**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 quarterly period ended March 31,  2005.**                                                                                                                                                                                                  |
|       | ** **                                                                                                                                                                                                                                                |
| **or**     |                                                                                                                                                                                                                                                      |
|       |                                                                                                                                                                                                                                                      |
| **o**      | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934**                                                                                                                                                  |
| ** ** | **for the Transition Period From                     to                     .** |

 

**Commissionfile number 0-27436**

 

**Titan Pharmaceuticals, Inc.**

(Exact name of registrant asspecified in its charter)

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

 

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

(Address of Principal ExecutiveOffices including zip code)

 

**(650) 244-4990**

(Registrant’s Telephone Number,Including Area Code)

 

Indicate by check mark whether the Registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the ExchangeAct during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes ý  No o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined on Rule 12b-2of the Exchange Act).  Yes ý No o

 

There were 32,346,683 shares of the Registrant’s Common Stock issuedand outstanding on May 2, 2005.

 

 

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**TitanPharmaceuticals, Inc.**

**Index to Form 10-Q**

 
| **Part I.**  | **Financial Information**                                                                                      |       |
|-------------------|----------------------------------------------------------------------------------------------------------------|------------|
|              |                                                                                                           |       |
|              | Item 1.  Condensed Financial Statements (unaudited)                                                  |       |
|              |                                                                                                           |       |
|              | Condensed Consolidated Balance Sheets March 31,  2005 and December 31, 2004                          |       |
|              |                                                                                                           |       |
|              | Condensed Consolidated Statements of  Operations Three months ended March 31, 2005 and 2004               |       |
|              |                                                                                                           |       |
|              | Condensed Consolidated Statements of Cash  Flows Three months ended March 31, 2005 and 2004               |       |
|              |                                                                                                           |       |
|              | Notes to Condensed Consolidated Financial  Statements                                                          |       |
|              |                                                                                                           |       |
|              | Item 2.  Management’s Discussion  and Analysis of Financial Condition and Results of Operations |       |
|              |                                                                                                           |       |
|              | Item 3.  Quantitative and  Qualitative Disclosures About Market Risk                                 |       |
|              |                                                                                                           |       |
|              | Item 4.  Controls and Procedures                                                                     |       |
|              |                                                                                                           |       |
| **Part II.** | **Other Information**                                                                                          | ** ** |
| ** **        | ** **                                                                                                     | ** ** |
|              | Item 6.  Exhibits and Reports on Form 8-K                                                       |       |
|              |                                                                                                           |       |
| **SIGNATURES**    |                                                                                                           |

 

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**Part I. Financial Information**

 

**Item 1****.  Condensed Financial Statements(unaudited)**

 

**TITANPHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(in thousands)**

 
| ** **                                                               | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                               | ** ** | **(unaudited)**          | ** ** | **(Note A)**                | ** ** |
| **Assets**                                                               |       |                     |       |                        |       |
| Current  assets                                                          |       |                     |       |                        |       |
| Cash and  cash equivalents                                               |       | $                        | 6,160      |                        | $          | 5,463 |   |
| Marketable  securities                                                   |       | 24,856                   |       | 30,859                      |       |
| Related  party receivables                                               |       | 19                       |       | 18                          |       |
| Prepaid  expenses, other receivables and current assets                  |       | 935                      |       | 1,092                       |       |
| Total  current assets                                                    |       | 31,970                   |       | 37,432                      |       |
| Property and  equipment, net                                             |       | 1,020                    |       | 1,044                       |       |
| Investment  in other companies                                           |       | 150                      |       | 150                         |       |
| Total assets                                                             |       | $                        | 33,140     |                        | $          | 38,626 |   |
| **Liabilities  and Stockholders’ Equity**                           |       |                     |       |                        |       |
| Current  liabilities                                                     |       |                     |       |                        |       |
| Accounts  payable                                                        |       | $                        | 723        |                        | $          | 689 |   |
| Accrued  clinical trials expenses                                        |       | 2,074                    |       | 1,445                       |       |
| Other  accrued liabilities                                               |       | 1,670                    |       | 1,538                       |       |
| Total  current liabilities                                               |       | 4,467                    |       | 3,672                       |       |
| Minority  interest - Series B preferred stock of Ingenex, Inc. |       | 1,241                    |       | 1,241                       |       |
| Stockholders’  equity                                               |       |                     |       |                        |       |
| Common  stock, at amounts paid-in                                        |       | 210,287                  |       | 210,264                     |       |
| Additional  paid-in capital                                              |       | 9,303                    |       | 9,327                       |       |
| Deferred  compensation                                                   |       | (63                      | )          | (82                         | )          |
| Accumulated  deficit                                                     |       | (192,041                 | )          | (185,745                    | )          |
| Accumulated  other comprehensive income                                  |       | (54                      | )          | (51                         | )          |
| Total  stockholders’ equity                                         |       | 27,432                   |       | 33,713                      |       |
| Total  liabilities and stockholders’ equity                         |       | $                        | 33,140     |                        | $          | 38,626 |   |

