TRACON Pharmaceuticals, Inc.

ladies and gentlemen and welcome to tricon pharmaceutical fourth quarter and year-ended 2022 earnings conference call at this time all callers are in a listen-only mode after the speaker's prepared remark 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 expecting timing of clinical trials and results regulatory activity, future expenses and cash runaway, 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, 2022, and subsequent quarterly reports on Form 10Q. 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. Now, I'd like to turn the call over to Dr. Charles Thor, President and CEO of Tricon Pharmaceuticals. Dr. Thor?

Good afternoon. And thank you for joining TRACON's fourth quarter and year-end 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 12 months into December 31st, 2022. Finally, we will conclude by taking your questions. I'll begin with an update on our continued progress with the ongoing NVISARC pivotal trial. evaluating ENVA as a single agent and in combination with Yervoy. We have now enrolled nearly 90 patients with refractory UPS or MFS into ENVASARC, which is accruing at 29 sites in the U.S. and one site in the U.K. Accrual continues to exceed projections, and the completion of enrollment of 160 patients treated at the 600-milligram ENVA dose is anticipated to occur before the end of 2023. In December, we announced that the DMC reviewed interim safety and efficacy data from 18 patients enrolled into each of the two cohorts who completed a minimum of 12 weeks of efficacy evaluations that included two on-treatment scans. The double-digit objective response rate assessed by blinded independent central review in each cohort more than satisfied the pre-specified futility rule. ENVA monotherapy in combination with Urovoid was well-tolerated, with only a single related serious adverse event reported in 36 patients. Responses were noted in patients regardless of weight at the 600 milligram dose of ENVA that was instituted following the previous DMC review of interim safety and efficacy data from patients in the ENVASAR trial treated at the 300 milligram dose of ENVA. The DMC recommended the trial continue as planned at the 600 milligram ENVA dose. As a reminder, the primary endpoint in each cohort is objective response rate by resist confirmed by central blinded independent review. And nine out of 80 objective responses, or an 11.25% objective response rate, defines a level response that satisfies the primary endpoint of the study. To statistically exceed the 4% objective response rate of Votrien, the only approved treatment for patients with refractory UPS or MFS. Therefore, a double-digit response rate at the time of interim analysis is meaningful, indicating that we are on track to achieve the primary endpoint of the study. Notably, Votrien is a drug with a black box warning for fatal liver toxicity. Our goal in Enva-SARC, therefore, is to demonstrate that Enva is both safer and more efficacious than Votrien. Given the robust accrual into the NVSARC trial, we are on track for the DMC to perform the protocol-mandated second interim efficacy analysis in the third quarter. During the interim efficacy assessment, the committee will apply a futility rule that requires at least three responses in 46 patients who have been followed for three months to permit two on-study scans in order to conduct accrual into each cohort. Based on the data from trials of other checkpoint inhibitors in refractory UPS or MFS, we are targeting a 15% response rate for single-agent ENVA and up to a 30% response rate for ENVA in combination 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. We were very pleased to receive fast-track designation for ENVA in the sarcoma subtypes of UPS and MFS that have progressed on one or two prior lines of therapy based on activity observed in ENVASARC. This designation complements the orphan drug designation we received in 2021 and holds important advantages that might expedite the development and regulatory review of ENVA. Moving on to our second checkpoint inhibitor, YH001. a potentially best-in-class CTLA-4 antibody that we licensed from U-Cure Biopharma in October of 2021. In August, the FDA approved our IND to initiate a Phase I-II clinical trial of YH001 for the treatment of sarcoma patients, including patients who have not received prior therapy. In October, we initiated the first site in the trial. Several sites are now open, and we have dosed multiple patients using TRACON's product development platform of CRO-independent research. Our initial Y8001 trial leverages data from two completed Phase I trials conducted by our partner, UCURE. 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 Y001, ENVA, and doxorubicin chemotherapy, as doxorubicin is the current frontline standard of care treatment for sarcoma. The Phase I portion of the trial assesses the tolerability of the combination of the ENVA and Y001 doublet, as well as the triplet therapy that includes doxorubicin, and we expect to report Phase I data in the second half of this year. Thereafter, the phase two portion of the trial 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 historical response rates with chemotherapy or single-agent checkpoint inhibition. One of the objectives of this Phase I-II trial is to determine the subtypes of sarcoma that best respond to the combination of ENVA, Y001, and doxorubicin. Assuming positive trial results in the ENVA-SARC pivotal trial and potential accelerated approval of ENVA, 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 NY001, with PFS as the endpoint. This trial would be expected to enroll patients with UPS and MFS as well as other sarcoma subtypes shown to respond to triple therapy based on data from the Phase 1-2 trial that I described earlier. We expect to discuss