This annual report contains statements that do not relate strictly to historical fact, any of which may
be forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. When we use the words “anticipates,” “plans,” “expects” and similar expressions, we
are identifying forward-looking statements. Forward-looking statements involve known and
unknown risks and uncertainties which may cause our actual results, performance or achievements
to be materially different from those expressed or implied by forward-looking statements. While it
is impossible to identify or predict all such matters, these differences may result from, among other
things, the inherent uncertainty of the timing and success of, and expense associated with, research,
development, regulatory approval and commercialization of our products and product candidates,
including the risks that clinical trials will not commence or proceed as planned; products appearing
promising in early trials will not demonstrate efficacy or safety in larger-scale trials; clinical trial
data on our products and product candidates will be unfavorable; our products will not receive
marketing approval from regulators or, if approved, do not gain sufficient market acceptance to
justify development and commercialization costs; we, our collaborators or others might identify
side effects after the product is on the market; or efficacy or safety concerns regarding marketed
products, whether or not originating from subsequent testing or other activities by us, governmental
regulators, other entities or organizations or otherwise, and whether or not scientifically justified,
may lead to product recalls, withdrawals of marketing approval, reformulation of the product,
additional pre-clinical testing or clinical trials, changes in labeling of the product, the need for
additional marketing applications, declining sales or other adverse events.
We are also subject to risks and uncertainties associated with the actions of our corporate, academic
and other collaborators and government regulatory agencies, including risks from market forces and
trends, such as those relating to the recently-announced acquisition of our RELISTOR®
collaborator, Wyeth Pharmaceuticals, by Pfizer Inc.; potential product liability; intellectual
property, litigation, environmental and other risks; the risk that licenses to intellectual property may
be terminated for our failure to satisfy performance milestones; the risk of difficulties in, and
regulatory compliance relating to, manufacturing products; and the uncertainty of our future
profitability.
Risks and uncertainties also include general economic conditions, including interest- and currency
exchange-rate fluctuations and the availability of capital; changes in generally accepted accounting
principles; the impact of legislation and regulatory compliance; the highly regulated nature of our
business, including government cost-containment initiatives and restrictions on third-party
payments for our products; trade buying patterns; the competitive climate of our industry; and other
factors set forth in this document and reports filed with the U.S. Securities and Exchange
Commission. In particular, we cannot assure you that RELISTOR will be commercially successful
or be approved in the future in other formulations, indications or jurisdictions, or that any of our
other programs will result in a commercial product.
We do not have a policy of updating or revising forward-looking statements, and we assume no
obligation to update any statements as a result of new information or future events or developments.
It should not be assumed that our silence over time means that actual events are bearing out as
expressed or implied in forward-looking statements.
A Message from the CEO
Dear Shareholders, Employees and Friends,
In 2008, Progenics Pharmaceuticals achieved
its first U.S. product approval: RELISTOR .
®
This first-in-class drug is now approved in over 30 countries.
Progenics has entered a new era since our first commercial product approval.
Following FDA approval last April, our collaborator, Wyeth Pharmaceuticals, began
full commercialization of subcutaneous RELISTOR in August for the treatment of
advanced-illness patients with opioid-induced constipation (OIC) – an area of critical
unmet medical need in an important population. Since the launch, we have been
working to extend the benefits of this novel drug to broader populations and other
markets. Part of this effort has been demonstrated by the successful completion of a
pivotal phase 3 trial in chronic pain patients. In October, we signed a license
agreement with Ono Pharmaceutical Co., Ltd. for the development and
commercialization of subcutaneous RELISTOR in Japan.
ONCOLOGY: PSMA ADC for the treatment of prostate cancer
We also made significant progress in our clinical programs, initiating clinical trials of
our investigational drug, PSMA ADC, for the treatment of metastatic prostate cancer.
PSMA ADC is a monoclonal antibody-drug conjugate that targets prostate-specific
membrane antigen, a protein abundantly expressed on prostate cancer cells, making
it a promising therapeutic target. PSMA ADC is comprised of our fully human
monoclonal antibody to PSMA that is linked (conjugated) to a potent
chemotherapeutic drug. PSMA ADC is designed to release the chemotherapeutic
payload after entering the targeted cancer cell, substantially reducing exposure of
surrounding non-cancerous cells to the toxic effects of systemic chemotherapy. We
expect to report initial results from these clinical studies in the second half of 2009.
We also initiated a clinical trial of a novel PSMA-targeted therapeutic vaccine
designed to prevent the relapse and recurrence of prostate cancer.
VIROLOGY: PRO 140 for the treatment of HIV/AIDS
Our HIV program also had meaningful advances in 2008. PRO 140,
our FDA-designated Fast Track investigational humanized monoclonal antibody for
the treatment of HIV/AIDS, successfully completed two, phase 2 clinical trials in
which both subcutaneous and intravenous formulations exhibited robust, potent and
prolonged activity in HIV-infected individuals. We are developing PRO 140 as an
injection to be self-administered, once weekly. We plan to meet with FDA this year
to determine the next steps in the development of this novel viral-entry inhibitor.
While advancing our clinical programs, we are also guided by a conservative
financial strategy, especially during these challenging economic times.
Our significant progress during 2008 was made possible by the financial support of
our collaborators, Wyeth and Ono, in the form of upfront and milestone payments,
reimbursement by Wyeth of development expenses, and royalties on worldwide sales
of RELISTOR. In addition, Progenics has been awarded approximately $70 million
in U.S. government grants to date.
We are proud of our strong financial position. Going forward, we will continue to
seek multiple non-dilutive revenue sources to conduct leading-edge research and
development on our own and through existing and new industry relationships.
We will also continue to set an example of leadership and innovation in the
biotechnology industry while generating value for our shareholders.
I thank you for your continued support.
Sincerely,
Paul J. Maddon, M.D., Ph.D.
Founder, Chief Executive Officer and Chief Science Officer
April 27, 2009
Corporate Information
Senior Management
Board of Directors
Paul J. Maddon, M.D., Ph.D.
Founder, Chief Executive Officer and
Chief Science Officer
Mark R. Baker, J.D.
Executive Vice President - Corporate
Robert A. McKinney, CPA
Senior Vice President, Finance and
Operations & Chief Financial Officer
and Treasurer
Thomas A. Boyd, Ph.D.
Senior Vice President, Product
Development
Robert J. Israel, M.D.
Senior Vice President, Medical Affairs
William C. Olson, Ph.D.
Senior Vice President, Research and
Development
Benedict Osorio, M.S., M.B.A.
Senior Vice President, Quality
Nitya G. Ray, Ph.D.
Senior Vice President, Manufacturing
Ann Marie Assumma, M.S.
Vice President, Regulatory Affairs
Walter M. Capone, M.B.A.
Vice President, Commercial
Development and Operations
Richard W. Krawiec, Ph.D.
Vice President, Corporate Affairs
Tage Ramakrishna, M.D.
Vice President, Clinical Research
Kurt W. Briner
Chairman of the Board
President and Chief Executive
Officer (Retired)
Sanofi Pharma S.A.
Charles A. Baker
Chairman, President and Chief
Executive Officer (Retired)
The Liposome Company, Inc.
Peter J. Crowley
Head of Healthcare Investment Banking,
CIBC World Markets (Retired)
Mark F. Dalton
President
Tudor Investment Corporation
Stephen P. Goff, Ph.D.
Higgins Professor
Biochemistry and Microbiology
Columbia University
Investigator, Howard Hughes
Medical Institute
Paul J. Maddon, M.D., Ph.D.
Founder, Chief Executive Officer
and Chief Science Officer
Progenics Pharmaceuticals, Inc.
David A. Scheinberg, M.D., Ph.D.
Vincent Astor Chair and Chairman,
Molecular Pharmacology and
Chemistry Program
Sloan-Kettering Institute;
Professor of Medicine and Pharmacology,
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.)
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, 2008
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 Act:
Large Accelerated Filer (cid:133)
Non-accelerated Filer (cid:133) (Do not check if a smaller reporting company)
Accelerated Filer ⌧
Smaller Reporting Company (cid:133)
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, 2008, based upon the closing
price of the Common Stock on The NASDAQ Stock Market LLC on that date of $15.87 per share, was $244,987,904 (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 6, 2009, 30,782,252 shares of Common Stock, par value $.0013 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the Registrant’s definitive proxy statement to be filed in connection with solicitation of proxies for its 2009 Annual Meeting of
Shareholders are hereby incorporated by reference into Part III of this Form 10-K where such portions are referenced.
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
13
23
23
23
23
Selected Financial Data
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 24
26
Item 6.
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
44
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
45
Item 8.
45
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
45
Item 9A. Controls and Procedures
46
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
47
47
47
47
47
48
F-1
S-1
E-1
i
PART I
This document contains statements that do not relate strictly to historical fact, any of which may be forward-looking
statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. When we use the words “anticipates,”
“plans,” “expects” and similar expressions, we are identifying forward-looking statements. Forward-looking statements involve
known and unknown risks and uncertainties which may cause our actual results, performance or achievements to be materially
different from those expressed or implied by forward-looking statements. While it is impossible to identify or predict all such matters,
these differences may result from, among other things, the inherent uncertainty of the timing and success of, and expense associated
with, research, development, regulatory approval and commercialization of our products and product candidates, including the risks
that clinical trials will not commence or proceed as planned; products appearing promising in early trials will not demonstrate
efficacy or safety in larger-scale trials; clinical trial data on our products and product candidates will be unfavorable; our products
will not receive marketing approval from regulators or, if approved, do not gain sufficient market acceptance to justify development
and commercialization costs; we, our collaborators or others might identify side effects after the product is on the market; or efficacy
or safety concerns regarding marketed products, whether or not originating from subsequent testing or other activities by us,
governmental regulators, other entities or organizations or otherwise, and whether or not scientifically justified, may lead to product
recalls, withdrawals of marketing approval, reformulation of the product, additional pre-clinical testing or clinical trials, changes in
labeling of the product, the need for additional marketing applications, declining sales or other adverse events.
We are also subject to risks and uncertainties associated with the actions of our corporate, academic and other collaborators
and government regulatory agencies, including risks from market forces and trends, such as those relating to the recently-announced
acquisition of our RELISTOR® collaborator, Wyeth Pharmaceuticals, by Pfizer, Inc.; potential product liability; intellectual property,
litigation, environmental and other risks; the risk that licenses to intellectual property may be terminated for our failure to satisfy
performance milestones; the risk of difficulties in, and regulatory compliance relating to, manufacturing products; and the uncertainty
of our future profitability.
Risks and uncertainties also include general economic conditions, including interest and currency exchange-rate fluctuations
and the availability of capital; changes in generally accepted accounting principles; the impact of legislation and regulatory
compliance; the highly regulated nature of our business, including government cost-containment initiatives and restrictions on third-
party payments for our products; trade buying patterns; the competitive climate of our industry; and other factors set forth in this
document and other reports filed with the U.S. Securities and Exchange Commission (SEC). In particular, we cannot assure you that
RELISTOR will be commercially successful or be approved in the future in other formulations, indications or jurisdictions, or that any
of our other programs will result in a commercial product.
We do not have a policy of updating or revising forward-looking statements, and we assume no obligation to update any
statements as a result of new information or future events or developments. Thus, it should not be assumed that our silence over time
means that actual events are bearing out as expressed or implied in 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. 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. You may obtain documents that we file with
the SEC at http://www.sec.gov, and read and copy them at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC
20549. You may obtain information on operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We also
make available our annual, quarterly and current reports and proxy materials on http://www.progenics.com.
1
Item 1. Business
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 supportive care, virology and oncology. We commenced principal operations in 1988,
became publicly traded in 1997 and throughout have been engaged primarily in research and development efforts, developing
manufacturing capabilities, establishing corporate collaborations and raising capital.
In the area of supportive care, our first commercial product, RELISTOR® (methylnaltrexone bromide), was approved by
the U.S. Food and Drug Administration (FDA) for sale in the United States in April 2008. Our collaboration partner, Wyeth
Pharmaceuticals, commenced sales of RELISTOR subcutaneous injection in June, and we have begun earning royalties on world-wide
sales. Regulatory approvals have also been obtained in Canada, the European Union, Australia and Venezuela, and marketing
applications have been approved or are pending or scheduled in other countries. In October, we out-licensed to Ono Pharmaceutical
Co., Ltd., Osaka, Japan, the rights to subcutaneous RELISTOR in Japan. We continue development and clinical trials with respect to
other indications for RELISTOR and our other product candidates.
In January 2009, Wyeth and Pfizer Inc. announced a definitive agreement under which Pfizer is to acquire Wyeth. We
understand that the transaction is currently expected to close in late 2009 and is subject to a variety of conditions. The proposed
acquisition of Wyeth by Pfizer does not trigger any change-of-control provisions in our collaboration with Wyeth, and we believe that
if the acquisition occurs, the combined Pfizer/Wyeth organization will continue to have the same rights and responsibilities under the
collaboration following the acquisition as Wyeth had before. We cannot, however, predict how a combined Pfizer and Wyeth may
view the utility and attractiveness of our collaboration. See Supportive Care, Licenses – Progenics’ Licenses – Wyeth and Risk Factors
-- We are dependent on Wyeth and Ono to develop and commercialize RELISTOR in their respective areas, exposing us to significant
risks, including that Wyeth’s announced acquisition by Pfizer may adversely affect our Collaboration, below.
In the area of virology, we are developing two viral-entry inhibitors: a humanized monoclonal antibody, PRO 140, for
treatment of human immunodeficiency virus (HIV), the virus that causes acquired immunodeficiency syndrome (AIDS), and a
proprietary orally-available small-molecule drug candidate, designated PRO 206, for treatment of hepatitis C virus infection (HCV).
We have recently selected for further clinical development the subcutaneous form of PRO 140 for treatment of HIV infection, which
has the potential for convenient, weekly self-administration, and we are conducting preclinical development activities in preparation
for filing an Investigational New Drug (IND) application for PRO 206. We are also engaged in research regarding a prophylactic
vaccine against HIV infection. See Virology, below.
In the area of prostate cancer, we are conducting a phase 1 clinical trial of a fully human monoclonal antibody-drug
conjugate (ADC) directed against prostate specific membrane antigen (PSMA), a protein found at high levels on the surface of
prostate cancer cells and also on the neovasculature of a number of other types of solid tumors. We are also developing therapeutic
vaccines designed to stimulate an immune response to PSMA. See Oncology – Prostate Cancer, below.
Product Licensing. We also 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, commercialization of which is the responsibility of Wyeth and Ono in their respective territories. We may also seek
collaboration partners to accelerate development and assist in achieving full commercialization of our product candidates.
2
Following is a summary of our principal programs and product candidates:
Lead commercial product
Approved indication
Status
Supportive Care
RELISTOR-Subcutaneous injection
Approved U.S. label: Treatment of opioid-
induced constipation (OIC) in advanced
illness patients receiving palliative care
when laxative therapy has not been
sufficient (note 1).
Marketed in the U.S., E.U.,
Australia, Canada,
Venezuela and elsewhere.
Program/product candidates
Proposed therapeutic area
Status (note 2)
Supportive Care
RELISTOR-Subcutaneous injection
RELISTOR-Subcutaneous injection
Treatment of OIC in patients with chronic
pain not related to cancer.
Phase 3
Treatment of OIC in patients during
rehabilitation from an orthopedic surgical
procedure.
Phase 2
RELISTOR-Intravenous
Management of post-operative ileus.
Phase 3
RELISTOR-Oral
Treatment of OIC.
Phase 2
Virology
Human Immunodeficiency Virus (HIV)
PRO 140
ProVax
Treatment of HIV infection.
Treatment and prevention of HIV infection. Research
Phase 2
Treatment of HCV infection.
Preclinical
Hepatitis C Virus (HCV)
PRO 206
Oncology
Prostate cancer/ PSMA-based therapies
PSMA ADC
Recombinant protein vaccine (rsPSMA)
Viral-vector vaccine (PSMA VRP)
Immunotherapy for prostate cancer.
Immunotherapy for prostate cancer.
Treatment of prostate cancer.
Phase 1
Phase 1
Phase 1
(1) RELISTOR is a Wyeth trademark. The use of RELISTOR beyond four months has not been studied. Full U.S. prescribing
information is available at www.RELISTOR.com.
(2) Research means initial research related to specific molecular targets, synthesis of new chemical entities, assay development or
screening for identification of lead compounds.
Pre-clinical means a lead compound undergoing toxicology, formulation and other testing in preparation for clinical trials.
Phase 1-3 clinical trials are safety and efficacy tests in humans:
Phase 1: Initial evaluation of safety in humans; study method of action and metabolization.
Phase 2: Evaluation of safety, dosing and activity or efficacy; continue safety evaluation.
Phase 3: Larger scale evaluation of safety, efficacy and dosage.
3
Supportive Care
About Opioids. Opioid-based medications such as morphine and codeine are the mainstay of health care practitioners to
control moderate-to-severe pain. We estimate that in 2007 approximately 240 million prescriptions for opioids were written 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 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, often resulting in constipation. As a result
of opioid-induced constipation (OIC), many patients may stop or reduce their opioid therapy, opting to endure pain in order to obtain
relief from their OIC and its associated side effects.
RELISTOR, the first approved treatment for OIC that addresses the underlying mechanism of OIC, is a selective,
peripherally acting, mu-opioid-receptor antagonist that decreases the constipating side effects induced by opioid pain medications in
the gastrointestinal tract without diminishing the ability of these medications to relieve pain. Relief of OIC is an important need not
adequately met by any other approved drug. Because of its chemical composition, RELISTOR has restricted ability to cross the blood-
brain barrier and enter the central nervous system, where pain is perceived. Outside the central nervous system, RELISTOR competes
with opioid pain medications for binding sites on opioid receptors, displacing the pain medications only in the periphery and
selectively “turning off” the constipating effects of those medications on the gastrointestinal tract without affecting pain relief
occurring in the central nervous system.
Subcutaneous RELISTOR. In 2008, we earned $25.0 million in milestone payments from Wyeth for FDA and European
approvals of subcutaneous RELISTOR for the advanced illness setting, and in the second quarter of 2008 we began earning royalties
on Wyeth’s sales of that product. RELISTOR net sales and related royalties earned in 2008 are set forth below. Our recognition of
royalty revenue for financial reporting purposes is explained in Management’s Discussion and Analysis of Financial Condition and
Results of Operations and our financial statements elsewhere in this document.
Quarter Ended
June 30, 2008
September 30, 2008
December 31, 2008
Total
$
$
Net Sales
By Wyeth
Royalties
Earned
(in thousands)
2,100
800
1,500
4,400
$
$
321
117
227
665
We and Wyeth are also developing subcutaneous RELISTOR for treatment of OIC outside the advanced illness setting, in
individuals with chronic pain not related to cancer, such as severe back pain that requires treatment with opioids (a phase 3 trial
conducted by Wyeth), and in individuals rehabilitating from an orthopedic surgical procedure in whom opioids are used to control
post-operative pain (a hypothesis-generating phase 2 trial conducted by us). We are no longer enrolling patients in this latter trial and
are analyzing data from the treated population. Based on positive results from the one-month blinded portion of the phase 3 chronic
pain study, we and Wyeth recently initiated an FDA-required one-year, open-label safety study in chronic, non-cancer pain patients
which is intended to yield a consolidated safety database to enable filing a supplemental New Drug Application (sNDA), which is now
planned for submission by the end of 2010 for treatment of OIC in the chronic, non-cancer pain population.
Intravenous RELISTOR. We and Wyeth also have had in development an intravenous formulation of RELISTOR for the
management of post-operative ileus (POI), a temporary impairment of the gastrointestinal tract function. Results from two phase 3
clinical trials of this formulation showed that treatment did not achieve primary or secondary end points. Recent results from a third
phase 3 trial evaluating an intravenous formulation of RELISTOR in patients following abdominal hernia repair have confirmed these
earlier findings.
Oral RELISTOR. Wyeth is leading development of an oral formulation of RELISTOR for the treatment of OIC in patients
with chronic, non-cancer pain. We and Wyeth are evaluating information from optimization studies of a formulation of this product
candidate to determine the next stages of development.
Collaborative Marketing and Development Agreements. Under our Collaboration with Wyeth, we share responsibilities for
developing and obtaining marketing approval of RELISTOR. Wyeth is responsible for commercializing all formulations of
RELISTOR worldwide other than Japan, where we have licensed the rights to the subcutaneous formulation of RELISTOR to Ono.
We have an option, under certain circumstances, to co-promote with Wyeth the sale of any or all of the formulations of RELISTOR in
4
the United States. Under the Wyeth Collaboration, we are entitled to receive, in addition to royalties on net sales, payments as
developmental and commercialization milestones for RELISTOR are achieved and reimbursement by Wyeth for expenses we incur in
connection with the development of RELISTOR under an agreed-upon development plan and budget. Manufacturing expenses for
RELISTOR are funded by Wyeth.
Under our exclusive license agreement with Ono, in November 2008 we received from Ono an upfront payment of $15.0
million, and are entitled to receive potential development milestones of up to $20.0 million, commercial milestones and royalties on
sales by Ono of subcutaneous RELISTOR in Japan. Ono also has the option to acquire from us the rights to develop and
commercialize in Japan other formulations of RELISTOR, including intravenous and oral forms, on terms to be negotiated separately.
See Progenics’ Licenses – Wyeth and – Ono Pharmaceutical, below. Some of our rights to RELISTOR arise under a license from the
University of Chicago. See Progenics’ Licenses – University of Chicago, below.
Virology
HIV. An estimated 33 million people worldwide are infected with HIV, which causes a slowly progressing deterioration of
the immune system resulting in AIDS. Although the majority of infected people reside in sub-Saharan Africa, the current commercial
market is generally limited to the U.S. and Europe, where it is estimated that over two million people are infected.
HIV specifically infects cells that have the CD4 receptor on their surface, binding to that receptor and commandeering the
cell’s reproductive machinery to create thousands of copies of itself (viral replication). Cells presenting the CD4 receptor include
critical components of the human immune system such as T-lymphocytes, monocytes, macrophages and dendritic cells, and HIV’s
devastating effects are predominantly due to dysfunction and destruction of these cells resulting from HIV infection. Our scientists
and their collaborators have made important discoveries in understanding how HIV enters human cells and initiates viral replication.
Five classes of products have received marketing approval from the FDA for the treatment of HIV infection and AIDS.
Reverse transcriptase and protease inhibitors inhibit two different viral enzymes required for HIV to replicate once it has entered the
cell. (Nucleoside and non-nucleoside reverse transcriptase inhibitors are considered as different classes by researchers and prescribers
alike and have non-overlapping resistance profiles.) Integrase inhibitors inhibit the enzyme that facilitates integration of HIV genetic
material into the chromosomal DNA of 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.
