Form 10K December 31, 2006
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, 2006
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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:
Title
of each class Name
of each exchange on which registered
Common
Stock, par value $0.0013 per share
The
NASDAQ Stock Market LLC
Securities
Registered pursuant to Section 12(g) of the
Act:
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None
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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, 2006, based upon the closing price of the Common
Stock on The NASDAQ Stock Market LLC of $24.06 per share, was approximately
$384,663,000 (1). As of March 14, 2007, 26,444,178 shares of Common
Stock, par value $.0013 per share, were outstanding.
(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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DOCUMENTS
INCORPORATED BY REFERENCE
Specified
portions of the Registrant’s definitive proxy statement to be filed in
connection with solicitation of proxies for its 2007 Annual Meeting of
Shareholders are incorporated by reference into Part III of this
Form 10-K.
Total
number of pages 90
PART
I
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Item
1.
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1
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Item
1A.
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19
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Item
1B.
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29
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Item
2.
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29
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Item
3.
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29
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Item
4.
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PART
II
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Item
5.
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30
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Item
6.
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31
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Item
7.
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32
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Item
7A.
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52
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Item
8.
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52
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Item
9.
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52
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Item
9A.
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52
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Item
9B.
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53
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PART
III
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Item
10.
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54
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Item
11.
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54
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Item
12.
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54
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Item
13.
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54
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Item
14.
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54
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PART
IV
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Item
15.
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55
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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 methylnaltrexone, the uncertainties associated with product
development, the risk that clinical trials will not commence, proceed or be
completed as planned, the risk that our 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 gastroenterology, virology
and oncology.
Gastroenterology
In
the
area of gastroenterology, our work is focused on methylnaltrexone, which is
our
most advanced product candidate. In December 2005, we entered into a license
and
co-development agreement (the “Collaboration Agreement”) with Wyeth
Pharmaceuticals (“Wyeth”) to develop and commercialize subcutaneous, intravenous
and oral forms of methylnaltrexone. See Gastroenterology,
below.
Virology
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. Human Immunodeficiency Virus (“HIV”) is the virus that causes
Acquired Immunodeficiency Syndrome (“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 completed
enrollment and dosing in December 2006. We are also involved in research
regarding a vaccine against HIV infection. See “HIV”
below.
We are
conducting research into therapeutics
for hepatitis C virus infection. See “Virology-
Hepatitis C Viral Entry Inhibitor”,
below.
Oncology
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”). Prior to April 20, 2006, PSMA LLC was
our joint venture with Cytogen Corporation (“Cytogen”) and has subsequently
become our wholly owned subsidiary. See “Prostate
Cancer”,
below.
We
are
also developing a cancer vaccine, GMK, in phase 3 clinical trials for the
treatment of malignant melanoma. See “Melanoma-
GMK Vaccine”,
below.
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 methylnaltrexone,
novel
HIV therapeutics and cancer immunotherapies. We own the worldwide
commercialization rights to each of our product candidates except
methylnaltrexone, the commercialization of which is the responsibility of Wyeth
under the Collaboration Agreement.
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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Gastroenterology
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Methylnaltrexone-Subcutaneous
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Treatment
of opioid-induced constipation
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Phase
3 completed in patients receiving palliative care
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Methylnaltrexone-Intravenous
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Management
of post-operative ileus
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Phase
3
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Methylnaltrexone-Oral
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Treatment
of opioid-induced constipation
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Clinical
testing of new formulation
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Virology
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|
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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, completed enrollment and dosing
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ProVax
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Treatment
of HIV infection
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Research
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Other
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Hepatitis
C virus (HCV)
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Treatment
of HCV infection
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Research
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Oncology
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Prostate
Cancer
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PSMA:
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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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Melanoma
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|
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GMK
vaccine
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Immunotherapy
for melanoma
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Phase
3
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___________
(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.
None
of
our product candidates has received marketing approval from the United States
Food and Drug Administration (“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.
Gastroenterology
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 215 million prescriptions for opioids are written annually in
the
U.S. Physicians prescribe opioids for patients receiving palliative care,
undergoing surgery or experiencing chronic pain, as well as for other
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.
Methylnaltrexone
Methylnaltrexone
is a selective, peripheral, opioid-receptor antagonist that reverses certain
side effects induced by opioid use. Methylnaltrexone competes with opioid
analgesics for binding sites on opioid receptors, and is designed not to cross
the blood-brain barrier. As a result, methylnaltrexone “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, methylnaltrexone does not block the pain
relief that the opioids provide, an important need not currently met by any
approved drugs. To date, patients treated with methylnaltrexone, 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.
Methylnaltrexone has been studied in numerous clinical trials. To date,
methylnaltrexone 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 share with Wyeth the responsibilities for
developing and obtaining marketing approval of methylnaltrexone in the United
States. Our responsibility extends to developing and obtaining marketing
approval for the subcutaneous and intravenous forms in the United States. Wyeth
is responsible for developing and obtaining marketing approval for the oral
form
in the United States and for the three forms of methylnaltrexone outside of
the
United States. Once marketing approval is obtained, Wyeth is responsible for
commercializing all three forms of methylnaltrexone worldwide. We have an
option, under certain circumstances, to co-promote the sale of any or all of
the
three forms of methylnaltrexone in the United States. Wyeth is reimbursing
us
for the development costs which we incur for methylnaltrexone and has agreed
to
pay us certain fees if we co-promote methylnaltrexone.
Our
rights to methylnaltrexone arise under a license from the University of Chicago.
See Progenics’
Licenses—UR Labs/ University of Chicago,
below.
Subcutaneous
methylnaltrexone.
Our most
advanced clinical experience with methylnaltrexone is as a treatment for
opioid-induced constipation. Constipation is a serious medical problem for
patients who are being treated with opioid medications. We have successfully
completed two pivotal phase 3 clinical trials of the subcutaneous form of
methylnaltrexone in patients receiving palliative care, including cancer,
Acquired Immunodeficiency Syndrome (“AIDS”) and heart disease. Each year in the
U.S., approximately 1.8 million patients receiving palliative care experience
opioid-induced constipation.
We
achieved positive results from the pivotal phase 3 clinical trials (studies
301
and 302) of methylnaltrexone. All primary and secondary endpoints of both of
the
phase 3 studies were met and were statistically significant. The drug was
generally well tolerated in both phase 3 trials. We now expect to submit a
New
Drug Application to the FDA in March 2007 for subcutaneous methylnaltrexone
in
this setting.
Intravenous
methylnaltrexone. We
are
also developing an intravenous form of methylnaltrexone for the management
of
post-operative ileus.
Of the
patients who undergo surgery in the U.S. each year, approximately 2.4 million
patients are at high risk for developing ileus, a serious impairment of the
gastrointestinal tract. Post-operative ileus is believed to be caused in part
by
the release by the body of endogenous opioids in response to the trauma of
surgery and may be exacerbated by the use of opioids, such as morphine, in
surgery and in the post-operative period. Post-operative ileus is a major factor
in increasing hospital stay, as patients are typically not discharged until
bowel function is restored.
We
and
Wyeth are conducting two global pivotal phase 3 clinical trials to
evaluate the safety and efficacy of
intravenous methylnaltrexone for the treatment of post-operative ileus. In
October 2006, we earned a $5.0 million milestone payment in connection with
the
initiation of the first phase 3 clinical trial.
Oral
methylnaltrexone. We
and
Wyeth are also developing an oral form of methylnaltrexone for the treatment
of
opioid-induced constipation in patients with chronic pain. More than 215 million
prescriptions are written annually for opioids and approximately 12 million
patients in the U.S. use opioids chronically, many of whom experience
opioid-induced constipation.
Prior
to
entering into the Collaboration Agreement with Wyeth, we had completed
phase 1 clinical trials of oral methylnaltrexone in healthy volunteers, which
indicated that methylnaltrexone was well tolerated. Wyeth has also conducted
certain additional phase 1 clinical trials of oral methylnaltrexone. In August,
2006, Wyeth initiated a
phase 2
clinical trial to evaluate once-daily dosing of oral methylnaltrexone.
Preliminary
results from the phase 2 trial, conducted by Wyeth, showed that the initial
formulation of oral methylnaltrexone was generally well tolerated but did not
exhibit sufficient clinical activity to advance into phase 3 testing. Wyeth
is
beginning clinical testing in March 2007 of a new formulation of oral
methylnaltrexone for the treatment of opioid-induced constipation.
Virology
HIV
Infection
by HIV causes a slowly progressing deterioration of the immune system resulting
in AIDS. HIV specifically infects cells that have the CD4 receptor on their
surface. 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.
Viral
infection occurs when the virus binds to a host cell, enters the cell, and
by
commandeering the cell’s own reproductive machinery, creates thousands of copies
of itself within the host cell. This process is called viral replication. Our
scientists and their collaborators have made important discoveries in
understanding how HIV enters human cells and initiates viral
replication.
The
Joint
United Nations Program on HIV/AIDS (“UNAIDS”) and the World Health Organization
(“WHO”) estimate that the number of individuals living with HIV in 2006 has
reached 39.5 million, including over four million new infections. In North
America, Western and Central Europe, the number of people living with HIV
continues to increase due to the life-prolonging effects of antiretroviral
therapy, a steady number of new HIV infections in North America and an increased
number of new HIV diagnoses in Western Europe. During 2006, there were over
two
million people living with HIV in these regions, including 65,000 who acquired
HIV in the past year. Notably, the number of women diagnosed with HIV has
increased dramatically over the past two years to one-in- four new diagnoses.
Although the number of people living with HIV has continued to increase over
recent years, the number of patient deaths have decreased to approximately
30,000 in 2006.
At
present, four classes of products have received marketing approval from the
FDA
for the treatment of HIV infection and AIDS: nucleoside reverse transcriptase
inhibitors, non-nucleoside reverse transcriptase inhibitors (these are
considered as different classes by researchers and prescribers alike and have
non-overlapping resistance profiles), protease inhibitors 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. Entry inhibitors
interrupt the process by which HIV binds to and transfers its genetic material
in to CD4 cells in order to initiate the viral replication process.
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 inconsistent dosing which leads to lower drug levels
and permits ongoing viral replication. Inconsistent adherence with dosing
requirements for HIV drugs is common in patients on combination therapies
because these drug regimens often require multiple tablets to be taken at
specific times each day. At the same time, 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. In
addition, as most HIV medications work inside the CD4 cell and are metabolized,
they have the potential to interact with other medications and may exaggerate
side effects or result in sub-therapeutic blood levels. Viral entry inhibitors
such as our drug candidate represent a potential new class of drugs for HIV
patients that may avoid many of the issues associated with current HIV
medications.
Our
scientists, in collaboration with researchers at the Aaron Diamond AIDS Research
Center, or ADARC, described in an article in Nature
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
CCR5 cells for as long as 60 days and thereby potentially protected from HIV
infection. PRO 140 was generally well tolerated at all dose levels in this
study.
In
December 2006, we completed enrollment and dosing in a phase 1b clinical trial
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 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 are 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 Progenics’
Licenses—PDL Biopharma, Inc.,
below.
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. These funds are being 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, 2006,
we
had recognized revenue of $9.4 million from this contract, including $180,000
for the achievement of two milestones.
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.
Oncology
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, which 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
June
1999, we and Cytogen Corporation (collectively, the “Members”) formed a joint
venture in the form of a limited liability company, with equal membership
interests, for the purposes of conducting research, development, manufacturing
and marketing of products related to PSMA. With certain limited exceptions,
all
patents and know-how owned by us or Cytogen and used or useful in the
development of PSMA-based antibody or vaccine immunotherapeutics were licensed
to the joint venture. The principal intellectual property licensed initially
were several patents and patent applications owned by Sloan-Kettering that
relate to PSMA. We and Cytogen were also required to 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.
On
April 20,
2006,
we
acquired Cytogen’s 50% membership interest in PSMA LLC, including Cytogen’s
economic interests in capital, profits, losses and distributions of PSMA LLC
and
its voting rights, in exchange for a cash payment of $13.2 million (the
“Acquisition”). We also paid $0.3 million of transaction costs with regard to
the Acquisition. In
connection with the Acquisition, the license agreement entered into by the
Cytogen and us upon the formation of PSMA LLC,
under
which Cytogen had granted a license to PSMA LLC for certain PSMA-related
intellectual property, was amended. Under the amended license agreement, Cytogen
granted an exclusive, even as to Cytogen, worldwide license to PSMA LLC to
use
certain PSMA-related intellectual property in a defined field (the “Amended
License Agreement”). In addition, under the terms of the Amended License
Agreement, PSMA LLC will pay to Cytogen upon the achievement of certain defined
regulatory and sales milestones, if ever, amounts totaling $52 million, and
will
pay royalties on net sales, as defined. Since our acquisition of Cytogen’s
interest, we are continuing to conduct the PSMA-related programs on our own
through PSMA LLC, which is now wholly owned by us.
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.
We
are
also pursuing a vaccine program that utilizes viral vectors designed to deliver
the PSMA gene to immune system cells in order to generate potent and specific
immune responses to prostate cancer cells. In 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. We are completing preclinical development
activities on the PSMA viral-vector vaccine.
We
have
also developed human monoclonal antibodies which bind to PSMA. These antibodies,
which were developed under license from Amgen Fremont Inc. (formerly Abgenix,
Inc.), are designed to recognize the three-dimensional physical structure of
the
protein and possess a high affinity and specificity for PSMA. 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. We are also investigating
a PSMA monoclonal antibody-toxin conjugate. See PSMA
Licenses -Seattle Genetics, below.
In
September 2005, PSMA LLC reported that in a mouse model of human prostate
cancer, mice given the experimental drug PSMA ADC had survival times of up
to
nine-fold longer than mice not treated with the drug.
In
2004,
the NIH awarded us 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. Through
December 31, 2006, we have recognized revenue of $5.1 million from these three
grants.
Melanoma
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 positive,
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 positive 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
randomized 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.
Licenses
We
are a
party to license agreements under which we have obtained rights to use certain
technologies in our product development programs. PSMA LLC, our wholly owned
subsidiary, has also entered into license agreements with third parties. Set
forth below is a summary of the more significant of these licenses.
Progenics’
Licenses
Wyeth.
We
and
Wyeth entered into the Collaboration Agreement on December 23, 2005 for the
development and commercialization of methylnaltrexone. 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 methylnaltrexone. All costs for the development of
methylnaltrexone incurred by Wyeth or us starting January 1, 2006 are paid
by
Wyeth. We are being reimbursed for our out-of-pocket development costs by Wyeth
and receive reimbursement for our efforts based on the number of our full time
equivalent employees (“FTE”s) devoted to the development project. Wyeth is
obligated to pay to us royalties on the sale of methylnaltrexone by Wyeth
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 from both Wyeth and us. The Joint Steering Committee is
responsible for coordinating the key activities of Wyeth and us under the
Collaboration Agreement. The Joint Development Committee is responsible for
overseeing, coordinating and expediting the development of methylnaltrexone
by
Wyeth and us. In addition, a Joint Commercialization Committee (“JCC”) was
established, composed of representatives of both Wyeth and us in number and
function according to each of our responsibilities. The JCC is responsible
for
facilitating open communication between Wyeth and us on matters relating to
the
commercialization of products.
The
Collaboration Agreement involves the development and commercialization of three
products: (i) a subcutaneous form of methylnaltrexone, to be used in patients
with opioid-induced constipation; (ii) an intravenous form of methylnaltrexone,
to be used in patients with post-operative ileus; and, (iii) an oral form of
methylnaltrexone, 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 methylnaltrexone. We are responsible
for developing the subcutaneous and intravenous forms of methylnaltrexone in
the
United States, until the drug formulations receive regulatory approval. Wyeth
is
responsible for the development of the subcutaneous and intravenous forms of
methylnaltrexone outside of the United States. Wyeth is responsible for the
development of the oral form of methylnaltrexone, both within the United States
and in the rest of the world. In the event the JSC approves any formulation
of
methylnaltrexone other than subcutaneous, intravenous or oral or any other
indication for the products currently contemplated using the subcutaneous,
intravenous or oral forms of methylnaltrexone, Wyeth will be responsible for
development of such products, including conducting clinical trials and obtaining
and maintaining regulatory approval and we will receive royalties on all sales
of such products. We will remain the owner of all U.S. regulatory filings and
approvals relating to the subcutaneous and intravenous forms of
methylnaltrexone. Wyeth will be the owner of all U.S. regulatory filings and
approvals related to the oral form of methylnaltrexone. Wyeth will be the owner
of all regulatory filings and approvals outside the United States relating
to
all forms of methylnaltrexone.
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
have
transferred to Wyeth all existing supply agreements with third parties for
methylnaltrexone and will sublicense any intellectual property rights to permit
Wyeth to manufacture methylnaltrexone, 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 our 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 regarding its ability
to
purchase our equity securities and to solicit proxies.
The
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last-to-expire
royalty period, 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/University of Chicago.
On
December 22, 2005, we acquired certain rights for our lead investigational
drug,
methylnaltrexone, from several of our licensors.
In
2001,
we entered into an exclusive sublicense agreement with UR Labs, Inc. (“URL”) to
develop and commercialize methylnaltrexone (the “Methylnaltrexone Sublicense”)
in exchange for rights to future payments. As of December 31, 2006, we had
paid
to UR Labs $550,000 and to the University of Chicago $500,000 under this
agreement. If all milestones specified under this agreement are achieved, we
will be obligated to make additional payments to the University of Chicago
of
approximately $330,000. In addition, in March 2006, we entered into an agreement
with the University of Chicago which gives us the option to license certain
of
its intellectual property over a defined option period. We initially paid the
University of Chicago $100,000 and may make payments aggregating $500,000 over
the option period.
In
1989,
URL obtained an exclusive license to methylnaltrexone, as amended, from the
University of Chicago (“UC”) under an Option and License Agreement dated May 8,
1985, as amended (the “URL-Chicago License”). In 2001, URL also entered into an
agreement with certain heirs of Dr. Leon Goldberg (the “Goldberg Distributees”),
which provided them with the right to receive payments based upon revenues
received by URL from the development of the Methylnaltrexone Sublicense (the
“URL-Goldberg Agreement”) in exchange for the obligation to make royalty
payments to the University of Chicago.
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
Methylnaltrexone Sublicense and the URL-Goldberg Agreement, thus assuming URL’s
rights and responsibilities under those agreements and extinguishing our
obligation to make royalty and other payments to URL.
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.
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 the closing price of our common stock of $23.09 on that day,
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 that day) to the
URL
Shareholders and the Goldberg Distributees and paid $310,000 in transaction
fees.
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 (see
above).
PDL
BioPharma, Inc. (formerly, Protein Design Labs).
Under a
license agreement, PDL Biopharma, Inc. (“PDL”) developed for us a humanized PRO
140 monoclonal antibody and granted to us related exclusive and nonexclusive
worldwide licenses under patents, patent applications and know-how. In general,
the license agreement terminates on the later of ten years from the first
commercial sale of a product developed under the agreement or the last date
on
which there is an unexpired patent or a patent application that has been pending
for less than ten years, unless sooner terminated. Thereafter, the license
is
fully paid. The last of the 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, 2006, we have paid to PDL $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 April 30, 2007. 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, 2006, 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, 2006, 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, 2006. 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.(“Antigenics”), 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.
We
have
received a written communication from Antigenics alleging that Progenics is
in
default of certain of its obligations under the license agreement and asserting
that Antigenics has an interest in certain intellectual property of Progenics.
Progenics has responded in writing denying Antigenics’ allegations. We do not
believe that this dispute will have any material effect on us.
As
of
December 31, 2006, we have paid to Aquila $769,000 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.
KMT
Hepatech, Inc.
On
October 11, 2006 (the “Effective Date”), we and KMT Hepatech, Inc. (“KMT”)
entered into a Research Services Agreement (the “KMT Agreement”), under which
KMT will test compounds (“Compounds”), as defined, related to our HCV research
program. In consideration for KMT’s services, we made an upfront payment for
certain defined services, will reimburse KMT for direct costs incurred by KMT
in
rendering the services and will make additional payments upon our request for
additional services. As of December 31, 2006, we have paid KMT a total of
$150,000 in connection with this agreement. We will also make one-time
development milestone payments, aggregating to $6.0 million, upon the occurrence
of defined events in respect of any Compound. In the event that we terminate
development of a Compound, certain of those development milestone payments
will
be credited to the development milestones achieved by the next Compound. The
KMT
Agreement will terminate upon the second anniversary of the Effective Date
unless terminated sooner. The parties may extend the term of the KMT Agreement
by mutual written consent. Either party may terminate the KMT Agreement upon
sixty days of written notice to the other party. In the event of default by
either party, including non-performance, bankruptcy or liquidation or
dissolution, the non-defaulting party may terminate the KMT Agreement upon
thirty days written notice of such default which is not cured by the defaulting
party.
PSMA
LLC Licenses
Amgen
Fremont, Inc. (formerly 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 PSMA LLC’s PSMA antigen. In consideration for the license, PSMA
LLC paid a nonrefundable, non-creditable license fee and is obligated to pay
additional payments upon the occurrence of defined milestones associated with
the development and commercialization program for products incorporating an
antibody generated utilizing the XenoMouse technology. As of December 31, 2006,
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 $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, 2006, PSMA LLC has paid to AlphaVax $1.1 million
under this agreement. If PSMA LLC achieves certain milestones specified under
the agreement, it will be obligated to pay AlphaVax an additional $5.4 million.
Furthermore, PSMA LLC is required to pay annual maintenance fees of $100,000
until the first commercial sale and royalties based upon net sales of any
products developed using AlphaVax’ system. This agreement may be terminated,
after an opportunity to cure, by AlphaVax under specified circumstances 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 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. As of December 31, 2006, PSMA LLC has paid to
SGI
approximately $2.4 million under this agreement.
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 methylnaltrexone. Under
our
Collaboration Agreement, Wyeth has the right, at its expense, to defend and
enforce the methylnaltrexone 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
gastroenterology, 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, CCR5 monoclonal antibodies and HCV therapeutics
and
of patents held, and patent applications filed, by these groups in those areas.
While the validity of issued patents, patentability of pending patent
applications and applicability of any of them to our programs are uncertain,
if
asserted against us, any related patent rights could adversely affect our
ability to commercialize our products.
The
research, development and commercialization of a biopharmaceutical often involve
alternative development and optimization routes, which are presented at various
stages in the development process. The preferred routes cannot be predicted
at
the outset of a research and development program because they will depend upon
subsequent discoveries and test results. There are numerous third-party patents
in our field, and it is possible that to pursue the preferred development route
of one or more of our 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
have
transferred to Wyeth our prior agreement with Mallinckrodt for the supply of
both bulk and finished-form methylnaltrexone. Wyeth is currently solely
responsible for the supply of those materials for the balance of the clinical
trial and commercial supply requirements under the Collaboration Agreement.
We
currently manufacture PRO 140, GMK and protein vaccines in our biologics pilot
production facilities in Tarrytown, New York. We currently have two 150 liter
bioreactors in operation to support our clinical programs. We have also acquired
a 1,500 liter bioreactor, and we are considering the appropriate time and manner
for installing and deploying this additional resource. We 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 methylnaltrexone 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).
