Charles Theuer - President and CEO Patricia Bitar - CFO.

Ted Tenthoff - Piper Jaffrey Alex Schwatrz - Stifel Nicolas Ling Wang - PTIG.

Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals Third Quarter 2016 Earnings Conference Call. At this time, all callers 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 reports 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 update 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 third 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 and nine months ended September 30, 2016. Finally, we will conclude by taking your questions.

I would like to begin with the discussion of the important strategic transaction, we closed with Janssen Pharmaceuticals and the J&J innovation center in September.

We believe this transaction has the potential to create significant long-term value for TRACON and our stockholders and allows us to leverage our highly efficient and capable product development teams.

Under the terms of this agreement, we received licenses to two of Janssen oncology assets and secured a $5 million equity investment from the Johnson and Johnson Development Corporation or JJDC. The first asset is TRC253, which was discovered at Janssen as a novel treatment for prostate cancer.

It is the small molecule, competitive inhibitor of wild type androgen receptor and androgen receptor mutations that confer resistance to Xtandi and other drugs approved to treat prostate cancer. TRC253 has completed IND enabling studies and TRACON expects to initiate a Phase 1/2 proof of concept clinical study in the first half of 2017.

Following completion of the initial proof of concept study, Janssen have an exclusive option to reacquire full rights to TRC253 for an upfront payment of $45 million to TRACON, as well as potential regulatory and commercialization milestones totaling up to an additional $137.5 million and a low single-digit royalty.

If Janssen does not exercise, it’s exclusive option to reacquire the program, TRACON will retain worldwide development and commercialization rights and would be obligated to pay Janssen potential development and regulatory milestones totaling up to $45 million in addition to a low single-digit royalty on net sales.

We also in license TRC694, a second small molecule discovered at Janssen. TRC694 is a novel and potent inhibitor of the NF-kB inducing kinase also known as NIK. That is intended for the treatment of patients with hematologic malignancy, including myeloma.

TRC694 is currently in pre-clinical development and TRACON expects to file an IND in 2018 following completion of additional pre-clinical studies that will include development of a companion diagnostic.

Upon completion of initial proof of concept study, Janssen has a right of first negotiation to reacquire the program on terms that we negotiate at that time.

If we cannot agree to terms following negotiation and TRACON continues the development of TRC694, TRACON will be obligated to pay Janssen potential development and regulatory milestones totaling up to $60 million and a low single-digit royalty.

We also have important updates on our lead product candidate, TRC105, which was designated carotuximab as its international non-proprietary name by the World Health Organization during the third quarter.

We remained focused on advancing TRC105 as the first therapeutics specifically for the treatment angiosarcoma, an ultra-orphan indication with high unmet needs. In October, we announced that following meetings with the U.S. and European regulators, the agency separately agreed to the following key aspects of our proposed Phase 3 trial.

First, one-to-one randomization of TRC105 given concurrently with Votrient versus single-agent Votrient. Second a sample size for 124 patients with an adapted design based on an interim analysis that allows for an expansion of the sample size to a maximum of 200 patients, as well as enrichment of more responsive patients.

Third, primary endpoint of progression free survival or PSS, with overall survival as a secondary endpoint. Fourth, open label format with independent blinded determination of endpoints. And fifth eligible patients for the study maybe treatment naïve and will not have receive the prior VEGF inhibitor.

The trial will provide for at least 80% power to determine an improvement in medium PFS from 4.0 to 7.3 months using a two tilde alpha of 0.05. This viable guidance from both regulatory agencies was incorporated into the Phase 2 protocol and subsequently submitted to the FDA for special protocol assessment. We expect to conduct the study in the U.S.

and in Europe and to initiate the study later this year or early 2017. As a reminder we intend to provide a further update on durable complete responders and additional patients enrolled into the angiosarcoma specific cohort of our Phase 2 sarcoma trial as the Connective Tissue Oncology Society or CTOS meeting this Friday.

We believe that TRC105 has broad potential and as such TRACON continues to execute on its tier development strategy that includes orphan drug indications, mid-sized market indications and large market indication.

