TRACON Pharmaceuticals, Inc.
Q2 2020 Earnings Call Transcript

Published: 6 Aug 2020

[Operator:]

Good day, ladies and gentlemen, and welcome to TRACON Pharmaceuticals’ Second Quarter and 2020 Earnings Conference Call. At this time, all callers are in a listen-only mode. After the speakers’ prepared remarks, we will be conduct a question-and-answer session, and instructions will be given at that time. 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 and our development plans and strategy. These statements are subject to various risks that are described in our filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2019, 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?

[Charles Theuer:]

Good afternoon, and thank you for joining TRACON’s second quarter 2020 financial results and business update call. I will begin with an update on our pipeline and then recent activities. Following that, our Chief Accounting Officer, Scott Brown, will review our financial results for the three months and six months ended June 30, 2020. Finally, we will conclude by taking your questions. We had a very productive quarter with our primary focus remaining on our recently in-licensed PD-L1 product, envafolimab, a late-stage potential best-in-class checkpoint inhibitor which may confer a clinical benefit by virtue of its unique rapid subcutaneous route of administration. As a reminder, TRACON has licensed North American rights to clinically develop and commercialize envafolimab in the indication of sarcoma. As you will recall, TRACON met with the U.S. FDA on May 8 to review our plans for the pivotal ENVASARC trial of envafolimab for the treatment of sarcoma. Following that successful FDA meeting, on July 15, we filed the IND for the pivotal ENVASARC trial in the sarcoma subtypes of undifferentiated pleomorphic sarcoma, or UPS, and the closely related subtype of myxofibrosarcoma, or MFS, with the FDA. The 30-day FDA review period will end August 14. The pivotal trial will include two cohorts of 80 patients each. One cohort will receive single-agent envafolimab, and the second cohort will receive envafolimab in combination with Yervoy, a second checkpoint inhibitor targeting the CTLA-4 receptor that is marketed by BMS. The trial will enroll patients with UPS and MFS who have progressed on one or two lines of prior treatment that have not received prior checkpoint inhibitor therapy. The primary endpoint in both cohorts will be objective response rate by RECIST as confirmed by blinded independent central review, with duration of response being a key secondary endpoint. Each cohort the demonstration of 9 out of 80 objective responses or an 11.25% objective response rate, confirmed by independent radiographic review, defines the level of response that satisfies the primary objective of the study, which is to statistically exclude the known 4% response rate of Votrient, the only approved treatment for refractory UPS and MFS. Yes, you heard me correctly, unfortunately, the one approved treatment for refractory UPS and MFS has only a 4% objective response rate. This is a clear example of an indication with a high unmet clinical need. We are setting the sarcoma subtype of UPS and MFS because they are responsive to checkpoint inhibition based on data presented at ASCO 2019 and ASCO 2020. At ASCO 2020, investigators from the Alliance for Clinical Trials in Oncology reported an impressive 29% confirmed objective response rate in patients with highly refractory UPS who received Opdivo in combination with Yervoy. These data build upon data released at ASCO 2019 showing that single-agent Keytruda demonstrated a 23% response rate in highly refractory UPS and MFS patients. The ENVASARC pivotal trial was designed on the basis of activity reported for PD-1 and PD-L1 antibodies as single agents and in combination with Yervoy in certain soft tissue sarcoma subtypes that include UPS and MFS. While the activity of checkpoint inhibition in UPS and MFS appears clear, we had not previously reported Phase 2 response rate data for envafolimab in indications that were also evaluated in separate clinical trials for the checkpoint inhibitors, Opdivo and Keytruda. However, at ASCO 2020, investigators from the pivotal trial of envafolimab in colorectal cancer showed that single-agent envafolimab demonstrated a 28.2% confirmed objective response rate in 39 patients with MSI-high colorectal cancer who failed three approved chemotherapies of fluoropyrimidine, oxaliplatin and irinotecan. This level of response was nearly identical to the 28% confirmed objective response rate reported for Opdivo in the CheckMate-142 trial, and the 27.9% confirmed objective response rate reported for Keytruda in the KEYNOTE-164 trial. Each of these trials similarly enrolled MSI-high colorectal cancer patients who failed those same three standard of care chemotherapies. Of note, envafolimab caused typical immune-related toxicities like rash, hypothyroidism and liver inflammation at rates and severities typically seen with checkpoint inhibitors. However, there were no cases of infusion-related reactions nor were there any cases of colitis or pneumonitis in the more than 100 patients treated with envafolimab presented at ASCO, which is consistent with the overall safety profile envafolimab in the more than 650 treated patients. Infusion reactions, pneumonitis and colitis are potentially serious complications of Keytruda, Opdivo and other intravenously administered checkpoint inhibitors. Envafolimab’s rapid subcutaneous route of administration achieves low variability in serum without the peak concentration effects noted with intravenously administered checkpoint inhibitors. This may result in a safety advantage for the combination of envafolimab and Yervoy compared to the combination of Opdivo and Yervoy. Collectively, we believe these data bode well for the ENVASARC trial, which will assess the potential of envafolimab as a single agent and in combination with Yervoy to achieve an 11.25% objective response