Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of the Results of Operations
Statements in the following discussion and throughout this Form 10-K 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
We are a clinical-stage biopharmaceutical company focused on translating today’s medical breakthroughs in cell and gene therapies into potential cures for hematologic cancers, solid tumors and rare genetic diseases. We aim to acquire rights to these technologies by licensing or otherwise acquiring an ownership interest in the technologies, funding their research and development and eventually either out-licensing or bringing the technologies to market.
Our pipeline is currently focused in three core areas: CAR T therapies for hematologic malignancies, CAR T therapies for solid tumors and gene therapies for rare genetic disorders. For each therapy we have partnered with world class research institutions. For our CAR T therapies we have partnered with COH, Fred Hutch, Nationwide and Mayo Clinic. For our gene therapies, we have partnered with St. Jude in the development of a first-in-class ex vivo lentiviral treatment of XSCID and with LUMC in the development of a first-in-class ex vivo lentiviral treatment of RAG1-SCID.
We expect to incur substantial expenses for the foreseeable future relating to research, development and commercialization of our potential products. However, there can be no assurance that we will be successful in securing additional resources when needed, on terms acceptable to us, if at all. Therefore, there exists substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability of assets that might be necessary despite this uncertainty.
CAR T Therapies
Our pipeline of CAR T therapies is being developed under exclusive licenses from several world class research institutions. Our strategy is to license these technologies, support preclinical and clinical research activities by our academic partners and transfer the underlying technology to our or our contract manufacturer’s cell processing facility, in order to conduct our own clinical trials.
We are developing a CAR T therapy for hematologic malignancies in partnership with Fred Hutch targeting CD20 (MB-106). On May 18, 2023, we announced a series of changes resulting from a review of our portfolio of product candidates to determine the future strategy of our programs and the proper allocation of our resources. Following this review, we determined to discontinue development of our MB-102 (CD123), MB-103 (HER2), MB-104 (CS1) and MB-105 (PSCA) programs (such programs, the “Discontinued Programs”), comprising a portion of our portfolio of CAR T therapies being developed by us in partnership with City of Hope.
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MB-106 (CD20-targeted CAR T cell therapy for Non-Hodgkin Lymphoma and Chronic Lymphocytic Leukemia)
In August 2023, we announced the first data from the indolent lymphoma cohort of our company-sponsored multicenter clinical trial, demonstrating clinical responses as well as safety and efficacy consistent with the ongoing Phase 1/2 Fred Hutch-sponsored clinical trial. The multicenter study data showed substantial clinical benefit in four of four patients with relapsed or refractory indolent non-Hodgkin lymphoma (“NHL”) at the starting dose of 3.3 x 10 6 CAR-T cells/kg, a dose comparable to that employed for the majority of the indolent lymphoma patients in the Fred Hutch trial. The multicenter data also showed persistence of CAR-T cells at 6+ months and favorable safety data, with only Grade 1 cytokine release syndrome reported to date in each of the 4 patients and no immune effector cell-associated neurotoxicity syndrome of any grade reported in any patient. Two patients with follicular lymphoma had complete response by both PET-CT and bone marrow, one of whom had been previously treated with a CD19-directed CAR-T. A third patient, with a diagnosis of WM, who had nine prior treatments and high disease burden, achieved a very good partial response characterized by complete metabolic response by PET-CT, morphologic clearance of lymphoma in bone marrow, and resolution of the IgM monoclonal protein. The fourth patient, with a diagnosis of hairy cell leukemia variant, who had been heavily transfusion dependent, continued to have stable disease with decreased disease in his bone marrow and achieved complete transfusion independence, which was ongoing at six plus months. Following treatment of these four indolent NHL patients, the Safety Review Committee unanimously approved dose escalation in the indolent lymphoma cohort to the second and final dose level of 1.0 x 10 7 CAR-T cells/kg.
In December 2023, we presented interim Phase 1/2 data from our multicenter clinical trial at the 65 th American Society of Hematology Annual Meeting. taking place December 8 through 12, 2023. At this meeting, we presented data for the 9 patients (5 FL, 3 WM and 1 hairy cell leukemia variant) treated in the indolent NHL arm of the multicenter clinical trial. As planned, 2 dose levels (DL1=3.3×10 6 CAR T-cells/kg [n=4] and DL2=1.0×10 7 CAR T-cells/kg [n=5]) were evaluated. All patients responded clinically, yielding an overall response rate of 100% among the FL and WM patients. All 5 FL patients, including 2 who had prior CD19 CAR T-cell therapy, achieved a complete response. Among the WM patients, 1 achieved a very good partial response and 2 achieved a partial response. The hairy cell leukemia variant patient experienced stable disease and achieved transfusion independence. The data demonstrate that MB-106 has a tolerable safety profile, with no occurrence of CRS above grade 1 and no occurrence of ICANS of any grade, despite not using prophylactic tocilizumab or dexamethasone. MB-106 expansion and persistence was demonstrated in these patients. Additionally, outpatient administration of MB-106 was allowed and found to be feasible.
In the first quarter of 2024, the Company expects to receive FDA feedback in an End-of-Phase 1 Meeting on its strategy to conduct a non-randomized registrational multicenter trial in relapsed or refractory WM. In the second half of 2024, the Company expects to treat the first patient in that trial, which could enable top-line results in the second half of 2026. In order to facilitate interactions with the FDA throughout this process, we anticipate requesting Regenerative Medicine Advanced Therapy (‘RMAT’) designation for indolent lymphoma – which includes WM – from the FDA in the first half of 2024. We are currently evaluating the extent to which we can continue the development of MB-106 in other NHL subtypes, subject to allocation of resources.
