UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For
the fiscal year ended December 31, 2005
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or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For
the transition period
from ___________ to ___________
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Commission
File No. 000-23143
PROGENICS
PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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13-3379479
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification
Number)
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777
Old Saw Mill River Road
Tarrytown,
NY 10591
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (914) 789-2800
Securities
Registered pursuant to Section 12(b) of the Act: None
Securities
Registered pursuant to Section 12(g) of the
Act:
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Common
Stock, par value $0.0013 per share
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(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes
o
No
x
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
o
No
x
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
x
No ¨
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. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check
one):
Large
Accelerated
Filer ¨
Accelerated Filer x
Non-accelerated Filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
The
aggregate market value of the voting and non-voting stock held by non-affiliates
of the registrant on June 30, 2005, based upon the closing price of the Common
Stock on the Nasdaq National Market of $20.86 per share, was approximately
$280,398,000 (1). As of March 14, 2006, 25,450,675 shares of Common
Stock, par value $.0013 per share, were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None
(1)
|
Calculated
by excluding all shares that may be deemed to be beneficially owned
by
executive officers, directors and five percent stockholders of
the
Registrant, without conceding that any such person is an “affiliate” of
the Registrant for purposes of the Federal securities
laws.
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PART
I
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Item
1.
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1
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Item
1A.
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20
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Item
1B.
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30
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Item
2.
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30
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Item
3.
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30
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Item
4.
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30
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PART
II
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Item
5.
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31
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Item
6.
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32
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Item
7.
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33
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Item
7A.
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51
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Item
8.
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51
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Item
9.
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51
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Item
9A.
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51
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Item
9B.
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52
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PART
III
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Item
10.
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53
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Item
11.
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58
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Item
12.
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64
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Item
13.
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66
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Item
14.
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67
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PART
IV
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Item
15.
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68
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F-1
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S-1
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E-1
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PART
I
Certain
statements in this Annual Report on Form 10-K constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. Any
statements contained herein that are not statements of historical fact may
be
forward-looking statements. When we use the words ‘anticipates,’ ‘plans,’
‘expects’ and similar expressions, it is identifying forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements, or industry results, to be materially different from any expected
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the risks
associated with our dependence on Wyeth to fund and to conduct clinical testing,
to make certain regulatory filings and to manufacture and market products
containing MNTX, the uncertainties associated with product development, the
risk
that clinical trials will not commence, proceed or be completed as planned,
the
risk that our products will not receive marketing approval from regulators,
the
risks and uncertainties associated with the dependence upon the actions of
our
corporate, academic and other collaborators and of government regulatory
agencies, the risk that our licenses to intellectual property may be terminated
because of our failure to have satisfied performance milestones, the risk
that
products that appear promising in early clinical trials are later found not
to
work effectively or are not safe, the risk that we may not be able to
manufacture commercial quantities of our products, the risk that our products,
if approved for marketing, do not gain market acceptance sufficient to justify
development and commercialization costs, the risk that we will not be able
to
obtain funding necessary to conduct our operations, the uncertainty of future
profitability and other factors set forth more fully in this Form 10-K,
including those described under the caption “Item 1A. ¾
Risk
Factors”, and other periodic filings with the Securities and Exchange
Commission, to which investors are referred for further
information.
We
do not
have a policy of updating or revising forward-looking statements, and we
assume
no obligation to update any forward-looking statements contained in this
Form
10-K as a result of new information or future events or developments. Thus,
you
should not assume that our silence over time means that actual events are
bearing out as expressed or implied in such forward-looking
statements.
Available
Information
We
file
annual, quarterly and current reports, proxy statements and other documents
with
the Securities and Exchange Commission, or SEC, under the Securities Exchange
Act of 1934, or the Exchange Act. The public may read and copy any materials
that we file with the SEC at the SEC’s Public Reference Room at 100 F Street NE,
Washington, DC 20549. The public may obtain information on the operation
of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC
maintains an Internet website that contains reports, proxy and information
statements and other information regarding issuers, including Progenics,
that
file electronically with the SEC. The public can obtain any documents that
we
file with the SEC at http://www.sec.gov.
We
also
make available, free of charge, on or through our Internet website
(http://www.progenics.com) our Annual Reports on Form 10-K, Quarterly Reports
on
Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to
those reports filed or furnished pursuant to Section 13(a) of the Exchange
Act
as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC.
Overview
Progenics
Pharmaceuticals, Inc. is a biopharmaceutical company focusing on the development
and commercialization of innovative therapeutic products to treat the unmet
medical needs of patients with debilitating conditions and life-threatening
diseases. Our principal programs are directed toward symptom management and
supportive care and the treatment of Human Immunodeficiency Virus (“HIV”)
infection and cancer.
Symptom
Management and Supportive Care
In
the
area of symptom management and supportive care, our work is focused on
methylnaltrexone (“MNTX”), which is our most advanced product candidate. In
December 2005, we entered into a license and co-development agreement (the
“Collaboration Agreement”) with Wyeth Pharmaceuticals (“Wyeth”) to develop and
commercialize MNTX.
Subcutaneous
MNTX.
Our
most
advanced work with MNTX is as a treatment for opioid-induced constipation.
Constipation is a serious medical problem for patients who are being treated
with opioid pain-relief medications. MNTX is designed to reverse the side
effects of opioid pain medications while maintaining pain relief, an important
need not currently met by any approved drugs. We have successfully completed
two
pivotal phase 3 clinical trials of MNTX in patients with advanced medical
illness. We are now working with Wyeth to submit a New Drug Application to
the
U.S. Food and Drug Administration in this setting and implement a
commercialization strategy for subcutaneous MNTX.
Intravenous
MNTX.
We
are
also developing an intravenous form of MNTX for the management of post-operative
bowel dysfunction, a serious condition of
the
gastrointestinal tract that can arise following surgery. We have successfully
completed a phase 2 clinical trial of MNTX for this indication. Based on
our end
of phase 2 meeting with the FDA ,we are planning a phase 3 clinical program
with
intravenous MNTX for the treatment of post-operative bowel
dysfunction.
Oral
MNTX. An
oral
form of MNTX is also under development for the treatment of opioid-induced
constipation in patients with chronic pain, including
those suffering from lower-back pain, joint pain, headaches, sickle-cell
disease, muscle pain and other disorders. Prior to entering into the
Collaboration Agreement with Wyeth, we had completed
phase 1 clinical trials of oral MNTX in healthy volunteers. Wyeth has the
responsibility under the Collaboration Agreement for continuing the worldwide
development of oral MNTX.
Treatment
of HIV Infection
In
the
area of virology, we are developing viral entry inhibitors, which are molecules
designed to inhibit the ability of viruses to enter certain types of immune
system cells. HIV is the virus that causes AIDS. In mid-2005, we announced
positive results from a phase 1 clinical trial in healthy volunteers of PRO
140,
a
monoclonal antibody designed to target the HIV co-receptor CCR5. Receptors
and co-receptors are structures on the surface of a cell to which a virus
must
bind in order to infect the cell. A
phase
1b trial of PRO 140 in HIV-infected patients began in December 2005. We are
also
involved in research regarding a vaccine against HIV infection and a therapeutic
for hepatitis C virus infection.
Treatment
of Cancer
We
are
developing immunotherapies for prostate cancer, including monoclonal antibodies
directed against prostate specific membrane antigen (“PSMA”), a protein found on
the surface of prostate cancer cells. We are also developing vaccines designed
to stimulate an immune response to PSMA. Our PSMA programs are conducted
through
PSMA Development Company LLC (“PSMA LLC”), our joint venture with Cytogen
Corporation (“Cytogen”).
We
are
also studying a cancer vaccine, GMK, in phase 3 clinical trials for the
treatment of malignant melanoma.
Product
In-Licensing
We
seek
out promising new products and technologies around which to build new
development programs or enhance existing programs. Our in-licensing strategy
has
been the basis for our clinical development programs for MNTX, novel HIV
therapeutics and cancer immunotherapies. We own the worldwide commercialization
rights to each of our product candidates except MNTX, which will be
commercialized by Wyeth under the Collaboration Agreement and except with
respect to our development programs targeting PSMA, which are being conducted
through our joint venture with Cytogen
The
following table summarizes the current status of our principal development
programs and product candidates:
Program/Product
Candidates
|
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Indication/Use
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Status
(1)
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Symptom
Management and Supportive Care
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|
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MNTX-Subcutaneous
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Treatment
of opioid-induced constipation
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Phase
3 completed in patients with advanced medical illness
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MNTX-Intravenous
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Management
of post-operative bowel dysfunction
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Phase
3 planned
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MNTX-Oral
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Treatment
of opioid-induced constipation
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Phase
2 planned in patients with chronic pain
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HIV
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PRO
140
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Treatment
of HIV infection
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Phase
1b
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ProVax
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Treatment
of HIV infection
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Research
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Prostate
Cancer
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PSMA
(2):
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Recombinant
protein vaccine
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Immunotherapy
for prostate cancer
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Phase
1
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Viral-vector
vaccine
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Immunotherapy
for prostate cancer
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Preclinical
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Monoclonal
antibody-drug conjugate
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Treatment
of prostate cancer
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Preclinical
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Other
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GMK
vaccine
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Immunotherapy
for melanoma
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Phase
3
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Hepatitis
C virus (HCV)
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Treatment
of HCV infection
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Research
|
(1) “Research”
means initial research related to specific molecular targets, synthesis of
new
chemical entities, assay development or screening for the identification
of lead
compounds.
“Preclinical”
means that a lead compound is undergoing toxicology, formulation and other
testing in preparation for clinical trials.
Phase
1-3
clinical trials are safety and efficacy tests in humans as follows:
“Phase
1”:
Evaluation of safety.
“Phase
2”:
Evaluation of safety, dosing and activity or efficacy.
“Phase
3”:
Larger scale evaluation of safety and efficacy.
(2) Programs
conducted through PSMA LLC.
None
of
our product candidates has received marketing approval from the FDA or any
other
regulatory authority, and we have not yet received any revenue from the sale
of
any of our product candidates. We must receive marketing approval before
we can
commercialize any of our product candidates.
Symptom
Management and Supportive Care
Narcotic
medications such as morphine and codeine, which are referred to as opioids,
are
the mainstay in controlling moderate to severe pain. We estimate that
approximately 200 million prescriptions for opioids are written annually
in the
U.S. Physicians prescribe opioids for patients with advanced medical illness,
patients undergoing surgery and patients who experience chronic pain, as
well as
for other indications.
Opioids
relieve pain by interacting with receptors that are located in the brain
and
spinal cord, which comprise the central nervous system. At the same time,
opioids activate receptors outside the central nervous system, resulting,
in
many cases, in undesirable side effects, including constipation, delayed
gastric
emptying, nausea and vomiting, itching and urinary retention. Current treatment
options for opioid-induced constipation include laxatives and stool softeners,
which are only minimally effective and are not recommended for chronic use.
As a
result, many patients may have to stop opioid therapy and endure pain in
order
to obtain relief from opioid-induced constipation and other side
effects.
MNTX
MNTX
is a
selective, peripheral, opioid-receptor antagonist that reverses certain side
effects induced by opioid use. MNTX competes with opioid analgesics for binding
sites on opioid receptors, but is unable to cross the blood-brain barrier.
As a
result, MNTX “turns off” the effects of opioid analgesics outside the central
nervous system, including the gastrointestinal tract, but does not interfere
with opioid activity within the central nervous system. Therefore, MNTX does
not
block the pain relief that the opioids provide. To date, patients treated
with
MNTX in addition to opioid pain medications have experienced a reversal of
many
of the side effects induced by the opioids and have reported no decline in
pain
relief. MNTX has been studied in numerous clinical trials. To date, MNTX
has
been generally well tolerated and highly active in blocking opioid-related
side
effects without interfering with pain relief.
On
December 23, 2005 we entered into the Collaboration Agreement with Wyeth.
Under
the Collaboration Agreement, we will share with Wyeth the responsibilities
for
developing and obtaining marketing approval of MNTX in the United States
as
outlined below. Our responsibility extends to the subcutaneous and intravenous
forms and Wyeth’s to the oral form. Wyeth is responsible for developing and
obtaining marketing approval for the three forms of MNTX outside of the United
States. Once marketing approval is obtained, Wyeth is responsible for
commercializing all three forms of MNTX worldwide. We have an option, under
certain circumstances, to co-promote the sale of the three forms of MNTX
in the
United States. Wyeth has agreed to reimburse us for the development costs
of
MNTX which we incur and to pay us certain fees if we co-promote
MNTX.
Our
rights to MNTX arise under an exclusive sublicense from UR Labs, Inc. (“URL”).
URL’s rights to MNTX arise under an exclusive license from the University of
Chicago. In December 2005, URL assigned to us its rights under our sublicense,
so we now obtain our rights to MNTX by license directly from the University
of
Chicago. See “Licenses—UR Labs.”
Subcutaneous
MNTX.
Our most
advanced work with MNTX is as a treatment for opioid-induced constipation.
Constipation is a serious medical problem for patients who are being treated
with opioid pain-relief medications. MNTX is designed to reverse the side
effects of opioid pain medications while maintaining pain relief, an important
need not currently met by any approved drugs.
We
have
successfully completed two pivotal phase 3 clinical trials of MNTX in patients
with advanced medical illness including cancer, AIDS and heart disease.
Approximately 1.7 million deaths occur each year in the U.S. from advanced
medical illness. Most of these patients receive opioids for pain prior to
their
death and, as a result, experience opioid-induced constipation.
We
achieved positive results from our two pivotal phase 3 clinical trials (MNTX
301
and MNTX 302). In
the
second phase 3 clinical study, MNTX 302, subcutaneous administration of MNTX
induced laxation (bowel movement) within four hours in 51.2% of severely
constipated patients with advanced medical illness at more than three times
the
rate of placebo (15.5%), on average over a two-week period. For patients
who
responded to MNTX (0.15 mg/kg), median time to laxation was 30 minutes. All
primary and secondary efficacy endpoints of both of the phase 3 studies were
positive and statistically significant. The drug was generally well tolerated
in
both phase 3 trials.
Under
the
Collaboration Agreement with Wyeth, we are responsible for developing
subcutaneous MNTX in the advanced medical illness setting and obtaining
regulatory marketing approval in the United States, and Wyeth is responsible
for
developing and obtaining regulatory marketing approval in this setting outside
the United States.
Intravenous
MNTX. We
are
also developing an intravenous form of MNTX for the management of post-operative
bowel dysfunction. Of the patients who undergo surgery in the U.S. each year,
more than three million patients are at high risk for developing bowel
dysfunction, a serious impairment of the gastrointestinal tract. Post-operative
bowel dysfunction is caused in part by the release by the body of endogenous
opioids in response to the trauma of surgery and may be exacerbated by the
use
of opioids, such as morphine, in surgery and in the post-operative period.
Bowel
dysfunction is a major factor in increasing hospital stay, as patients are
typically not discharged until bowel function is restored.
We
have
completed a multi-center, double-blind, randomized, placebo-controlled phase
2
clinical trial of intravenous MNTX in patients at risk for post-operative
bowel
dysfunction. The study was conducted in 65 individuals who had undergone
segmental colectomies, which is the removal of a portion of the colon. Patients
who received MNTX exhibited an acceleration of gastrointestinal recovery
by
approximately one day, on average, compared to placebo. Significant improvements
were seen in both time to first bowel movement and time to discharge eligibility
from the hospital, both of which we believe are clinically meaningful. MNTX
was
generally well tolerated in this study. Based on our end of phase 2 meeting
with
the FDA, we are planning a phase 3 clinical program with intravenous MNTX
for
treatment of post-operative bowel dysfunction.
Under
the
Collaboration Agreement with Wyeth, we are responsible for developing
intravenous MNTX for post-operative bowel dysfunction and obtaining regulatory
marketing approval in this setting in the United States, and Wyeth is
responsible for developing and obtaining regulatory marketing approval in
this
setting outside the United States.
Oral
MNTX. We
have
also been developing an oral form of MNTX for the treatment of constipation
in
patients receiving opioids. More than 200 million prescriptions are written
annually for opioids and more than 40 million patients in the U.S. are receiving
treatment for chronic pain. Approximately five million of these patients
use
opioids chronically, many of whom experience opioid-induced
constipation.
We
have
conducted two phase 1 clinical studies of oral MNTX at three dose levels
in a
total of 61 healthy volunteers. Analysis of data from these two studies,
which
were double-blind and randomized, indicated that MNTX was well tolerated
and
exhibited predictable pharmacokinetics. In four clinical studies conducted
previously by independent researchers, an orally administered capsule form
of
MNTX demonstrated activity, including relief of opioid-induced
constipation.
Under
the
Collaboration Agreement, Wyeth is responsible for the further development
of
oral MNTX in this setting and for obtaining regulatory marketing approval
both
in the United States and the rest of the world.
HIV
Infection
by the human immunodeficiency virus, or HIV, causes a slowly progressing
deterioration of the immune system resulting in Acquired Immune Deficiency
Syndrome, or AIDS. HIV specifically infects cells that have the CD4 receptor
on
their surface. Cells with the CD4 receptor are critical components of the
immune
system and include T lymphocytes, monocytes, macrophages and dendritic cells.
The devastating effects of HIV are largely due to the multiplication of the
virus in these cells, resulting in their dysfunction and
destruction.
The
Joint
United Nations Program on HIV/AIDS (“UNAIDS”) and the World Health Organization
(“WHO”) estimate that the number of individuals living with HIV has continued to
increase around the world, reaching a record 40.3 million people in 2005,
including nearly five million new infections. Individuals living with HIV
in
high-income countries rose to 1.9 million, which includes an estimated 65,000
newly infected individuals. UNAIDS and WHO estimate that there were over
three
million deaths attributed to AIDS during 2005, of which 30,000 were from
high-income countries.
At
present, three classes of products have received marketing approval from
the FDA
for the treatment of HIV infection and AIDS: reverse transcriptase inhibitors,
protease inhibitors and entry inhibitors. Reverse transcriptase and protease
inhibitors inhibit two of the viral enzymes required for HIV to replicate
once
it has entered the cell.
Since
the
late 1990s, many HIV patients have benefited from combination therapy of
protease and reverse transcriptase inhibitors. While combination therapy
slows
the progression of disease, it is not a cure. HIV’s rapid mutation rate results
in the development of viral strains that are resistant to reverse transcriptase
and protease inhibitors. Increasingly, after years of combination therapy,
patients begin to develop resistance to these drugs. The potential for
resistance is increased by interruptions in dosing, which lead to lower drug
levels and permit increased viral replication. Interruption in dosing is
common
in patients on combination therapies because these drug regimens often require
more than a dozen tablets to be taken at specific times each day. In addition,
many currently approved drugs produce toxic side effects in many patients,
affecting a variety of organs and tissues, including the peripheral nervous
system and gastrointestinal tract. These side effects may result in patients
interrupting or discontinuing therapy. Our viral entry inhibitors represent
a
potential new class of drugs for these patients.
Viral
infection occurs when the virus binds to a host cell, enters the cell, and
by
commandeering the cell’s own reproductive machinery, creates thousands of copies
of itself within the host cell. This process is called viral replication.
Our
scientists and their collaborators have made important discoveries in
understanding how HIV enters human cells and initiates viral
replication.
Our
scientists, in collaboration with researchers at the Aaron Diamond AIDS Research
Center, or ADARC, described in an article in Nature
the
discovery of a co-receptor for HIV on the surface of human immune system
cells.
This co-receptor, CCR5, enables fusion of HIV with the cell membrane after
binding of the virus to the CD4 receptor. This fusion step results in entry
of
the viral genetic information into the cell and subsequent viral replication.
Our PRO 140 program is based on blocking binding of HIV to the CCR5 co-receptor.
Further work by other scientists has established the existence of a second
co-receptor, CXCR4. Based on our pioneering research, we believe we are a
leader
in the discovery of viral entry inhibitors, a promising new class of HIV
therapeutics. We believe viral entry inhibitors could become the next generation
of therapy.
PRO
140
PRO
140
is a humanized monoclonal antibody designed to block HIV infection by inhibiting
virus-cell binding. We have designed PRO 140 to target a distinct site on
CCR5
without interfering with the normal function of CCR5. PRO 140 has shown
promising activity in preclinical studies. In in
vitro
studies,
PRO 140 demonstrated potent, broad-spectrum antiviral activity against more
than
40 genetically diverse “primary” HIV viruses isolated directly from infected
individuals. Single doses of a murine-based PRO 140 reduced viral burdens
to
undetectable levels in an animal model of HIV infection. In mice treated
with
murine PRO 140, initially high HIV concentrations became undetectable for
up to
nine days after a single dose. Additionally, multiple doses of murine PRO
140
reduced and then maintained viral loads at undetectable levels for the duration
of therapy in an animal model of HIV infection. Sustaining undetectably low
levels of virus in the blood is a primary goal of HIV therapy.
In
mid-2005, we completed a phase 1 study of humanized PRO 140 designed to
determine the tolerability, safety, pharmacology and immunogenicity of PRO
140
in healthy volunteers. PRO
140
exhibited both a long half-life in the circulation and dose-dependent binding
to
CCR5-expressing cells. A single 5 mg/kg dose of PRO 140 significantly coated
¾
and
thereby potentially protected from HIV infection ¾
CCR5
cells for as long as 60 days. PRO 140 was generally well tolerated at all
dose
levels in this study.
In
December 2005, we initiated a phase 1b study of PRO 140. The phase 1b trial
is
designed to assess the tolerability, pharmacokinetics and preliminary antiviral
activity of PRO 140 in approximately 40 HIV-positive patients. This
multi-center, double-blind, placebo-controlled, dose-escalation study is
being
conducted in patients who have not taken any anti-retroviral therapy within
the
previous three months and who have HIV plasma concentrations greater than
or
equal to 5,000 copies/mL. Patients will receive a single intravenous dose
of
study medication ¾
either
placebo or one of three increasingly higher doses of PRO 140. PRO 140 blood
levels and CCR5 coating will be determined and compared with antiviral effects
measured as changes in plasma HIV viral load following treatment.
In
February 2006, we received “Fast Track” designation from the FDA for PRO 140.
The
FDA
Fast Track Development Program facilitates development and expedites regulatory
review of drugs intended to address an unmet medical need for serious or
life-threatening conditions.
The
“humanized” version of PRO 140 was developed for us by PDL BioPharma, Inc.
(formerly, Protein Design Labs, Inc.) See “Licenses—Protein Design
Labs.”
ProVax
ProVax
is
our vaccine product candidate under development for the prevention of HIV
infection or as a therapeutic treatment for HIV-positive individuals. We
are
currently performing government-funded research and development of the ProVax
vaccine in collaboration with the Weill Medical College of Cornell
University.
ProVax
contains critical surface proteins whose form closely mimics the structures
found on HIV. In animal testing, ProVax stimulated the production of specific
HIV neutralizing antibodies. When tested in the laboratory, these antibodies
inactivated certain strains of HIV isolated from infected patients. The
vaccine-stimulated neutralizing antibodies were observed to bind to the surface
of the virus, rendering it non-infectious. Such neutralizing antibodies against
HIV have been difficult to induce with vaccines currently in
development.
In
September 2003, we were awarded a contract by the National Institutes of
Health
(the “NIH”) to develop an HIV vaccine. We anticipate that these funds will be
used principally in connection with our ProVax HIV vaccine program. The contract
provides for up to $28.6 million in funding to us over five years for
preclinical research, development and early clinical testing of a prophylactic
vaccine designed to prevent HIV from becoming established in uninfected
individuals exposed to the virus. Funding under this contract is subject
to
compliance with its terms, and the payment of an aggregate of $1.6 million
in
fees under the contract is subject to achievement of specified milestones.
Through December 31, 2005, we had recognized revenue of $6.0 million from
this
contract, including $180,000 for the achievement of two
milestones.
Prostate
Cancer
Prostate
cancer is the most common cancer affecting men in the U.S. and is the second
leading cause of cancer deaths in men each year. The American Cancer Society
estimated that 232,090 new cases of prostate cancer would be diagnosed and
that
30,350 men would die from the disease in 2005 in the U.S.
Conventional
therapies for prostate cancer include radical prostatectomy, in which the
prostate gland is surgically removed, radiation and hormone therapies and
chemotherapy. Surgery and radiation therapy may result in urinary incontinence
and impotence. Hormone therapy and chemotherapy are generally not intended
to be
curative and are not actively used to treat localized, early-stage prostate
cancer.
PSMA
We
have
been engaged in research and development programs relating to vaccine and
antibody immunotherapeutics based on PSMA through PSMA LLC. See “Joint Venture
Relating to PSMA.” PSMA is a protein that is abundantly expressed on the surface
of prostate cancer cells as well as cells in the newly formed blood vessels
of
most other solid tumors. We believe that PSMA has applications in
immunotherapeutics for prostate cancer and potentially for other types of
cancer.
In
December 2002, PSMA LLC initiated a phase 1 clinical trial with its therapeutic
recombinant protein vaccine, which is designed to stimulate a patient’s immune
system to recognize and destroy prostate cancer cells. This trial is being
conducted pursuant to a physician IND by the Memorial Sloan-Kettering Cancer
Center. The vaccine combines the PSMA cancer antigen (recombinant soluble
PSMA,
or “rsPSMA”) with an immune stimulant to induce an immune response against
prostate cancer cells. The genetically engineered PSMA vaccine generated
potent
immune responses in preclinical animal testing. The ongoing clinical trial
is
designed to evaluate the safety, immunogenicity and immune-stimulating
properties of the vaccine in patients with either newly diagnosed or recurrent
prostate cancer. Enrollment in this clinical trial is complete, and preliminary
findings showed that certain prostate cancer patients produced anti-PSMA
antibodies in response to the vaccine. Additional research will be needed
to
optimize the production, immune response and anti-tumor activity of the vaccine
before this product candidate will advance to phase 2.
PSMA
LLC
is also pursuing a vaccine program that utilizes viral vectors designed to
deliver the PSMA gene to immune system cells in order to generate potent
and
specific immune responses to prostate cancer cells. In preclinical studies,
this
vaccine generated a potent dual response against PSMA, yielding a response
by
both antibodies and killer T-cells, the two principal mechanisms used by
the
immune system to eliminate abnormal cells. PSMA LLC is completing preclinical
development activities on the PSMA viral-vector vaccine.
PSMA
LLC
has also developed human monoclonal antibodies which bind to PSMA. These
antibodies, which were developed under license from Abgenix, Inc., are designed
to recognize the three-dimensional physical structure of the protein and
possess
a high affinity and specificity for PSMA. In November 2002, PSMA LLC reported
that its PSMA monoclonal antibody substantially reduced tumor growth in an
animal model of human prostate cancer. This antibody, which was conjugated,
or
attached, to a radioisotope, selectively delivered this lethal payload to
cells
that expressed PSMA on their surface. PSMA LLC is also investigating a PSMA
monoclonal antibody-toxin conjugate.
In
June
2005, PSMA LLC entered into a collaboration agreement (the “SGI Agreement”) with
Seattle Genetics, Inc. (“SGI”). Under the SGI Agreement, SGI provided an
exclusive worldwide license to its proprietary antibody-drug conjugate
technology (the “ADC Technology”) to PSMA LLC. Under the license, PSMA LLC has
the right to use the ADC Technology to link cell-killing drugs to PSMA LLC’s
monoclonal antibodies that targets prostate-specific membrane antigen. PSMA
LLC
may replace prostate-specific membrane antigen with another antigen, subject
to
certain restrictions, upon payment of an antigen replacement fee. The ADC
Technology is based, in part, on technology licensed by SGI from third parties
(the “Licensors”). PSMA LLC is responsible for research, product development,
manufacturing and commercialization of all products under the SGI Agreement.
PSMA LLC made a $2.0 million technology access payment to SGI, upon execution
of
the SGI Agreement during June 2005. The SGI Agreement requires PSMA LLC to
make
maintenance payments during the term of the SGI Agreement, payments aggregating
$15.0 million upon the achievement of certain defined milestones, and royalties
on a percentage of net sales, as defined, to SGI and its Licensors. In the
event
that SGI provides materials or services to PSMA LLC under the SGI Agreement,
SGI
will receive supply and/or labor cost payments from PSMA LLC at agreed upon
rates. Unless terminated earlier, the SGI Agreement terminates at the later
of
(a) the tenth anniversary of the first commercial sale of each licensed product
in each country or (b) the latest date of expiration of patents underlying
the
licensed products. The ability of PSMA LLC to comply with the terms of the
SGI
Agreement will depend on agreement by Cytogen and us regarding work plans
and
budgets of PSMA LLC in future years.
In
September 2005, PSMA LLC reported that in a mouse model of human prostate
cancer, mice given the experimental drug PSMA ADC had survival times of up
to
nine-fold longer than mice not treated with the drug.
In
2004,
the NIH awarded us two grants totaling $7.4 million to be paid over four
years
and a third grant for $600,000 to be paid over two years. The three grants
were
awarded to partially fund work on the PSMA projects described above.
PSMA
LLC
currently has no approved 2006 budget or work plan because we and Cytogen
have
not yet reached agreement with respect to a number of matters relating to
the
joint venture. However, we and Cytogen are required to fulfill obligations
under
existing contractual commitments as of December 31, 2005. Although work on
the
PSMA projects continues, if we do not reach an agreement regarding the 2006
budget and work plan, the programs conducted by PSMA LLC would likely be
delayed
or halted. Our future research and development plans set forth above regarding
the PSMA programs assume we are able to agree expeditiously with Cytogen
on a
budget and work plan for 2006. See “—Risk Factors—Disputes with Cytogen could
delay or halt our PSMA programs.”
Other
Product Candidates and Research Programs
GMK
Vaccine
GMK
is a
therapeutic vaccine that is designed to prevent recurrence of melanoma in
patients who are at risk of relapse after surgery. We are currently conducting
two phase 3 clinical trials of GMK.
Melanoma
is a cancer of the skin cells that produce the pigment melanin. In early
stages,
melanoma is limited to the skin, but in later stages it can spread to the
lungs,
liver, brain and other organs. The National Cancer Institute estimated that
in
2000 there were 550,860 melanoma patients in the U.S. The American Cancer
Society estimates that there were nearly 60,000 new cases of melanoma diagnosed
in the U.S. during 2005. Melanoma accounts for 4% of skin cancer cases, but
79%
of skin cancer deaths. Melanoma has one of the fastest growing incidence
rates
of any cancer in the U.S.
GMK
is
being developed as immunotherapy for patients with Stage II or Stage III
melanoma. The American Cancer Society estimates that the five-year relative
survival rate for these melanoma patients ranges from 44% to 85%, depending
on
the stage of the disease and other physiological factors.
GMK
entered a pivotal phase 3 clinical trial in the U.S. in August 1996. GMK
was
administered in this study by 12 subcutaneous injections over a two-year
period
on an out-patient basis. This clinical trial compares GMK with high-dose
alpha-interferon in Stage IIb (advanced Stage II) and Stage III melanoma
patients who have undergone surgery but are at high risk for recurrence.
This
randomized trial has been conducted nationally by the Eastern Cooperative
Oncology Group, or ECOG, in conjunction with other major cancer centers,
cooperative cancer research groups, hospitals and clinics. The primary endpoint
of this trial is a comparison of the recurrence of melanoma in patients
receiving GMK versus patients receiving high-dose alpha-interferon, the
conventional treatment for high-risk melanoma patients. Additionally, the
study
is designed to compare quality of life and overall survival of patients in
both
groups.
In
May
2000, as a result of an unplanned early analysis of a subset of the 880 patients
enrolled in the trial, ECOG recommended to clinical investigators participating
in the trial that they discontinue administering GMK. No safety issues were
identified. ECOG’s decision was based on its early analysis of data from the
subset group which, according to ECOG, showed that the relapse-free and overall
survival rates for patients receiving the GMK vaccine were lower than for
patients receiving high-dose alpha-interferon.
As
a
result of the actions of ECOG, the trial did not complete patient dosing
as
contemplated by the initial trial protocol. Despite ECOG’s actions, we extended
our clinical trial to allow those patients who so elected, with the advice
of
their treating physicians, to complete the full dosing protocol. We continue
to
monitor all patients in the trial until its scheduled completion as contemplated
by the initial protocol. We refer to “extending” the trial in this manner as an
“extension study.” While all patients received at least a portion of the planned
dosing, only about one-half of the patients received the full number of doses
of
GMK. We believe that the likely potential outcomes of the ECOG trial as
supplemented by the extension study are as follows: if the data are good,
the
data could be used with data from one or more other trials in support of
a
filing with the FDA for marketing approval; if the data are not good or are
inconclusive, it would not be useful in support of an application for marketing
approval, and further studies would be required. In any event, positive data
from our second phase 3 clinical trial of GMK, described below, would be
required to obtain marketing approval for this product candidate.
In
May
2001, we initiated an international phase 3 clinical trial of the GMK vaccine
to
prevent the relapse of malignant melanoma. The study is being conducted with
the
European Organization for Research and Treatment of Cancer, or EORTC, Europe’s
leading cancer cooperative group. The EORTC phase 3 trial has completed
enrollment of 1,314 patients, who are at intermediate risk for recurrence
of the
disease. The study recruited patients from Europe and Australia. EORTC will
randomize patients after surgery to receive either GMK or the current standard
of care, which is no treatment but close monitoring. Patients on the vaccine
arm
of the study will receive 14 doses of GMK over three years, with an estimated
two years of additional follow-up. We do not expect final data from this
trial
until at least 2009. The primary endpoint of this trial is to compare the
recurrence of melanoma in patients receiving GMK with patients receiving
observation and no treatment. The study will also compare overall survival
of
patients in both groups.
Hepatitis
C Viral Entry Inhibitor
We
are
engaged in a research program to discover treatments for hepatitis C that
block
viral entry into cells. Hepatitis C is a major cause of chronic liver
disease.
Joint
Venture Relating to PSMA
In
June
1999, we and Cytogen Corporation (collectively, the “Members”) formed a joint
venture in the form of a limited liability company for the purposes of
conducting research, development, manufacturing and marketing of products
related to PSMA. With certain limited exceptions, all patents and know-how
owned
by us or Cytogen and used or useful in the development of PSMA-based antibody
or
vaccine immunotherapeutics have been licensed to the joint venture. The
principal intellectual property licensed initially are several patents and
patent applications owned by Sloan-Kettering that relate to PSMA. We and
Cytogen
must also offer to license to PSMA LLC patents, patent applications and
technical information used or useful in PSMA LLC’s field to which we or Cytogen
acquire licensable rights. To date, we have been principally responsible
for
preclinical and clinical development. By the terms of PSMA LLC, Cytogen is
principally responsible for product marketing, and we have co-promotion
rights.
Each
Member of PSMA LLC currently owns 50% of PSMA LLC. Each Member has equal
representation on PSMA LLC’s management committee, equal voting rights, equal
rights to profits and losses of PSMA LLC and equal rights upon liquidation,
provided there is no dilution of either Member’s ownership interest as discussed
below. Pursuant to PSMA LLC agreement, a Member’s voting and ownership interest
will be diluted if it fails to make required capital contributions. Under
specified circumstances, a change in control of one of the Members may result
in
that Member’s loss of voting, management and marketing rights.
In
general, the amount of funds that we and Cytogen must contribute to fund
the
operations of PSMA LLC is based on budgets and related work plans that are
required to be approved by both parties and updated annually. We are required
to
fund that portion of the budget equal to our percentage interest in PSMA
LLC
(currently 50%). We were required to fund and recognize the initial cost
of
research up to $3.0 million. During the fourth quarter of 2001, we had surpassed
the $3.0 million in funding for research costs, and funding obligations were
thereafter shared equally by Cytogen and us. As of December 31, 2005, our
portion of this joint funding obligation that we have paid was $13.2 million.
According to PSMA LLC agreement, we were allowed to directly pursue and obtain
government grants in support of the PSMA programs and retain related amounts
not
to exceed $3.0 million. See “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Overview—Joint Venture with
Cytogen Corporation.”
PSMA
LLC
currently has no approved 2006 budget or work plan because we and Cytogen
have
not yet reached agreement with respect to a number of matters relating to
the
joint venture. However, we and Cytogen are required to fulfill obligations
under
existing contractual commitments as of December 31, 2005. Although work on
the
PSMA projects continues, if we do not reach an agreement regarding the 2006
budget and work plan, the programs conducted by PSMA LLC would likely be
delayed
or halted and PSMA LLC could be dissolved.
We
and
Cytogen provide research and development services to PSMA LLC and are
compensated for our services based on agreed upon terms which approximate
our
cost. All inventions made by us in connection with our research and development
services to PSMA LLC were required to be assigned to PSMA LLC for its use
and
benefit.
The
principal PSMA LLC agreements generally terminate upon the last to expire
of the
patents licensed by the Members to PSMA LLC or upon a breach by either Member
that is not cured within 60 days of written notice. Of the patents and patent
applications that are the subject of PSMA LLC, the issued patents expire
on
dates ranging from 2014 and 2016. Patent term extensions and pending patent
applications may extend the period of patent protection and thus the term
of
PSMA LLC agreements, when and if such patent applications are allowed and
issued.
Licenses
We
are a
party to license agreements under which we have obtained rights to use certain
technologies in our product development programs. Our joint venture with
Cytogen
has also entered into license agreements with third parties. Set forth below
is
a summary of the more significant of these licenses.
Progenics
Licenses
Wyeth.
We
and
Wyeth Pharmaceuticals (“Wyeth”) entered into a License and Co-Development
Agreement (the “Collaboration Agreement”) dated December 23, 2005 for the
development and commercialization of MNTX. Under the Collaboration Agreement,
Wyeth paid to us a $60 million non-refundable upfront payment. Wyeth is
obligated to make up to $356.5 million in additional payments to us upon
the
achievement of milestones and contingent events in the development and
commercialization of MNTX. All costs for the development of MNTX incurred
by
Wyeth or us starting January 1, 2006 are to be paid by Wyeth. We will be
reimbursed for our out-of-pocket development costs by Wyeth and will receive
reimbursement for our efforts based on the number of our full time equivalent
employees (FTEs) devoted to the development project. Wyeth is obligated to
pay
to us royalties on the sale by Wyeth of MNTX throughout the world during
the
applicable royalty periods.
The
Collaboration Agreement establishes a Joint Steering Committee (“JSC”) and a
Joint Development Committee (“JDC”), each with an equal number of
representatives of both Wyeth and us. The Joint Steering Committee is
responsible for coordinating the key activities of Wyeth and us under the
Collaboration Agreement. The Joint Development Committee is responsible for
overseeing, coordinating and expediting the development of MNTX by Wyeth
and
us.
The
Collaboration Agreement contemplates the development and commercialization
of
three products: (i) a subcutaneous form of MNTX, to be used in patients with
opioid-induced constipation; (ii) an intravenous form of MNTX, to be used
in
patients with post-operative bowel dysfunction; and, (iii) an oral form of
MNTX,
to be used in patients with opioid-induced constipation.
Under
the
Collaboration Agreement, we granted to Wyeth an exclusive, worldwide license,
even as to us, to develop and commercialize MNTX. We are responsible for
developing the subcutaneous and intravenous forms of MNTX in the United States,
until they receive regulatory approval. Wyeth is responsible for the development
of the subcutaneous and intravenous forms of MNTX outside of the United States.
Wyeth is responsible for the development of the oral form of MNTX, both within
the United States and in the rest of the world. In the event the JSC approves
any formulation of MNTX other than subcutaneous, intravenous or oral or any
other indication for the products currently contemplated using the subcutaneous,
intravenous or oral forms of MNTX, Wyeth will be responsible for development
of
such products, including conducting clinical trials and obtaining and
maintaining regulatory approval. We will remain the owner of all US regulatory
filings and approvals relating to the subcutaneous and intravenous forms
of
MNTX. Wyeth will be the owner of all US regulatory filings and approvals
related
to the oral form of MNTX. Wyeth will be the owner of all regulatory filings
and
approvals outside the United States relating to all forms of MNTX.
Wyeth
is
responsible for the commercialization of the subcutaneous, intravenous and
oral
products throughout the world, will pay all costs of commercialization of
all
products, including all manufacturing costs, and will retain all proceeds
from
the sale of the products, subject to the royalties payable by Wyeth to us.
Decisions with respect to commercialization of any products developed under
the
Collaboration Agreement will be made solely by Wyeth.
We
will
transfer to Wyeth, at a mutually agreeable time, all existing supply agreements
with third parties for MNTX and will sublicense any intellectual property
rights
to permit Wyeth to manufacture MNTX, during the development and
commercialization phases of the Collaboration Agreement, in both bulk and
finished form for all products worldwide.
We
have
an option (the “Co-Promotion Option”) to enter into a Co-Promotion Agreement to
co-promote any of the products developed under the Collaboration Agreement,
subject to certain conditions. The extent of our co-promotion activities
and the
fee that we will be paid by Wyeth for these activities, will be established
when
we exercise our option. Wyeth will record all sales of products worldwide
(including those sold by us, if any, under a Co-Promotion Agreement). Wyeth
may
terminate any Co-Promotion Agreement if a top 15 pharmaceutical company acquires
control of us. Wyeth has agreed to certain limitations on its ability to
purchase our equity securities and to solicit proxies.
The
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last to expire
royalty period, as defined, for any product. Progenics may terminate the
Collaboration Agreement at any time upon 90 days of written notice to Wyeth
(30
days in the case of breach of a payment obligation) upon material breach
that is
not cured. Wyeth may, with or without cause, following the second anniversary
of
the first commercial sale, as defined, of the first commercial product in
the
U.S., terminate the Collaboration Agreement by providing Progenics with at
least
360 days prior written notice of such termination. Wyeth may also terminate
the
agreement (i) upon 30 days written notice following one or more serious safety
or efficacy issues that arise, as defined, and (ii) at any time, upon 90
days
written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license
we
granted to Wyeth will depend on the party that initiates the termination
and the
reason for the termination.
UR
Labs.
On
December 22, 2005, we acquired certain rights for our lead investigational
drug,
methylnaltrexone (“MNTX”), from several of our licensors.
In
2001,
we entered into an exclusive sublicense agreement with UR Labs, Inc. (“URL”) to
develop and commercialize MNTX (the “MNTX Sublicense”) in exchange for rights to
future payments resulting from the MNTX Sublicense. As of December 31, 2005
we
had paid to UR Labs $550,000 under this agreement. In 1989, URL obtained
an
exclusive license to MNTX, as amended, from the University of Chicago (“UC”)
under an Option and License Agreement dated May 8, 1985, as amended (the
“URL-Chicago License”). In 2001, URL also entered into an agreement with certain
heirs of Dr. Leon Goldberg (the “Goldberg Distributees”), which provided them
with the right to receive payments based upon revenues received by URL from
the
development of the MNTX Sublicense (the “URL-Goldberg Agreement”).
On
December 22, 2005, we entered into an Agreement and Plan of Reorganization
(the
“Purchase Agreement”) by and among Progenics Pharmaceuticals, Inc., Progenics
Pharmaceuticals Nevada, Inc., UR Labs, Inc. and the shareholders of UR Labs,
Inc. (the “URL Shareholders”), under which we acquired substantially all of the
assets of URL, comprised of its rights under the URL-Chicago License, the
MNTX
Sublicense and the URL-Goldberg Agreement, thus assuming URL’s rights and
responsibilities under those agreements and extinguishing our obligation
to make
royalty and other payments to URL.
On
December 22, 2005, we entered into an Assignment and Assumption Agreement
with
the Goldberg Distributees, under which we assumed all rights and obligations
of
the Goldberg Distributees under the URL-Goldberg Agreement, thereby
extinguishing URL’s (and consequentially, our) obligations to make payments to
the Goldberg Distributees. Although we no longer have any obligation to make
royalty payments to URL or the Goldbergs, we continue to have an obligation
to
make those payments (including royalties) to the University of Chicago that
would have been made by URL.
In
consideration for the assignment of the Goldberg Distributees’ rights and of the
acquisition of the assets of URL described above, we issued, on December
22,
2005, a total of 686,000 shares of our common stock, with a fair value of
$15.8
million, based on a closing price of our common stock of $23.09, and paid
a
total of $2,604,900 in cash (representing the opening market value, $22.85
per
share, of 114,000 shares of our common stock on the date of the acquisition)
to
the URL Shareholders and the Goldberg Distributees and paid $310,000 in
transaction fees.
We
accounted for the acquisition of the rights described above from the licensors,
the only asset acquired, as an asset purchase. The acquired rights relate
to the
MNTX Sublicense and our research and development activities for MNTX, for
which
technological feasibility has not yet been established, for which there is
no
alternative future use and, which has not received regulatory approval for
marketing. Accordingly, the entire purchase price of $18.7 million was recorded
as license expense, as a separate line item in the Company’s Statement of
Operations, in the period incurred.
PDL
BioPharma, Inc. (formerly, Protein Design Labs).
Pursuant
to an agreement, Protein Design Labs (“PDL”) developed a humanized PRO 140
monoclonal antibody and granted to us related exclusive and nonexclusive
worldwide licenses under patents, patent applications and know-how. In general,
the license agreement terminates on the later of ten years from the first
commercial sale of a product developed under the agreement or the last date
on
which there is an unexpired patent or a patent application that has been
pending
for less than ten years, unless sooner terminated. Thereafter, the license
is
fully paid. The last of the presently issued patents expires in 2014; however,
patent applications filed in the U.S. and internationally that we have also
licensed and patent term extensions may extend the period of our license
rights,
when and if such patent applications are allowed and issued or patent term
extensions are granted. We may terminate the license agreement on 60 days
prior
written notice. In addition, either party may terminate the license agreement,
upon ten days written notice, for breach involving failure of the counterparty
to make timely payments or for breach of other material terms of the agreement,
upon 30 days prior written notice, that is not cured by the other party.
As of
December 31, 2005, we have paid to PDL approximately $3.9 million under this
agreement. If all milestones specified under the agreement are achieved,
we will
be obligated to pay PDL an additional approximately $3.0 million. We are
also
required to pay annual maintenance fees of $150,000 and royalties based on
the
sale of products we develop under the license, although our obligation to
pay
the annual maintenance fee has been suspended until the earlier of a specified
milestone or December 31, 2006. In the event of a default by one party, the
agreement may be terminated, after an opportunity to cure, by the non-defaulting
party upon prior written notice.
Sloan-Kettering.
We are
party to a license agreement with Sloan-Kettering under which we obtained
the
worldwide, exclusive rights to specified technology relating to ganglioside
conjugate vaccines, including GMK, and its use to treat or prevent cancer.
