TRACON PHARMACEUTICALS Investor Presentation February 2020 NASDAQ: TCON Forward-Looking Statements This presentation contains statements that are, or may be deemed to be, "forward-looking statements." In some cases these forwardlooking statements can be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "plans," "intends," "may," "could," "might," "will," "should," "approximately," "potential," or, in each case, their negatives or oth ...

TRACON Pharmaceuticals Inc. (OTCQB:TCON) Q4 2019 Earnings Conference Call February 27, 2020 4:30 PM ET Company Participants Charles Theuer - President and CEO Scott Brown - Chief Accounting Officer Conference Call Participants Swapnil Malekar - Jefferies Bert Hazlett - BTIG Operator Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals Fourth Quarter and Year-End 2019 Earnings Conference Call. At this time, all callers are in a listen-only mode. After the speaker's prepared remarks, we w ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36818 TRACON Pharmaceuticals, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 34-2037594 (State or Other Jurisdiction of Incorporation or Organization) Indicate ...

Financial Data and Key Metrics Changes - TRACON reported no collaboration revenue for the three and nine months ended September 30, 2019, compared to zero and $3 million for the comparable periods of 2018 respectively, due to the absence of a corresponding revenue in 2019 [20] - Research and development expenses decreased to $3.1 million and $12.6 million for the three and nine months ended September 30, 2019, respectively, compared to $7 million and $24.5 million for the comparable periods of 2018, primarily due to lower manufacturing and clinical trial expenses [21] - General and administrative expenses were $2 million and $5 million for the three and nine months ended September 30, 2019, compared to $2.1 million and $5.5 million for the comparable periods of 2018 [21] - The net loss was $5.2 million and $18.7 million for the three and nine months ended September 30, 2019, compared to $9.1 million and $27.2 million for the comparable periods of 2018 [21] - Cash, cash equivalents, and short-term investments totaled $19.1 million at September 30, 2019, down from $26.3 million at June 30, 2019, and $39.1 million at December 31, 2018 [22] Business Line Data and Key Metrics Changes - The company is focused on four clinical stage assets: DE-122, TRC102, TRC253, and TJ004309, with significant clinical milestones expected in 2020 [24][25] - DE-122 is in a Phase II AVANTE study, with top line data expected in the first half of 2020 [7] - TRC102 is involved in multiple Phase I and II trials, with data presentations expected in 2020 [8] - TRC253 is in a Phase I/II trial, with proof-of-concept data expected in the first half of 2020 [10] - TJ004309 is in a Phase 1 dose escalation study, with top line data anticipated in the second half of 2020 [11] Market Data and Key Metrics Changes - The company is evaluating additional external clinical stage assets for potential addition to its pipeline in 2019 and 2020 [4] - TRACON aims to establish new corporate partnerships around first-in-class, best-in-class, or fast follower clinical stage assets [5] Company Strategy and Development Direction - The company continues to develop a robust pipeline of clinical stage assets and is tracking the progress of IMF's pipeline of multiple preclinical biospecific antibodies [4] - TRACON's strategy includes leveraging its CRO independent product development platform to establish key partnerships that drive long-term shareholder value [4] - The company plans to file an IND for the first bispecific antibody from its partnership with I-Mab in 2020 [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strategy to deliver on development and business plans for the benefit of patients and shareholders [26] - The expected clinical readouts in the first half of 2020 could result in success-based milestones, further extending the cash runway [26] Other Important Information - TRACON entered into an agreement with Aspire Capital to purchase up to $15 million of common stock, which could extend the cash runway into Q2 2021 [5] - The company retains significant financial rights to DE-122, including $145 million in remaining developmental, regulatory, and commercialization success-based milestones [7] Q&A Session Summary Question: Has the DE-122 study been reviewed by DSMB? - Yes, there is no DSMB interim look into that study, and final data is expected in the first half of next year [29] Question: Are you seeing a higher prevalence of the androgen receptor mutation for TRC253? - Yes, there is a second undisclosed point mutation with a higher prevalence than F877L, and data will be reported in the first half of next year [30] Question: How does the decision process work for selecting antibodies in the I-Mab pipeline? - The selection process involves evaluating bispecifics as they move through the IND enabling process, with TRACON entitled to nominate up to five assets over the next five years [34][35] Question: What has intrigued you about the 4-1BB program? - Engaging T-cells to turn cold tumors hot is seen as a promising therapeutic approach, making T-cell engagers more attractive than dual immune checkpoint targets [38] Question: What is driving the lower expected initial response rate for TRC253? - The lower response rate may be due to the heterogeneous nature of tumors with the F877L mutation, which may have other mechanisms of resistance [42]

PART I FINANCIAL INFORMATION Presents TRACON Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements and detailed notes [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents TRACON Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Summarizes TRACON Pharmaceuticals, Inc.'s financial position, detailing assets, liabilities, and stockholders' equity **Condensed Consolidated Balance Sheets (in thousands):** | Item | September 30, 2019 | December 31, 2018 | | :-------------------------------- | :------------------- | :------------------ | | **Assets** | | | | Cash and cash equivalents | $19,053 | $25,136 | | Short-term investments | — | 13,968 | | Total current assets | 20,270 | 40,603 | | Total assets | $21,212 | $40,648 | | **Liabilities and Stockholders' Equity** | | | | Accounts payable and accrued expenses | $9,204 | $10,947 | | Long-term debt, current portion | 2,570 | 1,084 | | Total current liabilities | 12,830 | 13,495 | | Long-term debt, less current portion | 3,402 | 5,343 | | Total stockholders' equity | 4,035 | 21,442 | | Total liabilities and stockholders' equity | $21,212 | $40,648 | - Total assets decreased from **$40.6 million** at December 31, 2018, to **$21.2 million** at September 30, 2019, primarily due to a reduction in cash and cash equivalents and the absence of short-term investments[10](index=10&type=chunk) - Total stockholders' equity significantly declined from **$21.4 million** at December 31, 2018, to **$4.0 million** at September 30, 2019[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details TRACON Pharmaceuticals, Inc.'s financial performance, including revenue, expenses, and net loss over specific periods **Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share data):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Collaboration revenue | $— | $— | $— | $3,000 | | Research and development | 3,056 | 6,976 | 12,617 | 24,529 | | General and administrative | 2,025 | 2,107 | 5,867 | 5,480 | | Total operating expenses | 5,081 | 9,083 | 18,484 | 30,009 | | Loss from operations | (5,081) | (9,083) | (18,484) | (27,009) | | Net loss | $(5,199) | $(9,085) | $(18,738) | $(27,203) | | Net loss per share, basic and diluted | $(0.17) | $(0.30) | $(0.63) | $(1.05) | | Weighted-average shares outstanding | 29,937,457 | 29,837,486 | 29,919,776 | 25,962,237 | - Collaboration revenue was **$0** for both the three and nine months ended September 30, 2019, a decrease from **$3.0 million** in the nine months ended September 30, 2018[12](index=12&type=chunk) - Net loss for the nine months ended September 30, 2019, was **$(18.7) million**, an improvement from **$(27.2) million** in the same period of 2018, primarily due to reduced R&D expenses[12](index=12&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Outlines TRACON Pharmaceuticals, Inc.'s cash inflows and outflows from operating, investing, and financing activities **Unaudited Condensed Consolidated Statements of Cash Flows (in thousands):** | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(19,407) | $(22,657) | | Net cash provided by (used in) investing activities | 14,020 | (13,923) | | Net cash (used in) provided by financing activities | (696) | 35,306 | | Decrease in cash and cash equivalents | (6,083) | (1,274) | | Cash and cash equivalents at end of period | $19,053 | $28,193 | - Net cash used in operating activities decreased to **$(19.4) million** for the nine months ended September 30, 2019, from **$(22.7) million** in the prior year[15](index=15&type=chunk) - Investing activities shifted from using cash of **$(13.9) million** in 2018 to providing cash of **$14.0 million** in 2019, mainly due to proceeds from maturity of short-term investments[15](index=15&type=chunk) - Financing activities used cash of **$(0.7) million** in 2019, a significant change from providing **$35.3 million** in 2018, which included proceeds from common stock and warrants sales[15](index=15&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of TRACON Pharmaceuticals, Inc.'s significant accounting policies and financial statement items [1. Organization and Summary of Significant Accounting Policies](index=6&type=section&id=1.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) Describes TRACON Pharmaceuticals, Inc.'s business, financial condition, and key accounting policies - TRACON Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company focused on cancer and wet age-related macular degeneration (wet AMD) therapeutics, operating since October 2004[18](index=18&type=chunk) - The Company has incurred operating losses since inception, with an accumulated deficit of **$158.4 million** as of September 30, 2019, raising substantial doubt about its ability to continue as a going concern without additional funding[20](index=20&type=chunk) - The Company plans to fund operations through existing cash, future equity offerings (including a **$15.0 million** agreement with Aspire Capital and an **$8.0 million** ATM facility with JonesTrading), debt financings, or licensing/collaboration arrangements[21](index=21&type=chunk) - Revenue recognition follows a five-step model, primarily from license agreements with Santen and Ambrx, including upfront fees, milestone payments, manufacturing supply services, and royalties[27](index=27&type=chunk) - The Company adopted new accounting standards for Leases (ASU 2016-02) and Nonemployee Share-Based Payment Accounting (ASU 2018-07) on January 1, 2019, with the lease standard impacting the balance sheet by recognizing ROU assets and lease liabilities[42](index=42&type=chunk)[43](index=43&type=chunk) [2. Short-Term Investments, Cash Equivalents and Fair Value Measurements](index=10&type=section&id=2.