TRACON Pharmaceuticals, Inc.

Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals Second Quarter 2022 Earnings Conference Call. At this time, all calls 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 this 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. our development plans and strategy, and the timing and results of our arbitration with IMAP. 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 31st, 2021, and subsequent quarterly reports on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, and unless required by applicable law, we disclaim any obligation to update such statements. I'll turn the call over to Dr. Charles Thor, President and CEO of Tracon Pharmaceuticals. Dr. Thor?

Thank you for joining Tracon's second quarter 2022 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, 2022. Finally, we will conclude by taking your questions. I'll start with an update on our continued progress with the NVISARC pivotal trial. We have now enrolled more than 36 patients in NVISARC, which is open for enrollment at 29 sites in the US and one site in the UK. Accrual has been robust and is ahead of our estimates that project full accrual of 160 patients dosed at the 600 milligram dose to be completed by end of 2023. This morning, we announced that the IDMC reviewed three weeks of safety data from more than 20 patients and recommended the trial continuous plan at the 600 milligram and the dose. We expect two additional IDMC reviews this year. The second safety assessment that occurs 12 weeks after enrollment of the 20th patient is expected in October. And the interim efficacy assessment that occurs three months following enrollment of the 36th patient is expected in the fourth quarter. During the interim efficacy assessment, the committee will apply a futility rule that requires at least one response in 18 patients in each of the two cohorts at the 600 milligram NVidose. Note an identical futility threshold was achieved at the interim analysis performed last year in 36 patients who received the 300 milligram NVidose. Recall at that time, a significantly higher response rate was observed in lighter weight patients which prompted the IDMC to recommend increasing the ENVA dose to 600 milligrams. As a reminder, the ENVASARC trial includes one cohort who received single-agent ENVA and a second cohort who received ENVA in combination with Yervoy. The primary endpoint in each cohort 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 by 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% objective response rate of Votrien, the only approved treatment for patients with refractory UPS and MFS. Notably, Votrien is a drug with a black box warning for fatal liver toxicity. We believe ENVA has the potential to transform the care of refractory sarcoma patients through the demonstration of superior efficacy and safety compared to Votrien. Based on data from trials of other checkpoint inhibitors in refractory UPS and MFS, we are targeting a 15% response rate for single-agent ENVA and up to a 30% response rate for ENVA given with Yervoy. Furthermore, We plan to approach the FDA to discuss a BLA filing strategy as soon as we determine nine responses in either cohort. Finally, based on activity already observed in NVSARC, we've applied for a fast-track designation with the FDA and expect a response from the agency later this year. Our second checkpoint inhibitor, YH001, is a potential best-in-class CTLA-4 antibody we licensed from Utrea BioPharma in October of last year. Earlier this month, we submitted an IND application to the FDA for the initiation of a Phase I-II clinical trial of Y8001 in combination with ENVA and doxorubicin for the treatment of sarcoma patients, including patients who have not received prior therapy. As a reminder, we received a broad license to develop and commercialize Y8001 in North American sarcoma and multiple other indications, including microsatellite-stable colorectal cancer, renal cell carcinoma, and KRAS-positive lung cancer. Note, with respect to our license, 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. Our initial Y8001 trial leverages data from two Phase I trials conducted by our partner, U-Cure. These two trials demonstrated the recommended Phase II dose of Y8001 as a single agent and in combination with the PD-1 antibody, toripalamab. Our sponsored Phase I-II clinical trial will evaluate a triplet that includes Y8001, ENVA, and doxorubicin chemotherapy, as doxorubicin is the current frontline standard of care treatment for sarcoma. Following the phase one portion of the trial to assess the tolerability of the combination of the ENVA and Y001 doublet, as well as the triplet therapy that includes doxorubicin, we will assess the response rate in common and rare sarcoma subtypes to combination treatment, with the intent of demonstrating superior response rates compared to historical data using standard of care agents. In leiomyosarcoma and liposarcoma, we plan to compare the response rate of triplet therapy to the historical 10 to 15% response rate of single agent doxorubicin. In the case of rare sarcoma subtypes, like chondrosarcoma and alveolar soft part sarcoma, where chemotherapy is not highly effective, we intend to study the doublet of Y001 and ENVA to assess the response rate compared to the historical response rates with chemotherapy or single agent checkpoint inhibition. One of the purposes of this Phase I-II trial is to determine the subtypes of sarcoma that best respond to the combination of ENVA, Y001, and doxorubicin. Following the potential accelerated approval of ENVA, assuming positive trial results in the pivotal ENVASARC trial, the FDA will require a randomized trial to demonstrate a survival benefit. We expect this Phase III post-approval trial will compare single-agent doxorubicin to the triplet combination of doxorubicin with ENVA and Y001, with PFS at the endpoint. This trial would be expected to enroll patients with UPS and MFS, as well as other sarcoma subtypes shown to respond to triplet therapy based on data from the Phase I-II trial that I described earlier. The ability for TRACON to commercialize two in-licensed immune oncology therapies together in sarcoma is of great strategic benefit. It is important to understand the sales potential in sarcoma with ENVA at parity pricing is not solely the forecasted $200 million in annual ENVA revenues expected in the initial indications of refractory UPS and MFS, as well as the $100 million in annual revenue in rarer sarcoma subtypes where the activity checkpoint inhibition has been demonstrated. Our clinical development strategy is designed to create the opportunity for ENVA to broadly benefit patients