** **

**SECURITIES AND EXCHANGECOMMISSION**

**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, 2003.**                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **or**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **o****        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**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

**TitanPharmaceuticals, Inc.**

(Exact name ofregistrant 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 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

 

Indicate by check markwhether the registrant is an accelerated filer (as defined on Rule 12B-2 of theExchange Act).  Yes  ý  No  o

 

There were27,650,479 shares of the Registrant’s Common Stock issued and outstanding onAugust 8, 2003.

 

 

----

 

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

 
| **Part I.**    | **Financial Information**                                                                                  |
|----------------|------------------------------------------------------------------------------------------------------------|
|           |                                                                                                       |
|           | Item 1.   Condensed Financial Statements (unaudited)                                                  |
|           |                                                                                                       |
|           | Condensed Consolidated  Balance Sheets  June 30, 2003 and December 31, 2002                      |
|           |                                                                                                       |
|           | Condensed  Consolidated Statements of Operations  Three and six months ended June 30, 2003 and 2002   |
|           |                                                                                                       |
|           | Condensed  Consolidated Statements of Cash Flows  Six months ended June 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 6.  Exhibits and Reports on Form 8-K                                                             |
|           |                                                                                                       |
| **SIGNATURES** |

 

----

 

**Part I.  Financial Information**

 

**TITAN PHARMACEUTICALS, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(in thousands)**

 
|                                                           |   | **June 30,  2003** |   | **December 31,  2002** | ** ** |
|----------------------------------------------------------------|--------|-------------------------|--------|-----------------------------|------------|
|                                                           |   | **(unaudited)**         |   | **(Note A****)**            |       |
| **Assets**                                                     |   |                    |   |                        |       |
| Current assets                                                 |   |                    |   |                        |       |
| Cash and cash equivalents                                      |   | $                       | 18,544 |                        | $          | 7,155 |   |
| Marketable securities                                          |   | 41,097                  |   | 66,295                      |       |
| Related party receivables                                      |   | 145                     |   | 316                         |       |
| Prepaid expenses,  receivables, and other current assets       |   | 1,714                   |   | 881                         |       |
| Total current assets                                           |   | 61,500                  |   | 74,647                      |       |
| Furniture and equipment,  net                                  |   | 930                     |   | 979                         |       |
| Investment in other  companies                                 |   | 300                     |   | 300                         |       |
|                                                           |   | $                       | 62,730 |                        | $          | 75,926 |   |
|                                                           |   |                    |   |                        |       |
| **Liabilities and Stockholders’ Equity**                  |   |                    |   |                        |       |
| Current liabilities                                            |   |                    |   |                        |       |
| Accounts payable                                               |   | $                       | 1,579  |                        | $          | 1,901 |   |
| Accrued clinical trials  expenses                              |   | 1,309                   |   | 1,203                       |       |
| Other accrued liabilities                                      |   | 1,103                   |   | 841                         |       |
| Total current liabilities                                      |   | 3,991                   |   | 3,945                       |       |
| Minority interest - Series  B preferred stock of Ingenex, Inc. |   | 1,241                   |   | 1,241                       |       |
| Stockholders’ equity                                      |   |                    |   |                        |       |
| Common stock, at amounts  paid-in                              |   | 191,690                 |   | 191,680                     |       |
| Additional paid-in capital                                     |   | 9,189                   |   | 9,161                       |       |
| Deferred compensation                                          |   | (471                    | )      | (621                        | )          |
| Accumulated deficit                                            |   | (143,063                | )      | (129,852                    | )          |
| Accumulated other  comprehensive income                        |   | 153                     |   | 372                         |       |
| Total stockholders’ equity                                |   | 57,498                  |   | 70,740                      |       |
|                                                           |   | $                       | 62,730 |                        | $          | 75,926 |   |

 

Note A:  The balance sheet hasbeen derived from the audited 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 Condensed Consolidated Financial Statements

