Charles Theuer - CEO Patricia Bitar - CFO.

Tom Shrader - Stifel Nicolaus Chad Messer - Needham & Company.

Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers prepared remarks, we will conduct a question-and-answer session and instructions will be given at that time.

During today's call, we will be making certain forward-looking statements, including statements regarding expected timing of clinical trials and results, regulatory activities, future expenses and cash runway, and our development plans and strategy.

These statements are subject to various risks that are described in our filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2015, subsequent Quarterly Report on Form 10-Q, and our current reports on Form 8-K.

You are cautioned not to place undue reliance on these forward-looking statements and we disclaim any obligation to such statements. Now I would like to turn the call over to Dr. Charles Theuer, President and CEO of TRACON Pharmaceuticals. Dr.

Theuer?.

Good afternoon and thank you for joining us today for TRACON's first quarter 2016 financial results and business update conference call. I will begin with an update on our pipeline and recent activities. Following that our Chief Financial Officer, Patricia Bitar, will review our financial results for the three months ended March 31, 2016.

Finally, we will conclude by taking questions from call participants. Since the beginning of 2016 we have achieved a number of key milestones across our entire pipeline. We are particularly excited about a recent receive of orphan drug designation from the European Medicines Agency or EMA for TRC105 in soft tissue sarcoma.

The EMA designation complements the orphan drug designation we received from the FDA earlier this year. These designations roll outs were closely with U.S. and European regulators as we implement TRACON's initial Phase 3 trial in patients with angiosarcoma. As a reminder, we expect to begin this study later this year.

With that, let's begin with the detailed update on TRC105. Because our product candidates are broad potential, TRACON is executing a peer development strategy. In order to potentially provide more rapid and cost-effective path to approval and commercialization, we have focused our initial development efforts on orphan drug indications.

Importantly, we have seen encouraging signals in patients with angiosarcoma and choriocarcinoma, and we remain on-track to initiate global studies that have the potential to be registration enabling in these indications this year. Next, in our Tier development strategy. Our mid-size market indications were short time to event endpoints.

We currently have multiple Phase 2 trials ongoing in these indications including kidney and liver cancer, and expect data readouts in 2016 that could enable further Phase 3 developments. Finally, we have begun exploring large indications, initiated dosing of TRC105 in Indon Canacian in February and in present circumstances patients.

We value the sheet development approach. It help us achieve our goal of maximizing the couple potential of TRACON105 oncology while minimizing your term. We will have two TRC105 related presentation at ASCO in June. The first presentation will focus on soft tissue sarcoma.

We represent updated data on the initial five patients in angiosarcoma, a sarcoma subtype known to highly express evaluate for response in a Phase 1/2 study that role 81 soft tissue sarcoma patient. We previously reported that as of February 18.

2016, all five angiosarcoma patients had radiography tumor reductions meeting progression free survival or PFS for this subgroup was at least 9.3 months. And two patients demonstrated durable complete responses that were ongoing at weeks 45 and 75.

We also expect to present data from additional patients currently enrolling in a 13-patient angiosarcoma specific cohort that was added to the Phase 1/2 study.

Given the activity of the combination of TRC105 and Votrient seen in angiosarcoma patient's to-date, we were planning a Phase 3 study of at least 124 patients that will utilize an adapted design that will allow for the enrollment of as many as 200 patients.

The initial sample size of 124 patients is anticipated to provide 80% power to detect a 67% improvement in PFS, assuming an output of 0.5. We expect the trial will enroll over two years and provide that in 2018 that if positive should be registration enabling.

At ASCO we also expect to report PFS stratified by tumor endoglin expression in the 76 patients with sarcoma subtypes, other than angiosarcoma enrolled in the Phase 1/2 trial. These incremental data will include a patient with undifferentiated choriocarcinoma who had a previously reported durable complete response ongoing at 51 weeks of treatment.

