U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period Ended March 31, 1997.
or
/ / Transition report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transition Period From
_____________ to __________________.
Commission file number 0-27436
TITAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3171940
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(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)
(415) 244-4990
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(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--------- ---------
State the number of shares outstanding of each of the issuer's common equity
as of May 9, 1997: 13,046,102 shares of Common Stock outstanding, $.001 par
value.
Transitional Small Business Disclosure Format. Yes No X
--------- ---------
TITAN PHARMACEUTICALS, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Condensed Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996................. 2
Condensed Consolidated Statements of Operations
Three months ended March 31, 1997
and 1996 and period from commencement of
operations (July 25, 1991) to March 31, 1997......... 3
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 and
period from commencement of operations
(July 25, 1991) to March 31, 1997.................... 4
Notes to Condensed Consolidated Financial
Statements - March 31, 1997.......................... 6
Item 2. Management's Discussion and Analysis
or Plan of Operations................................ 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................. 12
SIGNATURES.......................................................... 13
PART I. FINANCIAL INFORMATION
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
(Unaudited) (Note A)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,365,609 $ 1,376,532
Short-term investments 4,500,000 13,000,000
Prepaid expenses and other current assets 213,755 193,324
Receivable from Ansan Pharmaceuticals, Inc. 136,915 117,881
------------ ------------
Total current assets 8,216,279 14,687,737
Furniture and equipment, net 734,982 791,579
Deferred financing costs 84,787 96,349
Note receivable from Ansan Pharmaceuticals, Inc. 1,000,000 -
Investment in Ansan Pharmaceuticals, Inc. 310,815 590,854
Other assets 280,092 199,830
------------ ------------
$ 10,626,955 $ 16,366,349
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 706,746 $ 692,982
License fee payable 2,000,000 -
Accrued legal fees 516,946 587,800
Accrued sponsored research 92,811 163,905
Other accrued liabilities 432,017 233,044
Current portion of capital lease obligations 276,143 265,462
Current portion of technology financing -
Ingenex, Inc. 591,652 570,711
------------ ------------
Total current liabilities 4,616,315 2,513,904
Noncurrent portion of capital lease obligation 408,501 481,676
Noncurrent portion of technology financing -
Ingenex, Inc. 562,600 718,602
------------ ------------
Total liabilities 5,587,416 3,714,182
Commitments
Minority interest - Series B preferred stock of
Ingenex, Inc. 1,241,032 1,241,032
Guaranteed security value (Note 3) 5,500,000 -
Stockholders' Equity (net capital deficiency):
Common stock, at amounts paid in 49,622,782 49,619,784
Additional paid-in capital 6,521,353 6,521,353
Deferred compensation (587,160) (630,100)
Deficit accumulated during the development
stage (57,258,468) (44,099,902)
------------ ------------
Total stockholders' equity
(net capital deficiency) (1,701,493) 11,411,135
------------ ------------
$ 10,626,955 $ 16,366,349
------------ ------------
------------ ------------
Note A: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Notes to Condensed Consolidated Financial Statements
2
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
THREE MONTHS ENDED MARCH 31, (JULY 25, 1991) TO
1996 1997 MARCH 31, 1997
------------ --------------- ------------------
Grant revenue $ 49,705 $ 36,262 $ 434,595
Costs and expenses:
Research and development 827,898 2,174,735 29,755,128
Acquired in-process research and development - 9,500,000 10,186,000
General and administrative 921,193 1,336,918 13,165,264
------------ --------------- ------------
Total costs and expenses 1,749,091 13,011,653 53,106,392
------------ --------------- ------------
Loss from operations (1,699,386) (12,975,391) (52,671,797)
Other income (expense):
Equity in loss of Ansan Pharmaceuticals, Inc. (178,676) (280,039) (1,736,125)
Interest income 76,422 171,935 1,342,677
Interest expense (1,623,129) (75,071) (4,238,073)
------------ --------------- ------------
Other expense - net (1,725,383) (183,175) (4,631,521)
------------ --------------- ------------
