the treatment of
refractory/relapsed HER2+ GBM. COH’s preclinical data demonstrate effective targeting of breast cancer brain metastases with intraventricular delivery of CAR T cells
expressing HER2-CARs that contain the 4-1BB costimulatory domain. COH is evaluating the safety of this HER2-specific CAR T cell therapy in two Phase 1 clinical trials that
commenced in the fourth quarter of 2018 (ClinicalTrials.gov Identifier: NCT03389230 for HER2+ GBM; ClinicalTrials.gov Identifier: NCT03696030 for HER2+ brain
metastases).
MB-105 (PSCA CAR T for Prostate & Pancreatic Cancers)
PSCA is a glycosylphosphatidylinositol-anchored cell membrane glycoprotein. In addition to being highly expressed in the prostate it is also expressed in the bladder, placenta,
colon, kidney, and stomach. This gene is upregulated in a large proportion of prostate cancers and is also detected in cancers of the bladder and pancreas. The gene includes a
polymorphism that results in an upstream start codon in some individuals; this polymorphism is thought to be associated with a risk for certain gastric and bladder cancers.
Prostate cancer may be amenable to T cell-based immunotherapy since several tumor antigens, including prostate stem-cell antigen (“PSCA”), are widely overexpressed in
metastatic disease. Our academic partners at COH have developed a second-generation PSCA-specific CAR T cell therapy that has demonstrated robust in vitro and in vivo
anti-tumor activity in patient-derived, clinically relevant, bone-metastatic prostate cancer xenograft models. COH is evaluating the safety of this PSCA-specific CAR T cell
therapy in a Phase 1 trial treating patients with PSCA+ metastatic castration-resistant prostate cancer (ClinicalTrials.gov Identifier: NCT03873805).
Technology to Convert GBM from an Immunologically Cold Tumor to an Immunologically Hot Tumor
MB-108 (HSV-1 oncolytic virus C134)
C134 is a next-generation oncolytic herpes simplex virus (“oHSV”) that is conditionally replication competent; that is, it can replicate in tumor cells, but not in normal cells,
thus killing the tumor cells directly through this process. Replication of C134 in the tumor itself not only kills the infected tumor cells but causes the tumor cell to act as a factory
to produce new virus. These virus particles are released as the tumor cell dies and can then proceed to infect other tumor cells in the vicinity and continue the process of tumor
kill. In addition to this direct oncolytic activity, the virus promotes an immune response against surviving tumor cells, which increases the antitumor effect of the therapy. The
virus expresses a gene from another virus from the same overall virus family, human cytomegalovirus, that allows it to replicate better in the tumor cells than its first-generation
predecessors. However, the virus has also been genetically engineered to minimize the production of any toxic effects for the patient receiving the therapy.
To improve this virus over its first-generation predecessors, modifications have focused on improving viral replication, spread within the tumor bed, and enhancing bystander
damage to uninfected tumor cells. These effects cumulatively should result in converting an immunologically cold tumor to an immunologically hot tumor, which Mustang
anticipates will increase the efficacy of its IL13Rα2-directed CAR T for the treatment of GBM.
UAB is the clinical trial site for the Phase 1 trial of MB-108, and they have initiated a Phase 1 trial that began enrolling patients in 2019 (ClinicalTrials.gov Identifier:
NCT03657576). The primary objective of this study is to determine the safety and tolerability of stereotactic intracerebral injections of escalating doses of MB-108 and to
determine the maximally tolerated dose (“MTD”) of the oncolytic virus. Secondary objectives are to obtain preliminary information about the potential benefit of MB-108 in the
treatment of patients with recurrent malignant gliomas, including relevant data on markers of efficacy, including time to tumor progression and patient survival. In the second
half of 2020, Mustang intends to combine MB-108 with MB-101 to potentially enhance efficacy in treating GBM.
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INTELLECTUAL PROPERTY AND PATENTS
General
Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve our trade secrets,
and operate without infringing on the proprietary rights of other parties, both in the U.S. and in other countries. Our policy is to actively seek to obtain, where appropriate, the
broad intellectual property protection for our product candidates, proprietary information and proprietary technology through a combination of contractual arrangements and
patents, both in the U.S. and elsewhere in the world.
We also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other contractors (“know-
how”). To help protect our proprietary know-how which is not patentable, and for inventions for which patents may be difficult to enforce, we rely on trade secret protection and
confidentiality agreements to protect our interests. To this end, we require all employees, consultants, advisors and other contractors to enter into confidentiality agreements
which prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions
that they generate or make, and which are important to our business.
Patents and other proprietary rights are crucial to the development of our business. We will be able to protect our proprietary technologies from unauthorized use by third
parties only to the extent that our proprietary rights are covered by valid and enforceable patents, supported by regulatory exclusivity or are effectively maintained as trade
secrets. We have a few patents and patent applications related to our compounds and other technology, but we cannot guarantee the scope of protection of the issued patents, or
that such patents will survive a validity or enforceability challenge, or that any of the pending patent applications will issue as patents.
Generally, patent applications in the U.S. are maintained in secrecy for a period of 18 months or more. There is even an opportunity under specific circumstances to keep the
contents of patent applications hidden until the patent application matures to an issued patent. The patent positions of biotechnology and pharmaceutical companies are highly
uncertain and involve complex legal and factual questions. Therefore, we cannot predict the breadth of claims allowed in biotechnology and pharmaceutical patents, or their
enforceability. To date, there has been no consistent policy regarding the breadth of claims allowed in biotechnology patents. Third parties or competitors may challenge or
circumvent our patents or patent applications, if issued. If our competitors prepare and file patent applications in the U.S. that claim technology also claimed by us, we may have
to participate in interference or derivation proceedings declared by the U.S. Patent and Trademark Office (“USPTO”) to determine priority of invention, which could result in
substantial cost, even if the eventual outcome is favorable to us. Because of the extensive time required for development, testing and regulatory review of a potential product, it
is possible that before we commercialize any of our products, any related patent may expire or remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent. However, the life of a patent covering a product that has been subject to regulatory approval may have the ability to be extended through
the patent restoration program, although any such extension could still be minimal. Additionally, statutory caps impose further limitation on any such extensions.
If a patent is issued to a third party containing one or more preclusive or conflicting claims, and those claims are ultimately determined to be valid and enforceable, we may be
required to obtain a license, if available, under such patent or to develop or obtain alternative technology. In the event of litigation involving a third-party claim, an adverse
outcome in the litigation could subject us to significant liabilities to such third party, require us to seek a license for the disputed rights from such third party, and/or require us to
cease use of the technology. Further, our breach of an existing license or failure to obtain a license to technology required to commercialize our products may seriously harm
our business. We also may need to commence litigation to enforce any patents issued to us or to determine the scope and validity of third-party proprietary rights. Litigation
would not only involve substantial costs but would also involve substantial time commitments on the part of our key executives and research and development personnel.
In March 2015, we licensed intellectual property related to CAR T technology from COH. The intellectual property licensed thereunder includes two granted U.S. patents and
pending patent applications in a number of countries, including the U.S. and the EU, as well as pending patent applications in Japan, China, South Korea, Australia and the
developing world. These granted patents include claims directed to nucleic acids and expression vectors encoding CARs targeting IL13Rα2 and CD123. The granted patents and
any patents maturing from these pending applications will expire no sooner than October 2033. The pending applications in these patent families also include various claims
relating to CARs, T cells that express the CARs, methods of treatment utilizing the CAR T cells and additional specific features to optimize administration of CAR T cells,
targeting, binding specificity, cell stimulation and persistence. Additional applications and pending claims from COH that we have rights to include the use of an optimized
hinge region for many targeted CAR constructions, along with compositions and methods to isolate and transfect T memory cells to improve cellular persistence, as well as
applications and claims related to CS1-, HER2-, and PSCA-targeted CARs.
Also, in March 2015, we executed a sponsored research agreement with COH, pursuant to which research is performed in the laboratory of Drs. Stephen Forman and Christine
Brown. The sponsored research agreement gives us the right to first negotiation under specified maximum terms regarding any future inventions arising from the laboratory.
In May 2017, we licensed intellectual property related to CAR T technology for targeting CD20 from Fred Hutch. The intellectual property includes an international application
under the Patent Cooperation Treaty (i.e., a PCT application), which has now entered the national stage of multiple countries including the U.S., EU, Japan, China, and Canada,
among others. These applications contain claims relating to various CD20-targeting CAR constructs and CAR T cells, as well as methods of making and using the same. In May
2018, national stage applications claiming priority to the PCT application were filed in several jurisdictions around the world, including the U.S. and Europe, in order to begin
substantive examination of the claims. Patents maturing from these national stage applications will expire no sooner than March 2037.
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In March 2017, we licensed intellectual property related to antibodies and binding agents that specifically bind to PSCA from the University of California Los Angeles
(“UCLA”). The intellectual property includes multiple granted patents and pending applications from around the world including the U.S., EU, Japan, China, and Canada. The
granted patents and patents maturing from the pending applications will expire no sooner than March 2027.
In August 2018, we licensed from St. Jude Children’s Research Hospital XSCID Technology related to an ex vivo lentiviral vector gene therapy program to provide a normal
copy of the IL2RG gene to patients born with XSCID.
In February 2019, we licensed Material and Technical Information related to the HSV-1 oncolytic virus C134 from Nationwide in Columbus, Ohio.
In August 2019, we licensed from CSL Behring (Calimmune) the CytegrityTM stable producer cell line developed and used by St. Jude. The Cytegrity™ stable producer cell
line will be used to produce the viral vector for MB-107.
In addition to the technology the company has in-licensed, Mustang has also developed its own proprietary intellectual property, both alone and in conjunction with COH. In
particular, Mustang filed a U.S. provisional application directed to optimized methods for manufacturing cell-based therapeutics, and Mustang and COH, as co-applicants, filed
a U.S. provisional application directed to methods of treating hematological cancers.
Other Intellectual Property Rights
We depend upon trademarks, trade secrets, knowhow and continuing technological advances to develop and maintain our competitive position. To maintain the confidentiality
of trade secrets and proprietary information, we require our employees, scientific advisors, consultants and collaborators, upon commencement of a relationship with us, to
execute confidentiality agreements and, in the case of parties other than our research and development collaborators, to agree to assign their inventions to us. These agreements
are designed to protect our proprietary information and to grant us ownership of technologies that are developed in connection with their relationship with us. These agreements
may not, however, provide protection for our trade secrets in the event of unauthorized disclosure of such information.
In addition to patent protection, we may utilize orphan drug regulations or other provisions of the Food, Drug and Cosmetic Act of 1938, as amended (the “FDCA”), to provide
market exclusivity for certain of our product candidates. Orphan drug regulations provide incentives to pharmaceutical and biotechnology companies to develop and
manufacture drugs for the treatment of rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the U.S., or diseases that affect more than
200,000 individuals in the U.S. but for which the sponsor does not realistically anticipate will generate a net profit. Under these provisions, a manufacturer of a designated
orphan drug can seek tax benefits, and the holder of the first approval of a designated orphan product from the FDA will be granted a seven-year period of marketing exclusivity
for such FDA approved orphan product.
LICENSE, CLINICAL TRIAL AND SPONSORED RESEARCH AGREEMENTS
St. Jude Children’s Research Hospital License
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 XSCID. The Company paid $1.0 million in consideration for the exclusive license in addition to an annual maintenance fee of $0.1 million (beginning 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.
City of Hope Licenses
In February 2017, the Company and COH amended and restated their license agreement, dated March 17, 2015 (the “Original Agreement”), by entering into three separate
amended and restated exclusive license agreements, one relating to the CD123-directed CAR T program, one relating to the IL13Rα2-directed CAR T program, and one relating
to the Spacer technology (described below). 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. As of December 31, 2019, COH owns 845,385 shares of Class A common stock and 448,203 shares of common stock, representing
approximately 3.2% of ownership, and has the right to appoint a director to the Board of Directors (the “Board”). The Company considers COH to be a related party, due to the
foregoing rights and ownership, as well as the high proportion of the Company’s assets that are licensed from COH.
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In addition, the Company entered into a sponsored research agreement with COH under which the Company has and will fund continued research in the amount of $2.0 million
per year, payable in four equal installments, through the first quarter of 2020. The research covered under this arrangement is for the IL13Rα2-directed CAR T program, the
CD123-directed CAR T program, and the Spacer technology.
CD123 License
In February 2017, the Company entered into an Amended and Restated Exclusive License Agreement with COH to acquire intellectual property rights pertaining to patent rights
related to the CD123-directed CAR T program (the “CD123 License”). Pursuant to the CD123 License, the Company and COH acknowledged that an upfront fee had already
been paid under the Original Agreement. In addition, COH is eligible to receive an annual maintenance fee of $25,000 and milestone payments totaling up to 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 ranging from 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.
CD123 CRA
In February 2017, the Company entered into a Clinical Research Support Agreement for CD123-directed CAR T program (the “CD123 CRA”). Pursuant to the terms of the
CD123 CRA, the Company made an upfront payment of $19,450 and will contribute an additional $97,490 per patient in connection with the on-going investigator-initiated
study. Further, the Company agreed to fund approximately $76,000 annually pertaining to the clinical development of CD123.
IL13Rα2 License
In February 2017, the Company entered into an Amended and Restated Exclusive License Agreement with COH to acquire intellectual property rights pertaining to patent rights
related to the IL13Rα2-directed CAR T program (the “IL13Rα2 License”). Pursuant to the IL13Rα2 License, the Company and COH acknowledged that an upfront fee had
already been paid under the Original Agreement. In addition, COH is eligible to receive an annual maintenance fee of $25,000 and milestone payments totaling up to
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 ranging from 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.
IL13Rα2 CRA
In February 2017, the Company entered into a Clinical Research Support Agreement for the IL13Rα2-directed CAR T program (the “IL13Rα2 CRA”). Pursuant to the terms of
the IL13Rα2 CRA, the Company made an upfront payment of approximately $9,300 and will contribute an additional $136,311 per patient in connection with the on-going
investigator-initiated study. Further, the Company agreed to fund approximately $66,000 annually pertaining to the clinical development of IL13Rα2.
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 patent rights
related to Spacer (the “Spacer License”). Pursuant to the Spacer License, the Company and COH acknowledged that an upfront fee had already been paid under the Original
Agreement. In addition, COH will receive an annual maintenance fee of $10,000. No royalties are due if the Spacer technology is used in conjunction with a CD123 CAR or an
IL13Rα2 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, but no such payments are due in
connection with sublicenses that are granted in conjunction with the sublicense other CARs that are licensed from COH to the Company. In addition, equity grants made under
the Original Agreement were acknowledged, and the anti-dilution provisions of the Original Agreement were carried forward.
IV/ICV License
In February 2017, the Company entered into an exclusive license agreement (the “IV/ICV License”) 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 License, in March 2017, the Company paid
COH an upfront fee of $0.1 million. COH is eligible to receive a milestone payment totaling approximately $0.1 million, 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 licensed products. The Company is obligated to pay COH a percentage of
certain revenues received in connection with a sublicense in the mid-thirties, but no such payments are due in connection with sublicenses that are granted in conjunction with
the sublicense other CARs that are licensed from COH to the Company
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HER2 Technology License
On May 31, 2017, the Company entered into an exclusive license agreement (the “HER2 Agreement”) with COH for the use of HER2 CAR T technology (“HER2
Technology”), which is currently being applied in the treatment of glioblastoma multiforme and in the treatment of HER2+ cancers – in particular breast cancer – that have
metastasized to the brain. Pursuant to the HER2 Agreement, the Company paid an upfront fee of $0.6 million and owes an annual maintenance fee of $50,000 (which began in
2019). In addition, COH is eligible to receive milestone payments totaling up to $14.9 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
ranging from the mid-teens to mid-thirties, depending on the timing of the sublicense in the development of any product.
CS1 Technology License
On May 31, 2017, the Company entered into an exclusive license agreement (the “CS1 Agreement”) with COH for the use of CS1-specific CAR T technology (“CS1
Technology”), which is currently being applied in the treatment of multiple myeloma. Pursuant to the CS1 Agreement, the Company paid an upfront fee of $0.6 million and
owes an annual maintenance fee of $50,000 (which began in 2019). In addition, COH is eligible to receive milestone payments totaling up to $14.9 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 ranging from the mid-teens to mid-thirties, depending on the timing of the sublicense in the development of any
product.
PSCA Technology License
On May 31, 2017, the Company entered into an exclusive license agreement (the “PSCA Agreement”) with COH for the use of PSCA CAR T technology (“PSCA
Technology”), which is currently being applied in the treatment of PSCA+ metastatic castration-resistant prostate cancer. Pursuant to the PSCA Agreement, the Company paid
an upfront fee of $0.3 million and owes an annual maintenance fee of $50,000 (which began in 2019). In addition, COH is eligible to receive milestone payments totaling up to
$14.9 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 ranging from the mid-teens to mid-thirties, depending on the timing of the
sublicense in the development of any product.
Manufacturing License
On January 3, 2018, the Company entered into a non-exclusive license agreement with COH to acquire patent and licensed know-how rights related to developing,
manufacturing, and commercializing licensed products. The Company paid $75,000 in consideration for the licenses to the patent rights and the licensed know-how in addition
to an annual maintenance fee. Royalty payments in the low-single digits are due on net sales of licensed products.
City of Hope SRA
On January 3, 2018, the Company entered into a Sponsored Research Agreement (“SRA”) with COH to optimize and develop CAR T cell processing procedures. Pursuant to
the SRA, the Company funded continued research in the amount of $0.9 million for the program, with an initial term of two (2) years. Mustang and COH are currently
negotiating a possible extension for an additional two-year period.
University of California License
On March 17, 2017, the Company entered into an exclusive license agreement with the Regents of UCLA (the “UCLA License”) to acquire intellectual property rights in patent
applications related to the engineered anti-prostate stem cell antigen antibodies for cancer targeting and detection. Pursuant to the UCLA License, the Company paid UCLA the
upfront fee of $0.2 million and owes an annual maintenance fee of $15,000 for the first two years, $25,000 for years three and four, and $50,000 per year thereafter. In addition,
UCLA is eligible to receive milestone payments totaling up to $14.3 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.
Fred Hutchinson Cancer Research Center License
CD20 Technology License
Effective July 3, 2017, Mustang entered into an exclusive, worldwide licensing agreement with Fred Hutch for the use of a CAR T therapy related to autologous T cells
engineered to express a CD20-specific chimeric antigen receptor (the “CD20 Technology License”). Pursuant to the CD20 Technology License, the Company paid Fred Hutch
an upfront fee of $0.3 million and owes 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 the CD20 Technology. Additional payments are due for the achievement of eleven development milestones totaling $39.1 million. Royalty payments
in the mid-single digits are due on net sales of licensed products.
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CD20 CTA
Also, on July 3, 2017, in conjunction with the CD20 Technology License from Fred Hutch, Mustang entered into an investigator-initiated clinical trial agreement (the “CD20
CTA”) to provide partial funding for a Phase 1/2 clinical trial at Fred Hutch evaluating the safety and efficacy of the CD20 Technology in patients with relapsed or refractory B-
cell non-Hodgkin lymphomas. In connection with the CD20 CTA, the Company agreed to fund up to $5.3 million of costs associated with the clinical trial, which commenced
during the fourth quarter of 2017.
Fred Hutchinson Cancer Research Center SRA
On March 17, 2018, the Company entered into an SRA with Fred Hutch related to developing and optimizing processes and systems associated with CD20 cell processing.
Pursuant to the SRA, the Company funded continued research in the amount of $0.6 million during the term of the SRA, which expired in March 2019.
Nationwide Children’s Hospital License
On February 20, 2019, the Company entered into an exclusive worldwide license agreement with Nationwide for the development of an oncolytic virus (C134) for the treatment
of glioblastoma multiforme. The Company paid $0.2 million in consideration for the exclusive license. Nationwide is eligible to receive additional payments totaling $77.5
million upon the achievement of ten development and commercialization milestones. Royalty payments in the low-single digits are due on net sales of licensed products.
CSL Behring (Calimmune) License
On August 23, 2019, the Company entered into a non-exclusive license agreement with CSL Behring (Calimmune) for the CytegrityT M stable producer cell line for the
production of MB-107 lentiviral gene therapy. The Cytegrity™ stable producer cell line will be used to produce the viral vector for Mustang’s MB-107 lentiviral gene therapy
program for the treatment of X-linked severe combined immunodeficiency (XSCID). Mustang licensed MB-107 from St. Jude in August 2018. The Company paid $0.2 million
in consideration for the license. CSL Behring (Calimmune) 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.
COMPETITION
Competition in the pharmaceutical and biotechnology industries is intense. Our competitors include pharmaceutical companies and biotechnology companies, as well as
universities and public and private research institutions. In addition, companies that are active in different but related fields represent substantial competition for us. Many of
our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation,
manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and
license technologies that are competitive with ours. To compete successfully in this industry, we must identify novel and unique drugs or methods of treatment and then
complete the development of those drugs as treatments in advance of our competitors.
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The drugs that we are attempting to develop will have to compete with existing therapies. In addition, a large number of companies are pursuing the development of
pharmaceuticals that target the same conditions that we are targeting. Other companies have products or product candidates in various stages of pre-clinical or clinical
development, or with marketing approvals, to treat conditions for which we are also seeking to discover and develop product candidates. Some of these potential competing
drugs are further advanced in development than our product candidates and may be commercialized earlier.
The field of CAR T therapy is extremely active. Companies and partnerships currently engaged in clinical trials with CAR T modalities include Bristol Myers Squibb, Novartis
Pharmaceuticals/University of Pennsylvania, Bluebird Bio, Allogene Therapeutics, Cellectis, Gilead Sciences, Bellicum Pharmaceuticals, MD Anderson/Ziopharm Oncology,
Atara Biotherapeutics, Celyad, Autolus Therapeutics, Precigen and Precision BioSciences.
The gene therapy field is characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. We are aware of companies
currently engaged in developing gene therapies in various indications, including Abeona Therapeutics, Adverum Biotechnologies, Astellas, AVROBIO, Axovant Sciences,
Biogen, Bluebird Bio, BioMarin Pharmaceutical, Homology Medicines, Krystal Biotech, MeiraGTx, Novartis Pharmaceuticals, Orchard Therapeutics, Passage Bio, Prevail
Therapeutics, REGENXBIO, Rocket Pharmaceuticals, Roche, Sangamo Therapeutics, Sarepta Therapeutics, Solid Biosciences, Ultragenyx Pharmaceuticals, uniQure and
Voyager Therapeutics, as well as several companies addressing other methods for delivering or modifying genes and regulating gene expression.
EMPLOYEES
As of December 31, 2019, we had fifty-one full-time employees. None of our employees are represented by a labor union or covered under a collective bargaining agreement
and we consider our employee relations to be good. Employees of Fortress also make valuable financial, legal, scientific and other strategic contributions to Mustang on a
regular basis.
SUPPLY AND MANUFACTURING
As an early stage development company, we rely on our research partners to manufacture all materials currently used in the clinical development programs we are sponsoring at
COH, Fred Hutch, St. Jude, and UAB under the IND applications filed by these institutions. UAB is the clinical trial site for the Phase 1 trial of Nationwide’s C134 oncolytic
virus (MB-108). Pursuant to the March 2015 Licensing Agreement with COH, we have the right to make and have made the products, and we have negotiated Investigator-
Initiated Clinical Research Support Agreements with COH and Fred Hutch which specify the manufacturing costs and numbers of patients which will be supplied under filed
protocols. Our research partners have extensive experience manufacturing clinical materials for development studies, but we are currently dependent on both their capacity
limitations and continued operating success to manufacture viral vector and to process cells for all CAR T clinical trials for which these partners hold the INDs, as well as to
have manufactured oncolytic virus for the MB-108 investigator-IND clinical trial being conducted at UAB.
We have limited experience in processing cells for clinical or commercial purposes. In 2018 we opened our own cell processing facility in Worcester, Massachusetts, in order to
manufacture and supply product candidates for all clinical trials that will be conducted under IND applications to be filed by us. In August 2019, the FDA approved our IND
application to initiate a multi-center Phase 1/2 clinical trial of MB-102 (CD123 CAR T). As with any supply program, obtaining raw materials of the correct quality cannot be
guaranteed, and we cannot ensure that we will be successful in this endeavor.
We expect to rely on contract manufacturing relationships for lentiviral vectors and for the MB-108 oncolytic virus, as well as for any non-CAR T products that we may in-
license or acquire in the future for co-administration with our CAR T products. However, there can be no assurance that we will be able to successfully contract with such
manufacturers on terms acceptable to us, or at all.
Contract manufacturers for these current and potential future non-CAR T products would be subject to ongoing periodic and unannounced inspections by the FDA, the U.S.
Drug Enforcement Administration (“DEA”) and corresponding state agencies to ensure strict compliance with the Current Good Manufacturing Practice regulations (“cGMP”)
and other state and federal regulations. Our contractors, if any, in Europe would face similar challenges from the numerous EU and member state regulatory agencies and
authorized bodies. We do not have control over third-party manufacturers’ compliance with these regulations and standards, other than through contractual obligations. If they
are deemed out of compliance with cGMPs, product recalls could result, inventory could be destroyed, production could be stopped, and supplies could be delayed or otherwise
disrupted.
If we need to change manufacturers for these current and potential future non-CAR T products after commercialization, the FDA and corresponding foreign regulatory agencies
must approve these new manufacturers in advance, which will involve testing and additional inspections to ensure compliance with FDA regulations and standards and may
require significant lead times and delay. Furthermore, switching manufacturers may be difficult because the number of potential manufacturers is limited. It may be difficult or
impossible for us to find a replacement manufacturer quickly or on terms acceptable to us, or at all.
GOVERNMENT AND INDUSTRY REGULATIONS
Numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies, impose substantial regulations upon the clinical
development, manufacture and marketing of our product candidates, as well as our ongoing research and development activities. None of our product candidates has been
approved for sale in any market in which we have marketing rights. Before marketing in the U.S., any drug that we develop must undergo rigorous pre-clinical testing and
clinical trials and an extensive regulatory approval process implemented by the FDA under the FDCA. The FDA regulates, among other things, the pre-clinical and clinical
testing, safety, efficacy, approval, manufacturing, record keeping, adverse event reporting, packaging, labeling, storage, advertising, promotion, export, sale and distribution of
biopharmaceutical products.
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The regulatory review and approval process is lengthy, expensive and uncertain. We are required to submit extensive preclinical and clinical data and supporting information to
the FDA for each indication or use to establish a product candidate’s safety and efficacy before we can secure FDA approval to market or sell a product in the U.S. The approval
process takes many years, requires the expenditure of substantial resources and may involve ongoing requirements for post-marketing studies or surveillance. Before
commencing clinical trials in humans, we must submit an IND to the FDA containing, among other things, preclinical data, chemistry, manufacturing and control information,
and an investigative plan. Our submission of an IND may not result in FDA authorization to commence a clinical trial.