MB-109 (Combination of MB-101 CAR T Therapy with MB-108 Oncolytic Virus Therapy for Malignant Brain Tumors)
In April 2022, we announced interim data from two ongoing investigator-sponsored Phase 1 clinical trials evaluating two clinical candidates, MB‐101 (IL13Rα2‐targeted CAR T cell therapy licensed from City of Hope) and MB-108 (herpes simplex virus type 1 oncolytic virus licensed from Nationwide Children’s Hospital) for the treatment of recurrent glioblastoma.
On October 26, 2023, we announced that the FDA accepted our IND application for MB-109 for the treatment of recurrent glioblastoma (“GBM”) and high-grade astrocytoma. We are evaluating the timing for initiation of a Phase 1 multicenter clinical trial at City of Hope and the University of Alabama at Birmingham (“UAB”) to assess the safety, tolerability and efficacy of MB-109 in adult patients with recurrent GBM and high-grade astrocytomas that express IL13Rα2 on the surface of the tumor cells, subject to allocation of resources.
In March 2024, we announced the publication of Phase 1 data demonstrating the safety and promising clinical activity of MB-101 in patients with recurrent and refractory malignant glioma, including glioblastoma, in Nature Medicine . Stable disease or better was achieved in 50% (29/58) of heavily pretreated patients lasting at least 2 months, with 2 partial responses, 1 complete response, and a second complete response in a patient with recurrent glioblastoma who received additional CAR T-cell cycles off-protocol. Patients with recurrent glioblastoma who received MB-101, manufactured using an optimized process, via dual intratumoral (ICT)/ intraventricular (ICV) delivery exhibited a superior median overall survival of 10.2 months, compared the expected survival rate of 6.0 months in patients with recurrent GBM. MB-101 delivered via ICT, ICV or dual ICT/ICV delivery was generally well-tolerated, with no dose limiting toxicities observed at doses up to 200×10 6 CAR T-cells. Higher levels of CD3+ T-cells in the tumor milieu prior to treatment was associated superior median overall survival, suggesting that immunologically “hot” tumors respond better to MB-101.
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In Vivo CAR T Platform Technology
We are collaborating with the Mayo Clinic to develop a novel technology that may be able to transform the administration of CAR T therapies and potentially be used as an off-the-shelf therapy. In 2024, the Mayo Clinic expects to submit in vivo proof-of-concept data in a mouse model of cancer to a major scientific journal. We are evaluating plans to file an IND application for a multicenter Phase 1 clinical trial once a lead construct has been identified, subject to allocation of resources.
Gene Therapies
MB-117 (previously referred to as MB-107) (Ex vivo LV Gene Therapy for Newly Diagnosed X-linked Severe Combined Immunodeficiency (XSCID)) and MB-217 (previously referred to as MB-207) (Ex vivo LV Gene Therapy for Previously Transplanted XSCID)
In partnership with St. Jude, our XSCID gene therapy programs are being conducted under an exclusive license to develop a potentially curative treatment for XSCID, a rare genetic immune system condition in which affected patients do not live beyond infancy without treatment. St. Jude’s first-in-class ex vivo LV gene therapy has been utilized in two Phase 1/2 clinical trials involving two different autologous cell products produced via transduction of patients’ hematopoietic stem cells using a predecessor LV vector. These cell products were designated MB-107 and MB-207, and the respective Phase 1/2 clinical trials were: a multicenter trial of the MB-107 product in newly diagnosed infants sponsored by St. Jude (ClinicalTrials.gov Identifier: NCT01512888; referred to at St. Jude as LVXSCID-ND) and a single-center trial of the MB-207 product in previously transplanted patients sponsored by the National Institutes of Health (“NIH”) (ClinicalTrials.gov Identifier: NCT01306019; referred to at the NIH as LVXSCID-OC).
Going forward, this predecessor LV vector will be replaced by a modified LV vector which will be used to produce the MB-117 and MB-217 cell products. In 2024, following availability of the modified LVV, we expect that St. Jude will initiate its Phase 1 trial to treat newly diagnosed infants with MB-117 and that the NIH will initiate its Phase 1 trial to treat previously transplanted patients with MB-217.
LUMC License
MB-110, a first-in-class ex vivo treatment for RAG1 SCID, is currently being evaluated at LUMC in a Phase 1/2 multicenter clinical trial in Europe. In 2022 the first patient was treated without any complications, after which the patient developed a functioning immune system which responded well to the standard vaccinations for newborns. We are evaluating the extent to which we will progress this program, subject to allocation of resources.
Recent Events
Sale of Manufacturing Facility – Overview of Transaction
As previously disclosed, on May 18, 2023, we entered into an Asset Purchase Agreement (the “Original Asset Purchase Agreement”) with uBriGene (Boston) Biosciences, Inc., a Delaware corporation (“uBriGene”), pursuant to which we agreed to sell our leasehold interest in our cell processing facility located in Worcester, Massachusetts (the “Facility”), and associated assets relating to the manufacturing and production of cell and gene therapies at the Facility to uBriGene (the “Transaction”). We and uBriGene subsequently entered into Amendment No. 1, dated as of June 29, 2023, and Amendment No. 2, dated as of July 28, 2023, to the Original Asset Purchase Agreement (the Original Asset Purchase Agreement, as so amended, the “Asset Purchase Agreement”).
