TRACON Pharmaceutical (TCON) Offers Additional Detail on Janssen Licensing Agreement

TRACON Pharmaceutical (NASDAQ: TCON) disclosed the following in a U.S. SEC filing on Wednesday:

Item 1.01 - Entry into a Material Definitive Agreement.

On September 27, 2016, TRACON Pharmaceuticals, Inc. (the “Company”) entered into separate transactions with Janssen Pharmaceutica N.V. (“Janssen”) and its affiliate, Johnson & Johnson Innovation-JJDC, Inc. (“JJDC”) consisting of a license and option agreement with Janssen (the “License and Option Agreement”) and a stock purchase agreement and investor agreement, each with JJDC (the “Stock Purchase Agreement” and the “Investor Agreement,” respectively).

License and Option Agreement

Under the License and Option Agreement, Janssen granted the Company a license to technology and intellectual property to develop, manufacture and commercialize certain small molecule inhibitors of androgen receptor and androgen receptor mutations (the “AR Mutant Program”). Janssen maintains an option, which is exercisable until 90 days after the Company demonstrates clinical proof of concept with respect to the AR Mutant Program, to regain the rights to the licensed intellectual property and to obtain an exclusive license to commercialize the compounds and certain other specified intellectual property developed under the AR Mutant Program. If Janssen exercises the option, Janssen will be obligated to pay the Company (i) a one-time option exercise fee of $45.0 million; (ii) regulatory and commercial based milestone payments totaling up to $137.5 million upon achievement of specified events; and (iii) royalties in the low single digits on annual net sales of AR Mutant Program products. If Janssen does not exercise the option, the Company would then have the right to retain worldwide development and commercialization rights to the AR Mutant Program, in which case, the Company would be obligated to pay to Janssen (x) development, and regulatory based milestone payments totaling up to $45.0 million upon achievement of specified events, and (y) royalties in the low single digits based on annual net sales of AR Mutant Program products, subject to certain specified reductions.

Under the License and Option Agreement, Janssen also granted the Company a license to technology and intellectual property to develop, manufacture and commercialize a bioavailable inhibitor of NF-kB inducing kinase (the “NIK Program” and, together with the AR Mutant Program, the “Programs”). With respect to the NIK Program, Janssen maintains a right, which is exercisable within 90 days following the date on which the Company demonstrates clinical proof of concept with respect to the NIK Program, to negotiate for a period of six months for a reversion of the related rights in the licensed intellectual property and to obtain an exclusive license to commercialize the compounds and certain other specified intellectual property developed under the NIK Program. If Janssen does not exercise its right of first negotiation, or, if after exercise of such right, the Company and Janssen are unable to reach an agreement on the terms of a reversion and exclusive license, and, in either case, the Company continues the development of the NIK Program, then the Company would be obligated to pay Janssen (i) development and regulatory based milestone payments totaling up to $60.0 million upon achievement of specified events, and (ii) royalties in the low single digits based on annual net sales of NIK Program products, subject to certain specified reductions.

The Company is obligated to use diligent efforts to develop the Programs according to agreed upon development plans, timelines and budgets. For each Program that the Company retains, the Company is further obligated to use commercially reasonable efforts to develop, obtain marketing approval for, and commercialize licensed products. Until the expiration or earlier termination of the development term of the AR Mutant Program or the NIK Program, as applicable, under the License and Option Agreement, subject to specified exceptions, the Company has agreed not to research, develop or commercialize any compounds or products related to the AR Mutant Program or the NIK Program, as applicable, other than pursuant to the collaboration with Janssen.

The License and Option Agreement may be terminated for uncured breach, bankruptcy, or the failure or inability to demonstrate clinical proof of concept with respect to a particular Program during specified timeframes. In addition, the License and Option Agreement will automatically terminate (a) with respect to the AR Mutant Program, upon Janssen exercising its option in respect of the AR Mutant Program and making payment of the option exercise fee to the Company or, if Janssen does not exercise the option, upon the expiration of all payment obligations of the Company to Janssen with respect of the AR Mutant Program, and (b) with respect to the NIK Program, upon the Company and Janssen entering into an exclusive license agreement following Janssen’s exercise of its right of first negotiation or, if Janssen’s right of first negotiation with respect to the NIK Program expires and the Company and Janssen do not enter into an exclusive license agreement, upon the expiration of all payment obligations of the Company to Janssen with respect of the NIK Program. The Company may also terminate a Program or the Agreement in its entirety without cause, subject to specified conditions.

Stock Purchase Agreement

Under the terms of the Stock Purchase Agreement, the Company issued and sold to JJDC 840,022 shares of the Company’s common stock at a purchase price of $5.95 per share, as determined by the average of the daily volume weighted average prices of the Common Stock as reported on NASDAQ for the five consecutive Trading Days prior to the date of this agreement, for an aggregate purchase price of approximately $5.0 million. There were no placement agents used, or any underwriting discounts or commissions paid with the sale and purchase of the shares.

The Shares were issued pursuant to the exemption from registration requirement of the Securities Act of 1933, as amended (the “Securities Act”), afforded by Section 4(a)(2) of the Securities Act, as a transaction to an accredited investor not involving a public offering. JJDC represented to the Company its intent to acquire the shares for investment only and not with a view to the resale or distribution of the shares.

Investor Agreement

Under the terms of the Investor Agreement, the Company granted JJDC certain rights to require the Company to register the shares for resale under the Securities Act. JJDC also agreed to certain transfer restrictions with respect to the shares and has further agreed to certain standstill provisions whereby, subject to certain exceptions, JJDC and its affiliates are obligated to refrain from taking certain actions with respect to the Company’s common stock.

The License and Option Agreement, Stock Purchase Agreement and Investor Agreement also each contain other customary terms, conditions, representations, warranties and covenants of the parties.

The foregoing descriptions of the License and Option Agreement, Stock Purchase Agreement and Investor Agreement are not complete and are qualified in their entirety by reference to the full text of such agreements, each of which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016.

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