What’s Going On At Mast Therapeutics Inc (NYSEMKT:MSTX)?

There’s discourse among Mast Therapeutics Inc (NYSEMKT:MSTX) shareholders right now. The company, which we’ve covered on a number of occasions in the past, is trying to force through a number of proposals that would see it become (for all intents and purposes) a brand new entity, and opinion on the move is divided – to put it nicely. A shareholder meeting will reconvene tomorrow, as part of which management will try and scrape together the minimum number of votes required for the proposals to go through, and right now, the outcome of said efforts is anyone’s guess.

As ever, there are two sides to the story. Here’s a look at both sides, and an attempt to come down in favor of one or the other.

For those new to this one, Mast is a biotech play that looked like a promising exposure up until the start of the fourth quarter last year. At that time, the company put out data relating to its then lead asset – a sickle cell disease drug – and the data missed its endpoints, essentially ending the program.

This left one program on the roster – a sodium nitrite solution designed to treat a condition called heart failure with preserved ejection fraction (HFpEF) – and Mast pivoted to realign resources from the failed trial to the HFpEF program. We took a look at the potential value in this program as part of this coverage.

Now, however, management doesn’t want to just focus on that asset.

The three proposals being voted on are as follows: a merger (with a company called Savara), a reverse split and a name change.

The reverse split isn’t great, of course, and if the merger goes forward, current Mast shareholders are going to hold around 23% of the resulting company. In other words, management is calling it a merger, but it’s basically a RM, and a way for Savara to pick up a public listing quickly and cheaply.

The new company will push forward with the development of the above mentioned HFpEF asset, but it looks as though the asset will come second to Savara’s lead programs – AeroVanc, an MRSA drug, and Molgradex, an inhaled nebulized GM-CSF to treat pulmonary alveolar proteinosis.

There’s an argument here that Mast shareholders are getting a raw deal. They are basically getting diluted two ways – reverse split, reduced proportional holding of the resulting company – and for positions that have been basically decimated over the last twenty-four months, it’s a sort of kick while you’re down type move.

With that said, however, we’re also of the opinion that the choice is one whereby shareholders have to pick the lesser of two evils. This company’s lead asset has failed, and management now has to try and pick up the pieces and move forward. There’s not enough cash on hand to carry the remaining asset through to commercialization, and at least with the Savara deal, shareholders are gaining some degree (albeit a reduced one) of exposure to two promising development stage assets, increasing shots on goal.

The situation as things stand, then, is that management has around 45% approval, and it needs a minimum of 50% approval before the three proposals can move forward. Reportedly, more than 90% of the voting shareholders have voted favorably, suggesting the holdouts are the ones that aren’t happy about the situation. When voting resumes tomorrow, the push to get the remaining percentage (and boost up to the required 50% threshold) will likely be slow, and a graft for management, but we’re expecting it will be reached.

So what’s our final word on this?

Well, shareholders would rather not be in this position, and management has been notoriously inconsiderate of the base, or so it seems, to date. That there’s a degree of grievance, then, is not surprising. With that said, we don’t think holding out against the merger can bring with it too much good, and while we say it reluctantly, the proxy approval is likely the smartest way forward.

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Disclosure: We have no position in MSTX and have not been compensated for this article.

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What’s Going On At Mast Therapeutics Inc (NYSEMKT:MSTX)?
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