 

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Note A:  Thebalance sheet has been derived from the audited financial statements at thatdate but does not include all of the information and footnotes required bygenerally accepted accounting principles in the United States for completefinancial statement presentation.

 

See Notes to Condensed Consolidated FinancialStatements

 

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**TITAN PHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**

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

 
| ** **                                                                      | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                              | ** ** | **2004** | ** ** |
|                                                                            |       |                                  |       |   |   |
| License  revenue                                                                |       | $                                     | 14         |   | $ | 1 |   |
| Total  revenue                                                                  |       | 14                                    |       | 1 |   |
|                                                                            |       |                                  |       |   |   |
| Operating  expenses:                                                            |       |                                  |       |   |   |
| Research and  development                                                       |       | 5,199                                 |       | 5,113 |   |
| General and  administrative                                                     |       | 1,262                                 |       | 1,368 |   |
| Total  operating expenses                                                       |       | 6,461                                 |       | 6,481 |   |
| Loss from  operations                                                           |       | (6,447                                | )          | (6,480 | ) |
|                                                                            |       |                                  |       |   |   |
| Other income  (expense):                                                        |       |                                  |       |   |   |
| Interest  income, net                                                           |       | 150                                   |       | 159 |   |
| Other income  (expense)                                                         |       | 1                                     |       | (60 | ) |
| Other income  (expense), net                                                    |       | 151                                   |       | 99 |   |
| Net loss                                                                        |       | $                                     | (6,296     | ) | $ | (6,381 | ) |
|                                                                            |       |                                  |       |   |   |
| Basic and  diluted net loss per share                                           |       | $                                     | (0.19      | ) | $ | (0.22 | ) |
|                                                                            |       |                                  |       |   |   |
| Weighted  average shares used in computing basic and diluted net loss per share |       | 32,339                                |       | 29,008 |   |

 

See Notes to Condensed Consolidated FinancialStatements

 

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**TITAN PHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

