About the Company
Progenics Pharmaceuticals, Inc., of Tarrytown, NY, 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. Principal
programs are directed toward gastroenterology, virology – including human immunodeficiency virus
(HIV) and hepatitis C virus (HCV) infections – and oncology.
Progenics, in collaboration with Wyeth, is developing RELISTORTM (methylnaltrexone bromide) for
the treatment of opioid-induced side effects, including constipation (subcutaneous and oral
formulations) and post-operative ileus (intravenous formulation). Applications are pending related to
the potential marketing of RELISTOR in the United States, Europe and Australia. In March 2008,
following a priority review, RELISTOR (methylnaltrexone bromide injection) for subcutaneous use
was approved for marketing in Canada.
In the area of virology, Progenics is developing the HIV entry inhibitor PRO 140, a humanized
monoclonal antibody targeting the entry co-receptor CCR5, which has completed phase 1b clinical
studies with positive results. PRO 140 is currently in phase 2 clinical testing. Pre-clinical programs
for the development of novel HCV entry inhibitors are also underway.
In the area of oncology, the Company is developing a human monoclonal antibody-drug conjugate
(ADC) for the treatment of prostate cancer – a selectively targeted cytotoxic antibody directed
against prostate-specific membrane antigen (PSMA). PSMA is a protein found on the surface of
prostate cancer cells as well as in the blood vessels supplying other solid tumors. Progenics is also
developing vaccines designed to treat prostate cancer by stimulating an immune response to PSMA.
RELISTOR is a trademark of Wyeth Pharmaceuticals, Inc.
Product Development Pipeline
Preclinical
Phase 1
Phase 2
Phase 3
Market
NDA *
Subcutaneous RELISTOR
(opioid-induced constipation)
Intravenous RELISTOR
(post-operative ileus)
Advanced illness
Chronic pain
Orthopedic rehabilitation
Segmental colectomy
Abdominal hernia repair
Oral RELISTOR
(opioid-induced constipation)
Chronic pain
PRO 140
Viral-entry inhibitor
HIV
HCV
PSMA antibody-drug conjugate
Prostate cancer
PSMA vaccines
Prostate cancer
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* In March 2008, RELISTOR (methylnaltrexone bromide injection) for subcutaneous use was approved for marketing in Canada for
the treatment of opioid-induced constipation in patients with advanced illness receiving palliative care.
A Message from the CEO
Dear Shareholders,
Early in 2008, we achieved our most significant accomplishment – the approval of our first pharmaceutical
product!
During 2007, we submitted our first New Drug Application to the U.S. Food and Drug Administration (FDA)
for our lead product candidate, RELISTOR. In collaboration with Wyeth, regulatory marketing applications
for RELISTOR were also submitted in the European Union, Australia and Canada.
In late March 2008 and after priority review, RELISTOR received marketing approval from Health Canada,
the Canadian regulatory agency. This event marked the first approval of this first-in-class medication anywhere
in the world and the first drug approval for Progenics. In Canada, RELISTOR (methylnaltrexone bromide
injection) for subcutaneous use is indicated for the treatment of opioid-induced constipation (OIC) in patients
with advanced illness receiving palliative care.
We await FDA’s decision, scheduled for April 30, 2008, regarding marketing approval for RELISTOR in the
U.S. We also await decisions from Europe’s European Medicines Agency (EMEA) by mid-year and thereafter a
decision rendered by Australia’s Therapeutic Goods Administration (TGA).
We took the strategic decision to make RELISTOR available to patients with the greatest unmet medical need
first, where the benefit was clear. Since January 2006, the development of RELISTOR has greatly benefited from
our collaboration with Wyeth. Together, we are developing RELISTOR in three formulations designed to expand
the clinical utility of this drug beyond the palliative care setting to all patients who can benefit from its use.
Therefore, results from additional clinical studies in 2008 will be important for the market expansion of this
product.
In the second half of 2008, we and Wyeth plan to announce results from a phase 3 study of subcutaneous
RELISTOR to treat OIC in patients receiving opioids for chronic, non-cancer pain. We also expect to have
completed phase 2 studies evaluating oral forms of RELISTOR in this patient setting by mid-2008.
In the post-operative ileus (POI) setting, preliminary results from a Wyeth-led phase 3 clinical trial of the
intravenous formulation of RELISTOR in patients recovering from segmental colectomy surgical procedures
showed that RELISTOR treatment did not achieve the primary end point of the study: a reduction in time to
recovery of gastrointestinal function. Currently, we and Wyeth are conducting further analyses of that clinical
study. By mid-2008, we plan to complete analysis of a second phase 3 clinical study conducted by us of
intravenous RELISTOR for the management of POI.
In addition to our first product approval, we have focused on furthering our programs in the areas of human
immunodeficiency virus (HIV) infection and prostate cancer. We are particularly pleased with the progress of
PRO 140, our humanized monoclonal antibody therapy that targets the co-receptor CCR5, a novel therapeutic
approach designed to prevent entry of HIV into immune system cells.
In July 2007, we presented positive data from a phase 1b clinical trial of PRO 140 at the International AIDS Society
meeting in Sydney, Australia. In this study, treatment with PRO 140 resulted in significant and prolonged viral load
reductions following a single dose in HIV-infected individuals. We are enthusiastic about the prospects for PRO
140, because we believe that it has the potential to complement existing therapies at different stages of HIV
treatment. By early 2009, we expect results from two, multiple-dose-level phase 2 clinical trials of PRO 140 in
HIV-infected individuals. These studies are designed to assess the most feasible dosing regimen for this therapy to
advance into pivotal studies.
In 2007, we also prepared our antibody-drug conjugate, PSMA ADC, for testing in patients with metastatic prostate
cancer. Our fully human monoclonal antibody-drug conjugate selectively targets prostate-specific membrane antigen
(PSMA), a protein found on the surface of prostate cancer cells. We plan to file an Investigational New Drug
Application with FDA for PSMA ADC shortly and begin clinical testing of this innovative therapy in the coming
months.
We thank our investors – many of whom have been with us for our entire 10-year life as a public company. We are
also very grateful to the patients, caregivers and clinical investigators who have supported our efforts, as well as our
collaborators at Wyeth.
As we look forward, we see 2008 as a transforming year for Progenics with the sales of our first approved product,
RELISTOR (methylnaltrexone bromide injection) for subcutaneous use, decisions regarding marketing of this
product in the U.S., European Union and Australia, the completion of two phase 2 studies of our novel HIV therapy,
PRO 140, and the commencement of clinical trials for our antibody-drug conjugate therapy to treat metastatic
prostate cancer.
The development of innovative, breakthrough drugs that are first-in-class are crucial in the current commercial
environment. Progenics will continue to strive to set an example of leadership and innovation in the biotechnology
industry. Given the dedication of our employees, our strong collaboration with a global pharmaceutical company,
and the novel focus of our development programs, we are confident about our path ahead.
Sincerely,
Paul J. Maddon, M.D., Ph.D.
Founder, Chief Executive Officer and Chief Science Officer
April 2008
Highlights
Recent
•
Received marketing approval from Health Canada in late-March 2008 for RELISTOR (methylnaltrexone
bromide injection) for subcutaneous use. The Canadian regulatory agency’s decision regarding RELISTOR
marks the first regulatory approval of this novel medication anywhere in the world. In Canada, RELISTOR is
indicated for the treatment of OIC in patients with advanced illness receiving palliative care.
2007
•
•
•
•
•
Submitted a NDA in March to FDA for subcutaneous methylnaltrexone for the treatment of OIC in patients
receiving palliative care. FDA accepted the filing in May, triggering a $5 million milestone payment to
Progenics from Wyeth.
Raised $57.1 million in net proceeds during September in a follow-on public offering of 2.6 million common
shares.
With Wyeth, filed applications for marketing approval of subcutaneous methylnaltrexone with the EMEA in
May and the TGA in August. The validation of the European filing triggered a $4 million milestone payment
to Progenics from Wyeth.
With Wyeth, initiated a phase 1 study of a new formulation of oral methylnaltrexone for the treatment of OIC
in March. In July, reported data from this phase 1 trial showing positive activity in patients receiving the
higher of two doses tested. Two phase 2 trials were initiated in October to test two different formulations of
oral methylnaltrexone (including the form that was successful in phase 1 testing) in patients with chronic,
non-cancer-related pain.
Reported significant efficacy results in May from a phase 1b study of PRO 140. The study showed that
HIV-infected individuals who received 5.0 mg/kg of PRO 140 achieved an average maximum viral load
reduction of 1.83 log10 (98.5%, p<0.0001) compared with placebo, with individual reductions ranging up to
2.5 log10 (99.7%). Progenics believes that the results seen in this study represent the largest reported
single-dose mean reduction in HIV viral load for any antiretroviral drug.
•
With Wyeth, initiated three new clinical studies in September:
−
−
−
a phase 3 trial of subcutaneous methylnaltrexone to manage OIC in patients being treated with
opioids for chronic, non-cancer related pain,
a phase 2 trial of subcutaneous methylnaltrexone to manage OIC in patients rehabilitating from
an orthopedic surgical procedure, and
a phase 3 trial of intravenous methylnaltrexone in patients with POI following an abdominal
hernia repair.
Corporate Information
SENIOR MANAGEMENT
BOARD OF DIRECTORS
SCIENTIFIC ADVISORS
Paul J. Maddon, M.D., Ph.D.
Founder, Chief Executive Officer and
Chief Science Officer
Robert A. McKinney, CPA
Chief Financial Officer
Senior Vice President
Finance and Operations and Treasurer
Mark R. Baker, J.D.
Senior Vice President &
General Counsel
Thomas A. Boyd, Ph.D.
Senior Vice President
Product Development
Robert J. Israel, M.D.
Senior Vice President
Medical Affairs
Alton B. Kremer, M.D., Ph.D.
Senior Vice President
Clinical Research
Walter M. Capone, M.B.A.
Vice President
Commercial Development
and Operations
Richard W. Krawiec, Ph.D.
Vice President
Corporate Affairs
William C. Olson, Ph.D.
Vice President
Research and Development
Benedict Osorio, M.B.A.
Vice President
Quality
Nitya G. Ray, Ph.D.
Vice President
Manufacturing
Kurt W. Briner
Co-Chairman of the Board
President and Chief Executive
Officer (Retired)
Sanofi Pharma S.A.
Paul F. Jacobson
Co-Chairman of the Board
Chief Executive Officer
Diversified Natural Products Co.
Paul J. Maddon, M.D., Ph.D.
Founder, Chief Executive Officer
and Chief Science Officer
Progenics Pharmaceuticals, Inc.
Charles A. Baker
Chairman, President and Chief
Executive Officer (Retired)
The Liposome Company, Inc.
Mark F. Dalton
President
Tudor Investment Corporation
Stephen P. Goff, Ph.D.
Higgins Professor
Biochemistry and Microbiology
Columbia University
David A. Scheinberg, M.D., Ph.D.
Vincent Astor Chair and Chairman
Molecular Pharmacology and
Chemistry Program
Sloan-Kettering
Professor
Weill/Cornell Medical College
Nicole S. Williams
Executive Vice President and Chief
Financial Officer (Retired)
Abraxis Bioscience, Inc.
and President (Retired) of Abraxis
Pharmaceutical Products (a division
of Abraxis Bioscience, Inc.)
Stephen P. Goff, Ph.D.
Higgins Professor
Biochemistry and Microbiology
Columbia University
Scott M. Hammer, M.D.
Chief, Division of Infectious Diseases
Professor of Medicine
Columbia University
Warren D.W. Heston, Ph.D.
Director, Research Program
in Prostate Cancer
Staff, Dept. of Cancer Biology
Lerner Research Institute
Staff, Urological Institute
Cleveland Clinic Hospital
Cleveland Clinic Foundation
Jonathan Moss, M.D., Ph.D.
Professor
Anesthesia and Critical Care
Vice Chairman for Research
University of Chicago Medical Center
Thomas P. Sakmar, M.D.
Professor
The Rockefeller University
David A. Scheinberg, M.D., Ph.D.
Vincent Astor Chair and Chairman
Molecular Pharmacology and
Chemistry Program
Sloan-Kettering
Professor
Weill/Cornell Medical College
Chun-Su Yuan, M.D., Ph.D.
Cyrus Tang Professor
Anesthesia and Critical Care
Pritzker School of Medicine
The University of Chicago
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
FORM 10-K
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
(cid:133)
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:
Title of each class
Common Stock, par value $0.0013 per share
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) 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 (cid:134) 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 (cid:133)
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. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check
one):
Large Accelerated Filer (cid:133) Accelerated Filer ⌧ Non-accelerated Filer (cid:133) Smaller Reporting Company (cid:133)
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes (cid:134) No ⌧
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant on June 30, 2007, based upon the
closing price of the Common Stock on The NASDAQ Stock Market LLC of $21.57 per share, was approximately $380,080,000 (1). .
(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.
As of March 13, 2008, 29,846,762 shares of Common Stock, par value $.0013 per share, were outstanding
Specified portions of the Registrant’s definitive proxy statement to be filed in connection with solicitation of proxies for its 2008 Annual Meeting of
Shareholders are hereby incorporated by reference into Part III of this Form 10-K where such portions are referenced.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Properties
Item 2.
Item 3. Legal Proceedings
Item 4.
Submission of Matters to a Vote of Security Holders
PART II
1
17
27
28
28
28
Selected Financial Data
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29
30
Item 6.
31
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
49
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
49
Item 8.
49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
50
Item 9A. Controls and Procedures
50
Item 9B. Other Information
Financial Statements and Supplementary Data
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNATURES
EXHIBIT INDEX
51
51
51
51
51
52
F-1
S-1
E-1
i
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 methylnaltrexone, the uncertainties associated with product development, the risk that
clinical trials will not commence, proceed or be completed as planned, the risk that our product candidates 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 product candidates 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 sufficient market acceptance 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. –
Risk Factors, and other periodic filings with the U.S. Securities and Exchange Commission, or SEC, 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 SEC under the Securities
Exchange Act of 1934, or the Exchange Act. 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. The public may also 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.
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, proxy materials 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 gastroenterology, virology and oncology. 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.
Gastroenterology
In the area of gastroenterology, our work is focused on methylnaltrexone, 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 subcutaneous, intravenous and oral formulations of methylnaltrexone. Both
the U.S. Food and Drug Administration (“FDA”) and the European Medicines Agency (“EMEA”) have provisionally accepted the
name RELISTORTM as the proprietary name for methylnaltrexone. The Collaboration Agreement involves the development and
commercialization of three formulations: (i) a subcutaneous formulation of RELISTOR, to be used in patients with opioid-induced
constipation (“OIC”); (ii) an intravenous formulation of RELISTOR, to be used in patients with post-operative ileus; and (iii) an oral
formulation of RELISTOR, to be used in patients with opioid-induced constipation. We have submitted a New Drug Application (“NDA”)
1
to the FDA for marketing of the subcutaneous formulation of RELISTOR for treatment of OIC in patients receiving palliative care. See
Gastroenterology and Licenses – Progenics Licenses – Wyeth, below.
Virology
In the area of virology, we are developing viral-entry inhibitors for Human Immunodeficiency Virus (“HIV”), the virus that
causes Acquired Immunodeficiency Syndrome (“AIDS”), and Hepatitis C virus infection (“HCV”). These inhibitors are molecules
designed to inhibit a virus’ ability to enter certain types of immune cells and liver cells. In May 2007, we announced positive results
from a phase 1b trial of an intravenous formulation of our monoclonal antibody, PRO 140, in HIV-infected individuals. We are also
investigating a subcutaneous formulation of PRO 140 with the goal of developing a long-acting, self-administered therapy for HIV
infection. In January 2008, we initiated the phase 2 clinical program for PRO 140, which will involve both the intravenous and
subcutaneous formulations.
Hepatitis C is a major cause of chronic liver disease, affecting an estimated 4.1 million Americans of whom 3.2 million are
chronically infected. We are exploring both monoclonal antibody and small molecule approaches in our HCV research and have
identified lead molecules that potently inhibit viral entry in in vitro models.
We are also engaged in research regarding a vaccine against HIV infection.
See Virology, below.
Oncology
In the area of prostate cancer, we are developing a human monoclonal antibody-drug conjugate, consisting of a selectively
targeted cytotoxic antibody 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 our wholly owned subsidiary, PSMA Development Company LLC (“PSMA LLC”), which prior to April 2006 was
a joint venture with Cytogen Corporation (“Cytogen”). See Prostate Cancer, below.
In the second quarter of 2007, we discontinued our GMK melanoma vaccine program. An independent data monitoring
committee recommended that treatment in the European-based phase 3 trial, which began in 2001, be stopped because lack of efficacy
was observed after an interim analysis. We have subsequently terminated our license agreement with Memorial Sloan-Kettering
Cancer Center relating to this program.
Product In-Licensing
We seek out promising new products and technologies around which to build new development programs or enhance existing
programs. We own the worldwide commercialization rights to each of our product candidates except RELISTOR, the
commercialization of which is the responsibility of Wyeth under the Collaboration Agreement.
2
The following table summarizes the current status of our principal development programs and product candidates:
Program/product candidates (note 1)
Proposed Indication
Status (note 2)
Gastroenterology
RELISTOR-Subcutaneous
Treatment of opioid-induced constipation in
patients receiving palliative care
Applications for marketing
submitted in the U.S., E.U.,
Australia and Canada; FDA
action date of April 30,
2008
RELISTOR-Subcutaneous
RELISTOR-Subcutaneous
Treatment of opioid-induced constipation in
patients receiving opioids for chronic pain
not related to cancer, such as severe back
pain
Treatment of opioid-induced constipation in
patients receiving opioids for pain during
rehabilitation from an orthopedic surgical
procedure
Phase 3
Phase 2
RELISTOR-Intravenous
Management of post-operative ileus
Phase 3 (note 3)
RELISTOR-Oral
Treatment of opioid-induced constipation
Phase 2
Virology
HIV
PRO 140
ProVax
Hepatitis C (HCV)
Viral entry inhibitors
Oncology
Prostate Cancer
PSMA:
Monoclonal antibody drug conjugate
Recombinant protein vaccine
Viral-vector vaccine
Treatment of HIV infection
Treatment and prevention of HIV infection Research
Phase 2
Treatment of HCV infection
Research
Treatment of prostate cancer
Immunotherapy for prostate cancer
Immunotherapy for prostate cancer
Pre-clinical
Pre-clinical
Pre-clinical
(1)
(2)
RELISTOR is a trademark of Wyeth Pharmaceuticals, a division of Wyeth.
“Research” means initial research related to specific molecular targets, synthesis of new chemical entities, assay
development or screening for the identification of lead compounds.
“Pre-clinical” 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.
For recent developments concerning this program, see Gastroenterology – RELISTOR – Intravenous RELISTOR,
below.
(3)
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 them. We must receive marketing approval before we can commercialize
any of our product candidates.
3
Gastroenterology
About Opioids. Opioid-based medications such as morphine and codeine, which are often referred to as narcotics, are the
mainstay used by healthcare practitioners to control moderate-to-severe pain. We estimate that approximately 240 million
prescriptions for opioids are written annually in the U.S. Physicians prescribe opioids for patients receiving palliative care, undergoing
surgery or experiencing chronic pain, as well as for other medical conditions.
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 also 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 often therapeutically insufficient,
are not recommended for chronic use and do not address the other associated side effects. As a result, many patients may have to stop
or reduce their opioid therapy and many opt to endure pain in order to obtain relief from opioid-induced constipation and its associated
side effects.
RELISTOR
RELISTOR is a selective, peripherally acting, mu-opioid-receptor antagonist that reverses certain side effects induced by
opioid use. RELISTOR competes with opioid analgesics for binding sites on opioid receptors, and its chemical composition restricts
its ability to cross the blood-brain barrier. As a result, RELISTOR “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,
namely analgesia. RELISTOR is designed to treat OIC without interfering with the pain relief that the opioids provide, an important
need not currently met by any approved drugs. To date, individuals treated with RELISTOR, in addition to opioid pain medications,
have experienced a reversal of many of the side effects induced by opioids and have reported no diminution in pain relief.
Methylnaltrexone has been studied in numerous clinical trials. To date, RELISTOR has been generally well tolerated and certain
formulations have been active in inducing laxation in individuals suffering from OIC without interfering with pain relief.
Under the Collaboration Agreement, we share with Wyeth the responsibilities for developing and obtaining marketing
approval of RELISTOR. Wyeth is responsible for commercializing all three formulations of RELISTOR worldwide. We have an
option, under certain circumstances, to co-promote the sale of any or all of the three formulations of RELISTOR in the United States.
See Progenics Licenses – Wyeth, below. Some of our rights to RELISTOR arise under a license from the University of Chicago. See
Progenics’ Licenses – UR Labs/University of Chicago, below.
Subcutaneous RELISTOR. Our most advanced clinical experience with RELISTOR is as a treatment for opioid-induced
constipation. Constipation is a serious medical problem for patients who are being treated with opioid medications. We estimate that
each year in the U.S., approximately 1.5 million patients receiving palliative care experience opioid-induced constipation.
We have completed two pivotal phase 3 clinical trials of the subcutaneous formulation of methylnaltrexone in individuals
receiving palliative care, including cancer, AIDS and heart disease. We achieved positive results from these trials (studies 301 and
302), including extensions. All primary and secondary endpoints of both studies were met with statistical significance, and the
investigational drug was generally well tolerated in both.
In March 2007, we submitted an NDA to the FDA for marketing in the United States of a subcutaneous formulation of
RELISTOR for the treatment of opioid-induced constipation in patients receiving palliative care. In May 2007, Wyeth submitted a
regulatory marketing application to the EMEA for the subcutaneous formulation in the same patient population. Both applications
were accepted for review in May 2007, which resulted in our earning $9.0 million in milestone payments from Wyeth under the
Collaboration Agreement. The FDA review is expected to be completed by its Prescription Drug User Fee Act (“PDUFA”) date of
April 30, 2008. In August 2007, Wyeth submitted a marketing application to the Therapeutic Goods Administration division of the
Australian government, and in October 2007, it submitted a New Drug Submission marketing application for subcutaneous
RELISTOR to Health Canada, the Health Products and Food branch of the Canadian regulatory agency.
In October 2007, we and Wyeth commenced two additional clinical trials of the subcutaneous formulation of RELISTOR in
individuals outside of the palliative care population: a phase 3 trial, conducted by Wyeth, in individuals with chronic pain not related
to cancer, such as chronic severe back pain that requires treatment with opioids; and a phase 2 trial, conducted by us, in individuals
rehabilitating from an orthopedic surgical procedure in whom opioids are used to control post-operative pain.
4
Intravenous RELISTOR. We are also developing, in collaboration with Wyeth, an intravenous formulation of RELISTOR
for the management of post-operative ileus (“POI”), a temporary impairment of the gastrointestinal tract function. Of the patients who
undergo surgery in the U.S. each year, approximately 2.4 million patients are at high risk for developing POI. Post-operative ileus is
believed to be 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. Post-operative ileus is a major factor
in increasing hospital stay, as patients are typically not discharged until bowel function is restored. Development of the intravenous
formulation of RELISTOR for POI has been granted “Fast Track” status from the FDA, which facilitates development and expedites
regulatory review of drugs intended to address an unmet medical need for serious or life-threatening conditions.
We and Wyeth have conducted two global pivotal phase 3 clinical trials to evaluate the safety and efficacy of intravenous
RELISTOR for the treatment of POI in patients recovering from segmental colectomy surgical procedures. In October 2006, we
earned a $5.0 million milestone payment under the Collaboration Agreement in connection with the initiation of the first phase 3
clinical trial. In October 2007, a third phase 3 intravenous RELISTOR study, being conducted by Wyeth, was initiated in individuals
with POI following a ventral hernia repair via laparotomy or laparoscopy.
In March 2008, we reported that preliminary results from the phase 3 segmental colectomy clinical trial conducted by Wyeth
showed that treatment did not achieve the primary end point of the study: a reduction in time to recovery of gastrointestinal function
(i.e., time to first bowel movement) as compared to placebo. The study also did not show that secondary measures of surgical
recovery, including time to discharge eligibility, were superior to placebo. We and Wyeth are conducting the necessary analyses to
determine greater clarity regarding the outcome of this clinical study, whose preliminary findings are inconsistent with results
demonstrated in our previous phase 2 study of intravenous methylnaltrexone for the management of postoperative ileus. We are
leading the second phase 3 trial of intravenous methylnaltrexone for management of POI, which is similar in design to the Wyeth
study, and expect results of that trial to be reported by midyear 2008.
Oral RELISTOR. We and Wyeth are also developing an oral formulation of RELISTOR for the treatment of opioid-induced
constipation in patients with chronic pain. More than 215 million prescriptions are written annually for opioids and approximately 12
million patients in the U.S. use opioids chronically (i.e., six months or more), many of whom experience opioid-induced constipation.
In March 2007, Wyeth began clinical testing of a new oral formulation of methylnaltrexone for the treatment of opioid-
induced constipation, and in July 2007 we and Wyeth announced positive preliminary results from this phase 1 clinical trial. In
October 2007, we and Wyeth announced the initiation of two four-week phase 2 clinical trials to evaluate daily dosing of this
formulation and a different oral formulation in individuals with chronic, non-malignant pain who are being treated with opioids and
are experiencing opioid-induced constipation. These studies are designed to evaluate these oral formulations separately. We and
Wyeth plan to assess the safety and dose-response of oral methylnaltrexone as measured by the occurrence of spontaneous bowel
movements during the treatment period. We expect the studies to assist in determining the formulation and doses to be advanced into
phase 3 studies.
Virology
HIV
Infection by HIV causes a slowly progressing deterioration of the immune system resulting in AIDS. HIV specifically infects
cells that have the CD4 receptor on their surface, including T-lymphocytes, monocytes, macrophages and dendritic cells, all of which
are critical components of the immune system. Receptors and co-receptors are structures on the surface of a cell to which a virus must
bind in order to infect the cell. The devastating effects of HIV are largely due to the multiplication of the virus within these cells,
resulting in their dysfunction and destruction.
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.
The Joint United Nations Program on HIV/AIDS and the World Health Organization estimate that the number of individuals
living with HIV in 2007 reached 33.2 million, including over 2.5 million new infections. In North America and Western and Central
Europe, the number of people living with HIV continues to increase due to the life-prolonging effects of antiretroviral therapy, a
steady number of new HIV infections in North America and an increased number of new HIV diagnoses in Western Europe. During
2007, there were over two million people living with HIV in those regions, including 78,000 who acquired HIV in the past year.
Although the number of people living with HIV in those regions has continued to increase over recent years, the number of annual
patient deaths has decreased to approximately 32,000 in 2007.
5
Five classes of products have received marketing approval from the FDA for the treatment of HIV infection and AIDS:
nucleoside reverse transcriptase inhibitors, non-nucleoside reverse transcriptase inhibitors (these are considered as different classes by
researchers and prescribers alike and have non-overlapping resistance profiles), protease inhibitors, entry inhibitors and integrase
inhibitors. Reverse transcriptase and protease inhibitors inhibit two different viral enzymes required for HIV to replicate once it has
entered the cell. Entry inhibitors interrupt the viral life cycle at an earlier point, namely before HIV can bind to and transfer its genetic
material into certain immune system cells in order to initiate the viral replication process.
Since the late 1990s, many HIV patients have benefited from using a combined regimen of protease and reverse transcriptase
inhibitor therapies, known as “combination therapy.” 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 these inhibitors. Increasingly, after years of
combination therapy, patients begin to develop resistance to them. The potential for resistance is increased by inconsistent dosing
which leads to lower drug levels and permits ongoing viral replication. Inconsistent adherence with dosing requirements for HIV
drugs is common in patients on combination therapies because these drug regimens often require multiple tablets to be taken at
specific times each day. In addition, many of these currently approved drugs often produce toxic side effects in 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. Furthermore, as most HIV medications work inside the CD4 cell and are metabolized,
they have the potential to interact with other medications and may exaggerate side effects or result in sub-therapeutic blood levels.
Viral entry inhibitors such as our drug candidate PRO 140 represent a new class of drugs for HIV patients that may avoid
many of the issues associated with current HIV medications. Our scientists, in collaboration with researchers at the Aaron Diamond
AIDS Research Center, or ADARC, described in an article in Nature in 1996 the discovery of a co-receptor for HIV on the surface of
human immune system cells used for HIV entry. 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, which is considered to be less ubiquitous for HIV-1 viral entry. 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 HIV therapy.
PRO 140 is a humanized monoclonal antibody designed to block HIV infection by inhibiting the virus’ ability to bind to and
enter immune system cells and initiate the viral replication process. We have designed PRO 140 to target a distinct site on the co-
receptor CCR5 without interfering with CCR5’s role, which includes, in part, directing the migration of immune cells to sites of
inflammation in the body. PRO 140 has shown promising activity in pre-clinical 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 evaluate the tolerability, safety,
pharmacology and immunogenicity of PRO 140 in healthy volunteers. PRO 140 was generally well tolerated at all dose levels in this
study. In February 2006, we received “Fast Track” designation from the FDA for PRO 140.
