TRACON Pharmaceuticals, Inc.

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 prepare 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, and 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, 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 Thur, President and CEO of Tracon Pharmaceuticals. Dr. Thur?

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, We'll review our financial results for the three and nine months ended September 30th, 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 from U-Cure Biopharma. We have discussed for some time our objective of adding another immune oncology asset to our portfolio that complements Envifolamab. In October, we accomplished this goal through a collaboration with a science-driven company, Ucure Biopharma, headquartered in Beijing. A significant advantage of this license is the potential for TRACON to market two separate in-licensed immunotherapy assets as a treatment combination for sarcoma patients. This therapeutic strategy is complementary to our ongoing Envifolimab registration strategy in sarcoma through the pivotal Envisarc trial. Notably, we received a broad license for Y8001 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, Y8001 could be combined with existing standard of care agents including marketed PD-1 antibodies. TRACA are now responsible for the cost of the clinical trials in these indications, while UCURE is responsible for the manufacturing and supplying Y8001 for clinical trials. We will owe UCURE royalties, ranging from the mid-20s to the mid-double digits on net sales, except for the period through the first full calendar year of commercialization, during which the rates are reduced. Based on preclinical data, Y8001 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 SC 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. Y8001 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. U-Cure is currently dosing Y8001 in two Phase I trials, one as a single agent and one in combination with the PD-1 antibody toripalimab. for which UCHER presented data at ASCO and Cisco this year. Notably, as of the data cutoff of August 9th, the combination of Y8001 and toripalamab have been well tolerated in 18 patients with advanced cancer, dosed with Y8001 up to 2 milligrams per kilogram every three weeks. Dose escalation continues at this time to determine the recommended Phase II dose of Y8001. 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. Two patients demonstrated objective tumor responses, including one patient with bladder cancer who had failed prior treatment with a PD-1 antibody. Our initial development plan for Y001 is to study the drug in combination with envefolumab and sarcoma early next year. That trial is expected to also study a triplet that includes doxorubicin chemotherapy, which is the 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 front-line 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 Y001 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 Urovoi in the first-line setting. Transitioning now to Envifolimab, which remains our most important development program. As a reminder, Envifolimab is a potential best-in-class BDL1 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 in enrolling patients in the Envisarc 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 NVSARC 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 one 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 two cohorts, knowing that the response rate is preliminary and will be based on a maximum of only two scans for many of the 36 patients analyzed. As a reminder, The NVISARC trial includes two cohorts of 80 patients each. One cohort receives single-agent Envifolimab, and a second cohort receives Envifolimab in combination with Yervoy. The primary endpoint in both cohorts is objective response rate by resist, as confirmed by blinded independent central review, with duration response being a key secondary endpoint. In each cohort, the demonstration of nine of 80 objective responses by blinded central review 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 treatment for refractory UPS and MFS. Based on ongoing safety assessments, we also expect endofolamide to have a superior safety profile compared to Votrien, 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 envifolamab and sarcoma could reach $1 billion across multiple sarcoma indications. This sarcoma-driven sales potential could be further enhanced by marketing Y8001 as part of the treatment combination. It is important to understand that the extent of the sales potential in sarcoma with Envifolimab 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 Envifolimab and Y0001 broadly penetrate sarcoma in the frontline, adjuvant, and neoadjuvant settings. In parallel, our corporate partners, 3D Medicines and AlphaMap 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 NMPA in January. We believe Envifolimab could be approved in China before year end. In addition to Envifolimab and Y001, 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 TRC-102, followed by Infinzi 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 the NCI on the development of TRC-102, whereby the NCI has funded five trials of this drug candidate. The NCI also continues to study the combination of TRC-102 with Teminar 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 in Temodar was well-tolerated in squamous histology lung cancer patients who were heavily pretreated and refractory to immunotherapy. The majority of patients derived clinical benefit, including stable disease noted beyond 24 weeks in 4 of 12 patients. The authors concluded that Teminar in combination with TRC-102 was 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, Dicentric. As we have noted in the past, in March 2020, IMAP 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 TGA4309 in multiple Asian, African, and Middle Eastern countries for up to $340 million in potential payments to IMAP. We believe that based on the KG Biotransaction, TRACON is entitled to receive a payment under the TJ4309 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. 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 immunology targets continue to be of particular interest. With the U-Cure deal, we have now closed five 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 product's profitability. Our capabilities have been recently profiled in Unnecessary Expense, an antidote to the billion-dollar drug problem published by Forbes Books, 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 raised, we estimate our cash runway extends into 2023. This provides us with a cash runway for more than a year past interim NVISARC efficacy data, which is expected by the end of this year, and beyond the final NVISARC 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 Y001, 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 three and nine months ended September 30, 2021, respectively, compared to $1.8 million and $6 million for the comparable periods of 2020. Increases were related to enrollment in the Pivotal and the SARC trial in 2021. General and administrative expenses were $4.2 million and $12.9 million for the three and nine months ended September 30th, 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-stayed Delaware case and ongoing arbitration with IMAP. Our net loss was $7 million and $21 million for the three and nine 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 equivalents, 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.