**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-Q**

 

 

**ý****        QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

 

**for the Period Ended September 30, 2003.**

 

**or**

 

**o****        TransitionReport 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 the registrant is an accelerated filer(as defined on Rule 12B-2 of the Exchange Act).  Yes ý  No o

 

There were 28,874,984 shares of the Registrant’s Common Stock issuedand outstanding on November 7, 2003.

 

 

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**TitanPharmaceuticals, Inc**.**Index toForm 10-Q**

 
| **Part I.**    | **Financial Information**                                                                                 |
|----------------|-----------------------------------------------------------------------------------------------------------|
|           |
|           | Item 1.  Condensed Financial  Statements (unaudited)                                                 |
|           |
|           | Condensed Consolidated Balance Sheets                                                                     |
|           |                                                                                                      | September 30, 2003 and December 31, 2002 |
|           |
|           | Condensed Consolidated Statements of  Operations                                                          |
|           |                                                                                                      | Three and nine months ended September 30,  2003 and 2002 |
|           |
|           | Condensed Consolidated Statements of Cash  Flows                                                          |
|           |                                                                                                      | Nine months ended September 30, 2003 and  2002 |
|           |
|           | 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 1.   Legal Proceedings                                                                          |
|           |
|           | Item 4.   Submission of Matters to a  Vote of Security Holders                                       |
|           |
|           | Item 5.   Other Information                                                                          |
|           |
|           | Item 6.   Exhibits and Reports on Form 8-K                                                           |
|           |
| **SIGNATURES** |

 

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**PartI.  Financial Information**

 

**TITANPHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(inthousands)**

 
|                                                           |   | **September 30,  2003** |   | **December 31,  2002** |   |
|----------------------------------------------------------------|--------|-------------------------|--------|------------------------|--------|
|                                                           |   | **(unaudited)**         |   | **(Note A)**           |   |
| **Assets**                                                     |   |                    |   |                   |   |
| Current assets                                                 |   |                    |   |                   |   |
| Cash and cash equivalents                                      |   | $                       | 7,473  |                   | $      | 7,155 |   |
| Marketable securities                                          |   | 46,147                  |   | 66,295                 |   |
| Related party receivables                                      |   | 146                     |   | 316                    |   |
| Prepaid expenses, receivables, and other current  assets       |   | 1,405                   |   | 881                    |   |
| Total current assets                                           |   | 55,171                  |   | 74,647                 |   |
| Furniture and equipment, net                                   |   | 850                     |   | 979                    |   |
| Investment in other companies                                  |   | 300                     |   | 300                    |   |
|                                                           |   | $                       | 56,321 |                   | $      | 75,926 |   |
| **Liabilities and Stockholders’  Equity**                 |   |                    |   |                   |   |
| Current liabilities                                            |   |                    |   |                   |   |
| Accounts payable                                               |   | $                       | 746    |                   | $      | 1,901 |   |
| Accrued clinical trials expenses                               |   | 1,578                   |   | 1,203                  |   |
| Other accrued liabilities                                      |   | 1,461                   |   | 841                    |   |
| Total current liabilities                                      |   | 3,785                   |   | 3,945                  |   |
| Minority interest - Series B preferred stock of  Ingenex, Inc. |   | 1,241                   |   | 1,241                  |   |
| Stockholders’ equity                                      |   |                    |   |                   |   |
| Common stock, at amounts paid-in                               |   | 191,727                 |   | 191,680                |   |
| Additional paid-in capital                                     |   | 9,078                   |   | 9,161                  |   |
| Deferred compensation                                          |   | (298                    | )      | (621                   | )      |
| Accumulated deficit                                            |   | (149,231                | )      | (129,852               | )      |
| Accumulated other comprehensive income                         |   | 19                      |   | 372                    |   |
| Total stockholders’ equity                                |   | 51,295                  |   | 70,740                 |   |
|                                                           |   | $                       | 56,321 |                   | $      | 75,926 |   |

 

Note A:  The balance sheet has been derived from theaudited financial statements at that date but does not include all of the informationand footnotes required by generally accepted accounting principles in theUnited States for complete financial statement presentation.

