T I TA N P H A R M A C E U T I C A L S , I N C .
Innovations in Medicine
A N N U A L R E P O RT 2 0 0 3
TITAN PHARMACEUTICALS, INC.
400 OYSTER POINT BLVD., STE 505
SOUTH SAN FRANCISCO, CA 94080
PHONE 650.244.4990
FAX 650.244.4956
WWW.TITANPHARM.COM
corporate information
Executive Officers
Louis R. Bucalo, M.D.
Chairman, President and Chief Executive Officer
Sunil Bhonsle
Executive Vice President, Chief Operating Officer,
Secretary and Director
Robert E. Farrell
Executive Vice President, Chief Financial Officer
Richard C. Allen, Ph.D.
Executive Vice President, Cell Therapy
Corporate Office
400 Oyster Point Boulevard, Suite 505
South San Francisco, California 94080
Tel: 650-244-4990
Fax: 650-244-4956
General Counsel
Loeb & Loeb, LLP
345 Park Avenue
New York, New York 10154-0037
Securities Listing
Titan’s securities are listed on the
American Stock Exchange
Common Stock: TTP
Independent Auditors
Ernst & Young, LLP
Palo Alto, California
Transfer Agent and Registrar
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, New York 10004
Tel: 212-509-4000
Board of Directors
Louis R. Bucalo, M.D.
Chairman, President and Chief Executive Officer
Executive Committee
Ernst-Günter Afting, M.D., Ph.D.
President of the GSF-National Center for
Environment and Health, Germany
Former President and Chief Executive Officer
of Roussel Uclaf
Victor J. Bauer, Ph.D.
Former President of Hoechst-Roussel
Pharmaceuticals, Inc.
Sunil Bhonsle
Executive Vice President, Chief Operating Officer
and Secretary
Eurelio M. Cavalier
Executive Committee
Compensation Committee
Former Group Vice President of U.S. Pharmaceutical
Business Unit, Eli Lilly & Company
Hubert E. Huckel, M.D.
Executive Committee
Compensation Committee
Audit Committee
Former Chairman of the Board of
Hoechst-Roussel Pharmaceuticals, Inc.
M. David MacFarlane, Ph.D.
Audit Committee
Former Vice President and Responsible Head
of Regulatory Affairs of Genentech, Inc.
Ley S. Smith
Executive Committee
Audit Committee
Former President and Chief Operating Officer of the
Upjohn Company, and Former President of Pharmacia
& Upjohn’s U.S. Pharma Product Center
Konrad M. Weis, Ph.D.
Executive Committee
Compensation Committee
Former President, Chief Executive Officer and
Honorary Chairman of Bayer Corporation
T I TA N P H A R M A C E U T I C A L S , I N C . is a biopharmaceutical company focused on the
development and commercialization of novel treatments for central nervous system disorders, cancer and
cardiovascular disease. Titan’s numerous products in development utilize novel technologies that have the
potential to significantly improve the treatment of these diseases. Titan also establishes partnerships with
multinational pharmaceutical companies and government institutions for the development of its products.
Titan is focused on identifying new drugs to improve
the treatment of serious diseases, developing these
drug candidates with leading experts in clinical
research, and accelerating the development process
including
using carefully selected strategies,
partnering with other leading companies.
In 2003, Titan advanced corporate growth through
the achievement of significant product development
milestones, as well as through the acquisition of an
important new product candidate, DITPA, a novel
compound in clinical testing for the treatment
of congestive heart failure. Titan is pursuing several
product development programs in clinical testing:
iloperidone, Spheramine®, Probuphine®, DITPA, Pivanex®,
and gallium maltolate.
to our shareholders
During 2003, Titan expanded the
number of its core development
programs, and made important
progress in several areas.
Titan’s core product development programs address the following
important therapeutic areas: central nervous system disorders, cancer
and cardiovascular disease. All of Titan’s products in development are
now in clinical testing. Iloperidone, Titan’s novel agent for the treatment
of schizophrenia, is continuing in Phase III development. Four products,
Spheramine, Probuphine, DITPA and Pivanex are in Phase II clinical
testing, and gallium maltolate is in Phase I clinical testing.
In June 2004, Titan announced that Vanda Pharmaceuticals, Inc.
acquired from Novartis Pharma, AG the worldwide rights to develop
and commercialize iloperidone, Titan’s proprietary product in development for the treatment of schizophrenia and
related psychotic disorders. Under its agreement with Novartis, Vanda will pursue completion of the iloperidone Phase
III development program. All of Titan’s rights and economic interests in iloperidone, including royalties on sales of
iloperidone, remain unchanged under the agreement. With the implementation of this agreement, Titan re-established
an important Phase III clinical program.
Spheramine, our novel cell therapy product, is in development for the treatment of Parkinson’s disease. During 2003,
Titan presented additional positive long-term data from a completed pilot study of Spheramine for the treatment of
Parkinson’s disease. Two-year results from this pilot study were presented at the Meeting of the American Academy of
Neurology in 2003, demonstrating an average 41% improvement in patient motor function two years post treatment
with no significant adverse events. A randomized, controlled, blinded Phase IIb clinical study of Spheramine in
advanced Parkinson’s disease is currently in process. Titan’s corporate partner for the development of Spheramine,
Schering AG, Germany, is funding this study.
Probuphine, our novel treatment in development for opiate addiction, is the first product in clinical testing to
utilize Titan’s proprietary ProNeura drug delivery system. In 2003, Titan initiated a Phase I/II clinical study of
Probuphine for the treatment of opiate addiction. In June 2004, we announced positive results from this study. The
data demonstrated that all 12 patients treated with Probuphine at both dose levels tested were safely switched to
Probuphine from daily sublingual buprenorphine therapy, with maintenance of therapeutic benefit for six months
after a single treatment, and no significant adverse events.
In October 2003, Titan acquired 3,5-diiodothyroproprionic acid (DITPA), a novel product in clinical testing for the
treatment of congestive heart failure. DITPA is an orally active analogue of thyroid hormone that has demonstrated in
preclinical and preliminary clinical studies to date the ability to improve cardiac function. Titan is developing DITPA
initially as a potential treatment for congestive heart failure (CHF) associated with low serum thyroid hormone (T3)
levels, and plans to initiate a randomized, controlled Phase II clinical study of DITPA in Class III and IV patients
with low serum T3 levels in the second half of 2004. In addition, a randomized, controlled Phase II study in patients
with Class II–IV CHF was initiated by the Veterans Administration Cooperative Studies Program in 2004. This multi-
center study is funded by a $3.8 million government grant from the Veterans Administration system.
Pivanex is an anti-cancer agent that inhibits histone deacetylases (HDAC), a class of enzymes important for cell
growth. Pivanex is being evaluated in a Phase IIa clinical study as a single agent in the treatment of refractory chronic
lymphocytic leukemia. In a Phase IIb clinical study with Pivanex in combination with docetaxel in the treatment of
non-small cell lung cancer, Titan discontinued treatment with Pivanex due to significant safety concerns with the
combination regimen. Further safety data review and analysis is in progress to determine next steps for Pivanex.
Titan’s gallium maltolate is a novel oral agent in development for the treatment of cancer and bone disease. Gallium
maltolate demonstrated favorable results in a pilot study presented in September 2003 at the Annual Meeting of the
American Society for Bone and Mineral Research, showing that gallium maltolate can achieve targeted, potentially
therapeutic serum levels of gallium in patients with advanced Paget’s disease. A Phase I study of gallium maltolate in
various cancers is currently ongoing.
We would like to thank our shareholders for their support and our employees for their continued dedicated efforts
toward further progress in the coming year.
Sincerely,
Louis R. Bucalo, M.D.
Chairman, President and Chief Executive Officer
identifying
Identifying, evaluating and acquir-
ing promising drug candidates are
some of Titan’s important core
competencies. Titan identifies
and acquires compounds and
technologies based on important
scientific principles that potentially
address significant unmet medical
needs.
“Data from preliminary clinical testing suggest that DITPA
may be an important thyroid hormone (T3) replacement
therapy for congestive heart failure, due to its potential
ability to improve cardiac function without increasing
heart rate.”
Milton Packer, M.D.
Professor of Internal Medicine, Director for the Center of
Biostatistics and Clinical Science, Holder of the Gayle and
Paul Stoffle Distinguished Chair in Cardiology, University of
Texas Southwestern Medical Center at Dallas.
DITPA
In 2003, Titan acquired DITPA, a novel product in development for
the treatment of congestive heart failure (CHF). In a preliminary
double-blind, placebo controlled Phase II clinical study in patients
with CHF, DITPA was shown to increase cardiac index and lower
systemic vascular resistance without increasing heart rate.
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DITPA is in development for the treatment of
congestive heart failure (CHF):
• More than 15 million patients worldwide with
CHF, 4.7 million in the United States.
• Approximately 1 million CHF patients
collectively in the U.S. and Europe have
decreased thyroid hormone (T3) levels—
DIPTA’s initial target population.
results
DITPA INCREASES CARDIAC INDEX
A preliminary double-blind, placebo con-
trolled Phase II clinical study evaluated
the effect of DITPA on cardiac function
and systemic vascular resistance in
patients with Class II or III CHF. In this
study DITPA was seen to increase
cardiac index, while lowering systemic
vascular resistance.