 

2

----

 

**TITAN PHARMACEUTICALS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**(unaudited)**

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

 
|                                                                            |   | **Three Months Ended June 30,** |   | **Six Months Ended June 30,** |       |
|---------------------------------------------------------------------------------|--------|--------------------------------------|--------|------------------------------------|------------|
|                                                                            |   | **2003**                             |   | **2002**                           | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                            |   |                                 |   |                               |       |   |   |   |   |
| License and contract  revenue                                                   |   | $                                    | 2      |                               | $          | 151 |   | $ | 28 |   | $ | 2,498 |   |
| Total revenue                                                                   |   | 2                                    |   | 151                                |       | 28 |   | 2,498 |   |
|                                                                            |   |                                 |   |                               |       |   |   |   |   |
| Operating expenses:                                                             |   |                                 |   |                               |       |   |   |   |   |
| Research and development                                                        |   | 5,735                                |   | 6,919                              |       | 11,377 |   | 14,405 |   |
| General and administrative                                                      |   | 1,257                                |   | 1,391                              |       | 2,638 |   | 2,601 |   |
| Total operating expenses                                                        |   | 6,992                                |   | 8,310                              |       | 14,015 |   | 17,006 |   |
| Loss from operations                                                            |   | (6,990                               | )      | (8,159                             | )          | (13,987 | ) | (14,508 | ) |
|                                                                            |   |                                 |   |                               |       |   |   |   |   |
| Other income (expense):                                                         |   |                                 |   |                               |       |   |   |   |   |
| Interest income, net                                                            |   | 325                                  |   | 1,447                              |       | 796 |   | 2,854 |   |
| Other expense                                                                   |   | (16                                  | )      | (320                               | )          | (20 | ) | (328 | ) |
| Other income, net                                                               |   | 309                                  |   | 1,127                              |       | 776 |   | 2,526 |   |
| Net loss                                                                        |   | $                                    | (6,681 | )                                  | $          | (7,032 | ) | $ | (13,211 | ) | $ | (11,982 | ) |
|                                                                            |   |                                 |   |                               |       |   |   |   |   |
| Basic and diluted net loss  per share                                           |   | $                                    | (0.24  | )                                  | $          | (0.25 | ) | $ | (0.48 | ) | $ | (0.43 | ) |
|                                                                            |   |                                 |   |                               |       |   |   |   |   |
| Weighted average shares  used in computing basic and diluted net loss per share |   | 27,643                               |   | 27,642                             |       | 27,643 |   | 27,642 |   |

 

See Notes to Condensed Consolidated Financial Statements

 

3

----

 

**TITANPHARMACEUTICALS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS**

**(unaudited)**

**(in thousands)**

 

