Q2 2023 TRACON Pharmaceuticals Inc Earnings Call
Participants
Charles P. Theuer; CEO, President & Director; TRACON Pharmaceuticals, Inc.
Scott B. Brown; CFO; TRACON Pharmaceuticals, Inc.
Edward Patrick White; MD of Equity Research & Senior Healthcare Analyst; H.C. Wainwright & Co, LLC, Research Division
Joel Lawrence Beatty; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Presentation
Operator
Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals Second Quarter 2023 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 of regulatory activities, financing opportunities, future expenses and cash runway, our development plans and strategy and with the recovery of the award from our arbitration with I-Mab, 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, 2022, 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.
Now I would like to turn the call over to Dr. Charles Theuer, President and CEO of TRACON Pharmaceuticals. Dr. Theuer.
Charles P. Theuer
Good afternoon, and thank you for joining TRACON's Second Quarter 2023 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 discuss our financial results for the 3 and 6 months ended June 30, 2023. Finally, we will conclude by taking your questions. I'll begin with an update on our continued progress with the ongoing ENVASARC pivotal trial.
In June, the data monitoring committee reviewed interim safety and efficacy data for more than 80 patients equally randomized into cohort C of single-agent ENVA treatment, a cohort D of ENVA given in combination YERVOY. Patients in Cohort C, who had at least 2 on-study CT scans continue to demonstrate a double-digit objective response rate assessed by investigator and blinded independent central review. ENVA was generally well tolerated without a single greater than grade 2 drug-related adverse events. The combination of ENVA with YERVOY did not demonstrate synergy when compared to single-agent ENVA reatment, and we, therefore, terminated enrollment in Cohort D.
This decision has resulted in a reduction in trial costs and acceleration of the time line to final ENVASARC data. We expect full accrual of the 80 patients into Cohort C of treatment with single-agent ENVA in the fourth quarter and final data, including duration of response by mid-2024.
In addition, a protocol-mandated DMC review will be conducted and reported after the 46 patients treated with ENVA has completed a minimum of 12 weeks of efficacy evaluations. We expect the DMC review to occur this quarter as the ENVASARC trial has enrolled 180 patients to date, including 56 of the 80 expected patients in Cohort C of single-agent ENVA treatment. This DMC review includes a futility threshold that has already been achieved based on responses seen to date.
As a reminder, the primary endpoint in ENVASARC is objective response rate by RECIST, confirmed by blinded independent central review, with 9 out of 80 objective responses or an 11.25% objective response rate defines the level response that satisfies the primary endpoint of the study. To statistically exceed the 4% objective response rate of Votrient, the only FDA-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, Votrient is a drug with a black box warning for fatal liver toxicity. Our goal in ENVASARC, therefore, is to demonstrate that ENVA has the potential to be both safer and more efficacious than Votrient. Based on data from trials of other checkpoint inhibitors in refractory UPS or MFS, we are targeting a 15% response rate for single-agent ENVA. Furthermore, we plan to approach the FDA to discuss the BLA filing strategy as soon as we determine 9 responses. As a reminder, we have received Fast Track designation for ENVA in the sarcoma subtypes of UPS and MFS that have progressed on 1 or 2 prior lines of therapy and received orphan drug designation in soft tissue sarcoma based on activity observed in ENVASARC. These designations provide important advantages that might expedite regulatory review and commercialization of ENVA. ENVASARC is designed to provide safety and efficacy data for the approval of ENVA in the refractory sarcoma subtypes of UPS and MFS. We also have a strategy for the approval of ENVA in frontline sarcoma.
Based on expected synergy between ENVA and YERVOY, we licensed YH001 of potential best-in-class (inaudible) antibody from (inaudible) in October 2021 and began a Phase I/II clinical trial evaluating a triplet that included YH001, ENVA (inaudible) chemotherapy for the treatment of frontline sarcoma.
However, given the lack of synergy observed in ENVASARC between ENVA and the CTLA-4 antibody YERVOY and available data from patients treated with ENVA and YH001, we have decided to end enrollment into the trial as originally designed. We now plan to initiate a modified trial of ENVA and doxorubicin in the frontline setting of common sarcoma subtypes, including UPS and MFS, following completion of enrollment in the pivotal ENVASARC trial. The goal that modified trial will be to determine the subtypes of sarcoma that best respond to the combination of ENVA and doxorubicin. Assuming positive results in the ENVASARC pivotal trial and potential accelerated approval of ENVA, we expect the FDA will require a randomized trial to demonstrate a survival benefit.
We now expect this potential Phase III post-approval trial will compare single-agent doxorubicin to doxorubicin with ENVA with progression-free survival 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 therapy with ENVA and doxorubicin. We expect to discuss the design of a frontline trial with the FDA at the time of our expected pre-BLA meeting to review the expected submission of data from ENVASARC for potential accelerated approval of ENVA in refractory sarcoma.
