Titan Pharmaceuticals Inc (TTNP) 2010 Q4 法說會逐字稿

Thank you for holding. Welcome to the Titan Pharmaceuticals fourth quarter and full year 2010 financial results conference call. Today's call is being recorded. At this time, all participants are in a listen only mode. There will be a question-and-answer session following today's remarks.

Please be advised that this call is being taped at the Company's request and will be archived on the Company's web site for two weeks from today. At this time, I would like to turn the call over to Sunil Bhonsle, President of Titan Pharmaceuticals. Please go ahead, sir.

Thank you. And, thank you, all, for joining us this morning, and welcome to the Titan Pharmaceuticals call to review financial results for the fourth quarter and full year of 2010. On the call today we have Marc Rubin, our Executive Chairman, Kate Beebe, Senior Vice President of Clinical Development and Medical Affairs and Brian Crowley, Vice President Of Finance.

Before we go into the details of the fourth quarter and full year performance and an update on the Company, I wanted to remind everyone that certain matters we will discuss today, other than historical information, consist of forward-looking statements relating to, among other things, our expectations concerning our financial results, available cash through clinical programs and regulatory strategies. The forward-looking statements are not guarantees of future performance and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.

These risks and uncertainties are described in our annual report, on Form 10-K filed with the SEC and subsequent SEC filings. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. We undertake no obligation to update or revise the information provided in this call, whether as a result of new information, future events or circumstances or otherwise. Having said all of that, we should start and I would like to turn over the call to our Executive Chairman, Marc Rubin, for his overview.

Thank you, Sunil, and hello everybody, thank you for joining us today. Once again, this has been an eventful year for Titan as we have continued to make substantial progress both in product development and as a Company as a whole. Last year at this time, having just reregistered the Company with the SEC we had our first update call and at that time I was pleased to highlight the unique profile of Titan, namely a small and efficient biotech company with well-controlled expenses, a relatively low-risk Phase III program with the potential to generate considerable revenue and an ongoing royalty revenue stream.

Today I am equally pleased to report on the progress we have made. We continue to be very cost conscious, controlling our expenses throughout the year. We have moved rapidly with the Phase III clinical studies of Probuphine, and now we can look forward to the results of the confirmatory Phase III study in just a few months.

As you know, Probuphine has received scientific recognition through the publication of the results of the first controlled Phase III study in the prestigious Journal of the American Medical Association, and also through well received presentations at various conferences and symposiums around the world. Last but not least, royalty revenue from the sales of Fanapt in the US commenced in the first quarter of 2010. And, although the progress made by Novartis in penetrating the market to date has been slow, we are encouraged by the upward trend in prescriptions.

And, so, the Titan board of directors is very encouraged by the progress of the Probuphine program and especially the continued acceptance of Probuphine in the clinical trials, importantly by both clinicians and patients. It has been our ongoing objective to fully resource these developments efforts and, initially, as you know, we utilize loans from Oxford Capital.

But the Board firmly believes that Probuphine will be the main driver of value for Titan in the future, and, accordingly, our focus over the past year has been to ensure that we have capital not only to complete the Phase III program but to allow time following its completion to successfully partner Probuphine. And, so, we have rigorously examined a range of financing options to accomplish this.

First, we extensively evaluated financing avenues based solely on the future of potential royalty revenues from Fanapt. However, without sufficient history of Fanapt sales, I'm sure you can understand that this was a difficult task. Earlier this year, with the help of RBC, the Royal Bank of Canada, our investment banker, we also explored the equity markets. However, this approach would have likely resulted in an immediate dilution of 20% to 30% for shareholders with further potential dilution of warrants of another 10% to 15% or so.

We have been very conscious of the cost of capital and its effect on current shareholders, and did not feel that this was the best approach. The recently announced debt financing with Deerfield Management was considered by the Board to be the best available option that provides sufficient resources to fully support the development of Probuphine through this year, and give us time for partnering efforts following the completion of this study.