** **
|                                                                                       |   | **Six Months Ended June 30,** |    |
|--------------------------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                                       |   | **2003**                           |    | **2002** |   |
| **Cash flows from operating activities:**                                                  |   |                               |    |   |   |
| Net loss                                                                                   |   | $                                  | (13,211 | ) | $ | (11,982 | ) |
| Adjustments to reconcile  net loss to net cash provided by (used in) operating activities: |   |                               |    |   |   |
| Depreciation and  amortization                                                             |   | 970                                |    | 567 |   |
| Non-cash compensation  related to stock options                                            |   | 177                                |    | 165 |   |
| Changes in operating  assets and liabilities:                                              |   |                               |    |   |   |
| Prepaid expenses,  receivables and other assets                                            |   | (1,413                             | )       | (396 | ) |
| Accounts payable and other  accrued liabilities                                            |   | 46                                 |    | (5 | ) |
| Deferred contract revenue                                                                  |   | —                             |    | (2,000 | ) |
| Net cash used in operating  activities                                                     |   | (13,431                            | )       | (13,651 | ) |
|                                                                                       |   |                               |    |   |   |
| **Cash flows from investing activities:**                                                  |   |                               |    |   |   |
| Purchases of furniture and  equipment, net                                                 |   | (169                               | )       | (394 | ) |
| Purchases of marketable  securities                                                        |   | (32,561                            | )       | (8,095 | ) |
| Proceeds from maturities  of marketable securities                                         |   | 48,540                             |    | 14,133 |   |
| Proceeds from sales of  marketable securities                                              |   | 9,000                              |    | 8,531 |   |
| Net cash provided by  investing activities                                                 |   | 24,810                             |    | 14,175 |   |
|                                                                                       |   |                               |    |   |   |
| **Cash flows from financing activities:**                                                  |   |                               |    |   |   |
| Issuance of common stock,  net                                                             |   | 10                                 |    | 2 |   |
| Net cash provided by  financing activities                                                 |   | 10                                 |    | 2 |   |
|                                                                                       |   |                               |    |   |   |
| **Net increase (decrease) in cash and cash equivalents**                                   |   | 11,389                             |    | 526 |   |
| Cash and cash equivalents  at beginning of period                                          |   | 7,155                              |    | 5,772 |   |
| Cash and cash equivalents  at end of period                                                |   | 18,544                             |    | 6,298 |   |
| Marketable securities at  end of period                                                    |   | 41,097                             |    | 83,318 |   |
| **Cash, cash equivalents and marketable securities at end of  period**                     |   | $                                  | 59,641  |   | $ | 89,616 |   |

 

See Notes to Condensed Consolidated Financial Statements

 

4

----

 

**TITAN PHARMACEUTICALS, INC.**

### **NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

**1.****              Organization andSummary of Significant Accounting Policies**

 

***TheCompany***

** **

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 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 fairpresentation have been included. Operating results for the three- and six-month periods endedJune 30, 2003 are not necessarily indicative of the results that may beexpected for the year ending December 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.

 

***RevenueRecognition***

*** ***

Contract revenue forresearch and development is recorded as earned based on the performancerequirements of the contract.  Revenueassociated with performance milestones, considered “at-risk” until themilestones are completed, is recognized based on the achievement of themilestones as defined in the respective agreements.  Government grants, which support our research efforts in specificprojects, generally provide for reimbursement of approved costs as defined inthe grant documents, and revenue is recognized when associated project costsare incurred.

 

***OperatingSubsidiaries***

*** ***

We conduct some of ouroperations through two subsidiaries: Ingenex, Inc. andProNeura, Inc.  At June 30,2003, we owned 81% of Ingenex (assuming the conversion of all preferred stockto common stock) and 79% of ProNeura.

 

5

----

 

***Recent AccountingPronouncements***

*** ***

In January 2003, the FASB issued InterpretationNo. 46 (or FIN 46), *“**Consolidation of VariableInterest Entities.”*  FIN 46 requires a variable interest entityto be consolidated by a company if that company is subject to a majority of therisk of loss from the variable interest entity’s activities or is entitled toreceive a majority of the entity’s residual returns or both.  A variable interest entity is a corporation,partnership, trust, or any other legal structure used for business purposesthat either (a) does not have equity investors with voting rights or (b) hasequity investors that do not provide sufficient financial resources for theentity to support its activities.  Theconsolidation requirements of FIN 46 apply immediately to variable interestentities created after January 31, 2003. The consolidation requirements apply to older entities in the firstfiscal year or interim period beginning after June 15, 2003.  The adoption of FIN 46 is not expected to havea material impact on our financial position and results of operations.

 

In November 2002, the Emerging IssuesTask Force (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 will apply to revenue arrangements entered into in fiscalperiods beginning after June 15, 2003. We are currently evaluating theeffect that the adoption of EITF Issue No. 00-21 will have on our consolidated financialstatements.

