Tocagen Inc (TOCA)

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A little more than a year after its initial public offering, Tocagen Inc (NASDAQ: TOCA) has traded down 26 percent, but experts are decidedly bullish on the company’s prospects and potential valuation.

The Rating

B Riley analyst Madhu Kumar initiated coverage on Tocagen with a Buy rating and a $15 price target.

The Thesis

As Kumar sees it, Toca 511/FC has potential to transform the treatment of recurrent high-grade glioma (RHGG), a brain cancer affecting about 14,000 per year with limited-efficacy treatment options.

“Overall, RHGG remains a key clinical opportunity for novel therapies that can demonstrate improved therapeutic response,” Kumar wrote in a Wednesday note.

The failures of comparable candidates for RHGG, such as Vascular Biogenics Ltd (NASDAQ: VBLT)’s VB-111, have little read-across to Toca 511/FC, he said.

Given that Phase 1 data demonstrated positive enough results to merit Breakthrough Therapy Designation and PRIME Designation, Kumar anticipates success in Tocagen’s ongoing Phase 3 TOCA 5 trial.

Interim readouts due in the second half of 2018 and first half of 2019 are seen to propel the stock, with the latter milestone driving a key inflection point. The analyst assumes a 30-percent probability of launch with a 30-percent market share but notes improvements to the estimates could support a $90 share price.

Price Action

Tocagen shares traded up 3 percent to $9.74 at time of publication.