The current standard of HIV care is a regimen of protease and reverse transcriptase inhibitor therapies, known as combination
therapy, which slows the progression of disease but is not a cure. HIV’s rapid mutation rate results in the development of viral strains
that are resistant to these and other inhibitors, a process that is accelerated by inconsistent dosing that leads to lower drug levels and
permits viral replication. In addition, many of these currently approved drugs often produce toxic side effects.
Viral entry inhibitors, such as our drug candidate PRO 140, represent the newest class of drugs for HIV patients. Our
scientists, in collaboration with researchers at the Aaron Diamond AIDS Research Center, 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. After HIV binds to the CD4
receptor, it then binds to the CCR5 co-receptor, enabling fusion of the virus with the cell membrane, facilitating 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. Some strains of HIV use the CXCR4 co-receptor as a portal of entry either
exclusively or in addition to CCR5. CCR5 viral-entry inhibitors, such as PRO 140, are active in blocking infection in HIV patients
whose virus uses the CCR5 portal, but do not block the entry of virus that uses the CXCR4 portal.
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. PRO 140 targets a distinct site on the co-receptor CCR5. At
therapeutic concentrations tested to date, PRO 140’s binding to CCR5 does not appear to interfere with the co-receptor’s normal
function in the body’s inflammatory response. PRO 140 has been granted “Fast Track” status from the FDA, which facilitates
development and expedites regulatory review of drugs intended to address unmet medical needs for serious or life-threatening
conditions. We have recently selected for further clinical development the subcutaneous form of PRO 140 for the treatment of HIV
infection, with the goal of developing a long-acting, self-administered therapy. The results from a recently completed clinical study
indicate that subcutaneous PRO 140 has the potential to be administered weekly.
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 research and development on ProVax in collaboration with the Weill
Medical College of Cornell University. We have funded this project via a National Institutes of Health contract which NIH has
committed to fund only through 2008. We have applied for continued funding for this program and are funding it with our own
resources pending a decision on that application.
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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.
HCV. We have selected a proprietary orally-available small-molecule drug candidate, designated PRO 206, for clinical
development as a treatment of HCV infection, the most common blood-borne infection in the U.S. and 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, and there are an estimated 35,000 new HCV infections in the U.S.
each year. It is estimated that more than 170 million people worldwide are infected with HCV. Chronic hepatitis C, which is under-
recognized due to slow, asymptomatic progression, can lead to cirrhosis and ultimately liver failure and, as a result, is now the most
common reason for liver transplantation and the leading cause of liver cancer in the U.S.
Our HCV treatment candidate, an orally available viral-entry inhibitor designed to prevent HCV from entering and infecting
healthy liver cells, has exhibited favorable results in pre-clinical and in vitro studies. We are conducting preclinical development
activities in preparation for filing an IND for PRO 206.
Oncology
Prostate cancer is a common cancer affecting men in the U.S. and a 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, radiation, hormone therapies and chemotherapy.
These treatments may have or increase the risk of a variety of side effects, including impotence, incontinence, high cholesterol levels
and increased blood-clot risk. Hormone therapy and chemotherapy are generally not intended to be curative and are not actively used
to treat localized, early-stage prostate cancer.
Through our wholly owned subsidiary, PSMA Development Company LLC (PSMA LLC), we conduct research and
development programs relating to antibody and vaccine 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 many
other solid tumors. Our fully human monoclonal ADC is designed to deliver a chemotherapeutic agent to cancer cells by targeting the
three-dimensional structure of the PSMA protein on these cells and binding to and internalizing within the cell. We believe a PSMA-
directed therapy may have application in prostate cancer and solid tumors of other types of cancer. In September 2008, we initiated a
phase 1 dose-escalation clinical study to assess PSMA ADC’s safety, tolerability and initial clinical activity in patients with
progressive, castrate-resistant prostate cancer.
We have initiated clinical study of a therapeutic vaccine utilizing viral vectors designed to deliver the PSMA gene to certain
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, by both antibodies and killer T-cells, the two principal mechanisms used by
the immune system to eliminate abnormal cells. We are also developing a vaccine combining the PSMA cancer antigen (recombinant
soluble PSMA) with an immune stimulant to induce an immune response against prostate cancer cells.
Licenses
Progenics and PSMA LLC are parties to license agreements under which we have in- and/or out-licensed rights to use certain
technologies and materials. These licenses provide for various royalty, milestone and other payment, commercialization, sublicensing,
patent prosecution and enforcement, insurance, indemnification and other obligations and rights, and are subject to certain reservations
of rights. Our costs in defending patent rights, both our own and those we license, have historically not been material. Set forth below
is a summary of the more significant of these licenses.
Progenics’ Licenses
• Under the Wyeth Collaboration Agreement, we granted to Wyeth an exclusive, worldwide license to develop and commercialize
RELISTOR. In October 2008, we reacquired the rights to all formulations of RELISTOR in Japan from Wyeth, and out-licensed the rights
to subcutaneous RELISTOR in Japan to Ono (see discussion below). We are responsible for developing the subcutaneous and intravenous
formulations of RELISTOR in the U.S. until they receive regulatory approval, while Wyeth is responsible for these formulations outside
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the U.S. other than Japan. Wyeth is also responsible for developing the oral formulation of RELISTOR, and any other formulation the
companies may determine to pursue, within the U.S. and the rest of its territory. We own the rights to all formulations, including the oral
formulation, in Japan, where we have given Ono an exclusive license to the subcutaneous formulation and have granted Ono an option to
acquire licenses on other formulations in Japan. We own all U.S. regulatory filings and approvals relating to the subcutaneous and
intravenous formulations, and Wyeth owns all such filings and approvals for the oral formulation. Wyeth also owns all regulatory filings
and approvals for all formulations outside the U.S. other than in Japan, where Ono owns the filings and approvals relating to subcutaneous
RELISTOR and we retain the rights to other formulations.
Costs for the development of RELISTOR incurred by Wyeth or us are paid by Wyeth. We are reimbursed for our out-of-pocket
development costs by Wyeth and receive reimbursement for our efforts based on our employees devoted to them, all subject to Wyeth’s
audit rights and possible reconciliation as provided in the Collaboration Agreement. As part of its commercialization responsibilities in its
territory, Wyeth is obligated to pay all commercialization costs, including manufacturing costs, and retains all proceeds from sales of
products, subject to royalties and other amounts payable by Wyeth to us. Decisions with respect to commercialization of any products
developed under the Collaboration Agreement are made solely by Wyeth.
The Collaboration Agreement establishes Joint Steering and Joint Development Committees, each with an equal number of
representatives from both Wyeth and us. The JSC is responsible for coordinating the companies’ key activities, while the JDC oversees,
coordinates and expedites the development of RELISTOR by Wyeth and us. A Joint Commercialization Committee, composed of
company representatives in number and function according to our respective responsibilities, facilitates open communication between
Wyeth and us on commercialization matters.
We have an option to co-promote in the U.S. 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.
Wyeth has also agreed to certain “standstill” limitations, expiring in June 2009, regarding its ability to purchase our equity securities and to
solicit proxies.
The Wyeth Collaboration extends, unless terminated earlier, on a country-by-country and product-by-product basis, until the last-
to-expire royalty period for any product. We may terminate the Wyeth Collaboration 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,
terminate the Collaboration effective on or after the second anniversary of the first U.S. commercial sale of RELISTOR, 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 Wyeth Collaboration, the ownership of the license we granted to Wyeth will depend on which
party initiates the termination and the reason for the termination.
• We have exclusive rights to develop and commercialize methylnaltrexone, the active ingredient of RELISTOR, under license
from the University of Chicago. We have the obligation under the license to make milestone and royalty payments to the University
in connection with that development and commercialization that in general extend to the expiration of the last-to-expire patent.
• Under an exclusive License Agreement, we have licensed to Ono Pharmaceutical the rights to subcutaneous RELISTOR in
Japan. Under the Ono License, Ono is responsible for developing and commercializing subcutaneous RELISTOR in Japan, including
conducting the clinical development necessary to support regulatory marketing approval. Ono is to own the subcutaneous filings and
approvals relating to RELISTOR in Japan. We have received a $15.0 million upfront payment from Ono, and are entitled to receive up
to an additional $20.0 million, payable upon achievement of development milestones. Ono is also obligated to pay to us royalties and
commercialization milestones on sales by Ono of subcutaneous RELISTOR in Japan. Ono has the option to acquire from us the rights
to develop and commercialize in Japan other formulations of RELISTOR, including intravenous and oral forms, on terms to be
negotiated separately. Supervision of and consultation with respect to Ono’s development and commercialization responsibilities will
be carried out by joint committees consisting of members from both Ono and us. Ono may request us to perform activities related to
its development and commercialization responsibilities beyond our participation in these committees and specified technology
transfer-related tasks which will be at its expense, and payable to us for the services it requests, at the time we perform services for
them. The Ono License contains, among other terms, provisions which allow termination by either party upon the occurrence of
certain events.
• Protein Design Labs (now Facet Biotech Corporation) humanized a murine monoclonal antibody developed by us
(humanized PRO 140) and granted us related licenses under patents and patent applications, in addition to know-how. In general, these
licenses are fully paid after the latest of (i) the tenth anniversary of the first commercial sale of a product developed thereunder, (ii)
expiration of the last-to-expire patent or (iii) the tenth anniversary of the latest filed pending patent application. Pending U.S. and
international patent applications and patent-term extensions may extend the period of our license rights when and if they are allowed,
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issued or granted. We may terminate the license on 60 days prior written notice, and either party may terminate on 30 days prior
written notice for an uncured material breach (ten days for payment default). As of December 31, 2008, we have paid Facet’s
predecessors $5.2 million, and if all milestones are achieved, we will be obligated to pay an additional approximately $2.0 million. We
are also required to pay annual maintenance fees of $150,000 and royalties on sales of products developed under the license.
• 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.
• For a number of years, we have been party to a license agreement with Columbia University under which we obtained rights
to technology and materials for a program we have since terminated. As of December 31, 2008, we had paid Columbia a total of
$890,000 under this license agreement, including $25,000 in royalties. In January 2009, we and Columbia agreed to terminate and
amend certain rights granted in this license in exchange for a one-time payment of $300,000, which was accrued as of December 31,
2008. Under this new arrangement, we retain rights to certain technology for sales of reagents and other purposes, subject to royalties.
We do not expect this new agreement will be material to us.
• For a number of years, we were party to a license and supply agreement with Aquila Biopharmaceuticals, Inc., a wholly
owned subsidiary of Antigenics Inc., for a program we have since terminated. In November 2008, the agreement was terminated and
a portion of the contingent shares issued to Aquila in connection with the agreement have since been cancelled. We do not believe this
matter will have any material effect on us.
PSMA LLC Licenses
• PSMA LLC has a worldwide exclusive licensing agreement with Abgenix (now Amgen Fremont, Inc.) to use its
XenoMouse® technology for generating fully human antibodies to PSMA LLC’s PSMA antigen. PSMA LLC is obligated to make
payments under this license 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, 2008, PSMA
LLC has paid to Abgenix $850,000 under this agreement. If PSMA LLC achieves certain milestones specified under the agreement, it
will be obligated to pay Abgenix 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.
• PSMA LLC also has a worldwide exclusive license agreement with AlphaVax Human Vaccines to use its AlphaVax
Replicon Vector system to create a therapeutic prostate cancer vaccine incorporating PSMA LLC’s proprietary PSMA antigen. PSMA
LLC is obligated to make payments under the license upon the occurrence of certain milestones associated with the development and
commercialization program for products incorporating AlphaVax’s system. As of December 31, 2008, PSMA LLC has paid to
AlphaVax $1.7 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 $5.3 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. Pending U.S. and international patent applications and patent-term
extensions may extend the period of our license rights when and if they are allowed, issued or granted.
• PSMA LLC has a collaboration agreement with Seattle Genetics, Inc., under which SGI has granted PSMA LLC an
exclusive worldwide license to its proprietary ADC technology. Under the license, PSMA LLC has the right to use this technology to
link chemotherapeutic agents to PSMA LLC’s monoclonal antibodies that target prostate specific membrane antigen. 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 ADCs for both research and commercial use. Under the agreement, PSMA LLC is
obligated to make maintenance payments, additional payments aggregating up to $14.0 million upon the achievement of certain
milestones and to pay royalties to SGI and its licensors, as applicable, on a percentage of net sales. 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
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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, 2008, PSMA LLC has paid to SGI approximately $3.6 million under this
agreement, including $1.0 million in milestone payments.
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 supportive care, virology and cancer areas is currently
comprised, on a worldwide basis, of 171 patents that have been issued and 254 pending patent applications, which we either own
directly or of which we are the exclusive licensee. Our issued patents expire on dates ranging from 2010 through 2026. 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 others investigating methylnaltrexone and other peripheral opioid antagonists, PSMA or related
compounds, CCR5 monoclonal antibodies and HCV viral entry inhibitors, and of patents and applications held or filed by others in
those areas. While the validity of issued patents, patentability of claimed inventions in pending applications and applicability of any of
them to our programs are uncertain, patent rights asserted against us could adversely affect our ability to commercialize or collaborate
with others regarding our products.
The research, development and commercialization of a biopharmaceutical product often present alternative development and
optimization routes at various stages in the development process. Preferred routes cannot be identified with certainty at the outset
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
under a patent, which could decrease the ultimate profitability of the applicable product. If we cannot negotiate a license, pursuit of a
less desirable development route or termination of the entire program may be necessary.
Government Regulation
Progenics and its product candidates are subject to comprehensive regulation by the FDA and comparable authorities in other
countries. Pharmaceutical regulation currently is a topic of substantial interest in lawmaking and regulatory bodies in the U.S. and
internationally, and numerous proposals exist for changes in FDA and non-U.S. regulation of pre-clinical and clinical testing, safety,
effectiveness, approval, manufacture, labeling, marketing, export, storage, recordkeeping, advertising, promotion and other aspects of
biologics, small molecule drugs and medical devices, many of which, if adopted, could significantly alter our business and the current
regulatory structure described below.
FDA Regulation. FDA approval of our product candidates, including a review of the manufacturing processes and facilities
used to produce them, are required before they may be marketed in the U.S. This process is costly, time consuming and subject to
unanticipated delays, and a drug candidate may fail to progress at any point.
9
None of our product candidates other than RELISTOR has received marketing approval from the FDA or any other
regulatory authority. The process required by the FDA before 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 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 (animal and other nonclinical studies also are typically conducted during each phase of human clinical trials);
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.
Results of 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 becomes 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, parameters
used to monitor safety and 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, safety of human subjects, possible liability of the
institution and 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. Phase 2 results do not
guarantee a similar outcome in phase 3 trials. 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. Supplemental
NDAs (sNDAs) are submitted to obtain regulatory approval for additional indications for a previously approved drug.
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
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review and interpretation by the FDA, which may differ from our analysis. We cannot assure you that our data or our interpretation of
data will be accepted by the FDA. In any event, the FDA must deny an NDA or BLA if applicable regulatory requirements are not
ultimately satisfied. In addition, we may encounter delays or rejections based upon changes in applicable law or FDA policy during
the period of product development and FDA regulatory review. 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 Union, Canada, Australia and Japan, regulatory requirements and approval processes are similar in principle
to those in the United States. Regulatory approval in Japan requires that clinical trials of new drugs be conducted in Japanese patients.
Depending on the type of drug for which approval is sought, there are currently two potential tracks for marketing approval in the E.U.
countries: mutual recognition and the centralized procedure. These review mechanisms may ultimately lead to approval in all E.U.
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 E.U.
mutual recognition process involves country-by-country approval.
In other countries, regulatory requirements may require additional pre-clinical or clinical testing regardless of whether FDA
approval has been obtained. This is the case in Japan, where Ono is responsible for developing and commercializing the subcutaneous
form of RELISTOR and where trials are required to involve patient populations which we and Wyeth have not examined in detail. 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
Wyeth is responsible for the supply of RELISTOR for clinical-trial and commercial requirements under the Collaboration
Agreement, and Ono has similar obligations under the Ono License.
We have contracted with a third-party contract manufacturing organization (CMO) to produce PRO 140 for our ongoing
clinical trials. We currently manufacture clinical trial supplies of our PSMA monoclonal antibody in our biologics pilot production
facilities in Tarrytown, New York, utilizing two 150-liter bioreactors, and have engaged CMOs for other portions of the PSMA-ADC
manufacturing process. We expect our manufacturing capacity will not be sufficient for all of our late-stage clinical trials or
commercial-scale requirements. If we are unable to arrange for satisfactory CMO services, or otherwise determine to acquire
additional manufacturing capacity, we will need to expand our manufacturing staff and facilities or obtain new facilities. In order to
establish a full-scale commercial manufacturing facility for any of our product candidates, we would need to spend substantial
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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 organizations to perform promotional and/or medical-scientific support functions 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, 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 for-profit 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.
RELISTOR is the first FDA-approved product for any indication involving OIC. We are, however, aware of products in pre-
clinical or clinical development that target the side effects of opioid pain therapy. Nektar Therapeutics has completed a phase 2 study
in patients with OIC of an oral peripheral opioid antagonist. Sucampo Pharmaceuticals, Inc., in collaboration with Takeda
Pharmaceutical Company Limited, is currently conducting phase 3 pivotal clinical trials of AMITIZA® (lubiprostone) for the
treatment of opioid-induced bowel dysfunction. In addition, Adolor Corporation markets ENTEREG® (alvimopan) for the treatment of
post-operative ileus, and in Europe Mundipharma International markets TARGIN® (oxycodone/naloxone, a combination of an opioid
and a systemic opioid antagonist).
Five classes of products have been approved for marketing by the FDA for the treatment of HIV infection and AIDS. These
drugs have shown efficacy in reducing the concentration of HIV in the blood and prolonging asymptomatic periods in HIV-positive
individuals. All have been required to show efficacy in conjunction with other agents, which we have not demonstrated for PRO 140.
We are aware of several competitors that are marketing or developing small-molecule viral-entry-inhibitor treatments directed against
CCR5 for HIV infection, including Pfizer’s SELZENTRY™ (maraviroc) tablets and Trimeris’ FUZEON®, but we are unaware of any
antibody-based viral-entry inhibitor treatments at PRO 140’s stage of clinical development. We are also aware of various HCV drugs
in pre-clinical or clinical development.
HCV infection is most commonly treated by a combination of interferon and ribavirin. Seroconversion and/or sustained
response to such therapies ranges from 30-50%. Tolerability and route of administration for this therapy may compromise a patient’s
ability to persist with treatment for the 48-72 months sometimes required. We are aware of several competitors who are developing
small molecule HCV antivirals, including viral-entry inhibition-based treatments.
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, hormone (androgen) suppression therapy is often used to slow the cancer’s
progression. This form of treatment, however, can eventually become ineffective. We are aware of several competitors who are
developing alternative treatments for castrate-resistant prostate cancer, 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
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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 products is based on, among other things, (i) product efficacy, safety,
reliability, method of administration, availability, price and clinical benefit relative to cost; (ii) timing and scope of regulatory
approval; (iii) sales, marketing and manufacturing capabilities; (iv) collaborator capabilities; (v) insurance and other reimbursement
coverage; and (vi) patent protection.
Our competitive position will also depend on 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.
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, 2008, we had 244 full-time employees, 37 of whom hold Ph.D. degrees, 7 of whom hold M.D. degrees and
two 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, 192 employees were engaged in research and development, medical, regulatory affairs and manufacturing
activities and 52 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. We must
complete successfully clinical trials and obtain regulatory approvals for our product candidates as well as additional formulations of
and indications for RELISTOR. In the Japanese market, we must rely on Ono to conduct successful clinical trials and obtain
regulatory approvals. Our other research and development programs, including those related to PSMA and PRO 140, involve novel
approaches to human therapeutics. There is little precedent for the successful commercialization of products based on our
technologies, and there are a number of technological challenges that we must overcome to complete most of our development efforts.
We may not be able successfully to develop further any of our products.
We are dependent on Wyeth and Ono to develop and commercialize RELISTOR in their respective areas, exposing us to
significant risks, including that Wyeth’s announced acquisition by Pfizer may adversely affect our Collaboration.
We are dependent upon Wyeth and Ono in their respective territories to perform and fund development, including clinical
testing of RELISTOR, make related regulatory filings and manufacture and market products. Revenues from the sale of RELISTOR
depend almost entirely upon the efforts of Wyeth and, in Japan, Ono. Wyeth and Ono have significant discretion in determining the
efforts and resources they apply to sales of the RELISTOR products in their territories and may not be effective in marketing such
products. Our business relationships with Wyeth and Ono may not be scientifically, clinically or commercially successful.
Wyeth is a large, diversified pharmaceutical company with global operations and its own corporate objectives, which may
not be consistent with our best interests. In addition, Wyeth and Pfizer have recently entered a definitive agreement under which Pfizer
is to acquire Wyeth. We cannot predict how a combined Pfizer and Wyeth may view the utility and attractiveness of our
Collaboration. As a result of completion of this proposed acquisition or for other reasons, Wyeth or Pfizer may change its strategic
focus or pursue alternative technologies in a manner that results in reduced or delayed revenues to us. We cannot predict whether a
combined Pfizer and Wyeth will determine to continue, seek to change or terminate our Collaboration, or devote the same resources
Wyeth currently dedicates to it. If a combined Wyeth and Pfizer were to terminate the Collaboration, we would no longer receive
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milestone and royalty payments and would need to undertake development and commercialization of RELISTOR ourselves or through
another collaboration or licensing arrangement. We may not learn of their plans for RELISTOR and our Collaboration unless and until
the proposed transaction closes.
If our relationship with Wyeth or Ono terminates and we seek alternative arrangements with one or more other parties to
develop and commercialize RELISTOR, we may not be able to enter into such an agreement with other suitable companies on
acceptable terms or at all. To continue to develop and commercialize RELISTOR on our own, we would have to develop 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 financial resources and profitability. A termination of
our relationship with Wyeth could also seriously compromise the development program for RELISTOR and possibly our other
product candidates, as we could experience significant delays 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.
Our relationships with Wyeth and Ono are multi-faceted and involve complex sharing of control over decisions,
responsibilities, costs and benefits. We have had and may have future disagreements with them concerning product development,
marketing strategies, manufacturing and supply issues, and rights relating to intellectual property. Both Wyeth and Ono have
significantly greater financial and managerial resources than we do, which either could draw upon in the event of a dispute.
Disagreements between either of them 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.