%20Short-Term%20Investments,%20Cash%20Equivalents%20and%20Fair%20Value%20Measurements) Details TRACON Pharmaceuticals, Inc.'s short-term investments, cash equivalents, and fair value measurement practices - All investments are classified as available-for-sale securities and carried at amortized cost, approximating fair value. No material impairment charges or realized/unrealized gains/losses were recorded[45](index=45&type=chunk)[46](index=46&type=chunk) - As of September 30, 2019, the Company had no short-term investments, a change from **$13.968 million** at December 31, 2018[46](index=46&type=chunk)[51](index=51&type=chunk) **Cash Equivalents and Short-Term Investments (in thousands):** | Item | September 30, 2019 (Fair Value) | December 31, 2018 (Fair Value) | | :-------------------- | :------------------------------ | :----------------------------- | | Money market funds | $2,029 | $5,832 | | U.S. treasury securities | — | 13,968 | | Total | $2,029 | $19,800 | | Classified as: | | | | Cash equivalents | $2,029 | $5,832 | | Short-term investments | — | 13,968 | [3. Long-Term Debt](index=11&type=section&id=3.%20Long-Term%20Debt) Outlines TRACON Pharmaceuticals, Inc.'s long-term debt obligations and related terms **Long-Term Debt and Unamortized Debt Discount (in thousands):** | Item | September 30, 2019 | December 31, 2018 | | :-------------------------------- | :------------------- | :------------------ | | Long-term debt | $6,300 | $7,000 | | Less debt discount, net of current portion | (98) | (257) | | Long-term debt, net of debt discount | 6,202 | 6,743 | | Less current portion of long-term debt | (2,800) | (1,400) | | Long-term debt, net of current portion | $3,402 | $5,343 | | Current portion of long-term debt, net | $2,570 | $1,084 | - The Company's long-term debt decreased from **$7.0 million** at December 31, 2018, to **$6.3 million** at September 30, 2019[52](index=52&type=chunk) - The 2018 Amended SVB Loan, entered in May 2018, provides for a **9.0%** annual interest rate, with principal payments starting after June 30, 2019, and a final payment of **4.0%** of the original principal at maturity[53](index=53&type=chunk) - In connection with the 2018 Amended SVB Loan, the Company issued a warrant to SVB to purchase **53,639** shares of common stock at **$2.61** per share, expiring May 3, 2025[56](index=56&type=chunk) [4. Commitments and Contingencies](index=12&type=section&id=4.%20Commitments%20and%20Contingencies) Details TRACON Pharmaceuticals, Inc.'s contractual commitments and potential contingent liabilities - The Company terminated its long-term manufacturing agreement with Lonza Biologics Tuas Pte Ltd for TRC105 development in oncology following futility data in April 2019, incurring costs for work completed prior to termination[58](index=58&type=chunk) - Potential future milestone payments under license agreements totaled approximately **$66.0 million** as of September 30, 2019, including those for TRC253 if Janssen does not exercise its option[60](index=60&type=chunk) [5. Stockholders' Equity](index=13&type=section&id=5.%20Stockholders'%20Equity) Summarizes changes in TRACON Pharmaceuticals, Inc.'s stockholders' equity, including common stock and accumulated deficit **Changes in Stockholders' Equity (in thousands, except share data):** | Item | Balance at Dec 31, 2018 | Balance at Sep 30, 2019 | | :-------------------------------- | :---------------------- | :---------------------- | | Common Stock Shares | 29,871,327 | 29,937,457 | | Common Stock Amount | $30 | $30 | | Additional Paid-in Capital | $161,072 | $162,403 | | Accumulated Deficit | $(139,660) | $(158,398) | | Total Stockholders' Equity | $21,442 | $4,035 | - Total stockholders' equity decreased from **$21.4 million** at December 31, 2018, to **$4.0 million** at September 30, 2019, primarily due to net losses[61](index=61&type=chunk) - In October 2019, the Company entered a Common Stock Purchase Agreement with Aspire Capital for up to **$15.0 million** in common stock, issuing **1,426,579** shares as consideration[62](index=62&type=chunk) - The Company has outstanding warrants to purchase **15,619,113** shares of common stock as of September 30, 2019, with exercise prices ranging from **$0.01** to **$10.86**[68](index=68&type=chunk) **Stock-Based Compensation Expense (in thousands):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $132 | $378 | $653 | $1,117 | | General and administrative | 183 | 296 | 674 | 927 | | Total | $315 | $674 | $1,327 | $2,044 | [6. Collaborations](index=15&type=section&id=6.%20Collaborations) Describes TRACON Pharmaceuticals, Inc.'s strategic collaboration and license agreements with third parties - The Company has strategic collaboration agreements with I-Mab Biopharma for developing immuno-oncology product candidates, including TJ004309 (CD73 antibody) and up to five bispecific antibodies[71](index=71&type=chunk) - Under the TJ004309 Agreement, TRACON bears costs for IND filing and Phase 1 trials, shares Phase 2 costs equally, and bears **40%** of pivotal trial costs. It is eligible for escalating royalties and non-royalty consideration if I-Mab out-licenses or commercializes TJ004309[73](index=73&type=chunk)[74](index=74&type=chunk) - I-Mab can terminate the TJ004309 Agreement for convenience after Phase 1 or Phase 2, entitling TRACON to termination fees of **$9.0 million** or **$15.0 million**, respectively, plus potential royalty/non-royalty consideration[75](index=75&type=chunk) - The Bispecific Agreement allows TRACON to develop up to five bispecific antibodies in North America, sharing Phase 3 costs equally and profits/losses equally in North America, with tiered low single-digit royalties in EU and Japan[77](index=77&type=chunk) - TRACON granted Santen an exclusive worldwide license for carotuximab in ophthalmology, receiving a **$10.0 million** upfront fee and eligible for up to **$155.0 million** in milestones and tiered royalties on net sales[83](index=83&type=chunk)[85](index=85&type=chunk) - Janssen granted TRACON a license for TRC253 (prostate cancer) with an option for Janssen to regain rights for a **$45.0 million** fee plus milestones and royalties, or TRACON retains rights with obligations to Janssen[91](index=91&type=chunk) - Ambrx terminated its license agreement for TRC105 in Greater China in February 2019, resulting in all rights reverting to TRACON and no further revenue recognition from this agreement[96](index=96&type=chunk)[97](index=97&type=chunk) [7. Leases](index=19&type=section&id=7.%20Leases) Details TRACON Pharmaceuticals, Inc.'s lease arrangements and their financial impact - The Company leases its office space under a non-cancelable operating lease expiring in April 2022, with operating lease expense of **$0.1 million** and **$0.3 million** for the three and nine months ended September 30, 2019, respectively[98](index=98&type=chunk) **Operating Lease Liabilities (in thousands, as of September 30, 2019):** | Item | Amount | | :-------------------------------- | :----- | | Right-of-use assets (Other assets) | $915 | | Lease liability (Accounts payable and accrued expenses) | $341 | | Lease liability (Other long-term liabilities) | $665 | | Total lease liabilities | $1,006 | | Weighted average remaining lease term | 2.50 years | | Weighted average discount rate | 11.30% | | Total lease payments (Remaining 2019-2022) | $1,166 | | Less imputed interest | $(160) | | Total operating lease liabilities | $1,006 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis of TRACON's financial condition, operational results, liquidity, and future funding needs [Overview](index=20&type=section&id=Overview) Provides an overview of TRACON's biopharmaceutical focus, clinical pipeline, and financial position - TRACON is a clinical-stage biopharmaceutical company developing novel targeted therapeutics for cancer and wet AMD, also partnering with ex-U.S. companies for U.S. drug development[102](index=102&type=chunk) - Enrollment in TRC105 (carotuximab) oncology trials was terminated in April 2019 due to futility in the Phase 3 TAPPAS trial, leading to discontinuation of related activities[102](index=102&type=chunk)[116](index=116&type=chunk) - The Company continues to support Santen's development of DE-122 (ophthalmic carotuximab) for wet AMD, with Phase 2a AVANTE study top-line data expected in the first half of 2020[103](index=103&type=chunk) - Key clinical stage product candidates include TRC102 (mesothelioma, lung cancer, solid tumors), TRC253 (metastatic castration-resistant prostate cancer), and TJ004309 (CD73 antibody for solid tumors)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) **Key Product Candidate Development Status:** | Product Candidate | Phase | Data Expected | | :---------------- | :---- | :------------ | | DE-122 (Santen) | Randomized Phase 2 | 2020 | | TRC253 | Phase 2 | 2020 | | TJ004309 (I-Mab) | Phase 1 | 2020 | | TRC102 (Mesothelioma) | Phase 2 | 2020 | | TRC102 (Solid tumors) | Phase 1 | 2020 | | TRC102 (Solid tumors and Lymphomas) | Phase 1/2 | 2020 | | TRC102 (Lung Cancer) | Phase 1 | 2020 | - The Company utilizes a capital-efficient product development platform, managing clinical trials internally to minimize CRO costs and expedite patient enrollment[108](index=108&type=chunk) - TRACON has incurred significant operating losses since inception, with an accumulated deficit of **$158.4 million** as of September 30, 2019, and expects continued losses[110](index=110&type=chunk) [2019 Developments](index=22&type=section&id=2019%20Developments) Highlights key corporate and clinical developments for TRACON Pharmaceuticals, Inc. during 2019 - In October 2019, TRACON entered a **$15.0 million** common stock purchase agreement with Aspire Capital[113](index=113&type=chunk) - In July 2019, the Company initiated dosing in a Phase 1 study of TJ004309 (CD73 antibody) for advanced solid tumors, with top-line data expected in H2 2020[114](index=114&type=chunk) - Phase 1 data for TRC253 in metastatic castrate-resistant prostate cancer was published in July 2019, showing potential efficacy in patients with F877L mutation; Phase 2 proof of concept data is expected in H1 2020[106](index=106&type=chunk)[115](index=115&type=chunk) - Enrollment in TRC105 oncology trials was terminated in April 2019 due to futility in the Phase 3 TAPPAS trial[116](index=116&type=chunk) - Phase 2 data for TRC102 and Temodar in relapsed metastatic colorectal cancer showed a **6%** overall response rate, not meeting the primary efficacy endpoint[117](index=117&type=chunk) [Collaboration and License Agreements](index=22&type=section&id=Collaboration%20and%20License%20Agreements) Details TRACON's key collaboration and license agreements for product development and commercialization - TRACON's collaboration with I-Mab involves developing TJ004309 and up to five bispecific antibodies, with TRACON covering Phase 1 costs and sharing Phase 2/3 costs[118](index=118&type=chunk)[119](index=119&type=chunk)[124](index=124&type=chunk) - TRACON is eligible for escalating royalties and non-royalty consideration from I-Mab if TJ004309 is out-licensed or commercialized, and can receive termination fees if I-Mab ends development[121](index=121&type=chunk)[122](index=122&type=chunk) - Under the Bispecific