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Edited Transcript of TCON earnings conference call or presentation 5-Nov-19 9:30pm GMT

Q3 2019 TRACON Pharmaceuticals Inc Earnings Call

SAN DIEGO Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of TRACON Pharmaceuticals Inc earnings conference call or presentation Tuesday, November 5, 2019 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

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Conference Call Participants

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* Mitchell Swaroop Kapoor

Jefferies LLC, Research Division - Equity Associate

* Robert Cummins Hazlett

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

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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 Third Quarter 2019 Earnings Conference Call. (Operator Instructions)

During today's call, we'll 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 Third Quarter 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 and 9 months ended September 30, 2019. Finally, we will conclude by taking your questions.

Our efforts continue to be centered on 3 value propositions: first, we continue to develop a robust pipeline of clinical-stage assets; second, we are tracking the progress of I-Mab's pipeline of multiple preclinical bispecific antibodies with the intent of selecting at least one of these assets for clinical development in 2020; third, we continue to evaluate additional external clinical-stage assets to potentially add to our pipeline in 2019 and 2020 and leverage our CRO-independent product development platform that includes U.S. commercialization expertise. We believe our product development platform will continue to allow us to establish key new partnerships that will drive significant long-term shareholder value.

Let's begin with an important financial transaction we executed with Aspire Capital in October. We entered into an agreement by which Aspire committed to purchase up to $15 million of our common stock at TRACON's request from time to time during a 30-month period beginning on or about the effective date of a registration statement related to the transaction and 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 Q2 2021, providing us with the financial resources for 4 significant 2020 clinical data points and the financial flexibility to continue to leverage our product development platform.

With respect to business development, our goal remains to establish new corporate partnerships around first-in-class, best-in-class or fast-follower, clinical-stage assets.

Let's turn now to our 4 clinical-stage assets and begin with DE-122, the ophthalmic formulation of carotuximab. Because the majority of patients do not experience meaningfully improved vision following treatment with single-agent VEGF inhibitors, we believe there is a substantial unmet clinical need for agents that target essential angiogenic pathways like endoglin to be developed in combination with VEGF inhibitors in wet AMD. Our licensee, Santen, completed enrollment last quarter 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 2020. This is expected to be our first significant clinical milestone of 2020. 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 second clinical-stage asset that is a novel, small-molecule inhibitor of the DNA base excision repair pathway that is intended to reverse resistance to certain chemotherapeutics. Enrollment continues in 4 Phase I or Phase II trials sponsored by the NCI that are focused on patients with mesothelioma or non-small cell lung cancer. As well, our academic collaborators continue to evaluate biomarkers in tumor specimens from glioblastoma patients treated in a completed Phase II trial as well as in tumor specimens from ongoing TRC102 trials, with the goal of identifying a protein or gene expression profile that correlates with clinical response. We expect multiple clinical data presentations on TRC102 in 2020.

We'll now move on to TRC253, our third clinical-stage asset that we are studying in a Phase I/II trial in patients with prostate cancer, who developed acquired resistance to treatment with Xtandi or Erleada. Earlier this month, we agreed with Janssen that the more than 70 enrolled patients are sufficient to determine the risk/benefit profile of TRC253 in 3 cohorts of metastatic castrate resistant prostate cancer patients: Those with an F877L mutation, those with another undisclosed androgen receptor point mutation and those with another basis for resistance to Xtandi or Erleada. While the data are early and not mature, the available data indicate a lower-than-expected initial response rate to therapy in patients with the F887L androgen receptor mutation and a lower-than-expected prevalence of that mutation. Based on the completion of accrual, we now expect to deliver Phase II proof-of-concept data on all currently enrolled patients to Janssen in the first half of 2020. Recall that TRACON licensed TRC253 from Janssen. And if they exercise their opt-in right to reacquire the asset upon the Phase II proof-of-concept data, 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.

Our fourth 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 PD-L1 antibody 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 escalating portions of non-royalty and royalty payments if I-Mab elect 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 microenvironment, in other words to make cold tumors hot, are one of the most exciting therapeutic approaches for cancer treatments.

