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Edited Transcript of TCON earnings conference call or presentation 27-Feb-20 9:30pm GMT

Q4 2019 TRACON Pharmaceuticals Inc Earnings Call

SAN DIEGO Mar 18, 2020 (Thomson StreetEvents) -- Edited Transcript of TRACON Pharmaceuticals Inc earnings conference call or presentation Thursday, February 27, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charles P. Theuer

TRACON Pharmaceuticals, Inc. - CEO, President & Director

* Scott B. Brown

TRACON Pharmaceuticals, Inc. - CAO & Head of Finance

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Conference Call Participants

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* Robert Cummins Hazlett

BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst

* Swapnil A. Malekar

Jefferies LLC, Research Division - Equity Associate

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals Fourth Quarter and Year-End 2019 Earnings Conference Call. (Operator Instructions)

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 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, 2018, 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?

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Charles P. Theuer, TRACON Pharmaceuticals, Inc. - CEO, President & Director [2]

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Good afternoon, and thank you for joining TRACON's Fourth Quarter and Full Year 2019 Financial Results and Business Update Conference Call. I will begin with an update on our pipeline and recent activities. Following that, our Chief Accounting Officer, Scott Brown, will review our financial results for the 3 months and year ended December 31, 2019. Finally, we will conclude by taking your questions.

Our primary efforts are currently focused on our recently in-licensed product candidate, envafolimab, a late-stage, potential best-in-class PD-L1 checkpoint inhibitor by virtue of its subcutaneous route of administration. We expect to begin enrollment in a potential pivotal study in sarcoma in the second half of this year. While we regard envafolimab as our lead product candidate, we also anticipate significant milestones related to our 4 other clinical-stage assets in the near term.

Let's begin with a review of our license of envafolimab, which we refer to as enva, for the treatment of sarcoma. At ASCO 2019, data were presented from the SARC 028 study, demonstrating that the checkpoint inhibitor, Keytruda, achieved a 23% response rate in 40 patients with undifferentiated pleomorphic sarcoma, or UPS, or the closely related subtype of myxofibrosarcoma, or MFS, irrespective of PD-L1 expression.

Data from a separate study in sarcoma indicated that dual checkpoint inhibition with Opdivo and YERVOY was more effective than single-agent Opdivo treatment. Notably, while immune checkpoint inhibitors have demonstrated activity in multiple sarcoma subtypes, we are unaware of an ongoing or planned registration-enabling trial with a checkpoint inhibitor in sarcoma.

As you know, we develop and maintain close relationships with many sarcoma key opinion leaders as a result of our completed TAPPAS Phase III trial in angiosarcoma. These key opinion leaders have indicated that a successful registration-enabling study of a checkpoint inhibitor in the sarcoma subtypes of UPS and MFS would be valuable to patients, physicians and payers. Therefore, our strategy is to satisfy this high unmet medical need initially in refractory patients and then potentially in frontline patients. Given our TAPPAS study was conducted at 27 sites in the United States and in multiple European countries, we possess the unique experience and capacity to rapidly study a new agent in sarcoma.

Subject to input from the FDA, we expect to initiate a potential pivotal trial that will include one cohort of approximately 80 patients who will receive single-agent enva and a second cohort of approximately 80 patients who will receive enva in combination with YERVOY, a second checkpoint inhibitor targeting the CTLA-4 receptor that is marketed by BMS. We expect that the primary endpoint in each of the cohorts will be objective response rate and expect to target a 15% objective response rate in each of the 2 cohorts. Votrient, which is approved for the treatment of these sarcoma patients following prior chemotherapy, has a 4% objective response rate. So a demonstration of a significantly higher response rate in this population of cancer patients will be a meaningful advance in the standard of care.

This trial design is similar to the design of the completed Alliance trial that was funded by the NCI and published in Lancet Oncology in 2018. This trial showed that combining YERVOY with Opdivo increased the response rate in sarcoma patients compared to single-agent Opdivo. Therefore, we believe our trial design could be the basis for accelerated approval of enva by the FDA as a single agent as well as in combination with YERVOY. And the dual arm design provides for risk mitigation in case combination treatment is required for robust activity.

