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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

or

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File No. 0-27436

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TITAN PHARMACEUTICALS, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization) |  | 94-3171940(I.R.S. employer
identification number)
|---------------------------------------------------------------------- |  | -------------------------------------------------

400 Oyster Point Blvd., Suite 505, South San Francisco, California 94080(Address of principal executive offices, including zip code)

(650) 244-4990(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $.001 par value

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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 1934 during the
preceding twelve (12) months (or for such shorter period that the registrant was required to file such report(s)), and (2) has been subject to the filing requirements for the past ninety
(90) days. Yes ý No o

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 the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

The
aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $212.4 million, based on the last sales price of the common
stock as of March 22, 2002.

As
of March 22, 2002, 27,642,018 shares of common stock, $.001 par value, of the registrant were issued and outstanding.

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PART I

Statements in this Form 10-K that are not descriptions of historical facts are forward-looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth under "Risk Factors" including, but not limited to, the
results of research and development efforts, the results of pre-clinical and clinical testing, the effect of regulation by the United States Food and Drug Administration (FDA) and other
agencies, the impact of competitive products, product development, commercialization and technological difficulties, the results of financing efforts, the effect of our accounting policies, and other
risks detailed in our Securities and Exchange Commission filings.

Spheramine®,
CeaVac®, TriAb®, TriGem, Pivanex® and CCM are trademarks of Titan Pharmaceuticals, Inc. This
Form 10-K also includes trade names and trademarks of companies other than Titan Pharmaceuticals, Inc.

Item 1. Business

(a)    General Development of Business

Titan Pharmaceuticals, Inc. is a biopharmaceutical company developing proprietary therapeutics for the treatment of central nervous system (CNS) disorders,
cancer, and other serious and life threatening diseases. Our product development programs focus on large pharmaceutical markets with significant unmet medical needs and commercial potential. We
currently have nine products in development, seven of which are in clinical development, with two products in expanded human trials for safety and efficacy, known as Phase III clinical trials. We have
five products in trials for preliminary safety and dosing and in trials for initial safety and efficacy, known as Phase I and Phase II clinical trials, respectively. In addition to these programs, we
have two products in pre-clinical development. We are independently developing our product candidates and also utilizing strategic partnerships, including collaborations with Novartis
Pharma AG (Novartis) and Schering AG (Schering), as well as collaborations with several government-sponsored clinical cooperative groups. These collaborations help fund product development and enable
us to retain significant economic interest in our products.

Titan
was incorporated in Delaware in February 1992 and has been funded through various sources, including an initial public offering in January 1996 and private placements
of securities, as well as proceeds from warrant and option exercises, corporate licensing and collaborative agreements, and government-sponsored research grants.

Some
of our pre-clinical product development work is conducted through our two consolidated subsidiaries: Ingenex, Inc., and ProNeura, Inc. References to us and
our products throughout this document include the products under development by the two subsidiaries.

(b)    Financial Information About Industry Segments

We operate in only one business segment, the development of pharmaceutical products.

(c)    Narrative Description Of Business

Product Development Programs

Central Nervous System Therapeutics



Our lead CNS therapeutic product candidate, iloperidone, is being developed for the treatment of schizophrenia, the most common form of psychosis. Approximately
2.5 million people in the U.S. are afflicted with the disease, and in 2000, drug therapy for schizophrenia totaled over $5.0 billion in sales

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worldwide. While efficacious in reducing psychotic symptoms and allowing patients to function more normally, currently marketed drugs often cause one or more side effects that limit their usefulness,
including weight gain and extrapyramidal symptoms such as involuntary muscle movements and rigidity. Iloperidone acts by selectively binding with serotonin and dopamine receptors in the brain. This
selective binding action helps to reverse the neurotransmitter imbalance believed to be the cause of the symptoms of schizophrenia. Novartis, our worldwide corporate partner, is funding clinical
trials and will pay us a royalty on future net product sales.

Iloperidone
is currently being evaluated in an extensive Phase III program administered by Novartis comprising over 3,500 patients at more than 200 sites in 24 countries. Novartis has
informed us that in three completed efficacy studies, iloperidone statistically significantly reduced the symptoms of schizophrenia compared to placebo, and demonstrated a very good safety and
tolerability profile. Iloperidone has also been investigated in three 12-month safety studies, which confirm excellent tolerability. Additionally, Novartis has completed a study in elderly
patients in which iloperidone is efficacious in controlling psychotic and behavioral symptoms associated with dementia. Changes by Novartis in iloperidone's clinical development program have led to a
previously announced delay in regulatory filings for this product, which are expected to be completed in the second half of 2003.



We are engaged in the development of cell-based therapeutics for the treatment of neurologic diseases. Our proprietary technology enables the
development of cell-based therapies for minimally-invasive, site-specific delivery to the central nervous system of therapeutic factors precisely where they are needed in order
to treat the neurologic disease.

This
cell-coated microcarrier (CCM) technology can facilitate site-specific delivery of missing or deficient neurotransmitters and growth factors to diseased or
injured areas of the brain by increasing the survival and successful engraftment of implanted cells. Our first product under development based on this technology is Spheramine, consisting of
microcarriers coated with dopamine-producing human retinal pigment epithelial cells, for the treatment of Parkinson's disease. Preliminary evidence of efficacy of Spheramine has been demonstrated in a
validated primate model of Parkinson's disease (MPTP monkey model). Based on these promising results and successful initial safety testing in primates, we initiated Phase I/II clinical testing of this
product in an open-label evaluation of safety and efficacy. This study is being performed at Emory University. In January 2001, we announced treatment of the first cohort of six
patients with moderately severe to severe Parkinson's disease receiving Spheramine. These patients have now completed the formal 12-month study. Results from this Phase I/II study are
encouraging and will be presented at the American Academy of Neurology meeting in April 2002. Based upon these results, and contingent upon concurrence of the FDA, we are planning to commence
randomized Phase II testing of Spheramine in the second half of 2002.

In
January 2000, we entered into an agreement with Schering, under which Schering and Titan will collaborate on manufacturing and clinical development of cell therapy for the
treatment of Parkinson's disease. Under the agreement, we will perform early clinical development activities for which we will receive funding. Schering will fully fund, and manage in collaboration
with us, all future pilot and pivotal clinical studies, and manufacturing and development activities. Under this agreement, Schering received exclusive, worldwide development, manufacturing and
commercialization rights, and, in addition to the above payments and milestone payments, agreed to pay us a royalty on future product sales. In February 2002, Titan announced the receipt of a
$2 million milestone payment from Schering following the successful completion of Titan's Phase I/II clinical study of Spheramine, and the decision by Schering to initiate larger, randomized
clinical testing of Spheramine for the treatment of late-stage Parkinson's disease. We continue to investigate other potential applications of the CCM technology with various different
cells and disease states such as glioma, Alzheimer's disease, and stem cell applications.

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We are developing a sustained drug delivery technology with applications in the treatment of a number of neurologic disorders in which conventional treatment is
limited by variability in blood drug levels and poor patient compliance. The technology consists of a polymeric drug delivery system that potentially can provide controlled drug release over extended
periods (i.e., from three months to one year). The product is implanted subcutaneously to provide systemic delivery as body fluids wash over the implant and the drug is released. This results in a
more constant rate of release similar to intravenous administration. We believe that such long-term, linear release characteristics are highly desirable by avoiding peak and trough level
dosing that poses problems for many CNS and other therapeutic agents.

We
are completing pre-clinical development of a buprenorphine product directed at filing an Investigational New Drug (IND) or equivalent application to initiate a pilot
clinical trial in patients with drug addiction in the second half of 2002. We are also conducting pre-clinical evaluation of products for the treatment of alcohol addiction and Parkinson's
disease.

Cancer Therapeutics



We are engaged in the development of cancer immunotherapeutics utilizing monoclonal antibody technology licensed from the University of Kentucky Research
Foundation. These monoclonal antibody therapeutics under development mimic specific antigens that are primarily present on the targeted cancer cell and are not commonly found on normal tissue. From a
structural perspective, the antibody bears an epitope that is conformationally similar to the cancer antigen. When injected into a patient, the antibody serves as a trigger for the normal immune
system's response to produce anti-cancer antibodies to attack cancer cells.

We
are developing three such products that have each demonstrated a robust immune response in humans against antigens associated with colon cancer, breast cancer, ovarian cancer, small
cell lung cancer, melanoma and other cancers. We have established several collaborations with government-sponsored clinical cooperative groups to help fund and develop our cancer immunotherapy
products. The products and programs are summarized below:



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A
third co-operative group, Southwest Oncology Group, is evaluating the opportunity to conduct a study with TriAb and TriGem in patients with small cell lung cancer.



Pivanex is a novel analogue of butyric acid which in laboratory tests has demonstrated the ability to destroy cancer cells through the mechanism of cellular
differentiation. Unlike traditional cytotoxic chemotherapy, cellular differentiation-inducing therapy induces cancer cells to differentiate and undergo terminal cellular senescence.
Differentiation-inducing therapy may also lead to apoptosis, or what is known as "programmed cell death," resulting in the destruction of the cancer cells while sparing normal cells. We are currently
completing a Phase II clinical trial of Pivanex in patients with non-small cell lung cancer and we will be presenting additional information on Pivanex at the American Association for
Cancer Research meeting in April 2002 and at the American Society of Clinical Oncology meeting in May 2002. We are now conducting further laboratory studies in preparation for possible
additional clinical trials of Pivanex in combination with current chemotherapy.



Gallium maltolate is an orally administered form of gallium, a semi-metallic element. Intravenously administered gallium has demonstrated preliminary
evidence of clinical activity in several cancers, including multiple myeloma, lymphoma, bladder cancer and prostate cancer. Intravenous gallium, as gallium nitrate, received FDA approval in 1991 for
hypercalcemia of malignancy. Evidence suggests that gallium may combine the desirable properties of naturally concentrating at sites of malignancy and then acting at these sites to inhibit abnormal
cell proliferation.

Phase
I single dose and multiple dose trials of gallium maltolate in normal subjects have demonstrated a good safety profile while achieving potentially therapeutic serum drug levels.
Observed

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pharmacokinetic parameters suggest feasibility for once per day or twice per day oral dosing. A Phase I/II trial in patients with prostate cancer, multiple myeloma, lymphoma and bladder cancer is
currently in progress and will help in determining dosing and preliminary safety profile.



RB94 is a truncated variant (p94) of the Retinoblastoma (RB) gene, a tumor suppressor gene, which is currently delivered by a viral vector. We believe the p94
form of the RB protein encoded by the RB94 gene therapy product is more effective at causing suppression of tumor cell growth, and tumor cell death, than the full-length RB protein, based
on in vitro and in vivo data in numerous tumor types tested to date, including tumors of the head and neck, pancreas, bladder, prostate, cervix, bone, breast, lung and fibrous tissue. The modified
gene is effective in suppressing cancer cell proliferation, whether the cells contain a functional native RB gene or not.

We
are currently testing RB94 in pre-clinical studies of solid tumors in mouse models, and expect to conduct additional pre-clinical testing through 2002.

Through
a cross-license agreement with Selective Genetics, we acquired rights to develop cancer therapies in conjunction with RB94 using Selective Genetics' proprietary cancer cell
targeting technology. We plan to combine these technologies to evaluate the potential of systemic anti-cancer gene therapy.

Sponsored Research and License Agreements

We are a party to several agreements with research institutions, companies, universities and other entities for the performance of research and development
activities and for the acquisition of licenses relating to such activities.

Central Nervous System Therapeutics



In January 1997, we acquired an exclusive worldwide license under U.S. and foreign patents and patent applications relating to the use of iloperidone for
the treatment of psychiatric and psychotic disorders and analgesia from Aventis SA (formerly Hoechst Marion Roussel, Inc.). The Aventis agreement provides for the payment of royalties on future
net sales and requires us to satisfy certain other terms and conditions in order to retain our rights, all of which have been met to date. In November 1997, we granted a worldwide sublicense,
except Japan, to Novartis under which Novartis will continue, at its expense, all further development of iloperidone. In April 2001, that sublicense was extended to include Japan. Novartis will
make our milestone payments to Aventis during the life of the Novartis agreement, and will also pay to Aventis and Titan a royalty on future net sales of the product, providing Titan with a net
royalty of 8% on the first $200 million of sales annually and 10% on all sales above $200 million on an annual basis.



In November 1992, we acquired an exclusive, worldwide license under certain U.S. and foreign patent applications relating to the CCM technology pursuant to
a research and license agreement with New York University (NYU). The NYU agreement provides for the payment of royalties based on future net sales of products and processes incorporating the licensed
technology, as well as a percentage of any income we receive from any sublicense thereof. We are also obligated to reimburse NYU for all costs and expenses incurred by NYU in filing, prosecuting and
maintaining the licensed patents and patent applications. We must satisfy certain other terms and conditions of the NYU agreement in order to retain our license rights. These include, but are not
limited to, the use of best

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efforts to bring licensed products to market as soon as commercially practicable and to diligently commercialize such products thereafter. In January 2000, we entered into a sublicense
agreement with
Schering, under which Schering and Titan will collaborate on manufacturing and clinical development of cell therapy for the treatment of Parkinson's disease. We will receive funding for development
activities, as well as potential reimbursement of certain prior research and development expenses. Schering will fully fund, and manage in collaboration with us, all future pilot and pivotal clinical
studies, and manufacturing and development activities. Schering may terminate this sublicense for any reason by providing us 90 days notice in advance.



In October 1995, we acquired from the Massachusetts Institute of Technology (MIT) an exclusive worldwide license to certain U.S. and foreign patents
relating to the long-term drug delivery system. The exclusive nature of the MIT license is subject to the condition that we commence toxicology and stability studies by March 31,
2001 and complete the pharmacology, toxicology, formulation definition and stability studies by December 31, 2001 required by the FDA for an IND filing. The initial data for an IND filing is
completed and additional data for chronic treatment is being developed prior to IND filing. We must also satisfy certain other usual terms and conditions set forth in the MIT license in order to
retain our license rights, including payments of royalties based on sale of products and processes incorporating the licensed technology, as well as a percentage of income derived from sublicenses of
the licensed technology.

Cancer Therapeutics



In May 1996, we acquired an exclusive, worldwide license under certain United States and foreign patent and patent applications pursuant to a license
agreement with the University of Kentucky Research Foundation. These patent and patent applications relate to the anti-idiotypic antibodies known as 3H1, 1A7 and 11D10 and their fragments,
derivatives or analogues. The Kentucky agreement required us to fund research at the University of Kentucky at amounts agreed to on an annual basis for the five-year period ending
November 14, 2001. The Kentucky agreement provides for the payment of certain license fees as well as royalties based on future net sales of licensed products by Titan or any sublicensees. We
must also pay all costs and expenses incurred in obtaining and maintaining patents, and diligently pursue a vigorous development program for the products in order to maintain our license rights under
the Kentucky agreement.