The FDA may permit expedited development, evaluation, and marketing of new therapies intended to treat persons with serious or life-threatening conditions for which there is
an unmet medical need under its fast track drug development programs. A sponsor can apply for fast track designation at the time of submission of an IND, or at any time prior
to receiving marketing approval of the new drug application (“NDA”) or biologics license application (“BLA”). To receive fast track designation, an applicant must
demonstrate:
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that the therapy is intended to treat a serious or life-threatening condition;
that the therapy is intended to treat a serious aspect of the condition; and
that the therapy has the potential to address unmet medical needs, and this potential is being evaluated in the planned drug development program.
The FDA must respond to a request for fast track designation within 60 calendar days of receipt of the request. Over the course of development, a product in a fast track
development program must continue to meet the criteria for fast track designation. Sponsors of products in fast track drug development programs must be in regular contact with
the reviewing division of the FDA to ensure that the evidence necessary to support marketing approval will be developed and presented in a format conducive to an efficient
review. Sponsors of products in fast track drug development programs ordinarily are eligible for priority review of a completed application in six months or less and also may be
permitted to submit portions of an NDA or BLA to the FDA for review before the complete application is submitted.
Sponsors of drugs designated as fast track also may seek approval under the FDA’s accelerated approval regulations. Under this authority, the FDA may grant marketing
approval for a new drug product on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is
reasonably likely, based on epidemiologic, therapeutic, pathophysiologic, or other evidence, to predict clinical benefit or on the basis of an effect on a clinical endpoint other
than survival or irreversible morbidity. Approval will be subject to the requirement that the applicant study the drug further to verify and describe its clinical benefit where there
is uncertainty as to the relation of the surrogate endpoint to clinical benefit or uncertainty as to the relation of the observed clinical benefit to ultimate outcome. Post-marketing
studies are usually underway at the time an applicant files the NDA. When required to be conducted, such post-marketing studies must also be adequate and well-
controlled. The applicant must carry out any such post-marketing studies with due diligence. Many companies who have been granted the right to utilize an accelerated
approval approach have failed to obtain approval. Moreover, negative or inconclusive results from the clinical trials we hope to conduct or adverse medical events could cause
us to have to repeat or terminate the clinical trials. Accordingly, we may not be able to complete the clinical trials within an acceptable time frame, if at all, and, therefore, could
not submit the NDA or BLA to the FDA or foreign regulatory authorities for marketing approval.
Clinical testing must meet requirements for institutional review board oversight, informed consent and good clinical practices, and must be conducted pursuant to an IND,
unless exempted.
For purposes of NDA or BLA approval, clinical trials are typically conducted in the following sequential phases:
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Phase 1: The drug is administered to a small group of humans, either healthy volunteers or patients, to test for safety, dosage tolerance, absorption, metabolism,
excretion and clinical pharmacology.
Phase 2: Studies are conducted on a larger number of patients to assess the efficacy of the product, to ascertain dose tolerance and the optimal dose range, and to gather
additional data relating to safety and potential adverse events.
Phase 3: Studies establish safety and efficacy in an expanded patient population.
Phase 4: The FDA may require Phase 4 post-marketing studies to find out more about the drug’s long-term risks, benefits, and optimal use, or to test the drug in different
populations.
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The length of time necessary to complete clinical trials varies significantly and may be difficult to predict. Clinical results are frequently susceptible to varying interpretations
that may delay, limit or prevent regulatory approvals. Additional factors that can cause delay or termination of our clinical trials, or that may increase the costs of these trials,
include:
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slow patient enrollment due to the nature of the clinical trial plan, the proximity of patients to clinical sites, the eligibility criteria for participation in the study or other
factors;
inadequately trained or insufficient personnel at the study site to assist in overseeing and monitoring clinical trials or delays in approvals from a study site’s review board;
longer treatment time required to demonstrate efficacy or determine the appropriate product dose;
insufficient supply of the product candidates;
adverse medical events or side effects in treated patients; and
ineffectiveness of the product candidates.
In addition, the FDA, equivalent foreign regulatory authority, or a data safety monitoring committee for a trial may place a clinical trial on hold or terminate it if it concludes that
subjects are being exposed to an unacceptable health risk, or for futility. Any drug is likely to produce some toxicity or undesirable side effects in animals and in humans when
administered at sufficiently high doses and/or for a sufficiently long period of time. Unacceptable toxicity or side effects may occur at any dose level at any time in the course of
studies in animals designed to identify unacceptable effects of a product candidate, known as toxicological studies, or clinical trials of product candidates. The appearance of
any unacceptable toxicity or side effect could cause us or regulatory authorities to interrupt, limit, delay or abort the development of any of our product candidates and could
ultimately prevent approval by the FDA or foreign regulatory authorities for any or all targeted indications.
Sponsors of drugs may apply for a special protocol assessment (“SPA”) from the FDA. The SPA process is a procedure by which the FDA provides official evaluation and
written guidance on the design and size of proposed protocols that are intended to form the basis for an NDA or BLA. However, final marketing approval depends on the results
of efficacy, the adverse event profile and an evaluation of the benefit/risk of treatment demonstrated in the Phase 3 trial. The SPA may only be changed through a written
agreement between the sponsor and the FDA, or if the FDA becomes aware of a substantial scientific issue essential to product safety or efficacy.
Before receiving FDA approval to market a product, we must demonstrate that the product is safe and effective for its intended use by submitting to the FDA an NDA or BLA
containing the preclinical and clinical data that have been accumulated, together with chemistry and manufacturing and controls specifications and information, and proposed
labeling, among other things. The FDA may refuse to accept an NDA or BLA for filing if certain content criteria are not met and, even after accepting an NDA or BLA, the
FDA may often require additional information, including clinical data, before approval of marketing a product.
It is also becoming more common for the FDA to request a Risk Evaluation and Mitigation Strategy, or REMS, as part of an NDA or BLA. The REMS plan contains post-
market obligations of the sponsor to train prescribing physicians, monitor off-label drug use, and conduct sufficient Phase 4 follow-up studies and registries to ensure the
continued safe use of the drug.
As part of the approval process, the FDA must inspect and approve each manufacturing facility. Among the conditions of approval is the requirement that a manufacturer’s
quality control and manufacturing procedures conform to cGMP. Manufacturers must expend significant time, money and effort to ensure continued compliance, and the FDA
conducts periodic inspections to certify compliance. It may be difficult for our manufacturers or for us to comply with the applicable cGMP, as interpreted by the FDA, and
other FDA regulatory requirements. If we, or our contract manufacturers, fail to comply, then the FDA may not allow us to market products that have been affected by the
failure.
If the FDA grants approval, the approval will be limited to those conditions and patient populations for which the product is safe and effective, as demonstrated through clinical
studies. Further, a product may be marketed only in those dosage forms and for those indications approved in the NDA. Certain changes to an approved NDA, including, with
certain exceptions, any significant changes to labeling, require approval of a supplemental application before the drug may be marketed as changed. Any products that we
manufacture or distribute pursuant to FDA approvals are subject to continuing monitoring and regulation by the FDA, including compliance with cGMP and the reporting of
adverse experiences with the drugs. The nature of marketing claims that the FDA will permit us to make in the labeling and advertising of our products will generally be limited
to those specified in FDA approved labeling, and the advertising of our products will be subject to comprehensive monitoring and regulation by the FDA. Drugs whose review
was accelerated may carry additional restrictions on marketing activities, including the requirement that all promotional materials are pre-submitted to the FDA. Claims
exceeding those contained in approved labeling will constitute a violation of the FDCA. Violations of the FDCA or regulatory requirements at any time during the product
development process, approval process, or marketing and sale following approval may result in agency enforcement actions, including withdrawal of approval, recall, seizure of
products, warning letters, injunctions, fines and/or civil or criminal penalties. Any agency enforcement action could have a material adverse effect on our business.
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Failure to comply with applicable federal, state and foreign laws and regulations would likely have a material adverse effect on our business. In addition, federal, state and
foreign laws and regulations regarding the manufacture and sale of new drugs are subject to future changes.
Other Healthcare Laws and Compliance Requirements
In the U.S., our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and
Medicaid Services (formerly the Health Care Financing Administration), other divisions of the United States Department of Health and Human Services (e.g., the Office of
Inspector General), the United States Department of Justice and individual United States Attorney offices within the Department of Justice, and state and local governments.
Pharmaceutical Coverage, Pricing and Reimbursement
In the U.S. and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of
reimbursement from third-party payors, including government health administrative authorities, managed care providers, private health insurers and other organizations. Third-
party payors are increasingly examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy, and, accordingly,
significant uncertainty exists as to the reimbursement status of newly approved therapeutics. Adequate third-party reimbursement may not be available for our products to
enable us to realize an appropriate return on our investment in research and product development. We are unable to predict the future course of federal or state health care
legislation and regulations, including regulations that will be issued to implement provisions of the health care reform legislation enacted in 2010, known as the Affordable Care
Act. The Affordable Care Act and further changes in the law or regulatory framework could have a material adverse effect on our business.
International Regulation
In addition to regulations in the U.S., there are a variety of foreign regulations governing clinical trials and commercial sales and distribution of any product candidates. The
approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval.
Item 1A.
Risk Factors
Investing in our Common Stock or any other type of equity or debt securities we may offer (together, our “Securities”) involves a high degree of risk. The following information
sets forth risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Form 10-K and those we
may make from time to time. You should carefully consider the risks described below, in addition to the other information contained in this Form 10-K, before making an
investment decision. Our business, financial condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below are not the
only ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business at this time also may impair our
business operations.
Risks Related to Our Business and Industry
We currently have no products for sale. We are heavily dependent on the success of our product candidates, and we cannot give any assurances that any of our product
candidates will receive regulatory approval or be successfully commercialized.
To date, we have invested a significant portion of our efforts and financial resources in the acquisition and development of our product candidates. We have not demonstrated
our ability to perform the functions necessary for the successful acquisition, development or commercialization of the technologies we are seeking to develop. As an early stage
company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by
companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. Our future success is substantially dependent on our ability to successfully develop,
obtain regulatory approval for, and then commercialize such product candidates. Most of our product candidates are currently in early stage clinical trials. Our business depends
entirely on the successful development and commercialization of our product candidates, which may never occur. We currently have no drug products for sale, currently
generate no revenues from sales of any drug products, and may never be able to develop or commercialize a marketable product.
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The successful development, and any commercialization, of our technologies and any product candidates that may occur would require us to successfully perform a variety of
functions, including:
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developing our technology platform;
identifying, developing, formulating, manufacturing and commercializing product candidates;
entering into successful licensing and other arrangements with product development partners;
participating in regulatory approval processes, including ultimately gaining approval to market a drug product, which may not occur;
obtaining sufficient quantities of our product candidates from our third-party manufacturers to meet clinical trial needs and, if approved, to meet commercial demand at
launch and thereafter;
establishing and maintaining agreements with wholesalers, distributors and group purchasing organizations on commercially reasonable terms;
conducting sales and marketing activities including hiring, training, deploying and supporting our sales force and creating market demand for our product candidates
through our own marketing and sales activities, and any other arrangements to promote our product candidates that we may establish; and
· maintaining patent protection and regulatory exclusivity for our product candidates.
Our operations have been limited to organizing our company, acquiring, developing and securing our proprietary technology and identifying and obtaining preclinical data or
clinical data for various product candidates. These operations provide a limited basis for you to assess our ability to continue to develop our technology, identify product
candidates, develop and commercialize any product candidates we are able to identify and enter into successful collaborative arrangements with other companies, as well as for
you to assess the advisability of investing in our securities. Each of these requirements will require substantial time, effort and financial resources.
Each of our product candidates will require additional clinical development, management of clinical and manufacturing activities, regulatory approval in the jurisdictions in
which we plan to market the product, obtaining manufacturing supply, building a commercial organization, and significant marketing efforts before we generate any revenues
from product sales, which may not occur. We are not permitted to market or promote any of our product candidates in the U.S. or any other jurisdiction before we receive
regulatory approval from the FDA or comparable foreign regulatory authority, respectively, and we may never receive such regulatory approval for any of our product
candidates.
Delays in the commencement or conduct of our clinical trials could result in increased costs and delay our ability to pursue regulatory approval.
The commencement or conduct of clinical trials can be delayed for a variety of reasons, including, but not necessarily limited to, delays in:
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obtaining regulatory clearance/approval to commence a clinical trial;
identifying, recruiting and training suitable clinical investigators;
reaching and preserving agreements on acceptable terms with prospective clinical research organizations (“CROs”) and trial sites, the terms of which can be subject to
extensive negotiation, may be subject to modification from time to time and may vary significantly among different CROs and trial sites;
obtaining sufficient quantities of a product candidate for use in clinical trials;
obtaining Institutional Review Board (“IRB”) or ethics committee approval to conduct a clinical trial at a prospective site;
developing and validating companion diagnostics on a timely basis, if required;
adding new clinical sites once a trial has begun;
change in the principal investigator or other key staff overseeing the clinical trial at a given site;
identifying, recruiting and enrolling patients to participate in a clinical trial; or
retaining (or replacing) patients who have initiated a clinical trial but who may withdraw due to adverse events from the therapy, insufficient efficacy, fatigue with the
clinical trial process, personal issues, or other reasons.
Any delays in the commencement of our clinical trials will delay our ability to pursue regulatory approval for product candidates. In addition, many of the factors that cause, or
lead to, a delay in the commencement of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.
Suspensions or delays in the completion of clinical testing could result in increased costs and delay or prevent our ability to complete development of that product or
generate product revenues.
Once a clinical trial has begun, patient recruitment and enrollment may be slower than we anticipate. Clinical trials may also be delayed as a result of ambiguous or negative
interim results or difficulties in obtaining sufficient quantities of product manufactured in accordance with regulatory requirements and on a timely basis. Further, a clinical trial
may be modified, suspended or terminated by us, an IRB, an ethics committee or a data safety monitoring committee overseeing the clinical trial, any clinical trial site with
respect to that site, or the FDA or other regulatory authorities, due to a number of factors, including, but not necessarily limited to:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
stopping rules contained in the protocol;
unforeseen safety issues or any determination that the clinical trial presents unacceptable health risks; and
lack of adequate funding to continue the clinical trial.
Changes in regulatory requirements and guidance also may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to
resubmit clinical trial protocols to IRBs for re-examination, which may in turn impact the costs and timing of, and the likelihood of successfully completing, a clinical trial. If we
experience delays in the completion of, or if we must suspend or terminate, any clinical trial of any product candidate, our ability to obtain regulatory approval for that product
candidate will be delayed, and the commercial prospects, if any, for the product candidate may suffer as a result. In addition, many of these factors may also ultimately lead to
the denial of regulatory approval of a product candidate.
Product candidates that we advance into clinical trials may not receive regulatory approval.
Pharmaceutical development has inherent risks. We will be required to demonstrate through well-controlled clinical trials that product candidates are effective with a favorable
benefit-risk profile for use in their target indications before seeking regulatory approvals for their commercial sale. Success in early clinical trials does not mean that later
clinical trials will be successful, as product candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed through initial
clinical testing. Also, we may need to conduct additional clinical trials that are not currently anticipated. Companies frequently suffer significant setbacks in advanced clinical
trials, even after earlier clinical trials have shown promising results. As a result, product candidates that we advance into clinical trials may not receive regulatory approval.
In addition, even if our product candidates were to obtain approval, regulatory authorities may approve any such product candidates or any future product candidate for fewer or
more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-
marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of
that product candidate. The regulatory authority may also require the label to contain warnings, contraindications, or precautions that limit the commercialization of the product.
In addition, the DEA (or foreign equivalent) may classify one or more of our product candidates in scheduling under the Controlled Substances Act (or its foreign equivalent)
that could impede such product’s commercial viability. Any of these scenarios could compromise the commercial prospects for one or more of our current or future product
candidates.
Any product candidates we advance into clinical development are subject to extensive regulation, which can be costly and time consuming, cause unanticipated delays or
prevent the receipt of the required approvals to commercialize product candidates.
The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of any product candidate,
including our product candidates, is subject to extensive regulation by the FDA in the United States and by comparable health authorities in foreign markets. In the United
States, we are not permitted to market a product candidate until such product candidate’s Biologics License Application (“BLA”) or NDA is approved by the FDA. The process
of obtaining approval is expensive, often takes many years, and can vary substantially based upon the type, complexity and novelty of the products involved. In addition to
significant clinical testing requirements, our ability to obtain marketing approval for product candidates depends on obtaining the final results of required non-clinical testing,
including characterization of the manufactured components of our product candidates and validation of our manufacturing processes. The FDA may determine that our product
manufacturing processes, testing procedures or facilities are inadequate to justify approval. Approval policies or regulations may change, and the FDA has substantial discretion
in the pharmaceutical approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. Despite the time and expense invested in
the clinical development of product candidates, regulatory approval is never guaranteed.
The FDA and other regulatory agencies can delay, limit or deny approval of a product candidate for many reasons, including, but not limited to:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
our inability to demonstrate to the satisfaction of the FDA that a product candidate is safe and effective for an indication;
the FDA may not accept clinical data from trials conducted by individual investigators or in countries where the standard of care is potentially different from that of the
United States;
the results of clinical trials may not meet the level of statistical significance required by the FDA for approval;
the FDA may disagree with the interpretation of data from preclinical studies or clinical trials;
the FDA may not approve the manufacturing processes or facilities or those of third-party manufacturers with which we or our respective collaborators currently contract
for clinical supplies and plan to contract for commercial supplies; or
the approval policies or regulations of the FDA may significantly change in a manner rendering the clinical data insufficient for approval or the product characteristics or
benefit-risk profile unfavorable for approval.
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With respect to foreign markets, approval procedures vary among countries and, in addition to the aforementioned risks, can involve additional product testing, administrative
review periods and agreements with pricing authorities. In addition, recent events raising questions about the safety of certain marketed pharmaceuticals may result in increased
cautiousness by the FDA and comparable foreign regulatory authorities in reviewing new pharmaceuticals based on safety, efficacy or other regulatory considerations and may
result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent us from
commercializing our product candidates.
Any product candidate we advance into clinical trials may cause unacceptable adverse events or have other properties that may delay or prevent their regulatory approval
or commercialization or limit their commercial potential.
Unacceptable adverse events caused by any of our product candidates that we advance into clinical trials could cause regulatory authorities to interrupt, delay or stop clinical
trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications and markets. This, in turn, could prevent
us from commercializing the affected product candidate and generating revenues from its sale.
We have not completed testing for any of our product candidates for the indications for which we intend to seek product approval in humans, and we currently do not know the
extent of the adverse events, if any, that will be observed in patients who receive any of our product candidates. If any of our product candidates causes unacceptable adverse
events in clinical trials, we may not be able to obtain regulatory approval or commercialize such products, or, if such product candidates are approved for marketing, future
adverse events could cause us to withdraw such products from the market.
If any of our product candidates is approved and we or our contract manufacturer(s) fail to produce the product, or components of the product, in the volumes that we
require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the commercialization of our
product candidates or be unable to meet market demand, and may lose potential revenues.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process
controls, and the use of specialized processing equipment. We may enter into development and supply agreements with contract manufacturers for the completion of pre-
commercialization manufacturing development activities and, if approved, the manufacture of commercial supplies for one or more of our product candidates. Any termination
or disruption of our relationships with our contract manufacturers may materially harm our business and financial condition and frustrate any commercialization efforts for each
respective product candidate.
All of our contract manufacturers must comply with strictly enforced federal, state and foreign regulations, including current good manufacturing practice (“cGMP”)
requirements enforced by the FDA through its establishment inspection program. We are required by law to establish adequate oversight and control over raw materials,
components and finished products furnished by our third-party suppliers and contract manufacturers, but we have little control over their compliance with these regulations. Any
failure to comply with applicable regulations may result in fines and civil penalties, suspension of production, restrictions on imports and exports, suspension or delay in product
approval, product seizure or recall, or withdrawal of product approval, and would limit the availability of our product and customer confidence in our product. Any
manufacturing defect or error discovered after products have been produced and distributed could result in even more significant consequences, including costly recalls, re-
stocking costs, damage to our reputation and potential for product liability claims.
If the contract manufacturers upon whom we may rely to manufacture one or more of our product candidates, and any future product candidate we may in-license, fails to
deliver the required commercial quantities on a timely basis at commercially reasonable prices, we would likely be unable to meet demand for our products and we would lose
potential revenues.
We rely on third parties to conduct all aspects of our lentiviral vector production and these third parties may not perform satisfactorily.
We do not independently conduct our lentiviral vector production and we currently rely, and expect to continue to rely, on third parties with respect to the manufacture of these
items.
Our reliance on these third parties for manufacturing lentiviral vector reduces our control over these activities but will not relieve us of our responsibility to ensure compliance
with all required regulations and study protocols. For products that we develop and commercialize, we will remain responsible for ensuring that each of our IND-enabling
studies and clinical studies is conducted in accordance with the study plan and protocols, and that our lentiviral vectors are manufactured in accordance with GMP as applied in
the relevant jurisdictions.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines, conduct our studies in accordance with regulatory requirements or our
stated study plans and protocols, or manufacture our lentiviral vectors in accordance with GMP, we will not be able to complete, or may be delayed in completing, the
preclinical and clinical studies and manufacturing process validation activities required to support future IND, market authorization application and BLA submissions and
approval of our product candidates, or to support commercialization of our products, if approved. Many of our agreements with these third parties contain termination
provisions that allow these third parties to terminate their relationships with us at any time. If we need to enter into alternative arrangements, our product development and
commercialization activities could be delayed.
We may be forced to enter into an agreement with a different manufacturer, which we may not be able to do on reasonable terms, if at all. In some cases, the technical skills
required to manufacture lentiviral vector for our drug product candidates may be unique or proprietary to the original manufacturer, and we may have difficulty or there may be
contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. Any of these events
could lead to clinical study delays or failure to obtain marketing approval or impact our ability to successfully commercialize our product or any future products. Some of these
events could be the basis for FDA action, including injunction, recall, seizure or total or partial suspension of production.
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Our approach to the development of our product candidates is unproven, and we do not know whether we will be able to develop any products of commercial value.
Our products candidates are emerging technologies and, consequently, it is conceivable that such technologies may ultimately fail to develop into commercially viable therapies
to treat human patients with cancer or other diseases. One of the reasons for the lack of commercial viability could be our inability to obtain regulatory approval for such
technologies.
If serious adverse or unacceptable side effects are identified during the development of one or more of our product candidates or any future product candidate, we may
need to abandon or limit our development of some of our product candidates.
If one or more of our product candidates or any future product candidate are associated with undesirable side effects or adverse events in clinical trials or have characteristics
that are unexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the adverse events, undesirable side
effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In our industry, many compounds that initially showed promise
in early stage testing have later been found to cause serious adverse events that prevented further development of the compound. In the event that our clinical trials reveal a high
or unacceptable severity and prevalence of adverse events, our trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us
to cease further development or deny approval of one or more of our product candidates or any future product candidate for any or all targeted indications. The FDA could also
issue a letter requesting additional data or information prior to making a final decision regarding whether or not to approve a product candidate. The number of requests for
additional data or information issued by the FDA in recent years has increased and has resulted in substantial delays in the approval of several new drugs. Adverse events or
undesirable side effects caused by one or more of our product candidates or any future product candidate could also result in the inclusion of unfavorable information in our
product labeling or in denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications, which would, in turn, prevent us from
commercializing and generating market acceptance and revenues from the sale of that product candidate. Adverse events or side effects could affect patient recruitment or the
ability of enrolled patients to complete the trial and could result in potential product liability claims.
Additionally, if one or more of our product candidates or any future product candidate receives marketing approval and we or others later identify undesirable side effects
caused by this product, a number of potentially significant negative consequences could result, including:
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regulatory authorities may require the addition of unfavorable labeling statements, including specific warnings , black box warnings, adverse reactions, precautions,
and/or contraindications;
regulatory authorities may suspend or withdraw their approval of the product, and/or require it to be removed from the market;
we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product; or
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of any of our product candidates or any future product candidate or could substantially
increase our commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues, or any revenues, from its sale.
Even if one or more of our product candidates receives regulatory approval, it and any other products we may market will remain subject to substantial regulatory scrutiny.
If one or more of our product candidates that we may license or acquire is approved, the approved product candidate will be subject to ongoing requirements and review by the
FDA and other regulatory authorities. These requirements include labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-
market information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding
maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping of the drug, and requirements regarding our
presentations to and interactions with health care professionals.
The FDA, or other regulatory authorities, may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of
the product. The FDA and other applicable regulatory authorities closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the
approved indications and in accordance with the provisions of the approved labeling. The FDA and other applicable regulatory authorities impose stringent restrictions on
manufacturers’ communications regarding off-label use and if we do not market our products for only their approved indications, we may be subject to enforcement action for
off-label marketing. Violations of the FDCA relating to the promotion of prescription drugs may lead to investigations, civil claims, and/or criminal charges alleging violations
of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
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In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with
regulatory requirements, may yield various results, including:
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restrictions on such products, operations, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
warning letters, untitled letters, import alerts, and/or inspection observations;
withdrawal of the products from the market;
refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, restitution or disgorgement of profits;
suspension or withdrawal of marketing or regulatory approvals;
suspension of any ongoing clinical trials;
refusal to permit the import or export of our products;
product seizure; or
Injunctions, consent decrees, and/or the imposition of civil or criminal penalties.
The FDA’s policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates, or
negatively affect those products for which we may have already received regulatory approval, if any. If we are slow or unable to adapt to changes in existing requirements or the
adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to the various actions listed above, including losing any
marketing approval that we may have obtained.
We will need to obtain FDA approval of any proposed product brand names, and any failure or delay associated with such approval may adversely impact our business.
A pharmaceutical product cannot be marketed in the U.S. or other countries until we have completed a rigorous and extensive regulatory review process, including approval of a
brand name. Any brand names we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark
registration from the USPTO. The FDA typically conducts a review of proposed product brand names, including an evaluation of the potential for confusion with other product
names. The FDA may also object to a product brand name if it believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed product
brand names, we may be required to adopt an alternative brand name for our product candidates. If we adopt an alternative brand name, we would lose the benefit of our
existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product brand name
that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand
identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.