On July 28, 2023 (the “Closing Date”), pursuant to the Asset Purchase Agreement, we completed the sale of all of our assets that primarily relate to the manufacturing and production of cell and gene therapies at the Facility (such operations, the “Transferred Operations” and such assets, the “Transferred Assets”) to uBriGene for upfront consideration of $6 million cash (the “Base Amount”). The Transferred Assets that were transferred to uBriGene on the Closing Date include, but are not limited to: (i) our leases of equipment and other personal property and all other property, equipment, machinery, tools, supplies, inventory, fixtures and all other personal property primarily related to the Transferred Operations, (ii) the data, information, methods, quality management systems, and intellectual property primarily used for the purposes of the Transferred Operations, (iii) the records and filings, including customer and vendor lists, production data, standard operating procedures and business records relating to, used in or arising under the Transferred Operations and (iv) all transferrable business license, permits and approvals necessary to operate the Transferred Operations. As described in greater detail below, certain Transferred Assets, including our lease of the Facility and contracts that are primarily used in the Transferred Operations (the “Transferred Contracts”) did not transfer to uBriGene on the Closing Date.
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Under the terms of the Asset Purchase Agreement, in addition to the Base Amount, uBriGene will be obligated to pay us a contingent amount (the “Contingent Amount”) if we, within two years from the Closing Date: (i) complete an issuance of equity securities in an aggregate amount equal to or greater than $10.0 million after the closing (the “Contingent Capital Raise”) and (ii) obtain the consent of the landlord of the Facility to transfer the lease of the Facility to uBriGene (as discussed under “—Transfer of Lease of the Facility” below). As of December 31, 2023, we had completed issuances of equity securities for proceeds totaling approximately $4.6 million following the Closing Date. If we are unable to close the full amount of the Contingent Capital Raise and/or do not receive the Landlord’s consent to the transfer the lease of the Facility to uBriGene within two years from the Closing Date, uBriGene will not be obligated to pay the Contingent Amount to us. The Contingent Amount to be paid to us upon the satisfaction of the conditions listed above will be an amount equal to $5.0 million less (i) any severance payments or other monetary obligations to our employees who support the Transferred Operations and who have accepted offers of employment with uBriGene that arise between the Closing Date and the date the lease transfers to uBriGene and (ii) any payments payable by us under Transferred Contracts in connection with the consummation of the Transaction, including any payments necessary to obtain third party consents.
Voluntary Notice to U.S. Committee on Foreign Investment in the United States
uBriGene is an indirect, wholly owned subsidiary of UBrigene (Jiangsu) Biosciences Co., Ltd., a Chinese contract development and manufacturing organization. Under the Asset Purchase Agreement, we and uBriGene agreed to use our reasonable best efforts to obtain clearance for the Transaction from the U.S. Committee on Foreign Investment in the United States (“CFIUS”), although obtaining such clearance was not a condition to closing the Transaction. In accordance with the Asset Purchase Agreement, we and uBriGene previously submitted a voluntary notice to CFIUS on August 10, 2023.
Following an initial 45-day review period and subsequent 45-day investigation period, on November 13, 2023, CFIUS requested that we and uBriGene withdraw and re-file our joint voluntary notice to allow more time for review and discussion regarding the nature and extent of national security risk posed by the Transaction. Upon CFIUS’s request, we and uBriGene submitted a request to withdraw and re-file our joint voluntary notice to CFIUS, and on November 13, 2023, CFIUS granted this request, accepted the joint voluntary notice and commenced a new 45-day review period on November 14, 2023. CFIUS’s 45-day review ended on December 28, 2023. Since CFIUS had not concluded its review by December 28, 2023, the proceeding transitioned to a subsequent 45-day investigation period, which ended on February 12, 2024.
Following the 45-day review period and subsequent 45-day investigation period described above, on February 12, 2024, we and uBriGene requested permission to withdraw and re-file their joint voluntary notice to allow more time for review and discussion regarding the nature and extent of national security risk posed by the Transaction. Upon our and uBriGene’s request to withdraw and re-file their joint voluntary notice to CFIUS, on February 12, 2024, CFIUS granted this request, accepted the joint voluntary notice and commenced a new 45-day review period on February 13, 2024. The new 45-day review period will conclude no later than March 28, 2024. If CFIUS does not conclude its review by March 28, 2024, the proceeding will transition to a second 45-day phase as CFIUS further investigates the Transaction.
At the completion of its review and, if applicable, investigation, if CFIUS determines there are no unresolved national security concerns, CFIUS will apprise the parties of its determination and conclude all action on the matter. Alternatively, CFIUS may identify and impose mitigation measures. Depending on the nature and severity of perceived national security risks identified, CFIUS may, among other mitigation measures, require suspension of the Transaction, require uBriGene to divest the Facility or other assets relating thereto, forfeit contracts that CFIUS deems to be sensitive, or require appointment of special compliance personnel or a proxy board consisting of U.S. persons. If CFIUS determines to require mitigating measures with respect to the Transaction, then uBriGene must comply with such measures although the Closing Date has already occurred.
We and uBriGene have been and will continue to be actively engaged with CFIUS, and they remain fully committed to obtaining clearance from CFIUS and completing the full transfer of the Facility to uBriGene. There can be no assurance, however, that CFIUS will ultimately provide clearance with respect to the Transaction, or what mitigating measures may be required in order to obtain such clearance.
Transfer of Lease of the Facility
The Asset Purchase Agreement contemplates that we will seek to procure the consent and approval of the landlord of the Facility, WCS-377 Plantation Street, Inc. (the “Landlord”), of either (i) an assignment and assumption agreement to be executed by us and uBriGene pursuant to which uBriGene would assume our lease of the Facility or (ii) a new lease agreement by and between uBriGene and the Landlord with respect to the Facility on terms and conditions acceptable to uBriGene (the “Proposed Lease Transfer”). Because the Landlord had not consented to the Proposed Lease Transfer as of the Closing Date, our lease of the Facility did not transfer to uBriGene on the Closing Date.
