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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File No. 0-27436
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TITAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 94-3171940
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
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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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 par value
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such report(s)), and (2) has been subject to
the filing requirements for the past ninety (90) days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K /X/.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $914 million, based on the last sales price of the
common stock as of March 24, 2000.
As of March 24, 2000, 25,550,075 shares of common stock, $.001 par value, of
the registrant were issued and outstanding.
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PART I
Statements in this Form 10-K that are not descriptions of historical facts
are forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth under "Risk Factors" including, but
not limited to, the results of research and development efforts, the results of
pre-clinical 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 our accounting policies, and
other risks detailed in our Securities and Exchange Commission filings.
Spheramine-TM-, CeaVac-Registered Trademark-, TriAb-Registered Trademark-,
TriGem-TM-, Pivanex-TM- and CCM-TM- are trademarks of Titan Pharmaceuticals,
Inc. Zomaril-TM- is a trademark of Novartis Pharma AG. This Form 10-K also
includes trade names and trademarks of companies other than Titan
Pharmaceuticals, Inc.
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
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.
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, 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, and Schering is funding the manufacturing,
development and clinical studies of the product in exchange for worldwide
commercialization rights.
Our cancer therapeutics in clinical testing include three monoclonal
antibodies--CeaVac, TriAb, and TriGem--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 II/III clinical trial in patients with Stage IV
metastatic colorectal cancer. TriAb is currently being evaluated in a
double-blind placebo-controlled Phase II clinical study in patients with breast
cancer. TriGem has completed initial Phase I testing in patients with melanoma,
and we are pursuing later stage clinical trials through co-operative clinical
oncology research groups. Another Titan anti-cancer product in development,
Pivanex, 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 condition.
We were incorporated in Delaware in February 1992 and have been funded
through various sources, including our initial public offering in January 1996
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.
Our gene therapy and long term drug delivery technologies are being
developed in our two consolidated subsidiaries: Ingenex, Inc., and ProNeura,
Inc., respectively. References to us and our products throughout this document
include the products under development by the two subsidiaries.
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(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
We operate in only one business segment, the development of
biopharmaceutical products.
(C) NARRATIVE DESCRIPTION OF BUSINESS
PRODUCT DEVELOPMENT PROGRAMS
ZOMARIL (ILOPERIDONE)--SCHIZOPHRENIA AND RELATED PSYCHOTIC DISORDERS
In January 1997, we entered into a license agreement with Hoechst Marion
Roussel, Inc., pursuant to which we acquired an exclusive worldwide license to
iloperidone, an antipsychotic agent in development for treatment of
schizophrenia and related disorders. Schizophrenia strikes relatively early in
adult life and is generally viewed as a chronic, long-term disorder.
Schizophrenia is characterized by the presence of "positive" symptoms, such as
delusions, hallucinations, and disorganized speech, 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 psychotic disorder.
Zomaril (iloperidone) is one of a new class of antipsychotic medications,
referred to as atypical antipsychotics, which are believed to be more effective
against most of the symptoms of schizophrenia with a lower incidence of side
effects than older medications. The results of Phase II trials, as well as
preliminary data from the Phase III study, demonstrate that Zomaril may provide
effective treatment against symptoms of schizophrenia, with lower incidence of
extrapyramidal symptoms and other significant side effects.
In November 1997, we entered into an agreement with Novartis Pharma AG in
which we granted a sublicense to Novartis for the worldwide (with the exception
of Japan) development, manufacturing and marketing of Zomaril. Pursuant to the
Novartis sublicense, Novartis paid us approximately $17.4 million in license
fees and reimbursement of research and development expenses and made a $5
million equity investment in us, and is required to make additional milestone
and royalty payments to Hoechst and us. Novartis commenced its Phase III program
for Zomaril in August 1998 and expects to complete all studies by mid 2001.
IMMUNOTHERAPEUTICS--CANCER THERAPY
We are engaged in development of cancer immunotherapeutics utilizing
anti-idiotypic antibody technology licensed from the University of Kentucky
Research Foundation. These monoclonal antibody therapeutics under development
mimic specific antigens that are primarily present on the targeted cancer cell
and are not commonly found on normal tissue. From a molecular biological
perspective the antibody is structurally similar to the cancer antigen. When
injected into a patient, the vaccine acts as a trigger for the normal immune
system's response of lymphocytes to attack cancer cells.
We are developing three such products that have collectively demonstrated an
immune response in humans against antigens associated with colon cancer, breast
cancer, ovarian cancer, small cell lung cancer, melanoma and other cancers. The
products are:
- CeaVac--We believe this product has potential utility in the treatment of
adenocarcinomas, notably, colorectal cancer, non-small cell lung cancer,
pancreatic cancer, gastric cancer and other cancers. The target,
carcinoembryonic antigen, is presented in the largest group of cancers,
adenocarcinomas. In particular, this product has received significant
interest in the international oncology community, as it is the first
published report of a vaccine to consistently break carcinoembryonic
antigen immune tolerance in humans. CeaVac is currently being evaluated in
a multi-center double-blind placebo-controlled Phase II/III clinical trial
in patients with Stage IV metastatic colorectal cancer. We are also
pursuing additional clinical studies through co-operative groups.
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- TriAb--We believe this product has potential utility in the treatment of
breast, ovarian and non-small cell lung cancer. TriAb is currently being
evaluated in a double-blind placebo-controlled Phase II clinical study in
patients with breast cancer.
- TriGem--We believe this product has potential utility in the treatment of
melanoma, small cell lung cancer and sarcoma. TriGem has completed initial
Phase I testing in patients with melanoma, and we are pursuing later stage
clinical trials through co-operative clinical oncology research groups.
PIVANEX--ANTI-CANCER THERAPY BASED UPON CELLULAR DIFFERENTIATION
Pivanex is made from a patented analog of butyric acid and has demonstrated
in laboratory tests the ability to destroy cancer cells through the mechanism of
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 and undergo terminal cellular senescence.
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 is currently in Phase II clinical testing in
patients with non-small cell lung cancer.
CELL THERAPY PRODUCTS (SPHERAMINE)--PARKINSON'S DISEASE
We are engaged in the development of cell-based therapeutics intended for
use in the treatment of neurologic diseases. A majority of neurological
disorders, including Parkinson's disease, Alzheimer's disease, stroke and
epilepsy, occur when brain cells (neurons) die. Because neurons cannot readily
regenerate in response to injury or cell death, 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. In addition, because traditional drugs are delivered through
the blood stream to all body tissues, even though they are intended to act on
only certain sites in the brain, side effects result from the delivery of the
agents to these other non-target organs and tissues. Our proprietary
technologies enable the development of cell-based therapies for
minimally-invasive, site specific (i.e., stereotaxic) delivery to the central
nervous system of therapeutic factors precisely where they are needed in order
to treat the neurological disease or disorder.
One of our technologies, licensed on an exclusive worldwide basis from New
York University, 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 surface, to which cells attach and
grow. We believe that this cell-coated microcarrier (CCM) technology can
facilitate site-specific delivery of missing or deficient neurotransmitters and
growth factors to diseased or injured areas of the brain by increasing the
survival and successful engraftment of implanted cells. Our first product under
development based on this technology is Spheramine, consisting of microcarriers
coated with dopamine-producing human pigment retinal epithelial cells, intended
for the treatment of Parkinson's disease. Preliminary evidence of efficacy of
Spheramine has been demonstrated in a validated primate model of Parkinson's
Disease (MPTP monkey model). Based on these promising results and successful
initial safety testing in primates, we initiated Phase I/II clinical testing of
this product in an open-label evaluation of safety and efficacy. This study is
being performed at Emory University.
In January 2000, we entered into an agreement with Schering AG, under which
Schering and we will collaborate on manufacturing and clinical development of
cell therapy for the treatment of Parkinson's disease. We will receive funding
for development activities, as well as potential reimbursement of certain
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prior research and development expenses. Schering will fully fund, and manage in
collaboration with us, all future pilot and pivotal clinical studies, and
manufacturing and development activities. Under this agreement, Schering
received exclusive, worldwide development, manufacturing and commercialization
rights, and, in addition to the above payments, agreed to pay us a royalty on
product sales. Schering also retains the right to make an equity investment in
us, up to a specified amount, upon initiation of pivotal clinical studies. In
addition to the collaborative development of Spheramine for Parkinson's disease,
Titan and Schering will also mutually explore other potential therapeutic
applications of our CCM technology, under a one year exclusive option granted to
Schering by us.
GENE THERAPY PRODUCTS--CANCER
We are currently developing RB94, a gene therapy product for the treatment
of cancer, under an exclusive worldwide license from the Baylor College of
Medicine held by Titan's Ingenex subsidiary. RB94 combines a truncated variant
(p94) of the RB gene, a tumor suppressor gene, with a viral vector. We believe
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 RB gene.
We are currently testing RB94 in pre-clinical studies of solid tumors in
mouse models, and expect to conduct additional pre-clinical testing in
preparation for pilot clinical trials.
In July 1999, we announced that our Ingenex subsidiary had entered into a
cross-license agreement with Selective Genetics, under which we will receive
exclusive rights to develop cancer therapies using Selective's proprietary
cancer cell targeting technology in conjunction with RB94. We plan to combine
these technologies to potentially enable systemic anti-cancer gene therapy.
We own 81% of the outstanding stock of Ingenex.
IMPLANTABLE DRUG DELIVERY SYSTEM
We are developing a sustained 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 potentially can provide 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, which 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. We believe 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.
In July 1999, we announced that our ProNeura subsidiary had successfully
completed pre-clinical experiments demonstrating long-term drug delivery using
its polymeric drug delivery system. This study, which was supported by an SBIR
phase I grant from the National Institutes of Health (NIH), demonstrated proof
of concept in animal models using an approved antipsychotic agent, by delivering
sustained therapeutic drug levels for periods of greater than four months,
without any adverse effects.
We are conducting further pre-clinical evaluation of prototype products
through contract research and manufacturing organizations, including evaluation
of this drug delivery system for treatment of drug addiction. This project is
currently supported by an SBIR grant.
We currently own approximately 79% of ProNeura.
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SPONSORED RESEARCH AND LICENSE AGREEMENTS
We are a party to several agreements with research institutions, companies,
universities and other entities for the performance of research and development
activities and for the acquisition of licenses relating to such activities.
ZOMARIL (ILOPERIDONE)
In January 1997, we 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 Hoechst agreement provides for the payment of an up-front license
fee in cash and stock of $9.5 million, which we paid in 1997, as well as
additional late stage milestone payments. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations." The Hoechst
agreement also provides for the payment of royalties on net sales and requires
us to satisfy certain other terms and conditions in order to retain its rights
thereunder, all of which have been met to date. In November 1997, we granted a
sublicense to Novartis under which Novartis will continue, at its expense, all
further development of Zomaril and will make milestone payments to us equivalent
to our milestone obligations to Hoechst, and will also pay Hoechst and us a
royalty on net sales of the product.
IMMUNOTHERAPEUTICS
In May 1996, we acquired an exclusive, worldwide license under certain
United States and foreign patent and patent applications pursuant to a license
agreement with the University of Kentucky Research Foundation. These patent and
patent applications relate to the anti-idiotypic antibodies known as 3H1, 1A7
and 11D10 and their fragments, derivatives or analogs. The Kentucky agreement
requires us to fund research at the University of Kentucky at amounts agreed to
on an annual basis, for the five year period ending November 14, 2001. The
Kentucky agreement provides for the payment of certain license fees as well as
royalties based on net sales of licensed products by us or any sublicensees. We
must also pay all costs and expenses incurred in obtaining and maintaining
patents, and diligently pursue a vigorous development program for the products
in order to maintain our license rights under the Kentucky agreement.
PIVANEX
We have acquired, from Bar-Ilan Research and Development Co. Ltd., 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 us to Bar-Ilan of royalties based
on net 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 any sublicense of the licensed technology. We must also
pay all costs and expenses incurred in patent prosecution and maintenance. Our
minimum annual royalty for 1999 and thereafter is $60,000.
We must also satisfy certain other terms and conditions set forth in the
Bar-Ilan agreement in order to retain our license rights, including:
- the use of reasonable best efforts to bring any products developed under
the Bar-Ilan agreement to market,
- 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.
All of the above conditions have been met to date.
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CELL THERAPY PRODUCTS
We acquired an exclusive, worldwide license under certain United States and
foreign patent applications relating to the CCM technology pursuant to a
research and license agreement with New York University (NYU). The NYU agreement
provides for the payment of royalties based on net sales of products and
processes incorporating the licensed technology, as well as a percentage of any
income it receives from any sublicense thereof. We are also obligated to
reimburse NYU for all costs and expenses incurred by NYU in filing, prosecuting
and maintaining the licensed patents and patent applications.
We must satisfy certain other terms and conditions of the NYU agreement in
order to retain our license rights. These include, but are not limited to, the
use of best efforts to bring licensed products to market as soon as commercially
practicable and to diligently commercialize such products thereafter. In
January 2000, we granted a sublicense to Schering AG, under which Schering is
funding the continued development of the licensed technology and potential
commercialization of the product candidate Spheramine. We are also entitled to
certain developmental milestone payments and royalty on net sales of the
product.
In March 1996, we acquired an exclusive, worldwide license under United
States and foreign patent applications relating to the Sertoli cell technology
pursuant to a license agreement with the University of South Florida and the
University of South Florida Research Foundation, Inc. The South Florida
agreement provides for the payment of royalties based on net sales by us or any
sublicensees of products and processes incorporating the licensed technology. We
are also obligated to reimburse South Florida for all costs and expenses
incurred by South Florida in filing, prosecuting and maintaining the licensed
patent rights. We must satisfy certain other terms and conditions of the South
Florida agreement in order to retain our full exclusive license rights. These
include:
- the development and introduction into clinical trials of at least one
product within three years of such date and
- an additional product every two years thereafter until commercialization
of one product, and
- the timely payment of license and royalties.
If we failed to meet these development obligations, the University of South
Florida may convert this exclusive license into a license specific to the
product or products currently under development by us. We have been unable to
meet these development obligations thus far and the University has not exercised
its right to convert the license. We are in discussion with the University on
the terms of the license.
GENE THERAPY PRODUCTS
In October 1992, we acquired an exclusive, worldwide license under United
States and foreign patent applications assigned to Baylor College of Medicine
relating to the RB gene, including its use in conferring senescence to tumors
that form 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, we 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.
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We are a party to several license agreements with the University of Illinois
at Chicago which granted us the exclusive worldwide license under certain issued
patents and patent applications, including those relating to methods for
preventing multi-drug resistance and the human MDR1 gene. The exclusive nature
of the Chicago licenses is subject in certain instances to certain reservations,
including the use of all or part of the licensed technology for research,
education and other non-commercial purposes. In addition, our rights under the
MDR1 license are subject to a non-exclusive right granted to Glaxo-Wellcome to
transfect cell lines with the MDR1 gene, and to use the transfectants for
research purposes. Glaxo-Wellcome does not, however, have the right to sell or
transfer the transfectants or any derivatives thereof, without the written
authorization of the University of Illinois at Chicago.
We have acquired an exclusive license from MIT under an issued patent
relating to the use of MDR genes for creating and selecting drug resistant
mammalian cells. The MIT license is subject to prior grants of:
- an irrevocable, royalty-free, non-exclusive license granted to the United
States government,
- non-exclusive licenses granted to Eli Lilly, Inc. and Genetics Institute,
Inc. for research purposes, and
- non-exclusive, commercial licenses that may be granted pursuant to options
granted to Eli Lilly and Genetics Institute 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 Ingenex's
common stock to MIT. Under the MIT license, we 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.
IMPLANTABLE DRUG DELIVERY SYSTEM
In October 1995, we acquired from MIT an exclusive worldwide license to
certain United States and foreign patents relating to the implantable drug
delivery system. The MIT license required us to invest $1.8 million in operating
capital toward development of products and processes covered by the MIT license
during the two years ended September 1997, of which approximately $1.7 million
has been invested to date. The exclusive nature of the MIT license was also
subject to the condition that an Investigational New Drug (IND) application had
been filed with the FDA by December 31, 1997. MIT has agreed to change the
September 30 and December 31, 1997 dates to December 31, 1999. We are in
discussion with MIT on further extension of these dates. We must also satisfy
certain other usual terms and conditions set forth in the MIT license in order
to retain our license rights thereunder, including payment 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.
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PATENTS AND PROPRIETARY RIGHTS
GENERAL
We have obtained rights to certain patents and patent applications relating
to our proposed products and may, in the future, seek rights from third parties
to additional patents and patent applications. We also rely on trade secrets and
proprietary know-how, which we seek to protect, in part, by confidentiality
agreements with employees, consultants, advisors, and others. For risks we face
with respect to patents and proprietary rights, see "Risk Factors--We may be
unable to protect our patents and proprietary rights."
ZOMARIL (ILOPERIDONE)
We are the exclusive licensee under the Hoechst license of issued and
pending United States and foreign patents and patent applications related to
iloperidone, including its use in the treatment of psychiatric disorders,
psychotic disorders and analgesia. Prosecution of various divisional and
continuation applications and their foreign counterparts continues
satisfactorily; although it is uncertain whether additional patents will be
granted. We have no knowledge of any matters or issues which would appear to
materially, negatively affect the validity and/or enforceability of the claims
directed to iloperidone in either the issued patents and/or the associated
counterparts that claim the priority of the U.S. patent applications.
IMMUNOTHERAPEUTICS
We are the exclusive licensee under the Kentucky agreement of certain United
States and foreign patents and patent applications related to the anti-idiotype
antibodies known as 3H1, 1A7 and 11D10 and their fragments, derivatives or
analogs. U.S. patents have been issued for the composition and method of use of
the 1A7 antibody in April 1997 and the 3H1 antibody in November 1999.
Prosecution of patents covering the 11D10 antibody continues satisfactorily, as
does prosecution of various divisional and continuation applications and their
foreign counterparts for all the antibodies, although it is uncertain whether
additional patents will be granted. We have no knowledge of any matters or
issues which would appear to materially, negatively affect the validity and/or
enforceability of these patent rights.
PIVANEX
We are the exclusive licensee under the Bar-Ilan agreement of an issued
United States patent and certain foreign patents, and patent applications
covering novel analogs of butyric acid. Prosecution of various divisional and
continuation applications and their foreign counterparts continues
satisfactorily; although it is uncertain whether additional patents will be
granted. We have no knowledge of any matters or issues which would appear to
materially, negatively affect the validity and/or enforceability of these patent
rights.
CELL THERAPY PRODUCTS
We are the exclusive licensee under the NYU license of United States and
foreign patent applications relating to our cell-coated microcarrier technology.
The Patent and Trademark Office has issued two U.S. patents on the core subject
material underlying the NYU license. An Australian patent on the core material
of a patent application underlying the NYU license was granted in May 1996.
Prosecution of various divisional and continuation applications and their
foreign counterparts continues satisfactorily, although it uncertain whether
additional patents will be granted.
We are the exclusive licensee under the South Florida agreement of United
States and foreign patent and patent applications related to Sertoli cell
technology. In December 1997, a U.S. patent was issued covering a method for
treating Parkinson's disease by stereotoxic implantation of Sertoli cells
directly into the affected area of the brain without the need for
immunosuppression. In October 1998, a U.S. patent was issued covering a purified
and isolated Sertoli cell-secretory cell hybrid. In November 1998, a U.S. patent
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was issued covering the use of Sertoli cells as a facilitator in the
transplantation of therapeutic cells into the brain and spinal cord.
We are aware of issued U.S. patents and patent applications relating to use
of Sertoli cells in transplantation filed by Research Corporation Technologies.
These patents and applications may affect the ability to practice certain claims
in the issued South Florida patents and pending patent applications. We and
South Florida believe we may have certain rights in the Research Corporation
patents. The exercise of these rights will depend on an inventorship
determination, the outcome of which is uncertain at this time.
GENE THERAPY PRODUCT--RB94
We are the exclusive licensee under the Baylor license of United States and
foreign patent applications relating to the RB gene, including its use in
conferring senescence to tumors that form the basis of RB94. Prosecution of
patents covering RB94 continues satisfactorily, as does prosecution of various
divisional and continuation applications and their foreign counterparts,
although it is uncertain whether additional patents will be granted.
We are 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 a U.S.
patent licensed to us from Baylor College of Medicine. The Baylor patent also
contains claims directed to specific expression vectors containing these DNA
molecules. Although a patent is presumed valid, we cannot assure 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 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 to us from
Baylor.
IMPLANTABLE DRUG DELIVERY SYSTEM
We are the exclusive licensee under the MIT license to three United States
and certain European patents relating to an implantable drug delivery system. We
have no knowledge of any matters or issues which would appear to materially,
negatively affect the validity and/or enforceability of these patent rights.
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
us. Many of our competitors 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
patents or other rights that conflict with patents covering our technologies.
With respect to the product candidate Zomaril, several products categorized
as atypical antipsychotics are already on the market. Specifically, Risperidal
sold by Janssen Pharmaceuticals, Zyprexa sold by Eli Lilly, Clozaril sold by
Novartis and Seroquel sold by Zeneca. Competition among these companies is
already intense and Zomaril, expected to be the fifth or sixth such product on
the market, will face severe competition. The success of Zomaril will depend on
how it can be differentiated from products already on the market on the basis of
efficacy, side effect profile, cost, availability of formulations and dose
requirements, among other things.
With regard to our immunotherapeutic products, we are aware of several
companies involved in the development of cancer therapeutics that target the
same cancers as the products under development by us. Such companies include
Progenics, Biomira, AltaRex, Genentech, ImClone and Glaxo-Wellcome.
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With regard to our CNS technologies, we are aware of several new drugs for
Parkinson's disease that are in pre-clinical and clinical development. Amgen is
pursuing clinical trials in Parkinson's patients with glial derived neurotraphic
factor (GDNF) and is collaborating with Medtronics, Inc. in its delivery to the
CNS. In addition, several well-funded public and private companies are actively
pursuing alternative cell transplant technologies, including Somatix Therapy
Corporation, 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.
With regard to our gene therapy products, we are 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 this
area, including Genetix Pharmaceuticals, Inc. and two research organizations
receiving funding from the NIH. We are 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 our implantable drug delivery system, we are aware of an
implantable therapeutic system being developed by ALZA Corporation.