In December 2006, we completed enrollment and dosing in a phase 1b clinical trial of PRO 140. This clinical trial was
designed to assess the tolerability, pharmacokinetics and preliminary antiviral activity of PRO 140 in 39 HIV-positive individuals.
This multi-center, double-blind, placebo-controlled, dose-escalation study was conducted in individuals who had not taken any anti-
retroviral therapy within the previous three months and who had HIV plasma concentrations greater than or equal to 5,000 copies/mL.
Subjects received a single intravenous dose of study medication ⎯ either placebo or one of three increasingly higher doses of PRO
140. PRO 140 blood levels and CCR5 coating were determined and compared with antiviral effects measured as changes in plasma
HIV viral load following treatment. In May 2007, we announced positive results from this trial. Subjects receiving a single 5.0 mg/kg
dose of PRO 140, which was the highest dose tested, achieved an average maximum decrease of viral concentrations in the blood of
98.5% (1.83 log10). In these infected individuals, reductions in viral load of greater than 90% (1.0 log10) on average persisted for two
to three weeks after dosing. In addition, PRO 140 was generally well tolerated in this phase 1b proof-of-concept study.
We are also developing a subcutaneous formulation of PRO 140 with the goal of developing a long-acting, self-administered
therapy for HIV infection. In January 2008, we initiated the phase 2 clinical program for PRO 140, which will investigate multiple
dose levels of PRO 140 via intravenous and subcutaneous routes of administration. The intravenous dose will be evaluated up to 10
mg/kg, which is double the dose previously tested in the phase 1b study.
6
The objective of these phase 2 studies is to identify an optimal dosing regimen of PRO 140 for evaluation in pivotal clinical
trials as well as to further assess the investigational drug's safety and tolerability. We currently believe that intravenous PRO 140 has
the potential for infrequent (e.g., monthly) dosing, whereas subcutaneous PRO 140 may enable self-administration as infrequently as
every two weeks.
The “humanized” version of PRO 140 was developed for us by PDL BioPharma, Inc. (formerly, Protein Design Labs, Inc.)
See Progenics’ Licenses—PDL Biopharma, Inc., below.
During 2005, we were awarded a $9.7 million grant from the National Institutes of Health (the “NIH”) to partially fund our
PRO 140 program over a 42-month period.
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 a pre-clinical model,
ProVax stimulated the production of specific HIV neutralizing antibodies. When tested in the laboratory, these antibodies inactivated
certain strains of HIV isolated from infected individuals. 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 NIH to develop a prophylactic vaccine designed to prevent HIV from
becoming established in uninfected individuals exposed to the virus. Funding under the NIH Contract provided for pre-clinical
research, development and early clinical testing. These funds are being used principally in connection with our ProVax HIV vaccine
program. The NIH Contract originally provided for up to $28.6 million in funding to us, subject to annual funding approvals and
compliance with its terms, over five years. The total of our approved award under the NIH Contract through September 2008 is $15.5
million. Funding under this contract includes the payment of an aggregate of $1.6 million in fees, subject to achievement of specified
milestones. Through December 31, 2007, we had recognized revenue of $13.3 million from this contract, including $180,000 for the
achievement of two milestones. We have recently been informed by the NIH that it has decided not to fund this Contract beyond
September 2008. To continue to develop the HIV vaccine after that time, therefore, we will need to provide funding on our own or
obtain new governmental or other funding. If we choose not to provide our own or cannot secure governmental or other funding, we
will discontinue this project.
Hepatitis C Viral Entry Inhibitor
We are conducting research into therapeutics for Hepatitis C virus infection that block viral entry into cells. We are exploring
both monoclonal antibody and small molecule approaches in our HCV research and have identified lead molecules that potently
inhibit viral entry in in vitro models. Hepatitis C is a major cause of chronic liver disease. According to the U.S. Centers for Disease
Control and Prevention, an estimated 4.1 million Americans (1.6%) have been infected with HCV, of whom 3.2 million are
chronically infected, most as a result of illegal injection drug use. Its estimated number of new HCV infections in 2006 was
approximately 19,000.
Oncology
Prostate cancer is the most common cancer affecting men in the U.S. and is the leading cause of cancer deaths in men each
year. The National Cancer Institute estimates that, based on rates from 2002-2004, one in six men will be diagnosed with cancer of the
prostate during their lifetime. The American Cancer Society estimated that 186,320 new cases of prostate cancer would be diagnosed
and that 28,660 men would die from the disease in 2008 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 therapies directed
against prostate specific membrane antigen, or PSMA, 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 therapies for
prostate cancer and potentially for other types of cancer.
7
In June 1999, we and Cytogen formed a joint venture with equal membership interests 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 immunotherapies were
licensed to the joint venture. The principal intellectual property licensed initially were several patents and patent applications relating
to PSMA owned by Memorial Sloan-Kettering Cancer Center.
In April 2006, we acquired Cytogen’s entire membership interest in PSMA LLC for $13.2 million cash, together with $0.3
million of transaction costs. In connection with the acquisition, the license agreement entered into by Cytogen and us upon the formation
of PSMA LLC, under which Cytogen had granted a license to PSMA LLC for certain PSMA-related intellectual property, was
amended to provide that Cytogen granted an exclusive, even as to Cytogen, worldwide license to PSMA LLC to use certain PSMA-
related intellectual property in a defined field. Under the terms of this amended license agreement, PSMA LLC will pay to Cytogen,
upon the achievement of certain defined regulatory and sales milestones, if ever, up to $52 million, and will also pay royalties on net
sales, as defined. Since our acquisition of Cytogen’s interest, we are continuing to conduct the PSMA-related programs on our own
through PSMA LLC, now our wholly-owned subsidiary.
In December 2002, PSMA LLC initiated a phase 1 clinical trial, conducted pursuant to a physician IND by Sloan-Kettering,
with its therapeutic recombinant protein vaccine. The vaccine, which is designed to stimulate a patient’s immune system to recognize
and destroy prostate cancer cells, combines the PSMA cancer antigen (recombinant soluble PSMA, or “rsPSMA”) with an immune
stimulant to induce an immune response against prostate cancer cells. The genetically engineered PSMA vaccine generated potent
immune responses in pre-clinical animal testing. This clinical trial was designed to evaluate the safety, immunogenicity and immune-
stimulating properties of the vaccine in individuals with either newly diagnosed or recurrent prostate cancer. Preliminary findings
from the trial showed that certain prostate cancer patients produced anti-PSMA antibodies in response to the vaccine. We have
conducted additional research to optimize the production, immune response and anti-tumor activity of the vaccine prior to conducting
additional testing. We plan to initiate additional phase 1 clinical studies with an optimized version of the vaccine in 2008.
We are 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 pre-clinical 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. We are completing pre-clinical development activities on the PSMA viral-vector
vaccine.
We have also developed human monoclonal antibodies which bind to PSMA. These antibodies, which were developed under
license from Amgen Fremont, Inc. (formerly Abgenix, Inc.), are designed to recognize the three-dimensional physical structure of the
protein and possess a high affinity and specificity for PSMA.
We are investigating a PSMA monoclonal antibody-drug conjugate (“PSMA ADC”) using one of these human monoclonal
antibodies. See PSMA Licenses – Seattle Genetics, below. 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 three grants totaling $8 million to be paid over up to four years in support of our PSMA efforts.
In November 2007, we were awarded additional grants totaling $1.9 million by the NIH, the proceeds of which are to be disbursed
over two years to partially fund work on the PSMA projects described above. Funding under these grants is being used for that work,
including the development and initiation of clinical testing of the novel antibody-drug conjugate and vaccine therapies that target
PSMA.
8
Licenses
We are a party to license agreements under which we have obtained rights to use certain technologies in our product
development programs. PSMA LLC, our wholly owned subsidiary, 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. At inception of the Collaboration Agreement, Wyeth paid to us a $60 million non-refundable upfront payment. Wyeth has
made $14.0 million in milestone payments since that time and is obligated to make up to $342.5 million in additional payments to us upon
the achievement of milestones and contingent events in the development and commercialization of RELISTOR. Costs for the development
of RELISTOR incurred by Wyeth or us starting January 1, 2006 are paid by Wyeth. We are being reimbursed for our out-of-pocket
development costs by Wyeth and receive reimbursement for our efforts based on the number of our full time equivalent employees
(“FTE”s) devoted to the development project. Wyeth has the right once annually to engage an independent public accounting firm to audit
expenses for which we have been reimbursed during the prior three years. If the accounting firm concludes that any such expenses have
been understated or overstated, a reconciliation will be made. Wyeth is obligated to pay to us royalties on the sale of RELISTOR by Wyeth
throughout the world during the applicable royalty periods.
In January 2006, we began recognizing revenue from Wyeth for reimbursement of our development expenses for RELISTOR
as incurred during each quarter under the development plan agreed to by us and Wyeth. We also began recognizing revenue for a
portion of the $60 million upfront payment we received from Wyeth, based on the proportion of the expected total effort for us to
complete our development obligations, as reflected in the most recent development plan and budget approved by us and Wyeth, that
was actually performed during that quarter. During the year ended December 31, 2007, we recognized $16.4 million of revenue from
the $60 million upfront payment received in December 2005 and $40.1 million as reimbursement for our out-of-pocket development
costs, including our labor costs. In March 2007, we earned $9.0 million in milestone payments in connection with submission and
approval for review of a New Drug Application with the FDA in the U.S. and a comparable filing in the European Union for the
subcutaneous formulation of RELISTOR in patients receiving palliative care, which were recognized as revenue under the Substantive
Milestone method (see Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical
Accounting Policies – Revenue Recognition, below). From inception of the Collaboration Agreement to December 31, 2007, we
recognized $35.2 million of revenue from the $60 million upfront payment, $74.7 million as reimbursement for our out-of-pocket
development costs, including our labor costs and $14.0 million in milestone payments.
The Collaboration Agreement establishes a Joint Steering Committee and a Joint Development Committee, each with an equal
number of representatives from 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 RELISTOR by Wyeth and us. In addition, a Joint Commercialization Committee was established, composed
of representatives of both Wyeth and us in number and function according to each of our responsibilities, with responsibility for facilitating
open communication between Wyeth and us on matters relating to the commercialization of products.
Under the Collaboration Agreement, we granted to Wyeth an exclusive, worldwide license to develop and commercialize
RELISTOR. We are responsible for developing the subcutaneous and intravenous formulations of RELISTOR in the United States, until
the drug formulations receive regulatory approval. Wyeth is responsible for the development of the subcutaneous and intravenous
formulations of RELISTOR outside of the United States. Wyeth is responsible for the development of the oral formulation of RELISTOR,
both within the United States and in the rest of the world. In the event the Joint Steering Committee approves for development any
formulation of methylnaltrexone other than the subcutaneous, intravenous or oral formulations, or any other indication for a product using
any formulation of methylnaltrexone, Wyeth will be responsible for development of such products, including conducting clinical trials and
obtaining and maintaining regulatory approval and we will receive royalties on all sales. We will remain the owner of all U.S. regulatory
filings and approvals relating to the subcutaneous and intravenous formulations of RELISTOR; Wyeth will be the owner of all U.S.
regulatory filings and approvals related to the oral formulation. Wyeth will be the owner of all regulatory filings and approvals outside the
United States relating to all formulations of RELISTOR.
Wyeth is responsible for the commercialization of the subcutaneous, intravenous and oral formulations, should they be approved
as 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 have transferred to Wyeth all existing supply agreements with third parties for RELISTOR and have sublicensed any
intellectual property rights to permit Wyeth to manufacture or have manufactured RELISTOR, during the development and
commercialization phases of the Collaboration Agreement, in both bulk and finished form for all products worldwide. Progenics has no
further manufacturing obligations under the Collaboration Agreement.
9
We have an option 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 our activities will be established if, as and 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, and has agreed
to certain limitations regarding 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 for any product. Progenics may terminate the Collaboration Agreement at any time upon 90 days written notice
to Wyeth upon Wyeth’s material uncured breach (30 days in the case of breach of a payment obligation). 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. Wyeth may also terminate the agreement (i)
upon 30 days written notice following one or more specified serious safety or efficacy issues that arise and (ii) upon 90 days written notice
of a material uncured breach by Progenics. Upon termination of the Collaboration Agreement, the ownership of the license we granted
to Wyeth will depend on which party initiates the termination and the reason for the termination.
UR Labs/University of Chicago. In 2001, we entered into an exclusive sublicense agreement with UR Labs, Inc. (“URL” or
“UR Labs”) to develop and commercialize methylnaltrexone in exchange for rights to future payments (the “Methylnaltrexone
Sublicense”). The rights URL granted us under this Sublicense were derived from a 1985 agreement that it had made with the
University of Chicago (the “URL-Chicago License”). At the time we entered into the Methylnaltrexone Sublicense with URL, URL
also entered into an agreement (the “URL-Goldberg 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 Methylnaltrexone Sublicense and for URL’s obligation to make royalty payments to the University of Chicago. As of December
22, 2005, we had paid $550,000 to UR Labs and $500,000 to the University of Chicago under the Methylnaltrexone Sublicense. As
described below, subsequent to that date we are not obligated to make any additional payments under the Methylnaltrexone
Sublicense.
In December 2005, we acquired substantially all of the assets of URL, comprised of its rights under the URL-Chicago
License, the Methylnaltrexone 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. At the same time, we entered into an
agreement with the Goldberg Distributees, under which we assumed all their rights and obligations under the URL-Goldberg
Agreement, thereby extinguishing URL’s (and, consequentially, our) obligations to make payments to them.
In consideration for the assignment of the Goldberg Distributees’ rights and of the acquisition of the assets of URL described
above, we issued a total of 686,000 shares of our common stock, with a fair value at the time of $15.8 million, and paid a total of
$2,604,900 in cash to URL’s shareholders and the Goldberg Distributees, together with $310,000 in transaction fees, the total amount
of which was expensed in the period of the transaction.
During 2006 and 2007, we entered into two agreements with the University of Chicago which give us the option to license
certain of its intellectual property over defined option periods. As of December 31, 2007, we have paid the University of Chicago
$310,000 and may make payments aggregating $890,000 over the option periods.
Although we no longer have any obligation to make royalty payments to URL or the Goldberg Distributees, we continue to
have an obligation to make those payments (including royalties) to the University of Chicago that would have been made by URL
under the URL-Goldberg Agreement.
PDL BioPharma, Inc. (formerly Protein Design Labs). Under a license agreement, PDL Biopharma, Inc. (“PDL”)
developed for us 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
currently issued relevant patents expires in 2014; pending U.S. and international patent applications and patent term extensions may
however, extend the period of our license rights when and if such applications are allowed and issued or 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 payment default or upon 30 days prior written notice for uncured breach of other material terms. As
of December 31, 2007, we have paid to PDL $4.05 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 from April 30, 2007 and royalties based on the sale of products we develop under the license.
10
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 currently 2021; patent applications that we have
also licensed and patent term extensions may however, extend the period of our license rights, when and if the patent applications are
allowed and issued or patent term extensions are granted.
This license agreement requires us to achieve development milestones, including filing for marketing approval of a drug by
June 2001 and 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. As of December 31, 2006, we
were obligated to pay Columbia a milestone fee of $225,000 and four annual maintenance fees of $50,000 each, which had been
accrued but not paid, in accordance with an oral understanding that suspended our obligation to make such payments until a time in
the future to be agreed upon by the parties. In addition, we were required to pay royalties based on the sale of products we develop
under the license, if any.
We have had discussions with Columbia regarding the terms of an agreement under which we would relinquish all rights
related to the license agreement with Columbia in exchange for making a one-time payment of $300,000, which was accrued at
December 31, 2007, and previously due milestone and maintenance fees as well as future royalty payments would be cancelled. These
discussions have not yet resulted in a formal agreement.
As of December 31, 2007, we have paid Columbia a total of $865,000 under this license agreement.
Aquila Biopharmaceuticals. We have entered into a license and supply agreement with Aquila Biopharmaceuticals, Inc.
(“Aquila”), a wholly owned subsidiary of Antigenics Inc. (“Antigenics”), pursuant to which Aquila agreed to supply us with all of our
requirements for the QS-21TM adjuvant used in GMK, a program that we terminated in development in the second quarter of 2007.
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. We believe that these delays satisfy the criteria
for a revision, contemplated by the agreement, of the milestone dates. Aquila has not consented to a revision of the milestone dates as
of the date of this document. 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.
We have received a written communication from Antigenics alleging that Progenics is in default of certain of its obligations
under the license agreement and asserting that Antigenics has an interest in certain intellectual property of Progenics. Progenics has
responded in writing denying Antigenics’ allegations. We do not believe that this dispute will have any material effect on us.
As of December 31, 2007, we have paid to Aquila $769,000 under this agreement. We have no future cash payment
obligations relating to milestones under the agreement.
KMT Hepatech, Inc. In October 2006, we and KMT Hepatech, Inc. (“KMT”) entered into a Research Services Agreement,
under which KMT will test certain compounds (“Compounds”) related to our HCV research program. In consideration for KMT’s
services, we made an upfront payment for certain services, will reimburse KMT for direct costs incurred by it in rendering the services
and will make additional payments upon our request for additional services. As of December 31, 2007, we have paid KMT a total of
$175,000 in connection with this agreement. We will also make one-time development milestone payments, aggregating up to $6.0
million, upon the occurrence of defined events in respect of any Compound. In the event that we terminate development of a
Compound, certain of those development milestone payments will be credited to the development milestones achieved by the next
Compound. The KMT agreement will terminate upon its second anniversary unless terminated sooner. The parties may extend the
term of the KMT agreement by mutual written consent. Either party may terminate the KMT agreement upon 60 days written notice to
the other party. In the event of an uncured default by either party, including non-performance, bankruptcy or liquidation or dissolution,
the non-defaulting party may terminate the KMT agreement upon 30 days written notice.
PSMA LLC Licenses
Amgen Fremont, Inc. (formerly Abgenix). In February 2001, PSMA LLC entered into a worldwide exclusive licensing
agreement with Abgenix to use its XenoMouse™ technology for generating fully human antibodies to PSMA LLC’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, 2007, PSMA LLC has paid to Abgenix
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$850,000 under this agreement. If PSMA LLC achieves certain milestones specified under the agreement, it will be obligated to pay
Abgenix up to an additional $6.25 million. In addition, 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 make additional payments upon the occurrence of certain defined milestones associated with the development and
commercialization program for products incorporating AlphaVax’s system. As of December 31, 2007, PSMA LLC has paid to
AlphaVax $1.4 million under this agreement. If PSMA LLC achieves certain milestones specified under the agreement, it will be
obligated to pay AlphaVax up to an additional $5.4 million. In addition, PSMA LLC is required to pay annual maintenance fees of
$100,000 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, including PSMA LLC’s
failure to achieve milestones; the consent of AlphaVax to revisions to the milestones due dates may not, however, 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’s system or seven years from the first
commercial sale of the products developed using that system. The last of the currently issued patents expires in 2015; pending U.S.
and international patent applications and patent term extensions may, however, extend the period of our license rights when and if
such applications are allowed and issued or extensions are granted.
Seattle Genetics. In June 2005, PSMA LLC entered into a collaboration agreement with Seattle Genetics, Inc. (“SGI”).
Under this agreement, SGI provided to PSMA LLC an exclusive worldwide license to its proprietary antibody-drug conjugate
technology (the “ADC Technology”). 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
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 . 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 technology access
payment to SGI upon execution of the SGI agreement and will make additional maintenance payments during its term. In addition,
PSMA LLC will make payments aggregating up to $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 latest of (i) the tenth anniversary of the first commercial sale of each licensed
product in each country or (ii) 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 agreement if PSMA LLC fails to cure a breach of an SGI
in-license within a specified time period after written notice. In addition, either party may terminate the SGI agreement after written
notice upon an uncured breach or in the event of bankruptcy of the other party. As of December 31, 2007, PSMA LLC has paid to SGI
approximately $3.0 million under this agreement, including $0.5 million in milestone 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 doing so with respect to our license agreement with the University of
Chicago for methylnaltrexone. Under the Collaboration Agreement, Wyeth has the right, at its expense, to defend and enforce the
RELISTOR 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
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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:
•
•
if the patent application was filed prior to June 8, 1995, for the longer of 17 years from the date of issue or 20 years from
the earliest asserted filing date; or
if the application was filed on or after June 8, 1995, for 20 years from the earliest asserted filing date.
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.
Our patent portfolio relating to our proprietary technologies in the gastroenterology, virology and cancer areas is currently
comprised, on a worldwide basis, of 171 patents that have been issued and 281 pending patent applications, which we either own
directly or of which we are the exclusive licensee. Our issued patents expire on dates ranging from 2009 through 2025. 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, CCR5 monoclonal antibodies and HCV therapeutics 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
product candidates 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 product candidates are subject to comprehensive regulation by the FDA and by comparable authorities in
other countries. These national agencies and other federal, state and local entities regulate, among other things, the pre-clinical 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 Regulation. FDA approval of our products, including a review of the manufacturing processes and facilities used to
produce such products, will be required before they 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. 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.
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The process required by the FDA before our product candidates may be approved for marketing in the U.S. generally
involves:
•
•
•
•
pre-clinical laboratory and animal tests;
submission to the FDA and effectiveness of an investigational new drug application, or IND, 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
• FDA review of the marketing application in order to determine, among other things, whether the product is safe and
effective for its intended uses.
Pre-clinical tests include laboratory evaluation of product chemistry and animal studies to gain preliminary information
about a product’s pharmacology and toxicology and to identify safety problems that would preclude testing in humans. Products must
generally be manufactured according to current Good Manufacturing Practices, and pre-clinical safety tests must be conducted by
laboratories that comply with FDA good laboratory practices regulations.
The results of the pre-clinical tests are submitted to the FDA as part of an IND (Investigational New Drug) application,
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 or raises questions concerning an IND, it will become effective 30 days
following submission, and initial clinical studies may begin. Companies often obtain affirmative FDA approval, however, before
beginning such studies. We cannot assure you that an IND submission by us will result in FDA authorization to commence clinical
trials.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or to individuals 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 submitted to the FDA 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 clinical study must be conducted under the auspices
of an Institutional Review Board, which considers, 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 trial.
Clinical trials are typically conducted in three sequential phases, which 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 population to evaluate preliminarily the efficacy of the product for specific, targeted
indications; determine dosage tolerance and optimal dosage; and identify possible adverse effects and safety risks.
When a product candidate is found in phase 2 evaluation to have an effect and an acceptable safety profile, phase 3 trials are
undertaken in order to further evaluate clinical efficacy and test for safety within an expanded 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.
A New Drug Application, or NDA, is an application to the FDA to market a new drug. A Biologic License Application, or
BLA, is an application to market a biological product. The new drug or biological product may not be marketed in the U.S. until the
FDA has approved the NDA or issued a biologic license. 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 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 results of the pre-clinical 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. 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
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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. 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 pre-
clinical 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. Later discovery of previously unknown problems may result in restrictions on the
product, manufacturer or sponsor, including withdrawal of the product from the market. New government requirements may be
established that could delay or prevent regulatory approval of our products under development.
Regulation Outside the U.S. 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 the product there. The
approval procedure varies from country to country, and the time required may be longer or shorter than that required for FDA
approval. The requirements we must satisfy to obtain regulatory approval by governmental agencies in other countries prior to
commercialization of our products there can be rigorous, costly and uncertain, and there can be no assurance that approvals will be
granted on a timely basis or at all. We do not currently have any facilities or personnel outside of the U.S.
In the European countries, Canada and Australia, regulatory requirements and approval processes are similar in principle to
those in the United States. Additionally, depending on the type of drug for which approval is sought, there are currently two potential
tracks for marketing approval in the EU countries: mutual recognition and the centralized procedure. These review mechanisms may
ultimately lead to approval in all EU countries, but each method grants all participating countries some decision-making authority in
product approval. The centralized procedure, which is mandatory for biotechnology derived products, results in a recommendation in
all member states, while the EU mutual recognition process involves country-by-country approval.
In other countries, regulatory requirements may require us to perform additional pre-clinical or clinical testing regardless of
whether FDA approval has been obtained. If the particular product is manufactured in the U.S., we must also comply with FDA and
other U.S. export provisions.
In most countries outside the U.S., coverage, pricing and reimbursement approvals are also required. There can be no
assurance that the resulting pricing of our products would be sufficient to generate an acceptable return to us.
Other Regulation. 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 have transferred to Wyeth our prior agreement with Mallinckrodt for the supply of both bulk and finished-form
RELISTOR. Wyeth is currently solely responsible for the supply of those materials for the balance of the clinical trial and commercial
supply requirements under the Collaboration Agreement.
We currently manufacture PRO 140 in our biologics pilot production facilities in Tarrytown, New York and have entered into
an agreement with a third-party contract manufacturing organization (CMO) to produce additional quantities of PRO 140 for our
ongoing clinical trials. We currently have two 150-liter bioreactors in operation to support our clinical programs. We have also
acquired a 1,500 liter bioreactor, and we are considering the appropriate time and manner for installing and deploying this additional
resource. We have supplemented our existing production facilities with capacity from the CMO to meet our needs for clinical trials for
this product candidate. These facilities may, however, be insufficient for all of our late-stage clinical trials 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.
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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 to enter into a co-promotion agreement to co-promote any of the
RELISTOR 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 if, as and 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).
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 pre-clinical 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. 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.
There are currently no FDA-approved products for reversing the debilitating side effects of opioid pain therapy (and
specifically, opioid-induced constipation) or for the treatment of post-operative ileus, to which RELISTOR is directed. We are,
however, aware of a product candidate that targets these therapeutic indications. This product, Entereg™ (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 FDA for Entereg regarding the treatment of post-operative ileus.
Five classes of products made by our competitors have been approved for marketing by the FDA for the treatment of HIV
infection and AIDS: nucleoside and non-nucleoside reverse transcriptase inhibitors, protease inhibitors, entry inhibitors and integrase
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 marketing or
developing small-molecule viral-entry-inhibition-based treatments directed against CCR5 for HIV infection, including Pfizer Inc.’s
SELZENTRY™, but unaware of any antibody-based treatments at our stage of clinical development.
Radiation and surgery are two principal traditional forms of treatment for prostate cancer, to which our PSMA-based
development efforts are directed. If the disease spreads, however, the traditional 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 therapies, 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 on, among other things: (i) efficacy
and safety of our products; (ii) timing and scope of regulatory approval; (iii) product reliability and availability; (iv) sales, marketing
and manufacturing capabilities; (v) capabilities of our collaborators; (vi) reimbursement coverage from insurance companies and
others; (vii) degree of clinical benefits of our product candidates relative to their costs; (viii) method of administering a product; (ix)
price; and (x) patent protection.
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Our competitive position will also depend upon our ability to attract and retain qualified personnel, obtain patent protection
or otherwise develop proprietary products or processes, and 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 product candidates and 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 product
candidates and products independently, we will bear the risk of product liability directly. We have obtained product liability insurance
coverage in the amount of $10.0 million per occurrence, subject to a deductible and a $10.0 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, 2007, we had 245 full-time employees, 41 of whom hold Ph.D. degrees, six of whom hold M.D. degrees
and three of whom, including Dr. Paul J. Maddon, our Chief Executive Officer and Chief Science Officer, hold both Ph.D. and M.D.
degrees. At such date, 200 employees were engaged in research and development, medical, regulatory affairs and manufacturing
activities and 45 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.
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.
RELISTOR, which is designed to reverse certain side effects induced by opioids and to manage postoperative ileus and is
being developed through a collaboration with Wyeth, is based on a novel method of action that has not yet been deemed safe or
effective by any regulatory authorities. No drug with RELISTOR’s method of action has ever received marketing approval.
Additionally, our principal HIV product candidate, the monoclonal antibody PRO 140, is designed to block viral entry. To our
knowledge, there are two approved drugs designed to treat HIV infection by blocking viral entry (Trimeris’ FUZEON™ and Pfizer’s
SELZENTRY™) that have been approved for marketing in the U.S., but neither are monoclonal antibodies. Our other research and
development programs, including those related to PSMA, involve 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 RELISTOR, our lead product candidate, and
our resulting dependence upon 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 RELISTOR, our lead product candidate. As a result, we are
dependent upon Wyeth to perform and fund development, including clinical testing, to make certain regulatory filings and to
manufacture and market products containing RELISTOR. Our collaboration with Wyeth may not be scientifically, clinically or
commercially successful.
Any revenues from the sale of RELISTOR, if approved for marketing by the FDA, will depend almost entirely upon the
efforts of Wyeth. Wyeth has significant discretion in determining the efforts and resources it applies to sales of the RELISTOR
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. We will receive
milestone and contingent payments from Wyeth only if RELISTOR achieves specified clinical, regulatory and commercialization
milestones, and we will receive royalty payments from Wyeth only if RELISTOR receives regulatory approval and is commercialized
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by Wyeth. Many of these milestone events will depend upon the efforts of Wyeth. As of December 31, 2007, we have received $14.0
million in milestone payments from Wyeth. We may not receive any further 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.
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 RELISTOR 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 RELISTOR 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.
