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DOCUMENTS INCORPORATED BY REFERENCE:
Titan Pharmaceuticals, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2023
Table of Contents
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PART I
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K or in the documents incorporated by reference herein may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) that involve substantial risks and uncertainties. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Forward-looking statements included or incorporated by reference in this report or our other filings with the Securities and Exchange Commission (the “SEC”) include, but are not necessarily limited to, those relating to uncertainties relating to:
| ● | Our ability to complete one or more strategic transactions that will maximize our assets or otherwise provide value to stockholders; |
| ● | our ability to raise capital when needed; |
| ● | difficulties or delays in the product development and regulatory approval process; and |
| ● | protection for our patents and other intellectual property or trade secrets. |
Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties, including the risks outlined under “Risk Factors” or elsewhere in this report, that could cause actual performance or results to differ materially from what is expressed in or suggested by the forward-looking statements.
Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn as to whether we will make additional updates with respect to those or other forward-looking statements. We caution you not to give undue weight to such projections, assumptions and estimates.
References herein to “we,” “us,” “Titan,” and “our company” refer to Titan Pharmaceuticals, Inc. unless the context otherwise requires.
Probuphine® and ProNeura® are trademarks of Fedson, Inc. This Annual Report on Form 10-K also includes trade names and trademarks of other companies besides Titan.
All share and per share data in this report gives retroactive effect to a 1-for-20 reverse stock split effected on January 9, 2024.
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| Item 1. | Business |
Overview
Titan is a pharmaceutical company incorporated as a Delaware corporation in 1992. Prior to the sale of assets that occurred in September 2023 (as described below), we focused on developing therapeutics utilizing the proprietary long-term drug delivery platform, ProNeura®, for the treatment of select chronic diseases for which steady state delivery of a drug has the potential to provide an efficacy and/or safety benefit. ProNeura consists of a small, solid implant made from a mixture of ethylene-vinyl acetate (“EVA”) and a drug substance. The resulting product is a solid matrix that is designed to be administered subdermally in a brief, outpatient procedure and is removed in a similar manner at the end of the treatment period.
Our first product based on the ProNeura technology was Probuphine® (buprenorphine implant), which is approved in the United States, Canada and the European Union (“EU”) for the maintenance treatment of opioid use disorder in clinically stable patients taking 8 mg or less a day of oral buprenorphine. While Probuphine continues to be commercialized in the EU (as Sixmo™) by another company that had acquired the rights from Titan, we discontinued commercialization of the product in the United States during the fourth quarter of 2020 and subsequently sold the product in September 2023. Discontinuation of our commercial operations has allowed us to focus our limited resources on important product development programs and transition back to a product development company.
In December 2021, we announced our intention to work with our financial advisor to explore strategic alternatives to enhance stockholder value, potentially including an acquisition, merger, reverse merger, other business combination, sales of assets, licensing or other transaction. In June 2022, we implemented a plan to reduce expenses and conserve capital that included a company-wide reduction in salaries and a scale back of certain operating expenses to enable us to maintain sufficient resources as we pursued potential strategic alternatives. In July 2022, David Lazar and Activist Investing LLC (collectively, “Activist”) acquired an approximately 25% ownership interest in Titan, filed a proxy statement and nominated six additional directors, each of whom was elected to our board of directors (the “Board”) at a special meeting of stockholders held on August 15, 2022 (the “Special Meeting”). The exploration and evaluation of possible strategic alternatives by the Board has continued following the Special Meeting. Following the election of the new directors at the Special Meeting, Dr. Marc Rubin was replaced as our Executive Chairman, and David Lazar assumed the role of Chief Executive Officer. In connection with the termination of his employment as Executive Chairman, Dr. Rubin received aggregate severance payments of approximately $0.4 million. In December 2022, we implemented additional cost reduction measures including a reduction in our workforce. In June 2023, David Lazar sold his approximately 25% ownership interest in Titan to Choong Choon Hau, an outside investor. Mr. Lazar remains Titan’s Chief Executive Officer.
On September 1, 2023, (the “Closing Date”), we closed on the sale of certain ProNeura assets including our portfolio of drug addiction products and other early development programs based on the ProNeura drug delivery technology (collectively, the “ProNeura Assets”). In July 2023, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Fedson, Inc., a Delaware corporation (“Fedson”) for the sale of the ProNeura Assets. Our addiction portfolio consisted of the Probuphine and Nalmefene implant programs. The ProNeura Assets constituted only a portion of our assets. In August 2023, we entered into an Amendment and Extension Agreement (the “Amendment”) to the Asset Purchase Agreement, pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form of a promissory note due and payable on October 1, 2023 (the “Cash Note”) and (iii) $1,000,000 in the form of a promissory note due and payable on January 1, 2024 (the “Escrow Note”). We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the payment of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024.
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ProNeura Continuous Drug Delivery Platform
The ProNeura continuous drug delivery system consists of a small, solid rod-shaped implant made from a mixture of EVA and a given drug substance. The resulting product is a solid matrix that is placed subdermally, normally in the inside part of the upper arm in a brief procedure using a local anesthetic and is removed in a similar manner at the end of the treatment period. The drug substance is released continuously through the process of dissolution-controlled diffusion. This results in a continuous, steady rate of release generally similar to intravenous administration. We believe that such long-term, near linear release characteristics are desirable as they avoid the fluctuating peak and trough drug levels seen with oral dosing that often poses treatment problems in a range of diseases.
The ProNeura platform was developed to address the need for a simple, practical method to achieve continuous long-term drug delivery, and, depending on the characteristics of the compound to be delivered, can potentially provide treatment on an outpatient basis over extended periods of up to 12 months. We believe that the benefits of this technology have been demonstrated by the clinical results seen to date with Probuphine, and, in addition, that the development and regulatory process have been affirmed by the U.S. Food and Drug Administration (“FDA”) the European Medicines Agency (“EMA”), and Health Canada approvals of this product. We have further demonstrated the feasibility of the ProNeura platform with small molecules, hormones, and bio-active peptides. The delivery system works with both hydrophobic and hydrophilic molecules. We have also shown the flexibility of the platform by experimenting with the release characteristics of the EVA implants, layering the implants with varying concentrations of drug, and generating implants of different sizes and porosity to achieve a desired delivery profile.
Development Programs
Below is a description of our existing development program for which activities have been substantially curtailed while we are exploring several financing and strategic alternatives.
TP-2021
Several years ago, we began limited non-clinical laboratory experiments in collaboration with JT Pharmaceuticals, Inc. (“JT Pharma”) to assess the feasibility of delivering JT Pharma’s kappa opioid agonist peptide (“TP-2021”) utilizing our ProNeura system. Following our acquisition of TP-2021 in October 2020, we successfully manufactured a prototype implant containing TP-2021 (TP-2021 - ProNeura) to be used in appropriate small animal models. While our initial work focused on TP-2021’s ability to activate peripheral kappa opioid receptors, potentially providing a non-addictive treatment for certain types of pain, in January 2021, our research pivoted to explore the feasibility of using TP-2021 in the treatment of chronic pruritus, a severe and debilitating condition defined as itching of the skin lasting longer than six weeks. According to a 2015 review by Mollanazar, N., et al., an estimated 23 – 44 million Americans suffer from chronic pruritus of both cutaneous and systemic etiologies. Current treatments include antihistamines, corticosteroids, and over-the-counter lotions, all of which are relatively ineffective and/or have undesirable side-effect profiles. The antipruritic effect of kappa opioid agonists is thought to be related to their binding to kappa opioid receptors on keratinocytes, immune cells, and peripheral itch neurons.
In February 2021, we announced that early non-clinical studies of TP-2021 showed very high affinity and specificity for the human kappa opioid receptor and demonstrated potent antipruritic activity when injected subcutaneously in a mouse model for moderate to severe pruritus. TP-2021 - ProNeura implants were then formulated and tested in this model. In November 2021, data presented at the annual meeting of the Society for Neuroscience demonstrated that significant reduction in scratching behavior in this proven animal model for pruritus was maintained in mice who received the TP-2021 - ProNeura implant through Day 56 post-implantation, when compared with control untreated mice, with no safety issues observed for the implanted animals over the three-month duration of treatment. Subsequently, efficacy in this pruritus model has been extended through Day 84 post-implantation. In addition, the TP-2021 - ProNeura implant provided sustained supra-therapeutic plasma levels of the peptide through Day 84 post-implantation in a separate pharmacokinetic study in mice. We believe that subdermal implantation of TP-2021 - ProNeura could potentially deliver therapeutic concentrations of TP-2021 in human subjects for up to six months or longer following a single in-office procedure. Investigational New Drug (“IND”) enabling non-clinical safety and pharmacology studies will need to be conducted in preparation for regulatory approval to enter human clinical studies. Additional funding from external sources for progression of the non-clinical program is required but will be dependent on finding a suitable partner.
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Agreements
JT Pharmaceuticals
In October 2020, we entered into an asset purchase agreement with JT Pharma (the “JT Agreement”) to acquire JT Pharma’s kappa opioid agonist peptide, TP-2021, for use in combination with our ProNeura long-term, continuous drug delivery technology for the treatment of chronic pruritus and other potential medical applications. Under the terms of the JT Agreement, JT Pharma received a $15,000 closing payment and is entitled to receive future milestone payments, payable in cash or in stock, based on the achievement of regulatory milestones, and single-digit percentage earn-out payments on net sales of the product if successfully developed and approved for commercialization. In January 2022, in connection with our entry into a clarification agreement with JT Pharma, we made the first milestone payment under the JT Agreement of $100,000 and issued 2,552 shares of our common stock related to the successful completion of a proof-of-concept study in an animal model.
Knight
Pursuant to an agreement executed in February 2016, Knight Therapeutics Inc. (“Knight”) obtained an exclusive license to commercialize Probuphine in Canada as well as a right of first negotiation in the event we intend to license commercialization rights to any other products in Canada (as amended, the “Knight Agreement”). The Knight Agreement was included in the ProNeura Assets sold to Fedson in September 2023. Prior to being sold to Fedson, we were entitled to receive royalty payments from Knight on net sales of Probuphine in Canada ranging in percentage from the low-teens to the mid-thirties. In addition, we had agreed to be the exclusive supplier of Probuphine to Knight subject to a supply agreement between us and Knight. During the term of the Knight Agreement, we could not commercialize any product in Canada containing buprenorphine that is intended for a treatment duration of six months or more.
Intellectual Property
Our goal is to obtain, maintain and enforce patent protection for our product candidates, formulations, processes, methods and any other proprietary technologies, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and in other countries. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current product candidates and any future product candidates, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the United States and abroad. However, patent protection may not afford us with complete protection against competitors who seek to circumvent our patents.
We also depend upon the skills, knowledge, experience and know-how of our management and research and development personnel, as well as that of our advisors, consultants and other contractors. To help protect our proprietary know-how, which may not be patentable, and for inventions for which patents may be difficult to enforce, we currently rely and will in the future rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.
We have filed patent applications to the use of a kappa-opioid receptor agonist implant for the treatment of pruritus. The applications are pending in the United States, Australia, Canada, China, Europe, Japan, and Mexico. Any patents issuing from these applications will expire in 2042, absent any adjustment or extension of patent term.
Future court decisions or changes in patent law might materially affect the patent applications or any resulting patents, including, but not limited to, their expiration dates.
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Competition
The pharmaceutical and biotechnology industries are characterized by rapidly evolving technology and intense competition. Our product development programs are currently in non-clinical stages of development and once these commence clinical development we can assess and provide details on specific competitive environment.
Manufacturing
Prior to the sale of our ProNeura Assets to Fedson, formulation development was conducted at a dedicated facility established at Southwest Research Institute (“SwRI®”), in San Antonio, Texas that included current good manufacturing practices (“cGMP”) manufacturing and testing capabilities. We also received support services from the vast array of SwRI groups with expertise in manufacturing and material sciences. The facilities were compliant with both FDA and Drug Enforcement Agency (“DEA”) requirements enabling us to work with controlled substances, and the manufacturing scale was ideal for product development during non-clinical and clinical testing stages.
Manufacturing of Probuphine was primarily conducted at DPT Laboratories, Inc. (“DPT”), pursuant to a commercial manufacturing agreement with DPT that governed the terms of the production and supply of Probuphine for the United States, Canada and EU. In October 2020, we entered into a Debt Settlement and Release Agreement (“DSRA”), which transferred the manufacturing facility at DPT to L. Molteni & C. Dei Frattelli Alitti Societa Di Esercizio S.P.A. (“Molteni”). Under the DSRA, we retained access to the facility, through Molteni, for the manufacture and supply of Probuphine to Knight for Canada.
Government Regulation
Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labelling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority.
In the United States, the FDA regulates drugs and devices under the Food, Drug and Cosmetics Act (“FDCA”). Drugs and devices are also subject to other federal, state and local statutes and regulations. Products composed of both a drug product and device product are deemed combination products. If marketed individually, each component would be subject to different regulatory pathways and reviewed by different centers within the FDA. A combination product, however, is assigned to a center that will have primary jurisdiction over its regulation based on a determination of the combination product’s primary mode of action, which is the single mode of action that provides the most important therapeutic action. In the case of some of our product candidates, we expect the primary mode of action to be attributable to the drug component of the product, which means that the FDA’s Center for Drug Evaluation and Research would have primary jurisdiction over the premarket development, review and approval. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and includes the following:
| ● | Our product candidates must be approved by the FDA through the New Drug Application (“NDA”) process before they may be legally marketed in the United States. The process required by the FDA before a drug may be marketed in the United States generally involves the following: |
| ● | Completion of extensive nonclinical laboratory tests, animal studies and formulation studies in accordance with applicable regulations, including the FDA’s Good Laboratory Practice (“GLP”) regulations; |
| ● | Submission to the FDA of an IND application, which must become effective before human clinical trials may begin; |
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| ● | Approval by an independent institutional review board (“IRB”) or ethics committee at each clinical trial site before each trial may be initiated; |
| ● | Performance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical trial-related regulations, referred to as good clinical practices (“GCPs”) to establish the safety and efficacy of the proposed drug for each proposed indication; |
| ● | Submission to the FDA of an NDA for a new drug; |
| ● | A determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review; |
| ● | Satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; |
| ● | Potential FDA audit of the nonclinical study and/or clinical trial sites that generated the data in support of the NDA; and |
| ● | FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug in the United States. |
The nonclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.
The data required to support an NDA is generated in two distinct development stages: nonclinical and clinical. For new chemical entities, the nonclinical development stage generally involves synthesizing the active component, developing the formulation and determining the manufacturing process, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies in the laboratory, which support subsequent clinical testing. These nonclinical tests include laboratory evaluation of product chemistry, formulation, stability and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product. The conduct of the nonclinical tests must comply with federal regulations, including GLPs. The sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to humans. Some nonclinical testing may continue even after the IND is submitted, but an IND must become effective before human clinical trials may begin. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human trials. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials, including concerns that human research subjects will be exposed to unreasonable health risks, and places the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that could cause the trial to be suspended or terminated.
The clinical stage of development involves the administration of the drug candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an IRB at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completion. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.
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Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. Additionally, a manufacturer may need to recall a product from the market. Any agency or judicial enforcement action could have a material adverse effect on us.
Employees
As of March 25, 2024, we had four full-time employees.
Corporate Information
We were incorporated under the laws of the State of Delaware in February 1992. Our principal executive offices are located at 400 Oyster Point Blvd., Suite 505, South San Francisco, CA 94080. Our telephone number is (650) 244-4990. We make our SEC filings available on the Investor Relations page of our website, http://titanpharm.com. Information contained on our website is not part of this Annual Report on Form 10-K.
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| Item 1A. | Risk Factors |
Risks Related to Our Financial Condition and Need for Additional Capital
We have incurred net losses in almost every year since our inception, which losses will continue for the foreseeable future and raise substantial doubt about our ability to continue as a going concern.
We have incurred net losses in almost every year since our inception. Our financial statements have been prepared assuming that we will continue as a going concern. For the years ended December 31, 2023 and 2022, we had net losses of approximately $5.6 million and $10.2 million, respectively, and had net cash used in operating activities of approximately $7.1 million and $8.2 million, respectively. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital, which have declined in the past year. At December 31, 2023, we had working capital of approximately $6.6 million compared to working capital of approximately $1.0 million at December 31, 2022. At December 31, 2023, we had cash and cash equivalents of approximately $6.8 million. We expect to continue to incur net losses and negative operating cash flow for the foreseeable future. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to obtain third-party funding for our development programs.
We will require additional proceeds to fund our product development programs and working capital requirements.
We currently estimate that our available cash and cash equivalents will be sufficient to fund our working capital needs into the second quarter of 2025. We will require substantial additional funds to advance our kappa opioid agonist program beyond the proof-of-concept stage, and to fund any other development programs into the clinic and to complete the regulatory approval process necessary to commercialize any products we might develop. Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. While we are currently evaluating the alternatives available to us, including government grants, third-party collaborations, and potential merger opportunities, our efforts to address our liquidity requirements may not be successful. Furthermore, there can be no assurance that any source of capital will be available to us on acceptable terms or will not involve substantial dilution to our stockholders. Our failure to obtain substantial funds would likely result in the cessation of our development programs or the wind-down of our business.
Our net operating losses and research and development tax credits may not be available to reduce future federal and state income tax payments.
At December 31, 2023, we had federal net operating loss and tax credit carryforwards of approximately $214.7 million and approximately $5.9 million, respectively, and state net operating loss and tax credit carryforwards of approximately $116.6 million and approximately $9.2 million, respectively, available to offset future taxable income, if any. Current federal and state tax laws include substantial restrictions on the utilization of net operating loss and tax credits in the event of an ownership change and we cannot assure you that our net operating loss and tax carryforwards will continue to be available.
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Risks Related to Our Business and Industry
Our development program is at a very early stage and will require substantial additional resources that may not be available to us.
To date, other than our work on Probuphine in OUD and our work on Nalmefene, which were sold to Fedson in September 2023, we have conducted only limited research and development activities assessing our kappa opioid agonist program. We will also require substantial additional funds to advance our kappa opioid agonist program beyond the proof-of-concept stage and to support further research and development activities, including the anticipated costs of nonclinical studies and clinical trials, regulatory approvals, and eventual commercialization of any therapeutic based on kappa opioid agonist or other programs. If we are unable to obtain substantial government grants or enter into third party collaborations to fund our programs, we will need to seek additional sources of financing, which may not be available on favorable terms, if at all. If we are unsuccessful in obtaining the requisite funding for our programs, we could be forced to discontinue product development. Furthermore, funding arrangements with collaborative partners or others may require us to relinquish rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves or license rights to technologies, product candidates or products on terms that are less favorable to us than might otherwise be available.
Our ability to successfully develop any future product candidates is subject to the risks of failure and delay inherent in the development of new pharmaceutical products, including: delays in product development, clinical testing, or manufacturing; unplanned expenditures in product development, clinical testing, or manufacturing; failure to receive regulatory approvals; emergence of superior or equivalent products; inability to manufacture on our own, or through any others, product candidates on a commercial scale; and failure to achieve market acceptance. Because of these risks, our research and development efforts may not result in any commercially viable products and our business, financial condition, and results of operations could be materially harmed.
Clinical trials required for new product candidates are expensive and time-consuming, and their outcome is uncertain.
Conducting clinical trials is a lengthy, time-consuming, and expensive process. The length of time may vary substantially according to the type, complexity, novelty, and intended use of the product candidate, and often can be several years or more per trial. Delays associated with products for which we are directly conducting clinical trials may cause us to incur additional operating expenses. The commencement and rate of completion of clinical trials may be delayed by many factors, including, for example:
| ● | inability to manufacture sufficient quantities of qualified materials under cGMP for use in clinical trials; |
| ● | slower than expected rates of patient recruitment; |
| ● | failure to recruit a sufficient number of patients; modification of clinical trial protocols; |
| ● | changes in regulatory requirements for clinical trials; |
| ● | the lack of effectiveness during clinical trials; |
| ● | the emergence of unforeseen safety issues; |
| ● | delays, suspension, or termination of the clinical trials due to the institutional review board responsible for overseeing the study at a particular study site; and |
| ● | government or regulatory delays or “clinical holds” requiring suspension or termination of the trials. |
The results from early clinical trials are not necessarily predictive of results obtained in later clinical trials. Accordingly, even if we obtain positive results from early clinical trials, we may not achieve the same success in future clinical trials. Clinical trials may not demonstrate statistically significant safety and effectiveness to obtain the requisite regulatory approvals for product candidates. The failure of clinical trials to demonstrate safety and effectiveness for the desired indications could cause us to abandon a product candidate and could delay development of other product candidates. Any delay in, or termination of, our clinical trials could materially harm our business, financial condition, and results of operations.
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We face risks associated with third parties conducting preclinical studies and clinical trials of our products.
We depend on third-party laboratories and medical institutions to conduct preclinical studies and clinical trials for our products and other third-party organizations to perform data collection and analysis, all of which must maintain both good laboratory and good clinical practices. We also depend upon third party manufacturers for the production of any products we may successfully develop to comply with cGMP of the FDA, which are similarly outside our direct control. If third party laboratories and medical institutions conducting studies of our products fail to maintain both good laboratory and clinical practices, the studies could be delayed or have to be repeated.
We face risks associated with product liability lawsuits that could be brought against us.
The testing, manufacturing, marketing and sale of human therapeutic products entail an inherent risk of product liability claims. We currently have a limited amount of product liability insurance, which may not be sufficient to cover claims that may be made against us in the event that the use or misuse of our product candidates causes, or merely appears to have caused, personal injury or death. In the event we are forced to expend significant funds on defending product liability actions, and in the event those funds come from operating capital, we will be required to reduce our business activities, which could lead to significant losses. Adequate insurance coverage may not be available in the future on acceptable terms, if at all. If available, we may not be able to maintain any such insurance at sufficient levels of coverage and any such insurance may not provide adequate protection against potential liabilities. Whether or not a product liability insurance policy is obtained or maintained in the future, any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources or destroy the prospects for commercialization of the product which is the subject of any such claim.
We may be unable to protect our patents and proprietary rights.
Our future success will depend to a significant extent on our ability to:
| ● | obtain and keep patent protection for our products, methods and technologies on a domestic and international basis; |
| ● | enforce our patents to prevent others from using our inventions; |
| ● | maintain and prevent others from using our trade secrets; and |
| ● | operate and commercialize products without infringing on the patents or proprietary rights of others. |
We cannot assure you that our patent rights will afford any competitive advantages, and these rights may be challenged or circumvented by third parties. Further, patents may not be issued on any of our pending patent applications in the United States or abroad. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that before a potential product can be commercialized, any related patent may expire or remain in existence for only a short period following commercialization, reducing or eliminating any advantage of the patent. If we sue others for infringing our patents, a court may determine that such patents are invalid or unenforceable. Even if the validity of our patent rights is upheld by a court, a court may not prevent the alleged infringement of our patent rights on the grounds that such activity is not covered by our patent claims.
In addition, third parties may sue us for infringing their patents. In the event of a successful claim of infringement against us, we may be required to:
| ● | pay substantial damages; |
| ● | stop using our technologies and methods; |
| ● | stop certain research and development efforts; |
| ● | develop non-infringing products or methods; and |
| ● | obtain one or more licenses from third parties. |
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If required, we cannot assure you that we will be able to obtain such licenses on acceptable terms, or at all. If we are sued for infringement, we could encounter substantial delays in development, manufacture and commercialization of our product candidates. Any litigation, whether to enforce our patent rights or to defend against allegations that we infringe third party rights, will be costly, time consuming, and may distract management from other important tasks.
We also rely in our business on trade secrets, know-how and other proprietary information. We seek to protect this information, in part, through the use of confidentiality agreements with employees, consultants, advisors and others. Nonetheless, we cannot assure you that those agreements will provide adequate protection for our trade secrets, know-how or other proprietary information and prevent their unauthorized use or disclosure. To the extent that consultants, key employees or other third parties apply technological information independently developed by them or by others to our proposed products, disputes may arise as to the proprietary rights to such information, which may not be resolved in our favor.
We must comply with extensive government regulations.
The research, development, manufacture, labelling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of pharmaceutical products are subject to an extensive regulatory approval process by the FDA in the United States and comparable health authorities in foreign markets. The process of obtaining required regulatory approvals for drugs is lengthy, expensive and uncertain. Approval policies or regulations may change, and the FDA and foreign authorities have substantial discretion in the pharmaceutical approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed. Regulatory approval may entail limitations on the indicated usage of a drug, which may reduce the drug’s market potential. Even if regulatory clearance is obtained, post-market evaluation of the products, if required, could result in restrictions on a product’s marketing or withdrawal of the product from the market, as well as possible civil and criminal sanctions. Of the large number of drugs in development, only a small percentage successfully complete the regulatory approval process and are commercialized.