the design of a frontline trial with the FDA and initiate accrual prior to our planned BLA submission of ENVA for accelerated approval in refractory sarcoma based on data from ENVA-SARC. Our strategic goal is to commercialize two unlicensed immunology therapies together in sarcoma. It is important to understand the sales potential in sarcoma with ENVA at parity pricing is not solely the forecasted $200 million in peak annual ENVA revenues expected in the initial indications of refractory UPS and MFS, and the $100 million in annual revenue in rarer sarcoma subtypes where the activity of checkpoint inhibition is 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 marking ENVA and Y001 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. Last year, the National Cancer Institute 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 of care treatment of pemetrexed, cisplatin, and radiation therapy, followed by consolidated dervalumab maintenance 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%. Multiple sites are open in the U.S. for enrollment, and final results are expected in 2025. Our fourth clinical stage asset is the CD73 antibody TJ4309 that TRACON evaluated in a Phase I study as a single agent and in combination with a checkpoint inhibitor, Ticentric. We have completed data analysis of the clinical trial, which triggers IMAP's option to reacquire TJ4309. If IMAP does not exercise their option, then TRACON is entitled to a greater portion of royalty and non-royalty revenue through our revenue share provision. 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. IMAP initiated the arbitration to declare they were not in breach of either agreement. 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 arbitration, the prevailing party may also be awarded attorney's fees at the tribunal's discretion. In February 2022, 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 post-hearing briefs were submitted to the tribunal in late May. On August 8, 2022, the Tribunal invited the parties to submit an additional limited briefing on two discrete issues by December 9. Following that submission, the parties submitted their respective cost submissions. The Tribunal did not indicate when it expects to render its award. However, the Tribunal did note they are far along in their deliberations and preparation of a final award, and we continue to expect the Tribunal to provide their final award this quarter. The claims under the arbitration are complex. Accordingly, we cannot predict the outcome of the arbitration. 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 announced their award. Given the challenging capital markets, the expectation to secure non-dilutive capital from existing and new corporate partners is important. In the meantime, we recently secured capital through another source. In December, we entered into an up to $30 million non-dilutive, non-recourse financing related to the arbitration award decision expected this quarter. Of the up to $30 million total, $3.5 million was funded in December and an additional $26.5 million, or a lesser amount based on the amount awarded, will be available subject to the award exceeding its threshold and satisfaction of other conditions set forth in the agreement, with 25% of the total award being available to be funded after award announcement and the remainder available over a multi-year period. The non-recourse funding will be repaid upon collection of any award from IMAP at varying rates that depend on the time elapsed from funding and certain other matters related to the arbitration. This financing extends our crash runway to support the robust accrual of the pivotal NVSARC trial while we wait the outcome of the binding arbitration with IMAP and notification from IMAP regarding their option to terminate the TJ4309 agreement for $9 million. 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 continue to evaluate drug candidates whereby TRACON performs clinical trials at a lower fixed cost compared to a CRO but still at a premium to our cost using a pay for performance model. This is an aligned structure we used in the past, for example, with Johnson & Johnson. Second, we continue to explore 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, we believe such an investment could be expected to result in substantial time and cost savings for our partner. We believe that over time, our product development platforms are in 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 $3.9 million and $13.9 million for the three and 12 months ended December 31st, 2022, respectively, compared to $3.1 million and $11.1 million for the comparable periods of 2021. The increase in both periods was related to robust accrual in the Pivotal and the SARC trial. General and administrative expenses were $2 million and $14 million for the three and 12 months ended December 31st, 2022, respectively, compared to $4.6 million and $17.5 million for the comparable periods of 2021. The decrease in both periods was due to lower legal expenses as the arbitration hearing is now complete. We expect G&A expenses to remain relatively consistent in 2023 to the fourth quarter of 2022, However, there may be increases to the extent we must expend additional legal fees in connection with enforcing and collecting any arbitration award from IMAP. Our net loss was $7 million and $29.1 million for the three and 12 months ended December 31, 2022, respectively, compared to $7.7 million and $28.7 million for the comparable periods of 2021. Turning to the balance sheet, at December 31st, 2022, our cash and cash equivalents totaled $17.4 million compared to $24.1 million at December 31st, 2021. We expect our current capital resources to be sufficient to fund our planned operations into mid-2023. With that, I will turn the call back over to Charles.