**(in thousands)**

 
| ** **                                                                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                 | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| **Cash  flows from operating activities:**                                                 |       |                                  |       |   |   |
| Net loss                                                                                   |       | $                                     | (6,296     | ) | $ | (6,381 | ) |
| Adjustments  to reconcile net loss to net cash provided by (used in) operating activities: |       |                                  |       |   |   |
| Depreciation  and amortization                                                             |       | 130                                   |       | 98 |   |
| Loss on  investment activities                                                             |       | —                                |       | 50 |   |
| Non-cash  compensation related to stock options                                            |       | (4                                    | )          | 117 |   |
| Write-down  of securities available-for-sale                                               |       | (9                                    | )          | — |   |
| Changes in  operating assets and liabilities:                                              |       |                                  |       |   |   |
| Prepaid  expenses, receivables and other assets                                            |       | 156                                   |       | 108 |   |
| Accounts  payable and other accrued liabilities                                            |       | 793                                   |       | 831 |   |
| Net cash  used in operating activities                                                     |       | (5,230                                | )          | (5,177 | ) |
|                                                                                       |       |                                  |       |   |   |
| **Cash  flows from investing activities:**                                                 |       |                                  |       |   |   |
| Purchases of  furniture and equipment, net                                                 |       | (106                                  | )          | (15 | ) |
| Purchases of  marketable securities                                                        |       | (2,991                                | )          | (2,341 | ) |
| Proceeds  from maturities of marketable securities                                         |       | 9,000                                 |       | 9,300 |   |
| Proceeds  from sales of marketable securites                                               |       | —                                |       | — |   |
| Net cash  provided by investing activities                                                 |       | 5,903                                 |       | 6,944 |   |
|                                                                                       |       |                                  |       |   |   |
| **Cash  flows from financing activities:**                                                 |       |                                  |       |   |   |
| Issuance of  common stock, net                                                             |       | 24                                    |       | 14,479 |   |
| Net cash  provided by financing activities                                                 |       | 24                                    |       | 14,479 |   |
|                                                                                       |       |                                  |       |   |   |
| **Net  increase in cash and cash equivalents**                                             |       | 697                                   |       | 16,246 |   |
| Cash and  cash equivalents at beginning of period                                          |       | 5,463                                 |       | 6,832 |   |
| Cash and  cash equivalents at end of period                                                |       | 6,160                                 |       | 23,078 |   |
| Marketable  securities at end of period                                                    |       | 24,856                                |       | 32,798 |   |
| **Cash,  cash equivalents and marketable securities at end of period**                     |       | $                                     | 31,016     |   | $ | 55,876 |   |

 

See Notes to CondensedConsolidated Financial Statements

 

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**TITAN PHARMACEUTICALS, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

 

**1.****    ****Organization and Summary ofSignificant Accounting Policies**

 

***TheCompany***

** **

Weare a biopharmaceutical company developing proprietary therapeutics for thetreatment of central nervous system (CNS) disorders, cardiovascular disease andcancer. Our product development programs focus primarily on largepharmaceutical markets with significant unmet medical needs and commercialpotential. We are directly developing our product candidates and also utilizingstrategic partnerships, including a collaboration with Schering AG, Germany(Schering), to help fund product development and enable us to retainsignificant economic interest in our products. We operate in one businesssegment, the development of pharmaceutical products.

 

***Basis of Presentation***

*** ***

The accompanying unauditedcondensed consolidated financial statements include the accounts of Titan andits subsidiaries after elimination of all significant intercompany accounts andtransactions. Certain prior period balances have been reclassified to conformto the current period presentation. 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 10of Regulation S-X.  Accordingly, they donot include all of the information and footnotes required by generally acceptedaccounting principles for a complete financial statement presentation. In theopinion of management, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included.  Operating results for the three month periodended March 31, 2005 are not necessarily indicative of the results thatmay be expected for the year ending December 31, 2005.

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes.  Actual results coulddiffer from those estimates.

 

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/Afor the year ended December 31, 2004.

 

***Revenue Recognition***

*** ***

Wegenerate revenue principally from collaborative research and developmentarrangements, technology licenses, and government grants. Revenue arrangementswith multiple components are divided into separate units of accounting ifcertain criteria are met, including whether the delivered component has stand-alonevalue to the customer, and whether there is objective and reliable evidence ofthe fair value of the undelivered items. Consideration received is allocatedamong the separate units of accounting based on their respective fair values,and the applicable revenue recognition criteria are then applied to each of theunits.

