TRACON Pharmaceuticals, Inc.

Good day, ladies and gentlemen, and welcome to TRACON Pharmaceuticals' second quarter 2021 earnings conference call. At this time, all callers are in the 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 will be making certain forward-looking statements including statements regarding expected timing of clinical trials and results, regulatory activities, future expenses, and cash runaway, 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 2021. ended December 31, 2020. In subsequent quarterly reports on Form 10Q, 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 Tuor, President and CEO of Kraken Pharmaceuticals. Dr. Tuor, you may begin.

Thank you for joining TRACON's second 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 three and six months ended June 30, 2021. Finally, we will conclude by taking your questions. Our development efforts continue to focus on the pivotal NVISARC trial. Envisarc is designed to allow potential approval of envifolumab in the sarcoma subtypes of undifferentiated pleomorphic sarcoma, or UPS, and myxofibrosarcoma, or MFS. As a reminder, envifolumab is a potential best-in-class PD-L1 checkpoint inhibitor without the risk of infusion reactions that may confer additional clinical benefit by virtue of its convenient and rapidly delivered subcutaneous route of administration. We continue to make progress with Envifolimab and the Envisarc Pivotal Trial. First, the Data Monitoring Committee completed its second review of Envisarc safety data last week and recommended that the trial proceed as planned following the review of more than three months of safety data from the more than 20 patients enrolled into the trial as of May. The review included data from more than 10 patients enrolled into cohort A of treatment with single agent Envifolimab, and more than 10 patients enrolled into cohort B of treatment with Envifolimab and Yervoy. Second, in June we announced that the FDA had granted orphan drug designation for Envifolimab in soft tissue sarcoma. The FDA Orphan Drug Division had requested an amended application that included preclinical or clinical evidence of activity of Envifolimab in sarcoma. Given Envifolimab has been dosed to over 700 patients, our partners, 3D Medicines and AlphaMap Oncology, were able to supplement our application with data from their clinical database, which included patients with alveolar soft part sarcoma, or ASPS, treated with endofolimab in prior phase one studies. The data were quite compelling, as two of five patients with ASPS demonstrated confirmed objective responses with duration of response beyond six months. while the other three patients demonstrated stable disease. These response rates are consistent with the known activity of other checkpoint inhibitors in this sarcoma subtype. For example, the PD-L1 checkpoint inhibitor Ticentric, marketed by Roche, demonstrated partial responses in 37% of ASPS patients treated in a trial sponsored by the National Cancer Institute. Third, We have initiated 26 clinical trial sites and continue to expect the availability of interim MVSARC efficacy data by the end of this year. The initial DMC-mandated interim efficacy analysis occurs following the 12-week CT scans in the 36th enrolled patient to allow for determination of the preliminary objective response rate. For the futility rules of the study, there must be at least one response among the initial 18 patients enrolled into each cohort to continue enrollment of that cohort. We expect to summarize the efficacy data from the initial 36 patients by the end of this year in a top-line data release that includes the aggregate initial response rate across the two cohorts. Fourth, we expect positive interim efficacy data would be the basis for submitting a request to the FDA for fast-track designation and or breakthrough therapy designation. as either designation permits a rolling BLA submission that would facilitate a timely review of a BLA. Looking forward, we anticipate a second interim efficacy assessment and final response assessment in 2022. And assuming positive data, submitting a BLA for accelerated approval, that if approved, could allow for product launch in the U.S. by the end of 2023. Additionally, we reviewed the design of the InfoSarc trial in a poster at ASCO in June. As a reminder, the ENVISARC trial includes two cohorts of 80 patients each. One cohort receives single-agent envifolumab, and a second cohort receives envifolumab in combination with Urovoi. The trial enrolls patients with UPS and MFS who have progressed on one or two lines of prior treatment and have not received prior checkpoint inhibitor therapy. The primary endpoint in both cohorts is objective response rate by RESIST. as confirmed by blinded independent central review, with duration of response being a key secondary endpoint. In each cohort, the demonstration of nine out of 80 objective responses, or an 11.25% objective response rate, defines the level of response that satisfies the primary objective of the study, which is to statistically