<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended June 30, 1999.
or
/_/ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From _____________ to
__________________.
Commission file number 0-27436
TITAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3171940
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
400 OYSTER POINT BLVD., SUITE 505, SOUTH SAN FRANCISCO, CALIFORNIA 94080
(Address of Principal Executive Offices including zip code)
(650) 244-4990
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
There were 15,396,518 shares of the Registrant's Common Stock issued and
outstanding on July 23, 1999.
<PAGE>
TITAN PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Condensed Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 2
Condensed Consolidated Statements of Operations Three
months and six months ended June 30, 1999 and
1998 and period from commencement of
operations (July 25, 1991) to June 30, 1999 3
Condensed Consolidated Statements of Cash Flows Six
months ended June 30, 1999 and 1998 and period
from commencement of operations
(July 25, 1991) to June 30, 1999 4
Notes to Condensed Consolidated Financial
Statements - June 30, 1999 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED) (NOTE A)
--------------- --------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 11,813,320 $ 11,654,896
Prepaid expenses and other current assets 151,123 139,958
------------- -------------
Total current assets 11,964,443 11,794,854
Furniture and equipment, net 416,199 416,956
Other assets 15,783 15,783
------------- -------------
$ 12,396,425 $ 12,227,593
============= =============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 827,571 $ 410,235
Accrued clinical trials expense 280,308 653,218
Other accrued liabilities 525,445 516,770
------------- ------------
Total current liabilities 1,633,324 1,580,223
Commitments
Minority interest - Series B preferred stock of Ingenex, Inc. 1,241,032 1,241,032
Stockholders' Equity
Preferred stock, at amounts paid in 5,000,000 5,000,000
Common stock, at amounts paid in 58,247,445 52,291,369
Additional paid-in capital 6,524,247 6,524,204
Deferred compensation (200,700) (286,580)
Deficit accumulated during the development stage (60,048,923) (54,122,655)
-------------- ------------
Total stockholders' equity 9,522,069 9,406,338
-------------- ------------
$ 12,396,425 $ 12,227,593
============== ============
</TABLE>
Note A: The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED SIX MONTHS ENDED COMMENCEMENT
JUNE 30, JUNE 30, OF OPERATIONS
---------------------------- -------------------------- (JULY 25, 1991) TO
1999 1998 1999 1998 JUNE 30, 1999
------------ ------------ ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
License and grant revenue $ - $ - $ 46,660 $ - $ 17,944,941
Operating expenses:
Research and development 2,724,556 1,465,540 4,809,529 3,151,780 49,513,208
Acquired in-process research and development - - 135,785 - 10,321,785
General and administrative 528,657 973,909 1,316,111 2,003,529 23,365,934
----------- ------------ ------------ ------------ ----------------
Total operating expenses 3,253,213 2,439,449 6,261,425 5,155,309 83,200,927
----------- ------------ ------------ ------------ ----------------
Loss from operations (3,253,213) (2,439,449) (6,214,765) (5,155,309) (65,255,986)
Other income (expense):
Equity in loss of Ansan Pharmaceuticals, Inc. - - - - (2,046,939)
Gain on sale of technology - - - - 8,361,220
Interest income 150,132 225,074 301,594 488,893 2,986,336
Interest expense - - - (87) (4,389,902)
Other (expense) income (3,502) (13,657) (13,097) 41,969 251,434
----------- ------------ ------------ ------------ ---------------
Other income, net 146,630 211,417 288,497 530,775 5,162,149
----------- ------------ ------------ ------------ ---------------
Loss before minority interest (3,106,583) (2,228,032) (5,926,268) (4,624,534) (60,093,837)
Minority interest in losses of subsidiaries - - - - 44,914
---------- ----------- ------------ ------------ ---------------
Net loss $(3,106,583) $(2,228,032) $(5,926,268 $(4,624,534) $(60,048,923)
Deemed dividend upon conversion of
preferred stock - - - - (5,431,871)
---------- ----------- ------------ ------------ ---------------
Net loss attributable to common stockholders $(3,106,583) $(2,228,032) $(5,926,268) $(4,624,534) $(65,480,794)
============ ============ ============ ============ ===============
Basic and diluted net loss per common share $ (0.20) $ (0.17) $ (0.39) $ (0.35)