 

Revenueis recognized when the four basic criteria of revenue recognition are met: (1) acontractual agreement exists; (2) transfer of technology has beencompleted or services have been rendered; (3) the fee is fixed ordeterminable; and (4) collectibility is reasonably assured. For eachsource of revenue, we comply with the above revenue recognition criteria in thefollowing manner:

 

•  Collaborative arrangements typicallyconsist of non-refundable and/or exclusive technology access fees, costreimbursements for specific research and development spending, and variousmilestone and future product royalty payments. If the delivered technology doesnot have stand-alone value or if we do not have objective or reliable evidenceof the fair value of the undelivered component, the amount of revenue allocableto the delivered technology is deferred. Non-refundable upfront fees with stand-alonevalue that are not dependent on future performance under these agreements arerecognized as revenue when received, and are deferred if we have continuingperformance obligations and have no evidence of fair value of thoseobligations. Cost reimbursements for research and development spending arerecognized when the related costs are incurred and when reimbursements arereceived. Payments received related to substantive, performance-based “at-risk”milestones are recognized as revenue upon

 

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achievement of theclinical success or regulatory event specified in the underlying contracts,which represent the culmination of the earnings process. Amounts received inadvance are recorded as deferred revenue until the technology is transferred,costs are incurred, or milestone is reached.

 

•  Technology license agreements typicallyconsist of non-refundable upfront license fees, annual minimum access fees orroyalty payments. Non-refundable upfront license fees and annual minimumpayments received with separable stand-alone values are recognized when thetechnology is transferred or accessed, provided that the technology transferredor accessed is not dependent on the outcome of our continuing research anddevelopment efforts.

 

•  Government grants, which support ourresearch efforts in specific projects, generally provide for reimbursement ofapproved costs as defined in the notices of grants. Grant revenue is recognizedwhen associated project costs are incurred.

 

***Operating Subsidiaries***

*** ***

We conduct some of our operations through oursubsidiary, Ingenex, Inc.  At March 31,2005, we owned 81% of Ingenex (assuming the conversion of all preferred stockto common stock).

 

***Recent Accounting Pronouncements***

*** ***

On April 14, 2005, the Securities and ExchangeCommission (“SEC”) adopted a new rule that amends the compliance dates forFinancial Accounting Standards Board’s Statement of Financial AccountingStandards No. 123 (revised 2004), *Share-BasedPayment*(SFAS 123R). Under the new rule, the Company is required toadopt SFAS 123R in the first quarter of fiscal 2006, beginning January 1,2006. The Company has not yet determined the method of adoption or the effectof adopting SFAS 123R, and it has not determined whether the adoption willresult in amounts that are similar to the current pro forma disclosures under Statement ofFinancial Accounting Standards No. 123 (or SFAS 123), *“Accounting for Stock-Based Compensation.”*  Theadoption of SFAS 123R could materially impact our results of operations.

 

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

 

UntilDecember 31, 2005, when we will be required to follow SFAS 123R, we haveelected to continue to follow Accounting Principles Board Opinion No. 25(or APB 25), *“Accounting for Stock Issued toEmployees,”* rather than the alternative method of accountingprescribed by SFAS 123, *“Accounting forStock-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 March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                         | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| Net loss, as  reported                                                                                             |       | $                                          | (6,296     | ) | $ | (6,381 | ) |
| Add:  Stock-based employee compensation expense included in reported net loss                                      |       | (4                                         | )          | 117 |   |
| Deduct:  Stock-based employee compensation expense determined under fair value method  for all stock option grants |       | (240                                       | )          | (275 | ) |
| Pro forma  net loss                                                                                                |       | $                                          | (6,540     | ) | $ | (6,539 | ) |
| Basic and  diluted net loss per share, as reported                                                                 |       | $                                          | (0.19      | ) | $ | (0.22 | ) |
| Pro forma  basic and diluted net loss per share                                                                    |       | $                                          | (0.20      | ) | $ | (0.23 | ) |

 

The fair value of options was estimated atthe date of grant using a Black-Scholes option pricing model with the followingassumptions for the three-month periods ended March 31, 2005 and 2004:weighted-average volatility factor of 0.70 and 0.70, respectively; no expecteddividend payments; weighted-average risk-free interest rates in effect of 4.0%and 2.1%, respectively; and a weighted-average expected life of 3.5 and 3.1years, respectively. For purposes of disclosure, the estimated fair value ofoptions is amortized to expense over the options’ vesting period.