A termination of our relationship with Wyeth could seriously compromise the development program for RELISTOR and
possibly our other product candidates. For example, we could experience significant delays in the development of RELISTOR 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 RELISTOR 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 our product candidates can be marketed. To obtain marketing approval
from regulatory authorities, we or our collaborators must demonstrate a product’s safety and efficacy through extensive pre-clinical
and clinical testing. Numerous adverse events may arise during, or as a result of, the testing process, including the following:
•
the results of pre-clinical 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 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 investigational or experimental drugs, such as PRO 140 and
the PSMA product candidates, are at an early stage of development. The successful commercialization of early stage product
candidates will require significant further research, development, testing and approvals by regulators and additional investment. Our
products in the research or pre-clinical development stage may not yield results that would permit or justify clinical testing. Our
failure to demonstrate adequately 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.
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A setback in our clinical development programs could adversely affect us.
We and Wyeth are conducting clinical trials of RELISTOR. If the results of any of these ongoing trials or of other future
trials of RELISTOR are not satisfactory, or if we encounter problems enrolling subjects, or if clinical trial supply issues or other
difficulties arise, our entire RELISTOR 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
RELISTOR. If the clinical trials indicate a serious problem with the safety or efficacy of a RELISTOR 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 RELISTOR is our most clinically advanced product, any setback of these types would have a material
adverse effect on our stock price and business.
We are conducting a clinical trial of PRO 140 and are planning trials of PSMA ADC and prostate cancer vaccine candidates.
If the results of our future clinical studies of PRO 140 or the pre-clinical 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, 2007, we had an accumulated deficit of $254.0
million. We have derived no significant revenues from product sales or royalties. We may not achieve significant product sales or
royalty revenue for a number of years, if ever. 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. 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, 2007, we had cash, cash equivalents and marketable securities, including non-current portion, totaling
$170.4 million. This includes proceeds of $57.1 million, net of underwriter commissions, discounts and other offering expenses, raised
during the third quarter of 2007 in a follow-on public offering of 2.6 million shares of common stock. During the year ended
December 31, 2007, we had a net loss of $43.7 million and cash used in operating activities was $39.1 million. Our accumulated
deficit is expected to increase in the future.
Under our agreement with Wyeth, Wyeth is responsible for all future development and commercialization costs relating to
RELISTOR starting January 1, 2006. As a result, although our spending on RELISTOR has been significant during 2006 and 2007
and is expected to continue at a similar level in the future, our net expenses for RELISTOR have been and will continue to be
reimbursed by Wyeth.
With regard to our other product candidates, 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 always uncertain. Despite previous experience, we may not be able at the necessary time 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.
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We believe that existing balances of cash, cash equivalents and marketable securities, cash generated from operations and
funds potentially available to us by issuing and selling securities are sufficient to finance our current operations and working capital
requirements on both a short-term and long-term basis. We cannot, however, predict the amount or timing of our need for additional
funds under various circumstances, which could include new product development projects, other opportunities or other factors that
may require us to raise additional funds in the future.
Our marketable securities, which include corporate debt securities, securities of government-sponsored entities and auction
rate securities (“ARS”), are classified as available for sale. The ARS that we purchase consist of municipal bonds with maturities
greater than five years and, in accordance with our investment guidelines, have credit ratings of at least Aa3/AA-, and do not include
mortgage-backed instruments. We have a history of holding all marketable securities, other than ARS, to maturity. As of December
31, 2007, we had not experienced failed auctions of our ARS due to lack of investor interest.
The auction process for ARS historically provided a liquid market for these securities. In the second half of 2007, however,
this process began to deteriorate. During the first quarter of 2008, we began to reduce the principal amount of ARS in our portfolio
from $38.8 million at 2007 year-end. While our portfolio was not affected by the auction process deterioration in 2007, some of the
ARS we hold experienced auction failures during the first quarter of 2008. As a result, when we attempted to liquidate them through
auction, we were unable to do so as to approximately $10.1 million principal amount, which we continue to hold. In the event of an
auction failure, the interest rate on the security is reset according to the contractual terms in the underlying indenture. As of March 14,
2008, we have received all scheduled interest payments associated with these securities.
The funds associated with failed auctions will not be accessible until a successful auction occurs, the issuer calls or
restructures the underlying security, the underlying security matures and is paid or a buyer outside the auction process emerges. We
believe that the failed auctions experienced to date are not a result of the deterioration of the underlying credit quality of these
securities, although valuation of them is subject to uncertainties that are difficult to predict, such as changes to credit ratings of the
securities and/or the underlying assets supporting them, default rates applicable to the underlying assets, underlying collateral value,
discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. We believe that any unrealized gain
or loss associated with these securities will be temporary and will be recorded in accumulated other comprehensive income (loss) in
our financial statements.
The credit and capital markets have continued to deteriorate in 2008. Continuation or acceleration of the current instability in
these markets and/or deterioration in the ratings of our investments may affect our ability to liquidate these securities, and therefore
may affect our financial condition, cash flows and earnings. We believe that based on our current cash, cash equivalents and
marketable securities balances of $170.4 million at December 31, 2007, the current lack of liquidity in the credit and capital markets
will not have a material impact on our liquidity, cash flows, financial flexibility or ability to fund our obligations.
We continue to monitor the market for auction rate securities and consider its impact (if any) on the fair market value of our
investments. If the current market conditions continue, in which some auctions for ARS fail, or the anticipated recovery in market
values does not occur, we may be required to record unrealized losses or impairment charges in 2008. As auctions have closed
successfully, we have converted our investments in ARS to money market funds. We believe we will have the ability to hold any
auction rate securities for which auctions fail until the market recovers. We do not anticipate having to sell these securities in order to
operate our business.
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 SEC and in other public disclosures, the actual timing of these events can vary dramatically.
For example, we have experienced delays in our RELISTOR clinical development program in the past as a result of slower than
anticipated enrollment. These delays may recur. Delays can be caused by, among other things:
• deaths or other adverse medical events involving 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;
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• 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.
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 product candidates may be conducted by government-
sponsored agencies, and consequently will be dependent on governmental participation and funding. Under our agreement with Wyeth
relating to RELISTOR, 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.
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 pre-clinical 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 product candidates do not yet have, and may never obtain, the regulatory approvals needed for marketing.
None of our product candidates 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);
• approval may be limited to uses of the product for treatment or prevention of diseases or conditions that are relatively
less financially advantageous to us than approval of greater or different scope;
• 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 pre-clinical 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.
21
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.
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 RELISTOR. 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 RELISTOR.
We are aware that Adolor Corporation, in collaboration with Glaxo Group Limited, or Glaxo, a subsidiary of
GlaxoSmithKline plc, is developing EnteregTM (alvimopan), an opioid antagonist, for postoperative ileus, which has completed phase
3 clinical trials, and for opioid-induced bowel dysfunction, which has been the subject of phase 3 clinical trials. Entereg is further
along in the clinical development process than RELISTOR, and Adolor Corporation has received an approvable letter from the FDA
for Entereg regarding the treatment of post-operative ileus. If Entereg reaches the market before RELISTOR, 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 RELISTOR, Wyeth is developing the oral formulation of
RELISTOR worldwide. We are leading the U.S. development of the subcutaneous and intravenous formulations of RELISTOR, while
Wyeth is leading development of these parenteral products outside the U.S. Decisions regarding the timelines for development of the
three RELISTOR formulations are being be made by a Joint Development Committee, and endorsed by the Joint Steering Committee,
each committee formed under the terms of the license and co-development agreement, consisting of members from both Wyeth and
Progenics.
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 entered into such a collaboration with Wyeth, but 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. Due
to the nature of these agreements and the uncertainties of research and development, we may not be able to achieve milestones or
satisfy conditions to which we have contractually committed, and as a result may be unable to maintain our rights under these licenses.
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.
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We have limited manufacturing capabilities, which could adversely affect 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 our initial needs for clinical trials. These facilities may,
however, 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 upon 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. 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. The issuance of a patent, however, 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. 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. Third parties may also avoid our patents through design innovation.
Most of our product candidates, including RELISTOR, PRO 140 and our PSMA and HCV 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 methylnaltrexone 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 the University of Chicago for methylnaltrexone. Under our Collaboration Agreement, Wyeth has the right, at its
expense, to defend and enforce the RELISTOR 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.
23
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. These agreements may, however, 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. We entered into an agreement under which we depend on
Wyeth for the commercialization and development of RELISTOR, our lead product candidate. We may not be able to maintain any of
these relationships or establish new ones on beneficial terms. 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 infrastructure and related staff, which will require significant investment to establish and in the
meantime may make us dependent on third parties for their expertise in this area.
We have no established sales, marketing or distribution infrastructure. If we receive marketing approval, significant
investment, time and managerial resources will be required to build the commercial infrastructure required to market, sell and support
a pharmaceutical product. Should we choose to commercialize any product directly, we may not be successful in developing an
effective commercial infrastructure or in achieving sufficient market acceptance. Alternatively, we may choose to market and sell our
products through distribution, co-marketing, co-promotion or licensing arrangements with third parties. We may also consider
contracting with a third party professional 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 RELISTOR. 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.
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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. Maddon could cause our
management and operations to suffer. In late 2007, we concluded a renewal employment agreement with Dr. Maddon, with an
effective date of July 1, 2007, for an initial term of one year, which is subject to automatic renewal provided both we and Dr. Maddon
agree. Employment agreements do not 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.
In accordance with our collaboration agreement with Wyeth, we have transferred to Wyeth the responsibility for
manufacturing RELISTOR for clinical and commercial use. We currently obtain supplies of critical raw materials used in production
of other of our product candidates from single sources. We do not have long-term contracts with any of these other suppliers. Wyeth
may not be able to fulfill its manufacturing obligations, either on its own or through third-party suppliers. Our existing arrangements
with suppliers for our other product candidates 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. During
2006 and 2007, we were awarded, in the aggregate, approximately $4.4 million in NIH grants. During 2005, we were also awarded a
$3.0 million and a $9.7 million grant from the NIH to partially fund our hepatitis C virus and PRO 140 programs, respectively. 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. 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 contract awarded to us by the NIH in September 2003, which provided for up to $28.6 million in
funding over a five year period, must be 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. 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. We have recently been informed by the NIH that it has decided not to fund the 2003
contract beyond the $15.5 million approved through September 2008. To continue to develop the HIV vaccine after that time,
therefore, we will need to provide funding on our own or obtain new governmental or other funding. If we choose not to provide our
own or cannot secure governmental or other funding, we will discontinue this project.
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
25
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 $10.0 million per occurrence, subject to a deductible and a $10.0 million annual aggregate
limitation. 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. 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. We may be required to incur significant costs to comply with environmental laws and
regulations in the future.
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, 2005 and December 31, 2007, our stock price has
ranged from $14.09 to $30.83 per share. In the first quarter of 2008, it has ranged to as low as approximately $5.00 per share.
Historically, our stock price has fluctuated through an even greater range. At times, our stock price has been volatile even in the
absence of significant news or developments relating to us. The stock prices 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 pre-clinical 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 RELISTOR;
• 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;
26
• 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, 2007, our directors and executive officers and stockholders affiliated with Tudor Investment Corporation
together beneficially own or control approximately one-fifth of our outstanding shares of common stock. At that date, our six largest
stockholders, excluding our directors and executive officers and stockholders affiliated with Tudor, beneficially own or control in the
aggregate approximately half of our outstanding shares. Our directors and executive officers and Tudor-related stockholders, 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. Other significant but unrelated stockholders could
also exert influence in such matters.
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;
• 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 filed a shelf registration statement to permit the sale by us of up to 4.0 million shares of our common
stock, pursuant to which we sold 2.6 million shares on September 25, 2007. We also filed registration statements with respect to sales
of 286,000 shares of our common stock by certain stockholders, all of which have been sold. Additional sales of our common stock
pursuant to our shelf registration statement could, even at then-current market prices, cause the market price of 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, and 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 SEC staff comments regarding our periodic or current reports under the Exchange Act as of
December 31, 2007.
27
Item 2. Properties
As of December 31, 2007, we occupy in total approximately 145,800 square feet of laboratory, manufacturing and office
space on a single campus in Tarrytown, New York, as follows:
Leased
Space
Area
(Square
Feet)
Base Monthly Rent
Termination
Date
Other Terms
Sublease 1
91,600
$140,000
December 30, 2009
Lease 1
32,600
$66,000
December 31, 2009
Renewable for two five year terms
Sublease 2
5,900
$13,000 through June 30, 2010;
$15,000 through June 30, 2011;
$16,000 through June 29, 2012
June 29, 2012
Four months rent-free beginning
April 1, 2006; converts to Lease 2
Lease 2
Lease 3
$16,000
December 31, 2014
9,200
$12,000 through November 12,
2008; annual 3% increases
thereafter
June 29, 2012
Lease 4
6,500
$14,000
August 31, 2012
Total
145,800
Three months rent-free beginning
August 13, 2007; renewable for
two five year terms; lease
incentive of $276,300 provided by
landlord
Renewable for two terms
coterminous with Lease 1
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 2007.
28
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 Stock Market LLC 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 Stock
Market LLC. Such prices reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual
transactions.
Year ended December 31, 2006
First quarter
Second quarter
Third quarter
Fourth quarter
Year ended December 31, 2007
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$ 30.83
26.72
26.07
29.55
$ 24.92
19.95
19.80
22.51
30.31
27.59
26.10
23.98
22.02
21.14
20.55
17.77
On March 13, 2008, the last sale price for our common stock, as reported by The NASDAQ Stock Market LLC, was $5.09.
There were approximately 122 holders of record of our common stock as of March 13, 2008.
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 equaled $100 on
December 31, 2002.
400
300
200
100
0
D
O
L
L
A
R
S
Dividends
12.31.02
12.31.03
12.31.04
12.31.05
12.31.06
12.31.07
Progenics
Nasdaq U.S. Index
Nasdaq Pharmaceutical Index
We have not paid any dividends since our inception and currently 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.
29
Item 6. Selected Financial Data
The selected financial data presented below as of December 31, 2006 and 2007 and for each of the three years in the period
ended December 31, 2007 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, 2003, 2004 and 2005 and for each of the two
years in the period ended December 31, 2004 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.
2003
2004
2005
2006
2007
(in thousands, except per share data)
Years Ended December 31,
Statement of Operations Data:
Revenues:
Research and development from
collaborator
Research and development, joint venture
Research grants and contracts
Product sales
Total revenues
Expenses:
Research and development
In-process research and development
License fees – research and development
General and administrative
Loss in joint venture
Depreciation and amortization
Total expenses
Operating loss
Other income (expense):
Interest income
Interest expense
Loss on sale of marketable securities
Total other income
Net loss before income taxes
Income taxes
Net loss
Per share amounts on net loss:
Basic and diluted
Balance Sheet Data:
Cash, cash equivalents and
marketable securities
Working capital
Total assets
Deferred revenue, long-term
Other liabilities, long-term
Total stockholders’ equity
$58,415 $ 65,455
$ 2,486
4,826
149
7,461
$ 2,008
7,483
85
9,576
$ 988
8,432
66
9,486
26,374
35,673
43,419
867
8,029
2,525
1,273
39,068
(31,607)
625
(4)
621
(30,986)
390
12,580
2,134
1,566
52,343
(42,767)
20,418
13,565
1,863
1,748
81,013
(71,527)
(31)
749
(42,018)
2,299
(69,228)
(201)
$ (69,429)
11,418
73
69,906
61,711
13,209
390
22,259
121
1,535
99,225
(29,319)
7,701
(21,618)
780
2,299
7,701
10,075
116
75,646
95,123
1,053
27,901
3,027
127,104
(51,458)
7,770
7,770
(43,688)
$
(30,986)
$
(42,018)
$ (21,618)
$(43,688)
$ (2.32)
$ (2.48)
$ (3.33)
$ (0.84)
$(1.60)
2003
2004
2005
2006
2007
December 31,
$ 65,663
56,228
72,886
50
67,683
$ 31,207
25,667
39,545
42
31,838
(in thousands)
$ 173,090
137,101
184,003
49
112,732
$149,100
91,827
165,911
16,101
123
110,846
$170,370
102,979
189,539
9,131
359
147,499
30
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
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. Our principal programs are
directed toward gastroenterology, virology and oncology. See Business – Overview, above. 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 have been and continue to be required 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 methylnaltrexone. See Business –
Gastroenterology – RELISTOR and Business – Licenses – Progenics Licenses – Wyeth, above.
In the area of virology, we are developing viral entry inhibitors for HIV and Hepatitis C virus (“HCV”) infection, which are
molecules designed to inhibit a virus’ ability to enter certain types of immune cells and liver cells, respectively. See Business –
Virology – PRO 140 and ProVax and Business – Virology – Hepatitis C Viral Entry Inhibitor, above.
We are developing therapies for prostate cancer. See Business – Oncology – PSMA, above. Our PSMA programs are
conducted through our wholly-owned subsidiary, PSMA Development Company LLC, which prior to April 2006 was a joint venture
with Cytogen. Although we are continuing to conduct the PSMA-related research and development activities, we will no longer
recognize revenue from PSMA LLC.
Prior to our acquisition of Cytogen’s interest, PSMA LLC’s intellectual property, which was equally owned by us and Cytogen,
was used in two research and development programs, a vaccine program and a monoclonal antibody program, both of which were in the
pre-clinical or early clinical phases of development. We conducted most of the research and development for those two programs prior to
the acquisition and are continuing those research and development activities and will incur all the expenses of those programs.
Before any products resulting from the vaccine and the monoclonal antibody programs that were jointly under development at the
date of our acquisition of Cytogen’s interest can be commercialized, PSMA LLC must complete pre-clinical studies and phases 1 through 3
clinical trials for each project and file and receive approval of New Drug Applications with the FDA. Due to the complexities and
uncertainties of scientific research and the early stage of the PSMA programs, the timing and costs of such further development efforts
and the anticipated completion dates of those programs, if ever, cannot reliably be determined at the acquisition date. Those efforts are
currently expected to require at least three years, based upon the timing of our other early stage development projects. There can be no
assurance that either of the PSMA programs will reach technological feasibility or that they will ever be commercially viable. The risks
associated with development and commercialization of these programs include delay or failure of basic research, failure to obtain
regulatory approvals to conduct clinical trials and market products, and patent litigation.
We discontinued our GMK melanoma vaccine program during the second quarter of 2007. An independent data monitoring
committee recommended that treatment in the European-based phase 3 trial, which began in 2001, be stopped because lack of efficacy
was observed after an interim analysis. We have subsequently terminated our license agreement with Memorial Sloan-Kettering
Cancer Center relating to this program.
Our sources of revenues through December 31, 2007 have been payments under our current and former collaboration
agreements, from PSMA LLC, from research grants and contracts from the National Institutes of Health (“NIH”) related to our cancer
and virology programs and from interest income. Beginning in January 2006, we have been recognizing revenues from Wyeth for
reimbursement of our development expenses for RELISTOR 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. We have not recognized revenue from PSMA LLC for the years ended December 31, 2006 or 2007, since
during 2006, prior to our acquisition of Cytogen’s membership interest in PSMA LLC on April 20, 2006, we and Cytogen had not
approved a work plan and budget for 2006 and subsequently PSMA LLC has become our wholly owned subsidiary. 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. During 2007, expenses for our
PRO 140, HCV and PSMA research programs have increased significantly over those in 2005 and 2006. We expect that during 2008
31
our research and development expenses for these programs will continue to increase as our programs progress and we make filings
with regulators to conduct clinical trials of our product candidates. A portion of these expenses is reimbursed under our NIH grants
and contract. Our development and commercialization expenses for RELISTOR are being funded by Wyeth, which allows us to
devote our current and future resources to our other research and development programs.
During the year ended December 31, 2007, we received net proceeds of $57.1 million from a public offering totaling 2.6
million shares of our common stock. At December 31, 2007, we had cash, cash equivalents and marketable securities totaling $170.4
million. We expect that cash, cash equivalents and marketable securities on hand at December 31, 2007 will be sufficient to fund
operations at current levels beyond one year. Cash used in operating activities for the year ended December 31, 2007 was $39.1
million. We have had recurring losses and had, at December 31, 2007, an accumulated deficit of $254.0 million. During the year
ended December 31, 2007, we had a net loss of $43.7 million. Other than potential revenues from RELISTOR, 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, but may also not be available to us on acceptable terms or at all.
Results of Operations (amounts in thousands)
Revenues:
Our sources of revenue during the years ended December 31, 2007 and 2006, included our collaboration with Wyeth, which
was effective on January 1, 2006, our research grants and contracts from the NIH and, to a small extent, our sale of research reagents.
During 2005 we recognized revenue from our NIH grants and contract, from our PSMA LLC joint venture and from our sale of
research reagents but we did not recognize revenue from Wyeth.
Sources of Revenue
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Research from collaborator
Research from PSMA LLC
Research grants and contract
Product sales
$65,455
$58,415
10,075
116
$75,646
11,418
73
$69,906
$988
8,432
66
$9,486
Percent Change
12%
N/A
(12)%
59%
8%
N/A
(100%)
35%
11%
637%
2007 vs. 2006
Research revenues from collaborator
Research revenue from collaborator relates to our Collaboration Agreement with Wyeth. During the years ended December
31, 2007 and 2006, we recognized $65,455 and $58,415, respectively, of revenue from Wyeth, including $16,378 and $18,831,
respectively, of the $60,000 upfront payment we received upon entering into our collaboration in December 2005, $40,077 and
$34,584, respectively, as reimbursement of our development expenses and $9,000 and $5,000, respectively, of non-refundable
payments earned upon the achievement of milestones defined in the Collaboration Agreement. We recognize a portion of the upfront
payment in a reporting period in accordance with the proportionate performance method, which is based on the percentage of actual
effort performed on our development obligations in that period relative to total effort expected for all of our performance obligations
under the arrangement, as reflected in the most recent development plan and budget approved by Wyeth and us. During the third
quarter of 2007, a revised budget was approved, which extended our performance period to the end of 2009 and, thereby, decreased
the amount of revenue we are recognizing in each reporting period. Reimbursement of development costs is recognized as revenue as
the costs are incurred under the development plan agreed to by us and Wyeth. The milestones were recognized according to the
Substantive Milestone Method. See Critical Accounting Policies – Revenue Recognition, below.
Research revenues from PSMA LLC
On April 20, 2006, PSMA LLC became our wholly owned subsidiary and, accordingly, since that date we no longer
recognize revenue related to research and development activities performed by us for PSMA LLC. During 2006, prior to our
acquisition of Cytogen’s membership interest in PSMA LLC, we and Cytogen had not approved a work plan and budget for 2006 and,
therefore, we were not reimbursed for our research and development services to PSMA LLC and did not recognize any revenue from
PSMA LLC in 2006.
32
Research grants and contract
Revenues from research grants and contract from the NIH decreased to $10,075 for the year ended December 31, 2007 from
$11,418 for the year ended December 31, 2006; $6,185 and $8,052 from grants and $3,890 and $3,366 from the contract awarded to
us by the NIH in September 2003 (the “NIH Contract”) for the years ended December 31, 2007 and 2006, respectively. The decrease
in grant revenue resulted from completion of certain grants in 2006 and fewer reimbursable expenses in 2007 than in 2006 on new and
continuing grants in 2007. In addition, there was increased activity under the NIH Contract. The NIH Contract provides for the
development of a prophylactic vaccine designed to prevent HIV from becoming established in uninfected individuals exposed to the
virus. Funding under the NIH Contract provides for pre-clinical research, development and early clinical testing. These funds are
being used principally in connection with our ProVax HIV vaccine program. The NIH Contract originally provided for up to $28.6
million in funding to us, subject to annual funding approvals and compliance with its terms, over five years. The total of our approved
award under the NIH Contract through September 2008 is $15.5 million. Funding under this contract includes the payment of an
aggregate of $1.6 million in fees, subject to achievement of specified milestones. Through December 31, 2007, we had recognized
revenue of $13.3 million from this contract, including $180,000 for the achievement of two milestones. We have recently been
informed by the NIH that it has decided not to fund this Contract beyond September 2008. To continue to develop the HIV vaccine
after that time, therefore, we will need to provide funding on our own or obtain new governmental or other funding. If we choose not
to provide our own or cannot secure governmental or other funding, we will discontinue this project.
Product sales
Revenues from product sales increased to $116 for the year ended December 31, 2007 from $73 for the year ended December
31, 2006. We received more orders for research reagents during 2007.
2006 vs. 2005
Research revenues from collaborator
Research revenue from collaborator relates to our Collaboration Agreement with Wyeth. During the year ended December
31, 2006, we recognized $58,415 of revenue from Wyeth, including $18,831 of the $60,000 upfront payment we received upon
entering into the Collaboration Agreement, $34,584, as reimbursement of our development expenses and $5,000 of a non-refundable
payment earned upon the achievement of a milestone defined in the Collaboration Agreement. We did not recognize revenue for this
collaboration in 2005 since it was not effective until January 1, 2006.
Research revenues from PSMA LLC
On April 20, 2006, PSMA LLC became our wholly owned subsidiary and, accordingly, since that date we no longer
recognize revenue related to research and development activities performed by PSMA LLC. During 2006, prior to our acquisition of
Cytogen’s membership interest in PSMA LLC, we and Cytogen had not approved a work plan and budget for 2006 and, therefore, we
were not reimbursed for our research and development services to PSMA LLC and did not recognize any revenue from PSMA LLC in
2006. We recognized $988 of revenue for research and development services performed for PSMA LLC during the year ended
December 31, 2005. That amount reflects a decrease from prior years. The decrease was 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 research and development
revenue from PSMA LLC. Proceeds received from grants related to PSMA LLC and for which we have also been compensated by
PSMA LLC for services provided were $1,311 in the 2005 period. We have reflected in the accompanying consolidated financial
statements adjustments to decrease both joint venture losses and contract revenue from PSMA LLC in respect of such amounts.
Research grants and contract
Revenues from research grants and contract from the NIH increased to $11,418 for the year ended December 31, 2006 from
$8,432 for the year ended December 31, 2005; $8,052 and $5,480 from grants and $3,366 and $2,952 from the NIH Contract for the
years ended December 31, 2006 and 2005, respectively. The increase resulted from a greater amount of work performed under the
grants in the 2006 period, some of which allowed greater spending limits, including $12.7 million in new grants we were awarded
during 2005, $9.7 million of which was to partially fund PRO 140 program over a three and a half year period. In addition, there was
increased activity under the NIH Contract.
Product sales
Revenues from product sales increased to $73 for the year ended December 31, 2006 from $66 for the year ended December
31, 2005. We received more orders for research reagents during 2006.
33
Expenses:
Research and Development Expenses:
Research and development expenses include scientific labor, supplies, facility costs, clinical trial costs and product
manufacturing costs. Research and development expenses, including in-process research and development and license fees, increased
to $96,176 for the year ended December 31, 2007 from $75,310 for the year ended December 31, 2006, and from $63,837 in the year
ended December 31, 2005. Research and development expenses for 2006 include a one-time charge of $13,209 related to our purchase
of Cytogen’s equity interest in PSMA LLC (see Business – Oncology – PSMA ), and for 2005 include a one-time charge of $18,755
related to our purchase of license rights related to RELISTOR (see Business – Progenics’ Licenses – UR Labs/University of Chicago).
During 2007, the majority of the increase in research and development expenses over those in 2006 and 2005, net of those one-time
charges, was related to the PRO 140, HCV and PSMA clinical and research programs. The increases were the result of analysis of the
clinical data from the phase 1b study of PRO 140, preparation of materials for a phase 2 clinical trial of PRO 140, increased basic
research to identify targets for an HCV therapeutic agent and basic research and preparation of materials for clinical trials of PSMA-
directed therapeutics. Expenses for RELISTOR in 2007 were also greater than in 2006 and 2005, although the increase in those
expenses was not as great as for the other research programs. The increase in RELISTOR expenses was primarily due to the conduct
of a phase 3 clinical trial of the intravenous formulation as well as preparation of clinical data for the NDA submission for the
subcutaneous formulation in March 2007. See Liquidity and Capital Resources – Uses of Cash, below, for details of the changes in
these expenses by project. Beginning in 2006, Wyeth is reimbursing us for development expenses we incur related to RELISTOR
under the development plan agreed to between Wyeth and us. A portion of our expenses related to our HIV, HCV and PSMA
programs is funded through grants and a contract from the NIH (see Revenues- Research Grants and Contract, above). During 2008,
we expect that research and development expenses for projects other than RELISTOR will continue to increase and that expenses for
RELISTOR development will be similar to those in 2007. The changes in research and development expense, by category of expense,
are as follows:
Salaries and benefits (cash)
$24,061
$17,013
$13,412
41%
27%
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Company-wide compensation increases and an increase in average headcount to 190 from 134 for the years ended
December 31, 2007 and 2006, respectively, in the research and development, manufacturing and clinical departments.
2006 vs. 2005 Company-wide compensation increases and an increase in average headcount to 134 from 117 for the years ended
December 31, 2006 and 2005, respectively, in the research and development, manufacturing and clinical departments, including the
hiring of our Vice President, Quality in July 2005.
Share-based compensation (non-cash)
$7,104
$5,814
$1,237
22%
370%
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Increase due to increase in headcount and changes in the fair value of our common stock (see Critical Accounting
Policies − Share-Based Payment Arrangements, below). The amount of non-cash compensation expense is expected to change in
future years commensurate with future headcount levels.