In
November 1998, we entered into an agreement with the Wistar Institute of Anatomy and Biology, a not-for-profit organization in Philadelphia,
Pennsylvania, for a non-exclusive license under certain patents for the use of anti-idiotypic antibodies for the treatment of tumors. The Wistar agreement provides for the
payment of certain license fees as well as royalties based on future net sales of licensed products. Our minimum annual royalty payment to Wistar is $30,000.



We have acquired, from Bar-Ilan Research and Development Co. Ltd., in Israel, an exclusive, worldwide license to an issued United States patent
and certain foreign patents, and patent applications covering novel analogues of butyric acid owned by Bar-Ilan University and Kupat Hulim Health Insurance Institution. The
Bar-Ilan agreement provides for the payment by us to Bar-Ilan of royalties based on net sales of products and processes incorporating the licensed technology, subject to
minimum annual amounts commencing in 1995, as well as a percentage of any income derived from any sublicense of the licensed technology. We must also pay all costs and expenses incurred in patent
prosecution and maintenance and use reasonable best efforts to bring any products developed under the Bar-Ilan agreement to market. Our minimum annual royalty payment to
Bar-Ilan is $60,000.

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In August 2000, through the acquisition of GeoMed, Inc., we acquired an exclusive worldwide license to make, use and sell products developed under
the patent rights to the compositions and application of gallium complexes. Under this license agreement, we are required to make an annual license payment to Dr. Lawrence Bernstein, technology
inventor, of $50,000, as well as royalty payments based on future net sales of products and processes incorporating the licensed technology. We must also pay all costs and expenses incurred in patent
prosecution and maintenance.



In October 1992, we acquired an exclusive, worldwide license under United States and foreign patent applications assigned to Baylor College of Medicine
relating to the RB gene, including its use in conferring senescence to tumors that form the basis of RB94. The Baylor license provides for royalties based on net sales of products and processes
incorporating the licensed technology, subject to a minimum annual license payment of $36,000 and a percentage of sublicensing income arising from the license of such products and processes. Some of
the additional conditions under the Baylor license require us to use reasonable best efforts to bring any products developed under the Baylor license to market, make timely payment of royalty fees,
and pay all costs and expenses incurred in patent filing, prosecution and maintenance.

We
are a party to several license agreements with the University of Illinois at Chicago, which granted us the exclusive worldwide license under certain issued patents and patent
applications, including those relating to methods for preventing multi-drug resistance and the human MDR1 gene. The exclusive nature of the Chicago licenses is subject in certain instances
to certain reservations, including the use of all or part of the licensed technology for research, education and other non-commercial purposes. In addition, our rights under the MDR1
license are subject to a non-exclusive right granted to Glaxo-Wellcome to transfect cell lines with the MDR1 gene, and to use the transfectants for research purposes. Glaxo-Wellcome does
not, however, have the right to sell or transfer the transfectants or any derivatives thereof, without the written authorization of the University of Illinois at Chicago. Our minimum aggregate annual
royalty payments to the University of Illinois at Chicago are $31,250.

In
September 1999, we granted an exclusive worldwide sublicense to GenTest Inc. for the right to manufacture, distribute and sell products developed under the University of
Illinois at Chicago patent rights related to cDNA-expressed MDR1 protein. In July 2000, we granted an exclusive worldwide sublicense to Epidauros Biotechnologies AG for the right to
manufacture, distribute and sell products developed under the University of Illinois at Chicago patent rights related to the use of MDR1 gene in pharmacogenomics. In December 2001, we granted a
non-exclusive, worldwide, royalty-free sublicense to Pfizer Inc. for conducting research on MDR genes under the University of Illinois at Chicago and MIT patent rights.

We
acquired an exclusive license from MIT under an issued patent relating to the use of MDR genes for creating and selecting drug resistant mammalian cells. The MIT MDR license is
subject to prior grants of an irrevocable, royalty-free, non-exclusive license granted to the United States government and non-exclusive licenses granted to Eli
Lilly, Inc. and Genetics Institute, Inc. for research purposes. It is also subject to non-exclusive, commercial licenses that may be granted pursuant to options granted to
Eli Lilly and Genetics Institute to use aspects of the licensed technology but only to make products that do not incorporate genes claimed in the patent, proteins expressed by such genes or antibodies
and inhibitors to such genes.

The
MIT MDR license provides for the payment of royalties based on future net sales of products and processes incorporating the licensed technology, subject to certain minimum annual
amounts, a percentage of sublicensing income arising from the license of such products and processes, and the

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issuance of Ingenex's common stock to MIT. Under the MIT MDR license, we must also use reasonable best efforts to bring any products developed under the MIT MDR license to market and make timely
payment of license and royalty fees.

Patents and Proprietary Rights

We have obtained rights to certain patents and patent applications relating to our proposed products and may, in the future, seek rights from third parties to
additional patents and patent applications. We also rely on trade secrets and proprietary know-how, which we seek to protect, in part, by confidentiality agreements with employees,
consultants, advisors, and others. For risks we face with respect to patents and proprietary rights, see "Risk FactorsWe may be unable to protect our patents and proprietary rights."

Central Nervous System Therapeutics



We hold a license from Aventis under one issued U.S. patent and certain foreign patents relating to iloperidone and its methods of use. Our license is exclusive
for use in the treatment of psychiatric disorders, psychotic disorders and analgesia. Unless its term is extended, the U.S. patent that covers certain aspects of our iloperidone product and its use
will expire in 2011. Prosecution of various divisional and continuation applications and their foreign counterparts continues satisfactorily, although it is uncertain whether additional patents will
be granted.



We are the exclusive licensee under a license agreement with NYU of certain U.S. and foreign patent applications relating to our CCM technology. The U.S. Patent
and Trademark Office has issued four U.S. patents on the core subject material underlying the NYU license and an additional one relating to uses in delivery of gene therapy to the central nervous
system. Unless their terms are extended, the U.S. patents that cover certain aspects of our Spheramine product and its use will expire between 2014 and 2017. Prosecution of various divisional and
continuation applications and their foreign counterparts continues satisfactorily, although it is uncertain whether additional patents will be granted.



We are the exclusive licensee under the MIT license to three U. S. patents, expiring in 2007, 2009 and 2014, respectively, and certain European patents relating
to a long-term drug delivery system.

Cancer Therapeutics



We are the exclusive licensee under a license agreement with the University of Kentucky Research Foundation of certain U.S. and foreign patents and patent
applications related to the anti-idiotype antibodies known as 3H1, 1A7 and 11D10 and their fragments, derivatives or analogues. U.S. patents
have been issued that relate to aspects of these technologies. Prosecution of patent applications relating to these technologies continues satisfactorily, as does prosecution of various divisional and
continuation applications and their foreign counterparts for all the antibodies, although it is uncertain whether additional patents will be granted. Unless their terms are extended, the U.S. patents
that cover certain aspects of CeaVac, TriGem, and TriAb and their use will expire in 2014, 2015, and 2018, respectively.

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We are the exclusive licensee under the Bar-Ilan agreement of an issued U.S. patent, expiring in 2010, and European patents expiring in 2008, as well
as patent applications relating to certain aspects of our Pivanex product candidate.



We are the exclusive licensee under the license agreement with Dr. Lawrence Bernstein of certain U.S. and foreign patents and patent applications relating
to the gallium complexes. Nine U.S. patents and several foreign patents have issued that cover pharmaceutical compositions and methods of use for gallium complexes. Prosecution of other U.S. and
foreign patent applications relating to this technology continues satisfactorily, although it is uncertain whether additional patents will be granted. Unless its term is extended, the first patent in
this family will expire in 2010.



We are the exclusive licensee under the Baylor license of U.S. and foreign patents and patent applications, two of which are U.S. patents expiring in 2013 and
2016 relating to the p94Rb retinoblastoma gene, nucleic acid vectors comprising the coding sequence of p94Rb, cells containing the vectors, the encoded p94Rb protein, and the use of such in confering
sequence on tumor cells. We are aware of the existence of a prior art reference, European Patent Application 0 259 031 (EP 0 259 031), which discloses a DNA sequence corresponding to the sequence of
the RB94 DNA molecule that is claimed in a U.S. patent licensed to us from Baylor College of Medicine. The Baylor patent also contains claims directed to specific expression vectors containing these
DNA molecules. Although the patent is presumed valid, we cannot assure that the claims of the Baylor patent, if challenged, will not be found invalid.

Competition

The pharmaceutical and biotechnology industries are characterized by rapidly evolving technology and intense competition. Many companies of all sizes, including
major pharmaceutical companies and specialized biotechnology companies, are engaged in the development and commercialization of therapeutic agents designed for the treatment of the same diseases and
disorders that we target. Many of our competitors have substantially greater financial and other resources, larger research and development staffs and more experience in the regulatory approval
process. Moreover, potential competitors have or may have patents or other rights that conflict with patents covering our technologies.

Central Nervous System Therapeutics



With respect to iloperidone, several products categorized as atypical antipsychotics are already on the market. These products include Risperdal sold by Janssen
Pharmaceuticals, Zyprexa sold by Eli Lilly, Clozaril sold by Novartis, Seroquel sold by AstraZeneca, and Geodon sold by Pfizer. Competition among these companies is already intense and
iloperidone will face significant competition. The success of iloperidone will depend on how it can be differentiated from products already on the market on the basis of efficacy,
side-effect profile, cost, availability of formulations and dose requirements, among other things.

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With regard to Spheramine, we are aware of several new drugs for Parkinson's disease that are in pre-clinical and clinical development.
Amgen Inc. is pursuing clinical trials in Parkinson's patients with glial derived neurotraphic factor (GDNF) and is collaborating with Medtronic, Inc. in its delivery to the central
nervous system. In addition, several well-funded public and private companies are actively pursuing alternative cell transplant technologies, including StemCells, Inc. and
Diacrin, Inc. NeuroCell-PD, a product under development by Diacrin, Inc. involves using antibodies to eliminate the need for immunosuppression when transplanting fetal pig
cells into Parkinson's patients, and would
directly compete with Spheramine. Deep brain stimulation, also known as subthalmic stimulation is also a competing therapy for Parkinson's disease. In recent months the FDA has approved a stimulator
device (Activa) manufactured by Medtronic, Inc. We believe Spheramine may have potential competitive advantages to this therapy.



With regard to our long-term drug delivery system, we are aware of an implantable therapeutic system being developed by ALZA Corporation. Companies
such as Medtronic, Inc. are developing implantable pumps that could be used to infuse drugs into the central nervous system. Additionally, Reckitt & Benckaiser, Inc., filed a New
Drug Application (NDA) for sublingual buprenorphine product (combined with naloxone) for the treatment of opiate dependence. This product, to be administered daily, might compete with our
six-month implantable product for drug abuse.

Cancer Therapeutics



With regard to our immunotherapeutic products, we are aware of several companies involved in the development of cancer therapeutics that target the same cancers
as our products. Such companies include Progenics Pharmaceutical Inc., Biomira Inc., AltaRex Corp., Genentech Inc., ImClone Systems Incorporated and GlaxoSmithKline plc.



With regard to our gene therapy products, we are aware of several development stage and established enterprises that are exploring the field of human gene therapy
or are actively engaged in research and development in this area, including Introgen Therapeutics, Inc., Targeted Genetics Corp. and Cell Genesys, Inc. We are aware of other commercial
entities that have produced gene therapy products used in human trials. Further, it is expected that competition in this field will intensify.



We are aware that intravenously administered gallium nitrate is approved to treat hypercalcemia related to malignancy and may have potential for treatment of
certain cancers. Other intravenous products including the bisphosphonates are available or are in development in the U.S. or Europe to treat osteoporosis, Paget's disease, primary hyperparathyroidism,
hypercalcemia of malignancy and metastatic bone disease. Our product, gallium maltolate, is an orally administered drug and may have potential advantages in the treatment of cancer.

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In addition to the foregoing, colleges, universities, governmental agencies and other public and private research organizations are likely to continue to conduct research and are
becoming more active in seeking patent protection and licensing arrangements to collect royalties for use of technology that they have developed, some of which may be directly competitive with the
technologies being developed by us.

See
"Risk FactorsWe face intense competition."

Manufacturing

We utilize contract manufacturing organizations to manufacture our products for pre-clinical studies and clinical trials. While we have not introduced
any products on the commercial market to date, at such time as we are ready to do so we will need to allocate additional resources to the manufacture of the products for commercial marketing. We do
not have the facilities to manufacture these products in-house nor do we intend to establish our own manufacturing operation at this time. We currently plan to pursue collaborative
arrangements regarding the manufacture of any products that we may successfully develop.

Government Regulation

In order to obtain FDA approval of a new drug, a company generally must submit proof of purity, potency, safety and efficacy, among others. In most cases, such
proof entails extensive clinical and pre-clinical laboratory tests.

The
procedure for obtaining FDA approval to market a new drug involves several steps. Initially, the manufacturer must conduct pre-clinical animal testing to demonstrate that
the product does not pose an unreasonable risk to human subjects in clinical studies. Upon completion of such animal testing, an IND application must be filed with the FDA before clinical studies may
begin. An IND application consists of, among other things, information about the proposed clinical trials. Among the conditions for clinical studies and IND approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform to current Good Manufacturing Practices (cGMP),
which must be followed at all times. Once the IND is approved (or if FDA does not respond within 30 days), the clinical trials may begin.

Human
clinical trials on drugs are typically conducted in three sequential phases, although the phases may overlap. Phase I trials typically consist of testing the product in a small
number of healthy volunteers or patients, primarily for safety in one or more doses. During Phase II, in addition to safety, dose selection and efficacy of the product is evaluated in up to several
hundred patients and sometimes more. Phase III trials typically involve additional testing for safety and confirmation of efficacy in an expanded patient population at multiple test sites. The FDA may
order the temporary or permanent discontinuation of a clinical trial at any time. In August 2001, we became aware of an error in product shipment to a physician sponsored open label clinical
trial and voluntarily suspended product shipment to certain open label clinical trials with cancer immunotherapeutic products. We also notified the FDA and, in September 2001, Titan was issued
a Form FDA 483 on observations resulting from a FDA inspection pertaining to shipping procedure deficiencies. We have implemented additional procedures that address all issues identified and the FDA
has accepted our response to the clinical hold on certain open label studies, allowing us to commence shipment of product and treatment of patients in continuing open label trials.

The
results of the pre-clinical and clinical testing on new drugs are submitted to the FDA in the form of an NDA. The NDA approval process requires substantial time and
effort and there can be no assurance that any approval will be granted on a timely basis, if at all. The FDA may refuse to approve an NDA if applicable regulatory requirements are not satisfied.
Product approvals, if granted, may be

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withdrawn if compliance with regulatory standards is not maintained or problems occur following initial marketing.

The
FDA may also require post-marketing testing and surveillance of approved products, or place other conditions on their approvals. These requirements could cause it to be
more difficult or expensive to sell the products, and could therefore restrict the commercial applications of such products. Product approvals may be withdrawn if compliance with regulatory standards
is not maintained or if problems occur following initial marketing. With respect to patented products or technologies, delays imposed by the governmental approval process may materially reduce the
period during which we will have the exclusive right to exploit such technologies.