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Our current and future relationships with customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-
kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to
criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors in the U.S. and elsewhere will play a primary role in the recommendation and prescription of any product candidates for
which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare
laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, which may constrain the business or financial
arrangements and relationships through which we sell, market and distribute any product candidates for which we obtain marketing approval. In addition, we may be subject to
transparency laws and patient privacy regulation by the federal and state governments and by governments in foreign jurisdictions in which we conduct our business. The
applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include, but are not necessarily limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration,
directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any
good or service, for which payment may be made under federal and state healthcare programs, such as Medicare and Medicaid;
federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties, including
civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the
Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to
the federal government; the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for executing a
scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their respective implementing regulations,
which impose obligations on covered healthcare providers, health plans, and healthcare clearinghouses, as well as their business associates that create, receive, maintain
or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of
individually identifiable health information;
the federal Open Payments program, which requires manufacturers of certain approved drugs, devices, biologics and medical supplies for which payment is available
under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services
(“CMS”), information related to “payments or other transfers of value” made to physicians, which is defined to include doctors, dentists, optometrists, podiatrists and
chiropractors, and teaching hospitals and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment
interests held by the physicians and their immediate family members. Data collection began on August 1, 2013, with requirements for manufacturers to submit reports to
CMS by March 31, 2014, and 90 days after the end each subsequent calendar year. Disclosure of such information was made by CMS on a publicly available website
beginning in September 2014 and is annually updated; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims
involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state and foreign laws that require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government
or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments
and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of
health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts.
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Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that
governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse
or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may
be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government
healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any
of the physicians or other healthcare providers or entities with whom we expect to do business, including our collaborators, is found not to be in compliance with applicable
laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also materially
affect our business.
Regulatory approval by the FDA, or any similar regulatory authorities outside the United States, is limited to those specific indications and conditions for which clinical
safety and efficacy have been demonstrated.
Any regulatory approval is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the FDA, or other similar regulatory
authorities outside the United States. In addition to the regulatory approval required for new drug products, new formulations or indications for an approved product also
require regulatory approval. If we are not able to obtain regulatory approval for any desired future indications for our products, our ability to effectively market and sell our
products may be reduced and our business may be adversely affected.
While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and
approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA, or similar regulatory
authorities outside the United States. These “off-label” uses are common across medical specialties and may constitute an appropriate treatment for some patients in certain
circumstances. Regulatory authorities in the U.S. generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict
communications by pharmaceutical companies on the subject of off-label use. If our promotional activities fail to comply with these regulations or guidelines, we may be
subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may
cause the FDA to suspend or withdraw an approved product from the market, require a recall or institute fines or penalties, or could result in disgorgement of money, operating
restrictions, corrective advertising, injunctions or criminal prosecution, any of which could harm our business.
We are subject to new legislation, regulatory proposals and managed care initiatives that may increase our costs of compliance and adversely affect our ability to market
our products, obtain collaborators and raise capital.
In the U.S. and some foreign jurisdictions, there have been a number of proposed and enacted legislative and regulatory changes regarding the healthcare system that could
prevent or delay marketing approval of one or more of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any of our
product candidates for which we obtain marketing approval.
Among policy makers and payors in the U.S. and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing
healthcare costs, improving quality and expanding access. In the U.S., the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected
by major legislative initiatives.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation
Act, or collectively the ACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional
health policy reforms.
Among the provisions of the ACA of importance to our potential product candidates are:
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an annual, nondeductible fee on any entity that manufactures, or imports specified branded prescription drugs and biologic agents, apportioned among these entities
according to their market share in certain government healthcare programs;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price
for branded and generic drugs, respectively;
expansion of healthcare fraud and abuse laws, including the federal False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and
enhanced penalties for non-compliance;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts off negotiated prices of applicable brand
drugs to eligible beneficiaries during their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;
extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new
mandatory eligibility categories for certain individuals with income at or below 138% of the federal poverty level, thereby potentially increasing a manufacturer’s
Medicaid rebate liability;
expansion of the entities eligible to enroll in the 340B Drug Pricing Program to include certain critical access hospitals, freestanding cancer hospitals, rural referral
centers, and sole community hospitals, but exempting certain drugs from the ceiling price requirements for these covered entities;
the new requirements under the federal Open Payments program and its implementing regulations;
a new requirement to annually report drug samples that manufacturers and distributors provide to physicians;
a new regulatory pathway for the approval of biosimilar biological products, all of which will impact existing government healthcare programs and will result in the
development of new programs; and
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for
such research.
The Supreme Court upheld the ACA in the main challenge to the constitutionality of the law in 2012. Specifically, the Supreme Court held that the individual mandate and
corresponding penalty was constitutional because it would be considered a tax by the federal government. The Supreme Court also upheld federal subsidies for purchasers of
insurance through federally facilitated exchanges in a decision released in June 2015.
President Trump ran for office on a platform that supported the repeal of the ACA, and one of his first actions after his inauguration was to sign an Executive Order instructing
federal agencies to waive or delay requirements of the ACA that impose economic or regulatory burdens on states, families, the health-care industry and others. Modifications to
or repeal of all or certain provisions of the ACA have been attempted in Congress as a result of the outcome of the recent presidential and congressional elections, consistent
with statements made by the incoming administration and members of Congress during the presidential and congressional campaigns and following the election.
In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal
portions of the ACA. The Budget Resolution is not a law. However, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the
ACA. In March 2017, following the passage of the budget resolution for fiscal year 2017, the U.S. House of Representatives passed legislation known as the American Health
Care Act of 2017, which, if enacted, would amend or repeal significant portions of the ACA. Attempts in the Senate to pass ACA repeal legislation, including the Better Care
Reconciliation Act of 2017, so far have been unsuccessful. At the end of 2017, Congress passed the Tax Cuts and Jobs Act, which repealed the penalty for individuals who fail
to maintain minimum essential health coverage as required by the ACA. Following this legislation, Texas and 19 other states filed a lawsuit alleging that the ACA is
unconstitutional as the individual mandate was repealed, undermining the legal basis for the Supreme Court’s prior decision. On December 14, 2018, Texas federal district court
judge Reed O’Connor issued a ruling declaring that the ACA in it is entirety is unconstitutional. While this decision has no immediate legal effect on the ACA and its
provisions, this lawsuit is ongoing and the outcome through the appeals process may have a significant impact on our business.
The Trump Administration has also taken several regulatory steps to redirect ACA implementation. The Department of Health and Human Services (“HHS”) finalized Medicare
fee-for-service hospital payment reductions for Part B drugs acquired through the 340B Drug Pricing Program, which has been overturned by the courts. HHS also has signaled
its intent to pursue reimbursement policy changes for Medicare Part B drugs as a whole that likely would reduce hospital and physician reimbursement for these drugs.
HHS has made numerous other proposals aimed at lowering drug prices for Medicare beneficiaries and increasing price transparency. These proposals include giving Medicare
Advantage and Part D plans flexibility in the availability of drugs in “protected classes,” more transparency in the cost of drugs, including the beneficiary’s financial liability,
and less costly alternatives and permitting the use of step therapy as a means of prior authorization. HHS has also proposed requiring pharmaceutical manufacturers disclose the
prices of certain drugs in direct-to-consumer television advertisements. The proposal related to protected classes has been withdrawn and the disclosure requirements have been
rejected by the courts. In addition, a proposed rule that would have passed drug rebates to consumers at the point of sale also has been withdrawn. However, it appears the
Trump Administration will continue to explore its authority to make regulatory changes to the pharmaceutical industry. For example, the Trump Administration released an
Advance Notice of Proposed Rulemaking related to an international price index model. It is unclear what eventually will be proposed, but the President has alluded to the
concept of “most favored nation” pricing with regards to U.S. drug purchasing. In addition, HHS, in conjunction with the FDA, released two pharmaceutical importation models
in December 2019: (1) a Notice of Proposed Rulemaking to permit importation of pharmaceuticals from Canada, and (2) draft FDA guidance permitting manufacturers to
import their own pharmaceuticals that were originally intended for marketing in other countries.
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HHS also has taken steps to increase the availability of cheaper health insurance options, typically with fewer benefits and less generous coverage. The Administration has also
signaled its intention to address drug prices and to increase competition, including by increasing the availability of biosimilars and generic drugs. As these are regulatory
actions, a new administration could undo or modify these efforts.
We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional
downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from Medicare or other government healthcare programs may result in
a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate
revenue, attain profitability or commercialize our drugs.
Legislative proposals such as expanding the Medicaid drug rebate program to the Medicare Part D program, providing authority for the government to negotiate drug prices
under the Medicare Part D program and lowering reimbursement for drugs covered under the Medicare Part B program have been raised in Congress, but have been met with
opposition and have not been enacted so far.
The administration can rely on its existing statutory authority to make policy changes that could have an impact on the drug industry. For example, the Medicare program has in
the past proposed to test alternative payment methodologies for drugs covered under the Part B program and currently is proposing to pay hospitals less for Part B-covered drugs
purchased through the 340B Drug Pricing Program.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for drugs. We cannot be sure whether
additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing
approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent
marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the
United States or abroad.
We cannot predict the likelihood, nature or extent of how government regulation that may arise from future legislation or administrative or executive action taken by the U.S.
presidential administration may impact our business and industry. In particular, the U.S. President has taken several executive actions, specifically through rulemaking and
guidance, that could impact the pharmaceutical business and industry. A few of the major administrative actions include:
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On October 9, 2019, CMS issued a proposed rule entitled, Modernizing and Clarifying the Physician Self-Referral Regulations and on the same day the HHS Office of
Inspector General issued a similar rule, entitled Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary penalty Rules Regarding Beneficiary
Inducements. The proposed rules are an effort to reform regulations dealing with anti-kickback and self-referral laws. The proposals are attempting to allow certain
financial arrangements that would otherwise violate anti-kickback and self-referral laws for providers that are participating in value-based payment arrangements. The
proposed rule could impact drug purchasing behavior to ensure providers are within their budget and/or restructure existing payment structures between providers and
manufacturers.
On October 30, 2019, the Administration issued an advanced notice of proposed rulemaking (“ANPRM”) entitled, International Pricing Index Model for Medicare Part
B Drugs. This ANPRM is soliciting feedback on a potential proposal to align United States drug prices in the Medicare Part B program with international prices. It also
solicits public feedback on a policy that would allowing private-sector vendors to negotiate prices, take title to drugs, and improve competition for hospital and
physician business. Although this is only a notice for a potential rule, it signals the Administration’s desire to regulatorily influence the United States drug pricing
system that could adversely affect the industry.
On November 15, 2019, CMS issued a proposed rule entitled, Transparency in Coverage and finalized the Calendar Year (“CY”) 2020 Outpatient Prospective Payment
System (“OPPS”) & Ambulatory Surgical Center Price Transparency Requirements for Hospitals to Make Standard Charges Rule. Together the rules would increase
price transparency through health plans and in hospitals. The affects may influence consumer purchasing habits in the health care sector as a whole. Although the
transparency provisions are not yet in effect and the hospital price transparency requirements are subject to litigation, there could be implications for the industry related
to drug pricing if or when it is enacted.
On November 18, 2019, CMS issued a proposed rule entitled, Medicaid Fiscal Accountability Regulation (“MFAR”). The proposed rule would significantly impact
states’ ability to finance their Medicaid programs. If finalized, the MFAR could force states to restructure their Medicaid financing that could disincentivize or change
state prescription drug purchasing behavior that would adversely impact the industry.
On December 18, 2019, the FDA issued a proposed rule entitled, Importation of Prescription Drugs. The proposed rule would allow the importation of certain
prescription drugs from Canada. If finalized, states or other non-federal government entities would be able to submit importation program proposals to FDA for review
and authorization. This proposed rule could also influence pricing practices in the United States.
On January 30, 2020, CMS issued a state waiver option entitled, Health Adult Opportunity (“HAO”). The HAO would allow states to restructure benefits and coverage
policies for their Medicaid programs. The HAO will provide states administrative flexibilities in exchange for a capped federal share. The cap on the federal share is
commonly referred to as a “block grant.” Importantly, the HAO allows states to set formularies that align with Essential Health Benefit requirements while still requiring
manufacturers to participate in the Medicaid Rebate Program. Depending on utilization of the HAO by states, it could impact the industry – especially if states elect to
use a formulary.
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It is also possible that the Trump Administration will include drug pricing proposals in annual rulemaking throughout the year. As noted above, it is impossible to predict
whether these policies will be included in future rulemaking; however, it is possible and worth noting.
Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new
products and services from being developed or commercialized in a timely manner, which could negatively impact our business or the business of our partners.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain
key personnel, ability to accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a
result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid
and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would
adversely affect our business or the business of our partners. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S.
government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough nonessential FDA employees and stop routine activities. If a
prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a
material adverse effect on our business. If the timing of FDA’s review and approval of new products is delayed, the timing of our or our partners’ development process may be
delayed, which could result in delayed milestone revenues and materially harm our operations or business.
Public concern regarding the safety of drug products could delay or limit our ability to obtain regulatory approval, result in the inclusion of unfavorable information in our
labeling, or require us to undertake other activities that may entail additional costs.
In light of widely publicized events concerning the safety risk of certain drug products, the FDA, members of the U.S. Congress, the Government Accountability Office, medical
professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug
labeling that further limit use of the drug products and the establishment of risk management programs. The Food and Drug Administration Amendments Act of 2007, or
FDAAA, grants significant expanded authority to the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, the new
law authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to drug labeling to reflect new safety information and require
risk evaluation and mitigation strategies for certain drugs, including certain currently approved drugs. It also significantly expands the federal government’s clinical trial registry
and results databank, which we expect will result in significantly increased government oversight of clinical trials. Under the FDAAA, companies that violate these and other
provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties. The increased attention to drug safety issues
may result in a more cautious approach by the FDA in its review of data from our clinical trials. Data from clinical trials may receive greater scrutiny, particularly with respect
to safety, which may make the FDA or other regulatory authorities more likely to require additional preclinical studies or clinical trials. If the FDA requires us to conduct
additional preclinical studies or clinical trials prior to approving any of our product candidates, our ability to obtain approval of this product candidate will be delayed. If the
FDA requires us to provide additional clinical or preclinical data following the approval of any of our product candidates, the indications for which this product candidate is
approved may be limited or there may be specific warnings or limitations on dosing, and our efforts to commercialize our product candidates may be otherwise adversely
impacted.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for one or more of our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to
participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Some of our competitors have ongoing clinical trials for product
candidates that treat the same indications that we are targeting for our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll
in clinical trials of our competitors’ product candidates. Available therapies for the indications we are pursuing can also affect enrollment in our clinical trials. Patient enrollment
is affected by other factors including, but not necessarily limited to:
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the severity of the disease under investigation;
the eligibility criteria for the study in question;
the perceived risks and benefits of the product candidate under study;
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the efforts to facilitate timely enrollment in clinical trials;
the patient referral practices of physicians;
the number of clinical trials sponsored by other companies for the same patient population;
the ability to monitor patients adequately during and after treatment; and
the proximity and availability of clinical trial sites for prospective patients.
Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials
altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates or future product candidates, which would cause the
value of our company to decline and limit our ability to obtain additional financing.
Our product candidates are in scientific areas of intense competition from many large pharmaceutical and biotechnology companies, many of which are significantly
further along in development or are already on the market with competing products. We expect competition for our product candidates will intensify, and new products may
emerge that provide different or better therapeutic alternatives for our targeted indications.
The biotechnology and pharmaceutical industries are subject to rapid and intense technological change. We face, and will continue to face, competition in the development and,
if approved, marketing of our product candidates from academic institutions, government agencies, research institutions and biotechnology and pharmaceutical companies.
There can be no assurance that developments by others will not render one or more of our product candidates obsolete or noncompetitive. Furthermore, new developments,
including the development of other drug technologies and methods of preventing the incidence of disease, occur in the pharmaceutical industry at a rapid pace. These
developments may render one or more of our product candidates obsolete or noncompetitive.
Competitors may seek to develop alternative formulations that do not directly infringe on our in-licensed patent rights. The commercial opportunity for one or more of our
product candidates could be significantly harmed if competitors are able to develop alternative formulations outside the scope of our in-licensed patents. Compared to us, many
of our potential competitors have substantially greater:
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capital resources;
development resources, including personnel and technology;
clinical trial experience;
regulatory experience;
expertise in prosecution of intellectual property rights; and
· manufacturing, distribution and sales and marketing experience.
As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other
intellectual property rights that limit our ability to develop or commercialize one or more of our product candidates. Our competitors may also develop drugs that are more
effective, safe, useful and less costly than ours and may be more successful than us in manufacturing and marketing their products.
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Our commercial success depends upon us attaining significant market acceptance of our product candidates, if approved for sale, among physicians, patients, healthcare
payors and major operators of cancer and other clinics.
Even if we obtain regulatory approval for one or more of our product candidates, the product may not gain market acceptance among physicians, health care payors, patients
and the medical community, which are critical to commercial success. Market acceptance of any product candidate for which we receive approval depends on a number of
factors, including, but not necessarily limited to:
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the efficacy and safety as demonstrated in clinical trials;
the timing of market introduction of such product candidate as well as competitive products;
the clinical indications for which the drug is approved;
acceptance by physicians, major operators of cancer clinics and patients of the drug as a safe and effective treatment;
the safety of such product candidates seen in a broader patient group, (i.e., based on actual use);
the availability, cost and potential advantages of alternative treatments, including less expensive generic drugs;
the availability of adequate reimbursement and pricing by third-party payors and government authorities;
changes in regulatory requirements by government authorities for our product candidates;
the relative convenience and ease of administration of the product candidate for clinical practices;
the product labeling or product insert required by the FDA or regulatory authority in other countries;
the approval, availability, market acceptance and reimbursement for a companion diagnostic, if any;
the prevalence and severity of adverse side effects; and
the effectiveness of our sales and marketing efforts.
If any product candidate that we develop does not provide a treatment regimen that is as beneficial as, or is not perceived as being as beneficial as, the current standard of care or
otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA or other regulatory authorities, likely will not achieve market
acceptance. Our ability to effectively promote and sell any approved products will also depend on pricing and cost-effectiveness, including our ability to produce a product at a
competitive price and our ability to obtain sufficient third-party coverage or reimbursement. If any product candidate is approved but does not achieve an adequate level of
acceptance by physicians, patients and third-party payors, our ability to generate revenues from that product would be substantially reduced. In addition, our efforts to educate
the medical community and third-party payors on the benefits of our product candidates may require significant resources, may be constrained by FDA rules and policies on
product promotion, and may never be successful.
If approved, our product candidates will face competition from less expensive generic products of competitors, and, if we are unable to differentiate the benefits of our
product candidates over these less expensive alternatives, we may never generate meaningful product revenues.
Generic therapies are typically sold at lower prices than branded therapies and are generally preferred by hospital formularies and managed care providers of health services. We
anticipate that, if approved, our product candidates will face increasing competition in the form of generic versions of branded products of competitors, including those that
have lost or will lose their patent exclusivity. In the future, we may face additional competition from a generic form when the patents covering them begin to expire, or earlier if
the patents are successfully challenged. If we are unable to demonstrate to physicians and payers that the key differentiating features of our product candidates translate to
overall clinical benefit or lower cost of care, we may not be able to compete with generic alternatives.
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Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably.
There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. Such third-party payors include government health programs
such as Medicare, managed care providers, private health insurers and other organizations. We intend to seek approval to market our product candidates in the U.S., the EU and
other selected foreign jurisdictions. Market acceptance and sales of our product candidates in both domestic and international markets will depend significantly on the
availability of adequate coverage and reimbursement from third-party payors for any of our product candidates and may be affected by existing and future health care reform
measures. Government and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new
drugs and, as a result, they may not cover or provide adequate payment for our product candidates. These payors may conclude that our product candidates are less safe, less
effective or less cost-effective than existing or future introduced products, and third-party payors may not approve our product candidates for coverage and reimbursement or
may cease providing coverage and reimbursement for these product candidates.
Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require us to
provide to the payor supporting scientific, clinical and cost-effectiveness data for the use of our products. We may not be able to provide data sufficient to gain acceptance with
respect to coverage and reimbursement. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may
be unable to achieve or sustain profitability.
In some foreign countries, particularly in the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with
governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some
countries, we may be required to conduct additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies. If reimbursement of
our product candidates is unavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain
profitability of our products in such country.
If we are unable to establish sales, marketing and distribution capabilities or to enter into agreements with third parties to market and sell our product candidates, we may
not be successful in commercializing our product candidates if and when they are approved.
We currently do not have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any product
candidate that receives marketing approval, we would need to build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with
third parties to perform these services, and we may not be successful in doing so. In the event of successful development and regulatory approval of one or more of our product
candidates or any future product candidate, we expect to build a targeted specialist sales force to market or co-promote the product. There are risks involved with establishing
our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If
the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have
prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and
marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include, but are not necessarily limited to:
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our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products;
the lack of complementary or other products to be offered by sales personnel, which may put us at a competitive disadvantage from the perspective of sales efficiency
relative to companies with more extensive product lines; and
unforeseen costs and expenses associated with creating our own sales and marketing organization.
As an alternative to establishing our own sales force, we may choose to partner with third parties that have well-established direct sales forces to sell, market and distribute our
products.
We rely, and expect to continue to rely, on third parties to conduct our preclinical studies and clinical trials, and those third parties may not perform satisfactorily, including
failing to meet deadlines for the completion of such trials or complying with applicable regulatory requirements.
We rely on our licensors to conduct some of our preclinical studies and some of our clinical trials for our product candidates and for future product candidates, and we rely on
third-party contract research organizations and site management organizations to conduct most of the remainder of our preclinical studies and all the rest of our clinical trials.
We expect to continue to rely on third parties, such as our licensors, contract research organizations, site management organizations, clinical data management organizations,
medical institutions and clinical investigators, to conduct some of our preclinical studies and all of our clinical trials. The agreements with these third parties might terminate for
a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that could delay our product development activities.
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Our reliance on these third parties for research and development activities reduces our control over these activities but does not relieve us of our responsibilities. For example,
we remain responsible for ensuring that each of our preclinical studies and clinical trials are conducted in accordance with the general investigational plan and protocols for the
trial and for ensuring that our preclinical studies are conducted in accordance with good laboratory practices (“GLPs”) as appropriate. Moreover, the FDA requires us to comply
with standards, commonly referred to as good clinical practices (“GCPs”) for conducting, recording and reporting the results of clinical trials to assure that data and reported
results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Regulatory authorities enforce these requirements through
periodic inspections of trial sponsors, clinical investigators and trial sites. If we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in our
clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our
marketing applications. We cannot assure you that upon inspection by a regulatory authority, such regulatory authority will determine that any of our clinical trials complies
with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may
require us to repeat clinical trials, which would delay the regulatory approval process. We also are required to register ongoing clinical trials and post the results of completed
clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal
sanctions.
The third parties with whom we have contracted to help perform our preclinical studies and/or clinical trials may also have relationships with other entities, some of which may
be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our preclinical studies or clinical trials in
accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates
and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
If any of our relationships with these third-party contract research organizations or site management organizations terminates, we may not be able to enter into arrangements
with alternative contract research organizations or site management organizations or to do so on commercially reasonable terms. Switching or adding additional contract
research organizations or site management organizations involves additional cost and requires management time and focus. In addition, there is a natural transition period when
a new contract research organization or site management organization commences work. As a result, delays could occur, which could compromise our ability to meet our
desired development timelines. Though we carefully manage our relationships with our contract research organizations or site management organizations, there can be no
assurance that we will not encounter similar challenges or delays in the future. Forces beyond our control could disrupt the ability of our third-party CROs, site management
organizations, clinical data management organizations, medical institutions, and clinical investigators to conduct our preclinical studies and our clinical trials for our product
candidates and for any future product candidate. For instance, the developing situation in China and globally regarding the coronavirus disease outbreak has the potential to
adversely impact our product development activities. At this time, the impact of the coronavirus disease outbreak is not having a material adverse effect on our business, but no
assurance can be given it will not in the future if the situation persists.
We contract with third parties for the manufacture of our product candidates for preclinical and clinical testing and may also do so for commercialization, if and when our
product candidates are approved. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or any future product
candidate or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We may rely on third-party manufacturers or third-party collaborators for the manufacture of commercial supply of one or more product candidates for which our collaborators
or we obtain marketing approval. We may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if we are able to establish
agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including, but not necessarily limited to:
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reliance on the third party for regulatory compliance and quality assurance, while still being required by law to establish adequate oversight and control over products
furnished by that third party;
the possible breach of the manufacturing agreement by the third party;
· manufacturing delays if our third-party manufacturers are unable to obtain raw materials due to supply chain disruptions, give greater priority to the supply of other
products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreement between us;
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the possible misappropriation of our proprietary information, including our trade secrets and know-how; and
the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.
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We rely on our third-party manufacturers to produce or purchase from third-party suppliers the materials and equipment necessary to produce our product candidates for our
preclinical and clinical trials. There are a limited number of suppliers for raw materials and equipment that we use (or that are used on our behalf) to manufacture our drugs, and
there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials and equipment necessary to produce our product candidates
for our preclinical and clinical trials, and if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw
materials or equipment by our third-party manufacturers. Any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing
preclinical or clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our preclinical or clinical trials, product testing and
potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these raw materials or equipment after regulatory approval has been
obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability
to generate revenues from the sale of our product candidates.
The facilities used by contract manufacturers to potentially manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted
after we submit an NDA or BLA to the FDA. We are required by law to establish adequate oversight and control over raw materials, components and finished products
furnished by our contract manufacturers, but we do not control the day-to-day manufacturing operations of, and are dependent on, the contract manufacturers for compliance
with cGMP regulations for manufacture of our product candidates. Third-party manufacturers may not be able to comply with the cGMP regulations or similar regulatory
requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being
imposed on us, including clinical holds, fines, injunctions, restrictions on imports and exports, civil penalties, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our
products.
One or more of the product candidates that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited
number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performance failure on the part of our existing or future
manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply. If our current contract
manufacturers cannot perform as agreed, we may be required to replace such manufacturers. We may incur added costs and delays in identifying and qualifying any
replacement manufacturers. The DEA restricts the importation of a controlled substance finished drug product when the same substance is commercially available in the United
States, which could reduce the number of potential alternative manufacturers for one or more of our product candidates.
Future dependence upon others for the manufacture of our product candidates or products may adversely affect our future profit margins and our ability to commercialize any
products that may receive marketing approval on a timely and competitive basis.
We also expect to rely on other third parties to distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical
development or marketing approval of our product candidates or commercialization of our products, if approved, producing additional losses and depriving us of potential
product revenue.
We rely on clinical data and results obtained by third parties that could ultimately prove to be inaccurate or unreliable.