Regulatory approvals are necessary before product candidates can be marketed. To obtain them, 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, such as:
•
•
•
results of pre-clinical studies being inconclusive or not indicative of results in human clinical trials;
potential products not having the desired efficacy or having 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 in later clinical trials. In addition, many of our investigational or experimental drugs, such as PRO 140, PRO 206
and the PSMA product candidates, are at an early stage of development, and successful commercialization of early stage product
candidates requires significant 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, which
could adversely affect our operating results and credibility.
A setback in clinical development programs could adversely affect us.
We and Wyeth continue to conduct clinical trials of RELISTOR. If the results of these or future trials are not satisfactory, we
encounter problems enrolling subjects, clinical trial supply issues or other difficulties arise, or we experience setbacks in developing
drug formulations, including raw material-supply, manufacturing or stability difficulties, our entire RELISTOR development program
could be adversely affected, resulting in delays in trials or regulatory filings for further marketing approval. Conducting additional
clinical trials or making significant revisions to our clinical development plan would lead to delays in regulatory filings. If clinical
trials indicate a serious problem with the safety or efficacy of a RELISTOR product, Wyeth may terminate the Collaboration
Agreement or stop development or commercialization of affected products. Since RELISTOR is our only approved product, any
setback of these types could have a material adverse effect on our business, results of operations and financial condition.
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Ono must conduct clinical trials with Japanese patients to obtain regulatory approval in Japan. We have not tested
RELISTOR in Japanese patients, and there can be no assurance that clinical trials of RELISTOR in Japanese patients will yield results
adequate for regulatory approval in Japan.
We are conducting or planning clinical trials of PRO 140, PSMA ADC and prostate cancer vaccine candidates. If the results
of our future clinical studies of PRO 140 or PSMA ADC 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. Because our vaccine product candidates may be deemed to involve gene therapy, a relatively new
technology that has not been extensively tested in humans, regulatory requirements applicable to them may be unclear, or subject to
substantial regulatory review that delays the development and approval process generally.
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, 2008, we had an accumulated deficit of $298.7
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 for and then
commercializing our products, either alone or with others. We may not be able to develop and commercialize products beyond
subcutaneous RELISTOR. Our operations may not be profitable even if any of our other products under development are
commercialized.
We are likely to need additional financing, but our access to capital funding is uncertain.
As of December 31, 2008, we had cash, cash equivalents and marketable securities, including non-current portion, totaling
$141.4 million. During the year ended December 31, 2008, we had a net loss of $44.7 million and cash used in operating activities was
$28.3 million.
Although our spending on RELISTOR has been significant during 2007 and 2008, our net expenses for RELISTOR have
been reimbursed by Wyeth under the Collaboration Agreement. We expect our spending on RELISTOR will decline in 2009 and
thereafter, which will result in less reimbursement by Wyeth.
With regard to other product candidates, we expect to continue to incur significant development expenditures, and do not
have committed external sources of funding for most of these projects. These expenditures will be funded from cash on hand, or we
may seek additional external funding for them, most likely through collaborative, license or royalty financing agreements with one or
more pharmaceutical companies, securities issuances or government grants or contracts. We cannot predict when we will need
additional funds, how much we will need or if additional funds will be available, especially in light of current conditions in global
credit and financial markets. Our need for future funding will depend on numerous factors, such as the availability of new product
development projects or other opportunities which we cannot predict, and many of which are outside our control.
Our access to capital funding is always uncertain. Recent turmoil in the international capital markets has exacerbated this
uncertainty. 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 existing stockholders. If we
raise funds by selling equity securities, current stockholders will be diluted, and new investors could have rights superior to existing
stockholders. Raising funds by selling debt securities often entails significant restrictive covenants and repayment obligations.
A substantial portion of our cash and cash equivalents are guaranteed by the U.S. Treasury or Federal Deposit Insurance
Corporation’s guarantee programs. Our marketable securities, which include corporate debt securities, securities of government-
sponsored entities and auction rate securities, are classified as available for sale and are predominantly not guaranteed. These
investments, while rated investment grade by the Standard & Poor’s and Moody’s rating agencies and predominantly having
scheduled maturities in the first three quarters of 2009, are heavily concentrated in the U.S. financial sector, which continues to be
under extreme stress.
As a result of recent changes in general market conditions, we determined to reduce the principal amount of auction rate
securities in our portfolio as they came up for auction and invest the proceeds in other securities in accordance with our investment
guidelines. Beginning in February 2008, auctions failed for certain of our auction rate securities because sell orders exceeded buy
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orders. As a result, at December 31, 2008, we continue to hold approximately $4.1 million of auction rate securities which, in the
event of auction failure, have been reset according to the contractual terms in the governing instruments. To date, we have received all
scheduled interest payments on these securities. The principal amount of these remaining auction rate securities 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 monitor markets for our investments, but cannot guarantee that additional losses will not be required to be recorded.
Valuation of securities 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, ongoing strength and quality of market credit and liquidity and general economic and market conditions.
Our clinical trials could take longer than we expect.
Forecasts we publicly announce of commencement and completion times for clinical trials may not be accurate. 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;
• scheduling conflicts with participating clinicians and clinical institutions;
• disagreements, disputes or other matters arising from collaborations;
• our inability to obtain additional funding when needed; and
• manufacturing problems.
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, including all trials outside
of the United States other than Japan, where Ono has the responsibility for clinical trials. We have less control over the timing and
other aspects of these clinical trials than if we conducted them entirely on our own.
These events may impair investors’ confidence in our ability to develop products 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 and comparable authorities in other countries.
These agencies and other entities regulate the pre-clinical and clinical testing, safety, effectiveness, approval, manufacture, labeling,
marketing, export, storage, recordkeeping, advertising, promotion and other aspects of our 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. We cannot guarantee that approvals of
proposed products, processes or facilities will be granted on a timely basis, or at all. If we experience delays or failures in obtaining
approvals, commercialization of our product candidates will 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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Our product candidates may not obtain regulatory approvals needed for marketing, and may face challenges after approval.
None of our product candidates other than RELISTOR 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. 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), or may be required to carry “black box” or other warnings that adversely affect
their commercial success;
• 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, or subject to an FDA-imposed Risk
Evaluation and Mitigation Strategy (REMS) that limits the sources from and conditions under which they may be
dispensed;
• 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 efficacy or safety
concerns regarding marketed products, whether or not originating from subsequent testing or other activities by us,
governmental regulators, other entities or organizations or otherwise, and whether or not scientifically justified, may
lead to product recalls, withdrawals of marketing approval, reformulation of the product, additional pre-clinical
testing or clinical trials, changes in labeling of the product, the need for additional marketing applications, declining
sales or other adverse events;
• we or our collaborators might experience manufacturing problems, which could have the same, similar or other
consequences; and
• we and our collaborators will be subject to ongoing FDA obligations and continuous regulatory review.
If products fail to receive marketing approval or lose previously received approvals, our financial results would be adversely
affected.
Even if our products obtain marketing approval, they might not be accepted in the marketplace.
The commercial success of our products will depend upon their acceptance by the medical community and third party payors
as clinically useful, cost effective and safe. If health care providers believe that patients can be managed adequately with alternative,
currently available therapies, they may not prescribe our products, especially if the alternative therapies are viewed as more effective,
as having a better safety or tolerability profile, as being more convenient to the patient or health care providers or as being less
expensive. For pharmaceuticals administered in an institutional setting, the ability of the institution to be adequately reimbursed could
also play a significant role in demand for our products. Even if our products obtain marketing approval, they may not achieve market
acceptance. If any of our products do not achieve market acceptance, we will likely lose our entire investment in that product.
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. There
are also products in pre-clinical or clinical development that target the side effects of opioid pain therapy, and Adolor Corporation
markets ENTEREG® (alvimopan) for the treatment of post-operative ileus, which could 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. Competition with respect to our
technologies and products is based on, among other things, (i) product efficacy, safety, reliability, method of administration,
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availability, price and clinical benefit relative to cost; (ii) timing and scope of regulatory approval; (iii) sales, marketing and
manufacturing capabilities; (iv) collaborator capabilities; (v) insurance and other reimbursement coverage; and (vi) patent protection.
Competitive disadvantages in any of these factors could materially harm our business and financial condition.
Competing products may adversely affect our products.
We are aware that Adolor Corporation, in collaboration with GlaxoSmithKline, received FDA approval in May 2008 for
ENTEREG® (alvimopan), an oral form of an opioid antagonist, for postoperative ileus, “to accelerate the time to upper and lower
gastrointestinal recovery following partial large or small bowel resection surgery with primary anastomosis.” We are also aware that
Sucampo Pharmaceuticals, Inc., in collaboration with Takeda Pharmaceutical Company Limited, is currently conducting phase 3
pivotal clinical trials of AMITIZA® (lubiprostone) for the treatment of opioid-induced bowel dysfunction, and that Nektar
Therapeutics has completed a phase 2 study of an oral once-a-day peripheral opioid antagonist in patients with OIC. In Europe, we are
aware that Mundipharma International markets TARGIN® (oxycodone/naloxone, a combination of an opioid and systemic opioid
antagonist). Any of these drugs may achieve a significant competitive advantage relative to our product. In any event, the considerable
marketing and sales capabilities of GSK and Takeda may impair our ability to compete effectively in the market.
In the case of PRO 140, five classes of products have been approved for marketing by the FDA for the treatment of HIV
infection and AIDS. These drugs have shown efficacy in reducing the concentration of HIV in the blood and prolonging asymptomatic
periods in HIV-positive individuals. All have been required to show efficacy in conjunction with other agents, which we have not
demonstrated for PRO 140. We are aware of two approved drugs designed to treat HIV infection by blocking viral entry (Trimeris’
FUZEON® and Pfizer’s SELZENTRY™). We are also aware of various HCV drugs in pre-clinical or clinical development.
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 entering into collaborations with pharmaceutical and biotechnology companies to develop and
commercialize product candidates and technologies. 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, seeking additional sources of capital, 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 achieve milestones or satisfy conditions regarding some of our product candidates, we may not maintain our
rights under related licenses.
We are required to make substantial cash payments, achieve 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 license agreements, the licensors may terminate them, which could result in our losing our rights to, and therefore
being unable to commercialize, related products.
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. 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. These facilities will
not be sufficient for late-stage clinical trials for these types of product candidates or commercial-scale manufacturing. 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
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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 product candidates. Our third-party
sourcing strategy may not result in a cost-effective means for manufacturing products. In employing third-party manufacturers, we do
not control many aspects of the manufacturing process, including compliance 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, patent applications owned by or licensed to us may not result in patents being issued. We are aware of others who 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. 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, which can be challenged in litigation. Our patents may be successfully challenged. We may incur substantial costs in
litigation seeking 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.
The license agreements from which we derive or out-license intellectual property provide for various royalty, milestone and
other payment, commercialization, sublicensing, patent prosecution and enforcement, insurance, indemnification and other obligations
and rights, and are subject to certain reservations of rights. While we generally 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, we must usually bear the cost of doing so. Under the Wyeth
Collaboration Agreement, Wyeth has the right, at its expense, to defend and enforce the RELISTOR patents licensed to Wyeth by us.
With respect to Japan, Ono has certain limited rights to prosecute, maintain and enforce relevant intellectual property. With most of
our in-licenses, the licensor bears the cost of engaging in all of these activities, although we may share in those costs under specified
circumstances.
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
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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 under 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 have entered into agreements under which we depend
on Wyeth and Ono, respectively, for the commercialization and development of RELISTOR. We may not be able to maintain 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.
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. Our employment agreement with Dr. Maddon is effective on a year-to-year basis, subject to
automatic renewal unless either party terminates. 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.
We currently obtain supplies of critical raw materials used in production 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 for
RELISTOR, 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.
20
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, albeit decreasing in 2007 and 2008, has been derived from federal government
grants and research contracts. During the years ended December 31, 2006, 2007 and 2008, we generated revenues from awards made
to us by the NIH between 2003 and 2008, to partially fund some of our programs. 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. 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. Therefore, we will need to provide funding on our own or obtain other funding.
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 change the nature of and regulatory requirements relating to drug
discovery, clinical testing and regulatory approvals, limit or eliminate payments for medical procedures and treatments, or subject the
pricing of pharmaceuticals to government control. In some foreign countries, particularly member states of the European Union, the
pricing of prescription pharmaceuticals is subject to governmental control. In addition, as a result of the trend towards managed health
care in the U.S., as well as legislative proposals to reduce government insurance programs, third-party payors are increasingly
attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drug products. Consequently,
significant uncertainty exists as to the reimbursement status of newly approved health care products.
If we or any of our collaborators succeed in bringing one or more of our products to market, third party payors may establish
and maintain price levels insufficient for us to realize an appropriate return on our investment in product development. Significant
changes in the health care system in the U.S. or elsewhere, including changes resulting from adverse trends in third-party
reimbursement programs, could have a material adverse effect on our operating results and our ability to raise capital and
commercialize products.
We are exposed to product liability claims, and in the future we may not be able to obtain insurance against these claims at a
reasonable cost or at all.
Our business exposes us to product liability risks, which are inherent in the testing, manufacturing, marketing and sale of
pharmaceutical products. We may not be able to avoid product liability exposure. If a product liability claim is successfully brought
against us, our financial position may be adversely affected.
Product liability insurance for the biopharmaceutical industry is generally expensive, when available at all. We have obtained
product liability insurance in the amount of $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.
21
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, 2006 and December 31, 2008, our stock price has
ranged from $30.83 to $4.33 per share. Between January 1, 2009 and March 6, 2009, it has ranged from $5.53 to $10.81 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, and current financial and market conditions have resulted in
widespread pressures on securities of issuers throughout the world economy. 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 relationships with Wyeth and Ono 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;
• our ability to fund on-going operations;
• fluctuations in our operating results; and
• general market conditions.
Purchases of our common shares pursuant to our April 24, 2008 announcement of our $15.0 million share repurchase
program may, depending on their timing, volume and form, result in our stock price to be higher than it would be in the absence of
such purchases. If purchases under the program are not initiated or are discontinued, our stock price may fall.
Our principal stockholders are able to exert significant influence over matters submitted to stockholders for approval.
At December 31, 2008, 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 five 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
22
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. 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, 2008.
Item 2. Properties
As of December 31, 2008, we occupy in total approximately 145,900 square feet of laboratory, manufacturing and office
space on a single campus in Tarrytown, New York, as follows:
Leased
Space
Area
(Square Feet)
Termination
Date
Other Terms
Sublease 1
91,700
December 30, 2009
Lease 1
32,600
December 31, 2009
Renewable for two five-year terms
Sublease 2
5,900
June 29, 2012
Four months rent-free beginning April 1, 2006;
Lease 2
Lease 3
December 31, 2014
converts to Lease 2
9,200
June 29, 2012
Three months rent-free beginning August 13,
2007; renewable for two five-year terms; lease
incentive of $276,300 provided by landlord
Lease 4
6,500
August 31, 2012
Renewable for two terms co-terminous with
Lease 1
Total
145,900
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 2008.
23
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, 2007
First quarter
Second quarter
Third quarter
Fourth quarter
Year ended December 31, 2008
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$
30.31 $ 22.02
21.14
27.59
20.55
26.10
17.77
23.98
19.25
17.94
17.50
14.10
4.33
6.66
11.88
6.77
On March 6, 2009, the last sale price for our common stock, as reported by The NASDAQ Stock Market LLC, was $5.75.
There were approximately 354 holders of record of our common stock as of March 6, 2009.
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, 2003.
200
150
100
50
0
D
O
L
L
A
R
S
Dividends
12.31.03
12.31.04
12.31.05
12.31.06
12.31.07
12.31.08
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.
24
Share Repurchase Program
During 2008, we repurchased 200,000 of our outstanding common shares; we did not repurchase any during the fourth
quarter (see Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview).
25
Item 6. Selected Financial Data
The selected financial data presented below as of December 31, 2007 and 2008 and for each of the three years in the period
ended December 31, 2008 are derived from our audited financial statements, included elsewhere herein. The selected financial data
presented below with respect to the balance sheet data as of December 31, 2004, 2005 and 2006 and for each of the two years in the
period ended December 31, 2005 are derived from our 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.
Statement of Operations Data:
Revenues:
Research and development from collaborator
Royalty income
Research and development from joint venture
Research grants and contracts
Other revenues
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
Years Ended December 31,
2004
2005
2006
2007
2008
(in thousands, except per share data)
$ -
-
2,008
7,483
85
9,576
35,673
-
390
12,580
2,134
1,566
52,343
(42,767)
780
-
(31)
749
(42,018)
-
$(42,018)
$ -
-
988
8,432
66
9,486
43,419
-
20,418
13,565
1,863
1,748
81,013
(71,527)
2,299
-
-
2,299
(69,228)
(201)
$(69,429)
$58,415
-
-
11,418
73
69,906
61,711
13,209
390
22,259
121
1,535
99,225
(29,319)
7,701
-
-
7,701
(21,618)
-
$(21,618)
$65,455
-
-
10,075
116
75,646
95,234
-
942
27,901
-
3,027
127,104
(51,458)
7,770
-
-
7,770
(43,688)
-
$(43,688)
$59,885
146
-
7,460
180
67,671
82,305
-
2,830
28,834
-
4,609
118,578
(50,907)
6,235
-
-
6,235
(44,672)
-
$(44,672)
$(2.48)
$(3.33)
$(0.84)
$(1.60)
$(1.51)
December 31,
2004
2005
2006
2007
2008
(in thousands)
$31,207
25,667
39,545
-
42
31,838
$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
$141,374
85,983
157,833
-
266
119,369
26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
General. We are a biopharmaceutical company focusing on the development and commercialization of innovative therapeutic
products to treat the unmet medical needs of patients with debilitating conditions and life-threatening diseases. Our principal programs
are directed toward supportive care, virology and oncology. We commenced principal operations in 1988, became publicly traded in
1997 and throughout have been engaged primarily in research and development efforts, developing manufacturing capabilities,
establishing corporate collaborations and raising capital. We have only recently begun to derive revenue from a commercial product.
In order to commercialize the principal products that we have under development, we have been and continue to address a number of
technological and clinical challenges and comply with comprehensive U.S. and non-U.S. regulatory requirements. 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 sources of revenues through December 31, 2008 have been payments under our current and former collaboration
agreements, from PSMA LLC, from research grants and contracts from the NIH related to our cancer and virology programs, from
interest income and royalties. Beginning in January 2006, we have been recognizing revenues from Wyeth for reimbursement of our
development expenses for RELISTOR as incurred, for the $60.0 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, 2007 or 2008, since during 2006, prior to our
acquisition of our former partner’s membership interest in PSMA LLC on April 20, 2006, the partners 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 2008, expenses for our HIV
research program have increased significantly over those in 2006 and 2007 while expenses for our RELISTOR and cancer research
programs declined compared to 2006 and 2007. We expect our expenses for RELISTOR will decline in 2009 and thereafter, which
will result in less reimbursement revenues from Wyeth. We expect to incur significant development expenses for our other programs
as these programs progress. A portion of these expenses is reimbursed through government funding.
At December 31, 2008, we had cash, cash equivalents and marketable securities totaling $141.4 million. We expect that cash,
cash equivalents and marketable securities on hand at December 31, 2008 will be sufficient to fund operations at current levels beyond
one year. Cash used in operating activities for the year ended December 31, 2008 was $28.3 million. We have had recurring losses and
had, at December 31, 2008, an accumulated deficit of $298.7 million. During the year ended December 31, 2008, we had a net loss of
$44.7 million. Our most recent public offering of common stock occurred during the year ended December 31, 2007, and we received
net proceeds of $57.1 million. Other than potential revenues from RELISTOR, which we expect to decline, we do not anticipate
generating significant recurring revenues, from royalties, product sales or otherwise, in the near term, and we expect to incur
significant expenses. 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 or government funding, but may also not be available
to us on acceptable terms or at all.
Supportive Care. Our first commercial product, RELISTOR®, was approved by the FDA for sale in the United States in April
2008. Our collaboration partner, Wyeth Pharmaceuticals, commenced sales of RELISTOR subcutaneous injection in June, and we
have begun earning royalties on world-wide sales. Regulatory approvals have also been obtained in Canada, the European Union,
Australia and Venezuela, and marketing applications have been approved or are pending or scheduled in other countries. In October,
we out-licensed to Ono Pharmaceutical Co., Ltd., Osaka, Japan, the rights to subcutaneous RELISTOR in Japan. We continue
development and clinical trials with respect to other indications for RELISTOR.
In January 2009, Wyeth and Pfizer Inc. announced a definitive agreement under which Pfizer is to acquire Wyeth. We
understand that the transaction is currently expected to close in late 2009 and is subject to a variety of conditions. The proposed
acquisition of Wyeth by Pfizer does not trigger any change-of-control provisions in our collaboration with Wyeth, and we believe that
if the acquisition occurs, the combined Pfizer/Wyeth organization will continue to have the same rights and responsibilities under the
Collaboration following the acquisition as Wyeth had before. We cannot, however, predict how a combined Pfizer and Wyeth may
view the utility and attractiveness of our Collaboration. As a result of completion of this proposed acquisition or for other reasons,
Wyeth or Pfizer may change its strategic focus or pursue alternative technologies in a manner that results in reduced or delayed
revenues to us. We cannot predict whether a combined Pfizer and Wyeth will determine to continue, seek to change or terminate our
27
Collaboration, or devote the same resources Wyeth currently dedicates to it. If a combined Wyeth and Pfizer were to terminate the
Collaboration, we would no longer receive milestone and royalty payments and would need to undertake development and
commercialization of RELISTOR ourselves or through another collaboration or licensing arrangement. We may not learn of their
plans for RELISTOR and our Collaboration unless and until the proposed transaction closes.
In 2008, we earned $25.0 million in milestone payments from Wyeth for FDA and European approvals of subcutaneous
RELISTOR for the advanced illness setting, and in the second quarter of 2008 began earning royalties on Wyeth’s sales of that
product. In April 2008, our Board of Directors approved a share repurchase program to acquire up to $15.0 million of our outstanding
common shares, funding for which came from the $15.0 million milestone payment we received from Wyeth related to U.S. marketing
approval for RELISTOR. Purchases under the program were to be made at our discretion subject to market conditions in the open-
market or otherwise, and in accordance with the regulations of the SEC, including Rule 10b-18. During 2008, we repurchased 200,000
of our outstanding common shares. Purchases may be discontinued at any time. Reacquired shares will be held in treasury until
redeployed or retired. We have $12.3 million remaining available for purchases under the program.
