By John Vandermosten, CFA
READ THE FULL TTNP RESEARCH REPORT
First Quarter 2019 Financial and Operational Results
Several important events took place in the first quarter of 2019 for Titan Pharmaceuticals, Inc. (TTNP) which were reported in the May 15th press release and in a concurrently filed 10-Q. During the quarter, Titan recorded total revenues of $0.9 million compared to $1.1 million in comparable period last year. Net loss of ($4.5) million or ($0.34) per share compares to prior year net loss of ($2.6) million and ($0.74) per share1. Highlights for the first quarter and year to date include partnerships with AllianceRx Walgreens Prime, AppianRx and Accredo specialty pharmacy. In Europe, the EMA adopted a positive opinion recommending authorization for the buprenorphine implant which will be branded Sixmo and in the United States, Titan has advanced its training efforts with providers to use Probuphine.
First quarter 2019 revenues of $0.9 million were comprised of $313,000 of license revenue and $317,000 in product sales of Probuphine and $315,000 of grant revenue. Grant revenue was related to the National Institute on Drug Abuse (NIDA) nalmefene implant project.
Cost of goods sold was $304,000, slightly less than product revenues, yielding a 4.1% gross margin. Cost of goods sold includes both the product cost, which is less than 10% of price and distribution cost, which is relatively fixed in dollar terms. Operating expenses were $4.9 million which consists of $1.8 million in research and development costs and $3.1 million in selling, general and administrative expenses. The 1% decline in R&D expenses reflected lower employee related costs offset by higher spend on external product development programs. SG&A expenses rose 91% due to greater commercial activities for Probuphine, higher consulting and professional fees, greater spend on outside services and travel costs.
Cash and equivalents as of March 31, 2019 were $5.9 million, compared to $9.3 million at the end of 2018. Debt was carried at $4.5 million. During the quarter, Titan received $600,000 from exercise of warrants. Cash burn was ($4.3) million in 1Q:19 compared to ($1.1) million in the comparable period. Cash levels appear to be sufficient to fund the company until the third quarter of 2019.
View Exhibit I – Titan Pipeline
In the first five months of 2019 Titan announced partnerships with AllianceRx Walgreens Prime, AppianRx and Accredo to provide distribution and patient support services. These relationships are expected to shorten the time between product order and delivery and improve payment dynamics. Some of the changes that have been made include specialty pharmacy relationships with payors, a streamlined benefits authorization process, and holding inventory on-site. These improvements are expected to accelerate the process of delivering Probuphine to physicians and providing timely reimbursement. AllianceRx will carry inventory, manage insurance billing, offer payment processing and ship product to the provider. AppianRx will manage benefit verification, prior authorization, appeals and co-pay/patient assistance, which should reduce time from prescription to payment. Accredo has also moved necessary paperwork to an online platform, automating the procurement process, providing real time information and satisfying REMS and verifying eligibility. We anticipate that Titan will continue to develop additional specialty pharmacy relationships to improve penetration.
Titan outlined its internal marketing strategy after the return of Probuphine rights. The company has completed the transition process, including supply chain, logistics, medical affairs, REMS, training and reporting. Titan will pursue a targeted strategy with a 12-person commercial staff centering on four market segments:
‣ High Probuphine-prescribing physicians with long-term recovery oriented treatment programs.
◦ Contact information already in database
◦ Establish centers of excellence to generate referrals
◦ Focus on reduction of complexity for supply chain and reimbursement
‣ Residential treatment facilities and Veteran’s Administration Hospitals
◦ Establish partnership with a few large programs
◦ Train staff at VA hospitals
‣ Academic institutions with addiction treatment and training programs
◦ Providers are trained in the use of this class of therapy
◦ Nurse practitioner REMS and implant/removal training
◦ Introduce Probuphine to next generation of providers
◦ Develop KOLs who can disseminate the benefits of the therapy more widely
◦ Generate additional investigator sponsored studies
‣ Criminal justice system
◦ Provide help to high recidivism population
◦ Initial focus on a few key programs with success to drive wider adoption
The Veteran’s Administration (VA) was recently added to the target groups in the marketing strategy. Titan has held discussions with the VA to make the case for Probuphine and to begin REMS training. A contract is in place with the agency and there will be additional discussions to set up training for VA providers so that they will be able to order the product.
