Mustang Bio: The Market Is Missing This Opportunity

Summary

• Last year was a productive year for Mustang Bio as they advanced the company’s cell and gene therapies deeper into clinical development.
• Recent figures from their CAR-T programs have revealed striking results that indicate potential cures for hematologic cancers and solid tumors.
• I believe the market is overlooking MBIO, and the share price has fallen below $1 per share.
• I am finding a spot for MBIO in my Seeking Alpha Marketplace Service, Compounding Healthcare.
• This idea was discussed in more depth with members of my private investing community, Compounding Healthcare. Learn More »

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Mustang Bio (NASDAQ:MBIO) had a productive 2021 as they progressed the company's cell and gene therapies deeper into clinical development. However, recent data from their CAR-T programs has revealed impressive results that point to potential cures for hematologic cancers and solid tumors. These cell programs along with the company's rare genetic disease treatments could change how we treat these terrible diseases, while also delivering substantial revenue for the company. Unfortunately, it appears the market is overlooking the huge opportunity for MBIO and the share price has fallen below $1 per share. I believe MBIO is still worthy of speculative investment, and as a result, I am finding a spot in MBIO in my Seeking Alpha Marketplace Service, Compounding Healthcare.

I intend to provide a brief background on the company and will highlight some of its recent updates. In addition, I discuss MBIO's current valuation, as well as some of its downside risks. Finally, I lay out my strategy for taking advantage of these current prices.

Company Background

Mustang Bio is a clinical-stage biopharmaceutical company dedicated to developing cell and gene therapy products for solid tumors, hematologic cancers, and rare genetic diseases. Mustang is developing CAR T therapies to be effective against multiple cancer types, in addition to lentiviral gene therapies for severe combined immunodeficiency.

Mustang Bio Pipeline (Mustang Bio)

MB-207 is a lentiviral gene therapy for X-linked severe combined immunodeficiency "XSCID", better known as "bubble boy" disease. The FDA gave MB-207 the Orphan Drug and Rare Pediatric Disease Designations, which if approved, MB-207 would be worthy of a rare pediatric disease voucher. The FDA issued a hold, pending CMC clearance, on the company's pivotal Phase II study.

MB-107 is another ex-vivo gene therapy for newly diagnosed infants with XSCID who are between two months to two years of age. Mustang anticipates starting a multi-center pivotal Phase II clinical trial of MB-107 in the third quarter of this year. If MB-107 is approved, it would be eligible for a rare pediatric disease voucher. Moreover, the EMA gave MB-107 the Advanced Therapy Medicinal Product Classification, Orphan Drug, and PRIME designations.

MB-106 is the company's CD20-targeted autologous CAR T cell therapy for hematological cancers. At this time, MB-106 is in a Phase I/II open-label, dose-escalation trial in patients with B-NHLs and CLL.

MB-105 is a PSCA CAR T therapy that is in a Phase I clinical trial for PSCA-positive mCRPC.

MB-101 is an IL13Rα2-targeted CAR T cell therapy for treating GBM. It is the first CAR T cell therapy to demonstrate complete responses in GBM based on City of Hope's Phase 1 trial.

MB-108 is a second-generation attenuated HSV-1 oncolytic virus for the treatment of GBM. MB-108 replicates in tumor thus, causing the tumor cell to act as a manufacturing works to yield a new virus to infect other tumor cells. MB-108 is currently in a Phase I clinical trial.

MB-109 is a combination of MB-101 and MB-108. The combination is designed to leverage MB-108 to improve the efficacy of MB-101 CAR T cell therapy. Mustang means to file a Phase I IND for MB-109 combination therapy for GBM and anaplastic astrocytoma in the second half of this year.

What is more, the company grabbed a license agreement with the Mayo Clinic for in vivo CAR T cell technology that has the prospective to develop off-the-shelf CAR T therapies.

Into the bargain, Mustang executed a deal with Leiden University Medical Centre for a first-in-class ex vivo lentiviral gene therapy for RAG1-SCID, which is now designated MB-110.

Making Progress

Last year the company made significant progress in their cell and gene therapy programs. Notably, the FDA approved the IND for MB-107's pivotal Phase II trial. In addition, the FDA permitted MB-106's Phase I/II trial for relapsed or refractory B-NHL and CLL. Interim data from the ongoing Phase I/II trial of MB-106 showed a favorable safety profile, a 95% ORR, and a 65% CR.