exceed the 4% response rate of Votrien, the only approved therapy for refractory UPS and MFS. In parallel, our corporate partners, 3D Medicines and Alpha Mammal Oncology, submitted Envifolimab 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 Chinese NMPA in January. We believe Envifolimab could be approved in China later this year. We believe dual checkpoint inhibition that includes Envifolimab should also be studied in first-line treatment because a prior study indicated the response rate for dual checkpoint inhibition with Opdivo and Yervoy across all refractory soft tissue sarcoma subtypes was similar to the response rate for first-line chemotherapy. We therefore expect to begin a new trial of Envifolimab and doxorubicin this year to assess safety of the combination. The trial could include a combination of doxorubicin, Envifolimab, and an antibody to a second target, such as CTLA-4 or LAG-3. as one of our business development priorities is in licensing another immuno-oncology asset. The clear advantage of this strategy is the potential to market two proprietary immunotherapy assets for the treatment of sarcoma patients. We believe sales of Envifolmep in sarcoma could eventually reach $1 billion, which could be further enhanced through marketing a second immunotherapy by Tracon in this indication. It is important to understand that the extent of our market opportunity in sarcoma with envapolimab at parity pricing is not just the initial $200 million in expected annual revenues in UPS and MFS, but potentially $1 billion as envapolimab could be broadly penetrate sarcoma in the first line, adjuvant, and neoadjuvant settings. If we are able to also license a second immunology asset that pairs as a combination treatment with envapolimab in sarcoma, and also is developed in other cancer indications, TRACON's total potential revenue could vastly increase. While EnvifolMap is our most advanced product candidate, we continue to progress two other promising clinical stage assets. We expect TRC102 to continue to advance through NCI sponsorship in lung cancer in combination with chemotherapy and radiation therapy. Data presented at ASCO show that TRC102 in combination with chemoradiation resulted in a 100% response rate in 15 patients with advanced localized lung cancer, including in three patients who had a complete response to treatment. These data compare favorably to the 51% response rate seen in prior trials of chemoradiation therapy for this disease. In ThinZ, a PD-L1 checkpoint inhibitor is now approved as maintenance therapy for patients with advanced localized lung cancer whose disease has not progressed following chemoradiation. We therefore believe a randomized trial of chemoradiation with or without TRC102, followed by infinity maintenance, is warranted in these patients and expect this concept to advance for CTEP consideration this year. Based on NCI data reported in the publication Cancer Cell in December 2020 and Phase II data from refractory glioblastoma patients treated with Temodar and TRC102, Inhibiting base excision repair with TRC102 is able to induce synthetic lethality in MGMT-methylated patients. We expect the NCI to report further data this year of the combination of TRC102 and Temodar in an expanded cohort of lung cancer patients. However, we believe the primary focus of further study of the combination is in glioblastoma, where MGMT methylation occurs in approximately one-third of cases. We continue to discuss a potential trial of Temodar radiation therapy, and TRC-102 in first-line glioblastoma with CTAP investigators. Our third 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 to Centric. Data from the ongoing Phase I trial presented at the 2021 ASCO virtual meeting indicated that TJ4309 was safe, and well-tolerated as a monotherapy and in combination with Ticentric. Exposure was dose-dependent, and TJ4309 saturated its CD73 target in the blood at all dose levels. Further, there was evidence of clinical activity in both PD-1 treatment naive and refractory cancer patients following treatment with TJ4309 given with Ticentric. We are developing TJ4309 in collaboration with IMAP Biopharma through one of our two strategic agreements with them, one for TJ4309 and one for a pipeline of biospecific antibodies. In the TJ4309 agreement, we are responsible for the regulatory and clinical development of TJ4309 in the U.S. and Europe. Following the completion of the Phase I trial, which is expected in 2022, IMAP has the right to terminate the agreement for a payment of $9 million. For the license agreement, if IVAB elects to license, as that term is defined in the agreement, TJ4309 to a third party in any region outside China, Macau, or Taiwan, we are entitled to receive escalating portions of non-royalty and royalty payments. These range from a high single digit to a mid-teen percentage of non-royalty consideration, as well as a double digit percentage of royalty consideration, depending on the phase of development we complete under the TJ4309 agreement. As we have noted in the