What happened

Shares of Tocagen (NASDAQ:TOCA), a clinical-stage biopharmaceutical company, are tumbling after the company delivered a clinical-trial update that was less than terrific. Disappointed investors pushed the stock 33.3% lower as of 12:58 p.m EDT on Wednesday.

So what

Tocagen's lead candidate, Toca 511, is a retrovirus that surgeons inject directly into the cavity left when they remove a brain tumor. The complicated therapy is in a pivotal study with patients who have recurrent brain cancer, and independent data monitors recently performed an interim analysis. The 403-patient trial was allowed to continue without modification, which wasn't exactly what investors wanted to hear.

Person looking at a downward-sloping arrow crashing through the floor

Image source: Getty Images.

Investors should be breathing a sigh of relief because the data monitors didn't raise the futility flag. Instead, they're disappointed that any benefit observed wasn't strong enough to end the trial early and allow the placebo group to start active treatment.

Now what

Compared to most experimental gene therapies, Tocagen's combination treatment looks like a Rube Goldberg machine. After it's injected into tumor cavities, Toca 511 should selectively infect tumor cells and deliver a gene for the enzyme cytosine deaminase (CD).

Toca FC is an extended-release version of an old hospital-grade antifungal medication that should be converted by CD inside tumor cells to an anti-cancer drug called 5-FU. Then 5-FU is supposed to selectively harm cancer cells loaded with CD, and facilitate a tumor-chomping immune response.

Median overall survival among 23 patients treated with the combo in phase 1 was an encouraging 14.4 months, compared to a historical average of 8.5 months for similar patients. While the single-arm trial data looks convincing, placebo groups have a nasty tendency to perform much better than expected. Trying to catch this falling knife is probably a bad idea.

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