Charles Theuer – President and Chief Executive Officer Patricia Bitar – Chief Financial Officer.

Maury Raycroft – Jefferies Bert Hazlett – BTIG.

Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals First Quarter 2017 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, 2016. You’re cautioned not to place undue reliance on these forward-looking statements, and we disclaim any obligations 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 first quarter 2017 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, 2017.

Finally, we will conclude by taking your questions. Let’s begin with our lead product candidate, TRC105, which has the non-proprietary name carotuximab. We initiated dosing in the randomized Phase 3 TAPPAS trial in the first quarter and continue to enroll angiosarcoma patients.

I’m pleased to report that the trial won the Most Innovative Clinical Trial Design award at the 2017 Clinical and Research Excellence or CARE awards in April. The CARE awards are selected by a panel of industry experts, and recognize outstanding and creative approaches in clinical research.

CARE recognized the TAPPAS trial adaptive enrichment design, which is intended to preserve Type 1 error and protect the power to detect a clinically meaningful survival benefit while also providing greater flexibility and efficiency than a standard trial with a fixed sample size.

The trial’s initial sample size of 124 patients provides more than 80% power to detect an improvement in median PFS from 4.0 to 7.3 months using a two-tailed alpha of 0.05. We expect to conduct an interim analysis when 40 events have occurred in approximately 70 patients.

At that time, the result will be categorized as belonging to either favorable, promising, enrichment, or unfavorable zones based on conditional power. The sample size and PFS events needed to complete the trial will be left unchanged in the favorable and unfavorable zones, but will be increased to a total of 200 patients in the promising zone.

This will allow more than 80% power to detect a less robust, but still clinically meaningful improvement in PFS between the two arms.

In the enrichment zone, the trial would enroll an additional 100 patients with cutaneous disease only, resulting in a total of 170 patients, which would preserve the power to detect the original treatment effect between the two arms in patients with cutaneous disease.

Further details of the TAPPAS trial design will be presented at ASCO in June, and we anticipate reporting the interim analysis in mid-2018. We believe that TRC105 has broad potential.

And as such, TRACON continues to execute on its tier-development strategy that includes orphan drug indications, midsized market indications, and large market indications. In addition to the pivotal TAPPAS trial in angiosarcoma, we continue to accrue into Phase 2 studies in three indications.

First, the Phase 2 randomized TRAXAR trial compares treatment with TRC105 and Inlyta to a treatment with single-agent Inlyta in patients with clear cell renal cell cancer. We expect to report PFS data from this trial in the second half of 2017.

This is an event-driven trial, and we expect to complete enrollment and conduct a futility analysis in mid-2017. We also track total events, which will allow us to provide a more precise guidance on the expected timing of the endpoint of PFS.

Second, we are enrolling the multi-center Phase 2 trial of TRC105 and Nexavar in liver cancer, where we expect to report initial response rate data in early 2018. We also expect the NCI to publish the results of their completed Phase 1/2 trial of TRC105 and Nexavar in patients with liver cancer in a peer-review journal later this year.

The inside publication will include final response rate and overall survival data. Last, the Phase 2 trial in patients with gestational trophoblastic neoplasia, or GTN, which includes choriocarcinoma, and has a primary endpoint of response rate.

We had previously indicated that a robust response rate in the GTN Phase 2 trial could be restoration-enabling. However, the commercial opportunity in this indication is limited, and we have therefore reduced planned enrollment in the trial and will no longer pursue a registration path in GTN at this time.

Instead, we will devote resources designated for this trial to programs with larger commercial opportunities.

Additional Phase 2 data will be reported ASCO from the NCI’s Cancer Therapy Evaluation Program, who will report detailed, overall survival data from the combination of TRC105 and Avastin, compared to single-agent Avastin in recurrent glioblastoma patients.

As a reminder, we previously reported top line data indicating no improvement in PFS and a non-significant improvement in overall survival in that trial. Finally, Dr.

Rita Perlingeiro, Professor of Medicine at the University of Minnesota, recently published preclinical data that provides important validation for conducting trials of TRC105 with approved agents in acute leukemia. The data appeared online in the Journal Blood and will be published in an upcoming hardcopy edition shortly.

