** **

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-Q**

 

 

 

**ý           Quarterly Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934 for the Period Ended March 31, 2002.**

 

**or**

 

** ̈           TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the Transition Period From                                to**

 

**Commissionfile number 0-27436**

 

 

**TitanPharmaceuticals, Inc.**

(Exact name ofregistrant as specified in its charter)
| **Delaware**                     | **94-3171940**       |
|----------------------------------|----------------------|
| (State or Other  Jurisdiction of | (I.R.S. Employer     |
| Incorporation or  Organization)  | Identification  No.) |

 

**400 Oyster Point Blvd., Suite 505,South San Francisco, California 94080**

(Address ofPrincipal Executive Offices including zip code)

 

**(650) 244-4990**

(Registrant’s TelephoneNumber, Including Area Code)

 

 

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.  Yes  ý   No   o

 

 

There were27,642,120 shares of the Registrant’s Common Stock issued and outstanding onMay 6, 2002.

 

 

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**TitanPharmaceuticals, Inc**.

**Index toForm 10-Q**

 

 
| **Part I.**    | **Financial Information**                                                        |   |
|----------------|----------------------------------------------------------------------------------|--------|
|           |                                                                             |
|           | Item 1.   Condensed Financial Statements (unaudited)                        |   |
|           |                                                                             |   |
|           | Condensed  Consolidated Balance Sheets                                           |   |
|           | March 31, 2002  and December 31, 2001                                            |
|           |                                                                             |   |
|           | Condensed  Consolidated Statements of Operations                                 |   |
|           | Three  months ended March 31, 2002 and 2001                                      |
|           |                                                                             |   |
|           | Condensed  Consolidated Statements of Cash Flows                                 |   |
|           | Three  months ended March 31, 2002 and 2001                                      |
|           |                                                                             |   |
|           | 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       |   |
|           |                                                                             |   |
| **Part II.**   | **Other Information**                                                            |   |
|           |                                                                             |   |
|           | Item 6.  Exhibits and Reports on Form 8-K                                   |   |
|           |                                                                             |   |
| **SIGNATURES** |                                                                             |
|                |                                                                                  |        |  |

 

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

 

**TITAN****PHARMACEUTICALS, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(in thousands)**

** **
|                                                               |   | **March 31,**   |   | **December  31,** |   |
|--------------------------------------------------------------------|--------|-----------------|--------|-------------------|--------|
|                                                               |   | **2002**        |   | **2001**          |   |
|                                                               |   | **(unaudited)** |   | **(Note A)**      |   |
| **Assets**                                                         |   |            |   |              |   |
| Current assets                                                     |   |            |   |              |   |
| Cash and cash equivalents                                          |   | $               | 4,602  |              | $      | 5,772 |   |
| Marketable securities                                              |   | 91,411          |   | 99,279            |   |
| Prepaid expenses, receivables, and other current assets            |   | 1,579           |   | 906               |   |
| Total current assets                                               |   | 97,592          |   | 105,957           |   |
| Furniture and equipment, net                                       |   | 690             |   | 575               |   |
| Investment in other companies                                      |   | 600             |   | 600               |   |
|                                                               |   | $               | 98,882 |              | $      | 107,132 |   |
| **Liabilities and Stockholders’ Equity**                      |   |            |   |              |   |
| Current liabilities                                                |   |            |   |              |   |
| Accounts payable                                                   |   | $               | 545    |              | $      | 894 |   |
| Accrued clinical trials expenses                                   |   | 1,974           |   | 2,156             |   |
| Other accrued liabilities                                          |   | 954             |   | 714               |   |
| Deferred contract revenue                                          |   | —          |   | 2,000             |   |
| Total current liabilities                                          |   | 3,473           |   | 5,764             |   |
| Minority interest — Series B preferred stock of Ingenex, Inc. |   | 1,241           |   | 1,241             |   |
| Stockholders’ equity                                          |   |            |   |              |   |
| Common stock, at amounts paid in                                   |   | 191,685         |   | 191,684           |   |
| Additional paid-in capital                                         |   | 9,002           |   | 9,017             |   |
| Deferred compensation                                              |   | (712            | )      | (795              | )      |
| Accumulated deficit                                                |   | (106,620        | )      | (101,670          | )      |
| Accumulated other comprehensive income                             |   | 813             |   | 1,891             |   |
| Total stockholders’ equity                                    |   | 94,168          |   | 100,127           |   |
|                                                               |   | $               | 98,882 |              | $      | 107,132 |   |
|                                                               |   |            |   |              |   |

