** **

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-Q**

 

| **ý****    Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                            |
| **for the Period Ended March 31, 2004.**                                                                                                                                                                                        |
|                                                                                                                                                                                                                            |
| **or**                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                            |
| ** ̈****    Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                 |
|                                                                                                                                                                                                                            |
| **for the Transition Period From                   to                 .** |
|                                                                                                                                                                                                                            |
| **Commission file number 0-27436**                                                                                                                                                                                              |

 

**Titan Pharmaceuticals, Inc.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                                  |   | **94-3171940**                        |
|-------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization)               |   | (I.R.S. Employer  Identification No.) |
|                                                                          |   |                                  |
| **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)                     |

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý  No o

 

Indicate by check mark whether theregistrant is an accelerated filer (as defined on Rule 12B-2 of the ExchangeAct).  Yes ý  No  ̈

 

There were 32,107,760 shares of the Registrant’s Common Stock issuedand outstanding on May 3, 2004.

 

 

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**TitanPharmaceuticals, Inc**.

**Index to Form 10-Q**

 
| **Part I.**    | **Financial Information**                                                                                   |   |
|----------------|-------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                        |
|           | Item 1.  Condensed Financial Statements (unaudited)                                                    |   |
|           |                                                                                                        |   |
|           | Condensed Consolidated Balance Sheets  March 31, 2004 and December 31, 2003                                 |   |
|           |                                                                                                        |   |
|           | Condensed Consolidated Statements of  Operations  Three months ended March 31, 2004 and 2003                |   |
|           |                                                                                                        |   |
|           | Condensed Consolidated Statements of Cash  Flows  Three months ended March 31, 2004 and 2003                |   |
|           |                                                                                                        |   |
|           | Notes to Condensed Consolidated Financial  Statements                                                       |   |
|           |                                                                                                        |   |
|           | Item  2.  Management’s Discussion and  Analysis of Financial Condition  and Results of Operations |   |
|           |                                                                                                        |   |
|           | Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                   |   |
|           |                                                                                                        |   |
|           | Item 4.   Controls and Procedures                                                                      |   |
|           |                                                                                                        |
| **Part II.**   | **Other Information**                                                                                       |   |
|           |                                                                                                        |
|           | Item 6.   Exhibits and Reports on Form 8-K                                                             |   |
|           |                                                                                                        |
| **SIGNATURES** |                                                                                                        |

 

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##### **Part I.** Financial Information

 

**TITANPHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(in thousands)**

 
|                                                           |   | **March 31,  2004** |   | **December  31,  2003** |   |
|----------------------------------------------------------------|--------|---------------------|--------|-------------------------|--------|
|                                                           |   | **(unaudited)**     |   | **(Note A)**            |   |
| **Assets**                                                     |   |                |   |                    |   |
| Current assets                                                 |   |                |   |                    |   |
| Cash and cash equivalents                                      |   | $                   | 23,078 |                    | $      | 6,832 |   |
| Marketable securities                                          |   | 32,798              |   | 39,723                  |   |
| Related party receivables                                      |   | 64                  |   | 123                     |   |
| Prepaid expenses, receivables, and other  current assets       |   | 1,190               |   | 1,241                   |   |
| Total current assets                                           |   | 57,130              |   | 47,919                  |   |
| Furniture and equipment, net                                   |   | 707                 |   | 789                     |   |
| Investment in other companies                                  |   | 300                 |   | 300                     |   |
|                                                           |   | $                   | 58,137 |                    | $      | 49,008 |   |
| **Liabilities and Stockholders’ Equity**                  |   |                |   |                    |   |
| Current liabilities                                            |   |                |   |                    |   |
| Accounts payable                                               |   | $                   | 783    |                    | $      | 1,505 |   |
| Accrued clinical trials expenses                               |   | 1,312               |   | 634                     |   |
| Other accrued liabilities                                      |   | 2,077               |   | 1,202                   |   |
| Total current liabilities                                      |   | 4,172               |   | 3,341                   |   |
| Minority interest - Series B preferred  stock of Ingenex, Inc. |   | 1,241               |   | 1,241                   |   |
| Stockholders’ equity                                      |   |                |   |                    |   |
| Common stock, at amounts paid-in                               |   | 209,810             |   | 195,331                 |   |
| Additional paid-in capital                                     |   | 9,225               |   | 9,047                   |   |
| Deferred compensation                                          |   | (272                | )      | (211                    | )      |
| Accumulated deficit                                            |   | (166,122            | )      | (159,741                | )      |
| Accumulated other comprehensive income                         |   | 83                  |   | —                  |   |
| Total stockholders’ equity                                |   | 52,724              |   | 44,426                  |   |
|                                                           |   | $                   | 58,137 |                    | $      | 49,008 |   |