Agreement, TRACON has an option to obtain exclusive licenses to selected product candidates outside Greater China and Korea, with associated upfront, milestone, and royalty payments to I-Mab[125](index=125&type=chunk)[126](index=126&type=chunk) - The Janssen agreement for TRC253 grants Janssen an option to reacquire rights for a **$45.0 million** fee plus milestones and royalties, or TRACON retains worldwide rights with payment obligations to Janssen[129](index=129&type=chunk) - The Santen license for carotuximab in ophthalmology includes a **$10.0 million** upfront fee, **$10.0 million** in development milestones received, and eligibility for up to **$155.0 million** in additional milestones and tiered royalties[132](index=132&type=chunk) [Financial Operations Overview](index=24&type=section&id=Financial%20Operations%20Overview) Summarizes TRACON's revenue, research and development, and general and administrative expenses - Revenue to date has been from collaborations with Santen and Ambrx; Ambrx agreement terminated in February 2019, leading to no collaboration revenue in Q3 2019[133](index=133&type=chunk)[134](index=134&type=chunk) - Research and development expenses decreased by **$3.9 million** for the three months and **$11.9 million** for the nine months ended September 30, 2019, primarily due to the termination of TRC105 oncology trials[148](index=148&type=chunk)[152](index=152&type=chunk) **Research and Development Expenses by Product Candidate (in thousands):** | Product Candidate | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | TRC105 | $747 | $3,533 | $4,753 | $15,684 | | TRC253 | 928 | 1,057 | 3,010 | 2,920 | | TRC102 | 97 | 96 | 140 | 142 | | TRC694 | 4 | 626 | 145 | 823 | | TJ004309 | 207 | — | 321 | — | | Total third-party R&D | 1,983 | 5,312 | 8,369 | 19,569 | | Unallocated expenses | 1,073 | 1,664 | 4,248 | 4,960 | | Total R&D expenses | $3,056 | $6,976 | $12,617 | $24,529 | - General and administrative expenses remained relatively constant, at **$2.0 million** for the three months and increased by **$0.4 million** to **$5.9 million** for the nine months ended September 30, 2019, due to corporate expenses[149](index=149&type=chunk)[153](index=153&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Discusses TRACON's critical accounting policies and significant estimates impacting financial statements - The Company's financial statements rely on estimates and assumptions, particularly for revenue recognition and clinical trial expenses, which may differ materially from actual results[24](index=24&type=chunk) - The Company adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing operating lease right-of-use (ROU) assets and liabilities based on the present value of future minimum lease payments[42](index=42&type=chunk)[146](index=146&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Presents a comparative analysis of TRACON's financial performance for the reported periods **Results of Operations (in thousands):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Change | | :-------------------------------- | :------------------------------ | :------------------------------ | :----- | | Collaboration revenue | $— | $— | $— | | Research and development expenses | 3,056 | 6,976 | (3,920) | | General and administrative expenses | 2,025 | 2,107 | (82) | | Other expense | (118) | (2) | (116) | | Item | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | Collaboration revenue | $— | $3,000 | $(3,000) | | Research and development expenses | 12,617 | 24,529 | (11,912) | | General and administrative expenses | 5,867 | 5,480 | 387 | | Other expense | (254) | (194) | (60) | - Research and development expenses decreased by **$3.9 million** (QoQ) and **$11.9 million** (YoY) due to reduced TRC105 oncology development costs[148](index=148&type=chunk)[152](index=152&type=chunk) - Collaboration revenue decreased by **$3.0 million** for the nine months ended September 30, 2019, due to the termination of the Ambrx license agreement[151](index=151&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses TRACON's cash position, funding sources, and future capital requirements - As of September 30, 2019, TRACON had **$19.1 million** in cash and cash equivalents, expected to fund operations into Q3 2020, but additional capital is needed for product development[155](index=155&type=chunk)[169](index=169&type=chunk) - The Company has a **$7.0 million** credit facility with Silicon Valley Bank (2018 Amended SVB Loan) at **9.0%** interest, collateralized by most assets excluding intellectual property[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) - In October 2019, TRACON entered a **$15.0 million** common stock purchase agreement with Aspire Capital and has an **$8.0 million** at-the-market (ATM) facility with JonesTrading, both providing options for future equity financing[161](index=161&type=chunk)[164](index=164&type=chunk) **Net Cash Flow Activity (in thousands):** | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $(19,407) | $(22,657) | | Investing activities | 14,020 | (13,923) | | Financing activities | (696) | 35,306 | | Decrease in cash and cash equivalents | $(6,083) | $(1,274) | - Net cash used in operating activities decreased by **$3.25 million** YoY, while investing activities shifted from a net use of **$13.9 million** in 2018 to a net provision of **$14.0 million** in 2019[166](index=166&type=chunk)[167](index=167&type=chunk) - Financing activities provided **$35.3 million** in 2018, primarily from stock and warrant sales, but used **$0.7 million** in 2019 due to debt repayments[168](index=168&type=chunk) [Contractual Obligations and Commitments](index=30&type=section&id=Contractual%20Obligations%20and%20Commitments) Outlines TRACON's significant contractual obligations and commitments - The Company terminated its manufacturing agreement with Lonza for TRC105 in April 2019, accruing costs for work completed prior to termination[172](index=172&type=chunk) - No other material changes to contractual obligations and commitments were reported since the December 31, 2018 Annual Report on Form 10-K[173](index=173&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details TRACON's exposure to market risks, including interest rate, foreign currency, and inflation - The Company's cash and cash equivalents are primarily in cash and money market funds, making its portfolio relatively insensitive to interest rate changes, and its long-term debt bears a fixed interest rate[175](index=175&type=chunk) - TRACON is exposed to foreign currency exchange risk from clinical study and manufacturing expenses denominated in Pounds Sterling and Euros, though fluctuations have not been significant to date[176](index=176&type=chunk) - Inflation primarily affects labor and clinical trial costs, but has not had a material effect on the Company's results of operations or financial condition during the periods presented[177](index=177&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of TRACON's disclosure controls and internal control over financial reporting - The Company's disclosure controls and procedures were deemed effective as of September 30, 2019, ensuring timely and accurate reporting of information[179](index=179&type=chunk) - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2019[180](index=180&type=chunk) PART II OTHER INFORMATION Presents additional information not covered in the financial statements, including legal and risk factors [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) TRACON Pharmaceuticals, Inc. is not currently involved in any material legal proceedings - The Company is not currently a party to any material legal proceedings[182](index=182&type=chunk) - Litigation can have an adverse impact due to defense and settlement costs, and diversion of management resources[182](index=182&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) Details various risks that could materially and adversely affect TRACON's business and financial condition [Risks Related to our Financial Position and Need for Additional Capital](index=32&type=section&id=Risks%20Related%20to%20our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) Highlights risks associated with TRACON's financial position and the need for additional funding - TRACON has incurred substantial operating losses since inception, with an accumulated deficit of **$158.4 million** as of September 30, 2019, and expects to continue incurring losses[184](index=184&type=chunk) - The Company will require substantial additional financing to achieve its goals, with existing cash and equivalents only sufficient into Q3 2020, raising substantial doubt about its ability to continue as a going concern[186](index=186&type=chunk)[187](index=187&type=chunk) - Failure to obtain additional financing could force delays, reductions, or termination of drug development efforts, and any new financing may dilute existing stockholders or impose restrictive covenants[191](index=191&type=chunk)[192](index=192&type=chunk) - The loan agreement with Silicon Valley Bank contains restrictive covenants and potential prepayment triggers (e.g., material adverse change) that could limit operational flexibility or require early repayment[193](index=193&type=chunk)[196](index=196&type=chunk) [Risks Related to Clinical Development and Regulatory Approval of Product Candidates](index=34&type=section&id=Risks%20Related%20to%20Clinical%20Development%20and%20Regulatory%20Approval%20of%20Product%20Candidates) Addresses risks inherent in the clinical development and regulatory approval process for TRACON's products - Clinical development is lengthy, expensive, and uncertain; earlier trial results may not predict future outcomes, as demonstrated by the termination of the Phase 3 TAPPAS trial for TRC105 due to futility[197](index=197&type=chunk) - Delays in clinical trials are common due to various factors (e.g., enrollment, regulatory approvals, manufacturing), which can increase costs and jeopardize commercialization[201](index=201&type=chunk)[202](index=202&type=chunk) - Product candidates may cause adverse events (AEs), such as anemia with TRC102 and QTcF prolongation with TRC253, which could delay or prevent regulatory approval or limit market acceptance[203](index=203&type=chunk)[204](index=204&type=chunk) - The regulatory approval process is lengthy and unpredictable; TRACON has not yet obtained approval for any product candidate, and failure to do so would substantially harm the business[208](index=208&type=chunk)[209](index=209&type=chunk) - TRACON may not receive or retain Fast Track or Orphan Drug designations, which could impact development timelines, regulatory review, and market exclusivity[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - Obtaining regulatory approval in one jurisdiction does not guarantee approval in others, and foreign regulatory processes can be different, lengthy, and costly[217](index=217&type=chunk)[218](index=218&type=chunk) - Even with approval, products are subject to ongoing regulatory obligations and review, with potential penalties for non-compliance or unanticipated problems[219](index=219&type=chunk)[220](index=220&type=chunk) [Risks Related to Our Reliance on Third