These data demonstrated endoglin expression on the majority of blasts from patients with AML and B-cell ALL, and that endoglin expression blast had superior leukemogenic activity. Importantly, researchers demonstrated that TRC105 prevented the engraftment of primary human AML blasts and inhibited progression on disease establishment in mouse models.

In both AML and B-cell ALL, TRC105 showed synergy with reduced intensity myeloablation. AML and B-cell ALL represent hematological malignancies with high unmet need and could represent additional development opportunities for TRC105. Turning now to DE-122, the ophthalmic formulation of TRC105.

We believe 2017 will mark an important period in the product candidate’s development for wet AMD by our partner, Santen. We believe there is a substantial opportunity for agents that target essential angiogenic pathways like endoglin to be developed in combination with VEGF inhibitors for wet AMD.

Further, recent negative data from companies conducting two separate late-stage studies targeting the PDGF pathway in combination with VEGF inhibitors and wet AMD underscore the high unmet need remaining in this indication.

We expect that Santen will report data from the Phase 1/2 PAVE trial that assesses safety and bioactivity of DE-122 in refractory wet AMD patients at the American Academy of Ophthalmology Annual Meeting in November.

Prior to that, we expect Santen to initiate dosing in the Phase 2 randomized AVANTE study that compares treatment with DE-122 and Lucentis to treatment with single-agent Lucentis in patients with wet AMD. A third therapeutic area where endoglin antibodies have demonstrated activity is fibrosis.

TRACON’s endoglin antibodies have shown activity in a number of preclinical models including cardiac fibrosis, liver fibrosis, and NASH. And we observed a reduction in cutaneous neurofibromatosis in a patient treated as part of a sarcoma trial. Neurofibromatosis is an incurable genetic disorder that affects more than 100,000 Americans.

We will continue to explore options for dosing TRC105 in additional patients with neurofibromatosis. We’ll turn now to our second product candidate, TRC102. TRC102 is a novel, small molecule inhibitor of the DNA base excision repair pathway that is intended to reverse resistance to certain chemotherapeutics.

Importantly, TRC102 has demonstrated the ability to potentiate the activity of PARP inhibitors in preclinical tumor models. And the NCI presented positive safety, PK and efficacy data from its all-comer Phase 1 trial of 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. Expansion cohorts have been added in each of these three tumor types, and the study it says is biomarkers associated with TRC102 activity and susceptibility in patients enrolled in the expansion cohorts.

We expect the NCI to present data from the expansion cohorts at ASCO 2017 that may provide valuable validation for TRC102. Enrollment in additional NCI-funded trials of TRC102 is underway.

The NCI is sponsoring a Phase 2 trial of TRC102 with Temodar in patients with glioblastoma that has completed the first stage of accrual, and 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.

We expect data from these trials in 2018. Finally, our collaborators at Case Western recently began dosing patients in a Phase 1 trial of TRC102 in combination with chemotherapy and radiation therapy in patients with lung cancer. Late last year, we in-licensed two oncology assets from Janssen.

The first is TRC253, a novel potential treatment for prostate cancer. It is a 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. We have moved quickly on TRC253 since in-licensing the asset in September 2016.

TRACON filed the IND in December. The IND was cleared by the FDA in January. And we initiated the Phase 1/2 proof of concept study in March. We expect to begin dosing this quarter.

TRACON will receive $45 million if Janssen opts to reacquire the asset prior to or following completion of the Phase 1/2 trial in addition to $137.5 million in further potential milestones and the low-single digit royalty.

The Janssen transaction also brought TRC694, a novel small molecule potent inhibitor of NF-kB-inducing kinase, or NIK, that is intended for the treatment of patients with hematological malignancies including myeloma.

We presented pre-clinical data on TRC694 at the recent AACR Annual Meeting, demonstrating that TRC694 potently inhibits NIK in vitro, and human myeloma and lymphoma cell lines in vivo. We expect to file an IND for TRC694 in 2018.