In
addition, our gene therapy product candidate is subject to guidelines established by the National Institutes of Health (NIH), covering deliberate transfers of recombinant DNA into
human subjects conducted within NIH laboratories or with NIH funds, which provides that such products must be approved by the NIH Director. The NIH has established the Recombinant DNA Advisory
Committee which sets forth guidelines concerning approval of NIH-supported research involving the use of recombinant DNA. Although the jurisdiction of the NIH applies only when
NIH-funded research or facilities are involved in any aspect of the protocol, the Advisory Committee encourages all gene transfer protocols to be submitted for its review. We intend to
comply with the Advisory Committee and NIH guidelines.

We
believe we are in compliance with all material applicable regulatory requirements. However, see "Risk FactorsWe must comply with extensive government regulations" for
additional risks we face regarding regulatory requirements and compliance.

Foreign Regulatory Issues

Sales of pharmaceutical products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Whether or not
FDA approval has been obtained, approval of a product by a comparable regulatory authority of a foreign country must generally be obtained prior to the commencement of marketing in that country.
Although the time required to obtain such approval may be longer or shorter than that required for FDA approval, the requirements for FDA approval are among the most detailed in the world and FDA
approval generally takes longer than foreign regulatory approvals.

Employees

We currently have 58 full-time employees. None of our employees are represented by a labor union. We have not experienced any work stoppages and
consider our relations with our employees to be good. See "Risk FactorsWe may not be able to retain our key management and scientific personnel."

Risk Factors

Our business is subject to numerous risks.

We have a history of operating losses and may never be profitable.From our inception through December 31, 2001, we
had an accumulated deficit of approximately $101.7 million. We will continue to incur losses for the foreseeable future as a result of the various costs associated with our research,
development, financial, administrative, regulatory, and management activities. We may never achieve or sustain profitability.

Our products are at various stages of development and may not be successfully developed or commercialized.We do not
currently have any products being sold on the commercial market. Our proposed products are at various stages of development, but all will require significant further capital

12

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expenditures, development, testing, and regulatory clearances prior to commercialization. We are subject to the risk that some or all of our proposed products:



We
may experience unanticipated problems relating to product development, testing, regulatory compliance, manufacturing, marketing and competition, and our costs and expenses could
exceed current estimates. We cannot predict whether we will successfully develop and commercialize any products. Of our product candidates, iloperidone is furthest in development. Changes by Novartis
in iloperidone's clinical development program have led to a previously announced delay in regulatory filings for this product. Any significant further delays in the development, regulatory approval or
commercialization of iloperidone may seriously harm our business.

Our
Spheramine product is based upon new technology which may be risky and fail to show efficacy. We are not aware of any other cell therapy products for CNS disorders that have been
approved by the FDA or any similar foreign government entity and cannot assure you that we will be able to obtain the required regulatory approvals for any products based upon such technology.

We must comply with extensive government regulations.Our research, development, pre-clinical and clinical trial
activities and the manufacture and marketing of any products that we may successfully develop are subject to an extensive regulatory approval process by the FDA and other regulatory agencies in the
U.S. and other countries. The process of obtaining required regulatory approvals for drugs, including conducting pre-clinical and clinical testing to determine safety and efficacy, is
lengthy, expensive and uncertain. Even after such time and expenditures, we may not obtain necessary regulatory approvals for clinical testing or for the manufacturing or marketing of any products. We
have limited experience in obtaining FDA approval. Regulatory approval may entail limitations on the
indicated usage of a drug, which may reduce the drug's market potential. Even if regulatory clearance is obtained, post-market evaluation of the products, if required, could result in
restrictions on a product's marketing or withdrawal of the product from the market as well as possible civil and criminal sanctions. We depend on third-party laboratories and medical institutions to
conduct pre-clinical studies and clinical trials for our products and other third-party organizations to perform data collection and analysis, all of which must maintain both good
laboratory and good clinical practices. We will also depend upon third party manufacturers for the production of any products we may successfully develop to comply with current Good Manufacturing
Practices, which are similarly outside our direct control.

Our
regulatory submissions may be delayed or we may cancel plans to make submissions for proposed products for a number of reasons, including:



13

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Consequently,
we cannot assure you that we will make our submissions promptly, or at all, or that our submissions will meet the approval from the FDA. If our corporate partners and we
are unable to obtain regulatory approval for our products, our business will be seriously harmed.

In
addition, we and our collaborative partners may be subject to regulation under state and federal laws, including requirements regarding occupational safety, laboratory practices,
environmental protection and hazardous substance control, and may be subject to other local, state, federal and foreign regulation. We cannot predict the impact of such regulation on us, although it
could seriously harm our business.

We face many uncertainties relating to our human clinical trial strategy and results.In order to obtain the regulatory
approvals that we need to commercialize any of our product candidates, we must demonstrate that each product candidate is safe and effective for use in humans for each target indication. Several of
our product candidates, including iloperidone and CeaVac, are currently in Phase II and Phase III human clinical trials. We may not be able to demonstrate that any of our product candidates will be
safe or effective in these advanced trials that involve larger numbers of patients. Clinical trials are subject to oversight by institutional review boards and the FDA and:



Our
product development programs may be curtailed, redirected or eliminated at any time for some or all of the following reasons:



Accordingly,
our clinical trials may not proceed as anticipated or otherwise adequately support our applications for regulatory approval.

We
face an inherent risk of clinical trial liability claims in the event that the use or misuse of our product candidates results in personal injury or death. Our clinical liability
insurance coverage may not be sufficient to cover claims that may be made against us. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our
management and other resources or adversely impact or destroy the prospects for commercialization of the product which is the subject of any such claim.

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We may be unable to protect our patents and proprietary rights.Our future success will depend to a significant extent on our
ability to:



We
cannot assure you that our patent rights will afford any competitive advantages and these rights may be challenged or circumvented by third parties. Further, patents may not be issued
on any of our pending patent applications in the U.S. or abroad. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that
before a potential product can be commercialized, any related patent may expire, or remain in existence for only a short period following commercialization, reducing or eliminating any advantage of
the patent.

If
we sue others for infringing our patents, a court may determine that such patents are invalid or unenforceable. Even if the validity of our patent rights is upheld by a court, a court
may not prevent the alleged infringement of our patent rights on the grounds that such activity is not covered by our patent claims.

In
addition, third parties may sue us for infringing their patents. In the event of a successful claim of infringement against us, we may be required to:



If
required, we cannot assure you that we will be able to obtain such licenses on acceptable terms, or at all. If we are sued for infringement, we could encounter substantial delays in
development, manufacture and commercialization of our product candidates. Any litigation, whether to enforce our patent rights or to defend against allegations that we infringe third party rights,
will be costly, time consuming, and may distract management from other important tasks.

As
is commonplace in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our
competitors or potential competitors. To the extent our employees are involved in research areas which are similar to those areas in which they were involved at their former employers, we may be
subject to claims that such employees and/or we have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of the former employers. Litigation may be
necessary to defend against such claims, which could result in substantial costs and be a distraction to management and which may have a material adverse effect on us, even if we are successful in
defending such claims.

We
also rely in our business on trade secrets, know-how and other proprietary information. We seek to protect this information, in part, through the use of confidentiality
agreements with employees, consultants, advisors and others. Nonetheless, we cannot assure you that those agreements will provide adequate protection for our trade secrets, know-how or
other proprietary information and prevent their unauthorized use or disclosure. To the extent that consultants, key employees or other third parties apply technological information independently
developed by them or by others to our proposed

15

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products, disputes may arise as to the proprietary rights to such information which may not be resolved in our favor. Most of our consultants are employed by or have consulting agreements with third
parties and any inventions discovered by such individuals generally will not become our property. There is a risk that other parties may breach confidentiality agreements or that our trade secrets
become known or independently discovered by competitors, which could adversely affect us.

We face intense competition.Competition in the pharmaceutical and biotechnology industries is intense and is expected to
increase. We face, and will continue to face, competition from numerous companies that currently market, or are developing, products for the treatment of the diseases and disorders we have targeted.
Many of these entities have significantly greater research and development capabilities, experience in obtaining regulatory approvals and manufacturing, marketing, financial and managerial resources
than we have. We also compete with universities and other research institutions in the development of products, technologies and processes, as well as the recruitment of highly qualified personnel.
Our competitors may succeed in developing technologies or products that are more effective than the ones we have under development or that render our proposed products or technologies noncompetitive
or obsolete. In addition, certain of such competitors may achieve product commercialization or patent protection earlier than us. For example, with respect to iloperidone, several competing products
are already on the market and iloperidone, expected to be the sixth or seventh such product, will face significant competition.

We are dependent upon our key collaborative relationships and license and sponsored research agreements.As a company with
limited resources, we rely significantly on the resources of third parties to conduct research and development and complete the regulatory approval process on our behalf. For example, our ability to
ultimately derive revenues from iloperidone is almost entirely dependent upon Novartis conducting the Phase III trials and completing the regulatory approval process and implementing the marketing
program necessary to commercialize iloperidone if the product is approved by the FDA. We are similarly dependent upon Schering, our collaborator for the development and commercialization of
Spheramine. Beyond our contractual rights, we cannot control the amount or timing of resources that Novartis or Schering devotes to product development and commercialization efforts for our product
candidates. In addition, we also receive substantial government funding for our cancer immunotherapeutic programs. We cannot assure you that we will continue to receive such governmental funding. If
such funds are no longer available, some of our current and future development efforts may be delayed or seriously harmed. We depend on our ability to maintain existing collaborative relationships, to
develop new collaborative relationships with third parties and to acquire or in-license additional products and technologies for the development of new product candidates. We cannot assure
you that any such third-party technology will be available on acceptable terms, if at all.

Conflicts
with our collaborators and strategic partners could have an adverse impact on our relationships with them and impair our ability to enter into future collaborations, either of
which could seriously harm our business. Our collaborators have, and may, to the extent permitted by our agreements, develop competing products, preclude us from entering into collaborations with
their competitors or terminate their agreements with us prematurely. Moreover, disagreements could arise with our collaborators or strategic partners over rights to our intellectual property and our
rights to share in any of the future revenues from products or technologies resulting from use of our technologies, or our activities in separate fields may conflict with other business plans of our
collaborators.

We must meet payment and other obligations under our license and sponsored research agreement.Our license agreements
relating to the in-licensing of technology generally require the payment of up-front license fees and royalties based on sales with minimum annual royalties, the use of due
diligence in developing and bringing products to market, the achievement of funding milestones

16

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and, in some cases, the grant of stock to the licensor. Our sponsored research agreements generally require periodic payments on an annual or quarterly basis. Our failure to meet financial or other
obligations under license or sponsored research agreements in a timely manner could result in the loss of our rights to proprietary technology or our right to have the applicable university or
institution conduct research and development efforts.

We may be dependent upon third parties to manufacture and market any products we successfully develop.We currently do not
have the resources or capacity to commercially manufacture or directly market any of our proposed products. Collaborative arrangements may be pursued regarding the manufacture and marketing of any
products that may be successfully developed. We may be unable to enter into additional collaborative arrangements to manufacture or market any proposed products or, in lieu thereof, establish our own
manufacturing operations or sales force.

Healthcare reform and restrictions on reimbursements may limit our financial returns.Our ability or the ability of our
collaborators to commercialize drug products, if any, may depend in part on the extent to which government health administration authorities, private health insurers and other organizations will
reimburse consumers for the cost of these products. These third parties are increasingly challenging both the need for and the price of new drug products. Significant uncertainty exists as to the
reimbursement status of newly approved therapeutics. Adequate third party reimbursement may not be available for our own or our collaborator's drug products to enable us or them to maintain price
levels sufficient to realize an appropriate return on their and our investments in research and product development. We cannot predict the effect that changes in the healthcare system may have on our
business and these changes adversely affect our business.

We may encounter difficulties managing our growth, which could adversely affect our results of operations.Our success will
depend on our ability to expand and manage our growth. We may not be able to manage our growth, to meet the staffing requirements of additional collaborative relationships or successfully assimilate
and train new employees. If we continue to grow, our existing management skills and systems may not be adequate and we may not be able to manage any additional growth effectively. If we fail to
achieve any of these goals, there could be a material adverse effect on our business, financial condition or results of operations.

We may not be able to retain our key management and scientific personnel.As a company with a limited number of personnel, we
are highly dependent on the services of Dr. Louis R. Bucalo, our Chairman, President and Chief Executive Officer, as well as the other principal members of our management and scientific staff.
The loss of one or more of such individuals could substantially impair ongoing research and development programs and could hinder our ability to obtain corporate partners. Our success depends in large
part upon our ability to attract and retain highly qualified personnel. We compete in our hiring efforts with other pharmaceutical and biotechnology companies, as well as universities and nonprofit
research organizations, and we may have to pay higher salaries to attract and retain personnel.

We may need additional financing.At December 31, 2001, we had approximately $105.1 million of cash, cash
equivalents, and marketable securities that we believe will enable us to fund our operations
through 2005. We may need to seek additional financing to continue our product development activities, and will be required to obtain substantial funding to commercialize any products other than
iloperidone that we may successfully develop. We do not have any funding commitments or arrangements. If we are unable to generate adequate revenues, enter into a corporate collaboration, 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 programs.

Future sales of our common stock in the public market could adversely impact our stock price.Future sales of our common
stock by existing stockholders pursuant to Rule 144 under the Securities

17

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Act, pursuant to an effective registration statement or otherwise, could have an adverse effect on the price of our securities.

Our stock price has been and will likely continue to be volatile.Our stock price has experienced substantial fluctuations
and could continue to fluctuate significantly due to a number of factors, including:



Many
of these factors are beyond our control.

In
addition, the stock markets in general, and the American Stock Exchange and the market for pharmaceutical and biotechnological companies in particular, have experienced extreme price
and volume fluctuations recently. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors may
adversely affect the market price of our common stock, regardless of our actual operating performance.

In
the past, companies that have experienced volatility in the market prices of their stock have been the object of securities class action litigation. If we were the object of
securities class action litigation, it could result in substantial costs and a diversion of management's attention and resources.

Item 2. Properties

We have a five-year operating lease, expiring in June 2006, for approximately 18,800 square feet of office space in South San Francisco,
California. We also have a five-year lease, expiring in October 2003, for approximately 4,200 square feet of office and laboratory space in Somerville, New Jersey.

Item 3. Legal Proceedings

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

(a)    Price Range of Securities

Our common stock trades on the American Stock Exchange under the symbol TTP. The table below sets forth the high and low sales prices of our common stock as
reported by the American Stock Exchange for the periods indicated.

|                                     |                | High |   | Low   
|------------------------------------ | -------------- | ---- | - | ------
|Fiscal Year Ended December 31, 2001: |                |      |   |       
|                                     | First Quarter  |      | $ | 39.650
|                                     | Second Quarter |      | $ | 38.000
|                                     | Third Quarter  |      | $ | 30.350
|                                     | Fourth Quarter |      | $ | 10.490
|Fiscal Year Ended December 31, 2000: |                |      |   |       
|                                     | First Quarter  |      | $ | 53.000
|                                     | Second Quarter |      | $ | 45.000
|                                     | Third Quarter  |      | $ | 65.300
|                                     | Fourth Quarter |      | $ | 64.750

(b)    Approximate Number of Equity Security Holders

The number of record holders of our common stock as of March 22, 2002 was approximately 152. Based on the last ADP search, we believe there are in excess
of 8,000 beneficial holders of our common stock.

