TRACON Pharmaceuticals Inc (TCON) 2022 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals' Second Quarter 2022 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, our development plans and strategy and the timing of results of 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, 2021, 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.

I will now turn the call over to Dr. Charles Theuer, President and CEO of TRACON Pharmaceuticals. Dr. Theuer?

Thank you for joining TRACON's second quarter 2022 financial results and business update call. I will begin on --with an update on our pipeline and then review our recent activities. Following that Scott Brown, our Chief Financial Officer will review our financial results for the 3 and 6 months ended June 30, 2022. Finally, we will conclude by taking your questions.

I'll start with an update on our continued progress with the ENVASARC pivotal trial. We have now enrolled more than 36 patients in ENVASARC, which is open for enrollment at 29 sites in the U.S. and one site in the U.K. Accrual has been robust, and is ahead of our estimates that project full accrual of 160 patients dosed at the 600 milligram, dose to be completed by end of 2023.

This morning, we announced that the IDMC reviewed 3 weeks of safety data from more than 20 patients and recommended the trial continuous plan at the 600 milligram ENVA dose. We expect 2 additional IDMC reviews this year. The second safety assessment that occurs 12 weeks after enrollment of the 20 patient is expected in October. And the interim efficacy assessment that occurs 3 months following enrollment of the 36 patients is expected in the fourth quarter.

During the interim efficacy assessment, the committee will apply a futility rule that requires at least one response in 18 patients in each of the 2 cohorts at the 600 milligram ENVA dose. Note an identical futility threshold was achieved at the interim analysis performed last year in 36 patients who received the 300 milligram ENVA dose. Recall at that time, a significantly higher response rate was observed in lighter weight patients, which prompted the IDMC to recommend increasing the ENVA dose to 600 milligrams.

As a reminder, the ENVASARC trial includes one cohort who receive single agent ENVA, and a second cohort who receive ENVA in combination with Yervoy. The primary endpoint in each cohort is objective response rate by resist, as confirmed by blinded independent central review, with duration of response being a key secondary endpoint. In each cohort, the demonstration of 9 out of 80 objective responses by central review on a 11.25% objective response rate defines the level of response that satisfies the primary objective of the study, which is to statistically exceed the 4% objective response rate of Votrient, the only approved treatment for patients with refractory UPS and MFS.

Notably Votrient is a drug with a black box warning for fatal liver toxicity. We believe ENVA has the potential to transform the care of refractory sarcoma patients through the demonstration of superior efficacy and safety compared to Votrient. Based on data from trials of other checkpoint inhibitors in refractory UPS and MFS, we are targeting a 15% response rate for single agent ENVA and up to a 30% response rate for ENVA given with Yervoy.

Furthermore, we plan to approach the FDA to discuss a BLA filing strategy as soon as we determine 9 responses in either cohort. Finally, based on activity already observed in ENVASARC, we have applied for fast track designation with the FDA and expect a response from the agency later this year. Our second checkpoint inhibitor YH001 is a potential best-in-class CTLA-4 antibody, we licensed from Eucure Biopharma in October last year. Earlier this month, we submitted an IND application to the FDA for the initiation of a Phase I/II clinical trial of YH001 in combination with ENVA and doxorubicin for the treatment of sarcoma patients, including patients who have not received prior therapy.

As a reminder, we received a broad license to develop and commercialize YH001 in North American in sarcoma, and multiple other indications, including microsatellite stable colorectal cancer, renal cell carcinoma, and KRAS-positive lung cancer. Now, with respect to our license, we can substitute any one of those indications for bladder cancer, endometrial cancer or melanoma at our election. In these non-sarcoma indications, YH001 could be combined with existing standard-of-care agents included marketed PD-1 antibodies.