In
general, the Sloan-Kettering license agreement terminates upon the later
to
occur of the expiration of the last to expire of the licensed patents or
15
years from the date of the first commercial sale of a licensed product pursuant
to the agreement, unless sooner terminated. Patents that are presently issued
expire in 2014; however, pending patent applications that we have also licensed
and patent term extensions may extend the license period, when and if the
patent
applications are allowed and issued or patent term extensions are granted.
In
addition to the patents and patent applications, we have also licensed from
Sloan-Kettering the exclusive rights to use relevant technical information
and
know-how. A number of Sloan-Kettering physician-scientists also serve as
consultants to Progenics.
Our
license agreement requires us to achieve development milestones. The agreement
states that we are required to have filed for marketing approval of a drug
by
2000 and to commence manufacturing and distribution of a drug by 2002. We
have
not achieved these milestones due to delays that we believe could not have
been
reasonably avoided. The agreement provides that Sloan-Kettering shall not
unreasonably withhold consent to a revision of the milestone dates under
specified circumstances, and we believe that the delays referred to above
satisfy the criteria for a revision of the milestone dates. While we have
had
discussions with Sloan-Kettering to obtain its consent to a revision of the
milestone dates, Sloan-Kettering has not consented to a revision as of this
time. The agreement may be terminated, after an opportunity to cure, by
Sloan-Kettering for cause upon prior written notice.
As
of
December 31, 2005, we have paid to Sloan-Kettering $1.0 million under this
agreement. In addition, we are obligated to pay royalties based on the sales
of
products under the license. We have a $200,000 minimum royalty payment
obligation in any given calendar year, which is fully creditable against
currently earned royalties payable by us to Sloan-Kettering in such year
based
on sales of licensed products. We have an oral understanding with
Sloan-Kettering which suspends our obligation to make minimum royalty payments
until a time in the future to be agreed upon by the parties.
Columbia
University.
We are
party to a license agreement with Columbia University under which we obtained
exclusive, worldwide rights to specified technology and materials relating
to
CD4. In general, the license agreement terminates (unless sooner terminated)
upon the expiration of the last to expire of the licensed patents, which
is
presently 2021; however, patent applications that we have also licensed and
patent term extensions may extend the period of our license rights, when
and if
the patent applications are allowed and issued or patent term extensions
are
granted.
Our
license agreement requires us to achieve development milestones. Among others,
the agreement states that we are required to have filed for marketing approval
of a drug by June 2001 and to be manufacturing a drug for commercial
distribution by June 2004. We have not achieved either of these milestones
due
to delays that we believe could not have been reasonably avoided and are
reasonably beyond our control. The agreement provides that Columbia shall
not
unreasonably withhold consent to a revision of the milestone dates under
specified circumstances, and we believe that the delays referred to above
satisfy the criteria for a revision of the milestone dates. While we have
had
discussions with Columbia to obtain its consent to a revision of the milestone
dates, Columbia has not consented to a revision as of this time. The agreement
may be terminated, after an opportunity to cure, by Columbia for cause upon
prior written notice.
As
of
December 31, 2005, we have paid to Columbia $865,000 under this agreement.
We are obligated to pay Columbia a milestone fee of $225,000 and annual
maintenance fees of $50,000, which were accrued at December 31, 2005. In
addition, we are required to pay royalties based on the sale of products
we
develop under the license, if any.
Aquila
Biopharmaceuticals.
We have
entered into a license and supply agreement with Aquila Biopharmaceuticals,
Inc., a wholly owned subsidiary of Antigenics Inc., pursuant to which Aquila
agreed to supply us with all of our requirements for the QS-21TM
adjuvant
used in GMK. QS-21is the lead compound in the Stimulon®
family
of
adjuvants developed and owned by Aquila. In general, the license agreement
terminates upon the expiration of the last to expire of the licensed patents,
unless sooner terminated. In the U.S., the licensed patent will expire in
2008.
Our
license agreement requires us to achieve development milestones. The agreement
states that we are required to have filed for marketing approval of a drug
by
2001 and to commence the manufacture and distribution of a drug by 2003.
We have
not achieved these milestones due to delays that we believe could not have
been
reasonably avoided. The agreement provides that Aquila shall not unreasonably
withhold consent to a reasonable revision of the milestone dates under specified
circumstances, and we believe that the delays referred to above satisfy the
criteria for a revision of the milestone dates. Aquila has not consented
to a
revision of the milestone dates. In the event of a default by one party,
the
agreement may be terminated, after an opportunity to cure, by the non-defaulting
party upon prior written notice.
As
of
December 31, 2005, we have paid to Aquila $758,000 under this agreement. We
have no future cash payment obligations relating to milestones under the
agreement, although we are required to pay Aquila royalties on the sale of
products, if any, we develop under the license.
PSMA
LLC Licenses
Abgenix.
In
February 2001, PSMA LLC entered into a worldwide exclusive licensing agreement
with Abgenix to use Abgenix’ XenoMouse™ technology for generating fully human
antibodies to the joint venture’s PSMA antigen. In consideration for the
license, PSMA LLC paid a nonrefundable, non-creditable license fee and is
obligated to pay additional payments upon the occurrence of defined milestones
associated with the development and commercialization program for products
incorporating an antibody generated utilizing the XenoMouse technology. As
of
December 31, 2005, PSMA LLC has paid to Abgenix $850,000 under this agreement.
If PSMA LLC achieves certain milestones specified under the agreement, it
will
be obligated to pay Abgenix an additional approximately $6.2 million.
Furthermore, PSMA LLC is required to pay royalties based upon net sales of
antibody products, if any. This agreement may be terminated, after an
opportunity to cure, by Abgenix for cause upon 30 days prior written notice.
PSMA LLC has the right to terminate this agreement upon 30 days prior written
notice. If not terminated early, this agreement continues until the later
of the
expiration of the XenoMouse technology patents that may result from pending
patent applications or seven years from the first commercial sale of the
products.
AlphaVax
Human Vaccines.
In
September 2001, PSMA LLC entered into a worldwide exclusive license agreement
with AlphaVax Human Vaccines to use the AlphaVax Replicon Vector system to
create a therapeutic prostate cancer vaccine incorporating PSMA LLC’s
proprietary PSMA antigen. In consideration for the license, PSMA LLC paid
a
nonrefundable, noncreditable license fee and is obligated to pay additional
payments upon the occurrence of certain defined milestones associated with
the
development and commercialization program for products incorporating AlphaVax’
system. As of December 31, 2005, PSMA LLC has paid to AlphaVax $942,000 under
this agreement. If PSMA LLC achieves certain milestones specified under the
agreement, it will be obligated to pay AlphaVax an additional approximately
$5.3
million. Furthermore, PSMA LLC is required to pay annual maintenance fees
until
the first commercial sale and royalties based upon net sales of any products
developed using AlphaVax’ system. This agreement may be terminated, after an
opportunity to cure, by AlphaVax under specified circumstances that include
PSMA
LLC’s failure to achieve milestones; however, the consent of AlphaVax to
revisions to the due dates for the milestones shall not be unreasonably
withheld. PSMA LLC has the right to terminate the agreement upon 30 days
prior
written notice. If not terminated early, this agreement continues until the
later of the expiration of the patents relating to AlphaVax’ system or seven
years from the first commercial sale of the products developed using AlphaVax’
system. The last of the presently issued patents expires in 2015; however,
patent applications filed in the U.S. and internationally that we have also
licensed and patent term extensions may extend the period of our license
rights,
when and if such patent applications are allowed and issued or patent term
extensions are granted.
Seattle
Genetics. In
June
2005, PSMA LLC entered into a collaboration agreement (the “SGI Agreement”) with
Seattle Genetics, Inc. (“SGI”). Under the SGI Agreement, SGI provided an
exclusive worldwide license to its proprietary antibody-drug conjugate
technology (the “ADC Technology”) to PSMA LLC. Under the license, PSMA LLC has
the right to use the ADC Technology to link cell-killing drugs to PSMA LLC’s
monoclonal antibodies that target prostate-specific membrane antigen. During
the
initial research term of the SGI Agreement, SGI also is required to provide
technical information to PSMA LLC related to implementation of the licensed
technology, which period may be extended for an additional period upon payment
of an additional fee. PSMA LLC may replace prostate-specific membrane antigen
with another antigen, subject to certain restrictions, upon payment of an
antigen replacement fee. The ADC Technology is based, in part, on technology
licensed by SGI from third parties (the “Licensors”). PSMA LLC is responsible
for research, product development, manufacturing and commercialization of
all
products under the SGI Agreement. PSMA LLC may sub-license the ADC Technology
to
a third-party to manufacture the ADC’s for both research and commercial use.
PSMA LLC made a $2.0 million technology access payment to SGI upon execution
of
the SGI Agreement and will make additional maintenance payments during the
term
of the SGI Agreement. In addition, PSMA LLC will make payments, aggregating
$15.0 million, upon the achievement of certain defined milestones and will
pay
royalties to SGI and its Licensors, as applicable, on a percentage of net
sales,
as defined. In the event that SGI provides materials or services to PSMA
LLC
under the SGI Agreement, SGI will receive supply and/or labor cost payments
from
PSMA LLC at agreed-upon rates. PSMA LLC’s monoclonal antibody project is
currently in the pre-clinical phase of research and development. All costs
incurred by PSMA LLC under the SGI Agreement during the research and development
phase of the project will be expensed in the period incurred. The SGI Agreement
terminates at the later of (a) the tenth anniversary of the first commercial
sale of each licensed product in each country or (b) the latest date of
expiration of patents underlying the licensed products. PSMA LLC may terminate
the SGI Agreement upon advance written notice to SGI. SGI may terminate the
SGI
Agreement if PSMA LLC breaches an SGI in-license that is not cured within
a
specified time period after written notice. In addition, either party may
terminate the SGI Agreement upon breach by the other party that is not cured
within a specified time period after written notice or in the event of
bankruptcy of the other party. The ability of PSMA LLC to comply with the
terms
of the SGI Agreement will depend on agreement by the Members regarding work
plans and budgets of PSMA LLC in future years. As of December 31, 2005, PSMA
LLC
has paid to SGI approximately $34,000 under this agreement for supply and
labor
cost payments.
ADARC.
We have
a letter agreement with The Aaron Diamond AIDS Research Center pursuant to
which
we have the exclusive right to pursue the commercial development, directly
or
with a partner, of products related to HIV based on patents jointly owned
by
ADARC and us.
Rights
and Obligations.
We have
the right generally to defend and enforce patents licensed by us, either
in the
first instance or if the licensor chooses not to do so. We bear the cost
of
engaging in all of these activities with respect to our license agreements
with
Sloan-Kettering for GMK, Columbia for our HIV product candidates subject
to the
Columbia license and the University of Chicago for MNTX. Under our Collaboration
Agreement, Wyeth has the right, at its expense, to defend and enforce the
MNTX
patents licensed to Wyeth by us. With most of our other license agreements,
the
licensor bears the cost of engaging in all of these activities, although
we may
share in those costs under certain circumstances. Historically, our costs
of
defending patent rights, both our own and those we license, have not been
material.
The
licenses to which we are a party impose various milestone, commercialization,
sublicensing, royalty and other payment, insurance, indemnification and other
obligations on us and are subject to certain reservations of rights. Failure
to
comply with these requirements could result in the termination of the applicable
agreement, which would likely cause us to terminate the related development
program and cause a complete loss of our investment in that
program.
Patents
and Proprietary Technology
Our
policy is to protect our proprietary technology, and we consider the protection
of our rights to be important to our business. In addition to seeking U.S.
patent protection for many of our inventions, we generally file patent
applications in Canada, Japan, European countries that are party to the European
Patent Convention and additional foreign countries on a selective basis in
order
to protect the inventions that we consider to be important to the development
of
our foreign business. Generally, patents issued in the U.S. are effective
for:
· |
the
longer of 17 years from the date of issue or 20 years from the
earliest
asserted filing date of the corresponding patent application, if
the
patent application was filed prior to June 8, 1995;
and
|
· |
20
years from the earliest asserted filing date of the corresponding
patent
application, if the application was filed on or after June 8,
1995.
|
In
addition, in certain instances, the patent term can be extended up to a maximum
of five years to recapture a portion of the term during which the FDA regulatory
review was being conducted. The duration of foreign patents varies in accordance
with the provisions of applicable local law, although most countries provide
for
patent terms of 20 years from the earliest asserted filing date and allow
patent
extensions similar to those permitted in the U.S.
We
also
rely on trade secrets, proprietary know-how and continuing technological
innovation to develop and maintain a competitive position in our product
areas.
We generally require our employees, consultants and corporate partners who
have
access to our proprietary information to sign confidentiality
agreements.
Currently
our patent portfolio relating to our proprietary technologies in the symptom
management and supportive care, HIV and cancer areas is comprised, on a
worldwide basis, of 136 patents that have been issued and 183 pending patent
applications, which we either own directly or of which we are the exclusive
licensee. Our issued patents expire on dates ranging from 2006 through 2022.
In
addition, PSMA LLC owns directly or is the exclusive licensee of six patents
that have been issued and 31 pending patent applications. PSMA LLC’s issued
patents expire on dates ranging from 2014 to 2016. Patent term extensions
and
pending patent applications may extend the period of patent protection afforded
our products in development.
We
are
aware of intellectual property rights held by third parties that relate to
products or technologies we are developing. For example, we are aware of
other
groups investigating methylnaltrexone and other peripheral opioid antagonists,
PSMA or related compounds and CCR5 monoclonal antibodies and of patents held,
and patent applications filed, by these groups in those areas. While the
validity of issued patents, patentability of pending patent applications
and
applicability of any of them to our programs are uncertain, if asserted against
us, any related patent rights could adversely affect our ability to
commercialize our products.
The
research, development and commercialization of a biopharmaceutical often
involve
alternative development and optimization routes, which are presented at various
stages in the development process. The preferred routes cannot be predicted
at
the outset of a research and development program because they will depend
upon
subsequent discoveries and test results. There are numerous third-party patents
in our field, and it is possible that to pursue the preferred development
route
of one or more of our products we will need to obtain a license to a patent,
which would decrease the ultimate profitability of the applicable product.
If we
cannot negotiate a license, we might have to pursue a less desirable development
route or terminate the program altogether.
Government
Regulation
Progenics
and our products are subject to comprehensive regulation by the Food and
Drug
Administration in the U.S. and by comparable authorities in other countries.
These national agencies and other federal, state and local entities regulate,
among other things, the preclinical and clinical testing, safety, effectiveness,
approval, manufacture, labeling, marketing, export, storage, recordkeeping,
advertising and promotion of our products. None of our product candidates
has
received marketing or other approval from the FDA or any other similar
regulatory authority.
FDA
approval of our products, including a review of the manufacturing processes
and
facilities used to produce such products, will be required before such products
may be marketed in the U.S. The process of obtaining approvals from the FDA
can
be costly, time consuming and subject to unanticipated delays. We cannot
assure
you that approvals of our proposed products, processes, or facilities will
be
granted on a timely basis, or at all. If we experience delays in obtaining,
or
do not obtain, approvals for our products, commercialization of our products
would be slowed or stopped. Moreover, even if we obtain regulatory approval,
the
approval may include significant limitations on indicated uses for which
the
product could be marketed or other significant marketing
restrictions.
The
process required by the FDA before our products may be approved for marketing
in
the U.S. generally involves:
· |
preclinical
laboratory and animal tests;
|
· |
submission
to the FDA of an investigational new drug application, or IND,
which must
become effective before clinical trials may
begin;
|
· |
adequate
and well-controlled human clinical trials to establish the safety
and
efficacy of the product for its intended
indication;
|
· |
submission
to the FDA of a marketing application;
and
|
FDA
review of the marketing application in order to determine, among other things,
whether the product is safe and effective for its intended uses. Preclinical
tests include laboratory evaluation of product chemistry and animal studies
to
gain preliminary information about a product’s pharmacology and toxicology and
to identify any safety problems that would preclude testing in humans. Products
must generally be manufactured according to current Good Manufacturing
Practices, and preclinical safety tests must be conducted by laboratories
that
comply with FDA regulations regarding good laboratory practices. The results
of
the preclinical tests are submitted to the FDA as part of an IND
(Investigational New Drug) application. An IND is a submission which the
sponsor
of a clinical trial of an investigational new drug must make to the FDA and
which must become effective before clinical trials may commence. The IND
submission must include, among other things:
· |
a
description of the sponsor’s investigational
plan;
|
· |
protocols
for each planned study;
|
· |
chemistry,
manufacturing, and control
information;
|
· |
pharmacology
and toxicology information; and
|
· |
a
summary of previous human experience with the investigational
drug.
|
Unless
the FDA objects to, makes comments to or raises questions concerning an IND,
the
IND will become effective 30 days following its receipt by the FDA, and initial
clinical studies may begin, although companies often obtain affirmative FDA
approval before beginning such studies. We cannot assure you that submission
of
an IND by us will result in FDA authorization to commence clinical
trials.
A
New
Drug Application, or NDA, is an application to the FDA to market a new drug.
The
NDA must contain, among other things, information on:
· |
chemistry,
manufacturing, and controls;
|
· |
non-clinical
pharmacology and toxicology;
|
· |
human
pharmacokinetics and bioavailability;
and
|
The
new
drug may not be marketed in the U.S. until the FDA has approved the
NDA.
A
Biologic License Application, or BLA, is an application to the FDA to market
a
biological product. The BLA must contain, among other things, data derived
from
nonclinical laboratory and clinical studies which demonstrate that the product
meets prescribed standards of safety, purity and potency, and a full description
of manufacturing methods. The biological product may not be marketed in the
U.S.
until a biologic license is issued.
Clinical
trials involve the administration of the investigational new drug to healthy
volunteers or to patients under the supervision of a qualified principal
investigator. Clinical trials must be conducted in accordance with the FDA’s
Good Clinical Practice requirements under protocols that detail, among other
things, the objectives of the study, the parameters to be used to monitor
safety, and the effectiveness criteria to be evaluated. Each protocol must
be
submitted to the FDA as part of the IND. Further, each clinical study must
be
conducted under the auspices of an Institutional Review Board. The Institutional
Review Board will consider, among other things, ethical factors, the safety
of
human subjects, the possible liability of the institution and the informed
consent disclosure which must be made to participants in the clinical
trial.
Clinical
trials are typically conducted in three sequential phases, although the phases
may overlap. During phase 1, when the drug is initially administered to human
subjects, the product is tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. Phase 2 involves studies in a limited
patient population to:
· |
evaluate
preliminarily the efficacy of the product for specific, targeted
indications;
|
· |
determine
dosage tolerance and optimal dosage;
and
|
· |
identify
possible adverse effects and safety
risks.
|
When
a
new product is found to have an effect and to have an acceptable safety profile
in phase 2 evaluation, phase 3 trials are undertaken in order to further
evaluate clinical efficacy and to further test for safety within an expanded
patient population. The FDA may suspend clinical trials at any point in this
process if it concludes that clinical subjects are being exposed to an
unacceptable health risk.
The
results of the preclinical studies and clinical studies, the chemistry and
manufacturing data, and the proposed labeling, among other things, are submitted
to the FDA in the form of an NDA or BLA, approval of which must be obtained
prior to commencement of commercial sales. The FDA may refuse to accept the
application for filing if certain administrative and content criteria are
not
satisfied, and even after accepting the application for review, the FDA may
require additional testing or information before approval of the application.
Our analysis of the results of our clinical studies is subject to review
and
interpretation by the FDA, which may differ from our analysis. We cannot
assure
you that our data or our interpretation of data will be accepted by the FDA.
In
any event, the FDA must deny an NDA or BLA if applicable regulatory requirements
are not ultimately satisfied. In addition, we may encounter delays or rejections
based upon changes in applicable law or FDA policy during the period of product
development and FDA regulatory review. Moreover, if regulatory approval of
a
product is granted, such approval may be made subject to various conditions,
including post-marketing testing and surveillance to monitor the safety of
the
product, or may entail limitations on the indicated uses for which it may
be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
Both
before and after approval is obtained, a product, its manufacturer, and the
sponsor of the marketing application for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements
at any
stage, including the preclinical and clinical testing process, the approval
process, or thereafter, may result in various adverse consequences, including
FDA delay in approving or refusal to approve a product, withdrawal of an
approved product from the market or the imposition of criminal penalties
against
the manufacturer or sponsor. In addition, later discovery of previously unknown
problems may result in restrictions on such product, manufacturer, or sponsor,
including withdrawal of the product from the market. Also, new government
requirements may be established that could delay or prevent regulatory approval
of our products under development.
Whether
or not FDA approval has been obtained, approval of a pharmaceutical product
by
comparable government regulatory authorities in foreign countries must be
obtained prior to marketing such product in such countries. The approval
procedure varies from country to country, and the time required may be longer
or
shorter than that required for FDA approval. Although there are some procedures
for unified filing for certain European countries, in general, each country
has
its own procedures and requirements. We do not currently have any facilities
or
personnel outside of the U.S.
In
addition to regulations enforced by the FDA, we are also subject to regulation
under the Occupational Safety and Health Act, the Environmental Protection
Act,
the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and
various other present and potential future federal, state or local regulations.
Our research and development involves the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds. Although we believe
that
our safety procedures for storing, handling, using and disposing of such
materials comply with the standards prescribed by applicable regulations,
we
cannot completely eliminate the risk of accidental contaminations or injury
from
these materials. In the event of such an accident, we could be held liable
for
any legal and regulatory violations as well as damages that result. Any such
liability could have a material adverse effect on Progenics.
Manufacturing
We
currently rely on single-source third party manufacturers for the supply
of both
bulk and finished form MNTX. We believe that our existing arrangements with
such
single-source third party manufacturers are reliable and adequate for the
balance of our clinical trial and initial commercial supply requirements.
We
will transfer to Wyeth, at a mutually agreeable time, any existing supply
agreements with third parties for MNTX.
In
March
2005, we entered into an agreement with Mallinckrodt Inc. for the supply
of the
bulk form of MNTX. The contract provides for Mallinckrodt to supply product
based on a rolling forecast to be provided by us to Mallinckrodt with respect
to
our anticipated needs and for the purchase by us of product on specified
pricing
terms. Under this agreement, we are obligated to purchase a portion of our
requirements for bulk form MNTX from Mallinckrodt, although we have no set
minimum purchase obligation. Product
supplied to us by Mallinckrodt is required to satisfy technical specifications
agreed to by us. The contract term extends to January 1, 2008 and renews
automatically thereafter for successive one-year terms unless either party
provides prior notice to the other. Prior to its expiration, the contract
may be
terminated by either party upon a material breach by the other party or upon
the
occurrence of specified bankruptcy or insolvency events.
We
currently manufacture PRO 140, GMK and protein vaccines in our biologics
pilot
production facilities in Tarrytown, New York. We currently have one 150 liter
bioreactor in operation and are in the process of installing a second 150
liter
bioreactor to increase our manufacturing capacity in support of our clinical
programs. We have also acquired a 1,000 liter bioreactor, and we are considering
the appropriate time and manner for installing and deploying this additional
resource. We believe that our existing production facilities will be sufficient
to meet our initial needs for clinical trials for these product candidates.
However, these facilities may be insufficient for all of our late-stage clinical
trials for these product candidates and would be insufficient for
commercial-scale requirements. We may be required to further expand our
manufacturing staff and facilities, obtain new facilities or contract with
third
parties or corporate collaborators to assist with production.
In
order
to establish a full-scale commercial manufacturing facility for any of our
product candidates, we would need to spend substantial additional funds,
hire
and train significant numbers of employees and comply with the extensive
FDA
regulations applicable to such a facility.
Sales
and Marketing
We
plan
to market products for which we obtain regulatory approval through co-marketing,
co-promotion, licensing and distribution arrangements with third-party
collaborators. We may also consider contracting with a third-party professional
pharmaceutical detailing and sales organization to perform the marketing
function for our products. Under the terms of our Collaboration Agreement
with
Wyeth, Wyeth
granted us an option (the “Co-Promotion Option”) to enter into a Co-Promotion
Agreement to co-promote any of the MNTX products developed under the
Collaboration Agreement, subject to certain conditions. The extent of our
co-promotion activities and the fee that we will be paid by Wyeth for these
activities, will be established when we exercise our option. Wyeth will record
all sales of products worldwide (including those sold by us, if any, under
a
Co-Promotion Agreement). In addition, Cytogen
has certain marketing rights with respect to the PSMA product
candidates.
Competition
Competition
in the biopharmaceutical industry is intense and characterized by ongoing
research and development and technological change. We face competition from
many
companies and major universities and research institutions in the U.S. and
abroad. We will face competition from companies marketing existing products
or
developing new products for diseases targeted by our technologies. Many of
our
competitors have substantially greater resources, experience in conducting
preclinical studies and clinical trials and obtaining regulatory approvals
for
their products, operating experience, research and development and marketing
capabilities and production capabilities than we do. Our products under
development may not compete successfully with existing products or products
under development by other companies, universities and other institutions.
Our
competitors may succeed in obtaining FDA marketing approval for products
more
rapidly than we do. Drug manufacturers that are first in the market with
a
therapeutic for a specific indication generally obtain and maintain a
significant competitive advantage over later entrants. Accordingly, we believe
that the speed with which we develop products, complete the clinical trials
and
approval processes and ultimately supply commercial quantities of the products
to the market will be an important competitive factor.
With
respect to MNTX, there are currently no FDA approved products for reversing
the
debilitating side effects of opioid pain therapy or for the treatment of
post-operative bowel dysfunction. We are, however, aware of a product candidate
that targets these therapeutic indications. This product, Entereg™ (alvimopan),
is under development by Adolor Corporation, in collaboration with an affiliate
of GlaxoSmith-Kline plc. Entereg is in advanced clinical development and
Adolor
has
received an approvable letter from the U.S. Food and Drug Administration
for
Entereg regarding the treatment of post-operative ileus.
We
believe, however, that Entereg’s effects are limited to the lumen of the
gastrointestinal tract, whereas MNTX is available systemically outside of
the
central nervous system. Additionally, it has been reported that a European
specialty pharmaceutical company is in early clinical development of an oral
formulation of methylnaltrexone for use in opioid-induced
constipation.
With
respect to our products for the treatment of HIV infection, three classes
of
products made by our competitors have been approved for marketing by the
FDA for
the treatment of HIV infection and AIDS: reverse transcriptase inhibitors,
protease inhibitors and entry inhibitors. These drugs have shown efficacy
in
reducing the concentration of HIV in the blood and prolonging asymptomatic
periods in HIV-positive individuals, especially when administered in
combination. We are aware of several competitors that are developing alternative
treatments for HIV infection, including small molecules and monoclonal
antibodies, some of which are directed against CCR5.
With
respect to GMK, the FDA and certain other regulatory authorities have approved
high-dose alpha-interferon for marketing as a treatment for patients with
high-risk melanoma. High-dose alpha-interferon has demonstrated efficacy
for
this indication.
With
respect to the immunotherapeutic products based on PSMA that we have been
developing through PSMA LLC , there are traditional forms of treatment for
prostate cancer such as radiation and surgery. However, if the disease spreads,
these forms of treatment can be ineffective. We are aware of several competitors
who are developing alternative treatments for prostate cancer, including
in
vivo
and
ex
vivo
immunotherapies, some of which are directed against PSMA.
A
significant amount of research in the biopharmaceutical field is also being
carried out at academic and government institutions. An element of our research
and development strategy is to in-license technology and product candidates
from
academic and government institutions. These institutions are becoming
increasingly sensitive to the commercial value of their findings and are
becoming more aggressive in pursuing patent protection and negotiating licensing
arrangements to collect royalties for use of technology that they have
developed. These institutions may also market competitive commercial products
on
their own or in collaboration with competitors and will compete with us in
recruiting highly qualified scientific personnel. Any resulting increase
in the
cost or decrease in the availability of technology or product candidates
from
these institutions may adversely affect our business strategy.
Competition
with respect to our technologies and product candidates is and will be based,
among other things, on:
· |
efficacy
and safety of our products;
|
· |
timing
and scope of regulatory approval;
|
· |
product
reliability and availability;
|
· |
sales,
marketing and manufacturing
capabilities;
|
· |
capabilities
of our collaborators;
|
· |
reimbursement
coverage from insurance companies and
others;
|
· |
degree
of clinical benefits of our product candidates relative to their
costs;
|
· |
method
of administering a product;
|
Our
competitive position will also depend upon our ability to attract and retain
qualified personnel, to obtain patent protection or otherwise develop
proprietary products or processes, and to secure sufficient capital resources
for the typically substantial period between technological conception and
commercial sales. Competitive disadvantages in any of these factors could
materially harm our business and financial condition.
Product
Liability
The
testing, manufacturing and marketing of our products involves an inherent
risk
of product liability attributable to unwanted and potentially serious health
effects. To the extent we elect to test, manufacture or market products
independently, we will bear the risk of product liability directly. We have
obtained product liability insurance coverage in the amount of $5.0 million
per
occurrence, subject to a deductible and a $5.0 million aggregate limitation.
In
addition, where the local statutory requirements exceed the limits of our
existing insurance or local policies of insurance are required, we maintain
additional clinical trial liability insurance to meet these requirements.
This
insurance is subject to deductibles and coverage limitations. We may not
be able
to continue to maintain insurance at a reasonable cost, or in adequate
amounts.
Human
Resources
At
December 31, 2005, we had 149 full-time employees, 24 of whom, including
Dr.Maddon, hold Ph.D. degrees and four of whom, including Dr.Maddon, hold
M.D.degrees. At such date, 124 employees were engaged in research and
development, medical and regulatory affairs and manufacturing activities
and 25
were engaged in finance, legal, administration and business development.
We
consider our relations with our employees to be good. None of our employees
is
covered by a collective bargaining agreement.
Our
business and operations entail a variety of serious risks and uncertainties,
including those described below.
Our
product development programs are inherently risky.
We
are
subject to the risks of failure inherent in the development of product
candidates based on new technologies. Our MNTX product candidate, which is
designed to reverse certain side effects induced by opioids and to treat
post-operative bowel dysfunction and is being developed through a collaboration
with Wyeth, is based on a novel method of action that has not yet been proven
to
be safe or effective. No drug with MNTX’s method of action has ever received
marketing approval. Additionally, some of our HIV product candidates are
designed to be effective by blocking viral entry, and our GMK product candidate
is designed to be a therapeutic cancer vaccine. To our knowledge, no drug
designed to treat HIV infection by blocking viral entry (with one exception)
and
no cancer therapeutic vaccine has been approved for marketing in the U.S.
Our
other research and development programs, and those conducted through PSMA
LLC,
involve similarly novel approaches to human therapeutics. Consequently, there
is
little precedent for the successful commercialization of products based on
our
technologies. There are a number of technological challenges that we must
overcome to complete most of our development efforts. We may not be able
to
develop successfully any of our products.
We
have granted to Wyeth the exclusive rights to develop and commercialize MNTX,
our lead product candidate, and our resulting dependence on Wyeth exposes
us to
significant risks.
In
December 2005, we entered into a license and co-development agreement with
Wyeth. Under this agreement, we granted to Wyeth the exclusive worldwide
right
to develop and commercialize MNTX, our lead product candidate. As a result,
we
are dependent on Wyeth to perform and fund development, including clinical
testing, to make certain regulatory filings and to manufacture and market
products containing MNTX. Our collaboration with Wyeth may not be
scientifically, clinically or commercially successful.
Any
revenues from the sale of MNTX, if approved for sale by the FDA, will depend
almost entirely on the efforts of Wyeth. Wyeth has significant discretion
in
determining the efforts and resources it applies to sales of the MNTX products
and may not be effective in marketing such products. In addition, Wyeth is
a
large, diversified pharmaceutical company with global operations and its
own
corporate objectives, which may not be consistent with our best interests.
For
example, Wyeth may change its strategic focus or pursue alternative technologies
in a manner that results in reduced revenues to us. In addition, we will
receive
milestone and contingent payments from Wyeth only if MNTX achieves specified
clinical, regulatory and commercialization milestones, and we will receive
royalty payments from Wyeth only if MNTX receives regulatory approval and
is
commercialized by Wyeth. Many of these milestone events will depend on the
efforts of Wyeth. We may not receive any milestone, contingent or royalty
payments from Wyeth.
The
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last to expire
royalty period, as defined, for any product. Progenics may terminate the
Collaboration Agreement at any time upon 90 days of written notice to Wyeth
(30
days in the case of breach of a payment obligation) upon material breach
that is
not cured. Wyeth may, with or without cause, following the second anniversary
of
the first commercial sale, as defined, of the first commercial product in
the
U.S., terminate the Collaboration Agreement by providing Progenics with at
least
360 days prior written notice of such termination. Wyeth may also terminate
the
agreement (i) upon 30 days written notice following one or more serious safety
or efficacy issues that arise, as defined, and (ii) at any time, upon 90
days
written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license
we
granted to Wyeth will depend on the party that initiates the termination
and the
reason for the termination.
If
our
relationship with Wyeth were to terminate, we would have to either enter
into a
license and co-development agreement with another party or develop and
commercialize MNTX ourselves. We may not be able to enter into such an agreement
with another suitable company on acceptable terms or at all. To develop and
commercialize MNTX on our own, we would have to develop a sales and
marketing organization and a distribution infrastructure, neither of which
we
currently have. Developing these resources would be an expensive and lengthy
process and would have a material adverse effect on our revenues and
profitability.
Moreover,
a termination of our relationship with Wyeth could seriously compromise the
development program for MNTX. For example, we could experience significant
delays in the development of MNTX and would have to assume full funding and
other responsibility for further development and eventual
commercialization.
Any
of
these outcomes would result in delays in our ability to distribute MNTX and
would increase our expenses, which would have a material adverse effect on
our
business, results of operations and financial condition.
Our
collaboration with Wyeth is multi-faceted and involves a complex sharing
of
control over decisions, responsibilities, costs and benefits. There are numerous
potential sources of disagreement between us and Wyeth, including with respect
to product development, marketing strategies, manufacturing and supply issues
and rights relating to intellectual property. Wyeth has significantly greater
financial and managerial resources than we do, which it could draw upon in
the
event of a dispute. A disagreement between Wyeth and us could lead to lengthy
and expensive litigation or other dispute resolution proceedings as well
as to
extensive financial and operational consequences to us, and have a material
adverse effect on our business, results of operations and financial
condition.
If
testing does not yield successful results, our products will not be
approved.
We
will
need to obtain regulatory approval before we can market our product candidates.
To obtain marketing approval from regulatory authorities, we or our
collaborators must demonstrate a product’s safety and efficacy through extensive
preclinical and clinical testing. Numerous adverse events may arise during,
or
as a result of, the testing process, including the following:
·
|
the
results of preclinical studies may be inconclusive, or they may
not be
indicative of results that will be obtained in human clinical
trials;
|
·
|
potential
products may not have the desired efficacy or may have undesirable
side
effects or other characteristics that preclude marketing approval
or limit
their commercial use if approved;
|
·
|
after
reviewing test results, we or our collaborators may abandon projects,
which we previously believed to be promising;
and
|
·
|
we,
our collaborators or regulators may suspend or terminate clinical
trials
if we or they believe that the participating subjects or patients
are
being exposed to unacceptable health
risks.
|
Clinical
testing is very expensive and can take many years. Results attained in early
human clinical trials may not be indicative of results that are obtained
in
later clinical trials. In addition, many of our products, such as PRO 140
and
the PSMA product candidates, are at an early stage of development. The
successful commercialization of early stage products will require significant
further research, development, testing, approvals by regulators and additional
investment. Our products in the research or preclinical development stage
may
not yield results that would permit or justify clinical testing. Our failure
to
adequately demonstrate the safety and efficacy of a product under development
would delay or prevent marketing approval of the product, which could adversely
affect our operating results and credibility.
A
setback in our clinical development programs could adversely affect
us.
We
have
successfully completed two pivotal phase 3 clinical trials of subcutaneous
MNTX
for the treatment of opioid-induced constipation in patients with advanced
medical illness. We are now working with our collaborator Wyeth to submit
a New
Drug Application to the U.S. Food and Drug Administration to market subcutaneous
MNTX. We also have successfully completed a phase 2 clinical trial of
intravenous MNTX in patients at risk for post-operative bowel dysfunction.
Based
on our end of phase 2 meeting with the FDA, we are planning a phase 3 clinical
program for treatment of post-operative bowel dysfunction. We had completed
phase 1 clinical trials of oral MNTX in healthy volunteers prior to our
Collaboration Agreement with Wyeth. Wyeth is responsible for the worldwide
development of oral MNTX and will conduct additional clinical trials of oral
MNTX in chronic pain patients who experience opioid-induced
constipation.
If
the
results of any of these ongoing trials are not satisfactory, or if we encounter
problems enrolling patients, or if clinical trial supply issues or other
difficulties arise, our entire MNTX development program could be adversely
affected, resulting in delays in commencing or completing clinical trials
or in
making our regulatory filing for marketing approval. The need to conduct
additional clinical trials or significant revisions to our clinical development
plan would lead to delays in filing for the regulatory approvals necessary
to
market MNTX. If the clinical trials indicate a serious problem with the safety
or efficacy of an MNTX product, then Wyeth has the right under our license
and
co-development agreement to terminate the agreement or to stop the development
or commercialization of the affected products. Since MNTX is our most clinically
advanced product, any setback of these types would have a material adverse
effect on our stock price and business.
We
also
have two ongoing pivotal phase 3 clinical trials for GMK. In May 2000, our
collaborating research cooperative group in one of these trials, ECOG,
recommended to clinical investigators participating in the trial that they
discontinue administering GMK, and as a result that trial did not complete
patient dosing as contemplated by the initial trial protocol. A second pivotal
phase 3 trial for GMK was initiated in May 2001 and full
enrollment of 1,314 patients has been completed. We expect to assess the
recurrence of cancer and overall survival of the study patients over the
next
several years. If the results of either of the GMK trials are not satisfactory,
we may need to conduct additional clinical trials or abandon our GMK
program.
We
have
announced positive phase 1 clinical findings related to PRO 140, and we have
initiated an additional phase 1b clinical trial. If the results of our phase
1b
study with PRO 140 or the preclinical and clinical studies involving the
PSMA
vaccine and antibody candidates are not satisfactory, we would need to
reconfigure our clinical trial programs to conduct additional trials or abandon
the program involved.
We
have a history of operating losses, and we may never be
profitable.
We
have
incurred substantial losses since our inception. As of December 31, 2005,
we had
an accumulated deficit of $188.7 million. We have derived no significant
revenues from product sales or royalties. We do not expect to achieve
significant product sales or royalty revenue for a number of years, if ever,
other than potential revenues from MNTX. We expect to incur additional operating
losses in the future, which could increase significantly as we expand our
clinical trial programs and other product development efforts.
Our
ability to achieve and sustain profitability is dependent in part on obtaining
regulatory approval to market our products and then commercializing, either
alone or with others, our products. We may not be able to develop and
commercialize products. Moreover, our operations may not be profitable even
if
any of our products under development are commercialized.
We
are likely to need additional financing, but our access to capital funding
is
uncertain.
As
of
December 31, 2005, we had cash, cash equivalents and marketable securities,
including non-current portion, totaling $173.1 million. In December 2005,
we
received a $60 million upfront payment from Wyeth in connection with the
signing
of the license and co-development agreement relating to MNTX. During the
year
ended December 31, 2005, we had a net loss of $69.4 million and cash provided
by
operating activities was $11.1 million during the year ended December 31,
2005.
Under
our
agreement with Wyeth, Wyeth is responsible for all future development and
commercialization costs relating to MNTX starting January 1, 2006. As a result,
we expect that our spending on MNTX in 2006 and beyond will drop significantly
from the amounts expended in 2005.
With
regard to our other product candidates, however, we expect that we will continue
to incur significant expenditures for their development and we do not have
committed external sources of funding for most of these projects. These
expenditures will be funded from our cash on hand, or we may seek additional
external funding for these expenditures, most likely through collaborative
agreements, or other license or sale transactions, with one or more
pharmaceutical companies, through the issuance and sale of securities or
through
additional government grants or contracts. We cannot predict with any certainty
when we will need additional funds or how much we will need or if additional
funds will be available to us. Our need for future funding will depend on
numerous factors, many of which are outside our control.
Our
access to capital funding is uncertain. We may not be able to obtain additional
funding on acceptable terms, or at all. Our inability to raise additional
capital on terms reasonably acceptable to us would seriously jeopardize the
future success of our business.
If
we
raise funds by issuing and selling securities, it may be on terms that are
not
favorable to our existing stockholders. If we raise additional funds by selling
equity securities, our current stockholders will be diluted, and new investors
could have rights superior to our existing stockholders. If we raise funds
by
selling debt securities, we could be subject to restrictive covenants and
significant repayment obligations.
Our
clinical trials could take longer than we expect.
Although
for planning purposes we forecast the commencement and completion of clinical
trials, and have included many of those forecasts in reports filed
with the Securities and Exchange Commission and in other public
disclosures, the actual timing of these events can vary dramatically. For
example, we have experienced delays in our MNTX clinical development program
in
the past as a result of slower than anticipated patient enrollment. These
delays
may recur. Delays can be caused by, among other things:
·
|
deaths
or other adverse medical events involving patients or subjects
in our
clinical trials;
|
·
|
regulatory
or patent issues;
|
·
|
interim
or final results of ongoing clinical
trials;
|
·
|
failure
to enroll clinical sites as
expected;
|
·
|
competition
for enrollment from clinical trials conducted by others in similar
indications;
|
·
|
scheduling
conflicts with participating clinicians and clinical institutions;
and
|
·
|
manufacturing
problems.
|
In
addition, we may need to delay or suspend our clinical trials if we are unable
to obtain additional funding when needed. Clinical trials involving our product
candidates may not commence or be completed as forecasted. Although work
on the
PSMA projects continues, our clinical programs involving PSMA LLC could also
be
delayed by disagreements between Cytogen and us concerning funding development
programs or other matters. PSMA LLC currently has no approved 2006 budget
or
work plan because we and Cytogen have not yet reached agreement with respect
to
a number of matters relating to PSMA LLC.
Moreover,
we have limited experience in conducting clinical trials, and we rely on
others
to conduct, supervise or monitor some or all aspects of some of our clinical
trials. In addition, certain clinical trials for our products may be conducted
by government-sponsored agencies, and consequently will be dependent on
governmental participation and funding. Under our agreement with Wyeth relating
to MNTX, Wyeth has the responsibility to conduct some of the clinical trials
for
that product candidate, including all trials outside of the United States.
We
will have less control over the timing and other aspects of these clinical
trials than if we conducted them entirely on our own.
As
a
result of these and other factors, our clinical trials may not commence or
be
completed as we expect or may not be conducted successfully, in which event
investors’ confidence in our ability to develop products may be impaired and our
stock price may decline.
We
are subject to extensive regulation, which can be costly and time consuming
and
can subject us to unanticipated fines and delays.
We
and
our products are subject to comprehensive regulation by the FDA in the U.S.
and
by comparable authorities in other countries. These national agencies and
other
federal, state and local entities regulate, among other things, the preclinical
and clinical testing, safety, approval, manufacture, labeling, marketing,
export, storage, record keeping, advertising and promotion of pharmaceutical
products. If we violate regulatory requirements at any stage, whether before
or
after marketing approval is obtained, we may be subject to forced removal
of a
product from the market, product seizure, civil and criminal penalties and
other
adverse consequences.
Our
products do not yet have, and may never obtain, the regulatory approvals
needed
for marketing.
None
of
our products has been approved by applicable regulatory authorities for
marketing. The process of obtaining FDA and foreign regulatory approvals
often
takes many years and can vary substantially based upon the type, complexity
and
novelty of the products involved. We have had only limited experience in
filing
and pursuing applications and other submissions necessary to gain marketing
approvals. Our products under development may never obtain the marketing
approval from the FDA or any other regulatory authority necessary for
commercialization.
Even
if
our products receive regulatory approval:
·
|
they
might not obtain labeling claims necessary to make the product
commercially viable (in general, labeling claims define the medical
conditions for which a drug product may be marketed, and are therefore
very important to the commercial success of a
product);
|
·
|
we
or our collaborators might be required to undertake post-marketing
trials
to verify the product’s efficacy or
safety;
|
·
|
we,
our collaborators or others might identify side effects after the
product
is on the market, or we or our collaborators might experience
manufacturing problems, either of which could result in subsequent
withdrawal of marketing approval, reformulation of the product,
additional
preclinical testing or clinical trials, changes in labeling of
the product
or the need for additional marketing applications;
and
|
·
|
we
and our collaborators will be subject to ongoing FDA obligations
and
continuous regulatory review.
|
If
our
products fail to receive marketing approval or lose previously received
approvals, our financial results would be adversely affected.
Even
if our products obtain marketing approval, they might not be accepted in
the
marketplace.
The
commercial success of our products will depend upon their acceptance by the
medical community and third party payors as clinically useful, cost effective
and safe. If health care providers believe that patients can be managed
adequately with alternative, currently available therapies, they may not
prescribe our products, especially if the alternative therapies are viewed
as
more effective, as having a better safety or tolerability profile, as being
more
convenient to the patient or health care providers or as being less expensive.
For pharmaceuticals administered in an institutional setting, the ability
of the
institution to be adequately reimbursed could also play a significant role
in
demand for our products. Even if our products obtain marketing approval,
they
may not achieve market acceptance. If any of our products do not achieve
market
acceptance, we will likely lose our entire investment in that
product.
Marketplace
acceptance will depend in part on competition in our industry, which is
intense.
The
extent to which any of our products achieves market acceptance will depend
on
competitive factors. Competition in our industry is intense, and it is
accentuated by the rapid pace of technological development. There are products
currently in the market that will compete with the products that we are
developing, including AIDS drugs and chemotherapy drugs for treating cancer.
As
described below, Adolor Corporation is developing a drug that would compete
with
MNTX. Many of our competitors have substantially greater research and
development capabilities and experience and greater manufacturing, marketing,
financial and managerial resources than we do. These competitors may develop
products that are superior to those we are developing and render our products
or
technologies non-competitive or obsolete. If our product candidates receive
marketing approval but cannot compete effectively in the marketplace, our
operating results and financial position would suffer.
One
or more competitors developing an opioid antagonist may reach the market
ahead
of us and adversely affect the market potential for MNTX.
