TRACON Pharmaceuticals, Inc. (NASDAQ:TCON) Q3 2022 Earnings Conference Call November 14, 2022 4:30 PM ET
Company Participants
Charles Theuer – CEO, President & Director
Scott Brown – CFO
Conference Call Participants
Joel Beatty – Robert W. Baird & Co.
Edward White – H.C. Wainwright & Co.
Soumit Roy – JonesTrading
Robert Hazlett – BTIG
Operator
Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals Third Quarter 2020 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 and 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.
Now I would like to turn the call over to Dr. Charles Theuer, President and CEO of TRACON Pharmaceuticals. Dr. Theuer?
Charles Theuer
Thank you for joining TRACON’s Third Quarter 2022 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 review our financial results for the three and nine months ended September 30, 2022. Finally, we will conclude by taking your questions.
I’ll begin with an update on our continued progress with the ENVASARC pivotal trial. We have now enrolled 68 patients with refractory UPS or MFS into ENVASARC, which is accruing at 29 sites in the U.S. and one site in the U.K. Accrual continues to exceed projections and the completion of enrollment of 160 patients dosed at the 600-milligram ENVA dose is anticipated to occur before the end of 2023.
In October, we announced that the DMC reviewed 12 weeks of safety data from more than 20 patients and recommended the trial continue as planned at the 600-milligram ENVA dose. We remain on track for the DMC to review interim efficacy data later this year. 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 two cohorts, monotherapy and combination therapy at the 600-milligram ENVA dose.
An identical futility threshold was achieved at the interim analysis performed last year in 36 patients who received the 300-milligram ENVA dose. At that time, a significantly higher response rate was observed in lighter weight patients, which prompted the DMC to recommend increasing the ENVA dose to 600 milligrams.
This DMC mandated interim efficacy analysis occurs following the 12-week CT scan in the 18th patient treated with single agent ENVA and in the 18 patients treated with ENVA and Yervoy to allow for determination of the preliminary response rate. I note that the interim analysis will assess the preliminary response rate by blinded independent central review.
We know that from prior studies of checkpoint inhibitors in sarcoma, the responses may take 20 or more weeks to develop, especially in the case of patients treated with two checkpoint inhibitors. Our goal at the time of interim analysis, therefore, is to overcome the futility bar and to report a double-digit preliminary response rate across the two cohorts irrespective of patient weight knowing that the preliminary response rate will be based on a maximum of only two scans for many of the 36 patients analyzed and may increase with additional follow-up.
As a reminder, the primary endpoint in each core is objective response rate by RECIST confirmed by blinded independent central review. And 9 out of 80 objective responses or an 11.25% objective response rate defines the level of response that satisfies the primary endpoint of the study to statistically exceed the 4% objective response rate of Votrient, the only approved treatment for patients with refractory UPS and MFS. Therefore, a double-digit response rate at the time of interim analysis would be very 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 is both safer and more efficacious than 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 the BLA filing strategy as soon as we determine nine responses in either cohort. We were very pleased to recently receive Fast Track designation for ENVA in the sarcoma subtypes of UPS and MFS that have progressed on 1 or 2 prior lines of therapy based on activity already observed in ENVASARC. This designation holds important advantages that might expedite the development and regulatory review of ENVA.
Moving on to our second checkpoint inhibitor, YH001, a potentially best-in-class CTLA-4 antibody we licensed from Eucure Biopharma in October of last year. In August, the FDA approved our IND to initiate a Phase I/II trial of YH001 for the treatment of sarcoma patients, including patients who have not received prior therapy.
In October, we initiated the first site in the trial. We expect to dose initial patients in the Phase I/II trial using TRACON’s product development platform of CRO independent research before the end of this year. Our initial YH001 trial leverages data from two Phase I trials conducted by our partner, Eucure. These two 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 YH001 doublet as well as the triplet therapy that includes doxorubicin. We plan to assess the response rate in common where 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 subtype like chondrosarcoma and alveolar soft part sarcoma where chemotherapy is not highly effective. We intend to study the doublet of YH001 in ENVA to assess the response rate compared to the historical response rates with chemotherapy or single-agent checkpoint inhibition.
