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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, 2000.
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 25,858,945 of the Registrant's Common Stock issued and outstanding
on July 31, 2000.
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TITAN PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
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<CAPTION>
PART I. FINANCIAL INFORMATION................................................................... PAGE
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Item 1. Condensed Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999............................................... 2
Condensed Consolidated Statements of Operations
Three months and six months ended June 30, 2000 and 1999.......................... 3
Condensed Consolidated Statements of Cash Flows
Three months and six months ended June 30, 2000 and 1999.......................... 4
Notes to Condensed Consolidated Financial
Statements........................................................................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................. 9
Item 6. Exhibits and Reports on Form 8-K.............................................. 9
SIGNATURES............................................................................................... 10
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PART I. FINANCIAL INFORMATION
TITAN PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------------ -------------------
(unaudited) (Note A)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 6,278 $ 46,454
Short-term investments 76,237 -
Grants receivable - 150
Prepaid expenses and other current assets 467 327
------------------ -------------------
Total current assets 82,982 46,931
Furniture and equipment, net 515 415
Other assets 16 16
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$ 83,513 $ 47,362
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 281 $ 849
Accrued clinical trials expenses 638 437
Accrued compensation and related expenses 149 177
Accrued professional fees and other liabilities 276 356
Unearned contract revenue 235 -
------------------ -------------------
Total current liabilities 1,579 1,819
Minority interest - Series B preferred stock of Ingenex, Inc. 1,241 1,241
Stockholders' Equity
Preferred stock, at amounts paid in - 5,000
Common stock, at amounts paid in 146,017 98,697
Additional paid-in capital 6,524 6,524
Deferred compensation (256) (501)
Accumulated deficit (71,489) (65,418)
Accumulated other comprehensive loss (103) -
------------------ -------------------
Total stockholders' equity 80,693 44,302
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$ 83,513 $ 47,362
================== ===================
</TABLE>
Note A: The balance sheet 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 presentation.
2
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TITAN PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------- ----------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Contract revenue $ 281 $ - $ 561 $ -
Grant revenue - - 55 47
---------------- --------------- --------------- ---------------
Total revenue 281 - 616 47
Operating expenses:
Research and development 3,266 2,724 7,311 4,810
Acquired in-process research and development - - - 136
General and administrative 704 529 1,561 1,316
---------------- --------------- --------------- ---------------
Total operating expenses 3,970 3,253 8,872 6,262
---------------- --------------- --------------- ---------------
Loss from operations (3,689) (3,253) (8,256) (6,215)
Other income (expense):
Interest income, net 1,275 150 2,213 302
Other income (expense) (9) (3) (28) (13)
---------------- --------------- --------------- ---------------
Other income (expense), net 1,266 147 2,185 289
---------------- --------------- --------------- ---------------
Net loss $ (2,423) $ (3,106) $ (6,071) $ (5,926)
================ =============== =============== ===============
Basic and diluted net loss per share $ (0.09) $ (0.20) $ (0.24) $ (0.39)
================ =============== =============== ===============
Weighted average shares used in computing
basic and diluted net loss per share 25,769 15,385 24,821 15,036
================ =============== =============== ===============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
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TITAN PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,071) $ (5,926)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 169 177
Stock compensation to consultants 159 -
Issuance of common stock to acquire
minority interest of Theracell, Inc. - 136
Changes in operating assets and liabilities:
Prepaid expenses, other receivables and assets 10 (11)
Accounts payable and other accrued liabilities (476) 417
Unearned contract revenue 235 (364)
-------- --------
Net cash used in operating activities (5,974) (5,571)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment, net (183) (91)
Purchases of short-term investments (86,832) -
Proceeds from sales of short-term investments 10,492 -
-------- --------
Net cash used in investing activities (76,523) (91)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 42,321 5,820
-------- --------
Net cash provided by financing activities 42,321 5,820
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (40,176) 158
Cash and cash equivalents at beginning of period 46,454 11,655
-------- --------
Cash and cash equivalents at end of period 6,278 11,813
Short-term investments at end of period 76,237 -
-------- --------
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
AT END OF PERIOD $ 82,515 $ 11,813
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
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TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND ITS SUBSIDIARIES
We are a biopharmaceutical company developing proprietary
therapeutics for the treatment of central nervous system disorders, cancer
and other serious and life threatening diseases. We conduct a portion of our
operations through our two subsidiaries: Ingenex, Inc. and ProNeura, Inc. We
operate in one business segment, the development of biopharmaceutical
products.