Our initial YH001 trial leverages data from 2 Phase I trials conducted by our partner Eucure. These 2 trials demonstrated the recommended Phase II dose of YH001 as a single agent, and in combination with the PD-1 antibody, toripalimab. Our sponsored Phase I/II clinical trial will evaluate a triplet that includes YH001, ENVA and doxorubicin chemotherapy, as doxorubicin is the current frontline standard-of-care treatment for sarcoma.

Following the Phase I portion of the trial to assess the tolerability of the combination of the ENVA and YH001 doublet, as well as the triple therapy that includes doxorubicin, we will assess the response rate in common and rare sarcoma subtypes to combination treatment, with the intent of demonstrating superior response rates compared to historical data using standard-of-care agents.

In leiomyosarcoma, and liposarcoma, we plan to compare the response rate of triple therapy to the historical 10% to 15% response rate of single agent doxorubicin. In the case of rare sarcoma subtypes like chondrosarcoma, and alveolar soft parts sarcoma, where chemotherapy is not highly effective, we intend to study the doublet of YH001 and ENVA to assess the response rate compared to the historical response rates with chemotherapy, or single agent checkpoint inhibition.

One of the purposes of this Phase I/II trial is to determine the subtypes of sarcoma that best respond to the combination of ENVA, YH001 and doxorubicin. Following the potential accelerated approval of ENVA, assuming positive trial results in the pivotal ENVASARC trial, the FDA require a randomized trial to demonstrate a survival benefit. We expect its Phase III post approval trial will compare single agent doxorubicin to the triplet combination of doxorubicin with ENVA and YH001, with PFS at the endpoint. This trial would be expected to enroll patients with UPS and MFS, as well as other sarcoma subtypes shown to respond to triple therapy, based on data from the Phase I/II trial that I described earlier.

The ability for TRACON to commercialize 2 in-licensed immuno-oncology therapies together in sarcoma is a great strategic benefit. It is important to understand the sales potential in sarcoma with ENVA at parity pricing is not solely the forecast of $200 million in annual ENVA revenues expected in the initial indications of refractory UPS and MFS, as well as the $100 million in annual revenue in rare sarcoma subtypes, where the activity checkpoint inhibition has been demonstrated.

Our clinical development strategy is designed to create the opportunity for ENVA to broadly benefit patients with sarcoma in the frontline, adjuvant and neoadjuvant settings by seeking supplemental indications. Moreover, we believe TRACON's total sarcoma driven sales revenue would be significantly enhanced by marketing YH001 and ENVA together as part of a treatment combination in sarcoma.

In addition to our 2 checkpoint inhibitors, we are pleased that the National Cancer Institute continues to fund development of our DNA damage repair inhibitor TRC102. The National Cancer Institute has initiated a randomized Phase II trial assessing TRC102 in Stage 3, 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 and radiation therapy followed by consolidative durvalumab treatment. The primary endpoint of the trial's PFS and the trial's design to detect an improvement in PFS at one year from 56% to 75%. Results are expected in 2024.

Our fourth clinical stage asset is the CD73 antibody TJ4309 that TRACON is evaluating in a Phase I study as a single agent in a combination with the checkpoint inhibitor tri-centric. We're working to complete data analysis of the trial which has enrolled the last patient. As a reminder, I-Mab has indicated the desire to exercise their option to terminate the TJ4309 license following completion of the Phase I trial for payment to TRACON of $9 million. While we expected the study would be completed by the end of the second quarter, we are awaiting results of the final clinical sample testing that we now expect will be completed this quarter. This then triggers I-Mab's option to require TJ4309 for $9 million.

Next, I will provide an update on our legal disputes with I-Mab. As a reminder, I-Mab commenced arbitration in June 2020. After TRACON invoke contractual dispute resolution provisions, asserting that I-Mab had breached its contractual obligations concerning both of our agreements entered into in November 2018. We filed counterclaims in the arbitration seeking to recover over $200 million in damages from I-Mab based on the alleged breaches. Under the applicable rules of the arbitration, the prevailing party may also be awarded attorney's fees at the Tribunal's discretion.