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

Importantly, we continue to achieve our progress in a cost-effective manner by leveraging the TRACON clinical operations team that is managing our international Phase 3 TAPPAS trial for TRC105 in angiosarcoma without the significant costs or complexity associated with outsourcing to a CRO.

We believe that Janssen licensing agreement provides validation of our drug development model, and we continue to evaluate additional assets that can leverage our product development platform for the benefit of TRACON and its shareholders.

From a financial perspective, we believe that our current cash resources will fund currently planned operations through Q2 2018 and be sufficient to deliver final data from the randomized Phase 2 TRAXAR renal cell cancer trial, final data from the Phase 1/2 study in wet AMD, dose escalation data from the Phase 1/2 trial of TRC253 in prostate cancer, and support planned manufacturing activities at Lonza.

In addition, available financing from our agreement with Aspire, which Patricia will review in greater detail, provides additional flexibility to extend our cash runway. At this time, I will turn the 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 $0.6 million for the three months ended March 31, 2017, compared to $1.2 million for the comparable period of 2016. Research and development expenses were $5.6 million for the first quarter of 2017 compared to $5.5 million for the comparable period of 2016.

General and administrative expenses were $2 million for the first quarter 2017 and the comparable period of 2016. Our net loss was $7.1 million for the first quarter 2017 compared to $6.5 million for the comparable period of 2016. Turning to the balance sheet.

At March 31, 2017, our cash, cash equivalents, and short-term investments totaled $36.7 million compared to $44.4 million in December 31, 2016. In March, we announced that we had entered into a common stock purchase agreement with Aspire Capital for the sale of up to $21 million of our common stock.

Upon execution of the purchase agreement, Aspire Capital purchased 222,222 shares of our common stock at $4.50 per share for gross proceeds to TRACON of $1 million.

In addition, solely at our discretion, we may direct Aspire Capital purchase up to $20 million of additional shares of the company’s common stock from time-to-time during a 30-month period at prices based on the market price at the time of each sale.

There are no limitations on the use of proceeds, financial covenants, or restrictions on future financing, and there are no rights of first refusal, participation rights, penalties, or liquidated damages in the purchase agreement.

We believe this agreement provides us with additional flexibility to continue to fund the advancement of our multiple clinical development programs. As Charles mentioned, we expect our capital resources to be sufficient to fund our currently planned operations through the second quarter of 2018. And with that, I’ll turn the call back over to Charles..

Thank you, Patricia. As we noted, 2017 will be an eventful year full of multiple potentially value-creating milestones. We continue to enroll the pivotal Phase 3 TAPPAS trial of TRC105 in angiosarcoma and expect to begin doing in the Phase 1/2 study of TRC253 in prostate cancer shortly.

We expect to report TRC102 data at ASCO and randomized TRC105 data in renal cell cancer in the second half of the year. Later this year, we expect Santen to report Phase 1/2 data from the PAVE trial, and prior to that, initiate dosing in the randomized Phase 2 AVANTE wet AMD trial.

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

[Operator Instructions] Our first question is from the line of Maury Raycroft of Jefferies. Your line is open..

Hi, thanks for taking my questions. I was wondering for the RCC trial, if you can remind me how many patients are being enrolled in that.

And is the futility analysis at the 50% of endpoint? And what are the criteria for futility?.

Right. Thanks, Maury, I appreciate your question. So the trial overall is a 150-patient trial, and it’s designed to increase – to see an increase of PFS from 4.8 months to 7.2 months, 4.8 months being the assumption for the baseline; PFS with Inlyta single agent and the 7.2 being the combination drug PFS.

Futility analysis is done at slightly less than half, but very close to half the expected events. And it’s set up such that it is a fairly conservative futility analysis, Maury. So if there’s clearly no treatment effect whatsoever, then the trial could be stopped for futility.

But we think that is generally unlikely, and that the trial will go to completion and we’ll report the final data at the end of this year..

Great. And for the DE-122 program, I guess if you can contextualize the data that we’ll see from Santen..

Sure..

Okay..

