Good day, ladies and gentlemen, and welcome to TRACON Pharmaceuticals Third Quarter 2021 Earnings Conference Call. At this time, all callers are in a listen-only mode. After the speakers' prepared remarks, we will conduct a question-and-answer session and instructions will be given at that time.

During today's call, we will be making certain forward-looking statements, including statements regarding expected timing of clinical trials and results, regulatory activities, future expenses and cash runway in 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, 2020, 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 2021 financial results and business update call. I will begin with an update on our pipeline and then review our recent activities. Following that, Scott Brown, our Chief Financial Officer, will review our financial results for the 3 and 9 months ended September 30, 2021.

Finally, we will conclude by taking your questions. I'd like to begin with details on our recent in-license of YH001, a potential best-in-class CTLA-4 antibody for Eucure Biopharma. We have discussed for some time our objective of adding another immuno-oncology asset to our portfolio that complements envafolimab.

In October, we accomplished this goal through a collaboration with a science-driven company, Eucure Biopharma, headquartered in Beijing. A significant advantage of this license is the potential for TRACON to market 2 separate in-licensed immunotherapy assets as a treatment combination for sarcoma patients.

This therapeutic strategy is complementary to our ongoing envafolimab registration strategy in sarcoma through the pivotal ENVASARC trial.

Notably, we received a broad license for YH001 to develop and commercialize in North America in sarcoma and in other indications, including microsatellite stable colorectal cancer, renal cell carcinoma and KRAS positive lung cancer, and we can substitute any one of those indications for bladder cancer, endometrial cancer or melanoma at our election.

In these non-sarcoma indications, YH001 could be combined with existing standard of care agents, including marketed PD-1 antibodies. TRACON are responsible for the cost of the clinical trials in these indications, while Eucure is response for the manufacturing and supplying YH001 for clinical trials.

We will owe Eucure royalties, ranging from the mid-20s to the mid-double digits on net sales, except for the period through the first full calendar year commercialization during which the rates are reduced. Based on preclinical data, YH001 is a CTLA-4 antibody with best-in-class potential.

In these preclinical experiments, the antibody was more potent and active than ipilimumab at blocking CTLA-4 inhibition of CD80 and CD86 activity and at inducing T cell proliferation.

The Fc portion of the antibody has been designed for superior antibody-dependent cell-mediated cytotoxicity compared to ipilimumab, which may more effectively deplete regulatory T cells.

YH001 also demonstrated superior antitumor activity as a single agent and when combined with the PD-1 antibody compared to ipilimumab in syngeneic mouse tumor models.

Eucure is currently dosing YH001 in 2 Phase I trials, one is a single agent and one in combination with the PD-1 antibody toripalimab, for Eucure presented data at ASCO and Cisco this year.

Notably, as of the data cutoff of August 9, the combination of YH001 and toripalimab have been well tolerated in 18 patients with advanced cancer, dosed with YH001 up to 2 milligrams per kilogram every 3 weeks. Dose escalation continues at this time to determine the recommended Phase II dose of YH001.

To-date, there have been no unexpected toxicities, and the most common related adverse event has been Grade 1 rash. A single patient had a Grade 3 related toxicity that of colitis that remitted with treatment. 2 patients demonstrated objective tumor responses, including 1 patient with bladder cancer who had failed prior treatment with a PD-1 antibody.

Our initial development plan for YH001 is to study the drug in combination with envafolimab in sarcoma early next year. That trial is expected to also study a triplet that includes doxorubicin chemotherapy, which is a frontline standard of care treatment for soft tissue sarcoma.

While development in sarcoma is straightforward due to the lack of any approved immunotherapies, we also see a path forward in other indications where there is clear evidence of activity with dual checkpoint inhibition.

For example, the combination of Opdivo and Yervoy is approved for the first-line treatment of intermediate and high-risk patients with advanced renal cell carcinoma. However, our discussions with key opinion leaders indicate that most patients receive frontline treatment with a PD-1 antibody and VEGF inhibitor rather than with Yervoy.