We
are
aware that Adolor Corporation, in collaboration with Glaxo Group Limited,
or
Glaxo, a subsidiary of GlaxoSmithKline plc, is developing an opioid antagonist,
Entereg™ (alvimopan), for post-operative ileus, which has completed phase 3
clinical trials, and for opioid-induced bowel dysfunction, which is in phase
3
clinical trials Post-operative ileus is a condition similar to post-operative
bowel dysfunction, a condition for which we are developing MNTX. Entereg
is
further along in the clinical development process than MNTX, and Adolor
Corporation has received an approvable letter from the U.S. Food and Drug
Administration for Entereg regarding the treatment of post-operative ileus.
Additionally, it has been reported that a European specialty pharmaceutical
company is in clinical development of an oral formulation of methylnaltrexone
for use in opioid-induced constipation. If either of these products reaches
the
market before MNTX, it could achieve a significant competitive advantage
relative to our product. In any event, the considerable marketing and sales
capabilities of Glaxo may impair our ability to penetrate the
market.
Under
the
terms of our collaboration with Wyeth with respect to MNTX, Wyeth will develop
the oral form of MNTX worldwide. We will lead the U.S. development of the
subcutaneous and intravenous forms of MNTX, while Wyeth will lead development
of
these parenteral products outside the U.S. Wyeth and we will pursue an
integrated strategy to optimize worldwide development, regulatory approval,
and
commercial launch of the three MNTX products, which may impact timelines
for the
development of MNTX previously disclosed by us. Decisions regarding the
timelines for development of the three MNTX products will be made by a Joint
Development Committee formed under the terms of the license and co-development
agreement, consisting of members from both Wyeth and Progenics.
Disputes
with Cytogen could delay or halt our PSMA programs.
Our
research and development programs relating to vaccine and antibody
immunotherapeutics based on PSMA are conducted through PSMA LLC, a joint
venture
between Cytogen Corporation and us. This is a 50/50 joint venture, meaning
that
our ownership rights in the programs, funding obligations and governance
rights
are equal. As a result, for PSMA LLC to operate efficiently, and for the
research and development programs to be adequately funded and staffed and
productive, we and Cytogen must be in agreement on strategic and operational
matters. There is a significant risk that, as a result of differing views
and
priorities, there will be occasions when we do not agree on various matters,
as
is the case currently.
Our
level
of commitment to fund PSMA LLC and that of our joint venture partner, Cytogen,
is based upon a budget and work plan that are developed and approved annually
by
the parties. We have in the past experienced delays in reaching agreement
with
Cytogen regarding annual budget issues and strategic and operational matters
relating to PSMA LLC. PSMA LLC currently has no approved 2006 budget or work
plan because we and Cytogen have not yet reached agreement with respect to
a
number of matters relating to PSMA LLC. If we do not reach an agreement
regarding the 2006 budget and work plan, we would likely experience delays
in
advancing the PSMA programs and may need to dissolve PSMA LLC and abandon
the
PSMA programs being conducted by PSMA LLC. We may not reach an agreement
with
Cytogen on these matters.
If
we are unable to negotiate collaborative agreements, our cash burn rate could
increase and our rate of product development could
decrease.
Our
business strategy includes as an element entering into collaborations with
pharmaceutical and biotechnology companies to develop and commercialize our
products and technologies. We recently entered into such a collaboration
with
Wyeth. However, we may not be successful in negotiating additional collaborative
arrangements. If we do not enter into new collaborative arrangements, we
would
have to devote more of our resources to clinical product development and
product-launch activities, and our cash burn rate would increase or we would
need to take steps to reduce our rate of product development.
If
we do not remedy our failure to achieve milestones or satisfy conditions
regarding some of our product candidates, we may not maintain our rights
under
our licenses relating to these product candidates.
We
are
required to make substantial cash payments, achieve specified milestones
and
satisfy other conditions, including filing for and obtaining marketing approvals
and introducing products, to maintain rights under our intellectual property
licenses. We may not be able to maintain our rights under these
licenses.
Under
our
license agreements with Sloan-Kettering Institute for Cancer Research relating
to GMK, we are required, among other things, to have filed for marketing
approval for a drug by 2000 and to have commenced commercialization of the
drug
by 2002. . We have not achieved these and other milestones and are unlikely
to
achieve them soon. We are in a similar position with respect to our license
agreement with Antigenics Inc. concerning QS-21TM,
a
component of GMK. If we can establish that our failure to achieve these
milestones resulted from technical issues beyond our control or delays in
clinical studies that could not have been reasonably avoided, we may be entitled
to a revision of these milestone dates. Although we believe that we satisfy
one
or more of these conditions, we may become involved in disputes with our
licensors as to our continued right to a license. In addition, at September
1,
2004 we became obligated under our license agreement with Columbia to pay
Columbia $225,000. We have accrued this amount but, pending the outcome of
discussions with Columbia regarding this payment and other matters relating
to
the license, we have not yet paid it.
If
we do
not comply with our obligations under our license agreements, the licensors
may
terminate them. Termination of any of our licenses could result in our losing
our rights to, and therefore being unable to commercialize, any related product.
We have had discussions with Sloan-Kettering and Columbia to reach agreement
on
the revision of applicable milestone dates. We may not, however, reach agreement
with these licensors in a manner favorable to us.
We
have limited manufacturing capabilities, which could adversely impact our
ability to commercialize products.
We
have
limited manufacturing capabilities, which may result in increased costs of
production or delay product development or commercialization. In order to
commercialize our product candidates successfully, we or our collaborators
must
be able to manufacture products in commercial quantities, in compliance with
regulatory requirements, at acceptable costs and in a timely manner. The
manufacture of our product candidates can be complex, difficult to accomplish
even in small quantities, difficult to scale-up for large-scale production
and
subject to delays, inefficiencies and low yields of quality products. The
cost
of manufacturing some of our products may make them prohibitively expensive.
If
adequate supplies of any of our product candidates or related materials are
not
available to us on a timely basis or at all, our clinical trials could be
seriously delayed, since these materials are time-consuming to manufacture
and
cannot be readily obtained from third-party sources.
We
operate pilot-scale manufacturing facilities for the production of vaccines
and
recombinant proteins. We believe that, for these types of product candidates,
these facilities will be sufficient to meet our initial needs for clinical
trials. However, these facilities may be insufficient for late-stage clinical
trials for these types of product candidates, and would be insufficient for
commercial-scale manufacturing requirements. We may be required to expand
further our manufacturing staff and facilities, obtain new facilities or
contract with corporate collaborators or other third parties to assist with
production.
In
the
event that we decide to establish a commercial-scale manufacturing facility,
we
will require substantial additional funds and will be required to hire and
train
significant numbers of employees and comply with applicable regulations,
which
are extensive. We may not be able to build a manufacturing facility that
both
meets regulatory requirements and is sufficient for our clinical trials or
commercial-scale manufacturing.
We
have
entered into arrangements with third parties for the manufacture of some
of our
products. Our third-party sourcing strategy may not result in a cost-effective
means for manufacturing products. In employing third-party manufacturers,
we
will not control many aspects of the manufacturing process, including compliance
by these third parties with the FDA’s current Good Manufacturing Practices and
other regulatory requirements. We may not be able to obtain adequate supplies
from third-party manufacturers in a timely fashion for development or
commercialization purposes, and commercial quantities of products may not
be
available from contract manufacturers at acceptable costs.
We
are dependent on our patents and other intellectual property rights. The
validity, enforceability and commercial value of these rights are highly
uncertain.
Our
success is dependent in part on obtaining, maintaining and enforcing patent
and
other intellectual property rights. The patent position of biotechnology
and
pharmaceutical firms is highly uncertain and involves many complex legal
and
technical issues. There is no clear policy involving the breadth of claims
allowed, or the degree of protection afforded, under patents in this area.
Accordingly, the patent applications owned by or licensed to us may not result
in patents being issued. We are aware of other groups that have patent
applications or patents containing claims similar to or overlapping those
in our
patents and patent applications. We do not expect to know for several years
the
relative strength or scope of our patent position as compared to these other
groups. Furthermore, patents that we own or license may not enable us to
preclude competitors from commercializing drugs, and consequently may not
provide us with any meaningful competitive advantage.
We
own or
have licenses to several issued patents. However, the issuance of a patent
is
not conclusive as to its validity or enforceability. The validity or
enforceability of a patent after its issuance by the patent office can be
challenged in litigation. Our patents may be successfully challenged. Moreover,
we may incur substantial costs in litigation to uphold the validity of patents
or to prevent infringement. If the outcome of litigation is adverse to us,
third
parties may be able to use our patented invention without payment to us.
Moreover, third parties may avoid our patents through design
innovation.
Most
of
our product candidates, including MNTX, PRO 140, GMK and our PSMA program
products, incorporate to some degree intellectual property licensed from
third
parties. We can lose the right to patents and other intellectual property
licensed to us if the related license agreement is terminated due to a breach
by
us or otherwise. Our ability, and that of our collaboration partners, to
commercialize products incorporating licensed intellectual property would
be
impaired if the related license agreements were terminated.
Generally,
we have the right to defend and enforce patents licensed by us, either in
the
first instance or if the licensor chooses not to do so. In addition, our
license
agreement with the University of Chicago regarding MNTX gives us the right
to
prosecute and maintain the licensed patents. We bear the cost of engaging
in
some or all of these activities with respect to our license agreements with
Sloan-Kettering for GMK and the University of Chicago for MNTX. Under
our
Collaboration Agreement, Wyeth has the right, at its expense, to defend and
enforce the MNTX patents licensed to Wyeth by us.
With
most
of our other license agreements, the licensor bears the cost of engaging
in all
of these activities, although we may share in those costs under specified
circumstances. Historically, our costs of defending patent rights, both our
own
and those we license, have not been material.
We
also
rely on unpatented technology, trade secrets and confidential information.
Third
parties may independently develop substantially equivalent information and
techniques or otherwise gain access to our technology or disclose our
technology, and we may be unable to effectively protect our rights in unpatented
technology, trade secrets and confidential information. We require each of
our
employees, consultants and advisors to execute a confidentiality agreement
at
the commencement of an employment or consulting relationship with us. However,
these agreements may not provide effective protection in the event of
unauthorized use or disclosure of confidential information.
If
we infringe third-party patent or other intellectual property rights, we
may
need to alter or terminate a product development program.
There
may
be patent or other intellectual property rights belonging to others that
require
us to alter our products, pay licensing fees or cease certain activities.
If our
products infringe patent or other intellectual property rights of others,
the
owners of those rights could bring legal actions against us claiming damages
and
seeking to enjoin manufacturing and marketing of the affected products. If
these
legal actions are successful, in addition to any potential liability for
damages, we could be required to obtain a license in order to continue to
manufacture or market the affected products. We may not prevail in any action
brought against us, and any license required under any rights that we infringe
may not be available on acceptable terms or at all. We are aware of intellectual
property rights held by third parties that relate to products or technologies
we
are developing. For example, we are aware of other groups investigating
methylnaltrexone and other peripheral opioid antagonists, PSMA or related
compounds and CCR5 monoclonal antibodies and of patents held, and patent
applications filed, by these groups in those areas. While the validity of
these
issued patents, patentability of these pending patent applications and
applicability of any of them to our programs are uncertain, if asserted against
us, any related patent or other intellectual property rights could adversely
affect our ability to commercialize our products.
The
research, development and commercialization of a biopharmaceutical often
involve
alternative development and optimization routes, which are presented at various
stages in the development process. The preferred routes cannot be predicted
at
the outset of a research and development program because they will depend
on
subsequent discoveries and test results. There are numerous third-party patents
in our field, and we may need to obtain a license to a patent in order to
pursue
the preferred development route of one or more of our products. The need
to
obtain a license would decrease the ultimate profitability of the applicable
product. If we cannot negotiate a license, we might have to pursue a less
desirable development route or terminate the program
altogether.
We
are dependent upon third parties for a variety of functions. These arrangements
may not provide us with the benefits we expect.
We
rely
in part on third parties to perform a variety of functions. We are party
to
numerous agreements which place substantial responsibility on clinical research
organizations, consultants and other service providers for the development
of
our products. We also rely on medical and academic institutions to perform
aspects of our clinical trials of product candidates. In addition, an element
of
our research and development strategy is to in-license technology and product
candidates from academic and government institutions in order to minimize
investments in early research. Furthermore, we recently entered into an
agreement under which we will depend on Wyeth for the commercialization and
development of MNTX, our lead product candidate. We may not be able to maintain
any of these relationships or establish new ones on beneficial terms.
Furthermore, we may not be able to enter new arrangements without undue delays
or expenditures, and these arrangements may not allow us to compete
successfully.
We
lack sales and marketing experience, which will make us dependent on third
parties for their expertise in this area.
We
have
no experience in sales, marketing or distribution. If we receive marketing
approval, we expect to market and sell our products principally through
distribution, co-marketing, co-promotion or licensing arrangements with third
parties. We may also consider contracting with a third party professional
pharmaceutical detailing and sales organization to perform the marketing
function for our products. Under our license and co-development agreement
with
Wyeth, Wyeth is responsible for commercializing MNTX. To the extent that
we
enter into distribution, co-marketing, co-promotion, detailing or licensing
arrangements for the marketing and sale of our other products, any revenues
we
receive will depend primarily on the efforts of third parties. We will not
control the amount and timing of marketing resources these third parties
devote
to our products. In addition, if we market products directly, significant
additional expenditures and management resources would be required to develop
an
internal sales force. We may not be able to establish a successful sales
force
should we choose to do so.
If
we lose key management and scientific personnel on whom we depend, our business
could suffer.
We
are
dependent upon our key management and scientific personnel. In particular,
the
loss of Dr. Paul J. Maddon, our Chief Executive Officer and Chief Science
Officer, could cause our management and operations to suffer. We have an
employment agreement with Dr. Maddon, the initial term of which ran through
June
30, 2005, which was automatically renewed for an additional period of two
years.
See “Item 11. Executive Compensation - Employment Agreements” in this Annual
Report on Form 10-K for the year ended December 31, 2005. We are currently
in
discussions with Dr. Maddon regarding the future renewal of his employment
agreement. Employment agreements do not, however, assure the continued
employment of an employee. We maintain key-man life insurance on Dr. Maddon
in
the amount of $2.5 million.
Competition
for qualified employees among companies in the biopharmaceutical industry
is
intense. Our future success depends upon our ability to attract, retain and
motivate highly skilled employees. In order to commercialize our products
successfully, we may be required to expand substantially our personnel,
particularly in the areas of manufacturing, clinical trials management,
regulatory affairs, business development and marketing. We may not be successful
in hiring or retaining qualified personnel.
If
we are unable to obtain sufficient quantities of the raw and bulk materials
needed to make our products, our product development and commercialization
could
be slowed or stopped.
We
currently obtain supplies of critical raw materials used in production of
MNTX,
GMK and other of our product candidates from single sources. In particular,
we
rely on single-source third-party manufacturers for the supply of both bulk
and
finished form MNTX. We have a supply agreement with Mallinckrodt Inc., our
current supplier of bulk-form MNTX, which has an initial term that expires
on
January 1, 2008. In accordance with our collaboration agreement with Wyeth,
we
will transfer to Wyeth, at a mutually agreeable time, the responsibility
for manufacturing MNTX for clinical and commercial use, including our supply
agreements with third parties. We do not have long-term contracts with any
of
our other suppliers. In addition, commercialization of GMK requires an adjuvant,
QS-21TM,
available only from Antigenics Inc. Our existing arrangements may not result
in
the supply of sufficient quantities of our product candidates needed to
accomplish our clinical development programs, and we may not have the right
or
capability to manufacture sufficient quantities of these products to meet
our
needs if our suppliers are unable or unwilling to do so. Any delay or disruption
in the availability of raw materials would slow or stop product development
and
commercialization of the relevant product
A
substantial portion of our funding comes from federal government grants and
research contracts. We cannot rely on these grants or contracts as a continuing
source of funds.
A
substantial portion of our revenues to date has been derived from federal
government grants and research contracts. In July and September 2005, we
were
awarded a $3.0 million and a $10.1 million grant from the NIH to partially
fund
our hepatitis C virus and PRO 140 programs, respectively. Also, in 2004 we
were
awarded, in the aggregate, approximately $9.2 million in NIH grants and research
contracts in addition to previous years’ awards. We cannot rely on grants or
additional contracts as a continuing source of funds. Moreover, funds available
under these grants and contracts must be applied by us toward the research
and
development programs specified by the government rather than for all our
programs generally. For example, the $28.6 million contract awarded to us
by the
NIH in September 2003 must be used by us in furtherance of our efforts to
develop an HIV vaccine. The government’s obligation to make payments under these
grants and contracts is subject to appropriation by the U.S. Congress for
funding in each year. Moreover, it is possible that Congress or the government
agencies that administer these government research programs will decide to
scale
back these programs or terminate them due to their own budgetary constraints.
Additionally, these grants and research contracts are subject to adjustment
based upon the results of periodic audits performed on behalf of the granting
authority. Consequently, the government may not award grants or research
contracts to us in the future, and any amounts that we derive from existing
grants or contracts may be less than those received to date.
If
health care reform measures are enacted, our operating results and our ability
to commercialize products could be adversely affected.
In
recent
years, there have been numerous proposals to change the health care system
in
the U.S. and in foreign jurisdictions. Some of these proposals have included
measures that would limit or eliminate payments for medical procedures and
treatments or subject the pricing of pharmaceuticals to government control.
In
some foreign countries, particularly countries of the European Union, the
pricing of prescription pharmaceuticals is subject to governmental control.
In
addition, as a result of the trend towards managed health care in the U.S.,
as
well as legislative proposals to reduce government insurance programs,
third-party payors are increasingly attempting to contain health care costs
by
limiting both coverage and the level of reimbursement of new drug products.
Consequently, significant uncertainty exists as to the reimbursement status
of
newly approved health care products.
If
we or
any of our collaborators succeed in bringing one or more of our products
to
market, third-party payors may establish and maintain price levels insufficient
for us to realize an appropriate return on our investment in product
development. Significant changes in the health care system in the U.S. or
elsewhere, including changes resulting from adverse trends in third-party
reimbursement programs, could have a material adverse effect on our operating
results and our ability to raise capital and commercialize
products.
We
are exposed to product liability claims, and in the future we may not be
able to
obtain insurance against these claims at a reasonable cost or at
all.
Our
business exposes us to product liability risks, which are inherent in the
testing, manufacturing, marketing and sale of pharmaceutical products. We
may
not be able to avoid product liability exposure. If a product liability claim
is
successfully brought against us, our financial position may be adversely
affected.
Product
liability insurance for the biopharmaceutical industry is generally expensive,
when available at all. We have obtained product liability insurance in the
amount of $5.0 million per occurrence, subject to a deductible and a $5.0
million annual aggregate limitation. In addition, where local statutory
requirements exceed the limits of our existing insurance or where local policies
of insurance are required, we maintain additional clinical trial liability
insurance to meet these requirements. Our present insurance coverage may
not be
adequate to cover claims brought against us. In addition, some of our license
and other agreements require us to obtain product liability insurance. Adequate
insurance coverage may not be available to us at a reasonable cost in the
future.
We
handle hazardous materials and must comply with environmental laws and
regulations, which can be expensive and restrict how we do business. If we
are
involved in a hazardous waste spill or other accident, we could be liable
for
damages, penalties or other forms of censure.
Our
research and development work and manufacturing processes involve the use
of
hazardous, controlled and radioactive materials. We are subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of these materials. Despite procedures that we implement
for handling and disposing of these materials, we cannot eliminate the risk
of
accidental contamination or injury. In the event of a hazardous waste spill
or
other accident, we could be liable for damages, penalties or other forms
of
censure. In addition, we may be required to incur significant costs to comply
with environmental laws and regulations in the future.
Our
stock price has a history of volatility. You should consider an investment
in
our stock as risky and invest only if you can withstand a significant
loss.
Our
stock
price has a history of significant volatility. Between January 1, 2002 and
December 31, 2005, our stock price has ranged from $3.82 to $27.00 per share.
At
times, our stock price has been volatile even in the absence of significant
news
or developments relating to us. Moreover, the stocks of biotechnology companies
and the stock market generally have been subject to dramatic price swings
in
recent years. Factors that may have a significant impact on the market price
of
our common stock include:
·
|
the
results of clinical trials and preclinical studies involving our
products
or those of our competitors;
|
·
|
changes
in the status of any of our drug development programs, including
delays in
clinical trials or program
terminations;
|
·
|
developments
regarding our efforts to achieve marketing approval for our
products;
|
·
|
developments
in our relationship with Wyeth regarding the development and
commercialization of MNTX;
|
·
|
announcements
of technological innovations or new commercial products by us,
our
collaborators or our competitors;
|
·
|
developments
in our relationships with other collaborative
partners;
|
·
|
developments
in patent or other proprietary
rights;
|
·
|
governmental
regulation;
|
·
|
changes
in reimbursement policies or health care
legislation;
|
·
|
public
concern as to the safety and efficacy of products developed by
us, our
collaborators or our competitors;
|
·
|
our
ability to fund on-going
operations;
|
·
|
fluctuations
in our operating results; and
|
·
|
general
market conditions.
|
Our
principal stockholders are able to exert significant influence over matters
submitted to stockholders for approval.
At
December 31, 2005, Dr. Maddon and stockholders affiliated with Tudor Investment
Corporation together beneficially own or control approximately 19% of our
outstanding shares of common stock. These persons, should they choose to
act
together, could exert significant influence in determining the outcome of
corporate actions requiring stockholder approval and otherwise control our
business. This control could have the effect of delaying or preventing a
change
in control of us and, consequently, could adversely affect the market price
of
our common stock.
Anti-takeover
provisions may make the removal of our Board of Directors or management more
difficult and discourage hostile bids for control of our company that may
be
beneficial to our stockholders.
Our
Board
of Directors is authorized, without further stockholder action, to issue
from
time to time shares of preferred stock in one or more designated series or
classes. The issuance of preferred stock, as well as provisions in certain
of
our stock options that provide for acceleration of exercisability upon a
change
of control, and Section 203 and other provisions of the Delaware General
Corporation Law could:
·
|
make
the takeover of Progenics or the removal of our Board of Directors
or
management more difficult;
|
·
|
discourage
hostile bids for control of Progenics in which stockholders may
receive a
premium for their shares of common stock;
and
|
·
|
otherwise
dilute the rights of holders of our common stock and depress the
market
price of our common stock.
|
If
there are substantial sales of our common stock, the market price of our
common
stock could decline.
Sales
of
substantial numbers of shares of common stock could cause a decline in the
market price of our stock. We require substantial external funding to finance
our research and development programs and may seek such funding through the
issuance and sale of our common stock. We have announced that we have filed
shelf registration statements to permit the sale of up to 4.0 million shares
of
our common stock to investors and to permit the public reoffer and sale from
time to time of up to 286,000 shares of our common stock by certain
stockholders. Sales of our common stock pursuant to these registration
statements could cause the market price or our stock to decline. In addition,
some of our other stockholders are entitled to require us to register their
shares of common stock for offer or sale to the public. Also, we have filed
Form
S-8 registration statements registering shares issuable pursuant to our equity
compensation plans. Any sales by existing stockholders or holders of options
may
have an adverse effect on our ability to raise capital and may adversely
affect
the market price of our common stock.
There
were no unresolved Staff comments as of December 31, 2005.
As
of
December 31, 2005, we occupy in total approximately 76,500 square feet of
laboratory, manufacturing and office space on a single campus in Tarrytown,
New
York. We occupy approximately 42,900 square feet of this space pursuant to
a
sublease which terminates in June 2007, with an option to renew for one
additional two-year term. The base monthly rent for this space is $65,000
through June 30, 2007, plus additional utility charges. We occupy approximately
33,600 square feet pursuant to a lease expiring on December 31, 2009, with
an
option to renew for two additional five-year terms. The base monthly rent
for
this space is $56,000 through August 31, 2007 and $65,000 for the period
from
September 1, 2007 to December 31, 2009. In addition to rents due under these
agreements, we are obligated to pay additional facilities charges, including
utilities, taxes and operating expenses.
We
are
not a party to any material legal proceedings.
No
matters were submitted to a vote of stockholders during the fourth quarter
of
2005.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Price
Range of Common Stock
Our
common stock is quoted on the Nasdaq National Market under the symbol “PGNX.”
The following table sets forth, for the periods indicated, the high and low
sales price per share of the common stock, as reported on the Nasdaq National
Market. Such prices reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
|
|
High
|
|
Low
|
|
Year
ended December 31, 2004
|
|
|
|
|
|
|
|
First
quarter
|
|
$
|
23.45
|
|
$
|
17.60
|
|
Second
quarter
|
|
|
20.79
|
|
|
14.85
|
|
Third
quarter
|
|
|
16.92
|
|
|
8.50
|
|
Fourth
quarter
|
|
|
18.08
|
|
|
12.25
|
|
Year
ended December 31, 2005
|
|
|
|
|
|
|
|
First
quarter
|
|
|
24.40
|
|
|
14.09
|
|
Second
quarter
|
|
|
21.35
|
|
|
15.76
|
|
Third
quarter
|
|
|
25.07
|
|
|
20.60
|
|
Fourth
quarter
|
|
|
27.00
|
|
|
20.73
|
|
On
March 14, 2006, the last sale price for our common stock as reported by
Nasdaq was $27.49. There were approximately 135 holders
of record of our common stock as of March 14, 2006.
Dividends
We
have
not paid any dividends since our inception and presently anticipate that
all
earnings, if any, will be retained for development of our business and that
no
dividends on our common stock will be declared in the foreseeable
future.
The
selected financial data presented below as of December 31, 2005 and 2004
and for
each of the three years in the period ended December 31, 2005 are derived
from
the Company’s audited financial statements, included elsewhere herein. The
selected financial data presented below with respect to the balance sheet
data
as of December 31, 2001, 2002 and 2003 and for each of the two years in the
period ended December 31, 2002 are derived from the Company’s audited financial
statements not included herein. The data set forth below should be read in
conjunction with Management’s Discussion and Analysis of Financial Condition and
Results of Operations and the Financial Statements and related Notes included
elsewhere herein.
|
|
Years
Ended December 31,
|
|
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
research and development, joint venture
|
|
$
|
199
|
|
$
|
5,298
|
|
$
|
2,486
|
|
$
|
2,008
|
|
$
|
988
|
|
Contract
research and development, other
|
|
|
4,397
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
Research
grants and contracts
|
|
|
4,244
|
|
|
4,544
|
|
|
4,826
|
|
|
7,483
|
|
|
8,432
|
|
Product
sales
|
|
|
43
|
|
|
49
|
|
|
149
|
|
|
85
|
|
|
66
|
|
Total
revenues
|
|
|
8,883
|
|
|
10,085
|
|
|
7,461
|
|
|
9,576
|
|
|
9,486
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
12,731
|
|
|
22,797
|
|
|
26,374
|
|
|
35,673
|
|
|
43,419
|
|
License
fees - research and development
|
|
|
1,770
|
|
|
964
|
|
|
867
|
|
|
390
|
|
|
20,418
|
|
General
and administrative
|
|
|
6,499
|
|
|
6,484
|
|
|
8,029
|
|
|
12,580
|
|
|
13,565
|
|
Loss
in Joint Venture
|
|
|
2,225
|
|
|
2,886
|
|
|
2,525
|
|
|
2,134
|
|
|
1,863
|
|
Depreciation
and amortization
|
|
|
707
|
|
|
1,049
|
|
|
1,273
|
|
|
1,566
|
|
|
1,748
|
|
Total
expenses
|
|
|
23,932
|
|
|
34,180
|
|
|
39,068
|
|
|
52,343
|
|
|
81,013
|
|
Operating
loss
|
|
|
(15,049
|
)
|
|
(24,095
|
)
|
|
(31,607
|
)
|
|
(42,767
|
)
|
|
(71,527
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
3,348
|
|
|
1,708
|
|
|
625
|
|
|
780
|
|
|
2,299
|
|
Interest
expense
|
|
|
(49
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
Payment
from collaborator
|
|
|
9,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
Payment
from insurance settlement
|
|
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
Total
other income
|
|
|
13,151
|
|
|
3,306
|
|
|
621
|
|
|
749
|
|
|
2,299
|
|
Net
loss before income taxes
|
|
|
(1,898
|
)
|
|
(20,789
|
)
|
|
(30,986
|
)
|
|
(42,018
|
)
|
|
(69,228
|
)
|
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(201
|
)
|
Net
loss
|
|
$
|
(1,898
|
)
|
$
|
(20,789
|
)
|
$
|
(30,986
|
)
|
$
|
(42,018
|
)
|
$
|
(69,429
|
)
|
Per
share amounts on net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(0.15
|
)
|
$
|
(1.66
|
)
|
$
|
(2.32
|
)
|
$
|
(2.48
|
)
|
$
|
(3.33
|
)
|
|
|
December
31,
|
|
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
|
|
(in
thousands)
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and
marketable
securities
|
|
$
|
61,877
|
|
$
|
42,374
|
|
$
|
65,663
|
|
$
|
31,207
|
|
$
|
173,090
|
|
Working
capital
|
|
|
40,650
|
|
|
36,209
|
|
|
56,228
|
|
|
25,667
|
|
|
137,101
|
|
Total
assets
|
|
|
67,481
|
|
|
48,118
|
|
|
72,886
|
|
|
39,545
|
|
|
184,003
|
|
Deferred
lease liability
|
|
|
39
|
|
|
71
|
|
|
50
|
|
|
42
|
|
|
49
|
|
Total
stockholders’ equity
|
|
|
64,345
|
|
|
45,147
|
|
|
67,683
|
|
|
31,838
|
|
|
112,732
|
|
Overview
General.
We are
a biopharmaceutical company focusing on the development and commercialization
of
innovative therapeutic products to treat the unmet medical needs of patients
with debilitating conditions and life-threatening diseases. We commenced
principal operations in late 1988, and since that time we have been engaged
primarily in research and development efforts, development of our manufacturing
capabilities, establishment of corporate collaborations and raising capital.
We
do not currently have any commercial products. In order to commercialize
the
principal products that we have under development, we will need to address
a
number of technological and clinical challenges and comply with comprehensive
regulatory requirements. Accordingly, we cannot predict the amount of funds
that
we will require, or the length of time that will pass, before we receive
significant revenues from sales of any of our products, if ever.
Our
most
advanced product candidate and likeliest source of product revenue is
methynaltrexone (“MNTX”). In December 2005, we entered into a license and
co-development agreement (the “Collaboration Agreement”) with Wyeth
Pharmaceuticals (“Wyeth”) to develop and commercialize MNTX. In collaboration
with Wyeth, we are conducting a broad clinical development program for MNTX
in
several settings involving symptom management and supportive care. Under
the
terms of our collaboration with Wyeth, Wyeth is developing the oral form
of MNTX
worldwide. We are leading the U.S. development of the subcutaneous and
intravenous forms of MNTX, while Wyeth is leading development of these
parenteral products outside the U.S. Wyeth and we are pursuing an integrated
strategy to optimize worldwide development, regulatory approval, and commercial
launch of the three MNTX products, which may impact timelines for the
development of MNTX previously disclosed by us. Decisions regarding the
timelines for development of the three MNTX products will be made by a Joint
Development Committee formed under the terms of the license and co-development
agreement, consisting of members from both Wyeth and Progenics.
Our
work
with MNTX has proceeded farthest as a treatment for opioid-induced constipation.
Constipation is a serious medical problem for patients who are being treated
with opioid pain-relief medications. MNTX is designed to reverse the side
effects of opioid pain medications while maintaining pain relief, an important
need not currently met by any approved drugs. We have successfully completed
two
pivotal phase 3 clinical trials of the subcutaneous form of MNTX in patients
with advanced medical illness, including cancer, AIDS and heart disease.
We
achieved positive results from our two pivotal phase 3 clinical trials (MNTX
301
and MNTX 302). All
primary and secondary efficacy endpoints of both of the phase 3 studies were
positive and statistically significant. The drug was generally well tolerated
in
both phase 3 trials. We
are
now working with our alliance partner, Wyeth, to submit a New Drug Application
to the U.S. Food and Drug Administration and implement a commercialization
strategy.
We
are
also developing an intravenous form of MNTX in collaboration with Wyeth for
the
management of post-operative bowel dysfunction, a serious condition of
the
gastrointestinal tract. We have successfully completed a phase 2 clinical
trial
of MNTX for this indication. Based upon our end of phase 2 meeting with the
FDA,
we are planning a phase 3 clinical program with intravenous MNTX for the
treatment of post-operative bowel dysfunction. Under the Collaboration
Agreement, Wyeth is also developing oral MNTX for the treatment of
opioid-induced constipation in patients with chronic pain. Prior to the
Collaboration Agreement, we had completed phase 1 clinical trials of oral
MNTX
in healthy volunteers, which indicated that MNTX was well
tolerated.
In
the
area of virology, we are developing viral entry inhibitors, which are molecules
designed to inhibit the virus’ ability to enter certain types of immune system
cells. HIV is the virus that causes AIDS. Receptors and co-receptors are
structures on the surface of a cell to which a virus must bind in order to
infect the cell. In mid-2005, we
announced positive phase 1 clinical findings related to PRO 140, a
monoclonal antibody designed to target the HIV co-receptor CCR5, in healthy
volunteers. A phase 1b trial of PRO 140 in HIV-infected patients began in
December 2005.
In
addition, we are developing immunotherapies for prostate cancer, including
monoclonal antibodies directed against prostate-specific membrane antigen
(“PSMA”), a protein found on the surface of prostate cancer cells. We are also
developing vaccines designed to stimulate an immune response to PSMA. Our
PSMA
programs are conducted with Cytogen Corporation (“Cytogen”) (collectively, the
“Members”) through PSMA Development Company LLC, our joint venture with Cytogen
(”PSMA LLC”). We are also studying a cancer vaccine, GMK, in phase 3 clinical
trials for the treatment of malignant melanoma.
Our
sources of revenues through December 31, 2005 have been payments under our
former collaboration agreements from PSMA LLC, from research grants and
contracts related to our cancer and HIV programs and from interest income.
Beginning in January 2006, we will recognize revenues from Wyeth for
reimbursement of our development expenses for MNTX as incurred, for the $60
million upfront payment we received from Wyeth over the period of our
development obligations and for any milestones or contingent events that
are
achieved during our collaboration with Wyeth. In addition, the Members have
not
approved a work plan and budget for 2006 and, therefore, from January 1,
2006,
neither we nor Cytogen will recognize revenue from PSMA LLC until such time
as a
work plan and budget are approved. To date, our product sales have consisted
solely of limited revenues from the sale of research reagents. We expect
that
sales of research reagents in the future will not significantly increase
over
current levels.
A
majority of our expenditures to date have been for research and development
activities. We expect that our research and development expenses will increase
significantly as our programs progress and we make filings with regulators
for
approval to market our product candidates. Our development and commercialization
expenses for MNTX will be funded by Wyeth, which will allow us to devote
our
current and future resources to our other research and development
programs.
We
have
had recurring losses and had, at December 31, 2005, an accumulated deficit
of
$188.7 million. During the year ended December 31, 2005, we received net
proceeds of $121.6 million from three public offerings totaling 6,307,467
shares
of our common stock. We also received an upfront payment of $60.0 million
from
Wyeth in connection with signing the license and co-development agreement.
At
December 31, 2005, we had cash, cash equivalents and marketable securities
totaling $173.1 million. We expect that cash, cash equivalents and marketable
securities on hand at December 31, 2005 will be sufficient to fund operations
at
current levels beyond one year.
During
the year ended December 31, 2005, we had a net loss of $69.4 million and
cash
provided by operating activities was $11.1 million. Other than potential
revenues from MNTX, we do not anticipate generating significant recurring
revenues, from product sales or otherwise, in the near term, and we expect
our
expenses to increase. Consequently, we may require significant additional
external funding to continue our operations at their current levels in the
future. Such funding may be derived from additional collaboration or licensing
agreements with pharmaceutical or other companies or from the sale of our
common
stock or other securities to investors. However, such additional funding
may not
be available to us on acceptable terms or at all.
Collaboration
with Wyeth Pharmaceuticals
We
and
Wyeth Pharmaceuticals (“Wyeth”) entered into a License and Co-Development
Agreement, dated December 23, 2005 (the “Collaboration Agreement”) for the
development and commercialization of MNTX. Under the Collaboration Agreement
Wyeth paid to us a $60 million non-refundable upfront payment. Wyeth is
obligated to make up to $356.5 million in additional payments to us upon
the
achievement of milestones and contingent events in the development and
commercialization of MNTX. All costs for the development of MNTX incurred
by
Wyeth or us starting January 1, 2006 are to be paid by Wyeth. We will be
reimbursed for our out-of-pocket development costs by Wyeth and will receive
reimbursement for our efforts based on the number of our full time equivalent
employees (FTEs) devoted to the development project. Wyeth is obligated to
pay
to us royalties on the sale by Wyeth of MNTX throughout the world during
the
applicable royalty periods. At December 31, 2005, we have deferred the
recognition of revenue for the $60 million upfront payment since work under
the
Collaboration Agreement did not commence until January 2006.
The
Collaboration Agreement establishes a Joint Steering Committee (“JSC”) and a
Joint Development Committee (“JDC”), each with an equal number of
representatives of both Wyeth and us. The Joint Steering Committee is
responsible for coordinating the key activities of Wyeth and us under the
Collaboration Agreement. The Joint Development Committee is responsible for
overseeing, coordinating and expediting the development of MNTX by Wyeth
and
us.
The
Collaboration Agreement contemplates the development and commercialization
of
three products: (i) a subcutaneous form of MNTX, to be used in patients with
opioid-induced constipation; (ii) an intravenous form of MNTX, to be used
in
patients with post-operative bowel dysfunction and (iii) an oral form of
MNTX,
to be used in patients with opioid-induced constipation.
Under
the
Collaboration Agreement, we granted to Wyeth an exclusive, worldwide license,
even as to us, to develop and commercialize MNTX. We are responsible for
developing the subcutaneous and intravenous forms of MNTX in the United States,
until they receive regulatory approval. Wyeth is responsible for the development
of the subcutaneous and intravenous forms of MNTX outside of the United States.
Wyeth is responsible for the development of the oral form of MNTX, both within
the United States and in the rest of the world. In the event the JSC approves
any formulation of MNTX other than subcutaneous, intravenous or oral or any
other indication for the products currently contemplated using the subcutaneous,
intravenous or oral forms of MNTX, Wyeth will be responsible for development
of
such products, including conducting clinical trials and obtaining and
maintaining regulatory approval. We will remain the owner of all U.S. regulatory
filings and approvals relating to the subcutaneous and intravenous forms
of
MNTX. Wyeth will be the owner of all U.S. regulatory filings and approvals
related to the oral form of MNTX. Wyeth will be the owner of all regulatory
filings and approvals outside the United States relating to all forms of
MNTX.
Wyeth
is
responsible for the commercialization of the subcutaneous, intravenous and
oral
products throughout the world, will pay all costs of commercialization of
all
products, including all manufacturing costs, and will retain all proceeds
from
the sale of the products, subject to the royalties payable by Wyeth to us.
Decisions with respect to commercialization of any products developed under
the
Collaboration Agreement will be made solely by Wyeth.
We
will
transfer to Wyeth, at a mutually agreeable time, all existing supply agreements
with third parties for MNTX and will sublicense any intellectual property
rights
to permit Wyeth to manufacture MNTX, during the development and
commercialization phases of the Collaboration Agreement, in both bulk and
finished form for all products worldwide.
We
have
an option (the “Co-Promotion Option”) to enter into a Co-Promotion Agreement to
co-promote any of the products developed under the Collaboration Agreement,
subject to certain conditions. The extent of our co-promotion activities
and the
fees that we will be paid by Wyeth for these activities, will be established
when we exercise our option. Wyeth will record all sales of products worldwide
(including those sold by us, if any, under a Co-Promotion Agreement). Wyeth
may
terminate any Co-Promotion Agreement if a top 15 pharmaceutical company acquires
control of us. Wyeth has agreed to certain limitations on its ability to
purchase our equity securities and to solicit proxies.
The
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last to expire
royalty period, as defined, for any product. Progenics may terminate the
Collaboration Agreement at any time upon 90 days of written notice to Wyeth
(30
days in the case of breach of a payment obligation) upon material breach
that is
not cured. Wyeth may, with or without cause, following the second anniversary
of
the first commercial sale, as defined, of the first commercial product in
the
U.S., terminate the Collaboration Agreement by providing Progenics with at
least
360 days prior written notice of such termination. Wyeth may also terminate
the
agreement (i) upon 30 days written notice following one or more serious safety
or efficacy issues that arise, as defined, and (ii) at any time, upon 90
days
written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license
we
granted to Wyeth will depend on the party that initiates the termination
and the
reason for the termination.
Purchase
of Rights from MNTX Licensors
On
December 22, 2005, we and our wholly-owned subsidiary, Progenics Pharmaceuticals
Nevada, Inc., (collectively, “we”) acquired certain rights for our lead
investigational drug, methylnaltrexone (“MNTX”), from several of our
licensors.
In
2001,
we entered into an exclusive sublicense agreement with UR Labs, Inc. (“URL”) to
develop and commercialize MNTX (the “MNTX Sub-license”) in exchange for rights
to future payments resulting from the MNTX Sub-license. In 1989, URL obtained
an
exclusive license to MNTX, as amended, from the University of Chicago (“UC”)
under an Option and License Agreement dated May 8, 1985, as amended (the
“URL-Chicago License”). In 2001, URL also entered into an agreement with certain
heirs of Dr. Leon Goldberg (the “Goldberg Distributees”), which provided them
with the right to receive payments based upon revenues received by URL from
the
development of the MNTX Sub-license (the “URL-Goldberg Agreement”).
On
December 22, 2005, we entered into an Agreement and Plan of Reorganization
(the
“Purchase Agreement”) by and among Progenics Pharmaceuticals, Inc., Progenics
Pharmaceuticals Nevada, Inc., UR Labs, Inc. and the shareholders of UR Labs,
Inc. (the “URL Shareholders”), under which we acquired substantially all of the
assets of URL, comprised of its rights under the URL-Chicago License, the
MNTX
Sub-license and the URL-Goldberg Agreement, thus assuming URL’s rights and
responsibilities under those agreements and extinguishing our obligation
to make
royalty and other payments to URL.
On
December 22, 2005, we entered into an Assignment and Assumption Agreement
with
the Goldberg Distributees, under which we assumed all rights and obligations
of
the Goldberg Distributees under the URL-Goldberg Agreement, thereby
extinguishing URL’s (and consequentially, our) obligations to make payments to
the Goldberg Distributees. Although we are no longer obligated to make payments
to URL or the Goldberg Distributees, we are required to make future payments
(including royalties) to the University of Chicago that would have been made
by
URL.
In
consideration for the assignment of the Goldberg Distributees’ rights and of the
acquisition of the assets of URL described above, we issued, on December
22,
2005, a total of 686,000 shares of our common stock, with a fair value of
$15.8
million, based on a closing price of our common stock of $23.09, and paid
a
total of $2.6 million in cash (representing the opening market value, $22.85
per
share, of 114,000 shares of Progenics’ common stock on the date of the
acquisition) to the URL Shareholders and the Goldberg Distributees and paid
$310,000 in transaction fees.
Joint
Venture with Cytogen Corporation.
We
have a
50% interest in PSMA LLC. We were required to fund the first $3.0 million
of
PSMA LLC’s research and development costs. Prior to reaching $3.0 million of
such costs, we recognized reimbursements on a net basis and did not recognize
any revenue from PSMA LLC. During the fourth quarter of 2001, we surpassed
the
$3.0 million threshold, at which time we began recognizing revenue for services
and costs being provided to and paid by PSMA LLC. Our revenues from PSMA
LLC do
not result in significant net cash flows to us, since they are relatively
minor
in comparison to our expenses and, because they are offset in part by capital
contributions that we must make to PSMA LLC.
PSMA
LLC’s research and development programs and other operations are conducted on
its behalf by us, Cytogen and third party providers. We and Cytogen are
compensated by PSMA LLC for our services provided to PSMA LLC and are reimbursed
for costs we pay on its behalf. From June 1999 through January 2004, our
services to PSMA LLC were provided pursuant to the terms of a services
agreement. The services agreement, as extended, expired effective January
31,
2004. Since then we and Cytogen have not agreed upon the terms of a replacement
services agreement although both parties have continued to provide services
to
PSMA LLC (and have been compensated for these services). The Members have
not
currently approved a work plan or budget for 2006 and, therefore, beginning
on
January
1, 2006,
we will
not recognize revenue from PSMA LLC until such time as a work plan and budget
are approved. The
level
of future revenues we derive from PSMA LLC will depend on the nature and
amount
of research and development services requested of us by PSMA LLC as well
as the
future financial position of PSMA LLC.
Our
and
Cytogen’s respective levels of commitment to fund PSMA LLC is based on annual
budgets and work plans that are developed and approved by the parties. Each
annual budget is intended to provide for sufficient funds to conduct the
research and development projects specified in the work plan for the
then-current year. During June 2005, we and Cytogen approved a work plan
and a
corresponding budget for the year ended December 31, 2005. Capital
contributions, totaling $7.9 million, were made by the Members during the
year
ended December 31, 2005, half of which was contributed by each of the Members.
Contributions totaling $1.0 million, made in January 2005, were used to fund
obligations for work performed under the approved 2004 work plan, which amount
is included in the total contributions for the 2005 periods set forth above.
We
have
in the past experienced delays in reaching agreement with Cytogen regarding
budget issues and strategic and operational matters relating to PSMA LLC.
PSMA
LLC currently has no approved 2006 budget or work plan because we and Cytogen
have not yet reached agreement with respect to a number of matters relating
to
PSMA LLC. However, we and Cytogen are required to fulfill obligations under
existing contractual commitments as of December 31, 2005. Although work on
the
PSMA projects continues, if we do not reach an agreement regarding the 2006
budget and work plan, the programs conducted by PSMA LLC would likely be
delayed
or halted, and our capital commitments to, and revenues associated with,
PSMA
LLC would be reduced or eliminated. We may not reach an agreement with Cytogen
on these matters.
The
work
plan and budget for 2005 included funding to be made by PSMA LLC in accordance
with a collaboration agreement (the “SGI Agreement”) with Seattle Genetics, Inc.