2006 vs. 2005 Increase due to the adoption of SFAS No. 123(R) on January 1, 2006, which requires the recognition of non-cash
compensation expense related to share-based payment arrangements (see Critical Accounting Policies − Share-Based Payment
Arrangements, below).
Clinical trial costs
$19,225
$9,485
$10,493
103%
(10%)
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Increase primarily related to RELISTOR ($10,901) due to the global pivotal phase 3 clinical trial of the intravenous
formulation of RELISTOR which began in the fourth quarter of 2006 and Other projects ($2). The increases were partially offset by
decreases in Cancer ($778), due to our decision to terminate the GMK study in the second quarter of 2007, and HIV-related costs
($385), resulting from a decline in clinical site payments and other clinical expenses related to the phase 1b clinical trial of PRO 140
for which enrollment and dosing of subjects was complete by December 2006. During 2007, data from that trial was analyzed. During
34
2008, overall clinical trial costs are expected to decrease as clinical trials of RELISTOR conclude and we conduct the phase 2 trial of
PRO 140.
2006 vs. 2005 Decrease primarily related to RELISTOR ($1,429) due to completion of the RELISTOR phase 3 trials (301 and 302
and the extension studies) in the second half of 2005 and first quarter of 2006 and Cancer ($335), due to achievement of full
enrollment in our GMK phase 3 trial during the fourth quarter of 2005, which resulted in more subjects having completed the full
course of treatment during 2005 than remained to be treated in 2006. The decreases were partially offset by an increase in HIV-related
costs ($756), resulting from an increase in the PRO 140 trial activity and a decline in a previous collaboration activity in the 2006
period.
Laboratory supplies
$7,876
$6,337
$5,292
24%
20%
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Increase in HIV-related costs ($1,132), due to internal manufacture of drug materials for the phase 2 PRO 140 clinical
trial, and in Other projects ($1,731), primarily Hepatitis C virus research costs. The increases were partially offset by a decrease in
RELISTOR ($814) due to the purchase of more RELISTOR drug in the 2006 period than in the 2007 period, net of increased
computer software costs in 2007 related to the preparation for submission of a New Drug Application in March 2007. In addition,
there was a decrease in basic research costs in 2007 for Cancer (primarily PSMA) ($510). Laboratory supply costs for HIV, Cancer
and Other project related costs are expected to increase in 2008.
2006 vs. 2005 Increase in HIV-related costs ($175), due to preparation of materials for the phase 1b PRO 140 clinical trial, and an
increase in basic research in 2006 for Cancer ($609) and Other projects ($561) partially offset by a decrease in RELISTOR ($300) due
to the purchase of more RELISTOR drug in the 2005 period than in the 2006 period.
Contract manufacturing and
subcontractors
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
$25,940
$12,448
$5,836
108%
113%
2007 vs. 2006 Increase in HIV ($8,228), Cancer ($5,163) and Other projects ($1,791), which was partially offset by a decrease in
RELISTOR ($1,690) related to clinical trials under our collaboration with Wyeth. These expenses are related to the conduct of clinical
trials, including manufacture by third parties of drug materials, testing, analysis, formulation and toxicology services, and vary as the
timing and level of such services are required. We expect these costs to increase in 2008 as we expand our clinical trial costs for PRO
140, PSMA and Other projects, while costs for RELISTOR are expected to be similar to those in 2007.
2006 vs. 2005 Increase in RELISTOR ($1,939) related to clinical trials under our collaboration with Wyeth, HIV ($1,672), Cancer
($2,637) and Other projects ($364). 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.
Consultants
$4,722
$5,286
$2,969
(11%)
78%
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Decrease in RELISTOR ($1,351), partially offset by increases in HIV ($350), Cancer ($107) and Other projects
($330). These expenses are related to the monitoring of clinical trials as well as the analysis of data from completed clinical trials and
vary as the timing and level of such services are required. In 2008, consultant expenses are expected to change approximately
proportionately with spending levels for all of our research and development programs.
2006 vs. 2005 Increases in RELISTOR ($2,351), Cancer ($47) and Other projects ($20), partially offset by a decrease in HIV ($101).
These expenses are related to the 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.
35
License fees
$1,053
$390
$20,418
170%
(98%)
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Increase primarily related to our HIV program ($30), Cancer ($523) related to PSMA license agreements and
RELISTOR ($110), related to payments to the University of Chicago.
2006 vs. 2005 Decrease primarily related to payments in 2005 but not 2006 to UR Labs and the Goldberg Distributees (see Overview
– Purchase of Rights from RELISTOR Licensors), licensors of RELISTOR ($19,205) and related to our HIV program ($1,098),
partially offset by increases in Cancer ($225) related to PSMA license agreements and RELISTOR ($50), related to payments to the
University of Chicago.
Operating expenses
$6,195
$18,537
$4,180
(67%)
343%
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Decrease primarily due to expenses in 2006 related to our purchase of Cytogen’s equity interest in PSMA LLC, which
are included in in-process research and development ($13,209), travel ($21) and an increase in rent and facilities expenses ($579),
insurance costs ($128) and other operating expenses ($181). In 2008, operating expenses are expected to increase over those of 2007,
without the effect of our purchase of Cytogen’s interest in PSMA LLC, due to higher rent and facility expenses.
2006 vs. 2005 Increase primarily due to expenses in 2006 related to our purchase of Cytogen’s equity interest in PSMA LLC, which
are included in in-process research and development ($13,209) and an increase in rent ($420), facilities expenses ($242), seminar costs
($102), travel ($296) other operating expenses ($88).
General and Administrative Expenses:
General and administrative expenses increased to $27,901 in the year ended December 31, 2007 from $22,259 in the year
ended December 31, 2006 and from $13,565 in the year ended December 31, 2005, as follows:
Salaries and benefits (cash)
$7,243
$5,942
$4,614
22%
29%
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Increase due to compensation increases and an increase in average headcount to 43 from 32 in the general and
administrative departments for the years ended December 31, 2007 and 2006, respectively, including the hiring of our Vice President,
Commercial Development and Operations in January 2007.
2006 vs. 2005 Increase due to compensation increases and an increase in average headcount to 32 from 22 in the general and
administrative departments for the years ended December 31, 2006 and 2005, respectively, including the hiring of our Senior Vice
President and General Counsel in June 2005 and the departure of one senior executive in April 2005.
Share-based compensation (non-cash)
$8,202
$6,840
$1,281
20%
434%
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Increase due to increase in headcount and changes in the fair value of our common stock (see Critical Accounting
Policies − Share-Based Payment Arrangements, below). The amount of non-cash compensation expense is expected to increase in
future years in conjunction with increased headcount.
2006 vs. 2005 Increase due to the adoption of SFAS No. 123(R) on January 1, 2006, which requires the recognition of non-cash
compensation expense related to share-based payment arrangements (see Critical Accounting Policies − Share-Based Payment
Arrangements, below).
36
Consulting and professional fees
$7,356
$5,566
$4,488
32%
24%
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Increase due primarily to increases in consultants ($632), recruiting fees ($125), legal and patent fees ($1,138) and
other miscellaneous costs ($89), which were partially offset by a decrease in audit and tax fees ($194).
2006 vs. 2005 Increase due primarily to increases in audit and tax fees ($255), recruiting fees ($286), legal and patent fees ($606) and
other miscellaneous costs ($21), which were partially offset by a decrease in consultants ($90).
Other operating expenses
$5,100
$3,911
$3,182
30%
23%
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
2007 vs. 2006 Increase in computer supplies and software ($219), rent ($184), investor relations ($175), travel ($69), conference
costs ($4), utilities and facilities costs ($466) and other operating expenses ($212), partially offset by decreases in insurance ($101)
and corporate sales and franchise taxes ($39).
2006 vs. 2005 Increase in insurance ($144), corporate sales and franchise taxes ($144), other operating expenses ($262), rent ($218),
conference costs ($28) and utilities and facilities costs ($53), partially offset by a decrease in investor relations ($120).
We expect general and administrative expenses during 2008 to remain at approximately 2007 levels.
Loss in Joint Venture:
2007
$0
2006
$121
2005
2007 vs. 2006
2006 vs. 2005
Percent change
$1,863
(100%)
(94%)
2007 vs. 2006 Loss in joint venture decreased to $0 for the year ended December 31, 2007 from $121 for the year ended December
31, 2006. On April 20, 2006, PSMA LLC became our wholly owned subsidiary and, accordingly, we did not recognize loss in joint
venture from the date of acquisition.
2006 vs. 2005 Loss in joint venture decreased to $121 for the year ended December 31, 2006 from $1,863 for the year ended
December 31, 2005. On April 20, 2006, PSMA LLC became our wholly owned subsidiary and, accordingly, we did not recognize loss
in joint venture from the date of acquisition. During 2006, prior to our acquisition of Cytogen’s membership interest in PSMA LLC,
research and development expenses and general and administrative expenses of PSMA LLC were lower than in the comparable period
in 2005 due to the lack of a work plan and budget for PSMA LLC for 2006.
Depreciation and Amortization:
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
$3,027
$1,535
$1,748
97%
(12%)
2007 vs. 2006 Depreciation expense increased to $3,027 for the year ended December 31, 2007 from $1,535 for the year ended
December 31, 2006. We purchased capital assets and made leasehold improvements in both years to increase our research and
manufacturing capacity. During 2007, $5.8 million of machinery and equipment and leasehold improvements that had been included
in construction in progress at December 31, 2006, representing about 28% of the December 31, 2006 balance of fixed assets, were
placed in operation and depreciated.
2006 vs. 2005 Depreciation expense decreased to $1,535 for the year ended December 31, 2006 to $1,748 for the year ended
December 31, 2005. We purchased capital assets and made leasehold improvements in both years to increase our research and
manufacturing capacity but a larger percentage of fixed assets was included in construction in progress, and not yet depreciable,
during 2006 than during 2005. There was also an increase in fully depreciated capital assets during 2006 relative to 2005.
37
Other Income:
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
Percent change
$7,770
$7,701
$2,299
1%
235%
2007 vs. 2006 Interest income increased to $7,770 for the year ended December 31, 2007 from $7,701 for the year ended December
31, 2006. Interest income, as reported, is primarily the result of investment income from our marketable securities, increased by the
amortization of premiums we paid or decreased by the amortization of discounts we received for those marketable securities. For the
years ended December 31, 2007 and 2006, investment income decreased to $7,325 from $7,710, respectively, due to a lower average
balance of cash equivalents and marketable securities in 2007 than in 2006. Amortization of premiums, net of discounts, was $445 and
$9 for the years ended December 31, 2007 and 2006, respectively.
2006 vs. 2005 Interest income increased to $7,701 for the year ended December 31, 2006 from $2,299 for the year ended December
31, 2005. Interest income, as reported, is primarily 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, 2006 and 2005, investment
income increased to $7,710 from $2,569, respectively, due to a higher average balance of cash equivalents and marketable securities
in 2006 than in 2005, resulting from our three public offerings in 2005, and higher interest rates in 2006. Amortization of discounts net
of premiums, which is included in interest income, decreased to $9 from $270 for the years ended December 31, 2006 and 2005,
respectively.
Income Taxes:
For the years ended December 31, 2007 and 2006, we had losses both for book and tax purposes. For the year ended
December 31, 2005, although we had a pre-tax net loss of $69.2 million for book purposes, 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
Goldberg Distributees, 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. For tax purposes, however, the UR Labs transaction
was a tax-free reorganization and will never result in a deduction for tax purposes and the payments to the Goldberg Distributees have
been capitalized as an intangible license asset and will be deducted for tax purposes over a fifteen year period. For book purposes, we
deferred recognition of revenue for the $60 million at December 31, 2005 and are recognizing revenue for that amount over the
development period for RELISTOR (expected through the end of 2009). For tax purposes, since cash was received, the $60 million
was included in taxable income in 2005. We, therefore, recognized an income tax provision in 2005 for the effect of the Federal and
state alternative minimum tax. We do not recognize deferred tax assets considering our history of taxable losses and the uncertainty
regarding our ability to generate sufficient taxable income in the future to utilize these deferred tax assets.
Net Loss:
Our net loss was $43,688 for the year ended December 31, 2007, $21,618 for the year ended December 31, 2006 and $69,429
for the year ended December 31, 2005.
Liquidity and Capital Resources
Overview
We have, to date, generated no meaningful amounts of product 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. At December 31, 2007, we had cash, cash equivalents and
marketable securities, including non-current portion, totaling $170.4 million compared with $149.1 million at December 31, 2006. Our
existing cash, cash equivalents and marketable securities at December 31, 2007 are sufficient to fund current operations for at least
one year. Our cash flow from operating activities was negative for the years ended December 31, 2007, 2006 and 2005 due primarily
to the excess of expenditures on our research and development programs and general and administrative costs related to those
programs over cash received from collaborators and government grants and contracts to fund such programs, as described below.
Sources of Cash
Operating Activities. Our current collaboration with Wyeth provided us with a $60 million upfront payment in December
2005. In addition, since January 2006, Wyeth has been reimbursing us for development expenses we incur related to RELISTOR
38
under the development plan agreed to between us and Wyeth, which is currently expected to continue through 2009. For the years
ended December 31, 2007 and 2006, we received $40.1 million and $34.6 million, respectively, of reimbursement of our development
costs. Since inception of the Collaboration Agreement, Wyeth has made $14.0 million in milestone payments upon the achievement of
certain events which are specified in the Collaboration Agreement. In May 2007, we earned $9.0 million of milestone payments
related to the acceptance for review of applications submitted for marketing approval of a subcutaneous formulation of RELISTOR for
the treatment of opioid-induced constipation in patients receiving palliative care in the U.S. and the European Union. Wyeth has also
submitted applications for the marketing of this product in Australia and Canada. In October 2006, we earned a $5.0 million milestone
payment in connection with the start of a phase 3 clinical trial of intravenous RELISTOR for the treatment of post-operative ileus.
Wyeth is obligated to make up to $342.5 million in additional payments to us upon the achievement of milestones and other
contingent events in the development and commercialization of RELISTOR. Wyeth is also responsible for all commercialization
activities related to RELISTOR products. The FDA review of the subcutaneous formulation of RELISTOR is expected to be
completed by its Prescription Drug User Fee Act (“PDUFA”) date of April 30, 2008. If approval for marketing of the subcutaneous
formulation of RELISTOR for the treatment of opioid-induced constipation in patients receiving palliative care is approved by U.S.
and/or other regulatory agencies, we will receive royalty payments from Wyeth as the product is sold in the respective countries. We
will also receive royalty payments upon the sale of all other products developed under the Collaboration Agreement.
The funding by Wyeth of our development costs for RELISTOR enables us to devote our current and future resources to our
other research and development programs. We may also enter into collaboration agreements 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 other
collaboration agreements would further allow us to advance other projects with our current funds.
In September 2003, we were awarded a contract by the NIH to develop a prophylactic vaccine designed to prevent HIV from
becoming established in uninfected individuals exposed to the virus. Funding under the NIH Contract provided for pre-clinical
research, development and early clinical testing. These funds are being used principally in connection with our ProVax HIV vaccine
program. The NIH Contract originally provided for up to $28.6 million in funding to us, subject to annual funding approvals and
compliance with its terms, over five years. The total of our approved award under the NIH Contract through September 2008 is $15.5
million. Funding under this contract includes the payment of an aggregate of $1.6 million in fees, subject to achievement of specified
milestones. Through December 31, 2007, we had recognized revenue of $13.3 million from this contract, including $180,000 for the
achievement of two milestones. We have recently been informed by the NIH that it has decided not to fund this contract beyond
September 2008. To continue to develop the HIV vaccine after that time, therefore, we will need to provide funding on our own or
obtain new government or other funding. If we choose not to provide our own or cannot secure governmental or other funding, we will
discontinue this project.
We have also been awarded grants from the NIH, which provide ongoing funding for a portion of our virology and cancer
research programs for periods including the years ended December 31, 2007, 2006 and 2005. Among those grants were an aggregate
of $4.4 million in grants made in 2006 and 2007, which extend over two- and three-year periods. Two awards were made during 2005,
which provide for up to $3.0 million and $9.7 million in support of our HCV 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 all of our NIH
grants is subject to compliance with their terms, and is subject to annual funding approvals. For the years ended December 31, 2007,
2006 and 2005, we recognized $6.2 million, $8.1 million and $5.5 million, respectively, of revenue from all of our NIH grants.
Changes in Accounts receivable and Accounts payable for the years ended December 31, 2007, 2006 and 2005 resulted from
the timing of receipts from the NIH and payments made to trade vendors in the normal course of business.
Other than amounts to be received from Wyeth and from currently approved grants and contracts, we have no committed
external sources of capital. Other than potential revenues from RELISTOR, we expect no 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.
Investing Activities. 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. Our marketable securities, which include corporate debt securities,
securities of government-sponsored entities and auction rate securities (“ARS”), are classified as available for sale. The ARS that we
purchase consist of municipal bonds with maturities greater than five years, and do not include mortgage-backed instruments. As of
December 31, 2007, we had not experienced failed auctions of our ARS due to lack of investor interest. The majority of our
marketable securities investments have short maturities and, in accordance with our investment guidelines, all have credit ratings of at
least Aa3/AA-. Therefore, credit market conditions through December 31, 2007 did not have a material negative impact on our
financial condition, results of operations or the liquidity of our marketable securities. Rather, interest rate increases during 2007 and
2006 have generally resulted in a decrease in the market value of our portfolio.
39
The auction process for ARS historically provided a liquid market for these securities. In the second half of 2007, however,
this process began to deteriorate. During the first quarter of 2008, we began to reduce the principal amount of ARS in our portfolio
from $38.8 million at 2007 year-end. While our portfolio was not affected by the auction process deterioration in 2007, some of the
ARS we hold experienced auction failures during the first quarter of 2008. As a result, when we attempted to liquidate them through
auction, we were unable to do so as to approximately $10.1 million principal amount, which we continue to hold. In the event of an
auction failure, the interest rate on the security is reset according to the contractual terms in the underlying indenture. As of March 14,
2008, we have received all scheduled interest payments associated with these securities.
Our marketable securities are purchased and, in the case of ARS, sold by third-party brokers in accordance with our
investment policy guidelines. Our brokerage account requires that all marketable securities, other than ARS, be held to maturity unless
authorization is obtained from us to sell earlier. In fact, we have a history of holding all marketable securities, other than ARS, to
maturity. We, therefore, consider that we have the intent and ability to hold any securities with unrealized losses until a recovery of
fair value, which may be maturity and we do not consider these marketable securities to be other-than-temporarily impaired at
December 31, 2007 and 2006.
The funds associated with failed auctions will not be accessible until a successful auction occurs, the issuer calls or
restructures the underlying security, the underlying security matures and is paid or a buyer outside the auction process emerges. We
believe that the failed auctions experienced to date are not a result of the deterioration of the underlying credit quality of these
securities, although valuation of them is subject to uncertainties that are difficult to predict, such as changes to credit ratings of the
securities and/or the underlying assets supporting them, default rates applicable to the underlying assets, underlying collateral value,
discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. We believe that any unrealized gain
or loss associated with these securities will be temporary and will be recorded in accumulated other comprehensive income (loss) in
our financial statements.
The credit and capital markets have continued to deteriorate in 2008. Continuation or acceleration of the current instability in
these markets and/or deterioration in the ratings of our investments may affect our ability to liquidate these securities, and therefore
may affect our financial condition, cash flows and earnings. We believe that based on our current cash, cash equivalents and
marketable securities balances of $170.4 million at December 31, 2007, the current lack of liquidity in the credit and capital markets
will not have a material impact on our liquidity, cash flows, financial flexibility or ability to fund our obligations.
We continue to monitor the market for auction rate securities and consider its impact (if any) on the fair market value of our
investments. If the current market conditions continue, in which some auctions for ARS fail, or the anticipated recovery in market
values does not occur, we may be required to record unrealized losses or impairment charges in 2008. As auctions have closed
successfully, we have converted our investments in ARS to money market funds. We believe we will have the ability to hold any
auction rate securities for which auctions fail until the market recovers. We do not anticipate having to sell these securities in order to
operate our business.
Financing Activities. On September 25, 2007, we completed a public offering of 2.6 million shares of our common stock,
pursuant to a shelf registration statement that had been filed with the Securities and Exchange Commission (“SEC”) in 2006, which
had registered 4.0 million shares of our common stock. We received proceeds of $57.3 million, or $22.04 per share, which was net of
underwriting discounts and commissions of approximately $2.9 million, and paid approximately $0.2 million in other offering
expenses. We anticipate using the net proceeds to fund clinical trials of our product candidates and for research and development
projects. We may also use the proceeds for other corporate purposes, including potential acquisitions of technology or companies in
complementary fields. During the year ended December 31, 2005, we completed three public offerings of common stock, pursuant to
shelf registrations covering up to $130 million in securities issuances that we had filed with the SEC in 2004 and 2005, which
provided us with a total of $121.6 million in net proceeds from the sale of 6.3 million shares.
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 RELISTOR, 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.
During the years ended December 31, 2007, 2006 and 2005, we received cash of $7.8 million, $7.1 million and $10.5 million,
respectively, from the exercise of stock options by employees, directors and non-employee consultants and from the sale of our
common stock under our Employee Stock Purchase Plans. The amount of cash we receive from these sources is greater with increases
in headcount and with increases in the price of our common stock on the grant date for options exercised, and on the sale date for
shares sold under our Employee Stock Purchase Plans.
40
Uses of Cash
Operating Activities. The majority of our cash has been used to advance our research and development programs. We
currently have major research and development programs investigating gastroenterology, virology and oncology, and are conducting
several smaller research projects in the areas of virology and oncology. Our total expenses for research and development from
inception through December 31, 2007 have been approximately $393.4 million. 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. Under our Collaboration Agreement with Wyeth, however, we are able to estimate that those remaining costs
for the subcutaneous and intravenous formulations of RELISTOR, based upon the development plan and budget approved by us and
Wyeth, which defines the totality of our obligations, are $67.9 million over the period from January 1, 2008 to December 31, 2009.
For the years ended December 31, 2007, 2006 and 2005, research and development costs incurred, by project, were as
follows. Expenses for RELISTOR for 2005 include $18.7 million related to our purchase of rights from RELISTOR licensors (see
Business – Licenses – Progenics’ Licenses – UR Labs/University of Chicago, above for more details). Expenses for Cancer for 2006
include $13.2 million related to our purchase of Cytogen’s interest in our PSMA joint venture, (see Business – Oncology – Prostate
Cancer – PSMA, above for more details):
RELISTOR
HIV
Cancer
Other programs
Total
2005
2007
For the Year Ended December 31,
2006
(in millions)
$ 32.1
15.8
23.2
4.2
$ 75.3
$ 41.5
29.0
16.1
9.6
$ 96.2
$ 43.8
11.7
6.6
1.7
$ 63.8
Although we expect that our spending on RELISTOR during 2008 will be similar to that in 2007, our cash outlays in
accordance with the agreed upon development plan will be reimbursed by Wyeth. We also expect that spending on our PRO 140,
PSMA and HCV programs will increase during 2008 and beyond. Consequently, we may require additional funding to continue our
research and product development programs, to conduct pre-clinical studies and clinical trials, for operating expenses, to pursue
regulatory approvals for our 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. Manufacturing and
commercialization expenses for RELISTOR will be funded by Wyeth. However, if we exercise our option to co-promote RELISTOR
products in the U.S., which must be approved by Wyeth, 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 purchase of rights from our methylnaltrexone licensors in December 2005 (see Business – Licenses – Progenics’
Licenses – UR Labs/University of Chicago, above) has extinguished our cash payments that would have been due to those licensors in
the future upon the achievement of certain events, including sales of RELISTOR products. We continue, however, to be responsible to
make payments (including royalties) to the University of Chicago upon the occurrence of certain events.
Prior to our acquisition of PSMA LLC on April 20, 2006, all costs of PSMA LLC’s research and development efforts were funded
equally by us and Cytogen through capital contributions. Our and Cytogen’s level of commitment to fund PSMA LLC was based on an
annual budget that was developed and approved by the parties. During the year ended December 31, 2005, we and Cytogen each
contributed $0.5 million to fund work under the 2004 approved budget and $3.45 million to fund work under the 2005 approved
budget. During 2006, prior to our acquisition of Cytogen’s interest in PSMA LLC, we and Cytogen had not approved a work plan and
budget for 2006 and, therefore, no further capital contributions were made by Cytogen or us subsequent to December 31, 2005. However,
we and Cytogen were required to fulfill obligations under existing contractual commitments as of December 31, 2005. Since PSMA
LLC has become our wholly owned subsidiary as of April 20, 2006, we no longer have contractual obligations to make capital
contributions.
Costs incurred by PSMA LLC from January 1, 2006 to April 20, 2006 were funded from PSMA LLC’s cash reserves. We are
continuing to conduct the PSMA research and development projects on our own subsequent to our acquisition of PSMA LLC and are
required to fund the entire amount of such efforts; thus, increasing our cash expenditures. We are funding PSMA-related research and
development efforts from our internally-generated cash flows. We are also continuing to receive funding from the NIH for a portion of
our PSMA-related research and development costs.
41
Investing Activities. During the years ended December 31, 2007, 2006 and 2005, we have spent $5.2 million, $8.8 million
and $1.2 million, respectively, on capital expenditures. Those expenditures have been related to the expansion of our office, laboratory
and manufacturing facilities and the purchase of more laboratory equipment for our ongoing and future research and development
projects, including the purchase of a second 150-liter bioreactor for the manufacture of research and clinical products. During 2008,
we expect that capital expenditures will continue to the extent we lease and renovate additional laboratory, manufacturing and office
space and increase headcount of our research and development and administrative staff.
Contractual Obligations
Our funding requirements, both for the next 12 months and beyond, will include required payments under operating leases
and licensing and collaboration agreements. The following table summarizes our contractual obligations as of December 31, 2007 for
future payments under these agreements:
Total
2008
2009-2010
2011-2012
Thereafter
Payments due by December 31,
Operating leases
License and collaboration agreements (1)
Total
$
$
8.0
99.2
107.2
$
$
3.1
3.0
6.1
$
$
_______________
( in millions)
$
$
3.6
6.5
10.1
0.9
6.4
7.3
$
$
0.4
83.3
83.7
(1) Assumes attainment of milestones covered under each agreement, including those by PSMA LLC. 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.
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 affect 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 unconsolidated 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, 2007. 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
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discussed the development, selection and disclosure of these critical accounting policies and estimates with the Audit Committee of
our Board of Directors.
Revenue Recognition
We recognize 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”)
“Accounting for Revenue Arrangements with Multiple Deliverables” and EITF Issue No. 99-19 (“EITF 99-19”) “Reporting Revenue
Gross as a Principal Versus Net as an Agent.” Our license and co-development agreement with Wyeth 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 began recognizing research revenue from Wyeth on January 1, 2006. During the years ended December 31, 2007, 2006 and 2005,
we also recognized revenue from government research grants and contracts, which are used to subsidize a portion of certain of our
research projects (“Projects”), exclusively from the NIH. We also recognized revenue from the sale of research reagents during those
periods. We recognized research and development revenue exclusively from PSMA LLC for the year ended December 31, 2005.
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 or other committee services, can be separated 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 or other 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 upfront license payments would be recognized as revenue over the
estimated period of when our performance obligations are performed.
We must determine the period over which our 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 for all of our performance obligations under the arrangement. We are recognizing revenue related
to the upfront license payment we received from Wyeth using the proportionate performance method since we can reasonably estimate
the level of effort required to complete our performance obligations under the Collaboration Agreement with Wyeth based upon the
most current budget approved by both Wyeth and us. Such performance obligations are provided by us on a best-efforts basis. Full-
time equivalents are being used as the measure of performance. Significant judgment is required in determining the nature and
assignment of tasks to be accomplished by each of the parties and the level of effort required for us to complete our performance
obligations under the arrangement. The nature and assignment of tasks to be performed by each party involves the preparation,
discussion and approval by the parties of a development plan and budget. Since we have no obligation to develop the subcutaneous and
intravenous formulations of RELISTOR outside the U.S. or the oral formulation at all and have no significant commercialization
obligations for any product, recognition of revenue for the upfront payment is not required during those periods, if they extend beyond the
period of our development obligations.
During the course of a collaboration agreement, e.g., the Collaboration Agreement with Wyeth, that involves a development
plan and budget, the amount of the upfront license payment that is recognized as revenue in any period will increase or decrease as the
percentage of actual effort increases or decreases, as described above. When a new budget is approved, generally annually, the
remaining unrecognized amount of the upfront license fee will be recognized prospectively, using the methodology described above
and applying any changes in the total estimated effort or period of development that is specified in the revised approved budget. The
amounts of the upfront license payment that we recognized as revenue for each fiscal quarter prior to the third quarter of 2007 were
based upon several revised approved budgets, although the revisions to those budgets did not materially affect the amounts of revenue
recognized in those periods. During the third quarter of 2007, however, the estimate of our total remaining effort to complete our
development obligations was increased significantly based upon a revised development budget approved by both us and Wyeth. As a
result, the period over which our obligations will extend, and over which the upfront payment will be amortized, was extended from
the end of 2008 to the end of 2009. Consequently, the amount of revenue recognized from the upfront payment in the second half of
2007 declined relative to that in the comparable period of 2006. Due to the significant judgments involved 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, further changes in any of those judgments are reasonably likely to occur in the future which could have a material impact
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on our revenue recognition. If a collaborator terminates an agreement in accordance with the terms of the agreement, we would
recognize any unamortized remainder of an upfront payment at the time of the termination.