Phase IV Probuphine Studies
Titan will initiate two Phase IV post-marketing studies this year. The first will be a small study estimated to cost from $3 to $4 million and will last for two to three years. It is slated to begin in the second quarter of 2019 and will evaluate the safety and pharmacokinetics of re-implantation of Probuphine into a previously used site on a patient’s inner upper arm as well as implantation into an alternate location in the lower abdomen. A second, observational study is still in development and will start in the second half of the year. Trial cost for the second study is estimated to be around $8 million and will last for four years. It will assess implant procedure safety in an observational cohort design and is still being finalized. Titan is also participating in an industry consortium study to perform a QT prolongation study for patients treated with various forms of buprenorphine.
In April 2019 Titan entered into an at the market (ATM) facility with Alliance Global Partners to sell up to $8.6 million worth of stock in the open markets. We believe that an ATM is one of the more shareholder friendly ways to raise small amounts of capital as it is relatively inexpensive from a transaction cost perspective and does not include any warrants or other dilutive securities. Due to Titan’s market capitalization, it is restricted to raising a 33% of company market cap as its value is below $75 million and “Baby Shelf Rules” apply.
Molteni and the EMA
On April 29th, Titan announced that the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) has adopted a positive opinion regarding the approval of the Probuphine implant in the European Union. The product will be branded Sixmo and will be indicated for substitution treatment for opioid dependence for stable patients. Following the recommendation, the CHMB will be forwarded to the European Commission (EC) which will provide the final decision regarding approval in the 28 member states. We anticipate an announcement near the end of June 2019 from the EC. If approval is granted we anticipate that Molteni will take the remainder of the year to negotiate prices with individual government entities and be ready to sell product by early 2020.
Canadian partner Knight launched Probuphine in October 2018 and is focused on commercializing the product in rural Canadian areas for patients without ready access to a physician. The company’s press release highlighted Health Canada’s approval of the implant in 2018 and Knight’s exclusive right to distribute the drug and their launch of the product. On the first quarter 2019 conference call, Knight noted that Probuphine was being implanted in patients coast to coast in Canada and management will focus on identifying proper patients and physician training as the year progresses. Titan has received product and royalty revenues from the relationship.
Beginning in October 2017, Titan conducted a feasibility assessment with Opiant to develop a product for prevention of opioid relapse and overdose in individuals with opioid use disorder (OUD). In September of 2018, Titan secured a grant from the National Institute for Drug Addiction (NIDA) to further this research using a ProNeura based six-month implantation formulation of nalmefene. The grant will provide $2.67 million during the first year and $6.08 million in the second year. The goal during the first two years is to complete IND-enabling work. Fund matching requirements exist and Titan must contribute $1.33 million in year one, but does not have an obligation in year two. There are an additional three years of funding that may be accessed if certain milestones are achieved. Titan expects to file an IND for ProNeura based nalmefene for the prevention of opioid relapse in 2H:20.
Titan is developing the necessary infrastructure for long-term success and implementing its multi-pronged growth strategy. Many near term revenue catalysts exist including a ramp up from Canadian sales in 1H:19 and MAA approval in Europe in 2Q:19. Internal efforts are also yielding sales and we anticipate sequential improvements in product revenue each quarter in 2019. Relationships with dominant specialty pharmacies are expected to shorten the time between order and delivery and also simplify the payor approval and REMS processes. While cash flow breakeven remains several quarters into the future, we anticipate that when capital is available, other development programs will be advanced.
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1 Note that per share amounts are adjusted for the 1:6 reverse stock consolidation that occurred on January 24, 2019.
By John Vandermosten, CFA