TRACON(TCON) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements TRACON Pharmaceuticals, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, are presented with detailed notes for periods ended September 30, 2021, and December 31, 2020 Condensed Consolidated Balance Sheets - Cash and cash equivalents decreased by $2,230 thousand from December 31, 2020, to September 30, 2021, with short-term investments fully liquidated by September 30, 2021[10] - Total assets decreased by $4,630 thousand, while total liabilities increased by $2,191 thousand, leading to a $6,209 thousand decrease in total stockholders' equity[10] Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :-------------------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $29,901 | $32,131 | | Short-term investments | — | $3,999 | | Total current assets | $31,142 | $36,914 | | Total assets | $32,808 | $37,438 | | Accounts payable and accrued expenses | $9,527 | $6,235 | | Total current liabilities | $12,734 | $10,543 | | Long-term debt, net of current portion | — | $1,391 | | Total stockholders' equity | $18,863 | $25,072 | | Total liabilities and stockholders' equity | $32,808 | $37,438 | Condensed Consolidated Statements of Operations - For the three months ended September 30, 2021, research and development expenses increased by $945 thousand (53%) and general and administrative expenses increased by $2,088 thousand (101%) compared to the same period in 2020[13] - For the nine months ended September 30, 2021, license revenue was $346 thousand, compared to zero in the prior year, with net loss increasing to $20,955 thousand from $12,464 thousand primarily due to increased operating expenses[13] Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | License revenue | $0 | $0 | $346 | $0 | | Research and development | $2,730 | $1,785 | $8,082 | $6,001 | | General and administrative | $4,151 | $2,063 | $12,948 | $6,045 | | Total operating expenses | $6,881 | $3,848 | $21,030 | $12,046 | | Net loss | $(6,952) | $(3,992) | $(20,955) | $(12,464) | | Net loss per share, basic and diluted | $(0.38) | $(0.38) | $(1.27) | $(1.69) | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased from $25,072 thousand at December 31, 2020, to $18,863 thousand at September 30, 2021, primarily due to a net loss of $20,955 thousand, partially offset by $13,392 thousand from common stock issuances (net of offering costs) and $1,261 thousand from stock-based compensation[16][13] Changes in Stockholders' Equity (in thousands, except shares) | Metric | Balance at Dec 31, 2020 | Balance at Sep 30, 2021 | | :-------------------------------- | :---------------------- | :---------------------- | | Common Stock Shares | 15,478,787 | 19,430,369 | | Common Stock Amount | $15 | $19 | | Additional Paid-in Capital | $204,166 | $218,908 | | Accumulated Deficit | $(179,109) | $(200,064) | | Total Stockholders' Equity | $25,072 | $18,863 | Condensed Consolidated Statements of Cash Flows - Net cash used in operating activities increased by $4,041 thousand, primarily due to higher net loss and changes in working capital[19][180] - Net cash provided by investing activities was $3,961 thousand in 2021, driven by maturities of short-term investments, compared to zero in 2020[19][181] - Net cash provided by financing activities decreased by $12,189 thousand, mainly due to lower proceeds from common stock sales and warrants in 2021 compared to 2020[19][182] Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(17,457) | $(13,416) | | Net cash provided by investing activities | $3,961 | $0 | | Net cash provided by financing activities | $11,266 | $23,455 | | Change in cash and cash equivalents | $(2,230) | $10,039 | | Cash and cash equivalents at end of period | $29,901 | $26,451 | Notes to Condensed Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies - TRACON Pharmaceuticals, Inc. is a biopharmaceutical company focused on developing and commercializing novel targeted therapeutics for cancer, utilizing a cost-efficient, CRO-independent product development platform to partner with ex-U.S. companies[22] - The Company has incurred operating losses since inception, with an accumulated deficit of $200.1 million as of September 30, 2021, but management believes existing cash and cash equivalents ($29.9 million) are sufficient to fund obligations for over one year[24] - Future funding will rely on existing cash, equity offerings (including a $13.4 million public offering in July 2021), debt financings, third-party funding, and potential licensing/collaboration arrangements[25] - The COVID-19 pandemic has caused significant