For comparison, no complete responses were reported in 388 sarcoma patients treated with Votrient in a Phase 2 and pivotal Phase 3 trials. If we determine a tumor correlated PFS it may allow expression to be used as a biomarker for enrollment of soft tissue sarcoma patients into a separate Phase 3 trial.

Finally, as ASCO we expect to report overall survival data from a single arm study of TRC105 in combination with Avastin in glioblastoma patients who progressed on prior Avastin treatment.

As a reminder, we have seen a durable complete response on treatment of patient with choriocarcinoma, another tumor type known to highly express endoglin, treated in a single patient protocol with the combination of TRC105 and Avastin. An update on this patient was presented in March 2016 at the Society of Gynecologic Oncology Annual Meeting by Dr.

Kevin Myers [ph] of the Dana-Farber Cancer Institute. The patient developed a complete response at treatment that remains ongoing whether in one year falling trails enrollment.

Based on clinical activity and the high end of expression established in this tumor type, later this year we intend to initiate a global Phase 2 trial with response rate as the primary endpoint in patients with gestational trophoblastic neoplasia, or GTN, which includes choriocarcinoma.

Patient enrollment in three other TRC105 Phase 2 trials in mid-size market indications to randomized and open label remains ongoing. The first randomized study is the TRACON sponsored Phase 2 tracsar trials in patients with clear cell kidney cancer.

This study compares treatment with TRC105 and Inlyta to treatment with single agent Inlyta in patients who received one prior VEGF inhibitor. We currently expect initial data from this study to be available in late 2016 though the exact date will be dependent on the number and timing of progression [ph].

The second randomized trial is the NCI sponsored Phase 2 trial of TRC105 and Avastin in glioblastoma that has completed enrollment and data expected in late 2016. We believe positive data from these randomized trials would allow us to advance to Phase 3 development.

The third mid-sized indication trial is a multi-center Phase 1/2 trial in liver cancer patients with a primary endpoint of overall response rate. The goal of this study is to verify the robust 40% response rate that was observed in 10 patients treated recommended Phase 2 doses of TRC105 with Nexavar that was reported by the MCI at ASCO in 2015.

For comparison, this study with the partial response rate of single agent Nexavar has historically been 2%. We believe the collaboration of the response rate reported by MCI will justify the initiation of our Phase 3 trial comparing the combination of TRC105 and Nexavar to single agent Nexavar in liver cancer.

Early this year we also dosed initial patients in large market indication trials of Phase 1 trial TRC105 in combination with Avastin and chemotherapy for the first-line treatment of patients with lung cancer and the Phase 1/2 trial of TRC105 in combination with Afinitor and Femara for treatment of patients with breast cancer.

Finally, we also believe that there is a significant opportunity for endoglin antibody antibodies [ph] to improve patient options in areas beyond oncology such as wet AMD.

For example; Eylea and Lucentis are the current standard of care treatments in wet AMD, and we believe they represent a backbone therapies that could be approved upon by our endoglin antibody. We have partnered global rights to develop endoglin antibodies in IDC including what AMD with Santen.

Santen continues to recruit patients into a Phase 1/2 trial to safety and bioactivity of DE-122 in refractory one AMD patients. DE-122 is the ophthalmic formulation of TRC105. Turning now to our second product candidate TRC102. TRC102 is a novel small molecule inhibitor for the DNA-based excision repair pathway.

Activation of this pathway triggers resistance to alkylating and anti-metabolic chemotherapeutics. As a result, inhibition of this pathway could lead to improved patient outcomes.

The NCI will present safety, pharmacokinetic, pharmacodynamics and efficacy data from the Phase 1 trial of the combination of TRC102 and Temodar at ASCO including in patients enrolled in an expanded dose cohort. Additional NCI clinical trials of TRC102 are underway.

The NCI term enrolling a dual arm Phase 1/2 trial consisting of a Phase 2 cohort of TRC102 with Alimta in patients with mesothelioma; and a Phase 1 cohort of TRC102 with Alimta and Cisplatin in patients with solid tumors. Ultimately we expect a cohort 58 patients to enroll in this trial.