Additionally, companies such as Medtronics are developing implantable pumps that
could be used to infuse drugs into the CNS.
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 us.
See "Risk Factors--We face intense competition."
GOVERNMENT REGULATION
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 pre-clinical laboratory tests.
The procedure for obtaining FDA approval to market a new drug involves
several steps. Initially, the manufacturer must conduct pre-clinical 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 application 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. Among the conditions for clinical studies and IND approval is
the requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to current Good Manufacturing Practices (cGMP),
which must be followed at all times. 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, dose selection and 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 confirmation of 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 pre-clinical and clinical testing on new drugs are
submitted to the FDA in the form of a New Drug Application (NDA). 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,
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may be withdrawn if compliance with regulatory standards is not maintained or
problems occur following initial marketing.
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 we will have the exclusive
right to exploit such technologies.
In addition, our gene therapy product candidate is subject to guidelines
established by NIH, covering deliberate transfers of recombinant DNA into human
subjects conducted within NIH laboratories or with NIH funds, which provide that
such products must be approved by the NIH Director. The NIH has established the
Recombinant DNA Advisory Committee which sets forth guidelines concerning
approval of NIH-supported research involving the use of recombinant DNA.
Although the jurisdiction of the NIH applies only when NIH-funded research or
facilities are involved in any aspect of the protocol, the Advisory Committee
encourages all gene transfer protocols to be submitted for its review. We intend
to comply with the Advisory Committee and NIH guidelines.
We believe we are in compliance with all material applicable regulatory
requirements. However, see "Risk Factors--We must comply with extensive
government regulations" for additional risks we face regarding regulatory
requirements and compliance.
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.
EMPLOYEES
We currently have 30 full-time employees. None of our employees are
represented by a labor union. We have not experienced any work stoppages and
consider our relations with our employees to be good. See "Risk Factors--We may
not be able to retain our key management and scientific personnel."
RISK FACTORS
An investment in our stock involves various risks. You should carefully
consider the following risk factors and other information incorporated by
reference before deciding to purchase our shares.
WE HAVE A HISTORY OF OPERATING LOSSES AND MAY NEVER BE PROFITABLE. Through
December 31, 1999, we had accumulated net losses since inception of
approximately $65.4 million. We will continue to incur losses for the
foreseeable future as a result of the various costs associated with our
research, development, financial, administrative, regulatory and management
activities. We may never achieve or sustain profitability.
OUR PRODUCTS ARE AT AN EARLY STAGE OF DEVELOPMENT AND MAY NOT BE
SUCCESSFULLY DEVELOPED OR COMMERCIALIZED. Our proposed products are at various
stages of development, but all will require significant further
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development, testing and regulatory clearances prior to commercialization. We
are subject to the risk that some or all of our proposed products:
- will be found to be ineffective or unsafe;
- will not receive necessary regulatory clearances;
- will not be capable of being produced in commercial quantities at
reasonable costs; or
- will not be successfully marketed.
We may experience unanticipated problems relating to product development,
testing, regulatory compliance, manufacturing, marketing and competition, and
our costs and expenses could exceed current estimates. We cannot predict whether
we will successfully develop and commercialize any products.
WE MUST COMPLY WITH EXTENSIVE GOVERNMENT REGULATIONS. Our research,
development, pre-clinical and clinical trial activities, and the manufacturing
and marketing of any products which we may successfully develop are subject to
an extensive regulatory approval process by the FDA and other regulatory
agencies in the U.S. and other countries. The process of obtaining required
regulatory approvals for drugs, including conducting pre-clinical and clinical
testing, is lengthy, expensive and uncertain. Even after such time and
expenditures, we may not obtain necessary regulatory approvals for clinical
testing or for the manufacturing or marketing of any products. Regulatory
approval may entail limitations on the indicated usage of a drug, which may
reduce the drug's market potential. Even if regulatory clearance is obtained,
post-market evaluation of the products, if required, could result in
restrictions on a product's marketing or withdrawal of the product from the
market as well as possible civil or criminal sanctions. We depend on
laboratories and medical institutions conducting pre-clinical studies and
clinical trials to maintain both good laboratory and good clinical practices. We
will also depend upon the manufacturers of any products we may successfully
develop to comply with cGMP.
In addition, we and our collaborative partners may be subject to regulation
under state and federal laws, including requirements regarding occupational
safety, laboratory practices, environmental protection and hazardous substance
control, and may be subject to other local, state, federal and foreign
regulation. We cannot predict the impact of such regulation on us, although it
could be material and adverse.
WE MAY BE UNABLE TO PROTECT OUR PATENTS AND PROPRIETARY RIGHTS. Our future
success will depend to a significant extent on our ability to:
- enforce patent protection on our products and technologies;
- maintain trade secrets; and
- operate and commercialize products without infringing on the patents or
proprietary rights of others.
Our patents may not afford any competitive advantages and may be challenged
or circumvented by third parties. Further, patents may not issue on pending
patent applications. Because of the extensive time required for development,
testing and regulatory review of a potential product, it is possible that before
a potential product can be commercialized, any related patent may expire, or
remain in existence for only a short period following commercialization,
reducing any advantage of the patent.
Our business may be materially adversely affected if others independently
develop similar technologies or duplicate any technology we develop.
Furthermore, costly and time consuming litigation may be necessary to:
- enforce any of our patents;
- determine the scope and validity of the patent rights of others; or
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- respond to a legal action against us claiming damages for infringement of
patent rights or other proprietary rights or seeking to enjoin commercial
activities relating to the affected product or process.
The outcome of any such litigation is highly uncertain.
To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to our
proposed products, disputes may arise as to the proprietary rights to such
information which may not be resolved in our favor. Most of our consultants are
employed by or have consulting agreements with third parties and any inventions
discovered by such individuals generally will not become our property. There is
a risk that other parties may breach confidentiality agreements or that our
trade secrets become known or independently discovered by competitors, which
could adversely affect us.
WE FACE INTENSE COMPETITION. Competition in the pharmaceutical and
biotechnology industries is intense and is expected to increase. We will face
competition from numerous companies that currently market, or are developing,
products for the treatment of the diseases and disorders we have targeted. Many
of these entities have significantly greater research and development
capabilities, experience in obtaining regulatory approvals and manufacturing,
marketing, financial and managerial resources than us. We also compete with
universities and other research institutions in the development of products,
technologies and processes, as well as the recruitment of highly qualified
personnel. Our competitors may succeed in developing technologies or products
that are more effective than the ones we have under development or that render
our proposed products or technologies noncompetitive or obsolete. In addition,
certain of such competitors may achieve product commercialization or patent
protection earlier than us.
WE ARE DEPENDENT UPON OUR KEY COLLABORATIVE RELATIONSHIPS AND LICENSE AND
SPONSORED RESEARCH AGREEMENTS. As a small company with limited resources, we
rely significantly on the resources of third parties to conduct research and
development on our behalf. For example, our ability to ultimately derive
revenues from Zomaril is almost entirely dependent upon Novartis conducting the
Phase III trials and completing the regulatory approval process and implementing
the marketing program necessary to commercialize Zomaril if the trials are
successful. Our success in the future will depend, in part, on our ability to
maintain existing collaborative relationships and to develop new collaborative
relationships with third parties. Our license agreements relating to the
in-licensing of technology generally require the payment of up-front license
fees and royalties based on sales with minimum annual royalties, the use of due
diligence in developing and bringing products to market, the achievement of
funding milestones and, in some cases, the grant of stock to the licensor. Our
sponsored research agreements generally require periodic payments on an annual
or quarterly basis. Our failure to meet financial or other obligations under
license or sponsored research agreements in a timely manner could result in the
loss of our rights to proprietary technology or our right to have the applicable
university or institution conduct research and development efforts.
WE MAY BE DEPENDENT ON THIRD PARTIES TO MANUFACTURE AND MARKET ANY PRODUCTS
WE MAY SUCCESSFULLY DEVELOP. To date, we have not introduced any products on
the commercial market. We may not have the resources in the foreseeable future
to allocate to the commercial manufacture or direct marketing of any proposed
products. Collaborative arrangements may be pursued regarding the manufacture
and marketing of any products that may be successfully developed. We may be
unable to enter into additional collaborative arrangements to manufacture or
market any proposed products or, in lieu thereof, establish our own
manufacturing operations or sales force.
WE MAY NOT BE ABLE TO RETAIN OUR KEY MANAGEMENT AND SCIENTIFIC
PERSONNEL. As a small company with a limited number of personnel, we are highly
dependent on the services of Dr. Louis R. Bucalo, Chairman, President and Chief
Executive Officer, as well as the other principal members of our management and
scientific staff. The loss of one or more of such individuals could
substantially impair ongoing research and
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development programs and could hinder our ability to obtain corporate partners.
Our success depends in large part upon our ability to attract and retain highly
qualified personnel. We compete in our hiring efforts with other pharmaceutical
and biotechnology companies, as well as universities and nonprofit research
organizations, and we may have to pay higher salaries to attract and retain
personnel.
WE MAY NEED ADDITIONAL FINANCING. At March 15, 2000, we had approximately
$84.7 million of cash which we believe will enable us to fund our operations at
least through 2003. We may need to seek additional financing after such time to
continue our product development activities, and will be required to obtain
substantial funding to commercialize any products that we may successfully
develop. We do not have any funding commitments or arrangements other than our
bank line of credit. If we are unable to enter into a corporate collaboration,
complete a debt or equity offering, or otherwise obtain any needed financing, we
will be required to reduce, defer or discontinue our product development
programs. We may be required to obtain funds on terms that are not favorable to
us and our stockholders.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD ADVERSELY IMPACT
OUR STOCK PRICE. Future sales of our common stock by existing stockholders
pursuant to Rule 144 under the Securities Act, pursuant to an effective
registration statement or otherwise, could have an adverse effect on the price
of our securities.
ITEM 2. PROPERTIES
We have a four-year lease, expiring in June 2002, for approximately 10,000
square feet of office space in South San Francisco, California. We also have a
five-year lease, expiring in October 2003, for approximately 4,200 square feet
of space in Somerville, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(A) PRICE RANGE OF SECURITIES
Through November 20, 1998, our common stock traded on the Nasdaq SmallCap
Market under the symbol TTNP. On November 23, 1998, our common stock began
trading on the American Stock Exchange under the symbol TTP. The table below
sets forth the high and low sales prices of our common stock as reported by the
Nasdaq SmallCap Market and the American Stock Exchange for the periods
indicated. For the period during which we were listed on the Nasdaq SmallCap
Market, prices are based on quotations between dealers, do not reflect retail
mark-up, mark-down or commissions, and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Fiscal Year Ended December 31, 1999:
First Quarter............................................. $ 4.750 $3.250
Second Quarter............................................ $ 4.938 $2.750
Third Quarter............................................. $13.563 $4.313
Fourth Quarter............................................ $19.500 $6.750
Fiscal Year Ended December 31, 1998:
First Quarter............................................. $ 5.750 $4.625
Second Quarter............................................ $ 6.125 $3.813
Third Quarter............................................. $ 5.125 $2.188
Fourth Quarter............................................ $ 3.938 $1.844
</TABLE>
(B) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The number of record holders of our common stock as of March 24, 2000 was
approximately 202. Based on the last ADP search, we believe there are in excess
of 3,000 beneficial holders of the common stock.
(C) DIVIDENDS
We have never paid a cash dividend on our common stock and anticipate that
for the foreseeable future any earnings will be retained for use in our business
and, accordingly, do not anticipate the payment of cash dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below summarizes certain financial
data which has been derived from and should be read in conjunction with our more
detailed financial statements and footnotes thereto included in the section
beginning on page F-1. See also "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues (1)......................... $ 337 $ -- $ 17,500 $ 259 $ 140
Operating expenses:
Research and development................... 9,429 7,813 9,310 5,567 5,202
Acquired in-process research and
development.............................. 136 -- 9,500 -- 686
General and administrative................. 2,794 3,708 6,514 5,264 3,658
Other income (expense)--net (2)............ 726 907 8,415 (2,294) (2,288)
-------- -------- -------- -------- --------
Net (loss) income.......................... $(11,296) $(10,614) $ 592 $(12,856) $(11,693)
======== ======== ======== ======== ========
Basic net (loss) income per share (pro
forma in 1995)........................... $ (0.70) $ (0.81) $ 0.05 $ (1.67) $ (1.74)
======== ======== ======== ======== ========
Diluted net (loss) income per share........ $ (0.70) $ (0.81) $ 0.04 $ (1.67) $ (1.74)
======== ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Revenues for 1997 include $17.4 million from fees related to the sublicense
of Zomaril to Novartis.
(2) Other income for 1997 includes a gain of $8.4 million from the sale of a
research technology.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)............... $ 45,112 $ 10,215 $ 23,642 $ 12,174 $ (6,232)
Total assets............................... 47,362 12,228 25,594 16,366 4,732
Long-term debt............................. -- -- -- 1,200 2,036
Accumulated deficit........................ (65,418) (54,123) (43,508) (44,100) (31,244)
Stockholders' equity (deficiency).......... 44,302 9,406 17,178 11,411 (5,823)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT.
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.
SPHERAMINE-TM-, CEAVAC-REGISTERED TRADEMARK-, TRIAB-REGISTERED TRADEMARK-,
TRIGEM-TM-, PIVANEX-TM- AND CCM-TM- ARE TRADEMARKS OF TITAN PHARMACEUTICALS,
INC. ZOMARIL-TM- IS A TRADEMARK OF NOVARTIS PHARMA AG.
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OVERVIEW
We are a biopharmaceutical company developing proprietary therapeutics for
the treatment of central nervous system disorders, cancer and other serious and
life-threatening diseases.
Our most advanced product candidate, Zomaril (iloperidone), is a novel
antipsychotic agent under development for the treatment of patients with
schizophrenia. Zomaril is currently in Phase III clinical testing through a
licensing and development agreement with Novartis Pharma AG. Also in the CNS
arena, we are developing a unique cell based therapeutic, Spheramine, for the
treatment of patients with Parkinson's disease. In November 1999, we received
approval from the FDA to commence Phase I/II clinical testing with Spheramine.
We have entered into a collaboration with Schering AG for the development,
manufacture and commercialization of this treatment for Parkinson's disease, and
Schering is funding the manufacturing, development and clinical studies of the
product in exchange for worldwide commercialization rights. Our cancer portfolio
includes three therapeutic monoclonal antibodies--CeaVac, TriAb, and
TriGem--that are designed to stimulate a patient's immune system against cancer
cells. CeaVac is currently being evaluated in a large multi-center double-blind
placebo-controlled Phase II/ III clinical trial in patients with Stage IV
metastatic colorectal cancer. TriAb is currently being evaluated in a
double-blind placebo-controlled Phase II clinical study in patients with breast
cancer. TriGem has completed initial Phase I testing in patients with melanoma,
and we are pursuing later stage clinical trials through co-operative clinical
oncology research groups. We are also currently conducting a Phase II clinical
trial with Pivanex, a novel synthetic analog of butyric acid, for the treatment
of patients with non-small cell lung cancer. Our other programs in pre-clinical
development include a cancer gene therapy product and an implantable drug
delivery technology.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1999, 1998, AND
1997
1999 COMPARED TO 1998
Since inception, we have devoted substantially all of our resources to
product and technology development, clinical research, raising capital, and
securing patent protection. At December 31, 1999, we had an accumulated deficit
of $65.4 million and working capital of $45.1 million.
Revenues in 1999 of $0.3 million consisted primarily of U.S. government
grants. There were no revenues for 1998.
From inception through December 31, 1999, research and development expenses,
including $10.3 million in acquired in-process research and development costs,
totaled $64.5 million, and general and administrative expenses totaled $24.8
million. Research and development expenses for 1999 were $9.6 million, including
$0.1 million of acquired in-process research and development related to the
acquisition of the minority interest of Theracell, compared to $7.8 million for
1998, an increase of $1.8 million, or 22%. The planned increase compared to 1998
was attributable to patient enrollment in the clinical trial with CeaVac in
colorectal cancer and the final phases of the pre-clinical program for
Spheramine in preparation for Phase I/II clinical trial. General and
administrative expenses for 1999 were $2.8 million compared to $3.7 million for
1998, a decrease of $0.9 million, or 25%. The decrease was attributable to
ongoing efforts to contain non-research operating costs.
Other income for 1999 was $0.7 million compared to $0.9 million for 1998, a
decrease of $0.2 million, or 20%. Other income for 1999 and 1998 primarily
consisted of interest income.
As a result of the foregoing, we had a net loss of $11.3 million in 1999
compared to a net loss of $10.6 million in 1998.
None of our products have been commercialized, and we do not expect to
generate any revenue from product sales or royalties until at least 2002. With
the advancement in clinical development of our products, we anticipate research
and development expenses will increase in the near future, while general and
administrative costs necessary to support such research and development
activities will increase at a
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controlled rate. We will also seek to identify new technologies and/or product
candidates for possible in-licensing or acquisition. Accordingly, we expect to
incur operating losses for the foreseeable future. We cannot assure that we will
ever achieve profitable operations.
1998 COMPARED TO 1997
There were no revenues for 1998 compared to $17.5 million for 1997. Total
revenues for 1997 were comprised of approximately $17.4 million from fees
related to the license of Zomaril to Novartis and $0.1 million from U.S.
government grants.
Research and development expenses for 1998 were $7.8 million, as compared to
$18.8 million for 1997, a decrease of $11.0 million, or 58%. 1997 expenses
include $9.5 million of acquired in-process research and development and other
expenditures related to the acquisition of Zomaril, the development of which is
now being funded by Novartis pursuant to the partnering agreement established by
us and Novartis in November 1997. General and administrative expenses for 1998
were $3.7 million compared to $6.5 million for 1997, a decrease of
$2.8 million, or 43%. The decrease is attributable to the merger of a former
subsidiary with and into Titan in August 1997, with a subsequent reduction in
personnel and other expenses, as well as the reduction in overhead associated
with the sale of a research technology by Ingenex in June 1997.
Other income for 1998 was $0.9 million compared to $8.4 million for 1997.
Other income for 1998 includes interest income of $0.8 million. Other income for
1997 includes a gain of $8.4 million from the sale of a research technology, net
interest income of $0.4 million, and a loss of $0.6 million representing our
share of the losses of Ansan Pharmaceuticals, Inc., our former subsidiary.
We had a net loss of $10.6 million in 1998 compared to net income of $0.6
million in 1997.
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. Cash has been used in
operating activities primarily to fund operating expenses.
In March 2000, we completed a private placement of 1.2 million shares of our
common stock for net proceeds of approximately $38.9 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.
During 1997, we received $25.9 million from license fees related to the
Novartis sublicense and the sale of a research technology.
In January 1997, we entered into an exclusive license agreement with Hoechst
Marion Roussel, Inc., (Hoechst) pursuant to which we received the worldwide
patent rights and know-how related to the antipsychotic agent Zomaril. During
1997, we paid fees consisting of:
(i) $4.0 million in cash, and
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(ii) $5.5 million through the issuance of approximately 0.6 million shares
of common stock (the Hoechst Shares.)
We were obligated to pay the difference between $5.5 million and the net
proceeds received by Hoechst upon the sale of the Hoechst Shares. In February
1998, Hoechst received net proceeds of $2.5 million on the sale of the Hoechst
Shares. Accordingly, in March 1998, we paid to Hoechst $3.0 million.
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 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. To preserve
operating capital, we have chosen to strategically focus on development of our
later stage products in clinical development, and at least temporarily reduce or
eliminate spending on certain pre-clinical programs. We believe that we
currently have sufficient working capital to sustain our planned operations at
least through 2003.
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.
YEAR 2000 COMPLIANCE
In prior years, we discussed the nature and progress of our Year 2000
readiness. In late 1999, we completed remediation and testing of systems at
minimal cost. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems resulting from the Year 2000 issue, either with our products
under development, internal systems, or the products and services of third
parties. We will continue to monitor our mission critical computer applications
and our suppliers and vendors throughout the year to ensure that any latent Year
2000 matters that may arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have reviewed the requirements of Item 7A and have determined that these
disclosures are not applicable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included in a separate section of this Report.
See "Index to Consolidated Financial Statements" on Page F-1.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
20
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The following table sets forth the names, ages and positions of our
executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Louis R. Bucalo, M.D. (1)....................... 41 Chairman, President and Chief Executive Officer
Sunil Bhonsle................................... 50 Executive Vice President and Chief Operating
Officer
Richard C. Allen, Ph.D.......................... 57 Executive Vice President
Robert E. Farrell............................... 50 Executive Vice President and Chief Financial
Officer
Victor Bauer, Ph.D.............................. 64 Executive Director of Corporate Development and
Director
Ernst-Gunter Afting, M.D., Ph.D. (2)............ 57 Director
Eurelio M. Cavalier............................. 67 Director
Michael K. Hsu (2).............................. 51 Director
Hubert Huckel, M.D. (1)(3)...................... 68 Director
Marvin E. Jaffe, M.D. (1)(3).................... 63 Director
Konrad M. Weis, Ph.D. (1)....................... 71 Director
</TABLE>
- ------------------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
LOUIS R. BUCALO, M.D. is a founder of Titan and has served as our President
and Chief Executive Officer since January 1993. Dr. Bucalo has served as a
director of Titan since March 1993 and was elected Chairman of the Board of
Directors in January 2000. 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 us 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 us as Executive Vice President in
August 1995. From January 1995 until it was merged into Titan in March 1999, he
also served as President and Chief Executive Officer of Theracell. From
June 1991 until December 1994, Dr. Allen was Vice President and General Manager
of the Neuroscience Strategic Business Unit of Hoechst-Roussel Pharmaceuticals,
Inc. 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 us 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. Mr. Farrell holds a B.A. from
University of Notre Dame and a J.D. from Hastings College of Law, University of
California.
VICTOR J. BAUER, PH.D., has served as a director of Titan since
November 1997. Dr. Bauer joined us in February 1997, and currently serves as
Executive Director of Corporate Development. From April 1996 until its merger
into Titan, Dr. Bauer also served as a director and Chairman of Theracell. From
December 1992 until February 1997, Dr. Bauer was a self-employed consultant to
companies in the pharmaceutical and biotechnology industries. Prior to that
time, Dr. Bauer was with Hoechst-Roussel Pharmaceuticals Inc., where he served
as President from 1988 through 1992.