 

**2.****              Stock Option Plans**

 

We have elected tocontinue to follow Accounting Principles Board Opinion No. 25 (or APB 25), *“Accounting for Stock Issued to Employees,”*rather than the alternative method of accounting prescribed by Statement of FinancialAccounting Standards No. 123 (or SFAS 123), *“Accountingfor Stock-Based Compensation.”*  Under APB 25, no compensation expense is recognized when the exerciseprice of our employee stock options equals the market price of the underlyingstock on the date of grant.  Thefollowing table illustrates the effect on our net loss and net loss per shareif Titan had applied the provisions of SFAS 123 to estimate and recognizecompensation expense for our stock-based employee compensation.

 
|                                                                                                                             |   | **Three months ended  June 30,** |   | **Six months ended  June 30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|
|                                                                                                                             |   | **2003**                              |   | **2002**                            |   | **2003** |   | **2002** |   |
| Net loss, as reported                                                                                                            |   | $                                     | (6,681 | )                                   | $      | (7,032 | ) | $ | (13,211 | ) | $ | (11,982 | ) |
| Add: Stock-based employee compensation  expense included in reported net loss                                                    |   | 83                                    |   | 98                                  |   | 177 |   | 165 |   |
| Deduct: Estimated stock-based employee  compensation expense determined in accordance with SFAS 123 for all stock  option grants |   | (416                                  | )      | (2,543                              | )      | (1,308 | ) | (4,516 | ) |
| Pro forma net loss                                                                                                               |   | $                                     | (7,014 | )                                   | $      | (9,477 | ) | $ | (14,342 | ) | $ | (16,333 | ) |
|                                                                                                                             |   |                                  |   |                                |   |   |   |   |   |
| Basic and diluted net loss per share, as  reported                                                                               |   | $                                     | (0.24  | )                                   | $      | (0.25 | ) | $ | (0.48 | ) | $ | (0.43 | ) |
| Pro forma basic and diluted net loss per  share                                                                                  |   | $                                     | (0.25  | )                                   | $      | (0.34 | ) | $ | (0.52 | ) | $ | (0.59 | ) |

 

6

----

 

**3.****              Net Loss Per Share**

 

We calculate net loss per share using the weighted average commonshares outstanding for the period.  Forperiods ended June 30, 2003 and 2002, the effect of an additional6,524,548 and 5,415,516 shares, respectively, related to our authorized andissued convertible preferred stock and options, were not included in thecomputation of diluted earnings per share because they are anti-dilutive.

 

**4.****              Comprehensive Loss**

 

Comprehensive loss is comprised of net loss and other comprehensiveincome.  The only component of othercomprehensive income is unrealized gains and losses on our marketablesecurities.  Comprehensive loss for thethree and six months ended June 30, 2003 were $6.7 million and $13.4million, respectively, and for the three and six months ended June 30,2002 were $7.3 million and $13.4 million, respectively.

 

7

----

 

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

 

*Thefollowing discussion contains certain forward-looking statements, within themeaning of the “safe harbor” provisions of the Private Securities Reform Act of1995, the attainment of which involves various risks and uncertainties.Forward-looking statements may be identified by the use of forward-lookingterminology such as “may,” “will,” “expect,” “believe,” “estimate,” “plan,”“anticipate,” “continue,” or similar terms, variations of those terms or thenegative of those terms. Our actual results may differ materially from thosedescribed in these forward-looking statements due to, among other factors, theresults of ongoing research and development activities and pre-clinicaltesting, the results of clinical trials and the availability of additionalfinancing through corporate partnering arrangements or otherwise.*

 

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

 

**Overview**

 

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

 

Our internal resourcesare currently focused primarily on clinical development of the followingproducts:

 

•                  Spheraminefor the treatment of Parkinson’s disease

•                  Pivanexfor the treatment of non-small cell lung cancer

•                  Galliummaltolate for the treatment of several cancers

•                  Probuphinefor the treatment of opiate addiction

 

Following is anupdate on the status and progress of Titan’s core development programs:

 

***Spheramine***

 

Enrollment in a randomized, controlled, blinded,multi-center Phase IIb clinical study of Spheramine in advanced Parkinson’sdisease is proceeding on schedule, and the first cohort of twelve patients hasbeen enrolled.  Schering AG, Germany,Titan’s corporate partner for the development of Spheramine, is funding andco-managing the study.  In the secondquarter, results from a pilot clinical study of Spheramine, demonstrating anaverage 41 percent improvement in patients’ motor function 2 years posttreatment, were presented at the American Academy of Neurology.