============ ============ ============ ============
Shares used in computing basic and
diluted net loss per share 15,384,952 13,108,230 15,035,823 13,093,516
============ ============ ============ =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE><CAPTION>
PERIOD
COMMENCEMENT
SIX MONTHS ENDED JUNE 30, OF OPERATIONS
------------- ------------ (JULY 25, 1991) TO
1999 1998 JUNE 30, 1999
------------- ------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,926,268) $ (4,624,534) $ (60,048,923)
Adjustments to reconcile net loss cash used
in operating activities:
Depreciation and amortization expense 177,784 145,054 1,920,088
Issuance of common stock to acquire technology - - 5,500,000
Payment of guaranteed security value - (3,044,409) (3,044,409)
Accretion of discount on indebtedness - - 2,290,910
Equity in loss of Ansan Pharmaceuticals, Inc. - - 2,046,940
Other - 14,105 (239,336)
Issuance of common stock to acquire
minority interest of Theracell, Inc. 135,785 - 821,785
Changes in operating assets and liabilities:
Receivables - 371,793 -
Prepaid expenses and other assets (11,165) (101,621) (171,871)
Accounts payable 417,336 (172,647) 1,151,761
Other accrued liabilities (364,235) (355,185) 1,206,169
------------- ------------- ----------------
Net cash used in operating activities (5,570,763) (7,767,444) (48,566,886)
------------- ------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment, net (91,147) (48,189) (1,540,469)
Purchase of short-term investments - - (59,782,493)
Proceeds from sale of short-term investments - - 59,782,493
Effect of deconsolidation of
Ansan Pharmaceuticals, Inc. - - (135,934)
------------- ------------- ---------------
Net cash used in investing activities (91,147) (48,189) (1,676,403)
------------- ------------- ---------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD
COMMENCEMENT
SIX MONTHS ENDED JUNE 30, OF OPERATIONS
------------- ------------ (JULY 25, 1991) TO
1999 1998 JUNE 30, 1999
------------- ------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 5,820,291 $ 215,832 $ 36,062,047
Deferred financing costs - - (713,899)
Issuance of preferred stock - - 22,601,443
Proceeds from notes and advances payable - - 2,681,500
Repayment of notes payable - - (1,441,500)
Proceeds from Ansan bridge financing - - 1,425,000
Proceeds from Titan Pharmaceutical, Inc. and
Ingenex, Inc. bridge financing - - 5,250,000
Repayment of Titan Pharmaceutical, Inc. and
Ingenex, Inc. bridge financing - - (5,250,000)
Proceeds from capital lease bridge financing - - 658,206
Payments of principle under capital lease obligation - - (633,766)
Proceeds from Ingenex, Inc. technology financing - - 2,000,000
Principal payments on Ingenex, Inc. technology financing - - (2,000,000)
Increase in minority interest - - 1,241,032
Issuance of common stock with subsidiaries 43 - 176,546
------------- ------------- -----------------
Net cash provided by financing activities 5,820,334 215,832 62,056,609
------------- ------------- -----------------
Net increase/(decrease) in cash and cash equivalents 158,424 (7,599,801) 11,813,320
Cash and cash equivalents, beginning of period 11,654,896 24,386,872 -
Cash and cash equivalents, end of period ------------- ------------- -----------------
$ 11,813,320 $ 16,787,071 $ 11,813,320
============= ============= =================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ - $ 87 $ 1,393,524
Conversion of notes payable to related parties and
accrued interest into Series A preferred stock $ - $ - $ (1,306,329)
============= ============= =================
Acquisition of furniture and equipment pursuant
to capital lease $ - $ - $ 595,236
============= ============= =================
Cashless exercise of warrants $ - $ - $ 871,892
============= ============= =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND ITS DEVELOPMENT STAGE SUBSIDIARIES
Titan Pharmaceuticals, Inc. (the "Company" or "Titan"), was incorporated in
February 1992 in the State of Delaware. Titan is a biopharmaceutical company
developing proprietary therapeutics for the treatment of central nervous system
disorders, cancer and other serious and life-threatening diseases. Titan
conducts a portion of its operations through two subsidiaries: Ingenex, Inc.
("Ingenex") and ProNeura, Inc. ("ProNeura"), collectively, (the "Operating
Companies"). In March 1999, a third Company subsidiary, Theracell, Inc.
("Theracell"), was merged with and into Titan. The Company and its Operating
Companies operate in one industry segment.
