Titan Pharmaceuticals(TTNP) - 2023 Q4 - Annual Report

Part I Business Titan Pharmaceuticals is a development-stage pharmaceutical company. In September 2023, the company sold its ProNeura drug delivery platform assets, including its Probuphine and Nalmefene programs, to Fedson, Inc. for $2.0 million plus potential future milestones and royalties. This sale followed a strategic decision to discontinue the U.S. commercialization of Probuphine in late 2020 to conserve resources. The company is now exploring strategic alternatives to enhance shareholder value while curtailing activities on its remaining development program, TP-2021, a kappa opioid agonist implant for chronic pruritus, which has shown promising non-clinical results - In September 2023, Titan sold its ProNeura Assets, including its drug addiction portfolio (Probuphine and Nalmefene programs), to Fedson, Inc. for $2.0 million. The deal also includes potential future milestone payments up to $50 million and royalties on net sales[23] - The company discontinued the U.S. commercialization of its first product, Probuphine, in the fourth quarter of 2020 to focus limited resources on product development[21] - Titan has been exploring strategic alternatives since December 2021, which could include mergers, acquisitions, or other business combinations. This process continued after a board and management change in August 2022, with David Lazar becoming CEO[22] - The company's primary remaining development program is TP-2021, a kappa opioid agonist peptide delivered via the ProNeura system for treating chronic pruritus. Non-clinical studies have shown potent antipruritic activity in animal models for up to 84 days post-implantation, but further development requires external funding or a partnership[28][29] - The company has filed patent applications for the use of a kappa-opioid receptor agonist implant for treating pruritus in the U.S. and several other countries. Any resulting patents will expire in 2042[34] Risk Factors The company faces significant risks, including a history of net losses and substantial doubt about its ability to continue as a going concern, requiring additional capital to fund its early-stage development programs. Business risks include the inherent uncertainty of clinical trials, reliance on third parties, intense competition, and extensive government regulation. Key stock-related risks involve share price volatility, potential delisting from Nasdaq, and a material weakness in internal financial controls identified due to limited staffing Risks Related to Financial Condition and Capital Needs Financial Performance and Position | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Loss | ~$5.6 million | ~$10.2 million | | Net Cash Used in Operations | ~$7.1 million | ~$8.2 million | | Working Capital (at Dec 31) | ~$6.6 million | ~$1.0 million | | Cash and Equivalents (at Dec 31) | ~$6.8 million | - | - The company has a history of net losses, which raises substantial doubt about its ability to continue as a going concern[50] - Available cash is estimated to be sufficient to fund working capital needs only into the second quarter of 2025, and substantial additional funds are required to advance development programs[51] - As of December 31, 2023, the company had significant federal net operating loss ($214.7M) and tax credit ($5.9M) carryforwards, but their future usability is restricted and not assured[52] Risks Related to Business and Industry - The company's development program is at a very early stage and requires substantial additional resources, which may not be available[53] - Clinical trials are expensive, time-consuming, and their outcomes are uncertain. Delays or failures could force the abandonment of a product candidate[55][56] - The company depends on third-party laboratories for preclinical studies and clinical trials, and third-party manufacturers for production, which are outside its direct control[57] - The company faces risks of being unable to protect its patents and proprietary rights, and could be sued by third parties for infringement[59][60] - A material weakness in internal controls over financial reporting was identified as of December 31, 2023, primarily due to limited finance and accounting staffing levels following workforce reductions[86] Risks Related to Common Stock - The company's common stock could be delisted from the Nasdaq Capital Market if it fails to maintain listing standards, such as the minimum $1.00 bid price or $2.5 million stockholders' equity requirement[76] - Future financing activities may involve issuing securities that could significantly dilute existing stockholders' ownership[80][81] - A significant concentration of ownership exists, with one stockholder, Choong Choon Hau, controlling approximately 26.42% of the voting power, which could influence corporate actions[82] - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023, due to a material weakness in internal control over financial reporting[84] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[96] Cybersecurity The company manages cybersecurity risks through assessments, employee training, and monitoring by management and the Board of Directors. In 2023, no cybersecurity threats were identified that materially affected or are reasonably likely to materially affect the company's business, operations, or financial condition - The Board of Directors has oversight responsibility for cybersecurity risks, with management handling day-to-day assessment and management[99] - In 2023, the company did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect its business strategy, results of operations, or financial condition[98] Properties The company's principal executive offices are located in approximately 3,295 square feet of leased office space in South San Francisco, California. The current operating lease is set to expire in June 2024 - The company leases approximately 3,295 square feet of office space in South San Francisco, California, under a lease expiring in June 2024[100] Legal Proceedings As part of the September 2023 asset sale, the buyer, Fedson, Inc., assumed all liabilities related to a pending employment claim against Titan initiated by a former employee - A pending employment claim from a former employee alleging wrongful termination was assumed by Fedson, Inc. as part of the Asset Purchase Agreement in September 2023[101] Mine Safety