TRACON Pharmaceuticals
Annual Report 2015

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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, 2015 ☐☐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 ofIncorporation or Organization) (IRS EmployerIdentification No.) 8910 University Center Lane, Suite 700,San Diego CA 92122(Address of Principal Executive Offices) (Zip Code) (858) 550-0780(Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per share The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒. Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to thebest of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10‑K. ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐(Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ As of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’scommon stock held by non-affiliates of the registrant was approximately $80.9 million, based on the closing price of the registrant’s common stock on theNASDAQ Global Market on June 30, 2015 of $11.33 per share. The number of outstanding shares of the registrant’s common stock as of February 12, 2016 was 12,185,242. Table of ContentsTRACON Pharmaceuticals, Inc. FORM 10-K — ANNUAL REPORTFor the Fiscal Year Ended December 31, 2015 TABLE OF CONTENTS PART I 3 Item 1. Business4 Item 1A. Risk Factors52 Item 1B. Unresolved Staff Comments82 Item 2. Properties82 Item 3. Legal Proceedings82 Item 4. Mine Safety Disclosures82 PART II 82 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities82 Item 6. Selected Financial Data83 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations85 Item 7A. Quantitative and Qualitative Disclosures About Market Risk100 Item 8. Financial Statements and Supplementary Data101 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure123 Item 9A. Controls and Procedures123 Item 9B. Other Information124 PART III 125 Item 10. Directors, Executive Officers and Corporate Governance125 Item 11. Executive Compensation133 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters145 Item 13. Certain Relationships and Related Transactions, and Director Independence149 Item 14. Principal Accounting Fees and Services151 PART IV 152 Item 15. Exhibits, Financial Statement Schedules152 Signatures 156 2 Table of ContentsPART I Forward-Looking Statements This Annual Report on Form 10-K, or this Annual Report, including the sections entitled “Summary,” “Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” containsforward-looking statements. We may, in some cases, use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,”“intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, andsimilar expressions that convey uncertainty of future events or outcomes, to identify these forward-looking statements. Anystatements contained herein that are not statements of historical facts may be deemed to be forward-looking statements.Forward-looking statements in this Annual Report include, but are not limited to, statements about: ·the success, cost and timing of results of our and our collaborators’ ongoing clinical trials; ·our and our collaborators’ plans to develop and commercialize our product candidates; ·the potential benefits of our collaboration arrangements and our ability to enter into additional collaborationarrangements; ·our regulatory strategy and potential benefits associated therewith; ·the timing of, and our ability to, obtain and maintain regulatory approvals for our product candidates; ·the rate and degree of market acceptance and clinical utility of any approved product candidate; ·the success of competing products that are or may become available; ·the size and growth potential of the markets for our product candidates, and our ability to serve those markets; ·our commercialization, marketing and manufacturing capabilities and strategy; ·our intellectual property position; ·our estimates regarding expenses, future revenues, capital requirements, the sufficiency of our current andexpected cash resources, and our need for additional financing; and ·our ability to realize the anticipated benefits associated with our capital efficiency focused initiatives. These forward-looking statements reflect our management’s beliefs and views with respect to future events and arebased on estimates and assumptions as of the date of this Annual Report and are subject to risks and uncertainties. We discussmany of these risks in greater detail under “Risk Factors.” Moreover, we operate in a very competitive and rapidly changingenvironment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assessthe impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual resultsto differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, youshould not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this Annual Report by these cautionary statements. Except asrequired by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of newinformation, future events or otherwise.3 Table of ContentsItem 1.Business. Overview We are a clinical stage biopharmaceutical company focused on the development and commercialization of novel targetedtherapeutics for cancer, wet age-related macular degeneration, or wet AMD, and fibrotic diseases. We are a leader in the fieldof endoglin biology and are using our expertise to develop antibodies that bind to the endoglin receptor. Endoglin isessential to angiogenesis, the process of new blood vessel formation, and a key contributor to the development of fibrosis, ortissue scarring. Our lead product candidate, TRC105, is an endoglin antibody that is being developed for the treatment ofmultiple solid tumor types in combination with inhibitors of the vascular endothelial growth factor, or VEGF, pathway. TheVEGF pathway regulates vascular development in the embryo, or vasculogenesis, and angiogenesis. TRC105 has beenstudied in six completed Phase 2 clinical trials and three completed Phase 1 clinical trials, and is currently being dosed infive Phase 2 clinical trials (hereafter referred to as ongoing clinical trials). Interim data from these trials have shownencouraging rates of durable complete responses in angiosarcoma and choriocarcinoma, cancers types that qualify for orphandrug designation and also highly express endoglin. We expect to initiate a Phase 3 trial in angiosarcoma and a multicenterPhase 2 trial in gestational trophoblastic neoplasia, or GTN, that includes choriocarcinoma and could be registrationenabling, in 2016. Furthermore, we expect topline data in all of the ongoing TRC105 clinical trials by the end of 2016 and, ifresults are positive, we expect to initiate additional Phase 3 clinical trials for one or more indications of soft tissue sarcoma,renal cell carcinoma, glioblastoma, and hepatocellular carcinoma. We believe treatment with TRC105 in combination with VEGF inhibitors may improve survival in cancer patientswhen compared to treatment with a VEGF inhibitor alone. In initial clinical trials of more than 400 patients, TRC105 hasshown good tolerability and promising anti-tumor activity, particularly in combination with VEGF inhibitors. Clinical trialresults of TRC105 in combination with VEGF inhibitors include the following: ·Data were published in Clinical Cancer Research in 2014 from a Phase 1/2 clinical trial of TRC105 with Avastin(bevacizumab), a VEGF antibody, that primarily enrolled patients with colorectal and ovarian cancer whose cancerhad progressed on prior Avastin treatment. The combination demonstrated anti-tumor activity in the trial.Specifically, of 25 evaluable patients treated previously with VEGF inhibitors, 16 patients (64%) had stable disease,and ten patients (40%) had partial responses as measured by Choi criteria. Six responding patients who had beentreated with prior VEGF inhibitors (24%) remained without cancer progression longer than during their prior VEGFinhibitor therapy, and were therefore considered to have durable responses. ·Data were presented from the ascending dose portion of a Phase 2 clinical trial of TRC105 with Inlyta (axitinib) inpatients with renal cell carcinoma at the Genitourinary Cancers Symposium of the American Society of ClinicalOncology (ASCO) conference in February 2015 and at the Kidney Cancer Association annual meeting in November2015. The combination was well-tolerated and dose limiting toxicity was not observed. Five of 17 patients (29%)demonstrated partial responses by Response Evaluation Criteria in Solid Tumors 1.1, or RECIST 1.1. Final medianprogression free survival, or PFS, was 8.4 months in all patients and 9.6 months in patients with clear cell renal cellcarcinoma. Based on a Phase 3 trial of Inlyta, the expected median progression-free survival of patients with clearcell renal cell carcinoma treated with Inlyta who progressed following treatment with only one prior inhibitor of theVEGF pathway is 4.8 months. ·Data were presented from the ascending dose portion of a Phase 2 clinical trial of TRC105 with Nexavar (sorafenib)being conducted at the National Cancer Institute (NCI) in patients with hepatocellular carcinoma at the ASCOannual meeting in June 2015. Four of the ten patients (40%) with measurable disease treated at recommendedPhase 2 doses of TRC105 (10 mg/kg or 15 mg/kg dosed once every two weeks) demonstrated partial responses byRECIST 1.1, in a setting where the expected partial response rate of Nexavar alone is 2%. We plan to initiate dosingin a multicenter Phase 1/2 study of TRC105 in hepatocellular carcinoma in the first half of 2016. ·Data were presented from the ascending dose portion of a Phase 2 clinical trial of TRC105 with Votrient (pazopanib)in patients with advanced soft tissue sarcoma at the ASCO annual meeting in June 2015 and4 Table of Contentsupdated in an oral presentation at the Connective Tissue Oncology Society annual meeting in November 2015. ·18 patients were treated with the combination of TRC105 given once weekly (8 mg/kg or 10 mg/kg) and Votrient at its approved dose of 800 mg per day. The combination was well-tolerated and dose limiting toxicitywas not observed. The Phase 2 portion of the study completed enrollment of 63 additional patients and top-line data indicate that the unstratified median PFS (3.9 months) is similar to the PFS expected for Votrientalone, based on data from the Votrient PALETTE Phase 3 trial in soft tissue sarcoma. We expect to report data on the prospectively defined secondary endpoint of PFS stratified by sarcoma histology, including inpatients with angiosarcoma, and stratified by tumor endoglin expression in mid-2016. All five patients with angiosarcoma, a sarcoma subtype that highly expresses endoglin, enrolled in the trial had reductions intumor burden, median PFS to date is at least 9.3 months, and two of these five patients have durable complete responses to treatment that are ongoing at 45 and 75 weeks of treatment. We have amended the study toenroll an additional cohort of 13 patients with angiosarcoma. In addition, a patient with undifferentiated pleomorphic sarcoma has an ongoing durable complete response at 51 weeks of treatment. For comparison,there were no complete responses in sarcoma patients treated with Votrient (n=246) in the Votrient PALETTE Phase 3 trial. A Phase 3 study in angiosarcoma is planned, and stratification of PFS in the Phase 2 trial bytumor endoglin expression may identify other sarcoma histologies that are more likely to respond to treatment with TRC105. ·Data were presented from a single patient Phase 2 clinical trial of TRC105 with Avastin in a patientwith refractory and unresectable metastatic choriocarcinoma, a form of GTN, that had recurred despite five prior chemotherapy regimens andautologous stem cell transplant, at the 18th World Congress on Gestational Trophoblastic Diseases in September 2015.The patient was treated with TRC105 dosed 10 mg/kg weekly in combination with Avastin dosed 10 mg/kg every other week. Atthe time of the presentation, the patient had completed 7 cycles (28 weeks) of treatment. Beta human chorionic gonadotropin (β-hCG), a knownand reliable marker of disease burden in choriocarcinoma, normalized during the fourth cycle of treatment, indicating a complete response,which is ongoing at 12 months after enrollment. A second patient, also with refractory and unresectable metastatic choriocarcinoma, wastreated with TRC105 and Avastin and did not respond to treatment. We plan to initiate an international multicenter Phase 2 clinical trial ofTRC105 in GTN, including choriocarcinoma, in the first half of 2016, with the primary endpoint expected to be overall response rate inpatients with refractory GTN. 5 Table of ContentsThe following chart summarizes key information regarding ongoing and planned development of our TRC105product candidate: We are developing TRC105 for use in combination with agents that inhibit angiogenesis by targeting the VEGFpathway. VEGF, like endoglin, is required for angiogenesis. While multiple VEGF inhibitors have been approved and haveachieved commercial success, nearly all cancer patients develop resistance to this class of treatment and many do not respondat the onset. Targeting endoglin concurrently with the VEGF pathway has been shown to improve angiogenesis inhibitionand the treatment of cancer in preclinical models. TRC105 binds to the endoglin receptor at a precise location to inhibitendothelial cell activation and angiogenesis. Certain manufacturers of approved VEGF inhibitors that we are studying incombination with TRC105 have agreed to supply their drug at no cost for use in the applicable clinical trials. Our TRC105 oncology clinical development plan is broad and involves a tiered approach. We are initially focusedon two orphan indications, GTN and angiosarcoma, that highly express endoglin, and therefore may be more responsive totreatment with TRC105. The next tier of development includes ongoing Phase 2 trials in renal cell carcinoma, glioblastoma,and hepatocellular carcinoma that are expected to produce top-line data in 2016, and that, if positive, may enable Phase 3development. We consider these indications attractive because the endpoints for regulatory approval may be attained morequickly than the endpoints for other indications. We also expect that these initial indications would be for the same lines oftreatment for which the companion VEGF inhibitor is approved. Finally, the third tier of development includes largeindications. We plan to initiate dosing in a Phase 1b trial in lung cancer and a Phase 1b/2a trial in breast cancer, in 2016 that,if positive, would enable further development. We have also collaborated with the NCI, which has selected TRC105 for federal funding of clinical development.Under these collaborations, NCI has sponsored or is sponsoring six completed or ongoing clinical trials of TRC105. Ifmerited by Phase 2 data, we expect to fund initial Phase 3 clinical trials of TRC105, and, based on NCI’s past course ofconduct with similarly situated pharmaceutical companies in which it has sponsored pivotal clinical trials following receiptof positive Phase 2 data, we expect that Phase 3 clinical trials of TRC105 in additional indications6 Table of Contentscould be sponsored by NCI. We have produced formulations of TRC105 for development in ophthalmology, which are initially beingdeveloped for the treatment of wet AMD, the leading cause of blindness in the Western world. In March 2014, Santenlicensed from us exclusive worldwide rights to develop and commercialize our endoglin antibodies, including TRC105, forophthalmology indications. We retain global rights to develop our endoglin antibodies outside of the field ofophthalmology. In June 2015, Santen filed an Investigational New Drug, or IND, Application with the U.S. Food and Drug Administration, orFDA, for the initiation of clinical studies for DE-122 in patients with wet AMD. DE-122 is the ophthalmic formulation of TRC105.A Phase 1 trial is recruiting patients with wet AMD, including patients receiving a VEGF inhibitor. The IND filing forDE-122 triggered a $3.0 million milestone payment which we received in July, 2015. TRC205, a humanized, deimmunized endoglin antibody, is being developed for the treatment of fibrotic diseases.Diseases characterized by fibrosis, the harmful buildup of excessive fibrous tissue from cells, including the fibroblast, thatleads to scarring and ultimately organ failure, include nonalcoholic steatohepatitis, or NASH, idiopathic pulmonary fibrosis,or IPF, renal fibrosis, cardiac fibrosis and scleroderma. Clinical data demonstrated increased endoglin expression onfibroblasts in patients with heart failure and inhibiting endoglin reduced cardiac fibrosis, preserved heart function andimproved survival in mouse models of heart failure. Subsequent preclinical research in mouse models indicated thatantibodies to endoglin inhibit cardiac, liver, and pulmonary fibrosis. These findings indicate endoglin’s importance incardiac, lung and liver fibrosis, and we believe these findings may be applicable to multiple fibrotic diseases, includingNASH, IPF, myelofibrosis and other indications. We are also developing TRC102, a small molecule that is in clinical development for the treatment of lung cancerand glioblastoma. TRC102 is an inhibitor of DNA repair intended to reverse resistance to chemotherapy, including approveddrugs used in the treatment of lung cancer and glioblastoma. In initial clinical trials of more than 100 patients, TRC102 hasshown good tolerability and promising anti-tumor activity, in combination with alkylating and antimetabolitechemotherapy. Clinical trial results of TRC102 in combination with chemotherapy include the following: ·Data from a Phase 1 clinical trial of TRC102 in combination with Alimta (pemetrexed), a chemotherapy drugapproved for the treatment of lung cancer and mesothelioma, was published in Investigational New Drugs in2012. The dose limiting toxicity of TRC102 was anemia, as predicted by preclinical models, and TRC102 didnot appear to increase toxicities associated withAlimta. There were no pharmacokinetic interactions between the two drugs, TRC102 target concentrations were achieved, and DNA repair was inhibited. Patients who received TRC102 atits maximum tolerated dose with Alimta demonstrated reduction in tumor masses, including partial response,and lung cancer patients with squamous histology, a tumor type resistant to Alimta treatment, demonstratedstable disease. ·Data from a trial of intravenous TRC102 given in combination with the approved chemotherapy drug Fludara (fludarabine) in a Phase 1 clinical trialsponsored by Case Western Reserve University, or Case Western, were presented at the American Society for Hematology, or ASH, annual meeting inDecember 2014. The combination of TRC102 and Fludarawas well tolerated, there were no pharmacokinetic interactions between the two drugs, and TRC102 target concentrations were achieved. Antitumor activity,including partial response, was noted in patients with lymphoma and chronic lymphocytic leukemia, including in patients treated previously with Fludara. ·Data from a trial of TRC102 given orally in combination with the approved chemotherapy drug Temodar (temozolomide) in a Phase 1clinical trial sponsored by NCI were presented at the American Association for Cancer Research, or AACR, annual meeting in April2015. The combination of TRC102 and Temodar was well tolerated, there were no pharmacokinetic interactions between the two drugs,and TRC102 target concentrations were achieved. Partial response was noted in patients with ovarian cancer and squamous cell lungcancer. ·Data from a trial of TRC102 given intravenously in combination with Temodar in a Phase 1 clinical trialsponsored by Case Western were presented at the ASCO annual meeting in June 2015. The combination 7 Table of Contentsof TRC102 and Temodar was well tolerated, there were no pharmacokinetic interactions between the two drugs and TRC102 target concentrations were achieved. Anti-tumor activity was noted in patients with ovarian cancer and neuroendocrine tumors. The following chart summarizes key information regarding ongoing and planned development of our TRC102product candidate: TRC102 has begun Phase 2 development through two Phase 2 trials sponsored by the NCI; one that combinesTRC102 with Alimta in patients with mesothelioma and one that combines TRC102 with Temodar in patients withglioblastoma. A Phase 1b trial sponsored by the NCI that combines TRC102 with Alimta and cisplatin in patients with solidtumors has also been initiated, and we expect NCI to sponsor an additional Phase 1 clinical trial of TRC102 withchemotherapy and radiation therapy in lung cancer. We retain global rights to develop TRC102. If merited by Phase 2 data,we expect to fund initial Phase 3 clinical trials and, based on NCI’s past course of conduct with similarly situatedpharmaceutical companies in which it has sponsored pivotal clinical trials following receipt of positive Phase 2 data, weexpect that Phase 3 clinical trials in additional indications could be sponsored by NCI. We operate a clinical development model that emphasizes capital efficiency. Our experienced clinical operationsand regulatory affairs groups are responsible for significant aspects of our clinical trials, including site monitoring, regulatorycompliance, database management and clinical study report preparation. We use this internal resource to eliminate the costassociated with hiring contract research organizations, or CROs, to manage clinical, regulatory and database aspects of thePhase 1 and Phase 2 clinical trials that we sponsor in the United States. In our experience, this model has resulted in capitalefficiencies and improved communication with clinical trial sites, which expedites patient enrollment and access to patientdata as compared to a CRO-managed model, and we plan to leverage this capital efficient model for future productdevelopment. We received orphan drug designation from the FDA for TRC105 for the treatment of soft tissue sarcoma in January2016 and have applied for orphan drug designation for TRC105 for the treatment of GTN. We also expect to apply for orphandrug designation for TRC102 for the treatment of glioblastoma and mesothelioma. If granted, orphan drug designation mayprovide financial incentives, such as opportunities for grant funding towards clinical trial costs, tax advantages and FDAuser-fee waivers, as well as the potential for a period of market exclusivity. In addition, we were granted FDA Fast Trackdesignation for TRC105 for the treatment of renal cell carcinoma and intend to seek appropriate expedited developmentprogram designation for all of our eligible product candidates. Fast Track and other expedited programs for seriousconditions are procedures designed to facilitate the development and expedite the FDA’s review of drugs to treat seriousconditions and fill unmet medical needs. However, there is no guarantee that we will receive or be able to maintain thesedesignations or realize the related potential benefits. For example, even if we do receive Fast Track designation, we may notexperience a faster development process, review or approval compared to conventional FDA procedures. 8 Table of ContentsOur Strategy Our goal is to be a leader in the development of targeted therapies for patients with cancer and other diseases of highunmet medical need. As key components of our strategy, we intend to: ·Focus the initial tier of clinical development of TRC105 on orphan oncology indications that highly expressendoglin and have demonstrated durable complete responses to treatment, and have potential reduced time toregulatory approval. We plan to initiate Phase 3 development of TRC105 in angiosarcoma, a type of soft tissuesarcoma that highly expresses endoglin, in combination with the approved VEGF inhibitor Votrient, and toinitiate an international multicenter Phase 2 clinical trial of TRC105 as a single agent and in combination withAvastin in GTN, that could be registration enabling, in 2016. The FDA has granted approval for drugs in softtissue sarcoma based on progression-free survival, or the time a patient lived without the cancer progressing,rather than overall survival. A progression-free survival primary endpoint can be achieved sooner than anoverall survival endpoint, thereby reducing the time to complete clinical trials and submit applications forregulatory approval. In the case of GTN, response can be reliably assessed by serum β-hCG, a known andreliable marker of disease burden, and we expect that regulatory approval would be based on overall responserate in a single arm trial. ·Focus the second tier of clinical development of TRC105 on oncology indications that have potential reducedtime to regulatory approval. We plan to continue ongoing Phase 2 development of TRC105 in combinationwith approved VEGF inhibitors in the oncology indications of soft tissue sarcoma, renal cell carcinoma,glioblastoma, and hepatocellular carcinoma, each of which is associated with reduced time to achieve theendpoints necessary for regulatory approval, with the goal of enabling one or more Phase 3 clinical trials inthese indications. The FDA has granted approval for drugs in soft tissue sarcoma and renal cell carcinoma basedon a primary endpoint of progression-free survival, rather than overall survival. Although the endpoint forapproval for glioblastoma and hepatocellular carcinoma is overall survival, this endpoint is typically reachedsooner for glioblastoma and hepatocellular carcinoma than for many other solid tumors. ·Focus the third tier of clinical development of TRC105 on large market oncology indications. To maximizethe commercial opportunity of TRC105, we intend to continue developing TRC105 in additional oncologyindications with large patient populations. We plan to initiate dosing in a Phase 1 trial of TRC105 incombination with chemotherapy and Avastin in lung cancer, and in a Phase 1/2 trial of TRC105 with Afinitor(everolimus) and Femara (letrozole) in breast cancer in the first half of 2016. We expect top-line data in theselarge indications in 2017 that, if positive, would enable further development. ·Continue to leverage our collaborative relationship with NCI to accelerate and broaden development ofTRC105 and TRC102. Our collaboration with NCI allows us to pursue more indications with our assets than wewould otherwise be able to pursue on our own. We anticipate that NCI will complete ongoing Phase 2 clinicaltrials of TRC105 and TRC102 and may initiate other Phase 2 clinical trials in addition to the Phase 2 clinicaltrials of TRC105 that we are sponsoring. If merited by Phase 2 data, we expect to fund initial Phase 3 clinicaltrials of TRC105 and TRC102 and, based on NCI’s past course of conduct with similarly situatedpharmaceutical companies in which it has sponsored pivotal clinical trials following receipt of positive Phase 2data, we anticipate that NCI will sponsor Phase 3 clinical trials in additional indications. ·Support Santen during preclinical and clinical development to advance DE-122 in wet AMD. We are usingour expertise in the development of endoglin antibodies to assist Santen in the development of DE-122. Santenfiled an IND in June 2015 for the development of DE-122 and began recruiting wet AMD patients into a Phase 1trial of DE-122 in 2015. ·Continue preclinical studies of TRC205 in fibrotic diseases. TRC205, a humanized and deimmunizedendoglin antibody, is our lead product candidate for the treatment of fibrotic diseases, including NASH and IPF,each of which presents a large commercial opportunity. We expect to complete testing of TRC205 in9 Table of Contentspreclinical fibrosis models, including a preclinical model of NASH, in 2016. Positive preclinical data may allow for INDenabling manufacturing activities and additional preclinical studies to begin in 2016 either alone or through a corporatepartnership. ·Leverage internal capabilities to advance other programs efficiently and cost effectively through clinicaldevelopment. We have assembled a management team that has contributed to the approval of seventherapeutics, including VEGF inhibitors in cancer and in wet AMD, and that has core competencies relating toclinical operations and regulatory affairs. We expect to continue to benefit from these capabilities through thedevelopment of additional early and mid-stage product candidates, both from internal programs and potentialin-licensed programs. Rationale for Developing Endoglin Antibodies to Treat Cancer, Wet AMD and Fibrotic Diseases We focus on developing antibodies that target the endoglin receptor. Endoglin is a protein that is overexpressed onendothelial cells, the cells that line the interior surface of blood vessels, when they experience hypoxia, which is a conditioncharacterized by inadequate oxygen supply. Endoglin allows endothelial cells to proliferate in a hypoxic environment and isrequired for angiogenesis. These properties render endoglin an attractive target for the treatment of diseases that requireangiogenesis, including solid cancers and wet AMD, especially in combination with VEGF inhibitors. Endoglin is alsoexpressed on fibroblasts, the cells that mediate fibrosis, and is a key contributor to the development of fibrosis. Inhibitingendoglin limits transforming growth factor beta, or TGF-β, signaling and production of fibrotic proteins by human cardiacfibroblasts. Endoglin antibodies have inhibited fibrosis in mouse models of cardiac and liver fibrosis. Inhibiting Angiogenesis to Limit Tumor Growth and Treat Wet AMD The progressive growth of solid cancers to clinically recognized sizes requires angiogenesis. Similarly, abnormalangiogenesis causes wet AMD. Thus, inhibition of angiogenesis is an effective strategy for the treatment of solid cancer andwet AMD. Therapies that inhibit angiogenesis are attractive for multiple reasons: ·Except for ovulation and wound healing, angiogenesis in adults is generally not necessary or desirable andotherwise only occurs in connection with an abnormal process such as tumor growth or choroidalneovascularization, the process of angiogenesis that causes wet AMD. ·Treatments that interrupt tumor angiogenesis may inhibit the growth of many solid cancers. ·Angiogenic targets are present either in the plasma or on the surface of endothelial cells, and therefore arereadily accessible to antibody treatments, in contrast to targets expressed within tumors that are more difficultfor antibodies to access. ·Angiogenic targets on endothelial cells are less prone to genetic mutation than targets expressed by geneticallyunstable cancer cells. As a result, development of resistance may be lower for agents that target endothelial cellfunctions than for those targeting cancer cells. Success and Limitations of VEGF Inhibitors Several anti-angiogenesis therapies that inhibit the VEGF pathway are currently marketed for the treatment ofcancer. The VEGF inhibitor Avastin significantly prolongs overall survival for patients with advanced colorectal cancer andlung cancer when added to chemotherapy regimens. Avastin is also an approved therapy for glioblastoma, renal cellcarcinoma, and ovarian cancer. Zaltrap (ziv-aflibercept) and Cyramza (ramucirumab), other large molecule VEGF inhibitors,are approved for the treatment of colorectal cancer and gastric cancer, colorectal cancer and lung cancer, respectively, andorally available small molecule VEGF inhibitors, including Sutent (sunitinib malate), Nexavar, Votrient, Stivarga, Cometriq(cabozantinib), Lenvima (lenvatinib) and Inlyta, have been shown to prolong survival in10 Table of Contentspatients with metastatic soft tissue sarcoma, renal cell carcinoma, hepatocellular carcinoma, neuroendocrine cancer, thyroidcancer, and colorectal cancer. Despite the clinical and commercial success of anti-angiogenesis agents that primarily targetthe VEGF pathway, nearly all cancer patients develop resistance to this class of treatment and many do not respond at theonset. According to current research, resistance to anti-angiogenic agents occurs through the emergence of escape pathwaysrather than by acquired mutations to the VEGF receptor or its ligand. We believe that the endoglin pathway serves as thedominant escape pathway that allows continued angiogenesis despite inhibition of the VEGF pathway. Specifically,inhibition of the VEGF pathway causes hypoxia, which in turn increases endoglin expression, allowing continuedangiogenesis through the endoglin pathway despite inhibition of the VEGF pathway. The Endoglin Pathway Endoglin modulates signaling of receptor complexes of the TGF-β protein family. Endoglin participates in signaltransduction mediated by TGF-β and bone morphogenic proteins, or BMP. Endoglin serves two functions through itsexpression on endothelial cells: binding of TGF-β to endoglin reinforces a static state in the endothelium, while binding ofBMP to endoglin activates the endothelial cells and promotes angiogenesis. As illustrated in the figure below, the binding of TGF-β to endoglin, as part of a receptor complex that includesactivin receptor-like kinase 5, or ALK5, and TGF-βR2, a member of the TGF-β receptor family, causes activation ofintracellular proteins that reinforce a static state in the endothelium, as shown on the left. Binding of BMP to endoglin, aspart of a receptor complex that includes ALK1 and BMPR2, a member of the BMP receptor family, on proliferatingendothelium activates proteins that override growth inhibition stimulated by TGF-β binding to endothelium, and allowsorganized endothelial proliferation, as shown on the right. Inhibition and proliferation of endothelial cells through the endoglin pathway 11 Table of ContentsTargeted inactivation of endoglin results in defective vascular development. In a preclinical study, mice embryoslacking endoglin died from the absence of angiogenesis by day 11.5. The figure below depicts endoglin immunostains ofmice embryos at day 8.5. The mouse embryo on the upper left is a normal mouse embryo, with endoglin expression indicatedby black staining. The mouse embryo on the upper right had both copies of the endoglin gene inactivated, and a lack ofendoglin expression is indicated by the absence of black staining. Photomicrographs of the mice embryos at day 10.5 showdeveloped vasculature in normal mice (bottom left) and pockets of red blood cells without discernible vessels in endoglin-deficient mice (bottom right). Targeted inactivation of mouse endoglin resulting in defective vascular development Normal Mouse—Day 8.5 Endoglin-Deficient Mouse—Day 8.5 Normal Mouse—Day 10.5 Endoglin-Deficient Mouse—Day 10.5 Endoglin has also been shown to be critical for normal blood vessel development in humans. For example, theinheritance of one normal copy and one abnormal copy of the endoglin gene results in diminished endoglin function andcauses Osler-Weber-Rendu syndrome, a rare disease characterized by dilated small blood vessels of the skin and mucosalsurfaces that cause nosebleeds, typically beginning in the second decade of life. Compared to patients with a normalcomplement of endoglin genes, patients with Osler-Weber-Rendu syndrome have improved overall cancer survival, with areported 31% reduced risk of death following cancer diagnosis, after controlling for known prognostic factors. Endoglin is highly overexpressed on the membrane of proliferating endothelial cells in tumor vessels. A high levelof endoglin expression has been associated with poor prognosis in patients with substantially all solid tumor types,including the following: Colorectal cancer Endometrial cancer Esophageal cancer Gastric cancer Glioblastoma Head and neck cancer Lung cancer Ovarian cancer Prostate cancer Renal cell carcinoma Soft tissue sarcoma 12 Table of Contents· Breast cancer · Colorectal cancer · Endometrial cancer · Esophageal cancer · Gastric cancer · Glioblastoma · Head and neck cancer · Hepatocellular carcinoma · Lung cancer · Ovarian cancer · Prostate cancer · Renal cell carcinoma · Soft tissue sarcoma Targeting the Endoglin Pathway to Address Limitations of VEGF Inhibitors Preclinical studies indicate that endoglin expression promotes resistance to inhibition of the VEGF pathway,suggesting that targeting the endoglin pathway in addition to the VEGF pathway may be a more effective means to inhibitangiogenesis in tumors than targeting the VEGF pathway alone, particularly given the frequent development of resistance toVEGF inhibitors. For example, in a preclinical model of human pancreatic cancer, endoglin expression within tumorsincreased following treatment with a VEGF inhibitor. Further studies indicated that the endoglin ligand TGF-β, whichinhibits angiogenesis, was the most highly overexpressed protein (over 16-fold increased expression, whereas no otherprotein was more than four-fold elevated) in pancreatic cancers from mice treated with a VEGF inhibitor. Unlike the endoglinpathway, many angiogenic pathways were not affected by VEGF inhibition, indicating that these pathways are unlikely tomediate escape from VEGF inhibition. Proteins that were not elevated included the angiopoietins, a family of angiogenicfactors that are distinct from endoglin and VEGF. Consistent with this observation, therapies targeting the angiopoietinshave not demonstrated anti-tumor activity when combined with VEGF inhibitors in clinical trials. We believe the endoglin pathway serves as the dominant escape pathway that allows continued angiogenesisdespite inhibition of the VEGF pathway. In support of this hypothesis, researchers analyzed blood vessels from humanbladder cancers implanted in mice following VEGF inhibitor treatment. Data indicated that endoglin-expressing vesselspersisted at the tumor periphery and increased within the core of the tumor, allowing continued tumor growth despitetreatment with a large molecule VEGF inhibitor. In another preclinical study, mice with a predisposition to develop tumorswere bred to have only one normal copy, rather than two normal copies, of the endoglin gene. Tumors in mice with twonormal copies of the endoglin gene exhibited resistance to large and small molecule VEGF inhibitors. This resistance was notobserved in the mice where endoglin function was inhibited by deleting one copy of the endoglin gene. Likewise, mice inwhich both copies of the endoglin gene were deleted in endothelial cells developed smaller lung tumors following treatmentwith a small molecule VEGF inhibitor, as compared to mice with normal levels of endoglin. In these models, VEGF inhibitorsdemonstrated anti-tumor activity only following inhibition of the endoglin pathway. These results illustrate the therapeuticutility of targeting both angiogenic pathways concurrently for the treatment of cancer. BMP has been identified as a key endoglin ligand that binds to the endoglin receptor to promote angiogenesis.Therefore, it is a rational drug development strategy to target the receptor with an antibody that binds more tightly toendoglin at the BMP binding site than BMP itself, thereby preventing BMP from activating endothelial cells. TRC105 is anovel human chimeric immunoglobulin G subclass 1 antibody, or IgG1, that binds to endoglin with high affinity andinhibits BMP binding to endoglin, thereby inhibiting endothelial cell activation. As expected, studies have shown thatendoglin antibodies that do not bind at the BMP binding site do not inhibit angiogenesis in preclinical models. We believe that a combination of VEGF and endoglin inhibitors may have application in wet AMD as well as anumber of oncology indications where VEGF inhibitors are currently approved by regulatory authorities. Tumor types forwhich VEGF inhibitors have been approved include colorectal cancer, gastrointestinal stromal tumor, glioblastoma,13 Table of Contentshepatocellular carcinoma, lung cancer, neuroendocrine tumors, renal cell carcinoma, soft tissue sarcoma, ovarian cancer andthyroid cancer. Anti-Angiogenesis VEGF Inhibitors in Oncology Indications Cancer is the second leading cause of death in the Western world and may affect any organ in the human body.Localized cancer is generally treated and cured with surgery. However, metastatic cancer that has spread beyond the locationwhere it started is generally incurable. Metastatic cancer is treated with chemotherapeutics or targeted agents that specificallyinhibit pathways implicated in tumor growth or angiogenesis. There are several FDA-approved anti-angiogenesis drugs that inhibit the VEGF pathway, with over $10.0 billion inreported aggregate worldwide sales in oncology in 2015. VEGF inhibitors are approved in the following oncologyindications, among others: ·Soft Tissue Sarcoma, including angiosarcoma. The American Cancer Society, or the ACS, estimates there wereapproximately 12,000 new cases of soft tissue sarcoma in the United States in 2015 with more than 4,800deaths. Localized tumors are curable, but patients with metastatic disease have a median survival ofapproximately 12 months following diagnosis. Standard systemic chemotherapy regimens are poorly toleratedand of limited usefulness with response rates of approximately 20% to 30%. Votrient, a small molecule VEGFinhibitor, was approved in the United States for the second line treatment of soft tissue sarcoma in 2013.Votrient is also approved for angiosarcoma where there are an estimated 400 cases annually in the UnitedStates. ·Renal Cell Carcinoma. The ACS estimates there were 61,560 new cases of renal cell carcinoma in the UnitedStates in 2015 with 14,080 deaths. Sutent, Nexavar and Votrient are small molecule VEGF inhibitors approvedas single agents for the first line treatment of advanced or metastatic renal cell carcinoma, Inlyta is a smallmolecule VEGF inhibitor approved for second line treatment, and Avastin is approved with interferon. Inlytawas approved in 2012 for the treatment of renal cell carcinoma, with reported global sales of $430 million in2015, compared to $410 million in 2014. ·Glioblastoma. Glioblastoma represents one of the highest unmet needs in oncology. Glioblastoma is the mostcommon and most lethal malignant brain cancer in adults. The Central Brain Tumor Registry of the UnitedStates estimates that there are about 12,000 new cases diagnosed each year in the United States. The mediansurvival following diagnosis is reported to be approximately 14 months. Avastin has been approved in theUnited States for the second line treatment of glioblastoma following cancer progression on prior therapy. ·Hepatocellular Carcinoma. The ACS estimates there were 35,660 new cases of hepatocellular carcinoma in theUnited States in 2015 with 24,550 deaths. The only drug approved in the United States for the first linetreatment of hepatocellular carcinoma is the VEGF inhibitor Nexavar. In 2014, reported global sales of Nexavarwere $1.0 billion worldwide. ·Colorectal Cancer. The ACS estimates there were 132,700 new cases of colon cancer or rectal cancer in theUnited States in 2015 with 49,700 deaths. Avastin is approved with chemotherapy for the first and second linetreatment of patients with metastatic colorectal cancer, Cyramza is approved with chemotherapy for second linetreatment of patients with metastatic colorectal cancer, and Zaltrap is approved with chemotherapy for thesecond line treatment of patients with metastatic colorectal cancer. Stivarga is approved following priortreatment with chemotherapy and VEGF inhibitors. ·Non-Small Cell Lung Cancer. The ACS estimates there were 221,200 new cases of lung cancer in the UnitedStates in 2015 with 158,040 deaths. Avastin is approved for the first line treatment of patients with locallyadvanced, recurrent, or metastatic non-squamous non-small cell lung cancer, in combination withchemotherapy and Cyramza is approved for the first line treatment of patients with metastatic non-small celllung cancer.14 Table of Contents VEGF inhibitors are also used off-label in other indications, including GTN. GTN is a form of GTD, a group of rarediseases that originate in the placenta and have the potential to locally invade the uterus and metastasize. The pathogenesisof GTD is unique because the maternal tumor arises from gestational rather than maternal tissue. The major histologic entitiesfor this disease include complete molar pregnancy, partial molar pregnancy, invasive mole, and choriocarcinoma. The termgestational trophoblastic neoplasia (GTN) is used when molar and non-molar pregnancies become malignant, and comprisethe morphologic entities of invasive mole and choriocarcinoma. Choriocarcinoma metastasizes hematogenously and canfollow any type of pregnancy, but most commonly develops after complete hydatidiform mole. The reported incidence ofGTD in the United States is about 110 to 120 per 100,000 pregnancies. The reported incidence of choriocarcinoma, the mostaggressive form of GTD, in the United States is about 2 to 7 per 100,000 pregnancies. TRC105 Development in Oncology Clinical Development Overview TRC105 is our investigational novel human chimeric IgG1 monoclonal antibody that is currently being dosedweekly or every two weeks by intravenous, or IV, infusion. Commercialized chimeric antibodies include Rituxan (rituximab),Erbitux (cetuximab) and Adcetris (brentuximab vedotin), which collectively had reported global sales of over $8.0 billion in2015. TRC105 is in five ongoing clinical trials in combination with VEGF inhibitors and has been studied in nine completedclinical trials as a single agent or with VEGF inhibitors. The following table summarizes certain key information regarding our clinical trials of TRC105 in cancer patients:Ongoing Clinical Trials of TRC105 Companion DesignPhase Indication Sponsor Treatment (Number of Patients)2* Soft tissue sarcoma TRACON Votrient Single arm (94)2* Clear cell renal cell carcinoma TRACON Inlyta Randomized (168)2* Glioblastoma NCI Avastin Randomized (98)2* Hepatocellular carcinoma NCI Nexavar Dose escalation portion and single armportion (42) total2 Choriocarcinoma TRACON Avastin Single patient (2) Open Clinical Trials of TRC105 That Have Not Yet Dosed Companion DesignPhase Indication Sponsor Treatment (Number of Patients)1/2 Breast cancer UAB Afinitor andFemara Dose escalation portion and single armportion (38) total1/2 Hepatocellular carcinoma TRACON Nexavar Dose escalation portion and single armportion (39) total1 Lung cancer TRACON Taxol,Carboplatinand Avastin Dose escalation (18) Planned Clinical Trials of TRC105 Companion DesignPhase Indication Sponsor Treatment (Number of Patients)2 GTN TRACON Avastin Single Arm (30)3 Angiosarcoma TRACON Votrient Randomized (140) 15 Table of ContentsCompleted Clinical Trials of TRC105 Companion DesignPhase Indication Sponsor Treatment (Number of Patients)1 Solid tumors TRACON None Dose escalation (50)1/2 Solid tumors TRACON Avastin Dose escalation portion and single armportion (38) total2 Glioblastoma TRACON Avastin Single arm (22)1 Breast cancer TRACON Xeloda Dose escalation (19)1 Prostate cancer NCI None Dose escalation (21)2 Bladder cancer NCI None Single arm (13)2 Hepatocellular carcinoma NCI None Single arm (11)2 Ovarian cancer TRACON None Single arm (23)2 Renal cell carcinoma (allhistologies) NCI Avastin Randomized (62)** *Each of these trials was designed with a Phase 1 open-label portion, which demonstrated that the recommended singleagent dose of TRC105 can be administered in combination with the approved dose of the companion VEGF inhibitor. **This trial was designed to randomize 88 patients, but enrollment was closed following the accrual of 62 patients after aninterim analysis concluded that the trial was unlikely to achieve the primary endpoint. Patients who were already enrolledare continuing treatment. The collective clinical data support the development of TRC105 in combination with VEGF inhibitors rather thandevelopment as a single agent. Initially, TRC105 was studied in the last line treatment setting, where patients tend to beresistant to additional treatments, but ongoing development focuses on the treatment of cancer patients with TRC105 andVEGF inhibitors in the first and second line treatment settings, where increased susceptibility to anti-angiogenic treatment isexpected. Clinical trials of TRC105 as a single agent in patients whose cancer had progressed on multiple prior therapiesindicated limited single agent activity in treatment-resistant patients with prostate cancer, metastatic bladder cancer,advanced or metastatic hepatocellular carcinoma, glioblastoma and ovarian cancer. However, single agent activity, asevidenced by progression-free survival greater than 18 months or partial response, was achieved in individual treatment-resistant patients with soft tissue sarcoma, hepatocellular carcinoma and prostate cancer. Additionally, TRC105 may be moreeffective as a single agent in tumor types known to overexpress endoglin. Ongoing Phase 2 clinical trials are assessing the activity of TRC105 with a particular VEGF inhibitor in patientswho have not previously been treated with that particular VEGF inhibitor. In general, it is expected to be more difficult toresensitize a patient whose cancer has already progressed on a prior VEGF inhibitor than it is to prevent resistance in apatient who has not previously been treated with that VEGF inhibitor. In addition, cancer progresses rapidly in some patientsfollowing treatment with a VEGF inhibitor, to the point that these patients are unavailable for subsequent therapy. Thus, webelieve the greatest potential for TRC105 will be in combination with VEGF inhibitors prior to the development ofresistance to the companion VEGF inhibitor. Ongoing Clinical Trials of TRC105 Phase 2 Clinical Trial of TRC105 with Inlyta in Patients with Clear Cell Renal Cell Carcinoma We are conducting a two-part Phase 2 clinical trial of TRC105 in combination with Inlyta, an approved VEGFinhibitor, in patients with advanced or metastatic renal cell carcinoma. We have completed enrollment of Part 1 of the trial,which is being conducted at five sites in the United States and enrolled 18 patients. Three patients were initially enrolled atan 8 mg/kg TRC105 dose level and three patients were initially enrolled at a 10 mg/kg TRC105 dose level to demonstratethat the recommended single agent dose of TRC105 of 10 mg/kg given weekly was well tolerated when administered withthe approved single agent dose of Inlyta. Twelve additional patients were then enrolled at the16 Table of Contents10 mg/kg TRC105 dose level with the approved single agent dose of Inlyta. Part 1 of the trial has also been amended toenroll additional patients who will be dosed with TRC105 every two weeks. We believe that data from Part 1 that were presented at the Kidney Cancer Association annual meeting in November2015 are encouraging. Based on a Phase 3 trial of Inlyta, the expected median progression-free survival of patients with clearcell renal cell carcinoma treated with Inlyta who have progressed following treatment with only one prior inhibitor of theVEGF pathway is 4.8 months. The overall final progression-free survival of patients enrolled in Part 1 of our trial of TRC105with Inlyta, all of whom failed at least one prior inhibitor of the VEGF pathway, was 8.4 months, and in patients with clearcell renal cell carcinoma, was 9.6 months by Kaplan Meier lifetable analysis. The best overall response among the 17 patientswho were followed for at least two months in Part 1 of the trial is described below. Percentage decreases in tumor size arereported relative to the baseline measurement at the beginning of the study. ·Five patients had tumor reductions that qualified as partial responses according to RECIST 1.1. All patients hadcancer progression following previous treatment with at least one small molecule VEGF inhibitor and fourpatients were treated in the fourth line setting. Two patients also progressed following treatment with Opdivo(nivolumab), an antibody directed at the programmed cell death 1 receptor (PD-1). One of these patients, whoseprevious best response was stable disease with the VEGF inhibitor Votrient, following which cancer progressionwas documented, and also had cancer progression on interleukin-2 and Opdivo, remained on trial for 14 monthswith a partial response as assessed by RECIST 1.1. The second patient, whose previous best response was stabledisease with the VEGF inhibitor Sutent, then demonstrated cancer progression after three months of treatmentwith Votrient as well as cancer progression on Opdivo, remained on trial for 11 months with a partial responseas assessed by RECIST 1.1. The third patient, whose previous best response was stable disease with the VEGFinhibitor Sutent, following which cancer progression was documented, and who also progressed followingtreatment with Afinitor, a drug approved for the treatment of renal cell carcinoma that inhibits a metabolicpathway, remained on trial for 17 months with a partial response as assessed by RECIST 1.1. The fourth patient,whose previous best response was stable disease with the VEGF inhibitor Sutent, following which cancerprogression was documented, remained on trial for 11 months with a partial response as assessed byRECIST 1.1. The fifth patient, whose previous best response was stable disease with the VEGF inhibitor Sutent,who also was treated with the VEGF inhibitor Votrient, following which cancer progression was documented,remained on trial for ten months with a partial response as assessed by RECIST 1.1. ·Ten patients had tumor reductions that qualified as partial responses as assessed by the Choi criteria includingthe five patients with partial responses as assessed by RECIST 1.1. Choi criteria are response criteria developedat the University of Texas MD Anderson Cancer Center to evaluate the activity of angiogenesis inhibitors. Choicriteria have been shown to correlate more strongly with progression-free survival and overall survival thanRECIST 1.1 in several clinical trials of angiogenesis inhibitors. Progression-free survival is the anticipatedendpoint for Phase 3 clinical trials in patients with soft tissue sarcoma and renal cell carcinoma. All patientsenrolled in the trial had cancer progression following prior treatment with at least one small molecule VEGFinhibitor. ·Three patients had stable disease. ·Four patients had radiographic or clinical cancer progression within two months following initiation oftreatment. ·Improved anti-tumor activity was noted in patients with clear cell renal cell carcinoma, the most common typeof renal cell carcinoma, which is noted to be more responsive to treatment with angiogenesis inhibitors. Eight of12 patients (67%) with clear cell histology demonstrated partial responses as assessed by Choi criteria,including four partial responses (33%) as assessed by RECIST 1.1. Progression-free survival was also longer inpatients with clear cell renal cell carcinoma (9.6 months). 17 Table of ContentsThe best response by maximum percent change decrease in tumor lesion size of each of 17 patients enrolled in thetrial with measureable disease who underwent efficacy assessment is noted in the figure below. Maximum percentage change in target lesion size in renal cell carcinoma patientstreated with TRC105 and Inlyta Based on the tolerability and anti-tumor activity observed in Part 1 of the trial, Part 2 of the trial began enrollmentin November 2014 and is expected to enroll 150 advanced clear cell renal cell carcinoma patients at approximately 30 sitesin the United States and Europe to compare TRC105 in combination with Inlyta to Inlyta alone. Enrollment is expected to becompleted in 2016. The patients are randomly allocated in equal numbers to the two treatment arms, and the primaryendpoint of Part 2 of the trial is progression-free survival as assessed by RECIST 1.1. If successful, Part 2 of the trial maysupport initiation of a Phase 3 clinical trial. Phase 2 Clinical Trial of TRC105 with Votrient in Patients with Soft Tissue Sarcoma We are conducting a two-part Phase 2 clinical trial of TRC105 in combination with Votrient, an approved VEGFinhibitor, in patients with soft tissue sarcoma. Part 1 of the trial completed enrollment of 18 evaluable patients. Three patientswere initially enrolled at an 8 mg/kg TRC105 dose level and three patients were initially enrolled at a 10 mg/kg TRC105dose level to demonstrate that the recommended single agent dose of TRC105 of 10 mg/kg was well tolerated with theapproved single agent dose of Votrient. Dose limiting toxicity was not observed and a total of 15 patients were enrolled atthe 10 mg/kg dose level. The most common adverse events were generally low grade and included epistaxis, gingivalbleeding, headache, anemia and fatigue. Adverse events characteristic of each individual drug were not increased infrequency or severity when the two drugs were administrated concurrently. TRC105 and Votrient demonstrated encouragingpreliminary signs of activity in a highly pretreated population, including partial responses by Choi criteria in six of 18 (33%)patients, including a complete response by RECIST 1.1 that was ongoing at 75 weeks of treatment in a patient withcutaneous angiosarcoma. 18 Table of ContentsThe best response by maximum percent change decrease in tumor lesion size of each of 18 patients enrolled in Part 1of the trial with measureable disease who underwent efficacy assessment is noted in the figure below. Maximum percentage change in target lesion size in soft tissue sarcoma patientstreated with TRC105 and Votrient Based on the tolerability and anti-tumor activity observed to date, Part 2 of the trial began enrollment inSeptember 2014. Part 2 of the trial completed accrual of the planned 63 patients at eight sites in the United States inNovember 2015, and top-line data indicate that median PFS unstratified by histology or tumor endoglin expression (3.9months) is similar to the PFS expected for Votrient alone, based on data from the Votrient PALETTE Phase 3 trial in softtissue sarcoma. We expect to report data on the primary endpoint of median PFS stratified by sarcoma histology, including inpatients with angiosarcoma, and stratified by tumor endoglin expression, at a major cancer conference in the first half of2016. All five patients with angiosarcoma, a sarcoma subtype that highly expresses endoglin, enrolled in the trial hadreductions in tumor burden, the median PFS to date for these five patients is at least 9.3 months, and two of these five patientshave durable complete responses to treatment by RECIST 1.1 that are ongoing at 45 and 75 weeks of treatment. Anadditional ongoing complete response at 51 weeks of treatment was seen in a patient with undifferentiated pleomorphicsarcoma, a sarcoma subtype known to highly express endoglin in certain cases. For comparison, there were no completeresponses in sarcoma patients treated with Votrient (n=246) in the Votrient PALETTE Phase 3 trial. The Phase 2 study ofTRC105 and Votrient was amended to enroll an additional cohort of 13 patients with angiosarcoma, as well as additionalpatients who will be dosed with TRC105 every two weeks, both of which are enrolling at this time. Phase 2 Randomized Clinical Trial of TRC105 with Avastin in Patients with Glioblastoma NCI is sponsoring a two-part Phase 2 clinical trial in patients with glioblastoma that includes more than 50 sites inthe United States. Part 1 of the trial was a dose escalation study of TRC105 in combination with Avastin in 12 patients andcompleted enrollment in January 2014. In Part 2 of the trial, approximately 86 glioblastoma patients who have receivedchemotherapy or radiation therapy and have not been treated previously with Avastin or another VEGF inhibitor have beenrandomized in equal proportions to receive TRC105 and Avastin or Avastin alone. Enrollment into Part 2 of the trial beganin the third quarter of 2014. The primary endpoint is progression-free survival, and we expect that NCI will have topline databy late 2016. Phase 2 Clinical Trial of TRC105 with Nexavar in Patients with Hepatocellular Carcinoma NCI is conducting a two-part Phase 2 clinical trial of TRC105 in combination with Nexavar, an approved VEGFinhibitor, in up to 42 patients with hepatocellular carcinoma. Part 1 of the trial was completed following the19 Table of Contentsenrollment of 20 patients with hepatocellular carcinoma, 15 of which were evaluable by RECIST 1.1, and Part 2 of the trialwas initiated in the third quarter of 2014 and is expected to enroll up to 23 patients. Part 1 of the trial was designed as anascending dose trial with an expansion stage with the primary endpoint of evaluating the safety and tolerability of 3, 6, 10and 15 mg/kg TRC105 every two weeks in combination with the approved dose of Nexavar to select a dose level of TRC105(in combination with Nexavar) for further study if merited. Data reported at the ASCO annual meeting in June 2015 indicatedthat TRC105 was well tolerated at all doses tested (3, 6, 10 and 15 mg/kg) in combination with approved doses of Nexavar.As shown in the figure below, anti-tumor activity was noted, including reductions in tumor burden in the majority of treatedpatients, and partial response by RECIST 1.1 in four of the ten patients (40%) with measurable disease treated atrecommended Phase 2 doses of TRC105 (10 mg/kg or 15 mg/kg dosed once every two weeks). This response rate exceededthe response rate reported for Nexavar in its pivotal Phase 3 trial of 2%, as assessed by RECIST 1.1. The primary endpoint ofPart 2 of the trial is overall response rate as assessed by RECIST 1.1. Maximum percentage change in target lesion size inhepatocellular carcinoma patients treated with TRC105 and Nexavar Phase 2 Clinical Trials of TRC105 with Avastin in Single Patients with Metastatic Choriocarcinoma We are conducting a single patient Phase 2 clinical trial of TRC105 in combination with Avastin in a woman withchoriocarcinoma, a form of GTN. Choriocarcinoma is a rare tumor of reproductive tissue that is typically vascular and mayhighly express endoglin on the tumor tissue. Data was reported at the 18th World Congress on Gestational TrophoblasticDiseases in September 2015 in the patient who had persistent and unresectable metastatic choriocarcinoma that had recurreddespite five prior chemotherapy regimens and autologous stem cell transplant.The patient was treated with TRC105 dosed 10 mg/kg weekly in combination with Avastindosed 10 mg/kg every other week. At the time of the presentation, the patient had completed 7 cycles (28 weeks) of treatment. Beta human chorionic gonadotropin (β-hCG), a knownand reliable marker of disease burden in choriocarcinoma, normalized during the fourth cycle of treatment,indicating a durable complete response that is ongoing at month 12 of treatment. A second patient also withrefractory and unresectable metastatic choriocarcinoma was treated with TRC105 and Avastin and did not respond totreatment. 20 Table of ContentsOpen Clinical Trials of TRC105 That Have Not Yet Dosed Phase 2 Clinical Trial of TRC105 with Afinitor and Femara in Postmenopausal Women with Newly Diagnosed Local orLocally Advanced Potentially Resectable Hormone-Receptor Positive and Her-2 Negative Breast Cancer We plan to initiate dosing in a two-part Phase 2 clinical trial of TRC105 as a neoadjuvant in combination withAfinitor and Femara, each of which is approved for the treatment of breast cancer in a study sponsored by the University ofAlabama, Birmingham Cancer Center, or UAB. The trial is expected to enroll patients with locally advanced breast cancerwho will receive TRC105 in combination with Afinitor and Femara prior to surgical removal of the tumor. Part 1 of the trial isexpected to enroll up to 18 patients to determine whether the recommended Phase 2 dose of TRC105 of 10 mg/kg givenweekly can be administered safely concurrently with Afinitor and Femara and assess pharmacokinetic parameters. Part 2 ofthe trial is expected to enroll up to 20 patients with locally advanced potentially resectable hormone-receptor positive andHer-2 negative breast cancer to determine the pathologic complete response rate and downstaging rate, or rate of tumor sizereduction, at the time of surgery. Phase 2 Clinical Trial of TRC105 with Nexavar in Patients with Hepatocellular Carcinoma We plan to initiate dosing in a two-part Phase 2 clinical trial of TRC105 in combination with Nexavar, which isapproved for the treatment of hepatocellular carcinoma, in patients with advanced or metastatic hepatocellular carcinoma.Prior completed clinical trials indicated that 20 mg/kg of TRC105 given every two weeks is well tolerated when given as asingle agent and 15 mg/kg of TRC105 given every two weeks was well tolerated in combination with approved doses ofNexavar. Part 1 of the trial will determine whether the recommended Phase 2 dose of TRC105 of 15 mg/kg and 20 mg/kggiven every two weeks can be administered safely concurrently with Nexavar. Part 2 of the trial is expected to enroll up to 21patients with advanced or metastatic hepatocellular carcinoma to determine the overall response rate, progression-freesurvival and overall survival following treatment with the recommended Phase 2 dose of TRC105 determined from Part 1 ofthe trial given concurrently with Nexavar. Phase 1 Clinical Trial of TRC105 with Taxol, carboplatin and Avastin in Patients with Lung Cancer We plan to initiate dosing in a Phase 1 clinical trial of TRC105 in combination with Taxol, carboplatin and Avastinfor the initial treatment of advanced or metastatic non-squamous non-small cell lung cancer. The combination of Taxol,carboplatin and Avastin is approved for the initial treatment of advanced or metastatic non-squamous non-small cell lungcancer, and the combination of Taxol and Avastin is approved for the treatment of ovarian cancer. Prior completed trialsindicated the recommended Phase 2 dose of 10 mg/kg of TRC105 was well tolerated with Avastin. The primary endpoint ofthe trial is to determine whether the recommended Phase 2 dose of TRC105 of 10 mg/kg can be administered safelyconcurrently with Taxol, carboplatin and Avastin. Up to 18 patients are expected to be treated with the recommendedPhase 2 dose of TRC105 of 10 mg/kg given concurrently with Taxol, carboplatin and Avastin. Secondary endpoints includepharmacokinetics, overall response rate by RECIST 1.1, progression-free survival and overall survival. Planned Clinical Trials of TRC105 Phase 2 Clinical Trial of TRC105 with or without Avastin in Patients with GTN, including choricarcinoma We plan to initiate a Phase 2 multicenter international clinical trial that employs a sequential treatment design inthe first half of 2016, whereby patients will receive initially TRC105 as a single agent, and will also have the opportunity toreceive TRC105 in combination with Avastin after demonstrating lack of response to single agent Avastin. The trial isexpected to enroll up to 30 patients with GTN, including choriocarcinoma, placental site trophoblastic tumor (PSTT) andepithelioid trophoblastic tumor (ETT). Patients will be enrolled who are refractory to at least one prior multiagentchemotherapeutic regimen and the primary endpoint will be overall response rate as assessed by β-hCG for choriocarcinomaand by a combination of β-hCG and RECIST 1.1 for PSTT and ETT. The primary endpoint is expected to be an overallresponse rate. We expect that positive data from this trial could be registration enabling. 21 Table of ContentsPhase 3 Clinical Trial of TRC105 with Votreint in Patients with Angiosarcoma Based on the activity seen in patients with angiosarcoma and data indicating high tumor endoglin expression in themajority of cases of angiosarcoma, we expect to initiate a Phase 3 trial in the second half of 2016 of approximately 140angiosarcoma patients at approximately 30 sites in the United States and Europe to compare TRC105 in combination withVotrient to Votrient alone. The patients are expected to be randomly allocated in equal numbers to the two treatment arms,and the primary endpoint of the trial is expected to be progression-free survival as assessed by RECIST 1.1. We expect thatpositive data from this trial could be registration enabling. If data from the current ongoing Phase 2 clinical trial in soft tissuesarcoma indicate tumor endoglin expression is predictive of TRC105 activity, a separate Phase 3 clinical trial in soft tissuesarcoma, other than angiosarcoma, may incorporate a biomarker strategy to use tumor endoglin expression as a basis forenrollment of more responsive patients into the trial. Completed Clinical Trials of TRC105 Phase 1 First-in-Human Clinical Trial of TRC105 in Patients with Advanced and Treatment-Resistant Cancer We conducted a Phase 1, single agent, first-in-human ascending dose clinical trial evaluating the safety, tolerability,pharmacokinetics, pharmacodynamics and anti-tumor activity of TRC105 in patients with advanced solid tumors. Theprimary endpoint of the trial was to determine the recommended dose of TRC105 for Phase 2 clinical trials and assess overallsafety and tolerability. Secondary endpoints included analysis of TRC105 distribution in the blood, assessment of whetherantibodies were made in response to treatment with TRC105 and assessment of preliminary signs of antitumor activity. Giventhe limited number of patients in this clinical trial, no statistical analyses were performed. Fifty patients were treated withescalating doses of TRC105 until cancer progression or unacceptable toxicity was reached using a standard dose escalationdesign at dose levels of 0.01, 0.03, 0.1, 0.3, 1, 3, 10 and 15 mg/kg given weekly or every two weeks. The maximum tolerateddose was exceeded at 15 mg/kg given weekly due to anemia, an expected adverse event of TRC105 treatment. TRC105exposure increased with increasing dose, and continuous serum concentrations that saturate endoglin receptors weremaintained at 10 mg/kg given weekly and 15 mg/kg given every two weeks. The safety profile was distinct from that ofVEGF inhibitors, and the adverse effects of hypertension and proteinuria seen commonly with VEGF inhibitors were rarelyobserved with TRC105. Pulmonary edema and low platelet counts, which are side effects of other inhibitors of the endoglinpathway, were not observed. Antibodies to TRC105 were not detected in patients treated with the formulation of TRC105that is being used in our Phase 1 and Phase 2 clinical trials, indicating that TRC105 is not highly immunogenic. Stabledisease or better was achieved in 21 of 45 evaluable patients (47%), including two patients with durable reductions in tumorburden lasting longer than 48 and 18 months, respectively. One of three patients had soft tissue sarcoma and remained onTRC105 for 18 months with a reduction in tumor burden of each of five pulmonary metastases, which was first detected twomonths after initiation of treatment. An overall reduction in the sum of tumor diameters of 13% was noted during treatment.The duration of TRC105 treatment exceeded the duration of three prior treatments: carboplatin and paclitaxel (four months),Arimidex (anastrozole) (eight months) and ifosfamide (two months), each of which had been previously discontinuedbecause the cancer progressed. The anti-tumor data compared favorably with the first-in-human anti-tumor data reported withAvastin in a less treatment-resistant population. The majority of patients demonstrated an increase in plasma levels of VEGFat the time of cancer progression, providing a rationale for inhibiting the VEGF pathway in patients treated with TRC105.Lastly, patients at the 10 mg/kg and 15 mg/kg dose levels were observed to have dilated blood vessels in the skin or mucosalmembranes, similar to those in patients with Osler-Weber-Rendu syndrome, indicating inhibition of the endoglin pathway.Results of this clinical trial were published in Clinical Cancer Research in 2012. Phase 1/2 Clinical Trial of TRC105 with Avastin in Patients with Advanced and Treatment-Resistant Cancer We completed a Phase 1/2 ascending dose trial evaluating the safety, tolerability, pharmacokinetics,pharmacodynamics and anti-tumor activity of TRC105 in combination with an approved dose of Avastin in patients withadvanced and treatment-resistant solid tumors. The primary endpoint of the trial was to determine the recommended dose ofTRC105 to be used in combination with Avastin for Phase 2 clinical trials and assess overall safety and tolerability of thecombination. Secondary endpoints included analysis of TRC105 distribution in the blood, assessment of whether antibodieswere made in response to treatment with TRC105 and assessment of preliminary evidence of improved anti-tumor activitywhen TRC105 was combined with Avastin. Given the limited number of patients in this clinical trial, no22 Table of Contentsstatistical analyses were performed. Thirty-eight patients primarily with colorectal and ovarian cancer were treated withescalating doses of TRC105 until cancer progression or unacceptable toxicity was reached using a standard dose escalationdesign at dose levels of 3, 6, 8 and 10 mg/kg given weekly, in combination with an approved dose of Avastin. TRC105 andAvastin were generally well tolerated when dosed together at their recommended single agent doses (10 mg/kg each) whenthe initial dose of TRC105 was delayed by one week and divided over two days to reduce the frequency and severity ofheadache. The concurrent administration of Avastin and TRC105 did not otherwise appear to increase the frequency orseverity of known toxicities of TRC105 or Avastin. Pharmacokinetic studies indicated that treatment with Avastin increasedendoglin expression on endothelium, a finding that was consistent with preclinical studies indicating endoglin may allowcontinued angiogenesis despite inhibition of the VEGF pathway. This finding provides support for targeting angiogenesiswith endoglin antibodies in combination with VEGF inhibitors. Pharmacokinetic studies also indicated that serum levels ofTRC105 were continuously present at concentrations above levels needed to inhibit endoglin function. Antibodies toTRC105 were detected in two patients and were not associated with clinical effects. Biomarker studies indicated increasedblood levels of platelet-derived growth factor, or PDGF, a soluble protein that plays a significant role in angiogenesis, inpatients treated with TRC105 in combination with Avastin. Several patients, including patients with colorectal cancer andovarian cancer whose cancer had previously progressed on Avastin or small molecule VEGF inhibitors, experiencedresponses, including ten partial responses as assessed by Choi criteria, two of which were also partial responses as assessed byRECIST 1.1. The best response by maximum percent change decrease in target lesion size of each of 30 patients enrolled in thetrial with measurable disease who underwent efficacy assessment is noted in the figure below, and patients who received priortreatment with at least one VEGF inhibitor are indicated by a star. Of 25 evaluable patients treated previously with VEGFinhibitors, 16 patients (64%) had stable disease, of whom two patients (8%) had partial responses as assessed by RECIST 1.1.Ten patients who received prior VEGF treatment (40%) had a partial response by Choi criteria and are denoted with a solidtriangle and a star in the figure below. Six patients (24%) with responses by Choi criteria or RECIST 1.1 remained withoutcancer progression for longer than during their prior VEGF inhibitor therapy, and are therefore considered to have durableresponses. Maximum percentage change in target lesion size in cancer patientstreated with TRC105 and Avastin The six patients with reductions in tumor burden, who were partial responders as assessed by RECIST 1.1 or23 Table of ContentsChoi criteria, and remained without cancer progression for longer than during their prior VEGF inhibitor therapy, are profiledfurther in the table below. Summary of patients with durable responses Duration of Last Prior VEGF Duration of Number Inhibitor TRC105 + Primary of Prior Last Prior Containing Avastin Patient Site of Cancer VEGF Inhibitor Treatment Treatment Demographic Disease Regimens Containing Treatment (days) (days) 56-year-oldwoman Ovarian 8 pegylated liposomal doxorubicin + Avastin 126 162 71-year-oldwoman Ovarian 5 investigational treatment with small molecule VEGF inhibitor 141 218 66-year-oldwoman Colorectal 7 Erbitux -cetuximab + Avastin 31 162 81-year-oldwoman Ovarian 6 Topotecan + Avastin 71 224 53-year-old man Colorectal 2 5-fluorouracil + irinotecan + leucovorin + Avastin 33 861 55-year-old man Colorectal 3 5-fluorouracil + irinotecan + leucovorin + Avastin 146 164 These collective data demonstrate that TRC105 is active with Avastin based on decreases of tumor size anddurability of treatment in patients whose cancer progressed on prior treatment with Avastin or other VEGF inhibitors. Phase 2 Clinical Trial of TRC105 as a Single Agent or Combined with Avastin in Patients with Glioblastoma thatProgressed on Prior Avastin Treatment We completed a Phase 2 clinical trial evaluating the safety, tolerability, and anti-tumor activity of TRC105 incombination with Avastin in patients with glioblastoma that progressed on prior initial treatment with combinedchemotherapy and radiation therapy and subsequent treatment with Avastin. The primary endpoint of the trial was todetermine median overall survival, and secondary endpoints included assessment of tolerability and determination ofresponse rate and time to tumor progression. After an initial portion of the trial assessing the safety of TRC105 as a singleagent, 16 patients were treated with TRC105 at 10 mg/kg given weekly with Avastin at 10 mg/kg given every two weeksuntil cancer progression or unacceptable toxicity was reached. The concurrent administration of TRC105 and Avastin didnot appear to increase the frequency or severity of known toxicities of TRC105 or Avastin. Overall survival in the 16 patientstreated with TRC105 and Avastin was 5.7 months, which was statistically longer than the overall survival of 4 monthexpected in this population specified in the protocol based on historical data. The majority of patients with Avastin-resistantglioblastoma who enrolled in the trial had cancer progression in fewer than four months on prior Avastin treatment, andmedian progression-free survival was two months following treatment with TRC105 and Avastin. No patient demonstrated anobjective response. Future clinical trials will focus on enrolling patients with glioblastoma prior to Avastin treatment, whenthey may be more likely to be responsive to angiogenesis inhibition. Phase 1 Clinical Trial of TRC105 with Xeloda in Patients with Metastatic Breast Cancer We completed a Phase 1 ascending dose clinical trial evaluating the safety, tolerability, pharmacokinetics and anti-tumor activity of TRC105 in combination with Xeloda. The primary endpoint of the trial was to determine the recommendeddose of TRC105 to be used in combination with Xeloda for Phase 2 clinical trials and to assess overall safety and tolerabilityof the combination. Secondary endpoints included analysis of TRC105 distribution in the blood, assessment of whetherantibodies were made in response to treatment with TRC105 and assessment of preliminary evidence of improved anti-tumoractivity when TRC105 was combined with Xeloda. Given the limited number of patients in this clinical trial, no statisticalanalyses were performed. Nineteen patients, primarily with metastatic breast cancer, were treated with escalating doses ofTRC105 until cancer progression or unacceptable toxicity was reached using a standard dose escalation design at dose levelsof 7.5 and 10 mg/kg given weekly, in combination with the recommended single agent dose of Xeloda of 1,000 mg/m2 giventwice daily for two weeks followed by a one week rest24 Table of Contentsperiod. TRC105 and Xeloda were generally well tolerated when dosed together at their recommended single agent doses. Theconcurrent administration of TRC105 with Xeloda did not otherwise appear to increase the frequency or severity of expectedtoxicities of TRC105 or Xeloda. Pharmacokinetic studies indicated continuous serum levels of TRC105 at doses abovetarget concentrations at both TRC105 dose level. Antibodies to TRC105 were detected in one patient. Several patientsdemonstrated evidence of clinical benefit, including one patient with metastatic breast cancer who achieved a partialresponse as assessed by RECIST 1.1. Phase 2 Randomized Clinical Trial of TRC105 with Avastin in Patients with Renal Cell Carcinoma NCI completed enrollment of a Phase 2 clinical trial to study the activity of TRC105 in combination with Avastin,compared to treatment with Avastin alone, in patients with renal cell carcinoma that included non-clear histology. The NCI-sponsored trial in renal cell carcinoma included approximately 20 centers in the United States and enrolled patients with allhistologic types of renal cell carcinoma who had received as many as four prior systemic therapies, including as many as fourprior VEGF inhibitors, and had not been treated with Avastin previously. The trial was designed to randomize 88 totalpatients in equal proportions to receive TRC105 and Avastin or Avastin alone with the goal of demonstrating a 100%increase in progression-free survival. However, an interim analysis performed in September 2014 concluded that the trial wasunlikely to achieve the primary endpoint, and enrollment was closed following the accrual of 62 patients. Data reported atthe ASCO annual meeting in June 2015 by the NCI indicated no statistical difference in progression free survival betweenpatients treated with TRC105 and Avastin compared to patients treated with single agent Avastin. Other Phase 1 and Phase 2 Clinical Trials of TRC105 in Cancer Patients A Phase 1, single agent, ascending dose clinical trial sponsored by NCI enrolled 21 patients with metastatic andtreatment-resistant prostate cancer and results were published in the British Journal of Urology in 2014. The primaryendpoint of the trial was to determine the recommended dose of TRC105 to be used in Phase 2 clinical trials and to assessoverall safety and tolerability. Secondary endpoints included analysis of TRC105 distribution in the blood, assessment ofwhether antibodies were made in response to treatment with TRC105 and assessment of preliminary evidence of improvedanti-tumor activity. Given the limited number of patients in this clinical trial, no statistical analyses were performed.TRC105 was tolerated at 20 mg/kg every other week with a safety profile distinct from that of VEGF inhibitors. A significantinduction of plasma VEGF was associated with CD105 reduction, suggesting anti-angiogenic activity of TRC105. Anexploratory analysis showed a tentative correlation between the reduction of CD105 and a decrease in PSA velocity,suggestive of potential activity of TRC105 in the patients with metastatic castrate resistant prostate cancer. The data fromthis exploratory analysis suggested that rising VEGF level was a possible compensatory mechanism for TRC105-inducedanti-angiogenic activity. A Phase 2 clinical trial of TRC105 sponsored by NCI enrolled 13 patients with advanced ormetastatic bladder cancer that had progressed on prior treatment with chemotherapy. NCI has not yet reported clinical datafor this trial. A Phase 2 clinical trial sponsored by NCI enrolled 11 patients with advanced or metastatic hepatocellular carcinomathat had progressed on prior treatment with Nexavar. The primary endpoint of the trial was to determine the time to tumorprogression. Data reported at the Gastrointestinal Cancer Symposium of the American Society of Clinical Oncology inJanuary 2014 indicated TRC105 at 15 mg/kg every two weeks demonstrated anti-tumor activity in three of seven evaluableby RECIST 1.1 patients presented, including in one patient who achieved a partial response as assessed by RECIST 1.1.However, at least three of the first ten patients needed to be free of tumor progression to enroll further patients in the trial, andonly two of ten patients were free of tumor progression after four months of treatment. Our Phase 2 clinical trial in 23 patients with advanced or metastatic ovarian cancer that had progressed on priortreatment with platinum chemotherapy treated with TRC105 at 10 mg/kg every week indicated limited anti-tumor activity,as evidenced by a minor tumor reduction in one patient and tumor marker reductions in several other patients. However, nopatients achieved either of the dual primary endpoints of being free of tumor progression for at least six months or achievinga partial response as assessed by RECIST 1.1. Subsequent data from a Phase 1/2 clinical trial of TRC105 in combination withAvastin suggested advanced ovarian cancer patients were more likely to benefit from the combination treatment. These dataare consistent with preclinical findings indicating that inhibition of the VEGF or endoglin pathway individually is lesseffective than inhibition of the VEGF and endoglin pathways simultaneously. Avastin was recently approved in the UnitedStates with chemotherapy for the treatment of ovarian cancer, and we expect to develop TRC105 in combination withAvastin and chemotherapy in this indication.25 Table of ContentsSafety of TRC105 as a Single Agent and in Combination with Approved VEGF Inhibitors In clinical trials as of December 31, 2015, TRC105 has been administered to more than 400 patients and wasgenerally well tolerated as a single agent and in combination with VEGF inhibitors. The most commonly reported adverseevents related to TRC105 therapy, either alone or in combination, include anemia, dilated small vessels in the skin andmucosal membranes (which may result in nosebleeds and bleeding of the gums), headache, fatigue and gastrointestinal andother symptoms during the initial infusion of TRC105, or infusion reaction. Infusion reactions were reduced in frequency andseverity through the use of premedication. The majority of treatment-related adverse events have been mild. Serious adverseevents considered related to TRC105 have largely been isolated events. Antibodies to TRC105 were detected in fewer than 5% of treated patients with the current anti-drug-antibodymethod and were not associated with specific clinical effects. TRC105 Investigational New Drug Applications We are evaluating TRC105 in the United States in clinical trials under two INDs, the first of which we filed with theFDA in November 2007 for the treatment of patients with advanced solid tumors, and the second of which we filed with theFDA in September 2014 for the treatment of patients with renal cell carcinoma. Subsequent amendments to the first IND haveincluded clinical protocols to study TRC105 alone, or in combination with VEGF inhibitors, in patients with multiple tumortypes. TRC105 is also being studied in the United States under three INDs sponsored by NCI to evaluate TRC105 in patientswith prostate cancer, liver cancer and bladder cancer, which NCI filed in December 2009, December 2010 and August 2010,respectively, and one IND sponsored by NCI to evaluate TRC105 in patients with renal cell carcinoma and glioblastoma,which NCI filed in April 2012. The INDs filed by NCI cross reference our initial solid tumor IND. Preclinical Studies Endoglin Antibodies A number of preclinical studies have demonstrated the feasibility of using endoglin antibodies, both alone and incombination with VEGF inhibitors, to inhibit angiogenesis and treat tumors. These studies have also indicated that endoglinantibodies and VEGF inhibitors may be more effective when used in combination than when used as single agents. Endoglin antibodies that bind to mouse endoglin have been shown to be effective anti-tumor agents in miceimplanted with mouse tumor cells. An endoglin antibody inhibited tumor growth of mouse liver cancer cells implantedsubcutaneously and inhibited angiogenesis, as demonstrated by marked reduction in vascular density of the tumors treatedwith the endoglin antibody. The figure on the left below shows the tumor progression in three groups of mice implanted withmouse liver cancer cells and then treated with one of endoglin antibody (“Anti-mAb” in the figures below) antibody that didnot bind endoglin (“Cont-Ab” in the figures below) or saline vehicle (“Cont-NS” in the figures below). Tumor growth wasinhibited following treatment with the endoglin antibody, and the degree of inhibition was statistically significant with a p-value of less than 0.05 at the time points indicated by “a” and with a p-value of less than 0.01 at the time points indicated by“b.” A p-value is the probability that the reported result was achieved purely by chance, such that a p-value of less than orequal to 0.05 or 0.01 means that there is a 5.0% or 1.0% or less probability, respectively, that the difference between thecontrol group and the treatment group is purely due to chance. A p-value of 0.05 or less typically represents a statisticallysignificant result. Furthermore, tumors treated with endoglin antibody contained fewer blood vessels compared with micetreated with antibody that did not bind endoglin or with saline vehicle. As illustrated on the figure on the right below, micetreated with the endoglin antibody also survived significantly longer than animals treated with antibody that did not bindendoglin or saline vehicle. 