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.
If we are involved in a steering or other committee as part of a multiple element arrangement, we assess whether our
involvement constitutes a performance obligation or a right to participate. For those committees that are deemed obligations, we will
evaluate our participation along with other obligations in the arrangement and will attribute revenue to our participation through the
period of our committee responsibilities. In relation to the Collaboration Agreement with Wyeth, we have assessed the nature of our
involvement with the Joint Steering, Joint Development and Joint Commercialization Committees. Our involvement in the first two
such Committees is one of several obligations to develop the subcutaneous and intravenous formulations of RELISTOR through
regulatory approval in the U.S. We have combined the committee obligations with the other development obligations and are
accounting for these obligations during the development phase as a single unit of accounting. After the development period, however,
we have assessed the nature of our involvement with the three Committees to be a right, rather than an obligation. Our assessment is
based upon the fact we negotiated to be on these Committees as an accommodation for our granting of the license for RELISTOR to
Wyeth. Further, Wyeth has been granted by us an exclusive license (even as to us) to the technology and know-how regarding RELISTOR
and has been assigned the agreements for the manufacture of RELISTOR by third parties. Following regulatory approval of the
subcutaneous and intravenous formulations of RELISTOR, Wyeth will continue to develop the oral formulation and to commercialize
all formulations, for which it is capable and responsible. During those periods, the activities of these Committees will be focused on
Wyeth’s development and commercialization obligations.
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: (i) the
milestone payment is non-refundable; (ii) achievement of the milestone involves a degree of risk and was not reasonably assured at the
inception of the arrangement; (iii) substantive effort is involved in achieving the milestone, (iv) the amount of the milestone payment
is reasonable in relation to the effort expended or the risk associated with achievement of the milestone and (v) 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”). During October 2006 and May 2007, we earned $5.0 million and $9.0 million,
respectively, upon achievement of non-refundable milestones anticipated in the Collaboration Agreement with Wyeth; the first in
connection with the commencement of a phase 3 clinical trial of the intravenous formulation of RELISTOR and the second in
connection with the submission and acceptance for review of an NDA for a subcutaneous formulation of RELISTOR with the FDA
and a comparable submission in the European Union. We considered those milestones to be substantive based on the significant
degree of risk at the inception of the Collaboration Agreement related to the conduct and successful completion of clinical trials and,
therefore, of not achieving the milestones; the amount of the payment received relative to the significant costs incurred since inception
of the Collaboration Agreement and amount of effort expended to achieve the milestones; and the passage of ten and seventeen
months, respectively, from inception of the Collaboration Agreement to the achievement of those milestones. Therefore, we
recognized the milestone payments as revenue in the respective periods in which the milestones were earned.
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 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 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 or 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 within one year of the balance sheet date are
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classified as long-term deferred revenue. 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 be
accounted for prospectively and would result in a change in the amount of revenue recognized in future periods.
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 virology and cancer, including pre-clinical 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.
Prior to our acquisition of Cytogen’s membership interest in PSMA LLC on April 20, 2006, both we and Cytogen were
required to fund PSMA LLC equally to support ongoing research and development efforts that we conducted on behalf of PSMA
LLC. We recognized payments for research and development as revenue as services were performed. During the quarter ended March
31, 2006, however, we and Cytogen had not approved a work plan or budget for 2006. Beginning on January 1, 2006, therefore, we
had not been reimbursed by PSMA LLC for our services and we did not recognize revenue from PSMA LLC for the quarter ended
March 31, 2006. Beginning in the second quarter of 2006, PSMA LLC became our wholly owned subsidiary and, accordingly, we no
longer recognize revenue from PSMA LLC.
Share-Based Payment Arrangements
Our share-based compensation to employees includes non-qualified stock options and restricted stock (nonvested shares)
issued under our 1989 Non-Qualified Stock Option Plan, the 1993 Stock Option Plan, the 1996 Amended Stock Incentive Plan and the
2005 Stock Incentive Plan (collectively, the “Plans”) and shares issued under our Employee Stock Purchase Plans (the “Purchase
Plans”), which are compensatory under Statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS No. 123(R)”)
“Share-Based Payment.” We account for share-based compensation to non-employees, including non-qualified stock options and
restricted stock (nonvested shares), in accordance with Emerging Issues Task Force Issue No. 96-18 “Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in Connection with Selling, Goods or Services.”
Historically, in accordance with SFAS No.123 and Statement of Financial Accounting Standards No.148 (“SFAS No. 148”)
“Accounting for Stock-Based Compensation-Transition and Disclosure,” we had elected to follow the disclosure-only provisions of
SFAS No.123 and, accordingly, accounted for share-based compensation under the recognition and measurement principles of APB
Opinion No. 25 (“APB 25”) “Accounting for Stock Issued to Employees” and related interpretations. Under APB 25, when stock
options were 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 was recognized in the financial statements and pro forma compensation expense in accordance
with SFAS No. 123 was only disclosed in the footnotes to the financial statements. The cumulative effect of adjustments upon
adoption of SFAS No. 123(R) was not material. Compensation expense recorded on a pro forma basis for periods prior to adoption of
SFAS No. 123(R) is not revised and is not reflected in the financial statements of those prior periods. Accordingly, there was no effect
of the change from applying the original provisions of SFAS No. 123 on net income, cash flow from operations, cash flows from
financing activities or basic or diluted net loss per share of periods prior to the adoption of SFAS No. 123(R).
We adopted SFAS No. 123(R) using the modified prospective application, under which compensation cost for all share-based
awards that were unvested as of January 1, 2006, the adoption date, and those newly granted or modified after the adoption date will
be recognized in our financial statements over the related requisite service periods; usually the vesting periods for awards with a
service condition. Compensation cost is based on the grant-date fair value of awards that are expected to vest. As of December 31,
2007, there was $14.3 million, $8.6 million and $37,000 of total unrecognized compensation cost related to nonvested stock options
under the Plans, the nonvested shares and the Purchase Plans, respectively. Those costs are expected to be recognized over weighted
average periods of 3.0 years, 2.6 years and 0.5 years, respectively.
We apply a forfeiture rate to the number of unvested awards in each reporting period in order to estimate the number of
awards that are expected to vest. Estimated forfeiture rates are based upon historical data on vesting behavior of employees. We adjust
the total amount of compensation cost recognized for each award, in the period in which each award vests, to reflect the actual
forfeitures related to that award. Changes in our estimated forfeiture rate will result in changes in the rate at which compensation cost
for an award is recognized over its vesting period. We have made an accounting policy decision to use the straight-line method of
attribution of compensation expense, under which the grant date fair value of share-based awards will be recognized on a straight-line
basis over the total requisite service period for the total award.
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Under SFAS No. 123(R), the fair value of each non-qualified stock option award is estimated on the date of grant using the
Black-Scholes option pricing model, which requires input assumptions of stock price on the date of grant, exercise price, volatility,
expected term, dividend rate and risk-free interest rate.
• We use the closing price of our common stock on the date of grant, as quoted on The NASDAQ Stock Market LLC, as
the exercise price.
• Historical volatilities are based upon daily quoted market prices of our common stock on The NASDAQ Stock Market
LLC over a period equal to the expected term of the related equity instruments. We rely only on historical volatility since
it provides the most reliable indication of future volatility. Future volatility is expected to be consistent with historical;
historical volatility is calculated using a simple average calculation method; historical data is available for the length of
the option’s expected term and a sufficient number of price observations are used consistently. Since our stock options
are not traded on a public market, we do not use implied volatility. For the years ended December 31, 2007 , 2006 and
2005, the volatility of our common stock has been high, 50%-89%, 69%-94% and 92%-97% , respectively, which is
common for entities in the biotechnology industry that do not have commercial products. A higher volatility input to the
Black-Scholes model increases the resulting compensation expense.
• The expected term of options granted represents the period of time that options granted are expected to be outstanding.
For the year ended December 31, 2007, our expected term was calculated based upon historical data related to exercise
and post-termination cancellation activity for each of two groups of recipients of stock options: employees, and officers
and directors. Accordingly, for grants made to each of the groups mentioned above, we are using expected terms of 5.25
and 7.5 years, respectively. Expected term for options granted to non-employee consultants was ten years, which is the
contractual term of those options. For the year ended December 31, 2006, our expected term was calculated based upon
the simplified method as detailed in Staff Accounting Bulletin No. 107 (“SAB 107”). Accordingly, we used an expected
term of 6.5 years based upon the vesting period of the outstanding options of four or five years and a contractual term of
ten years. For the year ended December 31, 2005, our expected term of 6.5 years was based upon the average of the
vesting term and the original contractual term. A shorter expected term would result in a lower compensation expense.
• We have never paid dividends and do not expect to pay dividends in the future. Therefore, our dividend rate is zero.
• The risk-free rate for periods within the expected term of the options is based on the U.S. Treasury yield curve in effect
at the time of grant.
A portion of the options granted to our Chief Executive Officer on July 1, 2002, 2003, 2004 and 2005, on July 3, 2006 and on
July 2, 2007 cliff vests after nine years and eleven months from the respective grant date. Vesting of a defined portion of each award
will occur earlier if a defined performance condition is achieved; more than one condition may be achieved in any period. In
accordance with SFAS No. 123(R), at the end of each reporting period, we estimate the probability of achievement of each
performance condition and use those probabilities to determine the requisite service period of each award. The requisite service period
for the award is the shortest of the explicit or implied service periods. In the case of the executive’s options, the explicit service period
is nine years and eleven months from the respective grant dates. The implied service periods related to the performance conditions are
the estimated times for each performance condition to be achieved. Thus, compensation expense will be recognized over the shortest
estimated time for the achievement of performance conditions for that award (assuming that the performance conditions will be
achieved before the cliff vesting occurs). Changes in the estimate of probability of achievement of any performance condition will be
reflected in compensation expense of the period of change and future periods affected by the change.
The fair value of shares purchased under the Purchase Plans was estimated on the date of grant in accordance with FASB
Technical Bulletin No. 97-1 “Accounting under Statement 123 for Certain Employee Stock Purchase Plans with a Look-Back
Option.” The same option valuation model was used for the Purchase Plans as for non-qualified stock options, except that the expected
term for the Purchase Plans is six months and the historical volatility is calculated over the six month expected term.
In applying the treasury stock method for the calculation of diluted earnings per share (“EPS”), amounts of unrecognized
compensation expense and windfall tax benefits are required to be included in the assumed proceeds in the denominator of the diluted
earnings per share calculation unless they are anti-dilutive. We incurred a net loss for the years ended December 31, 2007, 2006 and
2005, and, therefore, such amounts have not been included for those periods in the calculation of diluted EPS since they would be
anti-dilutive. Accordingly, basic and diluted EPS are the same for those periods. We have made an accounting policy decision to
calculate windfall tax benefits/shortfalls for purposes of diluted EPS calculations, excluding the impact of pro forma deferred tax
assets. This policy decision will apply when we have net income.
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Research and Development Expenses Including 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 subjects in the trial, the rate at which the subjects
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. Our collaboration agreement with Wyeth regarding
RELISTOR in which Wyeth has assumed all of the financial responsibility for further development will mitigate those costs. In
addition to clinical trial expenses, we estimate the amounts of other research and development expenses, for which invoices have not
been received at the end of a period, based upon communication with third parties that have provided services or goods during the
period.
Impact of Recently Issued Accounting Standards
On September 15, 2006, the FASB issued FASB Statement No. 157 (“FAS 157”) “Fair Value Measurements,” which
addresses how companies should measure the fair value of assets and liabilities when they are required to use a fair value measure for
recognition or disclosure purposes under generally accepted accounting principles. FAS 157 does not expand the use of fair value in
any new circumstances. Under FAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants in the market in which the reporting entity transacts. FAS 157 clarifies
the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In
support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those
assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to
unobservable data, for example, the reporting entity’s own data. FAS 157 requires disclosures intended to provide information about
(i) the extent to which companies measure assets and liabilities at fair value, (ii) the methods and assumptions used to measure fair
value, and (iii) the effect of fair value measures on earnings. We adopted FAS 157 on January 1, 2008 for all financial assets and
liabilities and recurring non-financial assets and liabilities that are carried at fair value. Adoption of FAS 157 for all non-recurring
non-financial assets and liabilities that are carried at fair value (such as in the determination of impairment of fixed assets or goodwill)
will occur on January 1, 2009. We do not expect the impact of the adoption of FAS 157 to be material to our financial position or
results of operations.
In February 2007, the FASB issued FASB Statement No. 159 (“FAS 159”) “The Fair Value Option for Financial Assets and
Financial Liabilities,” which provides companies with an option to report certain financial assets and liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. The objective of FAS 159 is to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. FAS 159 is
effective for fiscal years beginning after November 15, 2007. We do not expect the impact of the adoption of FAS 159 to be material
to our financial position or results of operations since we do not currently have any financial assets or liabilities that are subject to
FAS 159.
The Emerging Issues Task Force reached a final consensus on Issue 07-1 (“EITF 07-1”) “Accounting for Collaborative
Arrangements.” This issue affects entities that have entered into arrangements which are not conducted through a separate legal entity.
The Task Force reached a conclusion that a collaborative arrangement is within the scope of EITF 07-1 if (i) the parties are active
participants in the arrangement and (ii) the participants are exposed to significant risks and rewards that depend on the endeavor’s
ultimate commercial success. The Task Force also reached a conclusion that transactions with third parties (i.e., revenue generated and
costs incurred by the partners) should be reported in the appropriate line item in each company’s financial statement pursuant to the
guidance in EITF 99-19 “Reporting Revenue Gross as a Principal versus Net as an Agent” or other applicable generally acceptable
accounting principle applied consistently. The Task Force also concluded that the equity method of accounting under Accounting
Principles Board Opinion 18, “The Equity Method of Accounting for Investments in Common Stock,” should not be applied to
arrangements that are not conducted through a separate legal entity. The guidance in EITF 07-1 will be effective for periods that begin
after December 15, 2008 and be accounted for as a change in accounting principle through retrospective application. We do not expect
the impact of the adoption of EITF 07-01 to be a material to our financial position or results of operations.
On September 27, 2007, the FASB reached a final consensus on Emerging Issues Task Force Issue 07-3 (“EITF 07-03”)
“Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities.” Currently,
under FASB Statement No. 2, “Accounting for Research and Development Costs,” non-refundable advance payments for future
research and development activities for materials, equipment, facilities and purchased intangible assets that have no alternative future
use are expensed as incurred. EITF 07-03 addresses whether such non-refundable advance payments for goods or services that have no
alternative future use and that will be used or rendered for research and development activities should be expensed when the advance
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payments are made or when the research and development activities have been performed. The consensus reached by the FASB
requires companies involved in research and development activities to capitalize such non-refundable advance payments for goods and
services pursuant to an executory contractual arrangement because the right to receive those services in the future represents a
probable future economic benefit. Those advance payments will be capitalized and expensed as the goods are delivered or the related
services are performed. Entities will be required to evaluate whether they expect the goods or services to be rendered. If an entity does
not expect the goods to be delivered or services to be rendered, the capitalized advance payment will be charged to expense. The
consensus on EITF 07-03 is effective for financial statements issued for fiscal years beginning after December 15, 2007, and interim
periods within those fiscal years. Earlier application is not permitted. Entities are required to recognize the effects of applying the
guidance in EITF 07-03 prospectively for new contracts entered into after the effective date. We do not expect the impact of the
adoption of EITF 07-03 to be material to our financial position or results of operations.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007) (“SFAS No.
141(R)”) “Business Combinations,” which supersedes Statement of Financial Accounting Standards No. 141 (“SFAS No. 141”)
“Business Combinations.” SFAS No. 141(R) applies to all transactions or other events in which an entity (the acquirer) obtains control
of one or more businesses (acquiree). SFAS No. 141(R) retains the fundamental requirements in SFAS No.141 that the acquisition
method of accounting be used for all business combinations and for an acquirer to be identified for each business combination.
However, many of the provisions of SFAS No. 141(R) are different from those of SFAS No. 141, such as the establishment of the
acquisition date as the date that the acquirer achieves control rather than the date assets and liabilities are transferred. In addition,
SFAS No. 141(R) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions, as specified. That replaces SFAS
No.141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and
liabilities assumed based on their estimated fair values. Among the amendments that SFAS No. 141(R) makes to existing authoritative
guidance, it supersedes FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for
by the Purchase Method,” which required research and development assets acquired in a business combination that have no alternative
future use to be measured at their acquisition-date fair values and then immediately charged to expense. Under SFAS No. 141(R), the
acquirer will recognize separately from goodwill the acquisition-date fair values of research and development assets acquired in a
business combination as long-lived intangible assets. Those assets are subject to testing for impairment, such as completion or
abandonment of an acquired research project, at which time the impaired asset will be expensed. SFAS No. 141(R) provides guidance
on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS
No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of fiscal years
beginning on or after December 15, 2008. An entity may not apply it before that date. We expect that the adoption of SFAS No.
141(R) will have a material impact on our financial position and results of operations in the event that we enter into a business
combination that falls within the scope of this pronouncement.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (“SFAS No. 160”)
“Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” which establishes accounting and
reporting standards for a noncontrolling interest (previously referred to as a minority interest) in a subsidiary and for the
deconsolidation of a subsidiary. A noncontrolling interest is the portion of equity in a subsidiary not attributable, directly or indirectly,
to a parent. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements. Before SFAS No. 160 was issued, limited guidance existed for
reporting noncontrolling interests, which were reported in the consolidated statement of financial position as liabilities or in the
mezzanine section between liabilities and equity. SFAS No. 160 establishes accounting and reporting standards that require (a) the
ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated
statement of financial position within equity, but separate from the parent’s equity; (b) the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement
of income; (c) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be
accounted for consistently; (d) when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value; (e) the gain or loss on the deconsolidation of the subsidiary is measured using the fair
value of any noncontrolling equity investment rather than the carrying amount of that retained investment and (f) entities provide
sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling
owners. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2008; earlier adoption is prohibited. SFAS No. 160 will be applied prospectively as of the beginning of the fiscal year in which it is
initially applied, except for the presentation and disclosure requirements, which will be applied retrospectively for all periods
presented. We will evaluate the impact of the adoption of SFAS No. 160 if there are noncontrolling interests in future business
combinations.
48
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 ARS, corporate notes and issues of government-sponsored entities. Our investments totaled $164.2
million at December 31, 2007. Approximately $122.3 million of these investments had fixed interest rates, and $41.9 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, 2007 market interest rates would result in a
decrease of approximately $0.094 million in the market values of these investments.
At December 31, 2007, we did not hold any market risk sensitive instruments.
Our marketable securities, which include corporate debt securities, securities of government-sponsored entities and auction
rate securities (“ARS”), are classified as available for sale. The ARS that we purchase consist of municipal bonds with maturities
greater than five years and, in accordance with our investment guidelines, have credit ratings of at least Aa3/AA-, and do not include
mortgage-backed instruments. As of December 31, 2007, we had not experienced failed auctions of our ARS due to lack of investor
interest.
The auction process for ARS historically provided a liquid market for these securities. In the second half of 2007, however,
this process began to deteriorate. During the first quarter of 2008, we began to reduce the principal amount of ARS in our portfolio
from $38.8 million at 2007 year-end. While our portfolio was not affected by the auction process deterioration in 2007, some of the
ARS we hold experienced auction failures during the first quarter of 2008. As a result, when we attempted to liquidate them through
auction, we were unable to do so as to approximately $10.1 million principal amount, which we continue to hold. In the event of an
auction failure, the interest rate on the security is reset according to the contractual terms in the underlying indenture. As of March 14,
2008, we have received all scheduled interest payments associated with these securities.
The funds associated with failed auctions will not be accessible until a successful auction occurs, the issuer calls or
restructures the underlying security, the underlying security matures and is paid or a buyer outside the auction process emerges. We
believe that the failed auctions experienced to date are not a result of the deterioration of the underlying credit quality of these
securities, although valuation of them is subject to uncertainties that are difficult to predict, such as changes to credit ratings of the
securities and/or the underlying assets supporting them, default rates applicable to the underlying assets, underlying collateral value,
discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. We believe that any unrealized gain
or loss associated with these securities will be temporary and will be recorded in accumulated other comprehensive income (loss) in
our financial statements.
The credit and capital markets have continued to deteriorate in 2008. Continuation or acceleration of the current instability in
these markets and/or deterioration in the ratings of our investments may affect our ability to liquidate these securities, and therefore
may affect our financial condition, cash flows and earnings. We believe that based on our current cash, cash equivalents and
marketable securities balances of $170.4 million at December 31, 2007, the current lack of liquidity in the credit and capital markets
will not have a material impact on our liquidity, cash flows, financial flexibility or ability to fund our obligations.
We continue to monitor the market for auction rate securities and consider its impact (if any) on the fair market value of our
investments. If the current market conditions continue, in which some auctions for ARS fail, or the anticipated recovery in market
values does not occur, we may be required to record unrealized losses or impairment charges in 2008. As auctions have closed
successfully, we have converted our investments in ARS to money market funds. We believe we will have the ability to hold any
auction rate securities for which auctions fail until the market recovers. We do not anticipate having to sell these securities in order to
operate our business.
Item 8. Financial Statements and Supplementary Data
See page F-1, “Index to Consolidated Financial Statements.”
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
49
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, 2007 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:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
our assets;
• 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
• 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.
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 Control – Integrated 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, 2007. The effectiveness of our internal control over financial reporting as of December 31, 2007 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
50
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item (other than the information set forth in the next paragraph of this Item 10) will be
included under the captions “Election of Directors,” “Board and Committee Meetings,” “Executive Officers of the Company,”
“Section 16(a) Beneficial Ownership Reporting and Compliance,” and “Code of Business Ethics and Conduct” in our definitive proxy
statement with respect to our 2008 Annual Meeting of Shareholders to be filed with the SEC (our “2008 Proxy Statement”).
We have adopted a code of business conduct and ethics that applies to our officers, directors and employees. The full text of
our code of business conduct and ethics can be found on the Company’s website (http://www.progenics.com) under the Investor
Relations heading.
Item 11. Executive Compensation
The information called for by this item will be included under the captions “Executive Compensation,” “Compensation
Committee Report” and “Compensation Committee Interlocks and Insider Participation” in our 2008 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this item will be included under the captions “Equity Compensation Plan Information” and
“Security Ownership of Certain Beneficial Owners and Management” in our 2008 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this item will be included under the captions “Certain Relationships and Related Transactions”
and “Affirmative Determinations Regarding Director Independence and Other Matters” in our 2008 Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information called for by this item will be included under the caption “Fees Billed for Services Rendered by our
Independent Registered Public Accounting Firm” and “Pre-approval of Audit and Non-Audit Services by the Audit Committee” in our
2008 Proxy Statement.
51
Item 15. Exhibits, Financial Statement Schedules
PART IV
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, 2006 and 2007
Consolidated Statements of Operations for the years ended December 31, 2005, 2006 and 2007
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for the years ended December 31, 2005,
2006 and 2007
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2006 and 2007
Notes to 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 herein by reference.
52
PROGENICS PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets at December 31, 2006 and 2007
Consolidated Statements of Operations for the years ended December 31, 2005, 2006 and 2007
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss
for the years ended December 31, 2005, 2006 and 2007
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2006 and 2007
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Progenics Pharmaceuticals, Inc.:
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. and its subsidiaries at December 31, 2007
and 2006, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Also
in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for
these financial statements and for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control
Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial
statements, and on the Company's internal control over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included 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. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 and Note 14, respectively, to the consolidated financial statements, the Company changed the
manner in which it accounts for share-based compensation in 2006 and the manner in which it accounts for uncertainties
in income taxes in 2007.
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 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.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 13, 2008
F-2
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for par value and share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable
Other current assets
Total current assets
Marketable securities
Fixed assets, at cost, net of accumulated depreciation and amortization
Restricted cash
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
Deferred revenue ⎯ current
Other current liabilities
Total current liabilities
Deferred revenue —long term
Other liabilities
Total liabilities
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $.001 par value; 20,000,000 shares authorized; issued, and
outstanding—none
Common stock, $.0013 par value; 40,000,000 shares authorized; issued and
outstanding— 26,199,016 in 2006 and 29,753,820 in 2007
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive (loss) income
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2006
2007
$ 11,947
113,841
1,699
3,181
130,668
23,312
11,387
544
$ 165,911
$ 10,423
120,000
1,995
3,111
135,529
39,947
13,511
552
$ 189,539
$ 11,852
26,989
38,841
16,101
123
55,065
$ 14,765
17,728
57
32,550
9,131
359
42,040
34
321,315
(210,358)
(145)
110,846
$ 165,911
39
401,500
(254,046)
6
147,499
$ 189,539
The accompanying notes are an integral part of the financial statements.
F-3
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for loss per share data)
Revenues:
Research and development from collaborator
Research and development from joint venture
Research grants and contracts
Product sales
Total revenues
Expenses:
Research and development
In-process research and development
License fees — research and development
General and administrative
Loss in joint venture
Depreciation and amortization
Total expenses
Operating loss
Other income:
Interest income
Net loss before income taxes
Income taxes
Net loss
Net loss per share — basic and diluted
Weighted-average shares — basic and diluted
Years Ended December 31,
2005
2006
2007
$ 58,415
$ 65,455
$ 988
8,432
66
9,486
43,419
20,418
13,565
1,863
1,748
81,013
(71,527)
2,299
(69,228)
(201)
$ (69,429)
$ (3.33)
20,864
11,418
73
69,906
61,711
13,209
390
22,259
121
1,535
99,225
(29,319)
7,701
(21,618)
10,075
116
75,646
95,123
1,053
27,901
3,027
127,104
(51,458)
7,770
(43,688)
$ (21,618)
$ (43,688)
$ (0.84)
25,669
$ (1.60)
27,378
The accompanying notes are an integral part of the financial statements.
F-4
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2005, 2006 and 2007
(in thousands)
Balance at December 31, 2004
Issuance of restricted stock, net of
forfeited shares, and compensatory
stock options to employees
Amortization of unearned
compensation – employees
Issuance of compensatory stock
options to non-employees
Sale of common stock under
employee stock purchase plans and
exercise of stock options
Sale of common stock in public
offerings, net of offering expenses
of $4,768
Issuance of common stock for
license rights (see Note 10)
Net loss for the year ended
December 31, 2005
Change in unrealized gain on
marketable securities
Balance at December 31, 2005
Compensation expense for vesting
of share-based payment
arrangements
Issuance of restricted stock, net of
forfeitures
Sale of common stock under
employee stock purchase plans and
exercise of stock options
Issuance of compensatory stock
options to non-employees
Elimination of unearned
compensation upon adoption of
SFAS No. 123(R)
Net loss for the year ended
December 31, 2006
Change in unrealized loss on
marketable securities
Balance at December 31, 2006
Compensation expense for vesting
of share-based payment
arrangements
Issuance of restricted stock, net of
forfeitures
Sale of common stock in a public
offering ($23.15 per share, net of
underwriting discounts and
commissions and other offering
expenses of $3,112) (see Note 8)
Sale of common stock under
employee stock purchase plans and
exercise of stock options
Repurchase of restricted stock
Net loss for the year ended
December 31, 2007
Change in unrealized loss on
marketable securities
Balance at December 31, 2007
Common Stock
Shares
17,281
Amount
$22
Additional
Paid-in
Capital
$153,469
Unearned
Compensation
$(2,251)
Accumulated
Deficit
$(119,311)
Accumulated
Other
Comprehensive
Income (Loss)
$(91)
134
4,125
(4,125)
1,878
821
6,307
686
1
9
1
640
10,467
121,546
15,838
Comprehensive
(Loss)
Total
$31,838
1,878
640
10,468
121,555
15,839
25,229
33
306,085
(4,498)
(188,740)
(57)
(148)
(57)
112,732
(57)
(69,486)
(69,429)
(69,429)
$(69,429)
228
742
12,034
1
7,074
620
12,034
7,075
620
(4,498)
4,498
26,199
34
321,315
0
(210,358)
3
(145)
3
3
110,846
(21,615)
(21,618)
(21,618)
(21,618)
267
2,600
688
3
2
15,306
57,075
7,823
(19)
15,306
57,078
7,825
(19)
(43,688)
(43,688)
(43,688)
151
151
151
29,754
$39
$401,500
$0
$(254,046)
$6
$147,499
$(43,537)
The accompanying notes are an integral part of the financial statements.