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The Landlord has informed us that it will not consider our request for the Proposed Lease Transfer until we receive the final determination letter from CFIUS (the “CFIUS Letter”) with respect to the Transaction and provide the Landlord with a reasonably detailed summary of Mustang and uBriGene’s reaction to such final determination (the “Reaction Summary”). Upon the Landlord’s receipt of the CFIUS Letter and the Reaction Summary, the Landlord will have an additional thirty business days to make its determination on the Proposed Lease Transfer. If CFIUS conclude its action with respect to the Transaction by the end of its new 45-day review period ending March 28, 2024, then the landlord would be expected to deliver its decision regarding the Proposed Lease Transfer by April 27, 2024.
Under the Asset Purchase Agreement, the lease of the Facility is to be transferred to uBriGene within three business days following receipt of the Landlord’s consent to the Proposed Lease Transfer, if such consent is received. Unless and until the lease is transferred to uBriGene, we will retain our facility lease and facility personnel, and will continue to occupy the leasehold premises and manufacture there our lead product candidates, including MB-106, pursuant to the arrangements described below under “Manufacturing Services Agreement and Sub-Contracting CDMO Agreement”.
uBriGene’s Right to Deliver a Repurchase Notice with Respect to the Transferred Assets
Because the Facility was not assigned to uBriGene within 120 days following the Closing Date, so long as the lease has not been so assigned, uBriGene may deliver a notice to us indicating its intention to enter into good faith negotiations (the “Repurchase Notice”) to provide for us to repurchase the Transferred Assets, re-assume the transferred liabilities and resume all Transferred Operations for a repurchase price equal to the purchase price of the Transaction actually paid by uBriGene as of the repurchase date (“Repurchase Transaction”). Upon receipt of such Repurchase Notice, we and uBriGene have agreed to use our best commercial efforts to negotiate in good faith the terms of any such Repurchase Transaction.
Transferred Employees and Transferred Contracts
Under the Asset Purchase Agreement, uBriGene has agreed to (or cause one of its affiliates to) offer employment to no less than forty Company employees who support operations at the Facility on terms with base salary or hourly wages, target bonus opportunities (excluding equity-based compensation) and retirement and welfare benefits that are no less favorable than those provided by us immediately prior to the closing of the Transaction. Employees who receive and accept offers of employment from uBriGene are the “Transferred Employees.”
Because the lease of the Facility did not transfer to uBriGene on the Closing Date, the Transferred Employees and our rights in, to and under the Transferred Contracts also did not transfer to uBriGene on the Closing Date. Under the terms of the Asset Purchase Agreement, the Transferred Employees will become employees of uBriGene effective on the date that is 30 days following the completion of the Proposed Lease Transfer, and the Transferred Contracts will transfer to uBriGene on the date on which Mustang and uBriGene confirm in writing that the Landlord has notified us or uBriGene of its consent to the Proposed Lease Transfer.
Manufacturing Services Agreement and Sub-Contracting CDMO Agreement
As contemplated by the Asset Purchase Agreement, on the Closing Date, we and uBriGene entered into a Manufacturing Services Agreement (the “Manufacturing Services Agreement”). Under the Manufacturing Services Agreement, we contracted uBriGene to manufacture our lead product candidates, including MB-106, and we committed to spend at least $8.0 million over a period of two years after the closing of the Transaction to purchase manufacturing and related services (the “Manufacturing Services”) from uBriGene (the “Minimum Commitment”). We paid uBriGene 25% of the Minimum Commitment at the time of signing of the Manufacturing Services Agreement and will pay the remainder of the Minimum Commitment over the following two years. Subject to our payment of our Minimum Commitment, uBriGene will provide to us a manufacturing rebate, payable in cash at the end of the second year of the Manufacturing Services Agreement term, for any amounts paid for Manufacturing Services in excess of the Minimum Commitment (but in no event will such rebate exceed $3.0 million). In connection with the Manufacturing Services Agreement, we will provide uBriGene with the customary licenses to use intellectual property rights specific to our cell and gene therapies to the extent reasonably necessary for uBriGene’s performance under the Manufacturing Services Agreement.
In addition, as contemplated by the Asset Purchase Agreement, on the Closing Date, we and uBriGene entered into a sub-contracting Manufacturing Services Agreement (the “Sub-Contracting CDMO Agreement”), pursuant to which uBriGene contracted us to perform the Manufacturing Services to be performed by uBriGene under the Manufacturing Services Agreement and granted us a revocable, non-exclusive, royalty-free license to use the Transferred Assets in connection with the performance of such services. Under the terms of the Sub-Contracting CDMO Agreement, we will manufacture our lead product candidates, including MB-106 (the “Company CDMO Manufacturing Services”), and may from time to time manufacture other products as requested by uBriGene. Pursuant to the Sub-Contracting CDMO Agreement, the price to be paid by uBriGene in exchange for the Company CDMO Manufacturing Services will be an amount equal
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to the sum of: (i) the base salary and hourly wages for the Transferred Employees for time spent performing the Company CDMO Manufacturing Services, (ii) the fees, payments, costs and expenses payable by us to third parties under any of the Transferred Contracts used to perform the CDMO Manufacturing Services (so long as such amounts are generally consistent with amounts paid by us under such Transferred Contracts immediately prior to the Closing Date and such amounts did not become payable as a result of a breach of, a default under, a termination, a cancellation or an acceleration of any right or obligation under the Transferred Contracts), and (iii) any other amounts approved in advance in writing by uBriGene. As of the date hereof, uBriGene has not notified us of any plans to request any manufacturing services under the Sub-Contracting CDMO Agreement, other than the Company CDMO Manufacturing Services. In addition, under the Sub-Contracting CDMO Agreement, Mustang and uBriGene agreed to establish a joint steering committee comprising two representatives from each of Mustang and uBriGene to review, discuss and decide on operational matters relating to the services to be performed by us under such agreement, including matters relating to expenses. In addition, we agreed to permit uBriGene to locate up to three of uBriGene’s personnel at the Facility so as to participate in meetings of the joint steering committee and allow for in-person feedback and decision-marking regarding the services to be performed by us.
