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**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 June 30, 2001.**                                  |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **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 inits 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  of Principal Executive Offices including zip code)                  |
|                                                                          |                 |
|                                                                          |                 |
| **(650)  244-4990**                                                           |
|                                                                               |
| (Registrant's  Telephone Number, Including Area Code)                         |

 

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

Therewere 27,641,804 shares of the Registrant’s Common Stock issued and outstandingon August 3, 2001.

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**Titan Pharmaceuticals, Inc**.**Index toForm 10-Q**

 

| **Part I.**    | **Financial Information**                                                                                  |
|----------------|------------------------------------------------------------------------------------------------------------|
|           |                                                                                                       |
|           | Item 1.  Condensed Financial Statements (unaudited)                                                   |
|           | Condensed  Consolidated Balance Sheets June 30, 2001 and December 31, 2000                                 |
|           |                                                                                                       |
|           | Condensed  Consolidated Statements of Operations Three and six months ended June 30,  2001 and 2000        |
|           |                                                                                                       |
|           | Condensed  Consolidated Statements of Cash Flows Three and six months ended June 30,  2001 and 2000        |
|           |                                                                                                       |
|           | 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 1.  Legal Proceedings                                                                            |
|           |                                                                                                       |
|           | Item  6.  Exhibits and Reports on Form 8-K                                                            |
|           |                                                                                                       |
| **SIGNATURES** |                                                                                                       |

 

 

**Part I.  FinancialInformation**

**TITANPHARMACEUTICALS, INC.CONDENSED CONSOLIDATED BALANCESHEETS(in thousands)**

|                                                           | **June 30,  2001**                                       |       | **December 31,  2000** |       |
|----------------------------------------------------------------|----------------------------------------------------------|------------|------------------------|------------|
|                                                           | ****                                                     |       | ****                   |       |
|                                                           | (unaudited)                                              |       | (Note A)               |       |
| **Assets**                                                     |                                                     | ** ** |                   | ** ** |
| Current assets                                                 |                                                     |       |                   |       |
|                                                           | Cash and cash equivalents                                | $          | 11,316                 |       | $ | 20,300 |   |
|                                                           | Marketable securities                                    | 101,806    |                   | 97,223     |   |
|                                                           | Prepaid expenses, receivables, and other  current assets | 763        |                   | 326        |   |
|                                                           |                                                          |       |                        |       |
|                                                           | Total current assets                                     | 113,885    |                   | 117,849    |   |
| Furniture and equipment, net                                   | 588                                                      |       | 593                    |       |
|                                                           |                                                          |       |                        |       |
|                                                           | $                                                        | 114,473    |                   | $          | 118,442 |   |
|                                                           |                                                          |       |                        |       |
| **Liabilities and Stockholders'  Equity**                      |                                                     | ** ** |                   | ** ** |
| Current liabilities                                            |                                                     |       |                   |       |
|                                                           | Accounts payable                                         | $          | 552                    |       | $ | 1,304 |   |
|                                                           | Accrued clinical trials expenses                         | 1,452      |                   | 432        |   |
|                                                           | Other accrued liabilities                                | 910        |                   | 727        |   |
|                                                           |                                                          |       |                        |       |
|                                                           | Total current liabilities                                | 2,914      |                   | 2,463      |   |
| Minority interest - Series B preferred stock  of Ingenex, Inc. | 1,241                                                    |       | 1,241                  |       |
| Stockholders' Equity                                           |                                                     |       |                   |       |
|                                                           | Common stock, at amounts paid in                         | 191,612    |                   | 190,763    |   |
|                                                           | Additional paid-in capital                               | 8,594      |                   | 8,744      |   |
|                                                           | Deferred compensation                                    | (943       | )                      | (1,254     | ) |
|                                                           | Accumulated deficit                                      | (90,558    | )                      | (84,206    | ) |
|                                                           | Accumulated other comprehensive income                   | 1,613      |                   | 691        |   |
|                                                           |                                                          |       |                        |       |
|                                                           | Total stockholders' equity                               | 110,318    |                   | 114,738    |   |
|                                                           |                                                          |       |                        |       |
|                                                           | $                                                        | 114,473    |                   | $          | 118,442 |   |
|                                                           |                                                          |       |                        |       |
|                                                                |                                                          |            |                        |            |  |  |  |  |

Note A: The balance sheet has beenderived from the audited financial statements at that date but does not includeall of the information and footnotes required by generally accepted accountingprinciples for complete financial statements presentation.