One of the objectives of this Phase I/II trial to determine the subtypes of sarcoma that best respond to the combination of ENVA, YH001 and doxorubicin, assuming positive trial results in the ENVASARC pivotal trial and potential accelerated approval of ENVA, the FDA will require a randomized trial to demonstrate a survival benefit.
We expect this Phase III post-approval trial will compare single-agent doxorubicin to the triplet combination of douse with ENVA and YH001 with PFS 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 triple therapy based on data from the Phase I/II trial that I described earlier.
We expect to discuss the design of a frontline trial with the FDA and initiate accrual prior to our planned BLA submission of ENVA for accelerated approval in refractory sarcoma based on data from ENVASARC The ability for TRACON to commercialize two 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 peak annual ENVA revenues expected in the initial indications of refractory UPS and MFS, and the $100 million in annual revenue in rare sarcoma subtypes where the activity of 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 front line, 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 as part of a treatment combination in sarcoma. In addition to our two checkpoint in inhibitors, we are pleased that the NCI continues to fund development of our DNA damage repair inhibitor TRC102. The NCI has initiated a randomized Phase II trial assessing TRC102 in Stage 3 nonsquamous, non-small cell lung cancer in combination with chemo radiation. The 2-arm trial enrolled 78 patients to assess the benefit of adding TRC102 to current standard of care treatment of pemetrexed, cisplatin and radiation therapy, followed by consolidated durvalumab treatment.
The primary endpoint of the trial is PFS and the trial is designed 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 and in combination with the checkpoint inhibitor tecentriq. Completion of data analysis of the clinical trial is expected this month, which triggers I-Mab’s option until we acquire TJ4309.
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 a payment to TRACON of $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 invoked contractual dispute resolution provisions assuring that I-Mab had reached its contractual obligations concerning both of our agreements entered into in November 2018. I-Mab initiated the arbitration to declare they were not in breach of either agreement. 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 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, which was then extended until November 30.
On November 8, 2022, the Tribunal invited the parties to submit an additional limited briefing on two discrete issues by December 9. Following that submission, the parties are to agree on a schedule for the respective cost submissions. The Tribunal did not indicate it when it expects to render its award. However, the tribunal did note they are far along in their deliberations and preparation of a final award, and we expect to trivial to provide their final award in the first quarter of 2023.
We, therefore, are encouraged that the final steps of the arbitration, including a consideration of arbitration costs are expected soon. 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 announced their award.
Given the challenging capital markets, the expectation to secure non-dilutive capital from existing and new corporate partners is important. In the meantime, we recently secured capital through another source. In September, we entered into a $35 million non-dilutive long-term debt facility with Runway Growth Capital. $10 million of the $35 million loan was funded upon closing. The additional $25 million available under the facility may be funded upon achievement of certain events and at Runway’s discretion. The loan has a 24-month interest-only period followed by 24 monthly payments of principal and interest.
This financing extends our cash runway to support the robust accrual of the pivotal ENVASARC trial while we await the outcome of the ENVASARC interim efficacy analysis, the binding arbitration with I-Mab, and notification from I-Mab regarding their option to terminate the TJ4309 agreement for $9 million.
As we’ve noted in the past, we expect to further supplement our cash position through opportunities for non-dilutive capital enabled through our 0 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 two ways to provide for potential non-dilutive capital to TRACON. First, we are evaluating drug candidates whereby TRACON performs clinical trials at a lower fixed cost compared to a zero but still at a premium to our cost using a pay-for-performance model and TRACON further benefits by earning a share of the revenue, including sublicensing fees and our royalties from commercialization. This is an aligned structure we used in the past, for example, with Johnson & Johnson.
Second, we are exploring a franchise model, whereby we are 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 at TRACON, we believe 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 and higher quality and at lower cost compared to trials typically contracted to CROs.
At this time, Scott will provide an update on our financials.
Scott Brown
Thank you, Charles, and good afternoon, everyone. TRACON’s research and development expenses were $4.1 million and $10 million for the three and nine months ended September 30, 2022, respectively, compared to $2.7 million and $8.1 million for the comparable periods of 2021. The increase in both periods was related to robust enrollment in the pivotal ENVASARC trial.