21
<PAGE>
ERNST-GUNTER AFTING, M.D., PH.D., has served as a director of Titan 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.
EURELIO M. CAVALIER has served as a director of Titan since September 1998.
From 1958 until his retirement in 1994, Mr. Cavalier was employed in various
capacities by Eli Lilly & Co., serving as Vice President Sales from 1976 to 1982
and Group Vice President U.S. Pharmaceutical Business Unit from 1982 to 1993.
Mr. Cavalier currently serves on the Boards of Directors of DataChem, Inc.,
ProSolv, Inc. and St. Vincent Hospital. He serves on the Advisory Board of COR
Therapeutics and Indiana Heart Institute.
MICHAEL K. HSU has served as a director of Titan since March 1993. He is
currently a General Partner of EndPoint Merchant Group, a merchant bank
specializing in making investments into the healthcare and life science
industries. Mr. Hsu served as Director-Corporate Finance of National Securities
Corp. from November 1995 through April 1998, and from November 1994 through
October 1995 served with Coleman and Company Securities in the same capacity.
Mr. Hsu previously held various executive positions with Steinberg and Lyman
Health Care Company, Ventana Venture Growth Fund, Asian Pacific Venture Group
(Thailand) and D. Blech Life Science Ventures.
HUBERT HUCKEL, M.D. has served as a director of Titan 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
Thermogenesis, Corp. and Gynetics, Inc.
MARVIN E. JAFFE, M.D. has served as a director of Titan 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 the Merck Research Laboratories. He
currently serves on the Boards of Directors of Celltech Group, plc,
Immunomedics, Inc., Matrix Pharmaceuticals, Inc., and Vanguard Medica, plc.
KONRAD M. WEIS, PH.D., has served as a director of Titan since March 1993.
Dr. Weis is the former President and Chief Executive Officer of Bayer
Corporation. Dr. Weis serves as a director of PNC Equity Management Company,
Michael Baker Corporation, Visible Genetics, Inc. and Demegen, Inc.
Directors serve until the next annual 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 "Item
11. Executive Compensation--Employment Agreements."
DIRECTOR COMPENSATION
During 1999, non-employee directors are entitled to receive annual options
to purchase 10,000 shares of common stock vesting quarterly as fees for the
Board of Directors meetings, and are reimbursed for their expenses in attending
such meetings. Directors are not precluded from serving us in any other capacity
and receiving compensation therefor. In addition, directors are entitled to
receive options (Director Options) pursuant to our 1998 Stock Option Plan. In
August 1999, each of our current directors received Director Options to purchase
5,000 shares of common stock at an exercise price of $9.063 per share.
We are a party to a consulting agreement with Dr. Afting pursuant to which
he receives fees of $7,000 annually.
22
<PAGE>
We are a party to a consulting agreement with Dr. Jaffe pursuant to which he
receives fees of $35,000 annually.
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 Titan between Board
meetings, to the extent permitted by law. The Compensation Committee makes
recommendations to the Board concerning salaries and incentive compensation for
our officers and employees and administers our stock option plans. The Audit
Committee reviews the results and scope of the audit and other accounting
related matters.
The Board of Directors met four times during 1999 and also took action by
unanimous written consent. The Executive Committee met one time and also took
action by unanimous written consent, and the Compensation Committee and Audit
Committee each met one time. Each of our current directors attended at least 75%
of the aggregate of (i) the meetings of the Board of Directors and
(ii) meetings of any Committees of the Board on which such person served which
were held during the time such person served.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers, directors and persons who beneficially own more than 10%
of a registered class of our equity securities to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of our common stock and other equity securities. Such executive
officers, directors, and greater than 10% beneficial owners are required by SEC
regulation to furnish us with copies of all Section 16(a) forms filed by such
reporting persons.
Based solely on our review of such forms furnished to us and written
representations from certain reporting persons, we believe that all filing
requirements applicable to our executive officers, directors and greater than
10% beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth the aggregate
compensation awarded to, earned by, or paid to the Chief Executive Officer and
to executive officers whose annual compensation exceeded $100,000 for the fiscal
year ended December 31, 1999 (collectively, the "named executive officers") for
services during the fiscal years ended December 31, 1999, 1998 and 1997:
23
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- --------------------------- -------- -------- ----------
<S> <C> <C> <C>
Louis R. Bucalo ............................................ 1999 $222,013 $ 0
President and Chief Executive Officer 1998 $243,100 $ 0
1997 $231,525 $58,721(1)
Sunil Bhonsle .............................................. 1999 $180,100 $ 0
Executive Vice President and 1998 $194,800 $ 0
Chief Operating Officer 1997 $190,991 $68,370(1)
Richard C. Allen ........................................... 1999 $180,475 $ 0
Executive Vice President (2) 1998 $197,800 $ 0
1997 $193,984 $77,096(1)
Robert E. Farrell .......................................... 1999 $173,425 $ 0
Executive Vice President and 1998 $190,400 $ 0
Chief Financial Officer 1997 $186,665 $18,500
</TABLE>
- ------------------------
(1) Bonuses pertain to fiscal year 1995 and were paid in 1997.
(2) Dr. Allen also served as President and Chief Executive Officer of Theracell
until Theracell merged with and into Titan in March 1999, and President and
Chief Operating Officer of ProNeura during these periods. Until March 1999,
Dr. Allen received his entire salary from Theracell. Dr. Allen's bonus in
1997 included $20,000 paid by Titan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to the named executive officers during the fiscal year ended December 31,
1999. No stock appreciation rights were granted to these individuals during such
year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
NUMBER OF ------------------------------------------
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH) (1) DATE
- ---- ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Louis R. Bucalo............................... 71,500 5.35% $ 3.625 01/04/2009
Louis R. Bucalo............................... 28,000 2.09% $ 3.688 02/04/2009
Louis R. Bucalo............................... 27,531 2.06% $ 0.080 03/10/2009
Louis R. Bucalo............................... 5,000 0.37% $ 9.063 08/30/2009
Louis R. Bucalo............................... 400,000 29.91% $12.750 11/24/2009
Sunil Bhonsle................................. 55,600 4.16% $ 3.625 01/04/2009
Sunil Bhonsle................................. 21,000 1.57% $ 3.688 02/04/2009
Sunil Bhonsle................................. 184,000 13.76% $12.750 11/24/2009
Richard C. Allen.............................. 41,200 3.08% $ 3.625 01/04/2009
Richard C. Allen.............................. 21,000 1.57% $ 3.688 02/04/2009
Richard C. Allen.............................. 132,000 9.87% $12.750 11/24/2009
Robert E. Farrell............................. 26,300 1.97% $ 3.625 01/04/2009
Robert E. Farrell............................. 21,000 1.57% $ 3.688 02/04/2009
Robert E. Farrell............................. 66,000 4.93% $12.750 11/24/2009
</TABLE>
- ------------------------
(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. We may also
finance the option exercise by loaning the optionee sufficient funds to pay
the
24
<PAGE>
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, 1999 with respect to the
named executive officers. No stock appreciation rights were exercised during
such year or were outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT FY-END MONEY OPTIONS AT FY-END (1)
ACQUIRED --------------------------- ----------------------------
NAME ON EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Louis R. Bucalo.................. -0- 754,130 473,044(2) $9,937,731 $3,439,758(2)
Sunil Bhonsle.................... -0- 403,678 231,621(2) $5,590,912 $1,863,912(2)
Richard C. Allen................. -0- 308,515 153,169(2) $4,868,737 $1,168,360(2)
Robert E. Farrell................ 21,000 170,966 94,234 $2,085,619 $ 768,650
</TABLE>
- ------------------------
(1) Based on the fair market value of our common stock at year-end, $19.000 per
share, less the exercise price payable for such shares.
(2) A portion of employee's options are immediately exercisable. Upon the
employee's cessation of service, we have the right to repurchase any shares
acquired pursuant to said grant. Our right to repurchase shares expires in
equal monthly installments over the five year period commencing on the date
of grant. Options to which our repurchase right has not expired are deemed
unexercisable for purposes of this table.
EMPLOYMENT AGREEMENTS
We are a party to an employment agreement with Dr. Bucalo expiring in
February 2003 which provides for a base annual salary of $210,000, subject to
annual increases of 5% and bonuses of up to 25% 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, we are obligated to make severance
payments equal to his base annual salary for the greater of the balance of the
term of the agreement or 18 months.
Employment agreements with each of Dr. Allen, Mr. Bhonsle and Mr. Farrell
provide 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 the employee's
employment is terminated other than for "good cause" (as defined), we are
obligated to make severance payments equal to the base annual salary for six
months. All of the agreements contain confidentiality provisions.
In order to preserve our cash resources, we have determined, and the
executives agreed, that the 1999 salaries of Drs. Bucalo and Allen and Messrs.
Bhonsle and Farrell would be at $219,000, $178,000, $178,000 and $171,000,
respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of March 24, 2000, certain information
concerning the beneficial ownership of our common stock by (i) each stockholder
known by us to own beneficially five percent or
25
<PAGE>
more of our outstanding common stock; (ii) each director; (iii) each executive
officer; and (iv) all of our executive officers and directors 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........................................ 1,167,685(3) 4.5%
Ernst-Gunter Afting, M.D., Ph.D............................. 24,000(4) *
Richard C. Allen, Ph.D...................................... 349,108(5) 1.4%
Victor J. Bauer, Ph.D....................................... 65,449(6) *
Sunil Bhonsle............................................... 480,249(7) 1.9%
Eurelio M. Cavalier......................................... 12,500(4) *
Robert E. Farrell........................................... 200,217(8) *
Michael K. Hsu.............................................. 52,167(9) *
Hubert Huckel, M.D.......................................... 136,500(10) *
Marvin E. Jaffe, M.D........................................ 29,661(11) *
Konrad M. Weis, Ph.D........................................ 76,401(12) *
Lindsay A. Rosenwald, M.D. ................................. 1,509,294(13) 5.8%
787 Seventh Avenue, 48th Floor
New York, NY 10019
All executive officers and directors as a group 2,593,937 10.1%
(11) persons..............................................
</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 our common stock 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 867,454 shares issuable upon exercise of outstanding options.
(4) Represents shares issuable upon exercise of outstanding options.
(5) Includes 344,108 shares issuable upon exercise of outstanding options.
(6) Includes 60,449 shares issuable upon exercise of outstanding options.
(7) Includes 463,249 shares issuable upon exercise of outstanding options.
(8) Includes 169,217 shares issuable upon exercise of outstanding options.
(9) Includes 32,166 shares issuable upon exercise of outstanding options.
(10) Includes 26,500 shares issuable upon exercise of outstanding options.
Includes 100,000 shares held by a family partnership for which Dr. Huckel
serves as general partner.
(11) Includes 26,500 shares issuable upon exercise of warrants and outstanding
options.
(12) Includes 31,617 shares issuable upon exercise of outstanding options.
(13) Includes (i) 45,042 shares held by each of June Street Corporation and
Huntington Street Corporation, companies wholly-owned by Dr. Rosenwald; (ii)
580,853 shares held by a fund for which a wholly-owned company of Dr.
Rosenwald's serves as investment manager; and (iii) an aggregate of
26
<PAGE>
296,377 shares held by two funds for which the same wholly-owned company
serves as general partner. Does not include shares owned by Dr. Rosenwald's
wife and his children's trusts, as to which he disclaims beneficial
ownership. The foregoing information is derived from a Schedule 13G/A filed
on behalf of Dr. Rosenwald on February 14, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In June and July of 1997, Dr. Hubert Huckel, a director of Titan, received
an aggregate of $155,000 in consulting fees for services rendered in connection
with our consummation of the Zomaril (iloperidone) license. Dr. Huckel was paid
pursuant to a consulting agreement which provided for the payment of fees based
upon a percentage of the consideration paid by us upon completion of a licensing
transaction with Dr. Huckel's assistance. The consulting agreement expired by
its terms in January 1998.
In January 1999, we completed a private placement of 2,254,545 shares of our
common stock. Dr. Hubert Huckel and Mr. Michael Hsu, directors of Titan,
participated in the offering by purchasing 100,000 and 5,272 shares,
respectively.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We have adopted a policy that all future transactions, including loans,
between us and our officers, directors, principal stockholders and their
affiliates must 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.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
An index to Consolidated Financial Statements appears on page F-1.
2. SCHEDULES
All financial statement schedules are omitted because they are not
applicable, not required under the instructions or all the information required
is set forth in the financial statements or notes thereto.
3. EXHIBITS
<TABLE>
<CAPTION>
<C> <C> <S>
3.1 -- Restated Certificate of Incorporation of the Registrant(1)
3.2 -- Form of Amendment to Restated Certificate of Incorporation
of the Registrant(1)
3.3 -- By-laws of the Registrant(1)
4.4 -- Form of Underwriter's Unit Purchase Option(1)
4.5 -- Form of Investor Rights Agreement between the Registrant and
the holders of Series A and Series B Preferred Stock(1)
4.6 -- Form of Placement Agent's Unit Purchase Option(4)
4.7 -- Certificate of Designation of Series C Preferred Stock(8)
10.1 -- 1993 Stock Option Plan(1)
10.2 -- 1995 Stock Option Plan(1)
10.3 -- Employment Agreement between the Registrant and Louis Bucalo
dated February 1, 1993, amended as of February 3, 1994(1)
10.4 -- Employment Agreement between Registrant and Richard Allen
dated July 28, 1995(1)
10.5 -- Employment Agreement between Registrant and Sunil Bhonsle,
dated August 6, 1995(1)
10.6 -- Form of Indemnification Agreement(1)
+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(1)
+10.11 -- License Agreement between Theracell, Inc. and New York
University dated November 20, 1992, as amended as of
February 23, 1993 and as of February 25, 1995(1)
+10.12 -- License Agreement between the Registrant and the
Massachusetts Institute of Technology dated September 28,
1995(1)
+10.14 -- Exclusive License Agreement between Ingenex, Inc. and the
Board of Trustees of the University of Illinois, dated
July 1, 1994(1)
+10.15 -- Exclusive License Agreement between Ingenex, Inc. and the
Board of Trustees of the University of Illinois, dated
July 1, 1994(1)
+10.16 -- License Agreement between Ingenex, Inc. and the
Massachusetts Institute of Technology, dated September 11,1
992(1)
+10.17 -- License Agreement between Ingenex, Inc. and Baylor College
of Medicine, dated October 21, 1992(1)
10.18 -- Lease for Registrant's facilities(2)
+10.19 -- License Agreement between Theracell, Inc. and the University
of South Florida dated March 15, 1996(3)
+10.20 -- License Agreement between Trilex Pharmaceuticals, Inc.
(formerly Ascalon Pharmaceuticals, Inc.) and the University
of Kentucky Research Foundation dated May 30, 1996(4)
+10.22 -- License Agreement between the Registrant and Hoechst Marion
Roussel, Inc. effective as of December 31, 1996(5)
</TABLE>
28
<PAGE>
<TABLE>
<C> <C> <S>
10.23 -- Employment Agreement between Registrant and Robert E.
Farrell dated August 9, 1996(5)
10.24 -- Financing Agreement between the Registrant and Ansan
Pharmaceuticals, Inc. dated March 21, 1997(6)
10.25 -- Agreement for Purchase and Sale of Assets between the
Registrant and Pharmaceuticals Product Development, Inc.
dated June 4, 1997(6)
+10.27 -- License Agreement between the Registrant and Bar-Ilan
Research and Development Company Limited effective
November 25, 1997(7)
10.28 -- License Agreement between the Registrant and Ansan
Pharmaceuticals, Inc. dated November 24, 1997(7)
10.29 -- Stock Purchase Agreement between the Registrant and Ansan
Pharmaceuticals, Inc. effective November 25, 1997(7)
+10.30 -- Sublicense Agreement between the Registrant and Novartis
Pharma AG dated November 20, 1997(7)
10.31 -- 1998 Stock Option Plan(9)
++10.32 -- License Agreement between the Registrant and Schering AG
dated January 25, 2000.
23.2 -- Consent of Ernst & Young LLP, Independent Auditors.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------------------
+ Confidential treatment has been granted with respect to portions of this
exhibit.
++ Confidential treatment has been requested with respect to portions of this
exhibit.
(1) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (File No. 33-99386).
(2) Incorporated by reference from the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1995.
(3) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the period ended March 31, 1996.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (File No. 333-13469).
(5) Incorporated by reference from the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1996.
(6) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the period ended March 31, 1997.
(7) Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (File No. 333-42367).
(8) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997.
(9) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
(B) REPORTS ON FORM 8-K
On October 19, 1999, we filed a current report on Form 8-K to call for
redemption of our outstanding Class A warrants. On December 3, 1999, we filed
another current report on Form 8-K to announce the results of the warrant call.
29
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
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............ F-5
Consolidated Statements of Cash Flows..................... F-8
Notes to Consolidated Financial Statements................ F-9
</TABLE>
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, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999 and for the period from July 25, 1991 (commencement of operations) to
December 31, 1999. 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, 1999 and
1998, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999 and for the period from
July 25, 1991 (commencement of operations) to December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
February 24, 2000
except for Note 14, as to which the date is
March 3, 2000
F-2
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 46,454,129 $ 11,654,896
License fees and grants receivable........................ 149,778 --
Prepaid expenses and other current assets................. 327,218 139,958
------------ ------------
Total current assets.................................... 46,931,125 11,794,854
Furniture and equipment, net................................ 414,823 416,956
Other assets................................................ 15,958 15,783
------------ ------------
$ 47,361,906 $ 12,227,593
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 848,546 $ 410,235
Accrued clinical trials expenses.......................... 437,572 653,218
Accrued compensation and related expenses................. 177,214 182,647
Accrued professional fees and other liabilities........... 355,641 334,123
------------ ------------
Total current liabilities............................... 1,818,973 1,580,223
Commitments
Minority interest--Series B preferred stock of Ingenex,
Inc......................................................... 1,241,032 1,241,032
Stockholders' Equity
Preferred stock, $0.001 par value per share; 5,000,000
shares authorized, issuable in series:
Convertible Series C, 222,400 shares designated, 222,400
shares issued and outstanding, with an aggregate
liquidation value of $2,224, at December 31, 1999 and
1998.................................................. -- --
Convertible Series D, 606,061 shares designated, 606,061
shares issued and outstanding, with an aggregate
liquidation value of $30,303, at December 31, 1999 and
1998.................................................. 5,000,000 5,000,000
Common stock, $0.001 par value per share; 50,000,000
shares authorized at December 31, 1999 and 1998;
22,891,912 and 13,123,508 shares issued and outstanding
at December 31, 1999 and 1998, respectively............. 98,696,741 52,291,369
Additional paid-in capital................................ 6,524,247 6,524,204
Deferred compensation..................................... (500,895) (286,580)
Deficit accumulated during developmental stage............ (65,418,192) (54,122,655)
------------ ------------
Total Stockholders' equity.............................. 44,301,901 9,406,338
------------ ------------
$ 47,361,906 $ 12,227,593
============ ============
</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
YEAR ENDED DECEMBER 31, (JULY 25, 1991) TO
------------------------------------------ DECEMBER 31,
1999 1998 1997 1999
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
License and grant revenue............ $ 337,254 $ -- $ 17,499,948 $ 18,235,535
Operating expenses:
Research and development........... 9,428,550 7,813,363 9,309,923 54,132,229
Acquired in-process research and
development...................... 135,785 -- 9,500,000 10,321,785
General and administrative......... 2,794,682 3,707,874 6,513,603 24,844,505
------------ ------------ ------------ ------------
Total operating expenses......... 12,359,017 11,521,237 25,323,526 89,298,519
------------ ------------ ------------ ------------
Loss from operations............. (12,021,763) (11,521,237) (7,823,578) (71,062,984)
Other income (expense):
Equity in loss of Ansan
Pharmaceuticals, Inc............. -- -- (590,853) (2,046,939)
Gain on sale of technology......... -- -- 8,361,220 8,361,220
Interest income.................... 755,777 847,581 666,419 3,440,519
Interest expense................... -- (215) (226,685) (4,389,902)
Other (expense) income............. (29,551) 59,507 205,024 234,980
------------ ------------ ------------ ------------
Other income, net................ 726,226 906,873 8,415,125 5,599,878
------------ ------------ ------------ ------------
(Loss) income before minority
interest........................... (11,295,537) (10,614,364) 591,547 (65,463,106)
Minority interest in losses of
subsidiaries....................... -- -- 64 44,914
------------ ------------ ------------ ------------
Net (loss) income.................... (11,295,537) (10,614,364) 591,611 (65,418,192)
Deemed dividend upon conversion of
preferred stock.................... -- -- -- (5,431,871)
------------ ------------ ------------ ------------
Net (loss) income attributable to
common Stockholders................ $(11,295,537) $(10,614,364) $ 591,611 $(70,850,063)
============ ============ ============ ============
Net (loss) income per common share:
Basic.............................. $ (0.70) $ (0.81) $ 0.05
============ ============ ============
Diluted............................ $ (0.70) $ (0.81) $ 0.04
============ ============ ============
Weighted average shares used in
computing net (loss) income per
common share:
Basic.............................. 16,112,260 13,108,512 13,002,050
============ ============ ============
Diluted............................ 16,112,260 13,108,512 13,476,644
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED COMMON
STOCK STOCK ADDITIONAL
-------------------------- -------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
----------- ------------ --------- -------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss--Commencement of
operations (July 25, 1991) to
December 31, 1992................ -- $ -- -- $ -- $ -- $ -- $ (819,331)
Issuance of common stock to
founders and investors........... 1,183,361 58,575
Issuance of common stock to
employees........................ 210,232 813
Issuance of Series A preferred
stock, net....................... 3,278,069 16,457,649
Forgiveness of notes payable....... 40,000
Net loss........................... (5,757,296)
----------- ------------ --------- -------- ---------- --------- ------------
Balances at December 31, 1993...... 3,278,069 16,457,649 1,393,593 59,388 40,000 -- (6,576,627)
Issuance of common stock to a
consultant....................... 14,926 88
Increase in paid-in capital from
issuance of common stock by
Ingenex, Inc..................... 128,805
Net loss........................... (12,974,175)
----------- ------------ --------- -------- ---------- --------- ------------
Balances at December 31, 1994...... 3,278,069 16,457,649 1,408,519 59,476 168,805 -- (19,550,802)
Issuance of Series B preferred
stock, net....................... 244,043 1,143,794
Increase in paid-in capital from
issuance of warrants by Ingenex,
Inc. in connection with bridge
financing........................ 600,000
Increase in paid-in capital from
issuance of warrants by Titan
Pharmaceuticals, Inc. in
connection with bridge
financing........................ 1,200,000
Conversion of related parties notes
payable and accrued interest into
Series A preferred stock......... 256,130 1,306,329
Increase in paid-in capital from
issuance of common stock by Ansan
Pharmaceuticals, Inc............. 3,777,548
Deferred compensation related to
stock options, net of
amortization..................... 440,000 (418,000)
Issuance of common stock to acquire
minority interest of Theracell,
Inc.............................. 140,000 686,000
Net loss........................... (11,693,454)
----------- ------------ --------- -------- ---------- --------- ------------
Balances at December 31, 1995...... 3,778,242 18,907,772 1,548,519 745,476 6,186,353 (418,000) (31,244,256)
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Net loss--Commencement of
operations (July 25, 1991) to
December 31, 1992................ $ (819,331)
Issuance of common stock to
founders and investors........... 58,575
Issuance of common stock to
employees........................ 813
Issuance of Series A preferred
stock, net....................... 16,457,649
Forgiveness of notes payable....... 40,000
Net loss........................... (5,757,296)
------------
Balances at December 31, 1993...... 9,980,410
Issuance of common stock to a
consultant....................... 88
Increase in paid-in capital from
issuance of common stock by
Ingenex, Inc..................... 128,805
Net loss........................... (12,974,175)
------------
Balances at December 31, 1994...... (2,864,872)
Issuance of Series B preferred
stock, net....................... 1,143,794
Increase in paid-in capital from
issuance of warrants by Ingenex,
Inc. in connection with bridge
financing........................ 600,000
Increase in paid-in capital from
issuance of warrants by Titan
Pharmaceuticals, Inc. in
connection with bridge
financing........................ 1,200,000
Conversion of related parties notes
payable and accrued interest into
Series A preferred stock......... 1,306,329
Increase in paid-in capital from
issuance of common stock by Ansan
Pharmaceuticals, Inc............. 3,777,548
Deferred compensation related to
stock options, net of
amortization..................... 22,000
Issuance of common stock to acquire
minority interest of Theracell,
Inc.............................. 686,000
Net loss........................... (11,693,454)
------------
Balances at December 31, 1995...... (5,822,655)
</TABLE>
See accompanying notes.
