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TTNP > SEC Filings for TTNP > Form 10-Q on 15-May-2013All Recent SEC Filings

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Form 10-Q for TITAN PHARMACEUTICALS INC


15-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements include, but are not limited to, any statements relating to our product development programs and any other statements that are not historical facts. Such statements involve risks and uncertainties that could negatively affect our business, operating results, financial condition and stock price. Factors that could cause actual results to differ materially from management's current expectations include those risks and uncertainties relating to the regulatory approval process, the development, testing, production and marketing of our drug candidates, patent and intellectual property matters and strategic agreements and relationships. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations or any changes in events, conditions or circumstances on which any such statement is based, except as required by law.

Probuphine® and ProNeura™ are trademarks of Titan Pharmaceuticals, Inc. This Form 10-Q also includes trade names and trademarks of companies other than Titan Pharmaceuticals, Inc.

References herein to "we," "us," "Titan," and "our company" refer to Titan Pharmaceuticals, Inc. and its subsidiaries unless the context otherwise requires.

Overview

We are a biopharmaceutical company developing proprietary therapeutics for the treatment of serious medical disorders. Our product development programs focus primarily on important pharmaceutical markets with significant unmet medical needs and commercial potential. We are directly developing our product candidates and also utilize corporate, academic and government partnerships as appropriate. Such collaborations have helped to fund product development and have enabled us to retain significant economic interest in our products.

Our principal asset is Probuphine®, the first slow release implant formulation of buprenorphine, designed to maintain a stable, around the clock blood level of the medicine in patients for six months following a single treatment. Upon completion of the Phase 3 clinical studies of Probuphine, we participated in a pre-New Drug Application ("NDA") meeting with the Food and Drug Administration ("FDA"), and subsequently prepared and submitted the NDA in October 2012. On April 30, 2013, the FDA issued a Complete Response Letter to our NDA stating that it cannot approve the application in its present form and outlining the FDA's request for additional clinical data and human factors testing of the training program, as well as recommendations regarding product labeling and Risk Evaluation and Mitigation Strategy ("REMS"). We are committed to addressing these issues and we intend to discuss with the FDA the scope of the CRL comments to obtain clarification and determine next steps.

In December 2012, we entered into a license agreement that grants Braeburn exclusive commercialization rights to Probuphine® in the United States and Canada. We received a non-refundable up-front license fee of $15.75 million (approximately $15.0 million, net of expenses) and are entitled to receive a $50 million milestone payment upon the approval of the NDA by the FDA. Additionally, we will be eligible to receive up to $130 million upon achievement of specified sales milestones and up to $35 million in regulatory milestones in the event of future NDA submissions and approvals for additional indications, including chronic pain. We are entitled to receive tiered royalties on net sales of Probuphine ranging from the mid-teens to the low twenties.

Probuphine is the first product to utilize ProNeura™, our novel, proprietary, continuous drug delivery technology. Our ProNeura technology has the potential to be used in developing products for the treatment of other chronic conditions, such as Parkinson's disease, where maintaining stable, around the clock blood levels of a drug can benefit the patient and improve medical outcomes.

Under a sublicense agreement with Novartis, we are entitled to royalty revenue of 8-10% of net sales of Fanapt® (iloperidone), an atypical antipsychotic compound being marketed in the U.S. by Novartis for the treatment of schizophrenia, based on a licensed U.S. patent that expires in October 2016 (excluding the potential of a six month pediatric extension). We have entered into several agreements with Deerfield, a healthcare investment fund, which entitle Deerfield to most of the future royalty revenues related to Fanapt in exchange for cash and debt considerations, the proceeds from which we have been using to advance the development of Probuphine and for general corporate purposes. In April 2013, we made the final principal payment of $2.5 million to Deerfield, and as of now have fully repaid the Deerfield loan. We have retained a portion of the royalty revenue from the net sales of Fanapt in excess of specified annual threshold levels; however, based on sales levels to date, it is unlikely that we will receive any revenue from Fanapt in the next several years, if ever.

Recent Accounting Pronouncements

See Note 1 to the accompanying unaudited condensed financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for information on recent accounting pronouncements.


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Results of Operations for the Three Months Ended March 31, 2013 and March 31, 2012

Our net income for the three-month period ended March 31, 2013 was approximately $6.0 million, or approximately $0.08 per share, compared to our net loss of approximately $5.2 million, or approximately $0.09 per share, for the comparable period in 2012.