Parties](index=38&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) Examines risks stemming from TRACON's dependence on third parties for manufacturing, development, and collaborations - TRACON relies on third-party manufacturers for product candidates; any failure in supply or compliance with cGMPs could delay clinical trials or commercialization[221](index=221&type=chunk)[226](index=226&type=chunk) - The Company depends on the NCI and other third-party sponsors (e.g., Case Western) to advance TRC102's clinical development, and their withdrawal of support or trial failures could limit progress[227](index=227&type=chunk)[228](index=228&type=chunk) - TRACON's ability to generate revenue from endoglin antibodies in ophthalmology depends on Santen's development and commercialization efforts, over which TRACON has limited control[229](index=229&type=chunk) - Failure to maintain license agreements or the non-performance of licensees (e.g., Santen, Janssen, I-Mab) could negatively impact TRACON's business, including loss of intellectual property rights or delayed development[230](index=230&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) - Establishing and maintaining additional collaborations is crucial but challenging due to competition and potential conflicts with existing agreements, which could limit pipeline expansion[233](index=233&type=chunk)[234](index=234&type=chunk) - Reliance on third parties for preclinical studies and clinical trials carries risks, including non-compliance with cGCPs, insufficient resources, or conflicts of interest, which could delay or terminate development[235](index=235&type=chunk)[236](index=236&type=chunk) [Risks Related to Our Intellectual Property](index=42&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Covers risks concerning TRACON's ability to obtain, protect, and enforce its intellectual property rights - Failure to obtain or protect intellectual property rights (patents, trade secrets) could allow competitors to use TRACON's technologies, harming its business and profitability[238](index=238&type=chunk) - Patent positions in biotechnology are uncertain; patents may be challenged, narrowed, or invalidated, and the 'first-to-file' system under the Leahy-Smith Act adds complexity and cost[239](index=239&type=chunk)[241](index=241&type=chunk) - TRACON depends on licensors (e.g., Roswell Park, Case Western, Janssen) to prosecute and maintain material patents; any failure by them could adversely impact TRACON's business[246](index=246&type=chunk)[247](index=247&type=chunk) - Third-party claims of intellectual property infringement or misappropriation could lead to substantial expenses, damages, or delays in development and commercialization[248](index=248&type=chunk)[253](index=253&type=chunk) - TRACON may not be able to protect its intellectual property rights globally due to varying laws and enforcement, potentially allowing competitors to use its technologies in foreign jurisdictions[264](index=264&type=chunk)[265](index=265&type=chunk) - Non-compliance with procedural requirements for patent maintenance and application could lead to loss of patent rights, allowing competitors to use TRACON's technologies[267](index=267&type=chunk) - Confidentiality agreements may not prevent unauthorized disclosure of trade secrets, and enforcing such claims is expensive and unpredictable[268](index=268&type=chunk)[269](index=269&type=chunk) [Risks Related to Commercialization of Product Candidates](index=46&type=section&id=Risks%20Related%20to%20Commercialization%20of%20Product%20Candidates) Discusses challenges in achieving market acceptance and reimbursement for TRACON's product candidates - Even if approved, product candidates may not gain market acceptance among physicians, patients, and payors due to factors like efficacy, side effects, cost, and competition, limiting revenue generation[270](index=270&type=chunk) - TRACON faces intense competition from companies with greater resources, and new therapies or biosimilars could render its products uneconomical or obsolete[272](index=272&type=chunk)[273](index=273&type=chunk)[275](index=275&type=chunk) - Coverage and adequate reimbursement from third-party payors are critical for product sales, but may be limited or unavailable, making it difficult to sell products profitably[277](index=277&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk) - Healthcare legislative reforms (e.g., ACA, drug pricing scrutiny) could adversely affect TRACON's business by reducing reimbursement, imposing price controls, or increasing regulatory burdens[281](index=281&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk) - International operations expose TRACON to risks like differing regulatory requirements, reimbursement regimes, intellectual property protection, and political/economic instability[287](index=287&type=chunk)[288](index=288&type=chunk) [Risks Related to Our Business and Industry](index=50&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Outlines general business and industry-specific risks affecting TRACON's operations and growth - TRACON lacks internal drug discovery capabilities; failure to acquire or in-license new product candidates or leverage its development platform could limit business prospects[290](index=290&type=chunk) - The Company is highly dependent on senior management and key clinical operations personnel; loss of these individuals could impede development and strategy execution[291](index=291&type=chunk)[292](index=292&type=chunk) - Misconduct by employees or third parties (e.g., non-compliance with regulatory standards, fraud) could lead to significant penalties, reputational harm, and operational disruption[293](index=293&type=chunk)[294](index=294&type=chunk) - Difficulties in managing growth and expanding operations could hinder TRACON's ability to commercialize product candidates and compete effectively[295](index=295&type=chunk) - TRACON is subject to extensive federal and state healthcare regulations (e.g., anti-kickback, false claims, data privacy); non-compliance could result in severe penalties[296](index=296&type=chunk)[297](index=297&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) - The use of product candidates in clinical trials and commercial sales exposes TRACON to product liability claims, which could result in substantial liability and costs, potentially exceeding insurance coverage[301](index=301&type=chunk)[302](index=302&type=chunk) - The Company's ability to use its net operating loss (NOL) carryforwards and other tax attributes may be limited by ownership changes under Sections 382 and 383 of the Code[304](index=304&type=chunk) - Internal computer system failures or security breaches could expose sensitive data, harm reputation, and lead to litigation or increased costs[306](index=306&type=chunk) - Business disruptions from natural disasters, government shutdowns, or other events could seriously harm revenue and financial condition[307](index=307&type=chunk) [Risks Related to Our Common Stock](index=54&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) Details risks associated with the market price and trading of TRACON's common stock - The market price of TRACON's common stock is highly volatile and subject to wide fluctuations due to clinical trial results, funding issues, regulatory decisions, competition, and general market factors[309](index=309&type=chunk) - Failure to meet Nasdaq listing requirements (e.g., minimum bid price, stockholders' equity) could lead to delisting, adversely impacting liquidity and stock price[311](index=311&type=chunk)[312](index=312&type=chunk)[313](index=313&type=chunk) - Principal stockholders and management own over **45%** of voting stock, enabling them to exert significant control over matters requiring stockholder approval[315](index=315&type=chunk) - As an 'emerging growth company,' TRACON benefits from reduced reporting requirements, but this may make its common stock less attractive to investors, potentially increasing stock price volatility[316](index=316&type=chunk)[318](index=318&type=chunk) - Future sales and issuances of common stock or rights to purchase common stock could result in additional dilution for existing stockholders and cause the stock price to fall[321](index=321&type=chunk) - TRACON does not intend to pay dividends, so returns are limited to stock value appreciation[323](index=323&type=chunk) - Provisions in TRACON's charter documents and Delaware law could make it more difficult or costly for a third party to acquire the company, even if beneficial to stockholders[324](index=324&type=chunk)[325](index=325&type=chunk) [Item 2. Unregistered Sales of Equity Securities](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities) Reports no unregistered sales of equity securities during the reporting period - No unregistered sales of equity securities occurred during the reporting period[326](index=326&type=chunk) [Item 3. Defaults Upon Senior Securities](index=58&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Indicates no defaults upon senior securities occurred during the reporting period - No defaults upon senior securities occurred during the reporting period[327](index=327&type=chunk) [Item 4. Mine Safety Disclosures](index=58&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that mine safety disclosures are not applicable to TRACON Pharmaceuticals, Inc - Mine safety disclosures are not applicable to TRACON Pharmaceuticals, Inc[328](index=328&type=chunk) [Item 5. Other Information](index=58&type=section&id=Item%205.%20Other%20Information) Confirms no other material information to report in this section - No other information is reported in this section[329](index=329&type=chunk) [Item 6. Exhibits](index=59&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including corporate governance and agreements - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, various investor and securities purchase agreements, and certifications[331](index=331&type=chunk) - Key agreements listed are the Common Stock Purchase Agreement with Aspire Capital Fund, LLC (October 2019) and Amendment No. 1 to Capital on DemandTM Sales Agreement with JonesTrading Institutional Services LLC (February 2019)[331](index=331&type=chunk) - XBRL Instance Document and Taxonomy Extension Documents are included for electronic data submission[331](index=331&type=chunk) [Signatures](index=60&type=section&id=Signatures) Contains the required signatures for the Form 10-Q, confirming its submission - The report was signed on November 5, 2019, by Charles P. Theuer, M.D., Ph.D., President and Chief Executive Officer (principal executive officer and principal financial officer) of TRACON Pharmaceuticals, Inc[336](index=336&type=chunk)

TRACON Pharmaceuticals Inc. (OTCQB:TCON) Q2 2019 Earnings Conference Call August 7, 2019 4:30 PM ET Company Participants Charles Theuer - President and CEO Scott Brown - Director, Controller Conference Call Participants Swapnil Malekar - Jefferies Operator Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals Second Quarter 2019 Earnings Conference Call. At this time, all callers are in a listen-only mode. After the speaker's prepared remarks, we will conduct a question-and-answer sessio ...