INGENEX, INC.
Ingenex is engaged in the development of gene-based therapeutics for
the treatment of cancer. At June 30, 2000, we owned 81% of Ingenex, assuming the
conversion of all preferred stock to common stock.
PRONEURA, INC.
ProNeura is engaged in the development of cost effective, long-term
treatment solutions to neurologic and psychiatric disorders through an
implantable drug delivery system. At June 30, 2000, we owned 79% of ProNeura.
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 adjustments)
considered necessary for a fair presentation have been included. Operating
results for the six-month period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2000.
Through December 31, 1999, we were considered to be in the
developmental stage. In January 2000, we entered into an agreement with
Schering AG (see Note 5), under which we earned research revenue. As a result
of this agreement, and with the potential of other collaborative partnership
agreements that we are currently pursuing, we are no longer considered to be
in the developmental stage.
These unaudited condensed consolidated financial statements 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, 1999.
REVENUE RECOGNITION
License revenue is recognized ratably over the terms of the related
license agreements. Nonrefundable license fees, under which we have no future
performance obligations, are recognized upon receipt. Contract revenue
related to research and development activities performed under collaborative
agreements is recognized when project costs are incurred. Milestone payments
are generally recognized as revenue when specified milestones are achieved.
Government grants that support our research effort in specific projects
generally provide for reimbursement of approved costs as defined in the grant
documents, and revenue is recognized when subsidized project costs are
incurred.
5
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2. NET LOSS PER SHARE
We calculate basic net loss per share using the weighted average
common shares outstanding for the period. Had we been in a net income
position, shares used in calculating diluted earnings per share for the six
months ended June 30, 2000, would have included the effect of an additional
3,293,133 shares related to our convertible preferred stock and options, and
for the six months ended June 30, 1999, we would have included an additional
12,030,133 shares related to our convertible preferred stock, options and
warrants.
3. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and
other comprehensive income (loss). Other comprehensive income (loss) includes
certain changes in equity that are excluded from net income (loss), such as
unrealized gains and losses on investments. Comprehensive loss for the six
months ended June 30, 2000, was $6.2 million. Comprehensive loss for the six
months ended June 30, 1999, was the same as our net loss.
4. STOCKHOLDERS' EQUITY
In March 2000, we completed a private placement of 1,200,000 shares of
our common stock for net proceeds of $38.8 million, after deducting fees and
commissions and other expenses of the offering.
Also in March 2000, upon satisfying the conditions for conversion and
at the request of Novartis Pharma AG, all outstanding shares of Series D
convertible preferred stock were converted into 666,667 shares of our common
stock.
5. LICENSING AND COLLABORATIVE AGREEMENT WITH SCHERING AG
In January 2000, we entered into a licensing and collaborative
agreement with Schering AG, under which we will collaborate with Schering on
manufacturing and clinical development of our cell therapy product,
Spheramine-TM-, for the treatment of Parkinson's disease. Under the agreement,
we will perform clinical development activities for which we will receive
funding. As of June 30, 2000, we recognized $0.5 million of revenue under this
agreement. Schering will fully fund, and manage in collaboration with us, all
future pilot and pivotal clinical studies, and manufacturing and development
activities. We are entitled to certain payments upon the achievement of specific
milestones. Schering also retains the right to make an equity investment in
Titan, up to a specified amount, upon initiation of pivotal clinical studies.
The potential economic value of the agreement, including development funding and
equity investment, but not including funding of clinical trials and product
royalties, is approximately $26 million.
6. SUBSEQUENT EVENT
In July 2000, we announced the acquisition of worldwide rights to a
novel and proprietary agent, gallium maltolate, for the potential treatment of
cancer and other conditions, including HIV infection. We obtained the rights
through the acquisition of GeoMed, Inc., a privately held California company
founded for the development of the agent. At the conclusion of the acquisition,
we will assume up to $1.4 million of GeoMed's liabilities, and issue $3.5
million of Titan common stock (approximately 93,590 shares). A total of $4.9
million will be charged to acquired in-process research and development upon the
closing of the transaction.