 

Note A:  The balance sheet hasbeen derived from the audited financial statements at that date but does notinclude all of the information and footnotes required by generally acceptedaccounting principles in the United States for complete financial statementpresentation.

 

See Notes to Condensed Consolidated Financial Statements

 

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**TITANPHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

**(in thousands, exceptper share amount)**

 

** **
|                                                                            |   | **Three  Months Ended March 31** |   |
|---------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                            |   | **2004**                         |   | **2003** |   |
|                                                                            |   |                             |   |   |   |
| License revenue                                                                 |   | $                                | 1      |   | $ | 26 |   |
| Total revenue                                                                   |   | 1                                |   | 26 |   |
|                                                                            |   |                             |   |   |   |
| Operating expenses:                                                             |   |                             |   |   |   |
| Research and development                                                        |   | 5,113                            |   | 5,643 |   |
| General and administrative                                                      |   | 1,368                            |   | 1,382 |   |
| Total operating expenses                                                        |   | 6,481                            |   | 7,025 |   |
| Loss from operations                                                            |   | (6,480                           | )      | (6,999 | ) |
|                                                                            |   |                             |   |   |   |
| Other income (expense):                                                         |   |                             |   |   |   |
| Interest income, net                                                            |   | 159                              |   | 472 |   |
| Other expense                                                                   |   | (60                              | )      | (3 | ) |
| Other income, net                                                               |   | 99                               |   | 469 |   |
| Net loss                                                                        |   | $                                | (6,381 | ) | $ | (6,530 | ) |
|                                                                            |   |                             |   |   |   |
| Basic and diluted net loss per share                                            |   | $                                | (0.22  | ) | $ | (0.24 | ) |
|                                                                            |   |                             |   |   |   |
| Weighted average shares used in computing  basic and diluted net loss per share |   | 29,008                           |   | 27,642 |   |

 

See Notes to Condensed Consolidated Financial Statements

 

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**TITANPHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

**(in thousands)**

 
|                                                                                       |   | **Three  Months Ended March 31,** |   |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                       |   | **2004**                          |   | **2003** |   |
| **Cash flows from operating activities:**                                                  |   |                              |   |   |   |
| Net loss                                                                                   |   | $                                 | (6,381 | ) | $ | (6,530 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |   |                              |   |   |   |
| Depreciation and amortization                                                              |   | 98                                |   | 107 |   |
| Non-cash compensation related to stock  options                                            |   | 117                               |   | 94 |   |
| Changes in operating assets and  liabilities:                                              |   |                              |   |   |   |
| Prepaid expenses, receivables and other  assets                                            |   | 108                               |   | (820 | ) |
| Loss on investments                                                                        |   | 50                                |   | — |   |
| Accounts payable and other accrued  liabilities                                            |   | 831                               |   | (11 | ) |
| Net cash used in operating activities                                                      |   | (5,177                            | )      | (7,160 | ) |
|                                                                                       |   |                              |   |   |   |
| **Cash flows from investing activities:**                                                  |   |                              |   |   |   |
| Purchases of furniture and equipment, net                                                  |   | (15                               | )      | (23 | ) |
| Purchases of marketable securities                                                         |   | (2,341                            | )      | (24,856 | ) |
| Proceeds from maturities of marketable  securities                                         |   | 9,300                             |   | 33,315 |   |
| Net cash provided by investing activities                                                  |   | 6,944                             |   | 8,436 |   |
|                                                                                       |   |                              |   |   |   |
| **Cash flows from financing activities:**                                                  |   |                              |   |   |   |
| Issuance of common stock, net                                                              |   | 14,479                            |   | — |   |
| Net cash provided by financing activities                                                  |   | 14,479                            |   | — |   |
|                                                                                       |   |                              |   |   |   |
| **Net increase in cash and cash equivalents**                                              |   | 16,246                            |   | 1,276 |   |
| Cash and cash equivalents at beginning of  period                                          |   | 6,832                             |   | 7,155 |   |
| Cash and cash equivalents at end of period                                                 |   | 23,078                            |   | 8,431 |   |
| Marketable securities at end of period                                                     |   | 32,798                            |   | 57,649 |   |
| **Cash, cash equivalents and marketable securities  at end of period**                     |   | $                                 | 55,876 |   | $ | 66,080 |   |

