Charles Theuer - President, CEO Scott Brown - Director, Controller.

Maury Raycroft - Jefferies Gill Bloom - Needham & Company Bert Hazlett - BTIG.

Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals Third 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?.

Good afternoon and thank you for joining TRACON’s third quarter 2018 financial results and business update conference call. I will begin with an update on our pipeline and recent activities. Following that, our Head of Finance, Scott Brown will review our financial results for the three and nine months ended September 30th, 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 Phase 3 TAPPAS trial that is rolling angiosarcoma patients at more than 30 sites in the U.S., United Kingdom. France, Austria and Poland.

The trial continues to enroll well and we expect to generate the 40 events that will trigger the interim analysis in the first quarter of 2019.

You will recall that we filed an amendment to increase the sample size of the study while leaving the number of pre-specified PFS events unchanged to account for a higher than expected number of events or progressing disease not confirmed by central radiographic review.

Importantly, the amended protocol was reviewed and accepted by the FDA with retention of the special protocol assessment agreement. At the interim analysis, results will be categorized by the DMC as we log into one of four zones based on conditional power, favorable, promising enrichment and unfavorable.

Following the amendment, the sample size needed to complete the trial will be a total of 190 patients if the interim results in the favorable zone and will be a total of 340 patients if in the promising zone. If the interim results lie in the enrichment zone, the trial will enroll a total of 220 patients with cutaneous disease.

In the unfavorable zone, the sample size will also be a total of 190 patients; noted in that scenario, the DMC could terminate the trial early for futility. An overview of the TAPPAS trial design was recently published in October in the annuals of oncology.

Moving on, we believe that TRC105 has brought potential and Tracon continues to execute on its tier development strategy to address indications from orphan indications through large markets. In addition to the pivotal TAPPAS trial and angiosarcoma, TRC105 continues to advance in Phase 2 studies in two mid-sized market indications.

The randomized Phase 2 TRAXAR trial that compares treatment with TRC105 and Inlyta to treatment with single agent Inlyta in patients with clear cell, renal cell cancer completed enrollment September, 2017.

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

PFS will also be assessed according to predefined levels of two soluble biomarkers, osteopontin and TGF-β receptor III, which correlated with response in the Phase 1b portion of the trial.

The encouraging Phase 1b data including the 29% response rate and 11.3 month PFS from the combination of TRC105 and Inlyta republished in the journal "The Oncologist" in September 2018 and will be the subject of in the company editorial.

We also continue to enroll the mulitcenter Phase 2 trial of TRC105 in combination with 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 initial nine evaluable patients or 22% achieve and confirmed partial responses.

These data are consistent with the partial responses by RECIST, observed in 5% to 20% or 25% of liver cancer patients treated with TRC105 with Nexavar in a Phase 1/2 trial conducted by the NCI and published in clinical cancer research last year.

As a reminder, the historical, single-agent Nexavar pivotal trial data showed a response rate of 2% to 3% as measured by RECIST. We have submitted an abstract to report mature data from the multicenter Phase 2 trial of TRC105 with Nexavar in liver cancer to GI ASCO which is held in January 2019.

Based on preclinical data showing synergistic activity of the combination of TRC105 and checkpoint inhibitor therapy in preclinical tumor models. We are currently dosing TRC105 in combination with Opdivo in a Phase 1 trial of patients with non-small-cell lung cancer.

We've completed dose escalation and are currently rolling two expansion cohorts of 12 patients each. One with patients to checkpoint inhibitor therapy and normal patients who have relapsed following prior checkpoint therapy.

We expect to provide topline safety and efficacy data from patients into dose escalation portion of the trial in December of this year. In December 2017, we out-licensed development and commercialization rights to Ambrx to develop TRC105 outside of ophthalmology in China, Hong Kong, Macau and Taiwan.

We continue to spore to Ambrx efforts to file an IND this year to initiate clinical development of TRC105 in China. As a reminder, TRACON has retained U.S. commercial rights to TRC105 and expects that if positive, the Phase 3 TAPPAS trial data would be the basis for initial approval of TRC105 and a subsequent commercialization in the United States.