Also, with an acceptable cost of capital, while minimizing immediate and future dilution of current shareholders. As you may know, Deerfield Management is a very experienced and a very well recognized health care investment organization and having met the key people at Deerfield, I feel confident that this is the right financial partner for Titan. The fact that they have invested $20 million in a company of our size, I believe, is another endorsement of Titan's programs, our strategy and our potential future value. We are all looking forward to this coming year. I will now pass the call back to Sunil.

Thanks, Marc. Hello, once again. I would like to provide a summary of our full year 2010 financial results, and then give an update on the ongoing Probuphine development program and the next steps to come.

As announced last week, total revenues for the year 2010 were approximately $10.1 million, consisting primarily of grant and royalty revenues. Total grant revenue from the National Institutes of Health for the confirmatory Phase III clinical study of Probuphine, and the Small Business Innovation Research Grant for nonclinical studies with Dopamine agonists was $7.6 million while royalty revenue received from Novartis on net sales of Fanapt was approximately $2.5 million. Total revenues for the prior year were less than $100,000.

Total operating expenses for the year 2010 were approximately $16.1 million, as compared to $5.9 million for the full year of 2009. The year over year increase was primarily a result of the expenses associated with the Phase III clinical development of Probuphine. Research and development expenses for 2010 were approximately $12.9 million compared to $2.5 million in 2009. This increase, as you can imagine, was primarily from an increase in external research and development expenses related to the initiation and ongoing expenses of the two Phase III clinical trials of Probuphine in process, specifically the confirmatory controlled efficacy study and a retreatment safety study. This expense includes things such as clinical research organization charges, investigator and review board fees, patient expense reimbursements and contract manufacturing expenses.

The general and administrative expense for 2010 were approximately $3.3 million, which is about the same as 2009. Net loss applicable to common shareholders for 2010 was approximately $5.6 million or $0.09 a share, compared to our net loss of about $5.9 million or $0.10 a share in 2009. As mentioned in the press release last week, the loss for 2010 includes a noncash gain of approximately $1.2 million or $0.02 per share related to the retirement of preferred stock in Ingenix, a nonoperating majority owned subsidiary of Titan that was dissolved in the fourth quarter.

At December 31, we had approximately $3.2 million of cash and this, together with the recently announced $20 million financing, the remaining proceeds from the NIH grants and the royalty revenue expected from sales of Fanapt, will be sufficient to sustain our planned operations into the first quarter of 2012. In the interest of time, I will not go through the details of the fourth quarter revenue and expenses, which are highlighted in the press release. And, of course additional details are presented in the form 10-K filed last Friday. But, please, feel free to ask any questions at the end and Brian and I will try to address them.

Now for an update on the Probuphine program. The clinical studies of Probuphine continue as planned, and we are making excellent progress with the one on everyone's mind, the confirmatory Phase III study. For those of you not familiar with the study design, it has three arms; a blinded placebo arm, a blinded Probuphine arm and an open label Suboxone arm. And, as mentioned in the press release, we are on track to get top line results from this study in late second quarter. The primary and secondary end points will be analyzed in a manner similar to the first controlled study, comparing the Probuphine and the placebo arms while the comparison between the Probuphine arm and the Suboxone arm will be a noninferiority analysis.

The independent data monitoring committee that oversees patient safety in the fourth quarter and expressed no concerns with the safety of the product, and indicated that they will meet after the study is complete. Patients completing the study have the opportunity to enroll in an open label safety study that will provide key safety data on patients treated for up to one year with Probuphine. This is a requirement of the FDA, and we expect to have results of the study in the fourth quarter of 2011.

Dr. Kate Beebe is here with us and she would be happy to address any questions you may have on the clinical development program at the end of the call. While the clinical development has been progressing rapidly, we also need to ensure that our contract manufacturing capability keeps pace, and prepare for future commercial-scale production as well. All of this work is ahead of us, and during these last couple of months our CMC team, along with our contract manufacturer have been finalizing plans to complete these tasks in a timely manner.

So, what are some of the next steps for Probuphine? For those of you familiar with clinical studies, the next steps in completing this trial prior to receiving top line results are very critical. Once the last patient data are collected from the treatment sites in the next several weeks, a blinded review of the entire database will be conducted to make sure that all the data are entered into the database appropriately and the programming is in place for the statistical analysis. As part of this process, questions may be sent to the clinical sites regarding data entry.