For 2022, City of Hope presented Phase I data on MB-105, a PSCA CAR T-cell therapy for the treatment of PSCA-positive mCRPC at ASCO-GU. The grades show that PSCA-CAR T-cell therapy is achievable in patients with mCRPC. The data revealed preliminary anti-tumor abilities at a dose of 100M cells with lymphodepletion. The company plans to escalate the next dose level to 300M.

In April, the company announced updated interim data from MB-106's Phase I/II clinical trial. The data established high efficacy and a very favorable safety profile in all patients. Complete responses were witnessed at all doses and durable responses were found in FL, CLL, DLBCL, and Waldenstrom macroglobulinemia "WM". An ORR of 96% and a CR rate of 72% were observed in all patients across all dose levels. Moreover, two patients who had responded to MB-106 had already failed CD19-directed CAR T therapy and later relapsed. One patient with FL had a complete response and the other with DLBCL had a partial response.

Looking Ahead

In the first half of 2022, the company anticipates enrolling MB-106 Phase I/II trial in the second half of this year and their pivotal Phase II trial for MB-107. The company is also planning on filing an IND for MB-109 for GBM. The company has a strong cash position of $110.6M at the end of 2021 and $75M long-term debt facility Runway Growth Capital. Now, Mustang is positioned to move their cell and gene therapies closer to the finish line.

Valuation

MBIO's current market cap is roughly $76M, which is incredibly cheap considering the company's current price-to-book is 0.62. The company finished 2021 with roughly $100M in cash, so MBIO is trading under its cash value.

Moreover, the coming might be only a few years away from becoming a commercial company as MB-107, MB-207, and MB-106 move closer to the finish line. If the company is able to get one or two of these onto the market, the company's fundamentals and long-term outlook will change dramatically.

MBIO Revenue Estimates (Seeking Alpha)

The abrupt change in financials should have a positive impact on the share price. The Street expects MBIO to start recording some revenue in 2024 and will experience strong growth into the next decade. Based on the Street's estimates, it looks as if the company might be able to pull in over $100M in revenue in 2026, which is a forward price-to-sales of 0.66. This tells us that the 2026 estimates are greater than the company's current market cap. Considering the industry's average price-to-sales is 5x, we can say that MBIO is substantially undervalued for its potential revenue growth.

Risks

Like the majority of commercial biotech companies, MBIO has a few common downside risks investors should consider. Primarily, there is the potential for a regulatory failure in their pipeline. The company needs to get they are current through the FDA in order to validate the company's ability to identify and develop promising commercial products. Without regulatory success, the market will most likely turn against MBIO in fear that the company we'll have to start over at square one and will remain in the cash burn state for a prolonged. Of time. The longer the stays in a pre-commercial state, the more cash a company will chew through, thus, increasing the likelihood of multiple secondary offerings or crippling debt. Clearly, any setbacks in the pipeline could create a crushing domino effect that could ruin the bull thesis and decimate the share price.

Another concern comes from payer coverage for cell and gene therapies due to their expensive price tag. Most cell therapies are well into the six-figure range, so it is likely MBIO's therapies will have to jump over many hurdles to get the insurance companies to start covering them.

Last but not least, Mustang is going to have stiff competition from other cell therapy and gene therapy companies. At the moment, Mustang is the leader in XSCID gene therapies, but the company's CAR T therapies have plenty of competition from smaller companies and big pharma. Undoubtedly, considering the expected price tag for these therapies, there will be clear winners and losers in this arena. It is possible Mustang gets several of their products through the FDA, but the competition is able to beat them on the market with price, scale, availability, and payer coverage.

Considering these points above, I see MBIO as a speculative ticker and will be traded in the "Bio Boom" Portfolio.

My Plan

Regardless of how bullish I am on, I must concede that the market is not on the same page. Consequently, I have restrained my enthusiasm and reminded myself that I need the market to start to see things my way before getting aggressive with my sizing. However, the current valuation it's too hard to pass by, so I will be employing a dollar-cost average "DCA" strategy until we see signs of a reversal and the company has a clear timeline for potential approval. Admittedly, I will have several sell orders ready to take advantage of spikes in the share price in order to generate some profit and transition MBIO into a "house money" position.

MBIO Daily Chart (Trendspider)

Long term, I still plan on maintaining a MBIO position in the Compounding Healthcare "Bio Boom" Portfolio for at least five more years in anticipation the company will get at least one of their pipeline candidates across the finish line and onto the market.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of MBIO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.