Turning now to DE-122, the ophthalmic formulation of TRC105. In June, the encouraging bioactivity data from the completed Phase 1/2 PAVE trial were presented at the World Ophthalmology Congress in Barcelona.

Our development partner Santen continues to dose wet AMD patients in the 3 arm randomized Phase 2 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. The trial is recruiting patients at 10 sites in the U.S.

and they are expected in mid-2019. We believe that 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 a majority of patients do not experience meaningfully improve vision upon treatment with single agent VEGF inhibitors.

TRACON retains significant financial rights to DE-122 including $145 million in remaining potential developmental regulatory and commercialization milestones and a high single digits to low teens double royalty on global net sales.

We’ll turn now to TRACON second retain rights 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.

Notably, data from the trial of TRC102 and Temodar in patients with recurring glioblastoma will be presented at the Society for NeuroOncology later this month.

As well, the insight continues to rule patients with a variant, lung and colorectal cancers in a Phase 2 trial based on the responses in these tumor types reported at ASCO 2017 in the Phase 1 trial.

In addition, the California Cancer Consortia continues to enroll a dual arm Phase 1/2 trial consisting of a Phase 2 cohort of TRC102 with Alimtain in patients with mesothelioma and the Phase 1 cohort of TRC102 with Alimta and cisplatin in patients with solid tumors.

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, patient tumor samples will be assessed to determine whether preclinical data showing that like half way expression is associated with tumor sensitivity to TRC102 could be validated in the clinic. Biomarker validation represent a significant advance and allows selection of patients most likely to respond to TRC102 treatment.

Moving on to TRC253, our candidate for treating prostate cancer that we are studying in a Phase 1/2 trial. We are now enrolling patients in the Phase 2 portion of the trial at approximately 20 sites in the U.S.

In the Phase 2 portion of the trial, we are incorporating circulating tumor DNA testing at these sites in order to allow for biomarker-directed therapy or prostate cancer patients, who were progressed following androgen receptor inhibitor treatments.

Thus far, mutation testing at sites had yielded a lower-than-expected frequency of angio receptor point mutations of interests. Therefore, we have engaged garden help to proactively identify prostate cancer patients with androgen receptor mutations throughout the U.S. who can then be referred to sites participating in the TRC253 trial.

We now expect topline Phase 2 study in 2020 rather than 2019.

As a reminder, we licensed TRC253 from Janssen and if they exercise the right to reacquire the asset, following Phase 2 proof-of-concept data, TRACON is entitled to receive a $45 million upfront payment and up to $137.5 million in potential milestones and a low single-digit royalty on sales.

If Janssen decides not to opt in, TRACON will have the right to advance TRC253 independently. The innovated 2016 Janssen transaction also granted TRACON rights to a second compound which TRACON has exclusive rights.

TRC694 is 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. We continue to perform IND-enabling studies with TRC694 and expect to initiate a Phase 1 clinical trial in 2019.

On the business development front, we continue our efforts to identify ex-U.S. companies who would benefit from accessing the TRACON product development platform, which we believe offers a rapid and capital efficient U.S. drug development solution. We believe TRACON can become a preferred clinical development and commercialization solution in the U.S.

for select companies through a cost risk and proper tier arrangement. From a financial perspective, our capital resources are expected to be sufficient to fund our currently planned operations late into the fourth quarter of 2019, which includes three expected randomized trial readouts. Topline data from our Phase 2 TRAXAR trial.

The interim analysis from our Phase 3 TAPPAS trial and topline results with Santen's Phase 2 AVANTE study. At this time, I will turn the call over to Scott Brown, our head of Finance who will provide an update on our financials..

Thank you, Charles, and good afternoon everyone. TRACON reported collaboration revenue of zero and $3 million for the three and nine months ended September 30th, 2018 respectively, compared to $7.5 million and $8.8 million for the comparable periods of 2017.

