TRACON Pharmaceuticals Inc (TCON) 2019 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals second-quarter 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 on our development plans and strategy. These statements are subject to various risks that are described in our filings made for 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?

Good afternoon and thank you for joining TRACON's second-quarter 2019 financial results and business update conference call. I will begin with an update on our pipeline and recent activities. Following that, our Vice President of Finance, Scott Brown, will review our production results for the three and six months ended June 30, 2019. Finally, we will conclude by taking your questions.

Our efforts continue to be centered on three value propositions. First, we continue to develop a robust pipeline of clinical stage assets. Second, we follow with great interest 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 and leverage our CRO-independent product development platform that includes US 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 a brief update on our first clinical stage asset, DE-122, the ophthalmic formulation of carotuximab. Because a majority of patients do not experience meaningfully improved vision following treatment with single-agent VEGF inhibitors, we believe there is a substantial opportunity for agents that target essential angiogenic pathways like endoglin to be developed in combination with VEGF inhibitors in wet AMD.

Our licensee Santen announced last week that they completed enrollment in the three-arm randomized Phase 2 AVANTE study that compares treatment with two different doses of DE-122 combined with Lucentis to treatment with single-agent Lucentis. The trial accrued patients at 10 sites in the US, and top-line data, including the primary endpoint of best corrected visual acuity following six months of dosing, are expected in the first half of 2020.

TRACON retained 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 will 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 four Phase 1 or Phase 2 trials sponsored by the NCI that are focused on patients with non-small cell lung cancer.

Our academic collaborators continue to evaluate biomarkers in tumor specimens from glioblastoma patients treated in a completed Phase 2 trial as well as in tumor specimens from ongoing TRC102 trials with their goal being to identify a protein or gene expression profile that correlates with response.

Moving on to TRC253, our third clinical stage asset that we are studying in a Phase 2 trial in patients with prostate cancer. The Phase 1 data were published in the ASCO proceedings, and we continue to enroll patients in the Phase 2 portion of the trial at 18 sites in the US.

We are enrolling patients in three cohorts. The first includes patients with an F877L androgen receptor mutation. The second consists of patients with another defined point mutation that was identified based on evidence of potential efficacy in the completed Phase 1 portion of the study. The third consists of patients with another basis for resistance to Xtandi or Erleada. We expect top-line Phase 2 data from this study in the second half of 2020.

TRACON licensed TRC253 from Janssen. And if they exercise their right to reacquire the asset following Phase 2 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.

Last week we announced the initial dosing of TJ004309, a CD73 antibody, in a Phase 1 study, making it our fourth clinical stage asset. We are developing TJ004309 in collaboration with I-Mab BioPharma through our first agreement with them.

TJ004309 is being dosed both as a single agent and in combination with Tecentriq, a marketed PD-L1 antibody that is being supplied by Roche. We anticipate completing enrollment and presenting top-line data from this Phase 1 trial in 2020.

In this collaboration, TRACON is responsible for the regulatory and clinical development of TJ004309 in the US and Europe. And will receive escalating portions of non-royalty and royalty payments I-Mab may receive if they elect to out-license TJ004309 to a third party. If I-Mab commercializes the antibody, TRACON would be entitled to royalties on net sales outside of Greater China.

Our second agreement with I-Mab is a multiproduct collaboration to develop up to five of I-Mab's bispecific antibodies in North America. We believe that bispecific antibodies are one of the most exciting therapeutic approaches for cancer treatment. And therefore, view our access to a multiproduct pipeline of these compelling assets through our collaboration with I-Mab as a critical differentiator for TRACON.

At this time, I-Mab has disclosed they are developing seven bispecific antibodies, including five that target PD-L1 in addition to a second target, with the second target being either CD47, IL-7, CD73, B7-H3, or 41BB. For any bispecific antibody that becomes subject to the collaboration, TRACON will lead clinical development and commercialization in the US and bear the cost of early phase clinical trials.

TRACON and I-Mab will share the cost of more advanced development stages and for US commercialization. And the two companies will also share equally in profits from US commercialization. In this agreement, TRACON also has an opt-in right to in-license each of the bispecific antibodies 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 its option prior to IND-enabling studies. We expect to file an IND for our first bispecific antibody from I-Mab in the US in 2020.