Cardiac Index
*
2
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Phase II Clinical Study
Systemic Vascular
Resistance Index
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3000
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1000
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Baseline
DITPA
After 4 Weeks
Treatment
*
Placebo p<0.05
Baseline
After 4 Weeks
Treatment
status
• Titan plans to initiate a randomized, controlled Phase II clinical study with DITPA in the
second half of 2004 in Class III and IV CHF patients with low serum T3 levels.
• The U.S. Department of Veterans Affairs (VA) has initiated a 150 patient, randomized,
double blind Phase II clinical study with DITPA in CHF. This multi-center study is funded
by a $3.8 million grant from the VA.
• An expert advisory group has been established to help guide further development of DITPA.
DITPA (3,5-diiodothyropropionic acid) is an orally active analogue of thyroid hormone. Thyroid hormone itself plays a
central role in maintaining cardiovascular function, and many patients with advanced (NYHA Class III and IV) CHF have
decreased thyroid hormone (T3) levels. Low T3 levels are an independent predictor of poor survival in advanced CHF
patients, and this patient group is estimated to comprise approximately 500,000 patients in the U.S., and a similar num-
ber in Europe. However, currently available thyroid hormone preparations are not well suited for chronic administration
in this setting in advanced CHF. In preliminary studies to date, DITPA has been shown to increase cardiac function with-
out increasing heart rate, and represents a potential new approach to the improved treatment of many patients with CHF.
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developing
During the past year, Titan
advanced the development of
Probuphine through the initiation
and completion of a Phase I/II
clinical study evaluating the
safety, pharmacokinetics and
preliminary efficacy of Probuphine
in the treatment of opiate
addiction.
“Treatment with Probuphine may potentially overcome the
challenges of poor compliance, misdirection of drug and
variable serum levels associated with daily oral therapy,
and provide patients with a more effective treatment
option.”
John B. Saunders, M.D., FRACP, FAFPHM, FAChAM
Professor of Alcohol and Drug Studies, University of
Queensland, Director, Alcohol and Drug Service, Royal
Brisbane and Women’s Hospital
PROBUPHINE
Probuphine is Titan’s first product in clinical testing to utilize its pro-
prietary ProNeura long-term drug delivery technology. Probuphine is
designed to deliver buprenorphine continuously for up to six months
following a single visit to the doctor’s office. Continuous long-term
delivery of buprenorphine may help eliminate many challenges asso-
ciated with daily oral therapy, including poor compliance, variable
blood levels, risk of misuse, morning withdrawal symptoms before
each dose, and overall reduced therapeutic value.
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• United States: 1.3 million heroin users;
150,000-200,000 receiving pharmacological treatment
• European Union: 1.5 million heroin users;
450,000-500,000 receiving pharmacological treatment
• France: More than 50% of heroin-addicted patients receiving
pharmacological treatment use buprenophrine
results
Preliminary clinical results
demonstrate that Probuphine’s
continuous, long-term delivery
controls withdrawal symptoms
and opiate craving, and may
provide a new and important
approach to buprenorphine
therapy for patients with
opiate addiction.
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Dose Level 2
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status
• In 2004, Titan completed a Phase I/II clinical study of Probuphine in the treatment of opiate
addiction. The study results demonstrated that all 12 patients at two dose levels treated with
Probuphine were safely switched from daily oral sublingual buprenorphine therapy to
Probuphine, with maintenance of therapeutic benefit for six months after a single treatment,
and no significant adverse events. These positive study results were presented at the annual
meeting of the International Society of Addiction Medicine in Helsinki in June 2004.
Titan’s ProNeura drug delivery system consists of a small, solid rod made from a mixture of ethylene-vinyl acetate (EVA)
and drug substance. The resulting product is a solid matrix that releases the drug substance slowly, at continuous levels,
through the process of diffusion. The product is placed subcutaneously, normally in the upper arm in a simple 15-minute
office procedure, and is removed in a similar manner at the end of the treatment period.
ProNeura technology was developed to address the need for a simple, practical method to achieve continuous long-term
drug delivery. In addition to Probuphine, Titan has also demonstrated preliminary proof of principle of ProNeura
technology with a number of other drugs in preclinical testing, including drugs for the treatment of Parkinson’s disease,
psychiatric disorders and alcohol addiction.
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developing
Titan is conducting a dose ranging
clinical study of gallium maltolate
in patients with multiple myeloma,
metastatic prostate cancer,
metastatic bladder cancer and
refractory lymphoma. Titan is also
conducting preclinical studies to
evaluate gallium maltolate in the
treatment of liver cancer, bone
metastases, metabolic bone
disease and rheumatoid arthritis.
“Given the scientific evidence from prior clinical studies
demonstrating the anti-cancer activity of intravenous gal-
lium nitrate in several different tumor types, it is hoped
that oral gallium maltolate may prove to be an important,
and more easily administered, potential therapy for the
treatment of cancer.”
Dr. Donald W. Northfelt
F.A.C.P., Assistant Clinical Professor of Medicine at the
University of California, San Diego, and Medical Oncologist
at Eisenhower Medical Center in Rancho Mirage, California.
GALLIUM MALTOLATE
Gallium maltolate is a novel oral agent for the potential
treatment of cancer and bone disease. Gallium, a semi-metallic
element, inhibits ribonucleotide reductase, a key enzyme essential
for DNA replication in cancer cells. Prior independent clinical
studies using intravenously administered gallium nitrate have
demonstrated preliminary evidence of clinical activity of gallium
in several cancers including multiple myeloma, lymphoma, bladder
cancer and prostate cancer.
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Gallium maltolate is being evaluated as a
potential treatment for multiple myeloma,
metastatic prostate cancer, metastatic
bladder cancer and refractory lymphoma:
results
EFFECT OF GALLIUM MALTOLATE
IN AN ANIMAL MODEL OF
RHEUMATOID ARTHRITIS
In a preclinical animal model for
arthritis, oral dosing of gallium
maltolate reduced the severity
of the disease in a dose-dependent
manner. Further development of
gallium maltolate therapy in this
disease setting is under review.
status
• Bladder cancer is the sixth most commonly-
diagnosed cancer in the U.S., with approxi-
mately 54,000 new cases diagnosed
each year.
• Prostate cancer is the most common male
cancer in the U.S. with an incidence of
approximately 221,000 new cases each year.
• Multiple myeloma is the second most common
hematological malignancy, with approximately
14,000 new cases annually in the U.S.
• The incidence of lymphoma in the U.S. is
approximately 55,000 new cases each year.
Histopathologic
Scores, 0-5
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5 = severe
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• Titan is continuing to advance a Phase I/II clinical study with gallium maltolate in advanced
cancer patients.
• In September 2003, Titan presented favorable results from a dose finding study of oral gallium
maltolate in the treatment of advanced Paget’s disease demonstrating achievement of
significant serum levels of gallium.
Titan is conducting a dose ranging clinical study of gallium maltolate in patients with multiple myeloma, lymphoma,
bladder cancer and prostate cancer. The maximum tolerated dose level has not yet been reached. Accordingly, additional
patient cohorts are being enrolled at higher doses. In addition to its anti-cancer activity, gallium has been shown in laboratory
studies to increase bone deposition and reduce bone turnover. Based on these results, Titan is also conducting preclinical
studies evaluating gallium maltolate in other disease settings, including metabolic bone disease and rheumatoid arthritis.
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accelerating
Spheramine is being developed
by Titan and Schering AG,
Germany, Titan’s corporate partner
for the development of this novel
cell therapy for the potential
treatment of Parkinson’s disease.
A randomized, controlled, blinded,
multi-center Phase IIb clinical
study of Spheramine in advanced
Parkinson’s disease is currently
in progress.
“Spheramine is an innovative and unique potential therapy
for Parkinson’s disease, and preliminary clinical results
seen to date are encouraging.”
SPHERAMINE
Titan enhances resources for product development by establishing
Ray L. Watts, M.D.
partnerships with other pharmaceutical development companies and
Professor and Chairman, Department of Neurology,
University of Alabama, Birmingham.
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government institutions. Spheramine, Titan’s novel cell therapy in
development for the treatment of Parkinson’s disease, is being devel-
oped through a corporate partnership with Schering AG, Germany.
Schering is funding the clinical development program for
Spheramine. In 2002, Titan received a $2 million milestone payment
from Schering following the successful completion of Titan’s pilot
clinical study with Spheramine, and the decision by Schering to
market
Spheramine is in development for the treatment of later-stage Parkinson’s disease (PD) patients
• United States: 400,000 (out of estimated 800,000 total PD population)
• European Union: 500,000 (out of estimated 1 million total PD population)
UPDRS Score: Group Percent Improvement
Motor “OFF” UPDRS
results
A pilot clinical study of Spheramine in six patients
with later-stage Parkinson’s disease demonstrated
substantial improvement (48%) in motor function
at one-year post treatment with no significant
adverse events.
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• At the American Academy of Neurology meeting in 2003, two-year results from the
Spheramine pilot study were presented that demonstrated an average 41% improvement
in patients’ motor function two years post treatment with no significant adverse events.
• A randomized, controlled, blinded Phase IIb clinical study of Spheramine in advanced
Parkinson’s disease, initiated in December 2002, is currently in progress, and is
proceeding on schedule. Titan’s corporate partner for the development of Spheramine
is Schering AG, Germany.
initiate randomized clinical testing for the treatment of advanced Parkinson’s disease. In addition to clinical and manu-
facturing development funding and milestone payments, Schering will also pay Titan a royalty on future product sales
of Spheramine.
Spheramine utilizes Titan’s novel, proprietary cell-coated microcarrier (CCM) technology, which enables the development
of cell-based therapies for minimally-invasive, site specific delivery of therapeutic factors to the central nervous system.