The decrease in the nine-month 2018 period compared to the 2017 period was due to $3 million upfront payment received in connection with the Ambrx agreement recorded as revenue in 2018 compared to the $7 million milestone payment received in connection with the Santen agreement in 2017.

Research and development expenses were $7 million and $24.5 million for the three and nine months ended September 30th, 2018 respectively, compared to $4.3 million and $14.7 million for their comparable periods of 2017.

These increases were primarily attributable to increase manufacturing expenses and direct clinical trial expenses related to TRC105 and TRC253 in both of the 2018 periods.

General and administrative expenses were $2.1 million and $5.5 million for the three and nine months ended September 30th, 2018 respectively, compared to $1.8 million and $5.9 million for the comparable period of 2017.

Our net loss was $9.1 million and $27.2 million for three and nine months ended September 30th, 2018 respectively compared to net income of $1.2 million and net loss of $12.5 million for the comparable periods of 2017.

As a reminder, a $1.2 million in net income for the three months ended September 30th, 2017, was a result of receiving and recognizing as revenue a $7 million milestone payment from Santen.

Turning to the balance sheet of September 2018, our cash, cash equivalence and short-term investments totaled $47.2 million compared to $53.4 million and $34.5 million at June 30th, 2018, and December 31st, 2017, respectively.

As Charles said, we expect our capital resources to be sufficient to fund our currently planned operations late into the fourth quarter of 2019. With that, I'll turn the call back over to Charles..

Thank you, Scott. To summarize, we expect a number of potentially groundbreaking milestones over the next nine months. For TRC105, we anticipate three data points from randomized trials. First topline Phase 2 TRAXAR trial results in renal cell cancer this year.

Second, the interim analysis to determine the final study size of the pivotal Phase 3 TAPPAS trial and angiosarcoma in the first quarter of 2019. And third, top line Phase 2 AVANTE trial results in wet AMD through our partner Santen in mid-2019.

In addition, we expect further non-randomized data from the combination of TRC105 and Nexavar in liver cancer and the combination of TRC105 and Opdivo in lung cancer. For TRC253, we have begun the Phase 2 study and TRC694 remains on track for an IND filing in the first half of 2019.

We look forward to providing further updates regarding our upcoming key milestones and remain confident that we have the right strategy in place to deliver on our development and business plans for the benefit of patients and shareholders. I thank you for your time and attention and we're available to answer your questions..

Thank you. [Operator Instructions] Our first question comes from Maury Raycroft from Jefferies. Please proceed with your question..

Hi, good afternoon and congrats on the progress and updates. First question is just on 253 and I'm wondering for the part 2 for the base 2 part of that study. So, it looks like you're enrolling two populations review at the cohort 1 that are F876L positive and then cohort 2 there negative for that mutation.

So, can you comment on whether the enrollment is going well for the patient to a negative?.

Absolutely, Maury. First I'll answer your question. And with respect to the trial as you point out, the Phase 2 of 2 cohorts, one are it's F876 and sometimes it's called F877L mutated patients and in the rest the other cohort of patients of any other bases for resist.

And so, with respect to patients with any other basis of resistance, that enrolls very well and as expected because it's a non-selected or un-selected population. What we're seeing is a lower than expected frequency at the 20 sites that are actually enrolling patients in the Phase 2 to post a trial for these specific F877L mutation.

And in order to expand if you will the catchment, we are now working with garden help, we will proactively identify any patient that is participating in the garden testing, the 360 testing that has circulating tumor DNA that indicates an F877L mutation, will then be referred for potential enrolment into the trial.

So, it's a way to capture if you will potentially any mutation of F877L identified throughout the country that then could access the trial as opposed to just the 20 sites that are actually enrolling patients at the current time..

Got it, okay. Interesting. And then, for the circulating tumor DNA, so you're primarily looking at that just to see if it's mutation positive or negative.

And or does it have anything to do with the level of the circulating tumor DNA baseline and how that could impact response?.

Yes, great questions, Maury. So, we really are looking to see if the mutation is present but to be clear, for instance, if you have F877L mutation identified as a circulating tumor DNA mutation, you'll go for instance into cohort 1 of part 2 of the study. But there are other point mutations that this drug could directly address.