F-5
PROGENICS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization
Write-off of fixed assets
Amortization of discounts, net of premiums, on marketable securities
Amortization of unearned compensation
Noncash expenses incurred in connection with vesting of share-based
compensation awards
Expense of purchased technology (see Note 12c)
Loss in joint venture
Adjustment to loss in joint venture (See Note 12b)
Purchase of license rights for common stock (see Note 10)
Changes in assets and liabilities, net of effects of purchase of PSMA LLC:
(Increase) decrease in accounts receivable
Decrease in amount due from joint venture
(Increase) decrease in other current assets and other assets
Increase in accounts payable and accrued expenses
Increase (decrease) in due to joint venture
(Increase) decrease in investment in joint venture
Increase (decrease) in other current liabilities
Increase (decrease) in deferred revenue
Increase in other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Capital expenditures
Purchases of marketable securities
Sales of marketable securities
Acquisition of PSMA LLC, net of cash acquired (see Note 12c)
Increase in restricted cash
Net cash (used in) investing activities
Cash flows from financing activities:
Proceeds from the sale of common stock in a public offering (see Note 8)
Expenses related to the sale of common stock in a public offering
Proceeds from the exercise of stock options and sale of Common Stock
under the Employee Stock Purchase Plans
Repurchase of restricted stock
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of noncash investing activity:
Years Ended December 31,
2005
2006
2007
$ (69,429)
$ (21,618)
$ (43,688)
1,748
270
1,878
640
1,863
1,311
15,839
(2,175)
189
(751)
2,978
194
(3,950)
790
60,000
7
11,402
(1,212)
(205,301)
124,936
(3)
(81,580)
126,323
(4,768)
10,468
132,023
61,845
5,227
$ 67,072
1,535
2
9
12,654
13,209
121
1,588
(620)
1,533
(194)
250
(790)
(16,910)
74
(9,157)
(8,768)
(299,075)
267,934
(13,128)
(6)
(53,043)
3,027
(445)
15,306
(296)
70
2,913
57
(16,231)
236
(39,051)
(5,151)
(275,048)
252,850
(8)
(27,357)
60,190
(3,112)
7,075
7,825
(19)
64,884
(1,524)
11,947
$ 11,947 $ 10,423
7,075
(55,125)
67,072
Fair value of assets, including purchased technology, acquired from PSMA LLC
(see Note 12c)
Cash paid for acquisition of PSMA LLC
Liabilities assumed from PSMA LLC
$ 13,674
(13,459)
$ 215
The accompanying notes are an integral part of the financial statements.
F-6
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” or “Progenics”) 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 gastroenterology,
virology and oncology. The Company was incorporated in Delaware on December 1, 1986 and commenced principal operations in
late 1988. On April 20, 2006, the Company acquired full ownership of PSMA Development Company LLC (“PSMA LLC”) by
acquiring from Cytogen Corporation (“Cytogen”) its 50% interest in PSMA LLC (see Note 12c). Certain of the Company’s
intellectual property rights are held by wholly owned subsidiaries of Progenics. None of the Company’s subsidiaries, other than
PSMA LLC, had operations during the years ended December 31, 2005, 2006 or 2007. Currently, all of the Company’s operations
are conducted at one location in New York State. The Company’s chief operating decision maker reviews financial analyses and
forecasts relating to all of the Company’s research programs as a single unit and allocates resources and assesses performance of
such programs as a whole. Therefore, the Company operates under a single research and development segment.
The Company’s lead product candidate is methylnaltrexone. Both the U.S. Food and Drug Administration (“FDA”) and
the European Medicines Agency have provisionally accepted the name RELISTORTM as the proprietary name for
methylnaltrexone. The Company has entered into a license and co-development agreement (“Collaboration Agreement”) with
Wyeth Pharmaceuticals (“Wyeth”) for the development and commercialization of RELISTOR (see Note 9). Under that agreement,
the Company (i) has received an upfront payment from Wyeth, (ii) has received, and is entitled to receive further, additional
payments as certain developmental milestones for RELISTOR are achieved, (iii) has been and will be reimbursed by Wyeth for
expenses the Company incurs in connection with the development of RELISTOR under the development plan for RELISTOR
agreed to between the Company and Wyeth and (iv) will receive commercialization payments and royalties if, and when,
RELISTOR is sold. These payments will depend on the successful development and commercialization of RELISTOR, which is
itself dependent on the actions of Wyeth and the FDA and other regulatory bodies and the outcome of clinical and other testing of
RELISTOR. Many of these matters are outside the control of the Company. Manufacturing and commercialization expenses for
RELISTOR will be funded by Wyeth.
During March 2007, the Company submitted a New Drug Application to the FDA for marketing approval in the United
States for a subcutaneous formulation of RELISTOR for the treatment of opioid-induced constipation in patients receiving
palliative care. In May 2007, Wyeth submitted a regulatory marketing application in the European Union for the subcutaneous
formulation in the same patient population. Both applications were accepted for review in May 2007, which resulted in the
Company earning a total of $9.0 million in milestone payments under its Collaboration Agreement with Wyeth. The FDA review
is expected to be completed by its Prescription Drug User Fee Act (“PDUFA”) date of April 30, 2008. Wyeth has also submitted
marketing applications for the subcutaneous formulation in Australia and Canada. The Company and Wyeth are also developing
intravenous and oral formulations of RELISTOR.
The Company’s other product candidates, including those for treatment of Human Immunodeficiency virus (“HIV”)
infection, therapy for prostate cancer involving prostate-specific membrane antigen (“PSMA”) and treatment of Hepatitis C virus
(“HCV”) infection, are not as advanced in development as RELISTOR, and the Company does not expect any recurring revenues
from sales or otherwise with respect to these product candidates in the near term. As a result of Wyeth’s agreement to reimburse
Progenics for RELISTOR development expenses, the Company is able to devote its current and future resources to its other
research and development programs.
As a result of its development expenses and other needs, the Company may require additional funding to continue its
operations. The Company may enter into a collaboration agreement, or a license or sale transaction, with respect to its product
candidates other than RELISTOR. The Company may also seek to raise additional capital through the sale of its common stock or
other securities and expects to fund certain aspects of its operations through government grants and contracts.
On September 25, 2007, the Company received $57.1 million, net of underwriting discounts and offering expenses, from
the sale of 2.6 million shares of its common stock in a public offering. 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.
The Company has had recurring losses. At December 31, 2007, the Company had cash, cash equivalents and marketable
securities, including non-current portion, totaling $170.4 million. The Company expects that cash, cash equivalents and marketable
securities at December 31, 2007 will be sufficient to fund current operations beyond one year. During the year ended December
F-7
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
31, 2007, the Company had a net loss of $43.7 million and cash used in operating activities was $39.1 million.
Pending use in its business, the Company’s revenues and proceeds of financing activities are held in cash, cash
equivalents and marketable securities. Its marketable securities, which include corporate debt securities, securities of government-
sponsored entities and auction rate securities (“ARS”), are classified as available for sale. The ARS the Company purchases
consist of municipal bonds with maturities greater than five years and, in accordance with its investment guidelines, have credit
ratings of at least Aa3/AA-, and do not include mortgage-backed instruments. As of December 31, 2007, Progenics had not
experienced failed auctions of its ARS due to lack of investor interest.
The auction process for ARS historically provided a liquid market for these securities. In the second half of 2007,
however, this process began to deteriorate. During the first quarter of 2008, Progenics began to reduce the principal amount of
ARS in its portfolio from $38.8 million at 2007 year-end. While its portfolio was not affected by the auction process deterioration
in 2007, some of the ARS the Company holds experienced auction failures during the first quarter of 2008. As a result, when the
Company attempted to liquidate them through auction, it was unable to do so as to approximately $10.1 million principal amount,
which it continues to hold. In the event of an auction failure, the interest rate on the security is reset according to the contractual
terms in the underlying indenture. As of March 14, 2008, Progenics has received all scheduled interest payments associated with
these securities.
The funds associated with failed auctions will not be accessible until a successful auction occurs, the issuer calls or
restructures the underlying security, the underlying security matures and is paid or a buyer outside the auction process emerges.
The Company believes that the failed auctions experienced to date are not a result of the deterioration of the underlying credit
quality of these securities, although valuation of them is subject to uncertainties that are difficult to predict, such as changes to
credit ratings of the securities and/or the underlying assets supporting them, default rates applicable to the underlying assets,
underlying collateral value, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity.
Progenics believes that any unrealized gain or loss associated with these securities will be temporary and will be recorded in
accumulated other comprehensive income (loss) in its financial statements.
The credit and capital markets have continued to deteriorate in 2008. Continuation or acceleration of the current
instability in these markets and/or deterioration in the ratings of the Company’s investments may affect its ability to liquidate these
securities, and therefore may affect its financial condition, cash flows and earnings. Progenics believes that based on its current
cash, cash equivalents and marketable securities balances of $170.4 million at December 31, 2007, the current lack of liquidity in
the credit and capital markets will not have a material impact on its liquidity, cash flows, financial flexibility or ability to fund its
obligations.
Progenics continues to monitor the market for auction rate securities and consider its impact (if any) on the fair market
value of its investments. If the current market conditions continue, in which some auctions for ARS fail, or the anticipated
recovery in market values does not occur, the Company may be required to record unrealized losses or impairment charges in
2008. As auctions have closed successfully, the Company has converted its investments in ARS to money market funds. Progenics
believes it will have the ability to hold any auction rate securities for which auctions fail until the market recovers. It does not
anticipate having to sell these securities in order to operate its business.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of Progenics, as of and for the years ended December 31,
2005, 2006 and 2007, the balance sheet accounts of PSMA LLC as of December 31, 2006 and 2007 and the statement of
operations accounts of PSMA LLC from April 20, 2006 to December 31, 2006 and for the year ended December 31, 2007 (see
Notes 1 and 12c). Inter-company transactions have been eliminated in consolidation. The Company will consolidate the accounts
of PSMA LLC and the Company’s other majority owned subsidiaries that have operating results in future periods.
F-8
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
Revenue Recognition
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”) “Accounting for Revenue Arrangements with Multiple Deliverables” and EITF Issue No. 99-19 (“EITF 99-19”) “Reporting
Revenue Gross as a Principal Versus Net as an Agent.” During the years ended December 31, 2006 and 2007, the Company
recognized revenue from its collaboration agreement with Wyeth (see Note 9), from government research grants and contracts,
which are used to subsidize a portion of certain of its research projects (“Projects”), exclusively from the National Institutes of
Health (the “NIH”) and from the sale of research reagents. During the year ended December 31, 2005, the Company recognized
revenue from government grants and contracts, research and development revenue exclusively from PSMA LLC (see Note 12) and
from the sale of research reagents.
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 or other committee services, can be separated 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 or other 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 upfront license
payments would be recognized as revenue over the estimated period of when the Company’s performance obligations are
performed.
The Company must determine the period over which its 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 (as may be estimated in the
most current budget approved by both the collaborator and the Company) for all of the Company’s performance obligations under
the arrangement. Significant judgment is required in determining the nature and assignment of tasks to be accomplished by each of
the parties and the level of effort required for the Company to complete its performance obligations under the arrangement. The
nature and assignment of tasks to be performed by each party involves the preparation, discussion and approval by the parties of a
development plan and budget. When a new budget is approved, generally annually, the remaining unrecognized amount of the
upfront license fee will be recognized prospectively, using the methodology described above and applying any changes in the total
estimated effort or period of development that is specified in the revised approved budget. If a collaborator terminates an
agreement in accordance with the terms of the agreement, the Company would recognize any unamortized remainder of an upfront
payment at the time of the termination.
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.
If the Company is involved in a steering or other committee as part of a multiple element arrangement, the Company will
assess whether its involvement constitutes a performance obligation or a right to participate. For those committees that are deemed
obligations, the Company will evaluate its participation along with other obligations in the arrangement and will attribute revenue
to its participation through the period of its committee responsibilities.
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: (i)
the milestone payment is non-refundable; (ii) achievement of the milestone involves a degree of risk and was not reasonably
assured at the inception of the arrangement; (iii) substantive effort is involved in achieving the milestone, (iv) the amount of the
milestone payment is reasonable in relation to the effort expended or the risk associated with achievement of the milestone and (v)
F-9
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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 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 our 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 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 or
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 within one year of the balance sheet date are
classified as long-term deferred revenue. The estimate of the classification of deferred revenue as short-term or long-term is based
upon management’s current operating budget for the 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 be
accounted for prospectively and would result in a change in the amount of revenue recognized in future periods.
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 virology and cancer, including pre-clinical 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.
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 purchase of in-process research and development, 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, pre-clinical development and clinical trials. All costs associated with research and
development are expensed as incurred.
For each clinical trial that the Company conducts, certain costs, which are included in research and development
expenses, are expensed based on the total number of subjects in the trial, the estimated rate at which subjects enter the trial, and the
estimated 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.
F-10
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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 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, the amount of non-cash compensation costs related to share-based payments to
employees and non-employees and the periods over which those costs are expensed and the likelihood of realization of deferred
tax assets.
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
(“SFAS No.128”) “Earnings Per Share.” 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, amounts of unrecognized compensation expense and windfall tax benefits 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 Wyeth and the NIH. The Company invests its excess cash in taxable
auction rate securities, corporate notes and federal agency issues. The Company has established guidelines that relate to credit
quality, diversification and maturity and that limit exposure to any one issue of securities. The Company holds no collateral for
these financial instruments.
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, 2006 and 2007, the Company had
invested approximately $6,408 and $4,249 respectively, in cash equivalents in the form of money market funds with two major
investment companies and held approximately $5,539 and $6,174, 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 (loss). 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 4).
At December 31, 2006 and 2007, the Company’s investment in marketable securities in the current assets section of the
consolidated balance sheets included $29.0 million and $38.8 million, respectively, of ARS. 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
F-11
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
7 to 35 days, and, despite the long-term nature of their stated contractual maturities, in the past the Company had the ability to
quickly liquidate these securities. As a result, the Company had no cumulative gross unrealized holding gains (or losses) or gross
realized gains (or losses) from these securities in the periods presented. All income generated from these current investments was
recorded as interest income. (see Note 4).
The auction process for ARS historically provided a liquid market for these securities. In the second half of 2007,
however, this process began to deteriorate. During the first quarter of 2008, Progenics began to reduce the principal amount of
ARS in its portfolio from $38.8 million at 2007 year-end. While its portfolio was not affected by the auction process deterioration
in 2007, some of the ARS the Company holds experienced auction failures during the first quarter of 2008. As a result, when the
Company attempted to liquidate them through auction, it was unable to do so as to approximately $10.1 million principal amount,
which it continues to hold. In the event of an auction failure, the interest rate on the security is reset according to the contractual
terms in the underlying indenture. As of March 14, 2008, Progenics has received all scheduled interest payments associated with
these securities.
The funds associated with failed auctions will not be accessible until a successful auction occurs, the issuer calls or
restructures the underlying security, the underlying security matures and is paid or a buyer outside the auction process emerges.
The Company believes that the failed auctions experienced to date are not a result of the deterioration of the underlying credit
quality of these securities, although valuation of them is subject to uncertainties that are difficult to predict, such as changes to
credit ratings of the securities and/or the underlying assets supporting them, default rates applicable to the underlying assets,
underlying collateral value, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity.
Progenics believes that any unrealized gain or loss associated with these securities will be temporary and will be recorded in
accumulated other comprehensive income (loss) in its financial statements.
The credit and capital markets have continued to deteriorate in 2008. Continuation or acceleration of the current
instability in these markets and/or deterioration in the ratings of the Company’s investments may affect its ability to liquidate these
securities, and therefore may affect its financial condition, cash flows and earnings. Progenics believes that based on its current
cash, cash equivalents and marketable securities balances of $170.4 million at December 31, 2007, the current lack of liquidity in
the credit and capital markets will not have a material impact on its liquidity, cash flows, financial flexibility or ability to fund its
obligations.
Progenics continues to monitor the market for auction rate securities and consider its impact (if any) on the fair market
value of its investments. If the current market conditions continue, in which some auctions for ARS fail, or the anticipated
recovery in market values does not occur, the Company may be required to record unrealized losses or impairment charges in
2008. As auctions have closed successfully, the Company has converted its investments in ARS to money market funds. Progenics
believes it will have the ability to hold any auction rate securities for which auctions fail until the market recovers. It does not
anticipate having to sell these securities in order to operate its business.
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
Machinery and equipment
Furniture and fixtures
Leasehold improvements
3 years
5-7 years
5 years
Earlier of life of improvement or lease
F-12
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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. No impairments occurred as of December 31, 2005, 2006 or 2007.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting
Standards No.109 (“SFAS No.109”) “Accounting for Income Taxes,” 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.
In connection with the adoption of SFAS No. 123(R) “Share-Based Payment” (see Note 3), the Company has made a
policy decision related to intra-period tax allocation, to account for utilization of windfall tax benefits based on provisions in the
tax law that identify the sequence in which amounts of tax benefits are used for tax purposes (i.e., tax law ordering).
Uncertain tax positions are accounted for in accordance with FASB Interpretation No. 48 (“FIN 48”) “Accounting for
Uncertainty in Income Taxes—an Interpretation of FASB Statement 109,” which was adopted on January 1, 2007. FIN 48
prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its
financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. FIN 48
applies to income taxes and is not intended to be applied by analogy to other taxes, such as sales taxes, value-add taxes, or property
taxes. The Company reviews its nexus in various tax jurisdictions and its tax positions related to all open tax years for events that could
change the status of its FIN 48 liability, if any, or require an additional liability to be recorded. Such events may be the resolution of
issues raised by a taxing authority, expiration of the statute of limitations for a prior open tax year or new transactions for which a tax
position may be deemed to be uncertain. Those positions, for which management’s assessment is that there is more than a 50 percent
probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subjected to the
measurement criteria of FIN 48. The Company records the largest amount of tax benefit that is greater than 50 percent likely of
being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. Any FIN 48
liabilities for which the Company expects to make cash payments within the next twelve months are classified as “short term.” In the
event that the Company concludes that it is subject to interest and/or penalties arising from uncertain tax positions, the Company will
record interest and penalties as a component of income taxes (see Note 14).
Risks and Uncertainties
The Company has no products approved by the FDA 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. In accordance with its collaboration agreement with Wyeth, the Company has transferred to Wyeth the
responsibility for manufacturing RELISTOR for clinical and commercial use in both bulk and finished form. Wyeth may not be
able to fulfill its manufacturing obligations, either on its own or through third-party suppliers. For the years ended December 31,
2007 and 2006, the primary sources of the Company’s revenues were Wyeth and research grants and contract revenues from the
NIH. For the year ended December 31, 2005, the primary sources of the Company’s revenues were research and development
revenue from PSMA LLC and research grants and contract revenue from the NIH. There can be no assurance that revenues from
Wyeth or from research grants and contract will continue. Beginning on January 1, 2006, the Company was no longer reimbursed
by PSMA LLC for its services and the Company did not recognize revenue from PSMA LLC for the quarter ended March 31,
2006. Beginning in the second quarter of 2006, PSMA LLC became the Company’s wholly owned subsidiary and, accordingly, the
F-13
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
Company no longer recognizes revenue from PSMA LLC. Substantially all of the Company’s accounts receivable at December 31,
2006 and 2007 were from the above-named sources.
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, 2005, 2006 and 2007 have been
included in the Statements of Stockholders’ Equity and Comprehensive Loss. There was no income tax expense/benefit allocated
to any component of Other Comprehensive Loss (see Note 14).
Impact of Recently Issued Accounting Standards
On September 15, 2006, the FASB issued FASB Statement No. 157 (“FAS 157”) “Fair Value Measurements,” which
addresses how companies should measure the fair value of assets and liabilities when they are required to use a fair value measure
for recognition or disclosure purposes under generally accepted accounting principles. FAS 157 does not expand the use of fair
value in any new circumstances. Under FAS 157, fair value refers to the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. FAS
157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset
or liability. In support of this principle, the standard establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest
priority to unobservable data, for example, the reporting entity’s own data. FAS 157 requires disclosures intended to provide
information about (i) the extent to which companies measure assets and liabilities at fair value, (ii) the methods and assumptions
used to measure fair value and (iii) the effect of fair value measures on earnings. The Company adopted FAS 157 on January 1,
2008 for all financial assets and liabilities and recurring non-financial assets and liabilities that are carried at fair value. Adoption
of FAS 157 for all non-recurring non-financial assets and liabilities that are carried at fair value (such as in the determination of
impairment of fixed assets or goodwill) will occur on January 1, 2009. The Company does not expect the impact of the adoption of
FAS 157 to be material to its financial position or results of operations.
In February, 2007, the FASB issued FASB Statement No. 159 (“FAS 159”) “The Fair Value Option for Financial Assets
and Financial Liabilities,” which provides companies with an option to report certain financial assets and liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. The objective of FAS 159 is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently.
FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the impact of the adoption
of FAS 159 to be material to its financial position or results of operations since it does not currently have any financial assets or
liabilities that are subject to FAS 159.
In November 2007, the Emerging Issues Task Force reached a final consensus on Issue 07-1 (“EITF 07-1”) “Accounting
for Collaborative Arrangements.” This issue affects entities that have entered into arrangements which are not conducted through a
separate legal entity. The Task Force reached a conclusion that a collaborative arrangement is within the scope of EITF 07-1 if (i)
the parties are active participants in the arrangement and (ii) the participants are exposed to significant risks and rewards that
depend on the endeavor’s ultimate commercial success. The Task Force also reached a conclusion that transactions with third
parties (i.e., revenue generated and costs incurred by the partners) should be reported in the appropriate line item in each
company’s financial statement pursuant to the guidance in EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an
Agent” or other applicable generally acceptable accounting principle applied consistently. The Task Force also concluded that the
equity method of accounting under Accounting Principles Board Opinion 18, “The Equity Method of Accounting for Investments
in Common Stock,” should not be applied to arrangements that are not conducted through a separate legal entity. The guidance in
EITF 07-1 will be effective for periods that begin after December 15, 2008 and be accounted for as a change in accounting
principle through retrospective application. The Company does not expect the impact of the adoption of EITF 07-01 to be a
material to its financial position or results of operations.
On September 27, 2007, the FASB reached a final consensus on Emerging Issues Task Force Issue 07-3 (“EITF 07-03”)
“Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities.” Currently,
F-14
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
under FASB Statement No. 2, “Accounting for Research and Development Costs,” non-refundable advance payments for future
research and development activities for materials, equipment, facilities and purchased intangible assets that have no alternative
future use are expensed as incurred. EITF 07-03 addresses whether such non-refundable advance payments for goods or services
that have no alternative future use and that will be used or rendered for research and development activities should be expensed
when the advance payments are made or when the research and development activities have been performed. The consensus
reached by the FASB requires companies involved in research and development activities to capitalize such non-refundable
advance payments for goods and services pursuant to an executory contractual arrangement because the right to receive those
services in the future represents a probable future economic benefit. Those advance payments will be capitalized and expensed as
the goods are delivered or the related services are performed. Entities will be required to evaluate whether they expect the goods or
services to be rendered. If an entity does not expect the goods to be delivered or services to be rendered, the capitalized advance
payment will be charged to expense. The consensus on EITF 07-03 is effective for financial statements issued for fiscal years
beginning after December 15, 2007, and interim periods within those fiscal years. Earlier application is not permitted. Entities are
required to recognize the effects of applying the guidance in EITF 07-03 prospectively for new contracts entered into after the
effective date. The Company does not expect the impact of the adoption of EITF 07-03 to be material to its financial position or
results of operations.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007) (“SFAS No.
141(R)”) “Business Combinations,” which supersedes Statement of Financial Accounting Standards No. 141 (“SFAS 141”)
“Business Combinations.” SFAS No. 141(R) applies to all transactions or other events in which an entity (the acquirer) obtains
control of one or more businesses (acquiree). SFAS No. 141(R) retains the fundamental requirements in SFAS No. 141 that the
acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business
combination. However, many of the provisions of SFAS No. 141(R) are different from those of SFAS No. 141, such as the
establishment of the acquisition date as the date that the acquirer achieves control rather than the date assets and liabilities are
transferred. In addition, SFAS No. 141(R) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions,
as specified. That replaces SFAS No.141’s cost-allocation process, which required the cost of an acquisition to be allocated to the
individual assets acquired and liabilities assumed based on their estimated fair values. Among the amendments that SFAS No.
141(R) makes to existing authoritative guidance, it supersedes FASB Interpretation No. 4, “Applicability of FASB Statement No.
2 to Business Combinations Accounted for by the Purchase Method,” which required research and development assets acquired in
a business combination that have no alternative future use to be measured at their acquisition-date fair values and then immediately
charged to expense. Under SFAS No. 141(R), the acquirer will recognize separately from goodwill the acquisition-date fair values
of research and development assets acquired in a business combination as long-lived intangible assets. Those assets are subject to
testing for impairment, such as completion or abandonment of an acquired research project, at which time the impaired asset will
be expensed. SFAS No. 141(R) provides guidance on the impairment testing of acquired research and development intangible
assets and assets that the acquirer intends not to use. SFAS No. 141(R) applies prospectively to business combinations for which
the acquisition date is on or after the beginning of fiscal years beginning on or after December 15, 2008. An entity may not apply it
before that date. The Company expects that the adoption of SFAS No. 141(R) will have a material impact on its financial position
and results of operations in the event that it enters into a business combination that falls within the scope of this pronouncement.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (“SFAS No. 160”)
“Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” which establishes accounting
and reporting standards for a noncontrolling interest (previously referred to as a minority interest) in a subsidiary and for the
deconsolidation of a subsidiary. A noncontrolling interest is the portion of equity in a subsidiary not attributable, directly or
indirectly, to a parent. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated financial statements. Before SFAS No. 160 was issued,
limited guidance existed for reporting noncontrolling interests, which were reported in the consolidated statement of financial
position as liabilities or in the mezzanine section between liabilities and equity. SFAS No. 160 establishes accounting and
reporting standards that require (a) the ownership interests in subsidiaries held by parties other than the parent be clearly identified,
labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; (b)
the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income; (c) changes in a parent’s ownership interest while the parent retains
its controlling financial interest in its subsidiary be accounted for consistently; (d) when a subsidiary is deconsolidated, any
retained noncontrolling equity investment in the former subsidiary be initially measured at fair value; (e) the gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any noncontrolling equity investment rather than the carrying
amount of that retained investment and (f) entities provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years, and interim
F-15
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
periods within those fiscal years, beginning on or after December 15, 2008; earlier adoption is prohibited. SFAS No. 160 will be
applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure
requirements, which will be applied retrospectively for all periods presented. The Company will evaluate the impact of the
adoption of SFAS No. 160 if there are noncontrolling interests in future business combinations.
3. Share-Based Payment Arrangements
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS
No. 123(R)”) “Share-Based Payment,” which is a revision of SFAS No.123, (“SFAS No.123”) “Accounting for Stock Based
Compensation.” SFAS No. 123(R) supersedes APB Opinion No. 25 (“APB 25”) “Accounting for Stock Issued to Employees,” and
amends FASB Statement No. 95, “Statement of Cash Flows.” The Company’s share-based payment arrangements with employees
include non-qualified stock options, restricted stock (nonvested shares) and shares issued under Employee Stock Purchase Plans,
which are compensatory under SFAS No. 123(R), as described below. The Company accounts for share-based payment
arrangements with non-employees, including non-qualified stock options and restricted stock (nonvested shares), in accordance
with Emerging Issues Task Force Issue No. 96-18 “Accounting for Equity Instruments that are Issued to Other Than Employees
for Acquiring, or in Connection with Selling, Goods or Services,” which accounting is unchanged as a result of the Company’s
adoption of SFAS No. 123(R).
Prior to 2006, in accordance with SFAS No.123 and Statement of Financial Accounting Standards No.148 (“SFAS No.
148”) “Accounting for Stock-Based Compensation-Transition and Disclosure,” the Company had elected to follow the disclosure-
only provisions of SFAS 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 were 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 was recognized in the financial statements and pro forma compensation expense in accordance with SFAS No. 123 was
only disclosed in the footnotes to the financial statements.
The Company adopted SFAS No. 123(R) using the modified prospective application, under which compensation cost for
all share-based awards that were unvested as of the adoption date and those newly granted or modified after the adoption date are
being recognized over the related requisite service period, usually the vesting period for awards with a service condition. The
Company has made an accounting policy decision to use the straight-line method of attribution of compensation expense, under
which the grant date fair value of share-based awards is recognized on a straight-line basis over the total requisite service period
for the total award. Upon adoption of SFAS No. 123(R), the Company eliminated $4,498 of unearned compensation, related to
share-based awards granted prior to the adoption date that were unvested as of January 1, 2006, against additional paid-in capital.
The cumulative effect of adjustments upon adoption of SFAS No. 123(R) was not material. Compensation expense recorded on a
pro forma basis for periods prior to adoption of SFAS No. 123(R) is not revised and is not reflected in the financial statements of
those prior periods. Accordingly, there was no effect of the change from applying the original provisions of SFAS No. 123 on net
income, cash flow from operations, cash flows from financing activities or basic or diluted net loss per share of periods prior to the
adoption of SFAS No. 123(R).
F-16
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
The following table summarizes the pro forma operating results and compensation costs for the period prior to the
Company’s adoption of SFAS No. 123(R) for the Company’s incentive stock option and stock purchase plans, which have been
determined in accordance with the fair value-based method of accounting for stock-based compensation as prescribed by SFAS
No. 123. The fair value of options granted to non-employees for services, determined using the Black-Scholes option pricing
model with the input assumptions presented below, is included in the Company’s historical financial statements and expensed as
they vest. Net loss and pro forma net loss include $640 of non-employee compensation expense in the year ended December 31,
2005.
