TTNP: First Quarter Results; Development Programs on Track.

By John Vandermosten, CFA

NASDAQ:TTNP

Titan Reports First Quarter 2017 Financial and Operational Results

Titan Pharmaceuticals, Inc. (TTNP) reported first quarter 2017 results on May 10, 2017 in conjunction with the filing of its Form 10-Q. Total revenues, which consisted entirely of Probuphine royalties were $40,000, which were below our forecasts. This compares to zero revenues in 1Q:16 and $35,000 in the prior quarter. R&D expenses of $2.1 million more than tripled over the prior year due to expenses related to external Probuphine and ProNeura product development programs, some of which will be reimbursed by Braeburn. G&A of $1.4 million rose 19%, with the greater total attributable to higher non-cash based stock compensation, employee related costs and professional fees. Net loss of ($3.0) million or ($0.14) per share in 1Q:17, compares to a loss of ($1.8) million or ($0.09) per share in 1Q:16.

Cash burn for the first quarter was ($3.1) million, greater than the ($2.1) million consumed in the first three months of 2016. Cash levels declined sequentially from $14.0 million at the end of 2016 to $10.9 million as of March 31, 2017.

Despite the full commercial launch of Probuphine by Braeburn in the first quarter, sales only posted a modest sequential increase over fourth quarter revenues. A difficult reimbursement environment and slow access to third party payment systems have impeded faster growth. Despite the difficulties on the payor side, indications from patients completing the first six months of treatment is positive as most patients on Probuphine have elected to continue with the therapy following their initial treatment. Braeburn continues to develop its efforts to support the Probuphine supply chain including the use of now two specialty pharmacies approved by the DEA in order to distribute the product.

Revenues were lower than expected due to the continued effort required to develop the distribution network, gain access to formularies, obtain preapprovals and complete paperwork to obtain reimbursement on third party payor systems. Expenses were slightly higher than our estimates, predominantly due to greater external research and development for product development programs; however, Titan has indicated that these amounts will be reimbursed in 2Q:17. Management has guided for a gradual increase in sales over the next few quarters which we reflect in our royalty estimates. As a result we lower our forward estimates for Probuphine revenues to reflect the slower pace, which reduces our price target.

Recent Achievements

➢ Probuphine
o Full commercial launch in 1Q:17
o Issued J-code (J0570) by CMS aiding in identification and reimbursement
o 70 payors including private insurers, CMS and the VA authorized use
o EMA confirmed eligibility for review and approval under the centralized procedure
o Anticipate 4Q:17 filing of a Marketing Authorization Application (MAA) in EU
o Target finalizing agreement with EU and ex-US commercialization partners prior to MAA filing
o EMA has provided pediatric indication waiver which simplifies MAA process

➢Titan granted Small Manufacturing Entity (SME) status in Europe, which provides financial incentives

➢Ropinirole
o IND submitted January 2017
o Additional information requested regarding final release test data on implant and applicator which will be submitted in June
o Phase I/II PK studies expected to begin in 3Q:17
o Trial will enroll Parkinson’s Disease patients receiving adjunctive therapy with oral ropinirole

➢Triiodothyronine (T3)
o Final formulation optimization studies currently in process
o Pre-IND review with the FDA anticipated 3Q:17

➢ New Candidates being evaluated for ProNeura
o Tenofovir and emtricitabine for pre-exposure prophylaxis against HIV acquisition
o Antimalarial agents for malaria chemoprophylaxis and treatment
o Liraglutide for Type 2 diabetes
o Oxytocin for autism spectrum disorder

Our Estimates

Royalty revenues from Braeburn’s Probuphine sales growth decelerated on a sequential basis in the first quarter despite the full commercial launch employing a 60-person sales force. While Titan’s partner has aligned more than 70 payors, added two specialty pharmacies to expand the distribution network and steadily increased health care providers prescribing Probuphine, a challenging reimbursement environment has held back growth relative to our forecasts. Based on first quarter actuals, we adjust our Probuphine royalty revenues to $0.7 million in 2017, and reflect a slower ramp up to peak sales in 2024.

Conclusion

Titan’s $11 million in cash on the balance sheet as of March 31, 2017 is anticipated to provide sufficient capital to fund operations over the next year based on company guidance and our estimates. Depending on trends in royalty revenues, additional financing through a capital raise may be required if the company plans to accelerate development programs or new products.

While we were hoping to see a faster ramp-up in sales, we do understand that the process for training, formulary inclusion and distributing a controlled substance take some time to develop properly and to obtain the necessary approvals. Our updated expectations only call for a modest increase in royalty revenues throughout 2017, which are reflected in our estimates. While Probuphine royalty growth has been slower than expected, we note the potential upside from a contribution from Probuphine sales outside North America as well as from ropinirole and T3 when we reach the appropriate milestones.

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