In the near term, we expect to deliver the following milestones for enva in 2020: meet with the FDA regarding the potential pivotal trial design; file an IND cross referencing the open IND of our corporate partner; receive a determination of orphan drug designation in sarcoma; and initiate dosing in the potential pivotal clinical trial. We estimate having an interim response assessment in mid-2021, having a final response assessment in early 2022, and assuming positive data, submitting a BLA for accelerated approval that, if approved, would permit commercial launch in the U.S. in 2023. Additionally, provided positive data from the initial trial in refractory UPS and MFS, we intend to initiate a randomized trial of enva as a single agent or combined with YERVOY or another approved cancer therapy for multiple soft tissue sarcoma subtypes to expand the target patient population. This trial could include biomarker-directed enrollment based on biomarker analyses that will be conducted as part of the initial trial in refractory UPS and MFS.

We estimate a checkpoint inhibitor in refractory UPS and MFS could generate revenue of nearly $200 million in the U.S., assuming parity pricing to Keytruda or Opdivo. Of course, revenues could increase if treatment has expanded into other sarcoma subtypes in the first-line setting.

Let's now discuss enva in further detail. This promising asset is a potential best-in-class PD-L1 inhibitor by virtue of the fact that it is given subcutaneously. Enva benefits from the single domain antibody format that was pioneered by Ablynx, a Sanofi company that markets the single domain antibody, Cablivi. As a result, compared to approved checkpoint inhibitors, enva potentially has the following advantages: first, better patient compliance due to greater convenience. The subcutaneous formulation enables much faster administration compared to an intravenous infusion and the potential for administration by patient self-injection, which is more convenient for patients. Second, relatively stable plasma drug concentrations can be achieved without significant fluctuations due to the nature of subcutaneous administration, which may improve safety. Third, a smaller molecule could penetrate better into tumors to improve efficacy.

Enva has been administered to more than 650 patients in 8 ongoing clinical studies, including Phase I dose escalation trials in the U.S., Japan and China; a pivotal single-arm trial in MSI-high cancer patients in China; and a Phase III randomized trial in biliary tract cancer in China. In these dose escalation studies, exposure to enva was dose-dependent and increased proportionally with a mean half-life of approximately 200 hours that allowed for sustained serum levels for at least 2 weeks. PK analyses suggest the half-life would support a less frequent dosing schedule and every 4-week dosing is currently being studied in ongoing U.S. and Japanese Phase I trials.

The safety profile in clinical trials has been consistent with that of other PD-L1 inhibitors, with low-grade anemia and low-grade liver function test increases being the most common overall adverse events. We were impressed by the activity of the drug in Phase I trials. Data from the Chinese Phase I trial were presented at ASCO 2019. 3 of 15 evaluable patients had confirmed partial responses, including patients with renal cell carcinoma and biliary tract cancer. Data from the U.S. Phase I trial were presented at ESMO 2018. 2 of 17 evaluable patients had confirmed partial responses, including one lung cancer patient and one MSA-high prostate cancer patient. Data from the Japanese Phase I trial were presented at ASCO 2019. 2 of 9 evaluable patients had confirmed partial responses and 2 patients had unconfirmed partial responses.

Notably, our partner 3D Medicines intends to file a BLA in China for enva in 2020, based on data from an ongoing pivotal trial in patients with MSI-high tumors. Importantly, the filing is predicated on the principle that the objective response required for approval in China must be similar to the objective response rate for PD-1 inhibitor products approved in the U.S. for MSI-high cancer patients.

The license agreement with 3D Medicines and Alphamab is a collaboration and clinical trial agreement to develop and commercialize enva in sarcoma in North America. Instead of paying a traditional upfront fee, TRACON's capital will be used directly to advance the clinical development of enva as expeditiously as possible. As with our other 2 agreements with I-Mab signed in 2018, TRACON has again leveraged our CRO independent capability to lead clinical development and regulatory filings in the U.S. and will bear the cost of all clinical trials in sarcoma.

Alphamab will be responsible for supplying enva to TRACON at prenegotiated prices for clinical and commercial use. 3D Medicines and Alphamab retain the right to develop enva in all territories outside of North America as well as within North America for all indications other than sarcoma.

TRACON will lead commercialization, which includes booking of sales and will owe 3D and Alphamab-tiered royalties on net sales in sarcoma, ranging from the teens to mid-double digits, unless enva is first approved in North America in an indication other than sarcoma or enva is first approved in sarcoma and subsequently approved in a nonorphan indication in North America, in which case, 3D Medicines will lead commercialization and book sales revenue.

If 3D Medicines leads commercialization, we have the option to co-market enva and receive a 50% royalty on sarcoma sales, or if we do not elect to co-market, we will receive tiered royalties on sales in sarcoma from 3D Medicines ranging from the teens to mid-double digits.