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Note A: The balance sheethas been derived from the audited financial statements at that date but doesnot include all of the information and footnotes required by generally acceptedaccounting principles in the United States for complete financial statementspresentation.

 

 

 

 

 

 

See Notesto Condensed Consolidated Financial Statements

 

2

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**TITAN PHARMACEUTICALS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

**(in thousands, except per shareamount)**

 

** **
|                                                                            |   | **Three  Months Ended March 31,** |   |
|---------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                            |   | **2002**                          |   | **2001** |   |
| Revenue:                                                                        |   |                              |   |   |   |
| Contract revenue                                                                |   | $                                 | 2,151  |   | $ | 321 |   |
| Grant revenue                                                                   |   | 196                               |   | 259 |   |
| Total revenue                                                                   |   | 2,347                             |   | 580 |   |
|                                                                            |   |                              |   |   |   |
| Operating expenses:                                                             |   |                              |   |   |   |
| Research and development                                                        |   | 7,486                             |   | 4,999 |   |
| General and administrative                                                      |   | 1,210                             |   | 1,584 |   |
| Total operating expenses                                                        |   | 8,696                             |   | 6,583 |   |
| Loss from operations                                                            |   | (6,349                            | )      | (6,003 | ) |
|                                                                            |   |                              |   |   |   |
| Other income (expense):                                                         |   |                              |   |   |   |
| Interest income, net                                                            |   | 1,407                             |   | 1,535 |   |
| Other expense                                                                   |   | (8                                | )      | (51 | ) |
| Other income, net                                                               |   | 1,399                             |   | 1,484 |   |
| Net loss                                                                        |   | $                                 | (4,950 | ) | $ | (4,519 | ) |
|                                                                            |   |                              |   |   |   |
| Basic and diluted net loss per share                                            |   | $                                 | (0.18  | ) | $ | (0.16 | ) |
|                                                                            |   |                              |   |   |   |
| Weighted average shares used in computing basic and diluted net loss  per share |   | 27,642                            |   | 27,468 |   |

 

See Notesto Condensed Consolidated Financial Statements

 

 

3

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**TITANPHARMACEUTICALS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

**(in thousands)**

** **
|                                                                                       |   | **Three  Months Ended March 31,** |   |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                       |   | **2002**                          |   | **2001** |   |
| **Cash flows from operating activities:**                                                  |   |                              |   |   |   |
| Net loss                                                                                   |   | $                                 | (4,950 | ) | $ | (4,519 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in)  operating activities: |   |                              |   |   |   |
| Depreciation and amortization                                                              |   | 350                               |   | 63 |   |
| Non-cash compensation related to stock options                                             |   | 67                                |   | 6 |   |
| Changes in operating assets and liabilities:                                               |   |                              |   |   |   |
| Prepaid expenses, receivables, and other current assets                                    |   | (945                              | )      | (528 | ) |
| Accounts payable and other accrued liabilities                                             |   | (292                              | )      | 157 |   |
| Deferred contract revenue                                                                  |   | (2,000                            | )      | — |   |
| Net cash used in operating activities                                                      |   | (7,770                            | )      | (4,821 | ) |
|                                                                                       |   |                              |   |   |   |
| **Cash flows from investing activities:**                                                  |   |                              |   |   |   |
| Purchases of furniture and equipment, net                                                  |   | (191                              | )      | (60 | ) |
| Purchases of marketable securities                                                         |   | (8,623                            | )      | (26,467 | ) |
| Proceeds from maturities of marketable securities                                          |   | 8,325                             |   | 18,200 |   |
| Proceeds from sales of marketable securities                                               |   | 7,088                             |   | 2,000 |   |
| Net cash provided by (used in) investing activities                                        |   | 6,599                             |   | (6,327 | ) |
|                                                                                       |   |                              |   |   |   |
| **Cash flows from financing activities:**                                                  |   |                              |   |   |   |
| Issuance of common stock, net                                                              |   | 1                                 |   | 622 |   |
| Net cash provided by financing activities                                                  |   | 1                                 |   | 622 |   |
|                                                                                       |   |                              |   |   |   |
| **Net decrease in cash and cash equivalents**                                              |   | (1,170                            | )      | (10,526 | ) |
| Cash and cash equivalents at beginning of period                                           |   | 5,772                             |   | 20,300 |   |
| Cash and cash equivalents at end of period                                                 |   | 4,602                             |   | 9,774 |   |
| Marketable securities at end of period                                                     |   | 91,411                            |   | 104,647 |   |
| **Cash, cash equivalents and marketable securities at  end of period**                     |   | $                                 | 96,013 |   | $ | 114,421 |   |
|                                                                                       |   |                              |   |   |   |