(“SGI”), entered into in June 2005. Under the SGI Agreement, SGI provided an
exclusive worldwide license to its proprietary antibody-drug conjugate
technology (the “ADC Technology”) to PSMA LLC. Under the license, PSMA LLC has
the right to use the ADC Technology to link cell-killing drugs to PSMA LLC’s
monoclonal antibodies that target prostate-specific membrane antigen. During
the
initial research term of the SGI Agreement, SGI also is required to provide
technical information to PSMA LLC related to implementation of the licensed
technology, which period may be extended upon payment of an additional fee.
PSMA
LLC may replace prostate-specific membrane antigen with another antigen,
subject
to certain restrictions, upon payment of an antigen replacement fee. The
ADC
Technology is based, in part, on technology licensed by SGI from third parties
(the “Licensors”). PSMA LLC is responsible for research, product development,
manufacturing and commercialization of all products under the SGI Agreement.
PSMA LLC may sublicense the ADC Technology to a third-party to manufacture
the
ADC’s for both research and commercial use. PSMA LLC made a $2.0 million
technology access payment to SGI, upon execution of the SGI Agreement during
September 2005, following a capital contribution by the Members (see above).
The
SGI Agreement requires PSMA LLC to make maintenance payments during the term
of
the SGI Agreement, payments, aggregating $15.0 million, upon the achievement
of
certain defined milestones, and royalties, on a percentage of net sales,
as
defined, to SGI and its Licensors. In the event that SGI provides materials
or
services to PSMA LLC under the SGI Agreement, SGI will receive supply and/or
labor cost payments from PSMA LLC at agreed upon rates. Unless terminated
earlier, the SGI Agreement terminates at the later of (a) the tenth anniversary
of the first commercial sale of each licensed product in each country or
(b) the
latest date of expiration of patents underlying the licensed products. The
ability of PSMA LLC to comply with the terms of the SGI Agreement will depend
on
agreement by the Members regarding work plans and budgets of PSMA LLC in
future
years.
According
to the LLC Agreement that established PSMA LLC, we may directly pursue and
obtain government grants directed to the conduct of research utilizing
PSMA-related technologies. In consideration of our initial incremental capital
contribution of $3.0 million of PSMA LLC research expenditures, we may retain
$3.0 million of such government grant funding. To the extent that we retain
grant revenue in respect of work for which we have also been compensated
by PSMA
LLC, the remainder of the $3.0 million to be retained by us is reduced and
we
record an adjustment in our financial statements to reduce both joint venture
losses and contract revenue from the joint venture. Such adjustments
were
$1,311,000, $762,000 and $927,000 for the years ended December 31, 2005,
2004
and 2003, respectively, and $3.0 million cumulatively
through December 31, 2005.
Results
of Operations (amounts
in thousands)
Years
Ended December 31, 2004 and 2005
Revenues:
We
recognized $2,008 and $988 of revenue for research and development services
performed for PSMA LLC during the years ended December 31, 2004 and 2005,
respectively. The decrease is due to the slower pace of research and development
activities on the PSMA projects in 2005 and an increase in grant revenue
recognized by the Company from awards related to research and development
services performed for PSMA LLC, which effectively decreases contract research
and development from joint venture. Proceeds received from grants related
to
PSMA LLC and for which we have also been compensated by the JV for services
provided were $762 in the 2004 period and $1,311 in the 2005 period.
As
described above, we have reflected in the accompanying consolidated financial
statements adjustments to decrease both joint venture losses and contract
revenue from the joint venture in respect of such amounts.
Revenues
from research grants and contracts increased from $7,483 in the year ended
December 31, 2004 to $8,432 in the corresponding period in 2005. The increase
resulted from a greater amount of work performed under the grants in the
2005
period, some of which allowed greater spending limits, including $13.1 million
in new grants we were awarded during 2005, $10.1 million of which will partially
fund our PRO 140 program over a three and a half year period. In addition,
there
was increased activity under the contract awarded to us by the National
Institutes of Health in September 2003 (the “NIH Contract”). The NIH Contract
provides for up to $28,600 in funding to us over five years for preclinical
research, development and early clinical testing of a vaccine designed to
prevent HIV from infecting individuals exposed to the virus. Our scientists
are
the principal investigators under the contract and head the vaccine development
effort. The vaccine design and animal testing core groups under a subcontract
are headed by existing academic collaborators of ours. A total of approximately
$3,700 is earmarked under the NIH Contract to fund such subcontracts. Funding
under the NIH Contract is subject to compliance with its terms, and the payment
of an aggregate of $1,600 in fees (of which $180 had been recognized as revenue
as of December 31, 2005) is subject to achievement of specified
milestones.
Revenues
from product sales decreased from $85 for the year ended December 31, 2004
to
$66 for the year ended December 31, 2005. We received fewer orders for research
reagents during 2005.
Expenses:
Research
and development expenses include scientific labor, supplies, facility costs,
clinical trial costs, and product manufacturing costs. Research and development
expenses, including license fees, increased $27,774 from $36,063 in the year
ended December 31, 2004 to $63,837 in the corresponding period in 2005, as
follows:
|
Year
Ended
December
31,
|
|
|
|
Category
|
2004
|
2005
|
Dollar
Variance
|
Percentage
Variance
|
Explanation
|
Salaries
and benefits
|
$12,193
|
$14,009
|
$
1,816
|
15
%
|
Company-wide
compensation increases and an increase in average headcount from
111 to
117 for the years ended December 31, 2004 and 2005, respectively,
in the
research and development, manufacturing and clinical departments,
including the hiring of our Vice President, Quality in July
2005.
|
Clinical
trial costs
|
8,675
|
10,493
|
1,818
|
21
|
Increase
primarily related to MNTX ($905) due to a higher level of activity
in the
301 and 302 trials and their extension studies in the 2005 period
than in
the 301 trial in the 2004 period. Also, increases in GMK ($765),
due to
increased enrollment in the 2005 period, and HIV ($148), resulting
from an
increase in the PRO 140 phase 1 and phase 1b trial activity in
the 2005
period.
|
Laboratory
supplies
|
3,762
|
5,292
|
1,530
|
41
|
Increases
in MNTX ($916) due to increased costs of manufacturing MNTX for
clinical
trials, HIV ($446) due to preparation of materials for the phases
1 and 1b
PRO 140 clinical trials and an increase in basic research in 2005
and GMK
($218) related to manufacturing materials for the ongoing phase
3 clinical
trial, partially offset by a decrease in other projects ($50),
as research
and development activity focused on clinical trials in the areas
of MNTX
and HIV rather than on other areas of basic research.
|
Contract
manufacturing and subcontractors
|
5,371
|
5,836
|
465
|
9
|
Increase
in MNTX ($161) and HIV ($609), partially offset by decreases in
GMK ($14)
and other projects ($291). These expenses are related to the conduct
of
clinical trials, including testing, analysis, formulation and toxicology
services and vary as the timing and level of such services are
required.
|
Consultants
|
1,646
|
3,609
|
1,963
|
119
|
Increases
in MNTX ($1,845) and HIV ($210) and other projects ($35), partially
offset
by a decrease in GMK ($127). These expenses are related to monitoring
and
conduct of clinical trials, including analysis of data from completed
clinical trials and vary as the timing and level of such services
are
required.
|
License
fees
|
390
|
20,418
|
20,028
|
5,135
|
Increase
primarily related to payments to UR Labs and the Goldberg Distributees
(see “Overview ¾
Purchase of Rights from MNTX Licensors”), licensors of
MNTX ($19,205) and related to our HIV program ($823).
|
Operating
expenses
|
4,026
|
4,180
|
154
|
4
|
Increase
primarily due to an increase in rent, utility and facilities expenses
($354), partially offset by a decrease in other operating expenses
and
travel ($200) in 2005.
|
Total
|
$
36,063
|
$
63,837
|
$
27,774
|
77 %
|
|
A
major
portion of our spending has been, and we expect will continue to be, associated
with MNTX, although beginning in 2006, Wyeth will fund all of our development
activities related to MNTX. Spending for our PRO 140 program is expected
to
increase in 2006, while spending for other programs is expected to remain
relatively stable or decline.
General
and administrative expenses increased from $12,580 in the year ended December
31, 2004 to $13,565 in the corresponding 2005 period, as follows:
|
Year
Ended
December
31,
|
|
|
|
Category
|
2004
|
2005
|
Dollar
Variance
|
Percentage
Variance
|
Explanation
|
Salaries
and benefits
|
$4,057
|
$
5,895
|
$1,838
|
45
%
|
Increase
due to compensation increases, including bonuses. For the years
ended
December 31, 2004 and 2005, respectively, average headcount remained
stable, although we hired our General Counsel in June 2005 and
one senior
executive departed in April 2005.
|
Consulting
and professional fees
|
5,336
|
4,488
|
(848)
|
(16)
|
Decrease
due primarily to a decrease in recruiting ($88) and audit fees,
including
fees for internal control readiness and the auditing of internal
controls
over financial reporting ($1,332), partially offset by increases
in
consultants ($560) and legal and patent fees ($25).
|
Operating
expenses
|
2,860
|
2,789
|
(71)
|
(2)
|
Decrease
in insurance ($13) and other operating expenses ($124), partially
offset
by an increase in rent, utilities and facilities costs
($66).
|
Other
|
327
|
393
|
66
|
20
|
Increased
investor relations ($109) and conference ($40) costs, partially
offset by
a decrease in corporate sales and franchise taxes
($83).
|
Total
|
$12,580
|
$
13,565
|
$
985
|
8
%
|
|
We
expect
general and administrative expenses to increase during 2006 due to an increase
in operating expenses related to an increase in headcount.
Loss
in
joint venture decreased from $2,134 in the year ended December 31, 2004 to
$1,863 in the corresponding period in 2005. During 2005, research and
development expenses, including license fees to collaborators of the JV,
were
higher than in 2004; lower research and development expenses in 2005 were
more
than offset by a $2.0 million license fee made by PSMA LLC in 2005 to Seattle
Genetics, Inc. (see “Overview” above). However, as further described above, we
recognized $762 and $1,311 in the years ended December 31, 2004 and 2005,
respectively, of payments received from the NIH as a reduction to joint venture
losses and contract revenue from the joint venture.
Therefore,
overall, loss in joint venture was lower in 2005 than in 2004.
Depreciation
and amortization increased from $1,566 in the year ended December 31, 2004
to
$1,748 in the corresponding period in 2005 as we purchased capital assets
and
made leasehold improvements in 2005 to increase our manufacturing
capacity.
Other
income:
Interest
income increased from $780 in the year ended December 31, 2004 to $2,299
in the
corresponding period in 2005. Interest income, as reported, is the result
of
investment income from our marketable securities, offset by the amortization
of
premiums we paid for those marketable securities. For the years ended December
31, 2004, and 2005, investment income increased from $1,420 to $2,569,
respectively, due to a higher average balance of cash equivalents and marketable
securities resulting from our three public offerings in 2005, than in 2004
and
higher interest rates in 2005. Amortization of premiums, which is included
in
interest income, decreased from $640 to $270 for the years ended December
31,
2004 and 2005, respectively.
Income
taxes:
For
the
year ended December 31, 2005, although we had a pre-tax net loss of $69.2
million, we had taxable income due primarily to the $60 million upfront payment
received from Wyeth and the $18.4 million cash and common stock paid to UR
Labs
and the Goldbergs, which were treated differently for book and tax purposes.
For
book purposes, payments made to UR Labs and the Goldbergs Distributees were
expensed in the period the payments were made. However, for tax purposes,
the UR
Labs transaction was a tax-free re-organization and will never result in
a
deduction for tax purposes and the payments to the Goldberg Distrbutees have
been capitalized as an intangible license asset and will be deducted for
tax
purposes over a fifteen year period. We have, therefore, recognized an income
tax provision for the effect of the Federal and state alternative minimum
tax.
For the year ended December 31, 2004, we had losses both for book and tax
purposes.
Net
loss:
Our
net
loss was $42,018 for the year ended December 31, 2004 compared to a net loss
of
$69,429 in the corresponding period in 2005.
Years
Ended December 31, 2003 and 2004
Revenues:
We
recognized $2,486 and $2,008 of revenue for research and development services
performed for the joint venture during the years ended December 31, 2003
and
2004, respectively. Proceeds received from grants related to the joint venture
for which we have also been compensated by PSMA LLC for services provided
were
$927 in 2003 and $762 in 2004. As described above, we have reflected in the
accompanying financial statements adjustments to decrease both joint venture
losses and contract revenue from the joint venture in respect of such
amounts.
Revenues
from research grants and contracts increased from $4,826 in the year ended
December 31, 2003 to $7,483 in the corresponding period in 2004. The increase
resulted from the funding of a greater number of grants in 2004 and from
increased activity under the NIH Contract. The NIH Contract provides for
up to
$28,600 in funding to us over five years for preclinical research, development
and early clinical testing of a vaccine designed to prevent HIV from infecting
individuals exposed to the virus. Our scientists are the principal investigators
under the contract and head the vaccine development effort. Existing academic
collaborators of ours head the vaccine design and animal testing core groups
under a subcontract. A total of approximately $3,700 is earmarked under the
NIH
Contract to fund such subcontracts. Funding under the NIH Contract is subject
to
compliance with its terms, and the payment of an aggregate of $1,600 in fees
(of
which $90 had been recognized as revenue as of December 31, 2004) is subject
to
achievement of specified milestones. Based on our currently approved grants,
the
NIH Contract and planned grant submissions, we expect revenues from grants
and
contracts to remain at the current level or increase somewhat over the next
five
years.
Revenues
from product sales decreased from $149 for the year ended December 31, 2003
to
$85 for the year ended December 31, 2004. We received fewer orders for research
reagents during 2004.
Expenses:
Research
and development expenses include scientific labor, supplies, facility costs,
clinical trial costs, and product manufacturing costs. A major portion of
our
spending has been, and we expect will continue to be, associated with MNTX.
Research and development expenses, including license fees, increased $8,822
from
$27,241in the year ended December 31, 2003 to $36,063 in the corresponding
period in 2004, as follows:
|
Year
Ended
December
31,
|
|
|
|
Category
|
2003
|
2004
|
Dollar
Variance
|
Percentage
Variance
|
Explanation
|
Salaries
and benefits
|
$8,767
|
$
12,193
|
$
3,426
|
39%
|
Company-wide
compensation increases and an increase in average headcount from
90 to 111
for the years ended December 31, 2003 and December 31, 2004, respectively,
in the research and development, manufacturing and medical
departments.
|
Clinical
trial costs
|
4,194
|
8,675
|
4,481
|
107
|
Increase
due to MNTX ($4,447) as phase 3 trials expanded and GMK ($64) due
to
increased patient enrollment, partially offset by decreases in
HIV ($25)
and other programs ($5).
|
Laboratory
supplies
|
2,665
|
3,762
|
1,097
|
41
|
Increase
in MNTX ($527), HIV ($149), GMK ($96) and other programs ($325)
due to
preparation of materials for clinical trials and an increase in
basic
research.
|
Contract
manufacturing and subcontractors
|
7,314
|
5,371
|
(1,943)
|
(27)
|
Decrease
due to decline in MNTX ($976) and HIV ($1,232), partially offset
by an
increase in and GMK ($31) and other programs ($234).These expenses
are
related to the conduct of clinical trials, including testing, analysis,
formulation and toxicology services and vary as the timing and
level of
such services are required.
|
Consultants
|
895
|
1,646
|
751
|
84
|
Increase
due to MNTX ($884) and GMK ($134), partially offset by decreases
in HIV
($38) and other programs ($229). These expenses are related to
monitoring
and conduct of clinical trials, including analysis of data from
completed
clinical trials and vary as the timing and level of such services
are
required.
|
License
fees
|
867
|
390
|
(477)
|
(55)
|
Decrease
related to lower payments to licensors in our GMK ($102), MNTX
($50) and
other ($500) programs. In addition, there was an increase in our
payments
related to our HIV ($175) program.
|
Operating
expenses
|
2,539
|
4,026
|
1,487
|
59
|
Increase
primarily due to increased rent and facility ($1,145) and other
($342)
costs in 2004 over those in 2003.
|
Total
|
$27,241
|
$36,063
|
$
8,822
|
32%
|
|
We
expect
significant increases in research and development expenses related to MNTX
as
the clinical programs expand and progress. These expenses would be reduced
if we
enter into a collaboration for MNTX in which the collaborator assumes financial
responsibility for some or all of the future development of MNTX, or if we
choose not to advance all of our MNTX programs. Spending in other programs
is
expected to remain relatively stable.
General
and administrative expenses increased from $8,029 in the year ended December
31,
2003 to $12,580 in the corresponding 2004 period, as follows:
|
Year
Ended
December
31,
|
|
|
|
Category
|
2003
|
2004
|
Dollar
Variance
|
Percentage
Variance
|
Explanation
|
Salaries
and benefits
|
$3,517
|
$4,057
|
$
540
|
15%
|
Increase
due to salary increases for officers and other employees partially
offset
by the departure of one senior executive in April 2004.
|
Consulting
and professional fees
|
1,956
|
5,336
|
3,380
|
173
|
Increase
due to an increase in recruiting ($201), audit fees, including
audit fees
for internal control over financial reporting ($1,782), additional
legal
and patent costs ($1,337), Board of Director fees ($111) and consultants
($47), partially offset by a decrease in other ($98) in the 2004
period.
|
Operating
expenses
|
2,277
|
2,860
|
583
|
26
|
Increase
in rent and facility costs ($376), insurance costs ($26), travel
($91) and
other costs ($90).
|
Other
|
279
|
327
|
48
|
17
|
Increase
primarily related to increased investor relations costs ($31) and
corporate sales and franchise taxes ($28) and a decrease in conference
fees ($11).
|
Total
|
$8,029
|
$12,580
|
$4,551
|
57%
|
|
Loss
in
joint venture decreased from $2,525 in the year ended December 31, 2003 to
$2,134 in the corresponding period in 2004 due primarily to higher research
and
development expenses in 2003 than in 2004. As further described above, we
recognized $927 and $762 in the years ended December 31, 2003 and 2004,
respectively, of payments received from the NIH as a reduction to joint venture
losses and contract revenue from the joint venture.
Depreciation
and amortization increased from $1,273 in the year ended December 31, 2003
to
$1,566 in the corresponding period in 2004 as we purchased capital assets
and
made leasehold improvements in 2004 to increase our manufacturing
capacity.
Other
income:
Interest
income increased from $621 in the year ended December 31, 2003 to $780 in
the
corresponding period in 2004. The balance of interest income is the result
of
investment income from our marketable securities, offset by the amortization
of
premiums we paid for those marketable securities. For the years ended December
31, 2003, and 2004, investment income increased from $1,265 to $1,420,
respectively, due to a higher average balance of cash equivalents and marketable
securities in 2004 than in 2003 and higher interest rates in 2004. Amortization
of premiums, which is included in interest income, decreased from $644 to
$640
for the years ended December 31, 2003 and 2004, respectively. In November
2003,
we completed a public offering of 3,332 shares of our common stock, which
provided $49,771, net of expenses.
Net
loss:
Our
net
loss was $30,986 for the year ended December 31, 2003 compared to a net loss
of
$42,018 in the corresponding period in 2004.
Liquidity
and Capital Resources
We
have
to date generated no meaningful amounts of recurring revenue, and consequently
we have relied principally on external funding to finance our operations.
We
have funded our operations since inception primarily through private placements
of equity securities, payments received under collaboration agreements, public
offerings of common stock, funding under government research grants and
contracts, interest on investments, the proceeds from the exercise of
outstanding options and warrants and the sale of our common stock under our
employee stock purchase plans.
During
the year ended December 31, 2005, we completed three public offerings of
common
stock, pursuant to Form S-3 shelf registrations that we had filed with the
Securities and Exchange Commission (“SEC”) in 2004 and 2005, which provided us
with a total of $121.6 million in net proceeds from the sale of 6,307,467
shares. In January 2006, we registered an additional 4.0 million shares of
our
common stock, pursuant to the SEC’s shelf registration process, for future
sales. However, there can be no assurance that we will be able to complete
any
further securities transactions. In addition, we received an upfront payment
of
$60.0 million from Wyeth in connection with signing the license and
co-development agreement. See “Overview - Collaboration with Wyeth
Pharmaceuticals”.
At
December 31, 2005, we had cash, cash equivalents and marketable securities,
including non-current portion, totaling $173.1 million compared with $31.2
million at December 31, 2004. Net cash provided by operating activities for
the
year ended December 31, 2005 was $11.1 million compared with net cash used
in
operating activities of $36.9 million for the same period in 2004. The increase
of $48.0 million of cash provided by operations resulted primarily from an
increase in our net loss of $27.4 million to $69.4 million for the year ended
December 31, 2005, mostly due to increased research and development activity
in
2005, which decreased cash provided by operations and which was partially
offset
by an increase of $60.0 million in deferred revenue from the upfront license
payment made to us by Wyeth, which increased cash provided by operations.
Our
cash
provided by operations was also increased from 2004 to 2005 as a result of
the
following increases in non-cash expenses, which partially offset the $27.4
million increase in our net loss, noted above:
· |
$15,839,000
related to the purchase of rights from our licensors of MNTX in
exchange
for our common stock (See “Overview - Purchase of Rights from Licensors of
MNTX”); and
|
· |
$1,681,000
of non-cash amortization of unearned compensation resulting from
the
issuance to employees of restricted stock during 2004 and 2005
and from
the issuance of compensatory stock options to executive officers
and
non-employees;
|
Cash
provided by operating activities, period over period, was also:
· |
increased
by $278,000 resulting from a decrease in loss in joint venture,
as
reported after adjustment, of $271,000, which was offset by an
increase of
$549,000 due to the adjustment to loss in joint venture. As described
above, we reduce our revenue from the joint venture and our loss
in the
joint venture by the amount we receive from PSMA-related grant
funding up
to a cap of $3.0 million. The increase of $278,000 in loss in joint
venture before the adjustment resulted from decreased research
and
development costs in 2005, which were more than offset by a $2.0
million
license payment that was paid in 2005. We account for PSMA LLC
by using
the equity method and record 50% of PSMA LLC’s net loss as our loss in
joint venture.
|
· |
decreased
by $2,000,000 due to additional capital contributions to PSMA LLC
upon
approval of a work plan and a budget by the Members, in June 2005,
for the
year ended December 31, 2005. The 2005 work plan and budget required
greater capital contributions during 2005 than did the corresponding
2004
work plan and budget;
|
· |
decreased
by $1,854,000 from an increase in trade accounts receivable, mostly
for
reimbursement of our fourth quarter 2005 expenses under our grants
and
contract with the NIH; and
|
· |
increased
by $728,000 due to an increase in accounts payable and accrued
expenses,
as the pace of our research and development activities, especially
for
MNTX, increased in 2005 over that in
2004.
|
Net
cash
used in investing activities was $81.3 million for the year ended December
31,
2005 compared with net cash provided by investing activities of $24.8 million
for the same period in 2004. Net cash used in investing activities for the
year
ended December 31, 2005 resulted primarily from the sale of $124.9 million
of
marketable securities offset by the purchase of $205.3 million of marketable
securities following the three public offerings of our common stock in 2005.
We
purchase and sell marketable securities in order to provide funding for our
operations and to achieve appreciation of our unused cash in a low risk
environment. In addition, we also purchased $0.9 million of fixed assets
including capital equipment and leasehold improvements as we acquired and
built
out additional manufacturing space.
Net
cash
provided by financing activities was $132.0 million for the year ended December
31, 2005 as compared with $5.4 million for the same period in 2004. The net
cash
provided by financing activities for 2005 includes $121.6 million in net
proceeds that we received from the sale of approximately 6.3 million shares
of
our common stock during 2005. In addition, both periods reflect the exercise
of
stock options under our Stock Incentive Plans and the sale of common stock
under
our Employee Stock Purchase Plans. During 2006, we expect that cash received
from exercises under such plans will decrease from the amount received during
2005 since a major portion of exercises during 2005 were of options from
a
former executive.
In
December 2005, we entered into a license and co-development agreement with
Wyeth
for the development and commercialization of MNTX (See “Overview - Collaboration
with Wyeth Pharmaceuticals”). In addition to the upfront payment of $60 million
that we received in connection with signing that agreement, Wyeth will fund
all
development and commercialization costs of MNTX and will make payments to
us
when we achieve certain milestone events or when Wyeth completes certain
contingent activities. Thus, our cash outlays for our development obligations
under that agreement will be fully reimbursed by Wyeth, allowing us to fund
our
other
research and development projects with our available cash. In
addition, our
purchase of rights from our MNTX licensors in December 2005 (see “Overview -
Purchase of Rights from MNTX Licensors”) will extinguish our cash payments that
would have been due to those licensors in the future upon the achievement
of
certain events, including sales of MNTX products. We will, however, continue
to
be responsible to make payments (including royalties) to the University of
Chicago upon the occurrence of certain events.
Under
the
terms of our joint venture
with
Cytogen, we are required to make capital contributions to fund 50% of the
spending on the PSMA projects. Our and Cytogen’s level of commitment to fund
PSMA LLC is based on annual budgets that are developed and approved by the
parties. During June 2005, the Members approved a work plan and budget for
the
year ended December 31, 2005. We and Cytogen each contributed $0.5 million
during the three months ended March 31, 2005, which was used to fund the
obligations outstanding related to work performed in 2004 under the approved
2004 budget and work plan. During the remainder of 2005, we and Cytogen each
made cash payments of $3.45 million ($6.9 million in the aggregate), for
work
performed under the 2005 approved budget through December 31, 2005.
For
the
year ended December 31, 2005, we recognized approximately $988,000 of contract
research and development revenue for services performed on behalf of PSMA
LLC.
Our revenues from PSMA LLC do not result in significant net cash flows to
us,
since they are relatively minor in comparison to our expenses and because
they
are offset in part by capital contributions that we are required to make
to PSMA
LLC. PSMA
LLC
currently has no approved 2006 budget or work plan because we and Cytogen
have
not yet reached agreement with respect to a number of matters relating to
PSMA
LLC. Until we reach agreement with Cytogen regarding the 2006 budget and
work
plan, we will not know what, if any, commitment we will have to PSMA LLC
to fund
PSMA projects. However, we and Cytogen are required to fulfill obligations
under
existing contractual commitments as of December 31, 2005. Although work on
the
PSMA projects continues, if we do not reach an agreement regarding the 2006
budget and work plan, our capital commitments to, and our revenues associated
with, PSMA LLC would be reduced or eliminated.
During
June 2005, PSMA LLC entered into a collaboration agreement with SGI (see
“Overview”), to license certain technology, which required PSMA LLC to make a
$2.0 million technology access fee payment. The SGI Agreement also requires
the
payment of maintenance fees, payments, aggregating $15.0 million, upon
achievement of defined milestone events and royalties on net sales of any
products approved by the FDA. The PSMA monoclonal antibody research and
development project, for which the SGI licensed technology will be used,
is
currently in the preclinical stage. Therefore, milestone and royalty payments,
if any, other than a preclinical milestone payment, which may be due sooner,
will not be due for at least three years.
Our
total
expenses for research and development from inception through December 31,
2005
have been approximately $221.9 million. We currently have major research
and
development programs investigating symptom management and supportive care,
HIV-related diseases and cancer. In addition, we are conducting several smaller
research projects in the areas of virology and cancer. For various reasons,
many
of which are outside of our control, including the early stage of certain
of our
programs, the timing and results of our clinical trials and our dependence
in
certain instances on third parties, we cannot estimate the total remaining
costs
to be incurred and timing to complete our research and development programs.
We
have entered into a collaboration agreement with Wyeth with respect to MNTX,
pursuant to which Wyeth has assumed all of the financial responsibility for
further development. As we proceed with our development responsibilities
under
our MNTX programs, although we expect that our spending on MNTX will increase
significantly during 2006, our cash outlays will be reimbursed by Wyeth.
We also
expect that spending on our PRO 140 HIV program will increase and that spending
on our other programs will remain relatively stable in 2006.
For
the
years ended December 31, 2003, 2004 and 2005, research and development costs
incurred were as follows (see “Results of Operations—Expenses”):
|
|
For
the Year Ended December 31,
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
|
|
(in
millions)
|
|
MNTX
|
|
$
|
11.7
|
|
$
|
19.7
|
|
$
|
43.8
|
|
HIV
|
|
|
7.5
|
|
|
8.3
|
|
|
11.7
|
|
Cancer
|
|
|
4.5
|
|
|
5.9
|
|
|
6.6
|
|
Other
programs
|
|
|
3.5
|
|
|
2.2
|
|
|
1.7
|
|
Total
|
|
$
|
27.2
|
|
$
|
36.1
|
|
$
|
63.8
|
|
In
September 2003, we were awarded a contract by the National Institutes of
Health
(the “NIH Contract”). The NIH Contract provides for up to $28.6 million in
funding, subject to annual funding approvals, to us over five years for
preclinical research, development and early clinical testing of a prophylactic
vaccine designed to prevent HIV from becoming established in uninfected
individuals exposed to the virus. We anticipate that these funds will be
used
principally in connection with our ProVax HIV vaccine program. Our scientists
are the principal investigators under the contract and head the vaccine
development effort. The vaccine design and animal testing core groups under
a
subcontract will be headed by existing academic collaborators of ours. A
total
of approximately $3.7 million is earmarked under the NIH Contract to fund
such
subcontracts. Funding under the NIH Contract is subject to compliance with
its
terms, and the payment of an aggregate of $1.6 million in fees is subject
to
achievement of specified milestones. Through December 31, 2005, we had
recognized revenue of $6.0 million from this contract, including $180,000
for
the achievement of two milestones.
In
July
and September 2005, we were awarded a total of two grants from the NIH, which
provide for up to $3.0 million and $10.1 million, respectively, in support
for
our hepatitis C virus research program and PRO 140 HIV development program,
respectively, to be awarded over a three year and a three and a half year
period, respectively. Funding under those grants is subject to compliance
with
their terms, and is subject to annual funding approvals. Through December
31,
2005, we recognized $811,000 of revenue from those grants.
Other
than amounts received from Wyeth and from currently approved grants and
contracts, we have no committed external sources of capital. Other than
potential revenues from MNTX, we expect no significant product revenues for
a
number of years as it will take at least that much time, if ever, to bring
our
products to the commercial marketing stage.
We
anticipate significant increases in expenditures as we continue to expand
our
research and development activities, particularly in our MNTX and PRO 140
programs. Consequently, while Wyeth will fund our MNTX programs, we may require
additional funding to continue our other research and product development
programs, to conduct preclinical studies and clinical trials, for operating
expenses, to pursue regulatory approvals for our other product candidates,
for
the costs involved in filing and prosecuting patent applications and enforcing
or defending patent claims, if any, for the cost of product in-licensing
and for
any possible acquisitions. Our manufacturing and commercialization expenses
for
MNTX will be funded by Wyeth. However, if we exercise our option to co-promote
MNTX products in the U.S., we will be required to establish and fund a sales
force, which we currently do not have. If we commercialize any other product
candidate other than with a corporate collaborator, we would also require
additional funding to establish manufacturing and marketing
capabilities.
Our
existing cash, cash equivalents and marketable securities are sufficient
to fund
current operations for at least one year. Our
current collaboration with Wyeth has provided us with a $60 million upfront
payment and will, beginning in January 2006, reimburse our development costs
for
MNTX and provide milestone and other contingent payments upon the achievement
of
certain events. Wyeth will also fund all commercialization costs of MNTX
products. We may also enter into a collaboration agreement with respect to
other
of our product candidates. We cannot forecast with any degree of certainty,
however, which products or indications, if any, will be subject to future
collaborative arrangements, or how such arrangements would affect our capital
requirements. The consummation of the agreement with Wyeth allows us to allocate
our current funds to advance other projects.
Unless
we
obtain regulatory approval from the FDA for at least one of our product
candidates and/or enter into agreements with corporate collaborators with
respect to the development of our technologies in addition to that for MNTX,
we
will be required to fund our operations for periods in the future, by seeking
additional financing through future offerings of equity or debt securities
or
funding from additional grants and government contracts. Adequate additional
funding may not be available to us on acceptable terms or at all. Our inability
to raise additional capital on terms reasonably acceptable to us would seriously
jeopardize the future success of our business.
Contractual
Obligations
Our
funding requirements, both for the next 12 months and beyond, will include
required payments under operating leases, licensing and collaboration
agreements, a potential funding commitment to PSMA LLC related to its previous
contractual obligations and a purchase commitment with our supplier of MNTX.
The
following table summarizes our contractual obligations as of December 31,
2005
for future payments under these agreements:
|
|
|
|
Payments
due by December 31,
|
|
|
|
Total
|
|
2006
|
|
2007-2008
|
|
2009-2010
|
|
Thereafter
|
|
|
|
|
|
(
in millions)
|
|
Operating
leases
|
|
$
|
4.7
|
|
$
|
1.7
|
|
$
|
2.1
|
|
$
|
0.9
|
|
$ |
|
|
License
and collaboration agreements (1)
|
|
|
14.4
|
|
|
1.4
|
|
|
2.1
|
|
|
1.9
|
|
|
9.0
|
|
Funding
commitment to PSMA LLC (2)
|
|
|
0.7
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
Purchase
commitment
|
|
|
0.8
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20.6
|
|
$
|
4.6
|
|
$
|
4.2
|
|
$
|
2.8
|
|
$
|
9.0
|
|
_______________
(1) |
Assumes
attainment of milestones covered under each agreement. The timing
of the
achievement of the related milestones is highly uncertain, and
accordingly
the actual timing of payments, if any, is likely to vary, perhaps
significantly, relative to the timing contemplated by this
table.
|
(2) |
The
Members have not agreed on a work plan or budget for PSMA LLC for
2006.
However, the Members are required to fulfill obligations under
existing
contractual commitments as of December 31,
2005.
|
For
each
of our programs, we periodically assess the scientific progress and merits
of
the programs to determine if continued research and development is economically
viable. Certain of our programs have been terminated due to the lack of
scientific progress and lack of prospects for ultimate commercialization.
Because of the uncertainties associated with research and development of
these
programs, the duration and completion costs of our research and development
projects are difficult to estimate and are subject to considerable variation.
Our inability to complete our research and development projects in a timely
manner or our failure to enter into collaborative agreements could significantly
increase our capital requirements and adversely impact our
liquidity.
Our
cash
requirements may vary materially from those now planned because of results
of
research and development and product testing, changes in existing relationships
or new relationships with, licensees, licensors or other collaborators, changes
in the focus and direction of our research and development programs, competitive
and technological advances, the cost of filing, prosecuting, defending and
enforcing patent claims, the regulatory approval process, manufacturing and
marketing and other costs associated with the commercialization of products
following receipt of regulatory approvals and other factors.
The
above
discussion contains forward-looking statements based on our current operating
plan and the assumptions on which it relies. There could be changes that
would
consume our assets earlier than planned.
Off-Balance
Sheet Arrangements and Guarantees
We
have
no off-balance sheet arrangements and do not guarantee the obligations of
any
other entity.
Critical
Accounting Policies
We
prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America. Our significant
accounting policies are disclosed in Note 2 to our financial statements included
in this Annual Report on Form 10-K for the year ended December 31, 2005.
The
selection and application of these accounting principles and methods requires
us
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as certain financial statement
disclosures. On an ongoing basis, we evaluate our estimates. We base our
estimates on historical experience and on various other assumptions that
are
believed to be reasonable under the circumstances. The results of our evaluation
form the basis for making judgments about the carrying values of assets and
liabilities that are not otherwise readily apparent. While we believe that
the
estimates and assumptions we use in preparing the financial statements are
appropriate, these estimates and assumptions are subject to a number of factors
and uncertainties regarding their ultimate outcome and, therefore, actual
results could differ from these estimates.
We
have
identified our critical accounting policies and estimates below. These are
policies and estimates that we believe are the most important in portraying
our
financial condition and results of operations, and that require our most
difficult, subjective or complex judgments, often as a result of the need
to
make estimates about the effect of matters that are inherently uncertain.
We
have discussed the development, selection and disclosure of these critical
accounting policies and estimates with the Audit Committee of our Board of
Directors.
Revenue
Recognition
During
the years ended December 31, 2003, 2004 and 2005, we recognized revenue from
PSMA LLC for contract research and development; from government research
grants
and contracts from the National Institutes of Health (the “NIH”), which are used
to subsidize certain of our research projects (“Projects”); and from the sale of
research reagents. On December 23, 2005, we entered into a license and
co-development agreement with
Wyeth,
which includes a non-refundable upfront license fee, reimbursement of
development costs, research and development payments based upon our achievement
of clinical development milestones, contingent payments based upon the
achievement by Wyeth of defined events and royalties on product sales. We
recognize revenue from all sources based on the provisions of the Securities
and
Exchange Commission’s Staff Accounting Bulletin No. 104 (“SAB 104”) “Revenue
Recognition”, Emerging Issues Task Force Issue No. 00-21 (“EITF 00-21”)
“Accounting for Revenue Arrangements with Multiple Deliverables” and EITF Issue
No. 99-19 “Reporting Revenue Gross as a Principal Versus Net as an
Agent”.
Effective
January 1, 2005, we elected to change the method we use to recognize revenue
under SAB 104 for payments received under research and development collaboration
agreements that contain substantive at-risk milestone payments. There was
no
cumulative effect of this change in accounting principle because we did not
have
any of these contracts at the time of the change. The change in accounting
method was made because we believe that it will enhance the comparability
of our
financial results with those of our peer group companies in the biotechnology
industry and because it is expected to better reflect the substance of our
collaborative arrangements.
Under
the
new method, non-refundable upfront license fees are recognized as revenue
when
we have a contractual right to receive such payment, the contract price is
fixed
or determinable, the collection of the resulting receivable is reasonably
assured and we have no further performance obligations under the license
agreement. Multiple element arrangements, such as license and development
arrangements, are analyzed to determine whether the deliverables, which often
include a license and performance obligations, such as research and steering
committee services, can be separated or whether they must be accounted for
as a
single unit of accounting in accordance with EITF 00-21. We would recognize
upfront license payments as revenue upon delivery of the license only if
the
license had standalone value and the fair value of the undelivered performance
obligations, typically including research or steering committee services,
could
be determined. If the fair value of the undelivered performance obligations
could be determined, such obligations would then be accounted for separately
as
performed. If the license is considered to either (i) not have standalone
value
or (ii) have standalone value but the fair value of any of the undelivered
performance obligations could not be determined, the arrangement would then
be
accounted for as a single unit of accounting and the upfront license payments
would be recognized as revenue over the estimated period of when our performance
obligations are performed.
Whenever
we determine that an arrangement should be accounted for as a single unit
of
accounting, we must determine the period over which the performance obligations
will be performed and revenue related to upfront license payments will be
recognized. Revenue will be recognized using either a proportionate performance
or straight-line method. We recognize revenue using the proportionate
performance method provided that we can reasonably estimate the level of
effort
required to complete our performance obligations under an arrangement and
such
performance obligations are provided on a best-efforts basis. Direct labor
hours
or full-time equivalents will typically be used as the measure of performance.
Under the proportionate performance method, revenue related to upfront license
payments is recognized in any period as the percent of actual effort expended
in
that period relative to total effort budgeted for all of our performance
obligations under the arrangement.
If
we
cannot reasonably estimate the level of effort required to complete our
performance obligations under an arrangement and the performance obligations
are
provided on a best-efforts basis, then the total upfront license payments
would
be recognized as revenue on a straight-line basis over the period we expect
to
complete our performance obligations.
Significant
management judgment is required in determining the level of effort required
under an arrangement and the period over which we expect to complete our
performance obligations under the arrangement. In addition, if we are involved
in a steering committee as part of a multiple element arrangement that is
accounted for as a single unit of accounting, we assess whether our involvement
constitutes a performance obligation or a right to participate.
Collaborations
may also contain substantive milestone payments. Substantive milestone payments
are considered to be performance payments that are recognized upon achievement
of the milestone only if all of the following conditions are met: (1) the
milestone payments are non-refundable; (2) achievement of the milestone involves
a degree of risk and was not reasonably assured at the inception of the
arrangement; (3) substantive effort is involved in achieving the milestone,
(4)
the amount of the milestone payment is reasonable in relation to the effort
expended or the risk associated with achievement of the milestone and (5)
a
reasonable amount of time passes between the upfront license payment and
the
first milestone payment as well as between each subsequent milestone payment
(the “Substantive Milestone Method”).
Determination
as to whether a milestone meets the aforementioned conditions involves
management’s judgment. If any of these conditions are not met, the resulting
payment would not be considered a substantive milestone and, therefore, the
resulting payment would be considered part of the consideration for the single
unit of accounting and be recognized as revenue as such performance obligations
are performed under either the proportionate performance or straight-line
methods, as applicable, and in accordance with the policies described
above.
We
will
recognize revenue for payments that are contingent upon performance solely
by
our collaborator immediately upon the achievement of the defined event if
we
have no related performance obligations.
Reimbursement
of costs is recognized as revenue provided the provisions of EITF Issue No.
99-19 are met, the amounts are determinable and collection of the related
receivable is reasonably assured.
Royalty
revenue is recognized upon the sale of related products, provided that the
royalty amounts are fixed and determinable, collection of the related receivable
is reasonably assured and we have no remaining performance obligations under
the
arrangement. If royalties are received when we have remaining performance
obligations, the royalty payments would be attributed to the services being
provided under the arrangement and, therefore, would be recognized as such
performance obligations are performed under either the proportionate performance
or straight-line methods, as applicable, and in accordance with the policies
described above.
Amounts
received prior to satisfying the above revenue recognition criteria are recorded
as deferred revenue in the accompanying consolidated balance sheets. Amounts
not
expected to be recognized during the year ended December 31, 2006 are classified
as long-term deferred revenue. As of December 31, 2005, relative to the $60
million upfront license payment received from Wyeth, we have recorded $23.58
million and $36.42 million as short-term and long-term deferred revenue,
respectively, which is expected to be recognized as revenue through 2008.
The
estimate of the classification of deferred revenue as short-term or long-term
is
based upon management’s current operating budget for the Wyeth collaboration
agreement for our total effort required to complete our performance obligations
under that arrangement. That estimate may change in the future and such changes
to estimates would result in a change in the amount of revenue recognized
in
future periods.
Previously,
we had recognized non-refundable fees, including payments for services, up-front
licensing fees and milestone payments, as revenue based on the percentage
of
efforts incurred to date, estimated total efforts to complete, and total
expected contract revenue in accordance with EITF Issue No. 91-6, “Revenue
Recognition of Long-Term Power Sales Contracts,” with revenue recognized limited
to the amount of non-refundable fees received. Depending on the magnitude
and
timing of milestone
payments,
revenue may be recognized sooner under the Substantive Milestone Method than
it
would have been under the EITF 91-6 model. The accounting change did not
affect
revenue from NIH grants and contracts, services performed on behalf of PSMA
LLC,
or from product sales.
NIH
grant
and contract revenue is recognized as efforts are expended and as related
subsidized Project costs are incurred. We perform work under the NIH grants
and
contract on a best-effort basis. The NIH reimburses us for costs associated
with
Projects in the fields of HIV and cancer, including preclinical research,
development and early clinical testing of a prophylactic vaccine designed
to
prevent HIV from becoming established in uninfected individuals exposed to
the
virus, as requested by the NIH. Substantive at-risk milestone payments are
uncommon in these arrangements, but would be recognized as revenue on the
same
basis as the Substantive Milestone Method.
Both
we
and Cytogen are required to fund PSMA LLC equally to support ongoing research
and development efforts that we conduct on behalf of PSMA LLC. We recognize
payments for research and development as revenue as services are performed.
The
Members have not approved a work plan or budget for 2006. Therefore, beginning
on
January 1, 2006, we
will
not be
reimbursed by PSMA LLC for our services and we will not
recognize revenue from PSMA LLC until such time as a work plan and budget
are
approved.
For
the
years ended December 31, 2003, 2004 and 2005, our research grant and contract
and contract research and development revenue came exclusively from the NIH
and
PSMA LLC, respectively. Our research grant and contract revenue represented
65%,
78 % and 89% of our total revenue, respectively, and contract research and
development revenue represented 33%, 21% and 10% of our total revenue,
respectively. For the years ended December 31, 2003, 2004 and 2005, receivables
from the NIH represented 84% and 99% of total receivables, respectively,
and
receivables from PSMA LLC represented 15% and 0 % of total receivables,
respectively.
Clinical
Trial Expenses
Clinical
trial expenses, which are included in research and development expenses,
represent obligations resulting from our contracts with various clinical
investigators and clinical research organizations in connection with conducting
clinical trials for our product candidates. Such costs are expensed based
on the
expected total number of patients in the trial, the rate at which the patients
enter the trial and the period over which the clinical investigators and
clinical research organizations are expected to provide services. We believe
that this method best approximates the efforts expended on a clinical trial
with
the expenses we record. We adjust our rate of clinical expense recognition
if
actual results differ from our estimates. We expect that clinical trial expenses
will increase significantly during 2006 as clinical trials progress or are
initiated in the MNTX and HIV programs. Our collaboration agreement with
Wyeth
regarding MNTX in which Wyeth has assumed all of the financial responsibility
for further development will mitigate those costs.
Stock-Based
Compensation
We
have
historically prepared our financial statements in accordance with APB Opinion
No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In accordance
with APB 25, generally, we have not recognized compensation expense in
connection with the awarding of common stock option grants to employees provided
that, as of the grant date, all terms associated with the award are fixed
and
the fair value of our common stock, as of the grant date, is equal to or
less
than the exercise price. We recognize compensation expense if the terms of
an
option grant are not fixed or the quoted market price of our common stock
on the
grant date is greater than the exercise price. We also recognize compensation
expense for performance-based vesting of stock options upon achievement of
defined milestones and for restricted stock awards as the restrictions lapse
ratably over the related vesting periods. The fair value of options and warrants
granted to non-employees for services are included in the financial statements
and expensed as they vest.
On
January 1, 2006, we adopted Statement of Financial Accounting Standards No.123
(revised 2004) “Share-Based Payment” (“SFAS No.123(R)”) using the modified
prospective application. SFAS No.123(R) requires that we recognize compensation
expense for equity-based awards to employees in our Statements of Operations
rather than as a disclosure only in the footnotes to our financial statements,
as was required under previous accounting principles. Therefore, the assumptions
we incorporate in the Black-Scholes option pricing model that we use to value
our equity-based awards will impact our net loss and net loss per share.
In
anticipation of the adoption of SFAS No.123(R), we have revised certain
assumptions used in the Black-Scholes option pricing model. For all awards
granted on or after January 1, 2005, we changed the estimate of expected
term
from 5 years to 6.5 years. The period used to calculate historical volatility
of
our common stock has also been revised to 6.5 years. The impact of these
revisions is expected to increase the amount of compensation expense we
recognize as compared to the amount that would have been recognized using
the
previous estimates. We believe that the revised estimates better reflect
the
exercise activity of stock options granted to our employees.