Loss before minority interest (3,424,769) (13,158,566) (57,303,318)
Minority interest in losses of subsidiaries - - 44,850
------------ --------------- ------------
Net loss $(3,424,769) $ (13,158,566) $(57,258,468)
------------ --------------- ------------
------------ --------------- ------------
Net loss per share $ (1.02)
---------------
---------------
Shares used in computation of net loss per share 12,897,703
---------------
---------------
Pro forma net loss per share $ (0.89)
--------------
--------------
Shares used in computation of pro forma net
loss per share 9,916,250
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--------------
See Notes to Condensed Consolidated Financial Statements
3
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
THREE MONTHS ENDED MARCH 31, (JULY 25, 1991) TO
1996 1997 MARCH 31, 1997
------------ --------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,424,769) $ (13,158,566) $ (57,258,468)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization and depreciation 99,024 143,210 1,206,401
Issuance of common stock to acquire
technology - 5,500,000 5,500,000
Accrued license fee to acquire technology - 2,000,000 2,000,000
Accretion of discount on indebtedness 1,407,579 - 2,290,910
Equity in loss of Ansan Pharmaceuticals,
Inc. 178,676 280,039 1,736,125
Other - - (35,653)
Issuance of common stock to acquire
minority interest of Theracell, Inc. - - 686,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (78,445) (20,431) (213,755)
Receivable from Ansan Pharmaceuticals, Inc. (8,557) (19,034) (136,915)
Other assets - (80,262) (285,057)
Accounts payable 72,533 13,764 940,936
Other accrued liabilities (725,776) 57,025 1,532,190
------------ ------------- ---------------
Net cash used in operating activities (2,479,735) (5,284,255) (42,037,286)
------------ ------------- ---------------
See Notes to Condensed Consolidated Financial Statements
4
TITAN PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
THREE MONTHS ENDED MARCH 31, (JULY 25, 1991) TO
1996 1997 MARCH 31, 1997
------------ --------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (1,559) (32,111) (1,104,470)
Purchases of short-term investments (8,856,555) (100,000) (59,782,493)
Proceeds from sale of short-term investments - 8,600,000 55,282,493
Issuance of debenture to Ansan
Pharmaceuticals, Inc. - (1,000,000) (1,000,000)
Effect of deconsolidation of Ansan
Pharmaceuticals, Inc. - - (135,934)
------------ ------------ --------------
Net cash provided by (used in) investing
activities (8,858,114) 7,467,889 (6,740,404)
------------ ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 16,115,079 2,998 30,028,760
Deferred financing costs - - (810,248)
Proceeds from issuance of preferred stock - - 17,601,443
Proceeds from notes payable and advances payable - - 2,681,500
Repayment of notes payable - - (1,441,500)
Proceeds from Ansan bridge financing - - 1,425,000
Proceeds from Titan and Ingenex bridge financing - - 5,250,000
Repayment of Titan and Ingenex bridge financing (5,250,000) - (5,250,000)
Proceeds from capital lease financing - - 658,206
Payments of principal under capital lease
Obligation (53,370) (62,494) (568,798)
Proceeds from Ingenex, Inc. technology financing - - 2,000,000
Principal payments on Ingenex, Inc.
Technology financing (116,932) (135,061) (845,748)
Increase in minority interest from issuances of
Preferred stock by Ingenex, Inc. - - 1,241,032
Issuance of common stock by subsidiaries - - 173,652
------------ ------------ --------------
Net cash provided by (used in) financing activities 10,694,777 (194,557) 52,143,299
------------ ------------ --------------
Net increase (decrease) in cash and cash equivalents (643,072) 1,989,077 3,365,609
Cash and cash equivalents, beginning of period 947,805 1,376,532 -
------------ ------------ --------------
Cash and cash equivalents, end of period $ 304,733 $ 3,365,609 $ 3,365,609
------------ ------------ --------------
------------ ------------ --------------
See Notes to Condensed Consolidated Financial Statements
5
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND ITS SEVERAL DEVELOPMENT STAGE SUBSIDIARIES
Titan Pharmaceuticals, Inc. (the "Company") was incorporated in February
1992 in the State of Delaware. It is the holding company for several
development stage biotechnology companies ("the Operating Companies"). The
development stage companies, which rely significantly on third parties to
conduct sponsored research, are Ansan Pharmaceuticals, Inc. ("Ansan"),
Ingenex, Inc. ("Ingenex"), Theracell, Inc. ("Theracell"), ProNeura, Inc.
