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Titan Titillating?

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By icebrg
November 1, 2002

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I do hope you are right. I fear you are not.

To me the Zomaril story has been one disappointment after another. Zomaril was the main reason for my interest and investment in Titan. Supported by their business strategy (inlicense-develop-outlicense), which would be making a lot of sense, providing that there was a steady flow of Zomaril royalties streaming into the company.

You know what happened. First it turned out that Novartis seemingly had been running underpowered pivotal studies, which meant that they had to redo one of them.

Then Novartis evidently decided that they had to run a cardiotoxicity study before proceeding. Why they hadn't done so already is beyond me. Perhaps they felt that they had to go up so much in dosing, that the QTc effects now became an issue. Anyhow, as the main selling points of the drug was supposed to be its benign side-effect profile it is somewhat difficult to understand that Novartis had not already investigated this matter.

QTc turns out to be a problem and one of the main arguments for the drug was blown away. According to the neuroinvesting Dr. Tracy the market potential of Zomaril should now be found somewhere between the 100 and 150 mUSD marks. A market that a giant like Novartis will most probably find less than interesting.

So, there are a couple of possible tracks leading from here.

1. Novartis decides (after having seen FDA) that enough is enough and returns the drug to Titan. Who may then re-license it to someone small enough to appreciate its limited size and smart enough to market it. A Forest Labs type of company, perhaps? But at a market size of 100-150 mUSD there will only be 10-15 mUSD for Titan, if the Novartis' terms are retained. Not bad for a (by now) 70 mUSD market cap. company like Titan, but the sky doesn't seem that far away.

2. Novartis decides that Dr. Tracy is wrong and that the drug has some potential even for a company of their size. Well, their handling of this drug hasn't impressed so far, so there is of course a possibility they may be wrong and still continue to push for the drug in their very special way. Especially considering all the funds they have already poured into the project. (That would at least short term be of benefit to Titan's share price).

Money already spent has never been a good argument for spending even more. But it is still a very powerful argument when difficult decisions are to be taken. If they are right and Zomaril turns out to be a 500 mUSD drug Titan stands to make abt. 50 mUSD a year. Things start to look interesting again and the sky is really high. But how long will it take and what will the competitive situation look like when finally has finally arrived?

3. Novartis has a so far undisclosed ace up one of their sleeves. A depot version which doesn't cause any QTc problems. Or something to the same or similar effect. But that is at this point just speculation and nothing to use for a rational investment decision (as if such a beast currently exists in this sector).

4. Both Novartis and Titan decide that it is time to call it a day. The drug goes back to Hoechst, who turns the duckling into a beautiful swan.
Or perhaps not.

No, I don't feel overly excited about Zomaril at present. Novartis plays their cards very close to the chest, so there is still a possibility that things are not as bad as they seem. And as Dr. Bucalo has just been unleashed there is of course the possibility that he starts to pull in a direction beneficial to Titan's shareholders. But still. Titan is in my mind mainly a play in one of the cancer vaccine lotteries. A class of lotteries that so far has not produced (m)any happy winners.


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