As part of our strategy to mitigate development risk, we seek to develop product candidates with well-studied mechanisms of action, and we utilize biomarkers to assess
potential clinical efficacy early in the development process. This strategy necessarily relies upon clinical data and other results obtained by third parties that may ultimately
prove to be inaccurate or unreliable. Further, such clinical data and results may be based on products or product candidates that are significantly different from our product
candidates or any future product candidate. If the third-party data and results we rely upon prove to be inaccurate, unreliable or not applicable to our product candidates or future
product candidate, we could make inaccurate assumptions and conclusions about our product candidates and our research and development efforts could be compromised.
If we breach any of the agreements under which we license rights to one or more of product candidates from others, we could lose the ability to continue to develop and, if
approved, commercialize such product candidate.
Because we have in-licensed the rights to all of our product candidates from COH, Fred Hutch, St. Jude and Nationwide, and in the future will continue to in-license from
additional third parties, if there is any dispute between us and our licensor regarding our rights under our license agreement, our ability to develop and commercialize these
product candidates may be adversely affected. Any uncured, material breach under our license agreement could result in our loss of exclusive rights to our product candidate
and may lead to a complete termination of our related product development efforts.
We may not be able to manage our business effectively if we are unable to attract and retain key personnel.
We may not be able to attract or retain qualified management and commercial, scientific and clinical personnel in the future due to the intense competition for qualified
personnel among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel to accomplish our business objectives, we may
experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our ability to implement our
business strategy.
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Our employees, consultants, or third-party partners may engage in misconduct or other improper activities, including but not necessarily limited to noncompliance with
regulatory standards and requirements or internal procedures, policies or agreements to which such employees, consultants and partners are subject, any of which could
have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees, consultants, or third-party partners could include intentional failures to comply
with FDA regulations, provide accurate information to the FDA, comply with cGMPs, comply with federal and state healthcare fraud and abuse laws and regulations, report
financial information or data accurately, comply with internal procedures, policies or agreements to which such employees, consultants or partners are subject, or disclose
unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to
prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and
promotion, sales commission, customer incentive programs and other business arrangements. Employee, consultant, or third-party misconduct could also involve the improper
use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation, as well as civil and criminal liability.
The precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not
successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of
significant fines or other civil and/or criminal sanctions.
We receive a large amount of proprietary information from potential or existing licensors of intellectual property and potential acquisition target companies, all pursuant to
confidentiality agreements. The confidentiality and proprietary invention assignment agreements that we have in place with each of our employees and consultants prohibit the
unauthorized disclosure of such information, but such employees or consultants may nonetheless disclose such information through negligence or willful misconduct. Any such
unauthorized disclosures could subject us to monetary damages and/or injunctive or equitable relief. The notes, analyses and memoranda that we have generated based on such
information are also valuable to our businesses, and the unauthorized disclosure or misappropriation of such materials by our employees and consultants could significantly
harm our strategic initiatives – especially if such disclosures are made to our competitors.
We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for one or more of our product candidates or
a future product candidate we may license or acquire and may have to limit their commercialization.
The use of one or more of our product candidates and any future product candidate we may license or acquire in clinical trials and the sale of any products for which we obtain
marketing approval expose us to the risk of product liability claims. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise
unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a
failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Product liability claims might be brought against us by consumers, health
care providers or others using, administering or selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may result in:
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withdrawal of clinical trial participants;
suspension or termination of clinical trial sites or entire trial programs;
decreased demand for any product candidates or products that we may develop;
initiation of investigations by regulators;
impairment of our business reputation;
costs of related litigation;
substantial monetary awards to patients or other claimants;
loss of revenues;
reduced resources of our management to pursue our business strategy; and
the inability to commercialize our product candidate or future product candidates.
We will obtain limited product liability insurance coverage for any and all of our upcoming clinical trials. However, our insurance coverage may not reimburse us or may not be
sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to
maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. When needed we intend to expand our insurance coverage
to include the sale of commercial products if we obtain marketing approval for one or more of our product candidates in development, but we may be unable to obtain
commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on
drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed
our insurance coverage, could decrease our cash and adversely affect our business.
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Our future growth depends in part on our ability to identify and acquire or in-license products, and if we do not successfully identify and acquire or in-license related
product candidates or integrate them into our operations, we may have limited growth opportunities.
An important part of our business strategy is to continue to develop a pipeline of product candidates by acquiring or in-licensing products, businesses or technologies that we
believe are a strategic fit with our focus on ex vivo lentiviral gene therapy for rare genetic diseases and on novel combinations of CAR T cells with immuno-oncology
antibodies, other biologics, and small molecule kinase inhibitors. Future in-licenses or acquisitions, however, may entail numerous operational and financial risks, including,
but not necessarily limited to:
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exposure to unknown liabilities;
disruption of our business and diversion of our management’s time and attention to develop acquired products or technologies;
difficulty or inability to secure financing to fund development activities for such acquired or in-licensed technologies in the current economic environment;
incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
higher than expected acquisition and integration costs;
increased amortization expenses;
difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and
inability to retain key employees of any acquired businesses.
We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current
infrastructure. In particular, we may compete with larger pharmaceutical companies and other competitors in our efforts to establish new collaborations and in-licensing
opportunities. These competitors likely will have access to greater financial resources than us and may have greater expertise in identifying and evaluating new opportunities.
Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such
efforts.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more
profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we
may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development
programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately and/or effectively evaluate the commercial
potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty
arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment
and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our
operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of
contamination or injury from these materials. Although we believe that the safety procedures for handling and disposing of these materials comply with the standards prescribed
by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of contamination or injury resulting from our
use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with
civil or criminal fines and penalties for failure to comply with such laws and regulations.
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Although we maintain workers’ compensation insurance to cover us for costs and expenses, we may incur due to injuries to our employees resulting from the use of hazardous
materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may
be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and
regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or
other sanctions.
We rely on information technology, and any internet or internal computer system failures, inadequacies, interruptions or compromises of our systems or the security of
confidential information could damage our reputation and harm our business.
Although a significant portion of our business is conducted using traditional methods of contact and communications such as face-to-face meetings, our business is increasingly
dependent on critical, complex and interdependent information technology systems, including internet-based systems, to support business processes as well as internal and
external communications. We could experience system failures and degradations in the future. We cannot assure you that we will be able to prevent an extended and/or material
system failure if any of the following or similar events occurs:
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human error;
subsystem, component, or software failure;
a power or telecommunications failure;
hacker attacks, cyber-attacks, software viruses, security breaches, unauthorized access or intentional acts of vandalism; or
terrorist acts or war.
If any of the foregoing events were to occur, our business operations could be disrupted in ways that would require the incurrence of substantial expenditures to remedy. Any
system failure, accident or security breach that causes interruptions in our operations could result in a material disruption of our drug development programs. For example, the
loss of clinical trial data from completed clinical trials for one or more of our product conducts could result in delays in our regulatory approval efforts and significantly increase
our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data and applications, or
inappropriate/unauthorized disclosure of confidential or proprietary information (including trade secrets), we could incur liability and our business and financial condition could
be harmed.
The occurrence of a catastrophic disaster could damage our facilities beyond insurance limits, or we could lose key data which could cause us to curtail or cease
operations.
We are vulnerable to damage and/or loss of vital data from natural disasters, such as earthquakes, tornadoes, power loss, fire, health epidemics and pandemics, floods and
similar events, as well as from accidental loss or destruction. If any disaster were to occur, our ability to operate our businesses could be seriously impaired. We have property,
liability and business interruption insurance that may not be adequate to cover losses resulting from disasters or other similar significant business interruptions, and we do not
plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies
could seriously impair our business, financial condition and prospects. Any of the aforementioned circumstances, including without limitation the emerging COVID-19 virus,
may also impede our employees’ and consultants’ abilities to provide services in-person and/or in a timely manner; hinder our ability to raise funds to finance our operations on
favorable terms or at all; and trigger effectiveness of “force majeure” clauses under agreements with respect to which we receive goods and services, or under which we are
obligated to achieve developmental milestones on certain timeframes. Disputes with third parties over the applicability of such “force majeure” clauses, or the enforceability of
developmental milestones and related extension mechanisms in light of such business interruptions, may arise and may become expensive and time-consuming.
We are currently reliant on the City of Hope National Medical Center, the Fred Hutchinson Cancer Research Center, St. Jude Children’s Research Hospital, and the
University of Alabama at Birmingham for a substantial portion of our research and development efforts and the early clinical testing of our product candidates.
A substantial portion of our research and development has been and will continue to be conducted by COH, Fred Hutch, St. Jude, and UAB pursuant to a sponsored research
agreement and/or clinical trial agreements with each of those parties. As a result, our future success is heavily dependent on the results of research and development efforts of
Dr. Stephen Forman and his laboratory team at COH, of Dr. Brian Till and his laboratory team at Fred Hutch, of Drs. Stephen Gottschalk and Ewelina Mamcarz at St. Jude, and
of Dr. James M. Markert at UAB. We have limited control over the nature or timing of their research and limited visibility into their day-to-day activities, and as a result can
provide little assurance that their efforts will be successful.
CAR T is a new approach to cancer treatment that presents significant challenges.
We have concentrated much of our research and development efforts on CAR T technology, and our future success is highly dependent on the successful development of T cell
immunotherapies in general and our CAR T technology and product candidates in particular. Because CAR T is a new approach to cancer immunotherapy and cancer treatment
generally, developing and commercializing our product candidates subjects us to a number of challenges, including, but not necessarily limited to:
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obtaining regulatory approval from the FDA and other regulatory authorities that may have very limited experience with the commercial development of genetically
modified T cell therapies for cancer;
developing and deploying consistent and reliable processes for engineering a patient’s T cells ex vivo and infusing the engineered T cells back into the patient;
conditioning patients with chemotherapy in conjunction with delivering each of our products, which may increase the risk of adverse side effects of our products;
educating medical personnel regarding the potential side effect profile of each of our products;
developing processes for the safe administration of these products, including long-term follow-up for all patients who receive our product candidates;
sourcing clinical and, if approved, commercial supplies for the materials used to manufacture and process our product candidates;
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developing a manufacturing process and distribution network with a cost of goods that allows for an attractive return on investment;
establishing sales and marketing capabilities after obtaining any regulatory approval to gain market acceptance, and obtaining adequate coverage, reimbursement and
pricing by third-party payors and government authorities; and
developing therapies for types of cancers beyond those addressed by our current product candidates.
Product candidates, even if successfully developed and commercialized, may be effective only in combating certain specific types of cancer, and the market for drugs
designed to combat such cancer type(s) may be small and unprofitable.
There are many different types of cancer, and a treatment that is effective against one type of cancer may not be effective against another. CAR T or other technologies we
pursue may only be effective in combating specific types of cancer but not others. Even if one or more of our products proves to be an effective treatment against a given type
of cancer, the number of patients suffering from such cancer may be small, in which case potential sales from a therapy designed to combat such cancer would be limited.
Our gene therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost of product candidate development and
subsequently obtaining regulatory approval.
We have concentrated a portion of our therapeutic product research and development efforts on our gene therapy platform, and our future success depends, in part, on the
successful development of this therapeutic approach. There can be no assurance that any development problems we experience in the future related to our gene therapy platform
will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable,
reproducible and commercial-scale manufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical studies or
commercializing our products on a timely or profitable basis, if at all.
In addition, the clinical study requirements of the FDA, the European Medicines Agency, or EMA, and other regulatory agencies and the criteria these regulators use to
determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The
regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or more extensively studied
pharmaceutical or other product candidates. Currently, a limited number of gene therapy products, including CAR T therapies, have been approved by the FDA, the EMA and
the European Commission. Given the few precedents of approved gene therapy products, it is difficult to determine how long it will take or how much it will cost to obtain
regulatory approvals for our product candidates in the United States, the EU or other jurisdictions. Approvals by the EMA and the European Commission may not be indicative
of what the FDA may require for approval.
Regulatory requirements governing the development of gene therapy products have changed frequently and may continue to change in the future. The FDA has established the
Office of Tissues and Advanced Therapies within the Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products,
and to advise the CBER on its review. The FDA can put an investigational new drug application, or IND, on clinical hold if the information in an IND is not sufficient to assess
the risks in pediatric patients. Before a clinical study can begin at any institution, that institution’s IRB and its Institutional Biosafety Committee will have to review the
proposed clinical study to assess the safety of the study. Moreover, serious adverse events or developments in clinical trials of gene therapy product candidates conducted by
others may cause the FDA or other regulatory bodies to initiate a clinical hold on our clinical trials or otherwise change the requirements for approval of any of our product
candidates.
These regulatory review agencies, committees and advisory groups and the new requirements and guidelines they promulgate may lengthen the regulatory review process,
require us to perform additional or larger studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and
commercialization of these treatment candidates or lead to significant post-approval studies, limitations or restrictions. As we advance our product candidates, we will be
required to consult with these regulatory and advisory groups and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or
discontinue development of our product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to
market could decrease our ability to generate sufficient product revenue to maintain our business.
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Negative public opinion and increased regulatory scrutiny of the therapies that underpin many of our product candidates may damage public perception of our product
candidates or adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.
Public perception may be influenced by claims that one or more of the therapies underpinning our product candidates, including without limitation gene therapy, is unsafe, and
such therapy may not gain the acceptance of the public or the medical community. In particular, the success of our gene therapy platforms will depend upon physicians
specializing in the treatment of those diseases that our product candidates target prescribing treatments that involve the use of our product candidates in lieu of, or in addition to,
existing treatments with which they are already familiar and for which greater clinical data may be available. More restrictive government regulations or negative public opinion
would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates or demand for
any products we may develop. Adverse events in our clinical trials, even if not ultimately attributable to our product candidates, and the resulting publicity, could lead to
increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential product candidates, stricter labeling
requirements for those product candidates that do obtain approval and/or a decrease in demand for any such product candidates. Concern about environmental spread of our
products, whether real or anticipated, may also hinder the commercialization of our products.
Collaborative relationships with third parties could cause us to expend significant resources and incur substantial business risk with no assurance of financial return.
Establishing strategic collaborations is difficult and time-consuming. Our discussions with potential collaborators may not lead to the establishment of collaborations on
favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. In addition,
there has been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future
collaborators. Even if we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of product
candidates or the generation of sales revenue. To the extent that we enter into collaborative arrangements, the related product revenues are likely to be lower than if we directly
marketed and sold products. Such collaborators may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on
and whether such a collaboration could be more attractive than the one with us for any future product candidate.
Risks Related to Intellectual Property
If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficiently broad, our
competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and
products may be impaired.
Our success depends, in large part, on our ability to obtain patent protection for product candidates and their formulations and uses. The patent application process is subject to
numerous risks and uncertainties, and there can be no assurance that we or our partners will be successful in obtaining patents or what the scope of an issued patent may
ultimately be. These risks and uncertainties include, but are not necessarily limited to, the following:
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patent applications may not result in any patents being issued, or the scope of issued patents may not extend to competitive product candidates and their formulations
and uses developed or produced by others;
our competitors, many of which have substantially greater resources than us or our partners, and many of which have made significant investments in competing
technologies, may seek, or may already have obtained, patents that may limit or interfere with our abilities to make, use, and sell potential product candidates, file new
patent applications, or may affect any pending patent applications that we may have;
there may be significant pressure on the U.S. government and other international governmental bodies to limit the scope of patent protection both inside and outside the
United States for disease treatments that prove successful as a matter of public policy regarding worldwide health concerns; and
countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better
opportunity to create, develop and market competing products.
In addition, patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable, or otherwise may not
provide any competitive advantage. Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition,
derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. The costs of these
proceedings could be substantial, and it is possible that our efforts to establish priority of invention would be unsuccessful, resulting in a material adverse effect on our U.S.
patent positions. An adverse determination in any such submission, patent office trial, proceeding or litigation could reduce the scope of, render unenforceable, or invalidate, our
patent rights, allow third parties to commercialize our technologies or products and compete directly with us, without payment to us, or result in our inability to manufacture or
commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is
threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. Third parties are often responsible
for maintaining patent protection for our product candidates, at our and their expense. If that party fails to appropriately prosecute and maintain patent protection for a product
candidate, our abilities to develop and commercialize products may be adversely affected, and we may not be able to prevent competitors from making, using and selling
competing products. Such a failure to properly protect intellectual property rights relating to any of our product candidates could have a material adverse effect on our financial
condition and results of operations. In addition, U.S. patent laws may change, which could prevent or limit us from filing patent applications or patent claims to protect products
and/or technologies or limit the exclusivity periods that are available to patent holders, as well as affect the validity, enforceability, or scope of issued patents.
We and our licensors also rely on trade secrets and proprietary know-how to protect product candidates. Although we have taken steps to protect our and their trade secrets and
unpatented know-how, including entering into confidentiality and non-use agreements with third parties, and proprietary information and invention assignment agreements with
employees, consultants and advisers, third parties may still come upon this same or similar information independently. Despite these efforts, any of these parties may also
breach the agreements and may unintentionally or willfully disclose our or our licensors’ proprietary information, including our trade secrets, and we may not be able to
identify such breaches or obtain adequate remedies. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-
consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. Moreover, if any
of our or our licensors’ trade secrets were to be lawfully obtained or independently developed by a competitor, we and our licensors would have no right to prevent them, or
those to whom they communicate it, from using that technology or information to compete with us. If any of our or our licensors’ trade secrets were to be disclosed to or
independently developed by a competitor, our competitive positions would be harmed.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost
or in a timely manner. It is also possible that we will fail to identify any patentable aspects of our research and development output and methodology, and, even if we do, an
opportunity to obtain patent protection may have passed. Given the uncertain and time-consuming process of filing patent applications and prosecuting them, it is possible that
our product(s) or process(es) originally covered by the scope of the patent application may have changed or been modified, leaving our product(s) or process(es) without patent
protection. If our licensors or we fail to obtain or maintain patent protection or trade secret protection for one or more product candidates or any future product candidate we
may license or acquire, third parties may be able to leverage our proprietary information and products without risk of infringement, which could impair our ability to compete in
the market and adversely affect our ability to generate revenues and achieve profitability. Moreover, should we enter into other collaborations we may be required to consult
with or cede control to collaborators regarding the prosecution, maintenance and enforcement of licensed patents. Therefore, these patents and applications may not be
prosecuted and enforced in a manner consistent with the best interests of our business.
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The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the
subject of much litigation. In addition, no consistent policy regarding the breadth of claims allowed in pharmaceutical or biotechnology patents has emerged to date in the U.S.
The patent situation outside the U.S. is even more uncertain. The laws of foreign countries may not protect our rights to the same extent as the laws of the U.S., and we may fail
to seek or obtain patent protection in all major markets. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S.
law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not
published until 18 months after a first filing, or in some cases not at all. Therefore, we cannot know with certainty whether we or our licensors were the first to make the
inventions claimed in patents or pending patent applications that we own or licensed, or that we or our licensors were the first to file for patent protection of such inventions. In
the event that a third party has also filed a U.S. patent application relating to our product candidates or a similar invention, depending upon the priority dates claimed by the
competing parties, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention in the U.S. We might also become involved
in derivation proceedings in an event that a third party misappropriates one or more of our inventions and files their own patent application directed to such one or more
inventions. The costs of these proceedings could be substantial, and it is possible that our efforts to establish priority of invention (or that a third party derived an invention from
us) would be unsuccessful, resulting in a material adverse effect on our U.S. patent position. As a result, the issuance, scope, validity, enforceability and commercial value of
our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in
part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in
the U.S. and other countries may diminish the value of our patents or narrow the scope of our patent protection. For example, the federal courts of the U.S. have taken an
increasingly dim view of the patent eligibility of certain subject matter, such as naturally occurring nucleic acid sequences, amino acid sequences and certain methods of
utilizing the same, which include their detection in a biological sample and diagnostic conclusions arising from their detection. Such subject matter, which had long been a
staple of the biotechnology and biopharmaceutical industry to protect their discoveries, is now considered, with few exceptions, ineligible in the first instance for protection
under the patent laws of the U.S. Accordingly, we cannot predict the breadth of claims that may be allowed and remain enforceable in our patents or in those licensed from a
third party.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued
patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant
changes to United States patent law. These include changes to transition from a “first-to-invent” system to a “first inventor-to-file” system and to the way issued patents are
challenged. The formation of the Patent Trial and Appeal Board now provides a less burdensome, quicker and less expensive process for challenging issued patents. The
USPTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with
the Leahy-Smith Act, and in particular, the first inventor-to-file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the
Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial
condition.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us
or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative
technologies or products in a non-infringing manner.
We also may rely on the regulatory period of market exclusivity for any of our biologic product candidates that are successfully developed and approved for commercialization.
Although this period in the United States is generally 12 years from the date of marketing approval (depending on the nature of the specific product), there is a risk that the U.S.
Congress could amend laws to significantly shorten this exclusivity period. Once any regulatory period of exclusivity expires, depending on the status of our patent coverage
and the nature of the product, we may not be able to prevent others from marketing products that are biosimilar to or interchangeable with our products, which would materially
adversely affect our business.
We depend on our licensors for the maintenance and enforcement of intellectual property covering certain of our product candidates and have limited control, if any, over
the amount or timing of resources that our licensors devote on our behalf, or whether any financial difficulties experienced by our licensors could result in their
unwillingness or inability to secure, maintain and enforce patents protecting certain of our product candidates.
We depend on our licensors to protect the proprietary rights covering our product candidates and we have limited, if any, control over the amount or timing of resources that
they devote on our behalf, or the priority they place on, maintaining patent rights and prosecuting patent applications to our advantage. Moreover, we have limited, if any,
control over the strategies and arguments employed in the maintenance of patent rights and the prosecution of patent applications to our advantage. Our licensors might become
involved in disputes with one of their other licensees, and we or a portion of our licensed patent rights might become embroiled in such disputes.
Our licensors, depending on the patent or application, are responsible for maintaining issued patents and prosecuting patent applications. We cannot be sure that they will
perform as required. Should they decide they no longer want to maintain any of the patents licensed to us, they are required to afford us the opportunity to do so at our expense.
If our licensors do not perform, and if we do not assume the maintenance of the licensed patents in sufficient time to make required payments or filings with the appropriate
governmental agencies, we risk losing the benefit of all or some of those patent rights. Moreover, and possibly unbeknownst to us, our licensors may experience serious
difficulties related to their overall business or financial stability, and they may be unwilling or unable to continue to expend the financial resources required to maintain and
prosecute these patents and patent applications. While we intend to take actions reasonably necessary to enforce our patent rights, we depend, in part, on our licensors to protect
a substantial portion of our proprietary rights and to inform us of the status of those protections and efforts thereto.
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Our licensors may also be notified of alleged infringement and be sued for infringement of third-party patents or other proprietary rights. We may have limited, if any, control or
involvement over the defense of these claims, and our licensors could be subject to injunctions and temporary or permanent exclusionary orders in the U.S. or other countries.
Our licensors are not obligated to defend or assist in our defense against third-party claims of infringement. We have limited, if any, control over the amount or timing of
resources, if any, that our licensors devote on our behalf or the priority they place on defense of such third-party claims of infringement.
Because of the uncertainty inherent in any patent or other litigation involving proprietary rights, we or our licensors may not be successful in defending claims of intellectual
property infringement alleged by third parties, which could have a material adverse effect on our results of operations. Regardless of the outcome of any litigation, defending the
litigation may be expensive, time-consuming and distracting to management.
Because it is difficult and costly to protect our proprietary rights, we may not be able to ensure their protection.
The degree of future protection for our proprietary rights is uncertain, because legal means afford only limited protection and may not adequately protect our rights or permit us
to gain or keep our competitive advantage, in addition to being costly and time consuming to undertake. For example:
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our licensors might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;
our licensors might not have been the first to file patent applications for these inventions;
others may independently develop similar or alternative technologies or duplicate our product candidates or any future product candidate technologies;
it is possible that none of the pending patent applications licensed to us will result in issued patents;
the scope of our issued patents may not extend to competitive products developed or produced by others;
the issued patents covering our product candidates or any future product candidate may not provide a basis for market exclusivity for active products, may not provide us
with any competitive advantages, or may be challenged by third parties;
we may not develop additional proprietary technologies that are patentable; or
intellectual property rights of others may have an adverse effect on our business.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file one or more actions for
patent infringement, which can be expensive and time consuming. Any claims we assert against accused infringers could provoke these parties to assert counterclaims against
us alleging that we infringe their patents; or provoke those parties to petition the USPTO to institute inter partes review against the asserted patents, which may lead to a finding
that all or some of the claims of the patent are invalid. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in
whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the
technology in question or as a matter of public policy. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, rendered
unenforceable, or interpreted narrowly. Furthermore, adverse results on U.S. patents may affect related patents in our global portfolio.
If we or our licensors are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation
would have a material adverse effect on our business.
Our success also depends on our ability, and the abilities of any of our respective current or future collaborators, to develop, manufacture, market and sell product candidates
without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in
the fields in which we are developing products, some of which may be directed at claims that overlap with the subject matter of our or our licensors’ intellectual property.
Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our product
candidates or proprietary technologies may infringe. Similarly, there may be issued patents relevant to our product candidates of which we or our licensors are not aware.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not
published until 18 months after a first filing, or in some cases not at all. Therefore, we cannot know with certainty whether we or such licensors were the first to make the
inventions claimed in patents or pending patent applications that we own or licensed, or that we and our licensors were the first to file for patent protection of such inventions. In
the event that a third party has also filed a U.S. patent application relating to our product candidates or a similar invention, depending upon the priority dates claimed by the
competing parties, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention in the U.S. The costs of these proceedings
could be substantial, and it is possible that our efforts to establish priority of invention would be unsuccessful, resulting in a material adverse effect on our U.S. patent position.
As a result, the issuance, scope, validity, enforceability and commercial value of our or any of our licensors’ patent rights are highly uncertain.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third party
claims that we or any of our licensors, suppliers or collaborators infringe the third party’s intellectual property rights, we may have to, among other things:
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obtain additional licenses, which may not be available on commercially reasonable terms, if at all;
abandon an infringing product candidate or redesign products or processes to avoid infringement, which may demand substantial funds, time and resources and which
may result in inferior or less desirable processes and/or products;
pay substantial damages, including the possibility of treble damages and attorneys’ fees, if a court decides that the product or proprietary technology at issue infringes
on or violates the third party’s rights;
pay substantial royalties, fees and/or grant cross-licenses to our product candidates; and/or
defend litigation or administrative proceedings which may be costly regardless of outcome, and which could result in a substantial diversion of financial and
management resources.
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Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our
technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common
stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales,
marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may
be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation
and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
A third party may hold intellectual property, including patent rights that are important or necessary to the development and commercialization of our products. It may be
necessary for us to use the patented or proprietary technology of third parties, who may or may not be interested in granting such a license, to commercialize our products, in
which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially.
If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our
business.
