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TTNP > SEC Filings for TTNP > Form 10-Q on 14-Nov-2013All Recent SEC Filings

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Form 10-Q for TITAN PHARMACEUTICALS INC


14-Nov-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 in development for the treatment of opioid dependence. It is 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- NDA meeting with the 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 demonstrating adequate clinical benefit to patients from this treatment, data from human factors testing of the training program, as well as recommendations regarding product labeling, Risk Evaluation and Mitigation Strategy ("REMS") and non-clinical safety data. We are committed to addressing these issues and have been working diligently with our partners at Braeburn along with a team of proven, expert clinical and regulatory advisors with experience in assisting companies through similar regulatory processes, and pursuing a broad range of avenues to advance Probuphine. We have submitted briefing materials in support of a meeting with the FDA, the goal for which will be to discuss the key issues identified in the CRL and to outline important safety and efficacy data that we believe can help in addressing the questions from the FDA.

In December 2012, we entered into the 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). The Agreement entitled us to receive a $45 million milestone payment upon the approval of the NDA by the FDA, up to $130 million upon achievement of specified sales milestones, up to $35 million in regulatory milestones in the event of future NDA submissions and approvals for additional indications, including chronic pain, and tiered royalties on net sales of Probuphine ranging from the mid-teens to the low twenties.

On May 28, 2013, we entered into the Amendment to the Agreement with Braeburn primarily to modify certain of the termination provisions of the Agreement. The Amendment gives Braeburn the right to terminate the Agreement in the event that (A) after May 28, 2013, based on written or oral communications from or with the FDA, Braeburn reasonably determines either that the FDA will require significant development to be performed before approval of the Probuphine™ NDA can be given, such as, but not limited to, one or more additional controlled clinical studies with a clinical efficacy endpoint, or substantial post-approval commitments that may materially impact the products financial returns or that the FDA will require one or more changes in the proposed label, which change(s) Braeburn reasonably determines will materially reduce the authorized prescribed patient base, or (B) the NDA has not been approved by the FDA on or before June 30, 2014. The Amendment also provides that we will share in legal and consulting expenses in excess of a specified amount prior to approval of the NDA.

On July 2, 2013, we entered into the Second Amendment to the Agreement primarily to establish and provide the parameters for a committee comprised of representatives of Titan and Braeburn responsible for and with the authority to make all decisions regarding the development and implementation of a strategic plan to seek approval from the FDA of Probuphine® for subdermal use in the maintenance treatment of adult patients with opioid dependence, including development of the strategy for all written and oral communications with the FDA. The Second Amendment also makes Braeburn the primary contact for FDA communications regarding the Probuphine NDA.

On November 12, 2013, we entered into the SPA pursuant to which Braeburn agreed to make a $5 million equity investment in our company and the Third Amendment primarily to modify the amount and timing of the approval and sales milestone payments payable under the Agreement. Under the Third Amendment, we are entitled to receive a $15 million payment upon FDA approval of the NDA, up to $165 million in sales milestones and $35 in regulatory milestones. In addition, we are entitled to receive a low single digit royalty on sales by Braeburn, if any, of other continuous delivery treatments for opioid dependence as defined in the Third Amendment and can elect to receive a low single digit royalty on sales by Braeburn, if any, of other products in the addiction market in exchange for a similar reduction in the Company's royalties on Probuphine. The Third Amendment will become effective upon the closing of the sale of shares under the SPA.

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 have repaid the Deerfield loan in full. 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.

Results of Operations for the Three and Nine months Ended September 30, 2013 and September 30, 2012

License revenues of approximately $2.2 million and $8.1 million, respectively, for the three and nine months ended September 30, 2013 reflect the amortization of the upfront license fee received from Braeburn in December 2012. Royalty revenues during the nine months ended September 30, 2013 and the three and nine months ended September 30, 2012 reflect royalties paid on sales of Fanapt, all of which were paid to Deerfield in accordance with our royalty sales agreement. We no longer recognize Fanapt royalty revenues since all of such royalties are paid to third parties. We generated no grant revenue during the three and nine months ended September 30, 2013 compared with $42,000 of NIH grant revenue during the nine months ended September 30, 2012 relating to our Probuphine program.

Research and development expenses for the three month period ended September 30, 2013 were approximately $1.7 million, compared to approximately $3.0 million for the comparable period in 2012, a decrease of approximately $1.3 million, or 43%. Research and development expenses for the nine month period ended September 30, 2013 were approximately $7.4 million, compared to approximately $8.0 million for the comparable period in 2012, a decrease of approximately $0.6 million, or 8%. The decrease in research and development costs during the three and nine month periods ended September 30, 2013 was primarily associated with a decrease in external research and development expenses related the review of the NDA for our Probuphine product with the FDA. External research and development expenses include direct expenses such as CRO charges, investigator and review board fees, patient expense reimbursements and contract manufacturing expenses. During the three and nine month periods ended September 30, 2013, external research and development expenses relating to our Probuphine product development program were approximately $0.7 million and $3.3 million, respectively. 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 September 30, 2013 were approximately $0.6 million, compared to approximately $0.9 million for the comparable period in 2012, a decrease of approximately $0.3 million, or 33%. General and administrative expenses for the nine month period ended September 30, 2013 were approximately $2.4 million, compared to approximately $3.8 million for the comparable period in 2012, a decrease of approximately $1.4 million, or 37%. The decrease in general and administrative expenses during the three month period ended September 30, 2013 was primarily related to decreases in non-cash stock compensation costs of approximately $0.2 million and legal fees of approximately $0.1 million. The decrease in general and administrative expenses during the nine month period ended September 30, 2013 was primarily related to decreases in non-cash stock compensation and employee related costs of approximately $1.1 million and consulting and professional fees of approximately $0.3 million.