In addition to other customary termination events, in the event uBriGene delivers the Repurchase Notice, the Manufacturing Services Agreement and the Sub-Contracting CDMO Agreement will terminate upon the earlier of (i) the closing of the Repurchase Transaction or (ii) 60 days after the delivery of the Repurchase Notice.
We intend to expense manufacturing costs under the MSA and Sub-Contracting CDMO Agreement and account for reimbursed costs associated with the agreements as an offset to such expense. For the year ended December 31, 2023, we expensed $4.1 million of manufacturing costs under the MSA and have a receivable of $3.2 million, net of payments received of $2.4 million, for reimbursed costs associated with the Sub-Contracting CDMO agreement.
Transition Services Agreement and Quality Services Agreement
On the Closing Date, the parties also entered into a Quality Services Agreement, pursuant to which we and uBriGene agreed to specified duties for each party with respect to the contract manufacture by uBriGene of our product candidates. The Quality Services Agreement sets forth the quality activities associated with the production, analysis, and release of such products and assigns responsibility for each activity to us and/or uBriGene. The Quality Services Agreement terminates upon the earlier of: (i) the date of expiration of the MSA or (ii) the date of termination of the MSA.
In addition, as contemplated by the Amended Asset Purchase Agreement, on the Closing Date, we and uBriGene entered into a Transition Services Agreement, which will become effective upon completion of the Proposed Lease Transfer (if such Proposed Lease Transfer is completed). Pursuant to the Transition Services Agreement, we will provide certain transitional services to uBriGene to ensure the smooth transition of operations and continuity of business for a period of six months after the effective date of the Transition Services Agreement, unless otherwise extended upon the mutual agreement of us and uBriGene.
Impact of Landlord Consent to the Proposed Lease Transfer on the Transaction
In the event the Landlord consents to the Proposed Lease Transfer, it is expected that the lease to the Facility and the Transferred Employees of the Facility will be transferred to uBriGene as described above, in accordance with the terms of the Asset Purchase Agreement. In addition, following receipt of the Landlord’s consent to the Proposed Lease Transfer (if such consent is received), the Sub-Contracting CDMO Agreement will be terminated no later than 30 days following completion of the Proposed Lease Transfer, following which uBriGene will commence the Manufacturing Services in connection with our lead product candidates, including MB-106, pursuant to the Manufacturing Services Agreement. If, however, the Landlord does not consent to the Proposed Lease Transfer the parties may mutually agree to extend the term of the Sub-Contracting CDMO Agreement indefinitely and uBriGene may continue to procure manufacturing services (including our CDMO Manufacturing Services) from us. In the event the Landlord does not consent to the Proposed Lease Transfer within 120 days of closing, uBriGene may deliver the Repurchase Notice to us, following which the parties will negotiate in good faith regarding the Repurchase Transaction. By their terms, the Manufacturing Services Agreement and the Sub-Contracting CDMO Agreement terminate upon the earlier of (i) the closing of the Repurchase Transaction or (ii) 60 days after the delivery of the Repurchase Notice.
Risks Relating to the Transaction
We are exposed to a number of risks and uncertainties relating to the Transaction. Please see “Risk Factors—Risks Relating to the Sale of Our Manufacturing Facility” for a discussion of these risks and uncertainties.
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Critical Accounting Policies and Use of Estimates
Our financial statements include certain amounts that are based on management’s best estimates and judgments. Our significant estimates include, but are not limited to, useful lives assigned to long-lived assets and amortizable intangible assets, fair value of stock options and warrants, stock-based compensation, accrued expenses, provisions for income taxes and contingencies. Due to the uncertainty inherent in such estimates, actual results may differ from these estimates. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
While our significant accounting policies are described in the notes to our financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.
Research and Development
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 our 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, and 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. In each case, we evaluate if the license agreement results in the acquisition of an asset or a business. Such licenses purchased by us require substantial completion of research and development, regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternative future use. Accordingly, the total purchase price for the licenses acquired during the period was reflected as research and development - licenses acquired on the Statements of Operations for the years ended December 31, 2023, and 2022.
Accrued Research and Development Expense
We record accruals for estimated costs of research, preclinical, clinical and manufacturing development within accrued expenses which are significant components of research and development expenses. A substantial portion of our ongoing research and development activities is conducted by third-party service providers. We accrue the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress, or stage of completion or actual timeline (start-date and end-date) of the services and the agreed-upon fees to be paid for such services. Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses until the services are rendered.
If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust accrued expenses or prepaid expenses accordingly, which impact research and development expenses. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.
Recent Accounting Pronouncements
See Note 2 to the financial statements included in this Form 10-K.
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Smaller Reporting Company Status
We are a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K , have reduced disclosure obligations regarding executive compensation, and smaller reporting companies are permitted to delay adoption of certain recent accounting pronouncements discussed in Note 2 to our consolidated financial statements located in “Part IV, Item 15., Exhibits and Financial Statement Schedules” in this Form 10-K.
