NOTES TO CONDENSED
FINANCIAL STATEMENTS
(unaudited)
|
1.
|
Organization and Summary of Significant Accounting Policies
|
The Company
We are a pharmaceutical company developing
therapeutics utilizing our proprietary long-term drug delivery platform, ProNeuraTM, for the treatment of select chronic
diseases for which steady state delivery of a drug provides an efficacy and/or safety benefit. We have transitioned to a commercial
stage enterprise following the reacquisition of Probuphine® (buprenorphine) implant, or Probuphine, in May 2018 from our former
licensee. Probuphine is the first product based on our ProNeura technology approved in the U.S., Canada and the European Union,
or EU, for the maintenance treatment of opioid use disorder, or OUD, in select patients. We operate in only one business segment,
the development and commercialization of pharmaceutical products.
Basis of Presentation
The accompanying unaudited condensed
financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for
interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete financial statement presentation. In the opinion of
management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2020, or any future interim periods.
The balance sheet at December 31, 2019
is derived from the audited financial statements at that date, but does not include all of the information and footnotes required
by GAAP for complete financial statements. These unaudited condensed financial statements should be read in conjunction with the
audited financial statements and footnotes thereto included in the Titan Pharmaceuticals, Inc. Annual Report on Form 10-K for the
year ended December 31, 2019, as filed with the Securities and Exchange Commission (“SEC”).
The preparation of condensed financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the
condensed financial statements and accompanying notes. Actual results could differ from those estimates. The accompanying condensed
financial statements have been prepared assuming we will continue as a going concern.
At March 31, 2020, we had cash and
cash equivalents of $8.0 million, which we believe, together with our Paycheck Protection Program loan and the subsequent
exercise of warrants, is sufficient to fund our planned operations through the third quarter of 2020. We will require
additional funds to finance our operations beyond such period. We are exploring several financing alternatives; however,
there can be no assurance that our efforts to obtain the funding required to continue our operations will be successful.
Going concern assessment
We assess going concern uncertainty in
our condensed financial statements to determine if we have sufficient cash on hand and working capital, including available borrowings
on loans, to operate for a period of at least one year from the date the condensed financial statements are issued or available
to be issued, which is referred to as the “look-forward period” as defined by Accounting Standard Update (“ASU”)
No. 2014-15. As part of this assessment, based on conditions that are known and reasonably knowable to us, we will consider various
scenarios, forecasts, projections, estimates and will make certain key assumptions, including the timing and nature of projected
cash expenditures or programs, and its ability to delay or curtail expenditures or programs, if necessary, among other factors.
Based on this assessment, as necessary or applicable, we make certain assumptions around implementing curtailments or delays in
the nature and timing of programs and expenditures to the extent we deem probable those implementations can be achieved and we
have the proper authority to execute them within the look-forward period in accordance with ASU No. 2014-15.
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Continued
(unaudited)
Based upon the above assessment, we concluded
that, at the date of filing the condensed financial statements in this Quarterly Report on Form 10-Q for the three months ended
March 31, 2020, we did not have sufficient cash to fund our operations for the next 12 months without securing additional funds
and, therefore, there is substantial doubt about our ability to continue as a going concern within 12 months after the date the
condensed financial statements were issued. Additionally, we have suffered recurring losses from operations and have an accumulated
deficit that raises substantial doubt about our ability to continue as a going concern.
Use of Estimates
The preparation of these unaudited condensed
financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including critical accounting policies or estimates
related to warrants issued in equity financing, research and development expenses, income taxes, inventories, revenues, contingencies
and litigation and share-based compensation. We base our estimates on historical experience, information received from third parties
and on various market specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results could differ significantly from those estimates under different assumptions or conditions.
Inventories
Inventories are recorded at the lower of
cost or net realizable value. Cost is based on the first in, first out method. We regularly review inventory quantities on hand
and write down to its net realizable value any inventory that we believe to be impaired. The determination of net realizable value
requires judgment including consideration of many factors, such as estimates of future product demand, product net selling prices,
current and future market conditions and potential product obsolescence, among others. The components of inventories are as follows:
|
|
|
As of
|
|
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Raw materials and supplies
|
|
|
545
|
|
|
|
563
|
|
|
Finished goods
|
|
|
519
|
|
|
|
435
|
|
|
|
|
$
|
1,064
|
|
|
$
|
998
|
|
Revenue Recognition
We generate revenue principally from the
sale of Probuphine in the U.S., collaborative research and development arrangements, technology licenses and sales, and government
grants. Consideration received for revenue arrangements with multiple components is allocated among the separate performance obligations
based upon their relative estimated standalone selling price.
