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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee required)
For the fiscal year ended December 31, 1996
OR
/ / Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required)
For the transition period from to .
Commission file number 0-27436
TITAN PHARMACEUTICALS, INC.
(Name of Small Business Issuer 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, CA 94080
(Address of Principal Executive Offices including zip code)
(415) 244-4990
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ----------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value Class A Warrants
(Title of Class) (Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 NO X .
---- ----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. /X/
State issuer's revenues for its most recent fiscal year: $258,811.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 26, 1997: $39,649,165.
State the number of shares outstanding of each of the issuer's common equity as
of March 26, 1997: 13,046,102 shares of Common Stock, $.001 par value.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Titan Pharmaceuticals, Inc. ("Titan" or the "Company") is a
biopharmaceutical company engaged in the identification and acquisition of
products or technologies with applications in the areas of cancer, disorders of
the central nervous system ("CNS") and other life-threatening diseases, for
further research and development by the Company and various subsidiaries of the
Company. Certain of the Company's operations are currently conducted through
five entities (the "Operating Companies"): Ansan Pharmaceuticals, Inc.
("Ansan"), a company engaged in the development of small molecule-based
therapeutics intended for the treatment of cancer and other life threatening
diseases; Ingenex, Inc. ("Ingenex"), a company engaged in the development of
proprietary gene-based therapies and the application of functional genomics to
pharmaceutical discovery initially for the treatment of cancer and certain viral
diseases; ProNeura, Inc. ("ProNeura"), a company engaged in research and
development activities relating to a polymeric implantable drug delivery
technology; Theracell, Inc. ("Theracell"), a company engaged in the development
of cell-based therapeutics intended for the restorative treatment of neurologic
diseases and central nervous system disorders; and Trilex Pharmaceuticals, Inc.
("Trilex"), a company engaged in research and development of therapeutic cancer
vaccines utilizing anti-idiotypic antibody technology. As a result of its
initial public offering in August 1995 and subsequent share issuances, Titan's
ownership interest in Ansan was reduced to approximately 43% resulting in its
deconsolidation by the Company in its financial statements. The other operating
companies have remained as consolidated subsidiaries.
The Company was incorporated in Delaware in February 1992 and has been
funded through private placements of its securities, as well as an initial
public offering of its securities (the "IPO") in January 1996.
References to the Company herein include the operations of the Operating
Companies. References to the Company's products are deemed to include those
products under development by the Operating Companies.
The statements in this report which are not historical facts are forward-
looking statements that involve risks and uncertainties, including, but not
limited to, the results of research and development efforts, the results of
preclinical and clinical testing, the effect of regulation by the United States
Food and Drug Administration ("FDA") and other agencies, the impact of
competitive products, product development, commercialization and technological
difficulties, the results of financing efforts, the effect of the Company's
accounting policies, and other risks detailed in the Company's Securities and
Exchange Commission filings.
STRATEGY
Titan participates in the development and growth of the Operating Companies
by identifying and acquiring products or technologies and by providing initial
financing, management expertise and other resources. In acquiring synergistic
technologies with applications in the areas of cancer, CNS disorders and other
life-threatening diseases, the Company pursues opportunities that encompass the
full breadth of mainstream therapeutic approaches to drug discovery, including
small molecule therapy, gene therapy and cell therapy. The Company believes its
strategy may enhance product development opportunities and result in more
efficient use of limited resources. The Company intends, if sufficient
financing can be obtained, to continue to build value through identifying and
acquiring additional complementary technologies or products, and/or development-
stage biopharmaceutical companies.
The Company's strategy is to develop acquired products and/or
technologies to the stage of initial clinical testing and to seek joint
venture, licensing or other collaborative arrangements with one or more
pharmaceutical companies which will help bear the cost of the regulatory
approval process necessary to commercialize therapeutics in the United States
and in foreign markets, as well as to market any products which may be
successfully developed and approved for commercialization. It is not
anticipated that any of the Company's proposed products will receive the
requisite regulatory approval for commercialization in the United States or
elsewhere for a number of years, if at all.
TITAN AND THE OPERATING COMPANIES
In January 1997, the Company entered into a license agreement (the "HMR
Agreement") with Hoechst Marion Roussel, Inc. ("HMR"), effective as of
December 31, 1996, pursuant to which it acquired an exclusive worldwide
license to the antipsychotic agent Iloperidone.
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Iloperidone is an antipsychotic agent in development for treatment of
schizophrenia and related disorders. Schizophrenia strikes early in life and is
generally viewed as a chronic, life-long disorder. Schizophrenia is
characterized by the presence of "positive" symptoms, such as delusions,
hallucinations, disorganized speech, and disorganized or catatonic behavior and
"negative" symptoms such as withdrawal and apathy. According to the World
Health Organization, approximately 45 million people worldwide have some form of
schizophrenia or a related pyschotic disorder.
Iloperidone is one of a new class of antipsychotic medications, referred to
as atypical antipsychotics, which are believed to be effective against most of
the symptoms of schizophrenia with a lower incidence of side effects than older
medications. The results of Phase II trials, which were completed in 1996,
demonstrate that Iloperidone may provide effective treatment against both
positive and negative symptoms of schizophrenia, with low incidence of
extrapyramidal symptoms ("EPS"), the most frequent to occur of the side effects
associated with older antipsychotic compounds currently on the market. In the
Phase II trials, Iloperidone was administered to approximately 150 patients in
various doses. At the most frequently studied dose of 8 mg per day, EPS
incidence did not differ from placebo treated patients. At higher doses,
administered in the absence of placebo comparators, there was minimal indication
of EPS. Phase II tolerance data also supported the safety of Iloperidone at
doses of up to 32 mg per day. During initial dose titration, transient postural
hypotension, a property typical of antipsychotics, was easily controlled by
administration concurrent with food. Iloperidone is expected to enter Phase III
clinical trials in 1997.
ANSAN
Ansan is engaged in the research and development of small molecule
therapies intended to treat cancer, blood disorders and other serious diseases.
Ansan's initial product under development, Pivanex-TM-, is derived from AN9, a
patented analog of butyric acid, and is intended for the treatment of cancer by
promoting cellular differentiation. Traditional cytotoxic chemotherapeutics
tend to kill cancer cells preferentially because cancer cells divide more often
and more rapidly than most normal cells. Unfortunately, such agents may also
kill rapidly dividing normal cells, including blood cells and cells of the
intestine lining, which leads to side effects such as anemia, nausea, vomiting
and risk of infection. Unlike traditional cytotoxic chemotherapy,
differentiation therapy represents a relatively new direction in cancer
research, and involves the development of agents that, in contrast to the
function of cytotoxic agents, induce cancer cells to differentiate, mature and
exhibit more normal growth properties. Differentiation therapy may also lead to
apoptosis, or what is known as normal "programmed cell death," resulting in the
destruction of the cancer cells while sparing normal cells. Pivanex-TM- is
currently in Phase I clinical trials.
It has been previously shown in laboratory testing that direct application
of a solution of AN9 to human melanoma cells can inhibit growth of this type of
cancer. Ansan has been performing certain experiments to enable the filing of
an IND for a newly developed topical formulation of AN9 ("AN9 Topical"). Ansan
has met with the FDA regarding such an effort, and as a result, may decide to
file an IND to proceed with clinical testing of AN9 Topical in the future.
However, certain additional toxicology studies must be completed before an IND
can be submitted.
Ansan is also developing Novaheme-TM-, which is derived from AN10,
another novel analog of butyric acid, and which is intended for the treatment
of sickle cell anemia and BETA-thalassemia, genetic disorders that impair
one's ability to produce normal adult hemoglobin, the oxygen carrying protein
of red blood cells. Initial preclinical experiments indicate that Novaheme-TM-
appears to be more potent at increasing fetal hemoglobin levels than its
competitors (including butyric acid, hydroxyurea and isobutyramide). Ansan
believes that Novaheme-TM- may also prove to exhibit lower toxicity than
certain of the other current treatment options (such as the cytotoxic agent
hydroxyurea) and may, therefore, prove useful in the treatment of such blood
disorders.
Ansan is also pursuing a development program with a topical formulation of
AN10 ("AN10 Topical"). Recent animal studies suggest that AN10 Topical may
prove to have potential utility in reducing chemotherapy-induced alopecia, or
hair loss, in patients with cancer. Ansan expects to complete certain animal
and laboratory testing, and plans to file an IND for AN10 Topical during the
first half of 1997.
Ansan is also attempting to broaden its portfolio of drug development
candidates through in-licensing. Target drugs have patent protection, novel
applications and development needs suitable to the current organization of
Ansan. In May 1996, Ansan acquired rights from Boehringer Ingelheim to develop
an intravenous formulation of the drug apafant for all clinical indications.
Apafant was originally developed by Boehringer Ingelheim as an
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oral treatment for asthma. Boehringer Ingelheim has previously conducted
extensive clinical trials in the US and in other countries using the oral
form of the drug.
Ansan is now pursuing a development program for an injectable formulation
of apafant for the treatment of acute pancreatitis. Acute pancreatitis is an
inflammation of the pancreas. Its causes include gallstones, alcohol abuse and
infection. Patients with moderate to severe pancreatitis receive only supportive
care in an intensive care unit. During an episode of pancreatitis, patients are
at risk of organ failure, including loss of lung, kidney and liver function. In
a significant number of cases pancreatitis is fatal. There is currently no FDA
approved therapy for the treatment of pancreatitis.
Apafant is a platelet activating factor ("PAF") antagonist. PAF is an
inflammatory substance produced in the body that is known to play a role in
acute pancreatitis. In certain experiments, acute pancreatitis, and the
resulting end organ damage and failure, can be induced in laboratory animals by
the injection of PAF. Treatment with apafant has been demonstrated to protect
laboratory animals in certain models of PAF-induced organ damage, as well as
other models of multiple organ system failure. The Company believes that a drug
that can prevent organ damage and failure could be beneficial in treating
patients with pancreatitis.
The Company plans file an IND for apafant for acute pancreatitis during
1997. There can be no assurance that the IND will be filed in a timely manner or
at all and no assurance that the FDA will approve the IND if one is filed.
In August 1995, Ansan completed an initial public offering of its
securities. Its common stock is currently traded on the Nasdaq SmallCap Market
under the symbol ANSN. In March 1997, Titan and Ansan entered into an agreement
for financing pursuant to which Titan was granted the option to reacquire and
maintain a majority equity ownership interest in Ansan in consideration for
Titan advancing Ansan $1,000,000 evidenced by a convertible debenture. See
"Item 6. Management's Discussion and Analysis or Plan of Operations."
INGENEX
Ingenex is engaged in the research and development of gene-based
therapeutics and efforts to discover medically important genes intended
initially for the treatment of cancer and certain viral diseases. Gene therapy
is an approach to the treatment and prevention of genetic and acquired diseases
that involves the insertion of new genetic information into target cells to
produce specific proteins or effect changes in the regulation of gene expression
needed to correct or modulate disease conditions. The operations of Ingenex are
focused on developing the proprietary gene component of gene-therapy products
(as opposed to the vector used to insert the gene). To this end, Ingenex has
licensed three core technologies, one of which is an enabling technology which
identifies new gene therapy products (the GSX-TM- System), and two of which are
gene therapy product candidates (MDRx1-TM- and RB94).
Ingenex is currently developing two potential gene therapy products for the
treatment of cancer, including a novel gene therapy program designed to protect
normal bone marrow and blood cells in an effort to improve the effectiveness of
chemotherapy against many common cancers, including breast, ovarian and lung
cancer. Ingenex and its collaborators are developing a gene-based
chemoprotective product, MDRx1-TM-, to genetically engineer multidrug resistance
into blood progenitor (or stem) cells in order to protect these otherwise
sensitive normal cells from chemotherapy toxicity. MDRx1-TM- utilizes the human
multi-drug resistance gene (MDR1) which encodes "P-glycoprotein," a membrane
protein capable of pumping a variety of chemicals out of cells. MDRx1-TM-
involves the insertion of the MDR1 gene ex vivo into stem cells that have been
removed from cancer patients in order to render some portion of the stem cells
resistant to chemotherapeutic agents. The modified stem cells are then
reinfused into the patients where they repopulate the blood system with chemo-
resistant blood cells. The conferred resistance would potentially allow
patients to be given higher doses of anti-cancer agents than could be given
under normal circumstances (i.e., if the bone marrow was not protected). Bone
marrow suppression is the biggest dose-limiting toxicity factor in the treatment
of cancer patients because chemotherapy must be interrupted or reduced in order
to allow the bone marrow to recover. MDRx1-TM- may allow for the administration
of greater or more frequent doses of chemotherapy while protecting the bone
marrow and peripheral blood cells. If this approach proves successful, it is
also possible that MDR1 will be utilized as a co-selective gene to help
introduce and maintain other genes of potential therapeutic value in human
cells.
Clinical testing is in progress at MD Anderson Cancer Center, Houston,
Texas of a preliminary form of MDRx1-TM- with patients being treated for ovarian
cancer (since December 1994) and with patients being treated for breast cancer
(since January 1995) to determine whether the MDR1 gene can be introduced and
maintained in
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humans. The clinical testing involves introducing ex vivo the MDR1 gene in
human blood stem cells extracted from the bone marrow of cancer patients and
then reintroducing the cells, which have been made resistant to
chemotherapeutic agents, where they quickly repopulate the hematopoietic
system. To date, the results of such testing show that the MDR1 gene has been
successfully introduced into a fraction of the donor bone marrow of most or
all of the patients in the study. There are a number of issues which will
need to be addressed in the event the outcome of the ongoing studies is
positive, including ascertaining the optimal vector for the MDR1 gene and
contracting for large scale production of the final product.
Ingenex is developing a second product, RB94, based on a tumor suppressor
gene, for the treatment of solid tumors. RB94 is a gene therapy product in
preclinical development that combines a truncated variant (p94) of a tumor
suppressor gene (the "RB gene") with a viral vector. Although reintroducing the
RB gene itself into RB deficient tumor cells inhibits the growth of these cells,
it sometimes does so incompletely and tumor regrowth occurs in reconstituted
cells after a period of latency. Ingenex believes the form of the RB protein
encoded by the RB94 gene therapy product is more effective at causing
suppression of tumor cells than the full-length RB protein, based on data
demonstrating in vitro suppression of numerous tumor types tested to date,
including tumors of the bladder, prostate, cervix, bone, breast, lung and
fibrous tissue. In addition, preliminary experiments indicate the modified gene
is effective in suppressing some cancer cell lines in vitro that continue to
contain the functional native gene.
The potential gene therapy product RB94 will consist of the modified RB
gene and an appropriate liposome or viral vector. The product would be
delivered directly to tumor cells through local application. In collaboration
with Baylor College of Medicine, Ingenex is currently testing RB94 in
preclinical studies of solid tumors in mouse models. There can be no assurance,
however, that the results of such studies will be positive or that positive
results would correlate to similar results in human subjects.
The GSX-TM- System being developed by Ingenex and its collaborators is a
proprietary method for rapidly identifying and isolating specific fragments of
genes, known as genetic suppressor elements ("GSEs"), that interfere with a
given biologic or disease process. The GSX-TM- System selects the portion or
portions of the gene or genes that confer(s) a specific, desired behavior to
cells and does so via a system that utilizes "Darwinian selection" or survival
of the GSE with the most desired behavior. Such behavior could include
resistance to viruses, tolerance of harmful drug side effects, reversal of
cancerous cellular transformation, or other desirable properties. Ingenex
believes that the GSX-TM- System represents a new approach to gene discovery
based on its ability to provide information regarding the function of discovered
genes. While Ingenex believes that the GSX-TM- System has broad application,
Ingenex intends to use it initially to identify gene-based therapeutics for the
treatment of viral diseases, such as AIDS. Ingenex also is exploring the use of
the GSX-TM- System to discover novel therapeutics for cancer and other diseases
characterized by aberrant cellular function.
Ingenex has obtained licenses under patents and patent applications
relating to each of the core technologies relating to its various products under
development and its gene discovery system. These include an issued United
States patent and patent applications directed to certain aspects of the GSX-TM-
System; an issued United States patent directed to a nucleic acid encoding the
human MDR1 protein responsible for multidrug resistance; an issued United States
patent directed to a monoclonal antibody, that can be used to reverse multidrug
resistance; an issued United States patent relating to the use of MDR gene in
creating and selecting drug resistant mammalian cells; and an allowed United
States patent application directed to DNA molecules that encode the tumor-
suppressing protein p94RB (the protein relevant to the Company's potential RB94
product), and related pending applications directed to methods of gene therapy
and the protein. The issued patents expire in either 2010 or 2012.
Titan currently owns approximately 81% of the outstanding capital stock of
Ingenex.
THERACELL
Theracell is engaged in the research and development of cell-based
therapeutics intended for use in the restorative treatment of neurologic
diseases and other serious brain disorders. A majority of neurological
disorders, including Parkinson's disease, Alzheimer's disease, stroke and
epilepsy, occur when brain cells (neurons) die. Because neurons cannot
regenerate, most current pharmaceutical therapies are directed toward amplifying
the function of the remaining neurons, an approach which becomes less effective
over time as an increasing number of the neurons die. Theracell's proprietary
technologies enable the development of cell-based therapies for minimally-
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invasive, site specific (i.e., stereotaxic) delivery to the central nervous
system ("CNS") to replace or provide therapeutic factors precisely where they
are needed in order to treat the neurological disease or disorder.
One of Theracell's technologies involves the direct implantation into the
CNS of microscopic beads ("microcarriers"), the surfaces of which are coated
with live cells that secrete therapeutic factors useful in the treatment of
certain neurological diseases. The beads provide a matrix, or membrane-like
surface, to which cells attach and grow. Theracell believes that this cell
coated microcarrier ("CCM-TM-") technology can facilitate site-specific delivery
of missing or deficient neurotransmitters, growth factors and replacement tissue
to diseased or injured areas of the brain by increasing the survival and
successful engraftment of the cells. Theracell's initial product candidate
based on this technology is Spheramine-TM-, microcarriers coated with dopamine-
producing human pigmented retinal epithelial ("HPRE") cells intended for the
treatment of Parkinson's disease. Theracell anticipates clinical testing of
Spheramine-TM- could begin in 1998.
Theracell's development efforts with respect to the CCM-TM- technology are
at an early stage and there are a number of issues that must be resolved
including, long-term effects of microcarrier implantation, source of HPRE cells,
etc. Product research and development is being done through New York University
("NYU"), University of South Florida and contract research and manufacturing
organizations. Theracell has obtained an exclusive worldwide license from NYU
under United States patent applications (the "NYU License") and corresponding
foreign patent applications relating to the CCM-TM- technology.
Complementing CCM-TM- is a technology based on Sertoli cells which has been
licensed exclusively on a worldwide basis under patent applications from the
University of South Florida (the "USF License"). These unique cells secrete a
host of growth factors important to the repair and resprouting of damaged
neurons, and thus may be useful in restoring function in degenerative diseases,
including Parkinson's disease, Huntington's disease, stroke, Alzheimer's
disease, epilepsy and traumatic brain injuries. Additionally, they are capable
of providing an immunologically privileged and nurturing environment to other
types of cells of interest for transplant, and thus, analogous to CCM-TM-, may
facilitate successful engraftment of such cells.
Theracell's development efforts with regard to Sertoli cell technology are
at an early stage and there are a number of issues that must be resolved
including source of cells, long term effects of cell implantation, etc. Product
research and development is being done through the University of South Florida
and contract research and manufacturing organizations. Initial product
development efforts are focused towards early-stage Parkinson's disease and
Huntington's disease.
Titan currently owns 99% of the outstanding stock of Theracell.
PRONEURA
ProNeura is engaged in the research and development of drug delivery
technology with application in the treatment of a number of neurologic and
psychiatric disorders in which conventional treatment is limited by variability
of drug concentration in blood and poor patient compliance. The technology,
which has been licensed from the Massachusetts Institute of Technology ("MIT"),
consists of a polymeric drug delivery system that provides controlled drug
release over extended periods (i.e., from three months to more than one year).
The technology involves imbedding the drug of interest in a polymer. The matrix
is then implanted subcutaneously to provide systemic delivery as body fluids
wash over the implant and the drug is released. This results in a constant rate
of release similar to intravenous administration. ProNeura believes that such
long-term, linear release characteristics are highly desirable, avoiding peak
and trough level dosing that poses problems for many CNS and other therapeutic
agents.
The MIT technology offers significant potential benefits to patients
suffering from chronic CNS disorders, including Huntington's disease,
Parkinson's disease, schizophrenia and psychosis and chronic pain by providing
long-term, intravenous type dosing in a single administration, in an ambulatory
outpatient setting. Patients that pose compliance concerns, including those who
are impaired or whose socioeconomic circumstances hinder compliance with
traditional chronic drug administration could also potentially benefit from this
technology. There are, however, a number of factors that will need to be
addressed in the research and development phase of any product that results from
this polymer matrix technology, including (i) flexibility in dosing; (ii) drug
potency; (iii) potential negative effects from long-term continuous drug
delivery; and (iv) feasibility of device implantation and removal. There can be
no assurance that such factors will be successfully resolved.
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ProNeura is conducting preclinical evaluation of prototype products through
contract research and manufacturing organizations. Titan currently owns
approximately 79% of ProNeura.
TRILEX
Trilex was incorporated under the name Ascalon, Inc. in May 1996 to engage
in research and development of cancer therapeutic vaccines utilizing anti-
idiotypic ("anti-id") antibody technology licensed from the University of
Kentucky Research Foundation. Anti-id monoclonal antibodies are not traditional
antibodies, but are exact mirror images of normal antibodies at their variable
regions. The anti-id therapeutics under development by Trilex are targeted at a
specific epitope (site) that is only present on the targeted cancer cell and is
not found on normal tissue. From a molecular biological perspective the anti-id
antibody is structurally similar to the cancer epitope. When injected into a
patient, the antibody acts as a trigger for the normal immune system's response
of T and B lymphocytes to destroy target cancer cells. The amount required to
elicit this response is relatively small at two milligrams per dose, compared
with the tens or hundreds of milligrams per dose utilized in so-called
"traditional" monoclonal therapy or radio imaging. Trilex believes this low
dosage level is the reason for the insignificant side effects exhibited in
patients.
To date, Trilex has identified three separate anti-id antibodies that are
demonstrating an immune response against antigens associated with
adenocarcinomas, breast cancer, small cell lung cancer and melanoma, T-cell
lymphoma and leukemia. All of such antibodies have successfully entered Phase I
clinical trials and pivotal clinical trials for at least two of the first three
of the antibodies are scheduled to begin in 1997. The three antibodies are:
- CeaVac-TM- (3H1) antibody. The Company believes this product has potential
utility in the treatment of adenocarcinomas, notably, colorectal cancer,
non-small cell lung cancer, pancreatic cancer and gastric cancer.
Carcinoembryonic antigen ("CEA") is produced by the largest group of
cancers, adenocarcinomas. In particular, the anti-CEA antibody has
received widespread interest in the international oncology community
as it is the first potential vaccine to break CEA immune tolerance.
In animal models (i.e., mice), Trilex has demonstrated that the
anti-id antibody can protect against the development of colorectal
cancers that express the carcinoembrionic antigen. During 1997,
Trilex is planning to initiate Phase III studies in patients with
colorectal cancer.
- TriGem-TM- (1A7) antibody. The Company believes this product
has potential utility in the treatment of cancers that express the
GD2 ganglioside, including melanoma, small cell lung cancer and
sarcoma.
- TriAb-TM- (11D10) antibody. The Company believes this
product has potential utility in the treatment of breast, ovarian
and non-small cell lung cancer.
A number of United States and foreign patent applications covering both
therapeutic and diagnostic applications of the anti-id antibody technology are
pending. Award of claims have been issued for TriGem-TM-. Titan currently owns
100% of Trilex.
SPONSORED RESEARCH AND LICENSE AGREEMENTS
The Company and the Operating Companies are party to several agreements
with research institutions, universities and other entities for the
performance of research and development activities and for the acquisition of
licenses relating to such activities.
Effective December 31, 1996, pursuant to the HMR Agreement, the Company
acquired an exclusive worldwide license under United States and foreign
patents and patent applications relating to the use of Iloperidone for the
treatment of psychiatric and psychotic disorders and analgesia. The HMR
Agreement provides for the payment of an upfront license fee in cash and
stock aggregating $9,500,000, as well as substantial additional late stage
milestone payments. See "Item 6: Management's Discussion and Analysis or
Plan of Operations." The HMR Agreement also provides for the payment of
royalties on net sales and requires the Company to satisfy certain other
terms and conditions of the HMR Agreement in order to retain its rights
thereunder.
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ANSAN
Certain aspects of Ansan's research and certain of the development
activities to date were conducted pursuant to a two-year sponsored research
agreement with Bar-Ilan Research and Development Co. Ltd. ("Bar-Ilan") which
terminated in October 1994. This program involved IN VITRO and IN VIVO testing
of AN 9 and AN 10, as well as the preparation and evaluation of additional
derivatives of butyric acid. The research agreement granted Ansan an option to
license exclusively any technology related to butyric acid conceived or reduced
to practice as a result of the research program.
Ansan has acquired, pursuant to a license agreement with Bar-Ilan (the
"Bar-Ilan Agreement"), an exclusive, worldwide license to an issued United
States patent and certain foreign patents, and patent applications covering
novel analogs of butyric acid owned by Bar-Ilan University and Kupat Hulim
Health Insurance Institution. The Bar-Ilan Agreement provides for the payment
by Ansan to Bar-Ilan of royalties based on sales of products and processes
incorporating the licensed technology, subject to minimum annual amounts
commencing in 1995, as well as a percentage of any income derived from and
sublicense of the licensed technology. Ansan must also pay all costs and
expenses incurred in patent prosecution and maintenance. The minimum annual
royalties for 1997 are $20,000 and increase annually to $60,000 for 1999.
Ansan must also satisfy certain other terms and conditions set forth in the
Bar-Ilan Agreement in order to retain its license rights thereunder, including
the use of reasonable best efforts to bring any products developed under the
Bar-Ilan Agreement to market, and to continue diligent marketing efforts for the
life of the license, the timely commencement of toxicology testing on small and
large animals, the development of and compliance with a detailed business plan
and the timely payment of royalty fees.
In May 1996, Ansan entered into a license agreement (the "BI Agreement")
with Boehringer Ingleheim GmbH ("BI") pursuant to which Ansan acquired the
exclusive right in the United States and the European Union to develop an
intravenous formulation of the patented drug ApafantTM. The BI Agreement
provides for the payment by Ansan to BI of future milestones and royalty
payments. Under certain circumstances, BI can reacquire such rights and assume
development and commercialization of the drug. In such event, BI is obligated
to make certain milestone and royalty payments to Ansan.
INGENEX
Ingenex is a party to several license agreements with the University of
Illinois at Chicago ("UIC") which grant Ingenex the exclusive worldwide license
under certain issued patents and patent applications, including those relating
to the GSX-TM- System, methods for preventing multi drug resistance and the
human MDR1 gene (collectively, the "UIC Licenses"). The exclusive nature of the
licenses is subject in certain instances to certain reservations, including the
use of all or part of the subject matter of the licenses for research, education
and other non-commercial purposes. In addition, Ingenex's rights under the MDR1
license are subject to a non-exclusive right granted to Burroughs-Wellcome to
transfect cell lines with the MDR1 gene, and to use the transfectants for
research purposes. Burroughs-Wellcome does not, however, have the right to sell
or transfer the transfectants or any derivatives thereof, without the written
authorization of UIC.
The UIC Licenses provide for the payment of license issue fees totaling, in
the aggregate, approximately $145,000 and a royalty to UIC based on sales of
products and processes incorporating the licensed technology. Each UIC License
also requires the payment of certain minimum amounts during the time periods
provided therein. Furthermore, Ingenex will pay to UIC (i) royalties based on
sublicensing income, (ii) a percentage of revenues from research relating to the
subject matter of each UIC License that is performed on a contract basis for
third parties and (iii) all costs and expenses associated with patent
prosecution and maintenance. Ingenex must also satisfy certain other terms and
conditions of the UIC Licenses in order to retain its license rights thereunder,
including the use of best efforts to bring any products developed under the UIC
Licenses to market, the development of and compliance with a detailed business
plan, obtaining all necessary government approvals and the timely payment of
license and royalty fees. In addition, Ingenex has the right in all instances
to elect to assume control of patent prosecution of the licensed technology.
However, Ingenex may determine that the benefits of filing for patent protection
are outweighed by costs, security or other constraints. As a result, there can
be no assurances that Ingenex will obtain or seek patent protection in all
jurisdictions into which it sells products made under the licenses.
Ingenex has obtained additional exclusive, worldwide licenses from UIC to
foreign and domestic patent applications relating to genes and genetic elements
associated with (i) sensitivity to cisplatin in human cells, (ii) neoplastic
transformation and (iii) sensitivity to chemotherapeutic drugs along with the
association of kinesin with
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chemotherapeutic drug sensitivity. Further development of the technologies
to which the licensed patent applications relate will depend on the ability
of Ingenex to enter into corporate partnering arrangements on acceptable
terms. All three of these licenses are subject to certain rights of third
parties for non-commercial research and educational purposes. These licenses
provide for the payment of license issue fees totaling $50,000 ($10,000 of
which has been paid through the date hereof), royalties based on sales of
products and processes incorporating the licensed technology, subject to
certain minimum annual amounts, and a percentage of all revenue received from
any sublicense of the licensed technology. The obligations of Ingenex under
these agreements are substantially similar to those contained in the UIC
Licenses.
Ingenex has acquired an exclusive license from MIT (the "MIT License")
under an issued patent relating to the use of MDR genes for creating and
selecting drug resistant mammalian cells. The license to Ingenex is subject to
prior grants of (a) an irrevocable, royalty-free, nonexclusive license granted
to the United States government, (b) non-exclusive licenses granted to Eli
Lilly, Inc. and Genetics Institute, Inc. for research purposes and (c) non-
exclusive, commercial licenses that may be granted pursuant to options granted
to Eli Lilly, Inc. and Genetics Institute, Inc. to use aspects of the licensed
technology but only to make products that do not incorporate genes claimed in
the patent, proteins expressed by such genes or antibodies and inhibitors to
such genes. The MIT License provides for the payment of royalties based on net
sales of products and processes incorporating the licensed technology, subject
to certain minimum annual amounts, a percentage of sublicensing income arising
from the license of such products and processes, and the issuance to MIT of
shares of Ingenex's Common Stock. Under the MIT License, Ingenex must also use
reasonable best efforts to bring any products developed under the MIT License to
market, develop and comply with a detailed business plan and make timely payment
of license and royalty fees.
In January 1995, Ingenex entered into an assignment and license back
transaction pursuant to which Ingenex assigned its rights under the three
primary UIC Licenses relating to the human MDR1 gene, methods for preventing
multi-drug resistance and the GSX-TM- System and the MIT License (the "Assigned
Licenses") to Aberlyn Capital Management Limited Partnership ("ACM") in exchange
for payment of $2,000,000 from ACM to Ingenex (the "ACM Agreement"). Under the
ACM Agreement, the rights under the Assigned Licenses are sublicensed back to
Ingenex by ACM in consideration for six monthly payments of $25,000 beginning in
February 1995 and 42 monthly payments of $60,060 thereafter (collectively, the
"License Payments"). The License Payments may be prepaid at any time. After
receipt by ACM of all amounts due under the License Payments, Ingenex may
repurchase the Assigned Licenses from ACM for one dollar. In the event Ingenex
defaults in its obligations with respect to the monthly License Payments, ACM
will have the right to terminate the sublicense, in which event, Ingenex will
lose all of its rights under the Assigned Licenses. Titan has guaranteed the
obligations of Ingenex under the ACM Agreement.
In October 1992, Ingenex acquired an exclusive, worldwide license (the
"Baylor License") under United States and foreign patent applications assigned
to Baylor College of Medicine relating to a modified tumor suppressor gene, the
RB gene, including its use in conferring senescence to tumors that forms the
basis of RB94. The Baylor License provides for royalties based on net sales of
products and processes incorporating the licensed technology, subject to certain
minimum annual amounts and a percentage of sublicensing income arising from the
license of such products and processes. Under the Baylor License, Ingenex must
use reasonable best efforts to bring any products developed under the Baylor
License to market, develop and comply with a detailed business plan, fund
research pursuant to the Baylor research agreement, commence a cancer therapy
research program, make timely payment of royalty fees and pay all costs and
expenses incurred in patent filing, prosecution and maintenance.
THERACELL
Theracell has acquired an exclusive, worldwide license under certain United
States and foreign patent applications pursuant to a research and license
agreement with New York University (the "NYU Agreement"). These patent
applications relate to technology that enables cells of neural and paraneural
origin to be transplanted into the mammalian brain by attaching such cells to a
support matrix of microcarrier beads and implanting the beads into the CNS. The
NYU Agreement provides for the payment of royalties based on net sales of
products and processes incorporating licensed technology, as well as a
percentage of any income it receives from any sublicense thereof. Theracell is
also obligated to reimburse NYU for all costs and expenses incurred by NYU in
filing, prosecuting and maintaining the licensed patents and patent
applications.
Theracell must satisfy certain other terms and conditions of the NYU
Agreement in order to retain its license rights thereunder. These include, but
are not limited to, the use of best efforts to bring licensed products to
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market as soon as commercially practicable and to diligently commercialize
such products thereafter, the use of best efforts to carry out the
performance of all efficacy, pharmaceutical, safety, toxicological and
clinical tests and to obtain all appropriate governmental approvals for the
production, use and sale of the licensed products, the development of and
compliance with a detailed business plan, the timely payment of license and
royalty fees and Theracell's timely payment of research funds (approximately
$200,000 during 1997).
In March 1996, Theracell acquired an exclusive, worldwide license under
United States and foreign patent applications pursuant to a license agreement
(the "USF Agreement") with the University of South Florida and the University of
South Florida Research Foundation, Inc. (collectively, "USF"). These patent
applications relate to the preparation and use of Sertoli cells for the
treatment of neurodegenerative disorders. The USF Agreement provides for the
payment of royalties based on net sales by Theracell or any sublicensees of
products and processes incorporating licensed technology. Theracell is also
obligated to reimburse USF for all costs and expenses incurred by USF in filing,
prosecuting and maintaining the licensed patent rights. Theracell must satisfy
certain other terms and conditions of the USF Agreement in order to retain its
license rights thereunder. These include the development and introduction into
clinical trials of at least one product within five years of such date and an
additional product every two years thereafter until commercialization of one
product, the timely payment of license and royalty fees and investment in the
technology of operating capital aggregating at least $1,500,000 during the two
years following the effective date.
