My colleague Chris Sandburg covered the biopharmaceutical company, developing clinical-stage therapies, Mast Therapeutics Inc., (NYSEMKT:MSTX) in a fantastic article, which you can read here. Several things happened from the time when we published that piece. In this new follow-up, we will cover some of them, but try to read that article in order to understand why the share price collapsed and what Mast was doing to resolve this issue. In addition, take an initial look at the chart:
The merger announcement
So, as you know, now that you went to read the article, the company’s product vepoloxamer was in phase 3 for treatment of vaso-occlusive crisis in patients with sickle cell disease and in phase 2 for clinical development for treatment of heart failure with reduced ejection fraction. Everything looked good, but in September 2016, phase 3 study failed to achieve its primary efficacy endpoint and the management decided to stop the clinical development of the product. The share price collapsed from $0.7 to $0.1. It was quite a big loss of money. The company reacted to this bad news and in the fourth quarter of 2016, management restructured the organization. We could read in the annual report that the company reduced its workforce by more than 70% and also announced an extensive review of strategic alternatives.
With that in mind, the company entered into a merger agreement with Savara Inc. (“Savara”), a privately-held clinical-stage specialty pharmaceutical company. For those who will want to play with the merger of these two entities, here are some interesting details included in the merger agreement:
The transaction is expected to close in the second quarter of 2017
The Board of Directors will be composed of seven members; five will be elected by Savara, whereas two will come from the part of Mast.
Under the exchange ratio formula in the merger agreement, Savara security-holders are expected to own approximately 76% and Mast stockholders are expected to own approximately 24%.
The merger agreement contains other conditions, representations and warranties that shareholders should read, so we encourage you to do so if you have decided to invest here. In addition, if you are a shareholder, you should know that the shareholders’ meeting will be held at 9:00 a.m., local time, on April 21, 2017. We encourage you to contact your broker if you want to make use of your shareholders’ right and vote.
What does the merger agreement mean? Will the new company own the same products?
It means that your share will be exchanged with the shares of Savara and you will become shareholder of the new business entity. According to a press release of March 16, 2017, the new company will still own the following three product candidates:
AeroVanc, an inhaled dry-powder vancomycin to treat chronic methicillin-resistant Staphylococcus aureus (MRSA) pulmonary infection in cystic fibrosis (CF) in preparation for a pivotal Phase 3 study;
Molgradex, an inhaled nebulized GM-CSF to treat pulmonary alveolar proteinosis (PAP) currently in Phase 2/3 development; and
AIR001, an inhaled nebulized sodium nitrite solution to treat heart failure with preserved ejection fraction (HFpEF) currently in Phase 2 development. Source
What are the next upcoming development milestones?
The merger will close in Q2 2017, but right after the closing, there is large amount of new milestones that may make the share price of the new company increase. Firstly, in Q3 2017, we will see how the negotiations with the FDA on the study of Molgradex go on and the company will announce its strategy for the Molgradex program. In addition, in Q1 2018, the company expects to announce the results from the ongoing phase 2 study of AIR001.
Restructuring process, turn around and conclusion
The fact that the company was engaged right after the collapse of the stock in a restructuring process and also announced a merger agreement with another third party may be a good sign for the shareholders. We have seen other companies that do not engage in these kind of activities and only think about the jobs of the management. In these types of situations, the share price goes directly to $0 in a few years and the shareholders lose all their money. This situation looks different on the surface. The Board is really trying to do something about it.
We believe that the new management and board may be able to change things in the day to day operations of the company and the shareholders have a good chance of recuperating their long term investment. In addition, we believe that our followers may be interested in a deep study of the new Board of Directors in order to understand the new plans for the new entity. We encourage you to obtain more information by yourself or subscribe to our newsletter in order to do so.
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Disclosure: We have no position in MSTX and have not been compensated for this article.