26 Table of ContentsAnti-tumor activity of endoglin antibody in a mouse model of liver cancer Our collaborator at the Roswell Park Cancer Institute showed that TRC105 is a potent inhibitor of angiogenesismediated by human endothelial cells. A mouse engrafted with human skin was employed to compensate for the fact that themouse antibody from which TRC105 was derived, SN6j, binds human endoglin to interrupt BMP binding, but does notinterrupt BMP binding to mouse endoglin. Human breast cancer cells implanted into these mice grew based on therecruitment of blood vessels of mouse and human origin. SN6j was shown to suppress the growth of human breast cancer cellsestablished in mice at a dose of 10 mg/kg when compared to saline vehicle and was able to increase the effects ofcyclophosphamide chemotherapy. SN6j completely inhibited the growth of human blood vessels when given as a singleagent or when combined with chemotherapy, as shown in the figure below, which depicts the number of blood vessels perhigh-power field in mice treated with saline vehicle and active treatments. Inhibition of human blood vessel angiogenesis by endoglin antibodyin a mouse model of human breast cancer Our collaborator at Duke University has conducted preclinical studies on the effect of TRC105 in combination withAvastin on angiogenesis mediated by human endothelial cells. Angiogenesis was modeled using human endothelial cells,which formed visible polygons, a measure of vascular networks, in culture, as demonstrated in the figure below. TRC105 andAvastin each inhibited human endothelial cell organization into vascular networks, compared to untreated27 Table of Contentscells. However, the combination of the two agents more effectively inhibited the organization of human endothelial cellsinto vascular networks than either agent alone. Inhibition of endothelial cell organization into vascular structurein the presence of TRC105 and Avastin Quantification of the number of visible polygons, as illustrated in the table below, indicated statistically significantinhibition with a p-value of less than 0.05 using the combination of the two drugs compared to each individual drug. Comparison of the inhibition of endothelial cell organization into vascular structures 28 Table of ContentsEndoglin Antibody Drug Conjugates Many antibodies are more potent when linked to either drugs or toxins than as unconjugated antibodies. Forexample, Kadcyla (trastuzumab emtansine) is an approved antibody drug conjugate of the approved unconjugated antibodyHerceptin (trastuzumab) and is active in patients whose cancer progressed on prior Herceptin treatment. In addition to itspotential as an unconjugated antibody, TRC105 could also be developed as an antibody drug conjugate. Endoglin antibody drug conjugates have been effective anti-tumor agents in preclinical models of human cancer inmice. MJ7/18, an antibody that binds to mouse endoglin, was conjugated to the Nigrin B toxin and dosed to mice bearinggenetically identical melanoma tumors. Treatment of tumor-bearing mice with MJ7/18 or Nigrin B alone did not inhibittumor growth compared to control animals. However, the endoglin antibody drug conjugate, MJ7-Ngb immunotoxin,inhibited tumor growth and caused complete regressions of palpable tumors in several animals. Antibody drug conjugatesconstructed using our proprietary endoglin antibodies have demonstrated antitumor activity. In the future, we may pursuedevelopment of TRC105 as an antibody drug conjugate, which would complement its use as an unconjugated antibody. Anti-tumor activity of endoglin antibody drug conjugate in a mouse model of melanoma Translational Preclinical Research Studies of endoglin biology using choriocarcinoma cell lines indicate that higher levels of endoglin expression areassociated with greater degrees of resistance to chemotherapy. Chemotherapy treatment also led to an increase in endoglinexpression on choriocarcinoma cell lines. Serum endoglin and BMP levels were higher in pretreatment samples of womenwho developed GTN that was resistant to chemotherapy, with BMP levels showing a greater ability to predict resistance thanthe traditional scoring system that is routinely used to assess prognosis in GTN. We plan to assess BMP levels are assessed inpatients with GTN and other tumor types as part of ongoing Phase 2 studies to determine if serum levels of this activatingendoglin ligand will predict which patients are most responsive to TRC105 treatment. Role of Endoglin Antibodies in AMD Treatment Overview of AMD AMD is a major public health problem that has a devastating effect on patients. AMD distorts central vision, whichis necessary for daily activities such as reading, face recognition, watching television and driving and can lead to loss ofcentral vision and blindness. According to a 2010 study sponsored by AMD Alliance International, the annual directhealthcare system cost of visual impairment worldwide due to AMD was estimated at approximately $255 billion.29 Table of ContentsAccording to the Macular Degeneration Partnership, approximately 15 million people in the United States and30 million people worldwide suffer from some form of AMD. There are two forms of AMD: dry AMD and wet AMD. It isreported that wet AMD represents approximately 10% of all cases of AMD, but is responsible for 90% of the severe visionloss associated with the disease. Wet AMD is the leading cause of blindness in the Western world. In a subset of AMD patients, dry AMD progresses to wet AMD as a result of abnormal angiogenesis in the choroidlayer beneath the retina, which is referred to as choroidal neovascularization, or CNV. In the context of wet AMD, CNV isassociated with the accumulation of other cell types and altered tissue. The new blood vessels associated with this abnormalangiogenesis tend to be fragile and often bleed and leak fluid into the macula, the central-most portion of the retinaresponsible for central vision and color perception. If left untreated, the blood vessel growth and associated leakage typicallylead to retinal distortion and eventual retinal scarring, with irreversible destruction of the macula and loss of vision. Thisvisual loss occurs rapidly with a progressive course. Currently Available Therapies for Wet AMD The current standard of care for wet AMD is administration by intraocular injection of VEGF inhibitors as singleagents. VEGF inhibitors have been reported to be effective in treating wet AMD because of their ability to inhibit the effectsof abnormal angiogenesis that defines CNV. The FDA has approved the VEGF inhibitors Lucentis (ranibizumab), Eylea andMacugen (pegaptanib sodium) for the treatment of wet AMD. Lucentis is an antibody fragment derived from the same fulllength antibody from which Avastin was derived. In 2015, annual worldwide sales of Lucentis and Eylea for all indicationstotaled more than $7.0 billion. This sales number does not include Avastin, which is commonly used off-label to treat wetAMD in the United States and, to a lesser extent, in the European Union. The availability of VEGF inhibitors has significantly improved visual outcomes for many patients with wet AMD. Aretrospective study published in 2012 confirmed that the prevalence of both legal blindness and moderate visual impairmentin patients two years after being diagnosed with wet AMD has decreased substantially following the introduction of VEGFinhibitor therapy. Nonetheless, the condition of many patients with wet AMD treated with VEGF inhibitors does not improvesignificantly and in many cases deteriorates. VEGF inhibitors prevent VEGF from binding to its natural receptor on endothelial cells in the abnormal new bloodvessels, thereby inhibiting further CNV and leakage associated with wet AMD. However, VEGF inhibitor therapy may belimited in its ability to improve CNV. Results of third-party clinical trials suggest that visual outcomes for wet AMD patientsreceiving treatment with a VEGF inhibitor worsen over time and are often associated with the development of subretinalfibrosis and the growth of CNV over time. Furthermore, data from clinical trials conducted by Ophthotech Corporationindicate that vision in patients with AMD can be improved by targeting complementary pathways in combination withVEGF inhibitors. As is the case with angiogenesis that drives tumor growth, we believe that the endoglin pathway serves as an escapepathway that allows continued CNV despite inhibition of the VEGF pathway. In addition, the impact of VEGF inhibitors maybe limited by the activity of pericytes, which are the cells that cover the outside of blood vessels and support and stabilizenewly formed vessels. Pericytes are not targeted by VEGF inhibitor therapies, but because they express endoglin, they are anadditional target for endoglin antibodies such as TRC105. These facts provide the rationale for treating wet AMD with acombination of endoglin antibodies and VEGF inhibitors. TRC105 Development in Wet AMD Preclinical Studies of TRC105 in Wet AMD TRC105 was studied in vivo for its ability to inhibit angiogenesis through our collaborator at Johns HopkinsUniversity, using a mouse model of CNV. Mice were divided into three groups that each received treatment with a differentdose of TRC105, and each mouse received an intraocular injection of TRC105 in one eye and saline vehicle (“PBS ControlIV” in the figures below) in the other eye. After 14 days, the area of CNV was measured by image analysis and the mean areaand standard deviation were calculated. Treatment with TRC105 decreased the area of CNV as measured in squaremillimeters (“Area of Choroidal NV (mm2)” in the figures below) in mice as illustrated in the30 Table of Contentsfigure below. The inhibitory effect of TRC105 on CNV was dose dependent, and statistically significant at each TRC105dose level as evidenced by a p-value of less than 0.05, and the highest dose administered (5 mg/mL) inhibited CNV by over50% versus saline vehicle. Dose dependent inhibition of CNV with TRC105 in a mouse model of wet AMD 31 Table of ContentsNotably, the highest concentration of TRC105 used in this experiment was 5% of the concentration that we havedeveloped for clinical trials of TRC105 in wet AMD patients. DE-122 for Wet AMD Our endoglin antibodies for ophthalmology indications are being developed in collaboration with Santen. We haveproduced formulations of TRC105 for development in ophthalmology, and Santen is developing TRC105 under the nameDE-122. In June 2015, Santen filed an IND with the FDA forthe initiation of clinical studies for DE-122 in patients with wet AMD and we expect Santen to complete a Phase 1 clinicaltrial of DE-122 in wet AMD patients in 2016, and that these early clinical trials will include testing of TRC105 in patientsreceiving treatment with a VEGF inhibitor. Role of Endoglin Antibodies in Fibrotic Disease Treatment Overview of Fibrosis Fibrosis is a condition characterized by the harmful buildup of excessive fibrous tissue leading to scarring andultimately organ failure. It is caused by the abnormal secretion of fibrous proteins, including collagen, by fibroblasts, whichare cells that are present in all skin and connective tissue. As a result, fibrosis can affect almost any organ. Endoglin isexpressed on fibroblasts, and its expression may be important to cell function. Increased endoglin expression has beendemonstrated on fibroblasts from patients with heart failure and may play a role in the development of cardiac fibrosis as wellas fibrotic diseases involving other organs. Examples of fibrotic diseases that may be initial target indications for TRC205include NASH and IPF. NASH is a common and serious chronic liver disease caused by excessive fat accumulation in the liver, or steatosis,which induces inflammation and may lead to progressive fibrosis and cirrhosis, followed by eventual liver failure and death.NASH is considered to be the second leading cause of hepatocellular carcinoma, and its prevalence is increasing. NASH isbelieved to be one of the most common chronic liver diseases worldwide, with an estimated prevalence of 2% to 5% of thegeneral adult population in the United States, and an estimated prevalence of 2% to 3% in Europe and other developedcountries. There are currently no therapeutic products approved for the treatment of NASH. Current treatment options arelimited to off-label therapies. Given the lack of available treatment options, we believe that there is a significant unmet needfor a novel therapy for NASH, particularly in those patients with advanced fibrosis and cirrhosis. IPF is a disease characterized by progressive fibrosis of the lungs, which leads to their deterioration and destruction.The cause of IPF is unknown. Research suggests that there are between 40,000 and 80,000 diagnosed cases of IPF in theUnited States, with similar prevalence in the European Union. Esbriet (pirfenidone) is approved for the treatment of mild tomoderate IPF in the United States, the European Union and other countries. OFEV (nintedanib) has been approved for thetreatment of IPF in the United States and has been submitted for regulatory approval in the European Union The Role of Endoglin in Fibrosis Preclinical and clinical data from Tufts Medical Center identified increased endoglin expression on fibroblasts inthe left ventricle of patients with heart failure and demonstrated that inhibiting endoglin limits TGF-β signaling andproduction of fibrotic proteins by human cardiac fibroblasts. Inhibiting endoglin function decreased cardiac fibrosis,preserved left ventricular function, and improved survival in mouse models of heart failure. In the figure below, wild-typemice (“WT” in the figure below) that contain both copies of the endoglin gene develop fibrosis, as evidenced by collagendeposition darkly stained in the figure below, at four and ten weeks following the induction of heart failure. However, inendoglin deficient mice fibrosis is decreased at four and ten weeks, as evidenced by the lack of dark stain (“Eng +/-” in thefigure below). Survival also improved in endoglin-deficient mice. Studies using TRC105 demonstrated that TRC105reversed cardiac fibrosis in mouse models. These data were published in Circulation and the Journal of the American HeartAssociation. Subsequent preclinical research in mouse models indicated that antibodies to endoglin inhibit cardiac and liverfibrosis. Although initial findings indicate endoglin’s importance in cardiac and liver fibrosis, we believe these findings maybe applicable to multiple fibrotic diseases, including NASH, IPF and myelofibrosis, given32 Table of Contentsthat endoglin is expressed on fibroblasts, a cell that is critical to the process of fibrosis in the heart, lung, liver and otherorgans. Cardiac Fibrosis in Wild-Type Mice and Endoglin-Deficient Mice TRC205 and TRC105 Development in Fibrotic Diseases We may develop TRC105 in a fibrotic disease. We also are using our knowledge of the endoglin pathway to designand evaluate a fully humanized and deimmunized endoglin antibody called TRC205. We have cloned this antibody anddemonstrated high affinity binding to human endoglin. We expect to complete additional preclinical studies of TRC205 infibrosis, including in models of NASH, in 2016. Positive preclinical data may allow for IND enabling manufacturingactivities and preclinical studies to begin in 2016 by TRACON or through a corporate partnership. Overview of Base Excision Repair and the Mechanism of Action of TRC102 Base-excision repair, or BER, is a complex and fundamental cellular process used by cancer cells to repair the DNAdamage caused by chemotherapeutics, especially the classes of chemotherapeutics known as alkylating agents, includingTemodar, dacarbazine and bis-dichloroethyl-nitrosourea, or BCNU, and anti-metabolite agents, including Fludara andAlimta. The process of BER removes DNA bases damaged by chemotherapy, resulting in the formation of gaps in the DNAstrand called apurinic and apyrimidinic, or AP, sites. The appropriate base is then inserted in this gap to restore the propertumor DNA sequence. By this process, cancer cells can circumvent the anti-tumor effects of chemotherapy. Inhibition of BER has been proposed as a way to improve the efficacy of chemotherapeutics; however, to ourknowledge, no inhibitors of BER have yet been tested in clinical trials. We are developing TRC102 (methoxyaminehydrochloride) to reverse resistance to specific chemotherapeutics by inhibiting BER. TRC102 interrupts BER by rapidlyand covalently binding within AP sites, converting the AP site to a substrate for the enzyme topoisomerase II, which cleavesTRC102-bound DNA, resulting in an accumulation of DNA strand breaks that trigger cellular apoptosis, or programmed celldeath, as illustrated in the figure below: 33 Table of Contents TRC102 binding results in apoptosis The induction of apoptosis by TRC102 is relatively selective for cancer cells, which typically overexpresstopoisomerase II. In nonmalignant cells with low topoisomerase II expression, TRC102-bound DNA is excised and replacedby a separate DNA repair system. TRC102 Development in Oncology TRC102 is being developed to reverse resistance to Temodar, an alkylating chemotherapeutic, as well as to Alimtaand Fludara, two antimetabolite chemotherapeutics. We consider it advantageous to combine TRC102 with Alimta becauseAlimta is already approved in one large market indication (lung cancer) and one orphan drug indication (mesothelioma).Temodar is an approved chemotherapeutic used as a standard of care agent to treat glioblastoma, and Fludara is an approvedchemotherapeutic used as a standard of care agent to treat lymphoma and leukemia. In initial clinical trials of more than 100patients, TRC102 has shown good tolerability and promising anti-tumor activity, in combination with alkylating andantimetabolite chemotherapy. TRC102 recently began Phase 2 development through a Phase 2 clinical trial sponsored by the NCI that combinesTRC102 with Alimta in patients with mesothelioma, as well as a Phase 2 clinical trial of TRC102 with Temodar in patientswith glioblastoma. A Phase 1b trial sponsored by the NCI that combines TRC102 with Alimta and cisplatin in patients withsolid tumors has also been initiated, and we expect NCI to initiate a Phase 1 clinical trial of TRC102 with chemotherapy andradiation therapy in lung cancer. If Phase 2 data indicate activity of TRC102 with Temodar, we believe these data wouldsupport the initiation of a Phase 3 clinical trial with the goal of approving TRC102 with Temodar for treatment ofglioblastoma. If Phase 2 data indicate activity of TRC102 with Alimta or other antimetabolite chemotherapeutics, we believethese data would support the initiation of Phase 3 clinical trials with the goal of approving TRC102 for treatment withAlimta or other approved antimetabolite chemotherapeutics. We expect to fund Phase 3 clinical trials, if merited by Phase 2data. We filed an IND for TRC102 in March 2008, Case Western filed an IND for TRC102 in March 2006, and NCI filedan IND for TRC102 in March 2013, all for the treatment of patients with advanced solid tumors. The IND filed by NCI crossreferences our IND.34 Table of ContentsCompleted Phase 1 Clinical Trials We completed a Phase 1 ascending dose clinical trial evaluating the safety, tolerability, pharmacokinetics,pharmacodynamics and anti-tumor activity of TRC102 given with Alimta in patients with advanced solid tumors. Theprimary endpoint of the trial was to determine the recommended dose of TRC102 to be used in combination with Alimta forPhase 2 clinical trials and to assess overall safety and tolerability of the combination. Secondary endpoints included analysisof TRC102 distribution in the blood, assessment of whether TRC102 inhibited BER and assessment of preliminary evidenceof improved anti-tumor activity when TRC102 was combined with Alimta. Given the limited number of patients in this clinical trial, no statistical analyses were performed. Twenty-eightpatients were treated with escalating doses of TRC102 until cancer progression or unacceptable toxicity using a standarddose escalation design at dose levels of 15, 30, 60 and 100 mg/m2 given once daily for four days of recurring three-weekcycles with the approved dose of Alimta given every three weeks. The maximum tolerated dose was exceeded at the top doseof 100 mg/m2 given once daily due to anemia, as predicted by preclinical studies. Anemia was the only dose limitingtoxicity reported and was not accompanied by significant low platelet count or low white blood cell count, and wasreversible and manageable with standard supportive measures. The 30 mg/m2 daily TRC102 dose level was generally welltolerated and achieved target TRC102 levels in the blood and inhibited BER as expected in the peripheral blood cells ofcancer patients. In addition, Alimta exposure analyzed following dosing with the co-administration of TRC102 was similarto published Alimta exposures, indicating that TRC102 did not affect the clearance of Alimta. All 28 patients had RECIST 1.1-defined measurable disease, and 25 underwent at least one response assessment.Fifteen patients had a best response of stable disease or better lasting for three or more cycles, including a 61-year-old womanwith metastatic salivary gland cancer treated previously with Erbitux, Taxotere (docetaxel) and carboplatin, whose tumorexpressed high levels of a marker associated with resistance to Alimta. This patient had a partial response as assessed byRECIST 1.1 and remained in our clinical trial without cancer progression for 14 months. In addition, 14 patients had stabledisease for three or more cycles including patients with squamous cell lung cancer (three patients), epithelial ovarian cancer(three patients), colorectal cancer (two patients), non-squamous non-small cell lung cancer (one patient), pancreatic cancer(one patient), prostate cancer (one patient), endometrial cancer (one patient), head and neck cancer (one patient) and breastcancer (one patient). These data were published in Investigational New Drugs in 2012. Case Western reported data from a trial of intravenous TRC102 given in combination with Fludara in a Phase 1clinical trial at the ASH annual meeting in December 2014. Five dose levels of TRC102 were studied in 20 patients. Thecombination of TRC102 at the highest dose level of 120 mg/m/day was well tolerated with Fludara given at 25 mg/m/dayfor five days in recurring 28 day cycles. There were no pharmacologic interactions between the two drugs and TRC102 targetconcentrations were achieved. Anti-tumor activity, including partial response, was noted in patients with lymphoma andchronic lymphocytic leukemia, including patients treated previously with Fludara. Case Western reported data from a trial of TRC102 given intravenously in combination with Temodar in a Phase 1clinical trial at the ASCO annual meeting in June 2015. Seven dose levels were studied in 38 patients. The combination ofTRC102 at the highest dose level of 150 mg/m/day and Temodar at 200 mg/ m/day for five days was well tolerated. Therewere no pharmacologic interactions between the two drugs and TRC102 target concentrations were achieved. Anti-tumoractivity was noted in patients with ovarian cancer and neuroendocrine tumors. Ongoing Phase 1 Clinical Trial of TRC102 and Temodar The NCI reported data from a trial of TRC102 given orally in combination with Temodar in a Phase 1 clinical trial atthe AACR annual meeting in April 2015. Dosing of five of eight planned dose levels had been studied in 27 patients, andthe combination of TRC102 at 100 mg/day for five days with Temodar at 150 mg/m/day for five days of recurring 28 daycycles was well tolerated. There were no pharmacologic interactions between the two drugs andTRC102 target concentrations were achieved. Partial response was noted in patients with ovarian cancer and squamous celllung cancer. 35 22222Table of ContentsPreclinical Studies Preclinical studies conducted by Case Western demonstrated that increased DNA strand breaks occurred in cellsexposed to BCNU in combination with TRC102 versus cells exposed to BCNU alone. These results suggest that a significantincrease in DNA damage occurs when an alkylating agent is combined with TRC102. TRC102 also reversed resistance ofcolorectal cancer cells to BCNU in vivo. Four human colorectal cancer cell lines were grown as tumors in mice and thenexposed to TRC102 and BCNU. While all cell lines were insensitive to BCNU alone, the combined administration ofTRC102 and BCNU resulted in significant growth inhibition in all tested human tumors grown in mice. TRC102 also increased the anti-tumor effect of another alkylating chemotherapeutic, Temodar. Tumor regressionwas noted when mice were treated with a combination of Temodar and TRC102. In comparison, each agent alone either hadno effect or delayed tumor growth but did not produce regression. Moreover, although TRC102 was able to improve theefficacy of Temodar, there was no additional toxicity compared to animals treated with Temodar alone as assessed by bodyweight and complete blood counts. Tumor apoptosis in this mouse experiment occurred in a dose- and time-dependentmanner after treatment with TRC102 and Temodar. Additional preclinical studies indicate that TRC102 increased theefficacy of the combination of Temodar and a poly ADP-ribose polymerase, or PARP, inhibitor. These data suggest that theinhibition of BER by TRC102 increases the sensitivity of tumor cells to the effects of alkylating agents such as Temodar andBCNU. TRC102’s lack of toxicity provides an excellent opportunity to increase the therapeutic effects of alkylating agentswhile avoiding the toxicities of combination therapies with cytotoxic agents. We believe this approach may benefit patientswhose therapy requires the use of alkylating agents for treatment, including patients with breast, brain and urinary tractcancers, as well as hematologic cancers such as myeloma and lymphoma. Further data from preclinical studies combining TRC102 with Fludara and Alimta indicated that TRC102 similarlyincreased the efficacy of a second class of chemotherapeutics known as anti-metabolites. DNA damage caused by the anti-metabolite Fludara is repaired by BER. As with alkylating chemotherapeutics, TRC102 increased the number of DNA strandbreaks caused by Fludara, leading to increased apoptosis. The addition of TRC102 also increased the anti-tumor activity ofFludara in a study using human colon cancer cells grown in mice. Similar studies were conducted with Alimta, another anti-metabolite agent. Alimta treatment induced BER in cancer cells, as evidenced by the generation of large numbers of AP sites.Treatment with Alimta in combination with TRC102 increased the number of DNA strand breaks relative to treatment withAlimta alone. TRC102 also reversed resistance to Alimta in human lung cancer cells grown in mice. Clinical and Regulatory Efficiencies Our clinical operations and regulatory affairs groups are responsible for significant aspects of our clinical trials,including site selection, site qualification, site initiation, site monitoring, maintenance of the trial master file, regulatorycompliance, drug distribution management, contracting and budgeting, database management, edit checks, query resolution,and clinical study report preparation. The use of this internal resource eliminates the cost associated with hiring CROs tomanage clinical, regulatory and database aspects of the Phase 1 and Phase 2 clinical trials that we sponsor in the UnitedStates. In our experience, this model has resulted in capital efficiencies and improved communication with clinical trial sites,which expedites patient enrollment and access to patient data compared to a CRO-managed model, and we plan to leveragethis capital efficient model for future product development. We have also been able to advance clinical development of TRC105 and TRC102 in a capital-efficient mannerthrough our collaboration with NCI. Both of our clinical stage assets, TRC105 and TRC102, have been selected by NCI forfunding of Phase 1 and Phase 2 development. This highly competitive program is designed to accelerate the development ofpromising oncology drugs that target novel anti-cancer pathways. Genentech Inc. collaborated with NCI to accelerate thedevelopment of Avastin. Notably, Phase 3 clinical trials of Avastin (in lung cancer, breast cancer, and renal cell carcinoma)were conducted through NCI, and data from these Phase 3 clinical trials were important elements of the supplementalBiologics License Applications, or BLAs, submitted by Genentech that resulted in the approval of Avastin in theseindications. Phase 2 clinical trials of both TRC102 and TRC105 are being performed in collaboration with NCI. If merited byPhase 2 data, we expect to fund initial Phase 3 clinical trials of TRC105 and TRC102, and, based on NCI’s past course ofconduct with similarly situated pharmaceutical companies in which it has sponsored pivotal clinical trials following receiptof positive Phase 2 data, we anticipate that NCI will sponsor Phase 3 clinical trials36 Table of Contentsin additional indications. Collaboration and License Agreements License Agreement with Santen In March 2014, we entered into a license agreement with Santen, under which we granted Santen an exclusive,worldwide license to certain patents, information and know-how related to TRC105, or the TRC105 Technology. Under theagreement, as amended, Santen is permitted to use, develop, manufacture and commercialize TRC105 products forophthalmology indications, excluding systemic treatment of ocular tumors. Santen also has the right to grant sublicenses toaffiliates and third party collaborators, provided such sublicenses are consistent with the terms of our agreement. In the eventSanten sublicenses any of its rights under the agreement relating to the TRC105 Technology, Santen will be obligated to payus a portion of any upfront and certain milestone payments received under such sublicense. Santen has sole responsibility for funding, developing, seeking regulatory approval for and commercializingTRC105 products in the field of ophthalmology. In the event that Santen fails to meet certain commercial diligenceobligations, we will have the option to co-promote TRC105 products in the field of ophthalmology in the United States withSanten. If we exercise this option, we will pay Santen a percentage of certain development expenses, and we will receive apercentage of profits from sales of the licensed products in the ophthalmology field in the United States, but will not alsoreceive royalties on such sales. We will own any and all discoveries and inventions made solely by us under the agreement, and Santen will ownany and all discoveries and inventions made solely by Santen under the agreement. We will jointly own discoveries andinventions made jointly by us and Santen. We have the first right, but not the obligation, to enforce the patents licensed toSanten under the agreement, and Santen has the first right, but not the obligation, to enforce the patents it controls that arerelated to TRC105 and the patents owned jointly by us and Santen. Subject to certain limitations, if the party with the firstright to enforce a patent fails to timely do so, the other party will have the right to enforce such patent. In consideration of the rights granted to Santen under the agreement, we received a one-time upfront fee of$10.0 million. In addition, we are eligible to receive up to a total of $155.0 million in milestone payments upon theachievement of certain milestones, of which $20.0 million relates to the initiation of certain development activities,$52.5 million relates to the submission of certain regulatory filings and receipt of certain regulatory approvals and$82.5 million relates to commercialization activities and the achievement of specified levels of product sales. If TRC105products are successfully commercialized in the field of ophthalmology, Santen will be required to pay us tiered royalties onnet sales ranging from high single digits to low teens, depending on the volume of sales, subject to adjustments in certaincircumstances. In addition, Santen will reimburse us for all royalties due by us under certain third party agreements withrespect to the use, manufacture or commercialization of TRC105 products in the field of ophthalmology by Santen and itsaffiliates and sublicensees. Royalties will continue on a country-by-country basis through the later of the expiration of ourpatent rights applicable to the TRC105 products in a given country or 12 years after the first commercial sale of the firstTRC105 product commercially launched in such country. As of December 31, 2015, $3.0 million of the developmentmilestones have been achieved and received in accordance with the agreement. Santen may unilaterally terminate this agreement in its entirety, or on a country-by-country basis, for any reason orfor no reason upon at least 90 days’ notice to us (or 30 days’ notice if after a change in control). Either party may terminatethe agreement in the event of the other party’s bankruptcy or dissolution or for the other party’s material breach of theagreement that remains uncured 90 days (or 30 days with respect to a payment breach) after receiving notice from the non-breaching party. Unless earlier terminated, the agreement continues in effect until the termination of Santen’s paymentobligations. License Agreement with Roswell Park Cancer Institute and Health Research Inc. In November 2005, we entered into a license agreement with Health Research Inc. and Roswell Park CancerInstitute, referred to collectively as RPCI. Under the agreement, as amended, we obtained an exclusive, worldwide license tocertain patents and other intellectual property rights controlled by RPCI related to endoglin antibodies,37 Table of Contentsincluding TRC105, and their therapeutic uses, which we refer to as the RPCI Technology, and a non-exclusive, worldwidelicense to certain know-how controlled by RPCI related to the RPCI Technology. Under the agreement, we are permitted touse, manufacture, develop and commercialize products utilizing the RPCI Technology in all fields of use. In addition, we arepermitted to sublicense our rights under the agreement to third parties. Under the agreement, we are responsible for development and commercialization activities for products utilizing theRPCI Technology, and we are obligated to use all commercially reasonable efforts to bring a product utilizing the RPCITechnology to market timely and efficiently. In consideration of the rights granted to us under the agreement, we paid a one-time upfront fee to RPCI. In addition,we may be required to pay up to an aggregate of approximately $6.4 million upon the achievement of certain milestones forproducts utilizing the RPCI Technology, including TRC105, of which approximately $1.4 million relates to the initiation ofcertain development activities and $5.0 million relates to certain regulatory filings and approvals. Pursuant to theamendment entered into in November 2009, we may also be required to pay up to an aggregate of approximately$6.4 million upon the achievement of certain milestones for products utilizing a patent owned by us covering humanizedendoglin antibodies, including TRC205, of which approximately $1.4 million relates to the initiation of certaindevelopment activities and $5.0 million relates to certain regulatory filings and approvals. Upon commercialization, we willbe required to pay RPCI mid single-digit royalties based on net sales of products utilizing the RPCI Technology in eachcalendar quarter, subject to adjustments in certain circumstances. In addition, pursuant to the amendment entered into inNovember 2009, we will be required to pay RPCI low single-digit royalties based on net sales in each calendar quarter ofproducts utilizing our patent covering humanized endoglin antibodies. Our royalty obligations continue until the expirationof the last valid claim in a patent subject to the agreement, which we expect to occur in 2029, based on the patents currentlysubject to the agreement. We may unilaterally terminate this agreement in whole or in part, for any reason or no reason, upon at least 60 days’notice to RPCI. RPCI may terminate the agreement if we fail to pay any amount due under the agreement or materially breachthe agreement and the breach remains uncured 90 days after receiving notice. In the event of our bankruptcy, the agreementwill automatically terminate. Unless otherwise terminated, the agreement will remain in effect on a country-by-country basisuntil the expiration of the last valid claim under the patents subject to the agreement. License Agreement with Case Western In August 2006, we entered into a license agreement with Case Western, under which we obtained an exclusive,worldwide license to certain patents, know-how and other intellectual property controlled by Case Western related tomethoxyamine, which we refer to as the TRC102 Technology. Under the agreement, as amended, we have the right to use,manufacture and commercialize products utilizing the TRC102 Technology for all mammalian therapeutic uses, and tosublicense these rights. Under the agreement, we are generally obligated to use our best efforts to commercialize the TRC102 Technology assoon as possible. We are also required to meet specified diligence milestones, and if we fail to do so and do not cure suchfailure, Case Western may convert our license into a non-exclusive license or terminate the agreement. In consideration of the rights granted to us under the agreement, we paid a one-time upfront fee to Case Western. Inaddition, we may be required to pay up to an aggregate of approximately $9.8 million in milestone payments, of which$650,000 relates to the initiation of certain development activities and approximately $9.1 million relates to the submissionof certain regulatory filings and receipt of certain regulatory approvals. If products utilizing the TRC102 Technology aresuccessfully commercialized, we will be required to pay Case Western a single-digit royalty on net sales, subject toadjustments in certain circumstances. Beginning on the earlier of a specified number of years from the effective date of theagreement and the anniversary of the effective date following the occurrence of a specified event, we will be required to makea minimum annual royalty payment of $75,000, which will be credited against our royalty obligations. In the event wesublicense any of our rights under the agreement relating to the TRC102 Technology, we will be obligated to pay CaseWestern a portion of certain fees we may receive under the sublicense. Our royalty obligations will continue through the laterof (i) the expiration of any orphan drug marketing exclusivity for a product utilizing the TRC102 Technology, (ii) August2026, or (iii) on a country-by-country basis upon the expiration38 Table of Contentsof the last valid claim under the TRC102 Technology or any patent we receive that is a derivative of the TRC102Technology. We may unilaterally terminate this agreement in its entirety, for any reason or for no reason, upon at least 30 days’notice to Case Western. If we do so, we will be required to pay Case Western a termination fee. If we fail to pay any amountrequired under the agreement and do not cure the default within 90 days of receiving notice, Case Western will have to rightto convert our exclusive license to a non-exclusive license or to terminate the agreement entirely. Either party may terminatethe agreement in the event of the other party’s material breach of the agreement that remains uncured 60 days after receivingnotice of the breach. License Agreement with Lonza Sales AG In June 2009, we entered into a license agreement with Lonza Sales AG, or Lonza, under which we obtained a world-wide non-exclusive license to Lonza’s glutamine synthetase gene expression system consisting of cell lines into whichTRC105 may be transfected and corresponding patents and applications, which we refer to as the Lonza Technology. Underthe agreement, we are permitted to use, develop, manufacture and commercialize TRC105 obtained through use of the LonzaTechnology. In consideration for the rights granted to us under the agreement, we are required to pay Lonza a low single-digitpercentage royalty on the net selling price of TRC105 product manufactured by Lonza. In the event that we or a strategicpartner or collaborator manufactures the product, we will be required to pay Lonza an annual lump sum payment of £75,000,along with a low single-digit percentage royalty on the net selling price of the manufactured TRC105 product. In the eventthat we sublicense our manufacturing rights under the agreement (other than to a strategic partner or collaborator), we will beobligated to pay Lonza an annual lump sum payment of £300,000 per sublicense, along with a low single-digit percentageroyalty on the net selling price of the manufactured TRC105 product. If, on a country-by-country basis, the manufacture orsale of the TRC105 product is not protected by a valid claim in a licensed patent, our royalty obligations in such countrywill decrease and will expire 12 years after the first commercial sale of the product. We may unilaterally terminate this agreement for any reason upon at least 60 days’ written notice to Lonza. Eitherparty may terminate the agreement by written notice if the other party commits a breach and, if the breach is curable, does notcure the breach within 30 days of receiving notice from the non-breaching party. In addition, either party may terminate theagreement with written notice in the event of the other party’s liquidation or appointment of a receiver. Unless earlierterminated, the agreement continues in effect until the later of the expiration of the last valid claim in a licensed patent or forso long as the know-how subject to the agreement is identified and remains secret and substantial. Cooperative Research and Development Agreements with NCI We are a party to three Cooperative Research and Development Agreements, or CRADAs, with the U.S. Departmentof Health and Human Services, as represented by NCI, for the development of TRC105 and TRC102 for the treatment ofcancer. We entered into the two CRADAs governing the development of TRC105 in December 2010, or the 2010 CRADA,and January 2011, or the 2011 CRADA, respectively. The 2010 CRADA is with the Division of Cancer Treatment andDiagnosis of NCI, and the 2011 CRADA is with NCI’s Center for Cancer Research. We entered into the CRADA governingthe development of TRC102 in August 2012. Under the CRADAs, as amended, NCI conducts clinical trials and non-clinical studies of either TRC105 or TRC102.We are responsible for supplying TRC105 for NCI’s activities under the TRC105 CRADAs. Pursuant to the terms of the 2010 CRADA, we are required to pay NCI $20,000 per clinical trial per year as well asexpenses incurred by NCI in connection with carrying out its responsibilities under the 2010 CRADA, up to an aggregatemaximum of $500,000 per year, as well as up to $5,000 per year for personnel-related expenses. At our discretion, we mayalso provide additional funding to support assays and other studies. In addition, we made a one-time payment of $20,000 tosupport regulatory filings. Under the 2011 CRADA, we are required to pay NCI $5,000 per year39 Table of Contentsfor support for its research activities, as well as up to $5,000 per year for personnel-related expenses. We may also providefunding for mutually agreed upon animal studies. Under the TRC102 CRADA, we are required to pay NCI $20,000 per yearper Phase 1 clinical trial and $25,000 per year per Phase 2 clinical trial, as well as expenses incurred by NCI in connectionwith carrying out its responsibilities under the TRC102 CRADA, up to an aggregate maximum per year of $200,000. We mayalso provide funding to support assays and other studies, and if NCI supplies TRC102 for additional mutually approvedclinical trials beyond the planned trials, we will reimburse NCI for costs associated with manufacturing TRC102. In addition,we made a one-time payment of $20,000 for the initial IND filing and may be required to make additional one-time paymentsof $10,000 each for additional IND filings. Funding for clinical trials beyond those contemplated by the 2010 CRADA or theTRC102 CRADA will be determined in an amendment to the applicable CRADA. Under each CRADA, each party individually owns all inventions, data and materials produced solely by itsemployees in the course of performing research activities pursuant to the CRADA. The parties jointly own any inventionsand materials that are jointly produced by employees of both parties. Subject to certain conditions, we have the option undereach CRADA to negotiate commercialization licenses from the government to intellectual property conceived or firstreduced to practice in performance of the CRADA research plan that was developed solely by NCI employees or jointly by usand NCI employees. Each CRADA had an original five-year term, with the 2010 CRADA and the 2011 CRADA expiring onDecember 22, 2015 and January 28, 2016, respectively, and the TRC102 CRADA expiring on August 7, 2017. The 2010 and2011 CRADA have been extended through December 22, 2018 and January 28, 2021, respectively. Each CRADA may beterminated at any time by mutual written consent, and we or NCI may unilaterally terminate any of the CRADAs for anyreason or no reason by providing written notice at least 60 days before the desired termination date. Manufacturing We do not own or operate, nor do we expect to own or operate, facilities for product manufacturing, storage,distribution or testing. We therefore rely on various third-party manufacturers for the production of our product candidates.TRC105 drug substance for our preclinical studies, Phase 1 clinical trials and Phase 2 clinical trials is manufactured byLonza, a contract manufacturer that also manufactures approved biologic cancer treatments marketed by other companies andis compliant to U.S. and European regulatory standards. TRC105 drug substance is produced by Chinese hamster ovary, or CHO, cells developed at Lonza and manufacturedusing Lonza’s proprietary manufacturing and purification processes. Lonza has capabilities to manufacture monoclonalantibodies and other protein therapeutics at the large scale needed for commercialization. We are currently working withLonza to scale the process to a level that will support commercialization. TRC105 drug product is produced by an FDA-registered contract manufacturer. Drug product is filter-sterilized andaseptically filled into single-use pharmaceutical grade vials and stoppered using an automated filling machine. The finaldrug product is stored refrigerated until used. TRC102 drug substance is manufactured through a standard chemical synthesis and may be obtained from multiplemanufacturers. TRC205 is currently produced at research scale using standard antibody production methods. We expect to contractwith a third-party manufacturer to prepare production-grade cell lines for the cGMP manufacture of TRC205 prior toinitiating clinical trials. Competition The development and commercialization of new drugs is highly competitive, and we and our collaborators facecompetition with respect to each of our product candidates in their target indications. Many of the entities developing andmarketing potentially competing products have significantly greater financial, technical and human resources and expertisethan we do in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatoryapprovals and marketing. Mergers and acquisitions in the biotechnology and pharmaceutical industries may40 Table of Contentsresult in even more resources being concentrated among a smaller number of our competitors. These competitors alsocompete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trialsites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, ourprograms. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborativearrangements with large and established companies. Our commercial opportunity will be reduced or eliminated if ourcompetitors develop and commercialize products that are more effective, have fewer side effects, are more convenient or areless expensive than any products that we may develop. If our product candidates are approved, they will compete with currently marketed drugs and therapies used fortreatment of the following indications, and potentially with drug candidates currently in development for the sameindications. The key competitive factors affecting the success of any approved product will include its efficacy, safety profile,price, method of administration and level of promotional activity. Oncology Therapies We are developing TRC105 to be used in combination with VEGF inhibitors for the treatment of cancer. If TRC105is approved, it could compete with other non-VEGF angiogenesis inhibitors in development, including some that also targetthe endoglin pathway and have the potential to be combined with VEGF inhibitors or used independently of VEGFinhibitors to inhibit angiogenesis. Acceleron Pharma Inc., Amgen, Inc., MedImmune LLC, OncoMed Pharmaceuticals Inc.,Pfizer Inc., Regeneron Pharmaceuticals, Inc. and Roche AG are each developing non-VEGF angiogenesis inhibitors, whichare in various phases of clinical development. Pfizer’s product candidate targets the endoglin co-receptor ALK1 and is in aPhase 1b clinical trial in combination with Stivarga in patients with colorectal carcinoma. Acceleron’s product candidatetargets the endoglin ligand BMP and is in a Phase 2b clinical trial in combination with Inlyta in patients with renal cellcarcinoma and a Phase 1b clinical trial in combination with Nexavar in patients with hepatocellular carcinoma. We are developing TRC102 to be used in combination with alkylating chemotherapeutics (including Temodar) andantimetabolite chemotherapeutics (including Alimta and Fludara) for the treatment of cancer. If TRC102 is approved, itcould compete with other inhibitors of DNA repair. Tesaro, Inc. and AbbVie Inc. are each developing inhibitors of DNArepair that work by a mechanism of action that is distinct from that of TRC102. In addition to the therapies mentioned above,there are many generic chemotherapeutics and other regimens commonly used to treat various types of cancer, including softtissue sarcoma and glioblastoma. Wet AMD Therapies Our partner, Santen, is developing DE-122 for the treatment of wet AMD and other eye diseases. If DE-122 isapproved in combination with a VEGF inhibitor it could compete with product candidates currently in clinical developmentthat inhibit the function of PDGF or inhibit the function of both VEGF and PDGF, of which Ophthotech Corporation’s anti-PDGF agent, Fovista, currently in Phase 3 clinical development in combination with Lucentis, is the most advanced. If DE-122 is approved as a single agent, it would compete with currently marketed VEGF inhibitors, including Avastin andLucentis (marketed by Genentech in the United States), and Eylea (marketed by Regeneron in the United States), which arewell established therapies and are widely accepted by physicians, patients and third-party payors as the standard of care forthe treatment of wet AMD. In addition, DE-122 could face competition from other VEGF inhibitors in development, such asAllergan’s VEGF inhibitor, DARPin, which is in Phase 2 clinical development for administration in a single intraocularinjection. Other aniogenesis inhibitors in development include Regeneron’s antibody to PDGFR-beta, in Phase 2development in combination with Eylea and Regeneron’s antibody to Ang2, which is planned to enter Phase 2 developmentin 2016 in combination with Eylea. Fibrotic Disease Therapies If TRC205 is approved for the treatment of diseases characterized by fibrosis, including NASH and IPF, weanticipate that TRC205 could compete with other therapies being developed for the same or similar indications. In addition,TRC205 would compete with therapies currently used off-label to treat fibrotic diseases. 41 Table of ContentsNASH There are currently no therapeutic products approved by the FDA for the treatment of NASH. Several marketedtherapeutics are currently used off- label for this indication, such as insulin sensitizers (including metformin),antihyperlipidemic agents (including gemfibrozil), pentoxifylline and Ursodeoxycholic acid (ursodiol), but they have notbeen proven effective in the treatment of NASH. We are aware of several companies that have product candidates in Phase 3clinical development for the treatment of NASH, including Genfit Corp. and Intercept Pharmaceuticals, Inc. In addition, weare aware of companies in Phase 2 clinical development for the treatment of NASH, including Conatus Pharmaceuticals Inc.,Galmed Medical Research Ltd., Gilead Sciences, Inc., Immuron Ltd., Shire plc, Mochida Pharmaceutical Co., Ltd.,NasVax Ltd., Raptor Pharmaceutical Corp. and Takeda Pharmaceutical Company Limited, and there are other companieswith candidates in earlier stage programs. IPF Esbriet, which is marketed by InterMune, Inc., is approved for the treatment of mild to moderate IPF in the UnitedStates, the European Union and other countries. OFEV, which is marketed by Boehringer Ingelheim, a VEGF inhibitor that isapproved for the treatment of IPF in the United States and the European Union. There are at least eight product candidates invarious stages of Phase 2 development being pursued by Biogen Idec., Bristol-Myers Squibb, Celgene Corporation,Fibrogen, Inc., Gilead, Janssen Pharmaceuticals Inc., Novartis AG and Sanofi S.A. Commercialization We hold worldwide commercialization rights for our oncology product candidates, TRC105 and TRC102, as well asfor our fibrotic disease product candidate TRC205, while Santen holds worldwide commercialization rights for our endoglinantibodies, including TRC105, in the field of ophthalmology. If TRC105 or TRC102 is approved in oncology indications,our plan is to build an oncology-focused specialty sales force in North America to support their commercialization and seek apartner to support commercialization outside of North America. We believe that a specialty sales force will be sufficient totarget key prescribing physicians in oncology. We currently do not have any sales or marketing capabilities or experience.We plan to establish the required capabilities within an appropriate time frame ahead of any product approval andcommercialization to support a product launch. Intellectual Property Our commercial success depends in part on our ability to obtain and maintain proprietary protection for our proteintherapeutics, novel biological discoveries, to operate without infringing on the proprietary rights of others and to preventothers from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among othermethods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements thatare important to the development and implementation of our business. We also rely on trade secrets, know-how, continuingtechnological innovation and potential in-licensing opportunities to develop and maintain our proprietary position.Additionally, we expect to benefit from a variety of statutory frameworks in the United States, Europe, Japan and othercountries that relate to the regulation of biosimilar molecules and orphan drug status. These statutory frameworks provideperiods of non-patent-based exclusivity for qualifying molecules. See “—Government Regulation.” Our patenting strategy is focused on our protein therapeutics. We seek composition-of-matter and method-of-treatment patents for each such protein in key therapeutic areas. We also seek patent protection with respect to companiondiagnostic methods and compositions and treatments for targeted patient populations. We have sought patent protectionalone or jointly with our collaborators, as dictated by our collaboration agreements. Our patent estate as of December 31, 2015, on a worldwide basis, includes 14 issued patents and allowedapplications and eight pending patent applications in the United States and 25 issued patents and allowed applications and40 pending patent applications outside the United States with pending and issued claims relating to our product candidates.22 of our issued US and foreign patents cover antibodies to endoglin that we have selected as the core focus of ourdevelopment approach. These figures include in-licensed patents and patent applications to which we hold42 Table of Contentsexclusive commercial rights in non-ophthalmologic fields of use. Individual patents extend for varying periods of time depending on the date of filing of the patent application or thedate of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issuedfrom applications filed in the United States are effective for twenty years from the earliest non-provisional filing date. Inaddition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result ofthe FDA regulatory review period, however, the restoration period cannot be longer than five years and the total patent termincluding the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies inaccordance with provisions of applicable local law, but typically is also twenty years from the earliest international filingdate. Our issued patents and pending applications with respect to our protein therapeutic candidates will expire on datesranging from 2016 to 2035, exclusive of possible patent term extensions. However, the actual protection afforded by a patentvaries on a product by product basis, from country to country and depends upon many factors, including the type of patent,the scope of its coverage, the availability of extensions of patent term, the availability of legal remedies in a particularcountry and the validity and enforceability of the patent. National and international patent laws concerning protein therapeutics remain highly unsettled. No consistentpolicy regarding the patent-eligibility or the breadth of claims allowed in such patents has emerged to date in the UnitedStates, Europe or other countries. Changes in either the patent laws or in interpretations of patent laws in the United Statesand other countries can diminish our ability to protect our inventions and enforce our intellectual property rights.Accordingly, we cannot predict the breadth or enforceability of claims that may be granted in our patents or in third-partypatents. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents andother intellectual property rights. Our ability to maintain and solidify our proprietary position for our drugs and technologywill depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whetherany of the patent applications that we may file or license from third parties will result in the issuance of any patents. Theissued patents that we own or may receive in the future, may be challenged, invalidated or circumvented, and the rightsgranted under any issued patents may not provide us with sufficient protection or competitive advantages againstcompetitors with similar technology. Furthermore, our competitors may be able to independently develop and commercializesimilar drugs or duplicate our technology, business model or strategy without infringing our patents. Because of theextensive time required for clinical development and regulatory review of a drug we may develop, it is possible that, beforeany of our drugs can be commercialized, any related patent may expire or remain in force for only a short period followingcommercialization, thereby reducing any advantage of any such patent. The patent positions for our most advanced programsare summarized below: TRC105/TRC205 Patent Coverage We hold issued patents covering the TRC105 composition of matter in the United States, Japan, and Canada. Theexpected expiration date for these composition-of-matter patents is 2016, plus any extensions of term available under theapplicable national law. We hold issued patents covering our humanized and deimmunized endoglin antibodies, including TRC205, in theUnited States, China, South Korea, Japan and Australia, allowed applications in Eurasia and Israel, and similar applicationsare pending in many other major jurisdictions worldwide, including the United States, Europe, Canada, China, Brazil, Japanand India. The expected expiration date for these composition of matter and methods of use patents is 2029, exclusive ofpossible patent term extensions. We hold issued patents covering the combination therapy of cancer with TRC105 and VEGF inhibitors in Australia,China, South Korea and Japan, an allowed application in Eurasia, and similar patent applications are pending in many othermajor jurisdictions worldwide, including the United States, Europe, Canada, Japan, Israel and India. The expected expirationdate for these method-of-use patents is 2030, exclusive of possible patent term extensions. We have pending applications covering formulations of endoglin antibodies in Australia, Brazil, Canada, China,Eurasia, Europe, Georgia, India, Indonesia, Israel, Japan, South Korea, Malaysia, Mexico, New Zealand, Philippines,Singapore, Thailand, Ukraine, United States, Uzbekistan and Vietnam. The expected expiration date for any patent that mayissue from this application is 2033, exclusive of possible patent term extensions.43 Table of ContentsWe have filed a provisional patent application and an international application directed to uses of endoglinantibodies for treating fibrosis. The expected expiration date for any patent that may arise from these applications is 2035,exclusive of possible patent term extensions. TRC102 Patent Coverage We hold issued patents directed to combination of TRC102 and pemetrexed in the United States, Australia, Canada,Japan, South Korea, Mexico, Russia, Singapore, South Africa, Ukraine and the United Kingdom. We also have pendingapplications in other jurisdictions, including Brazil, China, Europe, Hong Kong, India, Israel and Norway. The expectedexpiration date for these patents is 2027, plus any extensions of term available under national law. We hold an issued patent covering the formulation of TRC102 and temozolomide and methods of using theformulation in the United States. The expected expiration date for this patent is 2019, exclusive of possible patent termextensions. We also hold three issued patents covering methods of using TRC102 and other agents in the United States. It isexpected that these three patents will also expire in 2019, exclusive of any possible patent term extensions. We have filed a patent application on further combinations of TRC102 that is pending the United States andEurope. The expected expiration date for these patents is 2031, exclusive of possible patent term extensions. Trade Secrets In addition to patents, we rely upon unpatented trade secrets and know-how and continuing technologicalinnovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, usingconfidentiality agreements with our commercial partners, collaborators, employees and consultants and inventionassignment agreements with our employees and consultants. These agreements are designed to protect our proprietaryinformation and, in the case of the invention assignment agreements, to grant us ownership of technologies that aredeveloped through a relationship with a third party. These agreements may be breached, and we may not have adequateremedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered bycompetitors. To the extent that our commercial partners, collaborators, employees and consultants use intellectual propertyowned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Government Regulation The preclinical studies and clinical testing, manufacture, labeling, storage, record keeping, advertising, promotion,export, marketing and sales, among other things, of our product candidates and future products, are subject to extensiveregulation by governmental authorities in the United States and other countries. In the United States, pharmaceuticalproducts are regulated by the FDA under the Federal Food, Drug, and Cosmetic Act, of FFDCA, and other laws, including, inthe case of biologics, the Public Health Service Act, or PHSA, in addition to the FDA’s implementing regulations. We expectTRC105 to be regulated by the FDA as a biologic, which requires the submission of a BLA and approval by the FDA prior tobeing marketed in the United States. We expect our small molecule product candidate TRC102 to be regulated as a drug andsubject to New Drug Application, or NDA, requirements, which are substantially similar to the BLA requirements discussedbelow. Manufacturers of our product candidates may also be subject to state regulation. Failure to comply with FDArequirements, both before and after product approval, may subject us or our partners, contract manufacturers and suppliers toadministrative or judicial sanctions, including FDA refusal to approve applications, warning letters, product recalls, productseizures, total or partial suspension of production or distribution, fines and/or criminal prosecution. The steps required before a biologic may be approved for marketing of an indication in the United States generallyinclude: ·completion of preclinical laboratory tests, animal studies and formulation studies conducted according to GoodLaboratory Practices, or GLPs, and other applicable regulations; 44 Table of Contents·submission to the FDA of an IND, which must become effective before human clinical trials may commence; ·completion of adequate and well-controlled human clinical trials in accordance with Good Clinical Practices, orGCPs, to establish that the biological product is “safe, pure and potent,” which is analogous to the safety andefficacy approval standard for a chemical drug product for its intended use; ·submission to the FDA of a BLA; ·satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at whichthe product is produced to assess compliance with applicable current Good Manufacturing Practicerequirements, or cGMPs; and ·FDA review of the BLA and issuance of a biologics license which is the approval necessary to market a biologictherapeutic product. Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation as well as animalstudies to assess the potential safety and efficacy of the biologic candidate. Preclinical studies must be conducted incompliance with FDA regulations regarding GLPs. The results of the preclinical tests, together with manufacturinginformation and analytical data, are submitted to the FDA as part of an IND. Nonclinical testing may continue after the IND issubmitted. In addition to including the results of the preclinical testing, the IND will also include a protocol detailing,among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectivenesscriteria to be evaluated if the first phase or phases of the clinical trial lends themselves to an efficacy determination. The INDwill automatically become effective 30 days after receipt by the FDA, unless the FDA within the 30-day time period placesthe IND on clinical hold because of its concerns about the drug candidate or the conduct of the trial described in the clinicalprotocol included in the IND. The FDA can also place the IND on clinical hold at any time during drug development forsafety concerns related to the investigational drug or to the class of products to which it belongs. The IND sponsor and theFDA must resolve any outstanding concerns before clinical trials can proceed. All clinical trials must be conducted under the supervision of one or more qualified principal investigators inaccordance with GCPs. They must be conducted under protocols detailing the objectives of the applicable phase of the trial,dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated.Each protocol must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trialsmust be submitted to the FDA annually. Sponsors also must timely report to the FDA serious and unexpected adversereactions, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocolor investigator’s brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk inhumans exposed to the drug. An institutional review board, or IRB, at each institution participating in the clinical trial mustreview and approve the protocol before a clinical trial commences at that institution, approve the information regarding thetrial and the consent form that must be provided to each research subject or the subject’s legal representative, and monitor thestudy until completed. Clinical trials are typically conducted in three sequential phases, but the phases may overlap and different trials maybe initiated with the same drug candidate within the same phase of development in similar or differing patient populations.Phase 1 clinical trials may be conducted in a limited number of patients, but are usually conducted in healthy volunteersubjects for indications other than oncology. The drug candidate is initially tested for safety and, as appropriate, forabsorption, metabolism, distribution, excretion, pharmacodynamics and pharmacokinetics. Phase 2 usually involves trials in a larger, but still limited, patient population to evaluate preliminarily the efficacyof the drug candidate for specific, targeted indications to determine dosage tolerance and optimal dosage and to identifypossible short-term adverse effects and safety risks. Phase 3 trials are undertaken to further evaluate clinical efficacy of a specific endpoint and to test further for safetywithin an expanded patient population at geographically dispersed clinical trial sites. Phase 1, Phase 2, or Phase 3 testingmight not be completed successfully within any specific time period, if at all, with respect to any of our product45 Table of Contentscandidates. Results from one trial are not necessarily predictive of results from later trials. Furthermore, the FDA or thesponsor may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are beingexposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at itsinstitution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug candidate hasbeen associated with unexpected serious harm to patients. The FFDCA permits the FDA and an IND sponsor to agree in writing on the design and size of clinical studiesintended to form the primary basis of a claim of effectiveness in a BLA or NDA. This process is known as a Special ProtocolAssessment, or SPA. An SPA agreement may not be changed by the sponsor or the FDA after the trial begins except with thewritten agreement of the sponsor and the FDA, or if the FDA determines that a substantial scientific issue essential todetermining the safety or effectiveness of the drug was identified after the testing began. For certain types of protocols,including carcinogenicity protocols, stability protocols, and Phase 3 protocols for clinical trials that will form the primarybasis of an efficacy claim, the FDA has agreed under its performance goals associated with the Prescription Drug User FeeAct, or PDUFA, to provide a written response on most protocols within 45 days of receipt. However, the FDA does not alwaysmeet its PDUFA goals, and additional FDA questions and resolution of issues leading up to an SPA agreement may result inthe overall SPA process being much longer, if an agreement is reached at all. The results of the preclinical studies and clinical trials, together with other detailed information, includinginformation on the manufacture and composition of the product, are submitted to the FDA as part of a BLA requestingapproval to market the drug candidate for a proposed indication. Under the PDUFA, as re-authorized most recently inJuly 2012, the fees payable to the FDA for reviewing a BLA, as well as annual fees for commercial manufacturingestablishments and for approved products, can be substantial. The fees typically increase each year. Each BLA submitted tothe FDA for approval is reviewed for administrative completeness and reviewability within 60 days following receipt by theFDA of the application. If the BLA is found complete, the FDA will file the BLA, triggering a full review of the application.The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission. TheFDA’s established goal is to review 90% of priority BLA applications within six months after the application is accepted forfiling and 90% of standard BLA applications within 10 months of the acceptance date, whereupon a review decision is to bemade. The FDA, however, may not approve a drug candidate within these established goals and its review goals are subject tochange from time to time. Further, the outcome of the review, even if generally favorable, may not be an actual approval but a“complete response letter” that describes additional work that must be done before the application can be approved. Beforeapproving a BLA, the FDA may inspect the facility or facilities at which the product is manufactured and will not approvethe product unless the facility complies with cGMPs. The FDA may deny approval of a BLA if applicable statutory orregulatory criteria are not satisfied, or may require additional testing or information, which can extend the review process.FDA approval of any application may include many delays or never be granted. If a product is approved, the approval mayimpose limitations on the uses for which the product may be marketed, may require that warning statements be included inthe product labeling, may require that additional studies be conducted following approval as a condition of the approval,and may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a RiskEvaluation and Mitigation Strategy, or REMS, or otherwise limit the scope of any approval. The FDA must approve a BLAsupplement or a new BLA before a product may be marketed for other uses or before certain manufacturing or other changesmay be made. Further post-marketing testing and surveillance to monitor the safety or efficacy of a product is required. Also,product approvals may be withdrawn if compliance with regulatory standards is not maintained or if safety or manufacturingproblems occur following initial marketing. In addition, new government requirements may be established that could delayor prevent regulatory approval of our product candidates under development. As part of the recently-enacted Patient Protection and Affordable Care Act of 2010, as amended by the Health CareEducation Reconciliation Act, under the subtitle of Biologics Price Competition and Innovation Act of 2009, or the BPCIA,a statutory pathway has been created for licensure, or approval, of biological products that are biosimilar to, and possiblyinterchangeable with, earlier biological products licensed under the PHSA. Also under the BPCIA, innovator manufacturersof original reference biological products are granted 12 years of exclusivity before biosimilars can be approved for marketingin the United States. The objectives of the BPCIA are conceptually similar to those of the Drug Price Competition and PatentTerm Restoration Act of 1984, commonly referred to as the “Hatch-Waxman Act,” which established abbreviated pathwaysfor the approval of drug products. The implementation of an abbreviated approval46 Table of Contentspathway for biological products is under the direction of the FDA and is currently being developed. In February 2012 andFebruary 2013, the FDA issued several draft guidances for industry related to the BPCIA, addressing scientific, quality andprocedural issues relevant to an abbreviated application for a biosimilar product. In June 2014, the FDA also released a draftguidance document intended to assist sponsors developing biological products and BLA holders in providing informationand data to the FDA to determine the date of first licensure for a reference product as contemplated in the BPCIA. Theapproval of a biologic product biosimilar to one of our products could have a material adverse impact on our business as itmay be significantly less costly to bring to market and may be priced significantly lower than our products. Both before and after the FDA approves a product, the manufacturer and the holder or holders of the BLA for theproduct are subject to comprehensive regulatory oversight. For example, quality control and manufacturing procedures mustconform, on an ongoing basis, to cGMP requirements, and the FDA periodically inspects manufacturing facilities to assesscompliance with cGMPs. Accordingly, manufacturers must continue to spend time, money and effort to maintain cGMPcompliance. The first biosimilar to a non-antibody protein was approved in the U.S. in March 2015. Other Healthcare Laws Although we currently do not have any products on the market, we may be subject to additional healthcareregulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which weconduct our business. Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims,privacy and security and physician sunshine laws and regulations, many of which may become more applicable if ourproduct candidates are approved and we begin commercialization. If our operations are found to be in violation of any ofsuch laws or any other governmental regulations that apply to us, we may be subject to penalties, including, withoutlimitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion fromparticipation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability tooperate our business and our financial results. Orphan Drug Act The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases andconditions affecting fewer than 200,000 persons in the United States at the time of application for orphan drug designation.Orphan drug designation must be requested before submitting a BLA. Orphan drug designation does not convey anyadvantage in, or shorten the duration of, the regulatory review and approval process. If a product that has orphan drugdesignation subsequently receives the first FDA approval for the disease for which it has such designation, the holder of theapproval is entitled to a seven-year exclusive marketing period in the United States for that product except in very limitedcircumstances. For example, a drug that the FDA considers to be clinically superior to, or different from, another approvedorphan drug, even though for the same indication, may also obtain approval in the United States during the seven-yearexclusive marketing period. In addition, holders of exclusivity for orphan drugs are expected to assure the availability ofsufficient quantities of their orphan drugs to meet the needs of patients. Failure to do so could result in the withdrawal ofmarketing exclusivity for the drug. Legislation similar to the Orphan Drug Act has been enacted outside the United States, including in the EuropeanUnion and Japan. The orphan legislation in the European Union is available for therapies addressing chronic debilitating orlife-threatening conditions that affect five or fewer out of 10,000 persons or are financially not viable to develop. The marketexclusivity period is for ten years, although that period can be reduced to six years if, at the end of the fifth year, availableevidence establishes that the product is sufficiently profitable not to justify maintenance of market exclusivity. The marketexclusivity may be extended to 12 years if sponsors complete a pediatric investigation plan agreed upon with the relevantcommittee of the European Medicines Agency. Orphan legislation in Japan similarly provides for ten years of marketingexclusivity for drugs that are approved for the treatment of rare diseases and conditions. 47 Table of ContentsExclusivity TRC105 and TRC205, as new biological products, benefit from the data exclusivity provisions legislated in theUnited States, the European Union and Japan. All three regions effectively provide a period of data exclusivity to innovatorbiologic products. U.S. legislation provides a 12-year period of data exclusivity from the date of first licensure of a referencebiologic product. EU legislation provides a period of 10 to 11 years and Japan legislation provides a period of 8 years duringwhich companies cannot be granted approval as generic drugs to approved biologic therapies. Protection from genericcompetition is also available for new chemical entities, including potentially the small molecule TRC102, in the UnitedStates for 5 years, in the European Union for 10 to 11 years and in Japan for 8 years. Exclusivity in the European Union The European Union has led the way among the International Conference on Harmonisation regions in establishinga regulatory framework for biosimilar products. The marketing authorization of generic medicinal products and similarbiological medicinal products are governed in the European Union by Article 10(1) of Directive 2001/83/EC (2001). Unlikegeneric medicinal products, which only need to demonstrate bioequivalence to an authorized reference product, similarbiological medicinal products are required to submit preclinical and clinical data, the type and quantity of which is dictatedby class and product specific guidelines. In order to submit a marketing authorization for a similar biological medicinalproduct, the reference product must have been authorized for marketing in the European Union for at least 8 years.Biosimilars can only be authorized for use once the period of data exclusivity on the biological reference medicine hasexpired. In general, this means that the biological reference medicine must have been authorized for at least 10 years before asimilar biological medicine can be made available by another company. The 10-year period can be extended to a maximumof 11 if, during the first 8 years of those 10 years, the marketing authorization holder obtains an authorization for one or morenew therapeutic indications which, during the scientific evaluation prior to their authorization are held to bring a significantclinical benefit in comparison to existing therapies. Many EU countries have banned interchangeability of biosimilars with their reference products to ensure adequatecharacterization of the safety profile of the biosimilar and to enable comparison to that of reference product. Exclusivity in Japan In 2009, Japan’s Ministry of Health, Labour and Welfare, or MHLW, and Pharmaceuticals and Medical DeviceAgency, or PMDA, issued the first Japanese guidance on biosimilars. The guideline (currently available only in Japanese),which shares common key features to EU guidelines, outlines the nonclinical, clinical and CMC requirements for biosimilarapplications and describes the review process, naming conventions and application fees. To date, two biosimilar productshave been approved in Japan. In June 2009, Novartis’ biosimilar of somatropin became the first biosimilar approved in Japan.In January, 2010, Kissei’s biosimilar of epoetin alfa was approved. Japan does not grant exclusivity to pharmaceutical products; however, the country does have a Post MarketingSurveillance, or PMS, system that affects the timing of generic entry and, in effect, provides a period of market exclusivity toinnovator products. This system allows safety data to be acquired for each product. A PMS period is set for most of new drugapprovals, and until this period is over, generic companies cannot submit their applications for drug approvals as genericdrugs. Recently, this period was extended to 8 years for all new drug approvals. Japan’s regulations do not allow currently forinterchangeability of biosimilars with their reference products. Expedited Review and Approval The FDA has various programs, including Fast Track, priority review, and accelerated approval, which are intendedto expedite or simplify the process for reviewing drugs and biologics, and/or provide for the approval of a drug or biologicon the basis of a surrogate endpoint. Even if a drug qualifies for one or more of these programs, the FDA may later decide thatthe drug no longer meets the conditions for qualification or that the time period for FDA review or approval will beshortened. Generally, drugs that are eligible for these programs are those for serious or life-threatening conditions, those withthe potential to address unmet medical needs and those that offer meaningful benefits over existing treatments. For example,Fast Track is a process designed to facilitate the development and expedite the review of drugs to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Priority review is48 Table of Contentsdesigned to give drugs that offer major advances in treatment or provide a treatment where no adequate therapy exists aninitial review within six months as compared to a standard review time of ten months. Although Fast Track and priorityreview do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsorof a Fast Track designated drug and expedite review of the application for a drug designated for priority review. Acceleratedapproval provides for an earlier approval for a new drug that is intended to treat a serious or life-threatening disease orcondition and that fills an unmet medical need based on a surrogate endpoint. A surrogate endpoint is a laboratorymeasurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome. Asa condition of approval, the FDA may require that a sponsor of a drug candidate receiving accelerated approval perform post-marketing clinical trials to confirm the clinically meaning full outcome as predicted by the surrogate marker trial. In June 2013, the FDA published a draft Guidance for Industry entitled, “Expedited Programs for Serious Conditions—Drugs and Biologics” which provides guidance on FDA programs that are intended to facilitate and expedite developmentand review of new drugs as well as threshold criteria generally applicable to concluding that a drug is a candidate for theseexpedited development and review programs. In addition to the Fast Track, accelerated approval and priority reviewprograms discussed above, the FDA also provided guidance on a new program for Breakthrough Therapy designation. Arequest for Breakthrough Therapy designation should be submitted concurrently with, or as an amendment to an IND. TheFDA has already granted this designation and approved Breakthrough Therapy designated drugs. Pediatric Exclusivity and Pediatric Use Under the Best Pharmaceuticals for Children Act, certain drugs may obtain an additional six months of exclusivity,if the sponsor submits information requested in writing by the FDA, or a Written Request, relating to the use of the activemoiety of the drug in children. The FDA may decline to issue a Written Request for studies on unapproved or approvedindications or where it determines that information relating to the use of a drug in a pediatric population, or part of thepediatric population, may not produce health benefits in that population. We have not received a Written Request for such pediatric studies, although we may ask the FDA to issue a WrittenRequest for such studies in the future. To receive the six-month pediatric market exclusivity, we would have to receive aWritten Request from the FDA, conduct the requested studies in accordance with a written agreement with the FDA or, ifthere is no written agreement, in accordance with commonly accepted scientific principles, and submit reports of the studies.A Written Request may include studies for indications that are not currently in the labeling if the FDA determines that suchinformation will benefit the public health. The FDA will accept the reports upon its determination that the studies wereconducted in accordance with and are responsive to the original Written Request or commonly accepted scientific principles,as appropriate, and that the reports comply with the FDA’s filing requirements. In addition, the Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric studies for mostdrugs and biologicals, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route ofadministration. Under PREA, original NDAs, BLAs and supplements thereto must contain a pediatric assessment unless thesponsor has received a deferral or waiver. The required assessment must include the evaluation of the safety and effectivenessof the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration foreach pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral ofpediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including afinding that the drug or biologic is ready for approval for use in adults before pediatric studies are complete or that additionalsafety or effectiveness data needs to be collected before the pediatric studies begin. The FDA must send a non-complianceletter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request forapproval of a pediatric formulation. Coverage and Reimbursement Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which weobtain regulatory approval. In both domestic and foreign markets, sales and reimbursement of any approved products willdepend, in part, on the extent to which third-party payors, such as government health programs, commercial insurance andmanaged healthcare organizations provide coverage, and establish adequate reimbursement levels for, such products. Third-party payors are increasingly challenging the prices charged for medical products and services and imposing controls tomanage costs. Third-party payors may limit coverage to specific products on an approved list, or49 Table of Contentsalso known as a formulary, which might not include all of the FDA-approved products for a particular indication.Additionally, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost- effectivenessof our products. If third-party payors do not consider our products to be cost-effective compared to other therapies, the payorsmay not cover our products after approved as a benefit under their plans or, if they do, the level of reimbursement may not besufficient to allow us to sell our products on a profitable basis. The containment of healthcare costs also has become a priority of federal and state governments and the prices ofdrugs have been a focus in this effort. Governments have shown significant interest in implementing cost-containmentprograms, including price controls, restrictions on reimbursement and requirements for substitution of generic products.Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions withexisting controls and measures, could further limit our net revenue and results. Outside the United States, ensuring adequate coverage and payment for our products will face challenges. Pricing ofprescription pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with governmentalauthorities can extend well beyond the receipt of regulatory marketing approval for a product and may require us to conducta clinical trial that compares the cost effectiveness of our product candidates or products to other available therapies. Theconduct of such a clinical trial could be expensive and result in delays in our commercialization efforts. Third-party payorsare challenging the prices charged for medical products and services, and many third-party payors limit reimbursement fornewly-approved health care products. Recent budgetary pressures in many European Union countries are also causinggovernments to consider or implement various cost-containment measures, such as price freezes, increased price cuts andrebates. If budget pressures continue, governments may implement additional cost-containment measures. Cost-controlinitiatives could decrease the price we might establish for products that we may develop or sell, which would result in lowerproduct revenues or royalties payable to us. There can be no assurance that any country that has price controls orreimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for anyof our products. Healthcare Reform There have been a number of federal and state proposals during the last few years regarding the pricing ofpharmaceutical and biological products, government control and other changes to the healthcare system of the United States.It is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for medical goodsand services may take in response to any healthcare reform proposals or legislation. We cannot predict the effect medical orhealthcare reforms may have on our business, and no assurance can be given that any such reforms will not have a materialadverse effect. By way of example, the United States and state governments continue to propose and pass legislation designed toreduce the cost of healthcare. In March 2010, the United States Congress enacted the Affordable Care Act, which, amongother things, includes changes to the coverage and payment for drug products under government health care programs. TheAffordable Care Act: ·expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimumrebate for both branded and generic drugs and revising the definition of “average manufacturer price,” or AMP,for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices; ·addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug RebateProgram are calculated for drugs that are inhaled, infused, instilled, implanted or injected; ·extended Medicaid drug rebates, previously due only on fee-for-service utilization, to Medicaid managed careutilization, and created an alternate rebate formula for new formulations of certain existing products that isintended to increase the amount of rebates due on those drugs; ·expanded the types of entities eligible for the 340B drug discount program that mandates discounts to certainhospitals, community centers and other qualifying providers. With the exception of children’s hospitals, thesenewly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs. In addition,because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to theMedicaid rebate formula and AMP definition described above could cause the required50 Table of Contents340B discounts to increase; and ·established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50%point-of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries during theircoverage gap period as a condition for the manufacturers’ outpatient drugs to be covered under MedicarePart D. Adoption of other new legislation at the federal or state level could further limit reimbursement for pharmaceuticals,including our product candidates if approved. Foreign Regulation In addition to regulations in the United States, we will be subject to a variety of foreign regulations governingclinical trials and commercial sales and distribution of our product candidates. Whether or not we obtain FDA approval for aproduct candidate, we must obtain approval from the comparable regulatory authorities of foreign countries or economicareas, such as the European Union, before we may commence clinical trials or market products in those countries or areas.The approval process and requirements governing the conduct of clinical trials, product licensing, pricing andreimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval. Certain countries outside of the United States have a process that requires the submission of a clinical trialapplication much like an IND prior to the commencement of human clinical trials. In Europe, for example, a clinical trialapplication, or CTA, must be submitted to the competent national health authority and to independent ethics committees ineach country in which a company intends to conduct clinical trials. Once the CTA is approved in accordance with acountry’s requirements, clinical trial development may proceed in that country. In all cases, the clinical trials must beconducted in accordance with good clinical practices, or GCPs and other applicable regulatory requirements. Under European Union regulatory systems, a company may submit marketing authorization applications eitherunder a centralized or decentralized procedure. The centralized procedure is compulsory for medicinal products produced bybiotechnology or those medicinal products containing new active substances for specific indications such as the treatment ofAIDS, cancer, neurodegenerative disorders, diabetes, viral diseases and designated orphan medicines, and optional for othermedicines which are highly innovative. Under the centralized procedure, a marketing application is submitted to theEuropean Medicines Agency where it will be evaluated by the Committee for Medicinal Products for Human Use. Afavorable opinion typically results in the grant by the European Commission of a single marketing authorization that is validfor all European Union member states within 67 days of receipt of the opinion. The initial marketing authorization is validfor five years, but once renewed is usually valid for an unlimited period. The decentralized procedure provides for approvalby one or more “concerned” member states based on an assessment of an application performed by one member state, knownas the “reference” member state. Under the decentralized approval procedure, an applicant submits an application, or dossier,and related materials to the reference member state and concerned member states. The reference member state prepares a draftassessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receivingthe reference member state’s assessment report, each concerned member state must decide whether to approve the assessmentreport and related materials. If a member state does not recognize the marketing authorization, the disputed points areeventually referred to the European Commission, whose decision is binding on all member states. As in the United States, we may apply for designation of a product as an orphan drug for the treatment of a specificindication in the European Union before the application for marketing authorization is made. Orphan drugs in Europe enjoyeconomic and marketing benefits, including up to 10 years of market exclusivity for the approved indication unless anotherapplicant can show that its product is safer, more effective or otherwise clinically superior to the orphan designated product. Additional Regulation We are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act,the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential51 Table of Contentsfederal, state or local regulations. These and other laws govern our use, handling and disposal of various biological andchemical substances used in, and waste generated by our operations. Our research and development involves the controlleduse of hazardous materials, chemicals and viruses. Although we believe that our safety procedures for handling and disposingof such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contaminationor injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable forany damages that result and any such liability could exceed our resources. Employees As of December 31, 2015, we had 22 full-time employees and one part-time employee, 19 of whom are involved inresearch, development or manufacturing, and four of whom have Ph.D. or M.D. degrees. We have no collective bargainingagreements with our employees and we have not experienced any work stoppages. We consider our relations with ouremployees to be good. Corporate and Other Information We were incorporated in the state of Delaware in October 2004 as Lexington Pharmaceuticals, Inc. and wesubsequently changed our name to TRACON Pharmaceuticals, Inc. in March 2005, at which time we relocated to San Diego,California. Our principal executive offices are located at 8910 University Center Lane, Suite 700, San Diego, CA 92122, andour telephone number is (858) 550-0780. Our corporate website address is www.traconpharma.com and we regularly postcopies of our press releases as well as additional information about us on our website. Information contained on or accessiblethrough our website is not a part of this Annual Report, and the inclusion of our website address in this Annual Report is aninactive textual reference only. This Annual Report contains references to our trademarks and to trademarks belonging to other entities. Solely forconvenience, trademarks and trade names referred to in this Annual Report, including logos, artwork and other visualdisplays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that theirrespective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use ordisplay of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by,any other companies. Item 1A. Risk Factors. Certain factors may have a material adverse effect on our business, financial condition and results of operations,and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider thefollowing discussion of risk factors, in its entirety, in addition to other information contained in this Annual Report as wellas our other public filings with the Securities and Exchange Commission. Risks Related to our Financial Position and Need for Additional Capital We have incurred losses from operations since our inception and anticipate that we will continue to incur substantialoperating losses for the foreseeable future. We may never achieve or sustain profitability. We are a clinical stage company with limited operating history. All of our product candidates, including our mostadvanced product candidate, TRC105, will require substantial additional development time and resources before we wouldbe able to apply for or receive regulatory approvals and begin generating revenue from product sales. We have incurredlosses from operations in each year since our inception, including net losses of $24.4 million, $6.8 million and $7.7 millionfor the years ended December 31, 2015, 2014 and 2013, respectively. At December 31, 2015, we had an accumulated deficitof $58.6 million. We expect to continue to incur substantial and increased expenses as we expand our development activities andadvance our clinical programs, particularly with respect to our planned clinical development and manufacturing activities forTRC105. We also expect an increase in our expenses associated with creating additional infrastructure to support operationsas a public company. As a result of the foregoing, we expect to continue to incur significant and increasing52 Table of Contentslosses and negative cash flows for the foreseeable future. To become and remain profitable, we or our partners must succeed in developing our product candidates, obtainingregulatory approval for them, and manufacturing, marketing and selling those products for which we or our partners mayobtain regulatory approval. We or they may not succeed in these activities, and we may never generate revenue from productsales that is significant enough to achieve profitability. Because of the numerous risks and uncertainties associated withpharmaceutical and biological product development, we are unable to predict the timing or amount of increased expenses orwhen, or if, we will be able to achieve profitability. In addition, our expenses could increase if we are required by the U.S.Food and Drug Administration, or FDA, or comparable foreign regulatory authorities to perform studies or trials in additionto those currently expected, or if there are any delays in completing our clinical trials or the development of any of ourproduct candidates. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequentperiods. Our failure to become or remain profitable would depress our market value and could impair our ability to raisecapital, expand our business, develop other product candidates or continue our operations. We will require substantial additional financing to achieve our goals, and failure to obtain additional financing whenneeded could force us to delay, limit, reduce or terminate our drug development efforts. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. Weexpect our development expenses to substantially increase in connection with our ongoing activities, particularly as weadvance our clinical programs, including our planned and future clinical trials of TRC105. At December 31, 2015, we had cash, cash equivalents and short-term investments totaling $52.2 million. Basedupon our current operating plan, we believe that our existing cash will enable us to fund our operating expenses and capitalrequirements for at least the next 12 months. Regardless of our expectations, changing circumstances beyond our controlmay cause us to consume capital more rapidly than we currently anticipate. For example, our clinical trials may encountertechnical, enrollment or other difficulties or we could encounter difficulties obtaining clinical trial material that couldincrease our development costs more than we expect. In any event, we will require additional capital prior to completingPhase 3 development of, filing for regulatory approval for, or commercializing, TRC105 or any of our other productcandidates. Attempting to secure additional financing may divert our management from our day-to-day activities, which mayadversely affect our ability to develop our product candidates. In addition, we cannot guarantee that future financing will beavailable in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when requiredor on acceptable terms, we may be required to significantly delay, scale back or discontinue the development orcommercialization of our product candidates or otherwise significantly curtail, or cease, operations. If we are unable topursue or forced to delay our planned drug development efforts due to lack of financing, it would have a material adverseeffect on our business, operating results and prospects. Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us torelinquish rights to our product candidates on unfavorable terms to us. We may seek additional capital through a variety of means, including through equity offerings and debt financings.To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interestwill be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder.Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certainactions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional fundsthrough licensing or collaboration arrangements with third parties, we may have to relinquish valuable rights to our productcandidates, or grant licenses on terms that are not favorable to us. Our loan and security agreement with Silicon Valley Bank, or SVB, contains restrictions that limit our flexibility inoperating our business. We may be required to make a prepayment or repay the outstanding indebtedness earlier than weexpect if a prepayment event or an event of default occurs, including a material adverse change with respect to us, whichcould have a materially adverse effect on our business.53 Table of Contents In May 2015, we entered into an amended loan and security agreement with SVB to borrow up to $10.0 million,$8.0 million of which was used to refinance amounts outstanding under prior credit facilities with SVB. The agreement, asamended, contains various covenants that limit our ability to engage in specified types of transactions. These covenants limitour ability to, among other things: ·convey, sell, lease or otherwise dispose of certain parts of our business or property; ·change the nature of our business; ·liquidate or dissolve; ·enter into certain change in control or acquisition transactions; ·incur or assume certain debt; ·grant certain types of liens on our assets; ·maintain certain collateral accounts; ·pay dividends or make certain distributions to our stockholders; ·make certain investments; ·enter into material transactions with affiliates; ·make or permit certain payments on subordinate debt; and ·become an “investment company” as defined under the Investment Company Act of 1940, as amended. The restrictive covenants of the agreement could cause us to be unable to pursue business opportunities that we orour stockholders may consider beneficial. A breach of any of these covenants could result in an event of default under the agreement. An event of default willalso occur if, among other things, a material adverse change in our business, operations or condition occurs, which couldpotentially include negative results in clinical trials, or a material impairment of the prospect of our repayment of any portionof the amounts we owe under the agreement occurs. In the case of a continuing event of default under the agreement, SVBcould elect to declare all amounts outstanding to be immediately due and payable, proceed against the collateral in which wegranted SVB a security interest under the agreement, or otherwise exercise the rights of a secured creditor. Amountsoutstanding under the agreement are secured by all of our existing and future assets, excluding intellectual property, which issubject to a negative pledge arrangement. Risks Related to Clinical Development and Regulatory Approval of Our Product Candidates We are heavily dependent on the success of our lead product candidate TRC105, which is in a later stage of developmentthan our other product candidates. We cannot give any assurance that TRC105 will successfully complete clinicaldevelopment or receive regulatory approval, which is necessary before it can be commercialized. Our business and future success is substantially dependent on our ability to successfully develop, obtain regulatoryapproval for, and commercialize our lead product candidate TRC105, which is currently in Phase 2 clinical trials for thetreatment of multiple solid tumor types. Any delay or setback in the development of any of our product candidates,particularly TRC105, could adversely affect our business and cause our stock price to decline. We cannot assure you that ourplanned clinical development for TRC105 will be completed in a timely manner, or at all, or that we or our partner Santen orany additional future partners, will be able to obtain approval for TRC105 from the FDA or any54 Table of Contentsforeign regulatory authority. Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trialsmay not be predictive of future trial results. Failure can occur at any stage of clinical development. Clinical development is expensive and can take many years to complete, and its outcome is inherently uncertain.Failure can occur at any time during the clinical trial process. For example, enrollment was closed for two of our Phase 2clinical trials sponsored by NCI following interim analyses that did not meet the requirements for continuing enrollment. Theresults of preclinical studies and early clinical trials of our product candidates may not be predictive of the results ofsubsequent clinical trials. In particular, the positive results observed in the Phase 1 and 2 clinical trials of TRC105 do notensure that the ongoing or planned clinical trials of TRC105 will demonstrate similar results. In addition, further interimresults or the final results from these trials could be negative. Even if our product candidates demonstrate favorable results in ongoing or planned Phase 1 and 2 clinical trials,many product candidates fail to show desired safety and efficacy traits in late-stage clinical trials despite having progressedthrough earlier trials. In addition to the inherent safety and efficacy traits of our product candidates, clinical trial failures mayresult from a multitude of factors including flaws in trial design, manufacture of clinical trial material, dose selection andpatient enrollment criteria. A number of companies in the biopharmaceutical industry have suffered significant setbacks inadvanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.Based upon negative or inconclusive results, we or our partners may decide, or regulators may require us, to conductadditional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varyinginterpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatoryapproval. If TRC105 or any other product candidate is found to be unsafe or lack efficacy, we will not be able to obtainregulatory approval for it and our business would be materially harmed. For example, if the results of ongoing or plannedPhase 1 and 2 clinical trials of TRC105 demonstrate unexpected safety issues or do not achieve the primary efficacyendpoints, as applicable, the prospects for approval of TRC105 as well our stock price would be materially and adverselyaffected. Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us andjeopardize or delay our ability to obtain regulatory approval and commence product sales. We may experience delays in clinical trials of our product candidates. Our ongoing and planned clinical trials maynot begin on time, have an effective design, enroll a sufficient number of patients or be completed on schedule, if at all. Ourclinical trials can be delayed for a variety of reasons, including: ·inability to raise funding necessary to initiate or continue a trial; ·delays in obtaining regulatory approval to commence a trial; ·delays in reaching agreement with the FDA on final trial design; ·adverse findings in toxicology studies, including chronic toxicology studies; ·imposition of a clinical hold for safety reasons or following an inspection of our clinical trial operations or trialsites by the FDA or other regulatory authorities; ·delays in reaching agreement on acceptable terms with prospective clinical trial sites; ·delays in obtaining required institutional review board approval at each site; ·delays in recruiting suitable patients to participate in a trial; 55 Table of Contents·delays in having patients complete participation in a trial or return for post-treatment follow-up; ·clinical sites dropping out of a trial to the detriment of enrollment; ·time required to add new clinical sites; or ·delays by our contract manufacturers or other third parties to produce and deliver sufficient supply of clinicaltrial materials. If initiation or completion of our ongoing or planned clinical trials are delayed for any of the above reasons or otherreasons, our development costs may increase, our approval process could be delayed and our ability to commercialize ourproduct candidates could be materially harmed, which could have a material adverse effect on our business. Our product candidates may cause adverse events or have other properties that could delay or prevent their regulatoryapproval or limit the scope of any approved label or market acceptance. Adverse events, or AEs, caused by our product candidates or other potentially harmful characteristics of our productcandidates could cause us, our partners, including NCI or other third party clinical trial sponsors, clinical trial sites orregulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval. Phase 1 or Phase 2 clinical trials of TRC105 and TRC102 conducted to date have generated AEs related to the studydrug, some of which have been serious. The most common AEs identified to date and related to TRC105 have been anemia,dilated small vessels in the skin and mucosal membranes (which may result in nosebleeds and bleeding of the gums),headache, fatigue and gastrointestinal and other symptoms during the initial infusion of TRC105. While we have notobserved an exacerbation of side effects commonly associated with VEGF inhibitors in clinical trials of TRC105 incombination with a VEGF inhibitor, it is possible that future trials, including larger and lengthier Phase 3 clinical trials, mayshow this effect due to both drugs acting to inhibit angiogenesis simultaneously. Because our development and regulatoryapproval strategy for TRC105 is focused on combining TRC105 with VEGF inhibitors, if we encountered safety issuesassociated with combining TRC105 with VEGF inhibitors, it would be a significant setback for our development programand our ability to obtain regulatory approval for TRC105 may be adversely impacted. The most common AE identified inour clinical trials of TRC102 has been anemia. Further, if any of our approved products cause serious or unexpected side effects after receiving market approval, anumber of potentially significant negative consequences could result, including: ·regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution; ·regulatory authorities may require the addition of labeling statements, such as warnings or contraindications; ·we may be required to change the way the product is administered or conduct additional clinical trials; ·we could be sued and held liable for harm caused to patients; or ·our reputation may suffer. Any of these events could prevent us from achieving or maintaining market acceptance of the affected productcandidate and could substantially increase the costs of commercializing our product candidates. 56 Table of ContentsThe regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming andinherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, ourbusiness will be substantially harmed. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typicallytakes many years following the commencement of clinical trials and depends upon numerous factors, including thesubstantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount ofclinical data necessary to gain approval may change during the course of a product candidate’s clinical development andmay vary among jurisdictions. For example, we cannot guarantee that for certain oncology indications where the FDA hastraditionally granted approval to therapies that can demonstrate progression-free survival, the agency will not later require usto demonstrate overall survival, which would greatly extend the time and increase the capital required to complete clinicaldevelopment. We have not obtained regulatory approval for any product candidate, and it is possible that none of ourexisting product candidates or any product candidates we may seek to develop in the future will ever obtain regulatoryapproval. Our product candidates could fail to receive regulatory approval for many reasons, including the following: ·the FDA or comparable foreign regulatory authorities may disagree with the design, scope or implementation ofour clinical trials; ·we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authoritiesthat a product candidate is safe and effective for its proposed indication; ·the results of clinical trials may not meet the level of statistical significance required by the FDA or comparableforeign regulatory authorities for approval; ·we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; ·the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data frompreclinical studies or clinical trials; ·the data collected from clinical trials of our product candidates may not be sufficient to support the submissionof a Biologics License Application, or BLA, or a New Drug Application, or NDA, or other submission or toobtain regulatory approval in the United States or elsewhere; ·the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes orfacilities of third party manufacturers with which we contract for clinical and commercial supplies; ·the FDA or comparable foreign regulatory authorities may fail to approve our validation methods for detectingTRC105 serum levels and antibodies to TRC105 and assessing TRC105 activity in a biologic release assay;and ·the approval policies or regulations of the FDA or comparable foreign regulatory authorities may changesignificantly in a manner rendering our clinical data insufficient for approval. This lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failingto obtain regulatory approval to market TRC105 or our other product candidates, which would harm our business, results ofoperations and prospects significantly. In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidatesfor fewer or more limited indications than we request, may not approve the price we intend to charge for our products, maygrant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidatewith a label that does not include the labeling claims necessary or desirable for the successful57 Table of Contentscommercialization of that product candidate. Any of the foregoing scenarios could harm the commercial prospects for ourproduct candidates. For example, we anticipate that if we were to obtain regulatory approval for TRC105 in some or all of theinitial oncology indications we are pursuing, we or our partners such as NCI would still need to conduct additional Phase 3clinical trials in order to obtain approval for additional indications and expand TRC105’s market potential. In addition, webelieve that TRC105 may be most effective as a treatment of solid tumors, such as angioscarcoma and GTN, that express highlevels of endoglin, and we plan to analyze clinical data to determine if there is a correlation between endoglin expressionand response to TRC105 treatment. If we are unable to establish such a correlation or to identify additional tumor types thatexpress high levels of endoglin, our ability to successfully identify target patient populations for future clinical developmentor to expand TRC105’s market potential would be limited. We have not previously submitted a BLA or NDA, or any similar drug approval filing to the FDA or any comparableforeign authority for any product candidate, and we cannot be certain that any of our product candidates will be successful inclinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even ifthey are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be ableto continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our productcandidates, our revenue will be dependent, to a significant extent, upon the size of the markets in the territories for which wegain regulatory approval. If the markets for patients or indications that we are targeting are not as significant as we estimate,we may not generate significant revenue from sales of such products, if approved. We may not receive Fast Track designation for additional product candidates from the FDA, or Fast Track designationmay not actually lead to a faster development or regulatory review or approval process. We received Fast Track designation for TRC105 in renal cell carcinoma in May 2015 and we intend to seek FastTrack designation or other appropriate expedited development options for our eligible product candidates in otherindications. Fast track designation provides increased opportunities for sponsor meetings with the FDA during preclinicaland clinical development, in addition to the potential for rolling review once a marketing application is filed. A new drug orbiologic is eligible for Fast Track designation if it is intended to treat a serious or life-threatening disease or condition andthe drug demonstrates the potential to address unmet medical needs for the disease or condition. The FDA has broaddiscretion whether or not to grant this designation, and even if we believe a particular product candidate is eligible for thisdesignation, we cannot assure you that the FDA will grant it. Despite our receipt of Fast Track designation for TRC105 inrenal cell carcinoma, and even if additional product candidates receive Fast Track designation, we may not experience afaster development process, review or approval compared to conventional FDA procedures. The FDA may also withdraw FastTrack designation if it believes that the designation is no longer supported by data from our clinical development program. We may be unsuccessful in our efforts to obtain additional orphan drug designations from the FDA for our productcandidates or may not ultimately realize the potential benefits of orphan drug designation. We received orphan drug designation for TRC105 in soft tissue sarcoma in January 2016 and we intend to seekorphan drug designation for our eligible product candidates in other indications. The FDA grants orphan designation todrugs that are intended to treat rare diseases with fewer than 200,000 patients in the United States or that affect more than200,000 persons but are not expected to recover the costs of developing and marketing a treatment drug. Orphan drugs donot require prescription drug user fees with a marketing application, may qualify the drug development sponsor for certaintax credits, and may be eligible for a market exclusivity period of seven years. Despite our receipt of orphan drug designationfor TRC105 in soft tissue sarcoma, we cannot guarantee that we will be able to receive orphan drug status from the FDA forany other product candidates or indications. If we are unable to secure orphan drug designation for additional productcandidates or indications, our regulatory and commercial prospects may be negatively impacted. Despite orphan drug exclusivity, the FDA can still approve another drug containing the same active ingredient andused for the same orphan indication if it determines that a subsequent drug is safer, more effective or makes a majorcontribution to patient care, and orphan exclusivity can be lost if the orphan drug manufacturer is unable to assure that asufficient quantity of the orphan drug is available to meet the needs of patients with the rare disease or condition. Orphandrug exclusivity may also be lost if the FDA later determines that the initial request for designation was materially58 Table of Contentsdefective. In addition, orphan drug exclusivity does not prevent the FDA from approving competing drugs for the same orsimilar indication containing a different active ingredient. If orphan drug exclusivity is lost and we were unable tosuccessfully enforce any remaining patents covering our eligible product candidates, we could be subject to genericcompetition earlier than we anticipate. In addition, if a subsequent drug is approved for marketing for the same or a similarindication as any of our product candidates that receive marketing approval, we may face increased competition and losemarket share regardless of orphan drug exclusivity. Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we willbe successful in obtaining regulatory approval of our product candidates in other jurisdictions. Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not guaranteethat we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtainingregulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example,even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictionsmust also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approvalprocedures vary among jurisdictions and can involve requirements and administrative review periods different from, andgreater than, those in the United States, including additional preclinical studies or clinical trials, as studies or trialsconducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictionsoutside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in thatjurisdiction. In some cases, the price that we would intend to charge for our products is also subject to approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result insignificant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certaincountries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketingapprovals, our target market will be reduced and our ability to realize the full market potential of our product candidates willbe harmed. Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations andcontinued regulatory review, which may result in significant additional expense and we may be subject to penalties if wefail to comply with regulatory requirements or experience unanticipated problems with our product candidates. Any of our product candidates for which we receive regulatory approvals will require surveillance to monitor thesafety and efficacy of the product candidate. The FDA may also require a Risk Evaluation and Mitigation Strategy, or REMS,in order to approve our product candidates, which could entail requirements for a medication guide, physiciancommunication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries andother risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our productcandidates, the manufacturing processes, labeling, packaging, distribution, AE reporting, storage, advertising, promotion,import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatoryrequirements. These requirements include submissions of safety and other post-marketing information and reports,establishment registration and drug listing, as well as continued compliance with regulatory requirements for current goodmanufacturing practices, or cGMPs, and current good clinical practices, or cGCPs, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with our product candidates, including adverse events ofunanticipated severity or frequency, or with our third party manufacturers or manufacturing processes, or failure to complywith regulatory requirements, may result in, among other things: ·restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from themarket, or voluntary or mandatory product recalls; ·fines, warning letters or holds on clinical trials; ·refusal by the FDA to approve pending applications or supplements to approved applications filed by us orsuspension or revocation of existing approvals;59 Table of Contents ·product seizure or detention, or refusal to permit the import or export of our product candidates; and ·injunctions or the imposition of civil or criminal penalties. The FDA’s and other regulatory authorities’ policies may change and additional government regulations may beenacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood,nature or extent of government regulation that may arise from future legislation or administrative action, either in the UnitedStates or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements orpolicies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may haveobtained and we may not achieve or sustain profitability. Risks Related to Our Reliance on Third Parties We depend in part on NCI and other third party sponsors to advance clinical development of TRC105 and TRC102. NCI is currently sponsoring and funding two ongoing clinical trials involving TRC105 and two clinical trialsinvolving TRC102, and we expect NCI to sponsor two additional clinical trials involving TRC102. In addition, CaseWestern has sponsored and funded two separate clinical trials involving TRC102 and we are planning a clinical trial ofTRC105 sponsored by the University of Alabama, Birmingham Cancer Center, or UAB. The advancement of our productcandidates depends in part on the continued sponsorship and funding of clinical trials by these organizations, as ourresources and capital would not be sufficient to conduct these trials on our own. None of these third party sponsors areobligated to continue sponsorship or funding of any clinical trials involving our product candidates and could stop theirsupport at any time. If these third party sponsors ceased their support for our product candidates, our ability to advanceclinical development of our product candidates could be limited and we may not be able to pursue the number of differentindications for our product candidates that are currently being pursued. Even if these third party sponsors continue to sponsor and fund clinical trials of our product candidates, our relianceon their support subjects us to numerous risks. For example, we have limited control over the design or timing of theirclinical trials and limited visibility into their day-to-day activities, including with respect to how they are providing andadministering our product candidates. If there is a failure in a clinical trial sponsored by a third party sponsor due to poordesign of the trial, errors in the way the clinical trial is executed or any other reason, or if the sponsor fails to comply withapplicable regulatory requirements, it could represent a major set-back for the development and approval of our productcandidates, even if we were not directly involved in the trial and even if the clinical trial failure was not related to theunderlying safety or efficacy of the product candidate. In addition, these third party sponsors could decide to de-prioritizeclinical development of our product candidates in relation to other projects, which could adversely affect the timing offurther clinical development. We are also subject to various confidentiality obligations with respect to the clinical trialssponsored by third party sponsors, which could prevent us from disclosing current information about the progress or resultsfrom these trials until the applicable sponsor publicly disclose such information or permit us to do so. This may make it moredifficult to evaluate our business and prospects at any given point in time and could also impair our ability to raise capital onour desired timelines. We are dependent on our license agreement with Santen to develop and commercialize our endoglin antibodies, includingDE-122, in the field of ophthalmology. The failure to maintain our agreement with Santen or the failure of Santen toperform its obligations under the agreement, could negatively impact our business. Pursuant to the terms of our license agreement with Santen, we granted Santen an exclusive, worldwide license tocertain patents, information and know-how related to our endoglin antibodies, including TRC105, which is referred to bySanten as DE-122, for development and commercialization in ophthalmology indications, excluding systemic treatment ofocular tumors. Consequently, our ability to realize value or generate any revenues from our endoglin antibodies in the fieldof ophthalmology depends on Santen’s willingness and ability to develop and obtain regulatory approvals for andsuccessfully commercialize product candidates using our technology for these indications. We have limited control over theamount and timing of resources that Santen will dedicate to these efforts. In particular, we will not be entitled to receiveadditional milestone or royalty payments from Santen absent further development and eventual60 Table of Contentscommercialization of endoglin antibodies in ophthalmology indications. We are subject to a number of other risks associated with our dependence on our license agreement with Santen,including: ·Santen may not comply with applicable regulatory requirements with respect to developing or commercializingproducts under the license agreement, which could adversely impact development, regulatory approval andeventual commercialization of such products; ·we and Santen could disagree as to future development plans and Santen may delay initiation of clinical trialsor stop a future clinical trial; ·there may be disputes between us and Santen, including disagreements regarding the terms of the licenseagreement, that may result in the delay of or failure to achieve development, regulatory and commercialobjectives that would result in milestone or royalty payments to us, the delay or termination of any futuredevelopment or commercialization of endoglin antibodies using our technology in the field of ophthalmology,and/or costly litigation or arbitration that diverts our management’s attention and resources; ·Santen may not provide us with timely and accurate information regarding development progress and activitiesunder the license agreement, which could adversely impact our ability to report progress to our investors andotherwise plan our own development of our endoglin antibodies, including TRC105, in non-ophthalmologyindications; ·business combinations or significant changes in Santen’s business strategy may adversely affect Santen’s abilityor willingness to perform its obligations under the license agreement; ·Santen may not properly maintain or defend our intellectual property rights in the field of ophthalmology ormay use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate ourintellectual property rights or expose us to potential litigation; and ·the royalties we are eligible to receive from Santen may be reduced or eliminated based upon Santen’s and ourability to maintain or defend our intellectual property rights. The license agreement is subject to early termination, including through Santen’s right to terminate without causeupon advance notice to us. If the agreement is terminated early, we may not be able to find another collaborator for thecommercialization and further development of our endoglin antibodies for ophthalmology indications on acceptable terms,or at all, and we may otherwise be unable to pursue continued development on our own for these indications. To the extent we enter into additional agreements for the development and commercialization of our productcandidates we would likely be similarly dependent on the performance of those third parties and subject to similar risks. We may not be successful in establishing and maintaining additional collaborations, which could adversely affect ourability to develop and commercialize our product candidates. A part of our strategy is to strategically evaluate and, as deemed appropriate, enter into additional out-licensing andcollaboration agreements, including potentially with major biotechnology or pharmaceutical companies. We face significantcompetition in seeking appropriate partners for our product candidates, and the negotiation process is time-consuming andcomplex. In order for us to successfully partner our product candidates, potential partners must view these product candidatesas having the requisite potential to demonstrate safety and efficacy and as being economically valuable in light of the termsthat we are seeking and other available products for licensing by other companies. Due to our existing license agreementwith Santen, we may find it more difficult to secure additional collaborations for our endoglin antibodies if majorbiotechnology or pharmaceutical companies would prefer to have exclusive control over development for all indications.Even if we are successful in our efforts to establish new collaborations, the terms that we61 Table of Contentsagree upon may not be favorable to us, and we may not be able to maintain such collaborations if, for example, developmentor approval of a product candidate is delayed or sales of an approved product are disappointing. Any inability or delay inentering into new collaboration agreements related to our product candidates, in particular in foreign countries where we donot have and do not intend to establish significant capabilities, could delay the development and commercialization of ourproduct candidates and reduce their market potential. We rely on third parties to conduct preclinical studies and clinical trials of our product candidates, and if they do notproperly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for ourproduct candidates. We do not have our own capabilities to perform preclinical testing of our product candidates, and therefore relyentirely on third party contractors and laboratories to conduct these studies for us. In addition while we intend to continuedesigning, monitoring and managing our domestic Phase 1 and Phase 2 clinical trials of our product candidates using ourclinical operations and regulatory team, we still depend upon independent investigators and collaborators, such asuniversities and medical institutions, to conduct our clinical trials at their sites under agreements with us. In addition, weexpect that we will need to rely on third party contract research organizations, or CROs, to assist in monitoring, managingand otherwise carrying out any portion of our Phase 2 clinical trials, or any future Phase 3 clinical trials, that we sponsor atsites outside the United States. We will compete with many other companies for the resources of these third party contractors,laboratories, investigators, collaborators and CROs, and the initiation and completion of our preclinical studies and Phase 2or future Phase 3 clinical trials may be delayed if we encounter difficulties in engaging these third parties or need to changeservice providers during a study or trial. We control only certain aspects of the activities conducted for us by the third parties on which we currently rely andon which we will rely in the future for our preclinical studies and clinical trials. Nevertheless, we are responsible for ensuringthat each of our clinical trials and certain of our preclinical studies is conducted in accordance with applicable protocol,legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatoryresponsibilities. With respect to clinical trials, we and these third parties are required to comply with cGCPs, which areregulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates inclinical development. Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principalinvestigators and trial sites. If we or any of these third parties fail to comply with applicable cGCP regulations, the clinicaldata generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities mayrequire us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, uponinspection, such regulatory authorities will determine that any of our clinical trials comply with the cGCP regulations. Inaddition, our clinical trials must be conducted with product candidates produced under cGMPs and will require a largenumber of test patients. Our failure or any failure by these third parties to comply with these regulations or to recruit asufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process.Moreover, our business may be implicated if any of these third parties violates federal or state health care laws, including,among others, fraud and abuse, false claims, privacy and security, and physician payment transparency laws. Any thirdparties conducting our preclinical studies and clinical trials are not and will not be our employees and, except for remediesavailable to us under our agreements with such third parties, we cannot control whether or not they devote sufficient time andresources to our ongoing preclinical and clinical development programs. These third parties may also have relationships withother commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drugdevelopment activities, which could affect their performance on our behalf. If these third parties do not successfully carry outtheir contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy ofthe clinical data they obtain is compromised due to the failure to adhere to our protocols or regulatory requirements or forother reasons, our preclinical studies and clinical trials may be extended, delayed or terminated and we may not be able tocomplete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result,our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase andour ability to generate revenue could be delayed. Switching or adding third parties to conduct our preclinical studies and clinical trials involves substantial cost andrequires extensive management time and focus. In addition, there is a natural transition period when a new third partycommences work. As a result, delays may occur, which can materially impact our ability to meet our desired62 Table of Contentsdevelopment timelines. We rely on third party manufacturers to make our product candidates, and any failure by a third party manufacturer maydelay or impair our ability to complete clinical trials or commercialize our product candidates. Manufacturing drugs and biologics is complicated and is tightly regulated by regulatory authorities, including theFDA and foreign equivalents. We currently rely on third party manufacturers to supply us, as well as other parties conductingstudies and trials of our product candidates, such as NCI, Case Western and Santen, with drug substance for preclinical andclinical trials. We also expect to continue to rely on third party manufacturers for any drug substance required for commercialsupply, and do not intend to build our own manufacturing capability. Moreover, the market for contract manufacturingservices for drug products, especially biologics such as TRC105, is highly cyclical, with periods of relatively abundantcapacity alternating with periods in which there is little available capacity. If any need we have for contract manufacturingservices increases during a period of industry-wide tight capacity, we may not be able to access the required capacity on atimely basis or on commercially viable terms, which could result in delays in initiating or completing clinical trials or ourability to apply for or receive regulatory approvals. In addition, we contract with fill and finishing providers with theappropriate expertise, facilities and scale to meet our needs. Successfully transferring complicated manufacturing techniques to contract manufacturing organizations andscaling up these techniques for commercial quantities is time consuming and subject to potential difficulties and delays. Forexample, we rely on Lonza Sales AG, or Lonza, to manufacture TRC105 drug substance for our on-going and plannedclinical trials and separately license from Lonza its proprietary cell line and other methods of producing TRC105 drugsubstance. While we have the right to transfer the manufacture of TRC105 drug substance to additional or alternate suppliersand to sublicense Lonza’s TRC105 manufacturing technology to such other suppliers, we may encounter delays in any suchtransfer due to the time and effort required for another party to understand and successfully implement Lonza’s proprietaryprocess. We are currently optimizing the process and transferring the manufacturing of TRC105 drug substance to a separateLonza facility in order to meet cGMP regulatory requirements and scale production for commercial quantities. This newprocess and transfer may result in setbacks in replicating the current manufacturing process at a new facility and in scaling upproduction. In particular for biologics, it is not uncommon to experience setbacks and delays in scaling up production in areliable and contamination-free manner, which may delay our ability to obtain regulatory approval or may result in highercosts to manufacture commercial drug product than we currently expect. In addition, we do not have any long-term supplyagreements for the manufacture of our product candidates and cannot guarantee that Lonza or any other third partymanufacturer would be willing to continue supplying drug product for clinical trials or commercial sale at a reasonable costor at all. The facilities used by our current or future third party manufacturers to manufacture our product candidates must beapproved by the FDA pursuant to inspections that will be conducted after we submit a BLA or an NDA to the FDA. While wework closely with our third party manufacturers on the manufacturing process for our product candidates, we generally do notcontrol the implementation of the manufacturing process of, and are completely dependent on, our third party manufacturersfor compliance with cGMP regulatory requirements and for manufacture of both drug substances and finished drug products.If our third party manufacturers cannot successfully manufacture material that conforms to applicable specifications and thestrict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure or maintainregulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contractmanufacturers or other third party manufacturers to maintain adequate quality control, quality assurance and qualifiedpersonnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture ofour product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturingfacilities, which would significantly impact our ability to develop, obtain regulatory approval for or commercialize ourproduct candidates. Risks Related to Our Intellectual Property If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able tocompete effectively. We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the63 Table of Contentsintellectual property related to our product candidates. If we do not adequately protect our intellectual property, competitorsmay be able to use our technologies which could do harm to our business and affect our ability to be profitable. In particular,our success depends in large part on our ability to obtain and maintain patent protection in the United States and othercountries with respect to our product candidates. Additionally, we may not be able to file and prosecute all necessary ordesirable patent applications at a reasonable cost or in a timely manner. The patent applications that we own or in-licensemay fail to result in issued patents with claims that cover our product candidates in the United States or in other countries.We may also fail to identify patentable aspects of our research and development before it is too late to obtain patentprotection. Any disclosure or misappropriation by third parties of our confidential proprietary information could enablecompetitors to quickly duplicate or surpass our technological achievements, eroding our competitive position in our market. The patent position of biotechnology companies is generally uncertain because it involves complex legal andfactual considerations in a legal framework that is constantly evolving. The standards applied by the United States Patentand Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied uniformly orpredictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claimsallowable in biotechnology patents. There is a substantial amount of prior art in the biotechnology and pharmaceuticalfields, including scientific publications, patents and patent applications. There is no assurance that all potentially relevantprior art relating to our patents and patent applications has been found. We may be unaware of prior art that could be used toinvalidate an issued patent or prevent our pending patent applications from issuing as patents. Even if patents dosuccessfully issue and even if such patents cover our product candidates, third parties may challenge their validity,enforceability or scope, which may result in such patents being narrowed or invalidated. Furthermore, even if they areunchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivityfor our product candidates or prevent others from designing around our claims. Any of these outcomes could impair ourability to prevent competition from third parties, which may have an adverse impact on our business. If patent applications we hold or have in-licensed with respect to our product candidates fail to issue, if their breadthor strength of protection is threatened, or if they fail to provide meaningful exclusivity for our product candidates, it coulddissuade companies from collaborating with us. Several patent applications covering our product candidates have been filedrecently. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patents or whetherany issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful challenge tothese patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successfulcommercialization of any product candidate that we may develop. Since patent applications in the United States and mostother countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that wewere the first to file any patent application related to a product candidate. For applications filed before March 16, 2013, or patents issuing from such applications, an interference proceedingcan be provoked by a third party, or instituted by the USPTO to determine who was the first to invent any of the subjectmatter covered by the claims of our applications and patents. As of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed bydifferent parties claiming the same invention. A third party that files a patent application in the USPTO before us couldtherefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by thethird party. The change to “first- to-file” from “first-to-invent” is one of the changes to the patent laws of the United Statesresulting from the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law on September 16, 2011.Among some of the other significant changes to the patent laws are changes that limit where a patentee may file a patentinfringement suit and provide opportunities for third parties to challenge any issued patent in the USPTO. It is not yet clear,what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and itsimplementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and theenforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financialcondition. Patents granted by the European Patent Office may be opposed by any person within nine months from thepublication of their grant and, in addition, may be challenged before national courts at any time. Furthermore, even if theyare unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent64 Table of Contentsothers from designing around our claims. Furthermore, due to the patent laws of a country, or the decisions of a patentexaminer in a country, or our own filing strategies, we may not obtain patent coverage for all our product candidates ormethods involving these product candidates in the parent patent application. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally20 years after it is filed. Various extensions may be available; however, the life of a patent and the protection it affords islimited. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market a productcandidate under patent protection could be reduced. Even if patents covering our product candidates are obtained, once thepatent life has expired for a product, we may be open to competition from generic and biosimilar products. Any loss of patent protection could have a material adverse impact on our business. We may be unable to preventcompetitors from entering the market with a product that is similar to or the same as our products. We depend on our licensors to prosecute and maintain patents and patent applications that are material to our business.Any failure by our licensors to effectively protect these intellectual property rights could adversely impact our business andoperations. As of December 31, 2015, we are the exclusive licensee of ten issued U.S. patents and four pending U.S. patentapplications and eight issued non-U.S patents and six pending non-U.S. patent applications relating to “Anti-EndoglinMonoclonal Antibodies and their use in Antiangiogenic Therapy,” “Method For Increasing the Efficacy of Anti-TumorAgents by Anti-Endoglin Antibody,” “Methoxyamine Potentiation of Temozolomide Anti-Cancer Activity,”“Methoxyamine Combinations in the Treatment of Cancer,” “Alkylating Agent Combinations in the Treatment of Cancer”and “Combination Therapy of Cancer with Anti-Endoglin Antibodies and Anti-VEGF Agents.” As a licensee of third parties, we rely on these third parties to file and prosecute patent applications and maintainpatents and otherwise protect the licensed intellectual property under some of our license agreements. We have not had anddo not have primary control over these activities for certain of our patents or patent applications and other intellectualproperty rights. We cannot be certain that such activities by third parties have been or will be conducted in compliance withapplicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. Pursuantto the terms of the license agreements with some of our licensors, the licensors may have the right to control enforcement ofour licensed patents or defense of any claims asserting the invalidity of these patents and even if we are permitted to pursuesuch enforcement or defense, we will require the cooperation of our licensors. We cannot be certain that our licensors willallocate sufficient resources or prioritize their or our enforcement of such patents or defense of such claims to protect ourinterests in the licensed patents. Even if we are not a party to these legal actions, an adverse outcome could harm our businessbecause it might prevent us from continuing to license intellectual property that we may need to operate our business. Third party claims of intellectual property infringement or misappropriation may prevent or delay our development andcommercialization efforts. Our commercial success depends in part on us and our partners not infringing the patents and proprietary rights ofthird parties. There is a substantial amount of litigation and other proceedings, both within and outside the United States,involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patentinfringement lawsuits, interferences, oppositions, reexamination and review proceedings before the USPTO andcorresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications owned bythird parties exist in the fields in which we and our partners are developing and may develop our product candidates. As thebiotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our productcandidates may be subject to claims of infringement of the patent rights of third parties. Third parties may assert that we are employing their proprietary technology without authorization. There may bethird party patents or patent applications with claims to materials, formulations, methods of manufacture or methods fortreatment related to the use or manufacture of our product candidates, that we failed to identify. For example, applicationsfiled before November 29, 2000 and certain applications filed after that date that will not be filed outside the65 Table of ContentsUnited States remain confidential until issued as patents. Except for the preceding exceptions, patent applications in theUnited States and elsewhere are generally published only after a waiting period of approximately 18 months after the earliestfiling. Therefore, patent applications covering our product candidates or methods of use of our product candidates couldhave been filed by others without our knowledge. Additionally, pending patent applications which have been published can,subject to certain limitations, be later amended in a manner that could cover our product candidates or the use or manufactureof our product candidates. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If weare sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either donot infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this.Proving that a patent is invalid is difficult. For example, in the United States, proving invalidity requires a showing of clearand convincing evidence to overcome the presumption of validity enjoyed by issued patents. Also, in proceedings beforecourts in Europe, the burden of proving invalidity of the patent usually rests on the party alleging invalidity. Third partiescould bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause usto pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delayresearch, development, manufacturing or sales of the product or product candidate that is the subject of the suit. If any third party patents were held by a court of competent jurisdiction to cover aspects of our materials,formulations, methods of manufacture or methods for treatment, the holders of any such patents would be able to block ourability to develop and commercialize the applicable product candidate until such patent expired or unless we or our partnerobtain a license. These licenses may not be available on acceptable terms, if at all. Even if we or our partner were able toobtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the sameintellectual property. Ultimately, we or our partner could be prevented from commercializing a product, or be forced to ceasesome aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our partner areunable to enter into licenses on acceptable terms. Parties making claims against us or our partner may obtain injunctive or other equitable relief, which couldeffectively block our or our partner’s ability to further develop and commercialize one or more of our product candidates.Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming,regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation couldburden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significantdemands on the time and attention of our management team, distracting them from the pursuit of other company business. Inthe event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damagesand attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licensesfrom third parties, which may be impossible or require substantial time and monetary expenditure. Third parties may submit applications for patent term extensions in the United States and/or supplementaryprotection certificates in the European Union member states seeking to extend certain patent protection which, if approved,may interfere with or delay the launch of one or more of our products. We may face a claim of misappropriation if a third party believes that we inappropriately obtained and used tradesecrets of such third party. If we are found to have misappropriated a third party’s trade secrets, we may be prevented fromfurther using such trade secrets, limiting our ability to develop our product candidates, and we may be required to paydamages. During the course of any patent or other intellectual property litigation, there could be public announcements of theresults of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investorsregard these announcements as negative, the perceived value of our product candidates or intellectual property could bediminished. Accordingly, the market price of our common stock may decline. 66 Table of ContentsWe may become involved in lawsuits to protect or enforce our inventions, patents or other intellectual property or thepatent of our licensors, which could be expensive and time consuming. Competitors may infringe our intellectual property, including our patents or the patents of our licensors. In addition,one or more of our third party collaborators may have submitted, or may in the future submit, a patent application to theUSPTO without naming a lawful inventor that developed the subject matter in whole or in part while under an obligation toexecute an assignment of rights to us. As a result, we may be required to file infringement or inventorship claims to stop thirdparty infringement, unauthorized use, or to correct inventorship. This can be expensive, particularly for a company of oursize, and time-consuming. Any claims that we assert against perceived infringers could also provoke these parties to assertcounterclaims against us alleging that we infringe their intellectual property rights. In addition, in an infringementproceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other partyfrom using the technology at issue on the grounds that our patent claims do not cover its technology or that the factorsnecessary to grant an injunction against an infringer are not satisfied. An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of beinginvalidated, held unenforceable or interpreted narrowly and could put our patent applications at risk of not issuing. Interference, derivation or other proceedings brought at the USPTO or any foreign patent authority may be necessaryto determine the priority or patentability of inventions with respect to our patent applications or those of our licensors orcollaborators. Litigation or USPTO proceedings brought by us may fail. An unfavorable outcome in any such proceedingscould require us to cease using the related technology or to attempt to license rights to it from the prevailing party, or couldcause us to lose valuable intellectual property rights. Our business could be harmed if the prevailing party does not offer us alicense on commercially reasonable terms, if any license is offered at all. Even if we are successful, domestic or foreignlitigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management.We may not be able, alone or with our licensors or collaborators, to prevent misappropriation of our trade secrets,confidential information or proprietary rights, particularly in countries where the laws may not protect such rights as fully asin the United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual propertylitigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosureduring this type of litigation or proceedings. In addition, during the course of this kind of litigation or proceedings, therecould be public announcements of the results of hearings, motions or other interim proceedings or developments or publicaccess to related documents. If investors perceive these results to be negative, the market price for our common stock couldbe significantly harmed. We have in-licensed a portion of our intellectual property, and, if we fail to comply with our obligations under thesearrangements, we could lose such intellectual property rights or owe damages to the licensor of such intellectual property. We are a party to a number of license agreements that are important to our business, and we may enter intoadditional license agreements in the future. Our product candidate TRC105 is protected by patents exclusively in-licensedfrom Roswell Park Cancer Institute. Our product candidate TRC102 is protected by patents exclusively licensed from CaseWestern. Our existing license agreements impose, and we expect that future license agreements will impose, variousdiligence, milestone payment, royalty and other obligations on us. If there is any conflict, dispute, disagreement or issue ofnon-performance between us and our licensing partners regarding our rights or obligations under the license agreements,including any such conflict, dispute or disagreement arising from our failure to satisfy payment obligations under any suchagreement, we may owe damages, our licensor may have a right to terminate the affected license, and our and our partner’sability to utilize the affected intellectual property in our drug development efforts, and our ability to enter into collaborationor marketing agreements for a product candidate, may be adversely affected. 67 Table of ContentsWe may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would beprohibitively expensive, and our intellectual property rights in some countries outside the United States can be lessextensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual propertyrights to the same extent as federal and state laws in the United States and in some cases may even force us to grant acompulsory license to competitors or other third parties. Consequently, we may not be able to prevent third parties frompracticing our inventions in all countries outside the United States, or from selling or importing products made using ourinventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions wherewe have not obtained patent protection to develop their own products and further, may export otherwise infringing productsto territories where we have patent protection, but enforcement is not as strong as that in the United States. These productsmay compete with our products and our patents or other intellectual property rights may not be effective or sufficient toprevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights inforeign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor theenforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, whichcould make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of ourproprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costsand divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated orinterpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims againstus. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not becommercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may beinadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. In addition, our ability to protect and enforce our intellectual property rights may be adversely affected byunforeseen changes in domestic and foreign intellectual property laws. Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, feepayment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced oreliminated for non-compliance with these requirements. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents andapplications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States inseveral stages over the lifetime of the patents and applications. The USPTO and various non-U.S. governmental patentagencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during thepatent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means inaccordance with the applicable rules. However, there are situations in which non-compliance can result in abandonment orlapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Insuch an event, our competitors might be able to use our technologies and this circumstance would have a material adverseeffect on our business. Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets andother proprietary information. In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreementsto protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficultto enforce and any other elements of our development processes that involve proprietary know-how or information that is notcovered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary processes, in part, byentering into confidentiality agreements with our employees, consultants, and outside scientific advisors, contractors andcollaborators. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, oroutside scientific advisors might intentionally or inadvertently disclose our trade secret information to competitors. Inaddition, competitors may otherwise gain access to our trade secrets or68 Table of Contentsindependently develop substantially equivalent information and techniques. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and timeconsuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less willing thanU.S. courts to protect trade secrets. Misappropriation or unauthorized disclosure of our trade secrets could impair ourcompetitive position and may have a material adverse effect on our business.Risks Related to Commercialization of Our Product Candidates Even if we obtain regulatory approval of our product candidates, the products may not gain market acceptance amongphysicians, patients, hospitals, cancer treatment centers, third party payors and others in the medical community. The use of endoglin antibodies as a means of inhibiting angiogenesis, including in combination with VEGFinhibitors for the treatment of cancer, is a recent clinical development and may not become broadly accepted by physicians,patients, hospitals, cancer treatment centers, third party payors and others in the medical community. Factors that willinfluence whether our product candidates are accepted in the market include: ·the clinical indications for which our product candidates are approved, if any; ·physicians, hospitals, cancer treatment centers and patients considering our product candidates as a safe andeffective treatment; ·the potential and perceived advantages of our product candidates over alternative treatments; ·the prevalence and severity of any side effects; ·product labeling or product insert requirements of the FDA or other regulatory authorities; ·limitations or warnings contained in the labeling approved by the FDA or other regulatory authorities; ·the timing of market introduction of our product candidates as well as competitive products; ·the cost of treatment in relation to alternative treatments; ·the availability of coverage and adequate reimbursement and pricing by governmental and commercial thirdparty payors; ·the willingness of patients to pay out-of-pocket in the absence of coverage by governmental and commercialthird party payors; ·relative convenience and ease of administration, including as compared to alternative treatments andcompetitive therapies; and ·the effectiveness of our sales and marketing efforts. In addition, we expect that in oncology indications, TRC105 will be most effective as a combination treatment withVEGF inhibitors. If VEGF inhibitors become associated with presently unknown safety concerns, are withdrawn from themarket or otherwise fall out of favor as cancer treatments among physicians, patients, hospitals, cancer treatment centers orothers in the medical community, the market potential for TRC105 would likely be significantly harmed. If, for any of these or other reasons, our product candidates fail to achieve market acceptance among physicians,patients, hospitals, cancer treatment centers, third party payors or others in the medical community, we will not be able togenerate significant revenue. Even if our products achieve market acceptance, we may not be able to maintain that69 Table of Contentsmarket acceptance over time if new products or technologies are introduced that are more favorably received than ourproducts, are more cost effective or render our products obsolete. We face intense competition and rapid technological change and the possibility that our competitors may developtherapies that are more advanced or effective than ours, which may adversely affect our financial condition and our abilityto successfully commercialize our product candidates. We face competition both in the United States and internationally, including from major multinationalpharmaceutical companies, biotechnology companies and universities and other research institutions. For example, otherpharmaceutical and biotechnology companies, including Pfizer, Inc. and Acceleron Pharma Inc., have active programs todevelop therapies targeting proteins in the endoglin pathway that would compete directly with certain of our productcandidates, including TRC105. Many other companies are developing other cancer therapies that, if successful, couldchange the standard of care for cancer patients and relegate anti-angiogenesis therapy to a last-line or niche role or make itobsolete. Many of our competitors have substantially greater financial, technical and other resources, such as larger researchand development staff and experienced marketing and manufacturing organizations. Competition may increase further as aresult of advances in the commercial applicability of technologies and greater availability of capital for investment in theseindustries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are moreeffective or less costly than any product candidate that we may develop, or achieve earlier patent protection, regulatoryapproval, product commercialization and market penetration than we do. Additionally, technologies developed by ourcompetitors may render our potential product candidates uneconomical or obsolete, and we may not be successful inmarketing our product candidates against competitors. Under the terms of our license agreement with Case Western, we obtained an exclusive, worldwide license to certainpatents, know-how and other intellectual property controlled by Case Western related to TRC102. Despite our exclusivelicense, Case Western retained the right to grant non-exclusive licenses to third parties in the same field of use as ourexclusive license as a means to settle any intellectual property disputes Case Western may have in the future with such thirdparties. While Case Western has not made us aware of any present intent to exercise this right, there can be no guarantee thatCase Western will not do so in the future or that it would not grant such an non-exclusive license to a competitor of oursseeking to develop and commercialize a product that is identical to TRC102 in the same field of use that we are pursuing. Ifthis were to occur, and we did not have other intellectual property outside of the Case Western license agreement to preventcompetitive products for the same indications, we may face competition much earlier than we currently anticipate and thevalue of TRC102 may decline substantially. Even if we are successful in achieving regulatory approval to commercialize a product candidate faster than ourcompetitors, we may face competition from “biosimilars” due to the changing regulatory environment. In the United States,the Biologics Price Competition and Innovation Act created an abbreviated approval pathway for biological products thatare demonstrated to be “highly similar,” or “biosimilar,” to or “interchangeable” with an FDA-approved biological product.This new pathway could allow competitors to reference data from biological products already approved after 12 years fromthe time of approval. Future FDA standards or criteria for determining biosimilarity and interchangeability, and FDAdiscretion to determine the nature and extent of product characterization, non-clinical testing and clinical testing on aproduct-by-product basis, may further facilitate the approval of biosimilar products and their ability to compete with ourproduct candidates. In addition, companies may be developing biosimilars in other countries that could compete with ourproducts. If competitors are able to obtain marketing approval for biosimilars referencing our products, our products maybecome subject to competition from such biosimilars, with the attendant competitive pressure and consequences. Any suchevent or further changes in the law could decrease the period for which we have exclusivity and consequently negativelyimpact our business and competitive position. Expiration or successful challenge of our applicable patent rights could alsotrigger competition from other products, assuming any relevant exclusivity period has expired. Finally, as a result of the expiration or successful challenge of our patent rights, we could face litigation with respectto the validity and/or scope of patents relating to our competitors’ products. The availability of our competitors’ productscould limit the demand, and the price we are able to charge, for any products that we may develop and70 Table of Contentscommercialize. Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, whichcould make it difficult for us to sell our product candidates profitably. Successful sales of our product candidates, if approved, depend on the availability of coverage and adequatereimbursement from third party payors. In addition, because our product candidates represent new approaches to thetreatment of cancer, we cannot accurately estimate the potential revenue from our product candidates. Patients who are provided medical treatment for their conditions generally rely on third party payors to reimburse allor part of the costs associated with their treatment. Coverage and adequate reimbursement from governmental healthcareprograms, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance. Government authorities and other third party payors, such as commercial health insurers and health maintenanceorganizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage andreimbursement by a third party payor may depend upon a number of factors, including, but not limited to, the third partypayor’s determination that use of a product is: ·a covered benefit under its health plan; ·safe, effective and medically necessary; ·appropriate for the specific patient; ·cost-effective; and ·neither experimental nor investigational. In the United States, no uniform policy of coverage and reimbursement for products exists among third party payors.Therefore, coverage and reimbursement for products can differ significantly from payor to payor. Obtaining coverage andreimbursement approval of a product from a government or other third party payor is a time-consuming and costly processthat could require us to provide supporting scientific, clinical and cost-effectiveness data to each payor separately for the useof our products, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coveragefor a given product, the resulting reimbursement rates might not be adequate for us to achieve or sustain profitability or mayrequire co-payments that patients find unacceptably high. Patients are unlikely to use our product candidates unlesscoverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates. We intend to seek approval to market our product candidates in both the United States and in selected foreignjurisdictions. If we obtain approval in one or more foreign jurisdictions for our product candidates, we will be subject torules and regulations in those jurisdictions. In some foreign countries, particularly those in the European Union, the pricingof biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities cantake considerable time after obtaining marketing approval of a product candidate. In addition, market acceptance and sales ofour product candidates will depend significantly on the availability of coverage and adequate reimbursement from thirdparty payors for our product candidates. Healthcare legislative reform measures may have a material adverse effect on our business and results of operations. Third party payors, whether domestic or foreign, or governmental or commercial, are developing increasinglysophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there havebeen a number of legislative and regulatory changes to the health care system that could impact our ability to sell ourproducts profitably. In particular, in 2010, the Patient Protection and Affordable Care Act, as amended by the Health Careand Education Reconciliation Act, collectively, the Affordable Care Act, was enacted. The Affordable Care Act and71 Table of Contentsits implementing regulations, among other things, addressed a new methodology by which rebates owed by manufacturersunder the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected,including our product candidates, increased the minimum Medicaid rebates owed by most manufacturers under the MedicaidDrug Rebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled inMedicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescriptiondrugs, established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gapperiod, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D, and provided incentivesto programs that increase the federal government’s comparative effectiveness research. Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act wasenacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions byCongress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least$1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’sautomatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providersup to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2024 unless additionalCongressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012,which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers andcancer treatment centers, and increased the statute of limitations period for the government to recover overpayments toproviders from three to five years. Any reduction in reimbursement from Medicare or other government programs may resultin a similar reduction in payments from private payors, which may adversely affect our future profitability. There have been,and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed atbroadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiativesthat may be adopted in the future. The continuing efforts of the government, insurance companies, managed careorganizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controlsmay adversely affect: ·the demand for our product candidates, if we obtain regulatory approval; ·our ability to set a price that we believe is fair for our products; ·our ability to obtain market acceptance in the medical community; ·our ability to generate revenue and achieve or maintain profitability; ·the level of taxes that we are required to pay; and ·the availability of capital. We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or incountries outside of the United States in which we may do business in the future, or the effect any future legislation orregulation will have on us. If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sellour product candidates, we may be unable to generate any revenue. Although we intend to establish a specialty sales and marketing organization to promote or co-promote TRC105and/or TRC102 in North America, if approved in oncology indications, we currently have no such organization orcapabilities, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doingso. In order to market any products that may be approved, we must build sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. In addition, we do not intend to establish our own sales and marketing organizations outside the United States72 Table of Contentsand will therefore depend on third parties to commercialize our product candidates outside of the United States. Any thirdparties upon which we rely for commercializing our product candidates may not dedicate sufficient resources to thecommercialization effort or may otherwise fail in their commercialization due to factors beyond our control. If we are unableto establish effective third party arrangements to enable the sale of our product candidates in territories outside of the UnitedStates, or if our potential future partners do not successfully commercialize our product candidates in these territories, ourability to generate revenue from product sales will be adversely affected. If we elect to increase our expenditures to fund commercialization activities ourselves, we will need to obtainsubstantial additional capital, which may not be available to us on acceptable terms, or at all, when we are otherwise readyand able to commercially launch a product candidate. If we do not have sufficient funds, we will not be able to bring anyproduct candidates to market or generate product revenue, including in the United States. We and any partners that we may engage will be competing with many companies that currently have extensive andwell-funded marketing and sales operations to commercialize alternative therapies. If we, alone or with commercializationpartners, are unable to compete successfully against these established companies, the commercial success of any approvedproducts will be limited. If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associatedwith international operations could materially adversely affect our business. If TRC105 or other product candidates are approved for commercialization, we expect that we or our partners will besubject to additional risks related to entering into international business relationships, including: ·different regulatory requirements for drug approvals in foreign countries; ·reduced protection for intellectual property rights; ·unexpected changes in tariffs, trade barriers and regulatory requirements; ·economic weakness, including inflation, or political instability in particular foreign economies and markets; ·compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; ·foreign taxes, including withholding of payroll taxes; ·foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, andother obligations incident to doing business in another country; ·workforce uncertainty in countries where labor unrest is more common than in the United States; ·production shortages resulting from any events affecting raw material supply or manufacturing capabilitiesabroad; and ·business interruptions resulting from geopolitical actions, including war and terrorism, or natural disastersincluding earthquakes, typhoons, floods and fires. If we or our partners outside of the Unites States are unable to successfully manage these risks associated withinternational operations, the market potential for our product candidates outside the Unites States will be limited and ourresults of operations may be harmed. 73 Table of ContentsRisks Related to Our Business and Industry If we fail to develop, acquire or in-license other product candidates or products, our business and prospects will be limited. We do not have internal new drug discovery capabilities or a technology platform with which to develop novelproduct candidates. Unless we develop or acquire these capabilities or a technology platform, our only means of expandingour product pipeline will be to acquire or in-license product candidates that complement or augment our current targets, orthat otherwise fit into our development or strategic plans on terms that are acceptable to us. Identifying, selecting andacquiring or licensing promising product candidates requires substantial technical, financial and human resources. Efforts todo so may not result in the actual development, acquisition or license of a particular product candidate, potentially resultingin a diversion of our management’s time and the expenditure of our resources with no resulting benefit. If we are unable toadd additional product candidates to our pipeline, our long-term business and prospects will be limited. If we fail to attract and keep senior management and key clinical operations and regulatory personnel, we may be unableto successfully develop our product candidates and execute our business strategy. We are highly dependent on members of our senior management, including Charles Theuer, M.D., Ph.D., ourPresident and Chief Executive Officer. Our clinical development strategy and ability to directly manage or oversee our on-going and planned clinical trials are also dependent on the members of our clinical operations and regulatory team. The lossof the services of any of these persons could impede the development of our product candidates and our ability to executeour business strategy. We may be particularly impacted by the unexpected loss of employees due to our small employee baseand limited ability to quickly shift responsibilities to other employees in our organization. We do not maintain “key person”insurance for any of our executives or other employees. Recruiting and retaining other qualified employees for our business, including scientific, quality assurance andtechnical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry,which is likely to continue. As a result, competition for skilled personnel is intense, particularly in the San Diego, Californiaarea, and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given thecompetition among numerous pharmaceutical companies for individuals with similar skill sets. The inability to recruit or lossof the services of any executive or key employee could impede the progress of our development and strategic objectives. Our employees, independent contractors, principal investigators, consultants, vendors and commercial partners mayengage in misconduct or other improper activities, including noncompliance with regulatory standards and requirementsand insider trading. We are exposed to the risk that our employees, independent contractors, principal investigators, consultants,vendors and commercial partners may engage in fraudulent conduct or other illegal activity. Misconduct by these partiescould include intentional, reckless and/or negligent conduct or unauthorized activities that violate: ·FDA regulations, including those laws that require the reporting of true, complete and accurate information tothe FDA; ·manufacturing standards; ·federal and state fraud and abuse laws and other healthcare laws; ·laws governing the conduct of business abroad; or ·laws that require the reporting of true and accurate financial information or data. Additionally, these parties may fail to disclose unauthorized activities to us. In particular, sales, marketing and74 Table of Contentsbusiness arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of pricing, discounting, marketing andpromotion, sales commission, customer incentive programs and other business arrangements. Misconduct could also involvethe improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions andserious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other thirdparties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown orunmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from afailure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful indefending ourselves or asserting our rights, those actions could have a significant impact on our business, including theimposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion fromparticipation in Medicare, Medicaid and other U.S. federal healthcare programs, contractual damages, reputational harm,diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability tooperate our business and our results of operations. We may encounter difficulties in managing our growth and expanding our operations successfully. As we seek to advance our product candidates through clinical trials and commercialization, we will need to expandour development, regulatory, manufacturing, marketing and sales capabilities or contract with additional third parties toprovide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationshipswith partners, consultants, suppliers and other third parties. Future growth will impose significant added responsibilities onmembers of our management, including having to divert a disproportionate amount of its attention away from day-to-dayoperating activities to implement and manage future growth. Our future financial performance and our ability tocommercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any futuregrowth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire,train and integrate additional management, administrative and, if necessary, sales and marketing personnel. We may not beable to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing ourcompany. We are subject to extensive federal and state regulation, and our failure to comply with these laws could harm ourbusiness. Although we do not currently have any products on the market, we are subject to healthcare regulation andenforcement by the federal government and the states in which we conduct our business. The laws that may affect our abilityto operate include: ·the federal anti-kickback statute, which applies to our business activities, including our marketing practices,educational programs, pricing policies and relationships with healthcare providers, by prohibiting, among otherthings, knowingly and willfully soliciting, receiving, offering or providing any remuneration (including anybribe, kickback or rebate) directly or indirectly, overtly or covertly, in cash or in kind, intended to induce or inreturn for the purchase or recommendation of any good, facility item or service reimbursable, in whole or in part,under a federal healthcare program, such as the Medicare or Medicaid programs; ·federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False ClaimsAct, that prohibit, among other things, knowingly presenting, or causing to be presented, claims for paymentfrom Medicare, Medicaid or other governmental healthcare programs that are false or fraudulent, or making afalse statement to avoid, decrease or conceal an obligation to pay money to the federal government; ·the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its implementingregulations, which created federal criminal laws that prohibit, among other things, knowingly and willfullyexecuting, or attempting to execute, a scheme to defraud any healthcare benefit program or making falsestatements relating to healthcare matters; 75 Table of Contents·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposescertain regulatory and contractual requirements on covered entities and their business associates regarding theprivacy, security and transmission of individually identifiable health information; ·federal “sunshine” requirements imposed by the Affordable Care Act, on certain drug manufacturers regardingany transfers of value provided to physicians and teaching hospitals, and ownership and investment interestsheld by such physicians and their immediate family members; and ·state or foreign law equivalents of each of the above federal laws that may apply to items or services reimbursedby any third party payor, including commercial insurers; state laws that require pharmaceutical companies tocomply with the industry’s voluntary compliance guidelines and the relevant compliance guidancepromulgated by the federal government, or otherwise restrict payments that may be made to healthcareproviders and other potential referral sources; state laws that require drug manufacturers to report informationrelated to payments and other transfers of value to physicians and other healthcare providers or marketingexpenditures; and state laws governing the privacy and security of health information in certain circumstances,many of which differ from each other in significant ways and may not have the same effect, thus complicatingcompliance efforts. It is possible that some of our business activities could be subject to challenge under one or more of such laws. Inaddition, recent health care reform legislation has strengthened certain of these laws. For example, the Affordable Care Act,among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. Aperson or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them to havecommitted a violation. Moreover, the Affordable Care Act provides that the government may assert that a claim includingitems or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim forpurposes of the False Claims Act. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incursignificant legal expenses and divert our management’s attention from the operation of our business. If our operations arefound to be in violation of any of the laws described above or any other governmental regulations that apply to us, we maybe subject to penalties, including without limitation, administrative, civil and/or criminal penalties, damages, fines,disgorgement, contractual damages, reputational harm, exclusion from governmental health care programs, and thecurtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and ourfinancial results. We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability. The use of our product candidates in clinical trials and the sale of any products for which we obtain marketingapproval exposes us to the risk of product liability claims. Product liability claims might be brought against us byconsumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with ourproduct candidates. If we cannot successfully defend against product liability claims, we could incur substantial liability andcosts. In addition, regardless of merit or eventual outcome, product liability claims may result in: ·impairment of our business reputation; ·withdrawal of clinical trial participants; ·costs due to related litigation; ·distraction of management’s attention from our primary business; ·substantial monetary awards to patients or other claimants; ·the inability to commercialize our product candidates; and 76 Table of Contents·decreased demand for our product candidates, if approved for commercial sale. We currently carry product liability insurance covering our clinical trials with limits we believe are customary forother companies in our field and stage of development. Our current product liability insurance coverage may not besufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasinglyexpensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amountsto protect us against losses due to liability. If we obtain marketing approval for our product candidates, we intend to expandour insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liabilityinsurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded inclass action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim or series ofclaims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, couldadversely affect our results of operations and business. If our third party manufacturers use hazardous and biological materials in a manner that causes injury or violatesapplicable law, we may be liable for damages. Our development activities involve the controlled use of potentially hazardous substances, including chemical andbiological materials, by our third party manufacturers. Our manufacturers are subject to federal, state and local laws andregulations in the United States and abroad governing the use, manufacture, storage, handling and disposal of medical andhazardous materials. Although we believe that our manufacturers’ procedures for using, handling, storing and disposing ofthese materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injuryresulting from medical or hazardous materials. As a result of any such contamination or injury, we may incur liability,including through obligations to indemnify our third party manufacturers, or local, city, state or federal authorities maycurtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable fordamages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilitiesarising from medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive,and current or future environmental regulations may impair our development and production efforts or those of our thirdparty manufacturers, which could harm our business, prospects, financial condition or results of operations. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. As of December 31, 2015, we had federal and California net operating loss carryforwards, or NOLs, of approximately$42.9 million and $22.9 million, respectively, which expire in various years beginning in 2030, if not utilized. As ofDecember 31, 2015, we had federal and California research and development tax credit carryforwards of approximately$1.7 million and $0.7 million, respectively. The federal research and development tax credit carryforwards expire in variousyears beginning in 2031, if not utilized. The California research and development credit will carry forward indefinitely undercurrent law. Under Sections 382 and 383 of Internal Revenue Code of 1986, as amended, or the Code, if a corporationundergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes,such as research tax credits, to offset its future post-change income and taxes may be limited. In general, an “ownershipchange” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage pointsover a rolling three year period. Similar rules may apply under state tax laws. We believe we have experienced certainownership changes in the past and have reduced our deferred tax assets related to NOLs and research and development taxcredit carryforwards accordingly. In the event that it is determined that we have in the past experienced additional ownershipchanges, or if we experience one or more ownership changes as a result of future transactions in our stock, then we may befurther limited in our ability to use our NOLs and other tax assets to reduce taxes owed on the net taxable income that weearn in the event that we attain profitability. Any such limitations on the ability to use our NOLs and other tax assets couldadversely impact our business, financial condition and operating results in the event that we attain profitability. Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer securitybreaches. Despite the implementation of security measures, our internal computer systems and those of our current or77 Table of Contentsfuture contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. While we havenot experienced any such material system failure or security breach to date, if such an event were to occur and causeinterruptions in our operations, it could result in a material disruption of our development programs and our businessoperations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in ourregulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, third parties thatare also sponsoring clinical trials involving our product candidates, such as NCI and Case Western, could experience similarevents relating to their computer systems, which could also have a material adverse effect on our business. To the extent thatany disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosureof confidential or proprietary information, we could incur liability and the further development and commercialization of ourproduct candidates could be delayed. Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses. Our operations, and those of our contractors and consultants, could be subject to earthquakes, power shortages,telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medicalepidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. Inaddition, NCI may be affected by government shutdowns or withdrawn funding, which may lead to suspension or terminationof ongoing NCI-sponsored clinical development of our product candidates. The occurrence of any of these businessdisruptions could seriously harm our operations and financial condition and increase our costs and expenses. In addition, ourability to obtain clinical supplies of our product candidates could be disrupted if the operations of our third partymanufacturers, including Lonza, are affected by a man-made or natural disaster or other business interruption. Our corporateheadquarters are located in San Diego, California near major earthquake faults and fire zones. The ultimate impact on us andour general infrastructure of being located near major earthquake faults and fire zones and being consolidated in certaingeographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake,fire or other natural disaster. Risks Related to Our Common Stock The market price of our common stock may be highly volatile, and our stockholders may not be able to resell their sharesat a desired market price and could lose all or part of their investment. Prior to our initial public offering completed in 2015, there was no public market for our common stock. We cannotassure you that an active, liquid trading market for our shares will develop or persist. Our stockholders may not be able to selltheir shares quickly or at a recently reported market price if trading in our common stock is not active. The trading price ofour common stock is likely to be volatile. Our stock price could be subject to wide fluctuations in response to a variety offactors, including the following: ·adverse results or delays in clinical trials; ·inability to obtain additional funding; ·any delay in filing a BLA or an NDA for any of our product candidates and any adverse development orperceived adverse development with respect to the FDA’s review of that BLA or NDA; ·failure to successfully develop and commercialize our product candidates; ·changes in laws or regulations applicable to our product candidates; ·inability to obtain adequate product supply for our product candidates, or the inability to do so at acceptableprices; ·adverse regulatory decisions; 78 Table of Contents·introduction of new products or technologies by our competitors; ·failure to meet or exceed product development or financial projections we provide to the public; ·failure to meet or exceed the estimates and projections of the investment community; ·the perception of the pharmaceutical industry by the public, legislatures, regulators and the investmentcommunity; ·announcements of significant acquisitions, collaborations, joint ventures or capital commitments by us or ourcompetitors; ·disputes or other developments relating to proprietary rights, including patents, litigation matters and ourability to obtain patent protection for our technologies; ·additions or departures of key scientific or management personnel; ·significant lawsuits, including patent or stockholder litigation; ·changes in the market valuations of similar companies; ·sales of our common stock by us or our stockholders in the future, in particular any sales by significantstockholders or our affiliates; and ·trading volume of our common stock. In addition, the stock market in general, and the Nasdaq Global Market in particular, have experienced extremeprice and volume fluctuations that have often been unrelated or disproportionate to the operating performance of thesecompanies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of ouractual operating performance. Our principal stockholders and management own a significant percentage of our stock and will be able to exert significantcontrol over matters subject to stockholder approval. As of December 31, 2015, our executive officers, directors, 5% or greater stockholders and their affiliatesbeneficially owned approximately 50% of our voting stock. These stockholders may be able to determine all mattersrequiring stockholder approval. For example, these stockholders, acting together, may be able to control elections ofdirectors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporatetransaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you maybelieve are in your best interest as one of our stockholders. We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable toemerging growth companies will make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerginggrowth company, we may take advantage of exemptions from various reporting requirements that are applicable to otherpublic companies that are not “emerging growth companies,” including exemption from compliance with the auditorattestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosureobligations regarding executive compensation in this Annual Report and our other periodic reports and proxy statements,and exemptions from the requirements of holding a non-binding advisory vote on executive compensation. We will remainan emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of thecompletion of our initial public offering, (b) in which we have total annual gross revenue of at least $1 billion, or (c) in whichwe are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date79 Table of Contentson which we have issued more than $1 billion in non-convertible debt during the prior three-year period. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reportingcompany” which would allow us to take advantage of many of the same exemptions from disclosure requirements includingexemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduceddisclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict ifinvestors will find our common stock less attractive because we may rely on these exemptions. If some investors find ourcommon stock less attractive as a result, there may be a less active trading market for our common stock and our stock pricemay be more volatile. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards untilsuch time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of thisexemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accountingstandards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generallyaccepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidanceto changes in our business could significantly affect our financial position and results of operations. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accuratelyreport our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and otherpublic reporting, which would harm our business and the trading price of our common stock. Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and,together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement requirednew or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reportingobligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or thesubsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controlsover financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes toour financial statements or identify other areas for further attention or improvement. Inferior internal controls could alsocause investors to lose confidence in our reported financial information, which could have a negative effect on the tradingprice of our common stock. We will continue to incur significant increased costs as a result of operating as a public company, and our managementwill be required to devote substantial time to new compliance initiatives. We completed our initial public offering on February 4, 2015. As a newly public company, we have incurred andwill continue to incur significant legal, accounting and other expenses that we did not incur as a private company. Forexample, as a public company, we are now subject to the reporting requirements of the Exchange Act, which require, amongother things, that we file with the Securities and Exchange Commission, or the SEC, annual, quarterly and current reportswith respect to our business and financial condition. We have incurred and will continue to incur costs associated with thepreparation and filing of these reports. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequentlyimplemented by the SEC, and the Nasdaq Global Market have imposed various other requirements on public companies, andwe have incurred and will continue to incur costs associated with compliance with such requirements. In July 2010, theDodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significantcorporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adoptadditional rules and regulations in areas such as “say on pay” and proxy access. Stockholder activism, the current politicalenvironment and the current high level of government intervention and regulatory reform may lead to substantial newregulations and disclosure obligations, which may lead to additional compliance costs and impact (in ways we cannotcurrently anticipate) the manner in which we operate our business. Our management and other personnel will need to devotea substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal andfinancial compliance costs and make some activities more time-consuming and costly. For example, these rules andregulations make it more difficult and more expensive for us to obtain director and officer liability insurance and we incursubstantial costs to maintain our current levels of such coverage. 80 Table of ContentsFuture sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equityincentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause ourstock price to fall. We expect that significant additional capital will be needed in the future to continue our planned operations. To theextent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We maysell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner wedetermine from time to time. If we sell common stock, convertible securities or other equity securities in more than onetransaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to ourexisting stockholders, and new investors could gain rights superior to our existing stockholders. We are at risk of securities class action litigation. In the past, securities class action litigation has often been brought against a company following a decline in themarket price of its securities. This risk is especially relevant for us because pharmaceutical companies have experiencedsignificant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversionof management’s attention and resources, which could harm our business. We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock. We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retainfuture earnings for the development, operation and expansion of our business and do not anticipate declaring or paying anycash dividends for the foreseeable future. Additionally, our credit agreement with SVB contains covenants that restrict ourability to pay dividends. Any return to stockholders will therefore be limited to the appreciation of their stock. Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law,could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so wouldbenefit our stockholders or remove our current management. Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discouragean acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts byour stockholders to replace or remove our current management. These provisions include: ·authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares ofwhich may be issued without stockholder approval; ·limiting the removal of directors by the stockholders; ·creating a staggered board of directors; ·prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at ameeting of our stockholders; ·eliminating the ability of stockholders to call a special meeting of stockholders; and ·establishing advance notice requirements for nominations for election to the board of directors or for proposingmatters that can be acted upon at stockholder meetings. 81 Table of ContentsThese provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management bymaking it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing themembers of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, whichgenerally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with aninterested stockholder for a period of three years following the date on which the stockholder became an interestedstockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delayingor preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Further, other provisionsof Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties. Our principal executive offices are located at 8910 University Center Lane, Suite 700, San Diego, California 92122,in a facility we lease encompassing 9,339 square feet of office space. Our lease expires in April 2017. Item 3. Legal Proceedings. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have amaterial adverse effect on our business. From time to time, we may be involved in various claims and legal proceedingsrelating to claims arising out of our operations. Regardless of outcome, litigation can have an adverse impact on us becauseof defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safety Disclosures. Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities. Market Information Our common stock began trading on The NASDAQ Global Market on January 30, 2015 under the symbol“TCON”. Prior to January 30, 2015, there was no public market for our common stock. The following table presents the highand low per share prices for our common stock during the periods indicated as reported on The NASDAQ Global Market. High Low2015 First quarter, beginning January 30, 2015 $21.00 $9.02Second quarter 14.90 10.00Third quarter 18.35 8.46Fourth quarter 12.50 8.35 Holders of Record As of February 12, 2016, there were approximately 164 stockholders of record of our common stock. Certainshares are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included inthe foregoing number.82 Table of ContentsDividend Policy We have never declared or paid any dividends on our common stock. We currently intend to retain all availablefunds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipatepaying any cash dividends in the foreseeable future. In addition, pursuant to our credit and security agreement with SiliconValley Bank, we are prohibited from paying cash dividends without the prior consent of Silicon Valley Bank. Any futuredetermination related to our dividend policy will be made at the discretion of our board of directors and will depend upon,among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, businessprospects and other factors our board of directors may deem relevant. Securities Authorized for Issuance under Equity Compensation Plans Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of thisAnnual Report. Recent Sales of Unregistered Securities. During the quarter ended December 31, 2015, we borrowed the remaining $2.0 million available under ourAmended Loan and Security Agreement with Silicon Valley Bank. Pursuant to the terms of a warrant that we previouslyissued to Silicon Valley Bank in May 2015, the additional borrowing resulted in the warrant becoming exercisable for anadditional 3,683 shares of our common stock at an exercise price of $10.86 per share. The offers, sales and issuances of the securities described above were deemed to be exempt from registrationunder the Securities Act in reliance on Section 4(a)(2) of the Securities Act and Rule 506 promulgated under Regulation Dpromulgated thereunder as transactions by an issuer not involving a public offering. The recipient of securities in thistransaction acquired the securities for investment only and not with a view to or for sale in connection with any distributionthereof and appropriate legends were affixed to the securities issued in these transactions. The recipient of securities in thistransaction was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act and hadadequate access, through employment, business or other relationships, to information about our company. No underwriterswere involved in this transaction. Item 6. Selected Financial Data.The following selected financial data has been derived from our audited consolidated financial statements andshould be read together with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and our consolidated financial statements and related notes included elsewhere in this Annual Report. Theselected financial data in this section are not intended to replace our consolidated financial statements and the relatednotes. Our historical results are not necessarily indicative of the results that may be expected in the future and results ofinterim periods are not necessarily indicative of the results for the entire year.83 Table of Contents Years Ended December 31, 2015 2014 2013 (in thousands, except share and per share data) Statement of Operations Data: Collaboration revenue $7,904 $3,598 $— Operating expenses: Research and development 25,680 7,652 6,076 General and administrative 5,691 2,125 1,484 Total operating expenses 31,371 9,777 7,560 Loss from operations (23,467) (6,179) (7,560) Other income (expense) (943) (630) (148) Net loss (24,410) (6,809) (7,708) Accretion to redemption value of redeemable convertible preferred stock (31) (297) (248) Net loss attributable to common stockholders $(24,441) $(7,106) $(7,956) Net loss per share attributable to common stockholders, basic anddiluted(1) $(2.20) $(4.40) $(4.93) Weighted-average shares outstanding, basic and diluted(1) 11,115,651 1,615,044 1,614,851 (1)See Note 1 to our consolidated financial statements included elsewhere in this Annual Report for an explanation ofthe methods used to calculate the net loss per share attributable to common stockholders, basic and diluted, and thenumber of shares used in the computation of these per share amounts. As of December 31, 2015 2014 (in thousands) Balance Sheet Data: Cash and cash equivalents $41,373 $35,000 Short-term investments 10,783 — Working capital 39,131 22,475 Total assets 53,522 38,171 Preferred stock warrant liabilities — 246 Long-term debt, less current portion 7,464 4,258 Redeemable convertible preferred stock — 49,880 Accumulated deficit (58,590) (34,180) Total stockholders’ equity (deficit) 30,978 (32,174) 84 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operationstogether with “Selected Financial Data” and our consolidated financial statements and the related notes and otherfinancial information included elsewhere in this Annual Report. Some of the information contained in this discussion andanalysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for ourbusiness and future financial performance, includes forward-looking statements that are based upon current beliefs, plansand expectations and involve risks, uncertainties and assumptions. You should review the “Risk Factors” section of thisAnnual Report for a discussion of important factors that could cause our actual results and the timing of selected events todiffer materially from those described in or implied by the forward-looking statements contained in the following discussionand analysis. Please also see the section within Part I of this Annual Report entitled “Forward-Looking Statements.” Overview We are a clinical stage biopharmaceutical company focused on the development and commercialization of noveltargeted therapeutics for cancer, wet age-related macular degeneration, or wet AMD, and fibrotic diseases. We are a leader inthe field of endoglin biology and are using our expertise to develop antibodies that bind to the endoglin receptor. Endoglinis essential to angiogenesis, the process of new blood vessel formation, and a key contributor to the development of fibrosis,or tissue scarring. Our lead product candidate, TRC105, is an endoglin antibody that is being developed for the treatment ofmultiple solid tumor types in combination with inhibitors of the vascular endothelial growth factor, or VEGF, pathway. TheVEGF pathway regulates vascular development in the embryo, or vasculogenesis, and angiogenesis. TRC105 has beenstudied in six completed Phase 2 clinical trials and three completed Phase 1 clinical trials, and is currently being dosed infive Phase 2 clinical trials. Interim data from these trials have shown encouraging rates of durable complete responses inangiosarcoma and choriocarcinoma, orphan drug indications that highly express endoglin, and we expect to initiate a Phase3 trial in angiosarcoma and a multicenter Phase 2 trial in gestational trophoblastic neoplasia, or GTN, that includeschoriocarcinoma and could be registration enabling, in 2016. Furthermore, we expect topline data in all of these ongoingclinical trials by the end of 2016 and, if results are positive, we expect to initiate additional Phase 3 clinical trials for one ormore indications of soft tissue sarcoma, renal cell carcinoma, glioblastoma and hepatocellular carcinoma. Our other product candidates are TRC205, an endoglin antibody that is in preclinical development for the treatmentof fibrotic diseases, and TRC102, which is a small molecule that is in clinical development for the treatment of lung cancerand glioblastoma. In March 2014, Santen licensed from us exclusive worldwide rights to develop and commercialize ourendoglin antibodies for ophthalmology indications. We have collaborated with NCI, which has selected TRC105 and TRC102 for federal funding of clinicaldevelopment, as well as Case Western. Under these collaborations, NCI has sponsored or is sponsoring nine completed orongoing clinical trials of TRC105 and TRC102, and Case Western sponsored two clinical trials of TRC102. We anticipatethat NCI will complete ongoing Phase 2 clinical trials of TRC105 and may initiate other Phase 2 clinical trials in addition tothe Phase 2 clinical trials of TRC105 that we are sponsoring. In addition, we expect that Phase 2 clinical trials of TRC102will be completed with NCI funding. If merited by Phase 2 data, we expect to fund initial Phase 3 clinical trials of TRC105and TRC102 and, based on NCI’s past course of conduct with similarly situated pharmaceutical companies in which it hassponsored pivotal clinical trials following receipt of positive Phase 2 data, we anticipate that NCI will sponsor Phase 3clinical trials in additional indications. 