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 methylnaltrexone, there are currently no FDA approved products for
reversing the debilitating side effects of opioid pain therapy or for the
treatment of post-operative ileus. We are, however, aware of a product candidate
that targets these therapeutic indications. This product, Entereg™ (alvimopan),
is under development by Adolor Corporation, in collaboration with an affiliate
of GlaxoSmithKline plc. Entereg is in advanced clinical development and Adolor
has
received an approvable letter from the 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 methylnaltrexone 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 $10.0 million
per
occurrence, subject to a deductible and a $10.0 million aggregate limitation.
In
addition, where the local statutory requirements exceed the limits of our
existing insurance or local policies of insurance are required, we maintain
additional clinical trial liability insurance to meet these requirements. This
insurance is subject to deductibles and coverage limitations. We may not be
able
to continue to maintain insurance at a reasonable cost, or in adequate
amounts.
Human
Resources
At
December 31, 2006, we had 191 full-time employees, 33 of whom, including Dr.
Maddon, hold Ph.D. degrees and 7 of whom, including Dr. Maddon, hold M.D.
degrees. At such date, 151 employees were engaged in research and development,
medical and regulatory affairs and manufacturing activities and 40 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 methylnaltrexone product candidate,
which is designed to reverse certain side effects induced by opioids and to
treat post-operative ileus 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 methylnaltrexone’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, including those related
to
PSMA, 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
methylnaltrexone, our lead product candidate, and our resulting dependence
upon
Wyeth exposes us to significant risks.
In
December 2005, we entered into a license and co-development agreement with
Wyeth. Under this agreement, we granted to Wyeth the exclusive worldwide right
to develop and commercialize methylnaltrexone, our lead product candidate.
As a
result, we are dependent upon Wyeth to perform and fund development, including
clinical testing, to make certain regulatory filings and to manufacture and
market products containing methylnaltrexone. Our collaboration with Wyeth may
not be scientifically, clinically or commercially successful.
Any
revenues from the sale of methylnaltrexone, if approved for marketing by the
FDA, will depend almost entirely upon the efforts of Wyeth. Wyeth has
significant discretion in determining the efforts and resources it applies
to
sales of the methylnaltrexone 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 methylnaltrexone achieves specified clinical, regulatory
and
commercialization milestones, and we will receive royalty payments from Wyeth
only if methylnaltrexone receives regulatory approval and is commercialized
by
Wyeth. Many of these milestone events will depend upon 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 methylnaltrexone 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 methylnaltrexone 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 methylnaltrexone. For example, we could experience
significant delays in the development of methylnaltrexone 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
methylnaltrexone 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
methylnaltrexone for the treatment of opioid-induced constipation in patients
receiving palliative care. We now expect to submit a New Drug Application to
the
U.S. Food and Drug Administration in March 2007 to market subcutaneous
methylnaltrexone. We and Wyeth have initiated two global pivotal phase 3
clinical trials to evaluate the safety and efficacy of intravenous
methylnaltrexone for the treatment of post-operative ileus. We had completed
phase 1 clinical trials of oral methylnaltrexone in healthy volunteers prior
to
our Collaboration Agreement with Wyeth. Wyeth is responsible for the worldwide
development of oral methylnaltrexone. Wyeth has conducted certain additional
phase 1 clinical trials of oral methylnaltrexone in chronic pain patients who
experience opioid-induced constipation and in August 2006 initiated a phase
2
clinical trial to evaluate once-daily dosing of oral methylnaltrexone.
Preliminary results from the phase 2 trial, conducted by Wyeth, showed that
the
initial formulation of oral methylnaltrexone was generally well tolerated but
did not exhibit sufficient clinical activity to advance into phase 3 testing.
Wyeth is beginning clinical testing in March 2007 of a new formulation of oral
methylnaltrexone for the treatment of opioid-induced constipation.
If
the
results of any of these ongoing trials or of other future trials of
methylnaltrexone are not satisfactory, or if we encounter problems enrolling
patients, or if clinical trial supply issues or other difficulties arise, our
entire methylnaltrexone 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
methylnaltrexone. If the clinical trials indicate a serious problem with the
safety or efficacy of an methylnaltrexone 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
methylnaltrexone 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
completed enrollment and dosing in 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, 2006, we
had
an accumulated deficit of $210.4 million. We have derived no significant
revenues from product sales or royalties. We may not achieve significant product
sales or royalty revenue for a number of years, if ever. We expect to incur
additional operating losses in the future, which could increase significantly
as
we expand our clinical trial programs and other product development
efforts.
Our
ability to achieve and sustain profitability is dependent in part on obtaining
regulatory approval to market our products and then commercializing, either
alone or with others, our products. We may not be able to develop and
commercialize products. 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, 2006, we had cash, cash equivalents and marketable securities,
including non-current portion, totaling $149.1 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 methylnaltrexone. During
the year ended December 31, 2006, we had a net loss of $21.6 million and cash
used in operating activities was $9.2 million.
Under
our
agreement with Wyeth, Wyeth is responsible for all future development and
commercialization costs relating to methylnaltrexone starting January 1, 2006.
As a result, although our spending on methylnaltrexone has increased and is
expected to continue to increase significantly from the amounts expended in
2006, our net expenses for methylnaltrexone have been and will continue to
be
reduced.
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 methylnaltrexone 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.
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 methylnaltrexone, 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 payers 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
methylnaltrexone. 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
methylnaltrexone.
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 methylnaltrexone.
Entereg is further along in the clinical development process than
methylnaltrexone, 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 methylnaltrexone, 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 methylnaltrexone, Wyeth
will develop the oral form of methylnaltrexone worldwide. We will lead the
U.S.
development of the subcutaneous and intravenous forms of methylnaltrexone,
while
Wyeth will lead development of these parenteral products outside the U.S.
Decisions regarding the timelines for development of the three methylnaltrexone
products will be made by a Joint Development Committee, and endorsed by the
Joint Steering Committee, each committee formed under the terms of the license
and co-development agreement, consisting of members from both Wyeth and
Progenics.
If
we are unable to negotiate collaborative agreements, our cash burn rate could
increase and our rate of product development could
decrease.
Our
business strategy includes as an element entering into collaborations with
pharmaceutical and biotechnology companies to develop and commercialize our
products and technologies. We entered into such a collaboration with Wyeth.
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 methylnaltrexone, PRO 140, GMK, and our PSMA
and HCV program products, incorporate to some degree intellectual property
licensed from third parties. We can lose the right to patents and other
intellectual property licensed to us if the related license agreement is
terminated due to a breach by us or otherwise. Our ability, and that of our
collaboration partners, to commercialize products incorporating licensed
intellectual property would be impaired if the related license agreements were
terminated.
Generally,
we have the right to defend and enforce patents licensed by us, either in the
first instance or if the licensor chooses not to do so. In addition, our license
agreement with the University of Chicago regarding methylnaltrexone gives us
the
right to prosecute and maintain the licensed patents. We bear the cost of
engaging in some or all of these activities with respect to our license
agreements with Sloan-Kettering for GMK and the University of Chicago for
methylnaltrexone. Under
our
Collaboration Agreement, Wyeth has the right, at its expense, to defend and
enforce the methylnaltrexone 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 methylnaltrexone, 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 infrastructure and related staff, which will require
significant investment to establish and in the meantime may make us dependent
on
third parties for their expertise in this area.
We
have
no established sales, marketing or distribution infrastructure. If we receive
marketing approval, significant investment, time and managerial resources will
be required to build the commercial infrastructure required to market, sell
and
support a pharmaceutical product. Should we choose to commercialize any product
directly, we may not be successful in developing an effective commercial
infrastructure or in achieving sufficient market acceptance. Alternatively,
we
may choose to market and sell our products through distribution, co-marketing,
co-promotion or licensing arrangements with third parties. We may also consider
contracting with a third party professional pharmaceutical detailing and sales
organization to perform the marketing function for our products. Under our
license and co-development agreement with Wyeth, Wyeth is responsible for
commercializing methylnaltrexone. To the extent that we enter into distribution,
co-marketing, co-promotion, detailing or licensing arrangements for the
marketing and sale of our other products, any revenues we receive will depend
primarily on the efforts of third parties. We will not control the amount and
timing of marketing resources these third parties devote to our products.
If
we lose key management and scientific personnel on whom we depend, our business
could suffer.
We
are
dependent upon our key management and scientific personnel. In particular,
the
loss of Dr. 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 Executive
Compensation - Employment Agreements in
our
Proxy Statement 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
methylnaltrexone, 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 methylnaltrexone. We have a supply agreement
with
Mallinckrodt Inc., our current supplier of bulk-form methylnaltrexone, which
has
an initial term that expires on January 1, 2008. In accordance with our
collaboration agreement with Wyeth, we have transferred to Wyeth the
responsibility for manufacturing methylnaltrexone 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. During 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 payers 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 payers may establish and maintain price levels insufficient
for us to realize an appropriate return on our investment in product
development. Significant changes in the health care system in the U.S. or
elsewhere, including changes resulting from adverse trends in third-party
reimbursement programs, could have a material adverse effect on our operating
results and our ability to raise capital and commercialize
products.
We
are exposed to product liability claims, and in the future we may not be able
to
obtain insurance against these claims at a reasonable cost or at
all.
Our
business exposes us to product liability risks, which are inherent in the
testing, manufacturing, marketing and sale of pharmaceutical products. We may
not be able to avoid product liability exposure. If a product liability claim
is
successfully brought against us, our financial position may be adversely
affected.
Product
liability insurance for the biopharmaceutical industry is generally expensive,
when available at all. We have obtained product liability insurance in the
amount of $10.0 million per occurrence, subject to a deductible and a $10.0
million annual aggregate limitation. 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, 2006, our stock price has ranged from $3.82 to $30.83 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
methylnaltrexone;
|
·
|
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, 2006, Dr. Maddon and stockholders affiliated with Tudor Investment
Corporation together beneficially own or control approximately 18% 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, 2006.
As
of
December 31, 2006, we occupy in total approximately 101,100 square feet of
laboratory, manufacturing and office space on a single campus in Tarrytown,
New
York. We occupy approximately 62,600 square feet of this space pursuant to
a
sublease which terminates in December 2009. The base monthly rent for this
space
is $98,000 through December 31, 2009. We occupy approximately 32,600 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 $57,000
through August 31, 2007 and $66,000 for the period from September 1, 2007 to
December 31, 2009. We also occupy approximately 5,900 square feet pursuant
to an
additional sublease, which expires on June 29, 2012 and which automatically
converts to a direct lease at that time, expiring on December 31, 2014. The
additional sublease provides for a four month rent-free period beginning April
1, 2006. Subsequently, the base monthly rent for this space is $13,000 through
June 30, 2010, $15,000 through June 30, 2011 and $16,000 through June 29, 2012.
The base rent for the automatically converted lease is $16,000 through December
31, 2014. In addition to rents due under these agreements, we are obligated
to
pay additional facilities charges, including utilities, taxes and operating
expenses.
Item
3. Legal Proceedings
We
are
not a party to any material legal proceedings.
Item
4. Submission of Matters to a Vote of Security
Holders
No
matters were submitted to a vote of stockholders during the fourth quarter
of
2006.
PART
II
Item
5. Market Price of and Dividends on the Registrant’s Common
Equity and Related Stockholder Matters
Price
Range of Common Stock
Our
common stock is quoted on The NASDAQ Stock Market LLC under the symbol “PGNX.”
The following table sets forth, for the periods indicated, the high and low
sales price per share of the common stock, as reported on The NASDAQ Stock
Market LLC. Such prices reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
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
|
|
Year
ended December 31, 2006
|
|
|
|
|
|
|
|
First
quarter
|
|
|
30.83
|
|
|
24.92
|
|
Second
quarter
|
|
|
26.72
|
|
|
19.95
|
|
Third
quarter
|
|
|
26.07
|
|
|
19.80
|
|
Fourth
quarter
|
|
|
29.55
|
|
|
22.51
|
|
On
March 14, 2007, the last sale price for our common stock, as reported by
The NASDAQ Stock Market LLC, was $22.61. There were
approximately 269 holders
of record of our common stock as of March 14, 2007.
Comparative
Stock Performance Graph
The
graph
below compares the cumulative stockholder return on our common stock with the
cumulative stockholder return of (i) the Nasdaq Stock Market (U.S.) Index and
(ii) the Nasdaq Pharmaceutical Index, assuming the investment in each equaled
$100 on December 31, 2001.
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 2006 and
for
each of the three years in the period ended December 31, 2006 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, 2002, 2003 and 2004 and for each of the two years in the
period ended December 31, 2003 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,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Contract
research and development from collaborator
|
|
$
|
194
|
|
|
|
|
|
|
|
|
|
|
$
|
58,415
|
|
Contract
research and development, joint venture
|
|
|
5,298
|
|
$
|
2,486
|
|
$
|
2,008
|
|
$
|
988
|
|
|
|
|
Research
grants and contracts
|
|
|
4,544
|
|
|
4,826
|
|
|
7,483
|
|
|
8,432
|
|
|
11,418
|
|
Product
sales
|
|
|
49
|
|
|
149
|
|
|
85
|
|
|
66
|
|
|
73
|
|
Total
revenues
|
|
|
10,085
|
|
|
7,461
|
|
|
9,576
|
|
|
9,486
|
|
|
69,906
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
22,797
|
|
|
26,374
|
|
|
35,673
|
|
|
43,419
|
|
|
61,711
|
|
In-process
research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,209
|
|
License
fees - research and development
|
|
|
964
|
|
|
867
|
|
|
390
|
|
|
20,418
|
|
|
390
|
|
General
and administrative
|
|
|
6,484
|
|
|
8,029
|
|
|
12,580
|
|
|
13,565
|
|
|
22,259
|
|
Loss
in Joint Venture
|
|
|
2,886
|
|
|
2,525
|
|
|
2,134
|
|
|
1,863
|
|
|
121
|
|
Depreciation
and amortization
|
|
|
1,049
|
|
|
1,273
|
|
|
1,566
|
|
|
1,748
|
|
|
1,535
|
|
Total
expenses
|
|
|
34,180
|
|
|
39,068
|
|
|
52,343
|
|
|
81,013
|
|
|
99,225
|
|
Operating
loss
|
|
|
(24,095
|
)
|
|
(31,607
|
)
|
|
(42,767
|
)
|
|
(71,527
|
)
|
|
(29,319
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,708
|
|
|
625
|
|
|
780
|
|
|
2,299
|
|
|
7,701
|
|
Interest
expense
|
|
|
(2
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Loss
on sale of marketable securities
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
Payment
from insurance settlement
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income
|
|
|
3,306
|
|
|
621
|
|
|
749
|
|
|
2,299
|
|
|
7,701
|
|
Net
loss before income taxes
|
|
|
(20,789
|
)
|
|
(30,986
|
)
|
|
(42,018
|
)
|
|
(69,228
|
)
|
|
(21,618
|
)
|
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
(201
|
)
|
|
|
|
Net
loss
|
|
$
|
(20,789
|
)
|
$
|
(30,986
|
)
|
$
|
(42,018
|
)
|
$
|
(69,429
|
)
|
$
|
(21,618
|
)
|
Per
share amounts on net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(1.66
|
)
|
$
|
(2.32
|
)
|
$
|
(2.48
|
)
|
$
|
(3.33
|
)
|
$
|
(0.84
|
)
|
|
|
December
31,
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
(in
thousands)
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and
marketable
securities
|
|
$
|
42,374
|
|
$
|
65,663
|
|
$
|
31,207
|
|
$
|
173,090
|
|
$
|
149,100
|
|
Working
capital
|
|
|
36,209
|
|
|
56,228
|
|
|
25,667
|
|
|
137,101
|
|
|
91,827
|
|
Total
assets
|
|
|
48,118
|
|
|
72,886
|
|
|
39,545
|
|
|
184,003
|
|
|
165,911
|
|
Deferred
revenue, long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,101
|
|
Deferred
lease liability
|
|
|
71
|
|
|
50
|
|
|
42
|
|
|
49
|
|
|
123
|
|
Total
stockholders’ equity
|
|
|
45,147
|
|
|
67,683
|
|
|
31,838
|
|
|
112,732
|
|
|
110,846
|
|
Item
7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Overview
General
We
are a
biopharmaceutical company focusing on the development and commercialization
of
innovative therapeutic products to treat the unmet medical needs of patients
with debilitating conditions and life-threatening diseases. We commenced
principal operations in late 1988, and since that time we have been engaged
primarily in research and development efforts, development of our manufacturing
capabilities, establishment of corporate collaborations and raising capital.
We
do not currently have any commercial products. In order to commercialize the
principal products that we have under development, we will need to address
a
number of technological and clinical challenges and comply with comprehensive
regulatory requirements. Accordingly, we cannot predict the amount of funds
that
we will require, or the length of time that will pass, before we receive
significant revenues from sales of any of our products, if ever.
Our
most
advanced product candidate and likeliest source of product revenue is
methynaltrexone. In December 2005, we entered into a License and Co-development
Agreement (the “Collaboration Agreement”) with Wyeth Pharmaceuticals (“Wyeth”)
to develop and commercialize methylnaltrexone. See “Collaboration
with Wyeth Pharmaceuticals”,
below.
Our
work
with methylnaltrexone has proceeded farthest as a treatment for opioid-induced
constipation. Constipation is a serious medical problem for patients who are
being treated with opioid medications. Methylnaltrexone is designed to reverse
the side effects of opioid 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
methylnaltrexone in patients receiving palliative care, including cancer,
Acquired Immunodeficiency Syndrome (“AIDS”) and heart disease. We achieved
positive results from our two pivotal phase 3 clinical trials (studies 301
and
302). All
primary and secondary efficacy endpoints of both of the phase 3 studies were
met
and were statistically significant. The drug was generally well tolerated in
both phase 3 trials. We
now
expect to submit a New Drug Application to the U.S. Food and Drug Administration
(“FDA”) in March 2007 for subcutaneous methylnaltrexone.
We
are
also developing an intravenous form of methylnaltrexone in collaboration with
Wyeth for the management of post-operative ileus, a serious
condition of
the
gastrointestinal tract. We and Wyeth have initiated two global pivotal phase
3
clinical trials to evaluate the safety and efficacy of intravenous
methylnaltrexone for the treatment of post-operative ileus.
Under
the
Collaboration Agreement, Wyeth is also developing oral methylnaltrexone 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
methylnaltrexone in healthy volunteers, which indicated that methylnaltrexone
was well tolerated. Wyeth has also conducted certain additional phase 1 clinical
trials of oral methylnaltrexone and in August 2006 initiated a phase 2 clinical
trial to evaluate once-daily dosing of oral methylnaltrexone.
Preliminary results from the phase 2 trial, conducted by Wyeth, showed that
the
initial formulation of oral methylnaltrexone was generally well tolerated but
did not exhibit sufficient clinical activity to advance into phase 3 testing.
Wyeth is beginning clinical testing in March 2007 of a new formulation of oral
methylnaltrexone for the treatment of opioid-induced constipation.
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. Human Immunodeficiency Virus (“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 and completed enrollment and dosing in December 2006. We are
also
conducting research into a therapeutic for hepatitis C virus infection that
blocks viral entry into cells.
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. Prior
to
April 20, 2006, our PSMA programs were conducted with Cytogen Corporation
(“Cytogen”) (collectively, the “Members”) through PSMA Development Company LLC,
our former joint venture with Cytogen (”PSMA LLC”), which became our wholly
owned subsidiary on that date. See “PSMA
Development Company LLC”,
below.
We are also studying a cancer vaccine, GMK, in phase 3 clinical trials for
the
treatment of malignant melanoma and we
are
engaged in a research program to discover treatments for hepatitis C that block
viral entry into cells.
Our
sources of revenues through December 31, 2006 have been payments under our
current and 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 are recognizing revenues from Wyeth for
reimbursement of our development expenses for methylnaltrexone 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, we did not recognize
revenue from PSMA LLC during 2006 prior to our acquisition of Cytogen’s
membership interest in PSMA LLC since the Members did not approve a work plan
and budget for 2006 and since then, PSMA LLC has become our wholly owned
subsidiary. To date, our product sales have consisted solely of limited revenues
from the sale of research reagents. We expect that sales of research reagents
in
the future will not significantly increase over current levels.
A
majority of our expenditures to date have been for research and development
activities. 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 methylnaltrexone are being funded by Wyeth, which allows 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, 2006, an accumulated deficit
of
$210.4 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, 2006, we had cash, cash equivalents and marketable securities
totaling $149.1 million. We expect that cash, cash equivalents and marketable
securities on hand at December 31, 2006 will be sufficient to fund operations
at
current levels beyond one year. During
the year ended December 31, 2006, we had a net loss of $21.6 million and cash
used in operating activities was $9.2 million. Other than potential revenues
from methylnaltrexone, 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 entered into the Collaboration Agreement on December 23, 2005 for the
development and commercialization of methylnaltrexone. Under the Collaboration
Agreement Wyeth paid to us a $60 million non-refundable upfront payment, for
which we deferred the recognition of revenue at December 31, 2005 since work
under the Collaboration Agreement did not commence until January 2006. 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 methylnaltrexone. All costs for the development of
methylnaltrexone incurred by Wyeth or us starting January 1, 2006 are being
paid
by Wyeth. We are being 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 (“FTE”s) devoted to the development project.
Wyeth is obligated to pay to us royalties on the sale by Wyeth of
methylnaltrexone throughout the world during the applicable royalty periods.
In
January 2006, we began recognizing revenue from Wyeth for reimbursement of
our
development expenses for methylnaltrexone as incurred during each quarter under
the development plan agreed to by us and Wyeth. We also began recognizing
revenue for a portion of the $60 million upfront payment we received from Wyeth,
based on the proportion of the expected total effort for us to complete our
development obligations that was actually performed during that quarter. During
the year ended December 31, 2006, we recognized $18.8 million of revenue from
the $60 million upfront payment received in December 2005 and $34.6 million
as
reimbursement for our out-of-pocket development costs, including our labor
costs. In October 2006, we earned a $5.0 million milestone payment in connection
with the start of the first of two global pivotal phase 3 clinical trials
to
evaluate the safety and efficacy of
intravenous methylnaltrexone for the treatment of post-operative ileus, which
was recognized as revenue under the Substantive Milestone method (see
Critical
Accounting Policies - Revenue Recognition,
below).
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 methylnaltrexone
by
Wyeth and us. In addition, a Joint Commercialization Committee (“JCC”) was
established, composed of representatives of both Wyeth and us in number and
function according to each of our responsibilities. The JCC is responsible
for
facilitating open communication between Wyeth and us on matters relating to
the
commercialization of products.