Therefore, we believe the unmet need in advanced renal cell carcinoma patients is in the PD-1 refractory setting. Data presented at ASCO indicate that PD-1 refractory patients can be resensitized to immunotherapy, and we expect to test YH001 in this line of treatment.

This strategy of second-line dual checkpoint inhibition may be relevant for many tumor types, where PD-1 directed treatment is given in combination with chemotherapy or a VEGF inhibitor, but without your Yervoy in the first-line setting. Transitioning now to envafolimab, which remains our most important development program.

As a reminder, envafolimab is a potential best-in-class PD-L1 checkpoint inhibitor given by rapid subcutaneous injection that confers a safety advantage by eliminating the risk of infusion reactions and may confer additional clinical benefit, given it obviates treatment in an infusion center.

We continue to make good progress enrolling patients in the ENVASARC pivotal trial. We have now initiated 26 clinical sites and enrolled more than 50 patients into the trial. We continue to expect the availability of interim ENVASARC efficacy data by the end of this year in a top line data release.

This initial DMC mandated interim efficacy analysis occurs following the second CT scan in the 36th enrolled patient that occurs 12 weeks after enrollment, to allow for determination of the preliminary objective response rate.

We know from prior studies of checkpoint inhibitors in sarcoma that responses may take 20 or more weeks to develop, including in the case of patients treated with the dual checkpoint inhibitors, Opdivo and Yervoy.

Our goal, therefore, is to overcome the futility bar that requires at least 1 objective response by blinded central review in each cohort and to report at least a 10% objective response rate by blinded central review across the 2 cohorts, knowing that the response rate is preliminary and will be based on a maximum of only 2 scans for many of the 36 patients analyzed.

As a reminder, the ENVASARC trial includes 2 cohorts of 80 patients each. One cohort receives single agent envafolimab and a second cohort receives envafolimab in combination with Yervoy.

The primary endpoint in both cohorts is objective response rate by RECIST, as confirmed by blinded independent central review, with duration response being a key secondary endpoint.

In each cohort, the demonstration of 9 of 80 objective responses by blinded central review or an 11.25% objective response rate, defines a level of response that satisfies the primary objective of the study, which is to statistically exceed the 4% response rate of Votrient, the only approved treatment for refractory UPS and MFS.

Based on ongoing safety assessments, we also expect envafolimab to have a superior safety profile compared to Votrient, a drug with a black box warning for severe and fatal hepatotoxicity.

We continue to expect that if the interim efficacy data later this year is positive, it would be the basis for submitting a request to the FDA for Fast Track designation or Breakthrough therapy designation. As either designation prevents a rolling BLA submission that would facilitate an earlier review of a BLA.

Looking forward, we anticipate the second interim efficacy assessment as well as the final response assessment in 2022. And assuming positive data, we expect to submit a BLA for accelerated approval that, if approved, could allow for product launch in the U.S. by the end of 2023.

As I have noted previously, peak sales of envafolimab and sarcoma could reach $1 billion across multiple sarcoma indications. This sarcoma-driven sales potential could be further enhanced by marketing YH001 as part of the treatment combination.

It is important to understand that the extent of the sales potential in sarcoma with envafolimab at parity pricing is not just the forecasted initial $200 million in estimated potential revenues in UPS and MFS.

Combined sales could potentially exceed $1 billion if envafolimab and YH001 broadly penetrates sarcoma in the front line, adjuvant and neoadjuvant settings.

In parallel, our corporate partners, 3D Medicines and Alphamab Oncology submitted envafolimab data from the completed pivotal trial in MSI-high cancer in China as part of an NDA that was accepted for priority review by the NMPA in January. We believe envafolimab could be approved in China before year-end.