Once the clinical team is satisfied with the blinded data review, then the database will be locked and that means no further data will be entered prior to statistical analysis. Top line results will then be available sometime towards the end of the second quarter. With positive results, we are also targeting to meet with the FDA in late summer, hopefully August, to review the safety and efficacy data on Probuphine and discuss the plans for a new drug application submission.

The most important aspect of the meeting is that we establish a clear understanding with the FDA on the contents of the NDA. As you can imagine, this is also important from a partnering standpoint. If there is no additional data generation required, we may be in a position to file an NDA by the end of Q1 2012. If additional safety data is necessary, this could take another 9 to 12 months.

So, what about partners? As we have indicated in the past, we expect to establish partnerships for the potential commercialization of Probuphine. We are actively involved in the partnering process and are educating interested parties on the merits of Probuphine. With the resources now available, we are expanding our business development efforts by adding external experts to the team. This allows us to broaden the horizon of active participants, and our goal is to establish a clear path to commercializing Probuphine during this year.

I would like to take this opportunity to thank Dr. Kate Beebe, her team including CRO, PPD and the investigators and their staff for the tremendous efforts in progressing the clinical program. I would also like to thank the patients for their outstanding support of these clinical studies, demonstrated by their diligent participation.

To summarize, several very important accomplishments this past year, and there are key milestones ahead of us. Probuphine clinical development has continued at a rapid pace in 2010 with the results from the confirmatory study expected midyear. Royalty revenues from sales of Fanapt commenced in 2010. The scientific and clinical community learned more about Probuphine through the scientific presentations at important meetings and prestigious publications such as the one in JAMA. A key meeting with the FDA, the pre-NDA meeting, is targeted for late summer.

Probuphine partnering efforts are expanding and this year's goal is to establish a clear path to the commercialization of Probuphine. Debt financing with Oxford Capital last year and Deerfield Management this year provides the resources to continue the clinical and commercial development of Probuphine while also minimizing shareholder dilution. I believe we made important progress in 2010 and we can look forward to the milestones in 2011.

That is all we have for today. We thank you for your continued support and we look forward to updating you on our progress throughout the year. Thank you and we will now turn the call over for the questions.

And our first question today will come from Jagdeep Singh.

Hello, Sunil. How are you, Marc?

Hello Jagdeep, how are you?

Good. Thank you.

I wanted to ask you guys more about your CRO and CMOs.

Sure.

Are you actively looking or already partnered with PPD?

PPD is, indeed, conducting and helping us conduct the clinical trials. Kate can mention --

Sure, this is Kate Beebe. PPD, as you may know is a global contract research organization. It's one of the biggest and most powerful CROs in the US and is conducting the study with us. They are doing a suburb job and I am overall very pleased with the partnership.

Okay. And, as far as CMO going forward--

sure.

Are you going to use them or build your own facility eventually.

In this setting, Jagdeep, certainly we are focusing all our resources on the clinical development and not really on the infrastructure. And, that means we will use a contract manufacturing operation. We have been working with a group in Texas, DPT Laboratories. They are a large contract manufacturer, very accustomed to making pharmaceutical products, well established, inspected by the FDA and all of those good things. They have been making the product for us through the clinical trials as well, and now the next steps are really to scale that up to commercial manufacturing through the registration lots, all the typical things that are necessary before you can file an NDA. So, that is the stage we are at and we will continue with that.

And, will they be able to meet the market demand and supply as Titan steps up, or do you plan to have your partner manage the manufacturing more so?

In terms of the actual manufacturing and the capacity, we are basing our commercial capacity such that even the current production line could very easily manage in making about a million implants a year, which is large, okay? So I expect that to be fairly straightforward. In terms of how it's managed in the future with a partner, really that depends on the capabilities of the partners and so on and we have to wait and see how that progresses.

Okay. Thank you very much.

Our next question comes from Hank Beinstein with Gagnon Securities.

Let me unmute this. Good morning, or good afternoon, guys.

Hi.

I had a couple of-- How are you?

Great. Great.

I had a couple of questions about the study which may be Dr. Beebe could answer. On the original study, did we have an open label extension for those patients that wanted to continue with the drug?