Results of Operations
Comparison of the Years Ended December 31, 2023, and 2022
For the year ended December 31,
Change
($ in thousands)
2023
2022
$
%
Operating expenses:
Research and development
$
40,513
$
62,475
$
(21,962)
(35)
%
Research and development – licenses acquired
527
1,474
(947)
(64)
%
Gain on sale of property and equipment
(1,466)
—
(1,466)
100
%
General and administrative
9,686
12,210
(2,524)
(21)
%
Total operating expenses
49,260
76,159
(26,899)
(35)
%
Loss from operations
(49,260)
(76,159)
26,899
(35)
%
Other income (expense)
Other income
917
1,304
(387)
(30)
%
Interest income
850
689
161
23
%
Interest expense
(4,109)
(3,359)
(750)
22
%
Total other income (expense)
(2,342)
(1,366)
(976)
71
%
Net Loss
$
(51,602)
$
(77,525)
$
25,923
(33)
%
Research and Development Expenses
Research and development expenses primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license, sponsored research and milestone costs related to in-licensed products and technology, payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of manufacturing clinical trial materials, costs associated with regulatory filings and laboratory service costs.
Research and development expenses decreased by approximately $22.0 million from $62.5 million for the year ended December 31, 2022, to $40.5 million for the year ended December 31, 2023. The decrease in research and development expense for the year ended December 31, 2023, was primarily attributable to the following:
● $7.7 million decreased research and development employee compensation costs, including stock compensation, which includes approximately $3.4 million of costs reimbursed through the subcontracting agreement with uBriGene;
● $8.2 million decreased laboratory supply costs, including vector manufacturing costs, which includes approximately $0.9 million of costs reimbursed through the subcontracting agreement with uBriGene;
● $6.7 million decreased for program related costs, which primarily reflects the reduction of spend on the discontinued programs;
● $2.9 million decreased other costs including facility related costs, depreciation, consulting; and
● offset by approximately $3.5 million for increase costs for services provided by uBriGene.
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Research and development expenses - licenses acquired decreased by $0.9 million from $1.5 million for the year ended December 31, 2022, to $0.5 million for the year ended December 31, 2023. The decrease in research and development expenses - licenses acquired for the year ended December 31, 2023, reflects approximately $0.6 million decrease for the annual stock dividend to Fortress, and $0.3 million decrease in milestone payments related to our licenses with COH in the prior year.
The following table provides a breakout of the components of research and development expenses for the year ended December 31, 2023, and 2022:
For the year ended December 31,
($ in thousands)
2023
2022
R&D program related expenses (1)
MB-102
$
(290)
$
1,269
MB-106
4,727
3,953
MB-107/207
(778)
1,588
MB-109
1,140
1,511
MB-110
350
505
Mayo in situ CAR T
594
994
All others (2)
672
3,339
Total R&D development expense
6,415
13,159
R&D personnel related expenses
12,835
20,494
R&D facility and depreciation expense
2,765
3,777
R&D consulting expenses
3,286
4,312
R&D lab supplies
8,267
16,438
R&D other expense (3)
6,945
4,295
Total research and development expense
$
40,513
$
62,475
(1) Includes sponsored research, license and clinical trial related costs
(2) Includes the costs for long-term follow-up and programs that were terminated.
(3) Includes services provided by uBriGene under the manufacturing services agreement.
(4) Credits reflect the termination of the programs and refunds from vendors.
Our research and development expenses may vary significantly from period to period depending on where we are in the development plans for our various programs, and the resources we have at the time to commit to those programs. The more significant costs impacting the level of expense include:
● 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 CROs, investigative sites and consultants that conduct our clinical trials and our preclinical activities;
● costs associated with non-clinical activities, and regulatory approvals.
Gain on the Sale of Property and Equipment
Gain on the sale of property and equipment for the year ended December 31, 2023, is attributable to the difference between the base proceeds of $6.0 million received upon the closing of the uBriGene transaction and the relative fair value of the fixed assets sold.
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.
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General and administrative expense decreased by approximately $2.5 million from $12.2 million for the year ended December 31, 2022, to $9.7 million for the year ended December 31, 2023. The decrease in general and administrative expense for the year ended December 31, 2023, was primarily attributable to the following:
● $0.3 million decreased general and administrative employee compensation costs, including stock based;
● $0.7 million decreased third-party consulting;
● $0.6 million decreased outside services, including recruiting fees;
● $0.8 million decreased expense related to equity fees to Fortress,
● $0.5 million decreased other costs, including business insurance and the Management Services Agreement with Fortress; and
● offset by $0.4 million increased professional services.
Our general and administrative expenses may vary significantly from period to period depending on the level of effort required to support our research and development group and our ongoing requirements of being a publicly traded company. The more significant costs contributing to our general and administrative expenses include the following:
● support of our research and development activities, including potential product candidates entering the clinic;
● stock compensation granted to key employees and non-employees;
● support of business development activities; and
● 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 funds received from the NIH grant, interest income earned on cash balances and interest expense on our Term Loan. For the year ended December 31, 2023, and 2022, total other expense was approximately $2.3 million and $1.3 million, respectively. The $1.0 million increase in other expense for the year ended December 31, 2023 was primarily attributable to increased interest expense of $0.8 million, which reflects $2.8 million loss on the extinguishment of debt offset by $2.0 million decrease in interest expense related to the repayment of the Term Loan, $0.4 million decrease in other income reflecting the end of the NIH grant in August 2023, partially offset by $0.2 million increase in interest income.
Liquidity and Capital Resources
We have incurred substantial operating losses and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of December 31, 2023, we had an accumulated deficit of $381.0 million.
We have funded our operations to date primarily through the sale of equity and our Term Loan. On April 11, 2023, we repaid the Term Loan, see Note 8 to the Financial Statements.