It is important to understand the sales potential in sarcoma (inaudible) pricing is not solely the forecasted $200 million in peak annual ENVA revenues anticipated upon approval in refractory UPS and MFS. 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 BLA approvals. We will now turn to our DNA damage repair inhibitor, TRC102, that is supported through a cooperative research and development agreement with the National Cancer Institute. The NCI sponsoring an ongoing randomized Phase II trial assessing TRC102 in stage III non-squamous non-small cell lung cancer in combination with chemo radiation. The 2-arm trial will enroll 78 patients to assess the benefit of adding TRC102 to current standard of care treatment of pemetrexed-cisplatin radiation therapy followed by consolidated durvalumab maintenance treatment. The primary endpoint of the trial is progression-free survival and the trial is designed to detect an improvement in PFS at 1 year from 56% to 75%.
The nine sites are open for enrollment in the U.S. and final results are expected in 2025. Next, I will provide an update on the collection of our arbitration award from I-Mab. On April 24, we were informed the Tribunal ruled in our favor for certain claims and rendered award to TRACON in the aggregate amount of approximately $23 million, among other findings that Tribunal declared the TJ4309 trial complete, which entitled TRACON to $9 million and also awarded legal fees and costs to TRACON.
In July, we collected $22 million from I-Mab in satisfaction of the International Chamber of Commerce Award to TRACON announced in April. $10.5 million of the collected amount was used to repay our litigation financing facility in full, and net proceeds collected to date of $7.1 million are expected to fund the company's operations as currently planned into the first half of 2024.
An additional $4.4 million of the arbitration award remains in a client trust account administered by our law firm at this time, the disbursement of which is predicated on discussions as to the amount of success-based deferred legal fees the firm is due. Following these discussions, disbursement of all or a portion of that amount is expected later this year. We expect to further extend our runway by securing non-dilutive capital through leveraging our CRO-independent product development platform that we believe positions us as one of the most efficient clinical development organizations. As an example of our efficiency, our fully burdened per patient cost for dosing patients in the ENVASARC trial is less than $90,000 per patient.
This compares favorably with typical CRO bid estimates of $300,000 per patient that may be even more expensive if change order charges are considered. In addition, by managing all regulatory filings internally, we believe we significantly shortened trial duration by expecting the approval of protocol amendments and consent forms. We also emphasize quality through the use of a team of reliable site monitors, who are highly experienced with relevant oncology response criteria to ensure accurate data reporting. These attributes of our product development platform have been the basis for capital infusions from partners like Johnson & Johnson, who have collaborated with us to run trials of their drug candidates.
Our current focus is (inaudible) in one of two ways. First, by replacing (inaudible) to lower their anticipated costs, but still generate a substantial profit for TRACON. And two, to teach our operational capabilities to a company with an emerging pipeline who plans to conduct multiple trials. This offering would include our platform of advanced clinical trial management, data management and safety reporting that will enable our collaborator to conduct trials at a cost of less than 1/3 of what they may otherwise pay to a CRO. Leveraging our cost-efficient CRO-independent product development platform to generate non-dilutive capital for the end of this year is a top priority for the company.
In that regard, please note the corrected press release, and let me reiterate, we expect to generate non-dilutive capital before end of this year by leveraging our CRO-independent product development platform.
At this time, Scott will provide an update on our financials.
Scott B. Brown
Thank you, Charles, and good afternoon, everyone. Collaboration revenue was $9 million for the 3 and 6 months ended June 30, 2023 compared to 0 for the comparable periods of 2022. The increase in revenue was from the prespecified $9 million termination fee for the TJ4309 license in conjunction with the arbitration outcome. TRACON's research and development expenses were $3.5 million and $8.5 million for the 3 and 6 months ended June 30, 2023 compared to $2.9 million and $5.9 million for the comparable periods of 2022. The increase was related to ENVA drug purchased in the first quarter of 2023 as well as higher enrollment in ENVASARC. General and administrative expenses were $1.9 million and $4.3 million for the 3 and 6 months ended June 30, 2023 compared to $3.3 million and $9.8 million for the comparable periods of 2022. The decrease was due to lower legal expenses. We incurred a success fee of $4.4 million in the 3 and 6 months ended June 30, 2023, related to legal fees for the arbitration and collection of the award in July.
As Charles mentioned, this amount remains in our client trust account administered by our law firm, the disbursement of which is predicated on discussions as to the amount of success-based deferred legal fees the firm is due. Following these discussions, disbursement of all or a portion of that amount is expected later this year. Our net loss was $6.3 million and $14.8 million for the 3 and 6 months ended June 30, 2023 compared to $6.2 million and $15.7 million for the comparable periods of 2022.