3D Medicines and Alphamab have the right to reacquire enva in connection with the sale of the entire product in North America to a third party, provided, however, that the sale will not occur prior to completion of the pivotal trial in sarcoma without our consent. And we will negotiate in good faith fair compensation for TRACON given the value of the program at the time.

Let's now turn to our 4 other clinical-stage assets and begin with our antibody, DE-122. Our licensee Santen completed enrollment in mid-2019 in the 3-arm randomized Phase II AVANTE study that compares treatment with 2 different doses of DE-122 combined with Lucentis to treatment with single-agent Lucentis. The trial accrued patients at 10 sites in the U.S., and top line data, including the primary endpoint of best corrected visual acuity following 6 months of dosing, are expected in the first half of this year. On February 4, during their most recent earnings calls, Santen announced they are currently analyzing the clinical data from the Phase II AVANTE study.

TRACON retains significant financial rights to DE-122, including $145 million in remaining developmental, regulatory and commercialization success-based milestones and a high single-digit to low-teen royalty on global net sales.

We'll turn now to TRC102, our third clinical-stage asset, which is a novel small molecule inhibitor of the DNA-based excision repair pathway that is intended to reverse resistance to certain chemotherapeutics. The NCI is supporting 4 Phase I or Phase II trials that are focused on patients with mesothelioma or non-small cell lung cancer. In addition, our academic collaborators continue to evaluate biomarkers and tumor specimens from glioblastoma patients treated in a completed Phase II trial and in tumor specimens from patients in ongoing TRC102 trials with the goal of identifying a protein or gene expression profile that correlates with clinical response. We expect clinical data from multiple TRC102 clinical trials will be presented at ASCO 2020.

We'll now move on to TRC253, our fourth clinical-stage asset that we are studying in a Phase I/II trial in patients with prostate cancer, who have developed acquired resistance to treatment with Xtandi or Erleada. In 2019, we announced that we completed enrollment of more than 70 patients into 1 of 3 cohorts of metastatic castrate-resistant prostate cancer. Those with an F877L mutation, those with another undisclosed androgen receptor point mutation and those with another basis for resistance to Xtandi or Erleada. At that time, we indicated that available data indicated a lower-than-expected initial response rate to therapy in patients with the F877L mutation and a lower-than-expected prevalence of that mutation.

We expect to deliver Phase II proof-of-concept data on all currently enrolled patients to Janssen in the first half of 2020, which will trigger a 90-day period, during which Janssen may exercise their opt-in right to reacquire the asset. In that case, TRACON is entitled to receive a $45 million upfront payment, up to $137.5 million in success-based milestones and a low single-digit royalty on sales. If Janssen does not opt in, TRACON can advance TRC253 independently or with a partner in the U.S. and abroad, including in China.

Our fifth clinical stage asset is the CD73 antibody, TJ4309, which is being studied in a Phase I dose escalation study as a single agent and in combination with Tecentriq, a marketed checkpoint inhibitor being supplied by Roche. We are developing TJ4309 in collaboration with I-Mab Biopharma through our first agreement with them, and we anticipate completing dose escalation and presenting top line data from this Phase I trial in the second half of 2020. In this collaboration, TRACON is responsible for the regulatory and clinical development of TJ4309 in the U.S. and Europe. And TRACON is entitled to receive escalating portions of non-royalty and royalty payments if I-Mab likes to out-license TJ4309 to a third party.

Our second agreement with I-Mab is a multiproduct collaboration to develop up to 5 of I-Mab's bispecific antibodies in North America. We believe that bispecific antibodies, especially those that have the potential to direct T cells to the tumor in microenvironments, in other words, to make cold tumors hot, are one of the most exciting therapeutic approaches for cancer treatment. Further, we view our potential access to a multiproduct pipeline as a valuable source of continued innovation.

At this time, I-Mab has disclosed they are advancing 7 preclinical bispecific antibodies. For any bispecific antibody that becomes subject to the collaboration, TRACON will lead clinical development and commercialization in the U.S. and bear the cost of early phase clinical trials. TRACON and I-Mab will share the cost of more advanced development stages and for U.S. commercialization, and the 2 companies will also equally share in the profits from U.S. commercialization.