Titan’s CCM technology involves adhering cells to microscopic carriers that can then be implanted into the central nervous
system. This confers greatly improved survival to the cells and avoids the need for immunosuppression (suppression of
the immune system to prevent rejection). Spheramine is the first Titan product to utilize this technology.
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ILOPERIDONE
Titan’s proprietary product in
development for schizophrenia
and related psychotic disorders,
iloperidone, is now partnered
with Vanda Pharmaceuticals,
which acquired worldwide rights
to iloperidone from Novartis
Pharma, AG. Vanda will now move
forward to advance iloperidone
in Phase III clinical testing.
status
Iloperidone has been evaluated to date in a Phase III clinical program
comprising over 3,500 patients at more than 200 sites in 24 countries.
This Phase III program, which was conducted by Novartis Pharma,
AG, demonstrated preliminary evidence of the clinical efficacy, safety
and tolerability of iloperidone in the treatment of schizophrenia.
Additionally, a study was completed in elderly patients with good
results. Iloperidone was considered safe in these studies, but also
showed a dose dependent increase in the QTc interval that may affect
the opportunity for iloperidone as a first line therapy for schizophrenia.
Vanda Pharmaceuticals will now pursue advancement of the iloperi-
done Phase III development program. Vanda was founded by its
Chairman, Dr. Argeris N. Karabelas, formerly CEO of Novartis
Pharmaceuticals, and its CEO, Dr. Mihael Polymeropoulos, former
Vice President of Pharmacogenetics at Novartis Pharmaceuticals.
products in development
ILOPERIDONE is an antipsychotic agent in development for the treatment of schizophrenia
Schizophrenia
SPHERAMINE is a novel cell therapy in development for the treatment of advanced
Parkinson’s disease.
Advanced Parkinson’s disease
PROBUPHINE is a novel treatment in development for opiate addiction that utilizes the
Company’s proprietary ProNeura long-term drug delivery system. Probuphine delivers
buprenorphine, an approved agent for treatment of opiate addiction, for six months.
Opiate addiction
disease target
DITPA (3,5-diiodothyroproprionic acid), is an orally active analogue of thyroid hormone in
development for the treatment of congestive heart failure associated with low thyroid
hormone levels.
Congestive heart failure
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PIVANEX is an anti-cancer agent that inhibits histone deacetylases (HDAC), a class of
enzymes important for cell growth.
Chronic lymphocytic leukemia
GALLIUM MALTOLATE is a novel oral agent in development for the treatment of cancer and
bone disease.
Bladder cancer,
lymphoma
phase
III
II
II
II
II
I
selected financial data
The selected financial data presented below summarizes certain financial data which has been derived from and should be read in
conjunction with our consolidated financial statements and footnotes thereto included elsewhere herein. See also Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
(in thousands, except per share data)
2003
Year Ended December 31,
2001
2002
2000
1999
Statement of Operations Data
Total revenue(1)
Operating expenses:
Research and development
Acquired/in-process research and development(2)
General and administrative
Other income, net
Net loss
Basic and diluted net loss per share
Shares used in computing:
Basic and diluted net loss per share
$
89
$
2,892
$
4,572
$
1,880
$
337
22,258
3,896
5,109
1,285
29,819
—
5,076
3,821
23,339
—
5,383
6,686
16,744
4,969
4,070
5,115
9,429
136
2,794
726
$ (29,889)
$ (28,182)
$ (17,464)
$ (18,788)
$ (11,296)
$
(1.07)
$
(1.02)
$
(0.63)
$
(0.73)
$
(0.70)
27,907
27,642
27,595
25,591
16,112
(1) Revenues for 2001 include $2.5 million license fee payment from Novartis for the development and commercialization of iloperidone in Japan. Revenues for 2002 include a
$2.0 million milestone payment from Schering.
(2) Acquired research and development reflects the acquisition of DTI in 2003 and in-process research and development reflects the acquisition of GeoMed in 2000, and the
acquisition of a minority interest in Theracell in 1999.
(in thousands)
Balance Sheet Data
2003
As of December 31,
2001
2002
2000
1999
Cash, cash equivalents, and marketable securities
Working capital
Total assets
Total stockholders’ equity
$ 46,555
44,578
49,008
44,426
$ 73,450
70,702
75,926
70,740
$105,051
100,193
107,132
100,127
$117,523
115,386
118,442
114,738
$ 46,454
45,128
47,362
44,302
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management’s discussion and analysis of
financial condition and results of operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes.
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 state-
ments 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.
Spheramine®, Pivanex®, Probuphine®, CeaVac®, TriAb®, TriGem™ and CCM™ are trademarks of Titan Pharmaceuticals, Inc.
OVERVIEW
We are a biopharmaceutical company developing proprietary therapeutics for the treatment of CNS disorders, cancer, and cardio-
vascular disease. Our product development programs focus on large pharmaceutical markets with significant unmet medical needs
and commercial potential. We have six products in clinical development:
•
Ioperidone: for the treatment of schizophrenia and related psychotic disorders (partnered with Vanda Pharmaceuticals, Inc.)
• Spheramine: for the treatment of late stage Parkinson’s disease
• Probuphine: for the treatment of opiate addiction
• DITPA: for the treatment of congestive heart failure
• Pivanex: for the treatment of non-small cell lung cancer
• Gallium maltolate: for the treatment of several cancers and bone related disease associated with cancer
We are directly developing our product candidates and also utilizing strategic partnerships. These collaborations help fund prod-
uct development and enable us to retain significant economic interest in our products. Spheramine development is primarily
funded by our corporate partner for Spheramine, Schering. In June 2004, we announced that Vanda Pharmaceuticals, Inc. had
acquired from Novartis Pharma AG the worldwide rights to develop and commercialize iloperidone, Titan’s proprietary antipsy-
chotic agent in Phase III clinical development for the treatment of schizophrenia and related psychotic disorders. Under it’s
agreement with Novartis, Vanda will pursue advancement of the iloperidone Phase III development program. All of Titan’s rights
and economic interests in iloperidone, including royalties on sales of iloperidone, remain essentially unchanged under the agree-
ment. Titan is no longer directly pursuing development of the monoclonal antibodies—CeaVac, TriAb, and TriGem—for the
treatment of various cancers, and remaining clinical studies are externally funded collaborations with co-operative groups.
The following table provides summary status of our products in development:
Product
Potential Indication(s)
Phase of Development
Marketing Rights
Iloperidone
Spheramine
Probuphine
DITPA
Pivanex
Schizophrenia, psychosis
Parkinson’s disease
Opiate addiction
Congestive heart failure
Chronic lymphocytic leukemia
Gallium maltolate
Bladder cancer, lymphoma
Phase III
Phase IIb
Phase II
Phase II
Phase II
Phase I
VAnda Phar0maceutical
Vanda Pharmaceutical Inc.
Schering AG
Titan
Titan
Titan
Titan
* Further development under review.
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For additional information on our product development programs, see Item 1(c) “Narrative Description of Business” section.
Our products are at various stages of development and may not be successfully developed or commercialized. We do not currently
have any products being sold on the commercial market. Our proposed products will require significant further capital expendi-
tures, 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.”
CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts reported in our financial statements and
accompanying notes. Actual results could differ materially from those estimates. We believe the following accounting policies
and estimates for the year ended December 31, 2003, to be critical:
We have elected to continue to follow Accounting Principles Board Opinion No. 25 (or APB 25), “Accounting for Stock Issued
to Employees,” to account for employee stock options because the alternative fair value method of accounting prescribed by
Statement of Financial Accounting Standards No. 123 (or SFAS 123), “Accounting for Stock-Based Compensation,” requires the use
of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, no compensation
expense is recognized when the exercise price of our employee stock options equals the market price of the underlying stock on
the date of grant. Had we elected to follow SFAS 123 and to apply the fair value method to stock-based employee compensation,
we would have recorded an additional $2.0 million in net loss, or an additional $0.07 of net loss per share for the year ended
December 31, 2003.
RESULTS OF OPERATIONS
Comparison of Years Ended December 31, 2003 and 2002
Revenues in 2003 were $0.1 million compared to $2.9 million for 2002, a decrease of $2.8 million. Our 2002 revenue included a
one-time $2 million milestone payment from Schering AG following successful completion of our Phase I/II clinical study of
Spheramine in the treatment of Parkinson’s disease and Schering’s decision to initiate randomized clinical testing of Spheramine
for the treatment of patients with late-stage Parkinson’s disease (see Note 7 to the Consolidated Financial Statements beginning on
page F-1 in this report). In addition, our 2002 revenue also included SBIR grant revenues from the National Institutes of Health in
support of the development of Spheramine. We had no comparable milestone or grant revenue in 2003.
Research and development expenses for 2003 were $22.3 million compared to $29.8 million for 2002, a decrease of $7.5 million.