F-5
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED COMMON
STOCK STOCK ADDITIONAL
------------------------- ------------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995...... 3,778,242 18,907,772 1,548,519 745,476 6,186,353 (418,000)
Issuance of common stock in an
initial public offering, net..... 3,680,000 15,850,357
Conversion of Series A & Series B
preferred stock to common as a
result of the initial public
offering......................... (3,778,242) (18,907,772) 5,521,140 18,907,772
Issuance of common stock upon
exercise of stock options........ 16,520 10,664
Issuance of common stock in a
private placement, net........... 1,536,000 13,739,628
Deferred compensation related to
stock options.................... 335,000 (335,000)
Issuance of common stock upon
exercise of Class A Warrants..... 59,014 365,887
Issuance of common stock upon
exercise of placement agent
warrants......................... 37,844 --
Amortization of deferred
compensation..................... 122,900
Net loss...........................
---------- ------------ ---------- ----------- ---------- ---------
Balances at December 31, 1996...... -- -- 12,399,037 49,619,784 6,521,353 (630,100)
Issuance of common stock in partial
consideration for a technology
license.......................... 594,595 --
Issuance of common stock upon
exercise of placement agent
warrants......................... 53,765 --
Issuance of common stock upon
exercise of stock options........ 5,117 3,012
Issuance of Series C preferred
stock in connection with the
liquidation and merger of Trilex,
Inc.............................. 222,400 --
Issuance of Series D preferred
stock............................ 606,061 5,000,000
Amortization of deferred
compensation..................... 171,760
Net income.........................
---------- ------------ ---------- ----------- ---------- ---------
Balances at December 31, 1997...... 828,461 5,000,000 13,052,514 49,622,796 6,521,353 (458,340)
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Balances at December 31, 1995...... (31,244,256) (5,822,655)
Issuance of common stock in an
initial public offering, net..... 15,850,357
Conversion of Series A & Series B
preferred stock to common as a
result of the initial public
offering......................... --
Issuance of common stock upon
exercise of stock options........ 10,664
Issuance of common stock in a
private placement, net........... 13,739,628
Deferred compensation related to
stock options.................... --
Issuance of common stock upon
exercise of Class A Warrants..... 365,887
Issuance of common stock upon
exercise of placement agent
warrants......................... --
Amortization of deferred
compensation..................... 122,900
Net loss........................... (12,855,646) (12,855,646)
------------ ------------
Balances at December 31, 1996...... (44,099,902) 11,411,135
Issuance of common stock in partial
consideration for a technology
license.......................... --
Issuance of common stock upon
exercise of placement agent
warrants......................... --
Issuance of common stock upon
exercise of stock options........ 3,012
Issuance of Series C preferred
stock in connection with the
liquidation and merger of Trilex,
Inc.............................. --
Issuance of Series D preferred
stock............................ 5,000,000
Amortization of deferred
compensation..................... 171,760
Net income......................... 591,611 591,611
------------ ------------
Balances at December 31, 1997...... (43,508,291) 17,177,518
</TABLE>
See accompanying notes.
F-6
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
PREFERRED COMMON
STOCK STOCK ADDITIONAL
--------------------- ------------------------ PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
-------- ---------- ---------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997...... 828,461 5,000,000 13,052,514 49,622,796 6,521,353 (458,340) (43,508,291)
Issuance of common stock upon
exercise of stock options........ 70,994 212,982
Release of guaranteed security
value............................ -- 2,455,591
Increase in paid-in capital from
issuance of common stock by
Theracell, Inc................... 2,851
Amortization of deferred
compensation..................... 171,760
Net loss........................... (10,614,364)
------- ---------- ---------- ----------- ---------- --------- ------------
Balances at December 31, 1998...... 828,461 $5,000,000 13,123,508 $52,291,369 $6,524,204 $(286,580) $(54,122,655)
Issuance of common stock in a
private placement, net........... 2,254,545 5,797,159
Increase in paid-in capital from
issuance of common stock by
Theracell, Inc................... 43
Issuance of common stock to
minority stockholders pursuant to
the Theracell Merger............. 33,418 135,785
Issuance of common stock upon
exercise of stock options........ 147,225 468,001
Issuance of common stock upon
exercise of Class A Warrants,
net.............................. 7,083,711 39,391,635
Issuance of common stock upon
exercise of placement agent
warrants......................... 125,056 --
Issuance of common stock upon
exercise of Unit Purchase
Options.......................... 124,449 181,917
Deferred compensation related to
stock options.................... 430,875 (430,875)
Amortization of deferred
compensation..................... 216,560
Net loss........................... (11,295,537)
------- ---------- ---------- ----------- ---------- --------- ------------
Balances at December 31, 1999...... 828,461 $5,000,000 22,891,912 $98,696,741 $6,524,247 $(500,895) $(65,418,192)
======= ========== ========== =========== ========== ========= ============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balances at December 31, 1997...... 17,177,518
Issuance of common stock upon
exercise of stock options........ 212,982
Release of guaranteed security
value............................ 2,455,591
Increase in paid-in capital from
issuance of common stock by
Theracell, Inc................... 2,851
Amortization of deferred
compensation..................... 171,760
Net loss........................... (10,614,364)
------------
Balances at December 31, 1998...... $ 9,406,338
Issuance of common stock in a
private placement, net........... 5,797,159
Increase in paid-in capital from
issuance of common stock by
Theracell, Inc................... 43
Issuance of common stock to
minority stockholders pursuant to
the Theracell Merger............. 135,785
Issuance of common stock upon
exercise of stock options........ 468,001
Issuance of common stock upon
exercise of Class A Warrants,
net.............................. 39,391,635
Issuance of common stock upon
exercise of placement agent
warrants......................... --
Issuance of common stock upon
exercise of Unit Purchase
Options.......................... 181,917
Deferred compensation related to
stock options.................... --
Amortization of deferred
compensation..................... 216,560
Net loss........................... (11,295,537)
------------
Balances at December 31, 1999...... $ 44,301,901
============
</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
YEAR ENDED DECEMBER 31, (JULY 25, 1991) TO
----------------------------------------- DECEMBER 31,
1999 1998 1997 1999
------------ ------------ ----------- ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $(11,295,537) $(10,614,364) $ 591,611 $(65,418,192)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 390,286 293,610 385,503 2,528,041
Issuance of common stock to acquire in-process
technology.............................................. -- -- 5,500,000 5,500,000
Payment of guaranteed security value...................... -- (3,044,409) -- (3,044,409)
Loss (gain) on sale of assets............................. 13,411 13,016 (216,699) (190,272)
Accretion of discount on indebtedness..................... -- -- -- 2,290,910
Equity in loss of Ansan Pharmaceuticals, Inc.............. -- -- 590,854 2,046,940
Other..................................................... -- -- -- (35,653)
Issuance of common stock to acquire minority interest of
Theracell, Inc.......................................... 135,785 -- -- 821,785
Changes in operating assets and liabilities:
Prepaid expenses, other receivables and assets............ (337,213) 297,887 (60,474) (492,954)
Receivable--Ansan Pharmaceuticals, Inc.................... -- -- 117,881 --
Accounts payable.......................................... 438,311 (405,214) 212,467 848,546
Other accrued liabilities................................. (199,561) 309,764 (214,525) 970,427
------------ ------------ ----------- ------------
Net cash provided by (used in) operating activities......... (10,854,518) (13,149,710) 6,906,618 (54,174,831)
------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment, net.................. (185,004) (298,099) (78,864) (1,315,101)
Purchases of short-term investments....................... -- -- (100,000) (59,782,493)
Proceeds from sales of short-term investments............. -- 500,000 12,600,000 59,782,493
Other..................................................... -- -- -- (135,934)
------------ ------------ ----------- ------------
Net cash provided by (used in) investing activities......... (185,004) 201,901 12,421,136 (1,451,035)
------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................. 45,838,712 212,982 3,012 76,080,468
Deferred financing costs.................................. -- -- 96,349 (713,899)
Issuance of preferred stock............................... -- -- 5,000,000 22,601,443
Proceeds from debt obligations............................ -- -- -- 11,356,500
Repayment of debt obligations............................. -- -- (1,289,313) (8,691,500)
Proceeds from capital lease bridge financing.............. -- -- -- 658,206
Payments of principal under capital lease obligation...... -- -- (127,462) (633,766)
Minority interest......................................... -- -- -- 1,241,032
Issuance of common stock by subsidiaries.................. 43 2,851 -- 176,546
------------ ------------ ----------- ------------
Net cash provided by financing activities................... 45,838,755 215,833 3,682,586 102,075,030
------------ ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 34,799,233 (12,731,976) 23,010,340 46,454,129
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 11,654,896 24,386,872 1,376,532 --
------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 46,454,129 $ 11,654,896 $24,386,872 $ 46,454,129
============ ============ =========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid............................................... $ -- $ 215 $ 226,685 $ 1,393,524
============ ============ =========== ============
Conversion of related parties notes payable and accrued
interest into Series A preferred stock.................... $ -- $ -- $ -- $ 1,306,329
============ ============ =========== ============
Acquisition of furniture and equipment pursuant to capital
lease..................................................... $ -- $ -- $ -- $ 595,236
============ ============ =========== ============
</TABLE>
See accompanying notes.
F-8
<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 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. Another subsidiary, Trilex
Pharmaceuticals, Inc., engaged in the development of cancer therapeutic vaccines
utilizing anti-idiotypic antibody technology, was merged with and into Titan in
August 1997 (the Trilex Merger). Theracell, Inc., a majority owned subsidiary
engaged in the development of novel treatments for various neurologic disorders
through the transplantation of neural cells directly into the brain, was merged
with and into Titan in March 1999 (the Theracell Merger). Pursuant to the
Theracell Merger, we issued 33,418 shares of our common stock to the minority
stockholders of Theracell and recorded an in-process research and development
expense of $135,785 which equals the value of the common stock issued. We
operate in one business segment.
INGENEX, INC.
Ingenex is engaged in the development of gene-based therapeutics for the
treatment of cancer. 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. In June 1997, Ingenex sold a research technology and certain fixed assets
for $8,722,500 in cash and the assumption of certain capital lease liabilities
and recognized a gain of $8,361,220. At December 31, 1999, we owned 81% of
Ingenex, assuming the conversion of all preferred stock to common stock.
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, 1999, we
owned 79% of ProNeura.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Titan and our majority owned subsidiaries. All significant intercompany balances
and transactions are eliminated.
Since inception, we have devoted substantially all of our resources to
product and technology development, clinical research, raising capital, and
securing patent protection. Accordingly, we are considered to be in the
development stage. We have incurred losses since inception of $65,418,192 and
expect to incur losses, and require additional financial resources to achieve
commercialization of our products.
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.
F-9
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
All highly liquid investments with original maturities of generally three
months or less are considered to be cash equivalents. Cash equivalents include
$46,176,031 and $10,505,429 in money market funds at December 31, 1999 and 1998,
respectively. Money market funds invest primarily in securities with minimal
interest rate risks and generally seek to maintain a constant $1.00 per share
net asset value.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets ranging from
three to five years.
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 (see Note 11). Government
grants which 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.
SPONSORED RESEARCH COSTS
Research and development expenses under sponsored research arrangements are
recorded when related services are performed, generally ratably over the period
of the service agreements. License fees are expensed when paid, if we have no
alternative future use of the technology.
NET (LOSS) INCOME PER SHARE
We calculate basic net loss per share using the weighted average common
shares outstanding for the period. Diluted net income per share also includes
the impact of other dilutive equity instruments, primarily preferred stock,
options and warrants. For the years ended December 31, 1999 and 1998, we
reported net losses and, therefore, other dilutive securities were not included
since such inclusion would have been anti-dilutive. Had we been in a net income
position, shares used in calculating diluted earnings per share for 1999 and
1998 would have included the effect of an additional 4,293,859 and 12,387,331
shares, respectively, related to our convertible preferred stock, options and
warrants.
F-10
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the year ended December 31, 1997, we reported net income and, therefore,
all potentially dilutive securities, with exercise prices less than the average
market price of our common stock for the year, have been included in the
calculation, as follows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Weighted-average shares of common stock outstanding during
the period................................................ 13,002,050
Effect of dilutive securities:
- Employee stock options................................. 284,951
- Unit purchase options.................................. 20,615
- Convertible preferred stock............................ 104,110
- Warrants............................................... 64,918
----------
Potentially dilutive securities............................. 474,594
----------
Shares used in computation of diluted earnings per share.... 13,476,644
==========
</TABLE>
Potentially dilutive securities not included in the computation of diluted
earnings per share for the year ended December 31, 1997 were:
- Options to purchase 1,066,799 shares of common stock at exercise prices
greater than the average market price of our common stock and, therefore,
the effect would have been anti-dilutive.
- Options to purchase 307,200 Units (one share of common stock and one
Class A warrant) at $10.42 per unit, which was greater than the average
market price of our common stock and, therefore, the effect would have
been anti-dilutive.
- Warrants to purchase 7,031,986 shares of common stock at $6.20 per share,
which was greater than the average market price of our common stock and,
therefore, the effect would have been anti-dilutive.
- 222,400 shares of Series C convertible preferred stock (the Series C
Preferred) as the milestones had not been met (see Note 6).
COMPREHENSIVE INCOME (LOSS)
Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income includes certain changes in equity that are
excluded from net income (loss), such as unrealized gains and losses on
investments. Comprehensive loss was the same as our net loss for the years ended
December 31, 1999, 1998 and 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS
133, as amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. We are required to adopt SFAS 133
effective January 1, 2001.
F-11
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Because we currently do not hold any derivative instruments and do not engage in
hedging activities, we do not believe that the adoption of SFAS 133 will have an
impact on our financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which, among other things, describes the SEC Staff's position on the
recognition of certain non-refundable up-front fees received in connection with
research collaborations. We are currently evaluating the applicability of SAB
101 to our existing collaboration agreements. Should we conclude that the
approach described in SAB 101 is more appropriate, we will change our method of
accounting effective January 1, 2000 to recognize such fees over the term of the
related research agreement.
2. FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Furniture and office equipment........................ $ 199,049 $ 233,433
Laboratory equipment.................................. 323,754 250,459
Computer equipment.................................... 110,805 206,344
--------- ---------
633,608 690,236
Less accumulated depreciation......................... (218,785) (273,280)
--------- ---------
Furniture and equipment, net.......................... $ 414,823 $ 416,956
========= =========
</TABLE>
Depreciation expense was $173,726, $121,850 and $213,743 for the years ended
December 31, 1999, 1998 and 1997, respectively.
3. SPONSORED RESEARCH AND LICENSE AGREEMENTS
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 activities.
Expenses under these agreements totaled $1,285,265, $1,561,981 and $2,104,105 in
the years ended December 31, 1999, 1998 and 1997, respectively.
At December 31, 1999, the annual aggregate commitments we have under these
agreements, including minimum license payments, are as follows:
<TABLE>
<S> <C>
2000........................................................ $1,486,836
2001........................................................ 518,000
2002........................................................ 428,000
2003........................................................ 428,000
2004........................................................ 428,000
----------
$3,288,836
==========
</TABLE>
F-12
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SPONSORED RESEARCH AND LICENSE AGREEMENTS (CONTINUED)
After 2004, we must make annual payments aggregating $428,000 per year to
maintain certain licenses. Certain licenses provide for the payment of royalties
by us on future product sales, if any. In addition, in order to maintain these
licenses and other rights during product development, we must comply with
various conditions including the payment of patent related costs and obtaining
additional equity investments.
4. LEASES
We lease facilities under operating leases that expire at various dates
through October 2003. Rent expense was $331,048, $328,065 and $397,133 for years
ended December 31, 1999, 1998 and 1997, respectively.
The following is a schedule of future minimum lease payments at
December 31, 1999:
<TABLE>
<S> <C>
2000........................................................ 380,815
2001........................................................ 415,320
2002........................................................ 256,208
2003........................................................ 78,413
----------
$1,130,756
==========
</TABLE>
5. BANK LINE OF CREDIT
We have available a bank line of credit that expires in March 2000, under
which $5,000,000 is available. The agreement contains covenants that require us
to maintain certain financial ratios. At December 31, 1999, we had no
outstanding balance under this line of credit and were in compliance with the
required covenants.
6. STOCKHOLDERS' EQUITY
PREFERRED STOCK
In connection with the Trilex Merger in October 1997, we issued 222,400
shares of Series C Preferred to certain members of the Trilex management team
and to certain consultants of Trilex. The Series C Preferred automatically
converts to common stock, on a one-to-one basis, only if certain development
milestones are achieved, within certain timeframes. Holders of Series C
Preferred are entitled to receive dividends, when, as and if declared by the
board of directors ratably with any declaration or payment of any dividend on
our common stock or other junior securities. The Series C Preferred has a
liquidation preference equal to $0.01 per share. No value was assigned to the
Series C Preferred in the accompanying financial statements.
In November 1997, we issued to Novartis Pharma AG (Novartis) 606,061 shares
of Series D convertible preferred stock (the Series D Preferred), pursuant to an
agreement by which we granted certain technology rights to Novartis (see Note
11). The Series D Preferred were issued pursuant to a stock purchase agreement
which provides for conversion of such shares into our common stock at the option
of Novartis at any time after January 29, 1999. The conversion price equals the
market price during a specified period within the first two fiscal quarters of
1999 and is subject to a floor of $7.50 and a ceiling of
F-13
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
$9.00. Accordingly, upon conversion of the Series D Preferred, we would issue a
minimum of 555,555 and a maximum of 666,667 shares of common stock (see Note
14).
COMMON STOCK
In January 1996, we issued 3,200,000 units at $5.00 per unit in our initial
public offering (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 our then outstanding Series A and Series B
preferred stock automatically converted into common stock. In February 1996, we
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.
In July and August 1996, we 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 net proceeds of $13,739,628, after
deducting placement agent fees and other expenses of the private placement.
In January 1999, we completed a private placement of 2,254,545 shares of our
common stock for net proceeds of $5,797,159, after deducting fees and
commissions and other expenses of the offering.
WARRANTS
During 1996 in connection with the IPO, repayment of a bridge financing and
the Private Placement, we issued 7,091,000 Class A Warrants. They entitle the
holder to purchase one share of common stock at an adjusted exercise price of
$6.02 at any time up to January 2001. The warrants are subject to redemption at
$0.05 per warrant on 30 days written notice if the closing bid price of our
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.
In October 1999, upon satisfying the conditions for warrant redemption, 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 7,083,711 of our then
outstanding Class A Warrants being exercised with net proceeds to us totaled
$39,391,635, after deducting advisory fee and other related expenses.
UNIT PURCHASE OPTIONS
In connection with our IPO, the underwriter was granted an option (Unit
Purchase Option) to acquire 320,000 additional units at a price of $6.50 per
unit, and in connection with the Private Placement, the placement agent was
granted a Unit Purchase Option to purchase an additional 321,065 units, as
adjusted, at an adjusted exercise price of $9.97 per unit. Each unit consists of
one share of common stock and one Class A warrant. In 1999, 247,573 units were
exercised, primarily on a cashless basis, resulting in the issuance of 124,449
shares of our common stock.
F-14
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
SHARES RESERVED FOR FUTURE ISSUANCE
As of December 31, 1999, shares of common stock reserved by us for future
issuance consisted of the following:
<TABLE>
<S> <C>
Warrants related to certain private financing transactions
in 1995................................................... 164,856
Unit purchase options (including underlying Class A
warrants)................................................. 790,930
Stock options............................................... 3,680,618
Preferred stock............................................. 889,067
----------
5,525,471
==========
</TABLE>
7. STOCK OPTION PLANS
Under our 1993 Option Plan, as amended and restated, 558,073 shares of
common stock were reserved and authorized for issuance upon exercise of stock
options. In November 1995, we adopted the 1995 Stock Option Plan under which
1,300,000 shares of our common stock were reserved and authorized for issuance.
