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

Chad Messer – Needham & Company Maury Raycroft – Jefferies Bert Hazlett – BTIG Nick Rubino – Stifel.

Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals First Quarter 2018 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’ll 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 Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2017, and subsequent quarterly reports on Form 10-Q.

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, you may begin..

Good afternoon and thank you for joining 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, 2018.

Finally, we will conclude by taking your questions. Let’s begin with the brief update on our lead asset TRC105, which is currently the subject of a randomized TAPPAS Phase 3 trial that is rolling angiosarcoma patients and more than 25 sites in the United States, United Kingdom and France.

As a reminder, the initial TAPPAS sample size of 124 patients is designed to detect an improvement in PFS from four to seven months, and allows us to enroll treatment naïve patients. In addition, the trial uses an adaptive design then includes an interim analysis, which will be detailed at our Trials in Progress Poster Session at ASCO in June.

In brief, the interim analysis results will be categorized by the independent data monitoring committee or DMC, as we log in to one of four zones based on conditional power, favorable, promising, enrichment and unfavorable.

The sample size in PFS events needed to complete the trial, will be looked unchanged, if the interim results lie in the favorable zone, and will be increased to a total of approximately 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. If the interims results lie in the enrichment zone, the trial will enroll approximately 100 additional patients with cutaneous disease.

This will preserve the power to detect the desired treatment effect in these patients. The sample size will not change in the unfavorable zone. However, the DMC could terminate the trial for futility.

We expect the DMC to conduct the interim analysis in the second half of 2018 and these results should provide substantial insight into the progress of the trial. Recently, the DMC reveals safety data from the TAPPAS trial and recommended the trial continue as planned.

We believe that TRC105 has broad potential and TRACON continues to execute on its tier development strategy to address indications with the range of market sizes from orphan indications to markets with blockbuster potential.

In addition to the pivotal TAPPAS trial and angiosarcoma, TRC105 continues to advance in Phase 2 studies in two mid-market indications. The randomized Phase 2 TRAXAR trial that compares treatment with TRC105 and Inlyta to treatment with single-agent Inlyta in patients of clear cell, renal cell cancer completed enrollment in September.

We expect to perform the final analysis of PFS upon the occurrence of approximately 80 events confirmed by the independent central review committee, which should provide at least 80% power to detect an improvement in PFS from 4.8 months with Inlyta as a single agent to 7.7 months with a combination of TRC105 and Inlyta.

PFS will also be assessed based on predefined levels with two soluble biomarkers, osteopontin and TGF-β receptor III, which correlated with response in the Phase 1b portion of the trial. Based on the current rate or events of progression or debt that defined the primary endpoint of PFS, we expect to report top-line data in the second half of 2018.

We also continue to enroll the mulitcenter Phase 2 trial of TRC105 and Nexavar in liver cancer, and we’re pleased with the initial safety and response data reported at GI ASCO in January 2018, which showed that the combination of TRC105 and Nexavar was tolerable and two of the eight initial valuable patients or 25% achieve partial responses that remain ongoing at this time.

These data are consistent with partial responses by resist, seen in 5% to 15% or 33% of liver cancer patients treated with the two highest dose levels of TRC105 with Nexavar in a Phase 1/2 trial conducted by the NCI and published in clinical cancer research last year.

As a reminder historical, single-agent Nexavar pivotal trial data show a response rate of 2% to 3% by resist. We expect to report mature data from this trial at GI ASCO in January 2019.

Recently, we also initiated dosing in the Phase 1 trial of TRC105 in combination with Opdivo in patients with non-small cell lung cancer following encouraging preclinical data.

Researchers from leading university will present preclinical results, a treatment with TRC105 combined with PD-1 checkpoint inhibitors at the International Cancer Microenvironment Society Annual Meeting in Lisbon, in June. We expect to report initial clinical data from the Phase 1 trial later this year.

In December, we out-licensed development and commercialization rights to TRC105 outside of ophthalmology in China, Hong Kong, Macau and Taiwan to Ambrx. Ambrx has offices in both and San Diego and Shanghai, and its management team has significant expertise in oncology drug development in China.

We continue to support Ambrx’ efforts to file an IND later this year to initiate clinical development of TRC105 in China. Turning now to DE-122, the ophthalmic formulation of TRC105. In February, Dr. Victor Gonzalez presented encouraging data from the Phase 1/2 PAVE trial at an ophthalmology conference at the Bascom Palmer Eye Institute.

Our partner Santen continues to dose wet AMD patients in the randomized Phase 2a AVANTE study that compares treatment with two different doses of DE-122 combined with Lucentis to treatment with the single-agent Lucentis in patients with wet AMD. Recently, four U.S. sites have begun accrual to compliment sites accruing in the Philippines.

