(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
In the speculative world of biotech investing, investors look to get in stocks early before positive, market moving company events happen. These events are usually connected to FDA decisions or product launches. It is not uncommon to see a biotech company rise over 200% within days after positive news provides a huge catalyst to increase the stock price.
Thankfully for risk tolerant investors, these speculative biotech opportunities come along very often if you are listening to the right catalyst clues and doing important due diligence. The challenge for investors is to pick the right investment opportunities that carry the most reward with less risk.
Developing drugs targeting orphan disease indications have been some of the best performers in biotech. The following company will be no different.
Mast Therapeutics Inc.
One of the most exciting biotechnology companies in the market today is Mast Therapeutics (MSTX), a little known company developing an Orphan designated investigational agent (MST-188) that has potential to reduce ischemic tissue injury and end organ damage by restoring microvascular function. MSTX's current clinical focus is on two Orphan diseases: Sickle Cell Anemia ("SCD") and Acute Limb Ischemia ("ALI"). MSTX has already received Orphan Designation for SCD in the U.S and EU, and for ALI in the U.S. only. The stock currently has no debt, and existing financial resources are more than adequate to fund the ongoing Phase III study in SCD, Phase II study in ALI, as well as additional studies for other indications. With a potential pharmaceutical treatment for multiple medical conditions affecting millions worldwide.
MST-188 is an investigational agent, formulated using a purified form of poloxamer 188. Substantial research has demonstrated that poloxamer 188 has cytoprotective and hemorrheologic properties and inhibits inflammatory processes and thrombosis. It is believed the pharmacologic effects of poloxamer 188 support the development of MST-188 in multiple clinical indications for diseases and conditions characterized by microcirculatory insufficiency (endothelial dysfunction and/or impaired blood flow). The company is enrolling patients in EPIC, a pivotal Phase III study of MST-188 in sickle cell disease. In addition, MST-188 pipeline includes development programs in adjunctive thrombolytic therapy (e.g., acute limb ischemia, stroke), heart failure, and resuscitation (i.e., restoration of circulating blood volume and pressure) following major trauma.
Sickle Cell Disease (SCD)
Sickle cell disease is an inherited blood disorder in which red blood cells contain an abnormal type of hemoglobin and frequently take on a sickle- or crescent-shape. These defective red blood cells can block small blood vessels, which can lead to tissue damage or even stroke. Other complications include anemia, jaundice, gallstones, severe leg and arm pain, and spleen, liver and kidney damage.
Currently, treatment for sickle cell anemia is usually aimed at avoiding crises, relieving symptoms, and preventing complications. Bone marrow transplants offer the only cure for SCD, but this is an expensive, difficult procedure with significant risk. Other treatments may include medications to reduce pain and prevent complications, blood transfusions, and supplemental oxygen.
Over the past two decades, several pharmaceutical drug cocktails have been evaluated as potential intervention strategies that might be capable of shortening or reducing the severity of painful episode. Unfortunately, these therapies have been found to be either too toxic or only mildly therapeutic.
MST-188 for Sickle Cell Disease
Patients with SCD are known to experience severely painful episodes associated with the obstruction of small blood vessels by sickle-shaped red blood cells. These painful episodes are commonly known as acute crisis or vaso-occlusive crisis. Reduced blood flow to organs and bone marrow during vaso-occlusive crisis not only causes intense pain, but can result in tissue death, or necrosis. In previous clinical studies of SCD, MST-188 has demonstrated the ability to restore microvascular function, reducing pain, as well as decreasing the duration of the vaso-occlusive crisis. The Phase III trial is continuing to enroll patients ages of 8-17 across 40 centers in the U.S. and 30 centers outside of the U.S. Updates will be provided throughout 2014 and full phase 3 results expected in 2015.
MST-188 for Acute Limb Ischemia (ALI)
MST-188 increases blood flow to extremities, minimizing the effects of the vaso-occlusive crises such as ALI, preventing the onset of tissue death. Research has found that the combination of MST-188+ tPA significantly minimized perfusion injury, which is tissue damage caused when blood supply returns to the tissue after a period of ischemia or lack of oxygen, when compared to the use of tPA alone. The absence of oxygen and nutrients from blood during the ischemic period creates a condition in which the restoration of circulation results in inflammation and oxidative damage through the induction of oxidative stress rather than restoration of normal function. Additionally, the combination of MST-188 + TPA resulted in a statistically significant increase in the time before reocclusion, when compared to the use of tPA alone. MSTX currently plans to initiate a Phase II trial for ALI in Q1 of this year.