In determining the appropriate amount of
revenue to be recognized as we fulfill our obligations under our agreements, we perform the following steps for our revenue recognition:
(i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services
are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction
price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations
based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation.
Net Product
Revenue
We recognize revenue from product sales
when control of the product transfers, generally upon shipment or delivery, to our customers, which include distributors. As customary
in the pharmaceutical industry, our gross product revenue is subject to a variety of deductions in the forms of variable consideration,
such as rebates, chargebacks, returns and discounts, in arriving at reported net product revenue. This variable consideration is
estimated using the most-likely amount method, which is the single most-likely outcome under a contract and is typically at stated
contractual rates. The actual outcome of this variable consideration may materially differ from our estimates. From time to time,
we will adjust our estimates of this variable consideration when trends or significant events indicate that a change in estimate
is appropriate to reflect the actual experience. Additionally, we will continue to assess the estimates of our variable consideration
as we continue to accumulate additional historical data. Changes in the estimates of our variable consideration could materially
affect our condensed financial statements.
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Continued
(unaudited)
Returns –
Consistent with the provisions of ASC 606, we estimate returns at the inception of each transaction, based on multiple considerations,
including historical sales, historical experience of actual customer returns, levels of inventory in our distribution channel,
expiration dates of purchased products and significant market changes which may impact future expected returns to the extent that
we would not reverse any receivables, revenues, or contract assets already recognized under the agreement. To date, we entered
into agreements with various large national specialty pharmacies with a distribution channel different from that of our existing
customers and, therefore, the related reserves have unique considerations. We will continue to evaluate the activities with these
specialty pharmacies during upcoming quarters and will update the related reserves accordingly.
Rebates –
Our provision for rebates is estimated based on our customers’ contracted rebate programs and our historical experience of
rebates paid.
Discounts –The
provision is estimated based upon invoice billings, utilizing historical customer payment experience.
The following
table provides a summary of activity with respect to our product returns and discounts and rebates, which are included on our balance
sheets within accrued sales allowances, and allowance for doubtful accounts, which are included on our balance sheets within receivables
(in thousands):
|
|
|
Accrued Sales Allowances
|
|
|
|
|
|
|
|
Product Return Allowance
|
|
|
Discounts and
Rebates Allowance
|
|
|
Total
|
|
|
Allowance for Doubtful Accounts
|
|
|
Balance at December 31, 2019
|
|
$
|
721
|
|
|
$
|
88
|
|
|
$
|
809
|
|
|
$
|
63
|
|
|
Provision
|
|
|
15
|
|
|
|
14
|
|
|
|
29
|
|
|
|
7
|
|
|
Payments/credits
|
|
|
(558
|
)
|
|
|
(79
|
)
|
|
|
(637
|
)
|
|
|
(7
|
)
|
|
Balance at March 31, 2020
|
|
$
|
178
|
|
|
$
|
23
|
|
|
$
|
201
|
|
|
$
|
63
|
|
During the three
months ended March 31, 2020, we received customer returns of approximately $0.5 million that had been reserved for previously.
Performance
Obligations
A performance
obligation is a promise in a contract to transfer a distinct good or service to the customer. Our performance obligations include
commercialization license rights, development services and services associated with the regulatory approval process.
We have optional
additional items in contracts, which are accounted for as separate contracts when the customer elects such options. Arrangements
that include a promise for future commercial product supply and optional research and development services at the customer’s
discretion are generally considered as options. We assess if these options provide a material right to the customer and, if so,
such material rights are accounted for as separate performance obligations. If we are entitled to additional payments when the
customer exercises these options, any additional payments are recorded in revenue when the customer obtains control of the goods
or services.
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Continued
(unaudited)
Transaction
Price
We have both fixed
and variable consideration. Non-refundable upfront payments are considered fixed, while milestone payments are identified
as variable consideration when determining the transaction price. Funding of research and development activities is considered
variable until such costs are reimbursed at which point they are considered fixed. We allocate the total transaction price to each
performance obligation based on the relative estimated standalone selling prices of the promised goods or services for each performance
obligation.