PRONEURA
The Company has acquired from MIT and assigned to ProNeura an exclusive
worldwide license to certain United States and foreign patents which expire in
2007 and 2009 and patent applications relating to the polymeric implantable drug
delivery system (the "MIT License"). The MIT License requires ProNeura to
invest at least $1,800,000 in operating capital toward development of products
and processes covered by the MIT License over the 24 month period commencing
September 1995. The MIT License provides for the payment by ProNeura of
royalties based on sale of products and processes incorporating the licensed
technology, as well as a percentage of income derived from sublicenses of the
licensed technology.
ProNeura must also satisfy certain other terms and conditions set forth in
the MIT License in order to retain its license rights thereunder, including
using its reasonable best efforts to obtain the necessary regulatory approvals
to conduct clinical testing of the licensed technology and to market such
products, if successfully developed, in the United States and Europe. The
exclusive nature of the MIT License is also subject to the condition that
ProNeura file an IND with the FDA by December 31, 1997.
TRILEX
Trilex has acquired an exclusive, worldwide license under certain United
States and foreign patent applications pursuant to a license agreement with the
University of Kentucky Research Foundation (the "Kentucky Agreement"). These
patent applications relate to the anti-idiotypic antibodies known as 3H1, 1A7
and 11D10 and their fragments, derivatives or analogs. The Kentucky Agreement
obligates Trilex to fund research at the University of Kentucky in the amount of
$350,000 per year for five years. The Kentucky Agreement provides for the
payment of certain license fees totaling up to a maximum of $370,000 as well as
royalties based on net sales of licensed products by Trilex or any sublicensees.
Trilex must also diligently pursue a vigorous development program with respect
to the licensed technology in order to maintain its license rights under the
Kentucky Agreement.
MANAGEMENT AND FINANCIAL SERVICES
The Company has historically provided a full range of management services
to its Operating Companies as follows:
- Executive Management and Administrative Services such as:
- development of business strategies and plans
- development of strategies and plans for raising capital
- operational planning and implementation
- investor relations
- Business Development Services such as:
- seeking and negotiating technology licenses
- seeking and negotiating corporate partnerships
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- seeking and negotiating equity investments
- Financial Services such as:
- preparation of budget and financial statements
- cash flow management
- expenditure monitoring and control
- bookkeeping services and managing external audit relationship
- daily banking activities
- processing payroll
- compliance reporting
- accounts payable management
- Human Resources Services such as:
- recruiting
- compensation consulting
- labor law compliance and interfacing with government agencies
- personnel documentation and benefit program administration
The services utilized by any of the Operating Companies are based upon
their respective needs and stages of development. The amount billed to each
Operating Company for such services is based upon an estimate of the cost of
providing such services and is fixed on an annual basis. Each Operating Company
also pays for any out-of pocket expenses incurred by the Company in providing
the services to the Operating Company.
PATENTS AND PROPRIETARY RIGHTS
GENERAL
The Company's success will depend, in part, on its ability, and the ability
of the Operating Companies and their licensor(s), to obtain protection for their
products and technologies under United States and foreign patent laws, to
preserve their trade secrets, and to operate without infringing the proprietary
rights of third parties. Titan and the Operating Companies have obtained rights
to certain patents and patent applications and may, in the future, seek rights
from third parties to additional patents and patent applications. There can be
no assurance that patent applications relating to potential products or
technologies, including those licensed from others, or that may be licensed in
the future, will result in patents being issued, that any issued patents will
afford adequate protection or not be challenged, invalidated, infringed, or
circumvented, or that any rights granted thereunder will afford competitive
advantages to the Company. Furthermore, there can be no assurance that others
have not independently developed, or will not independently develop, similar
products and/or technologies, duplicate any of the Company's products or
technologies, or, if patents are issued to, or licensed by the Company, design
around such patents.
There can be no assurance that the validity of any of the patents licensed
to Titan or the Operating Companies would be upheld if challenged by others in
litigation or that the Company's activities would not infringe patents owned by
others. The Company could incur substantial costs in defending itself and/or
the Operating Companies in suits brought against them or any of their licensors,
or in suits in which the Company may assert, against others, patents in which
the Company has rights. Should the Company's products or technologies be found
to infringe patents issued to third parties, the manufacture, use, and sale of
such products could be enjoined and the Company could be required to pay
substantial damages. In addition, the Company may be required to obtain
licenses to patents or other proprietary rights of third parties, in connection
with the development and use of their products and technologies. No assurance
can be given that any licenses required under any such patents or proprietary
rights would be made available on acceptable terms, if at all.
The Company also relies on trade secrets and proprietary know-how, which it
seeks to protect, in part, by confidentiality agreements with employees,
consultants, advisors, and others. There can be no assurance that such
employees, consultants, advisors, or others, will maintain the confidentiality
of such trade secrets or proprietary information, or that the trade secrets or
proprietary know-how of Titan and the Operating Companies will not otherwise
become known or be independently developed by competitors in such a manner that
the Company will have no practical recourse.
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ANSAN
The Company is aware of the existence of prior art references which may
affect the validity of certain claims in the Nudelman patent licensed by Ansan,
which claims broadly cover AN 10, among other compounds. Reexamination of this
patent by the U.S. Patent and Trademark Office ("PTO"), in light of these
references, may be necessary to obtain valid claims which are both free of the
prior art and which specifically cover AN 10. In the course of preparing for
reexamination or otherwise, additional prior art may be uncovered which might
affect the validity of such proposed narrow claims. Such art would need to be
brought to the attention of the PTO in connection with any reexamination.
Moreover, there can be no assurance that the PTO will grant a request for
reexamination, or if granted, that such reexamination will result in the
issuance of the desired claims. In any event, given that the already-uncovered
prior art references relate to compounds but not to methods of treatment, the
existence of such references would not, as a matter of U.S. patent law, be
expected to affect any claims directed to the use of AN 10 to treat fetal
hemoglobinopathies as covered in U.S. Patent No. 5,569,675 issued in October
1996, which the Company has licensed from Bar-Ilan.
The Company also is aware of certain issued United States patents which
appear to cover the administration of butyric acid, during gestation or
infancy, to ameliorate BETA-globin disorders, including sickle cell anemia
and BETA-thalassemia, by increasing the level of fetal hemoglobin. To the
extent that AN 10 converts to butyric acid and in the event Ansan's
commercial activities include administration of AN 10 during gestation and/or
infancy, such activities could give rise to issues of infringement of such
patents.
INGENEX
The Company is aware of a U.S. patent issued to a third party (the "Riordan
patent") relating to a multidrug resistance. The Riordan patent describes the
isolation of two DNA molecules that code for fractional portions of the hamster
protein associated with multidrug resistance (the "hamster MDR-1 gene"). A
patent licensed by Ingenex (the "Roninson patent") describes and claims the
entire human MDR-1 gene, which is the DNA that codes for the entire protein
associated with multidrug resistance in human cells. Nonetheless, the Riordan
patent claims a DNA molecule coding for a protein, or a fragment of a protein,
that is associated with multidrug resistance in living cells, including human
cells. The Riordan patent has an earlier effective filing date than the
Roninson patent, and there can be no assurance that the Riordan patent will not
be asserted against Ingenex. Thus, it may be necessary for Ingenex to obtain a
license under the Riordan patent to pursue commercialization of its proposed
gene therapy products utilizing the MDR-1 gene. There can be no assurance that
such a license, if required, will be made available to Ingenex, if at all, on
terms acceptable to Ingenex. Failure to obtain such a license, if required,
could have a material adverse effect on Ingenex.
The Company also is aware of a U.S. patent issued to a third party (the
"Anderson patent") relating to EX VIVO gene therapy. The Anderson patent is
reported to be exclusively licensed to Genetics Therapy, Inc. The Company
believes that the Anderson patent could be asserted to cover gene therapeutics
developed by Ingenex, to the extent that the introduction of a gene into a
subjects's cells is performed EX VIVO. In January 1996, it was reported that an
interference proceeding had been instituted in the U.S. Patent and Trademark
Office between the issued Anderson patent and two pending patent applications.
Depending on the outcome of the interference, it may or may not be necessary for
Ingenex to obtain a license from a party to the interference (or its licensee)
to pursue commercialization of its proposed gene therapy products utilizing EX
VIVO gene therapy. There can be no assurance that such a license, if required,
will be made available to Ingenex, if at al, on terms acceptable to Ingenex.
Failure to obtain such a license, if required, could have a material adverse
effect on Ingenex.
Ingenex has received notice that three companies, Chiron Corporation,
Sandoz AG and Introgene NV, are opposing the grant of a European patent
corresponding to the Roninson patent, which Ingenex has licensed from UIC, with
claims directed to the human MDR-1 gene and gene fragments. While Ingenex,
through its licensor, intends to vigorously respond to the oppositions, no
assurance can be given as to the scope of the claims, if any, which the European
Patent Office ultimately will find patentable.
The Company is aware of the existence of a prior art reference (European
Patent Application 0 259 031) ("EP 0 259 031"), which discloses a DNA sequence
corresponding to the sequence of the RB94 DNA molecule that is claimed in an
issued U.S. patent licensed by Ingenex from Baylor (the "Baylor patent"). The
Baylor patent also contains claims directed to specific expression vectors
containing these DNA molecules. Although a patent is presumed valid, there can
be no assurance that the claims of the Baylor patent, if challenged, will not be
found invalid. In any event, given that EP 0 259 031 relates to DNA molecules
but not to methods of gene therapy, the existence of this reference alone would
not, as a matter of U.S. law, be expected to affect the patentability of claims
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directed to the use of the RB94 DNA molecule in gene therapy for certain
cancers, which gene therapy claims presently are pending in a related patent
application licensed by Ingenex from Baylor.
THERACELL
The PTO has issued a notice of allowance on the core subject material of
a patent application underlying the NYU License with Theracell and a U.S.
Patent is expected to be issued shortly. An Australian patent on the core
material of a patent application underlying the NYU License with Theracell
was granted in May 1996. Prosecution of various divisional and continuation
applications and their foreign counterparts continues satisfactorily; there
can be no guarantee, however, that additional patents will be granted. The
Company is also aware of an issued United States patent relating to a method
for treating defective or diseased cells in the mammalian CNS by grafting
genetically modified donor cells in the CNS (i.e., the brain), which cells
can produce molecules (i.e., dopamine) in a sufficient amount to ameliorate
the defect or disease. To the extent Theracell's commercial activities
include the grafting of genetically modified donor cells, such activities
could give rise to issues of infringement of this patent.
The Company is aware of patent applications relating to use of Sertoli
cells in transplantation filed by Research Corporation Technologies (RCT).
These applications may affect validity of certain claims in the USF patent
applications. The Company and USF believe they may have certain rights in the
RCT patents. The exercise of these rights will depend on an inventorship
determination, the outcome of which is uncertain at this time.
COMPETITION
The pharmaceutical and biotechnology industries are characterized by
rapidly evolving technology and intense competition. Many companies of all
sizes, including major pharmaceutical companies and specialized biotechnology
companies, are engaged in the development and commercialization of therapeutic
agents designed for the treatment of the same diseases and disorders targeted by
Titan and the Operating Companies. Many of the competitors of the Company have
substantially greater financial and other resources, larger research and
development staffs and more experience in the regulatory approval process.
Moreover, potential competitors have or may have patent or other rights that
conflict with patents covering technologies of Titan and the Operating
Companies. In certain circumstances, it may be difficult or impossible for
Titan or certain Operating Companies to obtain appropriate licenses, which would
thereby hamper or prevent the commercialization of their proposed products. The
failure to obtain such licenses could have a material adverse affect on the
business, results of operations and financial condition of Titan and such
Operating Companies, which in turn may have an adverse affect on the business,
results of operations and financial condition of the Company.
With regard to Ansan, the Company is aware that Alpha Therapeutics
Corporation ("Alpha") is currently developing, alone and/or with a collaborative
partner, through technology covered by certain patents held by Perrine, a
butyrate-related treatment for blood disorders that would directly compete with
Ansan's Novaheme-TM- product. There can be no assurance that Novaheme-TM- will
prove to be more efficacious in the treatment of blood disorders than the drug
under development by Alpha or that, in the event that Novaheme-TM- is approved
for commercialization, that Novaheme-TM- will gain wider market acceptance than
the Alpha product. In addition, Novaheme-TM- will face competition from
hydroxyurea, a therapeutic agent currently marketed for other indications and
which has just completed clinical testing for the treatment of blood disorders.
Although Ansan believes that hydroxyurea will only have limited utility in the
treatment of hemoglobinopathies since initial studies have shown it to be toxic
and, in certain laboratory models, less effective than Novaheme-TM- at
increasing the ex vivo expression of HbF levels, there can be no assurance that
Novaheme-TM- will ultimately prove to be more efficacious at treating blood
disorders than hydroxyurea or that, in the event that Novaheme-TM- is approved
for commercialization, that it will gain wider market acceptance than
hydroxyurea.
With regard to Ingenex, the Company is aware of several development stage
and established enterprises that are exploring the field of human gene therapy
or are actively engaged in research and development in the area of multidrug
resistance, including Genetix Pharmaceuticals, Inc. ("Genetix") and two research
organizations receiving funding from the National Institutes of Health ("NIH").
There can be no assurance that Ingenex's MDRx1-TM- product will prove to be more
efficacious as a gene therapy than any gene therapy under development by Genetix
or either of the two research organizations. The Company is aware of other
commercial entities that have produced gene therapy products used in human
trials. Further, it is expected that competition in this field will intensify.
With regard to Theracell, the Company is aware of several new drugs for
Parkinson's disease that are in preclinical and clinical development. The
Company is aware that Amgen is pursuing clinical trials in Parkinson's
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patients with GDNF and is collaborating with Medtronics, Inc. in its delivery
to the CNS. In addition, the Company is aware of several well-funded public
and private companies that are actively pursuing alternative cell transplant
technologies, including Somatix Therapy Corporation ("Somatix"),
CytoTherapeutics Inc. and Diacrin, Inc. The technology under development by
Diacrin, Inc. involves using antibodies to eliminate the need for
immunosuppression when transplanting fetal pig cells into Parkinson's
patients, and would directly compete with Spheramine-TM-. There can be no
assurance that any of the products under development by Somatix,
CytoTherapeutics Inc. or Diacrin, Inc., or which might be developed by other
entities, will not prove to be more efficacious in the treatment of
Parkinson's disease than the product under development by Theracell.
With regard to ProNeura, the Company is aware of an implantable therapeutic
system being developed by ALZA Corporation. Additionally, companies such as
Medtronic, Inc. are developing implantable pumps that could be used to infuse
drugs into the CNS.
With regard to Trilex, the Company is aware of several companies involved
in the development of cancer therapeutics that target the same cancers as the
products under development by Trilex. Such companies include Progenics,
Biomira, AltaRex, Genentech, ImClone and Glaxo-Wellcome.
With respect to the product candidate Iloperidone, a similar class of
products are sold by Janssen Pharmaceuticals, Inc. and Eli Lilly, Inc., with
other companies continuing to develop competing compounds.
In addition to the foregoing, colleges, universities, governmental agencies
and other public and private research organizations are likely to continue to
conduct research and are becoming more active in seeking patent protection and
licensing arrangements to collect royalties for use of technology that they have
developed, some of which may be directly competitive with the technologies being
developed by the Company. These institutions also compete with the Company in
recruiting highly qualified scientific personnel. The Company expects
therapeutic developments in the areas of oncology and hematology to occur at a
rapid rate and competition to intensify as advances in this field are made.
Accordingly, the Company will be required to continue to devote substantial
resources and efforts to research and development activities.
GOVERNMENT REGULATION
The Company's research and development activities are, and the production
and marketing of its products will be, subject to regulation for safety and
efficacy by numerous governmental authorities in the United States and other
countries. In the United States, pharmaceutical products are subject to
rigorous FDA review. The Federal, Food, Drug, and Cosmetic Act and other
federal statutes and regulations govern or influence the research, testing,
manufacture, safety, labeling, storage, recordkeeping, approval, advertising and
promotion of such products. Noncompliance with applicable requirements can
result in fines, recall or seizure of products, refusal to permit products to be
imported into or exported out of the United States, refusal of the government to
approve product approval applications or to allow a company to enter into
government supply contracts, withdrawal of previously approved applications and
criminal prosecution.
In order to obtain FDA approval of a new drug, a company generally must
submit proof of purity, potency, safety and efficacy, among others. In most
cases, such proof entails extensive clinical and preclinical laboratory tests.
The testing and preparation of necessary applications is expensive and may take
several years to complete. There is no assurance that the FDA will act
favorably or quickly in reviewing submitted applications, and significant
difficulties or costs may be encountered by Titan and the Operating Companies in
their efforts to obtain FDA approvals, which difficulties or costs could delay
or preclude them from marketing any products they may develop. The processing
of those applications by the FDA is a lengthy process and may also take several
years. Any future failure to obtain or delay in obtaining such approvals could
adversely affect the ability of Titan and the Operating Companies to market
their proposed products. Moreover, even if regulatory approval is granted, such
approval may include significant limitations on indicated uses for which any
such products could be marketed. Further, a marketed drug and its manufacturer
are subject to continued review, and later discovery of previously unknown
problems may result in restrictions on such product or manufacturer, including
withdrawal of the product from the market. In addition, new government
regulations may be established that could delay or prevent regulatory approval
of the products under development.
Among the conditions for clinical studies and IND approval is the
requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to good manufacturing practices ("GMP"), which
must be followed at all times. In complying with standards set forth in these
regulations, manufacturers must
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continue to expend time, moneys and effort in the area of production and
quality control to ensure full technical compliance.
The FDA may also require post-marketing testing and surveillance of
approved products, or place other conditions on their approvals. These
requirements could cause it to be more difficult or expensive to sell the
products, and could therefore restrict the commercial applications of such
products. Product approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial marketing.
With respect to patented products or technologies, delays imposed by the
governmental approval process may materially reduce the period during which the
Company will have the exclusive right to exploit such technologies.
The procedure for obtaining FDA approval to market a new drug involves
several steps. Initially, the manufacturer must conduct preclinical animal
testing to demonstrate that the product does not pose an unreasonable risk to
human subjects in clinical studies. Upon completion of such animal testing, an
IND must be filed with the FDA before clinical studies may begin. An IND
application consists of, among other things, information about the proposed
clinical trials. Once the IND is approved (or if FDA fails to act within 30
days), the clinical trials may begin.
Human clinical trials on drugs are typically conducted in three sequential
phases, although the phases may overlap. Phase I trials typically consist of
testing the product in a small number of healthy volunteers or in patients,
primarily for safety in one or more doses. During Phase II, in addition to
safety, the efficacy of the product is evaluated in up to several hundred
patients and sometimes more. Phase III trials typically involve additional
testing for safety and efficacy in an expanded patient population at multiple
test sites. The FDA may order the temporary or permanent discontinuation of a
clinical trial at any time.
The results of the preclinical and clinical testing on new drugs are
submitted to the FDA in the form of a new drug application ("NDA") for new
drugs. The NDA approval process requires substantial time and effort and there
can be no assurance that any approval will be granted on a timely basis, if at
all. The FDA may refuse to approve an NDA if applicable regulatory requirements
are not satisfied. Product approvals, if granted, may be withdrawn if
compliance with regulatory standards is not maintained or problems occur
following initial marketing.
Under guidelines established by NIH, deliberate transfers of recombinant
DNA into human subjects conducted within NIH laboratories or with NIH funds must
be approved by the NIH Director. The Director may approve a procedure if it is
determined that no significant risk to health or the environment is presented.
The NIH has established the Recombinant DNA Advisory Committee (the "RAC") to
advise the NIH Director concerning approval of NIH-supported research involving
the use of recombinant DNA. A proposal will be considered by the RAC only after
the protocol has been approved by the investigator's local Institutional Review
Board and other committees. Although the jurisdiction of the NIH applies only
when NIH-funded research or facilities are involved in any aspect of the
protocol, the RAC encourages all gene transfer protocols to be submitted for its
review. The Company intends to comply with RAC and NIH guidelines even when it
may not be subject to them.
There can be no assurance that any required FDA or other governmental
approval will be granted, or if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the marketing of the Operating
Companies' proposed products, cause them to undertake costly procedures and
furnish a competitive advantage to more substantially capitalized companies with
which they expect to compete. In addition, the extent of potentially adverse
government regulations which might arise from future administrative action or
legislation cannot be predicted.
The Company believes it is in compliance with all material applicable
regulatory requirements.
FOREIGN REGULATORY ISSUES
Sales of pharmaceutical products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country.
Whether or not FDA approval has been obtained, approval of a product by a
comparable regulatory authority of a foreign country must generally be obtained
prior to the commencement of marketing in those countries. Although the time
required to obtain such approval may be longer or shorter than that required for
FDA approval, the requirements for FDA approval are among the most detailed in
the world and FDA approval generally takes longer than foreign regulatory
approvals.
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EMPLOYEES
The Company currently has ten full-time employees. Ingenex currently has
16 employees, Theracell currently has four employees and Trilex currently has
nine employees. ProNeura currently has no full-time employees. The Company's
future success depends in significant part upon the continued service of its key
scientific personnel and executive officers, as well as those of the Operating
Companies and all of such entities' continuing ability to attract and retain
highly qualified scientific and managerial personnel. Competition for such
personnel is intense and there can be no assurance that key employees can be
retained or that other highly qualified technical and managerial personnel can
be retained in the future.
None of the Company's employees is represented by a labor union. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company has a four year lease, expiring in April 2000, for
approximately 3,800 square feet of office space in South San Francisco,
California. The monthly rental payment is $6,185. Ingenex has a three year
lease, expiring in March 1999, for approximately 22,700 square feet of space in
Menlo Park, California that includes laboratories, offices and warehouse space.
The base rent is $27,200 per month. Theracell has a three year lease, expiring
in August 1999, for approximately 1,900 square feet of space in Somerville, New
Jersey, at a monthly rental payment of $3,362. Trilex has a five year lease,
expiring in August 2000, for approximately 3,600 square feet in Scottsdale,
Arizona at a monthly rental payment of $6,788.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On October 18, 1996, 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:
<TABLE>
<CAPTION>
Affirmative Withheld
Votes Votes
----------- --------
<S> <C> <C>
1. Election of the Company's Directors:
Louis R. Bucalo, M.D. 6,534,243 6,770
Ernst-Gunter Afting, M.D., Ph.D. 6,534,243 6,770
Michael K. Hsu 6,534,243 6,770
Hubert Huckel, M.D. 6,531,843 9,170
Marvin E. Jaffe, M.D. 6,534,243 6,770
Peter M. Kash 6,534,243 6,770
Lindsay A. Rosenwald, M.D. 6,534,243 6,770
Konrad M. Weis, Ph.D. 6,531,843 9,170
Kenneth J. Widder, M.D. 6,534,243 6,770
<CAPTION>
Affirmative Withheld
Votes Votes Abstentions
----------- -------- -----------
<S> <C> <C> <C>
2. Approval of an amendment to the
Company's 1995 Stock Option Plan: 5,861,928 529,582 81,498
3. Approval and ratification of the
appointment of Ernst & Young LLP
as independent auditors: 6,113,450 296,612 130,951
</TABLE>
15
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Company's Units, Common Stock and Warrants trade on The Nasdaq
SmallCap Market tier of The Nasdaq Stock Market under the symbols TTNPU, TTNP
and TTNPW, respectively, since January 18, 1996. The following sets forth, for
the periods indicated, the high and low sales prices of the Company's Common
Stock as reported by The Nasdaq Stock Market:
HIGH LOW
---- ---
1996
----
First Quarter (from January 18) . $ 8.375 $ 3.00
Second Quarter. . . . . . . . . . $13.00 $ 7.50
Third Quarter . . . . . . . . . . $12.25 $10.0625
Fourth Quarter. . . . . . . . . . $12.00 $ 8.25
1997
----
First Quarter (through March 25). $ 9.25 $ 2.625
(b) The number of holders of record of the Company's Common Stock as of
March 26, 1997 is 456.
(c) The Company has never paid a cash dividend on its Common Stock and
does not anticipate the payment of cash dividends to holders of Common Stock in
the foreseeable future.
ITEM 6. 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
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
Since its inception, the Company's efforts have been principally devoted to
acquiring licenses and technologies, research and development, securing patent
protection and raising capital. The Company has had no significant revenue and
has incurred an accumulated deficit through December 31, 1996 of $44,100,000.
These losses have resulted from expenditures for research and development and
general and administrative activities including legal and professional
activities, and are expected to continue for the foreseeable future. Through
December 31, 1996, research and development expenses totaled $28,266,000, and
general and administrative expenses totaled $11,828,000. Approximately
$6,553,000 of such expenses were incurred in connection with the activities of a
subsidiary, Geneic Sciences, Inc. ("Geneic"), which ceased operations in 1995.
Total revenues for the year ended December 31, 1996 ("1996") were $259,000
and $140,000 for the year ended December 31, 1995 ("1995") from National
Institutes of Health grants.
Research and development expenses for 1996 were $5,567,000, as compared to
$5,888,000 for 1995, a decrease of $321,000, or 5%. The decrease reflects the
deconsolidation of Ansan effective August 1995, the cessation of operations by
Geneic in September 1995 and the completion of certain sponsored research for
Ingenex in 1995, offset by the addition of ProNeura in late 1995 and Trilex in
May 1996.
General and administrative expenses for 1996 were $5,264,000, as compared
to $3,658,000 for 1995, an increase of $1,606,000, or 44%. The increase
includes $805,000 reflecting the addition of Trilex in May 1996, as well as
$688,000 of expenses incurred by Ingenex in conjunction with a financing that
was terminated.
As a result of the foregoing expenses, the Company incurred an operating
loss of $12,856,000 during 1996 compared with $11,693,000 during 1995. The
Company expects to continue to incur substantial research and
16
<PAGE>
development costs in the future as a result of funding ongoing (i) research
and development programs for itself and the Operating Companies, (ii)
manufacturing of products for use in clinical trials, (iii) patent and
regulatory related expenses, and (iv) preclinical and clinical testing. The
Company also expects that general and administrative costs necessary to
support such research and development activities will increase. The Company
will also seek to identify new technologies and/or product candidates for
possible in-licensing or acquisition. Accordingly, the Company expects to
incur increasing operating losses for the foreseeable future. There can be
no assurance that the Company will ever achieve profitable operations.
Other income includes interest income of $716,000 during 1996 as compared
to $68,000 during 1995. This increase was a result of a substantial increase in
the amount of cash and short-term investments subsequent to the Company's IPO in
January 1996 and a private placement completed in August 1996 (the "Private
Placement"). Interest expense was $2,011,000 during 1996 as compared to
$1,899,000 for 1995. 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 ("Bridge Notes"). This non-recurring charge represents the
unamortized portion of the $1,800,000 debt discount and $458,000 of debt
issuance costs relating to the Bridge Notes.
Other income for 1996 and 1995 also includes $999,000 and $457,000,
respectively, of losses representing the Company's share of Ansan's losses.
Effective December 31, 1996, the Company entered into an exclusive
license agreement for the commercial rights to the product Iloperidone with
HMR. Under the agreement, the Company agreed to pay HMR an upfront license
fee of $9,500,000 payable in cash and stock. See "Liquidity and Capital
Resources" below.
Upon completion of the IPO, the Company's previously outstanding shares
of preferred stock were converted automatically into shares of Common Stock
at adjusted conversion prices per common share less than the public offering
price per common share. The deemed benefit to the preferred stockholders
approximated $5,400,000 which deemed benefit was recorded by offsetting
charges and credits to additional paid-in capital at the time of conversion.
There was no effect on net loss or pro forma net loss per share from the
mandatory conversion. However, the amount increased the loss allocable to
common stock in the calculation of net loss per share in the period of the
conversion.
The Company's business is subject to significant risks including, but not
limited to, the success of its research and development efforts, obtaining and
enforcing patents important to the Company's business, competition from other
products and lengthy as well as expensive regulatory approval process. There
can be no assurance that Titan or any of the Operating Companies will have the
resources necessary to conduct the several phases of clinical testing in human
subjects necessary to complete development and to commercialize any products.
The Company's strategy will continue to be to seek public or private financing
for the Operating Companies through the sale of securities, corporate partnering
arrangements or the sale of product or technology rights at such time as their
stage of development and working capital requirements permit such outside
financing in order to reduce their financial dependence on Titan and enable the
Company to continue to expand its product portfolio through acquisitions. There
can be no assurance that financing from such sources or others will be available
to any of the Operating Companies. Additional expenses, delays, and losses of
opportunity that may arise out of these and other risks could have a material
adverse impact on the Company's financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
In January 1996, the Company completed the IPO which resulted in net
proceeds to the Company of $8,622,000 after payment of underwriting discounts, a
non-accountable expense allowance to the underwriter and other expenses of the
offering and the repayment of the Bridge Notes and the Ingenex Notes, details of
which are provided below. In February 1996, the underwriter of the Company's
IPO exercised its overallotment option and purchased an additional 480,000
units, resulting in net proceeds to the Company, after discounts and commissions
to the underwriter, of $2,160,000.
On July 31 and August 2, 1996, the Company completed the Private Placement
which resulted in net proceeds to the Company of approximately $13,740,000 after
payment of placement agent fees and other expenses of the Private Placement.
Titan is party to a master capital equipment lease with respect to which
the Operating Companies have entered into a sublease and assignment with Titan.
At December 31, 1996, the amount outstanding under the equipment lease was
$747,138 with monthly payments of $30,459. Titan has also guaranteed the
obligations of Ingenex under an assignment and sublicense agreement pursuant to
which Ingenex received $2,000,000 in financing
17
<PAGE>
in January 1995. Such agreement currently provides for monthly payments of
$60,060 through January 1999. At December 31, 1996, the amount outstanding
under the agreement was $1,289,313.
Titan and the Operating Companies have entered into various agreements with
research institutions, universities, and other entities for the performance of
research and development activities and for the acquisition of licenses related
to those activities. The aggregate commitments the Company has under these
agreements, including minimum lease payments, for the next 12 months is
approximately $2,356,000. Certain of the licenses provide for the payment of
royalties by the Company on future product sales, if any. In addition, in order
to maintain license and other rights during product development, the Company
must comply with various conditions including the payment of patent related
costs and obtaining additional equity investments by specified dates.
Effective December 31, 1996, Titan entered into the HMR Agreement
pursuant to which the Company agreed to pay HMR an upfront license fee of
$9,500,000, payable as follows: (i) $2,000,000 in cash on January 20, 1997;
(ii) the issuance $5,500,000 of common stock (594,595 shares) on January 20,
1997; (iii) and $2,000,000 in cash on July 18, 1997. During the period from
September 1997 through January 1999, the Company shall be obligated to pay to
HMR the difference between $5.5 million and the net proceeds, if any,
received by HMR upon sale of the above mentioned common stock. The HMR
Agreement also provides for substantial future late stage milestone payments
to HMR, as well as royalty payments on net sales, if any. The Company is
seeking financing through the sale of equity securities and/or corporate
partnering arrangements to fund the further development of Iloperidone. In
the event the Company is unable to obtain the substantial additional funds
necessary to continue development of Iloperidone, it may lose its rights
under the HMR Agreement.
Titan and the Operating Companies have not elected to file a consolidated
federal tax return. At December 31, 1996, the Company had consolidated net
operating loss carryforwards for Federal income tax purposes of $33,300,000, of
which approximately $29,900,000 is attributable to the Operating Companies
(excluding Ansan). The net operating loss and credit carryforwards expire from
2008 through 2011. Utilization of net operating loss carryforwards may be
subject to a substantial annual limitation due to ownership change provisions of
the Internal Revenue Code of 1986.
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 (the
"Debenture") which is convertible at any time prior to June 21, 1997 into
333,333 shares of Ansan common stock. The Debenture bears interest at prime
plus 2% and is due in March 1998. In connection with the issuance of the
Debenture, Ansan granted Titan an option (the "First Option") to acquire an
additional 333,333 shares of Ansan common stock for an aggregate purchase
price of $1,000,000. The First Option expires on June 21, 1997.
In the event the Debenture is converted to equity, Ansan will grant to
Titan two additional options (respectively, the "Second Option" and the "Third
Option"). The Second Option will be exercisable for two years from the date of
grant to purchase up to 1,630,000 shares of Ansan common stock at an exercise
price of $3.75 per share. The Third Option will be exercisable through August
8, 2000 to purchase up to 500,000 additional shares at an exercise price of
$6.50 per share. Titan will be obligated to exercise the Second Option for the
purchase of specified numbers of shares in the event Titan's outstanding Class A
Warrants are exercised, provided Ansan has not completed public or private
equity financings resulting in specified gross proceeds prior to the date such a
purchase obligation arises.
The Company expects to continue to incur substantial additional operating
losses from costs related to continuation and expansion of research and
development, clinical trials, and increased administrative and fund raising
activities over at least the next several years. While the Company believes
that the proceeds of the IPO and the Private Placement will be sufficient to
sustain its planned operations through approximately the end of 1997 (assuming
alternative financing is obtained to fund Iloperidone), the Company will be
required to seek additional financing to continue its activities beyond that
period. However, the Company's capital requirements may change depending on
numerous factors including, but not limited to, the progress of the Company's
research and development programs, 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. There can be no assurance as to
the availability or terms of any required
18
<PAGE>
additional financing, when and if needed. In the event that the Company
fails to raise any funds it requires, it may be necessary for the Company to
outlicense rights it would prefer to retain or significantly curtail its
activities or cease operations.
ITEM 7. FINANCIAL STATEMENTS.
