TITAN PHARMACEUTICALS INC - Quarter Report: 2002 June (Form 10-Q)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Period Ended June 30, 2002.
or
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period From to .
Commission file number 0-27436
Titan Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
|
94-3171940 |
|
(State or Other Jurisdiction of |
|
(I.R.S. Employer |
|
Incorporation or Organization) |
|
Identification No.) |
|
400 Oyster Point Blvd., Suite 505, South San Francisco, California 94080 |
|
(Address of Principal Executive Offices including zip code) |
|
|
|
(650) 244-4990 |
|
(Registrant’s Telephone Number, Including Area Code) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesýNoo
There were 27,642,085 shares of the Registrant’s Common Stock issued and outstanding on August 6, 2002.
Titan Pharmaceuticals, Inc.
Index to Form 10-Q
TITAN PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
June 30, |
|
December 31, |
|
||
|
|
|
2002 |
|
2001 |
|
||
|
|
|
(unaudited) |
|
(Note A) |
|
||
|
Assets |
|
|
|
|
|
||
|
Current assets |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
6,298 |
|
$ |
5,772 |
|
|
Marketable securities |
|
83,318 |
|
99,279 |
|
||
|
Prepaid expenses, receivables, and other current assets |
|
1,203 |
|
906 |
|
||
|
Total current assets |
|
90,819 |
|
105,957 |
|
||
|
Furniture and equipment, net |
|
801 |
|
575 |
|
||
|
Investment in other companies |
|
300 |
|
600 |
|
||
|
|
|
$ |
91,920 |
|
$ |
107,132 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
||
|
Current liabilities |
|
|
|
|
|
||
|
Accounts payable |
|
$ |
849 |
|
$ |
894 |
|
|
Accrued clinical trials expenses |
|
1,906 |
|
2,156 |
|
||
|
Other accrued liabilities |
|
1,004 |
|
714 |
|
||
|
Deferred contract revenue |
|
— |
|
2,000 |
|
||
|
Total current liabilities |
|
3,759 |
|
5,764 |
|
||
|
Minority interest - Series B preferred stock of Ingenex, Inc. |
|
1,241 |
|
1,241 |
|
||
|
Stockholders’ equity |
|
|
|
|
|
||
|
Common stock, at amounts paid in |
|
191,686 |
|
191,684 |
|
||
|
Additional paid-in capital |
|
9,118 |
|
9,017 |
|
||
|
Deferred compensation |
|
(731 |
) |
(795 |
) |
||
|
Accumulated deficit |
|
(113,652 |
) |
(101,670 |
) |
||
|
Accumulated other comprehensive income |
|
499 |
|
1,891 |
|
||
|
Total stockholders’ equity |
|
86,920 |
|
100,127 |
|
||
|
|
|
$ |
91,920 |
|
$ |
107,132 |
|
Note A: The balance sheet has been derived from the audited financial statements at that datebut does not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements presentation.
See Notes to Condensed Consolidated Financial Statements
2
TITAN PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amount)
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2002 |
|
2001 |
|
2002 |
|
2001 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Contract and grant revenue |
|
$ |
151 |
|
$ |
373 |
|
$ |
2,498 |
|
$ |
953 |
|
|
License revenue |
|
— |
|
2,500 |
|
— |
|
2,500 |
|
||||
|
Total revenue |
|
151 |
|
2,873 |
|
2,498 |
|
3,453 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
||||
|
Research and development |
|
6,919 |
|
5,341 |
|
14,405 |
|
10,340 |
|
||||
|
General and administrative |
|
1,391 |
|
1,211 |
|
2,601 |
|
2,795 |
|
||||
|
Total operating expenses |
|
8,310 |
|
6,552 |
|
17,006 |
|
13,135 |
|
||||
|
Loss from operations |
|
(8,159 |
) |
(3,679 |
) |
(14,508 |
) |
(9,682 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
||||
|
Interest income, net |
|
1,447 |
|
1,867 |
|
2,854 |
|
3,402 |
|
||||
|
Other expense |
|
(320 |
) |
(22 |
) |
(328 |
) |
(73 |
) |
||||
|
Other income, net |
|
1,127 |
|
1,845 |
|
2,526 |
|
3,329 |
|
||||
|
Net loss |
|
$ |
(7,032 |
) |
$ |
(1,834 |
) |
$ |
(11,982 |
) |
$ |
(6,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Basic and diluted net loss per share |
|
$ |
(0.25 |
) |
$ |
(0.07 |
) |
$ |
(0.43 |
) |
$ |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Weighted average shares used in computing basic and diluted net loss per share |
|
27,642 |
|
27,619 |
|
27,642 |
|
27,544 |
|
||||
See Notes to Condensed Consolidated Financial Statements
3
TITAN PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