The decrease in research and development was primarily associated with the completion of a randomized, placebo-controlled
Phase III clinical study in 2002. Of our 2003 research and development expenses, approximately 52%, or $11.7 million, were
attributable to external R&D expenses. External R&D expenses include direct expenses such as clinical research organization
charges, investigator and review board fees, patient expense reimbursements, pre-clinical activities and contract manufacturing
expenses. In 2003, approximately $5.2 million of external R&D expenses were related to Pivanex, $1.2 million to Probuphine, $1.3
million to gallium maltolate, $0.6 million to Spheramine, and the remainder to other projects. Remaining R&D expenses were
attributable to internal operating costs, which include clinical research and development personnel salaries and employment
related expenses, clinical trials related travel expenses, and allocation of facility and corporate costs. In 2003, we recorded a $3.9
million acquired research and development expense in connection with the acquisition of DITPA, a novel product for the potential
treatment of congestive heart failure. The entire purchase price was charged to acquired research and development on the acquisi-
tion date in accordance with generally accepted accounting principles. See Note 8 to the Consolidated Financial Statements
beginning on page F-1 in this report. As a result of the risks and uncertainties inherently associated with pharmaceutical research
and development activities described elsewhere in this report, we are unable to estimate the specific timing and future costs of our
clinical development programs or the timing of material cash inflows, if any, from our product candidates.
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management’s discussion and analysis of
financial condition and results of operations (continued)
General and administrative expenses for 2003 were $5.1 million compared to $5.1 million for 2002. We expect G&A costs to
remain approximately the same in 2004.
Other income, net, for 2003 was $1.3 million compared to $3.8 million for 2002, a decrease of $2.5 million. The decrease, primarily
in interest income, was a result of declining interest rates and our smaller average cash and marketable securities position.
As a result of the foregoing, we had a net loss of $29.9 million in 2003 compared to a net loss of $28.2 million in 2002.
None of our products has been commercialized, and we do not expect to generate any revenue from product sales or royalties in
the foreseeable future. We will also continue to identify new technologies and/or product candidates for possible in-licensing or
acquisition. Accordingly, we expect to incur operating losses for the foreseeable future. We cannot assure you that we will ever
achieve profitable operations.
Comparison of Years Ended December 31, 2002 and 2001
Revenues in 2002 were $2.9 million compared to $4.6 million for 2001, a decrease of $1.7 million. Our 2001 revenue included a
one-time license fee payment of $2.5 million received from Novartis for the development and commercialization of iloperidone in
Japan, and an SBIR grant received from the National Institutes of Health in support of the development of Spheramine.
Research and development expenses for 2002 were $29.8 million compared to $23.3 million for 2001, an increase of $6.5 million.
The increase in research and development was primarily associated with the completion of the randomized, placebo-controlled
Phase III clinical study of CeaVac in Dukes’ D colorectal cancer and our other expanded clinical programs in cancer, specifically
the Phase II studies with Pivanex and the Phase I/II study with gallium maltolate.
General and administrative expenses for 2002 were $5.1 million compared to $5.4 million for 2001, a decrease of $300,000.
The decrease was primarily due to lower stock option related non-cash compensation expenses.
Other income, net, for 2002 was $3.8 million compared to $6.7 million for 2001, a decrease of $2.9 million. The decrease, primarily
in interest income, was a result of declining interest rates and our smaller average cash and marketable securities position.
As a result of the foregoing, we had a net loss of $28.2 million in 2002 compared to a net loss of $17.5 million in 2001.
LIQUIDITY AND CAPITAL RESOURCES
(in thousands)
As of December 31
Cash, cash equivalents and marketable securities
Working capital
Current ratio
Year Ended December 31
Cash used in operating activities
Cash provided by (used in) investing activities
Cash provided by (used in) financing activities
2003
2002
2001
$ 46,555
$ 44,578
14:1
$ 73,450
$ 70,702
19:1
$105,051
$100,193
18:1
$ (26,438)
$ 26,002
113
$
$ (29,291)
$ 30,678
(4)
$
$ (13,739)
$ (1,710)
921
$
We have funded our operations since inception primarily through sales of our securities, as well as proceeds from warrant and
option exercises, corporate licensing and collaborative agreements, and government sponsored research grants.
In October 2003, we acquired DITPA through the acquisition of Developmental Therapeutics, Inc. in a stock transaction for
1,187,500 shares of Titan common stock valued at approximately $3.6 million using the average market price of our common
stock over the five-day trading period, including and prior to the date of the merger. In addition, up to a total of 750,000 shares of
common stock will be issued only upon the achievement of positive pivotal study results or certain other substantial milestones
within five years.
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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. Certain of the 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, annual
minimum license fees, and meeting project-funding milestones.
The following table sets forth the aggregate contractual cash obligations as of December 31, 2003 (in thousands):
Payments Due by Period
Total
< 1 year
1–3 years
3–5 years
5 years+
Contractual obligations
Operating leases
Sponsored research & license agreements
$
3,121
$ 1,974
$
$
924
319
$ 1,852
653
$
$
$
345
668
Total contractual cash obligations
$ 5,095
$ 1,243
$ 2,505
$ 1,013
—
334
334
$
$
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 the first half of 2005. In addition, in February 2004 we filed a shelf registration
statement with the Securities and Exchange Commission to sell up to $50 million of common or preferred stock. Under this
registration statement, shares may be sold periodically to provide additional funds for our operations. For a full discussion of
risks and uncertainties regarding our need for additional financing, see “Risk Factors—We may need additional financing.”
OFF-BALANCE SHEET ARRANGEMENTS
Titan has never entered into any off-balance sheet financing arrangements and has never established any special purpose entities.
We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets. Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our portfolio of marketable securities exposes us to interest rate risk. We adhere to an investment policy that requires us to limit
amounts invested in securities based on maturity, type of instrument, investment grade and issuer. We satisfy liquidity require-
ments by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of
credit risk by diversifying our investments among a variety of high credit-quality issuers. A hypothetical 100 basis point decrease
in interest rates would result in an approximate $330,000 decrease in cash flow over the subsequent year. We do not use derivative
financial instruments in our investment portfolio.
The following table summarizes principal amounts and related weighted-average interest rates by year of maturity on our interest-
bearing investment portfolio at December 31, 2003 (in thousands, except interest rate):
Face Value
2004
2005
Total
Estimated
Fair Value
Cash equivalents and marketable securities
Variable rate securities
Average interest rate
Fixed rate securities
Average interest rate
$ 5,082
0.88%
$ 24,810
— $ 5,082
—
$ 15,885
$ 40,695
0.88%
$ 5,082
$ 41,220
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3.15%
1.42%
2.48%
consolidated balance sheets
(in thousands of dollars)
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Related party receivables
Prepaid expenses, other receivables and current assets
Total current assets
Property and equipment, net
Investment in other companies
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued clinical trials expenses
Other accrued liabilities
Total current liabilities
Commitments
Minority interest—Series B preferred stock of Ingenex, Inc.
Stockholders’ Equity
Preferred stock, $0.001 par value per share; 5,000,000
shares authorized, issuable in series:
Convertible Series C, 222,400 shares designated, 222,400 shares
issued and outstanding, with an aggregate liquidation value
of $2,000 at December 31, 2003 and 2002
Common stock, at amounts paid in, $0.001 par value per share;
50,000,000 shares authorized, 28,903,043 and 27,642,085 shares
issued and outstanding at December 31, 2003 and 2002, respectively
Additional paid-in capital
Deferred compensation
Accumulated deficit
Accumulated other comprehensive income
Total stockholders’ equity
See accompanying notes.
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December 31,
2002
2003
$
6,832
39,723
123
1,241
47,919
789
300
$
7,155
66,295
316
881
74,647
979
300
$ 49,008
$ 75,926
$
1,505
634
1,202
3,341
$
1,901
1,203
841
3,945
1,241
1,241
—
—
195,331
9,047
(211)
(159,741)
—
191,680
9,161
(621)
(129,852)
372
44,426
70,740
$ 49,008
$ 75,926
consolidated statements of operations
(in thousands, except per share amount)
Revenue:
Contract revenue
License revenue
Grant revenue
Total revenue
Operating expenses:
Research and development
Acquired research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Other income (expense)
Other income, net
Net loss
Basic and diluted net loss per share
Weighted average shares used in computing
basic and diluted net loss per share
See accompanying notes.
Year ended December 31,
2002
2001
2003
$
$
28
61
—
89
22,258
3,896
5,109
2,696
—
196
2,892
29,819
—
5,076
$
1,224
2,600
748
4,572
23,339
—
5,383
31,263
34,895
28,722
(31,174)
(32,003)
(24,150)
1,278
7
1,285
4,221
(400)
3,821
6,763
(77)
6,686
$ (29,889)
$ (28,182)
$ (17,464)
$
(1.07)
$
(1.02)
$
(0.63)
27,907
27,642
27,595
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consolidated statement of stockholders’ equity
(in thousands)
Balances at December 31, 2000
Comprehensive loss:
Net loss
Unrealized gain on marketable securities
Comprehensive loss
Issuance of common stock upon exercise of
options and warrants
Rescission of stock option exercises
Compensation related to stock options
Amortization of deferred compensation
Balances at December 31, 2001
Comprehensive loss:
Net loss
Unrealized loss on marketable securities
Comprehensive loss
Issuance of common stock upon exercise of options,
net of issuance costs of $6
Compensation related to stock options
Amortization of deferred compensation
Balances at December 31, 2002
Comprehensive loss:
Net loss
Unrealized loss on marketable securities
Comprehensive loss
Issuance of common stock to acquire technologies,
net of issuance costs of $22
Issuance of common stock upon exercise of options
Compensation related to stock options
Amortization of deferred compensation
Balances at December 31, 2003
See accompanying notes.