(c)    Dividends

We have never paid a cash dividend on our common stock and anticipate that for the foreseeable future any earnings will be retained for use in our business and,
accordingly, do not anticipate the payment of cash dividends.

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Item 6. Selected Financial Data

The selected financial data presented below summarizes certain financial data which has been derived from and should be read in conjunction with our consolidated
financial statements and footnotes thereto included in the section beginning on page F-1. See also "Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations."

|                                    |                                                 | Year Ended December 31,
|----------------------------------- | ----------------------------------------------- | -----------------------
|
|
|Statement of Operations Data:       |                                                 |                        
|Total revenue(1)                    |                                                 | $                      
|Operating expenses:                 |                                                 |                        
|                                    | Research and development                        |                        
|                                    | Acquired in-process research and development(2) |                        
|                                    | General and administrative                      |                        
|Other income, net(3)                |                                                 |                        
|                                    |                                                 |                        
|Net (loss) income                   |                                                 | $                      
|                                    |                                                 |                        
|Basic net (loss) income per share   |                                                 | $                      
|Diluted net (loss) income per share |                                                 | $                      
|Shares used in computing:           |                                                 |                        
|                                    | Basic net (loss) income per share               |                        
|                                    | Diluted net (loss) income per share             |                        

---

|                                                  |  | As of December 31,
|------------------------------------------------- |  | ------------------
|
|
|Balance Sheet Data:                               |  |                   
|Cash, cash equivalents, and marketable securities |  | $                 
|Working capital                                   |  |                   
|Total assets                                      |  |                   
|Total stockholders' equity                        |  |                   

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The
following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto beginning on page F-1 in this report.

The
following discussion contains certain forward-looking statements, within the meaning of the "safe harbor" provisions of the Private Securities Reform Act of 1995, the attainment of
which involves various risks and uncertainties. Forward-looking statements may be identified by the use of forward-looking terminology such as "may," "will," "expect," "believe," "estimate," "plan,"
"anticipate," "continue," or similar terms, variations of those terms or the negative of those terms. Our actual results may differ materially from those described in these forward-looking statements
due to, among other factors, the results of ongoing research and development activities and pre-clinical testing, the results of clinical trials and the availability of additional
financing through corporate partnering arrangements or otherwise.

Spheramine®,
CeaVac®, TriAb®, TriGem, Pivanex® and CCM are trademarks of Titan Pharmaceuticals, Inc.

Overview

We
are a biopharmaceutical company developing proprietary therapeutics for the treatment of central nervous system disorders, cancer, and other serious and life threatening diseases. Our
product development programs focus on large pharmaceutical markets with significant unmet medical needs and commercial potential.

We
currently have nine products in development, seven of which are in clinical development, with two products in expanded human trials for safety and efficacy, known as Phase III
clinical trials. We have five products in trials for preliminary safety and dosing and in trials for initial safety and efficacy, known as Phase I and Phase II clinical trials, respectively. In
addition to these programs, we have two products in pre-clinical development.

We
are independently developing our product candidates and also utilizing strategic partnerships, including collaborations with Novartis Pharma AG (Novartis) and Schering AG (Schering),
as well as collaborations with several government-sponsored clinical cooperative groups. These collaborations help fund product development and enable us to retain significant economic interest in our
products.

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The
following table provides a summary status of our products in development:

|Product              |  | Potential Indication(s)                                       |  | Phase of Development                              |  | Marketing Rights  
|-------------------- |  | ------------------------------------------------------------- |  | ------------------------------------------------- |  | ------------------
|Iloperidone          |  | Schizophrenia, psychosis                                      |  | Phase III                                         |  | Novartis Pharma AG
|Spheramine           |  | Parkinson's disease                                           |  | Phase I/II                                        |  | Schering AG       
|CeaVac               |  | Colorectal, gastrointestinal and pancreatic cancer            |  | Phase III (colorectal cancer)                     |  | Titan             
|TriAb                |  | Breast and ovarian cancer                                     |  | Phase II (breast cancer)                          |  | Titan             
|TriGem               |  | Small cell lung cancer, melanoma                              |  | Phase II (melanoma)                               |  | Titan             
|CeaVac & TriAb       |  | Metastatic breast, non-small cell lung, and colorectal cancer |  | Phase II                                          |  | Titan             
|Pivanex              |  | Non-small cell lung cancer                                    |  | Phase II                                          |  | Titan             
|Gallium Maltolate    |  | Myeloma, prostate and bladder cancer, lymphoma, HIV           |  | Phase I/II (prostate cancer and multiple myeloma) |  | Titan             
|RB94                 |  | Head and neck cancer                                          |  | Pre-clinical                                      |  | Titan             
|Drug Delivery System |  | Drug addiction                                                |  | Pre-clinical
(IND filing: 2H 2002)                |  | Titan             

Our products are at various stages of development and may not be successfully developed or commercialized. We do not currently have any products
being sold on the commercial market. Our proposed products will require significant further capital expenditures, development, testing, and regulatory clearances prior to commercialization. We may
experience unanticipated problems relating to product development and cannot predict whether we will successfully develop and commercialize any products. An estimation of product completion dates and
completion costs can vary significantly for each product and are difficult to predict. Various statutes and regulations also influence our product development progress and the success of obtaining
approval is highly uncertain. For a full discussion of risks and uncertainties in our product development, see "Risk FactorsOur products are at various stages of development and may not
be successfully developed or commercialized."

Critical Accounting Policies and the Use of Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. The items in our financial statements
requiring significant estimates and judgments are as follows:



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Revenue
associated with performance milestones, considered "at-risk" until the milestones are completed, is recognized based on the achievement of the
milestones as defined in the respective agreements. Advance payments received prior to the achievement of milestones are classified as deferred revenue until earned.

Government
grants, which support our research effort in specific projects, generally provide for reimbursement of approved costs as defined in the grant documents, and
revenue is recognized when subsidized project costs are incurred.



Results of Operations



Revenues in 2001 were $4.6 million compared to $1.9 million for 2000, an increase of $2.7 million. The increase in revenue was primarily due
to a $2.5 million license fee payment from Novartis for the development and commercialization of iloperidone in Japan, and higher SBIR grant revenues from the National Institutes of Health in
support of the development of Spheramine, our novel treatment for Parkinson's disease. See Note 6 to the Consolidated Financial Statements beginning on page F-1 in this report.

Research
and development expenses for 2001 were $23.3 million compared to $16.7 million for 2000, an increase of $6.6 million. The planned increase in research and
development is associated with our expanded clinical programs in cancer, specifically the ongoing randomized, placebo-controlled Phase III clinical study of CeaVac in Dukes D colorectal cancer, Phase
II studies with Pivanex, Phase I/II study with Spheramine and Phase I/II study with gallium maltolate. Research and development expenses are expected to continue to increase moderately in the future.
The rate of increase depends on a number of factors including progress in pre-clinical programs and clinical trials.

General
and administrative expenses for 2001 were $5.4 million compared to $4.1 million for 2000, an increase of $1.3 million. The increase, consising primarily of
salaries and employment-related costs, was in support of our expanded clinical and pre-clinical operations and certain stock option related non-cash compensation charges.

Other
income, net, for 2001 was $6.7 million compared to $5.1 million for 2000, an increase of $1.6 million. The increase, primarily in interest income, was a result
of our significantly larger average cash and marketable securities position.

As
a result of the foregoing, we had a net loss of $17.5 million in 2001 compared to a net loss of $18.8 million in 2000.

None
of our products have been commercialized, and we do not expect to generate any revenue from product sales or royalties in the foreseeable future. With the advancement in clinical
development of our products, we anticipate research and development expenses will increase in the near future, while general and administrative costs necessary to support such research and development
activities will increase at a controlled rate. We will also continue to identify new technologies and/or product candidates for possible in-licensing or acquisition. Accordingly, we expect
to incur operating losses for the foreseeable future. We cannot assure you that we will ever achieve profitable operations.

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Revenues in 2000 were $1.9 million compared to $0.3 million for 1999, an increase of $1.6 million. The increase in revenue is primarily due
to our corporate partnership with Schering for the development and commercialization of Spheramine for the treatment of Parkinson's disease.

Ongoing
research and development expenses for 2000 were $16.7 million, compared to $9.4 million for 1999, an increase of $7.3 million. The planned increase in
ongoing research and development expenditures from 1999 to 2000 was a result of the expansion of our randomized, placebo-controlled Phase III clinical study of CeaVac in Dukes D colorectal cancer,
commencement of our Phase I/II clinical study of Spheramine in Parkinson's disease, advancement of our pre-clinical development programs and increased manufacturing and development
activity for all of our product candidates. Also in year 2000 we recorded a $5.0 million acquired in-process research and development expense in connection with the acquisition of
gallium maltolate, a novel and proprietary agent for the potential treatment of cancer and other conditions, including HIV infection. The entire purchase price was charged to acquired
in-process research and development on the acquisition date in accordance with generally accepted accounting principles. See Note 8 to the Consolidated Financial Statements
beginning on page F-1 in this report.

General
and administrative expenses for 2000 were $4.1 million compared to $2.8 million for 1999, an increase of $1.3 million. The increase was in support of our
expanded clinical operations, infrastructure development and non-cash compensation charges related to stock options.

Other
income, net, for 2000 was $5.1 million compared to $0.7 million for 1999, an increase of $4.4 million. Other income, net, for 2000 and 1999 primarily consisted
of interest income. The increase in interest income resulted from a significantly larger cash and marketable securities position in 2000.

As
a result of the foregoing, we had a net loss of $18.8 million in 2000 compared to a net loss of $11.3 million in 1999.

Liquidity and Capital Resources

|                                                 |  | 2001 |         | 2000 |   | 1999    |  
|------------------------------------------------ |  | ---- | ------- | ---- | - | ------- | -
|
|As of December 31:                               |  |      |         |      |   |         |  
|Cash, cash equivalents and marketable securities |  | $    | 105,051 |      | $ | 117,523 |  
|Working capital                                  |  |      | 100,193 |      |   | 115,386 |  
|Current ratio                                    |  |      | 18:1    |      |   | 48:1    |  
|Year Ended December 31:                          |  |      |         |      |   |         |  
|Cash used in operating activities                |  |      | (13,739 | )    |   | (13,163 | )
|Cash used in investing activities                |  |      | (1,710  | )    |   | (96,906 | )
|Cash provided by financing activities            |  |      | 921     |      |   | 83,915  |  

We
have funded our operations since inception primarily through sales of our securities, as well as proceeds from warrant and option exercises, corporate licensing and collaborative
agreements, and government sponsored research grants.

In
November 2000, we completed a private placement of 1.2 million shares of our common stock for net proceeds of approximately $40.9 million, after deducting fees
and commissions and other expenses of the offering.

In
March 2000, we completed a private placement of 1.2 million shares of our common stock for net proceeds of approximately $38.8 million, after deducting fees and
commissions and other expenses of the offering.

24

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In
October 1999, we called for the redemption of our then outstanding Class A Warrants. Rather than surrendering the warrants for redemption, warrant holders exercised the
option to purchase our common stock and resulted in 7.1 million Class A Warrants, or 99.4%, being exercised with net proceeds to Titan of $39.4 million, after deducting advisory
fees and other related expenses.

In
January 1999, we completed a private placement of 2.3 million shares of our common stock for net proceeds of $5.8 million, after deducting fees and commissions
and other expenses of the offering.

Uses
of cash in operating activities were primarily to fund product development programs and administrative expenses. We have entered into various agreements with research institutions,
universities, and other entities for the performance of research and development activities and for the acquisition of licenses related to those activities. Certain of the licenses require us to pay
royalties on future product sales, if any. 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 and meeting project-funding milestones.

The
following table sets forth the aggregate contractual cash obligations as of December 31, 2001 (in thousands):

|                                          |  | Payments Due by Period
|----------------------------------------- |  | ----------------------
|
|
|Operating leases                          |  | $                     
|Sponsored research and license agreements |  | $                     
|                                          |  |                       
|Total contractual cash obligations        |  | $                     
|                                          |  |                       

Titan
has never entered into any off-balance sheet financing arrangements and has never established any special purpose entities. We have not guaranteed any debt or
commitments of other entities or entered into any options on non-financial assets. The only transactions between Titan and related parties during 2001 were a loan made to an officer and an
agreement with certain of our officers and directors to rescind stock options that were previously granted and exercised. See "Item 13. Certain Relationships and Related Transactions."

We
expect to continue to incur substantial additional operating losses from costs related to continuation and expansion of product and technology development, clinical trials, and
administrative activities. We believe that we currently have sufficient working capital to sustain our planned operations through 2005.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our portfolio of marketable securities creates an exposure to interest rate risk. We adhere to an investment policy that requires us to limit amounts invested in
securities based on maturity, type of instrument, investment grade and issuer. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected
cash needs and limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers. We do not use derivative financial instruments in our investment
portfolio.

25

---

The
following table summarizes principal amounts and related weighted-average interest rates by year of maturity on our interest-bearing investment portfolio at December 31, 2001
(in thousands, except interest rate):

|                         |  | Face Value |        |  
|------------------------ |  | ---------- | ------ | -
|
|
|Variable rate securities |  | $          | 5,478  |  
|Average interest rate    |  |            | 2.640  | %
|Fixed rate securities    |  | $          | 41,468 |  
|Average interest rate    |  |            | 6.610  | %

Item 8. Consolidated Financial Statements and Supplementary Data.

The response to this item is included in a separate section of this Report. See "Index to Consolidated Financial Statements" on Page F-1.

Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

26

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PART III

Item 10. Directors and Executive Officers of Registrant.

The following table sets forth the names, ages and positions of our executive officers and directors.

|Name                                   |  | Age |  | Position                                                             
|-------------------------------------- |  | --- |  | ---------------------------------------------------------------------
|Louis R. Bucalo, M.D.(1)               |  | 43  |  | Chairman, President and Chief Executive Officer                      
|Sunil Bhonsle                          |  | 52  |  | Executive Vice President and Chief Operating Officer                 
|Richard C. Allen, Ph.D.                |  | 59  |  | Executive Vice President, Cell Therapy                               
|Robert E. Farrell                      |  | 52  |  | Executive Vice President and Chief Financial Officer                 
|Frank H. Valone, M.D.                  |  | 52  |  | Executive Vice President, Clinical Development and Regulatory Affairs
|Victor Bauer, Ph.D.                    |  | 66  |  | Executive Director, Corporate Development and Director               
|Ernst-Günter Afting, M.D., Ph.D.(2)(3) |  | 59  |  | Director                                                             
|Eurelio M. Cavalier(1)                 |  | 69  |  | Director                                                             
|Michael K. Hsu(2)                      |  | 52  |  | Director                                                             
|Hubert Huckel, M.D.(1)(2)(3)           |  | 70  |  | Director                                                             
|Ley S. Smith(1)                        |  | 67  |  | Director                                                             
|Konrad M. Weis, Ph.D.(1)(3)            |  | 73  |  | Director                                                             

---

Louis
R. Bucalo, M.D. is the founder of Titan and has served as our President and Chief Executive Officer since January 1993. Dr. Bucalo has served as a director of Titan
since March 1993 and was elected Chairman of the Board of Directors in January 2000. From July 1990 to April 1992, Dr. Bucalo was Associate Director of Clinical
Research at Genentech, Inc., a biotechnology company. Dr. Bucalo holds an M.D. from Stanford University and a B.A. in biochemistry from Harvard University.