Sources of Liquidity
Registration Statements
On December 12, 2023, we filed registration statement No. 333-275997 on Form S-1, which registered the offer and sale of common stock on behalf of the Selling Stockholders, of up to 2,743,530 shares of our common stock, issuable upon the exercise of certain warrants held by the Selling Stockholders.
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On October 23, 2020, we filed a shelf registration statement No. 333-249657 on Form S-3 (the “2020 S-3”), which was declared effective on December 4, 2020. Under the 2020 S-3, we may sell up to a total of $100.0 million of our securities. The 2020 S-3 expired on October 23, 2023.
On April 23, 2021, we filed a shelf registration statement No. 333-255476 on Form S-3 (the “2021 S-3”), which was declared effective on May 24, 2021. Under the 2021 S-3, we may sell up to a total of $200.0 million of our securities. As of December 31, 2023, approximately $195.6 million of the 2021 S-3 remains available for sale of securities.
The amount of securities we are able to sell pursuant to the registration statements on Form S-3 is limited. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
Term Loan
On April 11, 2023, our long-term debt facility with Runway Growth Finance Corp. (the “Term Loan”) was terminated upon receipt by Runway of a payoff amount of $30.4 million from us comprising principal, interest and the applicable final payment amount. The loss on extinguishment was recorded in interest expense in the Statements of Operations.
Registered Direct Offering
On October 26, 2023, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a single institutional accredited investor (the “Investor”) pursuant to which we agreed to issue and sell, in a registered direct offering priced at-the-market under the rules of The Nasdaq Stock Market (the “Registered Offering”), (i) 920,000 shares of common stock, at a price per share of $1.70 and (ii) pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 1,668,236 shares of our common stock, at a price per Pre-funded Warrant equal to $1.699, the price per share, less $0.001.
The Pre-funded Warrants were sold, in lieu of shares of common stock, to the Investor whose purchase of shares of common stock in the Registered Offering would otherwise result in such Investor, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at such Investor’s option upon issuance, 9.99%) of our outstanding common stock immediately following the consumption of the Registered Offering. The Pre-funded Warrants have an exercise price of $0.001 per share, became exercisable upon issuance and remain exercisable until exercised in full.
The Registered Offering closed on October 30, 2023. We intend to use the net proceeds from the Registered Offering for general corporate purposes and working capital requirements, which may include, among other things, the advancement of our product candidates to obtain regulatory approval from the FDA.
In a concurrent private placement, pursuant to the terms of the Purchase Agreement, we also agreed to issue and sell unregistered warrants (the “Warrants”) to purchase up to 2,588,236 shares of Common Stock, at an offering price of $0.125 per Warrant to purchase one share of common stock (the “Private Placement” and, together with the Registered Offering, the “Registered Direct Offering”) (which offering price is included in the purchase price per Share or Pre-funded warrant). The Warrants have an exercise price of $1.58 per share (subject to customary adjustments as set forth in the Warrants), are exercisable upon issuance and will expire five and one-half years from the date of issuance. The Warrants contain customary anti-dilution adjustments to the exercise price, including for share splits, share dividends, rights offering and pro rata distributions.
The Private Placement also closed on October 30, 2023, concurrently with the Registered Offering. We received approximately $4.4 million in gross proceeds from the Offerings, before deducting placement agency fees and offering expenses of approximately $0.5 million.
Pursuant to the Founders Agreement, we did not issue any shares of common stock to Fortress for the year ended December 31, 2023, and recorded the value of 64,706 shares issuable to Fortress in connection with the shares issued under the Registered Direct Offering.
At-the-Market Offering
In July 2018, we entered into an At-the-Market Issuance Sales Agreement (the “Mustang ATM”) with B. Riley Securities, Inc. (formerly B. Riley FBR, Inc.), Cantor Fitzgerald & Co., National Securities Corporation (now B. Riley FBR, Inc.), and Oppenheimer & Co. Inc. (each an “Agent” and collectively, the “Agents”), relating to the sale of shares of common stock pursuant to the 2021 S-3. Under the Mustang ATM, we pay the Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock. On December
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31, 2020, the Mustang ATM was amended to add H.C. Wainwright & Co., LLC as an Agent. On April 14, 2023, the Mustang ATM was amended to add the limitations imposed by General Instruction I.B.6 to Form S-3 and remove Oppenheimer & Co., Inc. as an Agent.
During the year ended December 31, 2023, we issued approximately 52,000 shares of common stock at an average price of $3.15 per share for gross proceeds of $163,000 under the ATM Agreement. In connection with these sales, we paid aggregate fees of approximately $3,000 for net proceeds of approximately $160,000.
During the year ended December 31, 2022, we issued approximately 0.5 million shares of common stock at an average price of $12.61 per share for gross proceeds of $6.6 million under the ATM Agreement. In connection with these sales, we paid aggregate fees of approximately $0.1 million for net proceeds of approximately $6.5 million.
Pursuant to the Founders Agreement, we did not issue any shares of common stock to Fortress for the year ended December 31, 2023, and recorded the value of 1,297 shares issuable to Fortress in connection with the shares issued under the Mustang ATM. Pursuant to the Founders Agreement, we issued 13,131 shares of common stock to Fortress at a weighted average price of $13.56 per share for the year ended December 31, 2022, in connection with the shares issued under the Mustang ATM.