6
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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 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. OUR 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 PRE-CLINICAL TESTING, THE RESULTS OF CLINICAL TRIALS AND THE
AVAILABILITY OF ADDITIONAL FINANCING THROUGH CORPORATE PARTNERING
ARRANGEMENTS OR OTHERWISE. ADDITIONAL FACTORS INCLUDE OUR ABILITY TO PROTECT
OUR PATENTS AND PROPRIETARY RIGHTS, ABILITY TO COMPLY WITH EXTENSIVE
GOVERNMENT REGULATIONS, AND OTHER FACTORS AND RISKS DETAILED UNDER THE
CAPTION "RISK FACTORS" IN THE COMPANY'S 1999 ANNUAL REPORT ON FORM 10-K AND
OTHER FILINGS WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION. STOCKHOLDERS
AND PROSPECTIVE INVESTORS IN THE COMPANY SHOULD CAREFULLY CONSIDER THESE RISK
FACTORS. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE THESE STATEMENTS FOR
SUBSEQUENT EVENTS.
OVERVIEW
Titan Pharmaceuticals, Inc. is a biopharmaceutical company
developing proprietary therapeutics for the treatment of central nervous
system (CNS) disorders, cancer and other serious and life threatening
diseases.
In the CNS arena, we are developing iloperidone, which is currently in
Phase III clinical testing for schizophrenia through a licensing and development
agreement with Novartis Pharma AG. Novartis has tradenamed the product
Zomaril-TM-. Novartis is fully funding and conducting the Phase III program,
which will enroll approximately 3,300 patients in 24 countries. Zomaril is being
developed for the treatment of schizophrenia and related psychotic disorders--a
market expected to reach $6 billion by 2003. Also in the CNS arena, we are
developing a unique cell based therapeutic, Spheramine-TM-, which is in Phase
I/II testing, for the treatment of Parkinson's disease. We have entered into a
collaboration with Schering AG for the development, manufacture and
commercialization of this treatment for Parkinson's disease. Schering is funding
the manufacturing, development and future clinical studies of the product in
addition to paying milestone payments and royalties on net sales in exchange for
worldwide manufacturing and commercialization rights.
Our cancer therapeutics in clinical testing include three monoclonal
antibodies--CeaVac-Registered Trademark-, TriAb-Registered Trademark- and
TriGem-TM---which are designed to stimulate a patient's immune system against
various types of cancer cells. CeaVac is currently being evaluated in a large
multi-center double-blind placebo-controlled Phase III clinical trial in
patients with metastatic colorectal cancer. TriAb is currently being
evaluated in a double-blind placebo-controlled Phase II clinical study in
patients with breast cancer. We are also collaborating with several clinical
oncology cooperative groups and expect to initiate a number of clinical
studies later this year, specifically, a Phase III study with CeaVac Dukes' C
colorectal cancer managed by the American College of Surgeons Oncology Group,
a Phase III study with TriGem in intermediate stage melanoma directed by the
South West Oncology Group, and a Phase II clinical study with a combination
of CeaVac and TriAb in lung cancer managed by the Radiation Therapy Oncology
Group, all of which are supported by the Cancer Treatment and Evaluation
Program of the National Cancer Institute. Another Titan anti-cancer product
in development, Pivanex-TM-, is a small molecule drug that acts as a
cell-differentiating agent. Pivanex is currently in Phase II clinical testing
for non-small cell lung cancer. Additionally, we are developing a gene
therapy product for treating various cancers. Further, we are developing a
long-term drug delivery system with applications in the treatment of CNS
disorders and other conditions.
7
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RESULTS OF OPERATIONS
Revenue for the second quarter and for the first six months of 2000
were approximately $0.3 million and $0.6 million, respectively. These revenues
consisted primarily of contract revenue from Schering AG for the development of
Spheramine, Titan's novel therapy for treatment of Parkinson's disease. In 1999,
Titan had no revenues in the second quarter, and had approximately $47,000 of
revenue during the first six months.