Sunil
Bhonsle has served as our Executive Vice President and Chief Operating Officer since September 1995. Mr. Bhonsle served in various positions, including Vice President
and General Manager-Plasma Supply and Manager-Inventory and Technical Planning, at Bayer Corporation from July 1975 until April 1995. Mr. Bhonsle holds an M.B.A. from the
University of California at Berkeley and a B.Tech. in chemical engineering from the Indian Institute of Technology.

Richard
C. Allen, Ph.D., has served as our Executive Vice President, Cell Therapy, since August 1995. From January 1995 until it was merged into Titan in March 1999,
he also served as President and Chief Executive Officer of Theracell, Inc. From June 1991 until December 1994, Dr. Allen was Vice President and General Manager of the
Neuroscience Strategic Business Unit of Hoechst-Roussel Pharmaceuticals, Inc. Dr. Allen holds a Ph.D. in medicinal chemistry and a B.S. in pharmacy from the Medical College of Virginia.

Robert
E. Farrell has served as our Executive Vice President and Chief Financial Officer since September 1996. Mr. Farrell was employed by Fresenius USA, Inc. from
1991 until August 1996 where he served in various capacities, including Vice President Administration, Chief Financial Officer and General Counsel. His last position was Corporate Group Vice
President. Mr. Farrell holds a B.A. from the University of Notre Dame and a J.D. from Hastings College of Law, University of California.

27

---

Frank
H. Valone, M.D. has served as our Executive Vice President of Clinical Development and Regulatory Affairs since March 2002. From 1994 to 2002, Dr. Valone was the
Chief Medical Officer at Dendreon Corporation, Seattle, WA. From 1991 to 1996, Dr. Valone held various positions at the Dartmouth-Hitchcock Medical Center and Norris Cotton Cancer Center
including Professor of Medicine. From 1982 to 1991, Dr. Valone held faculty positions at the University of California, San Francisco, including Associate Professor of Medicine.
Dr. Valone received a B.A. from Hamilton College and an M.D. from Harvard Medical School. His post-doctoral training was at the Brigham and Womens Hospital in Internal Medicine,
Allergy and Rheumatology and at the Dana-Farber Cancer Center in Medical Oncology.

Victor
J. Bauer, Ph.D., has served on our Board of Directors since November 1997. He joined Titan in February 1997 and currently serves as our Executive Director of
Corporate Development. From April 1996 until its merger into Titan, Dr. Bauer also served as a director and Chairman of Theracell. From December 1992 until February 1997,
Dr. Bauer was a self-employed consultant to companies in the pharmaceutical and biotechnology industries. Prior to that time, Dr. Bauer was with Hoechst-Roussel
Pharmaceuticals Inc., where he served as President from 1988 through 1992.

Ernst-Günter
Afting, M.D., Ph.D., has served on our Board of Directors since May 1996. He has served as the President of the GSF-National Center for
Environment and Health, a government research center in Germany, since 1995. From 1984 until 1995, Dr. Afting was employed in various capacities by the Hoechst Group, serving as Divisional Head
of the Pharmaceuticals Division of the Hoechst Group from 1991 to 1993 and as President and Chief Executive Officer of Roussel Uclaf (a majority stockholder of Hoechst AG) in Paris from 1993 until
1995. He currently serves on the Board of Directors of Sequenom, Inc.

Eurelio
M. Cavalier has served on our Board of Directors since September 1998. He was employed in various capacities by Eli Lilly & Co. from 1958 until his retirement in
1994, serving as Vice President Sales from 1976 to 1982 and Group Vice President U.S. Pharmaceutical Business Unit from 1982 to 1993. Mr. Cavalier currently serves on the Board of Directors of
ProSolv, Inc. He serves on the Advisory Board of COR Therapeutics and Indiana Heart Institute.

Michael
K. Hsu has served on our Board of Directors since March 1993. He is currently a General Partner of EndPoint Merchant Group, a merchant bank specializing in making
investments into the healthcare and life science industries. Mr. Hsu has served as Director-Corporate Finance of National Securities Corp. from November 1995 through April 1998,
and from November 1994 through October 1995 served with Coleman & Company Securities in the same capacity. Mr. Hsu previously held various executive positions with
Steinberg and Lyman Health Care Company, Ventana Venture Growth Fund and Asian Pacific Venture Group (Thailand).

Hubert
Huckel, M.D. has served on our Board of Directors since October 1995. He served in various positions with The Hoechst Group from 1964 until his retirement in
December 1992. At the time of his retirement, Dr. Huckel was Chairman of the Board of Hoechst-Roussel Pharmaceuticals, Inc., Chairman and President of Hoechst-Roussel
Agri-Vet Company and a member of the Executive Committee of Hoechst Celanese Corporation. He currently serves on the Board of Directors of Thermogenesis, Corp. and Amarin Pharmaceuticals,
plc and is a member of their compensation committees.

Ley
S. Smith has served on our Board of Directors since July 2000. He served in various positions with The Upjohn Company and Pharmacia & Upjohn from 1958 until his
retirement in November 1997. From 1991 to 1993 he served as Vice Chairman of the Board of The Upjohn Company, and from 1993 to 1995 he was President and Chief Operating Officer of The Upjohn
Company. At the time of his retirement, Mr. Smith was Executive Vice President of Pharmacia & Upjohn, and President of Pharmacia & Upjohn's U.S. Pharma Product Center. He
currently serves on the Board of Directors of M.D.S. Proteomics Inc.

28

---

Konrad
M. Weis, Ph.D., has served on our Board of Directors since March 1993. He is the former President, Chief Executive Officer and Honorary Chairman of Bayer Corporation.
Dr. Weis serves as a director of PNC Equity Management Company, Michael Baker Corporation, Visible Genetics, Inc. and Demegen, Inc.

Directors
serve until the next annual meeting or until their successors are elected and qualified. Officers serve at the discretion of the Board of Directors, subject to rights, if any,
under contracts of employment. See "Item 11. Executive CompensationEmployment Agreements."

Director Compensation

Directors are entitled to receive options pursuant to our Amended 1998 Stock Option Plan. During 2001, each director serving on a committee of the Board received
an annual option grant to purchase 5,000 shares of our common stock at an exercise price of $11.50 per committee membership. Additionally, in August 2001, certain of the Board members received
options in connection with a
company-wide supplemental option grant pursuant to which all holders of options with exercise prices in excess of $15.00 received additional options. The supplemental options have an
exercise price of $11.63 per share and are exercisable as to one third on the first anniversary of the grant date and thereafter in 24 equal monthly installments. As a result, an aggregate of 215,250
supplemental options were granted. In addition to having their out-of-pocket expenses reimbursed, non-employee directors received $2,000 for each Board of Directors
meeting attended in 2001. Directors are not precluded from serving us in any other capacity and receiving compensation therefore.

We
are a party to a consulting agreement with Dr. Afting pursuant to which he receives fees of $7,000 annually.

Board Committees and Designated Directors

The Board of Directors has an Executive Committee, a Compensation Committee and an Audit Committee. The Executive Committee exercises all the power and authority
of the Board of Directors in the management of Titan between Board meetings, to the extent permitted by law. The Compensation Committee makes recommendations to the Board concerning salaries and
incentive compensation for our officers and employees and administers our stock option plans. The Audit Committee reviews the results and scope of the audit and other accounting related matters.

The
Board of Directors met four times during 2001 and also took action by unanimous written consent. The Executive Committee took action by unanimous written consent, the Compensation
Committee met one time and also took action by unanimous written consent, and the Audit Committee met two times and also took action by unanimous written consent. Each of our current directors
attended at least 75% of the aggregate of (i) the meetings of the Board of Directors and (ii) meetings of any Committees of the Board on which such person served which were held during
the time such person served.

Compliance With Section 16(a) of The Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and persons who beneficially own more than 10%
of a registered class of our equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity
securities. Such executive officers, directors, and greater than 10% beneficial owners are required by SEC regulation to furnish us with copies of all Section 16(a) forms filed by such
reporting persons.

Based
solely on our review of such forms furnished to us and written representations from certain reporting persons, we believe that all filing requirements applicable to our executive
officers, directors

29

---

and greater than 10% beneficial owners were complied with, except that Dr. Victor Bauer and Dr. Hubert M. Huckel each failed to timely report an exercise of stock options.

Item 11. Executive Compensation.

The following summary compensation table sets forth the aggregate compensation awarded to, earned by, or paid to the Chief Executive Officer and to executive
officers whose annual compensation exceeded $100,000 for the fiscal year ended December 31, 2001 (collectively, the "named executive officers") for services during the fiscal years ended
December 31, 2001, 2000, and 1999:

Summary Compensation Table

Annual CompensationName and Principal PositionYear

SalaryLouis R. Bucalo
President and Chief Executive Officer

2001
2000
1999

$$$
387,257
261,891
222,013Sunil Bhonsle
Executive Vice President and
Chief Operating Officer

2001
2000
1999

$$$
287,646
202,842
180,100Richard C. Allen
Executive Vice President

2001
2000
1999

$$$
253,886
202,842
180,475Robert E. Farrell
Executive Vice President and
Chief Financial Officer

2001
2000
1999

$$$
227,638
195,211
173,425Jan D. Wallace
Executive Vice President

2001
2000

$$
253,901
232,929
(1)(2)


---

30

---



Option Grants in Last Fiscal Year

The following table contains information concerning the stock option grants made to the named executive officers during the fiscal year ended December 31,
2001. No stock appreciation rights were granted to these individuals during such year.

|                  |  |        |  | Individual Grant |   | Potential Realizable
Value at Assumed
Annual Rate of
Stock Price Appreciation
For Option Terms
|----------------- |  | ------ |  | ---------------- | - | ----------------------------------------------------------------------------------------------
|
|
|
|Louis R. Bucalo   |  | 72,000 |  | 6.44             | % | $                                                                                             
|Louis R. Bucalo   |  | 69,000 |  | 6.17             | % | $                                                                                             
|Louis R. Bucalo   |  | 5,000  |  | 0.45             | % | $                                                                                             
|Sunil Bhonsle     |  | 42,000 |  | 3.75             | % | $                                                                                             
|Sunil Bhonsle     |  | 31,500 |  | 2.82             | % | $                                                                                             
|Richard C. Allen  |  | 36,000 |  | 3.22             | % | $                                                                                             
|Richard C. Allen  |  | 27,000 |  | 2.41             | % | $                                                                                             
|Robert E. Farrell |  | 30,000 |  | 2.68             | % | $                                                                                             
|Robert E. Farrell |  | 22,500 |  | 2.01             | % | $                                                                                             
|Jan D. Wallace    |  | 30,000 |  | 2.68             | % | $                                                                                             

---

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table sets forth information concerning option exercises and option holdings for the fiscal year ended December 31, 2001 with respect to the
named executive officers. No stock appreciation rights were exercised during such year or were outstanding at the end of that year.

|                  |  |         |  | Number of Securities Underlying Unexercised
Options at FY-End |  | Value of Unexercised In-the-Money Options at FY-End (1)
|----------------- |  | ------- |  | ------------------------------------------------------------- |  | -------------------------------------------------------
|
|
|Louis R. Bucalo   |  |        |  | 1,149,617                                                     |  | 243,557                                                
|Sunil Bhonsle     |  | 160,894 |  | 437,432                                                       |  | 110,473                                                
|Richard C. Allen  |  | 75,000  |  | 362,850                                                       |  | 86,834                                                 
|Robert E. Farrell |  | 48,976  |  | 59,583                                                        |  | 58,917                                                 

---

Employment Agreements

We are a party to an employment agreement with Dr. Bucalo expiring in February 2004 that provides for a base annual salary of $210,000, subject to
annual increases of 5% and bonuses of up to 25% at the discretion of the Board of Directors. In the event of the termination of the agreement with Dr. Bucalo, other than for reasons specified
therein, we are obligated to make severance payments equal to his base annual salary for the greater of the balance of the term of the agreement or 18 months.

Employment
agreements with each of Dr. Allen, Mr. Bhonsle and Mr. Farrell provide for a base annual salary of $185,000 subject to automatic annual increases based on
increases in the consumer

31

---

price index, and bonuses of up to 20% at the discretion of the Board of Directors. An employment agreement with Dr. Valone provides for a base annual salary of $275,000 subject to automatic
annual increases based on increases in the consumer price index, and bonuses of up to 20% at the discretion of the Board of Directors. In the event the employee's employment is terminated other than
for "good cause" (as defined), we are obligated to make severance payments equal to the base annual salary for six months. All of the agreements contain confidentiality provisions.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of March 22, 2002, certain information concerning the beneficial ownership of our common stock by (i) each
stockholder known by us to own beneficially five percent or more of our outstanding common stock; (ii) each director; (iii) each executive officer; and (iv) all of our executive
officers and directors as a group, and their percentage ownership and voting power.

|Name and Address of Beneficial Owner (1)                                          |  | Shares
Beneficially
Owned (2) |      | Percent of Shares
Beneficially Owned |  
|--------------------------------------------------------------------------------- |  | ----------------------------- | ---- | ------------------------------------ | -
|Louis R. Bucalo, M.D.                                                             |  | 1,537,626                     | (3)  | 5.6                                  | %
|Ernst-Günter Afting, M.D., Ph.D.                                                  |  | 55,750                        | (4)  | *                                    |  
|Richard C. Allen, Ph.D.                                                           |  | 403,947                       | (5)  | 1.5                                  | %
|Victor J. Bauer, Ph.D.                                                            |  | 120,031                       | (6)  | *                                    |  
|Sunil Bhonsle                                                                     |  | 559,520                       | (7)  | 2.0                                  | %
|Eurelio M. Cavalier                                                               |  | 35,000                        | (8)  | *                                    |  
|Robert E. Farrell                                                                 |  | 195,072                       | (9)  | *                                    |  
|Michael K. Hsu                                                                    |  | 72,667                        | (10) | *                                    |  
|Hubert Huckel, M.D.                                                               |  | 127,400                       | (11) | *                                    |  
|Ley S. Smith                                                                      |  | 35,000                        | (12) | *                                    |  
|Frank H. Valone, M.D.                                                             |  | 0                             |      | *                                    |  
|Konrad M. Weis, Ph.D.                                                             |  | 91,324                        | (13) | *                                    |  
|Franklin Resources, Inc.
777 Mariners Island Blvd., 6th Floor
San Mateo, CA 94404 |  | 2,187,500                     | (14) | 7.9                                  | %
|All executive officers and directors
as a group (12) persons                      |  | 3,233,337                     |      | 11.7                                 | %

---

32

---

Equity Compensation Plan Information

The following table sets forth aggregate information regarding our equity compensation plans in effect as of December 31, 2001:

|Plan category                                                    |  | Number of securities to
be issued upon exercise
of outstanding options
(a) |  | Weighted-average
exercise price of
outstanding
options
(b) |       | Number of securities
remaining available for
future issuance under
equity compensation plans
(c)
|---------------------------------------------------------------- |  | -------------------------------------------------------------------------- |  | ---------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders           |  | 2,966,653                                                                  |  | $                                                          | 13.52 |                                                                                                 
|Equity compensation plans not approved by security holders(1)(2) |  | 1,161,430                                                                  |  | $                                                          | 12.37 |                                                                                                 
|                                                                 |  |                                                                            |  |                                                            |       |                                                                                                 
|Total                                                            |  | 4,128,083                                                                  |  | $                                                          | 13.20 |                                                                                                 
|                                                                 |  |                                                                            |  |                                                            |       |                                                                                                 

---

Item 13. Certain Relationships and Related Transactions.