In February of this year, arguments for alleged breaches of both of our agreements with I-Mab were heard before an International Chamber of Commerce, Arbitration Tribunal, under New York law, and the final post-hearing briefs were submitted to the Tribunal in late May. On June 2, the International Court of Arbitration of the ICC notified us to expect a final decision by September 30, although the Tribunal may ask the ICC for a further extension if warranted. The claims under the arbitration are complex. Accordingly, we cannot predict the outcome of the arbitration, and we are unable to estimate the amount of recovery of damages, if any, that may be awarded by the Tribunal. Pending results of the arbitration, we continue to meet our obligations under the terms of both agreements. We will promptly provide an update when the Tribunal panel announced their findings.

Given the challenging capital markets, the expectation to secure non-dilutive capital from our corporate partners is important. In the meantime, we recently secured capital through another source. In June, our largest shareholder, Opaleye purchase $4 million in common stock and pre funded warrants at market price without the issuance of common warrants. Capital from this transaction extends our cash runway into the first half of 2023.

Our runway would be further extended by the $9 million payment expected later this year from I-Mab related to their stated intent to require TJ4309, following completion of the Phase I trial, and will be further extended to any arbitration award. As we have noted in the past, we expect to further supplement our cash position through opportunities for non-dilutive capital enabled through our CRO-independent product development platform, that we believe positions us as one of the most efficient clinical development organizations. We expect to continue to leverage our platform in 2 ways that provide for potential non-dilutive capital to TRACON.

First, we're evaluating drug candidates, whereby TRACON performs clinical trials at a lower cost than a CRO, but still at a premium to our costs using a pay for performance model that TRACON further benefits by earning a share of the revenue, including sub-licensing fees and our royalties from commercialization. This is an aligned structure we used in the past, for example, with Johnson & Johnson.

Second, we're exploring a franchise model, whereby we're paid to share our proprietary capabilities and know-how to enable another company to independently internalize clinical operations and use these new capabilities to avoid contracting with CROs to execute clinical trials. As has been the experience of TRACON, such an investment would be expected to result in substantial time and cost savings for our partner. We believe that over time, our product development platform has earned strong credibility as a compelling solution for companies who wish to become CRO-independent, and reap the rewards of conducting trials faster, at higher quality, and at lower costs compared to trials typically contracted to CROs.

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

Thank you, Charles, and good afternoon everyone. TRACON's research and development expenses were 2.9 and $5.9 million for the 3 and 6 months ended June 30, 2022, respectively, compared to 3.1 and $5.4 million for the comparable periods of 2021. The increase in the 6 months period was primarily related to additional enrollment in the pivotal ENVASARC trial.

General and administrative expenses were 3.3 and $9.8 million for the 3 and 6 months ended June 30, 2022, respectively, compared to 6.1 and $8.8 million for the comparable periods of 2021. The decrease in the 3 months period was due to the lawsuit filed in Delaware Court of Chancery by I-Mab in 2021. And the increase in the 6 months period was primarily related to legal expenses in connection with the arbitration hearing with I-Mab in February of this year. We expect G&A expenses to decrease significantly for the remainder of the year as the arbitration hearing is now complete. Our net loss was 6.2 and $15.7 million for the 3 and 6 months ended June 30, 2022, respectively, compared to 8.9 and $14 million for the comparable periods of 2021.

Turning to the balance sheet. At June 30, 2022, our cash and cash equivalents totaled $13.6 million, compared to $24.1 million at December 31, 2021. We expect our current capital resources to be sufficient to fund our planned operations into 2023.

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

Thank you, Scott. As you have heard, our corporate strategy is proceeding as planned. Allow me to recap with 5 key events we expect this year. First, we expect to report the IDMC interim efficacy assessment for the 2 ENVASARC cohorts at the 600 milligram dose of ENVA. Second, we expect to dose the first patient in the Phase I/2 trial of our potential best-in-class CTLA-4 antibody YH001 in combination with ENVA and doxorubicin as a potential first line treatment for sarcoma.