disruptions, including remote work for most employees and travel restrictions, potentially impacting clinical trials, supply chains, and capital raising efforts[28] - Revenue is primarily derived from license agreements, recognized using a five-step model, with judgments required for stand-alone selling prices, milestone probabilities, and manufacturing supply services[32][33][35] - Clinical trial expenses are accrued based on trial progress, with no material adjustments to prior period estimates for the three and nine months ended September 30, 2021 and 2020[40] Potentially Dilutive Securities (Common Stock Equivalent Shares) | Security Type | Sep 30, 2021 | Sep 30, 2020 | | :-------------------------------- | :----------- | :----------- | | Warrants to purchase common stock | 4,810,409 | 4,991,599 | | Common stock options and restricted stock units | 1,295,808 | 622,552 | | ESPP shares | 10,757 | 2,929 | | Total | 6,116,974 | 5,617,080 | 2. Investments and Fair Value Measurements - As of September 30, 2021, the Company had no short-term investments, compared to $3,999 thousand in U.S. treasury securities at December 31, 2020[44] - Fair value measurements are categorized into a three-tier hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs other than quoted prices; Level 3: unobservable inputs)[47][48][49] Fair Value Measurements (in thousands) | Asset Category | Sep 30, 2021 Fair Value (Level 1) | Dec 31, 2020 Fair Value (Level 2) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Money market funds | $5,003 | $1,002 | | U.S. treasury securities | — | $3,999 | | Equity securities (other assets) | $246 | — | 3. Long-Term Debt - The Company's 2018 Amended SVB Loan has an interest rate of 9.0% per annum, with a maturity date extended to June 2022, and a final payment of 4.0% of the original principal due at maturity[54][55] - The loan is collateralized by substantially all assets (excluding intellectual property) and includes customary covenants, with the Company in compliance as of September 30, 2021[56] Long-Term Debt Balances (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Long-term debt | $2,100 | $4,200 | | Less debt discount, net of current portion | — | $(9) | | Long-term debt, net of debt discount | $2,100 | $4,191 | | Less current portion of long-term debt | $(2,100) | $(2,800) | | Long-term debt, net of current portion | $0 | $1,391 | | Current portion of long-term debt, net | $2,079 | $2,718 | Future Minimum Principal and Interest Payments (in thousands) | Period | Amount | | :-------------------------------- | :----- | | Remaining 2021 | $742 | | 2022 | $1,717 | | Total | $2,459 | | Less interest and final payment | $(359) | | Long-term debt | $2,100 | 4. Commitments and Contingencies - Potential future milestone payments under existing license agreements totaled an aggregate of $9.6 million as of September 30, 2021[59] 5. Stockholders' Equity - In July 2021, the Company completed a public offering of 3,926,702 common shares at $3.82 per share, generating net proceeds of approximately $13.4 million[60] - The Company has an 'at-the-market' (ATM) Sales Agreement with JonesTrading, allowing the sale of up to $50.0 million of common stock, all of which remained available as of September 30, 2021[64] Outstanding Warrants for Common Stock (as of Sep 30, 2021) | Expiration Date | Number of Shares | Exercise Price | | :-------------------------------- | :--------------- | :------------- | | May 13, 2022 | 1,841 | $108.60 | | November 14, 2023 through June 4, 2024 | 3,874 | $77.40 | | January 25, 2024 | 4,669 | $51.40 | | March 27, 2024 | 1,369,602 | $27.00 | | March 27, 2025 | 176,554 | $0.10 | | May 3, 2025 | 5,363 | $26.10 | | August 27, 2027 | 1,889,513 | $0.01 | | August 31, 2027 | 1,358,993 | $0.01 | | Total | 4,810,409 | | Stock-Based Compensation Expense (in thousands) | Expense Category | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $176 | $81 | $447 | $293 | | General and administrative | $325 | $159 | $814 | $477 | | Total | $501 | $240 | $1,261 | $770 | 6. Licenses and Collaborations - Envafolimab Collaboration Agreement (3D Medicines and Alphamab): TRACON has an exclusive license to develop and commercialize envafolimab for sarcoma in North America, bearing Phase 1-3 clinical trial costs, with royalties ranging from teens to mid-double digits on net sales[69][70][72] - I-Mab Collaboration Agreements (TJ004309 and Bispecific Antibodies): TRACON shares development costs for TJ004309 and has potential royalties, with ongoing disputes regarding I-Mab's other licensing activities and purported termination of the TJ004309 