We did--

And if so, how many of them opted into that study?

That's a really good question, Hank, and, yes we did. The name of that study was PRO 807. It was available for patients that completed six months of treatment in the original placebo controlled trial. And, about 80 % of the patients that were eligible, meaning they had completed six months of treatment, signed consent to enroll in the open label six month extension.

How did that extension work out? What were the end results of that additional six months?

The results in summary were that a high proportion of patients finished, about 75 % of them finished an additional six months of treatment. Patients overall were very pleased with treatment. There was a low rate of adverse events reported and observed. And, the efficacy indices such as the control of withdrawal symptoms, opioid craving symptoms, some reported use of opioids and other illicit drugs were very low. We shared that patients maintained the treatment gains that they had realized in the original study.

Is there any way to correlate that end result with the number of what I would call general addicts, people addicted to the same drugs, who weren't on this program to see how well the population, although it's a small population, how they responded compared to the general population?

You know that is an interesting clinical question that you are asking and unfortunately with the way our studies are designed, we are not going to be able to answer that specifically in the current development program. Certainly that is something that we can look at in the future.

Okay. To circle back to the current trial, it's a three armed trial. I assume that the Suboxone arm is pills that people are taking, and not any other form of drug?

That's correct. It's the same thing that is currently commercially available, 12 to 16 milligrams of the sublingual tablet that patients have to take every day.

And the total number of people in the trial is how many?

We enrolled approximately 300 patients in the trial.

So, it's roughly 100, 100 and 100 in each of the three arms?

It's actually two to one to two randomization schedule, meaning that there are half as many placebo patients in the placebo arm compared to the two active arms.

Okay, so it's more like 125, 125 and 50, plus or minus?

It will be approximately. We don't know what the exact numbers are at the moment, because it's still a blinded study for the Probuphine arm and placebo arm.

Do we know how patients have dropped out or is that not been divulged?

We do know how many patients have dropped out but that's not public information yet and I'm sorry I can't discuss the data yet.

I understand. Okay. Generally, are you pleased with how things are going with the trial, and do you expect the results to be on time?

The end results are actually earlier than we expected because the enrollment was so rapid. As you might recall, Hank, we enrolled the study three months ahead of schedule. There was a very high demand of patients to get into the study and there is also a high demand for patients getting-- to complete the study to get into the next six month retreatment trial similar to what we saw the first go around with the 805 and 807 study.

So, overall, I am very pleased with the way the study has been conducted, with the conduct at the sites, the investigators have all continued to do an excellent job with regards to treating patients and collecting the data. Obviously, we haven't looked at the data yet so I really can't comment on the quality that way, but overall, I am pleased and our DSMB, our independent data safety monitoring board, has been very pleased overall with the safety data.

That's good to hear. If I could switch slightly, we have -- it was indicated that we've had -- we've been involved in partnering conversations to date. Could you possibly give us a little color on how many entities we have been talking to, and the general overview of the kinds of partnerships, the terms that we would expect to receive?

Hi, Hank, this is Sunil. And, to give you more of an overview, we started this process, if you can recall in 2008 and we looked at, you know, several companies that got involved in the discussions and so on. However, at that time, one of the things that we were waiting to get information on was the patents on Probuphine, and when the patent office sent office actions that delayed the approval, that sort of brought things to a somewhat of a standstill, and that partners wanted to make sure that there was a long life in the patents and so on, and that those were issued.

So, when we restarted talking to potential partners last year, this was after having gotten the patents issued and so on so that we were in a position now to say that "Yes, there is a long life." However, we were also in the middle of doing our second Phase III study. So, our goal has been to educate companies about the information, to educate them about Probuphine, the success from the first study, how the second study is designed, and prepare everyone so that as we receive results from the study, we are in a strong position to take this to the next step, and start actually looking at finalizing commercialization plans.

So, that's the stage we are at in terms of companies -- you know, there are a number of companies, and that kind of discussion progresses. And, as I mentioned, we are now, with these resources, able to expand the effort and start using outside groups to help us really proactively go out and educate more companies and build, hopefully, a group that are interested in commercializing Probuphine.

