Titan Pharmaceutical: An Enticing Investment Opportunity

| About: Titan Pharmaceuticals, (TTNP)

On March 21, 2013, a FDA advisory committee voted to recommend approval of Titan Pharmaceuticals' (NASDAQ:TTNP) "Probuphine" for the treatment of opioid addiction. Probuphine is Titan's novel sub-dermal implant formulation designed using its ProNeura technology to deliver six months of buprenorphine hydrochloride ("buprenorphine") following a single treatment.

Titan's History

Titan Pharmaceuticals, founded in 1996, is a biopharmaceutical company developing proprietary therapeutics primarily for the treatment of serious medical disorders. Throughout its early history, Titan experienced several setbacks that put the company on the verge of financial collapse. These setbacks came to a head in 2008 when Titan announced that its lead drug candidate, Spheramine, failed to show statistical efficacy in the treatment of Parkinson's disease. The failure of Spheramine was shortly followed by the FDA's decision to issue a non-approvable letter for Fanapt as well as by the U.S. Patent Office's decision to deny a method of use patent for Probuphine, Titan's other pipeline candidate. Together, these events caused Titan's share price to plummet and lead to Titan's voluntary delisting from the American Stock Exchange (AMEX) near the end of 2008.

While the events in 2008 almost caused Titan to wind down operations, 2009 saw a resurgence of Titan as the FDA surprisingly approved Fanapt for the treatment of Schizophrenia. This event was followed by the U.S. patent office's approval of the Probuphine patent and a grant from the National Institutes of Health (NIH) to study Probuphine as a treatment for opiate dependence.

Over the next two years, Titan completed a pivotal Phase III trial for Probuphine that demonstrated that Probuphine was not only effective compared to placebo, but that it was also non-inferior to Suboxone, the standard of care in addiction treatment. This data, combined with a positive Phase III continuation study showing that Probuphine is safe and effective for long term use, gave Titan the clinical trial data needed to apply for FDA approval of Probuphine while also allowing the company to aggressively seek a commercialization partner for the drug.

Partnership with Braeburn Pharmaceuticals

On December 19, 2012, Titan announced a commercialization agreement with Braeburn Pharmaceuticals that provided Titan an upfront payment of $15.75 million, $50 million upon FDA approval, up to $130 million in milestone payments, and a tiered double digit royalty on net sales of Probuphine ranging from the mid-teens to the low twenties. Furthermore, Braeburn agreed to pay Titan $35 million if certain regulatory milestones are achieved in the development of Probuphine for pain. Since signing the agreement, Braeburn has hired MSL Group, a top five global PR firm, as well as several key management positions in an effort to support the initial launch of Probuphine.

The agreement with Braeburn gave Titan the funding it needs to avoid the type of dilutive financing that has plagued the company in the past. Assuming FDA approval of Probuphine, Titan will have the funds needed to develop its ProNeura technology for use in other applications and fund operations for years to come. Recently, Titan announced results from pre-clinical tests that potentially support the further development of the application. If Probuphine is FDA approved, and assuming Titan is awarded a method of use patent for the application, Titan should be well positioned to aggressively pursue the Parkinson's indication.

FDA Advisory Committee

As previously noted, Titan received a positive vote from an FDA advisory committee recommending the FDA approve Probuphine for the treatment of opioid addiction. The committee was tasked with discussing and voting on the 4 questions presented below:

Question # 1: Please comment on whether the Applicant conducted adequate dose exploration in the development program to determine the most effective dose. Do the data from the clinical trials provide substantial evidence of effectiveness of Probuphine for the maintenance treatment of opioid dependence?

The panel spent an extended period of time discussing the dosage of Probuphine. Two panelists in particular expressed the most skepticism regarding the dosage of the drug. Panelist Laura F. McNicholas, MD, PhD, was concerned with the lack of data demonstrating the effectiveness of varying doses of Probuphine. McNicholas argued that, while the data presented showed that Probuphine is efficacious in the 12-16mg dosage, the lack of data on other doses would make it hard to treat patients who require a lower dosage of the drug. Another panelist, Louis E. Baxter, Sr., MD, FASM, expressed concern over the dosage for another reason altogether. Baxter argued that insurance companies often deny coverage for doses of a medication that aren't initially approved. In his opinion, the panel needed to be careful with regards to the dosage because many patients are treated with doses that are either higher or lower than the 12-16mg dose being presented.

While both panelists raised valid concerns, the ultimate question was whether Probuphine demonstrated statistically significant data to show that it was more efficacious than placebo. Considering the fact that Probuphine has demonstrated its superiority against placebo in two pivotal phase III trials, one would assume that the outcome of this question should have been a 15-0 vote in favor of Probuphine. However, the vote came out 10-5 in favor of the drug. It appears that the discussion regarding the dosage of Probuphine may have influenced some of the other panelists to vote against validating the efficacy of Probuphine, but it is important to note that both Dr. McNicholas and Dr. Baxter voted in the affirmative.

Question # 2: Please comment on the Applicant's assessment of the safety aspect of Probuphine in general, as well as on safety concerns specific to the placement and removal of the implants. Has the Applicant adequately characterized the safety profile of Probuphine in this patient population?

In general, the panel felt that the safety aspects of Probuphine are similar to Suboxone and that no real safety issues are apparent with the drug itself. However, many panelists expressed concerns with the implementation and removal procedure. Most notably, the OBGYN's on the panel expressed concern with the need to administer stitches after the implant procedure is completed. Their argument was supported by the FDA briefing documents released prior to the meeting that questioned the adverse events associated with the treatment and the potential for implementation and removal complications. However, Titan was prepared for the concerns. Titan presented data that showed that a new implementation technique, combined with training and experience, lead to 0 procedure complications during Probuphine's second phase III trial. Furthermore, Titan argued that a rigorous training course would provide practitioners the skills needed to handle the procedure. It is important to note that Titan has proposed that only well trained and accredited medical personnel handle the procedure.

Ultimately, the panel decided that the issues regarding the procedure could be overcome with proper training and voted 12-2, with 1 panelist abstaining, in favor of Probuphine's safety profile.

Question # 3: Is the Risk Evaluation and Mitigation Strategy (REMS) proposed by the Applicant, which consists of restricted distribution and a training/certification program for healthcare professionals who will implant the product, adequate to address the risks of potential complications associated with the implantation procedure and abuse, misuse, and accidental overdose. Include in your deliberations any concerns related to the proposed model of care and training / certification program?

This question was the most controversial of the questions asked. Earlier in the day, both Titan and the FDA admitted that the REMS submitted by Titan did not meet the federal standards for Schedule III drugs or the Data2000 requirements. Further acknowledging this issue, Titan mentioned that a revised REMS had been submitted to the FDA prior to the meeting. However, the FDA did not have time to properly evaluate the submission, so they were forced to present the original REMS submitted by Titan. Considering these facts, one would assume that the panel would have voted 0-15 against the proposed REMS or, at best, that they would have voted 0-0-15 in abstaining from issuing an opinion until the FDA and Titan could work out the issues regarding the REMS. Instead, the panel voted 5-4-6 in favor of the REMS presented.

The panel seemed to take issue with the possible alternatives, designed to satisfy the Schedule III and Data2000 requirements, presented by the FDA. Specifically, the panel took issue with the idea that the implant could not be shipped directly to a medical professional and that instead the implant would need to be delivered directly to a patient. To the panel, this solution ran counter-intuitive to the idea that Probuphine was intended to deter opiate abuse. While the REMS issue is significant, the FDA mentioned that there is still time to correct the problem, but that time was running out due to the priority review designation placed on the drug.

Prior to answering question #4, the panel discussed several issues regarding the implant which revolved around the potential for abuse, the potential for long term exposure if the implant is left in for longer than 6 months, and the potential for issues revolving around a patient who needs to use an implant site more than once.

On the first question, it is important to point out that Probuphine is intended to replace or reduce the use of sublingual Suboxone. Suboxone is a drug that is widely misused and diverted, so while Probuphine is not 100% abuse proof it does present a significant advancement in abuse deterrent treatment. Regarding the other two questions, it was noted that there is evidence that shows that similar implants have been left in the body for up to six years without any adverse consequences. It was also noted that the popular form of birth control Implanon often utilizes the same implant site during consecutive treatment regimens and that there is no negative impact on efficacy from the continued use of the same implant site. In the end, the panel concluded that they would like to see further data addressing these questions, but that they are not issues that are severe enough to delay the approval of Probuphine.

Question # 4: Based on the data presented and discussed today, do the efficacy, safety, and risk benefit profile of Probuphine support the approval of this application?

In regards to this pivotal question, the panel had the same dosing concerns as previously discussed, but they also raised concerns about the efficacy of the drug. In clinical testing, it was shown that Probuphine was not particularly effective in producing negative urine samples. It was noted, by the FDA, that only 32% of patients produced negative urine samples at least 50% of the time. While the committee expressed some disappointment in these numbers, it was noted that the treatment is effective when compared to both placebo and Suboxone and that it often takes years for a patient to become stable from Suboxone treatment. The committee went on to agree that one of the most important aspects of addiction treatment is the need for a patient to be on continuous treatment, a requirement that Probuphine satisfies. Based on this fact, combined with the safety profile of Probuphine, the panel voted 10-4, with one panelist abstaining, in favor of approving Probuphine.

The panel noted their desire to see further dosing studies as well as a study on the use of an implant site for multiple treatments, but concluded that Probuphine could be a valuable treatment that may improve the lives of those addicted to opiates.

Probuphine's Approval

With a successful AdCom behind it, the next step for Probuphine is the PDUFA date scheduled for April 30th. While there is the potential for a short delay to tighten up the REMS, both Titan and the FDA have indicated that the issue can potentially be resolved prior to the April 30th decision date. From there, Titan's future is heavily dependent on the outcome of the April 30th PUDFA date. Titan exited 2012 with $18.1 million in cash. Furthermore, Titan recently received a $2.5 million refund from the FDA associated with the NDA application fee. Assuming approval, Titan should have close to $70 million in cash with the potential of increasing revenues from Probuphine royalties and milestone payments.

While the advisory committee may have boosted Probuphine's regulatory chances, the committee did raise several issues about the commercial potential for Probuphine. The first issue raised was that a large percentage of doctors who treat addiction are psychiatrists. One panelist went as far as to say that many psychiatrists operate with nothing more than "a desk and a chair" and that the procedure may be difficult for them to perform. While this is a valid concern, it is important to note that only 30% of Suboxone prescriptions come from the psychiatry field. Furthermore, Titan indicated that their market research shows that 50% of psychiatrists are interested in treating patients with Probuphine. It is also important to note that the committee raised concerns over the dosage associated with Probuphine. The concern revolved around the fact that Titan has only tested 12-16 mg of Probuphine. However, over 75% of Suboxone scripts written are for doses that range between 12 and 16 mg, so a vast majority of the market is accessible to Probuphine upon launch while other dosages can be tested post approval. For these reasons, it can be argued that the concerns raised over Probuphine's commercial potential were overblown.

With a current market cap of only $125 million and a dedicated commercialization partner, it can easily be argued that Titan is significantly undervalued. It wouldn't be a stretch to argue that Titan's share price will move towards the $3 mark as Probuphine's PDUFA date approaches and that it could move towards the $4 mark as Probuphine sales begin to materialize. Considering the current share price, investors should thoroughly consider if there is a potential to see a significant return on their investment once Probuphine is FDA approved. As with any investment, there is certainly risk associated with Titan. However, Titan is currently in a position of strength that the company has not experienced in years. Following a positive AdCom vote, Titan is poised to capitalize on that strength and build upon a solid foundation that may benefit investors for some time to come.

Disclosure: I am long TTNP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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