 

See Notesto Condensed Consolidated Financial Statements

 

 

4

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**TITAN PHARMACEUTICALS, INC.**

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

**(unaudited)**

 

**1.****             ****Organization and Summary of Significant Accounting Policies**

 

***The Company***

                We are abiopharmaceutical company developing proprietary therapeutics for the treatmentof central nervous system disorders, cancer, and other serious and lifethreatening diseases.  We operate in onebusiness segment, the development of biopharmaceutical products.

 

***Basis of Presentation***

 

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 complete financialstatements. In the opinion of management, all adjustments (consisting of normalrecurring adjustments) considered necessary for a fair presentation have beenincluded.  Operating results for thethree-month period ended March 31, 2002 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2002.

 

Theseunaudited condensed consolidated financial statements should be read inconjunction with the audited consolidated financial statements and footnotes theretoincluded in the Titan Pharmaceuticals, Inc. annual report on Form 10-K for theyear ended December 31, 2001.

 

***Revenue Recognition***

Contract revenue for research and development isrecorded as earned based on the performance requirements of the contract.  Revenue associated with performancemilestones, considered “at-risk” until the milestones are completed, isrecognized based on the achievement of the milestones as defined in therespective agreements.  Governmentgrants, which support our research effort in specific projects, generallyprovide for reimbursement of approved costs as defined in the grant documents,and revenue is recognized when associated project costs are incurred.

 

***OperatingSubsidiaries***

We conduct a small portion of our operations throughtwo subsidiaries:  Ingenex, Inc. andProNeura, Inc.  At March 31, 2002, weowned 81% of Ingenex (assuming the conversion of all preferred stock to commonstock) and 79% of ProNeura.

 

***2.***                                      NetLoss Per Share

Wecalculate net loss per share using the weighted average common sharesoutstanding for the period.  For periodsended March 31, 2002 and 2001, the effect of an additional 5,218,968 and3,838,918 shares, respectively, related to our authorized and issued convertiblepreferred stock and options were not included in the computation of dilutedearnings per share because they are anti-dilutive.

 

 

5

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**3.****             ****Comprehensive Income**

 

Comprehensive income iscomprised of net loss and other comprehensive income.  The only component of other comprehensive income is unrealizedgains and losses from our marketable securities.  Comprehensive loss for the three months ended March 31, 2002 and2001 were $6.0 million and $3.4 million, respectively.

 

**4.****             ****Related Parties Transactions**

                In 2001, we provided certain relocation loans toemployees in connection with employment. Also in February 2001, we provided a loan to a vice president officerbearing an interest rate at prime, which has been extended to August 2002.  As of March 31, 2002, the principal amountoutstanding on the loan was $373,000.