 

See Notes to Condensed Consolidated Financial Statements

 

4

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**TITANPHARMACEUTICALS, INC.**

### **NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

**1.****              Organizationand Summary of Significant Accounting Policies**

 

***TheCompany***

 

We are a biopharmaceutical company developing proprietary therapeuticsfor the treatment of central nervous system disorders, cancer, andcardiovascular disorders.  We operate inone business segment, the development of biopharmaceutical products.

 

***Basis ofPresentation***

 

Theaccompanying unaudited condensed consolidated financial statements include theaccounts of Titan and its subsidiaries after elimination of all significantintercompany accounts and transactions. Certain prior year balances have beenreclassified to conform to the current year presentation.  These financial statements have beenprepared in accordance with generally accepted accounting principles in theUnited States for interim financial information and with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for a complete financialstatement presentation. In the opinion of management, all adjustments(consisting of normal recurring adjustments) considered necessary for a fairpresentation have been included. Operating results for the three-month period ended March 31, 2004 arenot necessarily indicative of the results that may be expected for the yearending December 31, 2004.

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect the amounts reported in the financial statementsand accompanying notes.  Actual resultscould differ from those estimates.

 

Theseunaudited condensed consolidated financial statements should be read inconjunction with the audited consolidated financial statements and footnotesthereto included in the Titan Pharmaceuticals, Inc. annual report on Form 10-Kfor the year ended December 31, 2003.

 

***RevenueRecognition***

*** ***

We generate revenue principally from collaborativeresearch and development arrangements, technology licenses, and governmentgrants. Revenue arrangements with multiple components are divided into separateunits of accounting if certain criteria are met, including whether thedelivered component has stand-alone value to the customer, and whether there isobjective and reliable evidence of the fair value of the undelivereditems.  Consideration received isallocated among the separate units of accounting based on their respective fairvalues, and the applicable revenue recognition criteria are then applied toeach of the units.

 

Revenue is recognized when the four basic criteria ofrevenue recognition are met: (1) a contractual agreement exists; (2) transferof technology has been completed or services have been rendered; (3) the fee isfixed or determinable; and (4) collectibility is reasonably assured.  For each source of revenue, we comply withthe above revenue recognition criteria in the following manner:

 

•                  Collaborative arrangements typically consist of non-refundable and/orexclusive technology access fees, cost reimbursements for specific research anddevelopment spending, and various milestone and future

 

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product royaltypayments. If the delivered technology does not have stand-alone value or if wedo not have objective or reliable evidence of the fair value of the undeliveredcomponents, the amount of revenue allocable to the delivered technology isdeferred.  Non-refundable upfront feeswith stand-alone value that are not dependent on future performance under theseagreements are recognized as revenue when received, and are deferred if Titanhas continuing performance obligations and has no evidence of fair value forthose obligations. Cost reimbursements for research and development spendingare recognized when the related costs are incurred and when reimbursements arereceived.  Payments received related tosubstantive, performance-based “at-risk” milestones are recognized as revenueupon achievement of the clinical success or regulatory event specified in theunderlying contracts, which represent the culmination of the earnings process.Amounts received in advance are recorded as deferred revenue until thetechnology is transferred, costs are incurred, or milestone is reached.

 

•                  Technology license agreements typically consist of non-refundableupfront license fees and annual minimum access fees or royalty payments.  Non-refundable upfront license fees andannual minimum payments received with separable stand-alone values arerecognized when the technology is transferred or accessed, provided that thetechnology transferred or accessed is not dependent on the outcome of ourcontinuing research and development efforts.