See Notes to CondensedConsolidated Financial Statements.

**TITAN PHARMACEUTICALS,INC.****CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS****(unaudited)(in thousands, except per share amount)**

|                                                                            | **Three Months Ended June 30,** |   | **Six Months Ended June 30,** |   |
|---------------------------------------------------------------------------------|---------------------------------|--------|-------------------------------|--------|
|                                                                            | ****                            |   | ****                          |   |
|                                                                            | **2001**                        |   | **2000**                      |   | **2001** |   | **2000** |   |
|                                                                            | ****                            |   | ****                          |   | **** |   | **** |   |
| Contract revenue                                                                | $                               | 300    |                          | $      | 281 |   | $ | 621 |   | $ | 561 |   |
| Grant revenue                                                                   | 73                              |   | -                             |   | 332 |   | 55 |   |
| License revenue                                                                 | 2,500                           |   | -                             |   | 2,500 |   | - |   |
|                                                                            |                                 |   |                               |   |  |   |  |   |
|                                                                            | Total revenue                   | 2,873  |                          | 281    |   | 3,453 |   | 616 |   |
| Operating expenses:                                                             |                            |   |                          |   |   |   |   |   |
|                                                                            | Research and development        | 5,341  |                          | 3,266  |   | 10,340 |   | 7,311 |   |
|                                                                            | General and administrative      | 1,211  |                          | 704    |   | 2,795 |   | 1,561 |   |
|                                                                            |                                 |   |                               |   |  |   |  |   |
|                                                                            | Total operating expenses        | 6,552  |                          | 3,970  |   | 13,135 |   | 8,872 |   |
|                                                                            |                                 |   |                               |   |  |   |  |   |
|                                                                            | Loss from operations            | (3,679 | )                             | (3,689 | ) | (9,682 | ) | (8,256 | ) |
| Other income (expense):                                                         |                            |   |                          |   |   |   |   |   |
|                                                                            | Interest income, net            | 1,867  |                          | 1,275  |   | 3,402 |   | 2,213 |   |
|                                                                            | Other expense                   | (22    | )                             | (9     | ) | (73 | ) | (28 | ) |
|                                                                            |                                 |   |                               |   |  |   |  |   |
|                                                                            | Other income, net               | 1,845  |                          | 1,266  |   | 3,329 |   | 2,185 |   |
|                                                                            |                                 |   |                               |   |  |   |  |   |
| Net loss                                                                        | $                               | (1,834 | )                             | $      | (2,423 | ) | $ | (6,353 | ) | $ | (6,071 | ) |
|                                                                            |                                 |   |                               |   |  |   |  |   |
| Basic and diluted net loss per share                                            | $                               | (0.07  | )                             | $      | (0.09 | ) | $ | (0.23 | ) | $ | (0.24 | ) |
|                                                                            |                                 |   |                               |   |  |   |  |   |
| Weighted average shares used in computing  basic and diluted net loss per share | 27,619                          |   | 25,769                        |   | 27,544 |   | 24,821 |   |
|                                                                            |                                 |   |                               |   |  |   |  |   |
|                                                                                 |                                 |        |                               |        |  |  |  |  |  |  |  |  |  |  |

 

See Notes to Condensed Consolidated FinancialStatements

 