Impact
of Recently Issued Accounting Standards
In
December 2004, the Financial Accounting Standards Board (the “FASB”) issued SFAS
No. 123(R), which is a revision of FASB Statement No.123, “Accounting for Stock
Based Compensation” (“SFAS No.123”). SFAS No.123(R) supersedes APB 25, and
amends FASB Statement No. 95, “Statement of Cash Flows”. SFAS No.123(R) requires
all share-based payments to employees, including grants of employee stock
options and restricted stock, and purchases of common stock under the Company’s
Employee Stock Purchase Plans, if compensatory, as defined, to be recognized
in
the financial statements based on their grant-date fair values. The standard
allows three alternative transition methods for public companies: modified
prospective method; modified retrospective method with restatement of prior
interim periods in the year of adoption; and modified retroactive method
with
restatement of all prior financial statements to include the same amounts
that
were previously included in pro forma disclosures. Historically, in accordance
with SFAS No.123 and Statement of Financial Accounting Standards No.148
“Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS No
148”), the Company had elected to follow the disclosure-only provisions of
Statement No.123 and, accordingly, accounted for share-based compensation
under
the recognition and measurement principles of APB 25 and related
interpretations. Under APB 25, when stock options are issued to employees
with
an exercise price equal to or greater than the market price of the underlying
stock price on the date of grant, no compensation expense is recognized in
the
financial statements and pro forma compensation expense in accordance with
SFAS
No. 123 is only disclosed in the footnotes to the financial statements. On
January 1, 2006, we adopted SFAS No.123(R) using the modified prospective
application and the Black-Scholes option pricing model to calculate the fair
value of option awards. We expect the impact that SFAS No. 123(R) will have
on
our results of operations to be material. Total compensation expense related
to
unvested stock options and restricted stock at January 1, 2006 was $15.3
million,
which
will be recognized as compensation expense over a weighted average period
of 3.6
years.
On
March
29, 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin No. 107 (“SAB 107”), which expresses views of the SEC staff regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations
and provide the SEC staff’s views regarding the valuation of share-based payment
arrangements for public companies. In particular, SAB 107 provides guidance
related to share-based payment transactions with nonemployees, the transition
from nonpublic to public entity status, valuation methods (including assumptions
such as expected volatility and expected term), the accounting for certain
redeemable financial instruments issued under share-based payment arrangements,
the classification of compensation expense, non-GAAP financial measures,
first-time adoption of SFAS No. 123(R) in an interim period, capitalization
of
compensation cost related to share-based payment arrangements, the accounting
for income tax effects of share-based payment arrangements upon adoption
of SFAS
No. 123(R), the modification of employee share options prior to adoption
of SFAS
No. 123(R) and disclosures in Management’s Discussion and Analysis subsequent to
adoption of SFAS No. 123(R). We will implement all applicable aspects of
SAB
107, including those related to presentation and disclosure requirements
under
SFAS No.123(R) beginning on January 1, 2006.
On
August
31, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-1,
“Classification and Measurement of Freestanding Financial Instruments Originally
Issued in Exchange for Employee Services under FASB Statement No. 123(R)” (“FSP
123(R)-1”). FSP 123(R)-1 indefinitely defers the requirement of SFAS No. 123(R),
that a freestanding financial instrument issued to an employee, such as a
stock
option or restricted stock award, originally subject to FAS 123(R) become
subject to the recognition and measurement requirements of other applicable
GAAP
when the rights conveyed by the instrument to the holder are no longer dependent
on the holder being an employee of the entity, such as upon termination of
employment. Our Stock Incentive Plans allow exercise of equity-based awards
for
a period of three months following termination of employment. We will apply
the
guidance in FSP 123(R)-1 upon initial adoption of SFAS No.123(R), which will
preclude the necessity to record a liability during that three month
period.
On
October 18, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-2,
“Practical Exception to the Application of Grant Date as Defined in Statement
123(R)” (“FSP 123(R)-2”). FSP 123(R)-2 provides that the grant date for purposes
of accounting for stock-based compensation awards under SFAS No.123(R) would
be
established prior to the communication of the key terms of the award to the
recipient if certain conditions are met. FSP
123(R)-2 provides that a mutual understanding of the key terms and conditions
of
an award exists at the date the award is approved by the Board of Directors
or
other management with relevant authority if the following conditions are
met:
(a) the recipient does not have the ability to negotiate the key terms and
conditions of the award with the employer (i.e., the grant is unilateral)
and
(b) the key terms of the award are expected to be communicated to all of
the
recipients within a relatively short time period from the date of approval.
FSP
123(R)-2 provides that “a relatively short time period” should be determined
based on the period during which an entity could plausibly complete the actions
necessary to communicate the terms of an award to the recipient(s) in accordance
with the entity’s customary human resource practices.
We will
apply the guidance of FSP 123(R)-2 upon initial adoption of SFAS No.123(R).
We
do not expect any material impact from the adoption of FSP 123(R)-2 because
it
does not represent a change in its practice of granting equity-based
awards.
On
November 10, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-3,
“Transition Election Related to Accounting for the Tax Effects of Share-Based
Payment Awards” (“FSP 123(R)-3”). FSP 123(R)-3 provides a transition election
related to the accounting for the income tax effects of stock-based-compensation
awards upon an entity's adoption of SFAS No. 123(R). The transition election
is
intended to simplify the calculation of the pool of windfall tax benefits
that
is available to absorb tax deficiencies, or shortfalls, that may occur in
periods subsequent to the adoption of SFAS No.123(R). Determining the pool
of
windfall tax benefits under SFAS No. 123(R) requires an entity to analyze
and
reconcile the book and tax records of all stock-based compensation awards
dating
back to the original effective date of SFAS No.123 in 1995. The FASB staff
issued FSP 123(R)-3 because there may be significant cost or complexities
involved in determining the pool of windfall tax benefits from the original
effective date of SFAS No.123. FSP 123(R)-3 gives entities an election to
select
an alternative transition method (the short-cut method) for the calculation
of
the pool of windfall tax benefits as of the adoption date of SFAS No.123(R).
We
have elected to adopt the short cut method when we adopt SFAS No.123(R) and
we
expect our pool of windfall tax benefits to be zero on the adoption date
because
we have had net operating losses since inception.
On
February 3, 2006, the FASB issued FASB Staff Position No. FAS 123(R)-4
“Classification of Options and Similar Instruments Issued as Employee
Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent
Event” (“FSP 123(R)-4”). FSP 1232(R)-4 amends SFAS 123(R) to allow options and
similar instruments issued as employee compensation to be accounted for as
equity instruments rather than as liabilities, as had been required by SFAS
123(R) if the option contains a cash settlement feature that can be exercised
only upon the occurrence of a contingent event that is outside the employee’s
control until it becomes probable that the event will occur. An example of
such
contingent event is a change in control of an employer. The Company does
not
expect FSP 1232(R)-4 to have a material effect on its financial
statements.
On
September 1, 2005, the FASB issued Statement No. 154, “Accounting Changes and
Error Corrections” (“SFAS No.154”), which will require entities that voluntarily
make a change in accounting principle to apply that change retrospectively
to
prior periods' financial statements, unless this would be impracticable.
SFAS
No.154 supersedes Accounting Principles Board Opinion No. 20, “Accounting
Changes” (“APB 20”), which previously required that most voluntary changes in
accounting principle be recognized by including in the current period's net
income the cumulative effect of changing to the new accounting principle.
SFAS
No.154 also makes a distinction between "retrospective application" of an
accounting principle and the “restatement” of financial statements to reflect
the correction of an error. Another significant change in practice under
SFAS
No.154 will be that if an entity changes its method of depreciation,
amortization, or depletion for long-lived, nonfinancial assets, the change
must
be accounted for as a change in accounting estimate. Under APB 20, such a
change
would have been reported as a change in accounting principle. SFAS No.154
applies to accounting changes and error corrections that are made in fiscal
years beginning after December 15, 2005. We do not expect the impact of adoption
of SFAS No. 154 to be material to our financial statements.
On
November 3, 2005, the FASB issued Staff Position No. FAS 115-1 and FAS 124-1,
“The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments” (“FSP FAS 115-1 and FAS 124-1”). This FSP, effective
January 1, 2006, provides accounting guidance regarding the determination
of when an impairment of debt and equity securities should be considered
other-than-temporary, as well as the subsequent accounting for these
investments. The adoption of this FSP is not expected to have a material
impact
on our financial position or results of operations.
Our
primary investment objective is to preserve principal while maximizing yield
without significantly increasing our risk. Our investments consist of
taxable
auction securities, corporate notes and issues of government-sponsored
entities.
Our
investments totaled $108.9 million at December 31, 2005. Approximately $57.3
million of these investments had fixed interest rates, and $51.6 million
had interest rates that were variable.
Due
to
the conservative nature of our short-term fixed interest rate investments,
we do
not believe that we have a material exposure to interest rate risk. Our
fixed-interest-rate long-term investments are sensitive to changes in interest
rates. Interest rate changes would result in a change in the fair value of
these
investments due to differences between the market interest rate and the rate
at
the date of purchase of the investment. A 100 basis point increase in the
December 31, 2005 market interest rates would result in a decrease of
approximately $0.46 million in the market values of these
investments.
At
December 31, 2005, the Company did not hold any market risk sensitive
instruments.
See
page
F-1, “Index to Financial Statements.”
Item
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not
applicable
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the timelines specified in the
SEC’s
rules and forms, and that such information is accumulated and communicated
to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can only provide reasonable assurance of achieving
the
desired control objectives, and in reaching a reasonable level of assurance,
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As
required by SEC Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of the Company’s management, including
our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the year covered by this report. Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded
that our current disclosure controls and procedures, as designed and
implemented, were effective at the reasonable assurance level.
Changes
in Internal Control over Financial Reporting
There
have been no significant changes in our internal control over financial
reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and
15d-15(f) during our fiscal quarter ended December 31, 2005 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Management’s
Report on Internal Control Over Financial Reporting
Internal
control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f)
promulgated under the Exchange Act as a process designed by, or under the
supervision of, the Company’s principal executive and principal financial
officers and effected by the Company’s Board, management and other personnel to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, and includes those policies
and
procedures that:
(1) Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
(2) Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorization of our management and directors;
and
(3) Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material
effect
on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
has used the framework set forth in the report entitled Internal
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, 2005. Management’s assessment of our
internal control over financial reporting as of December 31, 2005 has been
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
None
PART
III
Our
continuing directors, executive officers and key management are as
follows:
Name
|
Age
|
Position
|
Kurt
W. Briner (1)(2)
|
61
|
Co-Chairman
|
Paul
F. Jacobson (1)(2)(3)
|
51
|
Co-Chairman
|
Paul
J. Maddon, M.D., Ph.D.
|
46
|
Chief
Executive Officer, Chief Science Officer and Director
|
Charles
A. Baker (1)(2)(3)
|
73
|
Director
|
Mark
F. Dalton (2)(3)
|
55
|
Director
|
Stephen
P. Goff, Ph.D.(2)
|
54
|
Director
|
David
A. Scheinberg, M.D., Ph.D.
|
50
|
Director
|
Robert
A. McKinney, CPA
|
49
|
Chief
Financial Officer, Senior Vice President, Finance & Operations and
Treasurer
|
Mark
R. Baker, J.D.
|
51
|
Senior
Vice President & General Counsel and Secretary
|
Thomas
A. Boyd, Ph.D.
|
54
|
Senior
Vice President, Product Development
|
Robert
J. Israel, M.D.
|
49
|
Senior
Vice President, Medical Affairs
|
Lynn
M. Bodarky, M.B.A.
|
40
|
Vice
President, Business Development & Licensing
|
Richard
W. Krawiec, Ph.D.
|
58
|
Vice
President, Corporate Affairs
|
Alton
B. Kremer, M.D., Ph.D.
|
53
|
Vice
President, Clinical Research
|
William
C. Olson, Ph.D.
|
43
|
Vice
President, Research & Development
|
Benedict
Osorio, M.B.A.
|
49
|
Vice
President, Quality
|
Nitya
G. Ray, Ph.D.
|
53
|
Vice
President, Manufacturing
|
(1) Member
of the Audit Committee
(2) Member
of the Nominating and Corporate Governance Committee
(3) Member
of the Compensation Committee
Kurt
W. Briner is
the
former President and Chief Executive Officer of Sanofi Pharma S.A. in Paris,
France, a position he held from 1988 until his retirement in 2000, and he
has
nearly 32 years’ experience in the pharmaceutical industry. Mr. Briner is
currently also a director of Novo Nordisk Danmark and Galenica S.A., each
a
European-based pharmaceutical company. He attended Humanistisches Gymnasium
in
Basel and Ecole de Commerce in Basel and Lausanne.
Paul
F. Jacobson has
been
the Chief Executive Officer of Diversified Natural Products Co., a privately
held industrial biotechnology company, since 2003. Mr. Jacobson has also
been a
general partner of Starting Point Venture Partners, a private investment
fund,
since 1999. Previously, Mr. Jacobson was Managing Director of fixed income
securities at Deutsche Bank from January 1996 to November 1997. He was President
of Jacobson Capital Partners from 1993 to 1996. From 1986 to 1993, Mr.
Jacobson was a partner at Goldman, Sachs & Co. where he was responsible for
government securities trading activities. Mr. Jacobson received a B.A. from
Vanderbilt University and an M.B.A. from Washington University.
Paul
J. Maddon, M.D., Ph.D. is
our
founder and has served in various capacities since our inception, including
as
our Chairman of the Board of Directors, Chief Executive Officer, President
and
Chief Science Officer. From 1981 to 1988, Dr. Maddon performed research at
the
Howard Hughes Medical Institute at Columbia University in the laboratory
of
Dr. Richard Axel. Dr. Maddon serves on several NIH scientific review
committees and also serves on the board of directors of Epixis SA, a French
biotechnology company. He received a B.A. in biochemistry and mathematics
and a
M.D. and a Ph.D. in biochemistry and molecular biophysics from Columbia
University. Dr. Maddon has been an Adjunct Assistant Professor of Medicine
at
Columbia University since 1989.
Charles
A. Baker is
a
business advisor to biotechnology companies. He is the former Chairman,
President and Chief Executive Officer of The Liposome Company, Inc., a
biotechnology company located in Princeton, New Jersey, a position he held
from
1989 until the sale of the company in 2000. Mr. Baker is currently a director
of
Regeneron Pharmaceuticals, Inc., a biotechnology company. Mr. Baker has 44
years
of pharmaceutical industry experience and has held senior management positions
at Pfizer, Abbott Laboratories and Squibb Corporation. Mr. Baker received
a B.A.
from Swarthmore College and a J.D. from Columbia University.
Mark
F. Dalton has
been
the President and a director of Tudor Investment Corporation, an investment
advisory company, and its affiliates since 1988 and has been the President
and
Vice Chairman of such companies since 2005. From 1979 to 1988, he served
in
various senior management positions at Kidder, Peabody & Co. Incorporated,
including Chief Financial Officer. Mr. Dalton is currently a director of
several
private companies. Mr. Dalton received a B.A. from Denison University and
a J.D.
from Vanderbilt University Law School.
Stephen
P. Goff, Ph.D. has
been
a member of our Virology Scientific Advisory Board since 1988 and has been
its
Chairman since April 1991. Dr. Goff has been the Higgins Professor in the
Departments of Biochemistry and Microbiology at Columbia University since
June
1990. He received an A.B. in biophysics from Amherst College and a Ph.D.
in
biochemistry from Stanford University. Dr. Goff performed post-doctoral
research at the Massachusetts Institute of Technology in the laboratory of
Dr. David Baltimore.
David
A. Scheinberg, M.D., Ph.D. has
been
a member of our Cancer Scientific Advisory Board since 1994. Dr.
Scheinberg has been associated with Sloan-Kettering since 1986, where he
is the
Vincent Astor Chair and Member, Leukemia Service; Chairman, Molecular
Pharmacology and Chemistry Program; Chairman, Experimental Therapeutics Center;
Member, Clinical Immunology Service; and Head, Laboratory of Hematopoietic
Cancer Immunochemistry. He also holds the position of Professor of Medicine
and
Pharmacology, Weill-Cornell Medical College. He received a B.A. from Cornell
University and an M.D. and a Ph.D. in pharmacology and experimental therapeutics
from The Johns Hopkins University School of Medicine.
Robert
A. McKinney, CPA became
our Chief Financial Officer on March 10, 2005. Mr. McKinney has served as
our
Vice President, Finance & Operations and Treasurer from January 1993 and
became our Senior Vice President, Finance and Operations in February 2006.
Mr. McKinney joined us in 1992 as Director, Finance and Operations and
Treasurer. From 1991 to 1992, he was Corporate Controller at VIMRx
Pharmaceuticals, Inc., a biotechnology research company. From 1990 to 1992,
Mr.
McKinney was Manager, General Accounting at Micrognosis, Inc., a software
integration company. From 1985 to 1990, he was an audit supervisor at Coopers
& Lybrand LLP, an international accounting firm. Mr. McKinney studied
finance at the University of Michigan, received a B.B.A. in accounting from
Western Connecticut State University, and is a Certified Public
Accountant.
Mark
R. Baker, J.D. joined
the Company on June 20, 2005 as Senior Vice President & General Counsel and
Secretary. Prior to joining the Company Mr. Baker was Chief Business Officer,
Secretary and a director of New York Trans Harbor LLC, a privately-held ferry
operation in New York City operating under the name New York Water Taxi from
January 2003 to June 2005 and Executive Vice President, Chief Legal Officer
and
Secretary of ContiGroup Companies, Inc. (formerly Continental Grain Company)
a
privately-held international agri-business and financial concern from September
1997 to August 2001. Mr. Baker began his career in 1979 as a corporate lawyer
with the law firm Dewey Ballantine in New York, where he was a partner and
Co-Chairman of the Capital Markets Group, among other positions, serving
through
August 1997. Mr. Baker was awarded an A.B. degree from Columbia College and
a
J.D. from the Columbia University School of Law.
Thomas
A. Boyd, Ph.D. joined
us
in January 2000 as Senior Director, Project Management and became Vice
President, Preclinical Development and Project Management in January 2002
and
Senior Vice President, Product Development in June 2005. From 1996 through
2000,
Dr. Boyd was Associate Director, R & D Project Management at Boehringer
Ingelheim Pharmaceuticals, Inc. and held various positions with Wyeth-Ayerst
Research and Alteon, Inc. prior thereto. He received his Ph.D. from Brown
University in physiology and biophysics and an A.B. degree from the College
of
Arts and Sciences, Cornell University.
Robert
J. Israel, M.D. joined
us
as Vice President, Medical Affairs in October 1994 and was promoted to Senior
Vice President, Medical Affairs in 2002. From 1991 to 1994, Dr. Israel was
Director, Clinical Research-Oncology and Immunohematology at Sandoz
Pharmaceuticals Corporation. From 1988 to 1991, he was Associate Director,
Oncology Clinical Research at Schering-Plough Corporation. Dr. Israel is a
licensed physician and is board certified in both internal medicine and medical
oncology. He received a B.A. in physics from Rutgers University and an M.D.
from
the University of Pennsylvania and completed an oncology fellowship at
Sloan-Kettering. Dr. Israel has been a consultant to the Solid Tumor
Service at Sloan-Kettering.
Lynn
M. Bodarky, M.B.A. joined
us
in February 2004 as Vice President, Business Development & Licensing. Prior
to joining Progenics, Ms. Bodarky served as Senior Director, Global Licensing
at
Pharmacia Corporation (subsequently acquired by Pfizer, Inc.) from 2000 to
2003.
From 1991 to 1999, Ms. Bodarky held positions of increasing responsibility
at
Merck & Co., Inc., initially in the financial area and most recently as
Associate Director, Business Affairs. From 1987 to 1989 she was an auditor
at
Deloitte & Touche, an international public accounting firm. Ms. Bodarky
received a B.S. in accounting from the Wharton School, University of
Pennsylvania and an M.B.A. in finance and international business from the
Columbia Business School, Columbia University.
Richard
W. Krawiec, Ph.D. joined
us
in February 2001 as Vice President, Investor Relations and Corporate
Communications and became Vice President, Corporate Affairs in February 2006.
Prior to joining Progenics, Dr. Krawiec served as Vice President of Investor
Relations and Corporate Communications of Cytogen Corporation from 2000 to
2001.
Prior to Cytogen, Dr. Krawiec headed these departments at La Jolla
Pharmaceuticals, Inc. during 1999, at Amylin Pharmaceuticals, Inc. from 1993
to
1998 and IDEC Pharmaceuticals, Inc. previously thereto. Previously, Dr. Krawiec
was the founder and Editor-In-Chief of Biotechnology
Week magazine
and the Managing Editor and founder of Biotechnology
Newswatch.
Dr.
Krawiec received a B.S. in Biology from Boston University and a Ph.D. in
Biological Sciences from the University of Rhode Island.
Alton
B. Kremer, M.D., Ph.D. joined
us
in October 2004 as Vice President, Clinical Research. From 2000 until joining
us
in 2004, Dr. Kremer served as Executive Medical Director and directed
opioid clinical research programs at Purdue Pharma. From 1994 to 2000,
Dr. Kremer was at Janssen Pharmaceutica of the Johnson & Johnson family
of companies, where he held several positions, the most recent of which was
Senior Director, Clinical Research. Previously, Dr. Kremer held positions
with
Applied Immune Sciences and G.D. Searle & Co. He earned his M.D. and Ph.D.
in Biochemistry at Case Western Reserve University and holds a B.A. degree
in
Biology and Chemistry from Wesleyan University.
William
C. Olson, Ph.D. joined
us
in May 1994 serving in various roles of increasing responsibility through
his
promotion to Vice President, Research and Development in January 2001. From
1989
to 1992, Dr.Olson served as a Research Scientist at Johnson & Johnson, and
from 1992 until 1994 he was a Development Scientist at MicroGeneSys, Inc.,
a
biotechnology company. Dr. Olson received a Ph.D. from the Massachusetts
Institute of Technology and a B.S. from the University of North Dakota. Both
degrees were awarded in the field of chemical engineering.
Benedict
Osorio, M.B.A. joined
us
in July 2005 as Vice President, Quality. He has over 26 years of experience
in
pharmaceutical quality control and quality assurance. Prior to joining
Progenics, Mr. Osorio served as Senior Director, GMP (Good Manufacturing
Practices) Compliance at Forest Laboratories from 2001 to 2005. From 1984
to
2001, Mr. Osorio held positions of increasing responsibility with The PF
Laboratories (a subsidiary of Purdue Pharma), most recently as Executive
Director, Quality Assurance. From 1979 to 1984, he was an analytical chemist
with Berlex Laboratories. He earned both an MBA and a Masters of Science
in
Chemistry from Seton Hall University and a Bachelor of Science in Forensic
Science from John Jay College of Criminal Justice. Mr. Osorio is also a
Certified Quality Engineer and Quality Auditor recognized by the American
Society for Quality.
Nitya
G. Ray, Ph.D. joined
us
in February 2001 as Senior Director, Manufacturing and became Vice President,
Manufacturing in March 2004. Prior to joining Progenics, Dr. Ray served as
Director of Bioprocess Development at Ortec International from 1997 to 2001.
From 1993 to 1997, Dr. Ray held positions of increasing responsibility at
Hoffmann-La Roche in the areas of GMP Manufacturing and Process Development,
and
most recently as Research Leader, Biopharmaceuticals. From 1985 to 1993 he
held
positions of increasing responsibility at Verax Corporation where he developed
process technology for biopharmaceutical manufacturing. Dr. Ray received a
M.S. and Ph.D. in Chemical & Biochemical Engineering from Rutgers University
and a B.S. in Chemical Engineering from Jadavpur University, India.
Scientific
Advisory Boards and Consultants
An
important component of our scientific strategy is our collaborative relationship
with leading researchers in cancer and virology. Certain of these researchers
are members of our two Scientific Advisory Boards (SAB), one in cancer and
one
in virology. The members of each SAB attend periodic meetings and provide
us
with specific expertise in both research and clinical development. In addition,
we have collaborative research relationships with certain individual SAB
members. All members of the SABs are employed by employers other than us
and may
have commitments to or consulting or advisory agreements with other entities
that may limit their availability to us. These companies may also compete
with
us. Several members of our SAB have, from time to time, devoted significant
time
and energy to our affairs. However, no member is regularly expected to devote
more than a small portion of time to Progenics. In general, our scientific
advisors are granted stock options in Progenics and receive financial
remuneration for their services.
The
following table sets forth information with respect to our Scientific Advisory
Boards.
Cancer
Scientific Advisory Board
|
|
Alan
N. Houghton, M.D. (Chairman)
|
Chairman,
Immunology Program, Sloan-Kettering and Professor, Weill/Cornell
Medical
college (WCMC”)
|
David
B. Agus, M.D.
|
Research
Director, Prostate Cancer Institute, Cedars-Sinai Medical
Center
|
Samuel
J. Danishefsky, Ph.D.
|
Kettering
Professor and Head, Bioorganic Chemistry, Sloan-Kettering Institute
and
Professor of Chemistry, Columbia University
|
Warren
D. W. Heston, Ph.D.
|
Director,
Research Program in Prostate Cancer; Staff. Dept. of Cancer Biology,
Lerner Research Institute; Staff, Urological Institute, Cleveland
Clinic
Hospital, Cleveland Clinic Foundation
|
Philip
O. Livingston, M.D.
|
Member,
Sloan-Kettering and Professor, WCMC
|
John
Mendelsohn, M.D.
|
President,
The University of Texas M. D. Anderson Cancer Center
|
David
A. Scheinberg, M.D., Ph.D. (1)
|
Vincent
Astor Chair and Chairman, Molecular Pharmacology and Chemistry
Program,
Sloan-Kettering and Professor, WCMC
|
Virology
Scientific Advisory Board
|
|
Stephen
P. Goff, Ph.D. (Chairman) (1)
|
Professor
of Biochemistry, Columbia University
|
Dennis
R. Burton, Ph.D.
|
Professor,
The Scripps Research Institute
|
Lawrence
A. Chasin, Ph.D.
|
Professor
of Biological Sciences, Columbia University
|
Leonard
Chess, M.D.
|
Professor
of Medicine, Columbia University
|
Wayne
A. Hendrickson, Ph.D.
|
Professor
of Biochemistry, Columbia University
|
Sherie
L. Morrison, Ph.D.
|
Professor
of Microbiology, UCLA
|
Robin
A. Weiss, Ph.D.
|
Professor
and Director of Research, ICR, Royal Cancer Hospital,
London
|
Other
Scientific Consultants
|
|
Jonathan
Moss, M.D., Ph.D.
|
Professor,
Department of Anesthesia and Critical Care, and Vice Chairman for
Research, University of Chicago Medical Center
|
Thomas
P. Sakmar, M.D.
|
Professor,
The Rockefeller University
|
Scott
M. Hammer, M.D.
|
Chief,
Division of Infectious Diseases, Professor of Medicine, Columbia
University
|
(1)
Drs.
Goff and Scheinberg are also members of our Board of Directors
Board
and Committee Meetings
During
2005, the Board of Directors had four standing committees: the Compensation
Committee, the Audit Committee, the Nominating and Corporate Governance
Committee (the “Nominating Committee”) and the Executive Committee. The Board of
Directors held ten meetings, the Compensation Committee held eleven meetings,
the Audit Committee held six meetings, the Nominating Committee held three
meetings and the Executive Committee held five meetings. It is the policy
of the
Board of Directors to hold an executive session of independent directors
at each
Board meeting. During 2005, each director attended 75% or more of the meetings
of the Board of Directors and Board committees on which he served, except
for
Dr. Goff, who attended one out of three Nominating Committee
meetings.
Audit
Committee
The
Audit
Committee reviews our annual financial statements prior to their submission
to
the Securities and Exchange Commission, consults with our independent auditors
and examines and considers such other matters in relation to the audit of
our
financial statements and in relation to our financial affairs, including
the
selection and retention of our independent auditors.
Paul
F.
Jacobson, the Chairman of the Audit Committee, is an “audit committee financial
expert” as such term is defined in Item 401(h) of Regulation S-K promulgated by
the SEC.
Compensation
Committee
The
Compensation Committee makes recommendations concerning salaries and incentive
compensation for our employees and consultants, establishes and approves
salaries and incentive compensation for our executive officers and other
senior
employees, administers our stock incentive plans and otherwise seeks to ensure
that our compensation philosophy is consistent with our best interests and
is
properly implemented. Mark F. Dalton is the Chairman of the Compensation
Committee.
Nominating
and Corporate Governance Committee
The
Nominating Committee is responsible for developing and implementing policies
and
procedures that are intended to constitute and organize appropriately the
Board
of Directors to meet its fiduciary obligations to Progenics and our stockholders
on an ongoing basis. Among its specific duties, the Nominating Committee
makes
recommendations to the Board of Directors about our corporate governance
processes, assists in identifying and recruiting candidates for the Board,
administers the Nominations Policy, considers nominations to the Board received
from stockholders, makes recommendations to the Board regarding the membership
and chairs of the Board’s committees, oversees the annual evaluation of the
effectiveness of the organization of the Board and of each of its committees,
periodically reviews the type and amount of Board compensation for non-employee
directors and makes recommendations to the full Board regarding such
compensation. The Nominating Committee also annually reports findings of
fact to
the Board of Directors that permit the Board to make affirmative determinations
regarding each Board and committee member with respect to independence and
expertise criteria established by NASD and SEC rules and applicable law.
Charles
A. Baker is the Chairman of the Nominating Committee.
Executive
Committee
The
Executive Committee is intended to assist the Board with oversight and
governance and in providing a means for our management to obtain Board-level
guidance and decision making between full Board meetings.
Section
16(a) Beneficial Ownership Reporting and Compliance
Based
solely on a review of the reports under Section 16(a) of the Exchange Act
and
representations furnished to us with respect to the last fiscal year, we
believe
that each of the persons required to file such reports is in compliance with
all
applicable filing requirements, except for the following: Dr. Maddon, Dr.
Israel, Mr. McKinney and Mr. Mark Baker each filed a late Form 4, relating
to two transactions each; Dr. Scheinberg filed a late Form 4, relating to
one
transaction. We are continuing to monitor the effectiveness of our policies
and
procedures which are designed to ensure compliance with Section 16 reporting
requirements.
Code
of Business Ethics and Conduct
We
have a
Code of Business Ethics and Conduct which is applicable to all of our directors,
employees and consultants. The Code meets the criteria for “a code of ethics”
under the SEC rules and “code of conduct” under the rules of the NASD. The Code
is available on our website at: http://www.progenics.com/investors/corpgovern.html.
Summary
Compensation Table
The
following table sets forth information regarding the aggregate compensation
we
paid to our Chief Executive Officer and certain of our other executive officers,
as of December 31, 2005, whose total compensation exceeded $100,000 during
the last fiscal year (collectively, the “named executive
officers”):
|
|
|
|
Annual
Compensation(1)
|
|
Long
Term Compensation
|
|
|
|
Name
and Principal Position
|
|
Fiscal
Year
|
|
Salary
|
|
Bonus
|
|
Restricted
Stock
Awards(2)
|
|
Stock
Option
Grants
|
|
Other
Compensation(3)
|
|
Paul
J. Maddon, M.D., Ph.D.
|
|
|
2005
|
|
$
|
536,785
|
|
$
|
—
(7
|
)
|
$
|
934,250
|
|
|
75,000
shares
|
|
$
|
16,000
|
|
Chief
Executive Officer and
|
|
|
2004
|
|
|
515,000
|
|
|
150,000
|
|
|
—
|
|
|
75,000
shares
|
|
|
14,729
|
|
Chief
Science Officer
|
|
|
2003
|
|
|
499,859
|
|
|
175,000
|
|
|
—
|
|
|
225,000shares
|
|
|
13,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alton
B. Kremer, M.D., Ph.D. (6)
|
|
|
2005
|
|
$
|
320,000
|
|
$
|
153,000
|
|
$
|
74,865
|
|
|
10,000
shares
|
|
$
|
19,484
|
|
Vice
President, Clinical Research
|
|
|
2004
|
|
|
83,692
|
|
|
83,000
|
|
|
—
|
|
|
40,000
shares
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Israel, M.D.
|
|
|
2005
|
|
$
|
312,000
|
|
$
|
125,000
|
|
$
|
74,865
|
|
|
10,000
shares
|
|
$
|
19,596
|
|
Senior
Vice President, Medical
|
|
|
2004
|
|
|
300,000
|
|
|
50,000
|
|
|
126,375
|
|
|
—
|
|
|
44,069
(4
|
)
|
Affairs
|
|
|
2003
|
|
|
278,000
|
|
|
25,000
|
|
|
—
|
|
|
35,000
shares
|
|
|
45,694
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
R. Baker, J.D., Senior Vice
|
|
|
2005
|
|
$
|
149,692
|
|
$
|
249,000
|
|
$
|
—
|
|
|
50,000
shares
|
|
$
|
7,500
|
|
President
& General Counsel (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
A. McKinney, CPA
|
|
|
2005
|
|
$
|
230,000
|
|
$
|
150,000
|
|
$
|
96,255
|
|
|
37,500
shares
|
|
$
|
18,387
|
|
Chief
Financial Officer,
|
|
|
2004
|
|
|
200,000
|
|
|
60,000
|
|
|
126,375
|
|
|
—
|
|
|
19,861
|
|
Senior
Vice President, Finance &
|
|
|
2003
|
|
|
174,000
|
|
|
50,000
|
|
|
—
|
|
|
25,000
shares
|
|
|
19,194
|
|
Operations
and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Annual
compensation consists of base salary and bonus. As to each individual named,
the
aggregate amounts of all perquisites and other personal benefits, securities
and
property not included in the summary compensation table above or described
below
do not exceed the lesser of $50,000 or 10% of the annual compensation. Annual
compensation does not include the discount amount under our employee stock
purchase plans because such plans are generally available to all salaried
employees.
(2) Amounts
shown under Restricted Stock Awards represent the grant date values of our
restricted stock awarded to the named executive officers. Each named executive
officer held restricted stock at December 31, 2005, in the aggregate number
of
shares of our common stock and the aggregate value at that date, as follows:
Dr.
Maddon —43,750 shares, $1,094,188; Dr. Alton Kremer — 3,500 shares, $87,535; Dr.
Israel — 9,125 shares, $228,216; Mr. McKinney — 10,125 shares, $253,226. As
of December 31, 2005, one quarter of the restrictions on the restricted
stock granted on July 1, 2004 and January 10, 2005 had lapsed. None of the
restrictions on the restricted stock granted on July 1, 2005 had
lapsed.
(3) Other
compensation consisted of matching contributions made by us under a defined
contribution plan available to substantially all of our employees and amounts
to
pay the after-tax cost of premiums on life insurance and long-term disability
policies.
(4) Includes
compensation of $22,098 in 2003 and $20,901 in 2004, attributable to the
forgiveness of a loan from us to Dr. Israel. See “—Indebtedness of
Management.”
(5)
Mr.
Baker joined the Company as Senior Vice President & General Counsel in June
2005.
(6)
Dr.
Kremer joined the Company as Vice President in September 2004.
(7)
On
March 3, 2006, the Compensation Committee of the Board of Directors approved
a
bonus for the year ended December 31, 2005
for
Dr. Maddon comprised of 18,080 shares of restricted common stock
with a fair value of approximately $525,000. One-quarter
of
the restricted shares vested on the date of grant and the remainder will
vest
through June 20, 2007.
Stock
Option Grants in the Fiscal Year Ended December 31, 2005
The
following table sets forth certain information relating to stock option grants
to the named executive officers during the fiscal year ended December 31,
2005.
In addition, as required by SEC rules, the table sets forth the hypothetical
gains that would exist for the shares subject to such options based on assumed
annual compounded rates of stock price appreciation during the option
term.
Name
|
Number
of
Shares
Underlying
Options
Granted
|
Percent
of
Total
Option
Shares
Granted
to
Employees(1)
|
Exercise
Price
per
Share
|
Expiration
Date
|
Potential
Realizable Value at Assumed Annual Rates of Stock Price Appreciation
for
Option Term
|
5%
|
10%
|
Paul
J. Maddon, M.D., Ph.D.
|
75,000
|
10.7%
|
$21.39
|
7/1/2015
|
$1,008,904
|
$2,556,761
|
Alton
B. Kremer, M.D., Ph.D.
|
10,000
|
1.4%
|
$21.39
|
7/1/2015
|
$134,521
|
$340,902
|
Robert
J. Israel, M.D.
|
10,000
|
1.4%
|
$21.39
|
7/1/2015
|
$134,521
|
$340,902
|
Mark
R. Baker, J.D.
|
50,000
|
7.1%
|
$20.02
|
6/20/2015
|
$629,524
|
$1,595,336
|
Robert
A. McKinney, CPA
|
25,000
|
3.6%
|
$22.68
|
3/1/2015
|
$356,583
|
$903,652
|
Robert
A. McKinney, CPA
|
12,500
|
1.8%
|
$21.39
|
7/1/2015
|
$168,151
|
$426,127
|
(1) Our
employees were granted options during the 2005 fiscal year with respect to
a
total of 702,845 shares from our Amended 1996 Stock Incentive Plan and our
2005
Stock Incentive Plan.
Stock
option grants in the table above do not include options granted quarterly
under
our Employee Stock Purchase Plan or Non-Qualified Employee Stock Purchase
Plan
that expire six months following the date of grant and have exercise prices
equal to the lower of the fair market value on the date of grant or 85% of
the
fair market value on the date of exercise.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The
following table sets forth information for each of the named executive officers
regarding option exercises during the fiscal year ended December 31, 2005
and
the number and value of unexercised options held as of December 31,
2005:
|
|
Exercises
During
the
Fiscal Year
|
|
Number
of
Shares
Underlying
Unexercised
Options
|
|
Value
of Unexercised
In-the-Money
Options (1)
|
|
Name
|
|
Acquired
|
|
Realized
(2)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
Paul
J. Maddon, M.D., Ph.D.
|
|
|
—
|
|
$
|
—
|
|
|
1,291,650
|
|
|
166,125
|
|
$
|
18,908,078
|
|
$
|
1,436,498
|
|
Alton
B. Kremer, M.D., Ph.D.
|
|
|
—
|
|
$
|
—
|
|
|
8,000
|
|
|
42,000
|
|
$
|
91,520
|
|
$
|
402,280
|
|
Robert
J. Israel, M.D.
|
|
|
8,750
|
|
$
|
160,846
|
|
|
193,750
|
|
|
36,250
|
|
$
|
2,845,400
|
|
$
|
321,625
|
|
Mark
R. Baker, J.D.
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
|
50,000
|
|
$
|
—
|
|
$
|
249,500
|
|
Robert
A. McKinney, CPA
|
|
|
15,000
|
|
$
|
293,100
|
|
|
146,250
|
|
|
56,250
|
|
$
|
1,964,900
|
|
$
|
307,375
|
|
(1) Based
on a closing price of $25.01 on December 30, 2005 on the Nasdaq National
Market.
(2) Based
on closing prices on the Nasdaq National Market on the respective dates of
exercise for retained shares and on the resale prices for shares immediately
resold.
Stock
option exercises set forth in the table above do not reflect shares acquired
or
exercisable under our Employee Stock Purchase Plan or Non-Qualified Employee
Stock Purchase Plan. The actual amount realized by named executive officers
in
2005 under the ESPP Plans was: $44,197 by Dr. Maddon; $13,083 by Dr. Kremer;
$16,977 by Dr. Israel; $0 by Mr. Baker and $11,801 by Mr. McKinney.
Employment
Agreements
Paul
J. Maddon, M.D., Ph.D.
On
December 31, 2003, we entered into an employment agreement with Paul J.
Maddon, M.D., Ph.D. pursuant to which Dr. Maddon serves as our Chief
Executive Officer and Chief Science Officer. The agreement provides for Dr.
Maddon to receive an initial annual salary of $499,859 for 2003, which will
increase at a rate of not less than 3% per year, and a discretionary bonus
in an
amount to be determined by the Board of Directors. Dr. Maddon’s salary in
2004 and 2005 was $515,000 and $536,785, respectively.
In
June
2003, we granted Dr. Maddon two ten-year options, each to purchase 112,500
shares of common stock at an exercise price of $15.06 per share. The first
grant
vests in equal portions on June 30 of each of 2004, 2005, 2006 and 2007.
The
second grant will vest on May 30, 2013, subject to acceleration upon the
achievement of certain clinical, financial and operational milestones. On
July
1, 2004, we granted Dr.Maddon two ten-year options, each to purchase 37,500
shares of Common Stock each at an exercise price of $16.85 per share. The
first
grant vests in equal portions on June 30 of each of 2005, 2006, 2007 and
2008.
The second grant will vest on June 1, 2014, subject to acceleration upon
the
achievement of certain clinical, financial and operational milestones. On
January 10, 2005, we granted 25,000 shares of restricted stock to Dr.
Maddon as additional long term incentive compensation pursuant to his employment
agreement. The restrictions on the stock lapse over four years beginning
June 20, 2005. On July 1, 2005, we granted Dr. Maddon a ten-year option to
purchase 75,000 shares of Common Stock at an exercise price of $21.39 per
share.
The grant vests on June 1, 2015, subject to acceleration upon the achievement
of
certain clinical, financial and operational milestones. On July 1, 2005,
we also
granted 25,000 shares of restricted stock to Dr. Maddon as additional long
term
incentive compensation pursuant to his employment agreement. The restrictions
on
the stock lapse over four years beginning June 20, 2006. During 2003, two
of the milestones under the 2003 grant were achieved, resulting in the vesting
of 62,000 options, for which the Company recognized $103,000 as non-cash
compensation expense. During 2004, one of the milestones under the 2003 grant
was achieved resulting in the vesting of 11,000 options but no compensation
expense was recognized since that option was out-of-the-money on the date
of
accelerated vesting. No milestones were achieved in 2004 under the 2004 grant.
During 2005, two of the milestones under the 2003 grant, three milestones
under
the 2004 grant and one milestone under the 2005 grant were achieved resulting
in
the vesting of 39,000 options under the 2003 grant, 26,000 options under
the
2004 grant and 38,000 options under the 2005 grant. In addition,
16,000 stock
options, which are accounted for as variable awards under APB No. 25, that
were
granted under all four awards vested based upon the passage of time. We
recognized a total of $709,000 of non-cash compensation expense upon the
vesting
of Dr. Maddon’s options in 2005.
Our
employment agreement with Dr. Maddon, the initial term of which ran through
June
30, 2005, was automatically renewed for an additional period of two years.
We
are currently in discussions with Dr. Maddon regarding the future renewal
of his
employment agreement.
The
agreement provides that, upon termination by us without cause (as defined
in the
agreement) or by Dr. Maddon for good reason (as defined in the agreement,
which includes Dr. Maddon’s failure to be our director other than by reason
of his resignation), we will pay to Dr. Maddon a lump sum equal to two
times the sum of Dr. Maddon’s annual salary and average bonus (as defined in the
agreement), we will continue for two years to provide Dr. Maddon benefits
and
the options referred to above will become fully vested and exercisable. Upon
termination by us without cause or by Dr. Maddon for good reason within two
years following a change in control (as defined in the agreement), or upon
termination by us without cause within three months preceding a change in
control, we will pay to Dr. Maddon a lump sum equal to three times the sum
of
Dr. Maddon’s salary and average bonus, we will continue for three years to
provide Dr. Maddon benefits and the options referred to above will become
fully
vested and exercisable. In the event that any payment under the agreement
constitutes an excess parachute payment under Section 280G of the U.S.
Internal Revenue Code, Dr. Maddon will be entitled to additional gross-up
payments such that the net amount retained by Dr. Maddon after deduction
of any
excise taxes and all other taxes on the gross-up payments will be equal to
the
net amount that would have been retained from the initial payments under
the
agreement.
Robert
J. Israel, M.D.
We
have
an employment arrangement with Robert J. Israel, M.D. pursuant to which he
serves as our Senior Vice President, Medical Affairs at an annual salary
in 2005
of $312,000 and is entitled to nine months’ salary if his employment is
terminated by us without cause.
Each
of
the employment agreements of Dr. Maddon and Dr. Israel contain certain
restrictive covenants for our benefit relating to non-disclosure by the
executives of our confidential business information, our right to inventions
and
intellectual property, non-solicitation of our employees and customers and
non-competition by the executives with our business.
Indebtedness
of Management
On
February 16, 2000, we entered into an agreement to provide Dr. Israel with
a loan of up to $100,000 to assist in the purchase of a home closer to our
principal place of business. The loan was evidenced by a promissory note
bearing
interest at the rate of 6% per year and calling for $10,000 principal payments
on June 30 and December 31 of each year. Under the agreement with Dr. Israel,
principal and interest under the promissory note was forgiven and treated
as
additional compensation so long as Dr. Israel was our employee when such
amounts
become due. At December 31, 2004, the loan of $100,000 and $14,756 of interest
had been forgiven.
Compensation
of Directors
Kurt
W.
Briner and Paul F. Jacobson each receive $40,000 as compensation for their
services as Co-Chairmen of the Board. In addition, the Board of Directors
granted the following stock options to purchase shares of our common stock
to
each of Messrs. Briner and Jacobson: (1) on January 10, 25,000 shares with
an exercise price of $15.98 per share, 10,000 shares of each award vested
immediately and the remainder vested on December 31, 2005; (2) on December
8,
2005, 25,000 shares with an exercise price of $24.12 per share, 10,000 shares
of
each award vested immediately and the reminder will vest on December 31,
2006.
