During the time period involved, Titan Pharmaceuticals sought to develop Iloperidone (Zomaril), a potential new drug for the treatment of schizophrenia. The stockholders allege that, from the very beginning of this time period, the defendants declared that the development program for Iloperidone was making steady progress through Phase III clinical trials and toward drug approval in the U.S. Allegedly, the defendants expressed excitement over the safety and efficacy of Iloperidone and with the Phase III study results, particularly the statistically significant reduction in the symptoms of schizophrenia in patients. The defendants concluded that the positive late-stage development results pointed to an important role for Iloperidone as a new option for the treatment of schizophrenia.

Heightened expectations for the success of Iloperidone stood in contrast, however, to an ongoing process of U.S. Food and Drug Administration review of serious unaddressed safety issues facing older, established antipsychotic drugs. This process has resulted in the imposition of severe marketing restrictions for a number of established antipsychotic drugs.

Based on the disclosures made in the defendants' press release of July 22, 2002, pointing to the ability of Iloperidone to prolong the QT interval and raising serious questions about Iloperidone's cardiovascular safety and marketability, the price of Titan Pharmaceuticals' shares fell a precipitous 58%, to $1.63, its lowest level ever, on volume of 3.8 million shares.