("ProNeura"), and Trilex Pharmaceuticals, Inc., formerly Ascalon, Inc.
("Trilex").
ANSAN PHARMACEUTICALS, INC.
Ansan was incorporated in November 1992 to engage in the development of
novel treatment of cancer and other disorders characterized by abnormal
cellular growth and differentiation. It was a majority-owned consolidated
subsidiary until August 1995. In August 1995, Ansan completed an initial
public offering of its securities. Such offering reduced the Company's
ownership in Ansan from approximately 95% to approximately 43%. Since August
1995, the Company has accounted for its investment in Ansan using the equity
method. In March 1997, Ansan and Titan entered into a financing agreement
pursuant to which Titan was granted a three month option to reacquire and
maintain a majority equity interest in Ansan (See Note 4). At March 31,
1997, the Company owned 43% of Ansan.
INGENEX, INC.
Ingenex, a majority-owned consolidated subsidiary, was incorporated in
July 1991 and reincorporated in June 1992. It is engaged in the development
of gene-based therapeutics and the discovery of medically important genes for
the treatment of cancer and viral diseases. At March 31, 1997, the Company
owned 81% of Ingenex.
THERACELL, INC.
Theracell was incorporated in November 1992 to engage in the development
of novel treatments for various neurologic disorders through the
transplantation of neural cells and neuron-like cells directly into the
brain. At March 31, 1997, the Company owned 100% of Theracell.
PRONEURA, INC.
ProNeura was incorporated in October 1995 to engage in the development of
cost effective, long term treatment solutions to neurological and psychiatric
disorders through an implantable drug delivery system. At March 31, 1997,
the Company owned 79% of ProNeura.
TRILEX PHARMACEUTICALS, INC.
Trilex was incorporated in May 1996 to engage in research and development
of cancer therapeutic vaccines utilizing anti-idiotypic antibody technology.
At March 31, 1997, the Company owned 100% of Trilex.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. These
6
financials should be read in conjunction with the audited consolidated
financial statements and footnotes thereto included in the Titan
Pharmaceuticals, Inc. annual report on Form 10-KSB for the year ended
December 31, 1996.
NET LOSS PER SHARE
For purposes of computing net loss per share data in the three months
ended March 31, 1996, the net loss has been increased by a $5,431,871 deemed
dividend (see Note 2). Per share data is computed using the weighted average
number of common shares outstanding. Common equivalent shares are excluded
from the computation as their effect is antidilutive. Pro forma loss per
share has been computed for the three months ended March 31, 1996 which gives
effect, pursuant to SEC policy, to common equivalent shares from convertible
preferred stock issued more than 12 months from the proposed initial public
offering that automatically converted upon completion of the Company's
initial public offering (using the if-converted method) from the original
date of issuance.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
not expected to result in a change in primary earnings per share for the
quarters ended March 31, 1997 and March 31, 1996 as the Company incurred net
losses in those periods and, accordingly, the calculation of earnings per
share for those periods excluded stock options as their effect was
antidilutive.
2. STOCKHOLDERS' EQUITY
DEEMED DIVIDEND
The holders of Series A and Series B preferred stock received common stock
in January 1996 with an aggregate fair value (at the $5.00 per share value of
the IPO) which exceeded by $5,431,871 the cost of their initial investment in
Series A and Series B preferred stock. This amount has been deemed to be the
equivalent of a preferred stock dividend. The Company recorded the deemed
dividend at the time of the conversion by offsetting charges and credits to
additional paid in capital, without any effect on total stockholders' equity
(net capital deficiency). There was no effect on net loss from the mandatory
conversion. However, the amount did increase the loss applicable to common
stock, in the calculation of net loss per share in the 1996 period.