 

See Notes to CondensedConsolidated Financial Statements

 

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**TITANPHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

**(inthousands, except per share amount)**

 
|                                                                            |   | **Three Months Ended September 30,** |   | **Nine Months Ended September 30,** |   |
|---------------------------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|
|                                                                            |   | **2003**                             |   | **2002**                            |   | **2003** |   | **2002** |   |
|                                                                            |   |                                 |   |                                |   |   |   |   |   |
| License and contract revenue                                                    |   | $                                    | — |                                | $      | 158 |   | $ | 28 |   | $ | 2,656 |   |
| Total revenue                                                                   |   | —                               |   | 158                                 |   | 28 |   | 2,656 |   |
|                                                                            |   |                                 |   |                                |   |   |   |   |   |
| Operating expenses:                                                             |   |                                 |   |                                |   |   |   |   |   |
| Research and development                                                        |   | 5,262                                |   | 7,202                               |   | 16,639 |   | 21,607 |   |
| General and administrative                                                      |   | 1,239                                |   | 1,314                               |   | 3,878 |   | 3,915 |   |
| Total operating expenses                                                        |   | 6,501                                |   | 8,516                               |   | 20,517 |   | 25,522 |   |
| Loss from operations                                                            |   | (6,501                               | )      | (8,358                              | )      | (20,489 | ) | (22,866 | ) |
|                                                                            |   |                                 |   |                                |   |   |   |   |   |
| Other income (expense):                                                         |   |                                 |   |                                |   |   |   |   |   |
| Interest income, net                                                            |   | 265                                  |   | 1,070                               |   | 1,062 |   | 3,924 |   |
| Other income (expense)                                                          |   | 67                                   |   | (8                                  | )      | 47 |   | (336 | ) |
| Other income, net                                                               |   | 332                                  |   | 1,062                               |   | 1,109 |   | 3,588 |   |
| Net loss                                                                        |   | $                                    | (6,169 | )                                   | $      | (7,296 | ) | $ | (19,380 | ) | $ | (19,278 | ) |
|                                                                            |   |                                 |   |                                |   |   |   |   |   |
| Basic and diluted net loss per share                                            |   | $                                    | (0.22  | )                                   | $      | (0.26 | ) | $ | (0.70 | ) | $ | (0.70 | ) |
|                                                                            |   |                                 |   |                                |   |   |   |   |   |
| Weighted average shares used in computing basic  and diluted net loss per share |   | 27,653                               |   | 27,642                              |   | 27,646 |   | 27,642 |   |

 

See Notes to CondensedConsolidated Financial Statements

 

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**TITANPHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

**(inthousands)**

 
|                                                                                       |   | **Nine Months Ended September 30,** |    |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|
|                                                                                       |   | **2003**                            |    | **2002** |   |
| **Cash flows from operating  activities:**                                                 |   |                                |    |   |   |
| Net loss                                                                                   |   | $                                   | (19,380 | ) | $ | (19,278 | ) |
| Adjustments to reconcile net loss to net cash  provided by (used in) operating activities: |   |                                |    |   |   |
| Depreciation and amortization                                                              |   | 1,937                               |    | 912 |   |
| Non-cash compensation related to stock options                                             |   | 240                                 |    | 245 |   |
| Changes in operating assets and liabilities:                                               |   |                                |    |   |   |
| Prepaid expenses, receivables and other assets                                             |   | (1,962                              | )       | (729 | ) |
| Accounts payable and other accrued liabilities                                             |   | (160                                | )       | (346 | ) |
| Deferred contract revenue                                                                  |   | —                              |    | (2,000 | ) |
| Net cash used in operating activities                                                      |   | (19,325                             | )       | (21,196 | ) |
|                                                                                       |   |                                |    |   |   |
| **Cash flows from investing  activities:**                                                 |   |                                |    |   |   |
| Purchases of furniture and equipment, net                                                  |   | (199                                | )       | (692 | ) |
| Purchases of marketable securities                                                         |   | (47,308                             | )       | (14,922 | ) |
| Proceeds from maturities of marketable securities                                          |   | 58,103                              |    | 29,543 |   |
| Proceeds from sales of marketable securities                                               |   | 9,000                               |    | 8,531 |   |
| Net cash provided by investing activities                                                  |   | 19,596                              |    | 22,460 |   |
|                                                                                       |   |                                |    |   |   |
| **Cash flows from financing  activities:**                                                 |   |                                |    |   |   |
| Issuance of common stock, net                                                              |   | 47                                  |    | 1 |   |
| Net cash provided by financing activities                                                  |   | 47                                  |    | 1 |   |
|                                                                                       |   |                                |    |   |   |
| **Net increase (decrease) in cash  and cash equivalents**                                  |   | 318                                 |    | 1,265 |   |
| Cash and cash equivalents at beginning of period                                           |   | 7,155                               |    | 5,772 |   |
| Cash and cash equivalents at end of period                                                 |   | 7,473                               |    | 7,037 |   |
| Marketable securities at end of period                                                     |   | 46,147                              |    | 74,412 |   |
| **Cash, cash equivalents and  marketable securities at end of period**                     |   | $                                   | 53,620  |   | $ | 81,449 |   |

