By Jason Napodano, CFA
On May 16, 2013, Titan Pharmaceuticals (OTCQB:TTNP) reported financial results and provided a brief update on the recent complete response letter (CRL) issued by the U.S. FDA on April 30, 2013 for Probuphine, the company's investigational subdermal implant for the maintenance treatment of opioid dependence in adult patients. We remind investors the CRL stated that the FDA cannot approve the application in its present form, noting concerns with the efficacy, dosing and proposed use of Probuphine. Absent of this additional data, we do not see the FDA granting approval of the new drug application (NDA).
Titan Pharmaceuticals held a conference call on May 16, 2013. Management did not take questions from analysts or investors, citing a need to balance the awareness of the regulatory requirements and the competitive environment around the drug. The call transcript read pretty much the same as the press release issued by the company earlier that day. We note that management has not yet spoken to the FDA in regards to the CRL. When we last spoke to management on May 1, 2013, they expressed surprise and disappointment on the FDA's decision.
The company is preparing a response to the issues raised by the FDA using existing data from the development program. We do not know when that response will be submitted. Management will also be requesting a meeting with the FDA to discuss response and clarification on the regulatory path forward for Probuphine. The company notes working closely with regulatory counsel and a team of expert advisers to address the FDA's response to the Probuphine NDA. We do not know when that meeting will take place.
Where Do We Go From Here?
We are all looking for answers, management included. Thus, the company is hesitant to take questions in a public forum before they have a clear understanding of the path forward for Probuphine. This lack of visibility will probably keep a lid on the shares over the near-term, despite their already depressed level.
Titan exited the first quarter 2013 with $17.6 million in cash and investments. We note that operating burn in the first quarter totaled only $1.9 million. However, in April 2013, the company made the final principal payment of $2.5 million to Deerfield under the debt agreement originally signed back in March 2011. We model an operating burn in the second quarter of roughly $3.0 million. Thus, we expect Titan to have approximately $12.1 million in cash on hand as of June 30, 2012. Assuming operating burn stays consistent at around $3.0 million per quarter, Titan should be able to fund operations into the second quarter 2014.
Our assumption for operating burn does not include significant new clinical work on Probuphine being funded by Titan. Instead, we assume that Braeburn Pharmaceuticals will fund what necessary clinical work still remains on Probuphine and that the cost of that clinical work will be backed out of the $50 million approval milestone Titan remains eligible for upon final approval.
We were clearly taken by surprised by the harshness of the CRL on Probuphine on April 30, 2013. We anticipated that a delay in approval or a CRL based on revising the proposed REMS could be issued by the FDA. In a previous note to investors published after the Psychopharmacologic Drugs Advisory Committee (PDAC) meeting on March 21, 2013, we wrote, "We are not sure revising the REMS can be accomplished by April 30, 2013. In fact, during the committee meeting, FDA Director, Bob Rappaport, MD, hinted at the fact that there was still significant work to be done with respect to the REMS and that the combination of a priority review and REMS presented a challenge to the agency to complete by the PDUFA date."
The other issues noted by Titan in the CRL, including on opioid receptor blockage, on increasing the dose to obtain higher buprenorphine blood plasma levels consistent with 12 to 16 mg of the approved Suboxone sublingual tablet, and on the request for a human factors study of the training associated with the products insertion and removal, took us by surprise. Titan submitted Probuphine NDA under the FDA's 505(b)(2) pathway. Thus, the submission relied heavily on the previous approval of buprenorphine as a reference product.
We believe Titan did demonstrate safety and effectiveness of Probuphine. We remind investors that the NDA contained data from two positive phase 3 trials, PRO-805 and PRO-806. PRO-805 was a 163-patient, placebo-controlled study that demonstrated clinically meaningful and statistically significant treatment benefits with Probuphine over a 24-week period. This data was published in the Journal of the American Medical Association (JAMA). PRO-806 was a confirmatory study of 287 patients that showed statistically significant improvement in efficacy versus placebo and non-inferiority to Suboxone.
In our view, data from both studies, including two open-label extension studies, showed Probuphine was effective, safe and well-tolerated. And the FDA's own PDAC agreed in March 2013. The PDAC voted the Probuphine was effective (10 positive to 5 negative votes) and safe (12 positive to 2 negative notes) at that meeting on March 21, 2013. The FDA did not follow the panel's advice.
Is There A Trade To Be Made?
We are optimistic that a path forward can eventually be found for Probuphine, but how long and at what cost remains to be seen. That being said, at $0.55 / share, downside seems limited while we wait. If Titan can meet with the FDA in a month or two, and come back to investors with a positive path forward, the stock could have a nice recovery back to the $1 / share range. The biggest risk we see to owning the stock at $0.55 / share today is Braeburn terminating the commercialization agreement. That would hit the shares hard. We see that decision from Braeburn as unlikely until after Titan meets with the FDA.
If Titan and the FDA can find a path forward, we see ~$1 / share as fair-value based on approval of Probuphine, commercialized at Braeburn, in 2016. This is our best guess at this time, and despite a lack of visibility, we believe the shares are attractive based on this best guess. Any adjustment to our model, particularly with moving forward the approval of Probuphine into 2014 or 2015, would have a meaningfully positive impact on our target price. Braeburn walking away would have a profoundly negative impact on our target price
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