In addition to envafolimab and YH001, our newly acquired asset, we continue to expect TRC102 to continue to advance through NCI sponsorship in lung cancer in combination with chemotherapy and radiation therapy.

We believe a randomized trial of chemoradiation with or without TRC102, followed by Imfinzi maintenance is warranted in these patients, and expect this concept to advance for NCI funding consideration this year.

This would continue our close collaboration with NCI on the development of TRC102, whereby the NCI has funded 5 trials of this drug candidate.

The NCI also continues to study the combination of TRC102 with Temodar, chemotherapy and reported data at the AACR-NCI-EORTC Virtual International Conference on Molecular Targets and Cancer Therapeutics in October.

While we have reported on the activity of the combination of Temodar and TRC102 in MGMT methylated patients with brain cancer and colorectal cancer, the new NCI data report encouraging data of the combination in lung cancer, a disease not associated with MGMT methylation.

Notably, TRC102 and Temodar was well tolerated in squamous histology lung cancer patients who are heavily pretreated and refractory to immunotherapy. The majority of patients to derive clinical benefit, including stable disease noted beyond 24 weeks in four of 12 patients.

The authors included that Temodar, in combination with TRC102 is a reasonable option for patients with limited second line options. Our fourth clinical-stage asset is the CD73 antibody, TJ4309 that is being evaluated in an ongoing Phase I dose escalation study as a single agent and in combination with a checkpoint inhibitor Tecentriq.

As we have noted in the past, in March 2020, I-Mab issued a press release announcing a strategic partnership with KG Bio, whereby KG Bio received what the press release described as a right of first negotiation for exclusive rights to commercialize TJ4309 in multiple Asian, African and Middle Eastern countries for up to $340 million in potential payments to I-Mab.

We believe that based on the KG Bio transaction, TRACON is entitled to receive a payment under the TJ4309 agreement, although I-Mab has disputed that this payment is due.

The dispute is being heard before an International Chamber of Commerce Arbitration Tribunal seated in New York City and will be arbitrated under New York Law with the hearing set for February 2022.

The pending resolution of the disputes on TJ4309 and the bispecific antibody agreement, we continue to perform our obligations under the terms of both agreements. From a business development perspective, we continue to leverage our CRO independent product development platform and U.S.

commercialization expertise to add first or best-in-class drug candidates and pursue additional external clinical-stage assets that would complement our now expanded pipeline. Second-generation immuno-oncology targets continue to be of particular interest.

With the Eucure deal, we have now closed 5 deals using our platform that can enable rapid and high-quality development of novel drug candidates. We believe our platform has earned additional credibility as a compelling solution for companies who wish to access the U.S.

pharmaceutical market and retain a meaningful share of their products profitability. Our capabilities have been recently profiled in a necessary expense, an antidote to the $1 billion drug problem published by ForbesBooks, that is available from Amazon and other retailers.

In July, we raised approximately $13.4 million in net proceeds in an underwritten common stock offering. With the capital raise, we estimate our cash runway extends into 2023.

This provides us with a cash runway for more than a year past in ENVASARC efficacy data, which is expected by the end of this year and beyond the final ENVASARC data expected in 2022.

We expect that our enhanced balance sheet will increase the impact of important milestones and also provide capital to advance clinical trials of YH001 as well as other new potential drug candidates we may add to our pipeline. 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 $2.7 million and $8.1 million for the 3 and 9 months ended September 30, 2021, respectively, compared to $1.8 million and $6 million for the comparable periods of 2020. The increase was related to enrollment in the pivotal ENVASARC trial in 2021.

General and administrative expenses were $4.2 million and $12.9 million for the 3 and 9 months ended September 30, 2021, respectively, compared to $2.1 million and $6 million for the comparable periods of 2020. The increase was related to legal expenses for the now state Delaware case and ongoing arbitration with I-Mab.

Our net loss was $7 million and $21 million for the 3 and 9 months ended September 30, 2021, respectively, compared to $4 million and $12.5 million for the comparable periods of 2020. Turning to the balance sheet.