In February 2001, we loaned Robert E. Farrell, our Executive Vice President and Chief Financial Officer, approximately $373,000 to finance certain federal
and state income tax liabilities incurred by Mr. Farrell in connection with his exercise of stock options. The loan, originally due in February 2002, bears an interest rate at prime and has
been extended to August 2002.

In
December 2001, we entered into agreements with certain of our officers and directors pursuant to which those officers and directors rescinded stock options that were previously
granted and exercised. Robert E. Farrell, our Executive Vice President and Chief Financial Officer, rescinded 63,294 options that he exercised on a "cashless" basis. As a result,
Mr. Farrell returned 27,515 shares of our common stock to us. Eurelio M. Cavalier, a director, rescinded 20,000 previously exercised options. He returned 20,000 shares of our common
stock to us and received $61,580 in return of his exercise price. Dr. Hubert Huckel, a director, rescinded 5,000 previously exercised options. Dr. Huckel returned 5,000 shares of our
common stock to us and received $45,315 in return of his exercise price. All of the above options which were reinstated as a result of the rescissions were immediately cancelled.

33

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PART IV

Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K



All
financial statement schedules are omitted because they are not applicable, not required under the instructions or all the information required is set forth in the financial
statements or notes thereto.



|3.1    |  |  |  | Restated Certificate of Incorporation of the Registrant (1)                                                                                                              
|------ |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2    |  |  |  | Form of Amendment to Restated Certificate of Incorporation of the Registrant (1)                                                                                         
|3.3    |  |  |  | By-laws of the Registrant (1)                                                                                                                                            
|4.7    |  |  |  | Certificate of Designation of Series C Preferred Stock (6)                                                                                                               
|10.1   |  |  |  | 1993 Stock Option Plan (1)                                                                                                                                               
|10.2   |  |  |  | 1995 Stock Option Plan, as amended (2)                                                                                                                                   
|10.3   |  |  |  | Employment Agreement between the Registrant and Louis Bucalo dated February 1, 1993, amended as of February 3, 1994 (1)                                                  
|10.4   |  |  |  | Employment Agreement between Registrant and Richard Allen dated July 28, 1995 (1)                                                                                        
|10.5   |  |  |  | Employment Agreement between Registrant and Sunil Bhonsle, dated August 6, 1995 (1)                                                                                      
|10.6   |  |  |  | Form of Indemnification Agreement (1)                                                                                                                                    
|10.9  |  |  |  | MDR Exclusive License Agreement between Ingenex, Inc. (formerly Pharm-Gen Systems Ltd.) and the Board of Trustees of the University of Illinois dated May 6, 1992 (1)    
|10.11 |  |  |  | License Agreement between Theracell, Inc. and New York University dated November 20, 1992, as amended as of February 23, 1993 and as of February 25, 1995 (1)            
|10.12 |  |  |  | License Agreement between the Registrant and the Massachusetts Institute of Technology dated September 28, 1995 (1)                                                      
|10.14 |  |  |  | Exclusive License Agreement between Ingenex, Inc. and the Board of Trustees of the University of Illinois, dated July 1, 1994 (1)                                        
|10.15 |  |  |  | Exclusive License Agreement between Ingenex, Inc. and the Board of Trustees of the University of Illinois, dated July 1, 1994 (1)                                        
|10.16 |  |  |  | License Agreement between Ingenex, Inc. and the Massachusetts Institute of Technology, dated September 11, 1992 (1)                                                      
|10.17 |  |  |  | License Agreement between Ingenex, Inc. and Baylor College of Medicine, dated October 21, 1992 (1)                                                                       
|10.18  |  |  |  | Lease for Registrant's facilities, amended as of December 5, 2001                                                                                                        
|10.20 |  |  |  | License Agreement between Trilex Pharmaceuticals, Inc. (formerly Ascalon Pharmaceuticals, Inc.) and the University of Kentucky Research Foundation dated May 30, 1996 (3)

34

---

|10.22 |  |  |  | License Agreement between the Registrant and Aventis SA (formerly Hoechst Marion Roussel, Inc.) effective as of December 31, 1996 (4)                                                                      
|------ |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.23  |  |  |  | Employment Agreement between Registrant and Robert E. Farrell dated August 9, 1996 (4)                                                                                                                     
|10.27 |  |  |  | License Agreement between the Registrant and Bar-Ilan Research and Development Company Limited effective November 25, 1997 (5)                                                                             
|10.28  |  |  |  | License Agreement between the Registrant and Ansan Pharmaceuticals, Inc. dated November 24, 1997 (5)                                                                                                       
|10.30 |  |  |  | Sublicense Agreement between the Registrant and Novartis Pharma AG dated November 20, 1997 (5)                                                                                                             
|10.31  |  |  |  | 1998 Stock Option Plan, as amended (7)                                                                                                                                                                     
|10.32 |  |  |  | License Agreement between the Registrant and Schering AG dated January 25, 2000 (8)                                                                                                                        
|10.34  |  |  |  | Agreement and Plan of Merger by and among the Registrant, GeoMed Merger Sub Corp., GeoMed, Inc. and Dr. Lawrence Bernstein, Dr. Neil Gesundheit, Leland Wilson and Dr. Virgil Place dated July 11, 2000 (9)
|10.35  |  |  |  | 2001 Non-Qualified Employee Stock Option Plan                                                                                                                                                              
|10.36  |  |  |  | Employment Agreement between Registrant and Frank H. Valone, M.D. dated February 6, 2002                                                                                                                   
|23.2   |  |  |  | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                         

---

There were no current reports on Form 8-K filed for the quarter ended December 31, 2001.

35

---



TITAN PHARMACEUTICALS, INC.        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                  |  | Page
|------------------------------------------------- |  | ----
|Report of Ernst & Young LLP, Independent Auditors |  | F-2 
|Consolidated Balance Sheets                       |  | F-3 
|Consolidated Statements of Operations             |  | F-4 
|Consolidated Statement of Stockholders' Equity    |  | F-5 
|Consolidated Statements of Cash Flows             |  | F-6 
|Notes to Consolidated Financial Statements        |  | F-7 

F-1

---



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The
Board of Directors and Stockholders
Titan Pharmaceuticals, Inc.

We
have audited the accompanying consolidated balance sheets of Titan Pharmaceuticals, Inc. as of December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Titan
Pharmaceuticals, Inc. at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United States.

| |  | Ernst & Young LLP
| |  | -----------------

Palo
Alto, California
February 21, 2002

F-2

---



TITAN PHARMACEUTICALS, INC.        CONSOLIDATED BALANCE SHEETS

|                                                            |                                                                                                                                                                                                 | December 31,                                                                                                                                                        |        
|----------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|
|
|Assets                                                      |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|Current assets:                                             |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|                                                            | Cash and cash equivalents                                                                                                                                                                       |                                                                                                                                                                     | $      
|                                                            | Marketable securities                                                                                                                                                                           |                                                                                                                                                                     |        
|                                                            | Related parties receivables                                                                                                                                                                     |                                                                                                                                                                     |        
|                                                            | Prepaid expenses and other current assets                                                                                                                                                       |                                                                                                                                                                     |        
|                                                            |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|                                                            |                                                                                                                                                                                                 | Total current assets                                                                                                                                                |        
|Property and equipment, net                                 |                                                                                                                                                                                                 |                                                                                                                                                                     | 575    
|Investment in other companies                               |                                                                                                                                                                                                 |                                                                                                                                                                     | 600    
|                                                            |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|                                                            |                                                                                                                                                                                                 | $                                                                                                                                                                   | 107,132
|                                                            |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|Liabilities and Stockholders' Equity                        |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|Current liabilities:                                        |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|                                                            | Accounts payable                                                                                                                                                                                |                                                                                                                                                                     | $      
|                                                            | Accrued clinical trials expenses                                                                                                                                                                |                                                                                                                                                                     |        
|                                                            | Other accrued liabilities                                                                                                                                                                       |                                                                                                                                                                     |        
|                                                            | Deferred contract revenue                                                                                                                                                                       |                                                                                                                                                                     |        
|                                                            |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|                                                            |                                                                                                                                                                                                 | Total current liabilities                                                                                                                                           |        
|Commitments                                                 |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|Minority interestSeries B preferred stock of Ingenex, Inc. |                                                                                                                                                                                                 |                                                                                                                                                                     | 1,241  
|Stockholders' Equity                                        |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|                                                            | Preferred stock, $0.001 par value per share; 5,000,000 shares authorized, issuable in series:                                                                                                   |                                                                                                                                                                     |        
|                                                            |                                                                                                                                                                                                 | Convertible Series C, 222,400 shares designated, 222,400 shares issued and outstanding, with an aggregate liquidation value of $2,000 at December 31, 2001 and 2000 |        
|                                                            | Common stock, at amounts paid in, $0.001 par value per share; 50,000,000 shares authorized, 27,641,770 and 27,233,754 shares issued and outstanding at December 31, 2001 and 2000, respectively |                                                                                                                                                                     |        
|                                                            | Additional paid-in capital                                                                                                                                                                      |                                                                                                                                                                     |        
|                                                            | Deferred compensation                                                                                                                                                                           |                                                                                                                                                                     |        
|                                                            | Accumulated deficit                                                                                                                                                                             |                                                                                                                                                                     |        
|                                                            | Accumulated other comprehensive income                                                                                                                                                          |                                                                                                                                                                     |        
|                                                            |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|                                                            |                                                                                                                                                                                                 | Total stockholders' equity                                                                                                                                          |        
|                                                            |                                                                                                                                                                                                 |                                                                                                                                                                     |        
|                                                            |                                                                                                                                                                                                 | $                                                                                                                                                                   | 107,132
|                                                            |                                                                                                                                                                                                 |                                                                                                                                                                     |        

See
accompanying notes.

F-3

---



TITAN PHARMACEUTICALS, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                               |                                              | Year ended December 31,  |        
|------------------------------------------------------------------------------ | -------------------------------------------- | ------------------------ | -------
|
|
|Revenue:                                                                       |                                              |                          |        
|                                                                               | Contract revenue                             |                          | $      
|                                                                               | License revenue                              |                          |        
|                                                                               | Grant revenue                                |                          |        
|                                                                               |                                              |                          |        
|                                                                               |                                              | Total revenue            |        
|Operating expenses:                                                            |                                              |                          |        
|                                                                               | Research and development                     |                          |        
|                                                                               | Acquired in-process research and development |                          |        
|                                                                               | General and administrative                   |                          |        
|                                                                               |                                              |                          |        
|                                                                               |                                              | Total operating expenses |        
|                                                                               |                                              |                          |        
|                                                                               |                                              | Loss from operations     |        
|Other income (expense):                                                        |                                              |                          |        
|                                                                               | Interest income                              |                          |        
|                                                                               | Other expense                                |                          |        
|                                                                               |                                              |                          |        
|                                                                               |                                              | Other income, net        |        
|                                                                               |                                              |                          |        
|Net loss                                                                       |                                              | $                        | (17,464
|                                                                               |                                              |                          |        
|Basic and diluted net loss per share                                           |                                              | $                        | (0.63  
|                                                                               |                                              |                          |        
|Weighted average shares used in computing basic and diluted net loss per share |                                              |                          | 27,595 
|                                                                               |                                              |                          |        

See
accompanying notes.

F-4

---



TITAN PHARMACEUTICALS, INC  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY  (in thousands)

|                                                                                                  |                                          | Preferred Stock |   | Common Stock |        |   |        |   |   |         |   | Accumulated
Other
Comprehensive
Income |       |  |  
|------------------------------------------------------------------------------------------------- | ---------------------------------------- | --------------- | - | ------------ | ------ | - | ------ | - | - | ------- | - | -------------------------------------- | ----- |  | -
|
|
|Balances at December 31, 1998                                                                     |                                          | 828             |   | $            | 5,000  |   | 13,124 |   | $ | 52,291  |   | $                                      | 6,524 |  | $
|Issuance of common stock in a private placement, net of issuance costs of $403                    |                                          |                 |   |              |        |   | 2,255  |   |   | 5,797   |   |                                        |       |  |  
|Issuance of common stock to minority stockholders pursuant to the Theracell Merger                |                                          |                 |   |              |        |   | 33     |   |   | 136     |   |                                        |       |  |  
|Issuance of common stock upon exercise of options and warrants                                    |                                          |                 |   |              |        |   | 396    |   |   | 650     |   |                                        |       |  |  
|Issuance of common stock upon exercise of Class A Warrants, net of issuance costs of $3,254       |                                          |                 |   |              |        |   | 7,084  |   |   | 39,392  |   |                                        |       |  |  
|Deferred compensation related to stock options                                                    |                                          |                 |   |              |        |   |        |   |   |         |   |                                        | 431   |  |  
|Amortization of deferred compensation                                                             |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|Net loss                                                                                          |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|                                                                                                  |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|Balances at December 31, 1999                                                                     |                                          | 828             |   |              | 5,000  |   | 22,892 |   |   | 98,266  |   |                                        | 6,955 |  |  
|Comprehensive loss:                                                                               |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|                                                                                                  | Net loss                                 |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|                                                                                                  | Unrealized gain on marketable securities |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|                                                                                                  |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|Comprehensive loss                                                                                |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|Issuance of common stock in a private placement in March 2000, net of issuance costs of $2,591    |                                          |                 |   |              |        |   | 1,200  |   |   | 38,809  |   |                                        |       |  |  
|Issuance of common stock upon exercise of options and warrants                                    |                                          |                 |   |              |        |   | 1,181  |   |   | 4,252   |   |                                        |       |  |  
|Conversion of Series D preferred stock to common stock                                            |                                          | (606            | ) |              | (5,000 | ) | 667    |   |   | 5,000   |   |                                        |       |  |  
|Issuance of common stock to acquire a technology, net                                             |                                          |                 |   |              |        |   | 94     |   |   | 3,522   |   |                                        |       |  |  
|Issuance of common stock in a private placement in November 2000, net of issuance costs of $2,886 |                                          |                 |   |              |        |   | 1,200  |   |   | 40,914  |   |                                        |       |  |  
|Compensation related to stock options                                                             |                                          |                 |   |              |        |   |        |   |   |         |   |                                        | 1,789 |  |  
|Amortization of deferred compensation                                                             |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|                                                                                                  |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|Balances at December 31, 2000                                                                     |                                          | 222             |   |              |       |   | 27,234 |   |   | 190,763 |   |                                        | 8,744 |  |  
|Comprehensive loss:                                                                               |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|                                                                                                  | Net loss                                 |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|                                                                                                  | Unrealized gain on marketable securities |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|                                                                                                  |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|Comprehensive loss                                                                                |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|Issuance of common stock upon exercise of options and warrants                                    |                                          |                 |   |              |        |   | 461    |   |   | 1,028   |   |                                        |       |  |  
|Rescission of stock option exercises                                                              |                                          |                 |   |              |        |   | (53    | ) |   | (107    | ) |                                        | 149   |  |  
|Compensation related to stock options                                                             |                                          |                 |   |              |        |   |        |   |   |         |   |                                        | 124   |  |  
|Amortization of deferred compensation                                                             |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|                                                                                                  |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  
|Balances at December 31, 2001                                                                     |                                          | 222             |   | $            |       |   | 27,642 |   | $ | 191,684 |   | $                                      | 9,017 |  | $
|                                                                                                  |                                          |                 |   |              |        |   |        |   |   |         |   |                                        |       |  |  

See accompanying notes.