We are currently a party to license agreements with St. Jude, COH, Fred Hutch, UCLA, Nationwide and other institutions. In the future, we may become party to licenses that
are important for product development and commercialization. If we fail to comply with our obligations under current or future license and funding agreements, our
counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product or utilize any technology
that is covered by these agreements or may face other penalties under the agreements. Such an occurrence could materially and adversely affect the value of a product candidate
being developed under any such agreement or could restrict our drug discovery activities. Termination of these agreements or reduction or elimination of our rights under these
agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our
rights to important intellectual property or technology.
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We may be subject to claims that our employees and/or consultants have wrongfully used or disclosed to us alleged trade secrets of their former employers or other clients.
As is common in the biopharmaceutical industry, we rely on employees and consultants to assist in the development of product candidates, many of whom were previously
employed at, or may have previously been or are currently providing consulting services to, other biopharmaceutical companies, including our competitors or potential
competitors. We may become subject to claims related to whether these individuals have inadvertently or otherwise used, disclosed or misappropriated trade secrets or other
proprietary information of their former employers or their former or current clients. Litigation may be necessary to defend against these claims. Even if we are successful in
defending these claims, litigation could result in substantial costs and be a distraction to management and/or the employees or consultants that are implicated.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patent protection for our product candidates or any future product candidate, we also rely on trade secrets, including unpatented know-how, technology
and other proprietary information, to maintain our competitive position, particularly where we do not believe patent protection is appropriate or obtainable. However, trade
secrets are difficult to protect. We limit disclosure of such trade secrets where possible but we also seek to protect these trade secrets, in part, by entering into non-disclosure and
confidentiality agreements with parties who do have access to them, such as our employees, our licensors, corporate collaborators, outside scientific collaborators, contract
manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and
consultants. Despite these efforts, any of these parties may breach the agreements and may unintentionally or willfully disclose our proprietary information, including our trade
secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult,
expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade
secrets. Moreover, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to
whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a
competitor, our competitive position would be harmed.
Because we in-license intellectual property pertaining to certain product candidates from third parties, any dispute with the licensors or the non-performance of such
license agreements may adversely affect our ability to develop and commercialize the applicable product candidates.
The types of disputes which may arise between us and the third parties from whom we license intellectual property include, but are not limited to:
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the scope of rights granted under such license agreements and other interpretation-related issues;
the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to such license agreements;
the scope and interpretation of the representations and warranties made to us by our licensors, including those pertaining to the licensors’ right title and interest in the
licensed technology and the licensors’ right to grant the licenses contemplated by such agreements;
the sublicensing of patent and other rights under our license agreements and/or collaborative development relationships, and the rights and obligations associated with
such sublicensing, including whether or not a given transaction constitutes a sublicense under such license agreement;
the diligence and development obligations under license agreements (which may include specific diligence milestones) and what activities or achievements satisfy those
diligence obligations;
whether or not the milestones associated with certain milestone payment obligations have been achieved or satisfied;
the applicability or scope of indemnification claims or obligations under such license agreements;
the permissibility and advisability of, and strategy regarding, the pursuit of potential third-party infringers of the intellectual property that is the subject of such license
agreements;
the calculation of royalty, sublicense revenue and other payment obligations under such license agreements;
the extent to which license rights, if any, are retained by licensors under such license agreements;
whether or not a material breach has occurred under such license agreements and the extent to which such breach, if deemed to have occurred, is or can be cured within
applicable cure periods, if any;
disputes regarding patent filing and prosecution decisions, as well as payment obligations regarding past and ongoing patent expenses;
intellectual property rights resulting from the joint creation or use of intellectual property (including improvements made to licensed intellectual property) by our and
our partners’ licensors and us and our partners; and
the priority of invention of patented technology.
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In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may
be susceptible to multiple interpretations or may conflict in such a way that puts us in breach of one or more agreements, which would make us susceptible to lengthy and
expensive disputes with one or more of such third-party licensing partners. The resolution of any contract interpretation disagreement that may arise could narrow what we
believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant
agreements, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, if disputes over intellectual
property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully
develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations and
prospects.
Risks Related to Our Finances and Capital Requirements
We have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.
We are an emerging growth company with a limited operating history. We have focused primarily on in-licensing and developing our product candidates, with the goal of
supporting regulatory approval for these product candidates. We have incurred losses since our inception in March 2015 and have an accumulated deficit of $125.5 million as of
December 31, 2019. We expect to continue to incur significant operating losses for the foreseeable future. We also do not anticipate that we will achieve profitability for a period
of time after generating material revenues, if ever. If we are unable to generate revenues, we will not become profitable and may be unable to continue operations without
continued funding.
Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the timing or amount of increased expenses or
when or if, we will be able to achieve profitability. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will
increase substantially if:
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one or more of our product candidates receive regulatory approval and are approved for commercial sale, due to our need to establish the necessary commercial
infrastructure to launch this product candidate without substantial delays, including hiring sales and marketing personnel and contracting with third parties for
warehousing, distribution, cash collection and related commercial activities;
we are required by the FDA or foreign regulatory authorities to perform studies in addition to those currently expected;
there are any delays in completing our clinical trials or the development of any of our product candidates;
we execute other collaborative, licensing or similar arrangements that require us to make payments to collaborators or licensors;
there are variations in the level of expenses related to our future development programs;
there are any product liability or intellectual property infringement lawsuits in which we may become involved; and
there are any regulatory developments affecting product candidates of our competitors.
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Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from our development stage products, and we do not
know when, or if, we will generate any revenue. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:
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obtain regulatory approval for one or more of our product candidates, or any future product candidate that we may license or acquire;
· manufacture or have manufactured commercial quantities of one or more of our product candidates or any future product candidate, if approved, at acceptable cost
levels; and
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develop a commercial organization and the supporting infrastructure required to successfully market and sell one or more of our product candidates or any future product
candidate, if approved.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would
depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product
offerings or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.
Our short operating history makes it difficult to evaluate our business and prospects.
We have only been conducting operations since our incorporation in March 2015. Our operations to date have been limited to preclinical operations and the in-licensing of our
product candidates. We have not yet demonstrated an ability to successfully complete clinical trials, obtain regulatory approvals, manufacture a clinical scale or commercial
scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently,
any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing pharmaceutical
products.
In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to expand our
capabilities to support commercial activities. We may not be successful in adding such capabilities.
We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which
are beyond our control. Accordingly, you should not rely upon the results of any past quarterly period as an indication of future operating performance.
We do not have any products that are approved for commercial sale and therefore do not expect to generate any revenues from product sales in the foreseeable future, if
ever.
We have not generated any product related revenues to date, and do not expect to generate any such revenues for at least the next several years, if at all. To obtain revenues from
sales of our product candidates, we must succeed, either alone or with third parties, in developing, obtaining regulatory approval for, manufacturing and marketing products
with commercial potential. We may never succeed in these activities, and we may not generate sufficient revenues to continue our business operations or achieve profitability.
We will require substantial additional funding which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additional capital, we may be
unable to complete the development and commercialization of our product candidates, or continue our development programs.
Our operations have consumed substantial amounts of cash since inception. We expect to significantly increase our spending to advance the preclinical and clinical development
of our product candidates and launch and commercialize any product candidates for which we may receive regulatory approval, including building our own commercial
organizations to address certain markets. We will require additional capital for the further development and, if approved, commercialization of our product candidates, as well as
to fund our other operating expenses and capital expenditures. As of December 31, 2019, we had $62.4 million in cash and restricted cash. We cannot provide any assurance
that we will be able to raise funds to complete the development of our product candidates. Additionally, we may have to delay or terminate the development of certain product
candidates if we are unable to secure additional funding; any such delay or termination, or the announcement of any such delay or termination, may impact our potential growth
and have a material adverse effect on the value of our debt and equity securities.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms
acceptable to us, we may have to significantly delay, scale back or discontinue the development or, if approved, commercialization of one or more of our product candidates.
We may also seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less
favorable than might otherwise be available. Any of these events could significantly harm our business, financial condition and prospects.
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Our future funding requirements will depend on many factors, including, but not limited to:
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the timing, design and conduct of, and results from, preclinical studies and clinical trials for our product candidates;
the potential for delays in our efforts to seek regulatory approval for our product candidates, and any costs associated with such delays;
the costs of establishing a commercial organization to sell, market and distribute our product candidates;
the rate of progress and costs of our efforts to prepare for the submission of an NDA or BLA for any product candidates that we may in-license or acquire in the future,
and the potential that we may need to conduct additional clinical trials to support applications for regulatory approval;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with our product candidates, including any
such costs we may be required to expend if our licensors are unwilling or unable to do so;
the cost and timing of securing sufficient supplies of our product candidates from our contract manufacturers for clinical trials and in preparation for commercialization;
the effect of competing technological and market developments;
the terms and timing of any collaborative, licensing, co-promotion or other arrangements that we may establish;
if one or more of our product candidates are approved, the potential that we may be required to file a lawsuit to defend our patent rights or regulatory exclusivities from
challenges by companies seeking to market generic versions of one or more of our product candidates; and
the success of the commercialization of one or more of our product candidates, if approved.
Future capital requirements will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies, although we
currently have no commitments or agreements relating to any of these types of transactions.
In order to carry out our business plan and implement our strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to raise
additional funds through strategic collaborations, licensing arrangements, public or private equity or debt financing, bank lines of credit, asset sales, government grants, or other
arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related
financing may be dilutive to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs. If we obtain
funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to certain of our product candidates or marketing territories.
Our inability to raise capital when needed would harm our business, financial condition and results of operations, and could cause our stock value to decline or require that we
wind down our operations altogether.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, grants
and license and development agreements in connection with any collaborations. To the extent that we raise additional capital through the sale of equity or convertible debt
securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a
stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or declaring dividends.
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If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable
rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise
additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization
efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new
compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules subsequently
implemented by the SEC, and the rules of the Nasdaq Stock Exchange. These rules impose various requirements on public companies, including requiring establishment and
maintenance of effective disclosure and financial controls and appropriate corporate governance practices. Our management and other personnel have devoted and will continue
to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and make some
activities more time-consuming and costly. For example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be
more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. As a result, we
are required to periodically perform an evaluation of our internal controls over financial reporting to allow management to report on the effectiveness of those controls, as
required by Section 404 of the Sarbanes-Oxley Act. Additionally, our independent auditors are required to perform a similar evaluation and report on the effectiveness of our
internal controls over financial reporting. These efforts to comply with Section 404 and related regulations have required, and continue to require, the commitment of significant
financial and managerial resources. While we anticipate maintaining the integrity of our internal controls over financial reporting and all other aspects of Section 404, we cannot
be certain that a material weakness will not be identified when we test the effectiveness of our control systems in the future. If a material weakness is identified, we could be
subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources, costly litigation or a loss
of public confidence in our internal controls, which could have an adverse effect on the market price of our stock.
Compliance with the Sarbanes-Oxley Act of 2002 will require substantial financial and management resources and may increase the time and costs of completing an
acquisition.
A business that we identify as a potential acquisition target may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls.
The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such
acquisition. Furthermore, any failure to implement required new or improved controls, or difficulties encountered in the implementation of adequate controls over our financial
processes and reporting in the future, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors
to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities.
We are an “emerging growth company” and a "smaller reporting company," and the reduced disclosure requirements applicable to emerging growth companies and
smaller reporting companies may make our common stock less attractive to investors.
We are an “emerging growth company” as that term is used in the JOBS Act, and may remain an emerging growth company until the earlier of (1) the last day of the fiscal year
(a) following the fifth anniversary of the completion of the initial public offering of our common stock, (b) in which we have total annual gross revenue of at least $1.07 billion,
or (c) in which we are deemed to be a large accelerated filer, which means the market value of our outstanding common stock that are held by non-affiliates exceeds $700
million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three year period. For so long as we
remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that
are not emerging growth companies. These exemptions include:
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being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly
reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this Annual Report on Form 10-K;
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or
a supplement to the auditor’s report providing additional information about the audit and the financial statements;
disclosure obligations regarding executive compensation; and
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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not
previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until
private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange
Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period
and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected to opt out of such extended
transition period which means that when a standard is issued or revised, and it has different application dates for public or private companies, we, as an emerging growth
company, will adopt the new or revised standard. This may make comparison of our financial statements with another public company which has opted into using the extended
transition period difficult or impossible because of the potential differences in accountant standards used.
We are also a smaller reporting company, and we will remain a smaller reporting company until the fiscal year following the determination that our voting and non-voting
common shares held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are more than $100
million during the most recently completed fiscal year and our voting and non-voting common shares held by non-affiliates is more than $700 million measured on the last
business day of our second fiscal quarter. Similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosure,
are exempt from the auditor attestation requirements of Section 404, and have certain other reduced disclosure obligations, including, among other things, being required to
provide only two years of audited financial statements and not being required to provide selected financial data, supplemental financial information or risk factors.
We have elected to take advantage of certain of the reduced reporting obligations available to us. We cannot predict whether investors will find our common stock less attractive
if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our
stock price may be reduced or more volatile.
Our ability to use our pre-change NOLs and other pre-change tax attributes to offset post-change taxable income or taxes may be subject to limitation.
We may, from time to time, carry net operating loss carryforwards (“NOLs”) as deferred tax assets on our balance sheet. Under Sections 382 and 383 of the Internal Revenue
Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50-percentage- point cumulative change (by value) in the
equity ownership of certain stockholders over a rolling three-year period), the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its
post-change taxable income or taxes may be limited. We may experience ownership changes in the future as a result of shifts in our stock ownership, some of which changes
are outside our control. As a result, our ability to use our pre-change NOLs and other pre-change tax attributes to offset post-change taxable income or taxes may be subject to
limitation.
Raising funds through lending arrangements may restrict our operations or produce other adverse results.
Our current Loan Agreement with Horizon, which we entered into in March 2019, contains a variety of affirmative and negative covenants, including required financial
reporting, limitations on certain dispositions of assets, limitations on the incurrence of additional debt and other requirements. To secure our performance of our obligations
under this Loan Agreement, we granted a security interest in substantially all of our assets, other than certain intellectual property assets, to Horizon. Our failure to comply with
the covenants in the Loan Agreement, the occurrence of a material impairment in our prospect of repayment or in the perfection or priority of Horizon’s lien on our assets, as
determined by Horizon, or the occurrence of certain other specified events could result in an event of default that, if not cured or waived, could result in the acceleration of all or
a substantial portion of our debt, potential foreclosure on our assets and other adverse results. Additionally, we are bound by certain negative covenants setting forth actions that
are not permitted to be taken during the term of the Loan Agreement without consent of Horizon, including, without limitation, incurring certain additional indebtedness,
making certain asset dispositions, entering into certain mergers, acquisitions or other business combination transactions or incurring any non-permitted lien or other
encumbrance on our assets. The foregoing prohibitions and constraints on our operations could result in our inability to: (i) acquire promising intellectual property or other
assets on desired timelines or terms; (ii) reduce costs by disposing of assets or business segments no longer deemed advantageous to retain; (iii) stimulate further corporate
growth or development through the assumption of additional debt; or (iv) enter into other arrangements that necessitate the imposition of a lien on corporate assets.
Risks Relating to Securities Markets and Investment in Our Stock
Our stock may be subject to substantial price and volume fluctuations due to a number of factors, many of which are beyond our control and may prevent our stockholders
from reselling our common stock at a profit.
The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced
significant price and volume fluctuations that are unrelated to the operating performance of particular companies.
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The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to many factors, including:
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announcements concerning the progress of our efforts to obtain regulatory approval for and commercialize our product candidates or any future product candidate,
including any requests we receive from the FDA for additional studies or data that result in delays in obtaining regulatory approval or launching these product
candidates, if approved;
· market conditions in the pharmaceutical and biotechnology sectors or the economy as a whole;
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price and volume fluctuations in the overall stock market;
the failure of one or more of our product candidates or any future product candidate, if approved, to achieve commercial success;
announcements of the introduction of new products by us or our competitors;
developments concerning product development results or intellectual property rights of others;
litigation or public concern about the safety of our potential products;
actual fluctuations in our quarterly operating results, and concerns by investors that such fluctuations may occur in the future;
deviations in our operating results from the estimates of securities analysts or other analyst comments;
additions or departures of key personnel;
health care reform legislation, including measures directed at controlling the pricing of pharmaceutical products, and third-party coverage and reimbursement policies;
developments concerning current or future strategic collaborations; and
discussion of us or our stock price by the financial and scientific press and in online investor communities.
Fortress controls a voting majority of our common stock.
Pursuant to the terms of the Class A Preferred Stock held by Fortress, Fortress is entitled to cast, for each share of Class A Preferred held by Fortress, the number of votes that is
equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the shares of outstanding common stock and (B) the whole shares of common stock
into which the shares of outstanding Class A common shares and the Class A Preferred Stock are convertible and the denominator of which is the number of shares of
outstanding Class A Preferred Stock. Accordingly, Fortress is able to control or significantly influence all matters requiring approval by our stockholders, including the election
of directors and the approval of mergers or other business combination transactions. The interests of Fortress may not always coincide with the interests of other stockholders,
and Fortress may take actions that advance its own interests and are contrary to the desires of our other stockholders. Moreover, this concentration of voting power may delay,
prevent or deter a change in control of us even when such a change may be in the best interests of all stockholders, could deprive our stockholders of an opportunity to receive a
premium for their common stock as part of a sale of Mustang or our assets, and might affect the prevailing market price of our common stock.
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Fortress has the right to receive a significant grant of shares of our common stock annually which will result in the dilution of your holdings of common stock upon each
grant, which could reduce their value.
Under the terms of the Second Amended and Restated Founders Agreement, which became effective July 22, 2016, Fortress will receive a grant of shares of our common stock
equal to two and one-half percent (2.5%) of the gross amount of any equity or debt financing. Additionally, the Class A Preferred Stock, as a class, will receive an annual
dividend on January 1st, payable in shares of common stock in an amount equal to two and one-half percent (2.5%) of our fully-diluted outstanding capital stock as of the
business day immediately prior to January 1st of such year. Fortress currently owns all outstanding shares of Class A Preferred Stock. These share issuances to Fortress and any
other holder of Class A Preferred Stock will dilute your holdings in our common stock and, if the value of Mustang has not grown proportionately over the prior year, would
result in a reduction in the value of your shares. The Second Amended and Restated Founders Agreement has a term of 15 years and renews automatically for subsequent one-
year periods unless terminated by Fortress or upon a Change in Control (as defined in the Second Amended and Restated Founders Agreement).
We might have received better terms from unaffiliated third parties than the terms we receive in our agreements with Fortress.
The agreements we have entered into with Fortress include a Management Services Agreement and the Founders Agreement. While we believe the terms of these agreements
are reasonable, they might not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. The terms of the agreements relate to,
among other things, payment of a royalty on product sales and the provision of employment and transition services. We might have received better terms from third parties
because, among other things, third parties might have competed with each other to win our business.
The dual roles of our directors who also serve in similar roles with Fortress could create a conflict of interest and will require careful monitoring by our independent
directors.
We share some directors with Fortress. This could create conflicts of interest between the two companies in the future. While we believe that the Founders Agreement and the
Management Services Agreement were negotiated by independent parties on both sides on arm’s length terms, and the fiduciary duties of both parties were thereby satisfied, in
the future situations may arise under the operation of both agreements that may create a conflict of interest. We will have to be diligent to ensure that any such situation is
resolved by independent parties. In particular, under the Management Services Agreement, Fortress and its affiliates are free to pursue opportunities which could potentially be
of interest to Mustang, and they are not required to notify Mustang prior to pursuing such opportunities. Any such conflict of interest or pursuit by Fortress of a corporate
opportunity independent of Mustang could expose us to claims by our investors and creditors and could harm our results of operations.
We may become involved in securities class action litigation that could divert management’s attention and harm our business.
The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of biotechnology and
pharmaceutical companies. These broad market fluctuations may cause the market price of our stock to decline. In the past, securities class action litigation has often been
brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical
companies have experienced significant stock price volatility in recent years. We may become involved in this type of litigation in the future. Litigation often is expensive and
diverts management’s attention and resources, which could adversely affect our business.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate and executive office is located at 377 Plantation Street, Worcester, MA 01605.
On October 27, 2017, we entered into a lease agreement with WCS - 377 Plantation Street, Inc., a Massachusetts nonprofit corporation (“Landlord”). Pursuant to the terms of
the lease agreement, we agreed to lease 27,043 sf from the Landlord, located at 377 Plantation Street in Worcester, MA (the “Facility”), through November 2026, subject to
additional extensions at our option. Base rent, net of abatements of $0.6 million over the lease term, totals approximately $3.6 million, on a triple-net basis.
The Facility became operational for the production of personalized CAR T and gene therapies in 2018.
Item 3.
Legal Proceedings
We are not involved in any litigation that we believe could have a material adverse effect on our financial position or results of operations. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of our executive officers,
threatened against or affecting our company or our officers or directors in their capacities as such.
Item 4.
Mine Safety Disclosures
Not applicable
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Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market information
PART II
Our common stock has been quoted on the NASDAQ Global Market since August 22, 2017, under the symbol “MBIO.” Prior to this there was no public market for our
common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
On November 30, 2017, we filed a registration statement on Form S-8 under the Securities Act registering the common stock issued, issuable or reserved for issuance under our
2016 Plan. That registration statement became effective immediately upon filing, and shares covered by the registration statement are eligible for sale in the public markets,
subject to grant of the underlying awards, vesting provisions and Rule 144 limitations applicable to our affiliates.
Holders of Record
As of December 31, 2019, there were approximately 123 holders of record of our common stock and one holder of record for our Class A common stock. The actual number of
stockholders of our common shares is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name
by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividends
We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the
discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions,
restrictions imposed by applicable law and other factors our board of directors deems relevant.
Recent Sales of Unregistered Securities
None.
Item 6.
Selected Financial Data
Not applicable.
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.
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Our pipeline is currently focused in three core areas: gene therapy programs for rare genetic disorders, 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 programs we have partnered with St. Jude in the development of a
first-in-class ex vivo lentiviral treatment of XSCID, and for our CAR T therapies we have partnered with the COH, Fred Hutch and Nationwide.
Gene Therapy
In partnership with St. Jude, our gene therapy program (MB-107) is being conducted under an exclusive license to develop a potentially curative treatment for XSCID, a rare
genetic immune system condition in which affected patients do not live beyond infancy without treatment. This first-in-class ex vivo lentiviral gene therapy is currently in two
Phase 1/2 clinical trials: a multicenter trial in newly diagnosed infants sponsored by St. Jude and a single-center trial in previously transplanted patients sponsored by the
National Institutes of Health (“NIH”). We plan to file separate Investigational New Drug Applications in 2020 in order to conduct a pivotal non-randomized phase 2 registration
trial in each of the two patient populations.
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 multicenter Phase 1/2 clinical trial of MB-102, and our clinical trial is expected to begin enrollment in the first half of 2020 for the
treatment of patients with acute myeloid leukemia, blastic plasmacytoid dendritic cell neoplasm, and high-risk myelodysplastic syndrome. We expect to file an IND for MB-104
in the second half of 2020 and to initiate our own Phase 1 clinical trial shortly thereafter for the treatment of patients with multiple myeloma. We also plan to file an IND and
initiate our own clinical trial for MB-106 for the treatment of patients with non-Hodgkin lymphoma and chronic lymphocytic leukemia.
We are also developing CAR T therapies for solid tumors in partnership with COH targeting IL13Ra2 (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 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 UAB for MB-108 began during the third quarter of 2019 and, in the
second half of 2020, 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-101 (IL13Rα2 CAR T for Glioblastoma)
In October 2019, Mustang announced that COH received $4.1 million in grant awards for a clinical trial of MB-101 (IL13Rα2-targeted CAR T) in combination with nivolumab
(commercial name: Opdivo®) and ipilimumab (commercial name: Yervoy®) in patients with recurrent malignant glioma. The trial, which is now enrolling patients, is the first
human study to combine IL13Rα2-targeted CAR T cell therapy with checkpoint inhibitors, as well as the first to locally deliver CAR T cells with systemic nivolumab
combination treatment. Additional information on the trial can be found on www.CinicalTrials.gov using identifier NCT04003649.
MB-105 (PSCA CAR T for Prostate & Pancreatic Cancers)
In September 2019, we announced that COH had opened and initiated patient treatments in a Phase 1 clinical trial of MB-105, a PSCA CAR T technology for the treatment of
prostate cancer. Additional information on the Phase 1 trial can be found on www.CinicalTrials.gov using identifier NCT03873805.
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MB-102 (CD123 CAR T for AML)
On August 5, 2019, we announced that the FDA had approved our IND application to initiate a multi-center Phase 1/2 clinical trial of MB-102 (CD123 CAR T) in acute
myeloid leukemia (“AML”), blastic plasmacytoid dendritic cell neoplasm (“BPDCN”) and high-risk myelodysplastic syndrome (“hrMDS”). We will begin enrollment on our
MB-102 clinical trial in the first half of 2020 and process patient cells in our manufacturing facility, which opened in June 2018. Additional information on the trial can be
found on www.CinicalTrials.gov using identifier NCT04109482.
In July 2019, we announced that the FDA had granted Orphan Drug Designation to MB-102 (CD123 CAR T) for the treatment of AML. The FDA also previously granted
Orphan Drug Designation to MB-102 for the treatment of BPDCN. 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.
MB-103 (HER2 CAR T for GBM & Metastatic Breast Cancer to Brain)
In August 2019, we announced that the California Institute for Regenerative Medicine had awarded a $9.3 million grant to Dr. Saul Priceman at COH to conduct a Phase 1
clinical trial evaluating the safety and effectiveness of intraventricular delivery of HER2-directed CAR T cells to the brains of patients with HER2-positive breast cancer with
brain metastases. City of Hope exclusively licensed MB-103 to us in 2017. Additional information on the Phase 1 trial can be found on www.CinicalTrials.gov using identifier
NCT03696030.
MB-106 (CD20-targeted CAR T cell therapy)
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 between Mustang and Fred Hutch, has achieved a complete response (CR) at the lowest starting dose in an ongoing Phase 1/2 clinical trial. The Phase 1/2, open-
label, dose-escalation trial is evaluating the maximum tolerated dose of MB-106. Secondary endpoints include safety and toxicity, preliminary antitumor activity as measured
by overall response rate and complete remission rate, progression-free survival, and overall survival. Fred Hutch intends to enroll approximately 30 subjects on the trial, which
is being led by principal investigator Mazyar Shadman, M.D., M.P.H., Assistant Member of Fred Hutch’s Clinical Research Division. Additional information on the Phase 1/2
trial can be found on www.CinicalTrials.gov using identifier NCT03277729.
