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MBIO Mustang Bio, Inc. - Initiation Note

Mustang Bio, Inc.

BUY (MBIO, $12.03)

Focused on Effective CAR T Therapies that Address Earlier Generation CAR T Safety Concerns: Initiating BUY/$21 TP

September 12, 2017

Jonathan Aschoff, Ph.D.

212.417.8277

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We are initiating coverage of Mustang Bio, Inc. with a Buy rating and 12 month target price of $21. Mustang’s lead candidate, MB-101, is a second-generation CAR T therapy in development for glioblastoma multiforme (GBM) and currently in Phase 1. Mustang’s other CAR T assets include MB-102 (in Phase 1 for acute myeloid leukemia (AML)), preclinical MB-103 for GBM, preclinical MB-104 for multiple myeloma, and preclinical MB-105 for solid tumors (including prostate, pancreatic, gastric and bladder). To be conservative, given the portfolio’s early stage, our valuation is based solely upon projected future revenue to Mustang from our projected US sales and EU royalties from MB-101 in GBM, and MB-102 in AML, with success elsewhere serving as potential upside to our valuation.

The next most important investment catalysts for Mustang are its future Phase 1 data readouts. The Phase 1 MB-102 trial could potentially generate enough AML data for release at the annual ASH conference in December. Even though the MB-101 trial in GBM started before the MB-102 trial, positive preliminary results have already been released and thus we expect the next release of MB-101 results to come in 1H18.

The Phase 1 MB-101 trial has already produced an unprecedented result in a patient with highly aggressive recurrent GBM and a poor prognosis, and the case report was published in the New England Journal of Medicine. Intracranial and intracerebroventricular infusions of CAR T cells were administered over 220 days without grade 3 or 4 toxicity, resulting in regression of all intracranial and spinal tumors as well as a corresponding increase in cytokine levels and immune cells in the cerebrospinal fluid. The patient’s clinical response lasted until 7.5 months after initiation of therapy, achieving at best a complete response, and clearly demonstrated the benefit of intracerebroventricular administration of MB-101 for treating secondary tumors. Should Mustang achieve similar results with other patients, MB-101 could be a candidate for Accelerated Approval.

Mustang is addressing multiple large market opportunities with a broad array of CAR T candidates. The current US market for MB-101 can be approximated by the more than 12,000 new GBM cases projected for 2017, which at our projected initial $300,000 price per patient amounts to a $3.6 billion opportunity, a small slice of which would be meaningful to Mustang. The current US market for MB-102 can be approximated by the more than 21,000 new AML cases projected for 2017, which at our projected $300,000 price per patient amounts to a $6.3 billion opportunity, again, a small slice of which would be meaningful to Mustang.

We project the US launches for MB-101 and MB-102 to occur in 2022, and for the EU launches for same to occur in 2023. Our financial projections and timing of launches take into account our expectation that CAR T therapies will not require Phase 3 trials. We believe that Mustang will be able to commercialize its products itself in the US, especially given its intent to build a US manufacturing facility for centralized production, and that it will license its therapies ex-US.

Mustang had about $74M in cash at the end of 2Q17, after a $94.5M private capital raise done exclusively by National Securities Corp. in 1Q17, sufficient to support its activities into 2H19, by our projections.

MBIO


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