85 Table of ContentsThe following chart summarizes key information regarding ongoing and planned development of our TRC105 product candidate: The following chart summarizes key information regarding ongoing and planned development of our TRC102product candidate: Since our inception in 2004, we have devoted substantially all of our resources to research and development effortsrelating to our product candidates, including conducting clinical trials and developing manufacturing capabilities, in-licensing related intellectual property, providing general and administrative support for these operations and protecting ourintellectual property. We have not generated any revenue from product sales and, through December 31, 2014, had fundedour operations primarily with the aggregate net proceeds of $79.1 million from the private placement of redeemableconvertible preferred stock and common stock, a $10.0 million one-time upfront fee received in86 Table of Contentsconnection with our collaboration with Santen and $10.0 million of commercial bank debt under our credit facility withSVB. In February 2015, we completed our initial public offering and a concurrent private placement and raised proceeds, netof underwriting discounts, commissions and offering costs of approximately $6.0 million, totaling approximately $35.0million. At December 31, 2015, we had cash, cash equivalents and short-term investments totaling $52.2 million.We do not own or operate, nor do we expect to own or operate, facilitates for product manufacturing, storage,distribution or testing. We contract with third parties for the manufacture of our product candidates, including with Lonza forthe manufacture of TRC105 drug substance, and we intend to continue to do so in the future. We have incurred losses from operations in each year since our inception. Our net losses were $24.4 million and$6.8 million for the years ended December 31, 2015 and 2014, respectively. At December 31, 2015, we had an accumulateddeficit of $58.6 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next severalyears. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect our expenses willincrease substantially in connection with our ongoing activities as we: ·continue to conduct clinical trials of our product candidates; ·continue our research and development efforts; ·manufacture preclinical study and clinical trial materials; ·maintain, expand and protect our intellectual property portfolio; ·seek regulatory approvals for our product candidates that successfully complete clinical trials; ·hire additional staff, including clinical, operational, financial and technical personnel to execute on ourbusiness plan and create additional infrastructure to support our operations as a public company; and ·implement operational, financial and management systems. We do not expect to generate any revenues from product sales until we successfully complete development andobtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. If weobtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expensesrelated to product sales, marketing, manufacturing and distribution. Accordingly, we will need to raise substantial additionalcapital. The amount and timing of our future funding requirements will depend on many factors, including the pace andresults of our preclinical and clinical development efforts and the timing and nature of the regulatory approval process forour product candidates. We anticipate that we will seek to fund our operations through public or private equity or debtfinancings or other sources. However, we may be unable to raise additional funds or enter into such other arrangements whenneeded on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would havea negative impact on our financial condition and ability to develop our product candidates. Collaboration and License Agreements Santen Pharmaceutical Co., Ltd. In March 2014, we entered into a license agreement with Santen, under which we granted Santen an exclusive,worldwide license to certain patents, information and know-how related to TRC105, or the TRC105 Technology. Under theagreement, Santen is permitted to use, develop, manufacture and commercialize TRC105 products for ophthalmologyindications, excluding systemic treatment of ocular tumors. Santen also has the right to grant sublicenses to affiliates andthird party collaborators, provided such sublicenses are consistent with the terms of our agreement. Santen has soleresponsibility for funding, developing, seeking regulatory approval for and commercializing TRC105 products in the field ofophthalmology.87 Table of ContentsIn consideration of the rights granted to Santen under the agreement, we received a one-time upfront fee of$10.0 million. In addition, we are eligible to receive up to a total of $155.0 million in milestone payments upon theachievement of certain milestones, of which $20.0 million relates to the initiation of certain development activities, $52.5million relates to the submission of certain regulatory filings and receipt of certain regulatory approvals and $82.5 millionrelates to commercialization activities and the achievement of specified levels of product sales. As of December 31, 2015, wehad received $3.0 million in milestones related to development activities. If TRC105 products are successfullycommercialized in the field of ophthalmology, Santen will be required to pay us tiered royalties on net sales ranging fromhigh single digits to low teens, depending on the volume of sales, subject to adjustments in certain circumstances. Inaddition, Santen will reimburse us for all royalties due by us under certain third party agreements with respect to the use,manufacture or commercialization of TRC105 products in the field of ophthalmology by Santen and its affiliates andsublicensees. Royalties will continue on a country-by-country basis through the later of the expiration of our patent rightsapplicable to the TRC105 products in a given country or 12 years after the first commercial sale of the first TRC105 productcommercially launched in such country. Other License Agreements As further described in the “Contractual Obligations and Commitments” section below, certain of our other licenseagreements have payment obligations that are contingent upon future events such as our achievement of specifieddevelopment, regulatory and commercial milestones, and we may be required to make milestone payments and royaltypayments in connection with the sale of products developed under these agreements. We do not currently have anysignificant ongoing annual payment obligations under these agreements. Financial Operations Overview Revenue Our revenue to date has been derived solely from our March 2014 collaboration with Santen. The terms of thisarrangement contain multiple deliverables, which include at inception: (1) a license to patents, information and know-howrelated to TRC105; (2) technology transfer; (3) collaboration, including technical and regulatory support provided by us;(4) manufacturing and supply obligations; and (5) shared CMC development activities. The license agreement provides thatwe may receive various types of payments, including an upfront payment, payment for various technical and regulatorysupport, payments for delivery of drug substance, reimbursement of certain development costs, milestone payments, androyalties on net product sales. In accordance with our revenue recognition policy described in detail below, we haveidentified one single unit of accounting for all the deliverables under the agreement and are recognizing revenue for thefixed or determinable collaboration consideration on a straight-line basis over the estimated development period. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing of any futureachievement of milestones and the extent to which any of our products are approved and successfully commercialized by usor Santen. If we or Santen fail to develop product candidates in a timely manner or obtain regulatory approval for them, ourability to generate future revenues, our results of operations and our financial position could be adversely affected. Research and Development Expenses Research and development expenses consist of costs associated with the preclinical and clinical development of ourproduct candidates. These costs consist primarily of: ·salaries and employee-related expenses, including stock-based compensation and benefits for personnel inresearch and development functions; ·costs associated with conducting our preclinical, development and regulatory activities, including fees paid tothird-party professional consultants, service providers and our scientific advisory board; 88 Table of Contents·costs incurred under clinical trial agreements with investigative sites; ·costs to acquire, develop and manufacture preclinical study and clinical trial materials; ·payments related to licensed products and technologies; and ·facilities, depreciation and other expenses, including allocated expenses for rent and maintenance of facilities. Research and development costs, including third-party costs reimbursed by Santen as part of our collaboration, areexpensed as incurred. We account for nonrefundable advance payments for goods and services that will be used in futureresearch and development activities as expenses when the service has been performed or when the goods have been received. The following table summarizes our research and development expenses by product candidate for the periodsindicated: Years Ended December 31, 2015 2014 2013 (in thousands) Third-party research and development expenses: TRC105 $20,031 $4,730 $3,941 TRC102 122 25 42 TRC205 277 98 — Total third-party research and development expenses 20,430 4,853 3,983 Unallocated expenses 5,250 2,799 2,093 Total research and development expenses $25,680 $7,652 $6,076 Unallocated expenses consist of our internal personnel costs, facility costs and scientific advisory board relatedexpenses. We plan to substantially increase our current level of research and development expenses for the foreseeable futureas we: (1) continue development of TRC105 in orphan indications, including initiating a Phase 3 clinical trial inangiosarcoma and a Phase 2 clinical trial in GTN, (2) expand the development program for TRC105 in our additionaloncology indications of soft tissue sarcoma, renal cell carcinoma, hepatocellular carcinoma, and glioblastoma incombination with approved VEGF inhibitors, (3) expand the development program for TRC105 into large market oncologyindications, and (4) continue preclinical development of TRC205 in fibrosis. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or futurepreclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical andclinical development. Clinical and preclinical development timelines, the probability of success and development costs candiffer materially from expectations. We anticipate that we will make determinations as to which product candidates to pursueand how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing andfuture preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each productcandidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannotforecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all,and to what degree such arrangements would affect our development plans and capital requirements. The costs of clinical trials to us may vary significantly based on factors such as: ·the extent to which costs are borne by third parties such as NCI; ·per patient trial costs;89 Table of Contents ·the number of sites included in the trials; ·the countries in which the trials are conducted; ·the length of time required to enroll eligible patients; ·the number of patients that participate in the trials; ·the number of doses that patients receive; ·the drop-out or discontinuation rates of patients; ·potential additional safety monitoring or other studies requested by regulatory agencies; ·the duration of patient follow-up; ·the phase of development of the product candidate; and ·the efficacy and safety profile of the product candidate. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs for employees in executive,finance and administration, corporate development and administrative support functions, including stock-basedcompensation expenses and benefits. Other significant general and administrative expenses include accounting and legalservices, expenses associated with obtaining and maintaining patents, the cost of various consultants and occupancy costs. We anticipate that our general and administrative expenses will substantially increase for the foreseeable future aswe increase our headcount to support our continued research and development of our product candidates and the increasedcosts of operating as a public company. These increases will likely include increased costs related to the hiring of additionalpersonnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipatecontinued costs associated with being a public company, including expenses related to services associated with maintainingcompliance with NASDAQ listing rules and SEC requirements, insurance and investor relations related costs. Other Income (Expense) Other income (expense) primarily consists of interest related to our loan agreements with SVB, changes in the fairvalue of preferred stock purchase rights that were fully settled in 2013 and changes in the fair value of preferred stock warrantliabilities related to warrants for the purchase of Series A redeemable convertible preferred stock. We do not expect anyfurther fair value adjustments for these warrants subsequent to our initial public offering. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of financial condition and results of operations is based on ourconsolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities atthe date of the financial statements, as well as the reported revenues and expenses during the reporting periods. These itemsare monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occurin the future. We base our estimates on our historical experience and on various other factors that we believe to be reasonableunder the circumstances, the results of which form the basis for making judgments about90 Table of Contentsthe carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflectedin reported results for the period in which they become known. Actual results may differ materially from these estimatesunder different assumptions or conditions. While our significant accounting policies are more fully described in the notes to our consolidated financialstatements appearing elsewhere in this Annual Report, we believe that the following accounting policies related to revenuerecognition, stock-based compensation and preferred stock warrant liabilities are most critical to understanding andevaluating our reported financial results. Revenue Recognition We recognize revenues when all four of the following criteria are met: (1) there is persuasive evidence that anarrangement exists; (2) delivery of the products and/or services has occurred; (3) the selling price is fixed or determinable;and (4) collectibility is reasonably assured. Amounts received prior to satisfying the revenue recognition criteria are recordedas deferred revenue in our balance sheets. Amounts expected to be recognized as revenue within the 12 months following thebalance sheet date are classified as deferred revenue. Amounts not expected to be recognized as revenue within the12 months following the balance sheet date are classified as long-term deferred revenue. We evaluate multiple-element arrangements, such as our collaboration with Santen, to determine: (1) thedeliverables included in the arrangement and (2) whether the individual deliverables represent separate units of accountingor whether they must be accounted for as a combined unit of accounting. This evaluation involves subjective determinationsand requires us to make judgments about the individual deliverables and whether such deliverables are separable from theother aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that: (a) thedelivered items have value to the customer on a standalone basis and (b) if the arrangement includes a general right of returnrelative to the delivered items, delivery or performance of the undelivered items is considered probable and substantially inour control. In assessing whether an item has standalone value, we consider factors such as the research, manufacturing andcommercialization capabilities of the partner and the availability of the associated expertise in the general marketplace. Inaddition, we consider whether the partner can use the delivered items for their intended purpose without the receipt of theremaining elements, whether the value of the deliverable is dependent on the undelivered items and whether there are othervendors that can provide the undelivered elements. Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting usingthe relative selling price method. We use the following hierarchy of values to estimate the selling price of each deliverable:(1) vendor-specific objective evidence of fair value; (2) third-party evidence of selling price; and (3) best estimate of sellingprice, or BESP. The BESP reflects our best estimate of what the selling price would be if we regularly sold the deliverable ona standalone basis. Determining the BESP for a unit of accounting requires significant judgment. In developing the BESP fora unit of accounting, we consider applicable market conditions and relevant entity-specific factors, including factors that arecontemplated in negotiating an arrangement and estimated costs. We validate the BESP for units of accounting byevaluating whether changes in the key assumptions used to determine the BESP will have a significant effect on theallocation of arrangement consideration between multiple units of accounting. We then apply the applicable revenue recognition criteria to each of the separate units of accounting in determiningthe appropriate period and pattern of recognition. If there is no discernible pattern of performance and/or objectivelymeasurable performance measures do not exist, then we recognize revenue under the arrangement on a straight-line basis overthe period we expect to complete our performance obligations. With respect to revenues derived from reimbursement of direct, out-of-pocket expenses for research anddevelopment costs associated with collaborations, where we act as a principal with discretion to choose suppliers, bear creditrisk, and perform part of the services required in the transaction, we record revenue for the gross amount of thereimbursement. The costs associated with these reimbursements are reflected as a component of research and developmentexpense in the statements of operations. 91 Table of ContentsMilestones We use the milestone method of accounting and revenue is recognized when earned, as evidenced by writtenacknowledgement from the collaborator or other persuasive evidence that the milestone has been achieved and the paymentis non-refundable, provided that the milestone event is substantive. A milestone event is defined as an event (1) that can onlybe achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from ourperformance; (2) for which there is substantive uncertainty at the inception of the arrangement that the event will beachieved; and (3) that would result in additional payments being due to us. Events for which the occurrence is eithercontingent solely upon the passage of time or the result of a counterparty’s performance are not considered to be milestoneevents. A milestone event is substantive if all of the following conditions are met: (a) the consideration is commensurate witheither our performance to achieve the milestone, or the enhancement of the value to the delivered item(s) as a result of aspecific outcome resulting from our performance to achieve the milestone; (b) the consideration relates solely to pastperformance; and (c) the consideration is reasonable relative to all the deliverables and payment terms (including otherpotential milestone consideration) within the arrangement. We assess whether a milestone is substantive at the inception ofeach arrangement. If a milestone is deemed non-substantive, we will account for that milestone payment in accordance withthe multiple element arrangements guidance and recognize it consistent with the related units of accounting for thearrangement over the related performance period. Clinical Trial Expense Accruals As part of the process of preparing our financial statements, we are required to estimate expenses resulting from ourobligations under contracts with vendors, contract research organizations, or CROs, and consultants and under clinical siteagreements in connection with conducting clinical trials. The financial terms of these contracts vary and may result inpayment flows that do not match the periods over which materials or services are provided under such contracts. Our objective is to reflect the appropriate trial expenses in our financial statements by recording those expenses inthe period in which services are performed and efforts are expended. We account for these expenses according to the progressof the trial as measured by patient progression and the timing of various aspects of the trial. We determine accrual estimatesthrough financial models taking into account discussion with applicable personnel and outside service providers as to theprogress or state of consummation of trials. During the course of a clinical trial, we adjust the clinical expense recognition ifactual results differ from our estimates. We make estimates of accrued expenses as of each balance sheet date based on thefacts and circumstances known at that time. Our clinical accruals are dependent upon accurate reporting by CROS are otherthird-party vendors. Although we do not expect our estimates to differ materially from amounts actually incurred, ourunderstanding of the status and timing of services performed relative to the actual status and timing of services performedmay vary and may result in reporting amounts that are too high or too low for any particular period. For the three years in theperiod ended December 31, 2015, there were no material adjustments to our prior period estimates of accrued expenses forclinical trials. Stock-Based Compensation Stock-based compensation expense represents the grant date fair value of employee stock option grants recognizedas expense over the requisite service period of the awards (usually the vesting period) on a straight-line basis, net ofestimated forfeitures. We estimate the fair value of stock option grants using the Black-Scholes option pricing model. TheBlack-Scholes option pricing model requires the input of subjective assumptions, including the risk-free interest rate, theexpected dividend yield of our common stock, the expected volatility of the price of our common stock and the expectedterm of the option. These estimates involve inherent uncertainties and the application of management’s judgment. If factorschange and different assumptions are used, our stock-based compensation expense could be materially different in the future.See Note 6 to our consolidated financial statements included elsewhere in this Annual Report for information concerningcertain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimatedfair value of our employee stock options granted for all periods presented. 92 Table of ContentsThe following table summarizes the stock-based compensation expense recognized in our consolidated financialstatements: Years Ended December 31, 2015 2014 2013 (in thousands) Research and development $1,038 $178 $184 General and administrative 1,050 93 91 Total stock-based compensation expense $2,088 $271 $275 As of December 31, 2015, the unrecognized stock-based compensation expense related to outstanding employeestock options was $7.0 million and is expected to be recognized as expense over a weighted-average period of approximately3.0 years. Determination of the fair value of common stock Prior to our initial public offering, the fair value of the common stock underlying our stock-based awards wasdetermined on each grant date by our board of directors, with input from management. All options to purchase shares of ourcommon stock were intended to be granted with an exercise price per share no less than the fair value per share of ourcommon stock underlying those options on the date of grant, determined in good faith and based on the information knownto us on the date of grant. Following the closing of our initial public offering, our board of directors determines the fair value of our commonstock based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock istraded. Preferred Stock Warrant Liabilities We classified freestanding warrants for the purchase of shares of our redeemable convertible preferred stock asliabilities on our balance sheets at their estimated fair value since the underlying redeemable convertible preferred stock wasclassified as temporary equity. At the end of each reporting period, changes in the estimated fair value during the period arerecorded as a component of other income (expense). Prior to the completion of our initial public offering, we estimated thefair values of the redeemable convertible preferred stock warrants using the Black-Scholes option pricing model based oninputs as of the valuation measurement dates for: the estimated fair value of the underlying redeemable convertible preferredstock; the remaining contractual terms of the warrants; the risk-free interest rates; the expected dividend yield and theestimated volatility of the price of the redeemable convertible preferred stock. The completion of our initial public offeringresulted in the conversion of all of our redeemable convertible preferred stock into common stock and the warrants becameexercisable for shares of our common stock. Upon such conversion, the redeemable convertible preferred stock warrants wereclassified as a component of stockholders’ equity (deficit) and are no longer be subject to remeasurement. Other Company Information Net Operating Loss and Research and Development Tax Credit Carryforwards At December 31, 2015, we had federal and California net operating loss, or NOL, carryforwards, of approximately$42.9 million and $22.9 million, respectively. The federal and California NOL carryforwards will begin expiring in 2030,unless previously utilized. At December 31, 2015, we had federal and California research and development creditcarryforwards of approximately $1.7 million and $0.7 million, respectively. The federal research and development creditcarryforwards will begin expiring in 2031, unless previously utilized. The California research and development creditcarryforwards do not expire unless limited by Section 382 as discussed below. Pursuant to Sections 382 and 383 of the Code, our annual use of our NOL and research and development creditcarryforwards may be limited in the event that a cumulative change in ownership of more than 50% occurs within a three-year period. We completed a Section 382/383 analysis regarding the limitation of our NOL and research and developmentcredit carryforwards as of December 31, 2015 and as a result of the analysis, an ownership change was93 Table of Contentsdetermined to have occurred at the time of our initial public offering. Future ownership changes may further limit our abilityto utilize our remaining NOL and research and development tax credit carryforwards. As of December 31, 2015, we had a fullvaluation allowance against our deferred tax assets. JOBS Act On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growthcompany” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act forcomplying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoptionof certain accounting standards until those standards would otherwise apply to private companies. We have irrevocablyelected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accountingstandards on the relevant dates on which adoption of such standards is required for other public companies. We are relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject tocertain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of theseexemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls overfinancial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) complying with any requirement that maybe adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement tothe auditor’s report providing additional information about the audit and the financial statements, known as the auditordiscussion and analysis. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year(a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual grossrevenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value ofour common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on whichwe have issued more than $1.0 billion in non-convertible debt during the prior three-year period. Recent Accounting Pronouncements In November 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, orASU, No. 2015-17, "Balance Sheet Classification of Deferred Taxes", an update to Accounting Standards Codification, orASC, 740, Income Taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in aclassified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-payingcomponent of an entity be offset and presented as a single amount is not affected by the amendments in this Update. ASU2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interimperiods within those annual periods. We have chosen to early adopt the update for the years ended December 31, 2015 andDecember 31, 2014.In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which converges theFASB and the International Accounting Standards Board standard on revenue recognition. Areas of revenue recognition thatwill be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing,licenses, time value of money, contract costs and disclosures. In August 2015, the FASB issued ASU No. 2015-14, Revenuefrom Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such,the updated standard will be effective in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. Wehave not yet selected a transition method and are currently evaluating the impact that the adoption of ASU 2014-09 willhave on its financial statements and related disclosures. In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying thePresentation of Debt Issuance Costs”. ASU 2015-03 requires debt issuance costs related to a recognized debt liability bepresented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debtdiscounts. ASU 2015-03 is effective for interim and annual periods beginning on January 1, 2016, and is required to beretrospectively adopted. The adoption of ASU 2015-03 is not expected to have a material impact on its financial statementsand related disclosures. 94 Table of ContentsIn August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continueas a Going Concern. ASU 2014-15 requires management to evaluate relevant conditions, events and certain managementplans that are known or reasonably knowable that when, considered in the aggregate, raise substantial doubt about theentity’s ability to continue as a going concern within one year after the date that the financial statements are issued, for bothannual and interim periods. ASU 2014-15 also requires certain disclosures around management’s plans and evaluation, aswell as the plans, if any, that are intended to mitigate those conditions or events that will alleviate the substantial doubt. ASU2014-15 is effective for fiscal years ending after December 15, 2016. We are currently evaluating the impact that theadoption of ASU 2014-15 will have on our financial statements and related disclosures. Results of Operations Comparison of the Years Ended December 31, 2015 and 2014 The following table summarizes our results of operations for the years ended December 31, 2015 and 2014: Years Ended December 31, 2015 2014 Change (in thousands) Collaboration revenue $7,904 $3,598 $4,306 Research and development expenses 25,680 7,652 18,028 General and administrative expenses 5,691 2,125 3,566 Other income (expense) (943) (630) (313) Collaboration revenue. Collaboration revenue was $7.9 million and $3.6 million for the years ended December 31,2015 and 2014, respectively. The increase in revenue was due to the achievement of a development milestone by Santen inJune 2015 in connection with our collaboration, which triggered a $3.0 million milestone payment, 12 months of the up-front payment from the license agreement being recognized in 2015 compared with ten months in 2014, and additionaldevelopment activities being performed in 2015 under the license agreement. Research and development expenses. Research and development expenses were $25.7 million and $7.7 million forthe years ended December 31, 2015 and 2014, respectively. The increase of $18.0 million was due primarily to an increase inmanufacturing activities and clinical study expenses related to the continued development of TRC105, as well as increasedcompensation related expenses due to increased headcount and stock-based compensation expenses. General and administrative expenses. General and administrative expenses were $5.7 million and $2.1 million forthe years ended December 31, 2015 and 2014, respectively. The increase of $3.6 million was due primarily to increasedcompensation related expenses due to increased headcount and stock-based compensation expenses, and expenses related tobecoming a public company in January 2015, such as insurance, accounting and legal expenses. Other income (expense). Other income (expense) was ($0.9) million and $(0.6) million for the years endedDecember 31, 2015 and 2014, respectively. The increase of $0.3 million in other income (expense) was primarily the result ofinterest expense related to the aggregate borrowings under our credit facility with SVB. 95 Table of ContentsComparison of the Years Ended December 31, 2014 and 2013 The following table summarizes our results of operations for the years ended December 31, 2014 and 2013: Years Ended December 31, 2014 2013 Change (in thousands) Collaboration revenue $3,598 $ — $3,598 Research and development expenses 7,652 6,076 1,576 General and administrative expenses 2,125 1,484 641 Other income (expense) (630) (148) (482) Collaboration revenue. Collaboration revenue was $3.6 million and $0 million for the years ended December 31,2014 and 2013, respectively. The increase in revenue was as a result of the collaboration we entered into with Santen inMarch 2014. Prior to our collaboration with Santen in 2014, we did not engage in any revenue generating activities. Research and development expenses. Research and development expenses were $7.7 million and $6.1 million forthe years ended December 31, 2014 and 2013, respectively. The increase of $1.6 million was due primarily to increasedclinical study expenses related to TRC105 and increased compensation related expenses due to increased headcount,partially offset by decreased manufacturing expenses in 2014. General and administrative expenses. General and administrative expenses were $2.1 million and $1.5 million forthe years ended December 31, 2014 and 2013, respectively. The increase of $0.6 million was due primarily to increasedprofessional services, including accounting and legal expenses related to our licensing activities, and compensation relatedexpenses due to increased headcount in 2014. Other income (expense). Other income (expense) was ($0.6) million and $(0.1) million for the years endedDecember 31, 2014 and 2013, respectively. The increase of $0.5 million in other income (expense) was primarily the result ofinterest expense related to the aggregate principal amount of $10.0 million we borrowed under our credit facility with SVB inNovember 2013, June 2014, and September 2014, offset by changes in the fair value of our preferred stock rights andpreferred stock warrant liabilities. Liquidity and Capital Resources We have incurred losses and negative cash flows from operations since our inception. As of December 31, 2015, wehad an accumulated deficit of $58.6 million, and we expect to continue to incur net losses for the foreseeable future. Weexpect that our research and development and general and administrative expenses will continue to increase and, as a result,we will need additional capital to fund our operations, which we may seek to obtain through one or more equity offerings,debt financings, government or other third-party funding, and licensing or collaboration arrangements. On February 4, 2015, we completed the initial public offering and a concurrent private placement of our commonstock, which resulted in net proceeds to us of approximately $35.0 million. We anticipate that our existing cash, cashequivalents and short-term investments will fund our operations for at least the next 12 months. Cash in excess of immediaterequirements is invested in accordance with our investment policy, primarily with a view to capital preservation. Credit Facility with SVB In May 2015, we entered into an Amended and Restated Loan and Security Agreement with SVB (the 2015Amended SVB Loan) under which we could borrow up to $10.0 million. At December 31, 2015, we had borrowed the full$10 million available under the 2015 Amended SVB Loan, of which, borrowings of approximately $8.0 million were used torefinance amounts outstanding under the prior loan and security agreements. In connection with the 201596 Table of ContentsAmended SVB Loan, we issued warrants to purchase up to 18,415 shares of common stock at an exercise price of $10.86 pershare. The warrants are fully exercisable and expire on May 13, 2022. The 2015 Amended SVB Loan provides for interest to be paid at a rate of 6.5% per annum. Interest-only paymentsare due monthly through June 2016, which will be extended through September 2016, in the event certain conditions aremet. Thereafter, in addition to interest accrued during such period, the monthly payments will include an amount equal tothe outstanding principal at July 1, 2016 (or October 1, 2016) divided by 30 months. At maturity (or earlier prepayment), weare also required to make a final payment equal to 8.5% of the original principal amount of the amounts borrowed. The 2015Amended SVB Loan provides for prepayment fees of 3.0% of the outstanding balance of the loan if the loan is repaid prior toMay 13, 2016, 2.0% of the amount prepaid if the prepayment occurs after May 13, 2016 but prior to May 13, 2017 and 1.0%of the amount prepaid if the prepayment occurs thereafter. The 2015 Amended SVB Loan is collateralized by substantially all of our assets, other than our intellectualproperty, and contains customary conditions of borrowing, events of default and covenants, including covenants that restrictour ability to dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders ofour capital stock. Should an event of default occur, including the occurrence of a material adverse change, we could berequired to immediately repay of all obligations under the 2015 Amended SVB Loan. ATM Facility In February 2016, we entered into an At-the-Market Equity Offering Sales Agreement, or the Sales Agreement, withStifel, Nicolaus & Company, Incorporated, or Stifel, pursuant to which we may sell from time to time, at our option, up to anaggregate of $25.0 million of our shares of our common stock through Stifel, as sales agent. Sales of our common stock madepursuant to the Sales Agreement, if any, will be made on the Nasdaq Global Market under the our recently filed RegistrationStatement on Form S-3, by means of ordinary brokers’ transactions at market prices. Additionally, under the terms of the SalesAgreement, we may also sell shares of our common stock through Stifel, on the Nasdaq Global Select Market or otherwise, atnegotiated prices or at prices related to the prevailing market price. Stifel will use its commercially reasonable efforts to sellour common stock from time to time, based upon our instructions (including any price, time or size limits or other customaryparameters or conditions we may impose). We are obligated to pay Stifel an aggregate sales agent commission equal to up to2.5% of the gross proceeds of the sales price for common stock sold under the Sales Agreement. Cash Flows The following table summarizes our net cash flow activity for each of the periods set forth below: Years Ended December 31, 2015 2014 2013 (in thousands) Net cash provided by (used in): Operating activities $(19,163) $1,758 $(6,670) Investing activities (10,917) (70) (7) Financing activities 36,453 31,036 6,494 Net increase (decrease) in cash and cash equivalents $6,373 $32,724 $(183) Operating activities. Net cash used in operating activities was $19.2 million for the year ended December 31, 2015,primarily due to our net loss, adjusted for noncash items, offset by changes in our accounts payable and accrued expenses.Net cash provided by operating activities was $1.8 million for the year ended December 31, 2014 and was primarily the resultof $6.9 million of deferred revenue related to the $10.0 million one-time upfront payment received in conjunction with ourcollaboration with Santen, offset by our net loss for the period. Net cash used in operating activities was $6.7 million for theyear ended December 31, 2013, and was primarily due to our net loss and changes in our accounts payable and accruedexpense accounts. Investing activities. Net cash used in investing activities was $10.9 million for the year ended December 31,97 Table of Contents2015, and was related to purchases of short-term investments, offset by maturities of those investments, and purchases ofproperty and equipment. Net cash used in investing activities for the years ending December 31, 2014 and 2013 was due topurchases of property and equipment. Financing activities. Net cash provided by financing activities was $36.5 million for the year ended December 31,2015 and resulted primarily from net proceeds received totaling $36.2 million from our initial public offering and concurrentprivate placement. Net cash provided by financing activities was $31.0 million for the year ended December 31, 2014resulted from $25.7 million of net proceeds from our sale of Series B redeemable convertible preferred stock inSeptember 2014 and net borrowings from a prior credit facility with SVB, offset in part by costs paid in connection with ourinitial public offering which closed in February 2015. Net cash provided by financing activities was $6.5 million for the yearended December 31, 2013 and was a result of $4.0 million of net proceeds from our sale of Series A redeemable convertiblepreferred stock and $2.5 million of borrowings under a prior credit facility. Funding Requirements At December 31, 2015, we had cash, cash equivalents and short-term investments totaling $52.2 million. We believethat our existing cash, cash equivalents and short-term investments will be sufficient to meet our anticipated cashrequirements for at least the next 12 months. However, our forecast of the period of time through which our financialresources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, andactual results could vary materially. Our future capital requirements are difficult to forecast and will depend on many factors, including: ·our ability to initiate, and the progress and results of, our planned clinical trials of TRC105; ·Santen’s ability and willingness to continue clinical development of DE-122; ·our ability to enter into and maintain our collaborations, including our collaboration with Santen; ·our ability to achieve, and our obligations to make, milestone payments under our collaboration and licenseagreements; ·the costs and timing of procuring supplies of our product candidates for clinical trials and regulatorysubmissions; ·the scope, progress, results and costs of preclinical development, and clinical trials of our other productcandidates; ·the costs, timing and outcome of regulatory review of our product candidates; ·the revenue, if any, received from commercial sales of our product candidates for which we or any of ourpartners, including Santen, may receive marketing approval; ·the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing ourintellectual property rights and defending any intellectual property-related claims; ·the costs and timing of future commercialization activities, including product manufacturing, marketing, salesand distribution, for any of our product candidates for which we receive marketing approval and do not partnerfor commercialization; and ·the extent to which we acquire or in-license other products and technologies. Until we can generate substantial product revenues, if ever, we expect to finance our cash needs through acombination of equity offerings, debt financings, collaborations, collaborations and licensing arrangements.98 Table of ContentsContractual Obligations and Commitments The following table summarizes our contractual obligations at December 31, 2015: Payments Due by Period Less than 1-3 3-5 More than Total 1 Year Years Years 5 Years (in thousands) Long-term debt obligations, including interest and final payment(1) $12,021 $2,622 $9,399 $— $— Operating lease obligations(2) 575 429 146 — — Total $12,596 $3,051 $9,545 $— $— (1)We will make principal and interest payments to SVB in accordance with required payment schedule.(2)Our operating lease obligations relate to our corporate headquarters in San Diego, California. We lease 9,339 squarefeet of office space under an operating lease that expires in April 2017. Under each of our license agreements we may have payment obligations that are contingent upon future events suchas our achievement of specified development, regulatory and commercial milestones and are required to make developmentmilestone payments and royalty payments in connection with the sale of products developed under these agreements. We donot have any significant ongoing annual payment obligations under these license agreements. As of December 31, 2015, wewere unable to estimate the timing or likelihood of achieving the milestones or making future product sales and, therefore,any related payments are not included in the table above. These commitments include the following: ·Under our license agreement with Health Research Inc. and Roswell Park Cancer Institute, referred tocollectively as RPCI, we may be required to pay up to an aggregate of approximately $6.4 million($0.4 million of which we have already paid) upon the achievement of certain milestones for productsutilizing certain intellectual property licensed from RPCI, or the RPCI Technology, including TRC105, ofwhich approximately $1.4 million ($0.4 million of which we have already paid) relates to the initiation ofcertain development activities and $5.0 million relates to certain regulatory filings and approvals. We mayalso be required to pay up to an aggregate of approximately $6.4 million upon the achievement of certainmilestones for products utilizing a patent owned by us covering humanized endoglin antibodies, includingTRC205, of which approximately $1.4 million relates to the initiation of certain development activities and$5.0 million relates to certain regulatory filings and approvals. Upon commercialization, we will be requiredto pay RPCI mid single-digit royalties based on net sales of products utilizing the RPCI Technology in eachcalendar quarter, subject to adjustments in certain circumstances. In addition, we will be required to pay RPCIlow single-digit royalties based on net sales in each calendar quarter of products utilizing our patent coveringhumanized endoglin antibodies. Our royalty obligations continue until the expiration of the last valid claimin a patent subject to the agreement, which we expect to occur in 2029, based on the patents currently subjectto the agreement. ·Under our license agreement with Case Western, we may be required to pay up to an aggregate ofapproximately $9.8 million in milestone payments, of which $650,000 relates to the initiation of certaindevelopment activities and approximately $9.1 million relates to the submission of certain regulatory filingsand receipt of certain regulatory approvals. If products utilizing certain intellectual property licensed fromCase Western, or the TRC102 Technology, are successfully commercialized, we will be required to pay CaseWestern a single-digit royalty on net sales, subject to adjustments in certain circumstances. Beginning on theearlier of a specified number of years from the effective date of the agreement and the anniversary of theeffective date following the occurrence of a specified event, we will be required to make a minimum annualroyalty payment of $75,000, which will be credited against our royalty obligations. In the event we sublicenseany of our rights under the agreement relating to the TRC102 Technology, we will be obligated to pay CaseWestern a portion of certain fees we may receive under the sublicense. Our royalty obligations will continueon a country-by-country basis through the later of the expiration of the last valid claim under the TRC102Technology or 14 years after the first commercial sale of a product utilizing99 Table of Contentsthe TRC102 Technology in a given country. ·Under our license agreement with Lonza, we are required to pay Lonza a low single-digit percentage royaltyon the net selling price of TRC105 product manufactured by Lonza. In the event that we or a strategic partneror collaborator manufactures the product, we will be required to pay Lonza an annual lump sum payment of£75,000, along with a low single-digit percentage royalty on the net selling price of the manufacturedTRC105 product. In the event that we sublicense our manufacturing rights under the agreement (other than toa strategic partner or collaborator), we will be obligated to pay Lonza an annual lump sum payment of£300,000 per sublicense, along with a low single-digit percentage royalty on the net selling price of themanufactured TRC105 product. If, on a country-by-country basis, the manufacture or sale of the TRC105product is not protected by a valid claim in a licensed patent, our royalty obligations in such country willdecrease and will expire 12 years after the first commercial sale of the product. We enter into contracts in the normal course of business with clinical trial sites and clinical supply manufacturingorganizations and with vendors for preclinical safety and research studies, research supplies and other services and productsfor operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contractsand not included in the table of contractual obligations and commitments. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements asdefined under the applicable rules of the SEC. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk Our cash and cash equivalents consist of cash, money market funds and certificates of deposit. As a result, the fairvalue of our portfolio is relatively insensitive to interest rate changes. Our long-term debt bears interest at a fixed rate. Foreign Currency Exchange Risk We incur significant expenses, including for manufacturing of clinical trial materials, outside the United Statesbased on contractual obligations denominated in currencies other than the U.S. dollar, including Pounds Sterling. At the endof each reporting period, these liabilities are converted to U.S. dollars at the then-applicable foreign exchange rate. As aresult, our business is affected by fluctuations in exchange rates between the U.S. dollar and foreign currencies. We do notenter into foreign currency hedging transactions to mitigate our exposure to foreign currency exchange risks. Exchange ratefluctuations may adversely affect our expenses, results of operations, financial position and cash flows. However, to date,these fluctuations have not been significant. Based on our purchase commitments for our 2015 fiscal year, a movement of 1%in the U.S. dollar to Pounds Sterling exchange rate would not have a material effect on our results of operations or financialcondition. Effects of Inflation Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflationhas had a material effect on our results of operations or financial condition during the periods presented.100 Table of ContentsItem 8. Financial Statement and Other Supplementary Information. Report of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders ofTRACON Pharmaceuticals, Inc.We have audited the accompanying consolidated balance sheets of TRACON Pharmaceuticals, Inc. as ofDecember 31, 2015 and 2014, and the related consolidated statements of operations, redeemable convertible preferred stockand stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2015. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audits included consideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidatedfinancial position of TRACON Pharmaceuticals, Inc. at December 31, 2015 and 2014, and the consolidated results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S.generally accepted accounting principles. /s/ Ernst & Young LLPSan Diego, CaliforniaFebruary 18, 2016101 Table of ContentsTRACON Pharmaceuticals, Inc.Consolidated Balance Sheets(in thousands, except share and per share data) December 31, 2015 2014 Assets Current assets: Cash and cash equivalents $41,373 $35,000 Short term investments 10,783 — Prepaid and other assets 1,150 728 Total current assets 53,306 35,728 Property and equipment, net 173 97 Other assets 43 2,346 Total assets $53,522 $38,171 Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable and accrued expenses $8,281 $3,166 Accrued compensation and related expenses 1,163 808 Current portion of deferred revenue 3,353 4,357 Preferred stock warrant liabilities — 246 Long-term debt, current portion 1,378 4,676 Total current liabilities 14,175 13,253 Deferred revenue — 2,546 Other long-term liabilities 905 408 Long-term debt, less current portion 7,464 4,258 Commitments and contingencies (Note 5) Redeemable convertible preferred stock, $0.001 par value; authorized shares—none and24,900,000 at December 31, 2015 and December 31, 2014, respectively; issued and outstandingshares—none and 24,650,273 at December 31, 2015 and December 31, 2014, respectively;liquidation preference of $0 and $51,700 at December 31, 2015 and December 31, 2014,respectively — 49,880 Stockholders’ equity (deficit): Preferred stock, $0.001 par value, authorized shares— 10,000,000 and none atDecember 31, 2015 and December 31, 2014, respectively; issued and outstanding shares—none — — Common stock, $0.001 par value; authorized shares—200,000,000 and 40,000,000 atDecember 31, 2015 and December 31, 2014, respectively; issued andoutstanding—12,175,942 and 1,633,854 at December 31, 2015 and December 31, 2014,respectively 12 2 Additional paid-in capital 89,556 2,004 Accumulated deficit (58,590) (34,180) Total stockholders’ equity (deficit) 30,978 (32,174) Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $53,522 $38,171 See accompanying notes.102 Table of ContentsTRACON Pharmaceuticals, Inc.Consolidated Statements of Operations(in thousands, except share and per share data) Years Ended December 31, 2015 2014 2013 Collaboration revenue $7,904 $3,598 $ — Operating expenses: Research and development 25,680 7,652 6,076 General and administrative 5,691 2,125 1,484 Total operating expenses 31,371 9,777 7,560 Loss from operations (23,467) (6,179) (7,560) Other income (expense): Interest expense, net (923) (667) (30) Other (expense) income, net (20) 37 (118) Total other income (expense) (943) (630) (148) Net loss (24,410) (6,809) (7,708) Accretion to redemption value of redeemable convertible preferredstock (31) (297) (248) Net loss attributable to common stockholders $(24,441) $(7,106) $(7,956) Net loss per share attributable to common stockholders, basic anddiluted $(2.20) $(4.40) $(4.93) Weighted-average shares outstanding, basic and diluted 11,115,651 1,615,044 1,614,851 See accompanying notes.103 Table of ContentsTRACON Pharmaceuticals, Inc.Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)(in thousands, except share and per share data) Redeemable Total Convertible Additional Stockholders’ Preferred Stock Common Stock Paid-in Accumulated Equity Shares Amount Shares Amount Capital Deficit (Deficit) Balance at December 31, 2012 10,250,000 $19,069 1,614,851 $2 $1,998 $(19,663) $(17,663) Issuance of Series A redeemableconvertible preferred stock inMay 2013 for cash of $2.00 pershare, net of offering costs of $6and preferred stock purchaserights of $618 1,999,999 4,612 — — — — — Accretion to redemption value ofredeemable convertible preferredstock — 248 — — (248) — (248) Stock-based compensationexpense — — — — 275 — 275 Net loss — — — — — (7,708) (7,708) Balance at December 31, 2013 12,249,999 23,929 1,614,851 2 2,025 (27,371) (25,344) Issuance of Series B redeemableconvertible preferred stock inSeptember for cash of $2.1935per share, net of offering costsof $1,546 12,400,274 25,654 — — — — — Accretion to redemption value ofredeemable convertiblepreferred stock — 297 — — (297) — (297) Exercise of common stockoptions — — 19,003 — — — — Vested shares related to repurchaseliability — — — — 5 — 5 Stock-based compensationexpense — — — — 271 — 271 Net loss — — — — — (6,809) (6,809) Balance at December 31, 2014 24,650,273 49,880 1,633,854 2 2,004 (34,180) (32,174) Initial public offering and privateplacement of common stock forcash of $10 per share, net ofoffering costs - - 4,100,000 4 34,950 - 34,954 Conversion of redeemableconvertible preferred stock intocommon stock at initial publicoffering (24,650,273) (49,911) 6,369,567 6 49,905 49,911 Reclassification of redeemableconvertible preferred stockwarrant 311 311 Accretion to redemption value ofredeemable convertible preferredstock 31 (31) (31) Issuance of common stock underequity plans 72,521 - 179 179 Stock-based compensationexpense 2,088 2,088 Vested shares related to repurchaseliability 12 12 Issuance of common stockwarrants in connection with debtfinancing 138 138 Net loss (24,410) (24,410) Balance at December 31, 2015 — $ — 12,175,942 $12 $89,556 $(58,590) $30,978 See accompanying notes. 104 Table of ContentsTRACON Pharmaceuticals, Inc.Consolidated Statements of Cash Flows(in thousands) Years Ended December 31, 2015 2014 2013 Cash flows from operating activities Net loss $(24,410) $(6,809) $(7,708) Adjustments to reconcile net loss to net cash (used in) provided byoperating activities: Stock-based compensation 2,088 271 275 Depreciation and amortization 51 15 7 Amortization of debt discount 97 99 4 Amortization of premium/discount on short-term investments 8 — — Noncash interest 417 300 22 Change in fair value of preferred stock warrant liability 65 (37) 34 Change in fair value of preferred stock purchase rights — — 84 Deferred rent (4) 45 8 Deferred revenue (3,550) 6,903 — Changes in assets and liabilities: Prepaid expenses and other assets (424) (1,701) 9 Accounts payable and accrued expenses 6,144 2,282 443 Accrued compensation and related expenses 355 390 152 Net cash (used in) provided by operating activities (19,163) 1,758 (6,670) Cash flows from investing activities Purchase of property and equipment (127) (70) (7) Purchases of available-for-sale short-term investments (12,790) — — Proceeds from the maturity of available-for-sale short-term investments 2,000 — — Net cash used in investing activities (10,917) (70) (7) Cash flows from financing activities Proceeds from long-term debt 10,000 7,500 2,500 Repayment of long-term debt, including final payment (9,930) (920) — Proceeds from sale of common stock, net of offering costs paid in the current period 36,204 (1,250) — Proceeds from sale of preferred stock, net of offering costs — 25,654 3,994 Proceeds from issuance of common stock under equity plans 179 52 — Net cash provided by financing activities 36,453 31,036 6,494 Net increase (decrease) in cash and cash equivalents 6,373 32,724 (183) Cash and cash equivalents at beginning of period 35,000 2,276 2,459 Cash and cash equivalents at end of period $41,373 $35,000 $2,276 Supplemental disclosure of cash flow information Interest paid $428 $270 $4 Supplemental schedule of noncash investing and financing activities Exercise of stock right for preferred stock $ — $ — $618 Issuance of preferred stock warrants in connection with long-term debt $ — $186 $63 Issuance of common stock warrants in connection with long-term debt $138 $ — $ — See accompanying notes. 105 Table of ContentsTRACON Pharmaceuticals, Inc.Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting PoliciesOrganization and BusinessTRACON Pharmaceuticals, Inc. (formerly Lexington Pharmaceuticals, Inc.) (TRACON or the Company) wasincorporated in the state of Delaware on October 28, 2004. TRACON is a clinical stage biopharmaceutical company focusedon the development and commercialization of novel targeted therapeutics for cancer, age‑related macular degeneration andfibrotic diseases. The Company’s research focuses on antibodies that bind to the endoglin receptor, which is essential toangiogenesis (the process of new blood vessel formation) and a key contributor to fibrosis (tissue scarring).The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary,TRACON Pharma Limited, which was formed in September 2015 and is currently inactive. All significant intercompanyaccounts and transactions have been eliminated. Basis of Presentation As of December 31, 2015, the Company has devoted substantially all of its efforts to product development, raisingcapital, and building infrastructure and has not realized revenues from its planned principal operations.The Company has incurred operating losses since inception. As of December 31, 2015, the Company had an accumulateddeficit of $58.6 million. The Company anticipates that it will continue to incur net losses into the foreseeable future as it:(i) continues the development and commercialization of its product candidates; (ii) works to develop additional productcandidates through research and development programs; and (iii) continues to expand its corporate infrastructure. AtDecember 31, 2015, the Company had cash, cash equivalents and short-term investments of $52.2 million. Based on theCompany’s current business plan, management believes that existing cash, cash equivalents and short-term investments willbe sufficient to fund the Company’s obligations for at least the next twelve months. The Company plans to continue to fundits losses from operations and capital funding needs through cash and investments on hand, as well as future debt and equityfinancing and potential collaboration arrangements. If the Company is not able to secure adequate additional funding, it maybe forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/orsuspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results ofoperations and future prospects. Initial Public Offering In February 2015, the Company completed its initial public offering in which it sold 3,600,000 shares of commonstock at an initial public offering price of $10.00 per share. In addition, a concurrent private placement to an existingstockholder was completed in which the Company sold 500,000 shares of common stock, also at $10.00 per share. Proceedsfrom the initial public offering and concurrent private placement, net of underwriting discounts, commissions and offeringcosts paid by the Company of approximately $6.0 million, were approximately $35.0 million. In addition, in connection with the completion of the Company’s initial public offering on February 4, 2015,all outstanding shares of redeemable convertible preferred stock were converted into 6,369,567 shares of the Company’scommon stock; outstanding warrants to purchase 150,000 shares of Series A redeemable convertible preferred stock wereconverted into warrants to purchase 38,758 shares of the Company’s common stock; and the Company’s certificate ofincorporation was amended and restated to authorize 200,000,000 shares of common stock and 10,000,000 shares ofundesignated preferred stock. Reverse Stock Split On January 16, 2015, the Company effected a one-for-3.87 reverse stock split of its common stock (the ReverseStock Split). The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse106 Table of ContentsStock Split. All issued and outstanding common stock and the conversion ratio of the redeemable convertible preferred stockhave been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.Use of EstimatesThe Company’s consolidated financial statements are prepared in accordance with accounting principles generallyaccepted in the United States (GAAP). The preparation of the Company’s consolidated financial statements requires it tomake estimates and assumptions that impact the reported amounts of assets, liabilities, revenue and expenses and thedisclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The mostsignificant estimates in the Company’s financial statements relate to revenue recognition and the valuation of equity awards.Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in thefuture, actual results may ultimately materially differ from these estimates and assumptions.Cash and Cash EquivalentsCash and cash equivalents consist of cash and highly liquid investments with original maturities of three months orless at the date of purchase. The carrying amounts approximate fair value due to the short maturities of these investments.Cash and cash equivalents include cash in readily available checking and money market funds, as well as certificates ofdeposit.Concentration of Credit RiskFinancial instruments that potentially subject the Company to significant concentration of credit risk consistprimarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excessof federally insured limits. The Company has not experienced any losses in such accounts and management believes that theCompany is not exposed to significant credit risk due to the financial position of the depository institutions in which thosedeposits are held.Property and EquipmentProperty and equipment is stated at cost and depreciated using the straight-line method over the estimated usefullife of the related assets, which is generally five years. Leasehold improvements are amortized over the shorter of the leaseterm or estimated useful life of the related assets. Repairs and maintenance costs are charged to expense as incurred.Other AssetsAt December 31, 2014, other assets primarily consist of the Company’s deferred initial public offering costs. Thesecosts represent legal, accounting and other direct costs related to the Company’s efforts to raise capital through a public saleof its common stock. Costs were deferred until the completion of the initial public offering, at which time they werereclassified to additional paid-in capital as a reduction of the initial public offering proceeds.Deferred RentRent expense is recorded on a straight-line basis over the term of the lease. The difference between rent expense andamounts paid under the lease agreements is recorded as deferred rent in the accompanying consolidated balance sheets.Tenant improvement allowances and other lease incentives are recorded as liabilities and are amortized on a straight-linebasis over the term of the lease as reductions to rent expense.Preferred Stock Warrant LiabilitiesPrior to the completion of the Company’s initial public offering in February 2015, the Company had outstandingfreestanding warrants to purchase shares of its Series A redeemable convertible preferred stock. Since the107 Table of Contentsunderlying Series A redeemable convertible preferred stock was classified outside of permanent equity, these preferred stockwarrants were classified as liabilities in the December 31, 2014 balance sheet. The Company adjusted the carrying value ofsuch preferred stock warrants to their estimated fair value at each reporting date, with any related increases or decreases in thefair value recorded as an increase or decrease to other income (expense) in the statements of operations. Upon the completionof the Company’s initial public offering, the warrants no longer require liability accounting and the then fair value of thewarrant liability was reclassified into stockholders’ equity. The Company performed the final remeasurement of the warrant liability as of the initial public offering date andrecorded the $65,000 change in fair value into other income (expense) for the year ended December 31, 2015. Revenue RecognitionThe Company’s revenue is derived from its license agreement with Santen Pharmaceutical Co., Ltd. (Santen) asdescribed in Note 7. The Company recognizes revenue when all four of the following criteria are met: (1) there is persuasiveevidence that an arrangement exists; (2) delivery of the products and/or services has occurred; (3) the selling price is fixed ordeterminable; and (4) collectability is reasonably assured. Amounts received prior to satisfying the revenue recognitioncriteria are recorded as deferred revenue. Amounts not expected to be recognized as revenue within the 12 months followingthe balance sheet date are classified as long-term deferred revenue.The Company evaluates multiple-element arrangements to determine: (1) the deliverables included in thearrangement and (2) whether the individual deliverables represent separate units of accounting or whether they must beaccounted for as a combined unit of accounting. Deliverables are considered separate units of accounting provided that:(a) the delivered items have value to the customer on a standalone basis and (b) if the arrangement includes a general right ofreturn relative to the delivered items, delivery or performance of the undelivered items is considered probable andsubstantially in the Company’s control. In assessing whether an item has standalone value, the Company considers factorssuch as the research, manufacturing and commercialization capabilities of the partner and the availability of the associatedexpertise in the general marketplace. In addition, the Company considers whether the partner can use the other deliverablesfor their intended purpose without the receipt of the remaining elements, whether the value of the deliverable is dependenton the undelivered items and whether there are other vendors that can provide the undelivered elements.Arrangement consideration that is fixed or determinable is allocated among the separate units of accounting usingthe relative selling price method. The Company uses the following hierarchy of values to estimate the selling price of eachdeliverable: (1) vendor-specific objective evidence of fair value; (2) third-party evidence of selling price; and (3) bestestimate of selling price (BESP). The BESP reflects the Company’s best estimate of what the selling price would be if theCompany regularly sold the deliverable on a standalone basis. In developing the BESP for a unit of accounting, theCompany considers applicable market conditions and relevant entity-specific factors, including factors that are contemplatedin negotiating an arrangement and estimated costs. The Company validates the BESP for units of accounting by evaluatingwhether changes in the key assumptions used to determine the BESP will have a significant effect on the allocation ofarrangement consideration between multiple units of accounting.The Company then applies the applicable revenue recognition criteria to each of the separate units of accounting indetermining the appropriate period and pattern of recognition. If there is no discernible pattern of performance and/orobjectively measurable performance measures do not exist, then the Company recognizes revenue under the arrangement ona straight-line basis over the period the Company expects to complete its performance obligations.With respect to revenue derived from reimbursement of direct, out-of-pocket expenses for research and developmentcosts associated with collaborations, where the Company acts as a principal with discretion to choose suppliers, bear creditrisk, and perform part of the services required in the transaction, the Company records revenue for the gross amount of thereimbursement. The costs associated with these reimbursements are reflected as a component of research and developmentexpense in the statements of operations.108 Table of ContentsMilestonesThe Company uses the milestone method of accounting and revenue is recognized when earned, as evidenced bywritten acknowledgement from the collaborator or other persuasive evidence that the milestone has been achieved and thepayment is non-refundable, provided that the milestone event is substantive. A milestone event is defined as an event:(1) that can only be achieved based in whole or in part on either the Company’s performance or on the occurrence of aspecific outcome resulting from the Company’s performance; (2) for which there is substantive uncertainty at the inception ofthe arrangement that the event will be achieved; and (3) that would result in additional payments being due to the Company.Events for which the occurrence is either contingent solely upon the passage of time or the result of a counterparty’sperformance are not considered to be milestone events. A milestone event is substantive if all of the following conditions aremet: (a) the consideration is commensurate with either the Company’s performance to achieve the milestone, or theenhancement of the value to the delivered item(s) as a result of a specific outcome resulting from the Company’s performanceto achieve the milestone; (b) the consideration relates solely to past performance; and (c) the consideration is reasonablerelative to all the deliverables and payment terms (including other potential milestone consideration) within thearrangement.The Company assesses whether a milestone is substantive at the inception of each arrangement. If a milestone isdeemed non-substantive, the Company will account for that milestone payment in accordance with the multiple elementarrangements guidance and recognize it consistent with the related units of accounting for the arrangement over the relatedperformance period.Clinical Trial Expense AccrualsAs part of the process of preparing the Company’s financial statements, the Company is required to estimateexpenses resulting from its obligations under contracts with vendors, contract research organizations (CROs), and consultantsand under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts varyand may result in payment flows that do not match the periods over which materials or services are provided under suchcontracts.The Company’s objective is to reflect the appropriate trial expenses in its financial statements by recording thoseexpenses in the period in which services are performed and efforts are expended. The Company accounts for these expensesaccording to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. TheCompany determines accrual estimates through discussion with applicable personnel and outside service providers as to theprogress or state of consummation of trials. During the course of a clinical trial, the Company adjusts the clinical expenserecognition if actual results differ from its estimates. The Company makes estimates of accrued expenses as of each balancesheet date based on the facts and circumstances known at that time. The Company’s clinical trial accruals are dependentupon accurate reporting by CROs and other third-party vendors. Although the Company does not expect its estimates todiffer materially from amounts actually incurred, its understanding of the status and timing of services performed relative tothe actual status and timing of services performed may vary and may result in reporting amounts that are too high or too lowfor any particular period. For the three years in the period ended December 31, 2015, there were no material adjustments toour prior period estimates of accrued expenses for clinical trials. Research and Development CostsResearch and development costs, including license fees, are expensed as incurred.Patent CostsCosts related to filing and pursuing patent applications are recorded as general and administrative expense andexpensed as incurred since recoverability of such expenditures is uncertain.109 Table of ContentsStock-Based CompensationStock-based compensation expense represents the grant date fair value of employee stock option grants andemployee stock purchase plan (ESPP) rights recognized as expense over the requisite service period of the awards (usuallythe vesting period) on a straight-line basis, net of estimated forfeitures. The Company estimates the fair value of stock optiongrants using the Black-Scholes option pricing model.The Company accounts for stock options granted to non-employees using the fair value approach. These optiongrants, if any, are subject to periodic revaluation over their vesting terms.Income TaxesThe Company accounts for income taxes under the asset and liability method, which requires the recognition ofdeferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financialstatements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between thefinancial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differencesare expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income in theperiod that includes the enactment date.The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likelythan not to be realized. In making such a determination, management considers all available positive and negative evidence,including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategiesand results of recent operations. If management determines that the Company would be able to realize its deferred tax assetsin the future in excess of their net recorded amount, management would make an adjustment to the deferred tax assetvaluation allowance, which would reduce the provision for income taxes.The Company records uncertain tax positions on the basis of a two-step process whereby (1) managementdetermines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of theposition and (2) for those tax positions that meet the more-likely-than‑not recognition threshold, management recognizes thelargest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related taxauthority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense.Any accrued interest and penalties are included within the related tax liability.Comprehensive LossComprehensive loss is defined as a change in equity during a period from transactions and other events andcircumstances from non-owner sources. Net loss and comprehensive loss were the same for all periods presented.Net Loss Per ShareBasic net loss per share is calculated by dividing the net loss by the weighted-average shares of common stockoutstanding for the period, without consideration for common stock equivalents and adjusted for the weighted‑averagenumber of common shares outstanding that are subject to repurchase. The Company has excluded 6,555 and 2,863 weighted-average shares subject to repurchase from the weighted‑average number of common shares outstanding for the years endedDecember 31, 2015 and 2014, respectively, and had no common shares subject to repurchase in 2013. Diluted net loss pershare is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding forthe period determined using the treasury-stock method. For all periods presented, there is no difference in the number ofshares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.110 Table of ContentsPotentially dilutive securities not included in the calculation of diluted net loss per share because to do so would beanti-dilutive are as follows (in common stock equivalent shares): December 31, 2015 2014 2013Redeemable convertible preferred stock outstanding — 6,369,567 3,165,366Warrants to purchase redeemable convertible preferred stock — 38,758 9,689Warrants to purchase common stock 57,173 — —Common stock options 1,788,149 1,023,847 685,071ESPP shares 143 — — 1,845,465 7,432,172 3,860,126Segment ReportingOperating segments are identified as components of an enterprise about which separate discrete financialinformation is available for evaluation by the chief operating decision-maker in making decisions regarding resourceallocation and assessing performance. The Company views its operations and manages its business in one operating segment.Recent Accounting PronouncementsIn November 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, orASU, No. 2015-17, "Balance Sheet Classification of Deferred Taxes", an update to Accounting Standards Codification, orASC, 740, Income Taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in aclassified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-payingcomponent of an entity be offset and presented as a single amount is not affected by the amendments in this Update. ASU2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interimperiods within those annual periods. The Company has chosen to early adopt the update for the years ended December 31,2015 and December 31, 2014.In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which converges theFASB and the International Accounting Standards Board standard on revenue recognition. Areas of revenue recognition thatwill be affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing,licenses, time value of money, contract costs and disclosures. In August 2015, the FASB issued ASU No. 2015-14, Revenuefrom Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such,the updated standard will be effective in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. TheCompany has not yet selected a transition method and is currently evaluating the impact that the adoption of ASU 2014-09will have on its financial statements and related disclosures. In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying thePresentation of Debt Issuance Costs”. ASU 2015-03 requires debt issuance costs related to a recognized debt liability bepresented in the balance sheet as a direct deduction from the carrying value of that debt liability, consistent with debtdiscounts. ASU 2015-03 is effective for interim and annual periods beginning on January 1, 2016, and is required to beretrospectively adopted. The adoption of ASU 2015-03 is not expected to have a material impact on the Company’s financialstatements and related disclosures. In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continueas a Going Concern. ASU 2014-15 requires management to evaluate relevant conditions, events and certain managementplans that are known or reasonably knowable that when, considered in the aggregate, raise substantial doubt about theentity’s ability to continue as a going concern within one year after the date that the financial statements are issued, for bothannual and interim periods. ASU 2014-15 also requires certain disclosures around management’s plans and evaluation, aswell as the plans, if any, that are intended to mitigate those conditions or events that will alleviate the substantial doubt. ASU2014-15 is effective for fiscal years ending after December 15, 2016. The Company is currently111 Table of Contentsevaluating the impact that the adoption of ASU 2014-15 will have on its financial statements and related disclosures. 