Research and development expenses for the second quarter 2000 were
$3.3 million, compared to $2.7 million for the same quarter in 1999. For the
six months ended June 30, 2000, research and development expenses were $7.3
million, compared to $4.9 million for the same period in 1999. The increase
in research and development expense was a result of the expansion of Titan's
randomized, placebo-controlled Phase III clinical study of CeaVac in Dukes' D
colorectal cancer, and increased manufacturing and development activity for
CeaVac and for our other anti-cancer therapeutic monoclonal antibodies, TriAb
and TriGem, to support the initiation of three additional clinical efficacy
studies later this year. These additional studies will be directed and
managed by three government sponsored cooperative groups and will be
supported by the Cancer Treatment and Evaluation Program of the National
Cancer Institute.
General and administrative expenses for the second quarter 2000 were
$0.7 million compared to $0.5 million for the same quarter in 1999. For the
six months ended June 30, 2000, general and administrative expenses were $1.6
million, compared to $1.3 million for the same period in 1999. The increase
in expenses from 1999 to 2000 was principally due to expenses during the
first quarter 2000 for leasehold improvements, legal expenses related to
corporate partnering agreements and planned increases in support of expanded
clinical activity.
Other income, net of other expenses, for the second quarter 2000 was
$1.3 million compared to $0.1 million in the second quarter 1999. For the six
months ended June 30, 2000, other income, net of other expenses, was $2.2
million compared to $0.3 million for the same period in 1999. The increases,
primarily in interest income, were a result of our significantly larger cash and
short-term investments position.
As a result of the foregoing, we had a net loss of $2.4 million, or
$0.09 per share, for the second quarter 2000, compared to $3.1 million, or $0.20
per share, for the same quarter in 1999. For the six months ended June 30, 2000,
our net loss was $6.1 million, or $0.24 per share, compared to $5.9 million, or
$0.39 per share, for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations since inception primarily through our
initial public offering and private placements of our securities, as well as
proceeds from warrant and option exercises, corporate licensing and
collaborative agreements, and government sponsored research grants.
In March 2000, we completed a private placement of 1.2 million shares
of our common stock for net proceeds of $38.8 million, after deducting fees and
commissions and other expenses of the offering.
In October 1999, we called for the redemption on November 19, 1999 (the
Redemption Date) of our outstanding Class A Warrants for cash at the redemption
price of $0.05 per warrant. Rather than surrendering the warrants for
redemption, warrant holders had the option to purchase our common stock at a
price of $6.02 per share before the Redemption Date. The warrant call resulted
in 7.1 million, or 99.4%, of our outstanding Class A Warrants being exercised
with net proceeds to us of $39.4 million, after deducting advisory fees and
other related expenses.
In January 1999, we completed a private placement of 2.3 million shares
of our common stock for net proceeds of $5.8 million, after deducting fees and
commissions and other expenses of the offering.
We 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
8
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activities. The aggregate commitments we have under these agreements,
including minimum license payments, for the next 12 months is approximately
$1.5 million. Certain of the licenses provide for the payment of royalties by
us on future product sales, if any. In addition, in order to maintain license
and other rights while products are under development, we must comply with
customary licensee obligations, including the payment of patent related costs
and meeting project-funding milestones.
We expect to continue to incur substantial additional operating losses
from costs related to continuation and expansion of product and technology
development, clinical trials and administrative activities. We believe that we
currently have sufficient working capital to sustain our planned operations at
least through 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our cash and investment policy emphasizes liquidity and preservation of
principal over other portfolio considerations. We select investments that
maximize interest income to the extent possible given these two constraints. We
satisfy liquidity requirements by investing excess cash in securities with
different maturities to match projected cash needs and limit concentration of
credit risk by diversifying our investments among a variety of high
credit-quality issuers. We do not use derivative financial instruments in our
investment portfolio. Management believes our exposure to market rate risk is
minimal and the risk of loss is remote.
PART II
ITEM 1. LEGAL PROCEEDINGS
In March 2000, a former investor relations consultant commenced an
action in the Supreme Court of the State of New York, New York County, alleging
that Titan purportedly breached an agreement dated February 24, 1997, by failing
to deliver certain warrants to the plaintiffs. We believe there is no merit to
the plaintiffs' claim and are vigorously defending the pending action.
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, 2000.
9
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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 14, 2000 By: /s/ Louis R. Bucalo
------------------------
Louis R. Bucalo, M.D.
Chairman, President and
Chief Executive Officer
August 14, 2000 By: /s/ Robert E. Farrell
------------------------
Robert E. Farrell
Executive Vice President
and Chief Financial Officer
10