Disclosures This item is not applicable to the company - Not applicable[102] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Titan's common stock is listed on the Nasdaq Capital Market under the symbol "TTNP." As of March 25, 2024, there were 914,234 shares outstanding held by 98 holders of record. The company has never paid cash dividends and does not anticipate doing so in the foreseeable future. Information regarding equity compensation plans is also provided - The company's common stock is listed on the Nasdaq Capital Market under the symbol "TTNP"[105] - As of March 25, 2024, there were 914,234 shares of common stock outstanding[105] - The company has never declared or paid cash dividends and does not plan to in the foreseeable future[106] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, Titan's financial condition improved primarily due to a $9.5 million preferred stock issuance and proceeds from the sale of its ProNeura assets. The company's net loss decreased to $5.6 million from $10.2 million in 2022, largely due to a $1.76 million gain on the asset sale and reduced R&D and G&A expenses. Cash and cash equivalents increased to $6.8 million, which management believes is sufficient to fund operations into the second quarter of 2025. However, the company will require additional funding for future operations and continues to explore strategic alternatives Liquidity and Capital Resources Key Financial Metrics (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $6,761 | $2,937 | | Working capital | $6,574 | $973 | | Cash used in operating activities | $(7,092) | $(8,183) | | Cash provided by investing activities | $732 | $0 | | Cash provided by financing activities | $10,000 | $4,984 | - As of December 31, 2023, the company had approximately $6.8 million in cash and cash equivalents, which is believed to be sufficient to fund planned operations into the second quarter of 2025[145] - In September 2023, the company raised net proceeds of approximately $9.5 million from the issuance of Series AA Convertible Preferred Stock to Sire Group[141] - The sale of ProNeura Assets to Fedson provided $0.5 million in cash at closing, with an additional $1.5 million in promissory notes paid in late 2023 and early 2024[142] Results of Operations Revenues (in thousands) | Revenue Source | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | License revenue | $1 | $60 | $(59) | | Grant revenue | $183 | $497 | $(314) | | Total revenue | $184 | $557 | $(373) | Operating Expenses (in thousands) | Expense Category | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Research and development | $1,913 | $4,758 | $(2,845) | | General and administrative | $5,548 | $6,034 | $(486) | | Total operating expenses | $7,461 | $10,792 | $(3,331) | - The decrease in R&D costs was primarily due to reduced activities related to the Nalmefene implant program and the TP-2021 program, along with lower personnel costs following a workforce reduction[148] - The company reported a net loss of approximately $5.6 million ($7.41 per share) for 2023, a significant improvement from the net loss of approximately $10.2 million ($15.19 per share) in 2022. The improvement was largely driven by a $1.76 million gain on the asset sale and lower operating expenses[150][151] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - Not applicable[153] Financial Statements and Supplementary Data This section refers to the full financial statements and supplementary data, which are included in a separate section of the report starting on page F-1 - The response to this item is included in the 'Index to Financial Statements' on Page F-1[154] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[155] Controls and Procedures Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were not effective. This was due to a material weakness in internal control over financial reporting, primarily related to limited finance and accounting staffing levels following workforce reductions. The company has developed a remediation plan, which includes hiring a new CFO and utilizing a Sarbanes-Oxley compliance firm - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023[156] - A material weakness was identified in internal control over financial reporting, primarily due to limited finance and accounting staffing levels not being commensurate with the company's complexity and reporting requirements[162] - The material weakness resulted in a misclassification of approximately $0.4 million in issuance costs related to preferred stock during Q3 2023[163] - Remediation activities include hiring a new Chief Financial Officer and engaging a Sarbanes-Oxley compliance firm to assist with controls[164] Other Information No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fourth quarter of 2023 - None of our directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fiscal quarter ended December 31, 2023[167] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[168] Part III Directors, Executive Officers and Corporate Governance This section provides biographical information for the company's executive officers and directors, including CEO David E. Lazar and President/COO Dr. Katherine Beebe DeVarney. It outlines the board leadership structure, with Dato' Seow Gim Shen as Chairman of the Board. The company has adopted a Code of Business Conduct and Ethics applicable to all personnel - Lists the names, ages, and positions of the company's executive officers and directors, along with their business experience[170] - David E. Lazar serves as Chief Executive Officer and Dato' Seow Gim Shen serves as Chairman of the Board[170][179] - The company has adopted a Code of Business Conduct and Ethics, which is available on its website[180] Executive Compensation This section details the compensation for the company's named executive officers and non-employee directors for 2022 and 2023. CEO David Lazar's total 2023 compensation was approximately $1.47 million, including a $1.015 million bonus. President and COO Dr. Katherine Beebe DeVarney's total 2023 compensation was approximately $602,000. The report also outlines the terms of employment agreements and details of the company's stock incentive plans Summary Compensation Table (2023) | Name and Principal Position | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | All Other Comp ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | David Lazar, CEO | 406,000 | 