 

See Notes to CondensedConsolidated Financial Statements

 

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**TITANPHARMACEUTICALS, INC.**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

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

 

***The Company***

 

We are abiopharmaceutical company developing proprietary therapeutics for the treatmentof central nervous system disorders, cancer, and cardiovascular disorders.  We operate in one business segment, thedevelopment of biopharmaceutical products.

 

***Basis ofPresentation***

 

The accompanying unaudited condensed consolidated financial statementsinclude the accounts of Titan and its subsidiaries after elimination of allsignificant intercompany accounts and transactions. Certain prior year balanceshave been reclassified 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 fair presentationhave been included.  Operating resultsfor the three- and nine-month periods ended September 30, 2003 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2003.

 

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

 

These unaudited condensed consolidated financial statements should beread in conjunction with the audited consolidated financial statements andfootnotes thereto included in the Titan Pharmaceuticals, Inc. annual report onForm 10-K for the year ended December 31, 2002.

 

***Revenue Recognition***

 

We generaterevenue principally from collaborative research and development arrangements,technology licenses, and government grants. Revenue is recognized when the fourbasic criteria of revenue recognition are met: (1) a contractual agreementexists; (2) transfer of technology has been completed or services have beenrendered; (3) the fee is fixed or determinable; and (4) collectibility isreasonably assured.  For each source ofrevenue, we comply with the above revenue recognition criteria in the followingmanner:

 

•                  Collaborativearrangements typically consist of non-refundable and/or guaranteed technologyaccess fees, cost reimbursements for specific research and developmentspending, and various milestone and future product royalty payments.Non-refundable upfront fees that are not dependent on future performance underthese agreements are recognized as revenue when received, and straight-linedover the development period or term of the arrangement if Titan has continuingperformance

 

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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.

 

•                  Technologylicense agreements typically consist of non-refundable upfront license fees andannual minimum access fees or royalty payments.  License revenue received is recognized when the technology istransferred or accessed and Titan has no future performance obligations relatedto the licensed technology.

 

•                  Governmentgrants, which support our research efforts in specific projects, generallyprovide for reimbursement of approved costs as defined in the notices ofgrants. Grant revenue is recognized when associated project costs are incurred.

 

***OperatingSubsidiaries***

 

We conduct some of our operations through two subsidiaries:Ingenex, Inc. and ProNeura, Inc. At September 30, 2003, we owned 81% of Ingenex (assuming the conversionof all preferred stock to common stock) and 79% of ProNeura.

 

***Recent AccountingPronouncements***

 

In January 2003, the FASB issued Interpretation No. 46 (or FIN 46), *“**Consolidation of Variable Interest Entities.”*  FIN46 requires a variable interest entity to be consolidated by a company if thatcompany is subject to a majority of the risk of loss from the variable interestentity’s activities or is entitled to receive a majority of the entity’sresidual returns or both.  A variableinterest entity is a corporation, partnership, trust, or any other legalstructure used for business purposes that either (a) does not have equityinvestors with voting rights or (b) has equity investors that do not providesufficient financial resources for the entity to support its activities.  The consolidation requirements of FIN 46apply immediately to variable interest entities created after January 31,2003.  In October 2003, the FASBdeferred the effective date of FIN 46 for variable interests held by publiccompanies in all entities that were acquired prior to February 1, 2003.  The deferral requires that public companiesadopt the provisions of FIN 46 at the end of periods ending after December 15,2003.  The adoption of FIN 46 is not expectedto have a material impact on our financial position and results of operations.