In addition, a Phase 2 trial of TRC102 with Temodar in 66 patients with glioblastoma was recently initiated. Finally, we expect enrollment in a Phase 1 trial of TRC102 in combination with chemotherapy and radiation therapy in patients with lung cancer to begin in the second quarter.

As you can see, we remain very active on the clinical development front and we look forward to highly productive 2016 with multiple potential enhancing events including a number of key pipeline related milestones.

Importantly, we continue to achieve our progress in a cost-effective manner to the TRACON clinical operations team that manages the massive clinical trials without the significant cost for complexity associated with outsourcing to its CRO.

Importantly, we are actively engaged in applying our highly efficient model to the European Union as well which will facilitate planned studies in angiosarcoma, and GTN that maybe registration enabling. Turning now to our preclinical studies.

We recently completed preclinical studies of our endoglin antibodies in prefibrosis models in mice including models of chemically induced liver fibrosis, chemically induced pulmonary fibrosis and a non-alcoholic SEATO hepatitis or NASH. In each study, one or more endoglin antibodies achieved a primary endpoint of the study compared to control.

In the NASH study, the clinical candidate TRC205 significantly reduced the primary endpoint of non-alcoholic fatty liver disease activity score versus control and also reduced fibrotic gene expression but did not significantly reduce the fibrotic area by inspection.

We expect to report full data from each study at a scientific conference in the second half of the year. While our clinical development activities are robust, TRACONs financial position remains strong.

We continue to anticipate that our current cash resources were sufficient to complete the five ongoing Phase 2 studies of TRC105, support manufacturing activities at Lonza required for regulatory approval, initiate Phase 3 clinical development, and to pursue additional programs that are addressed on important unmet medical needs including the development of endoglin antibodies for fibrosis.

Beyond our internal pipeline we also continue to evaluate product candidates to potentially license and tend to be opportunistic in this regard. Ideal candidates would leverage the cost effective internal clinical operations capacity at our company.

At this time, I will turn call over to Patricia Bitar, our Chief Financial Officer, who will provide an update on our financials..

Thank you, Charles, and good afternoon, everyone. TRACON reported collaboration revenue of $1.2 million for the quarter ended March 31, 2016, compared to $1.1 million for the comparable period of 2015. Total operating expenses were $7.5 million for the quarter ended March 31, 2016, compared to $4.8 million with the comparable periods of 2015.

These increases reflect higher expenses in both R&D and G&A. Research and development expenses were $5.5 million for the quarter ended March 31, 2016, compared to $3.8 million for the comparable periods of 2015.

This increase was primarily the result of increased manufacturing expenses and clinical study-related expenses for TRC105 and higher personnel costs resulting from increased headcount. General and administrative expenses were $2 million for the quarter ended March 31, 2016, compared $1 million for the comparable period of 2015.

This increase was primarily attributable to higher personnel costs resulting from increased headcount and increased cost associated with operating as a public company for the entire 2016 quarter. Our net loss was $6.5 million for the quarter ended March 31, 2016, compared to $4 million for the comparable period of 2015.

Turning to the balance sheet, at March 31, 2016, our cash and cash equivalents and short-term investments totaled $45.5 million compared to $52.2 million at December 31, 2015. We expect our current resources to be sufficient to fund our currently planned operations for at least the next 12 months.

And with that, I will turn the call back over to Charles..

Thank you, Patricia. As we noted, we expect a significant number of potential value-creating milestones in the near future. These include multiple data presentations at ASCO.

First updated data on durable complete responders and newly enrolled angiosarcoma patients from our ongoing Phase 2 trials of TRC105 in combination with soft tissue sarcoma patients. Second, overall survival data from the Phase 2 trial with TRC105 and Avastin in refractory [ph] patients. And third, Phase 1 data from the trials of TRC102 and Temodar.