 

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

 

We calculate net lossper share using the weighted average common shares outstanding for theperiod.  For the periods ended March 31,2005 and 2004, the effect of an additional 7,190,282 and 6,306,852 shares,respectively, related to our authorized and issued convertible preferred stockand options, were not included in the computation of diluted earnings per sharebecause they are anti-dilutive.

 

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

 

Comprehensive loss iscomprised of net loss and other comprehensive income or loss.  The only component of other comprehensiveincome or loss is unrealized gains and losses on our marketablesecurities.  Comprehensive loss for thethree months ended March 31, 2005 and 2004 was $6.3 million and $6.3million, respectively.

 

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

 

In February 2004, wefiled a shelf registration statement with the Securities and ExchangeCommission to sell up to $50 million of common or preferred stock.  Under this registration statement, shares maybe sold periodically to provide additional funds for our operations.  In March 2004, we completed a sale of3,075,000 shares of our common stock offered under the registration statementat a price of $5.00 per share, for gross proceeds of approximately $15.4million.  Net proceeds were approximately$14.4 million.

 

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**Item2.****   ****Management’s Discussion and Analysis of FinancialCondition 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-lookingstatements may be identified by the use of forward-looking terminology such as “may,”“will,” “expect,” “believe,” “estimate,” “plan,” “anticipate,” “continue,” orsimilar terms, variations of those terms or the negative of those terms. Ouractual results may differ materially from those described in these forward-lookingstatements due to, among other factors, the results of ongoing research anddevelopment activities and pre-clinical testing, the results of clinical trialsand the availability of additional financing through corporate partneringarrangements or otherwise.*

 

*Probuphine®,Spheramine® and CCMTM are trademarks of Titan Pharmaceuticals, Inc.This Form 10-Q also includes trade names and trademarks of companiesother than Titan Pharmaceuticals, Inc.*

 

**Overview**

** **

Weare a biopharmaceutical company developing proprietary therapeutics for the treatmentof central nervous system (CNS) disorders, cardiovascular disease and cancer.Our product development programs focus on large pharmaceutical markets withsignificant unmet medical needs and commercial potential. We are focusedprimarily on clinical development of the following products:

 

•  Iloperidone:   for the treatment ofschizophrenia and related psychotic disorders (partnered with VandaPharmaceuticals, Inc.)

 

•  Probuphine:   for the treatment ofopiate addiction

 

•  Spheramine:   for the treatment ofadvanced Parkinson’s disease (partnered with Schering AG)

 

•  DITPA:   for the treatment ofcongestive heart failure

 

•  Gallium maltolate:   for thetreatment of bone related diseases and certain cancers.

 

Thefollowing table provides a summary status of our products in development:

 
| **Product**       | ** ** | **Potential Indication(s)**              | ** ** | **Phase of  Development** | ** ** | **Marketing Rights**             |
|-------------------|------------|------------------------------------------|------------|---------------------------|------------|----------------------------------|
| Iloperidone       |       | Schizophrenia, psychosis                 |       | Phase III                 |       | Vanda Pharmaceuticals, Inc. |
| Probuphine        |       | Opiate addiction                         |       | Phase I/II                |       | Titan                            |
| Spheramine        |       | Parkinson’s disease                 |       | Phase IIb                 |       | Schering AG                      |
| DITPA             |       | Congestive heart failure                 |       | Phase II                  |       | Titan                            |
| Gallium maltolate |       | Bone related disease and certain cancers |       | Phase I/II                |       | Titan                            |

 

Followingis an update on the status and progress of Titan’s core development programs:

 

***Iloperidone***

 

In June 2004, we announced that VandaPharmaceuticals, Inc. acquired from Novartis Pharma AG the worldwiderights to develop and commercialize iloperidone. Vanda was founded by Dr. ArgerisN. Karabelas, former CEO of Novartis Pharmaceuticals, and Dr. MihaelPolymeropoulos, former Vice President of Pharmacogenetics at NovartisPharmaceuticals. Under its agreement with Novartis, Vanda will now pursueadvancement of the iloperidone Phase III development program. All of our rightsand economic interests in iloperidone, including royalties on sales of iloperidone,remain essentially unchanged under the agreement.