Third, we expect to further leverage our unique product development platform to provide TRACON non-dilutive capital, in exchange for enabling companies tired of being beholden to CROs to potentially benefit from our capabilities and realize for themselves the substantial time and cost savings we enjoy at TRACON. Fourth, we expect to complete the TJ4309 Phase I trial permitting I-Mab the opportunity to exercise their stated desire to terminate the agreement for a payment to TRACON of $9 million. Fifth, we expect to report the arbitration panel's binding decision, including potential damage awards regarding our legal disputes with I-Mab.

As Scott indicated our current cash run rate extends into the first half of 2023, and passed each of the 5 key upcoming milestones, including expected non-dilutive capital from an existing partnership.

Thank you for your time and attention, and we are now available to answer your questions.

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

Congrats on the progress. First question I was going to ask is just for checking the box on this 70 original patients in ENVASARC at the lower dose. Can you say what proportion of those patients have been titrated up to 600 mg dose? And to clarify, would those data be disclosed along with the final analysis for ENVASARC?

As you pointed out, we treated 70 patients with an initial dose of 300 milligrams with envafolimab, and then once the amendment to dose at 600 milligrams was approved at each individual site, those patients that were on study at that time were able to dose escalate to 600 milligram. I can't give you exact numbers, Maury, but many patients have dose escalated from 300 to 600 milligrams. And so really, they're going to be in terms of the final data, if you will. The primary endpoint to be clear is being assessed with respect to the 600 milligram dosing patients, I mean the patients who started the trial with 600 milligram and will be 80 patients that received ENVA 600, and 80 that received ENVA plus Yervoy with ENVA at 600. And that's the primary dataset for the primary outcome.

But there will be additional data in 70 patients dosed at 300 milligrams initially and a subset of those that dose escalated to 600. Those are the 3 datasets and all those will be -- part of you will the filing for the expected approval of the drug with the 70 patients, including those that dose escalated, 600 being a supportive dataset. But I can't give you exact numbers in terms of the categories within the 70 that dose escalated to 600.

Got it. Okay, I understand. And that's helpful. And I also wanted to ask a question about the Phase I/2 with ENVA YH001 and doxorubicin. Do you plan on reporting data after the Phase I portion is completed? And can you remind me if you see potential for an accelerated approval path based on the Phase II?

Great questions, Maury. With respect to the trial, we will -- we do expect to provide data following completion of the Phase I. This is not a registrational trial. So it's different with respect to the design in the ENVASARC trial, which is a pivotal study. So we will plan to report data at the conclusion of the Phase I portion. And then also, each of the 4 Phase II cohorts may enroll kind of a different paces, if you will, there are 2 common sarcoma subtypes and 2 rarer ones. So we'll report the Phase II data, kind of as it comes out per cohort.

You asked an interesting question. I mean, we are dealing with respect to the Phase II portion of the study with some very underserved subtypes of sarcoma. We're not planning this Phase I/2 trial as a pivotal study to be clear. But if there's very promising data, there's a possibility to bring up discussions with the agency to meet what our incredible unmet needs within these patient populations. But at the outset, this is not planned as a pivotal study. But that said, data will dictate our approach to interact with the agency around very promising data, if that were to be the case.

Got it. That makes sense. And for advancing into the frontline and Phase III, can you talk about some of the gating factors that you're going to be looking for in the Phase I/2 prior to starting that Phase III?

Sure. No appreciate the question, Maury. So each of the 4 Phase II cohorts leiomyosarcoma, dedifferentiated liposarcoma, chondrosarcoma and alveolar soft parts sarcoma, each have a separate if you will endpoint, meaning a targeted objective response rate that we're looking to hit, that would be clearly superior to the objective response rate seen with single agent chemotherapy with doxorubicin. So if all 4 hit that targeted response rate, which is our goal, then we'd enroll all 4 of those subtypes, in addition to UPS and MFS in that potential Phase III trial.

