Good day, ladies and gentlemen, and welcome to TRACON Pharmaceuticals’ Second Quarter and 2020 Earnings Conference Call. At this time, all callers are in a listen-only mode. After the speakers’ prepared remarks, we will be 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, 2019, 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?.

TRC102, our second clinical-stage asset is a novel small molecule inhibitor of the DNA base excision repair pathway that is intended to reverse resistance to certain chemotherapeutics. The NCI supporting four Phase 1 or Phase 2 trials that are focused on patients with mesothelioma or non-small cell lung cancer.

In addition, our academic collaborators continue to evaluate biomarkers in tumor specimens from glioblastoma patients treated in a completed Phase 2 trial, and in tumor specimens from patients in ongoing TRC102 trials, with the goal of identifying a protein or gene expression profile that correlates with clinical response.

Positive data from multiple TRC102 clinical trials were presented at ASCO 2020. In the Phase 2 study, two of 14 mesothelioma patients who had progressed previously on Alimta had objective responses following treatment with Alimta and TRC102.

In the Phase 1 study, TRC102 in combination with chemoradiation resulted in a 100% response rate in 15 patients with non-squamous non-small cell lung cancer, including in three patients who achieved a complete response to treatment.

These data compare favorably to historical data of the same combination of chemoradiation without TRC102 in advanced lung cancer.

Specifically, the PROCLAIM clinical trial reported an objective response rate of 36%, and the PACIFIC clinical trial reported an objective response rate of 51% in non-squamous non-small cell lung cancer patients using Lucentis’ cisplatin and thoracic radiation.

As a result, we are now discussing further development of TRC102 in combination with chemoradiation with CTEP investigators. We’ll now move on to TRC253, our Phase 3 ready asset. Based on preclinical data indicated that TRC253 is as active as Xtandi in prostate cancer cell lines and in patient-derived xenograft models.

We believe there is an opportunity for the product candidate to be developed and commercialized in countries where prostate patients generally do not have ready access to Xtandi. We have an out-licensing process underway to identify a corporate partner to develop and commercialize TRC253 with our primary focus being rights for Greater China.

Our fourth clinical-stage asset is the CD73 antibody, TJ4309, also known TJD5, that we are developing in a Phase 1 dose-escalation study as a single agent in combination with Tecentriq, a marketed checkpoint inhibitor being supplied by Roche.

We are developing TJ4309 in collaboration with I-Mab Biopharma through one of our two strategic agreements with them, whereby we are responsible with the regulatory and clinical development of TJ4309 in the U.S.

and Europe, and are entitled to receive escalating portions of non-royalty and royalty payments if I-Mab elects to license TJ4309 to a third-party in any region outside of China, Macau or Taiwan. We anticipate completing dose escalation and presenting top line data from this Phase 1 trial this year.

As you will recall, we initiated a dispute process with I-Mab in April as we believe we are due a payment based on their strategic partnership with Kalbe Genexine Biologics around TJ4309, and as of today, this dispute has not been resolved.

I can report that while we pursue a resolution to this dispute, we continue to fulfill our obligations under the TJ4309 agreement. In addition, the dispute we initiated regarding I-Mab’s alleged breach of the Bispecific Agreement also has not been resolved as of today.

And we, therefore, cannot provide a time line as to when or if we will file an IND for any I-Mab bispecific antibody. At this time, Scott will provide an update on our financials..

Thank you, Charles, and good afternoon, everyone. TRACON’s research and development expenses were $2.2 million and $4.2 million for the three and six months ended June 30, 2020, respectively, respectively, compared to $4.3 million and $9.6 million for the comparable periods of 2019.

The decrease was primarily attributable to lower manufacturing and clinical trial expenses related to the termination of the TRC105 program in April of last year, along with lower manufacturing expenses for TRC253.

General and administrative expenses were $2.1 million and $4.0 million for the three and six months ended June 30, 2020, respectively, and $1.9 million and $3.8 million for the comparable periods of 2019.

Our net loss was $4.5 million and $8.5 million for the three and six months ended June 30, 2020, respectively, compared to $6.3 million and $13.5 million for the comparable periods of 2019.

Turning to the balance sheet, at June 30, 2020, our cash and cash equivalents totaled $14.5 million compared to $14.1 million and $16.4 million at March 31, 2020 and December 31, 2019 respectively.

We expect our current capital resources to be sufficient to fund our planned operations into mid-second quarter of 2021, which could be further extended through use of the equity line with Aspire Capital under which subject to certain conditions, they’re committed to purchase up to $15 million of our common stock at our request from time to time during a 30-month period based on the market price at the time of each sale, and we estimate this facility could extend our cash runway into late Q3 2021, if fully utilized.

Importantly, our financial runway could be further extended through non-dilutive capital from the license of rights TRC253, milestones associated with our TJ4309 partnership with I-Mab or entering into a synthetic royalty arrangement on envafolimab North American sales to a third-party.