with sarcoma in the frontline, adjuvant and neoadjuvant settings by seeking supplemental indications. Moreover, we believe TRACON's total sarcoma-driven sales revenue would be significantly enhanced by marketing Y0001 and ENVA together as part of a treatment combination in sarcoma. In addition to our two checkpoint inhibitors, we are pleased that the National Cancer Institute continues to fund development of our DNA damage repair inhibitor, TRC102. the National Cancer Institute has initiated a randomized phase two trial assessing TRC-102 in stage three, non-squamous, non-small cell lung cancer in combination with chemoradiation. The two-arm trial will enroll 78 patients to assess the benefit of adding TRC-102 to current standard care treatment of pemetrexed, cisplatin, and radiation therapy, followed by a consolidated drivalumab treatment. The primary endpoint of the trial is PFS, and the trial is designed to detect an improvement in PFS at one year from 56% to 75%. Results are expected in 2024. Our fourth clinical stage asset is the CD73 antibody TJ4309 that TRACON is evaluating in a phase one study as a single agent and in combination with a checkpoint inhibitor, Ticentric. We are working to complete data analysis of the trial which has enrolled the last patient. As a reminder, IMAP has indicated the desire to exercise their option to terminate the TJ4309 license following completion of the Phase I trial for a payment to TRAC of $9 million. While we expected the study would be completed by the end of the second quarter, we are awaiting results of the final clinical sample testing that we now expect will be completed this quarter. This then triggers IMAP's option to reacquire TJ4309 for $9 million. Next, I will provide an update on our legal disputes with IMAP. As a reminder, IMAP commenced arbitration in June 2020 after TRACON invoked contractual dispute resolution provisions asserting that IMAP had breached its contractual obligations concerning both of our agreements entered into in November 2018. We filed counterclaims in the arbitration seeking to recover over $200 million in damages from IMAP based on the alleged breaches. Under the applicable rules of the arbitration, the prevailing party may also be awarded attorney's fees at the tribunal's discretion. In February of this year, arguments for alleged breaches of both of our agreements with IMAP were heard before an International Chamber of Commerce arbitration tribunal under New York law, and the final post-hearing briefs were submitted to the tribunal in late May. On June 2nd, the International Court of Arbitration of the ICC notified us to expect a final decision by September 30th, although the tribunal may ask the ICC for a further extension if warranted. The claims under the arbitration are complex. Accordingly, we cannot predict the outcome of the arbitration, and we are unable to estimate the amount of recovery of damages, if any, that may be awarded by the tribunal. Depending on results of the arbitration, we continue to meet our obligations under the terms of both agreements. We will promptly provide an update when the tribunal panel announced their findings. Given the challenging capital markets, the expectation to secure non-dilutive capital from our corporate partners is important. In the meantime, we recently secured capital through another source. In June, our largest shareholder, Opelai, purchased $4 million in common stock and pre-funded warrants at market price without the issuance of common warrants. Capital from this transaction extends our cash runway into the first half of 2023. Our runway would be further extended by the $9 million payment expected later this year from IMAP related to the stated intent to reacquire TJ4309 following completion of the Phase 1 trial and would be further extended through any arbitration award. As we have noted in the past, we expect to further supplement our CAST position through opportunities for non-dilutive capital enabled through our CRO independent product development platform that we believe positions us as one of the most efficient clinical development organizations. We expect to continue to leverage our platform in two ways that provide for potential non-dilutive capital to TRACON. First, we are evaluating drug candidates whereby TRACON performs clinical trials at a lower cost than a CRO but still at a premium to our costs using a pay-for-performance model that track on further benefits by earning a share of the revenue, including sub-licensing fees and our royalties from commercialization. This is an aligned structure we used in the past, for example, with Johnson & Johnson. Second, we are exploring a franchise model whereby we are paid to share our proprietary capabilities and know-how to enable another company to independently internalize clinical operations and use these new capabilities to avoid contracting with CROs to execute clinical trials. As has been the experience at TRACON, such an investment would be expected to result in substantial time and cost savings for our partner. We believe that over time, our product development platform has earned strong credibility as a compelling solution for companies who wish to become CRO independent and reap the rewards of conducting trials faster, at higher quality, and at lower cost compared to trials typically contracted to CROs. 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 $2.9 million and $5.9 million for the three and six months ended June 30, 2022, respectively, compared to $3.1 million and $5.4 million for the comparable periods of 2021. The increase in the six-month period was primarily related to additional enrollment in the Pivotal and the SARC trial. General and administrative expenses were $3.3 million and $9.8 million for the three and six months ended June 30, 2022, respectively, compared to $6.1 million and $8.8 million for the comparable periods of 2021. The decrease in the three-month period was due to the lawsuit filed in Delaware Court of Chancery by IMAP in 2021, and the increase in the six-month period was primarily related to legal expenses in connection with the arbitration hearing with IMAP in February of this year. We expect G&A expenses to decrease significantly for the remainder of the year as the arbitration hearing is now complete. Our net loss was $6.2 million and $15.7 million for the three and six months ended June 30, 2022, respectively, compared to $8.9 million and $14 million for the comparable periods of 2021. Turning to the balance sheet, at June 30, 2022, our cash and cash equivalents totaled $13.6 million, compared to $24.1 million at December 31, 2021. 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.