We will record a gain of $13 million related to the collection of the arbitration award in the third quarter of this year (inaudible) recognized in the 3 and 6 months ended June 30, 2023, it would have resulted in net income of $6.7 million for the 3-month period and a net loss of $1.8 million in the 6-month period on a pro forma basis. Turning to the balance sheet. At June 30, 2023, our cash, cash equivalents and restricted cash totaled $1.9 million compared to $17.5 million at December 31, 2022. As Charles mentioned, we collected the arbitration award in July and net proceeds to date are approximately $7.1 million. which had this been collected prior to June 30, 2023, would have resulted in ending cash of $9 million on a pro forma basis.
With the award collected, we expect our current capital resources to fund the company into early 2024. With that, I will turn the call back over to Charles.
Charles P. Theuer
Thank you, Scott. As you've heard, our corporate strategy is proceeding as planned. Allow me to recap 2 key expected events. First, in the third quarter, we expect to report the second and final mandated DMC interim efficacy assessment in ENVASARC that includes the first 46 patients dosed with 600 milligrams of ENVA. The interim efficacy assessment includes a futility threshold that has already been achieved based on responses seen to date. Second, this year, we also expect to further leverage our unique product development platform to enable companies to benefit from our capabilities and realize for themselves the substantial clinical trial time and cost savings we enjoy at TRACON, while allowing TRACON to generate non-dilutive capital.
Thank you for your time and attention, and we are now available to answer your questions.
Question and Answer Session
Operator
(Operator Instructions) And our first question comes from Joel Beatty from Baird.
Joel Lawrence Beatty
First question is on the comment that the futility threshold for the second interim efficacy assessment has already been met. Can you elaborate on exactly what that means? I mean does that mean at an earlier point in time, you saw the percent response needed to hit that assessment or there's -- you actually kind of hit the numerator that you were looking to see as if the denominator headwind 46?
Charles P. Theuer
Yes, Joel, thanks for the question. So with respect to the futility threshold at the 46-patient evaluation, we need at least 3 responses in order to meet the threshold facility bar. And we had disclosed even at the DMC review in June that based on the data at that time, which continues to be the case, we've exceeded that threshold.
Joel Lawrence Beatty
Terrific. And then are those all confirmed responses?
Charles P. Theuer
Yes. We disclosed at the June meeting that we had seen confirmed responses both by investigator and central review that generated a double-digit response rate.
Joel Lawrence Beatty
Terrific. And then thinking ahead to the final analysis, is that something that you anticipate announcing kind of at the end of the trial? Or could you announce it at an earlier point in time once, I believe it's 9 responses have been seen?
Charles P. Theuer
No, great question, John. I'm glad you brought this up. So we had been very, I think, general about response rate, saying, we've seen double-digit response rates, both at the DMC meeting. I believe that was in December and then also in June. Because we didn't want to (inaudible) potential accrual -- or we didn't want to bias patients who may be assigned in a randomized trial to one versus another where if there were a differential response rate and report that response rate and a patient doesn't get a sign to that preferred arm as well, they might drop out of the study.
As you know, now we're dosing a single-arm trial based on the single arm being the Cohort C of single-agent ENVA. So with respect to moving forward, but I don't feel like we're restricted with respect to disclosing exact response rates. So going forward, you expect us to disclose exact response rates because we don't have to, if we will protect the integrity of the randomization given we're no longer enrolling the cohort of ENVA plus YERVOY.
So to answer your question, do you expect us to report data moving forward on a more routine basis with explicit response rates that heretofore we were unable to report.
Operator
(Operator Instructions) And our next question comes from Ed White from H.C. Wainwright.
Edward Patrick White
Just a couple of questions for Scott. How should we be thinking of research and development costs going forward now that the combo arm of this study will not be -- has been discontinued. Are there some costs that we'll see in the third quarter for sort of ramping down the trial, so we should see more of an impact in the fourth quarter? Or how should we be thinking of that?
Scott B. Brown
Yes. Thanks for the question, Ed. Yes, I mean we'll see some impact in the third quarter and the fourth quarter, but not too much. I mean I would expect them to go down slightly. But not that much considering our per patient cost is so low.
Edward Patrick White
Okay. And then another question on expenses. How should we be thinking of general and administrative costs going forward now that the arbitration is over? Is this sort of the run rate that we saw this quarter? Should we think that that's going to continue like that? Or any guidance you can give us there would be appreciated.
Scott B. Brown
Yes. No, I would expect this amount that we had in Q2 to be our cost going forward. It should be right around there, barring anything else until we do ramp up commercial activities once we file for a potential approval of ENVA.
Operator
And I am showing no further questions. I would now like to turn the call back over to Dr. Theuer for closing remarks.
Charles P. Theuer
Thank you for your time and attention, and we look forward to updating you next quarter. Have a great day.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