Net other expense for the three month period ended September 30, 2013 was approximately $1.0 million, compared to net other expense of approximately $5.4 million in the comparable period in 2012. Net other income for the nine month period ended September 30, 2013 was approximately $10.2 million compared to net other expense of approximately $7.0 million in the comparable period in 2012. The decrease in net other expense during the three month period ended September 30, 2013, was primarily related to an approximately $1.0 million non-cash loss related to increases in the fair value of outstanding warrants compared to an approximately $3.7 million non-cash loss related to decreases in the fair value of outstanding warrants during the comparable period in 2012 and a decrease in interest expense of approximately $1.6 million related to the Deerfield loans. The increase in net other income during the nine month period ended September 30, 2013, was primarily related to approximately $9.0 million of other income generated by the termination of our royalty repurchase agreement with Deerfield, an 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 all of the Deerfield Warrants, a decrease in interest expense of approximately $3.5 million related to the Deerfield loans and approximately $3.0 million related to non-cash gains on changes in the fair value of warrants. This was offset in part by approximately $0.5 million of other expense related to unamortized transaction fees related to the initial Deerfield debt transaction.

Our net loss for the three month period ended September 30, 2013 was approximately $1.1 million, or approximately $0.01 per share, compared to our net loss of approximately $8.0 million, or approximately $0.12 per share, for the comparable period in 2012. Net income for the nine month period ended September 30, 2013 was approximately $9.9 million, or approximately $0.12 per share, compared to a net loss of approximately $14.9 million, or approximately $0.23 per share, for the comparable period in 2012.

Liquidity and Capital Resources

We have funded our operations since inception primarily through the sale of our securities and the issuance of debt, as well as with proceeds from warrant and option exercises, corporate licensing and collaborative agreements, and government-sponsored research grants. At September 30, 2013, we had working capital of approximately $1.6 million compared to working capital of approximately $2.0 million at December 31, 2012.

Our operating activities used approximately $7.7 million during the nine-months ended September 30, 2013. This consisted primarily of the net income for the period of approximately $9.9 million and non-cash charges of approximately $0.7 million related to share-based compensation expenses. This was offset in part by approximately $1.9 million related to a non-cash gain on the settlement of long-term debt, approximately $9.0 million related to a non-cash gain on the termination of our royalty repurchase agreement with Deerfield, approximately $1.3 million related to non-cash gains resulting from changes in the fair value of warrants and $6.2 million related to net changes in other operating assets and liabilities. 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.

Net cash used by investing activities of approximately $0.3 million during the nine months ended September 30, 2013 consisted primarily of approximately $0.3 million related to purchases of equipment.

Our financing activities used approximately $1.1 million during the nine-months ended September 30, 2013. This consisted primarily of approximately $2.5 million related to payments on our long-term debt. This was offset in part by approximately $1.3 million in proceeds from the exercise of warrants and approximately $0.1 million in proceeds from the exercise of stock options.

At December 31, 2012, we had $10.0 million principal amount of outstanding indebtedness to Deerfield under the terms of an amended Facility Agreement that was payable in four equal annual installments of $2.5 million commencing April 2013. 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. In April 2013, we made the last $2.5 million installment payment and our debt obligation to Deerfield was satisfied in full.

In April 2012, we sold, in a registered direct offering, (i) 6,517,648 shares of our common stock, (ii) six-year Series A Warrants to purchase 6,517,648 shares of common stock and (iii) six-month Series B Warrants to purchase 6,517,648 shares of common stock for net proceeds of 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.

Effective December 14, 2012, we entered into the 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 September 30, 2013, together with the $5.0 million in proceeds from the sale of common stock under the SPA, is sufficient to fund our planned operations into January 2015, inclusive of estimated expenses for preparation of our response to the CRL regarding the Probuphine NDA that we received from the FDA. We have a meeting scheduled with the FDA to review and respond to issues raised in the CRL, the goal of which is to achieve clarity on next steps and determine the appropriate timing of the submission of our response to the CRL, which should help determine the nature, timing and extent of our requirements for additional capital. If Braeburn were to terminate the license agreement, we would not have sufficient funds available to us to complete the FDA regulatory process and, in the event of ultimate approval, commercialize Probuphine without raising additional capital. If we are unable to complete a debt or equity offering, or otherwise obtain sufficient financing in such event, our business and prospects would be materially adversely impacted. Furthermore, in the event of termination or any substantial reduction in the milestone payment payable to us if the FDA ultimately approves Probuphine, we may be unable to continue our current Parkinson's disease development program and would not be able to initiate any additional programs without obtaining additional financing, either through the sale of debt or equity securities.

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