In addition to the planned pivotal trial in angiosarcoma we recently initiated dosing in a Phase 2 trial in gestational trophoblastic neoplasia or GTN an ultra-orphan indication, which includes choriocarcinoma based on a durable complete response that remains ongoing at 18 months in a patient with choriocarcinoma treated in a compassionate use setting.

The primary endpoint of the trial is response rate and we believe the study has the potential to be registration enabling. Phase 2 development also continues in three mid-market indications.

We expect that the NCI's Cancer Therapy Evaluation Program or CTEP will report PFS data from their randomized Phase 2 trial of TRC105 and Avastin-naïve Glioblastoma patients in December 2016 or early 2017, with the exact timing of data release driven by the occurrence of disease progression events analyzed and reported by the NCI.

We expect to report PFS data from our randomized Phase 2 TRAXAR trial in mid-2017. As a reminder this trial compares treatment with TRC105 and Inlyta to treatment with single agent Inlyta in patients with clear cell, renal cell cancer.

We also expect to report response rate data from the ongoing multi-center Phase 2 trial of TRC105 in Nexavar in patients with liver cancer in late 2017. Finally enrollment continues in two Phase 1 trials in large market indications.

Our Phase 1 trial of TRC105 in combination with Avastin and chemotherapy for the first line treatment of patients with lung cancer and a Phase 1/2 trial of TRC105 in combination with AFINITOR and FEMARA for the new adjuvant treatment of patients with breast cancer.

We believe there is also a significant opportunity for endoglin antibodies to improve treatment options for patients in areas beyond oncology, such as wet AMD. We have partnered global rights to develop our endoglin antibodies in eye disease, including wet AMD with Santen.

Santen continues to recruit patients into a Phase 1/2 trial to assess safety and bioactivity of DE-122 in refractory wet AMD patients. As a reminder, DE-122 is an ophthalmic formulation of TRC105. Fibrosis is the final therapeutic area where our endoglin antibodies have demonstrated activity.

This Sunday, we will present preclinical data related to TRACON's endoglin antibodies in models of liver fibrosis and nonalcoholic steatohepatitis or NASH at the annual meeting of the American Association for the Study of Liver Diseases or AASLD Conference in Boston.

Turning now to our second project candidate TRC102; TRC102 is a novel small molecule inhibitor of the DNA-based excision repair pathway. Activation of this pathway triggers resistance to alkylating and anti-metabolic chemotherapeutics, resulting in poor outcomes.

Importantly, TRC102 potentiate its activity of part inhibitors in preclinical tumor models. The NCI presented positive safety, PK and efficacy data from its all comer Phase 1 trial with the combination of TRC102 and Temodar at ASCO 2016.

The combination was well tolerated and partial responses were observed in patients with ovarian, lung and KRAS-positive colorectal cancer. Expanded cohorts have now been added in each of these tumor types to the Phase I study.

The study also assesses biomarkers associated with TRC102 susceptibility in the patients enrolled in each of the expansion cohorts. And this may provide valid information for the design of future clinical studies. Enrollment in additional NCI funded trials of TRC102 is underway.

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

In addition, the NCI sponsoring of Phase 2 trial of TRC102 with Temodar in 66 patients with glioblastoma. We expect data from these Phase 2 trials in 2017. Finally, our collaborators at Case Western recently initiated enrollment of a Phase 1 trial of TRC102 in combination with chemotherapy and radiation therapy in patients with lung cancer.

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

Importantly, we continue to advance our progress in a cost-effective manner to the TRACON clinical operations team that manages domestic trials without the significant costs or complexity associated with outsourcing to its CRO. We believe that Janssen licensing validates this model and our drug development expertise.

From a financial perspective, we continue to anticipate that our current cash resources will fund operations to mid-2017 and be sufficient to deliver the primary endpoint of the ongoing randomized Phase 2 studies for TRC105, to support manufacturing activities at Lonza required for regulatory approval, and initiate to Phase 2 clinical development in angiosarcoma.

Importantly, we are able to advance the development of the newly in-licensed Janssen programs without alternate existing cash runway due to the $5 million investment by JJDC that we believe will cover the development cost for both of the license assets for at least the next 12 months.

