Shares of Tocagen (NASDAQ: TOCA), a clinical-stage biotechnology company developing a new brain cancer therapy, have been sliding since the company announced a secondary share offering on Tuesday. Pricing set after the bell yesterday caught investors off guard. The stock had fallen 13.5% as of 3:32 p.m. EST on Thursday.
Tocagen's lead candidates, Toca 511 & Toca FC, are meant to wipe out residual brain cancer following surgical tumor removal. Toca 511 is a virus that surgeons injected right into brain tissue that surrounds tumor cavities. The treatment selectively infects cancer cells and persuades them to produce lots of cytosine deaminase. Toca FC is a chemotherapy pro-drug that activates in the presence of cytosine deaminase, which should knock out any residual cancer cells trying to divide.
Some analysts got excited earlier this year when a pivotal 380-patient brain cancer study passed its first interim analysis and the independent data monitoring committee recommended it continue unaltered. The study's going to be expensive, but Tocagen's recent decision to offer 3.45 million shares, about 17% of the number outstanding at the end of September, seems slightly premature.
Tocagen finished the third quarter with $80 million in cash and securities after losing $29 million during the first nine months of the year. A confident company would be expected to wait until the next interim assessment before trying to raise equity. Yesterday's decision to price the new shares at just $10.00 also rubbed investors the wrong way because the stock had been trading around 30% higher at the beginning of the week.
The second interim analysis for Tocagen's pivotal brain cancer study will occur once 75% of patients have passed away, which Tocagen estimates will occur in the first half of 2019. If there's a significant survival benefit, this tiny company could soar.
Tocagen's stock has fallen about 39% since the beginning of October, but this is one falling knife you probably don't want to try to catch. There hasn't been an effective new treatment option for recurrent brain cancer in decades, and not for a lack of effort from the industry. Investors should probably watch this story play out from a safe distance.
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