2. Short-Term Investments and Fair Value MeasurementsAt December 31 2015, short-term investments consist of certificates of deposit. The Company classifies allinvestments as available-for-sale, as the sale of such investments may be required prior to maturity to implement managementstrategies. These investments are carried at amortized cost which approximates fair value, with the unrealized gains andlosses reported as a component of other comprehensive income in equity until realized. A decline in the market value of anyshort-term investment below cost that is determined to be other-than-temporary will result in a revaluation of its carryingamount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. No suchimpairment charges were recorded for any period presented. Realized gains and losses from the sale of short-term investments, if any, are determined on a specific identificationbasis. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-salesecurities are included in other income or expense on the consolidated statements of operations. Realized and unrealizedgains and losses during the periods presented were immaterial. Premiums and discounts are amortized or accreted over the lifeof the related security as an adjustment to yield using the straight-line method and are included in interest income on theconsolidated statements of operations. Interest and dividends on securities classified as available-for-sale are included ininterest income on the consolidated statements of operations. At December 31, 2015, the remaining contractual maturities ofall available-for-sale investments were less than one year. The carrying amounts of cash and cash equivalents, prepaid and other assets, accounts payable and accruedliabilities are considered to be representative of their respective fair values because of the short-term nature of thoseinstruments. Based on the borrowing rates currently available to the Company for loans with similar terms, which isconsidered a Level 2 input, the Company believes that the fair value of long-term debt approximates its carrying value.Preferred stock warrant liabilities are recorded at fair value.The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expandsdisclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fairvalue is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants. As such, fair value is a market-based measurement that should bedetermined based on assumptions that market participants would use in pricing an asset or liability. As a basis forconsidering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes theinputs used in measuring fair value as follows:Level 1:Observable inputs such as quoted prices in active markets. Level 2:Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3:Unobservable inputs in which there is little or no market data, which require the reporting entity to develop itsown assumptions.Assets and liabilities are classified based on the lowest level of input that is significant to the fair valuemeasurements. Financial liabilities that are measured at fair value on a recurring basis include the preferred stock warrant liabilitiesand preferred stock purchase rights. None of the Company’s non-financial assets or liabilities are recorded at fair value on anon-recurring basis. No transfers between levels have occurred during the periods presented.The fair values of the Company’s assets and liabilities, which are measured at fair value on a recurring basis, weredetermined using the following inputs (in thousands): 112 Table of Contents Fair Value Measurements at Reporting Date Using Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) At December 31, 2015 Certificates of deposit and money market funds, included inCash and cash equivalents and Short-term investments $14,996 $— $14,996 $ — At December 31, 2014 Preferred stock warrant liabilities $246 $— $— $246 All preferred stock warrants are recorded at fair value utilizing the Black-Scholes option pricing model usingsignificant unobservable inputs consistent with the inputs used for the Company’s stock-based compensation expenseadjusted for the preferred stock warrants’ expected life.The following table provides a reconciliation of all liabilities measured at fair value using Level 3 significantunobservable inputs (in thousands): Preferred Stock Warrant Liabilities Balance at December 31, 2013 $97 Exercise of preferred stock purchase rights — Issuance of preferred stock warrants 186 Change in fair value (37) Balance at December 31, 2014 $246 Change in fair value 65 Reclassification of warrants (311) Balance at December 31, 2015 $— 3. Property and EquipmentProperty and equipment consist of the following (in thousands): December 31, 2015 2014 Computer and office equipment $112 $154 Furniture and fixtures 19 25 Leasehold improvements 99 31 Construction in process 25 — 255 210 Less accumulated depreciation and amortization (82) (113) $173 $97 Depreciation expense related to property and equipment totaled approximately $51,000, $15,000 and $7,000 for theyears ended December 31, 2015, 2014 and 2013, respectively.113 Table of Contents4. Long-Term DebtLong-term debt and unamortized debt discount balances are as follows (in thousands): December 31, 2015 2014 Long-term debt $10,000 $9,080 Less debt discount, net of current portion (536) (35) Long-term debt, net of debt discount 9,464 9,045 Less current portion of long-term debt (2,000) (4,787) Long-term debt, net of current portion $7,464 $4,258 Current portion of long-term debt $2,000 $4,787 Current portion of debt discount (622) (111) Current portion of long-term debt, net $1,378 $4,676 In May 2015, the Company entered into an Amended and Restated Loan and Security Agreement with SiliconValley Bank (the 2015 Amended SVB Loan) under which the Company could borrow up to $10.0 million. At December 31,2015, the Company had borrowed the full $10.0 million available under the 2015 Amended SVB Loan, of which, borrowingsof approximately $8.0 million under the 2015 Amended SVB Loan were used to refinance amounts outstanding under theprior loan and security agreements, which was first entered into in November 2013 (SVB Loan Agreement) and amended andrestated in June 2014 (Amended SVB Loan Agreement). In connection with the 2015 Amended SVB Loan, the Companyissued warrants to purchase up to 18,415 shares of common stock at an exercise price of $10.86. The warrants are fullyexercisable and expire on May 13, 2022. The transaction was accounted for as a debt modification. The 2015 Amended SVB Loan provides for interest to be paid at a rate of 6.5% per annum. Interest-only paymentsare due monthly through June 2016, which will be extended through September 2016, in the event certain conditions aremet. Thereafter, in addition to interest accrued during such period, the monthly payments will include an amount equal tothe outstanding principal at July 1, 2016 (or October 1, 2016) divided by 30 months. At maturity (or earlier prepayment), theCompany is also required to make a final payment equal to 8.5% of the original principal amount of the amountsborrowed. The 2015 Amended SVB Loan provides for prepayment fees of 3% of the outstanding balance of the loan if theloan is repaid prior to May 13, 2016, 2.0% of the amount prepaid if the prepayment occurs after May 13, 2016 but prior toMay 13, 2017 and 1.0% of the amount prepaid if the prepayment occurs thereafter. The fair value of the warrants and the final payment related to the 2015 Amended SVB Loan were recorded as debtdiscounts and are being amortized to interest expense using the effective interest method over the term of the debt, inaddition to the remaining unamortized discounts related to the SVB Loan and the Amended SVB Loan Agreements. Consistent with the terms of the SVB Loan and the Amended SVB Loan Agreements, the 2015 Amended SVB Loanis collateralized by substantially all of the Company’s assets, other than the Company’s intellectual property, and containscustomary conditions of borrowing, events of default and covenants, including covenants that restrict the Company’s abilityto dispose of assets, merge with or acquire other entities, incur indebtedness and make distributions to holders of theCompany’s capital stock. Should an event of default occur, including the occurrence of a material adverse change, theCompany could be liable for immediate repayment of all obligations under the 2015 Amended SVB Loan. In connection with the SVB Loan and the Amended SVB Loan, the Company issued warrants to purchase 37,500shares and 112,500 shares of Series A redeemable convertible preferred stock, respectively, at an exercise price of $2.00 pershare. The warrants are fully exercisable and expire on November 14, 2023 and June 4, 2024, respectively. The initial fairvalue of the warrants as of the November 2013 and June 2014 issuance dates were estimated to be $0.1 million and$0.2 million, respectively, based on the application of the Black-Scholes option pricing model, and these discounts are beingamortized to interest expense using the effective interest method over the term of the debt. Upon completion of theCompany’s initial public offering in February 2015, the warrants became exercisable for an aggregate of 38,758 shares ofcommon stock at an exercise price of $7.74 per share. 114 Table of ContentsFuture minimum principal and interest payments under the 2015 Amended SVB Loan, including the final payment,as of December 31, 2015 are as follows (in thousands):2016 $2,6222017 4,4062018 4,993 12,021Less interest and final payment (2,021)Long-term debt $10,000 5. Commitments and ContingenciesFacility LeaseThe Company leases its office space under a non‑cancelable operating lease that expires in April 2017. The lease issubject to base lease payments and additional charges for common area maintenance and other costs and includes certainlease incentives and tenant improvement allowances. Rent expense for each of the years ended December 31, 2015, 2014 and2013 was $0.2 million, $0.1 million and $0.1 million, respectively.Future minimum payments under the non‑cancelable operating lease as of December 31, 2015 are as follows (inthousands):2016 $4292017 146 $575License AgreementsThe Company has entered into various license agreements pursuant to which the Company acquired licenses tocertain intellectual property. The agreements generally required an upfront license fee and, in some cases, reimbursement ofpatent costs. Additionally, under each agreement, the Company may be required to pay annual maintenance fees, royalties,milestone payments and sublicensing fees. Each of the license agreements is generally cancelable by the Company, givenappropriate prior written notice. At December 31, 2015, potential future milestone payments under these agreements totaledan aggregate of approximately $22.1 million.6. Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)Redeemable Convertible Preferred Stock At December 31, 2014, the authorized, issued and outstanding shares of redeemable convertible preferred stock byseries were as follows (in thousands, except share and per share data): Liquidation Liquidation Preference Shares Preference and Redemption Carrying Authorized Outstanding Per Share Value Value Series A 12,400,000 12,249,999 $2.00 $24,500 $24,138 Series B 12,500,000 12,400,274 2.19 27,200 25,742 24,900,000 24,650,273 $51,700 $49,880 Prior to its automatic conversion in the Company’s initial public offering, the Company classified its redeemableconvertible preferred stock outside of permanent equity since such stock was contractually redeemable outside of theCompany’s control. As a result, the carrying value was increased to its redemption value by periodic115 Table of Contentsaccretion charges over the estimated redemption period. In the absence of retained earnings, these accretion charges wererecorded against additional paid-in capital. In connection with the completion of the Company’s initial public offering on February 4, 2015, all of theoutstanding shares of redeemable convertible preferred stock were converted into 6,369,567 shares of the Company’scommon stock; outstanding warrants to purchase 150,000 shares of Series A redeemable convertible preferred stock wereconverted into warrants to purchase 38,758 shares of the Company’s common stock, and the Company’s certificate ofincorporation was amended and restated to authorize 200,000,000 shares of common stock and 10,000,000 shares ofundesignated preferred stock. No preferred stock dividends where paid or declared by the Company. Stock Compensation Plans2011 Equity Incentive Plan The Company granted awards under the TRACON Pharmaceuticals, Inc. 2011 Equity Incentive Plan until January2015. The 2011 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights(SARs), restricted stock grants and restricted stock units to eligible recipients. Recipients of incentive stock options areeligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fairmarket value of such stock on the date of grant. The maximum term of options granted under the 2011 Plan is no more thanten years. Grants made under the 2011 Plan generally vest on the last day of each month over 48 months from the vestingcommencement date subject to continuous service. In connection with the adoption of the 2015 Equity Incentive Plan (the2015 Plan), the Company terminated the 2011 Plan and no additional awards will be granted under the 2011 Plan. 2015 Equity Incentive PlanEffective January 1, 2015, the Company’s board of directors adopted the 2015 Equity Incentive Plan (the 2015Plan). Under the 2015 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stockunits and other awards to individuals who are then employees, officers, non-employee directors or consultants of theCompany or its subsidiaries. Initially, a total of 801,033 shares of common stock was reserved for issuance under the 2015Plan. In addition, the number of shares of common stock available for issuance under the 2015 Plan will be annuallyincreased on the first day of each fiscal year during the term of the 2015 Plan, beginning with the 2016 fiscal year, by anamount equal to 4% of the total number of shares of common stock outstanding on December 31st of the preceding calendaryear or such other amount as the Company’s board of directors may determine. The maximum term of the options grantedunder the 2015 Plan is no more than ten years. Grants generally vest at 25% one year from the vesting commencement dateand ratably each month thereafter for a period of 36 months, subject to continuous service. In December 2015, the 2015 Planwas amended to allow an additional 500,000 shares of common stock to be used exclusively for the grant of equity awards asa material inducement for individuals to commence employment at the Company in compliance with NASDAQ Listing Rule5635(c)(4).116 Table of ContentsStock option activity under all Plans is summarized as follows: Weighted- Number of Average Options Exercise Price Balance at December 31, 2014 1,023,847 $3.19 Granted 821,814 $12.97 Exercised (57,512) $0.81 Balance at December 31, 2015 1,788,149 $7.76 Information about the Company’s outstanding stock options is as follows (in thousands, except share and per sharedata and contractual term): Weighted- Average Weighted- Remaining Average Contractual Aggregate Number of Exercise Term Intrinsic Shares Price (in years) Value December 31, 2015: Options outstanding 1,788,149 $7.76 8.35 $5,722 Options vested and expected to vest 1,788,149 $7.76 8.35 $5,722 Options exercisable 628,702 $2.45 6.92 $4,360 The weighted-average grant date fair value per share of employee option grants during the years ended December31, 2015, 2014 and 2013 was $12.97, $4.70 and $1.03, respectively. The aggregate intrinsic value of options at December31, 2015 is based on the Company’s closing market price per common share on December 31, 2015 of $9.24. The Companyreceived $54,200, $52,300 and $0 in proceeds from the exercise of stock options during the years ended December 31, 2015,2014 and 2013, respectively. The total intrinsic value of options exercised was approximately $0.8 million, $84,000, and $0during the years ended December 31, 2015, 2014 and 2013, respectively. The total fair value of options that vested duringthe year ended December 31, 2015, 2014 and 2013 was $0.8 million, $1.2 million and $0.3 million, respectively.During October 2014, the Board of Directors granted stock options to purchase an aggregate 119,642 shares ofcommon stock to employees and a non-employee director for which the vesting was contingent upon the completion of aninitial public offering prior to March 31, 2015. The achievement of this condition was not determined to be probable as ofDecember 31, 2014, however, upon the completion of the initial public offering in February 2015, expense recognitioncommenced and $178,000 of stock based compensation related to these options was recorded in the year ended December31, 2015.Employee Stock Purchase PlanOn January 1, 2015, the Company’s board of directors adopted the Employee Stock Purchase Plan (the ESPP), whichbecame effective upon the pricing of the Company’s initial public offering on January 29, 2015. The ESPP permitsparticipants to purchase common stock through payroll deductions of up to 15% of their eligible compensation. Initially, atotal of 183,462 shares of common stock was reserved for issuance under the ESPP. In addition, the number of shares ofcommon stock available for issuance under the ESPP will be annually increased on the first day of each fiscal year during theterm of the ESPP, beginning with the 2016 fiscal year, by an amount equal to the lessor of: (i) 366,925 shares; (ii) 1% of thetotal number of shares of common stock outstanding on December 31st of the preceding calendar year; or (iii) such otheramount as the Company’s board of directors may determine. Stock compensation expense for the year ended December 31,2015 related to the ESPP was immaterial.117 Table of ContentsStock-Based Compensation ExpenseThe weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value ofthe employee stock option grants were as follows: Years Ended December 31, 2015 2014 2013 Risk-free interest rate 1.7% 1.9% 1.1%Expected volatility 74.0% 76.0% 94.9%Expected term (in years) 6.3 6.3 6.3 Expected dividend yield —% —% —%Risk-free interest rate. The Company bases the risk‑free interest rate assumption on the U.S. Treasury’s rates for U.S.Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.Expected volatility. The expected volatility assumption is based on volatilities of a peer group of similar companieswhose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry.Expected term. The expected term represents the period of time that options are expected to be outstanding.Because the Company does not have historical exercise behavior, it determines the expected life assumption using thesimplified method, which is an average of the contractual term of the option and its vesting period.Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has neverpaid cash dividends and has no present intention to pay cash dividends.The allocation of stock-based compensation is as follows (in thousands): Years Ended December 31, 2015 2014 2013 Research and development $1,038 $178 $184 General and administrative 1,050 93 91 $2,088 $271 $275 As of December 31, 2015 and 2014, the unrecognized compensation cost related to outstanding time-basedemployee options was $7.0 million and $1.4 million, respectively, and is expected to be recognized as expense overapproximately 3.0 years and 3.5 years, respectively.Common Stock Reserved for Future IssuanceCommon stock reserved for future issuance is as follows: December 31, 2015 2014 Conversion of redeemable convertible preferred stock — 6,369,567 Preferred stock warrants — 38,758 Common stock warrants 57,173 — Common stock options granted and outstanding 1,788,149 1,023,847 Awards available under the 2015 Plan 507,345 28,126 Shares available under the Employee Stock Purchase Plan 168,453 — 2,521,120 7,460,298 118 Table of Contents7. CollaborationIn March 2014, the Company entered into a license agreement with Santen, under which the Company grantedSanten an exclusive, worldwide license to certain patents, information and know-how related to TRC105. Under theagreement, Santen is permitted to use, develop, manufacture and commercialize TRC105 products for ophthalmologyindications, excluding systemic treatment of ocular tumors. Santen also has the right to grant sublicenses to affiliates andthird party collaborators. In the event Santen sublicenses any of its rights under the agreement, Santen will be obligated topay the Company a portion of any upfront and certain milestone payments received under such sublicense.Santen has sole responsibility for funding, developing, seeking regulatory approval for and commercializingTRC105 products in the field of ophthalmology. In the event that Santen fails to meet certain commercial diligenceobligations, the Company will have the option to co-promote TRC105 products in the field of ophthalmology in the UnitedStates with Santen. If the Company exercises this option, the Company will pay Santen a percentage of certain developmentexpenses, and the Company will receive a percentage of profits from sales of the licensed products in the ophthalmologyfield in the United States, but will not also receive royalties on such sales.In consideration of the rights granted to Santen under the agreement, the Company received a one-time upfront feeof $10.0 million. The license agreement provides for various types of payments, including the upfront payment, payment forvarious technical and regulatory support, payments for delivery of drug substance, reimbursement of certain developmentcosts, milestone payments, and royalties on net product sales. The Company has identified multiple deliverables, whichinclude at inception: (1) a license to patents, information and know-how related to TRC105, (2) technology transfer,(3) collaboration, including technical and regulatory support provided by the Company, (4) manufacturing and supplyobligations, and (5) shared chemistry, manufacturing and controls (CMC) development activities. Deliverables 1 and 2 abovewere substantially delivered at the inception of the agreement, and deliverables 3 through 5 are expected to be deliveredduring the estimated 31-month period over which the Company will provide technical and regulatory support to Santen. Atinception and through December 31, 2015, the Company has identified one single unit of accounting for all the deliverablesunder the agreement since the delivered elements do not have standalone value. The Company’s technical and regulatoryexpertise, including manufacturing and CMC activities, in the development of biologic therapeutics, specifically TRC105, isa significant component of Santen’s ability to utilize the license and know-how related to TRC105. Given the early stage ofdevelopment of TRC105 for ophthalmology, the Company is the only party capable of performing the level and type oftechnical and regulatory collaboration services required by Santen under the agreement. As a result, the Company hasdetermined that the license, including the ability to sublicense, and know-how related to TRC105 do not have standalonevalue to a licensee. As such, the Company is recognizing revenue for the fixed or determinable collaboration considerationon a straight-line basis over the estimated 31-month period over which it will deliver its technical and regulatory support.In addition, the Company is eligible to receive up to a total of $155.0 million in milestone payments upon theachievement of certain milestones, of which $20.0 million relates to the initiation of certain development activities, $52.5million relates to the submission of certain regulatory filings and receipt of certain regulatory approvals and $82.5 millionrelates to commercialization activities and the achievement of specified levels of product sales. The Company hasdetermined that $10.0 million related to the initiation of certain clinical development activities will be based upon its effortsand meet the criteria of substantive milestones and therefore will be recognized as revenue upon achievement of themilestone in accordance with the milestone method of accounting. The remaining $145.0 million of potential milestonepayments are not substantive milestones as they do not require the efforts of the Company. During the year ended December31, 2015, a development milestone that was deemed a substantive milestone at the inception of the arrangement, wasachieved and accordingly, the milestone payment of $3.0 million was recognized as revenue.If TRC105 products are successfully commercialized in the field of ophthalmology, Santen will be required to paythe Company tiered royalties on net sales ranging from high single digits to low teens, depending on the volume of sales,subject to adjustments in certain circumstances. In addition, Santen will reimburse the Company for all royalties due by theCompany under certain third party agreements with respect to the use, manufacture or commercialization of TRC105products in the field of ophthalmology by Santen and its affiliates and sublicensees. Royalties will continue on a country-by-country basis through the later of the expiration of the Company’s patent rights applicable to the TRC105119 Table of Contentsproducts in a given country or 12 years after the first commercial sale of the first TRC105 product commercially launched insuch country.Santen may unilaterally terminate this agreement in its entirety, or on a country-by-country basis, upon writtennotice to the Company. Either party may terminate the agreement in the event of the other party’s bankruptcy or dissolutionor for the other party’s material breach of the agreement that remains uncured 90 days (or 30 days with respect to a paymentbreach) after receiving notice from the non-breaching party. Unless earlier terminated, the agreement continues in effect untilthe termination of Santen’s payment obligations.In connection with the collaboration with Santen, the Company recognized revenue of $7.9 and $3.6 million for theyears ended December 31, 2015 and 2014, respectively, and had deferred revenue of $3.4 million and $6.9 million as ofDecember 31, 2015 and 2014, respectively.8. Income TaxesA reconciliation of the Company’s effective tax rate and federal statutory tax rate is summarized as follows (inthousands): Years Ended December 31, 2015 2014 2013 Federal income taxes $(8,300) $(2,315) $(2,620) State income taxes, net of federal benefit — (381) (427) Permanent items 277 59 131 Uncertain tax positions 749 — — Research credits (881) (252) (356) Other, net 82 18 272 Intangible deferred adjustment — — 492 Change in valuation allowance 8,073 2,871 2,508 Provision for income taxes $— $— $— Significant components of the Company’s deferred tax assets are summarized as follows (in thousands): December 31, 2015 2014 Deferred tax assets: Net operating loss carryforwards $14,950 $9,340 Research and development credits 1,606 726 Deferred revenue 1,140 — Depreciation and amortization 121 153 Other, net 818 344 Total deferred tax assets 18,635 10,563 Valuation allowance (18,635) (10,563) Net deferred tax assets $— $— The Company has net deferred tax assets relating primarily to net operating loss (NOL) carryforwards and researchand development credit carryforwards. Subject to certain limitations, the Company may use these deferred tax assets to offsettaxable income in future periods. Due to the Company’s history of losses and uncertainty regarding future earnings, a fullvaluation allowance has been recorded against the Company’s deferred tax assets, as it is more likely than not that suchassets will not be realized. The net change in the total valuation allowance for the years ended December 31, 2015, 2014 and2013 was $8.1 million, $2.9 million and $2.5 million, respectively.At December 31, 2015, the Company had federal and California NOL carryforwards of approximately $42.9 millionand $22.9 million, respectively. The federal and California NOL carryforwards will begin to expire in 2030, unlesspreviously utilized. At December 31, 2015, the Company also had federal and California research and120 Table of Contentsdevelopment credit carryforwards of approximately $1.7 million and $0.7 million, respectively. The federal research anddevelopment credit carryforwards will begin expiring in 2031 unless previously utilized. The California research credit carryforward does not expire.Pursuant to Sections 382 and 383 of the Code, annual use of the Company’s NOL and research and developmentcredit carryforwards may be limited in the event that a cumulative change in ownership of more than 50% occurs within athree-year period. The Company completed a Section 382/383 analysis regarding the limitation of net operating loss andresearch and development credit carryforwards as of December 31, 2015 and as a result of the analysis, an ownership changewas determined to have occurred and certain deferred tax assets were written off. The Company will continue to considerchanges in ownership that may cause losses of tax attributes in the future.The changes in the Company’s unrecognized tax benefits aresummarized as follows (in thousands):Balance at December 31, 2012 $230Decrease related to prior year positions (15)Increase related to current year positions 62Balance at December 31, 2013 277Decrease related to prior year positions —Increase related to current year positions 92Balance at December 31, 2014 369Increase related to prior year positions 1,135Increase related to current year positions 318Balance at December 31, 2015 $1,822The Company’s policy is to include interest and penalties related to unrecognized income tax benefits as acomponent of income tax expense. The Company has no accruals for interest or penalties in the accompanying balancesheets as of December 31, 2015 and 2014 and has not recognized interest or penalties in the accompanying statements ofoperations for the three years in the period ended December 31, 2015.Due to the valuation allowance recorded against the Company’s deferred tax assets, future changes in unrecognizedtax benefits will not impact the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits tochange significantly in the next 12 months.The Company is subject to taxation in the United States and California. Due to the net operating loss carryforwards,the U.S. federal and California returns are open to examination for all years since inception. The Company has not been, noris it currently, under examination by the federal or any state tax authority.9. 401(k) PlanThe Company maintains a defined contribution 401(k) plan available to eligible employees. Employeecontributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable underfederal tax regulations. The Company, at its discretion, may make certain matching contributions to the 401(k) plan.Matching contributions for the years ended December 31, 2015, 2014 and 2013 totaled approximately $107,000, $73,000and $55,000, respectively. 10. Quarterly Financial Data (Unaudited)The following financial information reflects all normal recurring adjustments, which are, in the opinion ofmanagement, necessary for a fair statement of the results of the interim periods. Summarized quarterly data for the years121 Table of Contentsended December 31, 2015 and 2014 are as follows (in thousands, except per share data): First Second Third Fourth Quarter Quarter Quarter Quarter 2015 Revenue $1,132 $4,197 $1,180 $1,395 Total operating expenses $4,844 $6,881 $7,415 $12,231 Consolidated net loss $(3,995) $(2,921) $(6,447) $(11,047) Basic and diluted net loss attributable to common stockholders $(0.50) $(0.24) $(0.53) $(0.91) 2014 Revenue $356 $1,069 $1,133 $1,040 Total operating expenses $1,688 $1,960 $2,836 $3,293 Consolidated net loss $(1,361) $(980) $(1,919) $(2,549) Basic and diluted net loss attributable to common stockholders $(0.88) $(0.65) $(1.23) $(1.64) 122 Table of ContentsItem 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures.Evaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objectivethat information in our Exchange Act reports is recorded, processed, summarized and reported within the time periodsspecified and pursuant to the requirements of the SEC’s rules and forms and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, toallow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls andprocedures, management recognizes that any controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives, and management is required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls and procedures.As required by SEC Rule 13a-15(b), we carried out an evaluation, with the participation of our Management, includingour Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as ofDecember 31, 2015, the end of the period covered by this report. Based upon the foregoing, our Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance levelas of December 31, 2015. Management’s Report on Internal Control Over Financial Reporting Our Management is responsible for establishing and maintain adequate internal control over our financial reporting.Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act as aprocess designed by, or under the supervision of, a company’s principal executive and principal financial officers andeffected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.GAAP. Our internal control over financial reporting includes those policies and procedures that: ·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions anddispositions of our assets; ·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only inaccordance with authorizations of our management and directors; and ·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. Inmaking this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in its 2013 Internal Control — Integrated Framework. Based on our assessment, our Management has concluded that, as of December 31, 2015, our internal control overfinancial reporting is effective based on those criteria. 123 Table of ContentsPursuant to Regulation S-K Item 308(b), this Annual Report on Form 10-K does not include an attestation report of ourcompany’s registered public accounting firm regarding internal control over financial reporting. Changes in Internal Control Over Financial ReportingWe regularly review our system of internal control over financial reporting and make changes to our processes andsystems to improve controls and increase efficiency, while ensuring that we maintain an effective internal controlenvironment. Changes may include such activities as implementing new, more efficient systems, consolidating activities,and migrating processes. During the quarter ended December 31, 2015, there were no changes in our internal control overfinancial reporting that have materially affected, or are reasonably likely to materially affect, our internal control overfinancial reporting. Item 9B. Other Information. None. 124 Table of ContentsPART III Item 10. Directors, Executive Officers and Corporate Governance. Executive Officers, Key Employees and Directors The following table sets forth certain information regarding our current executive officers, key employees and directors asof February 12, 2016: Name Age Position(s)Executive Officers Charles P. Theuer, M.D., Ph.D. 52 President, Chief Executive Officer and DirectorRonald L. Shazer, M.D., M.B.A. 48 Chief Medical OfficerH Casey Logan, M.B.A. 44 Chief Business OfficerPatricia L. Bitar, CPA 57 Chief Financial Officer Key Employees Bonne Adams, M.B.A. 39 Senior Vice President of Clinical OperationsSharon Real, Ph.D. 52 Senior Vice President of Product Development Non-Employee Directors William R. LaRue(1)(2) 64 DirectorMartin A. Mattingly, Pharm.D.(1)(3) 58 DirectorJ. Rainer Twiford, J.D., Ph.D.(1) 63 DirectorPaul Walker(2)(3) 41 DirectorStephen T. Worland, Ph.D.(2)(3) 58 Director (1)Member of the compensation committee.(2)Member of the audit committee.(3)Member of the nominating and corporate governance committee. Executive Officers Charles P. Theuer, M.D., Ph.D. Dr. Theuer has served as our President, Chief Executive Officer and a member of ourboard of directors since July 2006. From 2004 to 2006, Dr. Theuer was the Chief Medical Officer and Vice President ofClinical Development at TargeGen, Inc., a biotechnology company. Prior to joining TargeGen, Inc., Dr. Theuer was Directorof Clinical Oncology at Pfizer, Inc., a pharmaceutical corporation, from 2003 to 2004. Dr. Theuer has also held seniorpositions at IDEC Pharmaceuticals Corp. from 2002 to 2003 and at the National Cancer Institute from 1991 to 1993. Inaddition, he has held academic positions at the University of California, Irvine, where he was Assistant Professor in theDivision of Surgical Oncology and Department of Medicine. Dr. Theuer received a B.S. from the Massachusetts Institute ofTechnology, an M.D. from the University of California, San Francisco, and a Ph.D. from the University of California, Irvine.He completed a general surgery residency program at Harbor-UCLA Medical Center and was board certified in generalsurgery in 1997. Dr. Theuer currently serves as a director at 4D Molecular Therapeutics, a position he has held since January2016. Our board of directors believes Dr. Theuer’s expertise and experience in the biotechnology industry, his medicaltraining and his experience with our company provide him with the qualifications and skills to serve on our board ofdirectors. Ronald L. Shazer, M.D., M.B.A. Dr. Shazer has served as our Chief Medical Officer since October 2015. Prior tojoining us, Dr. Shazer was Senior Director, Clinical Lead Oncology at Pfizer, Inc. from 2013 to 2015. From 2011 to 2013, Dr.Shazer was Director, Clinical Research Oncology at Bristol-Myers Squibb. Prior to Bristol-Myers Squibb, Dr. Shazer was atArena Pharmaceuticals as Head of Clinical Development from 2010 to 2011, and as Director125 Table of Contentsof Clinical Development from 2009 to 2010. From 2007 to 2009, Dr. Shazer was Director, Clinical Research at Exelixis, Inc.Prior to joining Exelixis, Inc., Dr. Shazer held academic positions in the Department of Medicine at the University ofCalifornia, San Diego, University of California, Los Angeles School of Medicine, and Cedars-Sinai Medical Center. Dr.Shazer earned his B.A. in Economics from the University of California, San Diego, M.D. from the New York Medical College,and M.B.A from the Anderson School of Management, University of California, Los Angeles. He completed his residency ininternal medicine at Cedars-Sinai Medical Center in 2004. H Casey Logan, M.B.A. Mr. Logan has served as our Chief Business Officer since February 2013. Prior to joiningus, Mr. Logan was the Senior Vice President, Corporate Development at RuiYi, Inc. (formerly Anaphore Inc.), abiotechnology company, from January 2011 to February 2013. From 2007 to December 2010, Mr. Logan served as the VicePresident, Corporate Development & Strategic Planning at Anadys Pharmaceuticals, Inc. (acquired by Roche), abiopharmaceutical company. From 2001 to 2007, he was with Eli Lilly and Company, a pharmaceutical company, inIndianapolis, Indiana, in the corporate business development group. Prior to joining Eli Lilly and Company, Mr. Logan wasan officer in the U.S. Naval Nuclear Propulsion Program from 1993 to 1999. Mr. Logan received an M.B.A. from the KelloggSchool of Management at Northwestern University and a B.S.E. in chemical engineering from the University of Michigan. Patricia L. Bitar, CPA. Ms. Bitar joined us as our Chief Financial Officer in September 2014. Prior to joining us,Ms. Bitar was the Vice President and Corporate Controller at NuVasive, Inc., a medical device company, from April 2011 toApril 2014 and the Senior Director of Financial Reporting from November 2009 to March 2011. From 2008 to October 2009and during various periods of 1998 to 2006, Ms. Bitar provided independent financial consulting for a variety of companies,primarily in the biotechnology and electronics industries. From 2006 to 2008, Ms. Bitar served as the Corporate Controller atOrexigen Therapeutics, Inc., a biopharmaceutical company, where she was also the Senior Director of Financial Reportingfrom 2007 to 2008 and the Director of Financial Reporting from 2006 to 2007. From 1984 to 1991 and 1994 to 1998,Ms. Bitar worked in the Audit Department at Ernst & Young, where from 1988, she served as a Senior Audit Manager,working primarily with clients in the technology and biotechnology industries. Ms. Bitar is a certified public accountant andreceived an M.A.I.S. from the University of West Florida and a B.S. in Business Administration (Accounting) from OldDominion University. Key Employees Bonne Adams, M.B.A. Ms. Adams joined us as our Vice President of Clinical Operations in August 2006 and waspromoted to Senior Vice President of Clinical Operations in July 2014. Prior to joining us, Ms. Adams was a Manager ofClinical Operations at Pfizer, Inc., a pharmaceutical corporation, from 2004 to 2006 and at Biogen Idec, Inc., a biotechnologycompany, from 2002 to 2004. Ms. Adams has managed both early and late-stage oncology studies of small molecules as wellas biologics in the areas of lymphoma, lung, colorectal, ovarian, kidney, sarcoma and breast cancers. From 2000 to 2002, shemanaged non-oncology programs at Quintiles Inc., a service provider for biopharmaceutical and health sciences companies,including studies in the areas of allergy and pulmonary disease. Ms. Adams received a B.A. in Kinesiology and Biology fromthe University of Colorado and an M.B.A. in Technology Management from The University of Phoenix. Sharon Real, Ph.D. Dr. Real joined us as our Vice President of Product Development in October 2006 and waspromoted to Senior Vice President of Product Development in July 2014. Prior to joining us, Dr. Real served in roles ofincreasing responsibility at Pfizer, Inc., a pharmaceutical corporation, from 2000 to 2006, culminating in the position ofDirector of Regulatory Chemistry, Manufacturing and Controls. Before that, Dr. Real was Manager, Technical Operations atLigand Pharmaceuticals Incorporated, a pharmaceutical company, from 1999 to 2000. From 1994 to 1999, Dr. Real served invarious positions at Agouron Pharmaceuticals, Inc., a biotechnology company, most recently as Manager of RegulatoryChemistry, Manufacturing and Controls. From 1991 to 1994 she was in Chemical Process Research at Bristol-MyersSquibb Co., a global biopharmaceutical company. Dr. Real received a B.S. in Chemistry from Stanford University and a Ph.D.in Organic Chemistry from the University of California, Los Angeles. Non-Employee Directors William R. LaRue. Mr. LaRue has served as a member of our board of directors since July 2014. He served as126 Table of Contentsthe Chief Financial Officer, Senior Vice President and Treasurer at Cadence Pharmaceuticals, Inc., a biopharmaceuticalcompany, from June 2006 until its acquisition by Mallinckrodt plc in March 2014, and from April 2007 to March 2014, heserved as the Assistant Secretary at Cadence. Prior to joining Cadence, Mr. LaRue was the Senior Vice President and ChiefFinancial Officer of Micromet, Inc. (formerly CancerVax Corporation), a biotechnology company, from 2001 to 2006. From2000 to 2001, Mr. LaRue served as the Executive Vice President and Chief Financial Officer of eHelp Corporation, aprovider of user assistance software. Previously, he was the Vice President and Treasurer of Safeskin Corporation, a medicaldevice company, from 1997 to 2000 and the Treasurer of GDE Systems, Inc., a high technology electronic systems companyfrom 1993 to 1997. Mr. LaRue currently serves on the board of directors of Applied Proteomics, Inc., a developer of protein-based molecular diagnostics, a position he has held since July 2015. Mr. LaRue received a B.S. in business administrationand an M.B.A. from the University of Southern California. Our board of directors believes that Mr. LaRue’s extensive experience in finance, his experience as an executiveofficer of a public company in our industry and his educational background provide him with the qualifications and skills toserve on our board of directors. Martin A. Mattingly, Pharm.D. Dr. Mattingly has served as a member of our board of directors sinceDecember 2014. Dr. Mattingly has been a member of Tech Coast Angels, an investment group, since August 2012.Previously, Dr. Mattingly served as the Chief Executive Officer of Trimeris, Inc., a biopharmaceutical company, fromNovember 2007 until January 2012 following its merger with Synageva BioPharma Corp in November 2011. He also servedon the board of directors of Trimeris, Inc. from November 2007 until November 2011. He has been a director of OncoGenexPharmaceuticals, Inc., a biopharmaceutical company, since June 2010. From 2005 to 2007, Dr. Mattingly served as Presidentand Chief Executive Officer of Ambrx, Inc., a biopharmaceutical company. From 2003 to 2005, Dr. Mattingly served asExecutive Vice President of CancerVax, Inc., a pharmaceutical company, and as Chief Operating Officer from June 2005 toSeptember 2005. From 1996 to 2003, Dr. Mattingly provided senior leadership in various management positions at AgouronPharmaceuticals, Inc. and Pfizer, Inc., a pharmaceutical company. From 1983 to 1996, Dr. Mattingly held various positions inoncology marketing and sales management at Eli Lilly and Company, a biopharmaceutical company. Dr. Mattingly receiveda Doctor of Pharmacy degree from the University of Kentucky. Our board of directors believes that Dr. Mattingly’s experience in the biotechnology and pharmaceuticals industries,his educational background and his experience as a public company director provide him with the qualifications and skillsto serve on our board of directors. J. Rainer Twiford, J.D., Ph.D. Dr. Twiford has served as a member of our board of directors since September 2008.Dr. Twiford has been President of Brookline Investments, Inc. (formerly Capital Strategies Advisors, Inc.), an investmentadvisory company he founded in 1994, since 1999. Dr. Twiford has been a member of the board of directors of IntegratedPhotonics, Inc., an optical device company, since November 1999. Prior to founding Brookline Partners, Dr. Twiford was apartner of Trammell Crow Company, a real estate development and investment company, from 1987 to 1991. FromJune 2007 to July 2013, Dr. Twiford was a member of the board of directors of Care Investment Trust Inc. (now TiptreeFinancial Inc.), a real estate investment company. He also served as the Chairman of the Compensation, Nominating andGovernance Committee of Care Investment Trust Inc. from September 2011 to July 2013. In addition, Dr. Twiford previouslyserved on the board of a children’s behavioral health company. Dr. Twiford received a B.A. and a Ph.D. from the University ofMississippi, an M.A. from the University of Akron and a J.D. from the University of Virginia. Our board of directors believes that Dr. Twiford’s extensive experience in finance, his experience as a publiccompany director and his educational background provide him with the qualifications and skills to serve on our board ofdirectors. Paul Walker. Mr. Walker has served on our board of directors since September 2014. Mr. Walker has been a partnerof New Enterprise Associates, an investment firm focused on venture capital and growth equity investments, sinceApril 2008, where Mr. Walker focuses on later-stage biotechnology and life sciences investments. From January 2001 toMarch 2008, Mr. Walker worked at MPM Capital, a life sciences venture capital firm, where he specialized in public, PIPEand mezzanine-stage life sciences investing as a general partner with the MPM BioEquities Fund. From July 1996 toDecember 2000, Mr. Walker served as a portfolio manager at Franklin Resources, Inc., a global127 Table of Contentsinvestment management organization known as Franklin Templeton Investments. Mr. Walker was a member of the board ofdirectors of TESARO, Inc., an oncology-focused biopharmaceutical company, from May 2010 to May 2014, and is a boardobserver of Sunesis Pharmaceuticals, Inc. and Interleuken Genetics, Inc., and manages a number of NEA’s other late-stage andpublic investments. Mr. Walker received a B.S. in biochemistry and cell biology from the University of California at SanDiego and holds the Chartered Financial Analyst designation. Our board of directors believes that Mr. Walker’s experience in the life sciences and venture capital industries, hiseducational background and his experience as a public company director provide him with the qualifications and skills toserve on our board of directors. Stephen T. Worland, Ph.D., Dr. Worland has served as a member of our board of directors since February 2015. SinceMay 2012, Dr. Worland has served as the President and Chief Executive Officer and a director of eFFECTORTherapeutics, Inc., a company focused on new treatments for cancer. Dr. Worland was President and Chief Executive Officerand a director of Anadys Pharmaceuticals, Inc., a biopharmaceutical company which discovered and developed treatments forHepatitis C and cancer, from August 2007 until the company’s acquisition by Roche in November 2011. Dr. Worland joinedAnadys in 2001 and served in a number of executive roles prior to being named Chief Executive Officer, including President,Pharmaceuticals, and Chief Scientific Officer. Dr. Worland began his healthcare industry career in 1988 at AgouronPharmaceuticals, Inc. and remained with the company through its successful commercialization of an HIV protease inhibitorand successive acquisitions by Warner-Lambert and Pfizer. During this period, Dr. Worland held a number of positions,including Vice President, Antiviral Research and Director, Molecular Biology and Biochemistry. Dr. Worland was a NationalInstitutes of Health Postdoctoral Fellow in Molecular Biology at Harvard University from 1985 to 1988. Dr. Worlandreceived his B.S. with highest honors in Biological Chemistry from the University of Michigan and his Ph.D. in Chemistryfrom the University of California, Berkeley. Our board of directors believes that Dr. Worland’s experience as an executive officer of public companies in thebiotechnology and pharmaceuticals industries, his educational background and his experience as a public company directorprovide him with the qualifications and skills to serve on our board of directors. Scientific Advisory Board We have established a scientific advisory board. We regularly seek advice and input from these experiencedscientific leaders on matters related to our research and development programs. The members of our scientific advisory boardconsist of experts across a range of key disciplines relevant to our programs and science. We intend to continue to leveragethe broad expertise of our advisors by seeking their counsel on important topics relating to our research and developmentprograms. The members of our scientific advisory board have entered into consulting agreements with us covering theirrespective confidentiality, non-disclosure and proprietary rights matters, and one member owns shares of our common stock.All of the scientific advisors are employed by or have consulting arrangements with other entities and devote only a smallportion of their time to us. Our current advisors are: Name TitleCharles L. Sawyers, M.D. Chair, Human Biology and Pathogenesis Program, Memorial Sloan Kettering CancerCenter, New York, New YorkWilliam G. Kaelin, Jr., M.D. Professor of Medicine, Dana Farber Cancer Institute and Brigham and Women’sHospital, Harvard Medical School, Boston, MassachusettsStanton L. Gerson, M.D. Director of the Case Comprehensive Cancer Center, Cleveland, Ohio Corporate GovernanceOur board of directors met nine times during the year ended December 31, 2015. The audit committee met fivetimes. The compensation committee met six times. The nominating committee did not meet as a separate committee in 2015.Each member of our board attended 75% or more of the board meetings during the year ended December 31, 2015 that wereheld during the period for which he or she was a director (if any). Each member of the board who served on the128 Table of Contentsaudit or compensation committees attended at least 75% of the respective committee meetings during the year endedDecember 31, 2015 that were held during the period for which he or she was a committee member.We do not have a formal policy regarding director attendance at our annual meetings; however, we encouragedirectors to attend. Board Composition Our business and affairs are organized under the direction of our board of directors, which currently consists of eightmembers. The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling anddirection to our management. Our board of directors meets on a regular basis and additionally as required. Two of our six current directors were elected to serve on our board of directors pursuant to an amended and restatedvoting agreement, dated September 19, 2014, by and among us and certain of our stockholders. Pursuant to the votingagreement, Mr. LaRue and Mr. Walker were selected to serve on our board of directors as representatives of our preferredstockholders, as designated by the holders of a majority of our outstanding preferred stock with respect to Mr. LaRue, and byNew Enterprise Associates 14, L.P. with respect to Mr. Walker. Dr. Theuer was selected to serve on our board of directors asthe director then serving as our Chief Executive Officer. The amended and restated voting agreement terminated inconnection with the closing of our initial public offering, and each director previously elected to our board of directorspursuant to the amended and restated voting agreement will continue to serve as a director until his successor is duly electedand qualified. Our board of directors has determined that all of our directors, except Dr. Theuer, are independent directors, asdefined by Rule 5605(a)(2) of the NASDAQ Listing Rules. Our board of directors is divided into three classes, as follows: ·Class I, which consists of Dr. Worland, whose term will expire at our annual meeting of stockholders to be heldin 2016; ·Class II, which consists of Dr. Mattingly and Dr. Twiford, and whose terms will expire at our annual meeting ofstockholders to be held in 2017; and ·Class III, which consists of Mr. LaRue, Dr. Theuer and Mr. Walker, and whose terms will expire at our annualmeeting of stockholders to be held in 2018. At each annual meeting of stockholders to be held after the initial classification, the successors to directors whoseterms then expire will serve until the third annual meeting following their election and until their successors are duly electedand qualified. The authorized size of our board of directors is currently eight members. The authorized number of directorsmay be changed only by resolution by a majority of the board of directors. This classification of the board of directors mayhave the effect of delaying or preventing changes in our control or management. Our directors may be removed for cause bythe affirmative vote of the holders of at least 662/3% of our voting stock. Role of the Board in Risk Oversight One of the key functions of our board of directors is informed oversight of our risk management process. Our boardof directors does not have a standing risk management committee, but rather administers this oversight function directlythrough the board of directors as a whole, as well as through various standing committees of our board of directors thataddress risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoringand assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our majorfinancial risk exposures and the steps our management has taken to monitor and control these exposures, includingguidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committeealso monitors compliance with legal and regulatory requirements. Our nominating and129 Table of Contentscorporate governance committee monitors the effectiveness of our corporate governance practices, including whether theyare successful in preventing illegal or improper liability-creating conduct. Our compensation committee assesses andmonitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. Board Committees Our board of directors has established an audit committee, a compensation committee and a nominating andcorporate governance committee. Audit Committee Our audit committee consists of Mr. LaRue, Mr. Walker and Dr. Worland. Our board of directors has determined thateach of the members of this committee satisfies the NASDAQ Stock Market independence requirements. Each member of ouraudit committee can read and understand fundamental financial statements in accordance with NASDAQ audit committeerequirements. In arriving at this determination, the board has examined each audit committee member’s scope of experienceand the nature of their prior and/or current employment. Mr. LaRue serves as the chair of our audit committee. Our board of directors has determined that Mr. LaRue qualifiesas an audit committee financial expert within the meaning of SEC regulations and meets the financial sophisticationrequirements of the NASDAQ Listing Rules. In making this determination, our board has considered Mr. LaRue formaleducation and previous and current experience in financial roles. Both our independent registered public accounting firmand management periodically meet privately with our audit committee. The functions of this committee include, among other things: ·evaluating the performance, independence and qualifications of our independent auditors and determiningwhether to retain our existing independent auditors or engage new independent auditors; ·reviewing and approving the engagement of our independent auditors to perform audit services and anypermissible non-audit services; ·monitoring the rotation of partners of our independent auditors on our engagement team as required by law; ·prior to engagement of any independent auditor, and at least annually thereafter, reviewing relationships thatmay reasonably be thought to bear on their independence, and assessing and otherwise taking the appropriateaction to oversee the independence of our independent auditor; ·reviewing our annual and quarterly financial statements and reports, including the disclosures contained underthe caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” anddiscussing the statements and reports with our independent auditors and management; ·reviewing with our independent auditors and management significant issues that arise regarding accountingprinciples and financial statement presentation and matters concerning the scope, adequacy and effectivenessof our financial controls; ·reviewing with management and our auditors any earnings announcements and other public announcementsregarding material developments; ·establishing procedures for the receipt, retention and treatment of complaints received by us regarding financialcontrols, accounting or auditing matters and other matters; ·preparing the report that the SEC requires in our annual proxy statement; 130 Table of Contents·reviewing and providing oversight of any related-person transactions in accordance with our related persontransaction policy and reviewing and monitoring compliance with legal and regulatory responsibilities,including our code of business conduct and ethics; ·reviewing our major financial risk exposures, including the guidelines and policies to govern the process bywhich risk assessment and risk management is implemented; ·reviewing on a periodic basis our investment policy; and ·reviewing and evaluating on an annual basis the performance of the audit committee and the audit committeecharter. Compensation Committee Our compensation committee consists of Dr. Twiford, Mr. LaRue and Dr. Mattingly. Dr. Twiford serves as the chairof our compensation committee. Our board of directors has determined that each of the members of our compensationcommittee is a non-employee director, as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, orthe Exchange Act, is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, asamended, and satisfies the NASDAQ Stock Market independence requirements. The functions of this committee include,among other things: ·reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full board ofdirectors regarding) our overall compensation strategy and policies; ·making recommendations to the full board of directors regarding the compensation and other terms ofemployment of our executive officers; ·reviewing and making recommendations to the full board of directors regarding performance goals andobjectives relevant to the compensation of our executive officers and assessing their performance against thesegoals and objectives; ·reviewing and approving (or if it deems it appropriate, making recommendations to the full board of directorsregarding) the equity incentive plans, compensation plans and similar programs advisable for us, as well asmodifying, amending or terminating existing plans and programs; ·evaluating risks associated with our compensation policies and practices and assessing whether risks arisingfrom our compensation policies and practices for our employees are reasonably likely to have a materialadverse effect on us; ·reviewing and making recommendations to the full board of directors regarding the type and amount ofcompensation to be paid or awarded to our non-employee board members; ·establishing policies with respect to votes by our stockholders to approve executive compensation to the extentrequired by Section 14A of the Exchange Act and, if applicable, determining our recommendations regardingthe frequency of advisory votes on executive compensation; ·reviewing and assessing the independence of compensation consultants, legal counsel and other advisors asrequired by Section 10C of the Exchange Act; ·administering our equity incentive plans; ·establishing policies with respect to equity compensation arrangements; ·reviewing the competitiveness of our executive compensation programs and evaluating the effectiveness of ourcompensation policy and strategy in achieving expected benefits to us; 131 Table of Contents·reviewing and making recommendations to the full board of directors regarding the terms of any employmentagreements, severance arrangements, change in control protections and any other compensatory arrangementsfor our executive officers; ·reviewing with management and approving our disclosures under the caption “Compensation Discussion andAnalysis” in our periodic reports or proxy statements to be filed with the SEC, to the extent such caption isincluded in any such report or proxy statement; ·preparing the report that the SEC requires in our annual proxy statement; and ·reviewing and evaluating on an annual basis the performance of the compensation committee and thecompensation committee charter. Compensation Committee Interlocks and Insider Participation None of the members of our Compensation Committee has ever been an executive officer or employee of ours. Noneof our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committeeor board of directors of any other entity that has one or more executive officers serving as a member of our board of directorsor compensation committee. Nominating and Corporate Governance Committee Our nominating and corporate governance committee consists of Mr. Walker, Dr. Mattingly and Dr. Worland. Ourboard of directors has determined that each of the members of this committee satisfies the NASDAQ Stock Marketindependence requirements. Mr. Walker serves as the chair of our nominating and corporate governance committee. Thefunctions of this committee include, among other things: ·identifying, reviewing and evaluating candidates to serve on our board of directors; ·determining the minimum qualifications for service on our board of directors; ·evaluating director performance on the board and applicable committees of the board and determining whethercontinued service on our board is appropriate; ·evaluating, nominating and recommending individuals for membership on our board of directors; ·evaluating nominations by stockholders of candidates for election to our board of directors; ·considering and assessing the independence of members of our board of directors; ·developing a set of corporate governance policies and principles and recommending to our board of directorsany changes to such policies and principles; ·considering questions of possible conflicts of interest of directors as such questions arise; and ·reviewing and evaluating on an annual basis the performance of the nominating and corporate governancecommittee and the nominating and corporate governance committee charter. Procedures for Stockholders to Recommend Director Nominees The Nominating and Corporate Governance Committee will consider director candidates recommended bystockholders. The Nominating and Corporate Governance Committee does not intend to alter the manner in which itevaluates candidates based on whether or not the candidate was recommended by a stockholder. Stockholders who wish torecommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees forelection to the Board may do so by delivering a written recommendation to the Nominating and Corporate GovernanceCommittee at the following address: 8910 University Center Lane, Suite 700, San Diego, CA, 92122, Attn:132 Table of ContentsSecretary, no later than the close of business on the 90th day and no earlier than the close of business on the 120th day prior tothe one year anniversary of the preceding year’s annual meeting. Submissions must include (1) the name and address of theCompany stockholder on whose behalf the submission is made; (2) number of Company shares that are owned beneficiallyby such stockholder as of the date of the submission; (3) the full name of the proposed candidate; (4) description of theproposed candidate’s business experience for at least the previous five years; (5) complete biographical information for theproposed candidate; (6) a description of the proposed candidate’s qualifications as a director and (7) any other informationrequired by the Company Bylaws. The Company may require any proposed nominee to furnish such other information as itmay reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of theCompany or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of suchproposed nominee. Section 16(a) Beneficial Ownership Reporting Compliance Under Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC rules, our directors,executive officers and beneficial owners of more than 10% of any class of equity security are required to file periodic reportsof their ownership, and changes in that ownership, with the SEC. Based solely on its review of copies of reports provided tous pursuant to Rule 16a-3(e) of the Exchange Act and representations of such reporting persons, we believe that during theyear ended December 31, 2015, such SEC filing requirements were satisfied, with the exception of one late Form 4 filed onbehalf of Brookline Tracon Investment Fund and Brookline Tracon Investment Fund II on December 21, 2015 (which waswith respect to a transaction from July 30, 2015). Code of Business Conduct and Ethics We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees,including our principal executive officer, principal financial officer, principal accounting officer or controller, or personsperforming similar functions. A current copy of the code is available on the Corporate Governance section of our website,www.traconpharma.com. We intend to disclose on our website any amendments to, or waivers from, our code of businessconduct and ethics that are required to be disclosed pursuant to SEC rules. Indemnification of Officers and Directors We have entered into, and intend to continue to enter into, separate indemnification agreements with our directors andexecutive officers, in addition to the indemnification provided for in our amended and restated bylaws. These agreements,among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys’fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arisingout of their services as one of our directors or executive officers or any other company or enterprise to which the personprovides services at our request. We believe that these bylaw provisions and indemnification agreements are necessary toattract and retain qualified persons as directors and officers. The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation andamended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of theirfiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though anaction, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we paythe costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Item 11. Executive Compensation. Our named executive officers for the year ended December 31, 2015, which consist of our principal executive officerand two other executive officers as of December 31, 2015, are: ·Charles P. Theuer, M.D., Ph.D., our President and Chief Executive Officer,·Ronald L. Shazer, M.D., M.B.A., our Chief Medical Officer; and·Patricia L. Bitar, CPA, our Chief Financial Officer.133 Table of Contents Summary Compensation Table Non-equity incentive Option plan All other Salary awards compensation compensation Total Name and principal position Year ($) ($)(1) ($)(2) ($) ($) Charles P. Theuer, M.D., Ph.D. 2015 470,000 1,400,000 206,565 10,600 2,087,165 President and Chief Executive Officer 2014 395,000 636,596 191,575 10,400 1,233,571 Ronald L. Shazer, M.D., M.B.A.(3) 2015 85,032 1,000,000 21,262 — 1,106,294 Chief Medical Officer Patricia L. Bitar, CPA(4) 2015 302,500 500,000 75,639 10,600 888,739 Chief Financial Officer 2014 69,231 280,937 19,784 2,500 372,452 (1)In accordance with SEC rules, this column reflects the aggregate grant date fair value of the option awards computed inaccordance with FASB ASC Topic 718 for stock-based compensation transactions (ASC 718). Assumptions used in thecalculation of these amounts are included in Note 6 to our consolidated financial statements included elsewhere in thisAnnual Report. These amounts do not reflect the actual economic value that will be realized by the named executiveofficer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stockunderlying the stock options.(2)Amounts shown represent annual performance-based bonuses earned for the respective fiscal year. For moreinformation, see below under “—Annual Performance-Based Bonus Opportunity.”(3)Dr. Shazer was hired in October 2015.