So, is it fair to say that you have been having discussions with more than, say, three to five companies?

Hank, I'm not going to get into the nitty-gritty details. You know that's not appropriate right now.

Okay. Let me approach it a little definitely. Traditionally when you license a product, you get royalty payments, generally in the double digits, and up front money as well. Could you put some kind of an overview as to what you would be looking for with let's assume the right partner, whoever that happens to be, in terms of the dollars that the company would be hoping to achieve in a macro sense, so that we can get some idea of the potential value of this drug, should the trial be as positive as we hope it will be?

That's a long question, a lot of information, and I will try to address it without really being able to give you the very specific kinds of things you are looking for because I cannot, it's not appropriate to put specific numbers on a partnering part, but let me think of it more in the sense of what is this product, Probuphine, how would it fit in the marketplace and what kind of potential would it have? And, we have done some preliminary market research in the past.

We have done some work toward understanding how this product could be used in the marketplace and we feel that it certainly has a strong positioning and differentiation from the current daily sublingual tablets, and, specifically some of the benefits we hope it will provide which include compliance in the setting leading to, you know, better medical outcomes, good control over craving, and withdrawal symptoms, things that are really meaningful in this setting. And, that's what the clinicians and patients seem to accept.

In our initial market research, clinicians who were interviewed and there were several in internet surveys that were done, indicated that they would talk about 30 % to 50 % of their patients could benefit from this type of a product profile. Obviously all of this needs to be worked out in terms of getting full completion of the clinical development, but, these were the kinds of encouraging indications we have seen from our early market research. And what that means is, you know, we would expect where today's sublingual buprenorphine or Suboxone tends to be $1 billion market in the US, I would expect we will be several hundred million dollars in sales, and that $300 million to $500 million range is not unlikely in this setting, at a peak sales level.

What does that, in terms of outside experts looking at this say, and most recently there is a report out by division resources, that looks at Probuphine as potentially scientifically one of the gold standards to come in the future. So, I believe there is a lot of merit in Probuphine and its value. To capitalize on that value really requires a strong partner along with our capabilities to be able to maximize that value. I hope that gives you an understanding of the value of Probuphine and how we see it. How exactly it will turn out in terms of partnering details, all I can tell you is certainly we will look at the same kind of things as always, up front payments, royalty payments, milestone payments and that type of traditional structure.

That's terrific. Thank you very much.

Sure.

Thank you.

And, next we will go to Mark Cohen with West Side Investment Management.

Hello everybody. Congratulations on getting the funding done.

Hi, Mark, how are you? I haven't talked to you in a while.

I have been well, thank you. I did have some questions regarding the financing. I went back to the press release when you announced the Oxford funding, and it said you expected the financing together with other funds would provide Titan with the resources necessary to complete the confirmatory Phase III study. Has anything changed between now and then since you are doing the additional financing? Or did you expect to need financing at this point in time?

Sure. Well, two things that I can mention, Mark. At that time when we looked at it, you know, we had not started the retreatment study. And, as we started looking at the position, it was best to do the retreatment study now rather than delay it, because that allows for patients to roll from one study into another and gives us an understanding of how patients like that as well. So, that was very good from that standpoint.

We still were able -- we were going to be able to complete the controlled study, however, as I indicated in the last quarterly release, you know, we would be running out of money as we get into the second quarter here, and that means this was the right time for us to do this financing. We expected that this would be the general timing we would need to add additional resources.

Okay. And, was there money that you did not tap or was unused on the Oxford loan?

The Oxford loan-- all the money was available up front, and we took that full loan.

Okay. So you pretty much used it?

Yes, yes, we have.

And when you did the Oxford funding, was there any sort of discussion about this type of funding that you have done presently with Deerfield? Could that have been done back then or you needed to have additional milestones to be met before you could get additional capital? And, I know the markets have clearly changed, you know, since back a year ago as well.

Yes, I'm--Mark, could you just repeat the last part of the question?

Well, I mean I know the capital markets have changed quite a bit from a year ago, so what might not have been available a year ago is available today.

Sure.

But I was wondering if this type of financing was feasible, going back a year or so, or if that was just not available.

