Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals Second Quarter 2019 Earnings Conference Call. At this time, all callers are in a listen-only mode.

After the speaker's 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, 2018, 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 second quarter 2019 financial results and business update conference call. I will begin with an updated on our pipeline and recent activities. Following that, our Vice President of Finance, Scott Brown, will review our financial results for the three and six months ended June 30, 2019.

Finally, we will conclude by taking your questions.Our efforts continue to be centered on three value propositions. First, we continue to develop a robust pipeline of clinical stage assets.

Second, we follow with great interest the progress of IMF's pipeline of multiple preclinical biospecific antibodies with the intent of selecting at least one of these assets for clinical development in 2020.

Third, we continue to evaluate additional external clinical stage assets to potentially add to our pipeline and leverage our CO [ph] independent product development platform that includes U.S. commercialization expertise.

We believe our product development platform will continue to allow us to establish key new partnerships that will drive significant long-term shareholder value.Let's begin with a brief update on our first clinical stage asset, DE-122, the ophthalmic formulation of carotuximab.

Because the majority of patients do not experience meaningfully improved vision upon treatment with single-agent VEGF inhibitors we believe there is a substantial opportunity for agents that target essential angiogenetic pathways, like endoglin to be developed in combination with VEGF inhibitors in wet AMD.

Our licensee, Santen, announced last week that they completed enrollment in the three-arm randomized Phase II AVANTE study that compares treatment with two different doses of DE-122 combined with Lucentis to treatment with single-agent Lucentis.The trial accrued patients at 10 sites in the U.S.

and top line data, including the primary endpoint of best corrected visual acuity following six months of dosing are expected in the first-half of 2020.

TRACON retains significant financial rights to DE-122, including $145 million in remaining developmental, regulatory, and commercialization success phased [ph] milestones, and a high single-digit to low teen royalty on global net sales.We'll turn now to TRC102, our second clinical stage asset that is a novel small-molecule inhibitor of the DNA base excision repair pathway that is intended to reverse resistance to certain chemotherapeutics.

Enrollment continues in four Phase I or Phase II trials sponsored by the NCI that are focused on patients with non-small cell lung cancer.

Our academic collaborators continue to evaluate biomarkers in tumor specimens from glioblastoma patients treated in the completed Phase II trial, as well as in tumor specimens from ongoing TRC102 trials, with their goal being to identify a protein or a gene expression profile that correlates with response.Moving on to TRC253, our third clinical stage asset that we're studying in the Phase II trial in patients with prostate cancer, the Phase I data were published in ASCO Proceedings, and we continue to enroll patients in the Phase II portion of the trial at 18 sites in the U.S.

We are enrolling patients in three cohorts. The first includes patients with a F887L angio receptor mutation. The second consists of patients with another defined point mutation that was identified based on evidence of potential efficacy in the completed Phase I portion of the study.

The third consists of patients with another bases for resistance to Xtandi or Orlita.We expect top line Phase II data from this study in the second-half of 2020.

TRACON licensed TRC253 from Janssen, and if they exercise their right to reacquire the asset following Phase II proof of concept data, TRACON is entitled to receive $45 million upfront payment up to $137 million in success-based milestones and a low-single-digit royalty on sales. If Janssen does not opt in, TRACON can advance TRC253 independently.

Last week, we announced the initial dosing of TJ4309, a CD73 antibody in a Phase 1 study making our fourth clinical stage asset.

We are developing TJ4309 in collaboration with I-Mab biopharma to our first agreement with them.TJ4309 is the dose both as a single agent and in combination with tri-centric, a marketed PDL-1 antibody that is being by Roche. We anticipate completing enrollment and presenting top line data from this Phase 1 trial in 2020.

In this collaboration TRACON is responsible for the regulatory and clinical development of TJ4309 in the U.S. and in Europe, and we will receive escalating portions of non-royalty and royalty payments I-Mab may receive if they elect to out license TJ4309 to a third-party.

If I-Mab commercializes the antibody, TRACON would be entitled to royalties and net sales outside of Greater China.Our second agreement with I-Mab is a multi-product collaboration to develop up to five of I-Mab's bispecific antibodies in North America.

We believe that bispecific antibodies are one of the most exciting therapy approaches for cancer treatment and therefore, you accessed to a multi-product pipeline of these compelling assets through our collaboration with I-Mab as a critical differentiator for TRACON.

At this time I-Mab has disclosed a developing seven bispecific antibodies including five that target PDL-1 in addition to a second target. With the second target being either CD47, IL7, CD73, B7H3 or 41BB.For any bispecific antibody that becomes subject to the collaboration, TRACON will lead clinical development and commercialization in the U.S.

and bear the cost of early phase clinical trials. TRACON and I-Mab will share the cost of more advanced development stages and for U.S. commercialization. And the two companies will also share equally in profits from U.S. commercialization.