Got it. And last question, and then I'll hop back in the queue. Just wondering if you have insight into Eucure data updates for YH001, that could happen in this year or next year, and well, one or 2 of those updates be relevant to TRACON that we should be looking for.

Yes, I think the most recent update Eucure did present data at ASCO with the combination study of YH001 with toripalimab. I thought it was very encouraging data both from a safety perspective, but also from an efficacy perspective where there were several responses across multiple solid tumor types. We could see some additional data from the single agent trial that is also a Phase I study. Remember there were 2 Phase I studies they did. The combo with toripalimab and then the single agent study.

So we might see an update on the single agent data. I think with respect to further updates on the combination trial, I think the ASCO poster actually was fairly complete with respect to the patients that have been enrolled. So we were pleased to see that updated report and encouraged by both the safety and efficacy that was reported at ASCO this year.

Our next question comes from the line of Ed White with H.C. Wainwright.

So, Charles, just want to change gears here a little bit. And ask you a little bit about your CRO independent clinical development program and capabilities there. Are you -- how does it work with the franchise model? Has there been any company that's been interested so far? And how long would a process take to get that technology or a know-how over to a separate company?

We have generally explored the franchise model in the following manner, there are companies that right now have a significant pipeline. And if they have a significant pipeline, in our view, they're paying an exorbitant amount of their operational expenses to fund those trials, running them through a CRO using the fee-for-service plus guaranteed monthly payment model that, frankly, is not the best use of capital. We feel those companies were to adopt our franchise model, they could run their trials at half the cost, or even potentially lower of what they're paying a CRO.

So you can appreciate that. The ideal company for this type of model is one that has a pipeline of say more than one product in one trial. But for that company, learning our systems would be transformative in terms of the capital, they would save, the time they would save. And frankly, we also think the quality would be better.

Now in terms of identifying that company, we have identified, let's say, a handful of companies, just a couple. I think is kind of how we look at it. We just want to initially focus on one company because it is a major undertaking for both us and the company. It's going to be something -- it's something for us as TRACON adopt over 10 years. But with respect to that company, we do feel that if they intensely invested in this program, within 6 months, they would be running their own trials. It could be Phase I, it could be Phase II, it could be Phase III. They will be saving incredible amounts of capital, and they've been engaged in a process much like TRACON, where we feel they could save a year per phase of development. So year on each Phase I, Phase II and Phase III trial such that if an overall program goes to market, they potentially could save 3 years on the process of developing their drug.

So that should give you, I think, a general idea of how we're thinking about it, why it appeals to certain companies and why it takes a special company that we want to, if you will, teach this franchise model initially. And once that company learns it, then we would kind of move on to another company. But our goal is to really transform the industry, help more people read the advantage we have by being CRO independent.

And from a timing standpoint, do you think it's -- you would be more likely to do a franchise model first? Or your pay-for-performance model. Would that be -- it sounds like that would be an easier sell?

I think that's a great point, Ed. I mean, I think the nice thing about the pay-for-performance model is that we've done that, for instance, with Johnson & Johnson, we've executed around that model. And it's a lot easier for the company that collaborates with through pay-for-performance because they don't have to do learn our systems, right? They're saying, please work with us, we'll give you the molecule, you take it through the trial. And then it's still our partners molecule. They still have commercial rights. We share in the revenue from that commercialization. But from our partner's point of view, it's not much more work than if they hired a CRO. The advantage is it's cheaper for them. It's faster for them and we also feel the quality of our work is better. But it doesn't require a big investment of their time to learn systems de novo, which the franchise model does.

So to your point, Ed, I think continuing to execute around the pay-for-performance model, which is something that we've done on more than one occasion would make the most sense in terms of what would get done in the sooner time frame.

And one last question, if I may. Just on the 4309, what is the definitive last thing that needs to be done in order for I-Mab to terminate the license and pay the $9 million.