Agreement, with arbitration set for February 2022[76][78][79][89] - Janssen License and Option Agreement (TRC253 and TRC694): TRACON terminated the agreement for TRC694 in February 2019 and for TRC253 in May 2021, returning all rights to Janssen[90] - Enviro and Kairos License and Supply Agreement (TRC105): TRACON granted Enviro access to IND filings, ownership of TRC105 drug product, and patent rights for a $0.1 million upfront payment and $0.2 million in equity ownership, with potential for $1.0 million in milestone payments and single-digit royalties[92][93][96] 7. Leases - The Company's operating lease for its corporate headquarters was amended in August 2021, extending the term to April 2027[97] Operating Lease Liabilities Maturities (in thousands, as of Sep 30, 2021) | Period | Amount | | :-------------------------------- | :----- | | Remaining 2021 | $117 | | 2022 | $285 | | 2023 | $320 | | 2024 | $334 | | 2025 | $349 | | 2026 | $365 | | Thereafter | $123 | | Total lease payments | $1,893 | | Less imputed interest | $(500) | | Total operating lease liabilities | $1,393 | 8. Subsequent Events - On October 8, 2021, TRACON entered into a collaborative development and commercialization agreement with Eucure and Biocytogen for YH001, an investigational CTLA-4 antibody[100] - TRACON received an exclusive license to develop and commercialize YH001 in North America for multiple indications, including sarcoma, bearing the costs of regulatory submissions and clinical trials, with Eucure responsible for CMC activities and supply[101] - TRACON will commercialize YH001 in North America and owe Eucure escalating double-digit royalties on net sales, with potential for a high single-digit million milestone payment if sales exceed a pre-determined threshold in the first full year[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses TRACON's financial condition, operations, and outlook, emphasizing clinical programs, collaborations, liquidity, and the need for additional capital Overview - TRACON is a biopharmaceutical company focused on developing and commercializing novel targeted therapeutics for cancer, leveraging a cost-efficient, CRO-independent product development platform to partner with ex-U.S. companies[106][119] - The lead product candidate, envafolimab (KN035), is in a pivotal Phase 2 ENVASARC trial for sarcoma, with interim efficacy data expected by end of 2021 and second interim data in 2022, aiming for accelerated FDA approval based on objective response rate (ORR)[107][109][110] - Envafolimab received Orphan Drug Designation (ODD) for soft tissue sarcoma in June 2021[108] - Other clinical-stage candidates include YH001 (CTLA-4 antibody, licensed Oct 2021), TRC102 (small molecule inhibiting DNA base excision repair, NCI-funded trials), and TJ004309 (CD73 antibody, Phase 1 trial ongoing)[112][113][114][115] - The Company has an accumulated deficit of $200.1 million as of September 30, 2021, and expects significant expenses and operating losses to continue, requiring substantial additional capital[123][124] Key Clinical Stage Product Candidates and Data Expectations | Product Candidate | Phase | Data Expected | | :-------------------------------- | :---------------- | :-------------------------------- | | Envafolimab (Soft Tissue Sarcoma) | Pivotal Phase 2 | Interim Data - 2021 and 2022; Final Data - 2022 | | Envafolimab + YH001 (Multiple Soft Tissue Sarcoma Subtypes) | Phase 1/2 (planned) | 2023 and 2024 | | TRC102 (Solid Tumors and Lymphomas) | Phase 1/2 | 2021 | | TJ004309 (Solid Tumors) | Phase 1 | 2022 | Collaboration and License Agreements - YH001 Collaboration Agreement (Eucure and Biocytogen): TRACON has an exclusive license for YH001 in North America for specific cancer indications, responsible for regulatory submissions and clinical trials, with royalties to Eucure ranging from mid-twenties to mid-double digits on net sales[125][128] - Envafolimab Collaboration Agreement (3D Medicines and Alphamab): TRACON holds an exclusive license for sarcoma in North America, covering Phase 1-3 costs, with royalties to 3D Medicines and Alphamab ranging from teens to mid-double digits[133][135] - I-Mab Collaboration Agreements (TJ004309 and Bispecific Antibodies): TRACON shares development costs for TJ004309 and has potential royalties, with ongoing disputes with I-Mab regarding alleged breaches and termination attempts in arbitration, potentially impacting TRACON's ability to license bispecific candidates[140][141][142][151] Financial Operations Overview - Research and development expenses include salaries, clinical trial costs, preclinical