 

***Pivanex***

 

A randomized, controlled, multi-center Phase IIbclinical study of Pivanex in combination with docetaxel in the treatment ofnon-small cell lung cancer (NSCLC) was initiated in June.  Pivanex is being administered at the samedose level at which it demonstrated encouraging tumor response and survivaldata in a previous Phase II clinical study, in which Pivanex was administeredas a single agent.  In relateddevelopment activities, additional laboratory study results demonstrating thatPivanex is synergistic with docetaxel against

 

8

----

 

NSCLC were presented atthe meeting of the American Association for Cancer Research in July.  Pivanex is a histone deacetylase inhibitorwith potential activity in a wide range of cancers.

 

***Gallium Maltolate***

 

Titan is completing the Phase I portion of a PhaseI/II clinical study of gallium maltolate in several cancers.  There have been no significant adverseevents, and the maximum tolerated dose level has not yet been reached.  Accordingly, additional patient cohorts arebeing enrolled at higher doses. Preclinical testing of gallium maltolate in other disease settings isalso ongoing.  Gallium maltolate is anovel oral agent for the treatment of cancer and bone disease.

 

***Probuphine***

 

Titan is advancing a pilot clinical study ofProbuphine, a novel long-term treatment for opiate addiction that utilizesTitan’s proprietary ProNeura drug delivery system.  The first cohort of six patients has been enrolled at the firstdose level being studied, with no adverse effects seen to date.  Probuphine has been shown in preclinical studiesto deliver targeted therapeutic levels of buprenorphine, an approved agent forthe 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, Scotland in July 2003.

 

We are directly developing our product candidatesand also utilizing corporate partnerships, including a collaboration withSchering AG, Germany (Schering) for the development of Spheramine to treatParkinson’s disease.  Spheraminedevelopment is primarily funded by Schering. Iloperidone is licensed to Novartis Pharma AG (Novartis) for developmentand commercialization in the treatment of schizophrenia and schizoaffectivedisorders.  Novartis continues to evaluatethe next steps for the development of iloperidone, including sublicensing thecompound to another company or returning product rights to Titan.

 

At this time, we are not devoting any additionalinternal resources to the monoclonal antibodies CeaVac, TriAb, and TriGem.  These treatments are currently being studiedin certain cancers by national oncology cooperative groups funded by theNational Cancer Institute.

 

Our products are at various stages of development andmay not be successfully developed or commercialized. We do not currently haveany products being commercially sold. Our proposed products will require significant further capitalexpenditures, development, testing, and regulatory clearances prior tocommercialization.  We may experience unanticipatedproblems relating to product development and cannot predict whether we willsuccessfully develop and commercialize any products.  An estimation of product completion dates and completion costscan vary significantly 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“Risk Factors – Our products are atvarious stages of development and may not be successfully developed orcommercialized” in our 2002 annual report on Form 10-K.

 

**Results of Operations**

 

Revenues for the second quarter and the first sixmonths of 2003 were approximately $2,000 and $28,000, compared to $151,000 and$2.5 million for the same periods in 2002. The difference in revenue for the first six-month period is primarilythe result of a milestone payment Titan received from Schering for Spheraminein the first quarter of 2002.