In this agreement, TRACON also has an opting right to in-license each of the bispecific antibodies from I-Mab at any time prior to conclusion of the pivotal study.Exercising this option would expand our rights including all territories outside of Greater China. The opt-in payments escalate to reflect the advancing phase of development.

For example, an opt-in payment of $10 million is due to TRACON exercises its option prior to IND enabling studies. We expect to file an IND for our first bispecific antibody from I-Mab in the U.S. in 2020. As that inspire collaboration with I-Mab, we believe TRACON can become a preferred clinical development and commercialization solution in the U.S.

for select ex-U.S. companies through a risk cost and profit share model.We possess the ability to get the clinical trials using our product development platform, without the need for contracting a CRO, and believe this capability substantially decreases the cost of clinical development and also enhances quality and shortens timelines.

We're eager to further leverage our drug development model that creates strong alignment with potential partners who appreciate the value of sharing the risk and costs to product development and the profits from U.S. commercialization.We have capacity to develop new clinical stage assets at this time and we continue our efforts to identify ex-U.S.

companies with first-in-class, best-in-class or fast-forward clinical stage assets. We would benefit from accessing the TRACON product development platform, which we believe offers a rapid and capital efficient U.S. drug development solution.

As was the case with our prior deal with Johnson & Johnson, a new collaboration could include an equity investment from a partner to offset the incremental expense of developing a licensed product.From a financial perspective, our capital resources are expected to be sufficient to fund our currently planned operations into the third quarter of 2020, and through multiple potential bad creating milestones.At this time, Scott will provide an update on our financials..

Thank you, Charles, and good afternoon everyone. TRACON reported no collaboration revenue for the three and six months ended June 30, 2019 compared to zero and $3 million for the comparable periods of 2018 respectively.

The decrease was due to the $3 million upfront payment received in connection with the Ambrx agreement that was recorded as revenue in 2018, compared to no corresponding revenue in 2019.Research and development expenses were $4.3 million and $9.6 million for the three and six months ended June 30, 2019, respectively, compared to $8.1 million and $17.6 million for the comparable periods of 2018.

The decrease was primarily attributable to decreased manufacturing expenses related to the termination of the TRC105 program earlier this year.

General and administrative expenses were $1.9 million and $3.8 million for the three and six months, ended June 30, 2019, respectively, compared to $1.6 million and $3.4 million for the comparable periods of 2018.

Our net loss was $6.3 million and $13.5 million for the three and six months ended June 30, 2019, respectively, compared to $9.8 million and $18.1 million for the comparable periods of 2018.Turning to the balance sheet, at June 30, 2019, our cash, cash equivalents, and short-term investments totaled $26.3 million compared to $32.1 million and $39.1 million at March 31, 2019 and December 31, 2018 respectively.

As Charles said, we expect our capital resources to be sufficient to fund our currently planned operations into the third quarter of 2020.With that, I will turn the call back over to Charles..

Thank you, Scott. To summarize, we have built a broad pipeline, and look forward to the three potentially value-creating milestones that are expected in 2020. First, top line Phase II AVANTE trail results in wet AMD through our licensee Santen. Second, top line Phase III results for TRC253 in prostate cancer, and third, Phase I data for TJ4309.

Success-based milestones which would extend our cash runway could result in response to each of these clinical events. We also continue efforts to identify ex-U.S.

companies with first-in-class, best-in-class, or fast-forward clinical stage assets who would benefit from accessing the TRACON product development platform through a new corporate collaboration.We look forward to providing further updates throughout 2019, 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.

Thank you for your time and attention, and we are available to answer your questions..

[Operator Instructions] And your first question comes from the line of Maury Raycroft with Jefferies..

This is Swapnil on for Maury. So, I just have a couple of questions. First one is on the CD73 program with I-Mab.

Can you comment on like, so after the first patient has been dosed, can you comment on the patient baseline biomarker that you have seen?.

Sure. I can just comment in general kind of on the biomarker steps instead of part of the trial, which I think are going to be very critical with the respect to charting a course for approval of an antibody targeting CD73.

So we're studying the drug with a PD-L1 inhibitor, so the biomarkers will include both biomarkers relative to the adenosine pathway, for example, CD73 expression on archival tumor tissue, A2A receptor expression archival tumor tissue, which are relevant to the adenosine pathway.

And then with respect to the PD-L1 pathway would include PD-L1 expression. Yes, those are some of the most straightforward, if you will, protein-based biomarkers that we assessed. Beyond that, there's the opportunity for gene expression profiling is another way to potentially assess biomarkers that would predict response in the trial..

Okay. Yes, thank you, that's helpful.

And then second question is like can you elaborate a little bit on the clinical trial design and the expansion cohorts of the CD73 program?.

Sure. Yes, no, it's a great question. So we do plan to dose-escalate successfully with the intent to complete dose escalation roughly mid next year whereby we dose initially as a single agent, and then thereafter combine immediately within the same patient the CD73 antibody TJ4309 with tri-centric [ph].