At September 30, 2021, our cash, cash equivalent and investments totaled $29.9 million compared to $25.6 million and $36.1 million at June 30, 2021 and December 31, 2020, respectively. With the net proceeds of $13.4 million raised in July, we expect our current capital resources to be sufficient to fund our planned operations into 2023.

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

Thank you, Scott. To recap, we continue to execute our clinical development plan around our lead product candidate, envafolimab, and have made substantial progress advancing the ENVASARC trial. We expect to complete the first interim efficacy assessment and summarize the aggregate preliminary response rate prior to year-end.

We also continue to leverage our unique product development platform and added the clinical stage and potential best-in-class CTLA-4 antibody YH001 to our pipeline, including rights to develop and commercialize with envafolimab and sarcoma as well as in multiple other cancer types in North America.

Our recent capital raise is expected to fund the company into 2023, which is more than a year following expected initial interim ENVASARC trial efficacy data and pass expected final ENVASARC trial data, which could demonstrate the potential for Envafolimab to rapidly transform the standard of care for refractory sarcoma patients.

We also continue to expect to leverage our unique product development platform and profit share deal structure to further enhance our pipeline to address unmet needs through our ability to execute clinical trials at low-cost and therefore, avoid the unnecessary expense of CRO conducted clinical trials.

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..

. Our first question is from Nick Abbott with Wells Fargo..

Congratulations on the CTLA-4 inhibitor. My first question is on the new trial that you're talking about for the combination in sarcoma.

Is that going to still be in angiosarcoma, ASPS and DDLS?.

Our thoughts are the following, Nick. So we expect to initiate a trial combining envafolimab with YH001 and with doxorubicin chemotherapy. And once we determine that that combination is tolerable, we do expect to enroll multiple expanded cohorts, which could be considered the Phase II portion of a Phase I/II trial.

As you mentioned, that will include many of the subtypes you specified, dedifferentiated liposarcoma is one example, leiomyosarcoma being another example, angiosarcoma and alveolar soft part sarcoma would be another example. And then following completion of the ENVASARC trial, we also potentially can enroll UPS and MFS.

Our eventual goal is to try to address these patients as early as possible, which is ideally in that first-line setting. And there are certain subtypes of sarcoma, like UPS and MFS with dual checkpoint inhibition seems to be sufficient for significant activity.

But there are other ones like leiomyosarcoma, where clearly, we're going to have to add immunotherapy to a standard of care agent like chemotherapy. And that's really the goal of this upcoming trial of triple therapy..

Our next question is from Maury Raycroft with Jefferies..

Congrats on the updates this quarter. Charles, for the ENVASARC interim, I think I heard you, that you're expecting at least 10% aggregate overall response rate in this update.

Just clarifying, this 10% is informed by the Alliance study results? And if you can comment on just what your expectations are for the above or below that 10%? I guess, what could the potential range be if you're commenting on that?.

Maury, yes, I think if we look at precedent data, the response rates in patients with UPS treated refractory setting with either single or dual checkpoint inhibitions have raised points between 8% and 29%. But I would point out, those are the final response rates.

If you look carefully at those posters more, you'll discern that the preliminary response rate or the response rate after just 12 weeks of therapy has actually been significantly lower than that. So our goal remains to achieve the final response rates demonstrated in the Alliance trial, for example.

But I'm making clear also that we won't have final data at this interim analysis. What we'll have is data that includes 12 weeks of data on all the patients, which is the 6-week scan and the 12-week scan and that it may be possible certain patients haven't had a formal response at that time.

So we feel that if we have a double-digit response rate based on this preliminary response assessment, that puts us in good shape because, as you'll recall, the actual primary endpoint of the study is to achieve an 11.25% response rate in either cohort in order to achieve the primary endpoint of the study..

Got it. Yes, that makes sense.