See Index to Consolidated Financial Statements on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
19
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following sets forth the names, ages and positions of the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Louis R. Bucalo, M.D (1). . . . . . 38 President, Chief Executive Officer and Director
Sunil Bhonsle . . . . . . . . . . . 46 Executive Vice President and Chief Operating
Officer
Richard C. Allen, Ph.D. . . . . . . 52 Executive Vice President
Robert E. Farrell . . . . . . . . . 46 Executive Vice President and Chief Financial
Officer
Michael K. Hsu (2). . . . . . . . . 46 Director
Hubert Huckel, M.D.(3). . . . . . . 64 Director
Marvin Jaffe, M.D.(2) . . . . . . . 60 Director
Lindsay A. Rosenwald, M.D.(1)(3). . 40 Director
Konrad M. Weis, Ph.D.(1) . . . . . 67 Director
Kenneth J. Widder, M.D.(1)(3) . . . 42 Director
Ernst-Gunter Afting, M.D., Ph.D. . 53 Director
</TABLE>
_________________
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
LOUIS R. BUCALO, M.D., is a co-founder of the Company and of each of the
Operating Companies and has served as the Company's President and Chief
Executive Officer since January 1993. Dr. Bucalo has served as a director of
the Company since March 1993. Dr. Bucalo also serves as Chairman of the
Board of each of the Operating Companies, except Theracell, and as Chief
Executive Officer of ProNeura. From July 1990 to April 1992, Dr. Bucalo was
Associate Director of Clinical Research at Genentech, Inc., a biotechnology
company. Dr. Bucalo holds an M.D. from Stanford University and a B.A. in
biochemistry from Harvard University.
SUNIL BHONSLE joined the Company as Executive Vice President and Chief
Operating Officer in September 1995. Mr. Bhonsle served in various positions,
including Vice President and General Manager, Plasma Supply and Manager,
Inventory and Technical Planning, at Bayer Corporation from July 1975 until
April 1995. Mr. Bhonsle holds an M.B.A. from the University of California at
Berkeley and a B.Tech. in chemical engineering from the Indian Institute of
Technology.
RICHARD C. ALLEN, PH.D., joined the Company in August 1995. He also
currently serves as President and Chief Executive Officer of Theracell, which he
joined in January 1995 and President and Chief Operating Officer of ProNeura.
From 1974 until December 1994, Dr. Allen was employed by Hoechst-Roussel
Pharmaceuticals, Inc. in various capacities serving last as Vice President and
General Manager of the Neuroscience Strategic Business Unit from June 1991 to
December 1994. Dr. Allen holds a Ph.D. in medicinal chemistry and a B.S. in
pharmacy from the Medical College of Virginia.
ROBERT E. FARRELL joined the Company as Executive Vice President and Chief
Financial Officer in September 1996. Mr. Farrell was employed by Fresenius USA,
Inc. from 1991 until August 1996 where he served in various capacities,
including Vice President Administration, Chief Financial Officer and General
Counsel. His last position was Corporate Group Vice President.
MICHAEL K. HSU has served as a director of the Company since March 1993.
He currently serves as Director of Corporate Finance of National Securities
Corporation. Mr. Hsu has been the United States biotechnology venture capital
representative for the government of Taiwan, Republic of China for the past 10
years. From November 1994 through October 1995, he served as Director -
Corporate Finance of Coleman and Company Securities. Since March 1989, Mr. Hsu
has served as President of APS Bioventures Co., which, until November 1994, was
an investment banking division of RAS Securities Corp. Mr. Hsu previously held
various executive
20
<PAGE>
positions with Steinberg and Lyman Health Care Company, Ventana Venture
Growth Fund, Asian Pacific Venture Group (Thailand) and D. Blech Company.
HUBERT HUCKEL., M.D. has served as a director of the Company since October
1995. From 1964 until his retirement in December 1992, Dr. Huckel served in
various positions with The Hoechst Group. At the time of his retirement, he was
Chairman of the Board of Hoechst-Roussel Pharmaceuticals, Inc., Chairman and
President of Hoechst-Roussel Agri-Vet Company and a member of the Executive
Committee of Hoechst Celanese Corporation. He currently serves on the Board of
Directors of Royce Laboratories, Inc. and Sano Corporation.
MARVIN JAFFE, M.D. has served as a director of the Company since October
1995. From 1988 until April 1994, Dr. Jaffe served as President of R.W. Johnson
Pharmaceutical Research Institute where he was responsible for the research and
development activities in support of a number of Johnson & Johnson companies,
including ORTHO-McNeil Pharmaceuticals, ORTHO Biotech and CILAG. From 1970
until 1988, he was Senior Vice President of Merck Research Laboratories. He
currently serves on the Board of Directors of Chiroscience, plc and
Immunomedics, Inc.
LINDSAY A. ROSENWALD, M.D., is a co-founder of the Company and has served
as a director of the Company since March 1993. Dr. Rosenwald co-founded
Interneuron Pharmaceuticals, Inc. and has served as its Chairman since February
1989. Dr. Rosenwald has been the Chairman and President of The Castle Group,
Ltd., a New York medical venture capital firm ("Castle"), since October 1991,
and the Chairman and President of Paramount Capital, Inc., an investment banking
firm, since February 1992. In June 1994, Dr. Rosenwald founded Aries Financial
Services, Inc., a money management firm specializing in the health sciences
industry. From 1987 to September 1991, Dr. Rosenwald was a Managing Director,
Corporate Finance at D.H. Blair & Co., Inc. Dr. Rosenwald also is a director of
the following publicly-traded pharmaceutical biotechnology companies: Ansan
Pharmaceuticals, Inc., Avigen, Inc., Atlantic Pharmaceuticals, Inc., BioCryst
Pharmaceuticals, Inc., Neose Technologies, Inc., Sparta Pharmaceuticals, Inc.,
VimRx Pharmaceuticals, Inc. and Xenometrix, Inc., and is a director of a number
of privately-held companies founded by Castle in the biotechnology or
pharmaceutical fields.
KONRAD M. WEIS, PH.D., has served as a director of the Company since March
1993. Dr. Weis is Honorary Chairman, and former President and Chief Executive
Officer of Bayer Corporation. Dr. Weis serves as a director of PNC Equity
Management Company, Michael Baker Company and Dravo Company.
KENNETH J. WIDDER, M.D. has served as a director of the Company since March
1993. Dr. Widder is Chairman and Chief Executive Officer of Molecular
Biosystems, Inc. Dr. Widder serves on the Board of Directors of Wilshire
Technologies, Inc. and Digivision.
ERNST-GUNTER AFTING, M.D., PH.D., has served as a director of the Company
since May 1996. Dr. Afting has served as the President of the GSF-National
Center for Environment and Health, a government research center in Germany since
1995. From 1984 until 1995, he was employed in various capacities by the
Hoechst Group, serving as Divisional Head of the Pharmaceuticals Division of the
Hoechst Group from 1991 to 1993 and as President and Chief Executive Officer of
Roussel Uclaf (a majority stockholder of Hoechst AG) in Paris from 1993 until
1995.
Directors serve until the next meeting or until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors, subject to rights, if any, under contracts of employment. See
"Management - Employment Agreements."
DIRECTOR COMPENSATION
Non-employee directors receive $2,000 for each Board and committee meeting
attended and are reimbursed for their expenses in attending such meetings.
Directors are not precluded from serving the Company in any other capacity and
receiving compensation therefor. In addition, directors are entitled to receive
options ("Director Options") pursuant to the Company's 1995 Stock Option Plan.
Director Options are exercisable in four equal annual installments commencing
six months from the date of grant and expire the earlier of 10 years after the
date of grant or 90 days after the termination of the director's service on the
Board of Directors. In January 1996, each of the Company's directors other than
Dr. Afting received Director Options to purchase 10,000 shares of Common Stock
at an exercise price of $5.00 per share. Dr. Afting received Director Options
to purchase 10,000 shares of Common Stock at an exercise price of $8.50 per
share when he joined the Board of Directors in May 1996. See "Management -
Stock Option Plans."
21
<PAGE>
BOARD COMMITTEES AND DESIGNATED DIRECTORS
The Board of Directors has an Executive Committee, a Compensation Committee
and an Audit Committee. The Executive Committee exercises all the power and
authority of the Board of Directors in the management of the Company between
Board meetings, to the extent permitted by law. The Compensation Committee
makes recommendations to the Board concerning salaries and incentive
compensation for officers and employees of the Company and may administer the
Company's 1995 Stock Option Plan. See "Management - Stock Option Plans." The
Audit Committee reviews the results and scope of the audit and other accounting
related matters.
The Company has agreed, if requested by D. H. Blair Investment Banking
Corp. ("Blair"), to nominate a designee of Blair to the Company's Board of
Directors for a period of five years ending January 18, 2001.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who beneficially own
more than 10% of a registered class of the Company's equity securities to file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Company. Such executive officers, directors, and greater than
10% beneficial owners are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms filed by such reporting persons.
Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and greater than 10% beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to the Chief Executive Officer and
to executive officers whose annual compensation exceeded $100,000 for the fiscal
year ended December 31, 1996 (collectively, the "named executive officers") for
services during the fiscal years ended December 31, 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
COMPENSATION NAME ANNUAL COMPENSATION
AND PRINCIPAL POSITION YEAR SALARY BONUS
---------------------- ---- ------ -----
<S> <C> <C> <C>
Louis R. Bucalo......................................... 1996 $210,000 $42,000(3)
President and Chief Executive Officer.................. 1995 $188,000(1) $ 0
1994 $206,000(1) $35,000
Sunil Bhonsle........................................... 1996 $185,000 $ 9,250(3)
Executive Vice President and COO....................... 1995 $ 50,104 $ 0
1994 $ 0 $ 0
Richard C. Allen........................................ 1996 $185,000 $15,500(3)
Executive Vice President (2) .......................... 1995 $166,000 $ 0
1994 $ 0 $ 0
</TABLE>
____________
(1) A portion of the cash compensation paid to Dr. Bucalo was allocable to
the Operating Companies during 1995 and 1994 pursuant to management
services arrangements between them and the Company. See "Certain
Relationships and Related Transactions."
(2) Dr. Allen also serves as President and Chief Executive Officer of
Theracell and President and Chief Operating Officer of ProNeura. Dr.
Allen receives his entire salary from Theracell which he joined in January
1995.
(3) Bonuses pertain to fiscal year 1995 and have been accrued by the
Company. Payment of bonuses is dependent upon a number of factors,
including the exercise of the Company's Class A Warrants.
22
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to the named executive officers during the fiscal year ended December 31,
1996. No stock appreciation rights were granted to these individuals during
such year.
INDIVIDUAL GRANT SECURITIES
---------------------------
NUMBER OF
UNDERLYING % OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE OR
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) (1) DATE
---- ---------- ---------------- ------------ ----------
Louis R. Bucalo..... 10,000 1.0% $ 5.00 01/18/2001
104,100 10.2% $ 7.13 04/02/2006
433,088 42.6% $ 10.75 08/06/2006
Sunil Bhonsle....... 42,200 4.2% $ 7.13 04/02/2006
175,086 17.2% $ 10.75 08/06/2006
Richard C. Allen.... 13,700 1.3% $ 7.13 04/02/2006
61,961 6.1% $ 10.75 08/06/2006
__________________
(1) The exercise price may be paid in cash, in shares of Common Stock valued at
the fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchase shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares, together with any
federal and state income tax liability incurred by the optionee in
connection with such exercise.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1996 with respect to the
named executive officers. No stock appreciation rights were exercised during
such year or were outstanding at the end of the year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FY-END (#) OPTIONS AT FY-END (1)
ACQUIRED ----------------------------- --------------------------
ON EXERCISE (2) EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C>
Louis R. Bucalo........ -0- 113,640 515,303 $470,461 $304,875
Sunil Bhonsle.......... -0- 50,576 282,523 $207,653 $638,721
Richard C. Allen....... -0- 47,415 86,152 $109,107 $305,789
</TABLE>
________________
(1) Based on the fair value of the Company's Common Stock at year-end, $8.25
per share, less the exercise price payable for such shares.
(2) Options are immediately exercisable for some option shares; however, since
a portion of the shares purchasable upon exercise of the options are
subject to repurchase by the Company at the original exercise price per
share upon the optionee's cessation of service, such options are deemed
unexercisable for purposes of this table.
EMPLOYMENT AGREEMENTS
The Company is a party to employment agreements with each of Dr. Bucalo,
President and Chief Executive Officer of the Company, Sunil Bhonsle, Executive
Vice President and Chief Operating Officer of the Company, Robert E. Farrell,
Executive Vice President and Chief Financial Officer of the Company, and Richard
C. Allen, Executive Vice President of the Company. The agreement with Dr.
Bucalo expires in February 1999 and provides for a current base annual salary of
$210,000, subject to annual increases of 5% and bonuses of up to 20% at the
discretion of the Board of Directors. In the event of the termination of the
agreement with Dr. Bucalo, other than for reasons specified therein, the Company
is obligated to make severance payments equal to his base annual
23
<PAGE>
salary for the greater of the balance of the term of the agreement or 18 months.
The agreement with Mr. Bhonsle provides for a base annual salary of $185,000
subject to automatic annual increases, based on increases in the consumer
price index, and bonuses of up to 20% at the discretion of the Board of
Directors. In the event Mr. Bhonsle's employment is terminated other than
for "good cause" (as defined), the Company is obligated to make severance
payments equal to his base annual salary for up to nine months. Mr. Bhonsle
has also been granted certain options that vest over five years if he remains
employed by the Company. The agreement with Mr. Farrell provides for a base
annual salary of $185,000 subject to automatic annual increases, based on
increases in the consumer price index, and bonuses of up to 20% at the
discretion of the Board of Directors. In the event Mr. Farrell's employment
is terminated other than for "good cause" (as defined), the Company is
obligated to make severance payments equal to his base annual salary for
between six and nine months. Dr. Allen receives no salary from the Company
(his primary compensation is from Theracell) but has been granted certain
stock options which vest over five years if he remains employed by the
Company. All of the foregoing agreements contain confidentiality provisions.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 25, 1997, certain information
concerning the beneficial ownership of the Company's Common Stock by (i) each
shareholder known by the Company to own beneficially five percent or more of the
outstanding Common Stock of the Company; (ii) each director; (iii) each
executive officer of the Company; and (iv) all executive officers and directors
of the Company as a group, and their percentage ownership and voting power.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED (2) BENEFICIALLY OWNED
- ---------------------------------------- ------------------- ------------------
<S> <C> <C>
Louis R. Bucalo, M.D. 404,714 (3) 3.1%
Sunil Bhonsle 160,068 (4) 1.2%
Robert E. Farrell - -
Richard Allen Ph.D. 97,760 (4) *
Lindsay A. Rosenwald, M.D. 660,034 (5) 5.0%
Michael K. Hsu 22,346 (6) *
Hubert Huckel, M.D. 2,500 (4) *
Marvin Jaffe, M.D. 2,500 (4) *
Konrad M. Weis, Ph.D. 51,852 (7) *
Kenneth J. Widder, M.D. 15,237 (7) *
Ernst-Gunter Afting, Ph.D. - -
Invesco Trust Company 1,220,538 (8) 9.36%
7800 E. Union Avenue
Denver, CO 80237
All executive officers and directors
as a group (11) persons 1,417,011 (9) 10.3%
</TABLE>
__________________
*Less than one percent.
(1) Unless otherwise indicated, the address of such individual is c/o Titan
Pharmaceuticals, Inc., 400 Oyster Point Boulevard, Suite 505, South San
Francisco, California 94080.
(2) In computing the number of shares beneficially owned by a person and the
percentage ownership of a person, shares of Common Stock of the Company
subject to options held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares, however,
are not deemed outstanding for purposes of computing the percentage
ownership of each other person. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to
all shares of Common Stock.
(3) Includes 194,483 shares issuable upon exercise of outstanding options.
(4) Represents shares issuable upon exercise of outstanding options.
24
<PAGE>
(5) Includes (i) 90,084 shares held by entities owned by Mr. Rosenwald, and
(ii) 267,154 shares issuable upon exercise of outstanding options and
warrants. Does not include (i) 94,589 shares held by his wife; (ii) 40,536
shares held by his wife in trust for the benefit of their children; (iii)
585,718 shares held by or underlying warrants held by Venturetek L.P., a
limited partnership, the limited partners of which include Dr. Rosenwald's
wife and children; or (iv) shares underlying Class A Warrants held by The
Aries Trust and The Aries Domestic Fund L.P. as to which Dr. Rosenwald
serves as investment manager and President of the general partner,
respectively. Dr. Rosenwald disclaims beneficial ownership as to all of
such shares. See "Certain Transactions."
(6) Includes 11,314 shares issuable upon exercise of outstanding options.
(7) Includes 7,617 shares issuable upon exercise of outstanding options.
(8) Represents shares held by three mutual funds managed by Invesco Funds
Group, Inc. or Invesco Trust Company.
(9) See Notes (3) through (7) above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March and April 1993, the Company borrowed an aggregate of $700,000 from
Dr. Lindsay A. Rosenwald, the co-founder and a director of the Company. The
loan was evidenced by a 10% promissory note payable on demand. Dr. Rosenwald
received warrants which are currently exercisable to purchase an aggregate of
20,355 shares of Common Stock at an exercise price of $4.50 per share. In June
1995, the note, together with accrued interest, was canceled in consideration of
the issuance to Dr. Rosenwald of shares of Series A Preferred Stock which
subsequently converted into 215,135 shares of Common Stock.
In April and May 1993, Dr. Rosenwald made loans to the Company in the
aggregate principal amount of $1,014,000. Such loans were repaid, together with
accrued interest at the rate of 7% per annum, from the proceeds of the private
placement of Series A Preferred Stock described below.
Between July and November 1993, Paramount Capital, Inc. ("Paramount") acted
as placement agent in connection with the Company's private placement of Series
A Preferred Stock. Paramount received $1,729,575 in commissions and a $576,525
expense allowance in consideration for its services. In addition, designees of
Paramount received warrants to purchase Series A Preferred Stock in connection
with the private placement which currently represent warrants to purchase an
aggregate of 469,107 shares of Common Stock exercisable at $4.50 per share. Dr.
Rosenwald, a director of the Company, serves as the President and Chairman of
Paramount. Dr. Rosenwald received warrants to purchase 221,221 of the
aforementioned shares of Common Stock.
In January 1995, the Company agreed to issue warrants to purchase an
aggregate of 7,395 shares of Common Stock at an exercise price of $3.25 per
share to Ray Dirks Research ("RDR") or its designees for services rendered in
connection with a license transaction. Michael Hsu, a director of the Company,
serves as a consultant to RDR and received one-half of such warrants.
In February 1995, Paramount acted as placement agent in connection with the
Company's private placement of Series B Preferred Stock. Paramount received
$103,125 in commissions and a $45,375 expense allowance for services rendered in
connection with such private placement. In addition, designees of Paramount
received Series B Preferred Stock purchase warrants which currently represent
warrants to purchase an aggregate of 46,350 shares of Common Stock at an
exercise price of $3.92 per share. Dr. Rosenwald received warrants to purchase
17,961 of such shares.
Between August and October 1995, The Aries Domestic Fund L.P. and The Aries
Trust loaned the Company an aggregate of $250,000 evidenced by the promissory
notes (the "Investor Notes") which bore interest at the rate of 12% per annum
and were payable on the earlier of the closing of an initial public offering or
one year from the date of issuance. In accordance with their terms, the
principal amount of the Investor Notes was converted into $250,000 principal
amount of Bridge Notes and 125,000 warrants as part of the Bridge Financing.
Accrued interest on the Investor Notes was repaid in January 1996. Repayment of
the principal and accrued interest on the Bridge Notes was made upon completion
of the Company's IPO. Dr. Rosenwald is the President of the general partner of
The Aries Domestic Fund L.P. and serves as investment manager for The Aries
Trust.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company has adopted a policy that
25
<PAGE>
all future transactions, including loans, between the Company and its
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors,
and will continue to be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties
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 (the
"Debenture") which is convertible at any time prior to June 21, 1997 into
333,333 shares of Ansan common stock, representing a conversion price of $3.00
per share. In connection with the issuance of the Debenture, Ansan granted
Titan an option (the "First Option") to acquire an additional 333,333 shares of
Ansan common stock for an aggregate purchase price of $1,000,000. The First
Option expires on June 21, 1997.
In the event the Debenture is converted to equity, Ansan will grant to
Titan two additional options (respectively, the "Second Option" and the "Third
Option"). The Second Option will be exercisable for two years from the date of
grant to purchase up to 1,630,000 shares of Ansan common stock at an exercise
price of $3.75 per share. The Third Option will be exercisable through August
8, 2000 to purchase up to 500,000 additional shares at an exercise price of
$6.50 per share. Titan will be obligated to exercise the Second Option for the
purchase of specified numbers of shares in the event Titan's outstanding Class A
Warrants are exercised, provided Ansan has not completed public or private
equity financings resulting in specified gross proceeds prior to the date such a
purchase obligation arises.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
3.1* -- Restated Certificate of Incorporation of the Registrant
3.2* -- Form of Amendment to Restated Certificate of Incorporation
of the Registrant
3.3* -- By-laws of the Registrant
4.1* -- Form of Bridge Note
4.2* -- Bridge Warrant Agreement
4.3* -- Form of Warrant Agreement
4.4* -- Form of Underwriter's Unit Purchase Option
4.5* -- Amended and Restated Investor Rights Agreement between the
Registrant and the holders of Series and Series B Preferred
Stock
10.1* -- 1993 Stock Option Plan
10.2* -- 1995 Stock Option Plan
10.3* -- Employment Agreement between the Registrant and Louis
Bucalo dated February 1, 1993, amended as of February 3,
1994
10.4* -- Employment Agreement between the Registrant and Richard
Allen dated July 28, 1995
10.5* -- Employment Agreement between the Registrant and Sunil
Bhonsle dated August 6, 1995
10.6* -- Form of Indemnification Agreement
10.7* -- Master Equipment Lease between the Registrant and
Phoenix Leasing Incorporated, dated February 15, 1994 and
Sublease and Acknowledgment of Assignment between the
Registrant and Ansan, Inc., Ingenex, Inc., Theracell, Inc.
and Geneic Sciences, Inc. dated February 15, 1994
+10.8* -- GSE Exclusive License Agreement between Ingenex, Inc.
(formerly Pharm-Gen Systems Ltd.) and the Board of Trustees
of the University of Illinois dated May 6, 1992
+10.9* -- MDR Exclusive License Agreement between Ingenex, Inc.
(formerly Pharm-Gen Systems Ltd.) and the Board of Trustees
of the University of Illinois dated May 6, 1992
10.10* -- License Agreement between Ansan, Inc. and Bar-Ilan
Research and Development Company Ltd. Dated October 31, 1992
+10.11* -- License Agreement between Theracell, Inc. and New York
University dated November 20, 1992, as amended February 23,
1993 and as of February 21, 1995
26
<PAGE>
+10.12* -- License Agreement between the Registrant and the
Massachusetts Institute of Technology dated September 28,
1995
+10.13* -- License Assignment between Ingenex, Inc. and Aberlyn
Capital Management Limited Partnership dated January 31,
1995, as amended
+10.14* -- Exclusive License Agreement between Ingenex, Inc. and
the Board of Trustees of the University of Illinois, dated
July 1, 1994
+10.15* -- Exclusive License Agreement between Ingenex, Inc. and
the Board of Trustees of the University of Illinois, dated
July 1, 1994
+10.16* -- License Agreement between Ingenex, Inc. and the
Massachusetts Institute of Technology, dated September 11,
1992
+10.17* -- License Agreement between Ingenex, Inc. and Baylor
College of Medicine, dated October 21, 1992
10.18** -- Form of lease for Registrant's facilities
+10.19*** -- License Agreement between Theracell, Inc. and the
University of South Florida dated March 15, 1996
+10.20**** -- License Agreement between Trilex Pharmaceuticals, Inc.
(formerly Ascalon Pharmaceuticals, Inc.) and the University
of Kentucky Research Foundation dated May 30, 1996
+10.21*****-- License Agreement between Ansan Pharmaceuticals, Inc.
and Boehringer Ingleheim GmBh dated May 31, 1996
++10.22 -- License Agreement between the Registrant and Hoechst
Marion Roussel, Inc. effective as of December 31, 1996
10.23 -- Employment agreement between the Registrant and Robert
E. Farrell dated August 9, 1996
11.1 -- Computation of net loss per share
21 -- List of significant subsidiaries
27 -- Financial Data Schedule
____________________
+ Confidential treatment has been granted with respect to
portions of this exhibit.
++ Confidential treatment has been requested with respect to
portions of this exhibit.
* Incorporated by reference from the Registrant's Registration
Statement on Form SB-2 (File No. 33-99386)
** Incorporated by reference from the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1995.
*** Incorporated by reference from the Registrant's Quarterly
Report on Form 10-Q for the period ended March 31, 1996
**** Incorporated by reference from the Registrant's Registration
Statement on Form SB-3 (File No. 333-13469)
***** Incorporated by reference from Ansan Pharmaceuticals, Inc.
Quarterly Report on Form 10-QSB for the period ended June
30, 1996
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the three months ended December 31, 1996.
27
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS...... F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS.......................... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS................ F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)........................... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS................ F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........... F-10
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Titan Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Titan
Pharmaceuticals, Inc. (a development stage company) as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity (net capital deficiency), and cash flows for the years then ended and for
the period from July 25, 1991 (commencement of operations) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Titan
Pharmaceuticals, Inc. (a development stage company) at December 31, 1995 and
1996, and the consolidated results of its operations and its cash flows for the
years then ended and for the period from July 25, 1991 (commencement of
operations) to December 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
February 21, 1997
F-2
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 947,805 $ 1,376,532
Short-term investments.................................. -- 13,000,000
Prepaid expenses and other current assets............... 40,071 193,324
Receivable from Ansan Pharmaceuticals, Inc.............. 57,791 117,881
------------ ------------
Total current assets.................................. 1,045,667 14,687,737
Furniture and equipment, net.............................. 848,852 791,579
Deferred stock offering costs............................. 522,299 --
Deferred financing costs.................................. 600,183 96,349
Investment in Ansan Pharmaceuticals, Inc.................. 1,589,826 590,854
Other assets.............................................. 125,344 199,830
------------ ------------
$ 4,732,171 16,366,349
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Net Capital Deficiency)
Current Liabilities
Accounts payable........................................ $ 714,896 $ 692,982
Notes payable by Ingenex, Inc.--bridge financing........ 1,500,000 --
Notes payable by Titan Pharmaceuticals, Inc.--bridge
financing............................................. 2,800,000 --
Accrued legal fees...................................... 691,368 587,800
Accrued sponsored research.............................. 304,202 163,905
Other accrued liabilities............................... 546,057 233,044
Current portion of capital lease obligation............. 226,709 265,462
Current portion of technology financing--Ingnex, Inc. .. 494,107 570,711
------------ ------------
Total current liabilities............................. 7,277,339 2,513,904
Noncurrent portion of capital lease obligation............ 747,142 481,676
Noncurrent portion of technology financing--Ingenex,
Inc..................................................... 1,289,313 718,602
Commitments
Minority interest--Series B preferred stock of Ingenex,
Inc..................................................... 1,241,032 1,241,032
Stockholders' Equity (net capital deficiency)
Preferred stock, $0.001 par value per share; 30,000,000
and 5,000,000 shares authorized at December 31, 1995
and 1996, respectively, issuable in series:
Series A, 3,885,571 shares designated, 3,534,199
shares issued and outstanding at December 31, 1995,
none at December 31, 1996;.......................... 17,763,978 --
Series B, 2,440,513 shares designated, 244,043 shares
issued and outstanding at December 31, 1995, none at
December 31, 1996;.................................. 1,143,794 --
Common stock, $0.001 par value per share; 50,000,000 and
30,000,000 shares authorized at December 31, 1995 and
1996, respectively; 1,548,519 and 12,399,037 shares
issued and outstanding at December 31, 1995 and 1996,
respectively.......................................... 745,476 49,619,784
Additional paid-in capital.............................. 6,186,353 6,521,353
Deferred compensation................................... (418,000) (630,100)
Deficit accumulated during the development stage........ (31,244,256) (44,099,902)
------------ ------------
Total stockholders' equity (net capital deficiency)... (5,822,655) 11,411,135
------------ ------------
$ 4,732,171 $ 16,366,349
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
(JULY 25,
YEAR ENDED DECEMBER 31, 1991) TO
-------------------------- DECEMBER 31,
1995 1996 1996
------------ ------------ -------------
<S> <C> <C> <C>
Grant revenue..................................... $ 139,522 $ 258,811 $ 398,333
Costs and expenses:
Research and development........................ 5,201,507 5,566,772 27,580,393
Acquired in-process research and development.... 686,000 -- 686,000
General and administrative...................... 3,657,900 5,263,964 11,828,346
------------ ------------ ------------
Total costs and expenses...................... 9,545,407 10,830,736 40,094,739
------------ ------------ ------------
Loss from operations.......................... (9,405,885) (10,571,925) (39,696,406)
Other income (expense):
Equity in loss of Ansan Pharmaceuticals, Inc.... (457,114) (998,972) (1,456,086)
Interest income................................. 67,868 715,984 1,170,742
Interest expense................................ (1,899,148) (2,010,664) (4,163,002)
------------ ------------ ------------
Other income (expense)--net................... (2,288,394) (2,293,652) (4,448,346)
------------ ------------ ------------
Loss before minority interest..................... (11,694,279) (12,865,577) (44,144,752)
Minority interest in losses of subsidiaries....... 825 9,931 44,850
------------ ------------ ------------
Net loss.......................................... (11,693,454) (12,855,646) (44,099,902)
------------
Deemed dividend upon conversion of ------------
preferred stock................................. -- (5,431,871)
------------ ------------
Net loss attributable to common stockholders...... $(11,693,454) $(18,287,517)
------------ ------------
------------ ------------
Pro forma net loss per share...................... $ (1.54)
------------
------------
Shares used in computing pro forma net loss per
share........................................... 7,617,470
------------
------------
Net loss per share................................ $ (1.67)
------------
------------
Shares used in computing net loss per share....... 10,936,046
------------
------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK CLASS A
--------------------------- --------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net loss--Commencement of
operations (July 25,
1991) to December 31,
1992.................... -- $ -- -- $ -- -- $ --
Issuance of shares of
Class A common stock for
cash to founders and
investors in February
1993 for $0.005 per
share................... -- -- -- -- 998,367 5,853
Issuance of shares of
Class B common stock for
cash to an employee in
February 1992 for $0.005
per share............... -- -- -- -- -- --
Issuance of shares of
Class A common stock for
cash to investors in
March 1993 for $0.297
per share, net of
issuance costs of
$1,503.................. -- -- -- -- 184,994 52,722
Grant of shares of Class
A common stock to an
employee in June 1993 at
$0.005 per share........ -- -- -- -- 42,645 250
Issuance of shares of
Series A preferred stock
for cash to investors in
November 1993 for $5.868
per share, net of
issuance costs of
$2,759,851.............. 3,278,069 16,457,649 -- -- -- --
Conversion of shares of
Class B common stock
into shares of Class A
common stock............ -- -- -- -- 167,587 563
Foregiveness of notes
payable to
stockholder............. -- -- -- -- -- --
Net loss--Year ended
December 31, 1993....... -- -- -- -- -- --
----------- -------------- ----------- -------------- ----------- --------------
Balances at December 31,
1993.................... 3,278,069 16,457,649 -- -- 1,393,593 59,388
Issuance of shares of
Class A common stock for
cash to a consultant in
April 1994 for $0.005
per share............... -- -- -- -- 14,926 88
Increase in paid-in
capital from issuance of
common stock by Ingenex,
Inc..................... -- -- -- -- -- --
Net loss--Year ended
December 31, 1994....... -- -- -- -- -- --
----------- -------------- ----------- -------------- ----------- --------------
Balances at December 31,
1994.................... 3,278,069 16,457,649 -- -- 1,408,519 59,476
<CAPTION>
COMMON STOCK
------------------------- DEFICIT TOTAL
ACCUMULATED STOCKHOLDERS'
CLASS B ADDITIONAL DURING THE EQUITY (NET
------------------------- PAID-IN DEFERRED DEVELOPMENT CAPITAL
SHARES AMOUNT CAPITAL COMPENSATION STAGE DEFICIENCY)
--------- -------------- ---------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net loss--Commencement of
operations (July 25,
1991) to December 31,
1992.................... -- $ -- $ -- $ -- $ (819,331) $ (819,331)
Issuance of shares of
Class A common stock for
cash to founders and
investors in February
1993 for $0.005 per
share................... -- -- -- -- -- 5,853
Issuance of shares of
Class B common stock for
cash to an employee in
February 1992 for $0.005
per share............... 95,951 563 -- -- -- 563
Issuance of shares of
Class A common stock for
cash to investors in
March 1993 for $0.297
per share, net of
issuance costs of
$1,503.................. -- -- -- -- -- 52,722
Grant of shares of Class
A common stock to an
employee in June 1993 at
$0.005 per share........ -- -- -- -- -- 250
Issuance of shares of
Series A preferred stock
for cash to investors in
November 1993 for $5.868
per share, net of
issuance costs of
$2,759,851.............. -- -- -- -- -- 16,457,649
Conversion of shares of
Class B common stock
into shares of Class A
common stock............ (95,951) (563) -- -- -- --
Foregiveness of notes
payable to
stockholder............. -- -- 40,000 -- -- 40,000
Net loss--Year ended
December 31, 1993....... -- -- -- -- (5,757,296) (5,757,296)
--------- -------------- ---------- ------ --------------- ---------------
Balances at December 31,
1993.................... -- -- 40,000 -- (6,576,627) 9,980,410
Issuance of shares of
Class A common stock for
cash to a consultant in
April 1994 for $0.005
per share............... -- -- -- -- -- 88
Increase in paid-in
capital from issuance of
common stock by Ingenex,
Inc..................... -- -- 128,805 -- -- 128,805
Net loss--Year ended
December 31, 1994....... -- -- -- -- (12,974,175) (12,974,175)
--------- -------------- ---------- ------ --------------- ---------------
Balances at December 31,
1994.................... -- -- 168,805 -- (19,550,802) (2,864,872)
</TABLE>
See accompanying notes.