In June 1998, we adopted the 1998 Stock Option Plan under which 1,000,000 shares
were reserved and authorized for issuance. The option plans provide for the
grant of incentive stock options to employees, and non-qualified stock options
to employees, directors and consultants. Options granted under the option plans
generally expire no later than ten years from the date of grant, except when the
grantee is a 10% shareholder, in which case the maximum term is five years from
the date of grant. Options generally vest at the rate of one fourth after one
year from the date of grant and the remainder ratably over the subsequent three
years, although options with different vesting terms are granted from
time-to-time. The exercise price of incentive stock options, non-qualified stock
options and options granted to 10% stockholders, shall be at least 100%, 85% and
110%, respectively, of the fair market value of the stock on the date of grant.
Options granted under the 1993 Option Plan are exercisable immediately upon
grant, however, the shares issuable upon exercise of the options are subject to
repurchase by us. Such repurchase rights will lapse over a period of up to five
years from the date of grant. At December 31, 1999, 24,064 shares of common
stock underlying the options would be subject to repurchase. No further options
will be granted under the 1993 Option Plan.
The 1995 and 1998 Option Plans provide for the automatic grant of
non-qualified stock options to our directors who are not 10% stockholders
(Eligible Directors). Each Eligible Director will be granted an option to
purchase 10,000 shares of common stock on the date that such person is first
elected or appointed a director. In addition, each Eligible Director generally
receives an annual automatic grant of an option to purchase 5,000 shares of
common stock on the day immediately following the date of each annual
stockholders meeting, as long as such director is a member of the Board of
Directors.
In November 1999 and in connection with the warrant call, we granted 813,000
non-qualified stock options outside of our stock option plans to our executive
officers, at an exercise price of $12.75, vesting equally over 36 months from
the date of grant.
F-15
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLANS (CONTINUED)
Activity under the 1993, 1995, and 1998 Option Plans, as well as non-plan
activity are summarized below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES AVAILABLE OPTIONS WEIGHTED AVERAGE
FOR GRANT OUTSTANDING EXERCISE PRICE
---------------- ----------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1996........ 219,365 1,402,306 $ 7.90
Increase in shares reserved....... 452,475 -- --
Options granted................... (588,100) 588,100 $ 3.46
Options exercised................. -- (5,117) $ 0.59
Options cancelled................. 39,563 (168,256) $ 3.99
---------- ---------
Balance at December 31, 1997........ 123,303 1,817,033 $ 6.88
Increase in shares reserved....... 1,000,000 -- --
Options granted................... (1,102,135) 1,102,135 $ 6.82
Options exercised................. -- (70,994) $ 3.00
Options cancelled................. 846,697 (923,919) $10.10
---------- ---------
Balance at December 31, 1998........ 867,865 1,924,255 $ 5.45
Increase in shares reserved....... 225,888 -- --
Options granted................... (783,788) 1,596,788 $ 8.12
Options exercised................. -- (147,225) $ 3.32
Options cancelled................. 66,647 (69,812) $ 4.84
---------- ---------
Balance at December 31, 1999........ 376,612 3,304,006 $ 6.82
========== =========
</TABLE>
The 1995 and 1998 Option Plans allow for stock options issued as the result
of a merger or consolidation of another entity, including the acquisition of
minority interest of our subsidiaries, to be added to the maximum number of
shares provided for in the plan (Substitute Options). Consequently, Substitute
Options are not returned to the shares reserved under the plan when cancelled.
During 1999, 1998 and 1997, 3,165, 72,296 and 123,576 Substitute Options,
respectively, were cancelled and are included as shares expired during the year.
In June 1998, we adopted an Option Exchange Program whereby certain employee
stock options which were previously granted at exercise prices greater than
$10.75 per share were exchanged for new options with an exercise price of $7.50
per share. Notwithstanding the original vesting schedule, all exchanged options
vested as of the exchange date are considered vested under the new options and
the unvested portion will vest ratably over 24 months and have a term of
approximately eight years. A total of 820,135 options with a weighted-average
exercise price of $10.91 were exchanged and reflected as grants and
cancellations in the above summary table.
F-16
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLANS (CONTINUED)
Options for 1,167,265 and 713,545 shares were exercisable at December 31,
1998 and 1997, respectively. The options outstanding at December 31, 1999 have
been segregated into three ranges for additional disclosure as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.080 - $4.140........... 1,093,483 7.41 $ 2.34 934,266 $ 2.25
$4.344 - $7.500........... 1,291,423 8.10 $ 6.89 1,090,800 $ 6.95
$8.500 - $12.750.......... 877,100 9.85 $12.49 32,582 $11.64
--------- ---------
$0.080 - $12.750.......... 3,262,006 8.33 $ 6.87 2,057,648 $ 4.89
========= =========
</TABLE>
In addition, Ingenex has a stock option plan under which options to purchase
common stock of Ingenex have been and may be granted.
8. FAIR VALUE OF STOCK OPTIONS
We have elected to follow APB 25 in accounting for our stock options because
the alternative fair value method of accounting prescribed by SFAS 123 requires
the use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, no compensation expense is recognized when
the exercise price of our stock options equals the market price of the
underlying stock on the date of grant.
Pro forma net loss and net loss per share information required by SFAS 123
has been determined as if we had accounted for our employee stock options
granted subsequent to 1994 under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for 1999, 1998 and 1997:
weighted-average volatility factor of 0.8, 0.7, and 0.7, respectively; no
expected dividend payments; weighted-average risk-free interest rates in effect
of 6.0%, 5.5%, and 5.5%, respectively; and a weighted-average expected life of
2.52, 2.86, and 3.79, respectively.
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 our 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 our employee stock options.
Based upon the above methodology, the weighted-average fair value of options
granted during the years ended December 31, 1999, 1998 and 1997 was $4.83,
$1.87, and $1.90, respectively.
F-17
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. FAIR VALUE OF STOCK OPTIONS (CONTINUED)
For purposes of SFAS 123 disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Our pro forma
information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Pro forma net loss attributable to common
stockholders....................................... $(13,487,062) $(11,354,801) $(2,065,259)
Pro forma net loss per share......................... $ (0.84) $ (0.87) $ (0.16)
</TABLE>
The consolidated pro forma net loss calculated above includes the estimated fair
value of the options granted by our subsidiaries in 1999, 1998 and 1997,
calculated on substantially equivalent assumptions.
9. EQUITY IN LOSS OF ANSAN PHARMACEUTICALS, INC.
Ansan Pharmaceuticals, Inc. was a majority owned consolidated subsidiary
until its public offering in August 1995, at which time it became an equity
method investee of Titan.
In November 1997, the stockholders of Ansan approved an Agreement and Plan
of Reorganization and Merger between Ansan and Discovery Laboratories, Inc.,
pursuant to which Discovery was merged with and into Ansan. Pursuant to the
merger, we acquired an exclusive worldwide license to Ansan's butyrate compounds
for anti-cancer and certain other indications in exchange for our payment of a
2% royalty on net sales and transfer to Ansan of all of our equity holdings in
Ansan. Upon completion of the merger, Ansan repaid approximately $1,170,000 of
outstanding indebtedness to us.
Our share of Ansan is net loss of $590,853 for the period ended
December 31, 1997 represents the entire carrying value of the investment at
December 31, 1996 as the allocable portion of Ansan's loss exceeded the book
value of the investment.
10. AGREEMENT WITH HOECHST MARION ROUSSEL
In January 1997, we entered into an exclusive license agreement with Hoechst
Marion Roussel, Inc. (Hoechst). The agreement gave us a worldwide license to
Hoechst's patent rights and know-how related to the antipsychotic agent
iloperidone, including the ability to develop, use, sublicense, manufacture and
sell products and processes claimed in the patent rights. Pursuant to the
license, we paid, during 1997, a fee of $9,500,000, consisting of: (i)
$4,000,000 in cash, and (ii) $5,500,000 through the issuance of 594,595 shares
of common stock (the Hoechst Shares.) We were obligated to pay to Hoechst the
difference between $5,500,000 and the net proceeds received by Hoechst upon sale
of the Hoechst Shares. In February 1998, Hoechst sold the Hoechst Shares for net
proceeds of $2,455,591. Accordingly, we paid to Hoechst $3,044,409 in cash and
the remaining balance of $2,455,591 was transferred to stockholders' equity. We
are required to make additional benchmark payments as specific milestones are
met. Upon commercialization of the product, the license agreement provides that
we will pay royalties based on net sales.
11. ZOMARIL-TM- (ILOPERIDONE) SUBLICENSE
In November 1997, we entered into an agreement with Novartis, pursuant to
which we granted Novartis a sublicense for the worldwide (with the exception of
Japan) development, manufacturing and marketing of Zomaril-TM- (iloperidone).
Pursuant to the sublicense, Novartis paid to us $20,000,000 consisting of a fee
of $15,000,000 and $5,000,000 for the purchase of 606,061 shares of Series D
convertible
F-18
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ZOMARIL-TM- (ILOPERIDONE) SUBLICENSE (CONTINUED)
preferred stock. In addition, approximately $2,400,000 in cash was paid by
Novartis as reimbursement of research and development costs incurred by us. The
Novartis sublicense provides for future payments by Novartis contingent upon the
achievement of regulatory milestones as well as a royalty on net sales, if any,
of the product. Novartis has assumed the responsibility for all clinical
development, registration and marketing of Zomaril-TM-.
12. MINORITY INTEREST
The $1,241,032 received by Ingenex upon the issuance of its Series B
convertible preferred stock has been classified as minority interest in the
consolidated balance sheet. As a result of the Series B preferred stockholders'
liquidation preference, the balance 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 have been apportioned between minority interest and
additional paid-in capital in the consolidated balance sheets. Losses applicable
to the minority interest holdings of the subsidiaries' common stock have been
reduced to zero.
13. INCOME TAXES
As of December 31, 1999, we had federal and state net operating loss
carryforwards of approximately $58,200,000 and $21,600,000, respectively. We
also had federal research and development tax credit carryforwards of
approximately $1,400,000. The net operating loss and credit carryforwards will
expire at various dates beginning in 2000 through 2019, if not utilized.
Under provisions of the Internal Revenue Code, the availability of our net
operating loss and tax credit carryforwards may be subject to future limitations
because of changes in ownership resulting from financing transactions. To date,
no such restriction in the availability to utilize our carryforwards is
anticipated. However, future equity transactions which we may enter into could
cause ownership changes which may result in substantial limitation, or
expiration, of loss and tax credit carryforwards.
Deferred tax assets and liabilities reflect the net tax effects of net
operating losses and temporary differences between the carrying amount of assets
and liabilities for financial reporting and amounts used
F-19
<PAGE>
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
for income tax purposes. Significant components of our deferred tax assets for
federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 21,000,000 $ 14,500,000
Research credit carryforwards.................. 1,400,000 1,400,000
Capitalized research and development........... 2,300,000 1,500,000
Other - net.................................... 800,000 1,400,000
------------ ------------
Total deferred tax assets........................ 25,500,000 18,800,000
Valuation allowance.............................. (25,500,000) (18,800,000)
------------ ------------
Net deferred tax assets.......................... $ -- $ --
============ ============
</TABLE>
For 1998 and 1997, the valuation allowance increased by $4,300,000 and
$100,000, respectively.
14. SUBSEQUENT EVENTS
COLLABORATION WITH SCHERING AG
In January 2000, we entered into an agreement with Schering AG, under which
Schering and we will collaborate on manufacturing and clinical development of
cell therapy for the treatment of Parkinson's disease. We will receive funding
for development activities, as well as potential reimbursement of certain prior
research and development expenses. Schering will fully fund, and manage in
collaboration with us, all future pilot and pivotal clinical studies, and
manufacturing and development activities. Under this agreement, Schering
received exclusive, worldwide development, manufacturing and commercialization
rights, and, in addition to the above payments, agreed to pay us a royalty on
product sales. Schering also retains the right to make an equity investment in
us, up to a specified amount, upon initiation of pivotal clinical studies. In
addition to the collaborative development of Spheramine for Parkinson's disease,
Titan and Schering will also mutually explore other potential therapeutic
applications of our CCM technology, under a one year exclusive option granted to
Schering by us.
PRIVATE PLACEMENT
In March 2000, we completed a private placement of 1,200,000 shares of our
common stock for net proceeds of approximately $38,900,000, after deducting fees
and commissions and other expenses of the offering.
CONVERSION OF SERIES D PREFERRED
In March 2000, upon satisfying the conditions for conversion and at the
request of Novartis, all outstanding Series D Preferred shares were converted
into 666,667 shares of our common stock.
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
TITAN PHARMACEUTICALS, INC.
By: /s/ LOUIS R. BUCALO
-----------------------------------------
Date: March 30, 2000 Louis R. Bucalo, M.D.,
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman, President and
/s/ LOUIS R. BUCALO Chief Executive Officer
------------------------------------------- (principal executive March 30, 2000
Louis R. Bucalo, M.D. officer)
/s/ ERNST-GUNTER AFTING
------------------------------------------- Director March 30, 2000
Ernst-Gunter Afting, M.D., Ph.D.
/s/ VICTOR J. BAUER
------------------------------------------- Director March 30, 2000
Victor J. Bauer, Ph.D.
/s/ EURELIO M. CAVALIER
------------------------------------------- Director March 30, 2000
Eurelio M. Cavalier
/s/ MICHAEL K. HSU
------------------------------------------- Director March 30, 2000
Michael K. Hsu
/s/ HUBERT E. HUCKEL
------------------------------------------- Director March 30, 2000
Hubert E. Huckel, M.D.
/s/ MARVIN E. JAFFE
------------------------------------------- Director March 30, 2000
Marvin E. Jaffe, M.D.
/s/ KONRAD M. WEIS
------------------------------------------- Director March 30, 2000
Konrad M. Weis, Ph.D.
Executive Vice President
/s/ ROBERT E. FARRELL and Chief Financial
------------------------------------------- Officer (principal March 30, 2000
Robert E. Farrell financial and accounting
officer)
</TABLE>
<PAGE>
Certain portions of this Exhibit have been omitted pursuant to a request for
confidentiality. Such omitted portions, which are marked with brackets [ ]
and/or an asterisk *, have been separately filed with the Commission.
DEVELOPMENT AND LICENSE AGREEMENT
THIS DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement") is made the 25th day
of January, 2000, by and between TITAN PHARMACEUTICALS, INC., a corporation
organized and existing under the laws of the State of Delaware and having its
principal place of business at 400 Oyster Point Boulevard, Suite 505, South
San Francisco, California 94080, U.S.A. (hereinafter referred to as "Titan")
and SCHERING AG, a corporation organized and existing under the laws of
Germany and having its principal place of business at Muellerstrasse 178,
Berlin-Wedding, D-13342 Berlin, Germany (hereinafter referred to as
"Schering"). Titan and Schering are sometimes referred to herein individually
as a "Party" and collectively as the "Parties."
WHEREAS:
(A) Titan is developing through its research and development activities a
compound consisting of human retinal pigment epithelial cells on
microcarriers for use, inter alia, in the treatment of Parkinson's Disease
and Parkinsonian Movement Disorders and has the right to grant rights and
licenses and/or sublicenses under the Titan Patents (hereinafter defined) and
Titan Know-How (hereinafter defined);
(B) Schering has expressed to Titan its interest in obtaining from Titan
certain rights and licenses under the Titan Patents and Titan Know-How and in
cooperating with Titan in the development and commercialization of Product(s)
containing the Compound (hereinafter defined);
(C) Titan is willing to grant such rights and licenses and/or sublicenses
to Schering and to cooperate with Schering under the terms and conditions set
forth in this Agreement:
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, the Parties hereto, intending to
be legally bound, do hereby agree as follows:
1. DEFINITIONS
The following terms, when capitalized, shall have the following
meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined) as used in this Agreement:
1.1 "Additional Indications" means the use of Product for any preventative,
diagnostic or therapeutic indication(s) other than the Initial
Indication.
1.2 "Affiliate" means any person, corporation, partnership, firm, joint
venture or other entity which, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common
control with, Titan or Schering, as the case may be. As used in this
definition, "control" means the possession of the power to direct or
cause the direction of the management and policies of an entity,
whether through the ownership of the outstanding voting securities or
by contract or otherwise.
<PAGE>
1.3 "Agreement Year" shall mean a period of twelve months beginning on the
Effective Date and each anniversary thereof.
1.4 "Bankruptcy Event" shall have the meaning set forth in Section 11.2(d).
1.5 "Clinical Development" shall refer to all activities relating to
planning and execution of clinical studies in humans directed toward
obtaining Regulatory Approval of a Product, but does not include any
activities falling within the definition of CMC / Manufacturing.
Clinical Development includes clinical studies and related regulatory
affairs and outside counsel regulatory legal services.
1.6 "CMC / Manufacturing" shall mean the development of one or more
processes for the manufacture and packaging of the Compound and / or
the Product for Preclinical Development, Clinical Development and
Commercialization, and shall include, without limitation, formulation,
production, fill / finish, sourcing of components, raw materials and
packaging supplies, development of regulatory methods and controls,
including assays, quality control and quality assurance methodology and
stability protocols, and qualification of one or more Compound and
Product production facilities.
1.7 "Commercialization" and "Commercialize" shall refer to all activities
undertaken relating to the pre-marketing, marketing, distribution and
sale of the Product.
1.8 "Confidential Information" shall have the meaning set forth in Article
7.
1.9 "Compound" shall mean a composition consisting of neo-natal human
retinal pigment epithelial (RPE) cells on microcarriers (biocompatible
particulate support matrices for cells).
1.10 "Control" or "Controlled" shall refer to possession of the ability to
grant a license or sublicense of Patent Rights, Know-How, information
or other intangible rights as provided for herein without violating the
terms of any agreement or other arrangement with any Third Party.
1.11 "Development" or "Develop" shall refer to all activities relating to
Preclinical Development, Clinical Development and CMC / Manufacturing.
1.12 "Development Plan" and Budget" shall have the meaning set forth in
Section 3.2(b).
1.13 "Drug Approval Application" shall mean an application for Regulatory
Approval required to be approved before commercial sale or use of a
Product as a drug in a regulatory jurisdiction, including, for the
purposes of Regulatory Approval in the United States, a Biologic
License Application and all supplements filed pursuant to the
requirements of the FDA (including all documents, data and other
information concerning a Product which are necessary for or included in
FDA approval to market the Product) and, for the purposes of Regulatory
Approval in Europe, applications for Regulatory Approval to EMEA.
1.14 "Effective Date" shall mean the date set out at the start of this
Agreement.
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<PAGE>
1.15 "EMEA" shall mean the European Medicines Evaluation Agency, or any
successor agency.
1.16 "Europe" shall mean the countries which are members of the European
Union as such membership may change from time to time.
1.17 "FDA" shall mean the United States Food and Drug Administration or any
successor agency.
1.18 "Field" shall mean all uses of Product for the Initial Indication and
for any Additional Indications which Schering decides, at it
discretion, to develop and commercialize.
1.19 "First Commercial Sale" shall mean the date on which Schering or an
Affiliate or a sublicensee of Schering first sells commercially,
pursuant to a Regulatory Approval, a Product in any country of the
Territory.
1.20 "GCPs" shall mean clinical practices in conformity with the current
Good Clinical Practices as established by the International Conference
on Harmonization, as such regulations may be interpreted by governing
regulatory agencies or as may be amended from time to time, and in
conformity with equivalent regulations and interpretations in
regulatory jurisdictions in the Territory.
1.21 "GLPs" shall mean laboratory practices in conformity with the FDA's
regulations and regulatory interpretations of such regulations
governing current good laboratory practices set forth in 21 C.F.R. Part
58 et seq., as such regulations may be amended and interpreted by FDA
from time to time, and in conformity with equivalent regulations in
regulatory jurisdictions in the Territory.
1.22 "GMPs" shall mean manufacturing practices in conformity with the
FDA's regulations and regulatory interpretations of such
regulations governing current good manufacturing practices set forth in
21 C.F.R. Part 210 et seq., as such regulations may be amended and
interpreted by FDA from time to time, and in conformity with equivalent
regulations in regulatory jurisdictions in the Territory.
1.23 "Initial Indication" shall mean the use of Product for the in vivo
therapeutic prevention, treatment, cure or mitigation of
Parkinson's Disease and / or Parkinsonian Movement Disorders.
1.24 "Joint Development Committee" or "JDC" shall mean the committee
established pursuant to Section 3.1 below.
1.25 "Joint Patents" shall have the meaning set forth in Section 8.3(a).
1.26 "Know-How" shall mean techniques and data relating to the Compound or
the Product, including but not limited to inventions, practices,
methods, knowledge, know-how, skill, trade secrets, experience, test
data including pharmacological, toxicological, preclinical and clinical
test data, regulatory submissions, adverse reactions, analytical and
quality
3
<PAGE>
control data, assays, marketing, pricing, distribution, cost, sales
and manufacturing data or descriptions.
1.27 "Net Sales" shall mean the amount invoiced by or on behalf of a Party,
its Affiliates or its sublicensees from sales of the Product by or on
behalf of such Party to Third Parties in the Territory, less the
following deductions applicable to the Product for (i) all trade, cash
and quantity credits, discounts, refunds or rebates, including premiums
or chargebacks; (ii) allowances or credits to customers on account of
governmental requirements, price differences, rejection, outdating,
returns, or recalls of Product; (iii) sales commissions; (iv) sales
taxes (including value added tax) or other governmental charges imposed
upon sales of the Product and paid by Schering; (v) transportation
charges and insurance charges paid by Schering estimated not to exceed
1% (one per cent) of invoice; (vi) price adjustments actually made; and
(vii) deductions for uncollectible invoices. For the purpose of
calculating Net Sales, the Parties recognize that (a) Schering's
customers may include persons in the chain of commerce who enter into
agreements with Schering as to price even though title to the Product
does not pass directly from Schering to such customers and even though
payment for such Product is not made by such customers directly to
Schering; and (b) in such cases, chargebacks paid by Schering to or
through a third party (such as a wholesaler) can be deducted by
Schering from gross revenue in order to calculate Net Sales. Any
deductions above which involve a payment by Schering shall be taken as
a deduction against aggregate sales for the period in which the payment
or deduction is made. In the event that a Product is sold in the form
of a combination product containing one or more active ingredients in
addition to a Product, Net Sales for such combination product will be
adjusted by multiplying actual Net Sales of such combination product by
the fraction A/(A+B) where A is the invoice price of the Product, if
sold separately, and B is the invoice price of any other active
ingredient or ingredients in the combination, if sold separately. If,
on a country-by-country basis, the other active ingredient or
ingredients in the combination are not sold separately in that country,
Net Sales shall be calculated by multiplying actual Net Sales of such
combination product by the fraction A/C where A is the invoice price of
the Product if sold separately and C is the invoice price of the
combination product. If, on a country-by-country basis, neither the
Product nor the other active component or components of the combination
product is sold separately in said country, Net Sales shall be
determined between the Parties in good faith.