And with that 10%, that's informed by the swimmer plot from Alliance, where you can see some responses happen early, but most of them happen later on?.

It is Maury. I would say, if you look carefully at that Alliance data, I would -- that the response rate at 12 weeks was actually lower than that. It's interesting. So again, we're hoping and expecting to see a double-digit response rate.

But if you actually look carefully at those swimmer plots in the specialty dual checkpoint inhibition cohort, each of the 4 responses, they had 4 out of 14. Each of those actually took more than 12 weeks to develop. And so that's why I think it's important to understand that this is a preliminary report that we will make and not the final data..

Okay.

And then I was wondering for the breakthrough therapy designation filing by year-end, are you going to break out the data when you submit that filing? And I guess, will it be the cut that you report in the interim? Or could there be some additional data that you include in that Breakthrough therapy filing?.

Yes. Our plan this year is to apply to the Fast Track or Breakthrough designation based on the actual data, which we will carefully interrogate. And as I mentioned, the 36 patients having gone at least 12 weeks is mandated by the protocol as a DMC review.

But if we were to submit an application, which again is our expectation by end of the year, either Fast Track or Breakthrough, we would submit the totality of the data. I think that would be the fairest way to inform the FDA about what we're seeing. So you have enrolled more than 36 patients, as I mentioned, we're well over 50 now..

Got it. Okay. And maybe last question, just with the in-licensing of YH001, you talked about pursuing some -- potentially pursuing additional indications with YH001.

Just wondering if you can talk about prioritization with one line sarcoma expansions with Enva versus pursuing additional opportunities with YH001? And maybe talk about how that could impact expenses too going forward?.

Yes. No, I appreciate the question. So hypernephroma briefly, we have rights now to 3 indications outside sarcoma. Hypernephroma renal cell carcinoma, which is our old friend from way back in Pfizer days when we were developing Sutent, which is one of our near and dear assets to many of our hearts here, as many of us were part of that Sutent team.

We have a lot of connection with renal cell investigators. And as I profile briefly, I think there's still a significant unmet need for those patients. Most of them are not getting a CTLA-4 front line. They're getting PD-1 plus the VEGF inhibitor.

And then when they progress on those therapies, they're actually very few approved therapies that are actually that valuable. It's approved on label or single agent VEGF inhibitors as an example or a PD-1 inhibitor by itself, which you likely would not use when someone who's already filled PD-1 plus VEGF front line.

So we really think that's an unmet need after discussions with key opinion leaders, and that's a place for us to continue to develop YH001 with approved therapy of PD-1 or VEGF or both. And in terms of expenses, that would be a Phase I study with expanded cohort of patients moving into Phase II.

And our budgets remain very low and lower than, I think, any other company in the industry, given our COO independents. So we're generally budgeting about $100,000 to run a trial. So for us to run a 20-patient Phase I trial, which takes about 8-quarters, you can do the math, the burn is incremental and almost not material to our bottom line.

So that continues to be the key, I'd say, special sauce of TRACON that we continue to leverage to develop a pipeline and to deliver data at much lower costs than most companies that are CRO beholden..

Our next question comes from Ed White with H.C. Wainwright..

Just on 001, what else do you have to do to file an IND? Do you have to run any preclinical studies? Or are you pretty much set to go to and just set to gather the information to file for the IND?.

Ed, I appreciate the question. Fortunately, this drug is already being studied, both in China and in Australia. And so we don't have to do any additional preclinical work is our expectation to move forward with the IND, and we can also leverage the existing clinical data. And I think that's the other kind of important part of your question.

So we already have seen that YH001 is well tolerated up to 2 milligrams per kilograms with a standard PD-1 antibody.

And based on that, we can take that data and either quickly move into Phase II or do a very brief -- complete the dose escalation if needed and then do the Phase II expanded cohorts, which in sarcoma would also include combining with doxorubicin. So that's the big advantage.