F-5

---



TITAN PHARMACEUTICALS, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                          |                                                                          | Years ended December 31, |        
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------ | -------
|
|
|Cash flows from operating activities:                                                     |                                                                          |                          |        
|Net loss                                                                                  |                                                                          | $                        | (17,464
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                                          |                          |        
|                                                                                          | Depreciation and amortization                                            |                          |        
|                                                                                          | Acquired in-process research and development                             |                          |        
|                                                                                          | Non-cash compensation related to stock options                           |                          |        
|                                                                                          | Issuance of common stock to acquire minority interest of Theracell, Inc. |                          |        
|                                                                                          | Other                                                                    |                          |        
|Changes in operating assets and liabilities:                                              |                                                                          |                          |        
|                                                                                          | Prepaid expenses, receivables and other current assets                   |                          |        
|                                                                                          | Accounts payable                                                         |                          |        
|                                                                                          | Accrued clinical trials and other liabilities                            |                          |        
|                                                                                          | Deferred contract revenue                                                |                          |        
|                                                                                          |                                                                          |                          |        
|Net cash used in operating activities                                                     |                                                                          |                          | (13,739
|                                                                                          |                                                                          |                          |        
|Cash flows from investing activities:                                                     |                                                                          |                          |        
|                                                                                          | Purchases of property and equipment, net                                 |                          |        
|                                                                                          | Investment in other companies                                            |                          |        
|                                                                                          | Purchases of marketable securities                                       |                          |        
|                                                                                          | Proceeds from maturities of marketable securities                        |                          |        
|                                                                                          | Proceeds from sales of marketable securities                             |                          |        
|                                                                                          |                                                                          |                          |        
|Net cash used in investing activities                                                     |                                                                          |                          | (1,710 
|                                                                                          |                                                                          |                          |        
|Cash flows from financing activities:                                                     |                                                                          |                          |        
|                                                                                          | Issuance of common stock, net                                            |                          |        
|                                                                                          |                                                                          |                          |        
|Net cash provided by financing activities                                                 |                                                                          |                          | 921    
|                                                                                          |                                                                          |                          |        
|Net increase (decrease) in cash and cash equivalents                                      |                                                                          |                          | (14,528
|Cash and cash equivalents at beginning of year                                            |                                                                          |                          | 20,300 
|                                                                                          |                                                                          |                          |        
|Cash and cash equivalents at end of year                                                  |                                                                          |                          | 5,772  
|Marketable securities at end of year                                                      |                                                                          |                          | 99,279 
|                                                                                          |                                                                          |                          |        
|Cash, cash equivalents and marketable securities at end of year                           |                                                                          | $                        | 105,051
|                                                                                          |                                                                          |                          |        
|Schedule of non-cash transaction:                                                         |                                                                          |                          |        
|                                                                                          | Issuance of common stock to acquire technology, net                      |                          | $      
|                                                                                          |                                                                          |                          |        

See
accompanying notes.

F-6

---



TITAN PHARMACEUTICALS, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization and Summary of Significant Accounting Policies



We are a biopharmaceutical company developing proprietary therapeutics for the treatment of central nervous system disorders, cancer, and other serious and life
threatening diseases. Our product development programs focus on large pharmaceutical markets with significant unmet medical needs and commercial potential. We conduct a portion of our operations
through our two subsidiaries: Ingenex, Inc. and ProNeura, Inc. Another majority owned subsidiary, Theracell, Inc., was merged with and into Titan in March 1999 (the
Theracell Merger). Pursuant to the Theracell Merger, we issued 33,000 shares of our common stock to the minority stockholders of Theracell and recorded an in-process research and
development expense of $136,000, which equals the value of the common stock issued. In the third quarter of 2000 and in connection with the acquisition of worldwide rights to gallium maltolate, a
novel and proprietary agent for the potential treatment of cancer and other conditions, including HIV infection, we acquired GeoMed, Inc., a privately held California corporation (See
Note 8). We operate in one business segment, the development of pharmaceutical products.



Ingenex is engaged in the development of gene-based therapeutics for the treatment of cancer. In September 1994, Ingenex issued shares of its
Series B convertible preferred stock to a third party for
$1.2 million, net of issuance costs. At December 31, 2001, we owned 81% of Ingenex, assuming the conversion of all preferred stock to common stock.



ProNeura is engaged in the development of cost effective, long-term treatment solutions to neurologic and psychiatric disorders through an implantable
drug delivery system. At December 31, 2001, we owned 79% of ProNeura.



The accompanying consolidated financial statements include the accounts of Titan and our wholly and majority owned subsidiaries. All significant intercompany
balances and transactions are eliminated. The consolidated financial statements are reformatted to present dollars in thousands. Certain prior year balances have been reclassified to conform to the
current year presentation.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.



Our cash and investment policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize
interest income to the extent possible given these two constraints. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected cash needs and
limit concentration of credit risk by diversifying

F-7

---

our investments among a variety of high credit-quality issuers and limit the amount of credit exposure to any one issuer. The estimated fair values have been determined using available market
information
and commonly used valuation methodologies. We do not use derivative financial instruments in our investment portfolio.

All
investments with original maturities of three months or less are considered to be cash equivalents. Our marketable securities, consisting primarily of high-grade debt
securities including money market funds, U.S. government corporate notes and bonds, and commercial paper, are classified as available-for-sale at time of purchase and carried
at fair value. Amortization of premiums and discounts, and realized gains and losses are included as interest income. Unrealized gains and losses are included as accumulated other comprehensive
income, a separate component of stockholders' equity. Cost of securities sold is based on specific identification method.



Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from
three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets.



We have invested in equity instruments of privately-held companies for business and strategic purposes. These investments are classified as
long-term assets and are accounted for under the cost method as we do not have the ability to exercise significant influence over their operations. We monitor our investments for
impairment and record reductions in carrying value when events or changes in circumstances indicate that the carrying value may not be recoverable.

In
July 2001, we made a $300,000 equity investment in CSS Acquisition Corporation for 300 shares of Series D Preferred stock, representing 2.5% of total equity in the
company. In December 2001, we made a $300,000 equity investment in Molecular Medicine LLC for 714,286 shares of Series A Preferred stock, representing 13.6% of total equity in the
company. These investments are intended to strengthen our relationships with companies that provide contracted services and resources that are important to our operations.



Contract revenue for research and development is recorded as earned based on the performance requirements of the contract. Non-refundable contract
fees or non-refundable upfront license fees for which no further performance obligations exist, and there is no continuing involvement by Titan, are recognized on the earlier of when the
payments are received or when collection is assured.

Revenue
associated with performance milestones, considered "at-risk" until the milestones are completed, is recognized based on the achievement of the milestones as defined
in the respective agreements. Advance payments received prior to the achievement of milestones are classified as deferred revenue until earned.

Government
grants, which support our research effort in specific projects, generally provide for reimbursement of approved costs as defined in the grant documents, and revenue is
recognized when subsidized project costs are incurred.

F-8

---



Research and development expenses include internal and external costs. Internal costs include salaries and employment related expenses, facility costs,
administrative expenses and allocations of corporate costs. External expenses consist of costs associated with outsourced clinical research organization activities, sponsored research studies, product
registration, patent application and prosecution, and investigator sponsored trials. All such costs are charged to expense as incurred.



We calculate basic net loss per share using the weighted average common shares outstanding for the period. Diluted net income per share includes the impact of
other dilutive equity instruments, primarily our preferred stock, options and warrants. For the years ended December 31, 2001, 2000 and 1999, outstanding preferred stock, options and warrants
totaled 4.4 million, 3.9 million and 4.3 million shares, respectively. We reported net losses for all years presented and, therefore, preferred stock, options and warrants were
excluded from the calculation of diluted net loss per share as they were anti-dilutive.



Comprehensive income is comprised of net loss and other comprehensive income. The only component of other comprehensive income is unrealized gains and losses on
our marketable securities. Comprehensive loss for the years ended December 31, 2001, 2000 and 1999 were $16.3 million, $18.1 million, and $11.3 million, respectively.
Comprehensive loss has been disclosed in the Statement of Stockholders' Equity for all periods presented.



In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS 141). SFAS 141 addresses financial accounting and reporting for business combinations, and supersedes APB Opinion No. 16, "Business Combinations" and a number of
interpretations of that opinion. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and also specifies the
criteria for the recognition of intangible assets separately from goodwill. When the amounts of goodwill and intangible assets acquired are significant in relation to the purchase price paid,
disclosure of the amount of goodwill by reportable segment and the amount of purchase price assigned to each major intangible asset class is required. Our adoption of SFAS 141 on
January 1, 2002 is not expected to have a material impact on our financial position and results of operations.

In
July 2001, the FASB issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangibles" (SFAS 142). Under SFAS 142, goodwill and
indefinite-lived intangible assets are no longer amortized but are reviewed annually for impairment (or more frequently if impairment indicators arise). Separable intangible assets that are not deemed
to have an indefinite life will continue to be amortized over their estimated useful lives. We have not recorded any goodwill or indefinite-lived intangible assets prior to December 31, 2001.
Our adoption of SFAS 142 on January 1, 2002 is not expected to have a material impact on our financial position and results of operations.

In
October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(SFAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be

F-9

---

Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a disposal of a segment of a business". Our adoption of
SFAS 144 on January 1, 2002 is not expected to have a material impact on our financial position and results of operations.

2.    Available-For-Sale Securities

The following is a summary of our available-for-sale securities at December 31 (in thousands):

2001

2000Amortized
Cost

Unrealized
Gains

Fair Value

Amortized
Cost

Unrealized
Gains

Fair ValueMoney market funds

$
5,478

$


$
5,478

$
17,835

$


$
17,835Securities of the U.S. government and its agencies


60,785


1,380


62,165


52,280


393


52,673Corporate notes and bonds


36,603


511


37,114


42,289


296


42,585Commercial paper











3,957


2


3,959$
102,866

$
1,891

$
104,757

$
116,361

$
691

$
117,052Classified as:Cash equivalents







$
5,478







$
19,829Marketable Securities








99,279








97,223$
104,757







$
117,052


The
estimated fair value of available-for-sale securities at December 31, 2001 was $104.8 million, with $5.8 million maturing within
1 year and $98.9 million maturing between 1 to 3 years.

Gross
realized gains on sales of marketable securities were $149,000 for the year ended December 31, 2001. Gross realized gains or losses were immaterial for the years ended
December 31, 2000 and 1999.

3.    Property and Equipment

Property and equipment consisted of the following at December 31 (in thousands):

2001

2000Furniture and office equipment

$
290

$
191Leasehold improvements


229


213Laboratory equipment


363


354Computer equipment


380


2501,262


1,008Less accumulated depreciation and amortization


(687
)

(415
)Property and equipment, net

$
575

$
593


Depreciation
and amortization expense was $272,000, $196,000, and $174,000 for the years ended December 31, 2001, 2000, and 1999, respectively.

F-10

---

4.    Sponsored Research and License Agreements

We have entered into various agreements with research institutions, universities, and other entities for the performance of research and development activities
and for the acquisition of licenses related to those activities. Expenses under these agreements totaled $1.6 million, $1.5 million, and $1.3 million in the years ended
December 31, 2001, 2000, and 1999, respectively.

At
December 31, 2001, the annual aggregate commitments we have under these agreements, including minimum license payments, are as follows (in thousands):

2002

$
1,5962003


3292004


3292005


3292006


329$
2,912


After
2006, we must make annual payments aggregating $329,000 per year to maintain certain licenses. Certain licenses provide for the payment of royalties by us on future product sales,
if any. In addition, in order to maintain these licenses and other rights during product development, we must comply with various conditions including the payment of patent related costs and obtaining
additional equity investments.

5.    Agreement with Aventis SA

In 1997, we entered into an exclusive license agreement with Aventis SA (formerly Hoechst Marion Roussel, Inc.). The agreement gave us a worldwide license
to the patent rights and know-how related to the antipsychotic agent iloperidone, including the ability to develop, use, sublicense, manufacture and sell products and processes claimed in
the patent rights. We are required to make additional benchmark payments as specific milestones are met. Upon commercialization of the product, the license agreement provides that we will pay
royalties based on net sales.

6.    Iloperidone Sublicense to Novartis Pharma AG

We entered into an agreement with Novartis in 1997 pursuant to which we granted Novartis a sublicense for the worldwide (with the exception of Japan) development,
manufacturing and marketing of iloperidone. In April 2001, we entered into an amendment to the agreement for the development and commercialization of iloperidone in Japan. Under the amendment,
in exchange for rights to iloperidone in Japan, Titan received a $2.5 million license fee in May 2001. Novartis will make our milestone payments to Aventis during the life of the
Novartis agreement, and will also pay to Aventis and Titan a royalty on future net sales of the product, providing Titan with a net royalty of 8% on the first $200 million of sales annually and
10% on all sales above $200 million on an annual basis. Novartis has assumed the responsibility for all clinical development, registration, manufacturing and marketing of iloperidone, and we
have no remaining obligations under the terms of this agreement, except for maintaining certain usual and customary requirements, such as confidentiality covenants.

F-11

---

7.    Licensing and Collaborative Agreement with Schering AG

In January 2000, we entered into a licensing and collaborative agreement with Schering, under which we will collaborate with Schering on manufacturing and
clinical development of our cell therapy product, Spheramine®, for the treatment of Parkinson's disease. Under the agreement, we will perform clinical development activities for which we
will receive funding. As of December 31, 2001, we recognized $2.2 million under this agreement. Schering will fully fund, and manage in collaboration with us, all future pilot and
pivotal clinical studies, and manufacturing and development activities. We are entitled to certain payments upon the achievement of specific milestones.