1.28 "NYU License" shall mean the Agreement effective November 20, 1992
between New York University and Theracell Corporation (predecessor
corporation to Titan), as amended from time to time, attached hereto
and incorporated herein by reference in Exhibit B.
1.29 "Packaged Product" shall mean the Product packaged and labeled in
compliance with the specifications and requirements of the Regulatory
Approval of the country of commercial distribution, in a form ready for
delivery to the customer.
1.30 "Patents" shall mean all existing patents and patent applications and
patent applications hereafter filed covering Compound or Product within
the Field, including any continuation, continuation-in-part, division,
provisional or any substitute applications,
4
<PAGE>
any patent issued with respect to any such patent applications, any
reissue, re-examination, renewal or extension (including any
supplemental protection certificate) of any such patent and
confirmation patent or registration patent or patent of addition
based on any such patent. The term "cover" or "covering", when used
in this Agreement in connection with a Patent shall signify that the
manufacture, use, sale, or import of a Compound or a Product by an
unlicensed party would infringe such a Patent for use in the Field.
1.31 "Patent Expenses" shall mean the fees, expenses and disbursements and
outside counsel fees and payments to Third Party agents incurred in
connection with the preparation, filing, prosecution and maintenance of
Titan Patents covering the Compound or Product within the Field,
including Titan's costs of patent interference and opposition
proceedings and actions at law and equity for patent infringement.
1.32 "Pivotal Clinical Trial" shall mean any clinical trial designed by
Schering and discussed with the respective regulatory authorities
(e.g., FDA, EMEA) within a country which can be expected to fulfill the
criteria for a grant of a marketing approval by the respective
regulatory authorities.
1.33 "Preclinical Development" shall refer to all activities relating to the
planning and execution of non-human studies conducted in in vitro or in
relevant in vivo animal models directed toward obtaining Regulatory
Approval of a Product in each regulatory jurisdiction in the Territory.
This includes preclinical testing, pharmacokinetics, toxicology,
documentary and medical writing directly related to Preclinical
Development activities, and related regulatory affairs and outside
counsel regulatory legal services.
1.34 "Product" shall mean any pharmaceutical composition which
pharmaceutical composition contains Compound as a pharmaceutically
active ingredient (either alone or in combination with one or more
other pharmaceutically active ingredients) suitable to deliver dopamine
and possibly other therapeutic materials after transplantation into
patients in the Field.
1.35 "Regulatory Approval" shall mean any approvals, product and / or
establishment licenses, registrations or authorizations of any federal,
state or local regulatory agency, department, bureau or other
governmental entity, necessary for the manufacture, use, storage,
importation, export, transport or sale of Product in a regulatory
jurisdiction.
1.36 "Research Reimbursement" shall have the meaning set forth in Section
5.1.
1.37 "Royalty Percentage" shall have the meaning set forth in Section 5.2.
1.38 "Schering Patents" shall mean any Patents owned or Controlled by
Schering or its Affiliates covering the research, development,
manufacture, use, importation, sale, or offer for sale of the Compound
or the Product.
1.39 "Titan Know-How" shall mean all Know-How, whether currently existing or
developed or obtained during the course of this Agreement, and whether
or not patentable or confidential that is now Controlled or hereinafter
becomes Controlled by Titan or its
5
<PAGE>
Affiliates and that relates to the research, development,
utilization, manufacture or use of the Compound or the Product.
Notwithstanding anything herein to the contrary, Titan Know-How
shall exclude Titan Patents.
1.40 "Titan Patents" shall mean any Patents owned or Controlled by Titan or
its Affiliates covering the research, development, manufacture, use,
importation, sale or offer for sale of the Compound or the Product.
1.41 "Territory" shall mean all countries of the world.
1.42 "Third Party" shall mean any entity other than Titan or Schering and
their respective Affiliates and sublicensees.
1.43 "Valid Claim" shall mean a claim of any issued, unexpired United States
or foreign patent which shall not have been withdrawn, canceled or
disclaimed, or held invalid or unenforceable by a court of competent
jurisdiction in an unappealed or unappealable decision.
1.44 "Written Disclosure" shall have the meaning set forth in Section 7.6.
2. LICENSES AND ASSIGNMENT
2.1 EXCLUSIVE LICENSE: Subject always to the NYU License (with which this
Agreement must be consistent), and subject to the last sentence of this
paragraph, Titan grants to Schering an exclusive (even as to Titan)
worldwide license and / or sublicense, with a right to sublicense,
under the Titan Patents, the Titan Know-How and the Joint Patents to
use, develop, manufacture, have manufactured, market, sell, import for
sale and distribute the Compound and / or the Product in the Territory
for use in the Field, subject to the terms and conditions hereof and
the terms and conditions of the NYU License. Notwithstanding the
foregoing, Titan shall retain the right to conduct Development and
related activities to the extent specifically provided for in this
Agreement, subject to the terms and conditions hereof. Should an
existing agreement preclude the granting of a sublicense by Schering,
then upon written request by Schering, Titan will grant additional
sublicenses to third parties designated by Schering; provided, however,
that the terms and conditions of such further sublicenses shall not be
inconsistent with the terms and conditions of this Agreement, and that
the terms and conditions of the further sublicenses shall not be less
favorable to Titan than those of this Agreement; provided further that
any consideration payable by such designated sublicensees for or in
connection with the grant of such sublicenses shall be exclusively for
Schering's account; and provided further that, until Schering has paid
Titan the Research Reimbursements under Sections 5.1(a) through 5.1(c),
any consideration paid by such designated sublicensees shall (except in
the case of sublicenses to Affiliates where such consideration is
always exclusively for Schering's account) be shared equally by
Schering and Titan after deduction of any amount due to New York
University. A list of the Titan Patents identified as of the Effective
Date is attached hereto as Exhibit A. Such list shall be modified from
time to time to reflect any changes to Titan Patents and to include any
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<PAGE>
Titan Patents acquired by or coming under the Control of Titan during
the term of this Agreement.
2.2 EXISTING LICENSES: The licenses granted under Section 2.1 include
sublicenses of Third Party Know-How and Patents existing and licensed
to Titan on the Effective Date. A list of all such agreements as of the
Effective Date is attached hereto as Exhibit B, true, correct and
complete copies of which have been provided to Schering prior to the
Effective Date. Any royalties payable to Third Parties (except for any
that may be due under the Percell Biolytica AB Agreement, as defined in
Section 6 of this Agreement) pertaining to technology discussed in the
previous sentence shall be paid by Titan and, if not so paid, may be
paid by Schering and offset or deducted from royalty payments under
Section 5. From time to time at Schering's request, Titan will use
its commercially reasonable efforts to obtain a consent (a "Consent")
from existing licensors and other contractual counterparties with
Titan. Such Consent shall contain the agreement of such licensor to (i)
give reasonable written notice to Schering prior to terminating the
underlying license or contract, (ii) provide Schering a reasonable
period to cure any default under such license or contract, and (iii)
permit Schering or one or more of its Affiliates to assume Titan's
obligations thereunder as sublicensee or assignee of Titan's rights
thereunder, in each case at Schering's option.
2.3 ORPHAN DRUG ACT: To the fullest extent permitted by law,
(a) Promptly upon Schering's decision to initiate Pivotal Clinical
Trial of the Product and upon Schering's making the Research
Reimbursement payment described in Section 5.1(a), Titan shall
transfer to Schering legal title to and possession of any and
all Orphan Drug Act applications, including FDA-designated
Orphan Biological Application 97-1057, and other requests for
designation by FDA of the Product as an orphan drug, and / or
any and all Orphan Drug Act designations by FDA of the Product
as an Orphan Drug. The Parties confirm that Schering will have
the right to claim and use any taxation credits, deductions or
other benefits available as a result of Orphan Drug Act
designation by FDA of the Product or a grant of marketing
exclusivity by FDA for the Product pursuant to the Orphan Drug
Act.
(b) Subject always to the provisions of Section 11.2 below,
Schering shall use commercially reasonable best efforts to
obtain Orphan Drug exclusivity for the Product for the Initial
Indication. Titan agrees to cooperate with and assist Schering
to the extent reasonably requested by Schering in the
preparation, amendment and / or prosecution of petitions or
other requests for Orphan Drug Act designation or Orphan Drug
Act exclusivity for Product, and any other marketing
exclusivity available in the United States or any other
country of the Territory. Such assistance shall include
without limitation participation by Titan representatives in
meetings with U.S. governmental authorities as reasonably
requested by Schering, and subject to the availability of
Titan personnel. Schering shall keep Titan apprised of its
progress in obtaining Orphan Drug Act exclusivity and any
other marketing exclusivity that becomes available in the
United States or any other country of the Territory. Schering
shall be the legal
7
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and beneficial owner of Orphan Drug exclusivity or any
other marketing exclusivity obtained in regard to any
Product in the United States or any other country of the
Territory.
2.4 As long as this Agreement remains in effect, and for so long as
Schering remains actively engaged in the development or
commercialization of a Product for use in the Field, Titan shall not
develop, manufacture, or commercialize a product that utilizes
cell-coated microcarrier technology and that competes with the Product.
The provisions of this Section 2.4 shall have no force or effect in the
European Union or in any other country where it may contravene any
antitrust directive or law.
3. DEVELOPMENT
3.1 JDC
(a) FORMATION OF THE JDC: Within fifteen (15) days after the
Effective Date (or such later time as may be mutually agreed
to by the Parties), the Parties shall establish the JDC. The
JDC shall consist of an equal number of representatives of
Titan and Schering to be agreed upon by the Parties from time
to time. Either Party may designate a substitute for a member
unable to be present at a meeting. One of the Schering members
of the JDC, chosen at the sole discretion of Schering, along
with one of the Titan members of the JDC, chosen at the sole
discretion of Titan, shall serve as co-chairs of the JDC.
Regardless of the number of representatives from each Party on
the JDC, each Party shall have one vote on any issue. Meetings
of the JDC shall be held quarterly, and may be called by
either Party with not less than twenty (20) business days
notice to the other unless such notice is waived, and meetings
shall be held alternately at the offices of Titan or of
Schering or an Affiliate as may be designated by Schering. The
JDC may be convened, polled or consulted from time to time by
means of telecommunication or correspondence. Each Party will
disclose to the other proposed agenda items reasonably in
advance of each meeting of the JDC. Each Party shall bear its
own costs for participation in the JDC.
(b) FUNCTIONS OF THE JDC: The JDC shall function as a forum for
the Parties to inform and consult with one another concerning
progress of and changes to Development and the Development
Plan, meeting Development goals, dealing with obstacles to
successful Development, and the status of obtaining Regulatory
Approvals. The JDC shall have no role, consultative or
otherwise, with regard to Commercialization other than those
reasonably necessary to transition from Development to
Commercialization. The following specific functions shall be
delegated to the JDC:
(i) plan, coordinate and oversee the Development of the
Product in order to obtain Regulatory Approval in the
Territory;
(ii) assume responsibility for the Development Plan as
established in Section 3.2(b);
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(iii) propose updates yearly to the Development Plan, which
plan will specify a reasonable level of detail by
which Titan and Schering will conduct Preclinical
Development, Clinical Development and CMC /
Manufacturing;
(iv) propose any amendments of the Development Plan which
are not covered in the yearly updates;
(v) prepare detailed budgets consistent with the
Development Plan and allocate such budgets to
particular Development tasks; and
(vi) subject to Section 3.4, evaluate any proposal to
contract with any Third Party to perform any
Development activities.
(c) LIMITATION ON JDC AUTHORITY: Notwithstanding the creation of
the JDC, each Party to this Agreement shall retain the rights,
powers and discretions granted to it hereunder, and the JDC
shall not be delegated or vested with any such rights, powers
or discretion unless such delegation or vesting is expressly
provided for herein or the Parties expressly so agree in
writing. The JDC shall not have the power to amend or modify
this Agreement which may be amended or modified only as
provided in Section 13.11.
(d) RESOLUTION OF DISPUTES: If the JDC cannot reach a unanimous
decision with respect to the Development matters delegated to
it within ten (10) days then the disputed matter shall be
promptly referred to a senior manager of each Party designated
by such Party. If the senior managers are unable to resolve
such matter within ten (10) days after one Party notifies the
other of its desire to have the matter referred to such senior
managers, the decision of Schering's senior manager shall
control.
3.2 DEVELOPMENT
(a) Titan and Schering each agree to cooperate in the Development
of the Product and to use commercially reasonable efforts to
develop and bring the Product to market. Subject always to
Section 11.2 of this Agreement, Titan and Schering each agrees
to use commercially reasonable efforts to execute and
substantially perform the obligations assumed by it under the
Development Plan, exercising the same degree of diligence in
Commercialization of the Product as it exercises with respect
to proprietary products of comparable commercial potential.
(b) The Development of the Product shall, subject to Section 11.2
of this Agreement, be governed by a development plan
("Development Plan"), which shall provide for the Development
of the Product in the Territory and shall be updated, amended,
supplemented and otherwise modified from time to time by the
JDC. The Parties have agreed upon and approved the Initial
Development Plan which is attached hereto as Exhibit C.
Subject to Schering's obligation to provide the development
funding referred to in Section 3.3 below, Titan and Schering
shall
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<PAGE>
each be responsible for the costs of the Development
activities allocated to that Party pursuant to the Initial
Development Plan.
(c) Applications to carry out clinical studies: Schering shall be
responsible for preparing, filing and prosecuting applications
for permission to conduct Clinical Development in such
countries of the Territory which require such applications to
be filed. With respect to the United States and any other
country where Titan has such an application on file with the
appropriate regulatory authorities, Titan shall transfer such
application to Schering upon Schering's written request
following Schering's decision to initiate the Pivotal Clinical
Trial of the Product and upon Schering's making the Research
Reimbursement payment described in Section 5.1(a) of this
Agreement. Prior to the transfer to Schering, all
communications and interactions with regulatory authorities by
Titan with respect to such applications shall be reviewed and
approved in advance by Schering.
(d) Drug Approval Applications: Schering shall be responsible for
preparing, filing and prosecuting Drug Approval Applications
and seeking Regulatory Approvals for the Product in all
countries of the Territory wherein Schering, in good faith and
in the exercise of reasonable business judgment, considers it
is commercially reasonable to do so, including preparing all
reports necessary as part of a Drug Approval Application.
Schering shall file first for Regulatory Approval in the U.S.,
the European Union, Canada and Japan, in an order acceptable
to Schering. All such Drug Approval Applications shall be
filed in the name of Schering and a copy of each such Drug
Approval Application shall be promptly provided to Titan. In
connection with all Drug Approval Applications being
prosecuted by Schering under this Section 3.2, Schering agrees
to provide Titan with a copy (which may be wholly or partly in
electronic form) of all filings to regulatory agencies that it
makes hereunder within thirty (30) days after written request
by Titan, at no cost to Titan, and Titan shall thereafter, on
reasonable advance notice to Schering, have the right freely
to utilize such filings for its Drug Approval Applications
outside the Field. Titan will inform Schering of all such
utilization of Schering filings for Titan's Drug Approval
Applications outside the Field and shall provide Schering with
such information on such filings as Schering considers
reasonably necessary to safeguard Schering's interests in the
Product.
(e) Cooperation: The Parties shall consult and cooperate
(including in the case of Titan providing such commercially
reasonable assistance as Schering shall reasonably request) in
the preparation of each regulatory submission and in obtaining
and maintaining Regulatory Approvals within the Territory,
provided however, that, except with regard to the pilot U.S.
trial, prior to and following approval of a Drug Approval
Application, Schering shall be solely responsible for
interactions with regulatory authorities throughout the
Territory. In order to facilitate consultation on submissions,
a shared database will be set up using the Schering Globe Doc
System, and the Parties will agree upon the format of
individual reports. Subject to the foregoing, Schering shall
provide Titan and Titan shall provide Schering with reasonable
advance notice of any scheduled meeting with the FDA, EMEA or
any other regulatory authority in a major
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Certain portions of this Exhibit have been omitted pursuant to a request for
confidentiality. Such omitted portions, which are marked with brackets [ ]
and/or an asterisk *, have been separately filed with the Commission.
regulatory jurisdiction relating to any Drug Approval
Application, and Titan and Schering shall have the right to
participate in any such meeting. Schering shall from time
to time promptly inform Titan about any significant
Regulatory Approval milestones achieved. In connection with
all Drug Approval Applications being prosecuted by Schering
under this Section 3.2, Schering agrees to provide Titan
with a copy (which may be wholly or partly in electronic
form) of all filings to regulatory agencies that it makes
hereunder within thirty (30) days after written request by
Titan, at no cost to Titan. In the event that any
regulatory agency threatens or initiates any action to
remove a Product from the market or there is any recall or
equivalent action (whether voluntary of involuntary) in any
country of the Territory, Schering shall notify Titan of
such communication within three (3) business days of
receipt by Schering. As between the Parties, Schering shall
be the legal and beneficial owner of all Drug Approval
Applications and related approvals in the Territory.
(f) Each Development Plan shall provide a reasonably detailed
written time line for each step to be achieved with respect to
the Development and Regulatory Approval of the Product, the
estimated Development Expenses of obtaining such Regulatory
Approval and the description of a final Product.
(g) Each Development Plan shall be updated annually by the JDC and
submitted by October 1 of each calendar year to the Parties
for review and approval not later than sixty (60) days after
such submission.
3.3 DEVELOPMENT FUNDING: Schering undertakes to provide the following
funding to Titan in order to partially support the conduct by Titan of
the Preclinical and pilot CMC / Manufacturing Development activities
allocated to Titan pursuant to the Development Plan.
In the first Agreement Year: [ * ]
In the second Agreement Year: [ * ]
In the third Agreement Year: [ * ]
The funding referred to in this Section 3.3 will be provided to Titan
by Schering in equal monthly installments in advance, the first payment
to be made within five business days of the Effective Date. Titan
undertakes to use such Development funding exclusively for the purposes
of carrying out its Development obligations hereunder.
3.4 RIGHT TO ENGAGE THIRD PARTIES
Titan may, with the prior written consent of Schering, such consent not
to be unreasonably withheld, engage Third Parties to conduct
Preclinical and CMC / Manufacturing Development assigned to Titan in
the Development Plan as defined in Section 3.2(b).
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3.5 SCHERING STEP-IN RIGHTS: Without prejudice to any other remedies
available to Schering under this Agreement or at law, if Titan
materially fails to undertake the reasonable Development tasks
allocated to it under this Agreement in accordance with the time lines
and other conditions allocated to it under this Agreement and in
accordance with the time lines and other conditions allocated to it
under the Development Plan and this Agreement generally, Schering may,
after ninety (90) days prior written notice to Titan, undertake that
particular task ("Work") and complete it at its own expense if Titan
has not at such time begun to carry out such Work in a reasonable
manner. Schering shall be entitled to commercially reasonable
cooperation and assistance from Titan to accommodate its efforts,
including assignments to Schering of sponsorship of regulatory filings
if necessary to permit the exercise by Schering of its rights under
this Section 3.5. Costs reasonably incurred by Schering in carrying out
such Work will be reimbursed by Titan on a quarterly basis or may, at
Schering's option, be set off against any payments otherwise due to
Titan under this Agreement; provided, however, that the amount of
reimbursement shall be limited to that portion of the Development
Funding of Section 3.3 allocated to the specific task.
4. COMMERCIALIZATION
4.1 Subject always to Section 11.2 of this Agreement, Schering undertakes
to use commercially reasonable efforts to begin the regular commercial
production, use, and sale of the Product in good faith and as soon as
commercially practicable, and in no event later than six (6) months
from obtaining Regulatory Approval, and to continue diligently
thereafter to commercialize the Product, exercising the same degree of
diligence in Commercialization of the Product as it exercises with
respect to proprietary products of comparable commercial potential.
4.2 Subject to applicable laws and regulations, labeling on all Product
sold by or on behalf of Schering pursuant to this Agreement, and all
advertising, marketing and promotional materials used in connection
therewith, will identify Titan as the licensor of the Product.
5. PAYMENTS
5.1 RESEARCH REIMBURSEMENT: Schering shall make the following payments
("Research Reimbursement") to Titan within thirty (30) business days
after the first achievement of each of the following milestones. Each
of these Research Reimbursement payments shall be paid only once for
Product(s) in the Field regardless of the number of times the
milestones are achieved by the Product or the number of indications for
which the Product is developed or commercialized.
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EVENT PAYMENT
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Certain portions of this Exhibit have been omitted pursuant to a request for
confidentiality. Such omitted portions, which are marked with brackets [ ]
and/or an asterisk *, have been separately filed with the Commission.
- --------------------------------------------------------------------------------
(a) Schering's decision to initiate Pivotal Clinical [ * ]
Trial of the Product, such decision to be made
within thirty (30) days of delivery of the safety
and efficacy report on the pilot clinical trials
as specified in the Development Plan.
- --------------------------------------------------------------------------------
(b) Regulatory Approval of the Product by [ * ]
the FDA.
- --------------------------------------------------------------------------------
(c) Upon Regulatory Approval by EMEA [ * ]
- --------------------------------------------------------------------------------
5.2 ROYALTIES:
(a) GENERAL: Subject as hereinafter provided, Schering shall pay
to Titan, on a country-by-country basis, a royalty equal to [
* ] of Net Sales of the Product (the "Royalty Percentage") in
each country for which a Valid Claim of a Titan Patent exists,
such Royalty Percentage to be payable for as long as such a
Valid Claim exists in the country in question.