3. COLLABORATIVE AGREEMENTS
HOECHST MARION ROUSSEL, INC. AGREEMENT
In January 1997, the Company entered into an exclusive license agreement
the ("HMR Agreement") with Hoechst Marion Roussel, Inc. ("Hoechst"). The
license agreement gives the Company a worldwide license to Hoechst's patent
rights and know-how related to a chemical compound known as Iloperidone,
including the ability to develop, use, sublicense, manufacture and sell
products and processes claimed in the patent rights. Terms of the HMR
Agreement required the Company to pay Hoechst an upfront license fee of
$9,500,000, payable as follows: (i) $2,000,000 in cash on January 20, 1997;
(ii) the issuance of $5,500,000 of common stock (594,595 shares) on January
20, 1997; (iii) and $2,000,000 in cash on July 18, 1997. As a result of this
transaction, the Company incurred a charge for acquired in-process research
and development of $9,500,000. During the period from October 1997 through
January 1999, the Company shall be obligated to pay to Hoechst the difference
between $5,500,000 and the net proceeds received by Hoechst upon sale of the
above mentioned common stock. Accordingly, this amount has been recorded as
guaranteed security value in the accompanying balance sheet. Any cash paid
under the guarantee will be charged against this balance, and the remaining
balance, if any, will be transferred to common stock. The Company's current
stock price is significantly depressed, indicating a potential liability at
May 6, 1997 of $3.6 million related to the Hoechst shares. In addition, the
Company is
7
required to make additional benchmark payments as specific milestones are
met. Upon commercialization of the product, the license agreement provides
that the Company will pay royalties based on net sales.
4. NOTE RECEIVABLE FROM ANSAN PHARMACEUTICALS, INC.
In March 1997, Titan and Ansan entered into an agreement for financing
pursuant to which Titan advanced Ansan $1,000,000 in return for a debenture
(the "Debenture") which is convertible at any time prior to June 21, 1997
into 333,333 shares of common stock. The Debenture bears interest at prime
plus 2% and is due in April 1998. In connection with the issuance of the
Debenture, Ansan granted Titan an option (the "First Option") to acquire an
additional 333,333 shares of Ansan common stock for an aggregate purchase
price of $1,000,000. The First Option expires on June 21, 1997.
In the event the Debenture is converted to equity, Ansan will grant Titan
two additional options (respectively, the "Second Option" and the "Third
Option"). The Second Option will be exercisable for two years from the date
of grant to purchase up to 1,630,000 shares of Ansan common stock at an
exercise price of $3.75 per share. The Third Option will be exercisable
through August 8, 2000 to purchase up to 500,000 additional shares at an
exercise price of $6.50 per share. Titan will be obligated to exercise the
Second Option for the purchase of specified numbers of shares in the event
Titan's outstanding Class A Warrants are exercised, provided Ansan has not
completed public or private equity financings resulting in specified gross
proceeds prior to the date such a purchase obligation arises.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains certain forward-looking statements, within
the meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, the attainment of which involves various risks and
uncertainties. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may," "will," "expect," "believe,"
"estimate," "anticipate," "continue" or similar terms, variations of those terms
or the negative of those terms. The Company's actual results may differ
materially from those described in these forward-looking statements due to,
among other factors, the results of ongoing research and development activities
and preclinical testing, the results of clinical trials and the availability of
additional financing through corporate partnering arrangements or otherwise.
RESULTS OF OPERATIONS
The Company is a development stage company which currently conducts its
operations in conjunction with five operating companies: Ansan, Ingenex,
Theracell, ProNeura and Trilex (collectively, the "Operating Companies").
Since its inception, the Company's efforts have been principally devoted to
acquiring licenses and technologies, raising capital, research and
development and securing patent protection. The Company has had no
significant revenue and has incurred an accumulated deficit through March 31,
1997 of approximately $57,258,000. These losses have resulted from
expenditures for research and development and general and administrative
activities including legal and professional activities, and are expected to
continue for the foreseeable future.
Total revenues for the three months ended March 31, 1997 ("first quarter
1997") were approximately $36,000 and approximately $50,000 for the three
months ended March 31, 1996 ("first quarter 1996") from NIH grants.