 

 

**5.****             ****Spheramine milestone payment from Schering AG.**

                In February 2002, we announcedthat we received a $2.0 million milestone payment from Schering, Titan’scorporate partner for worldwide development, manufacture and commercializationof SpheramineÒ,Titan’s novel cell therapy for the treatment of Parkinson’s disease.  The milestone payment followed Schering’sdecision in the first quarter 2002 to initiate larger, randomized clinical testingof Spheramine for the treatment of patients with late-stage Parkinson’s diseasefollowing the successful completion of Titan’s Phase I/II clinical study ofSpheramine.  As a result, Titanrecognized $2.0 million in contract revenue in the first quarter.

 

 

6

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**Item 2.        Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

*                The following discussion contains certain forward-looking statements,within the meaning of the “safe harbor” provisions of the Private SecuritiesReform Act of 1995, the attainment of which involves various risks anduncertainties. Forward-looking statements may be identified by the use offorward-looking terminology such as “may,” “will,” “expect,” “believe,”“estimate,” “plan,” “anticipate,” “continue,” or similar terms, variations ofthose terms or the negative of those terms. Our actual results may differmaterially from those described in these forward-looking statements due to,among other factors, the results of ongoing research and development activitiesand pre-clinical testing, the results of clinical trials and the availabilityof additional financing through corporate partnering arrangements orotherwise.  Additional factors includeour ability to protect our patents and proprietary rights, ability to complywith extensive government regulations, and other factors and risks detailedunder the caption “Risk Factors” in the Company’s 2001 Annual Report on Form10-K and other filings with the U.S. Securities and Exchange Commission.  Stockholders and prospective investors inthe Company should carefully consider these risk factors. The Company disclaimsany obligation to update these statements for subsequent events.*

 

*                Spheramine®,CeaVac®, TriAb®, TriGemTM, Pivanex®, CCMTM, ProbuphineTM, and PromafenTM  are trademarks of Titan Pharmaceuticals,Inc.*

 

***Overview***

 

We are a biopharmaceutical company developing proprietary therapeuticsfor the treatment of central nervous system disorders, cancer, and other seriousand life threatening diseases.  Ourproduct development programs focus on large pharmaceutical markets withsignificant unmet medical needs.

 

We currently have ten products in development, seven of which are inclinical development, with two products in expanded human trials for safety andefficacy, known as Phase III clinical trials. We have five products in earlier stage trials for dosing, andpreliminary safety and efficacy, known as Phase I and Phase II clinicaltrials.  In addition to these programs,we have three products in pre-clinical development.

 

We are independently developing our product candidates and alsoutilizing strategic partnerships, including collaborations with Novartis PharmaAG (Novartis) and Schering AG (Schering), as well as collaborations withseveral government-sponsored clinical cooperative groups.  These collaborations help fund productdevelopment and enable us to retain significant economic interest in ourproducts.

 

The following table providesa summary status of our products in development:

 
| **Product**         |   | **Potential  Indication(s)**                                   |   | **Phase of  Development**       |   | **Marketing  Rights** |
|---------------------|--------|----------------------------------------------------------------|--------|---------------------------------|--------|-----------------------|
| Iloperidone         |   | Schizophrenia,  psychosis                                      |   | Phase III                       |   | Novartis Pharma  AG   |
| Spheramine          |   | Parkinson’s  disease                                      |   | Phase II  (planned for 2H 2002) |   | Schering AG           |
| CeaVac              |   | Colorectal,  gastrointestinal and pancreatic cancer            |   | Phase III  (colorectal cancer)  |   | Titan                 |
| TriAb               |   | Breast and  ovarian cancer                                     |   | Phase II (breast  cancer)       |   | Titan                 |
| TriGem &  TriAb |   | Small cell lung  cancer                                        |   | Phase II  (planned for 2H 2002) |   | Titan                 |
| CeaVac &  TriAb |   | Metastatic  breast, non-small cell lung, and colorectal cancer |   | Phase II                        |   | Titan                 |
| Pivanex             |   | Non-small cell  lung cancer                                    |   | Phase II                        |   | Titan                 |
| Gallium  Maltolate  |   | Myeloma,  prostate and bladder cancer, lymphoma, HIV           |   | Phase I/II                      |   | Titan                 |
| RB94                |   | Head, neck, and  pancreatic cancer                             |   | Pre-clinical                    |   | Titan                 |
| Probuphine          |   | Opiate addiction                                               |   | Pre-clinical                    |   | Titan                 |
| Promafen            |   | Alcohol  addiction                                             |   | Pre-clinical                    |   | Titan                 |