8.    Acquisition of a Novel and Proprietary Agent

In July 2000, we announced the acquisition of a worldwide, royalty-bearing, exclusive license to a novel and proprietary agent, gallium maltolate, for a
potential treatment of cancer and other conditions, including HIV infection. We obtained these rights through the acquisition of GeoMed, Inc., a privately held California corporation. Under
this license agreement, we are required to make an annual license payment to Dr. Lawrence Bernstein, technology inventor, of $50,000, as well as royalty payments based on net sales of products
and processes incorporating the licensed technology. We completed the acquisition in August 2000 by assuming $1.4 million of GeoMed's liabilities and issuing an aggregate of 94,000
shares of Titan common stock valued at approximately $3.6 million using the fair market value of our common stock at the date of the agreement in accordance with generally accepted accounting
principles. The entire purchase price of approximately $5.0 million was charged to acquired in-process research and development as the acquired technology was in an early stage of
development that, as of the acquisition date, had not achieved technological feasibility and no alternative use existed.

9.    Lease Commitments

We lease facilities under operating leases that expire at various dates through June 2006. Rent expense was $584,000, $411,000, and $331,000, for years
ended December 31, 2001, 2000, and 1999, respectively.

The
following is a schedule of future minimum lease payments at December 31, 2001 (in thousands):

2002

$
6652003


7192004


7042005


7552006


389$
3,232


10.    Stockholders' Equity



In connection with the merger of our Trilex Pharmaceuticals, Inc. subsidiary (Trilex) in 1997, we issued 222,400 shares of Series C convertible
preferred stock (the Series C Preferred) to certain members of the Trilex management team and to certain consultants of Trilex. The Series C Preferred automatically converts to common
stock, on a one-to-one basis, only if certain development milestones

F-12

---

are achieved within certain timeframes. Upon achievement of the milestones, we would be required to value the technology using the then fair market value of our common stock issuable upon conversion.
Holders of Series C Preferred are not entitled to vote but entitled to receive dividends, when, as and if declared by the board of directors ratably with any declaration or payment of any
dividend on our common stock or other junior securities. The Series C Preferred has a liquidation preference equal to $0.01 per share. No value was assigned to the Series C Preferred in
the accompanying financial statements.



In March 2000, we completed a private placement of 1.2 million shares of our common stock for net proceeds of $38.8 million, after deducting
fees and commissions and other expenses of the offering.

In
November 2000, we completed a private placement of 1.2 million shares of our common stock for net proceeds of $40.9 million, after deducting fees and commissions
and other expenses of the offering.

In
October 1999, we called for the redemption of our then outstanding Class A Warrants. Rather than surrendering the warrants for redemption, warrant holders exercised the
option to purchase our common stock which resulted in 7.1 million Class A Warrants, or 99.4%, being exercised with net proceeds to Titan of $39.4 million, after deducting advisory
fees and other related expenses.

In
January 1999, we completed a private placement of 2.3 million shares of our common stock for net proceeds of $5.8 million, after deducting fees and commissions
and other expenses of the offering.



As of December 31, 2001, shares of common stock reserved by us for future issuance consisted of the following (shares in thousands):

Stock options and warrants

5,427Preferred stock

2225,649


11.    Stock Option Plans

Under our amended 1998 Stock Option Plan and predecessor option plans, a total of 3.6 million shares of our common stock were reserved and authorized for
issuance. The option plans provide for the grant of incentive stock options to employees, and non-qualified stock options to employees, directors and consultants. Options granted under the
option plans generally expire no later than ten years from the date of grant, except when the grantee is a 10% shareholder, in which case the maximum term is five years from the date of grant. Options
generally vest at the rate of one fourth after one year from the date of grant and the remainder ratably over the subsequent three years, although options with different vesting terms are granted from
time-to-time. The exercise price of incentive stock options, non-qualified stock options and options granted to 10% stockholders, shall be at least 100%, 85% and
110%, respectively, of the fair market value of the stock on the date of grant.

Our
1998 Option Plan provides for the automatic grant of non-qualified stock options to our directors who are not 10% stockholders (Eligible Directors). Each Eligible
Director will be granted an option to purchase 10,000 shares of common stock on the date that such person is first elected or

F-13

---

appointed a director. Commencing on the day immediately following the later of (i) the 2000 annual stockholders meeting, or (ii) the first annual meeting of stockholders after their
election to the Board, each Eligible Director will receive an automatic bi-annual (i.e. every two years) grant of an option to purchase 15,000 shares of common stock on the day immediately
following the date of each annual
stockholders meeting, as long as such director is a member of the Board of Directors. In addition, each Eligible Director will receive an automatic annual grant of an option to purchase 5,000 shares
of common stock on the day immediately following the date of each annual stockholders meeting for each committee of the Board on which they serve.

In
November 1999 and in connection with the warrant call, we granted 813,000 non-qualified stock options outside of our stock option plans to our executive officers,
at an exercise price of $12.69, vesting equally over 36 months from the date of grant.

In
August 2001, we adopted the 2001 Employee Non-Qualified Stock Option Plan (2001 NQ Plan) pursuant to which 1.0 million shares of common stock were reserved
and authorized for issuance for option grants to employees and consultants who are not officers or directors of Titan. Options granted under the option plans generally expire no later than ten years
from the date of grant. Option vesting schedule and exercise price are determined at time of grant by the Board of Directors.

In
December 2001, Titan entered into agreements with certain officers and directors of the company to rescind stock options that were previously granted and exercised. These
agreements resulted in the rescission of 88,000 stock options that were exercised and, as a result, a total compensation charge of $149,000 was recorded in general and administrative expense and the
reinstated options were subsequently cancelled. A total of 53,000 shares of common stock were returned and retired from shares outstanding as of December 31, 2001, and $107,000 was refunded to
the individuals.

Activity
under our stock option plans, as well as non-plan activity are summarized below (shares in thousands):

Shares Available For Grant

Number of Options Outstanding

Weighted Average Exercise PriceBalance at December 31, 1998

868

1,924

$
5.45Increase in shares reserved

226




Options granted

(784
)
1,597

$
8.12Options exercised



(147
)
$
3.32Options cancelled

67

(70
)
$
4.84Balance at December 31, 1999

377

3,304

$
6.82Increase in shares reserved

1,500




Options granted

(748
)
748

$
36.20Options exercised



(353
)
$
4.31Options cancelled

28

(33
)
$
19.17Balance at December 31, 2000

1,157

3,666

$
12.95Increase in shares reserved

1,000




Options granted

(1,300
)
1,300

$
15.21Options exercised



(404
)
$
3.26Options cancelled

434

(434
)
$
26.35Balance at December 31, 2001

1,291

4,128

$
13.20


F-14

---

Our option plans allow for stock options issued as the result of a merger or consolidation of another entity, including the acquisition of minority interest of our subsidiaries, to be
added to the maximum number of shares provided for in the plan (Substitute Options). Consequently, Substitute Options are not returned to the shares reserved under the plan when cancelled. During
2001, 2000 and 1999, the number of Substitute Options cancelled were immaterial.

Options
for 2.4 million and 2.1 million shares were exercisable at December 31, 2000 and 1999, respectively. The options outstanding at December 31, 2001 have
been segregated into three ranges for additional disclosure as follows (option shares in thousands):

|                |  | Options Outstanding |  | Options Exercisable
|--------------- |  | ------------------- |  | -------------------
|
|$0.08  $7.50   |  | 1,620               |  | 5.99               
|$8.39  $12.69  |  | 1,646               |  | 8.73               
|$12.75  $46.50 |  | 862                 |  | 8.77               
|                |  |                     |  |                    
|                |  | 4,128               |  | 7.66               
|                |  |                     |  |                    

In
addition, Ingenex has a stock option plan under which options to purchase common stock of Ingenex have been and may be granted. No options had been granted under such
plan since 1997.

We
have elected to follow APB 25 in accounting for our stock options because the alternative fair value method of accounting prescribed by SFAS 123 requires the use of option
valuation models that were not developed for use in valuing employee stock options. Under APB 25, no compensation expense is recognized when the exercise price of our stock options equals the market
price of the underlying stock on the date of grant. For the years ended December 31, 2001, 2000 and 1999, compensation costs for options granted to employees and consultants were
$1.1 million, $1.0 million and $0.2 million, respectively.

Pro
forma net loss and net loss per share information required by SFAS 123 has been determined as if we had accounted for our employee stock options under the fair value method of
SFAS 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for 2001, 2000, and 1999:
weighted-average volatility factor of 0.86, 0.90, and 0.80, respectively; no expected dividend payments; weighted-average risk-free interest rates in effect of 3.9%, 5.0% and 6.0%,
respectively; and a weighted-average expected life of 2.99, 3.69, and 2.52, respectively.

The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of our employee stock options.

Based
upon the above methodology, the weighted-average fair value of options granted during the years ended December 31, 2001, 2000, and 1999 was $8.44, $23.56, and $4.83,
respectively.

F-15

---

For
purposes of SFAS 123 disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Our pro forma information is as follows (in
thousands, except per share amount):

December 31,2001

2000

1999Net loss as reported

$
(17,464
)
$
(18,788
)
$
(11,296
)Basic and diluted net loss per share as reported

$
(0.63
)
$
(0.73
)
$
(0.70
)Pro forma net loss

$
(27,690
)
$
(27,569
)
$
(13,487
)Pro forma basic and diluted net loss per share

$
(1.00
)
$
(1.08
)
$
(0.84
)


The
consolidated pro forma net loss calculated above also includes the estimated fair value of the options granted by our subsidiaries in 2001, 2000, and 1999, calculated
on substantially equivalent assumptions.

12.    Minority Interest

The $1.2 million received by Ingenex upon the issuance of its Series B convertible preferred stock has been classified as minority interest in the
consolidated balance sheet. As a result of the Series B preferred stockholders' liquidation preference, the balance has not been reduced by any portion of the losses of Ingenex.

Amounts
invested by outside investors in the common stock of the consolidated subsidiaries have been apportioned between minority interest and additional paid-in capital in
the consolidated balance sheets. Losses applicable to the minority interest holdings of the subsidiaries' common stock have been reduced to zero.

13.    Related Parties Transactions

We make loans to our officers and employees from time to time in order to attract and retain the best available talent and to encourage the highest level of
performance. In 2001 and 2000, we provided certain relocation loans to employees in connection with employment. Also in February 2001, we provided a loan to an officer. The loan, originally due
in February 2002, bears an interest rate at prime and has been extended to August 2002. As of December 31, 2001, the principal amount outstanding on the loan was $373,000.

14.    Income Taxes

As of December 31, 2001, we had net operating loss carryforwards for federal income tax purposes of approximately $99.0 million that expire in the
years 2006 through 2021, and federal research and development tax credits of approximately $2.2 million that expire in the years 2007 through 2021. We also had net operating loss carryforwards
for state income tax purposes of approximately $12.0 million that expire in the years 2002 through 2011.

Utilization
of our net operating loss may be subject to substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state
provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization.

F-16

---

Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of our deferred tax assets are as follows (in thousands):

December 31,2001

2000Deferred tax assets:Net operating loss carryforwards

$
34,300

$
28,200Research credit carryforwards


3,000


2,000Capitalized research and development


3,400


2,900Other, net


900


2,000Total deferred tax assets


41,600


35,100Deferred tax liabilities:Unrealized gain on investments


(800
)

(200
)Valuation allowance


(40,800
)

(34,900
)Net deferred tax assets

$


$



Realization
of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by $9.4 million and $6.7 million during 2000 and 1999, respectively. The valuation allowance at
December 31, 2001 includes $2.3 million related to deferred tax assets arising from tax benefits associated with stock option plans. This benefit, when realized, will be recorded as an
increase to stockholders' equity.

15.    Quarterly Financial Data (Unaudited)

|                                                 |  | First
Quarter |         | Second
Quarter |   | Third
Quarter |   | Fourth
Quarter |        
|------------------------------------------------ |  | ------------- | ------- | -------------- | - | ------------- | - | -------------- | -------
|
|2001                                             |  |               |         |                |   |               |   |                |        
|Total revenue                                    |  | $             | 580     |                | $ | 2,873         |   | $              | 530    
|Net loss                                         |  | $             | (4,519  | )              | $ | (1,834        | ) | $              | (4,787 
|Basic and diluted net loss per share             |  | $             | (0.16   | )              | $ | (0.07         | ) | $              | (0.17  
|Cash, cash equivalents and marketable securities |  | $             | 114,421 |                | $ | 113,122       |   | $              | 108,913
|2000                                             |  |               |         |                |   |               |   |                |        
|Total revenue                                    |  | $             | 335     |                | $ | 281           |   | $              | 695    
|Net loss                                         |  | $             | (3,648  | )              | $ | (2,423        | ) | $              | (8,711 
|Basic and diluted net loss per share             |  | $             | (0.15   | )              | $ | (0.09         | ) | $              | (0.34  
|Cash, cash equivalents and marketable securities |  | $             | 83,865  |                | $ | 82,515        |   | $              | 79,797 

16.    Subsequent Event (Unaudited)

In February 2002, we announced that we received a $2.0 million milestone payment from Schering, Titan's corporate partner for worldwide development,
manufacture and commercialization of Spheramine®, Titan's novel cell therapy for the treatment of Parkinson's disease. The milestone payment follows Schering's recent decision to initiate
larger, randomized clinical testing of Spheramine for the treatment of late-stage Parkinson's disease upon the successful completion of Titan's Phase I/II clinical study of Spheramine.

F-17

---

SIGNATURES

Pursuant
to the requirements of Section 13 of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                     |  | TITAN PHARMACEUTICALS, INC.
|-------------------- |  | ---------------------------
|Date: March 29, 2002 |  | By:                        

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates stated.

|Signature                                              |  | Title                                                                                             |  | Date          
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | --------------
|                                                       |  |                                                                                                   |  |               
|/s/LOUIS R. BUCALOLouis R. Bucalo, M.D.                |  | Chairman, President and Chief Executive
Officer (principal executive officer)                     |  | March 29, 2002
|/s/ERNST-GÜNTER AFTINGErnst-Günter Afting, M.D., Ph.D. |  | Director                                                                                          |  | March 29, 2002
|/s/VICTOR J. BAUERVictor J. Bauer, Ph.D.               |  | Director                                                                                          |  | March 29, 2002
|/s/EURELIO M. CAVALIEREurelio M. Cavalier              |  | Director                                                                                          |  | March 29, 2002
|/s/MICHAEL K. HSUMichael K. Hsu                        |  | Director                                                                                          |  | March 29, 2002
|/s/HUBERT E. HUCKELHubert E. Huckel, M.D.              |  | Director                                                                                          |  | March 29, 2002
|/s/LEY S. SMITHLey S. Smith                            |  | Director                                                                                          |  | March 29, 2002
|/s/KONRAD M. WEISKonrad M. Weis, Ph.D.                 |  | Director                                                                                          |  | March 29, 2002
|/s/ROBERT E. FARRELLRobert E. Farrell                  |  | Executive Vice President and Chief Financial Officer (principal financial and accounting officer) |  | March 29, 2002

---

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