In
addition to the above retainer fees and option grants, Messrs. Briner and
Jacobson receive compensation for their services as non-employee directors
of
Progenics. Our non-employee directors are entitled to payment for their services
as follows:
· |
$2,000
for each meeting of the Board of Directors attended in person,
$1,000 for
each in-person meeting attended by telephone and $500 for participation
in
each telephonic meeting;
|
· |
for
committee meetings held other than in conjunction with a meeting
of the
entire Board, $1,000 for attendance in person and $500 for telephonic
participation;
|
· |
for
committee meetings held on the day after a meeting of the entire
Board,
$500 for participation;
|
· |
for
committee meetings held on the same day, no additional compensation
is
paid;
|
· |
an
annual retainer fee of $15,000, except for Messrs. Briner and Jacobson
who
are entitled to an annual retainer fee of $40,000 as described
above;
and
|
· |
an
option to purchase 10,000 shares of our common stock granted annually
on
each July 1 with an exercise price equal to the fair market value
as of
the date of grant, provided that with regard to the option grant
on July
1, 2005, Messrs. Briner and Jacobson will not be entitled to the
annual
option grant.
|
In
addition, the Audit Committee chairman (currently, Mr. Jacobson) is
entitled to an additional annual retainer fee of $5,000, the Compensation
Committee chairman (currently, Mr. Dalton) is entitled to an additional
annual retainer fee of $2,500, and the Nominating and Corporate Governance
Committee chairman (currently, Mr. Baker) is entitled to an additional
annual retainer fee of $2,500.
Dr. Goff
and Dr. Scheinberg also receive compensation in the form of cash or cash
and
stock options, respectively, for service on our Virology Scientific Advisory
Board and Cancer Scientific Advisory Board, respectively. In 2005, Dr. Goff
received $30,000 for such service. Dr. Scheinberg received $28,000 and 8,750
stock options, of which 1,250 shares were granted with a strike price equal
to
fifty percent (50%) of the average closing price for the thirty trading days
preceding the grant date and the remaining 7,500 shares were granted with
the
exercise price equal to the grant date fair value, for his service on our
Scientific Advisory Board. For the fiscal year ended December 31, 2005, we
had
non-cash compensation expense of $146,441 with
respect to the options granted to Dr. Scheinberg for his service on our
Scientific Advisory Board.
Comparative
Stock Performance Graph
The
graph
below compares the cumulative stockholder return on our common stock with
the
cumulative stockholder return of (i) the Nasdaq Stock Market (U.S.) Index
and
(ii) the Nasdaq Pharmaceutical Index, assuming the investment in each equalled
$100 on December 31, 2000.
Report
of the Compensation Committee of the Board of Directors on Executive
Compensation
During
2005, the Compensation Committee of Progenics’ Board of Directors (the
“Compensation Committee”) consisted of three non-employee directors: Mark F.
Dalton, as Chairman, Charles A. Baker and Paul F. Jacobson. Each of the members
of the Compensation Committee has been affirmatively determined by the Board
of
Directors to be an “independent director” as defined in NASD Rule 4200(a)(15).
The Compensation Committee operates under a written Charter adopted by the
Compensation Committee and approved by the Board of Directors as a
whole.
The
Compensation Committee’s policies applicable to the compensation of Progenics’
executive officers are based on the principle that total compensation should
be
set to attract and retain those executives critical to the overall success
of
Progenics and should reward executives for their contributions to the
enhancement of stockholder value.
The
key
elements of the executive compensation package are base salary, employee
benefits applicable to all employees, amounts to pay the after-tax cost of
premiums on life insurance and long-term disability policies, an annual
discretionary bonus and long-term incentive compensation, typically in the
form
of stock options. In general, the Compensation Committee has adopted the
policy
that compensation for executive officers should be competitive with that
paid by
leading biotechnology companies for corresponding senior executives. The
Compensation Committee also believes that it is important to have stock options
constitute a substantial portion of executive compensation in order to align
the
interests of executives with those of the stockholders.
In
determining the compensation for each executive officer, the Compensation
Committee generally considers (i) data from outside studies and proxy materials
regarding compensation of executive officers at comparable companies, (ii)
the
input of other directors regarding individual performance of each executive
officer and (iii) qualitative measures of Progenics’ performance such as
progress in the development of the Company’s products, the engagement of
corporate partners for the commercial development and marketing of products
and
the success of Progenics in raising the funds necessary to conduct research
and
development. The Compensation Committee’s consideration of such factors is
subjective and informal. In 2005, the Compensation Committee also employed
an
outside consulting firm to evaluate the compensation of executive officers
in
comparison with similar officers at peer companies.
The
compensation of Dr. Paul J. Maddon, the Chief Executive Officer of
Progenics, for 2005 consisted of $536,785 in annual salary and a discretionary
bonus consisting of 18,080 shares of the Company’s common stock with a fair
value of $525,000. One-quarter of the restricted stock vested on March 3,
2006,
the grant date, and the remainder of the restricted shares will vest through
June 20, 2007. In determining the terms of Dr. Maddon’s employment,
including Dr. Maddon’s compensation thereunder, the Compensation Committee
was mindful of the importance of Dr. Maddon’s leadership and contributions
to Progenics’ progress in its programs in HIV therapeutics, symptom management
and supportive care therapeutics and cancer therapeutics, Progenics’
achievements and progress in the past and the prospect that Dr. Maddon will
continue to make significant contributions to Progenics’ performance in the
future.
|
By
the Compensation Committee of the Board of Directors
|
|
Mark
F. Dalton, Chairman
|
|
Charles
A. Baker
|
|
Paul
F. Jacobson
|
Item
12. Security
Ownership
of Certain Beneficial Owners and Management and
Related Stockholder Matters
The
following table sets forth certain information, as of March 1, 2006, except
as
noted, regarding the beneficial ownership of the Common Stock by (i) each
person
or group known to the us to be the beneficial owner of more than 5% of our
common stock outstanding, (ii) each of our directors, (iii) each of our
executive officers named below and (iv) all of our directors and executive
officers as a group.
|
Shares
Beneficially
Owned
(2)
|
Name
and Address of Beneficial Owner(1)
|
Number
|
Percent
|
Entities
affiliated with Tudor Investment Corporation (3)
|
2,342,388
|
9.2%
|
1275
King Street
|
|
|
Greenwich,
CT 06831
|
|
|
|
|
|
Paul
Tudor Jones, II (4)
|
2,888,513
|
11.4%
|
1275
King Street
|
|
|
Greenwich,
CT 06831
|
|
|
|
|
|
Delaware
Management Holdings (5)
|
1,565,995
|
6.2%
|
One
Commerce Square, 2005 Market Street
|
|
|
Philadelphia,
PA 19103
|
|
|
|
|
|
Entities
affiliated with Philip B. Korsant (6)
|
1,770,000
|
7.0%
|
Ziff
Asset Management, L.P.
|
|
|
c/o
Philip B. Korsant
|
|
|
283
Greenwich Avenue
|
|
|
Greenwich,
CT 06830
|
|
|
|
|
|
Federated
Investors, Inc. (7)
|
1,331,100
|
5.2%
|
Federated
Investors Tower
|
|
|
Pittsburgh,
PA 15222
|
|
|
|
|
|
Sectoral
Asset Management Inc. (8)
|
1,651,434
|
6.5%
|
1000
Sherbrooke Street
|
|
|
Montreal,
A1 00000
|
|
|
|
|
|
Paul
J. Maddon, M.D., Ph.D. (9)
|
1,848,265
|
6.9%
|
Charles
A. Baker (10)
|
86,481
|
*
|
Kurt
W. Briner (11)
|
143,000
|
*
|
Mark
F. Dalton (12)
|
2,494,888
|
9.8%
|
Stephen
P. Goff, Ph.D. (13)
|
131,000
|
*
|
Paul
F. Jacobson (14)
|
278,100
|
1.1%
|
David
A. Scheinberg, M.D., Ph.D. (15)
|
175,931
|
*
|
Robert
J. Israel, M.D. (16)
|
194,377
|
*
|
Robert
A. McKinney, CPA (17)
|
169,669
|
*
|
Alton
B. Kremer, M.D., Ph.D. (18)
|
6,967
|
*
|
Mark
R. Baker, J.D. (19)
|
2,316
|
*
|
All
directors and executive officers as a group (20)
|
6,007,570
|
21.4%
|
(1)
|
Unless
otherwise specified, the address of each beneficial owner is c/o
Progenics
Pharmaceuticals, Inc., 777 Old Saw Mill River Road, Tarrytown,
New York
10591.
|
(2)
|
Except
as indicated and pursuant to applicable community property laws,
each
stockholder possesses sole voting and investment power with respect
to the
shares of common stock listed. The number of shares of common stock
beneficially owned includes the shares issuable pursuant to stock
options
to the extent indicated in the footnotes in this table. Shares
issuable
upon exercise of these options are deemed outstanding for computing
the
percentage of beneficial ownership of the person holding the options
but
are not deemed outstanding for computing the percentage of beneficial
ownership of any other person.
|
(3)
|
The
number of shares owned by entities affiliated with Tudor Investment
Corporation (TIC) consists of 1,820,068 shares held of record by
The Tudor
BVI Portfolio Ltd., a company organized under the law of the Cayman
Islands (Tudor BVI), 287,813 shares held of record by TIC, 193,126
shares
held of record by Tudor Arbitrage Partners L.P. (TAP), 25,981 shares
held
of record by Tudor Proprietary Trading, L.L.C. (TPT), and 15,400
shares
held of record by Tudor Global Trading LLC (TGT). In addition,
because TIC
provides investment advisory services to Tudor BVI, it may be deemed
to
beneficially own the shares held by such entity. TIC disclaims
beneficial
ownership of such shares. TGT is the general partner of TAP. Tudor
Group
Holdings LLC (TGH) is the sole member of TGT and indirectly holds
all of
the membership interests of TPT. TGH is also the sole limited partner
of
TAP. TGH expressly disclaims beneficial ownership of the shares
beneficially owned by each of such entities. TGT disclaims beneficial
ownership of shares held by TAP. The number set forth does not
include
shares owned of record by Mr. Jones and Mr. Dalton. See Notes (4) and
(12).
|
(4)
|
Includes
2,342,388 shares beneficially owned by entities affiliated with
TIC.
Mr. Jones is the Chairman and indirect principal equity owner of TIC,
TPT and TGT, and the indirect principal equity owner of TAP. Mr.
Jones may
be deemed to be the beneficial owner of shares beneficially owned,
or
deemed beneficially owned, by entities affiliated with TIC. Mr. Jones
disclaims beneficial ownership of such shares. See
Note (3).
|
(5)
|
Based
on a Schedule 13G filed on February 9, 2006, the number of shares
owned by
Delaware Management Holdings and Delaware Management Business Trust
consists of 1,565,995 shares held by Delaware Management Holdings
and
Delaware Management Business Trust, which share voting and dispositive
powers.
|
(6)
|
Based
on a Schedule 13G, filed on February 13, 2006, the number of shares
owned
by entities affiliated with Philip B. Korsant consists of 1,770,000
shares
held by Ziff Asset Management, L.P., a Delaware limited partnership.
Mr. Korsant, ZBI Equities, L.L.C. and PBK Holdings, Inc., a Delaware
corporation, share voting and dispositive power over the shares
held by
Ziff Asset Management, L.P.
|
(7)
|
Based
on a Schedule 13G, filed February 14, 2006, Federated Investors,
Inc. (the
“Parent”) is the parent holding company of Federated Equity Management
Company of Pennsylvania and Federated Global Investment Management
Corp.
All of the Parent’s outstanding voting stock is held in the Voting Shares
Irrevocable Trust for which John F. Donahue, Rhodora J. Donahue
and J.
Christopher Donahue act as trustees and they have the collective
voting
control over the Parent.
|
(8)
|
Sectoral
Asset Management Inc. in its capacity as an investment adviser,
has the
sole right to vote or dispose of the 1,651,434 shares set forth
in
Schedule 13G filed on February 14, 2006. Jerome G. Pfund and Michael
L.
Sjostrom are the sole shareholders of Sectoral Asset Management
Inc.
|
(9)
|
Includes
541,865 shares outstanding; 1,261,650 shares issuable upon exercise
of
options exercisable within 60 days of March 1, 2006 and 43,750
shares of
restricted stock. Also includes 1,000 shares held by Dr. Maddon’s spouse,
the beneficial ownership of which Dr. Maddon disclaims. Excludes
88,229
shares held by a trust, of which his spouse is the beneficiary;
neither
Dr. Maddon nor his spouse has investment control over such
trust.
|
(10)
|
Includes
21,481 shares owned by the Baker Family Limited Partnership and
65,000
shares issuable upon exercise of options held by Mr. Baker and
exercisable
within 60 days of March 1, 2006.
|
(11)
|
Includes
3,000 shares outstanding and140,000 shares issuable upon exercise
of
options held by Mr. Briner exercisable within 60 days of March 1,
2006.
|
(12)
|
Includes
71,000 shares held of record directly by Mr. Dalton, 65,000 shares
issuable upon exercise of options held by Mr. Dalton exercisable
within 60 days of March 1, 2006 and 16,500 shares held of record
by DF
Partners, a family partnership of which Mr. Dalton is the sole
general partner. The number set forth also includes 2,342,388 shares
beneficially owned by entities affiliated with TIC. Mr. Dalton
is
President and an equity owner of TIC and TGH. Mr. Dalton is also
the
President and an indirect equity owner of TGT and TPT. Mr. Dalton
disclaims beneficial ownership of shares beneficially owned, or
deemed
beneficially owned, by entities affiliated with TIC and DF Partners,
except to the extent of his pecuniary interest therein. See Note
(3).
|
(13)
|
Includes
33,500 shares outstanding and 97,500 shares issuable upon exercise
of
options held by Dr. Goff exercisable within 60 days of March 1,
2006.
|
(14)
|
Includes
188,100 shares outstanding and 90,000 shares issuable upon exercise
of
options held by Mr. Jacobson exercisable within 60 days of March 1,
2006.
|
(15)
|
Includes
24,181 shares outstanding and 151,750 shares issuable upon exercise
of
options held by Dr. Scheinberg exercisable within 60 days of March
1,
2006.
|
(16)
|
Includes
11,502 shares outstanding and 173,750 shares issuable upon exercise
of
options held by Dr. Israel exercisable within 60 days of March 1,
2006. Also includes 9,125 shares of restricted
stock.
|
(17)
|
Includes
7,044 shares outstanding and 152,500 shares issuable upon exercise
of
options held by Mr. McKinney exercisable within 60 days of March 1,
2006. Also includes 10,125 shares of restricted
stock.
|
(18)
|
Includes
3,467 shares outstanding and no shares issuable upon exercise of
options
held by Dr. Kremer exercisable within 60 days of March 1, 2006. Also
includes 3,500 shares of restricted
stock.
|
(19)
|
Includes
2,316 shares outstanding and no shares issuable upon exercise of
options
held by Mr. Baker exercisable within 60 days of March 1,
2006.
|
(20)
|
Includes
3,295,820 shares outstanding, 111,500 shares of restricted stock
and
2,600,250 shares issuable upon the exercise of stock options exercisable
within 60 days of March 1, 2006 held by affiliated entities, directors
and
named executive officers as set forth in the above table and by
all other
executive officers.
|
Sales
of Stock by Insiders
We
have
established stock sale guidelines governing the way in which shares of our
common stock may be sold by persons who may be considered insiders (directors,
executive officers and certain key employees who we may designate from time
to
time). From time to time, such insiders will engage in sales of our common
stock
in accordance with these guidelines. These sales may be accomplished pursuant
to
SEC Rule 144 or pursuant to pre-arranged stock trading plans adopted in
accordance with Rule 10b5-1 of the Exchange Act.
Rule
10b5-1 allows persons who may be considered insiders to establish written
pre-arranged stock trading plans when they do not have material, non-public
information. The plans establish predetermined trading parameters that do
not
permit the person adopting the plan to exercise any subsequent influence
over
how, when or whether to effect trades. Implementation of these plans seeks
to
avoid concerns about executing stock transactions when insiders may subsequently
be in possession of material, non-public information. Pre-arranged stock
trading
plans adopted in accordance with Rule 10b5-1 also permit our insiders to
gradually diversify their investment portfolios and may minimize the market
impact of stock trades by spreading them over an extended period of
time.
During
the first quarter of 2006, Paul J. Maddon, M.D., Ph.D. the Company’s Founder,
Chief Executive Officer and Chief Science Officer established a stock trading
plan in accordance with Rule 10b5-1 of the Securities Act of 1934. Under
this
plan, Dr. Maddon has directed a broker to exercise and sell shares pursuant
to
stock options which are scheduled to expire in 2007. Several other Progenics
executive officers have established 10b5-1 plans. Other executive officers
may
choose to establish 10b5-1 plans in the future.
In
accordance with Rule 10b5-1, officers and directors of public companies may
adopt plans for purchasing or selling securities in which the amount, price
and
date of the transactions are specified. These plans may only be entered into
when the officer or director is not in possession of material, nonpublic
information.
Equity
Compensation Plan Information
The
following table sets forth, as of December 31, 2005, certain information
related
to our equity compensation plans.
Plan
category
|
|
(a)
Number
of shares
to
be issued upon
exercise
of
outstanding
options,
warrants
and rights
|
|
(b)
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
|
|
(c)
Number
of shares
remaining
available
for
future issuance
(excluding
securities
reflected
in 1st column)
|
|
Equity
compensation plans approved by shareholders:
|
|
|
3,953,186
(1
|
)
|
$
|
15.07
|
|
|
2,037,621
(2
|
)
|
Equity
compensation plans not approved by shareholders (3):
|
|
|
620,192
|
|
$
|
4.50
|
|
|
¾
|
|
Total
|
|
|
4,573,378
|
|
$
|
13.64
|
|
|
2,037,621
|
|
(1) Does
not include 242,127 shares of restricted stock to be released upon vesting
or
options issued under the ESPP or the Non-Qualified ESPP.
(2) Includes
178,716 shares available for issuance under the ESPP and 193,391 shares
available for issuance under the Non-Qualified ESPP.
(3) Consists
of the Company’s 1989 Non-Qualified Stock Option Plan, the 1993 Stock Option
Plan, as amended, and the 1993 Executive Stock Option Plan. See the Notes
to the
Financial Statements included herein.
We
have
entered into indemnification agreements with each of our directors and executive
officers. These agreements require us to indemnify such individuals to the
fullest extent permitted by Delaware law for certain liabilities to which
they
may become subject as a result of their affiliation with us.
On
July
1, 2001 and September 1, 2001, we contracted with the Albert Einstein College
of
Medicine of Yeshiva University to perform certain specified research services
relating to identified research and development projects. The contracts provide
that the required research will be performed by an Albert Einstein research
center laboratory headed by Tatjana Dragic, Ph.D., who is the spouse of our
Chief Executive Officer and Chief Science Officer. In 2005, we paid Albert
Einstein College of Medicine $46,000 for their services. In addition, we
employ
one research scientist at an aggregate cost of approximately $67,000 and
who is
assigned to Dr. Dragic’s laboratory to assist with research being
performed on our behalf.
The
following table discloses the fees that PricewaterhouseCoopers LLP billed
or are
expected to bill for professional services rendered to us for each of the
last
two fiscal years:
|
|
Fees
of Auditors
|
|
Type
of Fee
|
|
2005
|
|
2004
|
|
Audit
Fees (1)
|
|
$
|
753,350
|
|
$
|
899,395
|
|
Audit
Related Fees (2)
|
|
|
64,000
|
|
|
49,000
|
|
Tax
Fees(3)
|
|
|
41,300
|
|
|
20,900
|
|
All
Other Fees(4)
|
|
|
1,611
|
|
|
1,613
|
|
(1) Consisted
of fees billed or expected to be billed by PricewaterhouseCoopers LLP in
connection with (i) the audit of our annual financial statements and reviews
of
our quarterly interim financial statements, totaling $561,850 in 2005 and
$861,275 in 2004; (ii) the filing of registration statements with the Securities
and Exchange Commission, totalling $179,000 in 2005 and $26,620 in 2004;
and
(iii) the audit of the annual financial statements of PSMA Development Company
LLC, 50% which we are responsible for, totaling an expense to us of $12,500
in
2005 and $11,500 in 2004.
(2) Consisted
of fees billed or expected to be billed by PricewaterhouseCoopers LLP for
accounting advice, including internal control reviews and consultations
concerning financial accounting and reporting standards, totaling $15,000
in
2005 and zero in 2004, as well as fees billed in connection with the audit
of
certain accounts according to the terms of our grants and contract from the
National Institutes of Health, which totaled approximately $49,000 in 2005
and
$49,000 in 2004. PricewaterhouseCoopers LLP has not yet completed its work
on
the audit of our NIH grants and contract for the year ended December 31,
2005.
(3) Consisted
of fees billed or expected to be billed by PricewaterhouseCoopers LLP for
tax-related services, including tax return preparation and advice. Fees billed
or expected to be billed by PricewaterhouseCoopers LLP for (i) tax return
preparation and other tax-related services totaling $25,000 in 2005 and $16,800
in 2004; (ii) tax return preparation for PSMA Development Company LLC, 50%
of
which we are responsible for, totaling an expense to us of $5,300 in 2005
and
$4,100 in 2004 and (iii) tax advice regarding Internal Revenue Code Section
382
analysis of $11,000. PricewaterhouseCoopers LLP has not yet completed its
work
on our and PSMA Development Company LLC’s tax returns for the fiscal year ended
December 31, 2005.
(4)
Consisted of fees to PricewaterhouseCoopers LLP for a proprietary internet-based
subscription service.
Pre-approval
of Audit and Non-Audit Services by the Audit Committee
As
part
of its duties, the Audit Committee is required to pre-approve audit and
non-audit services performed by the independent auditors in order to assure
that
the provision of such services does not impair the auditors’ independence.
Around April of every year, the Audit Committee will review a schedule, prepared
by the independent auditors, of certain types of services, and projected
fees,
to be provided for that year. The Audit Committee will review the schedule
and
provide general pre-approval of those types of services. The fee amounts
will be
updated to the extent necessary at each of the other regularly scheduled
meetings of the Audit Committee. If a type of service to be provided by the
independent auditors has not received general pre-approval during this annual
process, it will require specific pre-approval by the Audit Committee. The
Audit
Committee may delegate either general or specific pre-approval authority
to its
chairperson or any other member or members. The member to whom such authority
is
delegated must report, for informational purposes only, any pre-approval
decisions to the Audit Committee at its next meeting. The Audit Committee
did
not utilize the de minimus exception to the pre-approval requirements to
approve
any services provided by PricewaterhouseCoopers LLP during fiscal years 2004
or
2005.
PART
IV
The
following documents or the portions thereof indicated are filed as a part
of
this Report.
a) Documents
filed as part of this Report:
|
1.
|
Consolidated
Financial Statements of Progenics Pharmaceuticals,
Inc.
|
Report
of
Independent Registered Public Accounting Firm
Consolidated
Balance Sheets at December 31, 2004 and 2005
Consolidated
Statements of Operations for the years ended December 31, 2003, 2004 and
2005
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss for the years ended
December 31, 2003, 2004 and 2005
Consolidated
Statements of Cash Flows for the years ended December 31, 2003, 2004 and
2005
Notes
to
the Consolidated Financial Statements
b) Item
601 Exhibits
Those
exhibits required to be filed by Item 601 of Regulation S-K are listed in
the
Exhibit Index immediately preceding the exhibits filed herewith, and such
listing is incorporated by reference.
PROGENICS
PHARMACEUTICALS, INC.
|
Page
|
|
F-2
|
Financial
Statements:
|
|
|
F-3
|
|
F-4
|
|
F-5
|
|
F-6
|
|
F-7
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To
the
Board of Directors and Stockholders of
Progenics
Pharmaceuticals, Inc.:
We
have
completed integrated audits of Progenics Pharmaceuticals, Inc.’s 2005 and 2004
consolidated financial statements and of its internal control over financial
reporting as of December 31, 2005 and an audit of its 2003 consolidated
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.
Consolidated
financial statements
In
our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Progenics Pharmaceuticals, Inc. at December 31, 2005 and 2004,
and
the results of its operations and its cash flows for each of the three years
in
the period ended December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the standards
of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about
whether the financial statements are free of material misstatement. An audit
of
financial statements includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management’s Report on
Internal Control Over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as
of
December 31, 2005 based on criteria established in Internal
Control—Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is
fairly stated, in all material respects, based on those criteria. Furthermore,
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2005, based
on criteria established in Internal
Control—Integrated Framework issued
by
the COSO. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on the effectiveness of
the Company’s internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. An audit of internal control
over financial reporting includes obtaining an understanding of internal
control
over financial reporting, evaluating management’s assessment, testing and
evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our
opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary
to
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 15,
2006
|
|
PROGENICS
PHARMACEUTICALS, INC.
(in
thousands, except for par value and share amounts)
|
|
December
31,
|
|
|
|
2004
|
|
2005
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,227
|
|
$
|
67,072
|
|
Marketable
securities
|
|
|
24,994
|
|
|
98,983
|
|
Accounts
and unbilled receivables
|
|
|
1,112
|
|
|
3,287
|
|
Amount
due from joint venture
|
|
|
189
|
|
|
|
|
Other
current assets
|
|
|
1,810
|
|
|
2,561
|
|
Total
current assets
|
|
|
33,332
|
|
|
171,903
|
|
Marketable
securities
|
|
|
986
|
|
|
7,035
|
|
Fixed
assets, at cost, net of accumulated depreciation and
amortization
|
|
|
4,692
|
|
|
4,156
|
|
Investment
in joint venture
|
|
|
|
|
|
371
|
|
Restricted
cash
|
|
|
535
|
|
|
538
|
|
Total
assets
|
|
$
|
39,545
|
|
$
|
184,003
|
|
|
|
|
|
|
|
|
|
Liabilities
and
Stockholders’
Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
7,260
|
|
$
|
10,238
|
|
Deferred
revenue ¾
current
|
|
|
|
|
|
23,580
|
|
Due
to joint venture
|
|
|
|
|
|
194
|
|
Income
taxes payable
|
|
|
|
|
|
201
|
|
Investment
deficiency in joint venture
|
|
|
405
|
|
|
|
|
Other
current liabilities
|
|
|
|
|
|
589
|
|
Total
current liabilities
|
|
|
7,665
|
|
|
34,802
|
|
Deferred
revenue —long term
|
|
|
|
|
|
36,420
|
|
Deferred
lease liability
|
|
|
42
|
|
|
49
|
|
Total
liabilities
|
|
|
7,707
|
|
|
71,271
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 20,000,000 shares authorized; issued, and
outstanding—none
|
|
|
|
|
|
|
|
Common
stock, $.0013 par value; 40,000,000 shares authorized; issued and
outstanding— 17,280,635 in 2004 and 25,229,240 in 2005
|
|
|
22
|
|
|
33
|
|
Additional
paid-in capital
|
|
|
153,469
|
|
|
306,085
|
|
Unearned
compensation
|
|
|
(2,251
|
)
|
|
(4,498
|
)
|
Accumulated
deficit
|
|
|
(119,311
|
)
|
|
(188,740
|
)
|
Accumulated
other comprehensive (loss)
|
|
|
(91
|
)
|
|
(148
|
)
|
Total
stockholders’ equity
|
|
|
31,838
|
|
|
112,732
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
39,545
|
|
$
|
184,003
|
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS
PHARMACEUTICALS, INC.
(in
thousands, except for loss per share data)
|
|
Years
Ended December 31,
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Contract
research and development from joint venture
|
|
$
|
2,486
|
|
$
|
2,008
|
|
$
|
988
|
|
Research
grants and contracts
|
|
|
4,826
|
|
|
7,483
|
|
|
8,432
|
|
Product
sales
|
|
|
149
|
|
|
85
|
|
|
66
|
|
Total
revenues
|
|
|
7,461
|
|
|
9,576
|
|
|
9,486
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
26,374
|
|
|
35,673
|
|
|
43,419
|
|
License
fees- research and development
|
|
|
867
|
|
|
390
|
|
|
20,418
|
|
General
and administrative
|
|
|
8,029
|
|
|
12,580
|
|
|
13,565
|
|
Loss
in joint venture
|
|
|
2,525
|
|
|
2,134
|
|
|
1,863
|
|
Depreciation
and amortization
|
|
|
1,273
|
|
|
1,566
|
|
|
1,748
|
|
Total
expenses
|
|
|
39,068
|
|
|
52,343
|
|
|
81,013
|
|
Operating
loss
|
|
|
(31,607
|
)
|
|
(42,767
|
)
|
|
(71,527
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
621
|
|
|
780
|
|
|
2,299
|
|
Loss
on sale of marketable securities
|
|
|
|
|
|
(31
|
)
|
|
|
|
Total
other income
|
|
|
621
|
|
|
749
|
|
|
2,299
|
|
Net
loss before income taxes
|
|
|
(30,986
|
)
|
|
(42,018
|
)
|
|
(69,228
|
)
|
Income
taxes
|
|
|
|
|
|
|
|
|
(201
|
)
|
Net
loss
|
|
$
|
(30,986
|
)
|
$
|
(42,018
|
)
|
$
|
(69,429
|
)
|
Net
loss per share—basic and diluted
|
|
$
|
(2.32
|
)
|
$
|
(2.48
|
)
|
$
|
(3.33
|
)
|
Weighted-average
shares—basic and diluted
|
|
|
13,367
|
|
|
16,911
|
|
|
20,864
|
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE
LOSS
For
the Years Ended December 31, 2003, 2004 and 2005
(in
thousands)
|
|
Common Stock
|
|
Additional
Paid-in
|
|
Unearned
|
|
Accumulated
|
|
Accumulated
Other Comprehensive
|
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Compensation
|
|
Deficit
|
|
Income
(Loss)
|
|
Total
|
|
(Loss)
|
|
Balance
at December 31, 2002
|
|
|
12,682
|
|
$
|
17
|
|
$
|
91,332
|
|
|
|
|
$
|
(46,307
|
)
|
$
|
106
|
|
$
|
45,148
|
|
$
|
(20,890
|
)
|
Issuance
of compensatory stock options
|
|
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
326
|
|
|
|
|
Sale
of common stock under employee stock purchase plans and exercise
of stock
options
|
|
|
627
|
|
|
1
|
|
|
3,515
|
|
|
|
|
|
|
|
|
|
|
|
3,516
|
|
|
|
|
Sale
of common stock in a public offering, net of expenses of
$4,382
|
|
|
3,332
|
|
|
4
|
|
|
49,767
|
|
|
|
|
|
|
|
|
|
|
|
49,771
|
|
|
|
|
Net
loss for the year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,986
|
)
|
|
|
|
|
(30,986
|
)
|
|
(30,986
|
)
|
Change
in unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92
|
)
|
|
(92
|
)
|
|
(92
|
)
|
Balance
at December 31, 2003
|
|
|
16,641
|
|
|
22
|
|
|
144,940
|
|
|
|
|
|
(77,293
|
)
|
|
14
|
|
|
67,683
|
|
|
(31,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted stock, net of forfeited shares
|
|
|
161
|
|
|
|
|
|
2,703
|
|
$
|
(2,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of unearned compensation - employees
|
|
|
|
|
|
|
|
|
|
|
|
452
|
|
|
|
|
|
|
|
|
452
|
|
|
|
|
Issuance
of compensatory stock options - non-employees
|
|
|
|
|
|
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
385
|
|
|
|
|
Sale
of common stock under employee stock purchase plans and exercise
of stock
options
|
|
|
479
|
|
|
|
|
|
5,441
|
|
|
|
|
|
|
|
|
|
|
|
5,441
|
|
|
|
|
Net
loss for the year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,018
|
)
|
|
|
|
|
(42,018
|
)
|
|
(42,018
|
)
|
Change
in unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
(105
|
)
|
|
(105
|
)
|
Balance
at December 31, 2004
|
|
|
17,281
|
|
|
22
|
|
|
153,469
|
|
|
(2,251
|
)
|
|
(119,311
|
)
|
|
(91
|
)
|
|
31,838
|
|
|
(42,123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted stock, net of forfeited shares, and compensatory
stock
options to employees
|
|
|
134
|
|
|
|
|
|
4,125
|
|
|
(4,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of unearned compensation - employees
|
|
|
|
|
|
|
|
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
1,878
|
|
|
|
|
Issuance
of compensatory stock options to non-employees
|
|
|
|
|
|
|
|
|
640
|
|
|
|
|
|
|
|
|
|
|
|
640
|
|
|
|
|
Sale
of common stock under employee stock purchase plans and exercise
of stock
options
|
|
|
821
|
|
|
1
|
|
|
10,467
|
|
|
|
|
|
|
|
|
|
|
|
10,468
|
|
|
|
|
Sale
of common stock in public offerings, net of offering expenses of
$4,768
|
|
|
6,307
|
|
|
9
|
|
|
121,546
|
|
|
|
|
|
|
|
|
|
|
|
121,555
|
|
|
|
|
Issuance
of common stock for license rights (see Note 8)
|
|
|
686
|
|
|
1
|
|
|
15,838
|
|
|
|
|
|
|
|
|
|
|
|
15,839
|
|
|
|
|
Net
loss for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,429
|
)
|
|
|
|
|
(69,429
|
)
|
|
(69,429
|
)
|
Change
in unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
(57
|
)
|
|
(57
|
)
|
Balance
at December 31, 2005
|
|
|
25,229
|
|
$
|
33
|
|
$
|
306,085
|
|
$
|
(4,498
|
)
|
$
|
(188,740
|
)
|
$
|
(148
|
)
|
$
|
112,732
|
|
$
|
(69,486
|
)
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS
PHARMACEUTICALS, INC.
(in
thousands)
|
|
Years
Ended December 31,
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(30,986
|
)
|
$
|
(42,018
|
)
|
$
|
(69,429
|
)
|
Adjustments
to reconcile net loss to net cash (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,273
|
|
|
1,566
|
|
|
1,748
|
|
Write-off
of fixed assets
|
|
|
|
|
|
42
|
|
|
|
|
Loss
on sale of marketable securities
|
|
|
|
|
|
31
|
|
|
|
|
Amortization
of premiums/accretion of discounts, net on marketable
securities
|
|
|
644
|
|
|
640
|
|
|
270
|
|
Amortization
of unearned compensation
|
|
|
|
|
|
452
|
|
|
1,878
|
|
Loss
in Joint Venture
|
|
|
2,525
|
|
|
2,134
|
|
|
1,863
|
|
Adjustment
to loss in joint venture (See Note 10)
|
|
|
927
|
|
|
762
|
|
|
1,311
|
|
Non-cash
expense incurred in connection with issuance of compensatory stock
options
to non-employees
|
|
|
326
|
|
|
385
|
|
|
640
|
|
Purchase
of license rights for common stock (see Note 8)
|
|
|
|
|
|
|
|
|
15,839
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(463
|
)
|
|
(321
|
)
|
|
(2,175
|
)
|
(Increase)
decrease in amount due from joint venture
|
|
|
|
|
|
(189
|
)
|
|
189
|
|
Decrease
(increase) in other current assets
|
|
|
111
|
|
|
(341
|
)
|
|
(751
|
)
|
Increase
in accounts payable and accrued expenses
|
|
|
2,243
|
|
|
1,938
|
|
|
2,666
|
|
Increase
in due to joint venture
|
|
|
|
|
|
|
|
|
194
|
|
Increase
in investment in joint venture
|
|
|
(4,000
|
)
|
|
(1,950
|
)
|
|
(3,950
|
)
|
Increase
in income taxes payable
|
|
|
|
|
|
|
|
|
201
|
|
Increase
in other current liabilities
|
|
|
|
|
|
|
|
|
589
|
|
Increase
in deferred revenue
|
|
|
|
|
|
|
|
|
60,000
|
|
(Decrease)
increase in deferred lease liability
|
|
|
(21
|
)
|
|
(8
|
)
|
|
7
|
|
Net
cash (used in) provided by operating activities
|
|
|
(27,421
|
)
|
|
(36,877
|
)
|
|
11,090
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1,442
|
)
|
|
(2,240
|
)
|
|
(900
|
)
|
Purchases
of marketable securities
|
|
|
(71,417
|
)
|
|
(39,601
|
)
|
|
(205,301
|
)
|
Sales
of marketable securities
|
|
|
51,784
|
|
|
66,670
|
|
|
124,936
|
|
Increase
in restricted cash
|
|
|
(401
|
)
|
|
(3
|
)
|
|
(3
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(21,476
|
)
|
|
24,826
|
|
|
(81,268
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from public offerings of Common Stock
|
|
|
54,153
|
|
|
|
|
|
126,323
|
|
Expenses
associated with public offerings of Common Stock
|
|
|
(4,382
|
)
|
|
|
|
|
(4,768
|
)
|
Proceeds
from the exercise of stock options and sale of Common Stock under
the
Employee Stock Purchase Plan
|
|
|
3,516
|
|
|
5,441
|
|
|
10,468
|
|
Net
cash provided by financing activities
|
|
|
53,287
|
|
|
5,441
|
|
|
132,023
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
4,390
|
|
|
(6,610
|
)
|
|
61,845
|
|
Cash
and cash equivalents at beginning of period
|
|
|
7,447
|
|
|
11,837
|
|
|
5,227
|
|
Cash
and cash equivalents at end of period
|
|
$
|
11,837
|
|
$
|
5,227
|
|
$
|
67,072
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
4
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets included in accounts payable and accrued expenses
|
|
$
|
17
|
|
$
|
169
|
|
$
|
312
|
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands, except per share amounts or unless otherwise
noted)
Progenics
Pharmaceuticals, Inc. (the “Company”) is a biopharmaceutical company focusing on
the development and commercialization of innovative therapeutic products
to
treat the unmet medical needs of patients with debilitating conditions and
life-threatening diseases. The
Company’s principal programs are directed toward symptom management and
supportive care and the treatment of Human Immunodeficiency Virus (“HIV”)
infection and cancer. The
Company was incorporated in Delaware on December 1, 1986. In December 2005,
in connection with the purchase of certain license rights (see Note 8), the
Company formed a wholly-owned subsidiary, Progenics Pharmaceuticals Nevada,
Inc.
(“Progenics Nevada”). All of the Company’s operations are located in New York
State. Progenics Nevada had no operations during 2005. The Company operates
under a single segment.
The
Company has had recurring net losses. At December 31, 2005, the Company had
an
accumulated deficit of $188.7 million. During
the year ended December 31, 2005, the Company received $121.6 million, net
of
underwriting discounts and offering expenses, from the sale of approximately
6.3
million shares of its common stock in three public offerings. In addition,
the
Company received a $60.0 million upfront payment upon entering into a License
and Co-Development Agreement with Wyeth Pharmaceuticals (“Wyeth”) on December
23, 2005 for the development and commercialization of methylnaltrexone (“MNTX”),
the Company’s lead investigational drug (see Note 7). At
December 31, 2005, the Company had cash, cash equivalents and marketable
securities, including non-current portion, totaling $173.1 million. The
Company expects that cash, cash equivalents and marketable securities at
December 31, 2005 will be sufficient to fund current operations beyond one
year.
During
the year then ended, the Company had a net loss of $69.4 million and cash
provided by operating activities was $11.1 million.
Other
than potential revenues from MNTX, including those resulting from reimbursements
of the Company’s development costs and milestone, contingent and royalty
payments from Wyeth, the Company does not anticipate generating significant
recurring revenues, from product sales or otherwise, in the near term, and
the
Company expects its expenses to increase. Consequently, the Company may require
additional external funding to continue its operations at the current levels
in
the future. The Company may enter into a collaboration agreement, or license
or
sale transaction, with respect to other of its product candidates. The Company
may also seek to raise additional capital through the sale of its common
stock
or other securities and expects to fund aspects of its operations through
government grants and contracts.
2.
Summary of Significant Accounting Policies
Revenue
Recognition
During
the years ended December 31, 2003, 2004 and 2005, the Company recognized
revenue
from PSMA Development Company LLC, its joint venture with Cytogen Corporation
(the “JV”), for contract research and development; from government research
grants and contracts from the National Institutes of Health (the “NIH”), which
are used to subsidize certain of the Company’s research projects (“Projects”);
and from the sale of research reagents. On December 23, 2005, the Company
entered into a license and co-development agreement with
Wyeth,
which includes a non-refundable upfront license fee, reimbursement of
development costs, research and development payments based upon the Company’s
achievement of clinical development milestones, contingent payments based
upon
the achievement by Wyeth of defined events and royalties on product sales.
The
Company recognizes revenue from all sources based on the provisions of the
Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 (“SAB
104”) “Revenue Recognition”, Emerging Issues Task Force Issue No. 00-21 (“EITF
00-21”) “Accounting for Revenue Arrangements with Multiple Deliverables” and
EITF Issue No. 99-19 “Reporting Revenue Gross as a Principal Versus Net as an
Agent”.
Effective
January 1, 2005, the Company elected to change the method it uses to recognize
revenue under SAB104 for payments received under research and development
collaboration agreements that contain substantive at-risk milestone payments.
There was no cumulative effect of this change in accounting principle because
the Company did not have any of these contracts at the time of the change.
The
change in accounting method was made because the Company believes that it
will
enhance the comparability of its financial results with those of its peer
group
companies in the biotechnology industry and because it is expected to better
reflect the substance of the Company’s collaborative arrangements.
Under
the
new method, non-refundable upfront license fees are recognized as revenue
when
the Company has a contractual right to receive such payment, the contract
price
is fixed or determinable, the collection of the resulting receivable is
reasonably assured and the Company has no further performance obligations
under
the license agreement. Multiple element arrangements, such as license and
development arrangements, are analyzed to determine whether the deliverables,
which often include a license and performance obligations, such as research
and
steering committee services, can be separated or whether they must be accounted
for as a single unit of accounting in accordance with EITF 00-21. The Company
would recognize upfront license payments as revenue upon
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
delivery
of the license only if the license had standalone value and the fair value
of
the undelivered performance obligations, typically including research or
steering committee services, could be determined. If the fair value of the
undelivered performance obligations could be determined, such obligations
would
then be accounted for separately as performed. If the license is considered
to
either (i) not have standalone value or (ii) have standalone value but the
fair
value of any of the undelivered performance obligations could not be determined,
the arrangement would then be accounted for as a single unit of accounting
and
the upfront license payments would be recognized as revenue over the estimated
period of when the Company’s performance obligations are performed.
Whenever
the Company determines that an arrangement should be accounted for as a single
unit of accounting, the Company must determine the period over which the
performance obligations will be performed and revenue related to upfront
license
payments will be recognized. Revenue will be recognized using either a
proportionate performance or straight-line method. The Company recognizes
revenue using the proportionate performance method provided that the Company
can
reasonably estimate the level of effort required to complete its performance
obligations under an arrangement and such performance obligations are provided
on a best-efforts basis. Direct labor hours or full-time equivalents will
typically be used as the measure of performance. Under the proportionate
performance method, revenue related to upfront license payments is recognized
in
any period as the percent of actual effort expended in that period relative
to
total effort budgeted for all of the Company’s performance obligations under the
arrangement.
If
the
Company cannot reasonably estimate the level of effort required to complete
its
performance obligations under an arrangement and the performance obligations
are
provided on a best-efforts basis, then the total upfront license payments
would
be recognized as revenue on a straight-line basis over the period the Company
expects to complete its performance obligations.
Significant
management judgment is required in determining the level of effort required
under an arrangement and the period over which it expects to complete its
performance obligations under the arrangement. In addition, if the Company
is
involved in a steering committee as part of a multiple element arrangement
that
is accounted for as a single unit of accounting, the Company assesses whether
its involvement constitutes a performance obligation or a right to
participate.
Collaborations
may also contain substantive milestone payments. Substantive milestone payments
are considered to be performance payments that are recognized upon achievement
of the milestone only if all of the following conditions are met: (1) the
milestone payments are non-refundable; (2) achievement of the milestone involves
a degree of risk and was not reasonably assured at the inception of the
arrangement; (3) substantive effort is involved in achieving the milestone,
(4)
the amount of the milestone payment is reasonable in relation to the effort
expended or the risk associated with achievement of the milestone and (5)
a
reasonable amount of time passes between the upfront license payment and
the
first milestone payment as well as between each subsequent milestone payment
(the “Substantive Milestone Method”).
Determination
as to whether a milestone meets the aforementioned conditions involves
management’s judgment. If any of these conditions are not met, the resulting
payment would not be considered a substantive milestone and, therefore, the
resulting payment would be considered part of the consideration for the single
unit of accounting and be recognized as revenue as such performance obligations
are performed under either the proportionate performance or straight-line
methods, as applicable, and in accordance with the policies described
above.
The
Company will recognize revenue for payments that are contingent upon performance
solely by its collaborator immediately upon the achievement of the defined
event
if the Company has no related performance obligations.
Reimbursement
of costs is recognized as revenue provided the provisions of EITF Issue No.
99-19 are met, the amounts are determinable and collection of the related
receivable is reasonably assured.
Royalty
revenue is recognized upon the sale of related products, provided that the
royalty amounts are fixed and determinable, collection of the related receivable
is reasonably assured and the Company has no remaining performance obligations
under the arrangement. If royalties are received when the Company has remaining
performance obligations, the royalty payments would be attributed to the
services being provided under the arrangement and, therefore, would be
recognized as such performance obligations are performed under either the
proportionate performance or straight-line methods, as applicable, and in
accordance with the policies described above.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
Amounts
received prior to satisfying the above revenue recognition criteria are recorded
as deferred revenue in the accompanying consolidated balance sheets. Amounts
not
expected to be recognized during the year ended December 31, 2006 are classified
as long-term deferred revenue. As of December 31, 2005, relative to the $60
million upfront license payment received from Wyeth, the Company has recorded
$23,580 and $36,420 as short-term and long-term deferred revenue, respectively,
which is expected
to
be
recognized as revenue through 2008. The estimate of the classification of
deferred revenue as short-term or long-term is based upon management’s current
operating budget for the Wyeth collaboration agreement for its total effort
required to complete its performance obligations under that arrangement.
That
estimate may change in the future and such changes to estimates would result
in
a change in the amount of revenue recognized in future periods.
Previously,
the Company had recognized non-refundable fees, including payments for services,
up-front licensing fees and milestone payments, as revenue based on the
percentage of efforts incurred to date, estimated total efforts to complete,
and
total expected contract revenue in accordance with EITF Issue No. 91-6, “Revenue
Recognition of Long-Term Power Sales Contracts,” with revenue recognized limited
to the amount of non-refundable fees received. Depending on the magnitude
and
timing of milestone
payments,
revenue may be recognized sooner under the Substantive Milestone Method than
it
would have been under the EITF 91-6 model. The accounting change did not
affect
revenue from NIH grants and contracts, services performed on behalf of the
JV,
or from product sales.
NIH
grant
and contract revenue is recognized as efforts are expended and as related
subsidized Project costs are incurred. The Company performs work under the
NIH
grants and contract on a best-effort basis. The NIH reimburses the Company
for
costs associated with Projects in the fields of HIV and cancer, including
preclinical research, development and early clinical testing of a prophylactic
vaccine designed to prevent HIV from becoming established in uninfected
individuals exposed to the virus, as requested by the NIH. Substantive at-risk
milestone payments are uncommon in these arrangements, but would be recognized
as revenue on the same basis as the Substantive Milestone Method.