The
Collaboration Agreement involves the development and commercialization of three
products: (i) a subcutaneous form of methylnaltrexone, to be used in patients
with opioid-induced constipation; (ii) an intravenous form of methylnaltrexone,
to be used in patients with post-operative ileus and (iii) an oral form of
methylnaltrexone, 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 methylnaltrexone. We are responsible
for developing the subcutaneous and intravenous forms of methylnaltrexone in
the
United States, until the drug formulations receive regulatory approval. Wyeth
is
responsible for the development of the subcutaneous and intravenous forms of
methylnaltrexone outside of the United States. Wyeth is responsible for the
development of the oral form of methylnaltrexone, both within the United States
and in the rest of the world. In the event the JSC approves any formulation
of
methylnaltrexone other than subcutaneous, intravenous or oral or any other
indication for the products currently contemplated using the subcutaneous,
intravenous or oral forms of methylnaltrexone, Wyeth will be responsible for
development of such products, including conducting clinical trials and obtaining
and maintaining regulatory approval and we will receive royalties on all sales
of such products. We will remain the owner of all U.S. regulatory filings and
approvals relating to the subcutaneous and intravenous forms of
methylnaltrexone. Wyeth will be the owner of all U.S. regulatory filings and
approvals related to the oral form of methylnaltrexone. Wyeth will be the owner
of all regulatory filings and approvals outside the United States relating
to
all forms of methylnaltrexone.
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
have
transferred to Wyeth all existing supply agreements with third parties for
methylnaltrexone and will sublicense any intellectual property rights to permit
Wyeth to manufacture methylnaltrexone, 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 our 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 regarding its ability
to
purchase our equity securities and to solicit proxies.
The
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last-to-expire
royalty period, 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 Methylnaltrexone 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, from several of our
licensors.
In
2001,
we entered into an exclusive sublicense agreement with UR Labs, Inc. (“URL”) to
develop and commercialize methylnaltrexone (the “Methylnaltrexone Sublicense”)
in exchange for rights to future payments resulting from the Methylnaltrexone
Sublicense. In 1989, URL obtained an exclusive license to methylnaltrexone,
as
amended, from the University of Chicago (“UC”) under an Option and License
Agreement dated May 8, 1985, as amended (the “URL-Chicago License”). In 2001,
URL also entered into an agreement with certain heirs of Dr. Leon Goldberg
(the
“Goldberg Distributees”), which provided them with the right to receive payments
based upon revenues received by URL from the development of the Methylnaltrexone
Sublicense (the “URL-Goldberg Agreement”).
On
December 22, 2005, 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
Methylnaltrexone Sublicense and the URL-Goldberg Agreement, thus assuming URL’s
rights and responsibilities under those agreements and extinguishing our
obligation to make royalty and other payments to URL.
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, the total amount of which was expensed in the period of the
transaction.
PSMA
Development Company LLC.
In
June
1999, the Members formed a joint venture in the form of a limited liability
company, with equal membership interests, for the purposes of conducting
research, development, manufacturing and marketing of products related to PSMA.
Prior
to
our acquisition of Cytogen’s membership interest (see below), each Member had
equal ownership and equal representation on PSMA LLC’s management committee and
equal voting rights and rights to profits and losses of PSMA LLC. In connection
with the formation of PSMA LLC, the Members entered into a series of agreements,
including an LLC Agreement and a Licensing Agreement, which generally defined
the rights and obligations of each Member, including the obligations of the
Members with respect to capital contributions and funding of research and
development of PSMA LLC for each coming year. 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 were licensed to the joint venture. The principal
intellectual property licensed initially were several patents and patent
applications owned by Sloan-Kettering that relate to PSMA. We and Cytogen were
also required to 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.
On
April 20,
2006,
we
acquired Cytogen’s 50% membership interest in PSMA LLC, including Cytogen’s
economic interests in capital, profits, losses and distributions of PSMA LLC
and
its voting rights, in exchange for a cash payment of $13.2 million (the
“Acquisition”). We also paid $0.3 million of transaction costs with regard to
the Acquisition. Costs associated with the Acquisition were
expensed
in the period of the transaction. In
connection with the Acquisition, the License Agreement entered into by the
Members upon the formation of PSMA LLC,
under
which Cytogen had granted a license to PSMA LLC for certain PSMA-related
intellectual property, was amended. Prior to the Acquisition, each of the
Members owned 50% of the rights to that intellectual property through their
interests in PSMA LLC. Under the amended License Agreement, Cytogen granted
an
exclusive, even as to Cytogen, worldwide license to PSMA LLC to use certain
PSMA-related intellectual property in a defined field (the “Amended License
Agreement”). In addition, under the terms of the Amended License Agreement, PSMA
LLC will pay to Cytogen upon the achievement of certain defined regulatory
and
sales milestones, if ever, amounts totaling $52 million, and will pay royalties
on net sales, as defined. We will continue to conduct the PSMA-related programs
on our own. Our purchase of Cytogen’s membership interest in PSMA LLC
is
expected to improve the efficiency of decision-making regarding PSMA projects.
Beginning
on April 20,
2006,
Cytogen has no further involvement with PSMA LLC, which has become our wholly
owned subsidiary. Although we are continuing to conduct the PSMA-related
research and development activities, we will no longer recognize revenue from
PSMA LLC.
Prior
to
the Acquisition, PSMA LLC’s intellectual property, which was equally owned by
each of the Members, was used in two research and development programs, a
vaccine program and a monoclonal antibody program, both of which were in the
pre-clinical or early clinical phases of development at the time of the
Acquisition. We conducted most of the research and development for those two
programs prior to the Acquisition and, subsequent to the Acquisition, are
continuing those research and development activities and will incur all the
expenses of those programs.
Before
any products resulting from the vaccine and the monoclonal antibody programs
that were jointly under development at the date of our acquisition of Cytogen’s
membership interest can be commercialized, PSMA LLC must complete pre-clinical
studies and phases 1 through 3 clinical trials for each project and file and
receive approval of New
Drug
Applications with the FDA. Due to the complexities and uncertainties of
scientific research and the early stage of the PSMA programs, the timing and
costs of such further development efforts and the anticipated completion dates
of those programs, if ever, cannot reliably be determined at the acquisition
date. However, those efforts are expected to require at least three years,
based
upon the timing of our other early stage development projects.
There
can be no assurance that either of the PSMA programs will reach technological
feasibility or that they will ever be commercially viable. The risks associated
with development and commercialization of these programs include delay or
failure of basic research, failure to obtain regulatory approvals to conduct
clinical trials and to market products, and patent litigation.
Results
of Operations (amounts
in
thousands)
Revenues:
Our
sources of revenue during the years ended December 31, 2006, 2005 and 2004
included our collaboration with Wyeth, which began in December 2005, our
research grants and contracts and, to a small extent, our sale of research
reagents. During 2005 and 2004, we did not recognize revenue from Wyeth but
did
recognize revenue from our PSMA LLC joint venture.
Sources
of Revenue
|
|
2006
|
|
2005
|
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
|
|
|
Percent
Change
|
Contract
research from collaborator
|
|
$
58,415
|
|
|
|
|
|
N/A
|
|
Contract
research from PSMA LLC
|
|
|
|
$
988
|
|
$
2,008
|
|
(100%)
|
(51%)
|
Research
grants and contract
|
|
11,418
|
|
8,432
|
|
7,483
|
|
35%
|
13%
|
Product
sales
|
|
73
|
|
66
|
|
85
|
|
11%
|
(22%)
|
|
|
$
69,906
|
|
$ 9,486
|
|
$
9,576
|
|
637%
|
(1%)
|
2006
vs. 2005
Contract
research from collaborator
During
the year ended December 31, 2006, we recognized $58,415 of revenue from Wyeth,
including $18,831 of the $60,000 upfront payment we received upon entering
into
our collaboration in December 2005, $34,584 as reimbursement of our development
expenses and $5,000 for a nonrefundable milestone upon initiation of a phase
3
clinical trial of intravenous methylnaltrexone for the treatment of
post-operative ileus. We recognize a portion of the upfront payment in
accordance with the proportionate performance method, which is based on the
percentage of actual effort performed on our development obligations in that
period relative to total effort budgeted for all of our performance obligations
under the arrangement. Reimbursement of development costs is recognized as
revenue as the costs are incurred under the development plan agreed to by us
and
Wyeth. The milestone was recognized according to the Substantive Milestone
Method, see Critical
Accounting Policies -Revenue Recognition,
below.
Contract
research from PSMA LLC
We
recognized $988 of revenue for research and development services performed
for
PSMA LLC during the year ended December 31, 2005. On April 20, 2006, PSMA LLC
became our wholly owned subsidiary and, accordingly, since that date we no
longer recognize revenue related to research and development services performed
by us for PSMA LLC. During 2006, prior to our acquisition of Cytogen’s
membership interest in PSMA LLC, we and Cytogen had not approved a work plan
and
budget for 2006 and, therefore, we were not reimbursed for our research and
development services to PSMA LLC and did not recognize any revenue from PSMA
LLC.
Research
grants and contract
Revenues
from research grants and contract increased to $11,418 for the year ended
December 31, 2006 from $8,432 for the year ended December 31, 2005; $8,052
and
$5,480 from grants and $3,366 and $2,952 from the contract awarded to us by
the
National Institutes of Health in September 2003 (the “NIH Contract”) for the
years ended December 31, 2006 and 2005, respectively. The increase resulted
from
a greater amount of work performed under the grants in the 2006 period, some
of
which allowed greater spending limits, including $13.1 million in new grants
we
were awarded during 2005, $10.1 million of which was to partially fund our
PRO
140 program over a three and a half year period. In addition, there was
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. 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, including the annual approved budgets,
The payment of an aggregate of $1,600 in fees (of which $180 had been recognized
as revenue as of December 31, 2006) is subject to achievement of specified
milestones.
Product
sales
Revenues
from product sales increased to $73 for the year ended December 31, 2006 from
$66 for the year ended December 31, 2005. We received more orders for research
reagents during 2006.
2005
vs. 2004
Contract
research from PSMA LLC
We
recognized $988 and $2,008 of revenue for research and development services
performed for PSMA LLC during the years ended December 31, 2005 and 2004,
respectively. The decrease was due to the slower pace of research and
development activities on the PSMA projects in 2005 and an increase in grant
revenue recognized by the Company from awards related to research and
development services performed for PSMA LLC, which effectively decreases
contract research and development from PSMA LLC. Proceeds received from grants
related to PSMA LLC and for which we have also been compensated by PSMA LLC
for
services provided were $762 in the 2004 period and $1,311 in the 2005 period.
We
have reflected in the accompanying consolidated financial statements adjustments
to decrease both joint venture losses and contract revenue from PSMA LLC in
respect of such amounts.
Research
grants and contract
Revenues
from research grants and contract increased to $8,432 for the year ended
December 31, 2005 from $7,483 for the year ended December 31, 2004; $5,480
and
$4,871 from grants and $2,952 and $2,612 from the NIH Contract for the years
ended December 31, 2005 and 2004, respectively. 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 was to partially funding PRO
140 program over a three and a half year period. In addition, there was
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. 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.
Product
sales
Revenues
from product sales decreased to $66 for the year ended December 31, 2005 from
$85 for the year ended December 31, 2004. We received fewer orders for research
reagents during 2005.
Expenses:
Research
and Development Expenses:
Research
and development expenses include scientific labor, supplies, facility costs,
clinical trial costs, and product manufacturing costs. Research and development
expenses, including in-process research and development and license fees,
increased to $75,310 for the year ended December 31, 2006 from $63,837 for
the
year ended December 31, 2005, and from $36,063 in the year ended December 31,
2004, as follows:
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Salaries
and benefits
|
$17,013
|
$13,412
|
$11,983
|
|
27%
|
12%
|
2006
vs. 2005 Company-wide
compensation increases and an increase in average headcount to 134 from 117
for
the years ended December 31, 2006 and 2005, respectively, in the research and
development, manufacturing and clinical departments, including the hiring of
our
Vice President, Quality in July 2005.
2005
vs. 2004 Company-wide
compensation increases and an increase in average headcount to 117 from 111
for
the years ended December 31, 2005 and 2004, respectively, in the research and
development, manufacturing and clinical departments, including the hiring of
our
Vice President, Quality in July 2005.
|
|
|
|
|
|
|
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Share-based
compensation (non-cash)
|
$5,814
|
$1,237
|
$595
|
|
370%
|
108%
|
2006
vs. 2005 Increase
due to the adoption of SFAS No. 123(R) on January 1, 2006, which requires the
recognition of non-cash compensation expense related to share-based payment
arrangements (see Critical
Accounting Policies − Share-Based Payment Arrangements
below).
The amount of non-cash compensation expense is expected to increase in future
years in conjunction with increased headcount.
2005
vs. 2004 Increase
due to a higher fair value of stock options granted to non-employee consultants
in 2005 than in 2004, resulting from higher stock prices in 2005 and increased
non-cash compensation expense related to vesting of restricted stock in 2005.
Compensation expense for 2005 included restricted stock awards that had been
granted in both 2004 and 2005 and which vested in 2005.
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Clinical
trial costs
|
$9,485
|
$10,493
|
$8,675
|
|
(10%)
|
21
%
|
2006
vs. 2005 Decrease
primarily related to Methylnaltrexone ($1,429) due to completion of the
methylnaltrexone phase 3 trials (301 and 302 and the extension studies) in
the
second half of 2005 and first quarter of 2006 and Cancer ($335), due to
achievement of full enrollment in our GMK phase 3 trial during the fourth
quarter of 2005, which resulted in more patients having completed the full
course of treatment during 2005 than remained to be treated in 2006. The
decreases were partially offset by an increase in HIV-related costs ($756),
resulting from an increase in the PRO 140 trial activity and a decline in PRO
542 activity in the 2006 period. During 2007, clinical trial costs are expected
to increase as we conduct clinical trials of intravenous methylnaltrexone and
PRO 140.
2005
vs. 2004 Increase
primarily related to Methylnaltrexone ($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.
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Laboratory
supplies
|
$6,337
|
$5,292
|
$3,762
|
|
20%
|
41%
|
2006
vs. 2005 Increase
in HIV-related costs ($175), due to preparation of materials for the phase
1b
PRO 140 clinical trial, and an increase in basic research in 2006 for Cancer
($609) and Other projects ($561) partially offset by a decrease in
Methylnaltrexone ($300) due to the purchase of more methylnaltrexone drug in
the
2005 period than in the 2006 period. These trends are expected to continue
in
2007.
2005
vs. 2004 Increases
in Methylnaltrexone ($916) due to increased costs of manufacturing
methylnaltrexone 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 methylnaltrexone and HIV rather than on other areas of basic
research.
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Contract
manufacturing and subcontractors
|
$12,448
|
$5,836
|
$5,371
|
|
113%
|
9%
|
2006
vs. 2005 Increase
in Methylnaltrexone ($1,939) related to clinical trials under our collaboration
with Wyeth, HIV ($1,672), Cancer ($2,637) and Other projects ($364). These
expenses are related to the conduct of clinical trials, including testing,
analysis, formulation and toxicology services and vary as the timing and level
of such services are required. We expect these costs to increase in 2007 as
we
expand our clinical trial costs for methylnaltrexone, PRO 140 and other
projects.
2005
vs. 2004 Increase
in Methylnaltrexone ($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.
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Consultants
|
$5,286
|
$2,969
|
$1,261
|
|
78%
|
135%
|
2006
vs. 2005 Increases
in Methylnaltrexone ($2,351), Cancer ($47) and Other projects ($20), partially
offset by a decrease in HIV ($101). These expenses are related to the monitoring
and conduct of clinical trials, including analysis of data from completed
clinical trials and vary as the timing and level of such services are required.
In 2007, consultant expenses are expected to increase for all of our research
and development programs.
2005
vs. 2004 Increases
in Methylnaltrexone ($1,600) and HIV ($173) and Other projects ($31), partially
offset by a decrease in GMK ($96). 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.
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
License
fees
|
$390
|
$20,418
|
$390
|
|
(98%)
|
5,135%
|
2006
vs. 2005 Decrease
primarily related to payments in 2005 but not 2006 to UR Labs and the Goldberg
Distributees (see Overview
¾
Purchase of Rights from Methylnaltrexone Licensors),
licensors of
methylnaltrexone ($19,205) and related to our HIV program ($1,098), partially
offset by increases in Cancer ($225) related to PSMA license agreements and
MNTX
($50), related to payments to the University of Chicago. The amount of license
fees for 2007 are expected to be similar to those for 2006.
2005
vs. 2004 Increase
primarily related to payments in 2005 to UR Labs and the Goldberg Distributees,
licensors of
methylnaltrexone ($19,205) and related to our HIV program ($823).
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Operating
expenses
|
$18,537
|
$4,180
|
$4,026
|
|
343%
|
4%
|
2006
vs. 2005 Increase
primarily due to expenses related to our purchase of Cytogen’s equity interest
in PSMA LLC, which are included in in-process research and development (see
PSMA
Development Company LLC above)
($13,209) and an increase in rent ($420), facilities expenses ($242), seminar
costs ($102), travel ($296) other operating expenses ($88). In 2007, operating
expenses are expected to increase over those of 2006, without the effect of
our
purchase of Cytogen’s interest in PSMA LLC, due to higher rent and facility
expenses.
2005
vs. 2004 Increase
primarily due to an increase in rent ($645), partially offset by a decreases
in
utility and facilities expenses ($291) and other operating expenses and travel
($200).
A
major
portion of our spending has been, and we expect will continue to be, associated
with methylnaltrexone, although beginning in 2006, Wyeth is reimbursing us
for
development expenses we incur related to methylnaltrexone under the development
plan agreed to between us and Wyeth. Spending for our PRO 140 and other
development programs is also expected to increase in 2007.
General
and Administrative Expenses:
General
and administrative expenses increased to $22,259 in the year ended December
31,
2006 from $13,565 in the year ended December 31, 2005 and from $12,580 in the
year ended December 31, 2004, as follows:
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Salaries
and benefits (cash)
|
$5,942
|
$4,614
|
$3,815
|
|
29%
|
21%
|
2006
vs. 2005 Increase
due to compensation increases and an increase in average headcount to 32 from
22
in the general and administrative departments for the years ended December
31,
2006 and 2005, respectively.
2005
vs.
2004
Increase
due to compensation increases and an increase in average headcount to 22 from
21
in the general and administrative departments for the years ended December
31,
2005 and 2004, respectively, including the hiring of our Senior Vice President
and General Counsel in June 2005 and the departure of one senior executive
in
April 2005.
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Share-based
compensation (non-cash)
|
$6,840
|
$1,281
|
$242
|
|
434%
|
429%
|
2006
vs. 2005 Increase
due to the adoption of SFAS No. 123(R) on January 1, 2006, which requires the
recognition of non-cash compensation expense related to share-based payment
arrangements (see Critical
Accounting Policies − Share-Based Payment Arrangements below).
The amount of non-cash compensation expense is expected to increase in future
years in conjunction with increased headcount.
2005
vs. 2004 Increase
due to vesting of performance-based stock options granted to executive officers
in 2005 and to higher non-cash compensation expense related to vesting of
restricted stock in 2005. Compensation expense for 2005 included restricted
stock awards that had been granted in both 2004 and 2005 and which vested in
2005.
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Consulting
and professional fees
|
$5,547
|
$4,488
|
$5,336
|
|
24%
|
($16%)
|
2006
vs. 2005 Increase
due primarily to increases in audit and tax fees ($255), recruiting fees ($267)
legal and patent fees ($606) and other miscellaneous costs ($21), which were
partially offset by a decrease in consultants ($90).
2005
vs. 2004 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).
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Operating
expenses
|
$3,485
|
$2,789
|
$2,860
|
|
25%
|
(2%)
|
2006
vs. 2005 Increase
in insurance ($144),other operating expenses ($281),rent ($218), and utilities
and facilities costs ($53).
2005
vs. 2004 Decrease
in insurance ($13), utilities and facilities costs ($84) and other operating
expenses ($124), partially offset by an increase in rent ($150).
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
Other
|
$445
|
$393
|
$327
|
|
13%
|
20%
|
2006
vs. 2005 Increase
in corporate sales and franchise taxes ($144) and conference costs ($28),
partially offset by a decrease in investor relations ($120)
2005
vs. 2004 Increased
investor relations ($109) and conference costs, ($40) partially offset by a
decrease in corporate sales and franchise taxes ($83).
We
expect
general and administrative expenses to increase during 2007 due to an increase
in headcount.
Loss
in Joint Venture:
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
|
$121
|
$1,863
|
$2,134
|
|
(94%)
|
(13%)
|
2006
vs. 2005 Loss
in
joint venture decreased to $121 for the year ended December 31, 2006 from $1,863
for the year ended December 31, 2005. On April 20, 2006, PSMA LLC became our
wholly owned subsidiary and, accordingly, we did not recognize loss in joint
venture from the date of acquisition. During 2006, prior to our acquisition
of
Cytogen’s membership interest in PSMA LLC, research and development expenses and
general and administrative expenses of PSMA LLC were lower than in the
comparable period in 2005 due to the lack of a work plan and budget for PSMA
LLC
for 2006.
2005
vs. 2004 Loss
in
joint venture decreased to $1,863 for the year ended December 31, 2005 from
$2,134 for the year ended December 31, 2004. During 2005, research and
development expenses, including license fees to collaborators of PSMA LLC,
were
higher than in 2004; lower research and development expenses in 2005 were more
than offset by a $2.0 million license fee payment made by PSMA LLC in 2005
to
Seattle Genetics, Inc. However, we recognized $1,311 and $762 in the years
ended
December 31, 2005 and 2004, respectively, of payments received from the NIH
as a
reduction to joint venture losses and contract revenue from PSMA
LLC. Therefore,
overall, loss in joint venture was lower in 2005 than in 2004.
Depreciation
and Amortization:
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
|
$1,535
|
$1,748
|
$1,566
|
|
(12%)
|
12%
|
2006
vs. 2005 Depreciation
expense decreased to $1,535 for the year ended December 31, 2006 to $1,748
for
the year ended December 31, 2005. We purchased capital assets and made leasehold
improvements in both years to increase our research and manufacturing capacity
but a larger percentage of fixed assets was included in construction in
progress, and not yet depreciable, during 2006 than during 2005. There was
also
an
increase in fully depreciated capital assets during 2006 than during 2005.
2005
vs. 2004 Depreciation
and amortization increased to $1,748 in the year ended December 31, 2005 from
$1,566 in the year ended December 31, 2004 as we purchased capital assets and
made leasehold improvements in 2005 to increase our manufacturing
capacity.
Other
Income:
|
2006
|
2005
|
2004
|
|
2006
vs. 2005
|
2005
vs. 2004
|
|
|
|
|
|
Percent
change
|
|
$7,701
|
$2,299
|
$780
|
|
235%
|
195%
|
2006
vs. 2005 Interest
income increased to $7,701 for the year ended December 31, 2006 from $2,299
for
the year ended December 31, 2005. Interest income, as reported, is primarily
the
result of investment income from our marketable securities, offset by the
amortization of premiums we paid for those marketable securities. For the years
ended December 31, 2006, and 2005, investment income increased to $7,710 from
$2,569, respectively, due to a higher average balance of cash equivalents and
marketable securities in 2006 than in 2005, resulting from our three public
offerings in 2005, and higher interest rates in 2006. Amortization of discounts
net of premiums, which is included in interest income, decreased to $9 from
$270
for the years ended December 31, 2006 and 2005, respectively.
2005
vs. 2004 Interest
income increased to $2,299 for the year ended December 31, 2005 from $780 for
the year ended December 31, 2004. Interest income, as reported, is primarily
the
result of investment income from our marketable securities, offset by the
amortization of premiums we paid for those marketable securities. For the years
ended December 31, 2005, and 2004, investment income increased to $2,569 from
$1,420, respectively, due to a higher average balance of cash equivalents and
marketable securities resulting from our three public offerings in 2005 and
higher interest rates in 2005. Amortization of discounts net of premiums, which
is included in interest income, decreased to $270 from $640 for the years ended
December 31, 2005 and 2004, respectively.