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Preferred Stock
Shares
Amount
222
$
—
222
—
222
$
—
222
$
—
Common Stock
Shares
27,234
Amount
$190,763
Additional
Paid-In
Capital
Deferred
Compensation
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders
Equity
$ 8,744
$ (1,254)
$ (84,206)
$
691
$114,738
461
(53)
1,028
(107)
149
124
27,642
191,684
9,017
(83)
542
(795)
—
(4)
144
(141)
315
(17,464)
1,200
(17,464)
1,200
(16,264)
1,028
42
41
542
(101,670)
1,891
100,127
(28,182)
(1,519)
(28,182)
(1,519)
(29,701)
(4)
3
315
27,642
$191,680
$ 9,161
$ (621)
$(129,852)
$
372
$ 70,740
1,188
73
3,538
113
(114)
114
296
(29,889)
(372)
(29,889)
(372)
(30,261)
3,538
113
—
296
28,903
$195,331
$ 9,047
$ (211)
$(159,741)
$
—
$ 44,426
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consolidated statements of cash flows
(in thousands of dollars)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization
(Gain) loss on investment activities
Acquired research and development
Non-cash compensation related to stock options
Changes in operating assets and liabilities:
Prepaid expenses, receivables and other current assets
Accounts payable
Accrued clinical trials and other liabilities
Deferred contract revenue
Years ended December 31,
2002
2003
2001
$ (29,889)
$ (28,182)
$ (17,464)
439
(51)
3,873
296
(166)
(675)
(265)
—
374
309
—
318
(291)
1,007
(826)
(2,000)
272
—
—
732
(580)
(410)
1,711
2,000
Net cash used in operating activities
(26,438)
(29,291)
(13,739)
Cash flows from investing activities:
Purchases of property and equipment, net
Investment in other companies
Purchases of marketable securities
Proceeds from maturities of marketable securities
Proceeds from sales of marketable securities
Net cash used in investing activities
Cash flows from financing activities:
Issuance of common stock, net
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Marketable securities at end of year
(248)
91
(47,660)
64,819
9,000
(778)
—
(25,114)
43,718
12,852
(254)
(600)
(72,733)
55,750
16,127
26,002
30,678
(1,710)
113
113
(323)
7,155
6,832
39,723
(4)
(4)
1,383
5,772
7,155
66,295
921
921
(14,528)
20,300
5,772
99,279
Cash, cash equivalents and marketable securities at end of year
$ 46,555
$ 73,450
$105,051
Schedule of non-cash transaction:
Issuance of common stock to acquire technologies, net
$
3,538
$
— $
—
See accompanying notes.
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notes to consolidated financial statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and its Subsidiaries
We are a biopharmaceutical company developing proprietary therapeutics for the treatment of central nervous system (CNS)
disorders, cancer, and cardiovascular disease. Our product development programs focus on large pharmaceutical markets with
significant unmet medical needs and commercial potential. We are directly developing our product candidates and also utilizing
strategic partnerships, including a collaboration with Schering AG, Germany (Schering). These collaborations help fund product
development and enable us to retain significant economic interest in our products. Some of our preclinical product development
work is conducted through our two consolidated subsidiaries: Ingenex, Inc., and ProNeura, Inc. At December 31, 2003, we owned
81% of Ingenex, assuming the conversion of all preferred stock to common stock, and 79% of ProNeura. In the fourth quarter of
2003, we acquired 3,5-diiodothyropropionic acid (DITPA), a novel product in clinical testing, for the treatment of congestive heart
failure (CHF) through the acquisition of Developmental Therapeutics, Inc. (DTI), a private company established to develop DITPA.
We operate in one business segment, the development of pharmaceutical products.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include the accounts of Titan and our wholly and majority owned sub-
sidiaries. All significant intercompany balances and transactions are eliminated.
Reclassifications
Certain prior year balances have been reclassified to conform to the current year presentation. These reclassifications have no
impact on the results of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Stock Option Plans
We have elected to continue to follow Accounting Principles Board Opinion No. 25 (or APB 25), “Accounting for Stock Issued to
Employees,” rather than the alternative method of accounting prescribed by Statement of Financial Accounting Standards No. 123
(or SFAS 123), “Accounting for Stock-Based Compensation.” Under APB 25, no compensation expense is recognized when the
exercise price of our employee stock options equals the market price of the underlying stock on the date of grant. The following
table illustrates the effect on our net loss and net loss per share if Titan had applied the provisions of SFAS 123 to estimate and
recognize compensation expense for our stock-based employee compensation.
Year Ended December 31,
2002
2001
2003
Net loss, as reported
Add: Stock-based employee compensation expense
included in reported net loss
Deduct: Stock-based employee compensation expense
$ (29,889)
$ (28,182)
$ (17,464)
296
318
1,088
determined under fair value method for all stock option grants
(2,319)
(8,489)
(10,225)
Pro forma net loss
Basic and diluted net loss per share, as reported
Pro forma basic and diluted net loss per share
$ (31,912)
$ (36,353)
$ (26,601)
$
$
(1.07)
(1.14)
$
$
(1.02)
(1.32)
$
$
(0.63)
(0.96)
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notes to consolidated financial statements (continued)
Cash, Cash Equivalents and Marketable Securities
Our cash and investment policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select
investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements
by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk
by diversifying our investments among a variety of high credit-quality issuers and limit the amount of credit exposure to any one
issuer. The estimated fair values have been determined using available market information. We do not use derivative financial
instruments in our investment portfolio.
All investments with original maturities of three months or less are considered to be cash equivalents. Our marketable securities,
consisting primarily of high-grade debt securities including money market funds, U.S. government and corporate notes and bonds,
and commercial paper, are classified as available-for-sale at time of purchase and carried at fair value. If the fair value of a security
is below its amortized cost for six consecutive months or if its decline is due to a significant adverse event, the impairment is
considered to be other-than-temporary. Other-than-temporary declines in fair value of our marketable securities are charged
against interest income. We recognized expenses of approximately $40,000 in 2003, $9,000 in 2002, and none in 2001 as a result
of charges related to other-than-temporary declines in the fair values of certain of our marketable securities. Amortization of
premiums and discounts, and realized gains and losses are included in interest income. Unrealized gains and losses are included
as accumulated other comprehensive income, a separate component of stockholders’ equity. The cost of securities sold is based
on use of the specific identification method.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the
assets ranging from three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated
useful life of the assets.
Investment in Other Companies
We have invested in equity instruments of privately held companies for business and strategic purposes. These investments are
classified as long-term assets and are accounted for under the cost method as we do not have the ability to exercise significant
influence over their operations. We monitor our investments for impairment and record reductions in carrying value when events
or changes in circumstances indicate that the carrying value may not be recoverable. Determination of impairment is based on a
number of factors, including an assessment of the strength of investee’s management, the length of time and extent to which the
fair value has been less than our cost basis, the financial condition and near-term prospects of the investee, fundamental changes
to the business prospects of the investee, share prices of subsequent offerings, and our intent and ability to hold the investment
for a period of time sufficient to allow for any anticipated recovery in our carrying value.
In July 2001, we made a $300,000 equity investment in Altagen Biosciences Inc. (formerly CSS Acquisition Corporation) for 300
shares of Series D Preferred stock, representing 2.5% of total equity in the company. In December 2001, we made a $300,000
equity investment in Molecular Medicine LLC for 714,286 shares of Series A Preferred stock, and at December 31, 2003, these
shares represent 6.6% of total equity in the company. In June 2002, we recorded a $300,000 reduction in the carrying value of
our investment in Altagen, and in July 2003, we returned the 300 shares of Series D Preferred stock to Altagen in settlement
of outstanding liabilities and recorded a gain on investment of approximately $90,000.
Revenue Recognition
We generate revenue principally from collaborative research and development arrangements, technology licenses, and government
grants. Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met,
including whether the delivered component has stand-alone value to the customer, and whether there is objective and reliable
evidence of the fair value of the undelivered items. Consideration received is allocated among the separate units of accounting
based on their respective fair values, and the applicable revenue recognition criteria are then applied to each of the units.
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Revenue is recognized when the four basic criteria of revenue recognition are met: (1) a contractual agreement exists; (2) transfer
of technology has been completed or services have been rendered; (3) the fee is fixed or determinable; and (4) collectibility is
reasonably assured. For each source of revenue, we comply with the above revenue recognition criteria in the following manner:
• Collaborative arrangements typically consist of non-refundable and/or exclusive technology access fees, cost reimbursements
for specific research and development spending, and various milestone and future product royalty payments. If the delivered
technology does not have stand-alone value or if we do not have objective or reliable evidence of the fair value of the undeliv-
ered component, the amount of revenue allocable to the delivered technology is deferred. Non-refundable upfront fees with
stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when
received, and are deferred if Titan has continuing performance obligations and has no evidence of fair value of those obliga-
tions. Cost reimbursements for research and development spending are recognized when the related costs are incurred and
when reimbursements are received. Payments received related to substantive, performance-based “at-risk” milestones are
recognized as revenue upon achievement of the clinical success or regulatory event specified in the underlying contracts,
which represent the culmination of the earnings process. Amounts received in advance are recorded as deferred revenue
until the technology is transferred, costs are incurred, or milestone is reached.
• Technology license agreements typically consist of non-refundable upfront license fees and annual minimum access fees or
royalty payments. Non-refundable upfront license fees and annual minimum payments received with separable stand-alone
values are recognized when the technology is transferred or accessed, provided that the technology transferred or accessed is
not dependent on the outcome of our continuing research and development efforts.
• Government grants, which support our research efforts in specific projects, generally provide for reimbursement of approved
costs as defined in the notices of grants. Grant revenue is recognized when associated project costs are incurred.