study materials, consulting fees, license payments, and facility expenses, which are expensed as incurred[152][153] - R&D expenses are expected to increase in 2022 due to continued enrollment in the ENVASARC trial and the planned Phase 1/2 clinical trial of YH001 in combination with envafolimab[155] - General and administrative expenses primarily cover executive, finance, administration, corporate development, and legal services, expected to decrease in late 2021 but remain higher than prior years due to ongoing I-Mab arbitration legal costs[158][159] - No material changes to critical accounting policies and estimates were reported from the prior Annual Report on Form 10-K[161] Research and Development Expenses by Product Candidate (in thousands) | Product Candidate | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Envafolimab | $1,897 | $270 | $4,207 | $506 | | TRC102 | $18 | $109 | $106 | $165 | | TRC253 | $0 | $140 | $166 | $732 | | TJ004309 | $183 | $459 | $690 | $1,133 | | Total third-party R&D expenses | $2,098 | $978 | $5,169 | $2,536 | | Unallocated expenses | $632 | $807 | $2,913 | $3,465 | | Total R&D expenses | $2,730 | $1,785 | $8,082 | $6,001 | Results of Operations - Research and development expenses increased by $0.9 million for the three months and $2.1 million for the nine months ended September 30, 2021, primarily due to the continued enrollment of the ENVASARC trial[162][166] - General and administrative expenses increased significantly by $2.1 million for the three months and $6.9 million for the nine months ended September 30, 2021, mainly due to legal expenses related to the I-Mab disputes[163][167] - License revenue of $0.3 million was recognized for the nine months ended September 30, 2021, from the Enviro license agreement, with no comparable revenue in 2020[165] Summary of Results of Operations (in thousands) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (3M) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (9M) | | :-------------------------------- | :-------------------------- | :-------------------------- | :---------- | :-------------------------- | :-------------------------- | :---------- | | License revenue | $0 | $0 | $0 | $346 | $0 | $346 | | Research and development expenses | $2,730 | $1,785 | $945 | $8,082 | $6,001 | $2,081 | | General and administrative expenses | $4,151 | $2,063 | $2,088 | $12,948 | $6,045 | $6,903 | | Other expense | $(71) | $(144) | $73 | $(271) | $(418) | $147 | Liquidity and Capital Resources - As of September 30, 2021, cash and cash equivalents totaled $29.9 million, which, along with $13.4 million net proceeds from a July 2021 public offering, are believed sufficient to fund obligations into 2023[170] - Future liquidity needs may be met through existing common stock purchase agreements, including up to $5.4 million remaining from the Aspire Capital agreement and $50.0 million available under the JonesTrading ATM facility[25][172][173] - The outstanding balance on the 2018 Amended SVB Loan was $2.1 million as of September 30, 2021, with future minimum principal and interest payments totaling $2.5 million over the next 24 months[177] - Operating lease obligations for the corporate headquarters totaled $1.4 million as of September 30, 2021, with future minimum lease payments of $0.3 million in the next 12 months and $0.6 million in the next 24 months[98][178] Net Cash Flow Activity (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Operating activities | $(17,457) | $(13,416) | | Investing activities | $3,961 | $0 | | Financing activities | $11,266 | $23,455 | | Decrease in cash and cash equivalents | $(2,230) | $10,039 | Funding Requirements - The Company will require additional funding beyond existing cash and equivalents to complete development and commercialization of product candidates, including envafolimab and YH001[184] - Future capital requirements are uncertain and depend on factors such as clinical trial progress, collaboration partner performance, milestone payments, regulatory outcomes, IP costs, commercialization expenses, and potential in-licensing/acquisitions[185][186] - The COVID-19 pandemic and market volatility could make future debt or equity financing more difficult, costly, and dilutive[185] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has no applicable quantitative and qualitative disclosures regarding market risk - Not applicable[186] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting - The Company's disclosure controls and procedures were effective as of September 30, 2021, ensuring timely and accurate reporting of