Yes. It really is completing the Phase I study, it's really analyzing some clinical samples, which we expect to be able to complete this quarter, and then that would trigger the opt-in.

Our next question comes from Soumit Roy with Jones Research.

Congratulations on all the progress. If I may ask one question on the ENVASARC trial. So year-end when you are going to present interim data from the 36 patients, what do you expect that duration on drug would be? Are we going to be in a similar situation as last year where most of the patient won't be around 24 weeks where we mostly see the responses happen. So any color on that would be appreciated.

No, I appreciate the question, Soumit. It is a bit like last year in the sense that with respect to this year, at the 600-milligram dose, we were dosing patients by first quarter. So there's a potential for patients to be on drug as long as, say, 11 months, if you were to say, to go at the very end of the year. In terms of the minimum time on study is 3 months. So I'd say anywhere between, say, 3 and say, 10 months or so would be the maximum time a patient would be on therapy. So as is the case last year, we're going to report and do the analysis, it's a preliminary response rate, knowing to your point, not every patient responds on the first or second CT scan.

We know that for a fact, especially with combination checkpoint inhibition that many patients won't respond to your point, until say, 24 weeks or thereafter. So our goal is to clearly see activity in both cohorts. We need to see at least one response for the futility analysis. And it would be nice to see a double-digit response rate even at this early analysis, knowing that, that response rate likely would grow and it could grow significantly based on what you pointed out that many responses in sarcoma [cryotherapy] take more than just 3 months to develop.

Right. So would you say like at least half the patients will have 6 months on drug or less than that?

Well, we announced the 36 patients was enrolled as of July. So those patients -- and we did see, I'd say, a nice amount of accrual in the last 3 months. So yes, I think a lot of patients will have 3 months on therapy. There'll be a segment we'll have 6 months and then that rare segment will have, say, 9 months potentially. But yes, I would say a lot of patients will have, if you will, just 2 scans, maybe the third scan will get done before we actually had the DMC meeting. But it's going to be in that kind of ballpark, Soumit, if you will.

And one last question on the -- when you're starting the frontline trial in sarcoma, I was under the impression that it would not be UPS, MFS and it would focus more on well differentiated or leiomyosarcoma so that it doesn't compete with your current second line or as refractory.

No, you're exactly right, Soumit. No, you're exactly right. So the Phase I/II trials, to be clear, those are enrolling patients with sarcoma that does not include MFS and UPS. So to your point, we will not cannibalize enrollment into the ENVASARC trial. What will -- what is expected to happen is that once the Phase I/II trial is done and ENVASARC is done when we start that Phase III study, which will be the post-approval commitment study that, that would then enroll UPS and MFS because ENVASARC will be fully enrolled and also include other subtypes, including the subtypes that would enroll in the Phase I/II trial, where we see activity of that triple therapy.

And you are not having any enrollment criteria on the TPS score or would you get only greater than 5%?

Yes. So for sarcoma in the Phase I/II study, we're enrolling by histology. We will do post hoc analysis looking at biomarkers, including PD-L1 expression, including, for example, it's called the sarcoma immune (inaudible) do post hoc analysis looking at biomarkers, including PD-L1 expression, including, for example, it's called the sarcoma immune classification to see if there's a possibility of selecting patients based on a biomarker. That would be a post hoc analysis based on the Phase I/II trial. But if that is highly informed that is highly informative. It's possible that the Phase III trial could also include biomarker enriched enrollment. So all those are to be determined based on the results of the Phase I/II trial.

(Operator Instructions) Our next question comes from Nick Abbott with Wells Fargo.

First one, Charles, can you elaborate on the fast track application. Is that ENVA, ENVA plus Yervoy, ENVA plus YH001. What does that cover?

Sure. Yes, the fast track application is for envafolimab based on activity we've seen as a single agent. So our expectation is to gain fast track status for envafolimab that would then facilitate the expected ENVASARC pivotal trial filing or the filing based on the ENVASARC pivotal trial data. And we do expect to receive that designation later this year.