(b) EXPIRY OF VALID CLAIM: In any country of the Territory in
which a Valid Claim of a Titan Patent existed at the date of
First Commercial Sale but ceases to exist at any time before
the expiry of fifteen (15) years from First Commercial Sale,
the Royalty Percentage will be reduced to [ * ] and will be
payable for the shorter of:
(i) five years from the date on which the Valid Claim
ceased to exist; and
(ii) the period between the date on which the Valid Claim
ceased to exist and the date fifteen years after
First Commercial Sale.
On expiry of the shorter of the above periods, Schering shall
have no obligation to pay any Royalty Percentage to Titan
under this Section 5.2 for the country in question.
(c) NO VALID CLAIM: In each country of the Territory in which a
Valid Claim does not exist at the date of First Commercial
Sale, the Royalty Percentage will be [ * ] of Net Sales, such
Royalty Percentage to be payable to Titan for a period of five
(5) years from First Commercial Sale whereupon Schering's
obligation to pay the Royalty Percentage will cease; provided
however that if, during the five (5) years following First
Commercial Sale, a Valid Claim of a Titan Patent comes into
being in the relevant country, the Royalty Percentage set out
in Section 5.2(a) above shall apply from the date that such
Valid Claim of a Titan Patent exists until the date of expiry
of such Valid Claim.
(d) LICENSE FOLLOWING EXPIRATION: Following the expiration of the
royalty obligations on a country-by-country basis, Schering
shall thereafter have an exclusive (even
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as to Titan), paid-up license under Titan Know-How to make,
have made, use, sell, offer for sale, have sold and import
the Compound and / or the Product in that country.
(e) ROYALTY REPORTS AND PAYMENTS: Schering shall make royalty
payments to Titan quarterly within fifty-five (55) days after
the end of each calendar quarter in which Net Sales occurred.
A report summarizing the Net Sales of the Products during the
relevant quarter on a country-by-country basis shall be
delivered to Titan within fifty-five (55) days following the
end of each calendar quarter for which royalties are due.
(f) PAYMENTS; INTEREST: Any payments due under this Agreement
shall be due on such date as specified in this Agreement and,
in the event such date is a day on which commercial banks are
not authorized to conduct business in either San Francisco,
California, or Berlin, Germany, then the next succeeding
business day, and shall be made by wire transfer to a
designated bank account of the receiving Party. Any failure by
a Party to make a payment within five days after the date when
due shall obligate such Party to pay interest to the receiving
Party at a rate per annum equal to 2% (two per cent) over the
prime rate as quoted by Bank America on Reuters screen
"USPRIME1" as of the date such payment is due or the following
business day, from the due date until the payment date, such
interest also being due on the payment date.
5.3 TAXES: The Party receiving royalties shall pay any and all taxes levied
on account of royalties it receives under this Agreement. If laws or
regulations require that taxes be withheld, the Party remitting
royalties will (a) deduct those taxes from the remittable royalty, (b)
timely pay the taxes to the proper taxing authority, and (c) send proof
of payment to the other Party within thirty (30) days of receipt of
confirmation of payment from the relevant taxing authority. The Party
remitting royalties agrees to make all lawful and reasonable efforts to
minimize such taxes to the other Party.
5.4 PAYMENTS TO OR REPORTS BY AFFILIATES: Any payment required under any
provision of this Agreement to be made to either Party or any report
required to be made by any Party shall be made to or by an Affiliate of
that Party if designated by that Party as the appropriate recipient or
reporting entity without relieving such Party from responsibility for
such payment or report.
5.5 PAYMENT CURRENCY: Payments by Schering under this Agreement shall be
made in U.S. dollars. Except for Net Sales in the United States, where
payments are based on Net Sales in countries other than the member
states of the European Currency Union, the amount of such payments
expressed in the currency of each country shall be converted into Euros
at the exchange rate of the last date of the applicable calendar
quarter. The applicable exchange rate will be the Euro foreign exchange
reference spot rate published daily by the European Central Bank,
Frankfurt/Main. If no Euro foreign exchange reference spot rate is
determined for the relevant currency, the Parties shall agree upon
another reference rate. Finally, the payable Euro amount shall be
converted into US dollars by the Euro foreign exchange reference spot
published by the European Central
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Bank, Frankfurt/Main, at the last day of the applicable calendar
quarter. These Euro foreign exchange reference spot rates are
currently published by Reuters on screen "ECB37."
6. MANUFACTURE AND SUPPLY
Schering will be responsible for the manufacture of Compound and
Product for use and sale in the Field in the Territory. Titan will
grant to Schering a sublicense under the License and Supply Agreement
effective January 1, 1999, between Theracell Inc. and Percell Biolytica
AB, as may be required for the Development and Commercialization of the
Product in the Field. Schering shall thereafter be responsible for
payment of all royalties to Percell Biolytica AB. If and when, but only
if and when, Schering exercises the specific option set forth in
Section 13.15(b)(iv) (and not any other option set forth in Section
13.15), then Titan agrees that it will work with Percell Biolytica AB
to arrange for assignment of the License and Supply Agreement of
January 1, 1999, to Schering, or alternatively, at Titan's option, for
the right of Schering to negotiate its own supply agreement with
Percell Biolytica AB. Titan agrees to take any actions and execute any
documents that Schering may reasonably request to accomplish the intent
of this Section.
7. CONFIDENTIALITY
7.1 CONFIDENTIALITY; EXCEPTIONS: Except to the extent expressly authorized
by this Agreement or otherwise agreed in writing, the Parties agree
that the receiving Party and its employees (who shall be bound in
writing to observe the confidentiality provisions of this Agreement)
shall keep confidential and shall not publish or otherwise disclose or
use for any purpose other than as provided for in this Agreement any
information and other information and materials furnished to it by the
other Party pursuant to this Agreement or any information developed
during the course of the collaboration hereunder, or any provisions of
this Agreement that are the subject of an effective order of the U.S
Securities and Exchange Commission granting confidential treatment
pursuant to the Securities Act of 1934, as amended (collectively,
"Confidential Information"), except to the extent that it can be
established by the receiving Party that such Confidential Information:
(i) was already known to the receiving Party, other than
under an obligation of confidentiality, at the time
of disclosure by the other Party;
(ii) was generally available to the public or otherwise
part of the public domain after its disclosure and
other than through any act or omission of the
receiving Party in breach of this Agreement;
(iii) became generally available to the public or otherwise
part of the public domain after its disclosure and
other than through any act or omission of the
receiving Party in breach of this Agreement;
(iv) was disclosed to the receiving Party, other than
under an obligation of confidentiality, by a Third
Party who had no obligation to the disclosing Party
not to disclose such information to others; or
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(v) was independently discovered and / or developed by
the receiving Party as documented in its corporate
records.
7.2 AUTHORIZED DISCLOSURE: Each Party may disclose Confidential Information
hereunder to the extent such disclosure is reasonably necessary in
filing or prosecuting patent applications, prosecuting or defending
litigation, filing or updating any Drug Approval Application, complying
with applicable governmental laws, rules and regulations or conducting
preclinical or clinical trials or, in the case of Schering, engaging in
marketing, sales, professional services, professional education, or
adverse events or complaint collecting analysis or reporting
activities; provided, that if a Party is required by law or regulation
to make any such disclosures of the other Party's Confidential
Information it will, except where impracticable for necessary
disclosures, for example in the event of medical emergency, give
reasonable advance notice to the other Party of such disclosure
requirement and, except to the extent inappropriate in the case of
patent applications, will use its reasonable efforts to secure
confidential treatment of such Confidential Information required to be
disclosed. In addition and with prior written notice to the other Party
of each Third Party with whom a confidential disclosure agreement is
being entered into, each Party shall be entitled to disclose, under a
binder of confidentiality, Confidential Information to any Third Party
for the purpose of carrying out the purposes of this Agreement. Where
materiality of disclosure requires a press release or other disclosure
pertaining to this Agreement by one Party, the disclosing Party shall
give the other Party a copy of the proposed disclosure and afford that
Party at least two (2) business days.
7.3 SURVIVAL: This Article 7 shall survive the termination or expiration of
this Agreement for a period of five (5) years.
7.4 TERMINATION OF PRIOR AGREEMENT: This Agreement supersedes the
Confidentiality Agreement between Titan and Schering dated as of
January 22, 1999. All Information exchanged between the Parties under
the said Confidentiality Agreement shall be deemed to be Confidential
Information and shall be subject to the terms of this Article 7, and
shall be included within the definition of Confidential Information.
7.5 PUBLICATIONS: Schering shall determine the overall strategy
for publication in support of the Product in the Territory.
7.6 PUBLICITY REVIEW: Subject to the other provisions of this Section 7, no
Party shall originate any written publicity, news release, or other
announcement or statement relating to this Agreement or to performance
hereunder or the existence of an arrangement between the Parties
(collectively "Written Disclosure") without the prior prompt review and
written approval of the other Party, which approval shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing
provisions of this Section 7.6, any Party may make any public Written
Disclosure it believes in good faith based upon the advice of counsel
is required by applicable law or any listing or trading agreement
concerning its publicly traded securities, provided that prior to
making such Written Disclosure, the disclosing Party shall provide the
other Party with a copy of the materials
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Certain portions of this Exhibit have been omitted pursuant to a request for
confidentiality. Such omitted portions, which are marked with brackets [ ]and/or
an asterisk *, have been separately filed with the Commission.
proposed to be disclosed and provide the receiving Party with at least
two (2) business days to review the proposed Written Disclosure.
8. OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS
8.1 OWNERSHIP: Each Party shall solely own any inventions made solely by
that Party's employees or consultants in the course of performing
work under this Agreement. Inventions made jointly by employees or
consultants of Titan and Schering and any Patents resulting therefrom
shall be owned by Schering subject to the licenses granted to Titan
pursuant to Section 11.2. However, Titan will have a worldwide
non-exclusive license to such Patents for use outside the Field, with
royalties under the license to be negotiated by the parties in good
faith (but in no event shall the royalties exceed [ * ] of net sales).
8.2 DISCLOSURE OF JOINT INVENTIONS: Any such patent application disclosing
inventions made jointly by the Parties shall be provided by one Party
to the other reasonably in advance of the intended date for submission
of such application to a governmental patent authority.
8.3 PATENT FILINGS
(a) Each Party, at its sole discretion, cost and responsibility,
shall prepare, file, prosecute and maintain Patents to cover
discoveries and inventions made solely by its own employees or
consultants relating to Compound or Product and use
commercially reasonable efforts to file initially all such
applications in the Territory or the appropriate forum under
the circumstances wherein such a Party determines it is
commercially reasonable to do so. Schering shall file,
prosecute and maintain Patents to cover inventions relating to
the discovery, evaluation, manufacture, use or sale of the
Compound or the Product that are made jointly by personnel of
Titan and Schering in the course of the collaboration (herein
referred to as "Joint Patents"). The determination of the
countries in the Territory in which to file Joint Patents
shall be made by Schering. Schering shall have the right to
direct and control all material actions relating to the
prosecution or maintenance of Joint Patents in the Territory,
including interference proceedings, reexaminations, reissue
opposition and revocation proceedings.
(b) The Parties agree to use commercially reasonable efforts to
ensure that any Patent filed outside the United States prior
to a filing in the United States will be in a form sufficient
to establish the date of original filing as a priority date
for the purposes of a subsequent filing in the United States.
Schering shall bear all costs related to the filing of Joint
Patents. The Parties agree to use commercially reasonable
efforts to ensure that any Patent filed in the United States
prior to filings outside of the United States will be in a
form sufficient to establish the date of original filing as a
priority date for the purpose of a subsequent filing in any
contracting state of the Paris Convention.
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8.4 THIRD PARTY PATENTS: Each Party agrees to bring to the attention of the
other Party any Third Party Patent it discovers or has discovered and
which relates to the subject matter of this Agreement.
8.5 ENFORCEMENT RIGHTS:
(a) NOTIFICATION OF INFRINGEMENT: If either Party learns of any
infringement or threatened infringement by a Third Party of
Titan Patents, Schering Patents or Joint Patents, such Party
shall promptly notify the other Party and shall provide such
other Party with all available evidence of such infringement.
(b) ENFORCEMENT IN THE TERRITORY: Subject to the next sentence,
Titan shall be obligated, at its own expense, to defend Titan
Patents and Schering shall be obligated, at its own expense,
to defend Joint Patents in the Territory. Schering shall have
the right but not the obligation to institute, prosecute and
control at its own expense any action or proceeding with
respect to infringement of any Titan Patents or Joint Patents
covering the manufacture, use, importation, sale or offer for
sale of the Product in the Territory, by counsel of its own
choice. Titan shall have the right, at its own expense, to be
represented in any action by counsel of its own choice. If
Schering fails to bring an action or proceeding or otherwise
take appropriate action to abate such infringement within a
period of one hundred eighty (180) days of notice by Titan to
Schering requesting action, Titan will have the right to bring
and control any such action or proceeding relating to Titan
Patents by counsel of its own choice and Schering will have
the right to be represented in any such action by counsel of
its own choice and at its own expense. If one Party brings any
such action or proceeding, the other Party agrees to be joined
as a party plaintiff if necessary to prosecute the action or
proceeding and to give the first Party commercially reasonable
assistance and authority to file and prosecute the suit. Any
damages or other monetary awards recovered pursuant to this
Section 8.5(b) shall be allocated first to the costs and
expenses of the party bringing suit, then to the costs and
expenses, if any, of the other Party. In the event that
Schering brings such action, any amounts remaining shall be
distributed as follows: compensatory damages shall be treated
as Net Sales in the country and calendar quarter received and
punitive and exemplary damages shall be paid equally to
Schering and Titan. In the event that Titan brings such
action, any damages or other monetary awards recovered shall
be divided equally between the Parties.
(c) SETTLEMENT WITH A THIRD PARTY: The Party that controls the
prosecution of a given action shall also have the right to
control settlement of such action, provided however, that if
one Party controls, no settlement shall be entered into
without the written consent of the other Party (which consent
shall not be unreasonably withheld) if such settlement would
materially and adversely affect the interests of the other
Party.
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8.6 DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS: If a Third Party asserts
that a patent owned by it is infringed by any Product, Titan will be
solely responsible for defending against any such assertions at its
cost and expense (subject to the provisions of Section 8.5(b)), but no
settlement may be entered into without the written consent of Schering,
which shall not be unreasonably withheld. The costs of any such
settlement (including, without limitation, damages, expense
reimbursements, compliance, future royalties or other amounts) shall be
paid exclusively by Titan. If any Third Party is successful in any such
claim and Schering is ordered to make any payments to such Third Party
in connection therewith, any such payments may be offset or deducted
from the payment obligations of Schering under the Agreement.
8.7 PATENT EXPENSES: All worldwide Patent Expenses with respect to Titan
Patents shall be borne by Titan and all worldwide Patent Expenses with
respect to Joint Patents shall be borne by Schering, subject in both
cases to the terms of this Agreement.
8.8 TRADEMARKS: Schering shall be responsible for the selection,
registration and maintenance of all trademarks which it employs in
connection with the Product and shall own and control such trademarks
and pay any costs in connection therewith. Titan recognizes the
exclusive ownership by Schering of the proprietary Schering name,
logotype or trademark furnished by Schering (including Schering's
Affiliates) for use in connection with the Product. Titan shall not,
either while this Agreement is in effect or at any time thereafter
register, use or attempt to obtain any right in or to any such name,
logotype or trademark or in and to any name, logotype or trademark
confusingly similar thereto. Only Schering will be authorized to
initiate, at its own discretion and at its own cost, legal proceedings
against any infringement or threatened infringement of the trademarks
applicable to the Product.
8.9 USE OF NAMES: Neither Party shall use the name of the other Party in
relation to this transaction in any public announcement, press release
or other public document without the written consent of such other
Party, which consent shall not be unreasonably withheld or delayed,
provided however, that either Party may use the name of the other Party
in any document filed with any regulatory agency or authority,
including the FDA and the Securities and Exchange Commission, in which
case Schering shall be referred to as "Schering AG, Germany". The
Parties agree not to use the name of the other Party in relation to
this transaction in any press release, public announcement or other
public document without the approval of such other Party, which
approval shall not be unreasonably withheld or delayed.
8.10 NO TRADEMARK RIGHTS: Except as otherwise provided herein, no right,
express or implied, is granted by this Agreement to use in any manner
the name "Schering" or "Titan" or any other trade name or trademark of
the other Party or its Affiliates in connection with the performance of
this Agreement.
9. REPRESENTATIONS AND WARRANTIES
9.1 REPRESENTATIONS AND WARRANTIES:
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(a) Each of the Parties hereby represents and warrants to the
other Party as follows:
(i) The Agreement is a legal and valid obligation binding
upon such Party and enforceable in accordance with
its terms. The execution, delivery and performance of
the Agreement by such Party does not conflict with
any agreement, instrument or understanding, oral or
written, to which it is a party or by which it is
bound, nor to such Party's knowledge, violate any
law or regulation of any court, governmental body or
administrative or other agency having jurisdiction
over it;
(ii) Titan has not granted and during the term of the
Agreement neither Party will grant any right to any
Third Party relating to the Titan Patents, Titan
Know-How and Joint Patents in the Field which would
conflict with the rights granted to either Party
hereunder.
(b) Titan hereby represents and warrants to Schering that Titan:
(i) Has provided or shown to Schering all information in
its possession or control or of which it is aware as
of the Effective Date, concerning efficacy, side
effects, injury, toxicity or sensitivity, reaction
and incidents of severity thereof, associated with
any clinical use, studies, investigations or tests
with the Product (animal or human), whether or not
determined to be attributable to the Product.
(ii) Has conducted or has caused its contractors or
consultants to conduct, and will in the future
conduct, the preclinical and clinical studies of the
Product in accordance with applicable United States
law, known or published standards of the FDA, and the
scientific standards applicable to the conduct of
studies in the United States.
(iii) Has employed and will in the future employ
individuals of appropriate education, knowledge, and
experience to conduct or oversee the conduct of
Titan's clinical and preclinical studies of the
Product.
(iv) Has not employed (and, to the best of its knowledge,
has not used a contractor or consultant that has
employed) and in the future will not employ (or, to
the best of its knowledge, use any contractor or
consultant that employs) any individual or entity
debarred by the FDA or, to the best knowledge of
Titan, any individual who or entity which is the
subject of an FDA debarment investigation or
proceeding (or similar proceeding of the EMEA), in
the conduct of the preclinical or clinical studies of
the Product.
(v) In the course of developing the Product, has not
conducted, and during the course of this Agreement it
will not conduct, any Development activities in
violation of applicable GCPs, GLPs or GMPs;
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(vi) As of the Effective Date, except as it may have
previously disclosed to Schering in writing, has not
received any notices of infringement or any written
communications relating in any way to a possible
infringement with respect to the Compound or any
potential Products, and that it is not aware that the
manufacture, use or sale of Compound or any potential
Products infringes any Third Party patent rights.
(vii) As of the Effective Date, it is not aware of any
prior act or any fact which causes it to conclude
that any Titan patent is invalid or unenforceable.
(viii) Has complied in all material respects with each
license listed on Exhibit B hereto, and during the
term hereof will comply in all material respects and
use all reasonable efforts to keep in full force and
effect each such license; neither this Agreement nor
any of the transactions contemplated hereby will,
with the giving of notice or the lapse of time or
both constitute a default or breach of any such
license.
(ix) Titan has obtained or licensed all rights to the
Compound and the Titan Patents and the Titan Know-How
free and clear of any liens, encumbrances or rights
to repurchase.
(x) During the term hereof, Titan will not grant a lien
on this Agreement or on any of Titan's rights or
obligations hereunder or on the Titan Patents or
Titan Know-How related to the Product.
(c) Schering hereby represents and warrants that Schering:
(i) Will conduct or cause its contractors and consultants
to conduct, the preclinical and clinical studies of
the Product in accordance with applicable United
States law, known or published standards of the FDA
and EMEA, and the scientific standards applicable to
the conduct of studies in the United States and the
European Union.
(ii) Will not employ (or, to the best of its knowledge,
use any contractor or consultant that employs) any
individual or entity debarred by the FDA (or subject
to a similar sanction of EMEA) or, to the best
knowledge of Schering, any individual who or entity
which is the subject of an FDA debarment
investigation or proceeding (or similar proceeding of
the EMEA), in the conduct of the preclinical or
clinical studies of the Product.
(iii) In the course of developing the Product, will not
conduct any Development activities in violation of
applicable GCPs, GLPs, or GMPs.
9.2 INDEMNIFICATION FOR BREACHES OF REPRESENTATIONS AND WARRANTIES: Without
prejudice to any other right or remedy available to either Party
arising out of the breach by the other of any of the representations
and warranties set out in Section 9.1 above, each Party hereby agrees
to indemnify, defend, and hold the other Party and its shareholders,
directors, officers, agents and employees harmless from and against any
and all losses
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resulting directly or indirectly from the breach of any
representation or warranty made by such Party hereunder. In the event
that a Party is seeking indemnification under this Section 9.2, it
shall inform the other Party of a claim as soon as reasonably
practicable after it receives notice of the claim, shall permit the
indemnifying Party to assume direction and control of the defense of
the claim (including the right to settle the claim solely for monetary
consideration), and shall cooperate as requested (at the expense of the
indemnifying Party) in defense of the claim.
9.3 PERFORMANCE BY AFFILIATES: The Parties recognize that each Party may
perform some or all of its obligations under this Agreement through
Affiliates, provided however, that each Party shall remain responsible
for and be a guarantor of the performance by its Affiliates and shall
cause its Affiliates to comply with the provisions of this Agreement in
connection with such performance.
10. INFORMATION AND REPORTS
10.1 INFORMATION AND REPORTS DURING DEVELOPMENT AND COMMERCIALIZATION:
Schering and Titan will disclose and make available (subject to any
confidentiality agreements or requirements of law) to each other
without charge all preclinical, clinical, regulatory and other
Information, including copies of all preclinical and clinical reports
known by Schering or Titan directly concerning the Product within the
Field at any time during the term of this Agreement. Each Party shall
own and maintain its own database of clinical trial data accumulated
from all clinical trials of the Product for which it was responsible
and of adverse drug event information for the Product. At the option of
the requesting Party, such data shall be provided in a computer
readable or other electronic format by the providing Party, to the
extent available, which shall also assist in the transfer and
validation of such data to the receiving Party. Without limitation of
the foregoing, each Party shall supply to the other the information
required by the other Party and requested by it (either as a routine
practice or as a specific request) for purposes of compliance with
regulatory requirements. With respect to information concerning
Commercialization, Schering agrees to keep Titan regularly informed on
all post marketing activities but shall have no obligation, except as
specifically set out in this Agreement, to share pricing, marketing or
sales information with Titan.