Both
the
Company and Cytogen are required to fund the JV equally to support ongoing
research and development efforts conducted by the Company on behalf of the
JV.
The Company recognizes payments for research and development as revenue as
services are performed. The Members have not approved a work plan or budget
for
2006 (see Note 10). Therefore, beginning on
January 1, 2006, the Company, will not be reimbursed by the JV for its services
and the Company will not
recognize revenue from the JV until such time as a work plan and budget are
approved.
For
the
years ended December 31, 2003, 2004 and 2005, the Company’s research grant and
contract and contract research and development revenue came exclusively from
the
NIH and the JV, respectively. The Company’s research grant and contract revenue
represented 65%, 78 % and 89% of its total revenue, respectively, and contract
research and development revenue represented 33%, 21% and 10% of its total
revenue, respectively. For the years ended December 31, 2004 and 2005,
receivables from the NIH represented 84% and 99% of total receivables,
respectively, and receivables from the JV represented 15% and 0% of total
receivables, respectively.
Research
and Development Expenses
Research
and development expenses include costs directly attributable to the conduct
of
research and development programs, including the cost of salaries, payroll
taxes, employee benefits, materials, supplies, maintenance of research
equipment, costs related to research collaboration and licensing agreements,
the
cost of services provided by outside contractors, including services related
to
the Company’s clinical trials, clinical trial expenses, the full cost of
manufacturing drug for use in research, preclinical development, and clinical
trials. All costs associated with research and development are expensed as
incurred.
For
each
clinical trial that the Company conducts, certain clinical trials costs,
which
are included in research and development expenses, are expensed based on
the
total number of patients in the trial, the rate at which patients enter the
trial, and the period over which clinical investigators or contract research
organizations provide services. At each period end, the Company evaluates
the
accrued expense balance related to these activities based upon information
received from the suppliers and estimated progress towards completion of
the
research or development objectives to ensure that the balance is reasonably
stated. Such estimates are subject to change as additional information becomes
available.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make
certain estimates and assumptions that affect the amounts reported in the
financial statements and the accompanying notes. Actual results could differ
from those estimates. Significant estimates include useful lives of fixed
assets,
the
periods over which certain revenues and expenses will be recognized, including
contract research and development revenue recognized from non-refundable
up
front licensing payments and expense recognition of certain clinical trial
costs
which are included in research and development expenses, and the likelihood
of
realization of deferred tax assets.
Patents
As
a
result of research and development efforts conducted by the Company, the
Company
has applied, or is applying, for a number of patents to protect proprietary
inventions. All costs associated with patents are expensed as
incurred.
Net
Loss Per Share
The
Company prepares its per share data in accordance with Statement of Financial
Accounting Standards No.128, “Earnings Per Share” (“SFAS No.128”). Basic net
loss per share is computed on the basis of net loss for the period divided
by
the weighted average number of shares of common stock outstanding during
the
period, which includes restricted shares only as the restrictions lapse.
Potential common shares have been excluded from diluted net loss per share
since
they would be anti-dilutive.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist of cash, cash equivalents, marketable securities and receivables
from the JV and the NIH. The Company invests its excess cash in taxable
auction rate securities (“ARS”) and corporate notes. The
Company has established guidelines that relate to credit quality,
diversification and maturity and that limit exposure to any one issue of
securities.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments which have maturities of
three
months or less, when acquired, to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates
its
fair value. Cash and cash equivalents subject the Company to concentrations
of
credit risk. At December 31, 2004 and 2005, the Company had invested
approximately $3,479 and $2,830, respectively, in funds with two major
investment companies and held approximately $1,748 and $64,242, respectively,
in
a single commercial bank. Restricted cash represents amounts held in escrow
for
security deposits and credit cards.
Marketable
Securities
In
accordance with Statement of Financial Accounting Standards No.115, “Accounting
for Certain Debt and Equity Securities,” investments are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in comprehensive income. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in interest income or expense. Realized gains and losses and declines
in value judged to be other-than-temporary, if any, on available-for-sale
securities are included in other income or expense. In computing realized
gains
and losses, the Company computes the cost of its investments on a specific
identification basis. Such cost includes the direct costs to acquire the
securities, adjusted for the amortization of any discount or premium. The
fair
value of marketable securities has been estimated based on quoted market
prices.
Interest and dividends on securities classified as available-for-sale are
included in interest income (see Note 3).
At
December 31, 2004 and 2005, the Company’s investment in marketable securities in
the current assets section of the consolidated balance sheets included $8.1
million and $45.2 million, respectively, of auction rate securities. The
Company’s investments in these securities are recorded at cost, which
approximates fair market value due to their variable interest rates, which
typically reset every 7 to 35 days, and, despite the long-term nature of
their
stated contractual maturities, the Company has the ability to quickly liquidate
these securities. As a result, the Company had no cumulative gross unrealized
holding gains (losses) or gross realized gains (losses) from these securities.
All income generated from these current investments was recorded as interest
income.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
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
|
3
years
|
Machinery
and equipment
|
5-7
years
|
Furniture
and fixtures
|
5
years
|
Leasehold
improvements
|
Life
of lease
|
Impairment
of Long-Lived Assets
The
Company periodically assesses the recoverability of fixed assets and evaluates
such assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In accordance
with
SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,”
if indicators of impairment exist, the Company assesses the recoverability
of
the affected long-lived assets by determining whether the carrying value
of such
assets can be recovered through undiscounted future operating cash flows.
If the
carrying amount is not recoverable, the Company measures the amount of any
impairment by comparing the carrying value of the asset to the present value
of
the expected future cash flows associated with the use of the asset. Based
on an
assessment as of December 31, 2005, no impairments had
occurred.
Income
Taxes
The
Company accounts for income taxes in accordance with the provisions of Statement
of Financial Accounting Standards No.109, “Accounting for Income Taxes” (“SFAS
No.109”). SFAS No.109 requires that the Company recognize deferred tax
liabilities and assets for the expected future tax consequences of events
that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined on the basis of
the
difference between the tax basis of assets and liabilities and their respective
financial reporting amounts (“temporary differences”) at enacted tax rates in
effect for the years in which the temporary differences are expected to reverse.
A valuation allowance is established for deferred tax assets for which
realization is uncertain (see Note 13).
Risks
and Uncertainties
The
Company has no products approved by the U.S. Food and Drug Administration
for
marketing. There can be no assurance that the Company’s research and development
will be successfully completed, that any products developed will obtain
necessary marketing approval by regulatory authorities or that any approved
products will be commercially viable. In addition, the Company operates in
an
environment of rapid change in technology, and it is dependent upon the
continued services of its current employees, consultants and subcontractors.
The
Company currently relies upon single-source third party manufacturers for
the
supply of bulk and finished form MNTX. For the three years ended December
31,
2005, the primary sources of the Company’s revenues were contract research and
development revenues from the JV and research grants and contracts revenues
from
the NIH. There can be no assurance that revenues from research grants and
contracts will continue. The Members have not currently approved a work plan
or
budget for 2006. Therefore, the Company will not recognize revenue from the
JV
from January 1, 2006 until
such time as a work plan and budget are approved.
Substantially all of the Company’s accounts receivable at December 31, 2005 and
December 31, 2004 were from the above-named sources.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
Stock-Based
Compensation
The
accompanying financial position and results of operations have been prepared
in
accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”). Under APB 25, generally, no compensation expense is recognized in
the financial statements in connection with the awarding of stock option
grants
to employees provided that, as of the grant date, all terms associated with
the
award are fixed and the fair value of the our stock, as of the grant date,
is
equal to or less than the amount an employee must pay to acquire the stock.
The
Company recognizes compensation expense if the terms of an option grant are
not
fixed or the quoted market price of our common stock on the grant date is
greater than the amount an employee must pay to acquire the stock. Compensation
expense is also recognized for performance-based vesting of stock options
upon
achievement of defined milestones. Unearned
compensation for restricted stock awards granted is recorded on the date
of the
grant based on the intrinsic value of such awards. Such unearned compensation
is
expensed, using a straightline method, over the period during which the related
restrictions on such stock lapse. Upon termination of employment, unvested
restricted stock awards, if any, are forfeited and compensation expense and
unearned compensation previously recognized are reversed.
On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004) “Share-Based Payment” (“SFAS No.123(R)”), using the
modified prospective method (see Note 11). In anticipation of the adoption
of
SFAS No.123(R), we have revised certain assumptions used in the Black-Scholes
option pricing model. For all awards granted on or after January 1, 2005,
we
changed the estimate of expected term from 5 years to 6.5 years. The period
used
to calculate historical volatility of the Company’s common stock has also been
revised to 6.5 years. The impact of these revisions is expected to increase
the
amount of compensation expense recognized by the Company as compared to the
amount that would have been recognized using the previous
estimates.
The
following table, which summarizes the pro forma operating results and
compensation costs for the Company’s incentive stock option and stock purchase
plans, has been determined in accordance with the fair value based method
of
accounting for stock based compensation as prescribed by Statement of Financial
Accounting Standards No.123 “Accounting for Stock-Based Compensation” (“SFAS
No.123”). Since option grants awarded during 2003, 2004 and 2005 vest over
several years and additional awards are expected to be issued in the future,
the
pro forma results shown below are not likely to be representative of the
effects
on future years of the application of the fair value based method.
|
|
Years
Ended December 31,
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
Net
loss, as reported
|
|
$
|
(30,986
|
)
|
$
|
(42,018
|
)
|
$
|
(69,429
|
)
|
Add:
Stock-based employee compensation expense included in reported
net
loss
|
|
|
103
|
|
|
452
|
|
|
1,793
|
|
Deduct:
Total stock-based employee compensation determined under fair value
based
method for all awards
|
|
|
(11,838
|
)
|
|
(8,479
|
)
|
|
(10,148
|
)
|
Pro
forma net loss
|
|
$
|
(42,721
|
)
|
$
|
(50,045
|
)
|
$
|
(77,784
|
)
|
Net
loss per share amounts, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(2.32
|
)
|
$
|
(2.48
|
)
|
$
|
(3.33
|
)
|
Pro
forma
|
|
$
|
(3.20
|
)
|
$
|
(2.96
|
)
|
$
|
(3.73
|
)
|
The
fair
value of options and warrants granted to non-employees for services, determined
using the Black-Scholes option pricing model (see Note 11 for assumptions),
is
included in the financial statements and expensed as they vest in
accordance with Emerging Issues Task Force 96-18. “Accounting for Equity
Instruments that Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services”. Net
loss
and pro forma net loss include $223, $385 and $640 of non-employee compensation
expense in the years ended December 31, 2003, 2004 and 2005,
respectively.
Other
disclosures required by SFAS No.123 have been included in
Note 11.
Comprehensive
Loss
Comprehensive
loss represents the change in net assets of a business enterprise during
a
period from transactions and other events and circumstances from non-owner
sources. The Company’s comprehensive loss includes net loss adjusted for the
change in net unrealized gain or loss on marketable securities. The disclosures
required by Statement of Financial Accounting Standards No.130,
“Reporting Comprehensive Income” for the years ended December 31, 2003, 2004 and
2005 have been included in the Statements of Stockholders’ Equity and
Comprehensive Loss.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
Impact
of Recently Issued Accounting Standards
In
December 2004, the Financial Accounting Standards Board (the “FASB”) issued
Statement No. 123 (revised 2004) “Share-Based Payment”(“SFAS No. 123(R)”), which
is a revision of FASB Statement No.123, “Accounting for Stock Based
Compensation” (“SFAS No.123”). SFAS No. 123(R) supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees” (“APB 25”), and amends FASB Statement
No. 95, “Statement of Cash Flows”. SFAS No. 123(R) requires all share-based
payments to employees, including grants of employee stock options and restricted
stock, and purchases of common stock under the Company’s Employee Stock Purchase
Plans, if compensatory, as defined, to be recognized in the financial statements
based on their grant-date fair values. The standard allows three alternative
transition methods for public companies: modified prospective method; modified
retrospective method with restatement of prior interim periods in the year
of
adoption; and modified retroactive method with restatement of all prior
financial statements to include the same amounts that were previously included
in pro forma disclosures. Historically, in accordance with SFAS No.123 and
Statement of Financial Accounting Standards No.148 “Accounting for Stock-Based
Compensation-Transition and Disclosure” (“SFAS No. 148”), the Company had
elected to follow the disclosure-only provisions of Statement No.123 and,
accordingly, accounted for share-based compensation under the recognition
and
measurement principles of APB 25 and related interpretations. Under APB 25,
when
stock options are issued to employees with an exercise price equal to or
greater
than the market price of the underlying stock price on the date of grant,
no
compensation expense is recognized in the financial statements and pro forma
compensation expense in accordance with SFAS No. 123 is only disclosed in
the
footnotes to the financial statements. The Company adopted SFAS No.123(R)
on
January 1, 2006 using the modified prospective application and the Black-Scholes
option pricing model to calculate the fair value of option awards. The Company
expects the impact that SFAS No. 123(R) will have on its results of operations
to be material. Total compensation expense related to unvested stock options
and
restricted stock at January 1, 2006 was $15.3 million,
which
will be recognized as compensation expense over a weighted average period
of 3.6
years.
On
March
29, 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin No. 107 (“SAB 107”), which expresses views of the SEC staff regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations
and provide the SEC staff’s views regarding the valuation of share-based payment
arrangements for public companies. In particular, SAB 107 provides guidance
related to share-based payment transactions with nonemployees, the transition
from nonpublic to public entity status, valuation methods (including assumptions
such as expected volatility and expected term), the accounting for certain
redeemable financial instruments issued under share-based payment arrangements,
the classification of compensation expense, non-GAAP financial measures,
first-time adoption of SFAS No. 123(R) in an interim period, capitalization
of
compensation cost related to share-based payment arrangements, the accounting
for income tax effects of share-based payment arrangements upon adoption
of SFAS
No. 123(R), the modification of employee share options prior to adoption
of SFAS
No. 123(R) and disclosures in Management’s Discussion and Analysis subsequent to
adoption of SFAS No. 123(R). The Company will implement all applicable aspects
of SAB 107, including those related to presentation and disclosure requirements
under SFAS No.123(R) beginning on January 1, 2006.
On
August
31, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-1,
“Classification and Measurement of Freestanding Financial Instruments Originally
Issued in Exchange for Employee Services under FASB Statement No. 123(R)” (“FSP
123(R)-1”). FSP 123(R)-1 indefinitely defers the requirement of SFAS No. 123(R),
that a freestanding financial instrument issued to an employee, such as a
stock
option or restricted stock award, originally subject to FAS 123(R) become
subject to the recognition and measurement requirements of other applicable
GAAP
when the rights conveyed by the instrument to the holder are no longer dependent
on the holder being an employee of the entity, such as upon termination of
employment. The Company’s Stock Incentive Plans allow exercise of equity-based
awards for a period of three months following termination of employment.
The
Company will apply the guidance in FSP 123(R)-1 upon initial adoption of
SFAS
No. 123(R), which will preclude the necessity to record a liability during
that
three month period.
On
October 18, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-2,
“Practical Exception to the Application of Grant Date as Defined in Statement
123(R)” (“FSP 123(R)-2”). FSP 123(R)-2 provides that the grant date for purposes
of accounting for stock-based compensation awards under SFAS No. 123(R) would
be
established prior to the communication of the key terms of the award to the
recipient if certain conditions are met. FSP
123(R)-2 provides that a mutual understanding of the key terms and conditions
of
an award exists at the date the award is approved by the Board of Directors
or
other management with relevant authority if the following conditions are
met:
(a) the recipient does not have the ability to negotiate the key terms and
conditions of the award with the employer (i.e., the grant is unilateral)
and
(b) the key terms of the award are expected to be communicated to all of
the
recipients within a relatively short time period from the date of approval.
FSP
123(R)-2 provides that “a relatively short time period” should be determined
based on the period during which an entity could plausibly complete the actions
necessary to communicate the terms of an award to the recipient(s) in accordance
with the entity’s customary human resource practices.
The
Company will apply the guidance
of FSP 123(R)-2 upon initial adoption of SFAS No.123(R). The Company does
not
expect any material impact from the adoption of FSP 123(R)-2 because it does
not
represent a change in its practice of granting equity-based
awards.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
On
November 10, 2005, the FASB staff issued FASB Staff Position No. FAS 123(R)-3,
“Transition Election Related to Accounting for the Tax Effects of Share-Based
Payment Awards” (“FSP 123(R)-3”). FSP 123(R)-3 provides a transition election
related to the accounting for the income tax effects of stock-based-compensation
awards upon an entity's adoption of SFAS No.123(R). The transition election
is
intended to simplify the calculation of the pool of windfall tax benefits
that
is available to absorb tax deficiencies, or shortfalls, that may occur in
periods subsequent to the adoption of SFAS No.123(R). Determining the pool
of
windfall tax benefits under SFAS No. 123(R) requires an entity to analyze
and
reconcile the book and tax records of all stock-based-compensation awards
dating
back to the original effective date of SFAS No.123 in 1995. The FASB staff
issued FSP 123(R)-3 because there may be significant cost or complexities
involved in determining the pool of windfall tax benefits from the original
effective date of SFAS No.123. FSP 123(R)-3 gives entities an election to
select
an alternative transition method (the short-cut method) for the calculation
of
the pool of windfall tax benefits as of the adoption date of SFAS
No.123(R).
The
Company has elected to adopt the short cut method when it adopts SFAS No.123(R)
and expects its pool of windfall tax benefits to be zero on the date of adoption
because it has had net operating losses since inception.
On
February 3, 2006, the FASB issued Staff Position No. FAS 123(R)-4,
“Classification of Options and Similar Instruments Issued as Employee
Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent
Event” (“FSP 123(R)-4”). FSP 1232(R)-4 amends SFAS 123(R) to allow options and
similar instruments issued as employee compensation to be accounted for as
equity instruments rather than as liabilities, as had been required by SFAS
123(R) if the option contains a cash settlement feature that can be exercised
only upon the occurrence of a contingent event that is outside the employee’s
control until it becomes probable that the event will occur. An example of
such
contingent event is a change in control of an employer. The Company does
not
expect FSP 1232(R)-4 to have a material effect on its financial
statements.
On
September 1, 2005, the FASB issued Statement No. 154, “Accounting Changes and
Error Corrections” (“SFAS No. 154”), which will require entities that
voluntarily make a change in accounting principle to apply that change
retrospectively to prior periods' financial statements, unless this would
be
impracticable. SFAS No.154 supersedes Accounting Principles Board Opinion
No.
20, “Accounting Changes” (“APB
20”), which previously required that most voluntary changes in accounting
principle be recognized by including in the current period's net income the
cumulative effect of changing to the new accounting principle. SFAS No.154
also
makes a distinction between “retrospective application” of an accounting
principle and the “restatement” of financial statements to reflect the
correction of an error. Another significant change in practice under SFAS
No.154
will be that if an entity changes its method of depreciation, amortization,
or
depletion for long-lived, nonfinancial assets, the change must be accounted
for
as a change in accounting estimate. Under APB 20, such a change would have
been
reported as a change in accounting principle. SFAS No.154 applies to accounting
changes and error corrections that are made in fiscal years beginning after
December 15, 2005. The Company does not expect the impact of adoption of
SFAS
No. 154 will be material to its financial statements.
On
November 3, 2005, the FASB issued Staff Position No. FAS 115-1 and FAS 124-1,
“The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments” (“FSP FAS 115-1 and FAS 124-1”). This FSP, effective
January 1, 2006, provides accounting guidance regarding the determination
of when an impairment of debt and equity securities should be considered
other-than-temporary, as well as the subsequent accounting for these
investments. The adoption of this FSP is not expected to have a material
impact
on the Company’s financial position or results of operations.
3.
Marketable Securities
The
Company considers its marketable securities to be “available-for-sale,” as
defined by Statement of Financial Accounting Standards No.115, “Accounting for
Certain Investments in Debt and Equity Securities,” and, accordingly, unrealized
holding gains and losses are excluded from operations and reported as a net
amount in a separate component of stockholders’ equity (See Note 2). The
following table summarizes the amortized cost basis, the aggregate fair value,
and gross unrealized holding gains and losses at December 31, 2004 and
2005:
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
|
|
Amortized
|
|
Fair
|
|
Unrealized
Holding
|
|
|
|
Cost
Basis
|
|
Value
|
|
Gains
|
|
(Losses)
|
|
Net
|
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
less than one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$
|
11,970
|
|
$
|
11,914
|
|
$
|
4
|
|
$
|
(60
|
)
|
$
|
(56
|
)
|
Government-sponsored
entities
|
|
|
5,008
|
|
|
4,980
|
|
|
|
|
|
(28
|
)
|
|
(28
|
)
|
Maturities
between one and five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
|
993
|
|
|
986
|
|
|
|
|
|
(7
|
)
|
|
(7
|
)
|
Maturities
greater than five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
Bonds (ARS)
|
|
|
8,100
|
|
|
8,100
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,071
|
|
$
|
25,980
|
|
$
|
4
|
|
$
|
(95
|
)
|
$
|
(91
|
)
|
|
|
Amortized
|
|
Fair
|
|
Unrealized
Holding
|
|
|
|
Cost
Basis
|
|
Value
|
|
Gains
|
|
(Losses)
|
|
Net
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
less than one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$
|
51,458
|
|
$
|
51,333
|
|
|
|
|
$
|
(125
|
)
|
$
|
(125
|
)
|
Government-sponsored
entities
|
|
|
2,500
|
|
|
2,484
|
|
|
|
|
|
(16
|
)
|
|
(16
|
)
|
Maturities
between one and five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
|
7,059
|
|
|
7,035
|
|
|
|
|
|
(24
|
)
|
|
(24
|
)
|
Maturities
greater than five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
Bonds (ARS)
|
|
|
45,149
|
|
|
45,166
|
|
$
|
17
|
|
|
|
|
|
17
|
|
|
|
$
|
106,166
|
|
$
|
106,018
|
|
$
|
17
|
|
$
|
(165
|
)
|
$
|
(148
|
)
|
The
total
realized losses from the sale of marketable securities for the year ended
December 31, 2004 were $31. The Company computes the cost of its investments
on
a specific identification basis. Such cost includes the direct costs to acquire
the securities, adjusted for the amortization of any discount or premium.
The
fair value of marketable securities has been estimated based on quoted market
prices.
The
following table shows the gross unrealized losses and fair value of the
Company’s marketable securities with unrealized losses that are not deemed to be
other-than-temporarily impaired, aggregated by investment category and length
of
time that individual securities have been in a continuous unrealized loss
position, at December 31, 2005.
|
|
Less
than 12 Months
|
|
12
Months or Greater
|
|
Total
|
|
Description
of Securities
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$
|
57,377
|
|
$
|
(142
|
)
|
$
|
991
|
|
$
|
(7
|
)
|
$
|
58,368
|
|
$
|
(149
|
)
|
Government-sponsored
entities
|
|
|
2,484
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
2,484
|
|
|
(16
|
)
|
Total
|
|
$
|
59,861
|
|
$
|
(158
|
)
|
$
|
991
|
|
$
|
(7
|
)
|
$
|
60,852
|
|
$
|
(165
|
)
|
Corporate
debt securities. The
Company’s investments in corporate debt securities with unrealized losses at
December 31, 2005 include 27 securities with maturities of less than one
year
($51,333 of the total fair value and $125 of the total unrealized losses
in
corporate debt securities) and four securities with maturities between one
and
two years ($7,035 of the total fair value and $24 of the total unrealized
losses
in corporate debt securities). The severity of the unrealized losses (fair
value
is approximately 0.01 percent to 0.76 percent less than cost) and duration
of
the unrealized losses (weighted average of 2.80 months) correlate with the
short
maturities of the majority of these investments and with interest
rate increases during 2005, which have generally resulted in a decrease in
the
market value of the Company’s portfolio. Based upon the Company’s currently
projected sources and uses of cash, the Company intends to hold these securities
until a recovery of fair value, which may be maturity. Therefore, the Company
does not consider these marketable securities to be other-than-temporarily
impaired at December 31, 2005.
Government-sponsored
entities. The
unrealized losses on the Company’s investments in government-sponsored
entities
were
primarily caused by interest rate increases, which have generally resulted
in a
decrease in the market value of the Company’s portfolio. Based upon the
Company’s currently projected sources and uses of cash, the Company intends to
hold these securities until a recovery of fair value, which may be maturity.
Therefore, the Company does not consider these marketable securities to be
other-than-temporarily impaired at December 31, 2005.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
4.
Fixed Assets
Fixed
assets consist of the following:
|
|
December
31,
|
|
|
|
2004
|
|
2005
|
|
Computer
equipment
|
|
$
|
722
|
|
$
|
841
|
|
Machinery
and equipment
|
|
|
5,095
|
|
|
5,263
|
|
Furniture
and fixtures
|
|
|
652
|
|
|
671
|
|
Leasehold
improvements
|
|
|
4,119
|
|
|
4,241
|
|
Construction
in progress
|
|
|
445
|
|
|
946
|
|
|
|
|
11,033
|
|
|
11,962
|
|
Less,
accumulated depreciation and amortization
|
|
|
(6,341
|
)
|
|
(7,806
|
)
|
|
|
$
|
4,692
|
|
$
|
4,156
|
|
5.
Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of the following:
|
|
December
31,
|
|
|
|
2004
|
|
2005
|
|
Accounts
payable
|
|
$
|
1,438
|
|
$
|
880
|
|
Accrued
consulting and clinical trial costs
|
|
|
3,832
|
|
|
6,721
|
|
Accrued
payroll and related costs
|
|
|
734
|
|
|
1,144
|
|
Legal
and professional fees
|
|
|
1,256
|
|
|
1,255
|
|
Other
|
|
|
|
|
|
238
|
|
|
|
$
|
7,260
|
|
$
|
10,238
|
|
6.
Stockholders’ Equity
The
Company is authorized to issue 40,000 shares of common stock, par value $.0013
(“Common Stock”), and 20,000 shares of preferred stock, par value $.001. The
Board has the authority to issue common and preferred shares, in series,
with
rights and privileges as determined by the Board.
In
November 2003, the Company completed its third public offering of Common
Stock,
which provided the Company with $49.8 million in net proceeds. As a result
of
that offering, the Company issued 3,332 shares of common stock at $16.25
per
share and incurred related expenses of $4.4 million.
During
the second and third quarters of 2005, the Company completed a series of
public
offerings of Common Stock, which provided the Company with $121.6 million
in net
proceeds from the sale of 6,307 shares of Common Stock, at prices ranging
from
$15.25 to $23.90 per share, and incurred related expenses of $4.8
million.
On
December 22, 2005, the Company entered into a series of agreements with the
licensors of the Company’s sublicense for the MNTX technology (see Notes 8 and 9
(b)(v)). The Company issued a total of 686 shares of Common Stock to the
licensors, valued at $15,839, based upon the closing price of the Company’s
Common Stock on the date of the transaction of $23.09 per
share.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
7.
License
and Co-Development Agreement with Wyeth Pharmaceuticals
On
December 23, 2005, Progenics Pharmaceuticals, Inc.(the “Company” or “Progenics”)
entered into a License and Co-Development Agreement (the “Collaboration
Agreement”) with Wyeth Pharmaceuticals, a Division of Wyeth, (“Wyeth”)
(collectively, the “Parties”) for the purpose of developing and commercializing
methylnaltrexone (“MNTX”), the Company’s lead investigational drug, for the
treatment of opioid-induced side effects, including constipation and
post-operative bowel dysfunction, associated with chronic pain and advanced
medical illness. The Collaboration Agreement contemplates three products:
(i) a
subcutaneous (“SC”) product to be used in patients with opioid-induced
constipation; (ii) an intravenous (“IV”) product to be used in patients with
post-operative bowel dysfunction and (iii) an oral (“Oral”) product to be used
in patients with opioid-induced constipation.
The
collaboration is being administered by a Joint Steering Committee (“JSC”) and a
Joint Development Committee (“JDC”), each with equal representation by the
Parties. The Joint Steering Committee is responsible for coordinating the
key
activities of Wyeth and the Company under the Collaboration Agreement. The
Joint
Development Committee is responsible for overseeing, coordinating and expediting
the development of MNTX by Wyeth and the Company.
Under
the
Collaboration Agreement, Progenics granted to Wyeth an exclusive, worldwide
license, even as to Progenics, to develop and commercialize MNTX. Progenics
is
responsible for developing the SC and IV products in the United States, until
regulatory approval. Progenics will transfer to Wyeth, at a mutually agreeable
time, any existing supply agreements with third parties for MNTX and will
sublicense any intellectual property rights to permit Wyeth to manufacture
MNTX,
during the development and commercialization phases of the Collaboration
Agreement, in both bulk and finished form for all products worldwide. Progenics
will also transfer to Wyeth all know-how, as defined, related to MNTX. Based
upon the Company’s research and development programs, such period will cease
upon completion of the Company’s development obligations under the Collaboration
Agreement.
Wyeth
is
developing the Oral product worldwide and the SC and IV products outside
the US.
In the event the JSC approves any formulation of MNTX other than subcutaneous,
intravenous or oral or any other indication for the products currently
contemplated using the subcutaneous, intravenous or oral forms of MNTX, Wyeth
will be responsible for development of such products, including conducting
clinical trials and obtaining and maintaining regulatory approval. Beginning
January 1, 2006, Wyeth is reimbursing Progenics for all development costs
incurred by Progenics that are within the budget approved by the JSC, and
is
paying all of its own development costs.
Wyeth
is
responsible for the commercialization of the SC, IV and Oral products, and
any
other products developed upon approval by the JSC, throughout the world and
will
pay all costs of commercialization of all products. Decisions with respect
to
commercialization of any products developed under the Collaboration Agreement
will be made solely by Wyeth.
Wyeth
granted to Progenics an option (the “Co-Promotion Option”) to enter into a
Co-Promotion Agreement to co-promote any of the products developed under
the
Collaboration Agreement, subject to certain conditions. The extent of the
Company’s co-promotion activities and the fee that the Company will be paid by
Wyeth for these activities, will be established when the Company exercises
its
option. Wyeth will record all sales of products worldwide (including those
sold
by the Company, if any, under a Co-Promotion Agreement). Wyeth may terminate
any
Co-Promotion Agreement if a top 15 pharmaceutical company acquires control
of
Progenics. Thus, Progenics’ potential right to commercialize any product,
including its Co-Promotion Option, are not essential to the functionality
of the
already delivered products or services, Progenics’ development obligations, and
Progenics’ failure to fulfill its co-promotion obligations would not result in a
full or partial refund (or reduction of the consideration due) or the right
to
reject the already delivered products or services.
In
addition to reimbursement of development costs, Wyeth has made or will make
the
following payments to us: (i) a nonrefundable,
noncreditable upfront payment, within five business days of execution of
the
Collaboration Agreement of $60 million; (ii) development and sales milestones
and contingent payments, consisting of defined nonrefundable, noncreditable
payments, totaling $356.5 million, including clinical and regulatory events
and
combined annual worldwide net sales, as defined and (iii) sales royalties
during
each calendar year during the royalty period, as defined, based on certain
percentages of net sales in the US and worldwide. At December 31, 2005, the
Company has deferred the recognition of revenue for the $60 million upfront
payment since work under the Collaboration Agreement did not commence until
January 2006.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
The
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last to expire
royalty period, as defined, for any product. Progenics may terminate the
Collaboration Agreement at any time upon 90 days of written notice to Wyeth
(30
days in the case of breach of a payment obligation) upon material breach
that is
not cured. Wyeth may, with or without cause, following the second anniversary
of
the first commercial sale, as defined, of the first commercial product in
the
U.S., terminate the Collaboration Agreement by providing Progenics with at
least
360 days prior written notice of such termination. Wyeth may also terminate
the
agreement (i) upon 30 days written notice following one or more serious safety
or efficacy issues that arise, as defined, and (ii) at any time, upon 90
days
written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license
the
Company granted to Wyeth will depend on the party that initiates the termination
and the reason for the termination.
The
Company
will recognize revenue in connection with the Collaboration Agreement under
SAB
104 and will apply the Substantive Milestone Method (see Note 2). In accordance
with EITF 00-21, all of the Company’s deliverables under the Collaboration
Agreement,
consisting of granting the license for MNTX, transfer of supply contracts
with
third party manufacturers of MNTX, transfer of know-how related to MNTX
development and manufacturing, and completion of development for the SC and
IV
products in the US, represent one unit of accounting since none of those
components have standalone value to Wyeth prior to regulatory approval of
at
least one product; that unit of accounting comprises the development phase,
through regulatory approval, for the SC and IV products in the U.S.
Accordingly,
Progenics deferred recognition of revenue for the upfront payment upon receipt.
Subsequently, the Company will recognize revenue for the upfront payment,
based
upon proportionate performance, over the development period of the SC and
IV
products, through regulatory approval in the US. The Company expects that
period
to extend through 2008. Since the Company has no obligation to develop the
SC or
IV products outside the US or the Oral product at all and has no significant
commercialization obligations for any product, recognition of revenue for
the
upfront payment would not be required during those periods, if they extend
beyond the period of the Company’s development obligations.
The
Company will recognize as contract research and development revenue from
collaborator amounts, reimbursable by Wyeth, for approved MNTX development
costs
incurred by the Company in each period. Upon achievement of defined substantive
development milestones by the Company for the SC and IV products in the US,
the
milestone payments will be recognized as revenue. Recognition of revenue
for
developmental contingent events related to the SC and IV products outside
the
U.S. and for the Oral product, which are the responsibility of Wyeth, will
be
recognized as revenue when Wyeth achieves those events, if they occur subsequent
to completion by the Company of its development obligations, since Progenics
would have no further obligations related to those products. Otherwise, if
Wyeth
achieves any of those events before the Company has completed its development
obligations, recognition of revenue for the Wyeth contingent events will
be
recognized over the period from the effective date of the Collaboration
Agreement to the completion of the Company’s development obligations. All sales
milestones and royalties will be recognized as revenue when earned.
8.
Acquisition of Contractual Rights from MNTX Licensors
On
December 22, 2005, Progenics and Progenics Pharmaceuticals Nevada acquired
certain rights for its lead investigational drug, methylnaltrexone (“MNTX”),
from several of its licensors.
In
2001,
Progenics entered into an exclusive sublicense agreement with UR Labs, Inc.
(“URL”) (see Note 9(b)(v)) to develop and commercialize MNTX (the “MNTX
Sublicense”) in exchange for rights to future payments resulting from the MNTX
Sublicense. In 1989, URL obtained an exclusive license to MNTX, as amended,
from
the University of Chicago (“UC”) under an Option and License Agreement dated May
8, 1985, as amended (the “URL-Chicago License”). In 2001, URL also entered into
an agreement with certain heirs of Dr. Leon Goldberg (the “Goldberg
Distributees”), which provided them with the right to receive payments based
upon revenues received by URL from the development of the MNTX Sub-license
(the
“URL-Goldberg Agreement”).
On
December 22, 2005, Progenics and Progenics Nevada entered into an Agreement
and
Plan of Reorganization (the “Purchase Agreement”) by and among Progenics
Pharmaceuticals, Inc., Progenics Pharmaceuticals Nevada, Inc., UR Labs, Inc.
and
the shareholders of UR Labs, Inc. (the “URL Shareholders”), under which
Progenics Nevada acquired substantially all of the assets of URL, comprised
of
its rights under the URL-Chicago License, the MNTX Sublicense and the
URL-Goldberg Agreement, thus assuming URL’s rights and responsibilities under
those agreements and extinguishing Progenics’ obligation to make royalty and
other payments to URL.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
On
December 22, 2005, Progenics and Progenics Nevada entered into an Assignment
and
Assumption Agreement with the Goldberg Distributees, under which Progenics
Nevada assumed all rights and obligations of the Goldberg Distributees under
the
URL-Goldberg Agreement, thereby extinguishing URL’s (and consequentially, the
Company’s) obligations to make payments to the Goldberg Distributees. Although
the Company is no longer obligated to make payments to URL or the Goldberg
Distributees, the Company is required to make future payments to the University
of Chicago that would have been made by URL.
In
consideration for the assignment of the Goldberg Distributees’ rights and of the
acquisition of the assets of URL described above, Progenics issued, on December
22, 2005, a total of 686 shares of its common stock, with a fair value of
$15.8
million, based on a closing price of the Company’s common stock of $23.09, and
paid a total of $2.6 million in cash (representing the opening market value,
$22.85 per share, of 114 shares of Progenics’ common stock on the date of the
acquisition) to the URL Shareholders and the Goldberg Distributees and paid
$310
in transaction fees. The Company has registered for resale, using its best
efforts, a portion of the consideration, totalling 286 shares of its common
stock, with the Securities and Exchange Commission using the shelf registration
process.
The
Company accounted for the acquisition of the rights described above from
the
licensors, the only asset acquired, as an asset purchase. The acquired rights,
relate to the MNTX Sublicense and the Company’s research and development
activities for MNTX, for which technological feasibility has not yet been
established, for which there is no identified alternative future use and,
which
has not received regulatory approval for marketing. Accordingly, the entire
purchase price of $18.7 million was recorded as license expense, as a separate
line item in the Company’s Consolidated Statement of Operations, in the period
incurred.
9.
Commitments and Contingencies
a.
Operating Leases
As
of
December 31, 2005, the Company leases office and laboratory space under:
(i) a
non-cancelable sublease agreement (“Sublease”) and (ii) a separate
non-cancelable direct lease agreement (“Direct Lease”). The Sublease, as
amended, provides for fixed monthly rental expense of approximately $65 through
June 30, 2007. Such amounts are recognized as rent expense on a straight-line
basis over the term of the Sublease. The Sublease can be extended at the
Company’s option for one additional two-year term. The
Direct
Lease provides for fixed monthly rental expense of approximately $56 through
August 31, 2007, and approximately $65 through December 31, 2009. The Direct
Lease can be extended at the Company’s option for two additional five-year
terms. In addition to rents due under these agreements, the Company is obligated
to pay additional facilities charges, including utilities, taxes and operating
expenses. The Company also leases certain office equipment under non-cancelable
operating leases. The leases expire at various times through January
2007.
As
of
December 31, 2005, future minimum annual payments under all operating lease
agreements are as follows:
Years
ending December 31,
|
|
Minimum
Annual
Payments
|
|
2006
|
|
$
|
1,645
|
|
2007
|
|
|
1,244
|
|
2008
|
|
|
883
|
|
2009
|
|
|
883
|
|
|
|
$
|
4,655
|
|
Rental
expense totaled approximately $841, $1,657 and $1,675 for the years ended
December 31, 2003, 2004 and 2005, respectively. For the years ended
December 31, 2003 and 2004, the Company recognized amounts paid in excess
of rental expense of approximately $21and $8, respectively. For the year
ended
December 31, 2005, the Company recognized rent expense in excess of amounts
paid
of $21. Additional facility charges, including utilities, taxes and operating
expenses, for the years ended December 31, 2003, 2004 and 2005 were
approximately $1,086, $1,932 and $2,257, respectively.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
b.
Licensing, Service and Supply Agreements
The
Company has entered into a variety of intellectual property-based license
and
service agreements and a supply agreement for MNTX in connection with its
product development programs. In connection with all the agreements discussed
below, the Company has recognized milestone, license and sublicense fees
and
supply costs, which are included in research and development expenses, totaling
approximately $1,412, $1,291 and $22,375 for the years ended December 31,
2003,
2004 and 2005, respectively. In addition, as of December 31, 2005, remaining
payments associated with milestones and defined objectives with respect to
the
agreements referred to below total approximately $15,170. Future annual minimum
royalties under the licensing agreements described below are not
significant.
i.
Columbia University
The
Company is a party to a license agreement with Columbia University under
which
it obtained exclusive, worldwide rights to specified technology and materials
relating to CD4. In general, the license agreement terminates (unless sooner
terminated) upon the expiration of the last to expire of the licensed patents,
which is presently 2021; however, patent applications that the Company has
also
licensed and patent term extensions may extend the period of its license
rights,
when and if the patent applications are allowed and issued or patent term
extensions are granted.
The
Company’s license agreement requires it to achieve development milestones. Among
others, the agreement states that the Company is required to have filed for
marketing approval of a drug by June 2001 and be manufacturing a drug for
commercial distribution by June 2004. The Company has not achieved either
of
these milestones due to delays that it believes could not have been reasonably
avoided and are reasonably beyond its control. The agreement provides that
Columbia shall not unreasonably withhold
consent
to a revision of the milestone dates under specified circumstances, and the
Company believes that the delays referred to above satisfy the criteria for
a
revision of the milestone dates. Columbia has not consented to a revision
of the
milestone dates.
The
Company has the right to terminate the agreement without cause upon 90 days
prior written notice, with the obligation to pay only those liabilities that
have accrued prior to such termination. The agreement may also be terminated,
after an opportunity to cure, by Columbia for cause upon 60 days prior written
notice.
ii.
Sloan-Kettering Institute for Cancer Research
The
Company is party to a license agreement with Sloan-Kettering under which
it
obtained the worldwide, exclusive rights to specified technology relating
to
ganglioside conjugate vaccines, including GMK, and its use to treat or prevent
cancer. In general, the Sloan-Kettering license agreement terminates upon
the
later to occur of the expiration of the last to expire of the licensed patents
or 15 years from the date of the first commercial sale of a licensed product
pursuant to the agreement, unless sooner terminated. Patents that are presently
issued expire in 2014; however, pending patent applications that we have
also
licensed and patent term extensions may extend the license period, when and
if
the patent applications are allowed and issued or patent term extensions
are
granted. In addition to
the
patents and patent applications, the Company has also licensed from
Sloan-Kettering the exclusive rights to use relevant technical information
and
know-how. A number of Sloan-Kettering physician-scientists also serve as
consultants to Progenics.
The
Company’s license agreement requires it to achieve development milestones. The
agreement states that the Company is required to have filed for marketing
approval of a drug by 2000 and to commence manufacturing and distribution
of a
drug by 2002. The Company has not achieved these milestones due to delays
that
it believes could not have been reasonably avoided. The agreement provides
that
Sloan-Kettering shall not unreasonably withhold consent to a revision of
the
milestone dates under specified circumstances, and the Company believes that
the
delays referred to above satisfy the criteria for a revision of the milestone
dates. Sloan-Kettering has not consented to a revision of the milestone dates
as
of this time.
The
Company has the right to terminate the agreement without cause upon 90 days
prior written notice, with the obligation to pay only those liabilities that
have accrued prior to such termination. The agreement may also be terminated,
after an opportunity to cure, by Sloan-Kettering for cause upon 60 days prior
written notice.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
iii.
Aquila Biopharmaceuticals, Inc.
The
Company has entered into a license and supply agreement with Aquila
Biopharmaceuticals, Inc., a wholly owned subsidiary of Antigenics Inc., pursuant
to which Aquila agreed to supply the Company with all of its requirements
for
the QS-21TM
adjuvant
for use in ganglioside-based cancer vaccines, including GMK. QS-21 is the
lead
compound in the Stimulon®
family
of adjuvants developed and owned by Aquila. In general, the license agreement
terminates upon the expiration of the last to expire of the licensed patents,
unless sooner terminated. In the U.S. the licensed patent will expire in
2008.
The
Company’s license agreement requires it to achieve development milestones. The
agreement states that the Company is required to have filed for marketing
approval of a drug by 2001 and to commence the manufacture and distribution
of a
drug by 2003. We have not achieved these milestones due to delays that we
believe could not have been reasonably avoided. The agreement provides that
Aquila shall not unreasonably withhold consent to a reasonable revision of
the
milestone dates under specified circumstances, and
we
believe that the delays referred to above satisfy the criteria for a revision
of
the milestone dates. Aquila has not consented to a revision of the milestone
dates as of this time.
The
Company has the right to terminate the agreement without cause upon 90 days
prior written notice, with the obligation to pay only those liabilities that
have accrued prior to such termination. In the event of a default by one
party,
the agreement may also be terminated, after an opportunity to cure, by
non-defaulting party upon 60 days prior written notice.
iv.
Development and License Agreement with PDL BioPharma, Inc. (formerly, Protein
Design Labs, Inc.)
The
Company has entered into a development and license agreement with Protein
Design
Labs, or PDL, for the humanization by PDL of PRO 140. Pursuant to the agreement,
PDL granted the Company exclusive and nonexclusive worldwide licenses under
patents,
patent applications and know-how relating to the humanized PRO 140. In general,
the license agreement terminates on the later of 10 years from the first
commercial sale of a product developed under the agreement or the last date
on
which there is an
unexpired
patent or a patent application that has been pending for less than ten years,
unless sooner terminated. Thereafter the license is fully paid. The last
of the
presently issued patents expires in 2014; however, patent applications filed
in
the U.S. and internationally that the Company has also licensed and patent
term
extensions may extend the period of our license rights, when and if such
patent
applications
are allowed and issued or patent term extensions are granted. The Company
has
the right to terminate the agreement without cause upon 60 days prior written
notice. In the event of a default by one party, the agreement may also be
terminated, after an opportunity to cure, by non-defaulting party upon 30
days
prior written notice.
v.
UR Labs, Inc.
In
2001,
the Company entered into an agreement with UR Labs to obtain worldwide exclusive
rights to intellectual property rights related to MNTX. UR Labs had exclusively
licensed MNTX from the University of Chicago. In consideration for the license,
the Company paid a nonrefundable, noncreditable license fee and was obligated
to
make additional payments upon the occurrence of defined milestones. On December
22, 2005, the Company entered into a series of agreements with UR Labs, which
extinguished Progenics’ obligation to make royalty and other payments to UR Labs
(see Note 8). The Company will be responsible to make certain payments to
the
University of Chicago, associated with the MNTX product development and
commercialization program, which would have been made by UR Labs.
vi.
Genzyme Transgenics Corporation
The
Company entered into a collaboration with Genzyme Transgenics to develop
a
transgenic source of the PRO 542 molecule. Under this agreement, Genzyme
Transgenics conducted work designed to result in the establishment of a line
of
transgenic goats capable of expressing the molecule in lactation milk. The
Company was obligated to pay Genzyme Transgenics certain fees to conduct
the
program as well as additional fees upon the achievement of specified milestones.
During 2005, the collaboration with Genzyme Transgenics was terminated by
mutual
consent of the parties.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
vii.
Pharmacopeia, Inc.