Further, we view our access to a multiproduct pipeline as a valuable source of continued innovation. At this time, I-Mab has disclosed they're advancing 7 preclinical bispecific antibodies. We are particularly interested in the I-Mab bispecifics that engage T cells through the 4-1BB T cell receptor, including one that targets the tumor through PD-L1 expression and another that targets the tumor through expression of an undisclosed tumor-associated antigen.

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 costs for more advanced development stages and for U.S. commercialization. And the 2 companies will also equally share in 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 time prior to 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 this 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.

From a financial perspective, our capital resources are expected to be sufficient to fund our currently planned operations into the third quarter of 2020 and through multiple potential value-creating clinical and business development milestones. As we discussed, our runway may be further extended through use of the equity line recently established with Aspire Capital.

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

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Scott B. Brown, TRACON Pharmaceuticals, Inc. - CAO [3]

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Thank you, Charles, and good afternoon, everyone. TRACON reported no collaboration revenue for the 3 and 9 months ended September 30, 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 Ambrx agreement that was recorded as revenue in 2018 compared to no corresponding revenue in 2019.

Research and development expenses were $3.1 million and $12.6 million for the 3 and 9 months ended September 30, 2019, respectively, compared to $7 million and $24.5 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 earlier this year.

General and administrative expenses were $2 million and $5.9 million for the 3 and 9 months ended September 30, 2019, respectively, compared to $2.1 million and $5.5 million for the comparable periods of 2018.

Our net loss was $5.2 million and $18.7 million for the 3 and 9 months ended September 30, 2019, respectively, compared to $9.1 million and $27.2 million for the comparable periods of 2018.

Turning to the balance sheet. At September 30, 2019, our cash, cash equivalents and short-term investments totaled $19.1 million compared to $26.3 million and $39.1 million at June 30, 2019, and December 31, 2018, respectively. As Charles said, we expect our current capital resources to be sufficient to fund our planned operations into the third quarter of 2020, 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, we have built a broad pipeline and look forward to 4 potentially value-creating clinical milestones that are expected in 2020: first, top line Phase II AVANTE trial results in wet AMD through our licensee, Santen, in the first half of the year; second, top line Phase II proof-of-concept data for TRC253 in prostate cancer, which will trigger the Janssen right to reacquire in the first half of the year; and then in the second half of the year, Phase I data for TJ4309, our CD73 antibody; and nomination and IND filing for the first bispecific antibody from our broad partnership with I-Mab.

The clinical readouts expected in the first half of 2020 could result in success-based milestones, which would further extend our cash runway. We also continue to identify ex U.S. companies with first-in-class, 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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Mitchell Swaroop Kapoor, Jefferies LLC, Research Division - Equity Associate [2]

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This is Mitchell on for Maury. My first question is for the DE-122 study, has that study been reviewed by DSMB. And if so, have you got any feedback on those reviews?

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

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Appreciate your question. Yes. There's no DSMB interim look into that study. So we will not have an interim look at the data until the final days available, which we expect in the first half of next year.

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Mitchell Swaroop Kapoor, Jefferies LLC, Research Division - Equity Associate [4]

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Okay. And then for TRC253, are you seeing a higher prevalence of that androgen receptor mutation that you mentioned versus F877L?

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

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So -- yes, so we're looking at 3 cohorts of patients in the trial. And yes, to be clear, those are the F877L point mutation, where we've seen a lower-than-expected prevalence. There's a second undisclosed point mutation androgen receptor that we're enrolling that has a higher prevalence than F877L that we are currently exploring. And then the third cohort are the patients that fail without a defined point mutation as a basis for resistance. And so those are 3 sets of cohorts that we'll report data on expected in the first half of next year.

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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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I appreciate the update, Charles, and I'm really intrigued by the comments with regard to the I-Mab pipeline, especially the 4-1BB program. Could you remind us how those programs -- or how the decision process works with regard to the selection of those antibodies and how they move forward? I know there's some discussion between you and I-Mab, but can you remind us how that vetting works?

