Why The Mast Therapeutics Inc (NYSEMKT:MSTX) Dip Might Be An Opportunity


Mast Therapeutics Inc (NYSEMKT:MSTX) lost nearly 25% of its market capitalization on Tuesday, as the company failed to serve up an expected presentation at the Rodman & Renshaw Conference in New York.

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Investors were expecting the company’s CEO to serve up some data from Mast’s lead study, a phase III in sickle cell disease. He didn’t, instead pitching to provide a general overview of the company’s efforts and focus, and the disappointment has translated to a sell off. Classic buy the rumor, sell the fact.

We think this might be an opportunity to get in ahead of the actual data release, however. Market activity seems to hint at a belief that the non-presenting of the data in New York translates to a disappointing outcome. There’s some credence to this suggestion – it’s not often (although it does happen) that a company will choose to present its failure in front of a crown of potential investors – but it’s far from solidly indicative of this fact. There’s a good chance that the data wasn’t ready for presenting, or that management believed there is more to be gained from an introduction to the company at R&R, getting MAST on the radar if you will, and then a follow up data release to reinforce an investment thesis.

We think the latter of these two suggestions is more likely, and in turn, are highlighting MAST as one to keep an eye on across the next few weeks.

Why the next few weeks?

Because the company has indicated that it is still on track to report data before September draws to a close, and if the data comes in on point, there’s a 25% gap to close, plus likely further upside as MAST nears registration.

So what are we looking for from the data?

First, a quick look at the drug in question.

We’ve discussed this one in some detail in the past, but its MOA is worth revisiting as it’s a pretty interesting bit of science. In people who have SCD, misshapen blood cells build up in vessels and cause blockages. These blockages cause circulation issues. The membranes of the cells in question sometimes tear, and this tearing serves to stick the cells together more so than they already are, compounding the severity of the situation. Mast’s candidate is called vepoloxamer. The best way to think of it is a sort of band-aid. It’s a central linear chain of hydrophobic polyoxypropylene flanked on both sides by linear hydrophilic polyoxyethylene chains. It travels to the site, the two latter mentioned chains detach and it sticks to the gap created by the tear. When the tear is healed, it detaches and is excreted through urine (mainly).

The study in question is called the EPIC study, and as mentioned, topline is set to report before the end of this quarter. Patient enrollment completed back in February, and the company has been dosing and testing ever since.

When data hits, what are we looking to as indicative of success?

The primary endpoint of the trial is the reduction of the duration of what’s called vaso occlusive crisis (VOC). VOC is the name used to describe the building up of the cells in the blood vessels, and it’s a painful and often dangerous symptom of SCD. Because the membrane tears associated with VOC worsen the situation, the duration of the VOCs is correlated to the severity and the frequency of the membrane tears. Fewer tears translate to quicker resolution, and quicker resolution means shorter VOC duration.

The drug is under investigation as compared to placebo (just a saline solution) so interpreting the endpoint is pretty simple on this occasion. Essentially, we are looking for a reduction in VOC duration to a higher degree in the active arm than in the placebo arm. If we see this, and ideally If we also see the secondary (re-hospitalization rate for VOC) come in to play as a kicker, then we expect a rapid upside revaluation on the release.

Of course, the company could come out and say it missed the endpoint, and chose not to put out data at R&R as a result. While there’s potential for this, we think our bullish bias is more credible as things stand.

One to watch.

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