MB-107 (Ex vivo Lentiviral Therapy for X-linked Severe Combined Immunodeficiency (XSCID))
In April 2019, the New England Journal of Medicine published data from St. Jude. The data is from a Phase 1/2 clinical trial of a lentiviral gene therapy for the treatment of
newly diagnosed infants under two years old with XSCID, also known as bubble boy disease. The data demonstrates that the lentiviral gene therapy achieved normalization of
T-cell numbers in all eight newly diagnosed infants with XSCID to date, and disseminated infections resolved completely in all affected infants. Seven of the eight infants
treated have developed normal IgM levels to date. Four of those seven infants have discontinued monthly infusions of intravenous immunoglobulin (“IVIG”) therapy to date.
Three of those four infants who discontinued monthly IVIG infusions have responded to vaccines to date.
In August 2019, the Company, together with St. Jude, announced that MB-107 was granted the Regenerative Medicine Advanced Therapy (“RMAT”) designation by the FDA.
Under the RMAT designation, the FDA will help facilitate the program’s expedited development and review and provide guidance on generating the evidence needed to support
the approval of MB-107 for XSCID.
Also in August 2019, we entered into a license agreement with CSL Behring (Calimmune) for the CytegrityTM stable producer cell line developed and used by St. Jude. The
Cytegrity™ stable producer cell line will be used to produce the viral vector for MB-107.
Updated Phase 1/2 clinical data for MB-107 were selected for oral and poster presentations at the 61st American Society of Hematology (“ASH”) Annual Meeting, which was
held in December 2019. Data demonstrated that MB-107 preceded by low-dose busulfan conditioning continued to be well tolerated and resulted in the development of a
functional immune system in newly diagnosed infants with XSCID, as well as in previously transplanted patients with XSCID who had experienced declining T cell function
and recurrent infections. In this latter population, the enhanced transduction procedure demonstrated faster time to NK cell recovery and faster recovery from chronic norovirus
infection.
51
MB-108 (C134 Oncolytic Virus for GBM)
In February 2019, we partnered and entered into an exclusive worldwide license agreement with Nationwide Children’s Hospital to develop an oncolytic virus (C134), an
attenuated herpes simplex virus type 1, for the treatment of GBM. We intend to combine MB-108 with MB-101 (IL13Rα2 CAR T) to potentially enhance efficacy in treating
GBM.
In May 2019, the FDA granted Orphan Drug Designation to MB-108 for the treatment of malignant glioma, a type of brain cancer with a median survival of less than 18
months.
In October 2019, we announced that the first participant was dosed in a Phase 1 clinical trial to determine the safety and efficacy of MB-108 in recurrent GBM. Additional
information on the Phase 1 trial can be found on www.CinicalTrials.gov using identifier NCT03657576.
Shelf Registration
In August 2019, we filed a shelf registration statement No. 333-233350 on Form S-3 (the “2019 Mustang S-3”), which was declared effective on September 30, 2019. Under the
2019 Mustang S-3, we may sell up to a total of $75.0 million of our securities. As of December 31, 2019, no sales were made under the 2019 Mustang S-3.
Term Loan
On March 29, 2019 (the “Closing Date”), the Company entered into a $20.0 million Loan Agreement with Horizon, the proceeds of which will 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.
At-the-Market Offering
On July 13, 2018, the Company filed a shelf registration statement No. 333-226175 on Form S-3, as amended on July 20, 2018 (the “2018 Mustang S-3”), which was declared
effective in August 2018. Under the 2018 Mustang S-3, the Company may sell up to a total of $75.0 million of its securities. In connection with the 2018 Mustang S-3, the
Company entered into an At-the-Market Issuance Sales Agreement (the “Mustang ATM”) with B. Riley FBR, Inc., Cantor Fitzgerald & Co., National Securities Corporation,
and Oppenheimer & Co. Inc. (each an "Agent" and collectively, the “Agents”), relating to the sale of shares of common stock. Under the Mustang ATM, the Company pays the
Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock.
During the year ended December 31, 2019, the Company issued approximately 3.5 million shares of common stock at an average price of $6.42 per share for gross proceeds of
$22.5 million under the Mustang ATM. In connection with these sales, we paid aggregate fees of approximately $0.5 million for net proceeds of approximately $22.0 million.
No sales were made under the 2018 Mustang ATM in 2018.
Public Offering of Common Stock
On April 30, 2019, we announced the pricing of an underwritten public offering, whereby we sold 6,875,000 shares of common stock, (plus a 30-day option to purchase up to
an additional 1,031,250 shares of common stock, which was fully exercised) at a price of $4.00 per share for gross proceeds of approximately $31.6 million, before deducting
underwriting discounts and commissions and offering expenses. In connection with the public offering, the Company paid aggregate fees of approximately $2.1 million for net
proceeds of approximately $29.5 million. The shares were sold under the 2018 Mustang S-3, filed with the Securities and Exchange Commission. The offering closed on May 2,
2019, and the over-allotment closing was on May 8, 2019.
Authorized Stock
On August 16, 2019, 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, Authorized Stock thereof in order to effect an increase in the authorized number of shares
of the Company’s common stock, par value $0.0001, from 50.0 million to 85.0 million (the “Amendment”). On August 16, 2019, 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 85.0 million became effective on September 30, 2019.
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, 2019, we have an accumulated deficit of $125.5 million.
52
We are a majority-controlled subsidiary of Fortress Biotech, Inc. (“Fortress”). As a “Controlled Company” we rely on the exemption provided by Nasdaq Listing Rule 5615(c)
(2), which permits us to maintain less than a majority of independent directors on our board.
Critical Accounting Policies and Use of Estimates
See Note 2 to our Financial Statements.
Results of Operations
Comparison of the Years Ended December 31, 2019 and 2018
($ in thousands)
Operating expenses:
Research and development
Research and development – licenses acquired
General and administrative
Total operating expenses
Loss from operations
Other income (expense)
Interest income
Interest expense
Total other income (expense)
Net Loss
Research and Development Expenses
For the year ended December 31,
2019
2018
Change
$
%
$
$
30,042 $
6,273
9,570
45,885
(45,885)
1,263
(1,767)
(504)
(46,389) $
21,104 $
3,360
6,759
31,223
(31,223)
569
(8)
561
(30,662) $
8,938
2,913
2,811
14,662
(14,662)
694
(1,759)
(1,065)
(15,727)
42%
87%
42%
47%
47%
122%
21992%
-190%
51%
Research and development expenses primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation,
payments made to third parties for license, sponsored research and milestone costs related to in-licensed products and technology, payments made to third party contract
research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs
associated with regulatory filings, laboratory costs and other supplies.
For the year ended December 31, 2019, research and development expenses were approximately $30.0 million, compared to approximately $21.1 million, an increase of $8.9
million. For the year ended December 31, 2019, research and development expenses primarily consisted of $6.1 million for Sponsored Research and Clinical Trial Agreements
with our academic partners, $7.8 million for personnel compensation and benefits, $0.9 million for stock compensation expense, $4.4 million for laboratory supplies, $3.2
million related to consulting and outside services, $3.6 million for clinical trial costs, $0.9 million related to facility costs, and $1.3 million depreciation expense. For the year
ended December 31, 2018, research and development expenses primarily consisted of $5.7 million for Sponsored Research and Clinical Trial Agreements with our academic
partners, $4.3 million for personnel compensation and benefits, $3.4 million for stock compensation expense, $2.3 million for laboratory supplies, $1.1 million related to
consulting and outside services, $0.5 million related to facility costs, and $0.6 million depreciation expense.
For the year ended December 31, 2019, research and development expenses - licenses acquired were approximately $6.3 million, compared to approximately $3.4 million, an
increase of $2.9 million. For the year ended December 31, 2019, research and development expenses - licenses acquired consisted of $4.9 million for the annual stock dividend
to Fortress, $0.2 million for an upfront fee for our license with Nationwide Children’s Hospital, $0.2 million for our license with CSL Behring (Calimmune), $0.3 million for a
development milestone paid to UCLA in connection with MB-105 and $0.7 million in connection with our licenses with COH. For the year ended December 31, 2018, research
and development expenses - licenses acquired consisted of $2.1 million for the annual stock dividend to Fortress, $1.0 million for an upfront fee for our license with St. Jude for
the treatment of XSCID and $0.3 million in connection with our licenses with COH.
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;
license fees and milestone payments related to in-licensed products and technology;
expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and our preclinical activities;
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.
53
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.
For the year ended December 31, 2019, general and administrative expenses were approximately $9.6 million, compared to approximately $6.8 million, an increase of $2.8
million. For the year ended December 31, 2019, general and administrative expenses primarily consisted of $1.7 million for legal and professional fees, $1.7 million for
personnel compensation and benefits, $1.8 million for stock compensation expense, $1.7 million for the equity fee on issuance of common shares to Fortress Biotech, $1.1
million related to consulting fees and $0.5 million for insurance and taxes. For the year ended December 31, 2018, general and administrative expenses consisted primarily of
$1.3 million for legal and professional fees, $1.5 million for personnel compensation and benefits, $1.5 million for stock compensation expense and $0.6 million for insurance
and taxes.
We anticipate general and administrative expenses will increase in future periods, reflecting continued and increasing costs associated with:
·
·
·
·
support of our expanded research and development activities, including additional product candidates entering the clinic;
stock compensation granted to key employees and non-employees;
support of business development activities; and
increased professional fees and other costs associated with the regulatory requirements and increased compliance associated with being a publicly traded company.
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, 2019 and 2018, total other income (expense) were approximately $0.5 million expense and $0.6 million income, respectively.
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, 2019, the Company had an accumulated deficit of $125.5 million.
The Company has funded its operations to date primarily through the sale of equity. The Company expects to continue to use the proceeds from previous financing transactions
primarily for general corporate purposes, including financing the Company’s growth, developing new or existing product candidates, and funding capital expenditures,
acquisitions and investments. The Company currently anticipates that its cash and cash equivalents balances as of December 31, 2019, are sufficient to fund its anticipated
operating cash requirements for at least one year from the date of this Form 10-K.
The Company will be required to expend significant funds in order to advance the development of its product candidates. The Company’s estimates as to how long it expects its
existing cash to be able to continue to fund its operations is based on assumptions that may prove to be inaccurate, and it could use its available capital resources sooner than it
currently expects, as a result of unforeseen events. Such changes in circumstances may require that the Company alter development plans of certain of its product candidates.
Accordingly, the Company will require additional financings through equity and debt offerings, collaborations and licensing arrangements or other sources to fully develop,
prepare regulatory filings, obtain regulatory approvals and commercialize its existing and any new product candidates. If the Company is unable to arrange for such financings,
or unable to arrange for them on terms acceptable to the Company, the Company’s current development plans and plans for expansion of its facility and general and
administrative infrastructure will be curtailed.
54
Cash Flows for the Years Ended December 31, 2019 and 2018
($ in thousands)
Statement of cash flows data:
Total cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Net change in cash, cash equivalents and restricted cash
Operating Activities
For the year ended December 31,
2019
2018
$
$
(33,581) $
13,909
65,116
45,444 $
(19,244)
557
181
(18,506)
Net cash used in operating activities was $33.6 million for the year ended December 31, 2019, compared to $19.2 million for the year ended December 31, 2018. 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 Biotech, $1.4 million
of research and development-licenses acquired, $1.3 million of depreciation expense and $0.7 million of accretion of debt discount.
Net cash used in operating activities during the year ended December 31, 2018, was primarily due to approximately $30.7 million in net loss, partially offset by $5.0 million of
non-cash stock compensation expenses, $1.3 million of research and development-licenses acquired, $2.1 million of common shares issuable for Founders shares, $2.5 million
in change in operating assets and liabilities, and $0.6 million of depreciation expense.
Investing Activities
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.
Net cash provided by investing activities was $0.6 million for the year ended December 31, 2018, representing our purchase of $52.5 million investment in certificates of
deposits held to maturity, $6.9 million in purchases of fixed assets and construction in process, and $1.1 million in acquisition costs of acquired licenses, offset by $61.0 million
in maturities of certificates of deposits.
Financing Activities
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.
Net cash provided by financing activities was $0.2 million during the year ended December 31, 2018, due to net proceeds from the exercise of warrants.
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.
55
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, 2019, of the design 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:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles (“GAAP”), and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect
on the financial statements.
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, 2019. 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, 2019, 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.
56
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2020 Annual Meeting of Stockholders.
Item 11.
Executive Compensation
The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2020 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 2020 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 2020 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 2020 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
Financial Statements:
Balance Sheets as of December 31, 2019 and 2018
Statements of Operations for the Years Ended December 31, 2019 and 2018
Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019 and 2018
Statements of Cash Flows for the Years Ended December 31, 2019 and 2018
Notes to Financial Statements
(b) Exhibits.
Exhibit No.
3.1
3.2
3.3
Amended and Restated Certificate of Incorporation of Mustang Bio, Inc. (formerly Mustang Therapeutics, Inc.), dated July 26, 2016. *
Filed as Exhibit 3.1 on the Company’s Form 10-12G filed on July 28, 2016.
Description
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Mustang Bio, Inc., dated June 14, 2018. *
Filed as Exhibit 3.1 on the Company’s Form 10-Q filed on August 13, 2018.
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Mustang Bio, Inc., dated September 30, 2019. *
Filed as Exhibit 3.1 on the Company’s Form 8-K filed on September 30, 2019.
57
F-2
F-3
F-4
F-5
F-6
F-7 - F-24
3.4
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Bylaws of Mustang Bio, Inc. *
Filed as Exhibit 3.2 on the Company’s Form 10-12G filed on July 28, 2016.
Specimen certificates evidencing shares of common stock, Class A common stock and Class A preferred stock. *
Filed as Exhibit 4.1 on the Company’s Form 10-12G filed on July 28, 2016.
Form of warrant agreement.*
Filed as Exhibit 4.2 on the Company’s Form 10-12G filed on July 28, 2016.
Description of Securities of Mustang Bio, Inc. **
Second Amended and Restated Founders Agreement between Fortress Biotech, Inc. and Mustang Bio, Inc., dated July 26, 2016. *
Filed as Exhibit 10.1 on the Company’s Form 10-12G filed on July 28, 2016.
Management Services Agreement between Fortress Biotech, Inc. and Mustang Bio, Inc., dated March 13, 2015. *
Filed as Exhibit 10.2 on the Company’s Form 10-12G filed on July 28, 2016.
Future Advance Promissory Note to Fortress Biotech, Inc., dated May 5, 2016. *
Filed as Exhibit 10.3 on the Company’s Form 10-12G filed on July 28, 2016.
Promissory Note to NSC Biotech Venture Fund I, LLC, dated July 5, 2016. *
Filed as Exhibit 10.4 on the Company’s Form 10-12G filed on July 28, 2016.
Common Stock Warrant issued by Mustang Bio, Inc. to NSC Biotech Venture Fund I, LLC, dated July 5, 2016. *
Filed as Exhibit 10.5 on the Company’s Form 10-12G filed on July 28, 2016.
License Agreement by and between Mustang Bio, Inc. and City of Hope, dated March 17, 2015. #
Filed as Exhibit 10.6 on the Company’s Form 10-12G filed on July 28, 2016.
Sponsored Research Agreement by and between Mustang Bio, Inc. and City of Hope, dated March 17, 2015. *
Filed as Exhibit 10.7 on the Company’s Form 10-12G filed on July 28, 2016.
Mustang Bio, Inc. 2016 Incentive Plan. †*
Filed as Exhibit 10.8 on the Company’s Form 10-12G filed on July 28, 2016.
Non-Employee Directors Compensation Plan. †*
Filed as Exhibit 10.9 on the Company’s Form 10-12G filed on July 28, 2016.
Agreement with Chord Advisors, LLC, dated April 8, 2016. *
Filed as Exhibit 10.10 on the Company’s Form 10-12G filed on July 28, 2016.
Agreement with Caribe BioAdvisors, LLC, dated January 1, 2017.
Filed as Exhibit 10.11 on the Company’s Form 10-K filed on March 31, 2017.
Exclusive License Agreement with The Regents of the University of California, dated March 17, 2017. #
Filed as Exhibit 10.4 on the Company’s Form 10-Q filed on August 14, 2017.
10.13
Exclusive License Agreement - IV/ICV with City of Hope, dated February 17, 2017. #
Filed as Exhibit 10.5 on the Company’s Form 10-Q filed on August 14, 2017.
10.14
Amended and Restated Exclusive License Agreement - CD123 with City of Hope, dated February 17, 2017. #
Filed as Exhibit 10.14 on the Company’s Form 10-K filed on March 31, 2017.
10.15
Amended and Restated Exclusive License Agreement - IL13Ra2 with City of Hope, dated February 17, 2017. #
Filed as Exhibit 10.15 on the Company’s Form 10-K filed on March 31, 2017.
10.16
Amended and Restated Exclusive License Agreement - Spacer with City of Hope, dated February 17, 2017. #
Filed as Exhibit 10.16 on the Company’s Form 10-K filed on March 31, 2017.
10.17
Employment Agreement between Manuel Litchman and Mustang Bio, Inc., made effective as of April 24, 2017
Filed as Exhibit 10.1 on the Company’s Form 8-K filed on April 24, 2017.
10.18
License Agreement dated May 31, 2017 by and between Mustang Bio, Inc. and City of Hope (CSI). #
Filed as Exhibit 10.1 on the Company’s Form 10-Q/A filed on November 14, 2017.
10.19
License Agreement dated May 31, 2017 by and between Mustang Bio, Inc. and City of Hope (PSCA). #
Filed as Exhibit 10.2 on the Company’s Form 10-Q/A filed on November 14, 2017.
58
10.20
License Agreement dated May 31, 2017 by and between Mustang Bio, Inc. and City of Hope (HER2). #
Filed as Exhibit 10.3 on the Company’s Form 10-Q/A filed on November 14, 2017.
10.21
Lease Agreement, by and between the Company and WCS - 377 Plantation Street, Inc., dated October 27, 2017.
Filed as Exhibit 10.1 on the Company’s Form 10-Q filed on November 14, 2017.
10.22
Venture Loan and Security Agreement, dated March 29, 2019, by and between the Company and Horizon Technology Finance Corporation. *
Filed as Exhibit 10.1 on the Company’s Form 8-K filed on April 4, 2019.
Consent of Independent Registered Public Accounting Firm, BDO USA, LLP
Power of Attorney (included on signature page).
Certification of President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following financial information from Mustang Bio, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Extensible
Business Reporting Language (XBRL): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statement of Stockholders’ Equity, (iv) the
Statements of Cash Flows, and (v) Notes to the Financial Statements (filed herewith).
Confidential treatment has been granted with respect to omitted portions of this exhibit.
Indicates management contract or compensatory plan or arrangement.
Previously Filed.
23.1
24.1
31.1
31.2
32.1
32.2
101
#
†
*
** Filed herewith.
Item 16.
Form 10-K Summary.
None.
59
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2019 and 2018
Statements of Operations for the Years Ended December 31, 2019 and 2018
Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019 and 2018
Statements of Cash Flows for the Years Ended December 31, 2019 and 2018
Notes to Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7 - F-24
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, 2019 and 2018, the related statements of operations,
stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, 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 and subsidiaries at December 31, 2019 and
2018, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles
generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, on January 1, 2019, the Company changed its method of accounting for leases due to the adoption of ASU 2016-02, Leases
(ASC 842).
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.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2016.
Boston, Massachusetts
March 16, 2020
F-2
MUSTANG BIO, INC.
BALANCE SHEETS
($ in thousands, except for share and per share amounts)
ASSETS
Current Assets:
Cash and cash equivalents
Short-term investments (certificates of deposit)
Other receivables - related party
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Fixed assets - construction in process
Restricted cash
Other assets
Operating lease right-of-use asset, net
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term notes payable
Accounts payable and accrued expenses
Payables and accrued expenses - related party
Operating lease liabilities - short-term
Total current liabilities
Deferred rent payable
Notes payable
Operating lease liabilities - long-term
Total Liabilities
Commitments and Contingencies
Stockholders' Equity
Preferred stock ($0.0001 par value), 2,000,000 shares authorized, 250,000 shares of Class A preferred stock issued and outstanding
as of December 31, 2019 and 2018, respectively
Common Stock ($0.0001 par value), 85,000,000 shares authorized
Class A common shares, 845,385 and 1,000,000 shares issued and outstanding as of December 31, 2019 and 2018, respectively
Common shares, 39,403,519 and 26,610,183 shares issued and outstanding as of December 31, 2019 and 2018, respectively
Common stock issuable, 1,206,667 and 709,314 shares as of December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated deficit
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
The accompanying notes are an integral part of these financial statements.
F-3
December 31,
2019
December 31,
2018
$
$
$
$
61,413 $
-
19
1,631
63,063
6,779
1,157
1,000
250
1,196
73,445 $
1,250 $
5,668
596
257
7,771
-
12,179
1,843
21,793
16,469
17,604
-
1,052
35,125
6,465
393
500
271
-
42,754
-
5,381
236
-
5,617
741
-
-
6,358
-
-
-
4
4,923
172,184
(125,459)
51,652
73,445 $
-
3
2,085
113,378
(79,070)
36,396
42,754
MUSTANG BIO, INC.
STATEMENTS OF OPERATIONS
($ in thousands, except for share and per share amounts)
Operating expenses:
Research and development
Research and development – licenses acquired
General and administrative
Total operating expenses
Loss from operations
Other income (expense)
Interest income
Interest expense
Total other income (expense)
Net Loss
Net loss per common share outstanding, basic and diluted
Weighted average number of common shares outstanding, basic and diluted
The accompanying notes are an integral part of these financial statements.
F-4
For the year ended December 31,
2019
2018
$
$
$
30,042 $
6,273
9,570
45,885
(45,885)
1,263
(1,767)
(504)
(46,389) $
21,104
3,360
6,759
31,223
(31,223)
569
(8)
561
(30,662)
(1.29) $
(1.14)
36,061,811
26,949,374
MUSTANG BIO, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
($ in thousands, except share amounts)
Class A Preferred Stock
Amount
Shares
Balances at December 31, 2017
Common stock issuable - Founders Agreement
Issuance of common shares - Founders Agreement
Stock-based compensation expenses
Exercise of warrants
Net loss
Balances at December 31, 2018
Common stock issuable - Founders Agreement
Issuance of common shares - Founders Agreement
Issuance of common shares - Equity fee on Horizon Notes to
Fortress Biotech
Issuance of warrants - Horizon Notes
Conversion of Class A common shares to common shares
Issuance of common shares, net of offering costs - At-the-Market
Offering
Issuance of common shares - Equity fee on At-the-Market Offering
Issuance of common shares, net of offering costs - Public Offering
Issuance of common shares - Equity fee on Public Offering
Stock-based compensation expenses
Exercise of warrants
Net loss
Balances at December 31, 2019
$
$
250,000
-
-
-
-
-
250,000
-
-
-
-
-
-
-
-
-
-
-
-
250,000
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
Class A Common Shares
Shares
Amount
1,000,000
-
-
-
-
-
1,000,000
-
-
$
-
-
(154,615)
-
-
-
-
-
-
-
845,385
$
Common Shares
Shares
25,236,255
-
834,756
496,552
42,620
-
26,610,183
-
709,314
108,069
-
154,615
3,506,222
87,656
7,906,250
197,656
30,341
93,213
-
39,403,519
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Amount
$
$
$
Common
Stock
Issuable
9,558
2,085
(9,558)
-
-
-
2,085
4,923
(2,085)
$
$
-
-
-
-
-
-
-
-
-
-
4,923
$
3
-
-
-
-
-
3
-
-
-
-
-
-
-
1
-
-
-
-
4
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders'
Equity
$
$
$
98,679
-
9,558
4,960
181
-
113,378
-
2,085
375
888
-
21,972
495
29,536
791
2,664
-
-
172,184
$
$
$
$
$
(48,408)
-
-
-
-
(30,662)
(79,070)
-
-
-
-
-
-
-
-
-
-
-
(46,389)
(125,459)
$
59,832
2,085
-
4,960
181
(30,662)
36,396
4,923
-
375
888
-
21,972
495
29,537
791
2,664
-
(46,389)
51,652
The accompanying notes are an integral part of these financial statements.
F-5
MUSTANG BIO, INC.
STATEMENTS OF CASH FLOWS
($ in thousands)
For the year ended December 31,
2019
2018
Cash Flows from Operating Activities:
Net loss
Accretion of debt discount
Issuance of common shares - Equity fee on At-the-Market Offering to Fortress Biotech
Issuance of common shares - Equity fee on Public Offering to Fortress Biotech
Issuance of common shares - Equity fee on Horizon Notes to Fortress Biotech
Common shares issuable for Founders Agreement
Research and development - licenses acquired
Stock-based compensation expenses
Depreciation expense
Amortization of operating lease right-of-use assets
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Interest receivables
Other receivables - related party
Accounts payable and accrued expenses
Payable and accrued expenses - related party
Deferred rent
Lease liabilities
Net cash used in operating activities
Cash Flows from Investing Activities:
Purchase of short-term investment (certificates of deposit)
Maturity of certificate of deposit
Purchase of research and development licenses
Purchase of fixed assets
Net cash provided by investing activities
Cash Flows from Financing Activities:
Proceeds from Horizon Notes
Debt issuance costs
Proceeds from exercise of warrants
Proceeds from issuance of common shares - At-the-Market Offering
Offering costs for the issuance of common shares - At-the-Market Offering
Proceeds from issuance of common shares - Public Offering
Offering costs for the issuance of common shares - Public Offering
Net cash provided by financing activities
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of the period
Cash, cash equivalents and restricted cash, end of the period
Supplemental disclosure of cash flow information:
Cash paid for interest
Supplemental disclosure of noncash investing and financing activities:
Fixed assets (acquired but not paid)
Issuance of common shares - Founders Agreement
Research and development licenses included in accounts payable and accrued expenses
Issuance of warrants - Horizon Notes
The accompanying notes are an integral part of these financial statements.
F-6
$
$
$
$
$
$
$
(46,389) $
710
495
791
375
4,923
1,350
2,664
1,258
110
(558)
-
(19)
296
360
-
53
(33,581)
-
17,604
(1,350)
(2,345)
13,909
15,000
(1,393)
-
22,515
(543)
31,625
(2,088)
65,116
45,444
16,969
62,413 $
(30,662)
-
-
-
-
2,085
1,275
4,960
630
-
(757)
(35)
-
2,470
99
691
-
(19,244)
(52,500)
61,002
(1,075)
(6,870)
557
-
-
181
-
-
-
-
181
(18,506)
35,475
16,969
1,057 $
-
187 $
2,085 $
- $
888 $
196
9,558
200
-
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, 2019, the Company had an accumulated deficit of $125.5 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.” 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, 2019, 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.
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.
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, 2019 and 2018, consisted of cash, money market funds and certificates of deposit in institutions in the United States. Balances at certain institutions have
exceeded Federal Deposit Insurance Corporation (“FDIC”) insured limits.