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 $0.8 million for the three months ended September 30, 2016, and $2.8 million for the nine months ended September 30, 2016, compared to $1.2 million and $6.5 million respectively for the comparable periods of 2015.

The decrease in the year-to-date amount is primarily attributable to a $3 million cash milestone triggered by Santen’s filing of an IND in wet AMD in June 2015.

Research and development expenses were $4.5 million for the third quarter and $16.8 million for the nine months ended September 30, 2016, compared to $5.9 million and $15.1 million respectively for the comparable periods of 2015.

The increased in R&D expenses in the quarter ended September 30, 2016, compared to the quarter ended September 30, 2015 reflects lower TRC105 drug manufacturing cost in the 2016 period.

The increased in the nine months ended September 30, 2016, compared to the same 2015 period was primarily the result of increased TRC105 clinical study related expenses and higher personnel costs resulting from increased headcount offset by decreased TRC105 drug manufacturing expenses.

General and administrative expenses were $1.9 million for the third quarter and $5.9 million for the nine months ended September 30, 2016, compared to $1.5 million and $4 million respectively for the comparable periods of 2015. These increases were primarily attributable to higher personnel costs resulting from increased headcount in 2016.

Our net loss was $5.9 million for the third quarter and $20.7 million for the nine months ended September 30, 2016, compared to $6.4 million and $13.4 million respectively for the comparable periods of 2015.

Turning to the balance sheet at September 30, 2016, our cash, cash equivalents and short-term investments totaled $35.1 million compared to $36.2 million and $52.2 million at June 30, 2016 and December 31, 2015 respectively.

We received the $5 million cash proceeds from the sale of our common stock to JJDC in September and this is reflected in our September 30, 2016 cash, cash equivalents and short-term investments balance. As Charles mentioned, we expect our capital resources to be sufficient to fund our currently planned operations for the middle of 2017.

With that, I’ll turn the call back over to Charles. .

Thank you, Patricia. As we noted we anticipate a significant number of potential value creating milestones in the near future. Specifically by December 2016 or early 2017 we expect to initiate our initial pivotal Phase 2 trial of TRC105 in the orphan indication of angiosarcoma. As a reminder we have concurrence of U.S.

and European regulators on an adaptive trial design. In addition later this week, we expect to provide an update on data from ongoing a newly enrolled angiosarcoma patient in our current Phase 2 trial at the CTOS meeting in Lisbon and will present preclinical fibrosis data at the AASLD meeting in Boston.

By the end of 2016 or early 2017, we expect top-line Phase 2 data from the NCI randomized glioblastoma trial and by mid-2017, we expect top-line data from our randomized Phase 2 TRAXAR renal cell cancer trial and to be actively enrolling the Phase 1/2 trial of TRC253 our newly license asset from Janssen in prostate cancer.

I look forward to providing further updates regarding our upcoming key milestones and I am confident that we have the right strategy in place to deliver on our development and business plans for the benefit of both patients and stockholders. With that, we will be happy to answer your questions. .

[Operator Instructions]. Our first question is from Ted Tenthoff of Piper Jaffrey. Your line is open..

Great, thank you very much for the thorough updates. I had two quick questions, if I may.

Firstly, just with respect to recent developments in the kidney cancer area, how does that impact you guys thinking about development in that area? And also when it comes to the newly in license assets congratulations on those from Janssen that’s a really exciting deal.

How do you guys see them potentially being used in combination with the rest of the pipeline?.

Hi, Ted. Thanks so much for your question. So first we will discuss the renal cell cancer program moving forward. The ongoing trial currently we’re studying TRC105 with Inlyta, which is approved in the second line setting in renal cell carcinoma.

And we think that that’s the very productive strategy moving forward and potentially is the best trial to do in terms of replicating the Phase 3 design with the Phase 2 design.

But that said we will take a close look at the landscape, for example if Inlyta approved with PD1 inhibitors in the first line setting that might be an opportunity for us to pair with not just Inlyta, but also include a PDI inhibitor as part of that combination.

If [indiscernible] becomes a dominant standard of care in the second line setting we could potentially pair with that drug also in a randomized study.