 

In November 2002, the Emerging Issues TaskForce (EITF) reached a consensus on Issue No. 00-21, *“Revenue Arrangements with Multiple Deliverables.”*  EITF Issue No. 00-21 provides guidance onhow to account for arrangements that involve the delivery or performance ofmultiple products, services and/or rights to use assets. The provisions of EITFIssue No. 00-21 apply to revenue arrangements entered into in fiscal periodsbeginning after June 15, 2003. Titan’s adoption of EITF Issue No. 00-21 did not have amaterial impact on our financial position and results of operations.

 

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

 

We have elected to continue to followAccounting 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

 

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employee stock options equals the market priceof the underlying stock on the date of grant. The following table illustrates the effect on our net loss and net lossper share if Titan had applied the provisions of SFAS 123 to estimate andrecognize compensation expense for our stock-based employee compensation.

 
|                                                                                                                                   |   | **Three months ended  September 30,**       |   | **Nine months ended  September 30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|--------------------------------------|--------|
|                                                                                                                                   |   | **2003**                                    |   | **2002**                             |   | **2003** |   | **2002** |   |
|                                                                                                                                   |   | **(in thousands, except per share amount)** |   |
| Net loss, as  reported                                                                                                                 |   | $                                           | (6,169 | )                                    | $      | (7,296 | ) | $ | (19,380 | ) | $ | (19,278 | ) |
| Add:  Stock-based employee compensation expense  included in reported net loss                                                    |   | 62                                          |   | 81                                   |   | 240 |   | 245 |   |
| Deduct:  Estimated stock-based employee  compensation expense determined in accordance with SFAS 123 for all stock  option grants |   | (821                                        | )      | (2,182                               | )      | (2,129 | ) | (6,698 | ) |
| Pro forma net loss                                                                                                                     |   | $                                           | (6,928 | )                                    | $      | (9,397 | ) | $ | (21,269 | ) | $ | (25,731 | ) |
|                                                                                                                                   |   |                                        |   |                                 |   |   |   |   |   |
| Basic and diluted  net loss per share, as reported                                                                                     |   | $                                           | (0.22  | )                                    | $      | (0.26 | ) | $ | (0.70 | ) | $ | (0.70 | ) |
| Pro forma basic and  diluted net loss per share                                                                                        |   | $                                           | (0.25  | )                                    | $      | (0.34 | ) | $ | (0.77 | ) | $ | (0.93 | ) |

 

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

 

We calculate net loss per share using the weighted average commonshares outstanding for the period.  Forperiods ended September 30, 2003 and 2002, the effect of an additional6,397,433 and 6,387,714 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**

 

Comprehensive loss is comprised of net loss and other comprehensiveincome or loss.  The only component ofother comprehensive income is unrealized gains and losses on our marketablesecurities.  Comprehensive loss for thethree and nine months ended September 30, 2003 were $6.3 million and $19.7 million,respectively, and for the three and nine months ended September 30, 2002 were$7.6 million and $21.0 million, respectively.

 

**5.****              SubsequentEvent**

 

***DITPA Acquisition***

 

On October 16, 2003, we announced the acquisition of a novel product inclinical testing for the treatment of congestive heart failure (CHF).  The product in development,3,5-diiodothyropropionic acid (DITPA), is an orally active analogue of thyroidhormone that has demonstrated in preclinical and clinical studies to date theability to improve cardiac function, with no significant adverse effects.  Titan acquired DITPA through the acquisitionof Developmental Therapeutics, Inc. (DTI), a private company established todevelop DITPA, and the exclusive licensee of recently issued U.S. patent andpending U.S. and international patent applications covering DITPA. Titanacquired DTI in a stock transaction for 1,187,500 shares of Titan common stockvalued at approximately $3.6 million using the average market price of ourcommon stock over the five-day trading period, including and prior to the dateof the merger

 

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in accordance with generally accepted accounting principles. We alsomade a cash payment of $171,250 to the licensor of the technology.  The total acquisition cost of approximately$3.9 million will be charged to acquired research and development expense inthe fourth quarter 2003.  An additionalpayment of 712,500 shares of Titan common stock will be made only upon theachievement of positive pivotal study results or certain other substantialmilestones within five years. In addition, a cash payment of $102,750 or,alternatively, an additional payment of 37,500 shares of Titan common stockwill be made to the licensor of the technology upon achievement of such studyresults or such other substantial milestones within five years.