PART I FINANCIAL INFORMATION Presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents TRACON Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, and cash flows, along with detailed notes explaining the company's organization, accounting policies, debt, equity, collaborations, and commitments [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2019 | December 31, 2018 | | :---------------------------------- | :-------------- | :------------------ | | Cash and cash equivalents | $26,336 | $25,136 | | Short-term investments | — | $13,968 | | Total current assets | $26,930 | $40,603 | | Total assets | $27,951 | $40,648 | | Total current liabilities | $13,939 | $13,495 | | Long-term debt, less current portion | $4,057 | $5,343 | | Total stockholders' equity | $8,919 | $21,442 | | Total liabilities and stockholders' equity | $27,951 | $40,648 | - Total assets decreased from **$40.6 million** at December 31, 2018, to **$27.9 million** at June 30, 2019, primarily due to the absence of short-term investments in 2019[12](index=12&type=chunk) - Total stockholders' equity significantly decreased from **$21.4 million** at December 31, 2018, to **$8.9 million** at June 30, 2019, largely due to accumulated deficit[12](index=12&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations (in thousands, except per share data) | Item | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Collaboration revenue | $— | $— | $— | $3,000 | | Research and development expenses | $4,347 | $8,115 | $9,561 | $17,553 | | General and administrative expenses | $1,893 | $1,622 | $3,842 | $3,373 | | Net loss | $(6,326) | $(9,754) | $(13,539) | $(18,118) | | Net loss per share, basic and diluted | $(0.21) | $(0.33) | $(0.45) | $(0.76) | - Net loss decreased for both the three and six months ended June 30, 2019, primarily due to a significant reduction in research and development expenses[15](index=15&type=chunk) - Collaboration revenue was **$0** for the three and six months ended June 30, 2019, compared to **$3.0 million** in the six months ended June 30, 2018[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :---------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(12,824) | $(16,432) | | Net cash provided by (used in) investing activities | $14,020 | $(13,923) | | Net cash provided by financing activities | $4 | $35,322 | | Increase in cash and cash equivalents | $1,200 | $4,967 | | Cash and cash equivalents at end of period | $26,336 | $34,434 | - Net cash used in operating activities decreased by **$3.6 million**, from **$16.4 million** in H1 2018 to **$12.8 million** in H1 2019[18](index=18&type=chunk) - Investing activities shifted from using **$13.9 million** in H1 2018 to providing **$14.0 million** in H1 2019, primarily due to proceeds from maturity of short-term investments[18](index=18&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Offers detailed explanations of the company's accounting policies, financial instruments, and significant transactions [1. Organization and Summary of Significant Accounting Policies](index=6&type=section&id=1.%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) Describes the company's business and the key accounting principles applied in its financial reporting - TRACON Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company focused on cancer and wet age-related macular degeneration (wet AMD)[21](index=21&type=chunk) - The company has incurred operating losses since inception, with an accumulated deficit of **$153.2 million** as of June 30, 2019, raising substantial doubt about its ability to continue as a going concern for one year[23](index=23&type=chunk) - Revenue recognition follows a five-step model, with milestone payments evaluated for probability and sales-based royalties recognized when sales occur[30](index=30&type=chunk)[33](index=33&type=chunk)[35](index=35&type=chunk) - Adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing ROU assets and lease liabilities, and ASU 2018-07 (Nonemployee Share-Based Payment Accounting) with no material impact[45](index=45&type=chunk)[47](index=47&type=chunk) [2. Short-Term Investments, Cash Equivalents and Fair Value Measurements](index=10&type=section&id=2.%20Short-Term%20Investments%2C%20Cash%20Equivalents%20and%20Fair%20Value%20Measurements) Details the company's liquid assets and how their fair values are determined - All investments are classified as available-for-sale securities and carried at amortized cost, approximating fair value[48](index=48&type=chunk) Cash Equivalents and Short-Term Investments (in thousands) | Item | June 30, 2019 Fair Value | December 31, 2018 Fair Value | | :----------------------- | :----------------------- | :------------------------- | | Money market funds | $5,001 | $5,832 | | U.S. treasury securities | — | $13,968 | | **Total** | **$5,001** | **$19,800** | - As of June 30, 2019, the company had no short-term investments, only money market funds classified as cash equivalents[49](index=49&type=chunk)[54](index=54&type=chunk) [3. Long-Term Debt](index=11&type=section&id=3.%20Long-Term%20Debt) Outlines the company's long-term borrowing arrangements and related obligations Long-Term Debt Balances (in thousands) | Item | June 30, 2019 | December 31, 2018 | | :---------------------------------- | :-------------- | :------------------ | | Long-term debt | $7,000 | $7,000 | | Less debt discount, net of current portion | $(143) | $(257) | | Long-term debt, net of debt discount | $6,857 | $6,743 | | Less current portion of long-term debt | $(2,800) | $(1,400) | | Long-term debt, net of current portion | $4,057 | $5,343 | | Current portion of long-term debt, net | $2,536 | $1,084 | - The company has a **$7.0 million** 2018 Amended SVB Loan with a **9.0%** annual interest rate, with principal payments starting after June 30, 2019, over 30 months[55](index=55&type=chunk)[56](index=56&type=chunk) - The loan is collateralized by substantially all company assets (excluding intellectual property) and includes customary covenants, with the company in compliance as of June 30, 2019[58](index=58&type=chunk) Outstanding Warrants for Common Stock (June 30, 2019) | Expiration | Number of shares | Exercise price | | :---------------------------------- | :--------------- | :------------- | | May 13, 2022 | 18,415 | $10.86 | | November 14, 2023 through June 4, 2024 | 38,758 | $7.74 | | January 25, 2024 | 46,692 | $5.14 | | May 3, 2025 | 53,639 | $2.61 | | **Total** | **157,504** | | [4. Commitments and Contingencies](index=12&type=section&id=4.%20Commitments%20and%20Contingencies) Discloses the company's contractual obligations and potential future liabilities - The company terminated its long-term manufacturing agreement with Lonza Biologics Tuas Pte Ltd for TRC105 following the decision to discontinue TRC105 development in oncology, incurring costs for work completed prior to termination[61](index=61&type=chunk) - Potential future milestone payments under various license agreements totaled approximately **$66.0 million** as of June 30, 2019[63](index=63&type=chunk) [5. Stockholders' Equity](index=13&type=section&id=5.%20Stockholders%27%20Equity) Presents the changes in the company's equity accounts, including common stock and accumulated deficit Changes in Stockholders' Equity (in thousands, except share data) | Item | Balance at Dec 31, 2018 | Q1 2019 Activity | Q2 2019 Activity | Balance at June 30, 2019 | | :---------------------------------- | :---------------------- | :--------------- | :--------------- | :----------------------- | | Common Stock Shares | 29,871,327 | 27,371 | 38,759 | 29,937,457 | | Common Stock Amount | $30 | $— | $— | $30 | | Additional Paid-in Capital | $161,072 | $576 | $440 | $162,088 | | Accumulated Deficit | $(139,660) | $(7,213) | $(6,326) | $(153,199) | | **Total Stockholders' Equity** | **$21,442** | **$7,213** | **$6,326** | **$8,919** | - Total stockholders' equity decreased from **$21.4 million** at December 31, 2018, to **$8.9 million** at June 30, 2019, primarily due to net losses[64](index=64&type=chunk) - In March and April 2018, the company sold **11.9 million** common shares and warrants for approximately **$36.5 million** net proceeds in a private placement[65](index=65&type=chunk) Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Research and development | $205 | $375 | $521 | $739 | | General and administrative | $211 | $289 | $491 | $631 | | **Total** | **$416** | **$664** | **$1,012** | **$1,370** | [6. Collaborations](index=15&type=section&id=6.%20Collaborations) Describes the company's strategic partnerships for product development and commercialization [I-Mab](index=15&type=section&id=I-Mab) Details the collaboration agreement with I-Mab Biopharma for immuno-oncology product candidates - In November 2018, TRACON entered into strategic collaboration and clinical trial agreements with I-Mab Biopharma for the development of multiple immuno-oncology product candidates, including TJ004309 and up to five bispecific antibodies[72](index=72&type=chunk) [TJ004309 Agreement](index=15&type=section&id=TJ004309%20Agreement) Specifies the terms and responsibilities under the agreement for the TJ004309 product candidate - TRACON is responsible for IND filing and Phase 1 costs, shares Phase 2 costs equally, and bears **40%** of pivotal clinical trial costs for TJ004309[74](index=74&type=chunk) - TRACON is entitled to escalating portions of royalties and non-royalty consideration if I-Mab out-licenses or commercializes TJ004309 outside Greater China[75](index=75&type=chunk) - I-Mab can terminate the agreement for various reasons, including after Phase 1 or Phase 2 completion, entitling TRACON to termination fees of **$9.0 million** or **$15.0 million**, respectively, plus potential additional payments[76](index=76&type=chunk) [Bispecific Agreement](index=16&type=section&id=Bispecific%20Agreement) Outlines the terms for developing and commercializing bispecific antibody candidates with I-Mab - TRACON and I-Mab may select up to five bispecific antibody candidates for development and commercialization in North America, with TRACON responsible for Phase 1 and 2 costs and sharing Phase 3 costs equally[77](index=77&type=chunk)[78](index=78&type=chunk) - TRACON has an option to obtain an exclusive license to selected product candidates outside Greater China and Korea, with upfront and milestone payments and royalties to I-Mab escalating based on development stage (e.g., **$10.0 million-$80.0 million** upfront, up to **$90.0 million-$420.0 million** development/regulatory milestones, up to **$250.0 million** sales milestones, mid-single to high-teen royalties)[79](index=79&type=chunk)[80](index=80&type=chunk) [Santen](index=16&type=section&id=Santen) Describes the exclusive license agreement with Santen for carotuximab in ophthalmology - TRACON granted Santen an exclusive worldwide license for carotuximab (DE-122) in ophthalmology indications[84](index=84&type=chunk) - Received a **$10.0 million** upfront fee and **$10.0 million** in development milestones; eligible for up to **$155.0 million** in additional milestones and tiered royalties on net sales[87](index=87&type=chunk) - All performance obligations related to the upfront payment and two development milestones were satisfied and recognized as revenue by December 31, 2017; no revenue recognized for this agreement in Q2 2019 or Q2 2018[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) [Janssen](index=17&type=section&id=Janssen) Details the license agreement with Janssen for the TRC253 (AR Mutant Program) - TRACON licensed TRC253 (AR Mutant Program) from Janssen for prostate cancer; the NIK Program (TRC694) was terminated in February 2019[92](index=92&type=chunk) - Janssen has an option to regain rights to TRC253 for a **$45.0 million** fee, plus up to **$137.5 million** in regulatory/commercial milestones and low single-digit royalties[93](index=93&type=chunk)[94](index=94&type=chunk) - If Janssen does not exercise, TRACON retains worldwide rights but owes Janssen up to **$45.0 million** in development/regulatory milestones and low single-digit royalties[94](index=94&type=chunk) [Ambrx, Inc.](index=18&type=section&id=Ambrx%2C%20Inc.) Summarizes the terminated license agreement with Ambrx for TRC105 in Greater China - Ambrx terminated its license agreement for TRC105 in Greater China in February 2019, with all rights reverting to TRACON[99](index=99&type=chunk) - A **$3.0 million** upfront payment from Ambrx was recognized as revenue in Q1 2018, with no further revenue expected from this agreement[100](index=100&type=chunk) [7. Leases](index=18&type=section&id=7.