F-7
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 and $0.5 million in restricted cash as of December 31, 2019 and 2018, respectively. The Facility initiated cell processing operations for personalized CAR T and
gene therapies in late 2018.
Short-term Investments
The Company classifies its certificates of deposit as cash and cash equivalents or held to maturity in accordance with the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification (“ASC”) 320, Investments - Debt and Equity Securities. The Company considers all investments with an original maturity in excess of three
months when purchased to be short-term investments. Investments consist of short-term FDIC insured certificates of deposit carried at amortized cost using the effective interest
method. The cost of the Company’s certificates of deposit approximated fair value. The Company reassesses the appropriateness of the classification of its investments at the
end of each reporting period.
At December 31, 2019, the Company did not have any certificates of deposit. At December 31, 2018, the Company had approximately $27.6 million in certificates of deposit.
The Company classified $10.0 million as cash and cash equivalents and classified $17.6 million of its certificates of deposits as short-term investments as of December 31,
2018. The $17.6 million of certificates of deposits matured in 2019. The classification was based upon management’s determination that it has the positive intent and ability to
hold the securities until their maturity dates, as its investments mature within one year and the underlying cash invested in these securities is not required for current operations.
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; $1.2
million and $0.4 million are recorded in fixed assets – construction in process on the balance sheet at December 31, 2019 and 2018, 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 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 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 on 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).
F-8
In 2017, the Company recorded the Annual Stock Dividend due to Fortress as contingent consideration. Contingent consideration is recorded when probable and reasonably
estimable. The Company’s future share prices cannot be estimated due to the nature of its assets and the Company’s stage of development. Due to these uncertainties, the
Company concluded that it could not reasonably estimate the contingent consideration until shares were actually issued on March 13, 2018. Because the issuance of shares on
March 13, 2018, occurred prior to the issuance of the December 31, 2017, financial statements, the Company recorded approximately $9.6 million in research and development
- licenses acquired for the year ended December 31, 2017.
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 709,314 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, 2019. This was shown in the Statement of Stockholders’ Equity at December 31,
2018, as Common stock issuable – Founders Agreement. The Company recorded an expense of approximately $2.1 million in research and development - licenses acquired
related to these issuable shares during the year ended December 31, 2018.
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 2.5% 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.
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.
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.
The Company continues to account for leases in the prior period financial statements under ASC Topic 840.
F-9
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.
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.
Warrants
Options
Class A Preferred Shares
Unvested restricted stock awards
Unvested restricted stock units
Total
Comprehensive Loss
For the year ended December 31,
2019
2018
5,405,669
1,241,675
250,000
299,060
1,112,417
8,308,821
5,210,698
1,241,675
250,000
502,636
1,032,084
8,237,093
The Company has no components of other comprehensive loss, and therefore, comprehensive loss equals net loss.
Recently Adopted Accounting Pronouncements
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.
F-10
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 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.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 provides clarity and reduces
both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, to a change to the terms or conditions of a share-based payment award. The
amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. This ASU is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2017. The Company adopted ASU No. 2017-09 as of January 1, 2018. The adoption of this update did not impact the
Company’s financial statements and related disclosures.
In January 2017, the FASB issued A S U 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”. The amendments in this ASU clarify
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of
assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for
annual periods beginning after December 15, 2017, including interim periods within those periods. The Company adopted ASU 2017-01 on January 1, 2018. The adoption of
this update did not impact the Company’s financial statements.
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.
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.
F-11
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. Early adoption is permitted upon issuance of the update. The Company does not expect the adoption of this guidance to have a material impact on its
financial statements.
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 is currently evaluating the impact of this standard on its financial statements and related disclosures.
Note 3 - License, Clinical Trial and Sponsored Research Agreements
Research and Development Expenses – All Licenses
For the years ended December 31, 2019 and 2018, the Company recorded the following expense in research and development for licenses acquired:
($ in thousands)
City of Hope
CD123
CS1
PSCA
HER2
Manufacturing
CSL Behring (Calimmune)
UCLA
St. Jude – XSCID
Nationwide Children's Hospital - C134
Fortress PIK Dividend
Total
License Agreements
City of Hope
CD123 License (MB-102)
For the year ended December 31,
2019
2018
$
$
250 $
200
200
-
-
200
300
-
200
4,923
6,273 $
-
-
-
200
75
-
-
1,000
-
2,085
3,360
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, 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 CD123. There was no expense recorded for the year ended December 31, 2018.
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, 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
CS1. There was no expense recorded for the year ended December 31, 2018.
F-12
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, 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. There was no expense recorded for the year ended December 31, 2018.
HER2 Technology License
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. 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 years ended December 31, 2019 and 2018, respectively, the Company expensed a non-refundable milestone payment of nil and $0.2 million upon the first patient dosed
in a Phase 1 clinical study of HER2.
Manufacturing License
On January 3, 2018, the Company entered into a non-exclusive license agreement with COH to acquire patent and licensed know-how rights related to developing,
manufacturing, and commercializing licensed products. The Company paid $75,000 in consideration for the licenses to the patent rights and the licensed know-how in addition
to an annual maintenance fee. Royalty payments in the low-single digits are due on net sales of licensed products.
CSL Behring (Calimmune)
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 cell bank to
be used in the manufacture of the XSCID vector that was separately licensed 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. Upon the execution of
the Calimmune License, the Company recorded research and development expense of $0.2 million in the Statements of Operations for the year ended December 31, 2019. No
payments were made in 2018.
University of California Los Angeles
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. No expense was recorded in 2018.
St. Jude Children’s Research Hospital
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 (beginning 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.
For the years ended December 31, 2019 and 2018, respectively, the Company recorded an expense of nil and $1.0 million in connection with this license.
F-13
Nationwide Children’s Hospital
In February 2019, Mustang 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”). Mustang intends 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 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 years ended December 31, 2019 and 2018, respectively, the Company recorded an expense of $0.2 million and nil in connection with this license.
Research and Development Expenses - Sponsored Research and Clinical Trial Agreements
For the year ended December 31, 2019 and 2018, the Company recorded the following expense in research and development for sponsored research and clinical trial
agreements:
($ in thousands)
City of Hope
City of Hope - CD123
City of Hope - IL13Rα2
City of Hope - Manufacturing
Fred Hutch - CD20
St. Jude - XSCID
BIDMC - CRISPR
Total
City of Hope
For the year ended December 31,
2019
2018
$
$
2,000 $
1,202
876
457
762
777
69
6,143 $
2,000
835
1,056
458
1,301
-
69
5,719
In March 2015, the Company entered into a Sponsored Research Agreement (“SRA”) with COH in which the Company will fund 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 year ended December 31, 2019 and 2018, the Company recorded $2.0 million, respectively, in research and development expenses on the Statements of
Operations in connection with this agreement.
CD123 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 year ended December 31, 2019 and 2018, the Company
recorded $1.2 million and $0.8 million, respectively, in research and development expenses under the CD123 CRA on the Statements of Operations.
IL13Rα2 Clinical Research Support Agreement
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 year ended
December 31, 2019 and 2018, the Company recorded $0.9 million and $1.1 million, respectively, in research and development expenses under the IL13Rα2 CRA on the
Statements of Operations.
Sponsored Research Agreement
On January 3, 2018, the Company entered into an SRA with COH to optimize and develop CAR T cell processing procedures. Pursuant to the SRA, the Company will fund
continued research in the amount of $0.9 million for the program, which has an initial term of two (2) years. For the year ended December 31, 2019 and 2018, the Company
recorded $0.5 million and $0.4 million, respectively, in research and development expenses under the COH - Manufacturing SRA on the Statements of Operations.
F-14
Fred Hutchinson Cancer Research Center
CD20 Clinical Trial Agreement
On July 3, 2017, in conjunction with the CD20 Technology License from Fred Hutchinson Cancer Research Center (“Fred Hutch”), Mustang entered into an investigator-
initiated clinical trial agreement (“CD20 CTA”) to provide partial funding for a Phase 1/2 clinical trial at Fred Hutch evaluating the safety and efficacy of the CD20 Technology
in patients with relapsed or refractory B-cell non-Hodgkin lymphomas. In connection with the CD20 CTA, the Company agreed to fund up to $5.3 million of costs associated
with the clinical trial, which commenced during the fourth quarter of 2017. For the year ended December 31, 2019 and 2018, the Company recorded $0.6 million and $0.9
million, respectively, of expense in connection with this agreement.
Sponsored Research Agreement
On March 17, 2018, the Company entered into an SRA with Fred Hutch related to developing and optimizing processes and systems associated with CD20 cell processing.
Pursuant to the SRA, the Company will fund continued research in the amount of $0.6 million during the term of the SRA, which expired in March 2019. For the year ended
December 31, 2019 and 2018, the Company recorded expense of approximately $0.2 million and $0.4 million, respectively, in connection with this agreement.
CRISPR Sponsored Research Agreement with Beth Israel Deaconess Medical Center, Inc.
On November 28, 2017, the Company entered into an SRA with Beth Israel Deaconess Medical Center Inc. (“BIDMC”) to perform research relating to 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. The Company agreed to fund approximately $0.8 million over a three-year period. For the year ended December 31, 2019 and 2018, the
Company recorded approximately $0.1 million and $0.1 million, respectively, of expense in connection with this agreement.
In December 2018, the Company terminated the SRA with BIDMC due to the departure of key personnel from BIDMC.
Services Agreement with Children’s CGMP, LLC
In December 2019, the Company entered into a Non-Interventional Services Agreement with Children’s CGMP, LLC (“CGMP”), an affiliate of St. Jude Children’s Research
Hospital, pursuant to which CGMP provides lentiviral vector for non-clinical XSCID (MB-107) research purposes, as well as related advisory services. We agreed to fund
approximately $0.8 million upon execution of the agreement, which was recorded in research and development expenses for the year ended December 31, 2019, in the
Company’s Statements of Operations.
Note 4 - Related Party Agreements
Founders Agreement and Management Services Agreement with Fortress
Effective March 13, 2015, the Company entered a Founders Agreement with Fortress, which was amended and restated on May 17, 2016, and again on July 26, 2016 (the
“Mustang Founders Agreement”). The Mustang Founders Agreement provides that, in exchange for the time and capital expended in the formation of Mustang and the
identification of specific assets the acquisition of which result in the formation of a viable emerging growth life science company, Fortress loaned $2.0 million, representing the
up-front fee required to acquire the Company’s license agreement with COH. The Mustang Founders Agreement has a term of 15 years, which upon expiration automatically
renews for successive one-year periods unless terminated by Fortress and the Company or a Change in Control (as defined in the Mustang Founders Agreement) occurs.
Concurrently with the second amendment on July 26, 2016, to the Mustang Founders Agreement, Fortress entered into an Exchange Agreement whereby Fortress exchanged its
7.25 million Class B Common shares for 7.0 million common shares and 250,000 Class A Preferred shares. Class A Preferred Stock is identical to common stock other than as
to voting rights, conversion rights and the PIK Dividend right (as described below). Each share of Class A Preferred Stock will be entitled to vote the number of votes that is
equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the shares of outstanding Mustang common stock and (B) the whole shares of
Mustang common stock into which the shares of outstanding Class A Common Stock and Class A Preferred Stock are convertible and the denominator of which is the number
of shares of outstanding Class A Preferred Stock. Thus, the Class A Preferred Stock will at all times constitute a voting majority. Each share of Class A Preferred Stock is
convertible, at Fortress’ option, into one fully paid and nonassessable share of Mustang common stock, subject to certain adjustments. As holders of Class A Preferred Stock,
Fortress will receive on each January 1 (each a “PIK Dividend Payment Date”) until the date all outstanding Class A Preferred Stock is converted into common stock or
redeemed (and the purchase price is paid in full), pro rata per share dividends paid in additional fully paid and nonassessable shares of common stock (“PIK Dividends”) such
that the aggregate number of shares of common stock issued pursuant to such PIK Dividend is equal to two and one-half percent (2.5%) of Mustang’s fully-diluted outstanding
capitalization on the date that is one (1) business day prior to any PIK Dividend Payment Date.
As additional consideration under the Mustang Founders Agreement, Mustang will also: (i) pay an equity fee in shares of common stock, payable within five (5) business days
of the closing of any equity or debt financing for Mustang that occurs after the effective date of the Mustang Founders Agreement and ending on the date when Fortress no
longer has majority voting control in the Company’s voting equity, equal to two and one-half (2.5%) of the gross amount of any such equity or debt financing; and (ii) pay a
cash fee equal to four and one-half percent (4.5%) of the Company’s annual net sales, payable on an annual basis, within ninety (90) days of the end of each calendar year. In the
event of a Change in Control, the Company will pay a one-time change in control fee equal to five (5x) times the product of (A) net sales for the twelve (12) months immediately
preceding the change in control and (B) four and one-half percent (4.5%) (see Note 9).
F-15
Effective as of March 13, 2015, the Company entered into a Management Services Agreement (the “MSA”) with Fortress, pursuant to which Fortress renders advisory and
consulting services to the Company. The MSA has an initial term of five years and is automatically renewed for successive five-year terms unless terminated in accordance with
its provisions. Services provided under the MSA may include, without limitation, (i) advice and assistance concerning any and all aspects of the Company’s operations, clinical
trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of the Company with accountants, attorneys, financial advisors and
other professionals (collectively, the “Services”). The Company is obligated to utilize clinical research services, medical education, communication and marketing services and
investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices. However, the Company is not
obligated to take or act upon any advice rendered from Fortress and Fortress shall not be liable for any of its actions or inactions based upon their advice. Fortress and its
affiliates, including all members of the Company’s Board of Directors, have been contractually exempt from fiduciary duties to the Company relating to corporate opportunities.
In consideration for the Services, the Company will pay Fortress an annual consulting fee of $0.5 million (the “Annual Consulting Fee”), payable in advance in equal quarterly
installments on the first business day of each calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $1.0 million for each
calendar year in which the Company has net assets in excess of $100 million at the beginning of the calendar year. For the years ended December 31, 2019 and 2018, the
Company recorded expense of $0.5 million and $0.5 million, respectively, related to this agreement.
Under the terms of the Second Amended and Restated Founders Agreement, which became effective July 22, 2016, Fortress will receive a grant of shares of our common stock
equal to two and one-half percent (2.5%) of the gross amount of any equity or debt financing. In March 2019, the Company issued 108,069 shares of common stock to Fortress,
which equaled 2.5% of the gross funded amount of the Horizon Notes. The Company recorded an expense of approximately $0.4 million in general and administrative expenses
related to these shares during the year ended December 31, 2019.
In April 2019, the Company issued 87,656 shares of common stock to Fortress, which equaled 2.5% of the gross proceeds of $22.5 million from the sale of shares of common
stock under Mustang’s At-the-Market Offering. The Company recorded an expense of approximately $0.5 million in general and administrative expenses related to these shares
during the year ended December 31, 2019.
In May 2019, the Company issued 197,656 shares of common stock to Fortress, which equaled 2.5% of the gross proceeds of $31.6 million from the sale of shares of common
stock, before deducting underwriting discounts and commissions and offering expenses under Mustang’s Public Offering. The Company recorded an expense of approximately
$0.8 million in general and administrative expenses related to these shares during the year ended December 31, 2019.
Payables and Accrued Expenses Related Party
In the normal course of business Fortress pays for certain expenses on behalf of the Company. Such expenses are recorded as Payables and accrued expenses - related party and
are reimbursed to Fortress in the normal course of business.
Director Compensation
Dr. Rosenwald
Pursuant to the terms of the Director Compensation Plan, Dr. Rosenwald will receive a cash fee of $50,000 per year paid quarterly and an annual stock award of the greater of
(i) a number of shares of common stock having a fair market value on the grant date of $50,000 or (ii) 10,000 shares of common stock, which shares shall vest and become non-
forfeitable on the third anniversary of the grant date, subject to continued service on the Board on such date. For the year ended December 31, 2019, the Company recognized
$102,000 in expense in its Statements of Operations related to the director compensation, including approximately $52,000 in expense related to equity incentive grants of
34,000 restricted shares. For the year ended December 31, 2018, the Company recognized $84,000 in expense in its Statements of Operations related to the director
compensation, including approximately $34,000 in expense related to equity incentive grant of 20,000 restricted shares.
Mr. Weiss - Advisory Agreement with Caribe BioAdvisors, LLC
The Board of the Company by unanimous written consent approved and authorized the execution of an advisory agreement dated January 1, 2017 (the “Advisory Agreement”),
with Caribe BioAdvisors, LLC (the “Advisor”), owned by Michael S. Weiss, the Chairman of the Board, to provide the board advisory services of Mr. Weiss as Chairman of the
Board. Pursuant to the Advisory Agreement, the Advisor will be paid an annual cash fee of $60,000, paid quarterly and an annual stock award of the greater of (i) a number of
shares of common stock having a fair market value on the grant date of $50,000 or (ii) 10,000 shares of common stock, which shares shall vest and become non-forfeitable on
the third anniversary of the grant date, subject to continued service on the Board on such date. For the year ended December 31, 2019, the Company recognized $105,000 in
expense in its Statements of Operations related to the advisory agreement, including approximately $45,000 in expense related to equity incentive grants of 34,000 restricted
shares. For the year ended December 31, 2018, the Company recognized $84,000 in expense in its Statements of Operations related to the advisory agreement, including
approximately $34,000 in expense related to equity incentive grants of 20,000 restricted shares.
F-16
Stock Awards Made to Fortress Employees
In April 2017, the Company made an option award to two employees of Fortress (see Note 9).
Note 5 - Property and Equipment
Mustang’s property and equipment consisted of the following:
($ in thousands)
Computer equipment
Furniture and fixtures
Machinery and equipment
Leasehold improvements
Construction in process
Total property and equipment
Less: accumulated depreciation
Property and equipment, net
Estimated Useful
Life (in years)
3
5
5
9
N/A
$
$
December 31,
2019
December 31,
2018
53 $
145
4,594
3,877
1,157
9,826
(1,890)
7,936 $
53
111
3,143
3,790
393
7,490
(632)
6,858
Mustang’s depreciation expense for the year ended December 2019 and 2018 was approximately $1.3 million and $0.6 million, respectively, and was recorded in research and
development expense in the Statements of Operations.
Note 6 – Accounts Payable and Accrued Expenses
At December 31, 2019 and 2018, accounts payable and accrued expenses consisted of the following:
($ in thousands)
Accounts payable
Accrued compensation
Research and development
Other
Total accounts payable and accrued expenses
Note 7 - Commitments and Contingencies
Leases
December 31,
2019
2018
1,877 $
1,760
1,496
535
5,668 $
1,386
1,093
2,604
298
5,381
$
$
On October 27, 2017, the Company entered into a lease agreement with WCS - 377 Plantation Street, Inc., a Massachusetts nonprofit corporation. Pursuant to the terms of the
lease agreement, we agreed to lease 27,043 square feet from the landlord, located at 377 Plantation Street in Worcester, MA (the “Facility”), through November 2026, subject to
additional extensions at the Company’s option. Base rent, net of abatements of $0.6 million over the lease term, totals approximately $3.6 million, on a triple-net basis.
The terms of the lease also require that we post an initial security deposit of $0.8 million, in the form of $0.5 million letter of credit and $0.3 million in cash, which increased to
$1.3 million ($1.0 million letter of credit, $0.3 million in cash) on November 1, 2019. After the fifth lease year, the letter of credit obligation is subject to reduction.
The Facility began operations for the production of personalized CAR T and gene therapies in 2018.
The Company leases office space and copiers under agreements classified as operating leases that expire on various dates through 2026. The Company’s lease liabilities result
from the lease of its Facility in Massachusetts, which expires in 2026, and its copier, which expires in 2021. Such leases do not require any contingent rental payments, impose
any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not
been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. The Company does not act as a
lessor or have any leases classified as financing leases. At December 31, 2019, the Company had operating lease liabilities of $2.1 million and right of use assets of $1.2
million, which were included in the Balance Sheet.
F-17
The following summarizes quantitative information about the Company’s operating leases:
($ in thousands)
Lease cost
Operating lease cost
Variable lease cost
Total
($ in thousands)
Operating cash flows from operating leases
Weighted-average remaining lease term – operating leases
Weighted-average discount rate – operating leases
Maturities of our operating leases, excluding short-term leases, are as follows:
$
$
$
For the Year Ended
December 31, 2019
312
684
996
For the Year Ended
December 31, 2019
($ in thousands)
Year ended December 31, 2020
Year ended December 31, 2021
Year ended December 31, 2022
Year ended December 31, 2023
Thereafter
Total
Less present value discount
Operating lease liabilities
$
$
148
4.3
8.97%
76
467
476
489
1,458
2,966
(866)
2,100
Note 8 - Notes Payable
On March 29, 2019 (the “Closing Date”), the Company entered into a $20.0 million Loan Agreement with Horizon, the proceeds of which will 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.
Each advance under the Horizon Loan Agreement will mature 42 months from the first day of the month following the funding of the advance. The first three advances will
mature on October 1, 2022 (the “Loan Maturity Date”). Each advance accrues interest at a per annum rate of interest equal to 9.00% plus the amount by which the one-month
LIBOR Rate, as reported in the Wall Street Journal, exceeds 2.50%. The Loan Agreement provides for interest-only payments commencing May 1, 2019, through and including
October 1, 2020. The interest-only period may be extended to April 1, 2021, if the Company satisfies the Interest Only Extension Milestone (as defined in the Loan Agreement).
Thereafter, commencing May 1, 2021, amortization payments will be payable monthly in eighteen installments of principal and interest. At its option, upon ten business days’
prior written notice to Horizon, the Company may prepay all or any portion greater than or equal to $500,000 of each of the outstanding advances by paying the entire principal
balance (or portion thereof) and all accrued and unpaid interest, subject to a prepayment charge of 4.0% of the then outstanding principal balance of each advance if such
advance is prepaid on or before the Loan Amortization Date (as defined in the Loan Agreement), 3% if such advance is prepaid after the Loan Amortization Date applicable to
such Loan, but on or prior to twelve months following the Loan Amortization Date, and 2% thereafter. In addition, a final payment equal to $250,000 for each advance (i.e.,
$750,000 in aggregate with respect to the initial $15.0 million) is due on the maturity date or other date of payment in full. Amounts outstanding during an event of default shall
be payable on demand and shall accrue interest at an additional rate of 5.0% per annum of the past due amount outstanding.
Each advance of the loan is secured by a lien on substantially all of the assets of the Company, other than Intellectual Property and Excluded Collateral (in each case as defined
in the Loan Agreement), and contains customary covenants and representations, including a liquidity covenant, financial reporting covenant and limitations on dividends,
indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.
F-18
The events of default under the Loan Agreement include, among other things, without limitation, and subject to customary grace periods, (1) the Company’s failure to make any
payments of principal or interest under the Loan Agreement, promissory notes or other loan documents, (2) the Company’s breach or default in the performance of any covenant
under the Loan Agreement, (3) the occurrence of a material adverse change, (4) the Company making a false or misleading representation or warranty in any material respect,
(5) the Company’s insolvency or bankruptcy, (6) certain attachments or judgments on the Company’s assets, (7) the occurrence of any material default under certain agreements
or obligations of the Company involving indebtedness in excess of $250,000, or (8) failing to maintain certain minimum monthly cash balances which range from
approximately $8 to $13 million over the term of the loan ($13.0 million as of December 31, 2019). If an event of default occurs, Horizon is entitled to take enforcement action,
including acceleration of amounts due under the Loan Agreement.
The Loan Agreement also contains warrant coverage of 5% of the total amount funded. Four warrants (the “Warrants”) were issued by the Company to Horizon to purchase a
combined 288,184 shares of the Company’s common stock with an exercise price of $3.47 and a fair value of $0.9 million. The Warrants are exercisable for ten years from the
date of issuance. Horizon may exercise the Warrants either by (a) cash or check or (b) through a net issuance conversion. The shares of the Company’s common stock will,
upon request by Horizon, be registered and freely tradable following a period of six months after issuance.
The Company paid Horizon an initial commitment fee of $0.2 million and reimbursed Horizon for $30,000 of legal fees in connection with the Loan Agreement. The Company
incurred approximately $1.2 million of legal and other direct costs in connection with the Loan Agreement.
All fees, warrants and costs paid to Horizon and all direct costs incurred by the Company are recognized as a debt discount to the funded loans and are amortized to interest
expense using the effective interest method over the term of the Loan Agreement.
Amortization of the debt discount associated with the funded loans was approximately $0.7 million for the year ended December 31, 2019, and was included in interest expense
in the Statements of Operations.
($ in thousands)
Horizon Notes (1)(2)
Discount on notes payable
Total notes payable
Less: current portion
Long-term notes payable
(1) Balance includes $0.75 million final payment fee
(2) Interest rate is 9.00% plus one-month LIBOR Rate in excess of 2.5%
Note 9 - Stockholders’ Equity
Common Stock
December 31,
2019
December 31,
2018
$
$
$
15,750 $
(2,321)
13,429 $
(1,250)
12,179 $
-
-
-
-
-
Interest Rate
9.00%
Maturity
October - 2022
The Company, in accordance with its certificate of incorporation, as amended in July 2016, which was retroactively applied, is authorized to issue 50,000,000 common shares
with a par value of $0.0001 per share, of which 1,000,000 shares are designated as “Class A Common Stock” and 15,000,000 shares are designated as “Class B Common
Stock” see below Stock Issuances to Fortress and Note 4.
In connection with the Company’s formation, Fortress subscribed for 7,000,000 shares of the Class B Common Stock and 2,000,000 shares of the Company’s Common Stock,
pursuant to the Founders Agreement. Fortress paid the par value of $900 in 2016. The fair value of the Company’s common shares approximated par value as no licenses had
been transferred at that time. Dividends, if and when declared, are to be distributed pro-rata to the Class A, B and Common Stockholders.
The holders of Common Stock are entitled to one vote per share of Common Stock held. The holders of Class A Common Stock are entitled to the number of votes equal to the
number of whole shares of Common Stock into which the shares of Class A Common Stock held by such holder are convertible and for a period of ten years from its issuance,
the holders of the Class A Common Stock have the right to appoint one member of the board of directors of Mustang; to date, the holders of Class A Common Stock have not
yet appointed such director.
The Class B Common Stockholders are entitled, for each share of Class B Common Stock held, to a number of votes equal to 1.1 times a fraction, the numerator of which is the
sum of (A) the shares of outstanding Common Stock and (B) the whole shares of Common Stock into which the shares of outstanding Class A Common Stock and the Class B
Common Stock are convertible and the denominator of which is the number of shares of outstanding Class B common shares.
In April 2019, COH converted 137,608 shares of the Company’s Class A common stock to 137,608 shares of the Company’s common stock. In November 2019, COH
converted 17,007 shares of the Company’s Class A common stock to 17,007 shares of the Company’s common stock for a total of 154,615 Class A common stock converted
into the Company’s common stock in 2019.