In
March
2000, the Company entered into a research and license agreement with
Pharmacopeia, Inc. to discover therapeutic treatments related to HIV. This
agreement expanded on a collaboration with Pharmacopeia commenced in September
1997. Under the terms of the 2000 agreement, the Company provided proprietary
assays and expertise and Pharmacopeia engaged in a screening program of its
internal compound library. In August 2000, the Company expanded its
collaboration with Pharmacopeia to add two additional programs. Progenics
was
entitled to a grant by Pharmacopeia of a license to active compounds, if
any,
identified in the program. The Company was obligated to pay Pharmacopeia
fees as
well as additional amounts upon the achievement of specified milestones and
royalties on any sales of therapeutics marketed as a result of the
collaboration. During 2005, the collaboration with Pharmacopeia was terminated
by mutual consent of the parties.
viii.
Hoffmann-LaRoche
On
December 23, 1997 (the “Effective Date”), the Company entered into an
agreement (the “Roche Agreement”) to conduct a research collaboration with F.
Hoffmann-LaRoche Ltd and Hoffmann-LaRoche, Inc. (collectively “Roche”) to
identify novel HIV therapeutics (the “Compound”). The Roche Agreement granted to
Roche an exclusive worldwide license to use certain of the Company’s
intellectual property rights related to HIV to develop, make, use and sell
products resulting from the collaboration.
ix.
Cornell Research Foundation
The
Company is party to an
Exclusive License Agreement with Cornell Research Foundation, Inc. (“Cornell”)
regarding a patent application (the “Patent”) which is jointly owned by the
Company and Cornell involving HIV. Under the agreement, Cornell granted to
the
Company an exclusive worldwide license to Cornell’s rights in the Patent and in
further inventions and patents arising from research and development conducted
by the Company or its sublicensees under the agreement. In consideration
for
Cornell granting the Exclusive License, the Company paid an upfront license
fee
and a minimum royalty payment and will make defined future annual minimum
royalty payments, milestone payments upon the achievement of certain defined
development and regulatory events and will pay royalties on net sales, as
defined of products arising from the Exclusive License. If not terminated
earlier, the agreement terminates upon the expiration of the last valid claim,
as defined, covering a product. Thereafter, the license is fully-paid and
royalty-free. Cornell may terminate the agreement if the Company is in default
of contractual payments or is in material breach of the agreement that is
not
cured within 30 days of written notice. The Company may terminate the agreement
at any time upon 60 days written notice.
x.
Mallinckrodt Inc.
In
March
2005, the Company entered into an agreement with Mallinckrodt Inc. for the
supply of the bulk form of MNTX. The contract provides for Mallinckrodt to
supply product based on a rolling forecast to be provided by the Company
to
Mallinckrodt with
respect to the Company’s anticipated needs and for the Company’s purchase of
product on specified pricing terms. Under this agreement, the Company is
obligated to purchase a portion of its requirements for bulk form MNTX from
Mallinckrodt, although the Company has no set minimum purchase
obligation. Product
supplied to the Company by Mallinckrodt is required to satisfy technical
specifications agreed to by the Company. The contract term extends to
January 1, 2008 and renews automatically thereafter for successive one-year
terms unless either party provides prior notice to the other. Prior to its
expiration, the contract may be terminated by either party upon a material
breach by the other party or upon the occurrence of specified bankruptcy
or
insolvency events. In connection with the Company’s Collaboration Agreement with
Wyeth (see Note 7), the Company’s agreement with Mallinckrodt will be
transferred to Wyeth at a mutually agreeable time.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
c.
Consulting Agreements
As
part
of the Company’s research and development efforts, it enters into consulting
agreements with external scientific specialists (“Scientists”). These agreements
contain various terms and provisions, including fees to be paid by the Company
and royalties, in the event of future sales, and milestone payments, upon
achievement of defined events, payable by the Company. Certain Scientists,
some
of whom are members of the Company’s Scientific Advisory Board, have purchased
Common Stock or received stock options which are subject to vesting provisions.
The Company has recognized expenses with regard to these consulting agreements
totaling approximately $460, $641 and $877 for the years ended December 31,
2003, 2004 and 2005, respectively. For the years ended December 31, 2003,
2004
and 2005, such expenses include the fair value of stock options granted during
2003, 2004 and 2005, which were fully vested at grant date, of approximately
$223, $385 and $640, respectively.
10.
PSMA Development Company LLC
a. Introduction
PSMA
Development Company LLC (the
“JV”) was formed on June 15, 1999 as a joint venture between the Company and
Cytogen Corporation (“Cytogen”) (each a “Member” and collectively, the
“Members”) for the purposes of conducting research, development, manufacturing
and marketing of products related to prostate-specific membrane antigen
(“PSMA”). Each Member has equal ownership and equal representation on the JV’s
management committee and equal voting rights and rights to profits and losses
of
the JV. In connection with the formation of the JV, the Members entered into
a
series of agreements, including an LLC Agreement and a Licensing Agreement
(collectively, the “Agreements”), which generally define the rights and
obligations of each Member, including the obligations of the Members with
respect to capital contributions and funding of research and development
of the
JV for each coming year. The Agreements generally terminate upon the last
to
expire of the patents granted by the Members to the JV or upon breach by
either
party, which is not cured within 60 days of written notice or upon dissolution
of the JV in accordance with the LLC Agreement.
The
Company provides research and development services to the JV and is compensated
for its services based on agreed-upon terms. Until January 2004, such services
were provided to the JV pursuant to a Services Agreement and extensions thereof.
The Services Agreement, as extended, expired effective January 31, 2004,
and as
of December 31, 2005, the Members had not yet agreed upon the terms of a
replacement services agreement, although the Company continued to provide
services to the JV, for which it was compensated. The Services Agreement
provides that all inventions made by the Company in connection with its research
and development services for the JV are to be assigned to the JV for its
use and
benefit.
b.
Funding of Research and Development by the Members
The
level
of commitment by the Members to fund the JV is based on an annual budget
and
work plan that is developed and approved by the Members. The budget is intended
to provide for sufficient funds to conduct the research and development projects
specified in the work plan for the then-current year. At
December 31, 2005, the JV had no approved budget or work plan for the year
ending December 31, 2006 because the Company and Cytogen had not yet
reached agreement with respect to a number of matters relating to the JV.
However, the Members are required to fulfill obligations under existing
contractual commitments as of December 31, 2005. Although work on the PSMA
projects continues, if the Members do not reach an agreement regarding the
2006
budget and work plan, the programs conducted by the JV would likely be delayed
or halted, and the Company’s capital commitments to, and its revenues associated
with, the joint venture would be reduced or eliminated.
Under
the
Agreements, the Company was required to fund the initial cost of research
up to
$3.0 million. As of December 31, 2001, the Company had met its obligation
to
provide this amount. Since that time, each Member has made equal capital
contributions to fund research and other costs.
The
contributions of the Members to the JV, one half of which was committed by
each
Member, were $8.0 million, $3.9 million and $7.9 million, respectively, in
the
years ended December 31, 2003, 2004 and 2005. Each Member made a capital
contribution to the JV of $0.5 million in January 2005, which was used to
fund
obligations for work performed under the approved 2004 work plan, and which
amounts are included in the total contributions for the year ended December
31,
2005 set forth above.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
c.
Contract Research and Development Revenue from the JV
Amounts
received by the Company from the JV as payment for research and development
services and reimbursement of related costs in excess of the initial $3.0
million provided by the Company (see above) are recognized as contract research
and development revenue. For the years ended December 31, 2003, 2004 and
2005,
such amounts totaled approximately $ 2.5 million, $2.0 million and $1.0 million,
respectively. According to the Agreements, the Company may directly pursue
and
obtain government grants directed to the conduct of research utilizing PSMA
related technologies. In consideration of the Company’s initial incremental
capital contribution of $3.0 million of joint venture research expenditures,
the
Company may retain $3.0 million of such government grant funding. To the
extent
that the Company retains grant revenue in respect of work for which it has
also
been compensated by the joint venture, the remainder of the $3.0 million
to be
retained by the Company is reduced and the Company records an adjustment
in its
financial statements to reduce both joint venture losses and contract revenue
from the joint venture. Such adjustments were $927, $762 and $1,311 for the
years ended December 31, 2003, 2004 and 2005, respectively, and
$3.0
million
cumulatively through December 31, 2005. Contract
research and development revenue recognized by the Company related to services
provided to the JV may vary in the future due to potential future funding
limitations on the part of the Members, disagreements between the Members
regarding JV funding or operations, the extent to which the JV requests
Progenics to perform research and development under the terms of a new Services
Agreement or other form of agreement between the Members with respect to
such
services.
d.
Selected Financial Statement Data
The
Company accounts for its investment in the JV in accordance with the equity
method of accounting. Selected financial statement data of the JV are as
follows:
Balance
Sheet Data
|
|
December 31,
|
|
|
|
2004
|
|
2005
|
|
Cash
|
|
|
|
|
$
|
873
|
|
Due
from Progenics
|
|
|
|
|
|
194
|
|
Prepaid
expenses
|
|
$
|
12
|
|
|
9
|
|
Total
assets
|
|
$
|
12
|
|
$
|
1,076
|
|
|
|
|
|
|
|
|
|
Accounts
payable to Progenics
|
|
$
|
189
|
|
|
|
|
Accounts
payable to Cytogen
|
|
|
4
|
|
$
|
3
|
|
Accounts
payable and accrued expenses
|
|
|
629
|
|
|
332
|
|
Stockholders’
(deficit) equity
|
|
|
(810
|
)
|
|
741
|
|
Total
liabilities and stockholders’ (deficit) equity
|
|
$
|
12
|
|
$
|
1,076
|
|
Statement
of Operations Data
|
|
For
the Year Ended
|
|
For
the Period from June 15, 1999 (inception) to December 31,
2005
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
|
|
Interest
income
|
|
$
|
5
|
|
$
|
7
|
|
$
|
9
|
|
$
|
250
|
|
Total
expenses (1)
|
|
|
6,909
|
|
|
5,799
|
|
|
6,358
|
|
|
30,707
|
|
Net
loss
|
|
$
|
(6,904
|
)
|
$
|
(5,792
|
)
|
$
|
(6,349
|
)
|
$
|
(30,457
|
)
|
(1) Includes contract research and development services performed by
Progenics
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
f.
Collaboration Agreements of the Joint Venture
i.
Abgenix
In
February 2001, the JV entered into a worldwide exclusive licensing agreement
with Abgenix to use Abgenix’ XenoMouse™ technology for generating fully human
antibodies to the JV’s proprietary PSMA antigen. In consideration for the
license, the JV paid a nonrefundable, non-creditable license fee and is
obligated to make additional payments upon the occurrence of defined milestones
associated with the development and commercialization program for products
incorporating an antibody generated utilizing the XenoMouse technology. This
agreement may be terminated, after an opportunity to cure, by Abgenix for
cause
upon 30 days prior written notice. The JV has the right to terminate this
agreement upon 30 days prior written notice. If not terminated early, this
agreement continues until the later of the expiration of the XenoMouse
technology patents that may result from pending patent applications or seven
years from the first commercial sale of the products.
ii.
AlphaVax Human Vaccines
In
September 2001, the JV entered into a worldwide exclusive license agreement
with
AlphaVax Human Vaccines to use the AlphaVax Replicon Vector system to create
a
therapeutic prostate cancer vaccine incorporating the JV’s proprietary PSMA
antigen. In consideration for the license, the JV paid a nonrefundable,
noncreditable license fee and is obligated to make additional payments upon
the
occurrence of certain defined milestones associated with the development
and
commercialization program for products incorporating AlphaVax’ system. This
agreement may be terminated, after an opportunity to cure, by AlphaVax under
specified circumstances that include the JV’s failure to achieve milestones;
however, the consent of AlphaVax to revisions to the due dates for the
milestones shall not be unreasonably withheld. The JV has the right to terminate
the agreement upon 30 days prior written notice. If not terminated early,
this
agreement continues until the later of the expiration of the patents relating
to
AlphaVax’ system or seven years from the first commercial sale of the products
developed using AlphaVax’ system. The last of the presently issued patents
expire in 2015; however, patent applications filed in the U.S. and
internationally that the JV has also licensed and patent term extensions
may
extend the period of the JV’s license rights, when and if such patent
applications are allowed and issued or patent term extensions are
granted.
iii.
Seattle Genetics, Inc.
In
June
2005, the JV entered into a collaboration agreement (the “SGI Agreement”) with
Seattle Genetics, Inc. (“SGI”). Under the SGI Agreement, SGI provided an
exclusive worldwide license to its proprietary antibody-drug conjugate
technology (the “ADC Technology”) to the JV. Under the license, the JV has the
right to use the ADC Technology to link cell-killing drugs to the JV’s
monoclonal antibodies that target prostate-specific membrane antigen. During
the
initial research term of the SGI Agreement, SGI also is required to provide
technical information to the JV related to implementation of the licensed
technology, which period may be extended for an additional period upon payment
of an additional fee. The JV may replace prostate-specific membrane antigen
with
another
antigen, subject to certain restrictions, upon payment of an antigen replacement
fee. The ADC Technology is based, in part, on technology licensed by SGI
from
third parties (the “Licensors”). The JV is responsible for research, product
development, manufacturing and commercialization of all products under the
SGI
Agreement. The JV may sublicense the ADC Technology to a third-party
to manufacture the ADC’s for both research and commercial use. The JV made a
$2.0 million technology access payment to
SGI
upon execution of the SGI Agreement and will make additional maintenance
payments during the term of the SGI Agreement. In addition, the JV will make
payments, aggregating $15.0 million, upon the achievement of certain defined
milestones and will pay royalties to SGI and its Licensors, as applicable,
on a
percentage of net sales, as defined. In the event that SGI provides materials
or
services to the JV under the SGI Agreement, SGI will receive supply and/or
labor
cost payments from the JV at agreed-upon rates. The ability of PSMA LLC to
comply with the terms of the SGI Agreement will depend on agreement by the
Members regarding work plans and budgets of PSMA LLC in future
years.
The
JV’s
monoclonal antibody project is currently in the pre-clinical phase of research
and development. All costs incurred by the JV under the SGI Agreement during
the
research and development phase of the project will be expensed in the period
incurred. The SGI Agreement terminates at the later of (a) the tenth anniversary
of the first commercial sale of each licensed product in each country or
(b) the
latest date of expiration of patents underlying the licensed products. The
JV
may terminate the SGI Agreement upon advance written notice to SGI. SGI may
terminate the SGI Agreement if the JV breaches an SGI in-license that is
not
cured within a specified time period after written notice. In addition, either
party may terminate the SGI Agreement upon breach by the other party that
is not
cured within a specified time period after written notice or in the event
of
bankruptcy of the other party.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
11.
Stock Incentive and Employee Stock Purchase Plans
The
Company has adopted four stock incentive plans, the 1989 Non-Qualified Stock
Option Plan, the 1993 Stock Option Plan, the 1996 Amended Stock Incentive
Plan
and the 2005 Stock Incentive Plan (individually the “89 Plan,” “93 Plan”, “96
Plan,” and “05 Plan”, respectively, or collectively, the “Plans”). Under the 89
Plan, the 93 Plan and the 96 Plan, each as amended, and the 05 Plan, a maximum
of 375, 750, 5,000 and 2,000 shares of Common Stock, respectively, are available
for awards to employees, consultants, directors and other individuals who
render
services to the Company (collectively, “Awardees”). The Plans contain certain
anti-dilution provisions in the event of a stock split, stock dividend or
other
capital adjustment as defined. The 89 Plan and 93 Plan provide for the Board,
or
the Compensation Committee (“Committee”) of the Board, to grant stock options to
Awardees and to determine the exercise price, vesting term and expiration
date.
The 96 Plan and the 05 Plan provide for the Board or Committee to grant to
Awardees stock options, stock appreciation rights, restricted stock, performance
awards or phantom stock, as defined (collectively “Awards”). The Committee is
also authorized to determine the term and vesting of each Award and the
Committee may in its discretion accelerate the vesting of an Award at any
time.
Stock options granted under the Plans generally vest pro rata over four to
ten
years and have terms of ten to twenty years. Restricted stock issued under
the
96 Plan or 05 Plan usually vests annually over a four year period, unless
specified otherwise by the Committee, and has a term of ten years. Except
as
noted below, the exercise price of outstanding stock options was equal to
the
fair value of the Company’s Common Stock on the dates of grant. Under the 89
Plan, for a period of ten years following the termination for any reason
of an
Awardee’s employment or active involvement with the Company, as determined by
the Board, the Company has the right, should certain contingent events occur,
to
repurchase any or all shares of Common Stock held by the Awardee and/or any
or
all of the vested but unexercised portion of any option granted to such Awardee
at a purchase price defined by the 89 Plan, which is equal to or exceeds
fair
value. The 89 Plan and the 93 Plan terminated in April 1994 and December
2003,
respectively, and the 96 Plan and 05 Plan will terminate in October 2006
and
April 2015, respectively; however, options granted before termination of
the
Plans will continue under the respective Plans until exercised, cancelled
or
expired.
The
following table summarizes stock option information for the Plans as of December
31, 2005:
Options
Outstanding
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
$
1.33 - $ 1.33
|
|
|
129
|
|
|
4.8
|
|
$
|
1.33
|
|
|
129
|
|
$
|
1.33
|
|
$
2.47 - $ 4.00
|
|
|
401
|
|
|
1.4
|
|
|
3.98
|
|
|
377
|
|
|
3.98
|
|
$
4.41 - $ 6.98
|
|
|
86
|
|
|
6.5
|
|
|
5.76
|
|
|
79
|
|
|
5.75
|
|
$
7.15 - $ 11.44
|
|
|
178
|
|
|
5.4
|
|
|
9.65
|
|
|
143
|
|
|
9.46
|
|
$
11.50 - $17.03
|
|
|
2,054
|
|
|
5.8
|
|
|
13.69
|
|
|
1,616
|
|
|
13.48
|
|
$17.10
- $25.62
|
|
|
1,123
|
|
|
8.0
|
|
|
20.49
|
|
|
448
|
|
|
19.24
|
|
$26.00
- $27.44
|
|
|
73
|
|
|
5.3
|
|
|
26.28
|
|
|
58
|
|
|
26.29
|
|
$42.38
- $48.88
|
|
|
40
|
|
|
4.0
|
|
|
44.82
|
|
|
40
|
|
|
44.82
|
|
$70.00
- $70.00
|
|
|
15
|
|
|
4.3
|
|
|
70.00
|
|
|
15
|
|
|
70.00
|
|
$
1.33 - $70.00
|
|
|
4,099
|
|
|
5.9
|
|
$
|
14.60
|
|
|
2,905
|
|
$
|
13.17
|
|
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
Transactions
involving stock option awards under the Plans during 2003, 2004 and 2005
are
summarized as follows:
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Balance
outstanding, December 31, 2002
|
|
|
4,164
|
|
$
|
12.26
|
|
2003:
Granted
|
|
|
982
|
|
|
14.67
|
|
Cancelled
|
|
|
(126
|
)
|
|
12.93
|
|
Exercised
|
|
|
(343
|
)
|
|
6.16
|
|
Expirations
|
|
|
(42
|
)
|
|
15.62
|
|
Balance
outstanding, December 31, 2003
|
|
|
4,635
|
|
|
13.17
|
|
2004:
Granted
|
|
|
491
|
|
|
16.94
|
|
Cancelled
|
|
|
(336
|
)
|
|
15.30
|
|
Exercised
|
|
|
(318
|
)
|
|
10.89
|
|
Expirations
|
|
|
(62
|
)
|
|
22.27
|
|
Balance
outstanding, December 31, 2004
|
|
|
4,410
|
|
|
13.46
|
|
2005:
Granted
|
|
|
703
|
|
|
21.08
|
|
Cancelled
|
|
|
(351
|
)
|
|
17.87
|
|
Exercised
|
|
|
(663
|
)
|
|
12.09
|
|
Balance
outstanding, December 31, 2005
|
|
|
4,099
|
|
$
|
14.60
|
|
As
of
December 31, 2003, 2004 and 2005, the total number of options that were
exercisable under the Plans was 2,838, 2,954 and 2,905, respectively with
weighted average exercise prices of $12.02, $12.47 and $13.17,
respectively.
As
of
December 31, 2005, shares available for future grants under the 96 Plan and
05
Plan amounted to 35 and 1,630, respectively.
During
the years ended December 31, 2002, 2003, 2004 and 2005, the Company granted
33,
225 and 75 stock options under the 96 Plan and 75 stock options under the
05
Plan, respectively, to its Chief Executive Officer. All of the options granted
in 2002 and 2005 and one-half of those granted in 2003 and 2004 cliff vest
in 9
years and 11 months from the grant date. Vesting of those options may be
accelerated upon the achievement of certain defined milestones. Accordingly,
those options are accounted for as variable plan options under APB 25. The
remaining one-half of each of the grants made in 2003 and 2004, vest over
a
four-year period and are accounted for as fixed plan options. During 2003,
two
of the milestones under the 2003 grant were achieved, resulting in the vesting
of 62 options, for which the Company recognized $103 as non-cash compensation
expense. During 2004, one of the milestones under the 2003 grant was achieved
resulting in the vesting of 11 options but no compensation expense was
recognized since that option was out- of-the-money on the date of accelerated
vesting. No milestones were achieved in 2004 under the 2004 grant. During
2005,
two of the milestones under the 2003 grant, three milestones under the 2004
grant and one milestone under the 2005 grant were achieved resulting in the
vesting of 39 options under the 2003 grant, 26 options under the 2004 grant
and
38 options under the 2005 grant. In addition, 16 stock
options, which are accounted for as variable awards under APB No. 25, that
were
granted under all four awards vested based upon the passage of time. The
Company
recognized $709 of non-cash compensation expense upon the vesting of options
in
2005.
During
the year ended December 31, 2004, the Company granted 37 options to its
President to buy shares of the Company’s common stock under the 96 Plan. The
options cliff vested in 9 years and 11 months and are subject to acceleration
of
vesting upon the achievement of certain defined milestones. No milestones
were
achieved in 2004. During March 2005, upon the achievement of one milestone,
6
stock options vested, for which the Company recognized $11 of non-cash
compensation expense. On March 4, 2005, the President notified the Company
of
his resignation from the Company. Accordingly, all unvested options were
cancelled and the vested options were exercised within six months from his
termination date.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
During
the years ended December 31, 2004 and 2005, the Company issued 161 and 134
shares, respectively, of restricted stock, net of forfeitures, at no cost
to
certain employees and Board members. Based on the fair market values of $16.85
per share in 2004 and $15.98 to $22.42 per share in 2005 on the dates of
such
grants, a total amount of $2.7 million and $3.0 million was recorded as unearned
compensation on the balance sheet for the years ended December 31, 2004 and
2005, respectively. The restrictions on such shares lapse generally over
a
period of four years and, accordingly, the total unearned compensation of
$5.7
million is being amortized as compensation expense on a straight line basis
as
such restrictions lapse. Total amortization of unearned compensation expense
for
the years ended December 31, 2004 and 2005 amounted to $452 and $1,158,
respectively, net of forfeitures.
During
1993, the Company adopted an Executive Stock Option Plan (the “Executive Plan”),
under which a maximum of 750 shares of Common Stock, adjusted for stock splits,
stock dividends, and other capital adjustments, are available for stock option
awards. Awards issued under the Executive Plan may qualify as incentive stock
options (“ISO’s”), as defined by the Internal Revenue Code, or may be granted as
non-qualified stock options. Under the Executive Plan, the Board may award
options to senior executive employees (including officers who may be members
of
the Board) of the Company. The Executive Plan terminated on December 15,
2003;
however, any options outstanding as of the termination date shall remain
outstanding until such option expires in accordance with the terms of the
respective grant. During December 1993, the Board awarded a total of 750
stock
options under the Executive Plan to one officer, of which 665 were non-qualified
options (“NQOs”) and 85 were ISOs. The ISOs have been exercised. The NQOs have a
term of 14 years and entitle the officer to purchase shares of Common Stock
at
$5.33 per share, which represented the estimated fair market value, of the
Company’s Common Stock at the date of grant, as determined by the Board of
Directors. As of December 31, 2005, all NQOs were fully vested, and options
to
purchase 475 shares remain outstanding.
The
following table summarizes stock option information for the Executive Plan
as of
December 31, 2005:
|
Options
Outstanding
|
Options
Exercisable
|
Range
of Exercise Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Exercise
Price
|
$5.33
|
475
|
2.0
|
$ 5.33
|
475
|
$ 5.33
|
On
May 1,
1998, the Company adopted two employee stock purchase plans (the “Purchase
Plans”), the 1998 Employee Stock Purchase Plan (the “Qualified Plan”) and the
1998 Non-Qualified Employee Purchase Plan (the “Non-Qualified Plan”). The
Purchase Plans provide for the grant to all employees of options to use up
to
25% of their quarterly compensation, as such percentage is determined by
the
Board of Directors prior to the date of grant, to purchase shares of the
Common
Stock at a price per share equal to the lesser of the fair market value of
the
Common Stock on the date of grant or 85% of the fair market value on the
date of
exercise. Options are granted automatically on the first day of each fiscal
quarter and expire six months after the date of grants. The Qualified Plan
is
not available for employees owning more than 5% of the Common Stock and imposes
certain other quarterly limitations on the option grants. Options under the
Non-Qualified Plan are granted to the extent the option grants are restricted
under the Qualified Plan. The Qualified and Non-Qualified Plans provide for
the
issuance of up to 1,000 and 300 shares of Common Stock,
respectively.
Purchases
of Common Stock during the years ended December 31, 2003, 2004 and 2005 are
summarized as follows:
|
|
Qualified
Plan
|
|
Non-Qualified
Plan
|
|
|
|
Shares
|
|
|
|
Shares
|
|
|
|
|
|
Purchased
|
|
Price
Range
|
|
Purchased
|
|
Price
Range
|
|
2003
|
|
|
256
|
|
$
|
3.75-$17.78
|
|
|
44
|
|
$
|
3.75-$6.66
|
|
2004
|
|
|
144
|
|
$
|
7.47-$17.13
|
|
|
17
|
|
$
|
7.47-$17.13
|
|
2005
|
|
|
130
|
|
$
|
13.60-$24.67
|
|
|
27
|
|
$
|
13.60-$24.67
|
|
At
December 31, 2005, shares reserved for future purchases under the Qualified
and
Non-Qualified Plans were 179 and 193, respectively.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
The
Company has adopted the disclosure only provision in accordance with SFAS
No.123
(see Note 2), as amended by SFAS No.148, under which compensation expense
related to employee Awards, as computed under APB No. 25, is subtracted from
the
Company’s net loss, as reported in the Statements of Operations, and non-cash
compensation expense for all employee Awards granted during the year, as
calculated under SFAS No. 123, is added back in its place. The resulting
net
loss is presented as pro forma net loss in a disclosure in the footnotes
to the
financial statements. For the purpose of the pro forma calculation, such
non-cash compensation expense under SFAS No. 123, for options granted under
the
Plans and Executive Plan and the Purchase Plans, is determined using the
Black-Scholes option pricing model prescribed by SFAS No.123. The following
assumptions were used in computing the fair value of option grants under
the
Plans and Executive Plan, and the Purchase Plans:
|
Plans
and Executive Plan
|
|
Purchase
Plans
|
|
2003
|
2004
|
2005
|
|
2003
|
2004
|
2005
|
Risk
free interest rate
|
2.7%
|
3.4%
|
3.6%
|
|
0.97%
|
1.6%
|
2.9%
|
Expected
dividend yield
|
0%
|
0%
|
0%
|
|
0%
|
0%
|
0%
|
Expected
lives
|
5
years
|
5
years
|
6.5
years
|
|
6
months
|
6
months
|
6
months
|
Expected
volatility
|
94%
|
92%
|
95%
|
|
36%
|
32%
|
39%
|
The
following table presents characteristics of stock options granted under the
Plans during the years ended December 31, 2003, 2004 and 2005:
|
|
Years
Ended December 31,
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
|
|
No.
of options granted
|
|
Weighted
Average Exercise Price per Share
|
|
Weighted
Average Grant Date Fair Value per Share
|
|
No.
of options granted
|
|
Weighted
Average Exercise Price per Share
|
|
Weighted
Average Grant Date Fair Value per Share
|
|
No.
of options granted
|
|
Weighted
Average Exercise Price per share
|
|
Weighted
Average Grant Date Fair Value per Share
|
|
Exercise
price equal to grant date market price
|
|
|
963
|
|
$
|
14.82
|
|
$
|
10.79
|
|
|
472
|
|
$
|
17.29
|
|
$
|
12.38
|
|
|
680
|
|
$
|
21.22
|
|
$
|
17.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
price less than grant date market price
|
|
|
19
|
|
$
|
5.03
|
|
$
|
9.96
|
|
|
19
|
|
$
|
8.17
|
|
$
|
14.48
|
|
|
23
|
|
$
|
16.85
|
|
$
|
18.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
982
|
|
|
|
|
|
|
|
|
491
|
|
|
|
|
|
|
|
|
703
|
|
|
|
|
|
|
|
12.
Employee Savings Plan
During
1993, the Company adopted the provisions of the amended and restated Progenics
Pharmaceuticals 401(k) Plan (the “Amended Plan”). The terms of the Amended Plan,
among other things, allow eligible employees to participate in the Amended
Plan
by electing to contribute to the Amended Plan a percentage of their compensation
to be set aside to pay their future retirement benefits. The Company has
agreed
to match 100% of those employee contributions that are equal to 5%-8% of
compensation and are made by eligible employees to the Amended Plan (the
“Matching Contribution”). In addition, the Company may also make a discretionary
contribution each year on behalf of all participants who are non-highly
compensated employees. The Company made Matching Contributions of approximately
$558, $723 and $875 to the Amended Plan for the years ended December 31,
2003,
2004 and 2005, respectively. No discretionary contributions were made during
those years.
13.
Income Taxes
The
Company accounts for income taxes using the liability method in accordance
with
Statement of Financial Accounting Standards No.109, “Accounting for Income
Taxes” (“SFAS 109”). Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for
financial reporting purposes and the amounts used for income tax
purposes.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ 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, 2003 or 2004. For the year ended December 31, 2005, although
the
Company had a pre-tax net loss of $69.2 million, it had taxable income due
primarily to the $60 million upfront payment received from Wyeth (see Note
7)
and the $18.4 million cash and common stock paid to UR Labs and the Goldbergs
(see Note 8), which were treated differently for book and tax purposes. For
book
purposes, payments made to UR Labs and the Goldberg Distributees were expensed
in the period the payments were made. However, for tax purposes, the UR Labs
transaction was a tax-free re-organization and will never result in a deduction
for tax purposes and the payments to the Goldberg Distrbutees have been
capitalized as an intangible license asset and will be deducted for tax purposes
over a fifteen year period. The Company is in the process of completing a
calculation, under Internal Revenue Code Section 382, to determine whether
past
ownership changes will limit utilization of NOL’s to offset 2005 taxable income.
However, the Company believes that it is subject to a limitation but has
sufficient NOL’s at December 31, 2005 to fully offset current year taxable
income. The Company has, therefore, recognized an income tax provision for
the
effect of the Federal and state alternative minimum tax. Future ownership
changes may further limit the future utilization of net operating loss and
tax
credit carry-forwards as defined by the federal and state tax
codes.
Deferred
tax assets consist of the following:
|
|
December
31,
|
|
|
|
2004
|
|
2005
|
|
Depreciation
and amortization
|
|
$
|
809
|
|
$
|
1,033
|
|
R&D
tax credit carry-forwards
|
|
|
4,651
|
|
|
5,
692
|
|
AMT
credit carry-forwards
|
|
|
211
|
|
|
412
|
|
Net
operating loss carry-forwards
|
|
|
51,578
|
|
|
49,134
|
|
Deferred
revenue
|
|
|
|
|
|
23,909
|
|
Other
items
|
|
|
597
|
|
|
3,433
|
|
|
|
|
57,846
|
|
|
83,613
|
|
Valuation
allowance
|
|
|
(57,846
|
)
|
|
(83,613
|
)
|
|
|
$
|
— |
|
$ |
— |
|
The
Company does not recognize deferred tax assets considering its history of
taxable losses and the uncertainty regarding the Company’s ability to generate
sufficient taxable income in the future to utilize these deferred tax
assets.
The
following is a reconciliation of income taxes computed at the Federal statutory
income tax rate to the actual effective income tax provision:
|
|
Year
Ended December 31,
|
|
|
2003
|
|
2004
|
|
2005
|
U.S.
Federal statutory rate
|
|
(34%)
|
|
(34)%
|
|
(34%)
|
Exercise
of non-qualified stock options
|
|
(2.8)
|
|
(1.8)
|
|
(2.5)
|
Research
and experimental tax credit
|
|
1.1
|
|
0.8
|
|
0.5
|
UR
Labs license purchase
|
|
|
|
|
|
5.7
|
Change
in valuation allowance
|
|
36.3
|
|
35.4
|
|
30.7
|
Other
|
|
(0.6)
|
|
(0.4)
|
|
(0.3)
|
Income
tax provision
|
|
0%
|
|
0%
|
|
0.2%
|
As
of
December 31, 2005, the Company had available, for tax return purposes, unused
net operating loss carry-forwards (“NOL’s”) of approximately $123.3 million,
which will expire in various years from 2010 to 2024, $27.8 million of which
were generated from deductions that, when realized, will reduce taxes payable
and will increase paid-in-capital.
In
connection with the Company’s adoption of SFAS No. 123(R) “Share-Based Payment”
on January 1, 2006 (see Note 2), the Company has elected to implement the
short
cut method of calculating its pool of windfall tax benefits. Accordingly,
the
Company expects its pool of windfall tax benefits on January 1, 2006 to be
zero
because it has had NOL’s since inception and, therefore, has never recognized
any net increases in additional paid-in capital in the Company’s annual
financial statements related to tax benefits from stock-based employee
compensation during fiscal periods subsequent to the adoption of SFAS No.123
but
prior to the adoption of SFAS No.123(R).
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾ continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
The
Company’s research and experimental tax credit carry-forwards of approximately
$5.7 million at December 31, 2005 expire in various years from 2006 to 2025.
During the year ended December 31, 2005, research and experimental tax credit
carry-forwards of approximately $53 expired.
14.
Net Loss Per Share
The
Company’s basic net loss per share amounts have been computed by dividing net
loss by the weighted-average number of common shares outstanding during the
period. For the years ended December 31, 2003, 2004 and 2005, the Company
reported a net loss and, therefore, potential common shares were not included
since such inclusion would have been anti-dilutive. The calculations of net
loss
per share, basic and diluted, are as follows:
|
|
Net
Loss
(Numerator)
|
|
Weighted
Average
Common
Shares
(Denominator)
|
|
Per
Share
Amount
|
|
2003:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(30,986
|
)
|
|
13,367
|
|
$
|
(2.32
|
)
|
2004:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(42,018
|
)
|
|
16,911
|
|
$
|
(2.48
|
)
|
2005:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(69,429
|
)
|
|
20,864
|
|
$
|
(3.33
|
)
|
For
the
years ended December 31, 2003, 2004 and 2005, potential common shares
which have been excluded from diluted per share amounts because their effect
would have been anti-dilutive include the following:
|
|
Years
Ended December 31,
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
|
|
Weighted
Average
Number
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Number
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Number
|
|
Weighted
Average
Exercise
Price
|
|
Options
and warrants
|
|
|
4,911
|
|
$
|
9.53
|
|
|
4,378
|
|
$
|
10.15
|
|
|
4,640
|
|
$
|
13.08
|
|
Restricted
stock
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
204
|
|
|
|
|
Total
|
|
|
4,911
|
|
|
|
|
|
4,461
|
|
|
|
|
|
4,844
|
|
|
|
|
15.
Unaudited Quarterly Results
Summarized
quarterly financial data for the years ended December 31, 2004 and 2005 are
as
follows:
|
|
Quarter
Ended
March
31,
2004
(unaudited)
|
|
Quarter
Ended
June
30,
2004
(unaudited)
|
|
Quarter
Ended
September
30,
2004
(unaudited)
|
|
Quarter
Ended
December
31,
2004
(unaudited)
|
|
Revenue
|
|
$
|
1,748
|
|
$
|
2,175
|
|
$
|
2,361
|
|
$
|
3,292
|
|
Net
loss
|
|
|
(10,225
|
)
|
|
(10,876
|
)
|
|
(10,636
|
)
|
|
(10,281
|
)
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
(0.61
|
)
|
|
(0.64
|
)
|
|
(0.63
|
)
|
|
(0.60
|
)
|
|
|
Quarter
Ended
March
31,
2005
(unaudited)
|
|
Quarter
Ended
June
30,
2005
(unaudited)
|
|
Quarter
Ended
September
30,
2005
(unaudited)
|
|
Quarter
Ended
December
31,
2005
(unaudited)
|
|
Revenue
|
|
$
|
2,589
|
|
$
|
2,075
|
|
$
|
2,774
|
|
$
|
2,048
|
|
Net
loss
|
|
|
(13,194
|
)
|
|
(12,795
|
)
|
|
(10,743
|
)
|
|
(32,697
|
)
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
(0.76
|
)
|
|
(0.65
|
)
|
|
(0.49
|
)
|
|
(1.34
|
)
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange
Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned, hereunto duly authorized.
|
PROGENICS
PHARMACEUTICALS, INC.
|
|
By:
|
PAUL
J. MADDON, M.D., PH.D.
|
|
|
Paul
J. Maddon, M.D., Ph.D.
(Duly
authorized officer of the
Registrant
and Chief Executive Officer, Chief Science Officer and
Director)
|
Date:
March 15, 2006
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Signature
|
|
Capacity
|
Date
|
|
|
|
|
/s/
KURT W. BRINER
|
|
Co-Chairman
|
March 15,
2006
|
Kurt
W. Briner
|
|
|
|
|
|
|
|
/s/
PAUL F. JACOBSON
|
|
Co-Chairman
|
March 15,
2006
|
Paul
F. Jacobson
|
|
|
|
|
|
|
|
/s/
PAUL J. MADDON, M.D., PH.D.
|
|
Chief
Executive Officer, Chief Science
|
March 15,
2006
|
Paul
J. Maddon, M.D., Ph.D.
|
|
Officer
and Director (Principal Executive Officer)
|
|
|
|
|
|
/s/
CHARLES A. BAKER
|
|
Director
|
March 15,
2006
|
Charles
A. Baker
|
|
|
|
|
|
|
|
/s/
MARK F. DALTON
|
|
Director
|
March 15,
2006
|
Mark
F. Dalton
|
|
|
|
|
|
|
|
/s/
STEPHEN P. GOFF, PH.D.
|
|
Director
|
March 15,
2006
|
Stephen
P. Goff, Ph.D.
|
|
|
|
|
|
|
|
/s/
DAVID A. SCHEINBERG, M.D., PH.D.
|
|
Director
|
March 15,
2006
|
David
A. Scheinberg, M.D., Ph.D.
|
|
|
|
|
|
|
|
/s/
ROBERT A. MCKINNEY, CPA
|
|
Chief
Financial Officer, Senior Vice President,
|
March 15,
2006
|
Robert
A. McKinney, CPA
|
|
Finance
& Operations and Treasurer
|
|
|
|
(Principal
Financial and Accounting Officer)
|
|
Exhibit
Number
|
Description
|
3.1(1)
|
Certificate
of Incorporation of the Registrant, as amended.
|
3.2(1)
|
By-laws
of the Registrant
|
4.1(1)
|
Specimen
Certificate for Common Stock, $.0013 par value per share, of the
Registrant
|
10.1(1)
|
Form
of Registration Rights Agreement
|
10.2(1)
|
1989
Non-Qualified Stock Option Plan‡
|
10.3(1)
|
1993
Stock Option Plan, as amended‡
|
10.4(1)
|
1993
Executive Stock Option Plan‡
|
10.5(4)
|
Amended
and Restated 1996 Stock Incentive Plan‡
|
10.5.1(12)
|
Form
of Non-Qualified Stock Option Agreement‡
|
10.5.2(12)
|
Form
of Restricted Stock Award‡
|
10.6(1)
|
Form
of Indemnification Agreement‡
|
10.7(2)
|
Employment
Agreement dated December 31, 2003 between the Registrant and Dr.
Paul J.
Maddon‡
|
10.8(1)
|
Letter
dated August 25, 1994 between the Registrant and Dr. Robert J.
Israel‡
|
10.9(10)
|
1998
Employee Stock Purchase Plan‡
|
10.10(10)
|
1998
Non-qualified Employee Stock Purchase Plan‡
|
10.11(1)†
|
License
Agreement dated November 17, 1994 between the Registrant and
Sloan-Kettering Institute for Cancer Research
|
10.12(1)†
|
QS-21
License and Supply Agreement dated August 31, 1995 between the
Registrant
and Cambridge Biotech Corporation, a wholly owned subsidiary of
bioMerieux, Inc.
|
10.13(1)†
|
License
Agreement dated March 1, 1989, as amended by a Letter Agreement
dated
March 1, 1989 and as amended by a Letter Agreement dated October
22, 1996
between the Registrant and the Trustees of Columbia
University
|
10.14(6)
|
Amended
and Restated Sublease dated June 6, 2000 between the Registrant
and
Crompton Corporation
|
10.15(3)†
|
Development
and License Agreements, effective as of April 30, 1999, between
Protein
Design Labs, Inc. and the Registrant
|
10.15.1
|
Letter
Agreement dated November 24, 2003 relating to the Development and
License
Agreement between Protein Design Labs, Inc. and the
Registrant
|
10.16(3)†
|
PSMA/PSMP
License Agreement dated June 15, 1999, by and among the Registrant,
Cytogen Corporation and PSMA Development Company LLC
|
10.17(3)†
|
Limited
Liability Company Agreement of PSMA Development Company LLC, dated
June
15, 1999, by and among the Registrant, Cytogen Corporation and
PSMA
Development Company LLC
|
10.18(8)
|
Amendment
Number 1 to Limited Liability Company Agreement of PSMA Development
Company LLC dated March 22, 2002 by and among the Registrant, Cytogen
Corporation and PSMA Development Company LLC
|
10.19(5)
|
Director
Stock Option Plan‡
|
10.20(7)†
|
Exclusive
Sublicense Agreement, dated September 21, 2001, between the Registrant
and
UR Labs, Inc.
|
10.20.1(11)
|
Amendment
to Exclusive Sublicense Agreement between the Registrant and UR
Labs,
Inc., dated September 21, 2001
|
10.21(9)
|
Research
and Development Contract between the National Institutes of Health
and the
Registrant, dated September 26, 2003
|
10.22(9)
|
Agreement
of Lease between Eastview Holdings LLC and the Registrant, dated
September
30, 2003
|
10.23(9)
|
Letter
Agreement amending Agreement of Lease between Eastview Holdings
LLC and
the Registrant, dated October 23, 2003
|
10.24(13)
|
Summary
of Non-Employee Director Compensation‡
|
10.25(14)
†
|
Supply
Agreement, dated January 1, 2005, between Progenics Pharmaceuticals,
Inc.
and Mallinckrodt Inc.
|
10.26
|
License
and Co-Development Agreement dated December 23, 2005 by and among
Wyeth,
acting through Wyeth Pharmaceuticals Division, Wyeth-Whitehall
Pharmaceuticals, Inc. and Wyeth-Ayerst Lederle, Inc. and Progenics
Pharmaceuticals, Inc. and Progenics Pharmaceuticals Nevada, Inc.
(confidential treatment has been requested as to certain portions,
which
portions have been omitted and filed separately with the
Commission).
|
10.27
|
Option
and License Agreement dated May 8, 1985 by and between the University
of
Chicago and UR Labs, Inc., as amended by the Amendment to Option
and
License Agreement dated September 17, 2005 by and between the
University
of Chicago and UR Labs, Inc., by the Second Amendment to Option
and
License Agreement dated March 3, 1989 by and among the University
of
Chicago, ARCH Development Corporation and UR Labs, Inc. and
by the
Letter Agreement Related to Progenics' MNTX In-License dated
December 22,
2005 by and among the University of Chicago, acting on behalf
of itself
and ARCH Development Corporation, Progenics Pharmaceuticals,
Inc.,
Progenics Pharmaceuticals Nevada, Inc. and Wyeth, acting through
its Wyeth
Pharmaceuticals Division (confidential treatment has been requested
as to
certain portions, which portions have been omitted and filed
separately
with the Commission).
|
23.1
|
Consent
of PricewaterhouseCoopers LLP
|
31.1
|
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.
|
31.2
|
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.
|
32.1
|
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.
|
32.2
|
Certification
of Robert A. McKinney, Chief Financial Officer, Senior Vice President,
Finance and Operations and Treasurer of the Registrant pursuant
to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
(1) Previously
filed as an exhibit to the Company’s Registration Statement on Form S-1,
Commission File No. 333-13627, and incorporated by reference
herein.
(2) Previously
filed as an exhibit to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2003, and incorporated by reference
herein.
(3) Previously
filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999, and incorporated by reference
herein.
(4) Previously
filed as an exhibit to the Company’s Registration Statement on Form S-8,
Commission File No. 333-120508, and incorporated by reference
herein.
(5) Previously
filed as an exhibit to the Company’s Annual Report on Form 10-K for the
year ended December 31, 1999, and incorporated by reference
herein.
(6) Previously
filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000, incorporated by reference
herein.
(7) Previously
filed as an exhibit to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2002, incorporated by reference herein.
(8) Previously
filed as an exhibit to the Company Annual Report on Form 10-K/A for the year
ended December 31, 2002, filed on October 22, 2003, incorporated by
reference herein.
(9) Previously
filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ending September 30, 2003, and incorporated by reference
herein.
(10) Previously
filed as an exhibit to the Company’s Registration Statement on Form S-8,
Commission File No. 333-119463, and incorporated by reference
herein.
(11) Previously
filed as an exhibit to the Company’s Current Report on Form 8-K filed on
September 20, 2004, and incorporated by reference herein.
(12) Previously
filed as an exhibit to the Company’s Current Report on Form 8-K filed on January
14, 2005, and incorporated by reference herein.
(13)
Previously filed as an exhibit to the Company’s Annual Report on Form 10-K
for the year ended December 31, 2004, incorporated by reference
herein.
(14)
Previously filed as an exhibit to the Company's Amended Quarterly Report
on Form
10-Q/A for the quarterly period ended
March 31, 2005.
† Confidential
treatment granted as to certain portions, which portions are omitted and
filed
separately with the Commission.
‡ Management
contract or compensatory plan or arrangement.