Income
Taxes:
For
the
years ended December 31, 2006 and 2004, we had losses both for book and tax
purposes. For the year ended December 31, 2005, although we had a pre-tax net
loss of $69.2 million for book purposes, we had taxable income due primarily
to
the $60 million upfront payment received from Wyeth and the $18.4 million cash
and common stock paid to UR Labs and the Goldberg Distributees, which were
treated differently for book and tax purposes. For book purposes, payments
made
to UR Labs and the Goldberg Distributees were expensed in the period the
payments were made. However, for tax purposes, the UR Labs transaction was
a
tax-free reorganization and will never result in a deduction for tax purposes
and the payments to the Goldberg Distrbutees have been capitalized as an
intangible license asset and will be deducted for tax purposes over a fifteen
year period. For book purposes,we deferred recognition of revenue for the $60
million at December 31, 2005 and are recognizing revenue for that amount over
the development period for MNTX (expected to end 2008). For tax purposes, since
cash was received, the $60 million was included in taxable income in 2005.
We,
therefore, recognized an income tax provision in 2005 for the effect of the
Federal and state alternative minimum tax.
Net
Loss:
Our
net
loss was $21,618 for the year ended December 31, 2006, $69,429 for the year
ended December 31, 2005 and $42,018 for the year ended December 31, 2004.
Liquidity
and Capital Resources
Overview
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. At December 31, 2006, we had cash, cash
equivalents and marketable securities, including non-current portion, totaling
$149.1 million compared with $173.1 million at December 31, 2005. Our existing
cash, cash equivalents and marketable securities at December 31, 2006 are
sufficient to fund current operations for at least one year. Our marketable
securities, which include corporate debt and securities of government-sponsored
entities, are classified as available for sale. The majority of these
investments have short
maturities. Interest
rate increases during 2006 have generally resulted in a decrease in the market
value of our portfolio. Based upon our currently projected sources and uses
of
cash, we intend to hold these securities until a recovery of fair value, which
may be maturity. Therefore, we do not consider these marketable securities
to be
other-than-temporarily impaired at December 31, 2006.
The
following is a discussion of cash flow activities:
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
in
thousands
|
|
Net
cash (used in):provided by
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
(9,157
|
)
|
$
|
11,402
|
|
$
|
(36,708
|
)
|
Investing
activities
|
|
|
(53,043
|
)
|
|
(81,580
|
)
|
|
24,657
|
|
Financing
activities
|
|
|
7,075
|
|
|
132,023
|
|
|
5,441
|
|
· |
Cash
used in operating activities for 2006 resulted primarily from a net
loss
of $21.6 million, which was offset by $12.7
million of
non-cash compensation expense from the issuance of restricted stock
and
stock options to employees and non-employees, $13.2 million of expense
of
purchased technology in connection with our purchase of Cytogen’s equity
interest in PSMA LLC and $1.5 million of depreciation expense on
our fixed
assets. Although we purchased $8.8 million of capital equipment during
2006, $5.4 million of that amount was in construction in progress
related
to the expansion of our laboratory and manufacturing facilities and
was
not subject to depreciation. In addition, the significant changes
in
operating assets and liabilities between 2006 and 2005 were: a decrease
of
$16.9 million in deferred revenue in 2006 resulting from the amortization
of the $60 million upfront payment received from Wyeth in 2005 and
deferred revenue related to payments by Wyeth for development expenses;
a
decrease of $1.6 million in trade accounts receivable, mostly related
to
reimbursement of our fourth quarter 2006 expenses under grants and
contract with the NIH; and an increase of $1.5 million in accounts
payable
and accrued expenses, due to timing of
payments.
|
During
2005, cash provided by operating activities was mostly the result of the offset
of a net loss of $69.4 million by non-cash expenses of $15.8 million
related
to the purchase of rights from our licensors of methylnaltrexone in exchange
for
our common stock (See Overview
- Purchase of Rights from Licensors of methylnaltrexone);
$2.5
million of
non-cash amortization of unearned compensation resulting from the issuance
to
employees of restricted stock during 2005 and 2004 and from the issuance of
compensatory stock options to executive officers and non-employees; $1.8 million
in depreciation expense and $3.2 million of loss from our PSMA LLC joint venture
with Cytogen. Significant changes in operating assets and liabilities between
2005 and 2004 were: an increase of $60.0 million in deferred revenue in 2005
resulting from the upfront payment received from Wyeth and increased
contributions of $4.0 million 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. In addition, there was
an
increase of $2.2 million in trade accounts receivable, mostly for reimbursement
of our fourth quarter 2005 expenses under grants and contract with the NIH;
and
an increase of $3.0 million in accounts payable and accrued expenses, as the
pace of our research and development activities, especially for
methylnaltrexone, increased in 2005 over that in 2004.
Cash
used
in operating activities for 2004 resulted from a net loss of $42.0 million,
which was partially offset by $0.8 million of non-cash amortization
of unearned compensation resulting from the issuance to employees of restricted
stock during 2004 and from the issuance of compensatory stock options to
non-employees; $1.6 million in depreciation expense and $2.9 million of loss
from our PSMA LLC joint venture with Cytogen. Significant changes in operating
assets and liabilities between 2004 and 2003 were: an increase of $2.0 million
due to additional capital contributions to PSMA LLC upon approval of a work
plan
and a budget by the Members; an increase of $0.3 million in trade accounts
receivable, mostly for reimbursement of our fourth quarter 2004 expenses under
grants and contract with the NIH; and an increase of $2.1 million in accounts
payable and accrued expenses, as the pace of our research and development
activities, especially for methylnaltrexone, increased in 2004 over that in
2003
· |
Net
cash used in investing activities was $53.0 million for the year
ended
December 31, 2006 compared with net cash used in investing activities
of
$81.6 million and net cash provided by investing activities of $24.7
million for the years ended December 31, 2005 and 2004, respectively.
Net
cash used in investing activities for the year ended December 31,
2006
resulted primarily from the purchase of Cytogen’s 50% interest in PSMA LLC
for $13.1 million, net of $0.3 million of cash acquired and the sale
of
$267.9 million of marketable securities offset by the purchase of
$299.1
million of marketable securities. During 2005, we raised approximately
$121.6 million in three public offerings of our common stock and
invested
most of those funds in marketable securities. As a result, in 2006
and
2005, we used net cash in investing activities rather than having
net cash
provided by investing activities as in 2004. 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.
We
also purchased $8.8 million, $1.2 million and $2.4 million of fixed
assets, during the years ended December 31, 2006, 2005 and 2004,
respectively, including capital equipment and leasehold improvements
as we
acquired and built out additional manufacturing space and purchased
more
laboratory equipment for our expanding research and development
projects.
|
· |
Net
cash provided by financing activities was $7.1 million, $132.0 million
and
$5.4 million for the years ended December 31, 2006, 2005 and 2004,
respectively. 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, all periods reflect the exercise of stock options under
our
Stock Incentive Plans and the sale of common stock under our Employee
Stock Purchase Plans. Cash received from exercises under such plans
during
2006 and 2004 was less than that in 2005 since a major portion of
exercises during 2005 were of options from a former
executive.
|
Sources
of Cash
Our
current collaboration with Wyeth provided us with a $60 million upfront payment
in December 2005. In addition, beginning in January 2006, Wyeth has begun
reimbursing us for development expenses we incur related to methylnaltrexone
under the development plan agreed to between us and Wyeth, which is expected
to
continue through 2008. Wyeth has and will continue to provide milestone and
other contingent payments upon the achievement of certain events. Wyeth
will also fund all commercialization costs of methylnaltrexone products.
For
the
year ended December 31, 2006, we received $34.6 million of reimbursement of
our
development costs, which are within the development plan approved by the
parties. In
October 2006,we earned a $5.0 million milestone payment in connection with
the
start of a phase 3 clinical trial of intravenous methylnaltrexone for the
treatment of post-operative ileus.
Since
our
development costs for methylnaltrexone are funded by Wyeth, we are able to
devote our current and future resources to our other research and development
programs. We may also enter into collaboration agreements with respect to other
of our product candidates. We cannot forecast with any degree of certainty,
however, which products or indications, if any, will be subject to future
collaborative arrangements, or how such arrangements would affect our capital
requirements. The consummation of other collaboration agreements would further
allow us to advance other projects with our current funds.
However,
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
methylnaltrexone, 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.
In
September 2003, we were awarded a contract from the NIH. 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. These funds are
being used principally in connection with our ProVax HIV vaccine program. A
total of approximately $3.7 million is earmarked under the NIH Contract to
fund
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, 2006, we had
recognized revenue of $9.4 million from this contract, including $180,000 for
the achievement of two milestones.
We
have
also been awarded grants from the NIH, which provide ongoing funding for a
portion of our virology and cancer research programs for periods including
the
years ended December 31, 2006, 2005 and 2004. Among those grants were two awards
made during 2005, 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 all of our NIH grants
is subject to compliance with their terms, and is subject to annual funding
approvals. For the years ended December 31, 2006, 2005 and 2004, we recognized
$8.1 million, $5.5 million and $4.9 million, respectively, of revenue from
all
of our NIH grants.
Other
than amounts to be received from Wyeth and from currently approved grants and
contracts, we have no committed external sources of capital. Other than
potential revenues from methylnaltrexone, 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.
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.
Uses
of Cash
Our
total
expenses for research and development, including license fees, from inception
through December 31, 2006 have been approximately $297.2 million. We currently
have major research and development programs investigating gastroenterology,
HIV-related diseases and oncology. In addition, we are conducting several
smaller research projects in the areas of virology and oncology. 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.
For
the
years ended December 31, 2006, 2005 and 2004, research and development costs
incurred were as follows. Expenses for methylnaltrexone for 2005 include $18.7
million related to our purchase of rights from methylnaltrexone licensors.
Expenses for cancer for 2006 includes $13.2 million related to our purchase
of
Cytogen’s interest in our PSMA joint venture (see Overview
¾
Purchase of Rights from Methylnaltrexone Licensors, Overview ¾
PSMA
Development Company LLC and Results of Operations—Expenses,
above
for more details):
|
|
For
the Year Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(in
millions)
|
|
Methylnaltrexone
|
|
$
|
32.1
|
|
$
|
43.8
|
|
$
|
19.7
|
|
HIV
|
|
|
15.8
|
|
|
11.7
|
|
|
8.3
|
|
Cancer
|
|
|
23.2
|
|
|
6.6
|
|
|
5.9
|
|
Other
programs
|
|
|
4.2
|
|
|
1.7
|
|
|
2.2
|
|
Total
|
|
$
|
75.3
|
|
$
|
63.8
|
|
$
|
36.1
|
|
As
we
proceed with our development responsibilities under our methylnaltrexone
programs, although we expect that our spending on methylnaltrexone will increase
significantly during 2007, our cash outlays in accordance with the agreed upon
development plan will be reimbursed by Wyeth. We also expect that spending
on
our PRO 140 and other programs will increase during 2007 and beyond.
Consequently, we may require additional funding to continue our research and
product development programs, to conduct preclinical studies and clinical
trials, for operating expenses, to pursue regulatory approvals for our product
candidates, for the costs involved in filing and prosecuting patent applications
and enforcing or defending patent claims, if any, for the cost of product
in-licensing and for any possible acquisitions. Manufacturing and
commercialization expenses for methylnaltrexone will be funded by Wyeth.
However, if we exercise our option to co-promote methylnaltrexone products
in
the U.S., which must be approved by Wyeth, we will be required to establish
and
fund a salesforce, which we currently do not have. If we commercialize any
other
product candidate other than with a corporate collaborator, we would also
require additional funding to establish manufacturing and marketing
capabilities.
Our
purchase of rights from our methylnaltrexone licensors in December 2005 (see
Overview
¾
Purchase of Rights from Methylnaltrexone Licensors,
above)
have extinguished our cash payments that would have been due to those licensors
in the future upon the achievement of certain events, including sales of
methylnaltrexone products. We continue, however, to be responsible to make
payments (including royalties) to the University of Chicago upon the occurrence
of certain events.
Prior
to
our acquisition of PSMA LLC on April 20, 2006, all costs of PSMA LLC’s research
and development efforts were funded equally by us and Cytogen through capital
contributions. Our
and
Cytogen’s level of commitment to fund PSMA LLC was based on an annual budget
that was developed and approved by the parties. During the year ended December
31, 2005, the Members each contributed $0.5 million to fund work under the
2004
approved budget and $3.45 million to fund work under the 2005 approved budget.
During 2006, prior to our acquisition of Cytogen’s membership interest in PSMA
LLC, we and Cytogen had not approved a work plan and budget for 2006 and,
therefore, no
further
capital contributions were made by the Members subsequent to December 31, 2005.
However,
we and Cytogen were required to fulfill obligations under existing contractual
commitments as of December 31, 2005. Since PSMA LLC has become our wholly owned
subsidiary as of April 20, 2006, we no longer make capital
contributions.
Costs
incurred by PSMA LLC from January 1, 2006 to April 20, 2006 were funded from
PSMA LLC’s cash reserves. We
are
continuing to conduct the PSMA research and development projects on our own
subsequent
to our acquisition of PSMA LLC and
are
required to fund the entire amount of such efforts; thus, increasing our cash
expenditures. We
are
funding PSMA-related research and development efforts from our
internally-generated cash flows. We are also continuing
to receive funding from the NIH for a portion of our PSMA-related research
and
development costs.
During
the years ended December 31, 2006, 2005 and 2004, we have spent $8.8 million,
$1.2 million and $2.4 million, respectively, on capital expenditures, including
the purchase of a second 150-liter bioreactor for the manufacture of research
and clinical products, the build-out of our laboratories and manufacturing
facilities and laboratory equipment. During 2007 and beyond, we expect that
such
expenditures will increase as we continue to lease and renovate additional
laboratory and manufacturing space and increase headcount of our research and
development and administrative staff.
Contractual
Obligations
Our
funding requirements, both for the next 12 months and beyond, will include
required payments under operating leases and licensing and collaboration
agreements. The following table summarizes our contractual obligations as of
December 31, 2006 for future payments under these agreements:
|
|
|
|
Payments
due by December 31,
|
|
|
|
Total
|
|
2007
|
|
2008-2009
|
|
2010-2011
|
|
Thereafter
|
|
|
|
|
|
(
in millions)
|
|
Operating
leases
|
|
$
|
8.0
|
|
$
|
2.3
|
|
$
|
4.8
|
|
$
|
0.3
|
|
$ |
0.6
|
|
License
and collaboration agreements (1)
|
|
|
99.8
|
|
|
3.4
|
|
|
4.3
|
|
|
3.3
|
|
|
88.8
|
|
Total
|
|
$
|
107.8
|
|
$
|
5.7
|
|
$
|
9.1
|
|
$
|
3.6
|
|
$
|
89.4
|
|
_______________
(1) |
Assumes
attainment of milestones covered under each agreement, including
those by
PSMA LLC. The timing of the achievement of the related milestones
is
highly uncertain, and accordingly the actual timing of payments,
if any,
is likely to vary, perhaps significantly, relative to the timing
contemplated by this table.
|
For
each
of our programs, we periodically assess the scientific progress and merits
of
the programs to determine if continued research and development is economically
viable. Certain of our programs have been terminated due to the lack of
scientific progress and lack of prospects for ultimate commercialization.
Because of the uncertainties associated with research and development of these
programs, the duration and completion costs of our research and development
projects are difficult to estimate and are subject to considerable variation.
Our inability to complete our research and development projects in a timely
manner or our failure to enter into collaborative agreements could significantly
increase our capital requirements and adversely 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 unconsolidated entity.
Critical
Accounting Policies
We
prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America. Our significant accounting
policies are disclosed in Note 2 to our financial statements included in this
Annual Report on Form 10-K for the year ended December 31, 2006. 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
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 began
recognizing contract research revenue from Wyeth on January 1, 2006. During
the
years ended December 31, 2006, 2005 and 2004, we also recognized revenue from
government research grants and contracts, which are used to subsidize a portion
of certain of our research projects (“Projects”), exclusively from the NIH. We
also recognized revenue from the sale of research reagents during those periods.
In addition, we recognized contract research and development revenue exclusively
from PSMA LLC for the years ended December 31, 2005 and 2004. No revenue was
recognized from PSMA LLC for the year ended December 31, 2006. We recognize
revenue from all sources based on the provisions of the Securities and Exchange
Commission’s Staff Accounting Bulletin No. 104 (“SAB 104”) “Revenue
Recognition”, Emerging Issues Task Force Issue No. 00-21 (“EITF 00-21”)
“Accounting for Revenue Arrangements with Multiple Deliverables” and EITF Issue
No. 99-19 (“EITF 99-19”) “Reporting Revenue Gross as a Principal Versus Net as
an Agent”.
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 payment is 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 99-19 are
met,
the amounts are determinable and collection of the related receivable is
reasonably assured.
Royalty
revenue is recognized upon the sale of related products, provided that the
royalty amounts are fixed or determinable, collection of the related receivable
is reasonably assured and we have no remaining performance obligations under
the
arrangement. If royalties are received when we have remaining performance
obligations, the royalty payments would be attributed to the services being
provided under the arrangement and, therefore, would be recognized as such
performance obligations are performed under either the proportionate performance
or straight-line methods, as applicable, and in accordance with the policies
described above.
Amounts
received prior to satisfying the above revenue recognition criteria are recorded
as deferred revenue in the accompanying consolidated balance sheets. Amounts
not
expected to be recognized within one year of the balance sheet date are
classified as long-term deferred revenue. The estimate of the classification
of
deferred revenue as short-term or long-term is based upon management’s current
operating budget for the Wyeth collaboration agreement for our total effort
required to complete our performance obligations under that arrangement. That
estimate may change in the future and such changes to estimates would result
in
a change in the amount of revenue recognized in future periods.
NIH
grant
and contract revenue is recognized as efforts are expended and as related
subsidized Project costs are incurred. We perform work under the NIH grants
and
contract on a best-effort basis. The NIH reimburses us for costs associated
with
Projects in the fields of 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.
Prior
to
our acquisition of Cytogen’s membership interest in PSMA LLC on April 20, 2006,
both we and Cytogen were required to fund PSMA LLC equally to support ongoing
research and development efforts that we conducted on behalf of PSMA LLC. We
recognized payments for research and development as revenue as services were
performed. However, during the quarter ended March 31, 2006, the Members had
not
approved a work plan or budget for 2006. Therefore, beginning on January 1,
2006, we had not been reimbursed by PSMA LLC for our services and we did not
recognize revenue from PSMA LLC for the quarter ended March 31, 2006. Beginning
in the second quarter of 2006, PSMA LLC has become our wholly owned subsidiary
and, accordingly, we no longer recognize revenue from PSMA LLC.
Share-Based
Payment Arrangements
On
January 1, 2006, we adopted Statement of Financial Accounting Standards No.
123
(revised 2004) “Share-Based Payment” (“SFAS No. 123(R)”), which is a revision of
SFAS 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”. Our
share-based compensation to employees includes non-qualified stock options,
restricted stock (nonvested shares) and shares issued under our Employee Stock
Purchase Plans (the “Purchase Plans”), which are compensatory under SFAS No.
123(R). We account for share-based compensation to non-employees, including
non-qualified stock options and restricted stock (nonvested shares), in
accordance with Emerging Issues Task Force Issue No. 96-18 “Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring, or
in
Connection with Selling, Goods or Services”, which is unchanged as a result of
our adoption of SFAS No. 123(R).
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”), we had elected to follow the disclosure-only provisions of
SFAS No.123 and, accordingly, accounted for share-based compensation under
the
recognition and measurement principles of APB 25 and related interpretations.
Under APB 25, when stock options were issued to employees with an exercise
price
equal to or greater than the market price of the underlying stock price on
the
date of grant, no compensation expense was recognized in the financial
statements and pro forma compensation expense in accordance with SFAS No. 123
was only disclosed in the footnotes to the financial statements.
We
adopted SFAS No. 123(R) using the modified prospective application, under which
compensation cost for all share-based awards that were unvested as of the
adoption date and those newly granted or modified after the adoption date will
be recognized in our financial statements over the related requisite service
periods; usually the vesting periods for awards with a service condition.
Compensation cost is based on the grant-date fair value of awards that are
expected to vest. We apply a forfeiture rate to the number of unvested awards
in
each reporting period in order to estimate the number of awards that are
expected to vest. Estimated forfeiture rates are based upon historical data
on
vesting behavior of employees. We adjust the total amount of compensation cost
recognized for each award, in the period in which each award vests, to reflect
the actual forfeitures related to that award. Changes in our estimated
forfeiture rate will result in changes in the rate at which compensation cost
for an award is recognized over its vesting period. Previously, under SFAS
No.
123, we applied a zero forfeiture rate and recognized the effect of forfeitures
only as they occurred. We have made an accounting policy decision to use the
straight-line method of attribution of compensation expense, under which the
grant date fair value of share-based awards will be recognized on a
straight-line basis over the total requisite service period for the total award.
For
the
year ended December 31, 2006, total compensation cost for share-based payment
arrangements recognized in income was $12.6 million; $5.8 million of which
was
reported as research and development expense and $6.8 million of which was
reported as general and administrative expense. No tax benefit was recognized
related to that compensation cost because we had a net loss for the period
and
the related deferred tax assets were fully offset by a valuation allowance.
Accordingly, no amounts related to windfall tax benefits have been reported
in
cash flows from operations or cash flows from financing activities for the
year
ended December 31, 2006 . As of December 31, 2006, there was $15.1 million,
$6.3
million and $25,000 of total unrecognized compensation cost related to nonvested
stock options, nonvested shares and our Employee Stock Purchase Plans,
respectively, which is expected to be recognized over weighted average periods
of 1.6 years, 1.6 years and 0.5 months, respectively.
Upon
adoption of SFAS 123(R), we eliminated $4.5 million of unearned compensation,
related to share-based awards granted prior to the adoption date that were
unvested as of January 1, 2006, against additional paid-in capital. Compensation
expense reported on a pro forma basis for periods prior to adoption of SFAS
No.
123(R) has not been revised and is not reflected in the financial statements
of
those prior periods. Accordingly, there was no effect of the change from
applying the original provisions of SFAS No. 123 on net income, cash flow from
operations, cash flows from financing activities or basic or diluted net loss
per share of periods prior to the adoption of SFAS No. 123(R). Furthermore,
no
modifications were made to outstanding options prior to the adoption of SFAS
No.
123(R) and no changes to the quantity or type of share-based awards or changes
to the terms of share-based payment arrangements were made.
Under
SFAS No. 123(R), the fair value of each non-qualified stock option award is
estimated on the date of grant using the Black-Scholes option pricing model,
which requires input assumptions of stock price on the date of grant, exercise
price, volatility, expected term, dividend rate and risk-free interest rate.
The
same model, with input assumptions developed in the same manner, was used to
determine the fair value of share-based payment awards for purposes of the
pro
forma disclosures under SFAS No. 123.