 

***Legal Proceedings***

 

On November 4, 2003, apurported class action suit entitled *PatrickMagee v. Titan Pharmaceuticals, Inc., et al* was filed in the UnitedStates District Court for the Northern District of California on behalf ofpurchasers of Titan’s common stock during the period between December 1, 1999and July 22, 2002.  Subsequently,several similar actions were filed in the same court.  The complaints allege that Titan and certain of its executiveofficers violated Sections 10(b) and 20(a) of the Securities Exchange Act of1934 by issuing false and misleading statements that failed to disclose certainkey information regarding iloperidone. The complaints seek unspecified damages.The complaints have not yet been consolidated, we have not yet answered any ofthe complaints, discovery has not commenced and no trial date has beenestablished.

On November 6, 2003, astockholder purporting to act on our behalf filed a derivative action in theCalifornia Superior Court for the County of San Mateo against Titan’s executiveofficers and directors and certain former directors seeking unspecifieddamages, injunctive relief and restitution. Titan was also named as a nominaldefendant. The derivative action is based on the same factual allegations asthe purported class actions and alleges state law claims for breach offiduciary duty, abuse of control, gross mismanagement, waste of corporateassets and unjust enrichment.  No trialdate has been scheduled.

We believe that the claimsin the purported securities class actions and the derivative action are withoutmerit and intend to defend against them vigorously. While it is not possible topredict accurately or to determine the eventual outcome of these actions, thelitigation may be costly, time consuming and disruptive to our business and anunfavorable outcome or settlement could have a material adverse impact on ourfinancial position.

 

 

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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®, ProbuphineTM, CeaVac®,TriAb®, TriGemTM and CCM® are trademarks of Titan Pharmaceuticals, Inc.*

 

**Overview**

 

Weare a biopharmaceutical company developing proprietary therapeutics for thetreatment of central nervous system disorders, cancer, and cardiovasculardisorders.  Our product developmentprograms focus on large pharmaceutical markets with significant unmet medicalneeds and commercial potential.

 

Our internal resources are currently focused primarily on clinicaldevelopment of the following products:

 

•                  Spheramine forthe treatment of Parkinson’s disease

•                  Pivanex for thetreatment of non-small cell lung cancer

•                  Galliummaltolate for the treatment of several cancers

•                  Probuphine forthe treatment of opiate addiction

•                  DITPA for thetreatment of congestive heart failure

 

Following is an update on the status and progress of Titan’s coredevelopment programs:

 

***Spheramine***

 

Enrollment in a randomized, controlled, blinded, multi-center Phase IIbclinical study of Spheramine in advanced Parkinson’s disease is proceeding onschedule, with treatment of the first cohort of 12 patients completed in July2003 and the treatment of the second cohort of 24 patients in process.  Schering AG, Germany, Titan’s corporatepartner for the development of Spheramine, is funding and co-managing thestudy, which commenced in the fourth quarter of 2002 and may be completed inthe second half of 2005.  In the secondquarter this year, results from a pilot clinical study of Spheramine,demonstrating an average 41 percent improvement in patients’ motor function twoyears post treatment, were presented at the annual meeting of the AmericanAcademy of Neurology.

 

***Pivanex***

 

A randomized, controlled, multi-center Phase IIb clinical study ofPivanex in combination with docetaxel in the treatment of non-small cell lungcancer (NSCLC) was initiated in the second quarter of 2003 and may be completedin the second half of 2004.  Pivanex isbeing administered at the same dose level at which it demonstrated encouragingtumor response and survival data in a previous open label Phase II clinicalstudy, in which Pivanex was administered as a single agent.  This dose of Pivanex followed by theapproved second line treatment of

 

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docetaxel has been demonstrated to be safe with no significantadditional side effects from Pivanex. In related development activities, additional laboratory study resultsdemonstrating that Pivanex is synergistic with docetaxel against NSCLC werepresented at the meeting of the American Association for Cancer Research inJuly 2003.  Pivanex is a histonedeacetylase inhibitor with potential activity in a wide range of cancers.