Research and Development Costs
Research and development expenses include internal and external costs. Internal costs include salaries and employment related
expenses, facility costs, administrative expenses and allocations of corporate costs. External expenses consist of costs associated
with outsourced clinical research organization activities, sponsored research studies, product registration, patent application and
prosecution, and investigator sponsored trials. In accordance with SFAS No. 2, “Accounting for Research and Development Costs,”
all such costs are charged to expense as incurred.
Net Loss Per Share
We calculate basic net loss per share using the weighted average common shares outstanding for the period. Diluted net income
per share would include the impact of other dilutive equity instruments, primarily our preferred stock, options and warrants.
For the years ended December 31, 2003, 2002, and 2001, outstanding preferred stock, options and warrants totaled 6.1 million,
6.4 million, and 4.4 million shares, respectively. We reported net losses for all years presented and, therefore, preferred stock,
options and warrants were excluded from the calculation of diluted net loss per share as they were anti-dilutive.
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 on our marketable securities. Comprehensive loss for the years ended December 31, 2003,
2002, and 2001 was $30.3 million, $29.7 million, and $16.3 million, respectively. Comprehensive loss has been disclosed in the
Statement of Stockholders’ Equity for all periods presented.
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notes to consolidated financial statements (continued)
Recent Accounting Pronouncements
In November 2003, the EITF discussed several of the recommendations on the proposed models for evaluating impairment of
equity and debt securities discussed on Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments.” Although the Task Force requested further revisions to the underlying impairment models at the
November meeting, it reached a consensus that certain quantitative and qualitative disclosures are required for debt and marketable
equity securities classified as available-for-sale or held-to-maturity under SFAS No. 115 and SFAS No.124 that are impaired at
the balance sheet date but for which an other-than-temporary impairment has not been recognized. For those investments with
unrealized losses that have not been recognized as other-than-temporary impairments, additional disclosure is required. The
disclosure requirement is effective for fiscal years ending after December 15, 2003 (see Note 2).
In January 2003, the FASB issued Interpretation No. 46 (or FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 addresses
consolidation of variable interest entities (“VIEs”) that do not have sufficient equity investment at risk to permit the entity to
finance its activities without additional subordinated financial support, or in which the equity investors lack an essential character-
istic of a controlling financial interest. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46
(“Revised Interpretation”) resulting in multiple effective dates based on the nature as well as the creation date of the VIE. VIEs
created after January 31, 2003, but prior to January 1, 2004, may be accounted for either based on the original interpretation of
the Revised Interpretation. VIEs created after January 1, 2004 must be accounted fro under the Revised Interpretation. Special
purpose entities (“SPEs”) created prior to February 1, 2003 may be accounted for under the original or revised interpretation’s
provisions no later than our first quarter of fiscal 2004. Non-SPEs created prior to February 1, 2003, should be accounted for under
the revised interpretation’s provisions no later than our first quarter of 2004. We do not currently have any arrangements with
variable interest entities that will require consolidation of there financial information in our financial statements.
In November 2002, the EITF reached a consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF
Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple prod-
ucts, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have a material impact on our financial
position and results of operations.
Also in November 2002, the FASB issued Interpretation No. 45 (or FIN 45), “Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the existing disclosure require-
ments for most guarantees, including certain indemnification agreements. It also clarifies that at the time a company issues a
guarantee, the company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee and
must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions
apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective
for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 did not have a
material impact on our results of operations and financial position. See Note 10, “Guarantees and Indemnifications,” below for a
discussion related to these agreements.
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2. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following is a summary of our cash, cash equivalents and marketable securities at December 31 (in thousands):
2003
2002
Gross
Amortized Unrealized Unrealized
Gain
(Loss)
Gross
Cost
Fair
Value
Gross
Amortized Unrealized Unrealized
Gain
(Loss)
Gross
Cost
Fair
Value
Classified as:
Cash
Cash equivalents:
Money market funds
Commercial paper
Total cash equivalents
Marketable securities:
Securities of the U.S. government
and its agencies
Corporate notes and bonds
Commercial paper
Total marketable securities
Total cash, cash equivalents and
$
253
$ —
$ — $
253
$
576
$ —
$ — $
576
5,082
1,497
6,579
33,178
4,246
2,299
39,723
—
—
—
47
9
—
56
—
—
—
5,082
1,497
6,579
—
6,579
6,579
(17)
(38)
(1)
33,208
4,217
2,298
40,064
18,571
7,288
(56)
39,723
65,923
—
—
—
258
161
8
427
—
—
—
6,579
—
6,579
(17)
(38)
—
40,305
18,694
7,296
(55)
66,295
marketable securities
$46,555
$ 56
$ (56) $46,555
$73,078
$ 427
$ (55) $73,450
Securities available-for-sale:
Maturing within 1 year
Maturing between 1 to 2 years
$30,353
$15,949
$30,353
$58,275
$15,949
$14,227
$58,505
$14,369
Gross realized losses on sales of marketable securities were $17,000 for the year ended December 31, 2003. There were no gross
realized gains in 2003. For the year ended December 31, 2002, there were $119,000 of gross realized gains and $3,000 of gross real-
ized losses. For the year ended December 31, 2001, there were $149,000 of gross realized gains and no gross realized losses.
The aggregate amount of unrealized losses and the related fair value of investments with unrealized losses at December 31, 2003
were approximately $56,000 and $3.8 million, respectively. The unrealized losses were caused by fluctuation in market interest
rates and are not considered other-than-temporary until a continuous decline has occurred.
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notes to consolidated financial statements (continued)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in thousands):
Furniture and office equipment
Leasehold improvements
Laboratory equipment
Computer equipment
Less accumulated depreciation and amortization
Property and equipment, net
$
2003
530
368
428
810
2,136
(1,347)
2002
$ 525
318
365
728
1,936
(957)
$
789
$ 979
Depreciation and amortization expense was $436,000, $374,000, and $272,000 for the years ended December 31, 2003, 2002, and
2001, respectively.
4. RESEARCH AND LICENSE AGREEMENTS
We have entered into various agreements with research institutions, universities, clinical research organizations and other entities for the
performance of research and development activities and for the acquisition of licenses related to those activities. Expenses under these
agreements totaled $2.6 million, $1.3 million, and $1.6 million in the years ended December 31, 2003, 2002, and 2001, respectively.
At December 31, 2003, the annual aggregate commitments we have under these agreements, including minimum license pay-
ments, are as follows (in thousands):
2004
2005
2006
2007
2008
$ 319
324
329
334
334
$ 1,640
After 2008, we must make annual payments aggregating $334,000 per year to maintain certain licenses. Certain licenses provide
for the payment of royalties by us on future product sales, if any. In addition, in order to maintain these licenses and other rights
during product development, we must comply with various conditions including the payment of patent related costs and obtain-
ing additional equity investments.
5. AGREEMENT WITH AVENTIS SA
In 1997, we entered into an exclusive license agreement with Aventis SA (formerly Hoechst Marion Roussel, Inc.). The agreement
gave us a worldwide license to the patent rights and know-how related to the antipsychotic agent iloperidone, including the ability
to develop, use, sublicense, manufacture and sell products and processes claimed in the patent rights. We are required to make
additional benchmark payments as specific milestones are met. Upon commercialization of the product, the license agreement
provides that we will pay royalties based on net sales.
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6. ILOPERIDONE SUBLICENSE TO NOVARTIS PHARMA AG
We entered into an agreement with Novartis in 1997 pursuant to which we granted Novartis a sublicense for the worldwide (with
the exception of Japan) development, manufacturing and marketing of iloperidone. In April 2001, we entered into an amendment
to the agreement for the development and commercialization of iloperidone in Japan. Under the amendment, in exchange for
rights to iloperidone in Japan, Titan received a $2.5 million license fee in May 2001. Novartis will make our milestone payments to
Aventis during the life of the Novartis agreement, and will also pay to Aventis and Titan a royalty on future net sales of the prod-
uct, providing Titan with a net royalty of 8% on the first $200 million of sales annually and 10% on all sales above $200 million
on an annual basis. Novartis has assumed the responsibility for all clinical development, registration, manufacturing and market-
ing of iloperidone, and we have no remaining obligations under the terms of this agreement, except for maintaining certain usual
and customary requirements, such as confidentiality covenants.
7. LICENSING AND COLLABORATIVE AGREEMENT WITH SCHERING AG
In January 2000, we entered into a licensing and collaborative agreement with Schering, under which we will collaborate with
Schering on manufacturing and clinical development of our cell therapy product, Spheramine®, for the treatment of Parkinson’s
disease. Under the agreement, we will perform clinical development activities for which we will receive funding. As of December
31, 2003, we recognized $2.8 million under this agreement to date. In February 2002, we announced that we received a $2.0 mil-
lion milestone payment from Schering. 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 rev-
enue in the first quarter of 2002. Schering will fully fund, and manage in collaboration with us, all future pilot and pivotal clinical
studies, and manufacturing and development activities. We are entitled to receive up to an aggregate of $8 million over the life of
the Schering agreement upon the achievement of specific milestones.