10.2 ADVERSE DRUG EXPERIENCES; COMPLAINTS: The Parties agree to enter into a
standard operating procedure by and between the Parties to govern the
exchange of information relating to adverse drug experiences, Product
quality and Product complaints.
10.3 RECORDS OF REVENUES AND EXPENSES: Each Party will maintain complete and
accurate records which are relevant to revenues, costs, expenses and
payments on a country-by-country basis in the Territory under this
Agreement and such records shall be open during reasonable business
hours for a period of three (3) years from creation of individual
records for examination at the other Party's expense and not more often
than once each year by a firm of certified public accountants selected
by the other Party, or the other Party's internal accountants unless
the first Party objects to the use of such internal accountants, for
the sole purpose of verifying for the inspecting Party the correctness
of calculations and classifications of such revenues, costs, expenses
or payments made
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under this Agreement. Each Party shall bear its own costs related to
such audit; provided that, for any underpayments greater than five
(5) percent by Schering, Schering shall pay Titan the amount of
underpayment, interest as provided for in Section 5.2(f) from the
time the amount was due and Titan's out-of-pocket expenses. For any
underpayments less than five (5) percent by Schering found under
this Section, Schering shall pay Titan the amount of underpayment.
Any overpayments by Schering will be credited to future royalties.
Any records or accounting information received from the other Party
shall be Confidential Information for purposes of Article 7. Results
of any such audit shall be provided to both Parties, subject to
Article 7.
10.4 If there is a dispute between the Parties following any audit performed
pursuant to Section 10.3, either Party may refer the issue (an "Audit
Disagreement") to an independent certified public accountant for
resolution. In the event an Audit Disagreement is submitted for
resolution by either Party, the Parties shall comply with the following
procedures: (a) the Party submitting the Audit Disagreement for
resolution shall provide written notice to the other Party that it is
invoking the procedures of this Section 10.4; (b) within thirty (30)
days of the giving of such notice, the Parties shall jointly select a
recognized international accounting firm to act as an independent
expert to resolve such Audit Disagreement; (c) the Audit Disagreement
submitted for resolution shall be described by the Parties to the
independent expert, which description may be in written or oral form,
within ten (10) business days of the selection of such independent
expert; (d) the independent expert shall render a decision on the
matter as soon as practicable but in no event more than sixty (60) days
after submission of the Audit Disagreement to the expert; (e) the
decisions of the independent expert shall be final and binding unless
such Audit Disagreement involves alleged fraud, breach of this
Agreement, or construction or interpretation of any of the terms and
conditions thereof; (f) all fees and expenses of the independent
expert, including any third party support staff or other costs incurred
with respect to carrying out the procedures specified at the direction
of the independent expert in connection with such Audit Disagreement,
shall be borne by each Party in inverse proportion to the disputed
amounts awarded to the Party by the independent expert through such
decision (e.g., Party A disputes $100, the independent expert awards
Party A $60, then Party A pays forty percent (40%) and Party B pays
sixty percent (60%) of the independent expert's costs.)
11. TERM AND TERMINATION
11.1 TERM: This Agreement shall commence as of the Effective Date and,
unless sooner terminated as provided herein shall continue in effect
until such time as no royalties are payable under Article 5 hereunder
to Titan, provided that the license to Titan Know-How granted pursuant
to Section 2 shall survive such termination.
11.2 TERMINATION
(a) EARLY TERMINATION: In the event that Schering elects not to
initiate the Pivotal Clinical Trial of the Product pursuant to
Section 5.1(a), this Agreement shall terminate, and all
payments made by Schering to Titan shall be retained by Titan;
and Titan shall retain full rights to use any data and
information generated, up to
23
<PAGE>
the date of termination, by Titan, Schering, or jointly
pertaining to the Compound and the Product.
(b) TERMINATION AT WILL: Schering will have the right to terminate
this Agreement for the Territory or on a country-by-country
basis and be fully released of all obligations hereunder
(except as expressly provided for herein) by ninety (90) days'
notice given at any time, and Titan shall thereafter retain
full rights to use any data and information generated, up to
the date of termination, by Titan, Schering, or jointly
pertaining to the Compound and the Product.
(c) TERMINATION FOR MATERIAL BREACH: Failure by Schering or Titan
to comply with any of the respective material obligations and
conditions contained in this Agreement shall entitle the other
Party to give the Party in default notice requiring it to cure
such default. If such default is not cured within ninety (90)
days after receipt of such notice, the notifying Party shall
be entitled (without prejudice to any of its other rights
conferred by this Agreement) to terminate this Agreement or,
in the event of an uncured material breach by Titan, to invoke
the rights of Schering set forth in Section ll.2(f) by giving
a notice to take effect immediately. The right of either Party
to terminate this Agreement as hereinabove provided shall not
be affected in any way by its waiver of, or failure to take
action with respect to, any previous default.
(d) TERMINATION FOR INSOLVENCY: In the event that one of the
Parties hereto shall go into liquidation, a receiver or a
trustee be appointed for the property or estate of that Party
and said receiver or trustee is not removed within sixty (60)
days, or the Party makes an assignment for the benefit of
creditors (collectively, a "Bankruptcy Event"), and whether
any of the aforesaid Bankruptcy Events be the outcome of the
voluntary act of that Party or otherwise, the other Party
shall be entitled to terminate this Agreement (or in the event
Titan suffers such a Bankruptcy Event, Schering may effect its
rights described in Section 11.2(f) forthwith by giving a
written notice to Titan.
(e) EFFECT OF TERMINATION: In the event that this Agreement is
terminated by Schering in one or more countries or in its
entirety in accordance with Section 11.2(b), or this Agreement
is terminated by Titan pursuant to Section 11.2(c) either in
one country or in its entirety, Schering will, with respect to
each country to which the termination applies:
(i) deliver to Titan the Titan Know-How and assign to
Titan its rights in said Titan Know-How and Titan
Patents, if any, in either case relating solely to
the country that is the subject of the termination;
(ii) not use the Titan Know-How as long as it has to be
kept confidential pursuant to Article 7 hereof in
such country;
(iii) not infringe any of the Titan Patents in such
country;
24
<PAGE>
(iv) transfer all regulatory filings and approvals related
to the Product in such country to Titan upon
Titan's written request for same;
(v) sell to Titan, at any time within ninety (90) days of
such termination, at Titan's election, all or any
portion of the inventory of the Compound or Product
owned by Schering or its Affiliates which are
intended for sale in such country at a price equal to
Schering's or its Affiliate's cost for such
inventory; such election shall be made by Titan in
writing and within thirty (30) days of such election
Schering shall ship, at Titan's cost and
direction such inventory to Titan. Titan shall pay
for such inventory within forty-five (45) days of
receipt of such inventory.
(f) EFFECT OF TERMINATION BY SCHERING PURSUANT TO SECTIONS 11.2(C)
AND (D): In the event of a Bankruptcy Event or a material
default described in Sections 11.2(c) and (d) by Titan, which
default is not cured as provided therein, Schering may elect
in lieu of terminating this Agreement to declare the license
granted pursuant to this Agreement to be irrevocable. From the
date of receipt of notice of such election, Titan shall have
no further rights or obligations (except for those arising
under Section 7.3) under this Agreement except that Titan may
enforce any financial obligations of Schering provided that if
such election occurs prior to the First Commercial Sale of the
Product, any additional Development Expenses and any
reasonable costs incurred by Schering to Commercialize the
Product as a result of such election shall be credited against
amounts payable by Schering to Titan.
(g) GENERAL: Except where expressly provided for otherwise in this
Agreement, termination of this Agreement shall not relieve the
Parties hereto of any liability, including any obligation to
make payments hereunder, which accrued hereunder prior to the
effective date of such termination nor preclude any Party from
pursuing all rights and remedies it may have hereunder or at
law or in equity with respect to any breach of this Agreement
nor prejudice any Party's right to obtain performance of
any obligation.
(h) SURVIVING RIGHTS: The rights and obligations set forth in this
Agreement shall extend beyond the term or termination of the
Agreement only to the extent expressly provided for herein, or
the extent that the survival of such rights or obligations are
necessary to permit their complete fulfillment or discharge.
12. INDEMNIFICATION
12.1 Sections 14 and 15, the indemnification and insurance provisions of the
NYU License (Exhibit B), are incorporated herein by reference. NYU is
an intended third party beneficiary of this Agreement for purposes of
enforcing such indemnification and insurance provisions.
12.2 INDEMNIFICATION BY SCHERING FOR NEGLIGENCE, WILLFUL MISCONDUCT, OR
BREACH: Schering shall indemnify, defend and hold harmless Titan and
its shareholders, employees, agents,
25
<PAGE>
officers, managers, partners and directors and each of them (a
"Titan Indemnified Party") from and against any and all Third Party
claims, causes of action, losses, damages and costs (including
reasonable attorneys' fees regardless of outcome) of any nature made
or asserted against a Titan Indemnified Party or lawsuits or other
proceedings filed or otherwise instituted against a Titan
Indemnified Party, in each case by a Third Party (hereinafter
individually and collectively (a) "Titan Loss(es)") resulting from
or arising out of the development, manufacture, sale or marketing of
Product in the Territory but solely to the extent that such Titan
Loss(es) arise out of or result from the negligence or willful
misconduct of Schering, its Affiliates or sublicensees or the breach
by Schering, its Affiliates or sublicensees of any of its or their
representations or warranties or obligations or covenants hereunder.
12.3 INDEMNIFICATION BY TITAN FOR NEGLIGENCE, WILLFUL MISCONDUCT, OR BREACH:
Titan shall indemnify, defend and hold harmless Schering and its
Affiliates and their respective shareholders, employees, agents,
officers, managers, partners and directors and each of them (a
"Schering Indemnified Party") from and against any and all Third Party
claims, causes of action, losses, damages and costs (including
reasonable attorney's fees regardless of outcome) of any nature
made or asserted against a Schering Indemnified Party, in each case by
a Third Party (hereinafter individually and collectively (a) "Schering
Loss(es)" resulting from or arising out of the manufacture, use,
marketing or sale of Product in the Territory but solely to the extent
that such Schering Loss(es) arise out of or result from the negligence
or willful misconduct of Titan or its Affiliates, or the breach by
Titan or its Affiliates of any of its or their representations or
warranties or obligations or covenants hereunder.
12.4 CONDITIONS TO INDEMNIFICATION: A person or entity that intends to claim
indemnification under this Article 12 (the "Indemnitee") shall promptly
notify the other party (the "Indemnitor") of any Schering Loss(es) or
Titan Loss(es) as the case may be in respect of which the Indemnitee
intends to claim such indemnification. Indemnitor shall have the right
to control the defense of any Schering Loss(es) or Titan Loss(es) as
the case may be as to which the obligation to indemnify the Indemnitee
has been acknowledged by the Indemnitor in writing under Section 12.2
or 12.3. The indemnity agreement in this Article 12 shall not apply to
amounts paid in settlement of any loss, claim, damage, liability or
action if such settlement is effected without the consent of the
Indemnitor, which consent shall not be withheld or delayed
unreasonably. The failure to deliver notice to the Indemnitor within a
reasonable time after the commencement of any such action, only if
prejudicial to its ability to defend such action, shall relieve such
Indemnitor of any liability to the Indemnitee under this Article 12,
but the omission so to deliver notice to the Indemnitor will not
relieve it of any liability that it may have to any Indemnitee
otherwise than under this Article 12. The Indemnitee under this Article
12, its employees and agents shall cooperate fully with the Indemnitor
and its legal representatives in the investigations and defense of any
action, claim or liability covered by this indemnification. The
Indemnitee shall have the right to participate in the defense of such
action.
13. MISCELLANEOUS
26
<PAGE>
13.1 ASSIGNMENT:
(a) Schering may assign any of its rights or obligations under
this Agreement in any country to any of its Affiliates,
provided that such assignment shall not relieve Schering of
its responsibilities for performance of its obligations under
this Agreement.
(b) Titan may assign any of its rights or obligations under this
Agreement in any country to any of its Affiliates, and Titan
may assign its rights or obligations under this Agreement as
part of a transaction such as a merger, acquisition, or sale
of all or substantially all of the assets of Titan; provided
that such assignment shall not relieve Titan of its
responsibilities for performance of its obligations under this
Agreement; and provided further that the financial obligations
of Schering shall survive any such assignment.
(c) This Agreement shall be binding upon and inure to the benefit
of the successors and permitted assigns of the Parties. Any
assignment not in accordance with this Agreement shall be
void.
13.2 RETAINED RIGHTS: Nothing in this Agreement shall limit in any respect
the right of either Party to conduct research and development and to
market products using such Party's technology other than as herein
expressly provided.
13.3 FURTHER ACTIONS: Each Party 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 Agreement.
13.4 NOTICES: All notices hereunder shall be in writing and shall be deemed
given if delivered personally or two days after mailed by registered or
certified mail (return receipt requested), postage prepaid, or sent by
express courier service, to the Parties at the following addresses (or
at such other address for a Party as shall be specified by like notice;
provided that notices of a change of address shall be effective only
upon receipt thereof).
(a) If to Titan:
Titan Pharmaceuticals, Inc.
400 Oyster Point Boulevard, Suite 505
South San Francisco, California 94080
U.S.A.
Attn.: President and CEO
27
<PAGE>
(b) If to Schering:
Schering AG
Muellerstrasse 178
Berlin-Wedding
D-13342 Berlin
Germany
Attn.: Legal Department
13.5 WAIVER: Except as specifically provided for herein, the waiver from
time to time by either of the Parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a
continuing waiver of same or any other of such Party's rights or
remedies provided in this Agreement.
13.6 SEVERABILITY: If any term, covenant or condition of this Agreement or
the application thereof to any Party or circumstances shall, to any
extent or in any country, be held to be invalid or unenforceable, then
(i) the remainder of this Agreement, or the application of such term,
covenant or condition of this Agreement shall be valid and be enforced
to the fullest extent permitted by law; and (ii) the Parties hereto
covenant and agree to renegotiate any such term, covenant or
application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this
Agreement or the application thereof that is invalid or unenforceable,
it being the intent of the Parties that the basic purposes of this
Agreement are to be effected.
13.7 AMBIGUITIES: Ambiguities, if any, in this Agreement shall not be
construed against any Party, irrespective of which Party may be deemed
to have authored the ambiguous provision.
13.8 GOVERNING LAW AND JURISDICTION: This Agreement shall be governed by and
interpreted under the laws of the State of New York as applied to
contracts entered into and performed entirely in New York by New York
residents.
13.9 HEADINGS: The sections and paragraph headings contained herein are for
the purposes of convenience only and are not intended to define or
limit the contents of said sections or paragraphs.
13.10 COUNTERPARTS: This Agreement may be executed in one or more
counterparts (and by facsimile), each of which shall be deemed an
original but all of which together shall constitute one and the same
instrument.
13.11 ENTIRE AGREEMENT; AMENDMENTS: This Agreement, including all Exhibits
attached hereto and thereto, and all documents delivered concurrently
herewith and therewith, set forth all the covenants, promises,
agreements, warranties, representations, conditions and understandings
between the Parties hereto and supersede and terminate all prior
agreements and understandings between the Parties. There are no
covenants, promises, agreements, warranties, representations,
conditions or understandings, either oral or written, between the
Parties other than as set forth herein and therein. No subsequent
28
<PAGE>
Certain portions of this Exhibit have been omitted pursuant to a request for
confidentiality. Such omitted portions, which are marked with brackets [ ]
and/or an asterisk *, have been separately filed with the Commission.
alteration, amendment, change or addition to this Agreement shall be
binding upon the Parties hereto unless reduced to writing and signed by
the respective authorized officers of the Parties. This Agreement,
including without limitation the exhibits, schedules and attachments
thereto, are intended to define the full extent of the legally
enforceable undertakings of the Parties hereto, and no promise or
representation, written or oral, which is not set forth explicitly
herein or therein is intended by either Party to be legally binding.
Both Parties acknowledge that in deciding to enter into the Agreement
and to consummate the transaction contemplated hereby neither has
relied upon any statement or representations, written or oral, other
than those explicitly set forth herein.
13.12 EXPENSES: Except as otherwise specified in this Agreement, all costs
and expenses including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, travel, lodging, meals and
entertainment incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Party incurring
such costs and expenses.
13.13 INDEPENDENT CONTRACTORS: The status of the parties under this Agreement
shall be that of independent contractors. Neither Party shall have the
right to enter into any agreements on behalf of the other Party, nor
shall it represent to any person that it has any such right or
authority. Nothing in this Agreement shall be construed as establishing
a partnership or joint venture relationship between the Parties. This
Agreement is not intended to be a partnership between Titan and
Schering for federal, state or local income tax purposes.
13.14 EQUITY INVESTMENT: Upon successful completion of pilot clinical trials
and Schering's decision to enter into Pivotal Clinical Trials, Schering
may make an equity investment of up to [ * ] in Titan on terms to be
mutually agreed upon by the Parties.
13.15 In further consideration for the payments made hereunder, and for other
good and valuable consideration the receipt of which is hereby
acknowledged, Titan extends to Schering a one year worldwide exclusive
option, which option expires on the first anniversary of the Effective
Date of this Agreement ("Option Period"), to enter into a further
License Agreement for any expanded Compound(s) consisting of cells,
other than RPE cells, on microcarriers used in Product(s) for all
indications. Should Schering exercise an Option in this Section 13.15,
the Parties agree to enter into good faith negotiations to conclude a
further definitive License Agreement(s) which, in addition to the terms
and conditions usual and customary in such agreements, shall include at
least the following provisions obligating Schering to take the
following actions:
(a) Prepare and execute a Development Plan for the Product(s) of
the expanded Compound(s) in a manner similar to that set forth
in Section 3.2 of this Agreement.
(b) Pay to Titan a license fee between [ * ], the amount of which
fee shall be mutually agreed upon in good faith and shall be
dependent upon the breadth of the Field, e.g.:
(i) For expanded Compound(s) for a single therapeutic
indication; or
29
<PAGE>
Certain portions of this Exhibit have been omitted pursuant to a request for
confidentiality. Such omitted portions, which are marked with brackets [ ]
and/or an asterisk *, have been separately filed with the Commission.
(ii) For expanded Compound(s) for all CNS indications; or
(iii) For expanded Compound(s) for all non-CNS indications;
or
(iv) For expanded Compound(s) for all indications.
Such license fee shall additionally be dependent upon the relative contribution
of each Party to the development of supportive data for such Additional
Indications during the Option Period.
(c) Pay to Titan milestone payments, in amounts to be determined
in good faith negotiations between the Parties, upon the
occurrence of each of the following events:
(i) The submission of an IND to the FDA for a Product
containing an expanded Compound; and
(ii) Regulatory Approval by FDA of a Product containing an
expanded Compound; and
(iii) Regulatory Approval by the EMEA of a Product
containing an expanded Compound.
(d) Pay to Titan royalties on Net Sales of Products covered by the
further License Agreement, on a Product by Product and
country-by-country basis, as follows: [ * ] of Net Sales if
the Product is covered by both a Patent and Titan Know-How; or
[ * ] of Net Sales if the Product is covered only by Titan
Know-How.
IN WITNESS WHEREOF Titan and Schering have caused this
agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SCHERING AG TITAN PHARMACEUTICALS, INC.
BY: /s/ Professor Dr. G. Stock BY: /s/ Louis R. Bucalo
---------------------------- ----------------------------
TITLE:____________________________ TITLE:____________________________
SCHERING AG
BY: /s/ Dr. J. Kapp
--------------------------
TITLE:____________________________
30
<PAGE>
EXHIBIT A
U.S. PATENTS AND PATENT APPLICATIONS
Pursuant to Section 2.1 of this Agreement, the following U.S. Patents and Patent
Applications are currently under the control of Titan:
Issued U.S. Patents:
US 5,618,531 Issued April 8, 1997
Method of Increasing Viability of Cells which are Administered to the
Brain or Spinal Cord.
US 5,750,103 Issued May 12, 1998
Method of Transplanting Cells into the Brain and Therapeutic Uses
Therefor.
US Patent Applications:
US 08/460,706 Filed June 2, 1995
Method for Transplanting Cells into the Brain and Therapeutic Uses
Therefor.
US 08/629,308 Filed April 8, 1996
Method for Gene Transfer to the Central Nervous System.
US 09/002,413 Filed January 2, 1998
Use of Pigmented Retinal Epithelial Cells for Creation of an Immune
Privileged Site.
US 09/289,576 Filed April 9, 1999
Methods of Treating Schizophrenia.
31
<PAGE>
EXHIBIT B
EXISTING LICENSES
Agreement between New York University and Theracell Corporation, effective
November 20, 1992, with First Amendment to that Agreement effective February 21,
1995, and Second Amendment to that Agreement effective December 1, 1995.
License and Supply Agreement between Theracell Inc. and Percell Biolytica AB,
effective January 1, 1999.
32
<PAGE>
Certain portions of this Exhibit have been omitted pursuant to a request for
confidentiality. Such omitted portions, which are marked with brackets [ ]
and/or an asterisk *, have been separately filed with the Commission.
EXHIBIT C
INITIAL DEVELOPMENT PLAN
***
33
<PAGE>
Certain portions of this Exhibit have been omitted pursuant to a request for
confidentiality. Such omitted portions, which are marked with brackets [ ]
and/or an asterisk *, have been separately filed with the Commission.
***
34
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form SB-2
No. 33-99386, Forms S-8 No. 333-42533 and No. 333-86001) pertaining to the 1993
Stock Option Plan, as amended and restated, the 1995 Stock Option Plan, as
amended and restated, and the 1998 Stock Option Plan of Titan Pharmaceuticals,
Inc. of our report dated February 24, 2000 except for Note 14, as to which the
date is March 3, 2000, with respect to the consolidated financial statements of
Titan Pharmaceuticals, Inc. included in this Annual Report on Form 10-K for the
year ended December 31, 1999.
[/S/ ERNST & YOUNG LLP]
Palo Alto, California
March 29, 2000
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