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TTNP: Molteni Investment Relieves the Pressure

04/12/2018
By John Vandermosten, CFA

NASDAQ:TTNP

Summary of 2017 and Year to Date Highlights

Titan Pharmaceuticals, Inc. (NASDAQ:TTNP) reported fourth quarter and full year 2017 results in its April 2 release. The update caps a year with Probuphine revenues well below expectations. To address the weak sales by partner Braeburn, Titan began discussions to return commercialization rights. However, since the parties are in the negotiation process, the eventual outcome is unknown.

Due to the slow ramp of sales from Probuphine in the summer of 2017, Titan secured a debt facility from Horizon Technology Finance in July to fund the development programs in the pipeline. Titan made substantial headway in development, launching its ropinirole program and enrolling its first patient, developing new collaborations with Opiant Pharmaceuticals (NASDAQ: OPNT) and Walter Reed Army Institute as well as new initiatives for a κ-opioid receptor and diabetes medicine liraglutide. The company also had its MAA accepted by the EMA for Probuphine in Europe.

However, continued weak sales of domestic Probuphine after borrowed funds were received forced an amendment to the Horizon loan agreement in January 2018 and immediate repayment of $3 million of the amount outstanding. After several weeks of uncertainty, new partner Molteni stepped up and paid its promised upfront for European Probuphine development rights and assumed $2.4 million of Horizon’s debt. The receipt of cash along with Molteni’s strategic investment allowed the extension of the interest only and forbearance periods to be extended to December 31, 2019, providing some breathing room for Titan to get Probuphine back on track.

2017 Financial Results

For 2017 Titan reported total revenues of $215 thousand increasing from $65 thousand in 2016. Full year research and development costs totaled $9.6 million, rising 57%. The expansion was due to external research and development expenses related to the ProNeura development programs, including the costs associated with the IND and clinical study of the ropinirole implant. Higher costs also stemmed from the preparation of the Probuphine MAA for submission to the EMA and employee related expenses. General and administrative expenses rose 10% to $5.1 million, as non-cash stock-based compensation and other compensation increased partially offset by the reduction in headcount by one.

Cash and equivalents at year end 2017 were $7.5 million, compared to $14.0 million at the end of 2016. Debt was $6.6 million, however, following the end of the reporting period, $3 million in debt was paid down and $2.4 million in cash was received from Molteni’s upfront payment. Cash burn was ($13.2) million in 2017 compared to a cash contribution of $6.1 million in 2016 which arose due to the $15 million upfront payment upon FDA approval from Braeburn for Probuphine.

Return of Probuphine

Titan announced on January 22 that it is in discussions with Probuphine license holder Braeburn regarding the disposition of Probuphine. Sales of the implant have been disappointing since the 2Q:16 launch of the product as Braeburn has been working through payor, reimbursement, and Risk Evaluation and Mitigation Strategy (REMS) requirements among other complexities since first sales. Just prior to Titan’s announcement, the FDA issued a Complete Response Letter (CRL) for CAM2038, Braeburn’s lead development candidate for the treatment of adults with opioid abuse disorder. Due to the shift of Braeburn management’s attention toward addressing the CRL, a transfer of the development license from Braeburn has emerged as the most efficient path forward.

As per the agreement between Titan and Braeburn, the latter is required to make commercially reasonable efforts to sell Probuphine. More specifically this means that the company must use its skill, effort, expertise and resources to commercialize the drug. As Braeburn reduced the size of its sales force in the face of poor sales, the requirement to fully commercialize the drug appears to be violated and Titan has begun the process to transfer commercialization rights from Braeburn to Titan. While we initially considered that a legal fight might be possible, it appears that they parties are in negotiations to return the rights and based on commentary from management, the costs of the transition are likely to be borne by partners. Additionally, it appears that all of the inventory, equipment and provider relationships will smoothly transfer from Braeburn to the entity that eventually commercializes. Braeburn had sublicensed Probuphine to Knight Therapeutics (TSE: GUD) who has filed a new drug submission (NDS) to Health Canada. A response from the regulatory agency is expected this summer. It is unclear if Knight will maintain the distribution role to the North and this will be part of the negotiation.

There is still no clear timeline for the transfer; however, Titan will share the details of the final agreement as they become available. We anticipate that it will take one or two quarters to work through the transition of Probuphine rights away from Braeburn and to find a new partner. We believe that Titan can obtain an upfront payment from another partner after rights are returned.

Braeburn is required to continue support for the patients that are already using Probuphine and there should be a small stream of royalty income continuing from product sales in the interim prior to a new partner assuming the licenses.

Conclusion

While Probuphine has consistently fallen behind our estimates due to a variety of difficulties which have been discussed in our reports, we see it as a positive that rights are transferring back to Titan. The potential for finding a new partner that can address these issues is a positive as is the opportunity for a cash infusion from an upfront payment; however, there is little detail on how this may eventually be resolved. In a worst case scenario, the transfer of the licenses gets tied up for an extended duration; while in a best case scenario an effective partner provides an upfront payment and is immediately able to effectively build off of the work Braeburn has done to provide a rapid ramp up in sales.

While there was concern over the repayment of the Horizon debt, we believe that the risk related to this has been addressed through the participation of Molteni. Interest only and forbearance periods have been extended to December 2019, providing some breathing room for Titan to revive Probuphine sales with another partner. We anticipate that details of the transition of Probuphine will be provided following the conclusion of negotiations.

READ THE FULL RESEARCH REPORT HERE.

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