8. DITPA ACQUISITION
On October 16, 2003, we announced the acquisition of a novel product in clinical testing for the treatment of congestive heart
failure (CHF). The product in development, 3,5-diiodothyropropionic acid (DITPA), is an orally active analogue of thyroid hormone
that has demonstrated in preclinical and clinical studies to date the ability to improve cardiac function, with no significant adverse
effects. Titan acquired DITPA through the acquisition of Developmental Therapeutics, Inc. (DTI), a private company established to
develop DITPA, and the exclusive licensee of recently issued U.S. patent and pending U.S. and international patent applications
covering DITPA. Titan acquired DTI in a stock transaction for 1,187,500 shares of Titan common stock valued at approximately
$3.6 million using the average market price of our common stock over the five-day trading period, including and prior to the date
of the merger in accordance with generally accepted accounting principles. We also made a cash payment of $171,250 to the licen-
sor of the technology. In the fourth quarter of 2003, the total acquisition cost of $3.9 million was reported as acquired research
and development in the statement of operations. An additional payment of 712,500 shares of Titan common stock will be made
only upon the achievement of positive pivotal study results or certain other substantial milestones within five years. In addition,
a cash payment of $102,750 or, alternatively, an additional payment of 37,500 shares of Titan common stock, will be made to the
licensor of the technology upon achievement of such study results or such other substantial milestones within five years.
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
We lease facilities under operating leases that expire at various dates through June 2007. We also lease certain office equipment
under operating and capital leases that expire at various dates through February 2007. Rental expense was $825,000, $765,000, and
$584,000 for years ended December 31, 2003, 2002, and 2001, respectively.
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notes to consolidated financial statements (continued)
The following is a schedule of future minimum lease payments at December 31, 2003 (in thousands):
2004
2005
2006
2007
924
959
893
345
$ 3,121
Legal Proceedings
On November 4, 2003, a purported class action suit entitled Patrick Magee v. Titan Pharmaceuticals, Inc., et al was filed in the
United States District Court for the Northern District of California on behalf of purchasers of Titan’s common stock during the
period between December 1, 1999 and July 22, 2002. Subsequently, several similar actions were filed in the same court. The com-
plaints alleged that Titan and certain of its executive officers violated Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 by issuing false and misleading statements that failed to disclose certain key information regarding iloperidone. The
complaints sought unspecified damages.
On November 6, 2003, a stockholder purporting to act on our behalf filed a derivative action in the California Superior Court for
the County of San Mateo against Titan’s executive officers and directors and certain former directors seeking unspecified damages,
injunctive relief and restitution. Titan was also named as a nominal defendant. The derivative action is based on the same factual
allegations as the purported class actions and alleges state law claims for breach of fiduciary duty, abuse of control, gross misman-
agement, waste of corporate assets and unjust enrichment.
On February 2, 2004, we announced that all of the class action and derivative lawsuits filed against the Company had been dis-
missed without prejudice. In every case, the plaintiffs agreed to voluntarily dismiss the lawsuits after discussion of the facts with
Titan’s counsel, without any further legal action necessary by Titan. Titan, its affiliates, and insurers, made no payment in connec-
tion with dismissal of the lawsuits, and have no obligation to make any payments whatsoever to any plaintiffs or their counsel in
connection with the dismissals. Furthermore, Titan has no other obligations in connection with the dismissals.
10. GUARANTEES AND INDEMNIFICATIONS
As permitted under Delaware law and in accordance with our Bylaws, we indemnify our officers and directors for certain events
or occurrences while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnifi-
cation period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited;
however, we have a director and officer insurance policy that limits our exposure and may enable us to recover a portion of any
future amounts paid. We believe the fair value of these indemnification agreements is minimal. Accordingly, we have not recorded
any liabilities for these agreements as of December 31, 2003.
In the normal course of business, we have commitments to make certain milestone payments to various clinical research organiza-
tions in connection with our clinical trial activities. Payments are contingent upon the achievement of specific milestones or
events as defined in the agreements, and we have made appropriate accruals in our consolidated financial statements for those
milestones that were achieved as of December 31, 2003. We also provide indemnifications of varying scope to our clinical research
organizations and investigators against claims made by third parties arising from the use of our products and processes in clinical
trials. Historically, costs related to these indemnification provisions were immaterial. We also maintain various liability insurance
policies that limit our exposure. We are unable to estimate the maximum potential impact of these indemnification provisions on
our future results of operations.
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11. STOCKHOLDERS’ EQUITY
Preferred Stock
In connection with the merger of our Trilex Pharmaceuticals, Inc. subsidiary (Trilex) in 1997, we issued 222,400 shares of Series C
convertible preferred stock (the Series C Preferred) to certain members of the Trilex management team and to certain consultants
of Trilex. The Series C Preferred automatically converts to Titan’s common stock, on a one-to-one basis, only if certain develop-
ment milestones are achieved within certain timeframe. Upon achievement of the milestones, we would be required to value the
technology using the then fair market value of our common stock issuable upon conversion. Holders of Series C Preferred are not
entitled to vote but entitled to receive dividends, when, as and if declared by the board of directors ratably with any declaration or
payment of any dividend on our common stock or other junior securities. The Series C Preferred has a liquidation preference
equal to $0.01 per share. No value was assigned to the Series C Preferred in the accompanying financial statements.
Common Stock
In October 2003, we acquired DITPA through the acquisition of Developmental Therapeutics, Inc. (DTI) in a stock transaction for
1,187,500 shares of Titan common stock valued at approximately $3.6 million using the average market price of our common
stock over the five-day trading period, including and prior to the date of the merger. In addition, up to a total of 750,000 shares of
common stock will be issued only upon the achievement of positive pivotal study results or certain other substantial milestones
within five years.
Shares Reserved for Future Issuance
As of December 31, 2003, shares of common stock reserved by us for future issuance consisted of the following (shares in
thousands):
Stock options
Preferred stock
DTI merger contingent shares
12. STOCK OPTION PLANS
8,090
222
750
9,062
In July 2002, we adopted the 2002 Stock Option Plan (2002 Plan). The 2002 Plan assumed the options which remain available
for grant under our option plans previously approved by stockholders. Under the 2002 Plan and predecessor plans, a total of
6.4 million shares of our common stock were authorized for issuance to employees, officers, directors, consultants, and advisers.
Options granted under the 2002 Plan and predecessor plans may either be incentive stock options within the meaning of Section
422 of the Internal Revenue Code and/or options that do not qualify as incentive stock options; however, only employees are
eligible to receive incentive stock options. Options granted under the option plans generally expire no later than ten years from
the date of grant, except when the grantee is a 10% shareholder, in which case the maximum term is five years from the date of
grant. Options generally vest at the rate of one fourth after one year from the date of grant and the remainder ratably over the
subsequent three years, although options with different vesting terms are granted from time-to-time. The exercise price of any
options granted under the 2002 Plan must be at least 100% of the fair market value of our common stock on the date of grant,
except when the grantee is a 10% shareholder, in which case the exercise price shall be at least 110% of the fair market value of
our common stock on the date of grant.
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notes to consolidated financial statements (continued)
In July 2002, our Board of Directors elected to continue the option grant practice under our amended 1998 Option Plan, which
provided for the automatic grant of non-qualified stock options (Directors’ Options) to our directors who are not 10% stockholders
(Eligible Directors). Each Eligible Director will be granted an option to purchase 10,000 shares of common stock on the date that
such person is first elected or appointed a director. Commencing on the day immediately following the later of (i) the 2000 annual
stockholders meeting, or (ii) the first annual meeting of stockholders after their election to the Board, each Eligible Director will
receive an automatic biennial (i.e. every two years) grant of an option to purchase 15,000 shares of common stock as long as such
director is a member of the Board of Directors. In addition, each Eligible Director will receive an automatic annual grant of an
option to purchase 5,000 shares of common stock for each committee of the Board on which they serve. The exercise price of the
Director’s Options shall be equal to the fair market value of our common stock on the date of grant.
In August 2001, we adopted the 2001 Employee Non-Qualified Stock Option Plan (2001 NQ Plan) pursuant to which 1,750,000
shares of common stock were authorized for issuance for option grants to employees and consultants who are not officers or
directors of Titan. Options granted under the option plans generally expire no later than ten years from the date of grant. Option
vesting schedule and exercise price are determined at time of grant by the Board of Directors. Historically, the exercise prices of
option granted under the 2001 NQ Plan were 100% of the fair market value of our common stock on the date of grant.
In December 2001, Titan entered into agreements with certain officers and directors of the company to rescind stock options that
were previously granted and exercised. These agreements resulted in the rescission of 88,000 stock options that were exercised
and, as a result, a total compensation charge of $149,000 was recorded in general and administrative expense and the reinstated
options were subsequently cancelled. A total of 53,000 shares of common stock were returned and retired from shares outstanding
as of December 31, 2001, and $107,000 was refunded to the individuals.
Activity under our stock option plans, as well as non-plan activity are summarized below (shares in thousands):
Balance at December 31, 2000
Increase in shares reserved
Options granted
Options exercised
Options cancelled
Balance at December 31, 2001
Increase in shares reserved
Options granted
Options exercised
Options cancelled
Balance at December 31, 2002
Options granted
Options exercised
Options cancelled
Balance at December 31, 2003
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Shares Available
For Grant
Number of
Options
Outstanding
Weighted
Average
Exercise Price
1,157
1,000
(1,300)
—
434
1,291
2,750
(2,200)
—
132
1,973
(699)
—
864
2,138
3,666
—
1,300
(404)
(434)
4,128
—
2,200
—
(138)
6,190
699
(73)
(864)
5,952
$ 12.95
—
$ 15.21
$ 3.26
$ 26.35
$ 13.20
—
$ 4.44
—
$ 15.31
$ 10.05
$ 1.83
$ 1.57
$ 8.67
$ 9.39
Our option plans allow for stock options issued as the result of a merger or consolidation of another entity, including the acquisi-
tion of minority interest of our subsidiaries, to be added to the maximum number of shares provided for in the plan (Substitute
Options). Consequently, Substitute Options are not returned to the shares reserved under the plan when cancelled. During 2003,
2002 and 2001, the number of Substitute Options cancelled was immaterial.