rate with good tolerability in each cohort. One additional advantage reflects the fact that ENVASARC enrolls patients who have progressed following only one or two prior lines of treatment, which makes them potentially less refractory than UPS and MFS patients who enrolled in the single-agent Keytruda or Opdivo plus Yervoy combination trials. Those patients received two, three or four lines of prior therapy and in some cases, up to six. Notably, our goal, based on data for other checkpoint inhibitors in sarcoma, is to achieve a 15% response rate with envafolimab single agent and a 30% response rate with envafolimab combined with Yervoy to provide data to gain FDA approval for envafolimab as a single agent and also in combination with Yervoy. The dual-arm design also provides for risk mitigation to combination treatment be required for robust responses. We are particularly enthusiastic based on the ASCO 2020 data about the prospects for dual checkpoint inhibition which may result in more frequent, deeper and more durable responses than single-agent envafolimab treatment. Given the 4% objective response rate of Votrient, the only approved therapy for refractory UPS and MFS, we believe envafolimab combined with Yervoy could provide a transformative new standard of care for sarcoma patients. Notably, BMS executed a similar dual-cohort clinical trial strategy for Opdivo in MSI-high colorectal cancer that resulted in Opdivo’s approval as both a single agent and in combination with Yervoy. And both approvals were based on objective response rate. I can confirm that key opinion leaders and investigators are enthusiastic about initiating the ENVASARC trial based on addressing a significant unmet need. We have also learned that these physicians are motivated to participate in the ENVASARC trial due to the unique convenience of envafolimab’s rapid subcutaneous dosing, especially in this time of COVID-19. For reference, envafolimab can be dosed in less than 30 seconds in a volume of less than 2 milliliters, and it doesn’t require the use of [indiscernible] or any adjuvant. Contrast this to what patients endure to receive an intravenous checkpoint inhibitor. In that case, they need to book an appointment in the infusion center, receive premedication, have an IV inserted or require accessing a central line or a port, which could become infected, wait at least 30 minutes for the infusion to be completed, risk and infusion reaction, which may need further medical treatment, and then visit their physician in the clinic. Life of the morning, afternoon or perhaps the entire day has been spent at the infusion center. In contrast, dosing with envafolimab is similar to receiving a flu shot. The patient can simply be dosed in the clinic. Following their physician visits, a nurse can enter the room and administer envafolimab in 30 seconds under the skin of the upper arm. Following that, the patient can immediately go home to – due to no risk of an infusion reaction. Dr. Sandra D’Angelo, attending physician at Memorial Sloan Kettering Cancer Center and lead Investor for the Alliance Clinical Trial said, "it has been shown that UPS is one of the sarcoma subsites with the highest responses to checkpoint inhibitors to date. And given these encouraging combination therapy data, the upcoming ENVASARC pivotal trial is a potentially promising study for patients." We expect to open ENVASARC at approximately 25 sites in the U.S. Also of note is that we estimate the total cost of the pivotal trial using TRACON’s CRO independent product development platform, including paying for Yervoy, is approximately $15 million. That spend will be spread out over the next 8 to 10 quarters. Following the recently completed filing of the ENVASARC protocol with the FDA in July, we expect six near-term milestones. First, FDA clearance of the ENVASARC protocol; second, initiate dosing in the ENVASARC trial in the fourth quarter of this year; third, submit early response assessment data to the FDA in first quarter 2021 as part of our orphan drug designation application; fourth, conduct an inter-response assessment that we expect to disclose to the public around the time of ASCO 2021, and could be the basis for breakthrough designation; fifth, provide final responses assessment data in 2022; and sixth, assume positive data, submit a BLA for accelerated approval that, if approved, could allow for product launch in the U.S. in 2023. In parallel, our corporate partners, 3D Medicines and Alphamab Oncology are conducting clinical trials in the U.S. and China in additional indications, and we expect them to submit envafolimab for approval in MSI-high colorectal cancer in China later this year. We recently received the results of a third-party market assessment that TRACON commissioned. The study concluded envafolimab, if FDA-approved for refractory UPS and MFS, could generate peak annual revenue of approximately $200 million in the U.S., assuming parity pricing to Keytruda or Opdivo. The adoption rate is forecast to be relatively rapid using envafolimab’s target product profile, which to assume the clinical results I discussed earlier in my remarks, and importantly, the very high unmet clinical need in this setting, which we have also discussed. Of course, envafolimab sales revenue could increase further if treatment is expanded through label expansion or compendia listing to other refractory sarcoma subtypes that have been shown to be responsive to checkpoint inhibition, such as angiosarcoma, albeit soft part sarcoma and dedifferentiated liposarcoma, which our market assessment study indicated could generate an additional $100 million in peak annual revenue in the U.S. for a total of $300 million when combined with UPS and MFS. Of course, our goal to expand the use of envafolimab into the first-line setting in many other sarcoma subtypes could substantially increase sales revenue. While envafolimab is our most advanced product candidate, we continue to progress three other clinical-stage assets