Another element of this agreement worth noting is TRACON's right to in-license each bispecific antibody that becomes subject to the collaboration from I-Mab at any point prior to the conclusion of the pivotal study. Exercising this option would expand our rights to include all territories outside of Greater China. The opt-in payments escalate to reflect the advancing phase of development. For example, an opt-in payment of $10 million is due if TRACON exercises its option prior to IND-enabling studies. We expect to file an IND for the first bispecific antibody from I-Mab in the U.S. in 2020.

With respect to further potential business development activities, our goal remains to continue to establish new corporate partnerships or enlarge the scope of existing partnerships around first-in-class, best-in-class or fast-follower clinical stage assets. Notably, we have completed 4 licenses of first or potential best-in-class assets since 2016 and each case without an upfront payment. We continue to evaluate potential assets for license at this time using our novel risk, cost and profit share model.

From a financial perspective, we have improved our cash runway as a result of decreased expenses and capital raised through the use of our ATM in 2019 and earlier this year.

From a decreased expense point of view, it is noteworthy that we are currently accruing significant clinical trial expenses for only one program as TRC102 development is funded by the NCI, DE-122 development is funded by Santen and TRC253 enrollment has been completed. Enva clinical expenses are expected to begin in the second half of this year but are expected to only marginally increase the second half burn given the efficiencies of our product development platform.

We also established compliance with the NASDAQ capital markets listing requirements in February as a result of increased shareholder equity achieved through the utilization of the ATM. Our capital resources are expected to be sufficient to fund our currently planned operations into the first quarter of 2021 and through multiple potential value-creating clinical and business development milestones.

Furthermore, we can potentially further extend our cash runway through our agreement with Aspire Capital, under which they are committed to purchase up to $15 million of our common stock at our request from time to time during a 30-month period at prices based on the market price at the time of each sale. If fully utilized, we estimate this facility would extend our cash runway into 3Q 2021. Importantly, our financial runway could be further extended through nondilutive capital from success-based milestones through our partnerships with Janssen, Santen and I-Mab.

At this time, Scott will provide an update on our financials.

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Scott B. Brown, TRACON Pharmaceuticals, Inc. - CAO & Head of Finance [3]

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Thank you, Charles, and good afternoon, everyone. TRACON reported no collaboration revenue for the 3 months and year ended December 31, 2019, compared to 0 and $3 million for the comparable periods of 2018, respectively. The decrease was due to the $3 million upfront payment received in connection with the prior Ambrx agreement that was recorded as revenue in 2018.

Research and development expenses were $1.9 million for the fourth quarter and $14.5 million for the year ended December 31, 2019, compared to $5.9 million and $30.5 million for the comparable periods of 2018. The decrease was primarily attributable to lower manufacturing and clinical trial expenses related to the termination of the TRC105 program in April last year.

General and administrative expenses were $1.9 million for the fourth quarter and $7.8 million for the year ended December 31, 2019, compared to $1.8 million and $7.3 million for the comparable periods of 2018.

Our net loss was $3.9 million for the fourth quarter and $22.7 million for the year ended December 31, 2019, compared to $7.8 million and $35 million for the comparable periods of 2018.

Turning to the balance sheet. At December 31, 2019, our cash, cash equivalents and investments totaled $16.4 million compared to $39.1 million at December 31, 2018. As Charles said, we expect our current capital resources, which includes proceeds from additional use of the ATM facility in January, to be sufficient to fund our planned operations into the first quarter of 2021, which may be further extended through use of the equity line with Aspire Capital.

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

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Charles P. Theuer, TRACON Pharmaceuticals, Inc. - CEO, President & Director [4]

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Thank you, Scott. To recap, enva solves for our quest to license an exciting late-stage asset and repositions the company to forward integrate and potentially build our commercial capabilities, which we intend to leverage across multiple products over time. Enva is now our lead asset given the demonstrated activity of checkpoint inhibitors in sarcoma, which derisk clinical development, the opportunity to rapidly initiate and complete a potential registration-enabling study in sarcoma by leveraging TRACON's unique and strong relationships within the sarcoma community and then the opportunity for commercialization in North America.

Of course, our pipeline is broad, with 5 clinical-stage assets at this time, and we expect to deliver multiple potential value-creating clinical milestones in 2020. These include: first, to reiterate for enva, meeting with the FDA, filing an IND and finally, orphan drug designation in the first half and then dosing in the potential pivotal trial in the second half of the year. Second, reporting top line Phase II AVANTE trial results in wet AMD through our licensee, Santen, in the first half of the year. Third, delivering top line Phase II proof-of-concept data for TRC253 in prostate cancer to Janssen, which will trigger Janssen's option to reacquire in the first half of the year.