Later this quarter we expect to initiate dosing of TRC105 in a second trial in liver cancer, as well as to initiate dosing in an additional TRC102 trial funded by the MCI. By the end of the year we expect randomized Phase 2 data from kidney cancer and glioblastoma trials.

Most importantly, later this year we also intend to initiate trials at angiosarcoma and in GTN that if positive, we anticipate will be registration enabling. I look forward to provide further updates regarding our upcoming key milestones throughout 2016.

I am confident that we have the right strategy in place to deliver on our development and business plans for the benefit of patients and shareholders alike. With that we will be happy to answer your questions..

Thank you. [Operator Instructions] The first question is from Tom Shrader of Stifel Nicolaus. Your line is open..

Good afternoon, how are you Charles?.

Hi Tom, great. Thanks for your questions, thanks for calling in..

It's quite a mouthful you go through every time. So just a little bit on the choriocarcinoma.

Did you update that; is that a still 30-patient trial? And can you just - what's the difference between choriocarcinoma and GTN, is one much bigger than the other or is most of choriocarcinoma?.

Great question, Tom. GTN is a general category of which the most aggressive form is choriocarcinoma which will make up well over 90% of the patients enrolled in that trial. And to your point that is a Phase 2 multi-center trial we anticipate opening in the U.S.

and in Europe with 30-patients enrolled with the key endpoint being overall response rate based on the impressive response you saw in the initial patient dose with TRC105 and Avastin..

And so this is - this would be - is that a registrational trial? Would that be some sort of breakthrough approval or how are you thinking about that?.

So in your scenario we project that this trial will enroll a complete enrollment of delivery endpoint roughly in the same timeframe as the randomized trial in the angiosarcoma.

So our expectation would that with randomized data and that being positive randomized data in angiosarcoma, and an impressive response rate of GTN, that potentially you could file for dual approval, randomized data in one indication and impressive response in second indication..

And you said you were backing off the endoglin expression link?.

Exactly right, that will include the strategy we have to discuss with regulators as well. In that regard we've really been encouraged with the orphan drug designation we've received in sarcoma both now in the U.S. and the EU. And would expect to pursue that same path in quarter GTN as well..

Okay. And to move to the other end of the spectrum.

The breast cancer trial, so this is hormone positive for two minus people present with non-metastatic disease, is that the patient group?.

It is exactly right; these are hormone positive, Her2 negative patients with advanced breast cancer who are planned to undergo curative resection who will first get new therapy with the objection - the object rather being pathologically response rate at the time of curative integral section..

And Rapamycin and some sort of letrozol [ph], one of that collagen, is that standard of care?.

It is standard of care for that population. The Her2 negative population is hormone positive, exactly right..

And so - I mean don't these women do very well, I mean isn't it hard to see a signal here?.

I think women who are treated with the two agency recommend, you thought about the [indiscernible] do have a defined pathologically response rate and our goal is to improve that to about 70% by adding TRC105 to the mix.

So they do have clear evidence of pathologically response in many cases but our goal is to improve that beyond what the historical data would suggest..

So it's not in the 90s, it is something you can improve on.

The PCR for the standard of care is 50%?.

That's approximately correct..

All right. Okay, perfect. Thanks a lot. Good luck..

Thanks Tom, appreciate your questions..

Thank you. The next question is from Chad Messer of Needham & Company. Your line is open..

Great. Thanks for taking my questions. I'll reiterate statement that a lot to keep track of in a good way. Just looking forward to ASCO, can you may be framed for us what to expect out of the tumor endoglin expression from the STS trials? This is the 81-patients minus I guess the sarcoma's.

And remind me, I think I've known this in the past or maybe just forgotten, why in sarcoma were particularly interested in looking by endoglin expression while that's not necessarily the case in some of the other tumor types?.

I appreciate the question Chad. So sarcoma has always been an indication of particular interest to us because it's a tumor where you see an expression of endoglin on the tumor vessels which is seen across every solid tumor.