information[188] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[189] PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is not a party to material legal proceedings, though disputes with I-Mab are ongoing as detailed in financial notes - The Company is not currently a party to any material legal proceedings[192] - Disputes and related proceedings with I-Mab are ongoing, as described in Note 6 to the Condensed Consolidated Financial Statements[192] Item 1A. Risk Factors This section outlines numerous factors that could materially and adversely affect TRACON's business, financial condition, and operations, including financial stability, clinical development, regulatory approvals, third-party reliance, intellectual property, commercialization, industry challenges, and common stock risks Risk Factors Summary - The Company has incurred losses since inception and anticipates substantial operating losses, with no assurance of achieving or sustaining profitability[194] - Substantial additional financing is required, and failure to obtain it could delay, limit, reduce, or terminate drug development efforts[194] - The COVID-19 pandemic could continue to adversely impact business, including clinical trials, supply chain, and business development activities[194] - Heavy dependence on the success of lead product candidate envafolimab, with no assurance of successful clinical development or regulatory approval[194] - Reliance on corporate partners (3D Medicines, Alphamab, Eucure, Biocytogen, I-Mab) for product candidate advancement, with risks if partners fail to perform or if disputes arise[194][195] - Risks related to maintaining and protecting intellectual property rights, including licenses under collaboration agreements[194] - Intense competition and rapid technological change from competitors developing more advanced or effective therapies[194] Risks Related to our Financial Position and Need for Additional Capital - The Company has an accumulated deficit of $200.1 million as of September 30, 2021, and expects to continue incurring substantial operating losses for the foreseeable future[196] - Substantial additional financing is required to fund increasing R&D expenses, particularly for the ENVASARC trial and planned YH001 Phase 1/2 trial, with current cash expected to last into 2023[198][199] - Failure to raise additional capital on acceptable terms could force delays, scaling back, or discontinuation of drug development efforts, materially harming the business[203] - Raising additional capital through equity or convertible debt will dilute existing stockholders, while debt financing may impose restrictive covenants[204] - The loan agreement with Silicon Valley Bank (SVB) contains restrictive covenants and could require immediate repayment if an event of default occurs, including a material adverse change[205][208] Risks Related to Clinical Development and Regulatory Approval of Product Candidates - The strategy for accelerated approval of envafolimab in UPS/MFS relies on significantly higher response rates than existing therapies; failure to achieve this could delay or prevent approval[209] - Developing product candidates in combination with other therapies (e.g., envafolimab with ipilimumab, YH001 with envafolimab) introduces additional risks, including patient tolerability, regulatory approval revocation, and supply issues[210][211] - Clinical development is lengthy, expensive, and uncertain, with failures possible at any stage due to design flaws, manufacturing issues, or lack of safety/efficacy[212] - Interim, topline, and preliminary data from clinical trials are subject to change as more data become available and may not be predictive of final results, potentially harming business prospects[215][216][217] - Clinical trials are prone to delays from various causes, including funding, regulatory approvals, patient enrollment, and the ongoing COVID-19 pandemic, increasing costs and jeopardizing regulatory approval[218][219][220] - Product candidates may cause adverse events (AEs), such as immune-related toxicities with envafolimab or anemia with TRC102, which could delay or prevent regulatory approval or limit market acceptance[221][222] - The FDA and foreign regulatory approval processes are lengthy, unpredictable, and may result in approvals for limited indications, unapproved pricing, or post-marketing requirements[225][227] - Disruptions at regulatory agencies (e.g., FDA) due to funding shortages or global health concerns like COVID-19 could negatively impact review and approval timelines[229][231] - Seeking accelerated approval pathways (e.g., for