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 as many patients do not experience improve vision found treatment with single-agent VEGF inhibitors.

We’ll turn now to our second product candidate, TRC102, which is a novel small molecule inhibitor of the DNA base excision repair pathway that is intended to reverse resistance to certain chemotherapeutics.

The NCI continues to enroll patients with ovarian, lung and colorectal cancers, which are tumor types reported at ASCO 2017 that responded to treatment in the Phase 1 trial. An additional NCI sponsored Phase 2 trial of TRC102 and Temodar in patient with glioblastoma has completed the first stage of accrual.

In addition, a dual arm Phase 1/2 trial consisting of a Phase 2 cohort of TRC102 with Alimtain patients with mesothelioma and the Phase 1 cohort of TRC102 with Alimta and cisplatin in patients with solid tumors is also enrolling.

Finally, our collaborators of Case Western are dosing patients in a Phase 1 trial of TRC102 in combination with chemotherapy and radiation therapy in patients with lung cancer.

As part of these studies, we also have patient tumor samples to determine whether preclinical data showing glycosylate [ph] expression is associated with tumor sensitivity to TRC102 can be validated in the clinic.

Moving on to TRC253, our candidate for treating prostate cancer that we are studying in a Phase 1/2 trial to assess its safety, determine as recommended Phase 2 dose and assess response by PSA levels.

In the Phase 2 portion of the trial, we incorporate circulating tumor DNA testing in order to allow for biomarker-directed therapy patients, who were progressed following treatment with an androgen receptor inhibitor. We continue to expect to complete the Phase 1 dose escalation portion of the trial by mid-2018.

The Phase 2 design includes two parallel cohorts of prostate cancer patients. One cohort with the F877L mutation and one cohort with another based dual resistance through improved treatments.

As a reminder, we license the product from Janssen, and if they ought to reacquire the asset, TRACON will be entitled to receive $45 million payment, in addition, about $237.5 million in potential milestones, and the low single-digit royalty on any sales.

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 hematologic malignancies, including myeloma. TRACON has an exclusive license to TRC694 and Janssen retains a right of first negotiation should be decided part of the asset.

We continue to perform IND-enabling studies with TRC694 and expect to follow in IND in 2019. As you can see, we remain very active on the development front, and look forward to a highly productive 2018 with multiple potentially 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 a TRACON product development platform that is conducting our International Phase 3 TAPPAS trial for TRC105 in angiosarcoma without the significant cost or complexity associated with outsourcing to a global CRO.

We believe our product development platform provides with the opportunity to achieve shorter timelines at lower costs.

We believe the Janssen licensing agreement provides validation of our drug development model, and we continue to evaluate additional assets as well as possible strategic partners that can benefit from our product development platform in order to create value for TRACON and its shareholders.

To provide the resources to deliver the milestones I’ve discussed, we recently completed a successful financing led by Puissance Capital that closed on April 4.

TRACON sold approximately 13.7 million shares of common stock or a little common stock pre-funded warrants to purchase common stock, as well as wants to purchase approximately 13.7 million shares of common stock for aggregate gross proceeds of approximately $38.7 million.

Notably, the proceeds of the financing are expected to fund the company into the second half of 2019. And as I mentioned, allow us to deliver numerous critical milestones across our broad and late stage pipeline.

Specific milestones include results from the interim analysis of the randomized Phase 3 TAPPAS angiosarcoma trial, top-line data from the randomized Phase 3 tracks our renal cell cancer trial, and top-line results from the randomized Santen Phase 2 AVANTE with AMD trial. Then connection with the financing Dr.

Ted Wang joined our Board of Directors in April. Dr. Wang is CEO and Chief Investment Officer of Puissance Capital Management. Global Asset Manager founded in 2015 with offices in the U.S. and China. Prior to Puissance he was partner at Goldman Sachs & Company where he held multiple leadership positions during his 18 year tenure at the firm.

Hi strong track record of successful strategic, operational and financial management combined with a deep knowledge of U.S. and Chinese markets will be invaluable to TRACON as we continue to leverage our unique product development platform to expand our existing late stage pipeline.

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

Thank you, Charles, and good afternoon everyone. TRACON reported collaboration revenue for the three months ended March 31, 2018 of $3 million compared to $0.6 million for the comparable period of 2017.

The increase was due to the $3 million non-refundable upfront payment received in connection with the Ambrx agreement recorded as revenue in the first quarter of 2018. Research and development expenses were $9.4 million for the first quarter of 2018 compared to $5.6 million for the comparable period of 2017.