So I think the current trials is really important to us it establishes clear proof of concept that if a positive trial will show you we filled upon VEGF with therapy productively we can take that as a path forward to multiple indications. And then fine tune our strategy in renal cell carcinoma to your point..

That makes a lot of sense. .

The new assets I think currently we look at them as initial standalone therapies, TRC253 is specially is really being developed to address those mutant populations that are selective or by for instance Xtandi. Now that doesn’t mean it can’t move further up in therapies.

So the thought is get it approved as a single agent in the mutant patients using a companion diagnostic, which is a simple circulating tumor DNA diagnostic.

Establish proofs of principle and then thereafter if J&J decides to license it back they may move it into an earlier line setting or can continue develop the asset we also could move it into an earlier line setting because it could be a best-in-class molecule, it is active other compounds and mole type AR but also get those mutants. .

Great, that makes a lot of sense. Thanks so much Charles..

Thank you, Ted. .

Thank you. Our next question is from Tom Shrader with Stifel. Your line is open. .

Hi this is Alex Schwatrz in for Tom Shrader. Charles and team congrats on the continued progress..

Thank you. .

Just one question if I may at CTOS are we going to see new patients or previous patients but for a longer duration? And kind of having known this data for a while and was this part of your decision to pursue a Phase 3 trial in angiosarcoma?.

Good question, Alex. So the way the angiosarcoma trial played out, we had initially 5 patients in the original Phase 1/2 trial and those have been some patients have had durable complete responses and have been ongoing and we'll update the data on those patients.

We then enrolled an additional four patients that also initially treated with the combination of TRC105 and with Votrient and will have updated data on those patients. And beyond that we've also enrolled an additional set of patients to report on that initially received TRC105 as a single agent and then [indiscernible] was added at progression.

And the real purpose of those second set of nine patients was the following. We don't think TRC105 which is very similar to our stands on single agent VEGF inhibitors are going to be very active in this disease. Because we know when you inhibits the VEGF pathway you'll up regulate endoglin.

We know when you inhibit the endoglin pathway you’ll up regulate VEGF. But I think we had to really have data to really substantiate that hypothesis where we potentially would have run into the risk in the Phase 3 study of having a third arm of single agent TRC105.

So those newly enrolled patients in the single treatment TRC105 that add Votrient as progression will also be presented as part of that posture. And then that will be a total of 18 patients all together..

Okay excellent. That's why I had looking forward to data next week or this week and then at the end of the year. .

Great, thank you Alex. .

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

Good afternoon. This is Nick for Jim he is stuck on a plane unfortunately..

Hey, Nick..

Hey Charles, so just going back to the TRAXAR trial obviously had a very nice update at ASMO with that 11 months PFS to roughly three months more.

And I can't remember if you have set what PFS you designed or expected to is to be in the TRAXAR trial for the control arm and whether this good data you've seen gives you an opportunity for an interim that could come sooner than mid-17. .

Great question, Nick. So we power the TRAXAR trial based on the existing data for Inlyta from its pivotal access trial where they had a PFS of 4.8 months. And the trial is designed to have the power to expect an increase from baseline 4.8 months with Inlyta single agent to 7.2 months with the combination of two therapies.

The trial is not designed with a formal interim analysis for efficacy. So I think we'll have to really wait for the final tally of progression of ends to deliver the final endpoint which again we're projecting for mid-2017..

Okay. And then also I think at ASMO Dr. Thierry [ph] suggested that TGF data receptor three could be a reasonable biomarker in RCC setting..

That was interesting. We have done a broad panel of soluble biomarkers knowing that if you have a soluble biomarker it makes life so much easier than having to actually test tumor tissue. And two of the soluble biomarkers that were assessed as part of the initial phase 1b study did correlate with both response and then also with time on study.

One of those were TG beta Receptor 3 which is betaglyken. So that was an exciting early observation for us and we will cooperate that data and reanalyze the full Phase 2 study with respect to those same biomarkers, which we have will validate the initial data seen in the Phase 1b study.

Without a very powerful for us if we could have a biomarker simple soluble biomarker that will predict activity. So we’ll stay tuned for that one..