 

•                  Government grants, which support our research efforts in specificprojects, generally provide for reimbursement of approved costs as defined inthe notices of grants. Grant revenue is recognized when associated projectcosts are incurred.

 

***OperatingSubsidiaries***

 

We conduct some of our operations through two subsidiaries:Ingenex, Inc. and ProNeura, Inc. At March 31, 2004, we owned 81% of Ingenex (assuming the conversion ofall preferred stock to common stock) and 79% of ProNeura.

 

***Recent AccountingPronouncements***

 

In March 2004,the Emerging Issues Task Force (EITF) reached several consensuses on the accounting guidance and disclosure ofother-than-temporary impairment of debtand equity securities discussed in Issue No. 03-01, *“The Meaning of Other-Than-Temporary Impairment andIts Application to Certain Investments.”*  These Consensuses apply toinvestments in debt and equity securities within the scope of Statements 115and 124.  Theyalso apply to investments in equity securities that are both outside Statement115’s scope and not accounted for by the equity method, a group referred to as“cost method investments.”  Theimpairment accounting guidance is effective for reporting periods beginningafter June 15, 2004; the disclosure requirements for annual reporting periodsending after June 15, 2004.

 

**2.****              StockOption Plans**

 

We have elected tocontinue to follow Accounting Principles Board Opinion No. 25 (or APB 25), *“Accounting for Stock Issued to Employees,”*rather than the alternative method of accounting prescribed by Statement ofFinancial Accounting Standards No. 123 (or SFAS 123), *“Accounting for Stock-Based Compensation.”*   Under APB 25, no compensation expense isrecognized when the exercise price of our employee stock options equals themarket price of the underlying stock on the date of grant.  The following table illustrates the effecton our net loss and net loss per share if Titan had applied the provisions ofSFAS 123 to estimate and recognize compensation expense for our stock-basedemployee compensation.

 

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|                                                                                                                                  |   | **Three months ended March 31,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                                                  |   | **2004**                         |   | **2003** |   |
| Net loss, as reported                                                                                                                 |   | $                                | (6,381 | ) | $ | (6,530 | ) |
| Add:  Stock-based employee compensation expense  included in reported net loss                                                   |   | 117                              |   | 94 |   |
| Deduct:  Estimated stock-based employee compensation  expense determined in accordance with SFAS 123 for all stock option grants |   | (275                             | )      | (892 | ) |
| Pro forma net loss                                                                                                                    |   | $                                | (6,539 | ) | $ | (7,328 | ) |
|                                                                                                                                  |   |                             |   |   |   |
| Basic and diluted net loss  per share, as reported                                                                                    |   | $                                | (0.22  | ) | $ | (0.24 | ) |
| Pro forma basic and diluted  net loss per share                                                                                       |   | $                                | (0.23  | ) | $ | (0.27 | ) |

 

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| 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  the three-month periods ended 2004 and 2003: weighted-average volatility factor  of 0.70 and 0.70, respectively; no expected dividend payments;  weighted-average risk-free interest rates in effect of 2.1% and 2.1%,  respectively; and a weighted-average expected life of 3.1 and 3.0 years,  respectively.  For purposes of  disclosure, the estimated fair value of options is amortized to expense over  the options' vesting period. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**3.****              NetLoss Per Share**

 

Wecalculate net loss per share using the weighted average common sharesoutstanding for the period.  For periodsended March 31, 2004 and 2003, the effect of an additional 6,306,852 and6,849,326 shares, respectively, related to our authorized and issuedconvertible preferred stock and options, were not included in the computationof diluted earnings per share because they are anti-dilutive.

 

**4.****              ComprehensiveLoss**

 

Comprehensiveloss is comprised of net loss and other comprehensive income or loss.  The only component of other comprehensiveincome is unrealized gains and losses on our marketable securities.  Comprehensive loss for the three monthsended March 31, 2004 and 2003 was $6.3 million and $6.7 million, respectively.

 

**5.****              Stockholders’Equity**

 

In February 2004, we filed a shelf registrationstatement with the Securities and Exchange Commission to sell up to$50 million of common or preferred stock. Under this registration statement, shares may be sold periodically toprovide additional funds for our operations. In March 2004, we completed a sale of 3,075,000 shares of our commonstock offered under the registration statement at a price of $5.00 per share,for gross proceeds of approximately $15.4 million.  Net proceeds were approximately $14.4 million.