We generated licensing revenue of approximately $3.8 million during the three-month period ended March 31, 2013. The licensing revenue resulted from the amortization of the non-refundable up-front license fee of $15.75 million (approximately $15.0 million, net of expenses) related to our licensing agreement with Braeburn. There were no revenues from licensing agreements in the comparable period of 2012.We generated royalty revenues during the three-month period ended March 31, 2013 of approximately $1.4 million, compared to approximately $1.2 million for the comparable period in 2012. We generated no grant revenues during the three-month period ended March 31, 2013, compared to approximately $42,000 for the comparable period in 2012. Royalty revenues during the three-month periods ended March 31, 2013 and 2012 consisted of royalties on sales of Fanapt. The royalty revenues for the three-month period ended March 31, 2013 will be paid to Deerfield in accordance with the terms of the agreements entered into during 2011. Grant revenues during the three-month period ended March 31, 2012 consisted of proceeds from the NIH grants related to our ProNeura program.

Research and development expenses for the three-month period ended March 31, 2013 were approximately $3.9 million, compared to approximately $3.1 million for the comparable period in 2012, an increase of $0.8 million, or 26%. The increase in research and development costs during the three-month period ended March 31, 2013 was primarily associated with an increase in external research and development expenses related to the review of the NDA for our Probuphine product with the FDA, including preparation for the advisory committee meeting. External research and development expenses include direct expenses such as clinical research organization charges, investigator and review board fees, patient expense reimbursements, regulatory expenses associated with NDA preparation and review and contract manufacturing expenses. In the first quarter of 2013, our external research and development expenses relating to our Probuphine product development program were approximately $1.7 million. Other research and development expenses include internal operating costs such as clinical research and development personnel-related expenses, clinical trials related travel expenses, and allocation of facility and corporate costs. As a result of the risks and uncertainties inherently associated with pharmaceutical research and development activities described elsewhere in this report, we are unable to estimate the specific timing and future costs of our clinical development programs or the timing of material cash inflows, if any, from our product candidates.

General and administrative expenses for the three-month period ended March 31, 2013 were approximately $1.1 million, compared to approximately $1.7 million for the comparable period in 2012, a decrease of $0.6 million, or 35%. The decrease in general and administrative expenses during the three-month period ended March 31, 2013 was primarily related to decreases in non-cash stock compensation of approximately $0.7 million. This was offset in part by fees paid to members of our board of directors of approximately $0.1 million.

Net other income for the three-month period ended March 31, 2013 was approximately $5.8 million compared to net other expense of approximately $1.6 million in the comparable period in 2012. The increase in net other income during the three-month period ended March 31, 2013 resulted from approximately $9.0 million of other income generated by the termination of our royalty repurchase agreement with Deerfield and approximately $1.9 million gain resulting from the $7.5 million settlement of our indebtedness to Deerfield as a result of Deerfield's exercise of 6,000,000 warrants. This was offset in part by approximately $3.0 million related to non-cash losses on changes in the fair value of warrants and approximately $0.5 million of other expense related to unamortized transaction fees related to the initial Deerfield debt transaction.

Liquidity and Capital Resources

We have funded our operations since inception primarily through sales of our securities, as well as with proceeds from warrant and option exercises, corporate licensing and collaborative agreements, and government-sponsored research grants. At March 31, 2013, we had approximately $17.6 million of cash compared to approximately $18.1 million at December 31, 2012. At March 31, 2013, we had working capital of approximately $12.6 million, excluding $10.6 million of deferred revenue, compared to working capital of approximately $16.4 million, excluding $14.4 million of deferred revenue, at December 31, 2012. Deferred revenue was excluded from the calculation of working capital because it will not be settled with the use of cash.

Our operating activities used approximately $1.7 million during the three-months ended March 31, 2013. This consisted primarily of the net income for the period of approximately $6.0 million, approximately $3.0 million related to non-cash losses resulting from changes in the fair value of warrants and non-cash charges of approximately $0.5 million related to share-based compensation expenses. This was offset in part by approximately $0.4 million related to net changes in other operating assets and liabilities, $1.9 million related to a non-cash gain on the settlement of long-term debt and $9.0 million related to a non-cash gain on the termination of our royalty repurchase agreement with Deerfield. Uses of cash in operating activities were primarily to fund product development programs and administrative expenses. Our license agreement with Sanofi-Aventis requires us to pay royalties on future product sales. In addition, in order to maintain license and other rights while products are under development, we must comply with customary licensee obligations, including the payment of patent-related costs, annual minimum license fees, meeting project-funding milestones and diligent efforts in product development. The aggregate commitments we have under these agreements, including minimum license payments, for the next 12 months is approximately $3,000.


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Our investing activities used approximately $0.2 million during the three-months ended March 31, 2013 primarily related to purchases of equipment.

Our financing activities provided approximately $1.4 million during the three-months ended March 31, 2013. This consisted primarily of approximately $1.3 million in proceeds from the exercise of warrants and approximately $0.1 million in proceeds from the exercise of stock options.