· |
We
use the closing price of our common stock on the date of grant, as
quoted
on The NASDAQ Stock Market LLC, as the exercise price.
|
· |
Historical
volatilities are based upon daily quoted market prices of our common
stock
on The NASDAQ Stock Market LLC over a period equal to the expected
term of
the related equity instruments. We rely only on historical volatility
since future volatility is expected to be consistent with historical;
historical volatility is calculated using a simple average calculation;
historical data is available for the length of the option’s expected term
and a sufficient number of price observations are used consistently.
Since
our stock options are not traded on a public market, we do not use
implied
volatility. For the years ended December 31, 2006 , 2005 and 2004,
the
volatility of our common stock has been high, 69%-94%, 92%-97% and
92%,
respectively, which is common for entities in the biotechnology industry
that do not have commercial products. A higher volatility input to
the
Black-Scholes model increases the resulting compensation expense.
|
· |
The
expected term of options granted represents the period of time that
options granted are expected to be outstanding. For the year ended
December 31, 2006, our expected term has been calculated based upon
the
simplified method as detailed in Staff Accounting Bulletin No. 107
(“SAB
107”). Accordingly, we are using an expected term of 6.5 years based
upon
the vesting period of the outstanding options of four or five years
and a
contractual term of ten years. For the year ended December 31, 2005,
our
expected term of 6.5 years is based upon the average of the vesting
term
and the original contractual term. For the year ended December 31,
2004,
our expected term of 5.0 years represents the average of the maximum
contractual term of our stock option awards of 10 years. We plan
to refine
our estimate of expected term in the future as we obtain more historical
data. A shorter expected term would result in a lower compensation
expense.
|
· |
We
have never paid dividends and do not expect to pay dividends in the
future. Therefore, our dividend rate is
zero.
|
· |
The
risk-free rate for periods within the expected term of the options
is
based on the U.S. Treasury yield curve in effect at the time of
grant.
|
A
portion
of the options granted to our Chief Executive Officer on July 1, 2002, 2003,
2004 and 2005 and on July 3, 2006 cliff vests after nine years and eleven months
from the respective grant date. Vesting of a defined portion of each award
will
occur earlier if a defined performance condition is achieved; more than one
condition may be achieved in any period. In accordance with SFAS No. 123(R),
at
the end of each reporting period, we will estimate the probability of
achievement of each performance condition and will use those probabilities
to
determine the requisite service period of each award. The requisite service
period for the award is the shortest of the explicit or implied service periods.
In the case of the executive’s options, the explicit service period is nine
years and eleven months from the respective grant dates. The implied service
periods related to the performance conditions are the estimated times for each
performance condition to be achieved. Thus, compensation expense will be
recognized over the shortest estimated time for the achievement of performance
conditions for that award (assuming that the performance conditions will be
achieved before the cliff vesting occurs). Changes in the estimate of
probability of achievement of any performance condition will be reflected in
compensation expense of the period of change and future periods affected by
the
change. Prior to the adoption of SFAS No. 123(R), these awards were accounted
for as variable awards under APB 25 and, therefore, compensation expense, based
on the intrinsic value of the vested awards on each reporting date, was
recognized in our financial statements.
For
purposes of pro forma compensation expense under SFAS No. 123 as well as upon
adoption of SFAS No. 123(R), the fair value of shares purchased under the
Purchase Plans was estimated on the date of grant in accordance with FASB
Technical Bulletin No. 97-1 “Accounting under Statement 123 for Certain Employee
Stock Purchase Plans with a Look-Back Option”. The same option valuation model
was used for the Purchase Plans as for non-qualified stock options, except
that
the expected term for the Purchase Plans is six months and the historical
volatility is calculated over the six month expected term.
In
applying the treasury stock method for the calculation of diluted earnings
per
share (“EPS”), amounts of unrecognized compensation expense and windfall tax
benefits are required to be included in the assumed proceeds in the denominator
of the diluted earnings per share calculation unless they are anti-dilutive.
We
incurred a net loss for the years ended December 31, 2006, 2005 and 2004, and,
therefore, such amounts have not been included for those periods in the
calculation of diluted EPS since they would be anti-dilutive. Accordingly,
basic
and diluted EPS are the same for those periods. We have made an accounting
policy decision to calculate windfall tax benefits/shortfalls for purposes
of
diluted EPS calculations, excluding the impact of pro forma deferred tax assets.
This policy decision will apply when we have net income.
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 2007 as clinical trials progress or are
initiated in the methylnaltrexone and HIV programs. Our collaboration agreement
with Wyeth regarding methylnaltrexone in which Wyeth has assumed all of the
financial responsibility for further development will mitigate those
costs.
Impact
of Recently Issued Accounting Standards
On
July
13, 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, Accounting
for Uncertainty in Income Taxes—an Interpretation of FASB Statement
109
(“FIN
48”). FIN 48 prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements all
material uncertain tax positions that the company has taken or expects to take
on a tax return (including a decision whether to file or not to file a return
in
a particular jurisdiction). FIN 48 applies to income taxes and is not intended
to be applied by analogy to other taxes, such as sales taxes, value-add taxes,
or property taxes. Under FIN 48,
the
financial statements will reflect the tax benefit of an uncertain tax position
only if it is “more likely than not” that the position is sustainable based upon
its technical merits. The tax benefit of a qualifying position is the largest
amount of tax benefit that is greater than 50 percent likely of being realized
upon ultimate settlement with a taxing authority having full knowledge of all
relevant information.
FIN 48
requires qualitative and quantitative disclosures, including discussion of
reasonably possible changes that might occur in the recognized tax benefits
over
the next 12 months; a description of open tax years by major jurisdictions;
and
a roll-forward of all unrecognized tax benefits, presented as a reconciliation
of the beginning and ending balances of the unrecognized tax benefits on a
worldwide aggregated basis. FIN 48 is effective as of the beginning of fiscal
years that start after December 15, 2006. We have assessed the impact of FIN
48
on our financial position and results of operations as of January 1, 2007,
the
date of our adoption of FIN 48. The only tax jurisdiction to which we are
subject is the United States. Open tax years relate to years in which unused
net
operating losses were generated or, if used, for which the statute of limitation
for examination by taxing authorities has not expired. Thus, upon adoption
of
FIN 48, our open tax years extend back to 1995, with the exception of 1997,
during which we reported net income. We have determined that the adoption of
FIN
48 will have no impact on our financial position or results of
operations.
On
September 13, 2006, the Securities and Exchange Commission (“SEC”) staff issued
Staff Accounting Bulletin No.
108
(“SAB 108”) in
order to
address the observed diversity of practice surrounding how public companies
quantify financial statement misstatements with respect to annual financial
statements. There have been two widely-recognized methods for quantifying the
effects of financial statement errors: the “roll-over” method and the “iron
curtain” method. The roll-over method focuses primarily on the impact of a
misstatement on the income statement--including the reversing effect of prior
year misstatements--but its use can lead to the accumulation of misstatements
in
the balance sheet. The iron-curtain method, on the other hand, focuses primarily
on the effect of correcting the period-end balance sheet with less emphasis
on
the reversing effects of prior year errors on the income statement. In SAB
108,
the SEC staff established a “dual approach” that requires quantification of
financial statement errors under both the iron-curtain and the roll-over
methods. SAB 108 permits existing public companies to record the cumulative
effect of initially applying the “dual approach” in the first year ending after
November 15, 2006 by recording the necessary “correcting” adjustments to the
carrying values of assets and liabilities as of the beginning of that year
with
the offsetting adjustment recorded to the opening balance of retained earnings.
Additionally, the use of the “cumulative effect” transition method requires
detailed disclosure of the nature and amount of each individual error being
corrected through the cumulative adjustment and how and when it arose. SAB
108
is effective for financial statements for fiscal years ending after November
15,
2006. Our adoption of SAB 108 had no impact on our financial position or results
of operations.
On
September 15, 2006, the FASB issued FASB Statement No. 157, “Fair Value
Measurements” (“FAS 157”), which addresses how companies should measure the fair
value of assets and liabilities when they are required to use a fair value
measure for recognition or disclosure purposes under generally accepted
accounting principles. FAS 157 does not expand the use of fair value in any
new
circumstances. Under FAS 157, fair value refers to the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the market in which the reporting
entity transacts. FAS 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing the asset
or
liability. In support of this principle, the standard establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions.
The fair value hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data, for example, the reporting
entity’s own data. FAS 157 requires disclosures intended to provide information
about (1) the extent to which companies measure assets and liabilities at fair
value, (2) the methods and assumptions used to measure fair value, and (3)
the
effect of fair value measures on earnings. We will adopt FAS 157 on January
1,
2008. We do not expect the impact of the adoption of FAS 157 to be material
to
our financial position or results of operations.
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk
Our
primary investment objective is to preserve principal while maximizing yield
without significantly increasing our risk. Our investments consist of
taxable
auction securities, corporate notes and issues of government-sponsored
entities.
Our
investments totaled $143.9 million at December 31, 2006. Approximately $78.0
million of these investments had fixed interest rates, and $65.9 million
had interest rates that were variable.
Due
to
the conservative nature of our short-term fixed interest rate investments,
we do
not believe that we have a material exposure to interest rate risk. Our
fixed-interest-rate long-term investments are sensitive to changes in interest
rates. Interest rate changes would result in a change in the fair value of
these
investments due to differences between the market interest rate and the rate
at
the date of purchase of the investment. A 100 basis point increase in the
December 31, 2006 market interest rates would result in a decrease of
approximately $0.49 million in the market values of these
investments.
At
December 31, 2006, the Company did not hold any market risk sensitive
instruments.
Item
8. Financial Statements and Supplementary
Data
See
page
F-1, “Index to Financial Statements.”
Item
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not
applicable
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, 2006 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, 2006. Management’s assessment of our
internal control over financial reporting as of December 31, 2006 has been
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
None
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
The
information required by this item (other than the information set forth in
the
next paragraph in this Item 10) will be included under the captions
“Election of Directors,” “Board and Committee and Meetings,” “Executive Officers
of the Company,” “Section 16(a) Beneficial Ownership Reporting and
Compliance,” and “Code of Business Ethics and Conduct” in our definitive proxy
statement with respect to our 2007 Annual Meeting of Shareholders to be filed
with the SEC, and is incorporated herein by reference.
We
have
adopted a code of business conduct and ethics that applies to our officers,
directors, and employees. The full text of our code of business conduct and
ethics can be found on the Company’s website (http://www.progenics.com)
under
the Investor Relations heading.
The
information called for by this item will be included under the captions
“Executive Compensation”, “Compensation of Directors”, “Compensation Committee
Report” and “Compensation Committee Interlocks and Insider Participation” in our
definitive proxy statement with respect to our 2007 Annual Meeting of
Shareholders to be filed with the SEC, and is incorporated herein by reference.
Item
12. Security
Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The
information called for by this item will be included under the captions “Equity
Compensation Plan Information” and “Security Ownership of Certain Beneficial
Owners and Management” in our definitive proxy statement with respect to our
2007 Annual Meeting of Shareholders to be filed with the SEC, and is
incorporated herein by reference.
The
information called for by this item will be included under the captions “Certain
Relationships and Related Transactions” and “Director Independence” in our
definitive proxy statement with respect to our 2007 Annual Meeting of
Shareholders to be filed with the SEC, and is incorporated herein by
reference.
The
information called for by this item will be included under the caption
“Information about Fees Paid to Independent Registered Public Accounting Firm”
in our definitive proxy statement with respect to our 2007 Annual Meeting of
Shareholders to be filed with the SEC, and is incorporated herein by reference.
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, 2005 and 2006
Consolidated
Statements of Operations for the years ended December 31, 2004, 2005 and
2006
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss for the years ended
December 31, 2004, 2005 and 2006
Consolidated
Statements of Cash Flows for the years ended December 31, 2004, 2005 and
2006
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
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Financial
Statements:
|
|
Consolidated
Balance Sheets at December 31, 2005 and 2006
|
F-3
|
Consolidated
Statements of Operations for the years ended December 31, 2004, 2005
and 2006
|
F-4
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Loss
for
the years ended December 31, 2004, 2005 and 2006
|
F-5
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2004, 2005
and 2006
|
F-6
|
Notes
to Consolidated Financial Statements
|
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 2006, 2005 and
2004 consolidated financial statements and of its internal control over
financial reporting as of December 31, 2006 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. and its subsidiaries at December
31,
2006 and 2005, and the results of their operations and their cash flows for
each
of the three years in the period ended December 31, 2006 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 audits 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.
As
discussed in Note 3 to the financial statements, effective January 1, 2006,
the
Company changed its method of accounting for share-based payment, to conform
with FASB Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-based Payment."
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, 2006 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, 2006, 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 provide 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
|
|
Hartford,
Connecticut
|
|
March 15,
2007
|
|
PROGENICS
PHARMACEUTICALS, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except for par value and share amounts)
|
|
December 31,
|
|
|
|
2005
|
|
2006
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
67,072
|
|
$
|
11,947
|
|
Marketable
securities
|
|
|
98,983
|
|
|
113,841
|
|
Accounts
and unbilled receivables
|
|
|
3,287
|
|
|
1,699
|
|
Other
current assets
|
|
|
2,561
|
|
|
3,181
|
|
Total
current assets
|
|
|
171,903
|
|
|
130,668
|
|
Marketable
securities
|
|
|
7,035
|
|
|
23,312
|
|
Fixed
assets, at cost, net of accumulated depreciation and
amortization
|
|
|
4,156
|
|
|
11,387
|
|
Investment
in joint venture
|
|
|
371
|
|
|
|
|
Restricted
cash
|
|
|
538
|
|
|
544
|
|
Total
assets
|
|
$
|
184,003
|
|
$
|
165,911
|
|
|
|
|
|
|
|
|
|
Liabilities
and
Stockholders’
Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
10,238
|
|
$
|
11,852
|
|
Deferred revenue ¾
current
|
|
|
23,580
|
|
|
26,989
|
|
Due
to joint venture
|
|
|
194
|
|
|
|
|
Other
current liabilities
|
|
|
790
|
|
|
|
|
Total
current liabilities
|
|
|
34,802
|
|
|
38,841
|
|
Deferred
revenue —long term
|
|
|
36,420
|
|
|
16,101
|
|
Deferred
lease liability
|
|
|
49
|
|
|
123
|
|
Total
liabilities
|
|
|
71,271
|
|
|
55,065
|
|
Commitments
and contingencies (Note 11)
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 20,000,000 shares authorized; issued, and
outstanding—none
|
|
|
|
|
|
|
|
Common
stock, $.0013 par value; 40,000,000 shares authorized; issued and
outstanding— 25,229,240 in 2005 and 26,199,016 in 2006
|
|
|
33
|
|
|
34
|
|
Additional
paid-in capital
|
|
|
306,085
|
|
|
321,315
|
|
Unearned
compensation
|
|
|
(4,498
|
)
|
|
|
|
Accumulated
deficit
|
|
|
(188,740
|
)
|
|
(210,358
|
)
|
Accumulated
other comprehensive (loss)
|
|
|
(148
|
)
|
|
(145
|
)
|
Total
stockholders’ equity
|
|
|
112,732
|
|
|
110,846
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
184,003
|
|
$
|
165,911
|
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except for loss per share data)
|
|
Years
Ended December 31,
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
Contract
research and development from collaborator
|
|
|
|
|
|
$
58,415
|
|
Contract
research and development from joint venture
|
|
$
|
2,008
|
|
$
|
988
|
|
|
|
|
Research
grants and contracts
|
|
|
7,483
|
|
|
8,432
|
|
|
11,418
|
|
Product
sales
|
|
|
85
|
|
|
66
|
|
|
73
|
|
Total
revenues
|
|
|
9,576
|
|
|
9,486
|
|
|
69,906
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
35,673
|
|
|
43,419
|
|
|
61,711
|
|
In-process
research and development
|
|
|
|
|
|
|
|
|
13,209
|
|
License
fees — research and development
|
|
|
390
|
|
|
20,418
|
|
|
390
|
|
General
and administrative
|
|
|
12,580
|
|
|
13,565
|
|
|
22,259
|
|
Loss
in joint venture
|
|
|
2,134
|
|
|
1,863
|
|
|
121
|
|
Depreciation
and amortization
|
|
|
1,566
|
|
|
1,748
|
|
|
1,535
|
|
Total
expenses
|
|
|
52,343
|
|
|
81,013
|
|
|
99,225
|
|
Operating
loss
|
|
|
(42,767
|
)
|
|
(71,527
|
)
|
|
(29,319
|
)
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
780
|
|
|
2,299
|
|
|
7,701
|
|
Loss
on sale of marketable securities
|
|
|
(31
|
)
|
|
|
|
|
|
|
Total
other income
|
|
|
749
|
|
|
2,299
|
|
|
7,701
|
|
Net
loss before income taxes
|
|
|
(42,018
|
)
|
|
(69,228
|
)
|
|
(21,618
|
)
|
Income
taxes
|
|
|
|
|
|
(201
|
)
|
|
|
|
Net
loss
|
|
$
|
(42,018
|
)
|
$
|
(69,429
|
)
|
$
|
(21,618
|
)
|
Net
loss per share—basic and diluted
|
|
$
|
(2.48
|
)
|
$
|
(3.33
|
)
|
$
|
(0.84
|
)
|
Weighted-average
shares—basic and diluted
|
|
|
16,911
|
|
|
20,864
|
|
|
25,669
|
|
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, 2004, 2005 and 2006
(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, 2003
|
|
|
16,641
|
|
$
|
22
|
|
$
|
144,940
|
|
|
|
|
$
|
(77,293
|
)
|
$
|
14
|
|
$
|
67,683
|
|
|
|
|
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 10)
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense for vesting of share-based payment arrangements
|
|
|
|
|
|
|
|
|
12,034
|
|
|
|
|
|
|
|
|
|
|
|
12,034
|
|
|
|
|
Issuance
of restricted stock, net of forfeitures
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock under employee stock purchase plans and
exercise of stock
options
|
|
|
742
|
|
|
1
|
|
|
7,074
|
|
|
|
|
|
|
|
|
|
|
|
7,075
|
|
|
|
|
Issuance
of compensatory stock options to non-employees
|
|
|
|
|
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
620
|
|
|
|
|
Elimination
of unearned compensation upon adoption of SFAS No. 123(R)
|
|
|
|
|
|
|
|
|
(4,498
|
)
|
|
4,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,618
|
)
|
|
|
|
|
(21,618
|
)
|
|
(21,618
|
)
|
Change
in unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
3
|
|
|
3
|
|
Balance
at December 31, 2006
|
|
|
26,199
|
|
$
|
34
|
|
$
|
321,315
|
|
$
|
0
|
|
$
|
(210,358
|
)
|
$
|
(145
|
)
|
$
|
110,846
|
|
$
|
(21,615
|
)
|
The
accompanying notes are an integral part of the financial
statements.
PROGENICS
PHARMACEUTICALS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
Years
Ended December 31,
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(42,018
|
)
|
$
|
(69,429
|
)
|
$
|
(21,618
|
)
|
Adjustments
to reconcile net loss to net cash (used in) provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,566
|
|
|
1,748
|
|
|
1,535
|
|
Write-off
of fixed assets
|
|
|
42
|
|
|
|
|
|
2
|
|
Loss
on sale of marketable securities
|
|
|
31
|
|
|
|
|
|
|
|
Amortization
of discounts, net of premiums, on marketable securities
|
|
|
640
|
|
|
270
|
|
|
9
|
|
Amortization
of unearned compensation
|
|
|
452
|
|
|
1,878
|
|
|
|
|
Noncash
expenses incurred in connection with vesting of share-based payment
arrangements
|
|
|
|
|
|
|
|
|
12,034
|
|
Noncash
expenses incurred in connection with issuance of compensatory stock
options to non-employees
|
|
|
385
|
|
|
640
|
|
|
620
|
|
Expense
of purchased technology (see Note 12c)
|
|
|
|
|
|
|
|
|
13,209
|
|
Loss
in joint venture
|
|
|
2,134
|
|
|
1,863
|
|
|
121
|
|
Adjustment
to loss in joint venture (See Note 12b)
|
|
|
762
|
|
|
1,311
|
|
|
|
|
Purchase
of license rights for common stock (see Note 10)
|
|
|
|
|
|
15,839
|
|
|
|
|
Changes
in assets and liabilities, net of effects of purchase of PSMA
LLC:
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in accounts receivable
|
|
|
(321
|
)
|
|
(2,175
|
)
|
|
1,588
|
|
(Increase)
decrease in amount due from joint venture
|
|
|
(189
|
)
|
|
189
|
|
|
|
|
(Increase)
in other current assets and other assets
|
|
|
(341
|
)
|
|
(751
|
)
|
|
(620
|
)
|
Increase
in accounts payable and accrued expenses
|
|
|
2,107
|
|
|
2,978
|
|
|
1,533
|
|
Increase
(decrease) in due to joint venture
|
|
|
|
|
|
194
|
|
|
(194
|
)
|
(Increase)
decrease in investment in joint venture
|
|
|
(1,950
|
)
|
|
(3,950
|
)
|
|
250
|
|
Increase
(decrease)in other current liabilities
|
|
|
|
|
|
790
|
|
|
(790
|
)
|
Increase
(decrease) in deferred revenue
|
|
|
|
|
|
60,000
|
|
|
(16,910
|
)
|
(Decrease)
increase in deferred lease liability
|
|
|
(8
|
)
|
|
7
|
|
|
74
|
|
Net
cash (used in) provided by operating activities
|
|
|
(36,708
|
)
|
|
11,402
|
|
|
(9,157
|
)
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(2,409
|
)
|
|
(1,212
|
)
|
|
(8,768
|
)
|
Purchases
of marketable securities
|
|
|
(39,601
|
)
|
|
(205,301
|
)
|
|
(299,075
|
)
|
Sales
of marketable securities
|
|
|
66,670
|
|
|
124,936
|
|
|
267,934
|
|
Acquisition
of PSMA LLC, net of cash acquired (see Note 12c)
|
|
|
|
|
|
|
|
|
(13,128
|
)
|
Increase
in restricted cash
|
|
|
(3
|
)
|
|
(3
|
)
|
|
(6
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
24,657
|
|
|
(81,580
|
)
|
|
(53,043
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from public offerings of Common Stock
|
|
|
|
|
|
126,323
|
|
|
|
|
Expenses
associated with public offerings of Common Stock
|
|
|
|
|
|
(4,768
|
)
|
|
|
|
Proceeds
from the exercise of stock options and sale of Common Stock under
the
Employee Stock Purchase Plans
|
|
|
5,441
|
|
|
10,468
|
|
|
7,075
|
|
Net
cash provided by financing activities
|
|
|
5,441
|
|
|
132,023
|
|
|
7,075
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(6,610
|
)
|
|
61,845
|
|
|
(55,125
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
11,837
|
|
|
5,227
|
|
|
67,072
|
|
Cash
and cash equivalents at end of period
|
|
$
|
5,227
|
|
$
|
67,072
|
|
$
|
11,947
|
|
Supplemental
disclosure of noncash investing activity:
|
|
|
|
|
|
|
|
|
|
|
Fair
value of assets, including purchased technology, acquired from PSMA
LLC
(see Note 12c)
|
|
|
|
|
|
|
|
$
|
13,674
|
|
Cash
paid for acquisition of PSMA LLC
|
|
|
|
|
|
|
|
|
(13,459
|
)
|
Liabilities
assumed from PSMA LLC
|
|
|
|
|
|
|
|
$
|
215
|
|
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)
1.