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

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Sure, Bert. No, I really appreciate the question. It's such an important part of our future in terms of the long-term access to that pipeline. So the way that works is as those bispecifics start moving through the IND-enabling process and they reach a stage where they are formally presented to TRACON, and that includes the assets listed -- the 7 assets that are currently listed, including the 4-1BB-targeting assets and also any future asset that continues to advance up to that kind of IND-enabling stage where there's enough preclinical data, manufacturing data to make it an IND-enabled compound, at that point we evaluate it carefully. And based on the existing data, we can nominate that to come into our collaboration. And we are entitled to do that up to 5 times over the next 5 years at a pace of 1 to 2 per year over that 5-year period of time. And then once we nominate that, then I-Mab continues to move forward with respect to performing the IND-enabling studies. We assemble the IND and file it; as part of their responsibility, continue the manufacturing activities, which is their responsibility through -- up until the time of BLA filing and commercialization. And then we take on the full responsibility not only of IND filing but also of running the clinical trials, including the initial Phase I and Phase II trial, with the thought being that in many cases with a bispecific, the Phase II trial data may be sufficient for approval.

At the time that we actually commercialize the drugs, then we split the commercialization costs, then we split the profits equally in the U.S., and they are fully entitled to commercialize the bispecifics all on their own in China. So that's kind of a general overview of how that relationship works. And we do stay in close touch with I-Mab in terms of quarterly JSC meetings to monitor the progress of the bispecifics.

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

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That's helpful. And then with regard to 4-1BB specifically, there's been some intriguing data that has arisen with that particular target. What has lifted it above others that has really intrigued you?

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

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Yes. No, a great question, Bert. So when I look at bispecifics, I think in 2 broad categories. So there are bispecifics that truly bring T cells to a tumor, like through the 4-1BB receptor. Or another play there would be through the CD3 receptor. But truly engaging a cell and trying to turn a cold tumor hot, in my view, is a very exciting prospect. The other class of bispecifics is -- are engaging 2 separate, for instance, immune checkpoint receptors, for instance PD-L1 and, say, another receptor like a TIGIT receptor. And they're -- those are less attractive inherently to me just because in that case, you really have to prove that the bispecific is superior to targeting either of those receptors individually with a separate monoclonal antibody, whereas when you're engaging a T cell, you're really creating a paradigm that you can't recreate with 2 separate antibodies. So that's why inherently, the bispecifics that are T cell engagers, to me, make more sense as the potential -- potentially true cancer therapy breakthroughs as opposed to 2 separate immune checkpoint targets.

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

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So then is there a group of -- a subgroup of patients that you might be able to target with that antibody that enrich potentially those with low TILs in the tumor microenvironment?

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

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Yes. I mean I think with respect to bispecifics, you definitely could think about enrichment strategies. For instance, a PD-L1 4-1BB antibody, you could definitely profile those tumors for PD-L1 expression as one mechanism for enriching for more responsive patients. For a second target that -- right now, there's an undisclosed tumor-associated antigen that's another target for a 4-1BB bispecific I-Mab is developing. So for example, you could look for that target by immunohistochemistry on a tumor as another way to enrich for patients that might respond to that bispecific. So clearly, biomarker enrichment is a prime focus of development of a bispecific that could make the difference between a successful therapy and an unsuccessful therapy.

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Robert Cummins Hazlett, BTIG, LLC, Research Division - MD & Biotechnology Equity Research Analyst [13]

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Okay. And just one other follow-up on the Phase II data on 253. Just -- is that due to patient selection? Is that due to the resistant criteria of the lower-than-expected initial response rate? What's driving that response, do you think, as you look at the trial?

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

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Yes. No, it's a great question. I think when we think about prostate cancer, when you look back, for instance, to Xtandi and Erleada, and you saw that in patients who were naive to those therapies where the resistance was based on wild-type androgen receptor, you saw PSA response rates to those drugs of 50% and higher. And as you then get to more, if you will, elaborate mechanisms of resistance, for instance the F877L point mutation, those tumors likely are more heterogeneous. And so while F877L may be one basis for a mutation, there may be other mechanisms also that are the basis for resistance. So we're clearly not seeing that 50% PSA response rate in an F877L mutation patient that you would have expected, for instance, based on the Xtandi, Erleada data in wild-type AR patients.

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Operator [15]

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Thank you. And 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 any further remarks.

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Charles P. Theuer, TRACON Pharmaceuticals, Inc. - CEO, President & Director [16]

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

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Operator [17]

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