[Scott Brown:]

Thank you, Charles, and good afternoon, everyone. TRACON’s research and development expenses were $2.2 million and $4.2 million for the three and six months ended June 30, 2020, respectively, respectively, compared to $4.3 million and $9.6 million for the comparable periods of 2019. The decrease was primarily attributable to lower manufacturing and clinical trial expenses related to the termination of the TRC105 program in April of last year, along with lower manufacturing expenses for TRC253. General and administrative expenses were $2.1 million and $4.0 million for the three and six months ended June 30, 2020, respectively, and $1.9 million and $3.8 million for the comparable periods of 2019. Our net loss was $4.5 million and $8.5 million for the three and six months ended June 30, 2020, respectively, compared to $6.3 million and $13.5 million for the comparable periods of 2019. Turning to the balance sheet, at June 30, 2020, our cash and cash equivalents totaled $14.5 million compared to $14.1 million and $16.4 million at March 31, 2020 and December 31, 2019 respectively. We expect our current capital resources to be sufficient to fund our planned operations into mid-second quarter of 2021, which could be further extended through use of the equity line with Aspire Capital under which subject to certain conditions, they’re committed to purchase up to $15 million of our common stock at our request from time to time during a 30-month period based on the market price at the time of each sale, and we estimate this facility could extend our cash runway into late Q3 2021, if fully utilized. Importantly, our financial runway could be further extended through non-dilutive capital from the license of rights TRC253, milestones associated with our TJ4309 partnership with I-Mab or entering into a synthetic royalty arrangement on envafolimab North American sales to a third-party. We are forecasting a cash burn from operations of approximately $4 million to $5 million per quarter for the remainder of 2020, increasing to $6 million to $7 million per quarter in 2021 as we continue to enroll the ENVASARC pivotal study, which we could offset with additional sales with stock from the equity line with Aspire Capital and our ATM with Jones Trading. In Q2 2020, we raised a total of $4.4 million through our equity line and ATM, which more than balanced our quarterly cash outflow of $4 million. We believe these facilities represent the most inexpensive cost of capital available to us as the sales are made at a slight discount to market price and resulted in modest dilution to shareholders. With that, I’ll turn the call back over to Charles.

[Charles Theuer:]

Thank you, Scott. To recap, we have filed the ENVASARC pivotal trial with the FDA and expect FDA clearance this quarter and expect to dose the pivotal trial at multiple sites beginning in the fourth quarter of this year. We believe the ENVASARC trial provides multiple near-term milestones as a potential fast-to-market strategy to provide envafolimab to sarcoma patients in significant need of a new therapy as expeditiously as possible. Addressing this high unmet need is clearly important to investigators, and they are very enthusiastic about initiating the ENVASARC trial. They are additionally excited about envafolimab’s unique and convenient rapid subcutaneous route of administration. Envafolimab saw request to license an exciting late-stage asset and repositions the company to forward integrate and potentially build our commercial capabilities, which we eventually could leverage across multiple products. Importantly, we have access to capital to deliver the expected ENVASARC interim data in mid-2021, which could demonstrate potential for envafolimab to transform the standard care for refractory sarcoma patients. We look forward to providing further updates in the coming months, and remain confident that we have the right strategy in place to deliver on our development and business plans for the benefit of patients and shareholders. Thank you for your time and attention, and we are now available to answer your questions.