%20Leases) Provides information on the company's lease arrangements and related accounting under new standards - The company leases its office space under a non-cancelable operating lease expiring in April 2022[101](index=101&type=chunk) - Upon adoption of ASU 2016-02 on January 1, 2019, the company recognized a Right-of-Use (ROU) asset of **$989 thousand** and total operating lease liabilities of **$1,083 thousand** as of June 30, 2019[102](index=102&type=chunk)[103](index=103&type=chunk) Maturities of Operating Lease Liabilities (in thousands) | Year | Amount | | :------------- | :----- | | Remaining 2019 | $215 | | 2020 | $442 | | 2021 | $461 | | 2022 | $156 | | **Total lease payments** | **$1,274** | | Less imputed interest | $(191) | | **Total operating lease liabilities** | **$1,083** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on TRACON Pharmaceuticals, Inc.'s financial condition and operational results for the quarter ended June 30, 2019. It covers the company's business overview, recent developments in its product pipeline, details of collaboration agreements, analysis of financial performance, and liquidity and capital resources, highlighting the ongoing need for additional funding [Overview](index=20&type=section&id=Overview) Introduces TRACON Pharmaceuticals, its focus, key product candidates, and financial position - TRACON Pharmaceuticals is a clinical-stage biopharmaceutical company focused on developing targeted therapeutics for cancer and wet age-related macular degeneration (wet AMD)[106](index=106&type=chunk) - The company terminated enrollment in oncology trials for TRC105 (carotuximab) in April 2019 due to a futility recommendation from the Independent Data Monitoring Committee (IDMC) for the Phase 3 TAPPAS trial[106](index=106&type=chunk) - Key product candidates include DE-122 (ophthalmic carotuximab) in Phase 2a for wet AMD (data expected H1 2020), TRC102 in Phase 1/2 for various cancers, TRC253 in Phase 1/2 for metastatic castration-resistant prostate cancer (data expected by end of 2020), and TJ004309 in Phase 1 for solid tumors (enrollment began July 2019, data expected H2 2020)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[113](index=113&type=chunk) - The company had an accumulated deficit of **$153.2 million** as of June 30, 2019, and expects to incur significant expenses and operating losses for the foreseeable future, requiring substantial additional capital[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) [2019 Developments](index=22&type=section&id=2019%20Developments) Highlights significant clinical and operational milestones achieved during 2019 - Initiated dosing in a Phase 1 clinical study of TJ004309 (CD73 antibody) in July 2019 for advanced solid tumors, with top-line data expected in the second half of 2020[118](index=118&type=chunk) - Phase 1 data for TRC253 in metastatic castrate-resistant prostate cancer was published, identifying **280 mg** as the recommended Phase 2 dose and showing a partial response in one patient with a F877L AR point mutation[119](index=119&type=chunk) - Terminated enrollment in TRC105 oncology trials in April 2019 following an IDMC recommendation for futility in the Phase 3 TAPPAS trial[120](index=120&type=chunk) - Phase 2 trial of TRC102 and Temodar in relapsed metastatic colorectal cancer reported a **6%** overall response rate, which did not meet the primary efficacy endpoint[121](index=121&type=chunk) [Collaboration and License Agreements](index=22&type=section&id=Collaboration%20and%20License%20Agreements) Summarizes the key terms and financial implications of the company's strategic partnerships [Collaboration Agreements with I-Mab Biopharma](index=22&type=section&id=Collaboration%20Agreements%20with%20I-Mab%20Biopharma) Details the strategic partnership with I-Mab for developing TJ004309 and bispecific antibodies - TRACON entered into agreements with I-Mab in November 2018 for the development of TJ004309 (CD73 antibody) and up to five bispecific antibodies[122](index=122&type=chunk) - For TJ004309, TRACON covers IND filing and Phase 1 costs, shares Phase 2 costs equally, and bears **40%** of pivotal trial costs, with I-Mab responsible for non-clinical activities and drug supply[123](index=123&type=chunk) - TRACON is eligible for escalating royalties and non-royalty consideration from I-Mab for out-licensing or commercialization of TJ004309 outside Greater China[124](index=124&type=chunk) - For bispecific antibodies, TRACON is responsible for IND filing and Phase 1/2 costs in North America, sharing Phase 3 costs equally with I-Mab, and will share profits/losses equally in North America[128](index=128&type=chunk) - TRACON has an option to obtain an exclusive license to bispecific candidates outside Greater China and Korea, with potential upfront payments ranging from **$10.0 million** to **$80.0 million**, and significant milestone and royalty obligations to I-Mab[129](index=129&type=chunk)[130](index=130&type=chunk) [License Agreement with Janssen Pharmaceutica N.V.](index=23&type=section&id=License%20Agreement%20with%20Janssen%20Pharmaceutica%20N.V.) Outlines the terms of the licensing agreement for TRC253 and the terminated NIK Program - TRACON licensed TRC253 (AR Mutant Program) from Janssen in September 2016; the NIK Program (TRC694) was terminated in February 2019[131](index=131&type=chunk) - Janssen holds an option to reacquire rights to TRC253 until **90 days** after TRACON demonstrates clinical proof of concept, for a **$45.0 million** option exercise fee, up to **$137.5 million** in regulatory/commercial milestones, and low single-digit royalties[132](index=132&type=chunk)[133](index=133&type=chunk) - If Janssen does not exercise, TRACON retains worldwide rights but is obligated to pay Janssen up to **$45.0 million** in development/regulatory milestones and low single-digit royalties[133](index=133&type=chunk) [License Agreement with Santen](index=24&type=section&id=License%20Agreement%20with%20Santen) Describes the exclusive worldwide license granted to Santen for carotuximab in ophthalmology - TRACON granted Santen an exclusive worldwide license for carotuximab (DE-122) in ophthalmology indications in March 2014[134](index=134&type=chunk) - TRACON received a **$10.0 million** upfront fee and **$10.0 million** in development milestones; eligible for up to **$155.0 million** in additional milestones and tiered royalties on net sales[136](index=136&type=chunk) - Santen is solely responsible for funding, developing, seeking regulatory approval, and commercializing carotuximab products in ophthalmology[135](index=135&type=chunk) [Financial Operations Overview](index=24&type=section&id=Financial%20Operations%20Overview) Provides an executive summary of the company's revenue, expenses, and other financial performance indicators [Revenue](index=24&type=section&id=Revenue) Discusses the sources and expected fluctuations of the company's collaboration revenue - Revenue to date has been derived from collaborations with Santen and Ambrx; the Ambrx agreement was terminated in February 2019[137](index=137&type=chunk) - Future revenue is expected to fluctuate based on the timing of milestone achievements and new collaboration agreements[138](index=138&type=chunk) [Research and Development Expenses](index=25&type=section&id=Research%20and%20Development%20Expenses) Analyzes the trends and drivers of the company's research and development expenditures - Research and development expenses decreased by **$3.8 million (46.6%)** for the three months ended June 30, 2019, and by **$8.0 million (45.5%)** for the six months ended June 30, 2019, primarily due to lower drug manufacturing and direct clinical trial expenses following the termination of TRC105 oncology trials[140](index=140&type=chunk)[141](index=141&type=chunk)[152](index=152&type=chunk)[156](index=156&type=chunk) Research and Development Expenses by Product Candidate (in thousands) | Product Candidate | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | TRC105 | $1,942 | $5,402 | $4,006 | $12,151 | | TRC253 | $863 | $929 | $2,082 | $1,863 | | TRC102 | $21 | $22 | $43 | $46 | | TRC694 | $10 | $122 | $141 | $197 | | TJ004309 | $50 | $— | $114 | $— | | Total third-party R&D | $2,886 | $6,475 | $6,386 | $14,257 | | Unallocated expenses | $1,461 | $1,640 | $3,175 | $3,296 | | **Total R&D expenses** | **$4,347** | **$8,115** | **$9,561** | **$17,553** | [General and Administrative Expenses](index=26&type=section&id=General%20and%20Administrative%20Expenses) Examines the changes in the company's corporate and administrative overhead costs - General and administrative expenses increased by **$0.3 million (18.5%)** for the three months ended June 30, 2019, and by **$0.5 million (14.8%)** for the six months ended June 30, 2019, primarily due to corporate-related expenses, partially offset by lower stock-based compensation[153](index=153&type=chunk)[157](index=157&type=chunk) [Other Income (Expense)](index=26&type=section&id=Other%20Income%20%28Expense%29) Reports on non-operating income and expenses, primarily interest-related items - Other expense was **$0.1 million** for the three months ended June 30, 2019, compared to **$0** in the prior year, and **$0.1 million** for the six months ended June 30, 2019, compared to **$0.2 million** in the prior year[154](index=154&type=chunk)[158](index=158&type=chunk) - These expenses primarily consist of interest related to loan agreements with SVB, partially offset by interest income from short-term investments and cash equivalents[147](index=147&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Identifies the accounting policies requiring significant management judgment and estimation - No material changes to critical accounting policies and estimates from the 2018 Annual Report on Form 10-K, except for the adoption of new lease accounting standards[148](index=148&type=chunk) - The company adopted ASU 2016-02 (Leases) on January 1, 2019, requiring recognition of operating lease right-of-use (ROU) assets and lease liabilities on the balance sheet[149](index=149&type=chunk)[150](index=150&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Compares the company's financial performance across different reporting periods [Comparison of the Three Months Ended June 30, 2019 and 2018](index=27&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202019%20and%202018) Analyzes the financial performance for the three-month periods, highlighting key changes in revenue and expenses Summary of Results of Operations (Three Months Ended June 30, in thousands) | Item | 2019 | 2018 | Change | | :---------------------------------- | :--- | :--- | :----- | | Collaboration revenue | $— | $— | $— | | Research and development expenses | $4,347 | $8,115 | $(3,768) | | General and administrative expenses | $1,893 | $1,622 | $271 | | Other expense | $(86) | $(17) | $(69) | - Research and development expenses decreased by **$3.8 million**, primarily due to the termination of TRC105 oncology trials[152](index=152&type=chunk) [Comparison of the Six Months Ended June 30, 2019 and 2018](index=27&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202019%20and%202018) Analyzes the financial performance for the six-month periods, detailing changes in collaboration revenue and operating expenses Summary of Results of Operations (Six Months Ended June 30, in thousands) | Item | 2019 | 2018 | Change | | :---------------------------------- | :--- | :--- | :----- | | Collaboration revenue | $— | $3,000 | $(3,000) | | Research and development expenses | $9,561 | $17,553 | $(7,992) | | General and administrative expenses | $3,842 | $3,373 | $469 | | Other expense | $(136) | $(192) | $56 | - Collaboration revenue decreased by **$3.0 million** due to revenue recognized under the Ambrx license agreement in H1 2018 with no corresponding revenue in H1 2019[155](index=155&type=chunk) - Research and development expenses decreased by **$8.0 million**, primarily due to lower drug manufacturing and direct clinical trial expenses following the termination of TRC105 oncology trials[156](index=156&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's ability to generate and manage cash, and its need for future funding - The company has incurred losses and negative cash flows since inception, with an accumulated deficit of **$153.2 million** as of June 30, 2019[159](index=159&type=chunk) - Cash and cash equivalents totaled **$26.3 million** at June 30, 2019, believed to be sufficient to meet anticipated cash requirements into the third quarter of 2020[160](index=160&type=chunk)[171](index=171&type=chunk) - The company will need additional capital to fund operations and complete product development, raising substantial doubt about its ability to continue as a going concern[159](index=159&type=chunk)[171](index=171&type=chunk) Net Cash Flow Activity (Six Months Ended June 30, in thousands) | Activity | 2019 | 2018 | | :----------------------- | :--- | :--- | | Operating activities | $(12,824) | $(16,432) | | Investing activities | $14,020 | $(13,923) | | Financing activities | $4 | $35,322 | | **Increase in cash and cash equivalents** | **$1,200** | **$4,967** | [Credit Facility with SVB](index=28&type=section&id=Credit%20Facility%20with%20SVB) Describes the terms and conditions of the company's loan agreement with Silicon Valley Bank - In May 2018, the company entered into a **$7.0 million** 2018 Amended SVB Loan at **9.0%** interest, used to refinance existing debt[161](index=161&type=chunk)[162](index=162&type=chunk) - The loan is collateralized by substantially all assets (excluding intellectual property) and contains customary covenants, with the company in compliance as of June 30, 2019[163](index=163&type=chunk) [Private Placement of Common Shares and Warrants](index=28&type=section&id=Private%20Placement%20of%20Common%20Shares%20and%20Warrants) Details the capital raised through the private sale of equity securities - In March 2018, the company completed a private placement, selling approximately **11.9 million** common shares and warrants for net proceeds of approximately **$36.5 million**[164](index=164&type=chunk) [Common Stock Purchase Agreement with Aspire Capital Fund, LLC](index=28&type=section&id=Common%20Stock%20Purchase%20Agreement%20with%20Aspire%20Capital%20Fund%2C%20LLC) Explains the agreement for selling common stock to Aspire Capital - In March 2017, the company entered into a common stock purchase agreement with Aspire Capital for up to **$21.0 million** of common stock over **30 months** (expiring September 2019)[165](index=165&type=chunk) - As of June 30, 2019, **$0.9 million** in net proceeds had been received under this agreement[165](index=165&type=chunk) [ATM Facility](index=29&type=section&id=ATM%20Facility) Describes the at-the-market equity offering program for selling common stock - In September 2018, the company entered into a Sales Agreement with JonesTrading to sell up to **$8.0 million** of common stock, with no shares sold as of June 30, 2019[166](index=166&type=chunk) - The company terminated a similar at-the-market sales agreement with Stifel in September 2018, having sold approximately **$3.5 million** of common stock through it[167](index=167&type=chunk) [Cash Flows](index=29&type=section&id=Cash%20Flows) Analyzes the sources and uses of cash from operating, investing, and financing activities - Net cash used in operating activities decreased to **$12.8 million** for H1 2019 from **$16.4 million** for H1 2018[168](index=168&type=chunk) - Net cash provided by investing activities was **$14.0 million** for H1 2019, a significant increase from net cash used of **$13.9 million** in H1 2018, due to maturities of short-term investments[169](index=169&type=chunk) - Net cash provided by financing activities was **$4 thousand** for H1 2019, a substantial decrease from **$35.3 million** in H1 2018, which included proceeds from common stock and warrants issuance[170](index=170&type=chunk) [Funding Requirements](index=29&type=section&id=Funding%20Requirements) Discusses the company's future capital needs and going concern considerations - Existing cash and cash equivalents of **$26.3 million** are expected to fund operations into the third quarter of 2020[171](index=171&type=chunk) - The company requires substantial additional funding to complete product development and commercialization, raising substantial doubt about its ability to continue as a going concern[171](index=171&type=chunk) - Future capital requirements are uncertain and depend on factors like clinical trial progress, collaboration agreements, regulatory approvals, and commercialization costs[172](index=172&type=chunk) [Contractual Obligations and Commitments](index=30&type=section&id=Contractual%20Obligations%20and%20Commitments) Summarizes the company's significant contractual payment obligations and other commitments - The company terminated its long-term manufacturing agreement with Lonza for TRC105 due to the discontinuation of oncology development, incurring obligations for costs incurred prior to termination[174](index=174&type=chunk) - No other material changes from the contractual obligations and commitments previously disclosed in the 2018 Annual Report on Form 10-K[175](index=175&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) Confirms the absence of any material off-balance sheet transactions or obligations - The company did not have any off-balance sheet arrangements during the periods presented[176](index=176&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate risk and foreign currency exchange risk, and the impact of inflation [Interest Rate Risk](index=31&type=section&id=Interest%20Rate%20Risk) Assesses the company's exposure to fluctuations in interest rates on its financial instruments - The company's cash and cash equivalents consist of cash and money market funds, making the fair value of its portfolio relatively insensitive to interest rate changes[177](index=177&type=chunk) - Long-term debt bears interest at a fixed rate, further limiting interest rate risk[177](index=177&type=chunk) [Foreign Currency Exchange Risk](index=31&type=section&id=Foreign%20Currency%20Exchange%20Risk) Evaluates the company's exposure to changes in foreign currency exchange rates - The company incurs expenses in Pounds Sterling and Euros for clinical studies and manufacturing outside the U.S., exposing it to foreign currency exchange risk[178](index=178&type=chunk) - To date, exchange rate fluctuations have not been significant, and the company does not use hedging transactions[178](index=178&type=chunk) [Effects of Inflation](index=31&type=section&id=Effects%20of%20Inflation) Discusses the potential impact of inflation on the company's financial performance - Inflation generally affects the company by increasing labor and clinical trial costs, but it has not had a material effect on results of operations or financial condition during the presented periods[179](index=179&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter [Disclosure Controls and Procedures](index=31&type=section&id=Disclosure%20Controls%20and%20Procedures) Assesses the effectiveness of the company's controls for ensuring timely and accurate public disclosures - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[181](index=181&type=chunk) [Changes in Internal Control over Financial Reporting](index=31&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) Reports on any material changes to the company's internal control system during the reporting period - There were no changes in internal control over financial reporting during the quarter ended June 30, 2019, that materially affected or are reasonably likely to materially affect internal control over financial reporting[182](index=182&type=chunk) PART II OTHER INFORMATION Contains additional non-financial information and disclosures required in the report [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings, though it acknowledges the potential adverse impact of litigation - The company is not currently a party to any material legal proceedings[184](index=184&type=chunk) - Litigation, regardless of outcome, can have an adverse impact due to defense and settlement costs, diversion of management resources, and other factors[184](index=184&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section details various risks that could materially and adversely affect TRACON Pharmaceuticals, Inc.'s business, financial condition, and results of operations. These risks span financial stability, clinical development, reliance on third parties, intellectual property, commercialization, general business operations, and common stock performance [Risks Related to our Financial Position and Need for Additional Capital](index=32&type=section&id=Risks%20Related%20to%20our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) Highlights the company's history of losses, ongoing funding requirements, and potential impacts on its financial viability - The company has incurred losses since inception, with an accumulated deficit of **$153.2 million** as of June 30, 2019, and anticipates substantial operating losses for the foreseeable future[186](index=186&type=chunk) - Existing cash and cash equivalents are expected to fund operations only into the third quarter of 2020, necessitating substantial additional financing and raising substantial doubt about the company's ability to continue as a going concern[188](index=188&type=chunk)[189](index=189&type=chunk) - Failure to obtain additional financing could force delays, reductions, or termination of drug development efforts, and raising capital may dilute existing stockholders or require relinquishing rights to product candidates[193](index=193&type=chunk)[194](index=194&type=chunk) - The loan agreement with Silicon Valley Bank contains restrictive covenants and could require early repayment if an event of default occurs, including a material adverse change[195](index=195&type=chunk)[198](index=198&type=chunk) [Risks Related to Clinical Development and Regulatory Approval of Product Candidates](index=34&type=section&id=Risks%20Related%20to%20Clinical%20Development%20and%20Regulatory%20Approval%20of%20Product%20Candidates) Addresses the inherent uncertainties, costs, and potential setbacks in the clinical trial and regulatory approval processes for drug candidates - Clinical development is a lengthy, expensive, and uncertain process, with earlier trial results not necessarily predictive of future success; TRC105 Phase 3 TAPPAS trial was terminated for futility in April 2019[199](index=199&type=chunk) - Delays in clinical trials are common due to various factors (e.g., enrollment, regulatory approvals, manufacturing), increasing costs and jeopardizing regulatory approval[203](index=203&type=chunk)[204](index=204&type=chunk) - Product candidates may cause adverse events (e.g., TRC253's QTcF prolongation), which could delay or prevent regulatory approval or limit market acceptance[205](index=205&type=chunk)[206](index=206&type=chunk) - The regulatory approval processes are lengthy, unpredictable, and may not result in approval for product candidates, potentially harming the business[210](index=210&type=chunk)[211](index=211&type=chunk) - Obtaining regulatory approval in one jurisdiction does not guarantee approval in others, and foreign approval processes can be more complex and time-consuming[219](index=219&type=chunk)[220](index=220&type=chunk) - Even if approved, products are subject to ongoing regulatory obligations and review, which may result in significant additional expense or penalties for non-compliance[221](index=221&type=chunk)[222](index=222&type=chunk) [Risks Related to Our Reliance on Third Parties](index=38&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) Examines the risks associated with depending on external manufacturers, collaborators, and clinical research organizations for key business functions - The company relies on third-party manufacturers for product candidates, and any failure or capacity issues could delay clinical trials or commercialization; the Lonza manufacturing agreement for TRC105 was terminated[223](index=223&type=chunk)[224](index=224&type=chunk) - Dependence on the National Cancer Institute (NCI) and other third-party sponsors to advance clinical development of TRC102, with limited control over their activities and potential for support withdrawal[229](index=229&type=chunk)[230](index=230&type=chunk) - Reliance on the license agreement with Santen for DE-122 in ophthalmology, where the company's ability to generate revenue depends on Santen's development and commercialization efforts[231](index=231&type=chunk) - Realizing value from I-Mab collaborations depends on I-Mab's activities and funding for preclinical development and manufacturing, with limited control over their resource allocation[234](index=234&type=chunk) - Difficulty in establishing and maintaining additional collaborations could adversely affect the ability to develop and commercialize product candidates or leverage clinical development capabilities[235](index=235&type=chunk)[236](index=236&type=chunk) - Reliance on third parties to conduct preclinical studies and clinical trials, with risks including non-compliance with regulations (cGCPs), recruitment delays, and potential for data unreliability[237](index=237&type=chunk)[238](index=238&type=chunk) [Risks Related to Our Intellectual Property](index=42&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Discusses the challenges and uncertainties in obtaining, protecting, and enforcing intellectual property rights for the company's product candidates - Inability to obtain or protect intellectual property rights (patents, trade secrets) related to product candidates could harm the business