**TITANPHARMACEUTICALS, INC.****CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS****(unaudited)(in thousands)**

|                                                                                         | **Six Months Ended June 30,**                           |       |
|----------------------------------------------------------------------------------------------|---------------------------------------------------------|------------|
|                                                                                         | ****                                                    |       |
|                                                                                         | **2001**                                                |       | **2000** | ** ** |
|                                                                                         | ****                                                    |       | **** |   |
| **Cash flows from operating  activities:**                                                   |                                                    | ** ** |   | ** ** |
| Net loss                                                                                     | $                                                       | (6,353     | ) | $ | (6,071 | ) |
| Adjustments to reconcile net loss to net cash  provided by   (used in) operating activities: |                                                    |       |   |   |
|                                                                                         | Depreciation and amortization                           | 258        |   | 169 |   |
|                                                                                         | Non-cash compensation related to stock options          | 161        |   | 159 |   |
|                                                                                         | Changes in operating assets and liabilities:            |       |   |   |   |
|                                                                                         | Prepaid expenses, receivables and other  current assets | (564       | ) | 10 |   |
|                                                                                         | Accounts payable and other accrued liabilities          | 451        |   | (476 | ) |
|                                                                                         | Unearned contract revenue                               | -          |   | 235 |   |
|                                                                                         |                                                         |       |  |   |
| Net cash used in operating activities                                                        | (6,047                                                  | )          | (5,974 | ) |
|                                                                                         |                                                         |       |  |   |
| **Cash flows from investing  activities:**                                                   |                                                    | ** ** |   | ** ** |
|                                                                                         | Purchases of furniture and equipment, net               | (125       | ) | (183 | ) |
|                                                                                         | Purchases of marketable securities                      | (41,890    | ) | (86,832 | ) |
|                                                                                         | Maturities and sales of marketable securities           | 38,230     |   | 10,492 |   |
|                                                                                         |                                                         |       |  |   |
| Net cash used in investing activities                                                        | (3,785                                                  | )          | (76,523 | ) |
|                                                                                         |                                                         |       |  |   |
| **Cash flows from financing  activities:**                                                   |                                                    | ** ** |   | ** ** |
|                                                                                         | Issuance of common stock, net                           | 849        |   | 42,321 |   |
|                                                                                         |                                                         |       |  |   |
| Net cash provided by financing activities                                                    | 849                                                     |       | 42,321 |   |
|                                                                                         |                                                         |       |  |   |
| **Net decrease in cash and cash  equivalents**                                               | (8,984                                                  | )          | (40,176 | ) |
| Cash and cash equivalents at beginning of  period                                            | 20,300                                                  |       | 46,454 |   |
|                                                                                         |                                                         |       |  |   |
| Cash and cash equivalents at end of period                                                   | 11,316                                                  |       | 6,278 |   |
| Marketable securities at end of period                                                       | 101,806                                                 |       | 76,237 |   |
|                                                                                         |                                                         |       |  |   |
| **Cash, cash equivalents and  marketable securities at end of period**                       | $                                                       | 113,122    |   | $ | 82,515 |   |
|                                                                                         |                                                         |       |  |   |
|                                                                                              |                                                         |            |  |  |  |  |  |  |

 

SeeNotes to Condensed Consolidated Financial Statements.

**TITANPHARMACEUTICALS, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(unaudited)**

**1.**          **Organization and Summary of Significant AccountingPolicies**

***             TheCompany***

                           We are abiopharmaceutical company developing proprietary therapeutics for the treatmentof central nervous system disorders, cancer, and other serious and lifethreatening diseases.  We conduct asmall portion of our operations through two subsidiaries: Ingenex, Inc.and ProNeura, Inc.  At June 30,2001, we owned 81% of Ingenex (assuming the conversion of all preferred stockto common stock) and 79% of ProNeura. We operate in one business segment, the development of biopharmaceuticalproducts.

***             Basisof Presentation***

                           The accompanyingunaudited condensed consolidated financial statements include the accounts ofTitan and its subsidiaries after elimination of all significant intercompanyaccounts and transactions.  Certainprior year balances have been reclassified to conform to the current yearpresentation. These financial statements have been prepared in accordance withgenerally accepted accounting principles in the United States for interimfinancial information and with the instructions to Form 10-Q and Article 10 ofRegulation S-X.  Accordingly, they donot include all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included.  Operating results for the six-month periodended June 30, 2001 are not necessarily indicative of the results that may beexpected for the year ending December 31, 2001.

                           These unauditedcondensed consolidated financial statements should be read in conjunction withthe audited consolidated financial statements and footnotes thereto included inthe Titan Pharmaceuticals, Inc. annual report on Form 10-K for the year endedDecember 31, 2000.

***             RevenueRecognition***

                           Revenueunder collaborative agreements is recorded when earned as defined under theterms of the respective agreements and collectibility is reasonablyassured.  Payments for our research anddevelopment efforts under contractual arrangements are recognized ratably overthe period in which the related work is performed.  Nonrefundable license fees, with respect to which we have nofuture performance obligations, are recognized upon receipt.  Government grants, which support ourresearch efforts in specific projects, generally provide for reimbursement ofapproved costs as defined in the grant documents.  Grant revenues are recognized when subsidized project costs areincurred.

**2.**          **Net Loss Per Share**

                           We calculate net lossper share using the weighted average common shares outstanding for theperiod.  For calculating net income,shares used in calculating diluted earnings per share for the periods endedJune 30, 2001 and 2000 would have included the effect of an additional3,860,610 and 3,293,133 shares, respectively, related to our convertiblepreferred stock, options and warrants.