 

 

7

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Our products areat 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.  Anestimation of product completion dates and completion costs can varysignificantly for each product and are difficult to predict.  Various statutes and regulations alsoinfluence our product development progress and the success of obtainingapproval is highly uncertain.  For afull discussion of risks and uncertainties in our product development, see “RiskFactors­­ — Our products are at variousstages of development and may not be successfully developed or commercialized”in our 2001 annual report on Form 10-K.

 

 

***Results of Operations***

Revenues for thefirst quarter 2002 were approximately $2.3million compared to $600,000 for the same quarter in 2001, an increase ofapproximately $1.7 million.  Theincrease in revenue was primarily due to a $2.0 million milestone payment fromSchering following successful completion of the Phase I/II study and Schering'sdecision to initiate randomized clinical testing of Spheramine for thetreatment of patients with late-stage Parkinson’s disease.

 

Research and development expenses forthe first quarter 2002 were $7.5 million, compared to $5.0 million for the samequarter in 2001. The increase resulted primarily from our increased clinicaland pre-clinical activities, including our ongoing randomized,placebo-controlled Phase III clinical study of CeaVac in Dukes D colorectalcancer, as well as increased expenditures associated with our combinationCeaVac and TriAb clinical trials, and clinical studies with Pivanex and galliummaltolate.

 

General and administrative expensesfor the first quarter 2002 were $1.2 million compared to $1.6 million for thesame quarter in 2001.  The decreaseresulted primarily from certain non-recurring infrastructure development costsand non-cash compensation charges in 2001.

 

Other income, net, for the firstquarter 2002 was $1.4 million compared to $1.5 million in the first quarter2001.  The decrease, primarily ininterest income, was a result of lower interest rates and a lower balance ofcash and marketable securities.

 

Our net loss for the first quarter2002 was $5.0 million, or $0.18 per share, compared to $4.5 million, or $0.16per share, for the same quarter in 2001.

 

 

8

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***Liquidity andCapital Resources***

                Wehave funded our operations since inception through our initial public offeringand private placements of our securities, as well as proceeds from warrant andoption exercises, corporate licensing and collaborative agreements, andgovernment sponsored research grants. At March 31, 2002, we had $96.0 million of cash, cash equivalents, andmarketable securities.

 

                Ouroperating activities used $7.8 million and $4.8 million of cash in the firstquarter 2002 and 2001, respectively. Uses of cash in operating activities were primarily to fund productdevelopment programs and administrative expenses.  We have entered into various agreements with researchinstitutions, universities, and other entities for the performance of researchand development 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 $0.9 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 development, we must comply with customary licenseeobligations, including the payment of patent related costs and diligent effortsin product development.

 

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

 

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

 

                Our market risk disclosures set forth in our Form 10-Kfor the period ended December 31, 2001, have not changed significantly.

 

**PART II**

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

 

(b)   Reports on Form 8-K

Therewere no current reports on Form 8-K filed for the quarter ended March 31, 2002.

 

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**SIGNATURES**

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 
|         | **TITAN  PHARMACEUTICALS, INC.** |                                                 |
|--------------|----------------------------------|------------------------------------------------------|
|         |                             |                                                 |
| May 14, 2002 | By:                              | /s/ Louis R. Bucalo                                  |   |
|         |                             | Louis  R. Bucalo, M.D.                               |
|         |                             | Chairman,  President and Chief Executive Officer     |
|         |                             |                                                 |
| May 14, 2002 | By:                              | /s/ Robert E. Farrell                                |   |
|         |                             | Robert E. Farrell                                    |
|         |                             | Executive Vice President and Chief Financial Officer |
|              |                                  |                                                      |  |  |  |

** **

** **

 

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