 

***Probuphine***

 

InJune 2004, we announced final results from a pilot clinical study thatevaluated the safety, pharmacokinetics and preliminary efficacy of Probuphinein opiate-dependent patients. The results were presented at the Annual Meetingof The International Society of Addiction Medicine in Helsinki, anddemonstrated that all 12 patients switched from daily sublingual buprenorphinetherapy to Probuphine, had maintenance of therapeutic benefit for a period ofsix months following a single treatment of Probuphine. Treatment withProbuphine was well tolerated in this pilot study, with no significant adverseevents.

 

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Weare currently in the process of establishing a clinical development strategywith regulatory authorities in various countries to pursue potential marketingauthorization for Probuphine. We are also currently scaling up manufacturingprocess development for Probuphine in support of planned Phase III clinicaldevelopment activities and commercial supply. We expect to initiate pivotalclinical testing of Probuphine in the treatment of opiate addiction in thethird quarter of 2005. We also plan to initiate pilot clinical testing ofProbuphine for chronic pain in the fourth quarter of 2005.

 

***Spheramine***

 

Enrollment in a randomized, controlled, blinded,multi-center Phase IIb clinical study of Spheramine in advanced Parkinson’sdisease is continuing, and we estimate that initial results from this studywill be available in the second half of 2006. Schering AG, Germany, Titan’s corporate partner for the development ofSpheramine, is funding the clinical development program for Spheramine.

 

InJuly 2004, we announced that the FDA had granted us a Fast Trackdesignation for Spheramine for the treatment of advanced Parkinson’s disease.The Fast Track Program is designed by the FDA to facilitate the development andexpedite the review of drug candidates that demonstrate the potential to treatserious or life-threatening diseases and address unmet medical needs.

 

We are now enrolling the third and finalcohort in this Phase IIb clinical study and a total of 47 of the 68 requiredpatients have been treated to date.  TheCompany was advised by the U.S. Food and Drug Administration (FDA)  that information regarding studyinclusion/exclusion criteria, criteria for patient selection, and relatedmonitoring procedures should be updated and submitted to FDA prior to furtherpatient treatment in this study. Patient enrollment continues and the Companyanticipates that further patient treatment should occur on schedule, subsequentto submission to, and approval by the FDA of the additional requesteddocumentation.

 

***DITPA***

 

DITPA has completed Phase I and preliminary controlledPhase II clinical testing in the treatment of congestive heart failure (CHF),and was shown in these studies to improve cardiac function.

 

InDecember 2004, we initiated a 150 patient, randomized, double blind,placebo controlled Phase IIb clinical study with DITPA in Class III and Class IVCHF patients with low T3 levels. Patients will receive either of two doses of DITPA or a placebo for sixmonths. The study will be performed at 35 centers in the U.S. and to date 21centers have been initiated for patient enrollment.  The study will evaluate clinical andlaboratory parameters related to severity of CHF, including change in globalclinical status, echocardiographic parameters, BNP levels, exercise testing andquality of life measurements in addition to safety.

 

Inaddition to evaluation of DITPA in CHF patients with low T3 levels,we believe that scientific evidence concerning thyroid hormone andcardiovascular function suggest potential utility of DITPA in the settings ofdiastolic dysfunction, left ventricular dysfunction post myocardial infarction,cardiopulmonary bypass surgery and hyperlipidemia.