General and administrative expenses were $2.3 million and $12 million for the three and nine months ended September 30, 2022, respectively, compared to $4.2 million and $12.9 million for the comparable periods of 2021. The decrease in both periods was due to lower legal expenses as the arbitration hearing is now complete.
We expect G&A expenses to remain relatively consistent for the remainder of the year. However, there may be increases to the extent we must expand additional legal fees in connection with enforcing and collecting any arbitration award from I-Mab.
Our net loss was $6.4 million and $22.1 million for the 3 and 9 months ended September 30, 2022, respectively, compared to $7 million and $21 million for the comparable periods of 2021. Turning to the balance sheet. At September 30, 2022, our cash and cash equivalents totaled $17 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 mid-2023.
With that, I will turn the call back over to Charles.
Charles Theuer
Thank you, Scott. As you have heard, our corporate strategy is proceeding as planned. Allow me to recap four key events. First, this month, 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.
Second, this year, we expect to report the DMC interim efficacy assessment for the two ENVASARC cohorts dosed with 600 milligrams of envafolimab.
Third, in the first quarter of 2023, we expect to report the arbitration panel’s binding decision, including potential damage awards regarding our legal disputes with I-Mab. Fourth, we also 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, potentially benefit from our capabilities and realized for themselves the substantial time and cost savings we enjoy at TRACON.
As Scott indicated, our current cash runway extends into mid-2023 and passed each of these expected upcoming key milestones.
Thank you for your time and attention, and we are now available to answer your questions.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from the line of Joel Beatty with Baird.
Joel Beatty
My first question is on the interim analysis from the ENVASARC trial coming up later this quarter, what information could we get? Will it just be a go, no-go decision? Or can we learn more about whether we’re seeing the goal of the double-digit response rate?
Charles Theuer
Joel, thanks for the question. Yes, the interim analysis, I think both of those are key expectations that investors should expect. So first is to exceed the futility threshold which requires a single response in each cohort among the first 18 patients, but also we expect to report an aggregate response rate with the expectation being that a double-digit response rate will be perceived by management is very encouraging given that’s basically, the endpoint of the study as a very low double-digit response at 1.25% and knowing that, that will be reported as a preliminary response. And I think that’s such an important concept that many of these patients have had two scans. They get scanned at six weeks and they get scanned at 12 weeks.
We know from prior studies of checkpoint inhibitors that many patients will have decreases in tumor burden at 6 and 12 weeks, but it may not reach that threshold of 30% that defines an objective response. And so seeing that we have responses by central review in the double-digit range based on the limited data we have in those 36 patients is what we would perceive as very positive, and that would be our goal in terms of able to report that before end of the year at that interim assessment.
Joel Beatty
Great. That’s helpful. And a follow-up question on the arbitration. It was mentioned that over $200 million in damages as being up from I-Mab. Can you discuss what, if anything, I-Mab is speaking from TRACON as part of the arbitration?
Charles Theuer
So the arbitration is interesting in that I-Mab initiated the arbitration. What happened in terms of sequence of events, we invoke the dispute resolution provisions in the actual agreements we had with them in each of the two agreements. And in response to that I-Mab initiated arbitration to ask the panel to declare they were not in breach of either agreement.
So that’s what their claim is to claim that they’re not in breach. Our counterclaims were much more detailed and specific with respect to each agreement, we claim breach with respect to the TJ4309 agreement. We claimed that they had done a deal with a company in Korea, KGbio in March of 2020 that triggered a payment to trade on under the revenue share obligation of that agreement. And then with respect to the bispecific antibodies agreement, that was a detailed strategic transaction, whereby I-Mab was obligated to nominate two bispecific to TRACON annually for each of five years to a total of 10 of which we would take 1 to 2 per year after a total five into the clinic.
We learned that prior to our agreement and we [indiscernible] us at that time, they signed a deal with another agreement company for bispecifics at that time and that based influence, and that was relevant with respect to their ability to perform with respect to the agreement.
So those are our counterclaims around those breaches, one of each agreement and the damages around those counterclaims as noted in the script and in our filings is over $200 million in damage.
Operator
Our next question comes from the line of Ed White with H.C. Wainwright.
