Tocagen Inc (TOCA)

[stockguard]

You might like the read in this article with follow up Q&A if you have not it yet had a chance to see it........

Reader Inquiry: Tocagen Is Looking Cheap But Is It A Buy?
May 6, 2018 12:03 AM ET|12 comments | About: Tocagen Inc (TOCA)
Jonathan Faison
https://seekingalpha.com/article/4170313-reader-inquiry-tocagen-looking-cheap-buy
Long only, biotech, event-driven
MARKETPLACEROTY
Summary
Recent reversal in the stock price has investors concerned.

We take a look at recent developments as well as previous data.

Contributors to the decline include a potential ¨catalyst desert¨ and possible dilution in the medium term.

Despite receiving both Breakthrough Therapy and PRIME designations, when cash is backed out the valuation looks quite cheap.

While admittedly high risk, I greatly admire what they are seeking to accomplish, will be keeping tabs on the firm and reevaluate later in the year.

This idea was discussed in more depth with members of my private investing community, ROTY .

Shares of Tocagen (TOCA) have declined by over 40% in the past year. While the stock rose by as much as 45% after my article in late October, the reversal has been quite sickening to watch and can´t be attributed to weakness in the biotech sector alone.

Chart
Figure 1: TOCA daily advanced chart (source: Finviz)


Figure 2: TOCA 15 minute advanced chart (source: Finviz)

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels and get a feel for what is going on. In the first chart (daily advanced) the selloff and sea of red since March sticks out like a sore thumb. In the second, we can see the stock has tried to bottom at the $9 level but the ensuing bounce has been short-lived. I wouldn't be surprised in the near term if it breaks support and heads lower.

Reader Inquiry
In the marketplace service ROTY (Runners of the Year), we search for stocks that are attractive across multiple time frames with high % upside potential within the near to medium term. Catalyst ideas typically have upcoming material events (such as clinical results reading out or regulatory action date) that could push shares significantly higher- on the other hand, revaluation ideas involve stocks where the core business (or core assets) and recent events have not been fully factored into the share price AND future appreciation is expected.


Figure 3: Wholly-owned pipeline (source: corporate presentation)

In the case of Tocagen, several ROTY members have been discussing the stock in Live Chat and I´ve received a few questions regarding future prospects. After the recent decline I agree it's a good time to take a second look to determine if there's more to this story that merits a position or if we root for them from the sidelines.

Recent Developments
There's been some news flow since the beginning of the year- in March the company announced that the European Medicines Agency granted orphan medicinal product designation to Toca 511 and Toca FC for the treatment of patients with glioma.

At the American Association for Cancer Research Annual Meeting the company presented early data (poster) from the Toca 6 phase 1 study in advanced solid tumors. As of the cutoff date of March 27th 7 patients had been treated with Toca 511 & Toca FC intravenously with 4 of these also receiving Toca 511 via intratumoral administration. Highlights included cancer-selective expression of the Toca 511 trasgene following IV administration in metastatic tumors of 5 patients who underwent tissue analysis (indicating successful delivery of the retroviral replicating vector), clearing of Toca 511 from blood plasma within 6 weeks (indicating virus is well controlled outside of tumors) and the solid safety profile observed thus far.

Many biotech companies have been inking China deals and Tocagen is not the exception- in April they entered into a license with ApolloBio to develop and commercialize Toca 511 & Toca FC within the greater China region. In return Tocagen received $16 million in cash upfront plus potential near term payments of $4 million. They also stand to receive up to $111 million in development and commercial milestones plus low double-digit tiered royalty payments based on net sales.

Other Information
For the fourth quarter the company reported cash and equivalents of $88.7 million (doesn't include funds received from China collaboration) and management has guided for cash used in operations to come in at or under $50 million. Net loss for the full year 2017 totaled $38.9 million.

It's quite confounding to consider that the company´s lead product candidate has received both the coveted Breakthrough Therapy Designation from the FDA and PRIority MEdicines designation from the EMA, and yet when cash is backed out the market believes it's worth less than $100 million.

As for upcoming catalysts of note, management is guiding for enrollment of the phase 3 Toca 5 study in recurrent high-grade glioma (NYSE:HGG) to finish up before the end of the year. We should also receive an update on the European regulatory pathway and management will outline their development plan for newly diagnosed HGG.

I remind readers that phase 1 results have shown survival significantly exceeding historical data at both the low and high doses.

Figure 4: Phase 1 resection study OS trend by dose (source: corporate presentation)

Importantly, Toca 511 was associated with relatively low occurrence of treatment-related adverse effects (trAE) and for Toca FC trAE were mainly in the grade 1 to 2 range. Impressively, at higher doses (n=23) durable response rate was 21.7% with all five patients experiencing complete responses (median duration of response not reached at 35 months and counting).

Figure 5: Long term survival in higher dose cohort (source: corporate presentation)

Final Thoughts
In the end, I believe this is definitely a story to keep tabs on as later in the year we receive updated data in solid tumors and enrollment hopefully finishes up for the pivotal Toca 5 study. While lead indications being targeted are high risk, I believe they have a good shot at success and that present weakness is more a function of what's known as a "catalyst desert" (where there is not much in the way of near-term material events). This could lead to continued downside in the near term, but late in 2018 Tocagen will merit a revisit for possible entry.

Considering their current cash position and burn rate, dilution in the medium term is possible. Delays in enrollment or other setbacks would likely pressure shares even futher, while disappointing results in the Toca 5 study would be devastating to the bullish thesis. Disapointing data in other trials such as Toca 6 would also weigh on shares.

While I won't be currently adding this one to the ROTY Contenders List, I imagine we will continue to discuss it especially after earnings in May are reported and we receive more guidance from management.

Keep in mind that when any stock is selected for ROTY the corresponding article appears only to current subscribers, and for the purposes of due diligence subscribers are able to access all of my archived work (getting around the 10 day paywall).

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