 

***Gallium Maltolate***

 

Titan is completing the Phase I portion of a Phase I/II clinical studyof gallium maltolate in several cancers. There have been no significant adverse events, and the maximum tolerateddose level has not yet been reached. Accordingly, additional patient cohorts are being enrolled at higherdoses.  The Phase I portion of thisclinical study may be completed in the first half of 2004.  Preclinical testing of gallium maltolate inother disease settings is also ongoing. Gallium maltolate is a novel oral agent for the treatment of cancer andbone disease.

 

***Probuphine***

 

Titan is advancing a pilot clinical study of Probuphine, a novellong-term treatment for opiate addiction that utilizes Titan’s proprietaryProNeura drug delivery system.  Thisstudy was initiated in the first half of 2003, and the first cohort of sixpatients has been treated at the first dose level being studied, with noadverse effects seen to date at up to four months post treatment.  Additional patients are now commencingtreatment at the second dose level. This pilot study may be completed in the second half of 2004.  Probuphine has been shown in preclinicalstudies to deliver targeted therapeutic levels of buprenorphine, an approvedagent for the treatment for opiate addiction, for eight months with no adverseeffects.  Results from these preclinicalstudies were presented at the Meeting of the Controlled Release Society held inGlasgow in July 2003.  Preliminary resultsfrom the pilot clinical study were presented at the International Society ofAddiction Medicine in Amsterdam in September 2003.

 

***DITPA***

 

DITPA has completed Phase I and preliminary controlled Phase IIclinical testing in the treatment of congestive heart failure (CHF), and theU.S. Department of Veterans Affairs (VA) will initiate a 150 patient,randomized, double blind Phase II clinical study in CHF during the first halfof 2004.  This multicenter study isfunded by a $3.8 million grant from the VA. Titan will further evaluate productdevelopment strategy and establish an approval directed plan for DITPA in early2004.

 

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 of schizophreniaand schizoaffective disorders.  Novartiscontinues to evaluate the next steps for the development of iloperidone,including sublicensing the compound to another company or returning productrights to Titan.  We also utilize grantsfrom government agencies to fund development of our product candidates, asmentioned above for DITPA.

 

At this time, we are not devoting any additional internal resources tothe monoclonal antibodies CeaVac, TriAb, and TriGem.  These treatments are currently being studied in certain cancersby national oncology cooperative groups funded by the National CancerInstitute.

 

Our products are at various stages of development and may not besuccessfully developed or commercialized. We do not currently have any productsbeing commercially sold.  Our proposedproducts will require significant further capital expenditures, development,testing, and regulatory clearances prior to commercialization.  We may experience unanticipated problemsrelating to product development and cannot predict whether we will successfullydevelop and commercialize any products. For a full discussion of risks and uncertainties of our productdevelopment, see “Risk Factors – Ourproducts are at various stages of

 

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development and may not be successfullydeveloped or commercialized” in our 2002 Annual Report on Form 10-K.

 

**Results of Operations**

 

In the third quarter 2003, the Company had no revenues, compared toapproximately $158,000 of revenue for the same period in 2002.  Revenues for the first nine months of 2003were approximately $28,000, compared to $2.7 million for the same period in2002.  The difference in revenue for thefirst nine-month period is primarily the result of a milestone payment Titanreceived from Schering for Spheramine in the first quarter of 2002.

 

Research anddevelopment (R&D) expenses for the third quarter 2003 were $5.3 million,compared to $7.2 million for the same quarter in 2002, a decrease of $1.9million, or 27%.  For the first ninemonths of 2003, research and development expenses were $16.6 million, comparedto $21.6 million for the same nine-month period in 2002, a decrease of $5.0million, or 23%.  This decrease resultedprimarily from our planned strategic focus on the clinical development ofSpheramine, Pivanex, gallium maltolate and Probuphine, and the discontinuanceof expenses associated with the monoclonal antibody program as previouslystated.

 

External R&D expenses include external direct expenses such as clinicalresearch organization charges, investigator and review board fees, patientexpense reimbursements, pre-clinical activities and contract manufacturingexpenses. R&D operating costs include research and development personnelsalaries and employment related expenses, clinical trials related travelexpenses, and allocation of facility and corporate costs. We do not allocateR&D operating costs to individual projects. Only external R&D expensesare tracked by project and in the third quarter 2003, external R&D expensesaccounted for approximately 42% of total R&D expenses.  Approximately 88% of these external R&Dexpenses support products in development for the treatment of cancer and theremainder for our CNS products.