(4)Ms. Bitar was hired in September 2014. Annual Base Salary The compensation of our named executive officers is generally determined and approved by our board of directors,based on the recommendation of the compensation committee of our board of directors. The table below shows the annualbase salaries for our named executive officers in 2015: Name 2015 Base Salary ($) Charles P. Theuer, M.D., Ph.D. 470,000 Ronald L. Shazer, M.D., M.B.A. 350,000 Patricia L. Bitar, CPA 302,500 Annual Performance-Based Bonus Opportunity In addition to base salaries, our named executive officers are eligible to receive annual performance-based cashbonuses, which are designed to provide appropriate incentives to our executives to achieve defined annual corporate goalsand to reward our executives for individual achievement towards these goals. The annual performance-based bonus eachnamed executive officer is eligible to receive is generally based on the extent to which we achieve the corporate goals thatour board of directors establishes each year. At the end of the year, our board of directors reviews our performance againsteach corporate goal and determines the extent to which we achieved each of our corporate goals. For 2015, Dr. Theuer was eligible to receive a target bonus of up to 50% of his base salary and both Dr. Shazer andMs. Bitar were eligible to receive a target bonus of up to 30% of their base salary, each pursuant to the terms of his or heremployment agreement described below under “—Agreements with our Named Executive Officers.” Our board of directorswill also consider each named executive officer’s individual contributions towards reaching our annual corporate goals.There is no minimum bonus percentage or amount established for the named executive officers and, as a result, the bonusamounts vary from year to year based on corporate and individual performance. In March 2015, our board of directorsapproved our corporate goals for 2015, with financial goals assigned a 30% weight, project-based goals assigned a 60%weight and team-based goals assigned a 10% weight.134 Table of ContentsOn January 21, 2016, the board of directors, upon the recommendation of the compensation committee, determinedthat we had achieved 88% of the 2015 corporate goals for purposes of 2015 annual performance-based bonuses. Based onthe determination of 88% corporate goal achievement, Dr. Theuer was awarded a 2015 annual performance-based cash bonusin the amount of $206,565. Additionally, based on the Committee’s and Dr. Theuer’s assessment, Dr. Shazer and Ms. Bitarwere awarded 2015 annual performance-based cash bonuses in the amounts of $21,262 and $75,639, respectively, with Dr.Shazer’s award being pro-rated due to his employment commencing in 2015. Equity-Based Incentive Awards Our equity-based incentive awards are designed to align our interests with those of our employees and consultants,including our named executive officers. Our board of directors is responsible for approving equity grants. In the fiscal yearending December 31, 2015, stock option awards were the only form of equity awards we granted to our named executiveofficers. Vesting of the stock option awards is tied to continuous service with us and serves as an additional retentionmeasure. Our executives generally are awarded an initial new hire grant upon commencement of employment. Additionalgrants may occur periodically in order to specifically incentivize executives with respect to achieving certain corporate goalsor to reward executives for exceptional performance. With the exception of stock option awards granted to Dr. Theuer, described below under “—Potential PaymentsUpon Termination or Change in Control,” all of our outstanding stock option awards to executives as of December 31, 2015contain a double trigger acceleration feature. Pursuant to such double trigger acceleration feature, in the event of the holder’scessation of continuous service without cause, and not due to a death or disability, in connection with or within either 12 or18 months following consummation of a change in control, the vesting and exercisability of the option will be accelerated infull. Agreements with Our Named Executive Officers Below are descriptions of our employment agreements with our named executive officers. For a discussion of theseverance pay and other benefits to be provided in connection with a termination of employment and/or a change in controlunder the arrangements with our named executive officers, please see “—Potential Payments upon Termination or Change inControl” below. Agreement with Dr. Theuer. In May 2015, we entered into an employment agreement with Dr. Theuer that governsthe terms of his employment with us. Pursuant to the agreement, Dr. Theuer was entitled to an annual base salary of $470,000and is eligible to receive an annual performance bonus of up to 50% of his base salary, as determined by our board ofdirectors. Dr. Theuer was also entitled to reimbursement of his legal expenses incurred in connection with negotiating hisamended agreement (up to $2,500). Dr. Theuer is additionally entitled to certain severance benefits pursuant to hisagreement, the terms of which are described below under “—Potential Payments Upon Termination or Change of Control.” Agreement with Dr. Shazer. We entered into a letter agreement with Dr. Shazer in September 2015 that governs theterms of his employment with us. Pursuant to the agreement, Dr. Shazer is entitled to an initial annual base salary of$350,000, is eligible to receive an annual target performance bonus of up to 30% of his base salary, as determined by ourboard of directors, and was granted an option to purchase an aggregate of 153,139 shares of our common stock. Dr. Shazer isadditionally entitled to certain severance benefits pursuant to a severance agreement, the terms of which are described belowunder “—Potential Payments Upon Termination or Change of Control.” Agreement with Ms. Bitar. We entered into a letter agreement with Ms. Bitar in September 2014 that governs theterms of her employment with us. Pursuant to the agreement, Ms. Bitar was entitled to an initial annual base salary of$250,000, was eligible to receive an annual target performance bonus of up to 30% of her base salary, as determined by ourboard of directors, and was granted an option to purchase an aggregate of 59,115 shares of our common stock. Ms. Bitar isadditionally entitled to certain severance benefits pursuant to a severance agreement, the terms of which are described belowunder “—Potential Payments Upon Termination or Change of Control.” 135 Table of ContentsPotential Payments Upon Termination or Change of Control Regardless of the manner in which a named executive officer’s service terminates, the named executive officer isentitled to receive amounts earned during his or her term of service, including salary and unused vacation pay. In addition,each of our named executive officers is eligible to receive certain benefits pursuant to his agreement with us described aboveunder “—Agreements with our Named Executive Officers.” Dr. Theuer. If Dr. Theuer’s employment is terminated as a result of his death, his estate would be entitled to receivepayments equal to continued payment of his base salary for 12 months and reimbursement of expenses owed to him throughthe date of his death. In addition, his stock option awards would vest on an accelerated basis as if his termination occurred sixmonths later. If Dr. Theuer’s employment is terminated as a result of disability, he would be entitled to reimbursement ofexpenses owed to him through the date of his disability, and his stock option awards would vest on an accelerated basis as ifhis termination occurred six months later. If Dr. Theuer’s employment is terminated for cause, he would be entitled to his basesalary and any expense reimbursement owed to him as of the date of his termination. If Dr. Theuer’s employment isterminated by us for reasons other than for cause or (including upon a change of control), he resigns for good reason or hisagreement expires at the end of the term without renewal, he would be entitled to receive severance payments equal tocontinued payment of his base salary for 12 months, employee benefit coverage for up to 12 months, reimbursement ofexpenses owed to him through the date of his termination and 100% automatic vesting of any unvested time-based stockoption awards. Dr. Shazer. We entered into a severance agreement with Dr. Shazer in October 2015 under our severance plan.Pursuant to the agreement, if Dr. Shazer’s employment is terminated without cause or if he resigns for good reason within12 months following a change of control, he will be entitled to a severance payment equal to nine months of his annual basesalary and payment of his health insurance premium for nine months. Ms. Bitar. We entered into a severance agreement with Ms. Bitar in September 2014, as amended in February 2015,under our severance plan. Pursuant to the agreement, if Ms. Bitar’s employment is terminated without cause or if she resignsfor good reason within 12 months following a change of control, she will be entitled to a severance payment equal to ninemonths of her annual base salary and payment of her health insurance premium for nine months. Outstanding Equity Awards at Fiscal Year-End The following table sets forth certain information regarding equity awards granted to our named executive officersthat remain outstanding as of December 31, 2015. Option Awards(1) Number of Number of Option securities securities exercise underlying underlying price Vesting unexercised unexercised per Option Grant commencement options (#) options (#) share expiration date date exercisable unexercisable ($)(2) date Charles P. Theuer, M.D., Ph.D. 9/20/2011 3/31/2011 177,336 — 0.70 9/19/2021 3/14/2013 7/13/2012 22,070 3,769 1.34 3/13/2023 5/23/2013 5/15/2013 43,928 24,091 1.34 5/22/2023 10/3/2014 10/3/2014 24,084 58,491 7.04 10/2/2024 10/3/2014 10/3/2014 14,984 36,394(3) 7.04 10/2/2024 3/26/2015 3/26/2015 — 147,213 14.34 3/25/2025 Ronald L. Shazer, M.D., M.B.A. 10/5/2015 10/5/2015 — 153,139 9.91 10/4/2025 Patricia L. Bitar, CPA 10/3/2014 9/22/2014 18,473 40,642 7.04 10/2/2024 3/25/2015 3/25/2015 — 51,546 14.62 3/24/2015 (1)Except as specifically noted, all of the option awards have a four-year vesting schedule. Dr. Theuer’s optionsgranted prior to October 3, 2014 vest in equal monthly tranches over the four-year vesting period, and Dr. Shazer’sand Ms. Bitar’s options, and Dr. Theuer’s October 3, 2014 and March 26, 2015 option awards, include136 Table of Contentsa one-year cliff and monthly vesting thereafter. The options are also eligible for accelerated vesting on a qualifyingtermination as described above under “—Potential Payments Upon Termination or Change of Control.”(2)All of the option awards were granted with a per share exercise price equal to the fair market value of one share ofour common stock on the date of grant, as determined in good faith by our board of directors.(3)Option award includes an additional vesting condition that our initial public offering be completed prior toMarch 31, 2015, and such offering was completed in February 2015. Option Exercises Dr. Theuer exercised 10,000 options during the year ended December 31, 2015. Option Repricings We did not engage in any repricings or other modifications or cancellations to any of our named executive officers’outstanding equity awards during the year ended December 31, 2015. Health, Welfare and Retirement Benefits All of our named executive officers are eligible to participate in our employee benefit plans, including our medical,dental, and life and disability insurance plans, in each case on the same basis as all of our other employees. We provide a401(k) plan to our employees, including our named executive officers, as discussed in the section below entitled “—401(k) Plan.” 401(k) Plan We maintain a defined contribution employee retirement plan, or 401(k) plan, for our employees. Our namedexecutive officers are also eligible to participate in the 401(k) plan on the same basis as our other employees. The401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Code, and is also intended to qualify asa safe harbor plan. During 2015, we made matching contributions of 100% of the amount of each participant’s contributions,up to 4% of each participant’s compensation. The 401(k) plan currently does not offer the ability to invest in our securities. Nonqualified Deferred Compensation None of our named executive officers participate in or have account balances in nonqualified defined contributionplans or other nonqualified deferred compensation plans maintained by us. Our board of directors may elect to provide ourofficers and other employees with nonqualified defined contribution or other nonqualified deferred compensation benefits inthe future if it determines that doing so is in our best interests. Equity Benefit Plans 2015 Equity Incentive Plan Our board of directors adopted the 2015 plan in January 2015 and our stockholders approved the 2015 plan inJanuary 2015, which became effective on January 29, 2015, and no further grants will be made under the 2011 plan. Stock Awards. The 2015 plan provides for the grant of incentive stock options, or ISOs, nonstatutory stock options,or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards, andother forms of equity compensation, or collectively, stock awards, all of which may be granted to employees, includingofficers, non-employee directors and consultants of us and our affiliates. Additionally, the 2015 plan provides for the grant ofperformance cash awards. ISOs may be granted only to employees. All other awards may be granted to employees, includingofficers, and to non-employee directors and consultants. 137 Table of ContentsShare Reserve. Initially, the aggregate number of shares of our common stock that may be issued pursuant to stockawards under the 2015 plan is the sum of (1) 801,033 shares, plus (2) the number of shares (not to exceed 1,062,588 shares)(a) reserved for issuance under our 2011 plan at the time our 2015 plan became effective, and (b) any shares subject tooutstanding stock options or other stock awards that were granted under our 2011 plan that are forfeited, terminate, expire orare otherwise not issued. Additionally, the number of shares of our common stock reserved for issuance under our 2015 planwill automatically increase on January 1 of each year, beginning on January 1, 2016 and continuing through and includingJanuary 1, 2025, by 4% of the total number of shares of our capital stock outstanding on December 31 of the precedingcalendar year, or a lesser number of shares determined by our board of directors. The maximum number of shares of ourcommon stock that may be issued upon the exercise of ISOs under our 2015 plan is 3,617,571 shares. No person may be granted stock awards covering more than 258,397 shares of our common stock under our 2015plan during any calendar year pursuant to stock options, stock appreciation rights and other stock awards whose value isdetermined by reference to an increase over an exercise or strike price of at least 100% of the fair market value on the date thestock award is granted. Additionally, no person may be granted in a calendar year a performance stock award covering morethan 258,397 shares of our common stock or a performance cash award having a maximum value in excess of $1,000,000.Such limitations are designed to help assure that any deductions to which we would otherwise be entitled with respect tosuch awards will not be subject to the $1,000,000 limitation on the income tax deductibility of compensation paid to anycovered executive officer imposed by Section 162(m) of the Code. If a stock award granted under the 2015 plan expires or otherwise terminates without being exercised in full, or issettled in cash, the shares of our common stock not acquired pursuant to the stock award again will become available forsubsequent issuance under the 2015 plan. In addition, the following types of shares of our common stock under the 2015plan may become available for the grant of new stock awards under the 2015 plan: (1) shares that are forfeited to orrepurchased by us prior to becoming fully vested; (2) shares withheld to satisfy income or employment withholding taxes; or(3) shares used to pay the exercise or purchase price of a stock award. Shares issued under the 2015 plan may be previouslyunissued shares or reacquired shares bought by us on the open market. As of February 12, 2016, 861,621 shares of commonstock were subject to outstanding awards under the 2015 plan. In December 2015, the 2015 Plan was amended to allow an additional 500,000 shares of common stock to be usedexclusively for the grant of awards as a material inducement for individuals to commence employment in compliance withNASDAQ Listing Rule 5635(c)(4). Administration. Our board of directors, or a duly authorized committee thereof, has the authority to administer the2015 plan. Our board of directors may also delegate to one or more of our officers the authority to (1) designate employees(other than other officers) to be recipients of certain stock awards, and (2) determine the number of shares of common stock tobe subject to such stock awards. Subject to the terms of the 2015 plan, our board of directors or the authorized committee,referred to herein as the plan administrator, determines recipients, dates of grant, the numbers and types of stock awards to begranted and the terms and conditions of the stock awards, including the period of their exercisability and vesting scheduleapplicable to a stock award. Subject to the limitations set forth below, the plan administrator will also determine the exerciseprice, strike price or purchase price of awards granted and the types of consideration to be paid for the award. The plan administrator has the authority to modify outstanding awards under our 2015 plan. Subject to the terms ofour 2015 plan, the plan administrator has the authority to reduce the exercise, purchase or strike price of any outstandingstock award, cancel any outstanding stock award in exchange for new stock awards, cash or other consideration, or take anyother action that is treated as a repricing under generally accepted accounting principles, with the consent of any adverselyaffected participant. Stock Options. ISOs and NSOs are granted pursuant to stock option agreements adopted by the plan administrator.The plan administrator determines the exercise price for a stock option, within the terms and conditions of the 2015 plan,provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our commonstock on the date of grant. Options granted under the 2015 plan vest at the rate specified by the plan administrator.138 Table of Contents The plan administrator determines the term of stock options granted under the 2015 plan, up to a maximum of tenyears. Unless the terms of an optionholder’s stock option agreement provide otherwise, if an optionholder’s servicerelationship with us, or any of our affiliates, ceases for any reason other than disability, death or cause, the optionholder maygenerally exercise any vested options for a period of three months following the cessation of service. The option term may beextended in the event that exercise of the option following such a termination of service is prohibited by applicablesecurities laws or our insider trading policy. If an optionholder’s service relationship with us or any of our affiliates ceasesdue to disability or death, or an optionholder dies within a certain period following cessation of service, the optionholder ora beneficiary may generally exercise any vested options for a period of 12 months in the event of disability and 18 months inthe event of death. In the event of a termination for cause, options generally terminate immediately upon the termination ofthe individual for cause. In no event may an option be exercised beyond the expiration of its term. Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will bedetermined by the plan administrator and may include (1) cash, check, bank draft or money order, (2) a broker-assistedcashless exercise, (3) the tender of shares of our common stock previously owned by the optionholder, (4) a net exercise ofthe option if it is an NSO, and (5) other legal consideration approved by the plan administrator. Unless the plan administrator provides otherwise, options generally are not transferable except by will, the laws ofdescent and distribution, or pursuant to a domestic relations order. An optionholder may designate a beneficiary, however,who may exercise the option following the optionholder’s death. Tax Limitations on Incentive Stock Options. The aggregate fair market value, determined at the time of grant, ofour common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar yearunder all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally betreated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stockpossessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) the option exerciseprice is at least 110% of the fair market value of the stock subject to the option on the date of grant, and (2) the term of theISO does not exceed five years from the date of grant. Restricted Stock Awards. Restricted stock awards are granted pursuant to restricted stock award agreementsadopted by the plan administrator. Restricted stock awards may be granted in consideration for (1) cash, check, bank draft ormoney order, (2) services rendered to us or our affiliates, or (3) any other form of legal consideration. Common stock acquiredunder a restricted stock award may, but need not, be subject to a share repurchase option in our favor in accordance with avesting schedule to be determined by the plan administrator. A restricted stock award may be transferred only upon suchterms and conditions as set by the plan administrator. Except as otherwise provided in the applicable award agreement,restricted stock awards that have not vested may be forfeited or repurchased by us upon the participant’s cessation ofcontinuous service for any reason. Restricted Stock Unit Awards. Restricted stock unit awards are granted pursuant to restricted stock unit awardagreements adopted by the plan administrator. Restricted stock unit awards may be granted in consideration for any form oflegal consideration. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stockas deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unitaward agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unitaward. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will beforfeited upon the participant’s cessation of continuous service for any reason. Stock Appreciation Rights. Stock appreciation rights are granted pursuant to stock appreciation grant agreementsadopted by the plan administrator. The plan administrator determines the strike price for a stock appreciation right, whichgenerally cannot be less than 100% of the fair market value of our common stock on the date of grant. Upon the exercise of astock appreciation right, we will pay the participant an amount equal to the product of (1) the excess of the per share fairmarket value of our common stock on the date of exercise over the strike price, multiplied by (2) the number of shares ofcommon stock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under the2015 plan vests at the rate specified in the stock appreciation right agreement as determined by139 Table of Contentsthe plan administrator. The plan administrator determines the term of stock appreciation rights granted under the 2015 plan, up to amaximum of ten years. Unless the terms of a participant’s stock appreciation right agreement provides otherwise, if aparticipant’s service relationship with us or any of our affiliates ceases for any reason other than cause, disability or death, theparticipant may generally exercise any vested stock appreciation right for a period of three months following the cessation ofservice. The stock appreciation right term may be further extended in the event that exercise of the stock appreciation rightfollowing such a termination of service is prohibited by applicable securities laws. If a participant’s service relationship withus, or any of our affiliates, ceases due to disability or death, or a participant dies within a certain period following cessationof service, the participant or a beneficiary may generally exercise any vested stock appreciation right for a period of12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, stockappreciation rights generally terminate immediately upon the occurrence of the event giving rise to the termination of theindividual for cause. In no event may a stock appreciation right be exercised beyond the expiration of its term. Performance Awards. The 2015 plan permits the grant of performance-based stock and cash awards that mayqualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibilityof compensation paid to a covered executive officer imposed by Section 162(m) of the Code. To help assure that thecompensation attributable to performance-based awards will so qualify, our compensation committee can structure suchawards so that stock or cash will be issued or paid pursuant to such award only after the achievement of certain pre-established performance goals during a designated performance period. The performance goals that may be selected include one or more of the following: (1) earnings (including earningsper share and net earnings); (2) earnings before interest, taxes and depreciation; (3) earnings before interest, taxes,depreciation and amortization; (4) earnings before interest, taxes, depreciation, amortization and legal settlements;(5) earnings before interest, taxes, depreciation, amortization, legal settlements and other income (expense); (6) earningsbefore interest, taxes, depreciation, amortization, legal settlements, other income (expense) and stock-based compensation;(7) earnings before interest, taxes, depreciation, amortization, legal settlements, other income (expense), stock-basedcompensation and changes in deferred revenue; (8) total stockholder return; (9) return on equity or average stockholder’sequity; (10) return on assets, investment, or capital employed; (11) stock price; (12) margin (including gross margin);(13) income (before or after taxes); (14) operating income; (15) operating income after taxes; (16) pre-tax profit;(17) operating cash flow; (18) sales or revenue targets; (19) increases in revenue or product revenue; (20) expenses and costreduction goals; (21) improvement in or attainment of working capital levels; (22) economic value added (or an equivalentmetric); (23) market share; (24) cash flow; (25) cash flow per share; (26) share price performance; (27) debt reduction;(28) implementation or completion of projects or processes (including, without limitation, clinical trial initiation, clinicaltrial enrollment, clinical trial results, new and supplemental indications for existing products, regulatory filing submissions,regulatory filing acceptances, regulatory or advisory committee interactions, regulatory approvals, and product supply);(29) stockholders’ equity; (30) capital expenditures; (31) debt levels; (32) operating profit or net operating profit;(33) workforce diversity; (34) growth of net income or operating income; (35) billings; (36) bookings; (37) employeeretention; (38) initiation of phases of clinical trials and/or studies by specific dates; (39) patient enrollment rates; (40) budgetmanagement; (41) submission to, or approval by, a regulatory body (including, but not limited to the FDA) of an applicablefiling or a product candidate; (42) regulatory milestones; (43) progress of internal research or clinical programs; (44) progressof partnered programs; (45) partner satisfaction; (46) timely completion of clinical trials; (47) submission of INDs and NDAsand other regulatory achievements; (48) research progress, including the development of programs; (49) strategicpartnerships or transactions (including in-licensing and out-licensing of intellectual property; and (50) to the extent that anaward is not intended to comply with Section 162(m) of the Code, other measures of performance selected by our board ofdirectors. The performance goals may be based on a company-wide basis, with respect to one or more business units, divisions,affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparablecompanies or the performance of one or more relevant indices. Unless specified otherwise (1) in the award agreement at thetime the award is granted or (2) in such other document setting forth the performance goals at the time the goals areestablished, we will appropriately make adjustments in the method of calculating the attainment of performance goals asfollows: (a) to exclude restructuring and/or other nonrecurring charges; (b) to exclude exchange140 Table of Contentsrate effects; (c) to exclude the effects of changes to generally accepted accounting principles; (d) to exclude the effects of anystatutory adjustments to corporate tax rates; (e) to exclude the effects of any “extraordinary items” as determined undergenerally accepted accounting principles; (f) to exclude the dilutive effects of acquisitions or joint ventures; (g) to assumethat any business divested by us achieved performance objectives at targeted levels during the balance of a performanceperiod following such divestiture; (h) to exclude the effect of any change in the outstanding shares of our common stock byreason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off,combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other thanregular cash dividends; (i) to exclude the effects of stock-based compensation and the award of bonuses under our bonusplans; (j) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensedunder generally accepted accounting principles; (k) to exclude the goodwill and intangible asset impairment charges that arerequired to be recorded under generally accepted accounting principles; (l) to exclude the effect of any other unusual, non-recurring gain or loss or other extraordinary item; and (m) to exclude the effects of the timing of acceptance for review and/orapproval of submissions to the FDA or any other regulatory body. In addition, we retain the discretion to reduce or eliminatethe compensation or economic benefit due upon attainment of the performance goals and to define the manner of calculatingthe performance criteria we select to use for such performance period. The performance goals may differ from participant toparticipant and from award to award. Other Stock Awards. The plan administrator may grant other awards based in whole or in part by reference to ourcommon stock. The plan administrator will set the number of shares under the stock award and all other terms and conditionsof such awards. Changes to Capital Structure. In the event that there is a specified type of change in our capital structure, such as astock split or recapitalization, appropriate adjustments will be made to (1) the class and maximum number of shares reservedfor issuance under the 2015 plan, (2) the class and maximum number of shares by which the share reserve may increaseautomatically each year, (3) the class and maximum number of shares that may be issued upon the exercise of ISOs, (4) theclass and maximum number of shares subject to stock awards that can be granted in a calendar year (as established under the2015 plan pursuant to Section 162(m) of the Code) and (5) the class and number of shares and exercise price, strike price, orpurchase price, if applicable, of all outstanding stock awards. Corporate Transactions. In the event of certain specified significant corporate transactions, the plan administratorhas the discretion to take any of the following actions with respect to stock awards: ·arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity orparent company; ·arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiringentity or parent company; ·accelerate the vesting of the stock award and provide for its termination prior to the effective time of thecorporate transaction; ·arrange for the lapse of any reacquisition or repurchase right held by us; ·cancel or arrange for the cancellation of the stock award in exchange for such cash consideration, if any, as ourboard of directors may deem appropriate; or ·make a payment equal to the excess of (1) the value of the property the participant would have received uponexercise of the stock award over (2) the exercise price otherwise payable in connection with the stock award. Our plan administrator is not obligated to treat all stock awards, even those that are of the same type, in the samemanner. Under the 2015 plan, a corporate transaction is generally the consummation of (1) a sale or other disposition of141 Table of Contentsall or substantially all of our consolidated assets, (2) a sale or other disposition of at least 90% of our outstanding securities,(3) a merger, consolidation or similar transaction following which we are not the surviving corporation, or (4) a merger,consolidation or similar transaction following which we are the surviving corporation but the shares of our common stockoutstanding immediately prior to such transaction are converted or exchanged into other property by virtue of thetransaction. Change of Control. The plan administrator may provide, in an individual award agreement or in any other writtenagreement between a participant and us that the stock award will be subject to additional acceleration of vesting andexercisability in the event of a change of control. For example, certain of our employees may receive an award agreement thatprovides for vesting acceleration upon the individual’s termination without cause or resignation for good reason (including amaterial reduction in the individual’s base salary, duties, responsibilities or authority, or a material relocation of theindividual’s principal place of employment with us) in connection with a change of control. Under the 2015 plan, a changeof control is generally (1) the acquisition by a person or entity of more than 50% of our combined voting power other than bymerger, consolidation or similar transaction; (2) a consummated merger, consolidation or similar transaction immediatelyafter which our stockholders cease to own more than 50% of the combined voting power of the surviving entity; or (3) aconsummated sale, lease or exclusive license or other disposition of all or substantially of our consolidated assets. Amendment and Termination. Our board of directors has the authority to amend, suspend, or terminate our 2015plan, provided that such action does not materially impair the existing rights of any participant without such participant’swritten consent. No ISOs may be granted after the tenth anniversary of the date our board of directors adopted our 2015 plan. 2011 Equity Incentive Plan Our board of directors initially adopted, and our stockholders approved the 2011 Equity Incentive Plan, or the 2011plan, in August 2011. The 2011 plan provides for the grant of stock options (ISOs and NSOs), stock appreciation rights,restricted stock awards and RSU awards to our employees, directors, and consultants. No additional awards will be grantedunder the 2011 plan, and all awards granted under the 2011 plan that are repurchased, forfeited, expired, cancelled orotherwise not issued will become available for grant under the 2015 plan in accordance with its terms. Administration. Our board of directors, or a duly authorized committee thereof, has the authority to administer the2011 plan. Awards under the 2011 plan were granted pursuant to award agreements adopted by the plan administrator. Share Reserve. The initial number of shares we reserved for issuance pursuant to the 2011 plan was 843,586 shares,which was increased in September 2014 to 1,070,976 shares in connection with our issuance of shares of our Series Bredeemable convertible preferred stock. As of February 12, 2016, 85,815 shares of common stock were issued andoutstanding pursuant to options under the plan that had been exercised, and 957,035 shares of common stock were subject tooutstanding awards. No additional awards will be granted under the 2011 plan, and all awards granted under the 2011 planthat are repurchased, forfeited, expired, are cancelled or otherwise not issued will become available for grant under the 2015plan in accordance with its terms. Corporate Transactions. In the event of certain specified significant corporate transactions, each outstanding awardwill be subject to the terms of the applicable transaction agreement. Such transaction agreement may provide, withoutlimitation, for the assumption or substitution of awards, for their continuation, for accelerated vesting or for cancellation withor without consideration, in all cases without the consent of the award holder. Amendment and Termination. Our board of directors has the authority to amend, suspend or terminate our 2011plan, provided that such action does not materially impair the existing rights of any participant without such participant’swritten consent. As of January 29, 2015, no additional awards will be granted under the 2011 plan. However, any outstandingawards already granted under the 2011 plan will remain outstanding, subject to the terms of such plan and the applicableaward agreements, until such outstanding awards are exercised or until they terminate or expire by their terms.142 Table of Contents 2015 Employee Stock Purchase Plan Our board of directors adopted the ESPP in January 2015 and our stockholders approved the ESPP in January 2015.The ESPP became effective on January 29, 2015. The purpose of the ESPP is to retain the services of new employees andsecure the services of new and existing employees while providing incentives for such individuals to exert maximum effortstoward our success and that of our affiliates. Share Reserve. The ESPP authorizes the issuance of 183,462 shares of our common stock pursuant to purchaserights granted to our employees or to employees of any of our designated affiliates. The number of shares of our commonstock reserved for issuance will automatically increase on January 1 of each calendar year, from January 1, 2016 throughJanuary 1, 2025 by the least of (1) 1% of the total number of shares of our common stock outstanding on December 31 of thepreceding calendar year, (2) 366,925 shares, or (3) a number determined by our board of directors that is less than (1) and (2).The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code. As ofDecember 31, 2015, 15,009 shares of our common stock have been purchased under the ESPP. Administration. Our board of directors has delegated its authority to administer the ESPP to our compensationcommittee. The ESPP is implemented through a series of offerings of purchase rights to eligible employees. Under the ESPP,we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within eachoffering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased foremployees participating in the offering. An offering may be terminated under certain circumstances. Payroll Deductions. Generally, all regular employees, including executive officers, employed by us or by any ofour designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to 15% oftheir earnings for the purchase of our common stock under the ESPP. Unless otherwise determined by our board of directors,common stock will be purchased for accounts of employees participating in the ESPP at a price per share equal to the lowerof (1) 85% of the fair market value of a share of our common stock on the first date of an offering or (2) 85% of the fair marketvalue of a share of our common stock on the date of purchase. Limitations. Employees may have to satisfy one or more of the following service requirements before participatingin the ESPP, as determined by our board of directors: (1) customarily employed for more than 20 hours per week,(2) customarily employed for more than five months per calendar year or (3) continuous employment with us or one of ouraffiliates for a period of time (not to exceed two years). No employee may purchase shares under the ESPP at a rate in excessof $25,000 worth of our common stock based on the fair market value per share of our common stock at the beginning of anoffering for each year such a purchase right is outstanding. Finally, no employee will be eligible for the grant of any purchaserights under the ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of ouroutstanding capital stock measured by vote or value pursuant to Section 424(d) of the Code. Changes to Capital Structure. In the event that there occurs a change in our capital structure through such actionsas a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in propertyother than cash, large nonrecurring cash dividend, liquidating dividend, combination of shares, exchange of shares, changein corporate structure or similar transaction, the board of directors will make appropriate adjustments to (1) the number ofshares reserved under the ESPP, (2) the maximum number of shares by which the share reserve may increase automaticallyeach year and (3) the number of shares and purchase price of all outstanding purchase rights. Corporate Transactions. In the event of certain significant corporate transactions, including the consummation of:(1) a sale of all our assets, (2) the sale or disposition of 90% of our outstanding securities, (3) a merger or consolidation wherewe do not survive the transaction and (4) a merger or consolidation where we do survive the transaction but the shares of ourcommon stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue ofthe transaction, any then- outstanding rights to purchase our stock under the ESPP may be assumed, continued or substitutedfor by any surviving or acquiring entity (or its parent company). If the143 Table of Contentssurviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for such purchase rights,then the participants’ accumulated payroll contributions will be used to purchase shares of our common stock within tenbusiness days prior to such corporate transaction, and such purchase rights will terminate immediately. Amendment and Termination. Our board of directors has the authority to amend or terminate our ESPP, providedthat except in certain circumstances any such amendment or termination may not materially impair any outstanding purchaserights without the holder’s consent. We will obtain stockholder approval of any amendment to our ESPP as required byapplicable law or listing requirements. Director Compensation Our board of directors adopted a new compensation policy in December 2014, which was subsequently amended inMarch 2015, and is applicable to all of our non-employee directors. This compensation policy provides that each non-employee director will receive the following compensation for service on our board of directors: ·an annual cash retainer of $35,000; ·an annual cash retainer of $60,000 for service as chairman of our board of directors; ·an additional annual cash retainer of $7,500, $5,000 and $3,750 for service on our audit committee,compensation committee and the nominating and corporate governance committee, respectively; ·an additional annual cash retainer of $15,000, $10,000 and $7,500 for service as chairman of the auditcommittee, compensation committee and the nominating and corporate governance committee (in lieu ofregular committee member fees), respectively; ·an automatic annual option grant to purchase 15,000 shares of our common stock for each non-employeedirector serving on the board of directors on the date of our annual stockholder meeting (including by reasonof his or her election at such meeting), in each case vesting 100% as of the earlier of the date of our nextannual stockholder meeting and the one-year anniversary of the date of grant; and ·upon first joining our board of directors following our initial public offering an automatic initial grant of anoption to purchase 25,000 shares of our common stock that vests ratably in annual installments over a three-year period following the grant date. Each of the option grants described above will vest and become exercisable subject to the director’s continuousservice with us, provided that each option will vest in full upon a change of control, as defined under our 2015 plan. Theoptions will be granted under our 2015 plan, the terms of which are described in more detail above under “—Equity BenefitPlans—2015 Equity Incentive Plan.” 144 Table of ContentsDirector Summary Compensation TableThe following table summarizes director compensation for the year ended December 31, 2015: Fees Earned Stock or Paid inCash awards TotalDirector ($) ($)(1) ($)William R. LaRue 41,250 224,691 265,941Martin A. Mattingly, Pharm.D. 32,813 367,472 400,285J. Rainer Twiford, J.D., Ph.D. 33,750 120,300 154,050Paul Walker 37,500 120,300 157,800Stephen T. Worland, Ph.D. 34,688 339,071 373,759 (1)All of the option awards were granted under the 2015 plan, the terms of which are described below under “—EquityBenefit Plans.” We did not provide cash compensation to our non-employee directors during 2014. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth information regarding beneficial ownership of our capital stock by: ·each person, or group of affiliated persons, known by us to beneficially own more than 5% of our commonstock; ·each of our directors; ·each of our named executive officers; and ·all of our current executive officers and directors as a group. Information with respect to beneficial ownership is based upon information supplied by our officers, directors andprincipal stockholders and/or a review of Schedules 13D and 13G, if any, and other documents filed with the SEC. We havedetermined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficialownership of securities to persons who possess sole or shared voting power or investment power with respect to thosesecurities. In addition, the rules include shares of our common stock issuable pursuant to the exercise of stock options orwarrants that are either immediately exercisable or exercisable on or before March 31, 2016, which is 60 days after January31, 2016. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrantsfor the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purposeof computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified inthis table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject toapplicable community property laws. The percentage ownership information under the column entitled “Percent of Shares Beneficially Owned” is based on12,185,242 shares of common stock outstanding as of January 31, 2015. Except as otherwise noted below, the address145 Table of Contentsfor each person or entity listed in the table is c/o TRACON Pharmaceuticals, Inc., 8910 University Center Lane, Suite 700,San Diego, California 92122. Number of Percentage of shares shares Name and address of beneficially beneficially beneficial owner owned owned 5% or greater stockholders: New Enterprise Associates 14, L.P.(1) 1954 Greenspring Drive, Suite 600 Timonium, MD 21093 1,889,652 15.5% JAFCO Super V3 Investment Limited Partnership(2) Otemachi First Square, West Tower 11F 1-5-1 Otemachi, Chiyoda-ku Tokyo 100-0004, Japan 1,497,053 12.3% Nextech III Oncology, LPCI(3) Scheuchzerstrasse 35 8006 Zurich, Switzerland 875,991 7.2% Laurence W. Lytton(4) 467 Central Park West New York, NY 10025 651,944 5.4% BMV Direct II LP(5) 17190 Bernardo Center Drive San Diego, CA 92128 611,785 5.0% Directors and Named Executive Officers: Charles P. Theuer, M.D., Ph.D.(6) 335,942 2.7%William R. LaRue(7) 14,008 * Martin A. Mattingly, Pharm.D.(8) 8,333 * J. Rainer Twiford, J.D., Ph.D.(9) 171,374 1.4%Paul Walker(10) — * Stephen T. Worland, Ph.D.(11) 8,333 * Ronald L. Shazer, M.D., M.B.A.(12) — * H Casey Logan, M.B.A.(13) 101,795 * Patricia L. Bitar, CPA(14) 35,547 * All executive officers and directors as a group (9 persons)(15) 675,332 5.3% *Represents beneficial ownership of less than 1%. (1)Represents 1,888,474 shares of common stock beneficially owned by New Enterprise Associates 14, L.P., or NEA.The shares directly held by NEA are indirectly held by NEA Partners 14, L.P., the sole general partner of NEA;NEA 14 GP, LTD, the sole general partner of NEA Partners 14, L.P.; and each of the individual directors ofNEA 14 GP, LTD. The directors of NEA 14 GP, LTD are M. James Barrett, Peter J. Barris, Forest Baskett, Ryan D.Drant, Anthony A. Florence, Jr., Patrick J. Kerins, Krishna “Kittu” Kolluri, David M. Mott, Scott D. Sandell, PeterSonsini, Ravi Viswanathan and Harry R. Weller. NEA, NEA Partners 14, L.P., NEA 14 GP, LTD and the directors ofNEA 14 GP, LTD share voting and dispositive power with respect to the shares held by NEA. Paul Walker, a partnerat New Enterprise Associates, has no voting or dispositive power with regard to any of the above referenced sharesand disclaims beneficial ownership of such shares except to the extent of his146 Table of Contentspecuniary interest therein, if any. All indirect holders of the above referenced shares disclaim beneficial ownership of allapplicable shares except to the extent of their pecuniary interest therein. (2)Represents 1,497,053 shares of common stock beneficially owned by JAFCO Super V3 Investment LimitedPartnership, or JAFCO. JAFCO Co., Ltd. is the general partner of JAFCO. As President, Chief Executive Officer andChairperson of the investment committee of JAFCO Co., Ltd., Shinichi Fuki has voting and investment authorityover the shares held by JAFCO. (3)Represents 875,991 shares of common stock beneficially owned by Nextech III Oncology, LPCI. The general partnerof Nextech III is Nextech III GP Ltd. Alfred Scheidegger, Rudolf Gygax and Roland Ruckstuhl are the managingmembers of Nextech III GP Ltd. and may be deemed to share dispositive voting and investment power over theshares held by Nextech III. Each of these individuals disclaims beneficial ownership of such shares except to theextent of his pecuniary interest therein. Excludes 233,958 shares of common stock held by ONC Partners, L.P.Although ONC Partners, L.P. and Nextech III have a common investment adviser, voting and investment decisionson behalf of ONC Partners, L.P. are made by an unrelated general partner. (4)Based solely upon a Schedule 13G filed on January 8, 2016, by Laurence W. Lytton. According to the Schedule13G, Mr. Lytton has sole voting and dispositive power with respect to 584,016 shares and shared voting anddispositive power with respect to 67,928 shares. (5)Represents 611,785 shares of common stock beneficially owned by BMV Direct II LP. The sole general partner ofBMV Direct II LP is BioMed Realty, L.P. The sole general partner of BioMed Realty, L.P. is BioMed RealtyTrust, Inc., a publicly traded company. (6)Includes 333,442 shares of common stock subject to options exercisable as of March 31, 2016. (7)Includes 4,893 shares of common stock subject to repurchase and 5,620 shares of common stock subject to optionsexercisable as of March 31, 2016. (8)Includes 8,333 shares of common stock subject to options exercisable as of March 31, 2016. (9)Includes 10,572 shares of common stock beneficially owned by Brookline Investment Fund, LLC, 49,380 shares ofcommon stock beneficially owned by CSA Biotechnology Fund I, LLC and 93,460 shares of common stockbeneficially owned by CSA Biotechnology Fund II, LLC. J. Rainer Twiford, J.D., Ph.D., one of our directors, hasvoting and dispositive control over these shares. Dr. Twiford disclaims beneficial ownership of these shares exceptto the extent of his pecuniary interest therein. Also includes 17,962 shares of outstanding common stock held byMCT Investments, LLC. Dr. Twiford’s spouse, Marsha C. Twiford, has voting and investment power with respect tothe shares held by MCT Investments, LLC. (10)Paul Walker is a partner of New Enterprise Associates. (11)Includes 8,333 shares of common stock subject to options exercisable as of March 31, 2016. (12)Ronald L. Shazer, M.D., M.B.A., joined us as Chief Medical Officer in October 2015. (13)Consists of 100,695 shares of common stock subject to options exercisable as of March 31, 2016. (14)Consists of 35,054 shares of common stock subject to options exercisable as of March 31, 2016. (15)Consists of the shares of outstanding common stock and shares of common stock subject to options exercisable as ofMarch 31, 2016 referred to in footnotes (1), (6), (7), (8), (9), (11), (13) and (14). 147 Table of ContentsSecurities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2015, with respect to shares of our common stock thatmay be issued under our existing equity compensation plans: (a) (b) (c) Number of securities Number of remaining available for securities to be future issuance under issued upon exercise Weighted-average equity compensation of outstanding exercise price of plans (excluding options, warrants outstanding options, securities reflected in Plan Category and rights warrants and rights column (a)) Equity compensation plans approved bystockholders(1): 2011 Equity Incentive Plan(2) 966,335(3) $3.33 — 2015 Equity Incentive Plan(4) 821,814(3) $12.97 7,345 2015 Employee Stock Purchase Plan(5) — $— 168,453 Equity compensation plans not approved bystockholders: 2015 Equity Incentive Plan - Inducement awards(6) — $— 500,000 (1)For a description of our equity compensation plans, see “Item 11. Executive Compensation.” (2)Effective as of January 29, 2015, no additional awards will be granted under the 2011 plan, and all awards grantedunder the 2011 plan that are repurchased, forfeited, expire, are cancelled or otherwise not issued will becomeavailable for grant under the 2015 plan in accordance with its terms. (3)All shares issuable upon exercise of options. (4)The 2015 plan became effective on January 29, 2015. Initially, the aggregate number of shares of our common stockthat may be issued pursuant to stock awards under the 2013 plan is the sum of (i) 801,033 shares, plus (ii) the 28,126shares remaining available for grant under our 2011 plan at the time our 2015 plan became effective, plus (iii) anyshares subject to outstanding stock options or other stock awards that would have otherwise returned to our 2011plan (such as upon the expiration or termination of a stock award prior to vesting). Additionally, the number ofshares of our common stock reserved for issuance under our 2015 plan will automatically increase on January 1 ofeach year, beginning on January 1, 2016, and continuing through and including January 1, 2025, by 4% of the totalnumber of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser numberof shares determined by our board of directors. The maximum number of shares that may be issued upon the exerciseof ISOs under our 2015 plan is 3,617,571 shares. (5)The ESPP became effective on January 29, 2015. The ESPP authorizes the issuance of 183,462 shares of ourcommon stock pursuant to purchase rights granted to our employees or to employees of any of our designatedaffiliates. The number of shares of our common stock reserved for issuance will automatically increase on January 1of each calendar year, from January 1, 2016 through January 1, 2025 by the least of (a) 1% of the total number ofshares of our common stock outstanding on December 31 of the preceding calendar year, (b) 366,925 shares, or (c) anumber determined by our board of directors that is less than (a) and (b). (6)In December 2015, the 2015 Plan was amended to allow an additional 500,000 shares of common stock to be usedexclusively for the grant of awards as a material inducement for individuals to commence employment at theCompany in compliance with NASDAQ Listing Rule 5635(c)(4). 148 Table of ContentsItem 13. Certain Relationships and Related Transactions, and Director Independence. The following includes a summary of transactions since January 1, 2014 to which we have been a party, in which theamount involved in the transaction exceeded the lesser of $120,000 or one percent of the average of our total assets at yearend for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge,beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoingpersons had or will have a direct or indirect material interest, other than equity and other compensation, termination, changein control and other arrangements, which are described under “Item 11. Executive Compensation.” Initial Public Offering In February 2015, we completed our initial public offering pursuant to which we issued and sold an aggregate of3,600,000 shares of our common stock, at a price to the public of $10.00 per share. In addition, we completed a concurrentprivate placement with New Enterprise Associates 14, L.P. in which we sold 500,000 shares of our common stock at a price of$10.00 per share. The following table sets forth the number of shares of common stock purchased by holders of more than 5%of our common stock or entities affiliated with them, including entities affiliated with certain of our directors or formerdirectors at the closing of the initial public offering: Shares of Common Purchase Name(1) Stock Price JAFCO Super V3 Investment Limited Partnership 257,950 $2,579,500 New Enterprise Associates 14, L.P. 500,000 $5,000,000 Nextech III Oncology, LPCI 174,117 $1,741,170 BMV Direct II LP 131,155 $1,311,550 (1)Additional detail regarding these stockholders and their equity holdings is provided under “Item 12. SecurityOwnership of Certain Beneficial Owners and Management and Related Stockholder Matters.” Certain of our directors or former directors have affiliations with the investors that participated in our initial publicoffering and concurrent private placement as described above, as indicated in the table below: Director or Former Director InvestorKenji Harada, Ph.D. JAFCO Super V3 Investment Limited PartnershipHironori Hozoji JAFCO Super V3 Investment Limited PartnershipPaul Walker New Enterprise Associates 14, L.P.Alfred Scheidegger, Ph.D. Nextech III Oncology, LPCI Series B Preferred Stock Financing In September 2014, we entered into a Series B preferred stock purchase agreement, pursuant to which we issued andsold to investors an aggregate of 12,400,274 shares of our Series B redeemable convertible preferred stock at a purchase priceof approximately $2.19 per share, for aggregate consideration of $27.2 million. The participants in this Series B preferred stock financing included holders of more than 5% of our capital stock andentities affiliated with our directors at the time of the Series B financing. The following table sets forth the aggregate149 Table of Contentsnumber of shares of Series B redeemable convertible preferred stock issued to these related parties in this preferred stockfinancing: Shares of Series B Redeemable Convertible Participants Cash Payments Preferred Stock Greater than 5% Stockholders Arcus Ventures Fund, LP $454,545.85 207,224 BHP No. 2 Investment Limited Partnership $454,545.85 207,224 Brookline Tracon Investment Fund II, LLC(1) $2,049,999.04 934,579 JAFCO Super V3 Investment Limited Partnership(1) $2,272,729.22 1,036,120 Nextech III Oncology, LPCI(1)(2) $1,022,728.15 466,254 Entities Affiliated with Our Directors and Officers New Enterprise Associates 14, L.P.(3) $11,796,544.30 5,377,955 ONC Partners, L.P.(1) $340,909.39 155,418 (1)One of our directors (J. Rainer Twiford, J.D., Ph.D.) is affiliated with Brookline Tracon Investment Fund II, LLC; twoof our former directors (Kenji Harada, Ph.D., and Hironori Hozoji) are affiliated with JAFCO Super V3 InvestmentLimited Partnership; and one of our former directors (Alfred Scheidegger, Ph.D.) is affiliated with Nextech IIIOncology, LPCI and ONC Partners, L.P.(2)Excludes 155,418 shares of Series B redeemable convertible preferred stock issued to ONC Partners, L.P. AlthoughONC Partners, L.P. and Nextech III Oncology, LPCI have a common investment adviser, voting and investmentdecisions on behalf of ONC Partners, L.P. are made by an unrelated general partner.(3)Includes 4,559 shares of Series B redeemable convertible preferred stock issued to NEA Ventures 2014, L.P. As ofthe initial closing of the Series B redeemable convertible preferred stock financing, New Enterprise Associates 14,L.P. acquired a seat on our board. Paul Walker, one of our directors, is a partner of New Enterprise Associates. Brookline Group, LLC, an affiliate of Brookline Tracon Investment Fund II, LLC, a holder of more than five percentof our common stock at the time of the Series B financing, acted as a nonexclusive placement agent for the Series B preferredstock financing and received a fee in the amount of $95,727.22 in consideration for such services. Policies and Procedures for Transactions with Related Persons We have adopted a written related-person transactions policy that sets forth our policies and procedures regarding theidentification, review, consideration and oversight of “related-person transactions.” For purposes of our policy only, a“related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangementsor relationships) in which we and any “related person” are participants involving an amount that exceeds the lesser of$120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years. Transactions involving compensation for services provided to us as an employee, consultant or director are notconsidered related-person transactions under this policy. A related person is any executive officer, director or a holder ofmore than 5% of our common stock, including any of their immediate family members and any entity owned or controlled bysuch persons. Under the policy, where a transaction has been identified as a related-person transaction, management must presentinformation regarding the proposed related-person transaction to our audit committee (or, where review by our auditcommittee would be inappropriate, to another independent body of our board of directors) for review. The presentation mustinclude a description of, among other things, the material facts, the direct and indirect interests of the related persons, thebenefits of the transaction to us and whether any alternative transactions are available. To identify related-persontransactions in advance, we rely on information supplied by our executive officers, directors and certain significantstockholders. In considering related-person transactions, our audit committee or other independent body of150 Table of Contentsour board of directors takes into account the relevant available facts and circumstances including, but not limited to: ·the risks, costs and benefits to us; ·the impact on a director’s independence in the event the related person is a director, immediate family member ofa director or an entity with which a director is affiliated; ·the terms of the transaction; ·the availability of other sources for comparable services or products; and ·the terms available to or from, as the case may be, unrelated third parties or to or from our employees generally. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from thedeliberations and approval. Independence of the Board of Directors As required under the Nasdaq Listing Rules, a majority of the members of a listed company’s board of directors mustqualify as “independent,” as affirmatively determined by its board of directors. Our board of directors consults with theCompany’s counsel to ensure that the board of directors’ determinations are consistent with relevant securities and other lawsand regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of Nasdaq,as in effect from time to time. Consistent with these considerations, after review of all relevant identified transactions or relationships between eachdirector, or any of his or her family members, and the Company, its senior management and its independent auditors, ourboard of directors has affirmatively determined that, with the exception of Dr. Theuer, all of our directors are independentdirectors within the meaning of the applicable Nasdaq Listing Rules. In making this determination, the board of directorsfound that none of these directors had a material or other disqualifying relationship with the Company. Item 14. Principal Accountant Fees and Services. Audit and All Other Fees The following table presents fees for services rendered by Ernst & Young LLP, our independent registered public accountingfirm, for 2015 and 2014 in the following categories: Years ended December 31, 2015 2014 Audit Fees (1) $201,454 $1,057,706 Tax Fees (2) 42,000 8,000 All Other Fees — — $243,454 $1,065,706 (1)Audit fees consist of fees billed for professional services by Ernst & Young LLP for audit and quarterly review of ourfinancial statements and review of our registration statement on Form S-1, and related services that are normallyprovided in connection with statutory and regulatory filings or engagements. (2)Tax fees consist of fees for professional services performed by Ernst & Young LLP with respect to tax compliance,tax advice and tax planning. 151 Table of ContentsPolicy on Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting FirmOur audit committee has established a policy governing our use of the services of our independent registered publicaccounting firm. Under the policy, our audit committee is required to pre-approve all audit and permissible non-auditservices performed by our independent registered public accounting firm in order to ensure that the provision of suchservices does not impair such accounting firm’s independence. All fees paid to Ernst & Young LLP during the years endedDecember 31, 2015 and 2014 were pre-approved by our audit committee. PART IV Item 15. Exhibits and Financial Statement Schedules. (a) Documents filed as part of this report. 1. Financial Statements The consolidated financial statements of TRACON Pharmaceuticals, Inc. listed below are set forth in Item 8 of this AnnualReport for the year ended December 31, 2015: Report of Independent Registered Public Accounting Firm 101 Balance Sheets 102 Statements of Operations 103 Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit 104 Statements of Cash Flows 105 Notes to Financial Statements 106 2. Financial Statement Schedules These schedules have been omitted because the required information is included in the financial statements or notes theretoor because they are not applicable or not required. 3. Exhibits ExhibitNumber Description of Document 3.1(1) Amended and Restated Certificate of Incorporation, as currently in effect. 3.2(1) Amended and Restated Bylaws, as currently in effect. 4.1(2) Form of Common Stock Certificate of the Registrant. 4.2(2) Amended and Restated Investors’ Rights Agreement by and among the Registrant and certain of itsstockholders, dated September 19, 2014. 10.1+(2) Form of Indemnity Agreement by and between the Registrant and its directors and officers. 10.2+(2) TRACON Pharmaceuticals, Inc. 2011 Equity Incentive Plan and Forms of Stock Option Agreement and Noticeof Exercise thereunder. 10.3+(3) TRACON Pharmaceuticals, Inc. 2015 Equity Incentive Plan and Forms of Stock Option Grant Notice, StockOption Agreement, Notice of Exercise and Restricted Stock Unit Agreement thereunder, as amended December14, 2015.152 Table of ContentsExhibit Number Description of Document 10.4+(4) TRACON Pharmaceuticals, Inc. Non-Employee Director Compensation Policy, as amended March 26, 2015. 10.5+(4) TRACON Pharmaceuticals, Inc. 2015 Employee Stock Purchase Plan. 10.6+(4) Employment Agreement by and between the Registrant and Charles P. Theuer, M.D., Ph.D., dated May 8, 2015. 10.7+(2) Employment Agreement by and between the Registrant and H Casey Logan, M.B.A., dated February 18, 2013,as amended on September 17, 2014. 10.8+(2) Offer Letter by and between the Registrant and Patricia Bitar, dated September 17, 2014. 10.9+(2) TRACON Pharmaceuticals, Inc. Severance Plan and Summary Plan Description. 10.10+ Severance Agreement by and between the Registrant and Patricia Bitar, dated September 22, 2014, as amendedFebruary 15, 2016. 10.11+(4) Offer letter by and between the Registrant and Ronald L. Shazer, dated September 11, 2015. 10.12+(5) Severance Agreement by and between the Registrant and Ronald L. Shazer, dated October 5, 2015. 10.13(2) Office Lease Agreement by and between the Registrant and Glenborough Aventine, LLC, dated February 10,2011, as amended on September 16, 2013 and September 15, 2014. 10.14(6) Third Amendment to Office Lease Agreement by and between the Registrant and Glenborough Aventine, LLC,dated February 20, 2015. 10.15 Fourth Amendment to Office Lease Agreement by and between the Registrant and Glenborough Aventine,LLC, dated November 30, 2015. 10.16*(2) License Agreement by and between the Registrant and Santen Pharmaceutical Co., Ltd., dated March 3, 2014,as amended. 10.17* Second Amendment to License Agreement by and between the Registrant and Santen Pharmaceutical Co., Ltd.,dated January 31, 2016.10.18*(2) License Agreement by and among the Registrant and Roswell Park Cancer Institute and Health Research, Inc.,dated November 1, 2005, as amended on November 12, 2009, February 11, 2010 and September 18, 2014. 10.19*(2) License Agreement by and between the Registrant and Case Western Reserve University, dated August 2, 2006. 10.20*(4) Amendment to Case License Agreement by and between the Registrant and Case Western Reserve University,dated April 3, 2015. 10.21*(2) License Agreement by and between the Registrant and Lonza Sales AG, dated June 29, 2009. 153 Table of ContentsExhibit Number Description of Document10.22(2) 10.23(2) 10.24(4) 10.25(4) Warrant to Purchase Stock issued to Silicon Valley Bank on November 14, 2013. Warrant to Purchase Stock issued to Silicon Valley Bank on June 4, 2014. Warrant to Purchase Stock issued to Silicon Valley Bank on May 13, 2015. Amended and Restated Loan and Security Agreement by and between the Registrant and Silicon Valley Bank,dated May 13, 2015. 10.26*(2) Cooperative Research and Development Agreement by and between the Registrant and the U.S. Department ofHealth and Human Services, as represented by National Cancer Institute, dated December 22, 2010. 10.27 Amendment #2 to Cooperative Research and Development Agreement by and between the Registrant and theU.S. Department of Health and Human Services, as represented by National Cancer Institute, dated November12, 2015. 10.28*(2) Cooperative Research and Development Agreement by and between the Registrant and the U.S. Department ofHealth and Human Services, as represented by National Cancer Institute, dated January 28, 2011, as amendedon March 12, 2013. 10.29 Amendment #2 to Cooperative Research and Development Agreement by and between the Registrant and theU.S. Department of Health and Human Services, as represented by National Cancer Institute, dated January 27,2016. 10.30*(2) Cooperative Research and Development Agreement by and between the Registrant and the U.S. Department ofHealth and Human Services, as represented by National Cancer Institute, dated August 7, 2012. 10.31*(2) Sponsored Research Agreement by and between the Registrant and Tufts Medical Center, Inc., datedDecember 16, 2014. 10.32(7) At-the-Market Equity Offering Sales Agreement, dated as of February 1, 2016, by and between the Registrantand Stifel, Nicolaus & Company, Incorporated. 23.1 Consent of Independent Registered Public Accounting Firm. 24.1 Power of Attorney. Reference is made to the signature page hereto. 31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the SecuritiesExchange Act of 1934. 31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the SecuritiesExchange Act of 1934. 32.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Exchange Act and18 U.S.C. Section 1350. 32.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Exchange Act and 18U.S.C. Section 1350.154 Table of Contents +Indicates management contract or compensatory plan.*Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions havebeen filed separately with the SEC. (1) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on February 4,2015. (2) Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-201280), asamended. (3) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on December 17,2015. (4) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,2015, filed with the SEC on May 14, 2015. (5) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30,2015, filed with the SEC on November 4, 2015. (6) Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 11,2015. (7) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on February 1,2016. 155 Table of ContentsSignatures Pursuant to the requirements of the Section 13 or 15(d) of the Securities and Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRACON Pharmaceuticals, Inc. /s/ CHARLES P. THEUER, M.D., PH.D. Charles P. Theuer, M.D., Ph.D.President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes andappoints Dr. Charles Theuer, M.D., Ph.D., and Patricia L. Bitar, CPA, and each of them, his true and lawful attorneys-in-factand agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and allcapacities, to sign any and all amendments (including post-effective amendments) to this report, and to file the same, with allexhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting untosaid attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thingrequisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitutesor substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on the dates indicated Signature Title Date /s/ Charles P. Theuer, M.D., PH.D. President, Chief Executive Officer and Member of theBoard of Directors February 18, 2016Charles P. Theuer, M.D., Ph.D. (Principal Executive Officer) /s/ Patricia L. Bitar, CPA Chief Financial Officer, Assistant Secretary and Treasurer February 18, 2016Patricia L. Bitar, CPA (Principal Financial and Accounting Officer) /s/ William R. LaRue Member of the Board of Directors February 18, 2016William R. LaRue /s/ Martin A. Mattingly, Pharm. D. Member of the Board of Directors February 18, 2016Martin A. Mattingly, Pharm.D. /s/ J. Rainer Twiford, J.D., PH.D Member of the Board of Directors February 18, 2016J. Rainer Twiford, J.D., Ph.D. /s/ Paul Walker Member of the Board of Directors February 18, 2016Paul Walker /s/ Stephen T. Worland Member of the Board of Directors February 18, 2016Stephen T. Worland., Ph.D. 156 Table of Contents Exhibit Index ExhibitNumber Description of Document 3.1(1) Amended and Restated Certificate of Incorporation, as currently in effect. 3.2(1) Amended and Restated Bylaws, as currently in effect. 4.1(2) Form of Common Stock Certificate of the Registrant. 4.2(2) Amended and Restated Investors’ Rights Agreement by and among the Registrant and certain of itsstockholders, dated September 19, 2014. 10.1+(2) Form of Indemnity Agreement by and between the Registrant and its directors and officers. 10.2+(2) TRACON Pharmaceuticals, Inc. 2011 Equity Incentive Plan and Forms of Stock Option Agreement andNotice of Exercise thereunder. 10.3+(3) TRACON Pharmaceuticals, Inc. 2015 Equity Incentive Plan and Forms of Stock Option Grant Notice, StockOption Agreement, Notice of Exercise and Restricted Stock Unit Agreement thereunder, as amendedDecember 14, 2015. 10.4+(4) TRACON Pharmaceuticals, Inc. Non-Employee Director Compensation Policy, as amended March 26,2015. 10.5+(4) TRACON Pharmaceuticals, Inc. 2015 Employee Stock Purchase Plan. 10.6+(4) Employment Agreement by and between the Registrant and Charles P. Theuer, M.D., Ph.D., dated May 8,2015. 10.7+(2) Employment Agreement by and between the Registrant and H Casey Logan, M.B.A., dated February 18,2013, as amended on September 17, 2014. 10.8+(2) Offer Letter by and between the Registrant and Patricia Bitar, dated September 17, 2014. 10.9+(2) TRACON Pharmaceuticals, Inc. Severance Plan and Summary Plan Description. 10.10+ Severance Agreement by and between the Registrant and Patricia Bitar, dated September 22, 2014, asamended February 15, 2016. 10.11+(4) Offer letter by and between the Registrant and Ronald L. Shazer, dated September 11, 2015. 10.12+(5) Severance Agreement by and between the Registrant and Ronald L. Shazer, dated October 5, 2015. 10.13(2) Office Lease Agreement by and between the Registrant and Glenborough Aventine, LLC, datedFebruary 10, 2011, as amended on September 16, 2013 and September 15, 2014. 10.14(6) Third Amendment to Office Lease Agreement by and between the Registrant and Glenborough Aventine,LLC, dated February 20, 2015. 10.15 Fourth Amendment to Office Lease Agreement by and between the Registrant and Glenborough Aventine,LLC, dated November 30, 2015. 157 Table of ContentsExhibitNumber Description of Document 10.16*(2) License Agreement by and between the Registrant and Santen Pharmaceutical Co., Ltd., dated March 3,2014, as amended. 10.17* Second Amendment to License Agreement by and between the Registrant and Santen Pharmaceutical Co.,Ltd., dated January 31, 2016.10.18*(2) License Agreement by and among the Registrant and Roswell Park Cancer Institute and HealthResearch, Inc., dated November 1, 2005, as amended on November 12, 2009, February 11, 2010 andSeptember 18, 2014. 10.19*(2) License Agreement by and between the Registrant and Case Western Reserve University, dated August 2,2006. 10.20*(4) Amendment to Case License Agreement by and between the Registrant and Case Western ReserveUniversity, dated April 3, 2015. 10.21*(2) License Agreement by and between the Registrant and Lonza Sales AG, dated June 29, 2009. 10.22(2) Warrant to Purchase Stock issued to Silicon Valley Bank on November 14, 2013. 10.23(2) Warrant to Purchase Stock issued to Silicon Valley Bank on June 4, 2014. 10.24(4) Warrant to Purchase Stock issued to Silicon Valley Bank on May 13, 2015. 10.25(4) Amended and Restated Loan and Security Agreement by and between the Registrant and Silicon ValleyBank, dated May 13, 2015. 10.26*(2) Cooperative Research and Development Agreement by and between the Registrant and theU.S. Department of Health and Human Services, as represented by National Cancer Institute, datedDecember 22, 2010. 10.27 Amendment #2 to Cooperative Research and Development Agreement by and between the Registrant andthe U.S. Department of Health and Human Services, as represented by National Cancer Institute, datedNovember 12, 2015. 10.28*(2) Cooperative Research and Development Agreement by and between the Registrant and theU.S. Department of Health and Human Services, as represented by National Cancer Institute, datedJanuary 28, 2011, as amended on March 12, 2013. 10.29 Amendment #2 to Cooperative Research and Development Agreement by and between the Registrant andthe U.S. Department of Health and Human Services, as represented by National Cancer Institute, datedJanuary 27, 2016. 10.30*(2) Cooperative Research and Development Agreement by and between the Registrant and theU.S. Department of Health and Human Services, as represented by National Cancer Institute, datedAugust 7, 2012. 10.31*(2) Sponsored Research Agreement by and between the Registrant and Tufts Medical Center, Inc., datedDecember 16, 2014. 10.32(7) At-the-Market Equity Offering Sales Agreement, dated as of February 1, 2016, by and between theRegistrant and Stifel, Nicolaus & Company, Incorporated.158 Table of ContentsExhibitNumber Description of Document 23.1 24.1 Consent of Independent Registered Public Accounting Firm. Power of Attorney. Reference is made to the signature page hereto. 31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the SecuritiesExchange Act of 1934. 31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the SecuritiesExchange Act of 1934. 32.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Exchange Actand 18 U.S.C. Section 1350. 32.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(b) or 15d-14(b) of the Exchange Actand 18 U.S.C. Section 1350. +Indicates management contract or compensatory plan.*Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions havebeen filed separately with the SEC. (1) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on February 4,2015. (2) Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-201280), asamended. (3) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on December 17,2015. (4) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,2015, filed with the SEC on May 14, 2015. (5) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30,2015, filed with the SEC on November 4, 2015. (6) Incorporated by reference to the Registrant’s Annual Report on Form 10-K, filed with the SEC on March 11,2015. (7) Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on February 1,2016. 159 Exhibit 10.10SEVERANCE AGREEMENTAS AMENDEDThis Severance Agreement (the “Agreement”) is entered into by and between Patricia Bitar (“you”or “your”) and the Company. This Agreement, as amended, has an effective date of February 15, 2016(the “Effective Date”). The Board has authorized the Company to enter into this Agreement in order foryou to become a Covered Employee (as defined in the Plan) and participant in the Plan as provided by thePlan. This Agreement is the Severance Agreement described in the Plan and this Agreement enumerates thePlan benefits that may be provided to you as a Covered Employee as referenced in Section II of thePlan. All provisions of this Agreement are subject to and governed by the terms of the Plan. In the event ofany conflict in terms between the Plan and this Agreement, the terms of the Plan shall prevail and govern.In consideration of the mutual covenants and promises made in this Agreement, you and theCompany agree as follows: 1.Certain Definitions. In addition to terms defined elsewhere herein or in the Plan, thefollowing terms have the following meanings when used in this Agreement:(a)“Board” means the Company’s Board of Directors.