F-19
On August 16, 2019, 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, Authorized Stock thereof in order to effect an increase in the authorized number of shares
of the Company’s common stock, par value $0.0001, from 50,000,000 to 85,000,000 (the “Amendment”). On August 16, 2019, 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 85,000,000 became effective on September 30, 2019.
At-the-Market Offering
On July 13, 2018, the Company filed a shelf registration statement No. 333-226175 on Form S-3, as amended on July 20, 2018 (the “2018 Mustang S-3”), which was declared
effective in August 2018. Under the 2018 Mustang S-3, the Company may sell up to a total of $75.0 million of its securities. In connection with the 2018 Mustang S-3, the
Company entered into an At-the-Market Issuance Sales Agreement (the “Mustang ATM”) with B. Riley FBR, Inc., Cantor Fitzgerald & Co., National Securities Corporation,
and Oppenheimer & Co. Inc. (each an "Agent" and collectively, the “Agents”), relating to the sale of shares of common stock. Under the Mustang ATM, the Company pays the
Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock.
During the year ended December 31, 2019, the Company issued approximately 3.5 million shares of common stock at an average price of $6.42 per share for gross proceeds of
$22.5 million under the Mustang ATM. In connection with these sales, the Company paid aggregate fees of approximately $0.5 million for net proceeds of approximately $22.0
million. No sales were made under the 2018 Mustang ATM in 2018.
Public Offering of Common Stock
On April 30, 2019, the Company announced the pricing of an underwritten public offering, whereby we sold 6,875,000 shares of common stock, (plus a 30-day option to
purchase up to an additional 1,031,250 shares of common stock, which was fully exercised) at a price of $4.00 per share for gross proceeds of approximately $31.6 million,
before deducting underwriting discounts and commissions and offering expenses. In connection with the public offering, the Company paid aggregate fees of approximately
$2.1 million for net proceeds of approximately $29.5 million. The shares were sold under the 2018 Mustang S-3, filed with the Securities and Exchange Commission. The
offering closed on May 2, 2019, and the over-allotment closing was on May 8, 2019.
Registration Statements
As of December 31, 2019, approximately $20.9 million of the 2018 Mustang S-3 remains available for sales of securities.
On August 16, 2019, the Company filed a shelf registration statement No. 333-233350 on Form S-3 (the “2019 Mustang S-3”), which was declared effective on September 30,
2019. Under the 2019 Mustang S-3, the Company may sell up to a total of $75.0 million of its securities. As of December 31, 2019, no securities have been sold under the 2019
Mustang S-3.
Stock Issuances to Fortress
Under the terms of the Second Amended and Restated Founders Agreement, which became effective July 22, 2016, Fortress will receive a grant of shares of our common stock
equal to two and one-half percent (2.5%) of the gross amount of any equity or debt financing. On March 29, 2019, the Company issued 108,069 shares of common stock to
Fortress, which equaled 2.5% of the gross funded amount of the Horizon Notes.
In April 2019, the Company issued 87,656 shares of common stock to Fortress, which equaled 2.5% of the gross proceeds of $22.5 million from the sale of shares of common
stock under Mustang’s At-the-Market Offering.
In May 2019, the Company issued 197,656 shares of common stock to Fortress, which equaled 2.5% of the gross proceeds of $31.6 million from the sale of shares of common
stock under Mustang’s Public Offering.
Stock Awards
Stock Options
The Company has in effect the 2016 Incentive Plan (the “Incentive Plan”). The Incentive Plan was adopted in 2016 by our stockholders and the compensation committee of the
Company’s board of directors and is authorized to grant stock-based awards to directors, officers, employees and consultants. The plan initially authorized grants to issue up to
2,000,000 shares of authorized but unissued common stock and expires 10 years from adoption and limits the term of each option to no more than 10 years from the date of
grant. In June 2018, the Company’s stockholders approved an amendment to the Incentive Plan to increase the number of authorized shares issuable by 3,000,000 shares, for a
total of 5,000,000 shares. Total shares available for the issuance of stock-based awards under the Incentive Plan was 1,931,015 shares at December 31, 2019.
F-20
The following table summarizes stock option activities for the year ended December 31, 2019 and 2018:
Outstanding at December 31, 2017
Options granted
Outstanding at December 31, 2018
Options granted
Outstanding at December 31, 2019
Options vested and exercisable at December 31, 2019
Stock Options
Weighted Average
Exercise Price
1,241,675
-
1,241,675 $
-
1,241,675
388,022 $
5.73
-
5.73
-
5.73
5.73
Weighted Average
Remaining
Contractual Life
(in years)
9.31
8.31
-
7.31
7.31
As of December 31, 2019, the Company had unrecognized stock-based compensation expense related to options of $0.7 million, which is expected to be recognized over a
weighted average period of approximately 1.2 years. Effective on January 1, 2017, the Company elected to account for forfeited awards as they occur as permitted by ASU
2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a
forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.
Restricted Stock
Certain employees and directors have been awarded restricted stock. The restricted stock vesting consists of milestone and time-based vesting. The following table summarizes
restricted stock award activities for the year ended December 31, 2019 and 2018:
Nonvested at December 31, 2017
Granted
Nonvested at December 31, 2018
Granted
Vested
Forfeited
Nonvested at December 31, 2019
Number of Shares
Weighted Average
Grant Date Fair
Value
180,000 $
322,636
502,636 $
119,060
-
(322,636)
299,060 $
5.73
5.78
5.76
3.83
-
5.14
5.66
As of December 31, 2019, the Company had unrecognized stock-based compensation expense related to restricted stock of $0.7 million, which is expected to be recognized
over a weighted average period of approximately 1.9 years. This amount does not include, as of December 31, 2019, 68,158 shares of restricted stock outstanding which are
performance-based and vest upon achievement of certain corporate milestones. Stock-based compensation expense for milestone awards will be measured and recorded if and
when it is probable that the milestone will be achieved.
F-21
Restricted Stock Units
The following table summarizes restricted stock units’ activities for the year ended December 31, 2019 and 2018:
Nonvested at December 31, 2017
Granted
Vested
Nonvested at December 31, 2018
Granted
Forfeited
Vested
Nonvested at December 31, 2019
Number of Units
Weighted Average
Grant Date Fair
Value
134,000 $
1,072,000
(173,916)
1,032,084 $
625,000
(344,750)
(199,917)
1,112,417 $
6.53
8.16
9.25
7.77
3.01
7.67
7.81
5.11
As of December 31, 2019, the Company had unrecognized stock-based compensation expense related to restricted stock units of approximately $2.8 million, which is expected
to be recognized over a weighted average period of approximately 2.0 years. This amount does not include, as of December 31, 2019, 230,000 shares of restricted stock units
outstanding issued to non-employees, the expense for which is determined each reporting period at the measurement date. The expense is recognized over the vesting period of
the award.
The following table summarizes stock-based compensation expense for the years ended December 31, 2019 and 2018 (in thousands).
General and administrative
Research and development
Total stock-based compensation expense
Warrants
For the year ended December 31,
2019
2018
$
$
1,790 $
874
2,664 $
3,664
1,296
4,960
In connection with the Company’s offering of shares of common stock in a private placement, each investor received a warrant equal to 25% of the common shares purchased in
connection with the offering. Further, National Securities Corporation received Placement Agent Warrants.
A summary of warrant activities for years ended December 31, 2019 and 2018, is presented below:
Outstanding as of December 31, 2017
Granted
Exercised
Outstanding as of December 31, 2018
Granted
Exercised
Outstanding as of December 31, 2019
Warrants
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Life
(in years)
5,253,318 $
-
(42,620)
5,210,698 $
288,184
(93,213)
5,405,669 $
8.28
-
4.25
8.32
3.47
-
8.20
3.89
-
-
3.10
9.25
-
2.40
Upon the exercise of warrants, the Company will issue new shares of Common Stock.
Note 10 - Income Taxes
For financial reporting purposes, the Company calculated income tax provision and deferred income tax balances as if it was a separate entity and had filed its own separate tax
return under Sub-Chapter C of the Internal Revenue Code.
F-22
A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows:
Statutory federal income tax rate
State taxes, net of federal tax benefit
Non-deductible items
Credits
Federal tax rate change
State tax rate change
Other
Change in valuation allowance
Income taxes provision (benefit)
The components of the net deferred tax asset as of December 31, 2019 and 2018 are the following ($ in thousands):
Deferred tax assets:
Net operating loss carryovers
Stock compensation and other
Change in fair value of warrant liabilities
Amortization of license
Lease liability
Accruals and reserves
Startup costs
Debt issuance costs
Tax credits
Total deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Stock compensation and other
Unrealized gain/loss on investment
Right of use asset
Basis in subsidiary
Total deferred tax assets, net
For the year ended December 31,
2019
2018
21%
15%
-%
3%
-%
4%
(2)%
(41)%
-
21%
7%
-%
3%
-%
(2)%
(1)%
(28)%
-
For the year ended December 31,
2019
2018
$
$
$
$
27,446 $
2,037
57
9,454
746
519
7
21
2,746
43,033
(42,608)
425 $
- $
-
(425)
-
- $
14,305
1,427
45
6,258
-
237
6
-
1,070
23,348
(23,348)
-
-
-
-
-
-
The Company has determined, based upon available evidence, that it is more likely than not that the net deferred tax asset will not be realized and, accordingly, has provided a
full valuation allowance against its net deferred tax assets as of December 31, 2019 and 2018. A valuation allowance of approximately $42.6 million and $23.3 million,
respectively, was recorded for the year ended December 31, 2019 and 2018.
As of December 31, 2019, the Company had federal and state net operating loss carryforwards of approximately $87.1 million and $141.1 million, respectively. The federal and
state net operating loss carryforwards will begin to expire, if not utilized, by 2035 and 2035, respectively. Utilization of the net operating loss carryforward may be subject to an
annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended and similar state provisions.
There are no significant items determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC 740 “Income Taxes” (“ASC
740”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s financial statements for
the period ended December 31, 2019. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.
Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that
have been accrued or recognized as of and for the period ended December 31, 2019.
The federal and state tax returns for the years ended December 31, 2018, 2017, and 2016 are currently open for examination under the applicable federal and state income tax
statues of limitations.
F-23
Note 11 - Quarterly Financial Information (unaudited)
(in thousands, except per share data)
2019
Total Revenue
Operating expenses
Other income (expense)
Net loss
Basic and diluted net loss per common share
2018
Total Revenue
Operating expenses
Other income
Net loss
Basic and diluted net loss per common share
Note 12 - Subsequent Events
First Quarter
Second Quarter Third Quarter Fourth Quarter
$
$
$
$
$
$
$
$
$
$
$
-
$
9,754
141
$
(9,613) $
(0.34) $
$
50
$
6,477
146
$
(6,281) $
(0.24) $
- $
10,212 $
(187) $
(10,399) $
(0.29) $
- $
5,240 $
147 $
(5,093) $
(0.19) $
- $
9,996 $
(172) $
(10,168) $
(0.25) $
- $
7,656 $
138 $
(7,518) $
(0.28) $
-
15,923
(286)
(16,209)
(0.41)
(50)
11,850
130
(11,770)
(0.43)
Management has evaluated subsequent events through the date the financial statements were available to be issued.
F-24
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
SIGNATURES
Mustang Bio, Inc.
By:
/s/ Manuel Litchman
Name: Manuel Litchman
Title: President and Chief Executive Officer
March 13, 2020
POWER OF ATTORNEY
We, the undersigned directors and/or executive officers of Mustang Bio, Inc., hereby severally constitute and appoint Manuel Litchman, acting singly, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign this Form 10-K and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing necessary or appropriate to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in
person, hereby approving, ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
Title
/s/ Michael S. Weiss
Michael S. Weiss
/s/ Manuel Litchman
Manuel Litchman, M.D.
/s/ Lindsay A. Rosenwald
Lindsay A. Rosenwald, M.D.
/s/ Neil Herskowitz
Neil Herskowitz
/s/ Adam Chill
Adam Chill
/s/ Michael Zelefsky
Michael Zelefsky, M.D.
/s/ Brian Achenbach
Brian Achenbach
Executive Chairman of the Board
President and Chief Executive Officer
Director
Director
Director
Director
Date
March 13, 2020
March 13, 2020
March 13, 2020
March 13, 2020
March 13, 2020
March 13, 2020
Senior Vice President of Finance & Corporate Controller
March 13, 2020
60
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
DESCRIPTION OF CAPITAL STOCK
EXHIBIT 4.3
When used herein, the terms “Company,” “we,” “our,” and “us” refer to Mustang Bio, Inc.
Capital Stock
The Company is authorized to issue 85,000,000 shares of common stock with a par value of $0.0001 per share, of which 1,000,000 shares are designated as Class A
common stock and 2,000,000 of preferred stock at $0.0001 par value of which 250,000 are designated as Class A preferred stock.
The holders of common stock are entitled to one vote per share of common stock held.
The undesignated preferred stock may be issued from time to time in one or more series. The Board of Directors is authorized to determine or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions, if any), the redemption price or prices, the liquidation
preferences and other designations, powers, preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations and restrictions
granted to or imposed upon any wholly unissued series of preferred stock, and to fix the number of shares of any series of preferred stock (but not below the number of shares of
any such series then outstanding).
Class A Common Stock
The holders of Class A common stock are entitled to the number of votes equal to the number of whole shares of common stock into which the shares of Class A
common shares held by such holder are convertible. For a period of ten years from issuance, the holders of the Class A common stock have the right to appoint one member of
the board of directors of Mustang. To date, the holders of Class A common stock have not yet appointed such director.
Class A Preferred Stock
The Class A Preferred Stock is identical to undesignated common stock other than as to voting rights, conversion rights, and the PIK dividend right.
The holders of the outstanding shares of Class A Preferred Stock receive on each January 1 (each a “PIK Dividend Payment Date”) after the original issuance date of
the Class A Preferred Stock until the date all outstanding Class A Preferred Stock is converted into common stock or redeemed (and the purchase price is paid in full), pro rata
per share dividends paid in additional fully paid and non-assessable shares of common stock such that the aggregate number of shares of common stock issued pursuant to such
PIK dividend is equal to 2.5% of the Corporation’s fully-diluted outstanding capitalization on the date that is one business day prior to any PIK Dividend Payment Date (“PIK
Record Date”). In the event the Class A Preferred Stock converts into common stock, the holders shall receive all PIK dividends accrued through the date of such conversion.
No dividend or other distribution shall be paid, or declared and set apart for payment (other than dividends payable solely in capital stock on the capital stock) on the shares of
common stock until all PIK dividends on the Class A Preferred Stock shall have been paid or declared and set apart for payment. All dividends are non-cumulative.
On any matter presented to the stockholders for their action or consideration at any meeting of stockholders (or by written consent of stockholders in lieu of meeting),
each holder of outstanding shares of Class A Preferred Stock shall be entitled to cast for each share of Class A Preferred Stock held by such holder as of the record date for
determining stockholders entitled to vote on such matter, the number of votes that is equal to one and one-tenth (1.1) times a fraction, the numerator of which is the sum of (A)
the number of shares of outstanding common stock and (B) the whole shares of common stock in to which the shares of outstanding Class A Common Stock and the Class A
Preferred Stock are convertible, and the denominator of which is number of shares of outstanding Class A Preferred Stock. Thus, the Class A Preferred Stock will at all times
constitute a voting majority.
Each share of Class A Preferred Stock is convertible, at the option of the holder, into one fully paid and nonassessable share of common stock, subject to certain
adjustments. If the Company, at any time effects a subdivision or combination of the outstanding common stock (by any stock split, stock dividend, recapitalization, reverse
stock split or otherwise), the applicable conversion ratio in effect immediately before that subdivision is proportionately decreased or increased, as applicable, so that the
number of shares of common stock issuable on conversion of each share of Class A Preferred Stock shall be increased or decreased, as applicable, in proportion to such increase
or decrease in the aggregate number of shares of common stock outstanding. Additionally, if any reorganization, recapitalization, reclassification, consolidation or merger
involving the Company occurs in which the common stock (but not the Class A Preferred Stock) is converted into or exchanged for securities, cash or other property, then each
share of Class A Preferred Stock becomes convertible into the kind and amount of securities, cash or other property which a holder of the number of shares of common stock of
the Company issuable upon conversion of one share of the Class A Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or
merger would have been entitled to receive pursuant to such transaction.
Additional Features
Other features of our capital stock include:
·
·
·
·
·
Dividend Rights. The holders of outstanding shares of our common stock, including Class A common stock, are entitled to receive dividends out of funds
legally available at the times and in the amounts that our board of directors may determine. All dividends are non-cumulative.
Voting Rights. The holders of our common stock are entitled to one vote for each share of common stock held on all matters submitted to a vote of the
stockholders, including the election of directors. Our certificate of incorporation and bylaws do not provide for cumulative voting rights.
No Preemptive or Similar Rights. The holders of our common stock have no preemptive, conversion, or subscription rights, and there are no redemption or
sinking fund provisions applicable to our common stock.
Right to Receive Liquidation Distributions. Upon our liquidation, dissolution, or winding-up, the assets legally available for distribution to our stockholders
would be distributable ratably among the holders of our common stock, including Class A common stock, outstanding at that time after payment of other
claims of creditors, if any.
Fully Paid and Non-Assessable. All of the outstanding shares of our common stock, including Class A common stock, and the Class A Preferred Stock are duly
issued, fully paid and non-assessable.
DESCRIPTION OF WARRANTS
The terms relating to any warrants to purchase shares of our common stock or preferred stock, in one or more series together with other securities or separately, will
include some or all of the following:
·
·
·
·
·
·
·
·
the title of the warrants;
the aggregate number of warrants offered;
the designation, number and terms of the shares of common stock purchasable upon exercise of the warrants and procedures by which those numbers may be
adjusted;
the exercise price of the warrants;
the dates or periods during which the warrants are exercisable;
the designation and terms of any securities with which the warrants are issued;
if the warrants are issued as a unit with another security, the date on and after which the warrants and the other security will be separately transferable;
if the exercise price is not payable in U.S. dollars, the foreign currency, currency unit or composite currency in which the exercise price is denominated;
2
·
·
·
·
any minimum or maximum amount of warrants that may be exercised at any one time;
any terms relating to the modification of the warrants;
any terms, procedures and limitations relating to the transferability, exchange or exercise of the warrants; and
any other specific terms of the warrants.
DESCRIPTION OF DEBT SECURITIES
We may offer debt securities which may be senior, subordinated or junior subordinated and may be convertible. Unless otherwise specified, our debt securities will be
issued in one or more series under an indenture to be entered into between us and a trustee. The debt securities will be issued under an indenture to be entered into between us
and a trustee. The terms of the debt securities will include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as
in effect on the date of the indenture. The indenture will be subject to and governed by the terms of the Trust Indenture Act of 1939.
The following description briefly sets forth certain general terms and provisions of the debt securities that we may offer.
Debt Securities
The aggregate principal amount of debt securities that may be issued under the indenture is unlimited. The debt securities may be issued in one or more series as may
be authorized from time to time pursuant to a supplemental indenture entered into between us and the trustee or an order delivered by us to the trustee. Debt securities we offer
will be subject to the following terms and conditions of the series of debt securities being offered, to the extent applicable:
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title and aggregate principal amount;
whether the debt securities will be senior, subordinated or junior subordinated;
applicable subordination provisions, if any;
provisions regarding whether the debt securities will be convertible or exchangeable into other securities or property of the Company or any other person;
percentage or percentages of principal amount at which the debt securities will be issued;
maturity date(s);
interest rate(s) or the method for determining the interest rate(s);
whether interest on the debt securities will be payable in cash or additional debt securities of the same series;
dates on which interest will accrue or the method for determining dates on which interest will accrue and dates on which interest will be payable;
whether the amount of payment of principal of, premium, if any, or interest on the debt securities may be determined with reference to an index, formula or
other method;
redemption, repurchase or early repayment provisions, including our obligation or right to redeem, purchase or repay debt securities under a sinking fund,
amortization or analogous provision;
if other than the debt securities’ principal amount, the portion of the principal amount of the debt securities that will be payable upon declaration of acceleration
of the maturity;
authorized denominations;
form;
amount of discount or premium, if any, with which the debt securities will be issued, including whether the debt securities will be issued as “original issue
discount” securities;
the place or places where the principal of, premium, if any, and interest on the debt securities will be payable;
where the debt securities may be presented for registration of transfer, exchange or conversion;
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the place or places where notices and demands to or upon the Company in respect of the debt securities may be made;
whether the debt securities will be issued in whole or in part in the form of one or more global securities;
if the debt securities will be issued in whole or in part in the form of a book-entry security, the depository or its nominee with respect to the debt securities and
the circumstances under which the book-entry security may be registered for transfer or exchange or authenticated and delivered in the name of a person other
than the depository or its nominee;
whether a temporary security is to be issued with respect to such series and whether any interest payable prior to the issuance of definitive securities of the
series will be credited to the account of the persons entitled thereto;
the terms upon which beneficial interests in a temporary global security may be exchanged in whole or in part for beneficial interests in a definitive global
security or for individual definitive securities;
the guarantors, if any, of the debt securities, and the extent of the guarantees and any additions or changes to permit or facilitate guarantees of such debt
securities;
any covenants applicable to the particular debt securities being issued;
any defaults and events of default applicable to the debt securities, including the remedies available in connection therewith;
currency, currencies or currency units in which the purchase price for, the principal of and any premium and any interest on, such debt securities will be
payable;
time period within which, the manner in which and the terms and conditions upon which the Company or the purchaser of the debt securities can select the
payment currency;
securities exchange(s) on which the debt securities will be listed, if any;
whether any underwriter(s) will act as market maker(s) for the debt securities;
extent to which a secondary market for the debt securities is expected to develop;
provisions relating to defeasance;
provisions relating to satisfaction and discharge of the indenture;
any restrictions or conditions on the transferability of the debt securities;
provisions relating to the modification of the indenture both with and without the consent of holders of debt securities issued under the indenture;
any addition or change in the provisions related to compensation and reimbursement of the trustee;
provisions, if any, granting special rights to holders upon the occurrence of specified events;
whether the debt securities will be secured or unsecured, and, if secured, the terms upon which the debt securities will be secured and any other additions or
changes relating to such security; and
any other terms of the debt securities that are not inconsistent with the provisions of the Trust Indenture Act (but may modify, amend, supplement or delete any
of the terms of the indenture with respect to such series of debt securities).
4
General
One or more series of debt securities may be sold as “original issue discount” securities. These debt securities would be sold at a substantial discount below their
stated principal amount, bearing no interest or interest at a rate which at the time of issuance is below market rates. One or more series of debt securities may be variable rate
debt securities that may be exchanged for fixed rate debt securities.
Debt securities may be issued where the amount of principal and/or interest payable is determined by reference to one or more currency exchange rates, commodity
prices, equity indices or other factors. Holders of such debt securities may receive a principal amount or a payment of interest that is greater than or less than the amount of
principal or interest otherwise payable on such dates, depending upon the value of the applicable currencies, commodities, equity indices or other factors.
The term “debt securities” includes debt securities denominated in U.S. dollars or, if applicable, in any other freely transferable currency or units based on or relating
to foreign currencies.
We expect most debt securities to be issued in fully registered form without coupons and in denominations of $1,000 and any integral multiples thereof. Subject to
applicable limitations, debt securities that are issued in registered form may be transferred or exchanged at the principal corporate trust office of the trustee, without the payment
of any service charge, other than any tax or other governmental charge payable in connection therewith.
Global Securities
The debt securities of a series may be issued in whole or in part in the form of one or more global securities that will be deposited with, or on behalf of, a depositary.
Global securities will be issued in registered form and in either temporary or definitive form. Unless and until it is exchanged in whole or in part for the individual debt
securities, a global security may not be transferred except as a whole by the depositary for such global security to a nominee of such depositary or by a nominee of such
depositary to such depositary or another nominee of such depositary or by such depositary or any such nominee to a successor of such depositary or a nominee of such successor.
Governing Law
The indenture and the debt securities shall be construed in accordance with and governed by the laws of the State of New York.
DESCRIPTION OF UNITS
We may issue, in one more series, units comprised of shares of our common stock, preferred stock, warrants to purchase common stock or preferred stock, debt
securities or any combination of those securities. Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of
a unit will have the rights and obligations of a holder of each included security. The unit agreement under which a unit is issued may provide that the securities included in the
unit may not be held or transferred separately, at any time or at any time before a specified date.
We may evidence units by unit certificates that we issue under a separate agreement. We may issue the units under a unit agreement between us and one or more unit
agents. If we elect to enter into a unit agreement with a unit agent, the unit agent will act solely as our agent in connection with the units and will not assume any obligation or
relationship of agency or trust for or with any registered holders of units or beneficial owners of units.
The terms of the series of units that may be offered will include:
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the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances those securities may be held
or transferred separately;
any provisions of the governing unit agreement that differ from those described herein; and
any provisions for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units.
The other provisions regarding our common stock, preferred stock, warrants and debt securities as described in this exhibit will apply to each unit to the extent such
unit consists of shares of our common stock, warrants and/or debt securities.
5
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Mustang Bio, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-226175 and 333-233350) and Form S-8 (Nos. 333-221819) of
Mustang Bio, Inc. of our report dated March 16, 2020 relating to the financial statements, which appears in this Form 10-K.
/s/ BDO USA, LLP
Boston, Massachusetts
March 16, 2020
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Manual Litchman, M.D., President and Chief Executive Officer (Principal Executive Officer), certify that:
(1)
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2019 of Mustang Bio, Inc. (the registrant);
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Dated: March 13, 2020
By:
/s/ Manuel Litchman
Manuel Litchman, M.D.
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Brian Achenbach, Senior Vice President of Finance & Corporate Controller (Principal Financial Officer), certify that:
(1)
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2019 of Mustang Bio, Inc. (the registrant);
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Dated: March 13, 2020
By:
/s/ Brian Achenbach
Brian Achenbach
Senior Vice President of Finance & Corporate Controller
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report on Form 10-K of Mustang Bio, Inc. (the “Company”) for the period ended December 31, 2019, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Manuel Litchman, M.D., President and Chief Executive Officer, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods
presented in the Report.
Dated: March 13, 2020
By:
/s/ Manuel Litchman
Manuel Litchman, M.D.,
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report on Form 10-K of Mustang Bio, Inc. (the “Company”) for the period ended December 31, 2019, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Brian Achenbach, Senior Vice President Finance & Corporate Controller, hereby certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for, the periods
presented in the Report.
Dated: March 13, 2020
By:
/s/ Brian Achenbach
Brian Achenbach
Senior Vice President of Finance & Corporate Controller
(Principal Financial Officer)