F-5
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK CLASS A
--------------------------- --------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares Series
B preferred stock for
cash to investors in
February 1995 for $6.761
per share, net of
issuance costs of
$506,206................ -- -- 244,043 1,143,794 -- --
Increase in paid-in
capital from issuance of
warrants by Ingenex,
Inc. in connection with
bridge financing........ -- -- -- -- -- --
Increase in paid-in
capital from issuance of
warrants by Titan
Pharmaceuticals, Inc. in
connection with bridge
financing............... -- -- -- -- -- --
Conversion of notes
payable to related
parties and accrued
interest into shares of
Series A preferred
stock................... 256,130 1,306,329 -- -- -- --
Increase in paid-in
capital from issuance of
common stock by Ansan
Pharmaceuticals, Inc.... -- -- -- -- -- --
Deferred compensation
related to grant of
stock options, net of
amortization............
Issuance of shares of
Class A common stock to
acquire minority
interest of Theracell... -- -- -- -- 140,000 686,000
Net loss--Year ended
December 31, 1995....... -- -- -- -- -- --
----------- -------------- ----------- -------------- ----------- --------------
Balances at December 31,
1995.................... 3,534,199 17,763,978 244,043 1,143,794 1,548,519 745,476
<CAPTION>
COMMON STOCK
------------------------- DEFICIT TOTAL
ACCUMULATED STOCKHOLDERS'
CLASS B ADDITIONAL DURING THE EQUITY (NET
------------------------- PAID-IN DEFERRED DEVELOPMENT CAPITAL
SHARES AMOUNT CAPITAL COMPENSATION STAGE DEFICIENCY)
--------- -------------- ------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares Series
B preferred stock for
cash to investors in
February 1995 for $6.761
per share, net of
issuance costs of
$506,206................ -- -- -- -- -- 1,143,794
Increase in paid-in
capital from issuance of
warrants by Ingenex,
Inc. in connection with
bridge financing........ -- -- 600,000 -- -- 600,000
Increase in paid-in
capital from issuance of
warrants by Titan
Pharmaceuticals, Inc. in
connection with bridge
financing............... -- -- 1,200,000 -- -- 1,200,000
Conversion of notes
payable to related
parties and accrued
interest into shares of
Series A preferred
stock................... -- -- -- -- -- 1,306,329
Increase in paid-in
capital from issuance of
common stock by Ansan
Pharmaceuticals, Inc.... -- -- 3,777,548 -- -- 3,777,548
Deferred compensation
related to grant of
stock options, net of
amortization............ 440,000 (418,000) -- 22,000
Issuance of shares of
Class A common stock to
acquire minority
interest of Theracell... -- -- -- -- -- 686,000
Net loss--Year ended
December 31, 1995....... -- -- -- -- (11,693,454) (11,693,454)
--------- -------------- ------------ ------------- --------------- ---------------
Balances at December 31,
1995.................... -- -- 6,186,353 (418,000) (31,244,256) (5,822,655)
</TABLE>
See accompanying notes.
F-6
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK CLASS A
---------------------------- --------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Conversion of shares of
Series A and Series B
preferred stock to Class
A common stock in
January 1996............ (3,534,199) (17,763,978) (244,043) (1,143,794) 5,521,140 18,907,772
Issuance of shares of
Class A common stock for
cash in initial public
offering in January and
February 1996, net of
issuance costs of
$2,549,643.............. -- -- -- -- 3,680,000 15,850,357
Issuance of shares of
Class A common stock for
cash upon exercise of
stock option grants at
$0.30 to $1.35 per share
in May through June
1996.................... -- -- -- -- 16,520 10,664
Issuance of shares of
Class A common stock for
cash in private
placement in July and
August 1996, net of
issuance costs of
$2,260,372.............. -- -- -- -- 1,536,000 13,739,628
Deferred compensation
related to grant of
stock options in August
1996.................... -- -- -- -- -- --
Issuance of shares of
Class A common stock for
cash upon exercise of
warrants at $6.20 per
share in September
through December 1996... -- -- -- -- 59,014 365,887
Issuance of shares of
Class A common stock
upon cashless exercise
of warrants in November
and December 1996....... -- -- -- -- 37,844 --
Amortization of deferred
compensation............ -- -- -- -- -- --
Net loss--Year ended
December 31, 1996....... -- -- -- -- -- --
------------ -------------- ----------- -------------- ------------ --------------
Balances at December 31,
1996.................... -- $ -- -- $ -- 12,399,037 $ 49,619,784
------------ -------------- ----------- -------------- ------------ --------------
------------ -------------- ----------- -------------- ------------ --------------
<CAPTION>
COMMON STOCK
------------------------- DEFICIT TOTAL
ACCUMULATED STOCKHOLDERS'
CLASS B ADDITIONAL DURING THE EQUITY (NET
------------------------- PAID-IN DEFERRED DEVELOPMENT CAPITAL
SHARES AMOUNT CAPITAL COMPENSATION STAGE DEFICIENCY)
--------- -------------- ------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Conversion of shares of
Series A and Series B
preferred stock to Class
A common stock in
January 1996............ -- -- -- -- -- --
Issuance of shares of
Class A common stock for
cash in initial public
offering in January and
February 1996, net of
issuance costs of
$2,549,643.............. -- -- -- -- -- 15,850,357
Issuance of shares of
Class A common stock for
cash upon exercise of
stock option grants at
$0.30 to $1.35 per share
in May through June
1996.................... -- -- -- -- -- 10,664
Issuance of shares of
Class A common stock for
cash in private
placement in July and
August 1996, net of
issuance costs of
$2,260,372.............. -- -- -- -- -- 13,739,628
Deferred compensation
related to grant of
stock options in August
1996.................... -- -- 335,000 (335,000) -- --
Issuance of shares of
Class A common stock for
cash upon exercise of
warrants at $6.20 per
share in September
through December 1996... -- -- -- -- -- 365,887
Issuance of shares of
Class A common stock
upon cashless exercise
of warrants in November
and December 1996....... -- -- -- -- -- --
Amortization of deferred
compensation............ -- -- -- 122,900 -- 122,900
Net loss--Year ended
December 31, 1996....... -- -- -- -- (12,855,646) (12,855,646)
--------- -------------- ------------ ------------- --------------- ---------------
Balances at December 31,
1996.................... -- $ -- $ 6,521,353 $ (630,100) $ (44,099,902) $ 11,411,135
--------- -------------- ------------ ------------- --------------- ---------------
--------- -------------- ------------ ------------- --------------- ---------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
(JULY 25,
YEAR ENDED DECEMBER 31, 1991) TO
-------------------------- DECEMBER 31,
1995 1996 1996
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.......................................... $(11,693,454) $(12,855,646) $(44,099,902)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 328,611 496,466 1,063,191
Accretion of discount on indebtedness........... 883,333 1,407,577 2,290,910
Equity in loss of Ansan Pharmaceuticals, Inc.... 457,114 998,972 1,456,086
Other........................................... 8,122 (9,931) (35,653)
Issuance of common stock to acquire minority
interest of Theracell, Inc.................... 686,000 -- 686,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets....... 71,425 (153,253) (193,324)
Receivable--Ansan Pharmaceuticals, Inc.......... (57,791) (60,090) (117,881)
Other assets.................................... 45,543 (74,486) (204,795)
Accounts payable................................ 29,444 (21,914) 927,172
Other accrued liabilities....................... 642,610 (556,878) 1,475,165
------------ ------------ ------------
Net cash used in operating activities............. (8,599,043) (10,829,183) (36,753,031)
------------ ------------ ------------
Cash flows from investing activities
Purchase of furniture and equipment............. (8,073) (270,036) (1,072,359)
Purchases of short-term investments............. -- (35,750,000) (59,682,493)
Proceeds from sales of short-term investments... -- 22,750,000 46,682,493
Effects of deconsolidation of Ansan
Pharmaceuticals, Inc.......................... (135,934) -- (135,934)
------------ ------------ ------------
Net cash used in investing activities............. (144,007) (13,270,036) (14,208,293)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-8
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
(JULY 25,
YEAR ENDED DECEMBER 31, 1991) TO
-------------------------- DECEMBER 31,
1995 1996 1996
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from financing activities
Issuance of common stock........................ -- 29,966,536 30,025,762
Deferred offering costs......................... (522,299) 522,299 --
Deferred financing costs........................ (526,684) -- (810,248)
Issuance of preferred stock..................... 1,143,794 -- 17,601,443
Proceeds from notes and advances payable........ -- -- 2,681,500
Repayment of notes payable...................... -- -- (1,441,500)
Proceeds from Ansan Pharmaceuticals, Inc........ 1,425,000 -- 1,425,000
Proceeds from Titan Pharmaceuticals, Inc. and
Ingenex, Inc. bridge financing................ 5,250,000 -- 5,250,000
Repayment of Titan Pharmaceuticals, Inc. and
Ingenex, Inc. bridge financing................ -- (5,250,000) (5,250,000)
Proceeds from capital lease bridge financing.... -- -- 658,206
Payments of principal under capital lease
obligation.................................... (209,642) (226,713) (506,304)
Proceeds from Ingenex, Inc. technology
financing..................................... 2,000,000 -- 2,000,000
Principal payments on Ingenex, Inc. technology
financing..................................... (216,580) (494,107) (710,687)
Increase in minority interest from issuances of
preferred stock by Ingenex, Inc............... -- -- 1,241,032
Issuance of common stock by subsidiaries........ 822 9,931 173,652
------------ ------------ ------------
Net cash provided by financing activities......... 8,344,411 24,527,946 52,337,856
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... (398,639) 428,727 1,376,532
Cash and cash equivalents at beginning of
period.......................................... 1,346,444 947,805 --
------------ ------------ ------------
Cash and cash equivalents at end of period........ $ 947,805 $ 1,376,532 $ 1,376,532
------------ ------------ ------------
------------ ------------ ------------
Supplemental cash flow disclosure
Interest paid..................................... $ 370,864 $ 558,387 $ 1,166,624
------------ ------------ ------------
------------ ------------ ------------
Conversion of notes payable to related parties and
accrued interest into Series A preferred
stock........................................... $ (1,306,329) $ -- $ (1,306,329)
------------ ------------ ------------
------------ ------------ ------------
Acquisition of furniture and equipment pursuant to
capital lease................................... $ -- $ -- $ 595,236
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-9
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND ITS SEVERAL DEVELOPMENT STAGE SUBSIDIARIES
Titan Pharmaceuticals, Inc. ("Titan" or the "Company" individually or with
its consolidated subsidiaries, as the sense requires) was incorporated in
February 1992 in the State of Delaware. It is the holding company for several
development stage biotechnology companies ("the Operating Companies"). The
development stage companies, which rely significantly on third parties to
conduct sponsored research, are Ansan Pharmaceuticals, Inc. ("Ansan"), Ingenex,
Inc. ("Ingenex"), Theracell, Inc. ("Theracell"), ProNeura, Inc. ("ProNeura"),
and Trilex Pharmaceuticals, Inc. ("Trilex," formed in May 1996), each of which
continues in operation, and Geneic Sciences, Inc. ("Geneic"), which ceased
operation in September 1995.
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. The Company held
an option to purchase an additional 400,000 shares of Ansan's common stock,
which expired unexercised in September 1996. At December 31, 1996, the Company
owned 43% of Ansan. In March 1997, Ansan and Titan entered into a financing
agreement pursuant to which Titan was granted the option to reacquire and
maintain a majority equity interest in Ansan. See Note 11.
In connection with the Ansan offering, of the 1,212,654 shares of Ansan that
Titan owns, 346,472 shares have been placed in escrow. The escrow shares are
not transferable or assignable but may be voted. The escrow shares will be
released from escrow if, and only if, Ansan satisfies certain earnings or share
price criteria. If the conditions are not met by March 31, 2000, the escrow
shares will be canceled and contributed to Ansan's capital.
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. In
September 1994, Ingenex issued shares of its Series B convertible preferred
stock to a third party for $1,241,032, net of issuance costs. This transaction
reduced the Company's ownership of Ingenex from approximately 82% in the second
quarter of fiscal 1994 to approximately 61% at December 31, 1994 (or from
approximately 94% to approximately 72% if conversion of all Ingenex preferred
stock is assumed). In June 1996, Ingenex issued 981,818 shares of common stock
to the Company, converting $5,400,000 of debt payable to the Company to equity.
Also in June 1996, and in consideration of a payment to Ingenex of $100,000,
Ingenex issued to the Company an option to purchase an additional 315,789 shares
of common stock which will have an exercise price per share equal to the initial
public offering price of Ingenex common stock and an additional option and a
right of first refusal with respect to future issuances of common stock in order
for the Company to maintain ownership of a majority of the outstanding common
stock. The option expires one year from the date of the consummation of the
initial public offering of Ingenex common stock. At December 31, 1996, the
Company owned 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. The Company's
ownership in Theracell was 85% through November 1995, at which time the Company
entered into an agreement with the minority stockholders of Theracell pursuant
to which 140,000 shares of the Company's stock were issued in exchange for all
the outstanding shares of Theracell common stock held by them. In connection
with the issuance of the 140,000 shares, the Company recorded a charge
F-10
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for acquired in-process research and development of $686,000. In November
1995, the former minority stockholders of Theracell were granted an option to
acquire 5% of the issued and outstanding capital stock of Theracell. These
options can be exercised at a price of $1.59 per share within a period of
three years from January 18, 1996. Commencing thirty days after the date
Theracell's shares are first publicly traded, the Theracell options may be
subject to redemption under certain conditions by Theracell on thirty days'
written notice at a redemption price of $0.05 per share if the closing price
of Theracell's common stock for any thirty consecutive trading days ending
within fifteen days of the notice of redemption averages in excess of $3.18
per share. At December 31, 1996, the Company owned 99% of Theracell.
PRONEURA, INC.
ProNeura was incorporated in October 1995 to engage in the development of
cost effective, long term treatment solutions to neurologic and psychiatric
disorders through an implantable drug delivery system. At December 31, 1996,
the Company owned 79% of ProNeura.
TRILEX PHARMACEUTICALS, INC.
Trilex was incorporated in May 1996 to engage in research and development
of cancer therapeutic vaccines utilizing anti-idiotypic antibody technology.
At December 31, 1996, the Company owned 100% of Trilex.
GENEIC SCIENCES, INC.
Geneic had conducted research and development activities pursuant to
sponsored research and licensing agreements with a university, which was a
minority stockholder of Geneic. In September 1995, the Company and the
university terminated the agreements, at which time all rights in the
technology licensed from the university reverted to the university and the
minority interest in Geneic held by the university was contributed to the
capital of Geneic. Geneic ceased operations at such time.
INITIAL PUBLIC OFFERING
In January 1996, the Company completed its initial public offering ("IPO")
of 3,200,000 units (consisting of one share of common stock and one
redeemable warrant to acquire one share of common stock - see Note 7)
resulting in net proceeds of approximately $13.7 million ($15.9 million after
exercise of the underwriter's overallotment option as to 480,000 units in
February 1996). In connection with the IPO, the underwriter was granted an
option to acquire 320,000 additional units at a price of $6.50 per unit.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Titan and the majority owned Operating Companies. Ansan was consolidated
until its initial public offering in August 1995. All significant
intercompany transactions and accounts have been eliminated in consolidation.
The financial statements of the Company include the results of Ingenex from
the date Ingenex was incorporated (July 25, 1991), as the entities were under
common control.
The activities of the Company have primarily consisted of establishing
offices and research facilities, recruiting personnel, conducting research
and development, preclinical and clinical studies, performing business and
financial planning and raising capital. Accordingly, the Company is
considered to be in the development stage. The Company has incurred losses
since inception of $44.1 million and expects to incur increasing losses and
require additional financial resources to achieve commercialization of its
products.
The Company anticipates working on a number of long-term development
projects which will involve experimental and unproven technologies. The
projects may require many years and substantial expenditures prior to
commercialization. Therefore, the Company will need to obtain additional
funds from the issuance of equity or debt securities, from corporate
partners, or from other sources to continue its research and development
activities, fund operating expenses, pursue regulatory approvals and build
production, sales and marketing capabilities, as necessary. Management
believes that sufficient capital will be available to achieve planned
F-11
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
business objectives, including supporting certain preclinical development and
clinical testing, through at least 1997. If the Company is unable to obtain
necessary cash, more substantial restructuring options may be necessary,
which would have a material adverse effect on the Company's business, results
of operations and prospects.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. Cash equivalents include
$855,114 and $896,970 in money market funds at December 31, 1995 and 1996,
respectively. The Company's investment policy is to maintain liquidity and
ensure safety of principal.
At December 31, 1996, short term investments is comprised of auction rate
preferred stock (preferred stock in money market funds), classified as
"available for sale." Such investments are carried at cost, which approximates
their market value. The Company has not realized any gains or losses on its
investments.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the assets ranging from
three to five years. Assets under capital leases are amortized over the shorter
of the lease term or life of the asset.
REVENUE RECOGNITION
Revenue consists of revenue from government grants which support the
Company's research effort in specific research projects. These grants
generally provide for reimbursement of approved costs incurred as defined in
the various agreements.
SPONSORED RESEARCH
Research and development expenses under sponsored research arrangements
are recognized as the related services are performed, generally ratably over
the period of service. Payments for license fees are expensed when paid.
STOCK-BASED COMPENSATION
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
the Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations and to adopt the "disclosure only" alternative described in
SFAS 123 in accounting for its employee stock option plans. Under APB 25, if
the exercise price of the Company's employee stock options equals or exceeds
the fair value of the underlying stock on the date of grant, no compensation
expense is recognized.
The Company recorded $440,000 in deferred compensation for the difference
between the grant price and the deemed fair value of the Company's common
stock for certain options granted in the 12-month period prior to the IPO.
The deferred compensation is being amortized to expense over the vesting
period of the options, generally five years.
F-12
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1996, options to purchase shares of common stock were granted under
the 1995 Stock Option Plan subject to stockholder approval of an amendment to
the 1995 Option Plan to increase the number of shares authorized for issuance
thereunder to 1,300,000. Such approval was made by the stockholders at the
Company's annual meeting. Due to an increase in the stock price, deferred
compensation of $335,000 was recorded in October 1996. The deferred
compensation will be amortized to expense over the four-year vesting period of
the options.
NET LOSS PER SHARE
For purposes of computing per share data for the year ended December 31,
1996, the net loss has been increased by a $5,431,871 deemed dividend (see Note
7). Net loss per share is computed using the weighted average number of common
shares outstanding. Common equivalent shares are excluded from the computation
as their effect is antidilutive, except that, pursuant to the Securities and
Exchange Commission ("SEC") Staff Accounting Bulletins, common and common
equivalent shares (stock options, warrants and preferred stock) issued during
the period commencing 12 months prior to the IPO at prices below the assumed IPO
price have been included in the calculation for 1995 (using the treasury stock
method for stock options and warrants and the if-converted method for preferred
stock). Net loss per share calculated on this basis for the year ended December
31, 1995 was $5.03.
Pro forma net loss per share has been computed as described above and also
gives effect, pursuant to SEC policy, to common equivalent shares from
convertible preferred stock issued more than 12 months prior to the the IPO that
automatically converted upon completion of the Company's IPO (using the if-
converted method) from the original date of issuance.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. INVESTMENT IN ANSAN PHARMACEUTICALS, INC.
Summarized financial information for Ansan, which was a majority-owned
consolidated subsidiary until August 1995, at which time it became an equity
method investee of the Company, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Assets:
Cash, cash equivalents and short-term investments $ 3,854,312 $ 1,745,778
Other 126,333 177,696
------------ ------------
3,980,645 1,923,474
Less liabilities:
Payable to Company 57,791 117,881
Other 280,172 216,155
------------ ------------
337,963 334,036
------------ ------------
Stockholders' equity:
Common stock - 2,786,798 and 2,845,108 shares
issued and outstanding at December 31, 1995 and
1996, respectively 10,678,061 10,850,017
Deferred compensation (236,118) (180,561)
Accumulated deficit (6,799,261) (9,080,018)
------------ ------------
$ 3,642,682 $ 1,589,438
------------ ------------
------------ ------------
Company share, 1,212,654 shares, 44% and 43%
at December 31, 1995 and 1996, respectively $ 1,589,826 $ 590,854<PAGE>
------------ ------------
------------ ------------
</TABLE>
F-13
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Operating results and accumulated deficit:
<TABLE>
<CAPTION>
AS CONSOLIDATED SUBSIDIARY AS AN EQUITY INVESTEE
OF THE COMPANY OF THE COMPANY
-------------- ------------------------------------
SEVEN MONTHS AUGUST
ENDED THROUGH YEAR ENDED
JULY 31, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996
------------- ----------------- -----------------
<S> <C> <C> <C>
Costs and expenses:
Research and development $ 917,290 $ 503,472 $ 1,181,090
General and administrative 719,103 328,692 1,257,365
-------------- --------------- --------------
Loss from operations (1,636,393) (832,164) (2,438,455)
Interest income (expense), net (141,168) 211,681 157,698
-------------- --------------- --------------
Net loss (1,777,561) (1,043,845) (2,280,757)
Accumulated deficit:
Beginning of period (3,977,855) (5,755,416) (6,799,261)
-------------- --------------- --------------
End of period $ (5,755,416) $ (6,799,261) $ (9,080,018)
-------------- --------------- --------------
-------------- --------------- --------------
Company's share of net loss:
As consolidated subsidiary $ (1,777,561)
--------------
--------------
As equity investee (approximately 44%
and 43% at December 31, 1995 and
1996, respectively) $ (457,114) $ ( 998,972)
--------------- --------------
--------------- --------------
</TABLE>
A summary of the Company's investment in Ansan follows:
Through July 1995 as a consolidated subsidiary:
Contributed capital $ 2,473,556
Less accumulated losses (5,755,416)
---------------
(3,281,860)
As an equity investee after July 1995:
Contribution of indebtedness to capital 1,551,252
Adjustment for equitable share of initial
public offering 3,777,548
Less 44% of losses August through December 31, 1995 (457,114)
---------------
1,589,826
Less 43% of losses for the year ended December 31, 1996 (998,972)
---------------
$ 590,854
---------------
---------------
The units sold by Ansan in its initial public offering consisted of one share
of common stock, one redeemable Class A warrant and one redeemable Class B
warrant. These securities are separately but thinly traded. The Company's
investment in Ansan consists solely of shares of common stock. As of December
31, 1996, the closing bid price on Ansan's common stock was $2.00 per share.
Based on this closing bid price, the fair market value of the Company's
investment in Ansan's common stock on December 31, 1996 would approximate $
2,425,308.
F-14
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following at December 31:
1995 1996
---- ----
Furniture and office equipment $ 136,366 $ 160,083
Laboratory equipment 1,062,302 1,162,415
Computer equipment 189,179 335,385
------------- -------------
1,387,847 1,657,883
Less accumulated depreciation
and amortization (538,995) (866,304)
------------- -------------
Furniture and equipment, net $ 848,852 $ 791,579
------------- -------------
------------- -------------
Depreciation expense was $306,611 and $327,309 for the years ended December
31, 1995 and 1996, respectively.
4. SPONSORED RESEARCH AND LICENSE AGREEMENTS
The Operating Companies have entered into various agreements with research
institutions, universities, and other entities for the performance of research
and development activities and for the acquisition of licenses related to those
activities. Expenses under these agreements totaled $1,024,000 and $1,827,000
in the years ended December 31, 1995 and 1996, respectively.
At December 31, 1996, the annual aggregate commitments the Company has under
these agreements, including minimum license payments, are as follows:
1997 $ 2,356,300
1998 481,500
1999 393,000
2000 283,000
2001 325,500
------------
$ 3,839,300
------------
------------
After 2001, the Company must make annual payments aggregating $325,500 per
year to maintain certain of the foregoing licenses. Certain of the licenses
provide for the payment of royalties by the Company on future product sales, if
any. In addition, in order to maintain license and other rights during product
development, the Company must comply with various conditions including the
payment of patent related costs and obtaining additional equity investments.
5. DEBT OBLIGATIONS
NOTES AND ADVANCES PAYABLE TO RELATED PARTIES
In March and April 1993, the Company borrowed $500,000 and $700,000,
respectively, from stockholders. The unsecured notes payable had an interest
rate of 10% per annum and were payable upon demand. The notes and accrued
interest were convertible at the option of the holders into shares of Series A
preferred stock at a conversion price of $5.11 per share. Additionally, in
connection with these transactions, the stockholders were granted warrants to
purchase 23,537 shares of Series A preferred stock at an exercise price of $6.44
per share. Upon the close of the IPO these warrants became exercisable for
33,682 shares of common stock at a price of $4.50 per share. The warrants
expire in January 1999. In March 1994, the stockholders gave notice of their
intention to convert the notes and $106,329 of accrued interest at December 31,
1993 into 256,130 shares of Series A preferred stock. However, the underlying
shares of preferred stock were not issued until June 1995.
From August through October 1995, entities managed by or affiliated with a
director of the Company loaned the Company an aggregate of $250,000. The notes
payable bore interest at the rate of 12% per annum and were repaid upon the
closing of the IPO. See "Titan Bridge Financing Notes Payable" below.
F-15
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INGENEX TECHNOLOGY FINANCING AGREEMENT
In January 1995, Ingenex assigned its rights under certain of its technology
license agreements to a capital management partnership in exchange for
$2,000,000. Ingenex has licensed back the technology for research and
development purposes and has agreed to make monthly payments of $25,000 through
July 1995 and $60,060 from August 1995 through January 1999. Each payment
includes implicit interest at approximately 11.6% per annum. At the end of the
payment term, the assigned license rights can be reacquired by Ingenex for
$1.00. As part of the financing agreement, the Company issued to the capital
management partnership a warrant to purchase 112,375 shares of the Company's
Common Stock at a price of $3.56 per share. The warrant expires January 31,
2002. The capital management partnership has agreed to not sell, assign, or
transfer any securities of the Company without prior written consent of the
Company's underwriter. Ingenex incurred a finder's fee of $140,000 related to
this transaction which has been capitalized as deferred financing costs and is
being amortized over 48 months. An additional $45,000 of fees has also been
capitalized and is being amortized over 48 months. The Company has guaranteed
payment of the loan and has issued finder and director warrants to purchase an
aggregate of 7,395 shares of the Company's common stock at an exercise price of
$3.25 per share. The warrants expire in January 2002.
INGENEX BRIDGE FINANCING NOTES PAYABLE
In May 1995, Ingenex completed a bridge financing pursuant to which Ingenex
issued $1,500,000 principal amount of bridge notes payable and 300,000 bridge
warrants. Net proceeds from the bridge financing were approximately $1,305,000
(after expenses of the bridge financing). The bridge notes payable were due,
together with interest at the rate of 9% per annum, on December 31, 1995 and
Ingenex was not able to repay the notes by that date. Therefore Ingenex and the
Company negotiated an extension of the bridge notes until February 28, 1996.
The bridge notes were subsequently repaid by the Company with proceeds from the
IPO in January 1996. The bridge warrants entitle the holders thereof to
purchase one share of Ingenex common stock until May 30, 2000 at a price of
$2.50 per share. The bridge warrants have been assigned a value of $600,000.
This amount was reflected as a discount on the bridge notes and was accreted as
additional financing (interest) expense through the date of repayment of the
notes payable.
TITAN BRIDGE FINANCING NOTES PAYABLE
In October 1995, the Company completed a bridge financing pursuant to which
the Company issued $3,750,000 principal amount of bridge notes payable and
1,875,000 bridge warrants. A bridge warrant entitles the holder to purchase one
share of the Company's common stock at a price of $3.00 per share. The warrants
expire October 13, 2000. This amount includes the $250,000 for loans to the
Company from August through October 1995 (noted above) which were converted, in
accordance with the terms of the loans, into $250,000 principal amount of bridge
notes payable and 125,000 bridge warrants. Net proceeds from the bridge
financing were approximately $3,262,500 (after expenses of the issuance). The
bridge notes, together with interest at the rate of 10% per annum, were repaid
upon the consummation of the IPO in January 1996. The bridge warrants were
assigned a value of $1,200,000. This amount was reflected as a discount on the
bridge notes and was accreted as additional financing (interest) expense over
the term of the notes until the IPO.
Expenses of the bridge financing, including $487,500 in commissions, totaled
$577,995, which has been capitalized as deferred financing costs. Upon
consummation of the IPO, the unamortized portion of the debt discount and the
deferred financing costs were written off in January 1996.
FAIR VALUE OF DEBT OBLIGATIONS
The carrying amounts of the Ingenex technology financing and Ingenex bridge
financing notes payable approximate fair value, which was estimated using
discounted cash flow analysis, based on Ingenex's current incremental borrowing
rate for similar types of borrowing arrangements. The carrying amount of the
bridge financing notes payable of the Company reflects the unamortized discount.
However, the fair value of these
F-16
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
instruments at December 31, 1995 would approximate $3.7 million, as they were
repaid out of the proceeds of the IPO in January 1996.
6. LEASES
The Company leases facilities under operating leases that expire at
various dates through August 2001. Rent expense was $550,015 and $461,815
for years ended December 31, 1995 and 1996, respectively.
The Company is obligated under capital leases for certain equipment with
an aggregate cost of $1,253,441 at December 31, 1995 and 1996. Amortization
expense for leased assets is included in depreciation and amortization
expense. The leases require the Company to purchase all of the equipment upon
expiration of the leases at 25% of the original equipment cost.
The following is a schedule of future minimum lease payments at December
31, 1996:
OPERATING CAPITAL
LEASES LEASES
------ ------
1997 $ 569,354 $ 365,508
1998 589,063 519,608
1999 232,443 --
2000 100,005 --
2001 50,906 --
--------------- --------------
Total minimum payments required $ 1,541,771 885,116
Less amount representing interest --------------- (137,978)
Present value of future lease --------------- --------------
payments 747,138
Less current portion (265,462)
--------------
$ 481,676
--------------
--------------
7. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
In January 1996, the Company issued 3,200,000 units at $5.00 per unit in its
IPO. Each unit consisted of one share of common stock and one redeemable Class
A warrant. The net proceeds (after underwriter's discount and expenses, and
other costs associated with the IPO) totaled $13,690,357. At the closing of the
offering, all of the Company's outstanding preferred stock automatically
converted into common stock. In February 1996, the Company issued an additional
480,000 units, at $5.00 per unit, in accordance with the underwriter's over-
allotment option. The net proceeds of the underwriter's over-allotment option
totaled $2,160,000.
Each share of Series A and Series B preferred stock was originally
convertible into (and carried voting rights equal to) one share of common stock.
In October 1995, pursuant to the terms of the Series B preferred stock agreement
and in contemplation of the IPO, the board of directors and stockholders
approved a change in the conversion ratio of Series A and Series B preferred
stock providing that in the event of an IPO of common stock on or before March
31, 1996, each share of Series A and Series B preferred stock would
automatically be converted into 1.4310444107 and 1.8993878755 shares of common
stock, respectively (the "IPO Conversion Ratio"). The IPO Conversion Ratio was
not higher than the ratio which otherwise would have applied in an IPO during
this period. In conjunction with the IPO in January 1996 all outstanding shares
of Series A and Series B preferred stock were converted into 5,521,140 shares of
common stock.
The holders of the Series A and Series B preferred stock received common
stock in January 1996 with an aggregate fair value (at the $5 per unit value of
the IPO) which exceeds by approximately $5,400,000 the cost of their initial
investment in the 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 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 1995 or 1996 net loss or pro
forma net
F-17
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
loss per share from the mandatory conversion. However, the amount
increased the loss allocable to common stock, in the calculation of net loss per
share in 1996.
In January 1996, the Company repaid the $3,750,000 principal and accrued
interest of $105,083 related to a bridge financing with a portion of the
proceeds of the IPO. The Company also repaid $1,500,000 of principal and
accrued interest of $87,898 of notes issued by Ingenex in a bridge financing.
PRIVATE PLACEMENT
In July and August 1996, the Company completed a private placement (the
"Private Placement") of 1,536,000 units, each unit consisting of one share of
common stock and one redeemable Class A warrant, for total gross proceeds of
$16,000,000. After deducting placement agent fees and other expenses of the
private placement, the net proceeds to the Company were $13,739,628.
WARRANTS
At December 31, 1996, warrants to purchase 451,883 shares of common stock at
a weighted average price of $4.44 per share were outstanding. Such warrants
expire in November 1998 and January 2001.
The warrants issued during 1996 in connection with the IPO and the Private
Placement entitle the holder to purchase one share of common stock at an
exercise price of $6.20, subject to adjustment in certain circumstances, at any
time for a period of five years. Commencing January 18, 1997, the warrants are
subject to redemption by the Company at $0.05 per warrant on 30 days' prior
written notice if the closing bid price of the Company's common stock averages
in excess of $9.10 per share for 30 consecutive trading days ending within 15
days of the date of notice of redemption. The Company has reserved a sufficient
number of authorized but unissued shares of common stock for issuance upon
exercise of the warrants. As of December 31, 1996, 59,014 of these warrants had
been exercised.
STOCK OPTION PLANS
Under the terms of the Company's amended and restated stock option plan (the
"1993 Option Plan"), incentive stock options may be granted to employees, and
nonstatutory stock options may be granted to employees, directors and
consultants of the Company and Operating Companies. A total of 558,073 shares
of common stock have been reserved and authorized for issuance under the 1993
Option Plan.
Options granted under the 1993 Option Plan expire no later than ten years
from the date of grant, except when the grantee is a 10% shareholder of the
Company or an Operating Company, in which case the maximum term is five years
from the date of grant. The exercise price of incentive stock options,
nonstatutory stock options and options granted to 10% shareholders of the
Company (or the Operating Companies), shall be at least 100%, 85% and 110%,
respectively, of the fair market value of the stock subject to the option on the
grant date. The options are exercisable immediately upon grant, however, the
shares issuable upon exercise of the options are subject to repurchase by the
Company. Such repurchase rights will lapse over a period of up to five years
from the date of grant. At December 31, 1996, 183,654 shares of common stock
underlying the options would be subject to repurchase by the Company should such
options be exercised and the optionees' employment or consulting relationship
terminate. No further options will be granted under the 1993 Option Plan.
In November 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Option Plan"). A total of 1,300,000 shares of common stock are reserved and
authorized for issuance under the 1995 Option Plan. Options granted under the
1995 Option Plan expire no later than ten years from the date of grant, except
when the grantee is a 10% shareholder of the Company or an Operating Company, in
which case the maximum term is five years from the date of grant. The exercise
price of incentive stock options, nonstatutory stock options and options granted
to 10% shareholders of the Company (or the Operating Companies), shall be at
least 100%, 85% and 110%, respectively, of the fair market value of the stock
subject to the option on the grant date. The provisions of the 1995 Option Plan
provide for the automatic grant of nonqualified stock options to purchase shares
of common stock to directors of the Company who are not
F-18
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
principal (10%) stockholders of the Company ("Eligible Directors"). Each
Eligible Director of the Company was granted an option to purchase 10,000
shares of common stock upon the effective date of the IPO.