|
|
|
Six Months Ended June 30, |
|
||||
|
|
|
2002 |
|
2001 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
||
|
Net loss |
|
$ |
(11,982 |
) |
$ |
(6,353 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
||
|
Depreciation and amortization |
|
567 |
|
258 |
|
||
|
Non-cash compensation related to stock options |
|
165 |
|
161 |
|
||
|
Changes in operating assets and liabilities: |
|
|
|
|
|
||
|
Prepaid expenses, receivables and other assets |
|
(396 |
) |
(565 |
) |
||
|
Accounts payable and other accrued liabilities |
|
(5 |
) |
451 |
|
||
|
Deferred contract revenue |
|
(2,000 |
) |
— |
|
||
|
Net cash used in operating activities |
|
(13,651 |
) |
(6,048 |
) |
||
|
|
|
|
|
|
|
||
|
Cash flows from investing activities: |
|
|
|
|
|
||
|
Purchases of furniture and equipment, net |
|
(394 |
) |
(125 |
) |
||
|
Purchases of marketable securities |
|
(8,095 |
) |
(41,890 |
) |
||
|
Proceeds from maturities of marketable securities |
|
14,133 |
|
31,200 |
|
||
|
Proceeds from sales of marketable securities |
|
8,531 |
|
7,030 |
|
||
|
Net cash provided by (used in) investing activities |
|
14,175 |
|
(3,785 |
) |
||
|
|
|
|
|
|
|
||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Issuance of common stock, net |
|
2 |
|
849 |
|
||
|
Net cash provided by financing activities |
|
2 |
|
849 |
|
||
|
|
|
|
|
|
|
||
|
Net increase (decrease) in cash and cash equivalents |
|
526 |
|
(8,984 |
) |
||
|
Cash and cash equivalents at beginning of period |
|
5,772 |
|
20,300 |
|
||
|
Cash and cash equivalents at end of period |
|
6,298 |
|
11,316 |
|
||
|
Marketable securities at end of period |
|
83,318 |
|
101,806 |
|
||
|
Cash, cash equivalents and marketable securities at end of period |
|
$ |
89,616 |
|
$ |
113,122 |
|
See Notes to Condensed Consolidated Financial Statements
4
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Summary of Significant Accounting Policies
The Company
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 operate in one business segment, the development of biopharmaceutical products.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Titan and its subsidiaries after elimination of all significant intercompany accounts and transactions. Certain prior year balances have been reclassified to conform to the current year presentation. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for a complete financial statements presentation. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Titan Pharmaceuticals, Inc. annual report on Form 10-K for the year ended December 31, 2001.
Revenue Recognition
Contract revenue for research and development is recorded as earned based on the performance requirements of the contract. Revenue associated with performance milestones, considered “at-risk” until the milestones are completed, is recognized based on the achievement of the milestones as defined in the respective agreements. 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 associated project costs are incurred.
Operating Subsidiaries
We conduct a small portion of our operations through two subsidiaries: Ingenex, Inc. and ProNeura, Inc. At June 30, 2002, we owned 81% of Ingenex (assuming the conversion of all preferred stock to common stock) and 79% of ProNeura.
2. Net Loss Per Share
We calculate net loss per share using the weighted average common shares outstanding for the period. For periods ended June 30, 2002 and 2001, the effect of an additional 5,415,516 and 3,860,610 shares,
5
respectively, related to our authorized and issued convertible preferred stock and options, were not included in the computation of diluted earnings per share because they are anti-dilutive.
3. Comprehensive Income
Comprehensive income is comprised of net loss and other comprehensive income. The only component of other comprehensive income is unrealized gains and losses from our marketable securities. Comprehensive loss for the three and six months ended June 30, 2002 were $7.2 million and $13.4 million, respectively, and for the three and six months ended June 30, 2001 were $2.1 million and $5.4 million, respectively.