(b)“Cause” means the occurrence of one or more of the following: (i)Your commission of fraud or other unlawful conduct in your performance ofduties for the Company;(ii)your conviction of, or a plea of guilty or nolo contendere to, a felony orother crime (except for misdemeanors which are not materially injurious to the business or reputation of theCompany or a Company affiliate); or(iii)your willful refusal to perform in any material respect your duties andresponsibilities for the Company or a Company affiliate or your failure to comply in any material respectwith the terms of any agreement between you and the Company, including any proprietary information andassignment of inventions agreement or and the policies and procedures of the Company or a Companyaffiliate at which you are employed or serve as an officer and/or director if such refusal or failure causes orreasonably expects to cause injury to the Company or a Company affiliate;(iv)fraud or other illegal conduct in your performance of duties for theCompany or a Company affiliate;(v)any conduct by you which is materially injurious to the Company or aCompany affiliate or materially injurious to the business reputation of the Company or a Company affiliate. The foregoing events are an exhaustive list for which your employment can be terminated by the Companyfor Cause for purposes of this Agreement. Prior to your termination for Cause at any time within 12 monthsfollowing a Change in Control, you will be provided with written notice from the Company describing theconduct forming the basis for the alleged Cause and to the extent curable as determined by the Board inits good faith discretion, an opportunity of 15 days to cure such conduct before the Company may terminateyou for Cause. If the Board determines that the Cause event is curable, you may during this 15 day period present your case to the full Board before any termination forCause is finalized by the Company. Any termination for “Cause” will not limit any other right or remedythe Company may have under this Agreement or otherwise.(c)“Change in Control” has the meaning as defined in the Company's 2015 EquityIncentive Plan. For purposes of this Agreement, only the first Change in Control occurring after theEffective Date will be a “Change in Control.”(d) “Company” shall mean TRACON Pharmaceuticals, Inc., a Delaware corporation,and shall include any successor company following a Change in Control. (e)“Good Reason” means any one or more of the following events and where the initialexistence of such event occurred on or after a Change in Control. This “Good Reason” definition andprocess is intended to comply with the safe harbor provided under Treasury Regulation Section 1.409A-1(n)(2)(ii) and shall be interpreted accordingly. (i)You have incurred a material diminution in your responsibilities, duties orauthority;(ii)You have incurred a material diminution in your Base Salary; or(iii)A relocation of the Company’s principal place of business where you areassigned to work outside of the San Diego metropolitan area without your written consent.(f)“Plan” means the TRACON Pharmaceuticals, Inc. Severance Plan, as may beamended by the Company.(g)“Qualifying Termination” means that (i) your last day employment with theCompany (the “Termination Date”) occurred on or within 12 months after a Change in Control and (ii) thatyour termination in clause (i) was because the Company terminated your employment without Cause orbecause you resigned your employment for Good Reason in accordance with Section 2(c).2.Consequences of Qualifying Termination of Employment.(a)If your employment is terminated due to a Qualifying Termination, you will beeligible to receive a severance payment equal to nine months (the “Severance Period”) of your annual basesalary based on your salary rate as of the day before your Termination Date (“Severance”). The cashpayments provided by this Section 2 shall be paid to you in substantially equal monthly installments,payable over the period following your Termination Date through the end of the Severance Period,provided, however, the first payment shall be made on the 60 day following the Termination Date andsuch first installment shall be in an amount to cover the first two months following your Termination Date.(b)The Company shall continue to pay the Company portion of the premiums for yourCompany group health insurance coverage for you and your dependents for a number of months followingthe Termination Date equal to the applicable Severance Period provided you continue to timely pay thesame portion (if any) of the necessary premium that you were responsible to pay as of immediately beforeyour Termination Date. If it becomes unreasonable for the Company to continue to pay for this coveragefor you (or imposes adverse tax consequences on you) because of changes in applicable law then theCompany shall make the premium payments to you on an after-tax basis. TheSMRH:423339917.7-2- thpayments under this subsection (b) shall immediately cease once you are provided other group healthinsurance coverage.(c)You may resign your employment from the Company for “Good Reason” within 12months following a Change in Control and within ninety (90) days after the date that any one of the “GoodReason” events described in subparts (i) through (iii) of Section 1(d) above has first occurred without yourwritten consent. Your resignation for Good Reason will only be effective if the Company has not cured orremedied the Good Reason event within 30 days after its receipt of your written notice (such notice shalldescribe in detail the basis and underlying facts supporting your belief that a Good Reason event hasoccurred). Such notice of your intention to resign for Good Reason must be provided to the Companywithin 45 days of the initial existence of a Good Reason event. Failure to timely provide such written noticeto the Company or failure to timely resign your employment for Good Reason means that you will bedeemed to have consented to and waived the Good Reason event. If the Company does timely cure orremedy the Good Reason event, then you may either resign your employment without Good Reason or youmay continue to remain employed on an at-will basis. (d)As a condition to receiving (and continuing to receive) the payments provided inSection 2(a) and (b), you must: (i) within not later than forty-five (45) days after your Termination Date,execute (and not revoke) and deliver to the Company a separation agreement and general release of allclaims in substantially the form attached as Exhibit A hereto (the “Separation Agreement”) and (ii) remainin full compliance with such Separation Agreement.3.Assignability; Binding Nature. Commencing on the Effective Date, this Agreement will bebinding upon you and the Company. This Agreement may not be assigned by you except that your rightsto compensation and benefits hereunder, subject to the limitations of this Agreement, may be transferred bywill or operation of law. No rights or obligations of the Company under this Agreement may be assigned ortransferred except in the event of a merger or consolidation in which the Company is not the continuingentity, or the sale or liquidation of all or substantially all of the assets of the Company provided that theassignee or transferee is the successor to all or substantially all of the assets of the Company and assumesthe Company’s obligations under this Agreement contractually or as a matter of law. The Company willrequire any such purchaser, successor or assignee to expressly assume and agree to perform this Agreementin the same manner and to the same extent that the Company would be required to perform if no suchpurchase, succession or assignment had taken place. Your rights and obligations under this Agreementshall not be transferable by you by assignment or otherwise provided, however, that if you die, all amountsthen payable to you hereunder shall be paid in accordance with the terms of this Agreement to yourdevisee, legatee or other designee or, if there be no such designee, to your estate.4.Governing Law. This Agreement is governed by the Employee Retirement Income SecurityAct of 1974, as amended, and, to the extent applicable, the laws of the State of Delaware, without referenceto the conflict of law provisions thereof. 5.Taxes. The Company shall have the right to withhold and deduct from any paymenthereunder any federal, state or local taxes of any kind required by law to be withheld with respect to anysuch payment. The Company (including without limitation members of its Board) shall not be liable to youor other persons as to any unexpected or adverse tax consequence realized by you and you shall be solelyresponsible for the timely payment of all taxes arising from this Agreement that are imposed on you. ThisAgreement is intended to comply with the applicable requirements of Internal Revenue Code (the "Code")Section 409A and shall be limited, construed and interpreted in a manner so as to comply therewith. Eachpayment made pursuant to any provision of this Agreement shall be considered a separate payment and notone of a series of payments for purposes of Code Section 409A. While it isSMRH:423339917.7-3- intended that all payments and benefits provided under this Agreement to you will be exempt from orcomply with Code Section 409A, the Company makes no representation or covenant to ensure that thepayments under this Agreement are exempt from or compliant with Code Section 409A. The Company willhave no liability to you or any other party if a payment or benefit under this Agreement is challenged byany taxing authority or is ultimately determined not to be exempt or compliant. In addition, if upon yourTermination Date, you are then a “specified employee” (as defined in Code Section 409A), then solely tothe extent necessary to comply with Code Section 409A and avoid the imposition of taxes under CodeSection 409A, the Company shall defer payment of “nonqualified deferred compensation” subject to CodeSection 409A payable as a result of and within six (6) months following your Termination Date until theearlier of (i) the first business day of the seventh month following your Termination Date or (ii) ten (10)days after the Company receives written confirmation of your death. Any such delayed payments shall bemade without interest. If (i) any or all of the Severance payments and benefits under this Agreement wouldotherwise constitute “parachute payments” as defined under Code Section 280G and (ii) the Company in itsdiscretion elects to solicit its stockholders for their approval of putative parachute payments in accordancewith Treasury Regulation Section 1.280G-1 Q&A 6, 7, then such Severance payments and benefits shall besubject to such stockholder approval and you shall cooperate with the Company in such solicitationincluding without limitation timely executing any required waivers of compensation.6.No Change in At-Will Status. Your employment with the Company is and shall continue tobe at-will, as defined under applicable law. If your employment terminates for any reason, you shall not beentitled to any payments, benefits, damages, awards or compensation other than as provided by thisAgreement or required by applicable law, or as may otherwise be established under the Company’s thenexisting employee benefit plans or policies at the time of termination. Nothing in this Agreement modifiesyour at-will employment status and either you or the Company can terminate the employment relationshipat any time, with or without Cause.7.Entire Agreement. Except as otherwise specifically provided in this Agreement, the Planand this Agreement (and the agreements referenced herein) contain all the legally binding understandingsand agreements between you and the Company pertaining to the subject matter of this Agreement andsupersedes all such agreements, whether oral or in writing, previously discussed or entered into between theparties. 8.Covenants (a) As a condition of this Agreement and to your receipt of any post-employmentbenefits, you agree that you will fully and timely comply with all of the covenants set forth in this Section6(a) (which shall survive your termination of employment and termination or expiration of this Agreement):(i)You will fully comply with all obligations under the proprietary informationand inventions agreement between you and the Company (as amended from time to time, the“Confidentiality Agreement”) and further agree that the provisions of the Confidentiality Agreement shallsurvive any termination or expiration of this Agreement or termination of your employment or anysubsequent service relationship with the Company;(ii)Within five (5) days of the Termination Date, you shall return to theCompany all Company confidential information including, but not limited to, intellectual property, etc. andyou shall not retain any copies, facsimiles or summaries of any Company proprietary information;(iii)You will not at any time during or following your employment with theCompany, make (or direct anyone to make) any disparaging statements (oral or written) about theCompany, or any of its affiliated entities, officers, directors, employees, stockholders, representatives orSMRH:423339917.7-4- agents, or any of the Company’s products or services or work-in-progress, that are harmful to theirbusinesses, business reputations or personal reputations;(iv)You agree that, upon the Company’s request and without any paymenttherefore, you shall reasonably cooperate with the Company (and be available as necessary) after theTermination Date in connection with any matters involving events that occurred during your period ofemployment with the Company.(b)You also agree that you will fully and timely comply with all of the covenants setforth in this Section 8(b) (which shall survive your termination of employment and termination or expirationof this Agreement):(i)You will fully pay off any outstanding amounts owed to the Company nolater than their applicable due date or within thirty days of your Termination Date (if no other due date hasbeen previously established);(ii)Within five (5) days of the Termination Date, you shall return to theCompany all Company property including, but not limited to, computers, cell phones, pagers, keys,business cards, etc.;(iii)Within fifteen (15) days of the Termination Date, you will submit anyoutstanding expense reports to the Company on or prior to the Termination Date; and(iv)As of the Termination Date, you will no longer represent that you are anofficer, director or employee of the Company and you will immediately discontinue using your Companymailing address, telephone, facsimile machines, voice mail and e-mail.(c)You acknowledge that (i) upon a violation of any of the covenants contained inSection 8 of this Agreement or (ii) if the Company is terminating your employment for Cause, the Companywould as a result sustain irreparable harm, and, therefore, you agree that in addition to any other remedieswhich the Company may have, the Company shall be entitled to seek equitable relief including specificperformance and injunctions restraining you from committing or continuing any such violation; and9.Offset. Any Severance or other payments or benefits made to you under this Agreementmay be reduced, in the Company’s discretion, by any amounts you owe to the Company provided that anysuch offsets do not violate Code Section 409A. To the extent you receive severance or similar paymentsand/or benefits under any other Company plan, program, agreement, policy, practice, or the like, or underthe WARN Act or similar state law, the payments and benefits due to you under this Agreement will becorrespondingly reduced on a dollar-for-dollar basis (or vice-versa) in a manner that complies with CodeSection 409A. 10.Notice. Any notice that the Company is required to or may desire to give you shall begiven by personal delivery, recognized overnight courier service, email, telecopy or registered or certifiedmail, return receipt requested, addressed to you at your address of record with the Company, or at suchother place as you may from time to time designate in writing. Any notice that you are required or maydesire to give to the Company hereunder shall be given by personal delivery, recognized overnight courierservice, email, telecopy or by registered or certified mail, return receipt requested, addressed to theCompany’s Chief Executive Officer at its principal office, or at such other office as the Company may fromtime to time designate in writing. The date of actual delivery of any notice under this Section 10 shall bedeemed to be the date of delivery thereof.SMRH:423339917.7-5- 11.Waiver; Severability. No provision of this Agreement may be amended or waived unlesssuch amendment or waiver is agreed to by you and the Company in writing. No waiver by you or theCompany of the breach of any condition or provision of this Agreement will be deemed a waiver of asimilar or dissimilar provision or condition at the same or any prior or subsequent time. Except as expresslyprovided herein to the contrary, failure or delay on the part of either party hereto to enforce any right,power, or privilege hereunder will not be deemed to constitute a waiver thereof. In the event any portion ofthis Agreement is determined to be invalid or unenforceable for any reason, the remaining portions shall beunaffected thereby and will remain in full force and effect to the fullest extent permitted by law.12.Voluntary Agreement. You acknowledge that you have been advised to review thisAgreement with your own legal counsel and other advisors of your choosing and that prior to entering intothis Agreement, you have had the opportunity to review this Agreement with your attorney and otheradvisors and have not asked (or relied upon) the Company or its counsel to represent you or your counselin this matter. You further represent that you have carefully read and understand the scope and effect of theprovisions of this Agreement and that you are fully aware of the legal and binding effect of thisAgreement. This Agreement is executed voluntarily by you and without any duress or undue influence onthe part or behalf of the Company. By signing below, you expressly acknowledge that you (i) have received a copy of the Plan and itsSummary Plan Description, (ii) understand the terms of the Plan and this Agreement, (iii) are voluntarilyentering into this Agreement and (iv) are agreeing to be bound by the terms of the Plan and this Agreement.SMRH:423339917.7-6- Please acknowledge your acceptance and understanding of this Agreement by signing and returning it tothe undersigned. A copy of this signed Agreement will be sent to you for your records.ACKNOWLEDGED AND AGREED: TRACON PHARMACEUTICALS, INC. Patricia Bitar /s/ Charles P. Theuer, M.D., Ph.D. /s/ Patricia L. Bitar, CPABY: Charles P. Theuer, President and CEO SMRH:423339917.7[Signature Page to Severance Agreement] EXHIBIT ASEPARATION AGREEMENT AND GENERAL RELEASE OF ALL CLAIMSThis Separation Agreement and General Release, dated [DATE] (the “Agreement”), ismade pursuant to that certain Severance Agreement dated [DATE] (the “Severance Agreement”) enteredinto by and between [NAME] ("Employee") on the one hand, and TRACON Pharmaceuticals, Inc. (the"Company"), on the other. This Agreement is entered into in consideration for and as condition precedentto the Company providing separation benefits to Employee pursuant to the Severance Agreement. It isunderstood and agreed that the Company is not otherwise obligated to provide such benefits under theterms of the Severance Agreement and that the Company is doing so as a direct result of Employee’swillingness to agree to the terms hereof. Collectively, Employee and the Company shall be referred to asthe "Parties."1. Employee was formerly employed by the Company. Employee's employment with the Companyended effective [DATE] (the "Termination Date"). 2. The purpose of this Agreement is to resolve any and all disputes relating to Employee'semployment with the Company, and the termination thereof (the "Disputes"). The Parties desire to resolvethe above-referenced Disputes, and all issues raised by the Disputes, without the further expenditure of timeor the expense of contested litigation. Additionally, the Parties desire to resolve any known or unknownclaims as more fully set forth below. For these reasons, they have entered into this Agreement.3. Employee acknowledges and agrees that Employee has received all wages due toEmployee through the Termination Date, including but not limited to all accrued but unused vacation,bonuses, commissions, options, benefits, and monies owed by the Company to Employee. Employeefurther agrees and acknowledges that Employee has been fully paid and reimbursed for any and all businessexpenses which Employee incurred during his/her employment with the Company. 4. The Company expressly denies any violation of any federal, state or local statute,ordinance, rule, regulation, policy, order or other law. The Company also expressly denies any liability toEmployee. This Agreement is the compromise of disputed claims and nothing contained herein is to beconstrued as an admission of liability on the part of the Company hereby released, by whom liability isexpressly denied. Accordingly, while this Agreement resolves all issues referenced herein, it does notconstitute an adjudication or finding on the merits of the allegations in the Disputes and it is not, and shallnot be construed as, an admission by the Company of any violation of federal, state or local statute,ordinance, rule, regulation, policy, order or other law, or of any liability alleged in the Disputes.5. In consideration of and in return for the promises and covenants undertaken by theCompany and Employee herein and the releases given by Employee herein:a. [The Company has previously granted to Employee the following options(collectively, the “Options”) to purchase shares of the Company’s common stock (the “Shares”) under theCompany’s 2011 Equity Incentive Plan (the “Plan”): [List all Option Grants]. As of the Termination Dateof [DATE], a total of [_______] shares underlying Employee's stock options are vested (collectively, the"Vested Stock Options"). The remaining shares underlying Employee's stock options are unvested andhave been forfeited and canceled as of the Termination Date. Employee has until the date that is ninety (90)days after the Termination Date to exercise any or all of the Vested Options (the “Option TerminationDate”). Any portion of Employee's Vested Stock Options that remain unexercised as of the OptionTermination Date shall be forfeited and canceled as of such date.]Exhibit A-1 b. In addition to any compensation otherwise due Employee for actual workperformed up to and including the Termination Date, Employee shall receive severance compensation asoutlined in Section 2(a) of the Severance Agreement. Pursuant to Section 2(a) of the Severance Agreement,Employee will receive a total sum of $_______, less standard withholdings, representing [_____] month[s]of Employee’s base salary (the “Severance Pay”). The Severance Pay shall be paid to Employee in cash, insubstantially equal monthly installments, payable over the [_____] month period following the TerminationDate; provided, however, the first payment shall be made on the 60 day following the Termination Dateand such first installment shall be in an amount to cover the first two months following the TerminationDate (for avoidance of doubt such amount may only be one month of compensation if the amount beingprovided to Employee is arising under Section 2(a)(i) of the Severance Agreement). As a condition toreceiving and continuing to receive the Severance Pay, Employee must (i) within but not later than forty-five (45) days after the Termination Date, execute (and not revoke) and deliver to the Company thisAgreement and (ii) remain in full compliance with this Agreement and the SeveranceAgreement. Employee shall not be entitled to accrue any additional leave or other benefits subsequent tothe Termination Date.c. Provided Employee timely elects continuation coverage pursuant to theConsolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") of the Company's group healthplan, the Company shall pay the entire applicable premiums to continue Employee's existing medical anddental benefits through [DATE], which represents [_____] month[s] following the TerminationDate. Thereafter, Employee shall be eligible to continue his or her medical and dental benefits at his or herown cost in accordance with COBRA. If at any time subsequent to the Termination Date, Employee obtainsmedical and dental benefits through another employer, Employee shall immediately notify the Companythat he or she has obtained such medical and dental benefits and the Company shall no longer be requiredto pay any premiums for Employee's medical and dental benefits as of the date that Employee's newmedical and dental benefits begin coverage.d. Any tax liabilities resulting from or arising out of the benefits to Employeereferred to in paragraphs 5a, 5b and 5c, above, shall be the sole and exclusive responsibility ofEmployee. Employee agrees to indemnify and hold the Company and the others released herein harmlessfrom and for any tax liability (including, but not limited to, assessments, interest, and penalties) imposed onthe Company by any taxing authority on account of the Company failing to withhold for tax purposes anyamount from the benefits made as consideration of this Agreement.6. Except for any rights created by this Agreement, in consideration of and in return forthe promises and covenants undertaken herein by the Company, and for other good and valuableconsideration, receipt of which is hereby acknowledged:a. Employee does hereby acknowledge full and complete satisfaction of and doeshereby release, absolve and discharge the Company, and each of its parents, subsidiaries, divisions, relatedcompanies and business concerns, past and present, as well as each of its partners, trustees, directors,officers, agents, attorneys, servants and employees, past and present, and each of them (hereinaftercollectively referred to as "Releasees") from any and all claims, demands, liens, agreements, contracts,covenants, actions, suits, causes of action, grievances, wages, vacation payments, severance payments,obligations, commissions, overtime payments, debts, profit sharing claims, expenses, damages, judgments,orders and liabilities of whatever kind or nature in law, equity or otherwise, whether known or unknown toEmployee which Employee now owns or holds or has at any time owned or held as against Releasees, orany of them, including specifically but not exclusively and without limiting the generality of the foregoing,any and all claims, demands, grievances, agreements, obligations and causes of action, known or unknown,suspected or unsuspected by Employee: (1) arising out of or in any way connected with the Disputes; or (2)arising out of Employee's employment with the Company; or (3) arising out ofExhibit A-2 thor in any way connected with any claim, loss, damage or injury whatever, known or unknown,suspected or unsuspected, resulting from any act or omission by or on the part of the Releasees, or any ofthem, committed or omitted on or before the Effective Date hereof. Additionally, Employee in any futureclaims may not use against Releasees as evidence any acts or omissions by or on the part of the Releasees,or any of them, committed or omitted on or before the Effective Date hereof, and no such future claims maybe based on any such acts or omissions. Also without limiting the generality of the foregoing, Employeespecifically releases the Releasees from any claim for attorneys' fees. EMPLOYEE ALSO SPECIFICALLYAGREES AND ACKNOWLEDGES EMPLOYEE IS WAIVING ANY RIGHT TO RECOVERY BASED ONSTATE OR FEDERAL AGE, SEX, PREGNANCY, RACE, COLOR, NATIONAL ORIGIN, MARITALSTATUS, RELIGION, VETERAN STATUS, DISABILITY, SEXUAL ORIENTATION, MEDICALCONDITION OR OTHER ANTI-DISCRIMINATION LAWS, INCLUDING, WITHOUT LIMITATION,TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENTACT, THE EQUAL PAY ACT, THE AMERICANS WITH DISABILITIES ACT, THE CALIFORNIA FAIREMPLOYMENT AND HOUSING ACT, THE CALIFORNIA FAMILY RIGHTS ACT, CALIFORNIALABOR CODE SECTION 970, THE FAMILY AND MEDICAL LEAVE ACT, THE EMPLOYEERETIREMENT INCOME SECURITY ACT, THE WORKER ADJUSTMENT AND RETRAINING ACT,THE FAIR LABOR STANDARDS ACT, AND ANY OTHER SECTION OF THE CALIFORNIA LABOROR GOVERNMENT CODE, ALL AS AMENDED, WHETHER SUCH CLAIM BE BASED UPON ANACTION FILED BY EMPLOYEE OR BY A GOVERNMENTAL AGENCY. This release does not releaseclaims that cannot be released as a matter of law.7. Employee agrees and understands as follows: It is the intention of Employee inexecuting this instrument that it shall be effective as a bar to each and every claim, demand, grievance andcause of action hereinabove specified. In furtherance of this intention, Employee hereby expressly waivesany and all rights and benefits conferred upon Employee by the provisions of Section 1542 of the CaliforniaCivil Code and expressly consents that this Agreement shall be given full force and effect according to eachand all of its express terms and provisions, including those relating to unknown and unsuspected claims,demands and causes of action, if any, as well as those relating to any other claims, demands and causes ofaction hereinabove specified. Section 1542 provides:"A general release does not extend to claims which the creditor does notknow or suspect to exist in his or her favor at the time of executing therelease, which if known by him or her must have materially affected his orher settlement with the debtor."Having been so apprised, Employee nevertheless hereby voluntarily elects to and doeswaive the rights described in Civil Code section 1542 and elects to assume all risks for claims that now existin Employee's favor, known or unknown, that are released under this Agreement.8. Employee agrees: (l) the fact of and the terms and conditions of this Agreement; and(2) any and all actions by Releasees taken in accordance herewith, are confidential, and shall not bedisclosed, discussed, publicized or revealed by the parties or their attorneys to any other person or entity,including but not limited to radio, television, press media, newspapers, magazines, professional journals andprofessional reports, excepting only the Parties' accountants, lawyers, immediate family members (mother,father, brother, sister, child, spouse), the persons necessary to carry out the terms of this Agreement or asrequired by law. Should Employee be asked about the Disputes or this Agreement, Employee shall limitEmployee's response, if any, by stating that the matters have been amicably resolved.Exhibit A-3 9. In the event a government agency files or pursues a charge or complaint relating toEmployee’s employment with the Company and/or the Disputes, Employee agrees not to accept anymonetary or other benefits arising out of the charge or complaint.10. Employee agrees not to make any derogatory, disparaging or negative commentsabout the Company, its products, officers, directors, or employees. 11. If any provision of this Agreement or application thereof is held invalid, theinvalidity shall not affect other provisions or applications of the Agreement which can be given effectwithout the invalid provision or application. To this end, the provisions of this Agreement are severable.12. Employee agrees and understands that this Agreement may be treated as a completedefense to any legal, equitable, or administrative action that may be brought, instituted, or taken byEmployee, or on Employee's behalf, against the Company or the Releasees, and shall forever be a completebar to the commencement or prosecution of any claim, demand, lawsuit, charge, or other legal proceedingof any kind against the Company and the Releasees.13. This Agreement and all covenants and releases set forth herein shall be binding uponand shall inure to the benefit of the respective Parties hereto, their legal successors, heirs, assigns, partners,representatives, parent companies, subsidiary companies, agents, attorneys, officers, employees, directorsand shareholders.14. The Parties hereto acknowledge each has read this Agreement, that each fullyunderstands its rights, privileges and duties under the Agreement, that each has had an opportunity toconsult with an attorney of its choice and that each enters this Agreement freely and voluntarily.15. This Agreement may not be released, discharged, abandoned, changed or modified inany manner, except by an instrument in writing signed by Employee and an officer of the Company. Thefailure of any Party to enforce at any time any of the provisions of this Agreement shall in no way beconstrued as a waiver of any such provision, nor in any way to affect the validity of this Agreement or anypart thereof or the right of any Party thereafter to enforce each and every such provision. No waiver of anybreach of this Agreement shall be held to be a waiver of any other or subsequent breach.16. This Agreement and the provisions contained herein shall not be construed orinterpreted for or against any party hereto because that party drafted or caused that party's legalrepresentative to draft any of its provisions.17. In the event of litigation arising out of or relating to this Agreement, the prevailingparty shall be entitled to recover reasonable attorneys' fees and costs.18. Employee acknowledges Employee may hereafter discover facts different from, or inaddition to, those Employee now knows or believes to be true with respect to the claims, demands, liens,agreements, contracts, covenants, actions, suits, causes of action, wages, obligations, debts, expenses,damages, judgments, orders and liabilities herein released, and agrees the release herein shall be and remainin effect in all respects as a complete and general release as to all matters released herein, notwithstandingany such different or additional facts.19. The undersigned each acknowledge and represent that no promise or representationnot contained in this Agreement has been made to them and acknowledge and represent that this Agreementand the Severance Agreement contains the entire understanding between the PartiesExhibit A-4 and contains all terms and conditions pertaining to the compromise and settlement of the subjectsreferenced herein. The undersigned further acknowledge that the terms of this Agreement are contractualand not a mere recital.20. Employee expressly acknowledges, understands and agrees that this Agreementincludes a waiver and release of all claims which Employee has or may have under the Age Discriminationin Employment Act of 1967, as amended, 29 U.S.C. §621, et seq. (“ADEA”). The terms and conditions ofParagraphs 20 through 22 apply to and are part of the waiver and release of ADEA claims under thisAgreement. Company hereby advises Employee in writing to discuss this Agreement with an attorneybefore signing it. Employee acknowledges the Company has provided Employee at least forty-five dayswithin which to review and consider this Agreement before signing it. If Employee elects not to use allforty-five days, then Employee knowingly and voluntarily waives any claim that Employee was not in factgiven that period of time or did not use the entire forty-five days to consult an attorney and/or consider thisAgreement.21. Within three calendar days of signing and dating this Agreement, Employee shalldeliver the signed original of this Agreement to [_____________] of the Company. However, the Partiesacknowledge and agree that Employee may revoke this Agreement for up to seven calendar days followingEmployee's execution of this Agreement and that it shall not become effective or enforceable until therevocation period has expired. The Parties further acknowledge and agree that such revocation must be inwriting addressed to and received by [_____________]of the Company not later than midnight on theseventh day following execution of this Agreement by Employee. If Employee revokes this Agreementunder this Paragraph, this Agreement shall not be effective or enforceable and Employee will not receivethe benefits described above, including those described in Paragraph 5.22. If Employee does not revoke this Agreement in the timeframe specified in Paragraph21 above, the Agreement shall be effective at 12:00:01 a.m. on the eighth day after it is signed byEmployee (the "Effective Date").23. This Agreement is intended to be exempt from the requirements of section 409A ofthe Internal Revenue Code of 1986 as amended (“Section 409A”) and will be interpreted accordingly. While it is intended that all payments and benefits provided under this Agreement to Employee or on behalfof Employee will be exempt from Section 409A, the Company makes no representation or covenant toensure that such payments and benefits are exempt from or compliant with Section 409A. The Companywill have no liability to Employee or any other party if a payment or benefit under this Agreement ischallenged by any taxing authority or is ultimately determined not to be exempt from or compliant withSection 409A.24. This Agreement may be executed in any number of counterparts, each of which soexecuted shall be deemed to be an original and such counterparts shall together constitute one and the sameAgreement.25. This Agreement shall be construed in accordance with, and be deemed governed by,the Employee Retirement Income Security Act of 1974, as amended, and, to the extent applicable, the lawsof the State of Delaware, without reference to the conflict of law provisions thereof. 26. The Company executes this Agreement for itself and on behalf of all other respectiveReleasees. Exhibit A-5 I have read the foregoing Separation Agreement and General Release of All Claims, consisting of[____] pages, and I accept and agree to the provisions contained therein and hereby execute it voluntarilyand with full understanding of its consequences.PLEASE READ CAREFULLY. THIS AGREEMENT CONTAINS A GENERAL RELEASE OFALL KNOWN AND UNKNOWN CLAIMS.Dated: [NAME] TRACONDated: Pharmaceuticals, Inc. Name: Title: [Signature Page to Separation Agreement and General Release of All Claims]  Exhibit 10.15FOURTH AMENDMENT TO LEASEThis FOURTH AMENDMENT TO LEASE (this "Fourth Amendment") is made and enteredinto as of the 30 day of November, 2015, by and between RP AVENTINE OFFICE OWNER, L.L.C., aDelaware limited liability company ("Landlord"), and TRACON PHARMACEUTICALS, INC., aDelaware corporation ("Tenant").R E C I T A L S :A. Landlord, as successor-in-interest to Glenborough Aventine, LLC, and Tenant, entered intothat certain Office Lease dated February 10, 2011 (the "Office Lease"), as amended by that certain FirstAmendment dated September 16, 2013 (the "First Amendment"), that certain Second Amendment datedSeptember 15, 2014 (the "Second Amendment"), and that certain Third Amendment dated February 20,2015 (the "Third Amendment") (the Office Lease, the First Amendment, the Second Amendment, andthe Third Amendment shall hereafter collectively be referred to as the "Lease"), whereby Landlord leasesto Tenant and Tenant leases from Landlord that certain space commonly known as Suites 700, 725, and780 (the "Existing Premises") and located on the seventh (7) floor of the building located at 8910University Center Lane, San Diego, California 92122 (the "Building").B. Landlord and Tenant desire to expand the Existing Premises to include that certain spaceconsisting of approximately 1,917 rentable (1,611 usable) square feet of space commonly known as aportion of Suite 750 and located on the seventh (7) floor of the Building (the "Expansion Premises"), asdelineated on Exhibit A attached hereto and made a part hereof, and (iii) to make other modifications to theLease, and in connection therewith, Landlord and Tenant desire to amend the Lease as hereinafterprovided.A G R E E M E N T :NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenantscontained herein, and for other good and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, the parties hereto hereby agree as follows:1. Capitalized Terms. All capitalized terms when used herein shall have the same meaning as isgiven such terms in the Lease unless expressly superseded by the terms of this Fourth Amendment.2. Modification of Premises. Effective as of the date (the "Expansion Commencement Date")which is the earlier to occur of (i) the date upon which Tenant first commences to conduct business in theExpansion Premises, and (ii) January 1, 2016 (the "Tenant Work Letter"), Tenant shall lease fromLandlord and Landlord shall lease to Tenant the Expansion Premises. Consequently, effective upon theExpansion Commencement Date, the Existing Premises shall be increased to include the ExpansionPremises. Landlord and Tenant hereby acknowledge that such addition of the Expansion Premises to theExisting Premises shall, effective as of the Expansion Commencement Date, increase the size of theExisting Premises to742075.04/WLA375056-00001/2-18-16/bkc/bkc THE AVENTINE[Fourth Amendment][Tracon Pharmaceuticals, Inc.] ththapproximately 9,339 rentable square feet. The Existing Premises and the Expansion Premises mayhereinafter collectively be referred to as the "Premises." 3. Term of Lease. The term of Tenant’s lease of the Expansion Premises shall commence onthe Expansion Commencement Date and shall expire coterminously with Tenant's lease of the ExistingPremises on April 30, 2017 (the "Expansion Expiration Date"). The period of time commencing on theExpansion Commencement Date and expiring on the Expansion Expiration Date shall be referred to hereinas the "Expansion Term." For purposes of this Fourth Amendment, the term "Lease Month" shallmean each succeeding calendar month during the Expansion Term; provided that the first Lease Monthshall commence on the Expansion Commencement Date and shall end on the last day of the first fullcalendar month of the Expansion Term and that the last Lease Month shall expire on the ExpansionExpiration Date. 4. Base Rent. Commencing on the Expansion Commencement Date and continuing throughoutthe Expansion Term, Tenant shall pay to Landlord monthly installments of Base Rent for the ExpansionPremises as follows: Approximate Monthly Monthly Rental Rate Period During Annualized Installment per Rentable Expansion Term Base Rent of Base Rent Square Foot Expansion Commencement Date –December 31, 2016 97,767.00 $8,147.25 $4.25 January 1, 2017 – April 30, 2017 101,217.60 $8,434.80 $4.40 On or before the Expansion Commencement Date, Tenant shall pay to Landlord the Base Rentpayable for the Expansion Premises for the first full month of the Expansion Term.5. Tenant's Proportionate Share of Direct Costs. Except as specifically set forth in thisSection 5, commencing on the Expansion Commencement Date, Tenant shall pay 0.8828% as Tenant'sShare of Direct Expenses that are above the Direct Expenses applicable to the 2016 calendar year (the"Base Year") for the Expansion Premises in accordance with the terms of Article 4 of the Office Lease, asamended.6. Condition. 6.1. Existing Premises. Tenant acknowledges that Tenant has been and is in occupancy ofthe Existing Premises. Tenant is fully aware of the condition of the Existing Premises, and thereforeTenant shall continue to accept the Existing Premises in its presently existing, "as is" condition andLandlord shall not be obligated to provide or pay for any improvement work or services, except asexpressly set forth in the Lease, related to the improvement of the Existing Premises prior to or during theExpansion Term. Tenant also acknowledges that neither Landlord nor any agent of Landlord has madeany representation or742075.04/WLA375056-00001/2-18-16/bkc/bkc-2- THE AVENTINE[Fourth Amendment][Tracon Pharmaceuticals, Inc.] warranty regarding the condition of the Existing Premises, the Building or the Project or with respect to thesuitability of any of the foregoing for the conduct of Tenant's business. 6.2. Expansion Premises. Except as specifically set forth in the Work Letter, Landlordshall not be obligated to provide or pay for any improvement work or services related to the improvementof the Expansion Premises, and Tenant shall accept the Expansion Premises in its presently existing, "as-is"condition. Notwithstanding the foregoing, Landlord shall construct the improvements in the ExpansionPremises, if any, pursuant to the terms of the Tenant Work Letter. Tenant also acknowledges that neitherLandlord nor any agent of Landlord has made any representation or warranty regarding the condition of theExpansion Premises, the Building or the Project or with respect to the suitability of any of the foregoing forthe conduct of Tenant's business. 7. Brokers. Landlord and Tenant hereby warrant to each other that they have had no dealingswith any real estate broker or agent in connection with the negotiation of this Fourth Amendment otherthan Hughes Marino and Jones Lang LaSalle (the "Brokers"), and that they know of no other real estatebroker or agent who is entitled to a commission in connection with this Fourth Amendment. Each partyagrees to indemnify and defend the other party against and hold the other party harmless from any and allclaims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including, withoutlimitation, reasonable attorneys' fees) with respect to any leasing commission or equivalent compensationalleged to be owing on account of the indemnifying party's dealings with any real estate broker or agent,other than the Brokers. The terms of this Section 7 shall survive the expiration or earlier termination of theterm of the Lease, as hereby amended.8. Security Deposit. Landlord and Tenant acknowledge that, in accordance with Section 8 ofthe Office Lease, Landlord currently holds the sum of Forty Thousand Four Hundred Forty-One and99/100 Dollars ($40,441.99) as security for the faithful performance by Tenant of the terms, covenants andconditions of the Lease. Concurrently with Tenant's execution of this Fourth Amendment, Tenant shalldeposit with Landlord an amount equal to Two Thousand Fifty and 46/100 Dollars ($2,050.46) to be heldby Landlord as a part of the Security Deposit. Accordingly, upon such deposit, notwithstanding anythingin the Lease to the contrary, the Security Deposit held by Landlord pursuant to the Lease, as herebyamended, shall equal Forty-Two Thousand Four Hundred Ninety-Two and 45/100 Dollars ($42,492.45).9. Parking. 9.1. Existing Premises. Landlord and Tenant hereby acknowledge that, throughout theExpansion Term, with respect to the Existing Premises Tenant shall continue to have the parking rights setforth in the Lease. 9.2. Expansion Premises. Tenant shall have the right, but not the obligation, to rent up tosix (6) unreserved parking passes (i.e., four (4) parking passes per each 1,000 usable square feet of theExpansion Premises), all of which unreserved parking spaces shall pertain to the Project parking facility. Tenant shall rent such unreserved parking passes for the Expansion Premises on a monthly basisthroughout the Expansion Term, at Landlord's prevailing rates for the location and type of such parkingpasses, which rate is currently $75.00 per unreserved parking742075.04/WLA375056-00001/2-18-16/bkc/bkc-3- THE AVENTINE[Fourth Amendment][Tracon Pharmaceuticals, Inc.] pass per month. Tenant's rights and obligations with respect to such unreserved parking passes shallotherwise be pursuant to the terms of Article 28 of the Office Lease, as amended. Tenant shall pay a one-time non-refundable charge in the amount of $40.00 (subject to adjustment from time to time by Landlord)per parking pass. 10. No Further Modification. Except as set forth in this Fourth Amendment, all of the terms andprovisions of the Lease shall apply with respect to the Expansion Premises and shall remain unmodifiedand in full force and effect.IN WITNESS WHEREOF, this Fourth Amendment has been executed as of the day and year firstabove written. "LANDLORD""TENANT" RP AVENTINE OFFICE OWNER, L.L.C., aTRACON PHARMACEUTICALS, INC.,Delaware limited liability companya Delaware corporation By:/s/ Ron J. Hoyl By: /s/ Patricia L. Bitar Name: Ron J. HoylName: Patricia L. Bitar Its: Vice President Its:Chief Financial Officer By: /s/ Charles Theuer Name: Charles Theuer Its:Chief Executive Officer 742075.04/WLA375056-00001/2-18-16/bkc/bkc-4- THE AVENTINE[Fourth Amendment][Tracon Pharmaceuticals, Inc.]  EXHIBIT AOUTLINE OF EXPANSION PREMISESVH 742075.04/WLA375056-00001/2-18-16/bkc/bkcEXHIBIT A-1- THE AVENTINE[Fourth Amendment][Tracon Pharmaceuticals, Inc.]  EXHIBIT BTENANT WORK LETTERThis Tenant Work Letter shall set forth the terms and conditions relating to the construction of thetenant improvements in the Expansion Premises which shall be referred to herein as the "Premises". ThisTenant Work Letter is essentially organized chronologically and addresses the issues of the construction ofthe Premises, in sequence, as such issues will arise during the actual construction of the Premises. Allreferences in this Tenant Work Letter to Sections of "this Amendment" shall mean the relevant portion ofthe Fourth Amendment to which this Tenant Work Letter is attached as Exhibit B and of which thisTenant Work Letter forms a part, all references in this Tenant Work Letter to Articles or Sections of "thisLease" shall mean the relevant portions of the Lease (as amended) being amended by this Amendment,and all references in this Tenant Work Letter to Sections of "this Tenant Work Letter" shall mean therelevant portions of Sections 1 through 6 of this Tenant Work Letter. All references in this Tenant WorkLetter to the "Premises" shall mean the "Expansion Premises."SECTION 1DELIVERY OF PREMISES; TENANT IMPROVEMENTS1.1 Delivery of Premises. Landlord shall delivery possession of the Premises to Tenant on orbefore December 1, 2015. Tenant hereby acknowledges that the Premises are currently occupied byanother tenant of the Building. If Landlord is unable for any reason to deliver possession of the Premises toTenant on any specific date, then Landlord shall not be subject to any liability for its failure to do so, andsuch failure shall not affect the validity of this Lease or the obligations of Tenant hereunder; provided,however, the date set forth in Section 2(ii) of this Fourth Amendment shall be delayed until the date that isthirty (30) days after the date Landlord delivers possession of the Premises to Tenant. If Landlord does notdeliver possession of the Premises to Tenant by March 1, 2016 (the "Outside Date"), then the sole remedyof Tenant for such failure shall be the right to deliver a notice to Landlord (a "Termination Notice")electing to terminate the Lease with respect to the Expansion Premises only effective upon the dateoccurring five (5) business days following receipt by Landlord of the Termination Notice (the "EffectiveDate"). The Termination Notice must be delivered by Tenant to Landlord, if at all, not earlier than theOutside Date nor later than five (5) business days after the Outside Date. The effectiveness of any suchTermination Notice delivered by Tenant to Landlord shall be governed by the terms of this Section 1.1. IfTenant delivers a Termination Notice to Landlord, then Landlord shall have the right to suspend theoccurrence of the Effective Date for a period ending thirty (30) days after the Effective Date by deliveringwritten notice to Tenant, prior to the Effective Date, that, in Landlord's reasonable, good faith judgment,Landlord will deliver the Premises to Tenant within thirty (30) days after the Effective Date (the"Termination Extension Notice"). If Landlord delivers the Premises to Tenant within such thirty (30)day suspension period, then the Termination Notice shall be of no force or effect, but if Landlord does notdeliver the Premises to Tenant within such thirty (30) day suspension period, then the Lease with respect tothe Expansion Premises shall terminate upon the expiration of such thirty (30) day suspension period. Upon any termination as set forth in this Section 1.1, Landlord and Tenant shall be relieved742075.04/WLA375056-00001/2-18-16/bkc/bkcEXHIBIT B-1- THE AVENTINE[Fourth Amendment][Tracon Pharmaceuticals, Inc.]  from any and all liability to each other resulting hereunder with respect to the Expansion Premises, exceptthat Landlord shall return to Tenant any prepaid rent with respect to the Expansion Premises and Landlordshall return the additional Security Deposit amount paid by Tenant pursuant to Section 8 of the FourthAmendment. 1.2 Tenant Improvements. If Tenant desires to construct any improvements in the Premises(the "Tenant Improvements"), then Tenant shall have the right to deliver a space plan (a "Space Plan") toLandlord depicted such Tenant Improvements, which Space Plan shall be subject to Landlord's approval,which shall not be unreasonably withheld. Following Landlord's approval of the Space Plan, Tenant shallcooperate in good faith with Landlord’s architects and engineers to supply such information necessary toallow Landlord’s architects and engineers to prepare architectural and engineering drawings for thePremises in a form which is complete to allow subcontractors to bid on the work and to obtain allapplicable permits and in a manner consistent with, and which are a logical extension of, the Space Plan(collectively, the “Original Working Drawings”), and Landlord shall submit the Original WorkingDrawings to Tenant for its approval, which shall not be unreasonably withheld. Following Tenant'sapproval of the Original Working Drawings, Landlord shall provide Tenant with a cost proposal (the "CostPricing Proposal") in accordance with the Original Working Drawings for the Premises, which costproposal shall include, as nearly as possible, the cost to be incurred in connection with the performance ofthe Tenant Improvements. Within five (5) business days, Tenant shall either (i) approve the Cost PricingProposal or (ii) disapprove the Cost Pricing Proposal and provide Landlord with Tenant's proposedrevisions to the same, which proposed revisions shall be subject to Landlord's approval, not to beunreasonably withheld, conditioned or delayed. Upon Landlord's receipt of Tenant's approval of the CostPricing Proposal or upon Tenant's failure to timely delivery notice of its approval of the same, Landlordshall construct the Tenant Improvements pursuant to the Original Working Drawings. In the event thatTenant disapproves of the Cost Pricing Proposal, Landlord shall cause its architects and engineers tomodify the Original Working Drawings in a manner consistent with, and which are a logical extension ofTenant's proposed revisions. Thereafter, Landlord shall construct the Tenant Improvements pursuant tosuch modified Original Working Drawings (the "Modified Working Drawings"). As used in this TenantWork Letter, the term "Approved Working Drawings" shall mean either the Original Working Drawingsor the Modified Working Drawings, as applicable. Except as set forth above, Tenant shall make nochanges or modifications to the Approved Working Drawings, without the prior written consent ofLandlord. Landlord shall cause the Premises to comply with applicable laws, at Landlord's sole cost andexpense, to the extent required in order to allow Tenant to obtain a certificate of occupancy, or its legalequivalent, for the Premises for general office use assuming a normal and customary office occupancydensity.1.3 No Constructive Eviction. If all or any portion of the Tenant Improvements shall beconstructed by Landlord on or after the Expansion Commencement Date, then (i) Landlord shall bepermitted to complete the Tenant Improvements during normal business hours, (ii) Tenant shall provide aclear working area for the construction of the Tenant Improvements, and (iii) Tenant shall cooperate withall reasonable Landlord requests made in connection with Landlord's completion of the TenantImprovements. Tenant hereby acknowledges that the construction the Tenant Improvements duringTenant's occupancy of the Premises shall in no way constitute a742075.04/WLA375056-00001/2-18-16/bkc/bkcEXHIBIT B-2- THE AVENTINE[Fourth Amendment][Tracon Pharmaceuticals, Inc.]  constructive eviction of Tenant nor entitle Tenant to any abatement of rent or damages of any kind(including damages relating to any interference with Tenant's business at the Premises).SECTION 2OVER-ALLOWANCE AMOUNTLandlord has allocated an amount (the “Tenant Improvement Allowance”) not to exceedNine Thousand Five Hundred Eighty-Five and 00/100 Dollars ($9,585.00) (i.e., $5.00 for each of therentable square feet of the Expansion Premises) for the costs of designing and constructing the TenantImprovements. In the event that Landlord reasonably anticipates that the total cost of designing andconstructing the Tenant Improvements will exceed the Tenant Improvement Allowance, the amount ofsuch reasonably anticipated excess shall be paid by Tenant to Landlord immediately upon Landlord’srequest as an over-allowance amount (the "Over-Allowance Amount"). The Over-Allowance Amountshall be disbursed by Landlord prior to the disbursement of any remaining portion of Landlord'scontribution to the construction of the Tenant Improvements. In the event that after Tenant's approval ofthe Approved Working Drawings, any revisions, changes, or substitutions shall be made to (i) theApproved Working Drawings (once the same are completed), or (ii) the Tenant Improvements, then anyadditional costs which arise in connection with such revisions, changes or substitutions shall be paid byTenant to Landlord immediately upon Landlord's request as an addition to the Over-Allowance Amount. In the event that the Tenant Improvement Allowance is not fully disbursed by Landlord to, or on behalf of,Tenant on or before July 1, 2016, then such unused amounts shall revert to Landlord, and Tenant shallhave no further rights with respect thereto; provided, however, Tenant may, pursuant to written noticedelivered to Landlord on or before December 31, 2015, elect to apply all or a portion of the TenantImprovement Allowance as an offset against Base Rent next due and owing by Tenant under the terms ofthe Lease, as amended hereby. SECTION 3CONTRACTOR'S WARRANTIES AND GUARANTIESLandlord hereby assigns to Tenant all warranties and guaranties by the contractor who constructsthe Tenant Improvements (the "Contractor") relating to the Tenant Improvements, and Tenant herebywaives all claims against Landlord relating to, or arising out of the construction of, the TenantImprovements; provided, however, that if, within 30 days after Substantial Completion of the TenantImprovement Work, Tenant provides notice to Landlord of any non-latent defect in the TenantImprovements, or if, within eleven (11) months after Substantial Completion of the Tenant ImprovementWork, Tenant provides notice to Landlord of any latent defect in the Tenant Improvements, then Landlordshall promptly cause such defect to be corrected.742075.04/WLA375056-00001/2-18-16/bkc/bkcEXHIBIT B-3- THE AVENTINE[Fourth Amendment][Tracon Pharmaceuticals, Inc.]  SECTION 4INTENTIONALLY OMITTEDSECTION 5MISCELLANEOUS5.1 Tenant's Entry Into the Premises Prior to Substantial Completion. Provided that Tenant andits agents do not interfere with Contractor's work in the Building and the Premises, Contractor shall allowTenant access to the Premises prior to the Substantial Completion of the Premises for the purpose of Tenantinstalling overstandard equipment or fixtures (including Tenant's data and telephone equipment) in thePremises. Prior to Tenant's entry into the Premises as permitted by the terms of this Section 5.1, Tenantshall submit a schedule to Landlord and Contractor, for their approval, which schedule shall detail thetiming and purpose of Tenant's entry. Tenant shall hold Landlord harmless from and indemnify, protectand defend Landlord against any loss or damage to the Building or Premises and against injury to anypersons caused by Tenant's actions pursuant to this Section 5.1.5.2 Tenant's Representative. Tenant has designated Arlene Bolz as its sole representative withrespect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall havefull authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.5.3 Landlord's Representative. Landlord has designated Michael Coleman as its solerepresentative with respect to the matters set forth in this Tenant Work Letter, who, until further notice toTenant, shall have full authority and responsibility to act on behalf of the Landlord as required in thisTenant Work Letter.5.4 Time of the Essence in This Tenant Work Letter. Unless otherwise indicated, all referencesherein to a "number of days" shall mean and refer to calendar days. In all instances where Tenant isrequired to approve or deliver an item, if no written notice of approval is given or the item is not deliveredwithin the stated time period, at Landlord's sole option, at the end of such period the item shallautomatically be deemed approved or delivered by Tenant and the next succeeding time period shallcommence.5.5 Tenant's Lease Default. Notwithstanding any provision to the contrary contained in thisFourth Amendment, if an event of default as described in the Lease, as amended, or a default by Tenantunder this Tenant Work Letter, has occurred at any time on or before the Substantial Completion of theExpansion Premises, following any applicable notice and cure periods, then (i) in addition to all other rightsand remedies granted to Landlord pursuant to the Lease, as amended, Landlord shall have the right to causeContractor to cease the construction of the Expansion Premises (in which case, Tenant shall be responsiblefor any delay in the Substantial Completion of the Expansion Premises caused by such work stoppage asset forth in Section 4 of this Tenant Work Letter), and (ii) all other obligations of Landlord under the termsof this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms ofthe Lease.742075.04/WLA375056-00001/2-18-16/bkc/bkcEXHIBIT B-4- THE AVENTINE[Fourth Amendment][Tracon Pharmaceuticals, Inc.] Exhibit 10.17 ***Text Omitted and Filed Separately withthe Securities and Exchange Commission.Confidential Treatment Requested Under17 C.F.R. Sections 200.80(b)(4) and 240.24b-2 SECOND AMENDMENT TO LICENSE AGREEMENT This SECOND AMENDMENT TO LICENSE AGREEMENT (“2 Amendment”) is entered into as ofJanuary 31, 2016 (the “2 Amendment Effective Date”) by and between Santen Pharmaceutical Co., Ltd., acompany organized under the laws of Japan (“Santen”) and TRACON Pharmaceuticals, Inc., a corporationorganized under the laws of the State of Delaware (“Tracon”). RECITALS A.Santen and Tracon are parties to that certain License Agreement, dated March 3, 2014 and as amendedDecember 31, 2014 (the “Agreement”). B.Santen Inc. (Santen’s Affiliate in the United States) and Tracon have entered into CONTRACTRESEARCH ORGNIZATION (CRO) MASTER SERVICE AGREEMENT, dated August 15, 2015 (the“CRO MSA”), and Tracon performs services for Santen Inc. under the CRO MSA (the “Service by CROMSA”). C.The Parties have agreed to amend the Agreement as set forth herein. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained,and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,Tracon and Santen hereby agree as follows: 1.Defined Terms. All capitalized terms not otherwise defined in this 2 Amendment shall have the samemeanings that are described to them in the Agreement. 2.Deletion of Section 2.6(b). The Parties agree to delete Section 2.6(b) of the Agreement based on the factthat Tracon has already provided such first […***…] free of charge to Santen. 3.Amendment of Section 2.7. Section 2.7 of the Agreement is hereby amended and restated in its entirety asfollows: “2.7 Consulting Services. Each Party agrees to provide the Consulting Services (as defined below) to theother Party, as reasonably requested in writing by the other Party, although Tracon may, in certain instances,provide Consulting Services to satisfy regulatory and/or GMP requirements before notification ofSanten. Such Consulting Services may be provided through email correspondence, in-person meetings orvideo/audio conferences. In addition, Tracon may use consultants and contractors (including its contractmanufacturers) to perform Consulting Services in direct support of Santen and shall notify Santen in advancewhen consultants and/or contractors are going to be used for such activities, including for example, batchrecord review, auditing and person in plant, which will be coordinated by Tracon, provided however, in noevent shall the Consulting Services exceed […***…] hours during any calendar quarter in principle exceptas otherwise agreed between Tracon and Santen. ***Confidential Treatment Requested ndndnd***Text Omitted and Filed Separately withthe Securities and Exchange Commission.Confidential Treatment Requested Under17 C.F.R. §§ 200.80(b)(4) and 240.24b-2 For purposes of this provision, “Consulting Services” shall mean (i) provision of information regarding development and regulatory activities with respect to the Products andTracon Products except for information exchanged through the JDC, (ii) provision of any safety information with respect to the Products and Tracon Products at the request of aParty other than the information exchanged under a safety data exchange agreement entered into by theParties pursuant to Section 3.2(c), (iii) provision of regulatory support with respect to the Products and Tracon Products including, withoutlimitation, review of the regulatory documents (IND, BLA etc.), participation in meetings with RegulatoryAuthorities (including the FDA) and responding to inquiries from any Regulatory Authority, and (iv) provision of services related to coordination (including scheduling of activities, shipping activities andnegotiation of agreements) with Tracon’s contract manufacturer. For the purpose of provision of this clause(iv), Tracon shall provide Santen access to Tracon employees and consultants, to the extent such consultantsare available, and shall use reasonable efforts to enable Santen to have access to employees and consultantsof its contractors (including its contract manufacturers), as reasonably necessary to assist in connection withthe shipping (including necessary support) of reagent and TRC105 sample supply for non-clinical/CMCpurposes upon Santen’s request and prior written consent, provided however that, shall exclude theService by CRO MSA. 4.Service under CRO MSA Tracon agrees to use its best efforts to perform its service under the CRO MSA. Tracon and Santenacknowledge that if Tracon may not provide the service under the CRO MSA in spite of Tracon’s bestefforts, such service should be covered by this amended Section 2.7 of the Agreement. 5.Invoicing and Payment Process. The Parties agree to adopt the following revised invoicing and payment process: For all Consulting Services provided by Tracon to Santen and for the reimbursement of all activities inExhibit D-1, Tracon will invoice Santen within ten (10) days following the end of each calendar month, eachinvoice to contain reasonably detailed timesheets and backup documentation for all Exhibit D-1activities. Santen agrees to pay such invoices within thirty (30) days of receipt. Santen agrees to reimburseTracon for Consulting Services provided by Tracon employees at a rate of […***…] per hour, which rateshall be reviewed annually by the Parties. For Consulting Services provided by Tracon using consultants and contractors (including its contractmanufacturers), Santen agrees to reimburse Tracon at the same rate that Tracon has negotiated with theconsultant(s) or contractors, but if the amount is over […***…] per hour, Tracon will give advance notice toSanten. For all activities that are solely attributable to Santen (as detailed in Exhibit D-2), Tracon will invoice Santenupon receipt of the third party invoice and will provide a copy of the third party invoice to Santen,***Confidential Treatment Requested ***Text Omitted and Filed Separately withthe Securities and Exchange Commission.Confidential Treatment Requested Under17 C.F.R. §§ 200.80(b)(4) and 240.24b-2 with payment due no later than 20 days to Tracon to allow Tracon to timely submit payment to the third partyvendor within their stated contractual terms. If Tracon requests that Santen provide Consulting Services, Tracon shall reimburse Santen for suchConsulting Services at a rate of U.S. $[…***…] per hour. 6.Quarterly Update of Exhibit D-1. Tracon and Santen shall revise and update Exhibit D-1 to have theschedule for next 18 months on a quarterly basis. Any disagreements between the Parties on the inclusion ofsharing of those costs in Exhibit D-1 shall be brought to the JDC for resolution. 7.Newly created Exhibit D-2 and Quarterly Update of Exhibit D-2. Tracon and Santen shall create andupdate Exhibit D-2 (those activities that are in direct support of Santen but are coordinated by Tracon and tobe reimbursed 100% by Santen) to have the schedule for next 18 months on a quarterly basis. Upon requestby Santen, Tracon agrees to request the necessary cost information for the activities (i.e. cost of goods,manufacturing plan of drug substance) from the third party service providers or contract manufacturer. 8.Amendment of Section 3.4. Section 3.4 of the Agreement is hereby amended and restated in its entirety asfollows: “3.4 Manufacture and Supply. During the Term, Tracon shall, or shall cause […***…] to supply theCompound to Santen as ordered by Santen from time to time, subject to the terms of this Section 3.4. Santenagrees to purchase Compounds from […***…] for use in manufacturing Products for the […***…],pursuant to a written supply agreement, which shall be separately discussed and agreed in good faith by theParties (the “Supply Agreement”), and will include the terms set forth on Exhibit D, which purchase andsupply of Compounds may be accomplished through the Consulting Services or through the purchase orderprocess used by the Parties. Santen may purchase Compounds manufactured by […***…] for use inmanufacturing Products for […***…], pursuant to a written supply agreement, which shall be separatelydiscussed and agreed in good faith by Santen with Tracon or […***…].” 9.Continuing Effect. All references to the “Agreement” in the Agreement shall hereinafter refer to theAgreement as amended by this 2 Amendment. Except as specifically amended by this 2 Amendment, theAgreement shall remain in full force and effect in accordance with its terms. Sections or other headingscontained in this 2 Amendment are for reference purposes only and shall not affect in any way the meaningor interpretation of this 2 Amendment; and no provision of this 2 Amendment shall be interpreted for oragainst any Party because that Party or its legal representative drafted the provision. 10.Counterparts. This 2 Amendment may be executed in counterparts with the same force and effect as ifeach of the signatories had executed the same instrument. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] ***Confidential Treatment Requested ndndndndndnd***Text Omitted and Filed Separately withthe Securities and Exchange Commission.Confidential Treatment Requested Under17 C.F.R. §§ 200.80(b)(4) and 240.24b-2 IN WITNESS WHEREOF, the Parties have executed this 2 Amendment as of the 2 AmendmentEffective Date. TRACON PHARMACEUTICALS, INC. SANTEN PHARMACEUTICAL CO., LTD. By:/s/ Charles P. Theuer, M.D., Ph.D. By:/s/ Naveed Shams Name:Charles Theuer, M.D., Ph.D. Name:Naveed Shams Title:President and CEO Title:Chief Scientific Officer, Head of R&D Division SIGNATURE PAGE TO SECOND AMENDMENT TO LICENSE AGREEMENTndndExhibit 10.27 AMENDMENT #2Cooperative Research and Development Agreement #02663“Clinical Development of Tracon Pharmaceuticals Inc.’s TRC105, an anti-CD105antibody, as an Anti-Cancer Agent” The purpose of this amendment is to change certain terms of the above-reference CooperativeResearch and Development Agreement (CRADA). These changes are reflected below, and exceptfor these changes, all other provisions of the original CRADA remain in full force and effect. Twooriginals of this amendment are provided for execution; one is to remain with the National CancerInstitute (NCI) and the other with the Collaborator. 1.Upon final signature, the term of the Agreement is extended for three (3) years fromDecember 22, 2015 to December 22, 2018. ACCEPTED AND AGREED TO:For the National Cancer Institute: By: /s/ James H. Doroshow, M.D. Name: James H. Doroshow, M.D.Title: Deputy Director, NCI For the Collaborator: By: /s/ Charles Theuer, M.D., Ph.D. Name: Charles Theuer, M.D., Ph.D.Title: Chief Executive Officer Exhibit 10.29Amendment #2Cooperative Research and Development Agreement #02661“Development of the Human Chimeric Monoclonal Antibody TRC105,an Angiogenesis Inhibitor Provided by Tracon Pharmaceuticals, Inc.,for the Treatment of Cancer” The purpose of this amendment is to change certain terms of the above-referenced CooperativeResearch and Development Agreement (CRADA). These changes are reflected below, and except forthese changes, all other provisions of the original CRADA and any subsequent amendments remain infull force and effect. Upon execution, the National Cancer Institute (“ICD”) and Collaborator willeach retain a copy of this Amendment.1)The term of the CRADA is extended for five (5) years from January 28, 2016 to January 28,2021. 2)Robert H. Wiltrout, Ph.D. is removed as the ICD CRADA Principal Investigator and Lee J.Helman, M.D. is added as the ICD CRADA Principal Investigator. 3)The contacts for CRADA Notices and Patenting and Licensing for ICD on the ContactsInformation Page are both changed to:Technology Transfer Specialist, CCR NCI Technology Transfer Center 9609 Medical Center Drive Room 1E530 Rockville, MD 20852 Tel: 240-276-5530 Fax: 240-276-55044)The funding contributions of $5,000.00 per year of the CRADA for ICD to use to acquiretechnical, statistical, and administrative support for the research activities as described inAppendix B will continue for the amended term of this CRADA with Collaborator providingfunds in equal annual installments within thirty (30) days of each anniversary of the EffectiveDate. In addition, Collaborator will continue to provide up to $5,000.00 per year fortransportation and associated costs to support the participation of CCR staff at selectedscientific or development meetings, where such participation will substantially fosterdevelopment of Test Article. Signatures appear on the following page  ACCEPTED AND AGREED TO: For the National Cancer Institute /s/ James H. Doroshow,M.D.____________ Name: James H. Doroshow, M.D. Title: Deputy Director for Clinical andTranslational Research, NCI For Collaborator: /s/ Charles P. Theuer, M.D., Ph.D.________ Name: Charles P. Theuer, M.D., Ph.D. Title: President and Chief Executive OfficerExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements:(1)Registration Statement (Form S-8 No. 333-201808) pertaining to the 2011 Equity Incentive Plan, 2015 EquityIncentive Plan, and 2015 Employee Stock Purchase Plan of TRACON Pharmaceuticals, Inc., and(2)Registration Statement (Form S-3 No. 333-209313) of TRACON Pharmaceuticals, Inc.;of our report dated February 18, 2016, with respect to the consolidated financial statements of TRACONPharmaceuticals, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 2015, filed with theSecurities and Exchange Commission. /s/ Ernst & Young LLPSan Diego, CaliforniaFebruary 18, 2016 Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Charles P. Theuer, M.D., Ph.D., certify that: 1. I have reviewed this Annual Report on Form 10-K of TRACON Pharmaceuticals, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures tobe designed under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period in whichthis report is being prepared; b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control overfinancial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors(or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting. Date: February 18, 2016/s/ Charles P. Theuer, M.D., Ph.D. Charles P. Theuer, M.D., Ph.D. President and Chief Executive Officer Exhibit 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Patricia L. Bitar, CPA, certify that: 1. I have reviewed this Annual Report on Form 10-K of TRACON Pharmaceuticals, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures tobe designed under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period in whichthis report is being prepared; b. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periodcovered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control overfinancial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors(or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting. Date: February 18, 2016/s/ Patricia L. Bitar, CPA Patricia L. Bitar, CPA Chief Financial Officer (Principal Financial Officer) Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Charles P. Theuer, M.D., PhD., President and Chief Executive Officer of TRACON Pharmaceuticals, Inc. (the“Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1)this Annual Report on Form 10-K of the Registrant, to which this certification is attached as an exhibit (the“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15U.S.C. 78m); and (2)the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Registrant. Date: February 18, 2016/s/ Charles P. Theuer, M.D., Ph.D. Charles P. Theuer, M.D., Ph.D President and Chief Executive Officer The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part ofthe Report or as a separate disclosure document. Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Patricia L. Bitar, CPA, Chief Financial Officer of TRACON Pharmaceuticals, Inc. (the “Registrant”), do hereby certifyin accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to thebest of my knowledge: (1)this Annual Report on Form 10-K of the Registrant, to which this certification is attached as an exhibit (the“Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15U.S.C. 78m); and (2)the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Registrant. Ugust AugustDate: February 18, 2016/s/ Patricia L. Bitar, CPA Patricia L. Bitar, CPA Chief Financial Officer The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part ofthe Report or as a separate disclosure document. 

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