Edward White
So the first question I have is actually for Scott. Scott, the R&D expenses were up about 40% sequentially. I’m just curious if there’s anything onetime in nature in there or if this is going to be the sort of base run rate going forward as you move through the ENVASARC trial?
Scott Brown
Ed, thanks for the question. And yes, I was thinking back, I think it was last quarter that I gave you the response that we would expect in the low 3% to 3.5% on R&D, and we’re hit 4.1% this quarter. And so I mean, the real reason for that was we had enrollment that was much higher than we expected in ENVASARC. And so I mean, this is probably the upper limit is what I would expect going forward, it’d probably be a little bit lower, but this is on the upper end of what I would expect on R&D.
Edward White
Okay. And then another question, just with your cash runway that you mentioned into the middle of 2023. Does that include any more of the $25 million of — that you have left on your debt facility?
Scott Brown
It doesn’t. No. So just the $10 million that we drew at closing.
Edward White
Okay. And then the other question I had was just a big picture strategic question. When you have mentioned the outlook now for trying to use your product development platform as a CRO alternative for others, either you running the trials or franchise it, has there been any interest from outside companies as of yet? And is this something we should consider to see deals announced in 2023 or 2024? Or is it really too early to tell?
Charles Theuer
I appreciate the question. Yes, we’ve had interest on both of our offerings in that regard. So one offering is we call pay-for-performance, where we’re willing to do the trial in lieu of a CRO, take on that responsibilities. But we do it in a pay-for-performance mean we get paid based on accruing patients, not just on sitting on our hands and collecting project management fees, and we can do it at a lower cost than the zero, and we can do it more quickly because we have no incentive to delay the trial the way a CRO does by being paid, frankly, for an activity.
And the payback for TRACON is we still make a profit because we can do trials at such a low cost, but we also share in the revenue, which further aligns us with our partner to see the drug move quickly through the clinical trial process. So we have a lot of interest in that model.
We do carefully select what we would take into our portfolio around that model. We want to be excited by the molecules. We do have a high bar on that, but we’re evaluating several opportunities in that regard.
The second opportunity is really what we call giving the keys to the kingdom to a partner, and that’s a franchise model. Imagine a company has our capabilities with respect to executing clinical trials. The amount of money they could save is incredible. I’ll give you an example. We feel we do trials at about 1/3 of the cost of a CRO. I mean you know what these three trial costs to do with the CRO. Imagine that cost was 1/3. And that’s what we’ll be enabled if the company actually received the keys that came in from TRACON and we taught them how to do trials themselves. And the amount of money would save on a per trial basis would be incredible.
So we do have interest there also. I think they’re also — we need to pick our partner very carefully. But I would say, in general, in terms of what you can think about with respect to TRACON strategically would be for us to execute a franchise model partner and a pay-for-performance model partner one per year of each of those models for the next several years would be our goal.
It would help us in terms of gaining capital into our company. It would help our partners incredibly by freeing them of the shackles of the CRO reimbursement system. And then it would actually help the entire ecosystem by moving more good products through the clinical trial process more quickly.
Edward White
Great. And perhaps my last question, if I could just ask on TRC102. Did I hear correctly stating that you think the — you’ll have data from the NCI trial in 2024? And if that data is positive, what are the next steps that the company will take.
Charles Theuer
Yes, great question. Thanks for asking. So TRC102, we feel is a little bit underappreciated asset at TRACON. But it’s in the class of DNA damage repair inhibitors, which I think people understand could be very, very valuable in terms of additional therapies to build on chemotherapy and even I-O therapy.
So if we see positive data for that Phase II study, we would plan to move that forward immediately into a pivotal trial and likely TRACON would response to that trial using its CRO-independent product development platform. And that could be a very important therapy for patients because it be a frontline lung cancer localized lung cancer trial that would combine TRC102 with standard of care therapy, basically be repeating the Phase II study going on currently, just with a larger sample size as a Phase III trial. So expect that we would take that over and run that as a Phase III as a pivotal study for approval of TRC102.
Edward White
And you had expected data from the NCI in 2024?
Charles Theuer
Sorry, yes. We do expect 2024 from the NCI, which is noted in the clinical trials that go posting as well.
