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TTNP - Adjusting Target On Titan Pharma


By Jason Napodano, CFA

On April 10, 2012, Titan Pharmaceuticals (OTCBB:TTNP) announced it has entered into a definiative agreement to issue 6.517 million shares of common stock to institutional investors at $0.85 per share. The registered direct offering will provide gross proceeds of approximately $5.5 million in cash to Titan. Titan plans to use the proceeds to fund the preparation of a NDA for Probuphine, expected in October 2012, along with working capital and general corporate purposes.

The registered direct offering includes 200% warrant coverage, a Series-A traunch of 6.517 million shares exercisable in six months (October 2012) for six years at $1.15 per share and a Series-B traunch exercisable in six months (October 2012) with no expiration at $0.85 per share. The offering is expected to close on or about April 13, 2012.

...A Financing Was Necessary...

The above offering was necessary based on the dwindling cash position, which we estimate stood at $3.0 million as of March 31, 2012. This was enough cash to fund operations into July 2012. Adding in the net $5.2 million from the raise above should boost the cash position to approximately $6.0 million at the end of the second quarter. If the stock can get back above $0.85, management may see some exercising of the Series-B warrants later in the year. We suspect that the filing of the Probuphine NDA in the third quarter 2012, especially with designation of priority review, could give the shares a pop and allow the Series-B warrant holders to exercise. In total, this could give Titan another $5+ million in cash.

...Because A Deal Remains Elusive...

On the fourth quarter conference call in March 2012, management noted talks have progressed to the initial term sheet stage with a handful of potential commercialization partners. We remind investors that Titan is working with Woodside Capital Partners and Keelin Reeds Partners in closing a partnership agreement on Probuphine.

Yet as  today, a deal remains elusive. Partners on Probuphine are very likely waiting for the NDA filing. The filing has been delayed by additional analytical testing on Probuphine and Chemistry, Manufacturing and Control (CMC) data requested by the FDA. Titan also needs to expand its manufacturing facility and then complete test batches prior to the NDA filing. Management's guidance is that all this work will be completed in the third quarter 2012. Shortly after the filing, the FDA will let Titan know of the PDUFA action date, which could be six months with priority review or ten months with a standard review.

From a partners perspective, the additional analytical testing and CMC data are routine requests by the FDA. We see nothing to be concerned about here. The manufacturing facility expansion has been delayed by longer-than-expected lead-times on air handling equipment. Again, this is little to be concerned about. It will eventually get done. Nevertheless, before a partner shells out $10 to 20 million upfront, they want to know it has been taken care of and the FDA has accepted the application.

The delay in the NDA filing and the lack of a commercialization partner is no doubt what has driven shares of Titan Pharma to a 2+ year low, and made our recommendation, quite frankly - horrible.

...Still Optimistic on Titan, But Adjust Our Target On Dilution...

But we're sticking to our call. As outlined in previous Note, we think Probuphine has peak potential sales of $300 million. We see significant demand for Probuphine. We note that the phase 3 PRO-806 trial enrolled four months ahead of schedule. Over 500,000 patients are prescribed some formulation of Suboxone yearly. Reckitt Benckiser (RB) only actively promotes the film version. We estimate that is nearly 50% of the market. The transition from oral Suboxone to the film has been success for RB. 

We think Titan and its partner will find success converting the remaining 50% of the oral Suboxone prescribers, or even a good percent of the film market, over to the six-month implant. To achieve our peak sales forecast of $300+ million, our financial model assumes only 8% market share (at $2,500 per implant). There are over 1.2 million patients seeking treatment for opioid addiction in the U.S. alone. It’s a fairly sizable opportunity for a commercialization partner.

Discounted cash flow modeling told us the stock was worth $3.00 per share. But after today, we need to account for the addition of 19.55 million shares (fully diluted). Therefore, we are adjust our target to $2.00 per share. Our model has been posted below.

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