On March 15, 2011, we entered into several agreements with entities affiliated with Deerfield pursuant to which Deerfield agreed to provide $20.0 million in funding to us. Pursuant to the terms of a facility agreement, we issued Deerfield 8.5% promissory notes in the aggregate principal amount of $20.0 million, paid them a facility fee of $0.5 million and issued them warrants to purchase 6,000,000 shares of our common stock (the "Deerfield Warrants"). Under a royalty agreement, in exchange for $3.0 million that was recorded as royalty liability, we agreed to pay Deerfield 2.5% of the aggregate royalties on net sales of Fanapt, subsequent to the funding date, constituting a portion of the royalty revenue we receive from Novartis.

On November 14, 2011, we entered into several agreements with Deerfield pursuant to which we agreed to pay them a substantial portion of the remaining future royalties on the sales of Fanapt in exchange for $5.0 million in cash that was recorded as royalty liability, a $10.0 million reduction in the principal amount owed to Deerfield under the existing facility agreement and a revised principal repayment schedule of $2.5 million per year for four years commencing in April 2013 to retire the remaining long-term debt of $10.0 million. Deerfield is entitled to the balance of our portion of the royalties on Fanapt (5.5% to 7.5% of net sales, net of the 2.5% we previously agreed to pay to Deerfield) up to specified threshold levels of net sales of Fanapt and 40% of the royalties above the threshold level. We retain 60% of the royalties on net sales of Fanapt above the threshold levels, subject to an agreement that half of any such retained royalties will go towards repayment of our outstanding debt to Deerfield. The agreements with Deerfield also provided us with the option to repurchase the royalty rights for $40.0 million.

In February 2013, we amended the terms of the Deerfield Warrants to permit payment of the exercise price through the reduction of the outstanding loan. In February and March 2013, Deerfield exercised all of the Deerfield Warrants resulting in a $7.5 million reduction of our outstanding indebtedness and, accordingly, upon our payment of the $2.5 million installment in April 2013, our debt obligation to Deerfield was satisfied in full. In March 2013, we amended the agreements with Deerfield to terminate our option to repurchase the royalty rights.

On April 9, 2012, we entered into subscription agreements with certain institutional investors for the purchase and sale, in a registered direct offering, of (i) 6,517,648 shares of our common stock (the "Shares"),
(ii) six-year warrants to purchase 6,517,648 shares of common stock (the "Series A Warrants") and (iii) six-month warrants to purchase 6,517,648 shares of common stock (the "Series B Warrants" and, together with the Series A Warrants, the "Warrants") for gross proceeds of $5,540,000. The closing of the sale of the Shares and Warrants occurred on April 13, 2012 and April 18, 2012. Net proceeds were approximately $5.0 million. Prior to their expiration, Series B Warrants to purchase 5,761,765 shares of our common stock were exercised resulting in gross proceeds to us of approximately $4.9 million.

In January and March 2013, Series A Warrants to purchase 1,109,010 shares of common stock were exercised resulting in gross proceeds of approximately $1,275,000.

On September 12, 2012, we entered into a stock purchase and option agreement with an affiliate of Braeburn pursuant to which we sold 3,400,000 shares of our common stock for an aggregate purchase price of $4.25 million, or $1.25 per share, and agreed to an exclusive option period for execution of the proposed license agreement.

On December 13, 2012, we entered into a license agreement with Braeburn pursuant to which we granted Braeburn an exclusive right and license to commercialize Probuphine® in the Territory. We retained all of the rights to Probuphine® outside the Territory. In consideration of the rights granted to Braeburn under the license agreement, Braeburn paid to us an upfront, non-refundable license fee of $15.75 million (approximately $15.0 million, net of expenses).

We believe that our working capital at March 31, 2013 is sufficient to fund our planned operations through April 2014 inclusive of estimated expenses for preparation of our response to the Complete Response Letter regarding the Probuphine NDA that was received from the FDA. Under circumstances specified in the license agreement, if additional clinical studies are required prior to FDA approval of Probuphine that would require expenditures in excess of certain amounts, Braeburn has the right to either terminate the agreement or reduce the amount of the $50 million milestone payment payable to us in the event the FDA ultimately approves Probuphine. If Braeburn were to terminate the agreement, we would not have sufficient funds available to us to complete the FDA approval process and commercialize Probuphine without raising additional capital, and, as a result, our business and prospects will be materially adversely impacted. Furthermore, in the absence of such milestone payment, we may be unable to continue our current Parkinson's disease development program and will not be able to initiate any additional programs without obtaining additional financing, either through the sale of debt or equity securities. If we are unable to complete a debt or equity offering, or otherwise obtain sufficient financing when and if needed, we may be required to reduce, defer or discontinue one or more of our product development activities.


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