This increase is primarily attributable to increased manufacturing expenses related to TRC105 and the 2018 period. General and administrative expenses were $1.8 million for the first quarter of 2018 compared to $2 million for the comparable period of 2017.

Our net loss with $8.4 million for the first quarter of 2018, compared to $7.1 million for the comparable period of 2017. Turning to the balance sheet, at March 31, 2018, our cash, cash equivalents and short term investments totaled $62.5 million compared to $34.5 million at December 31, 2017.

On March 30, we received gross proceeds of approximately $35.2 million of the total $38.7 million from the financing Charles previously discussed. We received the remaining $3.5 million of gross proceeds on April 4.

In addition, this past week we refinanced our existing $7 million of principal outstanding with Silicon Valley Bank and will revert to interest only payments through June 30, 2019 with the possibility of a five month extension upon the achievement of certain regulatory and capital milestones.

As Charles said, we expect our capital to resources to be sufficient to find our currently planned operations into the second half of 2019. And with that I’ll turn the call back over to Charles..

Thank you, Patricia. As we noted, we expect a number of potentially value creating milestones over the next 15 months. For TRC105 we anticipate three data points from randomized trials. The key interim analysis to determine the final study size of the pivotal Phase 3 TAPPAS trial and angiosarcoma.

Top line Phase 2 tracks our trials also renal cell cancer, and top line Phase 2 AVANTE trials also wet AMD to our partner Santen. In addition, we expect further data from the combination of TRC105 and Nexavar liver cancer, and the combination of TRC105 and Opdivo in lung cancer.

For TRC253, we expect to advance into the Phase 2 portion of the Phase 1/2 trial in prostate cancer by mid 2018. We look forward to providing further updates regarding our upcoming key milestones, and remain confident and 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’ll be happy to answer your questions..

[Operator Instructions] And our first question comes from Chad Messer of Needham & Company. Your line is open..

Great. Thanks for taking my question and always a pleasure to catch up on all the activities the guys going on, it’s a pretty amazing list? Just wanted to check backing on a renal cell with your data coming out in two half. We’re sitting here in a world since the last time we talked, where we’ve now got [indiscernible] ipi/nivo front-line.

Just wondering what’s your thoughts on what the next study would look like you were successful, just are you prone or leaning toward sticking with Inlyta, where it’s used and it probably certainly will be used somewhere or it’s maybe going after another VEGF inhibitor, even a triple combo seems to be where everyone else has had it.

Just what are your thoughts there?.

Yeah. Hi, Chad. I appreciate the question; renal cell has become very crowded point, which is great for patients. We still feel is the nice place for us to play, and it could be I think in two general frameworks.

So the first is, Inlyta is being used currently in many cases as the second VEGF TKI that we you in a given patient with renal cell cancer and if patients for instance, get nivo and ipi first line.

And then get a TKI as kind of the first TKI they used, but it’s the second line therapy, and then get Inlyta as third line therapy, but yet the second TKI would use, and we still think that’s a nice position for us to be in to combine with Inlyta. And potentially replicate the current trial.

So we do think pairing with Inlyta still remains a viable opportunity. that said, we’ve also combined with three other VEGF inhibitors and we’ve had no issues with respect to tolerability. So we could combine with another VEGF TKI, if that seems to be more of the dominant standard of care.

and then finally, we’re going the Opdivo trial now with TRC105, and if that shows to be a productive combination that with a VEGF TKI would potentially be a longer-term play, which would be potential first line play, the copy out there that if you go first line, you need to be patient, because the timed endpoints can be quite long.

So in the near-term, our preferred plan is to continue to combine with Inlyta with the expectation that will still be a very frequently used therapy as the second VEGF TKI in any given patient, but also to kind keep an eye on the landscape, because we do have options with respect to that go to kind of other VEGF inhibitors and then also potentially with immune checkpoint inhibitors..

Yeah. A tricky landscape, but I agree you guys will have shared a fair amount of data to sort of plan your way around it. And then maybe just a quick more housekeeping one, first for Patricia, I know from the release and your comments, R&D expenses were up in 1Q and when you’re talking about a lot of manufacture that you had to do for TRC105.

just wondering if you could help us out with the quantity on that. And is that done, is that going to keep leading into Q2, just trying to get a handle on R&D expenses through the rest of the year..

So, thanks Chad. Yeah. So, as we mentioned at the end of last year, we do expect our spend to be up this whole year, it is going to be a little lumpy, but we are going to have manufacturing expenses throughout the rest of this year. on an expense level, I expect this to be the highest spend in R&D, but not by much.