Activity under the 1993 and 1995 Option Plans is summarized below:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES -------------------
AVAILABLE NUMBER OF PRICE PER WEIGHTED AVG.
FOR GRANT SHARES SHARE EXERCISE PRICE
--------- ------ ----- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 268,880 289,193 $0.29 - $1.17 $0.78
Options granted (218,127) 218,127 $0.59 - $1.35 $1.34
Options canceled 157,243 (157,243) $0.29 - $1.35 $0.97
----------- ---------
Balance at December 31, 1995 207,996 350,077 $0.29 - $1.35 $1.04
Increase in shares reserved 1,080,118 -- -- --
Options granted (1,080,635) 1,080,635 $5.00 - $11.75 $9.93
Options exercised -- (16,520) $0.29 - $1.35 $0.62
Options canceled 11,886 (11,886) $0.59 - $1.35 $0.66
----------- ---------
Balance at December 31, 1996 219,365 1,402,306 $0.59 - $11.75 $7.90
----------- ---------
----------- ---------
</TABLE>
Of the options on 350,077 shares outstanding at December 31, 1995, options
on 73,499 shares were exercisable at that date. The options outstanding at
December 31, 1996 have been segregated into three ranges for additional
disclosure as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
RANGE OF WEIGHTED AVG. WEIGHTED AVG. OPTIONS WEIGHTED AVG.
EXERCISE OPTIONS REMAINING EXERCISE CURRENTLY EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
------ ----------- ---------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.59 - $ 1.35 321,671 8.18 $ 1.08 138,017 $ 0.89
$ 5.00 - $ 7.13 245,500 9.18 $ 6.48 43,957 $ 6.29
$ 10.75 - $ 11.75 835,135 9.62 $ 10.94 80,370 $ 10.75
---------- --------
1,402,306 9.21 $ 7.90 262,344 $ 4.82
---------- --------
---------- --------
</TABLE>
In addition, the Operating Companies, with the exception of ProNeura, each
have a stock option plan under which options to purchase common stock of the
Operating Companies have been and may be granted.
STOCK COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS 123 requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of the
grant, no compensation expense is recognized.
Pro forma information regarding the net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options granted subsequent to 1994 under the fair value
method of that Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model for the multiple option
approach with the following assumptions for 1996 and 1995: weighted-average
volatility factor of 0.6; no expected dividend payments; weighted-average risk-
free interest rates in effect of 6.38 and 6.00, respectively; and a weighted-
average expected life of 4.77 and 4.41, respectively.
F-19
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's employee stock options.
Based upon the above methodology, the weighted-average fair value of options
granted during the years ended December 31, 1995 and 1996 was $0.73 and $5.71,
respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to pro forma net loss over the options' vesting period.
The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Consolidated pro forma net loss $(11,852,518) $(14,801,845)
Consolidated pro forma loss per share $ (5.10) $ (1.85)
</TABLE>
The consolidated pro forma net loss calculated above includes the
estimated fair value of the options granted by each of the operating
companies in 1995 and 1996, calculated on substantially equivalent
assumptions.
Because SFAS 123 is applicable only to options granted subsequent to 1994,
its pro forma effect will not be fully reflected until 1998.
SHARES RESERVED FOR FUTURE ISSUANCE
As of December 31, 1996, shares of common stock reserved by the Company for
future issuance consisted of the following:
Warrants issued in connection with related party debt 33,682
Ingenex Technology Financing warrants 119,770
Bridge warrants 1,875,000
IPO and Private Placement warrants 5,156,986
Placement agent warrants 451,883
Unit purchase options 1,254,400
Stock options 1,621,671
----------
Total 10,513,392
----------
----------
F-20
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. MINORITY INTEREST
The $1,241,032 received by Ingenex upon the issuance of Series B convertible
preferred stock has been classified as minority interest in the consolidated
balance sheet and has not been reduced by any portion of the losses of Ingenex.
Amounts invested by outside investors in the common stock of the consolidated
subsidiaries has been apportioned between minority interest and additional paid-
in capital in the consolidated balance sheets. Losses applicable to the
minority interest holdings of the Operating Companies' common stock have reduced
that interest.
9. INCOME TAXES
The Company and the Operating Companies have not elected to file a
consolidated federal tax return.
As of December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $33,300,000, of which approximately $29,900,000
is attributable to the Operating Companies (excluding Ansan). The net operating
loss carryforwards will expire at various dates beginning in 2008 through 2011,
if not utilized.
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses before utilization.
As of December 31, 1996, the Company had deferred tax assets of approximately
$14,400,000, of which approximately $13,100,000 is attributable to the Operating
Companies. As of December 31, 1995 and 1996, none of the deferred tax assets
were attributable to Ansan. The net deferred tax asset has been fully offset by
a valuation allowance. The net valuation allowance increased by approximately
$2,400,000 during 1995.
Significant components of the Company's deferred tax assets for federal
income taxes as of December 31, 1995 and 1996 are as follows:
Deferred tax assets:
DECEMBER 31,
-----------
1995 1996
---- ----
Net operating loss carryforwards $ 8,700,000 $ 12,300,000
Research credit carryforwards 800,000 900,000
Capitalized research and development 600,000 800,000
Other - net 300,000 400,000
------------- ------------
Net deferred tax assets 10,400,000 14,400,000
Valuation allowance (10,400,000) (14,400,000)
------------- ------------
Net deferred tax assets $ -- $ --
------------- ------------
------------- ------------
10. RELATED PARTY TRANSACTIONS
In connection with the Company's private placement offering of Series B
preferred stock in 1995, Paramount Capital, Inc. ("Paramount"), a related party,
also acted as the placement agent. The Company made a cash payment of $148,500
to Paramount out of the private placement proceeds as compensation and expense
allowance related to the offering. This amount was offset against the proceeds
from the offering. Additionally, Paramount received warrants to purchase 24,402
shares of Series B preferred stock (see Note 7).
F-21
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SUBSEQUENT EVENTS
In January 1997, the Company entered into an exclusive license agreement with
Hoechst Marion Roussel, Inc. ("HMR"). The license agreement gives the Company a
worldwide license to HMR's patent rights and know-how related to a chemical
compound known as IloperidoneTM, including the ability to develop, use,
sublicense, manufacture and sell products and processes claimed in the patent
rights. Under the agreement, the Company will pay HMR a license fee of $4
million , $2 million of which was paid in January 1997 and $2 million of which
is due in July 1997. Also in January 1997, the Company issued 594,595 shares of
common stock with a fair value of $5.5 million. As a result of this
transaction, the Company incurred a charge for acquired in-process research and
development of $9.5 million. During the period from September 1997 through
January 1999, the Company shall be obligated to pay to HMR the difference
between $5.5 million and the net proceeds, if any, received by HMR upon sale of
the above mentioned common stock. 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.
UNAUDITED
The Company's current stock price is significantly depressed, indicating a
potential liability of $3.6 million related to the HMR shares.
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
(the "Debenture") which is convertible at any time prior to June 21, 1997
into 333,333 shares of common stock. The Debenture bears interest at prime
plus 2% and is due in March 1998. In connection with the issuance of the
Debenture, Ansan granted Titan an option (the "First Option") to acquire on
additional 333,333 shares of Ansan common stock for an aggregate purchase
price of $1,000,000. The First Option expires on June 21, 1997.
In the event the Debenture is converted to equity, Ansan will grant Titan two
additional options (respectively, the "Second Option" and the "Third Option").
The Second Option will be exercisable for two years from the date of grant to
purchase up to 1,630,000 shares of Ansan common stock at an exercise price of
$3.75 per share. The Third Option will be exercisable through August 8, 2000 to
purchase up to 500,000 additional shares at an exercise price of $6.50 per
share. Titan will be obligated to exercise the Second Option for the purchase
of specified numbers of shares in the event Titan's outstanding Class A Warrants
are exercised, provided Ansan has not completed public or private equity
financings resulting in specified gross proceeds prior to the date such a
purchase obligation arises.
F-22
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TITAN PHARMACEUTICALS, INC.
Date: March 26, 1997 By: /s/ Louis R. Bucalo
-----------------------------------
Louis R. Bucalo, M.D. President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ Louis R. Bucalo President, Chief Executive March 26, 1997
- ------------------------------ Officer and Director
Louis R. Bucalo, M.D. (Principal Executive Officer)
/s/ Robert E. Farrell Executive Vice President March 26, 1997
- ------------------------------ Chief Financial Officer
Robert E. Farrell (Principal Financial and
Accounting Officer)
/s/ Lindsay A. Rosenwald
- ------------------------------ Director March 26, 1997
Lindsay A. Rosenwald, M.D.
/s/ Michael K. Hsu
- ------------------------------ Director March 26, 1997
Michael K. Hsu
/s/ Hubert Huckel
- ------------------------------ Director March 26, 1997
Hubert Huckel, M.D.
- ------------------------------ Director
Marvin Jaffe, M.D.
/s/ Konrad M. Weis
- ------------------------------ Director March 26, 1997
Konrad M. Weis
/s/ Kenneth J. Widder
- ------------------------------ Director March 26, 1997
Kenneth J. Widder, M.D.
/s/ Ernst-Gunter Afting
- ------------------------------ Director March 26, 1997
Ernst-Gunter Afting, M.D.
<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by an * and [ ], have
been separately filed with the Commission.
===============================================================================
WORLDWIDE LICENSE AGREEMENT -
ILOPERIDONE
BY AND BETWEEN
HOECHST MARION ROUSSEL, INC.
AND
TITAN PHARMACEUTICALS, INC.
Effective December 31, 1996
===============================================================================
<PAGE>
TABLE OF CONTENTS
Worldwide License Agreement - Iloperidone
Hoechst Marion Roussel, Inc. - Titan Pharmaceuticals, Inc.
PAGE
1. DEFINITIONS 1
2. GRANT 7
3. PAYMENTS AND ROYALTIES 16
4. COMPULSORY LICENSES AND THIRD PARTY LICENSES 25
5. DEVELOPMENT 27
6. EXCHANGE OF INFORMATION AND CONFIDENTIALITY 30
7. HMRI SUPPLY OF COMPOUND AND PRODUCT TO TITAN 35
8. PATENT PROSECUTION, MAINTENANCE AND EXTENSION;
INFRINGEMENT 38
9. STATEMENTS AND REMITTANCES 43
10. TERM AND TERMINATION 45
11. RIGHTS AND DUTIES UPON TERMINATION 48
12. WARRANTIES, INDEMNIFICATIONS AND REPRESENTATIONS 50
13. FORCE MAJEURE 54
14. GOVERNING LAW AND ARBITRATION 55
15. SEPARABILITY 56
16. ENTIRE AGREEMENT 57
17. NOTICES 57
18. ASSIGNMENT 59
19. FAILURE TO ENFORCE 60
20. NO AGENCY 60
21. FURTHER ASSURANCES 60
22. CAPTIONS 60
23. MISCELLANEOUS 60
APPENDIX
A Patents and Patent Applications (per Section 1.12)
B Major Metabolites (per Section 1.5)
C Documents to be Delivered by HMRI to TITAN (per Section 3.1(a))
D SEC Registration Rights Granted by TITAN to HMRI (per Section 3.3)
E HMRI Documents and Development Activities During Transition Period (per
Section 6.1)
F HMRI Development Activity to Extend Beyond Transition Period (per Section
6.1)
G Special Countries in TERRITORIES Regarding HMRI's PATENT Protection (per
Section 8.2)
-i-
<PAGE>
THIS LICENSE AGREEMENT, effective as of the 31st day of December,
1996, between HOECHST MARION ROUSSEL, INC., a corporation organized under the
laws of the State of Delaware with offices at Route 202-206, P.O. Box 6800,
Bridgewater, NJ 08807-0800 (hereinafter "HMRI") and TITAN PHARMACEUTICALS, INC.,
a corporation organized under the laws of the State of Delaware and having its
principal office at 400 Oyster Point Blvd., Suite 505, South San Francisco, CA
94080 (hereinafter "TITAN"),
WITNESSETH THAT:
WHEREAS, HMRI is the owner of all right, title and interest in certain
patents and patent applications, identified in Appendix A hereto, and know-how
relating to a compound known as Iloperidone; and
WHEREAS, TITAN desires to obtain certain exclusive worldwide licenses
from HMRI under the aforesaid patents and patent applications and know-how, and
HMRI, is willing to grant to TITAN such licenses; NOW, THEREFORE, in
consideration of the covenants and obligations expressed herein, and intending
to be legally bound, the parties agree as follows:
1. DEFINITIONS
1.1 "HMRI" shall mean HOECHST MARION ROUSSEL, INC.
1.2 "TITAN" shall mean TITAN PHARMACEUTICALS, INC.
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1.3 "AFFILIATE" shall mean any corporation, firm, partnership or
other entity, hether DE JURE or DE FACTO, which directly or indirectly owns, is
owned by or is under common ownership with a party to this License Agreement to
the extent of more than fifty percent (50%) of the equity (or such lesser
percentage which is the maximum allowed to be owned by a foreign corporation in
a particular jurisdiction) having the power to direct the affairs of the entity
and any person, firm, partnership, corporation or other entity actually
controlled by, controlling or under common control with a party to this License
Agreement.
1.4 "COMPETITIVE INDUSTRY STANDARD LEVEL" shall mean PRODUCT shall be
marketed by or on behalf of TITAN, its AFFILIATES or SUBLICENSEES in the
countries of the TERRITORY where PATENTS are issued and enforced with at least
the same diligence that TITAN would use in marketing its own products in such
countries, in a manner consistent with the effort devoted by the pharmaceutical
industry to products having the same or similar potential value of PRODUCT in
those countries when PRODUCT is launched.
1.5 "COMPOUND" shall mean the chemical compound known as Iloperidone,
whose more specific chemical name is 1-[4-[3-[4-(6-fluoro-1,2-benzisoxazol-3-
yl)-1-piperidinyl]propoxy]-3-methoxyphenyl]ethanone, including any salts,
hydrates, solvates, and/or stereoisomers thereof, and only the metabolites
listed in Appendix B hereto, including any salts, hydrates, solvates and/or
stereoisomers of such metabolites.
1.6 "EEA" shall mean the European Economic Area, which consists of
the EUROPEAN UNION and Iceland, Lichtenstein and Norway.
1.7 "EUROPEAN UNION" shall mean the member states of the European
Union, as may exist from time to time, which as of the date hereof include
Austria, Belgium, Denmark,
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Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain, Sweden, and the United Kingdom.
1.8 "EXCLUSIVE" shall have the meaning specified in Section 2.1(a)
hereof.
1.9 "FDA" shall mean the United States Food and Drug Administration.
1.10 "FD&C ACT" shall mean the Federal Food, Drug and Cosmetic Act (21
U.S.C. 301ff), as amended from time to time.
1.11 "FIELD" shall mean the treatment in humans of psychiatric
disorders, psychotic disorders and analgesia.
1.12 "IND" shall mean an Investigational New Drug Application.
1.13 "KNOW-HOW" shall mean all technical information and know-how
presently developed and owned or controlled by HMRI and its AFFILIATES, or
developed and owned or controlled by HMRI and its AFFILIATES after the date
hereof and included within this definition of "KNOW-HOW" by operation of
Section 2.1(c) hereof, which relates to COMPOUND or PRODUCT in the FIELD and
which constitutes a proprietary "trade secret" or other valid intellectual
property right under U.S. or other applicable law which is substantial, secret
and identifiable, including, without limitation, all biological, chemical,
pharmacological, toxicological, clinical, regulatory, analytical, quality
control and manufacturing data and any other information (whether technical or
commercial) relating to COMPOUND or PRODUCT that may be useful for the
development, regulatory approval, manufacture and commercialization of COMPOUND
or PRODUCT.
1.14 "NDA" shall mean any and all applications (New Drug Applications)
submitted to the FDA under Sections 505, 507 or 512 of the FD&C ACT and
applicable regulations
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related to PRODUCT, including without limitation, full NDAs, "paper" NDAs and
abbreviated NDAs (ANDAs) and all amendments and supplements thereto or
equivalent applications in the EUROPEAN UNION or JAPAN.
1.15 "NET SALES" shall mean the gross revenues from the first sales of
COMPOUND or PRODUCT in the TERRITORY by a party, its AFFILIATES and/or its
SUBLICENSEES to THIRD PARTIES, less deductions for:
(a) standard transportation charges, including insurance,
consistent with custom in the industry;
(b) import, export, sales, use and excise taxes, tariffs and
duties paid or allowed by a selling party and any other governmental
charges imposed upon the production, importation, use or sale of COMPOUND
OR PRODUCT;
(c) normal and customary quantity discounts (including volume or
formulary or other positioning discounts paid or credited to any
wholesaler, purchaser or THIRD PARTY payor or other contractee as a result
of a contractual arrangement specific to PRODUCT), cash discounts
(including discounts for prompt payment), and customary trade promotional
allowances and credits, in the ordinary course of a party's, its
AFFILIATES' or its SUBLICENSEES' business;
(d) discounts (including retroactive price reductions or a
statutorily required reimbursement) mandated by or granted in response to
state, provincial or federal law or regulation;
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(e) allowances or credits to customers on account of recalls,
rejection or return (including for spoiled, damaged and outdated goods) in
the ordinary course of business,
(f) rebates paid or credited to any government or agency or any
THIRD PARTY payor, administrator or contractee, and
(g) wholesaler charge-backs allowed and taken in amounts
customary in the trade.
The computation of NET SALES shall not include sales between or among
a party and its AFFILIATES or SUBLICENSEES, except where such AFFILIATES or
SUBLICENSEES are end users. For purposes of this License Agreement, sales of
COMPOUND or PRODUCT to independent distributors, wholesalers or other parties
who purchase and take title to COMPOUND or PRODUCT are considered to be sales to
THIRD PARTIES. If COMPOUND or PRODUCT is sold through intermediaries such as
agents or co-promoters who do not purchase and take title to COMPOUND or
PRODUCT, royalties shall be due on NET SALES to THIRD PARTIES who purchase
COMPOUND or PRODUCT through such intermediaries.
1.16 "PATENTS" shall mean all patents and patent applications set
forth in Appendix A, including continuations, continuations-in-part, divisions,
patents of addition, reissues, re-examinations, renewals or extensions thereof,
along with supplementary protection certificates and other administrative
protection of any kind in the TERRITORY owned or controlled by HMRI or its
AFFILIATES which claim COMPOUND or PRODUCT, or use, formulations or manufacture
thereof, for use in the FIELD, but not any other compound or use outside of the
FIELD disclosed or claimed in those patents or patent applications. Any patent
relating to COMPOUND or
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PRODUCT for use in the FIELD which is issued during the term of this License
Agreement in any country of the TERRITORY shall automatically be deemed as of
the date of such issuance to be included in PATENT, as defined hereunder.
1.17 "PRODUCT" shall mean any bulk or finished pharmaceutical
composition containing COMPOUND as a pharmaceutically active ingredient (either
alone or in combination with one or more other pharmaceutically active
ingredients), for use in the FIELD.
1.18 "SEC" shall mean the United States Securities and Exchange
Commission.
1.19 "SUBLICENSEE" shall mean a THIRD PARTY (as defined below) to whom
a party sublicenses rights to manufacture and sell (or have manufactured and
sold) COMPOUND under PATENTS, but shall not include any THIRD PARTIES to whom
rights to manufacture COMPOUND have not been granted. Unless such party grants
to such THIRD PARTY the right to manufacture COMPOUND, the following THIRD
PARTIES shall not be considered SUBLICENSEES hereunder: agents, distributors,
wholesalers, subcontractors, co-marketers, co-promoters, partners or joint
venturers. SUBLICENSEES shall not include compulsory licensees as described in
Section 4.1(a).
1.20 "TERRITORY" shall mean all countries and territories of the world
provided that any country(ies) in which this License Agreement is terminated
shall be removed from the scope of this definition.
1.21 "THIRD PARTY" shall mean any party other than a party to this
License Agreement or an AFFILIATE thereof.
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2. GRANT
2.1(a) HMRI hereby grants to TITAN an EXCLUSIVE license in the
FIELD under the PATENTS (to the extent, but only to the extent, that such
patents or patent applications claim COMPOUND or PRODUCT or the
manufacture, formulation, or use thereof) and KNOW-HOW to develop, have
developed, make, have made, use, import, sell, offer for sale and have sold
COMPOUND and PRODUCT in the TERRITORY, subject to the terms and conditions
of this License Agreement. The foregoing license shall include the right
to sublicense, but only upon HMRI's prior written consent, which consent
shall not be unreasonably withheld. Any such sublicense(s) shall impose
upon SUBLICENSEE(S) substantially the same terms and conditions as TITAN
assumes in this License Agreement, except no such sublicense(s) shall be
required to contain obligations on the part of the SUBLICENSEE regarding
payment of an upfront license fee, milestone payments or the same or
similar royalty rates. As used in this License Agreement, the term
"EXCLUSIVE" shall mean neither HMRI nor its AFFILIATES shall grant any
other license to, nor themselves exploit, the PATENTS and KNOW-HOW with
respect to COMPOUND and PRODUCT in the FIELD (unless otherwise specified
herein) and be limited as follows:
(i) With respect to all geographic areas in the TERRITORY
outside of the EEA, such license shall be exclusive for the duration
and validity of the intellectual property rights constituting the
PATENTS and/or KNOW-HOW.
(ii) With respect to all geographic areas in the TERRITORY
within the EEA, such license shall be exclusive for the following time
periods:
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A. For each of the countries within the EEA where
only PATENTS (and not KNOW-HOW) exist and are licensed to TITAN
hereunder, the period of exclusivity for each such country shall
be limited to the duration of the relevant PATENTS in such
country, PROVIDED that "PATENTS" for purposes of the
interpretation of this paragraph shall be limited to patents
existing, and patents issuing from patent applications existing,
and patents issuing from patent applications covering inventions
existing as of the date of this License Agreement;
B. For each of the countries within the EEA where
PATENTS AND KNOW-HOW exist and are licensed to TITAN hereunder,
the period of exclusivity for each such country shall be limited
to the duration of the relevant PATENTS in such country, PROVIDED
that "PATENTS" for purposes of the interpretation of this
paragraph shall be limited to patents existing, and patents
issuing from patent applications existing, as of the date of this
License Agreement and, PROVIDED, FURTHER, that if the duration of
such PATENTS is less than ten (10) years from the date of first
marketing of COMPOUND or PRODUCT in the EEA but the KNOW-HOW
continues to be licensed hereunder, the duration of exclusivity
shall be for ten (10) years from the date of first marketing of
COMPOUND or PRODUCT in the EEA; and
C. For each of the countries within the EEA where
KNOW-HOW (and not PATENTS) exists and is licensed to TITAN
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hereunder, the period of exclusivity for each such country shall
be limited toten (10) years from the date of first marketing of
COMPOUND or PRODUCT in the EEA;
Thereafter, such license within the EEA shall be on a non-
exclusive basis.
(iii) Notwithstanding the provisions of clause
2.1(a)(ii), above, in the event that the TERRITORY (for whatever
reason) does not include all countries within the EEA, this License
Agreement shall be deemed to be amended in a reciprocal fashion to
comply with applicable competition law requirements, while preserving
the EXCLUSIVE rights of the parties hereto to the extent possible.
(iv) For all purposes, such exclusivity shall be subject to
Section 2.1(c) hereof.
(v) HMRI and its AFFILIATES and licensed THIRD PARTIES
shall be entitled to utilize the PATENTS and KNOW-HOW in the FIELD
within the TERRITORY for the development and manufacture of COMPOUND
and PRODUCT for marketing, distribution and sale outside of the
TERRITORY (where TITAN's rights have been terminated).
The duration of the license granted by this Section 2.1(a) shall be limited
to the duration, on a country-by-country basis, of the intellectual
property rights which comprise the PATENTS and KNOW-HOW with respect to a
relevant country, PROVIDED that the termination of any portion of any
license shall be without prejudice to the requirement of TITAN to pay
royalties pursuant to the terms of this License Agreement. Notwithstanding
the foregoing
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but subject to Sections 3.5 and 3.6 hereof, HMRI acknowledges and agrees
that TITAN shall as a matter of law have the right to continue to use on a
royalty-free, non-exclusive basis the information which constitutes the
PATENTS and KNOW-HOW on a country-by-country basis in the TERRITORY for the
FIELD after the PATENTS expire or cease to be valid or enforceable and/or
KNOW-HOW has entered into the public domain.
(b) Subject to TITAN's right of first negotiation under Section
5.6 hereof with respect to uses or indications outside the FIELD, HMRI
shall have the right for either HMRI, its AFFILIATES or SUBLICENSEES to
develop, have developed, make, have made, use, import, sell, offer for sale
and have sold COMPOUND and PRODUCT for uses outside the FIELD.
(c) HMRI also shall have the right to make and use COMPOUND or
PRODUCT for the use in the FIELD limited solely to further study,
investigation or experimentation purposes to further understand the
category of compounds in the FIELD, how they work and their comparison to
other compounds. The reservations stated in this provision shall be
understood by the parties to comprise independent work by HMRI, its
AFFILIATES, SUBLICENSEES or collaborators (who are subject to obligations
of non-use and nondisclosure with respect thereto), PROVIDED that in the
event that the results of such work would be relevant to COMPOUND or
PRODUCTS with respect to the FIELD and could appropriately be included
within the PATENTS and KNOW-HOW licensed hereunder, and if HMRI has the
legal right to do so, all as determined in the reasonable discretion of
HMRI, then HMRI shall offer such results to TITAN, and TITAN shall have the
option of accepting such results after reasonable review (not to exceed
sixty (60) days), whereupon
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if accepted in writing by TITAN such results shall be included, as
appropriate, within the PATENTS and KNOW-HOW licensed hereunder, and if
declined by TITAN such results may be used, assigned or licensed by HMRI
subject to provisions of the License Agreement. It is mutually understood
by the parties that independent experimental use of COMPOUND or PRODUCT or
of results shall not be used in any way that could be damaging or otherwise
detrimental to COMPOUND or PRODUCT or their development, manufacture or
commercialization by TITAN or HMRI or their respective AFFILIATES or
SUBLICENSEES hereunder. Within twenty (20) days of HMRI's request, TITAN
shall provide to HMRI free of charge reasonable quantities of COMPOUND or
PRODUCT for such experimental use in laboratory or animal studies. This
does not prevent HMRI from making COMPOUND or PRODUCT for experimental
use only in laboratory or animal studies.
(d) HMRI grants to TITAN a non-exclusive, worldwide license to
make or use any analytical reference standards, intermediate or metabolite
of COMPOUND or PRODUCT not listed in Appendix B hereto which may be claimed
in PATENTS limited solely to making or using the COMPOUND or PRODUCT. The
foregoing license shall include the right to sublicense, but only upon
HMRI's prior written consent, which consent shall not be unreasonably
withheld. Any such sublicense shall impose upon SUBLICENSEE(s)
substantially the same terms and conditions as TITAN assumes in this
License Agreement, except no such sublicense(s) shall be required to
contain obligations on the part of the SUBLICENSEE regarding payment of an
upfront license fee, milestone payments or the same or similar royalty
rates.
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
2.2 TITAN shall promote, market and sell PRODUCT under a registered TITAN
trademark(s) approved by HMRI, which approval shall not be unreasonably
withheld. TITAN shall be responsible for the selection and registration of
such trademark(s) in all countries of the TERRITORY at its own cost. In the
event the license granted hereunder is terminated in a particular country, and
HMRI or its designee(s) exercises the right to promote, market or sell PRODUCT
in such country then at HMRI's option (i) TITAN shall grant HMRI or its
designee(s) a trademark license at a royalty to be negotiated in good faith [ *
] at such time to use such trademark in connection with marketing PRODUCT in
such country, or (ii) HMRI or its designee(s) shall select and register at
HMRI's cost a trademark of its own in connection with the marketing of PRODUCT
in such country, provided such HMRI trademark is not in any way confusingly
similar to TITAN'S trademark. HMRI shall use an HMRI trademark (rather than a
TITAN trademark) in promoting, marketing or selling PRODUCT in any country that
is a member of a free trade union or other economic grouping (e.g., the EUROPEAN
UNION, EEA, NAFTA, ASEAN and ANDEAN PACT countries) where TITAN is promoting,
marketing or selling PRODUCT under a TITAN trademark.
2.3 If TITAN notifies HMRI in writing, that TITAN (and/or its
AFFILIATE(S)) is not willing or does not have the capability itself or cannot
enter into a sublicense or other agreement (providing the necessary expertise
and resources) in country(ies) outside those covered by NAFTA, EUROPEAN UNION
and Japan to: (i) develop COMPOUND or PRODUCT (as the case may warrant), and
(ii) manufacture and/or market COMPOUND or PRODUCT (as the case may warrant) at
a COMPETITIVE INDUSTRY STANDARD LEVEL by the date of PRODUCT
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approval in such country(ies), then HMRI shall have the right to terminate the
license granted by this License Agreement but only with respect to such
country(ies), unless the parties agree in writing to extend such time frame.
2.4 If PRODUCT is not launched in each of the United States, France
and Germany, respectively, at a COMPETITIVE INDUSTRY STANDARD LEVEL by TITAN,
its AFFILIATE's and/or SUBLICENSEE within six (6) months after the date of
receiving the approvals necessary to commercialize PRODUCT in each of the United
States, Germany and France, respectively, HMRI and TITAN shall review the
progress of launch efforts, it being understood the parties, at the request of
either party, may review the progress of launch efforts prior to the end of such
six (6) month period. TITAN shall keep HMRI informed on a regular basis of the
status of its launch efforts after receiving the approvals necessary to
commercialize PRODUCT in each of the United States, Germany and France,
respectively, until such time that launch is achieved in the United States,
Germany or France. If launch in each of the United States, France or Germany,
respectively, is not achieved within one (1) year after the date of receiving
the approvals necessary to commercialize PRODUCT in such country(ies)
(circumstances shall not include events of force majeure as defined in Section
13), or in any event within two (2) years after PRODUCT approval then the
license granted by this License Agreement shall terminate, but only with respect
to the particular country where launch was not achieved within such one (1) year
or two (2) year time frame, as the case may be, unless the parties agree in
writing to extend such time frame.
2.5 If an NDA or equivalent ex-U.S. regulatory approval in the
EUROPEAN UNION (Marketing Authorization Application via the Centralized
Procedure) for PRODUCT is not obtained within three (3) years of TITAN's or its
AFFILIATE's or SUBLICENSEE's filing of an NDA or such other equivalent ex-US
filing, and such failure is solely due to circumstances within
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TITAN's reasonable control, then the license granted by this License Agreement
shall terminate, but only with respect to the United States or the EUROPEAN
UNION where such approval was not obtained, unless the parties agree in writing
to extend such time frame. If, however, the parties determine that such failure
is due to circumstances beyond the reasonable control of TITAN (including
without limitation delays on the part of the regulatory agencies), the three (3)
year period shall be extended to take into account such circumstances, the
duration of any such extension to be mutually agreed.
2.6 Subject to the provisions of Section 2.6(d), HMRI shall not be
obligated to refund any upfront license fees and milestone payments paid to HMRI
with respect to any country(ies) which cease to be included within the
TERRITORY, and in the event that (i) HMRI, its AFFILIATE(S) or SUBLICENSEE(S)
elects to commercialize PRODUCT or COMPOUND in such country(ies) AND (ii) TITAN,
its AFFILIATE(S) or SUBLICENSEE(S) has an NDA filing in the United States or an
equivalent filing in the EUROPEAN UNION, then in consideration for use of any
IND, NDA or other governmental approval or associated developmental work held or
owned by TITAN related to COMPOUND or PRODUCT:
(a) At HMRI's request, and subject to Sections 6.3 and 11.5
hereof, TITAN shall license or otherwise make available under applicable
law the benefit of such approvals or work to HMRI or an AFFILIATE or THIRD
PARTY designated by HMRI who shall thereafter have the rights to develop,
register, manufacture, market and sell COMPOUND and PRODUCT in such
country(ies) utilizing such approvals or work, and HMRI shall pay to TITAN
a royalty to be negotiated in good faith at the time HMRI
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
exercises such option, on NET SALES in such country to equitably recognize
the value added by TITAN to COMPOUND and/or PRODUCT through its development
efforts. Such royalty shall not be less than [ * ] and
no greater than [ * ] on NET SALES. Upon expiration of
PATENT in such country, only the royalty paid to TITAN for HMRI's use of
the TITAN trademark shall be paid to TITAN for a time period to be
negotiated at such time. If a trademark license has not been granted to
HMRI in such country, no royalty shall be paid to TITAN upon expiration of
PATENT.
(b) HMRI shall share with TITAN, on a basis to be negotiated in
good faith at that time, a portion of any upfront license fees, milestone
payments or other payments such as prepaid royalties received from a THIRD
PARTY in connection with the exercise of such option only. If TITAN has not
paid to HMRI the upfront license fee and all of the milestone payments
provided for in Sections 3.1(a) through (c), then TITAN's share of the
amount shall be multiplied by a fraction, the numerator of which is equal
to the total of the payments that have been made by TITAN to HMRI under
Sections 3.1(a) through (c), and the denominator of which is equal to the
total of the payments that TITAN otherwise would have been required to pay
to HMRI under Sections 3.1(a) through (c) had the license not been
terminated.
(c) Notwithstanding anything contained herein to the contrary,
HMRI shall not be required to pay to TITAN a royalty on sales of COMPOUND
or PRODUCT that exceeds in the aggregate [ * ], including any
royalty payments for a license under the TITAN trademark that HMRI may be
required to pay to TITAN under Section 2.2.
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(d) If the circumstances leading up to the termination of the
License Agreement pursuant to Section 2.5 are due to any
misrepresentations, omissions (of information owned or controlled by HMRI
or its AFFILIATES as of the date hereof) or falsifications with respect to
such KNOW-HOW, information or data or fraud by HMRI or its AFFILIATES, then
HMRI shall repay in full to TITAN, within ninety (90) days of such
termination, the upfront license fee and milestone payments HMRI had
received from TITAN up to the date of such termination (including in the
form of TITAN common stock).
