Titan Pharmaceuticals(TTNP) - 2022 Q3 - Quarterly Report

Part I. Financial Information This section presents unaudited financial statements, management's discussion and analysis, market risk, and internal controls Item 1. Financial Statements (unaudited) This section presents the unaudited condensed financial statements for Titan Pharmaceuticals, Inc., including the balance sheets, statements of operations and comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, financial instrument details, and recent corporate events Condensed Balance Sheets This section summarizes the company's financial position, including assets, liabilities, and equity, for the reported periods Condensed Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 (unaudited) | Dec 31, 2021 (Note 1) | Change (2022 vs 2021) | Percentage Change | | :-------------------------------- | :----------------------- | :-------------------- | :-------------------- | :------------------ | | Cash and cash equivalents | $4,450 | $6,037 | $(1,587) | -26.29% | | Total current assets | $5,747 | $7,229 | $(1,482) | -20.50% | | Total assets | $6,276 | $7,994 | $(1,718) | -21.49% | | Total current liabilities | $2,630 | $2,669 | $(39) | -1.46% | | Total liabilities | $2,726 | $2,856 | $(130) | -4.55% | | Total stockholders' equity | $3,550 | $5,138 | $(1,588) | -30.91% | Condensed Statements of Operations and Comprehensive Loss This section details the company's revenues, operating expenses, and net loss for the three and nine months ended September 30 Condensed Statements of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenues | $95 | $264 | $436 | $1,391 | | Research and development expenses | $932 | $1,193 | $3,315 | $4,716 | | General and administrative expenses | $1,806 | $979 | $4,745 | $3,341 | | Total operating expenses | $2,738 | $2,172 | $8,060 | $8,256 | | Loss from operations | $(2,643) | $(1,908) | $(7,624) | $(6,865) | | Net loss | $(2,638) | $(1,915) | $(7,640) | $(6,236) | | Basic and diluted net loss per common share | $(0.18) | $(0.19) | $(0.59) | $(0.64) | | Weighted average shares (thousands) | 14,629 | 9,864 | 13,031 | 9,675 | Condensed Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including net loss, stock issuance, and compensation Stockholders' Equity Changes (in thousands) | Item | Dec 31, 2021 | Mar 31, 2022 | Jun 30, 2022 | Sep 30, 2022 | | :---------------------------------- | :----------- | :----------- | :----------- | :----------- | | Total Stockholders' Equity | $5,138 | $7,882 | $5,667 | $3,550 | | Net loss (Q1 2022) | - | $(2,540) | - | - | | Net loss (Q2 2022) | - | - | $(2,462) | - | | Net loss (Q3 2022) | - | - | - | $(2,638) | | Issuance of common stock, net | - | $5,030 | - | - | | Issuance of common stock upon warrant exercises | - | $1 | $3 | - | | Stock-based compensation | - | $226 | $217 | $503 | Condensed Statements of Cash Flows This section summarizes cash flows from operating, investing, and financing activities for the nine months ended September 30 Condensed Statements of Cash Flows (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :---------------------------------- | :----- | :----- | | Net cash used in operating activities | $(6,604) | $(6,818) | | Net cash used in investing activities | $0 | $(18) | | Net cash provided by financing activities | $4,984 | $8,841 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(1,620) | $2,005 | | Cash, cash equivalents and restricted cash at end of period | $4,712 | $7,418 | Notes to Condensed Financial Statements This section provides detailed explanations and disclosures supporting the condensed financial statements 1. Organization and Summary of Significant Accounting Policies This note details the company's business, its proprietary ProNeura drug delivery platform, and the strategic decision to discontinue U.S. commercialization of Probuphine to focus on product development. It also outlines the exploration of strategic alternatives, recent management changes, and the company's going concern uncertainty due to insufficient cash to fund operations for the next 12 months - Titan Pharmaceuticals is a pharmaceutical company developing therapeutics using its proprietary long-term drug delivery platform, ProNeura, for chronic diseases[15] - The company discontinued U.S. commercialization of Probuphine in Q4 2020 to focus resources on product development programs, while Probuphine continues to be commercialized in Canada and the EU by other companies[16][22] - In December 2021, the company announced an exploration of strategic alternatives, including acquisition, merger, or asset sales. In June 2022, expense reduction measures were implemented, including salary reductions[17] - In July 2022, Activist Investing LLC acquired a 25% ownership interest, leading to the election of six new directors and David Lazar assuming the role of CEO[17] - As of September 30, 2022, the company had approximately $4.5 million in