[Operator:]

[Operator Instructions] Our first question comes from Maury Raycroft with Jefferies. Your line is open.

[Swapnil Malekar:]

Hi, this is Swapnil on for Maury. Thanks for taking my questions. So first question is related to the patients that you plan to enroll in your Phase 3. You said that they will be like maybe on one or two lines of prior therapies versus other agents that have been tested, have enrolled patients that had like four, five or six prior lines. So just based upon those differences, do you anticipate to see any differences in the ORRs in your Phase 3?

[Charles Theuer:]

Hi, Swapnil. Thanks for your question. So I think when you think about the ENVASARC trial, we’re clearly trying to demonstrate a robust response rate. And I think there are several things that I think potentially allow us to generous robust response rate that could be superior to what we’ve seen for other checkpoint inhibitors in similar patient populations. And the first is the eligible patients. So I think if we enroll patients who are less refractory, there’s a chance that for a drug that’s just as active which seems to be the case based on the colorectal cancer data, you might be able to increase the response rate so second and third-line patients maybe more responsive, for instance, than fifth or sixth-line patients. I think another important factor in this study is could we be safer than some of the other checkpoint inhibitors. And that’s important when you think about combining envafolimab with Yervoy, when you look at the Opdivo-Yervoy data, I mentioned that robust response rate, 29%, and that’s impressive. But you also have to remember that about 14% of patients in that trial couldn’t even tolerate the combination. So in other words, you had a 29% response rate across all patients, even though more than one in 10 couldn’t even take therapy. Now imagine if every patient can take enva plus Yervoy. In other words, every patient has a chance to respond, not just 9 out of 10 patients. Even based on similar activity, we might see a higher response rate. So based on potentially a safety profile that’s better than Opdivo, that permits more patients receiving enva-Yervoy as dictated by the protocol and not discontinuing for toxicity. And based on patients potentially being less refractory, we think there’s a potential we might see a more robust response rate than even what’s been reported previously in trials of dual checkpoint inhibitors.

[Swapnil Malekar:]

Alright, very helpful. And I just had one follow-up question related to the KOL event that you hosted, where we see the axitinib and pembro combination and soft tissue sarcomas, where the PFS was not really dependent on PD-L1 expression. So just like given mechanistics of how the drugs work. What do you think is driving the efficacy and then like for envafolimab. Are there any plans to initiate a combo trial with TKIs?

[Charles Theuer:]

Great question. So I think when you look at the totality of the data that Dr. Bob Mackey discussed at the KOL event, I think you – it’s clear that that PD-L1 is not a accurate predictor of patients who respond to checkpoint inhibition. In fact, there’s data that what’s called their sarcoma immune classification maybe a better predictor of the patients that are most likely to respond to these therapies. Now, importantly, in the ENVASARC trial, we don’t mandate the patients to fulfill any criteria to come into the trial other than having UPS and MFS, but we will carefully assess for potential biomarkers that could help direct therapy to other patients where we wouldn’t based on histology alone, expect such a robust response rate. So for example, we will check PD-L1 status. We will check the sarcoma immune classification status, as well as the tumor mutational burden status of each patient. And we’ll correlate that with response with the hopes then that we may develop a predictive biomarker that allows expanding. And before I went to many more sarcomas subtypes. Another way to think about expansion is what you just touched on combining with TKIs. As an example, just as an area where we have discussed in general terms with potential investigators about moving envafolimab. Now, if you look at just dual checkpoint inhibition is not very effective there. But as you all know, TKIs are quite effective and KIT inhibitors are the standard of care in that indication. So one logical design would be to combine with a KIT inhibitor with envafolimab. And GIST, you mentioned VEGF receptor tyrosine kinase inhibitors, those also could be a basis for combination in other sarcoma subtypes. So clearly, I think the playing field in sarcoma is quite large. We’re initially exploring enva single agent, enva plus Yervoy in the most responsive subtypes, but we could think about combining with chemotherapy, specifically anti-cyclins in first-line sarcoma. We could also combine with, as I mentioned, TKIs including a c-KIT inhibitor in GIST and also potentially VEGF inhibitor and other sarcoma subtypes. So there’s a lot of work to be done, and I think a lot of patients that could benefit from enva beyond just those that will benefit – we expected benefits I should say, based on UPS and MFS based on the initial ENVASARC trial.