2.7 In the event TITAN or a SUBLICENSEE intends to seek a co-
promotion or co-marketing partner for PRODUCT in the United States or if TITAN
intends to provide exclusive rights to a THIRD PARTY to market PRODUCT in the
United States, TITAN shall notify HMRI thereof in writing and HMRI shall have a
right of first negotiation with TITAN or the SUBLICENSEE on such a
collaboration. If HMRI exercises its right of first negotiation, then HMRI and
TITAN or the SUBLICENSEE shall negotiate in good faith for a period of ninety
(90) days from the date of notification by TITAN to HMRI. If the negotiating
parties are unable to enter into a separate definitive written agreement
regarding such collaboration by the end of such ninety (90) day period, TITAN or
the SUBLICENSEE shall be free to enter into a collaboration with any THIRD PARTY
subject to all other terms of this License Agreement and shall have no further
obligation to negotiate with HMRI.
3. PAYMENTS AND ROYALTIES
3.1 As consideration for the licenses granted to TITAN by HMRI under
this License Agreement, TITAN shall make the following payments to HMRI:
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(a) An upfront license fee of Nine Million Five Hundred Thousand
Dollars ($9,500,000) consisting of (i) Four Million Dollars ($4,000,000) in
cash payable by TITAN to HMRI as follows: (X) Two Million Dollars
($2,000,000) due on January 20, 1997 and (Y) Two Million Dollars
($2,000,000) due on July 18, 1997, and (ii) Five Million Five Hundred
Thousand Dollars ($5,500,000) which shall be paid in TITAN common stock
issuable to HMRI on January 20, 1997 in a private placement. The number of
shares to be received by HMRI in 3.1(a)(ii) shall be determined by dividing
$5,500,000 by the closing price on the NASDAQ Small Cap Market as of a date
to be determined by TITAN in its sole discretion but at a closing price
during the period from the date of this License Agreement and ending
January 20, 1997. In connection with the issuance of such shares to HMRI,
HMRI represents that it is acquiring such shares for itself and not with a
view towards distribution and acknowledges that the shares have not been
registered under the Securities Act of 1933, as amended, and therefore
cannot be resold unless they are registered under such act or unless an
exemption from registration is available. At the sole discretion of HMRI,
HMRI may sell this stock (at any time after two hundred seventy (270)
calendar days of receipt of such stock) in a registered offering in
accordance with Appendix D to this License Agreement, conducted through a
broker designated by TITAN (provided that if TITAN has not designated a
broker by the effective date of the registration statement covering such
shares, HMRI may select a broker for such sales). TITAN shall not be
obligated to register such shares until all of the documents listed in
Appendix C to this License Agreement have been delivered to TITAN to its
reasonable satisfaction. For a
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
period not to exceed the second anniversary after the date of issuance of
TITAN common stock, TITAN, at the option of HMRI, shall pay to HMRI in cash
the difference between (A) $5,500,000 and (B) the net proceeds
(including net of any brokerage commissions), if any, received by HMRI upon
sale of the TITAN common stock received by HMRI pursuant to this
Section 3.1(a). To exercise such option, HMRI shall send to TITAN a
written statement of the amount due on account of the foregoing provisions
upon completion of the sale of such TITAN common stock or 120 days from the
date of the registration statement, whichever occurs earlier. Such payment
due shall be paid by TITAN within ten (10) days after written notice. If
all or a portion of such shares of TITAN common stock received by HMRI
pursuant to this Section 3.1(a) have not been sold, regardless of whether a
registration statement covering such shares has been declared effective,
and in the event there is the payment of a difference by TITAN to HMRI,
HMRI shall immediately surrender to TITAN, properly endorsed for transfer,
certificates representing such unsold shares of TITAN common stock received
by HMRI pursuant to this Section 3.1(a).
(b) A first development milestone payment of [ *
] shall be payable by TITAN to HMRI one time only upon the
first NDA Filing (based on a full and complete regulatory package and for
these purposes not to include an ANDA or "Paper" NDA) for PRODUCT in the
FIELD in the United States (New Drug Application) or Europe (Marketing
Authorization Application via the Central Procedure) by TITAN, its
AFFILIATE or SUBLICENSEE. As used in this Section, "NDA Filing" shall mean
the notification in writing to TITAN from the FDA or an equivalent EUROPEAN
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
UNION application via the Centralized Procedure that the NDA is
sufficiently complete to permit a substantive review. HMRI shall notify
TITAN of its intent to receive this milestone payment, in whole or in part,
of cash and/or TITAN common stock. If HMRI elects to receive a portion of
this milestone payment in the form of TITAN common stock, such portion
shall be mutually agreed to by HMRI and TITAN. Any cash portion of this
milestone payment shall be paid within seven (7) business days of the date
of such first filing. The portion of any milestone payment in the form of
TITAN common stock shall be issued to HMRI in a private placement within
thirty (30) days after the date of such first filing. The number of shares
to be received by HMRI shall be determined by dividing the dollar amount to
be received by HMRI in the form of stock by the amount based on the closing
price of the TITAN common stock on the NASDAQ Small Cap Market on a date to
be determined by TITAN, in its sole discretion, but on a date within thirty
(30) days of the issuance of the TITAN common stock. The registration and
sale of such stock shall be in accordance with Appendix D hereto. At the
sole discretion of HMRI, HMRI may sell the stock portion of the development
milestone payment at any time at least ninety (90) days after such issuance
date, in a registered offering pursuant to Appendix D to this License
Agreement, conducted through a broker designated by TITAN (provided that if
TITAN has not so designated a broker by the effective date of the
registration statement, HMRI may select a broker for such sale). For a
period not to exceed the first anniversary after the date of issuance of
TITAN common stock, TITAN, at the option of HMRI, shall pay to HMRI in cash
the difference between (A) [ * ] MINUS any cash received pursuant
to this
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
Section 3.1(b); and (B) the net proceeds (including net of any brokerage
commissions), if any, received by HMRI upon the sale of the TITAN common
stock received by HMRI pursuant to this Section 3.1(b). To exercise such
option, HMRI shall send to TITAN a written statement of the amount due on
account of the foregoing provisions upon completion of the sale of such
TITAN common stock or 120 days from the date of the registration statement,
whichever occurs earlier. Such payment due shall be paid by TITAN within
ten (10) days after written notice. If all or a portion of TITAN common
stock received by HMRI pursuant to this Section 3.1(b) have not been sold,
regardless of whether a registration statement covering such shares has
been declared effective, and in the event there is the payment of a
difference by TITAN to HMRI, HMRI shall immediately surrender to TITAN
properly endorsed for transfer, certificates representing such unsold
shares of TITAN common stock received by HMRI pursuant to this
Section 3.1(b).
(c) A second development milestone payment of [ *
] which shall be payable one time only by TITAN to HMRI as follows:
(i) [ *
* ] consisting in whole or in part
of cash and/or TITAN common stock as determined by HMRI. Any portion of
this milestone payment consisting of cash shall be paid within seven (7)
business days of receipt by TITAN, its AFFILIATE or SUBLICENSEE of the
first notification from the FDA or the regulatory agency for the EUROPEAN
UNION marketing authorization via the Centralized Procedure, that PRODUCT
is approved for marketing and commercialization by TITAN, its AFFILIATE or
SUBLICENSEE (or their designee) for a major indication having an approval
comparable
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
to the principal indication(s) of leading competing products in the FIELD;
and (ii)
[ * ] consisting in whole or in part of cash and/or
TITAN common stock within six (6) months after receipt of such
notification. HMRI shall notify TITAN in writing of its intent to receive
this second milestone payment, in whole or in part, in the form of cash
and/or TITAN common stock. If HMRI elects to receive a portion of this
milestone payment (in this Section 3.1(c)) in the form of TITAN common
stock, such portion shall be mutually agreed to by HMRI and TITAN. Any
portion of the second milestone payment in the form of TITAN common stock
shall be issued to HMRI in a private placement within thirty (30) days
after the date of notification by HMRI. The number of shares to be
received by HMRI shall be determined by dividing the dollar amount to be
received by HMRI in the form of stock at the closing price listed on the
NASDAQ Small Cap Market on a date to be determined by TITAN at its sole
discretion but on a date within thirty (30) days of the issuance of the
TITAN common stock. At the sole discretion of HMRI, HMRI may sell the
stock portion of this second milestone payment at any time at least ninety
(90) days after the issuance date of such stock, in a registered offering
pursuant to Appendix D to this License Agreement conducted through a broker
designated by TITAN (provided that if TITAN has not so designated a broker
by the effective date of the registration statement, HMRI may select a
broker for such sales). For a period not to exceed one (1) year after the
date of issuance of such TITAN common stock, TITAN shall, at the option of
HMRI, pay to HMRI in cash the difference between (A) [ * ] MINUS
any cash received pursuant to this Section 3.1(c); and (B) the net proceeds
(including net of any brokerage commissions), if
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any, received by HMRI upon the sale of the TITAN common stock received by
HMRI pursuant to this Section 3.1(c). To exercise such option, HMRI shall
send to TITAN a written statement of the amount due on account of the
foregoing provisions upon completion of the sale of such TITAN common stock
or 120 days from the date of the registration statement, whichever occurs
earlier. Such payment due shall be paid by TITAN within ten (10) days
after written notice. If all or a portion of such shares of TITAN common
stock received by HMRI pursuant to this Section 3.1(c) have not been sold,
regardless of whether a registration statement covering such shares has
been declared effective, and in the event there is the payment of a
difference by TITAN to HMRI, HMRI shall immediately surrender to TITAN
properly endorsed for transfer, certificates representing such unsold
shares of TITAN common stock received by HMRI pursuant to this
Section 3.1(c).
3.2 (a) Unless HMRI instructs TITAN in writing otherwise, all cash
payments by TITAN to HMRI (including, without limitation, upfront payments,
milestone payments, payments by TITAN to HMRI for shortfalls upon HMRI's
sale of TITAN common stock, and royalties) shall be made by bank wire
transfer as follows:
Citibank - New York
ABA #021000089
Hoechst Marion Roussel, Inc.
Account # - 40552555
At least two (2) business days prior to the planned wire transfer to the
above Citibank account, TITAN shall notify HMRI's treasurer by facsimile
(816-966-3847, Attention: Cash Manager) of the amount and date the cash
shall be transferred. TITAN shall also notify HMRI in writing at least two
(2) business days prior to issuance of TITAN common stock.
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
(b) In the event of a late payment hereunder by TITAN to HMRI,
TITAN shall pay to HMRI interest (based on the prime rate as stated in The
Wall Street Journal, New York edition, on the date such payment is due (or
the immediately preceding business date if such payment date is not a
business date) plus two percent (2%)) on the outstanding balance until such
balance, including interest, is paid in full to HMRI. The acceptance of
such late payment shall act as a waiver of any rights HMRI may have
hereunder due to a breach by TITAN relating solely to such payment being
made late.
3.3 The parties acknowledge that the TITAN common stock to be
acquired by HMRI shall be "restricted securities" under SEC Rule 144 or
otherwise would be subject to the volume, timing, and manner of sale
requirements of SEC Rule 144. In order to facilitate the disposition of such
shares by HMRI, TITAN hereby grants to HMRI the demand and piggyback rights for
registration under the U.S. Securities Act of 1933, as amended, which demand and
piggyback rights are set forth in the Registration Rights Agreement attached
hereto and made a part here as Appendix D. If there is a conflict between the
terms and conditions of Sections 3.1 through 3.3 of this License Agreement and
the Registration Rights Agreement, the terms and conditions of the Registration
Rights Agreement shall govern.
3.4 As consideration for the license granted to TITAN in this License
Agreement, TITAN shall pay to HMRI (i) a [ * ] royalty
for use of PATENTS and KNOW-HOW, and (ii) a [ * ] royalty for the
KNOW-HOW to manufacture COMPOUND and PRODUCT, in each case on TITAN's, its
AFFILIATES' and SUBLICENSEES' annual NET SALES in the TERRITORY. The [ *
] royalty for the KNOW-HOW to manufacture
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
COMPOUND and PRODUCT shall apply only in the event TITAN, its AFFILIATES or
SUBLICENSEES manufactures COMPOUND and PRODUCT itself or through a subcontract
manufacturer (other than HMRI or an HMRI AFFILIATE, in which event a separate
supply agreement between HMRI shall be negotiated).
3.5 Upon expiration of all PATENTS claiming a priority date of
May 19, 1989 and December 29, 1989 in a particular country in the TERRITORY for
which a patent had been granted validly claiming Iloperidone or the manufacture,
formulation or use thereof for use in the FIELD, TITAN's obligation to pay a
royalty for use of PATENTS shall cease, and the royalty for KNOW-HOW not
relating to manufacturing (whether or not such KNOW-HOW continues as a valid
intellectual property right or is in the public domain) shall be [ *
] on TITAN's, its AFFILIATES' and any SUBLICENSEES' annual NET SALES in
such country for a period of ten (10) years after the expiration of the final
remaining PATENT. After the end of such ten (10) year period, no further
royalties arising from sales of COMPOUND and PRODUCT in such country shall be
due to HMRI and TITAN shall be entitled to continue to use the KNOW-HOW on a
fully-paid, irrevocable basis in accordance with Section 10.3.
3.6 As consideration for the license granted to TITAN under this
License Agreement in those countries in the TERRITORY for which (i) a PATENT
application for COMPOUND or PRODUCT is pending or (ii) no PATENT application has
been filed or (iii) PATENTS have been abandoned or been held invalid or
unenforceable by a decision of a court or tribunal of competent jurisdiction
from which no appeal is or can be taken (collectively, "Non-Patent Countries"),
TITAN shall pay to HMRI, on a country-by-country basis, a [ *
] royalty
24
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
on TITAN's, its AFFILIATES' and any SUBLICENSEES' annual NET SALES in the Non-
Patent Countries for a period of five (5) years from the date of the first
commercial sale of PRODUCT in each such country by TITAN, its AFFILIATES or
SUBLICENSEES. After the end of such five (5) year period, no further royalties
arising from sales of COMPOUND or PRODUCT in such country shall be due.
However, with respect to Section 3.6(i) or (ii), if at any time during or after
such five (5) year period a PATENT for COMPOUND or PRODUCT is issued in such
country, subject to Section 3.5, TITAN shall pay to HMRI from the date the
PATENT was issued (i) a [ * ] royalty for PATENT and
KNOW-HOW and (ii) a [ * ] royalty for the KNOW-HOW to
manufacture. Upon expiration of TITAN's obligation to pay a royalty under such
PATENT, a [ * ] royalty on NET SALES shall be
paid to HMRI for a period of five (5) years after which TITAN shall be entitled
to continue to use the KNOW-HOW on a fully-paid, irrevocable basis in accordance
with Section 10.3.
4. COMPULSORY LICENSES AND THIRD PARTY LICENSES
4.1 (a) In the event that during the term of this License Agreement
a governmental agency in the TERRITORY grants or compels HMRI to grant a
license to any THIRD PARTIES for COMPOUND or PRODUCT in such country(ies),
TITAN shall have the benefit of any lower royalty rates granted to such
THIRD PARTIES, but only to the extent that such royalty rates to THIRD
PARTIES are more favorable than those granted TITAN pursuant to this
License Agreement, and only during the period such THIRD PARTIES sell
COMPOUND or PRODUCT in those countries of the TERRITORY where compulsory
license(s) exist and have achieved for a period of at least six (6)
consecutive months a
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combined total sales volume of at least ten percent (10%) of TITAN's,
its AFFILIATE'S and SUBLICENSEE'S sales of PRODUCTS in such country(ies).
(b) If a governmental authority in a country in the TERRITORY
imposes a maximum royalty rate, such that lower royalty rates than would
otherwise apply under this License Agreement are mandated in such country,
then the royalty rates provided for herein shall be reduced to equal such
lower rates for sales of COMPOUND or PRODUCT in such country for the period
such lower royalty rate is required by any governmental authority and shall
cease when TITAN's royalty payment obligations to HMRI cease under this
License Agreement.
4.2 (a) If, during the term of this License Agreement, HMRI and
TITAN agree that a patent(s) of a THIRD PARTY exists in the TERRITORY
covering the manufacture, use or sale of COMPOUND or PRODUCT, and if it
should prove, in the reasonable judgment of HMRI and TITAN, impractical or
impossible for TITAN or its AFFILIATES or SUBLICENSEES to continue the
activity or activities licensed hereunder in the FIELD without obtaining a
royalty-bearing license from such THIRD PARTY under such patent(s) or if
the parties otherwise agree it is desirable for HMRI to acquire any THIRD
PARTY patent or license in connection with the development or manufacture
of COMPOUND or PRODUCT covered by PATENTS in the TERRITORY, then in either
case the provisions of Section 8.8(c) shall apply.
(b) If, after attempting in good faith to resolve the issue
relating to licensing THIRD PARTY patents in Section 4.2(a) between
themselves, the parties are unable to agree within ninety (90) days as to
whether it is impracticable or impossible for TITAN, its AFFILIATES or
SUBLICENSEES to continue the activity or activities licensed
26
<PAGE>
hereunder without obtaining a royalty-bearing license from a THIRD PARTY,
the issue shall be submitted to a disinterested, competent and experienced
patent attorney reasonably acceptable to both parties for resolution. If
the parties cannot agree on the selection of such patent attorney, then
each party shall select a patent attorney and the selected patent attorneys
shall select a mutually acceptable patent attorney who will determine
whether such THIRD PARTY rights materially inhibit TITAN's ability to
manufacture, distribute or sell COMPOUND or PRODUCT. The costs of such
patent attorney shall be borne equally, provided that in the event the
patent attorney determines that such THIRD PARTY rights do not materially
inhibit TITAN's ability to manufacture, distribute or sell COMPOUND or
PRODUCT, then the costs of such patent attorney shall be borne by TITAN.
5. DEVELOPMENT
5.1 Upon the signing of this License Agreement, TITAN shall have full
legal and financial responsibility for all costs that are incurred and all
activities that are undertaken after the signing of this License Agreement,
which are related to development, safety and required periodic reporting to the
FDA and equivalent ex-U.S. regulatory agency, marketing, regulatory approvals,
price registrations, and other activities required by TITAN or its
SUBLICENSEE(S) (or their respective agents or distributors) to obtain
appropriate government approvals for, and to commercialize, COMPOUND and PRODUCT
in the TERRITORY. Other than as expressly provided for herein or in Article
II.A. of the Letter of Intent, dated November 19, 1996, between the parties,
TITAN shall not assume, nor shall TITAN be liable for, any costs or activities
(whether scientific, financial or otherwise) relating to the COMPOUND or PRODUCT
that were incurred or undertaken prior to the signing of this License Agreement
(including without limitation any costs, expenses, damages, losses, fines,
penalties or the like that may be awarded or assessed after the
27
<PAGE>
signing of this License Agreement, but which arise out of events and
activities that occurred prior to the signing of this License Agreement).
5.2 Provided that the AFFILIATES, SUBLICENSEES and other THIRD
PARTIES agree to substantially the same terms of confidentiality in Section 6.4
hereof, TITAN may appoint such AFFILIATES, SUBLICENSEE(S) and other THIRD
PARTIES to perform any and all development activities necessary to obtain
government approvals for PRODUCT in the TERRITORY. The appointment of any
SUBLICENSEE shall require HMRI's prior written consent, which consent shall not
be unreasonably withheld.
5.3 TITAN shall, in a manner consistent with the effort TITAN devotes
to its own products having the same or similar potential value as PRODUCT,
exercise its reasonable commercial efforts and diligence in developing and
commercializing PRODUCT, and in undertaking those investigations and actions
required to obtain appropriate governmental approvals to market PRODUCT in the
TERRITORY. All such activity shall be undertaken at TITAN's expense. HMRI
shall use reasonable efforts to assist or provide consultation at TITAN's
expense in support of the development of COMPOUND or PRODUCT, but in its
discretion may limit its resources and assistance.
5.4 Upon the signing of this License Agreement, TITAN shall inform
HMRI in writing which of the contract research organizations ("CROs") and other
organizations currently working on development activities relating to COMPOUND
and/or PRODUCT which TITAN desires to retain, and those development activities
on which TITAN desires to have such CROs and other organizations work. Provided
(a) the contracts can be modified as may be desired by TITAN and (b) such CROs
release HMRI from any liability thereunder, existing contracts between HMRI and
such CROs and other organizations which TITAN wants to assume shall be assigned
to TITAN
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<PAGE>
by HMRI after the signing of this License Agreement by HMRI and TITAN
entering into an assignment, release and assumption agreement with respect to
each such contract, which shall provide, INTER ALIA, that HMRI shall have no
legal, financial or administrative responsibilities related to such contracts as
of the date of such assignment. TITAN shall endeavor in good faith to have a
CRO which has a pre-existing agreement with HMRI relating to work to be
performed on the COMPOUND or PRODUCT, to enter into an agreement with HMRI and
TITAN releasing HMRI and TITAN from all liability under such pre-existing
agreement. If such CRO is unwilling to grant such release to HMRI, then HMRI in
its sole discretion may waive the requirement of a release as to a particular
issue(s) raised by such CRO which HMRI in good faith deems to be meritorious.
TITAN shall be solely responsible for negotiation of contracts with any other
CROs and other organizations it desires to work on development activities
relating to COMPOUND and/or PRODUCT and TITAN shall bear all legal and financial
responsibility under such new contracts.
5.5 Any inventions or discoveries or improvements which arise from
TITAN'S, its AFFILIATE'S or SUBLICENSEE'S work relating to the development
and/or manufacture of the COMPOUND and/or PRODUCT shall be owned by TITAN, but
shall be licensed to HMRI, at HMRI's option on a world-wide, non-exclusive,
perpetual basis, at a license fee and/or royalty to be negotiated at such time.
5.6 In the event uses or indications outside the FIELD are identified
by HMRI or TITAN, TITAN shall have a right of first negotiation for a separate
license from HMRI to develop and commercialize such other uses and indications
under terms to be negotiated in good faith at such time. Such right of first
negotiation shall mean that HMRI shall offer to TITAN the right to develop and
commercialize such uses and indications under a separate license, the financial
terms of which may be no less favorable than the financial terms provided for in
this License
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<PAGE>
Agreement, except that TITAN shall not be required to pay to HMRI
any upfront license fees or milestone payments. If TITAN exercises its right of
first negotiation, the parties shall negotiate in good faith for a period of
ninety (90) days and, if the parties are unable to enter into a separate
definitive written agreement regarding such license by the end of such ninety
(90) day period, HMRI or an AFFILIATE shall be free to develop and commercialize
such other use or indication itself or to enter into a license or other
agreement with a THIRD PARTY, and shall have no further obligations to negotiate
with TITAN or further license obligations with respect thereto.
5.7 TITAN shall provide to HMRI regular written reports at least
every six (6) months setting forth significant developments and improvements
that affect COMPOUND or PRODUCT. From the date of this License Agreement, TITAN
shall provide to HMRI on an annual basis, a written report on the status and
progress of the development and/or registration activities related to COMPOUND
or PRODUCT.
5.8 TITAN, or its SUBLICENSEES, shall promptly advise HMRI in writing
upon the submission and filing for government regulatory approval to market
PRODUCT, and upon the receipt of government regulatory approval to market
PRODUCT, in each case in each country in the TERRITORY, and shall commence
marketing PRODUCT in such country in accordance with Section 5.3.
6. EXCHANGE OF INFORMATION AND CONFIDENTIALITY
6.1 Upon the signing of this License Agreement, HMRI shall deliver to
TITAN, pursuant to Appendices C, E and F hereto, all available KNOW-HOW,
documents, information and data which is owned or controlled by it and its
AFFILIATES, which may be reasonably expected to assist TITAN in developing,
registering, manufacturing and marketing COMPOUND and PRODUCT in the TERRITORY.
After the execution of this License Agreement, there shall be a
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transition until March 31, 1997 during which HMRI shall provide, at its own
cost, reasonable resources, expertise, KNOW-HOW and documents to effectively
transfer the development activity to TITAN as more fully set forth in
Appendix E hereto. In addition, subsequent to March 31, 1997, HMRI shall
complete the activities set forth in Appendix F in a mutually agreed time
frame. Upon HMRI's receipt of the upfront license fee referred to in Section
3.1(a) hereof, HMRI and TITAN each shall promptly provide written
notification to the FDA that HMRI assigns and that TITAN assumes sponsorship
of the U.S. IND No. 36,827 (as specified in 21 CFR 314.72). Within ten (10)
days after the date of such written notification, HMRI shall transfer the
U.S. IND for COMPOUND or PRODUCT to TITAN. Until such transfer is made,
TITAN shall have the right to make reference to such COMPOUND or PRODUCT
owned or controlled by HMRI or its AFFILIATE. At the option of TITAN, TITAN
shall notify HMRI in writing by March 31, 1997 of TITAN's desire to have the
sponsorship of Canadian IND Control No. 27740 transferred from Hoechst Marion
Roussel Canada, Inc. ("HMRC") to TITAN, after which date, without such
notification, HMRC shall have the right to terminate such IND. Upon TITAN
notifying HMRI of such desire to have such sponsorship, the Canadian IND
regulatory file shall be transferred to TITAN within a mutually agreed time
frame and manner.
6.2 TITAN shall have EXCLUSIVE use, subject to the terms of this
License Agreement and in particular Section 2.1(c), of all KNOW-HOW, documents,
information, data and material for the development, registration, manufacture
and marketing of COMPOUND and PRODUCT for use in the FIELD. HMRI and its
AFFILIATES shall keep confidential all KNOW-HOW, documents, information and data
in their possession or received from or generated by or on behalf of TITAN that
is not already in the public domain relating to COMPOUND and PRODUCT regarding
the use in the FIELD with the same level of care HMRI uses for its own
confidential
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information. Upon HMRI's request during the term of this License
Agreement, TITAN shall deliver to HMRI a copy of all such information and data
in a form to be mutually agreed upon, within thirty (30) days after HMRI's
request.
6.3 Subject to the confidentiality obligations of this Article 6,
HMRI shall be able to freely use KNOW-HOW, documents, information and data
disclosed or generated by TITAN, its AFFILIATES and SUBLICENSEES and
applications for government approvals (United States or EUROPEAN UNION), reports
on the status and progress of the development of COMPOUND or PRODUCT and the
like in any country(ies) deleted from the TERRITORY and as to which this License
Agreement has been terminated pursuant to the terms hereof.
6.4 During the period of time during which TITAN is obligated to pay
royalties hereunder and for seven (7) years thereafter, irrespective of any
termination with respect to a particular country or countries in the TERRITORY,
TITAN shall not reveal or disclose to THIRD PARTIES or use for any purpose other
than to perform its obligations herein any Confidential Information (as defined
below) without first obtaining the written consent of HMRI, except as may be
otherwise provided herein, or for securing essential or desirable
authorizations, privileges, licenses, registration or rights from governmental
agencies, or is required to be disclosed to a governmental agency or is
necessary to file or prosecute PATENT applications concerning COMPOUND or
PRODUCT or to carry out any litigation concerning COMPOUND or PRODUCT; provided,
however, that TITAN notifies HMRI in writing in a reasonably sufficient time
frame prior to making such disclosure that TITAN intends to make such
disclosures and the details thereof, and TITAN seeks confidential treatment
where available of such Confidential Information from such governmental
agencies. This confidentiality obligation shall not apply to such information
which is or becomes a matter of public knowledge through no fault of TITAN's, or
is already in the
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possession of TITAN as evidenced by written records, or is disclosed to TITAN
by a THIRD PARTY having the right to do so, or is subsequently and
independently developed by employees of TITAN or AFFILIATES who had no
knowledge of the Confidential Information. TITAN shall take reasonable
measures to assure that no unauthorized use or disclosure is made by others
to whom access to such information is granted. As used herein, "Confidential
Information" means, any confidential or proprietary information of HMRI,
including any present or future formulas, research project, work in process,
inventions, procedures, development, scientific, engineering, manufacturing,
marketing, business or financial plan or records, products, sales, suppliers,
customers, or investors, whether such confidential or proprietary information
is in oral, written, graphic or electronic form (including all copies in
whole or in part of any of the foregoing) and which derives value from being
known to the discloser or owner.
6.5 Each party shall promptly inform the other party of any
information that it obtains or develops regarding the safety of COMPOUND or
PRODUCT and shall promptly report to the other party any confirmed information
of serious or unexpected reactions or side effects related to the utilization or
medical administration of PRODUCT in accordance with the procedures that shall
be agreed upon in writing by the parties by no later than March 31, 1997.
6.6 Nothing herein shall be construed as preventing TITAN from
disclosing any information received from HMRI to an AFFILIATE, SUBLICENSEE,
distributor, contractor, agent, consultant, legal counsel or other THIRD PARTY
involved in the development, manufacture, marketing, promotion or sale of
COMPOUND or PRODUCT, provided such AFFILIATE or SUBLICENSEE or other THIRD PARTY
has undertaken a similar obligation of confidentiality with respect to the
Confidential Information.
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6.7 In the event that a court or other legal or administrative
tribunal, directly or through an appointed master, trustee or receiver, assumes
partial or complete control over the assets of TITAN based on the insolvency or
bankruptcy of TITAN, TITAN shall promptly notify the court or other tribunal (i)
that Confidential Information received from HMRI remains the property of HMRI
and (ii) of the confidentiality obligations under this License Agreement. In
addition, TITAN shall, to the extent permitted by law, take all steps reasonably
necessary or desirable to maintain the confidentiality of HMRI's Confidential
Information and to ensure that the court, other tribunal or appointee maintains
such information in confidence in accordance with the terms of this License
Agreement.
6.8 No public announcement or other disclosure to THIRD PARTIES
concerning the existence of or terms of this License Agreement shall be made,
either directly or indirectly, by either party to this License Agreement, except
as may be legally required, without first obtaining the approval of the other
party, which approval shall not be unreasonably withheld, and shall be given
within a reasonable time. The party desiring to make any such public
announcement or other disclosure shall provide the other party with a written
copy of the proposed announcement or disclosure in sufficient time prior to
proposed public release, to allow such other party to comment upon the nature,
text and timing of such announcement or disclosure, prior to proposed public
release.
6.9 Neither party shall submit for written or oral publication any
manuscript, abstract or the like which includes KNOW-HOW, data or other
information generated and/or provided by HMRI or TITAN pursuant to this License
Agreement without first obtaining the prior written consent of the other party,
which consent shall not be unreasonably withheld. The
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contribution of each party shall be noted in all publications or
presentations by acknowledgment or coauthorship, whichever is appropriate.
7. HMRI SUPPLY OF COMPOUND AND PRODUCT TO TITAN
7.1 HMRI shall supply COMPOUND and PRODUCT to TITAN under the
following conditions;
(a) Upon written notice by TITAN to HMRI, HMRI shall, at its own
cost (including without limitation, duties, tariffs and the like), ship to
TITAN or its designee, free of charge, the quantities of COMPOUND and
PRODUCT to be determined by TITAN within thirty (30) days after the date of
this agreement (which quantities include COMPOUND in bulk active ingredient
form and PRODUCT both in bulk tablet and packaged tablet form); provided,
however, HMRI shall not be obligated to produce bulk substance beyond its
existing supply.
(b) Title to, and risk of loss with respect to, all COMPOUND and
PRODUCT supplied by HMRI to TITAN under this Section 7.1 shall pass to
TITAN upon the receipt of such COMPOUND and PRODUCT by TITAN or its
designee at their point of delivery. HMRI shall ship COMPOUND and PRODUCT
to TITAN upon notification by TITAN that adequate secured storage space
meeting any regulatory requirements has been designated and that the FDA
has been notified by TITAN of its sponsorship of the U.S. IND No. 36,827.
(c) Any shipment of COMPOUND or PRODUCT shall include a
certificate of analysis with respect thereto. Unless TITAN notifies HMRI
within sixty (60) days after receipt of any shipment that COMPOUND or
PRODUCT does not conform with the specifications therefor, by using the
methods of analysis provided by HMRI to TITAN
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under this Section 7.1(a), then such shipment shall be deemed to be
accepted by TITAN (except in the case of defects, contamination or other
problems that could not have been ascertained by testing COMPOUND or
PRODUCT in accordance with the methods of analysis therefor).
(d) If TITAN notifies HMRI of any non-conformance of COMPOUND or
PRODUCT with specifications therefor, the parties shall discuss in good
faith such non-conformance and if it cannot be resolved within ten (10)
days, the parties shall have an independent reputable laboratory,
reasonably acceptable to both parties, test representative samples from
such shipment, and the results of such laboratory shall be final and
binding on the parties. The party whose determination is not upheld by the
laboratory's results shall bear the costs of such testing.
7.2 HMRI shall provide information and assistance to TITAN with
respect to COMPOUND and PRODUCT as follows:
(a) Upon the signing of this License Agreement, HMRI shall
deliver to TITAN any and all KNOW-HOW, documentation, data and other
information owned or controlled by HMRI and its AFFILIATES, that TITAN may
reasonably require for the manufacture of COMPOUND and PRODUCT. Such
information shall include without limitation the specifications for
COMPOUND and PRODUCT and methods of analysis for testing COMPOUND and
PRODUCT, as currently described within the IND regulatory documentation
including Chemistry-Manufacturing/Controls (CMC) information amendments and
the technology transfer file.
(b) HMRI shall provide to TITAN or its designated THIRD PARTY
assistance for the transfer of manufacturing technology, through
documentation, consultation
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and face-to-face meetings, to enable TITAN or THIRD PARTY to proceed with
development of commercial-scale manufacturing. If requested by TITAN
or the THIRD PARTY, HMRI shall visit the designated commercial
manufacturing facility, with the limitation of three (3) visits,
not to exceed a total of ten (10) business days, for which TITAN shall bear
all the costs of travel and other out-of-pocket expenses.
7.3 HMRI represents and warrants that:
(a) all COMPOUND and PRODUCT supplied hereunder shall meet the
specifications therefor at the time COMPOUND and PRODUCT are delivered to
TITAN or its designee;
(b) the specifications for COMPOUND and PRODUCT are consistent
with those set out in the INDs sponsored by HMRI;
(c) all COMPOUND and PRODUCT supplied hereunder shall be
manufactured, stored and shipped in accordance with GMPs and other
applicable laws and regulations;
(d) none of the COMPOUND or PRODUCT supplied hereunder shall be
adulterated or misbranded as provided for under applicable laws and
regulations; and
(e) as of the date of this License Agreement, the raw materials
for the manufacture of COMPOUND are readily available in the marketplace.