We and Wyeth are also developing subcutaneous RELISTOR for treatment of OIC outside the advanced illness setting, in
individuals with chronic pain not related to cancer, such as severe back pain that requires treatment with opioids (a phase 3 trial
conducted by Wyeth), and in individuals rehabilitating from an orthopedic surgical procedure in whom opioids are used to control
post-operative pain (a hypothesis generating phase 2 trial conducted by us). We are no longer enrolling patients in this latter trial and
are analyzing data from the treated population. Based on positive results from the one-month blinded portion of the phase 3 chronic
pain study, we and Wyeth recently initiated and FDA-required one-year, open-label safety study in chronic, non-cancer pain patients
which is intended to yield a consolidated safety database to enable filing an sNDA, which is now planned for submission by the end of
2010 for treatment of OIC in the chronic, non-cancer pain population.
We and Wyeth also have had in development an intravenous formulation of RELISTOR for the management of POI, a
temporary impairment of the gastrointestinal tract function. Results from two phase 3 clinical trials of this formulation showed that
treatment did not achieve primary or secondary end points. Recent results from a third phase 3 trial evaluating an intravenous
formulation of RELISTOR in patients following abdominal hernia repair have confirmed these earlier findings.
Wyeth is leading development of an oral formulation of RELISTOR for the treatment of OIC in patients with chronic, non-
cancer pain. We and Wyeth are evaluating information from optimization studies of a formulation of this product candidate to
determine the next stages of development.
Development and commercialization of RELISTOR is being conducted under the Wyeth Collaboration Agreement. Under
that agreement, we (i) have received an upfront payment from Wyeth, (ii) have received and are entitled to receive further additional
payments as certain developmental milestones for RELISTOR are achieved, (iii) have been and are entitled to be reimbursed by
Wyeth for expenses we incur in connection with the development of RELISTOR under an agreed-upon development plan and budget,
and (iv) have received and are entitled to receive royalties and commercialization milestone payments. These payments will depend on
continued success in development and commercialization of RELISTOR, which are in turn dependent on the actions of Wyeth and the
FDA and other regulatory bodies, as well as the outcome of clinical and other testing of RELISTOR. Many of these matters are
outside our control. Manufacturing and commercialization expenses for RELISTOR are funded by Wyeth. Wyeth has elected, as it
was entitled to do under the Collaboration Agreement, not to develop RELISTOR in Japan, and as provided in that Collaboration
Agreement returned to us the rights to RELISTOR in Japan. As discussed below, we have out-licensed the rights to subcutaneous
RELISTOR in Japan which we reacquired from Wyeth as a result of its election.
At inception of the Wyeth collaboration, Wyeth paid to us a $60.0 million non-refundable upfront payment. Wyeth has made
$39.0 million in milestone payments since that time and is obligated to make up to $295.0 million in additional payments to us upon the
achievement of milestones and contingent events in the development and commercialization of RELISTOR, taking into account the Ono
transaction discussed below. 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 devoted to the development project, all subject to Wyeth’s audit rights and possible
reconciliation as provided in the Agreement. During the applicable royalty periods, Wyeth is obligated to pay to us royalties on the net sales
of RELISTOR by Wyeth throughout the world other than Japan, where we have licensed the rights to subcutaneous RELISTOR to Ono.
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 $60.0 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. Starting June 2008, we began recognizing royalty income based on the net sales of
RELISTOR, as defined, by Wyeth.
28
In October 2008, we entered into an exclusive License Agreement with Ono under which we licensed to Ono the rights to
subcutaneous RELISTOR in Japan. Under that agreement, in November 2008 we received from Ono an upfront payment of $15.0
million, and are entitled to receive potential development milestones of up to $20.0 million, commercial milestones and royalties on
sales by Ono of subcutaneous RELISTOR in Japan. These payments will depend on continued success in development and
commercialization of RELISTOR, which are in turn dependent on the actions of Wyeth, Ono, the FDA, Japanese pharmaceutical
regulatory authorities and other regulatory bodies, as well as the outcome of clinical and other testing of RELISTOR. Many of these
matters are outside our control. Ono also has the option to acquire from us the rights to develop and commercialize in Japan other
formulations of RELISTOR, including intravenous and oral forms, on terms to be negotiated separately. Supervision of and
consultation with respect to Ono’s development and commercialization responsibilities will be carried out by joint committees
consisting of members from both Ono and us. Ono may request us to perform activities related to its development and
commercialization responsibilities beyond our participation in these committees and specified technology transfer related tasks which
will be at its expense, and payable to us for the services it requests, at the time we perform services for them.
As a result of the return of the Japanese rights, we will not receive from Wyeth, milestone payments related to the
development of RELISTOR formulations in Japan. These potential future milestone payments would have totaled $22.5 million (of
which $7.5 million related to the subcutaneous formulation of RELISTOR and the remainder to the intravenous and oral
formulations). Taking these adjustments into account, we now have the potential to receive a total of $334.0 million in development
and commercialization milestone payments from Wyeth under the Wyeth Collaboration (of which $60.0 million relate to the
intravenous formulation of RELISTOR), and of which $39.0 million ($5.0 million relating to the intravenous formulation) have been
paid to date.
Virology. In the area of virology, we are developing two viral-entry inhibitors: a humanized monoclonal antibody, PRO 140,
for treatment of HIV, the virus that causes AIDS, and a proprietary orally-available small-molecule drug candidate, designated PRO
206, for treatment of HCV infection. We have recently selected for further clinical development the subcutaneous form of PRO 140
for treatment of HIV infection, which has the potential for convenient, weekly self-administration, and we are conducting preclinical
development activities in preparation for filing an IND application for PRO 206. We are also engaged in research regarding a
prophylactic vaccine against HIV infection.
Oncology. In the area of prostate cancer, we are conducting a phase 1 clinical trial of a fully human monoclonal ADC
directed against PSMA, a protein found at high levels on the surface of prostate cancer cells and also on the neovasculature of a
number of other types of solid tumors. We are also developing therapeutic vaccines designed to stimulate an immune response to
PSMA.
Results of Operations (amounts in thousands)
Revenues:
Our sources of revenue during the years ended December 31, 2008, 2007 and 2006, included our Collaboration with Wyeth,
which was effective on January 1, 2006, our research grants and contract from the NIH and, to a small extent, our sale of research
reagents. In June 2008, we began recognizing royalty income from net sales by Wyeth of subcutaneous RELISTOR.
Sources of Revenue
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent Change
Research from collaborator
Royalty income
Research grants and contract
Other revenues
$59,885
146
7,460
180
$67,671
$65,455
-
10,075
116
$75,646
$58,415
-
11,418
73
$69,906
(9%)
N/A
(26%)
55%
(11%)
12%
N/A
(12%)
59%
8%
2008 vs. 2007
Research revenue from collaborator relates to our Collaboration with Wyeth. From the inception of the Wyeth
Collaboration through December 31, 2008 we recognized as revenue: (i) in October 2006, $5,000 milestone payment in connection
with the initiation of the first phase 3 clinical trial of intravenous RELISTOR, (ii) in May 2007, $9,000, representing two milestone
payments, related to the acceptance for review of applications submitted for marketing approval of a subcutaneous formulation of
RELISTOR in the U.S and European Union, (iii) in April 2008, $15,000 milestone payment related to the FDA approval of
subcutaneous RELISTOR and (iv) in July 2008, $10,000 milestone payment related to the European approval of subcutaneous
formulation of RELISTOR. We have analyzed the facts and circumstances of the five milestones achieved since inception of the
29
Wyeth Collaboration through December 31, 2008, and believe that they met those criteria for revenue recognition upon achievement
of the respective milestones. See Critical Accounting Policies – Revenue Recognition.
During the years ended December 31, 2008 and 2007, we recognized $59,885 and $65,455, respectively, of revenue from
Wyeth, consisting of (i) $10,228 and $16,378, respectively, of the $60,000 upfront payment we received upon entering into our
Collaboration in December 2005, (ii) $24,657 and $40,077, respectively, as reimbursement of our development expenses, and (iii)
$25,000 and $9,000, respectively, of non-refundable payments earned upon the achievement of milestones defined in the Wyeth
Collaboration.
From the inception of the Wyeth Collaboration through December 31, 2008, we recognized $45,437 of revenue from the
$60,000 upfront payment, $99,318 as reimbursement for our development costs, and a total of $39,000 for non-refundable milestone
payments.
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. As a result, the
amount of revenue recognized from the upfront payment during the year ended December 31, 2008 declined by $6,150 as compared to
2007.
As of December 31, 2008, relative to the $15.0 million upfront payment from Ono, we have recorded $15.0 million as
deferred revenue – current, which we expect to recognize as revenue during the first quarter of 2009, upon satisfaction of our
performance obligations.
Royalty income. We began earning royalties from net sales by Wyeth of subcutaneous RELISTOR in June 2008. During the
year ended December 31, 2008, we earned royalties of $665, based on the net sales of RELISTOR and we recognized $146 of royalty
income. As of December 31, 2008, we have recorded a cumulative total of $519 as deferred revenue – current. The $519 of deferred
royalty revenue is expected to be recognized as royalty income over the period of our development obligations relating to RELISTOR,
which we currently estimate will be in 2009. Our royalties from net sales by Wyeth of RELISTOR, as defined, are based on royalty
rates under our Collaboration. These rates can range up to 30% of U.S. and 25% of foreign net sales at the highest sales levels.
Royalty rates will increase on incremental sales as net sales in a calendar year exceed specified levels.
Research grants and contract. In 2003, we were awarded a contract (NIH Contract) by the NIH to develop a prophylactic
vaccine (ProVax) 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 $28,562 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 December 2008 amounted to $15,509. Funding under this contract includes the payment of an aggregate of $1,617 in fees,
subject to achievement of specified milestones. Through December 31, 2008, we had recognized revenue of $15,509 from this
contract, including $180 for the achievement of two milestones. We were informed by the NIH that it has decided to fund the NIH
Contract only through December 2008. We have applied for continued funding for this program and are funding it with our own
resources pending a decision on that application.
Revenues from research grants and contract from the NIH decreased to $7,460 for the year ended December 31, 2008 from
$10,075 for the year ended December 31, 2007; $5,251 and $6,185 from grants and $2,209 and $3,890 from the NIH Contract for the
years ended December 31, 2008 and 2007, respectively. The decrease in grant and contract revenue resulted from fewer reimbursable
expenses in 2008 than in 2007 on new and continuing grant related projects, and decreased activity under the NIH Contract.
Other revenues, primarily from increased orders for research reagents, increased to $180 for the year ended December 31,
2008 from $116 for the year ended December 31, 2007.
2007 vs. 2006
Research revenues from collaborator. During the years ended December 31, 2007 and 2006, we recognized $65,455 and
$58,415, respectively, of revenue from Wyeth, consisting of (i) $16,378 and $18,831, respectively, of the $60,000 upfront payment we
received upon entering into our Collaboration in December 2005, (ii) $40,077 and $34,584, respectively, as reimbursement of our
development expenses, and (iii) $9,000 and $5,000, respectively, of non-refundable payments earned upon the achievement of
milestones defined in the Wyeth Collaboration Agreement.
30
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 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 grant related
projects. In addition, there was increased activity under the NIH Contract.
Other revenues, primarily from higher orders for research reagents 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.
Expenses:
Research and Development Expenses include scientific labor, supplies, facility costs, clinical trial costs, product
manufacturing costs, royalty payments and license fees. Research and development expenses, including in-process research and
development, license fees and royalty expense, decreased to $85,135 for the year ended December 31, 2008 from $96,176 for the year
ended December 31, 2007, and increased from $75,310 in the year ended December 31, 2006. Research and development expenses for
2006 include a one-time charge of $13,209 related to our purchase of a former member’s equity interest in PSMA LLC (see Business
– Oncology – PSMA). During 2008, the decrease in research and development expenses over those in 2007 and 2006, net of the one-
time charges in 2006, was primarily due to a decrease in activity related to the PSMA clinical program, and, to a lesser extent, net
activity related to our HCV research and pre-clinical programs, partially offset by an increase in the PRO 140 program. Expenses for
RELISTOR in 2008 were also lower than in 2007 and 2006, due to enrollment delays in the phase 2 trial for subcutaneous RELISTOR
and conclusion of the phase 3 trial for intravenous RELISTOR. See Liquidity and Capital Resources – Uses of Cash, 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). The changes in
research and development expense, by category of expense, are as follows:
Salaries and benefits (cash)
$24,383
$24,061
$17,013
1%
41%
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Company-wide compensation increased due to an increase in average headcount to 196 from 190 for the years ended
December 31, 2008 and 2007, respectively, in the research and development, manufacturing and clinical departments.
2007 vs. 2006 Company-wide compensation increased due to 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.
Share-based compensation (non-cash)
$7,241
$7,104
$5,814
2%
22%
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Increase due to increase in average headcount, increase in employee stock purchase plan expenses and additional
grants made during the year ended December 31, 2008, partially offset by lower compensation expense due to fully vested awards and
an increase in the directors and officers forfeiture rate.
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.
Clinical trial costs
$14,127
$19,225
$9,485
(27%)
103%
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Decrease primarily related to RELISTOR ($6,686), due to reduced clinical trial activities in 2008 and remaining costs
for termination of GMK study in 2007 ($1,534). These decreases were partially offset by an increase in HIV ($3,122) due to increased
PRO 140 clinical trial activities in 2008.
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
31
decreases in Cancer ($778), due to termination of 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.
Laboratory supplies
$3,944
$5,196
$5,522
(24%)
(6%)
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Decrease in HIV ($808), due to purchase of less drug supplies in 2008 compared to 2007, Cancer ($235), due to fewer
expenses for PSMA and GMK and Other projects ($209).
2007 vs. 2006 Increase in HIV-related costs ($1,134), due to internal manufacture of drug materials for the phase 2 PRO 140 clinical
trial, and in Other projects ($615), primarily Hepatitis C virus research costs. The increases were partially offset by a decrease in
RELISTOR ($1,564) due to the purchase of more RELISTOR drug in the 2006 period than in the 2007 period, and Cancer ($511) due
to a decrease in basic research costs in 2007 for Cancer (primarily PSMA).
Contract manufacturing and
subcontractors
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
$21,681
$26,051
$12,448
(17%)
109%
2008 vs. 2007 Decrease in Cancer ($5,401), primarily due to contract manufacturing expenses for PSMA in 2007 but not in 2008,
and RELISTOR ($2,301), partially offset by increases in HIV ($3,052) due to manufacturing expenses for PRO 140 in 2008 but not in
2007 and Other ($280). 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.
2007 vs. 2006 Increase in HIV ($8,228), Cancer ($5,274) 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.
Consultants
$3,514
$4,722
$5,286
(26%)
(11%)
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Decrease in RELISTOR ($1,579) and Other projects ($174), partially offset by increases in HIV ($294) and Cancer
($251). 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.
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.
License fees
2008
$2,830
2007
$942
2006
2008 vs. 2007
2007 vs. 2006
Percent change
$390
200%
142%
2008 vs. 2007 Increase primarily due to HIV ($1,100), RELISTOR ($522) and Cancer ($266) expenses in 2008 but not in 2007.
2007 vs. 2006 Increase primarily related to our HIV program ($30), Cancer ($412) related to PSMA license agreements and
RELISTOR ($110), related to payments to the University of Chicago.
Royalty expense
2008
$15
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
$-
$-
N/A
N/A
We incurred $67 of royalty costs and recognized $15 of royalty expenses during the year ended December 31, 2008. As of December
31, 2008, we recorded a cumulative total of $52 of deferred royalty costs from the royalty costs incurred in the last three quarters of
2008. The $52 of deferred royalty costs are expected to be recognized as royalty expense over the period of our development
32
obligations relating to RELISTOR.
Other operating expenses
$7,400
$8,875
$19,352
(17%)
(54%)
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Decrease primarily in computer expenses ($1,760), insurance ($294), facilities ($186) and travel ($102), partially
offset by an increase in other operating expenses ($21) and rent ($846).
2007 vs. 2006 Decrease primarily due to expenses in 2006 related to our purchase of a former member’s equity interest in PSMA
LLC, which are included in in-process research and development ($13,209) and travel ($21), partially offset by an increase in rent
($579), facilities costs ($202), insurance costs ($128), other operating expenses ($172) and increased computer software costs in 2007
($1,672), related to the preparation for submission of a NDA in March 2007.
General and Administrative Expenses increased to $28,834 in the year ended December 31, 2008 from $27,901 in the year
ended December 31, 2007 and from $22,259 in the year ended December 31, 2006, as follows:
Salaries and benefits (cash)
$8,610
$7,243
$5,942
19%
22%
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Increase due to compensation increases and an increase in average headcount to 52 from 43 in the general and
administrative departments for the years ended December 31, 2008 and 2007, respectively.
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.
Share-based compensation (non-cash)
$6,892
$8,202
$6,840
(16%)
20%
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Decrease due to compensation awards becoming fully vested and an increase in directors and officers forfeiture rate,
partially offset by greater employee stock purchase plan expenses and issuance of new grants.
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.
Consulting and professional fees
$7,838
$6,481
$4,891
21%
33%
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Increase due primarily to increases in consultants ($1,135), legal and patent fees ($132) and other miscellaneous costs
($158), which were partially offset by a decrease in audit and tax fees ($68).
2007 vs. 2006 Increase due primarily to increases in consultants ($632), legal and patent fees ($1,138) and other miscellaneous costs
($15), which were partially offset by a decrease in audit and tax fees ($195).
Other operating expenses
$5,494
$5,975
$4,586
(8)%
30%
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Decrease in recruiting ($452), facilities ($142), investor relations ($74), taxes ($27) and other operating expenses
($55), partially offset by increases in rent ($269).
2007 vs. 2006 Increase in computer supplies and software ($219), rent ($184), recruiting ($125), travel ($69), utilities and facilities
costs ($466), investor relations ($176) and other operating expenses ($290), partially offset by decreases in insurance ($101) and
corporate sales and franchise taxes ($39).
33
Loss in Joint Venture:
Loss in Joint Venture
$-
$-
2008
2007
2006
$121
2008 vs. 2007
2007 vs. 2006
Percent change
N/A
(100%)
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.
Depreciation and Amortization:
Depreciation and amortization
$4,609
$3,027
$1,535
52%
97%
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Depreciation expense increased to $4,609 for the year ended December 31, 2008 from $3,027 for the year ended
December 31, 2007, due to increased amortization of leasehold improvements. Approximately $3.8 million of leasehold
improvements was placed in service during 2007, which is being amortized through the end of the lease term of December 31, 2009.
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.
Other Income:
Other income
$6,235
$7,770
$7,701
(20)%
1%
2008
2007
2006
2008 vs. 2007
2007 vs. 2006
Percent change
2008 vs. 2007 Interest income decreased to $6,235 for the year ended December 31, 2008 from $7,770 for the year ended December
31, 2007. Interest income, as reported, is primarily the result of investment income from our marketable securities, decreased by the
amortization of premiums we paid or increased by the amortization of discounts we received for those marketable securities. For the
years ended December 31, 2008 and 2007, investment income decreased to $7,195 from $7,325, respectively, due to a decrease in
interest rates and lower average balance of cash equivalents and marketable securities in 2008 than in 2007. Amortization of
premiums, net of discounts, was ($960) and $445 for the years ended December 31, 2008 and 2007, respectively.
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, decreased by the
amortization of premiums we paid or increased 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.
Income Taxes:
For the years ended December 31, 2008, 2007 and 2006, we had losses both for book and tax purposes.
Net Loss:
Our net loss was $44,672 for the year ended December 31, 2008, $43,688 for the year ended December 31, 2007 and $21,618
for the year ended December 31, 2006.
34
Liquidity and Capital Resources
We have to date generated only modest amounts of product and royalty revenue, and consequently have relied principally on
external funding and our Collaboration with Wyeth 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, proceeds from the exercise of
outstanding options and warrants and sale of our common stock under our two employee stock purchase plans (Purchase Plans). At
December 31, 2008, we had cash, cash equivalents and marketable securities, including non-current portion, totaling $141.4 million
compared with $170.4 million at December 31, 2007. We expect that our existing cash, cash equivalents and marketable securities at
December 31, 2008 are sufficient to fund current operations beyond one year. Our cash flow from operating activities was negative for
the years ended December 31, 2008, 2007 and 2006 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 Collaboration with Wyeth provided us with a $60.0 million upfront payment in December 2005. In
addition, since January 2006, Wyeth has been reimbursing us for development expenses we incur related to RELISTOR under the
development plan agreed to between us, which is currently expected to continue through 2009. For the years ended December 31,
2008 and 2007, we received $24.7 million and $40.1 million, respectively, of such reimbursement. Since inception of the Wyeth
Collaboration, Wyeth has made $39.0 million in milestone payments to us upon the achievement of certain events. In May 2007, we
earned $9.0 million, representing two milestone payments, related to the acceptance for review of applications submitted for
marketing approval of a subcutaneous formulation of RELISTOR for the treatment of OIC in patients receiving palliative care in the
U.S. and the European Union. Approval of the U.S. application in April 2008 resulted in our earning a $15.0 million milestone
payment, which was recognized in the second quarter of 2008. In July 2008, we earned $10.0 million milestone payment for the
European approval of subcutaneous RELISTOR. Wyeth has also submitted applications for the marketing of RELISTOR in Canada
and Australia, which were approved in March 2008 and November 2008, respectively. 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 POI. Wyeth is
obligated to make up to $295 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, other than that to be conducted by Ono. We are entitled to receive royalty payments from Wyeth as the product
is sold in the various countries (other than Japan) where marketing approval has been obtained. We are also entitled to receive royalty
payments upon the sale of all other products developed under the Wyeth Collaboration Agreement.
Under our License Agreement with Ono, we received from Ono an upfront payment of $15.0 million, and are entitled to
receive potential development milestone payments of up to $20.0 million, commercial milestones and royalties on sales of
subcutaneous RELISTOR in Japan. Ono is also responsible for development and commercialization costs for subcutaneous
RELISTOR in Japan. As of December 31, 2008, relative to the $15.0 million upfront payment from Ono, we have recorded $15.0
million as deferred revenue – current, which we expect to recognize as revenue during the first quarter of 2009, upon satisfaction of
our performance obligations.
The funding by Wyeth and Ono of development costs for RELISTOR generally enhances our ability to devote current and
future resources to other research and development programs. We may also enter into other collaboration agreements, license or sale
transactions or royalty sales or financings with respect to our products and product candidates. We cannot forecast with any degree of
certainty, however, which products or indications, if any, will be subject to future arrangements, or how they would affect our capital
requirements. The consummation of other agreements would further allow us to advance other projects with current funds.