And is that -- presumably, that's the activity you've seen outside of cohort C and D, that is from the Phase I. I mean I think you've got orphan drug based on clinical activity. So in general, I'm not saying it implies that you haven't seen activities for the combination, but what about the combination of it?

No, good question. So with respect to fast track, it's really more pertinent. I'd say today it's more pertinent single-agent activity just because you can definitely say that's your drug. So to your point, we saw a single-agent activity in sarcoma in Phase I in the alveolar soft parts sarcoma, which was really important in terms of securing orphan drug designation. And then we saw single-agent activity at 300 milligrams in the ENVASARC trial, again, with that activity significantly more evident in the lighter weight patients. So based on the single agent activity we've seen in Phase I and also in ENVASARC, even at the lower dose, we feel there's clear evidence of single-agent activity that we feel will be sufficient to secure fast track designation.

And then how does that play with your prior comments on seeking breakthrough therapy designation?

Yes. So breakthrough therapy designation is a higher hurdle. And so we would await the results of the interim analysis end of the year as the basis for considering a breakthrough application just because that is clearly a higher hurdle, and we don't have enough data at this point until we do the interim analysis end of the year to consider an opportunity like that.

And then I've asked this before, obviously, the opportunity to broaden envafolimab license. So where are you on that? And as you think about this franchise model, is there an opportunity to sort of do some horse trading you might [on the] envafolimab in return for a franchise.

It's a very perceptive question, Nick. I would say, just in general, we remain incredibly interested in expanding the field of use for envafolimab, and we would deadly entertain offering our expertise in terms of running clinical trials in order to do that. So still a high priority for our company is to expand the field of use for envafolimab.

And then you kind of mentioned right at the very end, that the franchise already a nondilutive capital, you said from an existing partnership. And I think you'd sort of outlined I guess the (inaudible) earlier, but with some of this entails, do you feel confident that you might be able to land either a franchise this year or secure at least one development opportunity?

It's definitely one of our goals for the year. I think, Nick, to the earlier question, I think it's probably much more likely that we'd engage in the pay-for-performance model that includes the revenue share just because it's an easier idea to understand for a potential partner as something we've executed multiple times before. But that is an important corporate goal for us this year.

And then just I know you spent some time describing the YH001 trial, but can you just outline again the steps in order -- you need to get through in order to get to the first-line patients and what -- when we might see data from that stepwise approach?

Sure, Nick. Yes. So the study is a Phase I/II trial, and we expect to initiate dosing this year in the Phase I portion. I don't think the Phase I portion will take that long because we have the advantage that our partners have already completed 2 Phase I trials. But we want to just make sure that the dose of wise years when we select is not only tolerable with envafolimab but also with doxorubicin. But once we establish that dose, why just you just want to tolerable with ENVA 600 and standard dose doxorubicin, the Phase II portion will dose frontline patients, including frontline patients with leiomyosarcoma and dedifferentiated liposarcoma, which are 2 of the major classifications of sarcoma.

So that, I think, is exciting. Those patients right now are getting doxorubicin chemotherapy or maybe a couple of chemotherapeutics together with doxorubicin, we will be giving them the opportunity to get dual checkpoint inhibition with docs as frontline therapy. And I think that's going to be really exciting. And people are -- investors are excited because of that prospect, as are we as a company.

And so you think that that's a realistic objective for next year is to get into Phase II?

Yes. Yes, exactly right, Nick.

And then just last one for me. I think when you did the YH001 license, you talked about perhaps starting a solid tumor trial later this year, and I think renal cell was high up on your list. Is that still a goal for this year?

That's still a goal for the program. I don't think we'll start that this year, Nick, but that is a goal for the program. That would be a goal for 2023 is to begin investigation of a non-sarcoma indication once we get the sarcoma study up and running.

Our next question is a follow-up from Maury Raycroft with Jefferies.