Organization and Business
Progenics
Pharmaceuticals, Inc. (the “Company” or “Progenics”) is a biopharmaceutical
company focusing on the development and commercialization of innovative
therapeutic products to treat the unmet medical needs of patients with
debilitating conditions and life-threatening diseases. The Company’s principal
programs are directed toward gastroenterology, virology and oncology. The
Company was incorporated in Delaware on December 1, 1986. In December 2005,
in
connection with the purchase of certain license rights, the Company formed
a
wholly owned subsidiary, Progenics Pharmaceuticals Nevada, Inc. (“Progenics
Nevada”), which had no operations during the year ended December 31, 2006, but
holds the Company’s rights to methylnaltrexone. On April 20, 2006, the Company
acquired full ownership of PSMA Development Company LLC (“PSMA LLC”) by
acquiring from CYTOGEN Corporation (“Cytogen”) its 50% interest in PSMA LLC (see
Note 12c). In October 2006, the Company formed a wholly owned subsidiary,
Progenics Life Sciences Ltd., in the United Kingdom, which had no operations
in
2006. All of the Company’s operations are conducted at one location in New York
State. The Company’s chief operating decision maker reviews financial analyses
and forecasts relating to all of the Company’s research programs as a single
unit and allocates resources and assesses performance of such programs as a
whole. Therefore, the Company operates under a single research and development
segment.
At
December 31, 2006, the Company had cash, cash equivalents and marketable
securities, including non-current portion, totaling $149.1 million. The
Company expects that cash, cash equivalents and marketable securities at
December 31, 2006 will be sufficient to fund current operations beyond one
year.
During
the year ended December 31, 2006, the Company had a net loss of $21.6 million
and cash used in operating activities was $9.2 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 (the “Collaboration Agreement”) with Wyeth
Pharmaceuticals (“Wyeth”) on December 23, 2005 for the development and
commercialization of methylnaltrexone, the Company’s lead investigational drug
(see Note 9).
Other
than potential revenues from methylnaltrexone, 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
Basis
of Consolidation
As
a
result of the Company’s purchase of Cytogen’s membership interest in PSMA LLC on
April 20, 2006 (see Notes 1 and 12c), the Company’s financial statements, as of
and for the year ended December 31, 2006, have been prepared on a consolidated
basis, which includes the Balance Sheet accounts of PSMA LLC as of December
31,
2006 and the Statement of Operations accounts of PSMA LLC from April 20, 2006
to
December 31, 2006. Inter-company transactions have been eliminated in
consolidation. The Company will consolidate the accounts of PSMA LLC and the
Company’s other subsidiaries that have operating results in future
periods.
Revenue
Recognition
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
its achievement of clinical development milestones, contingent payments based
upon the achievement by Wyeth of defined events and royalties on product sales.
The Company began recognizing contract research revenue from Wyeth on January
1,
2006. During the years ended December 31, 2004, 2005 and 2006, the Company
also
recognized revenue from government research grants and contracts, which are
used
to subsidize a portion of certain of its research projects (“Projects”),
exclusively from the National Institutes of Health (the “NIH”). The Company also
recognized revenue from the sale of research reagents during those periods.
In
addition, the Company recognized contract research and development revenue
exclusively from PSMA LLC for the years ended December 31, 2004 and 2005. No
revenue was recognized from PSMA LLC for the year ended December 31, 2006.
The
Company recognizes revenue from all sources based on the provisions of the
Securities and Exchange Commission’s Staff Accounting Bulletin No.
104
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
(“SAB
104”) “Revenue Recognition”, Emerging Issues Task Force Issue No. 00-21 (“EITF
00-21”) “Accounting for Revenue Arrangements with Multiple Deliverables” and
EITF Issue No. 99-19 (“EITF 99-19”) “Reporting Revenue Gross as a Principal
Versus Net as an Agent”.
Non-refundable
upfront license fees are recognized as revenue when the Company has a
contractual right to receive such
payment,
the contract price is fixed or determinable, the collection of the resulting
receivable is reasonably assured and the Company has no further performance
obligations under the license agreement. Multiple element arrangements, such
as
license and development arrangements, are analyzed to determine whether the
deliverables, which often include a license and performance obligations, such
as
research and steering committee services, can be separated or whether they
must
be accounted for as a single unit of accounting in accordance with EITF 00-21.
The Company would recognize upfront license payments as revenue upon delivery
of
the license only if the license had standalone value and the fair value of
the
undelivered performance obligations, typically including research or steering
committee services, could be determined. If the fair value of the undelivered
performance obligations could be determined, such obligations would then be
accounted for separately as performed. If the license is considered to either
(i) not have standalone value or (ii) have standalone value but the fair value
of any of the undelivered performance obligations could not be determined,
the
arrangement would then be accounted for as a single unit of accounting and
the
upfront license payments would be recognized as revenue over the estimated
period of when the Company’s performance obligations are performed.
Whenever
the Company determines that an arrangement should be accounted for as a single
unit of accounting, the Company must determine the period over which the
performance obligations will be performed and revenue related to upfront license
payments will be recognized. Revenue will be recognized using either a
proportionate performance or straight-line method. The Company recognizes
revenue using the proportionate performance method provided that the Company
can
reasonably estimate the level of effort required to complete its performance
obligations under an arrangement and such performance obligations are provided
on a best-efforts basis. Direct labor hours or full-time equivalents will
typically be used as the measure of performance. Under the proportionate
performance method, revenue related to upfront license payments is recognized
in
any period as the percent of actual effort expended in that period relative
to
total effort budgeted for all of its 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 the Company 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 payment is 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 our collaborator immediately upon the achievement of the defined
event
if the Company has no related performance obligations.
Reimbursement
of costs is recognized as revenue provided the provisions of EITF 99-19 are
met,
the amounts are determinable and collection of the related receivable is
reasonably assured.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
Royalty
revenue is recognized upon the sale of related products, provided that the
royalty amounts are fixed or
determinable,
collection of the related receivable is reasonably assured and the Company
has
no remaining performance obligations under the arrangement. If royalties are
received when the Company has remaining performance obligations, the royalty
payments would be attributed to the services being provided under the
arrangement and, therefore, would be recognized as such performance obligations
are performed under either the proportionate performance or straight-line
methods, as applicable, and in accordance with the policies described
above.
Amounts
received prior to satisfying the above revenue recognition criteria are recorded
as deferred revenue in the accompanying consolidated balance sheets. Amounts
not
expected to be recognized within one year of the balance sheet date are
classified as long-term deferred revenue. The estimate of the classification
of
deferred revenue as short-term or long-term is based upon management’s current
operating budget for the 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.
NIH
grant
and contract revenue is recognized as efforts are expended and as related
subsidized Project costs are incurred. The Company performs work under the
NIH
grants and contract on a best-effort basis. The NIH reimburses the Company
for
costs associated with Projects in the fields of virology and cancer, including
preclinical research, development and early clinical testing of a prophylactic
vaccine designed to prevent Human Immunodeficiency Virus (“HIV”) from becoming
established in uninfected individuals exposed to the virus, as requested by
the
NIH. Substantive at-risk milestone payments are uncommon in these arrangements,
but would be recognized as revenue on the same basis as the Substantive
Milestone Method.
Prior
to
the Company’s acquisition of Cytogen’s membership interest in PSMA LLC on April
20, 2006, both the Company and Cytogen were required to fund PSMA LLC equally
to
support ongoing research and development efforts that the Company conducted
on
behalf of PSMA LLC. The Company recognized payments for research and development
as revenue as services were performed. However, during the quarter ended March
31, 2006, the Members had not approved a work plan or budget for 2006.
Therefore, beginning on January 1, 2006, the Company had not been reimbursed
by
PSMA LLC for its services and the Company did not recognize revenue from PSMA
LLC for the quarter ended March 31, 2006. Beginning in the second quarter of
2006, PSMA LLC has become the Company’s wholly owned subsidiary and,
accordingly, the Company no longer recognizes revenue from PSMA
LLC.
Research
and Development Expenses
Research
and development expenses include costs directly attributable to the conduct
of
research and development programs, including the cost of salaries, payroll
taxes, employee benefits, materials, supplies, maintenance of research
equipment, costs related to research collaboration and licensing agreements,
the
purchase of in-process research and development, the cost of services provided
by outside contractors, including services related to the Company’s clinical
trials, clinical trial expenses, the full cost of manufacturing drug for use
in
research, 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 estimated rate at which patients
enter the trial, and the estimated period over which clinical investigators
or
contract research organizations provide services. At each period end, the
Company evaluates the accrued expense balance related to these activities based
upon information received from the suppliers and estimated progress towards
completion of the research or development objectives to ensure that the balance
is reasonably stated. Such estimates are subject to change as additional
information becomes available.
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,
the amount of non-cash compensation costs related to share-based payments
to employees and non-employees and the periods over which those costs are
expensed and the likelihood of realization of deferred tax assets.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
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, amounts of unrecognized compensation expense and
windfall tax benefits have been excluded from diluted net loss per share since
they would be anti-dilutive.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist of cash, cash equivalents, marketable securities and receivables
from Wyeth and the NIH. The Company invests its excess cash in taxable
auction rate securities, corporate notes and federal agency issues. The
Company has established guidelines that relate to credit quality,
diversification and maturity and that limit exposure to any one issue of
securities.
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, 2005 and 2006, the Company had invested
approximately $2,830 and $6,408 respectively, in funds with two major investment
companies and held approximately $64,242 and $5,539, 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 4).
At
December 31, 2005 and 2006, the Company’s investment in marketable securities in
the current assets section of the consolidated balance sheets included $45.2
million and $29.0 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.
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.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
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
|
Earlier
of life of improvement or 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. No
impairments occurred as of December 31, 2004, 2005 or 2006,.
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 14).
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 methylnaltrexone. For the year ended December
31, 2006, the primary sources of the Company’s revenues were Wyeth and research
grants and contract revenues from the NIH. For the years ended December 31,
2004
and 2005, the primary sources of the Company’s revenues were contract research
and development revenues from PSMA LLC and research grants and contract revenues
from the NIH. There can be no assurance that revenues from Wyeth or from
research grants and contract will continue. Beginning
on January 1, 2006, the Company was no longer reimbursed by PSMA LLC for its
services and the Company did not recognize revenue from PSMA LLC for the quarter
ended March 31, 2006. Beginning in the second quarter of 2006, PSMA LLC became
the Company’s wholly owned subsidiary and, accordingly, the Company no longer
recognizes revenue from PSMA LLC. Substantially
all of the Company’s accounts receivable at December 31, 2005 and December 31,
2006 were from the above-named sources.
Comprehensive
Loss
Comprehensive
loss represents the change in net assets of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. The Company’s comprehensive loss includes net loss adjusted for the
change
in
net unrealized gain or loss on marketable securities. The disclosures required
by Statement of Financial Accounting Standards No.130, “Reporting Comprehensive
Income” for the years ended December 31, 2004, 2005 and 2006 have been included
in the Statements of Stockholders’ Equity and Comprehensive Loss.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
Impact
of Recently Issued Accounting Standards
On
July
13, 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, Accounting
for Uncertainty in Income Taxes—an Interpretation of FASB Statement
109
(“FIN
48”). FIN 48 prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements all
material uncertain tax positions that the company has taken or expects to
take
on a tax return (including a decision whether to file or not to file a return
in
a particular jurisdiction). FIN 48 applies to income taxes and is not intended
to be applied by analogy to other taxes, such as sales taxes, value-add taxes,
or property taxes. Under FIN 48,
the
financial statements will reflect the tax benefit of an uncertain tax position
only if it is “more likely than not” that the position is sustainable based upon
its technical merits. The tax benefit of a qualifying position is the largest
amount of tax benefit that is greater than 50 percent likely of being realized
upon ultimate settlement with a taxing authority having full knowledge of
all
relevant information.
FIN 48
requires qualitative and quantitative disclosures, including discussion of
reasonably possible changes that might occur in the recognized tax benefits
over
the next 12 months; a description of open tax years by major jurisdictions;
and
a roll-forward of all unrecognized tax benefits, presented as a reconciliation
of the beginning and ending balances of the unrecognized tax benefits on
a
worldwide aggregated basis. FIN 48 is effective as of the beginning of fiscal
years that start after December 15, 2006. The Company has assessed
the impact of FIN 48 on its financial position and results of operations
as of
January 1, 2007, the date of its adoption of FIN 48. The only tax jurisdiction
to which the Company is subject is the United States. Open tax years relate
to
years in which unused net operating losses were generated or, if used, for
which
the statute of limitation for examination by taxing authorities has not expired.
Thus, upon adoption of FIN 48, the Company’s open tax years extend back to 1995,
with the exception of 1997, during which the Company reported net income..
The
Company has determined that the adoption of FIN 48 will have no impact on
its
financial position or results of operations.
On
September 13, 2006, the Securities and Exchange Commission (“SEC”) staff issued
Staff Accounting Bulletin No.
108
(“SAB 108”) in
order to
address the observed diversity of practice surrounding how public companies
quantify financial statement misstatements with respect to annual financial
statements. There have been two widely-recognized methods for quantifying
the
effects of financial statement errors: the “roll-over” method and the “iron
curtain” method. The roll-over method focuses primarily on the impact of a
misstatement on the income statement, including the reversing effect of prior
year misstatements, but its use can lead to the accumulation of misstatements
in
the balance sheet. The iron-curtain method, on the other hand, focuses primarily
on the effect of correcting the period-end balance sheet with less emphasis
on
the reversing effects of prior year errors on the income statement. In SAB
108,
the SEC staff established a “dual approach” that requires quantification of
financial statement errors under both the iron-curtain and the roll-over
methods. SAB 108 permits existing public companies to record the cumulative
effect of initially applying the “dual approach” in the first year ending after
November 15, 2006 by recording the necessary “correcting” adjustments to the
carrying values of assets and liabilities as of the beginning of that year
with
the offsetting adjustment recorded to the opening balance of retained earnings.
Additionally, the use of the “cumulative effect” transition method requires
detailed disclosure of the nature and amount of each individual error being
corrected through the cumulative adjustment and how and when it arose. SAB
108
is effective for financial statements for fiscal years ending after November
15,
2006. The adoption of SAB 108 by the Company had no impact on its financial
position or results of operations.
On
September 15, 2006, the FASB issued FASB Statement No. 157, “Fair Value
Measurements” (“FAS 157”), which addresses how companies should measure the fair
value of assets and liabilities when they are required to use a fair value
measure for recognition or disclosure purposes under generally accepted
accounting principles. FAS 157 does not expand the use of fair value in any
new
circumstances. Under FAS 157, fair value refers to the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the market in which the reporting
entity transacts. FAS 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing the asset
or
liability. In support of this principle, the standard establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions.
The fair value hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data, for example, the reporting
entity’s own data. FAS 157 requires disclosures intended to provide information
about (1) the extent to which companies measure assets and liabilities at fair
value, (2) the methods and assumptions used to measure fair value, and (3)
the
effect of fair value measures on earnings. The Company will adopt FAS 157 on
January 1, 2008. The Company does not expect the impact of the adoption of
FAS
157 to be material to its financial position or results of
operations.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
3.
Share-Based Payment Arrangements
On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004) “Share-Based Payment” (“SFAS No. 123(R)”), which is a
revision of SFAS 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”. The Company’s share-based payment arrangements with employees
includes non-qualified stock options, restricted stock (nonvested shares) and
shares issued under Employee Stock Purchase Plans, which are compensatory under
SFAS No. 123(R), as described below. The Company accounts for share-based
payment arrangements with non-employees, including non-qualified stock options
and restricted stock (nonvested shares), in accordance with Emerging Issues
Task
Force Issue No. 96-18 “Accounting for Equity Instruments that are Issued to
Other Than Employees for Acquiring, or in Connection with Selling, Goods or
Services”, which accounting is unchanged as a result of the Company’s adoption
of SFAS No. 123(R).
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 SFAS No.123 and, accordingly, accounted for share-based
compensation under the recognition and measurement principles of APB 25 and
related interpretations. Under APB 25, when stock options were issued to
employees with an exercise price equal to or greater than the market price
of
the underlying stock price on the date of grant, no compensation expense was
recognized in the financial statements and pro forma compensation expense in
accordance with SFAS No. 123 was only disclosed in the footnotes to the
financial statements.
The
Company adopted SFAS No. 123(R) using the modified prospective application,
under which compensation cost for all share-based awards that were unvested
as
of the adoption date and those newly granted or modified after the adoption
date
will be recognized over the related requisite service period, usually the
vesting period for awards with a service condition. The Company has made an
accounting policy decision to use the straight-line method of attribution of
compensation expense, under which the grant date fair value of share-based
awards is recognized on a straight-line basis over the total requisite service
period for the total award. Upon adoption of SFAS 123(R), the Company eliminated
$4,498 of unearned compensation, related to share-based awards granted prior
to
the adoption date that were unvested as of January 1, 2006, against additional
paid-in capital. The cumulative effect of adjustments upon adoption of SFAS
No.
123(R) was not material. Compensation expense recorded on a pro forma basis
for
periods prior to adoption of SFAS No. 123(R) is not revised and is not reflected
in the financial statements of those prior periods. Accordingly, there was
no
effect of the change from applying the original provisions of SFAS No. 123
on
net income, cash flow from operations, cash flows from financing activities
or
basic or diluted net loss per share of periods prior to the adoption of SFAS
No.
123(R).
The
following table summarizes the pro forma operating results and compensation
costs for the period prior to the Company’s adoption of SFAS No. 123(R) for the
Company’s incentive stock option and stock purchase plans, which have been
determined in accordance with the fair value-based method of accounting for
stock-based compensation as prescribed by SFAS No. 123. The fair value of
options granted to non-employees for services, determined using the
Black-Scholes option pricing model with the input assumptions presented below,
is included in the Company’s historical financial statements and expensed as
they vest. Net loss and pro forma net loss include $385 and $640 of non-employee
compensation expense in the years ended December 31, 2004 and 2005,
respectively.
|
|
Years
Ended December 31,
|
|
|
|
2004
|
|
2005
|
|
Net
loss, as reported
|
|
$
|
(42,018
|
)
|
$
|
(69,429
|
)
|
Add:
Stock-based employee compensation expense included in reported net
loss
|
|
|
452
|
|
|
1,878
|
|
Deduct:
Total share-based employee compensation expense determined under
fair
value based method for all awards
|
|
|
(8,479
|
)
|
|
(10,148
|
)
|
Pro
forma net loss
|
|
$
|
(50,045
|
)
|
$
|
(77,699
|
)
|
|
|
|
|
|
|
|
|
Net
loss per share amounts, basic and diluted:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(2.48
|
)
|
$
|
(3.33
|
)
|
Pro
forma
|
|
$
|
(2.96
|
)
|
$
|
(3.72
|
)
|
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
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. The exercise price of outstanding stock options is usually
equal to the fair value of the Company’s common stock on the dates of grant. The
89 Plan, the 93 Plan and the 96 Plan terminated in April 1994, December 2003
and
October 2006, respectively, and the 05 Plan will terminate in April 2015;
however, options granted before termination of the Plans will continue under
the
respective Plans until exercised, cancelled or expired.
Under
SFAS No. 123 and SFAS No. 123(R), the fair value of each option award granted
under the Plans is estimated on the date of grant using the Black-Scholes option
pricing model with the input assumptions noted in the following table. Ranges
of
assumptions for inputs are disclosed where the value of such assumptions varied
during the related period. Historical volatilities are based upon daily quoted
market prices of the Company’s common stock on The NASDAQ Stock Market LLC over
a period equal to the expected term of the related equity instruments. The
Company relies only on historical volatility since future volatility is expected
to be consistent with historical; historical volatility is calculated using
a
simple average calculation; historical data is available for the length of
the
option’s expected term and a sufficient number of price observations are used
consistently. Since the Company’s stock options are not traded on a public
market, the Company does not use implied volatility. The expected term of
options granted in 2006 is based upon the simplified method of calculating
expected term, as detailed in Staff Accounting Bulletin No. 107 (“SAB 107”) and
represents the period of time that options granted are expected to be
outstanding. Accordingly, the Company is using an expected term of 6.5 years
based upon the vesting period of the outstanding options. The Company has never
paid dividends and does not expect to pay dividends in the future. Therefore,
the Company’s dividend rate is zero. The risk-free rate for periods within the
expected term of the option is based on the U.S. Treasury yield curve in effect
at the time of grant.
|
|
For
the Years Ended
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Expected
volatility
|
|
92%
|
|
92%
- 97%
|
|
69%
- 94%
|
Expected
dividends
|
|
zero
|
|
zero
|
|
zero
|
Expected
term (in years)
|
|
5.0
|
|
6.5
|
|
6.5
|
Risk-free
rate
|
|
3.10%
- 3.92%
|
|
3.29%
- 3.98%
|
|
4.56%
- 5.06%
|
A
summary
of option activity under the Plans as of December 31, 2006 and changes during
the year then ended is presented below:
Options
|
|
Shares
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average
Remaining Contractual Term (Yr.)
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2006
|
|
|
4,099
|
|
$
|
14.60
|
|
|
|
|
|
|
|
Granted
|
|
|
844
|
|
|
24.59
|
|
|
|
|
|
|
|
Exercised
|
|
|
(345
|
)
|
|
7.81
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(103
|
)
|
|
19.25
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
4,495
|
|
$
|
16.89
|
|
|
5.89
|
|
$
|
41,619
|
|
Exercisable
at December 31, 2006
|
|
|
3,055
|
|
$
|
14.82
|
|
|
4.77
|
|
$
|
34,823
|
|
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
The
weighted average grant-date fair value of options granted under the Plans during
the years ended December 31, 2004, 2005 and 2006 was $12.46, $17.07 and $19.32,
respectively. The total intrinsic value of options exercised during the years
ended December 31, 2004, 2005 and 2006 was $2,595, $6,368 and $6,591,
respectively.
The
options granted under the Plans, described above, include 33, 113, 38, 75 and
145 non-qualified stock options granted to the Company’s Chief Executive Officer
on July 1, 2002, 2003, 2004, and 2005 and on July 3, 2006, respectively. Each
award cliff vests after nine years and eleven months from the respective grant
date. Vesting of a defined portion of each award will occur earlier if a defined
performance condition is achieved; more than one condition may be achieved
in
any period. Upon adoption of SFAS No. 123(R) on January 1, 2006, 21, zero,
8 and
36 options were unvested under the 2002, 2003, 2004 and 2005 awards,
respectively. In accordance with SFAS No. 123(R), at the end of each reporting
period, the Company will estimate the probability of achievement of each
performance condition and will use those probabilities to determine the
requisite service period of each award. The requisite service period for the
award is the shortest of the explicit or implied service periods. In the case
of
the Chief Executive Officer’s options, the explicit service period is nine years
and eleven months from the respective grant dates. The implied service periods
related to the performance conditions are the estimated times for each
performance condition to be achieved. Thus, compensation expense will be
recognized over the shortest estimated time for the achievement of performance
conditions for that award (assuming that the performance conditions will be
achieved before the cliff vesting occurs). To the extent that, for each of
the
2002, 2004, 2005 and 2006 awards, it is probable that 100% of the remaining
unvested award will vest based on achievement of the remaining performance
conditions, compensation expense will be recognized over the estimated periods
of achievement. To the extent that it is probable that less than 100% of the
award will vest based upon remaining performance conditions, the shortfall
will
be recognized through the remaining period to nine years and eleven months
from
the grant date (i.e., the remaining service period). Changes in the estimate
of
probability of achievement of any performance condition will be reflected in
compensation expense of the period of change and future periods affected by
the
change.