4. Related Parties Transactions
In 2001, we provided certain relocation loans to employees in connection with employment. In February 2001, we made a loan to a vice president officer in the principal amount of $373,000 bearing interest at the prime rate. The loan was due and payable on August 7, 2002. As of August 14, 2002, $200,000 has been repaid leaving a principal balance of $173,000.
5. Spheramine milestone payment from Schering AG.
In February 2002, we announced that we received a $2.0 million milestone payment from Schering, Titan’s corporate partner for worldwide development, manufacture and commercialization of SpheramineÒ, Titan’s novel cell therapy for the treatment of Parkinson’s disease. The milestone payment followed Schering’s decision in the first quarter 2002 to initiate larger, randomized clinical testing of Spheramine for the treatment of patients with late-stage Parkinson’s disease following the successful completion of Titan’s Phase I/II clinical study of Spheramine. As a result, Titan recognized $2.0 million in contract revenue in the first quarter.
6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains certain forward-looking statements, within the meaning of the “safe harbor” provisions of the Private Securities Reform Act of 1995, the attainment of which involves various risks and uncertainties. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “plan,” “anticipate,” “continue,” or similar terms, variations of those terms or the negative of those terms. Our actual results may differ materially from those described in these forward-looking statements due to, among other factors, the results of ongoing research and development activities and pre-clinical testing, the results of clinical trials and the availability of additional financing through corporate partnering arrangements or otherwise. Additional factors include our ability to protect our patents and proprietary rights, ability to comply with extensive government regulations, and other factors and risks detailed under the caption “Risk Factors” in the Company’s 2001 Annual Report on Form 10-K and other filings with the U.S. Securities and Exchange Commission. Stockholders and prospective investors in the Company should carefully consider these risk factors. The Company disclaims any obligation to update these statements for subsequent events.
Spheramine®, CeaVac®, TriAb®, TriGem™, Pivanex®, CCM™, Probuphine™, and Promafen™ are trademarks of Titan Pharmaceuticals, Inc.
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 product development programs focus on large pharmaceutical markets with significant unmet medical needs.
We currently have ten products in development, seven of which are in clinical development, with two products in expanded human trials for safety and efficacy, known as Phase III clinical trials. We have five products in earlier stage trials for dosing, and preliminary safety and efficacy, known as Phase I and Phase II clinical trials. In addition to these programs, we have three products in pre-clinical development.
We are independently developing our product candidates and also utilizing strategic partnerships, including collaborations with Novartis Pharma AG (Novartis) and Schering AG (Schering), as well as collaborations with several government-sponsored clinical cooperative groups. These collaborations help fund product development and enable us to retain significant economic interest in our products.
The results of a study evaluating the potential effect of iloperidone, an antipsychotic medication in development, on the EKG profile of patients receiving the drug were announced in July 2002. The study indicated that results for iloperidone were roughly comparable to that for ziprasidone, one of the approved agents in the study. The potential of these data to support any possible regulatory submission for iloperidone is not currently known. In addition, this may potentially limit the opportunity of iloperidone as first line therapy for schizophrenia. Novartis and Titan are currently preparing to evaluate next steps for the iloperidone program.
7
The following table provides a summary status of our products in development:
|
Product |
|
Potential Indication(s) |
|
Phase of Development |
|
Marketing Rights |
|
Iloperidone |
|
Schizophrenia, psychosis |
|
Phase III |
|
Novartis Pharma AG |
|
Spheramine |
|
Parkinson’s disease |
|
Phase II (planned for 2H 2002) |
|
Schering AG |
|
CeaVac |
|
Colorectal, gastrointestinal and pancreatic cancer |
|
Phase III (colorectal cancer) |
|
Titan |
|
TriAb |
|
Breast and ovarian cancer |
|
Phase II (breast cancer) |
|
Titan |
|
TriGem & TriAb |
|
Small cell lung cancer |
|
Phase II (planned for 2H 2002) |
|
Titan |
|
CeaVac & TriAb |
|
Metastatic breast, non-small cell lung, and colorectal cancer |
|
Phase II |
|
Titan |
|
Pivanex |
|
Non-small cell lung cancer |
|
Phase II |
|
Titan |
|
Gallium Maltolate |
|
Myeloma, prostate and bladder cancer, lymphoma |
|
Phase I/II |
|
Titan |
|
Probuphine |
|
Opiate addiction |
|
Pre-clinical |
|
Titan |
|
Promafen |
|
Alcohol addiction |
|
Pre-clinical |
|
Titan |
|
RB94 |
|
Head, neck, and pancreatic cancer |
|
Pre-clinical |
|
Titan |
Our products are at various stages of development and may not be successfully developed or commercialized. We do not currently have any products being commercially sold. Our proposed products will require significant further capital expenditures, development, testing, and regulatory clearances prior to commercialization. We may experience unanticipated problems relating to product development and cannot predict whether we will successfully develop and commercialize any products. An estimation of product completion dates and completion costs can vary significantly for each product and are difficult to predict. Various statutes and regulations also influence our product development progress and the success of obtaining approval is highly uncertain. For a full discussion of risks and uncertainties in our product development, see “Risk Factors — Our products are at various stages of development and may not be successfully developed or commercialized” in our 2001 annual report on Form 10-K.
