SCHEDULE: Fortress Biotech's Mustang Bio Stake Drops Below 5%

Fortress Biotech, Inc. reported a decrease in its beneficial ownership of Mustang Bio, Inc. common stock to 4.0%, falling below the 5% threshold due to recent equity grants.

Summary

• Fortress Biotech, Inc. (Reporting Person) filed an Amendment No. 6 to its Schedule 13D regarding its ownership in Mustang Bio, Inc. (Issuer).
• As of September 29, 2025, Fortress Biotech beneficially owns 258,858 shares of Mustang Bio's common stock, representing 4.0% of the outstanding shares.
• This ownership includes 250,000 shares of Class A preferred stock, which are convertible into 333 shares of common stock, and 1,333 shares underlying Warrants.
• Fortress Biotech ceased to beneficially own more than five percent of Mustang Bio's common stock on September 29, 2025.
• The decrease in percentage ownership is attributed to the issuance of 59,334 shares of Mustang Bio's common stock as Offering Equity Grants under the Founders Agreement.
• Under the Founders Agreement, Fortress Biotech receives an equity fee equal to 2.5% of the gross amount of any Mustang Bio equity or debt financing.
• Fortress Biotech holds all outstanding Class A preferred stock, which grants it a voting majority (1.1 times voting power) and entitles it to PIK Dividends of 2.5% of Mustang Bio's fully-diluted outstanding capitalization annually.

Sentiment

Score: 6

Explanation: The filing is a routine regulatory update reflecting a decrease in common stock ownership percentage due to dilution from equity grants. While the percentage of common stock ownership decreased, Fortress Biotech retains significant control and financial benefits through its Class A preferred stock and the Founders Agreement, indicating a stable, albeit diluted, strategic relationship. It's not overtly positive or negative in terms of company performance, but rather a structural update.

Positives

• Fortress Biotech maintains significant influence through its ownership of all Class A preferred stock, which grants a voting majority and PIK Dividends.
• The Founders Agreement provides Fortress Biotech with ongoing equity fees (2.5% of gross financing) from Mustang Bio's equity or debt raises.

Negatives

• Fortress Biotech's direct beneficial ownership of Mustang Bio's common stock has decreased below the 5% threshold, potentially reducing its direct influence as a common shareholder.
• The dilution of Fortress Biotech's common stock stake indicates new equity issuance by Mustang Bio, which can dilute existing common shareholders.

Risks

• Dilution of common stock ownership for existing shareholders due to ongoing equity grants under the Founders Agreement and PIK Dividends on Class A preferred stock.
• The Class A preferred stock's superior voting rights and PIK Dividend structure could concentrate control and potentially impact common stock value for common shareholders.

Future Outlook

The Founders Agreement ensures Fortress Biotech will continue to receive equity fees from Mustang Bio's future equity or debt financings, and its Class A preferred stock holdings guarantee a voting majority and ongoing PIK Dividends, indicating a continued strategic relationship.

Management Comments

• Sole Voting Power includes 1,333 shares of Issuer's common stock underlying Warrants and 250,000 shares of the Issuer's Class A preferred stock.
• The Issuer's Class A preferred stock is identical to its common stock other than as to voting rights, conversion rights and the PIK Dividend right.
• Each share of the Issuer's Class A preferred stock is entitled to vote the number of shares that is equal to one and one-tenth (1.1) times a fraction...
• Thus, the Class A preferred stock will at all times constitute a voting majority.
• The Reporting Person owns all outstanding shares of the Issuer's Class A preferred stock.
• As holders of Class A preferred stock, the Reporting Person will receive on each January 1... pro rata per share dividends paid in additional fully paid and nonassessable shares of Issuer common stock ('PIK Dividends').
• The Reporting Person is party to that certain Second Amended and Restated Founders Agreement with the Issuer... in connection with the Issuer's formation.
• Pursuant to the Founders Agreement, the Issuer pays to the Reporting Person an equity fee in the form of Issuer common stock equal to two and one-half percent (2.5%) of the gross amount of any Issuer equity or debt financing.

Industry Context

This filing reflects a common dynamic in the biotechnology sector where founding investors or strategic partners maintain significant influence through preferred stock or contractual agreements, even as their direct common stock ownership percentage may fluctuate due to subsequent capital raises. The ongoing equity grants and preferred stock structure highlight a long-term strategic relationship between Fortress Biotech and Mustang Bio, typical for a biotech incubator model.

Comparison to Industry Standards

• The structure of Class A preferred stock granting a voting majority (1.1x common stock voting power) is a common mechanism for founders or strategic investors to retain control in early-stage or growth companies, similar to dual-class share structures seen in tech giants like Google (Alphabet) or Meta (Facebook).
• The 'Offering Equity Grant' mechanism, where a percentage of future financings is paid as an equity fee, is a less common but not unheard-of arrangement, often seen in venture capital or incubator models where the founding entity provides ongoing support or services.
• The PIK (Payment-in-Kind) dividend feature for preferred stock is a standard financial instrument, particularly in growth companies, allowing for conservation of cash while still providing a return to preferred shareholders.

Corporate Governance

Related Party Transactions

• Fortress Biotech, Inc. (Reporting Person) is party to the Founders Agreement with Mustang Bio, Inc. (Issuer), which includes equity fee payments.
• Fortress Biotech issued Warrants for Mustang Bio common stock to its Chairman, President, and CEO (Lindsay A. Rosenwald, M.D.) and Executive Vice Chairman (Michael S. Weiss), who also serve on Mustang Bio's board.
• Michael S. Weiss serves as Executive Chairman of Mustang Bio's Board of Directors, and Dr. Rosenwald is a board member.

Stakeholder Impact

• Shareholders (Common Stock): Experience dilution from the issuance of new shares for Offering Equity Grants and PIK Dividends on Class A preferred stock. Fortress Biotech's reduced common stock percentage might be seen as a slight decrease in alignment, but its overall control via preferred stock remains.
• Fortress Biotech (as a shareholder): Its percentage of common stock ownership has decreased, but its strategic influence and financial benefits through preferred stock and the Founders Agreement are maintained.
• Management (Mustang Bio): The continued relationship with Fortress Biotech, including board representation, suggests ongoing strategic guidance and support.

Next Steps

• Fortress Biotech will continue to receive PIK Dividends on its Class A preferred stock on each January 1.
• Fortress Biotech will continue to receive equity fees (2.5% of gross financing) from any future equity or debt financings by Mustang Bio.
• The Warrants held by Fortress Biotech executives are exercisable until July 15, 2035.

Key Dates

Recommendation

This filing is a routine regulatory update (Schedule 13D/A) indicating a change in beneficial ownership percentage for Fortress Biotech in Mustang Bio, primarily due to dilution from equity grants. It does not contain new material information regarding Mustang Bio's operational performance, financial health, or strategic direction that would warrant a change in investment thesis. Fortress Biotech retains significant control and ongoing financial benefits through its Class A preferred stock and the Founders Agreement, suggesting a stable, long-term strategic relationship. Therefore, a 'hold' recommendation is appropriate as the fundamental investment case for Mustang Bio remains unchanged by this disclosure.

Keywords

Fortress Biotech, Mustang Bio, Schedule 13D, Beneficial Ownership, Equity Grant, Class A Preferred Stock, Voting Rights, Dilution, Biotechnology, SEC Filing