 

An estimation of product completion dates and completion costs can varysignificantly for each product and are difficult, if not impossible, topredict.  Various statutes andregulations as well as competition also influence our product development progressand the success of obtaining approval is highly uncertain.  See “Risk Factors – Our products are at various stages of development and may not besuccessfully developed or commercialized” in our 2002 Annual Report on Form10-K for a full discussion of risks and uncertainties of our product development.

 

General andadministrative expenses for the third quarter 2003 were $1.2 million, comparedto $1.3 million for the same quarter in 2002. General and administrative expenses were $3.9 million for the samenine-month period in 2003 and 2002.

 

Other income,primarily interest income net of amortization and other expenses, for the thirdquarter 2003 was $332,000 compared to $1.1 million in the same quarter in2002.  For the first nine months of2003, other income, net, was $1.1 million compared to $3.6 million for the samenine-month period in 2002.  Thedecrease, primarily in interest income, was a result of lower interest ratesand a lower balance of cash and marketable securities.

 

Our net lossfor the third quarter 2003 was $6.2 million, or $0.22 per share, compared to$7.3 million, or $0.26 per share, for the same quarter in 2002.  For the first nine months of 2003, our netloss was $19.4 million, or $0.70 per share, compared to $19.3 million, or $0.70per share, for the same nine-month period in 2002.

 

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**Liquidity and Capital Resources**

 

We have fundedour operations since inception through sales of our securities, as well asproceeds from warrant and option exercises, corporate licensing and collaborativeagreements, and government sponsored research grants.  At September 30, 2003, we had $53.6 million of cash, cashequivalents, and marketable securities.

 

Our operatingactivities used $19.3 million and $21.2 million of cash in the first nine monthsin 2003 and 2002, respectively.  Uses ofcash in operating activities were primarily to fund product developmentprograms and administrative expenses. We have entered into various agreements with research institutions,universities, and other entities for the performance of research anddevelopment activities and for the acquisition of licenses related to thoseactivities.  The aggregate commitmentswe have under these agreements, including minimum license payments, for thenext 12 months is approximately $0.5 million.  Certain of the licenses require us to pay royalties on futureproduct sales, if any.  In addition, inorder to maintain license and other rights while products are underdevelopment, we must comply with customary licensee obligations, including thepayment of patent related costs and diligent efforts in product development.

 

We expect tocontinue to incur substantial additional operating losses from costs related tocontinuation and expansion of product and technology development, clinicaltrials, and administrative activities. We believe that we currently have sufficient working capital to sustainour planned operations through 2005.

 

**Item 3.    Quantitativeand Qualitative Disclosures About Market Risk**

 

Our marketrisk disclosures set forth in our Form 10-K for the period ended December 31,2002, have not changed significantly.

 

**Item 4.    Controlsand Procedures**

 

The Companymaintains “disclosure controls and procedures,” as such term is defined underExchange Act Rule 13a-15(e), that are designed to ensure that informationrequired to be disclosed in the Company’s Exchange Act reports is recorded,processed, summarized, and reported within the time periods specified in theSEC’s rules and forms, and that such information is accumulated and communicatedto the Company’s management, including its Chief Executive Officer and ChiefFinancial Officer, 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, includingthe Company’s Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures as of September 30, 2003. Based upon their evaluation andsubject to the foregoing, the Chief Executive Officer and Chief FinancialOfficer concluded that as of September 30, 2003 the Company’s disclosurecontrols and procedures were effective in ensuring that material informationrelating to the Company, is made known to the Chief Executive Officer and ChiefFinancial Officer by others within the Company during the period in which thisreport was being prepared.

 

There were nochanges in the Company’s internal controls or in other factors during the mostrecent quarter that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal controls over financial reporting.

