Are Titan Pharma shares still meaningfully under-valued? Print E-mail
By Staff and Wire Reports   
Monday, 13 June 2011 07:29
Many investors are watching Titan as their biggest catalyst is the impending release of data from Titan's second, confirmatory, phase 3 trial on Probuphine (Pro-806) which are expected as soon as this week.
Based on the impressive data from the phase 2 and previous phase 3 study, Pro-805, Napodano fully expects the data to be positive.  Jason Napodano, CFA of Zacks Investment Research recently initiated coverage of Titan Pharmaceuticals, Inc. (OTCBB: TTNP) with an Outperform rating and $4.50 price target and reports the following:

Opioid addiction is a major health and social issue, especially in the U.S. An estimated 7 million people worldwide, nearly 4 million of which are in the U.S., are abusing or addicted to opioids. We believe Titan s Probuphine can capture, conservatively, 20% of the market from the sublingual formulation. It s easily a $500 million opportunity. We also note there is significant upside to this figure if Probuphine is used for the treatment of chronic pain, a multibillion dollar market in the U.S. We believe that Probuphine could address many of the issues that limit opioid use and encourage opioid abuse today. Buprenorphine is an established and approved analgesic for the treatment of acute and chronic pain.

We see the ideal time to strike a deal for the U.S. and Canadian rights to Probuphine in the fourth quarter 2011. By that time, Titan would have presented top-line data from the Pro-806 program, submitted the full data for publication in a peer-review journal, met with the U.S. FDA for a pre-NDA meeting, and be on track to file the NDA in the first quarter 2012. Our thesis is that partners will want to be involved in the preparation of the application, so a deal will come before the actual filing. We believe Titan is looking for a partner with a strong commercial presence in addiction medicine, chronic pain, or specialty CNS disorders.

We see Titan shares at meaningfully under-valued today. We believe that royalties from Fanapt alone are worth $1 per share based on the discounted future cash flow payments. The cash from Fanapt royalties helps management pay for the Probuphine phase 3 program and fund general corporate expenses. Our optimistic scenario for Probuphine includes positive phase 3 data from the Pro-806 trial, positive meetings with the FDA later in the year, a new drug application (NDA) in early 2012, and approval in late 2012 with a launch in early 2013. We expect a U.S. deal in the fourth quarter 2011, which should bring upfront cash in the area of $20 to $25 million, a similar approval milestone in late 2013, backend milestone totaling $200 million, and a 20-22% royalty on sales. Under this scenario, we see the net present value (NPV) of Titan s cash from a deal, risk-adjusted backed milestones, and royalties on sales worth $206 million, or $3.50 per share.

Together, we see the total company worth $4.50 per share, with upside coming based on the second phase 3 trial on Probuphine expected later this month. We are making an aggressive (high risk) call to buy Titan shares ahead of the data and the many catalysts we see coming later in 2011.

A full copy of  Jason Napodano's full coverage report on Titan can be found here:

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