[Swapnil Malekar:]

Okay, got it. Very helpful. Thank you, Charles. Thank you for taking my questions.

[Charles Theuer:]

Thank you, Swapnil. My pleasure. Thank you.

[Operator:]

Thank you. [Operator Instructions] And I’m not showing any further – pardon me. We do have a question from the line of Ed White with H.C. Wainwright. Your line is open.

[Ed White:]

Hi guys, can you hear me okay?

[Charles Theuer:]

Hi Ed, good afternoon. Yes.

[Ed White:]

Hi, great. So maybe just a question and we spent some time talking about the ORR targets. Maybe if you could talk a little bit about durability targets. And then so just on I-Mab, so I understand you have the next potential asset but you’re in you have agreements with them right now. Is that for just the biospecifics? Can you get another compound out of that partnership? Or everything’s stopped right now into the disagreements are resolved? Thanks.

[Charles Theuer:]

Sure. I appreciate your questions. So I’ll talk initially about your question around the overall response rate. So the primary objective of ENVASARC is to demonstrate an objective response rate confirmed by RECIST by central review of 11.25% in each of the cohorts. And while that’s the primary objective, the real important secondary objective, which is also I think critical to patient benefit and we’ll be seen as critical from agency, is the durability of response. Unfortunately, most checkpoint inhibitors have quite durable response, and the general bar for that is six months. So what we’re looking for is a six-month durable response in the majority of patients. Now I will say from previous studies with envafolimab for instance, in colorectal cancer, we saw durability response beyond six months of over 70%, which, again, is fairly standard for checkpoint inhibitors. So I think the bar is in the majority to 70% range, Ed, but that’s an appropriately wide range because that’s an agency review decision. But I think that’s roughly the standard you’ve seen that’s been achieved by most of the checkpoint inhibitors that have been approved based on response rate and then durability of response to the secondary consideration. So that’s what we’re shooting for. And that’s what our expectation would be, which, again, is something we’ve seen with enva and previous studies and other indications, and has been the general percentage we’ve seen for checkpoint inhibitors in general, whether it be sarcoma or other indications. With respect to I-Mab, we have two agreements with I-Mab. We have the agreement with TJ4309, and their dispute results around a potential payment where we are feel we are entitled to based on a strategic agreement they made with the company, Kalbe Genexine. And the second agreement is on the biospecifics, whereby we expect to cooperate them to develop multiple biospecifics. And in each case, we feel there’s been a breach that is in the dispute process as we speak. That’s probably the extent to which I can discuss that at this time.

[Ed White:]

Okay. Thanks, Charles.

[Charles Theuer:]

Thank you. I appreciate the question.

[Operator:]

Thank you. And we do have a follow-up from Maury Raycroft from Jefferies. Your line is open.

[Swapnil Malekar:]

Hey Charles, thank you. Just one more follow-up question. So if I recall correctly, the objective response rate initially was aimed to 15%, and now it’s 11.5%. Is that like something just related change to statistics? Or like has something else changed fundamentally in the trial design?

[Charles Theuer:]

Yes. It’s actually the exact same trial design, and nothing’s changed other than making it clear that one thing is what’s required for a positive trial, Swapnil. And then the other thing is what we really expect will happen as the target product profile of the drug. So to be clear, the statistics around the trial define a positive trial and achieving the primary objective of a response rate that excludes with 95% certainty, the 4% known response rate of Votrient, and that is 9 of 80 responses. So that satisfies the statistical rule of the study. In other words, if we see 9 of 80 responses, we reject the null hypothesis and show that our drug is statistically superior to the historical response rate for Votrient. So that’s the minimum, if you will, to generate a positive trial. That’s been the statistical rules since we first proposed this trial to agency. Separate is what we really expect. So what we hope to see is a 15% response rate single agent and a 30% response rate, combo. And that’s based on what we’ve seen with checkpoint inhibitors in UPS and MFS based on date at ASCO 2019 and 2020.

[Swapnil Malekar:]

Okay. Very helpful, Charles. Thank you very much.

[Charles Theuer:]

My pleasure, Swapnil. Thank you for the questions.

[Operator:]

Thank you. And at this time, I’m not showing any further questions. I’d now like to turn the call back to your speakers for any further remarks.

[Charles Theuer:]

Thank you for your attention, and we look forward to speaking with you next quarter.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.