In 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 December 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, 2008, we had recognized revenue of $15.5 million from this contract, including $0.2 million for
the achievement of two milestones. We were informed by the NIH that it has decided to fund this contract only through December
2008. We have applied for continued funding for this program and are funding it with our own resources pending a decision on that
application.
A substantial portion of our revenues to date has been derived from federal government grants and research contracts. During
35
the years ended December 31, 2006, 2007 and 2008, we generated revenues from awards made to us by the NIH between 2003 and
2008, to partially fund some of our programs. For the years ended December 31, 2008, 2007 and 2006, we recognized $5.3 million,
$6.2 million and $8.1 million, respectively, of revenue from all of our NIH grants.
Changes in Accounts receivable and Accounts payable for the years ended December 31, 2008, 2007 and 2006 resulted from
the timing of receipts from the NIH and Wyeth, and payments made to trade vendors in the normal course of business.
Other than amounts to be received from Wyeth, Ono and from currently approved grants, we have no committed external
sources of capital. Other than 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 product candidates to the commercial marketing stage.
Investing Activities. We purchase and sell marketable securities in order to provide funding for operations. Our marketable
securities, which include corporate debt securities, securities of government-sponsored entities and auction rate securities, are
classified as available-for-sale.
A substantial portion of our cash and cash equivalents are guaranteed by the U.S. Treasury or Federal Deposit Insurance
Corporation’s guarantee programs. Our marketable securities, which include corporate debt securities, securities of government-
sponsored entities and auction rate securities, are classified as available for sale and are predominantly not guaranteed. These
investments, while rated investment grade by the Standard & Poor’s and Moody’s rating agencies and predominantly having
scheduled maturities in the first three quarters of 2009, are heavily concentrated in the U.S. financial sector, which continues to be
under extreme stress.
As a result of recent changes in general market conditions, we determined to reduce the principal amount of auction rate
securities in our portfolio as they came up for auction and invest the proceeds in other securities in accordance with our investment
guidelines. Beginning in February 2008, auctions failed for certain of our auction rate securities because sell orders exceeded buy
orders. As a result, at December 31, 2008, we continue to hold approximately $4.1 million of auction rate securities which, in the
event of auction failure, are reset according to the contractual terms in the governing instruments. To date, we have received all
scheduled interest payments on these securities. The principal amount of these remaining auction rate securities 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 monitor markets for our investments, but cannot guarantee that additional losses will not be required to be recorded.
Valuation of securities 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, ongoing strength and quality of market credit and liquidity and general economic and market conditions. We do not
believe the carrying values of our investments are other than temporarily impaired and therefore expect the positions will eventually
be liquidated without significant loss.
Our marketable securities are purchased and, in the case of auction rate securities, sold by third-party brokers in accordance
with our investment policy guidelines. Our brokerage account requires that all marketable securities be held to maturity unless
authorization is obtained from us to sell earlier. In fact, we have a history of holding all marketable securities 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, 2008.
Financing Activities. During the years ended December 31, 2008, 2007 and 2006, we received cash of $6.5 million, $7.8
million and $7.1 million, respectively, from the exercise of stock options by employees, directors and non-employee consultants, from
the sale of our common stock under our Purchase Plans and from sale of common stock in public offering in 2007. The amount of
cash we receive from these sources fluctuates commensurate with headcount levels and changes in the price of our common stock on
the grant date for options exercised, and on the sale date for shares sold under the Purchase Plans.
In 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 SEC in 2006, which had registered 4.0 million shares of our common stock; that registration statement has
now expired. 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.
In the past year, we obtained approvals from the FDA, as well as European Union, Canadian, Australian, Venezuelan and
other regulatory authorities, for our first commercial product, RELISTOR. We continue development and clinical trials with respect to
RELISTOR and our other product candidates. Unless we obtain regulatory approval from the FDA for additional 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
36
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.
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 supportive care, 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, 2008 have been approximately $478.5 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 with Wyeth, 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 may be
subject to further revision, are $15.8 million, over the period from January 1, 2009 to December 31, 2009.
For the years ended December 31, 2008, 2007 and 2006, research and development costs incurred, by project, were as
follows. Expenses for Cancer for 2006 include $13.2 million related to our purchase of a former member’s interest in the PSMA joint
venture, (see Business – Oncology – Prostate Cancer – PSMA, above for more details):
RELISTOR
HIV
Cancer
Other programs
Total
2008
For the Year Ended December 31,
2007
(in millions)
2006
$ 25.4
39.4
10.8
9.5
$ 85.1
$ 41.5
29.0
16.1
9.6
$ 96.2
$ 32.1
15.8
23.2
4.2
$ 75.3
We may require additional funding to continue our research and product development programs, conduct pre-clinical studies
and clinical trials, fund operating expenses, pursue regulatory approvals for our product candidates, file and prosecute patent
applications and enforce or defend patent claims, if any, and fund product in-licensing and any possible acquisitions. Manufacturing
and commercialization expenses for RELISTOR are funded by Wyeth in the U.S. and outside the U.S. except for Japan, where
development, manufacturing and commercialization expenses are required to be funded by Ono. 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 collaborator, we would also
require additional funding to establish manufacturing and marketing capabilities.
Our purchase of rights from our methylnaltrexone licensors in December 2005 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.
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, on April
20, 2006, 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.
Investing Activities. During the years ended December 31, 2008, 2007 and 2006, we have spent $2.2 million, $5.2 million
and $8.8 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 in February 2007 for the manufacture of research and clinical
products.
37
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, 2008 for
future payments under these agreements:
Operating leases
License and collaboration agreements (1)
Total
_______________
Total
2009
$ 5.0
82.5
$ 87.5
$ 3.2
2.1
$ 5.3
Payments due by December 31,
2010-2011
2012-2013
Thereafter
(in millions)
$ 1.0
4.8
$ 5.8
$ 0.6
12.7
$ 13.3
$ 0.2
62.9
$ 63.1
(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.
We periodically assess the scientific progress and merits of each of our 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 prospects
for ultimate commercialization. Because of the uncertainties associated with research and development in 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 research and development projects in a timely manner or failure to enter into collaborative agreements could
significantly increase 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 deviations from that plan 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, 2008. The selection and application of these accounting principles and methods requires
us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain
financial statement disclosures. On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances. The results of our evaluation form the basis for
making judgments about the carrying values of assets and liabilities that are not otherwise readily apparent. While we believe that the
estimates and assumptions we use in preparing the financial statements are appropriate, these estimates and assumptions are subject to
a number of factors and uncertainties regarding their ultimate outcome and, therefore, actual results could differ from these estimates.
We have identified our critical accounting policies and estimates below. These are policies and estimates that we believe are
the most important in portraying our financial condition and results of operations, and that require our most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We have
discussed the development, selection and disclosure of these critical accounting policies and estimates with the Audit Committee of
our Board of Directors.
38
Revenue Recognition. We recognize revenue from all sources based on the provisions of the SEC’s Staff Accounting
Bulletin (SAB) No. 104 (SAB 104), Emerging Issues Task Force (EITF) 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, 2008, 2007 and 2006, we also
recognized revenue from government research grants and contract, 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.
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 Wyeth Collaboration 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 Wyeth Collaboration, 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, 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, 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 year ended December 31, 2008 declined relative to
that in the comparable period of 2007. 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 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
39
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 Wyeth Collaboration, we have assessed the nature of our involvement with
the JSC, JDC and JCC. 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 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 is required to continue
to develop the oral formulation and to commercialize all formulations as provided in the Wyeth Collaboration, 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. As discussed in Overview – Supportive Care, Wyeth returned the rights to RELISTOR with respect to
Japan to us in connection with its election not to develop RELISTOR there and the transaction with Ono. As a result, Wyeth is now
responsible for the development of the oral formulation worldwide excluding Japan and the intravenous and subcutaneous
formulations outside the U.S., other than Japan.
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 (Substantive Milestone Method). During October 2006, May 2007, April 2008 and July 2008, we earned $5.0 million, $9.0
million, $15.0 million and $10.0 million, respectively, upon achievement of non-refundable milestones anticipated in the Wyeth
Collaboration; the first in connection with the commencement of a phase 3 clinical trial of the intravenous formulation of RELISTOR,
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, the third for the FDA approval of subcutaneous RELISTOR and
the fourth for the European approval of subcutaneous RELISTOR. We considered those milestones to be substantive based on the
significant degree of risk at the inception of the Collaboration 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 Wyeth Collaboration and amount of effort expended or the risk associated with the achievement of these milestones; and the
passage of ten, 17, 28 and 31 months, respectively, from inception of the Collaboration 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 based upon net sales of related licensed products, as reported to us by Wyeth. Royalty revenue
is recognized in the period the sales occur, 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 providing for the royalty.
If royalties are received when we have remaining performance obligations, they would be attributed to the services being provided
under the arrangement and, therefore, recognized as such 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
40
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 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.
In October 2008, we entered into an exclusive license agreement with Ono under which we licensed to Ono the rights to
subcutaneous RELISTOR in Japan and under that agreement, in November 2008, we received from Ono an upfront payment of $15.0
million. As of December 31, 2008, relative to the $15.0 million upfront payment from Ono, we have recorded $15.0 million as
deferred revenue – current, which we expect to recognize as revenue during the first quarter of 2009, upon satisfaction of our
performance obligations.
Ono is responsible for developing and commercializing subcutaneous RELISTOR in Japan, including conducting the clinical
development necessary to support regulatory marketing approval. Ono is to own the subcutaneous filings and approvals relating to
RELISTOR in Japan. We are also entitled to receive up to an additional $20.0 million, payable upon achievement of development
milestones. Ono is also obligated to pay to us royalties and commercialization milestones on sales by Ono of subcutaneous
RELISTOR in Japan. Ono has the option to acquire from us the rights to develop and commercialize in Japan other formulations of
RELISTOR, including intravenous and oral forms, on terms to be negotiated separately. Supervision of and consultation with respect
to Ono’s development and commercialization responsibilities will be carried out by joint committees consisting of members from both
Ono and us. Ono may request us to perform activities related to its development and commercialization responsibilities beyond our
participation in these committees and specified technology transfer-related tasks which will be at its expense, and payable to us for the
services it requests, at the time we perform services for them.
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.
Share-Based Payment Arrangements. Our share-based compensation to employees includes non-qualified stock options,
restricted stock and shares issued under our Purchase Plans, which are compensatory under Statement of Financial Accounting
Standards No. 123 (revised 2004) (FAS 123(R)) “Share-Based Payment.” We account for share-based compensation to non-
employees, including non-qualified stock options and restricted stock, in accordance with EITF 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.”
We adopted FAS 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,
2008, there was $15.1 million, $8.7 million and $0.07 million of total unrecognized compensation cost related to non-vested stock
options under the plans, the non-vested shares and the Purchase Plans, respectively. Those costs are expected to be recognized over
weighted average periods of 2.6 years, 1.9 years and 0.04 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.
Under FAS 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. For this purpose:
• 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; historical data is available for the length of the
41
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, 2008 , 2007 and 2006, the
volatility of our common stock has been high, 66%-91%, 50%-89% and 69%-94% , 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 years ended December 31, 2008 and 2007, our expected term was calculated based upon historical data related to
exercise and post-termination cancellation activity. Accordingly, for grants made to employees and officers (excluding
our Chief Executive Officer) and directors, we are using expected terms of 5.33 and 7.30 years and 5.25 and 7.5 years,
respectively. Beginning in the third quarter of 2008, we estimated the expected term of stock options granted to our Chief
Executive Officer to be 7.5 years. Expected term for options granted to non-employee consultants was ten years, which is
the contractual term of those options. For the July 1, 2008 award, the Compensation Committee of the Board of Directors
modified the form of the grant used for stock incentive awards to provide for vesting of stock incentive awards granted on
that date ratably over a three-year period and for acceleration of the vesting of such awards and all previously granted and
outstanding awards for any employee in the event that, following a Change in Control, such employee’s employment is
Terminated without Cause (as such terms are defined in our 2005 Stock Incentive Plan). For the year ended December 31,
2006, our expected term was calculated based upon the simplified method as detailed in SAB No. 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. A shorter expected term would result in a lower compensation expense.
• Since we have never paid dividends and do not expect to pay dividends in the future, 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. The July 1, 2002, 2003 and 2005 awards
have fully vested. 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 FAS 123(R), at the end of each reporting period, we will
estimate the probability of achievement of each performance condition and will 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). On July 1, 2008, we granted
options and restricted stock to our Chief Executive Officer which vest on the basis of the achievement of specified performance or
market-based milestones. The options have an exercise price equal to the closing price on our common stock on the date of grant
while the restricted stock awards do not include an exercise price. The awards to our Chief Executive Officer are valued using a
Monte Carlo simulation and the expense related to these grants will be recognized over the shortest estimated time for the achievement
of the performance or market conditions. The awards will not vest unless one of the milestones is achieved or the market condition is
met. Changes in the estimate of probability of achievement of any performance or market 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 is estimated on the date of grant in accordance with Financial
Accounting Standards Board (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 is 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 net losses for the years ended December 31, 2006, 2007 and
2008, 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.
For the years ended December 31, 2006, 2007 and 2008, no tax benefit was recognized related to total compensation cost for
share-based payment arrangements recognized in operations because we had a net loss for the period and the related deferred tax
42
assets were fully offset by a valuation allowance. Accordingly, no amounts related to windfall tax benefits have been reported in cash
flows from operations or cash flows from financing activities for the years ended December 31, 2006, 2007 and 2008.
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 as incurred,
and are based on the expected total number of patients in the trial, the rate at which the patients enter the trial and the period over
which the clinical investigators and clinical research organizations are expected to provide services. We believe that this method best
approximates the efforts expended on a clinical trial with the expenses we record. We adjust our rate of clinical expense recognition if
actual results differ from our estimates. The Collaboration Agreement with Wyeth in which Wyeth has assumed all of the financial
responsibility for further development, mitigates 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.
On January 1, 2008, we adopted EITF Issue 07-3 (EITF 07-3) “Accounting for Advance Payments for Goods or Services to
Be Used in Future Research and Development Activities.” Prior to January 1, 2008, under Statement of Financial Accounting
Standards 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 had no alternative future use were
expensed as incurred. Beginning January 1, 2008, we have been capitalizing such non-refundable advance payments and expensing
them as the goods are delivered or the related services are performed. EITF 07-3 applies to new contracts entered into after the
effective date of January 1, 2008. The adoption of EITF 07-3 did not have a material impact on the financial position or results of
operations.
Fair Value Measurements. Our available-for-sale investment portfolio consists of marketable securities, which include
corporate debt securities, securities of government-sponsored entities and auction rate securities, and is recorded at fair value in the
accompanying Consolidated Balance Sheets in accordance with Statement of Financial Accounting Standards No. 115, “Accounting
for Certain Investments in Debt and Equity Securities.” The change in the fair value of these investments is recorded as a component
of other comprehensive loss.
We adopted Statement of Financial Accounting Standards No. 159 (FAS 159) “The Fair Value Option of Financial Assets
and Financial Liabilities” effective January 1, 2008, 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. We
have elected not to apply the fair value option to any of our financial assets or liabilities.
We also adopted Statement of Financial Accounting Standards No. 157 (FAS 157) “Fair Value Measurements” effective
January 1, 2008 for financial assets and financial liabilities. FAS 157 defines fair value as the price that would be received to sell an
asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the
measurement date, and establishes a framework to make the measurement of fair value more consistent and comparable. In accordance
with FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” we will defer the adoption of FAS 157
for our nonfinancial assets and nonfinancial liabilities until January 1, 2009. We are currently evaluating the impact of FAS 157 for
nonfinancial assets and nonfinancial liabilities, and currently do not expect the adoption of this deferral to have a material effect on
our financial position or results of operations. The partial adoption of FAS 157 did not have a material impact on our fair value
measurements.
FAS 157 established a three-level hierarchy for fair value measurements that distinguishes between market participant
assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the
reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the
circumstances (“unobservable inputs”). The hierarchy level assigned to each security in our available-for-sale portfolio is based on our
assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The three
hierarchy levels are defined as follows:
• Level 1 - Valuations based on unadjusted quoted market prices in active markets for identical securities.
• Level 2 - Valuations based on observable inputs other than Level 1 prices, such as quoted prices for similar assets at the
measurement date, quoted prices in markets that are not active or other inputs that are observable, either directly or indirectly.
43
• Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and
involve management judgment.
Impact of Recently Issued Accounting Standards
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (FAS 161) “Disclosures about
Derivative Instruments and Hedging Activities – an amendment to FASB Statement No. 133,” which is intended to improve financial
standards for derivative instruments and hedging activities by requiring enhanced disclosures. The enhanced disclosure conveys the
purpose of derivative use to enable investors a better understanding of their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide enhanced disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are accounted for under Statement 133 and its related
interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with
early adoption encouraged. We do not expect the effect of the adoption of FAS 161 to have a material effect on our financial position
or results of operations.
In October 2008, the FASB issued FSP No. FAS 157-3 (FSP FAS 157-3) “Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active.” FSP FAS 157-3 clarifies the application of SFAS 157 in a market that is not active
and illustrates how an entity should determine fair value when the market for a financial asset is not active. FSP FAS 157-3 provides
guidance on how an entity’s own assumptions about cash flows and discount rates should be considered when measuring fair value
when relevant market data do not exist, how observable market information in an inactive or dislocated market affects fair value
measurements and how the use of broker and pricing service quotes should be considered when applying fair value measurements.
FSP FAS 157-3 is effective immediately as of September 30, 2008 and for all interim and annual periods thereafter. The adoption of
FSP FAS 157-3 did not have a material effect on our financial position or results of operations.
In June 2008, the FASB issued FSP EITF Issue No. 03-6-1 (FSP EITF 03-6-1) “Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 requires entities to allocate earnings to unvested
and contingently issuable share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents when
calculating EPS and also present both basic EPS and diluted EPS pursuant to the two-class method described in Statement of Financial
Accounting Standards No. 128, “Earnings Per Share.” FSP EITF 03-6-1 is effective January 1, 2009 and requires retrospective
application. We are currently evaluating the impact this FSP will have on our financial statements.
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 corporate debt securities, securities of government-sponsored entities and auction rate securities.
Our investments totaled $129.0 million at December 31, 2008. Approximately $81.1 million of these investments had fixed interest
rates, and $47.9 million had interest rates that were variable. Our marketable securities are classified as available-for-sale.
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 values 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, 2008 market interest rates would result in a
decrease of approximately $0.03 million in the market values of these investments.
As a result of recent changes in general market conditions, we determined to reduce the principal amount of auction rate
securities in our portfolio as they came up for auction and invest the proceeds in other securities in accordance with our investment
guidelines. Beginning in February 2008, auctions failed for certain of our auction rate securities because sell orders exceeded buy
orders. As a result, at December 31, 2008, we continue to hold approximately $4.1 million (3% of assets measured at fair value) of
auction rate securities, in respect of which we have received all scheduled interest payments, which, in the event of auction failure, are
reset according to the contractual terms in the governing instruments. The principal amount of these remaining auction rate securities
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 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 auction rate securities market conditions do not recover, we may be required to record additional losses in 2009,
which may affect our financial condition, cash flows and net loss. 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, ongoing strength and quality of
44
market credit and liquidity and general economic and market conditions. We do not believe the carrying values of these auction rate
securities are other than temporarily impaired and therefore expect the positions will eventually be liquidated without significant loss.
The valuation of the auction rate securities we hold is based on an internal analysis of timing of expected future successful
auctions, collateralization of underlying assets of the security and credit quality of the security. As a result of the estimated fair value,
we have determined a temporary impairment in the valuation of these securities of $0.3 million for the year ended December 31, 2008.
A 100 basis point increase to our internal analysis would result in an increase of approximately $0.042 million in the temporary
impairment of these securities as of the year ended December 31, 2008.
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.
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(e), we carried out an evaluation, under the supervision and with the participation of our
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 period 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 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, 2008 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, our principal executive and principal financial officers and effected by our 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.
45
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, 2008. The effectiveness of our internal control over financial reporting as of December 31, 2008 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.
46
PART III
The information required by the Form 10-K Items listed in the following table will be included under the respective
headings specified for such Items in our definitive proxy statement for our 2009 Annual Meeting of Stockholders to be filed with the
SEC:
Item of Form 10-K
Location in 2009 Proxy Statement
Item 10. Directors, Executive Officers and Corporate
Governance
Item 11. Executive Compensation
Election of Directors.
Board and Committee Meetings.
Executive Officers of the Company.
Section 16(a) Beneficial Ownership Reporting and Compliance.
Code of Business Ethics and Conduct.*
*The full text of our code of business ethics and conduct is available on our
website (http://www.progenics.com/documents.cfm).
Executive Compensation.
Compensation Committee Report.
Compensation Committee Interlocks and Insider Participation.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
Equity Compensation Plan Information.
Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
Certain Relationships and Related Transactions.
Affirmative Determinations Regarding Director Independence and
Other Matters.
Item 14. Principal Accounting Fees and Services
Fees Billed for Services Rendered by our Independent Registered
Public Accounting Firm.
Pre-approval of Audit and Non-Audit Services by the Audit
Committee.
47
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:
Consolidated Financial Statements of Progenics Pharmaceuticals, Inc.:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2007 and 2008
Consolidated Statements of Operations for the years ended December 31, 2006, 2007 and 2008
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for the years ended December 31, 2006,
2007 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2007 and 2008
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 following the
signature page hereof and preceding the exhibits filed herewith, and such listing is incorporated herein by reference.
48
PROGENICS PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets at December 31, 2007 and 2008
Consolidated Statements of Operations for the years ended December 31, 2006, 2007 and 2008
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss
for the years ended December 31, 2006, 2007 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2007 and 2008
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, 2008
and 2007, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2008 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, 2008, 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 3 to the consolidated financial statements, the Company changed the manner in which
it accounts for share-based compensation in 2006, the manner in which it accounts for uncertainties in income taxes in
2007, and the manner in which it accounts for fair value measurements for its financial assets and financial liabilities in
2008.