             
**3.**          **Comprehensive Income (Loss)**

                           Comprehensive income(loss) is comprised of net income (loss) and other comprehensive income (loss).  The only component of other comprehensiveincome (loss) is unrealized gains and losses from our marketablesecurities.  Comprehensive loss for thethree and six months ended June 30, 2001 were $2.1 million and $5.4 million,respectively, and for the three and six months ended June 30, 2000 were $2.4million and $6.2 million, respectively.

**4.         ****Loan toOfficer**

                           In February 2001, weprovided a loan of approximately $0.4 million to a vice president executiveofficer to finance certain federal and state income tax liabilities incurred bythe executive in connection with the exercise of stock options.  The loan bears a fixed interest rate of8.50% per year and is due and payable in August 2001.  As of June 30, 2001, the amount outstanding on the loan was$0.4 million.

**5.          Iloperidone Sublicense Agreement for the Japanese Market**

                           In April 2001, weentered into an amendment to our agreement with Novartis Pharma AG for thedevelopment and commercialization of iloperidone in Japan.  Iloperidone is a novel antipsychotic agentthat is currently in a world-wide Phase III development program.  This amendment expands upon Titan andNovartis’ previously executed and ongoing agreement for world-wide development,manufacturing, and marketing of iloperidone outside Japan.  Under the amendment, in exchange for rightsto iloperidone in Japan, Titan received a $2.5 million license fee in May 2001,and will receive future payments contingent upon the achievement of certainregulatory milestones as well as royalties on product sales in Japan consistentwith the previous agreement.  Werecognized the $2.5 million as license revenue for the three months ended June30, 2001, as we have no further performance obligations under the originalagreement or this amendment.

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

*             Thefollowing discussion contains certain forward–looking statements, withinthe 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,""anticipate," "continue," or similar terms, variations of thoseterms or the negative of those terms. Our actual results may differ materiallyfrom those described in these forward–looking statements due to, amongother factors, the results of ongoing research and development activities andpre–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 2000 Annual Reporton Form 10-K and other filings with the U.S. Securities and ExchangeCommission.  Stockholders andprospective investors in the Company should carefully consider these riskfactors. The Company disclaims any obligation to update these statements forsubsequent events.*

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

***Overview***

             We are a biopharmaceutical company developing proprietary therapeutics for thetreatment of central nervous system disorders, cancer, and other serious andlife threatening diseases.  Our productdevelopment programs focus on large pharmaceutical markets with significantunmet medical needs and commercial potential. We currently have nine products in development, seven of which are inclinical development, with two products in late stage human trials for safetyand efficacy, known as Phase III clinical trials.  We have five products in preliminary trials for human safety andefficacy, known as Phase I/II and Phase II clinical trials.  In addition to these programs, we have twoproducts in preclinical development.  Weare independently developing our product candidates and also utilizingstrategic partnerships, including collaborations with Novartis Pharma AG andSchering AG, as well as collaborations with several government-sponsoredclinical cooperative groups.  These collaborationshelp fund product development and enable us to retain significant economicinterest in our products.

*             Our Clinical Development Programs*

                           The following tablesets forth our products in clinical development:
**Product** **Potential Indication(s)****Status****Marketing Rights**Iloperidone Schizophrenia, psychosisPhase IIINovartis Pharma AGSpheramine Parkinson’s diseasePhase I/IISchering AGCeaVac Colorectal, gastrointestinal and  pancreatic cancerPhase III (colorectal cancer)Titan PharmaceuticalsTriAb Breast and ovarian cancerPhase II (breast cancer)Titan PharmaceuticalsTriGem Small cell lung cancer, melanomaPhase II (melanoma)Titan PharmaceuticalsPivanex Non-small cell lung cancerPhase IITitan PharmaceuticalsGallium Maltolate Myeloma, prostate and bladder cancer,  lymphoma, HIVPhase II (prostate cancer and multiple  myeloma)Titan Pharmaceuticals
*** ***
******Results of Operations***

             Revenuesfor the second quarter of 2001 were approximately $2.9 million, compared to $0.3million for the same quarter in 2000. For the first six months of 2001, revenues were $3.5 million, comparedto $0.6 million for the same six-month period in 2000.  The increase in revenue was primarily due toa $2.5 million license fee payment from Novartis Pharma AG for the developmentand commercialization of iloperidone in Japan, and higher SBIR grant revenuesfrom the National Institutes of Health in support of the development ofSpheramine, our novel treatment for Parkinson's disease.