Have you looked for that biomarker across the other TMS?.

We have done the panel in the sarcoma study for example, we have not analyzed those data yet. But we will have that data out and continue to analyze that same biomarker across the other tumor types that we're currently investigating..

So do you say you have looked or you have not yet looked?.

We have done the sample analysis we haven't integrated the data. We do that with -- we do get reverse we will report the similar data for instance for the sarcoma study, as well as our further studies in different indications. .

Okay, thank you.

And then moving onto 253, so the proof of concept is that going to be a wild type AR or shows the resistance -- extensive resistance mutation to this on bound?.

No, that’s excellent question. So we will do a standard Phase 1 dose escalation, but then once have determined the recommended Phase 2 dose, our plan is to enroll two cohorts.

Now one cohort will consist of a specific mutation that's been seen in about 10% to 15% of cases of patients that develop resistance for instance Xtandi and that's the F876L mutation. So that will be one specific cohort will be that mutation which is seen as one of the dominant mutation of the ligand binding domain that produces Xtandi resistance.

But there were other mutations of the ligand binding domain as well. And so a separate cohort will include if you will all other basis for resistance to all other mutations because it could be that there is a frequent mutation that we're under predicting that is the base resistance that we also want to assess.

The two cohorts one with F76L -- F876L rather the other was other mutations that could be the basis for resistance and could be more common than we suspect..

Okay.

But not including ARV7 or including ARV?.

So we will not specifically exclude ARV7. That said Nick this compound because it really depends on an attack ligand binding domain. I would not expect it to be active on ARV7. But we have to really do that experiment and it should be very active and wild type as well as point of mutations of ligand binding domain..

Excellent. And last question on GTN trial.

Can you just remind us about that trial and what are your expectations are for enrolling in and timelines?.

Sure that's a 30 patient trial designed with sponsor as the primary endpoint. And it's an ultra-orphan indication. So we are projecting that the overall data for that stay will come out and be presented roughly at the end of 2017 an interim report with the final enrollment and final data more towards the end of 2018 as the final data report.

That's the Phase 2 study, but our thought is that if we have that type of data with a robust response rate at the same time that we have randomized data in angiosarcoma proving activity in a randomized setting that potentially we could apply in both indications with the key lead indication being the angiosarcoma data, which is randomized data and then in the supplemental data being the response rate date in GTN..

Great, thanks Charles. And good luck going forward. .

Thank you, Nick. .

Thank you. [Operator Instructions]. Our next question is from Ling Wang of PTIG. Your line is open. .

Thank you for taking my questions. So just have a follow-up for the GTN study. You mentioned it’s potentially pivotal. I was wondering whether you have discussed the endpoints with the regulatory agency.

And also what might be the sort of threshold efficacy you will need to see to get it approved?.

Sure, to be clear we have not discussed the GTN protocol with regulators at all. So it's a potential registration enabling trial, but it is not been discussed the way the Phase 3 angiosarcoma study has been discussed.

In terms of what we think would be significant in a refractory setting our view is that if in general if you can have a 30% response rate in a tumor type where there are few if any treatment options that significant. So I think our general bar for response rate in single -- in response rate driven trials is roughly 30%..

Got it. And also the investigator sponsored study for TRC105 with Avastin in glioblastoma by year end.

I mean is that going to be like a press release or presentation?.

Yeah I think it will be both. The way we will work that in terms of moving forward that is an NCI study. And so as NCI catalogs progression events, there is a certain number of events that will allow them to trigger the formal analysis.

And once that data is triggered and that is released to TRACON then we will planned to release that publicly knowing that the both data presentation will be made at a formal scientific conference..

So that presentation will probably be in 2017 I would assume?.

The presentation most assuredly will be in 2017. The top-line data release could be sooner than that. .

Got it. Alright, thank you..

Yeah, my pleasure. Thank you..

Thank you. At this time, I see no other questions in queue. I’d like to turn it back to Dr. Theuer for any closing comments..

We want to thank you all for your time and interest, appreciate the questions. Have a nice day. And we look forward to speaking with you again soon..

Thank you..

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