envafolimab) carries risks, as such approval is not guaranteed, may require additional trials, and can be withdrawn if confirmatory trials fail[232][233] - Orphan Drug Designation (ODD) for TRC102 and envafolimab does not guarantee faster approval or market exclusivity, as other drugs can be approved for the same condition or the designation can be lost[235][236][237][238] - Obtaining regulatory approval in one jurisdiction does not guarantee approval in others, and foreign regulatory processes can be more complex and time-consuming[241][242] - Post-approval, products are subject to ongoing regulatory obligations and review, with potential penalties for non-compliance or unanticipated problems[244] Risks Related to Our Reliance on Third Parties - The Company relies on third-party manufacturers for product candidates, facing risks of delays, capacity shortages, and non-compliance with cGMP requirements, which could impair clinical trials or commercialization[246][247][248][249][251] - Dependence on NCI and Case Western for TRC102 clinical development means their cessation of support or issues with their trial design/execution could limit TRACON's ability to advance the candidate[252][253] - Reliance on 3D Medicines/Alphamab (envafolimab) and Eucure/Biocytogen (YH001) for critical activities (manufacturing, CMC, IP) means their failure to perform or actions in non-licensed indications could negatively impact TRACON's development and commercialization[255][256] - Ongoing disputes with I-Mab regarding TJ004309 and bispecific agreements could limit TRACON's ability to realize value from these programs and license new candidates[258] - Failure to establish and maintain additional collaborations could limit pipeline expansion and the ability to leverage clinical development capabilities[259] - Reliance on third parties for preclinical studies and clinical trials exposes the Company to risks of non-compliance with cGCPs, data integrity issues, and delays, which could extend or terminate development[260][261] Risks Related to Our Intellectual Property - Inability to obtain or protect intellectual property rights (patents, trade secrets) could allow competitors to use technologies, harming business and profitability[263] - The patent position in biotechnology is uncertain; patents may not issue, be broad enough, or be challenged/invalidated, impairing competition[264][265] - The Leahy-Smith America Invents Act's shift to a 'first-to-file' system and other changes could increase costs and uncertainties in patent prosecution and enforcement[267] - Dependence on licensors (Eucure, Biocytogen, 3D Medicines, Alphamab, I-Mab) to prosecute and maintain patents means their failure to do so could adversely impact TRACON's licensed IP rights[271][273] - Third-party claims of intellectual property infringement or misappropriation could lead to substantial expenses, damages, or force delays/cessation of development and commercialization efforts[274][276][277][279] - Inability to protect IP rights globally due to varying laws and enforcement strengths could allow competitors to use technologies in other jurisdictions[289][290] - Failure to comply with procedural, document submission, and fee payment requirements for patents could lead to loss of patent rights[292] Risks Related to Commercialization of Product Candidates - Even with regulatory approval, product candidates may not gain market acceptance among physicians, patients, hospitals, and payors due to factors like clinical indications, perceived advantages, side effects, and cost[293][294] - Off-label use of competitor drugs (e.g., Keytruda in UPS/MFS, ipilimumab) could adversely impact peak sales of TRACON's approved product candidates like envafolimab and YH001[295] - The Company faces intense competition from larger pharmaceutical companies and rapid technological change, potentially leading to more effective or cheaper competitor products or biosimilars[296][297][300] - Coverage and adequate reimbursement from third-party payors are critical for product sales; limited or unavailable reimbursement could hinder profitability[302][303][304] - Healthcare legislative reform measures (e.g., ACA, drug pricing scrutiny) could adversely affect business and profitability by reducing reimbursement or imposing price controls[306][308][309] - International operations expose the Company to risks such as differing regulatory requirements, reimbursement regimes, intellectual property protection, and economic/political instability[311] Risks Related to Our Business and Industry - Lack of internal drug discovery capabilities means