Results of Operations
Revenues for the second quarter of 2002 were approximately $150,000, compared to $2.9 million for the same quarter in 2001. For the first six months of 2002, revenues were $2.5 million, compared to $3.5 million for the same six-month period in 2001. The decrease in revenue for the six-month period was due to additional revenue in 2001 from a one-time $2.5 million license fee payment from Novartis, partially offset by a $2.0 million milestone payment received from Schering in 2002 following the successful completion of our Phase I/II study and Schering’s decision to initiate expanded clinical testing of Spheramine for the treatment of patients with late-stage Parkinson’s disease.
Research and development expenses for the second quarter 2002 were $6.9 million, compared to $5.3 million for the same quarter in 2001. For the first six months of 2002, research and development expenses were $14.4 million, compared to $10.3 million for the same six-month period in 2001. The increase resulted primarily from our expanded clinical and pre-clinical operations, including planned increases in expenditures associated with our ongoing randomized, placebo-controlled Phase III clinical study of CeaVac in Dukes D colorectal cancer, as well as our clinical studies of CeaVac and TriAb and progress in our pre-clinical development of drug candidates for the treatment of opiate and alcohol addiction.
General and administrative expenses for the second quarter 2002 were $1.4 million compared to $1.2 million for the same quarter in 2001. For the first six months of 2002, general and administrative expenses were $2.6 million, compared to $2.8 million for the same six-month period in 2001. The decrease for the six-month period resulted primarily from the absence of certain non-recurring corporate development costs, while
8
the second quarter reflected a slight increase in general and administrative support for our increased clinical and pre-clinical operations.
Other income for the second quarter 2002, net of a $300,000 write-down of certain long-term investments, was $1.1 million compared to $1.8 million for the same quarter in 2001. For the first six months of 2002, other income, net, was $2.5 million compared to $3.3 million for the same six-month period in 2001. The decrease, primarily in interest income, was a result of lower interest rates and decreased cash and marketable securities.
As a result of the foregoing, we had a net loss for the second quarter 2002 of $7.0 million, or $0.25 per share, compared to $1.8 million, or $0.07 per share, for the same quarter in 2001. For the first six months of 2002, our net loss was $12.0 million, or $0.43 per share, compared to $6.4 million, or $0.23 per share, for the same six-month period in 2001.
Liquidity and Capital Resources
We have funded our operations since inception 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. At June 30, 2002, we had $89.6 million of cash, cash equivalents, and marketable securities.
Our operating activities used $13.7 million and $6.0 million of cash in the first six months in 2002 and 2001, respectively. Uses of cash in operating activities were primarily to fund product development programs and administrative expenses. 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 $0.9 million. Certain of our licenses require us to pay royalties 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 diligent efforts in product development.
We expect to continue to incur substantial additional operating losses from costs related to continuation and expansion of product and technology development, clinical trials, and administrative activities. We believe that we currently have sufficient working capital to sustain our planned operations through 2005.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our market risk disclosures set forth in our Form 10-K for the period ended December 31, 2001, have not changed significantly.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.0 Section 906 Certification
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed for the quarter ended June 30, 2002.
9
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
TITAN PHARMACEUTICALS, INC. |
||
|
|
|
|
|
|
|
|
|
|
|
August 14, 2002 |
By: |
/s/ Louis R. Bucalo |
|
|
|
|
Louis R. Bucalo, M.D. |
|
|
|
|
Chairman, President and Chief Executive Officer |
|
|
|
|
|
|
|
August 14, 2002 |
By: |
/s/ Robert E. Farrell |
|
|
|
|
Robert E. Farrell |
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
10