We face intense competition.
With respect to our product development programs, we face competition from numerous companies that currently market, or are developing, products for the treatment of the diseases and disorders we have targeted, many of which have significantly greater research and development capabilities, experience in obtaining regulatory approvals and manufacturing, marketing, financial and managerial resources than we have. We also compete with universities and other research institutions in the development of products, technologies and processes, as well as the recruitment of highly qualified personnel. Our competitors may succeed in developing technologies or products that are more effective than the ones we have under development or that render our proposed products or technologies non-competitive or obsolete. In addition, our competitors may achieve product commercialization or patent protection earlier than we will.
We depend on a small number of employees and consultants.
We are highly dependent on the services of a limited number of personnel and the loss of one or more of such individuals could substantially impair our ongoing commercialization efforts. We compete in our hiring efforts with other pharmaceutical and biotechnology companies, and it may be difficult and could take an extended period of time because of the limited number of individuals in our industry with the range of skills and experience required and because of our limited resources.
In addition, we retain scientific and clinical advisors and consultants to assist us in all aspects of our business. Competition to hire and retain consultants from a limited pool is intense. Further, because these advisors are not our employees, they may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.
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We face potential liability related to the privacy of health information we obtain from clinical trials sponsored by us or our collaborators, from research institutions and our collaborators, and directly from individuals.
Numerous federal and state laws, including state security breach notification laws, state health information privacy laws, and federal and state consumer protection laws, govern the collection, use, and disclosure of personal information. In addition, most health care providers, including research institutions from which we or our collaborators obtain patient health information, are subject to privacy and security regulations promulgated under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as amended by the Health Information Technology for Economic and Clinical Health Act. Although we are not directly subject to HIPAA, we could potentially be subject to criminal penalties if we, our affiliates, or our agents knowingly obtain or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
Rising inflation and interest rates could negatively impact our revenues, profitability and borrowing costs. In addition, if our costs increase and we are not able to correspondingly adjust our commercial relationships to account for this increase, our net income would be adversely affected, and the adverse impact may be material.
Inflation rates, particularly in the United States, have increased recently to levels not seen in years before retreating in the latter part of 2023. Increased inflation may result in decreased demand for our products, increased operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital. In addition, the United States Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation. Increases in interest rates have had, and could continue to have, a material impact on our borrowing costs. In an inflationary environment, we may be unable to raise the sales prices of our products at or above the rate at which our costs increase, which could reduce our profit margins and have a material adverse effect on our financial results and net income. We also may experience lower than expected sales if there is a decrease in spending on products in our industry in general or a negative reaction to our pricing. A reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse impact on our future growth.
We face risks related to health epidemics, such as the COVID-19 global pandemic, that could adversely affect our operations or financial results.
The COVID-19 pandemic had a material adverse effect on our business and caused significant disruption in the healthcare industry. Although we expect that the primary impacts of the COVID-19 pandemic are behind us, as we have seen with the spread of the Delta and Omicron variants, the extent to which COVID-19 continues to impact our business, healthcare systems in general or the global economy as a whole will depend on future developments that are highly uncertain and cannot be predicted and may result in a sustained economic downturn that could affect our ability to access capital on reasonable terms, or at all.
We are increasingly dependent on information technology systems, infrastructure and data. Cybersecurity breaches could expose us to liability, damage our reputation, compromise our confidential information or otherwise adversely affect our business.
We are increasingly dependent upon information technology systems, infrastructure and data. Our computer systems may be vulnerable to service interruption or destruction, malicious intrusion and random attack. Security breaches pose a risk that sensitive data, including intellectual property, trade secrets or personal information may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include the deployment of harmful malware, denial-of service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. Our key business partners face similar risks, and a security breach of their systems could adversely affect our security posture. While we continue to invest in data protection and information technology, there can be no assurance that our efforts will prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and/or result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm.
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Risks Related to our Common Stock
Our share price may be volatile, which could prevent you from being able to sell your shares at or above your purchase price.
The market price of shares of our common stock has been and may continue to be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
| ● | results of our product development efforts; |
| ● | regulatory actions with respect to our products under development or our competitors’ products; |
| ● | actual or anticipated fluctuations in our financial condition and operating results; |
| ● | actual or anticipated fluctuations in our competitors’ operating results or growth rate; |
| ● | announcements by us, our potential future collaborators or our competitors of significant acquisitions, strategic collaborations, joint ventures, or capital commitments; |
| ● | issuance of new or updated research or reports by securities analysts; |
| ● | fluctuations in the valuation of companies perceived by investors to be comparable to us; |
| ● | inconsistent trading volume levels of our shares; |
| ● | additions or departures of key personnel; |
| ● | disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; |
| ● | announcement or expectation of additional financing efforts; |
| ● | sales of our common stock by us, our insiders or our other stockholders; |
| ● | market conditions for biopharmaceutical stocks in general; and |
| ● | general economic and market conditions. |
The stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of shares of our common stock and could subject us to securities class action litigation.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
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Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our Board is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board. Among other things, these provisions provide that:
| ● | the authorized number of directors can be changed only by resolution of our Board; |
| ● | our bylaws may be amended or repealed by our Board or our stockholders; |
| ● | stockholders may not call special meetings of the stockholders or fill vacancies on the Board; |
| ● | our Board is authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined at the discretion of the Board and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our Board does not approve; |
| ● | our stockholders do not have cumulative voting rights, and therefore our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors; and |
| ● | our stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder meeting. |
If we cannot continue to satisfy the Nasdaq Capital Market continued listing standards and other Nasdaq rules, our common stock could be delisted, which would harm our business, the trading price of our common stock, our ability to raise additional capital and the liquidity of the market for our common stock.
Our Common Stock is currently listed on the Nasdaq Capital Market (“Nasdaq”). The listing standards of Nasdaq require that a company maintain stockholders’ equity of at least $2.5 million and a minimum bid price subject to specific requirements of $1.00 per share. There is no assurance that we will be able to maintain compliance with the minimum closing price requirement or the minimum stockholders’ equity requirement. Should we fail to comply with the minimum listing standards applicable to issuers listed on Nasdaq, our common stock may be delisted from Nasdaq. If our common stock is delisted, it could reduce the price of our common stock and the levels of liquidity available to our stockholders.
If our common stock were to be delisted from Nasdaq and was not eligible for quotation or listing on another market or exchange, trading of our common stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further.
In addition to the foregoing, if our common stock is delisted from Nasdaq and it trades on the over-the- counter market, the application of the “penny stock” rules could adversely affect the market price of our common stock and increase the transaction costs to sell those shares. The SEC has adopted regulations which generally define a “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. If our common stock is delisted from Nasdaq and it trades on the over-the- counter market at a price of less than $5.00 per share, our common stock would be considered a penny stock. The SEC’s penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that before a transaction in a penny stock occurs, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s agreement to the transaction. If applicable in the future, these rules may restrict the ability of brokers-dealers to sell our common stock and may affect the ability of investors to sell their shares, until our common stock no longer is considered a penny stock.
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Future sales of our common stock, or the perception that future sales may occur, may cause the market price of our common stock to decline, even if our business is doing well.
Sales by our stockholders of a substantial number of shares of our common stock in the public market could occur in the future. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock.
We will seek to raise additional funds and may finance acquisitions or develop strategic relationships by issuing securities that would dilute your ownership. Depending on the terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our shares of common stock.
We have financed our operations, and we expect to continue seeking to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity and/or convertible securities, which could significantly reduce the percentage ownership of our existing stockholders. Further, any additional financing that we secure, including any debt financing, may require the granting of rights, preferences or privileges senior to, or pari passu with, those of our common stock. Any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our common stock to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to our shares of common stock. The holders of any securities or instruments we may issue may have rights superior to the rights of our common stockholders. If we experience dilution from the issuance of additional securities and we grant superior rights to new securities over common stockholders, it may negatively impact the trading price of our shares of common stock, and you may lose all or part of your investment.
Certain of our stockholders have significant voting power over our common stock and may vote their shares in a manner that is not in the best interest of other stockholders.
One of our stockholders, Choong Choon Hau, controls approximately 26.42% of the voting power represented by our outstanding shares of common stock. In addition, The Sire Group Ltd. (“Sire”) owns 950,000 shares of Series AA Convertible Preferred Stock. Each share of Series AA Preferred Stock is convertible into shares of our common stock, subject to ownership limitations set forth in the Certificate of Designations, Preferences and Rights of Series AA Convertible Preferred Stock (the “Certificate of Designations”). The Series AA Preferred Stock has certain voting rights set forth in the Certificate of Designations.
Such stockholders may be able to exert significant control over our management and affairs requiring stockholder approval, including approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of all of our stockholders.
We identified a material weakness in our internal control over financial reporting as of December 31, 2023 and this or other material weaknesses could continue to materially impair our ability to report accurate financial information in a timely manner.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of its disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act for the year ended December 31, 2023. Based on such evaluation, the principal executive officer and principal financial officer has concluded that our disclosure controls and procedures were not effective as of December 31, 2023 due to the identified material weakness in internal control over financial reporting as discussed below.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Our management, under the supervision and with the participation of the principal executive officer and principal financial officer, conducted an assessment of the effectiveness of internal control over financial reporting as of December 31, 2023, based on the framework and criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO framework). Based on this assessment, management concluded that, as of December 31, 2023, its internal control over financial reporting was not effective due to the existence of the material weakness described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis. Our management identified a deficiency in our internal control over financial reporting that gave rise to a material weakness. The deficiency primarily related to limited finance and accounting staffing levels not commensurate with our complexity and our financial accounting and reporting requirements. We underwent organizational changes in 2023 and 2022, including multiple reductions in our workforce, and operate with a very lean finance and accounting department. This limited staffing resulted in a lack of resources to fully monitor and operate our internal controls over financial reporting as of December 31, 2023, resulting in a deficiency being discovered during our annual auditing process.
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Our management continues to evaluate the material weakness discussed above and is implementing its remediation plan as further described in Item 9A below. However, assurance as to when the remediation efforts will be complete cannot be provided and the material weakness cannot be considered remedied until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Our management cannot provide assurances that the measures that have been taken to date, and are continuing to be implemented, will be sufficient to remediate the material weakness identified or to avoid potential future material weaknesses.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which would adversely affect investor confidence in our company and harm our business.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations in a timely manner, or at all. Testing by us conducted in connection with Section 404(a) of the Sarbanes Oxley Act may reveal material weaknesses in our internal controls over financial reporting related to our limited finance, accounting and IT staffing levels. While we are implementing our remediation plan as further described in Item 9A below, we cannot provide assurances that the measures that have been taken to date, and are continuing to be implemented, will be sufficient to remediate the material weakness identified or to avoid potential future materials weaknesses. Subsequent testing by our independent registered public accounting firm in connection with Section 404(b) of the Sarbanes Oxley Act may reveal continued or additional deficiencies in our internal controls over financial reporting that are deemed to be significant deficiencies or material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
We are required to disclose material changes made in our internal controls over financing reporting and procedures on a quarterly basis and our management are required to assess the effectiveness of these controls annually. We are also required to make a formal assessment of the effectiveness of our internal control over financial reporting, and once we cease to be an emerging growth company or a non-accelerated filer, we will be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, for as long as we are a smaller reporting company under the JOBS Act or a non-accelerated filer, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act.
To achieve compliance with Section 404(a) of the Sarbanes-Oxley Act, we engage in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to implement our remediation plan, continue to dedicate internal resources, potentially engage additional outside consultants to assess the adequacy of our internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are designed and operating effectively and implement a continuous reporting and improvement process for internal control over financial reporting.
We have determined that, as of December 31, 2023, our disclosure controls and procedures were not effective due to the identified material weakness in internal control and financial reporting as described herein. The effectiveness of our internal controls in future periods is subject to the risk that our controls may become further inadequate because of changes in conditions. We may be unable to timely remediate our material weakness and may discover additional weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls over financial reporting, we may not be able to produce timely and accurate financial statements. If that were to happen, our investors could lose confidence in our reported financial information, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities including equivalent foreign authorities.
We have never paid any cash dividends and have no plans to pay any cash dividends in the future.
Our common stockholders are entitled to receive such dividends as may be declared by our Board. To date, we have paid no cash dividends on our shares of our preferred or common stock, and we do not expect to pay cash dividends in the foreseeable future. In addition, the declaration and payment of cash dividends is restricted under the terms of our existing Loan Agreement. We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our preferred or common stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock.
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| Item 1B. | Unresolved Staff Comments. |
None.
| Item 1C. | Cybersecurity. |
Risk Management and Strategy
We identify and address cybersecurity threats and risks related to our business using a multi-faceted approach that includes assessments by our management, external IT provider, and third-party service providers. To defend, detect and respond to cybersecurity incidents, we, among other things: conduct proactive privacy and cybersecurity reviews of systems and applications, audit applicable data policies, conduct employee training, monitor emerging laws and regulations related to data protection and information security and implement appropriate changes. Our management performs an annual review of third-party service providers’ Service Organization Controls (“SOC”) reports to verify appropriate controls are in place.
In 2023, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our ongoing efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced undetected cybersecurity incidents. Please refer to the risk factor titled “We are increasingly dependent on information technology systems, infrastructure and data. Cybersecurity breaches could expose us to liability, damage our reputation, compromise our confidential information or otherwise adversely affect our business.” in “Risk Factors” in Part I, Item 1A of this Form 10-K for more information on the risks posed to us by cybersecurity threats.
Cybersecurity Governance
Cybersecurity is an important part of our risk management processes and is an area of focus for our Board and management. Our Board, as a whole, has oversight responsibility for our strategic and operational risks, and ensures that appropriate risk mitigation strategies are implemented by management. Our Board periodically reviews and discusses our risk assessment and risk management practices, including cybersecurity risks, with members of management. In addition, our management is responsible for day-to-day assessment and management of cybersecurity risks.
| Item 2. | Properties |
Our executive offices are located in approximately 3,295 square feet of office space in South San Francisco, California that we occupy under a three-year operating lease expiring in June 2024. We believe that our existing facilities are adequate for our existing needs.
| Item 3. | Legal Proceedings |
In September 2023, Fedson, as further consideration for the Asset Purchase Agreement, agreed to assume all liabilities related to a pending employment claim initiated by a former employee alleging wrongful termination, retaliation, infliction of emotional distress, negligent supervision, hiring and retention and slander. See Note 5. Commitments and Contingencies.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
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PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Our common stock is listed on the Nasdaq Capital Market under the symbol “TTNP.”
Approximate Number of Equity Security Holders
At March 25, 2024, there were 914,234 shares of our common stock outstanding held by 98 holders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
Dividends
We have never declared or paid any cash dividends on our common stock, and we do not anticipate paying any cash dividends to stockholders in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board deems relevant.
Equity Compensation Plan Information
The following table sets forth aggregate information regarding our equity compensation plans in effect as of December 31, 2023:
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrant and rights (a) |
Weighted-average exercise price of outstanding options, warrants and rights (b) |
Number of securities remaining available for future issuance under equity compensation plans (c) |
|||||||||
| Equity compensation plans approved by security holders(1) | 93,059 | $ | 70.23 | 3,750 | ||||||||
| Equity compensation plans not approved by security holders(2) | 30 | $ | 10,101.02 | - | ||||||||
| Total | 93,089 | $ | 73.46 | 3,750 | ||||||||
| (1) | In June 2023, our stockholders approved an amendment to the 2015 Omnibus Equity Incentive plan to increase the number of authorized shares to 125,000 shares. |
| (2) | Includes 30 non-qualified stock options granted to employees, directors and consultants under our 2014 Incentive Plan. For a description of the 2014 Plan, see Note 8 Stock Plans to the accompanying financial statements. |
| Item 6. | [Reserved] |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
Titan is a pharmaceutical company incorporated as a Delaware corporation in 1992. Prior to the sale of assets that occurred in September 2023 (as described below), we focused on developing therapeutics utilizing the proprietary long-term drug delivery platform, ProNeura®, for the treatment of select chronic diseases for which steady state delivery of a drug has the potential to provide an efficacy and/or safety benefit. ProNeura consists of a small, solid implant made from a mixture of EVA and a drug substance. The resulting product is a solid matrix that is designed to be administered subdermally in a brief, outpatient procedure and is removed in a similar manner at the end of the treatment period.
Our first product based on the ProNeura technology was Probuphine® (buprenorphine implant), which is approved in the United States, Canada and the European Union (“EU”) for the maintenance treatment of opioid use disorder in clinically stable patients taking 8 mg or less a day of oral buprenorphine. While Probuphine continues to be commercialized in the EU (as Sixmo™) by another company that had acquired the rights from Titan, we discontinued commercialization of the product in the United States during the fourth quarter of 2020 and subsequently sold the product in September 2023. Discontinuation of our commercial operations has allowed us to focus our limited resources on important product development programs and transition back to a product development company.
In December 2021, we announced our intention to work with our financial advisor to explore strategic alternatives to enhance stockholder value, potentially including an acquisition, merger, reverse merger, other business combination, sales of assets, licensing or other transaction. In June 2022, we implemented a plan to reduce expenses and conserve capital that included a company-wide reduction in salaries and a scale back of certain operating expenses to enable us to maintain sufficient resources as we pursued potential strategic alternatives. In July 2022, Mr. Lazar and Activist acquired an approximately 25% ownership interest in Titan, filed a proxy statement and nominated six additional directors, each of whom was elected to our Board at the Special Meeting on August 15, 2022. The exploration and evaluation of possible strategic alternatives by the Board has continued following the Special Meeting. Following the election of the new directors at the Special Meeting, Dr. Marc Rubin was replaced as our Executive Chairman, and David Lazar assumed the role of Chief Executive Officer. In connection with the termination of his employment as Executive Chairman, Dr. Rubin received aggregate severance payments of approximately $0.4 million. In December 2022, we implemented additional cost reduction measures including a reduction in our workforce. In June 2023, David Lazar sold his approximately 25% ownership interest in Titan to Choong Choon Hau, an outside investor. Mr. Lazar remains Titan’s Chief Executive Officer.
In July 2023, we entered into the Asset Purchase Agreement with Fedson for the sale of the ProNeura Assets, with closing occurring on September 1, 2023. Our addiction portfolio consisted of the Probuphine and Nalmefene implant programs. The ProNeura Assets constituted only a portion of our assets. In August 2023, we entered into an Amendment and Extension Agreement pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form the Cash Note and (iii) $1,000,000 in the form of the Escrow Note. We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the payment of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. We believe the following accounting policies and estimates for the years ended December 31, 2023 and 2022 to be applicable:
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Revenue Recognition
We generate revenue principally from collaborative research and development arrangements, sales or licenses of technology 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.
Grant Revenue
We have contracts with National Institute on Drug Abuse (“NIDA”), the Bill & Melinda Gates Foundation, and other government-sponsored organizations for research and development related activities that provide for payments for reimbursed costs, which may include overhead and general and administrative costs. We recognize revenue from these contracts as we perform services under these arrangements when the funding is committed. Associated expenses are recognized when incurred as research and development expense. Revenues and related expenses are presented gross in the statements of operations.
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.
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).
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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.
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.
Share-Based Payments
We recognize compensation expense for all share-based awards made to employees, directors and consultants. The fair value of share-based awards is estimated at the grant date based on the fair value of the award and is recognized as expense, net of estimated pre-vesting forfeitures, ratably over the vesting period of the award.
We use the Black-Scholes option pricing model to estimate the fair value method of our awards. Calculating stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the share-based awards, stock price volatility, and pre-vesting forfeitures. We estimate the expected term of stock options granted for the years ended December 31, 2023 and 2022 based on the historical experience of similar awards, giving consideration to the contractual terms of the share-based awards, vesting schedules and the expectations of future employee behavior. We estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest. We estimate the pre-vesting forfeiture rate based on historical experience. If our actual forfeiture rate is materially different from our estimate, our stock-based compensation expense could be significantly different from what we have recorded in the current period.
Income Taxes
We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
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As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.
We assess the likelihood that we will be able to recover our deferred tax assets. We consider all available evidence, both positive and negative, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is not more likely than not that we will recover our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.
Clinical Trial Accruals
We also record accruals for estimated ongoing clinical trial costs. Clinical trial costs represent costs incurred by Contract Research Organizations (“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. The actual clinical trial costs for studies conducted in the past two years have not differed materially from the estimated projection of expenses.
Warrants Issued in Connection with Equity Financing
We generally account for warrants issued in connection with equity financings as a component of equity, unless there is a deemed possibility that we may have to settle warrants in cash. For warrants issued with deemed possibility of cash settlement, we record the fair value of the issued warrants as a liability at each reporting period and record changes in the estimated fair value as a non-cash gain or loss in the statements of operations.
Leases
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 balance sheet as right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current.
Liquidity and Capital Resources
We have funded our operations since inception primarily through the sale of our securities and the issuance of debt, as well as with proceeds from warrant and option exercises, corporate licensing and collaborative agreements, the sale of royalty rights, and government-sponsored research grants. At December 31, 2023, we had working capital of approximately $6.6 million compared to working capital of approximately $1.0 million at December 31, 2022.
| 2023 | 2022 | |||||||
| As of December 31: | ||||||||
| Cash and cash equivalents | $ | 6,761 | $ | 2,937 | ||||
| Working capital | $ | 6,574 | $ | 973 | ||||
| Current ratio | 5.55:1 | 1.37:1 | ||||||
| For the Years Ended December 31: | ||||||||
| Cash used in operating activities | $ | (7,092 | ) | $ | (8,183 | ) | ||
| Cash provided by investing activities | $ | 732 | $ | - | ||||
| Cash provided by financing activities | $ |
10,000 |
$ | 4,984 | ||||
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Net cash used in operating activities for the year ended December 31, 2023 consisted primarily of the net loss for the period of approximately $5.6 million, approximately $1.8 million of gains related to the sale of assets and approximately $1.2 million related to net changes in operating assets and liabilities. This was partially offset by approximately $1.3 million of non-cash stock-based compensation and approximately $0.1 million of depreciation and amortization expense. Uses of cash in operating activities were primarily to fund our product development programs and administrative expenses.
Net cash provided by investing activities for the year ended December 31, 2023 was primarily related to net proceeds from the sale of assets and liabilities to Fedson.
Net cash provided by financing activities for the year ended December 31, 2023 consisted of approximately $9.5 million of net cash proceeds from the issuance of preferred stock and approximately $0.8 million of proceeds from short-term debt. This was partially offset by approximately $0.3 million related to payments on short-term notes payable.
In September 2023, we entered into a purchase agreement with Sire Group, pursuant to which we agreed to issue 950,000 shares of our Series AA Convertible Preferred Stock at a price of $10.00 per share, for an aggregate purchase price of $9.5 million. The purchase price consisted of (i) $5.0 million in cash at closing and (ii) $4.5 million in the form of a promissory note from Sire Group which was paid in September 2023. The net cash proceeds from this transaction were approximately $9.5 million.
In September 2023, we closed on the sale of the ProNeura Assets pursuant to the Asset Purchase Agreement with Fedson. The ProNeura Assets constituted only a portion of our assets. In August 2023, we entered into an Amendment to the Asset Purchase Agreement, pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form of the Cash Note and (iii) $1,000,000 in the form of the Escrow Note. We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of all of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the payment of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024.
In August 2023, we received $500,000 in funding in exchange for the issuance of a convertible promissory note for that principal amount to Choong Choon Hau (the “Hau Promissory Note”). Pursuant to the Hau Promissory Note, the principal amount will accrue interest at a rate of 10% per annum and will be payable monthly. All principal and accrued interest shall be due and payable on January 8, 2024, unless extended as provided. All or part of the Hau Promissory Note can be converted into our common stock at a conversion price of $9.32 per share from time to time following the issuance date and ending on the maturity date. In March 2024, the Hau Promissory Note, along with accrued interest, was converted into 54,132 shares of our common stock.
In February 2022, we completed a registered direct offering with an accredited investor pursuant to which we issued an aggregate of 55,000 shares of our common stock and 113,713 pre-funded warrants to purchase shares of our common stock, with an exercise price of $0.02 per share. In a concurrent private placement, we sold unregistered pre-funded warrants to purchase an aggregate of 64,499 shares of common stock with an exercise price of $0.02 per share and issued unregistered five year and six month warrants to purchase an aggregate of 233,202 shares of common stock with an exercise price of $22.80. The net cash proceeds from these offerings were approximately $5.0 million after deduction of underwriting fees and other offering expenses.