the Company relies on acquiring or in-licensing product candidates; failure to do so could limit business and prospects[312] - The Company and its partners are subject to extensive federal, state, and foreign healthcare regulations (e.g., anti-kickback, false claims, HIPAA, GDPR); non-compliance could result in significant penalties and harm business[315][318][319][320] - Potential product liability claims from clinical trials or product sales could result in substantial liability, costs, and reputational harm, potentially exceeding insurance coverage[321][322][323] - The ability to use net operating loss (NOL) carryforwards and other tax attributes may be limited by ownership changes (Sections 382 and 383 of the Code) or state legislation, potentially increasing future tax obligations[324] - New or future changes to tax laws, including potential modifications to the Tax Act, could materially adversely affect the Company's business operations and financial performance[325] - The COVID-19 pandemic continues to adversely impact business operations, including delays in clinical trials, disruptions to the supply chain, limitations on employee resources, and volatility in financial markets[326][327][328][329][330][332] Risks Related to Our Common Stock - The market price of the common stock is highly volatile, influenced by clinical trial results, funding, regulatory decisions, competition, and broader market factors, potentially leading to significant fluctuations[333][334][335] - Failure to meet Nasdaq listing requirements (e.g., minimum bid price, stockholders' equity) could result in delisting, adversely affecting liquidity and market price[336][337][338] - Future sales and issuances of common stock or rights to purchase common stock will result in additional dilution of existing stockholders' ownership and could cause the stock price to fall[339] - The Company does not intend to pay dividends on its common stock, limiting stockholder returns to stock appreciation[340] - Provisions in the Company's charter documents and Delaware law (e.g., 'blank check' preferred stock, staggered board, limitations on stockholder action) could make it more difficult or costly for a third party to acquire the Company[341][342][343] General Risk Factors - Internal computer systems or those of third parties are vulnerable to failures or security breaches, risking sensitive data exposure, operational disruptions, and increased costs[344] - Failure to maintain an effective system of internal control over financial reporting could lead to inaccurate financial reports, fraud, and loss of investor confidence[345] - Other business disruptions, such as natural disasters, power shortages, or government shutdowns, could seriously harm future revenue and financial condition[346][347] - The Company is at risk of securities class action litigation, which could result in substantial costs and diversion of management's attention[348] - Confidentiality agreements may not prevent unauthorized disclosure of trade secrets and proprietary information, potentially impairing competitive position[349][350] - Failure to attract and retain senior management and key clinical operations/regulatory personnel could impede product development and business strategy execution[351][352] - Employees, contractors, and partners may engage in misconduct or illegal activities, leading to regulatory sanctions, reputational harm, and financial penalties[353][354] - Difficulties in managing growth and expanding operations successfully could prevent the Company from achieving its goals[355] - Liability for damages may arise if third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law[356] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[357] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - None[358] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Not applicable[359] Item 5. Other Information No other information is reported - None[360] Item 6. Exhibits All exhibits filed as part of the Form 10-Q are listed, including corporate documents, securities purchase agreements, and collaboration agreements - Key exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, various Securities Purchase Agreements, and the Collaborative Development and Commercialization Agreement with Eucure and Biocytogen dated October 8, 2021[362] Signatures Duly authorized signatures of TRACON Pharmaceuticals, Inc.'s principal executive and financial officers are included - The report is signed by Charles P. Theuer, M.D., Ph.D., President and Chief Executive Officer, and Scott B. Brown, CPA, Chief Financial Officer[368]