And so for example, those patients could go on to cohort 2 or part 2 of the study. And that could be a severed population where we hopefully could see activity that could expand the general use of TRC253 beyond patient solely with the F877L mutation.

And that's really the purpose of the second cohort of patients is to allow a general catchment for patients with other point mutations that might also be sensitive to TRC253..

Okay.

And then, when this trial eventually reads out presumably the cohort 2 patients will be you'll have much more follow-up for those patients, negative?.

Correct, yes. Well, so the cohort 2 patients who are F877L negative. Many of them may have point mutations in the AR receptor separate from 877L. And so, we'll have detailed data on those patients in terms of point mutations and other bases for resistance to standard and the receptor inhibitors.

And our goal would be to see activity in that population and to be able to proactively define what were the mutations that predict the activity in that cohort. And that's the possible way to expand the number of patients that would be ultimate for this therapy..

Okay. And then I had a question on the TAPPAS study..

Yes..

Just for the progressive disease discordance between the central and the investigator review.

Where there any changes implemented to improve upon the discordance?.

In terms of the protocol amendment sent to the FDA?.

Yes..

Yes. I think we recognize that we just underestimated the discordance in the initial protocol. We as way this coincide around 15%. I mean, that’s a fairly low estimate compared to most Phase 3 studies. In the amendment we increased that way to discordance to more standard levels.

And so, the only really change in the protocol was to increase the sample size that we'll still achieve the desired number of events that will allow to study our power to determine the endpoint.

The key in terms of minimizing discordance is really educating sites and investigators and encouraging them to continue patients on treatment until they have progressive disease controlled by central review. So, it wasn’t so much an amendment consideration as more educating sites to push them as hard as we can.

Knowing their limitations on hard you can push. These are patients with advanced cancer that have real concerns about just continuing on a trial if the investigator feels as progressive disease even if it's not confirmed centrally..

Got it, okay. And then, last quick question just on the upcoming snow data for TRC102 and Temodar. If you can maybe just preview that dated some extent and so how many patients we could expect there.

And then what the next steps would be ever the day they come on?.

cell lines and tumor xenografts that are previously progressed on Temodar who are then re-treated with Temodar plus TRC102. The glioblastoma trial was designed in to look at that population of patients switching the number of filled chemotherapy with Temodar and radiation therapy.

They're then retreated with Temodar plus TRC102 and that's the trial data that we presented at snow. So, it's really trying to resensitize a population of GBM patients who've progressed on Temodar to the activity of TRS102 which in per-clinical analysis just in trying to reverse resistance by inhibiting the base excision repair pathway..

Okay.

Well, can you say how many patients we could expect there or?.

It'll be between 10 and 20 patients Maury. And the presentation we've done by Dr. Manmeet Ahluwalia, who is head of Head of NeuroOncology, Cleveland Clinic..

Got it, okay. Excellent, okay. Thanks for taking my questions, I'll hop back in the queue..

I appreciate it very much, Maury. Thank you..

Thank you. Our next question comes from Gill Bloom from Needham & Company. Please proceed with your question..

Hi Charles, thank you very much for the update. A bit of an open end of the questions about the TRAXAR study.

Do you guys see any potential issues with the changing landscape of treatment in RCC?.

Yes, thanks Gill for the question. I mean, clearly RCC is the busy space and clearly we have to pay close attention to the landscape changes. For instance, Inlyta just reported very nice first line data with checkpoint inhibitor therapy.

And I suspect that maybe mimicked by other VEGF TKIs who are doing very similar trials to the one that Inlyta just reported. And at some point I think you'll see I mean or so go in the direction of TKI plus the checkpoint ever being first line therapy for a given number of patients with RCC.

And then, really our decision will be do we go first line with that combination or do we stick in the second line setting meaning second line with respect to VEGF TKI therapy. With the AVANTE going out and second line we can deliver data in much more quick timeframe given the shorter time to endpoint.