 

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**Item 2****.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

*The following discussion contains certainforward-looking statements, within the meaning of the “safe harbor” provisionsof the Private Securities Reform Act of 1995, the attainment of which involvesvarious risks and uncertainties. Forward-looking statements may be identifiedby 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 resultsmay differ materially from those described in these forward-looking statementsdue to, among other factors, the results of ongoing research and developmentactivities and pre-clinical testing, the results of clinical trials and theavailability of additional financing through corporate partnering arrangementsor otherwise.*

 

*Spheramine®, Pivanex®, Probuphine®, ProNeuraTM, CCMTM, CeaVac®, TriAb®, and TriGemTM are trademarks of TitanPharmaceuticals, Inc.*

 

**Overview**

 

We are abiopharmaceutical company developing proprietary therapeutics for the treatmentof central nervous system disorders, cancer, and cardiovascular disease.  Our product developmentprograms focus on large pharmaceutical markets with significant unmet medicalneeds and commercial potential. Our internal resources are currently focused primarilyon clinical development of the following five products:

 

•                  Spheramine:  for the treatment of Parkinson’s disease

•                  Pivanex:  for the treatment of non-small cell lungcancer

•                  Galliummaltolate:  for the treatment of severalcancers and bone related disease associated with cancer

•                  Probuphine:  for the treatment of opiate addiction

•                  DITPA:  for the treatment of congestive heartfailure

 

Following is an update on thestatus and progress of Titan’s core development programs:

 

***Spheramine***

 

Enrollment ina randomized, controlled, blinded, multi-center Phase IIb clinical study ofSpheramine in advanced Parkinson’s disease is proceeding on schedule, and weestimate that this study will be completed in the second half of 2005.  Schering AG, Germany, Titan’s corporatepartner for the development of Spheramine, is fully funding the clinicaldevelopment program for Spheramine.  Inthe second quarter of 2003, results from a pilot clinical study of Spheramine,demonstrating an average 41 percent improvement in patients’ motor function twoyears post treatment with no significant adverse events, were presented at theannual meeting of the American Academy of Neurology.

 

***Pivanex***

 

A randomized,controlled, multi-center Phase IIb clinical study of Pivanex in combinationwith docetaxel in the treatment of non-small cell lung cancer (NSCLC) wasinitiated in the second quarter of 2003 and is expected to be completed by theend of 2004.  Pivanex is beingadministered at the same dose level at which it demonstrated encouraging tumorresponse and survival data in a previous open label Phase II clinical study, inwhich Pivanex was administered as a single agent.  This dose of Pivanex followed by the approved second linetreatment of docetaxel has preliminarily been demonstrated to be safe in acompleted Phase I study, with no significant additional side effects fromPivanex.  In related developmentactivities, additional laboratory study results demonstrating that Pivanex issynergistic with docetaxel against NSCLC were presented at the meeting of theAmerican Association for Cancer Research in July 2003.  Pivanex is a histone deacetylase inhibitorwith potential activity in a number of cancers.

 

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***Gallium Maltolate***

 

Titan iscompleting a dose ranging clinical study of gallium maltolate in patients with multiplemyeloma, metastatic prostate cancer, metastatic bladder cancer and refractorylymphoma.  The maximum tolerateddose level has not yet been reached. Accordingly, additional patient cohorts are being enrolled at higherdoses.  This Phase I clinical study maybe completed in the first half of 2004, establishing a potential dose for thePhase II studies.  Preclinical testing ofgallium maltolate in other disease settings is also ongoing.  Gallium maltolate is a novel oral agent forthe treatment of cancer and bone disease.

 

***Probuphine***

 

Titan isadvancing a pilot clinical study of Probuphine, a novel long-term treatment foropiate addiction that utilizes Titan’s proprietary ProNeura drug deliverysystem.  In June 2003, we initiated apilot clinical study to evaluate the safety, pharmacokinetics and preliminaryefficacy of Probuphine in up to 18 opiate-dependent patients.  In September 2003, we announced positiveinterim results for the first cohort of six patients in this pilot clinicalstudy.  Preliminary data, presented atthe International Society of Addiction Medicine in Amsterdam, demonstrated thatall six patients treated with Probuphine at the first dose level have beensafely switched from daily sublingual buprenorphine therapy to Probuphine, withmaintenance of therapeutic benefit and no significant adverse events for sixmonths after a single treatment. Additional patients are now completing treatment at the second doselevel.  This pilot study may becompleted in the second half of 2004. Probuphine has been shown in preclinical studies to deliver targetedtherapeutic levels of buprenorphine, an approved agent for the treatment foropiate addiction, for over six months with no adverse effects.

