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Titan (TTNP) Negotiating with Braeburn for Probuphine

02/01/2018
By John Vandermosten, CFA

NASDAQ:TTNP

Titan Pharmaceuticals, Inc. (NASDAQ:TTNP) 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 may be the most efficient path forward.  There are also reports that are unsubstantiated by management suggesting that some or all of Braeburn’s sales force has been let go.  

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.   Reducing the sales force appears to violate this standard and we believe a likely path forward may be to return the licenses to Titan.  A legal fight could ensue regarding the license; however, with scant credibility for developing Probuphine, a better strategy for Braeburn may be to focus on addressing the issues in the recently issued CRL and allow the license to revert to Titan.

Titan management has not yet had a chance to fully discuss all of the details of Probuphine’s current commercialization status with Braeburn nor have they developed a plan yet regarding the path forward following a transfer of the license for the drug.  We anticipate that Titan will vigorously negotiate to have the licenses retuned as soon as possible and simultaneously seek a partner with experience in opioid based pharmaceuticals, product reimbursement and the complexities of the addiction medicine commercialization process.  The primary issue that must be addressed is the reimbursement structure for the implant.  The process to begin Probuphine treatment requires the patient and provider to surmount many hurdles including prior authorization, upfront outlay for the implants and delays in reimbursement from payors.  We expect the partner will be selected based on its ability to address this. 

We believe that it will take one or two quarters to work through the transition and find a new partner.  It is likely that Titan will be able to obtain an upfront payment from another partner if the rights are returned; however, it will likely fall below the $15 million milestone that was provided by Braeburn.  Additionally, we do not know the extent of any costs or payments to Braeburn for Titan to regain the licenses.  With Titan’s limited cash levels, and apparent violation of the contract provisions it will be difficult for Braeburn to make demands.  

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

Model Assumptions

While a change in licensee will disrupt revenues and management attention in the short term, we believe a more experienced and motivated partner may be able to grow Probuphine sales more in line with our original estimates prior to launch.  However, there is still much that is not known regarding the outcome of the discussions between the two parties.

We maintain our price target assuming that anticipated short-term disruptions for Probuphine will be offset by the adjusted probability of greater sales in the future.  As management provides more guidance regarding the outcome of negotiations we will adjust our model accordingly.  

 
Conclusion

The trajectory for Probuphine has consistently fallen behind our estimates due to a variety of difficulties which have been discussed in our reports.  The potential for finding a new partner that can address these issues is a positive; 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.  

Given the lack of detail available, we maintain our previous estimates as we believe that there are a wide variety of outcomes that until quantified are no better than our previous estimates.  

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