We are forecasting a cash burn from operations of approximately $4 million to $5 million per quarter for the remainder of 2020, increasing to $6 million to $7 million per quarter in 2021 as we continue to enroll the ENVASARC pivotal study, which we could offset with additional sales with stock from the equity line with Aspire Capital and our ATM with Jones Trading.

In Q2 2020, we raised a total of $4.4 million through our equity line and ATM, which more than balanced our quarterly cash outflow of $4 million. We believe these facilities represent the most inexpensive cost of capital available to us as the sales are made at a slight discount to market price and resulted in modest dilution to shareholders.

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

Thank you, Scott. To recap, we have filed the ENVASARC pivotal trial with the FDA and expect FDA clearance this quarter and expect to dose the pivotal trial at multiple sites beginning in the fourth quarter of this year.

We believe the ENVASARC trial provides multiple near-term milestones as a potential fast-to-market strategy to provide envafolimab to sarcoma patients in significant need of a new therapy as expeditiously as possible.

Addressing this high unmet need is clearly important to investigators, and they are very enthusiastic about initiating the ENVASARC trial. They are additionally excited about envafolimab’s unique and convenient rapid subcutaneous route of administration.

Envafolimab saw request to license an exciting late-stage asset and repositions the company to forward integrate and potentially build our commercial capabilities, which we eventually could leverage across multiple products.

Importantly, we have access to capital to deliver the expected ENVASARC interim data in mid-2021, which could demonstrate potential for envafolimab to transform the standard care for refractory sarcoma patients.

We look forward to providing further updates in the coming months, 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 now available to answer your questions..

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

Hi, this is Swapnil on for Maury. Thanks for taking my questions. So first question is related to the patients that you plan to enroll in your Phase 3. You said that they will be like maybe on one or two lines of prior therapies versus other agents that have been tested, have enrolled patients that had like four, five or six prior lines.

So just based upon those differences, do you anticipate to see any differences in the ORRs in your Phase 3?.

Hi, Swapnil. Thanks for your question. So I think when you think about the ENVASARC trial, we’re clearly trying to demonstrate a robust response rate.

And I think there are several things that I think potentially allow us to generous robust response rate that could be superior to what we’ve seen for other checkpoint inhibitors in similar patient populations. And the first is the eligible patients.

So I think if we enroll patients who are less refractory, there’s a chance that for a drug that’s just as active which seems to be the case based on the colorectal cancer data, you might be able to increase the response rate so second and third-line patients maybe more responsive, for instance, than fifth or sixth-line patients.

I think another important factor in this study is could we be safer than some of the other checkpoint inhibitors. And that’s important when you think about combining envafolimab with Yervoy, when you look at the Opdivo-Yervoy data, I mentioned that robust response rate, 29%, and that’s impressive.

But you also have to remember that about 14% of patients in that trial couldn’t even tolerate the combination. So in other words, you had a 29% response rate across all patients, even though more than one in 10 couldn’t even take therapy. Now imagine if every patient can take enva plus Yervoy.

In other words, every patient has a chance to respond, not just 9 out of 10 patients. Even based on similar activity, we might see a higher response rate. So based on potentially a safety profile that’s better than Opdivo, that permits more patients receiving enva-Yervoy as dictated by the protocol and not discontinuing for toxicity.

And based on patients potentially being less refractory, we think there’s a potential we might see a more robust response rate than even what’s been reported previously in trials of dual checkpoint inhibitors..

Alright, very helpful. And I just had one follow-up question related to the KOL event that you hosted, where we see the axitinib and pembro combination and soft tissue sarcomas, where the PFS was not really dependent on PD-L1 expression. So just like given mechanistics of how the drugs work.

What do you think is driving the efficacy and then like for envafolimab.

Are there any plans to initiate a combo trial with TKIs?.

Great question. So I think when you look at the totality of the data that Dr. Bob Mackey discussed at the KOL event, I think you – it’s clear that that PD-L1 is not a accurate predictor of patients who respond to checkpoint inhibition.

In fact, there’s data that what’s called their sarcoma immune classification maybe a better predictor of the patients that are most likely to respond to these therapies.

Now, importantly, in the ENVASARC trial, we don’t mandate the patients to fulfill any criteria to come into the trial other than having UPS and MFS, but we will carefully assess for potential biomarkers that could help direct therapy to other patients where we wouldn’t based on histology alone, expect such a robust response rate.

So for example, we will check PD-L1 status. We will check the sarcoma immune classification status, as well as the tumor mutational burden status of each patient. And we’ll correlate that with response with the hopes then that we may develop a predictive biomarker that allows expanding. And before I went to many more sarcomas subtypes.

Another way to think about expansion is what you just touched on combining with TKIs. As an example, just as an area where we have discussed in general terms with potential investigators about moving envafolimab. Now, if you look at just dual checkpoint inhibition is not very effective there.