Options for 3.9 million and 2.6 million shares were exercisable at December 31, 2002 and 2001, respectively. The options outstand-
ing at December 31, 2003 have been segregated into three ranges for additional disclosure as follows (option shares in thousands):
Range of Exercise Prices
$ 0.08 – $ 3.77
$ 3.79 – $ 11.63
$11.95 – $ 46.50
$ 0.08 – $ 46.50
Options Outstanding
Options Exercisable
Weighted Average Weighted
Number
Outstanding
Remaining Life
(Years)
Average
Exercise Price
Number
Exercisable
Weighted
Average
Exercise Price
2,088
2,355
1,509
5,952
7.43
6.27
6.30
6.69
$ 2.14
$ 8.39
$ 20.99
$ 9.39
1,186
2,146
1,459
4,791
$ 2.28
$ 8.29
$ 20.44
$ 10.50
In addition, Ingenex has a stock option plan under which options to purchase common stock of Ingenex have been and may be
granted. No options had been granted under such plan since 1997.
We have elected to continue to follow APB 25 in accounting for our stock options. Under APB 25, no compensation expense is
recognized when the exercise price of our stock options equals the market price of the underlying stock on the date of grant.
Pro forma net loss and net loss per share information required by SFAS 123 as amended by SFAS 148 has been determined as if
we had accounted for our employee stock options under the fair value method of SFAS 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for 2003, 2002, and 2001:
weighted-average volatility factor of 0.70, 0.79, and 0.86, respectively; no expected dividend payments; weighted-average risk-free
interest rates in effect of 2.2%, 2.4%, and 3.9%, respectively; and a weighted-average expected life of 3.01, 3.54, and 2.99 years,
respectively. For purposes of disclosure, the estimated fair value of options is amortized to expense over the options’ vesting period.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vest-
ing restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because our employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in
management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee
stock options.
Based upon the above methodology, the weighted-average fair value of options granted during the years ended December 31, 2003,
2002, and 2001 was $0.89, $2.32, and $8.44, respectively. A tabular presentation of pro forma net loss and net loss per share infor-
mation for all reporting periods is presented in Note 1.
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notes to consolidated financial statements (continued)
13. MINORITY INTEREST
The $1.2 million received by Ingenex upon the issuance of its Series B convertible preferred stock has been classified as minority
interest in the consolidated balance sheet. As a result of the Series B preferred stockholders’ liquidation preference, the balance
has not been reduced by any portion of the losses of Ingenex.
Amounts invested by outside investors in the common stock of the consolidated subsidiaries have been apportioned between
minority interest and additional paid-in capital in the consolidated balance sheets. Losses applicable to the minority interest
holdings of the subsidiaries’ common stock have been reduced to zero.
14. RELATED PARTIES TRANSACTIONS
We make loans to our employees from time to time in order to attract and retain the best available talent and to encourage the
highest level of performance. In 2002 and 2001, we provided certain relocation loans to employees in connection with employ-
ment. Also in February 2001, we provided a loan to a vice president officer in the principal amount of $373,000 bearing interest at
prime rate. The loan was due and payable on August 7, 2002 and as of December 31, 2002, the principal balance was paid in full.
15. INCOME TAXES
As of December 31, 2003, we had net operating loss carryforwards for federal income tax purposes of approximately $157.4
million that expire at various dates through 2023, and federal research and development tax credits of approximately $4.2 million
that expire at various dates through 2023. We also had net operating loss carryforwards for state income tax purposes of approxi-
mately $56.5 million that expire at various dates through 2013, and state research and development tax credits of approximately
$3.2 million which do not expire.
Utilization of our net operating loss may be subject to substantial annual limitation due to ownership change limitations provided
by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net
operating loss carryforwards before utilization.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets
are as follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Research credit carryforwards
Other, net
Total deferred tax assets
Deferred tax liabilities:
Unrealized gain on investments
Valuation allowance
Net deferred tax assets
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December 31,
2003
2002
$ 59,000
6,400
4,200
$ 45,300
2,100
4,600
69,600
52,000
(50)
(69,550)
(100)
(51,900)
$
— $
—
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.
Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by
$17.6 million, $11.1 million, and $5.9 million during 2003, 2002, and 2001, respectively. The valuation allowance at December 31,
2002 includes $3.7 million related to deferred tax assets arising from tax benefits associated with stock option plans. This benefit,
when realized, will be recorded as an increase to stockholders’ equity.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share amount)
2003
Total revenue
Net loss
Basic and diluted net loss per share
2002
Total revenue
Net loss
Basic and diluted net loss per share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
26
$ (6,530)
$ (0.24)
$
2
$ (6,681)
$ (0.24)
— $
61
$(10,509)
$ (0.37)
$ (6,169)
$ (0.22)
$ 2,347
$ (4,950)
$ (0.18)
151
$
$ (7,032)
$ (0.25)
158
$
$ (7,296)
$ (0.26)
236
$
$ (8,904)
$ (0.32)
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report of independent registered public accounting firm
The Board of Directors and Stockholders
Titan Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Titan Pharmaceuticals, Inc. as of December 31, 2003 and 2002,
and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting and Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Titan Pharmaceuticals, Inc. at December 31, 2003 and 2002, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with U.S. generally accepted
accounting principles.
Palo Alto, California
February 20, 2004
Market for Registrant’s Common Equity and Related Stockholder Matters
(a) Price Range of Securities
Our common stock trades on the American Stock Exchange under the symbol TTP. The table below sets forth the high and low
sales prices of our common stock as reported by the American Stock Exchange for the periods indicated.
Fiscal Year Ended December 31, 2003:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended December 31, 2002:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(b) Approximate Number of Equity Security Holders
High
Low
$
$
$
$
$
$
$
$
1.81
3.09
2.80
4.00
9.81
7.00
4.17
2.86
$
$
$
$
$
$
$
$
1.36
1.44
1.91
2.42
5.60
3.10
1.35
1.20
The number of record holders of our common stock as of March 5, 2004 was approximately 154. Based on the last ADP search,
we believe there are in excess of 11,000 beneficial holders of our common stock.
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(c) Dividends
We have never paid a cash dividend on our common stock and anticipate that for the foreseeable future any earnings will be
retained for use in our business and, accordingly, do not anticipate the payment of cash dividends.
corporate information
Executive Officers
Louis R. Bucalo, M.D.
Chairman, President and Chief Executive Officer
Sunil Bhonsle
Executive Vice President, Chief Operating Officer,
Secretary and Director
Robert E. Farrell
Executive Vice President, Chief Financial Officer
Richard C. Allen, Ph.D.
Executive Vice President, Cell Therapy
Corporate Office
400 Oyster Point Boulevard, Suite 505
South San Francisco, California 94080
Tel: 650-244-4990
Fax: 650-244-4956
General Counsel
Loeb & Loeb, LLP
345 Park Avenue
New York, New York 10154-0037
Securities Listing
Titan’s securities are listed on the
American Stock Exchange
Common Stock: TTP
Independent Auditors
Ernst & Young, LLP
Palo Alto, California
Transfer Agent and Registrar
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, New York 10004
Tel: 212-509-4000
Board of Directors
Louis R. Bucalo, M.D.
Chairman, President and Chief Executive Officer
Executive Committee
Ernst-Günter Afting, M.D., Ph.D.
President of the GSF-National Center for
Environment and Health, Germany
Former President and Chief Executive Officer
of Roussel Uclaf
Victor J. Bauer, Ph.D.
Former President of Hoechst-Roussel
Pharmaceuticals, Inc.
Sunil Bhonsle
Executive Vice President, Chief Operating Officer
and Secretary
Eurelio M. Cavalier
Executive Committee
Compensation Committee
Former Group Vice President of U.S. Pharmaceutical
Business Unit, Eli Lilly & Company
Hubert E. Huckel, M.D.
Executive Committee
Compensation Committee
Audit Committee
Former Chairman of the Board of
Hoechst-Roussel Pharmaceuticals, Inc.
M. David MacFarlane, Ph.D.
Audit Committee
Former Vice President and Responsible Head
of Regulatory Affairs of Genentech, Inc.
Ley S. Smith
Executive Committee
Audit Committee
Former President and Chief Operating Officer of the
Upjohn Company, and Former President of Pharmacia
& Upjohn’s U.S. Pharma Product Center
Konrad M. Weis, Ph.D.
Executive Committee
Compensation Committee
Former President, Chief Executive Officer and
Honorary Chairman of Bayer Corporation
T I TA N P H A R M A C E U T I C A L S , I N C . is a biopharmaceutical company focused on the
development and commercialization of novel treatments for central nervous system disorders, cancer and
cardiovascular disease. Titan’s numerous products in development utilize novel technologies that have the
potential to significantly improve the treatment of these diseases. Titan also establishes partnerships with
multinational pharmaceutical companies and government institutions for the development of its products.
T I TA N P H A R M A C E U T I C A L S , I N C .
Innovations in Medicine
A N N U A L R E P O RT 2 0 0 3
TITAN PHARMACEUTICALS, INC.
400 OYSTER POINT BLVD., STE 505
SOUTH SAN FRANCISCO, CA 94080
PHONE 650.244.4990
FAX 650.244.4956
WWW.TITANPHARM.COM