So, it’s definitely an increase over what we saw in the past two years, and a little lower than what you’ve seen in quarter one, that’s what I expect..

All right, great. Thanks..

Is that helpful?.

Yeah, very helpful. Thank you guys..

Thanks, Chad..

And our next question comes from Maury Raycroft of Jefferies. Your line is open..

Hi. Good afternoon, and congrats on the progress..

Thanks, Maury..

Probably in the second half, so very exciting. To start, I have a question for – around angiosarcoma.

I’m just wondering for the enrollment if you could talk about if you’re seeing any differences between the different regions that you’re enrolling from and potentially even any observations on the types of patients you’re enrolling and if the experience so far is as expected or different from the initial studies in angiosarcoma?.

Yeah. thanks Maury. Yeah. We’re very happy with accrual in the trial to date. Clearly, the initial sites up in running were U.S. based sites and were more than 25 sites in U.S. alone.

We’ve been very pleased with the initial contributions from sites in the UK and France though, and we do expect that the European sites will be significant contributors to the study. We’re still expecting five more countries to open sites as part of the overall study experience. Yeah.

I think it’s too early to say how patients compare region-to-region, but we have been pleased currently with the fact that the existing sites Europe are contributing very nicely to the trial and overall making accrual so far on track with what we’ve expected..

Got it.

And as far as the types of patients, what are we seeing more cutaneous? Or I guess if there’s any observations that you’re staying on that place?.

Yeah. We haven’t got a formal analysis of cutaneous versus non-cutaneous at this point of the study, Maury. But I would say in general, I think expectation, it will be 50-50 is kind of our baseline assumption and there is no evidence that that’s changed at this point..

Okay. And then for DE-122. So even though, Santen is running the Phase 2 trial naïve on the sites up and running in the Philippines in the U.S.

I’m wondering if you can comment on enrollment and if the timeline for potentially seeing data in the first half of 2019, if that still is holding up or if there’s any changes there?.

Yeah. Sure, Maury. Good question. Yeah, Santen is enrolling nicely in Philippines and I think having the U.S. sites is actually a big addition. including the site of the presenter for Phase 1/2 data at the Bascom Palmer Eye Institute, which I think is noteworthy.

So based on those sites opening up based on current accrual projections, we do expect data at the first half of 2019, I’d say more toward end of that first half and that’s the current projection based on accrual and the addition of the U.S. sites..

Got it. Okay. And then for TRC253, so you mentioned an update mid-year for that program.

So I’m wondering if you’ve reached the maximum tolerated dose yet and if you have any comments around that, and maybe any additional perspective on dosing and what you would move into the Phase 2 [ph]?.

Right. Yeah. So the trial has done very nicely in terms of moving, I think very quickly. I mean you think about that trial more, we find that deal in September 2016, we were – IND filed in December, we had the first site opened in March.

We were dosing in May of 2017, and now, just past year later, we expect to move into the Phase 2 portion mid this year. So, it’s moved very quickly and as per plan if you will. In terms of the dose level, we’re very close as based on the fact that we expect to be in the Phase 2 portion mid this year to define the recommended Phase 2 dose.

And so things are on track and do expect us to make the announcement that we have formally begun the Phase 2 portion of the trial by mid this year..

Got it. Okay, great. Thank you very much..

Thank you, Maury. I appreciate your questions..

And our next question comes from Jim Birchenough of Wells Fargo..

Good afternoon. It’s Nick [ph] for Jim. First, good luck Patricia to you in your next debenture, and I’m sure who is going to help me out when I get a call at JPMorgan next year..

Thank you..

But anyway, less of that. So Charles, you’ve mentioned that the two PRs for the hepatocellular carcinoma study are ongoing obviously that excellent use.

Of the other patients that we dosed in the first cohort, are any of those still receiving drug?.

Yeah. I think we could say that three of the patients remain on trial including the two partial responders, which we feel is very encouraging news..

And is that – so that the patient just – do they have an improving response or just stable disease?.

there is stable disease radiographically and that remained so for quite some time..

Okay, excellent. Thank you. And then in terms of the non-small cell lung cancer, TRC105, PD-1 combination study, can you remind us about the patients being enrolled with respect to the prior use of PD-1 inhibitor, also whether there is a threshold for circulating MDSCs in those patients..

Right. Yeah. And a great questions Nick. So with respect to that trial to Phase 1/2 study, where we will first initially define that the contamination is tolerable. We will actually have two cohorts as part of that trial.

So we have a cohort that is PD-1 naïve that would get Opdivo otherwise, say it’s a second-line therapy for lung cancer, but instead we get Opdivo for TRC105. And then we’ve also added a cohort with patients who relapsed – who relapsed on prior PD-1 therapy, who then will get the Opdivo with TRC105.