1,015,000 | 52,180 | - | - | 1,473,180 | | Katherine Beebe DeVarney, Ph.D., President & COO | 462,000 | - | 32,947 | 107,162 | - | 602,109 | | Marc Rubin, MD, Executive Chairman | - | - | - | - | 238,157 | 238,157 | - Dr. Marc Rubin's employment was terminated in August 2022; the amount shown for 2023 represents severance payments[185] - CEO David Lazar's employment agreement provides for a base salary of $406,000, eligibility for annual and performance bonuses, and a change of control bonus[199][200] - Dr. Beebe DeVarney's employment agreement provides for a base salary of $385,000 and potential annual bonuses up to 50% of base salary[196] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details the beneficial ownership of the company's common stock as of March 25, 2024. The largest beneficial owner is Choong Choon Hau with 26.4% ownership. Dato' Seow Gim Shen, Chairman of the Board, beneficially owns 16.4%. All executive officers and directors as a group beneficially own 22.2% of the outstanding common stock Security Ownership of Major Holders (as of March 25, 2024) | Name of Beneficial Owner | Shares Beneficially Owned | Percent of Shares Beneficially Owned | | :--- | :--- | :--- | | Choong Choon Hau | 241,531 | 26.4% | | Dato' Seow Gim Shen | 150,087 | 16.4% | | All executive officers and directors as a group (8 persons) | 211,992 | 22.2% | Certain Relationships and Related Transactions, and Director Independence The company discloses several related party transactions, including a short-term loan from CEO David Lazar in July 2023 (repaid in September 2023), a convertible promissory note issued to major shareholder Choong Choon Hau in August 2023, and a $9.5 million preferred stock sale to Sire Group (controlled by Chairman Dato' Seow Gim Shen) in September 2023. The report also confirms the independence of five board members and details the composition of its audit, compensation, and nominating committees - In July 2023, CEO David E. Lazar provided a $250,000 unsecured promissory note, which was paid off in September 2023[210] - In August 2023, the company issued a $500,000 convertible promissory note to major shareholder Choong Choon Hau, which was converted into common stock in March 2024[211] - In September 2023, the company sold 950,000 shares of Series AA Preferred Stock to The Sire Group Ltd., an entity controlled by Chairman Dato' Seow Gim Shen, for an aggregate price of $9.5 million[212] - Five members of the Board are considered independent under Nasdaq rules: Brynner Chiam, Eric Greenberg, Matthew C. McMurdo, David Natan, and Dato' Seow Gim Shen[214] Principal Accounting Fees and Services This section details the fees billed by the independent registered public accounting firm, WithumSmith+Brown, for fiscal years 2023 and 2022. Total fees were $377,592 in 2023 and $346,799 in 2022, primarily for audit and tax services. The audit committee reviewed and approved all services provided Accountant Fees (WithumSmith+Brown) | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit Fees | $330,160 | $301,079 | | Tax Fees | $47,432 | $45,720 | | Total | $377,592 | $346,799 | - The audit committee has established pre-approval policies and procedures for all audit and permissible non-audit services provided by the independent auditor[225] Part IV Exhibits, Financial Statement Schedules This section provides an index to the financial statements, which begin on page F-1, and notes that all financial statement schedules have been omitted as they are not applicable. It also refers to the list of exhibits filed with the report - An index to the Financial Statements is provided, starting on page F-1[230] Form 10-K Summary The company has not provided a summary for this item - None[232] Financial Statements Report of Independent Registered Public Accounting Firm The independent auditor, WithumSmith+Brown, PC, issued an opinion stating that the financial statements are fairly presented in conformity with U.S. GAAP. The report highlights a critical audit matter concerning the company's ability to continue as a going concern, given its history of recurring losses. It also notes that the company restated its 2023 quarterly information to correct an error in the accounting for stock issuance costs - The auditor's opinion is that the financial statements are fairly presented in all material respects[237] - A critical audit matter was identified regarding the evaluation of the company's ability to continue as a going concern due to recurring losses and an accumulated deficit[243] - The report notes that the company restated its 2023 quarterly information due to an error in accounting for stock issuance costs[238] Notes to Financial Statements The notes provide detailed information supporting the financial statements. Key disclosures include the sale of ProNeura assets to Fedson for $2.0 million, the company's assessment that its $6.8 million in cash is sufficient to fund operations into Q2 2025, and details of significant financing activities in 2023, including a $9.5 million preferred stock issuance. The notes also describe a restatement of Q3 2023 financials due to a $406,000 expense misclassification and subsequent events like a 1-for-20 reverse stock split in January 2024 - Note 1: The company had $6.8 million in cash at year-end 2023, which management believes is sufficient to fund operations into Q2 2025. However, additional funds will be required to finance future operations[265] - Note 6: Details the asset sale to Fedson, Inc. for a purchase price of $2.0 million, consisting of $0.5 million cash at closing and $1.5 million in promissory notes, plus potential future milestones and royalties[315] - Note 7: In September 2023, the company issued 950,000 shares of Series AA Convertible Preferred Stock for an aggregate purchase price of $9.5 million[318] - Note 9: The company has significant net operating loss carryforwards but has recorded a full valuation allowance against its net deferred tax assets due to uncertainty of realization[343][345] - Note 12: The company restated its Q3 2023 financial statements to correct a material error where a $406,000 payment was improperly classified as a stock issuance cost instead of a general and administrative expense[354][355] - Note 13: A 1-for-20 reverse stock split was effected on January 9, 2024. All share and per-share amounts in the report are retroactively adjusted for this split[369]