Net loss, as reported
Add: Stock-based employee compensation expense included in
reported net loss
Deduct: Total share-based employee compensation expense
determined under fair value based method for all awards
Pro forma net loss
Net loss per share amounts, basic and diluted:
As reported
Pro forma
Year Ended
December 31,
2005
$(69,429)
1,878
(10,148)
$(77,699)
$(3.33)
$(3.72)
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 (the “Plans”). Under each of these Plans as
amended, a maximum of 375, 750, 5,000 and 3,950 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 1989 Plan
and 1993 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 1996 Plan and the 2005 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. The exercise price of
outstanding non-qualified stock options is usually equal to the fair value of the Company’s common stock on the date of grant. The
exercise price of non-qualified stock options granted from the 05 Plan and incentive stock options (“ISO”) granted from the Plans
may not be lower than the fair value of the Company’s common stock on the dates of grant. At December 31, 2005, 2006 and
2007, all outstanding stock options were non-qualified options. The 1989, 1993 and 1996 Plans terminated in April 1994,
December 2003 and October 2006, respectively, and the 2005 Plan will terminate in April 2015; options granted before
termination of the Plans will continue under the respective Plans until exercised, cancelled or expired.
The Company applies a forfeiture rate to the number of unvested awards in each reporting period in order to estimate the
number of awards that are expected to vest. Estimated forfeiture rates are based upon historical data on vesting behavior of
employees. The Company adjusts the total amount of compensation cost recognized for each award, in the period in which each
award vests, to reflect the actual forfeitures related to that award.
Under SFAS No. 123 and SFAS No. 123(R), the fair value of each option award granted under the Plans is estimated on
the date of grant using the Black-Scholes option pricing model with the input assumptions noted in the following table. Ranges of
assumptions for inputs are disclosed where the value of such assumptions varied during the related period. Historical volatilities
are based upon daily quoted market prices of the Company’s common stock on The NASDAQ Stock Market LLC over a period
equal to the expected term of the related equity instruments. The Company relies only on historical volatility since it provides the
most reliable indication of future volatility. Future volatility is expected to be consistent with historical; historical volatility is
calculated using a simple average calculation method; historical data is available for the length of the option’s expected term and a
sufficient number of price observations are used consistently. Since the Company’s stock options are not traded on a public
market, the Company does not use implied volatility. For the year ended December 31, 2007, expected term was calculated based
F-17
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
upon historical data related to exercise and post-termination cancellation activity for each of two groups of recipients of stock
options: employees, and officers and directors, for which expected terms were 5.25 and 7.5 years, respectively. Expected term for
options granted to non-employee consultants was ten years, which is the contractual term of those options. The expected term of
options granted in 2006 was based upon the simplified method of calculating expected term, as detailed in Staff Accounting
Bulletin No. 107 (“SAB 107”) and represents the period of time that options granted are expected to be outstanding. Accordingly,
the Company used an expected term of 6.5 years based upon the vesting period of the outstanding options of four or five years and
a contractual term of ten years. For the year ended December 31, 2005, the expected term of 6.5 years was based upon the average
of the vesting term and the original contractual term. The Company has never paid dividends and does not expect to pay dividends
in the future. Therefore, the Company’s dividend rate is zero. The risk-free rate for periods within the expected term of the option
is based on the U.S. Treasury yield curve in effect at the time of grant.
Expected volatility
Expected dividends
Expected term (years)
Weighted average expected term (years)
Risk-free rate
2005
92% - 97%
zero
6.5
6.5
3.29% - 3.98%
For the Years Ended
December 31,
2006
69% - 94%
zero
6.5
6.5
4.56% - 5.06%
2007
50% - 89%
zero
5.25 - 10
6.90
3.88% - 4.93%
A summary of option activity under the Plans as of December 31, 2007 and changes during the year then ended is
presented below:
Options
Shares
Weighted
Average
Exercise
Price
Weighted Average
Remaining
Contractual Term
(Yr.)
Aggregate
Intrinsic
Value
Outstanding at January 1, 2007
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2007
Exercisable at December 31, 2007
4,495
703
(233)
(257)
4,708
3,434
$16.89
23.05
10.07
17.08
$18.14
$16.32
5.62
4.64
$12,999
$12,550
The weighted average grant-date fair value of options granted under the Plans during the years ended December 31, 2005,
2006 and 2007 was $17.07, $19.32 and $16.18, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2005, 2006 and 2007 was $6,368, $6,591 and $3,766, respectively.
The options granted under the Plans, described above, include 33, 113, 38, 75, 145 and 113 non-qualified stock options
granted to the Company’s Chief Executive Officer on July 1, 2002, 2003, 2004 and 2005, on July 3, 2006 and on July 2, 2007,
respectively, which cliff vest after nine years and eleven months from the respective grant dates. Vesting of a defined portion of
each award will occur earlier if a defined performance condition is achieved; more than one condition may be achieved in any
period. Upon adoption of SFAS No. 123(R) on January 1, 2006, 21, zero, 8 and 36 options were unvested under the 2002, 2003,
2004 and 2005 awards, respectively. The 2005 award was fully vested in 2006 upon the achievement of one of the performance
milestones. In accordance with SFAS No. 123(R), at the end of each reporting period, the Company estimates the probability of
achievement of each performance condition and uses those probabilities to determine the requisite service period of each award.
The requisite service period for the award is the shortest of the explicit or implied service periods. In the case of the Chief
Executive Officer’s options, the explicit service period is nine years and eleven months from the respective grant dates. The
implied service periods related to the performance conditions are the estimated times for each performance condition to be
achieved. Thus, compensation expense will be recognized over the shortest estimated time for the achievement of performance
conditions for that award (assuming that the performance conditions will be achieved before the cliff vesting occurs). To the extent
that, for each of the 2002, 2004, 2006 and 2007 awards, it is probable that 100% of the remaining unvested award will vest based
on achievement of the remaining performance conditions, compensation expense will be recognized over the estimated periods of
F-18
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
achievement. To the extent that it is probable that less than 100% of the award will vest based upon remaining performance
conditions, the shortfall will be recognized through the remaining period to nine years and eleven months from the grant date (i.e.,
the remaining service period). Changes in the estimate of probability of achievement of any performance condition will be
reflected in compensation expense of the period of change and future periods affected by the change.
At December 31, 2007, the estimated requisite service periods for the 2002, 2004, 2006 and 2007 awards, described
above, were 0.5, 0.5 – 1.25, 0.5 – 8.5 and 0.25 – 0.75 years, respectively. For the year ended December 31, 2007, 9, 2, 2 and 83
options vested under the 2002, 2004, 2006 and 2007 awards, respectively, which resulted in compensation expense of $70, $21,
$(38) and $1,449, respectively. The reduction in compensation expense recognized for the 2006 award resulted from a change in
the estimate of the period of vesting of the related performance milestones, as described above. Prior to the adoption of SFAS No.
123(R), these awards were accounted for as variable awards under APB 25 and, therefore, compensation expense, based on the
intrinsic value of the vested awards on each reporting date, was recognized in the Company’s financial statements.
A summary of the status of the Company’s nonvested shares (i.e., restricted stock awarded under the Plans which has not
yet vested) as of December 31, 2007 and changes during the year then ended is presented below:
Nonvested Shares
Nonvested at January 1, 2007
Granted
Vested
Forfeited
Nonvested at December 31, 2007
Shares
388
309
(133)
(41)
523
Weighted Average
Grant-Date
Fair Value
$ 22.37
22.47
22.46
23.09
22.35
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 (“ISO’s”), 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
terminated on December 15, 2003; 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 the Company’s current Chief Executive Officer, of which 665 were non-qualified options
(“NQO’s”) and 85 were ISO’s. The ISO’s have been exercised in December 1998. The NQO’s 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 January 1 and December 31, 2007,
231 and zero NQO’s, respectively, were outstanding and fully vested. The total intrinsic value of NQO’s under the Executive Plan
exercised during the years ended December 31, 2005, 2006 and 2007 was zero, $4,662 and $4,402, respectively. At December 31,
2007, the weighted average remaining contractual term of the NQO’s was zero years and the aggregate intrinsic value was zero.
The Company’s 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”), as amended, provide for the
issuance of up to 1,600 and 500 shares of common stock, respectively. The Purchase Plans provide for the grant to all employees
of options to use an amount equal to 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 grant. The Qualified Plan is not
available to employees owning more than five percent 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 that option grants are restricted under the Qualified
Plan.
F-19
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
The fair value of shares purchased under the Purchase Plans is estimated on the date of grant in accordance with FASB
Technical Bulletin No. 97-1 “Accounting under Statement 123 for Certain Employee Stock Purchase Plans with a Look-Back
Option,” using the same option valuation model used for options granted under the Plans, except that the assumptions noted in the
following table were used for the Purchase Plans:
Expected volatility
Expected dividends
Expected term
Risk-free rate
2005
29%- 47%
zero
6 months
2.53% - 3.29%
For the Years Ended
December 31,
2006
37% - 43%
zero
6 months
3.25% - 4.75%
2007
40% - 46%
zero
6 months
3.91% - 5.10%
Purchases of common stock under the Purchase Plans during the years ended December 31, 2005, 2006 and 2007 are summarized
as follows:
Qualified Plan
Non-Qualified Plan
Shares
Purchased
Price Range
Weighted
Average
Grant-
Date Fair
Value
Shares
Purchased
Price Range
Weighted
Average
Grant-
Date Fair
Value
2005
2006
2007
130
126
179
$13.60 - $24.67
$17.80 - $25.84
$16.27 - $23.46
$7.07
$3.30
$3.41
27
27
45
$13.60 - $24.67
$18.61 - $25.84
$17.80 - $23.46
$7.08
$3.25
$3.43
The total compensation expense of shares, granted to both employees and non-employees, under all of the Company’s
share-based payment arrangements that was recognized in operations during the years ended December 31, 2005, 2006 and 2007
was:
Recognized as:
Research and Development
General and Administrative
Total
Years Ended December 31,
2005
2006
2007
$1,237
1,281
$2,518
$5,814
6,840
$12,654
$7,104
8,202
$15,306
No tax benefit was recognized related to such compensation cost because the Company had a net loss for the periods
presented and the related deferred tax assets were fully offset by valuation allowances. Accordingly, no amounts related to
windfall tax benefits have been reported in cash flows from operations or cash flows from financing activities for the periods
presented.
As of December 31, 2007, there was $14.3 million, $8.6 million and $37 of total unrecognized compensation cost related
to nonvested stock options under the Plans, the nonvested shares and the Purchase Plans, respectively. Those costs are expected to
be recognized over weighted average periods of 3.0 years, 2.6 years and 0.5 years, respectively. Cash received from exercises
under all share-based payment arrangements for the year ended December 31, 2007 was $7.8 million. No tax benefit was realized
for the tax deductions from those option exercises of the share-based payment arrangements because the Company had a net loss
for the period and the related deferred tax assets were fully offset by a valuation allowance. During the year ended December 31,
2007, the Company used $19 to settle shares of restricted stock granted to two employees under the 05 Plan. The Company issues
new shares of its common stock upon share option exercise and share purchase.
F-20
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
In applying the treasury stock method for the calculation of diluted earnings per share (“EPS”), amounts of unrecognized
compensation expense and windfall tax benefits are required to be included in the assumed proceeds in the denominator of the
diluted earnings per share calculation unless they are anti-dilutive. The Company incurred a net loss for the years ended December
31, 2005, 2006 and 2007 and, therefore, such amounts have not been included for those periods in the calculation of diluted EPS
since they would be anti-dilutive. Accordingly, basic and diluted EPS are the same for those periods. The Company has made an
accounting policy decision to calculate windfall tax benefits/shortfalls for purposes of diluted EPS calculations, excluding the
impact of pro forma deferred tax assets. This policy decision will apply when the Company has net income.
4. 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, 2006 and 2007:
2006:
Maturities less than one year:
Corporate debt securities
Government-sponsored entities
Maturities between one and five years:
Corporate debt securities
Government-sponsored entities
Maturities greater than five years:
Municipal Bonds (ARS) see Note 2 –
Marketable Securities
2007:
Maturities less than one year:
Corporate debt securities
Government-sponsored entities
Maturities between one and five years:
Corporate debt securities
Maturities greater than five years:
Municipal Bonds (ARS) see Note 2 –
Marketable Securities
Amortized
Cost Basis
Fair
Value
Unrealized Holding
Gains
(Losses)
Net
$75,907
9,000
20,366
3,000
$75,833
8,979
20,319
2,993
29,025
29,029
$137,298
$137,153
$6
4
$10
$(80)
(21)
(47)
(7)
$(74)
(21)
(47)
(7)
4
$(155)
$(145)
Amortized
Cost Basis
Fair
Value
Unrealized Holding
Gains
(Losses)
Net
$76,854
4,295
39,962
38,830
$76,892
4,278
39,947
38,830
$84
65
$(46)
(17)
(80)
$38
(17)
(15)
$159,941
$159,947
$149
$(143)
$6
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 auction process for ARS historically provided a liquid market for these securities. In the second half of 2007,
however, this process began to deteriorate. During the first quarter of 2008, Progenics began to reduce the principal amount of
ARS in its portfolio from $38.8 million at 2007 year-end. While its portfolio was not affected by the auction process deterioration
in 2007, some of the ARS the Company holds experienced auction failures during the first quarter of 2008. As a result, when the
Company attempted to liquidate them through auction, it was unable to do so as to approximately $10.1 million principal amount,
which it continues to hold. In the event of an auction failure, the interest rate on the security is reset according to the contractual
F-21
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
terms in the underlying indenture. As of March 14, 2008, Progenics has received all scheduled interest payments associated with
these securities.
The funds associated with failed auctions will not be accessible until a successful auction occurs, the issuer calls or
restructures the underlying security, the underlying security matures and is paid or a buyer outside the auction process emerges.
The Company believes that the failed auctions experienced to date are not a result of the deterioration of the underlying credit
quality of these securities, although valuation of them is subject to uncertainties that are difficult to predict, such as changes to
credit ratings of the securities and/or the underlying assets supporting them, default rates applicable to the underlying assets,
underlying collateral value, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity.
Progenics believes that any unrealized gain or loss associated with these securities will be temporary and will be recorded in
accumulated other comprehensive income (loss) in its financial statements.
The credit and capital markets have continued to deteriorate in 2008. Continuation or acceleration of the current
instability in these markets and/or deterioration in the ratings of the Company’s investments may affect its ability to liquidate these
securities, and therefore may affect its financial condition, cash flows and earnings. Progenics believes that based on its current
cash, cash equivalents and marketable securities balances of $170.4 million at December 31, 2007, the current lack of liquidity in
the credit and capital markets will not have a material impact on its liquidity, cash flows, financial flexibility or ability to fund its
obligations.
Progenics continues to monitor the market for auction rate securities and consider its impact (if any) on the fair market
value of its investments. If the current market conditions continue, in which some auctions for ARS fail, or the anticipated
recovery in market values does not occur, the Company may be required to record unrealized losses or impairment charges in
2008. As auctions have closed successfully, the Company has converted its investments in ARS to money market funds. Progenics
believes it will have the ability to hold any auction rate securities for which auctions fail until the market recovers. It does not
anticipate having to sell these securities in order to operate its business.
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, 2006 and 2007.
At December 31, 2006:
Description of Securities
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
Less than 12 Months
12 Months or Greater
Unrealized
Unrealized
Total
Unrealized
Corporate debt securities
Government-sponsored entities
Total
$78,944
11,972
$90,916
$(123)
(28)
$(151)
$ 6,095
$6,095
$(4)
$ (4)
$85,039
11,972
$97,011
$(127)
(28)
$(155)
At December 31, 2007:
Description of Securities
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
Less than 12 Months
12 Months or Greater
Unrealized
Unrealized
Total
Unrealized
Corporate debt securities
Government-sponsored entities
Total
$50,511
4,278
$54,789
$(118)
(17)
$(135)
$9,479
$9,479
$(7)
$(7)
$59,990
4,278
$64,268
$(125)
(17)
$(142)
Corporate debt securities. The Company’s investments in corporate debt securities with unrealized losses at December
31, 2007 include 9 securities with maturities of less than one year ($17,282 of the total fair value and $13 of the total unrealized
losses in corporate debt securities) and 26 securities with maturities between one and two years ($42,708 of the total fair value and
$112 of the total unrealized losses in corporate debt securities). The severity of the unrealized losses (fair value is approximately
0.00017 percent to 0.84 percent less than cost) and duration of the unrealized losses (weighted average of 5.0 months) correlate
F-22
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
with the short maturities of the majority of these investments. At December 31, 2007, the credit ratings of these securities were in
compliance with the Company’s investment policy, which requires that its investments in corporate debt securities maintain credit
ratings of not less than Aa3/AA-. The decrease in the market value of the Company’s portfolio in 2007 was, therefore, not
attributable to a decline in credit ratings but rather to interest rate increases. The Company’s corporate debt securities are
purchased by third-party brokers in accordance with its investment policy guidelines. The Company’s brokerage account requires
that all corporate debt securities be held to maturity unless authorization is obtained from the Company to sell earlier. In fact, the
Company has a history of holding corporate debt securities to maturity. The Company, therefore, considers that it has the intent
and ability to hold any corporate debt securities with unrealized losses until a recovery of fair value, which may be maturity and it
does not consider these marketable securities to be other-than-temporarily impaired at December 31, 2007.
Government-sponsored entities. The unrealized losses on the Company’s investments in government-sponsored entities
during a period of less than 12 months were primarily caused by interest rate increases, which have generally resulted in a decrease
in the market value of the Company’s portfolio. At December 31, 2007, the credit ratings of these securities were in compliance
with the Company’s investment policy, which requires that its investments in securities of government-sponsored entities maintain
credit ratings of not less than AAA. Therefore, the decline in fair value of these securities was not attributable to a decrease in
credit ratings. Similar to corporate debt securities, discussed above, the Company considers that it has the intent and ability to hold
any investments in government-sponsored entities with unrealized losses until a recovery of fair value, which may be maturity and
it does not consider these marketable securities to be other-than-temporarily impaired at December 31, 2007.
5. Accounts Receivable
National Institutes of Health
Other
Total
6. Fixed Assets
Computer equipment
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Construction in progress
Less, accumulated depreciation and amortization
Total
December 31,
2006
$ 1,697
2
$ 1,699
2007
$ 1,956
39
$ 1,995
December 31,
2006
$ 1,690
6,890
726
4,950
6,361
20,617
(9,230)
$ 11,387
2007
$ 1,935
11,695
726
10,448
874
25,678
(12,167)
$ 13,511
At December 31, 2006, $1.6 million and $0.7 million of leasehold improvements, made to the Company’s leased
laboratory and office space (see Note 11a), were being amortized over periods of 5.3 – 5.8 years and 8.5 years, respectively, under
leases with terms through December 31, 2009 and December 31, 2014, respectively. At December 31, 2007, $5.7 million, $0.9
million and $0.7 million of leasehold improvements were being amortized over periods of 2.3 – 5.8 years, 4.7 years and 8.5 years,
respectively, under leases with terms through December 31, 2009, June 29, 2012 and December 31, 2014, respectively.
F-23
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
7. Accounts Payable and Accrued Expenses
Accounts payable
Accrued consulting and clinical trial costs
Accrued payroll and related costs
Legal and professional fees
Other
Total
8. Stockholders’ Equity
December 31,
2006
$ 1,559
7,404
990
1,301
598
$ 11,852
2007
$ 1,158
10,848
1,489
1,127
143
$ 14,765
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.
On September 25, 2007, the Company completed a public offering of 2.6 million shares of its Common Stock, pursuant to
a shelf registration statement that had been filed with the Securities and Exchange Commission in 2006, which had registered 4.0
million shares of the Company’s Common Stock. The Company received proceeds of $57.3 million, or $22.04 per share, which
was net of underwriting discounts and commissions of approximately $2.9 million, and paid approximately $0.2 million in other
offering expenses. During the second and third quarters of 2005, the Company completed a series of public offerings of Common
Stock, which provided it 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 methylnaltrexone technology (see Note 10). 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.
In connection with the adoption of SFAS 123(R) on January 1, 2006, the Company eliminated $4,498 of unearned
compensation, related to share-based awards granted prior to the adoption date that were unvested as of that date, against
additional paid-in-capital.
9. License and Co-Development Agreement with Wyeth Pharmaceuticals
On December 23, 2005, the Company entered into the Collaboration Agreement with Wyeth (collectively, the “Parties”) for
the purpose of developing and commercializing RELISTOR, the Company’s lead investigational drug, for the treatment of opioid-
induced side effects, including constipation and post-operative ileus, associated with chronic pain and in patients receiving palliative
care. The Collaboration Agreement involves three formulations of RELISTOR: (i) a subcutaneous formulation to be used in
patients with opioid-induced constipation, (ii) an intravenous formulation to be used in patients with post-operative ileus and (iii) an
oral formulation to be used in patients with opioid-induced constipation.
The collaboration is being administered by a Joint Steering Committee and a Joint Development Committee, each with equal
representation by the Parties. The Steering Committee is responsible for coordinating the key activities of Wyeth and the Company
under the Collaboration Agreement. The Development Committee is responsible for overseeing, coordinating and expediting the
development of RELISTOR by the Parties. In addition, a Joint Commercialization Committee was established, composed of
representatives of both Wyeth and the Company in number and function according to each of their responsibilities, which is responsible
for facilitating open communication between Wyeth and the Company on matters relating to the commercialization of products.
The Company has assessed the nature of its involvement with the Committees. The Company’s involvement in the
Steering and Development Committees is one of several obligations to develop the subcutaneous and intravenous formulations of
RELISTOR through regulatory approval in the U.S. The Company has combined the committee obligations with the other
development obligations and is accounting for these obligations during the development phase as a single unit of accounting. After
the development period, however, the Company has assessed the nature of its involvement with the Committees to be a right,
F-24
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
rather than an obligation. The Company’s assessment is based upon the fact the Company negotiated to be on the Committees as an
accommodation for its granting of the license for RELISTOR to Wyeth. Wyeth has been granted by the Company an exclusive license
(even as to the Company) to the technology and know-how regarding RELISTOR and has been assigned the agreements for the
manufacture of RELISTOR by third parties. Following regulatory approval of the subcutaneous and intravenous formulations of
RELISTOR, Wyeth will continue to develop the oral formulation and to commercialize all formulations, for which it is capable
and responsible. During those periods, the activities of the Committees will be focused on Wyeth’s development and
commercialization obligations.
Under the Collaboration Agreement, Progenics granted to Wyeth an exclusive, worldwide license, even as to Progenics, to
develop and commercialize RELISTOR. Progenics is responsible for developing the subcutaneous and intravenous formulations in the
United States, until the drug formulations receive regulatory approval. Progenics has transferred to Wyeth all existing supply
agreements with third parties for RELISTOR and has sublicensed intellectual property rights to permit Wyeth to manufacture or have
manufactured RELISTOR, during the development and commercialization phases of the Collaboration Agreement, in both bulk and
finished form for all products worldwide. Progenics has no further manufacturing obligations under the Collaboration Agreement.
Progenics has and will continue to transfer to Wyeth all know-how, as defined, related to RELISTOR. 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 formulation worldwide and the subcutaneous and intravenous formulations outside the U.S. In
the event the Joint Steering Committee approves any formulation of RELISTOR other than subcutaneous, intravenous or oral or any
other indication for a product using any formulation of RELISTOR, Wyeth will be responsible for development of such products,
including conducting clinical trials and obtaining and maintaining regulatory approval and the Company will receive royalties on all
sales of such products.
Wyeth is responsible for the commercialization of the subcutaneous, intravenous and oral products, and any other products
developed upon approval by the Joint Steering Committee, throughout the world. Wyeth will pay all costs of commercialization of all
products, including manufacturing costs, and will retain all proceeds from the sale of the products, subject to the royalties payable by
Wyeth to the Company. 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 if, as and 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. Progenics’ potential right to commercialize any product, including its Co-Promotion Option, is not essential to the
usefulness of the already delivered products or services (i.e., Progenics’ development obligations) and Progenics’ failure to fulfill its co-
promotion obligations would not result in a full or partial refund of any payments made by Wyeth to Progenics or reduce the
consideration due to Progenics by Wyeth or give Wyeth the right to reject the products or services previously delivered by Progenics.
The Company is recognizing 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 RELISTOR, transfer of supply contracts with third party manufacturers of
RELISTOR, transfer of know-how related to RELISTOR development and manufacturing, and completion of development for the
subcutaneous and intravenous formulations 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 subcutaneous and intravenous formulations in the U.S.
Within five business days of execution of the Collaboration Agreement, Wyeth made a non-refundable, non-creditable
upfront payment of $60 million, for which the Company deferred revenue at December 31, 2005. Subsequently, the Company is
recognizing revenue related to the upfront license payment over the period during which the performance obligations, noted above,
are being performed using the proportionate performance method. The Company expects that period to extend through 2009. The
Company is recognizing revenue using the proportionate performance method since it can reasonably estimate the level of effort
required to complete its performance obligations under the Collaboration Agreement with Wyeth and such performance
obligations are provided on a best-efforts basis. Full-time equivalents are being used as the measure of performance. Under the
proportionate performance method, revenue related to the upfront license payment is recognized in any period as the percent of
F-25
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
actual effort expended in that period relative to expected total effort. The total effort expected is based upon the most current
budget and development plan which is approved by both the Company and Wyeth and includes all of the performance obligations
under the arrangement. Significant judgment is required in determining the nature and assignment of tasks to be accomplished by
each of the parties and the level of effort required for the Company to complete its performance obligations under the arrangement.
The nature and assignment of tasks to be performed by each party involves the preparation, discussion and approval by the parties
of a development plan and budget. Since the Company has no obligation to develop the subcutaneous and intravenous formulations of
RELISTOR outside the U.S. or the oral formulation at all and has no significant commercialization obligations for any product,
recognition of revenue for the upfront payment is not required during those periods, if they extend beyond the period of the Company’s
development obligations. If Wyeth terminates the Collaboration Agreement in accordance with its terms, the Company will
recognize any unamortized remainder of the upfront payment at the time of the termination.
The amounts of the upfront license payment that the Company recognized as revenue for each fiscal quarter prior to the
third quarter of 2007 were based upon several revised approved budgets, although the revisions to those budgets did not materially
affect the amounts of revenue recognized in those periods. During the third quarter of 2007, however, the estimate of the
Company’s total remaining effort to complete its development obligations was increased significantly based upon a revised
development budget approved by both the Company and Wyeth. As a result, the period over which the Company’s obligations will
extend, and over which the upfront payment will be amortized, was extended from the end of 2008 to the end of 2009.
Consequently, the amount of revenue recognized from the upfront payment in the second half of 2007 declined relative to that in
the comparable period of 2006.
Beginning in January 2006, costs for the development of RELISTOR incurred by Wyeth or the Company are being paid
by Wyeth. Wyeth has the right once annually to engage an independent public accounting firm to audit expenses for which the
Company has been reimbursed during the prior three years. If the accounting firm concludes that any such expenses have been
understated or overstated, a reconciliation will be made. The Company is recognizing as research and development revenue from
collaborator, amounts received from Wyeth for reimbursement of the Company’s development expenses for RELISTOR as incurred
under the development plan agreed to between the Company and Wyeth. In addition to the upfront payment and reimbursement of
the Company’s development costs, Wyeth has made or will make the following payments to the Company: (i) development and sales
milestones and contingent payments, consisting of defined non-refundable, non-creditable payments, totaling $356.5 million, including
clinical and regulatory events and combined annual worldwide net sales, as defined and (ii) 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. Upon achievement of defined
substantive development milestones by the Company for the subcutaneous and intravenous formulations in the U.S., the milestone
payments will be recognized as revenue. Recognition of revenue for developmental contingent events related to the subcutaneous and
intravenous formulations outside the U.S. and for the oral formulation, 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, 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.
During the years ended December 31, 2006 and 2007, the Company recognized $18.8 million and $16.4 million,
respectively, of revenue from the $60 million upfront payment and $34.6 million and $40.1 million, respectively, as
reimbursement for its out-of-pocket development costs, including its labor costs. In October 2006, the Company earned a $5.0
million milestone payment in connection with the start of a phase 3 clinical trial of intravenous RELISTOR for the treatment of
post-operative ileus, for which revenue was recognized in the fourth quarter of 2006. In March 2007, the Company earned $9.0
million in milestone payments upon the submission and approval for review of applications for marketing in the U.S. and
European Union of the subcutaneous formulation of RELISTOR in patients receiving palliative care. The Company considered
those milestones to be substantive based on the significant degree of risk at the inception of the Collaboration Agreement related to
the conduct and successful completion of clinical trials and, therefore, of not achieving the milestones; the amount of the payment
received relative to the significant costs incurred since inception of the Collaboration Agreement and amount of effort expended to
achieve the milestones; and the passage of ten and seventeen months, respectively, from inception of the Collaboration Agreement
to the achievement of those milestones. Therefore, the Company recognized the milestone payments as revenue in the respective
periods in which the milestones were earned. As of December 31, 2007, relative to the $60 million upfront license payment
received from Wyeth, the Company has recorded $15.7 million as short-term deferred revenue and $9.1 million and long-term
deferred revenue, which is expected to be recognized as revenue through 2009. In addition, at December 31, 2007, the Company
recorded $2.1 million of short term deferred revenue related to payments we have received from Wyeth for development costs.