At the inception
of each arrangement that includes milestone payments, we evaluate whether the milestones are considered probable of being achieved
and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant
revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone payments
that are not within our control, such as approvals from regulators, are not considered probable of being achieved until those approvals
are received.
For arrangements
that include sales-based royalties or earn-out payments, including milestone payments based on the level of sales, and the license
or purchase agreement is deemed to be the predominant item to which the royalties or earn-out payments relate, we recognizes revenue
at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the
royalty or earn-out payment has been allocated has been satisfied (or partially satisfied).
Allocation
of Consideration
As part of the
accounting for these arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price
of each performance obligation identified in the contract. Estimated selling prices for license rights are calculated using
the residual approach. For all other performance obligations, we use a cost-plus margin approach.
Timing of Recognition
Significant management
judgment is required to determine the level of effort required under an arrangement and the period over which we expect to complete
our performance obligations under an arrangement. We estimate the performance period or measure of progress at the inception of
the arrangement and re-evaluate it each reporting period. This re-evaluation may shorten or lengthen the period over which revenue
is recognized. Changes to these estimates are recorded on a cumulative catch up basis. If we cannot reasonably estimate when our
performance obligations either are completed or become inconsequential, then revenue recognition is deferred until we can reasonably
make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.
Revenue is recognized for licenses or sales of functional intellectual property at the point in time the customer can use and benefit
from the license. For performance obligations that are services, revenue is recognized over time proportionate to the costs that
we have incurred to perform the services using the cost-to-cost input method.
Research and Development Costs and Related Accrual
Research and development expenses include
internal and external costs. Internal costs include salaries and employment related expenses, facility costs, administrative expenses
and allocations of corporate costs. External expenses consist of costs associated with outsourced contract research organization
(“CRO”) activities, sponsored research studies, product registration, patent application and prosecution, and investigator
sponsored trials. We also record accruals for estimated ongoing clinical trial costs. Clinical trial costs represent costs incurred
by CROs and clinical sites. These costs are recorded as a component of research and development expenses. Under our agreements,
progress payments are typically made to investigators, clinical sites and CROs. We analyze the progress of the clinical trials,
including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of accrued liabilities.
Significant judgments and estimates must be made and used in determining the accrued balance in any accounting period. Actual results
could differ from those estimates under different assumptions. Revisions are charged to expense in the period in which the facts
that give rise to the revision become known.
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Continued
(unaudited)
Leases
In February 2016, the Financial Accounting
Standards Board (the “FASB”) issued ASU No. 2016-02, Leases (Topic 842), to enhance the transparency and comparability
of financial reporting related to leasing arrangements.
We determine whether the arrangement is
or contains a lease at inception. Operating lease right-of-use assets and lease liabilities are recognized at the present value
of the future lease payments at commencement date. The interest rate implicit in lease contracts is typically not readily determinable,
and therefore, we utilize our incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a
similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments to the right-of-use asset
may be required for items such as initial direct costs paid or incentives received.
Lease expense is recognized over the expected
term on a straight-line basis. Operating leases are recognized on our condensed balance sheet as right-of-use assets, operating
lease liabilities current and operating lease liabilities non-current. We no longer recognize deferred rent on our condensed balance
sheet.
The following table presents maturities
of our operating lease:
|
2020
|
|
$
|
232
|
|
|
2021
|
|
|
155
|
|
|
Total minimum lease payments (base rent)
|
|
|
387
|
|
|
Less: imputed interest
|
|
|
(29
|
)
|
|
Total operating lease liabilities
|
|
$
|
358
|
|
Recent Accounting Pronouncements
Accounting Standards Adopted
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which
eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB's disclosure framework
project. We adopted ASU 2018-13 effective January 1, 2020 with no material impact to our financial statements and related disclosures.
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses, which requires an organization to measure all
expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to
better inform their credit loss estimates. The amendments in this ASU are effective for us in our interim period ending March 31,
2023. We are currently assessing the impact of the adoption of Topic 326 on our financial statements and disclosures.
In March 2020, the FASB issued ASU 2020-04,
Reference Rate Reform, which provides companies with optional guidance, including expedients and exceptions for applying generally
accepted accounting principles to contracts and other transactions affected by reference rate reform, such as the London Interbank
Offered Rate (LIBOR). This new standard was effective upon issuance and generally can be applied to applicable contract modifications
through December 31, 2022. We are evaluating the effects that the adoption of this guidance will have on our disclosures.