and competitive position[240](index=240&type=chunk) - The patent position of biotechnology companies is uncertain, and patents may be challenged, narrowed, or invalidated, or competitors may design around claims[241](index=241&type=chunk) - Dependence on licensors (Roswell Park, Case Western, Janssen) to prosecute and maintain patents and patent applications material to the business, with limited control over these activities[247](index=247&type=chunk)[248](index=248&type=chunk) - Third-party claims of intellectual property infringement or misappropriation could prevent or delay development and commercialization efforts, leading to substantial expenses or damages[249](index=249&type=chunk)[251](index=251&type=chunk)[254](index=254&type=chunk) - Failure to comply with obligations under license agreements could result in loss of intellectual property rights or damages to the licensor[263](index=263&type=chunk) - Protecting intellectual property rights globally is challenging due to varying laws and enforcement, potentially allowing competitors to use technologies in other jurisdictions[264](index=264&type=chunk)[265](index=265&type=chunk) [Risks Related to Commercialization of Product Candidates](index=46&type=section&id=Risks%20Related%20to%20Commercialization%20of%20Product%20Candidates) Covers the challenges in achieving market acceptance, managing competition, securing reimbursement, and navigating healthcare regulations for approved products - Even with regulatory approval, product candidates may not gain market acceptance among physicians, patients, and payors due to factors like efficacy, side effects, cost, and reimbursement[271](index=271&type=chunk) - The company faces intense competition and rapid technological change from larger, better-resourced pharmaceutical and biotechnology companies, potentially leading to more advanced or effective therapies[272](index=272&type=chunk)[273](index=273&type=chunk) - Competition from 'biosimilars' and generic products, facilitated by changing regulatory environments, could limit demand and pricing for the company's products[275](index=275&type=chunk)[276](index=276&type=chunk) - Successful sales depend on coverage and adequate reimbursement from third-party payors, which is a time-consuming and costly process with no assurance of favorable rates[277](index=277&type=chunk)[278](index=278&type=chunk)[280](index=280&type=chunk) - Healthcare legislative reforms (e.g., Affordable Care Act, drug pricing scrutiny) in the U.S. and abroad may adversely affect the business by impacting demand, pricing, and profitability[282](index=282&type=chunk)[284](index=284&type=chunk)[286](index=286&type=chunk) - Commercializing approved products outside the United States involves additional risks, including differing regulatory requirements, reimbursement regimes, intellectual property protection, and economic instability[289](index=289&type=chunk)[290](index=290&type=chunk) [Risks Related to Our Business and Industry](index=50&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Addresses broader operational, regulatory, and external risks inherent to the biopharmaceutical industry and the company's specific business model - Lack of internal new drug discovery capabilities means the company's business and prospects are limited if it fails to acquire or in-license other product candidates or products[292](index=292&type=chunk) - High dependence on senior management and key clinical operations/regulatory personnel; loss of these individuals could impede development and strategy execution[293](index=293&type=chunk)[294](index=294&type=chunk) - Exposure to risks of misconduct or illegal activities by employees and third parties, including non-compliance with regulatory standards and fraud and abuse laws, which could lead to significant penalties[295](index=295&type=chunk)[297](index=297&type=chunk) - Potential difficulties in managing growth and expanding operations successfully, requiring effective management of development efforts and hiring/training personnel[298](index=298&type=chunk) - Subject to extensive federal and state healthcare regulations (e.g., anti-kickback, false claims, data privacy); non-compliance could result in penalties and harm the business[299](index=299&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk) - Potential for product liability claims from clinical trials or commercial sales, which could result in substantial liability, costs, and reputational harm, potentially exceeding insurance coverage[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk) - Ability to use net operating loss carryforwards and other tax attributes may be limited due to past or future ownership changes, potentially impacting future profitability[308](index=308&type=chunk) - Internal computer systems or those of contractors may fail or suffer security breaches, risking sensitive data exposure, regulatory sanctions, and business disruption[310](index=310&type=chunk) - Business disruptions from natural disasters, power shortages, or government shutdowns could seriously harm future revenue and financial condition[311](index=311&type=chunk) [Risks Related to Our Common Stock](index=54&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) Outlines factors that could affect the market price, liquidity, and ownership structure of the company's common stock - The market price of the common stock may be highly volatile due to various factors, and stockholders may not be able to resell shares at a desired price, potentially losing all or part of their investment[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk) - Failure to meet Nasdaq listing requirements (e.g., **$1.00** bid price) could lead to delisting, adversely impacting liquidity and market price[315](index=315&type=chunk)[316](index=316&type=chunk) - Principal stockholders and management own a significant percentage of voting stock (over **45%** as of June 30, 2019), enabling them to exert significant control over matters subject to stockholder approval[317](index=317&type=chunk)[318](index=318&type=chunk) - Future sales and issuances of common stock or rights to purchase common stock could result in additional dilution of existing stockholders' ownership and cause the stock price to fall[323](index=323&type=chunk) - The company does not intend to pay dividends on its common stock, so any returns will be limited to the appreciation of the stock's value[325](index=325&type=chunk) - Provisions in the company's charter documents and Delaware law could make it more difficult or costly for a third party to acquire the company, even if beneficial to stockholders[326](index=326&type=chunk)[327](index=327&type=chunk) [Item 2. Unregistered Sales of Equity Securities](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities) There were no unregistered sales of equity securities during the period covered by this report - None[328](index=328&type=chunk) [Item 3. Defaults Upon Senior Securities](index=57&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period covered by this report - None[329](index=329&type=chunk) [Item 4. Mine Safety Disclosures](index=57&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[330](index=330&type=chunk) [Item 5. Other Information](index=57&type=section&id=Item%205.%20Other%20Information) There is no other information to report under this item - None[331](index=331&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including organizational documents, various agreements, and certifications - Includes Amended and Restated Certificate of Incorporation, Bylaws, Form of Common Stock Certificate, Investors' Rights Agreement, Investor Agreement, Registration Rights Agreement, Common Stock Purchase Agreement, Securities Purchase Agreement, and various certifications[333](index=333&type=chunk) [Signatures](index=59&type=section&id=Signatures) The report is duly signed on behalf of TRACON Pharmaceuticals, Inc. by its President and Chief Executive Officer - The report was signed by Charles P. Theuer, M.D., Ph.D., President and Chief Executive Officer (principal executive officer and principal financial officer) on August 7, 2019[339](index=339&type=chunk)

TRACON Pharmaceuticals Inc. (OTCQB:TCON) Q1 2019 Earnings Conference Call May 14, 2019 4:30 PM ET Company Participants Charles Theuer - President & CEO Scott Brown - Director, Controller Conference Call Participants Maury Raycroft - Jefferies Jake Colby - BTIG Operator Good day, ladies and gentlemen, and welcome to the TRACON Pharmaceuticals First Quarter 2019 Earnings Conference Call. At this time, all callers are in a listen-only mode. After the speaker's prepared remarks, we will conduct a question-and-a ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-36818 TRACON Pharmaceuticals, Inc. (Exact name of registrant as specified in its charter) Delaware 34-2037594 (State or other jurisdiction of incorporation or organization) ...

Financial Data and Key Metrics Changes - TRACON reported no collaboration revenue for Q4 2018 and $3 million for the year ended December 31, 2018, compared to zero and $8.8 million for the comparable periods of 2017 [41] - Research and development expenses increased to $5.9 million for Q4 2018 and $30.5 million for the year, compared to $4.6 million and $19.4 million for the same periods in 2017 [43] - The net loss was $7.8 million for Q4 2018 and $35 million for the year, compared to $6.6 million and $19.1 million for the same periods in 2017 [45] - Cash, cash equivalents, and short-term investments totaled $39.1 million at December 31, 2018, compared to $34.5 million at December 31, 2017 [46] Business Line Data and Key Metrics Changes - TRC105 is currently in a Phase 3 TAPPAS trial enrolling angiosarcoma patients, with 120 patients enrolled to trigger preparations for interim analysis [5][6] - The Phase 2 trial of TRC105 in combination with Nexavar in liver cancer showed a confirmed partial response rate of 24% [8] - The Phase 2 TRAXAR trial of TRC105 and Inlyta in kidney cancer did not meet its primary endpoint [9][10] - DE-122, an ophthalmic formulation of TRC105, is in a Phase 2 AVANTE study with data expected in the first half of 2020 [18][19] Market Data and Key Metrics Changes - TRACON reacquired rights to develop TRC105 in Greater China from Ambrx, with plans to engage a new corporate partner for development [15][16] - The company is actively seeking partners for TRC105 in Europe and Japan [16][81] Company Strategy and Development Direction - TRACON aims to identify ex-U.S. companies with first-in-class or best-in-class clinical-stage assets to utilize its product development platform [38][49] - The company is focusing on partnerships, as evidenced by the collaboration with I-Mab Biopharma for the development of CD73 antibody TJ4309 [33][34] Management's Comments on Operating Environment and Future Outlook - Management expects a number of potentially value-creating milestones over the next twelve months, including interim analysis from the TAPPAS trial and top-line results from the AVANTE trial [48] - The company anticipates lower annual research and development expenses in 2019 compared to 2018 due to decreased manufacturing expenses for TRC105 [45][94] Other Important Information - TRACON retained significant financial rights with DE-122, including $145 million in potential developmental, regulatory, and commercialization milestones [21] - The company is working on biomarker validation for TRC102 to identify patients most likely to respond to treatments [27][100] Q&A Session Summary Question: Insights on TAPPAS trial patient demographics and safety signals - Management has not yet analyzed the database for definitive answers but will provide clarity after the interim analysis [53][54] Question: Breakdown of patients from U.S. versus ex-U.S. in TAPPAS trial - The majority of patients are from the U.S., with a roughly equal proportion of cutaneous and non-cutaneous patients expected [56] Question: Update on TRC253 trial presentation - Management aims to present Phase 1 data at a significant meeting, such as ASCO, in June [58] Question: Durability of stable disease in patients from the combo study - Management confirmed that the PR patient remains on study with significant tumor mass reduction, but specific percentage reductions were not provided [59] Question: Potential enrichment strategies for CD73 program - Enrichment strategies will focus on CD73 expression analysis and other relevant biomarkers [63][64] Question: Capacity for bringing new assets into clinical development - The platform is generalizable to various products marketed to physician-specialty audiences, with a focus on oncology [70] Question: R&D spending outlook for 2019 - R&D expenses are expected to decrease in 2019 compared to 2018, aligning closer to 2017 levels [94]