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 9, 2009
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 —
29,753,820 in 2007 and 30,807,387 in 2008
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Treasury stock, at cost (zero shares in 2007 and 200,000 shares in 2008)
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2007
2008
10,423
120,000
1,995
3,111
135,529
39,947
13,511
552
189,539
14,765
17,728
57
32,550
9,131
359
42,040
39
401,500
(254,046)
6
-
147,499
189,539
$
$
$
$
56,186
63,127
1,337
3,531
124,181
22,061
11,071
520
157,833
6,496
31,645
57
38,198
-
266
38,464
40
422,085
(298,718)
(1,297)
(2,741)
119,369
157,833
$
$
$
$
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
Royalty income
Research grants and contract
Other revenues
Total revenues
Expenses:
Research and development
In-process research and development
License fees – research and development
General and administrative
Loss in joint venture
Royalty expense
Depreciation and amortization
Total expenses
Operating loss
Other income:
Interest income
Total other income
Net loss
Net loss per share - basic and diluted
Weighted-average shares - basic and diluted
Years Ended December 31,
2007
2008
2006
$
58,415
-
11,418
73
69,906
$
65,455
-
10,075
116
75,646
61,711
13,209
390
22,259
121
-
1,535
99,225
95,234
-
942
27,901
-
-
3,027
127,104
59,885
146
7,460
180
67,671
82,290
-
2,830
28,834
-
15
4,609
118,578
(29,319)
(51,458)
(50,907)
7,701
7,701
7,770
7,770
6,235
6,235
(21,618) $
(43,688) $
(44,672)
(0.84) $
25,669
(1.60) $
27,378
(1.51)
29,654
$
$
$
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, 2006, 2007 and 2008
(in thousands)
Common Stock
Shares
25,229
Amount
$ 33
Additional
Paid-In
Capital
$ 306,085
Unearned
Compensation
$ (4,498) $ (188,740)
Accumulated
Deficit
Accumulated
Other
Comprehensive
(Loss) Income
$ (148)
Treasury Stock
Shares
-
Amount
$ -
Total
$112,732
Balance at December 31, 2005
Comprehensive loss:
Net loss
Net change in unrealized gain on
marketable securities
Total comprehensive loss:
Compensation expenses for 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 FAS
123(R)
-
-
-
228
742
-
-
-
-
-
-
1
-
-
-
-
12,034
-
7,074
620
-
-
-
-
-
-
(4,498)
4,498
(21,618)
-
-
-
-
-
-
-
3
-
-
-
-
-
Balance at December 31, 2006
26,199
34
321,315
-
(210,358)
(145)
Comprehensive loss:
Net loss
Net change in unrealized gain on
marketable securities
Total comprehensive loss:
Compensation expenses for 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
-
-
-
267
2,600
688
-
-
-
-
-
3
2
-
-
-
15,306
-
57,075
7,823
(19)
-
-
-
-
-
-
-
(43,688)
-
-
-
-
-
-
Balance at December 31, 2007
29,754
39
401,500
-
(254,046)
Comprehensive loss:
Net loss
Net change in unrealized loss on
marketable securities
Total comprehensive loss:
Compensation expenses for 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
Treasury shares acquired under
repurchase program
-
-
-
216
837
-
-
-
-
-
1
-
-
-
14,133
-
6,452
-
-
-
-
-
-
-
(44,672)
-
-
-
-
-
-
151
-
-
-
-
-
6
-
(1,303)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(21,618)
3
(21,615)
12,034
-
7,075
620
-
110,846
(43,688)
151
(43,537)
15,306
-
57,078
7,825
(19)
147,499
(44,672)
(1,303)
(45,975)
14,133
-
6,453
(200)
(2,741)
(2,741)
Balance at December 31, 2008
30,807
$ 40 $ 422,085
$ - $ (298,718)
$ (1,297)
(200)
$(2,741)
$ 119,369
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 used in operating
activities:
Depreciation and amortization
Write-off of fixed assets
Amortization of discounts, net of premiums, on marketable
securities
Expenses for share-based compensation awards
Expense of purchased technology
Loss in joint venture
Changes in assets and liabilities:
Decrease (increase) in accounts receivable
(Increase) decrease in other current assets
Increase (decrease) in accounts payable and accrued expenses
Decrease in due to joint venture
Decrease in investment in joint venture
(Decrease) increase in deferred revenue
(Decrease) increase in other current liabilities
Increase (decrease) in other liabilities
Net cash used in operating activities
Cash flows from investing activities:
Capital expenditures
Sales/maturities of marketable securities
Purchase of marketable securities
Acquisition of PSMA LLC, net of cash acquired
(Increase) decrease in restricted cash
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from sale of common stock in public offering
Expenses related to the sale of common stock in public offering
Purchase of treasury stock
Proceeds from the exercise of stock options and sale of common stock
under the Employee Stock Purchase Plan
Repurchase of restricted stock
Net cash provided by financing activities
Years Ended December 31,
2007
2008
2006
$
(21,618) $
(43,688)
$
(44,672)
1,535
2
9
12,654
13,209
121
1,588
(620)
1,533
(194)
250
(16,910)
(790)
74
(9,157)
(8,768)
267,934
(299,075)
(13,128)
(6)
(53,049)
-
-
-
7,075
-
7,075
(55,125)
67,072
11,947
$
3,027
-
(445)
15,306
-
-
(296)
70
2,913
-
-
(16,231)
57
236
(39,051)
(5,151)
252,850
(275,048)
-
(8)
(27,357)
60,190
(3,112)
-
7,825
(19)
64,884
(1,524)
11,947
10,423
$
4,609
3
960
14,133
-
-
658
(420)
(8,269)
-
-
4,786
-
(93)
(28,305)
(2,172)
128,705
(56,209)
-
32
70,356
-
-
(2,741)
6,453
-
3,712
45,763
10,423
56,186
Net (decrease) increase 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:
Fair value of assets, including purchased technology, acquired from
PSMA LLC
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. (“Progenics,” “we” or “us”) 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 supportive care, virology and
oncology.
Progenics commenced principal operations in 1988 and in 2006 acquired full ownership of PSMA Development
Company LLC (“PSMA LLC”) (see Note 12). Certain of our intellectual property rights are held by wholly owned subsidiaries.
None of our subsidiaries other than PSMA LLC had operations during the years ended December 31, 2006, 2007 or 2008.
Currently, all of our operations are conducted at our facilities in Tarrytown, New York. Our chief operating decision maker
reviews financial analyses and forecasts relating to all of our research programs as a single unit and allocates resources and
assesses performance of such programs as a whole. We operate under a single research and development segment.
Supportive Care
Our first commercial product, RELISTOR® (methylnaltrexone bromide), was approved by the U.S. Food and Drug
Administration (“FDA”) for sale in the United States in April 2008. Our collaboration partner, Wyeth Pharmaceuticals (“Wyeth”),
commenced sales of RELISTOR subcutaneous injection in June, and we have begun earning royalties on world-wide sales.
Regulatory approvals have also been obtained in Canada, the European Union, Australia and Venezuela, and marketing
applications have been approved or are pending or scheduled in other countries. In October, we out-licensed to Ono
Pharmaceutical Co., Ltd., Osaka, Japan, the rights to subcutaneous RELISTOR in Japan. We continue development and clinical
trials with respect to other indications for RELISTOR.
Development and commercialization of RELISTOR is being conducted under a license and co-development agreement
(“Wyeth Collaboration Agreement”) between us and Wyeth (see Note 9). Under that agreement, we (i) have received an upfront
payment from Wyeth, (ii) have received and are entitled to receive additional payments as certain developmental milestones for
RELISTOR are achieved, (iii) have been and are entitled to be reimbursed by Wyeth for expenses we incur in connection with the
development of RELISTOR under an agreed-upon development plan and budget, and (iv) have received and are entitled to receive
royalties and commercialization milestone payments. Manufacturing and commercialization expenses for RELISTOR are funded
by Wyeth.
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 (“POI”). In May 2007, we earned $9.0 million, representing two
milestone payments, under the Wyeth Collaboration Agreement for having made filings seeking marketing approval for
RELISTOR subcutaneous injection in the U.S. and Europe. In April 2008, we earned a $15.0 million milestone payment from
Wyeth for the FDA approval of subcutaneous RELISTOR, and in July 2008, we earned a $10.0 million milestone payment from
Wyeth for European approval of subcutaneous RELISTOR.
We and Wyeth are also developing intravenous and oral formulations of RELISTOR.
Wyeth has elected, as it was entitled to do under our Collaboration, not to develop RELISTOR in Japan, and as provided
in that Agreement returned to us the rights to RELISTOR in Japan. In October 2008, we entered into an exclusive License
Agreement with Ono Pharmaceutical Co., Ltd. (“Ono”), Osaka, Japan under which we licensed to Ono the rights to subcutaneous
RELISTOR in Japan which we reacquired from Wyeth as a result of its election. Under that agreement, in November 2008, we
received from Ono an upfront payment of $15.0 million, and are entitled to receive potential development milestones of up to
$20.0 million, commercial milestones and royalties on sales by Ono of subcutaneous RELISTOR in Japan. Ono also has the option
to acquire from us the rights to develop and commercialize in Japan other formulations of RELISTOR, including intravenous and
oral forms, on terms to be negotiated separately.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
As a result of the return of the Japanese rights, we will not receive from Wyeth, milestone payments related to the
development of RELISTOR formulations in Japan. These potential future milestone payments would have totaled $22.5 million
(of which $7.5 million related to the subcutaneous formulation of RELISTOR and the remainder to the intravenous and oral
formulations). Taking these adjustments into account, we now have the potential to receive a total of $334.0 million in
development and commercialization milestone payments from Wyeth under the Wyeth Collaboration Agreement (of which $60.0
million relate to the intravenous formulation of RELISTOR), and of which $39.0 million ($5.0 million relating to the intravenous
formulation) have been paid to date.
The payments described above will depend on continued success in development and commercialization of RELISTOR,
which are in turn dependent on the actions of Wyeth, Ono, the FDA and other regulatory bodies, as well as the outcome of clinical
and other testing of RELISTOR. Many of these matters are outside our control.
Virology
In the area of virology, we are developing two viral-entry inhibitors: a humanized monoclonal antibody, PRO 140, for
treatment of human immunodeficiency virus (“HIV”), the virus that causes acquired immunodeficiency syndrome (“AIDS”), and a
proprietary orally-available small-molecule drug candidate, designated PRO 206, for treatment of hepatitis C virus infection
(“HCV”). We have recently selected for further clinical development the subcutaneous form of PRO 140 for treatment of HIV
infection, which has the potential for convenient, weekly self-administration, and we are conducting preclinical development
activities in preparation for filing an Investigational New Drug (“IND”) application for PRO 206. We are also engaged in research
regarding prophylactic vaccines against HIV infection.
Oncology
In the area of prostate cancer, we are conducting a phase 1 clinical trial of a fully human monoclonal antibody-drug
conjugate (“ADC”) directed against prostate specific membrane antigen (“PSMA”), a protein found at high levels on the surface of
prostate cancer cells and also on the neovasculature of a number of other types of solid tumors. We are also developing therapeutic
vaccines designed to stimulate an immune response to PSMA. Our PSMA programs are conducted through our wholly owned
subsidiary, PSMA LLC.
Our virology and oncology product candidates are not as advanced in development as RELISTOR, and we do not expect
any recurring revenues from sales or otherwise with respect to these product candidates in the near term. Wyeth’s agreement to
reimburse us for RELISTOR development expenses enables us to devote current and future resources to other research and
development programs.
Corporate-Related Matters
We may require additional funding to continue our operations. As a result, we may enter into a collaboration agreement,
license or sale transaction or royalty sales or financings with respect to our products and product candidates. We may also seek to
raise additional capital through the sale of our common stock or other securities and expect to fund certain aspects of our
operations through government grants and contracts.
We have had recurring losses since our inception. At December 31, 2008, we had an accumulated deficit of $298.7
million and had cash, cash equivalents and marketable securities, including non-current portion, totaling $141.4 million. We
expect that cash, cash equivalents and marketable securities at December 31, 2008 will be sufficient to fund current operations
beyond one year. During the year ended December 31, 2008, we had a net loss of $44.7 million and used cash in operating
activities of $28.3 million.
In April, 2008, our Board of Directors approved a share repurchase program to acquire up to $15.0 million of our
outstanding common shares, funding for which comes from the $15.0 million milestone payment we received from Wyeth related
to U.S. marketing approval for RELISTOR. Purchases under the program are made at our discretion subject to market conditions
in the open-market or otherwise, and in accordance with the regulations of the U.S. Securities and Exchange Commission (“SEC”),
including Rule 10b-18. During the year ended December 31, 2008, we repurchased 200,000 of our outstanding common shares.
Purchases may be discontinued at any time. Reacquired shares will be held in treasury until redeployed or retired. We have $12.3
million remaining available for purchases under the program.
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PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
Pending use in our business, our revenues and proceeds of financing activities are held in cash, cash equivalents and
marketable securities. Our marketable securities, which include corporate debt securities, securities of government-sponsored
entities and auction rate securities, are classified as available-for-sale.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the
United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. As
additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected
in the operating results. Actual results could differ from those estimates.
Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. This
includes the reclassification of certain expenses from license fees-research and development to research and development which
had no effect on total expenses as previously reported.
Consolidation
The consolidated financial statements include the accounts of Progenics, as of and for the years ended December 31,
2006, 2007 and 2008, the balance sheet accounts of PSMA LLC as of December 31, 2007 and 2008 and the statement of
operations accounts of PSMA LLC from April 20, 2006 to December 31, 2006 and for the years ended December 31, 2007 and
2008 (see Notes 1 and 12). Inter-company transactions have been eliminated in consolidation.
Revenue Recognition
We recognize revenue from all sources based on the provisions of the SEC’s Staff Accounting Bulletin (“SAB”) No. 104
(“SAB 104”), Emerging Issues Task Force (“EITF”) 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, 2008, 2007 and 2006, we
also recognized revenue from government research grants and contract, which are used to subsidize a portion of certain of our
research projects (“Projects”), exclusively from the National Institutes of Health (“NIH”). We also recognized revenue from the
sale of research reagents during those periods.
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
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PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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 Wyeth
Collaboration Agreement 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 Wyeth Collaboration Agreement, 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, 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 year ended December 31, 2008 declined relative to that in the comparable period of 2007. 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 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 Wyeth Collaboration Agreement, we have assessed the
nature of our involvement with the Joint Steering Committee (“JSC”), Joint Development Committee (“JDC’) and Joint
Commercialization Committee (“JCC”). 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 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 is obligated to continue to develop the oral formulation and to commercialize all formulations as provided in
the Wyeth Collaboration Agreement, 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. As discussed in Note 1, Wyeth returned
the rights to RELISTOR with respect to Japan to us in connection with its election not to develop RELISTOR there and the
transaction with Ono. As a result, Wyeth is now responsible for the development of the oral formulation worldwide excluding
Japan and the intravenous and subcutaneous formulations outside the U.S., other than Japan.
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PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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, May 2007, April 2008 and July 2008,
we earned $5.0 million, $9.0 million (two milestone payments), $15.0 million and $10.0 million, respectively, upon achievement
of non-refundable milestones anticipated in the Wyeth Collaboration Agreement; the first in connection with the commencement
of a phase 3 clinical trial of the intravenous formulation of RELISTOR, the second and third 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, the fourth for the FDA approval of subcutaneous RELISTOR and the fifth for the European approval of
subcutaneous RELISTOR. We considered those milestones to be substantive based on the significant degree of risk at the
inception of the Wyeth 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 and amount of effort expended or the risk associated with the achievement of these milestones; and the passage of
ten, 17, 28 and 31 months, respectively, from inception of the Wyeth 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 based upon net sales of related licensed products, as reported to us by Wyeth. Royalty
revenue is recognized in the period the sales occur, 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 providing for
the royalty. If royalties are received when we have remaining performance obligations, they would be attributed to the services
being provided under the arrangement and, therefore, recognized as such 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 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.
In October 2008, we entered into an exclusive license agreement with Ono under which we licensed to Ono the rights to
subcutaneous RELISTOR in Japan and under that agreement, in November 2008, we received from Ono an upfront payment of
$15.0 million. As of December 31, 2008, relative to the $15.0 million upfront payment from Ono, we have recorded $15.0 million
as deferred revenue – current, which we expect to recognize as revenue during the first quarter of 2009, upon satisfaction of our
performance obligations.
Ono is responsible for developing and commercializing subcutaneous RELISTOR in Japan, including conducting the
clinical development necessary to support regulatory marketing approval. Ono is to own the subcutaneous filings and approvals
relating to RELISTOR in Japan. We are also entitled to receive up to an additional $20.0 million, payable upon achievement of
development milestones. Ono is also obligated to pay to us royalties and commercialization milestones on sales by Ono of
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PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
subcutaneous RELISTOR in Japan. Ono has the option to acquire from us the rights to develop and commercialize in Japan other
formulations of RELISTOR, including intravenous and oral forms, on terms to be negotiated separately. Supervision of and
consultation with respect to Ono’s development and commercialization responsibilities will be carried out by joint committees
consisting of members from both Ono and us. Ono may request us to perform activities related to its development and
commercialization responsibilities beyond our participation in these committees and specified technology transfer-related tasks
which will be at its expense, and payable to us for the services it requests, at the time we perform services for them.
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.
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 our 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 Progenics’ conducts, certain costs, which are included in research and development expenses,
are expensed based on the estimated period over which clinical investigators or contract research organizations provide services
and total number of subjects in the trial including the estimated rate at which subjects enter the trial. At each period end, we
evaluate the accrued expense balance related to these activities based upon information received from the suppliers and estimated
progress towards completion of the research or development objectives to ensure that the balance is reasonably stated. Such
estimates are subject to change as additional information becomes available.
Use of Estimates
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 us, we have applied, or are applying, for a number of
patents to protect proprietary inventions. All costs associated with patents are expensed as incurred.
Net Loss Per Share
We prepare our earnings per share (“EPS”) data in accordance with Statement of Financial Accounting Standards No. 128
(“FAS 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 Progenics to concentrations of credit risk consist of cash, cash equivalents,
marketable securities and receivables from Wyeth, Ono and the NIH. We invest our excess cash in money market funds, corporate
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PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
debt securities and federal agency issues. We have established guidelines that relate to credit quality, diversification and maturity
and that limit exposure to any one issue of securities. We hold no collateral for these financial instruments.
Cash and Cash Equivalents
We consider 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 us to concentrations of credit risk. At December 31, 2007 and 2008, we have invested approximately
$4,249 and $43,859, respectively, in cash equivalents in the form of money market funds with two major investment companies
and held approximately $6,174 and $12,327, 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 (“FAS 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, we compute 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, 2007 and 2008, our investment in marketable securities in the current and long term assets sections of
the consolidated balance sheets included $38.8 million and $4.1 million, respectively, of auction rate securities. Beginning in
February 2008, auctions failed for certain of our auction rate securities because sell orders exceeded buy orders. Valuation of
securities 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, ongoing strength and quality of market credit and liquidity and general economic and market conditions. The
valuation of the auction rate securities we hold is based on an internal analysis of timing of expected future successful auctions,
collateralization of underlying assets of the security and credit quality of the security. As a result of the estimated fair value, we
have determined a temporary impairment in the valuation of these securities of $0.3 million for the year ended December 31, 2008.
All income generated from these current investments was recorded as interest income (see Note 4).
Fair Value Measurements
We adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157
(“FAS 157”) “Fair Value Measurements” effective January 1, 2008 for financial assets and financial liabilities. FAS 157 defines
fair value as the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an
orderly transaction between market participants at the measurement date, and establishes a framework to make the measurement of
fair value more consistent and comparable. In accordance with FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of
FASB Statement No. 157” we will defer the adoption of FAS 157 for our nonfinancial assets and nonfinancial liabilities until
January 1, 2009. We are currently evaluating the impact of FAS 157 for nonfinancial assets and nonfinancial liabilities, and
currently do not expect the adoption of this deferral to have a material effect on our financial position or results of operations. The
partial adoption of FAS 157 did not have a material impact on our fair value measurements.
FAS 157 established a three-level hierarchy for fair value measurements that distinguishes between market participant
assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and
the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in
the circumstances (“unobservable inputs”). The hierarchy level assigned to each security in our available-for-sale portfolio is based
on our assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement
date. The three hierarchy levels are defined as follows:
• Level 1 - Valuations based on unadjusted quoted market prices in active markets for identical securities.
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PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
• Level 2 - Valuations based on observable inputs other than Level 1 prices, such as quoted prices for similar assets at
the measurement date, quoted prices in markets that are not active or other inputs that are observable, either directly or
indirectly.
• Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and
involve management judgment.
We also adopted Statement of Financial Accounting Standards No. 159 (“FAS 159”) “The Fair Value Option of Financial
Assets and Financial Liabilities” effective January 1, 2008, 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. We have elected not to apply the fair value option to any of our financial assets or liabilities.
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
Impairment of Long-Lived Assets
We periodically assess the recoverability of fixed assets and evaluate 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 Statement of
Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” if indicators of
impairment exist, we assess 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, we measure
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, 2006, 2007 or 2008.
Income Taxes
We account for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No.109
(“FAS 109”) “Accounting for Income Taxes” which requires that we 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 assets and liabilities 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 Statement of Financial Accounting Standards No. 123 (revised 2004) (“FAS 123(R)”)
“Share-Based Payment” which is a revision of Statement of Financial Accounting Standards No. 123 (“FAS 123”) “Accounting
for Stock Based Compensation” (see Note 3), we have 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).
F-14
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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 we have taken or expect 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.
We review our nexus in various tax jurisdictions and our 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. We record 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 we expect to
make cash payments within the next twelve months are classified as “short term.” In the event that we conclude that we are subject to
interest and/or penalties arising from uncertain tax positions, we will record interest and penalties as a component of income taxes (see
Note 14).
Risks and Uncertainties
We have to date generated only modest amounts of product and royalty revenue and except for RELISTOR, we have no
products approved by the FDA for marketing. There can be no assurance that our 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, we operate in an environment of rapid change in technology, and we are
dependent upon the continued services of our current employees, consultants and subcontractors. In accordance with the Wyeth
Collaboration Agreement and the Ono License, we have transferred to Wyeth and Ono the responsibility for manufacturing
RELISTOR for clinical and commercial use in both bulk and finished form in their respective territories. Wyeth and Ono may not
be able to fulfill its manufacturing obligations, either on its own or through third-party suppliers. For the years ended December
31, 2006, 2007 and 2008, the primary sources of our revenues were Wyeth and research grants and contract revenues from the
NIH. There can be no assurance that revenues from Wyeth, Ono or from research grants and contract will continue. Beginning on
January 1, 2006, we were no longer 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. Substantially all of our accounts receivable at
December 31, 2007 and 2008 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. Our 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, 2006, 2007 and 2008 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
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (“FAS 161”) “Disclosures about
Derivative Instruments and Hedging Activities – an amendment to FASB Statement No. 133” which is intended to improve
financial standards for derivative instruments and hedging activities by requiring enhanced disclosures. The enhanced disclosure
conveys the purpose of derivative use to enable investors a better understanding of their effects on an entity’s financial position,
financial performance, and cash flows. Entities are required to provide enhanced disclosures about (i) how and why an entity uses
derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under Statement 133 and its
related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial
performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged. We do not expect the effect of the adoption of FAS 161 to have a material effect on our financial
position or results of operations.