past, in March 2020, IMAP issued a press release announcing a strategic partnership with KGBio, whereby KGBio received what the press release described as a right of first negotiation for exclusive rights to commercialize TJ4039 in multiple Asian, African, and Middle Eastern countries for up to $340 million in potential payments to IMAP. We believe that based on the KGBio transaction, Treycon is entitled to receive a payment under the TJ439 agreement, although IMAP 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. In February 2021, IMAP sent us a notice purporting to terminate the TJ439 agreement which, as I mentioned, would result in IMF owing us a pre-specified termination fee of $9 million. However, IMF does not have an option to terminate the TJ439 agreement without cause until the ongoing phase on clinical trial is complete, as that term is defined in the agreement. And therefore, Tragen responded by disputing the basis for IMF's reported termination. In March 2021, IMAP filed a lawsuit in the Delaware Court of Chancery seeking an order of specific performance requiring TRACON to comply with IMAP's purported termination notice. The lawsuit was stayed in May, and subsequently this matter was included in the dispute before the Arbitration Tribunal, which will be hearing this matter in February 2022, along with our claim with respect to the biosecific antibody agreement. Pending the resolution of the dispute, we continued to perform our obligations under the terms of both agreements. Moving on, in the second quarter, we enhanced our senior management team with three new hires. Dr. Brenda Marcy was appointed as Senior Vice President and Head of Regulatory Affairs. She was recently Vice President of Regulatory Affairs at Faring, where she oversaw all U.S. regulatory activities, including the BLA filing for Faring's bladder cancer gene therapy that received both fast-track and breakthrough designations. Her appointment complements the appointment of Drs. Dongliang Zhuang as Vice President of Statistics and Biometrics and Mr. Yao Wang as Executive Director of Statistical Programming. With these appointments, we have assembled a highly experienced team to lead the filing for the expected envifolamab VLA. From a business development perspective, we continue to evaluate and pursue additional external clinical stage assets which would complement our pipeline this year in order to leverage our CRO-independent product development platform and second-generation immunology targets are of particular interest. We believe our product development platform will continue to allow us to establish key new partnerships that will drive significant long-term shareholder value. Additionally, in September, Forbes Books will publish the book Unnecessary Expense, an antidote to the billion-dollar drug problem that is authored by Tracon Senior Management and is now available for pre-order on Amazon. The book details the advantages of TRACON's CRO-independent product development platform and profit share deal structure that provides for rapid and high-quality development of novel drug candidates. We believe our platform serves as a compelling solution for companies who wish to access the U.S. pharmaceutical market and retain a substantial share of their product's profitability. In July, we raised approximately $13.5 million in net proceeds in an underwritten common stock offering With the capital raised, we estimate that our cash runway now extends into 2023. This provides us with a cash runway for more than a year past initial interim NVSARC efficacy data expected at the end of this year and past expected final NVSARC data expected in 2022. We expect our enhanced balance sheet will increase the impact of important 2021 milestones and provide capital to execute clinical trials of potential new drug candidates we may add to our pipelines. 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 $3.1 million and $5.4 million for the three and six months ended June 30th, 2021, respectively, compared to $2.2 million and $4.2 million for the comparable periods of 2020. The increase was related to enrollment in the pivotal NBISARC trial in 2021. General and administrative expenses were $6.1 million and $8.8 million for the three and six months ended June 30, 2021, respectively, compared to $2.1 million and $4 million for the comparable periods of 2020. The increase was related to legal expenses for the now-stayed Delaware case and ongoing arbitration with IMAP. Importantly, we expect Q2 of 2021 to be the high point for G&A expenses this year. Our net loss was $8.9 million and $14 million for the three and six months ended 2021, respectively, compared to $4.5 million and $8.5 million for the comparable periods of 2020. Turning to the balance sheet, at June 30, 2021, our cash, cash equivalents, and investments totaled $25.6 million, compared to $30.4 million and $36.1 million at March 31, 2021, and December 31st, 2020, respectively. With the net proceeds of approximately $13.5 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.