cash and cash equivalents, sufficient to fund operations only into Q1 2023, raising substantial doubt about its ability to continue as a going concern[21][25] Inventory Composition (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :---------------------- | :----------- | :----------- | | Raw materials and supplies | $394 | $227 | | Finished goods | $66 | $66 | | Total inventories | $460 | $293 | 2. Stock Plans This note details the company's stock option activity, including grants, forfeitures, and the impact of a change in control on vesting. It also provides the stock-based compensation expense recognized and the assumptions used in the Black-Scholes-Merton model Stock Option Activity Summary | Metric | Options (in thousands) | Weighted Average Exercise Price per share | | :----------------------------- | :--------------------- | :---------------------------------------- | | Outstanding at Dec 31, 2021 | 682 | $12.53 | | Granted | 310 | $1.18 | | Forfeited or expired | (53) | $18.01 | | Outstanding at Sep 30, 2022 | 939 | $8.48 | | Exercisable at Sep 30, 2022 | 939 | $8.48 | - Due to a change in control on August 15, 2022, all unvested options granted under the 2015 Plan prior to this date immediately vested, resulting in approximately $0.5 million of stock-based compensation recognized during the three months ended September 30, 2022[58] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $306 | $325 | $553 | $659 | | Selling, general and administrative | $217 | $330 | $414 | $691 | | Total stock-based compensation | $523 | $655 | $967 | $1,350 | 3. Net Loss Per Share This note provides the number of common shares underlying stock options and warrants that were excluded from the diluted net loss per common share calculation due to their anti-dilutive effect Anti-Dilutive Common Shares (in thousands) | Source | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Weighted-average anti-dilutive common shares resulting from options | 932 | 692 | 975 | 596 | | Weighted-average anti-dilutive common shares resulting from warrants | 4,933 | 2,949 | 5,586 | 1,651 | | Total anti-dilutive common shares | 5,865 | 3,641 | 6,561 | 2,247 | 4. JT Pharmaceuticals Asset Purchase Agreement This note describes the agreement with JT Pharmaceuticals to acquire TP-2021 for use with the ProNeura platform, including the initial payment and a recent milestone payment made in cash and common stock - In October 2020, Titan acquired JT Pharma's kappa opioid agonist peptide, TP-2021, for use with its ProNeura technology for chronic pruritus and other conditions[64] - In January 2022, a proof-of-concept milestone was achieved, resulting in a payment of $100,000 and the issuance of 51,021 shares of common stock to JT Pharma[64][73] 5. Commitments and Contingencies This note outlines the company's lease commitments for its office facility and discloses a legal proceeding initiated by a former employee alleging wrongful termination and other claims, which the company intends to vigorously defend - The company leases its office facility under an operating lease expiring in June 2024, with rent expense of approximately $32,000 and $96,000 for the three and nine months ended September 30, 2022, respectively[66] - A former employee has initiated a legal proceeding alleging wrongful termination, retaliation, and other claims. The company intends to vigorously defend the lawsuit, which has been compelled into arbitration[67][118] 6. Stockholders' Equity This note details changes in common stock outstanding, amendments to the company's bylaws to enhance stockholder rights, the impact of Activist Investing LLC's actions, and proceeds from recent equity offerings and warrant exercises Common Stock Outstanding | Date | Shares Outstanding | | :---------------- | :----------------- | | September 30, 2022 | 14,629,217 | | December 31, 2021 | 9,914,158 | - In July 2022, the Board amended bylaws to reduce the holdings required for stockholders to call a special meeting from a majority to 25% and to enable stockholders to effect Board size increases and fill vacancies[69] - In February 2022, the company completed a registered direct offering and a concurrent private placement, raising approximately $5.0 million in net cash proceeds from the issuance of common stock and warrants[71][107] - During March, April, and May 2022, the company received approximately $1,000, $1,300, and $1,290 (in thousands) respectively, from the exercise of pre-funded warrants issued in the February 2022 offerings[72] 7. Discontinued Operations This note provides a summary of assets and liabilities related to the company's discontinued U.S. commercialization activities for Probuphine Discontinued Operations - Assets and Liabilities (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Discontinued operations – current assets | $14 | $12 | | Discontinued operations – current liabilities | $870 | $1,144 | 8. Related Party Transactions