So our goal is to get the IND filed by early next year and to begin trials both in sarcoma and then potentially in another indication with the renal cell carcinoma being high on our list..

Charles, I did miss it.

What were the other 2 indications that if rights to besides renal cell?.

Sure. Yes. We also have rights in microsatellite stable colorectal cancer, KRAS positive lung cancer with the election to substitute for any of those 3 indications, either bladder cancer, melanoma, and endometrial cancer..

. Our next question is from Bert Hazlett with BTIG..

Just along the lines of Maury's question, I just want to make sure I'm understanding this as well.

So Charles, you're basically saying that the successful ORR for the end of the study is 9 of 80 or 11.25% response rate for either arm, but we really shouldn't be expecting anything quite that robust now simply because the patients only have 12 weeks with those scans.

Is that saying the way you mean it, maybe slightly differently?.

Yes, Bert, I think that's a good way to say it. I think we would be happy if we see a double-digit response rate for 2 reasons. One is that it's already at or exceeds the goal of the study, which is the 11.25% response rate. And second of all, it would be preliminary that has some potential to grow. So I think that's how we look at it..

Okay. And then how much detail we're actually going to see out of this look? We're going to get this level of data in terms of response rates. We've got to get significant amounts of information on the 36 patients.

Just in terms of framing what types of detail we might see?.

Bert, our goal is to be pretty general. We don't want to bias accrual from one cohort versus the other cohort, which could be the case if were too detailed in our disclosure. So our general goal is to disclose safety data, similar to what we disclosed in the past if there are any safety issues to disclose that to the public.

And then also to disclose the aggregated response rate, by central review that's aggregated across the cohorts without specifying the exact response rate in each cohort in order not to bias accrual, which could occur if, say, one cohort has a superior response rate and that were to influence how patients perceive allocation in the trial..

Got it. Okay. That's helpful as well.

And then just kind of moving to the combination of 001 along with Enva or other -- would you expect that combination to be better tolerated than other CTLA-4 PD-L1 approaches just based on the molecules themselves?.

Great question, Bert. So I would say, overall, the history of Enva is that it has been a very well tolerated PD-1/PD-L1 therapy.

That's based on data from our partners, for instance, in their pivotal trial in MSI-high cancer, they had a response rate that was on par with both Opdivo and Yervoy in that cancer indication, yet they had no cases of colitis or pneumonitis of the Grade 3 severity at all. So I thought that was a very encouraging side effect profile.

We have to further study YH001 to identify its side effect profile. But if Evna is well tolerated and YH001 is well tolerated, it could be the combination is better tolerated than Opdivo and Yervoy. It's clearly an experiment we have to do.

I would say the existing data with YH001 in the PD-1 antibody toripalimab support, a very favorable side effect profile. That said, it's still in dose escalation. So there's a lot more data that needs to be seen. But I think we are very encouraged by the combination's potential.

I also think, Bert, that using it in the refractory setting could be the spot to really use a dual -- dual checkpoint inhibitory strategy.

Other companies have really focused in many cases, in the front-line setting, which I think if you talk to communities, physicians and they are talking about frontline setting, they want a therapy that may emphasize tolerability a little bit more in the frontline setting than, say, in the refractory setting.

Once you get in the refractory setting and you're talking to a patient that has really very poor treatment options. I do think physicians are more likely to say, we'll take a little bit more of a less benign side effect profile because the option, otherwise, is just a therapy that has very limited activity.

And really, you're dosing to the patient without very -- with very little hope, frankly, of response. So I think to answer your question, YH001 handle could be better tolerated. And second of all, I think targeted to refractory setting could make it a much more ideal positioning compared to other dual checkpoint inhibitor combinations..

Thank you, sir. And I'm not showing any further questions in the queue..

Thank you very much. Appreciate your questions, and we look forward to updating you at the end of the year. Have a great day..

Thank you, ladies and gentlemen, for participating in today's call. You may now disconnect..