 

***DITPA***

 

DITPA hascompleted Phase I and preliminary controlled Phase II clinical testing in thetreatment of congestive heart failure (CHF), and the U.S. Department ofVeterans Affairs (VA) will initiate a 150 patient, randomized, double blindPhase II clinical study in CHF during 2004. This multicenter study is funded by a $3.8 million grant from theVA.  In addition, Titan plans toinitiate Phase II clinical testing with DITPA in Class III and Class IV CHFpatients in the second half of 2004.

 

We are directly developing ourproduct candidates and also utilizing corporate partnerships, includingcollaboration with Schering AG, Germany (Schering) for the development ofSpheramine to treat Parkinson’s disease. Spheramine development is primarily funded by Schering.  Iloperidone is licensed to Novartis PharmaAG (Novartis) for development and commercialization in the treatment ofschizophrenia and schizoaffective disorders. Novartis continues to evaluate the next steps for the development ofiloperidone, including sublicensing the compound to another company orreturning product rights to Titan.  Wealso utilize grants from government agencies to fund development of our productcandidates, as mentioned above for DITPA.

 

At this time,we are not devoting any additional internal resources to the monoclonalantibodies CeaVac, TriAb, and TriGem. These treatments are currently being studied in certain cancers bynational oncology cooperative groups funded by the National Cancer Institute.

 

Our productsare at various stages of development and may not be successfully developed orcommercialized. We do not currently have any products being commerciallysold.  Our proposed products willrequire significant further capital expenditures, development, testing, andregulatory clearances prior to commercialization.  We may experience unanticipated problems relating to productdevelopment and cannot predict whether we will successfully develop andcommercialize any products.  For a fulldiscussion of risks and uncertainties of our product development, see “RiskFactors – Our products are at variousstages of 

 

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developmentand may not be successfully developed or commercialized” in our 2003 AnnualReport on Form 10-K.

 

**Results ofOperations**

 

In the firstquarter 2004, the Company had approximately $1,000 of revenue, compared toapproximately $26,000 of revenue for the same period in 2003.  The difference in revenue is primarily theresult of a decrease in royalties from a technology licensed to apharmaceutical company.

 

Research anddevelopment (R&D) expenses for the first quarter 2004 were $5.1 million,compared to $5.6 million for the same quarter in 2003, a decrease of $0.5million, or 9.4%.  This decreaseresulted primarily from a $0.5 million reimbursement of manufacturing-relatedexpenses received from Schering pursuant to the terms of a clarifying addendumto our agreement with Schering. External R&D expenses include direct expenses such as clinicalresearch organization charges, investigator and review board fees, patientexpense reimbursements, pre-clinical activities and contract manufacturingexpenses.  Including operating expensesfor the first quarter 2004, our external R&D expenses to date relating toour core product development programs have been approximately: $9.6 millionrelated to Pivanex, $3.5 million related to Probuphine, $3.7 million related togallium maltolate, $6.6 million related to Spheramine, and $80,000 related toDITPA.  Other R&D expenses wereattributable to internal operating costs, which include clinical research anddevelopment personnel salaries and employment related expenses, clinical trialsrelated travel expenses, and allocation of facility and corporate costs.  As a result of the risks and uncertaintiesinherently associated with pharmaceutical research and development activitiesdescribed elsewhere in this report, we are unable to estimate the specifictiming and future costs of our clinical development programs or the timing ofmaterial cash inflows, if any, from our product candidates.

 

General and administrative expensesfor the first quarter 2004 were $1.4 million, same as the first quarter 2003.

 

Other income, primarily interestincome net of amortization and other expenses, for the first quarter 2004 wasapproximately $99,000 compared to $469,000 in the same quarter in 2003.  The decrease, primarily in interest income,was a result of a lower balance of cash and marketable securities.