We also continue to evaluate ex U.S. companies with first-in-class, potential best-in-class or fast-follower clinical stage assets who would benefit from accessing the TRACON product development platform through a new corporate collaboration.

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 available to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Maury Raycroft with Jefferies.

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Swapnil A. Malekar, Jefferies LLC, Research Division - Equity Associate [2]

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This is Swapnil on for Maury. Just a couple of questions. So the first one is regarding DE-122. So you said that Santen mentioned in their February 4 earnings call that they're analyzing data. So do you think we would be able to see any of this data in an upcoming medical conference like at ARVO maybe?

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Charles P. Theuer, TRACON Pharmaceuticals, Inc. - CEO, President & Director [3]

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Good question. So the plan with Santen and TRACON is that they're analyzing the data, and we do expect to release top line data release around the data and next steps. Beyond that, do expect to see the full data presentation at a significant medical conference, although that has yet to be defined at this time.

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Swapnil A. Malekar, Jefferies LLC, Research Division - Equity Associate [4]

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Okay. And then for the enva before meeting with the FDA and initiation of the pivotal trial, is there anything else or like ongoing activities that need to be completed before meeting with the FDA?

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Charles P. Theuer, TRACON Pharmaceuticals, Inc. - CEO, President & Director [5]

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Yes. So our goal currently is to complete the pre-IND package and then submit that, request a meeting with the FDA, which we expect will be in quarter 2, and then vet the plan with the FDA. About that time, we'll also apply for drug designation. And then with those items completed, we expect to dose a pivotal trial in the second half. So a lot of preparations are going on currently to meet all those milestones around the enva program.

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Operator [6]

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(Operator Instructions) Our next question comes from Bert Hazlett with BTIG.

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Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [7]

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Certainly a lot to consider in the coming months and quarters. We're excited for the data readouts. Just in terms of the CD73 antibody with I-Mab and that collaboration, is there any particular focus in terms of tumor type that we should be thinking about for next steps? Or is it just too early to determine at this point?

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Charles P. Theuer, TRACON Pharmaceuticals, Inc. - CEO, President & Director [8]

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Robert, great question. So with respect to CD73, we are currently evaluating not only our own data, but I think the nice thing about that target is there are several other players in the space, as you well know. So we plan to continue to evaluate the competitive landscape and the ongoing trials with our competitors, if you will, which includes BMS, for example, which includes MedImmune, AZ to glean some insight into what tumor types might be most responsive. And then we'll look at our own data with that same regard. So that's an ongoing effort that we'll continue to evolve as data continues to become apparent, both from competitor companies and also within our own database. And it will be an important decision. I think picking not only the right indication but the right combination is going to be critical for making that a valuable therapy. And then potentially selecting biomarkers that will be the basis for enrollment of patients in that indication could also be critical.

Our current focus, as you know, is combining with Tecentriq as a PD-L1 therapy based on solid preclinical data, but there are other opportunities to think about, including combinations with chemotherapy or other targeted agents. So that's going on as we speak, and we'll have further thoughts around that in the near future.

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Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [9]

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Charles, do you expect to announce that strategy as you announce the data? Or is that kind of a 2-step process?

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Charles P. Theuer, TRACON Pharmaceuticals, Inc. - CEO, President & Director [10]

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Yes, I think -- it's a good question. I think we will be discussing that and determining that in conjunction with our partners, I-Mab. So in order for us to really make that a clear public announcement, both companies will want to agree, and that may take a little bit longer than just at the time of the top line data for the Phase I trial.

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Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [11]

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Okay. And then just the I-Mab collaboration, the second part of it, when do you expect us to see which ones are actually moving forward initially in terms of bioreceptor?

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Charles P. Theuer, TRACON Pharmaceuticals, Inc. - CEO, President & Director [12]

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Right. Yes. No, good question. That's an exciting deal for us. And we do expect to be able to nominate and file the NDA on the initial bispecific by end of this year. So that would be the time line to expect to know what that product is and our plan around development of that product.

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Operator [13]

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I'm not showing any further questions at this time. I would now like to turn the call back over to Dr. Charles Theuer for closing remarks.

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Charles P. Theuer, TRACON Pharmaceuticals, Inc. - CEO, President & Director [14]

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Thank you, everyone, for your attention today, and we look forward to speaking with you again next quarter. Have a good day.

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Operator [15]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.