I just wanted to ask one about the $200 million in damages related to 4309 arbitration. I'm guessing you can't say too much about your specific case. But are there good proxies or analogs as it relates to your case that support, #1, the claim for $200 million in damages. And then #2, I guess, how much was rewarded in those other proxy cases?

I would -- I can't say a ton about arbitration because it is a confidential proceeding. And I think that's the other problem with thinking about proxies. A lot of times, arbitration is confidential as opposed to say a lawsuit in a public court. I would just point out that the arbitration damages that we seek relate not just the TJ4309 but also to the bispecific antibody agreement, which, as you recall, this agreement whereby TRACON was to be provided 5 bispecific antibodies over the course of -- or we were able to pick 5 bispecific antibodies over the course of 5 years and have the option to acquire rights to any or all of those bispecifics worldwide outside of Korea and China. And we felt that was a very valuable agreement to us. And that's reflected in some part as well as the TJ4309 breach in the award that we talked about.

The only thing I could just point out is bispecific antibodies pipeline access, again, we feel is very valuable. And I think if you were to evaluate deals done by pharma companies to get that type of access, those are deals that are valuable, as indicated in the public announcement. So that's maybe a proxy to think about, but I can't go into details regarding the arbitration itself.

Our next question comes from the line of Joel Beatty with Baird.

First one is on envafolimab. Could you discuss the confidence now in the 600-milligram dose level? And is it pretty much based on what was learned before starting this new cohort? Or are there additional learnings even from this cohort or from the patients that were escalated from 300 to 600 in the previous cohort that added the confidence?

Sure. So we escalated from 300 to 600 milligrams -- excuse me, from 300 to 600 milligrams at the advice of the IDMC when they noted that there was clearly significant higher activity in lighter-weight patients and because it's a flat dose. If we double the dose, we gave every patient the optimal chance to respond irrespective of their body weight. And I think what we've learned going to 600 so far is that the drug has been very safe.

And I think that was reflected in today's announcement when the DMC evaluated more than 20 patients' worth of data at the higher dose. And I would point out that, that's not surprising. We know from Phase I testing that this drug was dosed at even fourfold higher doses than 600 and was shown to be tolerable. So it's nice to confirm that the 600-milligram dose is safe and that, again, is not an unexpected announcement.

In terms of activity, we knew in Phase I that patients that responded to sarcoma in Phase I had the equivalent of the 600-milligram dose. So that was useful data to understand why that's a logical choice to increase 2 once we saw the increased activity in the lighter weight patients. In terms of 300 milligrams to 600 milligram dose escalation, I'd point out that, that happened based on the decision already to go to 600. So we will have data on those patients. As I mentioned, that will be part of the supplemental data to support the expected BLA. But those data actually didn't inform our decision to go to 600 because that decision was made before the dose escalation happened in those individual patients. And the dose escalation is really based on the clear activity we saw at that dose level in Phase I.

The fact that it was expected to be safe. The fact that the 600-milligram dose is higher even than the dose approved in China that showed a very robust response rate in MSI-high cancer. And so those were all factors that made the 600-milligram dose logical to move to in ENVASARC.

And then a question on expenses. How to think about them over the next couple of quarters as it seems like clinical trial activity could be increasing while the legal dispute may be winding down?

Yes. This is Scott. So on the G&A side, we do expect expenses to continue to come down. Our normal baseline is around $2 million a quarter. So that's what we would expect in the low $2 million range for the second half of this year and even in the first part of next year, assuming no additional legal expenses related to the arbitration. And then on the R&D side, we'd expect similar to the first half of the year in around $3 million a quarter with probably small increases due to additional enrollment and the YH001 trial getting up and running, but nothing too much above kind of a low to mid $3 million a quarter.

And I'm currently showing no further questions at this time. I'd like to turn the call back over to Dr. Theuer for closing remarks.

Well, I just want to thank the listeners and thank you, especially to the analysts for your questions. We look forward to updating you later this quarter. Have a good day.

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