 

9

----

 

Researchand development expenses for the second quarter 2003 were $5.7 million,compared to $6.9 million for the same quarter in 2002, a decrease of $1.2million, or 17%.  For the first sixmonths of 2003, research and development expenses were $11.4 million, comparedto $14.4 million for the same six-month period in 2002, a decrease of $3.0million, or 21%.  This decrease resultedprimarily from our planned strategic focus on the clinical development of fourproduct programs: Spheramine, Pivanex, gallium maltolate and Probuphine, andthe discontinuance of expenses associated with the monoclonal antibody programas previously stated.

 

Generaland administrative expenses for the second quarter 2003 were $1.3 million,compared to $1.4 million for the same quarter in 2002.  For the first six months of 2003 and 2002,general and administrative expenses were $2.6 million, compared to $2.6 millionfor the same six-month period in 2002.

 

Otherincome, primarily interest income net of amortization and other expenses, forthe second quarter 2003 was $0.3 million compared to $1.1 million in the secondquarter 2002.  For the first six monthsof 2003, other income, net, was $0.8 million compared to $2.5 million for thesame six-month period in 2002.  Thedecrease, primarily in interest income, was a result of lower interest ratesand a lower balance of cash and marketable securities.

 

Ournet loss for the second quarter 2003 was $6.7 million, or $0.24 per share,compared to $7.0 million, or $0.25 per share, for the same quarter in2002.  For the first six months of 2003,our net loss was $13.2 million, or $0.48 per share, compared to $12.0 million,or $0.43 per share, for the same six-month period in 2002.

 

**Liquidityand Capital Resources**

 

We have funded our operations since inception throughour initial public offering and private placements of our securities, as wellas proceeds from warrant and option exercises, corporate licensing andcollaborative agreements, and government sponsored research grants.  At June 30, 2003, we had $59.6 millionof cash, cash equivalents, and marketable securities.

 

Our operating activitiesused $13.4 million and $13.7 million of cash in the first six months in 2003and 2002, respectively.  Uses of cash inoperating activities were primarily to fund product development programs andadministrative expenses.  We haveentered into various agreements with research institutions, universities, andother entities for the performance of research and development activities andfor the acquisition of licenses related to those activities.  The aggregate commitments we have underthese agreements, including minimum license payments, for the next 12 monthsis approximately $0.3 million.  Certainof the licenses require us to pay royalties on future product sales, ifany.  In addition, in order to maintainlicense and other rights while products are under development, we must complywith customary licensee obligations, including the payment of patent relatedcosts and diligent efforts in product development.

 

We expect to continue toincur 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 market risk disclosures set forth in our Form 10-Kfor the period ended December 31, 2002, have not changed significantly.

 

10

----

 

**Item 4.****                       Controlsand Procedures**

 

TheCompany maintains “disclosure controls and procedures,” as such term is definedunder Exchange 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 andcommunicated to the Company’s management, including its Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosures. In designing and evaluating the disclosure controlsand procedures, the Company’s management recognized that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives and inreaching a reasonable level of assurance the Company’s management necessarilywas required to apply its judgment in evaluating the cost-benefit relationshipof possible controls and procedures. The Company has carried out an evaluationunder the supervision and with the participation of the Company’s management,including the Company’s Chief Executive Officer and Chief Financial Officer, ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures as of June 30, 2003. Based upon their evaluationand subject to the foregoing, the Chief Executive Officer and Chief FinancialOfficer concluded that as of June 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.

 

Therewere no changes in the Company’s internal controls or in other factors duringthe most recent quarter that has materially affected, or is reasonably likelyto materially affect, the Company’s internal controls over financial reporting.

 

**PARTII**

 

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

 

(b)                                 Exhibits

 

31                                    Rule13a-14(A) Certifications.

 

32                                    Section1350 Certifications.

 

(c)                                  Reportson Form 8-K

 

The Company filed a Current Report on Form 8-K under Item 5 “OtherEvents” during the three-month period ended June 30, 2003. The reportdated May 15, 2003 contained the Company’s press release announcing itsfinancial results for the three months ended March 31, 2003.

 

11

----

 

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

 

12

----