But in case of sarcoma, because it's a mesenchymal tumor, you also see direct expression on tumor cells given endoglin and mesenchymal stem cell marker. I think the key was studying sarcomas is understand the heterogeneity of the disease and if you can find a way to identify response at subtypes, you will have a chance of being much more successful.

I think we've shown that for example to angiosarcoma. In a pre-existing study based on our tissue from patients not enrolled in this trial for example, we saw definitively very high expression of endoglin RNA angiosarcoma patients and now we're seeing very impressive activity in that particular population.

Within the other sarcoma subtypes, we're profiling each tumor enrolled each patients tumor who is enrolled in the trial for tumor endoglin expression and we will correlate that with PFS which is the endpoint for the trail in the hope that tumor endoglin expression may predict other histologies, there will be particularly response to the therapy in the same way that angiosarcoma for example has been very responsive.

We do expect that full data presentation is part of the ASCO data. So we'll see not just angiosarcoma data with new patients enrolled in angiosarcoma as a cohort but also the general PFS for the entire non-angiosarcoma patient population stratified by tumor endoglin expression and histology..

And so where can we eventually be headed in sarcoma possibly to a future pivotal trial in sarcoma been why endoglin expression and how would that data compliment or add or expand what you're doing just in angiosarcoma?.

That's exactly what we would push forward to, we're committed based on the impressive activity we've seen in angiosarcoma for a randomized Phase 3 trial that we discussed with or without TRC105 in that sarcoma subtype.

However, we can identify the tumor endoglin expression or another specific histology is also particularly responsive to treatment with TRC105, that would be separate Phase 3 trial and it could be predicated on that separate histology as the means for inclusion or to be predicated on tumor endoglin expression as the means for inclusion to that separate trial which can then be for instance general soft tissue sarcoma patients profile based on tumor endoglin expression as the basis for enrollment in that trial.

But it could very similar to - the treatment could be very similar - certainly the same design [indiscernible] which is looking at patients based on their enrollment, based on their tumor endoglin expression or histology..

So if this high endoglin expression on the tumor cells hypothesis that you've got good evidence for and are pursuing pretty aggressively here continues to play out, are there other areas to look that are not currently being contemplated in a clinical trial?.

They definitely are Chad. So GTN and choriocarcinoma is another tumor that's known to highly expressed tumor as well as vessels, melanoma is also in that category. Germ cell tumors are also in that category but certain segment of myeloma, plasmacytoma [ph] is also in that category, and then also certain leukemia is in that category.

So there are definitely other tumor types that you could explore based on tumor endoglin expression that may potentially be highly responsive to therapy..

Or hematological as well, that would be something new for one of five. And then maybe just a couple for Patricia. One is on R&D spend. It bumped up a lot in the fourth quarter and kind of backed down in 1Q.

I know you've got guidance that you give on cash lasting, basically through - I guess you kind of line it up in terms of what trials you've committed to that you're able to pay for. But just as I think going through this year and into next, was there something unusual in 4Q, I guess is my question..

Yes. Like we talked about in February, 4Q had some manufacturing expenses in it. Q1, quite honestly, Chad, was a little lower than we expected, again due to some timing and some manufacturing expenses..

Okay. 4Q had some extra stuff in it; 1Q may be locked out and missed....

Exactly. So like we said, we don't expect the quarters in 2016 to be flat. If you wanted to put a bookend around it, I would expect Q1 of 2016 to be the lowest of that quarters and the highest of our quarters would be something slightly lower than on Q4 of 2015..

Okay, I guess with all the trial starts and ongoing stuff..

Yes, as you said, there's a lot going on around here..

I know that. I've been amazed that we haven't seen things more like fourth quarter just in general, but I guess it speaks to the highly efficient drug developments that you….

Absolutely..

And then the other thing, I didn't see anything in 1Q just based on share count, but I just wanted to check if you haven't done anything with the ATM to-date, have you?.

Correct, nothing with the ATM..

All right, great. Thanks, guys. Thanks for taking my questions and looking forward to ASCO..