 

Our net loss for the first quarter2004 was $6.4 million, or $0.22 per share, compared to $6.5 million, or $0.24per share, for the same quarter in 2003.

 

**Liquidityand Capital Resources**

 

We have funded our operations since inception throughsales of our securities, as well as proceeds from warrant and option exercises,corporate licensing and collaborative agreements, and government sponsoredresearch grants.  At March 31, 2004,after the completion of a $15.4 million private placement of equity, we had$55.9 million of cash, cash equivalents, and marketable securities.

 

Our operating activities used $5.2 million and $7.2 million of cash inthe first three months in 2004 and 2003, respectively.  Uses of cash in operating activities wereprimarily to fund product development programs and administrative expenses.  We have entered into various agreements withresearch institutions, universities, and other entities for the performance ofresearch and development activities and for the acquisition of licenses relatedto those activities.  The aggregatecommitments we have under these agreements, including minimum license payments,for the next 12 months is approximately $0.3 million.  Certain of the licenses require us to payroyalties on future product sales, if any. In addition, in order to maintain license and other rights whileproducts are under

 

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development, we must comply with customary licensee obligations,including the payment of patent related costs and diligent efforts in productdevelopment.

 

We expect to continue to incur substantial additional operating lossesfrom costs related to continuation and expansion of product and technologydevelopment, clinical trials, and administrative activities.  We believe that we currently have sufficientworking capital to sustain our planned operations through 2006.

 

**Item 3****.    Quantitative andQualitative Disclosures About Market Risk**

 

Our marketrisk disclosures set forth in our Form 10-K for the period ended December 31,2003, have not changed significantly.

 

**Item4****.    Controlsand Procedures**

 

The Company maintains “disclosurecontrols and procedures,” as such term is defined under Exchange Act Rule13a-15(e), that are designed to ensure that information required to bedisclosed in the Company’s Exchange Act reports is recorded, processed,summarized, and reported within the time periods specified in the SEC’s rulesand forms, and that such information is accumulated and communicated to theCompany’s management, including its Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosures. In designing and evaluating the disclosure controls andprocedures, the Company’s management recognized that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives and inreaching a reasonable level of assurance the Company’s management necessarilywas required to apply its judgment in evaluating the cost-benefit relationshipof possible controls and procedures. The Company has carried out an evaluationunder the supervision and with the participation of the Company’s management,including the Company’s Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures as of March 31, 2004. Based upon their evaluation andsubject to the foregoing, the Chief Executive Officer and Chief FinancialOfficer concluded that as of March 31, 2004 the Company’s disclosure controlsand procedures were effective in ensuring that material information relating tothe Company, is made known to the Chief Executive Officer and Chief FinancialOfficer by others within the Company during the period in which this report wasbeing prepared.

 

There were no changes in theCompany’s internal controls or in other factors during the most recent quarterthat has materially affected, or is reasonably likely to materially affect, theCompany’s internal controls over financial reporting.

 

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**PART II**

 

**Item 6****.**    **Exhibits and Reports on Form 8-K**

 

(b)                                 Exhibits

 

31                                    Rule 13a-14(A) Certifications.

 

32                                    Section 1350 Certifications.

 

(c)                                  Reports on Form 8-K

 

On February 2, 2004, theregistrant filed a current report on Form 8-K to announce that all of the classaction and derivative lawsuits filed against Titan have been dismissed withoutprejudice.

 

On March 26, 2004, the registrant filed a currentreport on Form 8-K to announce that Titan has obtained binding commitments froma number of select institutional investors and an individual investor topurchase approximately three million shares of Titan’s common stock.

 

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**SIGNATURES**

 

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|        | **TITAN PHARMACEUTICALS, INC.** |
|-------------|---------------------------------|
|        |                            |   |
| May 6, 2004 | By:                             |    /s/  Louis R. Bucalo |
|        |                            | Louis R. Bucalo, M.D. |
|        |                            | Chairman, President and  Chief Executive Officer |
|        |                            |   |
| May 6, 2004 | By:                             |    /s/  Robert E. Farrell |
|        |                            | Robert E. Farrell |
|        |                            | Executive Vice President and Chief Financial Officer |

 

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