TRACON(TCON) - 2019 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Presents TRACON Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements and detailed notes Item 1. Financial Statements Presents TRACON Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Balance Sheets 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] - Total stockholders' equity significantly declined from $21.4 million at December 31, 2018, to $4.0 million at September 30, 2019[10] Condensed Consolidated Statements of Operations 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] - 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] Condensed Consolidated Statements of Cash Flows 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] - 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] - 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] Notes to Condensed Consolidated Financial Statements Provides detailed explanations of TRACON Pharmaceuticals, Inc.'s significant accounting policies and financial statement items 1. Organization and Summary of Significant Accounting Policies 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] - 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] - 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] - 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] - 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][43] 2. Short-Term Investments, Cash Equivalents and Fair Value Measurements 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][46] - As of September 30, 2019, the Company had no short-term investments, a change from $13.968 million at December 31, 2018[46][51] 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 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] - 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] - 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] 4. Commitments and Contingencies 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] - 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] 5. Stockholders' Equity 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] - 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] - 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] 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 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] - 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][74] - 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] - 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] - 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][85] - 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] - 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][97] 7. Leases 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] 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 Management's analysis of TRACON's financial condition, operational results, liquidity, and future funding needs 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] - 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][116] - 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] - 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][105][106][107] 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] - 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] 2019 Developments 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] - 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] - 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][115] - Enrollment in TRC105 oncology trials was terminated in April 2019 due to futility in the Phase 3 TAPPAS trial[116] - 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] Collaboration and License Agreements 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][119][124] - 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][122] - 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][126] - 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] - 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] Financial Operations Overview 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][134] - 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][152] 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][153] Critical Accounting Policies and Significant Judgments and Estimates 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] - 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][146] Results of Operations 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][152] - 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] Liquidity and Capital Resources 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][169] - 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][158][159] - 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][164] 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][167] - 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] Contractual Obligations and Commitments 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] - No other material changes to contractual obligations and commitments were reported since the December 31, 2018 Annual Report on Form 10-K[173] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - 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] Item 4. Controls and Procedures 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] - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2019[180] PART II OTHER INFORMATION Presents additional information not covered in the financial statements, including legal and risk factors Item 1. Legal Proceedings 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] - Litigation can have an adverse impact due to defense and settlement costs, and diversion of management resources[182] Item 1A. Risk Factors 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 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] - 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][187] - 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][192] - 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][196] Risks Related to Clinical Development and Regulatory Approval of Product Candidates 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] - Delays in clinical trials are common due to various factors (e.g., enrollment, regulatory approvals, manufacturing), which can increase costs and jeopardize commercialization[201][202] - 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][204] - 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][209] - TRACON may not receive or retain Fast Track or Orphan Drug designations, which could impact development timelines, regulatory review, and market exclusivity[214][215][216] - Obtaining regulatory approval in one jurisdiction does not guarantee approval in others, and foreign regulatory processes can be different, lengthy, and costly[217][218] - Even with approval, products are subject to ongoing regulatory obligations and review, with potential penalties for non-compliance or unanticipated problems[219][220] Risks Related to Our Reliance on Third Parties 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][226] - 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][228] - 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] - 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][231][232] - Establishing and maintaining additional collaborations is crucial but challenging due to competition and potential conflicts with existing agreements, which could limit pipeline expansion[233][234] - 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][236] Risks Related to Our Intellectual Property 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] - 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][241] - 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][247] - Third-party claims of intellectual property infringement or misappropriation could lead to substantial expenses, damages, or delays in development and commercialization[248][253] - 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][265] - 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] - Confidentiality agreements may not prevent unauthorized disclosure of trade secrets, and enforcing such claims is expensive and unpredictable[268][269] Risks Related to Commercialization of Product Candidates 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] - TRACON faces intense competition from companies with greater resources, and new therapies or biosimilars could render its products uneconomical or obsolete[272][273][275] - 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][278][279] - 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][283][284] - International operations expose TRACON to risks like differing regulatory requirements, reimbursement regimes, intellectual property protection, and political/economic instability[287][288] Risks Related to Our Business and Industry 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] - The Company is highly dependent on senior management and key clinical operations personnel; loss of these individuals could impede development and strategy execution[291][292] - 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][294] - Difficulties in managing growth and expanding operations could hinder TRACON's ability to commercialize product candidates and compete effectively[295] - 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][297][299][300] - 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][302] - 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] - Internal computer system failures or security breaches could expose sensitive data, harm reputation, and lead to litigation or increased costs[306] - Business disruptions from natural disasters, government shutdowns, or other events could seriously harm revenue and financial condition[307] Risks Related to Our Common Stock 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] - Failure to meet Nasdaq listing requirements (e.g., minimum bid price, stockholders' equity) could lead to delisting, adversely impacting liquidity and stock price[311][312][313] - Principal stockholders and management own over 45% of voting stock, enabling them to exert significant control over matters requiring stockholder approval[315] - 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][318] - 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] - TRACON does not intend to pay dividends, so returns are limited to stock value appreciation[323] - 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][325] Item 2. Unregistered Sales of Equity Securities Reports no unregistered sales of equity securities during the reporting period - No unregistered sales of equity securities occurred during the reporting period[326] Item 3. Defaults Upon Senior Securities Indicates no defaults upon senior securities occurred during the reporting period - No defaults upon senior securities occurred during the reporting period[327] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to TRACON Pharmaceuticals, Inc - Mine safety disclosures are not applicable to TRACON Pharmaceuticals, Inc[328] Item 5. Other Information Confirms no other material information to report in this section - No other information is reported in this section[329] Item 6. Exhibits 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] - 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] - XBRL Instance Document and Taxonomy Extension Documents are included for electronic data submission[331] 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]