7.4 TITAN shall return to HMRI all unused COMPOUND or PRODUCT
supplied by HMRI to TITAN hereunder.
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
8. PATENT PROSECUTION, MAINTENANCE AND EXTENSION; INFRINGEMENT
8.1 HMRI shall be responsible for the filing, prosecution (including
oppositions) and maintenance of the PATENTS at HMRI's expense. For so long as
the license grants set forth in Article 2 remain in effect, HMRI agrees to file
and prosecute and maintain the PATENTS in the TERRITORY, provided that the
foregoing is subject to HMRI's reasonable business judgment. HMRI shall keep
TITAN informed of important issues relating to the preparation, filing,
prosecution and maintenance of such patent applications and patents. TITAN
shall have the right to comment on HMRI's preparation, filing, prosecution and
maintenance of patent applications and PATENTS, and HMRI shall give due
consideration to TITAN's comments, but HMRI shall make all decisions regarding
same.
8.2 If HMRI elects not to seek patent protection in countries listed
in Appendix G or to maintain patent protection on PATENTS listed in Appendix A
in any country in the TERRITORY to the extent that PATENTS claim COMPOUNDS or
PRODUCT (or formulations, use or manufacture thereof), TITAN shall have the
right, at its option and at HMRI's expense, which expense must be approved in
advance by HMRI (approval which shall not be unreasonably withheld), to file,
prosecute (including oppositions) and maintain any such patent applications and
patents in HMRI's name, and any patent issued therefrom shall be owned by HMRI.
HMRI shall advise TITAN of its decision not to seek or maintain patent
protection in a reasonably timely manner. In the event that a PATENT is issued
covering COMPOUND or PRODUCT in any country in the TERRITORY under the
conditions of this Section 8.2, TITAN shall pay HMRI a [ * ] royalty
on NET SALES for five (5) years from the date of such patent issuance in
such country in
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recognition of HMRI's KNOW-HOW and manufacturing rights and the right to
make and sell COMPOUND or PRODUCT in such country. Legal fees and expenses,
as confirmed by HMRI, incurred by TITAN shall be deducted from the royalty
paid to HMRI.
8.3 Each party shall make available to the other party its employees,
agents, subcontractors or consultants (including its authorized attorneys) to
the extent reasonably necessary or appropriate to enable the appropriate party
to file, prosecute and maintain patent applications and resulting patents
subject to this License Agreement to the extent that PATENTS claim COMPOUND or
PRODUCT (or formulations, use or manufacture thereof). Where appropriate, each
party shall sign or cause to have signed all documents relating to said patent
applications or patents at no charge to the other party.
8.4 HMRI shall promptly notify TITAN in writing of (i) the issuance
of each PATENT giving the date of issue and patent number for each patent, and
(ii) each notice pertaining to any PATENT which it receives as patent owner
pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984,
or other similar laws now or hereafter in effect which extend the PATENT life,
or pursuant to comparable laws or regulations in other countries in the
TERRITORY. At HMRI's expense, the parties shall cooperate with each other in
applying for patent term extensions (including Supplementary Protection
Certificate in EUROPEAN UNION member states) where applicable in any country of
the TERRITORY. HMRI shall have full responsibility and authority in the
decisions regarding filing for the foregoing PATENT extensions at its own
expense although TITAN shall be consulted and its opinions given due
consideration in such decision-making process. If HMRI elects not to pursue
extension of any PATENTS, TITAN shall have the right (but not the obligation) to
apply for such extension in HMRI's name and at TITAN's expense and HMRI shall
reasonably cooperate in the filing and procurement thereof.
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8.5 Except as otherwise expressly provided in this License Agreement,
under no circumstances shall a party hereto, as a result of this License
Agreement, obtain any ownership interest in or other right to any technology,
KNOW-HOW, patents, pending patent applications, products, or biological material
of the other party, including items owned, controlled, discovered, invented or
developed by the other party, or transferred by the other party to said party,
at any time pursuant to this License Agreement which is not a direct result of
the study, KNOW-HOW and experimentation of COMPOUND and PRODUCT. It is
understood and agreed that this License Agreement does not grant TITAN any
license to other uses for COMPOUND or PRODUCT outside the FIELD.
8.6 TITAN and HMRI shall each promptly, but in any event no later
than ten (10) business days after receipt of notice of such action, notify the
other in writing of any PATENT nullity actions, any declaratory judgment
actions or an alleged or threatened infringement of PATENTS or PATENT
applications or misappropriation of intellectual property comprising PATENTS, or
if either party, or any of their respective AFFILIATES or SUBLICENSEES, shall be
individually named as a defendant in a legal proceeding by a THIRD PARTY
alleging infringement of a patent or other intellectual property right of such
THIRD PARTY as a result of the manufacture, production, use, development,
marketing, selling or distribution of COMPOUND or PRODUCT, or of any information
or notification regarding the PATENTS.
8.7 HMRI shall have the first right to respond to, defend or
prosecute any actions, challenges, infringements, misappropriations or
proceedings by a THIRD PARTY alleging infringement described in Section 8.6. In
the event HMRI elects to do so, TITAN will cooperate with HMRI and its legal
counsel, join in such suits as may be brought by HMRI, and be available at
HMRI's reasonable request to be an expert witness or otherwise to assist in such
proceedings and
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
at HMRI's expense. HMRI will cooperate with TITAN and its legal counsel and
keep TITAN and its counsel reasonably informed at all times as to the status of
HMRI's response or defense.
8.8 In the event that HMRI elects to respond to, defend or prosecute
any actions, challenges, infringements, misappropriations or proceedings by a
THIRD PARTY claiming infringement described in Section 8.6 hereof, then:
(a) legal fees and other costs and expenses of HMRI associated
with such response or defense shall be paid by HMRI;
(b) legal fees and other costs and expenses associated with such
response or defense incurred by TITAN at HMRI's request, shall be paid by
HMRI;
(c) costs of acquiring THIRD PARTY patents or licenses and any
settlement, court award, judgment or other damages shall be paid by HMRI to
such THIRD PARTIES out of royalties projected to be received from TITAN;
provided, however, HMRI shall not be obligated to pay for any patents or
licenses for uses of COMPOUND or PRODUCTS not disclosed in PATENTS as of
the date of the execution of this License Agreement; and
(d) any amounts recovered from THIRD PARTIES in connection with
such response or defense shall be applied [ * ] to TITAN and
[ * ] to HMRI, subject first to reimbursement of both
parties for expenses.
8.9 In the event that HMRI elects not to respond to, defend or
prosecute any actions challenges, infringements, misappropriations or
proceedings by a THIRD PARTY alleging infringement described in Section 8.6
hereof or HMRI abandons any such action, HMRI shall notify
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been included
herein.
TITAN in writing within thirty (30) days after becoming aware or notified of
such actions, challenges, infringements, misappropriations, proceeding or upon
HMRI's decision to abandon any such action. In such event, TITAN shall have the
option to respond, defend or prosecute such action at TITAN's sole cost,
provided that HMRI shall cooperate with and provide assistance to TITAN at
HMRI's expense. All amounts recovered from any THIRD PARTY shall be applied [
* ] to TITAN and [ * ] to HMRI, subject
first to reimbursement of both parties for expenses.
8.10 In the event that the parties mutually agree that it is desirable
for HMRI to acquire any THIRD PARTY patent or license in connection with the
development or manufacture of COMPOUND or PRODUCT covered by PATENTS in the
TERRITORY, then the costs of acquiring such THIRD PARTY patent or license shall
be paid by HMRI to such THIRD PARTIES out of royalties received from TITAN.
HMRI shall not be obligated to pay for any patents or licenses for uses of
COMPOUND or PRODUCTS not disclosed in PATENTS as of the date of the execution of
this License Agreement.
8.11 TITAN recognizes that HMRI has reserved certain rights in the
patents set forth in Appendix A and that there may be a legitimate dispute
between the parties whether a legal action should be brought against a THIRD
PARTY which could effect HMRI's reserved rights under those patents and TITAN's
license rights under this License Agreement. In the event that there is a
dispute between the parties regarding whether there is an infringement of
PATENTS by a THIRD PARTY and therefore whether a legal action should be
initiated, the parties shall submit the issue to a disinterested, competent and
experienced patent attorney reasonably acceptable to the
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parties to determine whether or not there is an infringement and legal
actions should be taken. If the parties cannot agree on the selection of
such a patent attorney, then each party shall select a patent attorney and
those selected patent attorneys shall select a mutually acceptable patent
attorney. That selected patent attorney shall determine whether or not there
is an infringement and legal action should be taken and then each party may
decide whether or not to initiate a legal action as described by this Article
8. The compensation to, and expenses of, such patent attorney shall be borne
by the losing party.
9. STATEMENTS AND REMITTANCES
9.1 TITAN shall keep, and require its AFFILIATES and SUBLICENSEES to
keep complete and accurate records of all NET SALES of PRODUCT under the
licenses granted herein. HMRI shall have the right, at HMRI's expense, through
a certified public accountant or like independent person reasonably acceptable
to TITAN, and following reasonable notice, to examine such records under
conditions of confidentiality during regular business hours during the period of
time during which royalties are due and payable hereunder and for two (2) years
thereafter; provided, however, that such examination shall not take place more
often than once a year and shall not cover such records for more than the
preceding two (2) years; and provided further, that such accountant shall report
to HMRI only as to the accuracy of the NET SALES computation and royalty
statements and payments. It is agreed that if this License Agreement is
terminated with respect to a particular country(ies), then HMRI's examination
rights shall continue with respect to sales of PRODUCT in such country(ies) only
for a period of two (2) years after the termination of license rights in that
country. Copies of all such accountant's reports shall be supplied to TITAN.
9.2 Within sixty (60) days after the close of each calendar quarter,
TITAN shall deliver to HMRI a true accounting of all PRODUCT sold by TITAN, its
AFFILIATES and
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SUBLICENSEES during such quarter and shall at the same time pay all earned
royalties due. Such accounting shall show NET SALES of PRODUCT on a
country-by-country and product-by-product basis and such other particulars as
are reasonably necessary for accounting of the royalties payable hereunder.
9.3 Any tax paid or required to be withheld by TITAN on account of
royalties payable by TITAN to HMRI under this License Agreement shall be
indicated on the accounting described in Section 9.2 hereof and deducted from
the amount of royalties otherwise due. TITAN shall secure and send to HMRI
proof of any such taxes withheld and paid by TITAN. Any withholding or other
tax arising on or following permitted assignment of this License Agreement by
TITAN or a SUBLICENSEE shall be for the account of and paid by TITAN.
9.4 Unless otherwise indicated herein, and subject to foreign
exchange regulations then prevailing, to the extent free conversion from local
currency to United States dollars is permitted, all payments and royalties
payable under this License Agreement shall be paid in cash in U.S. dollars by
wire transfer in accordance with Section 3.2 hereof. If governmental
regulations prevent remittances from a foreign country with respect to sales
made in that country, the obligation of TITAN to pay royalties on sales in that
country shall be suspended until such remittances are possible but such
royalties shall accrue as an accounts payable by TITAN to HMRI. HMRI shall have
the right, upon giving written notice to TITAN, to receive payment in that
country in local currency.
9.5 Monetary conversions from the currency of a foreign country, in
which PRODUCT is sold, into United States currency shall be made by using the
exchange rates published in the Foreign Exchange column of The Wall Street
Journal, New York edition, or other qualified
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source mutually acceptable to the parties on the last business day of the
calendar quarter for which the royalties are being paid.
10. TERM AND TERMINATION
10.1 In the event the development of COMPOUND and PRODUCT is
terminated altogether by TITAN for reasons of toxicology, safety, efficacy,
product stability or the like deemed unacceptable by the FDA or its equivalent
ex-U.S. regulatory agency in the EUROPEAN UNION or Japan to commercialize
PRODUCT, then this License Agreement shall terminate in its entirety and the
license granted hereunder shall revert back to HMRI. HMRI shall retain all
upfront license fees and milestone payments it had received up to the date of
termination if, and only if, termination was not due to any misrepresentations,
omissions (of information owned or controlled by HMRI or its AFFILIATES as of
the date hereof) or falsifications with respect to such KNOW-HOW, information or
data or fraud by HMRI or its AFFILIATES, which case HMRI shall repay in full to
TITAN within ninety (90) days of such termination, the upfront license fee and
milestone payments HMRI had received from TITAN up to the date of such
termination (including in the form of TITAN common stock).
10.2 In the event the development of COMPOUND and PRODUCT is
terminated altogether by TITAN within one (1) year of the date this License
Agreement for reasons other than toxicology, safety, efficacy, product stability
or like issues deemed unacceptable by the FDA or its equivalent ex-U.S.
regulatory agency in the EUROPEAN UNION or Japan to commercialize PRODUCT, then
this License Agreement shall terminate in its entirety and the license granted
hereunder shall revert back to HMRI. HMRI shall retain all upfront license fees
it had received up
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The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
to the date of termination and TITAN shall also pay [ *
] penalty payment to HMRI if, and only if, termination was
not due to any misrepresentations, omissions (of information owned or controlled
by HMRI or its AFFILIATES as of the date hereof) or falsifications with respect
to KNOW-HOW, information or data or fraud by HMRI or its AFFILIATES, in which
case HMRI shall repay in full to TITAN, within ninety (90) days of such
termination, the upfront license fee and milestone payments HMRI had received
from TITAN up to the date of such termination (including in the form of TITAN
common stock).
10.3 Unless otherwise terminated, this License Agreement shall expire
on a country-by-country basis upon the expiration of TITAN'S obligation to pay
royalties under this License Agreement in each such country. Expiration of this
License Agreement under this provision shall not preclude TITAN, its AFFILIATES
and SUBLICENSEES from continuing directly or indirectly to manufacture, market
and sell COMPOUND and PRODUCT and to use KNOW-HOW without further royalty
payments.
10.4 In the event there is a change in the control of TITAN, TITAN
shall give HMRI thirty (30) days' written notice of such event and that the
development and commercialization of COMPOUND and PRODUCT will continue per the
terms of this License Agreement.
10.5 (a) If either party materially defaults in its performance of
this License Agreement and if such default is not corrected or if the party
in default is not exercising reasonably diligent efforts to cure such
default within ninety (90) days after receiving written notice from the
other party with respect to such default, or if such default is not
correctable within ninety (90) days then such other party shall have the
right to terminate this License
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Agreement at the end of such period in its entirety by giving written
notice to the party in default.
(b) In the event TITAN materially defaults in its performance
under this License Agreement with respect to a particular country, then,
subject to Section 11.4 hereof, HMRI's right to terminate shall be limited
to termination of the license granted hereunder in such country only.
10.6 (a) Subject to applicable bankruptcy laws, either party may
terminate this License Agreement if, at any time, the other party shall
file in any court pursuant to any statute of the United States or of any
individual state or foreign country, a petition in bankruptcy or insolvency
or for reorganization in bankruptcy or for an arrangement or for the
appointment of a receiver or trustee of the party or of its assets, or if
the other party shall be served with an involuntary petition against it,
filed in any insolvency proceeding, and such petition shall not be
dismissed within ninety (90) days after the filing thereof, or if the other
party shall propose or be a party to any dissolution, or if the other party
shall make an assignment for the benefit of creditors.
(b) Without limitation, TITAN's rights under this License
Agreement shall include those rights afforded by 11 U.S.C. Section 365 (n)
of the United States Bankruptcy Code and any successor thereto (the
"Code"). If the bankruptcy trustee of HMRI as a debtor or debtor-in-
possession rejects this License Agreement under 11 U.S.C. Section 365 (n)
of the Code, TITAN may elect to retain its rights licensed from HMRI
hereunder (and any other supplementary agreements hereto) for the duration
of this License Agreement and avail itself of all rights and remedies to
the full extent contemplated by this
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License Agreement and 11 U.S.C. Section 365 (n) of the Code, and any other
relevant sections of the Code and other relevant non-bankruptcy law.
11. RIGHTS AND DUTIES UPON TERMINATION
11.1 Upon termination of this License Agreement, HMRI shall have the
right to retain any sums already paid by TITAN hereunder, and TITAN shall pay
all sums accrued hereunder which are then due except as otherwise defined in
this License Agreement.
11.2 Upon early termination of this License Agreement in its entirety
under Sections 10.2 or 11.6 or with respect to any country, or due to a breach
hereof by TITAN, TITAN shall notify HMRI of the amount of COMPOUND and PRODUCT
that TITAN, its AFFILIATES and SUBLICENSEES then have on hand for sale in each
country, the sale of which would, but for the termination, be subject to
royalty, and TITAN, its AFFILIATES and SUBLICENSEES shall thereupon be
permitted to sell that amount of COMPOUND and PRODUCT, provided that TITAN shall
pay the royalty thereon to HMRI at the time herein provided for.
11.3 Expiration or termination of this License Agreement or
termination on a country-by-country basis shall terminate all outstanding
obligations and liabilities between the parties arising from this License
Agreement except those described in Sections 6.2 (with sole respect to HMRI
confidentiality), 6.3, 6.4, 6.5, 6.6, 6.8, 9.1, 9.2, 10.3, 11.1, 11.2, 11.4,
11.5, 11.6, 12.5, 12.6, 12.7, 14.1 and 14.2, and the terms of Appendix D, which
sections and appendix shall survive such termination. In addition, any other
provision required to interpret and enforce the parties' rights and obligations
under this License Agreement shall also survive, but only to the extent required
for the full observation and performance of the surviving obligations under this
License Agreement.
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11.4 Except as otherwise specifically provided for herein,
termination, in whole or in part, of the License Agreement in accordance with
the provisions hereof shall not limit remedies to the parties which may be
otherwise available in law or equity, including consequential, incidental or
indirect damages (such as loss of sales, profits, or goodwill) arising out of a
party's performance or non-performance under this License Agreement.
11.5 Subject to Section 11.2 and other express provisions hereof, upon
early termination of this License Agreement in its entirety due to breach hereof
by TITAN and pursuant to Sections 10.1, 10.2 or 11.6, TITAN's rights in COMPOUND
and PRODUCT shall cease, TITAN, its AFFILIATES and SUBLICENSEES shall cease
manufacture, development, marketing and sale of COMPOUND and PRODUCT in the
TERRITORY, and all originals and copies of KNOW-HOW, data, results and other
information collected and/or generated by TITAN, its AFFILIATES and SUBLICENSEES
relating to COMPOUND or PRODUCT prior to termination shall be delivered to HMRI
within thirty (30) days thereafter, except for one copy thereof which may be
retained in TITAN's legal files solely for the purpose of establishing the
extent of its obligations hereunder. Any IND or other regulatory filing
effected prior to termination shall be assigned by TITAN to HMRI (or its
designee(s)), at HMRI's request and expense, if not already assigned to HMRI.
TITAN shall provide to HMRI, within one (1) month of HMRI's request, copies of
all regulatory correspondence, including, but not limited to, IND Information
Amendments, IND Reports, IND Safety Reports, NDA submission, NDA Postmarketing
Reports, and reports of written/phone contacts to/from regulatory agencies, as
well as the safety database for PRODUCT.
11.6 If (a) TITAN is precluded from selling COMPOUND or PRODUCT in a
particular country(ies) in the TERRITORY by virtue of infringement of THIRD
PARTY patent rights, or (b) there is a holding of invalidity or unenforceability
of any PATENT, from which no
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further appeal can be taken, that materially affects TITAN's ability to
commercialize COMPOUND or PRODUCT in a particular country(ies) in the
TERRITORY, TITAN shall have the right (but not the obligation) to terminate
this License Agreement in such country(ies). At TITAN's option, this License
Agreement may be terminated in its entirety if the events described in
subsection (a) or (b) of this Section 11.6 occur in the United States, the
EUROPEAN UNION and/or Japan. Within ninety (90) days of any such
termination, HMRI shall repay to TITAN: (i) if the License Agreement has been
terminated in its entirety, all upfront license fees and milestone payments
(including in the form of TITAN common stock) it has received from TITAN up
to the date of termination and (ii) if the License Agreement has been
terminated only with respect to certain country(ies), the parties shall
negotiate in good faith what portion of the upfront license fees and
milestone payments HMRI has received from TITAN up to such date shall be
repaid to TITAN. If the parties are unable to agree on such portion within
ninety (90) days, the issue shall be submitted for determination by
arbitration in accordance with Section 14.2.
12. WARRANTIES, INDEMNIFICATIONS AND REPRESENTATIONS
12.1 (a) HMRI represents and warrants that to the best of its
knowledge at the date of this License Agreement, all currently issued or
pending patents and patent applications owned or controlled by HMRI or its
AFFILIATES claiming the COMPOUND or PRODUCT are listed in Appendix A. If
HMRI becomes aware of any patents or patent applications owned or
controlled by HMRI or its AFFILIATES claiming COMPOUND or PRODUCT or
manufacture, formulation or use thereof not listed in Appendix A and is
within the rights granted to TITAN in this License Agreement, such patents
and patent applications shall be added to Appendix A at no cost to TITAN.
HMRI further represents and warrants that HMRI owns or controls the entire
right, title and interest in PATENTS and
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KNOW-HOW, and HMRI has the legal power, right and authority to enter into
this License Agreement.
(b) TITAN represents and warrants that (i) TITAN has the legal
power, right and authority to issue its common stock to HMRI and when
issued, such stock shall be validly issued, fully paid and nonassessable,
and (ii) TITAN has the legal power, right and authority to enter into this
License Agreement.
12.2 Nothing in this License Agreement shall be construed as a
warranty that PATENTS are valid or enforceable or that their exercise does not
infringe any patent rights of THIRD PARTIES. HMRI hereby represents and
warrants that it has no present knowledge that (i) PATENTS are invalid or
unenforceable, (ii) the exercise of PATENTS infringes any patent rights of THIRD
PARTIES, and (iii) THIRD PARTY licenses are necessary for the development,
manufacture or commercialization of COMPOUND or PRODUCT. A holding of
invalidity or unenforceability of any PATENT, from which no further appeal is or
can be taken, shall not affect any obligation already accrued hereunder, but
shall only eliminate future royalties otherwise due under such PATENT from the
date such holding becomes final.
12.3 Each party represents to the other that it is not currently
debarred, suspended or otherwise excluded by any U.S. Government agencies from
receiving federal contracts.
12.4 TITAN agrees that during the term of this License Agreement TITAN
or an AFFILIATE or SUBLICENSEE shall not license, develop, have developed,
manufacture, have manufactured, sell or have sold any of the following compounds
or products classified as an atypical antipsychotic: (i.e. Olanzapine,
Sertindole, Seroquel, Ziprasadone, Risperidone); PROVIDED that such restriction
shall not apply within the EEA. In the event that TITAN or an AFFILIATE or
SUBLICENSEE undertakes any of the foregoing actions within the EEA, then HMRI
may not
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terminate this License Agreement or seek damages or equitable remedies
for such actions, but may at its option by notice to TITAN (i) terminate the
EXCLUSIVE nature of the licenses granted pursuant to Article 2 hereof in the
EEA, so that all use of PATENTS and KNOW-HOW in the EEA will thereafter be on a
non-exclusive basis at a reduced royalty rate to be negotiated at such time of
change in exclusivity, (ii) cease providing improvements to TITAN pursuant to
Section 2.1(c); and/or (iii) require TITAN to prove to HMRI's reasonable
satisfaction that the KNOW-HOW is not being used for such activities.
12.5 TITAN shall indemnify, defend and hold HMRI and its AFFILIATES
harmless from and against any and all liabilities, claims, demands, damages,
costs, expenses, fines, penalties or money judgments including without
limitation court costs and reasonable attorney's fees (hereinafter referred to
as "Liabilities"), during the term of this License Agreement and after its
expiration or termination, incurred by or rendered against HMRI and its
AFFILIATES which arise out of the clinical testing, use or labeling, or the
manufacture, processing, packaging, sale or distribution of COMPOUND or PRODUCT
(as the case may be) by TITAN its AFFILIATES and SUBLICENSEES, or the breach of
this License Agreement by TITAN (including without limitation any breach of
TITAN's representations and warranties under this License Agreement) or any
negligence or misconduct of TITAN, except to the extent that such Liabilities
are directly attributable to the breach of this License Agreement by HMRI
(including without limitation any breach of HMRI's representations or warranties
under this License Agreement) or any negligence or misconduct by HMRI. TITAN
shall also indemnify, defend and hold HMRI and its AFFILIATES harmless from and
against any and all Liabilities incurred by or rendered against HMRI and its
AFFILIATES which arise out of the COMPOUND or PRODUCT supplied by TITAN to HMRI
and for use pursuant to Section 2.1(c).
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12.6 HMRI shall indemnify, defend and hold TITAN, its AFFILIATES and
SUBLICENSEES harmless from and against any and all Liabilities (as defined in
Section 12.5 hereof), incurred by or rendered against TITAN, its AFFILIATES and
SUBLICENSEES, which arise out of the breach of this License Agreement by HMRI
(including without limitation any breach of HMRI's representations or warranties
under this License Agreement), or any negligence or misconduct by HMRI, except
to the extent that such Liabilities are directly attributable to the breach of
this License Agreement by TITAN (including without limitation any breach of
TITAN's representations and warranties under this License Agreement), or any
negligence or misconduct by TITAN. HMRI shall also indemnify, defend and hold
TITAN, its AFFILIATES and SUBLICENSEES harmless from and against any and all
Liabilities incurred by or rendered against TITAN and its AFFILIATES and
SUBLICENSEES which arise out of the manufacture, use or sale of COMPOUND and
PRODUCT that has been manufactured or sold by or on behalf of HMRI and its
AFFILIATES or SUBLICENSEES in those countries where TITAN's license rights
hereunder have been terminated (including the clinical testing, use and labeling
of PRODUCT and the manufacture, processing, packaging, sale or distribution of
PRODUCT by HMRI and its AFFILIATES and SUBLICENSEES); the manufacture, use or
sale of COMPOUND and PRODUCT that has been manufactured or sold by or on behalf
of HMRI and its AFFILIATES or SUBLICENSEES for uses outside the FIELD; human,
clinical studies (Phase I/II) conducted by or on behalf of HMRI and its
AFFILIATES prior to this License Agreement; the COMPOUND or PRODUCT supplied by
HMRI to TITAN under Article 7 hereof; use of COMPOUND or PRODUCT pursuant to
Section 2.1(c) other than for in vitro and lab animal studies.
53
<PAGE>
12.7 Each party shall give the other prompt notice in writing of any
claim or demand referred to in Sections 12.5 or 12.6. In addition, the
obligations of any indemnifying party shall be subject to the indemnified party
fulfilling the following obligations:
(a) With respect to third party claims, indemnified party shall
fully cooperate with the indemnifying party in the defense of such claim or
demand which defense shall be controlled by the indemnifying party; and
(b) With respect to third party claims, indemnified party shall
not, except at its own cost, voluntarily make any payment or incur any
expense with respect to any claim, demand or suit (including without
limitation retaining its own counsel) without the prior written consent of
the indemnifying party, which such party shall not be required to give.
13. FORCE MAJEURE
13.1 If the performance of any part of this License Agreement by
either party, or if any obligation under this License Agreement, is prevented,
restricted, interfered with or delayed by reason of any cause beyond the
reasonable control of the party required to perform, , the party so affected,
upon giving written notice and written evidence of such force majeure to the
other party, shall be excused from such performance to the extent of such
prevention, restriction, interference or delay, provided that the affected party
shall use its reasonable commercial efforts to avoid or remove such causes of
non-performance and shall continue performance with the utmost dispatch whenever
the force majeure is removed. In the event of a force majeure, the parties
shall also discuss whether modification of the terms of this License Agreement
are necessary to alleviate the hardship or loss caused by the force majeure.
14. GOVERNING LAW AND ARBITRATION
54
<PAGE>
14.1 This License Agreement shall be deemed to have been made in the
State of New York and its form, execution, validity, construction and effect
shall be determined in accordance with the laws of the State of New York
(without regard to New York's or any other jurisdiction's choice of law
principles).
14.2 In the event of any controversy or claim arising out of or
relating to any provision of this License Agreement, the parties shall try to
settle their differences amicably between themselves. Any unresolved disputes
arising between the parties relating to, arising out of or in any way connected
with this License Agreement or any term or condition hereof, or the performance
by either party of its obligations hereunder, whether before or after
termination of this License Agreement, shall be resolved by final and binding
arbitration. Whenever a party shall decide to institute arbitration
proceedings, it shall give written notice to that effect to the other party.
Except in the case of a determination to be made where payments are to be made
to by one party to the other, the party giving such notice shall refrain from
instituting the arbitration proceedings for a period of sixty (60) days
following such notice to allow the parties time to further attempt to come to an
amicable resolution of the dispute. Arbitration shall be held in New York City,
New York according to the commercial rules of the American Arbitration
Association ("AAA"). The arbitration will be conducted by a panel of three
arbitrators appointed in accordance with AAA rules; provided, however, that each
party shall within thirty (30) days after the institution of the arbitration
proceedings appoint a party arbitrator, and the party-arbitrators shall select a
neutral arbitrator, to be chairman of the arbitration panel, within thirty (30)
days thereafter. If the party-arbitrators are unable to select a neutral within
such period, the neutral shall be appointed in accordance with AAA rules. All
arbitrator(s) eligible to conduct the arbitration must agree to render their
opinion(s) within thirty (30) days of the final arbitration hearing. No
arbitrator (nor the panel
55
<PAGE>
of arbitrators) shall have the power to award punitive damages under this
License Agreement and such award is expressly prohibited. Decisions of the
arbitrator(s) shall be final and binding on all of the parties. Judgment on
the award so rendered may be entered in a court having jurisdiction thereof.
In any arbitration pursuant to this License Agreement, the arbitrators shall
interpret the express terms hereof and apply the laws of the State of New
York. The losing party to the arbitration as determined by the arbitrators
shall pay the costs of arbitration.
15. SEPARABILITY
15.1 In the event any portion of this License Agreement not material
to the remaining portions shall be held illegal, void or ineffective, the
remaining portions hereof shall remain in full force and effect.
15.2 If any of the terms or provisions of this License Agreement are
in conflict with any applicable statute or rule of law, then such terms or
provisions shall be deemed inoperative to the extent that they may conflict
therewith and shall be deemed to be modified to conform with such statute or
rule of law.
15.3 In the event that the terms and conditions of this License
Agreement are materially altered as a result of Sections 15.1 or 15.2, the
parties shall renegotiate the terms and conditions of this License Agreement so
as to accomplish as nearly as possible the original intentions of the parties.
16. ENTIRE AGREEMENT
16.1 This License Agreement and the Appendices attached hereto,
entered into as of the date written above, constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes all
previous writings and understandings, including without limitation the Letter of
Intent between the parties, dated November 19, 1995 (except for Article II.A.
thereof,
56
<PAGE>
which shall remain in effect), and the Confidential Disclosure Agreement
between the parties, dated June 26, 1996. No terms or provisions of this
License Agreement shall be varied or modified by any prior or subsequent
statement, conduct or act of either of the parties, except that the parties
may amend this License Agreement by written instruments specifically
referring to and executed in the same manner as this License Agreement.
17. NOTICES
17.1 Any notice required or permitted under this License Agreement
shall be in writing and in English and shall be sent by airmail, postage pre-
paid, or facsimile or courier to the following address of each party or to such
other address as may be designated in writing by the respective parties:
If to HMRI: Hoechst Marion Roussel, Inc.
Route 202-206
P.O. Box 6800
Bridgewater, NJ 08807-0800
Attention: Andrew J. Gorman
Director, Licensing and Alliances
Telephone: (908) 231-3166
Facsimile: (908) 231-3730
With copies to: Hoechst Marion Roussel, Inc.
10236 Marion Park Drive
Kansas City, Missouri
Attention: Vice President, General
Counsel, North America
Telephone: (816) 966-4072
Facsimile: (816) 966-2756
and
Hoechst Marion Roussel, Inc.
Bridgewater Center
Route 202-206
Bridgewater, New Jersey 08807-0800
Attention: Vice President, General Counsel
Telephone: (908) 231-3537
Facsimile: (908) 231-2243
57
<PAGE>
If to TITAN: Titan Pharmaceuticals. Inc.
400 Oyster Point Blvd., Suite 505
South San Francisco, CA 94080
Attention: Dr. Louis R. Bucalo, M.D.
President & CEO
Telephone: (415) 244-4990
Facsimile: (415) 244-4956
With copies to: Titan Pharmaceuticals, Inc.
400 Oyster Point Blvd., Suite 505
South San Francisco, CA 94080
Attention: Sunil R. Bhonsle
Executive V.P. & COO
Telephone: (415) 244-4990
Facsimile: (415) 244-4956
and
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301-1900
Attention: Neil Flanzraich, Esq.
Telephone: (415) 324-7118
Facsimile: (415) 324-0638
17.2 Any notice required or permitted to be given concerning this
License Agreement shall be effective upon receipt by the party to whom it is
addressed.
18. ASSIGNMENT
18.1 This License Agreement or any portions thereof and the licenses
herein granted shall be binding upon and inure to the benefit of the successors
in interest and assignees of the respective parties.
18.2 TITAN may assign this License Agreement to an AFFILIATE and in
such event TITAN will continue to guarantee the obligations of such AFFILIATE
hereunder, unless otherwise approved by HMRI, which approval shall not be
unreasonably withheld. TITAN may also assign this License Agreement to a
special purpose accelerated research corporation (SPARC), or
58
<PAGE>
similar entity in which TITAN retains rights to reacquire all or a majority
of the special purpose corporation or rights provided for under the License
Agreement or retains the primary responsibility for completing the
development and/or commercialization of COMPOUND and/or PRODUCT.
18.3 In the event of a consolidation, merger or acquisition which
involves a change in the control of TITAN, the License Agreement shall remain in
full force and effect, and TITAN agrees to notify HMRI pursuant to Section 10.4.
Consolidation, mergers and/or acquisitions to which TITAN is a party which do
not involve a change in control of TITAN shall not require such notice.