This note discloses payments made to a law firm operated by one of the company's Board members - During the three months ended September 30, 2022, the company made approximately $50,000 in legal fee payments to a law firm operated by a Board member[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting the strategic shift to focus on the ProNeura platform, recent corporate governance changes, and the financial performance for the three and nine months ended September 30, 2022, compared to 2021. It also addresses the company's liquidity and going concern status Overview This section summarizes the company's strategic focus, corporate actions, and exploration of strategic alternatives - Titan Pharmaceuticals is focused on developing therapeutics using its ProNeura long-term drug delivery platform for chronic diseases[87] - The company discontinued U.S. commercialization of Probuphine in late 2020 to reallocate resources to product development[88] - Strategic alternatives are being explored, and expense reduction measures were implemented in June 2022. A significant ownership interest by Activist Investing LLC led to a change in the Board of Directors in August 2022[89][91] ProNeura Continuous Drug Delivery Platform This section describes the ProNeura system for continuous drug release, highlighting its feasibility and regulatory affirmations - The ProNeura system is a subdermal implant designed for continuous, steady drug release, avoiding peak and trough drug levels associated with oral dosing[92] - The platform has demonstrated feasibility with small molecules, hormones, and bio-active peptides, and its development and regulatory process have been affirmed by FDA, EMA, and Health Canada approvals for Probuphine[93] Development Programs This section outlines current development programs, including TP-2021, Nalmefene, and a Gates Foundation grant - Development activities for current programs are substantially curtailed while the company explores financing and strategic alternatives[94] - TP-2021: A ProNeura implant for chronic pruritus, requiring IND-enabling non-clinical studies - Nalmefene: A ProNeura implant for opioid relapse prevention, with an FDA-cleared IND in July 2022. Partially supported by a NIDA grant, with potential for additional funding - Gates Foundation Grant: Received approximately $500,000 in October 2021 to develop a combined HIV preventative therapeutic and contraceptive ProNeura implant[98] Results of Operations for the Three and Nine Months ended September 30, 2022 and 2021 This section analyzes the company's financial performance, including revenue, operating expenses, and net loss for the reported periods Revenue Comparison (in thousands) | Revenue Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (3M) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (9M) | | :------------- | :-------------------------- | :-------------------------- | :---------- | :-------------------------- | :-------------------------- | :---------- | | License revenue | $4 | $4 | $0 | $9 | $9 | $0 | | Product revenue | $0 | $36 | $(36) | $0 | $236 | $(236) | | Grant revenue | $91 | $224 | $(133) | $427 | $1,146 | $(719) | | Total revenues | $95 | $264 | $(169) | $436 | $1,391 | $(955) | Operating Expenses Comparison (in thousands) | Expense Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (3M) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (9M) | | :-------------------------- | :-------------------------- | :-------------------------- | :---------- | :-------------------------- | :-------------------------- | :---------- | | Cost of goods sold | $0 | $0 | $0 | $0 | $199 | $(199) | | Research and development | $932 | $1,193 | $(261) | $3,315 | $4,716 | $(1,401) | | Selling, general and administrative | $1,806 | $979 | $827 | $4,745 | $3,341 | $1,404 | | Total operating expenses | $2,738 | $2,172 | $566 | $8,060 | $8,256 | $(196) | - Research and development costs decreased due to reduced activities for the nalmefene implant IND submission, initial TP-2021 proof-of-concept studies, and personnel-related costs[102] - General and administrative expenses increased primarily due to higher legal and professional fees, non-cash stock-based compensation, and employee severance[103] Other Income (Expense), Net Comparison (in thousands) | Item | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (3M) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (9M) | | :-------------------------- | :-------------------------- | :-------------------------- | :---------- | :-------------------------- | :-------------------------- | :---------- | | Interest income (expense), net | $21 | $0 | $21 | $26 | $(2) | $28 | | Gain on debt extinguishment | $0 | $0 | $0 | $0 | $661 | $(661) | | Other expense, net | $(16) | $(7) | $(9) | $(42) | $(30) | $(12) | | Other income (expense), net | $5 | $(7) | $12 | $(16) | $629 | $(645) | - The decrease in other income (expense), net