That's probably our preference is to stick in the second line setting and then it's figuring out which TKI would be the dominant second line therapy used. Yes, very well could be Inlyta in which case our current design would be an appropriate Phase 3 design.

It could we combine with a different VEGF TKI, we feel confident we can buy with multiple agents in that class, we've probably done that now three times with no safety signals per se in combining with the Nexavar Inlyta or Votrient. So, key is keep I think assessing the situation.

I also think if we can show a biomarker which is probably the key outputs for the TRAXAR study that a biomarker does co-link with activity that will clearly be a pathway forward to renal cell that would be very unique. That really there's no other therapy in renal cell, that's a biomarker-directed therapy per se.

so, that would be a clear differentiating fact and put us on a very nice pathway to differentiate ourselves from other therapies in that space. So, to answer your question there, there are lots of opportunities, we need to keep an eye on the landscape and pick our opportunities carefully..

Good. And just another follow-on. You spoke a bit about the business development opportunity.

If you will elaborate a little bit how you guys are looking at this, it's just interesting business model?.

Uh-huh. No, I appreciate the question, Gill. I think we are uniquely poised with respect to what we can do at TRACON from our product development platform perspective. There aren’t too many of the patients that can execute trials independent of the CRO, at the quality; on the timeline; and at the low cost that we can do.

As we talked about in the last call we've added Mark Wiggins as our Chief Business Officer, which gives us an entirely new dimension at TRACON, mainly the ability to commercialize drugs successfully. And so, product development platform is expanded from not just a true developmental platform and not towards the apt way to gain approval.

But now we have the expertise to take that approve drug and commercialize in the U.S. We feel that's a very attractive platform for companies at U.S. that do not have U.S. commercial infrastructure.

We're willing to partner with those companies, we're willing to split costs, knowing those costs are much lower than they would pay if they implement in the trial with CRO. We're going to share the risk; we're going to share the commercialization; even willing to allow them to copromote with us to give them that experience.

That is a huge very preposition that we feel it's very underappreciated currently by investors and analyst at TRACON. So, we're looking to leverage that and we are actively engaging with companies in that regard.

I think the final point I would make is that even though we're really a cancer focused company, we feel this model because it plan just a single indication of oncology. We're going to engage companies with products that we marketed any physician specialty audience and leverage that product development platform.

And anticipating commercialization platform with those types of companies; whether it's oncology or non-oncology..

Thank you for answering my question, Charles. And continue the good work..

Thanks, Gill. I appreciate it..

Thank you. [Operator Instructions] Our next question comes from Bert Hazlett from BTIG. Please proceed with your question. If your line is on mute, please unmute your line..

Oh, forgive me. Thank you for taking the question. A number of mine on the clinical side have been addressed but really just trying to understand better the pace of R&D spend throughout the quarters through the year. We had about 9.5 in the first quarter and then 8.0 and obviously about 7.0 this quarter.

How should we think about that trend in general? There is a lot of clinical work ongoing but and a number of different assets that are moving through in various studies.

How should we think about that as it goes throughout the year and can you talk a little bit more about what was driving the variability throughout the year?.

Sure. Thanks for the question, Bert. We will get Q3 is somewhat of a lower point but going forward we think it would be Q3 as low and maybe Q1 as the higher point. But more in the Q2 to Q1 range on expenses. Manufacturing of an antibody is very expensive and that is what really drives the variability in the quarters.

And where we have manufacturing batches, that quarter will be higher than others..

Okay, terrific.

And again, that's generally focused on the early parts of the year for 105?.

Well, not necessarily the early parts of the year. It could occur throughout the year but going forward we expect it to be in the range of Q3 to Q1 with of course some variability in there..

Okay, thank you..

I appreciate the question, Bert. And it was great seeing you in the conference in New York two weeks ago..

Great to see you, thank you..

Thank you. I am not showing any further questions at this time. I would now like to turn the call back over to Dr. Theuer for any further remarks..

I want to thank you for your time and attention today. We look forward to updating you again really in 2019. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. And you may all disconnect.

Everyone have a wonderful day!.