As evidenced by our collaborations with I-Mab, we believe TRACON can become a preferred clinical development and commercialization solution in the US for select ex-US companies through a risk, cost, and profit share model. We possess the ability to conduct clinical trials using our product development platform without the need for contracting a CRO. And believe this capability substantially decreases the cost of clinical development and also enhances quality and shortens timelines.

We are eager to further leverage our drug development model that creates strong alignment with potential partners who appreciate the value of sharing the risk and costs of product development and the profits from US commercialization. We have capacity to develop new clinical stage assets at this time.

And we continue our efforts to identify ex-US companies with first-in-class, best-in-class, or fast-follower clinical stage assets who would benefit from accessing the TRACON product development platform, which we believe offers a rapid and capital-efficient US drug development solution. As was the case with our prior deal with Johnson & Johnson, a new collaboration could include an equity investment from a partner to offset the incremental expense of developing the licensed product.

From a financial perspective, our capital resources are expected to be sufficient to fund or currently planned operations into the third quarter of 2020 and through multiple potential value-creating milestones.

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

Thank you, Charles, and good afternoon, everyone. TRACON reported no collaboration revenue for the three and six months ended June 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 $4.3 million and $9.6 million for the three and six months ended June 30, 2019, respectively, compared to $8.1 million and $17.6 million for the comparable periods of 2018. The decrease was primarily attributable to decreased manufacturing expenses related to the termination of the TRC105 program earlier this year.

General and administrative expenses were $1.9 million and $3.8 million for the three and six months ended June 30, 2019, respectively, compared to $1.6 million and $3.4 million for the comparable periods of 2018. Our net loss was $6.3 million and $13.5 million for the three and six months ended June 30, 2019, respectively, compared to $9.8 million and $18.1 million for the comparable periods of 2018.

Turning to the balance sheet, at June 30, 2019, our cash, cash equivalents, and short-term investments totaled $26.3 million compared to $32.1 million and $39.1 million at March 31, 2019, and December 31, 2018, respectively. As Charles said, we expect our capital resources to be sufficient to fund our currently planned operations into the third quarter of 2020.

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

Thank you, Scott. To summarize, we have built a broad pipeline and look forward to three potentially value-creating milestones that are expected in 2020. First, top-line Phase 2 AVANTE trial results in wet AMD through our licensee Santen. Second, top-line Phase 2 results for TRC253 in prostate cancer. And third, Phase 1 data for TJ004309. Success-based milestones, which would extend our cash runway, could result in response to each of these clinical events.

We also continue efforts to identify ex-US 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 throughout 2019 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.

(Operator Instructions) Maury Raycroft, Jefferies.

This is Swapnil on for Maury. So I just have a couple of questions. The first one is on the CD73 program with I-Mab. Can you comment on like -- so after the first patient has been dosed, can you comment on the patient baseline biomarker that you have seen?

Sure. I can just comment in general kind of on the biomarker sets that are part of the trial, which I think are going to be very critical with respect to charting a course for approval of an antibody targeting CD73.

So we are studying the drug with a PD-L1 inhibitor. So the biomarkers will include both biomarkers relevant to the adenosine pathway. For example, CD73 expression on archival tumor tissue; A2A receptor expression on archival tumor tissue, which are relevant to the adenosine pathway; and then with respect to the PD-L1 pathway would include PD-L1 expression.

Those are some of the most straightforward, if you will, protein-based biomarkers that will be assessed. Beyond that, there is the opportunity for gene expression profiling as another way to potentially assess biomarkers that would predict response in the trial.

Okay, yes, thank you. That's helpful. And then like the second question is like can you elaborate a little bit on the clinical trial design and the expansion cohorts of the CD73 program?

Sure, it's a great question. So we do plan to dose escalate successfully with the intent to complete dose escalation roughly mid-next year, whereby we dose initially as a single agent. And then there after combine immediately within the same patient the CD73 antibody TJ004309 with Tecentriq. And then we will continue patients on the dual therapies for as long as they continue to derive clinical benefit.

At the point of determining the recommended Phase 2 dose of TJ004309 with Tecentriq, we will then enroll an expansion cohort in a tumor type to be defined. And that would depend on competitive intelligence, looking at the performance of other CD73 antibodies that are in the clinic. And also on our own experience with respect to the dose escalation to see if there are certain tumor types that seem to be benefiting most from the use of TJ004309.

