Biotech's nightmare: Mast Therapeutics' drug trial is a complete failure, shares down 80%
Main page Finance

After making big promises to deliver impressive clinical trial results of a drug treating patients with heart failure, Mast stock dropped over 80% as the testings turned out to be a complete failure.

The pharmaceutical industry has been impatiently waiting for the final clinical testing results of Mast Therapeutics' (NYSEMKT: MSTX) most promising drug, vepoloxamer, but the announcement has been continuously delayed. The company created a buzz around the development of their novel drug for treating sickle cell disease and heart failure conditions, insuring the stakeholders that the positive clinical trial results are on their way.

The company has been developing two drugs dedicated to treating heart failure issues, vepoloxamer and AIR001. According to the company, vepoloxamer was the "number one value-driver" for Mast's business. The drug was meant to assist patients with severe sickle cell disease by improving blood flow, prevent blood clots formation and reduce inflammation.

In July's letter to the company's 20,000 stakeholders, Mast's CEO Brian M. Culley sounded quite positive about the upcoming trial test's results and asked the stakeholders to give the company some extra time to carefully collect all necessary data to "confidently present a high-quality and approvable NDA to the FDA".

In addition to that, Mast Therapeutics has been under pressure to demonstrate impressive test results of vepoloxamer, as Mast has received a $15 million loan from Hercules Capital (NYSE: HTGC) to fund the drug trials. And in case the tests fail, the company needs to repay $10 million of the loan back. However, it looked like the company was not expecting to have any significant troubles with the testings as Culley named vepoloxamer the most promising development of their business only a few months ago.

"Although we continue to make progress with AIR001, intellectual property, and other initiatives at Mast, we understand the success of our vepoloxamer sickle cell disease program is the number one value-driver for the business and are allocating our resources accordingly," he wrote in the letter.

At the beginning of September, as the test results deadline was approaching, MSTX stock jumped impressive 24% with no particular news announced. This made it look like the long-awaited successful clinical trials results are on their way and the stock price would only soar further. However, those investors who did not rush to invest in Mast Therapeutics at that point were right.

Yesterday, the company made an announcement that was quite different from what the stakeholders wanted to hear: vepoloxamer's phase-3 clinical trials did not show any meaningful results. And already by the end of the day, the company's stock sank more than 80%, leaving the stakeholders devastated.

However, some experts were already suspicious some months ago whether the results of Mast's vepoloxamer testings would turn out positive, as it took the company over 6 months to assess the efficacy of the drug that normally takes between 4 days to 2 weeks.

In yesterday's announcement, the company admitted that there were no statistically significant differences between the group treated with vepoloxamer and the placebo group in reducing the duration of vaso-occlusive crisis (VOC) that the drug was supposed to treat. The company has shortly commented on the announcement:

"We are exceedingly disappointed with these top-line results... These analyses are limited to just top-line data, so in the coming weeks the Company intends to review the full data set from EPIC. However, based on the data we've seen to date, we expect we will terminate all clinical development of vepoloxamer. Consequently, while we evaluate our options, we intend to significantly and immediately reduce our operating expenses and continue our efforts with AIR001, our lead asset in heart failure with preserved ejection fraction, which currently is the subject of a 100-patient phase 2 study expected to complete enrollment by the end of 2017."

But the stock market could not wait around for any additional proof and buried the share price of Mast Therapeutics shortly after the announcement. Even though the company is developing another drug, AIR001, the failure of vepoloxamer will definitely hit the company's business.

Benzinga's expert says that this case of Mast Therapeutics testing failure only adds to the pool of Biotech companies that try to "hit the lotto" by developing a risky drug with no cash at hand.

MSTX shares lost over 80% of its value in yesterday's after-hours session. Now, Mast is left with a crowd of disappointed stakeholders, a failed drug and a $10 million debt.

Please describe the error