Monster Digital Inc (NASDAQ:MSDI): Here's What Shareholders Need To Know

Monster Digital Inc (NASDAQ:MSDI) is an early week runner in the technology space this week. At the close of play on Friday last week, the company went for less than $0.50 a share. It had suffered a pretty rough month, with sentiment being batted back and forth amid concerns over delisting and the potential implications of these concerns from a capital structure perspective. Midsession on Monday, the company started to pick up a bit of strength, and volume spiked into the early close. Then, Monster Digital exploded into the start of play on Wednesday, running up to intraday highs just shy of $2.50 apiece before settling to close at $1.68. Before the bell on Thursday, the company is up a further 10%, set to open the session $1.85.Across the period in question, which amounts to little more than 1 1/2 full trading sessions, Monster Digital is up close to 250%.So what is driving action?The company announced on July 3 that it signed a merger agreement with a private company called Innovate Biopharmaceuticals. We actually got word of this deal back on June 20, when the two companies announced that they had signed a letter of intent for the same. Markets didn't really respond to the letter of intent, however, be that based on uncertainty as to whether the latter would materialize or purely based on the fact that operators were waiting to see terms before taking a position on the move.Regardless of intention, the merger looks set to close out (subsequent to a shareholder green light) and we now have seen the response we expected.Don't be fooled, this isn't anything to do with Monster Digital. Innovate wanted to go public and this merger offers the company a quick and easy (and cheap) way to do exactly that, without having to undertake the standard procedures associated with an initial public offering (IPO).With that said, this may be the end of Monster from an operational perspective, but the company still has a base of shareholders that want resolution.So what does this mean for current Monster shareholders?Well, in short, we think things look pretty good. The current base is only going to account for around 10% of the new entity, but that's 10% of a biotechnology company that is about to move a potentially blockbuster asset into a pivotal trial in the US. Specifically, Innovate wants to commence enrollment in a phase III clinical trials of a drug called larazotide acetate (INN-202) (the company's lead development asset), in a target indication of celiac disease, at some point during the final quarter of this year. There's also a phase II study set to kick off for a drug called INN-108, which the company is investigating as a potential therapy for mild to moderate ulcerative colitis.Topline data from the former of these two trials is expected to hit press early 2019, meaning this new entity could have an asset at-market within 18 months in the US and (assuming the phase 2 trial in ulcerative colitis goes well) a pivotal asset not far behind.For Monster shareholders, who were sitting on year-to-date losses of just shy of 80% prior to the latest development, a 10% stake in a late stage development biotechnology company like Innovate isn't a bad trade at all.Keep in mind, for anybody who's not yet got an exposure to this one, and is thinking about doing so based on the catalysts set to hit press over the next 18 months, that we are probably going to see some degree of dilution near term. When companies go public like this, the primary reason for doing so is to gain access to public market capital. As such, Innovate will probably announce a raise very close to agreement completion, which, as mentioned, is subject to Monster shareholder approval later this month.We will be updating our subscribers as soon as we know more. For the latest updates on MSDI, sign up below!Image courtesy of Filter Forge via FlickrDisclosure: We have no position in MSDI and have not been compensated for this article.