Mast Therapeutics Spec BUY

Target: US$3.00

Mast Therapeutics is a biopharmaceutical company
focused on its Molecular Adhesion and Sealant
Technology (MAST) platform to treat serious diseases
with significant unmet needs. Its lead product,
investigational agent MST-188, shows potential in
patients with sickle cell disease.
All amounts in US$ unless otherwise noted.

Life Sciences — Biotechnology
Investment recommendation
Reiterate BUY; $3.00 target on MST-188 potential in sickle cell disease
crises. MSTX’s lead candidate, MST-188, binds to hydrophobic surfaces on
damaged cells to reduce cell adhesion and blood viscosity. We expect
positive data from the Ph3 EPIC trial to show reduced length of SCD vasoocclusive
crisis (VOC) and we think recently acquired AIR001, nebulized
nitrite for PAH, complements MST-188 well. We see large market potential
for MST-188 given the unmet need in SCD and potential for combo-Tx. Our
$3.00 target is based on a pNPV analysis.
Investment highlights
 MSTX yesterday announced signing of a definitive agreement to buy
Aires in an all-stock transaction. Aires will bring along its Ph2 orphan
asset AIR001, a nebulized form of nitrite (converted in vivo to nitric
oxide) for pulmonary arterial hypertension (PAH). Nitric oxide is
thought to have potential benefits for PAH, SCD and CV disease (e.g.,
heart failure) by promoting vasodilation and regulating smooth muscle
proliferation, clotting and white blood cell adhesion.
 Aires cash balance to offset cost of AIR001 development in 2014.
Aires will bring ~$3M net cash to MSTX, which should cover ~$2M in
expected current R&D obligations from the Ph2 PAH trial currently
closing down and an investigator-sponsored PAH/HF trial.
 Next value inflection catalysts now likely from Ph2 strategies in ALI,
HF although largest inflection remains EPIC SCD data in Q4/16. We
expect next major data around H2/15 from a Ph2 acute limb ischemia
trial MAST intends to initiate soon. We think Ph3 EPIC enrollment is
on track to finish by EOY 2015 with new enrollment criteria
expansion, and we expect more updates on Ph2 ALI trial and plans for
AIR001 plans in the coming quarters.


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