Thanks, Chad..

Thanks, Chad..

Thank you. The next question is from Jim Birchenough of Wells Fargo. Your line is open..

Hi. This is Nick, in for Jim this afternoon. Can I just go back to the angiosarcoma and obviously they are often talked as a nation [ph] from Europe is very encouraging.

Can you provide me with frame of reference as to what data Europeans would be looking at for comparative purposes?.

Sure, Nick. Yes, I appreciate the question. I think what was impressive about the data in angiosarcoma patients, the five patient we've initially dosed was the drill of complete responders in two of those patients. One of them have previously received Votrient.

And I think when you look at what VEGF inhibitors have done in that indication, you realize how tough a disease that is to treat. There have been collectively three trials of VEGF inhibitors in patients with angiosarcoma - one with the softened as for Votrient, one with Nexavar and one with Avastin.

Collectively, you're talking about treating about 130 patients. That collectively is series of 130 patients. There are three documented complete responders and now we're seeing two out of five and I think what also impress us is the durability of those responses.

If you look for example in the most recent data in Votrient in 30 patients with angiosarcoma, the medium PFS in that study was three months. The overall survival was about nine months.

It's a very tough disease, it's not been well addressed with VEGF inhibitors and hence the trial with TRC105 with Votrient was perceived as significant and I think really was the key for us to pay any more for drug deviation in the EU..

Thank you.

Moving to the Phase 3 design - I appreciate the detail - is there an opportunity for an interim, for early stoppage based on interim maybe of data for overwhelming superiority?.

This one is monitored by an independent data monitoring committee and based on the collective data, they could stop the trial based on clear evidence that benefited in the treatment on TRC105 and the Votrient.

That will be done independently through data monitoring committee recommending that with the company if that degree of benefit is appreciated..

Are they going to look at the trial on an ongoing basis every quarter, or six months or on an event basis?.

It's really going to be on an event basis, Nick. The first interim analysis will be the key.

That will be the key both for looking at - that point and also for potentially adapting the sample size with the initial sample size being 124, but at that initial interim analysis, the conditional probabilities will dictate whether that sample size should increase potentially to as many as 200 patients.

So the first analysis, the first interim is the key for that study. Following that, the following implant will be dictated based on progression events..

Okay. And then maybe just on a non-angio data, I'll ask, can you say how many are the different subtypes of the soft tissue sarcoma we might see later on? I guess where I'm going, if there's 79 of different subtypes, they may not be compelling data to move forward..

Yes. Great question, Nick. I think within the 76 patient with non-angiosarcoma, that will be profiled.

You will see significant numbers of patients as they cross some of the large subtypes of sarcoma - for example leiomyosarcoma, under choriosarcoma, synovial sarcoma - I think for instance those groups which make up the majority of soft tissue sarcoma, there will be significant number of patients to have an idea of the effect of histology on PFS and then also the tumor expression on PFS..

Okay. And then just sort of one more, I'm just following up on that - you see the tumor Endoglin level, Endoglin level is important, obviously you're going to need a companion diagnostic.

So would that become rate-limiting developing that before you can start confirmatory trial?.

Great question again. I think there would definitely something we'd look into and maximize the development time on that, but that clearly have to be developed and that would definitely have to run into parallel with planning the phase three study. And to your point of potential would be rate-limiting for the general sarcoma trial.

Notably, to be clear on the angiosarcoma trial, because of that histology being so predictive of activity, we will not do the companion diagnostic.

But in soft tissue sarcoma, tumor Endoglin expression close with PFS and we use that as a perspective bio marker, the companion diagnostic development program would begin in earliest and that would take some time to get that to catch up with the clinical development to your point..

Okay. Thank you. I'll jump back in the queue..

Yes. Thanks, Nick. I appreciate the question..

Thank you. At this time I'd like to turn the call back over for any closing remarks..

We want to thank the call participants for their time and questions. Have a nice day and we look forward to talking again soon..

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the program. You may now disconnect..