Research and development expenses for the first quarter 1997 were
approximately $2,175,000, an increase of $1,347,000 or 163% from the first
quarter 1996. The increase reflects the addition of Trilex in the second
quarter of 1996, costs related to the acquisition and development of the
newly licensed antipsychotic agent known as Iloperidone, and increased
sponsored research costs for Theracell. Acquired in-process research and
development of $9,500,000 in the first quarter 1997 reflects an upfront
license fee under the HMR Agreement with Hoechst for exclusive worldwide
rights to Iloperidone.
General and administrative expenses for the first quarter 1997 were
approximately $1,337,000 compared with $921,000 for the first quarter 1996,
an increase of 45%. The increase reflects the addition of Trilex in the
second quarter of 1996.
As a result of the foregoing expenses, the Company incurred an operating
loss of approximately $12,975,000 during the first quarter 1997 compared
with $1,699,000 for the first quarter 1996. The first quarter 1997 operating
loss includes a non-recurring charge of $9,500,000 for the Iloperidone
license, of which $5,500,000 is a non-cash charge, $2,000,000 was paid in
January and $2,000,000 will be paid in July 1997. The Company expects to
continue to incur substantial research and development costs in the future as
a result of funding (i) ongoing research and development programs at the
Company and the Operating Companies, (ii) manufacturing of products for use
in clinical trials, (iii) patent and regulatory related expenses, and (iv)
preclinical and clinical testing of the products. The Company also expects
that general and administrative costs necessary to support such research and
development activities will increase. Accordingly, the Company expects to
incur increasing operating losses for the foreseeable future.
Other income includes interest income, which was approximately $172,000
during the first quarter 1997 as compared to $76,000 during the first quarter
1996. The increase of $96,000, reflects an increase in the amount of cash
and short-term investments subsequent to the Company's IPO in January 1996
and a private placement completed in August 1996 (the "Private Placement").
Interest expense decreased to approximately
9
$75,000 during the first quarter 1997 from $1,623,000 for the first quarter
1996. Approximately $1,408,000 of the 1996 expense reflects a non-recurring
charge due to the repayment in January 1996 of notes issued in a bridge
financing (the "Bridge Notes"). Approximately $950,000 of the non-recurring
charge represents the unamortized portion of the $1,200,000 debt discount,
and $458,000 represents debt issuance costs. Excluding the non-recurring
charge during the first quarter 1996, interest expense was approximately
$64,000 for the first quarter 1996 compared to $75,000 for the first quarter
1997.
Other income for the 1997 and 1996 three months also includes
approximately $280,000 and $179,000, respectively, of losses representing the
Company's share of Ansan's losses.
LIQUIDITY AND SOURCES OF CAPITAL
On July 31 and August 2, 1996, the Company completed the Private Placement
which resulted in net proceeds to the Company of approximately $13,740,000
after payment of placement agent fees and other expenses of the Private
Placement.
The Company is party to a master capital equipment lease with respect to
which the Operating Companies have entered into a sublease and assignment
with the Company. At March 31, 1997, the amount outstanding under the
equipment lease was $684,644 with monthly payments of $30,459. The Company
has also guaranteed the obligations of Ingenex under an assignment and
sublicense agreement pursuant to which Ingenex received $2,000,000 in
financing in January 1995. Such agreement currently provides for monthly
payments of $60,060 through January 1999.
The Operating Companies have entered into various agreements with research
institutions, universities, and other entities for the performance of
research and development activities and for the acquisition of licenses
related to those activities. The aggregate commitments the Company has under
these agreements, including minimum license payments, for the next 12 months
is approximately $2,416,000. Certain of the licenses provide for the payment
of royalties by the Company on future product sales, if any. In addition, in
order to maintain license and other rights during product development, the
Company must comply with various conditions including the payment of patent
related costs and obtaining additional equity investments by specified dates.