At
December 31, 2006, the estimated requisite service periods for the 2002, 2004
and 2006 awards, described above, were 1.0, 0.25-1.0 and 0.25-1.0 years,
respectively. The 2005 award was fully vested in 2006 upon the achievement
of
one of the performance milestones. For the year ended December 31, 2006, 11,
5,
36 and 88 options vested under the 2002, 2004, 2005 and 2006 awards,
respectively, which resulted in compensation expense of $87, $59, $610 and
$1,657, respectively. Prior to the adoption of SFAS No. 123(R), these awards
were accounted for as variable awards under APB 25 and, therefore, compensation
expense, based on the intrinsic value of the vested awards on each reporting
date, was recognized in the Company’s financial statements.
A
summary
of the status of the Company’s nonvested shares (i.e., restricted stock awarded
under the Plans which has not yet vested) as of December 31, 2006 and changes
during the year then ended is presented below:
Nonvested
Shares
|
|
Shares
|
|
Weighted
Average Grant-Date
Fair
Value
|
|
|
|
|
|
|
|
Nonvested
at January 1, 2006
|
|
|
242
|
|
$
|
19.47
|
|
Granted
|
|
|
241
|
|
|
24.69
|
|
Vested
|
|
|
(82
|
)
|
|
20.80
|
|
Forfeited
|
|
|
(13
|
)
|
|
21.26
|
|
Nonvested
at December 31, 2006
|
|
|
388
|
|
|
22.37
|
|
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 the Company’s current Chief Executive
Officer, of which 665 were non-qualified options (“NQO’s”) and 85 were ISO’s.
The ISO’s have been exercised. The NQO’s have a term of 14 years and entitle the
officer to purchase shares of common stock at $5.33 per share, which represented
the estimated fair market value, of the Company’s common stock at the date of
grant, as determined by the Board of Directors. As of January 1 and December
31,
2006, 475 and 231 NQO’s,
respectively, were outstanding and fully vested. The total intrinsic value
of
NQO’s under the Executive Plan exercised during the year ended December 31, 2006
was $4.7 million. At December 31, 2006, the weighted average remaining
contractual term of the NQO’s was 1.0 years and the aggregate intrinsic value
was $4.7 million.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
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 an
amount equal to up to 25% of their quarterly compensation, as such percentage
is
determined by the Board of Directors prior to the date of grant, to purchase
shares of the common stock at a price per share equal to the lesser of the
fair
market value of the common stock on the date of grant or 85% of the fair market
value on the date of exercise. Options are granted automatically on the first
day of each fiscal quarter and expire six months after the date of grant. The
Qualified Plan is not available 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 that 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.
The
fair
value of shares purchased under the Purchase Plans is estimated on the date
of
grant in accordance with FASB Technical Bulletin No. 97-1 “Accounting under
Statement 123 for Certain Employee Stock Purchase Plans with a Look-Back
Option”,
using the same option valuation model used for options granted under the Plans,
except that the assumptions noted in the following table were used for the
Purchase Plans:
|
|
For
the Years Ended
December
31,
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Expected
volatility
|
|
25%
- 39%
|
|
29%-
47%
|
|
37%
- 43%
|
Expected
dividends
|
|
zero
|
|
zero
|
|
zero
|
Expected
term
|
|
6
months
|
|
6
months
|
|
6
months
|
Risk-free
rate
|
|
0.93%
- 2.34%
|
|
2.53%
- 3.29%
|
|
3.25%
- 4.75%
|
Purchases
of common stock under the Purchase Plans during the year ended December 31,
2004, 2005 and 2006 are summarized as follows:
|
|
Qualified
Plan
|
|
Non-Qualified
Plan
|
|
|
|
Shares
Purchased
|
|
Price
Range
|
|
Weighted
Average
Grant-Date Fair Value
|
|
Shares
Purchased
|
|
Price
Range
|
|
Weighted
Average
Grant-Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
144
|
|
$
|
7.47
- $17.13
|
|
$
|
5.36
|
|
|
17
|
|
$
|
7.47
- $17.13
|
|
$
|
5.43
|
|
2005
|
|
|
130
|
|
|
13.60
- 24.67
|
|
|
7.07
|
|
|
27
|
|
|
13.60
- 24.67
|
|
|
7.08
|
|
2006
|
|
|
126
|
|
|
17.80
- 25.84
|
|
|
3.30
|
|
|
27
|
|
|
18.61
- 25.84
|
|
|
3.25
|
|
The
total
compensation expense of shares, granted to both employees and non-employees,
under all of the Company’s share-based payment arrangements that was recognized
in operations during the years ended December 31, 2004, 2005 and 2006
was:
|
|
Years
Ended December 31,
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
Recognized
as:
|
|
|
|
|
|
|
|
|
|
|
Research
and Development
|
|
$
|
595
|
|
$
|
1,237
|
|
$
|
5,814
|
|
General
and Administrative
|
|
|
242
|
|
|
1,281
|
|
|
6,840
|
|
Total
|
|
$
|
837
|
|
$
|
2,518
|
|
$
|
12,654
|
|
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
No
tax
benefit was recognized related to such compensation cost because the Company
had
a net loss for the periods and the related deferred tax assets were fully offset
by a valuation allowance. Accordingly, no amounts related to windfall tax
benefits have been reported in cash flows from operations or cash flows from
financing activities for the year ended December 31, 2006.
As
of
December 31, 2006, there was $15.1 million, $6.3 million and $25 of total
unrecognized compensation cost related to nonvested stock options under the
Plans, the nonvested shares and the Purchase Plans, respectively. Those costs
are expected to be recognized over weighted average periods of 1.6 years, 1.6
years and 0.5 months, respectively. Cash received from exercises under
all
share-based payment arrangements for the year ended December 31, 2006 was $7.1
million. No tax benefit was realized for the tax deductions from those option
exercises of the share-based payment arrangements because the Company had a
net
loss for the period and the related deferred tax assets were fully offset by
a
valuation allowance. The Company issues new shares of its common stock upon
share option exercise and share purchase.
In
applying the treasury stock method for the calculation of diluted earnings
per
share (“EPS”), amounts of unrecognized compensation expense and windfall tax
benefits are required to be included in the assumed proceeds in the denominator
of the diluted earnings per share calculation unless they are anti-dilutive.
The
Company incurred a net loss for the years ended December 31, 2004, 2005 and
2006
and, therefore, such amounts have not been included for those periods in the
calculation of diluted EPS since they would be anti-dilutive. Accordingly,
basic
and diluted EPS are the same for those periods. The Company has made an
accounting policy decision to calculate windfall tax benefits/shortfalls for
purposes of diluted EPS calculations, excluding the impact of pro forma deferred
tax assets. This policy decision will apply when the Company has net
income.
4.
Marketable Securities
The
Company considers its marketable securities to be “available-for-sale,” as
defined by Statement of Financial Accounting Standards No.115, “Accounting for
Certain Investments in Debt and Equity Securities,” and, accordingly, unrealized
holding gains and losses are excluded from operations and reported as a net
amount in a separate component of stockholders’ equity (see Note 2). The
following table summarizes the amortized cost basis, the aggregate fair value,
and gross unrealized holding gains and losses at December 31, 2005 and
2006:
|
|
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) see Note
2 -Marketable Securities
|
|
|
45,149
|
|
|
45,166
|
|
$
|
17
|
|
|
|
|
|
17
|
|
|
|
$
|
106,166
|
|
$
|
106,018
|
|
$
|
17
|
|
$
|
(165
|
)
|
$
|
(148
|
)
|
|
|
Amortized
|
|
Fair
|
|
Unrealized
Holding
|
|
|
|
Cost
Basis
|
|
Value
|
|
Gains
|
|
(Losses)
|
|
Net
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
less than one year:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
$
|
75,907
|
|
$
|
75,833
|
|
$
|
6
|
|
$
|
(80
|
)
|
$
|
(74
|
)
|
Government-sponsored
entities
|
|
|
9,000
|
|
|
8,979
|
|
|
|
|
|
(21
|
)
|
|
(21
|
)
|
Maturities
between one and five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt securities
|
|
|
20,366
|
|
|
20,319
|
|
|
|
|
|
(47
|
)
|
|
(47
|
)
|
Government-sponsored
entities
|
|
|
3,000
|
|
|
2,993
|
|
|
|
|
|
(7
|
)
|
|
(7
|
)
|
Maturities
greater than five years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
Bonds (ARS) see Note
2 -Marketable Securities
|
|
|
29,025
|
|
|
29,029
|
|
|
4
|
|
|
|
|
|
4
|
|
|
|
$
|
137,298
|
|
$
|
137,153
|
|
$
|
10
|
|
$
|
(155
|
)
|
$
|
(145
|
)
|
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
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 and 2006.
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
|
)
|
At At December
31, 2006:
|
|
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
|
|
$
|
78,944
|
|
$
|
(123
|
)
|
$
|
6,095
|
|
$
|
(4
|
)
|
$
|
85,039
|
|
$
|
(127
|
)
|
Government-sponsored
entities
|
|
|
11,972
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
11,972
|
|
|
(28
|
)
|
Total
|
|
$
|
90,916
|
|
$
|
(151
|
)
|
$
|
6,095
|
|
$
|
(4
|
)
|
$
|
97,011
|
|
$
|
(155
|
)
|
Corporate
debt securities. The
Company’s investments in corporate debt securities with unrealized losses at
December 31, 2006 include 29 securities with maturities of less than one year
($64,719 of the total fair value and $81 of the total unrealized losses in
corporate debt securities) and 11 securities with maturities between one and
two
years ($20,319 of the total fair value and $47 of the total unrealized losses
in
corporate debt securities). The severity of the unrealized losses (fair value
is
approximately 0.0013 percent to 0.69 percent less than cost) and duration of
the
unrealized losses (weighted average of 7.5 months) correlate with the short
maturities of the majority of these investments and with interest
rate increases during 2006, 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, 2006.
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, 2006.
5.
Accounts Receivable
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
National
Institutes of Health
|
|
$
|
3,265
|
|
$
|
1,697
|
|
Other
|
|
|
22
|
|
|
2
|
|
Total
|
|
$
|
3,287
|
|
$
|
1,699
|
|
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
6.
Fixed Assets
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
Computer
equipment
|
|
$
|
841
|
|
$
|
1,690
|
|
Machinery
and equipment
|
|
|
5,263
|
|
|
6,890
|
|
Furniture
and fixtures
|
|
|
671
|
|
|
726
|
|
Leasehold
improvements
|
|
|
4,241
|
|
|
4,950
|
|
Construction
in progress
|
|
|
946
|
|
|
6,361
|
|
|
|
|
11,962
|
|
|
20,617
|
|
Less,
accumulated depreciation and amortization
|
|
|
(7,806
|
)
|
|
(9,230
|
)
|
Total
|
|
$
|
4,156
|
|
$
|
11,387
|
|
7.
Accounts Payable and Accrued Expenses
|
|
December
31,
|
|
|
|
2005
|
|
2006
|
|
Accounts
payable
|
|
$
|
880
|
|
$
|
1,559
|
|
Accrued
consulting and clinical trial costs
|
|
|
6,721
|
|
|
7,404
|
|
Accrued
payroll and related costs
|
|
|
1,144
|
|
|
990
|
|
Legal
and professional fees
|
|
|
1,255
|
|
|
1,301
|
|
Other
|
|
|
238
|
|
|
598
|
|
Total
|
|
$
|
10,238
|
|
$
|
11,852
|
|
8.
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.
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 methylnaltrexone technology (see
Note 10). The Company issued a total of 686 shares of Common Stock to the
licensors, valued at $15,839, based upon the closing price of the Company’s
Common Stock on the date of the transaction of $23.09 per share.
In
connection with the adioption of SFAS 123(R), the Company eliminated $4,498
of
unearned compensation, related to share-based awards granted prior to the
adoption date that were unvested as of January 1, 2006, against additional
paid-in-capital.
9.
License
and Co-Development Agreement with Wyeth Pharmaceuticals
On
December 23, 2005, the Company entered into the Collaboration Agreement with
Wyeth (collectively, the “Parties”) for the purpose of developing and
commercializing methylnaltrexone, the Company’s lead investigational drug, for
the treatment of opioid-induced side effects, including constipation and
post-operative ileus, associated with chronic pain and in patients receiving
palliative care. The Collaboration Agreement involves three forms of
methylnaltrexone: (i) a subcutaneous form to be used in patients with
opioid-induced constipation; (ii) an intravenous form to be used in patients
with post-operative ileus and (iii) an oral form to be used in patients with
opioid-induced constipation.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
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 JSC is responsible for coordinating the key activities of Wyeth
and
the Company under the Collaboration Agreement. The JDC is responsible for
overseeing, coordinating and expediting the development of methylnaltrexone
by
the Parties. In addition, a Joint Commercialization Committee (“JCC”) was
established, composed of representatives of both Wyeth and us in number and
function according to each of our responsibilities. The JCC is responsible
for
facilitating open communication between Wyeth and us on matters relating to
the
commercialization of products.
Under
the
Collaboration Agreement, Progenics granted to Wyeth an exclusive, worldwide
license, even as to Progenics, to develop and commercialize methylnaltrexone.
Progenics is responsible for developing the subcutaneous and intravenous forms
in the United States, until regulatory approval. Progenics has transferred
to
Wyeth any existing supply agreements with third parties for methylnaltrexone
and
will sublicense any intellectual property rights to permit Wyeth to manufacture
methylnaltrexone, 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 methylnaltrexone. 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 form worldwide and the subcutaneous and intravenous forms
outside the U.S. In the event the JSC approves any formulation of
methylnaltrexone other than subcutaneous, intravenous or oral or any other
indication for the forms currently under development using the subcutaneous,
intravenous or oral forms of methylnaltrexone, Wyeth will be responsible for
development of such products, including conducting clinical trials and obtaining
and maintaining regulatory approval.
Wyeth
is
responsible for the commercialization of the subcutaneous, intravenous and
oral
forms, 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.
The
Company is
recognizing revenue in connection with the Collaboration Agreement under SAB
104
and will apply the Substantive Milestone Method (see Note 2). In accordance
with
EITF 00-21, all of the Company’s deliverables under the Collaboration
Agreement,
consisting of granting the license for methylnaltrexone, transfer of supply
contracts with third party manufacturers of methylnaltrexone, transfer of
know-how related to methylnaltrexone development and manufacturing, and
completion of development for the subcutaneous and intravenous forms in the
U.S., represent one unit of accounting since none of those components have
standalone value to Wyeth prior to regulatory approval of at least one product;
that unit of accounting comprises the development phase, through regulatory
approval, for the subcutaneous and intravenous forms in the U.S.
Within
five business days of execution of the Collaboration Agreement, Wyeth made
a
nonrefundable,
noncreditable upfront payment of $60 million, for which the Company deferred
revenue at December 31, 2005. Subsequently, the Company is recognizing revenue
for the upfront payment, based upon proportionate performance, over the
development period of the subcutaneous and
intravenous forms , through regulatory approval in the U.S. The Company expects
that period to extend through 2008. Since the Company has no obligation to
develop the subcutaneous and intravenous forms outside the U.S. or the oral
product at all and has no significant commercialization obligations for any
product, recognition of revenue for the upfront payment would not be required
during those periods, if they extend beyond the period of the Company’s
development obligations.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
Beginning
in January 2006, the Company is recognizing as
contract research and development revenue from collaborator, amounts received
from
Wyeth for reimbursement of the Company’s development expenses for
methylnaltrexone as incurred under the development plan agreed to between the
Company and Wyeth. In
addition to the upfront payment and reimbursement of the Company’s development
costs, Wyeth has made or will make the following payments to the Company: (i)
development and sales milestones and contingent payments, consisting of defined
nonrefundable, noncreditable payments, totaling $356.5 million, including
clinical and regulatory events and combined annual worldwide net sales, as
defined and (ii) sales royalties during each calendar year during the royalty
period, as defined, based on certain percentages of net sales in the U.S. and
worldwide. Upon achievement of defined substantive development milestones by
the
Company for the subcutaneous and intravenous forms in the U.S., the milestone
payments will be recognized as revenue. Recognition of revenue for developmental
contingent events related to the subcutaneous and intravenous forms 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.
During
the year ended December 31, 2006, the Company recognized $18.8 million of
revenue from the $60 million upfront payment and $34.6 million as reimbursement
for its out-of-pocket development costs, including its labor costs. In October
2006, the Company earned a $5.0 million milestone payment in connection with
the
start of a phase 3 clinical trial of intravenous methylnaltrexone for the
treatment of post-operative ileus, for which revenue was recognized in the
fourth quarter of 2006. As of December 31, 2006, relative to the $60 million
upfront license payment received from Wyeth, the Company has recorded $25.1
million and $16.1 million as short-term and long-term deferred revenue,
respectively, which is expected to be recognized as revenue through 2008. In
addition, at December 31, 2006, the Company recorded $1.9 million of short
term
deferred revenue related to payments we have received from Wyeth for development
costs.
The
Collaboration Agreement extends, unless terminated earlier, on a
country-by-country and product-by-product basis, until the last to expire
royalty period, as defined, for any product. Progenics may terminate the
Collaboration Agreement at any time upon 90 days of written notice to Wyeth
(30
days in the case of breach of a payment obligation) upon material breach that
is
not cured. Wyeth may, with or without cause, following the second anniversary
of
the first commercial sale, as defined, of the first commercial product in the
U.S., terminate the Collaboration Agreement by providing Progenics with at
least
360 days prior written notice of such termination. Wyeth may also terminate
the
agreement (i) upon 30 days written notice following one or more serious safety
or efficacy issues that arise, as defined, and (ii) at any time, upon 90 days
written notice of a material breach that is not cured by Progenics. Upon
termination of the Collaboration Agreement, the ownership of the license the
Company granted to Wyeth will depend on the party that initiates the termination
and the reason for the termination.
10.
Acquisition of Contractual Rights from Methylnaltrexone
Licensors
On
December 22, 2005, Progenics and Progenics Nevada acquired certain rights for
its lead investigational drug, methylnaltrexone, from several of its
licensors.
In
2001,
Progenics entered into an exclusive sublicense agreement with UR Labs, Inc.
(“URL”) (see Note 10(b)(v)) to develop and commercialize methylnaltrexone (the
“Methylnaltrexone Sublicense”) in exchange for rights to future payments
resulting from the Methylnaltrexone Sublicense. In 1989, URL obtained an
exclusive license to methylnaltrexone, as amended, from the University of
Chicago (“UC”) under an Option and License Agreement dated May 8, 1985, as
amended (the “URL-Chicago License”). In 2001, URL also entered into an agreement
with certain heirs of Dr. Leon Goldberg (the “Goldberg Distributees”), which
provided them with the right to receive payments based upon revenues received
by
URL from the development of the Methylnaltrexone Sublicense (the “URL-Goldberg
Agreement”).
On
December 22, 2005, Progenics and Progenics Nevada entered into an Agreement
and
Plan of Reorganization (the “Purchase Agreement”) by and among Progenics
Pharmaceuticals, Inc., Progenics Pharmaceuticals Nevada, Inc., UR Labs, Inc.
and
the shareholders of UR Labs, Inc. (the “URL Shareholders”), under which
Progenics Nevada acquired substantially all of the assets
of
URL, comprised of its rights under the URL-Chicago License, the Methylnaltrexone
Sublicense and the URL-Goldberg Agreement, thus assuming URL’s rights and
responsibilities under those agreements and extinguishing Progenics’ obligation
to make royalty and other payments to URL.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(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, totaling 286 shares of its common
stock, with the Securities and Exchange Commission using the shelf registration
process.
The
Company accounted for the acquisition of the rights described above from the
licensors, the only asset acquired, as an asset purchase. The acquired rights,
relate to the Methylnaltrexone Sublicense and the Company’s research and
development activities for methylnaltrexone, for which technological feasibility
has not yet been established, for which there is no identified alternative
future use and, which has not received regulatory approval for marketing.
Accordingly, the entire purchase price of $18.7 million was recorded as license
fees- research and development, as a separate line item in the Company’s 2005
Consolidated Statement of Operations.
11.
Commitments and Contingencies
a.
Operating Leases
As
of
December 31, 2006, the Company leases office and laboratory space under: (i)
a
non-cancelable sublease agreement (“Sublease”), (ii) a separate non-cancelable
direct lease agreement (“Direct Lease”) and (iii) an additional sublease that
converts to a direct lease (the “Additional Sublease”). The Sublease, as
amended, provides for fixed monthly rental expense of approximately $98 through
December 2009. The Direct Lease provides for fixed monthly rental expense of
approximately $57 through August 31, 2007, and approximately $66 through
December 31, 2009. The Direct Lease can be extended at the Company’s option for
two additional five-year terms. The Additional Sublease provides for a four
month rent-free period beginning April 1, 2006. Subsequently, the base monthly
rent for this space is $13 through June 30, 2010, $15 through June 30, 2011
and
$16 through June 29, 2012 and, under the converted direct lease, $16 through
December 31, 2014. Such amounts are recognized as rent expense on a
straight-line basis over the term of the respective leases. 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 August 2009.
As
of
December 31, 2006, future minimum annual payments under all operating lease
agreements are as follows:
Years
ending December 31,
|
|
Minimum
Annual
Payments
|
2007
|
|
$
2,353
|
2008
|
|
2,393
|
2009
|
|
2,362
|
2010
|
|
170
|
2011
|
|
187
|
Thereafter
|
|
583
|
Total
|
|
$
8,048
|
Rental
expense totaled approximately $1,657, $1,675 and $1,694 for the years ended
December 31, 2004, 2005 and 2006, respectively. For the year ended
December 31, 2004, the Company recognized amounts paid in excess of rental
expense of approximately
$8. For the years ended December 31, 2005 and 2006, the Company recognized
rent
expense in excess of amounts paid of $21 and $74, respectively. Additional
facility charges, including utilities, taxes and operating expenses, for the
years ended December 31, 2004, 2005 and 2006 were approximately $1,932, $2,257
and $2,932, respectively.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
b.
Licensing, Service and Supply Agreements of Progenics Pharmaceuticals,
Inc.
The
Company has entered into a variety of intellectual property-based license and
service agreements and a supply agreement for methylnaltrexone 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 $1,291, $22,375 and $1,825 for the years ended December
31, 2004, 2005 and 2006, respectively. In addition, as of December 31, 2006,
remaining payments, including amounts accrued, associated with milestones and
defined objectives as well as annual maintenance fees with respect to the
agreements referred to below total approximately $20,794.
i.
Columbia University
The
Company is a party to a license agreement with Columbia University under which
it obtained exclusive, worldwide rights to specified technology and materials
relating to CD4, an immune cell receptor. In general, the license agreement
terminates (unless
sooner terminated) upon the expiration of the last to expire of the licensed
patents, which is 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 ¾continued
(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.