Yes, that’s an important data point we hope to see at the American Academy of Ophthalmology later this year in November in Chicago. So that’s a trial whereby DE-122 is given as a single-agent and it’s a dose escalation study. What I think is interesting about the trial is it’s given to patients with refractory wet AMD.

And so many of these patients are already receiving VEGF inhibitor therapy to which they are deriving no benefit. So, you’re able really to see the effect of DE-122 on the backbone of a VEGF inhibitor therapy that is not providing the patients to give it benefit, otherwise they wouldn’t come on to the trial.

So it nicely – even though it’s a single-agent trial, in a sense, you will be able to appreciate the potential for the effect of a combination treatment, which is exactly how Santen and we feel the drug should be developed.

The data that you’ll see are kind of standard by activity data, so expect to see, for example, optical coherence tomography data, visual acuity data, and safety data as part of the presentation..

Great. And I was wondering for neurofibromatosis, we’ve seen some efficacy benefit on that, and a patient treated with 105 and Votrient in a sarcoma patient, I believe. I was just wondering if you guys were going to look at that in the Phase 3, if that’s something you’re interested in.

And how many patients with sarcoma also have neurofibromatosis?.

It’s a great question. So in our initial Phase 2 study, we had a very open eligibility criteria with respecting to attracting multiple sarcoma subtypes, including a subtype called malignant peripheral nerve sheath tumors, which is the specific type that patients with NF will get when they generally get sarcoma.

Now, in Phase 3, as you know, we’re just enrolling angiosarcoma. So we unlikely will see an NF patient in the Phase 3. But what we will continue to explore with key opinion leaders in the NF space is potentially doing a separate pilot study to see if we can directly address cutaneous neurofibromatosis..

Great. Thank you..

Appreciate the questions, Maury. Thank you..

Thank you. Our next question is from the line of Bert Hazlett of BTIG. Your line is open..

Yes, thank you for taking the questions and congrats on the progress.

Just in terms of TRC102 and the ASCO data, could you just remind us if some of the biomarkers that we might be examining in greater detail with that data?.

Yes, I appreciate the question, Bert. So, yes, TRC102 is an inhibitor of base excision repair. And so, as part of the presentation, the NCI is doing a panel of DNA repair markers, RAD51 is one of the particular markers they’re interested in looking at. They also look at H2AX, which is a marker of DNA damage as well.

So, they’ll look at in the expansion cohort samples prior to the study, and then they’ll look at samples through tumor biopsies while the patients are on study.

The anticipation would be that when patients are treated with Temodar post-TRC102, you’ll see increases, for instance, in RAD51 and gamma-H2AX, which would indicate that the drug’s working as expected to cause DNA strand breaks, which is the base for the anti-tumor activity.

And then the further hope is that you’ll be able to appreciate that markers at baseline, including, for instance, markers of base excision repair, would actually predict response. So, those are the two important biomarker correlates that we expect to see data at from the NCI at ASCO..

Okay, thank you. And then very interested in the – just comments on the data with regard to endoglin expression in AML and B-cell ALL.

You said – I don’t want to read too much into your comments, but are you signaling maybe a pivot toward leukemia or the potential exploration of the molecule in that setting in blood tumors?.

It’s a great question, Bert. So we’re definitely interested in talking with key opinion leaders around that unmet need. Our focus has been solid tumors up until this point. But I think we’re really interested in tumors where you have a high degree of endoglin expression like angiosarcoma’s our initial pivotal Phase 3.

And so, AML and B-cell ALL are in that category. I think it’s definitely worthy of further discussions around potential clinical trials. Right now, it’s not on our plan in terms of initiating a trial this year.

But we will continue to discuss that with key opinion leaders around focusing on hematologic cancers in addition to the large solid tumor focus that exists at this time..

Okay. Thank you for the color. Thanks..

Appreciate it, Bert. Thank you..

[Operator Instructions] And I’m showing no further questions at this time. I’d like to turn the call back over to Dr. Charles Theuer for closing remarks..

We want to thank you for your time and interest. Have a nice day and we look forward to speaking with you again soon..

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everybody have a great day..