MST-188 for Heart Failure
On January 6th, the company announced positive data using MST-188 in adjunctive therapy use in the treatment of Heart Failure. Hani N. Sabbah, Ph.D., Professor of Medicine & Director of Cardiovascular Research at Henry Ford Health System, said:
"These data clearly show that MST-188 improves left ventricular ejection fraction and end-systolic volume, both of which are important indicators of long-term mortality and morbidity in chronic heart failure, with some effects lasting up to 2 weeks post-infusion. The durability of response is very encouraging and merits clinical investigation."
MSTX is formulating a Phase II clinical strategy to develop this potential blockbuster.
Open First EPIC Site Outside the U.S. Q1 '14
Report Biomarker Data from Heart Failure Study Q1 '14
Initiate Phase II Study in Acute Limb Ischemia Q1 '14
Outcome from U.S. Adopted Names Council Review of Unique Designation for Purified Poloxamer 188
Provide Details of Heart Failure Study at Major Medical Conference
Request Orphan Designation for ALI in EU (Received in U.S.) Q2 '14
Announce Clinical Development Strategy in Heart Failure Q2 '14
Initiate Nonclinical POC Study in Resuscitation Q2 '14
The company's net loss for the third quarter of 2013 was $5.3 million, or $0.05 per share (basic and diluted), compared to a net loss of $3.2 million, or $0.07 per share (basic and diluted), for the same period in 2012.
Research and development (R&D) expenses for the third quarter of 2013 were $3.1 million, an increase of $1.4 million, or 87%, compared to $1.7 million for the same period in 2012. The increase was primarily due to increases of $1.3 million in external clinical study fees and expenses and $0.1 million in external nonclinical study fees and expenses, related primarily to EPIC, the Company's phase 3 study of MST-188 in sickle cell disease.
Selling, general and administrative (SG&A) expenses for the third quarter of 2013 were $2.2 million, an increase of $0.4 million, or 19%, compared to $1.8 million for the same period in 2012. The increase resulted primarily from an increase in consulting fees and legal expenses.
Year-to-Date Operating Results
The company's net loss for the nine months ended September 30, 2013 was $15.8 million, or $0.23 per share (basic and diluted), compared to a net loss of $11.6 million, or $0.24 per share (basic and diluted), for the same period in 2012.
R&D expenses for the nine months ended September 30, 2013 were $9.4 million, an increase of $3.4 million, or 57%, compared to $6.0 million for the same period in 2012. The increase was primarily due to increases of $5.0 million in external clinical study fees and expenses, $0.2 million in personnel costs and $0.1 million in share-based compensation expense, offset by a $1.9 million decrease in external nonclinical study fees and expenses. The increase in external clinical study fees and expenses was primarily related to EPIC and the thorough QT/QTc study of MST-188. The decrease in external nonclinical study fees and expenses resulted primarily from a decrease in research-related manufacturing activities for ANX-514, which the company discontinued during 2012.
SG&A expenses for the nine months ended September 30, 2013 were $6.4 million, an increase of $0.7 million, or 11%, compared to $5.7 million for the same period in 2012. The increase resulted primarily from an increase in consulting fees and legal expenses.
Balance Sheet Highlights
As of September 30, 2013, the company had cash, cash equivalents and investment securities totaling $49.4 million. Stockholders' equity amounted to $53.1 million as of September 30, 2013.
For investors looking to invest in the next biotech company poised to produce significant short term returns due to upcoming catalysts, Mast Therapeutics provides an attractive speculative pick for potentially high returns. The company is the biggest hope for Sickle cell sufferers. (it is the most developed drug to potentially hit the market)
The company is undervalued with their potential pipeline due to their innovative drug. This is why I give the company a short term target of $2.00 per share for 2014 and a target of $5.00 for 2015. This represents over 100% return for 2014 and over 500% for 2015. (Keep in mind that negative phase 3 results could result in huge losses)
Disclosure: I am long MSTX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.