F-15
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
In October 2008, the FASB issued FSP No. FAS 157-3 (“FSP FAS 157-3”), “Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active.” FSP FAS 157-3 clarifies the application of FAS 157 in a market that is not
active and illustrates how an entity should determine fair value when the market for a financial asset is not active. FSP FAS 157-3
provides guidance on how an entity’s own assumptions about cash flows and discount rates should be considered when measuring
fair value when relevant market data do not exist, how observable market information in an inactive or dislocated market affects
fair value measurements and how the use of broker and pricing service quotes should be considered when applying fair value
measurements. FSP FAS 157-3 is effective immediately as of September 30, 2008 and for all interim and annual periods thereafter.
The adoption of FSP FAS 157-3 did not have a material effect on our financial position or results of operations.
In June 2008, the FASB issued FSP EITF Issue No. 03-6-1 (“FSP EITF 03-6-1”) “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 requires entities to allocate earnings
to unvested and contingently issuable share-based payment awards that have non-forfeitable rights to dividends or dividend
equivalents when calculating EPS and also present both basic EPS and diluted EPS pursuant to the two-class method described in
FAS 128. FSP EITF 03-6-1 is effective January 1, 2009 and requires retrospective application. We are currently evaluating the
impact this FSP will have on our financial statements.
3. Share-Based Payment Arrangements
On January 1, 2006, we adopted FAS 123(R) which supersedes APB Opinion No. 25 (“APB 25”) “Accounting for Stock
Issued to Employees,” and amends Statement of Financial Accounting Standards No. 95 “Statement of Cash Flows.” Our share-
based payment arrangements with employees include non-qualified stock options, restricted stock and shares issued under
Employee Stock Purchase Plans, which are compensatory under FAS 123(R), as described below. We account for share-based
payment arrangements with non-employees, including non-qualified stock options and restricted stock, in accordance with EITF
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 our adoption of FAS 123(R).
We adopted FAS 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. 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 is recognized on a straight-line basis over the total requisite service period for the total award.
Upon adoption of FAS 123(R), we 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 FAS 123(R) was not material. Compensation expense recorded on a pro forma basis for periods prior to adoption
of FAS 123(R) is not revised and is not reflected in the financial statements of those prior periods.
We have 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 Progenics (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 1996 Plan or 2005 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 our common stock on the date of grant. The exercise price of non-qualified stock
options granted from the 2005 Plan and incentive stock options (“ISO”) granted from the Plans may not be lower than the fair
value of our common stock on the dates of grant. At December 31, 2006, 2007 and 2008, 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.
F-16
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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.
Under FAS 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 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 year ended
December 31, 2008 and 2007, expected term was calculated based upon historical data related to exercise and post-termination
cancellation activity. Accordingly, for grants made to employees and officers (excluding our Chief Executive Officer) and
directors, we are using expected terms of 5.33 and 7.30 years, and 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 SAB No. 107 and represents the
period of time that options granted are expected to be outstanding. 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. 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 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
2006
69% - 94%
zero
6.5
6.5
4.56% - 5.06%
For the Years Ended
December 31,
2007
50% - 89%
zero
5.25 - 10
6.90
3.88% - 4.93%
2008
66% - 91%
zero
5.33 - 10
6.78
1.69% - 3.79%
A summary of option activity under the Plans as of December 31, 2008 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, 2008
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2008
Exercisable at December 31, 2008
4,708
599
(172)
(684)
4,451
3,247
$18.14
16.01
7.25
14.86
$18.78
$18.06
5.81
4.88
$1,104
$1,101
The weighted average grant-date fair value of options granted under the Plans during the years ended December 31, 2006,
2007 and 2008 was $19.32, $16.18 and $10.09, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2006, 2007 and 2008 was $6,591, $3,766 and $969, respectively.
The options granted under the Plans, described above, include 33, 113, 38, 75, 145 and 113 non-qualified stock options
granted to our 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. The July 1, 2002, 2003 and 2005 awards were
F-17
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
fully vested. 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 FAS 123(R) on January 1, 2006, 21, zero, 8 and 36 options
were unvested under the 2002, 2003, 2004 and 2005 awards, respectively. In accordance with FAS 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 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 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 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. On July 1, 2008, we granted options and restricted stock to our Chief Executive Officer. The options have an exercise
price equal to the closing price on our common stock on the date of grant while the restricted stock awards do not include an
exercise price. Both options and restricted stock granted vest on the basis of the achievement of specified performance based
milestones or market conditions. Compensation expense, for the July 1, 2008 award to our Chief Executive Officer, will be
recognized over the shortest estimated time for the achievement of the performance or market conditions. The awards will not vest
unless one of the milestones is achieved or the market condition is met. Changes in the estimate of probability of achievement of
any performance or market condition will be reflected in compensation expense of the period of change and future periods affected
by the change.
At December 31, 2008, the estimated requisite service periods for the 2004, 2006 and 2007 awards, described above, were
1.5, 7.5 and 8.5 years, respectively. For the year ended December 31, 2008, 33, 6, 7 and 56 options vested under the 2002, 2004,
2006 and 2007 awards, respectively, which resulted in compensation expense of $17, $7, $607 and $514, 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 FAS 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 our financial statements.
A summary of the status of our restricted stock awarded under the Plans which has not yet vested as of December 31,
2008 and changes during the year then ended is presented below:
Restricted Stock Awards
Shares
Nonvested at January 1, 2008
Granted
Vested
Forfeited
Nonvested at December 31, 2008
523
264
(174)
(47)
566
Weighted
Average Grant-
Date
Fair Value
$22.35
14.37
21.74
22.49
$18.81
During 1993, we 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 ISO’s, as defined by the Internal Revenue Code, or may be granted as non-
qualified stock options. Under the Executive Plan, our Board of Directors may award options to senior executive employees
(including officers who may be Board of Directors’ members) of Progenics. 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 of Directors awarded a total of 750 stock options under the
Executive Plan to our current Chief Executive Officer, of which 665 were non-qualified options (“NQOs”) and 85 were ISO’s. The
ISO’s have been exercised in December 1998. The NQOs have a term of 14 years and entitle the officer to purchase shares of
F-18
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
common stock at $5.33 per share, which represented the estimated fair market value, of our common stock at the date of grant, as
determined by the Board of Directors. As of December 31, 2007, there were no outstanding options under the Executive Plan. The
total intrinsic value of NQOs under the Executive Plan exercised during the years ended December 31, 2006 and 2007 was $4,662
and $4,402, respectively.
Our 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 2,400 and 600 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 our 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.
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:
2006
37% - 43%
zero
6 months
3.25% - 4.75%
For the Years Ended
December 31,
2007
40% - 46%
zero
6 months
3.91% - 5.10%
2008
83% - 170%
zero
6 months
0.14% - 2.74%
Expected volatility
Expected dividends
Expected term
Risk-free rate
Purchases of common stock under the Purchase Plans during the years ended December 31, 2006, 2007 and 2008 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
2006
2007
2008
126
179
538
$17.80 - $25.84
$16.27 - $23.46
$4.26 - $15.32
$3.30
$3.41
$4.44
27
45
127
$18.61 - $25.84
$17.80 - $23.46
$6.07 - $15.32
$3.25
$3.43
$4.83
The total compensation expense of shares, granted to both employees and non-employees, under all of our share-based
payment arrangements that was recognized in operations during the years ended December 31, 2006, 2007 and 2008 was:
Years Ended December 31,
2007
2008
2006
Recognized as:
Research and Development
General and Administrative
Total
$5,814
6,840
$12,654
$7,104
8,202
$15,306
$7,241
6,892
$14,133
F-19
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
No tax benefit was recognized related to such compensation cost because we 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, 2008, there was $15.1 million, $8.7 million and $0.07 million 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 2.6 years, 1.9 years and 0.04 years, respectively. Cash received from
exercises under all share-based payment arrangements for the year ended December 31, 2008 was $6.5 million. No tax benefit was
realized for the tax deductions from those option exercises of the share-based payment arrangements because we had a net loss for
the period and the related deferred tax assets were fully offset by a valuation allowance. We issue new shares of our common stock
upon share option exercise and share purchase.
In applying the treasury stock method for the calculation of diluted 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, 2006, 2007 and 2008 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.
4. Fair Value Measurements and Marketable Securities
Progenics considers its marketable securities to be “available-for-sale,” as defined by FAS 115 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). Our available-for-sale investment portfolio consists of marketable securities, which include
money market funds, corporate debt securities, securities of government-sponsored entities and auction rate securities, and is
recorded at fair value in the accompanying Consolidated Balance Sheets.
Marketable securities consisted of the following:
Short-term
Corporate debt securities and securities of
$
$
December 31,
2007
December 31,
2008
government-sponsored entities
Auction rate securities
Total short-term marketable securities
Long-term
Corporate debt securities and securities of
government-sponsored entities
Auction rate securities
Total long-term marketable securities
81,170
38,830
120,000
39,947
-
39,947
63,127
-
63,127
18,002
4,059
22,061
Total marketable securities
$
159,947
$
85,188
F-20
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
The following table presents our available-for-sale investments measured at fair value on a recurring basis as of
December 31, 2008 classified by the FAS 157 valuation hierarchy (as previously discussed):
Fair Value Measurements at Reporting Date Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Balance at
December 31,
2008
$
43,859
$
43,859
$
-
$
-
81,129
4,059
-
-
81,129
-
-
4,059
Description
Money market funds
Corporate debt securities
and securities of
government-sponsored
entities
Auction rate securities
Total
$
129,047
$
43,859
$
81,129
$
4,059
At December 31, 2008, we hold $4.1 million in auction rate securities which are classified as Level 3 (3% of total assets
measured at fair value). Auction rate securities are collateralized long-term instruments that provide liquidity through a Dutch
auction process that resets the applicable interest rate at pre-determined intervals, typically every 7 to 35 days. Beginning in
February 2008, auctions failed for certain of our auction rate securities because sell orders exceeded buy orders, and we were
unable to dispose of those securities at auction. The funds associated with these failed auctions will not be accessible until a
successful auction occurs, the issuer calls or restructures the security, the security matures and is paid or a buyer outside the
auction process emerges. The fair value of the auction rate securities we hold includes $3.0 million of securities collateralized by
student loan obligations subsidized by the U.S. government and $1.1 million of investment company preferred stock, and do not
include mortgage-backed instruments. As of December 31, 2008, we have received all scheduled interest payments on these
securities, which, in the event of auction failure, are reset according to the contractual terms in the governing instruments.
The valuation of auction rate securities we hold is based on Level 3 unobservable inputs which consist of internal analysis
of timing of expected future successful auctions, collateralization of underlying assets of the security and credit quality of the
security. As a result of the estimated fair value, we have determined a temporary impairment in the valuation of these securities of
$0.3 million, recorded for the year ended December 31, 2008, which is reflected as a part of other comprehensive loss on our
balance sheet. These securities are held “available-for-sale” in conformity with FAS 115 and the unrealized loss is included in
other comprehensive loss in the current period. Due to the uncertainty related to the liquidity in the auction rate security market
and therefore when individual positions may be liquidated, we have classified these auction rate securities as long-term assets on
our balance sheet.
We continue to monitor markets for our investments and consider its impact, if any, on the fair market value of our
investments. If the market conditions for our investments do not recover, we may be required to record additional losses in 2009.
We believe we will have the ability to hold any of our investments until their markets recover. We do not anticipate having to sell
these securities in order to operate our business. We do not believe the carrying values of our investments are other than
temporarily impaired and therefore expect the positions will eventually be liquidated without significant loss.
F-21
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
For those financial instruments with significant Level 3 inputs (all of which are auction rate securities), the following
tables summarize the activities for the year ended December 31, 2008:
Description
Balance at beginning of period
Transfers into Level 3
Total realized/unrealized gains (losses)
Included in net loss
Included in comprehensive income (loss)
Settlements
Balance at end of period
Total amount of unrealized gains (losses) for the period included in other
comprehensive loss attributable to the change in fair market value of
related assets still held at the reporting date
Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
For the Year Ended
December 31, 2008
$
$
$
-
8,150
-
(316)
(3,775)
4,059
(316)
The following table summarizes the amortized cost basis, the aggregate fair value and gross unrealized holding gains and
losses at December 31, 2007 and 2008:
2007:
Maturities less than one year:
Corporate debt securities
Government-sponsored entities
Maturities between one and five years:
Corporate debt securities
Maturities greater than ten years:
Auction rate securities
Investments without stated maturity dates:
Auction rate securities
2008:
Maturities less than one year:
Corporate debt securities
Maturities between one and five years:
Corporate debt securities
Government-sponsored entities
Maturities greater than ten years:
Auction rate securities
Investments without stated maturity dates:
Auction rate securities
Amortized
Cost Basis
Fair
Value
Unrealized Holding
Gains
(Losses)
Net
$76,853
4,295
39,963
27,130
$76,892
4,278
39,947
27,130
11,700
$159,941
11,700
$159,947
$84
-
64
-
-
$148
$(45)
(17)
(80)
-
-
$(142)
$39
(17)
(16)
-
-
$6
Amortized
Cost Basis
Fair
Value
Unrealized Holding
Gains
(Losses)
Net
$63,982
$63,127
$114
$(969)
$(855)
17,129
999
3,200
1,175
$86,485
16,995
1,007
2,944
1,115
$85,188
71
8
-
(205)
-
(256)
(134)
8
(256)
-
$193
(60)
$(1,490)
(60)
$(1,297)
Progenics’ 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.
F-22
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
The following table shows the gross unrealized losses and fair value of Progenics’ 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, 2007 and 2008.
At December 31, 2007:
Description of Securities
Fair Value
Losses
Fair Value
Losses
Unrealized
Unrealized
Fair
Value
Unrealized
Losses
Less than 12 Months
12 Months or Greater
Total
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)
At December 31, 2008:
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
Auction rate securities
Total
$57,567
4,059
$61,626
$(1,174)
(316)
$(1,490)
$-
$-
$-
$-
$57,567
4,059
$61,626
$(1,174)
(316)
$(1,490)
Corporate debt securities. Progenics’ investments in corporate debt securities with unrealized losses at December 31,
2008 include 34 securities with maturities of less than one year ($46,028 of the total fair value and $969 of the total unrealized
losses in corporate debt securities) and 9 securities with maturities between one and two years ($11,539 of the total fair value and
$205 of the total unrealized losses in corporate debt securities). The severity of the unrealized losses (fair value is approximately
0.00563 percent to 17.67 percent less than cost) and duration of the unrealized losses (weighted average of 6.98 months) correlate
with the short maturities of the majority of these investments. The increase in unrealized losses in 2008 was attributable to our
purchase of corporate debt securities, trading at a premium in early 2008, which declined in market value at the end of 2008. Our
corporate debt securities are purchased by third-party brokers in accordance with its investment policy guidelines. Our brokerage
account requires that all corporate debt securities be held to maturity unless authorization is obtained from us to sell earlier. In fact,
Progenics’ has a history of holding corporate debt securities to maturity. Progenics’, 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, 2008.
Auction rate securities. The unrealized losses on Progenics’ investments in auction rate securities during a period of less
than 12 months were the result of an internal analysis of timing of expected future successful auctions, collateralization of
underlying assets of the security and credit quality of the security. The severity of the unrealized losses (fair value is approximately
6 percent to 8 percent less than cost) and duration of the unrealized losses (weighted average of 9.25 months) correlate with the
short maturities of these investments. Similar to corporate debt securities, discussed above, Progenics’ considers that it has the
intent and ability to hold any investments in auction rate securities with unrealized losses until a recovery of fair value, which may
be maturity or a successful auction and it does not consider these marketable securities to be other-than-temporarily impaired at
December 31, 2008.
5. Accounts Receivable
National Institutes of Health
Royalties
Other
Total
December 31,
2007
2008
$
$
1,956
-
39
1,995
$
$
1,107
229
1
1,337
F-23
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
6. Fixed Assets
Computer equipment
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Construction in progress
Less, accumulated depreciation and amortization
Total
December 31,
2007
2008
1,935
11,695
726
10,448
874
25,678
(12,167)
13,511
$
$
2,335
13,161
750
10,546
907
27,699
(16,628)
11,071
$
$
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. At December 31, 2008, $5.8 million, $0.9 million and $0.7 million of leasehold
improvements were being amortized over periods of 1.0 – 5.8 years, 4.0 – 4.7 years and 8.5 years, respectively, under the same
respective leases.
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
$
$
December 31,
2007
2008
1,158
10,848
1,489
1,127
143
14,765
$
$
899
3,556
1,093
925
23
6,496
8. Stockholders’ Equity
We are 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 of Directors has the authority to issue common and preferred shares, in series, with
rights and privileges as determined by the Board of Directors.
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 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.
In connection with the adoption of FAS 123(R) on January 1, 2006, we 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.
On April 24, 2008, our Board of Directors approved a share repurchase program to acquire up to $15.0 million of our
outstanding common shares, funding for which comes from the $15.0 million milestone payment we received from Wyeth related
to U.S. marketing approval for RELISTOR. Purchases under the program are made at our discretion subject to market conditions
in the open-market or otherwise, and in accordance with the regulations of the SEC, including Rule 10b-18. During the year ended
December 31, 2008, we have repurchased 200,000 of our outstanding common shares for a total of $2.7 million. Purchases may be
discontinued at any time. Reacquired shares will be held in treasury until redeployed or retired. We have $12.3 million remaining
available for purchases under the program.
F-24
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
9. License Agreements with Wyeth Pharmaceuticals and Ono Pharmaceutical
On December 23, 2005, we entered into our Collaboration Agreement with Wyeth for the purpose of developing and
commercializing RELISTOR. The Wyeth Collaboration Agreement involves three formulations of RELISTOR: (i) a subcutaneous
formulation to be used in patients with OIC, (ii) an intravenous formulation to be used in patients with POI and (iii) an oral formulation
to be used in patients with OIC.
The Wyeth Collaboration Agreement establishes the JSC and JDC, each with an equal number of representatives from both
Wyeth and us. The JSC is responsible for coordinating the companies’ key activities, while the JDC oversees, coordinates and expedites
the development of RELISTOR by Wyeth and us. A JCC, composed of company representatives in number and function according to
our respective responsibilities, facilitates open communication between Wyeth and us on commercialization matters.
We have assessed the nature of our involvement with the committees. Our involvement in the JSC and JDC 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 period during which we have developmental
responsibilities, however, we have assessed that the nature of our involvement with the committees will be a right, rather than an
obligation. Our assessment is based upon the fact that we negotiated to be on the committees as an accommodation for our granting of
the license for RELISTOR to Wyeth. 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. During that
period, the activities of the committees will be focused on Wyeth’s development and commercialization obligations.
Under the Wyeth Collaboration Agreement, we granted to Wyeth an exclusive, worldwide license, even as to us, to develop
and commercialize RELISTOR. Wyeth returned the rights with respect to Japan to us in connection with its election not to develop
RELISTOR there and the transaction with Ono discussed in Note 1, above. We are responsible for developing the subcutaneous and
intravenous formulations in the U.S. until they receive regulatory approval, while Wyeth is responsible for these formulations outside
the U.S. other than Japan. Wyeth is also responsible for the development of the oral formulation worldwide excluding Japan. We have
transferred to Wyeth all existing supply agreements with third parties for RELISTOR and have sublicensed intellectual property rights
to permit Wyeth to manufacture or have manufactured RELISTOR, during the development and commercialization phases of the
Wyeth Collaboration Agreement, in both bulk and finished form for all products worldwide. We have no further manufacturing
obligations under the Collaboration. We have and will continue to transfer to Wyeth all know-how, as defined, related to RELISTOR.
Based upon our research and development programs, such period will cease upon completion of our development obligations under the
Wyeth Collaboration Agreement.
In the event the JSC approves for development any formulation of RELISTOR other than subcutaneous, intravenous or oral or
any other indication for a product using any formulation of RELISTOR, Wyeth is obligated to be responsible for development of such
products as provided in the Wyeth Collaboration Agreement, including conducting clinical trials and obtaining and maintaining
regulatory approval. Wyeth is also responsible for the commercialization of the subcutaneous, intravenous and oral products, and any
other methylnaltrexone based products developed upon approval by the JSC, throughout the world excluding Japan. Wyeth is obligated
to 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 us. Decisions with respect to commercialization of any products developed under
the Wyeth Collaboration Agreement are to be made solely by Wyeth.
Wyeth granted to us an option (the “Co-Promotion Option”) to enter into a Co-Promotion Agreement to co-promote any of the
products developed under the Wyeth Collaboration Agreement, at any time, subject to certain conditions. We may exercise this option
on an annual basis. We did not exercise the option in connection with the initial commercialization of RELISTOR, and as of December
31, 2008 have not determined when we will exercise it, if at all. 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). Wyeth may terminate any Co-Promotion Agreement
if a top 15 pharmaceutical company acquires control of us. Our potential right to commercialize any product, including our Co-
Promotion Option, is not essential to the usefulness of the already delivered products or services (i.e., our development obligations) and
our failure to fulfill our co-promotion obligations would not result in a full or partial refund of any payments made by Wyeth to us or
reduce the consideration due to us by Wyeth or give Wyeth the right to reject the products or services previously delivered by us.
We are recognizing revenue in connection with the Wyeth Collaboration Agreement under the SAB 104 and will apply the
Substantive Milestone Method (see Note 2). In accordance with the EITF 00-21 all of our deliverables under the Wyeth Collaboration
F-25
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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 of RELISTOR in the U.S., represent one unit of accounting since none of those components
has 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 $60.0 million, for which we deferred revenue at December 31, 2005. Subsequently, we are 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. We expect that period to extend through 2009. We are recognizing revenue using the
proportionate performance method since we can reasonably estimate the level of effort required to complete our performance
obligations under the Wyeth Collaboration Agreement 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 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 us
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 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. If Wyeth terminates the Collaboration in accordance with its terms,
we will recognize any unamortized remainder of the upfront payment at the time of the termination.
The amount of the upfront license payment that we recognized as revenue for each fiscal quarter prior to the third quarter
of 2007 was based upon several revised approved budgets, although the revisions to those budgets did not materially affect the
amount of revenue recognized in those periods. During the third quarter of 2007, 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
during the year ended December 31, 2008 declined relative to that in the comparable period of 2007.
Beginning in January 2006, costs for the development of RELISTOR incurred by Wyeth or us are being paid by Wyeth.