The number of securities we are able to sell pursuant to the registration statements on Form S-3 is limited. See “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
Cash Flows
The following table summarizes our cash flows during the years ended December 31, 2023, and 2022:
For the year ended December 31,
($ in thousands)
2023
2022
Statement of cash flows data:
Total cash (used in) provided by:
Operating activities
$
(49,477)
$
(65,066)
Investing activities
5,886
(2,952)
Financing activities
(26,081)
34,056
Net change in cash, cash equivalents and restricted cash
$
(69,672)
$
(33,962)
Operating Activities
Net cash used in operating activities was $49.5 million for the year ended December 31, 2023, compared to $65.1 million for the year ended December 31, 2022. Net cash used in operating activities for the year ended December 31, 2023, was primarily due to approximately $51.6 million in net loss, $3.0 million change in operating assets and liabilities, and $1.5 million gain on the sale of property and equipment, partially offset by $1.9 million of depreciation expense, $0.6 million of non-cash stock compensation expenses, $0.5 million of common shares issuable in connection with our Founders Agreement, $0.1 million equity fee to Fortress related to Mustang ATM and the Registered Direct Offering, $0.1 million of amortization of debt discount, $2.8 million loss on extinguishment of debt due to the repayment of the Term Loan, $0.4 million of amortization of operating lease right-of-use assets, and $0.2 million gain on lease modification.
Net cash used in operating activities for the year ended December 31, 2022, was primarily due to approximately $77.5 million in net loss, partially offset by $4.0 million change in operating assets and liabilities, $2.7 million of depreciation expense, $2.3 million of non-cash stock compensation expenses, $1.1 million of common shares issuable for the Founders Agreement, $0.7 million equity fee to Fortress related to the Term Loan, $0.5 million of amortization of debt discount, $0.4 million of research and development-licenses acquired, $0.2 million loss on disposal of property and equipment, $0.3 million of amortization of operating lease right-of-use assets, and $0.2 million of equity fee on issuance of common shares to Fortress.
Investing Activities
Net cash provided by investing activities was $5.9 million for the year ended December 31, 2023, representing $6.0 million of proceeds from the sale of property and equipment offset by $0.1 million used in purchases of research and development licenses and fixed assets.
Net cash used in investing activities was $3.0 million for the year ended December 31, 2022, representing $2.7 million in purchases of fixed assets and $0.4 million in purchases of research and development licenses, offset by $0.1 million of proceeds from the sale of fixed assets.
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Financing Activities
Net cash used in financing activities was $26.1 million during the year ended December 31, 2023, driven by repayment of the Term Loan of $30.4 million offset by $4.4 million of gross proceeds from the Registered Direct Offering, net of offering costs of $0.5 million, $0.2 million of gross proceeds from the Mustang ATM and $0.2 million raised from the issuance of our common stock in connection with our Employee Stock Purchase Plan (the “ESPP”) .
Net cash provided by financing activities was $34.1 million during the year ended December 31, 2022, driven by (i) proceeds from the issuance of the Term Loan of $30.0 million, net of financing costs of $2.7 million; (ii) gross proceeds of $6.6 million, net of offering costs of $0.1 million, from the Mustang ATM; and (iii) $0.2 million raised from the issuance of our common stock in connection with our ESPP .
As of December 31, 2023, we had cash and cash equivalents of $6.2 million. Based on our current operating plan, we currently expect that such cash and cash equivalents will be sufficient to fund our operations and clinical trials through the first quarter of 2024. In the near term, our liquidity and capital resources will be significantly affected by our ability to raise additional equity capital, including receiving the Contingent Payment pursuant to the Amended Asset Purchase Agreement in connection with the sale of our Facility, as described under “Recent Developments” above. Receipt of the Contingent Payment is dependent upon our raising an additional $5.4 million through issuances of equity securities in order to complete the Contingent Capital Raise and obtaining the Landlord’s consent to the Proposed Lease transfer. The lease transfer is subject to review and approval by CFIUS. The current 45-day review period will conclude no later than March 28, 2024. If we are not able to secure the Contingent Payment by the end of the first quarter of 2024, we will continue to seek addition funding through corporate partnerships and capital markets fundraising and may face significant difficulty in funding our operations in the short term and will need to pursue other options to reduce expenses. See “Risk Factors—Risks Related to Our Finances and Capital Requirements.”
The continuation of our business as a going concern is dependent upon raising additional capital and eventually attaining and maintaining profitable operations. As of December 31, 2023, there is substantial doubt about our ability to continue as a going concern for the next 12 months from the date of issuance of these financial statements. The financial statements included in this Form 10-K do not include any adjustments that might be necessary should operations discontinue.
As of the date of this Form 10-K, our public float was less than $75 million. As a result, we are subject to the limitations of General Instruction I.B.6 to Form S-3 until such time as our public float exceeds $75 million, which means we only have the capacity to sell shares up to one-third of our public float under shelf registration statements in any twelve-month period. If our public float decreases, the number of securities we may sell under our Form S-3 shelf registration statements will also decrease. We will remain constrained by the limitations of General Instruction I.B.6 to Form S-3 until such time as our public float exceeds $75 million, at which time the number of securities we may sell under a Form S-3 registration statement will no longer be limited by limitations of General Instruction I.B.6 to Form S-3.
Contractual Obligations
We enter into contracts in the normal course of business with licensors, CROs, contract manufacturing organizations (“CMOs”) and other third parties for the procurement of various products and services, including without limitation biopharmaceutical development, biologic assay development, commercialization, clinical and preclinical development, clinical trials management, pharmacovigilance and manufacturing and supply. These contracts typically do not contain minimum purchase commitments (although they may) and are generally terminable by us upon written notice. Payments due upon termination or cancelation/delay consist of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation; in certain cases, our contractual arrangements with CROs and CMOs include cancelation and/or delay fees and penalties.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
None.
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 Form 10-K.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.