At December 31, 2023, we had cash and cash equivalents of approximately $6.8 million, which we believe is sufficient to fund our planned operations into the second quarter of 2025. We will require additional funds to finance our operations. We are exploring several financing and strategic alternatives; however, there can be no assurance that our efforts will be successful.
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Results of Operations
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Revenues
| For the Years ended December 31, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Revenue: | ||||||||||||
| License revenue | $ | 1 | $ | 60 | $ | (59 | ) | |||||
| Grant revenue | 183 | 497 | (314 | ) | ||||||||
| Total revenue | $ | 184 | $ | 557 | $ | (373 | ) | |||||
License revenues for the year ended December 31, 2023 consisted of royalties received on sales of Probuphine by Knight in Canada. License revenues for the year ended December 31, 2022 consisted primarily of an upfront license payment of approximately $50,000 related to the use of our ProNeura technology for ophthalmic use and royalties received on sales of Probuphine by Knight in Canada.
The decrease in grant revenue was primarily due to decreased activities related to the NIDA grant for the development of a Nalmefene implant and the Bill & Melinda Gates Foundation grant.
Operating Expenses
| For the Years ended December 31, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 1,913 | $ | 4,758 | $ | (2,845 | ) | |||||
| General and administrative | 5,548 | 6,034 | (486 | ) | ||||||||
| Total operating expenses | $ | 7,461 | $ | 10,792 | $ | (3,331 | ) | |||||
The decrease in research and development costs was primarily associated with reduced activities related to non-clinical studies required for the IND submission as part of our NIDA grant for the development of a Nalmefene implant, decreases in expenses related to initial non-clinical proof of concept studies related to our TP-2021 implant program and decreases in research and development personnel-related costs and other expenses following our December 2022 reduction in our workforce. Other research and development expenses include internal operating costs such as research and development personnel-related expenses, non-clinical and clinical product development related travel expenses, and allocation of facility and corporate costs. As a result of the risks and uncertainties inherently associated with pharmaceutical research and development activities described elsewhere in this document, we are unable to estimate the specific timing and future costs of our clinical development programs or the timing of material cash inflows, if any, from our product candidates. However, we anticipate that our research and development expenses will increase as we continue our current or any future development programs to the extent these costs are not supported through grants or partners.
The decrease in general and administrative expenses was primarily related to decreases in legal and other professional fees. This was partially offset by increases in employee-related expenses, non-cash stock-based compensation and Director fees.
Other Expenses, Net
| For the Years ended December 31, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Other income (expense): | ||||||||||||
| Interest income, net | $ | 5 | $ | 53 | $ | (48 | ) | |||||
| Other expense, net | (52 | ) | (24 | ) | (28 | ) | ||||||
| Gain on asset sale | 1,755 | - | 1,755 | |||||||||
| Other income, net | $ | 1,708 | $ | 29 | $ | 1,679 | ||||||
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Net Loss and Net Loss per Share
Our net loss applicable to common stockholders for the year ended December 31, 2023 was approximately $5.6 million, or approximately $7.41 per share, compared to our net loss continuing operations applicable to common stockholders of approximately $10.2 million, or approximately $15.19 per share, for the comparable period in 2022.
Off-Balance Sheet Arrangements
We have never entered into any off-balance sheet financing arrangements, and we have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
| Item 8. | Financial Statements and Supplementary Data. |
The response to this item is included in a separate section of this Report. See “Index to Financial Statements” on Page F-1.
| Item 9. | Changes and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. | Controls and Procedures. |
(a) Evaluation of Disclosure Controls and Procedures: Our principal executive and financial officers reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were not effective for the timely provision of material information relating to Titan, as required to be disclosed in the reports we file under the Exchange Act due to the identification of a material weakness in internal control over financial reporting described below in the Item 9A.
Notwithstanding the conclusion by principal executive and financial officers that the disclosure controls and procedures as of December 31, 2023 were not effective and the material weakness identified in internal controls over financial reporting described below, management believes that the consolidated financial statements and related financial information included in this Annual Report on Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States (US GAAP).
(b) Management’s Annual Report on Internal Control Over Financial Reporting:
Internal control over financial reporting refers to the process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
| (1) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| (2) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and |
| (3) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements. |
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Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management overrides. Due to such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over financial reporting for Titan.
Management has used the framework set forth in the report entitled Internal Control—Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), known as COSO, to evaluate the effectiveness of Titan’s internal control over financial reporting. Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of December 31, 2023.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis. Our management identified a deficiency in our internal control over financial reporting that gave rise to a material weakness. The deficiency primarily related to limited finance and accounting staffing levels not commensurate with our complexity and our financial accounting and reporting requirements. We underwent organizational changes in 2023 and 2022, including multiple reductions in workforce and operate with a very lean finance and accounting department. This limited staffing resulted in a lack of resources to fully monitor and operate our internal controls over financial reporting as of December 31, 2023, resulting in a deficiency being discovered during our annual auditing process.
Management discovered a material weakness in our internal controls over financial reporting which resulted in the misclassification of issuance costs of approximately $0.4 million related to the issuance of preferred stock during the three months ended September 30, 2023.
Remediation Activities
Management continues to evaluate the material weakness discussed above, has created a remediation plan that it has already begun implementing and continues to finalize that plan's implementation. For example, we will be hiring a new Chief Financial Officer to oversee our controls environment and continue to utilize a Sarbanes-Oxley compliance firm to assist in testing and implementing additional controls and procedures in our finance and accounting department. We have corrected the deficiency discovered during our annual audit process prior to the filing of this annual report. However, assurance as to when all remediation efforts will be complete cannot be provided and the material weakness cannot be considered remedied until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Management cannot provide assurances that the measures that have been taken to date, and are continuing to be implemented, will be sufficient to remediate the material weakness identified or to avoid potential future material weaknesses.
(c) Changes in Internal Control Over Financial Reporting: Other than with respect to the ongoing remediation efforts described above, there were no other changes in our internal control over financial reporting (as defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Securities Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are smaller reporting company and a non-accelerated filer, and therefore our independent registered public accounting firm has not issued a report on the effectiveness of internal control over financial reporting.
| Item 9B. | Other Information. |
| Item 9C. | Disclosure Regarding Foreign Jurisdictions That Prevent Inspections. |
Not applicable.
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PART III
| Item 10. | Directors, Executive Officers and Corporate Governance |
Set forth below are the name, age and position and a brief account of the business experience of each of our executive officers and directors:
| Name | Age | Office | Director Since | |||
| David E. Lazar | 33 | Chief Executive Officer, | August 2022 | |||
| Katherine Beebe DeVarney, Ph.D. | 63 | President, Chief Operating Officer and Director | December 2019 | |||
| Avraham Ben-Tzvi, Adv. (3) | 53 | Director | August 2022 | |||
| Brynner Chiam | 46 | Director | October 2023 | |||
| Eric Greenberg (1)(2)(3) | 59 | Director | August 2022 | |||
| Matthew C. McMurdo, Esq.(1)(2)(3) | 52 | Director | August 2022 | |||
| David Natan (1)(2) | 70 | Director | August 2022 | |||
| Dato’ Seow Gim Shen | 41 | Chairman of the Board | October 2023 |
| (1) | Member of the audit committee |
| (2) | Member of the compensation committee |
| (3) | Member of the nominating and governance committee |
David E. Lazar has served as the Chief Executive Officer of Custodian Ventures LLC, a company which specializes in assisting distressed public companies through custodianship, since February 2018, and Activist Investing LLC, an actively managed investment fund, since March 2018. Previously, Mr. Lazar served as Managing Partner at Zenith Partners International Inc., a boutique consulting firm, from July 2012 to April 2018. In his role as Chief Executive Officer of Custodian Ventures LLC, Mr. Lazar has successfully served as a custodian to numerous public companies across a wide range of industries, including without limitation, C2E Energy, Inc. (OTCMKTS: OOGI), China Botanic Pharmaceutical Inc. (OTCMKTS: CBPI), One 4 Art Ltd., Romulus Corp., Moveix, Inc., Arax Holdings Corp. (OTCMKTS: ARAT), ESP Resources, Inc. (OTCMKTS: ESPIQ), Adorbs, Inc., Exobox Technologies Corp. (OTCMKTS: EXBX), Petrone Worldwide, Inc. (OTCMKTS: PFWIQ), Superbox, Inc. (OTCMKTS: SBOX), Sino Green Land Corp. (OTCMKTS: SGLA), SIPP International Industries, Inc. (OTCMKTS: SIPN), Cereplast, Inc. (OTCMKTS: CERPQ), Energy 1 Corp. (OTCMKTS: EGOC), ForU Holdings, Inc. (OTCMKTS: FORU), China Yanyuan Yuhui National Education Group, Inc. (OTCMKTS: YYYH), Pan Global Corp. (OTCMKTS: PGLO), Shengtang International, Inc. (OTCMKTS: SHNL), Alternaturals, Inc. (OTCMKTS: ANAS), USA Recycling Industries, Inc. (OTCMKTS: USRI), Tele Group Corp., Xenoics Holdings, Inc. (OTCMKTS: XNNHQ), Richland Resources International Group, Inc. (OTCMKTS: RIGG), AI Technology Group, Inc., Reliance Global Group, Inc. (NASDAQ: RELI), Melt, Inc., Ketdarina Corp., 3D MarkerJet, Inc. (OTCMKTS: MRJT), Lvpai Group Ltd., Gushen, Inc., FHT Future Technology Ltd., Inspired Builders, Inc., Houmu Holdings Ltd. (OTCMKTS: HOMU), Born, Inc. (OTCMKTS: BRRN), Changsheng International Group Ltd., Sollensys Corp. (OTCMKTS: SOLS), Guozi Zhongyu Capital Holdings Co. (OTCMKTS: GZCC) and Cang Bao Tian Xia International Art Trade Center, Inc. Mr. Lazar has been serving as the Chief Executive Officer and Chairman of Minim, Inc. since January 2024 and as the Chief Executive Officer and Chairman of OpGen, Inc. since March 2024 Based on Mr. Lazar’s diverse knowledge of financial, legal and operations management, public company management, accounting, audit preparation, due diligence reviews and SEC regulations, our Board believes that Mr. Lazar has the appropriate set of skills to serve as a member of the Board.
Katherine Beebe DeVarney, Ph.D. joined Titan in February 2007 and currently serves as our President and Chief Operating Officer. She has been a member of the Board since December 2019. During her 17 years with us, she has served in various scientific and medical research and development capacities, with primary responsibility for oversight of our product research and development, Regulatory Affairs, and Medical Affairs. Dr. Beebe DeVarney has 28 years of experience as a Neuroscientist in the pharmaceutical industry, including positions of increasing responsibility with SmithKline Beecham, GlaxoSmithKline, Merck, and Corcept Therapeutics. Prior to her pharmaceutical career, Dr. Beebe DeVarney was a hospital-based clinician and worked in academic medicine for 10 years. She received her Ph.D. in Clinical Neuropsychology from George Mason University and completed a two-year post-doctoral fellowship at Graduate Hospital and the University of Pennsylvania. Based on Dr. Beebe DeVarney’s extensive knowledge of the medical, research, and regulatory requirements of product development programs, our Board believes that Dr. Beebe DeVarney has the appropriate set of skills to serve as member of the Board.
27
Avraham Ben-Tzvi, Adv. is the Founder of ABZ Law Office, a boutique Israeli law firm specializing in outsourced general counsel services for publicly traded as well as private companies and corporations, Investments & Securities Laws, Commercial Law & Contracts and various civil law matters, which he established in January 2017. Mr. Ben-Tzvi served as Chief Legal Officer and General Counsel of Purple Biotech Ltd. (formerly Kitov Pharma Ltd.) (NASDAQ/TASE: PPBT), a clinical-stage company advancing first-in-class therapies to overcome tumor immune evasion and drug resistance, from November 2015 until April 2020. Prior to that, Mr. Ben-Tzvi served as General Counsel and Company Secretary at Medigus Ltd. (NASDAQ/TASE: MDGS), a minimally invasive endosurgical tools medical device and miniaturized imaging equipment company, from April 2014 until November 2015. Mr. Ben-Tzvi is a member of the Israel Bar Association and is also licensed as a Notary by the Israeli Ministry of Justice. Prior to that he served as an attorney at one of Israel’s leading international law firms where, amongst other corporate and commercial work, he advised companies and underwriters on various offerings by Israeli companies listing in the United States and on various SEC related filings. Prior to becoming a lawyer, Mr. Ben-Tzvi worked in a number of business development, corporate finance and banking roles at companies in the financial services, lithium battery manufacturing and software development industries. Mr. Ben-Tzvi holds a B.A., magna cum laude, in Economics from Yeshiva University in New York and an LL.B., magna cum laude with Honors from Sha’arei Mishpat College of Law in Hod HaSharon, Israel. Based on Mr. Ben-Tzvi’s extensive legal experience and knowledge in the fields of civil-commercial law and corporate and securities law, and his previous public company and commercial business experience, our Board believes that Mr. Ben-Tzvi has the appropriate set of skills to serve as a member of the Board.
Brynner Chiam currently serves as Vice President of Finance and Tax at Black Chamber Management, a shared service company which provides outsourcing services to related companies as well as third parties, since November 2020, where he is responsible for all aspects of planning, implementing and managing financing activities for the company and its clients. From February 2014 to October 2020, Mr. Chiam served as a Director for Tricor Taxand, a professional tax firm and independent tax adviser specializing in providing tax-related services to its clients. Mr. Chiam is a member of the Chartered Tax Institute of Malaysia and has over 20 years of experience as a tax consultant and tax practitioner. He received his Bachelor of Business Studies (Accountancy) from Massey University in New Zealand. Based on Mr. Chiam’s experience, our Board believes that Mr. Chiam has the appropriate set of skills to serve as a member of the Board.
Eric Greenberg has over 40 years of capital markets experience. As a trader and portfolio manager at hedge funds, his areas of expertise included the development of trading strategies, portfolio management and deal structuring. Mr. Greenberg was Co-Founder of Blink Charging Co. (NASDAQ: BLNK), a leader in the EV charging infrastructure industry. In addition, Mr. Greenberg provides investor relation and digital marketing services for companies across a variety of industries, such as life sciences, fintech, internet platforms and others. Mr. Greenberg holds a B.B.A in Finance from Baruch College and an M.B.A. in Finance from Baruch College Zicklin School of Business. Based on Mr. Greenberg’s more than 40 years’ experience in trading, developing strategies, and portfolio management and public markets experience in the microcap sector, our Board believes that Mr. Greenberg has the appropriate set of skills to serve as a member of the Board.
Matthew C. McMurdo, Esq. currently serves as Managing Member of McMurdo Law Group, LLC, a corporate law practice, since 2010. Previously, Mr. McMurdo was a Partner at Nannarone & McMurdo, LLP, a boutique law firm, from 2008 to 2010. In addition, Mr. McMurdo served as General Counsel of Berkley Asset Management LLC, the general partner of a real estate fund focused on opportunistic and distressed real estate assets, from 2011 to 2013. On December 28, 2023, Mr. McMurdo was appointed to the board of directors of Minim, Inc. (NASDAQ: MINM), where he serves on the compensation and nominating committees. On March 25, 2024, Mr. McMurdo was appointed to the board of directors of OpGen, Inc. (NASDAQ: OPGN). Mr. McMurdo holds a B.S. in Finance from Lehigh University and a J.D., cum laude, from Benjamin N. Cardozo School of Law. Based on Mr. McMurdo’s extensive experience in corporate and securities law and advising many public companies on federal securities law, our Board believes that Mr. McMurdo has the appropriate set of skills to serve as a member of the Board.
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David Natan currently serves as President and Chief Executive Officer of Natan & Associates, LLC, a consulting firm offering chief financial officer services to public and private companies in a variety of industries, since 2007. From February 2010 to May 2020, Mr. Natan served as Chief Executive Officer of ForceField Energy, Inc. (OTCMKTS: FNRG), a company focused on the solar industry and LED lighting products. From February 2002 to November 2007, Mr. Natan served as Executive Vice President of Reporting and Chief Financial Officer of PharmaNet Development Group, Inc., a drug development services company, and, from June 1995 to February 2002, as Chief Financial Officer and Vice President of Global Technovations, Inc., a manufacturer and marketer of oil analysis instruments and speakers and speaker components. Prior to that, Mr. Natan served in various roles of increasing responsibility with Deloitte & Touche LLP, a global consulting firm. Mr. Natan currently serves as a member of the Board of Directors and Chair of the Audit Committee of NetBrands Inc. f/k/a Global Diversified Marketing Group, Inc. (OTCMKTS: NBND), a manufacturer, marketer and distributor of food and snack products, since February 2021 and serves as a member of the Board of Directors and Chair of the Audit Committee of Sunshine Biopharma, Inc. (NASDAQ: SBFM), a pharmaceutical and nutritional supplement company, since February 2022. Additionally in November 2023 Mr. Natan was appointed to the board of directors and Audit Committee Chair of Minim, Inc. (NASDAQ: MINM). In December 2022 Mr. Natan was appointed to the board of Directors and Audit Committee Chair of Vivakor Inc. (NASDAQ: VIVK) and served until December 2023. Previously, Mr. Natan served as Chairman of the Board of Directors of ForceField Energy, Inc., from April 2015 to May 2020, and as a member of the Board of Directors of Global Technovations, Inc., from December 1999 to December 2001. Mr. Natan holds a B.A. in Economics from Boston University. Based on Mr. Natan’s extensive experience, our Board believes that Mr. Natan has the appropriate set of skills to serve as a member of the Board.
Dato’ Seow Gim Shen has over 15 years of experience in the IT development industry, with a focus on managing, leading and directing IT and software development projects from inception to execution. Mr. Shen serves as the Chairman of Prima Niaga Group, a privately held technology company focused on the distribution of electronic gadgets to Malaysian chain stores, since 2011. Mr. Shen currently serves as a director of several privately held companies in the IT development industry. He also serves as the Chairman of Zchwantech, a privately held IT services and consulting company focused on the integration of IT-related products and services for companies inside and outside of Malaysia, since 2017, and the Chairman of Blackwolf Technology, a privately held company specializing in providing software development and other IT-related services, since 2017. Mr. Shen received his Bachelor of Multimedia with Honors from Swinburne University of Technology in Melbourne, Australia. Based on Mr. Shen’s experience, our Board believes that Mr. Shen has the appropriate set of skills to serve as a member of the Board.
As indicated above, each of our directors has extensive management and operational experience in one or more facets of the pharmaceutical industry, including research, product development, clinical and regulatory affairs, manufacturing and sales and marketing, providing our company with the leadership needed by a biotechnology company in all stages of its development.
Directors serve until the next annual meeting or until their successors are elected and qualified. Officers serve at the discretion of the Board, subject to rights, if any, under contracts of employment. See “Item 11. Executive Compensation—Employment Agreements.”
Board Leadership Structure
Currently, our principal executive officer is David E. Lazar and our chairman of the Board Dato’ Seow Gim Shen.
Code of Ethics
We adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) in February 2013 that applies to all directors, officers and employees. The Code of Ethics is filed as an exhibit to this Annual Report on Form 10-K and is available on our website at www.titanpharm.com. A copy of our code of ethics will also be provided to any person without charge, upon written request sent to us at our offices located at 400 Oyster Point Blvd, Suite 505, South San Francisco, California 94080.
Changes in Director Nomination Process for Stockholders
None.
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| Item 11. | Executive Compensation |
SUMMARY COMPENSATION TABLE
The following table provides information regarding the compensation paid during the years ended December 31, 2023 and 2022 to each of the executive officers named below, who are collectively referred to as “named executive officers” elsewhere in this report.
| Name and Principal Position | Year | Salary ($) |
Bonus ($) |
Options Awards ($)(1) |
Stock Awards ($)(1) |
All Other Compensation ($) |
Total Compensation ($) |
||||||||||||||||||||
| David Lazar | 2023 | $ | 406,000 | $ | 1,015,000 | $ | - | $ | 52,180 | $ | - | $ | 1,473,180 | ||||||||||||||
| Chief Executive Officer(4) | 2022 | $ | 152,250 | $ | - | $ | - | $ | - | $ | - | $ | 152,250 | ||||||||||||||
| Katherine Beebe DeVarney, Ph.D. | 2023 | $ | 462,000 | (3) | $ | - | $ | 107,162 | $ | 32,947 | $ | - | $ | 602,109 | |||||||||||||
| President and Chief Operating Officer | 2022 | $ | 308,000 | (3) | $ | - | $ | 54,340 | $ | - | $ | - | $ | 362,340 | |||||||||||||
| Marc Rubin, MD(2) | 2023 | $ | - | $ | - | $ | - | $ | - | $ | 238,157 | $ | 238,157 | ||||||||||||||
| Executive Chairman | 2022 | $ | 204,083 | (3) | $ | - | $ | 57,582 | $ | - | $ | 164,583 | $ | 426,248 | |||||||||||||
| (1) | Amounts shown represent the grant date fair value computed in accordance with FASB ASC 718. The assumptions used by us with respect to the valuation of option grants and stock awards are set forth in Note 8. Stock Plans to the accompanying financial statements. |
| (2) | Dr. Rubin’s employment was terminated in August 2022. He was due to receive severance payments through July 2023. He received approximately $165,000 related to severance payments during 2022 and approximately $238,000 in 2023. |
| (3) | On June 15, 2022, we implemented a plan to reduce expenses and conserve capital that included a company-wide reduction in salaries and a scale back of certain operating expenses. The cost-savings measures are being undertaken to enable us to maintain sufficient resources as we work with our advisors on potential strategic alternatives for maximizing shareholder value. As part of the aforementioned plan, Dr. Rubin and Dr. Beebe DeVarney each agreed to waive 40% of their base salaries for six months. In 2023, the Board agreed to pay Dr. Beebe DeVarney $77,000 related to salaries deferred in 2022. |
| (4) | On December 14, 2022, we entered into an employment agreement with Mr. Lazar pursuant to which Mr. Lazar was hired to serve as our Chief Executive Officer, effective August 16, 2022. |
Employee Benefits Plans
The principal purpose of our stock incentive plans is to attract, motivate, reward and retain selected employees, consultants and directors through the granting of stock-based compensation awards. The stock option plans provide for a variety of awards, including non-qualified stock options, incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986 (the “Code”)), stock appreciation rights, restricted stock awards, performance-based awards and other stock-based awards.
2014 Incentive Plan
In February 2014, our Board adopted the 2014 Incentive Plan (“2014 Plan”), pursuant to which 30 shares of our common stock are currently authorized for issuance to employees, directors, officers, consultants and advisors. On December 31, 2023, options to purchase 30 shares of our common stock were outstanding under the 2014 Plan.
2015 Omnibus Equity Incentive Plan
In August 2015, our stockholders approved the 2015 Omnibus Equity Incentive Plan (“2015 Plan”). The 2015 Plan, as amended, authorizes a total of 125,000 shares of our common stock for issuance to employees, directors, officers, consultants and advisors. Awards representing 28,191 shares of our common stock have been released as of December 31, 2023. On December 31, 2023, options to purchase 93,059 shares of our common stock were outstanding under the 2015 Plan.
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Outstanding Equity Awards at Fiscal Year-End
The following table summarizes the number of securities underlying outstanding plan awards for each named executive officer as of December 31, 2023.
| Option Awards | ||||||||||||||
| Name | Number of Securities Underlying Unexercised Awards (#) Exercisable | Number of Securities Underlying Unexercised Awards (#) Unexercisable | Exercise Price ($) | Expiration Date | ||||||||||
| Marc Rubin, M.D. | 48 | - | 18,360.00 | 02/02/2026 | ||||||||||
| 20 | - | 14,040.00 | 02/13/2027 | |||||||||||
| 48 | - | 3,492.00 | 03/07/2028 | |||||||||||
| 139 | - | 1,050.00 | 4/2/2029 | |||||||||||
| 7,500 | - | 80.40 | 2/10/2031 | |||||||||||
| 3,250 | - | 23.60 | 01/05/2032 | |||||||||||
| Katherine Beebe DeVarney, Ph.D. | 8 | - | 11,880.00 | 3/16/2025 | ||||||||||
| 12 | - | 931.68 | 12/14/2025 | |||||||||||
| 12 | - | 931.68 | 2/13/2027 | |||||||||||
| 48 | - | 3,492.00 | 3/7/2028 | |||||||||||
| 7,500 | - | 80.40 | 2/10/2031 | |||||||||||
| 5,000 | - | 26.20 | 9/15/2032 | |||||||||||
| 2,750 | - | 23.60 | 01/05/2032 | |||||||||||
In January 2022, Dr. Rubin and Dr. Beebe DeVarney were granted options to purchase 3,250 and 2,750 shares of common stock, respectively. The options were to vest over 24 months with 50% of the awarded options vesting on the six-month anniversary of the grant date with the remaining balance vesting over the remaining eighteen months.