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. We are recognizing as research and development revenue from collaborator, amounts received from
Wyeth for reimbursement of our development expenses for RELISTOR as incurred under the development plan agreed to between
us and Wyeth. In addition to the upfront payment and reimbursement of our development costs, Wyeth has made or will make the
following payments to us, provided specific milestones, including clinical, regulatory and sales events, are reached, and taking in to
account the modifications made in connection with the Ono transaction discussed in Note 1, above: (i) development and sales
milestones and contingent payments, consisting of defined non-refundable, non-creditable payments, totaling $334.0 million, in respect
of clinical and regulatory events and, for each form approved as a commercial product, combined annual worldwide (excluding Japan)
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 (excluding Japan). Upon achievement of defined substantive development milestones by us for
the subcutaneous and intravenous formulations, the milestone payments will be recognized as revenue. Recognition of revenue for
developmental contingent events related to the oral formulation, which is the responsibility of Wyeth, will be recognized as revenue
when Wyeth achieves those events, if they occur subsequent to completion by us of our development obligations, since we would have
no further obligations related to those products. Otherwise, if Wyeth achieves any of those events before we have completed our
development obligations, recognition of revenue for the Wyeth contingent events will be recognized over the period from receipt of the
milestone payment to the completion of our development obligations. All sales milestones will be recognized as revenue when earned.
During the years ended December 31, 2006, 2007 and 2008, we recognized $18.8 million, $16.4 million and $10.2
million, respectively, of revenue from the $60.0 million upfront payment and $34.6 million, $40.1 million and $24.7 million,
respectively, as reimbursement for our out-of-pocket development costs, including our labor costs. 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 POI. In May 2007, April 2008 and July 2008, we earned $9.0 million, $15.0 million and $10.0 million, respectively, in
F-26
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
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 FDA approval of subcutaneous RELISTOR
in the U.S. and the European approval of subcutaneous formulation of RELISTOR, respectively. We considered those milestones
to be substantive based on (i) the significant degree of risk, at the inception of the Collaboration, related to the conduct and
successful completion of clinical trials and, therefore, of not achieving the milestones, (ii) the amount of the payment received
relative to the significant costs incurred since inception of the Wyeth Collaboration Agreement and amount of effort expended to
achieve the milestones, and (iii) the passage of 17, 28 and 31 months, respectively, from inception of the Wyeth 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. As of December 31, 2008, relative to the $60.0 million upfront license payment
received from Wyeth, we have recorded $14.6 million as deferred revenue – current, which is expected to be recognized as
revenue over the period of our development obligations relating to RELISTOR. In addition, at December 31, 2008, we recorded
$1.6 million as deferred revenue - current, related to reimbursements from Wyeth for development costs.
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
providing for the royalty. If royalties are received when we have remaining performance obligations, they would be attributed to the
services being provided under the arrangement and, therefore, recognized as such obligations are performed under either the
proportionate performance or straight-line methods, as applicable, and in accordance with the policies above.
In addition, during year ended December 31, 2008, we earned royalties of $665, based on the net sales of subcutaneous
RELISTOR, and we recognized $146 of royalty income. As of December 31, 2008, we have recorded a cumulative total of $519
as deferred revenue – current, which is expected to be recognized as royalty income over the period of our development
obligations relating to RELISTOR. We incurred $67 of royalty costs and recognized $15 of royalty expenses during the year ended
December 31, 2008. As of December 31, 2008, we recorded a cumulative total of $52 of deferred royalty costs from the royalty
costs incurred during the last three quarters of 2008. The $52 of deferred royalty costs are expected to be recognized as royalty
expense over the period of our development obligations relating to RELISTOR.
The Wyeth 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. We may terminate the Wyeth 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, terminate the Collaboration effective on or after the second anniversary of the first U.S. commercial sale of
RELISTOR, by providing us with at least 360 days prior written notice. Wyeth may also terminate the agreement (i) upon 30 days
written notice following one or more serious safety or efficacy issues that arise and (ii) upon 90 days written notice of a material
uncured breach by us. Upon termination of the Wyeth 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.
In October 2008, we entered into an exclusive license agreement with Ono under which we licensed to Ono the rights to
subcutaneous RELISTOR in Japan and under that agreement, in November 2008, we received from Ono an upfront payment of
$15.0 million. As of December 31, 2008, relative to the $15.0 million upfront payment from Ono, we have recorded $15.0 million
as deferred revenue – current, which we expect to recognize as revenue during the first quarter of 2009, upon satisfaction of our
performance obligations.
Ono is responsible for developing and commercializing subcutaneous RELISTOR in Japan, including conducting the
clinical development necessary to support regulatory marketing approval. Ono is to own the subcutaneous filings and approvals
relating to RELISTOR in Japan. We have received a $15.0 million upfront payment from Ono, and are entitled to receive up to an
additional $20.0 million, payable upon achievement of development milestones. Ono is also obligated to pay to us royalties and
commercialization milestones on sales by Ono of subcutaneous RELISTOR in Japan. Ono has the option to acquire from us the
rights to develop and commercialize in Japan other formulations of RELISTOR, including intravenous and oral forms, on terms to
be negotiated separately. Supervision of and consultation with respect to Ono’s development and commercialization
responsibilities will be carried out by joint committees consisting of members from both Ono and us. Ono may request us to
perform activities related to its development and commercialization responsibilities beyond our participation in these committees
and specified technology transfer-related tasks which will be at its expense, and payable to us for the services it requests, at the
time we perform services for them.
F-27
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
10. Acquisition of Contractual Rights from Licensors
In 2005, we acquired substantially all of the assets of UR Labs, Inc. (“URL”), comprised in part of an exclusive
sublicense agreement to develop and commercialize methylnaltrexone, the active ingredient of RELISTOR, under rights URL
licensed from the University of Chicago. We accounted for the acquisition of the rights and responsibilities as an asset purchase.
The acquired rights relate to the methylnaltrexone and our research and development activities for methylnaltrexone, for which
technological feasibility had not yet been established, for which there was no identified alternative future use, and which had not
received regulatory approval for marketing. We continue to have an obligation for payments (including royalties) to the University
of Chicago.
11. Commitments and Contingencies
a. Operating Leases
As of December 31, 2008, we lease office and laboratory space, as follows:
Leased
Space
Area
(Square Feet)
Termination
Date
Other Terms
Sublease 1
91.7
December 30, 2009
Lease 1
32.6
December 31, 2009
Renewable for two five-year terms
Sublease 2
5.9
June 29, 2012
Four months rent-free beginning April 1, 2006;
Lease 2
Lease 3
Lease 4
Total
December 31, 2014
converts to Lease 2
9.2
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
6.5
August 31, 2012
Renewable for two terms co-terminous with
Lease 1
145.9
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, we are obligated to pay additional facilities charges, including
utilities, taxes and operating expenses. We also lease certain office equipment under non-cancelable operating leases, which expire
at various times through August 2010. 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 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, 2008, future minimum annual payments under all operating lease agreements are as follows:
Years ending
December 31,
2009
2010
2011
2012
2013
Thereafter
Total
Minimum
Annual Payments
$ 3,238
504
517
391
194
194
$ 5,038
F-28
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
Rental expense totaled approximately $1,694, $2,415 and $2,971 for the years ended December 31, 2006, 2007 and 2008,
respectively. For the years ended December 31, 2006 and 2007, we recognized rent expense in excess of amounts paid of $74 and
$17, respectively, due to the recognition of escalation clauses and lease incentives. For the year ended December 31, 2008,
amounts paid exceeded rent expense by $93, due to the recognition of escalation clauses and lease incentives. Additional facility
charges, including utilities, taxes and operating expenses, for the years ended December 31, 2006, 2007 and 2008 were
approximately $2,932, $2,974 and $3,533, respectively.
b. Licensing, Service and Supply Agreements of Progenics Pharmaceuticals, Inc.
Progenics has entered into a variety of intellectual property-based license and service agreements in connection with its
product development programs. During 2005, we also entered into a supply agreement for methylnaltrexone. During 2006, we
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, Progenics has recognized milestone, license and sublicense fees and supply
costs, which are included in research and development expenses, totaling approximately $1,825, $350 and $1,529 for the years
ended December 31, 2006, 2007 and 2008, respectively. In addition, as of December 31, 2008, 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 $4,325.
i. Columbia University
For a number of years, we have been party to a license agreement with Columbia University (“Columbia”) under which
we obtained rights to technology and materials for a program we have since terminated. As of December 31, 2008, we had paid
Columbia a total of $890,000 under this license agreement, including $25,000 in royalties. In January 2009, we and Columbia
agreed to terminate and amend certain rights granted in this license in exchange for a one-time payment of $300,000, which was
accrued as of December 31, 2008. Under this new arrangement, we retain rights to certain technology for sales of reagents and
other purposes, subject to royalties.
ii. Sloan-Kettering Institute for Cancer Research
We were a party to a license agreement with Sloan-Kettering under which we obtained the worldwide, exclusive rights to
specified technology relating to ganglioside conjugate vaccines, including GMK, and its use to treat or prevent cancer. The license
was terminated on February 15, 2008.
iii. Aquila Biopharmaceuticals, Inc.
For a number of years, we were party to a license and supply agreement with Aquila Biopharmaceuticals, Inc., a wholly
owned subsidiary of Antigenics Inc., for a program we have since terminated. In November 2008, the agreement was terminated
and a portion of the contingent shares issued to Aquila in connection with the agreement have since been cancelled.
iv. Facet Biotech Corporation (formerly, Protein Design Labs, Inc.)
Protein Design Labs (now Facet Biotech Corporation (“Facet”)) humanized a murine monoclonal antibody developed by
us (humanized PRO 140) and granted us related licenses under patents and patent applications, in addition to know-how. In
general, these licenses are fully paid after the latest of the tenth anniversary of the first commercial sale of a product developed
thereunder, expiration of the last-to-expire patent or the tenth anniversary of the latest filed pending patent application. Pending
U.S. and international patent applications and patent-term extensions may extend the period of our license rights when and if they
are allowed, issued or granted. We may terminate the license on 60 days prior written notice, and either party may terminate on 30
days prior written notice for an uncured material breach (ten days for payment default). As of December 31, 2008, we have paid
Facet’s predecessors $5.2 million, and if all milestones are achieved, we will be obligated to pay an additional approximately $2.0
million. We are also required to pay annual maintenance fees of $150,000 and royalties on sales of products developed under the
license.
v. UR Labs, Inc./ University of Chicago
We have an exclusive sublicense agreement with URL to develop and commercialize methylnaltrexone under rights URL
licensed from the University of Chicago. After entering this sublicense, we subsequently acquired substantially all of the assets of
F-29
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
URL, comprised of its rights and responsibilities under its University of Chicago license, its sublicense with us and related
agreements, and at the same time modified some of those obligations to third parties. As a result, our only remaining obligations
represent payments to the University of Chicago under the license.
We have also 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, 2008, we have paid the University of Chicago $540,000 and
may make payments aggregating $660,000 over the option periods.
c. Licensing and Collaboration Agreements of PSMA Development Company LLC
In connection with all the agreements discussed below, PSMA LLC, which became our wholly owned subsidiary on April
20, 2006 (see Note 12) has recognized milestone, license and annual maintenance fees, which are included in research and
development expenses of PSMA LLC, totaling approximately $200, $600 and $865 for the years ended December 31, 2006, 2007
and 2008, respectively. In addition, in connection with our acquisition of a former member’s interest in PSMA LLC (see Note 12),
the former member granted an exclusive license to PSMA LLC, under which PSMA LLC recognized $25, $38 and $28 in license
fees for the years ended December 31, 2006, 2007 and 2008, respectively. As of December 31, 2008, remaining payments,
including amounts accrued, associated with milestones and defined objectives with respect to the agreements referred to below, as
well as with respect to the license granted by the former member to PSMA LLC, total approximately $78.1 million.
i. Amgen Fremont, Inc. (formerly Abgenix)
PSMA LLC has a worldwide exclusive licensing agreement with Abgenix (now Amgen Fremont, Inc.) to use its
XenoMouse® technology for generating fully human antibodies to PSMA LLC’s PSMA antigen. PSMA LLC is obligated to make
payments under this license 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, 2008, PSMA
LLC has paid to Abgenix $850,000 under this agreement. If PSMA LLC achieves certain milestones specified under the
agreement, it will be obligated to pay Abgenix 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.
ii. AlphaVax Human Vaccines
PSMA LLC has a worldwide exclusive license agreement with AlphaVax Human Vaccines (“Alpha Vax”) to use its
AlphaVax Replicon Vector system to create a therapeutic prostate cancer vaccine incorporating PSMA LLC’s proprietary PSMA
antigen. PSMA LLC is obligated to make payments under the license upon the occurrence of certain milestones associated with the
development and commercialization program for products incorporating AlphaVax’s system. As of December 31, 2008, PSMA
LLC has paid to AlphaVax $1.7 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 $5.3 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. Pending U.S. and international patent
applications and patent-term extensions may extend the period of our license rights when and if they are allowed, issued or
granted.
iii. Seattle Genetics, Inc.
PSMA LLC has a collaboration agreement with Seattle Genetics, Inc. (“SGI”), under which SGI has granted PSMA LLC
an exclusive worldwide license to its proprietary ADC technology. Under the license, PSMA LLC has the right to use this
technology to link chemotherapeutic agents to PSMA LLC’s monoclonal antibodies that target prostate specific membrane
antigen. 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
F-30
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
sublicense the ADC technology to a third party to manufacture ADCs for both research and commercial use. Under the agreement,
PSMA LLC is obligated to make maintenance payments, additional payments aggregating up to $14.0 million upon the
achievement of certain milestones and to pay royalties to SGI and its licensors, as applicable, on a percentage of net sales. 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, 2008, PSMA LLC has paid to SGI
approximately $3.6 million under this agreement, including $1.0 million in milestone payments.
d. Consulting Agreements
As part of our research and development efforts, we enter into consulting agreements with external scientific specialists
(“Scientists”). These agreements contain various terms and provisions, including fees to be paid by us and royalties, in the event of
future sales, and milestone payments, upon achievement of defined events, payable by us. Certain Scientists are members of the
Progenics’ 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 our Board of Directors. Some Scientists have purchased our Common Stock or received
stock options which are subject to vesting provisions. We have recognized expenses with regard to the consulting agreements of
the SAB Members totaling approximately $893, $1,092 and $358 for the years ended December 31, 2006, 2007 and 2008,
respectively. Those expenses include the fair value of stock options granted during 2006, 2007 and 2008, which were fully vested
at grant date, of approximately $620, $691 and $217, 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
PSMA LLC was formed on June 15, 1999 as a joint venture between us and a former member (each a “Member” and
collectively, the “Members”) for the purposes of conducting research, development, manufacturing and marketing of products
related to PSMA. On April 20, 2006, we acquired the former member’s 50% membership interest in PSMA LLC, including its
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”). We 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 the former
member had granted a license to PSMA LLC for certain PSMA-related intellectual property, was amended.
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 we charged $13,209 to research and development expense after consideration of the
transaction costs and net tangible assets acquired.
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. During 2006, 2007 and 2008, we matched 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, we may also make a discretionary contribution each year on behalf of all participants who
are non-highly compensated employees. We made Matching Contributions of approximately $1,135, $1,538 and $1,727 to the
Amended Plan for the years ended December 31, 2006, 2007 and 2008, respectively. No discretionary contributions were made
during those years.
14. Income Taxes
We account for income taxes using the liability method in accordance with FAS 109. Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
F-31
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
There is no provision or benefit for federal or state income taxes for the years ended December 31, 2006, 2007 or 2008.
We have 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. 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,
2007
$ 5,912
8,203
306
73,792
10,632
8,155
2,713
109,713
(109,713)
—
$
2008
$ 6,231
9,139
306
87,672
12,396
10,923
2,402
129,069
(129,069)
—
$
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. The increase in the valuation allowance
resulted primarily from the additional net operating loss carry-forwards.
The following is a reconciliation of income taxes computed at the Federal statutory income tax rate to the actual effective
income tax provision:
Year Ended December 31,
2006
2007
2008
U.S. Federal statutory rate
State income taxes, net of Federal benefit
Research and experimental tax credit
Change in valuation allowance
Other
Income tax provision
(34.0)%
(5.8)
(6.4)
43.1
3.1
0.0%
(34.0)%
(5.6)
(4.2)
40.8
3.0
0.0%
(34.0)%
(5.4)
(4.3)
43.3
0.4
0.0%
As of December 31, 2008, we had available, for tax return purposes, unused NOL’s of approximately $239.5 million,
which will expire in various years from 2018 to 2028, $17.4 million of which were generated from deductions that, when realized,
will reduce taxes payable and will increase paid-in-capital.
We have reviewed our nexus in various tax jurisdictions and our 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 years ended December 31, 2007
and 2008, we 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, 2008, 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, 2008, we are 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, 2008, our open tax years extend back to
1995, with the exception of 1997, during which we reported net income. No amounts of interest or penalties were recognized in our
Consolidated Statements of Operations or Consolidated Balance Sheets upon adoption of FIN 48 or as of and for the years ended
December 31, 2007 and 2008.
F-32
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
In connection with our adoption of FAS 123(R) on January 1, 2006 (see Note 3), we elected to implement the short cut
method of calculating our pool of windfall tax benefits. Accordingly, our 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 our
annual financial statements related to tax benefits from stock-based employee compensation during fiscal periods subsequent to the
adoption of FAS 123 but prior to the adoption of FAS 123(R).
Our research and experimental (“R&E”) tax credit carry-forwards of approximately $9.1 million at December 31, 2008
expire in various years from 2009 to 2028. During the year ended December 31, 2008, research and experimental tax credit carry-
forwards of approximately $91 expired.
15. Net Loss Per Share
Our 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, 2006, 2007 and 2008, we reported a net loss and,
therefore, potential common shares were not included since such inclusion would have been anti-dilutive. The calculations of net
loss per share, basic and diluted, are as follows:
Net Loss
(Numerator)
Weighted Average
Common Shares
(Denominator)
Per Share
Amount
2006:
Basic and diluted
$ (21,618)
25,669
$ (0.84)
2007:
Basic and diluted
$ (43,688)
27,378
$ (1.60)
2008:
Basic and diluted
$ (44,672)
29,654
$ (1.51)
For the years ended December 31, 2006, 2007 and 2008, potential common shares which have been excluded from diluted
per share amounts because their effect would have been anti-dilutive include the following:
2006
2007
2008
Years Ended December 31,
Weighted
Average
Number
Weighted
Average
Exercise Price
Weighted
Average
Number
Options and warrants
Restricted stock
Total
$ 15.13
4,663
312
4,975
4,703
454
5,157
Weighted
Average
Exercise Price
$17.56
Weighted
Average
Number
Weighted
Average
Exercise Price
$18.01
4,854
522
5,376
F-33
PROGENICS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ⎯ continued
(amounts in thousands, except per share amounts or unless otherwise noted)
16. Unaudited Quarterly Results
Summarized quarterly financial data for the years ended December 31, 2007 and 2008 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,
2007
(unaudited)
$17,637
(10,433)
(0.40)
Quarter Ended
March 31,
2008
(unaudited)
$14,762
(15,485)
(0.52)
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)
Quarter Ended
June 30,
2008
(unaudited)
$28,584
(2,369)
(0.08)
Quarter Ended
September 30,
2008
(unaudited)
$17,497
(12,220)
(0.41)
Quarter Ended
December 31,
2008
(unaudited)
$6,828
(14,598)
(0.49)
F-34
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 13, 2009
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
Capacity
Co-Chairman
Date
March 13, 2009
/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 13, 2009
/s/ CHARLES A. BAKER
Charles A. Baker
/s/ PETER J. CROWLEY
Peter J. Crowley
/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 13, 2009
March 13, 2009
March 13, 2009
March 13, 2009
March 13, 2009
March 13, 2009
March 13, 2009
Director
Director
Director
Director
Director
Director
Chief Financial Officer, Senior Vice President,
Finance & Operations and Treasurer
(Principal Financial and Accounting Officer)
S-1
EXHIBIT INDEX
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)
10.6.4(18)
10.6.5(18)
10.7(15)
10.8(19)
10.9(1)
10.10(8)
10.11(8)
10.15(5)
10.16(2)†
10.16.1(11)
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) †
10.26(13)
10.27(13) †
10.28(17)
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 Non-Qualified Stock Option Award Agreement ‡
Form of Restricted Stock Award Agreement ‡
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‡
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.
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.
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‡
10.29 ††
License Agreement, dated as of October 16, 2008, by and among Ono Pharmaceutical Co., Ltd. and the Registrant.
E-1
10.30 ††
10.31 ††
10.32 ††
21.1(19)
23.1
31.1
31.2
32.1
32.2
Partial Termination and License Agreement, dated October 16, 2008, 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.
Consent, Acknowledgment and Agreement, dated as of October 16, 2008, by and among Wyeth, acting through
Wyeth Pharmaceuticals Division, Wyeth-Whitehall Pharmaceuticals, Inc. and Wyeth-Ayerst Lederle, Inc., the
Registrant and Ono Pharmaceutical Co., Ltd.
2008 Agreement Related to Progenics’ MNTX In-License, dated October 16, 2008, by and among the University of
Chicago, acting on behalf of itself and ARCH Development Corporation, the Registrant, Progenics Pharmaceuticals
Nevada, Inc. and Ono Pharmaceutical Co., Ltd.
Subsidiaries of the Registrant.
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 July 8, 2008.
(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.
(18) Previously filed in Current Report on Form 8-K filed on July 8, 2008.
(19) Previously filed in Annual Report on Form 10-K for the year ended December 31, 2007.
†
††
‡
Confidential treatment granted as to certain portions omitted and filed separately with the Commission.
Confidential treatment requested as to certain portions omitted and filed separately with the Commission.
Management contract or compensatory plan or arrangement.
E-2
Stockholders’ Information
Securities and Related Information
The Company’s Common Stock is traded on the Nasdaq National Market under the symbol PGNX.
As of April 13, 2009 the Company had approximately 345 stockholders of record.
Below are high and low sales prices for the Company’s Common Stock as reported by
Nasdaq for the periods indicated:
($) High Low
2007
20.02
First Quarter
30.31
21.14
Second Quarter 27.59
20.55
Third Quarter
26.10
17.77
Fourth Quarter 23.98
($) High Low
2008
4.33
First Quarter
19.25
6.66
Second Quarter 17.94
11.88
Third Quarter
17.50
6.77
Fourth Quarter 14.10
Company Information
Transfer Agent
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 8, 2009 at:
Landmark at Eastview
Rockland Room
777 Old Saw Mill River Road
Tarrytown, NY 10591
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
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.