Subsequent Events
We have evaluated events that have occurred
after March 31, 2020 and through the date that our condensed financial statements are issued. See Note 8. “Subsequent Events.”
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Continued
(unaudited)
Fair Value Measurements
Financial instruments,
including receivables, accounts payable and accrued liabilities are carried at cost, approximate their fair values due to the short-term
nature of these instruments. Our investments in money market funds are classified within Level 1 of the fair value hierarchy. Our
derivative liability is classified within level 3 of the fair value hierarchy because the fair value is calculated using significant
judgment based on our own assumptions in the valuation of this liability.
At March 31, 2020
and December 31, 2019, the fair value of our investments in money market funds were approximately $7.9 million and approximately
$4.9 million, respectively, which are included within our cash and cash equivalents in our condensed balance sheets.
The following table summarizes option activity:
|
|
|
Options
(in thousands)
|
|
|
Weighted
Average
Exercise
Price per
share
|
|
|
Weighted
Average
Remaining
Option
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
|
Outstanding at December 31, 2019
|
|
|
1,192
|
|
|
$
|
6.23
|
|
|
|
7.9
|
|
|
$
|
—
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(288
|
)
|
|
|
1.71
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2020
|
|
|
904
|
|
|
$
|
7.67
|
|
|
|
7.2
|
|
|
$
|
—
|
|
|
Exercisable at March 31, 2020
|
|
|
748
|
|
|
$
|
8.95
|
|
|
|
6.8
|
|
|
$
|
—
|
|
No options to purchase common shares were
granted during the three month periods ended March 31, 2020.
The following table summarizes the stock-based
compensation expense recorded for awards under our stock option plans (in thousands):
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Research and development
|
|
$
|
—
|
|
|
$
|
77
|
|
|
Selling, general and administrative
|
|
|
(84
|
)
|
|
|
59
|
|
|
Total stock-based compensation expense
|
|
$
|
(84
|
)
|
|
$
|
136
|
|
We use the Black-Scholes-Merton option-pricing
model with the following assumptions to estimate the fair value of our stock options:
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Weighted-average risk-free interest rate
|
|
|
—
|
%
|
|
|
2.58
|
%
|
|
Expected dividend payments
|
|
|
—
|
|
|
|
—
|
|
|
Expected holding period (years)(1)
|
|
|
—
|
|
|
|
6.3
|
|
|
Weighted-average volatility factor(2)
|
|
|
—
|
|
|
|
0.91
|
|
|
Estimated forfeiture rates for options granted(3)
|
|
|
—
|
%
|
|
|
25
|
%
|
____________________
|
(1)
|
Expected holding period is based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and the expectations of future employee behavior.
|
|
(2)
|
Weighted average volatility is based on the historical volatility of our common stock.
|
|
(3)
|
Estimated forfeiture rates are based on historical data.
|
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Continued
(unaudited)
As of March 31, 2020, there was approximately
$0.1 million of total unrecognized compensation expense related to non-vested stock options. This expense was expected to be recognized
over a weighted-average period of approximately 1.8 years.
The table below presents common shares
underlying stock options, warrants and convertible loans that are excluded from the calculation of the weighted average number
of common shares outstanding used for the calculation of diluted net loss per common share. These are excluded from the calculation
due to their anti-dilutive effect:
|
|
|
Three months ended
March 31,
|
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
|
Weighted-average anti-dilutive common shares resulting from options
|
|
|
991
|
|
|
|
476
|
|
|
Weighted-average anti-dilutive common shares resulting from warrants
|
|
|
8,342
|
|
|
|
1,115
|
|
|
Weighted-average anti-dilutive common shares resulting from convertible loans
|
|
|
3,243
|
|
|
|
469
|
|
|
Total
|
|
|
12,576
|
|
|
|
2,060
|
|
|
|
4.
|
Molteni Purchase Agreement
|
On March 21, 2018, we entered into a purchase
agreement (“Molteni Purchase Agreement”) with L. Molteni & C. Dei Frattelli Alitti Società Di Esercizio
S.P.A. (“Molteni”) pursuant to which Molteni acquired the European intellectual property related to Probuphine, including
the marketing authorization application under review by the European Medicines Agency (“EMA”), and gained the exclusive
right to commercialize the Probuphine product supplied by us, to be marketed under the tradename Sixmo, in the EU, as well as certain
countries of the Commonwealth of Independent States, the Middle East and North Africa (the “Molteni Territory”).