On August 15, 2022, the Special Meeting was held at the request of Activist to increase the size of our Board from five members to eleven members and to elect Activist’s slate of six nominees to serve as directors in addition to the existing five Board members. As a result of the change of control, all unvested options granted under the 2015 Plan prior to August 15, 2022, immediately became vested.
On September 15, 2022, the Board granted Dr. Beebe DeVarney, subject to the receipt of stockholder approval received in June 2023, options to purchase 5,000 shares of common stock at an exercise price of $26.20 per share, such price being the closing price of our common stock and the fair market value as defined under the 2015 Plan on the September 15, 2022 grant date. The options vested in twelve equal monthly allotments through the first anniversary of the grant date.
There were no options exercised by our named executive officers during 2023.
Pension Benefits
We do not sponsor any qualified or non-qualified defined benefit plans.
Nonqualified Deferred Compensation
We do not maintain any non-qualified defined contribution or deferred compensation plans. The Compensation Committee, which is comprised solely of “outside directors” as defined for purposes of Section 162(m) of the Code, may elect to provide our officers and other employees with non-qualified defined contribution or deferred compensation benefits if the Compensation Committee determines that doing so is in our best interests. We sponsor a tax qualified defined contribution 401(k) plan in which Dr. Rubin, Dr. Beebe DeVarney and Mr. Bhonsle participated.
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Employment Agreements
In November 2018, we entered into an employment agreement with Dr. Beebe DeVarney providing for a base annual salary of $365,000. The employment agreement contains the following terms:
| ● | Bonuses. The executive may, at the sole discretion of the Board or the compensation committee, be considered for an annual bonus of up to 50% of her then base salary, payable in cash or awards under our equity incentive plan. |
| ● | Term; Termination. The Employment Agreement may be terminated by us for any reason at any time. In the event of termination by us without cause or by the executive for good reason or in connection with a change of control, as those terms are defined in such agreements, the executive is entitled to (i) severance in the form of continuation of the employee’s base salary for 12 months following the termination date, (ii) a pro rata portion of any annual bonus, (iii) 12 months of COBRA payments, and (iv) the immediate accelerated vesting of any unvested restricted shares and stock options. |
| ● | Restrictive Covenants. The Employment Agreement contains six-month post-termination noncompetition and non-solicitation provisions. |
In February 2021, Dr. Beebe DeVarney’s employment agreement was amended to provide for an annual base salary of $385,000. All other agreement terms remain substantially the same.
On August 2, 2022, the compensation committee of the Board implemented a retention plan (the “Retention Plan”) in recognition of the change in the composition of the Board following the Special Meeting on August 15, 2022. The purpose of the Retention Plan was to help ensure a smooth transition, including the continuation of service by our current employees and directors following the Special Meeting, while the newly reconstituted Board explores and evaluates strategic alternatives to maximize the value of our assets and enhance stockholder value.
As part of the Retention Plan, the employment agreement with Dr. Beebe DeVarney was amended to (i) accelerate the vesting of her options following the reconstitution of the Board; and (ii) remove from the definition of “Good Reason” the current proviso that a change in the executive’s title would not necessarily constitute Good Reason. All other agreement terms remained substantially the same.
On December 14, 2022, we entered into an employment agreement with Mr. Lazar providing for a base annual salary of $406,000. The employment agreement contains the following terms:
| ● | Bonuses. Mr. Lazar will be eligible to receive an annual bonus, with a target of fifty percent (50%) of his base salary. In addition, Mr. Lazar will be eligible for three performance bonuses on an annual basis, payable in (i) cash and/or (ii) restricted stock under the Plan, each equal to fifty percent (50%) of his base salary, which shall be dependent on our achievement of certain milestones. Furthermore, in the event of a Change of Control (as defined in the Mr. Lazar’s employment agreement), we shall pay Mr. Lazar a bonus equal to three percent (3%) of the increased valuation of the surviving corporation resulting from such Change of Control. |
| ● | Term; Termination. The employment agreement has a three-year term but may be terminated by us for any reason at any time. In the event of termination by us without Cause or his resignation for Good Reason, not in connection with a Change of Control (as those terms are defined in such agreements), the executive is entitled to (i) severance in the form of continuation of his base salary for the greater of a period of 12 months or the remaining term, (ii) payment of executive’s annual medical and dental reimbursement for a period of 12 months, (iii) a pro rata portion of any annual or performance bonus, and (iv) the immediate accelerated vesting of any unvested restricted shares and stock options. |
| ● | Restrictive Covenants. The employment agreement contains 12-month post-termination noncompetition and non-solicitation provisions. |
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DIRECTOR COMPENSATION
Summary of Director Compensation
The following table summarizes compensation that our non-employee directors earned during the years ended December 31, 2023 and 2022 for services as members of our Board.
| Name | Year | Fees Earned or Paid in Cash ($) |
Stock Awards ($) |
Options Awards ($)(1) |
Non-Equity Incentive Plan Compensation ($) |
Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
|||||||||||||||||||||||
| Joseph A. Akers (2)(3) | 2023 | $ | 30,000 | - | $ | 107,162 | - | - | - | $ | 137,162 | ||||||||||||||||||||
| 2022 | 62,500 | (4) | - | 8,859 | - | - | - | 71,359 | |||||||||||||||||||||||
| Avraham Ben-Tzvi (6) | 2023 | 55,625 | 32,947 | 138,335 | - | - | 13,000 | (5) |
239,907 |
||||||||||||||||||||||
| 2022 | 24,375 | (4) | - | - | - | - | - | 24,375 | |||||||||||||||||||||||
| Peter L. Chasey (7)(8) | 2023 | 43,542 | 32,947 | 138,335 | - | - | 13,000 | (5) | 227,824 | ||||||||||||||||||||||
| 2022 | 20,625 | (4) | - | - | - | - | - | 20,625 | |||||||||||||||||||||||
| Brynner Chiam (9) | 2023 | 9,375 | - | - | - | - | - | 9,375 | |||||||||||||||||||||||
| Eric Greenberg(10) | 2023 | 59,792 | 32,947 | 138,335 | - | - | 13,000 | (5) | 244,074 | ||||||||||||||||||||||
| 2022 | 22,500 | (4) | - | - | - | - | - | 22,500 | |||||||||||||||||||||||
| M. David MacFarlane (2)(11) | 2023 | 30,312 | - | 107,162 | - | - | - | 137,474 | |||||||||||||||||||||||
| 2022 | 61,250 | (4) | - | 8,859 | - | - | - | 70,109 | |||||||||||||||||||||||
| Matthew C. McMurdo (12) | 2023 | 54,792 | 32,947 | 138,335 | - | - | 13,000 | (5) | 239,074 | ||||||||||||||||||||||
| 2022 | 18,750 | (4) | - | - | - | - | - | 18,750 | |||||||||||||||||||||||
| James R. McNab, Jr. (13) | 2023 | 31,250 | - | 107,162 | - | - | - | 138,412 | |||||||||||||||||||||||
| 2022 | 62,500 | (4) | - | 8,859 | - | - | - | 71,359 | |||||||||||||||||||||||
| David Natan(14) | 2023 | 66,875 | 32,947 | 138,335 | - | - | 13,000 | (5) | 251,157 | ||||||||||||||||||||||
| 2022 | 23,438 | (4) | - | - | - | - | - | 23,438 | |||||||||||||||||||||||
| Dato’ Seow Gim Shen (9) | 2023 | 9,375 | - | - | - | - | - | 9,375 | |||||||||||||||||||||||
| (1) | Amounts shown represent the grant date fair value computed in accordance with FASB ASC 718. The assumptions used by us with respect to the valuation of option grants and stock awards are set forth in Note 8. Stock Plans to the accompanying financial statements. |
| (2) | Did not stand for re-election at the June 2023 Shareholder meeting. |
| (3) | The aggregate number of option awards held at December 31, 2023 was 5,512. |
| (4) | The amounts reported in the “Fees Earned or Paid in Cash” column includes directors fees earned for 2022 that were deferred to 2023 at the director’s election. |
| (5) | Payments made to subsidize taxes due on stock awards. |
| (6) | The aggregate number of option awards held at December 31, 2023 was 6,250. |
| (7) | Resigned from the Board in October 2023 |
| (8) | The aggregate number of option awards held at December 31, 2023 was 6,250. |
| (9) | Joined the Board in October 2023 |
| (10) | The aggregate number of option awards held at December 31, 2023 was 6,250. |
| (11) | The aggregate number of option awards held at December 31, 2023 was 5,513. |
| (12) | The aggregate number of option awards held at December 31, 2023 was 6,250. |
| (13) | The aggregate number of option awards held at December 31, 2023 was 5,512. |
| (14) | The aggregate number of option awards held at December 31, 2023 was 6,250. |
The above table includes options granted to certain directors on August 15, 2022 and September 15, 2022, which were conditioned on the approval by our stockholders of an increase in the authorized number of shares available for issuance under the 2015 Plan, which approval was received in June 2023.
There were no options exercised by members of our Board during 2023.
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The following table sets forth as of March 25, 2024, the number of shares of our common stock beneficially owned by (i) each person who is known by us to be the beneficial owner of more than five percent of our common stock; (ii) each director and director nominee; (iii) each of the named executive officers in the Summary Compensation Table; and (iv) all directors and executive officers as a group. As of March 25, 2024, we had 914,234 shares of common stock issued and outstanding. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated, the stockholders listed in the table have sole voting and investment power with respect to the shares indicated. All share and per share data in this report gives retroactive effect to a 1-for-20 reverse stock split effected on January 9, 2024.
| Name and Address of Beneficial Owner(1) | Shares Beneficially Owned(2) |
Percent of Shares Beneficially Owned | ||||||
| Kate Beebe DeVarney, Ph.D.(3) | 18,653 | 2.0 | % | |||||
| Avraham Ben-Tzvi(4) | 9,563 | 1.0 | % | |||||
| Brynner Chiam | - | * | % | |||||
| Eric Greenberg(5) | 9,563 | 1.0 | % | |||||
| David E. Lazar | 5,000 | * | % | |||||
| Matthew C. McMurdo(6) | 9,563 | 1.0 | % | |||||
| David Natan(7) | 9,563 | 1.0 | % | |||||
| Dato’ Seow Gim Shen(8) |
150,087 |
16.4 |
% | |||||
| Choong Choon Hau(9) | 241,531 | 26.4 | % | |||||
| All executive officers and directors as a group (8) persons(10) |
211,992 |
22.2 |
% | |||||
| * | Less than 1%. |
| (1) | Unless otherwise indicated, the address of such individual is c/o Titan Pharmaceuticals, Inc., 400 Oyster Point Boulevard, Suite 505, South San Francisco, California 94080. |
| (2) | In computing the number of shares beneficially owned by a person and the percentage ownership of a person, shares of our common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of March 25, 2024 are deemed outstanding. Such shares, however, are not deemed outstanding for purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock. |
| (3) | Includes 15,332 shares issuable upon exercise of outstanding options. |
| (4) | Includes 6,250 shares issuable upon exercise of outstanding options. |
| (5) | Includes 6,250 shares issuable upon exercise of outstanding options. |
| (6) | Includes 6,250 shares issuable upon exercise of outstanding options. |
| (7) | Includes 6,250 shares issuable upon exercise of outstanding options. |
| (8) | In September 2023, we entered into a Securities Purchase Agreement with The Sire Group Ltd. (“Sire Group” or the “Investor”), pursuant to which we agreed to issue 950,000 shares of our Series AA Convertible Preferred Stock, par value $0.001 per share (the “Series AA Preferred Stock”) to Sire Group. Each share of Series AA Preferred Stock is convertible, at the holder’s option at any time, into shares of our common stock, subject to limitations that prevent the Investor from acquiring the lower of either (i) the maximum percentage of common stock permissible under the rules and regulations of The Nasdaq Stock Market without first obtaining the approval of our stockholders or (ii) 19.99% of our outstanding common stock as of the date of such Securities Purchase Agreement. The amount in the table reflects the number of shares that the Investor may own at any one time following the conversion of the Series AA Preferred Stock, without first obtaining the approval of our stockholders. By virtue of his sole ownership of Sire Group, Dato’ Seow Gim Shen may be deemed to be the beneficial owner of these shares. |
| (9) | This information is based solely on a Schedule 13D filed by Choong Choon Hau on July 20, 2023. In addition, in August 2023, we issued a convertible promissory note to Mr. Hau. In March 2024, the principal balance and accrued interest of the convertible promissory note were converted into 54,132 shares of our common stock at a conversion price of $9.32 per share. |
| (10) | Includes (i) 40,332 shares issuable upon exercise of outstanding options and (ii) 182,755 shares issuable upon conversion of preferred stock held by our executive officers and directors listed above. |
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| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Certain Relationships and Related Transactions.
In July 2023, we received $250,000 in funding in exchange for the issuance of an unsecured promissory note for that principal amount to David E. Lazar, our Chief Executive Officer and prior chairman of our Board of Directors (the “Lazar Promissory Note”). Pursuant to the Lazar Promissory Note, the principal amount accrued interest at a rate of the Prime Rate + 2.00% per annum, and all principal and accrued interest were due and payable on the earlier of January 1, 2024 or such time as we receive debt or equity financing or proceeds in excess of $500,000 from the aforementioned transaction with Fedson. The loan was paid off in September 2023.
In August 2023, we received $500,000 in funding in exchange for the issuance of the “Hau Promissory Note. Pursuant to the Hau Promissory Note, the principal amount accrues interest at a rate of 10% per annum and is payable monthly. All principal and accrued interest was due and payable on January 8, 2024, unless extended as provided. All or part of the Hau Promissory Note can be converted into our common stock at a conversion price of $9.32 per share from time to time following the issuance date and ending on the maturity date. In March 2024, the Hau Promissory Note, along with accrued interest, was converted into 54,132 shares of our common stock.
In September 2023, we entered into a Securities Purchase Agreement with Sire Group, pursuant to which we agreed to issue 950,000 shares of our Series AA Preferred Stock to Sire Group at a price of $10.00 per share, for an aggregate purchase price of $9.5 million. The purchase price consisted of (i) $5.0 million in cash at closing and (ii) $4.5 million in the form of a promissory note from Sire Group which was paid off in September 2023.
During the years ended December 31, 2023 and 2022, we made payments related to legal fees of approximately $109,000 and $75,000, respectively, to a law firm operated by one of our Board members.
Independence of Directors
The following members of our Board meet the independence requirements and standards currently established by the Nasdaq: Brynner Chiam, Eric Greenberg, Matthew C. McMurdo, David Natan and Dato’ Seow Gim Shen.
Board Committees
Our Board has established the following three standing committees: audit committee; compensation committee; and nominating and governance committee, or governance committee.
The audit committee was formed in compliance with Section 3(a)(58)(A) of the Exchange Act and consists of Eric Greenberg, Matthew C. McMurdo, and David Natan (chair), each of whom meets the independence requirements and standards currently established by Nasdaq and the SEC. In addition, the Board has determined that Mr. Natan is an “audit committee financial expert” and “independent” as defined under the relevant rules of the SEC and Nasdaq. The audit committee assists the Board by overseeing the performance of the independent auditors and the quality and integrity of Titan’s internal accounting, auditing and financial reporting practices. The audit committee is responsible for retaining (subject to stockholder ratification) and, as necessary, terminating, the independent auditors, annually reviews the qualifications, performance and independence of the independent auditors and the audit plan, fees and audit results, and pre-approves audit and non-audit services to be performed by the auditors and related fees. The audit committee met four times during the fiscal year ended December 31, 2023.
The compensation committee makes recommendations to the Board concerning salaries and incentive compensation for our officers, including our Principal Executive Officer, and employees and administers our stock option plans. The compensation committee consists of Eric Greenberg, Matthew C. McMurdo (chair) and David Natan, each of whom meets the independence requirements and standards currently established by Nasdaq. The compensation committee met three times during the fiscal year ended December 31, 2023.
35
The purpose of the nominating and governance committee is to assist the Board in identifying qualified individuals to become Board members, in determining the composition of the Board and in monitoring the process to assess Board effectiveness. The nominating and governance committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, conflicts of interest, integrity, ethics, and commitment to the goal of maximizing stockholder value when considering director candidates. The nominating and governance committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience, and differences in viewpoints and skills. The nominating and governance committee does not have a formal policy with respect to diversity; however, our Board and the nominating and governance committee believe that it is essential that the directors represent diverse viewpoints. In considering candidates for our Board, the nominating and governance committee considers the entirety of each candidate’s credentials in the context of these standards The nominating and governance committee consists of Avraham Ben-Tzvi (chair), Eric Greenberg, and Matthew C. McMurdo, each of whom meets the independence requirements and standards currently established by Nasdaq. The nominating and governance committee met two times during the fiscal year ended December 31, 2023.
The charters for the audit, compensation and nominating and governance committees, which have been adopted by our Board, contain detailed descriptions of the committees’ duties and responsibilities and are available in the “About Titan” section of our website at www.titanpharm.com.
Role of the Board in Risk Oversight
Our audit committee is primarily responsible for overseeing our risk management processes on behalf of the full Board. The audit committee receives reports from management at least quarterly regarding our assessment of risks. In addition, the audit committee reports regularly to the full Board, which also considers our risk profile. The audit committee and the full Board focus on the most significant risks we face and our general risk management strategies. While the Board oversees our risk management, our management team is responsible for day-to-day risk management processes. Our Board expects management to consider risk and risk management in each business decision, to proactively develop and monitor risk management strategies and processes for day-to-day activities and to effectively implement risk management strategies adopted by the audit committee and the Board. We believe this division of responsibilities is the most effective approach for addressing the risks we face and that our Board leadership structure, which also emphasizes the independence of the Board in its oversight of its business and affairs, supports this approach.
Board Meetings
Our business affairs are managed under the direction of our Board, which is currently comprised of seven (7) members. The primary responsibilities of the Board are to provide oversight, strategic guidance, counseling and direction to our management. During the fiscal year ended December 31, 2023, the Board met 53 times and did not take action by written consent. With the exception of Mr. Shen, no director attended fewer than 75% of the meetings of the Board and Board committees of which the director was a member.
| Item 14. | Principal Accounting Fees and Services. |
Aggregate fees billed by WithumSmith+Brown (“Withum”) an independent registered public accounting firm, during the fiscal years ended December 31, 2023 and 2022 were as follows:
| 2023 | 2022 | |||||||
| Audit Fees | $ | 330,160 | $ | 301,079 | ||||
| Tax Fees | 47,432 | 45,720 | ||||||
| Total | $ | 377,592 | $ | 346,799 | ||||
Audit Fees — This category includes aggregate fees billed by our independent auditors for the audit of our annual financial statements, review of financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the auditor in connection with statutory and regulatory filings for those fiscal years, including consents and comfort letters.
36
Tax Fees — This category consists of professional services rendered for tax compliance and preparation of our corporate tax returns and other tax advice.
All Other Fees — During the years ended December 31, 2023 and 2022, Withum did not incur any fees for other professional services.
The audit committee reviewed and approved all audit and non-audit services provided by Withum and concluded that these services were compatible with maintaining its independence. The audit committee approved the provision of all non-audit services by Withum.
Pre-Approval Policies and Procedures
In accordance with the SEC’s auditor independence rules, the audit committee has established the following policies and procedures by which it approves in advance any audit or permissible non-audit services to be provided to us by our independent auditor.
Prior to the engagement of the independent auditors for any fiscal year’s audit, management submits to the audit committee for approval lists of recurring audits, audit-related, tax and other services expected to be provided by the independent auditors during that fiscal year. The audit committee adopts pre-approval schedules describing the recurring services that it has pre-approved, and is informed on a timely basis, and in any event by the next scheduled meeting, of any such services rendered by the independent auditor and the related fees.
The fees for any services listed in a pre-approval schedule are budgeted, and the audit committee requires the independent auditor and management to report actual fees versus the budget periodically throughout the year. The audit committee will require additional pre-approval if circumstances arise where it becomes necessary to engage the independent auditor for additional services above the amount of fees originally pre-approved. Any audit or non-audit service not listed in a pre-approval schedule must be separately pre-approved by the audit committee on a case-by-case basis.
Every request to adopt or amend a pre-approval schedule or to provide services that are not listed in a pre-approval schedule must include a statement by the independent auditors as to whether, in their view, the request is consistent with the SEC’s rules on auditor independence.
The audit committee will not grant approval for:
| ● | any services prohibited by applicable law or by any rule or regulation of the SEC or other regulatory body applicable to us; |
| ● | provision by the independent auditors to us of strategic consulting services of the type typically provided by management consulting firms; or |
| ● | the retention of the independent auditors in connection with a transaction initially recommended by the independent auditors, the tax treatment of which may not be clear under the Internal Revenue Code and related regulations and which it is reasonable to conclude will be subject to audit procedures during an audit of our financial statements. |
In determining whether to grant pre-approval of any non-audit services in the “all other” category, the audit committee will consider all relevant facts and circumstances, including the following four basic guidelines:
| ● | whether the service creates a mutual or conflicting interest between the auditor and us; |
| ● | whether the service places the auditor in the position of auditing his or her own work; |
| ● | whether the service results in the auditor acting as management or an employee of our company; and |
| ● | whether the service places the auditor in a position of being an advocate for our company. |
37
PART IV
| Item 15. | Exhibits and Financial Statements Schedules. |
| (a) | 1. | Financial Statements |
An index to Financial Statements appears on page F-1.
| 2. | Schedules |
All financial statement schedules are omitted because they are not applicable, not required under the instructions or all the information required is set forth in the financial statements or notes thereto.
| Item 16. | Form 10-K Summary |
None
38
TITAN PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Titan Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Titan Pharmaceuticals, Inc. (the “Company”) as of December 31, 2023 and 2022, and the related statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Restatement of Previously Issued Financial Statements
As discussed in Note 12 to the financial statements, the Company restated its 2023 quarterly information for an error in the accounting for stock issuance costs.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of Going Concern
Description of Matter
As described further in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has an accumulated deficit, and expects its operating losses to continue for the foreseeable future. Based on management’s assessment, the Company concluded at the date of filing of the financial statements there is sufficient cash to fund operations for the next 12 months without the need to raise additional funds.
Auditing management’s conclusions about whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued is subjective and requires especially challenging auditor judgment.
F-2
How We Addressed the Matter in Our Audit
We obtained an understanding of controls over the Company’s process for determining their ability to continue as a going concern. We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available capital and the risk of bias in management’s judgments and assumptions in their determination. Our audit procedures related to considering whether the results of our audit procedures, when considered in the aggregate, indicate whether there is substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time included the following procedures, among other procedures:
| ● | Evaluated the financial condition of the Company, including liquidity sources as of the date of the auditor’s opinion (the “assessment date”). |
| ● | Examined and evaluated underlying evidence with respect to this assessment date evaluation. |
| ● | Evaluated conditional and unconditional obligations due or anticipated to become due during the period of 12 months from the date of the filing of these financial statements (the “look forward period”) and examined and evaluated the underlying evidence with respect to this evaluation. |
| ● | Evaluated the Company’s assessment of its cash flows during the look forward period and examined and evaluated underlying evidence with respect to this evaluation. |
| ● | Inquired of Company management as to whether there are any other adverse conditions or events which could raise substantial doubt regarding the Company’s ability to continue as a going concern and evaluated such events. |
| ● | Performed an assessment regarding management’s plans to alleviate substantial doubt regarding the Company’s ability to continue as a going concern and examined and evaluated underlying evidence with respect to this assessment. |
| ● | Evaluated the adequacy of the Company’s financial statements disclosures regarding liquidity and going concern to determine such disclosures were in accordance with U.S. generally accepted accounting principles. |
/s/
We have served as the Company’s auditor since 2004.
April 1, 2024
PCAOB ID Number
F-3
TITAN PHARMACEUTICALS, INC.
BALANCE SHEETS
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| (In thousands, except share and per share data) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Receivables | ||||||||
| Notes receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Discontinued operations - current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other assets | ||||||||
| Operating lease right-of-use asset | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Note payable to related party | ||||||||
| Other accrued liabilities | ||||||||
| Operating lease liability, current | ||||||||
| Deferred grant revenue | ||||||||
| Discontinued operations - current liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, non-current | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 5) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, at amounts paid-in, $ par value per share; shares authorized, shares issued and outstanding at December 31, 2023 and shares issued and outstanding at December 31, 2022. | ||||||||
| Common stock, at amounts paid-in, $ par value per share; shares authorized and shares issued and outstanding at December 31, 2023 and 2022, respectively. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to financial statements.
F-4
TITAN PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
| For the Years ended December 31, |
||||||||
| 2023 | 2022 | |||||||
| (In thousands, except per share data) | ||||||||
| Revenue: | ||||||||
| License revenue | $ | $ | ||||||
| Grant revenue | ||||||||
| Total revenues | ||||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( |
) | ( |
) | ||||
| Other income (expense): | ||||||||
| Interest income, net | ||||||||
| Other expense, net | ( |
) | ( |
) | ||||
| Gain on asset sale | ||||||||
| Other income, net | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Basic and diluted net loss per common share | $ | ) | $ | ) | ||||
| Weighted average shares used in computing basic and diluted net loss per common share | ||||||||
See accompanying notes to financial statements.
F-5
TITAN PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
| Additional | Total | |||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Issuance of common stock, net | - | |||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | - | |||||||||||||||||||||||||||
| Amortization of restricted stock | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||
| Issuance of preferred stock, net | - | |||||||||||||||||||||||||||
| Release of unrestricted stock | - | |||||||||||||||||||||||||||
| Amortization of restricted stock | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
See accompanying notes to financial statements.
F-6
TITAN PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, |
||||||||
| 2023 | 2022 | |||||||
| (In thousands) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of assets | ( |
) | ||||||
| Stock-based milestone payment | ||||||||
| Stock-based compensation | ||||||||
| Amortization of restricted stock | ||||||||
| Other | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | ( |
) | ||||||
| Inventory | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable | ( |
) | ( |
) | ||||
| Other accrued liabilities | ( |
) | ||||||
| Deferred revenue | ( |
) | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Cash proceeds from sale of assets | ||||||||
| Purchases of furniture and equipment | ( |
) | ||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from equity offerings | ||||||||
| Proceeds from issuance of preferred stock | ||||||||
| Proceeds from short-term loans | ||||||||
| Payments on short-term loans | ( |
) | ||||||
| Proceeds from the exercise of warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash, cash equivalents and restricted cash | ( |
) | ||||||
| Cash, cash equivalents and restricted cash at beginning of year | ||||||||
| Cash, cash equivalents and restricted cash at end of year | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Inventory transferred with sale of assets | $ | $ | ||||||
| Property and equipment, net, transferred with sale of assets | $ | $ | ||||||
| Notes receivable received in connection with sale of assets | $ | $ | ||||||
| Other accrued liabilities transferred with sale of assets | $ | $ | ||||||
| Other accrued liabilities related to stock-based compensation | $ | $ | ||||||
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows (in thousands):
| 2023 | 2022 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | $ | $ | ||||||
| Cash, cash equivalents and restricted cash as shown in the statements of cash flows | $ | $ | ||||||
See accompanying notes to financial statements.
F-7
TITAN PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
| 1. | Organization and Summary of Significant Accounting Policies |
The Company
We are a pharmaceutical company developing therapeutics utilizing the proprietary long-term drug delivery platform, ProNeura®, for the treatment of select chronic diseases for which steady state delivery of a drug has the potential to provide an efficacy and/or safety benefit. ProNeura consists of a small, solid implant made from a mixture of ethylene-vinyl acetate (“EVA”) and a drug substance. The resulting product is a solid matrix that is designed to be administered subdermally in a brief, outpatient procedure and is removed in a similar manner at the end of the treatment period.
Our first product based on the ProNeura technology was Probuphine® (buprenorphine implant), which is approved in the United States, Canada and the European Union (“EU”) for the maintenance treatment of opioid use disorder in clinically stable patients taking 8 mg or less a day of oral buprenorphine. While Probuphine continues to be commercialized in the EU (as Sixmo™) by another company that had acquired the rights from Titan, we discontinued commercialization of the product in the United States during the fourth quarter of 2020 and subsequently sold the product in September 2023. Discontinuation of our commercial operations has allowed us to focus our limited resources on important product development programs and transition back to a product development company.
In December 2021, we announced our intention to work with our financial advisor to explore strategic alternatives to enhance stockholder value, potentially including an acquisition, merger, reverse merger, other business combination, sales of assets, licensing or other transaction. In June 2022, we implemented a plan to reduce expenses and conserve capital that included a company-wide reduction in salaries and a scale back of certain operating expenses to enable us to maintain sufficient resources as we pursued potential strategic alternatives. In July 2022, David Lazar and Activist Investing LLC (collectively, “Activist”) acquired an approximately
On September 1, 2023,
(the “Closing Date”), we closed on the sale of certain ProNeura assets, including our portfolio of drug addiction
products, in addition to other early development programs based on the ProNeura drug delivery technology (the “ProNeura
Assets”). In July 2023,
F-8
All share and per share amounts give retroactive effect to a
The accompanying financial statements have been prepared assuming we will continue as a going concern.
At December 31, 2023, we had cash and cash equivalents of approximately $
Discontinued Operations
In October 2020, we announced our decision to discontinue selling Probuphine in the United States and wind down our commercialization activities, and to pursue a plan that will enable us to focus on our current, early-stage ProNeura-based product development programs.
The accompanying financial statements have been recast for all periods presented to reflect the assets, liabilities, revenue and expenses related to our U.S. commercialization activities as discontinued operations (see Note 10. Discontinued Operations). The accompanying financial statements are generally presented in conformity with our historical format. We believe this format provides comparability with the previously filed financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Going concern assessment
We assess going concern uncertainty in our 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 financial statements are issued or available to be issued, which is referred to as the look-forward period as defined by Accounting Standard Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“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.
Based upon the above assessment, we concluded that, at the date of filing the financial statements in this Annual Report on Form 10-K for the year ended December 31, 2023, we had sufficient cash to fund our operations for the next 12 months without additional funds.
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:
F-9
| December 31, | ||||
| 2022 | ||||
| Raw materials and supplies | $ | |||
| Finished goods | ||||
| Total inventories | $ | |||
Approximately $
Stock-Based Compensation
We recognize compensation expense using a fair-value based method, for all stock-based payments including stock options and restricted stock awards and stock issued under an employee stock purchase plan. These standards require companies to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. See Note 8. Stock Plans for a discussion of our stock-based compensation plans.
Warrants Issued in Connection with Equity Financing
We generally account for warrants issued in connection with equity financings as a component of equity, unless there is a deemed possibility that we may have to settle the warrants in cash. For warrants issued with deemed possibility of cash settlement, we record the fair value of the issued warrants as a liability at each reporting period and record changes in the estimated fair value as a non-cash gain or loss in the Statements of Operations.
Cash and Cash Equivalents
Our investment policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers and limit the amount of credit exposure to any one issuer. The estimated fair values have been determined using available market information. We do not use derivative financial instruments in our investment portfolio.
All investments with original maturities of three months or less are considered to be cash equivalents. We had money market funds of approximately $
We maintain significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $
On March 10, 2023, the Federal Deposit Insurance Corporation (“FDIC”) announced that it had closed and taken control of Silicon Valley Bank. On March 13, 2023, pursuant to a joint statement released by the U.S. Department of the Treasury and the FDIC, the U.S. government reassured that all depositors were fully protected. We held deposits with this bank. As a result of the above actions, our insured and uninsured deposits were restored.
Restricted Cash
In accordance with ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, we explain the change during the period in the total of cash, cash equivalents and restricted cash, and include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows.
F-10
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets.
Revenue Recognition
We generate revenue principally from collaborative research and development arrangements, sales or licenses of technology, government grants, sales of Probuphine materials to Molteni and Knight, and prior to the discontinued operations, the sale of Probuphine in the United States. 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.
Grant Revenue
We have contracts with National Institute on Drug Abuse or NIDA, within the U.S. Department of Health and Human Services (“HHS”), the Bill & Melinda Gates Foundation, and other government-sponsored organizations for research and development related activities that provide for payments for reimbursed costs, which may include overhead and general and administrative costs. We recognize revenue from these contracts as we perform services under these arrangements when the funding is committed. Associated expenses are recognized when incurred as research and development expense. Revenues and related expenses are presented gross in the statements of operations.
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.
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.
F-11
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 recognize 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.
Contract Assets and Liabilities
The following table presents the activity related to our accounts receivable for the years ended December 31, 2023 and 2022.
| (In thousands) | ||||
| Balance at January 1, 2022 | $ | |||
| Additions | ||||
| Deductions | ( |
) | ||
| Balance at December 31, 2022 | $ | |||
| Additions | ||||
| Deductions | ( |
) | ||
| Balance at December 31, 2023 | $ | |||
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, 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.
F-12
Basic net loss per share excludes the effect of dilution and is computed by dividing net loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised into shares. In calculating diluted net loss per share, the denominator is increased to include the number of potentially dilutive common shares assumed to be outstanding during the period using the treasury stock method. Basic and diluted net loss per share was the same for each of the periods presented.
The table below presents common shares underlying stock options and warrants that are excluded from the calculation of the weighted average number of shares of common stock outstanding used for the calculation of diluted net loss per common share. These are excluded from the calculation due to their anti-dilutive effect for the years ended (in thousands):
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Weighted-average anti-dilutive common shares resulting from stock options and awards | ||||||||
| Weighted-average anti-dilutive common shares resulting from warrants | ||||||||
Leases
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 balance sheet as right-of-use assets, operating lease liabilities current and operating lease liabilities non-current.
The following table presents the minimum lease payments of our operating lease as of December 31, 2023 (in thousands):
| Year ending December 31, 2024 | $ | |||
| Total minimum lease payments (base rent) | ||||
| Less: imputed interest | ( |
) | ||
| Total operating lease liabilities | $ |
Subsequent Events
We have evaluated events that have occurred subsequent to December 31, 2023 and through the date that the financial statements are issued. See Note 13. Subsequent Events.
Fair Value Measurements
We measure the fair value of financial assets and liabilities based on authoritative guidance which defines fair value, establishes a framework consisting of three levels for measuring fair value, and requires disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
F-13
Level 1 – quoted prices in active markets for identical assets or liabilities;
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable;
Level 3 – inputs that are unobservable (for example cash flow modelling inputs based on assumptions).
Financial instruments, including receivables, accounts payable and accrued liabilities are carried at cost, which we believe approximates fair value due to the short-term nature of these instruments. The approximately $2.6 million fair value of money market funds as of December 31, 2022, included in our cash and cash equivalents are classified as Level 1 and were derived from quoted market prices as active markets for these instruments exist. We had no money market funds included in our cash and cash equivalents as of December 31, 2023.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
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 beginning on January 1, 2023. The adoption of Topic 326 did not have a material impact on our condensed financial statements and disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provides companies with optional guidance, including expedients and exceptions for applying GAAP 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, 2023. The adoption of ASU No. 2020-04 did not have a material impact on our condensed financial statements and disclosures.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments. ASU 2020-06 eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is effective beginning after December 15, 2023 and must be applied using either a modified or full retrospective approach. Early adoption is permitted. The adoption of ASU No. 2020-06 did not have a material impact on our condensed financial statements and disclosures.
| 2. | Property and Equipment |
Property and equipment consisted of the following (in thousands):
| As of December 31, |
||||||||
| 2023 | 2022 | |||||||
| Furniture and office equipment | $ | $ | ||||||
| Laboratory equipment | ||||||||
| Computer equipment | ||||||||
| Less accumulated depreciation and amortization | ( |
) | ( |
) | ||||
| Property and equipment, net | $ | $ | ||||||
F-14
| 3. | JT Pharmaceuticals Asset Purchase Agreement |
In October 2020, we entered into an asset purchase agreement with JT Pharmaceuticals, Inc. (“JT Pharma”) (the “JT Agreement”) to acquire JT Pharma’s kappa opioid agonist peptide, TP-2021 (formerly JT-09) for use in combination with our ProNeura long-term, continuous drug delivery technology, for the treatment of chronic pruritus and other medical conditions. Under the terms of the JT Agreement, JT Pharma received a $
| 4. | Ocular Therapeutix License Agreement |
In December 2022, we entered into a license agreement with Ocular Therapeutix, Inc.(“Ocular”) (the “Ocular Agreement”) to license the exclusive rights to certain patent applications for ophthalmic uses in both humans and nonhuman animals in the United States (the “Licensed Patents”). The grant of the Ocular license by us to Ocular is for an exclusive (even as to us), perpetual, fully paid-up license to use the Licensed Patents. The license comes with the right to sublicense. The Ocular paid us a one-time fee of $
| 5. | Commitments and Contingencies |
Lease Commitments
We lease our office facility under an operating lease that expires in June 2024. Rent expense associated with this lease was approximately $
Guarantees and Indemnifications
As permitted under Delaware law and in accordance with our Bylaws, we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, we have a director and officer insurance policy that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements is minimal. Accordingly, we have not recorded any liabilities for these agreements as of December 31, 2023 or 2022.
In the normal course of business, we have commitments to make certain milestone payments to various clinical research organizations in connection with our clinical trial activities. Payments are contingent upon the achievement of specific milestones or events as defined in the agreements, and we have made appropriate accruals in our financial statements for those milestones that were achieved as of December 31, 2023. We also provide indemnifications of varying scope to our CROs and investigators against claims made by third parties arising from the use of our products and processes in clinical trials. Historically, costs related to these indemnification provisions were immaterial. We also maintain various liability insurance policies that limit our exposure. We are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.
Legal Proceedings
In the normal course of business, we have been and will likely continue to be subject to other litigation or administrative proceedings incidental to our business, such as claims related to compliance with regulatory standards. customer disputes, employment practices, wage and hour disputes, product liability, professional liability, malpractice liability, commercial disputes, licensure restrictions or denials, and warranty or patent infringement. Responding to litigation or administrative proceedings, regardless of whether they have merit, can be expensive and disruptive to normal business operations. We are not able to predict the timing or outcome of these matters and currently do not expect that the resolution of these matters will have a material adverse effect on our financial position or results of operations.
F-15
In 2020, a legal proceeding was initiated against us by a former employee alleging wrongful termination, retaliation, infliction of emotional distress, negligent supervision, hiring and retention and slander. An independent investigation into this individual’s allegations of whistleblower retaliation, while still an employee, was conducted utilizing an outside investigator and concluded that such allegations were not substantiated. In September 2023, Fedson, as consideration for the Asset Purchase Agreement, agreed to assume all liabilities related to this pending employment claim (See Note 6. Asset Sale).
| 6. | Asset Sale |
In July 2023, we entered into the Asset Purchase Agreement with Fedson for the sale of the ProNeura Assets, with closing occurring on September 1, 2023. The ProNeura Assets constituted only a portion of our assets. In August 2023,
| 7. | Stockholders’ Equity |
Common Stock
Our common stock outstanding as of December 31, 2023 and December 31, 2022 was shares and shares, respectively.
Annual Meeting of Stockholders
In June 2023, our stockholders approved an amendment to the 2015 Omnibus Equity Incentive Plan (the “2015 Plan”) to increase the number of authorized shares to shares.
September 2023 Preferred Stock
In September 2023, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with The Sire Group Ltd. (“Sire Group” or the “Investor”), pursuant to which we agreed to issue shares of our Series AA Convertible Preferred Stock, par value $ per share (the “Series AA Preferred Stock”) to the Investor at a price of $ per share, for an aggregate purchase price of $
Each share of Series AA Preferred Stock will be convertible, at the holder’s option at any time, into shares of our common stock at a conversion rate equal to the quotient of (i) the stated value of such share divided by (ii) the initial conversion price of $9.32, subject to specified adjustments as set forth in the Certificate of Designations, Preferences and Rights of Series AA Convertible Preferred Stock (the “Certificate of Designations”). The Series AA Preferred Stock contains limitations that prevent the Investor from acquiring the lower of either (i) the maximum percentage of common stock permissible under the rules and regulations of The Nasdaq Stock Market (“Nasdaq”) without first obtaining shareholder approval or (ii) 19.99% of our outstanding common stock.
F-16
The holder of the Series AA Preferred Stock is entitled to receive dividends on shares of the Series AA Preferred Stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock. No other dividends will be paid on shares of the Series AA Preferred Stock. Any shares of Series AA Preferred Stock may, at the option of the holder, be converted at any time into that number of shares of common stock at the conversion price set forth above. Without approval of holders of a majority of the outstanding Series AA Preferred Stock, we may not (a) alter or adversely change the powers, preferences or rights given to the Series AA Preferred Stock, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of the Series AA Preferred Stock, (c) increase the number of authorized shares of the Series AA Preferred Stock, (d) enter into or consummate any Fundamental Transaction (as defined in the Certificate of Designations), or (e) enter into any agreement with respect to any of the foregoing. In the event of any liquidation, dissolution or winding up, the holder of the Series AA Preferred Stock will be entitled to receive out of the assets, whether capital or surplus, the same amount that a holder of common stock would receive if the Series AA Preferred Stock were fully converted to common stock, which amounts shall be paid pari passu with all holders of common stock.
Amendment to Bylaws
In July 2022, the Board amended our Bylaws to effect certain enhancements to the ability of stockholders to call for a special meeting of stockholders and make changes to the composition of the Board. This included (i) reducing the holdings required for stockholders to call a special meeting of stockholders from a majority to twenty-five percent (25%); (ii) enabling increases in the size of the Board to be effectuated by stockholders or directors at any annual or special meeting or by stockholder action by written consent in lieu of a meeting; (iii) provide that Board vacancies and newly created directorships resulting from action taken by the stockholders at a meeting or by written consent in lieu thereof shall be filled initially by the stockholders.
Activist Investing, LLC
In July 2022, we received a letter from Activist requesting that our Board call the Special Meeting in accordance with Article II, Section 5 of our Bylaws, as amended.in order for stockholders to consider and vote upon the following two proposals:
| ● | An increase in the size of the Board by six (6) members from five (5) members to eleven (11) members in total; and | |
| ● | The election of Activist’s six nominees to serve as directors to fill the vacancies left by the foregoing increase. |
In accordance with Activist’s request, the Board set the record date for the Special Meeting as July 22, 2022, and the Special Meeting was held on August 15, 2022, resulting in the approval of the increase in the size of the Board and the election of the six nominees.
February 2022 Offerings
In February 2022, we completed a registered direct offering with an accredited investor pursuant to which we issued an aggregate of shares of our common stock and
F-17
Warrant Exercises
In March 2022, we received approximately $
In April 2022, we received approximately $
In May 2022, we received approximately $
JT Pharma Milestone
In January 2022, we entered into an agreement with JT Pharma to clarify certain provisions of the JT Agreement pursuant to which we agreed that the proof-of-concept milestone provided for in the JT Agreement was achieved and made a payment of $
Restricted Shares
In October 2023, we agreed to issue restricted shares of our common stock pursuant to a settlement agreement with MDM Worldwide Solutions, Inc. The shares vested immediately. We recorded related expenses of approximately $ during the year ended December 31, 2023
In November 2022, we agreed to issue shares of our common stock to Maxim Group, LLC in connection with the entry into an amendment to our existing advisory agreement. The shares vested immediately. We recorded related expenses of approximately $ million during the year ended December 31, 2022.
In August 2022, we agreed to issue shares of our common stock pursuant to an advisory services agreement with MDM Worldwide Solutions, Inc. The shares vested immediately. We recorded related expenses of approximately $ during the year ended December 31, 2022.
The following table summarizes restricted stock activity:
| December 31, | ||||
| 2023 | ||||
| Outstanding at December 31, 2022 | ||||
| Issued | ||||
| Forfeited or expired | ||||
| Released | ( |
) | ||
| Outstanding at December 31, 2023 | ||||
As of December 31, 2023, the following warrants to purchase shares of our common stock were outstanding (in thousands, except per share price):
| Date Issued | Expiration Date | Exercise Price | Outstanding | |||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
| $ | ||||||||||
F-18
Shares Reserved for Future Issuance
As of December 31, 2023, shares of common stock reserved by us for future issuance consisted of the following (in thousands):
| Stock options outstanding | ||||
| Shares issuable upon the exercise of warrants | ||||
| 8. | Stock Plans |
In August 2015, our stockholders approved the 2015 Plan. The 2015 Plan, as subsequently amended, authorizes a total of shares of our common stock for issuance to employees, directors, officers, consultants and advisors. As of December 31, 2023, options to purchase shares of our common stock were available for grant and shares of our common stock were outstanding under the 2015 Plan.
In February 2014, our Board adopted the 2014 Incentive Plan (the “2014 Plan”), pursuant to which shares of our common stock are currently authorized for issuance to employees, directors, officers, consultants and advisors. The 2014 Plan was terminated upon the approval of the 2015 Plan. As of December 31, 2023, options to purchase shares of our common stock were outstanding under the 2014 Plan.
The following table summarizes option activity for the year ended December 31, 2023:
| Shares (in thousands) |
Weighted Average Exercise Price per Share |
Weighted Average Remaining Contractual Term (years) |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||
| Outstanding at January 1, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Released | ( |
) | ||||||||||||||
| Cancelled/expired | ( |
) | ||||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Exercisable at December 31, 2023 | $ | $ | ||||||||||||||
We use the Black-Scholes-Merton option-pricing model with the following assumptions to estimate the stock-based compensation expense:
| For the Years Ended December 31, |
||||||||
| 2023 | 2022 | |||||||
| Weighted-average risk-free interest rate | % | % | ||||||
| Expected dividend payments | ||||||||
| Expected holding period (years)(1) | ||||||||
| Weighted-average volatility factor(2) | ||||||||
| Estimated forfeiture rates for options granted(3) | % | % | ||||||
| (1) | |
| (2) | |
| (3) |
F-19
Based upon the above methodology, the weighted-average fair value of options and awards granted during the years ended December 31, 2023 and 2022 was $ and $, respectively.
The following table summarizes the stock-based compensation expense (in thousands):
| For the Years Ended December 31, |
||||||||
| 2023 | 2022 | |||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Total stock-based compensation expenses | $ | $ | ||||||
As of December 31, 2023, there was unrecognized compensation expense related to non-vested stock options subject to shareholder approval.
On August 2, 2022, our Board of Directors (the “Board”), modified the outstanding options to purchase common stock under our 2015 Plan, to allow for the acceleration of vesting of all unvested 2015 Plan options in the event of a change in control through the election of a majority of new members to our Board.
On August 15, 2022, the Special Meeting was held at the request of Activist, to increase the size of our Board from five members to eleven members and elect Activist’s slate of six nominees to serve as directors in addition to the existing five Board members. As a result of the change of control, all unvested options granted under the 2015 Plan prior to August 15, 2022, immediately became vested. We recognized approximately $0.5 million of stock-based compensation related to the acceleration of vesting.
During August and September 2022, our Board granted
In July 2023, our Board granted, pursuant to our 2015 Plan, an aggregate of
In September 2023, our Board granted, pursuant to our 2015 Plan an aggregate of
| 9. | Income Taxes |
As of December 31, 2023, we had federal net operating loss carryforwards of approximately $
Current federal and California tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change of a corporation under Internal Revenue Code Section 382 and 383.
F-20
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss and credit carryforwards. Significant components of our deferred tax assets are as follows (in thousands):
| As of December 31, |
||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Research credit carryforwards | ||||||||
| Other, net | ||||||||
| Total deferred tax assets | ||||||||
| Deferred tax liabilities: | ||||||||
| Other, net | ( |
) | ( |
) | ||||
| Total deferred tax liabilities | ( |
) | ( |
) | ||||
| Valuation allowance | ( |
) | ( |
) | ||||
| Net deferred tax assets | $ | $ | ||||||
ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our recent history of operating losses, our management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance decreased by approximately $
The provision for income taxes consists of state minimum taxes due. The effective tax rate of our provision (benefit) for income taxes differs from the federal statutory rate as follows (in thousands):
| For the Years Ended December 31, |
||||||||
| 2023 | 2022 | |||||||
| Computed at 21% | $ | ( |
) | $ | ( |
) | ||
| State taxes | ( |
) | ||||||
| Change in valuation allowance | ( |
) | ( |
) | ||||
| Other | ||||||||
| Stock based compensation | ||||||||
| Research and development credits | ( |
) | ||||||
| Tax attributes expirations | ||||||||
| Impact of IRC 162m | ( |
) | ||||||
| Total | $ | $ | ( |
) | ||||
We had
We file tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are subject to the U.S. federal and state income tax examination by tax authorities for such years 2004 through 2023, due to net operating losses that are being carried forward for tax purposes.
F-21
| 10. | Discontinued Operations |
The following table presents information related to assets and liabilities reported as discontinued operations in our balance sheet:
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| (In thousands) | ||||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
| Discontinued operations – current assets | $ | $ | ||||||
| Accounts payable | $ | $ | ||||||
| Discontinued operations – current liabilities | $ | $ | ||||||
| 11. | Related Party Transactions |
In July 2023, we received $
In August 2023, we received $
In September 2023,
During the years ended December 31, 2023 and 2022, we made payments related to legal fees of approximately $
| 12. | Restatement of Previously Issued Condensed Unaudited Financial Statements |
During the preparation of our 2023 financial statements and notes thereto, we concluded that there was a material general and administrative expense and related balance sheet error in our previously issued unaudited condensed financial statements as of and for the quarterly and year to date period ended September 30, 2023 relating to the classification of payments made as issuance costs rather than as general and administrative period expense.
We noted that a payment in the amount of $406,000 was improperly classified as an issuance cost related to the Series AA Preferred Stock issuance when it should have been classified as a general and administrative expense during the three and nine months ended September 30, 2023.
This error in the accounting for issuance costs resulted in an understatement of additional paid in capital of $406,000 and an understatement of operating expenses and net loss of $406,000 as of and for the three and nine months ended September 30, 2023.
As a result of such error, we concluded that the previously issued unaudited financial statements for the three and nine months ended September 30, 2023 were materially misstated, and have restated them herein. The restatement corrections impact certain components within operating expense of the statements of operations, stockholders’ equity within the balance sheet and operating and financing cash flows within the statement of cash flows.
The following tables present the amounts previously reported, the restatement impact and the amount restated. The quarterly restatements will be effective with the filing of our future 2024 unaudited interim financial statement filings in Quarterly Reports on Form 10-Q.
The values as previously reported for the fiscal quarter ended September 30, 2023 were derived from our Quarterly Report on Form 10-Q filed on November 14, 2023 and do not give retroactive effect to a 1-for-20 reverse stock split effected on January 9, 2024. See Note 13. Subsequent Events.
F-22
TITAN PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
| As of September 30, 2023 |
||||||||||||
| (unaudited) | ||||||||||||
| As | Restatement | As | ||||||||||
| Reported | Impacts | Restated | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Restricted cash | ||||||||||||
| Receivables | ||||||||||||
| Notes receivable | ||||||||||||
| Inventory | ||||||||||||
| Prepaid expenses and other current assets | ||||||||||||
| Discontinued operations – current assets | ||||||||||||
| Total current assets | ||||||||||||
| Property and equipment, net | ||||||||||||
| Other assets | ||||||||||||
| Operating lease right-of-use assets, net | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | $ | $ | |||||||||
| Note payable to related party | ||||||||||||
| Other accrued liabilities | ||||||||||||
| Operating lease liability, current | ||||||||||||
| Deferred grant revenue | ||||||||||||
| Discontinued operations – current liabilities | ||||||||||||
| Total current liabilities | ||||||||||||
| Operating lease liability, noncurrent | ||||||||||||
| Total liabilities | ||||||||||||
| Commitments and contingencies (Note 6) | ||||||||||||
| Stockholders’ equity: | ||||||||||||
| Preferred stock, at amounts paid-in, $0.001 par value per share; 5,000,000 shares authorized, 950,000 shares issued and outstanding at September 30, 2023 and no shares issued and outstanding at December 31, 2022. | ||||||||||||
| Common stock, at amounts paid-in, $0.001 par value per share; 225,000,000 shares authorized, 15,016,295 shares issued and outstanding at September 30, 2023 and December 31, 2022. | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | ( |
) | ( |
) | ( |
) | ||||||
| Total stockholders’ equity | ||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | $ | |||||||||
F-23
TITAN PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amount)
(unaudited)
| Three Months Ended September 30, 2023 |
||||||||||||
| As | Restatement | As | ||||||||||
| Reported | Impacts | Restated | ||||||||||
| Revenues: | ||||||||||||
| License revenue | $ | $ | $ | |||||||||
| Grant revenue | ||||||||||||
| Total revenues | ||||||||||||
| Operating expenses: | ||||||||||||
| Research and development | ||||||||||||
| General and administrative | ||||||||||||
| Total operating expenses | ||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ||||||
| Other income (expense): | ||||||||||||
| Interest income (expense) | ( |
) | ( |
) | ||||||||
| Gain on asset sale | ||||||||||||
| Other income (expense), net | ||||||||||||
| Other income (expense), net | ||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| Basic and diluted net loss per common share | $ | ) | $ | ) | $ | ) | ||||||
| Weighted average shares used in computing basic and diluted net loss per common share | ||||||||||||
F-24
TITAN PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amount)
(unaudited)
| Nine Months Ended September 30, 2023 |
||||||||||||
| As | Restatement | As | ||||||||||
| Reported | Impacts | Restated | ||||||||||
| Revenues: | ||||||||||||
| License revenue | $ | $ | $ | |||||||||
| Grant revenue | ||||||||||||
| Total revenues | ||||||||||||
| Operating expenses: | ||||||||||||
| Research and development | ||||||||||||
| General and administrative | ||||||||||||
| Total operating expenses | ||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ||||||
| Other income (expense): | ||||||||||||
| Interest income (expense) | ||||||||||||
| Gain on asset sale | ||||||||||||
| Other income (expense), net | ( |
) | ( |
) | ||||||||
| Other income (expense), net | ||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| Basic and diluted net loss per common share | $ | ) | $ | ) | $ | ) | ||||||
| Weighted average shares used in computing basic and diluted net loss per common share | ||||||||||||
F-25
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, 2023 |
||||||||||||
| As | Restatement | As | ||||||||||
| Reported | Impacts | Restated | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Gain on sale of assets | ( |
) | ( |
) | ||||||||
| Depreciation and amortization | ||||||||||||
| Stock-based milestone payment | ||||||||||||
| Stock-based compensation | ||||||||||||
| Other | ( |
) | ( |
) | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Receivables | ||||||||||||
| Inventory | ||||||||||||
| Prepaid expenses and other assets | ||||||||||||
| Accounts payable | ( |
) | ( |
) | ||||||||
| Deferred grant revenue | ( |
) | ( |
) | ||||||||
| Other accrued liabilities | ( |
) | ( |
) | ||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ( |
) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Proceeds from sale of assets | ||||||||||||
| Net cash provided by investing activities | ||||||||||||
| Cash flows from financing activities: | ||||||||||||
| Net proceeds from equity offering | ||||||||||||
| Net proceeds from issuance of preferred stock | ||||||||||||
| Proceeds from short-term loans | ||||||||||||
| Net proceeds from the exercises of common stock warrants | ||||||||||||
| Payments on short-term loans | ( |
) | ( |
) | ||||||||
| Net cash provided by financing activities | ||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | $ | |||||||||
| Supplemental cash flow information: | ||||||||||||
| Interest paid | $ | $ | $ | |||||||||
| Inventory transferred with sale of assets | $ | $ | $ | |||||||||
| Property and equipment, net, transferred with sale of assets | $ | $ | $ | |||||||||
| Notes receivable received in connection with sale of assets | $ | $ | $ | |||||||||
| Accounts payable related to sale of assets | $ | $ | $ | |||||||||
| Other accrued liabilities transferred with sale of assets | $ | $ | $ | |||||||||
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed balance sheets that sum to the total of the same such amounts shown in the condensed statements of cash flows (in thousands):
| 2023 | ||||
| Cash and cash equivalents | $ | |||
| Restricted cash | ||||
| Cash, cash equivalents and restricted cash shown in the condensed statements of cash flows | $ | |||
F-26
| 13. | Subsequent Events |
On January 9, 2024, pursuant to prior stockholder authorization, our Board effected a reverse split of the outstanding shares of our common stock at a ratio of one share for every twenty shares then outstanding (the “Reverse Split”). Pursuant to their respective terms, the number of shares underlying our outstanding options and warrants was reduced and their respective exercise prices increased by the Reverse Split ratio. The number of shares of common stock authorized and the par value of $0.001 per share did not change as a result of the Reverse Split. All share and per share amounts contained in this Annual Report on Form 10-K give retroactive effect to the Reverse Split.
In January 2024, Fedson paid off the $
In March 2024, the Hau Promissory Note, along with accrued interest, was converted into shares of our common stock.
F-27
(b) Exhibits
39
| 14.1 | Code of Business Conduct and Ethics(3) | |
| 23.1 | Consent of WithumSmith+Brown, PC, Independent Registered Public Accounting Firm | |
| 31.1 | Certification of the Principal Executive and Financial Officer pursuant to Rule 13(a)-14(a) of the Securities Exchange Act of 1934 | |
| 32.1 | Certification of the Principal Executive and Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 97.1 | Dodd-Frank Clawback Policy | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| ± | Confidential treatment has been granted as to certain portions of this exhibit. |
| ±± | Certain information has been omitted from this exhibit in reliance upon Item 601(b)(10) of Regulation S-K. |
| (1) | Incorporated by reference from the Registrant’s Registration Statement on Form S-3 (File No. 333-221126). |
| (2) | Incorporated by reference from the Registrant’s Registration Statement on Form 10 filed on January 14, 2010. |
| (3) | Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013. |
| (4) | Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on September 28, 2015. |
| (5) | Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on July 27, 2017. |
| (6) | Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on March 26, 2018. |
| (7) | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2018. |
| (8) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated January 25, 2019. |
| (9) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated August 8, 2019. |
| (10) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated October 18, 2019. |
| (11) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated January 7, 2020. |
| (12) | Incorporated by reference from the Registrant’s Annual Report on Form 10-K dated April 1, 2019. |
| (13) | Incorporated by reference from the Registrant’s Annual Report on Form 10-K dated March 30, 2020. |
| (14) | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2020. |
| (15) | Incorporated by reference from the Registrant’s Registration Statement on Form S-1/A dated October 27, 2020. |
| (16) | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2020. |
| (17) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated December 1, 2020. |
| (18) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated January 19, 2021. |
| (19) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated December 29, 2021. |
| (20) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated February 3, 2022. |
| (21) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated July 5, 2022. |
| (22) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated August 5, 2022. |
| (23) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated September 21, 2022. |
| (24) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated December 12, 2022. |
| (25) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated December 15, 2022. |
| (26) | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2023. |
| (27) | Incorporated by reference from Annex A to the Registrant’s Definitive Proxy Statement filed on May 19, 2023. |
| (28) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated July 27, 2023. |
| (29) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated August 30, 2023. |
| (30) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated September 18, 2023. |
| (31) | Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2023. |
| (32) | Incorporated by reference from the Registrant’s Current Report on Form 8-K dated January 8, 2024. |
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: April 1, 2024 | TITAN PHARMACEUTICALS, INC. | |
| By: | /s/ David E. Lazar | |
| Name: | David E. Lazar | |
| Title: |
Chief Executive Officer (Principal Executive and Principal Financial Officer) | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ David E. Lazar | Chief Executive Officer | April 1, 2024 | ||
| David E. Lazar | (principal executive officer and principal financial officer) | |||
| /s/ Katherine Beebe DeVarney, Ph.D. | President, Chief Operating Officer and Director | April 1, 2024 | ||
| Katherine Beebe DeVarney, Ph.D. | ||||
| /s/ Avraham Ben-Tzvi, Adv. | Director | April 1, 2024 | ||
| Avraham Ben-Tzvi, Adv. | ||||
| /s/ Brynner Chiam | Director | April 1, 2024 | ||
| Brynner Chiam | ||||
| /s/ Eric Greenberg | Director | April 1, 2024 | ||
| Eric Greenberg | ||||
| /s/ Matthew C. McMurdo, Esq. | Director | April 1, 2024 | ||
| Matthew C. McMurdo, Esq. | ||||
| /s/ David Natan | Director | April 1, 2024 | ||
| David Natan | ||||
| /s/ Dato’ Seow Gim Shen | Chairman of the Board | April 1, 2024 | ||
| Dato’ Seow Gim Shen | ||||
| /s/ Brian E. Crowley | Vice President, Finance | April 1, 2024 | ||
| Brian E. Crowley | (principal accounting officer) |
41
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (File Nos. 333- 226841, 333-233722, 333-249550, 333-251187, 333-252482 and 333-262614), Form S-3 (File Nos. 333-230742 and 333-221126) and Form S-8 (File Nos. 333-275153, 333-171181 and 333-207950) of Titan Pharmaceuticals, Inc. of our report dated April 1, 2024, relating to the financial statements of Titan Pharmaceuticals, Inc. as of and for the years ended December 31, 2023 and 2022, appearing in this Form 10-K.
/s/ WithumSmith+Brown, PC |
|
East Brunswick, New Jersey |
|
April 1, 2024 |
Exhibit 31.1
CERTIFICATION
I, David E. Lazar, certify that:
1. I have reviewed this Annual Report on Form 10-K of Titan Pharmaceuticals, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 1, 2024
| /s/ David E. Lazar | ||
| Name: | David E. Lazar | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer and Principal Financial Officer) | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual Report on Form 10-K of Titan Pharmaceuticals, Inc. (the “Company”) for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April 1, 2024
| /s/ David E. Lazar | ||
| Name: | David E. Lazar | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer and Principal Financial Officer) | ||
Exhibit 97.1
TITAN PHARMACEUTICALS, INC.
DODD-FRANK CLAWBACK POLICY
The Board of Directors (the “Board”) of Titan Pharmaceuticals, Inc. (the “Company”) has adopted this clawback policy (the “Policy”) as a supplement to any other clawback policies in effect now or in the future at the Company to provide for the recovery of erroneously awarded Incentive-Based Compensation from Executive Officers. This Policy shall be interpreted to comply with the clawback rules found in 17 C.F.R. §240.10D-1 and Listing Rule 5608(c) of the Nasdaq Stock Market (the “Exchange”), and, to the extent this Policy is in any manner deemed inconsistent with such rules, this Policy shall be treated as retroactively amended to be compliant with such rules.
1. Definitions. 17 C.F.R. §240.10D-1(d) defines the terms “Executive Officer,” “Financial Reporting Measures,” “Incentive-Based Compensation” and “Received.” As used herein, these terms shall have the same meaning as in that regulation.
2. Application of the Policy. This Policy shall only apply in the event that the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. In the event of such an accounting restatement, the Company will recover reasonably promptly the Erroneously Awarded Compensation Received in accordance with this Policy.
3. Recovery Period. The Incentive-Based Compensation subject to clawback is the Incentive-Based Compensation Received by an Executive Officer (1) after beginning service as an Executive Officer and (2) during the three completed fiscal years immediately preceding the date that the Company is required to prepare an accounting restatement as described in section 2, provided that the person served as an Executive Officer at any time during the performance period applicable to the Incentive-Based Compensation in question (whether or not such person is serving as an Executive Officer at the time the Erroneously Awarded Compensation is required to be repaid to the Company). The date that the Company is required to prepare an accounting restatement shall be determined pursuant to 17 C.F.R. §240.10D-1(b)(1)(ii).
| (a) | Notwithstanding the foregoing, the Policy shall only apply if the Incentive-Based Compensation is Received (1) while the Company has a class of securities listed on the Exchange and (2) on or after October 2, 2023. |
| (b) | See 17 C.F.R. §240.10D-1(b)(1)(i) for certain circumstances under which the Policy will apply to Incentive-Based Compensation Received during a transition period arising due to a change in the Company’s fiscal year. |
4. Erroneously Awarded Compensation. The amount of Incentive-Based Compensation subject to recovery under this Policy with respect to each Executive Officer in connection with an accounting restatement described in Section 2 (“Erroneously Awarded Compensation”) is the amount of Incentive-Based Compensation Received that exceeds the amount of Incentive Based-Compensation that otherwise would have been Received had it been determined based on the restated amounts and shall be computed without regard to any taxes paid. For Incentive-Based Compensation based on the Company’s stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in an accounting restatement: (1) the amount shall be based on a reasonable estimate of the effect of the accounting restatement on the Company’s stock price or total shareholder return upon which the Incentive-Based Compensation was Received; and (2) the Company must maintain documentation of the determination of that reasonable estimate and provide such documentation to the Exchange.
5. Recovery of Erroneously Awarded Compensation. The Company shall recover reasonably promptly any Erroneously Awarded Compensation except to the extent that the conditions of paragraphs (a), (b), or (c) below apply. The Board shall determine the amount of Erroneously Awarded Compensation Received by each Executive Officer, shall promptly notify each Executive Officer of such amount and demand repayment or return of such compensation based on a repayment schedule determined by the Board in a manner that complies with this “reasonably promptly” requirement. Such determination shall be consistent with any applicable legal guidance, by the Securities and Exchange Commission (the “SEC”), judicial opinion, or otherwise. The determination of “reasonably promptly” may vary from case to case and the Board is authorized to adopt additional rules to further describe what repayment schedules satisfy this requirement.
| (a) | Erroneously Awarded Compensation need not be recovered if the direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered and the Board has made a determination that recovery would be impracticable. Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on expense of enforcement, the Company shall make a reasonable attempt to recover such Erroneously Awarded Compensation, document such reasonable attempt(s) to recover, and provide that documentation to the Exchange. |
| (b) | Erroneously Awarded Compensation need not be recovered if recovery would violate home country law where that law was adopted prior to November 28, 2022. Before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on violation of home country law, the Company shall obtain an opinion of home country counsel, acceptable to the Exchange, that recovery would result in such a violation and shall provide such opinion to the Exchange. |
| (c) | Erroneously Awarded Compensation need not be recovered if recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder. |
6. Board Decisions. Decisions of the Board with respect to this Policy shall be final, conclusive and binding on all Executive Officers subject to this Policy, unless determined to be an abuse of discretion.
7. No Indemnification. Notwithstanding anything to the contrary in any other policy of the Company or any agreement between the Company and an Executive Officer, no Executive Officer shall be indemnified by the Company against the loss of any Erroneously Awarded Compensation or any claims related to the Company’s enforcement of its rights under this Policy.
2
8. Agreement to Policy by Executive Officers. The Board shall take reasonable steps to inform Executive Officers of this Policy and obtain their agreement to this Policy, which steps may constitute the inclusion of this Policy as an attachment to any award that is accepted by the Executive Officer.
9. Other Recovery Rights. Any employment agreement, equity award agreement, compensatory plan or any other agreement or arrangement with an Executive Officer shall be deemed to include, as a condition to the grant of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this Policy. Any right of recovery under this Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be available to the Company under applicable law, regulation or rule or pursuant to the terms of any policy of the Company or any provision in any employment agreement, equity award agreement, compensatory plan, agreement or other arrangement. Without limiting the generality of the foregoing, (i) with respect to Executive Officers, if application of the provisions of the Company’s Amended and Restated 2015 Omnibus Equity Incentive Plan or individual employment agreements (the “Plan Clawback Provisions”) to any Executive Officer provides that a greater amount of such compensation may be subject to clawback, the Board may, in its sole discretion, elect to apply the Plan Clawback Provisions; and (ii) with respect to other persons employed by or providing services to the Company, this Policy does not limit or supersede the provisions of the Amended and Restated 2015 Omnibus Equity Incentive Plan or individual employment agreements, and the Board may elect to apply the Plan Clawback Provisions in the Board’s sole discretion.
10. Disclosure. The Company shall file all disclosures with respect to this Policy required by applicable SEC filings and rules.
11. Amendments. The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary. Notwithstanding anything in this Section 11 to the contrary, no amendment or termination of this Policy shall be effective if such amendment or termination would (after taking into account any actions taken by the Company contemporaneously with such amendment or termination) cause the Company to violate any federal securities laws, SEC rule or Exchange rule.
3
EXHIBIT A
TITAN PHARMACEUTICALS, INC. DODD-FRANK CLAWBACK POLICY
ACKNOWLEDGMENT FORM
_____
By signing below, the undersigned acknowledges and confirms that the undersigned has received and reviewed a copy of the Titan Pharmaceuticals, Inc. (the “Company”) Dodd-Frank Clawback Policy (the “Policy”).
By signing this Acknowledgment Form, the undersigned acknowledges and agrees that the undersigned is and will continue to be subject to the Policy and that the Policy will apply both during and after the undersigned’s employment with the Company. Further, by signing below, the undersigned agrees to abide by the terms of the Policy, including, without limitation, by returning any Erroneously Awarded Compensation (as defined in the Policy) to the Company to the extent required by, and in a manner consistent with, the Policy.
| Signature |
| Print Name |
| Date |
A-1
BALANCE SHEETS (Parenthetical) - $ / shares |
Dec. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred shares, par value | $ 0.001 | $ 0.001 |
| Preferred shares, shares authorized | 5,000,000 | 5,000,000 |
| Preferred shares, shares issued | 950,000 | 0 |
| Preferred shares, shares outstanding | 950,000 | 0 |
| Common stock, par or stated value per share | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 225,000,000 | 225,000,000 |
| Common stock shares, issued | 781,503 | 750,815 |
| Common stock shares, outstanding | 781,503 | 750,815 |
STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Total revenues | $ 184 | $ 557 |
| Operating expenses: | ||
| Research and development | 1,913 | 4,758 |
| General and administrative | 5,548 | 6,034 |
| Total operating expenses | 7,461 | 10,792 |
| Loss from operations | (7,277) | (10,235) |
| Other income (expense): | ||
| Interest income, net | 5 | 53 |
| Other expense, net | (52) | (24) |
| Gain on asset sale | 1,755 | |
| Other income, net | 1,708 | 29 |
| Net loss | $ (5,569) | $ (10,206) |
| Basic net loss per common share | $ (7.41) | $ (15.19) |
| Diluted net loss per common share | $ (7.41) | $ (15.19) |
| Weighted average shares used in computing basic net loss per common share | 752 | 672 |
| Weighted average shares used in computing diluted net loss per common share | 752 | 672 |
| License and Service [Member] | ||
| Total revenues | $ 1 | $ 60 |
| Grant [Member] | ||
| Total revenues | $ 183 | $ 497 |
Pay vs Performance Disclosure - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Pay vs Performance Disclosure [Table] | ||
| Net Income (Loss) Attributable to Parent | $ (5,569) | $ (10,206) |
Insider Trading Arrangements |
3 Months Ended |
|---|---|
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| Insider Trading Arrangements [Line Items] | |
| Rule 10b5-1 Arrangement Adopted | false |
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| Rule 10b5-1 Arrangement Terminated | false |
| Non-Rule 10b5-1 Arrangement Terminated | false |
Organization and Summary of Significant Accounting Policies |
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| Organization and Summary of Significant Accounting Policies |
The Company
We are a pharmaceutical company developing therapeutics utilizing the proprietary long-term drug delivery platform, ProNeura®, for the treatment of select chronic diseases for which steady state delivery of a drug has the potential to provide an efficacy and/or safety benefit. ProNeura consists of a small, solid implant made from a mixture of ethylene-vinyl acetate (“EVA”) and a drug substance. The resulting product is a solid matrix that is designed to be administered subdermally in a brief, outpatient procedure and is removed in a similar manner at the end of the treatment period.
Our first product based on the ProNeura technology was Probuphine® (buprenorphine implant), which is approved in the United States, Canada and the European Union (“EU”) for the maintenance treatment of opioid use disorder in clinically stable patients taking 8 mg or less a day of oral buprenorphine. While Probuphine continues to be commercialized in the EU (as Sixmo™) by another company that had acquired the rights from Titan, we discontinued commercialization of the product in the United States during the fourth quarter of 2020 and subsequently sold the product in September 2023. Discontinuation of our commercial operations has allowed us to focus our limited resources on important product development programs and transition back to a product development company.
In December 2021, we announced our intention to work with our financial advisor to explore strategic alternatives to enhance stockholder value, potentially including an acquisition, merger, reverse merger, other business combination, sales of assets, licensing or other transaction. In June 2022, we implemented a plan to reduce expenses and conserve capital that included a company-wide reduction in salaries and a scale back of certain operating expenses to enable us to maintain sufficient resources as we pursued potential strategic alternatives. In July 2022, David Lazar and Activist Investing LLC (collectively, “Activist”) acquired an approximately 25% ownership interest in Titan, filed a proxy statement and nominated six additional directors, each of whom was elected to our board of directors (the “Board”) at a special meeting of stockholders held on August 15, 2022 (the “Special Meeting”). The exploration and evaluation of possible strategic alternatives by the Board has continued following the Special Meeting. Following the election of the new directors at the Special Meeting, Dr. Marc Rubin was replaced as our Executive Chairman, and David Lazar assumed the role of Chief Executive Officer. In connection with the termination of his employment as Executive Chairman, Dr. Rubin received aggregate severance payments of approximately $0.4 million. In December 2022, we implemented additional cost reduction measures including a reduction in our workforce. In June 2023, David Lazar sold his approximately 25% ownership interest in Titan to Choong Choon Hau. Mr. Lazar remains the Company’s Chief Executive Officer.
On September 1, 2023, (the “Closing Date”), we closed on the sale of certain ProNeura assets, including our portfolio of drug addiction products, in addition to other early development programs based on the ProNeura drug delivery technology (the “ProNeura Assets”). In July 2023, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Fedson, Inc., a Delaware corporation (“Fedson”) for the sale of the ProNeura Assets. Our addiction portfolio consisted of the Probuphine and Nalmefene implant programs. The ProNeura Assets constituted only a portion of our assets. In August 2023, we entered into an Amendment and Extension Agreement (the “Amendment”) to the Asset Purchase Agreement, pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form of a promissory note due and payable on October 1, 2023 (the “Cash Note”) and (iii) $1,000,000 in the form of a promissory note due and payable on January 1, 2024 (the “Escrow Note”). We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of all of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the payment of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024.
All share and per share amounts give retroactive effect to a 1-for-20 reverse stock split effected on January 9, 2024. See Note 13. Subsequent Events.
The accompanying financial statements have been prepared assuming we will continue as a going concern.
At December 31, 2023, we had cash and cash equivalents of approximately $6.8 million, which we believe is sufficient to fund our planned operations into the second quarter of 2025. We will require additional funds to finance our operations. We are exploring several financing and strategic alternatives; however, there can be no assurance that our efforts will be successful.
Discontinued Operations
In October 2020, we announced our decision to discontinue selling Probuphine in the United States and wind down our commercialization activities, and to pursue a plan that will enable us to focus on our current, early-stage ProNeura-based product development programs.
The accompanying financial statements have been recast for all periods presented to reflect the assets, liabilities, revenue and expenses related to our U.S. commercialization activities as discontinued operations (see Note 10. Discontinued Operations). The accompanying financial statements are generally presented in conformity with our historical format. We believe this format provides comparability with the previously filed financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Going concern assessment
We assess going concern uncertainty in our 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 financial statements are issued or available to be issued, which is referred to as the look-forward period as defined by Accounting Standard Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“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.
Based upon the above assessment, we concluded that, at the date of filing the financial statements in this Annual Report on Form 10-K for the year ended December 31, 2023, we had sufficient cash to fund our operations for the next 12 months without additional funds.
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:
Approximately $106,000 of raw materials and supplies and finished goods inventory at December 31, 2022 were sold to Fedson under the Asset Purchase Agreement in September 2023. We had no inventory at December 31, 2023.
Stock-Based Compensation
We recognize compensation expense using a fair-value based method, for all stock-based payments including stock options and restricted stock awards and stock issued under an employee stock purchase plan. These standards require companies to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. See Note 8. Stock Plans for a discussion of our stock-based compensation plans.
Warrants Issued in Connection with Equity Financing
We generally account for warrants issued in connection with equity financings as a component of equity, unless there is a deemed possibility that we may have to settle the warrants in cash. For warrants issued with deemed possibility of cash settlement, we record the fair value of the issued warrants as a liability at each reporting period and record changes in the estimated fair value as a non-cash gain or loss in the Statements of Operations.
Cash and Cash Equivalents
Our investment policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers and limit the amount of credit exposure to any one issuer. The estimated fair values have been determined using available market information. We do not use derivative financial instruments in our investment portfolio.
All investments with original maturities of three months or less are considered to be cash equivalents. We had money market funds of approximately $2.6 million as of December 31, 2022, included in our cash and cash equivalents. We had no money market funds included in our cash and cash equivalents as of December 31, 2023.
We maintain significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on our financial condition, results of operations, and cash flows.
On March 10, 2023, the Federal Deposit Insurance Corporation (“FDIC”) announced that it had closed and taken control of Silicon Valley Bank. On March 13, 2023, pursuant to a joint statement released by the U.S. Department of the Treasury and the FDIC, the U.S. government reassured that all depositors were fully protected. We held deposits with this bank. As a result of the above actions, our insured and uninsured deposits were restored.
Restricted Cash
In accordance with ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, we explain the change during the period in the total of cash, cash equivalents and restricted cash, and include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets.
Revenue Recognition
We generate revenue principally from collaborative research and development arrangements, sales or licenses of technology, government grants, sales of Probuphine materials to Molteni and Knight, and prior to the discontinued operations, the sale of Probuphine in the United States. 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.
Grant Revenue
We have contracts with National Institute on Drug Abuse or NIDA, within the U.S. Department of Health and Human Services (“HHS”), the Bill & Melinda Gates Foundation, and other government-sponsored organizations for research and development related activities that provide for payments for reimbursed costs, which may include overhead and general and administrative costs. We recognize revenue from these contracts as we perform services under these arrangements when the funding is committed. Associated expenses are recognized when incurred as research and development expense. Revenues and related expenses are presented gross in the statements of operations.
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.
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 recognize 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.
Contract Assets and Liabilities
The following table presents the activity related to our accounts receivable for the years ended December 31, 2023 and 2022.
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, 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.
Basic net loss per share excludes the effect of dilution and is computed by dividing net loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised into shares. In calculating diluted net loss per share, the denominator is increased to include the number of potentially dilutive common shares assumed to be outstanding during the period using the treasury stock method. Basic and diluted net loss per share was the same for each of the periods presented.
The table below presents common shares underlying stock options and warrants that are excluded from the calculation of the weighted average number of shares of common stock outstanding used for the calculation of diluted net loss per common share. These are excluded from the calculation due to their anti-dilutive effect for the years ended (in thousands):
Leases
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 balance sheet as right-of-use assets, operating lease liabilities current and operating lease liabilities non-current.
The following table presents the minimum lease payments of our operating lease as of December 31, 2023 (in thousands):
Subsequent Events
We have evaluated events that have occurred subsequent to December 31, 2023 and through the date that the financial statements are issued. See Note 13. Subsequent Events.
Fair Value Measurements
We measure the fair value of financial assets and liabilities based on authoritative guidance which defines fair value, establishes a framework consisting of three levels for measuring fair value, and requires disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
Level 1 – quoted prices in active markets for identical assets or liabilities;
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable;
Level 3 – inputs that are unobservable (for example cash flow modelling inputs based on assumptions).
Financial instruments, including receivables, accounts payable and accrued liabilities are carried at cost, which we believe approximates fair value due to the short-term nature of these instruments. The approximately $2.6 million fair value of money market funds as of December 31, 2022, included in our cash and cash equivalents are classified as Level 1 and were derived from quoted market prices as active markets for these instruments exist. We had no money market funds included in our cash and cash equivalents as of December 31, 2023.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
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 beginning on January 1, 2023. The adoption of Topic 326 did not have a material impact on our condensed financial statements and disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provides companies with optional guidance, including expedients and exceptions for applying GAAP 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, 2023. The adoption of ASU No. 2020-04 did not have a material impact on our condensed financial statements and disclosures.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments. ASU 2020-06 eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is effective beginning after December 15, 2023 and must be applied using either a modified or full retrospective approach. Early adoption is permitted. The adoption of ASU No. 2020-06 did not have a material impact on our condensed financial statements and disclosures. |
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Property and Equipment |
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| Property and Equipment |
Property and equipment consisted of the following (in thousands):
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JT Pharmaceuticals Asset Purchase Agreement |
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| Jt Pharmaceuticals Asset Purchase Agreement | ||||
| JT Pharmaceuticals Asset Purchase Agreement |
In October 2020, we entered into an asset purchase agreement with JT Pharmaceuticals, Inc. (“JT Pharma”) (the “JT Agreement”) to acquire JT Pharma’s kappa opioid agonist peptide, TP-2021 (formerly JT-09) for use in combination with our ProNeura long-term, continuous drug delivery technology, for the treatment of chronic pruritus and other medical conditions. Under the terms of the JT Agreement, JT Pharma received a $15,000 closing payment and is entitled to receive future milestone payments, payable in cash or in stock, based on the achievement of certain developmental and regulatory milestones, and single-digit percentage earn-out payments on net sales of the product if successfully developed and approved for commercialization. In January 2022, we entered into an agreement with JT Pharma to clarify certain provisions of the JT Agreement pursuant to which we agreed that the proof-of-concept milestone provided for in the JT Agreement was achieved and made a payment of $100,000 and issued shares of our common stock to JT Pharma. The related expense is included in research and development expenses in our statements of operations. |
Ocular Therapeutix License Agreement |
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| Ocular Therapeutix License Agreement | ||||
| Ocular Therapeutix License Agreement |
In December 2022, we entered into a license agreement with Ocular Therapeutix, Inc.(“Ocular”) (the “Ocular Agreement”) to license the exclusive rights to certain patent applications for ophthalmic uses in both humans and nonhuman animals in the United States (the “Licensed Patents”). The grant of the Ocular license by us to Ocular is for an exclusive (even as to us), perpetual, fully paid-up license to use the Licensed Patents. The license comes with the right to sublicense. The Ocular paid us a one-time fee of $50,000. Ocular shall make additional payments upon the achievement of certain milestone events as set forth in the License Agreement. The Ocular Agreement was included in the ProNeura Assets sold to Fedson. |
Commitments and Contingencies |
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| Commitments and contingencies (Note 5) | ||||
| Commitments and Contingencies |
Lease Commitments
We lease our office facility under an operating lease that expires in June 2024. Rent expense associated with this lease was approximately $0.1 million for each of the years ended December 31, 2023 and 2022.
Guarantees and Indemnifications
As permitted under Delaware law and in accordance with our Bylaws, we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, we have a director and officer insurance policy that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements is minimal. Accordingly, we have not recorded any liabilities for these agreements as of December 31, 2023 or 2022.
In the normal course of business, we have commitments to make certain milestone payments to various clinical research organizations in connection with our clinical trial activities. Payments are contingent upon the achievement of specific milestones or events as defined in the agreements, and we have made appropriate accruals in our financial statements for those milestones that were achieved as of December 31, 2023. We also provide indemnifications of varying scope to our CROs and investigators against claims made by third parties arising from the use of our products and processes in clinical trials. Historically, costs related to these indemnification provisions were immaterial. We also maintain various liability insurance policies that limit our exposure. We are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.
Legal Proceedings
In the normal course of business, we have been and will likely continue to be subject to other litigation or administrative proceedings incidental to our business, such as claims related to compliance with regulatory standards. customer disputes, employment practices, wage and hour disputes, product liability, professional liability, malpractice liability, commercial disputes, licensure restrictions or denials, and warranty or patent infringement. Responding to litigation or administrative proceedings, regardless of whether they have merit, can be expensive and disruptive to normal business operations. We are not able to predict the timing or outcome of these matters and currently do not expect that the resolution of these matters will have a material adverse effect on our financial position or results of operations.
In 2020, a legal proceeding was initiated against us by a former employee alleging wrongful termination, retaliation, infliction of emotional distress, negligent supervision, hiring and retention and slander. An independent investigation into this individual’s allegations of whistleblower retaliation, while still an employee, was conducted utilizing an outside investigator and concluded that such allegations were not substantiated. In September 2023, Fedson, as consideration for the Asset Purchase Agreement, agreed to assume all liabilities related to this pending employment claim (See Note 6. Asset Sale). |
Asset Sale |
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| Asset Sale | ||||
| Asset Sale |
In July 2023, we entered into the Asset Purchase Agreement with Fedson for the sale of the ProNeura Assets, with closing occurring on September 1, 2023. The ProNeura Assets constituted only a portion of our assets. In August 2023, we entered into an Amendment to the Asset Purchase Agreement, pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form of the Cash Note and (iii) $1,000,000 in the form of the Escrow Note. We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of all of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the maturity date of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024. |
Stockholders’ Equity |
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| Stockholders’ Equity |
Common Stock
Our common stock outstanding as of December 31, 2023 and December 31, 2022 was shares and shares, respectively.
Annual Meeting of Stockholders
In June 2023, our stockholders approved an amendment to the 2015 Omnibus Equity Incentive Plan (the “2015 Plan”) to increase the number of authorized shares to shares.
September 2023 Preferred Stock
In September 2023, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with The Sire Group Ltd. (“Sire Group” or the “Investor”), pursuant to which we agreed to issue shares of our Series AA Convertible Preferred Stock, par value $ per share (the “Series AA Preferred Stock”) to the Investor at a price of $ per share, for an aggregate purchase price of $9.5 million. The purchase price consisted of (i) $5.0 million in cash at closing and (ii) $4.5 million in the form of a promissory note from Sire Group which was paid off in September 2023.
Each share of Series AA Preferred Stock will be convertible, at the holder’s option at any time, into shares of our common stock at a conversion rate equal to the quotient of (i) the stated value of such share divided by (ii) the initial conversion price of $9.32, subject to specified adjustments as set forth in the Certificate of Designations, Preferences and Rights of Series AA Convertible Preferred Stock (the “Certificate of Designations”). The Series AA Preferred Stock contains limitations that prevent the Investor from acquiring the lower of either (i) the maximum percentage of common stock permissible under the rules and regulations of The Nasdaq Stock Market (“Nasdaq”) without first obtaining shareholder approval or (ii) 19.99% of our outstanding common stock.
The holder of the Series AA Preferred Stock is entitled to receive dividends on shares of the Series AA Preferred Stock equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock. No other dividends will be paid on shares of the Series AA Preferred Stock. Any shares of Series AA Preferred Stock may, at the option of the holder, be converted at any time into that number of shares of common stock at the conversion price set forth above. Without approval of holders of a majority of the outstanding Series AA Preferred Stock, we may not (a) alter or adversely change the powers, preferences or rights given to the Series AA Preferred Stock, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of the Series AA Preferred Stock, (c) increase the number of authorized shares of the Series AA Preferred Stock, (d) enter into or consummate any Fundamental Transaction (as defined in the Certificate of Designations), or (e) enter into any agreement with respect to any of the foregoing. In the event of any liquidation, dissolution or winding up, the holder of the Series AA Preferred Stock will be entitled to receive out of the assets, whether capital or surplus, the same amount that a holder of common stock would receive if the Series AA Preferred Stock were fully converted to common stock, which amounts shall be paid pari passu with all holders of common stock.
Amendment to Bylaws
In July 2022, the Board amended our Bylaws to effect certain enhancements to the ability of stockholders to call for a special meeting of stockholders and make changes to the composition of the Board. This included (i) reducing the holdings required for stockholders to call a special meeting of stockholders from a majority to twenty-five percent (25%); (ii) enabling increases in the size of the Board to be effectuated by stockholders or directors at any annual or special meeting or by stockholder action by written consent in lieu of a meeting; (iii) provide that Board vacancies and newly created directorships resulting from action taken by the stockholders at a meeting or by written consent in lieu thereof shall be filled initially by the stockholders.
Activist Investing, LLC
In July 2022, we received a letter from Activist requesting that our Board call the Special Meeting in accordance with Article II, Section 5 of our Bylaws, as amended.in order for stockholders to consider and vote upon the following two proposals:
In accordance with Activist’s request, the Board set the record date for the Special Meeting as July 22, 2022, and the Special Meeting was held on August 15, 2022, resulting in the approval of the increase in the size of the Board and the election of the six nominees.
February 2022 Offerings
In February 2022, we completed a registered direct offering with an accredited investor pursuant to which we issued an aggregate of shares of our common stock and 113,712 pre-funded warrants to purchase shares of our common stock, with an exercise price of $0.02 per share. In a concurrent private placement, we sold unregistered pre-funded warrants to purchase an aggregate of 64,490 shares of common stock with an exercise price of $0.02 per share and issued unregistered five year and six month warrants to purchase an aggregate of 233,202 shares of common stock with an exercise price of $22.80. The unregistered warrants were registered in April 2022. The warrants were classified as equity. The net cash proceeds from these offerings were approximately $5.0 million after deduction of underwriting fees and other offering expenses.
Warrant Exercises
In March 2022, we received approximately $1,000 from the exercise of 48,712 pre-funded warrants issued in the February 2022 registered direct offering.
In April 2022, we received approximately $1,300 from the exercise of 65,000 pre-funded warrants issued in the February 2022 registered direct offering.
In May 2022, we received approximately $1,290 from the exercise of 64,490 pre-funded warrants issued in the February 2022 private placement.
JT Pharma Milestone
In January 2022, we entered into an agreement with JT Pharma to clarify certain provisions of the JT Agreement pursuant to which we agreed that the proof-of-concept milestone provided for in the JT Agreement was achieved and made a payment of $100,000 and issued shares of our common stock to JT Pharma.
Restricted Shares
In October 2023, we agreed to issue restricted shares of our common stock pursuant to a settlement agreement with MDM Worldwide Solutions, Inc. The shares vested immediately. We recorded related expenses of approximately $ during the year ended December 31, 2023
In November 2022, we agreed to issue shares of our common stock to Maxim Group, LLC in connection with the entry into an amendment to our existing advisory agreement. The shares vested immediately. We recorded related expenses of approximately $ million during the year ended December 31, 2022.
In August 2022, we agreed to issue shares of our common stock pursuant to an advisory services agreement with MDM Worldwide Solutions, Inc. The shares vested immediately. We recorded related expenses of approximately $ during the year ended December 31, 2022.
The following table summarizes restricted stock activity:
As of December 31, 2023, the following warrants to purchase shares of our common stock were outstanding (in thousands, except per share price):
Shares Reserved for Future Issuance
As of December 31, 2023, shares of common stock reserved by us for future issuance consisted of the following (in thousands):
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Stock Plans |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Plans |
In August 2015, our stockholders approved the 2015 Plan. The 2015 Plan, as subsequently amended, authorizes a total of shares of our common stock for issuance to employees, directors, officers, consultants and advisors. As of December 31, 2023, options to purchase shares of our common stock were available for grant and shares of our common stock were outstanding under the 2015 Plan.
In February 2014, our Board adopted the 2014 Incentive Plan (the “2014 Plan”), pursuant to which shares of our common stock are currently authorized for issuance to employees, directors, officers, consultants and advisors. The 2014 Plan was terminated upon the approval of the 2015 Plan. As of December 31, 2023, options to purchase shares of our common stock were outstanding under the 2014 Plan.
The following table summarizes option activity for the year ended December 31, 2023:
We use the Black-Scholes-Merton option-pricing model with the following assumptions to estimate the stock-based compensation expense:
Based upon the above methodology, the weighted-average fair value of options and awards granted during the years ended December 31, 2023 and 2022 was $ and $, respectively.
The following table summarizes the stock-based compensation expense (in thousands):
As of December 31, 2023, there was unrecognized compensation expense related to non-vested stock options subject to shareholder approval.
On August 2, 2022, our Board of Directors (the “Board”), modified the outstanding options to purchase common stock under our 2015 Plan, to allow for the acceleration of vesting of all unvested 2015 Plan options in the event of a change in control through the election of a majority of new members to our Board.
On August 15, 2022, the Special Meeting was held at the request of Activist, to increase the size of our Board from five members to eleven members and elect Activist’s slate of six nominees to serve as directors in addition to the existing five Board members. As a result of the change of control, all unvested options granted under the 2015 Plan prior to August 15, 2022, immediately became vested. We recognized approximately $0.5 million of stock-based compensation related to the acceleration of vesting.
During August and September 2022, our Board granted 6,250 options to purchase common stock at $ per share and 45,000 options to purchase common stock at $ per share which are subject to shareholder approval of an amendment to increase the number of shares reserved for issuance under our 2015 Plan. The options vest monthly over a 12-month period from the grant dates. The shares underlying these options were approved by our stockholders on June 29, 2023 and have been included in the table above as of December 31, 2023.
In July 2023, our Board granted, pursuant to our 2015 Plan, an aggregate of 22,500 shares of fully vested unrestricted common stock to seven members of the Board of Directors and one member of the management team. As a result, we recognized non-cash stock compensation of approximately $235,000.
In September 2023, our Board granted, pursuant to our 2015 Plan an aggregate of 5,691 shares of fully vested unrestricted common stock to six members of the Board of Directors and one member of the management team. The Board conditioned the grant on the filing of a Form S-8 registration statement to register the common shares authorized for issuance under the 2015 Plan, which occurred on October 25, 2023. As a result, we recognized non-cash stock compensation of approximately $48,000. |
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Income Taxes |
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| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes |
As of December 31, 2023, we had federal net operating loss carryforwards of approximately $157.2 million that expire at various dates through 2037 and approximately $57.5 million which do not expire but are subject to 80% taxable income limitations. As of December 31, 2023, we had federal research and development tax credits of approximately $5.9 million that expire at various dates through 2043. We also had net operating loss carryforwards for California income tax purposes of approximately $116.6 million that expire at various dates through 2043 and state research and development tax credits of approximately $9.2 million which do not expire.
Current federal and California tax laws include substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change of a corporation under Internal Revenue Code Section 382 and 383.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss and credit carryforwards. Significant components of our deferred tax assets are as follows (in thousands):
ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our recent history of operating losses, our management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance decreased by approximately $5.3 million during 2023 and decreased by approximately $7.5 million during 2022.
The provision for income taxes consists of state minimum taxes due. The effective tax rate of our provision (benefit) for income taxes differs from the federal statutory rate as follows (in thousands):
We had no unrecognized tax benefits, or any amounts accrued for interest and penalties for the three years ended December 31, 2023. Our policy is to recognize interest and penalties related to income taxes as a component of income tax expense. We do not expect the amount of unrecognized tax benefits will materially change in the next twelve months.
We file tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are subject to the U.S. federal and state income tax examination by tax authorities for such years 2004 through 2023, due to net operating losses that are being carried forward for tax purposes. |
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Discontinued Operations |
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| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations |
The following table presents information related to assets and liabilities reported as discontinued operations in our balance sheet:
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Related Party Transactions |
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Dec. 31, 2023 | |||
| Related Party Transactions [Abstract] | |||
| Related Party Transactions |
In July 2023, we received $250,000 in funding in exchange for the issuance of an unsecured promissory note for that principal amount to David E. Lazar, our Chief Executive Officer and prior chairman of our Board (the “Lazar Promissory Note”). Pursuant to the Lazar Promissory Note, the principal amount accrued interest at a rate of the Prime Rate + 2.00% per annum, and all principal and accrued interest were due and payable on the earlier of January 1, 2024 or such time as we receive debt or equity financing or proceeds in excess of $500,000 from the aforementioned transaction with Fedson. The loan was paid off in September 2023.
In August 2023, we received $500,000 in funding in exchange for the issuance of a convertible promissory note for that principal amount to Choong Choon Hau (the “Hau Promissory Note”). Pursuant to the Hau Promissory Note, the principal amount accrues interest at a rate of 10% per annum and is payable monthly. All principal and accrued interest was due and payable on January 8, 2024, unless extended as provided. All or part of the Hau Promissory Note can be converted into our common stock at a conversion price of $9.32 per share from time to time following the issuance date and ending on the maturity date. In March 2024, the Hau Promissory Note, along with accrued interest, was converted into shares of our common stock.
In September 2023, we entered into the Securities Purchase Agreement with Sire Group, pursuant to which we agreed to issue 950,000 shares of our Series AA Preferred Stock to Sire Group at a price of $10.00 per share, for an aggregate purchase price of $9.5 million. The purchase price consisted of (i) $5.0 million in cash at closing and (ii) $4.5 million in the form of a promissory note from Sire Group which was paid off in September 2023.
During the years ended December 31, 2023 and 2022, we made payments related to legal fees of approximately $109,000 and $75,000, respectively, to a law firm operated by one of our Board members. |
Restatement of Previously Issued Condensed Unaudited Financial Statements |
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| Accounting Changes and Error Corrections [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restatement of Previously Issued Condensed Unaudited Financial Statements |
During the preparation of our 2023 financial statements and notes thereto, we concluded that there was a material general and administrative expense and related balance sheet error in our previously issued unaudited condensed financial statements as of and for the quarterly and year to date period ended September 30, 2023 relating to the classification of payments made as issuance costs rather than as general and administrative period expense.
We noted that a payment in the amount of $406,000 was improperly classified as an issuance cost related to the Series AA Preferred Stock issuance when it should have been classified as a general and administrative expense during the three and nine months ended September 30, 2023.
This error in the accounting for issuance costs resulted in an understatement of additional paid in capital of $406,000 and an understatement of operating expenses and net loss of $406,000 as of and for the three and nine months ended September 30, 2023.
As a result of such error, we concluded that the previously issued unaudited financial statements for the three and nine months ended September 30, 2023 were materially misstated, and have restated them herein. The restatement corrections impact certain components within operating expense of the statements of operations, stockholders’ equity within the balance sheet and operating and financing cash flows within the statement of cash flows.
The following tables present the amounts previously reported, the restatement impact and the amount restated. The quarterly restatements will be effective with the filing of our future 2024 unaudited interim financial statement filings in Quarterly Reports on Form 10-Q.
The values as previously reported for the fiscal quarter ended September 30, 2023 were derived from our Quarterly Report on Form 10-Q filed on November 14, 2023 and do not give retroactive effect to a 1-for-20 reverse stock split effected on January 9, 2024. See Note 13. Subsequent Events.
CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed balance sheets that sum to the total of the same such amounts shown in the condensed statements of cash flows (in thousands):
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Subsequent Events |
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Dec. 31, 2023 | |||
| Subsequent Events [Abstract] | |||
| Subsequent Events |
On January 9, 2024, pursuant to prior stockholder authorization, our Board effected a reverse split of the outstanding shares of our common stock at a ratio of one share for every twenty shares then outstanding (the “Reverse Split”). Pursuant to their respective terms, the number of shares underlying our outstanding options and warrants was reduced and their respective exercise prices increased by the Reverse Split ratio. The number of shares of common stock authorized and the par value of $0.001 per share did not change as a result of the Reverse Split. All share and per share amounts contained in this Annual Report on Form 10-K give retroactive effect to the Reverse Split.
In January 2024, Fedson paid off the $1.0 million Escrow Note. We received the funds from the escrow account in February 2024.
In March 2024, the Hau Promissory Note, along with accrued interest, was converted into shares of our common stock. |
Organization and Summary of Significant Accounting Policies (Policies) |
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Company | The Company
We are a pharmaceutical company developing therapeutics utilizing the proprietary long-term drug delivery platform, ProNeura®, for the treatment of select chronic diseases for which steady state delivery of a drug has the potential to provide an efficacy and/or safety benefit. ProNeura consists of a small, solid implant made from a mixture of ethylene-vinyl acetate (“EVA”) and a drug substance. The resulting product is a solid matrix that is designed to be administered subdermally in a brief, outpatient procedure and is removed in a similar manner at the end of the treatment period.
Our first product based on the ProNeura technology was Probuphine® (buprenorphine implant), which is approved in the United States, Canada and the European Union (“EU”) for the maintenance treatment of opioid use disorder in clinically stable patients taking 8 mg or less a day of oral buprenorphine. While Probuphine continues to be commercialized in the EU (as Sixmo™) by another company that had acquired the rights from Titan, we discontinued commercialization of the product in the United States during the fourth quarter of 2020 and subsequently sold the product in September 2023. Discontinuation of our commercial operations has allowed us to focus our limited resources on important product development programs and transition back to a product development company.
In December 2021, we announced our intention to work with our financial advisor to explore strategic alternatives to enhance stockholder value, potentially including an acquisition, merger, reverse merger, other business combination, sales of assets, licensing or other transaction. In June 2022, we implemented a plan to reduce expenses and conserve capital that included a company-wide reduction in salaries and a scale back of certain operating expenses to enable us to maintain sufficient resources as we pursued potential strategic alternatives. In July 2022, David Lazar and Activist Investing LLC (collectively, “Activist”) acquired an approximately 25% ownership interest in Titan, filed a proxy statement and nominated six additional directors, each of whom was elected to our board of directors (the “Board”) at a special meeting of stockholders held on August 15, 2022 (the “Special Meeting”). The exploration and evaluation of possible strategic alternatives by the Board has continued following the Special Meeting. Following the election of the new directors at the Special Meeting, Dr. Marc Rubin was replaced as our Executive Chairman, and David Lazar assumed the role of Chief Executive Officer. In connection with the termination of his employment as Executive Chairman, Dr. Rubin received aggregate severance payments of approximately $0.4 million. In December 2022, we implemented additional cost reduction measures including a reduction in our workforce. In June 2023, David Lazar sold his approximately 25% ownership interest in Titan to Choong Choon Hau. Mr. Lazar remains the Company’s Chief Executive Officer.
On September 1, 2023, (the “Closing Date”), we closed on the sale of certain ProNeura assets, including our portfolio of drug addiction products, in addition to other early development programs based on the ProNeura drug delivery technology (the “ProNeura Assets”). In July 2023, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Fedson, Inc., a Delaware corporation (“Fedson”) for the sale of the ProNeura Assets. Our addiction portfolio consisted of the Probuphine and Nalmefene implant programs. The ProNeura Assets constituted only a portion of our assets. In August 2023, we entered into an Amendment and Extension Agreement (the “Amendment”) to the Asset Purchase Agreement, pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form of a promissory note due and payable on October 1, 2023 (the “Cash Note”) and (iii) $1,000,000 in the form of a promissory note due and payable on January 1, 2024 (the “Escrow Note”). We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of all of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the payment of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024.
All share and per share amounts give retroactive effect to a 1-for-20 reverse stock split effected on January 9, 2024. See Note 13. Subsequent Events.
The accompanying financial statements have been prepared assuming we will continue as a going concern.
At December 31, 2023, we had cash and cash equivalents of approximately $6.8 million, which we believe is sufficient to fund our planned operations into the second quarter of 2025. We will require additional funds to finance our operations. We are exploring several financing and strategic alternatives; however, there can be no assurance that our efforts will be successful.
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| Discontinued Operations | Discontinued Operations
In October 2020, we announced our decision to discontinue selling Probuphine in the United States and wind down our commercialization activities, and to pursue a plan that will enable us to focus on our current, early-stage ProNeura-based product development programs.
The accompanying financial statements have been recast for all periods presented to reflect the assets, liabilities, revenue and expenses related to our U.S. commercialization activities as discontinued operations (see Note 10. Discontinued Operations). The accompanying financial statements are generally presented in conformity with our historical format. We believe this format provides comparability with the previously filed financial statements.
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| Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
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| Going concern assessment | Going concern assessment
We assess going concern uncertainty in our 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 financial statements are issued or available to be issued, which is referred to as the look-forward period as defined by Accounting Standard Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“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.
Based upon the above assessment, we concluded that, at the date of filing the financial statements in this Annual Report on Form 10-K for the year ended December 31, 2023, we had sufficient cash to fund our operations for the next 12 months without additional funds.
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| Inventories | 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:
Approximately $106,000 of raw materials and supplies and finished goods inventory at December 31, 2022 were sold to Fedson under the Asset Purchase Agreement in September 2023. We had no inventory at December 31, 2023.
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| Stock-Based Compensation | Stock-Based Compensation
We recognize compensation expense using a fair-value based method, for all stock-based payments including stock options and restricted stock awards and stock issued under an employee stock purchase plan. These standards require companies to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. See Note 8. Stock Plans for a discussion of our stock-based compensation plans.
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| Warrants Issued in Connection with Equity Financing | Warrants Issued in Connection with Equity Financing
We generally account for warrants issued in connection with equity financings as a component of equity, unless there is a deemed possibility that we may have to settle the warrants in cash. For warrants issued with deemed possibility of cash settlement, we record the fair value of the issued warrants as a liability at each reporting period and record changes in the estimated fair value as a non-cash gain or loss in the Statements of Operations.
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| Cash and Cash Equivalents | Cash and Cash Equivalents
Our investment policy emphasizes liquidity and preservation of principal over other portfolio considerations. We select investments that maximize interest income to the extent possible given these two constraints. We satisfy liquidity requirements by investing excess cash in securities with different maturities to match projected cash needs and limit concentration of credit risk by diversifying our investments among a variety of high credit-quality issuers and limit the amount of credit exposure to any one issuer. The estimated fair values have been determined using available market information. We do not use derivative financial instruments in our investment portfolio.
All investments with original maturities of three months or less are considered to be cash equivalents. We had money market funds of approximately $2.6 million as of December 31, 2022, included in our cash and cash equivalents. We had no money market funds included in our cash and cash equivalents as of December 31, 2023.
We maintain significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on our financial condition, results of operations, and cash flows.
On March 10, 2023, the Federal Deposit Insurance Corporation (“FDIC”) announced that it had closed and taken control of Silicon Valley Bank. On March 13, 2023, pursuant to a joint statement released by the U.S. Department of the Treasury and the FDIC, the U.S. government reassured that all depositors were fully protected. We held deposits with this bank. As a result of the above actions, our insured and uninsured deposits were restored.
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| Restricted Cash | Restricted Cash
In accordance with ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, we explain the change during the period in the total of cash, cash equivalents and restricted cash, and include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows.
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| Property and Equipment | Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets ranging from three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the assets.
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| Revenue Recognition | Revenue Recognition
We generate revenue principally from collaborative research and development arrangements, sales or licenses of technology, government grants, sales of Probuphine materials to Molteni and Knight, and prior to the discontinued operations, the sale of Probuphine in the United States. 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.
Grant Revenue
We have contracts with National Institute on Drug Abuse or NIDA, within the U.S. Department of Health and Human Services (“HHS”), the Bill & Melinda Gates Foundation, and other government-sponsored organizations for research and development related activities that provide for payments for reimbursed costs, which may include overhead and general and administrative costs. We recognize revenue from these contracts as we perform services under these arrangements when the funding is committed. Associated expenses are recognized when incurred as research and development expense. Revenues and related expenses are presented gross in the statements of operations.
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.
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 recognize 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.
Contract Assets and Liabilities
The following table presents the activity related to our accounts receivable for the years ended December 31, 2023 and 2022.
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| Research and Development Costs and Related Accrual | 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, 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.
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| Net Loss Per Share |
Basic net loss per share excludes the effect of dilution and is computed by dividing net loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue shares were exercised into shares. In calculating diluted net loss per share, the denominator is increased to include the number of potentially dilutive common shares assumed to be outstanding during the period using the treasury stock method. Basic and diluted net loss per share was the same for each of the periods presented.
The table below presents common shares underlying stock options and warrants that are excluded from the calculation of the weighted average number of shares of common stock outstanding used for the calculation of diluted net loss per common share. These are excluded from the calculation due to their anti-dilutive effect for the years ended (in thousands):
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| Leases | Leases
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 balance sheet as right-of-use assets, operating lease liabilities current and operating lease liabilities non-current.
The following table presents the minimum lease payments of our operating lease as of December 31, 2023 (in thousands):
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| Subsequent Events | Subsequent Events
We have evaluated events that have occurred subsequent to December 31, 2023 and through the date that the financial statements are issued. See Note 13. Subsequent Events.
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| Fair Value Measurements | Fair Value Measurements
We measure the fair value of financial assets and liabilities based on authoritative guidance which defines fair value, establishes a framework consisting of three levels for measuring fair value, and requires disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
Level 1 – quoted prices in active markets for identical assets or liabilities;
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable;
Level 3 – inputs that are unobservable (for example cash flow modelling inputs based on assumptions).
Financial instruments, including receivables, accounts payable and accrued liabilities are carried at cost, which we believe approximates fair value due to the short-term nature of these instruments. The approximately $2.6 million fair value of money market funds as of December 31, 2022, included in our cash and cash equivalents are classified as Level 1 and were derived from quoted market prices as active markets for these instruments exist. We had no money market funds included in our cash and cash equivalents as of December 31, 2023.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
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 beginning on January 1, 2023. The adoption of Topic 326 did not have a material impact on our condensed financial statements and disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provides companies with optional guidance, including expedients and exceptions for applying GAAP 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, 2023. The adoption of ASU No. 2020-04 did not have a material impact on our condensed financial statements and disclosures.
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments. ASU 2020-06 eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is effective beginning after December 15, 2023 and must be applied using either a modified or full retrospective approach. Early adoption is permitted. The adoption of ASU No. 2020-06 did not have a material impact on our condensed financial statements and disclosures. |
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Organization and Summary of Significant Accounting Policies (Tables) |
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of components of inventories |
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| Schedule of activity related to our accounts receivable |
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| Schedule of anti-dilutive effect |
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| Schedule of minimum operating lease payments |
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Property and Equipment (Tables) |
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment |
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Stockholders’ Equity (Tables) |
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| Summary of restricted stock activity |
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| Schedule of warrants to purchase |
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| Schedule of shares of common stock reserved for future issuance |
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Stock Plans (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of our option activity |
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| Schedule of assumptions to estimate the fair value of options |
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| Schedule of the stock-based compensation expense |
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Income Taxes (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of deferred tax assets |
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| Schedule of effective tax rate |
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Discontinued Operations (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations and Disposal Groups [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of assets and liabilities reported as discontinued operations in our condensed balance sheets |
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Restatement of Previously Issued Condensed Unaudited Financial Statements (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Changes and Error Corrections [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of condensed balance sheet |
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| Schedule of condensed statements of operations |
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| Schedule of condensed statements of cash flows |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed balance sheets that sum to the total of the same such amounts shown in the condensed statements of cash flows (in thousands):
|
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Organization and Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|---|
| Accounting Policies [Abstract] | |||
| Raw materials and supplies | $ 60 | ||
| Finished goods | 46 | ||
| Total inventories | $ (0) | $ 106 |
Organization and Summary of Significant Accounting Policies (Details 1) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Accounting Policies [Abstract] | ||
| Beginning Balance | $ 36 | $ 112 |
| Additions | 184 | 557 |
| Deductions | (174) | (633) |
| Ending Balance | $ 46 | $ 36 |
Organization and Summary of Significant Accounting Policies (Details 2) - shares shares in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Option Indexed to Issuer's Equity [Line Items] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 497 | 331 |
| Stock Awards | ||
| Option Indexed to Issuer's Equity [Line Items] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 70 | 48 |
| Warrant [Member] | ||
| Option Indexed to Issuer's Equity [Line Items] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 427 | 283 |
Organization and Summary of Significant Accounting Policies (Details 3) $ in Thousands |
Dec. 31, 2023
USD ($)
|
|---|---|
| Accounting Policies [Abstract] | |
| 2024 | $ 66 |
| Total minimum lease payments (base rent) | 66 |
| Less: imputed interest | (1) |
| Total operating lease liabilities | $ 65 |
Organization and Summary of Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 12 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Jan. 09, 2024 |
Sep. 30, 2023 |
Aug. 31, 2023 |
Dec. 31, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
Jul. 31, 2022 |
|
| Property, Plant and Equipment [Line Items] | |||||||
| Cash and cash equivalents | $ 6,800 | ||||||
| Inventory | (0) | $ 106 | |||||
| Money market funds, at carrying value | 0 | $ 2,600 | |||||
| Cash, FDIC insured amount | $ 250,000 | ||||||
| Minimum [Member] | |||||||
| Property, Plant and Equipment [Line Items] | |||||||
| Property, plant and equipment, estimated useful lives | 5 years | 3 years | |||||
| Subsequent Event [Member] | |||||||
| Property, Plant and Equipment [Line Items] | |||||||
| Reverse stock split | 1-for-20 | ||||||
| Rubin [Member] | |||||||
| Property, Plant and Equipment [Line Items] | |||||||
| Aggregate severance payments | $ 400 | ||||||
| Pro Neura [Member] | |||||||
| Property, Plant and Equipment [Line Items] | |||||||
| Asset sale description | we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Fedson, Inc., a Delaware corporation (“Fedson”) for the sale of the ProNeura Assets. Our addiction portfolio consisted of the Probuphine and Nalmefene implant programs. The ProNeura Assets constituted only a portion of our assets. In August 2023, we entered into an Amendment and Extension Agreement (the “Amendment”) to the Asset Purchase Agreement, pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form of a promissory note due and payable on October 1, 2023 (the “Cash Note”) and (iii) $1,000,000 in the form of a promissory note due and payable on January 1, 2024 (the “Escrow Note”). We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of all of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the payment of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024. | we entered into an Amendment to the Asset Purchase Agreement, pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form of the Cash Note and (iii) $1,000,000 in the form of the Escrow Note. We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of all of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the maturity date of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024. | |||||
| David Lazar And Activist Investing Llc [Member] | |||||||
| Property, Plant and Equipment [Line Items] | |||||||
| Ownership interest by Activist | 25.00% | ||||||
| David Lazar [Member] | |||||||
| Property, Plant and Equipment [Line Items] | |||||||
| Ownership interest by Activist | 25.00% | ||||||
Property and Equipment (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|---|
| Property, Plant and Equipment [Line Items] | |||
| Property, Plant and Equipment, Gross | $ 711 | $ 1,817 | |
| Less accumulated depreciation and amortization | (706) | (1,593) | |
| Property and equipment, net | 5 | $ 6 | 224 |
| Furniture and Fixtures [Member] | |||
| Property, Plant and Equipment [Line Items] | |||
| Property, Plant and Equipment, Gross | 132 | 132 | |
| Property, Plant and Equipment [Member] | |||
| Property, Plant and Equipment [Line Items] | |||
| Property, Plant and Equipment, Gross | 1,108 | ||
| Computer Equipment [Member] | |||
| Property, Plant and Equipment [Line Items] | |||
| Property, Plant and Equipment, Gross | $ 579 | $ 577 |
JT Pharmaceuticals Asset Purchase Agreement (Details Narrative) - JT Pharmaceuticals [Member] - USD ($) $ in Thousands |
1 Months Ended | |
|---|---|---|
Jan. 31, 2022 |
Oct. 31, 2020 |
|
| Asset Acquisition [Line Items] | ||
| Closing payment | $ 15,000 | |
| Milestone Payments | $ 100,000 | |
| Issuance of common stock, net (in shares) | 2,552 | |
Ocular Therapeutix License Agreement (Details Narrative) $ in Thousands |
12 Months Ended |
|---|---|
|
Dec. 31, 2023
USD ($)
| |
| Ocular Therapeutix License Agreement | |
| Reimbursement fees | $ 50,000 |
Commitments and Contingencies (Details Narrative) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Commitments and contingencies (Note 5) | ||
| Rent expense | $ 100 | $ 100 |
Asset Sale (Details Narrative) |
1 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Aug. 31, 2023 |
|
| Pro Neura [Member] | ||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||
| Asset sale description | we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Fedson, Inc., a Delaware corporation (“Fedson”) for the sale of the ProNeura Assets. Our addiction portfolio consisted of the Probuphine and Nalmefene implant programs. The ProNeura Assets constituted only a portion of our assets. In August 2023, we entered into an Amendment and Extension Agreement (the “Amendment”) to the Asset Purchase Agreement, pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form of a promissory note due and payable on October 1, 2023 (the “Cash Note”) and (iii) $1,000,000 in the form of a promissory note due and payable on January 1, 2024 (the “Escrow Note”). We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of all of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the payment of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024. | we entered into an Amendment to the Asset Purchase Agreement, pursuant to which Fedson agreed to purchase our ProNeura Assets for a purchase price of $2.0 million, consisting of (i) $500,000 in readily available funds, paid in full on the Closing Date, (ii) $500,000 in the form of the Cash Note and (iii) $1,000,000 in the form of the Escrow Note. We will also be eligible to receive potential milestone payments of up to $50 million on future net sales of the products and certain royalties on future net sales of the products. As further consideration, Fedson assumed all liabilities related to a pending employment claim against us. On the Closing Date, Fedson delivered a written guaranty by a principal of Fedson of all of Fedson’s obligations under both the Cash Note and Escrow Note. The Cash Note included provisions, which Fedson has exercised, allowing Fedson to extend the maturity date of the Cash Note to November 1, 2023 and again to December 1, 2023 upon payment of $5,000 for each extension. The Cash Note and Escrow Note were paid in December 2023 and January 2024, respectively. We received the funds from the escrow account in February 2024. |
Stockholders' Equity (Details) |
12 Months Ended |
|---|---|
|
Dec. 31, 2023
shares
| |
| Equity [Abstract] | |
| Outstanding at beginning | |
| Issued | 2,500 |
| Forfeited or expired | |
| Released | (2,500) |
| Outstanding at ending |
Stock Plans (Details 1) - USD ($) |
12 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|||||||
| Share-Based Payment Arrangement [Abstract] | ||||||||
| Weighted-average risk-free interest rate | 4.10% | 1.90% | ||||||
| Expected dividend payments | ||||||||
| Expected holding period (years) | [1] | 5 years 3 months 10 days | 5 years 3 months 3 days | |||||
| Weighted-average volatility factor | [2] | 1.10% | 1.16% | |||||
| Estimated forfeiture rates for options granted | [3] | 7.00% | 6.00% | |||||
| ||||||||
Stock Plans (Details 2) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Total stock-based compensation | $ 1,013 | $ 947 |
| Research and Development Expense [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Total stock-based compensation | 112 | 553 |
| General and Administrative Expense [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Total stock-based compensation | $ 901 | $ 394 |
Stock Plans (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
1 Months Ended | 12 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Jul. 31, 2023 |
Sep. 30, 2022 |
Aug. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Aug. 31, 2015 |
Feb. 28, 2014 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||
| Common stock outstanding | 93,000 | 46,000 | ||||||
| Weighted-average fair value of options and awards granted | $ 17.66 | $ 19.00 | ||||||
| Total unrecognized compensation expense related to non-vested stock option | $ 0 | |||||||
| Plan 2015 [Member] | ||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||
| Number of shares agreed to issue | 125,000 | 30 | ||||||
| Shares available for grant | 3,750 | |||||||
| Common stock outstanding | 93,059 | 30 | ||||||
| Purchase common stock | 45,000 | 6,250 | ||||||
| Purchase price, per value | $ 26.20 | $ 30.40 | ||||||
| Number of common stock vested | 5,691 | 22,500 | ||||||
| Non-cash stock compensation | $ 48,000 | $ 235,000 | ||||||
Income Taxes (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Deferred tax assets: | ||
| Net operating loss carryforwards | $ 53,225 | $ 57,895 |
| Research credit carryforwards | 9,841 | 10,521 |
| Other, net | 1,980 | 1,968 |
| Total deferred tax assets | 65,046 | 70,384 |
| Deferred tax liabilities: | ||
| Other, net | (19) | (46) |
| Total deferred tax liabilities | (19) | (46) |
| Valuation allowance | (65,027) | (70,338) |
| Net deferred tax assets |
Income Taxes (Details 1) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Income Tax Disclosure [Abstract] | ||
| Computed at 21% | $ (1,084) | $ (2,144) |
| State taxes | 11 | (488) |
| Change in valuation allowance | (5,310) | (7,545) |
| Other | 2 | |
| Stock based compensation | 218 | 627 |
| Research and development credits | (233) | 3,489 |
| Tax attributes expirations | 6,314 | 6,216 |
| Impact of IRC 162m | 83 | (159) |
| Total | $ 1 | $ (4) |
Discontinued Operations (Details) - USD ($) $ in Thousands |
Dec. 31, 2023 |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|---|
| Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
| Discontinued operations – current assets | $ 20 | $ 14 | |
| Discontinued operations – current liabilities | $ 60 | 129 | |
| Discontinued Operations [Member] | U.s. Commercialization Activities [Member] | |||
| Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
| Prepaid expenses and other current assets | 14 | ||
| Discontinued operations – current assets | 14 | ||
| Accounts payable | 129 | ||
| Discontinued operations – current liabilities | $ 129 |
Related Party Transactions (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
1 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|
Mar. 31, 2024 |
Sep. 30, 2023 |
Aug. 31, 2023 |
Jul. 31, 2023 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
| Debt Instrument [Line Items] | ||||||
| Proceeds from promissory note | $ 109,000 | $ 75,000 | ||||
| Sire Group [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Securities purchase agreement description | we entered into the Securities Purchase Agreement with Sire Group, pursuant to which we agreed to issue 950,000 shares of our Series AA Preferred Stock to Sire Group at a price of $10.00 per share, for an aggregate purchase price of $9.5 million. The purchase price consisted of (i) $5.0 million in cash at closing and (ii) $4.5 million in the form of a promissory note from Sire Group which was paid off in September 2023. | |||||
| Lazar Promissory Note [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Proceeds from promissory note | $ 250,000 | |||||
| Interest accrued rate | Prime Rate + 2.00% per annum | |||||
| Lazar Promissory Note [Member] | Subsequent Event [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Accrued interest converted | 54,132 | |||||
| Hau Promissory Note [Member] | ||||||
| Debt Instrument [Line Items] | ||||||
| Proceeds from promissory note | $ 500,000 | |||||
| Interest accrued rate | 10% per annum | |||||
| Conversion price | $ 9.32 | |||||
Subsequent Events (Details Narrative) - Subsequent Event [Member] - USD ($) $ in Thousands |
1 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Jan. 31, 2024 |
|
| Escrow Note [Member] | ||
| Subsequent Event [Line Items] | ||
| Cash payment | $ 1,000 | |
| Lazar Promissory Note [Member] | ||
| Subsequent Event [Line Items] | ||
| Accrued interest converted | 54,132 | |
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