Hypothesis 1 - Trauma

Bone Fracture
There are three bones associated with the metatarsophalangeal joint. There is the  metatarsal bone proximally, the proximal sesamoids on the caudal aspect, and phalanges I (long pastern) distally. A fracture of any of these bones could cause the lameness and Soft tissue swelling observed.  A bone chip from the sesamoid could potentially interfere 
with articulation of the fetlock joint, causing  subsequent joint pain. 

Toe-touching lameness is classified as a continuous non-weight bearing lameness, so this Lameness is a Grade IV - non-weight bearing lameness. The stress and pain associated with this traumatic injury could lead to the evidenced increases in pulse and respiratory rate. Since the foal is only two weeks old, neoplasia and degenerative changes are not 
likely.

A bone fracture would result in an acute inflammatory response. A hematoma forms, surrounding the fracture and the fracture ends. Osteocytes with lacunae of bone ends, are deprived of bone and die. The ends of the fracture die, containing no living cells. The response to the necrotic material involved  vasodialtion, plasma exudation, resulting  in 
pitting edema, and inflammatory  cells migrate by  chemotaxis. 

The second phase is reparative. There is organization of the hematoma, which provides a fibrin mesh for the reparative process to occur. Mesanchial cell migration from the Surrounding vessels linked to ingress of capillary buds. The increased vascular supply From surrounding soft tissues is transitory and persists only until the normal circulatory 
Components have been restored. 

The third phase is callus formation. Differentiated chondrocytes produce fibrous tissue and cartilage which is eventually turned into fibrobone. This forms a bony callus. Reorganization of bony architecture with bone resorption and deposition results in fracture repair. This fracture would still be between Phase I and Phase II of the repair process.
 

Soft Tissue Damage

There are numerous soft tissue structures around the fetlock that might have been damaged. It is possible that the stifle joint capsule or cartilage was torsioned or traumatized. The joint functions normally because of an intricate balance of cells that perform catabolic and anabolic functions, and trauma could have shifted this balance and results in a chronic non-weight bearing lameness in the right rear leg. Stepping on / traumatizing the joint could have impacted the articular cartilage, damaging the chondrocytes in a focal area. Chondrocytes produce supportive collagen (types II and IX) and proteoglycans (compressive stress). Type II collagen is the primary collagen fibers, and type IX fibers cross type II fibers perpendicularly, forming a grid of fibers. Between these grids the proteoglycans reside and act as rigid springs, they give the collagen stiffness and help to maintain the shape of the cartilage. Proteoglycans are hydrophilic, and draw fluid in to fill the remaining space.

With cartilage trauma, the type IX collagen may be torn apart, allowing increased space between fibers, and more room for water to diffuse to the proteoglycans. The cartilage thickens and swells, and increased friction between two cartilage layers may cause fragments of collagen matrix to break off and float freely. Synovial macrophages detect these fragments and phagocytize them, and they release inflammatory mediators and cytokines, like IL-1, IL-6, TNF, and 
prostaglandin E. Cytokines like IL-1 inhibit chondrocyte synthesis of new cartilage and proteoglycans, and eventually cartilage breakdown exceeds synthesis. This abnormal cartilage can no longer withstand normal everyday stressors. Additional stress is placed on the subschondral bone, and causes thickening. This thickening leads to sclerosis of the tissue, the subchondral bone can't resist as much stress, and even more stress is placed on remaining cartilage. This results in eventual bone remodeling, and a progressive degeneration of the joint with a progressive lameness.

The periarticular tissues could have also been initially traumatized. The joint capsule consists of three layers, an inner synovial cell lining (produces hyaluronic acid, cytokines, PG's), a subsynovial connective layer, and an outer fibrous joint capsule. The outer fibrous joint capsule often incorporates other ligaments and adds to the strength of the joint. Trauma could have torn the fibrous capsule or supporting ligaments, and effectively stretched the support of the joint. The damages synoviocytes release cytokines and prostaglandins and other degradative enzymes. They also may decrease production of synovial fluid, leading to increased joint friction. The periarticular joint capsule is well innervated and vascular, and trauma to this area would certainly cause pain and subsequent lameness.

Ligaments in the area that could possibly be damaged include the suspensatory ligament caudally, superficial distal and middle distal sesamoidian ligaments, the intersesamodian ligaments, the collateral ligament, and the palmar and proximal digital annular ligaments. The obvious swelling 12 cm proximal to the fetlock joint may indicate soft tissue trauma, and inflammation from a damaged suspensory ligament could result in this swelling. The location of the swelling may rule-out trauma to ligaments distal to the fetlock (sesamoidean ligaments) because the swelling isn't localized in those areas. Rupture or damage to the collateral ligaments could result in dislocation of the joint, which isn't found in this particular lameness.

Tendons in the area of the fetlock joint include the common digital extensor (cranial), and superficial and deep digital flexors (caudal). Acute trauma to a tendon would produce inflammation. There would be a vascular response with capillary hemorrhage and fibrin deposition, and a cellular response with neutrophil and macrophage chemotaxis. The next step would be extrinsic and intrinsic repair. With extrinsic repair, fibroblasts are recruited from peritendinous tissues to the fibrin clot by macrophages. Fibroblasts produce immature Type III collagen along the fibrin network. If this healing persists, macrophages and platelets would induce neovascularization that transforms fibrin into fibrovascular granulation tissue by 8 weeks, but you would certainly not see this yet in a 14-day foal with a recent injury. 

Possible specific injuries include a low-bowed tendon (tearing of the DDF at or below the level of the fetlock), constriction of the annular ligament, or a chipped sesamoid / long pastern bone causing a non weight-bearing lameness.