Titan Pharmaceuticals (NASDAQ:TTNP) shareholders received some much awaited good news from the company when it announced that its Probuphine implant received FDA approval. This approval comes on the second attempt for Titan and partner Braeburn, with the first attempt ending in a CRL. This approval is significant for Titan, and comes at an opportune time considering the focus being put on the opioid epidemic in America. The approval of Probuphine will provide a revenue stream for Titan, and help to develop the rest of its pipeline.
Significance of Probuphine Approval
Probuphine approval significantly increases Titan's cash pile, as Braeburn now owes Titan a $15 million milestone payment for obtaining FDA approval. As of last quarter, Titan had $5.8 million in cash (which it projected would be enough to get through the end of 2016). This payment will help to stave off the risk of dilution for Titan shareholders, probably until at least the middle of 2017. More importantly, this approval helps to validate Titan's ProNeura drug delivery system. This approval should help to make investors more confident in the ability of Titan to take existing compounds and create an implantable device. The next challenge will be proving that there is a demand for Probuphine. With no marketing obligations towards the drug (all of the sales and marketing are being handled by Braeburn), Probuphine has the potential to generate substantial cash flow for Titan relatively quickly. Titan will receive a tiered royalty in the mid teens to low twenties on net sales of Probuphine. This cash flow will help to finance the rest of Titan's pipeline development.
Next Steps for Probuphine
The real question for investors is whether or not Braeburn and Titan are going to be able to hit sales expectations. With a unique product like this, where there is going to have to be a lot of work on the part of the doctor implanting the device, I would expect for Braeburn to have to do a lot of doctor education surrounding the implant and its proper usage. This will increase the initial cost of the launch for Braeburn, and could also mean that sales will be slow coming out of the gate. What will be key, however, is going to be to see the compounding effect of sales and the sales growth rate after several quarters. After Braeburn is able to effectively educate doctors, we will then be able to really understand whether or not the market has properly valued Probuphine. The good part about this effort is that there is a relatively small subset of doctors who prescribe Buprenorphine, so Braeburn should be able to focus on them relatively easily. The question is going to be how many of them are willing to start their new patients on Probuphine, as it is unlikely that they would switch a well controlled patient over to Probuphine. It will be key for Braeburn to get as many doctors as possible to try Probuphine as quickly as possible, with the theory that once a doctor tries it that they will keep recommending it. The more of these doctors that try the implant initially, the better the potential market penetration.
Titan is going to be up against some heavy competition in the Buprenorphine space, including Suboxone from a former unit Reckitt Benckiser (RGBPF) called Indivior (OTCPK:INVVY). There are also smaller companies within the space that are looking to make a name for themselves, including Biodelivery Sciences (NASDAQ:BDSI), which up to this point has failed to gain a lot of traction with its Buprenorphine film, Bunavail. There are many other competitors within the space, so it will be important for Braeburn to carve out a niche early.
In terms of next steps for Probuphine, Titan could see if it can expand this even further as a potential revenue stream. It sold Braeburn the rights to market the product in the US and Canada, but retains the rights for the product elsewhere in the world. If there is a large amount of market penetration within the United States, I would expect for Titan to attempt to obtain a European partner for the drug, which would provide an additional revenue stream. The key of this agreement would be for Titan to try to minimize the R&D spend that it would have to commit to in order to get Probuphine approved in Europe. Any European agreement would be instantly accreditive to Titan shareholders.
It is also important for shareholders to remember that Braeburn itself is a large shareholder in Titan. As part of their amended agreement, Braeburn made a $5 million investment in Titan. With Braeburn already owning a significant chunk of Titan, and over a potential of $165 million in potential sales milestones that would have to be paid to Titan if Probuphine does well in the market, it is not unreasonable that there could be buyout speculation if Probuphine exceeds expectations. This is likely a few years away, as shareholders would still need to see quarters of substantial revenue increases from Probuphine and need to see that Braeburn is beating expectations.
The approval of Probuphine is very positive for Titan shareholders. While it was largely expected, this should help to make shareholders confident in the ability of Titan to see its drugs through to FDA approval. The next challenge for Titan shareholders will be to watch the sales data for Probuphine, and to closely monitor the number of doctors who prescribe the implant for their patients. Titan could also look at signing European partners for Probuphine, provided that Braeburn is able to prove that there is demand for the product in the US. Finally, I would look for Titan to become a buyout target if sales are exceeding expectations, as at this price it is cheaper for Braeburn to buy out the rest of Titan, than to pay the $165 million in sales milestones and the royalty on net sales. The cash flows provided by the approval of Probuphine, and the royalty stream will help to finance the rest of Titan's pipeline.
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