for the nine months ended September 30, 2022, was primarily due to a $661,000 gain on debt extinguishment in 2021 from the forgiveness of a PPP Loan[104] Net Loss and Net Loss Per Share | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss from operations (in thousands) | $(2,600) | $(1,900) | $(7,600) | $(6,200) | | Net loss per share | $(0.18) | $(0.19) | $(0.59) | $(0.64) | Liquidity and Capital Resources This section discusses funding sources, working capital, and cash flow, emphasizing going concern uncertainty due to limited cash - The company's operations have been funded primarily through securities sales, debt issuance, warrant/option exercises, licensing, and government grants[106] Working Capital (in thousands) | Date | Working Capital | | :---------------- | :-------------- | | September 30, 2022 | $3,100 | | December 31, 2021 | $4,600 | - As of September 30, 2022, cash and cash equivalents were approximately $4.5 million, projected to fund operations only into the first quarter of 2023, indicating substantial doubt about the company's ability to continue as a going concern without additional funding[109] Sources and Uses of Cash (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2022 | 2021 | | :---------------------------------- | :----- | :----- | | Net cash used in operating activities | $(6,604) | $(6,818) | | Net cash used in investing activities | $0 | $(18) | | Net cash provided by financing activities | $4,984 | $8,841 | | Net increase (decrease) in cash and cash equivalents | $(1,620) | $2,005 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that its market risk disclosures have not materially changed from those reported in its Annual Report on Form 10-K for the year ended December 31, 2021 - Market risk disclosures have not materially changed from the 2021 Form 10-K[112] Item 4. Controls and Procedures The Chief Executive Officer has evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2022, concluding they were effective. There were no material changes in internal control over financial reporting during the period - The Chief Executive Officer concluded that disclosure controls and procedures were effective as of September 30, 2022[113][114] - There were no material changes in internal control over financial reporting during the three and nine months ended September 30, 2022[115] Part II. Other Information This section provides additional information including legal proceedings, risk factors, equity sales, and a list of exhibits Item 1. Legal Proceedings This section reiterates the disclosure regarding a legal proceeding initiated by a former employee, alleging wrongful termination and other claims. The company intends to vigorously defend the lawsuit, which has been compelled into arbitration, acknowledging potential material adverse impact due to its cash position - A former employee has initiated a legal proceeding alleging wrongful termination, retaliation, infliction of emotional distress, negligent supervision, hiring and retention, and slander[118] - An independent investigation found the whistleblower retaliation allegations unsubstantiated. The company intends to vigorously defend the lawsuit, which is in arbitration[118] - Given the company's cash position, there is no assurance that the defense or settlement of this matter will not have a material adverse impact on the business[118] Item 1A. Risk Factors This section refers to the risk factors discussed in the company's 2021 10-K, noting no material changes except for an added emphasis on the risk of not maintaining Nasdaq Capital Market listing standards, particularly regarding minimum stockholders' equity and bid price - The company's risk factors are primarily those discussed in its 2021 Form 10-K, with no material changes noted, except for the specific risk of failing to maintain Nasdaq Capital Market listing standards[119] - Failure to maintain Nasdaq listing standards, including minimum stockholders' equity ($2.5 million) and minimum bid price ($1.00 per share), could lead to delisting, harming the business, stock price, and ability to raise capital[120] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities and use of proceeds were reported[122] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including stock option agreements, the amended equity incentive plan, certifications, and XBRL interactive data files - Form of Stock Option Agreement (10.1) - Fifth Amended and Restated 2015 Omnibus Equity Incentive Plan (subject to stockholder approval) (10.2) - Certifications of the Principal Executive and Financial Officer (31.1, 32.1) - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) - Cover Page Interactive Data File (104)[124] SIGNATURES The report is duly signed on behalf of Titan Pharmaceuticals, Inc. by David Lazar, Chief Executive Officer, on November 14, 2022 - The report was signed by David Lazar, Chief Executive Officer, on November 14, 2022[128]