Operator
Our next question comes from the line of Soumit Roy with JonesTrading.
Soumit Roy
Thank you providing all the updates. A quick question on — if you are going to look at the mutational status of these patients for ENVASARC or other like sarcoma trials like MDM2 or p53 or CDKN2A to get a sense if responders and nonresponders are specifically falling into having these mutations?
Charles Theuer
So in ENVASARC, we’re looking at biomarkers from archival tumor specimens, Soumit, I’d say the markets were more focused on our — so I’m getting a little feedback. But the markers we’re on focused — can everyone mute maybe I’m getting a lot of feedback here. Sorry, Soumit.
So to answer your question, we are looking at markers for the ENVASARC pivotal trial with respect to archival tumor specimens. I would say the majority of specimens are markers we’re looking at are more of the immuno-oncology flavor, for instance, tumor mutational burden, PD-L1 status as examples.
We could look at additional markers that you mentioned, including MDM2. They’re not as high on their priority list in the sense that they haven’t correlated as well with response to immune therapy. But we do have the broad ability to interrogate the archival tumor tissue as we see fit and can do additional analyses.
Soumit Roy
You mentioned the higher rate of enrollment. Are you seeing it broadly or specific sites are enrolling better? And do you see enrollment completion ahead of time? Or is maintaining at the year-end ’23?
Charles Theuer
Yes. Thanks for the question. We are seeing very broad accrual across multiple sites, which we’re very encouraged by. And based on the current level of accrual, we will beat the projected accrual, which was at the end of 2023. We’ll continue to monitor that to try to give a more specific date on expected complete accrual.
But right now, I’d say we’re well ahead of schedule, which would put us sometimes still in the second half of ’23, but ahead of the initial projection, which was the end of ’23.
Soumit Roy
But comment how many patients have been enrolled so far? Sorry, if I missed it.
Charles Theuer
Sure. No, we’ve enrolled 68 patients. So we — our last update, I think we have updated the Street at 36 patients, and that was at the end of July, and we’re at 68 patients now in mid-November. So we’re seeing accrual of about roughly 30 patients in about a quarter every 3 to 4 months. So you start doing the math, that’s about 90 to 100 patients a year as an example, when we estimated it would be about 80 patients a year. So we’re ahead of accrual by about that factor.
Operator
[Operator Instructions]. Our next question comes from the line of Robert Hazlett with BTIG.
Robert Hazlett
Sure. Sorry, having connection difficulties, my apologies for this. Maybe you touched on this, Charles, if you did, my apologies. As we get the interim efficacy data, will we see data that emerges between for both arms? Or will we see collective data in terms of both arms together?
Charles Theuer
Bert, appreciate your question. Yes, our thought is that we don’t want to, if you will, bias patients who may go from — who may be assigned to an arm that if there’s a high response rate reported, I would say, well, I don’t want to be on the study because I didn’t get the . So I expect it would be an aggregate response rate. I think that’s the best way to preserve the integrity of the trial.
Robert Hazlett
Makes sense. And then just one the arbitration hearing — the — with regard to education, the — I know the word binding, and we’ve talked about this, I think, offline, but I’d love just a little bit more clarity. The word binding has permanent is there any deals process?
And then in terms of the award timing, assuming [indiscernible] so payments or other compensation might be rendered one way or another.
Charles Theuer
Sure, Bert. Yes, so this is binding arbitration, which is recognized internationally. And so based on the award, we expect that I-Mab will pay the award. You can confirm the award in the U.S. court as a further kind of legal process. And we’ve been told that it’s standard procedure that the U.S. court will confirm an international arbitration award in almost every case.
In terms of the ability of our opponent to pay based on the balance sheet, we don’t see that as an issue. And the — despite, if you will, the large amount of damage that we are requesting based of the Tribunal. Sorry, Bert, you’re a little scratched. Does that answer your question?
Robert Hazlett
It does. Look forward to the data update and the results of the hearing.
Operator
And I’m currently showing no further questions at this time. I’d like to hand the conference back over to Dr. Theuer for closing remarks.
Charles Theuer
Well, I’d like to thank our listeners and also the analysts for the questions. We appreciate them and look forward to updating you at the next quarterly call. Have a good day.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
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