 

DITPAis also currently being evaluated in a second randomized, double blind, placebocontrolled Phase II study in 150 patients with NYHA Class II-IV CHF,sponsored by the Department of Veterans Affairs Cooperative Studies Program andfunded by a $3.8 million grant.

 

***Gallium Maltolate***

 

Gallium maltolate is a novel oral agent indevelopment for the treatment of bone disease and cancer.  In the first quarter of 2005, a dose rangingclinical study of gallium maltolate in cancer patients was completed.Significant blood levels of gallium were achieved, and a maximum tolerated doselevel was not reached in this study. We are currently completing development ofa new formulation of gallium maltolate with increased bioavailability, andsubsequent clinical trials are planned to use this new formulation of galliummaltolate.

 

We are directly developing our product candidates and also utilizingcorporate partnerships, including a collaboration with Schering AG, Germany(Schering) for the development of Spheramine to treat Parkinson’s disease.  Spheramine development is primarily funded bySchering.  Iloperidone development andcommercialization for the treatment of schizophrenia and related psychoticdisorders is being pursued by Vanda Pharmaceuticals, as discussed above.  We also utilize grants from governmentagencies to fund development of our product candidates.

 

We are no longer directly pursuingdevelopment of the monoclonal antibodies—CeaVac, TriAb, and TriGem—for

 

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the treatment of various cancers, and further development of Pivanexwas also discontinued.

 

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 to commercialization.  We may experience unanticipated problemsrelating to product development and cannot predict whether we will successfullydevelop and commercialize any products. For a full discussion of risks and uncertainties of our productdevelopment, see “Risk Factors – Ourproducts are at various stages of development and may not be successfullydeveloped or commercialized” in our 2004 Annual Report on Form 10-K/A.

 

**Resultsof Operations**

 

We had revenues from licensing agreements of approximately $14,000for the three months ended March 31, 2005 compared to approximately $1,000of revenue from licensing agreements for the comparable period in 2004.

 

Research and development (R&D) expenses for thethree months ended March 31, 2005 were approximately $5.2 million,compared to approximately $5.1 million for the comparable period in 2004, anincrease of approximately $0.1 million, or 2%. External R&D expenses include direct expenses such as clinicalresearch organization charges, investigator and review board fees, patientexpense reimbursements, pre-clinical activities and contract manufacturingexpenses.  In the first quarter 2005, ourexternal R&D expenses relating to our core product development programs wereapproximately: $716,000 related to Probuphine, $1.0 million related to DITPA,and $192,000 related to gallium maltolate. Other R&D expenses include internal operating costs such as clinicalresearch and development personnel-related expenses, clinical trials relatedtravel expenses, and allocation of facility and corporate costs.  As a result of the risks and uncertaintiesinherently associated with pharmaceutical research and development activitiesdescribed elsewhere in this report, we are unable to estimate the specifictiming and future costs of our clinical development programs or the timing ofmaterial cash inflows, if any, from our product candidates.

 

General and administrative expenses for the three monthsended March 31, 2005 were approximately $1.3 million, compared toapproximately $1.4 million for the comparable period in 2004, a decrease ofapproximately $0.1 million, or 7%.  Thedecrease in 2005 resulted from lower personnel-related costs and other generaland administrative costs, including professional fees.

 

Net other income for the three months ended March 31,2005 was approximately $151,000, compared to net other income of approximately$99,000 in the comparable period in 2004. The amounts were derived primarily from interest income on our cash andmarketable securities balances.

 

Our net loss for the three months ended March 31, 2005was approximately $6.3 million, or $0.19 per share, compared to approximately$6.3 million, or $0.22 per share, for the comparable period in 2004.

 

**Liquidityand Capital Resources**

 

Wehave funded our operations since inception primarily through sales of oursecurities, as well as proceeds from warrant and option exercises, corporatelicensing and collaborative agreements, and government sponsored researchgrants.  At March 31, 2005, we had$31.0 million of cash, cash equivalents, and marketable securities compared to$36.3 million at December 31, 2004.

 

Our operating activities used $5.2 million duringthe three months ended March 31, 2005. This consisted primarily of the net loss for the period of $6.3 millionoffset in part by non-cash charges of $0.1 million related to depreciation andamortization expenses, $0.2 million related to changes in prepaid expenses,receivables and other assets, and $0.8 million related to changes in accountspayable and other accrued liabilities. Uses of cash in operating activities were primarily to fund productdevelopment programs and administrative expenses.  We have entered into variousagreements with research institutions, universities, and other entities for theperformance of research and development activities and for the acquisition oflicenses related to those activities. Certain of the licenses require us to payroyalties on future product sales, if any. 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, annual minimum license fees, meeting project-funding milestones and diligent efforts in product development.  The aggregatecommitments we have under these agreements, including minimum license payments,for the next 12 months is approximately $0.6 million.

 

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Net cash provided by investing activities of $5.9million during the three months ended March 31, 2005 consisted of salesand maturities of marketable securities of $9.0 million, partially offset bypurchases of marketable securities of $3.0 million and capital expenditures of$0.1 million.

 

Net cash provided by financing activities during thethree months ended March 31, 2005 was $24,000, which consisted primarilyof  net proceeds from the exercise ofstock options.

 

In February 2004 we filed a shelfregistration statement with the Securities and Exchange Commission to sell upto $50 million of common or preferred stock. Under this registrationstatement, shares may be sold periodically to provide additional funds for ouroperations. In March 2004, we completed a sale of 3,075,000 shares of ourcommon stock offered under the registration statement at a price of $5.00 pershare, for gross proceeds of approximately $15.4 million. Net proceeds wereapproximately $14.4 million.

 

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 currentlyhave sufficient working capital to sustain our planned operations into thesecond quarter of 2006.

 

**Item3.****   ****Quantitative and Qualitative Disclosures AboutMarket Risk**

 

Our market risk disclosures set forth in our Form 10-K/Afor the year ended December 31, 2004 have not changed significantly.

 

**Item 4.****   ****Controls and Procedures**

 

We maintain “disclosure controls and procedures,” as suchterm is defined under Exchange Act Rule 13a-15(e), that are designedto ensure that information required to be disclosed in our Exchange Act reportsis recorded, processed, summarized, and reported within the time periodsspecified in the SEC’s rules and forms, and that such information isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosures. In designing and evaluating the disclosurecontrols and procedures, our 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 our management necessarily wasrequired to apply its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures. We have carried out an evaluation under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures as of March 31,2005. Based upon their evaluation and subject to the foregoing, the ChiefExecutive Officer and Chief Financial Officer concluded that as of March 31,2005 our disclosure controls and procedures were effective at the reasonableassurance level in ensuring that material information relating to us is madeknown to the Chief Executive Officer and Chief Financial Officer by otherswithin our company during the period in which this report was being prepared.

 

There were no changes in our internal controls or in otherfactors during the most recent quarter that has materially affected, or isreasonably likely to materially affect, our internal controls over financialreporting.

 

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**PART II**

** **

**Item 6.**    **Exhibits**

 

Exhibits

 

31.1           Rule 13a-14(a) Certificationof Chairman, President and Chief Executive Officer.

 

31.2           Rule 13a-14(a) Certificationof Executive Vice President and Chief Financial Officer.

 

32              Certificationspursuant to 18 U.S.C Section 1350.

 

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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 10, 2005 | By:                             | /s/ Louis R. Bucalo |   |
|              |                            | Louis R.  Bucalo, M.D. |
|              |                            | Chairman, President and Chief Executive  Officer |
|              |                            |   |
|              |                            |   |
| May 10, 2005 | By:                             | /s/ Robert E. Farrell |   |
|              |                            | Robert E. Farrell, J.D. |
|              |                            | Executive Vice President  and Chief Financial Officer |

 

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