 

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**PART II**

 

**Item 1.    LegalProceedings**

 

On November 4, 2003, apurported class action suit entitled *PatrickMagee v. Titan Pharmaceuticals, Inc., et al* was filed in the UnitedStates District Court for the Northern District of California on behalf ofpurchasers of Titan’s common stock during the period between December 1, 1999and July 22, 2002.  Subsequently,several similar actions were filed in the same court.  The complaints allege that Titan and certain of its executiveofficers violated Sections 10(b) and 20(a) of the Securities Exchange Act of1934 by issuing false and misleading statements that failed to disclose certainkey information regarding iloperidone. The complaints seek unspecified damages.The complaints have not yet been consolidated, we have not yet answered any ofthe complaints, discovery has not commenced and no trial date has beenestablished.

On November 6, 2003, astockholder purporting to act on our behalf filed a derivative action in theCalifornia Superior Court for the County of San Mateo against Titan’s executiveofficers and directors and certain former directors seeking unspecifieddamages, injunctive relief and restitution. Titan was also named as a nominaldefendant. The derivative action is based on the same factual allegations asthe purported class actions and alleges state law claims for breach of fiduciaryduty, abuse of control, gross mismanagement, waste of corporate assets andunjust enrichment.  No trial date hasbeen scheduled.

We believe that the claimsin the purported securities class actions and the derivative action are withoutmerit and intend to defend against them vigorously. While it is not possible topredict accurately or to determine the eventual outcome of these actions, thelitigation may be costly, time consuming and disruptive to our business and anunfavorable outcome or settlement could have a material adverse impact on ourfinancial position.

 

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

 

On August 14,2003, the Company held its Annual Meeting of Stockholders.  Matters voted upon at the meeting and thenumber of affirmative votes, negative votes, withheld votes and abstentionscast with respect to each such matter were as follows:

 

1.               Election of the Company’s Directors:

 
|                     |   | **Affirmative  Votes** |   | **Withheld  Votes** |   |
|--------------------------|--------|------------------------|--------|---------------------|--------|
| Louis R. Bucalo          |   | 20,725,901             |   | 801,821             |   |
| Ernst-Günter Afting |   | 20,887,896             |   | 639,826             |   |
| Victor J. Bauer          |   | 20,760,046             |   | 767,676             |   |
| Eurelio M. Cavalier      |   | 21,236,741             |   | 290,981             |   |
| Michael K. Hsu           |   | 21,236,991             |   | 290,731             |   |
| Hubert E. Huckel         |   | 21,236,927             |   | 290,795             |   |
| M. David MacFarlane      |   | 21,384,193             |   | 143,529             |   |
| Ley S. Smith             |   | 21,394,332             |   | 133,390             |   |
| Konrad M. Weis           |   | 21,383,682             |   | 144,040             |   |

 
|                                                                                                    |   | **Affirmative  Votes** |   | **Against  Votes** |   | **Abstentions** |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------|--------|--------------------|--------|-----------------|--------|
| 2.    Approval of the  appointment of Ernst & Young LLP as independent auditors |   | 21,430,293             |   | 92,904             |   | 4,525           |   |

 

As a result ofthe foregoing, each of the nominees was elected director of the Company untilthe next annual meeting of stockholders or until their successor is elected andqualified, and the appointment of Ernst & Young LLP as the Company’sindependent auditors was approved.

 

**Item 5.**    **Other Information**

 

Dr. FrankValone, formerly Executive Vice President of Clinical Development andRegulatory Affairs, is no longer employed by Titan, having left the Company onNovember 1, 2003 to pursue other interests.

 

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**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 |
|        |        |                     |  |  |

 

The Company filed a Current Report on Form 8-K in the three monthsperiod ended September 30, 2003 in accordance with the interim guidance of the Securities andExchange Commission to furnish the information required by Item 12 of Form 8-K(Results of Operations and Financial Condition) under “Item 9 Regulation FDDisclosure”. The report dated August 11, 2003 contained the Company’spress release announcing its financial results for the three months ended June30, 2003.

 

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**SIGNATURES**

 

In accordance with the requirements of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|              | **TITAN  PHARMACEUTICALS, INC.** |
|-------------------|----------------------------------|
|              |                             |   |
| November 14, 2003 | By:                              |   | /s/ Louis R. Bucalo |   |
|              |                             | Louis R. Bucalo, M.D. |
|              |                             | Chairman, President and Chief Executive Officer |
|              |                             |   |
| November 14, 2003 | By:                              |   | /s/ Robert E. Farrell |   |
|              |                             | Robert E. Farrell |
|              |                             | Executive Vice President and Chief Financial Officer |

 

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