             Research and development expensesfor the second quarter 2001 were $5.3 million, compared to $3.3 million for thesame quarter in 2000. For the first six months of 2001, research anddevelopment expenses were $10.3 million, compared to $7.3 million for the samesix-month period in 2000.  The plannedincrease in research and development expenditures is associated with ourongoing randomized, placebo-controlled Phase III clinical study of CeaVac inDukes D colorectal cancer, as well as expenses associated with ongoing clinicaltrials with TriAb and Gallium Maltolate. Research and development expenses are expected to continue to increasein the future.  The rate of increase depends on a number offactors including progress in preclinical programs and clinical trials.

             General and administrative expensesfor the second quarter 2001 were $1.2 million compared to $0.7 million for thesame quarter in 2000.  For the first sixmonths of 2001, general and administrative expenses were $2.8 million, comparedto $1.6 million for the same six-month period in 2000.  The increase was in support of our expandedpreclinical and clinical operations, organizational development and certainstock option related non-cash compensation charges.

             Other income, net, for the secondquarter 2001 was $1.8 million compared to $1.3 million for the same quarter in2000.  For the first six months of 2001,other income, net, was $3.3 million compared to $2.2 million for the samesix-month period in 2000.  The increase,primarily in interest income, was a result of our significantly larger cash andmarketable securities position.

             As a result of the foregoing, wehad a net loss for the second quarter 2001 of $1.8 million, or $0.07 per share,compared to $2.4 million, or $0.09 per share, for the same quarter in2000.  For the first six months of 2001,our net loss was $6.4 million, or $0.23 per share, compared to $6.1 million, or$0.24 per share, for the same six-month period in 2000.

***Liquidity and Capital Resources***

             We funded our operations sinceinception primarily through an initial public offering and private placementsof our securities, as well as proceeds from warrant and option exercises,corporate licensing and collaborative agreements, and government sponsoredresearch grants.  At June 30, 2001, wehad $113.1 million of cash, cash equivalents, and marketable securities.

             In November 2000, we completed aprivate placement of 1.2 million shares of our common stock for net proceeds ofapproximately $40.9 million, after deducting fees and commissions and otherexpenses of the offering.

             InMarch 2000, we completed a private placement of 1.2 million shares ofour common stock for net proceeds of approximately $38.8 million, afterdeducting fees and commissions and other expenses of the offering.

             Ouroperating activities used $6.0 million of cash in the first six months of 2001and $6.0 million in the first six months of 2000.  Uses of cash in operating activities were primarily to fundproduct 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 $1.0 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.

             We expect to continue to incursubstantial additional operating losses from costs related to continuation andexpansion of product and technology development, clinical trials, andadministrative activities.  We believethat we currently have sufficient working capital to sustain our currentlyplanned operations through 2005.

***Stock Option Plans***

             In August 2001, we adopted the 2001Employee Non-Qualified Stock Option Plan (the "2001 NQ Plan")pursuant to which 1,000,000 shares of common stock were reserved and authorizedfor issuance for option grants to employees and consultants who are neitherofficers nor directors of Titan. We issued options to purchase an aggregate of338,310 shares of common stock under the 2001 NQ Plan to employees at anexercise price of $11.63 per share. In addition, in August 2001, we issuedoptions under our 1998 Stock Option Plan to members of management and the Boardof Directors.

**Item 3.              Quantitative and Qualitative Disclosures AboutMarket Risk**

             Ourmarket risk disclosures set forth in our Form 10-K for the period endedDecember 31, 2000, have not changed significantly.

 

**PART II**

**Item 1.              LegalProceedings**

             Therewere no material changes to the proceeding disclosed in our Form 10-K for theperiod ended December 31, 2000.

 

**Item 6.              Exhibitsand Reports on Form 8-K**
(b)Reports on Form 8-K   There were no current reports on Form  8-K filed for the quarter ended June 30, 2001.  
**SIGNATURES**

             In accordance with the requirementsof the Exchange Act, the registrant caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
 **TITAN PHARMACEUTICALS, INC.**August 14, 2001By:      /s/ Louis R. Bucalo    Louis R. Bucalo, M.D.  Chairman, President and Chief Executive  Officer
 
August 14, 2001By:      /s/ Robert E. Farrell    Robert E. Farrell  Executive Vice President and Chief  Financial Officer
 ***