So we would have the ability to look at both those populations, which I think is important.

With respect to MDSCs, we are really focused on the MDSC content of the tumour, and we’ll be looking to see if that correlates with response to the combination of TRC105 with Opdivo, and that’s using either archival specimens or biopsies done at the time of entry into the study.

To see if MDSC content, which potentially can exclude T-cells from reaching the tumor, if that content is correlated with response to TRC105, which then would potentially allow the T-cells to infiltrate the tumor and then be activated by the Opdivo therapy. So, our main focus is tumor assessed from rather than circulating MDSCs in those patients..

Okay. Great. Thanks, Charles. Thank you, and look forward to the next update..

Thank you, Nick, very much..

And our next question comes from Bert Hazlett of BTIG. Your line is open..

Yeah. Thank you. And again, my congratulations on the progress and looking forward to the number of cards turning over here in the not-too-distant future.

One of those elements just – regarding TRC253 and Janssen, could you go into just a little bit more detail about the timing that Janssen has to look at the Phase 1/2 trial, the safety assessment and just the general parameters around the potential opt-in payment. Thank you..

Sure. Yeah. Sure, Bert and appreciate the question. Yeah. So, we’re performing the Phase 1/2 trial and following completion of the Phase 2 study, we will present date to Janssen and that will trigger a 90-day opt-in period, whereby they can reapply the drug for the $45 million upfront payment.

And then that would be followed by the $137 million milestone and low single-digit royalty consideration. So, it’s really 90 days, Bert, following the presentation of the data, which we expect to have them by the end of 2019..

Okay. That’s terrific. My other one has been answered. Thank you very much..

Thanks, Bert. Appreciate the question..

And our next question comes from the Nick Rubino of Stifel. Your line is open..

Hi, Charles and team. This is Nick Rubino on the line for Alex Schwartz. Thanks for taking our questions and for a great update today..

Thanks, Nick..

I’m wondering as we look to the TAPPAS interim analysis. You think you could help that some expectations for the mid-study resizing and their implications.

I know you provided the categories, but perhaps elaborate on what scenarios and the data might trigger these?.

Sure, Nick. That’s great. Thanks for the question. I think it’s such an important topic.

As we designed the trial with the adaptive design, what our feel was is that, you’ll see cancer trials of drugs, where you can miss endpoint by one or two patients and you have a p-value of 0.07, 0.08, and unfortunately, that’s not quite 0.05, and the drug may not be approved.

In angiosarcoma, if we have an active drug, we want to make sure it’s going to meet the endpoint for approval. And so the way we designed the trial, the boundaries around the zones are important.

And I think the most important boundary is around the favorable versus the promising zone, and we will assess conditional power and present that to the DMC and present what we feel important boundaries for whether you should go into the favorable or the promising zone.

Clearly, we have designed those boundaries that unless the trial is so clear that we will hit endpoint in the favorable zone at 124 patients that we would prefer to go in the promising zone. So in other words, if we’re seeing a treatment effect, but you just can’t say – say more than 90% conditional power. you’re going to see that with 124 patients.

Our bias is going to the promising zone. It enrolls 200 patients; it gives you much more power to see the treatment effect. What we pay in terms of price for that is that we have to enroll an additional 76 patients, which we project will take about six months.

And there’s an increased expense, but given we do the trial with our own product platform, that expense is very modest.

So I think that’s probably the most important consideration and if there’s a conditional power showing a clear treatment effect and we come into the promise year, and we will look at that as a very favorable development for the company based on how we’ve designed those boundaries..

Yeah. That’s great. Thank you. Some we don’t see very often, so certainly interesting..

Yeah and I appreciate that question. Yeah..

Maybe, just a quick follow-up..

Yeah..

We were wondering if you have any presentations at ASCO for us this year..

Yeah. We don’t have any data per se, but we will be presenting the design of the TAPPAS Phase 3 trial as a trial is in progress poster. and then as you well know, the big randomized data points for us will be coming out towards the second half of the year..

All right, great. Thanks for answering all the questions..

Sure. And Nick, maybe I’ll just mention, I think important data like the disease, the preclinical data of the combination of Opdivo and TRC105 that would be presented in June at the Microenvironment Tumor Society Meeting in Lisbon, looking forward to that presentation as well..

All right. Thank you..

Sure..

And I’m showing no further questions from our phone line. I would now like to turn the call back over to Dr. Charles Theuer for closing remarks..

Great. Well, thank you very much for your time, interest and the questions. Everyone have a nice day and we look forward to speaking with you again soon..

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day..