Reviewing Tracon's Oncology Portfolio

| About: Tracon Pharmaceuticals (TCON)

Summary

TCON focuses on the development of a blood vessel blocking antibody in glioblastoma and sarcoma.

Early stage findings show promise for its lead drug, TRC105, in these tumor areas, supporting randomized clinical trials.

TCON is at a critical juncture with over a year of cash left on hand and an established collaborative deal with a Japanese biotech.

Tracon Pharmaceuticals (NASDAQ:TCON) is a small cap biotech specializing in the development of compounds for several diseases, including a variety of tumors. Today, I'd like to take a broad brush to the company to help you in your due diligence.

As you may know if you read my articles, I am very product-focused, and when it comes to speculative biotechs, very little is more important than the promise of a product in development. This represents years of focused time and effort for the company, so it is well worth looking at the science and clinical research that is meant to prop the company up in the coming years.

In the case of TCON, the investment thesis rests on two key lead compounds: TRC105 and TRC102.

TRC105: a novel approach to brain cancer? What about other tumor types?

As you may be aware, glioblastoma is the most common and the most deadly form of advanced brain cancer. For numerous reasons, it is very tough to treat, and the prognosis is grim.

As such, it remains a huge priority for the development of therapies. Currently, the most advanced targeted therapy approved for management of glioblastoma is Avastin, an antibody that scavenges VEGF and blocks blood vessel growth. This agent was approved on the basis of favorable response rates and overall survival in patients with glioblastoma.

TCON's entry into the biotech world is an antibody targeting endoglin, a molecule expressed on the surface of cells important for the formation of blood vessels.

At this year's annual ASCO meeting, TCON presented findings of an ongoing Phase 2 clinical trial where TRC105 was added to Avastin treatment in Avastin-refractory glioblastoma. The presentation noted no significant increase in toxicity due to the combination. Median overall survival was 5.75 months, and median progression-free survival was 1.8 months.

While direct comparison is fraught with challenges, it is worth noting that other studies of targeted therapy in relapsed GBM have yielded progression-free survival on the order of weeks, and usually no benefit at all for overall survival:

  • Cabozantinib yielded median PFS of 7.9 weeks, with 20% discontinuing due to adverse events.
  • Afatinib monotherapy yielded only 3% 6-month PFS

The authors of the study also mentioned that the 5.75 months of median overall survival exceeds the historical 4.0 months seen when giving patients Avastin alone. Of course, a more robust, randomized trial is going to be needed to see if this benefit holds up statistically.

It is worth noting that TRC105 is also being explored for patients with recurrent disease and no prior treatment with Avastin.

Outside of brain cancer, TRC105 is being tested in sarcoma, and recent early trial results suggest favorable activity in certain subtypes of the disease. TCON plans to initiate a randomized, Phase 3 study comparing the combination of pazopanib+TRC105 to pazopanib in patients with angiosarcoma.

If it can show benefit in combination with or in comparison to Avastin in glioblastoma, TRC105 would be one of the first targeted therapies to show any benefit for this disease in years. Glioblastoma, in particular, is a drug development battlefield riddled with once-promising candidates, most recently Celldex's rindopepimut. In this disease, Avastin currently commands nearly $300 million in annual sales.

In angiosarcoma, TCON recently received orphan drug designation for TRC105 from the EMA and the FDA. Considering the woeful lack of treatment options for sarcoma in general, if TRC105 shows promise, this orphan designation could be a catalyst propelling it quickly through clinical trials.

Should it yield a clear signal of efficacy, TRC105 might even garner breakthrough therapy designation, though it is still quite early to tell. This therapy area represents another market opportunity worth hundreds of millions of dollars, especially in light of the dearth of treatment options in the standard of care.

TRC102

Details on the other lead compound in the TCON pipeline are more slim, as it is in an earlier stage of development. This agent is designed to enhance chemotherapy by inhibiting the ability of tumor cells to repair DNA.

At ASCO 2016, TCON presented Phase 1 findings for TRC102 in solid tumors and lymphomas. It showed that the combination of chemotherapy with TRC102 was generally well tolerated, with a few patients achieving response. Disease control was achieved in 9 other patients in this study.

These findings were considered hypothesis generating by TCON. TRC102 is now part of an ongoing Phase 2 study in combination with temozolomide for recurrent glioblastoma.

Financial outlook

TCON is now at a tumultuous juncture for developmental biotechs. A company in Phase 2 is usually still years away from seeing a product to market, so its ability to finance operations is crucial for the concerned investor.

According to the latest annual report, TCON has almost $47 million in total assets, $43 million of which are in the form of cash and cash equivalents.

Their operational expenditures include the following entries:

  • $5.5 million in research and development
  • $2 million in general and administrative costs

It is also worth noting that TCON recognizes revenue from a collaborative agreement with Santen Pharmaceuticals, that was given the rights to distribution of TRC105 for ophthalmologic purposes in 2014 in exchange for an upfront payment and milestone payments, which may total over $150 million. It recognized just over $1 million in revenue from this agreement.

This yields a quarterly burn rate of $6.3 million. I feel this is favorable in a biotech at this stage. TCON appears to have balanced its operational expenditures quite well, with the substantial majority going to research and development, not staff and the executives. This allows them to stay lean in this crucial time where R&D needs to be front and center.

This burn rate means the company has approximately 7 quarters of cash left to fund operations. This alone is almost certainly not enough cash to see the product to market. Favorable results could attract larger pharma involvement in the form of a licensing deal.

What might that look like? At one point, rindopepimut (from Celldex) looked very promising in glioblastoma. They initiated a partnership with Pfizer (NYSE:PFE) in 2008, just after successful top line Phase 2 data were announced. This deal was worth $40 million upfront, and another $390 million in milestone payments. Assuming favorable results, it is not out of the realm of possibility that TCON could see a similar deal in the future.

Conclusions

TCON presents an interesting balance of risk and reward. As of this writing, it sits at a small $68 million market cap (5.56 per share). It has a collaborative agreement already in place that is potentially worth more than the whole company (with Santen), and if its glioblastoma and sarcoma trials flash efficacy in the coming 2 years, they could have an even more lucrative deal in the making.

Their cash position is likely sufficient to get them to top line data. However, if there is some sort of delay in getting these results, the company will have to seek other means of financing operations.

Another high risk/reward feature of TCON is the tumor areas it's exploring. Glioblastoma and sarcoma are difficult forms of cancer to treat, as evidenced by the small number of approved treatment options in the last decade. Any savvy investor should consider this risk as part of the due diligence. Developmental therapies have a high attrition rate here.

But if they CAN show efficacy in glioblastoma or sarcoma with TRC105, it would represent a favorable shift in the standard of care, providing one more option for patients who have few.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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