18.4 In order for any assignment by TITAN of this License Agreement
(which is permitted by this License Agreement) to be valid, the assignee of such
assignment shall assume and agree to be bound by the provisions hereof.
19. FAILURE TO ENFORCE
19.1 The failure of either party to enforce at any time any provisions
hereof shall not be construed to be a waiver of such provision nor of the right
of such party thereafter to enforce each and every such provision.
20. NO AGENCY
20.1 Except as expressly set forth in this License Agreement, nothing
in this License Agreement authorizes either party to act as agent for the other
or, as to any third party, to indicate or imply the existence of any such agency
relationship. The relationship between the parties is that of independent
contractors.
21. FURTHER ASSURANCES
59
<PAGE>
21.1 Each party hereto agrees to execute, acknowledge and deliver such
further instruments, and to do all such other acts, as may be necessary or
appropriate in order to carry out the purposes and intent of this License
Agreement.
22. CAPTIONS
22.1 Captions are inserted for convenience only and in no way are to
be construed to define, limit or affect the construction or interpretation
hereof.
23. MISCELLANEOUS
23.1 Both parties agree to discuss matters arising during the term of
this License Agreement in the spirit of cooperation and good faith and endeavor
to resolve any differences by mutual agreement whenever possible. If the
parties fail to reach agreement, either party may submit the matter for
resolution pursuant to Section 14.2.
23.2 TITAN covenants to HMRI that during the term of this License
Agreement TITAN, its AFFILIATES and SUBLICENSEES shall not violate the Federal
Foreign Corrupt Practices Act in the performance of its negotiations hereunder.
IN WITNESS WHEREOF, the parties, through their authorized officers,
have executed this License Agreement as of the date first written above.
HOECHST MARION ROUSSEL INC. TITAN PHARMACEUTICALS, INC.
By: /s/ By: /s/
----------------------------- ---------------------------
Name: Michael A. Yeomans, Ph.D. Name: Louis R. Bucalo, M.D.
Title: Vice President, Licensing Title: President & CEO
and Alliances
60
<PAGE>
Appendix A
PATENTS AND PATENT APPLICATIONS (PER SECTION 1.12)
<TABLE>
<CAPTION>
PATENT FILING PATENT ISSUE EXPIRATION
COUNTRY APPL. NO. DATE TYPE STATUS NO. DATE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
US 07/354,411 05/19/89 abandoned
- ----------------------------------------------------------------------------------------------------------
US 07/456,790 12/29/89 CIP + abandoned
- ----------------------------------------------------------------------------------------------------------
EP 90/09208.0 05/16/90 granted 0 402 644 B1 08/16/95 05/16/2010
- ----------------------------------------------------------------------------------------------------------
Austria 55770/90 05/22/90 issued 640,653 09/02/93 05/22/2010
- ----------------------------------------------------------------------------------------------------------
Canada 2,017,193-6 05/18/90
- ----------------------------------------------------------------------------------------------------------
China 90103721.4 05/19/90
- ----------------------------------------------------------------------------------------------------------
Czech Republic 2425-90 05/17/90
- ----------------------------------------------------------------------------------------------------------
Finland 902449 05/17/90
- ----------------------------------------------------------------------------------------------------------
Hungary 3090/90 05/18/90
- ----------------------------------------------------------------------------------------------------------
Israel 94425 05/17/90
- ----------------------------------------------------------------------------------------------------------
Japan 127090/90 05/18/90 issued 1931594 02/16/95 05/18/2010
- ----------------------------------------------------------------------------------------------------------
Korea 90/7102 05/18/90
- ----------------------------------------------------------------------------------------------------------
Mexico 20787 05/18/90
- ----------------------------------------------------------------------------------------------------------
Norway P902214 05/18/90 177301 08/23/95 05/18/2010
- ----------------------------------------------------------------------------------------------------------
Philippines 40530 05/17/90
- ----------------------------------------------------------------------------------------------------------
Poland P-285247 05/18/90 163965 12/09/93
- ----------------------------------------------------------------------------------------------------------
Russia 4743876/04 05/18/90
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
US 07/619,825 11/29/90 continuation abandoned
- ----------------------------------------------------------------------------------------------------------
US 07/944,705 09/05/91 continuation abandoned
- ----------------------------------------------------------------------------------------------------------
US 07/788,269 11/05/91 CIP abandoned
- ----------------------------------------------------------------------------------------------------------
US 07/969,383 10/30/92 CIP issued 5,364,866 11/15/94 11/15/2011
- ----------------------------------------------------------------------------------------------------------
PCT 92/09276 11/04/92 WO/93/09102
- ----------------------------------------------------------------------------------------------------------
EP 92/924151.1 11/04/92
- ----------------------------------------------------------------------------------------------------------
EP (PT) 92/118992.5 11/05/92
- ----------------------------------------------------------------------------------------------------------
Austria 30570/92 11/04/92
- ----------------------------------------------------------------------------------------------------------
Belarus 1715 11/04/92
- ----------------------------------------------------------------------------------------------------------
Canada 2,121,253 11/04/92
- ----------------------------------------------------------------------------------------------------------
Czech Republic PV 1102-94 11/04/92
- ----------------------------------------------------------------------------------------------------------
Finland 942052 11/04/92
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PATENT FILING PATENT ISSUE EXPIRATION
COUNTRY APPL. NO. DATE TYPE STATUS NO. DATE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Georgia 001977 11/04/92
- ----------------------------------------------------------------------------------------------------------
Hungary P9401316 11/04/92
- ----------------------------------------------------------------------------------------------------------
Israel 103622 11/03/92
- ----------------------------------------------------------------------------------------------------------
Japan 5-508591 11/04/92
- ----------------------------------------------------------------------------------------------------------
Korea 94-701524 11/04/92
- ----------------------------------------------------------------------------------------------------------
Kazakhstan 941593.1 11/04/92
- ----------------------------------------------------------------------------------------------------------
Mexico 926370 11/05/92
- ----------------------------------------------------------------------------------------------------------
Norway 941647 11/04/92
- ----------------------------------------------------------------------------------------------------------
New Zealand 245006 11/03/92 245006 05/17/96 11/03/2012
- ----------------------------------------------------------------------------------------------------------
Philippines 45259 11/12/92
- ----------------------------------------------------------------------------------------------------------
Poland P-303452 11/04/92
- ----------------------------------------------------------------------------------------------------------
Romania 9400761 11/04/92
- ----------------------------------------------------------------------------------------------------------
Russia 94028105.04 11/04/92
- ----------------------------------------------------------------------------------------------------------
Slovak Republic PV 0456-94 11/04/92
- ----------------------------------------------------------------------------------------------------------
Taiwan 81108831 11/05/92
- ----------------------------------------------------------------------------------------------------------
Uzbekistan 9500706.1 11/04/92
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
US 08/144,265 10/28/93 CIP abandoned
- ----------------------------------------------------------------------------------------------------------
US 08/309,395 09/20/94 CIP** pending
- ----------------------------------------------------------------------------------------------------------
US 08/329,000* 10/25/94 CIP** allowed
- ----------------------------------------------------------------------------------------------------------
US 08/468,611 06/06/95 DIV** pending
- ----------------------------------------------------------------------------------------------------------
PCT 94/12054 10/27/94 WO95/11680
- ----------------------------------------------------------------------------------------------------------
Canada 94/12054 10/27/94
- ----------------------------------------------------------------------------------------------------------
China 94194302.X 10/27/94
- ----------------------------------------------------------------------------------------------------------
Czech Republic PV 1238-96 10/27/94
- ----------------------------------------------------------------------------------------------------------
Hungary P/P 00576 06/29/95 211,853 11/05/95 06/29/2015
- ----------------------------------------------------------------------------------------------------------
Indonesia 951058 06/08/95
- ----------------------------------------------------------------------------------------------------------
Ireland 94/12054 10/27/94
- ----------------------------------------------------------------------------------------------------------
Israel 111,498 10/27/94
- ----------------------------------------------------------------------------------------------------------
Japan 512724/1995 10/27/94
- ----------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PATENT FILING PATENT ISSUE EXPIRATION
COUNTRY APPL. NO. DATE TYPE STATUS NO. DATE DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Korea 96-702162 10/27/94
- ----------------------------------------------------------------------------------------------------------
Mexico 94 8405 10/27/94
- ----------------------------------------------------------------------------------------------------------
Norway p961686 10/27/94
- ----------------------------------------------------------------------------------------------------------
New Zealand 275941 10/27/94
- ----------------------------------------------------------------------------------------------------------
Poland P314135 10/27/94
- ----------------------------------------------------------------------------------------------------------
Romania 96-00888 10/27/94
- ----------------------------------------------------------------------------------------------------------
Russia 96110214 10/27/94
- ----------------------------------------------------------------------------------------------------------
Taiwan 83110396 11/10/94
- ----------------------------------------------------------------------------------------------------------
South Africa 95/2653 10/28/94
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*subject to a 60 way restriction requirement; 329,000 survived as one
to the 60 divisionals
**pending as one of the 60 divisionals
+ CIP (Continuation-in-part)
A-3
<PAGE>
APPENDIX B
MAJOR METABOLITES (PER SECTION 1.5)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
COMPOUND NO. NAME R1 R2 R3
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
P88 8991 4-[3-[4-(6-fluoro-1,2-benzisoxazol-3-yl)-1- H CH(OH)CH3 OCH3
piperidinyl]propoxy]-3-methoxy- A-methyl-
benzenemethanol
P89 9124 1-[4-[3-[4-(6-fluoro-1,2-benzisoxazol-3-yl)- H C(O)CH3 OH
1-piperidinyl]propoxy]-3-hydroxyphenyl]-
ethanone
P94 11840 1-[4-[3-[4-(6-fluoro-1,2-benzisoxazol-3-yl)- H C(O)CH2OH OCH3
1-piperidinyl]propoxy]-3-methoxyphenyl]-2-
hydroxyethanone
P89 9430 4-[3-[4-(6-fluoro-1,2-benzisoxazol-3-yl)-1-
piperidinyl]propoxy]-3-hydroxy-a-
methylbenzenemethanol H CH(OH)CH3 OH
P94 11677 4-[3-[4-(6-fluoro-1,2-benzisoxazol-3-yl)-1- OH CH(OH)CH3 OCH3
piperidinyl]propoxy]-2-hydroxy-5-methoxy-
a-methylbenzenemethanol
P94 11679 1-[4-[3-[4-(6-fluoro-1,2-benzisoxazol-3-yl)-
1-piperidinyl]propoxy]-2-hydroxy-5-
methoxyphenyl]ethanone OH C(O)CH3 OCH3
P94 11702 1-[4-[3-[4-(6-fluoro-1,2-benzisoxazol-3-yl)-
1-piperidinyl]propoxy]-2,5-
dihydroxyphenyl]-ethanone OH C(O)CH3 OH
</TABLE>
<PAGE>
The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
APPENDIX C
[ * ]
<PAGE>
APPENDIX D
STOCK REGISTRATION RIGHTS GRANTED BY TITAN TO HMRI
(PER SECTION 3.1)
1. DEFINITIONS.
As used in this Appendix D:
(a) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(b) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(c) "HMRI" means Hoechst Marion Roussel, Inc.
(d) "LICENSE AGREEMENT" means the Worldwide License Agreement between
Hoechst Marion Roussel, Inc., and Titan Pharmaceuticals, Inc., effective
December 31, 1996.
(e) "REGISTRABLE SECURITIES" means the Common Stock of TITAN issuable or
issued to HMRI pursuant to the LICENSE AGREEMENT or in exchange for or in
replacement of any of such shares.
(f) "SEC" means the United States Securities and Exchange Commission.
(g) "TITAN" means Titan Pharmaceuticals, Inc.
2. DEMAND REGISTRATION
If at any time at least eight (8) months after the date HMRI becomes
entitled to receive any REGISTRABLE SECURITIES pursuant to the License
Agreement, HMRI requests in writing that any shares of such REGISTRABLE
SECURITIES be registered under the SECURITIES ACT for resale to the public by
HMRI, TITAN shall take all necessary action to effect such registration in
accordance with the provisions of this Appendix; provided, however, that TITAN
shall not be required to cause any such registration to become effective as to
any specific REGISTRABLE SECURITIES sooner than nine (9) months after the date
HMRI becomes entitled to receive such REGISTRABLE SECURITIES.
TITAN's obligation to effect a registration pursuant to this Section 2
shall be limited to a total of three occasions, once for each payment by TITAN
of a license fee under the License Agreement, which is comprised, in part, of
REGISTRABLE SECURITIES.
<PAGE>
APPENDIX D (Cont.)
3. TITAN REGISTRATION
If (but without any obligation to do so) TITAN proposes to register
(including for this purpose a registration effected by TITAN for stockholders
other than HMRI) any of its stock or other securities under the SECURITIES ACT
in connection with the public offering of such securities (other than a
registration relating solely to the sale of securities to participants in a
Company plan for employees, a registration relating solely to a Rule 145
transaction, a registration on any form which does not include substantially
the same information as would be required to be included in a registration
statement for the sale of the REGISTRABLE SECURITIES or a registration in which
the only Common Stock being registered is Common Stock issuable upon conversion
of debt securities which are also being registered), TITAN shall, at such time,
promptly give HMRI written notice of such registration. Upon HMRI's request
given within twenty (20) days after mailing of such notice by TITAN, TITAN
shall, subject to the provisions of Section 8, cause to be registered under the
SECURITIES ACT all of the REGISTRABLE SECURITIES that HMRI requests be included
in such registration.
4. OBLIGATIONS OF TITAN
Whenever required under this Appendix to effect the registration of any
REGISTRABLE SECURITIES, TITAN shall, as expeditiously as reasonably possible:
(a) Not more than 30 days after receiving a registration request under
Section 2 hereof, prepare and file with the SEC a registration statement on Form
S-3 (or another applicable Form if TITAN is ineligible to use Form S-3) to
register the offering and sale of such REGISTRABLE SECURITIES on a delayed or
continuous basis under SEC Rule 415 and to use its best efforts to cause such
registration statement to become effective as promptly as possible and to remain
effective until all shares registered thereby either have been sold or
surrendered to TITAN pursuant to Section 3.1 of the License Agreement, or have
become eligible for sale within a three-month period pursuant to the provisions
of SEC Rule 144.
Notwithstanding the foregoing, TITAN may defer for an additional thirty
(30) days the filing of any registration statement provided for under Section 2
hereof if the Board of Directors of TITAN, in its good faith judgment made after
receipt of HMRI's request for registration, determines that it would be
seriously detrimental to TITAN and its shareholders to effect the registration
at that time. In any such case, TITAN shall furnish to HMRI a certificate
signed by the President of TITAN setting forth the Board's determination. The
Company shall not utilize this deferral right more than once annually, and any
exercise of this right by TITAN shall not extend the time period during which
the proceeds of sales of REGISTRABLE SECURITIES are offset against TITAN's
obligations to make cash payments to HMRI under Section 3.1 of the LICENSE
AGREEMENT.
D-2
<PAGE>
APPENDIX D (Cont.)
(b) Prepare and file with the SEC such amendments and supplements to any
registration statement hereunder and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
SECURITIES ACT with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to HMRI such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the SECURITIES
ACT, and such other documents as HMRI may reasonably request in order to
facilitate the disposition of the REGISTRABLE SECURITIES.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by HMRI; provided that TITAN
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service a process in any
such states or jurisdictions, unless TITAN is already subject to service in such
jurisdiction and except as may be required by the SECURITIES ACT.
(e) In the event of any underwritten public offering under Section 3,
enter into and perform its obligations under an underwriting agreement, in the
usual and customary form, with the managing underwriter of the offering. HMRI
shall also enter into and perform its obligations under such an agreement.
(f) During any period when a prospectus relating thereto is required to be
delivered under the SECURITIES ACT, notify HMRI promptly of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes any untrue statement of a material fact
or omits to state a material fact required to be stated therein or any fact
necessary to make the statements therein not misleading in the light of the
circumstances then existing. Upon receipt of such notification, HMRI shall
forthwith discontinue disposition of REGISTRABLE SECURITIES pursuant to the
registration statement covering the same until receipt of a supplemental or
amended prospectus from TITAN, and, if so directed by TITAN, deliver to TITAN at
TITAN's expense all copies in HMRI's possession of the prospectus covering
REGISTRABLE SECURITIES that was in effect prior to the amendment or
supplementation.
(g) Cause all REGISTRABLE SECURITIES registered pursuant hereto to be
listed on each securities exchange (or listed for quotation on each automated
quotation system such as the NASDAQ Stock Market) on which similar securities
issued by TITAN are then listed.
(h) Provide a stock transfer agent and registrar for all REGISTRABLE
SECURITIES registered hereunder and a CUSIP number for all such REGISTRABLE
SECURITIES, in each case not later than the effective date of such registration.
D-3
<PAGE>
APPENDIX D (Cont.)
5. FURNISH INFORMATION
It shall be a condition precedent to the obligations of TITAN to take any
action pursuant to this Appendix with respect to any REGISTRABLE SECURITIES that
HMRI shall furnish to TITAN in writing (and stated to be specifically for
inclusion in the related registration statement or prospectus) such information
regarding itself, the REGISTRABLE SECURITIES, and the intended method of
disposition of such securities as shall be required to effect the registration
of such REGISTRABLE SECURITIES and to permit TITAN to comply with all applicable
requirements of the SEC, any blue sky laws or other applicable legal
requirements.
6. EXPENSES OF REQUESTED REGISTRATION
All expenses other than brokerage commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 2 hereof, including
(without limitation) all registration, filing and qualification fees, printing
and accounting fees, and the fees and disbursements of counsel for TITAN, shall
be borne by TITAN; provided, however, that TITAN shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 2 if
the registration request is subsequently withdrawn at the request of HMRI, in
which case HMRI shall bear such expenses unless such withdrawal is based upon
material adverse information relating to TITAN that is different from
information known or available (upon request from TITAN or otherwise) to HMRI at
the time of HMRI's request for registration.
7. EXPENSES OF COMPANY REGISTRATION
The Company shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of REGISTRABLE SECURITIES pursuant to
Section 3 hereof, including (without limitation) all registration, filing, and
qualification fees, printing and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of outside counsel for HMRI,
but excluding underwriting discounts and commissions relating to REGISTRABLE
SECURITIES.
8. UNDERWRITING REQUIREMENTS
In connection with any offering under Section 3 hereof involving an
underwriting of shares of TITAN's capital stock, TITAN shall not be required to
include any of HMRI's REGISTRABLE SECURITIES in such underwriting unless HMRI
accepts the terms of the underwriting as agreed upon between TITAN and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by TITAN.
If the total amount of securities, including REGISTRABLE SECURITIES, requested
by stockholders to be included in such offering exceeds the amount of securities
sold other than by TITAN that the underwriters determine in their sole
discretion is compatible with the success of the offering, then TITAN shall be
required to include
D-4
<PAGE>
APPENDIX D (Cont.)
in the offering only that number of such securities, including REGISTRABLE
SECURITIES, that the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by
such selling stockholders). For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder that is a partnership
or corporation, the partners, retired partners and stockholders of such
holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall
be deemed a single "selling stockholder", and any pro-rata reduction with
respect to such "selling stockholder" shall be based upon the aggregate
amount of shares carrying registration rights owned by all entities and
individuals included in such "selling stockholder", as defined in this
sentence.
9. DELAY OF REGISTRATION
HMRI shall not have any right to obtain or seek an injunction restraining
or otherwise delaying any registration under Section 3 hereof as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Appendix.
10. INDEMNIFICATION
In the event any REGISTRABLE SECURITIES are included in a registration
statement under this Appendix:
(a) To the extent permitted by law, TITAN will indemnify and hold harmless
HMRI and each person, if any, who controls HMRI within the meaning of the
SECURITIES ACT or the EXCHANGE ACT, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
SECURITIES ACT or the EXCHANGE ACT, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein and any amendments and
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or a fact necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by TITAN of the SECURITIES ACT, the EXCHANGE ACT, or any rule or regulation
promulgated under the SECURITIES ACT or the EXCHANGE ACT, and TITAN will pay to
HMRI and any such controlling person, as incurred, any legal or other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 10 shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of TITAN (which consent shall
D-5
<PAGE>
APPENDIX D (Cont.)
not be unreasonably withheld), nor shall TITAN be liable in any such case for
any such loss, claim damage, liability, or action to the extent that it
arises out of or is based upon a violation that occurs in reliance upon and
in conformity with written information furnished expressly for use in
connection with such registration by HMRI or any such controlling person.
(b) To the extent permitted by law, HMRI will indemnify and hold harmless
TITAN, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls TITAN within the
meaning of the SECURITIES ACT or the EXCHANGE ACT, any underwriter, any other
stockholder selling securities under such registration statement, and any
controlling person of any such underwriter or other stockholder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject under the SECURITIES ACT or the EXCHANGE
ACT insofar as such losses, claims, damages, or liability (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by HMRI expressly for use in
connection with such registration; and HMRI will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended be indemnified
pursuant to this subsection 10(b) in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 10(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of HMRI, which consent shall
not be unreasonably withheld; provided, that, in no event shall HMRI's liability
under this subsection 10(b) exceed the gross proceeds from the offering received
by HMRI.
(c) Promptly after receipt by an indemnified party under this Section 10
of notice of the commencement of any action including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 10, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
who may be represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interest between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 10, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 10.
D-6
<PAGE>
APPENDIX D (Cont.)
(d) If the indemnification provided for in this Section 10 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with any underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of TITAN and HMRI under this Section 10 shall survive
the completion of any offering of REGISTRABLE SECURITIES in a registration
statement under this Appendix, and otherwise.
11. ASSIGNMENT OF REGISTRATION RIGHTS
The rights to cause TITAN to register REGISTRABLE SECURITIES pursuant to
this Appendix may be assigned (but only with all related obligations) by HMRI to
a transferee or assignee of such securities who, after such assignment or
transfer, holds at least 500,000 shares of REGISTRABLE SECURITIES (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (a) TITAN is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Appendix, including without limitation the provisions of Section 12 below; and
(c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the SECURITIES ACT.
12. MARKET STANDOFF AGREEMENT
HMRI hereby agrees that, during the period of duration specified by TITAN
and an underwriter of common stock or other securities of TITAN, following the
effective date of a registration
D-7
<PAGE>
statement of TITAN filed under the SECURITIES ACT, HMRI shall not, to the
extent requested by TITAN and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including without limitation, any short
sale), grant any option to purchase, or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of
TITAN held by HMRI at any time during such period except common stock
included in such registration; provided, however:
(a) that such market stand-off time period shall not exceed 90 days
following the effective date of TITAN's registration statement to which it
relates; and
(b) all officers and directors of TITAN and all five percent (5%) or
greater stockholders of TITAN enter into substantially similar agreements.
In order to enforce the foregoing covenant, TITAN may impose stop-transfer
instructions with respect to the REGISTRABLE SECURITIES (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
Notwithstanding the foregoing. the obligations described in this Section 12
shall not apply to a registration relating solely to employee benefit plans on
Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or
a registration relating solely to an SEC Rule 145 transaction on Form S-4 or
similar forms that may be promulgated in the future.
13. TERMINATION OF REGISTRATION RIGHTS
The right of HMRI to request registration or inclusion in any registration
pursuant to this Appendix shall terminate when all payments required to be made
under Section 3.1 of the LICENSE AGREEMENT have been made by TITAN and all
shares of REGISTRABLE SECURITIES held by HMRI may be sold immediately under SEC
Rule 144 during any three-month period.
D-8
<PAGE>
The information below marked by * and [ ] has been omitted pursuant to a
request for confidential treatment. The omitted portion has been separately
filed with the Commission.
APPENDIX E
[ * ]
<PAGE>
APPENDIX F
HMRI DEVELOPMENT ACTIVITY TO EXTEND BEYOND THE
TRANSITION PERIOD (PER SECTION 6.1)
1. HMRI Review of Final Toxicology Report(s) as Noted:
Title / Description Estimated Target Date
------------------- ---------------------
Oral 24-month carcinogenicity study in mouse 4th Quarter 1997
Oral 24-month carcinogenicity study in rat 3rd Quarter 1997
2. HMRI Assisting TITAN's Production and Manufacturing (pursuant to
Article 7):
A. HMRI production and manufacturing staff shall be available to meet
with TITAN and its THIRD PARTY contract manufacturer to discuss the
efficient transfer of technology and KNOW-HOW necessary for the
manufacture of COMPOUND and PRODUCT (pursuant to Section 7.1).
B. By a time frame to be determined by January 30, 1997 (and agreed to by
TITAN), HMRI shall carry out, in accordance with FDA standards,
activities to qualify the HMR-Frankfurt production site as a GMP
production site to allow for commercial use of the currently available
bulk substance. HMRI and TITAN will meet to define together those
technical activities necessary to qualify the bulk substance for
commercial use and to develop a plan to complete those activities.
C. HMRI shall provide the necessary C/M/C, production and manufacturing
documents to support the NDA or an equivalent foreign submission by
TITAN or its SUBLICENSEE.
3. Transfer of Supplies of Drug Substance, Bulk Tablets and Packaged
Tablets of Product (pursuant to Article 7).
Supplies of drug substance, bulk tablets and packaged tablets of
PRODUCT as specified by TITAN (Section 7.1(a)) shall be made available and
transferred by HMRI to TITAN or to a THIRD PARTY, as specified by TITAN.
The physical shipment of these supplies shall occur once TITAN has notified
HMRI in writing that TITAN has contracted with a THIRD PARTY manufacturer,
has secured adequate storage space for storing tablets and has notified the
FDA that TITAN will be the sponsor of the IND.
<PAGE>
APPENDIX F (Continued)
4. Exchange of Information (pursuant to Section 6.1).
HMRI shall promptly notify all HMRI (and/or AFFILIATES) employees to retain
and make available to TITAN existing reports, files and information
directly related and deemed necessary for the development of COMPOUND or
PRODUCT.
5. HMRI shall archive all non-clinical drug screening documentation not
transferred to TITAN.
F-2
<PAGE>
APPENDIX G
SPECIAL COUNTRIES IN TERRITORY REGARDING
HMRI'S PATENT PROTECTION (PER SECTION 8.2)
United States
PCT
Australia Brazil
Canada Bulgari
China Kazakhstan
Czech Republic
EPO
Austria Belgium Iceland
Denmark Finland
France Germany
Great Britain Greece
Ireland Italy
Latvia Lithuania
Luxembourg Monaco
Netherlands Portugal
Slovenia Spain
Sweden Switzerland with Liechtenstein
Estonia Turkey
Hungary Romania
Israel Singapore
Japan Ukraine
Mexico
New Zealand
Norway
Poland
Russian
Slovakia
South Korea
Non-PCT
Argentina
South Africa
Taiwan
Egypt
Chile
Venezuela
Indonesia
Saudi Arabia
Philippines
<PAGE>
APPENDIX G (Continued)
Thailand
India
Hong Kong
Malaysia
G-2
<PAGE>
[LOGO] TITAN PHARMACEUTICALS INC.
August 9, 1996
PERSONAL AND CONFIDENTIAL
Mr. Robert E. Farrell
41 Thunderbird Drive
Novato, CA 94949
Dear Bob:
It is with great pleasure that I would like to offer you the position of
Executive Vice President and Chief Financial Officer of Titan
Pharmaceuticals, Inc. This letter will serve to confirm the terms of your
employment with Titan, such employment to begin September 16, 1996. If the
terms discussed below are acceptable to you, please sign this confirmation
letter where indicated and return it to me, retaining a copy for your
records. As used herein, the term "Company" refers to Titan Pharmaceuticals,
Inc.
1. COMPENSATION.
(a) SALARY. You will be paid a monthly salary of $15,416.67, less
applicable withholdings ($185,000.00 annually) with a performance bonus of
0-20% based upon company performance and an annual review. All reasonable
business expenses will be reimbursed so long as they are incurred in the
ordinary course of business. You will be entitled to annual increases in your
salary in accordance with Company policies at such time, in addition to an
automatic cost of living increase based upon the rate of increase of the
consumer price index. If any profit sharing plan is implemented for
employees, you will be appropriately included in such plan.
(b) STOCK OPTIONS. Effective September 16, 1996, you will receive
stock options to acquire 150,000 shares of Titan's Common Stock. All options
granted will invest monthly over a five (5) year period, at a rate of twenty
percent (20%) per year, subject to a requirement of at least 12 months of
employment for vesting of any options. The option price will be the fair
market price at the starting date of your employment. You will also be
eligible for additional stock option bonuses based upon outstanding
performance, as determined by the Board of Directors.
1 of 4
<PAGE>
Robert E. Farrell
Auygust 9, 1996
In the event of sale or transfer of substantially all of the assets of
Titan, your options will automatically accelerate immediately prior to such
event such that 100% of the option shares will be exercisable.
(c) HEALTH BENEFITS. Health insurance coverage for you and your
family will be provided under the Company's group health plan. You will be
entitled to all health and medical benefits as are provided to other
employees. In addition, you will be entitled to participate in the Company's
401k plan and all other sponsored employee benefit plans as they are adopted
by Titan.
(d) VACATION, HOLIDAYS AND SICK LEAVE. You will receive two (2)
weeks of paid vacation per year. Sick leave and holidays will be provided in
accordance with the Company's established policies.
2. TERMINATION. You or the Company may terminate the employment
relationship at any time, for any reason, with or without good cause.
However, if the Company terminates your employment without good cause, prior
to twelve months from your start date, the Company will continue to provide
the benefits described above in section 1.c., and pay your monthly salary on
the regular bi-monthly basis for six (6) months from the date of your
termination, less all applicable withholdings. For any such termination
without good cause occurring after twelve months from your start date, the
Company will continue to provide the benefits described in section 1.c., and
pay your monthly salary on a regular bi-monthly basis for nine (9) months
from the date of termination, less all applicable withholdings, provided,
however, that the employment salary received during this nine month period
shall be subject to offset by other employment salary received during such
period. For purposes of this Agreement, "good cause" means gross misconduct,
wrongful acts or omissions that may materially adversely affect the Company's
business, neglect of duties, breach of any material terms or conditions of
this Agreement or the Company's Proprietary Information Agreement, death, or
any disability that renders you incapable of diligently or expeditiously
performing all of your essential duties and obligations to the Company for
any period of three (3) consecutive months or four (4) months in any twelve
(12) month period. However, in the event the Company terminates you at any
time for good cause due to your death or disability as discussed above, the
Company will continue to pay your monthly salary on the regular bi-monthly
basis for six (6) months from the date of such termination, less all
applicable withholdings.
2 of 4
<PAGE>
Robert E. Farrell
August 9, 1996
3. NON-COMPETE AND OUTSIDE ACTIVITIES. You agree that, while serving
as an employee of the Company, you will not engage in any activity which is
competitive with the Company and will give your sole and only loyalty to the
Company. It is understood that buying and selling of securities of any public
company does not constitute a violation of this agreement.
4. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Your acceptance
of this offer is contingent upon the execution of the Company's Proprietary
Information and Inventions Agreements, copies of which are enclosed for your
review and execution.
5. ARBITRATION. Any controversy between the parties hereto involving
the construction or application of any terms, covenants or conditions of this
Agreement, or any claims arising out of or relating to this Agreement or the
breach thereof or with your employment with the Company or any termination of
that employment, except with respect to prejudgment remedies, will be
submitted to and settled by final and binding arbitration in San Francisco,
California, in accordance with the Model Employment Dispute Resolution Rules
of the American Arbitration Association (the "Rules") then in effect, any
arbitrator shall be selected pursuant to such Rules and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
6. The Company will make no public announcement regarding your
employment prior to September 16, 1996.
To accept this offer, please sign in the space below, indicating your
acceptance and agreement to the terms contained herein. No amendment or
modification of the terms of this letter will be valid unless made in writing
and signed by you and an authorized officer of the Company.
3 of 4
<PAGE>
Robert E. Farrell
August 9, 1996
Bob, on a personal note, I have enjoyed our interactions tremendously
and look forward to working with you to make Titan a continued success. We
would appreciate your response to this offer by August 14, 1996.
Sincerely,
/s/ Louis R. Bucalo
Louis R. Bucalo, M.D.
President and CEO
Titan Pharmaceuticals, Inc.
I accept this offer:
/s/ Robert E. Farrell Date: 8/13/96
- ---------------------- ----------
Robert E. Farrell
4 of 4
<PAGE>
Exhibit 11.1
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996
-------------- ------------
Net loss $(11,693,454) $(12,855,646)
Deemed dividend upon conversion of preferred stock - (5,431,871)
-------------- ------------
Net loss applicable to common stock (11,693,454) (18,287,517)
-------------- ------------
-------------- ------------
Weighted average shares of
common stock outstanding 1,426,049 10,936,046
Shares related to Staff Accounting
Bulletin topic 4D:
Stock options and warrants 897,836 -
-------------- ------------
Shares used in computing net loss per share 2,323,885 10,936,046
-------------- ------------
-------------- ------------
Net loss per share $ (5.03) $ (1.67)
-------------- ------------
-------------- ------------
PRO FORMA
Net loss applicable to common stock $(11,693,454)
--------------
--------------
Calculation of shares outstanding for
computing pro forma net loss per share:
Shares used in computing net loss per share 2,323,885
Adjusted to reflect the effect of the
assumed conversion of preferred stock 5,293,585
--------------
Shares used in computing pro forma net
loss per share 7,617,470
--------------
--------------
Pro forma net loss per share $ (1.54)
--------------
--------------
<PAGE>
Exhibit 21
List of Significant Subsidiaries
Ansan Pharmaceuticals, Inc.
Ingenex, Inc.
ProNeura, Inc.
Theracell, Inc.
Trilex Pharmaceuticals, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,376,532
<SECURITIES> 13,000,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,687,737
<PP&E> 1,657,883
<DEPRECIATION> 866,304
<TOTAL-ASSETS> 16,366,349
<CURRENT-LIABILITIES> 2,513,904
<BONDS> 0
0
0
<COMMON> 49,619,784
<OTHER-SE> (38,208,649)
<TOTAL-LIABILITY-AND-EQUITY> 16,366,349
<SALES> 0
<TOTAL-REVENUES> 258,811
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,830,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,010,664
<INCOME-PRETAX> (12,855,646)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,855,646)
<EPS-PRIMARY> (1.67)
<EPS-DILUTED> (1.67)
</TABLE>