(“Antigenics”), pursuant to which Aquila agreed to supply the Company with all
of its requirements for the QS-21TM
adjuvant
for use in ganglioside-based cancer vaccines, including GMK. QS-21 is the lead
compound in the Stimulon®
family
of adjuvants developed and owned by Aquila. In general, the license agreement
terminates upon the expiration of the last to expire of the licensed patents,
unless sooner terminated. In the U.S. the licensed patent will expire in
2008.
The
Company’s license agreement requires it to achieve development milestones. The
agreement states that the Company is required to have filed for marketing
approval of a drug by 2001 and to commence the manufacture and distribution
of a
drug by 2003. The Company has not achieved these milestones due to delays that
it believes could not have been reasonably avoided. The agreement provides
that
Aquila shall not unreasonably withhold consent to a reasonable 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. 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.
The
Company has received a written communication from Antigenics alleging that
Progenics is in default of certain of its obligations under the license
agreement and asserting that Antigenics has an interest in certain intellectual
property of Progenics. Progenics has responded in writing denying Antigenics’
allegations. The Company does not believe that this dispute will have any
material effect on it.
iv.
Development and License Agreement with PDL BioPharma, Inc. (formerly, Protein
Design Labs, Inc.)
The
Company has entered into a development and license agreement with PDL BioPharma,
Inc., or PDL, for the humanization by PDL of PRO 140. Pursuant to the agreement,
PDL granted the Company exclusive and nonexclusive worldwide licenses under
patents, patent applications and know-how relating to the humanized PRO 140.
In
general, the license agreement terminates on the later of 10 years from the
first commercial sale of a product developed under the agreement or the last
date on which there is an unexpired patent or a patent application that has
been
pending for less than ten years, unless sooner terminated. Thereafter the
license is fully paid. The last of the 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./ University of Chicago
In
2001,
the Company entered into an agreement with UR Labs to obtain worldwide exclusive
rights to intellectual property rights related to methylnaltrexone. UR Labs
had
exclusively licensed methylnaltrexone from the University of Chicago. In
consideration for the license, the Company paid a nonrefundable, noncreditable
license fee and was obligated to make additional payments upon the occurrence
of
defined milestones. On December 22, 2005, the Company entered into a series
of
agreements with UR Labs, which extinguished Progenics’ obligation to make
royalty and other payments to UR Labs (see Note 10). The Company will be
responsible to make certain payments to the University of Chicago, associated
with the methylnaltrexone product development and commercialization program,
which would have been made by UR Labs. In addition, in March 2006, the Company
entered into an agreement with the University of Chicago which gives the Company
the option to license certain of the University of Chicago’s intellectual
property over a defined option period.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
vi.
Hoffmann-LaRoche
On
December 23, 1997, the Company entered into an agreement (the “Roche
Agreement”) to conduct a research collaboration with F. Hoffmann-LaRoche Ltd and
Hoffmann-LaRoche, Inc. (collectively “Roche”) to identify novel HIV therapeutics
(the “Compound”). The Roche Agreement granted to Roche an exclusive worldwide
license to use certain of the Company’s intellectual property rights related to
HIV to develop, make, use and sell products resulting from the
collaboration.
In
March
2002, Roche exercised its right to discontinue funding the research being
conducted under the Roche Agreement. Discussions between Roche and the Company
resulted in an agreement by which the Company gained the exclusive rights to
develop and market the Compound, as defined. Roche is entitled to receive
certain milestone payments and royalties, as defined, provided Roche has not
elected its option to resume joint development and commercialization of the
Compound. As of December 31, 2006, Roche had not elected to resume its
option.
vii.
Cornell Research Foundation
The
Company is party to an Exclusive License Agreement with Cornell Research
Foundation, Inc. (“Cornell”) regarding a patent application (the “Patent”) which
is jointly owned by the Company and Cornell involving HIV. Under the agreement,
Cornell granted to the Company an exclusive worldwide license to Cornell’s
rights in the Patent and in further inventions and patents arising from research
and development conducted by the Company or its sublicensees under the
agreement. In consideration for Cornell granting the Exclusive License, the
Company paid an upfront license fee and a minimum royalty payment and will
make
defined future annual minimum royalty payments, milestone payments upon the
achievement of certain defined development and regulatory events and will pay
royalties on net sales, as defined of products arising from the Exclusive
License. If not terminated earlier, the agreement terminates upon the expiration
of the last valid claim, as defined, covering a product. Thereafter, the license
is fully-paid and royalty-free. Cornell may terminate the agreement if the
Company is in default of contractual payments or is in material breach of the
agreement that is not cured within 30 days of written notice. The Company may
terminate the agreement at any time upon 60 days written notice.
viii.
Mallinckrodt Inc.
In
connection with the Company’s Collaboration Agreement with Wyeth (see Note 9),
the Company’s agreement with Mallinckrodt has been transferred to Wyeth. In
March 2005, the Company entered into an agreement with Mallinckrodt Inc. for
the
supply of the bulk form of methylnaltrexone. The contract provided for
Mallinckrodt to supply product based on a rolling forecast to be provided by
the
Company to Mallinckrodt with respect to the Company’s anticipated needs and for
the Company’s purchase of product on specified pricing terms.
ix.
KMT Hepatech, Inc.
On
October 11, 2006 (the “Effective Date”), the Company and KMT Hepatech, Inc.
(“KMT”) entered into a Research Services Agreement (the “KMT Agreement”), under
which KMT will test compounds (“Compounds”), as defined, related to the
Company’s Hepatitis C Virus research program. In consideration for KMT’s
services, the Company made an upfront payment for certain defined services,
will
reimburse KMT for direct costs incurred by KMT in rendering the services and
will make additional payments upon the Company’s request for additional
services. The Company will also make one-time development milestone payments
upon the occurrence of defined events in respect of any Compound. In the event
that the Company terminates development of a Compound, certain of those
development milestone payments will be credited to the development milestones
achieved by the next Compound. The KMT Agreement will terminate upon the second
anniversary of the Effective Date unless terminated sooner. The parties may
extend the term of the KMT Agreement by mutual written consent. Either party
may
terminate the KMT Agreement upon 60 days of written notice to the other party.
In the event of default by either party, including non-performance, bankruptcy
or liquidation or dissolution, the non-defaulting party may terminate the KMT
Agreement upon 30 days written notice of such default which is not cured by
the
defaulting party.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
c.
Licensing and Collaboration Agreements of PSMA Development Company
LLC
In
connection with all the agreements discussed below, PSMA LLC, which became
the
Company’s wholly owned subsidiary on April 20, 2006 (see Note 12c, below) has
recognized milestone, license and annual maintenance fees, which are included
in
research and development expenses of PSMA LLC, totaling approximately $550,
$2,100 and $200 for the years ended December
31, 2004, 2005 and 2006, respectively. In addition, as of December 31, 2006,
remaining payments associated with milestones and defined objectives with
respect to the agreements referred to below total approximately
$26,750.
i.
Amgen Fremont, Inc. (formerly 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 PSMA LLC’s proprietary PSMA antigen. In consideration for the
license, PSMA LLC paid a nonrefundable, non-creditable license fee and is
obligated to make additional payments upon the occurrence
of defined milestones associated with the development and commercialization
program for products incorporating an antibody generated utilizing the XenoMouse
technology. This agreement may be terminated, after an opportunity to cure,
by
Abgenix for cause upon 30 days prior written notice. PSMA LLC has the right
to
terminate this agreement upon 30 days prior written notice. If not terminated
early, this agreement continues until the later of the expiration of the
XenoMouse technology patents that may result from pending patent applications
or
seven years from the first commercial sale of the products.
ii.
AlphaVax Human Vaccines
In
September 2001, PSMA LLC entered into a worldwide exclusive license agreement
with AlphaVax Human Vaccines to use the AlphaVax Replicon Vector system to
create a therapeutic prostate cancer vaccine incorporating PSMA LLC ’s
proprietary PSMA antigen. In consideration for the license, PSMA LLC paid a
nonrefundable, noncreditable license fee and is 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 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 expire in 2015;
however, patent applications filed in the U.S. and internationally that PSMA
LLC
has also licensed and patent term extensions may extend the period of PSMA
LLC’s
license rights, when and if such patent applications are allowed and issued
or
patent term extensions are granted.
iii.
Seattle Genetics, Inc.
In
June
2005, PSMA
LLC
entered
into a collaboration agreement (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
sublicense the ADC Technology to a third-party to manufacture the ADC’s for both
research and commercial use. PSMA
LLC
made
a
technology access payment to SGI upon execution of the SGI Agreement and will
make additional maintenance payments during the term of the SGI Agreement.
In
addition, PSMA
LLC
will
make
payments upon the achievement of certain defined milestones and will pay
royalties to SGI and its Licensors, as applicable, on a percentage of net sales,
as defined. In the event that SGI provides materials or services to PSMA
LLC
under
the
SGI Agreement, SGI will receive supply and/or labor cost payments from
PSMA
LLC
at
agreed-upon rates.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
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.
d.
Consulting Agreements
As
part
of the Company’s research and development efforts, it enters into consulting
agreements with external scientific specialists (“Scientists”). These agreements
contain various terms and provisions, including fees to be paid by the Company
and royalties, in the event of future sales, and milestone payments, upon
achievement of defined events, payable by the Company. Certain Scientists,
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 $641, $877 and $893 for the years ended December 31,
2004, 2005 and 2006, respectively. For the years ended December 31, 2004, 2005
and 2006, such expenses include the fair value of stock options granted during
2004, 2005 and 2006, which were fully vested at grant date, of approximately
$385, $640 and $620, respectively.
12.
PSMA Development Company LLC
a. Introduction
PSMA
LLC was formed on June 15, 1999 as a joint venture between the Company and
Cytogen (each a “Member” and collectively, the “Members”) for the purposes of
conducting research, development, manufacturing and marketing of products
related to prostate-specific membrane antigen (“PSMA”). Prior to the Company’s
acquisition of Cytogen’s membership interest (see below), each Member had equal
ownership and equal representation on PSMA LLC’s management committee and equal
voting rights and rights to profits and losses of PSMA LLC. In connection with
the formation of PSMA LLC, the Members entered into a series of agreements,
including an LLC Agreement and a Licensing Agreement (collectively, the
“Agreements”), which generally defined the rights and obligations of each
Member, including the obligations of the Members with respect to capital
contributions
and funding of research and development of PSMA LLC for each coming year.
b.
Contract Research and Development Revenue from PSMA LLC
Amounts
received by the Company from PSMA LLC, during the years ended December 31,
2004
and 2005, as payment for research and development services and reimbursement
of
related costs in excess of the initial $3.0 million provided by the Company
were
recognized as contract research and development revenue. For the years ended
December 31, 2004 and 2005, such amounts totaled approximately $2.0 million
and
$1.0 million, respectively. According to the Agreements, the Company was allowed
to directly pursue and obtain government grants directed to the conduct of
research utilizing PSMA related technologies. In consideration of the Company’s
initial incremental capital contribution of $3.0 million of joint venture
research expenditures, the Company was permitted to retain $3.0 million of
such
government grant funding. To the extent that the Company retained grant revenue
in respect of work for which it had also been compensated by PSMA LLC, the
remainder of the $3.0 million to be retained by the Company was reduced and
the
Company recorded an adjustment in its financial statements to reduce both joint
venture losses and contract revenue from PSMA LLC. Such adjustments were $762
and $1,311 for the years ended December 31, 2004 and 2005, respectively,
and
$3.0
million
cumulatively through December 31, 2005. During 2006, prior to the acquisition
by
the Company of Cytogen’s membership interest in PSMA LLC on April 20, 2006 (see
below), the Members had not approved a work plan or budget for 2006 and,
therefore, the Company was not reimbursed for its services to PSMA LLC and
did
not recognize revenue from PSMA LLC. Subsequent to the acquisition, PSMA LLC
has
become the Company’s wholly owned subsidiary.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
c.
Acquisition of Cytogen’s Membership Interest
On
April 20,
2006,
the
Company acquired Cytogen’s 50% membership interest in PSMA LLC, including
Cytogen’s economic interests in capital, profits, losses and distributions of
PSMA LLC and its voting rights, in exchange for a cash payment of $13.2 million
(the “Acquisition”). The Company also paid $259 in transaction costs related to
the Acquisition. In
connection with the Acquisition, the Licensing Agreement entered into by the
Members upon the formation of PSMA LLC,
under
which Cytogen had granted a license to PSMA LLC for certain PSMA-related
intellectual property, was amended. Prior to the Acquisition, each of the
Members owned 50% of the rights to such intellectual property through their
interests in PSMA LLC. Under the amended License Agreement, Cytogen granted
an
exclusive, even as to Cytogen, worldwide license to PSMA LLC to use certain
PSMA-related intellectual property in a defined field (the “Amended License
Agreement”). In addition, under the terms of the Amended License Agreement, PSMA
LLC will pay to Cytogen upon the achievement of certain defined regulatory
and
sales milestones, if ever, amounts totaling $52 million, and will pay royalties,
if ever, on net sales, as defined. Since
the
likelihood of such payments was remote at the date of the Acquisition, given
that PSMA LLC’s research projects were in the pre-clinical phase at that time,
such amounts, if any, in the future will be recorded as an additional expense
when the contingency is resolved and consideration becomes issuable.
Subsequent
to the Acquisition, PSMA LLC has continued as a wholly owned subsidiary of
Progenics. Cytogen has no further involvement or obligations in PSMA LLC or
in
the PSMA-related research and development conducted by Progenics. The Company
will no longer recognize revenue from PSMA LLC or Loss in Joint Venture.
Prior
to
the Acquisition, PSMA LLC’s intellectual property, which was equally owned by
each of the Members, was used in two research and development programs, a
vaccine program and a monoclonal antibody program, both of which were in the
pre-clinical or early clinical phases of development at the time of the
Acquisition. Progenics conducted most of the research and development for those
two programs prior to the Acquisition and, subsequent to the Acquisition, is
continuing those research and development activities and will incur all the
expenses of those programs.
Since
the
acquired intellectual property and license rights relate to research and
development projects that, at the acquisition date, had not reached
technological feasibility, did not have an identified alternative future use
and
had not received regulatory approval from the U.S. Food and Drug Administration
for marketing, at the acquisition date the
Company charged $13,209
to research and development expense after consideration of the transaction
costs
and net tangible assets acquired.
13.
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
$723, $875 and $1,135 to the Amended Plan for the years ended December 31,
2004,
2005 and 2006, respectively. No discretionary contributions were made during
those years.
14.
Income Taxes
The
Company accounts for income taxes using the liability method in accordance
with
Statement of Financial Accounting Standards No.109, “Accounting for Income
Taxes” (“SFAS 109”). Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for
financial reporting purposes and the amounts used for income tax
purposes.
There
is
no provision or benefit for federal or state income taxes for the years ended
December 31, 2004 or 2006. For the year ended December 31, 2005, although the
Company had a pre-tax net loss of $69.2 million, it had taxable income due
primarily to the $60 million upfront payment received from Wyeth (see Note
9)
and the $18.4 million cash and common stock paid to UR Labs and the Goldberg
Distributees (see Note 10), which were treated differently for book and tax
purposes. For book purposes, payments made to UR Labs and the Goldberg
Distributees were expensed in the period the payments were made. However, for
tax purposes, the UR Labs transaction was a tax-free reorganization and will
never result in a deduction for tax purposes and the payments to the Goldberg
Distrbutees have been capitalized as an intangible license asset and will be
deducted for tax purposes over a fifteen year period. For book purposes, the
Company deferred recognition of revenue for the $60 million at December 31,
2005
and is recognizing revenue for that amount over the development period for
MNTX
(expected to end 2008). For tax purposes, since cash was received, the $60
million was included in taxable income in 2005.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
The
Company has completed a calculation, under Internal Revenue Code Section 382,
the results of which indicate that past ownership changes will limit utilization
of net operating loss carryforwards (“NOL’s”) in the future. However, the
Company had sufficient NOL’s at December 31, 2005 to fully offset 2005 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,
|
|
|
|
2005
|
|
2006
|
|
Depreciation
and amortization
|
|
$
|
1,033
|
|
$
|
6,030
|
|
R&D
tax credit carry-forwards
|
|
|
5,692
|
|
|
5,417
|
|
AMT
credit carry-forwards
|
|
|
412
|
|
|
306
|
|
Net
operating loss carry-forwards
|
|
|
49,134
|
|
|
55,882
|
|
Deferred
revenue
|
|
|
23,909
|
|
|
17,171
|
|
Stock
compensation
|
|
|
|
|
|
4,162
|
|
Other
items
|
|
|
3,433
|
|
|
2,930
|
|
|
|
|
83,613
|
|
|
91,898
|
|
Valuation
allowance
|
|
|
(83,613
|
)
|
|
(91,898
|
)
|
|
|
$
|
—
|
|
$
|
—
|
|
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,
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
U.S.
Federal statutory rate
|
|
(34)%
|
|
(34)%
|
|
(34)%
|
State
income taxes, net of Federal benefit
|
|
(5.8)
|
|
(4.9)
|
|
(5.8)
|
Research
and experimental tax credit
|
|
(2.4)
|
|
(1.0)
|
|
(6.4)
|
UR
Labs license purchase
|
|
|
|
5.7
|
|
|
Change
in valuation allowance
|
|
42.1
|
|
34.4
|
|
43.1
|
Other
|
|
0.1
|
|
0
|
|
3.1
|
Income
tax provision
|
|
0%
|
|
0.2%
|
|
0%
|
As
of
December 31, 2006, the Company had available, for tax return purposes, unused
NOL’s of approximately $151.7 million, which will expire in various years from
2018 to 2026, $11.5 million of which were generated from deductions that, when
realized, will reduce taxes payable and will increase paid-in-capital. In
accordance with FIN 48, Accounting
for Uncertainty in Income Taxes,
which
the Company adopted on January 1, 2007 (see Note
2 - Impact of Adoption of Recently Issued Accounting
Pronouncements),
the
Company has determined that the adoption of FIN 48 will have no impact on its
financial position or results of operations.
In
connection with the Company’s adoption of SFAS No. 123(R) “Share-Based Payment”
on January 1, 2006 (see Note 3), the Company has elected to implement the short
cut method of calculating its pool of windfall tax benefits. Accordingly, the
Company’s pool of windfall tax benefits on January 1, 2006 was zero because it
had NOL’s since inception and, therefore, had never recognized any net increases
in additional paid-in capital in the Company’s annual financial statements
related to tax benefits from stock-based employee compensation during fiscal
periods subsequent to the adoption of SFAS No.123 but prior to the adoption
of
SFAS No.123(R).
The
Company’s research and experimental (“R&E”) tax credit carry-forwards of
approximately $5.4 million at December 31, 2006 expire in various years from
2007 to 2026. During the year ended December 31, 2006, research and experimental
tax credit carry-forwards of approximately $51 expired.
PROGENICS
PHARMACEUTICALS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS ¾continued
(amounts
in thousands, except per share amounts or unless otherwise
noted)
15.
Net Loss Per Share
The
Company’s basic net loss per share amounts have been computed by dividing net
loss by the weighted-average number of common shares outstanding during the
period. For the years ended December 31, 2004, 2005 and 2006, 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
|
|
2004:
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(42,018
|
)
|
|
16,911
|
|
$
|
(2.48
|
)
|
2005:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(69,429
|
)
|
|
20,864
|
|
$
|
(3.33
|
)
|
2006:
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$
|
(21,618
|
)
|
|
25,669
|
|
$
|
(0.84
|
)
|
For
the
years ended December 31, 2004, 2005 and 2006, 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,
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
Weighted
Average
Number
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Number
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Number
|
|
Weighted
Average
Exercise
Price
|
|
Options
and warrants
|
|
|
4,378
|
|
$
|
10.15
|
|
|
4,640
|
|
$
|
13.08
|
|
|
4,663
|
|
$
|
15.13
|
|
Restricted
stock
|
|
|
83
|
|
|
|
|
|
204
|
|
|
|
|
|
312
|
|
|
|
|
Total
|
|
|
4,461
|
|
|
|
|
|
4,844
|
|
|
|
|
|
4,975
|
|
|
|
|
16.
Unaudited Quarterly Results
Summarized
quarterly financial data for the years ended December 31, 2005 and 2006 are
as
follows:
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Ended
March
31,
2006
(unaudited)
|
|
Quarter
Ended
June
30,
2006
(unaudited)
|
|
Quarter
Ended
September
30,
2006
(unaudited)
|
|
Quarter
Ended
December
31,
2006
(unaudited)
|
|
Revenue
|
|
$
|
11,001
|
|
$
|
19,122
|
|
$
|
17,848
|
|
$
|
21,935
|
|
Net
loss
|
|
|
(2,643
|
)
|
|
(14,328
|
)
|
|
(2,935
|
)
|
|
(1,712
|
)
|
Net
loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
(0.10
|
)
|
|
(0.56
|
)
|
|
(0.11
|
)
|
|
(0.07
|
)
|
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, 2007
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,
2007
|
Kurt
W. Briner
|
|
|
|
/s/
PAUL F. JACOBSON
|
|
Co-Chairman
|
March 15,
2007
|
Paul
F. Jacobson
|
|
|
|
/s/
PAUL J. MADDON, M.D., PH.D.
|
|
Chief
Executive Officer, Chief Science
|
March 15,
2007
|
Paul
J. Maddon, M.D., Ph.D.
|
|
Officer
and Director (Principal Executive Officer)
|
|
/s/
CHARLES A. BAKER
|
|
Director
|
March 15,
2007
|
Charles
A. Baker
|
|
|
|
/s/
MARK F. DALTON
|
|
Director
|
March 15,
2007
|
Mark
F. Dalton
|
|
|
|
/s/
STEPHEN P. GOFF, PH.D.
|
|
Director
|
March 15,
2007
|
Stephen
P. Goff, Ph.D.
|
|
|
|
/s/
DAVID A. SCHEINBERG, M.D., PH.D.
|
|
Director
|
March 15,
2007
|
David
A. Scheinberg, M.D., Ph.D.
|
|
|
|
/s/
NICOLE S. WILLIAMS
|
|
Director
|
March
15, 2007
|
Nicole
S. Williams
|
|
|
|
/s/
ROBERT A. MCKINNEY, CPA
|
|
Chief
Financial Officer, Senior Vice President,
|
March 15,
2007
|
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‡
|
10.26(15)
†
|
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.
|
10.27(15)
†
|
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' Methylnaltrexone 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
|
10.28
(16)
|
Membership
Interest Purchase Agreement dated April 20, 2006 by and between Progenics
Pharmaceuticals, Inc. and Cytogen Corporation.
|
10.29
(16) †
|
Amended
and Restated PSMA/PSMP License Agreement dated April 20, 2006 by
and among
Progenics Pharmaceuticals, Inc., Cytogen Corporation and PSMA Development
Company LLC.
|
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.
(15)
Previously
filed as an exhibit to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2005, incorporated by reference herein.
(16)
Previously
filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ending June 30, 2006, and incorporated by reference
herein.
† Confidential
treatment granted as to certain portions, which portions are omitted and filed
separately with the Commission.
‡ Management
contract or compensatory plan or arrangement.