F-26
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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.
10. Acquisition of Contractual Rights from Methylnaltrexone Licensors
In 2001, Progenics entered into an exclusive sublicense agreement with UR Labs, Inc. (“URL” or “UR Labs”) (see Note
11(b)(v)) to develop and commercialize methylnaltrexone (the “Methylnaltrexone Sublicense”) in exchange for rights to future
payments resulting from this Sublicense. In 1989, URL obtained an exclusive license to methylnaltrexone, 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
Methylnaltrexone Sublicense (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 Methylnaltrexone 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, totaling 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 Methylnaltrexone Sublicense and the Company’s research and development
activities for methylnaltrexone, 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 fees- research and development, as a separate line item in the Company’s 2005 Consolidated
Statement of Operations.
F-27
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
11. Commitments and Contingencies
a. Operating Leases
As of December 31, 2007, the Company leases office and laboratory space, as follows:
Leased
Space
Area
(Square
Feet)
Sublease 1
91.6
Lease 1
32.6
Sublease 2
5.9
Lease 2
Lease 3
Base Monthly Rent
$140
$66
Termination
Date
December 30, 2009
Other Terms
December 31, 2009
Renewable for two five year terms
$13 through June 30, 2010;
$15 through June 30, 2011;
$16 through June 29, 2012
June 29, 2012
Four months rent-free beginning
April 1, 2006; converts to Lease 2
$16
December 31, 2014
9.2
$12 through November 12,
2008; annual 3% increases
thereafter
June 29, 2012
Three months rent-free beginning
August 13, 2007; renewable for two
five year terms; lease incentive of
$276 provided by the landlord
Lease 4
Total
6.5
145.8
$14
August 31, 2012
Renewable for two terms
coterminous with Lease 1
Such amounts are recognized as rent expense on a straight-line basis over the term of the respective leases, including rent-
free periods. 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, which expire at various times through August 2009. At the inception of Lease 3, in August 2007, the landlord
agreed to pay $276 of leasehold improvements related to the renovation of that office space. That lease incentive, which was
initially recorded as a debit to Fixed Assets - leasehold improvements and credits to Other Current Liabilities of $57 and Other
Liabilities of $219, is being amortized as a reduction of rent expense on a straight-line basis over the initial term of the lease.
As of December 31, 2007, future minimum annual payments under all operating lease agreements are as follows:
Years ending
December 31,
2008
2009
2010
2011
2012
Thereafter
Total
Minimum
Annual Payments
$3,136
3,100
504
517
391
388
$8,036
Rental expense totaled approximately $1,675, $1,694 and $2,415 for the years ended December 31, 2005, 2006 and 2007,
respectively. For the years ended December 31, 2005, 2006 and 2007, the Company recognized rent expense in excess of amounts
paid of $21, $74 and $38, respectively. Additional facility charges, including utilities, taxes and operating expenses, for the years
ended December 31, 2005, 2006 and 2007 were approximately $2,257, $2,932 and $2,974, respectively.
F-28
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
b. Licensing, Service and Supply Agreements of Progenics Pharmaceuticals, Inc.
The Company has entered into a variety of intellectual property-based license and service agreements in connection with
its product development programs. During 2005, the Company also entered into a supply agreement for methylnaltrexone. During
2006, the Company transferred that agreement and the obligation for the manufacture of methylnaltrexone, in bulk and finished
form, to Wyeth. 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 $22,375,
$1,825 and $350 for the years ended December 31, 2005, 2006 and 2007, respectively. In addition, as of December 31, 2007,
remaining payments, including amounts accrued, associated with milestones and defined objectives as well as annual maintenance
fees with respect to the agreements referred to below total approximately $20,832.
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, an immune cell receptor. In general, the license agreement terminates
(unless sooner terminated) upon the expiration of the last to expire of the licensed patents, which is currently 2021; patent
applications that the Company has also licensed and 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, including filing for marketing approval
of a drug by June 2001 and 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.
As of December 31, 2006, the Company was obligated to pay Columbia a milestone fee of $225 and four annual
maintenance fees of $50 each, which had been accrued but not paid, in accordance with an oral understanding that suspended its
obligation to make such payments until a time in the future to be agreed upon by the parties. In addition, the Company was
required to pay royalties based on the sale of products it develops under the license, if any.
The Company has had discussions with Columbia regarding the terms of an agreement under which it would relinquish
all rights related to the license agreement with Columbia in exchange for making a one-time payment of $300, which was accrued
at December 31, 2007 and previously due milestone and maintenance fees as well as future royalty payments would be cancelled.
Those discussions have not yet resulted in a formal agreement.
ii. Sloan-Kettering Institute for Cancer Research
The Company was 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.
The license was terminated on February 15, 2008.
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. (“Antigenics”), 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, including GMK, a program that the Company terminated
in development in the second quarter of 2007. 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. The Company has not achieved these milestones due to delays that it believes could not have been reasonably avoided. The
Company believes that these delays satisfy the criteria for a revision, contemplated by the agreement, of the milestone dates.
Aquila has not consented to a revision of the milestone dates as of this time.
F-29
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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.
The Company has received a written communication from Antigenics alleging that Progenics is in default of certain of its
obligations under the license agreement and asserting that Antigenics has an interest in certain intellectual property of Progenics.
Progenics has responded in writing denying Antigenics’ allegations. The Company does not believe that this dispute will have any
material effect on it.
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 PDL BioPharma, Inc., 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 currently issued patents expires in 2014; 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./ University of Chicago
In 2001, the Company entered into an agreement with UR Labs to obtain worldwide exclusive rights to intellectual
property rights related to methylnaltrexone. UR Labs had exclusively licensed methylnaltrexone 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 10). The
Company is responsible to make certain payments to the University of Chicago, associated with the RELISTOR product
development and commercialization program, which would have been made by UR Labs. In addition, during 2006 and 2007, the
Company entered into two agreements with the University of Chicago which give the Company options to license certain of the
University of Chicago’s intellectual property over defined option periods.
vi. Hoffmann-LaRoche
On December 23, 1997, 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, 2007, Roche had not elected to resume its option.
vii. 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
F-30
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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.
viii. Mallinckrodt Inc.
In March 2005, the Company entered into an agreement with Mallinckrodt Inc. for the supply of the bulk form of
methylnaltrexone. The contract provided 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. In connection with the Company’s Collaboration Agreement with Wyeth (see Note 9), during 2006 the
Company transferred its agreement with Mallinckrodt and the obligation for the manufacture of methylnaltrexone, in bulk and
finished form, to Wyeth.
ix. KMT Hepatech, Inc.
On October 11, 2006, the Company and KMT Hepatech, Inc. (“KMT”) entered into a Research Services Agreement,
under which KMT will test compounds (“Compounds”), as defined, related to the Company’s Hepatitis C Virus research program.
In consideration for KMT’s services, the Company made an upfront payment for certain defined services, will reimburse KMT for
direct costs incurred by KMT in rendering the services and will make additional payments upon the Company’s request for
additional services. The Company will also make one-time development milestone payments upon the occurrence of defined
events in respect of any Compound. In the event that the Company terminates development of a Compound, certain of those
development milestone payments will be credited to the development milestones achieved by the next Compound. The KMT
agreement will terminate upon its second anniversary unless terminated sooner. The parties may extend the term of the KMT
agreement by mutual written consent. Either party may terminate the KMT agreement upon 60 days of written notice to the other
party. In the event of an uncured default by either party, including non-performance, bankruptcy or liquidation or dissolution, the
non-defaulting party may terminate the KMT agreement upon 30 days written notice.
c. Licensing and Collaboration Agreements of PSMA Development Company LLC
In connection with all the agreements discussed below, PSMA LLC, which became the Company’s wholly owned
subsidiary on April 20, 2006 (see Note 12c) has recognized milestone, license and annual maintenance fees, which are included in
research and development expenses of PSMA LLC, totaling approximately $2,100, $200 and $600 for the years ended December
31, 2005, 2006 and 2007, respectively. In addition, in connection with the Company’s acquisition of Cytogen’s interest in PSMA
LLC (see Note 12c), Cytogen granted an exclusive license to PSMA LLC, under which PSMA LLC recognized $25 and $38 in
license fees for the years ended December 31, 2006 and 2007, respectively. As of December 31, 2007, remaining payments
associated with milestones and defined objectives with respect to the agreements referred to below, as well as with respect to the
license granted by Cytogen to PSMA LLC, total approximately $78.4 million.
i. Amgen Fremont, Inc. (formerly Abgenix)
In February 2001, PSMA LLC entered into a worldwide exclusive licensing agreement with Abgenix to use its
XenoMouse™ technology for generating fully human antibodies to PSMA LLC’s proprietary PSMA antigen. In consideration for
the license, PSMA LLC 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. 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.
ii. 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
F-31
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
obligated to make additional payments upon the occurrence of certain defined milestones associated with the development and
commercialization program for products incorporating AlphaVax’s 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; the
consent of AlphaVax to revisions to the milestones due dates may not, however, 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’s system or seven years from the first commercial sale of the products
developed using AlphaVax’s system. The last of the currently issued patents expire in 2015; patent applications filed in the U.S.
and internationally that PSMA LLC has also licensed and patent term extensions may extend the period of PSMA LLC’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, PSMA LLC entered into a collaboration agreement with Seattle Genetics, Inc. (“SGI”). Under this 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 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. 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 technology access payment
to SGI upon execution of the SGI agreement and will make additional maintenance payments during its term. In addition, PSMA
LLC will make payments 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. The SGI agreement
terminates at the latest of (i) the tenth anniversary of the first commercial sale of each licensed product in each country or (ii) 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 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.
d. 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 are members of the Company’s Scientific Advisory Board (the “SAB Members”), including Stephen P. Goff,
Ph.D. and David A. Scheinberg, M.D., Ph.D., both of whom are also members of the Company’s Board of Directors. Some
Scientists have purchased Common Stock or received stock options which are subject to vesting provisions. The Company has
recognized expenses with regard to the consulting agreements of the SAB Members totaling approximately $877, $893 and $1,092
for the years ended December 31, 2005, 2006 and 2007, respectively. Those expenses include the fair value of stock options
granted during 2005, 2006 and 2007, which were fully vested at grant date, of approximately $640, $620 and $691, respectively.
For the year ended December 31, 2007, those expenses include a portion of restricted stock, granted in 2007, that vested in 2007,
of approximately $127. Such amounts of fair value are included in research and development compensation expense for each year
presented (see Note 3).
12. PSMA Development Company LLC
a. Introduction
PSMA LLC was formed on June 15, 1999 as a joint venture between the Company and 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”). Prior to the Company’s acquisition of Cytogen’s membership interest
(see below), each Member had equal ownership and equal representation on PSMA LLC’s management committee and equal
voting rights and rights to profits and losses of PSMA LLC. In connection with the formation of PSMA LLC, the Members entered
F-32
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
into a series of agreements, including an LLC Agreement and a Licensing Agreement (collectively, the “Agreements”), which
generally defined 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 PSMA LLC for each coming year.
b. Research and Development Revenue from PSMA LLC
Amounts received by the Company from PSMA LLC, during the year ended December 31, 2005, as payment for research
and development services performed by the Company on behalf of PSMA LLC , and reimbursement of related costs in excess of
the initial $3.0 million provided by the Company were recognized as research and development revenue. For the year ended
December 31, 2005, such amount totaled approximately $1.0 million. According to the Agreements, the Company was allowed to
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 was permitted to retain $3.0 million of such government grant funding. To the extent that the Company retained grant
revenue in respect of work for which it had also been compensated by PSMA LLC, the remainder of the $3.0 million to be retained
by the Company was reduced and the Company recorded an adjustment in its financial statements to reduce both joint venture
losses and contract revenue from PSMA LLC. Such adjustment was $1,311 for the year ended December 31, 2005 and $3.0
million cumulatively through December 31, 2005. During 2006, prior to the acquisition by the Company of Cytogen’s membership
interest in PSMA LLC on April 20, 2006 (see below), the Members had not approved a work plan or budget for 2006 and,
therefore, the Company was not reimbursed for its services to PSMA LLC and did not recognize revenue from PSMA LLC.
Subsequent to the acquisition, PSMA LLC has become the Company’s wholly owned subsidiary.
c. Acquisition of Cytogen’s Membership Interest
On April 20, 2006, the Company acquired Cytogen’s 50% membership interest in PSMA LLC, including Cytogen’s
economic interests in capital, profits, losses and distributions of PSMA LLC and its voting rights, in exchange for a cash payment
of $13.2 million (the “Acquisition”). The Company also paid $259 in transaction costs related to the Acquisition. In connection
with the Acquisition, the Licensing Agreement entered into by the Members upon the formation of PSMA LLC, under which Cytogen
had granted a license to PSMA LLC for certain PSMA-related intellectual property, was amended. Prior to the Acquisition, each of
the Members owned 50% of the rights to such intellectual property through their interests in PSMA LLC. Under the amended
License Agreement, Cytogen granted an exclusive, even as to Cytogen, worldwide license to PSMA LLC to use certain PSMA-
related intellectual property in a defined field (the “Amended License Agreement”). In addition, under the terms of the Amended
License Agreement, PSMA LLC will pay to Cytogen upon the achievement of certain defined regulatory and sales milestones, if
ever, amounts totaling $52 million, and will pay royalties, if ever, on net sales, as defined. Since the likelihood of such payments
was remote at the date of the Acquisition, given that PSMA LLC’s research projects were in the pre-clinical phase at that time, such
amounts, if any, in the future will be recorded as an additional expense when the contingency is resolved and consideration becomes
issuable.
Subsequent to the Acquisition, PSMA LLC has continued as a wholly owned subsidiary of Progenics. Cytogen has no further
involvement or obligations in PSMA LLC or in the PSMA-related research and development conducted by Progenics. The Company
no longer recognizes revenue from PSMA LLC or Loss in Joint Venture.
Prior to the Acquisition, PSMA LLC’s intellectual property, which was equally owned by each of the Members, was used in
two research and development programs, a vaccine program and a monoclonal antibody program, both of which were in the pre-clinical
or early clinical phases of development at the time of the Acquisition. Progenics conducted most of the research and development for
those two programs prior to the Acquisition and, subsequent to the Acquisition, is continuing those research and development activities
and will incur all the expenses of those programs.
Since the acquired intellectual property and license rights relate to research and development projects that, at the acquisition
date, had not reached technological feasibility, did not have an identified alternative future use and had not received regulatory approval
from the FDA for marketing, at the acquisition date the Company charged $13,209 to research and development expense after
consideration of the transaction costs and net tangible assets acquired.
F-33
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
13. Employee Savings Plan
The terms of the amended and restated Progenics Pharmaceuticals 401(k) Plan (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 $875,
$1,135 and $1,538 to the Amended Plan for the years ended December 31, 2005, 2006 and 2007, respectively. No discretionary
contributions were made during those years.
14. Income Taxes
The Company accounts for income taxes using the liability method in accordance with Statement of Financial Accounting
Standards No. 109 (“SFAS 109”) “Accounting for Income Taxes.” 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, 2006 or 2007. For the
year ended December 31, 2005, although the Company had a pre-tax net loss of $69.2 million, it had taxable income due primarily
to the $60 million upfront payment received from Wyeth (see Note 9) and the $18.4 million cash and common stock paid to UR
Labs and the Goldberg Distributees (see Note 10), 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. For tax purposes,
however, the UR Labs transaction was a tax-free reorganization and will never result in a deduction for tax purposes and the
payments to the Goldberg Distributees have been capitalized as an intangible license asset and will be deducted for tax purposes
over a fifteen year period. For book purposes, the Company deferred recognition of revenue for the $60 million at December 31,
2005 and is recognizing revenue for that amount over the development period for RELISTOR (expected through the end of 2009).
For tax purposes, since cash was received, the $60 million was included in taxable income in 2005.
The Company has completed a calculation, under Internal Revenue Code Section 382, the results of which indicate that
past ownership changes will limit utilization of net operating loss carry-forwards (“NOL’s”) in the future. However, the Company
had sufficient NOL’s at December 31, 2005 to fully offset 2005 taxable income. The Company, therefore, recognized an income
tax provision for the effect of the Federal and state alternative minimum tax at December 31, 2005. 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:
Depreciation and amortization
R&E tax credit carry-forwards
AMT credit carry-forwards
Net operating loss carry-forwards
Deferred revenue
Stock compensation
Other items
Valuation allowance
December 31,
2006
$ 6,030
5,417
306
55,882
17,171
4,162
2,930
91,898
(91,898)
—
$
2007
$ 5,912
8,203
306
73,792
10,632
8,155
2,713
109,713
(109,713)
—
$
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 increase
in the valuation allowance resulted primarily from the additional net operating loss carry-forwards.
F-34
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
The following is a reconciliation of income taxes computed at the Federal statutory income tax rate to the actual effective
income tax provision:
U.S. Federal statutory rate
State income taxes, net of Federal benefit
Research and experimental tax credit
UR Labs license purchase
Change in valuation allowance
Other
Income tax provision
2005
(34)%
(4.9)
(1.0)
5.7
34.4
0
0.2%
Year Ended December 31,
2006
(34)%
(5.8)
(6.4)
43.1
3.1
0%
2007
(34)%
(5.6)
(4.2)
40.8
3.0
0%
As of December 31, 2007, the Company had available, for tax return purposes, unused NOL’s of approximately $204.6
million, which will expire in various years from 2018 to 2027, $18.2 million of which were generated from deductions that, when
realized, will reduce taxes payable and will increase paid-in-capital.
The Company has reviewed its nexus in various tax jurisdictions and its tax positions related to all open tax years for events
that could change the status of its FIN 48 liability, if any, or require an additional liability to be recorded. Such events may be the
resolution of issues raised by a taxing authority, expiration of the statute of limitations for a prior open tax year or new transactions for
which a tax position may be deemed to be uncertain. Upon adoption of FIN 48 on January 1, 2007 and during the year ended December
31, 2007, the Company had no unrecognized tax benefits resulting from tax positions during a prior or current period, settlements with
taxing authorities or the expiration of the applicable statute of limitations. As of the date of adoption and at December 31, 2007, there
were no amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate and there were no tax positions for
which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve
months from the respective date. As of December 31, 2007, the Company is subject to federal and state income tax in the United States.
Open tax years relate to years in which unused net operating losses were generated or, if used, for which the statute of limitation
for examination by taxing authorities has not expired. Thus, upon adoption of FIN 48 and at December 31, 2007, the Company’s
open tax years extend back to 1995, with the exception of 1997, during which the Company reported net income. No amounts of
interest or penalties were recognized in the Company’s Consolidated Statements of Operations or Consolidated Balance Sheets upon
adoption of FIN 48 or as of and for the year ended December 31, 2007.
In connection with the Company’s adoption of SFAS No. 123(R) on January 1, 2006 (see Note 3), the Company elected
to implement the short cut method of calculating its pool of windfall tax benefits. Accordingly, the Company’s pool of windfall tax
benefits on January 1, 2006 was zero because it had NOL’s since inception and, therefore, had 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 (“R&E”) tax credit carry-forwards of approximately $8.2 million at December
31, 2007 expire in various years from 2008 to 2027. During the year ended December 31, 2007, research and experimental tax
credit carry-forwards of approximately $23 expired.
F-35
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
15. 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, 2005, 2006 and 2007, 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:
2005:
Basic and diluted
2006:
Basic and diluted
2007:
Basic and diluted
Net Loss
(Numerator)
Weighted Average
Common Shares
(Denominator)
Per Share
Amount
$ (69,429)
$ (21,618)
$ (43,688)
20,864
25,669
27,378
$ (3.33)
$ (0.84)
$ (1.60)
For the years ended December 31, 2005, 2006 and 2007, potential common shares which have been excluded from diluted
per share amounts because their effect would have been anti-dilutive include the following:
Years Ended December 31,
2005
2006
2007
Weighted
Average
Number
Weighted
Average
Exercise Price
Weighted
Average
Number
Weighted
Average
Exercise Price
Weighted
Average
Number
Weighted
Average
Exercise Price
Options and warrants
Restricted stock
Total
$ 13.08
4,640
204
4,844
$ 15.13
4,663
312
4,975
4,703
454
5,157
$17.56
16. Unaudited Quarterly Results
Summarized quarterly financial data for the years ended December 31, 2006 and 2007 are as follows:
Revenue
Net loss
Net loss per share (basic and diluted)
Revenue
Net loss
Net loss per share (basic and diluted)
Quarter Ended
March 31,
2006
(unaudited)
$11,001
(2,643)
(0.10)
Quarter Ended
March 31,
2007
(unaudited)
$17,637
(10,433)
(0.40)
Quarter Ended
June 30,
2006
(unaudited)
$19,122
(14,328)
(0.56)
Quarter Ended
September 30,
2006
(unaudited)
$17,848
(2,935)
(0.11)
Quarter Ended
December 31,
2006
(unaudited)
$21,935
(1,712)
(0.07)
Quarter Ended
June 30,
2007
(unaudited)
$25,457
(2,383)
(0.09)
Quarter Ended
September 30,
2007
(unaudited)
$17,018
(15,600)
(0.58)
Quarter Ended
December 31,
2007
(unaudited)
$15,534
(15,272)
(0.53)
F-36
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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:
/s/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 17, 2008
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
/s/ KURT W. BRINER
Kurt W. Briner
/s/ PAUL F. JACOBSON
Paul F. Jacobson
Capacity
Co-Chairman
Co-Chairman
Date
March 17, 2008
March 17, 2008
/s/ PAUL J. MADDON, M.D., PH.D.
Paul J. Maddon, M.D., Ph.D.
Chief Executive Officer, Chief Science
Officer and Director (Principal Executive Officer)
March 17, 2008
/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.
/s/ DAVID A. SCHEINBERG, M.D., PH.D.
David A. Scheinberg, M.D., Ph.D.
/s/ NICOLE S. WILLIAMS
Nicole S. Williams
/s/ ROBERT A. MCKINNEY, CPA
Robert A. McKinney, CPA
March 17, 2008
March 17, 2008
March 17, 2008
March 17, 2008
March 17, 2008
March 17, 2008
Director
Director
Director
Director
Director
Chief Financial Officer, Senior Vice President,
Finance & Operations and Treasurer
(Principal Financial and Accounting Officer)
S-1
Exhibit
Number *
3.1(14)
3.2(14)
4.1(1)
10.1(1)
10.2(1)
10.3(1)
10.4(1)
10.5(3)
10.6(14)
10.6.1(10)
10.6.2(10)
10.6.3(16)
10.7(15)
10.8
10.9(1)
10.10(8)
10.11(8)
10.13(1)†
10.14(1)†
10.15(5)
10.16(2)†
10.16.1(11)
10.17(2)†
10.18(4)
10.19(6)†
10.19.1(9)
10.20(7)
10.21(7)
10.22(7)
10.23(11)
10.24(12) †
10.25(12) †
EXHIBIT INDEX
Description
Restated Certificate of Incorporation of the Registrant.
Amended and Restated By-laws of the Registrant.
Specimen Certificate for Common Stock, $0.0013 par value per share, of the Registrant.
Form of Registration Rights Agreement.
1989 Non-Qualified Stock Option Plan‡
1993 Stock Option Plan, as amended‡
1993 Executive Stock Option Plan‡
Amended and Restated 1996 Stock Incentive Plan‡
2005 Stock Incentive Plan‡
Form of Non-Qualified Stock Option Award Agreement‡
Form of Restricted Stock Award Agreement‡
Amended 2005 Stock Incentive Plan ‡
Form of Indemnification Agreement‡
Employment Agreement, dated December 31, 2007, between the Registrant and Dr. Paul J. Maddon‡
Letter dated August 25, 1994 between the Registrant and Dr. Robert J. Israel‡
Amended 1998 Employee Stock Purchase Plan‡
Amended 1998 Non-qualified Employee Stock Purchase Plan‡
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, between the Registrant and the Trustees of Columbia University, as amended by a
Letter Agreement dated March 1, 1989 and as amended by a Letter Agreement dated October 22, 1996.
Amended and Restated Sublease, dated June 6, 2000, between the Registrant and Crompton Corporation.
Development and License Agreements, dated 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
Director Stock Option Plan‡
Exclusive Sublicense Agreement, dated September 21, 2001, between the Registrant and UR Labs, Inc.
Amendment to Exclusive Sublicense Agreement, dated September 21, 2001, between the Registrant and UR Labs, Inc.
Research and Development Contract, dated September 26, 2003, between the National Institutes of Health and the
Registrant.
Agreement of Lease, dated September 30, 2003, between Eastview Holdings LLC and the Registrant.
Letter Agreement, dated October 23, 2003, amending Agreement of Lease between Eastview Holdings LLC and the
Registrant.
Summary of Non-Employee Director Compensation‡
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 the Registrant and
Progenics Pharmaceuticals Nevada, Inc.
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’ RELISTOR In-License dated, December 22, 2005, by and among the University of Chicago, acting on behalf
of itself and ARCH Development Corporation, the Registrant, Progenics Pharmaceuticals Nevada, Inc. and Wyeth, acting
through its Wyeth Pharmaceuticals Division.
10.26(13)
10.27(13) †
10.28(17)
Membership Interest Purchase Agreement, dated April 20, 2006, between the Registrant Inc. and Cytogen Corporation.
Amended and Restated PSMA/PSMP License Agreement, dated April 20, 2006, by and among the Registrant, Cytogen
Corporation and PSMA Development Company LLC.
Consulting Agreement, dated May 1, 1995, between Active Biotherapies, Inc. and Dr. David A. Scheinberg, M.D., Ph.D., as
amended on June 13, 1995, as assigned to the Registrant, and as amended on January 1, 2001‡
21.1
Subsidiaries of the Registrant.
E-1
Exhibit
Number
Description
23.1
31.1
31.2
32.1
32.2
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.
*
Exhibits footnoted as previously filed have been filed as an exhibit to the document of the Registrant referenced in the footnote below,
and are incorporated by reference herein.
(1)
Previously filed in Registration Statement on Form S-1, Commission File No. 333-13627.
(2)
Previously filed in Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999.
(3)
Previously filed in Registration Statement on Form S-8, Commission File No. 333-120508.
(4)
Previously filed in Annual Report on Form 10-K for the year ended December 31, 1999.
(5)
Previously filed in Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000.
(6)
Previously filed in Annual Report on Form 10-K for the year ended December 31, 2002.
(7)
Previously filed in Quarterly Report on Form 10-Q for the quarterly period ending September 30, 2003.
(8)
Previously filed in Registration Statement on Form S-8, Commission File No. 333-143671.
(9)
Previously filed in Current Report on Form 8-K filed on September 20, 2004.
(10) Previously filed in Current Report on Form 8-K filed on June 29, 2005.
(11) Previously filed in Annual Report on Form 10-K for the year ended December 31, 2004.
(12) Previously filed in Annual Report on Form 10-K for the year ended December 31, 2005.
(13) Previously filed in Quarterly Report on Form 10-Q for the quarterly period ending June 30, 2006.
(14) Previously filed in Current Report on Form 8-K filed on May 13, 2005.
(15) Previously filed in Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2007.
(16) Previously filed in Registration Statement on Form S-8, Commission File No. 333-143670.
(17) Previously filed in Annual Report on Form 10-K/A for the year ended December 31, 2006.
†
‡
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-2
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 those
expressed or implied by
forward-looking statements. Such
factors include, among others, the
uncertainties associated with
product development, the risk that
clinical trials will not commence or
be completed as planned, the risks
and uncertainties associated with
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 product
candidates that appear promising in
early clinical trials do not
demonstrate efficacy in larger-scale
clinical trials, the risk that we may
not be able to manufacture
commercial quantities of our
products, 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,
2007, and other reports filed with
the U.S. Securities and Exchange
Commission, to which investors are
referred for further information. In
particular, the Company cannot
assure you that any of its programs
will result in a commercial product.
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.
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 4, 2008 the Company had approximately 315
stockholders of record.
The following table sets forth the reported high and low sales prices for the
Company’s Common Stock as reported by Nasdaq for the periods indicated:
($) High Low
2006
24.92
30.83
First Quarter
19.85
Second Quarter 26.72
19.80
Third Quarter
26.07
22.51
Fourth Quarter 29.54
($) High Low
2007
20.02
30.31
First Quarter
21.14
Second Quarter 27.59
20.55
Third Quarter
26.10
17.77
Fourth Quarter 23.98
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 & LeBoeuf 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, NY 10591
Phone: 914-789-2800
914-789-2817
Fax:
E-mail: Investor.Relations@progenics.com
Website: www.Progenics.com
Annual Meeting of Stockholders
The Annual Stockholders Meeting
will be held at 10:00 a.m. Eastern Time
on Monday, June 2, 2007 at:
Landmark at Eastview
Rockland Room
777 Old Saw Mill River Road
Tarrytown, NY 10591
Each stockholder will receive a notice of internet availability of proxy materials that
will contain instructions on how to access the Company’s proxy materials online,
or request a printed copy or email copy of these materials at no charge.