**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 June 30, 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 32,392,635 shares of the Registrant’s Common Stock issuedand outstanding on August 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 June 30, 2005 and  December 31, 2004                    |       |
|              |                                                                                                    |       |
|              | Condensed Consolidated Statements of Operations Three and Six months  ended June 30, 2005 and 2004 |       |
|              |                                                                                                    |       |
|              | Condensed Consolidated Statements of Cash Flows Six months ended  June 30, 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                                                                                       |       |
|              |                                                                                                    |       |
| **SIGNATURES**    |                                                                                                    |

 

2

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**Part I. Financial Information**

 

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

 

**TITANPHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(in thousands)**

 
| ** **                                                               | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                               | ** ** | **(unaudited)**         | ** ** | **(Note A)**                | ** ** |
| **Assets**                                                               |       |                    |       |                        |       |
| Current assets                                                           |       |                    |       |                        |       |
| Cash and cash equivalents                                                |       | $                       | 5,270      |                        | $          | 5,463 |   |
| Marketable securities                                                    |       | 19,009                  |       | 30,859                      |       |
| Prepaid expenses, other receivables and  current assets                  |       | 1,094                   |       | 1,110                       |       |
| Total current assets                                                     |       | 25,373                  |       | 37,432                      |       |
| Property and equipment, net                                              |       | 982                     |       | 1,044                       |       |
| Investment in other companies                                            |       | 150                     |       | 150                         |       |
| Total assets                                                             |       | $                       | 26,505     |                        | $          | 38,626 |   |
| **Liabilities and Stockholders’ Equity**                            |       |                    |       |                        |       |
| Current liabilities                                                      |       |                    |       |                        |       |
| Accounts payable                                                         |       | $                       | 590        |                        | $          | 689 |   |
| Accrued clinical trials expenses                                         |       | 1,095                   |       | 1,445                       |       |
| Other accrued liabilities                                                |       | 1,745                   |       | 1,538                       |       |
| Total current liabilities                                                |       | 3,430                   |       | 3,672                       |       |
| Minority interest - Series B preferred  stock of Ingenex, Inc. |       | 1,241                   |       | 1,241                       |       |
| Stockholders’ equity                                                |       |                    |       |                        |       |
| Common stock, at amounts paid-in                                         |       | 210,346                 |       | 210,264                     |       |
| Additional paid-in capital                                               |       | 9,287                   |       | 9,327                       |       |
| Deferred compensation                                                    |       | (51                     | )          | (82                         | )          |
| Accumulated deficit                                                      |       | (197,783                | )          | (185,745                    | )          |
| Accumulated other comprehensive income                                   |       | 35                      |       | (51                         | )          |
| Total stockholders’ equity                                          |       | 21,834                  |       | 33,713                      |       |
| Total liabilities and stockholders’ equity                          |       | $                       | 26,505     |                        | $          | 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 June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                             | ** ** | **2004**                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                            |       |                                 |       |                               |       |   |   |   |   |
| License revenue                                                                 |       | $                                    | 13         |                               | $          | — |   | $ | 27 |   | $ | 1 |   |
| Total revenue                                                                   |       | 13                                   |       | —                             |       | 27 |   | 1 |   |
|                                                                            |       |                                 |       |                               |       |   |   |   |   |
| Operating expenses:                                                             |       |                                 |       |                               |       |   |   |   |   |
| Research and development                                                        |       | 4,523                                |       | 4,598                              |       | 9,722 |   | 9,711 |   |
| General and administrative                                                      |       | 1,338                                |       | 1,118                              |       | 2,600 |   | 2,486 |   |
| Total operating expenses                                                        |       | 5,861                                |       | 5,716                              |       | 12,322 |   | 12,197 |   |
| Loss from operations                                                            |       | (5,848                               | )          | (5,716                             | )          | (12,295 | ) | (12,196 | ) |
|                                                                            |       |                                 |       |                               |       |   |   |   |   |
| Other income (expense):                                                         |       |                                 |       |                               |       |   |   |   |   |
| Interest income, net                                                            |       | 138                                  |       | 178                                |       | 288 |   | 337 |   |
| Other expense                                                                   |       | (32                                  | )          | (17                                | )          | (31 | ) | (77 | ) |
| Other income (expense), net                                                     |       | 106                                  |       | 161                                |       | 257 |   | 260 |   |
| Net loss                                                                        |       | $                                    | (5,742     | )                                  | $          | (5,555 | ) | $ | (12,038 | ) | $ | (11,936 | ) |
|                                                                            |       |                                 |       |                               |       |   |   |   |   |
| Basic and diluted net loss per share                                            |       | $                                    | (0.18      | )                                  | $          | (0.17 | ) | $ | (0.37 | ) | $ | (0.39 | ) |
|                                                                            |       |                                 |       |                               |       |   |   |   |   |
| Weighted average shares used in computing  basic and diluted net loss per share |       | 32,361                               |       | 32,108                             |       | 32,350 |   | 30,558 |   |

 

See Notes to Condensed Consolidated FinancialStatements

 

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**TITAN PHARMACEUTICALS, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**

**(in thousands)**

 
| ** **                                                                                 | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                 | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| **Cash flows from operating activities:**                                                  |       |                               |       |   |   |
| Net loss                                                                                   |       | $                                  | (12,038    | ) | $ | (11,936 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |       |                               |       |   |   |
| Depreciation and amortization                                                              |       | 255                                |       | 207 |   |
| Non-cash compensation related to stock  options                                            |       | (9                                 | )          | 187 |   |
| Write-down of securities available-for-sale                                                |       | —                             |       | 50 |   |
| Changes in operating assets and  liabilities:                                              |       |                               |       |   |   |
| Prepaid expenses, receivables and other  assets                                            |       | 16                                 |       | 97 |   |
| Accounts payable and other accrued  liabilities                                            |       | (242                               | )          | (708 | ) |
| Net cash used in operating activities                                                      |       | (12,018                            | )          | (12,103 | ) |
|                                                                                       |       |                               |       |   |   |
| **Cash flows from investing activities:**                                                  |       |                               |       |   |   |
| Purchases of furniture and equipment, net                                                  |       | (193                               | )          | (314 | ) |
| Purchases of marketable securities                                                         |       | (4,940                             | )          | (18,494 | ) |
| Proceeds from maturities of marketable  securities                                         |       | 16,876                             |       | 14,800 |   |
| Net cash provided by (used for) investing  activities                                      |       | 11,743                             |       | (4,008 | ) |
|                                                                                       |       |                               |       |   |   |
| **Cash flows from financing activities:**                                                  |       |                               |       |   |   |
| Issuance of common stock, net                                                              |       | 82                                 |       | 14,502 |   |
| Net cash provided by financing activities                                                  |       | 82                                 |       | 14,502 |   |
|                                                                                       |       |                               |       |   |   |
| **Net decrease in cash and cash equivalents**                                              |       | (193                               | )          | (1,609 | ) |
| Cash and cash equivalents at beginning of  period                                          |       | 5,463                              |       | 6,832 |   |
| Cash and cash equivalents at end of period                                                 |       | 5,270                              |       | 5,223 |   |
| Marketable securities at end of period                                                     |       | 19,009                             |       | 43,246 |   |
| **Cash, cash equivalents and marketable  securities at end of period**                     |       | $                                  | 24,279     |   | $ | 48,469 |   |

 

See Notes to Condensed ConsolidatedFinancial 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,bone disease and other disorders. Our product development programs focus primarilyon large pharmaceutical markets with significant unmet medical needs andcommercial potential. We are directly developing our product candidates andalso utilizing strategic partnerships to help fund product development andenable us to retain significant economic interest in our products. We operatein one business segment, the development of pharmaceutical products.

 

***Basis of Presentation***

*** ***

The accompanyingunaudited condensed consolidated financial statements include the accounts ofTitan and its subsidiaries after elimination of all significant intercompanyaccounts and transactions. Certain prior period balances have been reclassifiedto conform to 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 recurringadjustments) considered necessary for a fair presentation have beenincluded.  Operating results for thethree and six month periods ended June 30, 2005 are not necessarilyindicative of the results that may 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 achievement of the clinical successor regulatory event specified in the underlying contracts,

 

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which represent theculmination of the earnings process. Amounts received in advance are recordedas deferred revenue until the technology is transferred, costs are incurred, ormilestone 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 Subsidiary***

*** ***

We conduct some of our operations through oursubsidiary, Ingenex, Inc.  At June 30,2005, 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  June 30,**        | ** ** | **Six months ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                                                       | ** ** | **2005**                                     | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                       | ** ** | **(in thousands, except  per share amount)** | ** ** |
| Net loss, as reported                                                                                                            |       | $                                            | (5,742     | )                                   | $          | (5,555 | ) | $ | (12,038 | ) | $ | (11,936 | ) |
| Add: Stock-based employee  compensation expense included in reported net loss                                                    |       | 29                                           |       | 71                                  |       | 25 |   | 134 |   |
| Deduct: Estimated stock-based  employee compensation expense determined in accordance with SFAS 123 for all  stock option grants |       | (304                                         | )          | (385                                | )          | (544 | ) | (607 | ) |
| Pro forma net loss                                                                                                               |       | $                                            | (6,017     | )                                   | $          | (5,869 | ) | $ | (12,525 | ) | $ | (12,409 | ) |
|                                                                                                                             |       |                                         |       |                                |       |   |   |   |   |
| Basic and diluted net loss  per share, as reported                                                                               |       | $                                            | (0.18      | )                                   | $          | (0.17 | ) | $ | (0.37 | ) | $ | (0.39 | ) |
| Pro forma basic and diluted  net loss per share                                                                                  |       | $                                            | (0.19      | )                                   | $          | (0.18 | ) | $ | (0.39 | ) | $ | (0.41 | ) |

 

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 June 30, 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 3.8%, respectively; and a weighted-average expected life of 3.5 and 4.5years, 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 the periodspresented.  For the periods ended June 30,2005 and 2004, the effect of an additional 7,059,866 and 6,479,890 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 is comprisedof 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 losses for thethree and six months ended June 30, 2005 were $5.7 million and $12.0 million,respectively, and for the three and six months ended June 30, 2004 were $5.8million and $12.1 million, 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’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-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 thetreatment of central nervous system (CNS) disorders, cardiovascular disease,bone disease and other disorders.  Ourproduct development programs focus primarily on large pharmaceutical marketswith significant unmet medical needs and commercial potential. We are focusedprimarily on clinical development of the following products:

 

•  Probuphine:   for the treatment ofopiate addiction and chronic pain

 

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

 

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

 

•  DITPA:   for the treatment ofcongestive heart failure and hyperlipidemia

 

•  Gallium maltolate:   for thetreatment of bone related diseases and other disorders

 

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

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

 

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

 

***Probuphine***

 

InJune 2004, we announced final results from a pilot clinical study thatevaluated the safety, pharmacokinetics and preliminary efficacy of Probuphinein the treatment of opiate-dependent patients. The results were presented atthe Annual Meeting of The International Society of Addiction Medicine inHelsinki, and demonstrated that all 12 patients switched from daily sublingualbuprenorphine therapy to Probuphine, had maintenance of therapeutic benefit fora period of six months following a single treatment of Probuphine. Treatmentwith Probuphine was well tolerated in this pilot study, with no significantadverse events.

 

Weare currently in the process of finalizing a clinical plan with regulatoryauthorities in various countries to pursue potential marketing authorizationfor Probuphine. We expect to initiate pivotal clinical testing of Probuphine inthe treatment of opiate addiction in the near future. We also plan to initiatePhase II clinical testing of Probuphine in chronic pain in late 2005.

 

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***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 is now pursuingadvancement of the iloperidone Phase III development program and is expected toinitiate further Phase III clinical testing of iloperidone in 2005.  All of our rights and economic interests iniloperidone, including royalties on sales of iloperidone, remain essentiallyunchanged under the agreement.

 

***Spheramine***

 

Enrollment in a randomized, double blind, controlled,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.

 

In June 2005, Schering AG sponsored asymposium on Spheramine at the International Congress on Parkinson’s Disease and Related Disorders in Berlin.  In the keynote address, Ray Watts, M.D.,Professor and Chairman, Department of Neurology, University of AlabamaBirmingham, presented 48-month follow-up data for the six patients in our pilotclinical study of Spheramine.  The datapresented indicate that Spheramine is well tolerated and that patientsdemonstrated 43% average improvement in motor function, four years aftertreatment.

 

InJuly 2004, we announced that the U.S. Food and Drug Administration (FDA)had granted a Fast Track designation for Spheramine for the treatment ofadvanced Parkinson’s disease. The Fast Track Program is designed by the FDA tofacilitate the development and expedite the review of drug candidates thatdemonstrate the potential to treat serious or life-threatening diseases andaddress unmet medical needs.

 

***DITPA***

 

DITPA has completed Phase I and preliminarycontrolled Phase 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 thyroid hormone (T3) levels.  The study will be performed at 35 centers inthe U.S. and will evaluate clinical and laboratory parameters related toseverity of CHF, including change in global clinical status, echocardiographicparameters, BNP levels, exercise testing and quality of life measurements inaddition to safety.  Enrollment in thisstudy is progressing.

 

Additionally,we believe that scientific evidence concerning thyroid hormone andcardiovascular function suggest potential utility of DITPA in the settings of hyperlipidemia,diastolic dysfunction, left ventricular dysfunction post myocardial infarctionand cardiopulmonary bypass surgery. During the fourth quarter of 2005, we are planning to initiate a Phase IIclinical study in hyperlipidemia patients whose lipid levels are notsufficiently controlled by statins alone.

 

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 other disorders.  In the first quarter of 2005, a dose ranging clinicalstudy of gallium maltolate was completed. Significant blood levels of galliumwere achieved, and a maximum tolerated dose level was not reached in thisstudy. We are currently completing development of an optimum formulation ofgallium maltolate with increased bioavailability, and subsequent clinicaltrials are planned to use this new formulation of gallium maltolate.

 

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.

 

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Our products are at various stages of developmentand may not be successfully developed or commercialized. We do not currentlyhave any products being commercially sold. Our proposed products will require significant further capitalexpenditures, development, testing, and regulatory clearances prior tocommercialization.  We may experienceunanticipated problems relating to product development and cannot predictwhether we will successfully develop and commercialize any products.  For a full discussion of risks anduncertainties of our product development, see “Risk Factors – Our products are at various stages ofdevelopment and may not be successfully developed or commercialized” in our2004 Annual Report on Form 10-K/A.

 

**Resultsof Operations**

 

Our net loss for the second quarter 2005 was approximately $5.7million, or $0.18 per share, compared to approximately $5.6 million, or $0.17per share, for the same quarter in 2004. For the first six months of 2005, our net loss was approximately $12.0million, or $0.37 per share, compared to approximately $11.9 million, or $0.39per share, for the same six month period in 2004.

 

We had revenues from licensing agreements of approximately $13,000during the three month periods ended June 30, 2005 and no revenue duringthe comparable three month period of 2004.   During the six months ended June 30, 2005 and 2004, we had revenuesof approximately $27,000 and $1,000, respectively.

 

Researchand development expenses for the three months ended June 30, 2005 were approximately $4.5 million,compared to approximately $4.6 million for the comparable period in 2004, adecrease of $0.1 million, or 2%.  Researchand development expenses for the six months ended June 30, 2005 were approximately $9.7 million,compared to approximately $9.7 million for the comparable period in 2004.  External research and development expensesinclude direct expenses such as clinical research organization charges,investigator and review board fees, patient expense reimbursements,pre-clinical activities and contract manufacturing expenses.  In the second quarter 2005, our external researchand development expenses relating to our core product development programs wereapproximately: $1.2 million related to Probuphine, $1.4 million related toDITPA, and $568,000 related to gallium maltolate.  Other research and development expensesinclude internal operating costs such as clinical research and developmentpersonnel-related expenses, clinical trials related travel expenses, andallocation of facility and corporate costs. As a result of the risks and uncertainties inherently associated withpharmaceutical research and development activities described elsewhere in thisreport, we are unable to estimate the specific timing and future costs of ourclinical development programs or the timing of material cash inflows, if any,from our product candidates.  

 

General and administrative expenses for the three months ended June 30,2005 were approximately $1.3 million, compared to approximately $1.1 millionfor the comparable period in 2004, an increase of $0.2 million, or 18%.  General and administrative expenses for thesix months ended June 30, 2005 were approximately $2.6 million, comparedto approximately $2.5 million for the comparable period in 2004, an increase of$0.1 million, or 4%.  The increase ingeneral and administrative expenses during the three  months ended June 30, 2005  was primarily related to an increase inpersonnel related costs and other general and administrative costs, includingprofessional fees.

 

Net other income for the three months ended June 30, 2005 wasapproximately $106,000, compared to net other income of approximately $161,000in the comparable period in 2004.    Net other income for the six months ended June 30,2005 was approximately $257,000, compared to net other income of approximately$260,000 in the comparable period in 2004.   The decrease, primarily in interest income, was a result of lowerbalances of cash and marketable securities.

 

**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 June 30, 2005, we had $24.3million of cash, cash equivalents, and marketable securities compared to $36.3million at December 31, 2004.

 

Our operating activities used $12.0 million duringthe six months ended June 30, 2005. This consisted primarily of the net loss for the period of $12.0 millionoffset in part by non-cash charges of $0.2 million related to depreciation andamortization expenses and $0.2 million related to changes in prepaid expenses,receivables, other assets, accounts payable and other accrued liabilities.  Uses of cash in operating activities wereprimarily to fund product development programs and administrativeexpenses.  We have entered intovarious agreements with research institutions, universities, and other entitiesfor the performance of research and development activities and for the acquisitionof licenses related to those activities. Certain of the licenses require us topay royalties on future product sales, if any. In addition, in order tomaintain license and other rights while products are under development, we mustcomply with customary licensee obligations, including the payment of patentrelated costs, annual minimum license fees, meeting project-funding milestones and diligent efforts in product development.  Theaggregate commitments we have under these agreements, including minimum licensepayments, for the next 12 months is approximately $0.3 million.

 

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Net cash provided by investing activities of $11.7million during the six months ended June 30, 2005 consisted of sales and maturitiesof marketable securities of $16.9 million, partially offset by purchases ofmarketable securities of $4.9 million and capital expenditures of $0.2 million.

 

Net cash provided by financing activities during thesix months ended June 30, 2005 was $82,000, 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.

 

We expect to continue to incur substantialadditional operating losses from costs related to continuation and expansion ofproduct and technology development, clinical trials, and administrativeactivities. We believe that we currently have sufficient working capital tosustain our planned operations into the second quarter of 2006.  

 

We will need to seekadditional financing to continue our product development activities, and willbe required to obtain substantial funding to commercialize any products otherthan iloperidone or Spheramine that we may successfully develop. If we areunable to complete a debt or equity offering, or otherwise obtain sufficientfinancing when and if needed, we may be required to reduce, defer ordiscontinue one or more of our product development programs.  Although we have not entered into any bindingarrangements relating to an offering of our securities or other possiblefunding, we are exploring various financing alternatives. 

 

**Item3.****   ****Quantitativeand Qualitative Disclosures About Market 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 June 30,2005. Based upon their evaluation and subject to the foregoing, the ChiefExecutive Officer and Chief Financial Officer concluded that as of June 30,2005 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) Certification  of Chairman, President and Chief Executive Officer. |
|        |         |   |
|        | 31.2         | Rule 13a-14(a) Certification  of Executive Vice President and Chief Financial Officer. |
|        |         |   |
|        | 32           | Certifications pursuant 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.** |
|---------------------|---------------------------------|
|                |                            |   |
|                |                            |   |
| August 9, 2005 | By:                             | /s/ Louis R. Bucalo |   |
|                |                            | Louis R.  Bucalo, M.D. |
|                |                            | Chairman, President and Chief Executive  Officer |
|                |                            |   |
|                |                            |   |
| August 9, 2005 | By:                             | /s/ Robert E. Farrell |   |
|                |                            | Robert E. Farrell, J.D. |
|                |                            | Executive Vice  President and Chief Financial Officer |

 

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