In January 1997, the Company entered into the HMR Agreement with Hoechst,
effective as of December 31, 1996, pursuant to which it acquired an exclusive
worldwide license to the antipsychotic agent Iloperidone. Terms of the HMR
Agreement required the Company to pay Hoechst an upfront license fee of
$9,500,000, payable as follows: (i) $2,000,000 in cash on January 20, 1997;
(ii) the issuance of $5,500,000 of common stock (594,595 shares at $9.25 per
share) on January 20, 1997 (the "Fee Shares"); (iii) and $2,000,000 in cash
on July 18, 1997. During the period from October 1997 through January 1999,
the Company shall be obligated to pay to Hoechst the difference between
$5,500,000 and the net proceeds received by Hoechst upon the sale of the Fee
Shares. See Note 3 of Notes to Financial Statements. The HMR Agreement also
provides for substantial future late stage milestone payments to Hoechst, as
well as royalty payments on net sales, if any.
The Company does not have the substantial funds necessary to complete the
clinical development of Iloperidone and is currently pursuing several financing
alternatives including corporate partnering
10
arrangements and off balance sheet financing to complete development of
Iloperidone. There can be no assurance that any such financing will be
available on acceptable terms, if at all. If adequate funds are not
available on acceptable terms, the Company may be required to delay, scale
back or possibly discontinue development of Iloperidone. Furthermore, if the
Company does not fulfill its upfront license fee obligation and due diligence
obligation to Hoechst, it could lose its rights under the HMR Agreement,
relinquishing all payments made to such point.
In March 1997, Titan and Ansan entered into an agreement for financing
pursuant to which Titan advanced Ansan $1,000,000 in return for the debenture
which is convertible at any time prior to June 21, 1997 into 333,333 shares
of Ansan common stock. The Debenture bears interest at prime plus 2% and is
due in April 1998. In connection with the issuance of the Debenture, Ansan
granted Titan the First Option to acquire an additional 333,333 shares of
Ansan common stock for an aggregate purchase price of $1,000,000. The First
Option expires on June 21, 1997.
In the event the Debenture is converted to equity, Ansan will grant to
Titan two additional options. The Second Option will be exercisable for two
years from the date of grant to purchase up to 1,630,000 shares of Ansan
common stock at an exercise price of $3.75 per share. The Third Option will
be exercisable through August 8, 2000 to purchase up to 500,000 additional
shares at an exercise price of $6.50 per share. Titan will be obligated to
exercise the Second Option for the purchase of specified numbers of shares in
the event Titan's outstanding Class A Warrants are exercised, provided Ansan
has not completed public or private equity financings resulting in specified
gross proceeds prior to the date such a purchase obligation arises.
The Company expects to continue to incur substantial additional operating
losses from costs related to continuation and expansion of research and
development, clinical trials, and increased administrative and fund raising
activities over at least the next several years. The Company believes that
the proceeds of the Private Placement will be sufficient to continue
development on priority projects and maintain the Company's rights under
current licensing arrangements through approximately the end of 1997
(assuming alternative financing is obtained to fund Iloperidone and that the
First Option is not exercised). The Company will be required to seek
additional financing to continue its operations beyond that period. However,
the Company's capital requirements may change depending on numerous factors
including, but not limited to, the progress of the Company's research and
development programs, the results of clinical studies, the timing of
regulatory approvals, technological advances, determinations as to the
commercial potential of the Company's products, and the status of competitive
products. In addition, expenditures will be dependent on the establishment
of collaborative relationships with other companies, the availability of
financing, and other factors. In any event, the Company anticipates that it
will require substantial additional financing in the future. There can be no
assurance as to the availability or terms of any required additional
financing, when and if needed. In the event that the Company fails to raise
any funds it requires, it may be necessary for the Company to outlicense
rights it would prefer to retain or significantly curtail its activities or
cease operations.
11
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.24 Financing agreement between the Registrant and Ansan
Pharmaceuticals, Inc. dated March 21,1997
11.1 Statement of Computation of Net Loss Per Share
(b) Reports on Form 8-K
A current report on Form 8-K was filed with the Securities and
Exchange Commission on January 9, 1997.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TITAN PHARMACEUTICALS, INC.
May 12, 1997 By: /s/Louis R. Bucalo
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Louis R. Bucalo, M.D.,
President and Chief Executive
Officer
May 12, 1997 By: /s/Robert E. Farrell
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Robert E. Farrell, Chief
Financial Officer
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