And then we will continue patients on the dual therapies for as long as they continue to derive clinical benefit.

At the point of determining the recommended Phase II dose of TJ4309 with tri-centric, we'll then enroll an expansion cohort in the tumor type to be defined, and that would depend on competitive intelligence looking at the performance of other CD73 antibodies that are in the clinic, and also on our own experience with respect to the dose escalation to see if there's certain tumor types that seem to be benefiting most from the use of TJ4309..

Okay, that's helpful. Thank you. And then one last --.

Appreciate the questions..

Yes. And then I have one last question, so in the past you have mentioned that you'll be utilizing the 105 capacity such as the clinical sites that can be helpful for the new business development deals that you are planning to bring in by the end of the year.

Can you like provide a little bit of more granularity on that aspect of how exactly would this fit strategically?.

Yes. And I think it's a great question. It plays to a very important value proposition at TRACON. So when we think about the TRC105 program that we terminated earlier this year, that drug is being studied in five trials.

It was in a pivotal Phase III trial in a sarcoma indication; it was a liver cancer trial, a breast cancer trial, a prostate cancer trial, and a lung cancer trial. And in total we've studied that drug at more than 68 sites in the U.S. and also at various sites in nine European countries.

And these are sites where we have an intimate relationship with the investigators because we directly implement our trials without having the bureaucracy of a CRO between us and the site.

And those are sites that are eager to work with us again.And our goal is to license a clinical stage asset that we could implement a clinical trial at many of the sites where we have these great relationships where we could do it very quickly, we feel we can do it at very low cost, and also we do it at very high quality.

And offer a potential partner to ability to accelerate development in the U.S. as compared to working with a CRO. We also feel our model has a great advantage to a company in China versus licensing their drug out to a large pharma company.

If they license out to a large pharma company they may expect an 8% to 12% royalty as a typical royalty for an early-stage asset. If they work with TRACON they're going to get a couple key advantages.

One is we'll do the trial at lower coast than a CRO and we'll spit that cost with our partner.Second is, we feel our timelines are much faster than a CRO. And most importantly, we'll share the profits in the U.S. with our partner. Now if our profit margin on a product in the U.S.

is 80%, that really equates to our partner making an equivalent of a 40% royalty on their product, which compares very favorably to an out license to a big pharma where they might make more like a 10% royalty. That's the key advantages that we offer, both the speed of development and also splitting the U.S.

profits, with us leading both clinical development and U.S. commercialization. And we have the capacity and we have a model we feel is very attractive to companies based outside the U.S..

Yes, that's very helpful. Thank you for taking my questions..

Yes, appreciate the questions. Thank you..

[Operator Instructions] And your next question comes from the line of Robert Hazlett with BTIG..

Hi, guys. This is Jake Colby [ph] on the line for Bert this evening.

How are you?.

Hi, Jake, well. Thank you..

Good.

So I guess just on the trial design for 4309, are you going to be stratifying patients by prior IO exposure?.

It's a great question. We will not stratify patients by prior IO exposure during the dose escalation portion of the study. With respect to the expanded cohort we could narrow eligibility criteria both with respect to the indication and also with respect to prior therapies.

But for the early dose escalation for the trail there will not be stratification on prior PL-L1 therapy..

Okay.

And then again on the same program, do you or -- and IMS have any plans to look at additional mechanism combinations?.

Beyond the PD-L1 combination, Jake?.

Correct, yes..

Yes, no, I think that's a great point as well. So PD-L1 is clearly our initial focus, but that doesn't mean it will stop there. We could add on additional arms with additional combination therapies or could add on multiple expansion cohorts in different indications. So that is to be determined based on the early experience and dose escalation..

Got it, that makes sense.

And then I guess just on the business development front, is there maybe any kind of headwinds to getting a deal down, whether it be identifying assets that you really want to take control of them, put through your funnel and a price or just the awareness of TRACON and your capabilities?.

Yes, great questions. So we've been focusing on China, as evidenced by the I-Mab deal. We've been to China now four times this year. And I would say that the I-Mab deal was very important in terms of giving TRACON visibility in China. The Chinese companies know each other very well there.

And I would say TRACON has established a clear profile and that is attracted to Chinese companies, and that is clearly why that areas are focused.

So we do continue to emphasize that area and do and had an overall very good reception among Chinese pharma companies, who do appreciate that we have a unique offering, we're really offering a Chinese company the ability to develop and commercialize their asset in the U.S., so that's taking on the risk of clinical development, and also taking on the U.S.

commercialization piece. And we are unaware of any of the company offers that to a Chinese company. So it's a unique offering that has been positively received by companies in China, who do no trick on based on our efforts there and also on our previous deal on I-Mab..

Thanks. That's very helpful. Thank you..

I appreciate the questions, Jake..

And we have no further questions at this time. Dr.

Theuer, do you have any closing remarks?.

No, I like to thank the listeners, happy to report Q3 earnings next quarter and look forward to your attention at that time. Thank you..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect..