<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly Period Ended September 30, 1997.
or
/ / Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Transition Period From _____________ to __________________.
Commission file number 0-27436
-------
TITAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3171940
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
400 OYSTER POINT BLVD., SUITE 505, SOUTH SAN FRANCISCO, CALIFORNIA 94080
------------------------------------------------------------------------
(Address of Principal Executive Offices)
(650) 244-4990
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's common equity
as of November 10, 1997: 13,046,102 shares of Common Stock outstanding,
$.001 par value.
Transitional Small Business Disclosure Format. Yes No X
--- ---
<PAGE>
TITAN PHARMACEUTICALS, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996............................ 2
Condensed Consolidated Statements of Operations
Three months and nine months ended September 30, 1997
and 1996 and period from commencement of
operations (July 25, 1991) to September 30, 1997.................... 3
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996 and
period from commencement of operations
(July 25, 1991) to September 30, 1997............................... 4
Notes to Condensed Consolidated Financial
Statements - September 30, 1997..................................... 5
Item 2. Management's Discussion and Analysis
or Plan of Operations............................................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders............ 11
Item 5. Other Information............................................. 12
Item 6. Exhibits and Reports on Form 8-K............................. 13
SIGNATURES................................................................ 14
<PAGE>
PART I. FINANCIAL INFORMATION
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
(Unaudited) (Note A)
------------- ------------
Assets
Current assets
Cash and cash equivalents $ 5,504,797 $ 1,376,532
Short-term investments 500,000 13,000,000
Prepaid expenses and other current assets 332,956 193,324
Receivable from Ansan Pharmaceuticals, Inc. 232,004 117,881
Note receivable from Ansan Pharmaceuticals, Inc. 1,000,000 -
------------ ------------
Total current assets 7,569,757 14,687,737
Furniture and equipment, net 284,378 791,579
Deferred financing costs 50,000 96,349
Investment in Ansan Pharmaceuticals, Inc. - 590,854
Other assets 18,350 199,830
------------ ------------
$ 7,922,485 $ 16,366,349
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 1,556,605 $ 692,982
License fee payable - -
Accrued legal fees 147,051 587,800
Accrued sponsored research 115,009 163,905
Other accrued liabilities 592,591 233,044
Current portion of capital lease obligation - 265,462
Current portion of technology
financing - Ingenex, Inc. - 570,711
------------ ------------
Total current liabilities 2,411,256 2,513,904
------------ ------------
Noncurrent portion of capital lease obligation - 481,676
Noncurrent portion of technology
financing - Ingenex, Inc. - 718,602
------------ ------------
Total liabilities 2,411,256 3,714,182
Commitments
Minority interest - Series B
preferred stock of Ingenex, Inc. 1,241,032 1,241,032
Guaranteed security value (see Note 3) 5,500,000 -
Stockholders' Equity:
Common stock, at amounts paid in 49,622,782 49,619,784
Preferred stock to be issued (see Note 2) - -
Additional paid-in capital 6,521,353 6,521,353
Deferred compensation (501,280) (630,100)
Deficit accumulated during the
development stage (56,872,658) (44,099,902)
------------ ------------
Total stockholders' equity (1,229,803) 11,411,135
------------ ------------
$ 7,922,485 $ 16,366,349
------------ ------------
------------ ------------
Note A: The balance sheet at December 31, 1996 has been derived from the
audited financial statementsat that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
2
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
THREE MONTHS ENDED NINE MONTHS ENDED OF OPERATIONS
SEPTEMBER 30, SEPTEMBER 30, (JULY 25, 1991) TO
1996 1997 1996 1997 SEPTEMBER 30, 1997
---------- ---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Grant revenue $ 83,356 $ - $ 133,061 $ 147,745 $ 546,078
Costs and expenses:
Research and development 1,673,848 2,375,096 4,023,836 7,193,071 34,773,464
Acquired in-process research and development - - - 9,500,000 10,186,000
General and administrative 906,729 1,498,576 2,882,715 4,462,467 16,290,813
----------- ----------- ----------- ------------ ------------
Total costs and expenses 2,580,577 3,873,672 6,906,551 21,155,538 61,250,277
----------- ----------- ----------- ------------ ------------
Loss from operations (2,497,221) (3,873,672) (6,773,490) (21,007,793) (60,704,199)
Other income (expense):
Gain on sale of technology and fixed assets - - - 8,513,884 8,513,884
Equity in loss of Ansan, Inc. (344,348) (89,029) (699,837) (590,853) (2,046,939)
Interest income 178,820 133,574 518,568 452,887 1,623,629
Interest expense (125,140) (2,140) (1,943,346) (140,881) (4,303,883)
----------- ----------- ----------- ------------ ------------
Other expense - net (290,668) 42,405 (2,124,615) 8,235,037 3,786,691
----------- ----------- ----------- ------------ ------------
Income (loss) before minority interest (2,787,889) (3,831,267) (8,898,105) (12,772,756) (56,917,508)
Minority interest in losses of subsidiaries - - 9,931 44,850
----------- ----------- ----------- ------------ ------------
Net Income (loss) $(2,787,889) $(3,831,267) $(8,888,174) $(12,772,756) $(56,872,658)
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
Net income (loss) per share $ (0.24) $ (0.29) $ (1.37) $ (0.98)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Shares used in per share computation 11,792,738 13,046,102 10,463,149 12,996,635
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
See accompanying notes.
3
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT OF
NINE MONTHS ENDED SEPTEMBER 30, OPERATIONS (JULY
------------------------------- 25, 1991) TO
1996 1997 SEPTEMBER 30, 1997
---------- ---------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (8,888,174) $ (12,772,756) $ (56,872,658)
Adjustments to reconcile net loss to net cash used
in operating activities
Amortization and depreciation 340,963 315,818 1,379,009
Issuance of common stock to acquire technology - 5,500,000 5,500,000
Accrued license fee to acquire technology - - -
Loss (gain) on sale of equipment 227 (218,654) (218,654)
Accretion of discount on indebtedness 1,407,577 - 2,290,910
Equity in loss of Ansan, Inc. 699,837 590,854 2,046,940
Other (9,931) - (35,653)
Issuance of common stock to acquire
minority interest of Theracell, Inc. - - 686,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (24,901) (139,632) (332,956)
Receivable - Ansan, Inc. (41,668) (114,123) (232,004)
Other assets (73,915) 181,480 (23,315)
Accounts payable (5,546) 863,623 1,790,795
Other accrued liabilities (1,174,652) (130,098) 1,345,067
------------- -------------- --------------
Net cash used in operating activities (7,770,183) (5,923,488) (42,676,519)
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (142,553) (80,819) (1,153,178)
Purchases of short-term investments (22,883,986) (100,000) (59,782,493)
Proceeds from sales of short-term investments 5,950,000 12,600,000 59,282,493
Issuance of debenture to Ansan Pharmaceuticals, Inc. - (1,000,000) (1,000,000)
Effect of deconsolidation of Ansan, Inc. - - (135,934)
------------- -------------- --------------
Net cash provided by (used in) investing activities (17,076,539) 11,419,181 (2,789,112)
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 30,283,748 2,998 30,028,760
Offering costs (134,702) - -
Deferred financing costs - 46,349 (763,899)
Issuance of preferred stock - - 17,601,443
Proceeds from notes payable and advances payable - - 2,681,500
Repayment of notes payable - - (1,441,500)
Proceeds for Ansan bridge financing - - 1,425,000
Proceeds from Titan and Ingenex bridge financing - - 5,250,000
Repayment of Titan and Ingenex bridge financing (5,250,000) - (5,250,000)
Proceeds from capital lease - - 658,206
Payments of principal under capital lease obligation (166,640) (127,462) (633,766)
Proceeds from Ingenex, Inc. technology financing - - 2,000,000
Principal payments on Ingenex, Inc.
technology financing (363,826) (1,289,313) (2,000,000)
Increase in minority interest from issuances of
preferred stock by Ingenex, Inc. - - 1,241,032
Issuance of common stock by subsidiaries 9,931 - 173,652
------------- -------------- --------------
Net cash provided by (used in) financing activities 24,378,511 (1,367,428) 50,970,428
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (468,211) 4,128,265 5,504,797
Cash and cash equivalents, beginning of period 947,805 1,376,532 -
------------- -------------- --------------
Cash and cash equivalents, end of period $ 479,594 $ 5,504,797 $ 5,504,797
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
See accompanying notes.
4
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND DEVELOPMENT STAGE SUBSIDIARIES
Titan Pharmaceuticals, Inc. (the "Company"), was incorporated in February
1992 in the State of Delaware. It is a biopharmaceutical company developing
proprietary therapeutics for the treatment of central nervous system
disorders, cancer and other serious and life-threatening diseases. Titan
conducts a portion of its operation through several development stage
biotechnology companies: Ansan Pharmaceuticals, Inc. ("Ansan"), Ingenex, Inc.
("Ingenex"), Theracell, Inc. ("Theracell") and ProNeura, Inc. ("ProNeura"),
collectively, (the "Operating Companies"). Trilex Pharmaceuticals, Inc.,
formerly Ascalon, Inc. ("Trilex") was incorporated in May 1996, as a wholly
owned subsidiary of the Company, to engage in the development of cancer
therapeutic vaccines utilizing anti-idiotypic antibody technology. In August
1997, Trilex was merged with and into Titan. (see Note 2)
ANSAN PHARMACEUTICALS, INC.
Ansan was incorporated in November 1992 to engage in the development of
novel treatment of cancer and other disorders characterized by abnormal
cellular growth and differentiation. It was a majority-owned consolidated
subsidiary until August 1995. In August 1995, Ansan completed an initial
public offering of its securities. Such offering reduced the Company's
ownership in Ansan from approximately 95% to approximately 43%. Since August
1995, the Company has accounted for its investment in Ansan using the equity
method. At September 30, 1997, the Company owned 32% of Ansan.
In July 1997, Ansan entered into an Agreement and Plan of Reorganization
and Merger (the "Merger Agreement") with Discovery Laboratories Inc.,
("Discovery") a Delaware corporation. Under the terms of the Merger
Agreement, Titan will exchange it's ownership in Ansan for a license to
certain technology assets currently licensed to Ansan. (see Note 4. )
INGENEX, INC.
Ingenex was incorporated in July 1991 and reincorporated in June 1992. It
is engaged in the development of gene-based therapeutics and the discovery of
medically important genes for the treatment of cancer and viral diseases. On
June 4, 1997, Ingenex sold its GSX System, a research technology, and certain
fixed assets for cash and the assumption of certain lease liabilities (see
Note 5). At September 30, 1997, the Company owned approximately 81% of
Ingenex.
THERACELL, INC.
Theracell was incorporated in November 1992 to engage in the development
of novel treatments for various neurologic disorders through the
transplantation of neural cells and neuron-like cells directly into the
brain. At September 30, 1997, the Company owned approximately 99% of
Theracell.
PRONEURA, INC.
ProNeura was incorporated in October 1995 to engage in the development of
cost effective, long-term treatment solutions to neurological and psychiatric
disorders through an implantable drug delivery system. At September 30,
1997, the Company owned approximately 79% of ProNeura.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the nine month period ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1997.
These financials should be read in conjunction with the audited consolidated
financial statements and footnotes
5
<PAGE>
thereto included in the Titan Pharmaceuticals, Inc. annual report on Form
10-KSB for the year ended December 31, 1996.
PER SHARE DATA
For purposes of computing net loss per share data in the nine months ended
September 30, 1996, the net loss has been increased by a $5,431,871 deemed
dividend (see Note 2). Per share data is computed using the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares include the dilutive effect of outstanding stock options calculated
using the Treasury Stock Method. Such shares are excluded from the
computation in periods in which the Company incurred a net loss as their
effect is antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
not expected to result in a change in primary earnings per share for the
three and nine months ended September 30, 1996 and 1997.
2. STOCKHOLDERS' EQUITY
DEEMED DIVIDEND
The holders of Series A and Series B preferred stock received common stock
in January 1996 with an aggregate fair value (at the $5.00 per share value of
the initial public offering (the "IPO") which exceeded by $5,431,871 the cost
of their initial investment in Series A and Series B preferred stock. This
amount has been deemed to be the equivalent of a preferred stock dividend.
The Company recorded the deemed dividend at the time of the conversion by
offsetting charges and credits to additional paid in capital, without any
effect on total stockholders' equity (net capital deficiency). There was no
effect on net loss from the mandatory conversion. However, the amount did
increase the loss applicable to common stock, in the calculation of net loss
per share in the 1996 period.
PREFERRED STOCK
In August 1997, Trilex was merged with and into Titan and its assets and
liabilities were assumed by Titan. In connection with this transaction, in
October 1997, the Company issued 222,400 shares of a new class of non-voting
preferred stock to certain members of Trilex's management and certain
consultants of Trilex.
The preferred stock will automatically convert to common stock, on a
one-to-one basis, only if certain development milestones are achieved, within
certain timeframes. Upon conversion of the preferred stock, the Company will
take a charge to operations equal to the then current value of the common
stock issued. Such charge will have no impact on net stockholders' equity.
3. COLLABORATIVE AGREEMENTS
HOECHST MARION ROUSSEL, INC. AGREEMENT
In January 1997, the Company entered into an exclusive license agreement
(the "HMR Agreement") with Hoechst Marion Roussel, Inc. ("Hoechst"). The HMR
Agreement gives the Company a worldwide license to Hoechst's patent rights
and know-how related to a chemical compound known as Iloperidone, including
the ability to develop, use, sublicense, manufacture and sell products and
processes claimed in the patent rights. Terms of the HMR Agreement required
the Company to pay Hoechst a license fee of $9,500,000, payable as follows:
(i) $2,000,000 in cash on January 20, 1997; (ii) the issuance of $5,500,000
of common stock (594,595 shares) on January 20, 1997; (iii) and $2,000,000 in
cash on July 18, 1997. As a result of this transaction, the Company incurred
a charge for acquired in-process research and development of $9,500,000.
During the period from October 1997 through January 1999, the Company shall
be obligated to pay to Hoechst the difference between $5,500,000 and the net
proceeds received by Hoechst upon sale of the above-mentioned
6
<PAGE>
common stock. Accordingly, this has been recorded as guaranteed security
value in the accompanying balance sheet. Any cash paid under the guarantee
agreement will be charged against this balance, and the remaining balance, if
any, will be transferred to common stock. Based on the Company's closing
stock price on November 10, 1997, a potential liability of approximately $2.2
million exists related to the Hoechst shares. In addition, the Company is
required to make additional benchmark payments as specific milestones are
met. Upon commercialization of the product, the license agreement provides
that the Company will pay royalties based on net sales.
4. NOTE RECEIVABLE FROM ANSAN PHARMACEUTICALS, INC. AND RELATED TRANSACTIONS
In March 1997, Titan and Ansan entered into an agreement for financing
pursuant to which Titan advanced Ansan $1,000,000 in return for a debenture
which was convertible at any time prior to June 21, 1997 into 333,333 shares
of Ansan common stock (the "Debenture"). The Company did not convert the
Debenture. The Debenture bears interest at prime plus 2% and is due in April
1998.
In July 1997, the Company entered into an agreement with Ansan pursuant to
which it acquired an exclusive worldwide license to Ansan's butyrate
compounds for anti-cancer and certain other indications in exchange for the
Company's payment of a 2% royalty on net sales and the Company's transfer to
Ansan of all of its equity holdings in Ansan. The agreement is a component
of the Merger Agreement between Ansan and Discovery, a privately-held
development stage biotechnology company, pursuant to which Discovery will be
merged with and into Ansan (the "Merger"). The closing of the Merger is
subject to customary closing conditions, including approval by the
stockholders of Ansan and Discovery. Upon completion of the Merger, Ansan
will repay approximately $1,200,000 of outstanding indebtedness to the
Company, including the Debenture. The sublicense is subject to consummation
of the Merger.
5. INGENEX SALE OF GSX SYSTEM
On June 4, 1997, Ingenex sold its GSX System, a research technology, and
certain fixed assets to Pharmaceutical Product Development, Inc. for
$8,722,500 in cash and the assumption of certain capital lease liabilities.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains certain forward-looking statements,
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the attainment of which involves various risks
and uncertainties. Forward-looking statements may be identified by the use
of forward-looking terminology such as "may", "will", "expect", "believe",
"estimate", "anticipate", "continue" or similar terms, variations of those
terms or the negative of those terms. The Company's actual results may
differ materially from those described in these forward-looking statements
due to, among other factors, the results of ongoing research and development
activities and preclinical testing, the results of clinical trials and the
availability of additional financing through corporate partnering
arrangements or otherwise.
RESULTS OF OPERATIONS
The Company is a development stage pharmaceutical company, with product
development programs in the areas of cancer and central nervous system
disorders. Since its inception, the Company's efforts have been principally
devoted to research and development, including human clinical trials, as well
as to acquiring licenses and technologies, raising capital and securing
patent protection. The Company has had approximately $546,000 in grant
revenue, and has incurred an accumulated deficit through September 30, 1997
of approximately $57,000,000. These losses have resulted from expenditures
for research and development as well as from general and administrative
activities including legal and professional activities, and are expected to
continue for the foreseeable future.
The Company had no revenue during the three months ended September 30,
1997 (the "1997 quarter") but had approximately $148,000 of revenues for the
nine months ended September 30, 1997 (the "1997 nine months"). There were
approximately $83,000 of revenues for the three months ended September 30,
1996 (the "1996 quarter") and approximately $133,000 for the nine months
ended September 30, 1996 (the "1996 nine months") associated with research
grants.
Research and development expenses for the 1997 quarter were approximately
$2,375,000, an increase of $701,000 or 42% from the 1996 quarter. For the
1997 nine months, research and development expenses were approximately
$7,193,000 as compared to $4,024,000 for the 1996 nine months, an increase of
79%.As previously reported by the Company, the increases for both the 1997
quarter and the 1997 nine months can be attributed to the increased number
and more advanced stage of development of the Company's product development
programs, particularly related to its later-stage products including,
Iloperidone, which is ready to commence Phase III clinical trials, and human
clinical testing of the Company's cancer immunotherapeutic products, CeaVac,
TriGem and TriAB, which are expected to be in Phase II/III clinical trials by
early 1998. The increases in research and development expense were also
attributable to sponsored research and contract manufacturing for Spheramine,
the Company's cell-therapy product for Parkinsons's disease, which is now in
late-stage pre-clinical testing. Acquired in-process research and
development of $9,500,000 in the 1997 nine months reflects an upfront license
fee paid by the Company under the HMR Agreement with Hoechst, by which the
Company acquired exclusive worldwide rights to Iloperidone. A portion of
this $9,500,000 license fee, $5,500,000, was a non-cash charge.
General and administrative expenses for the 1997 quarter were
approximately $1,499,000 compared with $907,000 for the 1996 quarter, an
increase of 65%. For the 1997 nine months, general and administrative
expenses were $4,462,000 as compared to $2,883,000 for the 1996 nine months,
an increase of 55%. The increases in general and administrative expense are
primarily due to the addition to the Company's product portfolio of
Iloperidone and the cancer therapeutic vaccines. Consistent with the
Company's previously reported quarterly results, these increased expenses
have been in the areas of legal fees, patent prosecution and medical,
marketing and financial consulting fees. As a percentage of total operating
expenses, general and administrative expenses have decreased from 1996 to
1997. General and administrative expenses for the 1997 nine months were
approximately 21% of the Company's total operating expenses, compared with
42% of the Company's total operating expenses during the comparable period
in 1996.
8
<PAGE>
The Company has taken several steps which should help reduce certain
operating expenses, including, the sale in June 1997 of the GSX technology
which will reduce the Company's annual payroll expenses by approximately
$1,100,000. See discussion below and Note 5 of Notes to Financial Statements.
The Company has also taken steps to reduce its interest expenses due to
repayment of certain debt obligations as outlined below.
As a result of the foregoing expenses, the Company incurred an operating
loss of approximately $3,874,000 during the 1997 quarter compared with
$2,497,000 for the 1996 quarter. This increase is primarily due to the
increased number and activity of the Company's clinical development programs.
For the 1997 nine months, the operating loss was approximately $21,008,000
compared with $6,773,000 for the 1996 nine months. The 1997 nine months
operating loss includes a non-recurring charge of $9,500,000 for the
Iloperidone license, of which $5,500,000 is a non-cash charge, $2,000,000 was
paid in January and $2,000,000 was paid in July 1997. The Company expects to
continue to incur substantial research and development costs in the future as
a result of funding (i) ongoing product development programs, (ii)
manufacturing of products for use in clinical trials, (iii) patent and
regulatory related expenses, and (iv) preclinical and clinical testing of the
products. Accordingly, the Company expects to incur increasing operating
losses for the foreseeable future.
Other income for the 1997 nine months includes a gain of approximately
$8,514,000 from the sale of GSX, a research technology developed by Ingenex,
and certain fixed assets. Interest income was approximately $134,000 during
the 1997 quarter as compared to $179,000 during the 1996 quarter, a decrease
of 25%. For the 1997 nine months, interest income was $453,000 compared with
$519,000 for the 1996 nine months, a decrease of 13%. The decreases resulted
from a reduction in the Company's cash position. Interest expense decreased
to approximately $141,000 during the 1997 nine months from $1,943,000 for the
1996 nine months. Approximately $1,408,000 of the 1996 expense reflects a
non-recurring charge due to the repayment in January 1996 of notes issued in
a bridge financing. Approximately $950,000 of the non-recurring charge
represents the unamortized portion of the $1,200,000 debt discount, and
$458,000 represents debt issuance costs. Interest expense for the 1997
quarter was approximately $2,000 as compared to $125,000 for the 1996 quarter.
LIQUIDITY AND SOURCES OF CAPITAL
In January 1997, the Company entered into the HMR Agreement with Hoechst,
effective as of December 31, 1996, pursuant to which it acquired an exclusive
worldwide license to the antipsychotic agent Iloperidone. Terms of the HMR
Agreement required the Company to pay Hoechst a license fee of $9,500,000,
payable as follows: (i) $2,000,000 in cash on January 20, 1997; (ii) the
issuance of $5,500,000 of common stock (594,595 shares at $9.25 per share) on
January 20, 1997 (the "Fee Shares"); and (iii) $2,000,000 in cash on July 18,
1997. During the period from October 1997 through January 1999, the Company
shall be obligated to pay to Hoechst the difference between $5,500,000 and
the net proceeds received by Hoechst upon the sale of the Fee Shares, if such
net proceeds are less then $5,500,000. See Note 3 of Notes to Financial
Statements. The HMR Agreement also provides for future late stage milestone
payments to Hoechst, based upon successful development of Iloperidone, as
well as royalty payments on net sales, if any. The Company has paid $155,000
to one of its directors for services rendered related to the Iloperodone
acquisition.
In March 1997, Titan and Ansan entered into an agreement for financing
pursuant to which Titan advanced Ansan $1,000,000 in return for a debenture
which was convertible at any time prior to June 21, 1997 into 333,333 shares
of Ansan common stock (the "Debenture"). The Company did not convert the
Debenture. The Debenture bears interest at prime plus 2% and is due in April
1998. In July 1997, the Company entered into an agreement with Ansan pursuant
to which it acquired an exclusive worldwide license to Ansan's butyrate
compounds for anti-cancer and certain other indications. The agreement is a
component of an Agreement and Plan of Reorganization and Merger between Ansan
and Discovery Laboratories, Inc. ("Discovery"), a privately-held development
stage biotechnology company, pursuant to which Discovery will
9
<PAGE>
be merged with and into Ansan (the "Merger"). Upon completion of the Merger,
Ansan will repay approximately $1,200,000 of outstanding indebtedness to the
Company, including the Debenture. Titan will relinquish its ownership in
Ansan and pay Ansan a 2% royalty on net sales of such butyrate compounds.
The agreement is subject to consummation of the Merger. The closing of the
Merger is subject to customary closing conditions, including approval by the
stockholders of Ansan and Discovery.
On June 4, 1997, Ingenex completed the sale of its GSX System, a research
technology, and certain fixed assets for $8,722,500 in cash and the
assumption of certain lease liabilities. Following the close of this
transaction, the company utilized approximately $1,134,000 of proceeds to
repay certain debt obligations.
The Company expects to continue to incur substantial additional operating
losses from costs related to continuation and expansion of product
development, clinical trials, and increased general administrative activities
over at least the next several years. The Company anticipates it will be
required to seek additional financing for it's continued operation during
this period. The Company's capital requirements may change depending on
numerous factors including, but not limited to, the progress of the Company's
product development programs, it's corporate partnering efforts, the results
of clinical studies, the timing of regulatory approvals, technological
advances, determinations as to the commercial potential of the Company's
products, and the status of competitive products. In addition, expenditures
will be dependent on the establishment of collaborative relationships with
other companies, the availability of financing, and other factors. In any
event, the Company anticipates that it will require substantial additional
financing in the future for continued operations. There can be no assurance
as to the availability or terms of any required additional financing, when
and if needed.
10
<PAGE>
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
On July 29, 1997, the Company held its Annual Meeting of shareholders.
Matters voted upon at the meeting and the number of affirmative votes,
negative votes, withheld votes and abstentions cast with respect to each such
matter were as follows:
AFFIRMATIVE WITHHELD
VOTES VOTES
----- -----
1. Election of the Company's Directors:
Louis R. Bucalo, M.D. 8,814,921 57,595
Ernst-Gunter Afting, M.D., Ph.D. 8,815,421 57,095
Michael K. Hsu 8,815,421 57,095
Hubert Huckel, M.D. 8,815,421 57,095
Marvin E. Jaffe, M.D. 8,815,421 57,095
Lindsay A. Rosenwald, M.D. 8,815,421 57,095
Konrad M. Weis, Ph.D. 8,815,421 57,095
Kenneth J. Widder, M.D. 8,815,421 57,095
AFFIRMATIVE AGAINST
VOTES VOTES ABSTENTIONS
2. Approval of an amendment to the Company's
Certificate of Incorporation increasing
the number of authorized shares of common
stock from 30,000,000 to 50,000,000. 8,624,818 189,366 58,322
3. Approval and ratification of the
appointment of Ernst & Young LLP as
independent auditors: 8,762,102 62,222 48,192
ITEM 5. OTHER INFORMATION
On November 3, 1997, Victor Bauer was appointed to the registrant's
Board of Directors. In connection with such appointment, he was
granted options to purchase 10,000 shares of Common Stock at an
exercise price of $5.56 per share, pursuant to the Company's 1995
Stock Option Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement of Computation of Net Loss Per Share
27.1 Financial Data Schedule
(b) A current report on Form 8-K was filed with the Securities and
Exchange Commission on July 18, 1997.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TITAN PHARMACEUTICALS, INC.
November 13, 1997 By: /s/ Louis R. Bucalo
------------------------------------------
Louis R. Bucalo, M.D., President and
Chief Executive Officer
November 13, 1997 By: /s/ Robert E. Farrell
------------------------------------------
Robert E. Farrell, Chief Financial Officer
12
<PAGE>
EXHIBIT 11.1
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1997 1996 1997
-------------- --------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss $ (2,787,889) $ (3,831,267) $ (8,888,174) $ (12,772,756)
Deemed dividend upon conversion of preferred stock - - (5,431,871) -
------------- ------------- ------------- --------------
Net loss applicable to common stock (2,787,889) (3,831,267) (14,320,045) (12,772,756)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Shares used in computing net loss per share 11,792,738 13,046,102 10,463,149 12,996,635
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Net income (loss) per share $ (0.24) $ (0.29) $ (1.37) $ (0.98)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Statement of Operation and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,504,797
<SECURITIES> 500,000
<RECEIVABLES> 1,232,004
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,569,757
<PP&E> 481,673
<DEPRECIATION> 233,295
<TOTAL-ASSETS> 7,922,485
<CURRENT-LIABILITIES> 2,411,256
<BONDS> 0
0
0
<COMMON> 49,622,782
<OTHER-SE> (50,852,585)
<TOTAL-LIABILITY-AND-EQUITY> 7,922,458
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,155,538
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,881
<INCOME-PRETAX> (12,772,756)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,772,756)
<EPS-PRIMARY> (0.98)
<EPS-DILUTED> (0.98)
</TABLE>