INGENEX, INC.
Ingenex is engaged in the development of gene-based therapeutics for the
treatment of cancer. At June 30, 1999, the Company owned 81% of Ingenex,
assuming the conversion of all preferred stock to common.
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 June 30, 1999, the
Company owned 79% of ProNeura.
THERACELL MERGER
On March 10, 1999, Theracell was merged with and into Titan. Pursuant to
the merger, the Company recorded an in-process research and development expense
of approximately $136,000, related to the acquisition of the shares held by the
minority shareholders.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Titan and its majority owned subsidiaries after
elimination of all significant intercompany accounts and transactions. These
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six-month period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. These
financials should be read in conjunction with the audited consolidated financial
statements and footnotes thereto included in the Titan Pharmaceuticals, Inc.
annual report on Form 10-K for the year ended December 31, 1998.
2. NET LOSS PER SHARE
The Company calculates basic and diluted net loss per common share using
the weighted average shares outstanding for the period. Had the Company been
in a net income position, diluted earnings per share as of June 30, 1999 and
1998 would have included an additional 12,030,133 and 11,545,142 shares,
respectively, related to the Company's outstanding options, warrants and
convertible preferred stock (prior to the application of treasury stock
method.)
3. STOCKHOLDERS' EQUITY
In January 1999, the Company completed a private placement of 2,254,545
shares of its Common Stock for net proceeds of approximately $5,798,000, after
deducting fees and commissions and other expenses of the offering. The Company's
comprehensive loss was the same as the Company's net loss for the reporting
periods.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements,
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the attainment of which involves various risks
and uncertainties. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "continue" or similar terms, variations of those terms
or the negative of those terms. The Company's actual results may differ
materially from those described in these forward-looking statements due to,
among other factors, the results of ongoing research and development activities
and preclinical testing, the results of clinical trials and the availability of
additional financing through corporate partnering arrangements or otherwise.
RESULTS OF OPERATIONS
Since its inception, the Company's efforts have been principally devoted to
product and technology development, clinical research, raising capital, and
securing patent protection. At June 30, 1999, the Company had an accumulated
deficit of approximately $60,049,000, resulting from expenditures for research
and development and general and administrative activities.
There were no revenues for the three months ended June 30, 1999. There was
approximately $47,000 in revenues from a U.S. government grant for the six
months ended June 30, 1999. There were no revenues for the three- and six-month
periods ended June 30, 1998.
Research and development expenses for the second quarter of 1999 were
approximately $2,725,000 compared to $1,466,000 for the same quarter in 1998, an
increase of 86%. For the six months ended June 30, 1999, research and
development expenses were $4,945,000, including $136,000 of acquired in-process
research and development related to the acquisition of minority interest of
Theracell, compared to $3,152,000 for the same period in 1998, an increase of
57%. These planned increases are primarily due to the ongoing Phase II clinical
trials for CeaVac, TriAb and Pivanex, and accelerating patient enrollment
in the trial with CeaVac in colorectal cancer during second quarter of 1999.
General and administrative expenses for the second quarter of 1999 were
approximately $529,000 compared to $974,000 for the same quarter in 1998, a
decrease of 46%. For the six months ended June 30, 1999, general and
administrative expenses were $1,316,000 compared to $2,004,000 for the same
period in 1998, a decrease of 34%. These decreases can be attributed to the
Company's planned consolidation of operations and ongoing efforts to contain
non-research operating costs.
Other income, net of other expenses for the second quarter of 1999 was
approximately $147,000 compared to $211,000 for the same quarter in 1998, a
decrease of approximately $65,000. Other income for the second quarter of 1999
included interest income of approximately $150,000 compared to $225,000 for the
same quarter in 1998. For the six months ended June 30, 1999, interest income
was $302,000 compared to $489,000 for the same period in 1998.
IMPACT OF YEAR 2000
GENERAL
The "Year 2000 Issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, or engage in similar normal business activities.
7
<PAGE>
SYSTEM ASSESSMENT
Titan is a relatively young company and most of its Information Technology
("IT") and Non-IT systems were Year 2000 compliant when purchased. The Company
believes, therefore, it will not be required to implement significant
modifications or replace significant portions of its software and hardware in
order to be Year 2000 compliant. The Company is, however, taking steps to ensure
that the Year 2000 Issue does not have a material impact on the operation of the
Company.