But as you all know, TKIs are quite effective and KIT inhibitors are the standard of care in that indication. So one logical design would be to combine with a KIT inhibitor with envafolimab. And GIST, you mentioned VEGF receptor tyrosine kinase inhibitors, those also could be a basis for combination in other sarcoma subtypes.

So clearly, I think the playing field in sarcoma is quite large. We’re initially exploring enva single agent, enva plus Yervoy in the most responsive subtypes, but we could think about combining with chemotherapy, specifically anti-cyclins in first-line sarcoma.

We could also combine with, as I mentioned, TKIs including a c-KIT inhibitor in GIST and also potentially VEGF inhibitor and other sarcoma subtypes.

So there’s a lot of work to be done, and I think a lot of patients that could benefit from enva beyond just those that will benefit – we expected benefits I should say, based on UPS and MFS based on the initial ENVASARC trial..

Okay, got it. Very helpful. Thank you, Charles. Thank you for taking my questions..

Thank you, Swapnil. My pleasure. Thank you..

Thank you. [Operator Instructions] And I’m not showing any further – pardon me. We do have a question from the line of Ed White with H.C. Wainwright. Your line is open..

Hi guys, can you hear me okay?.

Hi Ed, good afternoon. Yes..

Hi, great. So maybe just a question and we spent some time talking about the ORR targets. Maybe if you could talk a little bit about durability targets. And then so just on I-Mab, so I understand you have the next potential asset but you’re in you have agreements with them right now.

Is that for just the biospecifics? Can you get another compound out of that partnership? Or everything’s stopped right now into the disagreements are resolved? Thanks..

Sure. I appreciate your questions. So I’ll talk initially about your question around the overall response rate. So the primary objective of ENVASARC is to demonstrate an objective response rate confirmed by RECIST by central review of 11.25% in each of the cohorts.

And while that’s the primary objective, the real important secondary objective, which is also I think critical to patient benefit and we’ll be seen as critical from agency, is the durability of response. Unfortunately, most checkpoint inhibitors have quite durable response, and the general bar for that is six months.

So what we’re looking for is a six-month durable response in the majority of patients. Now I will say from previous studies with envafolimab for instance, in colorectal cancer, we saw durability response beyond six months of over 70%, which, again, is fairly standard for checkpoint inhibitors.

So I think the bar is in the majority to 70% range, Ed, but that’s an appropriately wide range because that’s an agency review decision.

But I think that’s roughly the standard you’ve seen that’s been achieved by most of the checkpoint inhibitors that have been approved based on response rate and then durability of response to the secondary consideration. So that’s what we’re shooting for.

And that’s what our expectation would be, which, again, is something we’ve seen with enva and previous studies and other indications, and has been the general percentage we’ve seen for checkpoint inhibitors in general, whether it be sarcoma or other indications. With respect to I-Mab, we have two agreements with I-Mab.

We have the agreement with TJ4309, and their dispute results around a potential payment where we are feel we are entitled to based on a strategic agreement they made with the company, Kalbe Genexine. And the second agreement is on the biospecifics, whereby we expect to cooperate them to develop multiple biospecifics.

And in each case, we feel there’s been a breach that is in the dispute process as we speak. That’s probably the extent to which I can discuss that at this time..

Okay. Thanks, Charles..

Thank you. I appreciate the question..

Thank you. And we do have a follow-up from Maury Raycroft from Jefferies. Your line is open..

Hey Charles, thank you. Just one more follow-up question. So if I recall correctly, the objective response rate initially was aimed to 15%, and now it’s 11.5%.

Is that like something just related change to statistics? Or like has something else changed fundamentally in the trial design?.

Yes. It’s actually the exact same trial design, and nothing’s changed other than making it clear that one thing is what’s required for a positive trial, Swapnil. And then the other thing is what we really expect will happen as the target product profile of the drug.

So to be clear, the statistics around the trial define a positive trial and achieving the primary objective of a response rate that excludes with 95% certainty, the 4% known response rate of Votrient, and that is 9 of 80 responses. So that satisfies the statistical rule of the study.

In other words, if we see 9 of 80 responses, we reject the null hypothesis and show that our drug is statistically superior to the historical response rate for Votrient. So that’s the minimum, if you will, to generate a positive trial. That’s been the statistical rules since we first proposed this trial to agency. Separate is what we really expect.

So what we hope to see is a 15% response rate single agent and a 30% response rate, combo. And that’s based on what we’ve seen with checkpoint inhibitors in UPS and MFS based on date at ASCO 2019 and 2020..

Okay. Very helpful, Charles. Thank you very much..

My pleasure, Swapnil. Thank you for the questions..

Thank you. And at this time, I’m not showing any further questions. I’d now like to turn the call back to your speakers for any further remarks..

Thank you for your attention, and we look forward to speaking with you next quarter..

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect..