Progenics Pharmaceuticals

to live

better

2005 Annual Report

to livebetter

Profile

Progenics Pharmaceuticals, Inc.

is a biopharmaceutical company

focusing on the development and

commercialization of innovative

therapeutic products to treat the

unmet medical needs of patients

with debilitating conditions and life-

threatening diseases. Our principal 

programs are directed toward

symptom management and 

supportive care and the treatment

of HIV infection and cancer.

The Company has four product 

candidates in clinical development

and several others in preclinical 

development. 

PRODUCT DEVELOPMENT PIPELINE

Preclinical

Phase 1

Phase 2

Phase 3

Symptom management
  MNTX: Opioid-induced constipation (SC) 

Post-op bowel dysfunction (IV)
Opioid-induced constipation (Oral)

(melanoma)

Cancer
  GMK 
  PSMA  (prostate cancer)
Vaccines
Antibody-drug conjugate

HIV
  PRO 140
  ProVax

 
 
 
 
© Copyright 2005, The Nasdaq Stock Market, Inc.

Paul J. Maddon, M.D., Ph.D.
Founder, Chief Executive Officer 
and Chief Science Officer

A Message from the CEO

Dear Shareholders:, 

The past 12 months were highly successful for Progenics

Pharmaceuticals. We reported significant activity in advanced clinical

trials for our lead product, methylnaltrexone (MNTX), which led to a

worldwide collaboration with Wyeth. 

In the area of HIV therapy, PRO 140 showed encouraging results

in an early stage clinical trial.  We also made significant progress in the

laboratory in developing a vaccine that may prevent HIV infection.

We acquired complete ownership and control of our joint venture

to develop cancer immunotherapies based on prostate-specific

membrane antigen (PSMA). In preclinical studies, our PSMA

antibody-drug conjugate has also shown promise in treating prostate

cancer.

We at Progenics Pharmaceuticals welcome our many new 

shareholders and thank our long-term investors who have supported

our efforts to build a biopharmaceutical company that develops 

innovative therapies for major unmet medical needs. During the past

year, we moved closer to that goal thanks to our dedicated employees,

committed clinical investigators, and the selfless patients who 

participated in ground-breaking clinical studies. We gratefully 

acknowledge all of their contributions.

PPaauull   JJ..   MMaaddddoonn

Paul J. Maddon, M.D., Ph.D. 
May 2006

ACCOMPLISHMENTS

GOING FORWARD

Methylnaltrexone

PRO 140

Progenics will be collaborating with
Wyeth on the worldwide development
and commercialization of MNTX. Wyeth
will develop all forms outside the US and
the oral form within the US, while
Progenics will maintain responsibility for
completing development of subcutaneous
and intravenous in the U.S. We are also
preparing to file the Company’s first New
Drug Application with the U.S. Food and
Drug Administration for the use of 
subcutaneous MNTX in the treatment of
opioid-induced constipation in patients
with advanced illness.This application, if
approved, will result in the 
commercialization of our first product.

We are completing enrollment in a

phase 1b clinical trial of PRO 140 in 
HIV-infected individuals, which is designed
to provide us with the first proof-of-
concept for this novel HIV therapy.

We are also completing the 
preclinical testing necessary to begin 
clinical studies with our PSMA monoclonal
antibody-drug conjugate for the 
treatment of metastatic prostate cancer.

We achieved positive results in a
phase 1 clinical trial in normal volunteers
of PRO 140, a humanized monoclonal
antibody against CCR5 designed to block
HIV infection of healthy cells. At the 
highest concentration tested, PRO 140
significantly coated CCR5 cells for at least
60 days, potentially protecting them from
HIV infection.

We were awarded a $10.1 million

grant from the National Institutes of
Health for the further development of
PRO 140.

Corporate

We completed three public 
offerings of common stock, at successively
higher prices, which provided $121.6 
million, net of expenses.

We grew to an all-time high of 
160 employees and strengthened our
senior management team, including the
addition of two new members. Mark R.
Baker, J.D. joined the Company as Senior
Vice President & General Counsel and
Secretary. Benedict Osorio, M.B.A. joined
as Vice President, Quality.

Progenics was selected for addition
to the NASDAQ Biotechnology Index®
based upon our market value, average
daily share volume and history as a 
public company.

Progenics and Wyeth Pharmaceuticals

entered into an exclusive, worldwide
agreement for the joint development and
commercialization of MNTX for the
treatment of opioid-induced side effects,
including constipation and post-operative
bowel dysfunction. Key provisions of the
agreement include a $60 million up-front
payment, potential milestone payments of
$356.5 million, reimbursement of all
future development costs, significant 
royalties on worldwide sales, and 
co-promotion rights in the U.S.

In two pivotal phase 3 clinical trials

of MNTX, we reported positive and 
highly statistically significant results in the
treatment of opioid-induced constipation
in patients with advanced illness.

We also reported positive results

from a phase 2 clinical trial of MNTX in
the management of post-operative bowel
dysfunction.

We acquired a substantial portion of

the royalty and milestone rights for
MNTX from our licensors that had
licensed the MNTX compound to us,
thereby extinguishing our obligations with
respect to these rights.

Prostate Cancer

We acquired complete ownership

and control of PSMA Development
Company LLC (PDC), which is
developing prostate cancer
immunotherapies based on prostate 
specific membrane antigen, including the
fully human PSMA antibody-drug
conjugate (PSMA ADC) and two vaccine
products.

PSMA ADC showed activity against

prostate cancer cells and significantly 
prolonged overall survival in an animal
model of human prostate cancer.

MISSION STATEMENT

As a biopharmaceutical company, our goal is to develop and

commercialize innovative therapeutic products to treat the
unmet medical needs of patients with debilitating 
conditions and life-threatening diseases.

OUR CORE VALUES
People

We are the Company’s most important asset. As a diverse
group of professionals, we appreciate the value of working as a
team in a collaborative environment. We are creative, flexible
and enjoy what we do.

Integrity

We respect others and their ideas, and take ownership of
our actions. Through ethical business practices, we maintain our
integrity. We are dedicated to the safety and efficacy of our
products as well as the people who use them.

Innovation

We address the needs of our patients through pioneering

research, investment in new technologies and successful 
collaborations.

Passion

Our passion, determination and drive enable us to work
with a sense of urgency to develop novel therapies and focus on
our mission.

Commitment

We are dedicated to quality, improving the lives of patients,

and adding value for our shareholders. We are committed to
providing an environment where employees are safe, respected
and can grow personally and professionally.

Vision

We value our ability to be forward-thinking and proactive.

With an eye to the future, we utilize resources wisely and 
efficiently in order to meet long-term objectives.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
≤

n

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  

  to

Commission file no. 000-23143

PROGENICS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

13-3379479
(I.R.S. Employer Identification Number)

777 Old Saw Mill River Road
Tarrytown, NY 10591
(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (914) 789-2800

Securities Registered pursuant to Section 12(b) of the Act: None

Securities Registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.0013 per share
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes n

No ≤

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes n

No ≤

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of

the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ≤

No n

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained

herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. n

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.

See definition of ""accelerated filer and large accelerated filer'' in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer n

Accelerated Filer ≤

Non-accelerated Filer n

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes n

No ≤

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant on June 30, 2005,
based upon the closing price of the Common Stock on the Nasdaq National Market of $20.86 per share, was approximately
$280,398,000 (1). As of March 14, 2006, 25,450,675 shares of Common Stock, par value $.0013 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None

(1)

Calculated by excluding all shares that may be deemed to be beneficially owned by executive officers, directors and five percent
stockholders of the Registrant, without conceding that any such person is an ""affiliate'' of the Registrant for purposes of the Federal
securities laws.

TABLE OF CONTENTS

PART I

Item 1.
Business ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 1A. Risk FactorsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 1B. Unresolved Staff Comments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Properties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 2.
Legal Proceedings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 3.
Submission of Matters to a Vote of Security Holders ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 4.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selected Financial Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of

Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Financial Statements and Supplementary DataÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 9A. Controls and Procedures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 9B. Other InformationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

PART III

Item 10. Directors, Executive Officers and Key Management of the Registrant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 11. Executive Compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 13. Certain Relationships and Related Transactions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Item 14. Principal Accounting Fees and ServicesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1
23
35
35
35
35

36
37

39
62
62

62
62
63

64
70

77
80
81

PART IV

Item 15. Exhibits and Financial Statement SchedulesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

82
INDEX TO FINANCIAL STATEMENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-1
SIGNATURES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S-1
EXHIBIT INDEX ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ E-1

PART I

Certain statements in this Annual Report on Form 10-K constitute ""forward-looking statements''
within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained
herein that are not statements of historical fact may be forward-looking statements. When we use the
words "anticipates,' "plans,' "expects' and similar expressions, it is identifying forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors which
may cause our actual results, performance or achievements, or industry results, to be materially different
from any expected future results, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the risks associated with our dependence on
Wyeth to fund and to conduct clinical testing, to make certain regulatory filings and to manufacture and
market products containing MNTX, the uncertainties associated with product development, the risk that
clinical trials will not commence, proceed or be completed as planned, the risk that our products will not
receive marketing approval from regulators, the risks and uncertainties associated with the dependence
upon the actions of our corporate, academic and other collaborators and of government regulatory agencies,
the risk that our licenses to intellectual property may be terminated because of our failure to have satisfied
performance milestones, the risk that products that appear promising in early clinical trials are later found
not to work effectively or are not safe, the risk that we may not be able to manufacture commercial
quantities of our products, the risk that our products, if approved for marketing, do not gain market
acceptance sufficient to justify development and commercialization costs, the risk that we will not be able
to obtain funding necessary to conduct our operations, the uncertainty of future profitability and other
factors set forth more fully in this Form 10-K, including those described under the caption ""Item 1A.Ì
Risk Factors'', and other periodic filings with the Securities and Exchange Commission, to which investors
are referred for further information.

We do not have a policy of updating or revising forward-looking statements, and we assume no
obligation to update any forward-looking statements contained in this Form 10-K as a result of new
information or future events or developments. Thus, you should not assume that our silence over time
means that actual events are bearing out as expressed or implied in such forward-looking statements.

Available Information

We file annual, quarterly and current reports, proxy statements and other documents with the
Securities and Exchange Commission, or SEC, under the Securities Exchange Act of 1934, or the
Exchange Act. The public may read and copy any materials that we file with the SEC at the SEC's
Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC
maintains an Internet website that contains reports, proxy and information statements and other
information regarding issuers, including Progenics, that file electronically with the SEC. The public can
obtain any documents that we file with the SEC at http://www.sec.gov.

We also make available, free of charge, on or through our Internet website

(http://www.progenics.com) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant
to Section 13(a) of the Exchange Act as soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.

Item 1. Business

Overview

Progenics Pharmaceuticals, Inc. is a biopharmaceutical company focusing on the development and
commercialization of innovative therapeutic products to treat the unmet medical needs of patients with
debilitating conditions and life-threatening diseases. Our principal programs are directed toward symptom
management and supportive care and the treatment of Human Immunodeficiency Virus (""HIV'') infection
and cancer.

1

Symptom Management and Supportive Care

In the area of symptom management and supportive care, our work is focused on methylnaltrexone
(""MNTX''), which is our most advanced product candidate. In December 2005, we entered into a license
and co-development agreement (the ""Collaboration Agreement'') with Wyeth Pharmaceuticals (""Wyeth'')
to develop and commercialize MNTX.

Subcutaneous MNTX. Our most advanced work with MNTX is as a treatment for opioid-induced
constipation. Constipation is a serious medical problem for patients who are being treated with opioid pain-
relief medications. MNTX is designed to reverse the side effects of opioid pain medications while
maintaining pain relief, an important need not currently met by any approved drugs. We have successfully
completed two pivotal phase 3 clinical trials of MNTX in patients with advanced medical illness. We are
now working with Wyeth to submit a New Drug Application to the U.S. Food and Drug Administration in
this setting and implement a commercialization strategy for subcutaneous MNTX.

Intravenous MNTX. We are also developing an intravenous form of MNTX for the management of
post-operative bowel dysfunction, a serious condition of the gastrointestinal tract that can arise following
surgery. We have successfully completed a phase 2 clinical trial of MNTX for this indication. Based on
our end of phase 2 meeting with the FDA ,we are planning a phase 3 clinical program with intravenous
MNTX for the treatment of post-operative bowel dysfunction.

Oral MNTX. An oral form of MNTX is also under development for the treatment of opioid-induced

constipation in patients with chronic pain, including those suffering from lower-back pain, joint pain,
headaches, sickle-cell disease, muscle pain and other disorders. Prior to entering into the Collaboration
Agreement with Wyeth, we had completed phase 1 clinical trials of oral MNTX in healthy volunteers.
Wyeth has the responsibility under the Collaboration Agreement for continuing the worldwide development
of oral MNTX.

Treatment of HIV Infection

In the area of virology, we are developing viral entry inhibitors, which are molecules designed to

inhibit the ability of viruses to enter certain types of immune system cells. HIV is the virus that causes
AIDS. In mid-2005, we announced positive results from a phase 1 clinical trial in healthy volunteers of
PRO 140, a monoclonal antibody designed to target the HIV co-receptor CCR5. Receptors and co-
receptors are structures on the surface of a cell to which a virus must bind in order to infect the cell. A
phase 1b trial of PRO 140 in HIV-infected patients began in December 2005. We are also involved in
research regarding a vaccine against HIV infection and a therapeutic for hepatitis C virus infection.

Treatment of Cancer

We are developing immunotherapies for prostate cancer, including monoclonal antibodies directed
against prostate specific membrane antigen (""PSMA''), a protein found on the surface of prostate cancer
cells. We are also developing vaccines designed to stimulate an immune response to PSMA. Our PSMA
programs are conducted through PSMA Development Company LLC (""PSMA LLC''), our joint venture
with Cytogen Corporation (""Cytogen'').

We are also studying a cancer vaccine, GMK, in phase 3 clinical trials for the treatment of malignant

melanoma.

Product In-Licensing

We seek out promising new products and technologies around which to build new development
programs or enhance existing programs. Our in-licensing strategy has been the basis for our clinical
development programs for MNTX, novel HIV therapeutics and cancer immunotherapies. We own the
worldwide commercialization rights to each of our product candidates except MNTX, which will be
commercialized by Wyeth under the Collaboration Agreement and except with respect to our development
programs targeting PSMA, which are being conducted through our joint venture with Cytogen.

2

The following table summarizes the current status of our principal development programs and product

candidates:

Program/Product Candidates

Indication/Use

Status (1)

Symptom Management
and Supportive Care
MNTX-Subcutaneous

Treatment of opioid-induced

constipation

Phase 3 completed in patients

with advanced medical illness

MNTX-Intravenous

Management of post-operative

Phase 3 planned

bowel dysfunction

MNTX-Oral

Treatment of opioid-induced

Phase 2 planned in patients with

constipation

chronic pain

HIV
PRO 140
ProVax
Prostate Cancer
PSMA (2):

Treatment of HIV infection
Treatment of HIV infection

Phase 1b
Research

Recombinant protein vaccine

Immunotherapy for prostate

Phase 1

cancer

Viral-vector vaccine

Immunotherapy for prostate

Preclinical

cancer

Monoclonal antibody-drug

Treatment of prostate cancer

Preclinical

conjugate

Other
GMK vaccine
Hepatitis C virus (HCV)

Immunotherapy for melanoma
Treatment of HCV infection

Phase 3
Research

(1) ""Research'' means initial research related to specific molecular targets, synthesis of new chemical entities, assay development or

screening for the identification of lead compounds.

""Preclinical'' means that a lead compound is undergoing toxicology, formulation and other testing in preparation for clinical
trials.

Phase 1-3 clinical trials are safety and efficacy tests in humans as follows:

""Phase 1'': Evaluation of safety.

""Phase 2'': Evaluation of safety, dosing and activity or efficacy.

""Phase 3'': Larger scale evaluation of safety and efficacy.

(2) Programs conducted through PSMA LLC.

None of our product candidates has received marketing approval from the FDA or any other

regulatory authority, and we have not yet received any revenue from the sale of any of our product
candidates. We must receive marketing approval before we can commercialize any of our product
candidates.

Symptom Management and Supportive Care

Narcotic medications such as morphine and codeine, which are referred to as opioids, are the

mainstay in controlling moderate to severe pain. We estimate that approximately 200 million prescriptions
for opioids are written annually in the U.S. Physicians prescribe opioids for patients with advanced medical
illness, patients undergoing surgery and patients who experience chronic pain, as well as for other
indications.

3

Opioids relieve pain by interacting with receptors that are located in the brain and spinal cord, which

comprise the central nervous system. At the same time, opioids activate receptors outside the central
nervous system, resulting, in many cases, in undesirable side effects, including constipation, delayed gastric
emptying, nausea and vomiting, itching and urinary retention. Current treatment options for opioid-induced
constipation include laxatives and stool softeners, which are only minimally effective and are not
recommended for chronic use. As a result, many patients may have to stop opioid therapy and endure pain
in order to obtain relief from opioid-induced constipation and other side effects.

MNTX

MNTX is a selective, peripheral, opioid-receptor antagonist that reverses certain side effects induced
by opioid use. MNTX competes with opioid analgesics for binding sites on opioid receptors, but is unable
to cross the blood-brain barrier. As a result, MNTX ""turns off'' the effects of opioid analgesics outside the
central nervous system, including the gastrointestinal tract, but does not interfere with opioid activity
within the central nervous system. Therefore, MNTX does not block the pain relief that the opioids
provide. To date, patients treated with MNTX in addition to opioid pain medications have experienced a
reversal of many of the side effects induced by the opioids and have reported no decline in pain relief.
MNTX has been studied in numerous clinical trials. To date, MNTX has been generally well tolerated
and highly active in blocking opioid-related side effects without interfering with pain relief.

On December 23, 2005 we entered into the Collaboration Agreement with Wyeth. Under the

Collaboration Agreement, we will share with Wyeth the responsibilities for developing and obtaining
marketing approval of MNTX in the United States as outlined below. Our responsibility extends to the
subcutaneous and intravenous forms and Wyeth's to the oral form. Wyeth is responsible for developing and
obtaining marketing approval for the three forms of MNTX outside of the United States. Once marketing
approval is obtained, Wyeth is responsible for commercializing all three forms of MNTX worldwide. We
have an option, under certain circumstances, to co-promote the sale of the three forms of MNTX in the
United States. Wyeth has agreed to reimburse us for the development costs of MNTX which we incur and
to pay us certain fees if we co-promote MNTX.

Our rights to MNTX arise under an exclusive sublicense from UR Labs, Inc. (""URL''). URL's
rights to MNTX arise under an exclusive license from the University of Chicago. In December 2005,
URL assigned to us its rights under our sublicense, so we now obtain our rights to MNTX by license
directly from the University of Chicago. See ""Licenses Ì UR Labs.''

Subcutaneous MNTX. Our most advanced work with MNTX is as a treatment for opioid-induced
constipation. Constipation is a serious medical problem for patients who are being treated with opioid pain-
relief medications. MNTX is designed to reverse the side effects of opioid pain medications while
maintaining pain relief, an important need not currently met by any approved drugs.

We have successfully completed two pivotal phase 3 clinical trials of MNTX in patients with
advanced medical illness including cancer, AIDS and heart disease. Approximately 1.7 million deaths
occur each year in the U.S. from advanced medical illness. Most of these patients receive opioids for pain
prior to their death and, as a result, experience opioid-induced constipation.

We achieved positive results from our two pivotal phase 3 clinical trials (MNTX 301 and MNTX

302). In the second phase 3 clinical study, MNTX 302, subcutaneous administration of MNTX induced
laxation (bowel movement) within four hours in 51.2% of severely constipated patients with advanced
medical illness at more than three times the rate of placebo (15.5%), on average over a two-week period.
For patients who responded to MNTX (0.15 mg/kg), median time to laxation was 30 minutes. All
primary and secondary efficacy endpoints of both of the phase 3 studies were positive and statistically
significant. The drug was generally well tolerated in both phase 3 trials.

Under the Collaboration Agreement with Wyeth, we are responsible for developing subcutaneous
MNTX in the advanced medical illness setting and obtaining regulatory marketing approval in the United
States, and Wyeth is responsible for developing and obtaining regulatory marketing approval in this setting
outside the United States.

4

Intravenous MNTX. We are also developing an intravenous form of MNTX for the management of
post-operative bowel dysfunction. Of the patients who undergo surgery in the U.S. each year, more than
three million patients are at high risk for developing bowel dysfunction, a serious impairment of the
gastrointestinal tract. Post-operative bowel dysfunction is caused in part by the release by the body of
endogenous opioids in response to the trauma of surgery and may be exacerbated by the use of opioids,
such as morphine, in surgery and in the post-operative period. Bowel dysfunction is a major factor in
increasing hospital stay, as patients are typically not discharged until bowel function is restored.

We have completed a multi-center, double-blind, randomized, placebo-controlled phase 2 clinical trial
of intravenous MNTX in patients at risk for post-operative bowel dysfunction. The study was conducted in
65 individuals who had undergone segmental colectomies, which is the removal of a portion of the colon.
Patients who received MNTX exhibited an acceleration of gastrointestinal recovery by approximately one
day, on average, compared to placebo. Significant improvements were seen in both time to first bowel
movement and time to discharge eligibility from the hospital, both of which we believe are clinically
meaningful. MNTX was generally well tolerated in this study. Based on our end of phase 2 meeting with
the FDA, we are planning a phase 3 clinical program with intravenous MNTX for treatment of post-
operative bowel dysfunction.

Under the Collaboration Agreement with Wyeth, we are responsible for developing intravenous
MNTX for post-operative bowel dysfunction and obtaining regulatory marketing approval in this setting in
the United States, and Wyeth is responsible for developing and obtaining regulatory marketing approval in
this setting outside the United States.

Oral MNTX. We have also been developing an oral form of MNTX for the treatment of constipation
in patients receiving opioids. More than 200 million prescriptions are written annually for opioids and more
than 40 million patients in the U.S. are receiving treatment for chronic pain. Approximately five million of
these patients use opioids chronically, many of whom experience opioid-induced constipation.

We have conducted two phase 1 clinical studies of oral MNTX at three dose levels in a total of 61

healthy volunteers. Analysis of data from these two studies, which were double-blind and randomized,
indicated that MNTX was well tolerated and exhibited predictable pharmacokinetics. In four clinical
studies conducted previously by independent researchers, an orally administered capsule form of MNTX
demonstrated activity, including relief of opioid-induced constipation.

Under the Collaboration Agreement, Wyeth is responsible for the further development of oral MNTX

in this setting and for obtaining regulatory marketing approval both in the United States and the rest of
the world.

HIV

Infection by the human immunodeficiency virus, or HIV, causes a slowly progressing deterioration of

the immune system resulting in Acquired Immune Deficiency Syndrome, or AIDS. HIV specifically
infects cells that have the CD4 receptor on their surface. Cells with the CD4 receptor are critical
components of the immune system and include T lymphocytes, monocytes, macrophages and dendritic
cells. The devastating effects of HIV are largely due to the multiplication of the virus in these cells,
resulting in their dysfunction and destruction.

The Joint United Nations Program on HIV/AIDS (""UNAIDS'') and the World Health Organization

(""WHO'') estimate that the number of individuals living with HIV has continued to increase around the
world, reaching a record 40.3 million people in 2005, including nearly five million new infections.
Individuals living with HIV in high-income countries rose to 1.9 million, which includes an estimated
65,000 newly infected individuals. UNAIDS and WHO estimate that there were over three million deaths
attributed to AIDS during 2005, of which 30,000 were from high-income countries.

At present, three classes of products have received marketing approval from the FDA for the

treatment of HIV infection and AIDS: reverse transcriptase inhibitors, protease inhibitors and entry

5

inhibitors. Reverse transcriptase and protease inhibitors inhibit two of the viral enzymes required for HIV
to replicate once it has entered the cell.

Since the late 1990s, many HIV patients have benefited from combination therapy of protease and

reverse transcriptase inhibitors. While combination therapy slows the progression of disease, it is not a
cure. HIV's rapid mutation rate results in the development of viral strains that are resistant to reverse
transcriptase and protease inhibitors. Increasingly, after years of combination therapy, patients begin to
develop resistance to these drugs. The potential for resistance is increased by interruptions in dosing, which
lead to lower drug levels and permit increased viral replication. Interruption in dosing is common in
patients on combination therapies because these drug regimens often require more than a dozen tablets to
be taken at specific times each day. In addition, many currently approved drugs produce toxic side effects
in many patients, affecting a variety of organs and tissues, including the peripheral nervous system and
gastrointestinal tract. These side effects may result in patients interrupting or discontinuing therapy. Our
viral entry inhibitors represent a potential new class of drugs for these patients.

Viral infection occurs when the virus binds to a host cell, enters the cell, and by commandeering the

cell's own reproductive machinery, creates thousands of copies of itself within the host cell. This process is
called viral replication. Our scientists and their collaborators have made important discoveries in
understanding how HIV enters human cells and initiates viral replication.

Our scientists, in collaboration with researchers at the Aaron Diamond AIDS Research Center, or

ADARC, described in an article in Nature the discovery of a co-receptor for HIV on the surface of
human immune system cells. This co-receptor, CCR5, enables fusion of HIV with the cell membrane after
binding of the virus to the CD4 receptor. This fusion step results in entry of the viral genetic information
into the cell and subsequent viral replication. Our PRO 140 program is based on blocking binding of HIV
to the CCR5 co-receptor. Further work by other scientists has established the existence of a second co-
receptor, CXCR4. Based on our pioneering research, we believe we are a leader in the discovery of viral
entry inhibitors, a promising new class of HIV therapeutics. We believe viral entry inhibitors could become
the next generation of therapy.

PRO 140

PRO 140 is a humanized monoclonal antibody designed to block HIV infection by inhibiting virus-
cell binding. We have designed PRO 140 to target a distinct site on CCR5 without interfering with the
normal function of CCR5. PRO 140 has shown promising activity in preclinical studies. In in vitro studies,
PRO 140 demonstrated potent, broad-spectrum antiviral activity against more than 40 genetically diverse
""primary'' HIV viruses isolated directly from infected individuals. Single doses of a murine-based PRO
140 reduced viral burdens to undetectable levels in an animal model of HIV infection. In mice treated
with murine PRO 140, initially high HIV concentrations became undetectable for up to nine days after a
single dose. Additionally, multiple doses of murine PRO 140 reduced and then maintained viral loads at
undetectable levels for the duration of therapy in an animal model of HIV infection. Sustaining
undetectably low levels of virus in the blood is a primary goal of HIV therapy.

In mid-2005, we completed a phase 1 study of humanized PRO 140 designed to determine the
tolerability, safety, pharmacology and immunogenicity of PRO 140 in healthy volunteers. PRO 140
exhibited both a long half-life in the circulation and dose-dependent binding to CCR5-expressing cells. A
single 5 mg/kg dose of PRO 140 significantly coatedÌand thereby potentially protected from HIV
infectionÌCCR5 cells for as long as 60 days. PRO 140 was generally well tolerated at all dose levels in
this study.

In December 2005, we initiated a phase 1b study of PRO 140. The phase 1b trial is designed to
assess the tolerability, pharmacokinetics and preliminary antiviral activity of PRO 140 in approximately 40
HIV-positive patients. This multi-center, double-blind, placebo-controlled, dose-escalation study is being
conducted in patients who have not taken any anti-retroviral therapy within the previous three months and
who have HIV plasma concentrations greater than or equal to 5,000 copies/mL. Patients will receive a
single intravenous dose of study medicationÌeither placebo or one of three increasingly higher doses of

6

PRO 140. PRO 140 blood levels and CCR5 coating will be determined and compared with antiviral
effects measured as changes in plasma HIV viral load following treatment.

In February 2006, we received ""Fast Track'' designation from the FDA for PRO 140. The FDA Fast
Track Development Program facilitates development and expedites regulatory review of drugs intended to
address an unmet medical need for serious or life-threatening conditions.

The ""humanized'' version of PRO 140 was developed for us by PDL BioPharma, Inc. (formerly,

Protein Design Labs, Inc.) See ""LicensesÌProtein Design Labs.''

ProVax

ProVax is our vaccine product candidate under development for the prevention of HIV infection or as

a therapeutic treatment for HIV-positive individuals. We are currently performing government-funded
research and development of the ProVax vaccine in collaboration with the Weill Medical College of
Cornell University.

ProVax contains critical surface proteins whose form closely mimics the structures found on HIV. In
animal testing, ProVax stimulated the production of specific HIV neutralizing antibodies. When tested in
the laboratory, these antibodies inactivated certain strains of HIV isolated from infected patients. The
vaccine-stimulated neutralizing antibodies were observed to bind to the surface of the virus, rendering it
non-infectious. Such neutralizing antibodies against HIV have been difficult to induce with vaccines
currently in development.

In September 2003, we were awarded a contract by the National Institutes of Health (the ""NIH'') to

develop an HIV vaccine. We anticipate that these funds will be used principally in connection with our
ProVax HIV vaccine program. The contract provides for up to $28.6 million in funding to us over five
years for preclinical research, development and early clinical testing of a prophylactic vaccine designed to
prevent HIV from becoming established in uninfected individuals exposed to the virus. Funding under this
contract is subject to compliance with its terms, and the payment of an aggregate of $1.6 million in fees
under the contract is subject to achievement of specified milestones. Through December 31, 2005, we had
recognized revenue of $6.0 million from this contract, including $180,000 for the achievement of two
milestones.

Prostate Cancer

Prostate cancer is the most common cancer affecting men in the U.S. and is the second leading cause

of cancer deaths in men each year. The American Cancer Society estimated that 232,090 new cases of
prostate cancer would be diagnosed and that 30,350 men would die from the disease in 2005 in the U.S.

Conventional therapies for prostate cancer include radical prostatectomy, in which the prostate gland
is surgically removed, radiation and hormone therapies and chemotherapy. Surgery and radiation therapy
may result in urinary incontinence and impotence. Hormone therapy and chemotherapy are generally not
intended to be curative and are not actively used to treat localized, early-stage prostate cancer.

PSMA

We have been engaged in research and development programs relating to vaccine and antibody

immunotherapeutics based on PSMA through PSMA LLC. See ""Joint Venture Relating to PSMA.''
PSMA is a protein that is abundantly expressed on the surface of prostate cancer cells as well as cells in
the newly formed blood vessels of most other solid tumors. We believe that PSMA has applications in
immunotherapeutics for prostate cancer and potentially for other types of cancer.

In December 2002, PSMA LLC initiated a phase 1 clinical trial with its therapeutic recombinant

protein vaccine, which is designed to stimulate a patient's immune system to recognize and destroy
prostate cancer cells. This trial is being conducted pursuant to a physician IND by the Memorial Sloan-
Kettering Cancer Center. The vaccine combines the PSMA cancer antigen (recombinant soluble PSMA,
or ""rsPSMA'') with an immune stimulant to induce an immune response against prostate cancer cells.

7

The genetically engineered PSMA vaccine generated potent immune responses in preclinical animal
testing. The ongoing clinical trial is designed to evaluate the safety, immunogenicity and immune-
stimulating properties of the vaccine in patients with either newly diagnosed or recurrent prostate cancer.
Enrollment in this clinical trial is complete, and preliminary findings showed that certain prostate cancer
patients produced anti-PSMA antibodies in response to the vaccine. Additional research will be needed to
optimize the production, immune response and anti-tumor activity of the vaccine before this product
candidate will advance to phase 2.

PSMA LLC is also pursuing a vaccine program that utilizes viral vectors designed to deliver the
PSMA gene to immune system cells in order to generate potent and specific immune responses to prostate
cancer cells. In preclinical studies, this vaccine generated a potent dual response against PSMA, yielding a
response by both antibodies and killer T-cells, the two principal mechanisms used by the immune system
to eliminate abnormal cells. PSMA LLC is completing preclinical development activities on the PSMA
viral-vector vaccine.

PSMA LLC has also developed human monoclonal antibodies which bind to PSMA. These

antibodies, which were developed under license from Abgenix, Inc., are designed to recognize the three-
dimensional physical structure of the protein and possess a high affinity and specificity for PSMA. In
November 2002, PSMA LLC reported that its PSMA monoclonal antibody substantially reduced tumor
growth in an animal model of human prostate cancer. This antibody, which was conjugated, or attached, to
a radioisotope, selectively delivered this lethal payload to cells that expressed PSMA on their surface.
PSMA LLC is also investigating a PSMA monoclonal antibody-toxin conjugate.

In June 2005, PSMA LLC entered into a collaboration agreement (the ""SGI Agreement'') with
Seattle Genetics, Inc. (""SGI''). Under the SGI Agreement, SGI provided an exclusive worldwide license
to its proprietary antibody-drug conjugate technology (the ""ADC Technology'') to PSMA LLC. Under
the license, PSMA LLC has the right to use the ADC Technology to link cell-killing drugs to PSMA
LLC's monoclonal antibodies that targets prostate-specific membrane antigen. PSMA LLC may replace
prostate-specific membrane antigen with another antigen, subject to certain restrictions, upon payment of
an antigen replacement fee. The ADC Technology is based, in part, on technology licensed by SGI from
third parties (the ""Licensors''). PSMA LLC is responsible for research, product development,
manufacturing and commercialization of all products under the SGI Agreement. PSMA LLC made a
$2.0 million technology access payment to SGI, upon execution of the SGI Agreement during June 2005.
The SGI Agreement requires PSMA LLC to make maintenance payments during the term of the SGI
Agreement, payments aggregating $15.0 million upon the achievement of certain defined milestones, and
royalties on a percentage of net sales, as defined, to SGI and its Licensors. In the event that SGI provides
materials or services to PSMA LLC under the SGI Agreement, SGI will receive supply and/or labor cost
payments from PSMA LLC at agreed upon rates. Unless terminated earlier, the SGI Agreement
terminates at the later of (a) the tenth anniversary of the first commercial sale of each licensed product in
each country or (b) the latest date of expiration of patents underlying the licensed products. The ability of
PSMA LLC to comply with the terms of the SGI Agreement will depend on agreement by Cytogen and
us regarding work plans and budgets of PSMA LLC in future years.

In September 2005, PSMA LLC reported that in a mouse model of human prostate cancer, mice

given the experimental drug PSMA ADC had survival times of up to nine-fold longer than mice not
treated with the drug.

In 2004, the NIH awarded us two grants totaling $7.4 million to be paid over four years and a third

grant for $600,000 to be paid over two years. The three grants were awarded to partially fund work on the
PSMA projects described above.

PSMA LLC currently has no approved 2006 budget or work plan because we and Cytogen have not
yet reached agreement with respect to a number of matters relating to the joint venture. However, we and
Cytogen are required to fulfill obligations under existing contractual commitments as of December 31,
2005. Although work on the PSMA projects continues, if we do not reach an agreement regarding the
2006 budget and work plan, the programs conducted by PSMA LLC would likely be delayed or halted.

8

Our future research and development plans set forth above regarding the PSMA programs assume we are
able to agree expeditiously with Cytogen on a budget and work plan for 2006. See ""ÌRisk FactorsÌ
Disputes with Cytogen could delay or halt our PSMA programs.''

Other Product Candidates and Research Programs

GMK Vaccine

GMK is a therapeutic vaccine that is designed to prevent recurrence of melanoma in patients who are

at risk of relapse after surgery. We are currently conducting two phase 3 clinical trials of GMK.

Melanoma is a cancer of the skin cells that produce the pigment melanin. In early stages, melanoma

is limited to the skin, but in later stages it can spread to the lungs, liver, brain and other organs. The
National Cancer Institute estimated that in 2000 there were 550,860 melanoma patients in the U.S. The
American Cancer Society estimates that there were nearly 60,000 new cases of melanoma diagnosed in the
U.S. during 2005. Melanoma accounts for 4% of skin cancer cases, but 79% of skin cancer deaths.
Melanoma has one of the fastest growing incidence rates of any cancer in the U.S.

GMK is being developed as immunotherapy for patients with Stage II or Stage III melanoma. The
American Cancer Society estimates that the five-year relative survival rate for these melanoma patients
ranges from 44% to 85%, depending on the stage of the disease and other physiological factors.

GMK entered a pivotal phase 3 clinical trial in the U.S. in August 1996. GMK was administered in
this study by 12 subcutaneous injections over a two-year period on an out-patient basis. This clinical trial
compares GMK with high-dose alpha-interferon in Stage IIb (advanced Stage II) and Stage III
melanoma patients who have undergone surgery but are at high risk for recurrence. This randomized trial
has been conducted nationally by the Eastern Cooperative Oncology Group, or ECOG, in conjunction with
other major cancer centers, cooperative cancer research groups, hospitals and clinics. The primary endpoint
of this trial is a comparison of the recurrence of melanoma in patients receiving GMK versus patients
receiving high-dose alpha-interferon, the conventional treatment for high-risk melanoma patients.
Additionally, the study is designed to compare quality of life and overall survival of patients in both
groups.

In May 2000, as a result of an unplanned early analysis of a subset of the 880 patients enrolled in the

trial, ECOG recommended to clinical investigators participating in the trial that they discontinue
administering GMK. No safety issues were identified. ECOG's decision was based on its early analysis of
data from the subset group which, according to ECOG, showed that the relapse-free and overall survival
rates for patients receiving the GMK vaccine were lower than for patients receiving high-dose alpha-
interferon.

As a result of the actions of ECOG, the trial did not complete patient dosing as contemplated by the
initial trial protocol. Despite ECOG's actions, we extended our clinical trial to allow those patients who so
elected, with the advice of their treating physicians, to complete the full dosing protocol. We continue to
monitor all patients in the trial until its scheduled completion as contemplated by the initial protocol. We
refer to ""extending'' the trial in this manner as an ""extension study.'' While all patients received at least a
portion of the planned dosing, only about one-half of the patients received the full number of doses of
GMK. We believe that the likely potential outcomes of the ECOG trial as supplemented by the extension
study are as follows: if the data are good, the data could be used with data from one or more other trials
in support of a filing with the FDA for marketing approval; if the data are not good or are inconclusive, it
would not be useful in support of an application for marketing approval, and further studies would be
required. In any event, positive data from our second phase 3 clinical trial of GMK, described below,
would be required to obtain marketing approval for this product candidate.

In May 2001, we initiated an international phase 3 clinical trial of the GMK vaccine to prevent the

relapse of malignant melanoma. The study is being conducted with the European Organization for
Research and Treatment of Cancer, or EORTC, Europe's leading cancer cooperative group. The EORTC
phase 3 trial has completed enrollment of 1,314 patients, who are at intermediate risk for recurrence of the

9

disease. The study recruited patients from Europe and Australia. EORTC will randomize patients after
surgery to receive either GMK or the current standard of care, which is no treatment but close monitoring.
Patients on the vaccine arm of the study will receive 14 doses of GMK over three years, with an estimated
two years of additional follow-up. We do not expect final data from this trial until at least 2009. The
primary endpoint of this trial is to compare the recurrence of melanoma in patients receiving GMK with
patients receiving observation and no treatment. The study will also compare overall survival of patients in
both groups.

Hepatitis C Viral Entry Inhibitor

We are engaged in a research program to discover treatments for hepatitis C that block viral entry

into cells. Hepatitis C is a major cause of chronic liver disease.

Joint Venture Relating to PSMA

In June 1999, we and Cytogen Corporation (collectively, the ""Members'') formed a joint venture in

the form of a limited liability company for the purposes of conducting research, development,
manufacturing and marketing of products related to PSMA. With certain limited exceptions, all patents
and know-how owned by us or Cytogen and used or useful in the development of PSMA-based antibody
or vaccine immunotherapeutics have been licensed to the joint venture. The principal intellectual property
licensed initially are several patents and patent applications owned by Sloan-Kettering that relate to
PSMA. We and Cytogen must also offer to license to PSMA LLC patents, patent applications and
technical information used or useful in PSMA LLC's field to which we or Cytogen acquire licensable
rights. To date, we have been principally responsible for preclinical and clinical development. By the terms
of PSMA LLC, Cytogen is principally responsible for product marketing, and we have co-promotion
rights.

Each Member of PSMA LLC currently owns 50% of PSMA LLC. Each Member has equal
representation on PSMA LLC's management committee, equal voting rights, equal rights to profits and
losses of PSMA LLC and equal rights upon liquidation, provided there is no dilution of either Member's
ownership interest as discussed below. Pursuant to PSMA LLC agreement, a Member's voting and
ownership interest will be diluted if it fails to make required capital contributions. Under specified
circumstances, a change in control of one of the Members may result in that Member's loss of voting,
management and marketing rights.

In general, the amount of funds that we and Cytogen must contribute to fund the operations of
PSMA LLC is based on budgets and related work plans that are required to be approved by both parties
and updated annually. We are required to fund that portion of the budget equal to our percentage interest
in PSMA LLC (currently 50%). We were required to fund and recognize the initial cost of research up to
$3.0 million. During the fourth quarter of 2001, we had surpassed the $3.0 million in funding for research
costs, and funding obligations were thereafter shared equally by Cytogen and us. As of December 31,
2005, our portion of this joint funding obligation that we have paid was $13.2 million. According to PSMA
LLC agreement, we were allowed to directly pursue and obtain government grants in support of the
PSMA programs and retain related amounts not to exceed $3.0 million. See ""Item 7. Management's
Discussion and Analysis of Financial Condition and Results of OperationsÌOverviewÌJoint Venture with
Cytogen Corporation.''

PSMA LLC currently has no approved 2006 budget or work plan because we and Cytogen have not
yet reached agreement with respect to a number of matters relating to the joint venture. However, we and
Cytogen are required to fulfill obligations under existing contractual commitments as of December 31,
2005. Although work on the PSMA projects continues, if we do not reach an agreement regarding the
2006 budget and work plan, the programs conducted by PSMA LLC would likely be delayed or halted
and PSMA LLC could be dissolved.

We and Cytogen provide research and development services to PSMA LLC and are compensated for

our services based on agreed upon terms which approximate our cost. All inventions made by us in

10

connection with our research and development services to PSMA LLC were required to be assigned to
PSMA LLC for its use and benefit.

The principal PSMA LLC agreements generally terminate upon the last to expire of the patents

licensed by the Members to PSMA LLC or upon a breach by either Member that is not cured within
60 days of written notice. Of the patents and patent applications that are the subject of PSMA LLC, the
issued patents expire on dates ranging from 2014 and 2016. Patent term extensions and pending patent
applications may extend the period of patent protection and thus the term of PSMA LLC agreements,
when and if such patent applications are allowed and issued.

Licenses

We are a party to license agreements under which we have obtained rights to use certain technologies

in our product development programs. Our joint venture with Cytogen has also entered into license
agreements with third parties. Set forth below is a summary of the more significant of these licenses.

Progenics Licenses

Wyeth. We and Wyeth Pharmaceuticals (""Wyeth'') entered into a License and Co-Development

Agreement (the ""Collaboration Agreement'') dated December 23, 2005 for the development and
commercialization of MNTX. Under the Collaboration Agreement, Wyeth paid to us a $60 million non-
refundable upfront payment. Wyeth is obligated to make up to $356.5 million in additional payments to us
upon the achievement of milestones and contingent events in the development and commercialization of
MNTX. All costs for the development of MNTX incurred by Wyeth or us starting January 1, 2006 are to
be paid by Wyeth. We will be reimbursed for our out-of-pocket development costs by Wyeth and will
receive reimbursement for our efforts based on the number of our full time equivalent employees (FTEs)
devoted to the development project. Wyeth is obligated to pay to us royalties on the sale by Wyeth of
MNTX throughout the world during the applicable royalty periods.

The Collaboration Agreement establishes a Joint Steering Committee (""JSC'') and a Joint

Development Committee (""JDC''), each with an equal number of representatives of both Wyeth and us.
The Joint Steering Committee is responsible for coordinating the key activities of Wyeth and us under the
Collaboration Agreement. The Joint Development Committee is responsible for overseeing, coordinating
and expediting the development of MNTX by Wyeth and us.

The Collaboration Agreement contemplates the development and commercialization of three products:

(i) a subcutaneous form of MNTX, to be used in patients with opioid-induced constipation; (ii) an
intravenous form of MNTX, to be used in patients with post-operative bowel dysfunction; and, (iii) an
oral form of MNTX, to be used in patients with opioid-induced constipation.

Under the Collaboration Agreement, we granted to Wyeth an exclusive, worldwide license, even as to

us, to develop and commercialize MNTX. We are responsible for developing the subcutaneous and
intravenous forms of MNTX in the United States, until they receive regulatory approval. Wyeth is
responsible for the development of the subcutaneous and intravenous forms of MNTX outside of the
United States. Wyeth is responsible for the development of the oral form of MNTX, both within the
United States and in the rest of the world. In the event the JSC approves any formulation of MNTX
other than subcutaneous, intravenous or oral or any other indication for the products currently
contemplated using the subcutaneous, intravenous or oral forms of MNTX, Wyeth will be responsible for
development of such products, including conducting clinical trials and obtaining and maintaining regulatory
approval. We will remain the owner of all U.S. regulatory filings and approvals relating to the
subcutaneous and intravenous forms of MNTX. Wyeth will be the owner of all U.S. regulatory filings and
approvals related to the oral form of MNTX. Wyeth will be the owner of all regulatory filings and
approvals outside the United States relating to all forms of MNTX.

Wyeth is responsible for the commercialization of the subcutaneous, intravenous and oral products

throughout the world, will pay all costs of commercialization of all products, including all manufacturing
costs, and will retain all proceeds from the sale of the products, subject to the royalties payable by Wyeth

11

to us. Decisions with respect to commercialization of any products developed under the Collaboration
Agreement will be made solely by Wyeth.

We will transfer to Wyeth, at a mutually agreeable time, all existing supply agreements with third
parties for MNTX and will sublicense any intellectual property rights to permit Wyeth to manufacture
MNTX, during the development and commercialization phases of the Collaboration Agreement, in both
bulk and finished form for all products worldwide.

We have an option (the ""Co-Promotion Option'') to enter into a Co-Promotion Agreement to co-

promote any of the products developed under the Collaboration Agreement, subject to certain conditions.
The extent of our co-promotion activities and the fee that we will be paid by Wyeth for these activities,
will be established when we exercise our option. Wyeth will record all sales of products worldwide
(including those sold by us, if any, under a Co-Promotion Agreement). Wyeth may terminate any Co-
Promotion Agreement if a top 15 pharmaceutical company acquires control of us. Wyeth has agreed to
certain limitations on its ability to purchase our equity securities and to solicit proxies.

The Collaboration Agreement extends, unless terminated earlier, on a country-by-country and

product-by-product basis, until the last to expire royalty period, as defined, for any product. Progenics may
terminate the Collaboration Agreement at any time upon 90 days of written notice to Wyeth (30 days in
the case of breach of a payment obligation) upon material breach that is not cured. Wyeth may, with or
without cause, following the second anniversary of the first commercial sale, as defined, of the first
commercial product in the U.S., terminate the Collaboration Agreement by providing Progenics with at
least 360 days prior written notice of such termination. Wyeth may also terminate the agreement (i) upon
30 days written notice following one or more serious safety or efficacy issues that arise, as defined, and
(ii) at any time, upon 90 days written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license we granted to Wyeth will depend
on the party that initiates the termination and the reason for the termination.

UR Labs. On December 22, 2005, we acquired certain rights for our lead investigational drug,

methylnaltrexone (""MNTX''), from several of our licensors.

In 2001, we entered into an exclusive sublicense agreement with UR Labs, Inc. (""URL'') to develop
and commercialize MNTX (the ""MNTX Sublicense'') in exchange for rights to future payments resulting
from the MNTX Sublicense. As of December 31, 2005 we had paid to UR Labs $550,000 under this
agreement. In 1989, URL obtained an exclusive license to MNTX, as amended, from the University of
Chicago (""UC'') under an Option and License Agreement dated May 8, 1985, as amended (the ""URL-
Chicago License''). In 2001, URL also entered into an agreement with certain heirs of Dr. Leon Goldberg
(the ""Goldberg Distributees''), which provided them with the right to receive payments based upon
revenues received by URL from the development of the MNTX Sublicense (the ""URL-Goldberg
Agreement'').

On December 22, 2005, we entered into an Agreement and Plan of Reorganization (the ""Purchase
Agreement'') by and among Progenics Pharmaceuticals, Inc., Progenics Pharmaceuticals Nevada, Inc.,
UR Labs, Inc. and the shareholders of UR Labs, Inc. (the ""URL Shareholders''), under which we
acquired substantially all of the assets of URL, comprised of its rights under the URL-Chicago License,
the MNTX Sublicense and the URL-Goldberg Agreement, thus assuming URL's rights and
responsibilities under those agreements and extinguishing our obligation to make royalty and other
payments to URL.

On December 22, 2005, we entered into an Assignment and Assumption Agreement with the
Goldberg Distributees, under which we assumed all rights and obligations of the Goldberg Distributees
under the URL-Goldberg Agreement, thereby extinguishing URL's (and consequentially, our) obligations
to make payments to the Goldberg Distributees. Although we no longer have any obligation to make
royalty payments to URL or the Goldbergs, we continue to have an obligation to make those payments
(including royalties) to the University of Chicago that would have been made by URL.

12

In consideration for the assignment of the Goldberg Distributees' rights and of the acquisition of the

assets of URL described above, we issued, on December 22, 2005, a total of 686,000 shares of our
common stock, with a fair value of $15.8 million, based on a closing price of our common stock of $23.09,
and paid a total of $2,604,900 in cash (representing the opening market value, $22.85 per share, of
114,000 shares of our common stock on the date of the acquisition) to the URL Shareholders and the
Goldberg Distributees and paid $310,000 in transaction fees.

We accounted for the acquisition of the rights described above from the licensors, the only asset
acquired, as an asset purchase. The acquired rights relate to the MNTX Sublicense and our research and
development activities for MNTX, for which technological feasibility has not yet been established, for
which there is no alternative future use and, which has not received regulatory approval for marketing.
Accordingly, the entire purchase price of $18.7 million was recorded as license expense, as a separate line
item in the Company's Statement of Operations, in the period incurred.

PDL BioPharma, Inc. (formerly, Protein Design Labs). Pursuant to an agreement, Protein Design
Labs (""PDL'') developed a humanized PRO 140 monoclonal antibody and granted to us related exclusive
and nonexclusive worldwide licenses under patents, patent applications and know-how. In general, the
license agreement terminates on the later of ten years from the first commercial sale of a product
developed under the agreement or the last date on which there is an unexpired patent or a patent
application that has been pending for less than ten years, unless sooner terminated. Thereafter, the license
is fully paid. The last of the presently issued patents expires in 2014; however, patent applications filed in
the U.S. and internationally that we have also licensed and patent term extensions may extend the period
of our license rights, when and if such patent applications are allowed and issued or patent term extensions
are granted. We may terminate the license agreement on 60 days prior written notice. In addition, either
party may terminate the license agreement, upon ten days written notice, for breach involving failure of
the counterparty to make timely payments or for breach of other material terms of the agreement, upon
30 days prior written notice, that is not cured by the other party. As of December 31, 2005, we have paid
to PDL approximately $3.9 million under this agreement. If all milestones specified under the agreement
are achieved, we will be obligated to pay PDL an additional approximately $3.0 million. We are also
required to pay annual maintenance fees of $150,000 and royalties based on the sale of products we
develop under the license, although our obligation to pay the annual maintenance fee has been suspended
until the earlier of a specified milestone or December 31, 2006. In the event of a default by one party, the
agreement may be terminated, after an opportunity to cure, by the non-defaulting party upon prior written
notice.

Sloan-Kettering. We are party to a license agreement with Sloan-Kettering under which we obtained
the worldwide, exclusive rights to specified technology relating to ganglioside conjugate vaccines, including
GMK, and its use to treat or prevent cancer. In general, the Sloan-Kettering license agreement terminates
upon the later to occur of the expiration of the last to expire of the licensed patents or 15 years from the
date of the first commercial sale of a licensed product pursuant to the agreement, unless sooner
terminated. Patents that are presently issued expire in 2014; however, pending patent applications that we
have also licensed and patent term extensions may extend the license period, when and if the patent
applications are allowed and issued or patent term extensions are granted. In addition to the patents and
patent applications, we have also licensed from Sloan-Kettering the exclusive rights to use relevant
technical information and know-how. A number of Sloan-Kettering physician-scientists also serve as
consultants to Progenics.

Our license agreement requires us to achieve development milestones. The agreement states that we
are required to have filed for marketing approval of a drug by 2000 and to commence manufacturing and
distribution of a drug by 2002. We have not achieved these milestones due to delays that we believe could
not have been reasonably avoided. The agreement provides that Sloan-Kettering shall not unreasonably
withhold consent to a revision of the milestone dates under specified circumstances, and we believe that
the delays referred to above satisfy the criteria for a revision of the milestone dates. While we have had
discussions with Sloan-Kettering to obtain its consent to a revision of the milestone dates, Sloan-Kettering

13

has not consented to a revision as of this time. The agreement may be terminated, after an opportunity to
cure, by Sloan-Kettering for cause upon prior written notice.

As of December 31, 2005, we have paid to Sloan-Kettering $1.0 million under this agreement. In
addition, we are obligated to pay royalties based on the sales of products under the license. We have a
$200,000 minimum royalty payment obligation in any given calendar year, which is fully creditable against
currently earned royalties payable by us to Sloan-Kettering in such year based on sales of licensed
products. We have an oral understanding with Sloan-Kettering which suspends our obligation to make
minimum royalty payments until a time in the future to be agreed upon by the parties.

Columbia University. We are party to a license agreement with Columbia University under which we
obtained exclusive, worldwide rights to specified technology and materials relating to CD4. In general, the
license agreement terminates (unless sooner terminated) upon the expiration of the last to expire of the
licensed patents, which is presently 2021; however, patent applications that we have also licensed and
patent term extensions may extend the period of our license rights, when and if the patent applications are
allowed and issued or patent term extensions are granted.

Our license agreement requires us to achieve development milestones. Among others, the agreement

states that we are required to have filed for marketing approval of a drug by June 2001 and to be
manufacturing a drug for commercial distribution by June 2004. We have not achieved either of these
milestones due to delays that we believe could not have been reasonably avoided and are reasonably
beyond our control. The agreement provides that Columbia shall not unreasonably withhold consent to a
revision of the milestone dates under specified circumstances, and we believe that the delays referred to
above satisfy the criteria for a revision of the milestone dates. While we have had discussions with
Columbia to obtain its consent to a revision of the milestone dates, Columbia has not consented to a
revision as of this time. The agreement may be terminated, after an opportunity to cure, by Columbia for
cause upon prior written notice.

As of December 31, 2005, we have paid to Columbia $865,000 under this agreement. We are
obligated to pay Columbia a milestone fee of $225,000 and annual maintenance fees of $50,000, which
were accrued at December 31, 2005. In addition, we are required to pay royalties based on the sale of
products we develop under the license, if any.

Aquila Biopharmaceuticals. We have entered into a license and supply agreement with Aquila
Biopharmaceuticals, Inc., a wholly owned subsidiary of Antigenics Inc., pursuant to which Aquila agreed
to supply us with all of our requirements for the QS-21TM adjuvant used in GMK. QS-21 is the lead
compound in the Stimulon» family of adjuvants developed and owned by Aquila. In general, the license
agreement terminates upon the expiration of the last to expire of the licensed patents, unless sooner
terminated. In the U.S., the licensed patent will expire in 2008.

Our license agreement requires us to achieve development milestones. The agreement states that we
are required to have filed for marketing approval of a drug by 2001 and to commence the manufacture and
distribution of a drug by 2003. We have not achieved these milestones due to delays that we believe could
not have been reasonably avoided. The agreement provides that Aquila shall not unreasonably withhold
consent to a reasonable revision of the milestone dates under specified circumstances, and we believe that
the delays referred to above satisfy the criteria for a revision of the milestone dates. Aquila has not
consented to a revision of the milestone dates. In the event of a default by one party, the agreement may
be terminated, after an opportunity to cure, by the non-defaulting party upon prior written notice.

As of December 31, 2005, we have paid to Aquila $758,000 under this agreement. We have no future

cash payment obligations relating to milestones under the agreement, although we are required to pay
Aquila royalties on the sale of products, if any, we develop under the license.

PSMA LLC Licenses

Abgenix. In February 2001, PSMA LLC entered into a worldwide exclusive licensing agreement with

Abgenix to use Abgenix' XenoMouseTM technology for generating fully human antibodies to the joint

14

venture's PSMA antigen. In consideration for the license, PSMA LLC paid a nonrefundable, non-
creditable license fee and is obligated to pay additional payments upon the occurrence of defined
milestones associated with the development and commercialization program for products incorporating an
antibody generated utilizing the XenoMouse technology. As of December 31, 2005, PSMA LLC has paid
to Abgenix $850,000 under this agreement. If PSMA LLC achieves certain milestones specified under the
agreement, it will be obligated to pay Abgenix an additional approximately $6.2 million. Furthermore,
PSMA LLC is required to pay royalties based upon net sales of antibody products, if any. This agreement
may be terminated, after an opportunity to cure, by Abgenix for cause upon 30 days prior written notice.
PSMA LLC has the right to terminate this agreement upon 30 days prior written notice. If not terminated
early, this agreement continues until the later of the expiration of the XenoMouse technology patents that
may result from pending patent applications or seven years from the first commercial sale of the products.

AlphaVax Human Vaccines. In September 2001, PSMA LLC entered into a worldwide exclusive
license agreement with AlphaVax Human Vaccines to use the AlphaVax Replicon Vector system to create
a therapeutic prostate cancer vaccine incorporating PSMA LLC's proprietary PSMA antigen. In
consideration for the license, PSMA LLC paid a nonrefundable, noncreditable license fee and is obligated
to pay additional payments upon the occurrence of certain defined milestones associated with the
development and commercialization program for products incorporating AlphaVax' system. As of
December 31, 2005, PSMA LLC has paid to AlphaVax $942,000 under this agreement. If PSMA LLC
achieves certain milestones specified under the agreement, it will be obligated to pay AlphaVax an
additional approximately $5.3 million. Furthermore, PSMA LLC is required to pay annual maintenance
fees until the first commercial sale and royalties based upon net sales of any products developed using
AlphaVax' system. This agreement may be terminated, after an opportunity to cure, by AlphaVax under
specified circumstances that include PSMA LLC's failure to achieve milestones; however, the consent of
AlphaVax to revisions to the due dates for the milestones shall not be unreasonably withheld. PSMA LLC
has the right to terminate the agreement upon 30 days prior written notice. If not terminated early, this
agreement continues until the later of the expiration of the patents relating to AlphaVax' system or
seven years from the first commercial sale of the products developed using AlphaVax' system. The last of
the presently issued patents expires in 2015; however, patent applications filed in the U.S. and
internationally that we have also licensed and patent term extensions may extend the period of our license
rights, when and if such patent applications are allowed and issued or patent term extensions are granted.

Seattle Genetics. In June 2005, PSMA LLC entered into a collaboration agreement (the ""SGI
Agreement'') with Seattle Genetics, Inc. (""SGI''). Under the SGI Agreement, SGI provided an exclusive
worldwide license to its proprietary antibody-drug conjugate technology (the ""ADC Technology'') to
PSMA LLC. Under the license, PSMA LLC has the right to use the ADC Technology to link cell-killing
drugs to PSMA LLC's monoclonal antibodies that target prostate-specific membrane antigen. During the
initial research term of the SGI Agreement, SGI also is required to provide technical information to
PSMA LLC related to implementation of the licensed technology, which period may be extended for an
additional period upon payment of an additional fee. PSMA LLC may replace prostate-specific membrane
antigen with another antigen, subject to certain restrictions, upon payment of an antigen replacement fee.
The ADC Technology is based, in part, on technology licensed by SGI from third parties (the
""Licensors''). PSMA LLC is responsible for research, product development, manufacturing and
commercialization of all products under the SGI Agreement. PSMA LLC may sub-license the ADC
Technology to a third-party to manufacture the ADC's for both research and commercial use. PSMA
LLC made a $2.0 million technology access payment to SGI upon execution of the SGI Agreement and
will make additional maintenance payments during the term of the SGI Agreement. In addition, PSMA
LLC will make payments, aggregating $15.0 million, upon the achievement of certain defined milestones
and will pay royalties to SGI and its Licensors, as applicable, on a percentage of net sales, as defined. In
the event that SGI provides materials or services to PSMA LLC under the SGI Agreement, SGI will
receive supply and/or labor cost payments from PSMA LLC at agreed-upon rates. PSMA LLC's
monoclonal antibody project is currently in the pre-clinical phase of research and development. All costs
incurred by PSMA LLC under the SGI Agreement during the research and development phase of the
project will be expensed in the period incurred. The SGI Agreement terminates at the later of (a) the

15

tenth anniversary of the first commercial sale of each licensed product in each country or (b) the latest
date of expiration of patents underlying the licensed products. PSMA LLC may terminate the SGI
Agreement upon advance written notice to SGI. SGI may terminate the SGI Agreement if PSMA LLC
breaches an SGI in-license that is not cured within a specified time period after written notice. In
addition, either party may terminate the SGI Agreement upon breach by the other party that is not cured
within a specified time period after written notice or in the event of bankruptcy of the other party. The
ability of PSMA LLC to comply with the terms of the SGI Agreement will depend on agreement by the
Members regarding work plans and budgets of PSMA LLC in future years. As of December 31, 2005,
PSMA LLC has paid to SGI approximately $34,000 under this agreement for supply and labor cost
payments.

ADARC. We have a letter agreement with The Aaron Diamond AIDS Research Center pursuant to

which we have the exclusive right to pursue the commercial development, directly or with a partner, of
products related to HIV based on patents jointly owned by ADARC and us.

Rights and Obligations. We have the right generally to defend and enforce patents licensed by us,
either in the first instance or if the licensor chooses not to do so. We bear the cost of engaging in all of
these activities with respect to our license agreements with Sloan-Kettering for GMK, Columbia for our
HIV product candidates subject to the Columbia license and the University of Chicago for MNTX. Under
our Collaboration Agreement, Wyeth has the right, at its expense, to defend and enforce the MNTX
patents licensed to Wyeth by us. With most of our other license agreements, the licensor bears the cost of
engaging in all of these activities, although we may share in those costs under certain circumstances.
Historically, our costs of defending patent rights, both our own and those we license, have not been
material.

The licenses to which we are a party impose various milestone, commercialization, sublicensing,
royalty and other payment, insurance, indemnification and other obligations on us and are subject to
certain reservations of rights. Failure to comply with these requirements could result in the termination of
the applicable agreement, which would likely cause us to terminate the related development program and
cause a complete loss of our investment in that program.

Patents and Proprietary Technology

Our policy is to protect our proprietary technology, and we consider the protection of our rights to be

important to our business. In addition to seeking U.S. patent protection for many of our inventions, we
generally file patent applications in Canada, Japan, European countries that are party to the European
Patent Convention and additional foreign countries on a selective basis in order to protect the inventions
that we consider to be important to the development of our foreign business. Generally, patents issued in
the U.S. are effective for:

¬ the longer of 17 years from the date of issue or 20 years from the earliest asserted filing date of the

corresponding patent application, if the patent application was filed prior to June 8, 1995; and

¬ 20 years from the earliest asserted filing date of the corresponding patent application, if the

application was filed on or after June 8, 1995.

In addition, in certain instances, the patent term can be extended up to a maximum of five years to

recapture a portion of the term during which the FDA regulatory review was being conducted. The
duration of foreign patents varies in accordance with the provisions of applicable local law, although most
countries provide for patent terms of 20 years from the earliest asserted filing date and allow patent
extensions similar to those permitted in the U.S.

We also rely on trade secrets, proprietary know-how and continuing technological innovation to
develop and maintain a competitive position in our product areas. We generally require our employees,
consultants and corporate partners who have access to our proprietary information to sign confidentiality
agreements.

16

Currently our patent portfolio relating to our proprietary technologies in the symptom management
and supportive care, HIV and cancer areas is comprised, on a worldwide basis, of 136 patents that have
been issued and 183 pending patent applications, which we either own directly or of which we are the
exclusive licensee. Our issued patents expire on dates ranging from 2006 through 2022. In addition, PSMA
LLC owns directly or is the exclusive licensee of six patents that have been issued and 31 pending patent
applications. PSMA LLC's issued patents expire on dates ranging from 2014 to 2016. Patent term
extensions and pending patent applications may extend the period of patent protection afforded our
products in development.

We are aware of intellectual property rights held by third parties that relate to products or

technologies we are developing. For example, we are aware of other groups investigating methylnaltrexone
and other peripheral opioid antagonists, PSMA or related compounds and CCR5 monoclonal antibodies
and of patents held, and patent applications filed, by these groups in those areas. While the validity of
issued patents, patentability of pending patent applications and applicability of any of them to our
programs are uncertain, if asserted against us, any related patent rights could adversely affect our ability to
commercialize our products.

The research, development and commercialization of a biopharmaceutical often involve alternative
development and optimization routes, which are presented at various stages in the development process.
The preferred routes cannot be predicted at the outset of a research and development program because
they will depend upon subsequent discoveries and test results. There are numerous third-party patents in
our field, and it is possible that to pursue the preferred development route of one or more of our products
we will need to obtain a license to a patent, which would decrease the ultimate profitability of the
applicable product. If we cannot negotiate a license, we might have to pursue a less desirable development
route or terminate the program altogether.

Government Regulation

Progenics and our products are subject to comprehensive regulation by the Food and Drug

Administration in the U.S. and by comparable authorities in other countries. These national agencies and
other federal, state and local entities regulate, among other things, the preclinical and clinical testing,
safety, effectiveness, approval, manufacture, labeling, marketing, export, storage, recordkeeping, advertising
and promotion of our products. None of our product candidates has received marketing or other approval
from the FDA or any other similar regulatory authority.

FDA approval of our products, including a review of the manufacturing processes and facilities used

to produce such products, will be required before such products may be marketed in the U.S. The process
of obtaining approvals from the FDA can be costly, time consuming and subject to unanticipated delays.
We cannot assure you that approvals of our proposed products, processes, or facilities will be granted on a
timely basis, or at all. If we experience delays in obtaining, or do not obtain, approvals for our products,
commercialization of our products would be slowed or stopped. Moreover, even if we obtain regulatory
approval, the approval may include significant limitations on indicated uses for which the product could be
marketed or other significant marketing restrictions.

The process required by the FDA before our products may be approved for marketing in the

U.S. generally involves:

¬ preclinical laboratory and animal tests;

¬ submission to the FDA of an investigational new drug application, or IND, which must become

effective before clinical trials may begin;

¬ adequate and well-controlled human clinical trials to establish the safety and efficacy of the product

for its intended indication;

¬ submission to the FDA of a marketing application; and

17

FDA review of the marketing application in order to determine, among other things, whether the
product is safe and effective for its intended uses. Preclinical tests include laboratory evaluation of product
chemistry and animal studies to gain preliminary information about a product's pharmacology and
toxicology and to identify any safety problems that would preclude testing in humans. Products must
generally be manufactured according to current Good Manufacturing Practices, and preclinical safety tests
must be conducted by laboratories that comply with FDA regulations regarding good laboratory practices.
The results of the preclinical tests are submitted to the FDA as part of an IND (Investigational New
Drug) application. An IND is a submission which the sponsor of a clinical trial of an investigational new
drug must make to the FDA and which must become effective before clinical trials may commence. The
IND submission must include, among other things:

¬ a description of the sponsor's investigational plan;

¬ protocols for each planned study;

¬ chemistry, manufacturing, and control information;

¬ pharmacology and toxicology information; and

¬ a summary of previous human experience with the investigational drug.

Unless the FDA objects to, makes comments to or raises questions concerning an IND, the IND will
become effective 30 days following its receipt by the FDA, and initial clinical studies may begin, although
companies often obtain affirmative FDA approval before beginning such studies. We cannot assure you
that submission of an IND by us will result in FDA authorization to commence clinical trials.

A New Drug Application, or NDA, is an application to the FDA to market a new drug. The NDA

must contain, among other things, information on:

¬ chemistry, manufacturing, and controls;

¬ non-clinical pharmacology and toxicology;

¬ human pharmacokinetics and bioavailability; and

¬ clinical data.

The new drug may not be marketed in the U.S. until the FDA has approved the NDA.

A Biologic License Application, or BLA, is an application to the FDA to market a biological product.

The BLA must contain, among other things, data derived from nonclinical laboratory and clinical studies
which demonstrate that the product meets prescribed standards of safety, purity and potency, and a full
description of manufacturing methods. The biological product may not be marketed in the U.S. until a
biologic license is issued.

Clinical trials involve the administration of the investigational new drug to healthy volunteers or to
patients under the supervision of a qualified principal investigator. Clinical trials must be conducted in
accordance with the FDA's Good Clinical Practice requirements under protocols that detail, among other
things, the objectives of the study, the parameters to be used to monitor safety, and the effectiveness
criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further, each
clinical study must be conducted under the auspices of an Institutional Review Board. The Institutional
Review Board will consider, among other things, ethical factors, the safety of human subjects, the possible
liability of the institution and the informed consent disclosure which must be made to participants in the
clinical trial.

Clinical trials are typically conducted in three sequential phases, although the phases may overlap.
During phase 1, when the drug is initially administered to human subjects, the product is tested for safety,
dosage tolerance, absorption, metabolism, distribution and excretion. Phase 2 involves studies in a limited
patient population to:

¬ evaluate preliminarily the efficacy of the product for specific, targeted indications;

18

¬ determine dosage tolerance and optimal dosage; and

¬ identify possible adverse effects and safety risks.

When a new product is found to have an effect and to have an acceptable safety profile in phase 2
evaluation, phase 3 trials are undertaken in order to further evaluate clinical efficacy and to further test for
safety within an expanded patient population. The FDA may suspend clinical trials at any point in this
process if it concludes that clinical subjects are being exposed to an unacceptable health risk.

The results of the preclinical studies and clinical studies, the chemistry and manufacturing data, and

the proposed labeling, among other things, are submitted to the FDA in the form of an NDA or BLA,
approval of which must be obtained prior to commencement of commercial sales. The FDA may refuse to
accept the application for filing if certain administrative and content criteria are not satisfied, and even
after accepting the application for review, the FDA may require additional testing or information before
approval of the application. Our analysis of the results of our clinical studies is subject to review and
interpretation by the FDA, which may differ from our analysis. We cannot assure you that our data or our
interpretation of data will be accepted by the FDA. In any event, the FDA must deny an NDA or BLA if
applicable regulatory requirements are not ultimately satisfied. In addition, we may encounter delays or
rejections based upon changes in applicable law or FDA policy during the period of product development
and FDA regulatory review. Moreover, if regulatory approval of a product is granted, such approval may
be made subject to various conditions, including post-marketing testing and surveillance to monitor the
safety of the product, or may entail limitations on the indicated uses for which it may be marketed.
Finally, product approvals may be withdrawn if compliance with regulatory standards is not maintained or
if problems occur following initial marketing.

Both before and after approval is obtained, a product, its manufacturer, and the sponsor of the

marketing application for the product are subject to comprehensive regulatory oversight. Violations of
regulatory requirements at any stage, including the preclinical and clinical testing process, the approval
process, or thereafter, may result in various adverse consequences, including FDA delay in approving or
refusal to approve a product, withdrawal of an approved product from the market or the imposition of
criminal penalties against the manufacturer or sponsor. In addition, later discovery of previously unknown
problems may result in restrictions on such product, manufacturer, or sponsor, including withdrawal of the
product from the market. Also, new government requirements may be established that could delay or
prevent regulatory approval of our products under development.

Whether or not FDA approval has been obtained, approval of a pharmaceutical product by
comparable government regulatory authorities in foreign countries must be obtained prior to marketing
such product in such countries. The approval procedure varies from country to country, and the time
required may be longer or shorter than that required for FDA approval. Although there are some
procedures for unified filing for certain European countries, in general, each country has its own
procedures and requirements. We do not currently have any facilities or personnel outside of the U.S.

In addition to regulations enforced by the FDA, we are also subject to regulation under the
Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control
Act, the Resource Conservation and Recovery Act and various other present and potential future federal,
state or local regulations. Our research and development involves the controlled use of hazardous
materials, chemicals, viruses and various radioactive compounds. Although we believe that our safety
procedures for storing, handling, using and disposing of such materials comply with the standards
prescribed by applicable regulations, we cannot completely eliminate the risk of accidental contaminations
or injury from these materials. In the event of such an accident, we could be held liable for any legal and
regulatory violations as well as damages that result. Any such liability could have a material adverse effect
on Progenics.

Manufacturing

We currently rely on single-source third party manufacturers for the supply of both bulk and finished
form MNTX. We believe that our existing arrangements with such single-source third party manufacturers

19

are reliable and adequate for the balance of our clinical trial and initial commercial supply requirements.
We will transfer to Wyeth, at a mutually agreeable time, any existing supply agreements with third parties
for MNTX.

In March 2005, we entered into an agreement with Mallinckrodt Inc. for the supply of the bulk form

of MNTX. The contract provides for Mallinckrodt to supply product based on a rolling forecast to be
provided by us to Mallinckrodt with respect to our anticipated needs and for the purchase by us of product
on specified pricing terms. Under this agreement, we are obligated to purchase a portion of our
requirements for bulk form MNTX from Mallinckrodt, although we have no set minimum purchase
obligation. Product supplied to us by Mallinckrodt is required to satisfy technical specifications agreed to
by us. The contract term extends to January 1, 2008 and renews automatically thereafter for successive
one-year terms unless either party provides prior notice to the other. Prior to its expiration, the contract
may be terminated by either party upon a material breach by the other party or upon the occurrence of
specified bankruptcy or insolvency events.

We currently manufacture PRO 140, GMK and protein vaccines in our biologics pilot production
facilities in Tarrytown, New York. We currently have one 150 liter bioreactor in operation and are in the
process of installing a second 150 liter bioreactor to increase our manufacturing capacity in support of our
clinical programs. We have also acquired a 1,000 liter bioreactor, and we are considering the appropriate
time and manner for installing and deploying this additional resource. We believe that our existing
production facilities will be sufficient to meet our initial needs for clinical trials for these product
candidates. However, these facilities may be insufficient for all of our late-stage clinical trials for these
product candidates and would be insufficient for commercial-scale requirements. We may be required to
further expand our manufacturing staff and facilities, obtain new facilities or contract with third parties or
corporate collaborators to assist with production.

In order to establish a full-scale commercial manufacturing facility for any of our product candidates,
we would need to spend substantial additional funds, hire and train significant numbers of employees and
comply with the extensive FDA regulations applicable to such a facility.

Sales and Marketing

We plan to market products for which we obtain regulatory approval through co-marketing, co-
promotion, licensing and distribution arrangements with third-party collaborators. We may also consider
contracting with a third-party professional pharmaceutical detailing and sales organization to perform the
marketing function for our products. Under the terms of our Collaboration Agreement with Wyeth, Wyeth
granted us an option (the ""Co-Promotion Option'') to enter into a Co-Promotion Agreement to co-
promote any of the MNTX products developed under the Collaboration Agreement, subject to certain
conditions. The extent of our co-promotion activities and the fee that we will be paid by Wyeth for these
activities, will be established when we exercise our option. Wyeth will record all sales of products
worldwide (including those sold by us, if any, under a Co-Promotion Agreement). In addition, Cytogen
has certain marketing rights with respect to the PSMA product candidates.

Competition

Competition in the biopharmaceutical industry is intense and characterized by ongoing research and

development and technological change. We face competition from many companies and major universities
and research institutions in the U.S. and abroad. We will face competition from companies marketing
existing products or developing new products for diseases targeted by our technologies. Many of our
competitors have substantially greater resources, experience in conducting preclinical studies and clinical
trials and obtaining regulatory approvals for their products, operating experience, research and development
and marketing capabilities and production capabilities than we do. Our products under development may
not compete successfully with existing products or products under development by other companies,
universities and other institutions. Our competitors may succeed in obtaining FDA marketing approval for
products more rapidly than we do. Drug manufacturers that are first in the market with a therapeutic for a
specific indication generally obtain and maintain a significant competitive advantage over later entrants.

20

Accordingly, we believe that the speed with which we develop products, complete the clinical trials and
approval processes and ultimately supply commercial quantities of the products to the market will be an
important competitive factor.

With respect to MNTX, there are currently no FDA approved products for reversing the debilitating

side effects of opioid pain therapy or for the treatment of post-operative bowel dysfunction. We are,
however, aware of a product candidate that targets these therapeutic indications. This product, EnteregTM
(alvimopan), is under development by Adolor Corporation, in collaboration with an affiliate of
GlaxoSmithKline plc. Entereg is in advanced clinical development and Adolor has received an approvable
letter from the U.S. Food and Drug Administration for Entereg regarding the treatment of post-operative
ileus. We believe, however, that Entereg's effects are limited to the lumen of the gastrointestinal tract,
whereas MNTX is available systemically outside of the central nervous system. Additionally, it has been
reported that a European specialty pharmaceutical company is in early clinical development of an oral
formulation of methylnaltrexone for use in opioid-induced constipation.

With respect to our products for the treatment of HIV infection, three classes of products made by
our competitors have been approved for marketing by the FDA for the treatment of HIV infection and
AIDS: reverse transcriptase inhibitors, protease inhibitors and entry inhibitors. These drugs have shown
efficacy in reducing the concentration of HIV in the blood and prolonging asymptomatic periods in HIV-
positive individuals, especially when administered in combination. We are aware of several competitors that
are developing alternative treatments for HIV infection, including small molecules and monoclonal
antibodies, some of which are directed against CCR5.

With respect to GMK, the FDA and certain other regulatory authorities have approved high-dose
alpha-interferon for marketing as a treatment for patients with high-risk melanoma. High-dose alpha-
interferon has demonstrated efficacy for this indication.

With respect to the immunotherapeutic products based on PSMA that we have been developing
through PSMA LLC , there are traditional forms of treatment for prostate cancer such as radiation and
surgery. However, if the disease spreads, these forms of treatment can be ineffective. We are aware of
several competitors who are developing alternative treatments for prostate cancer, including in vivo and ex
vivo immunotherapies, some of which are directed against PSMA.

A significant amount of research in the biopharmaceutical field is also being carried out at academic

and government institutions. An element of our research and development strategy is to in-license
technology and product candidates from academic and government institutions. These institutions are
becoming increasingly sensitive to the commercial value of their findings and are becoming more
aggressive in pursuing patent protection and negotiating licensing arrangements to collect royalties for use
of technology that they have developed. These institutions may also market competitive commercial
products on their own or in collaboration with competitors and will compete with us in recruiting highly
qualified scientific personnel. Any resulting increase in the cost or decrease in the availability of
technology or product candidates from these institutions may adversely affect our business strategy.

Competition with respect to our technologies and product candidates is and will be based, among

other things, on:

¬ efficacy and safety of our products;

¬ timing and scope of regulatory approval;

¬ product reliability and availability;

¬ sales, marketing and manufacturing capabilities;

¬ capabilities of our collaborators;

¬ reimbursement coverage from insurance companies and others;

¬ degree of clinical benefits of our product candidates relative to their costs;

21

¬ method of administering a product;

¬ price; and

¬ patent protection.

Our competitive position will also depend upon our ability to attract and retain qualified personnel, to

obtain patent protection or otherwise develop proprietary products or processes, and to secure sufficient
capital resources for the typically substantial period between technological conception and commercial
sales. Competitive disadvantages in any of these factors could materially harm our business and financial
condition.

Product Liability

The testing, manufacturing and marketing of our products involves an inherent risk of product liability
attributable to unwanted and potentially serious health effects. To the extent we elect to test, manufacture
or market products independently, we will bear the risk of product liability directly. We have obtained
product liability insurance coverage in the amount of $5.0 million per occurrence, subject to a deductible
and a $5.0 million aggregate limitation. In addition, where the local statutory requirements exceed the
limits of our existing insurance or local policies of insurance are required, we maintain additional clinical
trial liability insurance to meet these requirements. This insurance is subject to deductibles and coverage
limitations. We may not be able to continue to maintain insurance at a reasonable cost, or in adequate
amounts.

Human Resources

At December 31, 2005, we had 149 full-time employees, 24 of whom, including Dr. Maddon, hold
Ph.D. degrees and four of whom, including Dr. Maddon, hold M.D. degrees. At such date, 124 employees
were engaged in research and development, medical and regulatory affairs and manufacturing activities and
25 were engaged in finance, legal, administration and business development. We consider our relations
with our employees to be good. None of our employees is covered by a collective bargaining agreement.

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Item 1A. RISK FACTORS

Our business and operations entail a variety of serious risks and uncertainties, including those

described below.

Our product development programs are inherently risky.

We are subject to the risks of failure inherent in the development of product candidates based on new

technologies. Our MNTX product candidate, which is designed to reverse certain side effects induced by
opioids and to treat post-operative bowel dysfunction and is being developed through a collaboration with
Wyeth, is based on a novel method of action that has not yet been proven to be safe or effective. No drug
with MNTX's method of action has ever received marketing approval. Additionally, some of our HIV
product candidates are designed to be effective by blocking viral entry, and our GMK product candidate is
designed to be a therapeutic cancer vaccine. To our knowledge, no drug designed to treat HIV infection by
blocking viral entry (with one exception) and no cancer therapeutic vaccine has been approved for
marketing in the U.S. Our other research and development programs, and those conducted through PSMA
LLC, involve similarly novel approaches to human therapeutics. Consequently, there is little precedent for
the successful commercialization of products based on our technologies. There are a number of
technological challenges that we must overcome to complete most of our development efforts. We may not
be able to develop successfully any of our products.

We have granted to Wyeth the exclusive rights to develop and commercialize MNTX, our lead product
candidate, and our resulting dependence on Wyeth exposes us to significant risks.

In December 2005, we entered into a license and co-development agreement with Wyeth. Under this
agreement, we granted to Wyeth the exclusive worldwide right to develop and commercialize MNTX, our
lead product candidate. As a result, we are dependent on Wyeth to perform and fund development,
including clinical testing, to make certain regulatory filings and to manufacture and market products
containing MNTX. Our collaboration with Wyeth may not be scientifically, clinically or commercially
successful.

Any revenues from the sale of MNTX, if approved for sale by the FDA, will depend almost entirely

on the efforts of Wyeth. Wyeth has significant discretion in determining the efforts and resources it applies
to sales of the MNTX products and may not be effective in marketing such products. In addition, Wyeth
is a large, diversified pharmaceutical company with global operations and its own corporate objectives,
which may not be consistent with our best interests. For example, Wyeth may change its strategic focus or
pursue alternative technologies in a manner that results in reduced revenues to us. In addition, we will
receive milestone and contingent payments from Wyeth only if MNTX achieves specified clinical,
regulatory and commercialization milestones, and we will receive royalty payments from Wyeth only if
MNTX receives regulatory approval and is commercialized by Wyeth. Many of these milestone events will
depend on the efforts of Wyeth. We may not receive any milestone, contingent or royalty payments from
Wyeth.

The Collaboration Agreement extends, unless terminated earlier, on a country-by-country and

product-by-product basis, until the last to expire royalty period, as defined, for any product. Progenics may
terminate the Collaboration Agreement at any time upon 90 days of written notice to Wyeth (30 days in
the case of breach of a payment obligation) upon material breach that is not cured. Wyeth may, with or
without cause, following the second anniversary of the first commercial sale, as defined, of the first
commercial product in the U.S., terminate the Collaboration Agreement by providing Progenics with at
least 360 days prior written notice of such termination. Wyeth may also terminate the agreement (i) upon
30 days written notice following one or more serious safety or efficacy issues that arise, as defined, and
(ii) at any time, upon 90 days written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license we granted to Wyeth will depend
on the party that initiates the termination and the reason for the termination.

23

If our relationship with Wyeth were to terminate, we would have to either enter into a license and co-

development agreement with another party or develop and commercialize MNTX ourselves. We may not
be able to enter into such an agreement with another suitable company on acceptable terms or at all. To
develop and commercialize MNTX on our own, we would have to develop a sales and marketing
organization and a distribution infrastructure, neither of which we currently have. Developing these
resources would be an expensive and lengthy process and would have a material adverse effect on our
revenues and profitability.

Moreover, a termination of our relationship with Wyeth could seriously compromise the development

program for MNTX. For example, we could experience significant delays in the development of MNTX
and would have to assume full funding and other responsibility for further development and eventual
commercialization.

Any of these outcomes would result in delays in our ability to distribute MNTX and would increase

our expenses, which would have a material adverse effect on our business, results of operations and
financial condition.

Our collaboration with Wyeth is multi-faceted and involves a complex sharing of control over
decisions, responsibilities, costs and benefits. There are numerous potential sources of disagreement
between us and Wyeth, including with respect to product development, marketing strategies,
manufacturing and supply issues and rights relating to intellectual property. Wyeth has significantly greater
financial and managerial resources than we do, which it could draw upon in the event of a dispute. A
disagreement between Wyeth and us could lead to lengthy and expensive litigation or other dispute
resolution proceedings as well as to extensive financial and operational consequences to us, and have a
material adverse effect on our business, results of operations and financial condition.

If testing does not yield successful results, our products will not be approved.

We will need to obtain regulatory approval before we can market our product candidates. To obtain

marketing approval from regulatory authorities, we or our collaborators must demonstrate a product's
safety and efficacy through extensive preclinical and clinical testing. Numerous adverse events may arise
during, or as a result of, the testing process, including the following:

¬ the results of preclinical studies may be inconclusive, or they may not be indicative of results that

will be obtained in human clinical trials;

¬ potential products may not have the desired efficacy or may have undesirable side effects or other

characteristics that preclude marketing approval or limit their commercial use if approved;

¬ after reviewing test results, we or our collaborators may abandon projects, which we previously

believed to be promising; and

¬ we, our collaborators or regulators may suspend or terminate clinical trials if we or they believe that

the participating subjects or patients are being exposed to unacceptable health risks.

Clinical testing is very expensive and can take many years. Results attained in early human clinical

trials may not be indicative of results that are obtained in later clinical trials. In addition, many of our
products, such as PRO 140 and the PSMA product candidates, are at an early stage of development. The
successful commercialization of early stage products will require significant further research, development,
testing, approvals by regulators and additional investment. Our products in the research or preclinical
development stage may not yield results that would permit or justify clinical testing. Our failure to
adequately demonstrate the safety and efficacy of a product under development would delay or prevent
marketing approval of the product, which could adversely affect our operating results and credibility.

A setback in our clinical development programs could adversely affect us.

We have successfully completed two pivotal phase 3 clinical trials of subcutaneous MNTX for the
treatment of opioid-induced constipation in patients with advanced medical illness. We are now working

24

with our collaborator Wyeth to submit a New Drug Application to the U.S. Food and Drug
Administration to market subcutaneous MNTX. We also have successfully completed a phase 2 clinical
trial of intravenous MNTX in patients at risk for post-operative bowel dysfunction. Based on our end of
phase 2 meeting with the FDA, we are planning a phase 3 clinical program for treatment of post-operative
bowel dysfunction. We had completed phase 1 clinical trials of oral MNTX in healthy volunteers prior to
our Collaboration Agreement with Wyeth. Wyeth is responsible for the worldwide development of oral
MNTX and will conduct additional clinical trials of oral MNTX in chronic pain patients who experience
opioid-induced constipation.

If the results of any of these ongoing trials are not satisfactory, or if we encounter problems enrolling
patients, or if clinical trial supply issues or other difficulties arise, our entire MNTX development program
could be adversely affected, resulting in delays in commencing or completing clinical trials or in making
our regulatory filing for marketing approval. The need to conduct additional clinical trials or significant
revisions to our clinical development plan would lead to delays in filing for the regulatory approvals
necessary to market MNTX. If the clinical trials indicate a serious problem with the safety or efficacy of
an MNTX product, then Wyeth has the right under our license and co-development agreement to
terminate the agreement or to stop the development or commercialization of the affected products. Since
MNTX is our most clinically advanced product, any setback of these types would have a material adverse
effect on our stock price and business.

We also have two ongoing pivotal phase 3 clinical trials for GMK. In May 2000, our collaborating

research cooperative group in one of these trials, ECOG, recommended to clinical investigators
participating in the trial that they discontinue administering GMK, and as a result that trial did not
complete patient dosing as contemplated by the initial trial protocol. A second pivotal phase 3 trial for
GMK was initiated in May 2001 and full enrollment of 1,314 patients has been completed. We expect to
assess the recurrence of cancer and overall survival of the study patients over the next several years. If the
results of either of the GMK trials are not satisfactory, we may need to conduct additional clinical trials or
abandon our GMK program.

We have announced positive phase 1 clinical findings related to PRO 140, and we have initiated an

additional phase 1b clinical trial. If the results of our phase 1b study with PRO 140 or the preclinical and
clinical studies involving the PSMA vaccine and antibody candidates are not satisfactory, we would need
to reconfigure our clinical trial programs to conduct additional trials or abandon the program involved.

We have a history of operating losses, and we may never be profitable.

We have incurred substantial losses since our inception. As of December 31, 2005, we had an
accumulated deficit of $188.7 million. We have derived no significant revenues from product sales or
royalties. We do not expect to achieve significant product sales or royalty revenue for a number of years, if
ever, other than potential revenues from MNTX. We expect to incur additional operating losses in the
future, which could increase significantly as we expand our clinical trial programs and other product
development efforts.

Our ability to achieve and sustain profitability is dependent in part on obtaining regulatory approval to

market our products and then commercializing, either alone or with others, our products. We may not be
able to develop and commercialize products. Moreover, our operations may not be profitable even if any of
our products under development are commercialized.

We are likely to need additional financing, but our access to capital funding is uncertain.

As of December 31, 2005, we had cash, cash equivalents and marketable securities, including non-
current portion, totaling $173.1 million. In December 2005, we received a $60 million upfront payment
from Wyeth in connection with the signing of the license and co-development agreement relating to
MNTX. During the year ended December 31, 2005, we had a net loss of $69.4 million and cash provided
by operating activities was $11.1 million during the year ended December 31, 2005.

25

Under our agreement with Wyeth, Wyeth is responsible for all future development and

commercialization costs relating to MNTX starting January 1, 2006. As a result, we expect that our
spending on MNTX in 2006 and beyond will drop significantly from the amounts expended in 2005.

With regard to our other product candidates, however, we expect that we will continue to incur
significant expenditures for their development and we do not have committed external sources of funding
for most of these projects. These expenditures will be funded from our cash on hand, or we may seek
additional external funding for these expenditures, most likely through collaborative agreements, or other
license or sale transactions, with one or more pharmaceutical companies, through the issuance and sale of
securities or through additional government grants or contracts. We cannot predict with any certainty when
we will need additional funds or how much we will need or if additional funds will be available to us. Our
need for future funding will depend on numerous factors, many of which are outside our control.

Our access to capital funding is uncertain. We may not be able to obtain additional funding on
acceptable terms, or at all. Our inability to raise additional capital on terms reasonably acceptable to us
would seriously jeopardize the future success of our business.

If we raise funds by issuing and selling securities, it may be on terms that are not favorable to our
existing stockholders. If we raise additional funds by selling equity securities, our current stockholders will
be diluted, and new investors could have rights superior to our existing stockholders. If we raise funds by
selling debt securities, we could be subject to restrictive covenants and significant repayment obligations.

Our clinical trials could take longer than we expect.

Although for planning purposes we forecast the commencement and completion of clinical trials, and
have included many of those forecasts in reports filed with the Securities and Exchange Commission and
in other public disclosures, the actual timing of these events can vary dramatically. For example, we have
experienced delays in our MNTX clinical development program in the past as a result of slower than
anticipated patient enrollment. These delays may recur. Delays can be caused by, among other things:

¬ deaths or other adverse medical events involving patients or subjects in our clinical trials;

¬ regulatory or patent issues;

¬ interim or final results of ongoing clinical trials;

¬ failure to enroll clinical sites as expected;

¬ competition for enrollment from clinical trials conducted by others in similar indications;

¬ scheduling conflicts with participating clinicians and clinical institutions; and

¬ manufacturing problems.

In addition, we may need to delay or suspend our clinical trials if we are unable to obtain additional

funding when needed. Clinical trials involving our product candidates may not commence or be completed
as forecasted. Although work on the PSMA projects continues, our clinical programs involving
PSMA LLC could also be delayed by disagreements between Cytogen and us concerning funding
development programs or other matters. PSMA LLC currently has no approved 2006 budget or work plan
because we and Cytogen have not yet reached agreement with respect to a number of matters relating to
PSMA LLC.

Moreover, we have limited experience in conducting clinical trials, and we rely on others to conduct,

supervise or monitor some or all aspects of some of our clinical trials. In addition, certain clinical trials for
our products may be conducted by government-sponsored agencies, and consequently will be dependent on
governmental participation and funding. Under our agreement with Wyeth relating to MNTX, Wyeth has
the responsibility to conduct some of the clinical trials for that product candidate, including all trials
outside of the United States. We will have less control over the timing and other aspects of these clinical
trials than if we conducted them entirely on our own.

26

As a result of these and other factors, our clinical trials may not commence or be completed as we
expect or may not be conducted successfully, in which event investors' confidence in our ability to develop
products may be impaired and our stock price may decline.

We are subject to extensive regulation, which can be costly and time consuming and can subject us to
unanticipated fines and delays.

We and our products are subject to comprehensive regulation by the FDA in the U.S. and by
comparable authorities in other countries. These national agencies and other federal, state and local
entities regulate, among other things, the preclinical and clinical testing, safety, approval, manufacture,
labeling, marketing, export, storage, record keeping, advertising and promotion of pharmaceutical products.
If we violate regulatory requirements at any stage, whether before or after marketing approval is obtained,
we may be subject to forced removal of a product from the market, product seizure, civil and criminal
penalties and other adverse consequences.

Our products do not yet have, and may never obtain, the regulatory approvals needed for marketing.

None of our products has been approved by applicable regulatory authorities for marketing. The

process of obtaining FDA and foreign regulatory approvals often takes many years and can vary
substantially based upon the type, complexity and novelty of the products involved. We have had only
limited experience in filing and pursuing applications and other submissions necessary to gain marketing
approvals. Our products under development may never obtain the marketing approval from the FDA or
any other regulatory authority necessary for commercialization.

Even if our products receive regulatory approval:

¬ they might not obtain labeling claims necessary to make the product commercially viable (in

general, labeling claims define the medical conditions for which a drug product may be marketed,
and are therefore very important to the commercial success of a product);

¬ we or our collaborators might be required to undertake post-marketing trials to verify the product's

efficacy or safety;

¬ we, our collaborators or others might identify side effects after the product is on the market, or we

or our collaborators might experience manufacturing problems, either of which could result in
subsequent withdrawal of marketing approval, reformulation of the product, additional preclinical
testing or clinical trials, changes in labeling of the product or the need for additional marketing
applications; and

¬ we and our collaborators will be subject to ongoing FDA obligations and continuous regulatory

review.

If our products fail to receive marketing approval or lose previously received approvals, our financial

results would be adversely affected.

Even if our products obtain marketing approval, they might not be accepted in the marketplace.

The commercial success of our products will depend upon their acceptance by the medical community

and third party payors as clinically useful, cost effective and safe. If health care providers believe that
patients can be managed adequately with alternative, currently available therapies, they may not prescribe
our products, especially if the alternative therapies are viewed as more effective, as having a better safety
or tolerability profile, as being more convenient to the patient or health care providers or as being less
expensive. For pharmaceuticals administered in an institutional setting, the ability of the institution to be
adequately reimbursed could also play a significant role in demand for our products. Even if our products
obtain marketing approval, they may not achieve market acceptance. If any of our products do not achieve
market acceptance, we will likely lose our entire investment in that product.

27

Marketplace acceptance will depend in part on competition in our industry, which is intense.

The extent to which any of our products achieves market acceptance will depend on competitive

factors. Competition in our industry is intense, and it is accentuated by the rapid pace of technological
development. There are products currently in the market that will compete with the products that we are
developing, including AIDS drugs and chemotherapy drugs for treating cancer. As described below, Adolor
Corporation is developing a drug that would compete with MNTX. Many of our competitors have
substantially greater research and development capabilities and experience and greater manufacturing,
marketing, financial and managerial resources than we do. These competitors may develop products that
are superior to those we are developing and render our products or technologies non-competitive or
obsolete. If our product candidates receive marketing approval but cannot compete effectively in the
marketplace, our operating results and financial position would suffer.

One or more competitors developing an opioid antagonist may reach the market ahead of us and
adversely affect the market potential for MNTX.

We are aware that Adolor Corporation, in collaboration with Glaxo Group Limited, or Glaxo, a
subsidiary of GlaxoSmithKline plc, is developing an opioid antagonist, EnteregTM (alvimopan), for post-
operative ileus, which has completed phase 3 clinical trials, and for opioid-induced bowel dysfunction,
which is in phase 3 clinical trials. Post-operative ileus is a condition similar to post-operative bowel
dysfunction, a condition for which we are developing MNTX. Entereg is further along in the clinical
development process than MNTX, and Adolor Corporation has received an approvable letter from the
U.S. Food and Drug Administration for Entereg regarding the treatment of post-operative ileus.
Additionally, it has been reported that a European specialty pharmaceutical company is in clinical
development of an oral formulation of methylnaltrexone for use in opioid-induced constipation. If either of
these products reaches the market before MNTX, it could achieve a significant competitive advantage
relative to our product. In any event, the considerable marketing and sales capabilities of Glaxo may
impair our ability to penetrate the market.

Under the terms of our collaboration with Wyeth with respect to MNTX, Wyeth will develop the oral
form of MNTX worldwide. We will lead the U.S. development of the subcutaneous and intravenous forms
of MNTX, while Wyeth will lead development of these parenteral products outside the U.S. Wyeth and
we will pursue an integrated strategy to optimize worldwide development, regulatory approval, and
commercial launch of the three MNTX products, which may impact timelines for the development of
MNTX previously disclosed by us. Decisions regarding the timelines for development of the three MNTX
products will be made by a Joint Development Committee formed under the terms of the license and co-
development agreement, consisting of members from both Wyeth and Progenics.

Disputes with Cytogen could delay or halt our PSMA programs.

Our research and development programs relating to vaccine and antibody immunotherapeutics based
on PSMA are conducted through PSMA LLC, a joint venture between Cytogen Corporation and us. This
is a 50/50 joint venture, meaning that our ownership rights in the programs, funding obligations and
governance rights are equal. As a result, for PSMA LLC to operate efficiently, and for the research and
development programs to be adequately funded and staffed and productive, we and Cytogen must be in
agreement on strategic and operational matters. There is a significant risk that, as a result of differing
views and priorities, there will be occasions when we do not agree on various matters, as is the case
currently.

Our level of commitment to fund PSMA LLC and that of our joint venture partner, Cytogen, is
based upon a budget and work plan that are developed and approved annually by the parties. We have in
the past experienced delays in reaching agreement with Cytogen regarding annual budget issues and
strategic and operational matters relating to PSMA LLC. PSMA LLC currently has no approved 2006
budget or work plan because we and Cytogen have not yet reached agreement with respect to a number of
matters relating to PSMA LLC. If we do not reach an agreement regarding the 2006 budget and work
plan, we would likely experience delays in advancing the PSMA programs and may need to dissolve

28

PSMA LLC and abandon the PSMA programs being conducted by PSMA LLC. We may not reach an
agreement with Cytogen on these matters.

If we are unable to negotiate collaborative agreements, our cash burn rate could increase and our rate of
product development could decrease.

Our business strategy includes as an element entering into collaborations with pharmaceutical and

biotechnology companies to develop and commercialize our products and technologies. We recently
entered into such a collaboration with Wyeth. However, we may not be successful in negotiating additional
collaborative arrangements. If we do not enter into new collaborative arrangements, we would have to
devote more of our resources to clinical product development and product-launch activities, and our cash
burn rate would increase or we would need to take steps to reduce our rate of product development.

If we do not remedy our failure to achieve milestones or satisfy conditions regarding some of our product
candidates, we may not maintain our rights under our licenses relating to these product candidates.

We are required to make substantial cash payments, achieve specified milestones and satisfy other
conditions, including filing for and obtaining marketing approvals and introducing products, to maintain
rights under our intellectual property licenses. We may not be able to maintain our rights under these
licenses.

Under our license agreements with Sloan-Kettering Institute for Cancer Research relating to GMK,
we are required, among other things, to have filed for marketing approval for a drug by 2000 and to have
commenced commercialization of the drug by 2002. We have not achieved these and other milestones and
are unlikely to achieve them soon. We are in a similar position with respect to our license agreement with
Antigenics Inc. concerning QS-21TM, a component of GMK. If we can establish that our failure to
achieve these milestones resulted from technical issues beyond our control or delays in clinical studies that
could not have been reasonably avoided, we may be entitled to a revision of these milestone dates.
Although we believe that we satisfy one or more of these conditions, we may become involved in disputes
with our licensors as to our continued right to a license. In addition, at September 1, 2004 we became
obligated under our license agreement with Columbia to pay Columbia $225,000. We have accrued this
amount but, pending the outcome of discussions with Columbia regarding this payment and other matters
relating to the license, we have not yet paid it.

If we do not comply with our obligations under our license agreements, the licensors may terminate

them. Termination of any of our licenses could result in our losing our rights to, and therefore being
unable to commercialize, any related product. We have had discussions with Sloan-Kettering and
Columbia to reach agreement on the revision of applicable milestone dates. We may not, however, reach
agreement with these licensors in a manner favorable to us.

We have limited manufacturing capabilities, which could adversely impact our ability to commercialize
products.

We have limited manufacturing capabilities, which may result in increased costs of production or

delay product development or commercialization. In order to commercialize our product candidates
successfully, we or our collaborators must be able to manufacture products in commercial quantities, in
compliance with regulatory requirements, at acceptable costs and in a timely manner. The manufacture of
our product candidates can be complex, difficult to accomplish even in small quantities, difficult to
scale-up for large-scale production and subject to delays, inefficiencies and low yields of quality products.
The cost of manufacturing some of our products may make them prohibitively expensive. If adequate
supplies of any of our product candidates or related materials are not available to us on a timely basis or at
all, our clinical trials could be seriously delayed, since these materials are time-consuming to manufacture
and cannot be readily obtained from third-party sources.

We operate pilot-scale manufacturing facilities for the production of vaccines and recombinant
proteins. We believe that, for these types of product candidates, these facilities will be sufficient to meet

29

our initial needs for clinical trials. However, these facilities may be insufficient for late-stage clinical trials
for these types of product candidates, and would be insufficient for commercial-scale manufacturing
requirements. We may be required to expand further our manufacturing staff and facilities, obtain new
facilities or contract with corporate collaborators or other third parties to assist with production.

In the event that we decide to establish a commercial-scale manufacturing facility, we will require
substantial additional funds and will be required to hire and train significant numbers of employees and
comply with applicable regulations, which are extensive. We may not be able to build a manufacturing
facility that both meets regulatory requirements and is sufficient for our clinical trials or commercial-scale
manufacturing.

We have entered into arrangements with third parties for the manufacture of some of our products.
Our third-party sourcing strategy may not result in a cost-effective means for manufacturing products. In
employing third-party manufacturers, we will not control many aspects of the manufacturing process,
including compliance by these third parties with the FDA's current Good Manufacturing Practices and
other regulatory requirements. We may not be able to obtain adequate supplies from third-party
manufacturers in a timely fashion for development or commercialization purposes, and commercial
quantities of products may not be available from contract manufacturers at acceptable costs.

We are dependent on our patents and other intellectual property rights. The validity, enforceability and
commercial value of these rights are highly uncertain.

Our success is dependent in part on obtaining, maintaining and enforcing patent and other intellectual

property rights. The patent position of biotechnology and pharmaceutical firms is highly uncertain and
involves many complex legal and technical issues. There is no clear policy involving the breadth of claims
allowed, or the degree of protection afforded, under patents in this area. Accordingly, the patent
applications owned by or licensed to us may not result in patents being issued. We are aware of other
groups that have patent applications or patents containing claims similar to or overlapping those in our
patents and patent applications. We do not expect to know for several years the relative strength or scope
of our patent position as compared to these other groups. Furthermore, patents that we own or license may
not enable us to preclude competitors from commercializing drugs, and consequently may not provide us
with any meaningful competitive advantage.

We own or have licenses to several issued patents. However, the issuance of a patent is not conclusive
as to its validity or enforceability. The validity or enforceability of a patent after its issuance by the patent
office can be challenged in litigation. Our patents may be successfully challenged. Moreover, we may incur
substantial costs in litigation to uphold the validity of patents or to prevent infringement. If the outcome of
litigation is adverse to us, third parties may be able to use our patented invention without payment to us.
Moreover, third parties may avoid our patents through design innovation.

Most of our product candidates, including MNTX, PRO 140, GMK and our PSMA program
products, incorporate to some degree intellectual property licensed from third parties. We can lose the
right to patents and other intellectual property licensed to us if the related license agreement is terminated
due to a breach by us or otherwise. Our ability, and that of our collaboration partners, to commercialize
products incorporating licensed intellectual property would be impaired if the related license agreements
were terminated.

Generally, we have the right to defend and enforce patents licensed by us, either in the first instance
or if the licensor chooses not to do so. In addition, our license agreement with the University of Chicago
regarding MNTX gives us the right to prosecute and maintain the licensed patents. We bear the cost of
engaging in some or all of these activities with respect to our license agreements with Sloan-Kettering for
GMK and the University of Chicago for MNTX. Under our Collaboration Agreement, Wyeth has the
right, at its expense, to defend and enforce the MNTX patents licensed to Wyeth by us. With most of our
other license agreements, the licensor bears the cost of engaging in all of these activities, although we may
share in those costs under specified circumstances. Historically, our costs of defending patent rights, both
our own and those we license, have not been material.

30

We also rely on unpatented technology, trade secrets and confidential information. Third parties may
independently develop substantially equivalent information and techniques or otherwise gain access to our
technology or disclose our technology, and we may be unable to effectively protect our rights in unpatented
technology, trade secrets and confidential information. We require each of our employees, consultants and
advisors to execute a confidentiality agreement at the commencement of an employment or consulting
relationship with us. However, these agreements may not provide effective protection in the event of
unauthorized use or disclosure of confidential information.

If we infringe third-party patent or other intellectual property rights, we may need to alter or terminate a
product development program.

There may be patent or other intellectual property rights belonging to others that require us to alter

our products, pay licensing fees or cease certain activities. If our products infringe patent or other
intellectual property rights of others, the owners of those rights could bring legal actions against us
claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these
legal actions are successful, in addition to any potential liability for damages, we could be required to
obtain a license in order to continue to manufacture or market the affected products. We may not prevail
in any action brought against us, and any license required under any rights that we infringe may not be
available on acceptable terms or at all. We are aware of intellectual property rights held by third parties
that relate to products or technologies we are developing. For example, we are aware of other groups
investigating methylnaltrexone and other peripheral opioid antagonists, PSMA or related compounds and
CCR5 monoclonal antibodies and of patents held, and patent applications filed, by these groups in those
areas. While the validity of these issued patents, patentability of these pending patent applications and
applicability of any of them to our programs are uncertain, if asserted against us, any related patent or
other intellectual property rights could adversely affect our ability to commercialize our products.

The research, development and commercialization of a biopharmaceutical often involve alternative
development and optimization routes, which are presented at various stages in the development process.
The preferred routes cannot be predicted at the outset of a research and development program because
they will depend on subsequent discoveries and test results. There are numerous third-party patents in our
field, and we may need to obtain a license to a patent in order to pursue the preferred development route
of one or more of our products. The need to obtain a license would decrease the ultimate profitability of
the applicable product. If we cannot negotiate a license, we might have to pursue a less desirable
development route or terminate the program altogether.

We are dependent upon third parties for a variety of functions. These arrangements may not provide us
with the benefits we expect.

We rely in part on third parties to perform a variety of functions. We are party to numerous

agreements which place substantial responsibility on clinical research organizations, consultants and other
service providers for the development of our products. We also rely on medical and academic institutions
to perform aspects of our clinical trials of product candidates. In addition, an element of our research and
development strategy is to in-license technology and product candidates from academic and government
institutions in order to minimize investments in early research. Furthermore, we recently entered into an
agreement under which we will depend on Wyeth for the commercialization and development of MNTX,
our lead product candidate. We may not be able to maintain any of these relationships or establish new
ones on beneficial terms. Furthermore, we may not be able to enter new arrangements without undue
delays or expenditures, and these arrangements may not allow us to compete successfully.

We lack sales and marketing experience, which will make us dependent on third parties for their
expertise in this area.

We have no experience in sales, marketing or distribution. If we receive marketing approval, we

expect to market and sell our products principally through distribution, co-marketing, co-promotion or
licensing arrangements with third parties. We may also consider contracting with a third party professional

31

pharmaceutical detailing and sales organization to perform the marketing function for our products. Under
our license and co-development agreement with Wyeth, Wyeth is responsible for commercializing MNTX.
To the extent that we enter into distribution, co-marketing, co-promotion, detailing or licensing
arrangements for the marketing and sale of our other products, any revenues we receive will depend
primarily on the efforts of third parties. We will not control the amount and timing of marketing resources
these third parties devote to our products. In addition, if we market products directly, significant additional
expenditures and management resources would be required to develop an internal sales force. We may not
be able to establish a successful sales force should we choose to do so.

If we lose key management and scientific personnel on whom we depend, our business could suffer.

We are dependent upon our key management and scientific personnel. In particular, the loss of
Dr. Paul J. Maddon, our Chief Executive Officer and Chief Science Officer, could cause our management
and operations to suffer. We have an employment agreement with Dr. Maddon, the initial term of which
ran through June 30, 2005, which was automatically renewed for an additional period of two years. See
""Item 11. Executive CompensationÌEmployment Agreements'' in this Annual Report on Form 10-K for
the year ended December 31, 2005. We are currently in discussions with Dr. Maddon regarding the future
renewal of his employment agreement. Employment agreements do not, however, assure the continued
employment of an employee. We maintain key-man life insurance on Dr. Maddon in the amount of
$2.5 million.

Competition for qualified employees among companies in the biopharmaceutical industry is intense.
Our future success depends upon our ability to attract, retain and motivate highly skilled employees. In
order to commercialize our products successfully, we may be required to expand substantially our
personnel, particularly in the areas of manufacturing, clinical trials management, regulatory affairs,
business development and marketing. We may not be successful in hiring or retaining qualified personnel.

If we are unable to obtain sufficient quantities of the raw and bulk materials needed to make our
products, our product development and commercialization could be slowed or stopped.

We currently obtain supplies of critical raw materials used in production of MNTX, GMK and other

of our product candidates from single sources. In particular, we rely on single-source third-party
manufacturers for the supply of both bulk and finished form MNTX. We have a supply agreement with
Mallinckrodt Inc., our current supplier of bulk-form MNTX, which has an initial term that expires on
January 1, 2008. In accordance with our collaboration agreement with Wyeth, we will transfer to Wyeth,
at a mutually agreeable time, the responsibility for manufacturing MNTX for clinical and commercial use,
including our supply agreements with third parties. We do not have long-term contracts with any of our
other suppliers. In addition, commercialization of GMK requires an adjuvant, QS-21TM, available only from
Antigenics Inc. Our existing arrangements may not result in the supply of sufficient quantities of our
product candidates needed to accomplish our clinical development programs, and we may not have the
right or capability to manufacture sufficient quantities of these products to meet our needs if our suppliers
are unable or unwilling to do so. Any delay or disruption in the availability of raw materials would slow or
stop product development and commercialization of the relevant product.

A substantial portion of our funding comes from federal government grants and research contracts. We
cannot rely on these grants or contracts as a continuing source of funds.

A substantial portion of our revenues to date has been derived from federal government grants and
research contracts. In July and September 2005, we were awarded a $3.0 million and a $10.1 million grant
from the NIH to partially fund our hepatitis C virus and PRO 140 programs, respectively. Also, in 2004
we were awarded, in the aggregate, approximately $9.2 million in NIH grants and research contracts in
addition to previous years' awards. We cannot rely on grants or additional contracts as a continuing source
of funds. Moreover, funds available under these grants and contracts must be applied by us toward the
research and development programs specified by the government rather than for all our programs
generally. For example, the $28.6 million contract awarded to us by the NIH in September 2003 must be

32

used by us in furtherance of our efforts to develop an HIV vaccine. The government's obligation to make
payments under these grants and contracts is subject to appropriation by the U.S. Congress for funding in
each year. Moreover, it is possible that Congress or the government agencies that administer these
government research programs will decide to scale back these programs or terminate them due to their
own budgetary constraints. Additionally, these grants and research contracts are subject to adjustment
based upon the results of periodic audits performed on behalf of the granting authority. Consequently, the
government may not award grants or research contracts to us in the future, and any amounts that we
derive from existing grants or contracts may be less than those received to date.

If health care reform measures are enacted, our operating results and our ability to commercialize
products could be adversely affected.

In recent years, there have been numerous proposals to change the health care system in the U.S. and

in foreign jurisdictions. Some of these proposals have included measures that would limit or eliminate
payments for medical procedures and treatments or subject the pricing of pharmaceuticals to government
control. In some foreign countries, particularly countries of the European Union, the pricing of prescription
pharmaceuticals is subject to governmental control. In addition, as a result of the trend towards managed
health care in the U.S., as well as legislative proposals to reduce government insurance programs, third-
party payors are increasingly attempting to contain health care costs by limiting both coverage and the
level of reimbursement of new drug products. Consequently, significant uncertainty exists as to the
reimbursement status of newly approved health care products.

If we or any of our collaborators succeed in bringing one or more of our products to market, third-

party payors may establish and maintain price levels insufficient for us to realize an appropriate return on
our investment in product development. Significant changes in the health care system in the U.S. or
elsewhere, including changes resulting from adverse trends in third-party reimbursement programs, could
have a material adverse effect on our operating results and our ability to raise capital and commercialize
products.

We are exposed to product liability claims, and in the future we may not be able to obtain insurance
against these claims at a reasonable cost or at all.

Our business exposes us to product liability risks, which are inherent in the testing, manufacturing,
marketing and sale of pharmaceutical products. We may not be able to avoid product liability exposure. If
a product liability claim is successfully brought against us, our financial position may be adversely affected.

Product liability insurance for the biopharmaceutical industry is generally expensive, when available at
all. We have obtained product liability insurance in the amount of $5.0 million per occurrence, subject to a
deductible and a $5.0 million annual aggregate limitation. In addition, where local statutory requirements
exceed the limits of our existing insurance or where local policies of insurance are required, we maintain
additional clinical trial liability insurance to meet these requirements. Our present insurance coverage may
not be adequate to cover claims brought against us. In addition, some of our license and other agreements
require us to obtain product liability insurance. Adequate insurance coverage may not be available to us at
a reasonable cost in the future.

We handle hazardous materials and must comply with environmental laws and regulations, which can be
expensive and restrict how we do business. If we are involved in a hazardous waste spill or other accident,
we could be liable for damages, penalties or other forms of censure.

Our research and development work and manufacturing processes involve the use of hazardous,
controlled and radioactive materials. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of these materials. Despite procedures that
we implement for handling and disposing of these materials, we cannot eliminate the risk of accidental
contamination or injury. In the event of a hazardous waste spill or other accident, we could be liable for
damages, penalties or other forms of censure. In addition, we may be required to incur significant costs to
comply with environmental laws and regulations in the future.

33

Our stock price has a history of volatility. You should consider an investment in our stock as risky and
invest only if you can withstand a significant loss.

Our stock price has a history of significant volatility. Between January 1, 2002 and December 31,

2005, our stock price has ranged from $3.82 to $27.00 per share. At times, our stock price has been
volatile even in the absence of significant news or developments relating to us. Moreover, the stocks of
biotechnology companies and the stock market generally have been subject to dramatic price swings in
recent years. Factors that may have a significant impact on the market price of our common stock include:

¬ the results of clinical trials and preclinical studies involving our products or those of our

competitors;

¬ changes in the status of any of our drug development programs, including delays in clinical trials or

program terminations;

¬ developments regarding our efforts to achieve marketing approval for our products;

¬ developments in our relationship with Wyeth regarding the development and commercialization of

MNTX;

¬ announcements of technological innovations or new commercial products by us, our collaborators or

our competitors;

¬ developments in our relationships with other collaborative partners;

¬ developments in patent or other proprietary rights;

¬ governmental regulation;

¬ changes in reimbursement policies or health care legislation;

¬ public concern as to the safety and efficacy of products developed by us, our collaborators or our

competitors;

¬ our ability to fund on-going operations;

¬ fluctuations in our operating results; and

¬ general market conditions.

Our principal stockholders are able to exert significant influence over matters submitted to stockholders
for approval.

At December 31, 2005, Dr. Maddon and stockholders affiliated with Tudor Investment Corporation

together beneficially own or control approximately 19% of our outstanding shares of common stock. These
persons, should they choose to act together, could exert significant influence in determining the outcome of
corporate actions requiring stockholder approval and otherwise control our business. This control could
have the effect of delaying or preventing a change in control of us and, consequently, could adversely
affect the market price of our common stock.

Anti-takeover provisions may make the removal of our Board of Directors or management more difficult
and discourage hostile bids for control of our company that may be beneficial to our stockholders.

Our Board of Directors is authorized, without further stockholder action, to issue from time to time
shares of preferred stock in one or more designated series or classes. The issuance of preferred stock, as
well as provisions in certain of our stock options that provide for acceleration of exercisability upon a
change of control, and Section 203 and other provisions of the Delaware General Corporation Law could:

¬ make the takeover of Progenics or the removal of our Board of Directors or management more

difficult;

34

¬ discourage hostile bids for control of Progenics in which stockholders may receive a premium for

their shares of common stock; and

¬ otherwise dilute the rights of holders of our common stock and depress the market price of our

common stock.

If there are substantial sales of our common stock, the market price of our common stock could decline.

Sales of substantial numbers of shares of common stock could cause a decline in the market price of
our stock. We require substantial external funding to finance our research and development programs and
may seek such funding through the issuance and sale of our common stock. We have announced that we
have filed shelf registration statements to permit the sale of up to 4.0 million shares of our common stock
to investors and to permit the public reoffer and sale from time to time of up to 286,000 shares of our
common stock by certain stockholders. Sales of our common stock pursuant to these registration
statements could cause the market price or our stock to decline. In addition, some of our other
stockholders are entitled to require us to register their shares of common stock for offer or sale to the
public. Also, we have filed Form S-8 registration statements registering shares issuable pursuant to our
equity compensation plans. Any sales by existing stockholders or holders of options may have an adverse
effect on our ability to raise capital and may adversely affect the market price of our common stock.

Item 1B. Unresolved Staff Comments

There were no unresolved Staff comments as of December 31, 2005.

Item 2. Properties

As of December 31, 2005, we occupy in total approximately 76,500 square feet of laboratory,
manufacturing and office space on a single campus in Tarrytown, New York. We occupy approximately
42,900 square feet of this space pursuant to a sublease which terminates in June 2007, with an option to
renew for one additional two-year term. The base monthly rent for this space is $65,000 through June 30,
2007, plus additional utility charges. We occupy approximately 33,600 square feet pursuant to a lease
expiring on December 31, 2009, with an option to renew for two additional five-year terms. The base
monthly rent for this space is $56,000 through August 31, 2007 and $65,000 for the period from
September 1, 2007 to December 31, 2009. In addition to rents due under these agreements, we are
obligated to pay additional facilities charges, including utilities, taxes and operating expenses.

Item 3. Legal Proceedings

We are not a party to any material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of stockholders during the fourth quarter of 2005.

35

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Price Range of Common Stock

Our common stock is quoted on the Nasdaq National Market under the symbol ""PGNX.'' The
following table sets forth, for the periods indicated, the high and low sales price per share of the common
stock, as reported on the Nasdaq National Market. Such prices reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not represent actual transactions.

High

Low

Year ended December 31, 2004

First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 23.45

$ 17.60

Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Third quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Year ended December 31, 2005

First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Third quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

20.79

16.92

18.08

24.40

21.35

25.07

27.00

14.85

8.50

12.25

14.09

15.76

20.60

20.73

On March 14, 2006, the last sale price for our common stock as reported by Nasdaq was $27.49.

There were approximately 135 holders of record of our common stock as of March 14, 2006.

Dividends

We have not paid any dividends since our inception and presently anticipate that all earnings, if any,

will be retained for development of our business and that no dividends on our common stock will be
declared in the foreseeable future.

36

Item 6. Selected Financial Data

The selected financial data presented below as of December 31, 2005 and 2004 and for each of the

three years in the period ended December 31, 2005 are derived from the Company's audited financial
statements, included elsewhere herein. The selected financial data presented below with respect to the
balance sheet data as of December 31, 2001, 2002 and 2003 and for each of the two years in the period
ended December 31, 2002 are derived from the Company's audited financial statements not included
herein. The data set forth below should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial Statements and related Notes
included elsewhere herein.

2001

Statement of Operations Data:

Revenues:

Contract research and development, joint

Years Ended December 31,
2003
(In thousands, except per share data)

2002

2004

2005

venture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

199

$

5,298

$

2,486

$

2,008

$

988

Contract research and development, other ÏÏ

Research grants and contracts ÏÏÏÏÏÏÏÏÏÏÏÏ

Product sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,397

4,244

43

8,883

194

4,544

49

10,085

4,826

149

7,461

7,483

85

9,576

Expenses:

Research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

12,731

22,797

26,374

35,673

License fees Ì research and development ÏÏ

General and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Loss in Joint Venture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏ

1,770

6,499

2,225

707

964

6,484

2,886

1,049

867

8,029

2,525

1,273

390

12,580

2,134

1,566

8,432

66

9,486

43,419

20,418

13,565

1,863

1,748

Total expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

23,932

34,180

39,068

52,343

81,013

Operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(15,049)

(24,095)

(31,607)

(42,767)

(71,527)

Other income (expense):

Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

3,348

1,708

Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Payment from collaboratorÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on sale of marketable securities ÏÏÏÏÏÏ

Payment from insurance settlement ÏÏÏÏÏÏÏ

(49)

9,852

(2)

Total other income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

13,151

625

(4)

780

2,299

(31)

1,600

3,306

621

749

2,299

Net loss before income taxesÏÏÏÏÏÏÏÏÏÏÏ

(1,898)

(20,789)

(30,986)

(42,018)

(69,228)

Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(201)

Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ (1,898)

$(20,789)

$(30,986)

$(42,018)

$(69,429)

Per share amounts on net loss:

Basic and dilutedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

(0.15)

$ (1.66)

$

(2.32)

$

(2.48)

$

(3.33)

37

2001

2002

December 31,
2003
(in thousands)

2004

2005

Balance Sheet Data:

Cash, cash equivalents and marketable securities

$61,877

$42,374

$65,663

$31,207

$173,090

Working capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Deferred lease liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

40,650

67,481

39

36,209

48,118

71

56,228

72,886

50

25,667

39,545

42

137,101

184,003

49

Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

64,345

45,147

67,683

31,838

112,732

38

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

General. We are a biopharmaceutical company focusing on the development and commercialization of

innovative therapeutic products to treat the unmet medical needs of patients with debilitating conditions
and life-threatening diseases. We commenced principal operations in late 1988, and since that time we
have been engaged primarily in research and development efforts, development of our manufacturing
capabilities, establishment of corporate collaborations and raising capital. We do not currently have any
commercial products. In order to commercialize the principal products that we have under development,
we will need to address a number of technological and clinical challenges and comply with comprehensive
regulatory requirements. Accordingly, we cannot predict the amount of funds that we will require, or the
length of time that will pass, before we receive significant revenues from sales of any of our products, if
ever.

Our most advanced product candidate and likeliest source of product revenue is methynaltrexone

(""MNTX''). In December 2005, we entered into a license and co-development agreement (the
""Collaboration Agreement'') with Wyeth Pharmaceuticals (""Wyeth'') to develop and commercialize
MNTX. In collaboration with Wyeth, we are conducting a broad clinical development program for MNTX
in several settings involving symptom management and supportive care. Under the terms of our
collaboration with Wyeth, Wyeth is developing the oral form of MNTX worldwide. We are leading the
U.S. development of the subcutaneous and intravenous forms of MNTX, while Wyeth is leading
development of these parenteral products outside the U.S. Wyeth and we are pursuing an integrated
strategy to optimize worldwide development, regulatory approval, and commercial launch of the three
MNTX products, which may impact timelines for the development of MNTX previously disclosed by us.
Decisions regarding the timelines for development of the three MNTX products will be made by a Joint
Development Committee formed under the terms of the license and co-development agreement, consisting
of members from both Wyeth and Progenics.

Our work with MNTX has proceeded farthest as a treatment for opioid-induced constipation.
Constipation is a serious medical problem for patients who are being treated with opioid pain-relief
medications. MNTX is designed to reverse the side effects of opioid pain medications while maintaining
pain relief, an important need not currently met by any approved drugs. We have successfully completed
two pivotal phase 3 clinical trials of the subcutaneous form of MNTX in patients with advanced medical
illness, including cancer, AIDS and heart disease. We achieved positive results from our two pivotal
phase 3 clinical trials (MNTX 301 and MNTX 302). All primary and secondary efficacy endpoints of
both of the phase 3 studies were positive and statistically significant. The drug was generally well tolerated
in both phase 3 trials. We are now working with our alliance partner, Wyeth, to submit a New Drug
Application to the U.S. Food and Drug Administration and implement a commercialization strategy.

We are also developing an intravenous form of MNTX in collaboration with Wyeth for the

management of post-operative bowel dysfunction, a serious condition of the gastrointestinal tract. We have
successfully completed a phase 2 clinical trial of MNTX for this indication. Based upon our end of
phase 2 meeting with the FDA, we are planning a phase 3 clinical program with intravenous MNTX for
the treatment of post-operative bowel dysfunction. Under the Collaboration Agreement, Wyeth is also
developing oral MNTX for the treatment of opioid-induced constipation in patients with chronic pain.
Prior to the Collaboration Agreement, we had completed phase 1 clinical trials of oral MNTX in healthy
volunteers, which indicated that MNTX was well tolerated.

In the area of virology, we are developing viral entry inhibitors, which are molecules designed to
inhibit the virus' ability to enter certain types of immune system cells. HIV is the virus that causes AIDS.
Receptors and co-receptors are structures on the surface of a cell to which a virus must bind in order to
infect the cell. In mid-2005, we announced positive phase 1 clinical findings related to PRO 140, a
monoclonal antibody designed to target the HIV co-receptor CCR5, in healthy volunteers. A phase 1b trial
of PRO 140 in HIV-infected patients began in December 2005.

39

In addition, we are developing immunotherapies for prostate cancer, including monoclonal antibodies

directed against prostate-specific membrane antigen (""PSMA''), a protein found on the surface of prostate
cancer cells. We are also developing vaccines designed to stimulate an immune response to PSMA. Our
PSMA programs are conducted with Cytogen Corporation (""Cytogen'') (collectively, the ""Members'')
through PSMA Development Company LLC, our joint venture with Cytogen (""PSMA LLC''). We are
also studying a cancer vaccine, GMK, in phase 3 clinical trials for the treatment of malignant melanoma.

Our sources of revenues through December 31, 2005 have been payments under our former

collaboration agreements, from PSMA LLC, from research grants and contracts related to our cancer and
HIV programs and from interest income. Beginning in January 2006, we will recognize revenues from
Wyeth for reimbursement of our development expenses for MNTX as incurred, for the $60 million upfront
payment we received from Wyeth over the period of our development obligations and for any milestones or
contingent events that are achieved during our collaboration with Wyeth. In addition, the Members have
not approved a work plan and budget for 2006 and, therefore, from January 1, 2006, neither we nor
Cytogen will recognize revenue from PSMA LLC until such time as a work plan and budget are approved.
To date, our product sales have consisted solely of limited revenues from the sale of research reagents. We
expect that sales of research reagents in the future will not significantly increase over current levels.

A majority of our expenditures to date have been for research and development activities. We expect

that our research and development expenses will increase significantly as our programs progress and we
make filings with regulators for approval to market our product candidates. Our development and
commercialization expenses for MNTX will be funded by Wyeth, which will allow us to devote our
current and future resources to our other research and development programs.

We have had recurring losses and had, at December 31, 2005, an accumulated deficit of

$188.7 million. During the year ended December 31, 2005, we received net proceeds of $121.6 million
from three public offerings totaling 6,307,467 shares of our common stock. We also received an upfront
payment of $60.0 million from Wyeth in connection with signing the license and co-development
agreement. At December 31, 2005, we had cash, cash equivalents and marketable securities totaling
$173.1 million. We expect that cash, cash equivalents and marketable securities on hand at December 31,
2005 will be sufficient to fund operations at current levels beyond one year. During the year ended
December 31, 2005, we had a net loss of $69.4 million and cash provided by operating activities was
$11.1 million. Other than potential revenues from MNTX, we do not anticipate generating significant
recurring revenues, from product sales or otherwise, in the near term, and we expect our expenses to
increase. Consequently, we may require significant additional external funding to continue our operations at
their current levels in the future. Such funding may be derived from additional collaboration or licensing
agreements with pharmaceutical or other companies or from the sale of our common stock or other
securities to investors. However, such additional funding may not be available to us on acceptable terms or
at all.

Collaboration with Wyeth Pharmaceuticals. We and Wyeth Pharmaceuticals (""Wyeth'') entered into
a License and Co-Development Agreement, dated December 23, 2005 (the ""Collaboration Agreement'')
for the development and commercialization of MNTX. Under the Collaboration Agreement Wyeth paid to
us a $60 million non-refundable upfront payment. Wyeth is obligated to make up to $356.5 million in
additional payments to us upon the achievement of milestones and contingent events in the development
and commercialization of MNTX. All costs for the development of MNTX incurred by Wyeth or us
starting January 1, 2006 are to be paid by Wyeth. We will be reimbursed for our out-of-pocket
development costs by Wyeth and will receive reimbursement for our efforts based on the number of our
full time equivalent employees (FTEs) devoted to the development project. Wyeth is obligated to pay to
us royalties on the sale by Wyeth of MNTX throughout the world during the applicable royalty periods.
At December 31, 2005, we have deferred the recognition of revenue for the $60 million upfront payment
since work under the Collaboration Agreement did not commence until January 2006.

The Collaboration Agreement establishes a Joint Steering Committee (""JSC'') and a Joint

Development Committee (""JDC''), each with an equal number of representatives of both Wyeth and us.
The Joint Steering Committee is responsible for coordinating the key activities of Wyeth and us under the

40

Collaboration Agreement. The Joint Development Committee is responsible for overseeing, coordinating
and expediting the development of MNTX by Wyeth and us.

The Collaboration Agreement contemplates the development and commercialization of three products:

(i) a subcutaneous form of MNTX, to be used in patients with opioid-induced constipation; (ii) an
intravenous form of MNTX, to be used in patients with post-operative bowel dysfunction and (iii) an oral
form of MNTX, to be used in patients with opioid-induced constipation.

Under the Collaboration Agreement, we granted to Wyeth an exclusive, worldwide license, even as to

us, to develop and commercialize MNTX. We are responsible for developing the subcutaneous and
intravenous forms of MNTX in the United States, until they receive regulatory approval. Wyeth is
responsible for the development of the subcutaneous and intravenous forms of MNTX outside of the
United States. Wyeth is responsible for the development of the oral form of MNTX, both within the
United States and in the rest of the world. In the event the JSC approves any formulation of MNTX
other than subcutaneous, intravenous or oral or any other indication for the products currently
contemplated using the subcutaneous, intravenous or oral forms of MNTX, Wyeth will be responsible for
development of such products, including conducting clinical trials and obtaining and maintaining regulatory
approval. We will remain the owner of all U.S. regulatory filings and approvals relating to the
subcutaneous and intravenous forms of MNTX. Wyeth will be the owner of all U.S. regulatory filings and
approvals related to the oral form of MNTX. Wyeth will be the owner of all regulatory filings and
approvals outside the United States relating to all forms of MNTX.

Wyeth is responsible for the commercialization of the subcutaneous, intravenous and oral products

throughout the world, will pay all costs of commercialization of all products, including all manufacturing
costs, and will retain all proceeds from the sale of the products, subject to the royalties payable by Wyeth
to us. Decisions with respect to commercialization of any products developed under the Collaboration
Agreement will be made solely by Wyeth.

We will transfer to Wyeth, at a mutually agreeable time, all existing supply agreements with third
parties for MNTX and will sublicense any intellectual property rights to permit Wyeth to manufacture
MNTX, during the development and commercialization phases of the Collaboration Agreement, in both
bulk and finished form for all products worldwide.

We have an option (the ""Co-Promotion Option'') to enter into a Co-Promotion Agreement to co-

promote any of the products developed under the Collaboration Agreement, subject to certain conditions.
The extent of our co-promotion activities and the fees that we will be paid by Wyeth for these activities,
will be established when we exercise our option. Wyeth will record all sales of products worldwide
(including those sold by us, if any, under a Co-Promotion Agreement). Wyeth may terminate any Co-
Promotion Agreement if a top 15 pharmaceutical company acquires control of us. Wyeth has agreed to
certain limitations on its ability to purchase our equity securities and to solicit proxies.

The Collaboration Agreement extends, unless terminated earlier, on a country-by-country and

product-by-product basis, until the last to expire royalty period, as defined, for any product. Progenics may
terminate the Collaboration Agreement at any time upon 90 days of written notice to Wyeth (30 days in
the case of breach of a payment obligation) upon material breach that is not cured. Wyeth may, with or
without cause, following the second anniversary of the first commercial sale, as defined, of the first
commercial product in the U.S., terminate the Collaboration Agreement by providing Progenics with at
least 360 days prior written notice of such termination. Wyeth may also terminate the agreement (i) upon
30 days written notice following one or more serious safety or efficacy issues that arise, as defined, and
(ii) at any time, upon 90 days written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license we granted to Wyeth will depend
on the party that initiates the termination and the reason for the termination.

Purchase of Rights from MNTX Licensors. On December 22, 2005, we and our wholly-owned
subsidiary, Progenics Pharmaceuticals Nevada, Inc., (collectively, ""we'') acquired certain rights for our
lead investigational drug, methylnaltrexone (""MNTX''), from several of our licensors.

41

In 2001, we entered into an exclusive sublicense agreement with UR Labs, Inc. (""URL'') to develop

and commercialize MNTX (the ""MNTX Sub-license'') in exchange for rights to future payments
resulting from the MNTX Sub-license. In 1989, URL obtained an exclusive license to MNTX, as
amended, from the University of Chicago (""UC'') under an Option and License Agreement dated May 8,
1985, as amended (the ""URL-Chicago License''). In 2001, URL also entered into an agreement with
certain heirs of Dr. Leon Goldberg (the ""Goldberg Distributees''), which provided them with the right to
receive payments based upon revenues received by URL from the development of the MNTX Sub-license
(the ""URL-Goldberg Agreement'').

On December 22, 2005, we entered into an Agreement and Plan of Reorganization (the ""Purchase
Agreement'') by and among Progenics Pharmaceuticals, Inc., Progenics Pharmaceuticals Nevada, Inc.,
UR Labs, Inc. and the shareholders of UR Labs, Inc. (the ""URL Shareholders''), under which we
acquired substantially all of the assets of URL, comprised of its rights under the URL-Chicago License,
the MNTX Sub-license and the URL-Goldberg Agreement, thus assuming URL's rights and
responsibilities under those agreements and extinguishing our obligation to make royalty and other
payments to URL.

On December 22, 2005, we entered into an Assignment and Assumption Agreement with the
Goldberg Distributees, under which we assumed all rights and obligations of the Goldberg Distributees
under the URL-Goldberg Agreement, thereby extinguishing URL's (and consequentially, our) obligations
to make payments to the Goldberg Distributees. Although we are no longer obligated to make payments to
URL or the Goldberg Distributees, we are required to make future payments (including royalties) to the
University of Chicago that would have been made by URL.

In consideration for the assignment of the Goldberg Distributees' rights and of the acquisition of the

assets of URL described above, we issued, on December 22, 2005, a total of 686,000 shares of our
common stock, with a fair value of $15.8 million, based on a closing price of our common stock of $23.09,
and paid a total of $2.6 million in cash (representing the opening market value, $22.85 per share, of
114,000 shares of Progenics' common stock on the date of the acquisition) to the URL Shareholders and
the Goldberg Distributees and paid $310,000 in transaction fees.

Joint Venture with Cytogen Corporation. We have a 50% interest in PSMA LLC. We were required

to fund the first $3.0 million of PSMA LLC's research and development costs. Prior to reaching
$3.0 million of such costs, we recognized reimbursements on a net basis and did not recognize any revenue
from PSMA LLC. During the fourth quarter of 2001, we surpassed the $3.0 million threshold, at which
time we began recognizing revenue for services and costs being provided to and paid by PSMA LLC. Our
revenues from PSMA LLC do not result in significant net cash flows to us, since they are relatively minor
in comparison to our expenses and, because they are offset in part by capital contributions that we must
make to PSMA LLC.

PSMA LLC's research and development programs and other operations are conducted on its behalf

by us, Cytogen and third party providers. We and Cytogen are compensated by PSMA LLC for our
services provided to PSMA LLC and are reimbursed for costs we pay on its behalf. From June 1999
through January 2004, our services to PSMA LLC were provided pursuant to the terms of a services
agreement. The services agreement, as extended, expired effective January 31, 2004. Since then we and
Cytogen have not agreed upon the terms of a replacement services agreement although both parties have
continued to provide services to PSMA LLC (and have been compensated for these services). The
Members have not currently approved a work plan or budget for 2006 and, therefore, beginning on
January 1, 2006, we will not recognize revenue from PSMA LLC until such time as a work plan and
budget are approved. The level of future revenues we derive from PSMA LLC will depend on the nature
and amount of research and development services requested of us by PSMA LLC as well as the future
financial position of PSMA LLC.

Our and Cytogen's respective levels of commitment to fund PSMA LLC is based on annual budgets
and work plans that are developed and approved by the parties. Each annual budget is intended to provide
for sufficient funds to conduct the research and development projects specified in the work plan for the

42

then-current year. During June 2005, we and Cytogen approved a work plan and a corresponding budget
for the year ended December 31, 2005. Capital contributions, totaling $7.9 million, were made by the
Members during the year ended December 31, 2005, half of which was contributed by each of the
Members. Contributions totaling $1.0 million, made in January 2005, were used to fund obligations for
work performed under the approved 2004 work plan, which amount is included in the total contributions
for the 2005 periods set forth above. We have in the past experienced delays in reaching agreement with
Cytogen regarding budget issues and strategic and operational matters relating to PSMA LLC. PSMA
LLC currently has no approved 2006 budget or work plan because we and Cytogen have not yet reached
agreement with respect to a number of matters relating to PSMA LLC. However, we and Cytogen are
required to fulfill obligations under existing contractual commitments as of December 31, 2005. Although
work on the PSMA projects continues, if we do not reach an agreement regarding the 2006 budget and
work plan, the programs conducted by PSMA LLC would likely be delayed or halted, and our capital
commitments to, and revenues associated with, PSMA LLC would be reduced or eliminated. We may not
reach an agreement with Cytogen on these matters.

The work plan and budget for 2005 included funding to be made by PSMA LLC in accordance with

a collaboration agreement (the ""SGI Agreement'') with Seattle Genetics, Inc. (""SGI''), entered into in
June 2005. Under the SGI Agreement, SGI provided an exclusive worldwide license to its proprietary
antibody-drug conjugate technology (the ""ADC Technology'') to PSMA LLC. Under the license, PSMA
LLC has the right to use the ADC Technology to link cell-killing drugs to PSMA LLC's monoclonal
antibodies that target prostate-specific membrane antigen. During the initial research term of the SGI
Agreement, SGI also is required to provide technical information to PSMA LLC related to
implementation of the licensed technology, which period may be extended upon payment of an additional
fee. PSMA LLC may replace prostate-specific membrane antigen with another antigen, subject to certain
restrictions, upon payment of an antigen replacement fee. The ADC Technology is based, in part, on
technology licensed by SGI from third parties (the ""Licensors''). PSMA LLC is responsible for research,
product development, manufacturing and commercialization of all products under the SGI Agreement.
PSMA LLC may sublicense the ADC Technology to a third-party to manufacture the ADC's for both
research and commercial use. PSMA LLC made a $2.0 million technology access payment to SGI, upon
execution of the SGI Agreement during September 2005, following a capital contribution by the Members
(see above). The SGI Agreement requires PSMA LLC to make maintenance payments during the term
of the SGI Agreement, payments, aggregating $15.0 million, upon the achievement of certain defined
milestones, and royalties, on a percentage of net sales, as defined, to SGI and its Licensors. In the event
that SGI provides materials or services to PSMA LLC under the SGI Agreement, SGI will receive supply
and/or labor cost payments from PSMA LLC at agreed upon rates. Unless terminated earlier, the SGI
Agreement terminates at the later of (a) the tenth anniversary of the first commercial sale of each
licensed product in each country or (b) the latest date of expiration of patents underlying the licensed
products. The ability of PSMA LLC to comply with the terms of the SGI Agreement will depend on
agreement by the Members regarding work plans and budgets of PSMA LLC in future years.

According to the LLC Agreement that established PSMA LLC, we may directly pursue and obtain

government grants directed to the conduct of research utilizing PSMA-related technologies. In
consideration of our initial incremental capital contribution of $3.0 million of PSMA LLC research
expenditures, we may retain $3.0 million of such government grant funding. To the extent that we retain
grant revenue in respect of work for which we have also been compensated by PSMA LLC, the remainder
of the $3.0 million to be retained by us is reduced and we record an adjustment in our financial statements
to reduce both joint venture losses and contract revenue from the joint venture. Such adjustments were
$1,311,000, $762,000 and $927,000 for the years ended December 31, 2005, 2004 and 2003, respectively,
and $3.0 million cumulatively through December 31, 2005.

43

Results of Operations (amounts in thousands)

Years Ended December 31, 2004 and 2005

Revenues:

We recognized $2,008 and $988 of revenue for research and development services performed for
PSMA LLC during the years ended December 31, 2004 and 2005, respectively. The decrease is due to the
slower pace of research and development activities on the PSMA projects in 2005 and an increase in grant
revenue recognized by the Company from awards related to research and development services performed
for PSMA LLC, which effectively decreases contract research and development from joint venture.
Proceeds received from grants related to PSMA LLC and for which we have also been compensated by
the JV for services provided were $762 in the 2004 period and $1,311 in the 2005 period. As described
above, we have reflected in the accompanying consolidated financial statements adjustments to decrease
both joint venture losses and contract revenue from the joint venture in respect of such amounts.

Revenues from research grants and contracts increased from $7,483 in the year ended December 31,
2004 to $8,432 in the corresponding period in 2005. The increase resulted from a greater amount of work
performed under the grants in the 2005 period, some of which allowed greater spending limits, including
$13.1 million in new grants we were awarded during 2005, $10.1 million of which will partially fund our
PRO 140 program over a three and a half year period. In addition, there was increased activity under the
contract awarded to us by the National Institutes of Health in September 2003 (the ""NIH Contract'').
The NIH Contract provides for up to $28,600 in funding to us over five years for preclinical research,
development and early clinical testing of a vaccine designed to prevent HIV from infecting individuals
exposed to the virus. Our scientists are the principal investigators under the contract and head the vaccine
development effort. The vaccine design and animal testing core groups under a subcontract are headed by
existing academic collaborators of ours. A total of approximately $3,700 is earmarked under the NIH
Contract to fund such subcontracts. Funding under the NIH Contract is subject to compliance with its
terms, and the payment of an aggregate of $1,600 in fees (of which $180 had been recognized as revenue
as of December 31, 2005) is subject to achievement of specified milestones.

Revenues from product sales decreased from $85 for the year ended December 31, 2004 to $66 for

the year ended December 31, 2005. We received fewer orders for research reagents during 2005.

Expenses:

Research and development expenses include scientific labor, supplies, facility costs, clinical trial costs,

and product manufacturing costs. Research and development expenses, including license fees, increased
$27,774 from $36,063 in the year ended December 31, 2004 to $63,837 in the corresponding period in
2005, as follows:

Category

Year Ended
December 31,

2004

2005

Dollar
Variance

Percentage
Variance

Explanation

Salaries and benefits ÏÏÏÏÏÏÏ

$12,193

$14,009

$ 1,816

15% Company-wide compensation

increases and an increase in
average headcount from 111
to 117 for the years ended
December 31, 2004 and
2005, respectively, in the
research and development,
manufacturing and clinical
departments, including the
hiring of our Vice President,
Quality in July 2005.

44

Category

Year Ended
December 31,

2004

2005

Dollar
Variance

Percentage
Variance

Explanation

Clinical trial costs ÏÏÏÏÏÏÏÏÏ

8,675

10,493

1,818

21

Laboratory supplies ÏÏÏÏÏÏÏÏ

3,762

5,292

1,530

41

Contract manufacturing and

subcontractorsÏÏÏÏÏÏÏÏÏÏÏ

5,371

5,836

465

9

45

Increase primarily related to
MNTX ($905) due to a
higher level of activity in the
301 and 302 trials and their
extension studies in the 2005
period than in the 301 trial
in the 2004 period. Also,
increases in GMK ($765),
due to increased enrollment
in the 2005 period, and HIV
($148), resulting from an
increase in the PRO 140
phase 1 and phase 1b trial
activity in the 2005 period.

Increases in MNTX ($916)
due to increased costs of
manufacturing MNTX for
clinical trials, HIV ($446)
due to preparation of
materials for the phases 1
and 1b PRO 140 clinical
trials and an increase in
basic research in 2005 and
GMK ($218) related to
manufacturing materials for
the ongoing phase 3 clinical
trial, partially offset by a
decrease in other projects
($50), as research and
development activity focused
on clinical trials in the areas
of MNTX and HIV rather
than on other areas of basic
research.

Increase in MNTX ($161)
and HIV ($609), partially
offset by decreases in GMK
($14) and other projects
($291). These expenses are
related to the conduct of
clinical trials, including
testing, analysis, formulation
and toxicology services and
vary as the timing and level
of such services are required.

Category

Year Ended
December 31,

2004

2005

Dollar
Variance

Percentage
Variance

Explanation

Consultants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,646

3,609

1,963

119

License fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

390

20,418

20,028

5,135

Operating expenses ÏÏÏÏÏÏÏÏ

4,026

4,180

154

4

Increases in MNTX
($1,845) and HIV ($210)
and other projects ($35),
partially offset by a decrease
in GMK ($127). These
expenses are related to
monitoring and conduct of
clinical trials, including
analysis of data from
completed clinical trials and
vary as the timing and level
of such services are required.

Increase primarily related to
payments to UR Labs and
the Goldberg Distributees
(see ""OverviewÌPurchase of
Rights from MNTX
Licensors''), licensors of
MNTX ($19,205) and
related to our HIV program
($823).

Increase primarily due to an
increase in rent, utility and
facilities expenses ($354),
partially offset by a decrease
in other operating expenses
and travel ($200) in 2005.

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$36,063

$63,837

$27,774

77%

A major portion of our spending has been, and we expect will continue to be, associated with MNTX,
although beginning in 2006, Wyeth will fund all of our development activities related to MNTX. Spending
for our PRO 140 program is expected to increase in 2006, while spending for other programs is expected
to remain relatively stable or decline.

46

General and administrative expenses increased from $12,580 in the year ended December 31, 2004 to

$13,565 in the corresponding 2005 period, as follows:

Category

Year Ended
December 31,

2004

2005

Dollar
Variance

Percentage
Variance

Explanation

Salaries and benefits ÏÏÏÏÏÏÏ

$ 4,057

$ 5,895

$ 1,838

45%

Consulting and professional

fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

5,336

4,488

(848)

(16)

Operating expenses ÏÏÏÏÏÏÏÏ

2,860

2,789

(71)

(2)

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

327

393

66

20

Increase due to
compensation increases,
including bonuses. For the
years ended December 31,
2004 and 2005, respectively,
average headcount remained
stable, although we hired our
General Counsel in June
2005 and one senior
executive departed in April
2005.

Decrease due primarily to a
decrease in recruiting ($88)
and audit fees, including
fees for internal control
readiness and the auditing of
internal controls over
financial reporting ($1,332),
partially offset by increases
in consultants ($560) and
legal and patent fees ($25).

Decrease in insurance ($13)
and other operating expenses
($124), partially offset by an
increase in rent, utilities and
facilities costs ($66).

Increased investor relations
($109) and conference ($40)
costs, partially offset by a
decrease in corporate sales
and franchise taxes ($83).

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$12,580

$13,565

$

985

8%

We expect general and administrative expenses to increase during 2006 due to an increase in

operating expenses related to an increase in headcount.

Loss in joint venture decreased from $2,134 in the year ended December 31, 2004 to $1,863 in the
corresponding period in 2005. During 2005, research and development expenses, including license fees to
collaborators of the JV, were higher than in 2004; lower research and development expenses in 2005 were
more than offset by a $2.0 million license fee made by PSMA LLC in 2005 to Seattle Genetics, Inc. (see
""Overview'' above). However, as further described above, we recognized $762 and $1,311 in the years
ended December 31, 2004 and 2005, respectively, of payments received from the NIH as a reduction to
joint venture losses and contract revenue from the joint venture. Therefore, overall, loss in joint venture
was lower in 2005 than in 2004.

Depreciation and amortization increased from $1,566 in the year ended December 31, 2004 to $1,748

in the corresponding period in 2005 as we purchased capital assets and made leasehold improvements in
2005 to increase our manufacturing capacity.

47

Other income:

Interest income increased from $780 in the year ended December 31, 2004 to $2,299 in the
corresponding period in 2005. Interest income, as reported, is the result of investment income from our
marketable securities, offset by the amortization of premiums we paid for those marketable securities. For
the years ended December 31, 2004, and 2005, investment income increased from $1,420 to $2,569,
respectively, due to a higher average balance of cash equivalents and marketable securities resulting from
our three public offerings in 2005, than in 2004 and higher interest rates in 2005. Amortization of
premiums, which is included in interest income, decreased from $640 to $270 for the years ended
December 31, 2004 and 2005, respectively.

Income taxes:

For the year ended December 31, 2005, although we had a pre-tax net loss of $69.2 million, we had

taxable income due primarily to the $60 million upfront payment received from Wyeth and the
$18.4 million cash and common stock paid to UR Labs and the Goldbergs, which were treated differently
for book and tax purposes. For book purposes, payments made to UR Labs and the Goldbergs Distributees
were expensed in the period the payments were made. However, for tax purposes, the UR Labs transaction
was a tax-free re-organization and will never result in a deduction for tax purposes and the payments to
the Goldberg Distrbutees have been capitalized as an intangible license asset and will be deducted for tax
purposes over a fifteen year period. We have, therefore, recognized an income tax provision for the effect
of the Federal and state alternative minimum tax. For the year ended December 31, 2004, we had losses
both for book and tax purposes.

Net loss:

Our net loss was $42,018 for the year ended December 31, 2004 compared to a net loss of $69,429 in

the corresponding period in 2005.

Years Ended December 31, 2003 and 2004

Revenues:

We recognized $2,486 and $2,008 of revenue for research and development services performed for the

joint venture during the years ended December 31, 2003 and 2004, respectively. Proceeds received from
grants related to the joint venture for which we have also been compensated by PSMA LLC for services
provided were $927 in 2003 and $762 in 2004. As described above, we have reflected in the accompanying
financial statements adjustments to decrease both joint venture losses and contract revenue from the joint
venture in respect of such amounts.

Revenues from research grants and contracts increased from $4,826 in the year ended December 31,

2003 to $7,483 in the corresponding period in 2004. The increase resulted from the funding of a greater
number of grants in 2004 and from increased activity under the NIH Contract. The NIH Contract
provides for up to $28,600 in funding to us over five years for preclinical research, development and early
clinical testing of a vaccine designed to prevent HIV from infecting individuals exposed to the virus. Our
scientists are the principal investigators under the contract and head the vaccine development effort.
Existing academic collaborators of ours head the vaccine design and animal testing core groups under a
subcontract. A total of approximately $3,700 is earmarked under the NIH Contract to fund such
subcontracts. Funding under the NIH Contract is subject to compliance with its terms, and the payment
of an aggregate of $1,600 in fees (of which $90 had been recognized as revenue as of December 31, 2004)
is subject to achievement of specified milestones. Based on our currently approved grants, the NIH
Contract and planned grant submissions, we expect revenues from grants and contracts to remain at the
current level or increase somewhat over the next five years.

Revenues from product sales decreased from $149 for the year ended December 31, 2003 to $85 for

the year ended December 31, 2004. We received fewer orders for research reagents during 2004.

48

Expenses:

Research and development expenses include scientific labor, supplies, facility costs, clinical trial costs,

and product manufacturing costs. A major portion of our spending has been, and we expect will continue
to be, associated with MNTX. Research and development expenses, including license fees, increased
$8,822 from $27,241 in the year ended December 31, 2003 to $36,063 in the corresponding period in 2004,
as follows:

Category

Year Ended
December 31,

2003

2004

Dollar
Variance

Percentage
Variance

Explanation

Salaries and benefits ÏÏÏÏÏÏÏ

$ 8,767

$12,193

$ 3,426

39%

Clinical trial costs ÏÏÏÏÏÏÏÏÏ

4,194

8,675

4,481

107

Laboratory supplies ÏÏÏÏÏÏÏÏ

2,665

3,762

1,097

41

Contract manufacturing and

subcontractorsÏÏÏÏÏÏÏÏÏÏÏ

7,314

5,371

(1,943)

(27)

Company-wide compensation
increases and an increase in
average headcount from 90
to 111 for the years ended
December 31, 2003 and
December 31, 2004,
respectively, in the research
and development,
manufacturing and medical
departments.

Increase due to MNTX
($4,447) as phase 3 trials
expanded and GMK ($64)
due to increased patient
enrollment, partially offset by
decreases in HIV ($25) and
other programs ($5).

Increase in MNTX ($527),
HIV ($149), GMK ($96)
and other programs ($325)
due to preparation of
materials for clinical trials
and an increase in basic
research.

Decrease due to decline in
MNTX ($976) and  HIV
($1,232), partially offset by
an increase in and GMK
($31) and other programs
($234).These expenses are
related to the conduct of
clinical trials, including
testing, analysis, formulation
and toxicology services and
vary as the timing and level
of such services are required.

49

Category

Year Ended
December 31,

2003

2004

Dollar
Variance

Percentage
Variance

Explanation

Consultants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

895

1,646

751

84

License fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

867

390

(477)

(55)

Operating expenses ÏÏÏÏÏÏÏÏ

2,539

4,026

1,487

59

Increase due to MNTX
($884) and GMK ($134),
partially offset by decreases
in HIV ($38) and other
programs ($229). These
expenses are related to
monitoring and conduct of
clinical trials, including
analysis of data from
completed clinical trials and
vary as the timing and level
of such services are required.

Decrease related to lower
payments to licensors  in our
GMK ($102), MNTX ($50)
and other ($500) programs.
In addition,  there was an
increase in our payments
related to our HIV ($175)
program.

Increase primarily due to
increased rent and  facility
($1,145) and other ($342)
costs in 2004 over those in
2003.

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$27,241

$36,063

$ 8,822

32%

We expect significant increases in research and development expenses related to MNTX as the
clinical programs expand and progress. These expenses would be reduced if we enter into a collaboration
for MNTX in which the collaborator assumes financial responsibility for some or all of the future
development of MNTX, or if we choose not to advance all of our MNTX programs. Spending in other
programs is expected to remain relatively stable.

General and administrative expenses increased from $8,029 in the year ended December 31, 2003 to

$12,580 in the corresponding 2004 period, as follows:

Category

Year Ended
December 31,

2003

2004

Dollar
Variance

Percentage
Variance

Explanation

Salaries and benefits ÏÏÏÏÏÏÏ

$ 3,517

$ 4,057

$

540

15%

Increase due to salary
increases for officers and
other employees partially
offset by the departure of
one senior executive in April
2004.

50

Category

Consulting and professional

Year Ended
December 31,

2003

2004

Dollar
Variance

Percentage
Variance

Explanation

fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,956

5,336

3,380

173

Operating expenses ÏÏÏÏÏÏÏÏ

2,277

2,860

583

26

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

279

327

48

17

Increase due to an increase
in recruiting ($201), audit
fees, including audit fees for
internal control over financial
reporting ($1,782),
additional legal and patent
costs ($1,337), Board of
Director fees ($111) and
consultants ($47), partially
offset by a decrease in other
($98) in the 2004 period.

Increase in rent and facility
costs ($376), insurance costs
($26), travel ($91) and
other costs ($90).

Increase primarily related to
increased investor relations
costs ($31) and corporate
sales and franchise taxes
($28) and a decrease in
conference fees ($11).

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 8,029

$12,580

$ 4,551

57%

Loss in joint venture decreased from $2,525 in the year ended December 31, 2003 to $2,134 in the

corresponding period in 2004 due primarily to higher research and development expenses in 2003 than in
2004. As further described above, we recognized $927 and $762 in the years ended December 31, 2003
and 2004, respectively, of payments received from the NIH as a reduction to joint venture losses and
contract revenue from the joint venture.

Depreciation and amortization increased from $1,273 in the year ended December 31, 2003 to $1,566

in the corresponding period in 2004 as we purchased capital assets and made leasehold improvements in
2004 to increase our manufacturing capacity.

Other income:

Interest income increased from $621 in the year ended December 31, 2003 to $780 in the

corresponding period in 2004. The balance of interest income is the result of investment income from our
marketable securities, offset by the amortization of premiums we paid for those marketable securities. For
the years ended December 31, 2003, and 2004, investment income increased from $1,265 to $1,420,
respectively, due to a higher average balance of cash equivalents and marketable securities in 2004 than in
2003 and higher interest rates in 2004. Amortization of premiums, which is included in interest income,
decreased from $644 to $640 for the years ended December 31, 2003 and 2004, respectively. In November
2003, we completed a public offering of 3,332 shares of our common stock, which provided $49,771, net of
expenses.

Net loss:

Our net loss was $30,986 for the year ended December 31, 2003 compared to a net loss of $42,018 in

the corresponding period in 2004.

51

Liquidity and Capital Resources

We have to date generated no meaningful amounts of recurring revenue, and consequently we have

relied principally on external funding to finance our operations. We have funded our operations since
inception primarily through private placements of equity securities, payments received under collaboration
agreements, public offerings of common stock, funding under government research grants and contracts,
interest on investments, the proceeds from the exercise of outstanding options and warrants and the sale of
our common stock under our employee stock purchase plans.

During the year ended December 31, 2005, we completed three public offerings of common stock,

pursuant to Form S-3 shelf registrations that we had filed with the Securities and Exchange Commission
(""SEC'') in 2004 and 2005, which provided us with a total of $121.6 million in net proceeds from the sale
of 6,307,467 shares. In January 2006, we registered an additional 4.0 million shares of our common stock,
pursuant to the SEC's shelf registration process, for future sales. However, there can be no assurance that
we will be able to complete any further securities transactions. In addition, we received an upfront
payment of $60.0 million from Wyeth in connection with signing the license and co-development
agreement. See ""OverviewÌCollaboration with Wyeth Pharmaceuticals''.

At December 31, 2005, we had cash, cash equivalents and marketable securities, including non-
current portion, totaling $173.1 million compared with $31.2 million at December 31, 2004. Net cash
provided by operating activities for the year ended December 31, 2005 was $11.1 million compared with
net cash used in operating activities of $36.9 million for the same period in 2004. The increase of
$48.0 million of cash provided by operations resulted primarily from an increase in our net loss of
$27.4 million to $69.4 million for the year ended December 31, 2005, mostly due to increased research and
development activity in 2005, which decreased cash provided by operations and which was partially offset
by an increase of $60.0 million in deferred revenue from the upfront license payment made to us by
Wyeth, which increased cash provided by operations. Our cash provided by operations was also increased
from 2004 to 2005 as a result of the following increases in non-cash expenses, which partially offset the
$27.4 million increase in our net loss, noted above:

¬ $15,839,000 related to the purchase of rights from our licensors of MNTX in exchange for our

common stock (See ""OverviewÌPurchase of Rights from Licensors of MNTX''); and

¬ $1,681,000 of non-cash amortization of unearned compensation resulting from the issuance to

employees of restricted stock during 2004 and 2005 and from the issuance of compensatory stock
options to executive officers and non-employees;

Cash provided by operating activities, period over period, was also:

¬ increased by $278,000 resulting from a decrease in loss in joint venture, as reported after

adjustment, of $271,000, which was offset by an increase of $549,000 due to the adjustment to loss
in joint venture. As described above, we reduce our revenue from the joint venture and our loss in
the joint venture by the amount we receive from PSMA-related grant funding up to a cap of
$3.0 million. The increase of $278,000 in loss in joint venture before the adjustment resulted from
decreased research and development costs in 2005, which were more than offset by a $2.0 million
license payment that was paid in 2005. We account for PSMA LLC by using the equity method
and record 50% of PSMA LLC's net loss as our loss in joint venture;

¬ decreased by $2,000,000 due to additional capital contributions to PSMA LLC upon approval of a
work plan and a budget by the Members, in June 2005, for the year ended December 31, 2005.
The 2005 work plan and budget required greater capital contributions during 2005 than did the
corresponding 2004 work plan and budget;

¬ decreased by $1,854,000 from an increase in trade accounts receivable, mostly for reimbursement of

our fourth quarter 2005 expenses under our grants and contract with the NIH; and

¬ increased by $728,000 due to an increase in accounts payable and accrued expenses, as the pace of
our research and development activities, especially for MNTX, increased in 2005 over that in 2004.

52

Net cash used in investing activities was $81.3 million for the year ended December 31, 2005

compared with net cash provided by investing activities of $24.8 million for the same period in 2004. Net
cash used in investing activities for the year ended December 31, 2005 resulted primarily from the sale of
$124.9 million of marketable securities offset by the purchase of $205.3 million of marketable securities
following the three public offerings of our common stock in 2005. We purchase and sell marketable
securities in order to provide funding for our operations and to achieve appreciation of our unused cash in
a low risk environment. In addition, we also purchased $0.9 million of fixed assets including capital
equipment and leasehold improvements as we acquired and built out additional manufacturing space.

Net cash provided by financing activities was $132.0 million for the year ended December 31, 2005 as

compared with $5.4 million for the same period in 2004. The net cash provided by financing activities for
2005 includes $121.6 million in net proceeds that we received from the sale of approximately 6.3 million
shares of our common stock during 2005. In addition, both periods reflect the exercise of stock options
under our Stock Incentive Plans and the sale of common stock under our Employee Stock Purchase Plans.
During 2006, we expect that cash received from exercises under such plans will decrease from the amount
received during 2005 since a major portion of exercises during 2005 were of options from a former
executive.

In December 2005, we entered into a license and co-development agreement with Wyeth for the

development and commercialization of MNTX (See ""OverviewÌCollaboration with Wyeth
Pharmaceuticals''). In addition to the upfront payment of $60 million that we received in connection with
signing that agreement, Wyeth will fund all development and commercialization costs of MNTX and will
make payments to us when we achieve certain milestone events or when Wyeth completes certain
contingent activities. Thus, our cash outlays for our development obligations under that agreement will be
fully reimbursed by Wyeth, allowing us to fund our other research and development projects with our
available cash. In addition, our purchase of rights from our MNTX licensors in December 2005 (see
""OverviewÌPurchase of Rights from MNTX Licensors'') will extinguish our cash payments that would
have been due to those licensors in the future upon the achievement of certain events, including sales of
MNTX products. We will, however, continue to be responsible to make payments (including royalties) to
the University of Chicago upon the occurrence of certain events.

Under the terms of our joint venture with Cytogen, we are required to make capital contributions to

fund 50% of the spending on the PSMA projects. Our and Cytogen's level of commitment to fund PSMA
LLC is based on annual budgets that are developed and approved by the parties. During June 2005, the
Members approved a work plan and budget for the year ended December 31, 2005. We and Cytogen each
contributed $0.5 million during the three months ended March 31, 2005, which was used to fund the
obligations outstanding related to work performed in 2004 under the approved 2004 budget and work plan.
During the remainder of 2005, we and Cytogen each made cash payments of $3.45 million ($6.9 million in
the aggregate), for work performed under the 2005 approved budget through December 31, 2005.

For the year ended December 31, 2005, we recognized approximately $988,000 of contract research

and development revenue for services performed on behalf of PSMA LLC. Our revenues from PSMA
LLC do not result in significant net cash flows to us, since they are relatively minor in comparison to our
expenses and because they are offset in part by capital contributions that we are required to make to
PSMA LLC. PSMA LLC currently has no approved 2006 budget or work plan because we and Cytogen
have not yet reached agreement with respect to a number of matters relating to PSMA LLC. Until we
reach agreement with Cytogen regarding the 2006 budget and work plan, we will not know what, if any,
commitment we will have to PSMA LLC to fund PSMA projects. However, we and Cytogen are required
to fulfill obligations under existing contractual commitments as of December 31, 2005. Although work on
the PSMA projects continues, if we do not reach an agreement regarding the 2006 budget and work plan,
our capital commitments to, and our revenues associated with, PSMA LLC would be reduced or
eliminated.

During June 2005, PSMA LLC entered into a collaboration agreement with SGI (see ""Overview''),

to license certain technology, which required PSMA LLC to make a $2.0 million technology access fee
payment. The SGI Agreement also requires the payment of maintenance fees, payments, aggregating

53

$15.0 million, upon achievement of defined milestone events and royalties on net sales of any products
approved by the FDA. The PSMA monoclonal antibody research and development project, for which the
SGI licensed technology will be used, is currently in the preclinical stage. Therefore, milestone and royalty
payments, if any, other than a preclinical milestone payment, which may be due sooner, will not be due for
at least three years.

Our total expenses for research and development from inception through December 31, 2005 have

been approximately $221.9 million. We currently have major research and development programs
investigating symptom management and supportive care, HIV-related diseases and cancer. In addition, we
are conducting several smaller research projects in the areas of virology and cancer. For various reasons,
many of which are outside of our control, including the early stage of certain of our programs, the timing
and results of our clinical trials and our dependence in certain instances on third parties, we cannot
estimate the total remaining costs to be incurred and timing to complete our research and development
programs. We have entered into a collaboration agreement with Wyeth with respect to MNTX, pursuant
to which Wyeth has assumed all of the financial responsibility for further development. As we proceed
with our development responsibilities under our MNTX programs, although we expect that our spending
on MNTX will increase significantly during 2006, our cash outlays will be reimbursed by Wyeth. We also
expect that spending on our PRO 140 HIV program will increase and that spending on our other programs
will remain relatively stable in 2006.

For the years ended December 31, 2003, 2004 and 2005, research and development costs incurred

were as follows (see ""Results of OperationsÌExpenses''):

MNTX ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
HIV ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cancer ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other programs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2005

2003

For the Year Ended
December 31,
2004
(in millions)
$19.7
8.3
5.9
2.2

$11.7
7.5
4.5
3.5

$43.8
11.7
6.6
1.7

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$27.2

$36.1

$63.8

In September 2003, we were awarded a contract by the National Institutes of Health (the ""NIH
Contract''). The NIH Contract provides for up to $28.6 million in funding, subject to annual funding
approvals, to us over five years for preclinical research, development and early clinical testing of a
prophylactic vaccine designed to prevent HIV from becoming established in uninfected individuals exposed
to the virus. We anticipate that these funds will be used principally in connection with our ProVax HIV
vaccine program. Our scientists are the principal investigators under the contract and head the vaccine
development effort. The vaccine design and animal testing core groups under a subcontract will be headed
by existing academic collaborators of ours. A total of approximately $3.7 million is earmarked under the
NIH Contract to fund such subcontracts. Funding under the NIH Contract is subject to compliance with
its terms, and the payment of an aggregate of $1.6 million in fees is subject to achievement of specified
milestones. Through December 31, 2005, we had recognized revenue of $6.0 million from this contract,
including $180,000 for the achievement of two milestones.

In July and September 2005, we were awarded a total of two grants from the NIH, which provide for

up to $3.0 million and $10.1 million, respectively, in support for our hepatitis C virus research program
and PRO 140 HIV development program, respectively, to be awarded over a three year and a three and a
half year period, respectively. Funding under those grants is subject to compliance with their terms, and is
subject to annual funding approvals. Through December 31, 2005, we recognized $811,000 of revenue from
those grants.

Other than amounts received from Wyeth and from currently approved grants and contracts, we have

no committed external sources of capital. Other than potential revenues from MNTX, we expect no

54

significant product revenues for a number of years as it will take at least that much time, if ever, to bring
our products to the commercial marketing stage.

We anticipate significant increases in expenditures as we continue to expand our research and

development activities, particularly in our MNTX and PRO 140 programs. Consequently, while Wyeth will
fund our MNTX programs, we may require additional funding to continue our other research and product
development programs, to conduct preclinical studies and clinical trials, for operating expenses, to pursue
regulatory approvals for our other product candidates, for the costs involved in filing and prosecuting
patent applications and enforcing or defending patent claims, if any, for the cost of product in-licensing
and for any possible acquisitions. Our manufacturing and commercialization expenses for MNTX will be
funded by Wyeth. However, if we exercise our option to co-promote MNTX products in the U.S., we will
be required to establish and fund a sales force, which we currently do not have. If we commercialize any
other product candidate other than with a corporate collaborator, we would also require additional funding
to establish manufacturing and marketing capabilities.

Our existing cash, cash equivalents and marketable securities are sufficient to fund current operations

for at least one year. Our current collaboration with Wyeth has provided us with a $60 million upfront
payment and will, beginning in January 2006, reimburse our development costs for MNTX and provide
milestone and other contingent payments upon the achievement of certain events. Wyeth will also fund all
commercialization costs of MNTX products. We may also enter into a collaboration agreement with
respect to other of our product candidates. We cannot forecast with any degree of certainty, however,
which products or indications, if any, will be subject to future collaborative arrangements, or how such
arrangements would affect our capital requirements. The consummation of the agreement with Wyeth
allows us to allocate our current funds to advance other projects.

Unless we obtain regulatory approval from the FDA for at least one of our product candidates and/or

enter into agreements with corporate collaborators with respect to the development of our technologies in
addition to that for MNTX, we will be required to fund our operations for periods in the future, by seeking
additional financing through future offerings of equity or debt securities or funding from additional grants
and government contracts. Adequate additional funding may not be available to us on acceptable terms or
at all. Our inability to raise additional capital on terms reasonably acceptable to us would seriously
jeopardize the future success of our business.

Contractual Obligations

Our funding requirements, both for the next 12 months and beyond, will include required payments

under operating leases, licensing and collaboration agreements, a potential funding commitment to PSMA
LLC related to its previous contractual obligations and a purchase commitment with our supplier of
MNTX. The following table summarizes our contractual obligations as of December 31, 2005 for future
payments under these agreements:

Total

2006

Payments due by December 31,
2007-2008

2009-2010

Thereafter

Operating leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
License and collaboration agreements(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Funding commitment to PSMA LLC(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase commitmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 4.7
14.4
0.7
0.8

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$20.6

$1.7
1.4
0.7
0.8

$4.6

(in millions)
$0.9
1.9

$2.1
2.1

$9.0

$4.2

$2.8

$9.0

(1) Assumes attainment of milestones covered under each agreement. The timing of the achievement of the related milestones is
highly uncertain, and accordingly the actual timing of payments, if any, is likely to vary, perhaps significantly, relative to the
timing contemplated by this table.

(2) The Members have not agreed on a work plan or budget for PSMA LLC for 2006. However, the Members are required to fulfill

obligations under existing contractual commitments as of December 31, 2005.

55

For each of our programs, we periodically assess the scientific progress and merits of the programs to

determine if continued research and development is economically viable. Certain of our programs have
been terminated due to the lack of scientific progress and lack of prospects for ultimate commercialization.
Because of the uncertainties associated with research and development of these programs, the duration and
completion costs of our research and development projects are difficult to estimate and are subject to
considerable variation. Our inability to complete our research and development projects in a timely manner
or our failure to enter into collaborative agreements could significantly increase our capital requirements
and adversely impact our liquidity.

Our cash requirements may vary materially from those now planned because of results of research and

development and product testing, changes in existing relationships or new relationships with, licensees,
licensors or other collaborators, changes in the focus and direction of our research and development
programs, competitive and technological advances, the cost of filing, prosecuting, defending and enforcing
patent claims, the regulatory approval process, manufacturing and marketing and other costs associated
with the commercialization of products following receipt of regulatory approvals and other factors.

The above discussion contains forward-looking statements based on our current operating plan and the

assumptions on which it relies. There could be changes that would consume our assets earlier than
planned.

Off-Balance Sheet Arrangements and Guarantees

We have no off-balance sheet arrangements and do not guarantee the obligations of any other entity.

Critical Accounting Policies

We prepare our financial statements in conformity with accounting principles generally accepted in

the United States of America. Our significant accounting policies are disclosed in Note 2 to our financial
statements included in this Annual Report on Form 10-K for the year ended December 31, 2005. The
selection and application of these accounting principles and methods requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain
financial statement disclosures. On an ongoing basis, we evaluate our estimates. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the
circumstances. The results of our evaluation form the basis for making judgments about the carrying
values of assets and liabilities that are not otherwise readily apparent. While we believe that the estimates
and assumptions we use in preparing the financial statements are appropriate, these estimates and
assumptions are subject to a number of factors and uncertainties regarding their ultimate outcome and,
therefore, actual results could differ from these estimates.

We have identified our critical accounting policies and estimates below. These are policies and
estimates that we believe are the most important in portraying our financial condition and results of
operations, and that require our most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently uncertain. We have discussed the
development, selection and disclosure of these critical accounting policies and estimates with the Audit
Committee of our Board of Directors.

Revenue Recognition

During the years ended December 31, 2003, 2004 and 2005, we recognized revenue from PSMA LLC

for contract research and development; from government research grants and contracts from the National
Institutes of Health (the ""NIH''), which are used to subsidize certain of our research projects
(""Projects''); and from the sale of research reagents. On December 23, 2005, we entered into a license
and co-development agreement with Wyeth, which includes a non-refundable upfront license fee,
reimbursement of development costs, research and development payments based upon our achievement of
clinical development milestones, contingent payments based upon the achievement by Wyeth of defined
events and royalties on product sales. We recognize revenue from all sources based on the provisions of the

56

Securities and Exchange Commission's Staff Accounting Bulletin No. 104 (""SAB 104'') ""Revenue
Recognition'', Emerging Issues Task Force Issue No. 00-21 (""EITF 00-21'') ""Accounting for Revenue
Arrangements with Multiple Deliverables'' and EITF Issue No. 99-19 ""Reporting Revenue Gross as a
Principal Versus Net as an Agent''.

Effective January 1, 2005, we elected to change the method we use to recognize revenue under
SAB 104 for payments received under research and development collaboration agreements that contain
substantive at-risk milestone payments. There was no cumulative effect of this change in accounting
principle because we did not have any of these contracts at the time of the change. The change in
accounting method was made because we believe that it will enhance the comparability of our financial
results with those of our peer group companies in the biotechnology industry and because it is expected to
better reflect the substance of our collaborative arrangements.

Under the new method, non-refundable upfront license fees are recognized as revenue when we have

a contractual right to receive such payment, the contract price is fixed or determinable, the collection of
the resulting receivable is reasonably assured and we have no further performance obligations under the
license agreement. Multiple element arrangements, such as license and development arrangements, are
analyzed to determine whether the deliverables, which often include a license and performance obligations,
such as research and steering committee services, can be separated or whether they must be accounted for
as a single unit of accounting in accordance with EITF 00-21. We would recognize upfront license
payments as revenue upon delivery of the license only if the license had standalone value and the fair
value of the undelivered performance obligations, typically including research or steering committee
services, could be determined. If the fair value of the undelivered performance obligations could be
determined, such obligations would then be accounted for separately as performed. If the license is
considered to either (i) not have standalone value or (ii) have standalone value but the fair value of any
of the undelivered performance obligations could not be determined, the arrangement would then be
accounted for as a single unit of accounting and the upfront license payments would be recognized as
revenue over the estimated period of when our performance obligations are performed.

Whenever we determine that an arrangement should be accounted for as a single unit of accounting,

we must determine the period over which the performance obligations will be performed and revenue
related to upfront license payments will be recognized. Revenue will be recognized using either a
proportionate performance or straight-line method. We recognize revenue using the proportionate
performance method provided that we can reasonably estimate the level of effort required to complete our
performance obligations under an arrangement and such performance obligations are provided on a best-
efforts basis. Direct labor hours or full-time equivalents will typically be used as the measure of
performance. Under the proportionate performance method, revenue related to upfront license payments is
recognized in any period as the percent of actual effort expended in that period relative to total effort
budgeted for all of our performance obligations under the arrangement.

If we cannot reasonably estimate the level of effort required to complete our performance obligations
under an arrangement and the performance obligations are provided on a best-efforts basis, then the total
upfront license payments would be recognized as revenue on a straight-line basis over the period we expect
to complete our performance obligations.

Significant management judgment is required in determining the level of effort required under an
arrangement and the period over which we expect to complete our performance obligations under the
arrangement. In addition, if we are involved in a steering committee as part of a multiple element
arrangement that is accounted for as a single unit of accounting, we assess whether our involvement
constitutes a performance obligation or a right to participate.

Collaborations may also contain substantive milestone payments. Substantive milestone payments are
considered to be performance payments that are recognized upon achievement of the milestone only if all
of the following conditions are met: (1) the milestone payments are non-refundable; (2) achievement of
the milestone involves a degree of risk and was not reasonably assured at the inception of the arrangement;
(3) substantive effort is involved in achieving the milestone, (4) the amount of the milestone payment is

57

reasonable in relation to the effort expended or the risk associated with achievement of the milestone and
(5) a reasonable amount of time passes between the upfront license payment and the first milestone
payment as well as between each subsequent milestone payment (the ""Substantive Milestone Method'').

Determination as to whether a milestone meets the aforementioned conditions involves management's

judgment. If any of these conditions are not met, the resulting payment would not be considered a
substantive milestone and, therefore, the resulting payment would be considered part of the consideration
for the single unit of accounting and be recognized as revenue as such performance obligations are
performed under either the proportionate performance or straight-line methods, as applicable, and in
accordance with the policies described above.

We will recognize revenue for payments that are contingent upon performance solely by our
collaborator immediately upon the achievement of the defined event if we have no related performance
obligations.

Reimbursement of costs is recognized as revenue provided the provisions of EITF Issue No. 99-19 are

met, the amounts are determinable and collection of the related receivable is reasonably assured.

Royalty revenue is recognized upon the sale of related products, provided that the royalty amounts are
fixed and determinable, collection of the related receivable is reasonably assured and we have no remaining
performance obligations under the arrangement. If royalties are received when we have remaining
performance obligations, the royalty payments would be attributed to the services being provided under the
arrangement and, therefore, would be recognized as such performance obligations are performed under
either the proportionate performance or straight-line methods, as applicable, and in accordance with the
policies described above.

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred

revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized during
the year ended December 31, 2006 are classified as long-term deferred revenue. As of December 31, 2005,
relative to the $60 million upfront license payment received from Wyeth, we have recorded $23.6 million
and $36.4 million as short-term and long-term deferred revenue, respectively, which is expected to be
recognized as revenue through 2008. The estimate of the classification of deferred revenue as short-term or
long-term is based upon management's current operating budget for the Wyeth collaboration agreement for
our total effort required to complete our performance obligations under that arrangement. That estimate
may change in the future and such changes to estimates would result in a change in the amount of
revenue recognized in future periods.

Previously, we had recognized non-refundable fees, including payments for services, up-front licensing

fees and milestone payments, as revenue based on the percentage of efforts incurred to date, estimated
total efforts to complete, and total expected contract revenue in accordance with EITF Issue No. 91-6,
""Revenue Recognition of Long-Term Power Sales Contracts,'' with revenue recognized limited to the
amount of non-refundable fees received. Depending on the magnitude and timing of milestone payments,
revenue may be recognized sooner under the Substantive Milestone Method than it would have been under
the EITF 91-6 model. The accounting change did not affect revenue from NIH grants and contracts,
services performed on behalf of PSMA LLC, or from product sales.

NIH grant and contract revenue is recognized as efforts are expended and as related subsidized
Project costs are incurred. We perform work under the NIH grants and contract on a best-effort basis.
The NIH reimburses us for costs associated with Projects in the fields of HIV and cancer, including
preclinical research, development and early clinical testing of a prophylactic vaccine designed to prevent
HIV from becoming established in uninfected individuals exposed to the virus, as requested by the NIH.
Substantive at-risk milestone payments are uncommon in these arrangements, but would be recognized as
revenue on the same basis as the Substantive Milestone Method.

Both we and Cytogen are required to fund PSMA LLC equally to support ongoing research and
development efforts that we conduct on behalf of PSMA LLC. We recognize payments for research and
development as revenue as services are performed. The Members have not approved a work plan or budget

58

for 2006. Therefore, beginning on January 1, 2006, we will not be reimbursed by PSMA LLC for our
services and we will not recognize revenue from PSMA LLC until such time as a work plan and budget
are approved.

For the years ended December 31, 2003, 2004 and 2005, our research grant and contract and contract

research and development revenue came exclusively from the NIH and PSMA LLC, respectively. Our
research grant and contract revenue represented 65%, 78% and 89% of our total revenue, respectively, and
contract research and development revenue represented 33%, 21% and 10% of our total revenue,
respectively. For the years ended December 31, 2003, 2004 and 2005, receivables from the NIH
represented 84% and 99% of total receivables, respectively, and receivables from PSMA LLC represented
15% and 0% of total receivables, respectively.

Clinical Trial Expenses

Clinical trial expenses, which are included in research and development expenses, represent

obligations resulting from our contracts with various clinical investigators and clinical research
organizations in connection with conducting clinical trials for our product candidates. Such costs are
expensed based on the expected total number of patients in the trial, the rate at which the patients enter
the trial and the period over which the clinical investigators and clinical research organizations are
expected to provide services. We believe that this method best approximates the efforts expended on a
clinical trial with the expenses we record. We adjust our rate of clinical expense recognition if actual
results differ from our estimates. We expect that clinical trial expenses will increase significantly during
2006 as clinical trials progress or are initiated in the MNTX and HIV programs. Our collaboration
agreement with Wyeth regarding MNTX in which Wyeth has assumed all of the financial responsibility
for further development will mitigate those costs.

Stock-Based Compensation

We have historically prepared our financial statements in accordance with APB Opinion No. 25,
""Accounting for Stock Issued to Employees'' (""APB 25''). In accordance with APB 25, generally, we
have not recognized compensation expense in connection with the awarding of common stock option grants
to employees provided that, as of the grant date, all terms associated with the award are fixed and the fair
value of our common stock, as of the grant date, is equal to or less than the exercise price. We recognize
compensation expense if the terms of an option grant are not fixed or the quoted market price of our
common stock on the grant date is greater than the exercise price. We also recognize compensation
expense for performance-based vesting of stock options upon achievement of defined milestones and for
restricted stock awards as the restrictions lapse ratably over the related vesting periods. The fair value of
options and warrants granted to non-employees for services are included in the financial statements and
expensed as they vest.

On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised

2004) ""Share-Based Payment'' (""SFAS No. 123(R)'') using the modified prospective application.
SFAS No. 123(R) requires that we recognize compensation expense for equity-based awards to employees
in our Statements of Operations rather than as a disclosure only in the footnotes to our financial
statements, as was required under previous accounting principles. Therefore, the assumptions we
incorporate in the Black-Scholes option pricing model that we use to value our equity-based awards will
impact our net loss and net loss per share. In anticipation of the adoption of SFAS No. 123(R), we have
revised certain assumptions used in the Black-Scholes option pricing model. For all awards granted on or
after January 1, 2005, we changed the estimate of expected term from 5 years to 6.5 years. The period
used to calculate historical volatility of our common stock has also been revised to 6.5 years. The impact
of these revisions is expected to increase the amount of compensation expense we recognize as compared
to the amount that would have been recognized using the previous estimates. We believe that the revised
estimates better reflect the exercise activity of stock options granted to our employees.

59

Impact of Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (the ""FASB'') issued

SFAS No. 123(R), which is a revision of FASB Statement No. 123, ""Accounting for Stock Based
Compensation'' (""SFAS No. 123''). SFAS No. 123(R) supersedes APB 25, and amends FASB
Statement No. 95, ""Statement of Cash Flows''. SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options and restricted stock, and purchases of common
stock under the Company's Employee Stock Purchase Plans, if compensatory, as defined, to be recognized
in the financial statements based on their grant-date fair values. The standard allows three alternative
transition methods for public companies: modified prospective method; modified retrospective method with
restatement of prior interim periods in the year of adoption; and modified retroactive method with
restatement of all prior financial statements to include the same amounts that were previously included in
pro forma disclosures. Historically, in accordance with SFAS No. 123 and Statement of Financial
Accounting Standards No. 148 ""Accounting for Stock-Based Compensation-Transition and Disclosure''
(""SFAS No 148''), the Company had elected to follow the disclosure-only provisions of Statement
No. 123 and, accordingly, accounted for share-based compensation under the recognition and measurement
principles of APB 25 and related interpretations. Under APB 25, when stock options are issued to
employees with an exercise price equal to or greater than the market price of the underlying stock price on
the date of grant, no compensation expense is recognized in the financial statements and pro forma
compensation expense in accordance with SFAS No. 123 is only disclosed in the footnotes to the financial
statements. On January 1, 2006, we adopted SFAS No. 123(R) using the modified prospective application
and the Black-Scholes option pricing model to calculate the fair value of option awards. We expect the
impact that SFAS No. 123(R) will have on our results of operations to be material. Total compensation
expense related to unvested stock options and restricted stock at January 1, 2006 was $15.3 million, which
will be recognized as compensation expense over a weighted average period of 3.6 years.

On March 29, 2005, the Securities and Exchange Commission (""SEC'') issued Staff Accounting
Bulletin No. 107 (""SAB 107''), which expresses views of the SEC staff regarding the interaction between
SFAS No. 123(R) and certain SEC rules and regulations and provide the SEC staff's views regarding the
valuation of share-based payment arrangements for public companies. In particular, SAB 107 provides
guidance related to share-based payment transactions with nonemployees, the transition from nonpublic to
public entity status, valuation methods (including assumptions such as expected volatility and expected
term), the accounting for certain redeemable financial instruments issued under share-based payment
arrangements, the classification of compensation expense, non-GAAP financial measures, first-time
adoption of SFAS No. 123(R) in an interim period, capitalization of compensation cost related to share-
based payment arrangements, the accounting for income tax effects of share-based payment arrangements
upon adoption of SFAS No. 123(R), the modification of employee share options prior to adoption of
SFAS No. 123(R) and disclosures in Management's Discussion and Analysis subsequent to adoption of
SFAS No. 123(R). We will implement all applicable aspects of SAB 107, including those related to
presentation and disclosure requirements under SFAS No. 123(R) beginning on January 1, 2006.

On August 31, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-1, ""Classification

and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee
Services under FASB Statement No. 123(R)'' (""FSP 123(R)-1''). FSP 123(R)-1 indefinitely defers the
requirement of SFAS No. 123(R), that a freestanding financial instrument issued to an employee, such as
a stock option or restricted stock award, originally subject to FAS 123(R) become subject to the
recognition and measurement requirements of other applicable GAAP when the rights conveyed by the
instrument to the holder are no longer dependent on the holder being an employee of the entity, such as
upon termination of employment. Our Stock Incentive Plans allow exercise of equity-based awards for a
period of three months following termination of employment. We will apply the guidance in
FSP 123(R)-1 upon initial adoption of SFAS No. 123(R), which will preclude the necessity to record a
liability during that three month period.

On October 18, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-2, ""Practical

Exception to the Application of Grant Date as Defined in Statement 123(R)'' (""FSP 123(R)-2'').

60

FSP 123(R)-2 provides that the grant date for purposes of accounting for stock-based compensation
awards under SFAS No. 123(R) would be established prior to the communication of the key terms of the
award to the recipient if certain conditions are met. FSP 123(R)-2 provides that a mutual understanding
of the key terms and conditions of an award exists at the date the award is approved by the Board of
Directors or other management with relevant authority if the following conditions are met: (a) the
recipient does not have the ability to negotiate the key terms and conditions of the award with the
employer (i.e., the grant is unilateral) and (b) the key terms of the award are expected to be
communicated to all of the recipients within a relatively short time period from the date of approval.
FSP 123(R)-2 provides that ""a relatively short time period'' should be determined based on the period
during which an entity could plausibly complete the actions necessary to communicate the terms of an
award to the recipient(s) in accordance with the entity's customary human resource practices. We will
apply the guidance of FSP 123(R)-2 upon initial adoption of SFAS No. 123(R). We do not expect any
material impact from the adoption of FSP 123(R)-2 because it does not represent a change in its practice
of granting equity-based awards.

On November 10, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-3, ""Transition
Election Related to Accounting for the Tax Effects of Share-Based Payment Awards'' (""FSP 123(R)-3'').
FSP 123(R)-3 provides a transition election related to the accounting for the income tax effects of stock-
based-compensation awards upon an entity's adoption of SFAS No. 123(R). The transition election is
intended to simplify the calculation of the pool of windfall tax benefits that is available to absorb tax
deficiencies, or shortfalls, that may occur in periods subsequent to the adoption of SFAS No. 123(R).
Determining the pool of windfall tax benefits under SFAS No. 123(R) requires an entity to analyze and
reconcile the book and tax records of all stock-based compensation awards dating back to the original
effective date of SFAS No. 123 in 1995. The FASB staff issued FSP 123(R)-3 because there may be
significant cost or complexities involved in determining the pool of windfall tax benefits from the original
effective date of SFAS No. 123. FSP 123(R)-3 gives entities an election to select an alternative transition
method (the short-cut method) for the calculation of the pool of windfall tax benefits as of the adoption
date of SFAS No. 123(R). We have elected to adopt the short cut method when we adopt
SFAS No. 123(R) and we expect our pool of windfall tax benefits to be zero on the adoption date
because we have had net operating losses since inception.

On February 3, 2006, the FASB issued FASB Staff Position No. FAS 123(R)-4 ""Classification of
Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon
the Occurrence of a Contingent Event'' (""FSP 123(R)-4''). FSP 123(R)-4 amends SFAS 123(R) to
allow options and similar instruments issued as employee compensation to be accounted for as equity
instruments rather than as liabilities, as had been required by SFAS 123(R) if the option contains a cash
settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the
employee's control until it becomes probable that the event will occur. An example of such contingent
event is a change in control of an employer. The Company does not expect FSP 123(R)-4 to have a
material effect on its financial statements.

On September 1, 2005, the FASB issued Statement No. 154, ""Accounting Changes and Error
Corrections'' (""SFAS No. 154''), which will require entities that voluntarily make a change in accounting
principle to apply that change retrospectively to prior periods' financial statements, unless this would be
impracticable. SFAS No. 154 supersedes Accounting Principles Board Opinion No. 20, ""Accounting
Changes'' (""APB 20''), which previously required that most voluntary changes in accounting principle be
recognized by including in the current period's net income the cumulative effect of changing to the new
accounting principle. SFAS No. 154 also makes a distinction between ""retrospective application'' of an
accounting principle and the ""restatement'' of financial statements to reflect the correction of an error.
Another significant change in practice under SFAS No. 154 will be that if an entity changes its method of
depreciation, amortization, or depletion for long-lived, nonfinancial assets, the change must be accounted
for as a change in accounting estimate. Under APB 20, such a change would have been reported as a
change in accounting principle. SFAS No. 154 applies to accounting changes and error corrections that are
made in fiscal years beginning after December 15, 2005. We do not expect the impact of adoption of
SFAS No. 154 to be material to our financial statements.

61

On November 3, 2005, the FASB issued Staff Position No. FAS 115-1 and FAS 124-1, ""The

Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments'' (""FSP
FAS 115-1 and FAS 124-1''). This FSP, effective January 1, 2006, provides accounting guidance
regarding the determination of when an impairment of debt and equity securities should be considered
other-than-temporary, as well as the subsequent accounting for these investments. The adoption of this
FSP is not expected to have a material impact on our financial position or results of operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Our primary investment objective is to preserve principal while maximizing yield without significantly

increasing our risk. Our investments consist of taxable auction securities, corporate notes and issues of
government-sponsored entities. Our investments totaled $108.9 million at December 31, 2005.
Approximately $57.3 million of these investments had fixed interest rates, and $51.6 million had interest
rates that were variable.

Due to the conservative nature of our short-term fixed interest rate investments, we do not believe
that we have a material exposure to interest rate risk. Our fixed-interest-rate long-term investments are
sensitive to changes in interest rates. Interest rate changes would result in a change in the fair value of
these investments due to differences between the market interest rate and the rate at the date of purchase
of the investment. A 100 basis point increase in the December 31, 2005 market interest rates would result
in a decrease of approximately $0.5 million in the market values of these investments.

At December 31, 2005, the Company did not hold any market risk sensitive instruments.

Item 8. Financial Statements and Supplementary Data

See page F-1, ""Index to Financial Statements.''

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required

to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the
timelines specified in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can only provide reasonable assurance of achieving the desired control
objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with

the participation of the Company's management, including our Chief Executive Officer and our Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as of the end of the year covered by this report. Based on the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded that our current disclosure controls and procedures, as designed and
implemented, were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal control over financial reporting, as such term is
defined in the Exchange Act Rules 13a-15(f) and 15d-15(f) during our fiscal quarter ended December 31,

62

2005 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

Management's Report on Internal Control Over Financial Reporting

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated
under the Exchange Act as a process designed by, or under the supervision of, the Company's principal
executive and principal financial officers and effected by the Company's Board, management and other
personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting
principles, and includes those policies and procedures that:

(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the

transactions and dispositions of our assets;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation

of financial statements in accordance with generally accepted accounting principles, and that our
receipts and expenditures are being made only in accordance with authorization of our
management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use or disposition of our assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Management has used the framework set forth in the report entitled Internal ControlÌIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, known as
COSO, to evaluate the effectiveness of our internal control over financial reporting. Management has
concluded that our internal control over financial reporting was effective as of December 31, 2005.
Management's assessment of our internal control over financial reporting as of December 31, 2005 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated
in their report which appears herein.

Item 9B. Other Information

None

63

PART III

Item 10. Directors, Executive Officers and Key Management of the Registrant

Our continuing directors, executive officers and key management are as follows:

Name

Age

Position

Kurt W. Briner (1)(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Paul F. Jacobson (1)(2)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Paul J. Maddon, M.D., Ph.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Charles A. Baker (1)(2)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mark F. Dalton (2)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stephen P. Goff, Ph.D. (2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David A. Scheinberg, M.D., Ph.D. ÏÏÏÏÏÏÏÏÏÏÏÏ
Robert A. McKinney, CPA ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Mark R. Baker, J.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Thomas A. Boyd, Ph.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Robert J. Israel, M.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Lynn M. Bodarky, M.B.A. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Richard W. Krawiec, Ph.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Alton B. Kremer, M.D., Ph.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
William C. Olson, Ph.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Benedict Osorio, M.B.A. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Nitya G. Ray, Ph.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

61
51
46

73
55
54
50
49

51

54
49
40

58
53
43
49
53

Co-Chairman
Co-Chairman
Chief Executive Officer, Chief Science Officer
and Director
Director
Director
Director
Director
Chief Financial Officer, Senior Vice President,
Finance & Operations and Treasurer
Senior Vice President & General Counsel and
Secretary
Senior Vice President, Product Development
Senior Vice President, Medical Affairs
Vice President, Business Development &
Licensing
Vice President, Corporate Affairs
Vice President, Clinical Research
Vice President, Research & Development
Vice President, Quality
Vice President, Manufacturing

(1) Member of the Audit Committee

(2) Member of the Nominating and Corporate Governance Committee

(3) Member of the Compensation Committee

Kurt W. Briner is the former President and Chief Executive Officer of Sanofi Pharma S.A. in Paris,
France, a position he held from 1988 until his retirement in 2000, and he has nearly 32 years' experience
in the pharmaceutical industry. Mr. Briner is currently also a director of Novo Nordisk Danmark and
Galenica S.A., each a European-based pharmaceutical company. He attended Humanistisches Gymnasium
in Basel and Ecole de Commerce in Basel and Lausanne.

Paul F. Jacobson has been the Chief Executive Officer of Diversified Natural Products Co., a

privately held industrial biotechnology company, since 2003. Mr. Jacobson has also been a general partner
of Starting Point Venture Partners, a private investment fund, since 1999. Previously, Mr. Jacobson was
Managing Director of fixed income securities at Deutsche Bank from January 1996 to November 1997. He
was President of Jacobson Capital Partners from 1993 to 1996. From 1986 to 1993, Mr. Jacobson was a
partner at Goldman, Sachs & Co. where he was responsible for government securities trading activities.
Mr. Jacobson received a B.A. from Vanderbilt University and an M.B.A. from Washington University.

Paul J. Maddon, M.D., Ph.D. is our founder and has served in various capacities since our inception,

including as our Chairman of the Board of Directors, Chief Executive Officer, President and Chief
Science Officer. From 1981 to 1988, Dr. Maddon performed research at the Howard Hughes Medical
Institute at Columbia University in the laboratory of Dr. Richard Axel. Dr. Maddon serves on several
NIH scientific review committees and also serves on the board of directors of Epixis SA, a French
biotechnology company. He received a B.A. in biochemistry and mathematics and a M.D. and a Ph.D. in

64

biochemistry and molecular biophysics from Columbia University. Dr. Maddon has been an Adjunct
Assistant Professor of Medicine at Columbia University since 1989.

Charles A. Baker is a business advisor to biotechnology companies. He is the former Chairman,
President and Chief Executive Officer of The Liposome Company, Inc., a biotechnology company located
in Princeton, New Jersey, a position he held from 1989 until the sale of the company in 2000. Mr. Baker
is currently a director of Regeneron Pharmaceuticals, Inc., a biotechnology company. Mr. Baker has
43 years of pharmaceutical industry experience and has held senior management positions at Pfizer,
Abbott Laboratories and Squibb Corporation. Mr. Baker received a B.A. from Swarthmore College and a
J.D. from Columbia University.

Mark F. Dalton has been the President and a director of Tudor Investment Corporation, an

investment advisory company, and its affiliates since 1988 and has been the President and Vice Chairman
of such companies since 2005. From 1979 to 1988, he served in various senior management positions at
Kidder, Peabody & Co. Incorporated, including Chief Financial Officer. Mr. Dalton is currently a director
of several private companies. Mr. Dalton received a B.A. from Denison University and a J.D. from
Vanderbilt University Law School.

Stephen P. Goff, Ph.D. has been a member of our Virology Scientific Advisory Board since 1988 and

has been its Chairman since April 1991. Dr. Goff has been the Higgins Professor in the Departments of
Biochemistry and Microbiology at Columbia University since June 1990. He received an A.B. in
biophysics from Amherst College and a Ph.D. in biochemistry from Stanford University. Dr. Goff
performed post-doctoral research at the Massachusetts Institute of Technology in the laboratory of
Dr. David Baltimore.

David A. Scheinberg, M.D., Ph.D. has been a member of our Cancer Scientific Advisory Board since
1994. Dr. Scheinberg has been associated with Sloan-Kettering since 1986, where he is the Vincent Astor
Chair and Member, Leukemia Service; Chairman, Molecular Pharmacology and Chemistry Program;
Chairman, Experimental Therapeutics Center; Member, Clinical Immunology Service; and Head,
Laboratory of Hematopoietic Cancer Immunochemistry. He also holds the position of Professor of
Medicine and Pharmacology, Weill-Cornell Medical College. He received a B.A. from Cornell University
and an M.D. and a Ph.D. in pharmacology and experimental therapeutics from The Johns Hopkins
University School of Medicine.

Robert A. McKinney, CPA became our Chief Financial Officer on March 10, 2005. Mr. McKinney
has served as our Vice President, Finance & Operations and Treasurer from January 1993 and became our
Senior Vice President, Finance and Operations in February 2006. Mr. McKinney joined us in 1992 as
Director, Finance and Operations and Treasurer. From 1991 to 1992, he was Corporate Controller at
VIMRx Pharmaceuticals, Inc., a biotechnology research company. From 1990 to 1992, Mr. McKinney was
Manager, General Accounting at Micrognosis, Inc., a software integration company. From 1985 to 1990,
he was an audit supervisor at Coopers & Lybrand LLP, an international accounting firm. Mr. McKinney
studied finance at the University of Michigan, received a B.B.A. in accounting from Western Connecticut
State University, and is a Certified Public Accountant.

Mark R. Baker, J.D. joined the Company on June 20, 2005 as Senior Vice President & General
Counsel and Secretary. Prior to joining the Company Mr. Baker was Chief Business Officer, Secretary and
a director of New York Trans Harbor LLC, a privately-held ferry operation in New York City operating
under the name New York Water Taxi from January 2003 to June 2005 and Executive Vice President,
Chief Legal Officer and Secretary of ContiGroup Companies, Inc. (formerly Continental Grain Company)
a privately-held international agri-business and financial concern from September 1997 to August 2001.
Mr. Baker began his career in 1979 as a corporate lawyer with the law firm Dewey Ballantine in New
York, where he was a partner and Co-Chairman of the Capital Markets Group, among other positions,
serving through August 1997. Mr. Baker was awarded an A.B. degree from Columbia College and a J.D.
from the Columbia University School of Law.

Thomas A. Boyd, Ph.D. joined us in January 2000 as Senior Director, Project Management and
became Vice President, Preclinical Development and Project Management in January 2002 and Senior

65

Vice President, Product Development in June 2005. From 1996 through 2000, Dr. Boyd was Associate
Director, R & D Project Management at Boehringer Ingelheim Pharmaceuticals, Inc. and held various
positions with Wyeth-Ayerst Research and Alteon, Inc. prior thereto. He received his Ph.D. from Brown
University in physiology and biophysics and an A.B. degree from the College of Arts and Sciences, Cornell
University.

Robert J. Israel, M.D. joined us as Vice President, Medical Affairs in October 1994 and was

promoted to Senior Vice President, Medical Affairs in 2002. From 1991 to 1994, Dr. Israel was Director,
Clinical Research-Oncology and Immunohematology at Sandoz Pharmaceuticals Corporation. From 1988
to 1991, he was Associate Director, Oncology Clinical Research at Schering-Plough Corporation.
Dr. Israel is a licensed physician and is board certified in both internal medicine and medical oncology. He
received a B.A. in physics from Rutgers University and an M.D. from the University of Pennsylvania and
completed an oncology fellowship at Sloan-Kettering. Dr. Israel has been a consultant to the Solid Tumor
Service at Sloan-Kettering.

Lynn M. Bodarky, M.B.A. joined us in February 2004 as Vice President, Business Development &

Licensing. Prior to joining Progenics, Ms. Bodarky served as Senior Director, Global Licensing at
Pharmacia Corporation (subsequently acquired by Pfizer, Inc.) from 2000 to 2003. From 1991 to 1999,
Ms. Bodarky held positions of increasing responsibility at Merck & Co., Inc., initially in the financial area
and most recently as Associate Director, Business Affairs. From 1987 to 1989 she was an auditor at
Deloitte & Touche, an international public accounting firm. Ms. Bodarky received a B.S. in accounting
from the Wharton School, University of Pennsylvania and an M.B.A. in finance and international business
from the Columbia Business School, Columbia University.

Richard W. Krawiec, Ph.D. joined us in February 2001 as Vice President, Investor Relations and
Corporate Communications and became Vice President, Corporate Affairs in February 2006. Prior to
joining Progenics, Dr. Krawiec served as Vice President of Investor Relations and Corporate
Communications of Cytogen Corporation from 2000 to 2001. Prior to Cytogen, Dr. Krawiec headed these
departments at La Jolla Pharmaceuticals, Inc. during 1999, at Amylin Pharmaceuticals, Inc. from 1993 to
1998 and IDEC Pharmaceuticals, Inc. previously thereto. Previously, Dr. Krawiec was the founder and
Editor-In-Chief of Biotechnology Week magazine and the Managing Editor and founder of Biotechnology
Newswatch. Dr. Krawiec received a B.S. in Biology from Boston University and a Ph.D. in Biological
Sciences from the University of Rhode Island.

Alton B. Kremer, M.D., Ph.D. joined us in October 2004 as Vice President, Clinical Research. From

2000 until joining us in 2004, Dr. Kremer served as Executive Medical Director and directed opioid
clinical research programs at Purdue Pharma. From 1994 to 2000, Dr. Kremer was at Janssen
Pharmaceutica of the Johnson & Johnson family of companies, where he held several positions, the most
recent of which was Senior Director, Clinical Research. Previously, Dr. Kremer held positions with
Applied Immune Sciences and G.D. Searle & Co. He earned his M.D. and Ph.D. in Biochemistry at Case
Western Reserve University and holds a B.A. degree in Biology and Chemistry from Wesleyan University.

William C. Olson, Ph.D. joined us in May 1994 serving in various roles of increasing responsibility
through his promotion to Vice President, Research and Development in January 2001. From 1989 to 1992,
Dr. Olson served as a Research Scientist at Johnson & Johnson, and from 1992 until 1994 he was a
Development Scientist at MicroGeneSys, Inc., a biotechnology company. Dr. Olson received a Ph.D. from
the Massachusetts Institute of Technology and a B.S. from the University of North Dakota. Both degrees
were awarded in the field of chemical engineering.

Benedict Osorio, M.B.A. joined us in July 2005 as Vice President, Quality. He has over 26 years of

experience in pharmaceutical quality control and quality assurance. Prior to joining Progenics, Mr. Osorio
served as Senior Director, GMP (Good Manufacturing Practices) Compliance at Forest Laboratories from
2001 to 2005. From 1984 to 2001, Mr. Osorio held positions of increasing responsibility with The PF
Laboratories (a subsidiary of Purdue Pharma), most recently as Executive Director, Quality Assurance.
From 1979 to 1984, he was an analytical chemist with Berlex Laboratories. He earned both an M.B.A.
and a Masters of Science in Chemistry from Seton Hall University and a Bachelor of Science in Forensic

66

Science from John Jay College of Criminal Justice. Mr. Osorio is also a Certified Quality Engineer and
Quality Auditor recognized by the American Society for Quality.

Nitya G. Ray, Ph.D. joined us in February 2001 as Senior Director, Manufacturing and became Vice

President, Manufacturing in March 2004. Prior to joining Progenics, Dr. Ray served as Director of
Bioprocess Development at Ortec International from 1997 to 2001. From 1993 to 1997, Dr. Ray held
positions of increasing responsibility at Hoffmann-La Roche in the areas of GMP Manufacturing and
Process Development, and most recently as Research Leader, Biopharmaceuticals. From 1985 to 1993 he
held positions of increasing responsibility at Verax Corporation where he developed process technology for
biopharmaceutical manufacturing. Dr. Ray received a M.S. and Ph.D. in Chemical & Biochemical
Engineering from Rutgers University and a B.S. in Chemical Engineering from Jadavpur University, India.

Scientific Advisory Boards and Consultants

An important component of our scientific strategy is our collaborative relationship with leading

researchers in cancer and virology. Certain of these researchers are members of our two Scientific
Advisory Boards (SAB), one in cancer and one in virology. The members of each SAB attend periodic
meetings and provide us with specific expertise in both research and clinical development. In addition, we
have collaborative research relationships with certain individual SAB members. All members of the SABs
are employed by employers other than us and may have commitments to or consulting or advisory
agreements with other entities that may limit their availability to us. These companies may also compete
with us. Several members of our SAB have, from time to time, devoted significant time and energy to our
affairs. However, no member is regularly expected to devote more than a small portion of time to
Progenics. In general, our scientific advisors are granted stock options in Progenics and receive financial
remuneration for their services.

The following table sets forth information with respect to our Scientific Advisory Boards.

Cancer Scientific Advisory Board

Alan N. Houghton, M.D. (Chairman) ÏÏÏ Chairman, Immunology Program, Sloan-Kettering and
Professor, Weill/Cornell Medical college (""WCMC'').

David B. Agus, M.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Research Director, Prostate Cancer Institute, Cedars-Sinai
Medical Center

Samuel J. Danishefsky, Ph.D. ÏÏÏÏÏÏÏÏÏÏ Kettering Professor and Head, Bioorganic Chemistry, Sloan-

Kettering Institute and Professor of Chemistry, Columbia
University

Warren D. W. Heston, Ph.D.ÏÏÏÏÏÏÏÏÏÏÏ Director, Research Program in Prostate Cancer; Staff. Dept.

of Cancer Biology, Lerner Research Institute; Staff,
Urological Institute, Cleveland Clinic Hospital, Cleveland
Clinic Foundation

Philip O. Livingston, M.D.ÏÏÏÏÏÏÏÏÏÏÏÏÏ Member, Sloan-Kettering and Professor, WCMC

John Mendelsohn, M.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ President, The University of Texas M. D. Anderson Cancer

Center

David A. Scheinberg, M.D., Ph.D. (1)ÏÏÏ Vincent Astor Chair and Chairman, Molecular Pharmacology

and Chemistry Program, Sloan-Kettering and Professor,
WCMC

Virology Scientific Advisory Board

Stephen P. Goff, Ph.D. (Chairman) (1) ÏÏ Professor of Biochemistry, Columbia University

Dennis R. Burton, Ph.D ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Professor, The Scripps Research Institute

67

Lawrence A. Chasin, Ph.DÏÏÏÏÏÏÏÏÏÏÏÏÏ Professor of Biological Sciences, Columbia University

Leonard Chess, M.DÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Professor of Medicine, Columbia University

Wayne A. Hendrickson, Ph.D ÏÏÏÏÏÏÏÏÏÏ Professor of Biochemistry, Columbia University

Sherie L. Morrison, Ph.D ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Professor of Microbiology, UCLA

Robin A. Weiss, Ph.D ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Professor and Director of Research, ICR, Royal Cancer

Hospital, London

Other Scientific Consultants

Jonathan Moss, M.D., Ph.D. ÏÏÏÏÏÏÏÏÏÏÏ Professor, Department of Anesthesia and Critical Care, and
Vice Chairman for Research, University of Chicago Medical
Center

Thomas P. Sakmar, M.D.ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Professor, The Rockefeller University

Scott M. Hammer, M.D. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Chief, Division of Infectious Diseases, Professor of Medicine,

Columbia University

(1) Drs. Goff and Scheinberg are also members of our Board of Directors

Board and Committee Meetings

During 2005, the Board of Directors had four standing committees: the Compensation Committee, the
Audit Committee, the Nominating and Corporate Governance Committee (the ""Nominating Committee'')
and the Executive Committee. The Board of Directors held ten meetings, the Compensation Committee
held eleven meetings, the Audit Committee held six meetings, the Nominating Committee held three
meetings and the Executive Committee held five meetings. It is the policy of the Board of Directors to
hold an executive session of independent directors at each Board meeting. During 2005, each director
attended 75% or more of the meetings of the Board of Directors and Board committees on which he
served, except for Dr. Goff, who attended one out of three Nominating Committee meetings.

Audit Committee

The Audit Committee reviews our annual financial statements prior to their submission to the

Securities and Exchange Commission, consults with our independent auditors and examines and considers
such other matters in relation to the audit of our financial statements and in relation to our financial
affairs, including the selection and retention of our independent auditors.

Paul F. Jacobson, the Chairman of the Audit Committee, is an ""audit committee financial expert'' as

such term is defined in Item 401(h) of Regulation S-K promulgated by the SEC.

Compensation Committee

The Compensation Committee makes recommendations concerning salaries and incentive

compensation for our employees and consultants, establishes and approves salaries and incentive
compensation for our executive officers and other senior employees, administers our stock incentive plans
and otherwise seeks to ensure that our compensation philosophy is consistent with our best interests and is
properly implemented. Mark F. Dalton is the Chairman of the Compensation Committee.

Nominating and Corporate Governance Committee

The Nominating Committee is responsible for developing and implementing policies and procedures

that are intended to constitute and organize appropriately the Board of Directors to meet its fiduciary
obligations to Progenics and our stockholders on an ongoing basis. Among its specific duties, the
Nominating Committee makes recommendations to the Board of Directors about our corporate governance

68

processes, assists in identifying and recruiting candidates for the Board, administers the Nominations
Policy, considers nominations to the Board received from stockholders, makes recommendations to the
Board regarding the membership and chairs of the Board's committees, oversees the annual evaluation of
the effectiveness of the organization of the Board and of each of its committees, periodically reviews the
type and amount of Board compensation for non-employee directors and makes recommendations to the
full Board regarding such compensation. The Nominating Committee also annually reports findings of fact
to the Board of Directors that permit the Board to make affirmative determinations regarding each Board
and committee member with respect to independence and expertise criteria established by NASD and
SEC rules and applicable law. Charles A. Baker is the Chairman of the Nominating Committee.

Executive Committee

The Executive Committee is intended to assist the Board with oversight and governance and in
providing a means for our management to obtain Board-level guidance and decision making between full
Board meetings.

Section 16(a) Beneficial Ownership Reporting and Compliance

Based solely on a review of the reports under Section 16(a) of the Exchange Act and representations
furnished to us with respect to the last fiscal year, we believe that each of the persons required to file such
reports is in compliance with all applicable filing requirements, except for the following: Dr. Maddon,
Dr. Israel, Mr. McKinney and Mr. Mark Baker each filed a late Form 4, relating to two transactions each;
Dr. Scheinberg filed a late Form 4, relating to one transaction. We are continuing to monitor the
effectiveness of our policies and procedures which are designed to ensure compliance with Section 16
reporting requirements.

Code of Business Ethics and Conduct

We have a Code of Business Ethics and Conduct which is applicable to all of our directors,

employees and consultants. The Code meets the criteria for ""a code of ethics'' under the SEC rules and
""code of conduct'' under the rules of the NASD. The Code is available on our website at:
http://www.progenics.com/investors/corpgovern.html.

69

Item 11. Executive Compensation

Summary Compensation Table

The following table sets forth information regarding the aggregate compensation we paid to our Chief

Executive Officer and certain of our other executive officers, as of December 31, 2005, whose total
compensation exceeded $100,000 during the last fiscal year (collectively, the ""named executive officers''):

Name and Principal Position

Paul J. Maddon, M.D., Ph.D.
Chief Executive Officer and
Chief Science Officer

Alton B. Kremer, M.D., Ph.D. (6)
Vice President, Clinical Research

Robert J. Israel, M.D.

Senior Vice President, Medical
Affairs

Mark R. Baker, J.D., Senior Vice

President & General Counsel(5)

Robert A. McKinney, CPA
Chief Financial Officer,
Senior Vice President, Finance &
Operations and Treasurer

Fiscal
Year

2005
2004
2003

2005
2004

2005
2004
2003

2005

2005
2004
2003

Annual
Compensation(1)

Salary

Bonus

Long Term Compensation
Restricted
Stock
Awards (2)

Stock Option
Grants

Other
Compensation (3)

$536,785

515,000 $150,000
175,000
499,859

75,000 shares
Ì(7) $934,250
Ì
75,000 shares
Ì 225,000 shares

$320,000 $153,000
83,000

83,692

$312,000 $125,000
50,000
300,000
25,000
278,000

$149,692 $249,000

$230,000 $150,000
60,000
50,000

200,000
174,000

$ 74,865
Ì

$ 74,865
126,375
Ì

$

Ì

$ 96,255
126,375
Ì

$16,000
14,729
13,729

$19,484
Ì

$19,596
44,069(4)
45,694(4)

10,000 shares
40,000 shares

10,000 shares
Ì
35,000 shares

50,000 shares

$ 7,500

37,500 shares
Ì
25,000 shares

$18,387
19,861
19,194

(1) Annual compensation consists of base salary and bonus. As to each individual named, the aggregate
amounts of all perquisites and other personal benefits, securities and property not included in the
summary compensation table above or described below do not exceed the lesser of $50,000 or 10% of
the annual compensation. Annual compensation does not include the discount amount under our
employee stock purchase plans because such plans are generally available to all salaried employees.

(2) Amounts shown under Restricted Stock Awards represent the grant date values of our restricted stock

awarded to the named executive officers. Each named executive officer held restricted stock at
December 31, 2005, in the aggregate number of shares of our common stock and the aggregate value
at that date, as follows: Dr. MaddonÌ43,750 shares, $1,094,188; Dr. Alton KremerÌ3,500 shares,
$87,535; Dr. IsraelÌ9,125 shares, $228,216; Mr. McKinneyÌ10,125 shares, $253,226. As of
December 31, 2005, one quarter of the restrictions on the restricted stock granted on July 1, 2004 and
January 10, 2005 had lapsed. None of the restrictions on the restricted stock granted on July 1, 2005
had lapsed.

(3) Other compensation consisted of matching contributions made by us under a defined contribution plan

available to substantially all of our employees and amounts to pay the after-tax cost of premiums on
life insurance and long-term disability policies.

(4) Includes compensation of $22,098 in 2003 and $20,901 in 2004, attributable to the forgiveness of a

loan from us to Dr. Israel. See ""ÌIndebtedness of Management.''

(5) Mr. Baker joined the Company as Senior Vice President & General Counsel in June 2005.

(6) Dr. Kremer joined the Company as Vice President in September 2004.

(7) On March 3, 2006, the Compensation Committee of the Board of Directors approved a bonus for the
year ended December 31, 2005 for Dr. Maddon comprised of 18,080 shares of restricted common
stock with a fair value of approximately $525,000. One-quarter of the restricted shares vested on the
date of grant and the remainder will vest through June 20, 2007.

70

Stock Option Grants in the Fiscal Year Ended December 31, 2005

The following table sets forth certain information relating to stock option grants to the named

executive officers during the fiscal year ended December 31, 2005. In addition, as required by SEC rules,
the table sets forth the hypothetical gains that would exist for the shares subject to such options based on
assumed annual compounded rates of stock price appreciation during the option term.

Name

Number of
Shares
Underlying
Options
Granted

Percent of
Total Option
Shares
Granted to
Employees(1)

Paul J. Maddon, M.D., Ph.D. ÏÏÏ

75,000

10.7%

Alton B. Kremer, M.D., Ph.D. ÏÏÏ

10,000

Robert J. Israel, M.D. ÏÏÏÏÏÏÏÏÏÏ

10,000

Mark R. Baker, J.D. ÏÏÏÏÏÏÏÏÏÏÏ

50,000

Robert A. McKinney, CPAÏÏÏÏÏÏ

25,000

Robert A. McKinney, CPAÏÏÏÏÏÏ

12,500

1.4%

1.4%

7.1%

3.6%

1.8%

Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Option Term

5%

10%

Expiration
Date

7/1/2015

$1,008,904

$2,556,761

7/1/2015

$ 134,521

$ 340,902

7/1/2015

$ 134,521

$ 340,902

Exercise
Price per
Share

$21.39

$21.39

$21.39

$20.02

6/20/2015

$ 629,524

$1,595,336

$22.68

$21.39

3/1/2015

$ 356,583

$ 903,652

7/1/2015

$ 168,151

$ 426,127

(1) Our employees were granted options during the 2005 fiscal year with respect to a total of

702,845 shares from our Amended 1996 Stock Incentive Plan and our 2005 Stock Incentive Plan.

Stock option grants in the table above do not include options granted quarterly under our Employee
Stock Purchase Plan or Non-Qualified Employee Stock Purchase Plan that expire six months following
the date of grant and have exercise prices equal to the lower of the fair market value on the date of grant
or 85% of the fair market value on the date of exercise.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

The following table sets forth information for each of the named executive officers regarding option

exercises during the fiscal year ended December 31, 2005 and the number and value of unexercised
options held as of December 31, 2005:

Name

Acquired Realized (2) Exercisable Unexercisable

Exercises During
the Fiscal Year

Number of
Shares Underlying
Unexercised Options

Value of Unexercised
In-the-Money Options (1)
Exercisable

Unexercisable

Paul J. Maddon, M.D., Ph.D. ÏÏ

Alton B. Kremer, M.D., Ph.D.

Ì

Ì

Ì

Robert J. Israel, M.D. ÏÏÏÏÏÏÏÏ

8,750

$160,846

Ì
Mark R. Baker, J.D. ÏÏÏÏÏÏÏÏÏÏ
Robert A. McKinney, CPA ÏÏÏÏ 15,000

Ì
$293,100

Ì 1,291,650

166,125

$18,908,078

$1,436,498

8,000

193,750

Ì
146,250

42,000

36,250

50,000
56,250

$

91,520

$ 402,280

$ 2,845,400

$ 321,625

Ì $ 249,500
$ 307,375

$ 1,964,900

(1) Based on a closing price of $25.01 on December 30, 2005 on the Nasdaq National Market.

(2) Based on closing prices on the Nasdaq National Market on the respective dates of exercise for

retained shares and on the resale prices for shares immediately resold.

Stock option exercises set forth in the table above do not reflect shares acquired or exercisable under
our Employee Stock Purchase Plan or Non-Qualified Employee Stock Purchase Plan. The actual amount
realized by named executive officers in 2005 under the ESPP Plans was: $44,197 by Dr. Maddon; $13,083
by Dr. Kremer; $16,977 by Dr. Israel; $0 by Mr. Baker and $11,801 by Mr. McKinney.

71

Employment Agreements

Paul J. Maddon, M.D., Ph.D.

On December 31, 2003, we entered into an employment agreement with Paul J. Maddon, M.D.,

Ph.D. pursuant to which Dr. Maddon serves as our Chief Executive Officer and Chief Science Officer.
The agreement provides for Dr. Maddon to receive an initial annual salary of $499,859 for 2003, which
will increase at a rate of not less than 3% per year, and a discretionary bonus in an amount to be
determined by the Board of Directors. Dr. Maddon's salary in 2004 and 2005 was $515,000 and $536,785,
respectively.

In June 2003, we granted Dr. Maddon two ten-year options, each to purchase 112,500 shares of
common stock at an exercise price of $15.06 per share. The first grant vests in equal portions on June 30
of each of 2004, 2005, 2006 and 2007. The second grant will vest on May 30, 2013, subject to acceleration
upon the achievement of certain clinical, financial and operational milestones. On July 1, 2004, we granted
Dr. Maddon two ten-year options, each to purchase 37,500 shares of Common Stock each at an exercise
price of $16.85 per share. The first grant vests in equal portions on June 30 of each of 2005, 2006, 2007
and 2008. The second grant will vest on June 1, 2014, subject to acceleration upon the achievement of
certain clinical, financial and operational milestones. On January 10, 2005, we granted 25,000 shares of
restricted stock to Dr. Maddon as additional long term incentive compensation pursuant to his employment
agreement. The restrictions on the stock lapse over four years beginning June 20, 2005. On July 1, 2005,
we granted Dr. Maddon a ten-year option to purchase 75,000 shares of Common Stock at an exercise
price of $21.39 per share. The grant vests on June 1, 2015, subject to acceleration upon the achievement
of certain clinical, financial and operational milestones. On July 1, 2005, we also granted 25,000 shares of
restricted stock to Dr. Maddon as additional long term incentive compensation pursuant to his employment
agreement. The restrictions on the stock lapse over four years beginning June 20, 2006. During 2003, two
of the milestones under the 2003 grant were achieved, resulting in the vesting of 62,000 options, for which
the Company recognized $103,000 as non-cash compensation expense. During 2004, one of the milestones
under the 2003 grant was achieved resulting in the vesting of 11,000 options but no compensation expense
was recognized since that option was out-of-the-money on the date of accelerated vesting. No milestones
were achieved in 2004 under the 2004 grant. During 2005, two of the milestones under the 2003 grant,
three milestones under the 2004 grant and one milestone under the 2005 grant were achieved resulting in
the vesting of 39,000 options under the 2003 grant, 26,000 options under the 2004 grant and 38,000 options
under the 2005 grant. In addition, 16,000 stock options, which are accounted for as variable awards under
APB No. 25, that were granted under all four awards vested based upon the passage of time. We
recognized a total of $709,000 of non-cash compensation expense upon the vesting of Dr. Maddon's
options in 2005.

Our employment agreement with Dr. Maddon, the initial term of which ran through June 30, 2005,

was automatically renewed for an additional period of two years. We are currently in discussions with
Dr. Maddon regarding the future renewal of his employment agreement.

The agreement provides that, upon termination by us without cause (as defined in the agreement) or
by Dr. Maddon for good reason (as defined in the agreement, which includes Dr. Maddon's failure to be
our director other than by reason of his resignation), we will pay to Dr. Maddon a lump sum equal to two
times the sum of Dr. Maddon's annual salary and average bonus (as defined in the agreement), we will
continue for two years to provide Dr. Maddon benefits and the options referred to above will become fully
vested and exercisable. Upon termination by us without cause or by Dr. Maddon for good reason within
two years following a change in control (as defined in the agreement), or upon termination by us without
cause within three months preceding a change in control, we will pay to Dr. Maddon a lump sum equal to
three times the sum of Dr. Maddon's salary and average bonus, we will continue for three years to provide
Dr. Maddon benefits and the options referred to above will become fully vested and exercisable. In the
event that any payment under the agreement constitutes an excess parachute payment under Section 280G
of the U.S. Internal Revenue Code, Dr. Maddon will be entitled to additional gross-up payments such that
the net amount retained by Dr. Maddon after deduction of any excise taxes and all other taxes on the

72

gross-up payments will be equal to the net amount that would have been retained from the initial
payments under the agreement.

Robert J. Israel, M.D.

We have an employment arrangement with Robert J. Israel, M.D. pursuant to which he serves as our

Senior Vice President, Medical Affairs at an annual salary in 2005 of $312,000 and is entitled to nine
months' salary if his employment is terminated by us without cause.

Each of the employment agreements of Dr. Maddon and Dr. Israel contain certain restrictive

covenants for our benefit relating to non-disclosure by the executives of our confidential business
information, our right to inventions and intellectual property, non-solicitation of our employees and
customers and non-competition by the executives with our business.

Indebtedness of Management

On February 16, 2000, we entered into an agreement to provide Dr. Israel with a loan of up to
$100,000 to assist in the purchase of a home closer to our principal place of business. The loan was
evidenced by a promissory note bearing interest at the rate of 6% per year and calling for $10,000 principal
payments on June 30 and December 31 of each year. Under the agreement with Dr. Israel, principal and
interest under the promissory note was forgiven and treated as additional compensation so long as
Dr. Israel was our employee when such amounts become due. At December 31, 2004, the loan of
$100,000 and $14,756 of interest had been forgiven.

Compensation of Directors

Kurt W. Briner and Paul F. Jacobson each receive $40,000 as compensation for their services as
Co-Chairmen of the Board. In addition, the Board of Directors granted the following stock options to
purchase shares of our common stock to each of Messrs. Briner and Jacobson: (1) on January 10,
25,000 shares with an exercise price of $15.98 per share, 10,000 shares of each award vested immediately
and the remainder vested on December 31, 2005; (2) on December 8, 2005, 25,000 shares with an
exercise price of $24.12 per share, 10,000 shares of each award vested immediately and the reminder will
vest on December 31, 2006.

In addition to the above retainer fees and option grants, Messrs. Briner and Jacobson receive
compensation for their services as non-employee directors of Progenics. Our non-employee directors are
entitled to payment for their services as follows:

¬ $2,000 for each meeting of the Board of Directors attended in person, $1,000 for each in-person

meeting attended by telephone and $500 for participation in each telephonic meeting;

¬ for committee meetings held other than in conjunction with a meeting of the entire Board,

$1,000 for attendance in person and $500 for telephonic participation;

¬ for committee meetings held on the day after a meeting of the entire Board, $500 for

participation;

¬ for committee meetings held on the same day, no additional compensation is paid;

¬ an annual retainer fee of $15,000, except for Messrs. Briner and Jacobson who are entitled to an

annual retainer fee of $40,000 as described above; and

¬ an option to purchase 10,000 shares of our common stock granted annually on each July 1 with an
exercise price equal to the fair market value as of the date of grant, provided that with regard to
the option grant on July 1, 2005, Messrs. Briner and Jacobson will not be entitled to the annual
option grant.

In addition, the Audit Committee chairman (currently, Mr. Jacobson) is entitled to an additional
annual retainer fee of $5,000, the Compensation Committee chairman (currently, Mr. Dalton) is entitled

73

to an additional annual retainer fee of $2,500, and the Nominating and Corporate Governance Committee
chairman (currently, Mr. Baker) is entitled to an additional annual retainer fee of $2,500.

Dr. Goff and Dr. Scheinberg also receive compensation in the form of cash or cash and stock options,

respectively, for service on our Virology Scientific Advisory Board and Cancer Scientific Advisory Board,
respectively. In 2005, Dr. Goff received $30,000 for such service. Dr. Scheinberg received $28,000 and
8,750 stock options, of which 1,250 shares were granted with a strike price equal to fifty percent (50%) of
the average closing price for the thirty trading days preceding the grant date and the remaining
7,500 shares were granted with the exercise price equal to the grant date fair value, for his service on our
Scientific Advisory Board. For the fiscal year ended December 31, 2005, we had non-cash compensation
expense of $146,441 with respect to the options granted to Dr. Scheinberg for his service on our Scientific
Advisory Board.

74

Comparative Stock Performance Graph

The graph below compares the cumulative stockholder return on our common stock with the
cumulative stockholder return of (i) the Nasdaq Stock Market (U.S.) Index and (ii) the Nasdaq
Pharmaceutical Index, assuming the investment in each equalled $100 on December 31, 2000.

150

100

50

D
O
L
L
A
R
S

0

12/31/00

12/31/01

12/31/02

12/31/03

12/31/04

12/31/05

Progenics

NASDAQ U.S. Index

NASDAQ Pharmaceutical Index

75

Report of the Compensation Committee of the Board of Directors on Executive Compensation

During 2005, the Compensation Committee of Progenics' Board of Directors (the ""Compensation
Committee'') consisted of three non-employee directors: Mark F. Dalton, as Chairman, Charles A. Baker
and Paul F. Jacobson. Each of the members of the Compensation Committee has been affirmatively
determined by the Board of Directors to be an ""independent director'' as defined in NASD
Rule 4200(a)(15). The Compensation Committee operates under a written Charter adopted by the
Compensation Committee and approved by the Board of Directors as a whole.

The Compensation Committee's policies applicable to the compensation of Progenics' executive

officers are based on the principle that total compensation should be set to attract and retain those
executives critical to the overall success of Progenics and should reward executives for their contributions
to the enhancement of stockholder value.

The key elements of the executive compensation package are base salary, employee benefits

applicable to all employees, amounts to pay the after-tax cost of premiums on life insurance and long-term
disability policies, an annual discretionary bonus and long-term incentive compensation, typically in the
form of stock options. In general, the Compensation Committee has adopted the policy that compensation
for executive officers should be competitive with that paid by leading biotechnology companies for
corresponding senior executives. The Compensation Committee also believes that it is important to have
stock options constitute a substantial portion of executive compensation in order to align the interests of
executives with those of the stockholders.

In determining the compensation for each executive officer, the Compensation Committee generally

considers (i) data from outside studies and proxy materials regarding compensation of executive officers at
comparable companies, (ii) the input of other directors regarding individual performance of each executive
officer and (iii) qualitative measures of Progenics' performance such as progress in the development of the
Company's products, the engagement of corporate partners for the commercial development and marketing
of products and the success of Progenics in raising the funds necessary to conduct research and
development. The Compensation Committee's consideration of such factors is subjective and informal. In
2005, the Compensation Committee also employed an outside consulting firm to evaluate the
compensation of executive officers in comparison with similar officers at peer companies.

The compensation of Dr. Paul J. Maddon, the Chief Executive Officer of Progenics, for 2005
consisted of $536,785 in annual salary and a discretionary bonus consisting of 18,080 shares of the
Company's common stock with a fair value of $525,000. One-quarter of the restricted stock vested on
March 3, 2006, the grant date, and the remainder of the restricted shares will vest through June 20, 2007.
In determining the terms of Dr. Maddon's employment, including Dr. Maddon's compensation thereunder,
the Compensation Committee was mindful of the importance of Dr. Maddon's leadership and
contributions to Progenics' progress in its programs in HIV therapeutics, symptom management and
supportive care therapeutics and cancer therapeutics, Progenics' achievements and progress in the past and
the prospect that Dr. Maddon will continue to make significant contributions to Progenics' performance in
the future.

By the Compensation Committee of
the Board of Directors
Mark F. Dalton, Chairman
Charles A. Baker
Paul F. Jacobson

76

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

The following table sets forth certain information, as of March 1, 2006, except as noted, regarding the

beneficial ownership of the Common Stock by (i) each person or group known to the us to be the
beneficial owner of more than 5% of our common stock outstanding, (ii) each of our directors, (iii) each
of our executive officers named below and (iv) all of our directors and executive officers as a group.

Name and Address of Beneficial Owner (1)

Entities affiliated with Tudor Investment Corporation (3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1275 King Street
Greenwich, CT 06831

Paul Tudor Jones, II (4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1275 King Street
Greenwich, CT 06831

Delaware Management Holdings (5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
One Commerce Square, 2005 Market Street
Philadelphia, PA 19103

Entities affiliated with Philip B. Korsant (6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ziff Asset Management, L.P.
c/o Philip B. Korsant
283 Greenwich Avenue
Greenwich, CT 06830

Federated Investors, Inc. (7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Federated Investors Tower
Pittsburgh, PA 15222

Sectoral Asset Management Inc. (8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1000 Sherbrooke Street
Montreal, A1 00000

Shares Beneficially
Owned (2)

Number

Percent

2,342,388

9.2%

2,888,513

11.4%

1,565,995

6.2%

1,770,000

7.0%

1,331,100

5.2%

1,651,434

6.5%

Paul J. Maddon, M.D., Ph.D. (9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,848,265

6.9%

Charles A. Baker (10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

86,481

Kurt W. Briner (11) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

143,000

*

*

Mark F. Dalton (12)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2,494,888

9.8%

Stephen P. Goff, Ph.D. (13) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Paul F. Jacobson (14)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David A. Scheinberg, M.D., Ph.D. (15)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Robert J. Israel, M.D. (16) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Robert A. McKinney, CPA (17)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Alton B. Kremer, M.D., Ph.D. (18) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Mark R. Baker, J.D. (19) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

131,000

278,100
175,931

194,377

169,669

6,967

2,316

*

1.1%
*

*

*

*

*

All directors and executive officers as a group (20) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6,007,570

21.4%

* Less than one percent.

(1) Unless otherwise specified, the address of each beneficial owner is c/o Progenics Pharmaceuticals,

Inc., 777 Old Saw Mill River Road, Tarrytown, New York 10591.

(2) Except as indicated and pursuant to applicable community property laws, each stockholder possesses
sole voting and investment power with respect to the shares of common stock listed. The number of
shares of common stock beneficially owned includes the shares issuable pursuant to stock options to

77

the extent indicated in the footnotes in this table. Shares issuable upon exercise of these options are
deemed outstanding for computing the percentage of beneficial ownership of the person holding the
options but are not deemed outstanding for computing the percentage of beneficial ownership of any
other person.

(3) The number of shares owned by entities affiliated with Tudor Investment Corporation (TIC)

consists of 1,820,068 shares held of record by The Tudor BVI Portfolio Ltd., a company organized
under the law of the Cayman Islands (Tudor BVI), 287,813 shares held of record by TIC,
193,126 shares held of record by Tudor Arbitrage Partners L.P. (TAP), 25,981 shares held of record
by Tudor Proprietary Trading, L.L.C. (TPT), and 15,400 shares held of record by Tudor Global
Trading LLC (TGT). In addition, because TIC provides investment advisory services to Tudor BVI,
it may be deemed to beneficially own the shares held by such entity. TIC disclaims beneficial
ownership of such shares. TGT is the general partner of TAP. Tudor Group Holdings LLC
(TGH) is the sole member of TGT and indirectly holds all of the membership interests of TPT.
TGH is also the sole limited partner of TAP. TGH expressly disclaims beneficial ownership of the
shares beneficially owned by each of such entities. TGT disclaims beneficial ownership of shares
held by TAP. The number set forth does not include shares owned of record by Mr. Jones and
Mr. Dalton. See Notes (4) and (12).

(4) Includes 2,342,388 shares beneficially owned by entities affiliated with TIC. Mr. Jones is the

Chairman and indirect principal equity owner of TIC, TPT and TGT, and the indirect principal
equity owner of TAP. Mr. Jones may be deemed to be the beneficial owner of shares beneficially
owned, or deemed beneficially owned, by entities affiliated with TIC. Mr. Jones disclaims beneficial
ownership of such shares. See Note (3).

(5) Based on a Schedule 13G filed on February 9, 2006, the number of shares owned by Delaware

Management Holdings and Delaware Management Business Trust consists of 1,565,995 shares held
by Delaware Management Holdings and Delaware Management Business Trust, which share voting
and dispositive powers.

(6) Based on a Schedule 13G, filed on February 13, 2006, the number of shares owned by entities

affiliated with Philip B. Korsant consists of 1,770,000 shares held by Ziff Asset Management, L.P., a
Delaware limited partnership. Mr. Korsant, ZBI Equities, L.L.C. and PBK Holdings, Inc., a
Delaware corporation, share voting and dispositive power over the shares held by Ziff Asset
Management, L.P.

(7) Based on a Schedule 13G, filed February 14, 2006, Federated Investors, Inc. (the ""Parent'') is the
parent holding company of Federated Equity Management Company of Pennsylvania and Federated
Global Investment Management Corp. All of the Parent's outstanding voting stock is held in the
Voting Shares Irrevocable Trust for which John F. Donahue, Rhodora J. Donahue and
J. Christopher Donahue act as trustees and they have the collective voting control over the Parent.

(8) Sectoral Asset Management Inc. in its capacity as an investment adviser, has the sole right to vote
or dispose of the 1,651,434 shares set forth in Schedule 13G filed on February 14, 2006. Jerome G.
Pfund and Michael L. Sjostrom are the sole shareholders of Sectoral Asset Management Inc.

(9) Includes 541,865 shares outstanding, 1,261,650 shares issuable upon exercise of options exercisable
within 60 days of March 1, 2006 and 43,750 shares of restricted stock. Also includes 1,000 shares
held by Dr. Maddon's spouse, the beneficial ownership of which Dr. Maddon disclaims. Excludes
88,229 shares held by a trust, of which his spouse is the beneficiary; neither Dr. Maddon nor his
spouse has investment control over such trust.

(10) Includes 21,481 shares owned by the Baker Family Limited Partnership and 65,000 shares issuable
upon exercise of options held by Mr. Baker and exercisable within 60 days of March 1, 2006.

(11) Includes 3,000 shares outstanding and 140,000 shares issuable upon exercise of options held by

Mr. Briner exercisable within 60 days of March 1, 2006.

(12) Includes 71,000 shares held of record directly by Mr. Dalton, 65,000 shares issuable upon exercise of

options held by Mr. Dalton exercisable within 60 days of March 1, 2006 and 16,500 shares held of
record by DF Partners, a family partnership of which Mr. Dalton is the sole general partner. The

78

number set forth also includes 2,342,388 shares beneficially owned by entities affiliated with TIC.
Mr. Dalton is President and an equity owner of TIC and TGH. Mr. Dalton is also the President and
an indirect equity owner of TGT and TPT. Mr. Dalton disclaims beneficial ownership of shares
beneficially owned, or deemed beneficially owned, by entities affiliated with TIC and DF Partners,
except to the extent of his pecuniary interest therein. See Note (3).

(13) Includes 33,500 shares outstanding and 97,500 shares issuable upon exercise of options held by

Dr. Goff exercisable within 60 days of March 1, 2006.

(14) Includes 188,100 shares outstanding and 90,000 shares issuable upon exercise of options held by

Mr. Jacobson exercisable within 60 days of March 1, 2006.

(15) Includes 24,181 shares outstanding and 151,750 shares issuable upon exercise of options held by

Dr. Scheinberg exercisable within 60 days of March 1, 2006.

(16) Includes 11,502 shares outstanding and 173,750 shares issuable upon exercise of options held by
Dr. Israel exercisable within 60 days of March 1, 2006. Also includes 9,125 shares of restricted
stock.

(17) Includes 7,044 shares outstanding and 152,500 shares issuable upon exercise of options held by

Mr. McKinney exercisable within 60 days of March 1, 2006. Also includes 10,125 shares of
restricted stock.

(18) Includes 3,467 shares outstanding and no shares issuable upon exercise of options held by

Dr. Kremer exercisable within 60 days of March 1, 2006. Also includes 3,500 shares of restricted
stock.

(19) Includes 2,316 shares outstanding and no shares issuable upon exercise of options held by Mr. Baker

exercisable within 60 days of March 1, 2006.

(20) Includes 3,295,820 shares outstanding, 111,500 shares of restricted stock and 2,600,250 shares

issuable upon the exercise of stock options exercisable within 60 days of March 1, 2006 held by
affiliated entities, directors and named executive officers as set forth in the above table and by all
other executive officers.

Sales of Stock by Insiders

We have established stock sale guidelines governing the way in which shares of our common stock

may be sold by persons who may be considered insiders (directors, executive officers and certain key
employees who we may designate from time to time). From time to time, such insiders will engage in
sales of our common stock in accordance with these guidelines. These sales may be accomplished pursuant
to SEC Rule 144 or pursuant to pre-arranged stock trading plans adopted in accordance with Rule 10b5-1
of the Exchange Act.

Rule 10b5-1 allows persons who may be considered insiders to establish written pre-arranged stock

trading plans when they do not have material, non-public information. The plans establish predetermined
trading parameters that do not permit the person adopting the plan to exercise any subsequent influence
over how, when or whether to effect trades. Implementation of these plans seeks to avoid concerns about
executing stock transactions when insiders may subsequently be in possession of material, non-public
information. Pre-arranged stock trading plans adopted in accordance with Rule 10b5-1 also permit our
insiders to gradually diversify their investment portfolios and may minimize the market impact of stock
trades by spreading them over an extended period of time.

During the first quarter of 2006, Paul J. Maddon, M.D., Ph.D. the Company's Founder, Chief

Executive Officer and Chief Science Officer established a stock trading plan in accordance with
Rule 10b5-1 of the Securities Act of 1934. Under this plan, Dr. Maddon has directed a broker to exercise
and sell shares pursuant to stock options which are scheduled to expire in 2007. Several other Progenics
executive officers have established 10b5-1 plans. Other executive officers may choose to establish
10b5-1 plans in the future.

79

In accordance with Rule 10b5-1, officers and directors of public companies may adopt plans for
purchasing or selling securities in which the amount, price and date of the transactions are specified. These
plans may only be entered into when the officer or director is not in possession of material, nonpublic
information.

Equity Compensation Plan Information

The following table sets forth, as of December 31, 2005, certain information related to our equity

compensation plans.

Plan category

Equity compensation plans approved by

(a)
 Number of shares
to be issued upon
exercise of
outstanding options,
warrants and rights

(b)
 Weighted average
exercise price of
outstanding options,
warrants and rights

(c)
 Number of shares
remaining available for
future issuance
(excluding securities
reflected in 1st column)

shareholders: ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

3,953,186 (1)

$15.07

2,037,621 (2)

Equity compensation plans not approved by

shareholders (3): ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

620,192

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,573,378

$ 4.50

$13.64

Ì

2,037,621

(1) Does not include 242,127 shares of restricted stock to be released upon vesting or options issued under

the ESPP or the Non-Qualified ESPP.

(2) Includes 178,716 shares available for issuance under the ESPP and 193,391 shares available for

issuance under the Non-Qualified ESPP.

(3) Consists of the Company's 1989 Non-Qualified Stock Option Plan, the 1993 Stock Option Plan, as

amended, and the 1993 Executive Stock Option Plan. See the Notes to the Financial Statements
included herein.

Item 13. Certain Relationships and Related Transactions

We have entered into indemnification agreements with each of our directors and executive officers.
These agreements require us to indemnify such individuals to the fullest extent permitted by Delaware law
for certain liabilities to which they may become subject as a result of their affiliation with us.

On July 1, 2001 and September 1, 2001, we contracted with the Albert Einstein College of Medicine

of Yeshiva University to perform certain specified research services relating to identified research and
development projects. The contracts provide that the required research will be performed by an Albert
Einstein research center laboratory headed by Tatjana Dragic, Ph.D., who is the spouse of our Chief
Executive Officer and Chief Science Officer. In 2005, we paid Albert Einstein College of Medicine
$46,000 for their services. In addition, we employ one research scientist at an aggregate cost of
approximately $67,000 and who is assigned to Dr. Dragic's laboratory to assist with research being
performed on our behalf.

80

Item 14. Principal Accounting Fees and Services

The following table discloses the fees that PricewaterhouseCoopers LLP billed or are expected to bill

for professional services rendered to us for each of the last two fiscal years:

Type of Fee

Fees of Auditors

2005

2004

Audit Fees (1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$753,350

$899,395

Audit Related Fees (2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Tax Fees (3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

All Other Fees (4)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

64,000

41,300

1,611

49,000

20,900

1,613

(1) Consisted of fees billed or expected to be billed by PricewaterhouseCoopers LLP in connection with
(i) the audit of our annual financial statements and reviews of our quarterly interim financial
statements, totaling $561,850 in 2005 and $861,275 in 2004; (ii) the filing of registration statements
with the Securities and Exchange Commission, totalling $179,000 in 2005 and $26,620 in 2004; and
(iii) the audit of the annual financial statements of PSMA Development Company LLC, 50% which
we are responsible for, totaling an expense to us of $12,500 in 2005 and $11,500 in 2004.

(2) Consisted of fees billed or expected to be billed by PricewaterhouseCoopers LLP for accounting
advice, including internal control reviews and consultations concerning financial accounting and
reporting standards, totaling $15,000 in 2005 and zero in 2004, as well as fees billed in connection
with the audit of certain accounts according to the terms of our grants and contract from the National
Institutes of Health, which totaled approximately $49,000 in 2005 and $49,000 in 2004.
PricewaterhouseCoopers LLP has not yet completed its work on the audit of our NIH grants and
contract for the year ended December 31, 2005.

(3) Consisted of fees billed or expected to be billed by PricewaterhouseCoopers LLP for tax-related
services, including tax return preparation and advice. Fees billed or expected to be billed by
PricewaterhouseCoopers LLP for (i) tax return preparation and other tax-related services totaling
$25,000 in 2005 and $16,800 in 2004; (ii) tax return preparation for PSMA Development Company
LLC, 50% of which we are responsible for, totaling an expense to us of $5,300 in 2005 and $4,100 in
2004 and (iii) tax advice regarding Internal Revenue Code Section 382 analysis of $11,000.
PricewaterhouseCoopers LLP has not yet completed its work on our and PSMA Development
Company LLC's tax returns for the fiscal year ended December 31, 2005.

(4) Consisted of fees to PricewaterhouseCoopers LLP for a proprietary internet-based subscription service.

Pre-approval of Audit and Non-Audit Services by the Audit Committee

As part of its duties, the Audit Committee is required to pre-approve audit and non-audit services

performed by the independent auditors in order to assure that the provision of such services does not
impair the auditors' independence. Around April of every year, the Audit Committee will review a
schedule, prepared by the independent auditors, of certain types of services, and projected fees, to be
provided for that year. The Audit Committee will review the schedule and provide general pre-approval of
those types of services. The fee amounts will be updated to the extent necessary at each of the other
regularly scheduled meetings of the Audit Committee. If a type of service to be provided by the
independent auditors has not received general pre-approval during this annual process, it will require
specific pre-approval by the Audit Committee. The Audit Committee may delegate either general or
specific pre-approval authority to its chairperson or any other member or members. The member to whom
such authority is delegated must report, for informational purposes only, any pre-approval decisions to the
Audit Committee at its next meeting. The Audit Committee did not utilize the de minimus exception to
the pre-approval requirements to approve any services provided by PricewaterhouseCoopers LLP during
fiscal years 2004 or 2005.

81

PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents or the portions thereof indicated are filed as a part of this Report.

a) Documents filed as part of this Report:

1. Consolidated Financial Statements of Progenics Pharmaceuticals, Inc.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2004 and 2005

Consolidated Statements of Operations for the years ended December 31, 2003, 2004 and
2005

Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the years
ended December 31, 2003, 2004 and 2005

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and
2005

Notes to the Consolidated Financial Statements

b)

Item 601 Exhibits

Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index

immediately preceding the exhibits filed herewith, and such listing is incorporated by reference.

82

PROGENICS PHARMACEUTICALS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-2

Financial Statements:

Consolidated Balance Sheets at December 31, 2004 and 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-4

Consolidated Statements of Operations for the years ended December 31, 2003, 2004 and 2005 ÏÏ F-5

Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the years ended

F-6

December 31, 2003, 2004 and 2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005 ÏÏ F-7

Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ F-8

Page

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Progenics Pharmaceuticals, Inc.:

We have completed integrated audits of Progenics Pharmaceuticals, Inc.'s 2005 and 2004 consolidated

financial statements and of its internal control over financial reporting as of December 31, 2005 and an
audit of its 2003 consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented
below.

Consolidated financial statements

In our opinion, the consolidated financial statements listed in the index appearing under

Item 15(a)(1) present fairly, in all material respects, the financial position of Progenics Pharmaceuticals,
Inc. at December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2005 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in Management's Report on Internal Control

Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal
control over financial reporting as of December 31, 2005 based on criteria established in Internal
ControlÌIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our
opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005, based on criteria established in Internal ControlÌIntegrated
Framework issued by the COSO. The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based on our audit. We conducted
our audit of internal control over financial reporting in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting, evaluating management's
assessment, testing and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to

F-2

permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

New York, New York
March 15, 2006

/s/ PricewaterhouseCoopers LLP

F-3

PROGENICS PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except for par value and share amounts)

ASSETS

Current assets:

Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Marketable securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts and unbilled receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amount due from joint venture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Marketable securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fixed assets, at cost, net of accumulated depreciation and amortization ÏÏÏÏÏÏÏÏ
Investment in joint venture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

December 31,

2004

2005

5,227
24,994
1,112
189
1,810

33,332

986
4,692

535

$

67,072
98,983
3,287

2,561

171,903

7,035
4,156
371
538

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

39,545

$ 184,003

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred revenueÌcurrent ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Due to joint ventureÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income taxes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investment deficiency in joint ventureÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred revenueÌlong term ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred lease liabilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Commitments and contingencies (Note 9)
Stockholders' equity:

Preferred stock, $.001 par value; 20,000,000 shares authorized; issued, and

outstandingÌnone

$

7,260

$

405

7,665

42

7,707

10,238
23,580
194
201

589

34,802
36,420
49

71,271

Common stock, $.0013 par value; 40,000,000 shares authorized; issued and

outstandingÌ17,280,635 in 2004 and 25,229,240 in 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unearned compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated deficitÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

22
153,469
(2,251)
(119,311)
(91)

33
306,085
(4,498)
(188,740)
(148)

Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

31,838

112,732

Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

39,545

$ 184,003

The accompanying notes are an integral part of the financial statements.

F-4

PROGENICS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for loss per share data)

Years Ended December 31,
2004

2003

2005

Revenues:

Contract research and development from joint venture ÏÏÏÏÏÏÏÏÏÏÏÏ

$

2,486

$

2,008

$

988

Research grants and contracts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Product sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,826

149

7,461

7,483

85

9,576

Expenses:

Research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

26,374

35,673

License feesÌresearch and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

General and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Loss in joint venture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

867

8,029

2,525

1,273

390

12,580

2,134

1,566

8,432

66

9,486

43,419

20,418

13,565

1,863

1,748

Total expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

39,068

52,343

81,013

Operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(31,607)

(42,767)

(71,527)

Other income (expense):

Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

621

Loss on sale of marketable securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total other income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

621

780

(31)

749

2,299

2,299

Net loss before income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(30,986)

(42,018)

(69,228)

Income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(201)

Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$(30,986)

$(42,018)

$(69,429)

Net loss per shareÌbasic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

(2.32)

$

(2.48)

$

(3.33)

Weighted-average sharesÌbasic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

13,367

16,911

20,864

The accompanying notes are an integral part of the financial statements.

F-5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS

PROGENICS PHARMACEUTICALS, INC.

For the Years Ended December 31, 2003, 2004 and 2005
(in thousands)

Additional
Common Stock Paid-In
Shares Amount Capital Compensation

Unearned

Accumulated
Other

Accumulated Comprehensive

Deficit

Income (Loss) Total

Comprehensive
(Loss)

Balance at December 31, 2002ÏÏ 12,682

$17

$ 91,332

$ (46,307)

$ 106

$ 45,148

$(20,890)

Issuance of compensatory

stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏ

Sale of common stock under
employee stock purchase
plans and exercise of stock
options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Sale of common stock in a
public offering, net of
expenses of $4,382 ÏÏÏÏÏÏÏÏ

Net loss for the year ended

December 31, 2003 ÏÏÏÏÏÏÏ

Change in unrealized gain on

marketable securities ÏÏÏÏÏÏ

326

3,515

49,767

627

3,332

1

4

326

3,516

49,771

(30,986)

(30,986)

(30,986)

Balance at December 31, 2003ÏÏ 16,641

22

144,940

(77,293)

Issuance of restricted stock,

net of forfeited shares ÏÏÏÏÏ

161

2,703

$(2,703)

Balance at December 31, 2004ÏÏ 17,281

22

153,469

(2,251)

(119,311)

(42,018)

(42,018)

(42,018)

Amortization of unearned

compensationÌemployeesÏÏ

Issuance of compensatory
stock optionsÌnon-
employees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Sale of common stock under
employee stock purchase
plans and exercise of stock
options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Net loss for the year ended

December 31, 2004 ÏÏÏÏÏÏÏ

Change in unrealized gain on

marketable securities ÏÏÏÏÏÏ

452

385

479

5,441

Issuance of restricted stock,

net of forfeited shares, and
compensatory stock options
to employees ÏÏÏÏÏÏÏÏÏÏÏÏÏ

Amortization of unearned

compensationÌemployeesÏÏ

Issuance of compensatory
stock options to non-
employees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Sale of common stock under
employee stock purchase
plans and exercise of stock
options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Sale of common stock in
public offerings, net of
offering expenses of $4,768
Issuance of common stock for
license rights (see Note 8)

Net loss for the year ended

December 31, 2005 ÏÏÏÏÏÏÏ

Change in unrealized gain on

marketable securities ÏÏÏÏÏÏ

134

4,125

(4,125)

1,878

640

10,467

121,546

15,838

821

6,307

686

1

9

1

(92)

14

(92)

(92)

67,683

(31,078)

452

385

5,441

(105)

(91)

(105)

(105)

31,838

(42,123)

1,878

640

10,468

121,555

15,839

(69,429)

(69,429)

(69,429)

(57)

(57)

(57)

Balance at December 31, 2005ÏÏ 25,229

$33

$306,085

$(4,498)

$(188,740)

$(148)

$112,732

$(69,486)

The accompanying notes are an integral part of the financial statements.

F-6

PROGENICS PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Years Ended December 31,
2004

2005

2003

Cash flows from operating activities:

Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net loss to net cash (used in) provided by

$(30,986)

$(42,018)

$ (69,429)

operating activities:

Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Write-off of fixed assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss on sale of marketable securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of premiums/accretion of discounts, net on

marketable securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of unearned compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss in Joint Venture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustment to loss in joint venture (See Note 10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Non-cash expense incurred in connection with issuance of

compensatory stock options to non-employeesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of license rights for common stock (see Note 8)ÏÏÏÏÏÏÏÏ
Changes in assets and liabilities:

Increase in accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Increase) decrease in amount due from joint venture ÏÏÏÏÏÏÏÏÏ
Decrease (increase) in other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in accounts payable and accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in due to joint ventureÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in investment in joint venture ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in income taxes payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in deferred revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(Decrease) increase in deferred lease liabilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash (used in) provided by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏ

Cash flows from investing activities:

Capital expenditures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchases of marketable securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Sales of marketable securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Increase in restricted cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash (used in) provided by investing activities ÏÏÏÏÏÏÏÏÏÏÏÏ

Cash flows from financing activities:

Proceeds from public offerings of Common Stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expenses associated with public offerings of Common Stock ÏÏÏÏÏÏ
Proceeds from the exercise of stock options and sale of Common

Stock under the Employee Stock Purchase Plan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by financing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net increase (decrease) in cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏ
Cash and cash equivalents at beginning of periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and cash equivalents at end of periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

1,273

644

2,525
927

326

1,566
42
31

640
452
2,134
762

385

(463)

111
2,243

(321)
(189)
(341)
1,938

(4,000)

(1,950)

(21)
(27,421)

(8)
(36,877)

(2,240)
(39,601)
66,670
(3)
24,826

(1,442)
(71,417)
51,784
(401)
(21,476)

54,153
(4,382)

1,748

270
1,878
1,863
1,311

640
15,839

(2,175)
189
(751)
2,666
194
(3,950)
201
589
60,000
7
11,090

(900)
(205,301)
124,936
(3)
(81,268)

126,323
(4,768)

3,516
53,287
4,390
7,447
$ 11,837

5,441
5,441
(6,610)
11,837
5,227

$

10,468
132,023
61,845
5,227
67,072

$

Supplemental disclosure of cash flow information:

Cash paid for interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Supplemental disclosure of non-cash investing and financing activities:
Fixed assets included in accounts payable and accrued expenses ÏÏÏ

$

$

4

17

$

169

$

312

The accompanying notes are an integral part of the financial statements.

F-7

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts or unless otherwise noted)

1. Organization and Business

Progenics Pharmaceuticals, Inc. (the ""Company'') is a biopharmaceutical company focusing on the
development and commercialization of innovative therapeutic products to treat the unmet medical needs of
patients with debilitating conditions and life-threatening diseases. The Company's principal programs are
directed toward symptom management and supportive care and the treatment of Human
Immunodeficiency Virus (""HIV'') infection and cancer. The Company was incorporated in Delaware on
December 1, 1986. In December 2005, in connection with the purchase of certain license rights (see
Note 8), the Company formed a wholly-owned subsidiary, Progenics Pharmaceuticals Nevada, Inc.
(""Progenics Nevada''). All of the Company's operations are located in New York State. Progenics Nevada
had no operations during 2005. The Company operates under a single segment.

The Company has had recurring net losses. At December 31, 2005, the Company had an accumulated
deficit of $188.7 million. During the year ended December 31, 2005, the Company received $121.6 million,
net of underwriting discounts and offering expenses, from the sale of approximately 6.3 million shares of its
common stock in three public offerings. In addition, the Company received a $60.0 million upfront
payment upon entering into a License and Co-Development Agreement with Wyeth Pharmaceuticals
(""Wyeth'') on December 23, 2005 for the development and commercialization of methylnaltrexone
(""MNTX''), the Company's lead investigational drug (see Note 7). At December 31, 2005, the Company
had cash, cash equivalents and marketable securities, including non-current portion, totaling
$173.1 million. The Company expects that cash, cash equivalents and marketable securities at
December 31, 2005 will be sufficient to fund current operations beyond one year. During the year then
ended, the Company had a net loss of $69.4 million and cash provided by operating activities was
$11.1 million.

Other than potential revenues from MNTX, including those resulting from reimbursements of the
Company's development costs and milestone, contingent and royalty payments from Wyeth, the Company
does not anticipate generating significant recurring revenues, from product sales or otherwise, in the near
term, and the Company expects its expenses to increase. Consequently, the Company may require
additional external funding to continue its operations at the current levels in the future. The Company may
enter into a collaboration agreement, or license or sale transaction, with respect to other of its product
candidates. The Company may also seek to raise additional capital through the sale of its common stock
or other securities and expects to fund aspects of its operations through government grants and contracts.

2. Summary of Significant Accounting Policies

Revenue Recognition

During the years ended December 31, 2003, 2004 and 2005, the Company recognized revenue from

PSMA Development Company LLC, its joint venture with Cytogen Corporation (the ""JV''), for contract
research and development; from government research grants and contracts from the National Institutes of
Health (the ""NIH''), which are used to subsidize certain of the Company's research projects
(""Projects''); and from the sale of research reagents. On December 23, 2005, the Company entered into a
license and co-development agreement with Wyeth, which includes a non-refundable upfront license fee,
reimbursement of development costs, research and development payments based upon the Company's
achievement of clinical development milestones, contingent payments based upon the achievement by
Wyeth of defined events and royalties on product sales. The Company recognizes revenue from all sources
based on the provisions of the Securities and Exchange Commission's Staff Accounting Bulletin No. 104
(""SAB 104'') ""Revenue Recognition'', Emerging Issues Task Force Issue No. 00-21 (""EITF 00-21'')

F-8

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

""Accounting for Revenue Arrangements with Multiple Deliverables'' and EITF Issue No. 99-19
""Reporting Revenue Gross as a Principal Versus Net as an Agent''.

Effective January 1, 2005, the Company elected to change the method it uses to recognize revenue

under SAB 104 for payments received under research and development collaboration agreements that
contain substantive at-risk milestone payments. There was no cumulative effect of this change in
accounting principle because the Company did not have any of these contracts at the time of the change.
The change in accounting method was made because the Company believes that it will enhance the
comparability of its financial results with those of its peer group companies in the biotechnology industry
and because it is expected to better reflect the substance of the Company's collaborative arrangements.

Under the new method, non-refundable upfront license fees are recognized as revenue when the
Company has a contractual right to receive such payment, the contract price is fixed or determinable, the
collection of the resulting receivable is reasonably assured and the Company has no further performance
obligations under the license agreement. Multiple element arrangements, such as license and development
arrangements, are analyzed to determine whether the deliverables, which often include a license and
performance obligations, such as research and steering committee services, can be separated or whether
they must be accounted for as a single unit of accounting in accordance with EITF 00-21. The Company
would recognize upfront license payments as revenue upon delivery of the license only if the license had
standalone value and the fair value of the undelivered performance obligations, typically including research
or steering committee services, could be determined. If the fair value of the undelivered performance
obligations could be determined, such obligations would then be accounted for separately as performed. If
the license is considered to either (i) not have standalone value or (ii) have standalone value but the fair
value of any of the undelivered performance obligations could not be determined, the arrangement would
then be accounted for as a single unit of accounting and the upfront license payments would be recognized
as revenue over the estimated period of when the Company's performance obligations are performed.

Whenever the Company determines that an arrangement should be accounted for as a single unit of

accounting, the Company must determine the period over which the performance obligations will be
performed and revenue related to upfront license payments will be recognized. Revenue will be recognized
using either a proportionate performance or straight-line method. The Company recognizes revenue using
the proportionate performance method provided that the Company can reasonably estimate the level of
effort required to complete its performance obligations under an arrangement and such performance
obligations are provided on a best-efforts basis. Direct labor hours or full-time equivalents will typically be
used as the measure of performance. Under the proportionate performance method, revenue related to
upfront license payments is recognized in any period as the percent of actual effort expended in that period
relative to total effort budgeted for all of the Company's performance obligations under the arrangement.

If the Company cannot reasonably estimate the level of effort required to complete its performance

obligations under an arrangement and the performance obligations are provided on a best-efforts basis,
then the total upfront license payments would be recognized as revenue on a straight-line basis over the
period the Company expects to complete its performance obligations.

Significant management judgment is required in determining the level of effort required under an

arrangement and the period over which it expects to complete its performance obligations under the
arrangement. In addition, if the Company is involved in a steering committee as part of a multiple element
arrangement that is accounted for as a single unit of accounting, the Company assesses whether its
involvement constitutes a performance obligation or a right to participate.

F-9

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

Collaborations may also contain substantive milestone payments. Substantive milestone payments are
considered to be performance payments that are recognized upon achievement of the milestone only if all
of the following conditions are met: (1) the milestone payments are non-refundable; (2) achievement of
the milestone involves a degree of risk and was not reasonably assured at the inception of the arrangement;
(3) substantive effort is involved in achieving the milestone; (4) the amount of the milestone payment is
reasonable in relation to the effort expended or the risk associated with achievement of the milestone and
(5) a reasonable amount of time passes between the upfront license payment and the first milestone
payment as well as between each subsequent milestone payment (the ""Substantive Milestone Method'').

Determination as to whether a milestone meets the aforementioned conditions involves management's

judgment. If any of these conditions are not met, the resulting payment would not be considered a
substantive milestone and, therefore, the resulting payment would be considered part of the consideration
for the single unit of accounting and be recognized as revenue as such performance obligations are
performed under either the proportionate performance or straight-line methods, as applicable, and in
accordance with the policies described above.

The Company will recognize revenue for payments that are contingent upon performance solely by its

collaborator immediately upon the achievement of the defined event if the Company has no related
performance obligations.

Reimbursement of costs is recognized as revenue provided the provisions of EITF Issue No. 99-19 are

met, the amounts are determinable and collection of the related receivable is reasonably assured.

Royalty revenue is recognized upon the sale of related products, provided that the royalty amounts are
fixed and determinable, collection of the related receivable is reasonably assured and the Company has no
remaining performance obligations under the arrangement. If royalties are received when the Company has
remaining performance obligations, the royalty payments would be attributed to the services being provided
under the arrangement and, therefore, would be recognized as such performance obligations are performed
under either the proportionate performance or straight-line methods, as applicable, and in accordance with
the policies described above.

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred

revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized during
the year ended December 31, 2006 are classified as long-term deferred revenue. As of December 31, 2005,
relative to the $60 million upfront license payment received from Wyeth, the Company has recorded
$23,580 and $36,420 as short-term and long-term deferred revenue, respectively, which is expected to be
recognized as revenue through 2008. The estimate of the classification of deferred revenue as short-term or
long-term is based upon management's current operating budget for the Wyeth collaboration agreement for
its total effort required to complete its performance obligations under that arrangement. That estimate may
change in the future and such changes to estimates would result in a change in the amount of revenue
recognized in future periods.

Previously, the Company had recognized non-refundable fees, including payments for services, up-
front licensing fees and milestone payments, as revenue based on the percentage of efforts incurred to date,
estimated total efforts to complete, and total expected contract revenue in accordance with EITF Issue
No. 91-6, ""Revenue Recognition of Long-Term Power Sales Contracts,'' with revenue recognized limited
to the amount of non-refundable fees received. Depending on the magnitude and timing of milestone
payments, revenue may be recognized sooner under the Substantive Milestone Method than it would have
been under the EITF 91-6 model. The accounting change did not affect revenue from NIH grants and
contracts, services performed on behalf of the JV, or from product sales.

F-10

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

NIH grant and contract revenue is recognized as efforts are expended and as related subsidized
Project costs are incurred. The Company performs work under the NIH grants and contract on a best-
effort basis. The NIH reimburses the Company for costs associated with Projects in the fields of HIV and
cancer, including preclinical research, development and early clinical testing of a prophylactic vaccine
designed to prevent HIV from becoming established in uninfected individuals exposed to the virus, as
requested by the NIH. Substantive at-risk milestone payments are uncommon in these arrangements, but
would be recognized as revenue on the same basis as the Substantive Milestone Method.

Both the Company and Cytogen are required to fund the JV equally to support ongoing research and
development efforts conducted by the Company on behalf of the JV. The Company recognizes payments
for research and development as revenue as services are performed. The Members have not approved a
work plan or budget for 2006 (see Note 10). Therefore, beginning on January 1, 2006, the Company, will
not be reimbursed by the JV for its services and the Company will not recognize revenue from the JV
until such time as a work plan and budget are approved.

For the years ended December 31, 2003, 2004 and 2005, the Company's research grant and contract
and contract research and development revenue came exclusively from the NIH and the JV, respectively.
The Company's research grant and contract revenue represented 65%, 78% and 89% of its total revenue,
respectively, and contract research and development revenue represented 33%, 21% and 10% of its total
revenue, respectively. For the years ended December 31, 2004 and 2005, receivables from the NIH
represented 84% and 99% of total receivables, respectively, and receivables from the JV represented 15%
and 0% of total receivables, respectively.

Research and Development Expenses

Research and development expenses include costs directly attributable to the conduct of research and
development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies,
maintenance of research equipment, costs related to research collaboration and licensing agreements, the
cost of services provided by outside contractors, including services related to the Company's clinical trials,
clinical trial expenses, the full cost of manufacturing drug for use in research, preclinical development, and
clinical trials. All costs associated with research and development are expensed as incurred.

For each clinical trial that the Company conducts, certain clinical trials costs, which are included in
research and development expenses, are expensed based on the total number of patients in the trial, the
rate at which patients enter the trial, and the period over which clinical investigators or contract research
organizations provide services. At each period end, the Company evaluates the accrued expense balance
related to these activities based upon information received from the suppliers and estimated progress
towards completion of the research or development objectives to ensure that the balance is reasonably
stated. Such estimates are subject to change as additional information becomes available.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make certain estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying notes. Actual results could differ
from those estimates. Significant estimates include useful lives of fixed assets, the periods over which
certain revenues and expenses will be recognized, including contract research and development revenue
recognized from non-refundable up front licensing payments and expense recognition of certain clinical
trial costs which are included in research and development expenses, and the likelihood of realization of
deferred tax assets.

F-11

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

Patents

As a result of research and development efforts conducted by the Company, the Company has
applied, or is applying, for a number of patents to protect proprietary inventions. All costs associated with
patents are expensed as incurred.

Net Loss Per Share

The Company prepares its per share data in accordance with Statement of Financial Accounting
Standards No. 128, ""Earnings Per Share'' (""SFAS No. 128''). Basic net loss per share is computed on the
basis of net loss for the period divided by the weighted average number of shares of common stock
outstanding during the period, which includes restricted shares only as the restrictions lapse. Potential
common shares have been excluded from diluted net loss per share since they would be anti-dilutive.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of

cash, cash equivalents, marketable securities and receivables from the JV and the NIH. The Company
invests its excess cash in taxable auction rate securities (""ARS'') and corporate notes. The Company has
established guidelines that relate to credit quality, diversification and maturity and that limit exposure to
any one issue of securities.

Cash and Cash Equivalents

The Company considers all highly liquid investments which have maturities of three months or less,

when acquired, to be cash equivalents. The carrying amount reported in the balance sheet for cash and
cash equivalents approximates its fair value. Cash and cash equivalents subject the Company to
concentrations of credit risk. At December 31, 2004 and 2005, the Company had invested approximately
$3,479 and $2,830, respectively, in funds with two major investment companies and held approximately
$1,748 and $64,242, respectively, in a single commercial bank. Restricted cash represents amounts held in
escrow for security deposits and credit cards.

Marketable Securities

In accordance with Statement of Financial Accounting Standards No. 115, ""Accounting for Certain
Debt and Equity Securities,'' investments are classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses reported in comprehensive income. The
amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income or expense. Realized gains and
losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are
included in other income or expense. In computing realized gains and losses, the Company computes the
cost of its investments on a specific identification basis. Such cost includes the direct costs to acquire the
securities, adjusted for the amortization of any discount or premium. The fair value of marketable
securities has been estimated based on quoted market prices. Interest and dividends on securities classified
as available-for-sale are included in interest income (see Note 3).

At December 31, 2004 and 2005, the Company's investment in marketable securities in the current
assets section of the consolidated balance sheets included $8.1 million and $45.2 million, respectively, of
auction rate securities. The Company's investments in these securities are recorded at cost, which
approximates fair market value due to their variable interest rates, which typically reset every 7 to 35 days,

F-12

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

and, despite the long-term nature of their stated contractual maturities, the Company has the ability to
quickly liquidate these securities. As a result, the Company had no cumulative gross unrealized holding
gains (losses) or gross realized gains (losses) from these securities. All income generated from these
current investments was recorded as interest income.

Fixed Assets

Leasehold improvements, furniture and fixtures, and equipment are stated at cost. Furniture, fixtures,

and equipment are depreciated on a straight-line basis over their estimated useful lives. Leasehold
improvements are amortized on a straight-line basis over the life of the lease or of the improvement,
whichever is shorter. Costs of construction of long-lived assets are capitalized but are not depreciated until
the assets are placed in service.

Expenditures for maintenance and repairs which do not materially extend the useful lives of the assets

are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are
removed from the respective accounts and any gain or loss is recognized in operations. The estimated
useful lives of fixed assets are as follows:

Computer equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Furniture and fixturesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Life of lease

3 years
5-7 years
5 years

Impairment of Long-Lived Assets

The Company periodically assesses the recoverability of fixed assets and evaluates such assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In accordance with SFAS No. 144 ""Accounting for the Impairment or Disposal
of Long-Lived Assets,'' if indicators of impairment exist, the Company assesses the recoverability of the
affected long-lived assets by determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If the carrying amount is not recoverable, the Company
measures the amount of any impairment by comparing the carrying value of the asset to the present value
of the expected future cash flows associated with the use of the asset. Based on an assessment as of
December 31, 2005, no impairments had occurred.

Income Taxes

The Company accounts for income taxes in accordance with the provisions of Statement of Financial

Accounting Standards No. 109, ""Accounting for Income Taxes'' (""SFAS No. 109''). SFAS No. 109
requires that the Company recognize deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined on the basis of the difference between the tax
basis of assets and liabilities and their respective financial reporting amounts (""temporary differences'') at
enacted tax rates in effect for the years in which the temporary differences are expected to reverse. A
valuation allowance is established for deferred tax assets for which realization is uncertain (see Note 13).

F-13

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

Risks and Uncertainties

The Company has no products approved by the U.S. Food and Drug Administration for marketing.

There can be no assurance that the Company's research and development will be successfully completed,
that any products developed will obtain necessary marketing approval by regulatory authorities or that any
approved products will be commercially viable. In addition, the Company operates in an environment of
rapid change in technology, and it is dependent upon the continued services of its current employees,
consultants and subcontractors. The Company currently relies upon single-source third party manufacturers
for the supply of bulk and finished form MNTX. For the three years ended December 31, 2005, the
primary sources of the Company's revenues were contract research and development revenues from the JV
and research grants and contracts revenues from the NIH. There can be no assurance that revenues from
research grants and contracts will continue. The Members have not currently approved a work plan or
budget for 2006. Therefore, the Company will not recognize revenue from the JV from January 1, 2006
until such time as a work plan and budget are approved. Substantially all of the Company's accounts
receivable at December 31, 2005 and December 31, 2004 were from the above-named sources.

Stock-Based Compensation

The accompanying financial position and results of operations have been prepared in accordance with

APB Opinion No. 25, ""Accounting for Stock Issued to Employees'' (""APB 25''). Under APB 25,
generally, no compensation expense is recognized in the financial statements in connection with the
awarding of stock option grants to employees provided that, as of the grant date, all terms associated with
the award are fixed and the fair value of the our stock, as of the grant date, is equal to or less than the
amount an employee must pay to acquire the stock. The Company recognizes compensation expense if the
terms of an option grant are not fixed or the quoted market price of our common stock on the grant date
is greater than the amount an employee must pay to acquire the stock. Compensation expense is also
recognized for performance-based vesting of stock options upon achievement of defined milestones.
Unearned compensation for restricted stock awards granted is recorded on the date of the grant based on
the intrinsic value of such awards. Such unearned compensation is expensed, using a straightline method,
over the period during which the related restrictions on such stock lapse. Upon termination of employment,
unvested restricted stock awards, if any, are forfeited and compensation expense and unearned
compensation previously recognized are reversed.

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123

(revised 2004) ""Share-Based Payment'' (""SFAS No. 123(R)''), using the modified prospective method
(see Note 11). In anticipation of the adoption of SFAS No. 123(R), we have revised certain assumptions
used in the Black-Scholes option pricing model. For all awards granted on or after January 1, 2005, we
changed the estimate of expected term from 5 years to 6.5 years. The period used to calculate historical
volatility of the Company's common stock has also been revised to 6.5 years. The impact of these revisions
is expected to increase the amount of compensation expense recognized by the Company as compared to
the amount that would have been recognized using the previous estimates.

F-14

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

The following table, which summarizes the pro forma operating results and compensation costs for

the Company's incentive stock option and stock purchase plans, has been determined in accordance with
the fair value based method of accounting for stock based compensation as prescribed by Statement of
Financial Accounting Standards No. 123 ""Accounting for Stock-Based Compensation'' (""SFAS
No. 123''). Since option grants awarded during 2003, 2004 and 2005 vest over several years and additional
awards are expected to be issued in the future, the pro forma results shown below are not likely to be
representative of the effects on future years of the application of the fair value based method.

Years Ended December 31,
2004

2003

2005

Net loss, as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Add: Stock-based employee compensation expense

included in reported net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Deduct: Total stock-based employee compensation
determined under fair value based method for all
awards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$(30,986)

$(42,018)

$(69,429)

103

452

1,793

(11,838)

(8,479)

(10,148)

Pro forma net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$(42,721)

$(50,045)

$(77,784)

Net loss per share amounts, basic and diluted:

As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

$

(2.32)

(3.20)

$

$

(2.48)

(2.96)

$

$

(3.33)

(3.73)

The fair value of options and warrants granted to non-employees for services, determined using the
Black-Scholes option pricing model (see Note 11 for assumptions), is included in the financial statements
and expensed as they vest in accordance with Emerging Issues Task Force 96-18. ""Accounting for Equity
Instruments that Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services''. Net loss and pro forma net loss include $223, $385 and $640 of non-employee
compensation expense in the years ended December 31, 2003, 2004 and 2005, respectively.

Other disclosures required by SFAS No. 123 have been included in Note 11.

Comprehensive Loss

Comprehensive loss represents the change in net assets of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. The Company's comprehensive
loss includes net loss adjusted for the change in net unrealized gain or loss on marketable securities. The
disclosures required by Statement of Financial Accounting Standards No. 130, ""Reporting Comprehensive
Income'' for the years ended December 31, 2003, 2004 and 2005 have been included in the Statements of
Stockholders' Equity and Comprehensive Loss.

Impact of Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (the ""FASB'') issued Statement

No. 123 (revised 2004) ""Share-Based Payment''(""SFAS No. 123(R)''), which is a revision of FASB
Statement No. 123, ""Accounting for Stock Based Compensation'' (""SFAS No. 123''). SFAS No. 123(R)
supersedes APB Opinion No. 25, ""Accounting for Stock Issued to Employees'' (""APB 25''), and amends
FASB Statement No. 95, ""Statement of Cash Flows''. SFAS No. 123(R) requires all share-based
payments to employees, including grants of employee stock options and restricted stock, and purchases of

F-15

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

common stock under the Company's Employee Stock Purchase Plans, if compensatory, as defined, to be
recognized in the financial statements based on their grant-date fair values. The standard allows three
alternative transition methods for public companies: modified prospective method; modified retrospective
method with restatement of prior interim periods in the year of adoption; and modified retroactive method
with restatement of all prior financial statements to include the same amounts that were previously
included in pro forma disclosures. Historically, in accordance with SFAS No. 123 and Statement of
Financial Accounting Standards No. 148 ""Accounting for Stock-Based Compensation-Transition and
Disclosure'' (""SFAS No. 148''), the Company had elected to follow the disclosure-only provisions of
Statement No. 123 and, accordingly, accounted for share-based compensation under the recognition and
measurement principles of APB 25 and related interpretations. Under APB 25, when stock options are
issued to employees with an exercise price equal to or greater than the market price of the underlying
stock price on the date of grant, no compensation expense is recognized in the financial statements and pro
forma compensation expense in accordance with SFAS No. 123 is only disclosed in the footnotes to the
financial statements. The Company adopted SFAS No. 123(R) on January 1, 2006 using the modified
prospective application and the Black-Scholes option pricing model to calculate the fair value of option
awards. The Company expects the impact that SFAS No. 123(R) will have on its results of operations to
be material. Total compensation expense related to unvested stock options and restricted stock at
January 1, 2006 was $15.3 million, which will be recognized as compensation expense over a weighted
average period of 3.6 years.

On March 29, 2005, the Securities and Exchange Commission (""SEC'') issued Staff Accounting
Bulletin No. 107 (""SAB 107''), which expresses views of the SEC staff regarding the interaction between
SFAS No. 123(R) and certain SEC rules and regulations and provide the SEC staff's views regarding the
valuation of share-based payment arrangements for public companies. In particular, SAB 107 provides
guidance related to share-based payment transactions with nonemployees, the transition from nonpublic to
public entity status, valuation methods (including assumptions such as expected volatility and expected
term), the accounting for certain redeemable financial instruments issued under share-based payment
arrangements, the classification of compensation expense, non-GAAP financial measures, first-time
adoption of SFAS No. 123(R) in an interim period, capitalization of compensation cost related to share-
based payment arrangements, the accounting for income tax effects of share-based payment arrangements
upon adoption of SFAS No. 123(R), the modification of employee share options prior to adoption of
SFAS No. 123(R) and disclosures in Management's Discussion and Analysis subsequent to adoption of
SFAS No. 123(R). The Company will implement all applicable aspects of SAB 107, including those
related to presentation and disclosure requirements under SFAS No. 123(R) beginning on January 1,
2006.

On August 31, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-1, ""Classification

and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee
Services under FASB Statement No. 123(R)'' (""FSP 123(R)-1''). FSP 123(R)-1 indefinitely defers the
requirement of SFAS No. 123(R), that a freestanding financial instrument issued to an employee, such as
a stock option or restricted stock award, originally subject to FAS 123(R) become subject to the
recognition and measurement requirements of other applicable GAAP when the rights conveyed by the
instrument to the holder are no longer dependent on the holder being an employee of the entity, such as
upon termination of employment. The Company's Stock Incentive Plans allow exercise of equity-based
awards for a period of three months following termination of employment. The Company will apply the
guidance in FSP 123(R)-1 upon initial adoption of SFAS No. 123(R), which will preclude the necessity
to record a liability during that three month period.

F-16

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

On October 18, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-2, ""Practical

Exception to the Application of Grant Date as Defined in Statement 123(R)'' (""FSP 123(R)-2''). FSP
123(R)-2 provides that the grant date for purposes of accounting for stock-based compensation awards
under SFAS No. 123(R) would be established prior to the communication of the key terms of the award
to the recipient if certain conditions are met. FSP 123(R)-2 provides that a mutual understanding of the
key terms and conditions of an award exists at the date the award is approved by the Board of Directors or
other management with relevant authority if the following conditions are met: (a) the recipient does not
have the ability to negotiate the key terms and conditions of the award with the employer (i.e., the grant
is unilateral) and (b) the key terms of the award are expected to be communicated to all of the recipients
within a relatively short time period from the date of approval. FSP 123(R)-2 provides that ""a relatively
short time period'' should be determined based on the period during which an entity could plausibly
complete the actions necessary to communicate the terms of an award to the recipient(s) in accordance
with the entity's customary human resource practices. The Company will apply the guidance of FSP
123(R)-2 upon initial adoption of SFAS No. 123(R). The Company does not expect any material impact
from the adoption of FSP 123(R)-2 because it does not represent a change in its practice of granting
equity-based awards.

On November 10, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-3, ""Transition
Election Related to Accounting for the Tax Effects of Share-Based Payment Awards'' (""FSP 123(R)-3'').
FSP 123(R)-3 provides a transition election related to the accounting for the income tax effects of stock-
based-compensation awards upon an entity's adoption of SFAS No. 123(R). The transition election is
intended to simplify the calculation of the pool of windfall tax benefits that is available to absorb tax
deficiencies, or shortfalls, that may occur in periods subsequent to the adoption of SFAS No. 123(R).
Determining the pool of windfall tax benefits under SFAS No. 123(R) requires an entity to analyze and
reconcile the book and tax records of all stock-based-compensation awards dating back to the original
effective date of SFAS No. 123 in 1995. The FASB staff issued FSP 123(R)-3 because there may be
significant cost or complexities involved in determining the pool of windfall tax benefits from the original
effective date of SFAS No. 123. FSP 123(R)-3 gives entities an election to select an alternative transition
method (the short-cut method) for the calculation of the pool of windfall tax benefits as of the adoption
date of SFAS No. 123(R). The Company has elected to adopt the short cut method when it adopts
SFAS No. 123(R) and expects its pool of windfall tax benefits to be zero on the date of adoption because
it has had net operating losses since inception.

On February 3, 2006, the FASB issued Staff Position No. FAS 123(R)-4, ""Classification of Options

and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the
Occurrence of a Contingent Event'' (""FSP 123(R)-4''). FSP 123(R)-4 amends SFAS 123(R) to allow
options and similar instruments issued as employee compensation to be accounted for as equity
instruments rather than as liabilities, as had been required by SFAS 123(R) if the option contains a cash
settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the
employee's control until it becomes probable that the event will occur. An example of such contingent
event is a change in control of an employer. The Company does not expect FSP 123(R)-4 to have a
material effect on its financial statements.

On September 1, 2005, the FASB issued Statement No. 154, ""Accounting Changes and Error
Corrections'' (""SFAS No. 154''), which will require entities that voluntarily make a change in accounting
principle to apply that change retrospectively to prior periods' financial statements, unless this would be
impracticable. SFAS No. 154 supersedes Accounting Principles Board Opinion No. 20, ""Accounting
Changes'' (""APB 20''), which previously required that most voluntary changes in accounting principle be
recognized by including in the current period's net income the cumulative effect of changing to the new

F-17

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

2. Summary of Significant Accounting Policies Ì (Continued)

accounting principle. SFAS No. 154 also makes a distinction between ""retrospective application'' of an
accounting principle and the ""restatement'' of financial statements to reflect the correction of an error.
Another significant change in practice under SFAS No. 154 will be that if an entity changes its method of
depreciation, amortization, or depletion for long-lived, nonfinancial assets, the change must be accounted
for as a change in accounting estimate. Under APB 20, such a change would have been reported as a
change in accounting principle. SFAS No. 154 applies to accounting changes and error corrections that are
made in fiscal years beginning after December 15, 2005. The Company does not expect the impact of
adoption of SFAS No. 154 will be material to its financial statements.

On November 3, 2005, the FASB issued Staff Position No. FAS 115-1 and FAS 124-1, ""The

Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments'' (""FSP
FAS 115-1 and FAS 124-1''). This FSP, effective January 1, 2006, provides accounting guidance
regarding the determination of when an impairment of debt and equity securities should be considered
other-than-temporary, as well as the subsequent accounting for these investments. The adoption of this
FSP is not expected to have a material impact on the Company's financial position or results of operations.

3. Marketable Securities

The Company considers its marketable securities to be ""available-for-sale,'' as defined by Statement

of Financial Accounting Standards No. 115, ""Accounting for Certain Investments in Debt and Equity
Securities,'' and, accordingly, unrealized holding gains and losses are excluded from operations and
reported as a net amount in a separate component of stockholders' equity (See Note 2). The following
table summarizes the amortized cost basis, the aggregate fair value, and gross unrealized holding gains and
losses at December 31, 2004 and 2005:

Amortized
Cost Basis

Fair Value

Unrealized Holding
(Losses)

Gains

Net

2004:

Maturities less than one year:

Corporate debt securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Government-sponsored entitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 11,970
5,008

$ 11,914
4,980

$ 4

$ (60)
(28)

$ (56)
(28)

Maturities between one and five years:

Corporate debt securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

993

986

(7)

(7)

Maturities greater than five years:

Municipal Bonds (ARS) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

8,100
$ 26,071

8,100
$ 25,980

$ 4

$ (95)

$ (91)

2005:

Maturities less than one year:

Corporate debt securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Government-sponsored entitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 51,458
2,500

$ 51,333
2,484

$(125)
(16)

$(125)
(16)

Maturities between one and five years:

Corporate debt securitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

7,059

7,035

(24)

(24)

Maturities greater than five years:

Municipal Bonds (ARS) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

45,149
$106,166

45,166
$106,018

$17
$17

$(165)

17
$(148)

F-18

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

3. Marketable Securities Ì (Continued)

The total realized losses from the sale of marketable securities for the year ended December 31, 2004
were $31. The Company computes the cost of its investments on a specific identification basis. Such cost
includes the direct costs to acquire the securities, adjusted for the amortization of any discount or
premium. The fair value of marketable securities has been estimated based on quoted market prices.

The following table shows the gross unrealized losses and fair value of the Company's marketable
securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by
investment category and length of time that individual securities have been in a continuous unrealized loss
position, at December 31, 2005.

Less than 12 Months

12 Months or Greater

Total

Description of Securities

Fair Value

Unrealized
Losses

Fair Value

Unrealized
Losses

Corporate debt securities ÏÏÏÏÏÏÏÏ
Government-sponsored entities ÏÏÏ

$57,377
2,484

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$59,861

$(142)
(16)

$(158)

$991

$(7)

$991

$(7)

Fair Value

$58,368
2,484

$60,852

Unrealized
Losses

$(149)
(16)

$(165)

Corporate debt securities. The Company's investments in corporate debt securities with unrealized
losses at December 31, 2005 include 27 securities with maturities of less than one year ($51,333 of the
total fair value and $125 of the total unrealized losses in corporate debt securities) and four securities with
maturities between one and two years ($7,035 of the total fair value and $24 of the total unrealized losses
in corporate debt securities). The severity of the unrealized losses (fair value is approximately 0.01 percent
to 0.76 percent less than cost) and duration of the unrealized losses (weighted average of 2.80 months)
correlate with the short maturities of the majority of these investments and with interest rate increases
during 2005, which have generally resulted in a decrease in the market value of the Company's portfolio.
Based upon the Company's currently projected sources and uses of cash, the Company intends to hold
these securities until a recovery of fair value, which may be maturity. Therefore, the Company does not
consider these marketable securities to be other-than-temporarily impaired at December 31, 2005.

Government-sponsored entities. The unrealized losses on the Company's investments in government-

sponsored entities were primarily caused by interest rate increases, which have generally resulted in a
decrease in the market value of the Company's portfolio. Based upon the Company's currently projected
sources and uses of cash, the Company intends to hold these securities until a recovery of fair value, which
may be maturity. Therefore, the Company does not consider these marketable securities to be other-than-
temporarily impaired at December 31, 2005.

F-19

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

4. Fixed Assets

Fixed assets consist of the following:

Computer equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Furniture and fixtures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Construction in progress ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

722
5,095
652
4,119
445

$

841
5,263
671
4,241
946

December 31,

2004

2005

Less, accumulated depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

5. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

11,033
(6,341)

11,962
(7,806)

$ 4,692

$ 4,156

December 31,

2004

2005

Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued consulting and clinical trial costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued payroll and related costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Legal and professional fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$1,438
3,832
734
1,256

$

880
6,721
1,144
1,255
238

$7,260

$10,238

6. Stockholders' Equity

The Company is authorized to issue 40,000 shares of common stock, par value $.0013 (""Common

Stock''), and 20,000 shares of preferred stock, par value $.001. The Board has the authority to issue
common and preferred shares, in series, with rights and privileges as determined by the Board.

In November 2003, the Company completed its third public offering of Common Stock, which

provided the Company with $49.8 million in net proceeds. As a result of that offering, the Company issued
3,332 shares of common stock at $16.25 per share and incurred related expenses of $4.4 million.

During the second and third quarters of 2005, the Company completed a series of public offerings of

Common Stock, which provided the Company with $121.6 million in net proceeds from the sale of
6,307 shares of Common Stock, at prices ranging from $15.25 to $23.90 per share, and incurred related
expenses of $4.8 million.

On December 22, 2005, the Company entered into a series of agreements with the licensors of the
Company's sublicense for the MNTX technology (see Notes 8 and 9 (b)(v)). The Company issued a
total of 686 shares of Common Stock to the licensors, valued at $15,839, based upon the closing price of
the Company's Common Stock on the date of the transaction of $23.09 per share.

F-20

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

7. License and Co-Development Agreement with Wyeth Pharmaceuticals

On December 23, 2005, Progenics Pharmaceuticals, Inc.(the ""Company'' or ""Progenics'') entered

into a License and Co-Development Agreement (the ""Collaboration Agreement'') with Wyeth
Pharmaceuticals, a Division of Wyeth, (""Wyeth'') (collectively, the ""Parties'') for the purpose of
developing and commercializing methylnaltrexone (""MNTX''), the Company's lead investigational drug,
for the treatment of opioid-induced side effects, including constipation and post-operative bowel
dysfunction, associated with chronic pain and advanced medical illness. The Collaboration Agreement
contemplates three products: (i) a subcutaneous (""SC'') product to be used in patients with opioid-
induced constipation; (ii) an intravenous (""IV'') product to be used in patients with post-operative bowel
dysfunction and (iii) an oral (""Oral'') product to be used in patients with opioid-induced constipation.

The collaboration is being administered by a Joint Steering Committee (""JSC'') and a Joint
Development Committee (""JDC''), each with equal representation by the Parties. The Joint Steering
Committee is responsible for coordinating the key activities of Wyeth and the Company under the
Collaboration Agreement. The Joint Development Committee is responsible for overseeing, coordinating
and expediting the development of MNTX by Wyeth and the Company.

Under the Collaboration Agreement, Progenics granted to Wyeth an exclusive, worldwide license,

even as to Progenics, to develop and commercialize MNTX. Progenics is responsible for developing the
SC and IV products in the United States, until regulatory approval. Progenics will transfer to Wyeth, at a
mutually agreeable time, any existing supply agreements with third parties for MNTX and will sublicense
any intellectual property rights to permit Wyeth to manufacture MNTX, during the development and
commercialization phases of the Collaboration Agreement, in both bulk and finished form for all products
worldwide. Progenics will also transfer to Wyeth all know-how, as defined, related to MNTX. Based upon
the Company's research and development programs, such period will cease upon completion of the
Company's development obligations under the Collaboration Agreement.

Wyeth is developing the Oral product worldwide and the SC and IV products outside the US. In the

event the JSC approves any formulation of MNTX other than subcutaneous, intravenous or oral or any
other indication for the products currently contemplated using the subcutaneous, intravenous or oral forms
of MNTX, Wyeth will be responsible for development of such products, including conducting clinical trials
and obtaining and maintaining regulatory approval. Beginning January 1, 2006, Wyeth is reimbursing
Progenics for all development costs incurred by Progenics that are within the budget approved by the JSC,
and is paying all of its own development costs.

Wyeth is responsible for the commercialization of the SC, IV and Oral products, and any other

products developed upon approval by the JSC, throughout the world and will pay all costs of
commercialization of all products. Decisions with respect to commercialization of any products developed
under the Collaboration Agreement will be made solely by Wyeth.

Wyeth granted to Progenics an option (the ""Co-Promotion Option'') to enter into a Co-Promotion
Agreement to co-promote any of the products developed under the Collaboration Agreement, subject to
certain conditions. The extent of the Company's co-promotion activities and the fee that the Company will
be paid by Wyeth for these activities, will be established when the Company exercises its option. Wyeth
will record all sales of products worldwide (including those sold by the Company, if any, under a
Co-Promotion Agreement). Wyeth may terminate any Co-Promotion Agreement if a top 15
pharmaceutical company acquires control of Progenics. Thus, Progenics' potential right to commercialize
any product, including its Co-Promotion Option, are not essential to the functionality of the already
delivered products or services, Progenics' development obligations, and Progenics' failure to fulfill its
co-promotion obligations would not result in a full or partial refund (or reduction of the consideration due)
or the right to reject the already delivered products or services.

F-21

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

7. License and Co-Development Agreement with Wyeth Pharmaceuticals Ì (Continued)

In addition to reimbursement of development costs, Wyeth has made or will make the following
payments to us: (i) a nonrefundable, noncreditable upfront payment, within five business days of execution
of the Collaboration Agreement of $60 million; (ii) development and sales milestones and contingent
payments, consisting of defined nonrefundable, noncreditable payments, totaling $356.5 million, including
clinical and regulatory events and combined annual worldwide net sales, as defined and (iii) sales royalties
during each calendar year during the royalty period, as defined, based on certain percentages of net sales
in the U.S. and worldwide. At December 31, 2005, the Company has deferred the recognition of revenue
for the $60 million upfront payment since work under the Collaboration Agreement did not commence
until January 2006.

The Collaboration Agreement extends, unless terminated earlier, on a country-by-country and

product-by-product basis, until the last to expire royalty period, as defined, for any product. Progenics may
terminate the Collaboration Agreement at any time upon 90 days of written notice to Wyeth (30 days in
the case of breach of a payment obligation) upon material breach that is not cured. Wyeth may, with or
without cause, following the second anniversary of the first commercial sale, as defined, of the first
commercial product in the U.S., terminate the Collaboration Agreement by providing Progenics with at
least 360 days prior written notice of such termination. Wyeth may also terminate the agreement (i) upon
30 days written notice following one or more serious safety or efficacy issues that arise, as defined, and
(ii) at any time, upon 90 days written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license the Company granted to Wyeth
will depend on the party that initiates the termination and the reason for the termination.

The Company will recognize revenue in connection with the Collaboration Agreement under SAB 104
and will apply the Substantive Milestone Method (see Note 2). In accordance with EITF 00-21, all of the
Company's deliverables under the Collaboration Agreement, consisting of granting the license for MNTX,
transfer of supply contracts with third party manufacturers of MNTX, transfer of know-how related to
MNTX development and manufacturing, and completion of development for the SC and IV products in
the U.S., represent one unit of accounting since none of those components have standalone value to Wyeth
prior to regulatory approval of at least one product; that unit of accounting comprises the development
phase, through regulatory approval, for the SC and IV products in the U.S.

Accordingly, Progenics deferred recognition of revenue for the upfront payment upon receipt.
Subsequently, the Company will recognize revenue for the upfront payment, based upon proportionate
performance, over the development period of the SC and IV products, through regulatory approval in the
U.S.. The Company expects that period to extend through 2008. Since the Company has no obligation to
develop the SC or IV products outside the U.S. or the Oral product at all and has no significant
commercialization obligations for any product, recognition of revenue for the upfront payment would not
be required during those periods, if they extend beyond the period of the Company's development
obligations.

The Company will recognize as contract research and development revenue from collaborator
amounts, reimbursable by Wyeth, for approved MNTX development costs incurred by the Company in
each period. Upon achievement of defined substantive development milestones by the Company for the SC
and IV products in the U.S., the milestone payments will be recognized as revenue. Recognition of
revenue for developmental contingent events related to the SC and IV products outside the U.S. and for
the Oral product, which are the responsibility of Wyeth, will be recognized as revenue when Wyeth
achieves those events, if they occur subsequent to completion by the Company of its development
obligations, since Progenics would have no further obligations related to those products. Otherwise, if
Wyeth achieves any of those events before the Company has completed its development obligations,

F-22

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

7. License and Co-Development Agreement with Wyeth Pharmaceuticals Ì (Continued)

recognition of revenue for the Wyeth contingent events will be recognized over the period from the
effective date of the Collaboration Agreement to the completion of the Company's development
obligations. All sales milestones and royalties will be recognized as revenue when earned.

8. Acquisition of Contractual Rights from MNTX Licensors

On December 22, 2005, Progenics and Progenics Pharmaceuticals Nevada acquired certain rights for

its lead investigational drug, methylnaltrexone (""MNTX''), from several of its licensors.

In 2001, Progenics entered into an exclusive sublicense agreement with UR Labs, Inc. (""URL'') (see

Note 9(b)(v)) to develop and commercialize MNTX (the ""MNTX Sublicense'') in exchange for rights
to future payments resulting from the MNTX Sublicense. In 1989, URL obtained an exclusive license to
MNTX, as amended, from the University of Chicago (""UC'') under an Option and License Agreement
dated May 8, 1985, as amended (the ""URL-Chicago License''). In 2001, URL also entered into an
agreement with certain heirs of Dr. Leon Goldberg (the ""Goldberg Distributees''), which provided them
with the right to receive payments based upon revenues received by URL from the development of the
MNTX Sub-license (the ""URL-Goldberg Agreement'').

On December 22, 2005, Progenics and Progenics Nevada entered into an Agreement and Plan of

Reorganization (the ""Purchase Agreement'') by and among Progenics Pharmaceuticals, Inc., Progenics
Pharmaceuticals Nevada, Inc., UR Labs, Inc. and the shareholders of UR Labs, Inc. (the ""URL
Shareholders''), under which Progenics Nevada acquired substantially all of the assets of URL, comprised
of its rights under the URL-Chicago License, the MNTX Sublicense and the URL-Goldberg Agreement,
thus assuming URL's rights and responsibilities under those agreements and extinguishing Progenics'
obligation to make royalty and other payments to URL.

On December 22, 2005, Progenics and Progenics Nevada entered into an Assignment and Assumption

Agreement with the Goldberg Distributees, under which Progenics Nevada assumed all rights and
obligations of the Goldberg Distributees under the URL-Goldberg Agreement, thereby extinguishing
URL's (and consequentially, the Company's) obligations to make payments to the Goldberg Distributees.
Although the Company is no longer obligated to make payments to URL or the Goldberg Distributees, the
Company is required to make future payments to the University of Chicago that would have been made by
URL.

In consideration for the assignment of the Goldberg Distributees' rights and of the acquisition of the

assets of URL described above, Progenics issued, on December 22, 2005, a total of 686 shares of its
common stock, with a fair value of $15.8 million, based on a closing price of the Company's common
stock of $23.09, and paid a total of $2.6 million in cash (representing the opening market value,
$22.85 per share, of 114 shares of Progenics' common stock on the date of the acquisition) to the URL
Shareholders and the Goldberg Distributees and paid $310 in transaction fees. The Company has
registered for resale, using its best efforts, a portion of the consideration, totalling 286 shares of its
common stock, with the Securities and Exchange Commission using the shelf registration process.

The Company accounted for the acquisition of the rights described above from the licensors, the only

asset acquired, as an asset purchase. The acquired rights, relate to the MNTX Sublicense and the
Company's research and development activities for MNTX, for which technological feasibility has not yet
been established, for which there is no identified alternative future use and, which has not received
regulatory approval for marketing. Accordingly, the entire purchase price of $18.7 million was recorded as
license expense, as a separate line item in the Company's Consolidated Statement of Operations, in the
period incurred.

F-23

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

9. Commitments and Contingencies

a. Operating Leases

As of December 31, 2005, the Company leases office and laboratory space under: (i) a non-
cancelable sublease agreement (""Sublease'') and (ii) a separate non-cancelable direct lease agreement
(""Direct Lease''). The Sublease, as amended, provides for fixed monthly rental expense of approximately
$65 through June 30, 2007. Such amounts are recognized as rent expense on a straight-line basis over the
term of the Sublease. The Sublease can be extended at the Company's option for one additional two-year
term. The Direct Lease provides for fixed monthly rental expense of approximately $56 through
August 31, 2007, and approximately $65 through December 31, 2009. The Direct Lease can be extended
at the Company's option for two additional five-year terms. In addition to rents due under these
agreements, the Company is obligated to pay additional facilities charges, including utilities, taxes and
operating expenses. The Company also leases certain office equipment under non-cancelable operating
leases. The leases expire at various times through January 2007.

As of December 31, 2005, future minimum annual payments under all operating lease agreements are

as follows:

Years Ending December 31,

2006ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2007ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2008ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2009ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Minimum
Annual Payments

$1,645

1,244

883

883

$4,655

Rental expense totaled approximately $841, $1,657 and $1,675 for the years ended December 31,

2003, 2004 and 2005, respectively. For the years ended December 31, 2003 and 2004, the Company
recognized amounts paid in excess of rental expense of approximately $21 and $8, respectively. For the
year ended December 31, 2005, the Company recognized rent expense in excess of amounts paid of $21.
Additional facility charges, including utilities, taxes and operating expenses, for the years ended
December 31, 2003, 2004 and 2005 were approximately $1,086, $1,932 and $2,257, respectively.

b. Licensing, Service and Supply Agreements

The Company has entered into a variety of intellectual property-based license and service agreements

and a supply agreement for MNTX in connection with its product development programs. In connection
with all the agreements discussed below, the Company has recognized milestone, license and sublicense
fees and supply costs, which are included in research and development expenses, totaling approximately
$1,412, $1,291 and $22,375 for the years ended December 31, 2003, 2004 and 2005, respectively. In
addition, as of December 31, 2005, remaining payments associated with milestones and defined objectives
with respect to the agreements referred to below total approximately $15,170. Future annual minimum
royalties under the licensing agreements described below are not significant.

i. Columbia University

The Company is a party to a license agreement with Columbia University under which it obtained
exclusive, worldwide rights to specified technology and materials relating to CD4. In general, the license
agreement terminates (unless sooner terminated) upon the expiration of the last to expire of the licensed
patents, which is presently 2021; however, patent applications that the Company has also licensed and

F-24

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

9. Commitments and Contingencies Ì (Continued)

patent term extensions may extend the period of its license rights, when and if the patent applications are
allowed and issued or patent term extensions are granted.

The Company's license agreement requires it to achieve development milestones. Among others, the

agreement states that the Company is required to have filed for marketing approval of a drug by June
2001 and be manufacturing a drug for commercial distribution by June 2004. The Company has not
achieved either of these milestones due to delays that it believes could not have been reasonably avoided
and are reasonably beyond its control. The agreement provides that Columbia shall not unreasonably
withhold consent to a revision of the milestone dates under specified circumstances, and the Company
believes that the delays referred to above satisfy the criteria for a revision of the milestone dates. Columbia
has not consented to a revision of the milestone dates.

The Company has the right to terminate the agreement without cause upon 90 days prior written

notice, with the obligation to pay only those liabilities that have accrued prior to such termination. The
agreement may also be terminated, after an opportunity to cure, by Columbia for cause upon 60 days prior
written notice.

ii. Sloan-Kettering Institute for Cancer Research

The Company is party to a license agreement with Sloan-Kettering under which it obtained the

worldwide, exclusive rights to specified technology relating to ganglioside conjugate vaccines, including
GMK, and its use to treat or prevent cancer. In general, the Sloan-Kettering license agreement terminates
upon the later to occur of the expiration of the last to expire of the licensed patents or 15 years from the
date of the first commercial sale of a licensed product pursuant to the agreement, unless sooner
terminated. Patents that are presently issued expire in 2014; however, pending patent applications that we
have also licensed and patent term extensions may extend the license period, when and if the patent
applications are allowed and issued or patent term extensions are granted. In addition to the patents and
patent applications, the Company has also licensed from Sloan-Kettering the exclusive rights to use
relevant technical information and know-how. A number of Sloan-Kettering physician-scientists also serve
as consultants to Progenics.

The Company's license agreement requires it to achieve development milestones. The agreement

states that the Company is required to have filed for marketing approval of a drug by 2000 and to
commence manufacturing and distribution of a drug by 2002. The Company has not achieved these
milestones due to delays that it believes could not have been reasonably avoided. The agreement provides
that Sloan-Kettering shall not unreasonably withhold consent to a revision of the milestone dates under
specified circumstances, and the Company believes that the delays referred to above satisfy the criteria for
a revision of the milestone dates. Sloan-Kettering has not consented to a revision of the milestone dates as
of this time.

The Company has the right to terminate the agreement without cause upon 90 days prior written

notice, with the obligation to pay only those liabilities that have accrued prior to such termination. The
agreement may also be terminated, after an opportunity to cure, by Sloan-Kettering for cause upon
60 days prior written notice.

iii. Aquila Biopharmaceuticals, Inc.

The Company has entered into a license and supply agreement with Aquila Biopharmaceuticals, Inc.,

a wholly owned subsidiary of Antigenics Inc., pursuant to which Aquila agreed to supply the Company
with all of its requirements for the QS-21TM adjuvant for use in ganglioside-based cancer vaccines,

F-25

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

9. Commitments and Contingencies Ì (Continued)

including GMK. QS-21 is the lead compound in the Stimulon» family of adjuvants developed and owned
by Aquila. In general, the license agreement terminates upon the expiration of the last to expire of the
licensed patents, unless sooner terminated. In the U.S. the licensed patent will expire in 2008.

The Company's license agreement requires it to achieve development milestones. The agreement

states that the Company is required to have filed for marketing approval of a drug by 2001 and to
commence the manufacture and distribution of a drug by 2003. We have not achieved these milestones
due to delays that we believe could not have been reasonably avoided. The agreement provides that Aquila
shall not unreasonably withhold consent to a reasonable revision of the milestone dates under specified
circumstances, and we believe that the delays referred to above satisfy the criteria for a revision of the
milestone dates. Aquila has not consented to a revision of the milestone dates as of this time.

The Company has the right to terminate the agreement without cause upon 90 days prior written
notice, with the obligation to pay only those liabilities that have accrued prior to such termination. In the
event of a default by one party, the agreement may also be terminated, after an opportunity to cure, by
non-defaulting party upon 60 days prior written notice.

iv. Development and License Agreement with PDL BioPharma, Inc. (formerly, Protein Design Labs,
Inc.)

The Company has entered into a development and license agreement with Protein Design Labs, or

PDL, for the humanization by PDL of PRO 140. Pursuant to the agreement, PDL granted the Company
exclusive and nonexclusive worldwide licenses under patents, patent applications and know-how relating to
the humanized PRO 140. In general, the license agreement terminates on the later of 10 years from the
first commercial sale of a product developed under the agreement or the last date on which there is an
unexpired patent or a patent application that has been pending for less than ten years, unless sooner
terminated. Thereafter the license is fully paid. The last of the presently issued patents expires in 2014;
however, patent applications filed in the U.S. and internationally that the Company has also licensed and
patent term extensions may extend the period of our license rights, when and if such patent applications
are allowed and issued or patent term extensions are granted. The Company has the right to terminate the
agreement without cause upon 60 days prior written notice. In the event of a default by one party, the
agreement may also be terminated, after an opportunity to cure, by non-defaulting party upon 30 days
prior written notice.

v. UR Labs, Inc.

In 2001, the Company entered into an agreement with UR Labs to obtain worldwide exclusive rights

to intellectual property rights related to MNTX. UR Labs had exclusively licensed MNTX from the
University of Chicago. In consideration for the license, the Company paid a nonrefundable, noncreditable
license fee and was obligated to make additional payments upon the occurrence of defined milestones. On
December 22, 2005, the Company entered into a series of agreements with UR Labs, which extinguished
Progenics' obligation to make royalty and other payments to UR Labs (see Note 8). The Company will be
responsible to make certain payments to the University of Chicago, associated with the MNTX product
development and commercialization program, which would have been made by UR Labs.

vi. Genzyme Transgenics Corporation

The Company entered into a collaboration with Genzyme Transgenics to develop a transgenic source

of the PRO 542 molecule. Under this agreement, Genzyme Transgenics conducted work designed to result
in the establishment of a line of transgenic goats capable of expressing the molecule in lactation milk. The

F-26

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

9. Commitments and Contingencies Ì (Continued)

Company was obligated to pay Genzyme Transgenics certain fees to conduct the program as well as
additional fees upon the achievement of specified milestones. During 2005, the collaboration with
Genzyme Transgenics was terminated by mutual consent of the parties.

vii. Pharmacopeia, Inc.

In March 2000, the Company entered into a research and license agreement with Pharmacopeia, Inc.

to discover therapeutic treatments related to HIV. This agreement expanded on a collaboration with
Pharmacopeia commenced in September 1997. Under the terms of the 2000 agreement, the Company
provided proprietary assays and expertise and Pharmacopeia engaged in a screening program of its internal
compound library. In August 2000, the Company expanded its collaboration with Pharmacopeia to add two
additional programs. Progenics was entitled to a grant by Pharmacopeia of a license to active compounds,
if any, identified in the program. The Company was obligated to pay Pharmacopeia fees as well as
additional amounts upon the achievement of specified milestones and royalties on any sales of therapeutics
marketed as a result of the collaboration. During 2005, the collaboration with Pharmacopeia was
terminated by mutual consent of the parties.

viii. Hoffmann-LaRoche

On December 23, 1997 (the ""Effective Date''), the Company entered into an agreement (the ""Roche

Agreement'') to conduct a research collaboration with F. Hoffmann-LaRoche Ltd and Hoffmann-
LaRoche, Inc. (collectively ""Roche'') to identify novel HIV therapeutics (the ""Compound''). The Roche
Agreement granted to Roche an exclusive worldwide license to use certain of the Company's intellectual
property rights related to HIV to develop, make, use and sell products resulting from the collaboration.

In March 2002, Roche exercised its right to discontinue funding the research being conducted under
the Roche Agreement. Discussions between Roche and the Company resulted in an agreement by which
the Company gained the exclusive rights to develop and market the Compound, as defined. Roche is
entitled to receive certain milestone payments and royalties, as defined, provided Roche has not elected its
option to resume joint development and commercialization of the Compound. As of December 31, 2005,
Roche had not elected to resume its option.

ix. Cornell Research Foundation

The Company is party to an Exclusive License Agreement with Cornell Research Foundation, Inc.
(""Cornell'') regarding a patent application (the ""Patent'') which is jointly owned by the Company and
Cornell involving HIV. Under the agreement, Cornell granted to the Company an exclusive worldwide
license to Cornell's rights in the Patent and in further inventions and patents arising from research and
development conducted by the Company or its sublicensees under the agreement. In consideration for
Cornell granting the Exclusive License, the Company paid an upfront license fee and a minimum royalty
payment and will make defined future annual minimum royalty payments, milestone payments upon the
achievement of certain defined development and regulatory events and will pay royalties on net sales, as
defined of products arising from the Exclusive License. If not terminated earlier, the agreement terminates
upon the expiration of the last valid claim, as defined, covering a product. Thereafter, the license is fully-
paid and royalty-free. Cornell may terminate the agreement if the Company is in default of contractual
payments or is in material breach of the agreement that is not cured within 30 days of written notice. The
Company may terminate the agreement at any time upon 60 days written notice.

F-27

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

9. Commitments and Contingencies Ì (Continued)

x. Mallinckrodt Inc.

In March 2005, the Company entered into an agreement with Mallinckrodt Inc. for the supply of the
bulk form of MNTX. The contract provides for Mallinckrodt to supply product based on a rolling forecast
to be provided by the Company to Mallinckrodt with respect to the Company's anticipated needs and for
the Company's purchase of product on specified pricing terms. Under this agreement, the Company is
obligated to purchase a portion of its requirements for bulk form MNTX from Mallinckrodt, although the
Company has no set minimum purchase obligation. Product supplied to the Company by Mallinckrodt is
required to satisfy technical specifications agreed to by the Company. The contract term extends to
January 1, 2008 and renews automatically thereafter for successive one-year terms unless either party
provides prior notice to the other. Prior to its expiration, the contract may be terminated by either party
upon a material breach by the other party or upon the occurrence of specified bankruptcy or insolvency
events. In connection with the Company's Collaboration Agreement with Wyeth (see Note 7), the
Company's agreement with Mallinckrodt will be transferred to Wyeth at a mutually agreeable time.

c. Consulting Agreements

As part of the Company's research and development efforts, it enters into consulting agreements with

external scientific specialists (""Scientists''). These agreements contain various terms and provisions,
including fees to be paid by the Company and royalties, in the event of future sales, and milestone
payments, upon achievement of defined events, payable by the Company. Certain Scientists, some of
whom are members of the Company's Scientific Advisory Board, have purchased Common Stock or
received stock options which are subject to vesting provisions. The Company has recognized expenses with
regard to these consulting agreements totaling approximately $460, $641 and $877 for the years ended
December 31, 2003, 2004 and 2005, respectively. For the years ended December 31, 2003, 2004 and 2005,
such expenses include the fair value of stock options granted during 2003, 2004 and 2005, which were fully
vested at grant date, of approximately $223, $385 and $640, respectively.

10. PSMA Development Company LLC

a. Introduction

PSMA Development Company LLC (the ""JV'') was formed on June 15, 1999 as a joint venture
between the Company and Cytogen Corporation (""Cytogen'') (each a ""Member'' and collectively, the
""Members'') for the purposes of conducting research, development, manufacturing and marketing of
products related to prostate-specific membrane antigen (""PSMA''). Each Member has equal ownership
and equal representation on the JV's management committee and equal voting rights and rights to profits
and losses of the JV. In connection with the formation of the JV, the Members entered into a series of
agreements, including an LLC Agreement and a Licensing Agreement (collectively, the ""Agreements''),
which generally define the rights and obligations of each Member, including the obligations of the
Members with respect to capital contributions and funding of research and development of the JV for each
coming year. The Agreements generally terminate upon the last to expire of the patents granted by the
Members to the JV or upon breach by either party, which is not cured within 60 days of written notice or
upon dissolution of the JV in accordance with the LLC Agreement.

The Company provides research and development services to the JV and is compensated for its
services based on agreed-upon terms. Until January 2004, such services were provided to the JV pursuant
to a Services Agreement and extensions thereof. The Services Agreement, as extended, expired effective
January 31, 2004, and as of December 31, 2005, the Members had not yet agreed upon the terms of a
replacement services agreement, although the Company continued to provide services to the JV, for which

F-28

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

10. PSMA Development Company LLC Ì (Continued)

it was compensated. The Services Agreement provides that all inventions made by the Company in
connection with its research and development services for the JV are to be assigned to the JV for its use
and benefit.

b. Funding of Research and Development by the Members

The level of commitment by the Members to fund the JV is based on an annual budget and work
plan that is developed and approved by the Members. The budget is intended to provide for sufficient
funds to conduct the research and development projects specified in the work plan for the then-current
year. At December 31, 2005, the JV had no approved budget or work plan for the year ending
December 31, 2006 because the Company and Cytogen had not yet reached agreement with respect to a
number of matters relating to the JV. However, the Members are required to fulfill obligations under
existing contractual commitments as of December 31, 2005. Although work on the PSMA projects
continues, if the Members do not reach an agreement regarding the 2006 budget and work plan, the
programs conducted by the JV would likely be delayed or halted, and the Company's capital commitments
to, and its revenues associated with, the joint venture would be reduced or eliminated.

Under the Agreements, the Company was required to fund the initial cost of research up to

$3.0 million. As of December 31, 2001, the Company had met its obligation to provide this amount. Since
that time, each Member has made equal capital contributions to fund research and other costs.

The contributions of the Members to the JV, one half of which was committed by each Member,
were $8.0 million, $3.9 million and $7.9 million, respectively, in the years ended December 31, 2003, 2004
and 2005. Each Member made a capital contribution to the JV of $0.5 million in January 2005, which was
used to fund obligations for work performed under the approved 2004 work plan, and which amounts are
included in the total contributions for the year ended December 31, 2005 set forth above.

c. Contract Research and Development Revenue from the JV

Amounts received by the Company from the JV as payment for research and development services

and reimbursement of related costs in excess of the initial $3.0 million provided by the Company (see
above) are recognized as contract research and development revenue. For the years ended December 31,
2003, 2004 and 2005, such amounts totaled approximately $2.5 million, $2.0 million and $1.0 million,
respectively. According to the Agreements, the Company may directly pursue and obtain government
grants directed to the conduct of research utilizing PSMA related technologies. In consideration of the
Company's initial incremental capital contribution of $3.0 million of joint venture research expenditures,
the Company may retain $3.0 million of such government grant funding. To the extent that the Company
retains grant revenue in respect of work for which it has also been compensated by the joint venture, the
remainder of the $3.0 million to be retained by the Company is reduced and the Company records an
adjustment in its financial statements to reduce both joint venture losses and contract revenue from the
joint venture. Such adjustments were $927, $762 and $1,311 for the years ended December 31, 2003, 2004
and 2005, respectively, and $3.0 million cumulatively through December 31, 2005. Contract research and
development revenue recognized by the Company related to services provided to the JV may vary in the
future due to potential future funding limitations on the part of the Members, disagreements between the
Members regarding JV funding or operations, the extent to which the JV requests Progenics to perform
research and development under the terms of a new Services Agreement or other form of agreement
between the Members with respect to such services.

F-29

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

10. PSMA Development Company LLC Ì (Continued)

d. Selected Financial Statement Data

The Company accounts for its investment in the JV in accordance with the equity method of

accounting. Selected financial statement data of the JV are as follows:

Balance Sheet Data

Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Due from Progenics ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Prepaid expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

December 31,

2004

2005

$ 873

194

9

$1,076

$

$

12

12

Accounts payable to Progenics ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 189

Accounts payable to Cytogen ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4

$

3

Accounts payable and accrued expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

629

Stockholders' (deficit) equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(810)

332

741

Total liabilities and stockholders' (deficit) equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

12

$1,076

Statement of Operations Data

Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

5

$

7

$

9

Total expenses(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

6,909

5,799

6,358

For the Year Ended
2004

2003

2005

For the Period from
June 15, 1999
(inception) to
December 31, 2005

$

250

30,707

Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$(6,904)

$(5,792)

$(6,349)

$(30,457)

(1) Includes contract research and development services performed by Progenics

f. Collaboration Agreements of the Joint Venture

i. Abgenix

In February 2001, the JV entered into a worldwide exclusive licensing agreement with Abgenix to use

Abgenix' XenoMouseTM technology for generating fully human antibodies to the JV's proprietary PSMA
antigen. In consideration for the license, the JV paid a nonrefundable, non-creditable license fee and is
obligated to make additional payments upon the occurrence of defined milestones associated with the
development and commercialization program for products incorporating an antibody generated utilizing the
XenoMouse technology. This agreement may be terminated, after an opportunity to cure, by Abgenix for
cause upon 30 days prior written notice. The JV has the right to terminate this agreement upon 30 days
prior written notice. If not terminated early, this agreement continues until the later of the expiration of
the XenoMouse technology patents that may result from pending patent applications or seven years from
the first commercial sale of the products.

F-30

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

10. PSMA Development Company LLC Ì (Continued)

ii. AlphaVax Human Vaccines

In September 2001, the JV entered into a worldwide exclusive license agreement with AlphaVax
Human Vaccines to use the AlphaVax Replicon Vector system to create a therapeutic prostate cancer
vaccine incorporating the JV's proprietary PSMA antigen. In consideration for the license, the JV paid a
nonrefundable, noncreditable license fee and is obligated to make additional payments upon the occurrence
of certain defined milestones associated with the development and commercialization program for products
incorporating AlphaVax' system. This agreement may be terminated, after an opportunity to cure, by
AlphaVax under specified circumstances that include the JV's failure to achieve milestones; however, the
consent of AlphaVax to revisions to the due dates for the milestones shall not be unreasonably withheld.
The JV has the right to terminate the agreement upon 30 days prior written notice. If not terminated
early, this agreement continues until the later of the expiration of the patents relating to AlphaVax' system
or seven years from the first commercial sale of the products developed using AlphaVax' system. The last
of the presently issued patents expire in 2015; however, patent applications filed in the U.S. and
internationally that the JV has also licensed and patent term extensions may extend the period of the JV's
license rights, when and if such patent applications are allowed and issued or patent term extensions are
granted.

iii. Seattle Genetics, Inc.

In June 2005, the JV entered into a collaboration agreement (the ""SGI Agreement'') with Seattle
Genetics, Inc. (""SGI''). Under the SGI Agreement, SGI provided an exclusive worldwide license to its
proprietary antibody-drug conjugate technology (the ""ADC Technology'') to the JV. Under the license,
the JV has the right to use the ADC Technology to link cell-killing drugs to the JV's monoclonal
antibodies that target prostate-specific membrane antigen. During the initial research term of the SGI
Agreement, SGI also is required to provide technical information to the JV related to implementation of
the licensed technology, which period may be extended for an additional period upon payment of an
additional fee. The JV may replace prostate-specific membrane antigen with another antigen, subject to
certain restrictions, upon payment of an antigen replacement fee. The ADC Technology is based, in part,
on technology licensed by SGI from third parties (the ""Licensors''). The JV is responsible for research,
product development, manufacturing and commercialization of all products under the SGI Agreement.
The JV may sublicense the ADC Technology to a third-party to manufacture the ADC's for both research
and commercial use. The JV made a $2.0 million technology access payment to SGI upon execution of
the SGI Agreement and will make additional maintenance payments during the term of the SGI
Agreement. In addition, the JV will make payments, aggregating $15.0 million, upon the achievement of
certain defined milestones and will pay royalties to SGI and its Licensors, as applicable, on a percentage of
net sales, as defined. In the event that SGI provides materials or services to the JV under the SGI
Agreement, SGI will receive supply and/or labor cost payments from the JV at agreed-upon rates. The
ability of the JV to comply with the terms of the SGI Agreement will depend on agreement by the
Members regarding work plans and budgets of the JV in future years.

The JV's monoclonal antibody project is currently in the pre-clinical phase of research and

development. All costs incurred by the JV under the SGI Agreement during the research and development
phase of the project will be expensed in the period incurred. The SGI Agreement terminates at the later
of (a) the tenth anniversary of the first commercial sale of each licensed product in each country or
(b) the latest date of expiration of patents underlying the licensed products. The JV may terminate the
SGI Agreement upon advance written notice to SGI. SGI may terminate the SGI Agreement if the JV
breaches an SGI in-license that is not cured within a specified time period after written notice. In

F-31

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

10. PSMA Development Company LLC Ì (Continued)

addition, either party may terminate the SGI Agreement upon breach by the other party that is not cured
within a specified time period after written notice or in the event of bankruptcy of the other party.

11. Stock Incentive and Employee Stock Purchase Plans

The Company has adopted four stock incentive plans, the 1989 Non-Qualified Stock Option Plan, the

1993 Stock Option Plan, the 1996 Amended Stock Incentive Plan and the 2005 Stock Incentive Plan
(individually the ""89 Plan,'' ""93 Plan'', ""96 Plan,'' and ""05 Plan'', respectively, or collectively, the
""Plans''). Under the 89 Plan, the 93 Plan and the 96 Plan, each as amended, and the 05 Plan, a
maximum of 375, 750, 5,000 and 2,000 shares of Common Stock, respectively, are available for awards to
employees, consultants, directors and other individuals who render services to the Company (collectively,
""Awardees''). The Plans contain certain anti-dilution provisions in the event of a stock split, stock
dividend or other capital adjustment as defined. The 89 Plan and 93 Plan provide for the Board, or the
Compensation Committee (""Committee'') of the Board, to grant stock options to Awardees and to
determine the exercise price, vesting term and expiration date. The 96 Plan and the 05 Plan provide for
the Board or Committee to grant to Awardees stock options, stock appreciation rights, restricted stock,
performance awards or phantom stock, as defined (collectively ""Awards''). The Committee is also
authorized to determine the term and vesting of each Award and the Committee may in its discretion
accelerate the vesting of an Award at any time. Stock options granted under the Plans generally vest pro
rata over four to ten years and have terms of ten to twenty years. Restricted stock issued under the 96
Plan or 05 Plan usually vests annually over a four year period, unless specified otherwise by the
Committee, and has a term of ten years. Except as noted below, the exercise price of outstanding stock
options was equal to the fair value of the Company's Common Stock on the dates of grant. Under the 89
Plan, for a period of ten years following the termination for any reason of an Awardee's employment or
active involvement with the Company, as determined by the Board, the Company has the right, should
certain contingent events occur, to repurchase any or all shares of Common Stock held by the Awardee
and/or any or all of the vested but unexercised portion of any option granted to such Awardee at a
purchase price defined by the 89 Plan, which is equal to or exceeds fair value. The 89 Plan and the 93
Plan terminated in April 1994 and December 2003, respectively, and the 96 Plan and 05 Plan will
terminate in October 2006 and April 2015, respectively; however, options granted before termination of the
Plans will continue under the respective Plans until exercised, cancelled or expired.

F-32

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

11. Stock Incentive and Employee Stock Purchase Plans Ì (Continued)

The following table summarizes stock option information for the Plans as of December 31, 2005:

Options Outstanding

Options Exercisable

Range of Exercise Prices

$ 1.33 Ó $ 1.33 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 2.47 Ó $ 4.00 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 4.41 Ó $ 6.98 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$ 7.15 Ó $11.44 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$11.50 Ó $17.03 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$17.10 Ó $25.62 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$26.00 Ó $27.44 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$42.38 Ó $48.88 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$70.00 Ó $70.00 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

129

401

86

178

2,054

1,123

73

40

15

$ 1.33 Ó $70.00 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,099

Number
Outstanding

Weighted
Average
Remaining
Contractual Life

Weighted
Average
Exercise
Price

$ 1.33

3.98

5.76

9.65

13.69

20.49

26.28

44.82

70.00

Number
Exercisable

129

377

79

143

1,616

448

58

40

15

Weighted
Average
Exercise
Price

$ 1.33

3.98

5.75

9.46

13.48

19.24

26.29

44.82

70.00

$14.60

2,905

$13.17

4.8

1.4

6.5

5.4

5.8

8.0

5.3

4.0

4.3

5.9

Transactions involving stock option awards under the Plans during 2003, 2004 and 2005 are

summarized as follows:

Number
of Shares

Weighted
Average
Exercise Price

Balance outstanding, December 31, 2002ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,164

$12.26

2003: Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

CancelledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Expirations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

982

(126)

(343)

(42)

Balance outstanding, December 31, 2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,635

2004: Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CancelledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Expirations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

491
(336)

(318)

(62)

Balance outstanding, December 31, 2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,410

2005: Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

CancelledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

703

(351)

(663)

14.67

12.93

6.16

15.62

13.17

16.94
15.30

10.89

22.27

13.46

21.08

17.87

12.09

Balance outstanding, December 31, 2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,099

$14.60

F-33

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

11. Stock Incentive and Employee Stock Purchase Plans Ì (Continued)

As of December 31, 2003, 2004 and 2005, the total number of options that were exercisable under the
Plans was 2,838, 2,954 and 2,905, respectively with weighted average exercise prices of $12.02, $12.47 and
$13.17, respectively.

As of December 31, 2005, shares available for future grants under the 96 Plan and 05 Plan amounted

to 35 and 1,630, respectively.

During the years ended December 31, 2002, 2003, 2004 and 2005, the Company granted 33, 225 and

75 stock options under the 96 Plan and 75 stock options under the 05 Plan, respectively, to its Chief
Executive Officer. All of the options granted in 2002 and 2005 and one-half of those granted in 2003 and
2004 cliff vest in 9 years and 11 months from the grant date. Vesting of those options may be accelerated
upon the achievement of certain defined milestones. Accordingly, those options are accounted for as
variable plan options under APB 25. The remaining one-half of each of the grants made in 2003 and 2004,
vest over a four-year period and are accounted for as fixed plan options. During 2003, two of the
milestones under the 2003 grant were achieved, resulting in the vesting of 62 options, for which the
Company recognized $103 as non-cash compensation expense. During 2004, one of the milestones under
the 2003 grant was achieved resulting in the vesting of 11 options but no compensation expense was
recognized since that option was out- of-the-money on the date of accelerated vesting. No milestones were
achieved in 2004 under the 2004 grant. During 2005, two of the milestones under the 2003 grant, three
milestones under the 2004 grant and one milestone under the 2005 grant were achieved resulting in the
vesting of 39 options under the 2003 grant, 26 options under the 2004 grant and 38 options under the 2005
grant. In addition, 16 stock options, which are accounted for as variable awards under APB No. 25, that
were granted under all four awards vested based upon the passage of time. The Company recognized $709
of non-cash compensation expense upon the vesting of options in 2005.

During the year ended December 31, 2004, the Company granted 37 options to its President to buy

shares of the Company's common stock under the 96 Plan. The options cliff vested in 9 years and
11 months and are subject to acceleration of vesting upon the achievement of certain defined milestones.
No milestones were achieved in 2004. During March 2005, upon the achievement of one milestone, 6
stock options vested, for which the Company recognized $11 of non-cash compensation expense. On
March 4, 2005, the President notified the Company of his resignation from the Company. Accordingly, all
unvested options were cancelled and the vested options were exercised within six months from his
termination date.

During the years ended December 31, 2004 and 2005, the Company issued 161 and 134 shares,

respectively, of restricted stock, net of forfeitures, at no cost to certain employees and Board members.
Based on the fair market values of $16.85 per share in 2004 and $15.98 to $22.42 per share in 2005 on the
dates of such grants, a total amount of $2.7 million and $3.0 million was recorded as unearned
compensation on the balance sheet for the years ended December 31, 2004 and 2005, respectively. The
restrictions on such shares lapse generally over a period of four years and, accordingly, the total unearned
compensation of $5.7 million is being amortized as compensation expense on a straight line basis as such
restrictions lapse. Total amortization of unearned compensation expense for the years ended December 31,
2004 and 2005 amounted to $452 and $1,158, respectively, net of forfeitures.

During 1993, the Company adopted an Executive Stock Option Plan (the ""Executive Plan''), under
which a maximum of 750 shares of Common Stock, adjusted for stock splits, stock dividends, and other
capital adjustments, are available for stock option awards. Awards issued under the Executive Plan may
qualify as incentive stock options (""ISOs''), as defined by the Internal Revenue Code, or may be granted
as non-qualified stock options. Under the Executive Plan, the Board may award options to senior executive
employees (including officers who may be members of the Board) of the Company. The Executive Plan

F-34

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

11. Stock Incentive and Employee Stock Purchase Plans Ì (Continued)

terminated on December 15, 2003; however, any options outstanding as of the termination date shall
remain outstanding until such option expires in accordance with the terms of the respective grant. During
December 1993, the Board awarded a total of 750 stock options under the Executive Plan to one officer,
of which 665 were non-qualified options (""NQOs'') and 85 were ISOs. The ISOs have been exercised.
The NQOs have a term of 14 years and entitle the officer to purchase shares of Common Stock at
$5.33 per share, which represented the estimated fair market value, of the Company's Common Stock at
the date of grant, as determined by the Board of Directors. As of December 31, 2005, all NQOs were fully
vested, and options to purchase 475 shares remain outstanding.

The following table summarizes stock option information for the Executive Plan as of December 31,

2005:

Range of Exercise Prices

$5.33

Number
Outstanding

475

Options Outstanding
Weighted Average
Remaining
Contractual Life

Weighted
Average Exercise
Price

2.0

$5.33

Options Exercisable

Number
Exercisable

475

Weighted
Exercise
Price

$5.33

On May 1, 1998, the Company adopted two employee stock purchase plans (the ""Purchase Plans''),
the 1998 Employee Stock Purchase Plan (the ""Qualified Plan'') and the 1998 Non-Qualified Employee
Purchase Plan (the ""Non-Qualified Plan''). The Purchase Plans provide for the grant to all employees of
options to use up to 25% of their quarterly compensation, as such percentage is determined by the Board
of Directors prior to the date of grant, to purchase shares of the Common Stock at a price per share equal
to the lesser of the fair market value of the Common Stock on the date of grant or 85% of the fair market
value on the date of exercise. Options are granted automatically on the first day of each fiscal quarter and
expire six months after the date of grants. The Qualified Plan is not available for employees owning more
than 5% of the Common Stock and imposes certain other quarterly limitations on the option grants.
Options under the Non-Qualified Plan are granted to the extent the option grants are restricted under the
Qualified Plan. The Qualified and Non-Qualified Plans provide for the issuance of up to 1,000 and
300 shares of Common Stock, respectively.

Purchases of Common Stock during the years ended December 31, 2003, 2004 and 2005 are

summarized as follows:

Qualified Plan

Non-Qualified Plan

2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

256
144
130

Shares
Purchased

Price Range

$ 3.75Ì$17.78
$ 7.47Ì$17.13
$13.60Ì$24.67

Shares
Purchased

44
17
27

Price Range

$ 3.75Ì$ 6.66
$ 7.47Ì$17.13
$13.60Ì$24.67

At December 31, 2005, shares reserved for future purchases under the Qualified and Non-Qualified

Plans were 179 and 193, respectively.

The Company has adopted the disclosure only provision in accordance with SFAS No. 123 (see
Note 2), as amended by SFAS No. 148, under which compensation expense related to employee Awards,
as computed under APB No. 25, is subtracted from the Company's net loss, as reported in the Statements
of Operations, and non-cash compensation expense for all employee Awards granted during the year, as
calculated under SFAS No. 123, is added back in its place. The resulting net loss is presented as pro
forma net loss in a disclosure in the footnotes to the financial statements. For the purpose of the pro forma
calculation, such non-cash compensation expense under SFAS No. 123, for options granted under the

F-35

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

11. Stock Incentive and Employee Stock Purchase Plans Ì (Continued)

Plans and Executive Plan and the Purchase Plans, is determined using the Black-Scholes option pricing
model prescribed by SFAS No. 123. The following assumptions were used in computing the fair value of
option grants under the Plans and Executive Plan, and the Purchase Plans:

Plans and Executive Plan
2004

2005

2003

Risk free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏ
Expected dividend yieldÏÏÏÏÏÏÏÏÏÏÏ
Expected livesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

2.7%
0%
5 years
94%

3.4%
0%
5 years
92%

3.6%
0%
6.5 years
95%

2003

0.97%
0%
6 months
36%

Purchase Plans
2004

1.6%
0%
6 months
32%

2005

2.9%
0%
6 months
39%

The following table presents characteristics of stock options granted under the Plans during the years

ended December 31, 2003, 2004 and 2005:

2003

Weighted
Average
Exercise
Price per
Share

Weighted
Average
Grant
Date Fair
Value per
Share

No. of
options
granted

Years Ended December 31,
2004

Weighted
Average
Exercise
Price per
Share

Weighted
Average
Grant
Date Fair
Value per
Share

No. of
options
granted

No. of
options
granted

2005

Weighted
Average
Exercise
Price per
share

Weighted
Average
Grant
Date Fair
Value per
Share

Exercise price equal to

grant date market price

963

$14.82

$10.79

472

$17.29

$12.38

680

$21.22

$17.03

Exercise price less than

grant date market price

19

$ 5.03

$ 9.96

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

982

$ 8.17

$14.48

19

491

$16.85

$18.18

23

703

12. Employee Savings Plan

During 1993, the Company adopted the provisions of the amended and restated Progenics
Pharmaceuticals 401(k) Plan (the ""Amended Plan''). The terms of the Amended Plan, among other
things, allow eligible employees to participate in the Amended Plan by electing to contribute to the
Amended Plan a percentage of their compensation to be set aside to pay their future retirement benefits.
The Company has agreed to match 100% of those employee contributions that are equal to 5%-8% of
compensation and are made by eligible employees to the Amended Plan (the ""Matching Contribution'').
In addition, the Company may also make a discretionary contribution each year on behalf of all
participants who are non-highly compensated employees. The Company made Matching Contributions of
approximately $558, $723 and $875 to the Amended Plan for the years ended December 31, 2003, 2004
and 2005, respectively. No discretionary contributions were made during those years.

13. Income Taxes

The Company accounts for income taxes using the liability method in accordance with Statement of

Financial Accounting Standards No. 109, ""Accounting for Income Taxes'' (""SFAS 109''). Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes.

There is no provision or benefit for federal or state income taxes for the years ended December 31,
2003 or 2004. For the year ended December 31, 2005, although the Company had a pre-tax net loss of

F-36

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

13. Income Taxes Ì (Continued)

$69.2 million, it had taxable income due primarily to the $60 million upfront payment received from
Wyeth (see Note 7) and the $18.4 million cash and common stock paid to UR Labs and the Goldbergs
(see Note 8), which were treated differently for book and tax purposes. For book purposes, payments
made to UR Labs and the Goldberg Distributees were expensed in the period the payments were made.
However, for tax purposes, the UR Labs transaction was a tax-free re-organization and will never result in
a deduction for tax purposes and the payments to the Goldberg Distrbutees have been capitalized as an
intangible license asset and will be deducted for tax purposes over a fifteen year period. The Company is
in the process of completing a calculation, under Internal Revenue Code Section 382, to determine
whether past ownership changes will limit utilization of NOL's to offset 2005 taxable income. However,
the Company believes that it is subject to a limitation but has sufficient NOL's at December 31, 2005 to
fully offset current year taxable income. The Company has, therefore, recognized an income tax provision
for the effect of the Federal and state alternative minimum tax. Future ownership changes may further
limit the future utilization of net operating loss and tax credit carry-forwards as defined by the federal and
state tax codes.

Deferred tax assets consist of the following:

December 31,

2004

2005

Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
R&D tax credit carry-forwardsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
AMT credit carry-forwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net operating loss carry-forwardsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other itemsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$

809
4,651
211
51,578

597

$

1,033
5,692
412
49,134
23,909
3,433

Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

57,846
(57,846)

83,613
(83,613)

$

Ì $

Ì

The Company does not recognize deferred tax assets considering its history of taxable losses and the
uncertainty regarding the Company's ability to generate sufficient taxable income in the future to utilize
these deferred tax assets.

The following is a reconciliation of income taxes computed at the Federal statutory income tax rate to

the actual effective income tax provision:

Year Ended December 31,
2005
2004
2003

U.S. Federal statutory rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercise of non-qualified stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Research and experimental tax creditÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UR Labs license purchase ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(34)% (34)% (34)%
(2.8)
1.1

(1.8)
0.8

(2.5)
0.5
5.7
30.7
(0.3)

36.3
(0.6)

35.4
(0.4)

Income tax provision ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

0%

0%

0.2%

F-37

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

13. Income Taxes Ì (Continued)

As of December 31, 2005, the Company had available, for tax return purposes, unused net operating

loss carry-forwards (""NOL's'') of approximately $123.3 million, which will expire in various years from
2010 to 2024, $27.8 million of which were generated from deductions that, when realized, will reduce taxes
payable and will increase paid-in-capital.

In connection with the Company's adoption of SFAS No. 123(R) ""Share-Based Payment'' on

January 1, 2006 (see Note 2), the Company has elected to implement the short cut method of calculating
its pool of windfall tax benefits. Accordingly, the Company expects its pool of windfall tax benefits on
January 1, 2006 to be zero because it has had NOL's since inception and, therefore, has never recognized
any net increases in additional paid-in capital in the Company's annual financial statements related to tax
benefits from stock-based employee compensation during fiscal periods subsequent to the adoption of
SFAS No. 123 but prior to the adoption of SFAS No. 123(R).

The Company's research and experimental tax credit carry-forwards of approximately $5.7 million at

December 31, 2005 expire in various years from 2006 to 2025. During the year ended December 31, 2005,
research and experimental tax credit carry-forwards of approximately $53 expired.

14. Net Loss Per Share

The Company's basic net loss per share amounts have been computed by dividing net loss by the

weighted-average number of common shares outstanding during the period. For the years ended
December 31, 2003, 2004 and 2005, the Company reported a net loss and, therefore, potential common
shares were not included since such inclusion would have been anti-dilutive. The calculations of net loss
per share, basic and diluted, are as follows:

Net Loss
(Numerator)

Weighted Average
Common Shares
(Denominator)

Per Share
Amount

2003:

Basic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$(30,986)

13,367

$(2.32)

2004:

Basic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$(42,018)

16,911

$(2.48)

2005:

Basic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

$(69,429)

20,864

$(3.33)

For the years ended December 31, 2003, 2004 and 2005, potential common shares which have been

excluded from diluted per share amounts because their effect would have been anti-dilutive include the
following:

2003

Weighted
Average
Number

Weighted
Average
Exercise Price

4,911

$9.53

Options and warrantsÏÏÏÏÏÏÏ
Restricted stock ÏÏÏÏÏÏÏÏÏÏÏ

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

4,911

Years Ended December 31,
2004

Weighted
Average
Number

Weighted
Average
Exercise Price

2005

Weighted
Average
Number

Weighted
Average
Exercise Price

$10.15

4,378
83

4,461

4,640
204

4,844

$13.08

F-38

PROGENICS PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(amounts in thousands, except per share amounts or unless otherwise noted)

15. Unaudited Quarterly Results

Summarized quarterly financial data for the years ended December 31, 2004 and 2005 are as follows:

Revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss per share:

Quarter Ended
March 31,
2004
(unaudited)
1,748
$
(10,225)

Quarter Ended
June 30,
2004
(unaudited)
2,175
$
(10,876)

Quarter Ended
September 30,
2004
(unaudited)
2,361
$
(10,636)

Quarter Ended
December 31,
2004
(unaudited)
3,292
$
(10,281)

Basic and dilutedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(0.61)

(0.64)

(0.63)

(0.60)

Revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss per share:

Quarter Ended
March 31,
2005
(unaudited)
2,589
$
(13,194)

Quarter Ended
June 30,
2005
(unaudited)
2,075
$
(12,795)

Quarter Ended
September 30,
2005
(unaudited)
2,774
$
(10,743)

Quarter Ended
December 31,
2005
(unaudited)
2,048
$
(32,697)

Basic and dilutedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

(0.76)

(0.65)

(0.49)

(1.34)

F-39

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the

Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.

SIGNATURES

PROGENICS PHARMACEUTICALS, INC.

By: PAUL J. MADDON, M.D., PH.D.

Paul J. Maddon, M.D., Ph.D.
(Duly authorized officer of the
Registrant and Chief Executive Officer,
Chief Science Officer and Director)

Date: March 15, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature

Capacity

Date

/s/ KURT W. BRINER
Kurt W. Briner

/s/ PAUL F. JACOBSON
Paul F. Jacobson

Co-Chairman

March 15, 2006

Co-Chairman

March 15, 2006

/s/ PAUL J. MADDON, M.D., PH.D.
Paul J. Maddon, M.D., Ph.D.

Chief Executive Officer, Chief Science March 15, 2006
Officer and Director (Principal
Executive Officer)

/s/ CHARLES A. BAKER
Charles A. Baker

/s/ MARK F. DALTON
Mark F. Dalton

/s/ STEPHEN P. GOFF, PH.D.
Stephen P. Goff, Ph.D.

Director

Director

Director

/s/ DAVID A. SCHEINBERG, M.D., PH.D. Director
David A. Scheinberg, M.D., Ph.D.

/s/ ROBERT A. MCKINNEY, CPA
Robert A. McKinney, CPA

Chief Financial Officer, Senior Vice
President, Finance & Operations and
Treasurer (Principal Financial and
Accounting Officer)

March 15, 2006

March 15, 2006

March 15, 2006

March 15, 2006

March 15, 2006

S-1

Exhibit
Number

3.1(1)
3.2(1)
4.1(1)
10.1(1)
10.2(1)
10.3(1)
10.4(1)
10.5(4)
10.5.1(12)
10.5.2(12)
10.6(1)
10.7(2)

10.8(1)
10.9(10)
10.10(10)
10.11(1)‰

10.12(1)‰

10.13(1)‰

10.14(6)

10.15(3)‰

10.15.1

10.16(3)‰

10.17(3)‰

10.18(8)

10.19(5)
10.20(7)‰

EXHIBIT INDEX

Description
Certificate of Incorporation of the Registrant, as amended
By-laws of the Registrant
Specimen Certificate for Common Stock, $.0013 par value per share, of the Registrant
Form of Registration Rights Agreement
1989 Non-Qualified Stock Option Planƒ
1993 Stock Option Plan, as amendedƒ
1993 Executive Stock Option Planƒ
Amended and Restated 1996 Stock Incentive Planƒ
Form of Non-Qualified Stock Option Agreementƒ
Form of Restricted Stock Awardƒ
Form of Indemnification Agreementƒ
Employment Agreement dated December 31, 2003 between the Registrant and Dr. Paul J.
Maddonƒ
Letter dated August 25, 1994 between the Registrant and Dr. Robert J. Israelƒ
1998 Employee Stock Purchase Planƒ
1998 Non-qualified Employee Stock Purchase Planƒ
License  Agreement  dated  November  17,  1994  between  the  Registrant  and  Sloan-Kettering
Institute for Cancer Research
QS-21  License  and  Supply  Agreement  dated  August  31,  1995  between  the  Registrant  and
Cambridge Biotech Corporation, a wholly owned subsidiary of bioMerieux, Inc.
License Agreement dated March 1, 1989, as amended by a Letter Agreement dated March 1,
1989 and as amended by a Letter Agreement dated October 22, 1996 between the Registrant
and the Trustees of Columbia University
Amended and Restated Sublease dated June 6, 2000 between the Registrant and Crompton
Corporation
Development and License Agreements, effective as of April 30, 1999, between Protein Design
Labs, Inc. and the Registrant
Letter  Agreement  dated  November  24,  2003  relating  to  the  Development  and  License
Agreement between Protein Design Labs, Inc. and the Registrant
PSMA/PSMP License Agreement dated June 15, 1999, by and among the Registrant, Cytogen
Corporation and PSMA Development Company LLC
Limited Liability Company Agreement of PSMA Development Company LLC, dated June 15,
1999, by and among the Registrant, Cytogen Corporation and PSMA Development Company
LLC
Amendment  Number  1  to  Limited  Liability  Company  Agreement  of  PSMA  Development
Company LLC dated March 22, 2002 by and among the Registrant, Cytogen Corporation and
PSMA Development Company LLC
Director Stock Option Planƒ
Exclusive Sublicense Agreement, dated September 21, 2001, between the Registrant and UR
Labs, Inc.

10.20.1(11) Amendment to Exclusive Sublicense Agreement between the Registrant and UR Labs, Inc.,

10.21(9)

10.22(9)

dated September 21, 2001
Research  and  Development  Contract  between  the  National  Institutes  of  Health  and  the
Registrant, dated September 26, 2003
Agreement of Lease between Eastview Holdings LLC and the Registrant, dated September 30,
2003

E-1

Exhibit
Number
10.23(9)

10.24(13)
10.25(14)‰

10.26

10.27

23.1
31.1

31.2

32.1

32.2

Description
Letter Agreement amending Agreement of Lease between Eastview Holdings LLC and the
Registrant, dated October 23, 2003
Summary of Non-Employee Director Compensationƒ
Supply  Agreement,  dated  January  1,  2005,  between  Progenics  Pharmaceuticals,  Inc.  and
Mallinckrodt Inc.
License and Co-Development Agreement dated December 23, 2005 by and among Wyeth,
acting through Wyeth Pharmaceuticals Division, Wyeth-Whitehall Pharmaceuticals, Inc. and
Wyeth-Ayerst  Lederle,  Inc.  and  Progenics  Pharmaceuticals,  Inc.  and  Progenics
Pharmaceuticals  Nevada,  Inc.  (confidential  treatment  has  been  requested  as  to  certain
portions, which portions have been omitted and filed separately with the Commission)
Option and License Agreement dated May 8, 1985 by and between the University of Chicago
and UR Labs, Inc., as amended by the Amendment to Option and License Agreement dated
September 17, 2005 by and between the University of Chicago and UR Labs, Inc., by the
Second Amendment to Option and License Agreement dated March 3, 1989 by and among the
University of Chicago, ARCH Development Corporation and UR Labs, Inc. and by the Letter
Agreement Related to Progenics' MNTX In-License dated December 22, 2005 by and among
the University of Chicago, acting on behalf of itself and ARCH Development Corporation,
Progenics Pharmaceuticals, Inc., Progenics Pharmaceuticals Nevada, Inc. and Wyeth, acting
through its Wyeth Pharmaceuticals Division (confidential treatment has been requested as to
certain portions, which portions have been omitted and filed separately with the Commission)
Consent of PricewaterhouseCoopers LLP
Certification  of  Paul  J.  Maddon,  M.D.,  Ph.D.,  Chief  Executive  Officer  of  the  Registrant
pursuant to 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as
amended
Certification of Robert A. McKinney, Chief Financial Officer, Senior Vice President, Finance
and Operations and Treasurer of the Registrant pursuant to 13a-14(a) and Rule 15d-14(a)
under the Securities Exchange Act of 1934, as amended
Certification  of  Paul  J.  Maddon,  M.D.,  Ph.D.,  Chief  Executive  Officer  of  the  Registrant
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Certification of Robert A. McKinney, Chief Financial Officer, Senior Vice President, Finance
and Operations and Treasurer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Previously filed as an exhibit to the Company's Registration Statement on Form S-1, Commission

File No. 333-13627, and incorporated by reference herein.

(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended

December 31, 2003, and incorporated by reference herein.

(3) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly

period ended June 30, 1999, and incorporated by reference herein.

(4) Previously filed as an exhibit to the Company's Registration Statement on Form S-8, Commission

File No. 333-120508, and incorporated by reference herein.

(5) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended

December 31, 1999, and incorporated by reference herein.

(6) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly

period ended June 30, 2000, incorporated by reference herein.

(7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended

December 31, 2002, incorporated by reference herein.

(8) Previously filed as an exhibit to the Company Annual Report on Form 10-K/A for the year ended

December 31, 2002, filed on October 22, 2003, incorporated by reference herein.

E-2

(9) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly

period ending September 30, 2003, and incorporated by reference herein.

(10) Previously filed as an exhibit to the Company's Registration Statement on Form S-8, Commission

File No. 333-119463, and incorporated by reference herein.

(11) Previously filed as an exhibit to the Company's Current Report on Form 8-K filed on September 20,

2004, and incorporated by reference herein.

(12) Previously filed as an exhibit to the Company's Current Report on Form 8-K filed on January 14,

2005, and incorporated by reference herein.

(13) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended

December 31, 2004, incorporated by reference herein.

(14) Previously filed as an exhibit to the Company's Amended Quarterly Report on Form 10-Q/A for the

quarterly period ended March 31, 2005.

‰

ƒ

Confidential treatment granted as to certain portions, which portions are omitted and filed separately
with the Commission.

Management contract or compensatory plan or arrangement.

E-3

Exhibit 31.1

CERTIFICATION
PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Paul J. Maddon, M.D., Ph.D., certify that:

1.

2.

3.

4.

I have reviewed this annual report on Form 10-K of Progenics Pharmaceuticals, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a)

b)

c)

d)

designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant is made known to us by others within the registrant, particularly during the period
in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's independent registered public accounting
firm and the audit committee of the registrant's board of directors (or persons performing the
equivalent function):

a)

b)

all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.

Date: March 15, 2006

/s/ Paul J. Maddon, M.D., Ph.D.
Paul J. Maddon, M.D., Ph.D.
Chief Executive Officer and Chief
Science Officer (Principal Executive Officer)

Exhibit 31.2

CERTIFICATION
PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Robert A. McKinney, certify that:

1.

2.

3.

4.

I have reviewed this annual report on Form 10-K of Progenics Pharmaceuticals, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a)

b)

c)

d)

designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant is made known to us by others within the registrant, particularly during the period
in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's independent registered public accounting
firm and the audit committee of the registrant's board of directors (or persons performing the
equivalent function):

a)

b)

all significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.

Date: March 15, 2006

/s/ Robert A. McKinney
Robert A. McKinney
Chief Financial Officer, Senior Vice President,
Finance & Operations and Treasurer (Principal
Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned Chief Executive Officer and Chief Science Officer of Progenics Pharmaceuticals,

Inc. (the ""Company'') does hereby certify as follows:

This annual report on Form 10-K of the Company for the period ended December 31, 2005 and filed
with the Securities and Exchange Commission on the date hereof (the ""Report'') fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information
contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.

Date: March 15, 2006

/s/ Paul J. Maddon, M.D., Ph.D.

Paul J. Maddon, M.D., Ph.D.
Chief Executive Officer and Chief
Science Officer (Principal Executive Officer)

A signed original of this written statement required by Section 906, or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic
version of this written statement required by Section 906, has been provided to Progenics
Pharmaceuticals, Inc. and will be retained by Progenics Pharmaceuticals, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned Chief Financial Officer, Vice President, Finance and Operations and Treasurer of
Progenics Pharmaceuticals, Inc. (the ""Company'') does hereby certify as follows:

This annual report on Form 10-K of the Company for the period ended December 31, 2005 and filed with
the Securities and Exchange Commission on the date hereof (the ""Report'') fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information
contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.

Date: March 15, 2006

/s/ Robert A. McKinney

Robert A. McKinney
Chief Financial Officer, Senior Vice President,
Finance & Operations and Treasurer (Principal
Financial Officer)

A signed original of this written statement required by Section 906, or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic
version of this written statement required by Section 906, has been provided to Progenics
Pharmaceuticals, Inc. and will be retained by Progenics Pharmaceuticals, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request

STOCKHOLDERS’ INFORMATION

Securities and Related Information

The Company’s Common Stock is traded on The Nasdaq National Market under the

symbol PGNX. As of April 13, 2006 the Company had approximately 135 stockholders 

of record.

The following table sets forth the reported high and low sales prices for the Company’s
Common Stock as reports by Nasdaq for the periods indicated:

2004 

HIGH

LOW 

2005 

HIGH

LOW 

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

23.45
20.79
16.92
18.08

17.60
14.85
8.50
12.25

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

24.40
21.35
25.07
27.00

14.09
15.76
20.60
20.73

2006

First Quarter

30.83

24.92

Company Information

Transfer Agent

American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005

Independent Accountants

PricewaterhouseCoopers LLP
300 Madison Avenue
New York, New York 10017

Legal Counsel

Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019

For general and financial information about
the Company, please contact:

Progenics Pharmaceuticals, Inc.
777 Old Saw Mill River Road
Tarrytown, New York 10591

Phone:
Fax:

914-789-2800
914-789-2817

info@progenics.com
E-mail:
Website: www.Progenics.com

Annual Meeting of
Stockholders

The Annual Shareholders Meeting will be 
held at 10:00 a.m. Eastern Time on Monday,
June 12, 2006.

Landmark at Eastview
Rockland Room
777 Old Saw Mill River Road
Tarrytown, NY 10591

A formal notice of the meeting with a proxy 
statement will be mailed to each stockholder.

Disclosure Notice:

This Annual Report may contain forward-

looking statements. Any statements contained
herein that are not statements of historical fact
may be forward-looking statements. When the
Company uses the words ‘anticipates,’ ‘plans,’
‘expects’ and similar expressions, it is identifying
forward-looking statements. Such forward-
looking statements involve known and unknown
risks, uncertainties and other factors which may
cause the Company’s actual results,
performance or achievements, or industry
results, to be materially different from any
expected future results, performance or
achievements expressed or implied by such 
forward-looking statements. Such factors
include, among others, the risks associated with
our dependence on Wyeth to fund and to 
conduct  clinical testing, to make certain 
regulatory filings and to manufacture and 
market products containing MNTX, the 
uncertainties associated with product 
development, the risk that clinical trials will not
commence, proceed or be completed as
planned, the risk that our products will not
receive marketing approval from regulators, the
risks and uncertainties associated with the
dependence upon the actions of our 
corporate, academic and other collaborators
and of government regulatory agencies, the risk
that our licenses to intellectual property may be
terminated because of our failure to have 
satisfied performance milestones, the risk that
products that appear promising in early clinical
trials are later found not to work effectively or
are not safe, the risk that we may not be able
to manufacture commercial quantities of our
products, the risk that our products, if approved
for marketing, do not gain market acceptance
sufficient to justify development and 
commercialization costs, the risk that we will
not be able to obtain funding necessary to 
conduct our operations, the uncertainty of
future profitability and other factors set forth
more fully in the Company’s Annual Report on
Form 10-K for the fiscal year ended December
31, 2005 and other reports filed with the
Securities and Exchange Commission, to which
investors are referred for further information.

Progenics does not have a policy of
updating or revising forward-looking statements
and assumes no obligation to update any 
forward-looking statements contained in this 
document as a result of new information or
future events or developments.Thus, it should
not be assumed that the Company’s silence
over time means that actual events are bearing
out as expressed or implied in such forward-
looking statements.

Progenics (pro-jen´-iks) n, 1.
to live better; symptom management and supportive care; 
HIV therapy and prophylaxis; cancer immunotherapy 

www.progenics.com