Okay, that's helpful. Thank you. And then one last -- yes. And then I have one last question. So in the past, you have mentioned that you will be utilizing the 105 capacity, such as the clinical sites, that can be helpful for the new business development deal that you are planning to bring in by the end of the year. Can you like provide a little bit of more granularity on that aspect of how exactly would this fit strategically?

Yes, I think it's a great question and it plays to a very important value proposition at TRACON. So when we think about the TRC105 program that we terminated earlier this year, that drug was being studied in five trials. It was in a pivotal Phase 3 trial in a sarcoma indication. It was in a liver cancer trial, a breast cancer trial, a prostate cancer trial, and a lung cancer trial.

And in total, we have studied that drug at more than 68 sites in the US and also at various sites in nine European countries. And these are sites where we have an intimate relationship with the investigators because we directly implement our trials without having the bureaucracy of a CRO between us and the site.

And those are sites that are eager to work with us again. And our goal is to license a clinical stage asset that we could implement a clinical trial at many of the sites where we have these great relationships where we could do it very quickly, we feel we can do it at very low cost, and also we do it at very high quality. And we offer a potential partner the ability to accelerate development in the US as compared to working with a CRO.

We also feel our model has a great advantage to a company in China versus licensing their drug out to a large pharma company. If they license out to a large pharma company, they may expect an 8% to 12% royalty is a typical royalty for an early stage asset.

If they work with TRACON, they are going to get a couple key advantages. One is we will do the trial at lower cost than a CRO and we will split that cost with our partner. Second is we feel our timelines are much faster than a CRO. And most importantly, we will share the profits in the US with our partner.

Now, if our profit margin on a product in the US is 80%, that really equates to our partner making an equivalent of a 40% royalty on their product, which compares very favorably to an out-license to big pharma where they might make more like a 10% royalty.

That is the key advantages that we offer: both the speed of development and also splitting the US profits, with us leading both clinical development and US commercialization. And we have the capacity and we have model we feel is very attractive to companies based outside the US.

That's very helpful. Thank you. Thank you for taking my questions.

(Operator Instructions) Robert Hazlett, BTIG.

Hi, guys. This is Jake Colby on the line for Bert this evening. How are you? So I guess just on the trial design for 004309, are you going to be stratifying patients by prior I-O exposure?

It's a great question. We will not stratify patients by prior I-O exposure during the dose escalation portion of the study. With respect to the expanded cohort, we could narrow eligibility criteria, both with respect to the indication and also with respect to prior therapies. But for the early dose escalation part of the trial, there will not be a stratification on prior PD-L1 therapy.

Okay. And then again on the same program, do you and I-Mab have any plans to look at additional mechanism combinations?

Beyond a PD-L1 combination, Jake?

Correct, yes.

Yes, no, I think that's a great point as well. So PD-L1 is clearly our initial focus, but that doesn't mean it will stop there. We could add on additional arms with additional combination therapies or could add on multiple expansion cohorts in different indications. So that is to be determined based on the early experience in dose escalation.

Got it. That makes sense. Then I guess just on the business development front, is there maybe any kind of headway -- headwinds to getting a deal done, whether it be identifying assets that you really want to take control of them, put through your funnel kind of price, or just the awareness of TRACON and your capabilities?

Great questions. So we have been focusing on China, as evidenced by the I-Mab deal. We have been to China now four times this year. And I would say the I-Mab deal was very important in terms of giving TRACON visibility in China.

Chinese companies know each other very well there, and I would say TRACON has established a clear profile that is attractive to Chinese companies and that is clearly why that area is our focus. So we do continue to emphasize that area and do and have overall very good reception among Chinese pharma companies who do appreciate that we have a unique offering.

We are really offering a Chinese company the ability to develop and commercialize their asset in the US, with us taking on the risk of clinical development and also taking on the US commercialization piece. And we are unaware of any other company that offers that to a Chinese company. So it's a unique offering that has been positively received by companies in China who do know TRACON based on our efforts there and also on our previous deal with I-Mab.

Thanks. That's very helpful. Thank you.

And we have no further questions at this time. Dr. Theuer, do you have any closing remarks?

I'd like to thank the listeners. We're happy to report Q3 earnings next quarter and look forward to your attention at that time. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.