In connection with the Molteni Purchase
Agreement, we received an initial payment of €2.0 million (approximately $2.4 million), of which approximately $1.0 million
was allocated to the transfer of the intellectual property, which was recognized immediately, and approximately $1.4 million to
our efforts towards the approval by the EMA by using the expected cost-plus approach to estimate the standalone selling price of
and other regulatory bodies (“Titan Services”), which was recorded as deferred revenue and amortized as the performance
obligations associated with the Titan Services being satisfied over time. Titan Services included employee-related expenses
as well as other manufacturing, regulatory and clinical costs. During the three months ended March 31, 2019, we fully amortized
our deferred revenue and recognized approximately $0.3 million of revenue associated with the completion of Titan Services.
In August 2018, we entered into an amendment
to the Molteni Purchase Agreement, pursuant to which Molteni made an immediate payment of €950,000 (approximately $1.1 million)
and a convertible loan of €550,000 (approximately $0.6 million) (“Molteni Convertible Loan”) (see Note 5) to us,
both in exchange for the elimination of an aggregate of €2.0 million (approximately $2.3 million) of regulatory milestones
provided for in the Molteni Purchase Agreement.
In September 2019, we entered
into an additional amendment to the Molteni Purchase Agreement, pursuant to which the percentage earn-out payments on net sales
were reduced and payments of any earn-outs were delayed until the later of (i) January 1, 2021 or (ii) the one year anniversary
of completion of compliance by our manufacturer with EU requirements (currently anticipated to occur during the second quarter
of this year). The milestone payments under the Purchase Agreement remain unchanged.
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Continued
(unaudited)
Horizon and Molteni Loans
In March 2018, we entered into
an Amended and Restated Venture Loan and Security Agreement (the “Loan Agreement”) with Horizon Technology Finance
Corporation (“Horizon”) and Molteni pursuant to which Horizon assigned approximately $2.4 million of the $4.0 million
outstanding principal balance of its loan to us to Molteni and Molteni was appointed as the collateral agent and assumed majority
and administrative control of the loan. Under the Loan Agreement, Molteni had the right to convert its portion of the debt into
shares of our common stock at a conversion price of $7.20 per share and was required to effect this conversion of debt to equity
upon completion of an equity financing meeting specified criteria. In connection with the Loan Agreement, we issued warrants to
purchase an aggregate of 6,667 shares of our common stock with an exercise price per share of $7.20 to Horizon.
In September 2019, we entered
into an amendment to the Loan Agreement pursuant to which the interest-only payment and forbearance periods were extended by one
year to December 31, 2020 and the maturity date was extended by one year to June 1, 2022. In connection with the amendment to the
Loan Agreement, the final payments to the lenders were increased by an aggregate of approximately $0.3 million (exclusive of a
restructuring fee payable to Horizon) and the conversion provisions related to Molteni’s portion of the loan amount were
revised to eliminate the mandatory conversion feature, to reduce the conversion price to $0.225 and to cap the number of shares
issuable upon conversion to 3,422,777, with any balance repayable in cash.
In accordance with ASC
470, the amendment to the loan from Molteni is accounted for under debt extinguishment accounting, which required us to
extinguish the carrying amount of the loan prior to the amendment and reacquire the loan after the amendment. As a result,
during the three months ended September 30, 2019, we recorded approximately $0.3 million gain on debt extinguishment related
to the write-off of the balance of the accreted final payment of the loan. The modification to the loan from Horizon did not
constitute debt extinguishment and, therefore, did not have any impact to our condensed financial statements.
Repayment of the loans is on an interest-only
basis, followed by monthly payments of principal and accrued interest for the balance of the 46-month term. The loans bear interest
at a floating coupon rate of one-month LIBOR (floor of 1.10%) plus 8.40%. A final payment equal to 5.0% of each loan tranche will
be due on the scheduled maturity date for such loan. In addition, if we repay all or a portion of the loan prior to the applicable
maturity date, we will pay Horizon and Molteni prepayment penalty fees.
Debt discount associated with the Horizon
and Molteni Loans was approximately $0.3 million as of both March 31, 2020 and December 31, 2019.
Molteni Convertible Loan
In connection with the amendment
to the Molteni Purchase Agreement (see Note 4), in June 2019, the Molteni Convertible Loan, together with unpaid accrued interest,
was converted in full into 448,287 shares of our common stock at $1.50 per share upon the receipt of EMA approval of Sixmo. As
a result, we recorded approximately $0.1 million loss on debt extinguishment.
Our common
stock outstanding as of March 31, 2020 and December 31, 2019 was 93,467,258 shares and 57,378,794 shares, respectively.
January
2020 Offering
In January 2020, we completed a financing
with several institutional investors pursuant to which we issued 8,700,000 shares of our common stock in a registered direct offering
and warrants to purchase 8,700,000 shares of our common stock with an exercise price of $0.25 per share in a concurrent private
placement (the “January 2020 Warrants”) pursuant to which we received net cash proceeds of approximately $1.9 million,
after deduction of underwriting fees and other offering expenses. The January 2020 Warrants become exercisable in July 2020 and
expire in July 2025, however, the shares of common stock issuable upon exercise of the January 2020 Warrants have not been reserved
and, accordingly, such warrants are not exercisable unless and until we receive stockholder approval of either a reverse stock
split or an increase in our authorized shares of common stock. During the three months ended March 31, 2020, financing costs
of $211,000 allocated to the January 2020 warrant liability were expensed and included in other income (expense) in the Statements
of Operations and Comprehensive Loss.
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Continued
(unaudited)
Common
Stock Warrants
During the three months ended March 31,
2020, we received an aggregate of approximately $6.2 million in cash proceeds from the exercises of warrants to purchase 27,388,464
shares of our common stock.
On March 3, 2020, we amended certain outstanding
warrants to purchase an aggregate of 11,552,314 shares of common stock, including the January 2020 Warrants and warrants we issued
in connection with a financing in August 2019 (the “August 2019 Warrants”), to modify certain provisions that had required
them to be previously classified as liabilities and to enable them to now be classified as equity under the relevant accounting
standards. As a result, during the three months ended March 31, 2020, we reclassified the fair value of the warrants on the date
of the amendment from warrant liabilities to additional paid-in capital in the balance sheet and recognized a non-cash loss on
changes in the fair value of warrants in the statement of operations and comprehensive loss.
The following table provides a roll forward
of the fair value of our warrant liabilities, the fair value of which was determined by level 3 inputs for the three months
ended March 31, 2020 (in thousands):
|
|
|
|
|
|
Fair value, December 31, 2019
|
|
$
|
320
|
|
|
Issuance of the January 2020 Warrants
|
|
|
1,654
|
|
|
Change in fair value(1)
|
|
|
923
|
|
|
Reclassification of warrants to additional paid-in capital
|
|
|
(2,897
|
)
|
|
Fair value, March 31, 2020
|
|
$
|
—
|
|
____________________
|
(1)
|
Recognized as non-cash loss on changes in fair value of warrants in the statement of operations and comprehensive loss.
|
The warrant
liability associated with the January 2020 Warrants was classified within level 3 of the fair value hierarchy. The following table
presents the weighted-average key assumptions used to calculate the fair value of the January 2020 Warrants:
|
|
|
As of
|
|
|
|
|
March 3, 2020
|
|
|
January 7, 2020
|
|
|
Expected volatility
|
|
|
124
|
%
|
|
|
121
|
%
|
|
Risk-free interest rate
|
|
|
0.8
|
%
|
|
|
1.6
|
%
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
Expected term (in years)
|
|
|
4.9
|
|
|
|
5.0
|
|
|
Weighted-average fair value per share warrant
|
|
$
|
0.26
|
|
|
$
|
0.19
|
|
The
warrant liability associated with the August 2019 Warrants was classified within level 3 of the fair value hierarchy. The following
table presents the weighted-average key assumptions used to calculate the fair value of the August 2019 Warrants:
|
|
|
As of
|
|
|
|
|
March 3, 2020
|
|
|
December 31, 2019
|
|
|
Expected volatility
|
|
|
124
|
%
|
|
|
125
|
%
|
|
Risk-free interest rate
|
|
|
0.8
|
%
|
|
|
1.7
|
%
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
Expected term (in years)
|
|
|
4.5
|
|
|
|
4.6
|
|
|
Weighted-average fair value per share warrant
|
|
$
|
0.21
|
|
|
$
|
0.11
|
|
TITAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Continued
(unaudited)
On April 20, 2020, we received an
approximately $0.7 million loan (“PPP Loan”) pursuant to the Paycheck Protection Program of the CARES Act.
In May 2020, we received an aggregate of
approximately $0.5 million in cash proceeds from the exercises of warrants to purchase 2,193,097 shares of our common stock.