In terms of -- you are thinking at the time when we did the Oxford financing was something like this available?

Correct.

You know, at that stage, what we were looking for, and recognized that this was at the time when Fanapt was just starting off its sales. What we were looking for was, you know, a short-term loans that would provide sufficient funding while we also looked to see how the royalty revenues would progress. So, we didn't want to over commit ourselves into loans in this setting and that's what we did at that time. We did not explore whether large loans such as you know something like this in a $20 million range were really available. We looked at what was available in the short term and of this magnitude, the $3 million to $5 million loans.

Okay. And, once again, I don't want to be critical of what you have done because I actually think you have done a good job. I'm just trying to understand the financing side of everything.

Yes, I understand that, Mark. And, in this setting, we explored sort of what was the best available during that time based on the information we had, and tried to get those kinds of facilities.

Okay. Great. Now, with respect to the new facility, is-- you are issuing a promissory note for $20 million but really borrowing $17 million because $3 million is being given to you up front for the Fanapt revenue share. Why is a promissory note for $20 million being issued?

In terms of the mechanics of how the money is being made available by Deerfield, really has to do with the different funds in Deerfield and their structure and what is appropriate for them from a tax standpoint and so on. I think the best way to look at it from a Titan standpoint, is that it's a $20 million loan with a $20 million promissory note, with certainly payment terms as described in the 10-K and so on. In terms of how it is received at Deerfield really is based upon their structure and how they need to handle it based on their funds. As you know, there are international funds and so on that are involved, so that's really the structure.

Could you sort of break down the use of funds, trying to distinguish between what is research and what is development?

We don't really break it down. If you understand it in the setting, clearly we are doing clinical development. We are really not doing pure research work of any kind.

Okay, well that is sort of what I was getting at.

Okay, sure.

One of the concerns or questions that I have, having been involved with you for as long as I have, which means I have a very high tolerance for pain and can be very patient, but how do you see the company moving forward, a year from now or two years from now? Could you, or would you, commit to stating that you are looking just to maximize the value from the Fanapt and Probuphine assets that you have, instead of adding additional properties down the road to try to create shareholder value?

Mark, certainly. I mean, I think, as you can understand, and thank you for being patient with us. I appreciate your being a continued shareholder. But, we are focused really on our current assets. That means Fanapt and maximizing the value of Fanapt as we can, and clearly Probuphine, which is now in its late stage development. We have not looked to do any kind of major investment in any other area at this stage and with our current resources, this is all we will do and maximize the value of this.

Okay, so that really is the focus, and you are not looking to, even if this is successful, which we all hope, you are not looking continue to increase the size or scope of the company by developing future compounds or assets?

At this stage, the best way I can address that is to say that the technology behind Probuphine has value.

I'm sorry, I should have extrapolated that further.

Yes, the ProNeura technology has value.

Correct.

We have tried to expand the knowledge and recognition of that value by using SBIR grants and, as you know, we have one right now to do some work with dopamine agonists. That is a very good application but in terms of clinical development of that product, we certainly don't have the resources to do that at this time, and whether that makes sense to do in the future really will depend on how Probuphine goes forward, and whether that's best for Titan to do or somebody else, is yet another question. In a lot of ways, Mark, right now we are really focused on Probuphine.

Okay, great. And last question for you, is have you learned anything from the Fanapt launch with respect to the approval, delay in the approval, the marketing, market acceptance, being as an interested party clearly and closely watching this, have you learned anything from that process that might be applied to how you deal with Probuphine?

In this setting, I mean, certainly I expect a partnering opportunity with Probuphine with somebody who truly is knowledgeable within this area and can be an added value partner for us. In terms of how it will be commercialized and so on, over the next few months and year, we will talk about this and we will try and explain further. In terms of Fanapt, you know, I think you have seen and heard all the things that have happened with that. And, we certainly keep all of those experiences in mind.

Okay, well thank you for your time. We wish you continued success and good luck.

Thank you, Mark.

And we have no further questions at this time. I will turn things back over to our speakers for any additional or closing remarks.

Thank you very much. Thank you all for joining us for today's call. We will certainly be speaking with you in the future. Have a good day.