Significant functions related to the Company's clinical trials are carried
out by contract research organizations ("CROs"). These functions include, but
are not limited to, clinical study monitoring, biostatistics, data management
and drug manufacturing. To the extent that the systems of CROs produce incorrect
information or cause incorrect interpretation of the information that they
produce, the Company is at risk for making invalid conclusions about the nature,
efficacy, or safety of its products or technologies which could lead to
abandoning potentially lucrative products or technologies or invalidly
continuing development and pursuing FDA approval of others. The Company is in
the process of contacting its significant suppliers and CROs and requesting that
they provide certificates of compliance with relation to this issue. At this
time the Company is not aware of any suppliers or CROs with a Year 2000 Issue
that would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of ensuring that its
suppliers or CROs will be Year 2000 ready. The inability of its suppliers or
CROs to complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by other external
agents is not determinable.
COSTS AND CONTINGENCIES
To date, the Company has expended only internal costs to assess the Year
2000 Issue. Letters of Year 2000 compliance from internal software providers
tend to indicate that the Company will not be exposed to any material
expenditures for replacements of such systems, however there can be no assurance
of this. Also, it is not yet possible to ascertain if any expenditure will be
required to replace systems, subcontractors or the work performed by such
subcontractors. While vendor assurances and internal testing are useful in
assessing Year 2000 issues, neither can provide absolute assurance that no Year
2000 problems will or can occur. During 1999, the Company will continue to
refine its plans in an attempt to assure the Year 2000 Issue will not materially
adversely affect their business operations or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations from inception primarily through
private and public sales of its securities, corporate partnerships and
government grants. During 1997, the Company received approximately $25,861,000
from license fees and the sale of a research technology.
In January 1999, the Company completed a private placement of 2,254,545
shares of its Common Stock for net proceeds of approximately $5,798,000, after
deducting fees and commissions and other expenses of the offering.
In November 1998, the Company agreed to guarantee certain potential
obligations of the Company's Chief Executive Officer, related to the Company.
The Company's Chief Executive Officer has pledged approximately 300,000 shares
of the Company's common stock, owned by the Chief Executive Officer, to secure
the guarantee by the Company. Under said guarantee, the Company may be obligated
to make a payment of up to $400,000.
Titan has entered into various agreements with contract research
organizations, academic institutions, and other entities for the performance of
research and development activities and for the maintenance of licenses related
to those activities. The aggregate commitments the Company has under these
agreements, including
8
<PAGE>
minimum license payments, for the next 12 months is approximately $3,172,000.
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 while products are under development, the Company must comply
with customary licensee obligations, including the payment of patent related
costs and meeting project-funding milestones.
In May 1998, the Company negotiated a $5,000,000 bank line of credit. To
date the Company has not borrowed against this facility.
The Company expects to continue to incur substantial additional operating
losses from costs related to continuation and expansion of product development,
clinical trials, and increased administrative and fund raising activities over
at least the next several years. To preserve operating capital, the Company has
chosen to strategically focus on development of its later stage products in
clinical development, and at least temporarily reduce or eliminate spending on
certain preclinical programs. While the Company has sufficient working capital
to sustain planned operations for a period greater than 12 months, the Company
may seek additional financing, depending on numerous factors including, but not
limited to, the progress of the Company's product development programs, the
results of clinical studies, technological advances, determinations as to the
commercial potential of the Company's products, and the status of competitive
products. In addition, certain 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
additional financing, when and if needed.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended June 30, 1999.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TITAN PHARMACEUTICALS, INC.
August 16, 1999 By: /s/Louis R. Bucalo
---------------------------------------
Louis R. Bucalo, M.D.
President and Chief Executive Officer
August 16, 1999 By: /s/Robert E. Farrell
---------------------------------------
Robert E. Farrell
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,813,320
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,964,443
<PP&E> 781,383
<DEPRECIATION> 365,184
<TOTAL-ASSETS> 12,396,425
<CURRENT-LIABILITIES> 1,633,324
<BONDS> 0
0
5,000,000
<COMMON> 58,247,445
<OTHER-SE> (53,725,376)
<TOTAL-LIABILITY-AND-EQUITY> 12,396,425
<SALES> 0
<TOTAL-REVENUES> 46,600
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,945,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,926,268)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,926,268)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,926,268)
<EPS-BASIC> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
